[House Report 105-149]
[From the U.S. Government Publishing Office]



105th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 1st Session                                                    105-149
_______________________________________________________________________


 
                      BALANCED BUDGET ACT OF 1997

                               ----------                              

                              R E P O R T

                                 of the

                        COMMITTEE ON THE BUDGET
                        HOUSE OF REPRESENTATIVES

                              to accompany

                               H.R. 2015

A BILL TO PROVIDE FOR RECONCILIATION PURSUANT TO SUBSECTIONS (b)(1) AND 
   (c) OF SECTION 105 OF THE CONCURRENT RESOLUTION ON THE BUDGET FOR 
                            FISCAL YEAR 1998

                             together with

                     ADDITIONAL AND MINORITY VIEWS




 June 24, 1997.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed



                       BALANCED BUDGET ACT OF 1997


105th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 1st Session                                                    105-149
_______________________________________________________________________


                      BALANCED BUDGET ACT OF 1997

                               __________

                              R E P O R T

                                 of the

                        COMMITTEE ON THE BUDGET

                        HOUSE OF REPRESENTATIVES

                              to accompany

                               H.R. 2015

A BILL TO PROVIDE FOR RECONCILIATION PURSUANT TO SUBSECTIONS (b)(1) AND 
   (c) OF SECTION 105 OF THE CONCURRENT RESOLUTION ON THE BUDGET FOR 
                            FISCAL YEAR 1998

                             together with

                     ADDITIONAL AND MINORITY VIEWS




 June 24, 1997.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed


                        COMMITTEE ON THE BUDGET

                     JOHN R. KASICH, Ohio, Chairman
DAVID L. HOBSON, Ohio,               JOHN M. SPRATT, Jr., South 
  Speaker's Designee                     Carolina,
CHRISTOPHER SHAYS, Connecticut         Ranking Minority Member
WALLY HERGER, California             JIM McDERMOTT, Washington,
JIM BUNNING, Kentucky                  Leadership Designee
LAMAR S. SMITH, Texas                ALAN B. MOLLOHAN, West Virginia
DAN MILLER, Florida                  JERRY F. COSTELLO, Illinois
BOB FRANKS, New Jersey               PATSY T. MINK, Hawaii
NICK SMITH, Michigan                 EARL POMEROY, North Dakota
BOB INGLIS, South Carolina           LYNN C. WOOLSEY, California
SUSAN MOLINARI, New York             LUCILLE ROYBAL-ALLARD, California
JIM NUSSLE, Iowa                     LYNN N. RIVERS, Michigan
PETER HOEKSTRA, Michigan             LLOYD DOGGETT, Texas
JOHN SHADEGG, Arizona                BENNIE G. THOMPSON, Mississippi
GEORGE P. RADANOVICH, California     BENJAMIN L. CARDIN, Maryland
CHARLES F. BASS, New Hampshire       DAVID MINGE, Minnesota
MARK W. NEUMANN, Wisconsin           SCOTTY BAESLER, Kentucky
MIKE PARKER, Mississippi             KEN BENTSEN, Texas
BOB EHRLICH, Maryland                JIM DAVIS, Florida
GIL GUTKNECHT, Minnesota             BRAD SHERMAN, California
VAN HILLEARY, Tennessee              ROBERT A. WEYGAND, Rhode Island
KAY GRANGER, Texas                   EVA M. CLAYTON, North Carolina
JOHN E. SUNUNU, New Hampshire
JOSEPH PITTS, Pennsylvania

                           Professional Staff

                     Richard E. May, Staff Director
       Thomas S. Kahn, Minority Staff Director and Chief Counsel


                            C O N T E N T S

                              ----------                              

                          Legislative Language

                                                                   Page
Title I--Committee on Agriculture................................     2
Title II--Committee on Banking and Financial Services............     5
Title III--Committee on Commerce--NonMedicare....................     6
Title IV--Committee on Commerce--Medicare........................    72
Title V--Committee on Education and the Workforce................   228
Title VI--Committee on Government Reform and Oversight...........   263
Title VII--Committee on Transportation and Infrastructure........   271
Title VIII--Committee on Veterans' Affairs.......................   272
Title IX--Committee on Ways and Means--NonMedicare...............   278
Title X--Committee on Ways and Means--Medicare...................   303

                            Report Language

Introduction.....................................................   495
Title I--Committee on Agriculture................................   505
Title II--Committee on Banking and Financial Services............   524
Title III--Committee on Commerce--NonMedicare....................   529
Title IV--Committee on Commerce--Medicare........................   645
Title V--Committee on Education and the Workforce................   977
Title VI--Committee on Government Reform and Oversight...........  1091
Title VII--Committee on Transportation and Infrastructure........  1125
Title VIII--Committee on Veterans' Affairs.......................  1135
Title IX--Committee on Ways and Means--NonMedicare...............  1197
Title X--Committee on Ways and Means--Medicare...................  1382
Miscellaneous House Report Requirements..........................  1619
Additional and Minority Views....................................  1625



105th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 1st Session                                                    105-149
_______________________________________________________________________


PROVIDING FOR RECONCILIATION PURSUANT TO SUBSECTIONS (B)(1) AND (C) OF 
SECTION 105 OF THE CONCURRENT RESOLUTION ON THE BUDGET FOR FISCAL YEAR 
                                  1998

_______________________________________________________________________


 June 24, 1997.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

 Mr. Kasich, from the Committee on the Budget, submitted the following

                              R E P O R T

                             together with

                     ADDITIONAL AND MINORITY VIEWS

                        [To accompany H.R. 2015]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on the Budget, to whom reconciliation 
recommendations were submitted pursuant to subsections (b)(1) 
and (c) of section 105 of House Concurrent Resolution 84, the 
concurrent resolution on the budget for fiscal year 1998, 
having considered the same, reports favorably thereon without 
amendment and recommends that the bill do pass.

SECTION 1. SHORT TITLE.

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

SEC. 2. TABLE OF CONTENTS.

Title I--Committee on Agriculture.
Title II--Committee on Banking and Financial Services.
Title III--Committee on Commerce--NonMedicare.
Title IV--Committee on Commerce--Medicare.
Title V--Committee on Education and the Workforce.
Title VI--Committee on Government Reform and Oversight.
Title VII--Committee on Transportation and Infrastructure.
Title VIII--Committee on Veterans' Affairs.
Title IX--Committee on Ways and Means--NonMedicare.
Title X--Committee on Ways and Means--Medicare.

                   TITLE I--COMMITTEE ON AGRICULTURE

SEC. 1001. EXEMPTION.

  Section 6(o) of the Food Stamp Act of 1977 (7 U.S.C. 2015(o)) 
is amended--
          (1) in paragraph (2)(D), by striking ``or (5)'' and 
        inserting ``(5), or (6)'';
          (2) by redesignating paragraphs (5) and (6) as 
        paragraphs (6) and (7), respectively; and
          (3) by inserting after paragraph (4) the following 
        new paragraph:
          ``(5) 15-percent exemption.--
                  ``(A) Definitions.--In this paragraph:
                          ``(i) Caseload.--The term `caseload' 
                        means the average monthly number of 
                        individuals receiving food stamps 
                        during the 12-month period ending the 
                        preceding June 30.
                          ``(ii) Covered individual.--The term 
                        `covered individual' means a food stamp 
                        recipient, or an individual denied 
                        eligibility for food stamp benefits 
                        solely due to paragraph (2), who--
                                  ``(I) is not eligible for an 
                                exception under paragraph (3);
                                  ``(II) does not reside in an 
                                area covered by a waiver 
                                granted under paragraph (4);
                                  ``(III) is not complying with 
                                subparagraph (A), (B), or (C) 
                                of paragraph (2);
                                  ``(IV) is not in the first 3 
                                months of eligibility under 
                                paragraph (2); and
                                  ``(V) is not receiving 
                                benefits under paragraph (6).
                  ``(B) General rule.--Subject to subparagraphs 
                (C) through (F), a State agency may provide an 
                exemption from the requirements of paragraph 
                (2) for covered individuals.
                  ``(C) Fiscal year 1998.--Subject to 
                subparagraph (E), for fiscal year 1998, a State 
                agency may provide a number of exemptions such 
                that the average monthly number of the 
                exemptions in effect during the fiscal year 
                does not exceed 15 percent of the number of 
                covered individuals in the State in fiscal year 
                1998, as estimated by the Secretary, based on 
                the survey conducted to carry out section 16(c) 
                for fiscal year 1996 and such other factors as 
                the Secretary considers appropriate due to the 
                timing and limitations of the survey.
                  ``(D) Subsequent fiscal years.--Subject to 
                subparagraphs (E) and (F), for fiscal year 1999 
                and each subsequent fiscal year, a State agency 
                may provide a number of exemptions such that 
                the average monthly number of the exemptions in 
                effect during the fiscal year does not exceed 
                15 percent of the number of covered individuals 
                in the State, as estimated by the Secretary 
                under subparagraph (C), adjusted by the 
                Secretary to reflect changes in the State's 
                caseload and the Secretary's estimate of 
                changes in the proportion of food stamp 
                recipients covered by waivers granted under 
                paragraph (4).
                  ``(E) Caseload adjustments.--The Secretary 
                shall adjust the number of individuals 
                estimated for a State under subparagraph (C) or 
                (D) during a fiscal year if the number of food 
                stamp recipients in the State varies by a 
                significant number from the caseload, as 
                determined by the Secretary.
                  ``(F) Exemption adjustments.--During fiscal 
                year 1999 and each subsequent fiscalyear, the 
Secretary shall increase or decrease the number of individuals who may 
be granted an exemption by a State agency to the extent that the 
average monthly number of exemptions in effect in the State for the 
preceding fiscal year is greater or less than the average monthly 
number of exemptions estimated for the State agency during such 
preceding fiscal year.
                  ``(G) Reporting requirement.--A State agency 
                shall submit such reports to the Secretary as 
                the Secretary determines are necessary to 
                ensure compliance with this paragraph.''.

SEC. 1002. ADDITIONAL FUNDING FOR EMPLOYMENT AND TRAINING.

  (a) In General.--Section 16(h) of the Food Stamp Act of 1977 
(7 U.S.C. 2025(h)) is amended--
          (1) by striking paragraph (1) and inserting the 
        following new paragraph:
          ``(1) In general.--
                  ``(A) Amounts.--To carry out employment and 
                training programs, the Secretary shall reserve 
                for allocation to State agencies, to remain 
                available until expended, from funds made 
                available for each fiscal year under section 
                18(a)(1) the amount of--
                          ``(i) for fiscal year 1996, 
                        $75,000,000;
                          ``(ii) for fiscal year 1997, 
                        $79,000,000;
                          ``(iii) for fiscal year 1998, 
                        $221,000,000;
                          ``(iv) for fiscal year 1999, 
                        $224,000,000;
                          ``(v) for fiscal year 2000, 
                        $226,000,000;
                          ``(vi) for fiscal year 2001, 
                        $228,000,000; and
                          ``(vii) for fiscal year 2002, 
                        $210,000,000.
                  ``(B) Limitations.--The Secretary shall 
                ensure that--
                          ``(i) the funds provided in this 
                        subparagraph shall not be used for food 
                        stamp recipients who receive benefits 
                        under a State program funded under part 
                        A of title IV of the Social Security 
                        Act (42 U.S.C. 601 et seq.); and
                          ``(ii) not less than 75 percent of 
                        the funds provided in this subparagraph 
                        shall be used by a State agency for the 
                        employment and training of food stamp 
                        recipients not excepted by section 
                        6(o)(3).
                  ``(C) Allocation.--
                          ``(i) Allocation formula.--The 
                        Secretary shall allocate the amounts 
                        reserved under subparagraph (A) among 
                        the State agencies using a reasonable 
                        formula, as determined and adjusted by 
                        the Secretary each fiscal year, to 
                        reflect changes in each State's 
                        caseload (as defined in section 
                        6(o)(5)(A)) that reflects the 
                        proportion of food stamp recipients who 
                        reside in each State--
                                  ``(I) who are not eligible 
                                for an exception under section 
                                6(o)(3); and
                                  ``(II) who do not reside in 
                                an area subject to the waiver 
                                granted by the Secretary under 
                                section 6(o)(4), if the State 
                                agency does not provide 
                                employment and training 
                                services in the area to food 
                                stamp recipients not excepted 
                                by section 6(o)(3).
                          ``(ii) Reporting requirement.--A 
                        State agency shall submit such reports 
                        to the Secretary as the Secretary 
                        determines are necessary to ensure 
                        compliance with this paragraph.''; and
                  ``(D) Reallocation.--
                          ``(i) Notification.--A State agency 
                        shall promptly notify the Secretary if 
                        the State agency determines that it 
                        will not expend all of the funds 
                        allocated to it under subparagraph (B).
                          ``(ii) Reallocation.--On notification 
                        under clause (i), the Secretary shall 
                        reallocate the funds that the State 
                        agency will not expend as the Secretary 
                        considers appropriate and equitable.
                  ``(E) Minimum allocation.--Notwithstanding 
                subparagraphs (A) through (C), the Secretary 
                shall ensure that each State agency operating 
                an employment and training program shall 
                receive not less than $50,000 for each fiscal 
                year.
                  ``(F) Maintenance of effort.--To receive the 
                additional funding under subparagraph (A), as 
                provided by the amendment made by section 1002 
                of the Balanced Budget Act of 1997, a State 
                agency shall maintain the expenditures of the 
                State agency for employment and training 
                programs and workfare programs for any fiscal 
                year under paragraph (2), and administrative 
                expenses under section 20(g)(1), at a level 
                that is not less than the level of the 
                expenditures by the State agency to carry out 
                the programs for fiscal year 1996.'';
          (2) by redesignating paragraphs (2) through (5) as 
        paragraphs (3) through (6), respectively;
          (3) by inserting after paragraph (1) the following 
        new paragraph:
          ``(2) Report to congress on additional funding.--
        Beginning one year after the date of the enactment of 
        this paragraph, the Secretary shall submit an annual 
        report to the Committee on Agriculture of the House of 
        Representatives and the Committee on Agriculture, 
        Nutrition, and Forestry of the Senate regarding whether 
        the additional funding provided under paragraph (1)(A) 
        has been utilized by State agencies to increase the 
        number of work slots in their employment and training 
        programs and workfare for recipients subject to section 
        6(o) in the most efficient and effective manner.''; and
          (4) in paragraph (3) (as so redesignated), by 
        striking ``paragraph (3)'' and inserting ``paragraph 
        (4)''.
  (b) Conforming Amendments.--(1) Subsection 
(b)(1)(B)(iv)(III)(hh) of section 17 of the Food Stamp Act of 
1977 (7 U.S.C. 2026) is amended by striking ``(h)(2), or (h)(3) 
of section 16'' and inserting ``(h)(3), or (h)(4) of section 
16''.
  (2) Subsection (d)(1)(B)(ii) of section 22 of such Act (7 
U.S.C. 2031) is amended by striking ``(h)(2), and (h)(3) of 
section 16'' and inserting ``(h)(3), and (h)(4) of section 
16''.

SEC. 1003. AUTHORIZING USE OF NONGOVERNMENTAL PERSONNEL IN MAKING 
                    DETERMINATIONS OF ELIGIBILITY FOR BENEFITS UNDER 
                    THE FOOD STAMP PROGRAM.

  (a) In General.--Notwithstanding any other provision of law, 
no provision of law shall be construed as preventing any State 
(as defined in section 3(m) of the Food Stamp Act of 1977 (7 
U.S.C. 2012(m))) from allowing eligibility determinations 
described in subsection (b) to be made by an entity that is not 
a State or local government, or by an individual who is not an 
employee of a State or local government, which meets such 
qualifications as the State determines. For purposes of any 
Federal law, such determinations shall be considered to be made 
by the State and by a State agency.
  (b) Eligibility Determinations.--An eligibility determination 
described in this subsection is a determination of eligibility 
of individuals or households to receive benefits under the food 
stamp program as defined in section 3(h) of the Food Stamp Act 
of 1977 (7 U.S.C. 2012(h)).
  (c) Construction.--Nothing in this section shall be construed 
as affecting--
          (1) the conditions for eligibility for benefits 
        (including any conditions relating to income or 
        resources);
          (2) the rights to challenge determinations regarding 
        eligibility or rights to benefits; and
          (3) determinations regarding quality control or error 
        rates.

         TITLE II--COMMITTEE ON BANKING AND FINANCIAL SERVICES

SEC. 2001. TABLE OF CONTENTS.

  The table of contents for this title is as follows:

          TITLE II--COMMITTEE ON BANKING AND FINANCIAL SERVICES

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

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

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

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

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

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

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

              TITLE III--COMMITTEE ON COMMERCE-NONMEDICARE

        Subtitle A--Nuclear Regulatory Commission Annual Charges

SEC. 3001. NUCLEAR REGULATORY COMMISSION ANNUAL CHARGES.

  Section 6101(a)(3) of the Omnibus Budget Reconciliation Act 
of 1990 (42 U.S.C. 2214(a)(3)) is amended by striking 
``September 30, 1998'' and inserting ``September 30, 2002''.

    Subtitle B--Lease of Excess Strategic Petroleum Reserve Capacity

SEC. 3101. LEASE OF EXCESS STRATEGIC PETROLEUM RESERVE CAPACITY.

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

                   ``USE OF UNDERUTILIZED FACILITIES

  ``Sec. 168. (a) Authority.--Notwithstanding any other 
provision of this title, the Secretary, by lease or otherwise, 
for any term and under such other conditions as the Secretary 
considers necessary or appropriate, may store in underutilized 
Strategic Petroleum Reserve facilities petroleum product owned 
by a foreign government or its representative. Petroleum 
products storedunder this section are not part of the Strategic 
Petroleum Reserve and may be exported without license from the United 
States.
  ``(b) Protection of Facilities.--All agreements entered into 
pursuant to subsection (a) shall contain provisions providing 
for fees to fully compensate the United States for all costs of 
storage and removals of petroleum products, including the cost 
of replacement facilities necessitated as a result of any 
withdrawals.
  ``(c) Access to Stored Oil.--The Secretary shall ensure that 
agreements to store petroleum products for foreign governments 
or their representatives do not affect the ability of the 
United States to withdraw, distribute, or sell petroleum from 
the Strategic Petroleum Reserve in response to an energy 
emergency or to the obligations of the United States under the 
Agreement on an International Energy Program.
  ``(d) Availability of Funds.--Funds collected through the 
leasing of Strategic Petroleum Reserve facilities authorized by 
subsection (a) after September 30, 2002, shall be used by the 
Secretary of Energy without further appropriation for the 
purchase of oil for, and operation and maintenance costs of, 
the Strategic Petroleum Reserve.''.
  (b) Table of Contents Amendment.--The table of contents of 
part B of title I of the Energy Policy and Conservation Act is 
amended by adding at the end the following:

``Sec. 168. Use of underutilized facilities.''.

                     Subtitle C--Sale of DOE Assets

SEC. 3201. SALE OF DOE SURPLUS URANIUM ASSETS.

  (a) In General.--The Secretary of Energy shall, during the 
period fiscal year 1999 through fiscal year 2002, sell 3.2 
million pounds per year of natural and low-enriched uranium 
that the President has determined is not necessary for national 
security needs. Such sales shall be--
          (1) made for delivery after January 1, 1999;
          (2) subject to a determination, for the period fiscal 
        year 1999 through fiscal year 2002, by the Secretary 
        under section 3112(d)(2)(B) of the USEC Privatization 
        Act (42 U.S.C. 2297h-10(d)(2)(B)); and
          (3) made at a price not less than the fair market 
        value of the uranium and in a manner that maximizes 
        proceeds to the Treasury.
The Secretary shall receive the proceeds from such sale in the 
period fiscal year 1999 through fiscal year 2002 and shall 
deposit such proceeds in the General Fund of the Treasury.
  (b) Costs.--The costs of making the sales required by 
subsection (a) shall be covered by the unobligated balances of 
appropriations of the Department of Energy.

                       Subtitle D--Communications

SEC. 3301. SPECTRUM AUCTIONS.

  (a) Extension and Expansion of Auction Authority.--
          (1) Amendments.--Section 309(j) of the Communications 
        Act of 1934 (47 U.S.C. 309(j)) is amended--
                  (A) by striking paragraphs (1) and (2) and 
                inserting in lieu thereof the following:
          ``(1) General authority.--If, consistent with the 
        obligations described in paragraph (6)(E), mutually 
        exclusive applications are accepted for any initial 
        license or construction permit which will involve an 
        exclusive use of the electromagnetic spectrum, then the 
        Commission shall grant such license or permit to a 
        qualified applicant through a system of competitive 
        bidding that meets the requirements of this subsection.
          ``(2) Exemptions.--The competitive bidding authority 
        granted by this subsection shall not apply to licenses 
        or construction permits issued by the Commission--
                  ``(A) that, as the result of the Commission 
                carrying out the obligations described in 
                paragraph (6)(E), are not mutually exclusive;
                  ``(B) for public safety radio services, 
                including private internal radio services used 
                by non-Government entities, that--
                          ``(i) protect the safety of life, 
                        health, or property; and
                          ``(ii) are not made commercially 
                        available to the public;
                  ``(C) for initial licenses or construction 
                permits assigned by the Commission to existing 
                terrestrial broadcast licensees for new 
                terrestrial digital television services; or
                  ``(D) for public telecommunications services, 
                as defined in section 397(14) of the 
                Communications Act of 1934 (47 U.S.C. 397(14)), 
                when the license application is for channels 
                reserved for noncommercial use.'';
                  (B) in paragraph (3)--
                          (i) by inserting after the second 
                        sentence the following new sentence: 
                        ``The Commission shall, directly or by 
                        contract, provide for the design and 
                        conduct (for purposes of testing) of 
                        competitive bidding using a contingent 
                        combinatorial bidding system that 
                        permits prospective bidders to bid on 
                        combinations or groups of licensesin a 
single bid and to enter multiple alternative bids within a single 
bidding round.'';
                          (ii) by striking ``and'' at the end 
                        of subparagraph (C);
                          (iii) by striking the period at the 
                        end of subparagraph (D) and inserting 
                        ``; and''; and
                          (iv) by adding at the end the 
                        following new subparagraph:
                  ``(E) ensuring that, in the scheduling of any 
                competitive bidding under this subsection, an 
                adequate period is allowed--
                          ``(i) before issuance of bidding 
                        rules, to permit notice and comment on 
                        proposed auction procedures; and
                          ``(ii) after issuance of bidding 
                        rules, to ensure that interested 
                        parties have a sufficient time to 
                        develop business plans, assess market 
                        conditions, and evaluate the 
                        availability of equipment for the 
                        relevant services.'';
                  (C) in paragraph (8)--
                          (i) by striking subparagraph (B); and
                          (ii) by redesignating subparagraph 
                        (C) as subparagraph (B);
                  (D) in paragraph (11), by striking ``1998'' 
                and inserting ``2002''; and
                  (E) in paragraph (13)(F), by striking 
                ``September 30, 1998'' and inserting ``the date 
                of enactment of the Balanced Budget Act of 
                1997''.
          (2) Conforming amendment.--Subsection (i) of section 
        309 of the Communications Act of 1934 (47 U.S.C. 
        309(i)) is repealed.
          (3) Effective date.--The amendment made by paragraph 
        (1)(A) shall not apply with respect to any license or 
        permit for which the Federal Communications Commission 
        has accepted mutually exclusive applications on or 
        before the date of enactment of this Act.
  (b) Commission Obligation To Make Additional Spectrum 
Available by Auction.--
          (1) In general.--The Federal Communications 
        Commission shall complete all actions necessary to 
        permit the assignment, by September 30, 2002, by 
        competitive bidding pursuant to section 309(j) of the 
        Communications Act of 1934 (47 U.S.C. 309(j)) of 
        licenses for the use of bands of frequencies that--
                  (A) individually span not less than 25 
                megahertz, unless a combination of smaller 
                bands can, notwithstanding the provisions of 
                paragraph (7) of such section, reasonably be 
                expected to produce greater receipts;
                  (B) in the aggregate span not less than 100 
                megahertz;
                  (C) are located below 3 gigahertz;
                  (D) have not, as of the date of enactment of 
                this Act--
                          (i) been designated by Commission 
                        regulation for assignment pursuant to 
                        such section;
                          (ii) been identified by the Secretary 
                        of Commerce pursuant to section 113 of 
                        the National Telecommunications and 
                        Information Administration Organization 
                        Act;
                          (iii) been allocated for Federal 
                        Government use pursuant to section 305 
                        of the Communications Act of 1934 (47 
                        U.S.C. 305);
                          (iv) been designated in section 3303 
                        of this Act; or
                          (v) been allocated for unlicensed use 
                        pursuant to part 15 of the Commission's 
                        regulations (47 C.F.R. Part 15), if the 
                        competitive bidding for licenses would 
                        interfere with operation of end-user 
                        products permitted under such 
                        regulations; and
                  (E) notwithstanding section 115(b)(1)(B) of 
                the National Telecommunications and Information 
                Administration Organization Act (47 U.S.C. 
                925(b)(1)(B)) or any proposal pursuant to such 
                section, include frequencies at 1,710-1,755 
                megahertz.
          (2) Criteria for reassignment.--In making available 
        bands of frequencies for competitive bidding pursuant 
        to paragraph (1), the Commission shall--
                  (A) seek to promote the most efficient use of 
                the spectrum;
                  (B) take into account the cost to incumbent 
                licensees of relocating existing uses to other 
                bands of frequencies or other means of 
                communication; and
                  (C) comply with the requirements of 
                international agreements concerning spectrum 
                allocations.
          (3) Notification to ntia.--The Commission shall 
        notify the Secretary of Commerce if--
                  (A) the Commission is not able to provide for 
                the effective relocation of incumbent licensees 
                to bands of frequencies that are available to 
                the Commission for assignment; and
                  (B) the Commission has identified bands of 
                frequencies that are--
                          (i) suitable for the relocation of 
                        such licensees; and
                          (ii) allocated for Federal Government 
                        use, but that could be reallocated 
                        pursuant to part B of the National 
                        Telecommunications and Information 
                        Administration Organization Act (as 
                        amended by this Act).
          (4) Protection of Space Research Uses.--The licenses 
        assigned pursuant to paragraph (1) shall require 
        licensees to avoid interference with communications in 
        space research and earth exploration-satellite services 
        authorized under notes 750A and US90 to section 2.106 
        of the regulations of the Federal Communications 
        Commission (47 C.F.R. 2.106) as in effect on the date 
        of enactment of this Act.
  (c) Identification and Reallocation of Frequencies.--The 
National Telecommunications and Information Administration 
Organization Act (47 U.S.C. 901 et seq.) is amended--
          (1) in section 113, by adding at the end the 
        following new subsection:
  ``(f) Additional Reallocation Report.--If the Secretary 
receives a notice from the Commission pursuant to section 
3301(b)(3) of the Balanced Budget Act of 1997, the Secretary 
shall prepare and submit to the President, the Commission, and 
the Congress a report recommending for reallocation for use 
other than by Federal Government stations under section 305 of 
the 1934 Act (47 U.S.C. 305), bands of frequencies that are 
suitable for the uses identified in the Commission's notice. 
The Commission shall, not later than one year after receipt of 
such report, prepare, submit to the President and the Congress, 
and implement, a plan for the immediate allocation and 
assignment of such frequencies under the 1934 Act to incumbent 
licencees described in section 3301(b)(3) of the Balanced 
Budget Act of 1997.''; and
          (2) in section 114(a)(1), by striking ``(a) or 
        (d)(1)'' and inserting ``(a), (d)(1), or (f)''.
  (d) Identification and Reallocation of Auctionable 
Frequencies.--The National Telecommunications and Information 
Administration Organization Act (47 U.S.C. 901 et seq.) is 
amended--
          (1) in section 113(b)--
                  (A) by striking the heading of paragraph (1) 
                and inserting ``Initial reallocation report'';
                  (B) by inserting ``in the first report 
                required by subsection (a)'' after ``recommend 
                for reallocation'' in paragraph (1);
                  (C) by inserting ``or (3)'' after ``paragraph 
                (1)'' each place it appears in paragraph (2); 
                and
                  (D) by inserting after paragraph (2) the 
                following new paragraph:
          ``(3) Second reallocation report.--In accordance with 
        the provisions of this section, the Secretary shall 
        recommend for reallocation in the second report 
        required by subsection (a), for use other than by 
        Federal Government stations under section 305 of the 
        1934 Act (47 U.S.C. 305), a band or bands of 
        frequencies that--
                  ``(A) in the aggregate span not less than 20 
                megahertz;
                  ``(B) individually span not less than 20 
                megahertz, unless a combination of smaller 
                bands can reasonably be expected to produce 
                greater receipts;
                  ``(C) are located below 3 gigahertz; and
                  ``(D) meet the criteria specified in 
                paragraphs (1) through (5) of subsection 
                (a).''; and
          (2) in section 115--
                  (A) in subsection (b), by striking ``the 
                report required by section 113(a)'' and 
                inserting ``the initial reallocation report 
                required by section 113(a)''; and
                  (B) by adding at the end the following new 
                subsection:
  ``(c) Allocation and Assignment of Frequencies Identified in 
the Second Reallocation Report.--With respect to the 
frequencies made available for reallocation pursuant to section 
113(b)(3), the Commission shall, not later than one year after 
receipt of the second reallocation report required by such 
section, prepare, submit to the President and the Congress, and 
implement, a plan for the immediate allocation and assignment 
under the 1934 Act of all such frequencies in accordance with 
section 309(j) of such Act.''.
  (e) Minimum Recovery for Public Required.--
          (1) Methodology to secure minimum amounts required.--
        In establishing, pursuant to section 309(j)(3) of the 
        Communications Act of 1934 (47 U.S.C. 309(j)(3)), a 
        competitive bidding methodology with respect to the 
        frequencies required to be assigned by competitive 
        bidding under subsection (b) of this section and 
        section 115(c) of the National Telecommunications and 
        Information Administration Organization Act (47 U.S.C. 
        925(c)), the Commission shall establish procedures that 
        are designed to secure winning bids totaling not less 
        than two-thirds of $7,500,000,000.
          (2) Authority.--In establishing such methodology, the 
        Commission is authorized--
                  (A) to partition the total required to be 
                obtained under paragraph (1) among separate 
                competitive bidding proceedings, or among 
                separate bands, regions, or markets;
                  (B) to void any such separated competitive 
                bidding proceeding that fails to obtain the 
                partitioned subtotal that pertains to that 
                proceeding; and
                  (C) to prescribe minimum bids or other 
                bidding requirements to obtain such total or 
                subtotal.
          (3) Licenses withheld.--Notwithstanding any other 
        requirement of this section, or the amendments made by 
        this section, the Commission shall refrain from 
        conducting any competitive biddingpursuant to the 
methodology established pursuant to this subsection unless the 
Commission determines that such methodology will secure winning bids 
totaling not less than two-thirds of $7,500,000,000.
          (4) Authority to rebid at a later time to secure 
        statutory objectives.--Nothing in paragraph (2) or (3) 
        shall preclude or limit the Commission from assigning 
        the frequencies described in paragraph (1) by 
        competitive bidding at such later date (than the date 
        required by this section) as the Commission determines, 
        in its discretion, will better attain the objectives of 
        recovering for the public a fair portion of the value 
        of the public spectrum resource and avoiding unjust 
        enrichment.

SEC. 3302. AUCTION OF RECAPTURED BROADCAST TELEVISION SPECTRUM.

  Section 309(j) of the Communications Act of 1934 (47 U.S.C. 
309(j)) is amended by adding at the end the following new 
paragraph:
          ``(14) Auction of recaptured broadcast television 
        spectrum.--
                  ``(A) Limitations on terms of terrestrial 
                television broadcast licenses.--A television 
                license that authorizes analog television 
                services may not be renewed to authorize such 
                service for a period that extends beyond 
                December 31, 2006. The Commission shall grant 
                by regulation an extension of such date to 
                licensees in a market if the Commission 
                determines that more than 5 percent of 
                households in such market continue to rely 
                exclusively on over-the-air terrestrial analog 
                television signals.
                  ``(B) Spectrum reversion and resale.--
                          ``(i) The Commission shall ensure 
                        that, when the authority to broadcast 
                        analog television services under a 
                        license expires pursuant to 
                        subparagraph (A), each licensee shall 
                        return spectrum according to the 
                        Commission's direction and the 
                        Commission shall reclaim such spectrum.
                          ``(ii) Licensees for new services 
                        occupying spectrum reclaimed pursuant 
                        to clause (i) shall be selected in 
                        accordance with this subsection. The 
                        Commission shall start such selection 
                        process by July 1, 2001, with payment 
                        pursuant to rules established by the 
                        Commission under this subsection.
                  ``(C) Minimum recovery for public required.--
                          ``(i) Methodology to secure minimum 
                        amounts required.--In establishing, 
                        pursuant to section 309(j)(3) of the 
                        Communications Act of 1934 (47 U.S.C. 
                        309(j)(3)), a competitive bidding 
                        methodology with respect to the 
                        frequencies required to be assigned by 
                        competitive bidding under subparagraph 
                        (B) of this paragraph, the Commission 
                        shall establish procedures that are 
                        designed to secure winning bids 
                        totaling not less than two-thirds of 
                        $4,000,000,000.
                          ``(ii) Authority.--In establishing 
                        such methodology, the Commission is 
                        authorized--
                                  ``(I) to partition the total 
                                required to be obtained under 
                                clause (i) among separate 
                                competitive bidding 
                                proceedings, or among separate 
                                bands, regions, or markets;
                                  ``(II) to void any such 
                                separated competitive bidding 
                                proceeding that fails to obtain 
                                the partitioned subtotal that 
                                pertains to that proceeding; 
                                and
                                  ``(III) to prescribe minimum 
                                bids or other bidding 
                                requirements to obtain such 
                                aggregate total.
                          ``(iii) Licenses withheld.--
                        Notwithstanding any other requirement 
                        of this paragraph, the Commission shall 
                        refrain from conducting any competitive 
                        bidding pursuant to the methodology 
                        established pursuant to this 
                        subparagraph unless the Commission 
                        determines that such methodology will 
                        secure winning bids totaling not less 
                        than two-thirds of $4,000,000,000.
                          ``(iv) Authority to rebid at a later 
                        time to secure statutory objectives.--
                        Nothing in clause (ii) or (iii) shall 
                        preclude or limit the Commission from 
                        assigning the frequencies described in 
                        clause (i) by competitive bidding at 
                        such later date (than the date required 
                        by this paragraph) as the Commission 
                        determines, in its discretion, will 
                        better attain the objectives of 
                        recovering for the public a fair 
                        portion of the value of the public 
                        spectrum resource and avoiding unjust 
                        enrichment.
                  ``(D) Certain limitations on qualified 
                bidders prohibited.--In prescribing any 
                regulations relating to the qualification of 
                bidders for spectrum reclaimed pursuant to 
                subparagraph (B)(i), the Commission shall not--
                          ``(i) preclude any party from being a 
                        qualified bidder for spectrum that is 
                        allocated for any use that includes 
                        digital television service on the basis 
                        of--
                                  ``(I) the Commission's 
                                duopoly rule (47 C.F.R. 
                                73.3555(b)); or
                                  ``(II) the Commission's 
                                newspaper cross-ownership rule 
                                (47 C.F.R. 73.3555(d)); or
                          ``(ii) apply either such rule to 
                        preclude such a party that is a 
                        successful bidder in a competitive 
                        bidding for such spectrum from using 
                        such spectrum for digital television 
                        service.
                  ``(E) Definitions.--As used in this 
                paragraph:
                          ``(i) The term `digital television 
                        service' means television service 
                        provided usingdigital technology to 
enhance audio quality and video resolution, as further defined in the 
Memorandum Opinion, Report, and Order of the Commission entitled 
`Advanced Television Systems and Their Impact Upon the Existing 
Television Service', MM Docket No. 87-268 and any subsequent Commission 
proceedings dealing with digital television.
                          ``(ii) The term `analog television 
                        service' means service provided 
                        pursuant to the transmission standards 
                        prescribed by the Commission in section 
                        73.682(a) of its regulation (47 CFR 
                        73.682(a)).''.

SEC. 3303. ALLOCATION AND ASSIGNMENT OF NEW PUBLIC SAFETY AND 
                    COMMERCIAL LICENSES.

  (a) In General.--The Federal Communications Commission shall, 
not later than January 1, 1998, allocate on a national, 
regional, or market basis, from radio spectrum between 746 
megahertz and 806 megahertz--
          (1) 24 megahertz of that spectrum for public safety 
        services according to the terms and conditions 
        established by the Commission, unless the Commission 
        determines that the needs for public safety services 
        can be met in particular areas with allocations of less 
        than 24 megahertz; and
          (2) the remainder of that spectrum for commercial 
        purposes to be assigned by competitive bidding in 
        accordance with section 309(j).
  (b) Assignment.--The Commission shall--
          (1) assign the licenses for public safety created 
        pursuant to subsection (a) no later than March 31, 
        1998; and
          (2) commence competitive bidding for the commercial 
        licenses created pursuant to subsection (a) no later 
        than July 1, 2001.
  (c) Licensing of Unused Frequencies for Public Safety Radio 
Services.--
          (1) Use of unused channels for public safety.--It 
        shall be the policy of the Commission, notwithstanding 
        any other provision of this Act or any other law, to 
        waive whatever licensee eligibility and other 
        requirements (including bidding requirements) are 
        applicable in order to permit the use of unassigned 
        frequencies for public safety purposes by a State or 
        local governmental agency upon a showing that--
                  (A) no other existing satisfactory public 
                safety channel is immediately available to 
                satisfy the requested use;
                  (B) the proposed use is technically feasible 
                without causing harmful interference to 
                existing stations in the frequency band 
                entitled to protection from such interference 
                under the rules of the Commission; and
                  (C) use of the channel for public safety 
                purposes is consistent with other existing 
                public safety channel allocations in the 
                geographic area of proposed use.
          (2) Applicability.--Paragraph (1) shall apply to any 
        application that is pending before the Federal 
        Communications Commission, or that is not finally 
        determined under either section 402 or 405 of the 
        Communications Act of 1934 (47 U.S.C. 402, 405) on May 
        15, 1997, or that is filed after such date.
  (d) Conditions on Licenses.--With respect to public safety 
and commercial licenses granted pursuant to this subsection, 
the Commission shall--
          (1) establish interference limits at the boundaries 
        of the spectrum block and service area;
          (2) establish any additional technical restrictions 
        necessary to protect full-service analog television 
        service and digital television service during a 
        transition to digital television service; and
          (3) permit public safety and commercial licensees--
                  (A) to aggregate multiple licenses to create 
                larger spectrum blocks and service areas; and
                  (B) to disaggregate or partition licenses to 
                create smaller spectrum blocks or service 
                areas.
  (e) Minimum Recovery for Public Required.--
          (1) Methodology to secure minimum amounts required.--
        In establishing, pursuant to section 309(j)(3) of the 
        Communications Act of 1934 (47 U.S.C. 309(j)(3)), a 
        competitive bidding methodology with respect to the 
        frequencies required to be assigned by competitive 
        bidding under this section, the Commission shall 
        establish procedures that are designed to secure 
        winning bids totaling not less than two-thirds of 
        $1,900,000,000.
          (2) Authority.--In establishing such methodology, the 
        Commission is authorized--
                  (A) to partition the total required to be 
                obtained under paragraph (1) among separate 
                competitive bidding proceedings, or among 
                separate bands, regions, or markets;
                  (B) to void any such separated competitive 
                bidding proceeding that fails to obtain the 
                partitioned subtotal that pertains to that 
                proceeding; and
                  (C) to prescribe minimum bids or other 
                bidding requirements to obtain such total or 
                subtotal.
          (3) Licenses withheld.--Notwithstanding any other 
        requirement of this section, the Commission shall 
        refrain from conducting any competitive bidding 
        pursuant to the methodology established pursuant to 
        this subsection unless the Commission determines that 
        such methodology will secure winning bids totaling not 
        less than two-thirds of $1,900,000,000.
          (4) Authority to rebid at a later time to secure 
        statutory objectives.--Nothing in paragraph (2) or (3) 
        shall preclude or limit the Commission from assigning 
        the frequencies described in paragraph (1) by 
        competitive bidding at such later date (than the date 
        required by this section) as the Commission determines, 
        in its discretion, will better attain the objectives of 
        recovering for the public a fair portion of the value 
        of the public spectrum resource and avoiding unjust 
        enrichment.
  (f) Protection of Qualifying Low-Power Stations.--Prior to 
making any allocation or assignment under this section the 
Commission shall assure that each qualifying low-power 
television station is assigned a frequency below 746 megahertz 
to permit the continued operation of such station.
  (g) Definitions.--For purposes of this section:
          (1) Commission.--The term ``Commission'' means the 
        Federal Communications Commission.
          (2) Digital television service.--The term ``digital 
        television service'' means television service provided 
        using digital technology to enhance audio quality and 
        video resolution, as further defined in the Memorandum 
        Opinion, Report, and Order of the Commission entitled 
        `Advanced Television Systems and Their Impact Upon the 
        Existing Television Service', MM Docket No. 87-268 and 
        any subsequent Commission proceedings dealing with 
        digital television.
          (3) Analog television service.--The term ``analog 
        television service'' means services provided pursuant 
        to the transmission standards prescribed by the 
        Commission in section 73.682(a) of its regulation (47 
        CFR 73.682(a)).
          (4) Public safety services.--The term ``public safety 
        services'' means services--
                  (A) the sole or principal purpose of which is 
                to protect the safety of life, health, or 
                property;
                  (B) that are provided--
                          (i) by State or local government 
                        entities; or
                          (ii) by nongovernmental, private 
                        organizations that are authorized by a 
                        governmental entity whose primary 
                        mission is the provision of such 
                        services; and
                  (C) that are not made commercially available 
                to the public by the provider.
          (5) Service area.--The term ``service area'' means 
        the geographic area over which a licensee may provide 
        service and is protected from interference.
          (6) Spectrum block.--The term ``spectrum block'' 
        means the range of frequencies over which the apparatus 
        licensed by the Commission is authorized to transmit 
        signals.
          (7) Qualifying low-power television stations.--A 
        station is a qualifying low-power television station 
        if--
                  (A) during the 90 days preceding the date of 
                enactment of this Act--
                          (i) such station broadcast a minimum 
                        of 18 hours per day;
                          (ii) such station broadcast an 
                        average of at least 3 hours per week of 
                        programming that was produced within 
                        the community of license of such 
                        station; and
                          (iii) such station was in compliance 
                        with the requirements applicable to 
                        low-power television stations; or
                  (B) the Commission determines that the public 
                interest, convenience, and necessity would be 
                served by treating the station as a qualifying 
                low-power television station for purposes of 
                this section.

SEC. 3304. INQUIRY REQUIRED.

  The Federal Communications Commission shall, not later than 
July 1, 1997, initiate the inquiry required by section 
309(j)(12) of the Communications Act of 1934 (47 U.S.C. 
309(j)(12)) for the purposes of collecting the information 
required for its report under each of subparagraphs (A) through 
(E) of such section, and shall keep the Congress fully and 
currently informed with respect to the progress of such 
inquiry.

                          Subtitle E--Medicaid

SEC. 3400. TABLE OF CONTENTS OF SUBTITLE; REFERENCES.

  (a) Table of Contents of Subtitle.--The table of contents of 
this subtitle is as follows:
Sec. 3400. Table of contents of subtitle; references.

                      Chapter 1--State Flexibility

                     SUBCHAPTER A--USE OF MANAGED CARE

Sec. 3401. State options to provide benefits through managed care 
          entities.
Sec. 3402. Elimination of 75:25 restriction on risk contracts.
Sec. 3403. Primary care case management services as State option without 
          need for waiver.
Sec. 3404. Change in threshold amount for contracts requiring 
          Secretary's prior approval.
Sec. 3405. Determination of hospital stay.

                     SUBCHAPTER B--PAYMENT METHODOLOGY

Sec. 3411. Flexibility in payment methods for hospital, nursing 
          facility, and ICF/MR services; flexibility for home health.
Sec. 3412. Payment for Federally qualified health center services.
Sec. 3413. Treatment of State taxes imposed on certain hospitals that 
          provide free care.

                         SUBCHAPTER C--ELIGIBILITY

Sec. 3421. State option of continuous eligibility for 12 months; 
          clarification of State option to cover children.
Sec. 3422. Payment of home-health-related medicare part B premium amount 
          for certain low-income individuals.
Sec. 3423. Penalty for fraudulent eligibility.
Sec. 3424. Treatment of certain settlement payments.

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

Sec. 3431. Establishment of PACE program as medicaid State option.
Sec. 3432. Coverage of PACE under the medicare program.
Sec. 3433. Effective date; transition.
Sec. 3434. Study and reports.

                          SUBCHAPTER E--BENEFITS

Sec. 3441. Elimination of requirement to pay for private insurance.
Sec. 3442. Permitting same copayments in health maintenance 
          organizations as in fee-for-service.
Sec. 3443. Physician qualification requirements.
Sec. 3444. Elimination of requirement of prior institutionalization with 
          respect to habilitation services furnished under a waiver for 
          home or community-based services.
Sec. 3445. Benefits for services of physician assistants.
Sec. 3446. Study and report on actuarial value of EPSDT benefit.

                       SUBCHAPTER F--ADMINISTRATION

Sec. 3451. Elimination of duplicative inspection of care requirements 
          for ICFS/MR and mental hospitals.
Sec. 3452. Alternative sanctions for noncompliant ICFS/MR.
Sec. 3453. Modification of MMIS requirements.
Sec. 3454. Facilitating imposition of State alternative remedies on 
          noncompliant nursing facilities.
Sec. 3455. Medically accepted indication.
Sec. 3456. Continuation of State-wide section 1115 medicaid waivers.
Sec. 3457. Authorizing administrative streamlining and privatizing 
          modifications under the medicaid program.
Sec. 3458. Extension of moratorium.

                      Chapter 2--Quality Assurance

Sec. 3461. Requirements to ensure quality of and access to care under 
          managed care plans.
Sec. 3462. Solvency standards for certain health maintenance 
          organizations.
Sec. 3463. Application of prudent layperson standard for emergency 
          medical condition and prohibition of gag rule restrictions.
Sec. 3464. Additional fraud and abuse protections in managed care.
Sec. 3465. Grievances under managed care plans.
Sec. 3466. Standards relating to access to obstetrical and gynecological 
          services under managed care plans.

                       Chapter 3--Federal Payments

Sec. 3471. Reforming disproportionate share payments under State 
          medicaid programs.
Sec. 3472. Additional funding for State emergency health services 
          furnished to undocumented aliens.
  (b) Amendments to Social Security Act.--Except as otherwise 
specifically provided, whenever in this subtitle an amendment 
is expressed in terms of an amendment to or repeal of a section 
or other provision, the reference is considered to be made to 
that section or other provision of the Social Security Act.

                      CHAPTER 1--STATE FLEXIBILITY

                   Subchapter A--Use of Managed Care

SEC. 3401. STATE OPTIONS TO PROVIDE BENEFITS THROUGH MANAGED CARE 
                    ENTITIES.

  (a) In General.--Section 1915(a) (42 U.S.C. 1396n(a)) is 
amended--
          (1) by striking ``or'' at the end of paragraph (1),
          (2) by striking the period at the end of paragraph 
        (2) and inserting ``; or'', and
          (3) by adding at the end the following new paragraph:
          ``(3) requires individuals, other than special needs 
        children (as defined in subsection (i)), eligible for 
        medical assistance for items or services under the 
        State plan to enroll with an entity that provides or 
        arranges for services for enrollees under a contract 
        pursuant to section 1903(m), or with a primary care 
        case manager (as defined in section 1905(t)(2)) (or 
        restricts the number of provider agreements with those 
        entities under the State plan, consistent with quality 
        of care), if--
                  ``(A) the State permits an individual to 
                choose the manager or managed care entity from 
                among the managed care organizations and 
                primary care case providers who meet the 
                requirements of this title;
                  ``(B)(i) individuals are permitted to choose 
                between at least 2 of those entities, or 2 of 
                the managers, or an entity and a manager, each 
                of which has sufficient capacity to provide 
                services to enrollees; or
                  ``(ii) with respect to a rural area--
                          ``(I) individuals who are required to 
                        enroll with a single entity are 
                        afforded the option to obtain covered 
                        services by an alternative provider; 
                        and
                          ``(II) an individual who is offered 
                        no alternative to a single entity or 
                        manager is given a choice between at 
                        least two providers within the entity 
                        or through the manager;
                  ``(C) no individual who is an Indian (as 
                defined in section 4 of the Indian Health Care 
                Improvement Act of 1976) is required to enroll 
                in any entity that is not one of the following 
                (and only if such entity is participating under 
                the plan): the Indian Health Service, an Indian 
                health program operated by an Indian tribe or 
                tribal organization pursuant to a contract, 
                grant, cooperative agreement, or compact with 
                the Indian Health Service pursuant to the 
                Indian Self-Determination Act (25 U.S.C. 450 et 
                seq.), or an urban Indian health program 
                operated by an urban Indian organization 
                pursuant to a grant or contract with the Indian 
                Health Service pursuant to title V of the 
                Indian Health Care Improvement Act (25 U.S.C. 
                1601 et seq.);
                  ``(D) the State restricts those individuals 
                from changing their enrollment without cause 
                for periods no longer than six months (and 
                permits enrollees to change enrollment for 
                cause at any time);
                  ``(E) the restrictions do not apply to 
                providers of family planning services (as 
                defined in section 1905(a)(4)(C)) and are not 
                conditions for payment of medicare cost sharing 
                pursuant to section 1905(p)(3); and
                  ``(F) prior to establishing an enrollment 
                requirement under this paragraph, the State 
                agency provides for public notice and comment 
                pursuant to requirements established by the 
                Secretary.''.
  (b) Special Needs Children Defined.--Section 1915 (42 U.S.C. 
1396n) is amended by adding at the end the following:
  ``(i) For purposes of subsection (a)(3), the term `special 
needs child' means an individual under 19 years of age who--
          ``(1) is eligible for supplemental security income 
        under title XVI,
          ``(2) is described in section 501(a)(1)(D),
          ``(3) is described in section 1902(e)(3), or
          ``(4) is in foster care or otherwise in an out-of-
        home placement.''.
  (c) Conforming Amendment to Risk-Based Arrangements.--Section 
1903(m)(2) (42 U.S.C. 1396b(m)(2)) is amended--
          (1) in paragraph (A)(vi)--
                  (A) by striking ``(I) except as provided 
                under subparagraph (F),''; and
                  (B) by striking all that follows ``to 
                terminate such enrollment'' and inserting ``in 
                accordance with the provisions of subparagraph 
                (F);''; and
          (2) in subparagraph (F)--
                  (A) by striking ``In the case of--'' and all 
                that follows through ``a State plan'' and 
                inserting ``A State plan'', and
                  (B) by striking ``(A)(vi)(I)'' and inserting 
                ``(A)(vi)''.
  (d) Effective Date.--The amendments made by this section take 
effect on the date of the enactment of this Act.

SEC. 3402. ELIMINATION OF 75:25 RESTRICTION ON RISK CONTRACTS.

  (a) 75 Percent Limit on Medicare and Medicaid Enrollment.--
          (1) In general.--Section 1903(m)(2)(A) (42 U.S.C. 
        1396b(m)(2)(A)) is amended by striking clause (ii).
          (2) Conforming amendments.--Section 1903(m)(2) (42 
        U.S.C. 1396b(m)(2)) is amended--
                  (A) by striking subparagraphs (C), (D), and 
                (E); and
                  (B) in subparagraph (G), by striking 
                ``clauses (i) and (ii)'' and inserting ``clause 
                (i)''.
  (b) Effective Date.--The amendments made by subsection (a) 
take effect on the date of the enactment of this Act.

SEC. 3403. PRIMARY CARE CASE MANAGEMENT SERVICES AS STATE OPTION 
                    WITHOUT NEED FOR WAIVER.

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

SEC. 3404. CHANGE IN THRESHOLD AMOUNT FOR CONTRACTS REQUIRING 
                    SECRETARY'S PRIOR APPROVAL.

  (a) In General.--Section 1903(m)(2)(A)(iii) (42 U.S.C. 
1396b(m)(2)(A)(iii)) is amended by striking ``$100,000'' and 
inserting ``$1,000,000 for 1998 and, for a subsequent year, the 
amount established under this clause for the previous year 
increased by the percentage increase in the consumer price 
index for all urban consumers over the previous year''.
  (b) Effective Date.--The amendment made by subsection (a) 
shall apply to contracts entered into or renewed on or after 
the date of the enactment of this Act.

SEC. 3405. DETERMINATION OF HOSPITAL STAY.

  (a) In General.--Title XIX, as amended by section 3431(a), is 
amended--
          (1) by redesignating section 1933 as section 1934, 
        and
          (2) by inserting after section 1932 the following new 
        section:

                    ``determination of hospital stay

  ``Sec. 1933. (a) In General.--A Medicaid health plan shall 
cover the length of an inpatient hospital stay under this title 
as determined by the attending physician (or other attending 
health care provider to the extent permitted under State law) 
in consultation with the patient to be medically appropriate.
  ``(b) Construction.--Nothing in this title shall be 
construed--
          ``(1) as requiring the provision of inpatient 
        coverage if the attending physician (or other attending 
        health care provider to the extent permitted under 
        State law) and patient determine that a shorter period 
        of hospital stay is medically appropriate, or
          ``(2) as affecting the application of deductibles and 
        coinsurance.''.
  (b) Effective Date.--The amendments made by subsection (a) 
shall apply to discharges occurring on or after 6 months after 
the date of the enactment of this Act.

                   Subchapter B--Payment Methodology

SEC. 3411. FLEXIBILITY IN PAYMENT METHODS FOR HOSPITAL, NURSING 
                    FACILITY, AND ICF/MR SERVICES; FLEXIBILITY FOR HOME 
                    HEALTH.

  (a) Repeal of Boren Requirements.--Section 1902(a)(13) (42 
U.S.C. 1396a(a)) is amended--
          (1) by amending subparagraphs (A) and (B) to read as 
        follows:
                  ``(A) for a public process for determination 
                of rates of payment under the plan for hospital 
                services, nursing facility services, and 
                services of intermediate care facilities for 
                the mentally retarded under which--
                          ``(i) proposed rates are published, 
                        and providers, beneficiaries and their 
                        representatives, and other concerned 
                        State residents are given a reasonable 
                        opportunity for review and comment on 
                        the proposed rates;
                          ``(ii) final rates are published, 
                        together with justifications, and
                          ``(iii) in the case of hospitals, 
                        take into account (in a manner 
                        consistent with section 1923) the 
                        situation of hospitals which serve a 
                        disproportionate number of low income 
                        patients with special needs;
                  ``(B) that the State shall provide assurances 
                satisfactory to the Secretary that the average 
                level of payments under the plan for nursing 
                facility services (as determined on an 
                aggregate per resident-day basis) and the level 
                of payments under the plan for inpatient 
                hospital services (as determined on an 
                aggregate hospital payment basis) furnished 
                during the 18-month period beginning October 1, 
                1997, is not less than the average level of 
                payments that would be made under the plan 
                during such 18-month period for such respective 
                services (determined on such basis) based on 
                rates or payment basis in effect as of May 1, 
                1997;''; and
          (2) by striking subparagraph (C).
  (b) Repeal of Requirements Relating to Home Health 
Services.--Such section is further amended--
          (1) by adding ``and'' at the end of subparagraph (D),
          (2) by striking ``and'' at the end of subparagraph 
        (E), and
          (3) by striking subparagraph (F).
  (c) Effective Date.--The amendments made by this section 
shall apply to payment for items and services furnished on or 
after the date of the enactment of this Act.

SEC. 3412. PAYMENT FOR CENTER AND CLINIC SERVICES.

  (a) Phase-Out of Payment Based on Reasonable Costs.--Section 
1902(a)(13)(E) (42 U.S.C. 1396a(a)(13)(E)) is amended by 
inserting ``(or 95 percent for services furnished during fiscal 
year 2000, 90 percent for service furnished during fiscal year 
2001, and 85 percent for services furnished during fiscal year 
2002)'' after ``100 percent''.
  (b) Transitional Supplemental Payment for Services Furnished 
Under Certain Managed Care Contracts.--
          (1) In general.--Section 1902(a)(13)(E) is further 
        amended--
                  (A) by inserting ``(i)'' after ``(E)'', and
                  (B) by inserting before the semicolon at the 
                end the following: ``and (ii) in carrying out 
                clause (i) in the case of services furnished by 
                a federally qualified health center or a rural 
                health clinic pursuant to a contract between 
                the center and a health maintenance 
                organization under section 1903(m), for payment 
                by the State of a supplemental payment equal to 
                the amount (if any) by which the amount 
                determined under clause (i) exceeds the amount 
                of the payments provided under such contract''.
          (2) Conforming amendment to managed care contract 
        requirement.--Clause (ix) of section 1903(m)(2)(A) (42 
        U.S.C. 1396b(m)(2)(A)) is amended to read as follows:
          ``(ix) such contract provides, in the case of an 
        entity that has entered into a contract for the 
        provision of services with a federally qualified health 
        center or a rural health clinic, that the entity shall 
        provide payment that is not less than the level and 
        amount of payment which theentity would make for the 
services if the services were furnished by a provider which is not a 
federally qualified health center or a rural health clinic;''.
          (3) Effective date.--The amendments made by this 
        section shall apply to services furnished on or after 
        October 1, 1997.
  (c) End of Transitional Payment Rules.--Effective for 
services furnished on or after October 1, 2002--
          (1) subparagraph (E) of section 1902(a)(13) (42 
        U.S.C. 1396a(a)(13)) is repealed, and
          (2) clause (ix) of section 1903(m)(2)(A) (42 U.S.C. 
        1396b(m)(2)(A)) is repealed.
  (d) Flexibility in Coverage of Non-Freestanding Look-
Alikes.--
          (1) In general.--Section 1905(l)(2)(B)(iii) (42 
        U.S.C. 1396d(l)(2)(B)(iii)) is amended by inserting 
        ``and is not other than an entity that is owned, 
        controlled, or operated by another provider'' after 
        ``such a grant''.
          (2) Effective date.--The amendments made by paragraph 
        (1) shall apply to service furnished on and after the 
        date of the enactment of this Act.
  (e) GAO Report.--By not later than February 1, 2001, the 
Comptroller General shall submit to Congress a report on the 
impact of the amendments made by this section on access to 
health care for medicaid beneficiaries and the uninsured served 
at health centers and rural health clinics and the ability of 
health centers and rural health clinics to become integrated in 
a managed care system.

SEC. 3413. TREATMENT OF STATE TAXES IMPOSED ON CERTAIN HOSPITALS THAT 
                    PROVIDE FREE CARE.

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

                       Subchapter C--Eligibility

SEC. 3421. STATE OPTION OF CONTINUOUS ELIGIBILITY FOR 12 MONTHS; 
                    CLARIFICATION OF STATE OPTION TO COVER CHILDREN.

  (a) Continuous Eligibility Option.--Section 1902(e) (42 
U.S.C. 1396a(e)) is amended by adding at the end the following 
new paragraph:
  ``(12) At the option of the State, the plan may provide that 
an individual who is under an age specified by the State (not 
to exceed 19 years of age) and who is determined to be eligible 
for benefits under a State plan approved under this title under 
subsection (a)(10)(A) shall remain eligible for those benefits 
until the earlier of--
          ``(A) the end of a period (not to exceed 12 months) 
        following the determination; or
          ``(B) the time that the individual exceeds that 
        age.''.
  (b) Clarification of State Option To Cover All Children Under 
19 Years of Age.--Section 1902(l)(1)(D) (42 U.S.C. 
1396a(l)(1)(D)) is amended by inserting ``(or, at the option of 
a State, after any earlier date)'' after ``children born after 
September 30, 1983''.
  (c) Effective Date.--The amendments made by this section 
shall apply to medical assistance for items and services 
furnished on or after October 1, 1997.

SEC. 3422. PAYMENT OF HOME-HEALTH-RELATED MEDICARE PART B PREMIUM 
                    AMOUNT FOR CERTAIN LOW-INCOME INDIVIDUALS.

  (a) Eligibility.--Section 1902(a)(10)(E) (42 U.S.C. 
1396a(a)(10)(E)) is amended--
          (1) by striking ``and'' at the end of clause (ii), 
        and
          (2) by inserting after clause (iii) the following:
                  ``(iv) subject to section 1905(p)(4), for 
                making medical assistance available for the 
                portion of medicare cost sharing described in 
                section 1905(p)(3)(A)(ii), that is attributable 
                to the application under section 1839(a)(5) of 
                section 1833(d)(2) for individuals who would be 
                described in clause (iii) but for the fact that 
                their income exceeds 120 percent, but is less 
                than 175 percent, of the official poverty line 
                (referred to in section 1905(p)(2)) for a 
                family of the size involved;''.
  (b) 100 Percent Federal Payment.--The third sentence of 
section 1905(b) (42 U.S.C. 1396d(b)) is amended by inserting 
``and with respect to amounts expended for medical assistance 
described in section 1902(a)(10)(E)(iv) for individuals 
described in such section'' before the period at the end.

SEC. 3423. PENALTY FOR FRAUDULENT ELIGIBILITY.

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

SEC. 3424. TREATMENT OF CERTAIN SETTLEMENT PAYMENTS.

  Notwithstanding any other provision of law, the payments made 
from any fund established pursuant to the settlement in the 
case of In re Factor VIII or IX Concentrate Blood Products 
Litigation, MDL-986, no. 93-C7452 (N.D. Ill.) shall not be 
considered income or resources in determining eligibility for, 
or the amount of benefits under, a State plan of medical 
assistance approved under title XIX of the Social Security Act.

  Subchapter D--Programs of All-inclusive Care for the Elderly (PACE)

SEC. 3431. ESTABLISHMENT OF PACE PROGRAM AS MEDICAID STATE OPTION.

  (a) In General.--Title XIX is amended--
          (1) in section 1905(a) (42 U.S.C. 1396d(a)), as 
        amended by section 3403(a)--
                  (A) by striking ``and'' at the end of 
                paragraph (25);
                  (B) by redesignating paragraph (26) as 
                paragraph (27); and
                  (C) by inserting after paragraph (25) the 
                following new paragraph:
          ``(26) services furnished under a PACE program under 
        section 1932 to PACE program eligible individuals 
        enrolled under the program under such section; and'';
          (2) by redesignating section 1932 as section 1933; 
        and
          (3) by inserting after section 1931 the following new 
        section:

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

  ``Sec. 1932. (a) Option.--
          ``(1) In general.--A State may elect to provide 
        medical assistance under this section with respect to 
        PACE program services to PACE program eligible 
        individuals who are eligible for medical assistance 
        under the State plan and who are enrolled in a PACE 
        program under a PACE program agreement. Such 
        individuals need not be eligible for benefits under 
        part A, or enrolled under part B, of title XVIII to be 
        eligible to enroll under this section. In the case of 
        an individual enrolled with a PACE program pursuant to 
        such an election--
                  ``(A) the individual shall receive benefits 
                under the plan solely through such program, and
                  ``(B) the PACE provider shall receive payment 
                in accordance with the PACE program agreement 
                for provision of such benefits.
        A State may limit through its PACE program agreement 
        the number of individuals who may be enrolled in a PACE 
        program under the State plan.
          ``(2) PACE program defined.--For purposes of this 
        section and section 1894, the term `PACE program' means 
        a program of all-inclusive care for the elderly that 
        meets the following requirements:
                  ``(A) Operation.--The entity operating the 
                program is a PACE provider (as defined in 
                paragraph (3)).
                  ``(B) Comprehensive benefits.--The program 
                provides comprehensive health care services to 
                PACE program eligible individuals in accordance 
                with the PACE program agreement and regulations 
                under this section.
                  ``(C) Transition.--In the case of an 
                individual who is enrolled under the program 
                under this section and whose enrollment ceases 
                for any reason (including the individual no 
                longer qualifies as a PACE program eligible 
                individual, the termination of a PACE program 
                agreement, or otherwise), the program provides 
                assistance to the individual in obtaining 
                necessary transitional care through appropriate 
                referrals and making the individual's medical 
                records available to new providers.
          ``(3) PACE provider defined.--
                  ``(A) In general.--For purposes of this 
                section, the term `PACE provider' means an 
                entity that--
                          ``(i) subject to subparagraph (B), is 
                        (or is a distinct part of) a public 
                        entity or a private, nonprofit entity 
                        organized for charitable purposes under 
                        section 501(c)(3) of the Internal 
                        Revenue Code of 1986, and
                          ``(ii) has entered into a PACE 
                        program agreement with respect to its 
                        operation of a PACE program.
                  ``(B) Treatment of private, for-profit 
                providers.--Clause (i) of subparagraph (A) 
                shall not apply--
                          ``(i) to entities subject to a 
                        demonstration project waiver under 
                        subsection (h); and
                          ``(ii) after the date the report 
                        under section 4014(b) of the Balanced 
                        Budget Act of 1997 is submitted, unless 
                        the Secretary determines that any of 
                        the findings described in subparagraph 
                        (A), (B), (C) or (D) of paragraph (2) 
                        of such section are true.
          ``(4) PACE program agreement defined.--For purposes 
        of this section, the term `PACE program agreement' 
        means, with respect to a PACE provider, an agreement, 
        consistent with this section, section 1894 (if 
        applicable), and regulations promulgated to carry out 
        such sections, between the PACE provider, the 
        Secretary, and a State administering agency for the 
        operation of a PACE program by the provider under such 
        sections.
          ``(5) PACE program eligible individual defined.--For 
        purposes of this section, the term `PACE program 
        eligible individual' means, with respect to a PACE 
        program, an individual who--
                  ``(A) is 55 years of age or older;
                  ``(B) subject to subsection (c)(4), is 
                determined under subsection (c) to require the 
                level of care required under the State medicaid 
                plan for coverage of nursing facility services;
                  ``(C) resides in the service area of the PACE 
                program; and
                  ``(D) meets such other eligibility conditions 
                as may be imposed under the PACE program 
                agreement for the program under subsection 
                (e)(2)(A)(ii).
          ``(6) PACE protocol.--For purposes of this section, 
        the term `PACE protocol' means the Protocol for the 
        Program of All-inclusive Care for the Elderly (PACE), 
        as published by On Lok, Inc., as of April 14, 1995.
          ``(7) PACE demonstration waiver program defined.--For 
        purposes of this section, the term `PACE demonstration 
        waiver program' means a demonstration program under 
        either of the following sections (as in effect before 
        the date of their repeal):
                  ``(A) Section 603(c) of the Social Security 
                Amendments of 1983 (Public Law 98-21), as 
                extended by section 9220 of the Consolidated 
                Omnibus Budget Reconciliation Act of 1985 
                (Public Law 99-272).
                  ``(B) Section 9412(b) of the Omnibus Budget 
                Reconciliation Act of 1986 (Public Law 99-509).
          ``(8) State administering agency defined.--For 
        purposes of this section, the term `State administering 
        agency' means, with respect to the operation of a PACE 
        program in a State, the agency of that State (which may 
        be the single agency responsible for administration of 
        the State plan under this title in the State) 
        responsible for administering PACE program agreements 
        under this section and section 1894 in the State.
          ``(9) Trial period defined.--
                  ``(A) In general.--For purposes of this 
                section, the term `trial period' means, with 
                respect to a PACE program operated by a PACE 
                provider under a PACE program agreement, the 
                first 3 contract years under such agreement 
                with respect to such program.
                  ``(B) Treatment of entities previously 
                operating pace demonstration waiver programs.--
                Each contract year (including a year occurring 
                before the effective date of this section) 
                during which an entity has operated a PACE 
                demonstration waiver program shall be counted 
                under subparagraph (A) as a contract year 
                during which the entity operated a PACE program 
                as a PACE provider under a PACE program 
                agreement.
          ``(10) Regulations.--For purposes of this section, 
        the term `regulations' refers to interim final or final 
        regulations promulgated under subsection (f) to carry 
        out this section and section 1894.
  ``(b) Scope of Benefits; Beneficiary Safeguards.--
          ``(1) In general.--Under a PACE program agreement, a 
        PACE provider shall--
                  ``(A) provide to PACE program eligible 
                individuals, regardless of source of payment 
                and directly or under contracts with other 
                entities, at a minimum--
                          ``(i) all items and services covered 
                        under title XVIII (for individuals 
                        enrolled under section 1894) and all 
                        items and services covered under this 
                        title, but without any limitation or 
                        condition as to amount, duration, or 
                        scope and without application of 
                        deductibles, copayments, coinsurance, 
                        or othercost-sharing that would 
otherwise apply under such title or this title, respectively; and
                          ``(ii) all additional items and 
                        services specified in regulations, 
                        based upon those required under the 
                        PACE protocol;
                  ``(B) provide such enrollees access to 
                necessary covered items and services 24 hours 
                per day, every day of the year;
                  ``(C) provide services to such enrollees 
                through a comprehensive, multidisciplinary 
                health and social services delivery system 
                which integrates acute and long-term care 
                services pursuant to regulations; and
                  ``(D) specify the covered items and services 
                that will not be provided directly by the 
                entity, and to arrange for delivery of those 
                items and services through contracts meeting 
                the requirements of regulations.
          ``(2) Quality assurance; patient safeguards.--The 
        PACE program agreement shall require the PACE provider 
        to have in effect at a minimum--
                  ``(A) a written plan of quality assurance and 
                improvement, and procedures implementing such 
                plan, in accordance with regulations, and
                  ``(B) written safeguards of the rights of 
                enrolled participants (including a patient bill 
                of rights and procedures for grievances and 
                appeals) in accordance with regulations and 
                with other requirements of this title and 
                Federal and State law designed for the 
                protection of patients.
  ``(c) Eligibility Determinations.--
          ``(1) In general.--The determination of whether an 
        individual is a PACE program eligible individual--
                  ``(A) shall be made under and in accordance 
                with the PACE program agreement, and
                  ``(B) who is entitled to medical assistance 
                under this title, shall be made (or who is not 
                so entitled, may be made) by the State 
                administering agency.
          ``(2) Condition.--An individual is not a PACE program 
        eligible individual (with respect to payment under this 
        section) unless the individual's health status has been 
        determined, in accordance with regulations, to be 
        comparable to the health status of individuals who have 
        participated in the PACE demonstration waiver programs. 
        Such determination shall be based upon information on 
        health status and related indicators (such as medical 
        diagnoses and measures of activities of daily living, 
        instrumental activities of daily living, and cognitive 
        impairment) that are part of a uniform minimum data set 
        collected by PACE providers on potential eligible 
        individuals.
          ``(3) Annual eligibility recertifications.--
                  ``(A) In general.--Subject to subparagraph 
                (B), the determination described in subsection 
                (a)(5)(B) for an individual shall be 
                reevaluated at least once a year.
                  ``(B) Exception.--The requirement of annual 
                reevaluation under subparagraph (A) may be 
                waived during a period in accordance with 
                regulations in those cases where the State 
                administering agency determines that there is 
                no reasonable expectation of improvement or 
                significant change in an individual's condition 
                during the period because of the advanced age, 
                severity of the advanced age, severity of 
                chronic condition, or degree of impairment of 
                functional capacity of the individual involved.
          ``(4) Continuation of eligibility.--An individual who 
        is a PACE program eligible individual may be deemed to 
        continue to be such an individual notwithstanding a 
        determination that the individual no longer meets the 
        requirement of subsection (a)(5)(B) if, in accordance 
        with regulations, in the absence of continued coverage 
        under a PACE program the individual reasonably would be 
        expected to meet such requirement within the succeeding 
        6-month period.
          ``(5) Enrollment; disenrollment.--The enrollment and 
        disenrollment of PACE program eligible individuals in a 
        PACE program shall be pursuant to regulations and the 
        PACE program agreement and shall permit enrollees to 
        voluntarily disenroll without cause at any time.
  ``(d) Payments to PACE Providers on a Capitated Basis.--
          ``(1) In general.--In the case of a PACE provider 
        with a PACE program agreement under this section, 
        except as provided in this subsection or by 
        regulations, the State shall make prospective monthly 
        payments of a capitation amount for each PACE program 
        eligible individual enrolled under the agreement under 
        this section.
          ``(2) Capitation amount.--The capitation amount to be 
        applied under this subsection for a provider for a 
        contract year shall be an amount specified in the PACE 
        program agreement for the year. Such amount shall be an 
        amount, specified under the PACE agreement, which is 
        less than the amount that would otherwise have been 
        made under the State plan if the individuals were not 
        so enrolled and shall be adjusted to take into account 
        the comparative frailty of PACE enrollees and such 
        other factors as the Secretary determines to be 
        appropriate. The payment under this section shall be in 
        addition to any payment made under section 1894 for 
        individuals who are enrolled in a PACE program under 
        such section.
  ``(e) PACE Program Agreement.--
          ``(1) Requirement.--
                  ``(A) In general.--The Secretary, in close 
                cooperation with the State administering 
                agency, shall establish procedures for entering 
                into, extending, and terminating PACE program 
                agreements for the operation of PACE programs 
                by entities that meet the requirements for a 
                PACE provider under this section, section 1894, 
                and regulations.
                  ``(B) Numerical limitation.--
                          ``(i) In general.--The Secretary 
                        shall not permit the number of PACE 
                        providers with which agreements are in 
                        effect under this section or under 
                        section 9412(b) of the Omnibus Budget 
                        Reconciliation Act of 1986 to exceed--
                                  ``(I) 40 as of the date of 
                                the enactment of this section, 
                                or
                                  ``(II) as of each succeeding 
                                anniversary of such date, the 
                                numerical limitation under this 
                                subparagraph for the preceding 
                                year plus 20.
                        Subclause (II) shall apply without 
                        regard to the actual number of 
                        agreements in effect as of a previous 
                        anniversary date.
                          ``(ii) Treatment of certain private, 
                        for-profit providers.--The numerical 
                        limitation in clause (i) shall not 
                        apply to a PACE provider that--
                                  ``(I) is operating under a 
                                demonstration project waiver 
                                under subsection (h), or
                                  ``(II) was operating under 
                                such a waiver and subsequently 
                                qualifies for PACE provider 
                                status pursuant to subsection 
                                (a)(3)(B)(ii).
          ``(2) Service area and eligibility.--
                  ``(A) In general.--A PACE program agreement 
                for a PACE program--
                          ``(i) shall designate the service 
                        area of the program;
                          ``(ii) may provide additional 
                        requirements for individuals to qualify 
                        as PACE program eligible individuals 
                        with respect to the program;
                          ``(iii) shall be effective for a 
                        contract year, but may be extended for 
                        additional contract years in the 
                        absence of a notice by a party to 
                        terminate and is subject to termination 
                        by the Secretary and the State 
                        administering agency at any time for 
                        cause (as provided under the 
                        agreement);
                          ``(iv) shall require a PACE provider 
                        to meet all applicable State and local 
                        laws and requirements; and
                          ``(v) shall have such additional 
                        terms and conditions as the parties may 
                        agree to, consistent with this section 
                        and regulations.
                  ``(B) Service area overlap.--In designating a 
                service area under a PACE program agreement 
                under subparagraph (A)(i), the Secretary (in 
                consultation with the State administering 
                agency) may exclude from designation an area 
                that is already covered under another PACE 
                program agreement, in order to avoid 
                unnecessary duplication of services and avoid 
                impairing the financial and service viability 
                of an existing program.
          ``(3) Data collection.--
                  ``(A) In general.--Under a PACE program 
                agreement, the PACE provider shall--
                          ``(i) collect data,
                          ``(ii) maintain, and afford the 
                        Secretary and the State administering 
                        agency access to, the records relating 
                        to the program, including pertinent 
                        financial, medical, and personnel 
                        records, and
                          ``(iii) make to the Secretary and the 
                        State administering agency reports that 
                        the Secretary finds (in consultation 
                        with State administering agencies) 
                        necessary to monitor the operation, 
                        cost, and effectiveness of the PACE 
                        program under this title and title 
                        XVIII.
                  ``(B) Requirements during trial period.--
                During the first three years of operation of a 
                PACE program (either under this section or 
                under a PACE demonstration waiver program), the 
                PACE provider shall provide such additional 
                data as the Secretary specifies in regulations 
                in order to perform the oversight required 
                under paragraph (4)(A).
          ``(4) Oversight.--
                  ``(A) Annual, close oversight during trial 
                period.--During the trial period (as defined in 
                subsection (a)(9)) with respect to a PACE 
                program operated by a PACE provider, the 
                Secretary (in cooperation with the State 
                administering agency) shall conduct a 
                comprehensive annual review of the operation of 
                the PACE program by the provider in order to 
                assure compliance with the requirements of this 
                section and regulations. Such a review shall 
                include--
                          ``(i) an on-site visit to the program 
                        site;
                          ``(ii) comprehensive assessment of a 
                        provider's fiscal soundness;
                          ``(iii) comprehensive assessment of 
                        the provider's capacity to provide all 
                        PACE services to all enrolled 
                        participants;
                          ``(iv) detailed analysis of the 
                        entity's substantial compliance with 
                        all significant requirements of this 
                        section and regulations; and
                          ``(v) any other elements the 
                        Secretary or State agency considers 
                        necessary or appropriate.
                  ``(B) Continuing oversight.--After the trial 
                period, the Secretary (in cooperation with the 
                State administering agency) shall continue to 
                conduct such review of the operation of PACE 
                providers and PACE programs as may be 
                appropriate, taking into account the 
                performance level of a provider and compliance 
                of a provider with all significant requirements 
                of this section and regulations.
                  ``(C) Disclosure.--The results of reviews 
                under this paragraph shall be reported promptly 
                to the PACE provider, along with any 
                recommendations for changes to the provider's 
                program, and shall be made available to the 
                public upon request.
          ``(5) Termination of pace provider agreements.--
                  ``(A) In general.--Under regulations--
                          ``(i) the Secretary or a State 
                        administering agency may terminate a 
                        PACE program agreement for cause, and
                          ``(ii) a PACE provider may terminate 
                        such an agreement after appropriate 
                        notice to the Secretary, the State 
                        agency, and enrollees.
                  ``(B) Causes for termination.--In accordance 
                with regulations establishing procedures for 
                termination of PACE program agreements, the 
                Secretary or a State administering agency may 
                terminate a PACE program agreement with a PACE 
                provider for, among other reasons, the fact 
                that--
                          ``(i) the Secretary or State 
                        administering agency determines that--
                                  ``(I) there are significant 
                                deficiencies in the quality of 
                                care provided to enrolled 
                                participants; or
                                  ``(II) the provider has 
                                failed to comply substantially 
                                with conditions for a program 
                                or provider under this section 
                                or section 1894; and
                          ``(ii) the entity has failed to 
                        develop and successfully initiate, 
                        within 30 days of the date of the 
                        receipt of written notice of such a 
                        determination, and continue 
                        implementation of a plan to correct the 
                        deficiencies.
                  ``(C) Termination and transition 
                procedures.--An entity whose PACE provider 
                agreement is terminated under this paragraph 
                shall implement the transition procedures 
                required under subsection (a)(2)(C).
          ``(6) Secretary's oversight; enforcement authority.--
                  ``(A) In general.--Under regulations, if the 
                Secretary determines (after consultation with 
                the State administering agency) that a PACE 
                provider is failing substantially to comply 
                with the requirements of this section and 
                regulations, the Secretary (and the State 
                administering agency) may take any or all of 
                the following actions:
                          ``(i) Condition the continuation of 
                        the PACE program agreement upon timely 
                        execution of a corrective action plan.
                          ``(ii) Withhold some or all further 
                        payments under the PACE program 
                        agreement under this section or section 
                        1894 with respect to PACE program 
                        services furnished by such provider 
                        until the deficiencies have been 
                        corrected.
                          ``(iii) Terminate such agreement.
                  ``(B) Application of intermediate 
                sanctions.--Under regulations, the Secretary 
                may provide for the application against a PACE 
                provider of remedies described in section 
                1857(f)(2) (or, for periods before January 1, 
                1999, section 1876(i)(6)(B)) or 1903(m)(6)(B) 
                in the case of violations by the provider of 
                the type described in section 1857(f)(1) (or 
                1876(i)(6)(A) for such periods) or 
                1903(m)(6)(A), respectively (in relation to 
                agreements, enrollees, and requirements under 
                section 1894 or this section, respectively).
          ``(7) Procedures for termination or imposition of 
        sanctions.--Under regulations, the provisions of 
        section 1857(g) (or for periods before January 1, 1999, 
        section 1876(i)(9)) shall apply to termination and 
        sanctions respecting a PACE program agreement and PACE 
        provider under this subsection in the same manner as 
        they apply to a termination and sanctions with respect 
        to a contract and a MedicarePlus organization under 
        part C (or for such periods an eligible organization 
        under section 1876).
          ``(8) Timely consideration of applications for pace 
        program provider status.--In considering an application 
        for PACE provider program status, the application shall 
        be deemed approved unless the Secretary, within 90 days 
        after the date of the submission of the application to 
        the Secretary, either denies such request in writing or 
        informs the applicant in writing with respect to any 
        additional information that is needed in order to make 
        a final determination with respect to the application. 
        After the date the Secretary receives such additional 
        information, the application shall be deemed approved 
        unless the Secretary, within 90 days of such date, 
        denies such request.
  ``(f) Regulations.--
          ``(1) In general.--The Secretary shall issue interim 
        final or final regulations to carry out this section 
        and section 1894.
          ``(2) Use of pace protocol.--
                  ``(A) In general.--In issuing such 
                regulations, the Secretary shall, to the extent 
                consistent with the provisions of this section, 
                incorporate the requirements applied to PACE 
                demonstration waiver programs under the PACE 
                protocol.
                  ``(B) Flexibility.--The Secretary (in close 
                consultation with State administering agencies) 
                may modify or waive such provisions of the PACE 
                protocol in order to provide for reasonable 
                flexibility in adapting the PACE service 
                delivery model to the needs of particular 
                organizations (such as those in rural areas or 
                those that may determine it appropriate to use 
                non-staff physicians accordingly to State 
                licensing law requirements) under this section 
                and section 1932 where such flexibility is not 
                inconsistent with and would not impair the 
                essential elements, objectives, and 
                requirements of the this section, including--
                          ``(i) the focus on frail elderly 
                        qualifying individuals who require the 
                        level of care provided in a nursing 
                        facility;
                          ``(ii) the delivery of comprehensive, 
                        integrated acute and long-term care 
                        services;
                          ``(iii) the interdisciplinary team 
                        approach to care management and service 
                        delivery;
                          ``(iv) capitated, integrated 
                        financing that allows the provider to 
                        pool payments received from public and 
                        private programs and individuals; and
                          ``(v) the assumption by the provider 
                        over time of full financial risk.
          ``(3) Application of certain additional beneficiary 
        and program protections.--
                  ``(A) In general.--In issuing such 
                regulations and subject to subparagraph (B), 
                the Secretary may apply with respect to PACE 
                programs, providers, and agreements such 
                requirements of part C of title XVIII (or, for 
                periods before January 1, 1999, section 1876) 
                and section 1903(m) relating to protection of 
                beneficiaries and program integrity as would 
                apply to MedicarePlus organizations under such 
                part C (or for such periods eligible 
                organizations under risk-sharing contracts 
                under section 1876) and to health maintenance 
                organizations under prepaid capitation 
                agreements under section 1903(m).
                  ``(B) Considerations.--In issuing such 
                regulations, the Secretary shall--
                          ``(i) take into account the 
                        differences between populations served 
                        and benefits provided under this 
                        section and under part C of title XVIII 
                        (or, for periods before January 1, 
                        1999, section 1876) and section 
                        1903(m);
                          ``(ii) not include any requirement 
                        that conflicts with carrying out PACE 
                        programs under this section; and
                          ``(iii) not include any requirement 
                        restricting the proportion of enrollees 
                        who are eligible for benefits under 
                        this title or title XVIII.
  ``(g) Waivers of Requirements.--With respect to carrying out 
a PACE program under this section, the following requirements 
of this title (and regulations relating to such requirements) 
shall not apply:
          ``(1) Section 1902(a)(1), relating to any requirement 
        that PACE programs or PACE program services be provided 
        in all areas of a State.
          ``(2) Section 1902(a)(10), insofar as such section 
        relates to comparability of services among different 
        population groups.
          ``(3) Sections 1902(a)(23) and 1915(b)(4), relating 
        to freedom of choice of providers under a PACE program.
          ``(4) Section 1903(m)(2)(A), insofar as it restricts 
        a PACE provider from receiving prepaid capitation 
        payments.
  ``(h) Demonstration Project for For-Profit Entities.--
          ``(1) In general.--In order to demonstrate the 
        operation of a PACE program by a private, for-profit 
        entity, the Secretary (in close consultation with State 
        administering agencies) shall grant waivers from the 
        requirement under subsection (a)(3) that a PACE 
        provider may not be a for-profit, private entity.
          ``(2) Similar terms and conditions.--
                  ``(A) In general.--Except as provided under 
                subparagraph (B), and paragraph (1), the terms 
                and conditions for operation of a PACE program 
                by a provider under this subsection shall be 
                the same as those for PACE providers that are 
                nonprofit, private organizations.
                  ``(B) Numerical limitation.--The number of 
                programs for which waivers are granted under 
                this subsection shall not exceed 10. Programs 
                with waivers granted under this subsection 
                shall not be counted against the numerical 
                limitation specified in subsection (e)(1)(B).
  ``(i) Post-Eligibility Treatment of Income.--A State may 
provide for post-eligibility treatment of income for 
individuals enrolled in PACE programs under this section in the 
same manner as a State treats post-eligibility income for 
individuals receiving services under a waiver under section 
1915(c).
  ``(j) Miscellaneous Provisions.--
          ``(1) Construction.--Nothing in this section or 
        section 1894 shall be construed as preventing a PACE 
        provider from entering into contracts with other 
        governmental or nongovernmental payers for the care of 
        PACE program eligible individuals who are not eligible 
        for benefits under part A, or enrolled under part B, of 
        title XVIII or eligible for medical assistance under 
        this title.''.
  (b) Conforming Amendments.--
          (1) Section 1902 (42 U.S.C. 1396a), as amended by 
        section 3403(c), is amended--
                  (A) in subsection (a)(10)(C)(iv), by striking 
                ``(25)'' and inserting ``(26)'', and
                  (B) in subsection (j), by striking ``(26)'' 
                and inserting ``(27)''.
          (2) Section 1924(a)(5) (42 U.S.C. 1396r-5(a)(5)) is 
        amended--
                  (A) in the heading, by striking ``from 
                organizations receiving certain waivers'' and 
                inserting ``under pace programs'', and
                  (B) by striking ``from any organization'' and 
                all that follows and inserting ``under a PACE 
                demonstration waiver program (as defined in 
                subsection (a)(7) of section 1932) or under a 
                PACE program under section 1894.''.
          (3) Section 1903(f)(4)(C) (42 U.S.C. 1396b(f)(4)(C)) 
        is amended by inserting ``or who is a PACE program 
        eligible individual enrolled in a PACE program under 
        section 1932,'' after ``section 1902(a)(10)(A),''.

SEC. 3432. COVERAGE OF PACE UNDER THE MEDICARE PROGRAM.

  Title XVIII (42 U.S.C. 1395 et seq.) is amended by inserting 
after section 1894 the following new section:

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

  ``Sec. 1894. (a) Receipt of Benefits Through Enrollment in 
PACE Program; Definitions for PACE Program Related Terms.--
          ``(1) Benefits through enrollment in a pace 
        program.--In accordance with this section, in the case 
        of an individual who is entitled to benefits under part 
        A or enrolled under part B and who is a PACE program 
        eligible individual with respect to a PACE program 
        offered by a PACE provider under a PACE program 
        agreement--
                  ``(A) the individual may enroll in the 
                program under this section; and
                  ``(B) so long as the individual is so 
                enrolled and in accordance with regulations--
                          ``(i) the individual shall receive 
                        benefits under this title solely 
                        through such program, and
                          ``(ii) the PACE provider is entitled 
                        to payment under and in accordance with 
                        this section and such agreement for 
                        provision of such benefits.
          ``(2) Application of definitions.--The definitions of 
        terms under section 1932(a) shall apply under this 
        section in the same manner as they apply under section 
        1932.
  ``(b) Application of Medicaid Terms and Conditions.--Except 
as provided in this section, the terms and conditions for the 
operation and participation of PACE program eligible 
individuals in PACE programs offered by PACE providers under 
PACE program agreements under section 1932 shall apply for 
purposes of this section.
  ``(c) Payment.--
          ``(1) Adjustment in payment amounts.--In the case of 
        individuals enrolled in a PACE program under this 
        section, the amount of payment under this section shall 
        not be the amount calculated under section 1932(d)(2), 
        but shall be an amount, specified under the PACE 
        agreement, based upon payment rates established for 
        purposes of payment under section 1854 (or, for periods 
        before January 1, 1999, for purposes of risk-sharing 
        contracts under section 1876) and shall be adjusted to 
        take into account the comparative frailty of PACE 
        enrollees and such other factors as the Secretary 
        determines to be appropriate. Such amount under such an 
        agreement shall be computed in a manner so that the 
        total payment level for all PACE program eligible 
        individuals enrolled under a program is less than the 
        projected payment under this title for a comparable 
        population not enrolled under a PACE program.
          ``(2) Form.--The Secretary shall make prospective 
        monthly payments of a capitation amount for each PACE 
        program eligible individual enrolled under this section 
        in the same manner and from the same sources as 
        payments are made to a MedicarePlus organization under 
        section 1854 (or, for periods beginning before January 
        1, 1999, to an eligible organization under a risk-
        sharing contract under section 1876). Such payments 
        shall be subject to adjustment in the manner described 
        in section 1854(a)(2) or section 1876(a)(1)(E), as the 
        case may be.
  ``(d) Waivers of Requirements.--With respect to carrying out 
a PACE program under this section, the following requirements 
of this title (and regulations relating to such requirements) 
are waived and shall not apply:
          ``(1) Section 1812, insofar as it limits coverage of 
        institutional services.
          ``(2) Sections 1813, 1814, 1833, and 1886, insofar as 
        such sections relate to rules for payment for benefits.
          ``(3) Sections 1814(a)(2)(B), 1814(a)(2)(C), and 
        1835(a)(2)(A), insofar as they limit coverage of 
        extended care services or home health services.
          ``(4) Section 1861(i), insofar as it imposes a 3-day 
        prior hospitalization requirement for coverage of 
        extended care services.
          ``(5) Sections 1862(a)(1) and 1862(a)(9), insofar as 
        they may prevent payment for PACE program services to 
        individuals enrolled under PACE programs.''.

SEC. 3433. EFFECTIVE DATE; TRANSITION.

  (a) Timely Issuance of Regulations; Effective Date.--The 
Secretary of Health and Human Services shall promulgate 
regulations to carry out this subchapter in a timely manner. 
Such regulations shall be designed so that entities may 
establish and operate PACE programs under sections 1894 and 
1932 for periods beginning not later than 1 year after the date 
of the enactment of this Act.
  (b) Expansion and Transition for PACE Demonstration Project 
Waivers.--
          (1) Expansion in current number and extension of 
        demonstration projects.--Section 9412(b) of the Omnibus 
        Budget Reconciliation Act of 1986, as amended by 
        section 4118(g) of the Omnibus Budget Reconciliation 
        Act of 1987, is amended--
                  (A) in paragraph (1), by inserting before the 
                period at the end the following: ``, except 
                that the Secretary shall grant waivers of such 
                requirements to up to the applicable numerical 
                limitation specified in section 1932(e)(1)(B) 
                of the Social Security Act''; and
                  (B) in paragraph (2)--
                          (i) in subparagraph (A), by striking 
                        ``, including permitting the 
                        organization to assume progressively 
                        (over the initial 3-year period of the 
                        waiver) the full financial risk''; and
                          (ii) in subparagraph (C), by adding 
                        at the end the following: ``In granting 
                        further extensions, an organization 
                        shall not be required to provide for 
                        reporting of information which is only 
                        required because of the demonstration 
                        nature of the project.''.
          (2) Elimination of replication requirement.--
        Subparagraph (B) of paragraph (2) of such section shall 
        not apply to waivers granted under such section after 
        the date of the enactment of this Act.
          (3) Timely consideration of applications.--In 
        considering an application for waivers under such 
        section before the effective date of repeals under 
        subsection (c), subject to the numerical limitation 
        under the amendment made by paragraph (1), the 
        application shall be deemed approved unless the 
        Secretary of Health and Human Services, within 90 days 
        after the date of its submission to the Secretary, 
        either denies such request in writing or informs the 
        applicant in writing with respect to any additional 
        information which is needed in order to make a final 
        determination with respect to the application. After 
        the date the Secretary receives such additional 
        information, the application shall be deemed approved 
        unless the Secretary, within 90 days of such date, 
        denies such request.
  (c) Priority and Special Consideration in Application.--
During the 3-year period beginning on the date of the enactment 
of this Act:
          (1) Provider status.--The Secretary of Health and 
        Human Services shall give priority, in processing 
        applications of entities to qualify as PACE programs 
        under section 1894 or 1932 of the Social Security Act--
                  (A) first, to entities that are operating a 
                PACE demonstration waiver program (as defined 
                in section 1932(a)(7) of such Act), and
                  (B) then entities that have applied to 
                operate such a program as of May 1, 1997.
          (2) New waivers.--The Secretary shall give priority, 
        in the awarding of additional waivers under section 
        9412(b) of the Omnibus Budget Reconciliation Act of 
        1986--
                  (A) to any entities that have applied for 
                such waivers under such section as of May 1, 
                1997; and
                  (B) to any entity that, as of May 1, 1997, 
                has formally contracted with a State to provide 
                services for which payment is made on a 
                capitated basis with an understanding that the 
                entity was seeking to become a PACE provider.
          (3) Special consideration.--The Secretary shall give 
        special consideration, in the processing of 
        applications described in paragraph (1) and the 
        awarding of waivers described in paragraph (2), to an 
        entity which as of May 1, 1997 through formal 
        activities (such as entering into contracts for 
        feasibility studies) has indicated a specific intent to 
        become a PACE provider.
  (d) Repeal of Current PACE Demonstration Project Waiver 
Authority.--
          (1) In general.--Subject to paragraphs (2) and (3), 
        the following provisions of law are repealed:
                  (A) Section 603(c) of the Social Security 
                Amendments of 1983 (Public Law 98-21).
                  (B) Section 9220 of the Consolidated Omnibus 
                Budget Reconciliation Act of 1985 (Public Law 
                99-272).
                  (C) Section 9412(b) of the Omnibus Budget 
                Reconciliation Act of 1986 (Public Law 99-509).
          (2) Delay in application.--
                  (A) In general.--Subject to subparagraph (B), 
                the repeals made by paragraph (1) shall not 
                apply to waivers granted before the initial 
                effective date of regulations described in 
                subsection (a).
                  (B) Application to approved waivers.--Such 
                repeals shall apply to waivers granted before 
                such date only after allowing such 
                organizations a transition period (of up to 24 
                months) in order to permit sufficient time for 
                an orderly transition from demonstration 
                project authority to general authority provided 
                under the amendments made by this subchapter.
          (3) State option.--A State may elect to maintain the 
        PACE program which (as of the date of the enactment of 
        this Act) were operating under the authority described 
        in paragraph (1) without electing to use the authority 
        under section 1932 of the Public Health Service Act.

SEC. 3434. STUDY AND REPORTS.

  (a) Study.--
          (1) In general.--The Secretary of Health and Human 
        Services (in close consultation with State 
        administering agencies, as defined in section 
        1932(a)(8) of the Social Security Act) shall conduct a 
        study of the quality and cost of providing PACE program 
        services under the medicare and medicaid programs under 
        the amendments made by this subchapter.
          (2) Study of private, for-profit providers.--Such 
        study shall specifically compare the costs, quality, 
        and access to services by entities that are private, 
        for-profit entities operating under demonstration 
        projects waivers granted under section 1932(h) of the 
        Social Security Act with the costs, quality, and access 
        to services of other PACE providers.
  (b) Report.--
          (1) In general.--Not later than 4 years after the 
        date of the enactment of this Act, the Secretary shall 
        provide for a report to Congress on the impact of such 
        amendments on quality and cost of services. The 
        Secretary shall include in such report such 
        recommendations for changes in the operation of such 
        amendments as the Secretary deems appropriate.
          (2) Treatment of private, for-profit providers.--The 
        report shall include specific findings on whether any 
        of the following findings is true:
                  (A) The number of covered lives enrolled with 
                entities operating under demonstration project 
                waivers under section 1932(h) of the Social 
                Security Act is fewer than 800 (or such lesser 
                number as the Secretarymay find statistically 
sufficient to make determinations respecting findings described in the 
succeeding subparagraphs).
                  (B) The population enrolled with such 
                entities is less frail than the population 
                enrolled with other PACE providers.
                  (C) Access to or quality of care for 
                individuals enrolled with such entities is 
                lower than such access or quality for 
                individuals enrolled with other PACE providers.
                  (D) The application of such section has 
                resulted in an increase in expenditures under 
                the medicare or medicaid programs above the 
                expenditures that would have been made if such 
                section did not apply.
  (c) Information Included in Annual Recommendations.--The 
Medicare Payment Advisory Commission shall include in its 
annual report under section 1805(b)(1)(B) of the Social 
Security Act recommendations on the methodology and level of 
payments made to PACE providers under section 1894(d) of such 
Act and on the treatment of private, for-profit entities as 
PACE providers.

                         Subchapter E--Benefits

SEC. 3441. ELIMINATION OF REQUIREMENT TO PAY FOR PRIVATE INSURANCE.

  (a) Repeal of State Plan Provision.--Section 1902(a)(25) (42 
U.S.C. 1396a(a)(25)) is amended--
          (1) by striking subparagraph (G); and
          (2) by redesignating subparagraphs (H) and (I) as 
        subparagraphs (G) and (H), respectively.
  (b) Making Provision Optional.--Section 1906 (42 U.S.C. 
1396e) is amended--
          (1) in subsection (a)--
                  (A) by striking ``For purposes of section 
                1902(a)(25)(G) and subject to subsection (d), 
                each'' and inserting ``Each'',
                  (B) in paragraph (1), by striking ``shall'' 
                and inserting ``may'', and
                  (C) in paragraph (2), by striking ``shall'' 
                and inserting ``may''; and
          (2) by striking subsection (d).
  (c) Effective Date.--The amendments made by this section 
shall take effect on the date of the enactment of this Act.

SEC. 3442. PERMITTING SAME COPAYMENTS IN HEALTH MAINTENANCE 
                    ORGANIZATIONS AS IN FEE-FOR-SERVICE.

  (a) In General.--Section 1916(a)(2)(D) (42 U.S.C. 
1396o(a)(2)(D)) is amended by inserting ``(at the option of the 
State)'' after ``section 1905(a)(4)(C), or''.
  (b) Effective Date.--The amendment made by subsection (a) 
shall apply to cost sharing with respect to deductions, cost 
sharing and similar charges imposed for items and services 
furnished on or after the date of the enactment of this Act.

SEC. 3443. PHYSICIAN QUALIFICATION REQUIREMENTS.

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

SEC. 3444. ELIMINATION OF REQUIREMENT OF PRIOR INSTITUTIONALIZATION 
                    WITH RESPECT TO HABILITATION SERVICES FURNISHED 
                    UNDER A WAIVER FOR HOME OR COMMUNITY-BASED 
                    SERVICES.

  (a) In General.--Section 1915(c)(5) (42 U.S.C. 1396n(c)(5)) 
is amended, in the matter preceding subparagraph (A), by 
striking ``, with respect to individuals who receive such 
services after discharge from a nursing facility or 
intermediate care facility for the mentally retarded''.
  (b) Effective Date.--The amendment made by subsection (a) 
apply to services furnished on or after October 1, 1997.

SEC. 3445. BENEFITS FOR SERVICES OF PHYSICIAN ASSISTANTS.

  (a) In General.--Section 1905(a) (42 U.S.C. 1396d(a)), as 
amended by sections 3403(a) and 3431(a), is amended--
          (1) by redesignating paragraphs (22) through (27) as 
        paragraphs (23) through (28), and
          (2) by inserting after paragraph (21) the following 
        new paragraph:
          ``(22) services furnished by a physician assistant 
        (as defined in section 1861(aa)(5)) which the assistant 
        is legally authorized to perform under State law and 
        with the supervision of a physician;''.
  (b) Conforming Amendments.--Section 1902 (42 U.S.C. 1396a), 
as amended by sections 3403(c) and 3431(b)(1), is amended--
          (1) in subsection (a)(10)(C)(iv), by striking 
        ``(26)'' and inserting ``(27)'', and
          (2) in subsection (j), by striking ``(27)'' and 
        inserting ``(28)''.

SEC. 3446. STUDY AND REPORT ON ACTUARIAL VALUE OF EPSDT BENEFIT.

  (a) Study.--The Secretary of Health and Human Services shall 
provide for a study on the actuarial value of the provision of 
early and periodic screening, diagnostic, and treatment 
services (as defined in section 1905(r) of the Social Security 
Act (42 U.S.C. 1396d(r))) under the medicaid program under 
title XIX of such Act. Such study shall include an examination 
of the portion of such value that is attributable to paragraph 
(5) of such section and to the second sentence of such section.
  (b) Report.--By not later than 18 months after the date of 
the enactment of this Act, the Secretary shall submit a report 
to Congress on the results of the study under subsection (a).

                      Subchapter F--Administration

SEC. 3451. ELIMINATION OF DUPLICATIVE INSPECTION OF CARE REQUIREMENTS 
                    FOR ICFS/MR AND MENTAL HOSPITALS.

  (a) Mental Hospitals.--Section 1902(a)(26) (42 U.S.C. 
1396a(a)(26)) is amended--
          (1) by striking ``provide--
                  ``(A) with respect to each patient'' and 
                inserting ``provide, with respect to each 
                patient''; and
          (2) by striking subparagraphs (B) and (C).
  (b) ICFS/MR.--Section 1902(a)(31) (42 U.S.C. 1396a(a)(31)) is 
amended--
          (1) by striking ``provide--
                  ``(A) with respect to each patient'' and 
                inserting ``provide, with respect to each 
                patient''; and
          (2) by striking subparagraphs (B) and (C).
  (c) Effective Date.--The amendments made by this section take 
effect on the date of the enactment of this Act.

SEC. 3452. ALTERNATIVE SANCTIONS FOR NONCOMPLIANT ICFS/MR.

  (a) In General.--Section 1902(i)(1)(B) (42 U.S.C. 
1396a(i)(1)(B)) is amended by striking ``provide'' and 
inserting ``establish alternative remedies if the State 
demonstrates to the Secretary's satisfaction that the 
alternative remedies are effective in deterring noncompliance 
and correcting deficiencies, and may provide''.
  (b) Effective Date.--The amendments made by subsection (a) 
takes effect on the date of the enactment of this Act.

SEC. 3453. MODIFICATION OF MMIS REQUIREMENTS.

  (a) In General.--Section 1903(r) (42 U.S.C. 1396b(r)) is 
amended--
          (1) by striking all that precedes paragraph (5) and 
        inserting the following:
  ``(r)(1) In order to receive payments under subsection (a) 
for use of automated data systems in administration of the 
State plan under this title, a State must have in operation 
mechanized claims processing and information retrieval systems 
that meet the requirements of this subsection and that the 
Secretary has found--
          ``(A) is adequate to provide efficient, economical, 
        and effective administration of such State plan;
          ``(B) is compatible with the claims processing and 
        information retrieval systems used in the 
        administration of title XVIII, and for this purpose--
                          ``(i) has a uniform identification 
                        coding system for providers, other 
                        payees, and beneficiaries under this 
                        title or title XVIII;
                          ``(ii) provides liaison between 
                        States and carriers and intermediaries 
                        with agreements under title XVIII to 
                        facilitate timely exchange of 
                        appropriate data; and
                          ``(iii) provides for exchange of data 
                        between the States and the Secretary 
                        with respect to persons sanctioned 
                        under this title or title XVIII;
          ``(C) is capable of providing accurate and timely 
        data;
          ``(D) is complying with the applicable provisions of 
        part C of title XI;
          ``(E) is designed to receive provider claims in 
        standard formats to the extent specified by the 
        Secretary; and
          ``(F) effective for claims filed on or after January 
        1, 1999, provides for electronic transmission of claims 
        data in the format specified by the Secretary and 
        consistent with the Medicaid Statistical Information 
        System (MSIS) (including detailed individual enrollee 
        encounter data and other information that the Secretary 
        may find necessary).''.
          (2) in paragraph (5)--
                  (A) by striking subparagraph (B);
                  (B) by striking all that precedes clause (i) 
                and inserting the following:
  ``(2) In order to meet the requirements of this paragraph, 
mechanized claims processing and information retrieval systems 
must meet the following requirements:'';
                  (C) in clause (iii), by striking ``under 
                paragraph (6)''; and
                  (D) by redesignating clauses (i) through 
                (iii) as paragraphs (A) through (C); and
          (3) by striking paragraphs (6), (7), and (8).
  (b) Conforming Amendments.--Section 1902(a)(25)(A)(ii) (42 
U.S.C. 1396a(a)(25)(A)(ii)) is amended by striking all that 
follows ``shall'' and inserting the following: ``be integrated 
with, and be monitored as a part of the Secretary's review of, 
the State's mechanized claims processing and information 
retrieval system under section 1903(r);''.
  (c) Effective Date.--Except as otherwise specifically 
provided, the amendments made by this section shall take effect 
on January 1, 1998.

SEC. 3454. FACILITATING IMPOSITION OF STATE ALTERNATIVE REMEDIES ON 
                    NONCOMPLIANT NURSING FACILITIES.

  (a) In General.--Section 1919(h)(3)(D) (42 U.S.C. 
1396r(h)(3)(D)) is amended--
          (1) by inserting ``and'' at the end of clause (i);
          (2) by striking ``, and'' at the end of clause (ii) 
        and inserting a period; and
          (3) by striking clause (iii).
  (b) Effective Date.--The amendments made by subsection (a) 
take effect on the date of the enactment of this Act.

SEC. 3455. MEDICALLY ACCEPTED INDICATION.

  Section 1927(g)(1)(B)(i) (42 U.S.C. 1396r-8(g)(1)(B)(i)) is 
amended--
          (1) by striking ``and'' at the end of subclause (II),
          (2) by redesignating subclause (III) as subclause 
        (IV), and
          (3) by inserting after subclause (II) the following:
                                  ``(III) the DRUGDEX 
                                Information System; and''.

SEC. 3456. CONTINUATION OF STATE-WIDE SECTION 1115 MEDICAID WAIVERS.

  (a) In General.--Section 1115 (42 U.S.C. 1315) is amended by 
adding at the end the following new subsection:
  ``(e)(1) The provisions of this subsection shall apply to the 
extension of State-wide comprehensive demonstration project (in 
this subsection referred to as `waiver project') for which a 
waiver of compliance with requirements of title XIX is granted 
under subsection (a).
  ``(2) Not earlier than 1 year before the date the waiver 
under subsection (a) with respect to a waiver project would 
otherwise expire, the chief executive officer of the State 
which is operating the project may submit to the Secretary a 
written request for an extension, of up to 3 years, of the 
project.
  ``(3) If the Secretary fails to respond to the request within 
6 months after the date it is submitted, the request is deemed 
to have been granted.
  ``(4) If such a request is granted, the deadline for 
submittal of a final report under the waiver project is deemed 
to have been extended until the date that is 1 year after the 
date the waivers under subsection (a) with respect to the 
project would otherwise have expired.
  ``(5) The Secretary shall release an evaluation of each such 
project not later than 1 year after the date of receipt of the 
final report.
  ``(6) Subject to paragraphs (4) and (7), the extension of a 
waiver project under this subsection shall be on the same terms 
and conditions (including applicable terms and conditions 
relating to quality and access of services, budget neutrality, 
data and reporting requirements, and special population 
protections) that applied to the project before its extension 
under this subsection.
  ``(7) If an original condition of approval of a waiver 
project was that Federal expenditures under the project not 
exceed the Federal expenditures that would otherwise have been 
made, the Secretary shall take such steps as may be necessary 
to assure that, in the extension of the project under this 
subsection, such condition continues to be met. In applying the 
previous sentence, the Secretary shall take into account the 
Secretary's best estimate of rates of change in expenditures at 
the time of the extension.''.
  (b) Effective Date.--The amendment made by subsection (a) 
shall apply to demonstration projects initially approved 
before, on, or after the date of the enactment of this Act.

SEC. 3457. AUTHORIZING ADMINISTRATIVE STREAMLINING AND PRIVATIZING 
                    MODIFICATIONS UNDER THE MEDICAID PROGRAM.

  Section 1902 (42 U.S.C. 1396a) is amended by adding at the 
end the following:
  ``(aa)(1) Notwithstanding any other provision of law, no 
provision of law shall be construed as preventing any State 
from allowing determinations of eligibility to receive medical 
assistance under this title to be made by an entity that is not 
a State or local government, or by an individual who is not an 
employee of a State or local government, which meets such 
qualifications as the State determines. For purposes of any 
Federal law, such determinations shall be considered to be made 
by the State and by a State agency.
  ``(2) Nothing in this subsection shall be construed as 
affecting--
          ``(A) the conditions for eligibility for benefits 
        (including any conditions relating to income or 
        resources); and
          ``(B) the rights to challenge determinations 
        regarding eligibility or rights to benefits; and
          ``(C) determinations regarding quality control or 
        error rates.''.

SEC. 3458. EXTENSION OF MORATORIUM.

  Section 6408(a)(3) of the Omnibus Budget Reconciliation Act 
of 1989, as amended by section 13642 of the Omnibus Budget 
Reconciliation Act of 1993, is amended by striking ``December 
31, 1995'' and inserting ``December 31, 2002''.

                      CHAPTER 2--QUALITY ASSURANCE

SEC. 3461. REQUIREMENTS TO ENSURE QUALITY OF AND ACCESS TO CARE UNDER 
                    MANAGED CARE PLANS.

  (a) State Plan Requirement.--Section 1902(a) (42 U.S.C. 
1396a(a)) is amended--
          (1) in paragraph (62), by striking ``; and'' at the 
        end and inserting a semicolon;
          (2) by striking the period at the end of paragraph 
        (63) and inserting ``; and''; and
          (3) by inserting after paragraph (63) the following 
        new paragraph:
          ``(64) provide, with respect to all contracts 
        described in section 1903(m)(2)(A) with an organization 
        or provider, that--
                  ``(A) the State agency develops and 
                implements a quality assessment and improvement 
                strategy, consistent with standards that the 
                Secretary shall establish, in consultation with 
                the States, and monitor and that do not preempt 
                the application of stricter State standards, 
                which includes--
                          ``(i) standards for access to care so 
                        that covered services are available 
                        within reasonable timeframes and in a 
                        manner that ensures continuity of care 
                        and adequate primary care and, where 
                        applicable, specialized services 
                        capacity, including pediatric 
                        specialized services for special needs 
                        children (as defined in section 
                        1915(i)); and
                          ``(ii) procedures for monitoring and 
                        evaluating the quality and 
                        appropriateness of care and services to 
                        beneficiaries that reflect the full 
                        spectrum of populations enrolled under 
                        the contract and that include--
                                  ``(I) requirements for 
                                provision of quality assurance 
                                data to the State using the 
                                data and information set that 
                                the Secretary shall specify 
                                with respect to entities 
                                contracting under section 1876 
                                or alternative data 
                                requirements approved by the 
                                Secretary;
                                  ``(II) regular and periodic 
                                examination of the scope and 
                                content of the quality 
                                improvement strategy; and
                                  ``(III) other aspects of care 
                                and service directly related to 
                                the improvement of quality of 
                                care (including grievance 
                                procedures and marketing and 
                                information standards); and
                  ``(B) that adequate provision is made, 
                consistent with standards that the Secretary 
                shall specify and monitor, with respect to 
                financial reporting under the contracts.''.
  (b) Deemed Compliance.--Section 1903(m) (42 U.S.C. 1396b(m)) 
is amended by adding at the end the following:
  ``(7) Deemed compliance.--
          ``(A) Medicare organizations.--At the option of a 
        State, the requirements of the previous provisions of 
        this subsection shall not apply with respect to a 
        health maintenance organization if the organization is 
        an eligible organization with a contract in effect 
        under section 1876 or a MedicarePlus organization with 
        a contract in effect under C of title XVIII.
          ``(B) Private accreditation.--
                  ``(i) In general.--At the option of a State, 
                such requirements shall not apply with respect 
                to a health maintenance organization if--
                          ``(I) the organization is accredited 
                        by an organization meeting the 
                        requirements described in subparagraph 
                        (C); and
                          ``(II) the standards and process 
                        under which the organization is 
                        accredited meet such requirements as 
                        are established under clause (ii), 
                        without regard to whether or not the 
                        time requirement of such clause is 
                        satisfied.
                  ``(ii) Standards and process.--Not later than 
                180 days after the date of the enactment of 
                this paragraph, the Secretary shall specify 
                requirements for the standards and process 
                under which a health maintenance organization 
                is accredited by an organization meeting the 
                requirements of subparagraph (C).
          ``(C) Accrediting organization.--An accrediting 
        organization meets the requirements of this 
        subparagraph if the organization--
                  ``(i) is a private, nonprofit organization;
                  ``(ii) exists for the primary purpose of 
                accrediting managed care organizations or 
                health care providers; and
                  ``(iii) is independent of health care 
                providers or associations of health care 
                providers.''.
  (c) Application to Managed Care Entities.--Section 
1903(m)(2)(A) (42 U.S.C. 1396b(m)(2)(A)) is amended--
          (1) by striking ``and'' at the end of clause (x),
          (2) by striking the period at the end of clause (xi) 
        and inserting ``; and'', and
          (3) by adding at the end the following new clause:
          ``(xii) such contract provides for--
                  ``(I) submitting to the State agency such 
                information as may be necessary to monitor the 
                care delivered to members,
                  ``(II) maintenance of an internal quality 
                assurance program consistent with section 
                1902(a)(64)(A), and meeting standards that the 
                Secretary shall establish in regulations; and
                  ``(III) providing effective procedures for 
                hearing and resolving grievances between the 
                entity and members enrolled with the 
                organization under this subsection.''.
  (d) Application to Primary Care Case Management Contracts.--
Section 1905(t)(3), as added by section 3403(b), 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) if payment is made to the organization on a 
        prepaid capitated or other risk basis, compliance with 
        the requirements of section 1903(m)(2)(A)(xii) in the 
        same manner such requirements apply to a health 
        maintenance organization under section 
        1903(m)(2)(A).''.
  (e) Effective Date.--The amendments made by this section 
apply to agreements between a State agency and an organization 
entered into or renewed on or after January 1, 1999.

SEC. 3462. SOLVENCY STANDARDS FOR CERTAIN HEALTH MAINTENANCE 
                    ORGANIZATIONS.

  (a) In General.--Section 1903(m)(1) (42 U.S.C. 1396b(m)(1)) 
is amended--
          (1) in subparagraph (A)(ii), by inserting ``, meets 
        the requirements of subparagraph (C)(i) (if 
        applicable),'' after ``provision is satisfactory to the 
        State'', and
          (2) by adding at the end the following:
  ``(C)(i) Subject to clause (ii), a provision meets the 
requirements of this subparagraph for an organization if the 
organization meets solvency standards established by the State 
for private health maintenance organizations or is licensed or 
certified by the State as a risk-bearing entity.
  ``(ii) Clause (i) shall not apply to an organization if--
          ``(I) the organization is not responsible for the 
        provision (directly or through arrangements with 
        providers of services) of inpatient hospital services 
        and physicians' services;
          ``(II) the organization is a public entity;
          ``(III) the solvency of the organization is 
        guaranteed by the State; or
          ``(IV) the organization is (or is controlled by) one 
        or more federally-qualified health centers and meets 
        solvency standards established by the State for such an 
        organization.
For purposes of subclause (IV), the term `control' means the 
possession, whether direct or indirect, of the power to direct 
or cause the direction of the management and policies of the 
organization through membership, board representation, or an 
ownership interest equal to or greater than 50.1 percent.''
  (b) Effective Date.--The amendments made by subsection (a) 
shall apply to contracts entered into or renewed on or after 
October 1, 1998.
  (c) Transition.--In the case of a health maintenance 
organization that as of the date of the enactment of this Act 
has entered into a contract with a State for the provision of 
medical assistance under title XIX under which the organization 
assumes full financial risk and is receiving capitation 
payments, the amendment made by subsection (a) shall not apply 
to such organization until 3 years after the date of the 
enactment of this Act.

SEC. 3463. APPLICATION OF PRUDENT LAYPERSON STANDARD FOR EMERGENCY 
                    MEDICAL CONDITION AND PROHIBITION OF GAG RULE 
                    RESTRICTIONS.

  Section 1903(m) (42 U.S.C. 1396b(m)) is amended by adding at 
the end the following:
  ``(8)(A)(i) Each contract with a health maintenance 
organization under this subsection shall require the 
organization--
          ``(I) to provide coverage for emergency services (as 
        defined in subparagraph (B)) without regard to prior 
        authorization or the emergency care provider's 
        contractual relationship with the organization, and
          ``(II) to comply with guidelines established under 
        section 1852(d)(2) (respecting coordination of post-
        stabilization care) in the same manner as such 
        guidelines apply to MedicarePlus plans offered under 
        part C of title XVIII.
  ``(B) In subparagraph (A)(i)(I), the term `emergency 
services' means, with respect to an individual enrolled with an 
organization, covered inpatient and outpatient services that--
          ``(i) are furnished by a provider that is qualified 
        to furnish such services under this title, and
          ``(ii) are needed to evaluate or stabilize an 
        emergency medical condition (as defined in subparagraph 
        (C)).
  ``(C) In subparagraph (B)(ii), the term `emergency medical 
condition' means a medical condition manifesting itself by 
acute symptoms of sufficient severity such that a prudent 
layperson, who possesses an average knowledge of health and 
medicine, could reasonably expect the absence of immediate 
medical attention to result in--
          ``(i) placing the health of the individual (or, with 
        respect to a pregnant woman, the health of the woman or 
        her unborn child) in serious jeopardy,
          ``(ii) serious impairment to bodily functions, or
          ``(iii) serious dysfunction of any bodily organ or 
        part.
  ``(9)(A) Subject to subparagraphs (B) and (C), under a 
contract under this subsection a health maintenance 
organization (in relation to an individual enrolled under the 
contract) shall not prohibit or otherwise restrict a covered 
health care professional (as defined in subparagraph (D)) from 
advising such an individual who is a patient of the 
professional about the health status of the individual or 
medical care or treatment for the individual's condition or 
disease, regardless of whether benefits for such care or 
treatment are provided under the plan, if the professional is 
acting within the lawful scope of practice.
  ``(B) Subparagraph (A) shall not be construed as requiring a 
health maintenance organization to provide, reimburse for, or 
provide coverage of a counseling or referral service if the 
organization--
          ``(i) objects to the provision of such service on 
        moral or religious grounds; and
          ``(ii) in the manner and through the written 
        instrumentalities such organization deems appropriate, 
        makes available information on its policies regarding 
        such service to prospective enrollees before or during 
        enrollment and to enrollees within 90 days after the 
        date that the organization or plan adopts a change in 
        policy regarding such a counseling or referral service.
  ``(C) Nothing in subparagraph (B) shall be construed to 
affect disclosure requirements under State law or under the 
Employee Retirement Income Security Act of 1974.
  ``(D) For purposes of this paragraph, the term `health care 
professional' means a physician (as defined in section 1861(r)) 
or other health care professional if coverage for the 
professional's services is provided under the contract under 
this subsection for the services of the professional. Such term 
includes a podiatrist, optometrist, chiropractor, psychologist, 
dentist, physician assistant, physical or occupational 
therapist and therapy assistant, speech-language pathologist, 
audiologist, registered or licensed practical nurse (including 
nurse practitioner, clinical nurse specialist, certified 
registered nurse anesthetist, and certified nurse-midwife), 
licensed certified social worker, registered respiratory 
therapist, and certified respiratory therapy technician.''.

SEC. 3464. ADDITIONAL FRAUD AND ABUSE PROTECTIONS IN MANAGED CARE.

  (a) Protection Against Marketing Abuses.--Section 1903(m) (42 
U.S.C. 1396b(m)), as amended by section 3463, is amended--
          (1) in paragraph (2)(A)(viii), by inserting ``and 
        compliance with the requirements of paragraphs (10) and 
        (11)'' after ``of this subsection'', and
          (2) by adding at the end the following:
  ``(10)(A)(i) A health maintenance organization with respect 
to activities under this subsection may not distribute directly 
or through any agent or independent contractor marketing 
materials within any State--
          ``(I) without the prior approval of the State; and
          ``(II) that contain false or materially misleading 
        information.
  ``(ii) In the process of reviewing and approving such 
materials, the State shall provide for consultation with a 
medical care advisory committee.
  ``(iii) The State may not enter into or renew a contract with 
a health maintenance organization for the provision of services 
to individuals enrolled under the State plan under this title 
if the State determines that the entity distributed directly or 
through any agent or independent contractor marketing materials 
in violation of clause (i)(II).
  ``(B) A health maintenance organization shall distribute 
marketing materials to the entire service area of such 
organization.
  ``(C) A health maintenance organization, or any agency of 
such organization, may not seek to influence an individual's 
enrollment with the organization in conjunction with the sale 
of any other insurance.
  ``(D) Each health maintenance organization shall comply with 
such procedures and conditions as the Secretary prescribes in 
order to ensure that, before an individual is enrolled with the 
organization under this title, the individual is provided 
accurate oral and written and sufficient information to make an 
informed decision whether or not to enroll.
  ``(E) Each health maintenance organization shall not, 
directly or indirectly, conduct door-to-door, telephonic, or 
other `cold call' marketing of enrollment under this title.''.
  (b) Prohibiting Affiliations With Individuals Debarred by 
Federal Agencies.--Section 1903(m) (42 U.S.C. 1396b(m)), as 
amended by section 3463 and subsection (a), is further amended 
by adding at the end the following:
  ``(11)(A) A health maintenance organization may not 
knowingly--
          ``(i) have a person described in subparagraph (C) as 
        a director, officer, partner, or person with beneficial 
        ownership of more than 5 percent of the organization 
        equity; or
          ``(ii) have an employment, consulting, or other 
        agreement with a person described in such subparagraph 
        for the provision of items and services that are 
        significant and material to the organization's 
        obligations under its contract with the State.
  ``(B) If a State finds that a health maintenance organization 
is not in compliance with clause (i) or (ii) of subparagraph 
(A), the State--
          ``(i) shall notify the Secretary of such 
        noncompliance;
          ``(ii) may continue an existing agreement with the 
        organization unless the Secretary (in consultation with 
        the Inspector General of the Department of Health and 
        Human Services) directs otherwise; and
          ``(iii) may not renew or otherwise extend the 
        duration of an existing agreement with the organization 
        unless the Secretary (in consultation with the 
        Inspector General of the Department of Health and Human 
        Services) provides to the State and to the Congress a 
        written statement describing compelling reasons that 
        exist for renewing or extending the agreement.
  ``(C) A person is described in this subparagraph if such 
person--
          ``(i) is debarred, suspended, or otherwise excluded 
        from participating in procurement activities under the 
        Federal acquisition regulation or from participating in 
        nonprocurement activities under regulations issued 
        pursuant to Executive Order 12549; or
          ``(ii) is an affiliate (within the meaning of the 
        Federal acquisition regulation) of a person described 
        in clause (i).''.
  (c) Application of State Conflict-of-Interest Safeguards.--
Section 1903(m)(2)(A) (42 U.S.C. 1396b(m)(2)(A)), as amended by 
section 3461(c), is amended--
          (1) by striking ``and'' at the end of clause (xi),
          (2) by striking the period at the end of clause (xii) 
        and inserting ``; and'', and
          (3) by inserting after clause (xi) the following:
          ``(xiii) the State has in effect conflict-of-interest 
        safeguards with respect to officers and employees of 
        the State with responsibilities relating to contracts 
        with such organizations and to any default enrollment 
        process that are at least as effective as the Federal 
        safeguards provided under section 27 of the Office of 
        Federal Procurement Policy Act (41 U.S.C. 423), against 
        conflicts of interest that apply with respect to 
        Federal procurement officials with comparable 
        responsibilities with respect to such contracts.''.
  (d) Limitation on Availability of FFP for Use of Enrollment 
Brokers.--Section 1903(b) (42 U.S.C. 1396b(b)), as amended by 
section 3413(b), is amended by adding at the end the following:
  ``(5) Amounts expended by a State for the use an enrollment 
broker in marketing health maintenance organizations and other 
managed care entities to eligible individuals under this title 
shall be considered, for purposes of subsection (a)(7), to be 
necessary for the proper and efficient administration of the 
State plan but only if the following conditions are met with 
respect to the broker:
          ``(A) The broker is independent of any such entity 
        and of any health care providers (whether or not any 
        such provider participates in the State plan under this 
        title) that provide coverage of services in the same 
        State in which the broker is conducting enrollment 
        activities.
          ``(B) No person who is an owner, employee, 
        consultant, or has a contract with the broker either 
        has any direct or indirect financial interest with such 
        an entity or health care provider or has been excluded 
        from participation in the program under this title or 
        title XVIII or debarred by any Federal agency, or 
        subject to a civil money penalty under this Act.''.
  (e) Effective Date.--The amendments made by this section 
shall take effect on January 1, 1998.

SEC. 3465. GRIEVANCES UNDER MANAGED CARE PLANS.

  Section 1903(m) (42 U.S.C. 1396b(m)) is amended--
          (1) in paragraph (2)(A), as amended by sections 
        3461(c) and 3464(c),--
                  (A) by striking ``and'' at the end of clause 
                (xii),
                  (B) by striking the period at the end of 
                clause (xiii) and inserting ``; and'', and
                  (C) by inserting after clause (xiii) the 
                following new clause:
          ``(xiv) such contract provides for compliance of the 
        organization with the grievance and appeals 
        requirements described in paragraph (3).''; and
          (2) by inserting after paragraph (2) the following 
        new paragraph:
  ``(3)(A) An eligible organization must provide a meaningful 
and expedited procedure, which includes notice and hearing 
requirements, for resolving grievances between the organization 
(including any entity or individual through which the 
organization provides health care services) and members 
enrolled with the organization under this subsection. Under the 
procedure any member enrolled with the organization may at any 
time file orally or in writing a complaint to resolve 
grievances between the member and the organization before a 
board of appeals established under subparagraph (C).
  ``(B)(i) The organization must provide, in a timely manner, 
such an enrollee a notice of any denial of services in-network 
or denial of payment for out-of-network care or notice of 
termination or reduction of services.
  ``(ii) Such notice shall include the following:
          ``(I) A clear statement of the reason for the denial.
          ``(II) An explanation of the complaint process under 
        subparagraph (C) which is available to the enrollee 
        upon request.
          ``(III) An explanation of all other appeal rights 
        available to all enrollees.
          ``(IV) A description of how to obtain supporting 
        evidence for this hearing, including the patient's 
        medical records from the organization, as well as 
        supporting affidavits from the attending health care 
        providers.
  ``(C)(i) Each eligible organization shall establish a board 
of appeals to hear and make determinations on complaints by 
enrollees under this subsection concerning denials of coverage 
or payment for services (whether in-network or out-of-network) 
and the medical necessity and appropriateness of covered items 
and services.
  ``(ii) A board of appeals of an eligible organization shall 
consist of--
          ``(I) representatives of the organization, including 
        physicians, nonphysicians, administrators, and 
        enrollees;
          ``(II) consumers who are not enrollees; and
          ``(III) providers with expertise in the field of 
        medicine which necessitates treatment.
  ``(iii) A board of appeals shall hear and resolve complaints 
within 30 days after the date the complaint is filed with the 
board.
  ``(D) Nothing in this paragraph may be construed to replace 
or supersede any appeals mechanism otherwise provided for an 
individual entitled to benefits under this title.''.

SEC. 3466. STANDARDS RELATING TO ACCESS TO OBSTETRICAL AND 
                    GYNECOLOGICAL SERVICES UNDER MANAGED CARE PLANS.

  (a) In General.--Section 1903(m)(2)(A) (42 U.S.C. 
1396b(m)(2)(A)), as amended by sections 3461(c), 3464(c), and 
3465(1), is amended--
          (1) by striking ``and'' at the end of clause (xiii),
          (2) by striking the period at the end of clause (xiv) 
        and inserting ``; and'', and
          (3) by inserting after clause (xiv) the following:
          ``(xv) the organization complies with the 
        requirements of paragraph (12).''.
  (b) Requirements.--Section 1903(m) (42 U.S.C. 1396b(m)), as 
amended by sections 3463, 3464(a), and 3464(b), is amended by 
adding at the end the following new paragraph:
  ``(12)(A) If a health maintenance organization, under a 
contract under this subsection, requires or provides for an 
enrollee to designate a participating primary care provider--
          ``(i) the organization shall permit a female enrollee 
        to designate an obstetrician-gynecologist who has 
        agreed to be designated as such, as the enrollee's 
        primary care provider; and
          ``(ii) if such an enrollee has not designated such a 
        provider as a primary care provider, the organization--
                  ``(I) may not require prior authorization by 
                the enrollee's primary care provider or 
                otherwise for coverage of obstetric and 
                gynecologic care provided by a participating 
                obstetrician-gynecologist, or a participating 
                health care professional practicing in 
                collaboration with the obstetrician-
                gynecologist and in accordance with State law, 
                to the extent such care is otherwise covered, 
                and
                  ``(II) shall treat the ordering of other 
                gynecologic care by such a participating 
                physician as the prior authorization of the 
                primary care provider with respect to such care 
                under the contract.
  ``(B) Nothing in subparagraph (A)(ii)(II) shall waive any 
requirements of coverage relating to medical necessity or 
appropriateness with respect to coverage of gynecologic care so 
ordered.''.
  (c) Effective Date.--The amendments made by this section 
shall apply to contracts entered into, renewed, or extended on 
or after January 1, 1998.

                      CHAPTER 3--FEDERAL PAYMENTS

SEC. 3471. REFORMING DISPROPORTIONATE SHARE PAYMENTS UNDER STATE 
                    MEDICAID PROGRAMS.

  (a) Direct Payment by State.--Subsection (a)(1) of section 
1923 (42 U.S.C. 1396r-4) is amended--
          (1) by striking ``and'' at the end of subparagraph 
        (A),
          (2) by striking the period at the end of subparagraph 
        (B) and inserting ``, and'', and
          (3) by adding at the end the following new 
        subparagraph:
                  ``(C) provides that payment adjustments under 
                the plan under this section for services 
                furnished by a hospital on or after October 1, 
                1997, for individuals entitled to benefits 
                under the plan, and enrolled with an entity 
                described in section 1903(m), under a primary 
                care case management system (described in 
                section 1905(t)), or other managed care plan--
                          ``(i) are made directly to the 
                        hospital by the State, and
                          ``(ii) are not used as part of, and 
                        are disregarded in determining the 
                        amount of, prepaid capitation paid 
                        under the State plan with respect to 
                        those services.''.
  (b) Adjustment to State DSH Allocations.--
          (1) In general.--Subsection (f) of such section is 
        amended--
                  (A) in paragraph (2)(A), by inserting ``and 
                paragraph (5)'' after ``subparagraph (B)'', and
                  (B) by adding at the end the following new 
                paragraph:
          ``(5) Adjustments in dsh allotments.--
                  ``(A) Allotment frozen for states with very 
                low dsh expenditures.--In the case of a State 
                for which its State 1995 DSH spending did not 
                exceed 1 percent of the total amount 
                expenditures made under the State plan under 
                this title for medical assistance during fiscal 
                year 1995 (as reported by the State no later 
                than January 1, 1997, on HCFA Form 64), the DSH 
                allotment for each of fiscal years 1998 through 
                2002 is equal to its State 1995 DSH spending.
                  ``(B) Full reduction for high dsh states.--In 
                the case of a State which was classified under 
                this subsection as a high DSH State for fiscal 
                year 1997, the DSH allotment for each of fiscal 
                years 1998 through 2002 is equal to the State 
                1995 DSH spending reduced by the full reduction 
                percentage (described in subparagraph (D)) for 
                the fiscal year involved.
                  ``(C) Half-reduction for other states.--In 
                the case of a State not described in 
                subparagraph (A) or (B), the DSH allotment for 
                each of fiscal years 1998 through 2002 is equal 
                to the State 1995 DSH spending reduced by \1/2\ 
                of the full reduction percentage for the fiscal 
                year involved.
                  ``(D) Full reduction percentage.--For 
                purposes of this paragraph, the `full reduction 
                percentage' for--
                          ``(i) fiscal year 1998 is 2 percent,
                          ``(ii) fiscal year 1999 is 5 percent,
                          ``(iii) fiscal year 2000 is 20 
                        percent,
                          ``(iv) fiscal year 2001 is 30 
                        percent, and
                          ``(v) fiscal year 2002 is 40 percent.
                  ``(E) Definitions.-- In this paragraph:
                          ``(i) State.--The term `State' means 
                        the 50 States and the District of 
                        Columbia.
                          ``(ii) State 1995 dsh spending.--The 
                        term `State 1995 DSH spending' means, 
                        with respect to a State, the total 
                        amount of payment adjustments made 
                        under subsection (c) under the State 
                        plan during fiscal year 1995 as 
                        reported by the State no later than 
                        January 1, 1997, on HCFA Form 64.''.
          (2) Effective date.--The amendments made by paragraph 
        (1) shall apply to fiscal years beginning with fiscal 
        year 1998.
  (c) Transition Rule.--Effective October 1, 1997, section 
1923(g)(2)(A) of the Social Security Act (42 U.S.C. 1396r-
4(g)(2)(A)) shall be applied to the State of California as 
though--
          (1) ``or that begins on or after October 1, 1997, and 
        before October 1, 1999'' were inserted in such section 
        after ``January 1, 1995''; and
          (2) ``(or 175 percent in the case of a State fiscal 
        year that begins on or after October 1, 1997, and 
        before October 1, 1999)'' were inserted in such section 
        after ``200 percent''.

SEC. 3472. ADDITIONAL FUNDING FOR STATE EMERGENCY HEALTH SERVICES 
                    FURNISHED TO UNDOCUMENTED ALIENS.

  (a) Total Amount Available for Allotment.--There are 
available for allotments under this section for each of the 5 
fiscal years (beginning with fiscal year 1998) $20,000,000 for 
payments to certain States under this section.
  (b) State Allotment Amount.--
          (1) In general.--The Secretary of Health and Human 
        Services shall compute an allotment for each fiscal 
        year beginning with fiscal year 1998 and ending with 
        fiscal year 2002 for each of the 12 States with the 
        highest number of undocumented aliens. The amount of 
        such allotment for each such State for a fiscal year 
        shall bear the same ratio to the total amount available 
        for allotments under subsection (a) for the fiscal year 
        as the ratio of the number of undocumented aliens in 
        the State in the fiscal year bears to the total of such 
        numbers for all such States for such fiscal year. The 
        amount of allotment to a State provided under this 
        paragraph for a fiscal year that is not paid out under 
        subsection (c) shall be available for payment during 
        the subsequent fiscal year.
          (2) Determination.--For purposes of paragraph (1), 
        the number of undocumented aliens in a State under this 
        section shall be determined based on estimates of the 
        resident illegal alien population residing in each 
        State prepared by the Statistics Division of the 
        Immigration and Naturalization Service as of October 
        1992 (or as of such later date if such date is at least 
        1 year before the beginning of the fiscal year 
        involved),
  (c) Use of Funds.--From the allotments made under subsection 
(b), the Secretary shall pay to each State amounts the State 
demonstrates were paid by the State (or by a political 
subdivision of the State) for emergency health services 
furnished to undocumented aliens.
  (d) State Defined.--For purposes of this section, the term 
``State'' includes the District of Columbia.
  (e) State Entitlement.--This section constitutes budget 
authority in advance of appropriations Acts and represents the 
obligation of the Federal Government to provide for the payment 
to States of amounts provided under subsection (c).

           Subtitle F--Child Health Assistance Program (CHAP)

SEC. 3501. SHORT TITLE OF SUBTITLE; TABLE OF CONTENTS OF SUBTITLE.

  (a) Short Title of Subtitle.--This subtitle may be cited as 
the ``Child Health Assistance Program Act of 1997''.
  (b) Table of Contents of Subtitle.--The table of contents of 
this subtitle is as follows:

Sec. 3501. Short title of subtitle; table of contents.
Sec. 3502. Establishment of Child Health Assistance Program (CHAP).

              ``TITLE XXI--CHILD HEALTH ASSISTANCE PROGRAM

    ``Sec. 2101. Purpose; State child health plans.
    ``Sec. 2102. Contents of State child health plan.
    ``Sec. 2103. Allotments.
    ``Sec. 2104. Payments to States.
    ``Sec. 2105. Process for submission, approval, and amendment of 
              State child health plans.
    ``Sec. 2106. Strategic objectives and performance goals; plan 
              administration.
    ``Sec. 2107. Annual reports; evaluations.
    ``Sec. 2108. Definitions.
Sec. 3503. Optional use of State child health assistance funds for 
          enhanced medicaid match for expanded medicaid eligibility.
Sec. 3504. Medicaid presumptive eligibility for low-income children.

SEC. 3502. ESTABLISHMENT OF CHILD HEALTH ASSISTANCE PROGRAM (CHAP).

  The Social Security Act is amended by adding at the end the 
following new title:

              ``TITLE XXI--CHILD HEALTH ASSISTANCE PROGRAM

``SEC. 2101. PURPOSE; STATE CHILD HEALTH PLANS.

  ``(a) Purpose.--The purpose of this title is to provide funds 
to States to enable them to implement plans to initiate and 
expand the provision of child health care assistance to 
uninsured, low-income children in an effective and efficient 
manner that is coordinated with other sources of coverage for 
children. Such assistance may be provided for obtaining 
creditable health coverage through methods specified in the 
plan, which may include any or all of the following:
          ``(1) Providing benefits under the State's medicaid 
        plan under title XIX.
          ``(2) Obtaining coverage under group health plans or 
        group or individual health insurance coverage.
          ``(3) Direct purchase of services from providers.
          ``(4) Other methods specified under the plan.
  ``(b) State Child Health Plan Required.--A State is not 
eligible for payment under section 2104 unless the State has 
submitted to the Secretary under section 2105 a plan that--
          ``(1) sets forth how the State intends to use the 
        funds provided under this title to provide child health 
        assistance to needy children consistent with the 
        provisions of this title, and
          ``(2) is approved under section 2105.
  ``(c) State Entitlement.--This title constitutes budget 
authority in advance of appropriations Acts and represents the 
obligation of the Federal Government to provide for the payment 
to States of amounts provided under section 2104.
  ``(d) Effective Date.--No State is eligible for payments 
under section 2104 for any calendar quarter beginning before 
October 1, 1997.

``SEC. 2102. CONTENTS OF STATE CHILD HEALTH PLAN.

  ``(a) General Background and Description.--A State child 
health plan shall include a description, consistent with the 
requirements of this title, of--
          ``(1) the extent to which, and manner in which, 
        children in the State, including targeted low-income 
        children and other classes of children classified by 
        income and other relevant factors, currently have 
        creditable health coverage (as defined in section 
        2108(c)(2));
          ``(2) current State efforts to provide or obtain 
        creditable health coverage for uncovered children, 
        including the steps the State is taking to identify and 
        enroll all uncovered children who are eligible to 
        participate in public health insurance programs and 
        health insurance programs that involve public-private 
        partnerships;
          ``(3) how the plan is designed to be coordinated with 
        such efforts to increase coverage of children under 
        creditable health coverage; and
          ``(4) how the plan will comply with subsection 
        (c)(5).
  ``(b) General Description of Eligibility Standards and 
Methodology.--
          ``(1) Eligibility standards.--
                  ``(A) In general.--The plan shall include a 
                description of the standards used to determine 
                the eligibility of targeted low-income children 
                for child health assistance under the plan. 
                Such standards may include (to the extent 
                consistent with this title) those relating to 
                the geographic areas to be served by the plan, 
                age, income and resources (including any 
                standards relating to spenddowns and 
                disposition of resources), residency, 
                disability status, immigration status, access 
                to or coverage under other health coverage, and 
                duration of eligibility. Such standards may not 
                discriminate on the basis of diagnosis.
                  ``(B) Limitations on eligibility standards.--
                Such eligibility standards--
                          ``(i) shall, within any defined group 
                        of covered targeted low-income 
                        children, not cover such children with 
                        higher family income without covering 
                        children with a lower family income, 
                        and
                          ``(ii) may not deny eligibility based 
                        on a child having a preexisting medical 
                        condition.
          ``(2) Methodology.--The plan shall include a 
        description of methods of establishing and continuing 
        eligibility and enrollment, including a methodology for 
        computing family income that is consistent with the 
        methodology used under section 1902(l)(3)(E).
          ``(3) Eligibility screening; coordination with other 
        health coverage programs.--The plan shall include a 
        description of procedures to be used to ensure--
                  ``(A) through both intake and followup 
                screening, that only targeted low-income 
                children are furnished child health assistance 
                under the State child health plan;
                  ``(B) that children found through the 
                screening to be eligible for medical assistance 
                under the State medicaid plan under title XIX 
                are enrolled for such assistance under such 
                plan;
                  ``(C) that the insurance provided under the 
                State child health plan does not substitute for 
                coverage under group health plans; and
                  ``(D) coordination with other public and 
                private programs providing creditable coverage 
                for low-income children.
          ``(4) Nonentitlement.--Nothing in this title shall be 
        construed as providing an individual with an 
        entitlement to child health assistance under a State 
        child health plan.
  ``(c) Description of Assistance.--
          ``(1) In general.--A State child health plan shall 
        include a description of the child health assistance 
        provided under the plan for targeted low-income 
        children. The child health assistance provided to a 
        targeted low-income child under the plan in the form 
        described in paragraph (2) of section 2101(a) shall 
        include benefits (in an amount, duration, and scope 
        specified under the plan) for at least the following 
        categories of services:
                  ``(A) Inpatient and outpatient hospital 
                services.
                  ``(B) Physicians' surgical and medical 
                services.
                  ``(C) Laboratory and x-ray services.
                  ``(D) Well-baby and well-child care, 
                including age-appropriate immunizations.
        The previous sentence shall not apply to coverage under 
        a group health plan if the benefits under such coverage 
        for individuals under this title are no less than the 
        benefits for other individuals similarly covered under 
        the plan.
          ``(2) Items.--The description shall include the 
        following:
                  ``(A) Cost sharing.--Subject to paragraph 
                (3), the amount (if any) of premiums, 
                deductibles, coinsurance, and other cost 
                sharing imposed.
                  ``(B) Delivery method.--The State's approach 
                to delivery of child health assistance, 
                including a general description of--
                          ``(i) the use (or intended use) of 
                        different delivery methods, which may 
                        include the delivery methods used under 
                        the medicaid plan under title XIX, fee-
                        for-service, managed care arrangements 
                        (such as capitated health care plans, 
                        case management, and case 
                        coordination), direct provision of 
                        health care services (such as through 
                        community health centers and 
                        disproportionate share hospitals), 
                        vouchers, and other delivery methods; 
                        and
                          ``(ii) utilization control systems.
          ``(3) Limitations on cost sharing.--
                  ``(A) No cost sharing on preventive 
                benefits.--The plan may not impose deductibles, 
                coinsurance, or similar cost sharing with 
                respect to benefits for preventive services.
                  ``(B) Sliding scale.--To the extent 
                practicable, any premiums imposed under the 
                plan shall be imposed on a sliding scale 
                related to income and the plan may only vary 
                premiums, deductibles, coinsurance, and other 
                cost sharing based on the family income of 
                targeted low-income children only in a manner 
                that does not favor children from families with 
                higher income over children from families with 
                lower income.
          ``(4) Restriction on application of preexisting 
        condition exclusions.--
                  ``(A) In general.--Subject to subparagraph 
                (B), the State child health plan shall not 
                permit the imposition of any preexisting 
                condition exclusion for covered benefits under 
                the plan.
                  ``(B) Group health plans and group health 
                insurance coverage.--If the State child health 
                plan provides for benefits through payment for, 
                or a contract with, a group health plan or 
                group health insurance coverage, the plan may 
                permit the imposition of a preexisting 
                condition exclusion but only insofar as it is 
                permitted under the applicable provisions of 
                part 7 of subtitle B of title I of the Employee 
                Retirement Income Security Act of 1974 and 
                title XXVII of the Public Health Service Act.
          ``(5) Special protection for children with chronic 
        health conditions and special health care needs.--In 
        the case of a child who has a chronic condition, life-
        threatening condition, or combination of conditions 
        that warrants medical specialty care and who is 
        eligible for benefits under the plan with respect to 
        such care, the State child health plan shall assure 
        access to such care, including the use of a medical 
        specialist as a primary care provider.
          ``(6) Secondary payment.--Nothing in this section 
        shall be construed as preventing a State from denying 
        benefits to an individual to the extent such benefits 
        are available to the individual under another public or 
        private health care insurance program.
          ``(7) Treatment of cash payments.--Payments in the 
        form of cash or vouchers provided as child health or 
        other assistance under the State child health plan to 
        parents, guardians or other caretakers of a targeted 
        low-income child are not considered income for purpose 
        of eligibility for, or benefits provided under, any 
        means-tested Federal or Federally-assisted program.
  ``(d) Outreach and Coordination.--A State child health plan 
shall include a description of the procedures to be used by the 
State to accomplish the following:
          ``(1) Outreach.--Outreach to families of children 
        likely to be eligible for child health assistance under 
        the plan or under other public or private health 
        coverage programs to inform these families of the 
        availability of, and to assist them in enrolling their 
        children in, such a program.
          ``(2) Coordination with other health insurance 
        programs.--Coordination of the administration of the 
        State program under this subtitle with other public and 
        private health insurance programs.

``SEC. 2103. ALLOTMENTS.

  ``(a) Total Allotment.--The total allotment that is available 
under this title for each fiscal year, beginning with fiscal 
year 1998, is $2,880,000,000.
  ``(b) Allotments to 50 States and District of Columbia.--
          ``(1) In general.--Subject to paragraphs (4) and (5), 
        of the total allotment available under subsection (a) 
        for a fiscal year, reduced by the amount of allotments 
        made under subsection (c) for the fiscal year, the 
        Secretary shall allot to each State (other than a State 
        described in such subsection) with a State child health 
        plan approved under this title the same proportion as 
        the ratio of--
                  ``(A) the product of (i) the number of 
                uncovered low-income children for the fiscal 
                year in the State (as determined under 
                paragraph (2)) and (ii) the State cost factor 
                for that State (established under paragraph 
                (3)); to
                  ``(B) the sum of the products computed under 
                subparagraph (A).
          ``(2) Number of uncovered low-income children.--For 
        the purposes of paragraph (1)(A)(i), the number of 
        uncovered low-income children for a fiscal year in a 
        State is equal to the arithmetic average of the number 
        of low-income children (as defined in section 
        2108(c)(4)) with no health insurance coverage, as 
        reported and defined inthe 3 most recent March 
supplements to the Current Population Survey of the Bureau of the 
Census before the beginning of the fiscal year.
          ``(3) Adjustment for geographic variations in health 
        costs.--
                  ``(A) In general.--For purposes of paragraph 
                (1)(A)(ii), the `State cost factor' for a State 
                for a fiscal year equal to the sum of--
                          ``(i) 0.15, and
                          ``(ii) 0.85 multiplied by the ratio 
                        of--
                                  ``(I) the annual average 
                                wages per employee for the 
                                State for such year (as 
                                determined under subparagraph 
                                (B)), to
                                  ``(II) the annual average 
                                wages per employee for the 50 
                                States and the District of 
                                Columbia.
                  ``(B) Annual average wages per employee.--For 
                purposes of subparagraph (A), the `annual 
                average wages per employee' for a State, or for 
                all the States, for a fiscal year is equal to 
                the average of the annual wages per employee 
                for the State or for the 50 States and the 
                District of Columbia for employees in the 
                health services industry (SIC code 8000), as 
                reported by the Bureau of Labor Statistics of 
                the Department of Labor for each of the most 
                recent 3 years before the beginning of the 
                fiscal year involved.
          ``(4) Floor for states.--Subject to paragraph (5), in 
        no case shall the amount of the allotment under this 
        subsection for one of the 50 States or the District of 
        Columbia for a year be less than $2,000,000. To the 
        extent that the application of the previous sentence 
        results in an increase in the allotment to a State 
        above the amount otherwise provided, the allotments for 
        the other States and the District of Columbia under 
        this subsection shall be decreased in a pro rata manner 
        (but not below $2,000,000) so that the total of such 
        allotments in a fiscal year does not exceed the amount 
        otherwise provided for allotment under paragraph (1) 
        for that fiscal year.
          ``(5) Offset for expenditures under medicaid 
        presumptive eligibility.--The amount of the allotment 
        otherwise provided to a State under this subsection for 
        a fiscal year shall be reduced by the amount of the 
        payments made to the State under section 1903(a) for 
        calendar quarters during such fiscal year that are 
        attributable to provision of medical assistance to a 
        child during a presumptive eligibility period under 
        section 1920A.
  ``(c) Allotments to Territories.--
          ``(1) In general.--Subject to paragraph (3), of the 
        total allotment under subsection (a) for a fiscal year, 
        the Secretary shall allot 0.5 percent among each of the 
        commonwealths and territories described in paragraph 
        (4) in the same proportion as the percentage specified 
        in paragraph (2) for such commonwealth or territory 
        bears to the sum of such percentages for all such 
        commonwealths or territories so described.
          ``(2) Percentage.--The percentage specified in this 
        paragraph for--
                  ``(A) Puerto Rico is 91.6 percent,
                  ``(B) Guam is 3.5 percent,
                  ``(C) Virgin Islands is 2.6 percent,
                  ``(D) American Samoa is 1.2 percent, and
                  ``(E) the Northern Mariana Islands is 1.1 
                percent.
          ``(3) Floor.--In no case shall the amount of the 
        allotment to a commonwealth or territory under 
        paragraph (1) for a fiscal year be less than $100,000. 
        To the extent that the application of the previous 
        sentence results in an increase in the allotment to a 
        commonwealth or territory above the amount otherwise 
        provided, the allotments for the other commonwealths 
        and territories under this subsection for the fiscal 
        year shall be decreased (but not below $100,000) in a 
        pro rata manner so that the total of such allotments 
        does not exceed the total amount otherwise provided for 
        allotment under paragraph (1).
          ``(4) Commonwealths and territories.--A commonwealth 
        or territory described in this paragraph is any of the 
        following if it has a State child health plan approved 
        under this title:
                  ``(A) Puerto Rico.
                  ``(B) Guam.
                  ``(C) the Virgin Islands.
                  ``(D) American Samoa.
                  ``(E) the Northern Mariana Islands.
  ``(d) Adjustment for States Using Enhanced Medicaid Match.--
In the case of a State that elects the increased medicaid 
matching option under section 1905(t), the amount of the 
State's allotment under this section shall be reduced by the 
amount of additional payment made under section 1903 that is 
attributable to the increase in the Federal medical assistance 
percentage effected under such option.
  ``(e) 3-Year Availability of Amounts Allotted.--Amounts 
allotted to a State pursuant to this section for a fiscal year 
shall remain available for expenditure by the State through the 
end of the second succeeding fiscal year.

``SEC. 2104. PAYMENTS TO STATES.

  ``(a) In General.--Subject to the succeeding provisions of 
this section, the Secretary shall pay to each State with a 
program approved under this title, from its allotment under 
section 2103 (as may be adjusted under section 2103(d)), an 
amount for each quarter up to 80 percent of expenditures under 
that program in the quarter for--
          ``(1) child health assistance for targeted low-income 
        children;
          ``(2) health services initiatives for improving the 
        health of children (including targeted low-income 
        children and other low-income children);
          ``(3) expenditures for outreach activities as 
        provided in section 2102(d)(1); and
          ``(4) other reasonable costs incurred by the State to 
        administer the plan.
  ``(b) Limitation on Certain Payments for Certain 
Expenditures.--
          ``(1) In general.--Funds provided to a State under 
        this title shall only be used to carry out the purposes 
        of this title.
          ``(2) Limitation on expenditures not used for 
        assistance.--Payment shall not be made under subsection 
        (a) for expenditures for items described in paragraphs 
        (2), (3), or (4) of subsection to the extent the total 
        of such expenditures exceeds 15 percent of total 
        expenditures under the plan for the period involved 
        (including any in such total additional Federal medical 
        assistance payments under section 1903(a)(1) that are 
        attributable to an enhanced State medicaid match under 
        section 1905(t)).
          ``(3) Purchase of family coverage.--The Secretary 
        shall establish rules regarding the extent to which 
        payment may be made under subsection (a)(1) for the 
        purchase of family coverage under a group health plan 
        or health insurance coverage that includes coverage of 
        targeted low-income children. Under such rules such 
        payment may be permitted, notwithstanding that a 
        portion may be considered attributable to purchase of 
        coverage for other family members, if the State 
        demonstrates that purchase of such coverage is cost 
        effective relative to the amounts that the State would 
        have paid to obtain comparable coverage only of the 
        targeted low-income children involved. In making such 
        determination, there shall be taken into account the 
        costs of providing coverage for medical assistance for 
        children with similar actuarial characteristics under 
        section 1902(l).
          ``(4) Denial of payment for reduction of medicaid 
        eligibility standards.--No payment may be made under 
        subsection (a) with respect to child health assistance 
        provided under a State child health plan to a targeted 
        low-income child if the child would be eligible for 
        medical assistance under the State plan under title XIX 
        (as such plan was in effect as of June 1, 1997) but for 
        a change in the income or assets standards or 
        methodology under such plan effected after such date.
          ``(5) Disallowances for excluded providers.--
                  ``(A) In general.--Payment shall not be made 
                to a State under subsection (a) for 
                expenditures for items and services furnished--
                          ``(i) by a provider who was excluded 
                        from participation under title V, 
                        XVIII, or XX or under this title 
                        pursuant to section 1128, 1128A, 1156, 
                        or 1842(j)(2), or
                          ``(ii) under the medical direction or 
                        on the prescription of a physician who 
                        was so excluded, if the provider of the 
                        services knew or had reason to know of 
                        the exclusion.
                  ``(B) Exception for emergency services.--
                Subparagraph (A) shall not apply to emergency 
                items or services, not including hospital 
                emergency room services.
          ``(6) Use of non-federal funds for state matching 
        requirement.--Amounts provided by the Federal 
        Government, or services assisted or subsidized to any 
        significant extent by the Federal Government, may not 
        be included in determining the amount of non-Federal 
        contributions required under subsection (a).
          ``(7) Treatment of third party liability.--No payment 
        shall be made to a State under this section for 
        expenditures for child health assistance provided for a 
        targeted low-income child under its plan to the extent 
        that a private insurer (as defined by the Secretary by 
        regulation and including a group health plan (as 
        defined in section 607(1) of the Employee Retirement 
        Income Security Act of 1974), a service benefit plan, 
        and a health maintenance organization) would have been 
        obligated to provide such assistance but for a 
        provision of its insurance contract which has the 
        effect of limiting or excluding such obligation because 
        the individual is eligible for or is provided child 
        health assistance under the plan.
          ``(8) Secondary payer provisions.--Except as 
        otherwise provided by law, no payment shall be made to 
        a State under this section for expenditures for child 
        health assistance provided for a targeted low-income 
        child under its plan to the extent that payment has 
        been made or can reasonably be expected to be made 
        promptly (as determined in accordance with regulations) 
        under any other federally operated or financed health 
        care insurance program, other than an insurance program 
        operated or financed by the Indian Health Service, as 
        identified by the Secretary. For purposes of this 
        paragraph, rules similar to the rules for overpayments 
        under section 1903(d)(2) shall apply.
          ``(9) Limitation on payment for abortions.--
                  ``(A) In general.--Payment shall not be made 
                to a State under this section for any amount 
                expended under the State plan to pay for any 
                abortion or to assist in the purchase, in whole 
                or in part, of health benefit coverage that 
                includes coverage of abortion.
                  ``(B) Exception.--Subparagraph (A) shall not 
                apply to an abortion--
                          ``(i) if the pregnancy is the result 
                        of an act of rape or incest, or
                          ``(ii) in the case where a woman 
                        suffers from a physical disorder, 
                        illness, or injury that would, as 
                        certified by a physician, place the 
                        woman in danger of death unless an 
                        abortion is performed.
  ``(c) Advance Payment; Retrospective Adjustment.--The 
Secretary may make payments under this section for each quarter 
on the basis of advance estimates of expenditures submitted by 
the State and other investigation the Secretary may find 
necessary, and may reduce or increase thepayments as necessary 
to adjust for any overpayment or underpayment for prior quarters.

``SEC. 2105. PROCESS FOR SUBMISSION, APPROVAL, AND AMENDMENT OF STATE 
                    CHILD HEALTH PLANS.

  ``(a) Initial Plan.--
          ``(1) In general.--As a condition of receiving 
        funding under section 2104, a State shall submit to the 
        Secretary a State child health plan that meets the 
        applicable requirements of this title.
          ``(2) Approval.--Except as the Secretary may provide 
        under subsection (e), a State plan submitted under 
        paragraph (1)--
                  ``(A) shall be approved for purposes of this 
                title, and
                  ``(B) shall be effective beginning with a 
                calendar quarter that is specified in the plan, 
                but in no case earlier than the first calendar 
                quarter that begins at least 60 days after the 
                date the plan is submitted.
  ``(b) Plan Amendments.--
          ``(1) In general.--A State may amend, in whole or in 
        part, its State child health plan at any time through 
        transmittal of a plan amendment.
          ``(2) Approval.--Except as the Secretary may provide 
        under subsection (e), an amendment to a state plan 
        submitted under paragraph (1)--
                  ``(A) shall be approved for purposes of this 
                title, and
                  ``(B) shall be effective as provided in 
                paragraph (3).
          ``(3) Effective dates for amendments.--
                  ``(A) In general.--Subject to the succeeding 
                provisions of this paragraph, an amendment to a 
                State plan shall take effect on one or more 
                effective dates specified in the amendment.
                  ``(B) Amendments relating to eligibility or 
                benefits.--
                          ``(i) Notice requirement.--Any plan 
                        amendment that eliminates or restricts 
                        eligibility or benefits under the plan 
                        may not take effect unless the State 
                        certifies that it has provided prior or 
                        contemporaneous public notice of the 
                        change, in a form and manner provided 
                        under applicable State law.
                          ``(ii) Timely transmittal.--Any plan 
                        amendment that eliminates or restricts 
                        eligibility or benefits under the plan 
                        shall not be effective for longer than 
                        a 60-day period unless the amendment 
                        has been transmitted to the Secretary 
                        before the end of such period.
                  ``(C) Other amendments.--Any plan amendment 
                that is not described in subparagraph (C) 
                becomes effective in a State fiscal year may 
                not remain in effect after the end of such 
                fiscal year (or, if later, the end of the 90-
                day period on which it becomes effective) 
                unless the amendment has been transmitted to 
                the Secretary.
  ``(c) Disapproval of Plans and Plan Amendments.--
          ``(1) Prompt review of plan submittals.--The 
        Secretary shall promptly review State plans and plan 
        amendments submitted under this section to determine if 
        they substantially comply with the requirements of this 
        title.
          ``(2) 90-day approval deadlines.--A State plan or 
        plan amendment is considered approved unless the 
        Secretary notifies the State in writing, within 90 days 
        after receipt of the plan or amendment, that the plan 
        or amendment is disapproved (and the reasons for 
        disapproval) or that specified additional information 
        is needed.
          ``(3) Correction.--In the case of a disapproval of a 
        plan or plan amendment, the Secretary shall provide a 
        State with a reasonable opportunity for correction 
        before taking financial sanctions against the State on 
        the basis of such disapproval.
  ``(d) Program Operation.--
          ``(1) In general.--The State shall conduct the 
        program in accordance with the plan (and any 
        amendments) approved under subsection (c) and with the 
        requirements of this title.
          ``(2) Violations.--The Secretary shall establish a 
        process for enforcing requirements under this title. 
        Such process shall provide for the withholding of funds 
        in the case of substantial noncompliance with such 
        requirements. In the case of an enforcement action 
        against a State under this paragraph, the Secretary 
        shall provide a State with a reasonable opportunity for 
        correction before taking financial sanctions against 
        the State on the basis of such an action.
  ``(e) Continued Approval.--An approved State child health 
plan shall continue in effect unless and until the State amends 
the plan under subsection (b) or the Secretary finds 
substantial noncompliance of the plan with the requirements of 
this title under subsection (d)(2).

``SEC. 2106. STRATEGIC OBJECTIVES AND PERFORMANCE GOALS; PLAN 
                    ADMINISTRATION.

  ``(a) Strategic Objectives and Performance Goals.--
          ``(1) Description.--A State child health plan shall 
        include a description of--
                  ``(A) the strategic objectives,
                  ``(B) the performance goals, and
                  ``(C) the performance measures,
        the State has established for providing child health 
        assistance to targeted low-income children under the 
        plan and otherwise for maximizing health coverage for 
        other low-income children and children generally in the 
        State.
          ``(2) Strategic objectives.--Such plan shall identify 
        specific strategic objectives relating to increasing 
        the extent of creditable health coverage among targeted 
        low-income children and other low-income children.
          ``(3) Performance goals.--Such plan shall specify one 
        or more performance goals for each such strategic 
        objective so identified.
          ``(4) Performance measures.--Such plan shall describe 
        how performance under the plan will be--
                  ``(A) measured through objective, 
                independently verifiable means, and
                  ``(B) compared against performance goals, in 
                order to determine the State's performance 
                under this title.
  ``(b) Records, Reports, Audits, and Evaluation.--
          ``(1) Data collection, records, and reports.--A State 
        child health plan shall include an assurance that the 
        State will collect the data, maintain the records, and 
        furnish the reports to the Secretary, at the times and 
        in the standardized format the Secretary may require in 
        order to enable the Secretary to monitor State program 
        administration and compliance and to evaluate and 
        compare the effectiveness of State plans under this 
        title.
          ``(2) State assessment and study.--A State child 
        health plan shall include a description of the State's 
        plan for the annual assessments and reports under 
        section 2107(a) and the evaluation required by section 
        2107(b).
          ``(3) Audits.--A State child health plan shall 
        include an assurance that the State will afford the 
        Secretary access to any records or information relating 
        to the plan for the purposes of review or audit.
  ``(c) Program Development Process.--A State child health plan 
shall include a description of the process used to involve the 
public in the design and implementation of the plan and the 
method for ensuring ongoing public involvement.
  ``(d) Program Budget.--A State child health plan shall 
include a description of the budget for the plan. The 
description shall be updated periodically as necessary and 
shall include details on the planned use of funds and the 
sources of the non-Federal share of plan expenditures, 
including any requirements for cost sharing by beneficiaries.
  ``(e) Application of Certain General Provisions.--The 
following sections in part A of title XI shall apply to States 
under this title in the same manner as they applied to a State 
under title XIX:
          ``(1) Section 1101(a)(1) (relating to definition of 
        State).
          ``(2) Section 1116 (relating to administrative and 
        judicial review), but only insofar as consistent with 
        the provisions of part B.
          ``(3) Section 1124 (relating to disclosure of 
        ownership and related information).
          ``(4) Section 1126 (relating to disclosure of 
        information about certain convicted individuals).
          ``(5) Section 1128B(d) (relating to criminal 
        penalties for certain additional charges).
          ``(6) Section 1132 (relating to periods within which 
        claims must be filed).

``SEC. 2107. ANNUAL REPORTS; EVALUATIONS.

  ``(a) Annual Report.--The State shall--
          ``(1) assess the operation of the State plan under 
        this title in each fiscal year, including the progress 
        made in reducing the number of uncovered low-income 
        children; and
          ``(2) report to the Secretary, by January 1 following 
        the end of the fiscal year, on the result of the 
        assessment.
  ``(b) State Evaluations.--
          ``(1) In general.--By March 31, 2000, each State that 
        has a State child health plan shall submit to the 
        Secretary an evaluation that includes each of the 
        following:
                  ``(A) An assessment of the effectiveness of 
                the State plan in increasing the number of 
                children with creditable health coverage.;
                  ``(B) A description and analysis of the 
                effectiveness of elements of the State plan, 
                including--
                          ``(i) the characteristics of the 
                        children and families assisted under 
                        the State plan including age of the 
                        children, family income, and the 
                        assisted child's access to or coverage 
                        by other health insurance prior to the 
                        State plan and after eligibility for 
                        the State plan ends,
                          ``(ii) the quality of health coverage 
                        provided including the types of 
                        benefits provided,
                          ``(iii) the amount and level (payment 
                        of part or all of the premium) of 
                        assistance provided by the State,
                          ``(iv) the service area of the State 
                        plan,
                          ``(v) the time limits for coverage of 
                        a child under the State plan,
                          ``(vi) the State's choice of health 
                        insurance plans and other methods used 
                        for providing child health assistance , 
                        and
                          ``(vii) the sources of non-Federal 
                        funding used in the State plan;
                  ``(C) an assessment of the effectiveness of 
                other public and private programs in the State 
                in increasing the availability of affordable 
                quality individual and family health insurance 
                for children;
                  ``(D) a review and assessment of State 
                activities to coordinate the plan under this 
                title with other public and private programs 
                providing health care and health care 
                financing, including Medicaid and maternal and 
                child health services;
                  ``(E) an analysis of changes and trends in 
                the State that affect the provision of 
                accessible, affordable, quality health 
                insurance and health care to children;
                  ``(F) a description of any plans the State 
                has for improving the availability of health 
                insurance and health care for children;
                  ``(G) recommendations for improving the 
                program under this title; and
                  ``(H) any other matters the State and the 
                Secretary consider appropriate.
          ``(2) Report of the secretary.--The Secretary shall 
        submit to the Congress and make available to the public 
        by December 31, 2000, a report based on the evaluations 
        submitted by States under paragraph (1), containing any 
        conclusions and recommendations the Secretary considers 
        appropriate.

``SEC. 2108. DEFINITIONS.

  ``(a) Child Health Assistance.--For purposes of this title, 
the term `child health assistance' means payment of part or all 
of the cost of any of the following, or assistance in the 
purchase, in whole or in part, of health benefit coverage that 
includes any of the following, for targeted low-income children 
(as defined in subsection (b)) as specified under the State 
plan:
          ``(1) Inpatient hospital services.
          ``(2) Outpatient hospital services.
          ``(3) Physician services.
          ``(4) Surgical services.
          ``(5) Clinic services (including health center 
        services) and other ambulatory health care services.
          ``(6) Prescription drugs and biologicals and the 
        administration of such drugs and biologicals, only if 
        such drugs and biologicals are not furnished for the 
        purpose of causing, or assisting in causing, the death, 
        suicide, euthanasia, or mercy killing of a person.
          ``(7) Over-the-counter medications.
          ``(8) Laboratory and radiological services.
          ``(9) Prenatal care and prepregnancy family planning 
        services and supplies.
          ``(10) Inpatient mental health services, including 
        services furnished in a State-operated mental hospital 
        and including residential or other 24-hour 
        therapeutically planned structured services.
          ``(11) Outpatient mental health services, including 
        services furnished in a State-operated mental hospital 
        and including community-based services.
          ``(12) Durable medical equipment and other medically-
        related or remedial devices (such as prosthetic 
        devices, implants, eyeglasses, hearing aids, dental 
        devices, and adaptive devices).
          ``(13) Disposable medical supplies.
          ``(14) Home and community-based health care services 
        and related supportive services (such as home health 
        nursing services, home health aide services, personal 
        care, assistance with activities of daily living, chore 
        services, day care services, respite care services, 
        training for family members, and minor modifications to 
        the home).
          ``(15) Nursing care services (such as nurse 
        practitioner services, nurse midwife services, advanced 
        practice nurse services, private duty nursing care, 
        pediatric nurse services, and respiratory care 
        services) in a home, school, or other setting.
          ``(16) Abortion only if necessary to save the life of 
        the mother or if the pregnancy is the result of an act 
        of rape or incest.
          ``(17) Dental services.
          ``(18) Inpatient substance abuse treatment services 
        and residential substance abuse treatment services.
          ``(19) Outpatient substance abuse treatment services.
          ``(20) Case management services.
          ``(21) Care coordination services.
          ``(22) Physical therapy, occupational therapy, and 
        services for individuals with speech, hearing, and 
        language disorders.
          ``(23) Hospice care.
          ``(24) Any other medical, diagnostic, screening, 
        preventive, restorative, remedial, therapeutic, or 
        rehabilitative services (whether in a facility, home, 
        school, or other setting) if recognized by State law 
        and only if the service is--
                  ``(A) prescribed by or furnished by a 
                physician or other licensed or registered 
                practitioner within the scope of practice as 
                defined by State law,
                  ``(B) performed under the general supervision 
                or at the direction of a physician, or
                  ``(C) furnished by a health care facility 
                that is operated by a State or local government 
                or is licensed under State law and operating 
                within the scope of the license.
          ``(25) Premiums for private health care insurance 
        coverage.
          ``(26) Medical transportation.
          ``(27) Enabling services (such as transportation, 
        translation, and outreach services) only if designed to 
        increase the accessibility of primary and preventive 
        health care services for eligible low-income 
        individuals.
          ``(28) Any other health care services or items 
        specified by the Secretary and not excluded under this 
        section.
  ``(b) Targeted Low-Income Child Defined.--For purposes of 
this title--
          ``(1) In general.--The term `targeted low-income 
        child' means a child--
                  ``(A) who has been determined eligible by the 
                State for child health assistance under the 
                State plan;
                  ``(B) whose family income (as determined 
                under the State child health plan)--
                          ``(i) exceeds the medicaid applicable 
                        income level (as defined in paragraph 
                        (2) and expressed as a percentage of 
                        the poverty line), but
                          ``(ii) but does not exceed an income 
                        level that is 75 percentage points 
                        higher (as so expressed) than the 
                        medicaid applicable income level, or, 
                        ifhigher, 133 percent of the poverty 
line for a family of the size involved; and
                  ``(C) who is not found to be eligible for 
                medical assistance under title XIX or covered 
                under a group health plan or under health 
                insurance coverage (as such terms are defined 
                in section 2791 of the Public Health Service 
                Act).
        Such term does not include a child who is an inmate of 
        a public institution.
          ``(2) Medicaid applicable income level.--The term 
        `medicaid applicable income level' means, with respect 
        to a child, the effective income level (expressed as a 
        percent of the poverty line) that has been specified 
        under the State plan under title XIX (including under a 
        waiver authorized by the Secretary or under section 
        1902(r)(2)), as of June 1, 1997, for the child to be 
        eligible for medical assistance under section 
        1902(l)(2) for the age of such child. In applying the 
        previous sentence in the case of a child described in 
        section 1902(l)(2)(D), such level shall be applied 
        taking into account the expanded coverage effected 
        among such children under such section with the passage 
        of time.
  ``(c) Additional Definitions.--For purposes of this title:
          ``(1) Child.--The term `child' means an individual 
        under 19 years of age.
          ``(2) Creditable health coverage.--The term 
        `creditable health coverage' has the meaning given the 
        term `creditable coverage' under section 2701(c) of the 
        Public Health Service Act (42 U.S.C. 300gg(c)) and 
        includes coverage (including the direct provision of 
        services) provided to a targeted low-income child under 
        this title.
          ``(3) Group health plan; health insurance coverage; 
        etc.--The terms `group health plan', `group health 
        insurance coverage', and `health insurance coverage' 
        have the meanings given such terms in section 2191 of 
        the Public Health Service Act.
          ``(4) Low-income.--The term `low-income child' means 
        a child whose family income is below 200 percent of the 
        poverty line for a family of the size involved.
          ``(5) Poverty line defined.--The term `poverty line' 
        has the meaning given such term in section 673(2) of 
        the Community Services Block Grant Act (42 U.S.C. 
        9902(2)), including any revision required by such 
        section.
          ``(6) Preexisting condition exclusion.--The term 
        `preexisting condition exclusion' has the meaning given 
        such term in section 2701(b)(1)(A) of the Public Health 
        Service Act (42 U.S.C. 300gg(b)(1)(A)).
          ``(7) State child health plan; plan.--Unless the 
        context otherwise requires, the terms `State child 
        health plan' and `plan' mean a State child health plan 
        approved under section 2105.
          ``(8) Uncovered child.--The term `uncovered child' 
        means a child that does not have creditable health 
        coverage.''.
  (b) Conforming Amendments.--
          (1) Definition of state.--Section 1101(a)(1) is 
        amended--
                  (A) by striking ``and XIX'' and inserting 
                ``XIX, and XXI'', and
                  (B) by striking ``title XIX'' and inserting 
                ``titles XIX and XXI''.

SEC. 3503. OPTIONAL USE OF STATE CHILD HEALTH ASSISTANCE FUNDS FOR 
                    ENHANCED MEDICAID MATCH FOR EXPANDED MEDICAID 
                    ELIGIBILITY.

  (a) Increased FMAP for Medical Assistance for Expanded 
Coverage of Targeted Low-Income Children.--Section 1905 of the 
Social Security Act (42 U.S.C. 1396d) is amended--
          (1) in subsection (b), by adding at the end the 
        following new sentence: ``Notwithstanding the first 
        sentence of this subsection, in the case of a State 
        plan that meets the condition described in subsection 
        (t)(1), with respect to expenditures for medical 
        assistance for optional targeted low-income children 
        described in subsection (t)(2), the Federal medical 
        assistance percentage is equal to the enhanced medical 
        assistance percentage described in subsection 
        (t)(3).''; and
          (2) by adding at the end the following new 
        subsection:
  ``(t)(1) The conditions described in this paragraph for a 
State plan are as follows:
          ``(A) The plan is not applying income and resource 
        standards and methodologies for the purpose of 
        determining eligibility of individuals under section 
        1902(l) that are more restrictive than those applied as 
        of June 1, 1997, for the purpose of determining 
        eligibility of individuals under such section.
          ``(B) The plan provides for such reporting of 
        information about expenditures and payments 
        attributable to the operation of this subsection as the 
        Secretary deems necessary in order to carry out 
        sections 2103(d) and 2104(b)(2).
          ``(C) The amount of the increased payments under 
        section 1903(a) resulting from the application of this 
        subsection does not exceed the total amount of any 
        allotment not otherwise expended by the State under 
        section 2103 for the period involved.
  ``(2) For purposes of subsection (b), the term `optional 
targeted low-income child' means a targeted low-income child 
described in section 2108(b)(1) who would not qualify for 
medical assistance under the State plan under this title based 
on such plan as in effect on June 1, 1997 (taking into account 
the process of individuals aging into eligibility under section 
1902(l)(2)(D)).
  ``(3) The enhanced medical assistance percentage described in 
this paragraph for a State is equal to the Federal medical 
assistance percentage (as defined in the first sentence of 
subsection (b)) for the State increased by a number of 
percentage points equal to 30 percent of the number of 
percentagepoints by which (A) such Federal medical assistance 
percentage for the State, is less than (B) 100 percent.
  ``(4) Notwithstanding any other provision of this title, a 
State plan under this title may impose a limit on the number of 
optional targeted low-income children described in paragraph 
(2).''.
  (b) Effective Date.--The amendments made by this section 
shall apply to medical assistance for items and services 
furnished on or after October 1, 1997.

SEC. 3504. MEDICAID PRESUMPTIVE ELIGIBILITY FOR LOW-INCOME CHILDREN.

  (a) In General.--Title XIX of the Social Security Act is 
amended by inserting after section 1920 the following new 
section:

                 ``presumptive eligibility for children

  ``Sec. 1920A. (a) A State plan approved under section 1902 
may provide for making medical assistance with respect to 
health care items and services covered under the State plan 
available to a child during a presumptive eligibility period.
  ``(b) For purposes of this section:
          ``(1) The term `child' means an individual under 19 
        years of age.
          ``(2) The term `presumptive eligibility period' 
        means, with respect to a child, the period that--
                  ``(A) begins with the date on which a 
                qualified entity determines, on the basis of 
                preliminary information, that the family income 
                of the child does not exceed the applicable 
                income level of eligibility under the State 
                plan, and
                  ``(B) ends with (and includes) the earlier 
                of--
                          ``(i) the day on which a 
                        determination is made with respect to 
                        the eligibility of the child for 
                        medical assistance under the State 
                        plan, or
                          ``(ii) in the case of a child on 
                        whose behalf an application is not 
                        filed by the last day of the month 
                        following the month during which the 
                        entity makes the determination referred 
                        to in subparagraph (A), such last day.
          ``(3)(A) Subject to subparagraph (B), the term 
        `qualified entity' means any entity that--
                  ``(i)(I) is eligible for payments under a 
                State plan approved under this title and 
                provides items and services described in 
                subsection (a) or (II) is authorized to 
                determine eligibility of a child to participate 
                in a Head Start program under the Head Start 
                Act (42 U.S.C. 9821 et seq.), eligibility of a 
                child to receive child care services for which 
                financial assistance is provided under the 
                Child Care and Development Block Grant Act of 
                1990 (42 U.S.C. 9858 et seq.), eligibility of 
                an infant or child to receive assistance under 
                the special supplemental nutrition program for 
                women, infants, and children (WIC) under 
                section 17 of the Child Nutrition Act of 1966 
                (42 U.S.C. 1786); and
                  ``(ii) is determined by the State agency to 
                be capable of making determinations of the type 
                described in paragraph (1)(A).
          ``(B) The Secretary may issue regulations further 
        limiting those entities that may become qualified 
        entities in order to prevent fraud and abuse and for 
        other reasons.
          ``(C) Nothing in this section shall be construed as 
        preventing a State from limiting the classes of 
        entities that may become qualified entities, consistent 
        with any limitations imposed under subparagraph (B).
  ``(c)(1) The State agency shall provide qualified entities 
with--
          ``(A) such forms as are necessary for an application 
        to be made on behalf of a child for medical assistance 
        under the State plan, and
          ``(B) information on how to assist parents, 
        guardians, and other persons in completing and filing 
        such forms.
  ``(2) A qualified entity that determines under subsection 
(b)(1)(A) that a child is presumptively eligible for medical 
assistance under a State plan shall--
          ``(A) notify the State agency of the determination 
        within 5 working days after the date on which 
        determination is made, and
          ``(B) inform the parent or custodian of the child at 
        the time the determination is made that an application 
        for medical assistance under the State plan is required 
        to be made by not later than the last day of the month 
        following the month during which the determination is 
        made.
  ``(3) In the case of a child who is determined by a qualified 
entity to be presumptively eligible for medical assistance 
under a State plan, the parent, guardian, or other person shall 
make application on behalf of the child for medical assistance 
under such plan by not later than the last day of the month 
following the month during which the determination is made, 
which application may be the application used for the receipt 
of medical assistance by individuals described in section 
1902(l)(1).
  ``(d) Notwithstanding any other provision of this title, 
medical assistance for items and services described in 
subsection (a) that--
          ``(1) are furnished to a child--
                  ``(A) during a presumptive eligibility 
                period,
                  ``(B) by a entity that is eligible for 
                payments under the State plan; and
          ``(2) are included in the care and services covered 
        by a State plan;
shall be treated as medical assistance provided by such plan 
for purposes of section 1903.''.
  (b) Conforming Amendments.--(1) Section 1902(a)(47) of such 
Act (42 U.S.C. 1396a(a)(47)) is amended by inserting before the 
semicolon at the end the following: ``and provide for making 
medical assistance for items and services described in 
subsection (a) of section 1920A available to children during a 
presumptive eligibility period in accordance with such 
section''.
  (2) Section 1903(u)(1)(D)(v) of such Act (42 U.S.C. 
1396b(u)(1)(D)(v)) of such Act is amended by inserting before 
the period at the end the following: ``or for items and 
services described in subsection (a) of section 1920A provided 
to a child during a presumptive eligibility period under such 
section''.
  (c) Effective Date.--The amendments made by this section 
shall take effect on the date of the enactment of this Act.

               TITLE IV--COMMITTEE ON COMMERCE--MEDICARE

SEC. 4000. AMENDMENTS TO SOCIAL SECURITY ACT AND REFERENCES TO OBRA; 
                    TABLE OF CONTENTS OF TITLE.

  (a) Amendments to Social Security Act.--Except as otherwise 
specifically provided, whenever in this title an amendment is 
expressed in terms of an amendment to or repeal of a section or 
other provision, the reference shall be considered to be made 
to that section or other provision of the Social Security Act.
  (b) References to OBRA.--In this title, the terms ``OBRA-
1986'', ``OBRA-1987'', ``OBRA-1989'', ``OBRA-1990'', and 
``OBRA-1993'' refer to the Omnibus Budget Reconciliation Act of 
1986 (Public Law 99-509), the Omnibus Budget Reconciliation Act 
of 1987 (Public Law 100-203), the Omnibus Budget Reconciliation 
Act of 1989 (Public Law 101-239), the Omnibus Budget 
Reconciliation Act of 1990 (Public Law 101-508), and the 
Omnibus Budget Reconciliation Act of 1993 (Public Law 103-66), 
respectively.
  (c) Table of Contents of Title.--The table of contents of 
this title is as follows:
Sec. 4000. Amendments to Social Security Act and references to OBRA; 
          table of contents of title.

                    Subtitle A--MedicarePlus Program

                     Chapter 1--MedicarePlus Program

                    SUBCHAPTER A--MEDICAREPLUS PROGRAM

Sec. 4001. Establishment of MedicarePlus program.

                     ``Part C--MedicarePlus Program

    ``Sec. 1851. Eligibility, election, and enrollment.
    ``Sec. 1852. Benefits and beneficiary protections.
    ``Sec. 1853. Payments to MedicarePlus organizations.
    ``Sec. 1854. Premiums.
    ``Sec. 1855. Organizational and financial requirements for 
              MedicarePlus organizations; provider-sponsored 
              organizations.
    ``Sec. 1856. Establishment of standards.
    ``Sec. 1857. Contracts with MedicarePlus organizations.
    ``Sec. 1859. Definitions; miscellaneous provisions.
Sec. 4002. Transitional rules for current medicare HMO program.
Sec. 4003. Conforming changes in medigap program.

   SUBCHAPTER B--SPECIAL RULES FOR MEDICAREPLUS MEDICAL SAVINGS ACCOUNTS

Sec. 4006. MedicarePlus MSA.

    SUBCHAPTER C--GME, IME, AND DSH PAYMENTS FOR MANAGED CARE ENROLLEES

Sec. 4008. Graduate medical education and indirect medical education 
          payments for managed care enrollees.
Sec. 4009. Disproportionate share hospital payments for managed care 
          enrollees.

              Chapter 2--Integrated Long-term Care Programs

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

Sec. 4011. Reference to coverage of PACE under the medicare program.
Sec. 4012. Reference to establishment of PACE program as medicaid State 
          option.

       SUBCHAPTER B--SOCIAL HEALTH MAINTENANCE ORGANIZATIONS (SHMOS)

Sec. 4015. Social health maintenance organizations (SHMOs).

                       SUBCHAPTER C--OTHER PROGRAMS

Sec. 4018. Orderly transition of municipal health service demonstration 
          projects.
Sec. 4019. Extension of certain medicare community nursing organization 
          demonstration projects.

             Chapter 3--Medicare Payment Advisory Commission

Sec. 4021. Medicare Payment Advisory Commission.

                     Chapter 4--Medigap Protections

Sec. 4031. Medigap protections.
Sec. 4032. Medicare prepaid competitive pricing demonstration project.

                   Subtitle B--Prevention Initiatives

Sec. 4101. Screening mammography.
Sec. 4102. Screening pap smear and pelvic exams.
Sec. 4103. Prostate cancer screening tests.
Sec. 4104. Coverage of colorectal screening.
Sec. 4105. Diabetes screening tests.
Sec. 4106. Standardization of medicare coverage of bone mass 
          measurements.
Sec. 4107. Vaccines outreach expansion.
Sec. 4108. Study on preventive benefits.

                      Subtitle C--Rural Initiatives

Sec. 4206. Informatics, telemedicine, and education demonstration 
          project.

               Subtitle D--Anti-Fraud and Abuse Provisions

Sec. 4301. Permanent exclusion for those convicted of 3 health care 
          related crimes.
Sec. 4302. Authority to refuse to enter into medicare agreements with 
          individuals or entities convicted of felonies.
Sec. 4303. Inclusion of toll-free number to report medicare waste, 
          fraud, and abuse in explanation of benefits forms.
Sec. 4304. Liability of medicare carriers and fiscal intermediaries for 
          claims submitted by excluded providers.
Sec. 4305. Exclusion of entity controlled by family member of a 
          sanctioned individual.
Sec. 4306. Imposition of civil money penalties.
Sec. 4307. Disclosure of information and surety bonds.
Sec. 4308. Provision of certain identification numbers.
Sec. 4309. Advisory opinions regarding certain physician self-referral 
          provisions.
Sec. 4310. Nondiscrimination in post-hospital referral to home health 
          agencies.
Sec. 4311. Other fraud and abuse related provisions.

                 Subtitle E--Prospective Payment Systems

                     Chapter 2--Payment Under Part B

     SUBCHAPTER A--PAYMENT FOR HOSPITAL OUTPATIENT DEPARTMENT SERVICES

Sec. 4411. Elimination of formula-driven overpayments (FDO) for certain 
          outpatient hospital services.
Sec. 4412. Extension of reductions in payments for costs of hospital 
          outpatient services.
Sec. 4413. Prospective payment system for hospital outpatient department 
          services.

                   SUBCHAPTER B--REHABILITATION SERVICES

Sec. 4421. Rehabilitation agencies and services.
Sec. 4422. Comprehensive outpatient rehabilitation facilities (corf).

                     SUBCHAPTER C--AMBULANCE SERVICES

Sec. 4431. Payments for ambulance services.
Sec. 4432. Demonstration of coverage of ambulance services under 
          medicare through contracts with units of local government.

                 Chapter 3--Payment Under Parts A and B

Sec. 4441. Prospective payment for home health services.

             Subtitle G--Provisions Relating to Part B Only

                     Chapter 1--Physicians' Services

Sec. 4601. Establishment of single conversion factor for 1998.
Sec. 4602. Establishing update to conversion factor to match spending 
          under sustainable growth rate.
Sec. 4603. Replacement of volume performance standard with sustainable 
          growth rate.
Sec. 4604. Payment rules for anesthesia services.
Sec. 4605. Implementation of resource-based physician practice expense.
Sec. 4606. Dissemination of information on high per admission relative 
          values for in-hospital physicians' services.
Sec. 4607. No X-ray required for chiropractic services.
Sec. 4608. Temporary coverage restoration for portable electrocardiogram 
          transportation.

                   Chapter 2--Other Payment Provisions

Sec. 4611. Payments for durable medical equipment.
Sec. 4612. Oxygen and oxygen equipment.
Sec. 4613. Reduction in updates to payment amounts for clinical 
          diagnostic laboratory tests.
Sec. 4614. Simplification in administration of laboratory services 
          benefit.
Sec. 4615. Updates for ambulatory surgical services.
Sec. 4616. Reimbursement for drugs and biologicals.
Sec. 4617. Coverage of oral anti-nausea drugs under chemotherapeutic 
          regimen.
Sec. 4618. Rural health clinic services.
Sec. 4619. Increased medicare reimbursement for nurse practitioners and 
          clinical nurse specialists.
Sec. 4620. Increased medicare reimbursement for physician assistants.
Sec. 4621. Renal dialysis-related services.
Sec. 4622. Payment for cochlear implants as customized durable medical 
          equipment.

                        Chapter 3--Part B Premium

Sec. 4631. Part B premium.

            Subtitle H--Provisions Relating to Parts A and B

       Chapter 1--Provisions Relating to Medicare Secondary Payer

Sec. 4701. Permanent extension and revision of certain secondary payer 
          provisions.
Sec. 4702. Clarification of time and filing limitations.
Sec. 4703. Permitting recovery against third party administrators.

                     Chapter 2--Home Health Services

Sec. 4711. Recapturing savings resulting from temporary freeze on 
          payment increases for home health services.
Sec. 4712. Interim payments for home health services.
Sec. 4713. Clarification of part-time or intermittent nursing care.
Sec. 4714. Study of definition of homebound.
Sec. 4715. Payment based on location where home health service is 
          furnished.
Sec. 4716. Normative standards for home health claims denials,
Sec. 4717. No home health benefits based solely on drawing blood.
Sec. 4718. Making part B primary payor for certain home health services.

           Chapter 3--Baby Boom Generation Medicare Commission

Sec. 4721. Bipartisan Commission on the Effect of the Baby Boom 
          Generation on the Medicare Program.

   Chapter 4--Provisions Relating to Direct Graduate Medical Education

Sec. 4731. Limitation on payment based on number of residents and 
          implementation of rolling average FTE count.
Sec. 4732. Phased-in limitation on hospital overhead and supervisory 
          physician component of direct medical education costs.
Sec. 4733. Permitting payment to non-hospital providers.
Sec. 4734. Incentive payments under plans for voluntary reduction in 
          number of residents.
Sec. 4735. Demonstration project on use of consortia.
Sec. 4736. Recommendations on long-term payment policies regarding 
          financing teaching hospitals and graduate medical education.
Sec. 4737. Medicare special reimbursement rule for certain combined 
          residency programs.

                       Chapter 5--Other Provisions

Sec. 4741. Centers of excellence.
Sec. 4742. Medicare part B special enrollment period and waiver of part 
          B late enrollment penalty and medigap special open enrollment 
          period for certain military retirees and dependents.
Sec. 4743. Competitive bidding for certain items and services.

                  Subtitle I--Medical Liability Reform

                      Chapter 1--General Provisions

Sec. 4801. Federal reform of health care liability actions.
Sec. 4802. Definitions.
Sec. 4803. Effective date.

     Chapter 2--Uniform Standards for Health Care Liability Actions

Sec. 4811. Statute of limitations.
Sec. 4812. Calculation and payment of damages.
Sec. 4813. Alternative dispute resolution.

                    Subtitle A--MedicarePlus Program

                    CHAPTER 1--MEDICAREPLUS PROGRAM

                   Subchapter A--MedicarePlus Program

SEC. 4001. ESTABLISHMENT OF 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--MedicarePlus Program

                ``eligibility, election, and enrollment

  ``Sec. 1851. (a) Choice of Medicare Benefits Through 
MedicarePlus Plans.--
          ``(1) In general.--Subject to the provisions of this 
        section, each MedicarePlus eligible individual (as 
        defined in paragraph (3)) is entitled to elect to 
        receive benefits under this title--
                  ``(A) through the medicare fee-for-service 
                program under parts A and B, or
                  ``(B) through enrollment in a MedicarePlus 
                plan under this part.
          ``(2) Types of medicareplus plans that may be 
        available.--A MedicarePlus plan may be any of the 
        following types of plans of health insurance:
                  ``(A) Coordinated care plans.--Coordinated 
                care plans which provide health care services, 
                including health maintenance organization plans 
                and preferred provider organization plans.
                  ``(B) Plans offered by provider-sponsored 
                organization.--A MedicarePlus plan offered by a 
                provider-sponsored organization, as defined in 
                section 1855(e).
                  ``(C) Combination of msa plan and 
                contributions to medicareplus msa.--An MSA 
                plan, as defined in section 1859(b)(2), and a 
                contribution into a MedicarePlus medical 
                savings account (MSA).
          ``(3) MedicarePlus eligible individual.--
                  ``(A) In general.--In this title, subject to 
                subparagraph (B), the term `MedicarePlus 
                eligible individual' means an individual who is 
                entitled to benefits under part A and enrolled 
                under part B.
                  ``(B) Special rule for end-stage renal 
                disease.--Such term shall not include an 
                individual medically determined to have end-
                stage renal disease, except that an individual 
                who develops end-stage renal disease while 
                enrolled in a MedicarePlus plan may continue to 
                be enrolled in that plan.
  ``(b) Special Rules.--
          ``(1) Residence requirement.--
                  ``(A) In general.--Except as the Secretary 
                may otherwise provide, an individual is 
                eligible to elect a MedicarePlus plan offered 
                by a MedicarePlus organization only if the 
                organization serves the geographic area in 
                which the individual resides.
                  ``(B) Continuation of enrollment permitted.--
                Pursuant to rules specified by the Secretary, 
                the Secretary shall provide that an individual 
                may continue enrollment in a plan, 
                notwithstanding that the individual no longer 
                resides in the service area of the plan, so 
                long as the plan provides benefits for 
                enrollees located in the area in which the 
                individual resides.
          ``(2) Special rule for certain individuals covered 
        under fehbp or eligible for veterans or military health 
        benefits, veterans .--
                  ``(A) FEHBP.--An individual who is enrolled 
                in a health benefit plan under chapter 89 of 
                title 5, United States Code, is not eligible to 
                enroll in an MSA plan until such time as the 
                Director of the Office of Management and Budget 
                certifies to the Secretary that the Office of 
                Personnel Management has adopted policies which 
                will ensure that the enrollment of such 
                individuals in such plans will not result in 
                increased expenditures for the Federal 
                Government for health benefit plans under such 
                chapter.
                  ``(B) VA and dod.--The Secretary may apply 
                rules similar to the rules described in 
                subparagraph (A) in the case of individuals who 
                are eligible for health care benefits under 
                chapter 55 of title 10, United States Code, or 
                under chapter 17 of title 38 of such Code.
          ``(3) Limitation on eligibility of qualified medicare 
        beneficiaries and other medicaid beneficiaries to 
        enroll in an MSA plan.--An individual who is a 
        qualified medicare beneficiary (as defined in section 
        1905(p)(1)), a qualified disabled and working 
        individual (described in section 1905(s)), an 
        individual described in section 1902(a)(10)(E)(iii), or 
        otherwise entitled to medicare cost-sharing under a 
        State plan under title XIX is not eligible to enroll in 
        an MSA plan.
          ``(4) Coverage under msa plans on a demonstration 
        basis.--
                  ``(A) In general.--An individual is not 
                eligible to enroll in an MSA plan under this 
                part--
                          ``(i) on or after January 1, 2003, 
                        unless the enrollment is the 
                        continuation of such an enrollment in 
                        effect as of such date; or
                          ``(ii) as of any date if the number 
                        of such individuals so enrolled as of 
                        such date has reached 500,000.
                Under rules established by the Secretary, an 
                individual is not eligible to enroll (or 
                continue enrollment) in an MSA plan for a year 
                unless the individual provides assurances 
                satisfactory to the Secretary that the 
                individual will reside in the United States for 
                at least 183 days during the year.
                  ``(B) Evaluation.--The Secretary shall 
                regularly evaluate the impact of permitting 
                enrollment in MSA plans under this part on 
                selection (including adverse selection), use of 
                preventive care, access to care, and the 
                financial status of the Trust Funds under this 
                title.
                  ``(C) Reports.--The Secretary shall submit to 
                Congress periodic reports on the numbers of 
                individuals enrolled in such plans and on the 
                evaluation being conducted under subparagraph 
                (B). The Secretary shall submit such a report, 
                by not later than March 1, 2002, on whether the 
                time limitation under subparagraph (A)(i) 
                should be extended or removed and whether to 
                change the numerical limitation under 
                subparagraph (A)(ii).
  ``(c) Process for Exercising Choice.--
          ``(1) In general.--The Secretary shall establish a 
        process through which elections described in subsection 
        (a) are made and changed, including the form and manner 
        in which such elections are made and changed. Such 
        elections shall be made or changed only during coverage 
        election periods specified under subsection (e) and 
        shall become effective as provided in subsection (f).
          ``(2) Coordination through medicareplus 
        organizations.--
                  ``(A) Enrollment.--Such process shall permit 
                an individual who wishes to elect a 
                MedicarePlus plan 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 plan 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.
          ``(3) Default.--
                  ``(A) Initial election.--
                          ``(i) In general.--Subject to clause 
                        (ii), an individual who fails to make 
                        an election during an initial election 
                        period under subsection (e)(1) is 
                        deemed to have chosen the medicare fee-
                        for-service program option.
                          ``(ii) Seamless continuation of 
                        coverage.--The Secretary may establish 
                        procedures under which an individual 
                        who is enrolled in a health plan (other 
                        than MedicarePlus plan) offered by a 
                        MedicarePlus organization at the time 
                        of the initial election period and who 
                        fails to elect to receive coverage 
                        other than through the organization is 
                        deemed to have elected the MedicarePlus 
                        plan offered by the organization (or, 
                        if the organization offers more than 
                        one such plan, such plan or plans as 
                        the Secretary identifies under such 
                        procedures).
                  ``(B) Continuing periods.--An individual who 
                has made (or is deemed to have made) an 
                election under this section is considered to 
                have continued to make such election until such 
                time as--
                          ``(i) the individual changes the 
                        election under this section, or
                          ``(ii) a MedicarePlus plan is 
                        discontinued, if the individual had 
                        elected such plan at the time of the 
                        discontinuation.
  ``(d) Providing Information To Promote Informed Choice.--
          ``(1) In general.--The Secretary shall provide for 
        activities under this subsection to broadly disseminate 
        information to medicare beneficiaries (and prospective 
        medicare beneficiaries) on the coverage options 
        provided under this section in order to promote an 
        active, informed selection among such options.
          ``(2) Provision of notice.--
                  ``(A) Open season notification.--At least 30 
                days before the beginning of each annual, 
                coordinated election period (as defined in 
                subsection (e)(3)(B)), the Secretary shall mail 
                to each MedicarePlus eligible individual 
                residing in an area the following:
                          ``(i) General information.--The 
                        general information described in 
                        paragraph (3).
                          ``(ii) List of plans and comparison 
                        of plan options.--A list identifying 
                        the MedicarePlus plans that are (or 
                        will be) available to residents of the 
                        area and information described in 
                        paragraph (4) concerning such plans. 
                        Such information shall be presented in 
                        a comparative form.
                          ``(iii) MedicarePlus monthly 
                        capitation rate.--The amount of the 
                        monthly MedicarePlus capitation rate 
                        for the area.
                          ``(iv) Additional information.--Any 
                        other information that the Secretary 
                        determines will assist the individual 
                        in making the election under this 
                        section.
                The mailing of such information shall be 
                coordinated with the mailing of any annual 
                notice under section 1804.
                  ``(B) Notification to newly medicareplus 
                eligible individuals.--To the extent 
                practicable, the Secretary shall, not later 
                than 2 months before the beginning of the 
                initial MedicarePlus enrollment period for an 
                individual described in subsection (e)(1), mail 
                to the individual the information described in 
                subparagraph (A).
                  ``(C) Form.--The information disseminated 
                under this paragraph shall be written and 
                formatted using language that is easily 
                understandable by medicare beneficiaries.
                  ``(D) Periodic updating.--The information 
                described in subparagraph (A) shall be updated 
                on at least an annual basis to reflect changes 
                in the availability of MedicarePlus plans and 
                the benefits and monthly premiums (and net 
                monthly premiums) for such plans.
          ``(3) General information.--General information under 
        this paragraph, with respect to coverage under this 
        part during a year, shall include the following:
                  ``(A) Benefits under fee-for-service program 
                option.--A general description of the benefits 
                covered (and not covered) under the medicare 
                fee-for-service program under parts A and B, 
                including--
                          ``(i) covered items and services,
                          ``(ii) beneficiary cost sharing, such 
                        as deductibles, coinsurance, and 
                        copayment amounts, and
                          ``(iii) any beneficiary liability for 
                        balance billing.
                  ``(B) Part b premium.--The part B premium 
                rates that will be charged for part B coverage.
                  ``(C) Election procedures.--Information and 
                instructions on how to exercise election 
                options under this section.
                  ``(D) Rights.--The general description of 
                procedural rights (including grievance and 
                appeals procedures) of beneficiaries under the 
                medicare fee-for-service program and the 
                MedicarePlus program and right to be protected 
                against discrimination based on health status-
                related factors under section 1852(b).
                  ``(E) Information on medigap and medicare 
                select.--A general description of the benefits, 
                enrollment rights, and other requirements 
                applicable to medicare supplemental policies 
                under section 1882 and provisions relating to 
                medicare select policies described in section 
                1882(t).
                  ``(F) Potential for contract termination.--
                The fact that a MedicarePlus organization may 
                terminate or refuse to renew its contract under 
                this part and the effect the termination or 
                nonrenewal of its contract may have on 
                individuals enrolled with the MedicarePlus plan 
                under this part.
          ``(4) Information comparing plan options.--
        Information under this paragraph, with respect to a 
        MedicarePlus plan for a year, shall include the 
        following:
                  ``(A) Benefits.--The benefits covered (and 
                not covered) under the plan, including--
                          ``(i) covered items and services 
                        beyond those provided under the 
                        medicare fee-for-service program,
                          ``(ii) any beneficiary cost sharing,
                          ``(iii) any maximum limitations on 
                        out-of-pocket expenses,
                          ``(iv) in the case of an MSA plan, 
                        differences in cost sharing under such 
                        a plan compared to under other 
                        MedicarePlus plans,
                          ``(v) the use of provider networks 
                        and the restriction on payments for 
                        services furnished other than by other 
                        through the organization,
                          ``(vi) the organization's coverage of 
                        emergency and urgently needed care,
                          ``(vii) the appeal and grievance 
                        rights of enrollees,
                          ``(viii) number of grievances and 
                        appeals, and information on their 
                        disposition in the aggregate,
                          ``(ix) procedures used by the 
                        organization to control utilization of 
                        services and expenditures, and
                          ``(x) any exclusions in the types of 
                        providers participating in the plan's 
                        network.
                  ``(B) Premiums.--The monthly premium (and net 
                monthly premium), if any, for the plan.
                  ``(C) Service area.--The service area of the 
                plan.
                  ``(D) Quality and performance.--To the extent 
                available, plan quality and performance 
                indicators for the benefits under the plan (and 
                how they compare to such indicators under the 
                medicare fee-for-service program under parts A 
                and B in the area involved), including--
                          ``(i) disenrollment rates for 
                        medicare enrollees electing to receive 
                        benefits through the plan for the 
                        previous 2 years (excluding 
                        disenrollment due to death or moving 
                        outside the plan's service area),
                          ``(ii) information on medicare 
                        enrollee satisfaction,
                          ``(iii) information on health 
                        outcomes, and
                          ``(iv) the recent record regarding 
                        compliance of the plan with 
                        requirements of this part (as 
                        determined by the Secretary).
                  ``(E) Supplemental benefits options.--Whether 
                the organization offering the plan offers 
                optional supplemental benefits and the terms 
                and conditions (including premiums) for such 
                coverage.
          ``(5) Maintaining a toll-free number and internet 
        site.--The Secretary shall maintain a toll-free number 
        for inquiries regarding MedicarePlus options and the 
        operation of this part in all areas in which 
        MedicarePlus plans are offered and an Internet site 
        through which individuals may electronically obtain 
        information on such options and MedicarePlus plans.
          ``(6) Use of nonfederal entities.--The Secretary may 
        enter into contracts with non-Federal entities to carry 
        out activities under this subsection.
          ``(7) Provision of information.--A MedicarePlus 
        organization shall provide the Secretary with such 
        information on the organization and each MedicarePlus 
        plan it offers as may be required for the preparation 
        of the information referred to in paragraph (2)(A).
  ``(e) Coverage Election Periods.--
          ``(1) Initial choice upon eligibility to make 
        election if medicareplus plans available to 
        individual.--If, at the time an individual first 
        becomes entitled to benefits under part A and enrolled 
        under part B, there is one or more MedicarePlus plans 
        offered in the area in which the individual resides, 
        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 such time. Such 
        period shall be specified in a manner so that, in the 
        case of an individual who elects a MedicarePlus plan 
        during the period, coverage under the plan becomes 
        effective as of the first date on which the individual 
        may receive such coverage.
          ``(2) Open enrollment and disenrollment 
        opportunities.--Subject to paragraph (5)--
                  ``(A) Continuous open enrollment and 
                disenrollment through 2000.--At any time during 
                1998, 1999, and 2000, a MedicarePlus eligible 
                individual may change the election under 
                subsection (a)(1).
                  ``(B) Continuous open enrollment and 
                disenrollment for first 6 months during 2001.--
                          ``(i) In general.--Subject to clause 
                        (ii), at any time during the first 6 
                        months of 2001, or, if the individual 
                        first becomes a MedicarePlus eligible 
                        individual during 2001, during the 
                        first 6 months during 2001 in which the 
                        individual is a MedicarePluseligible 
individual may change the election under subsection (a)(1).
                          ``(ii) Limitation of one change per 
                        year.--An individual may exercise the 
                        right under clause (i) only once during 
                        2001. The limitation under this clause 
                        shall not apply to changes in elections 
                        effected during an annual, coordinated 
                        election period under paragraph (3) or 
                        during a special enrollment period 
                        under paragraph (4).
                  ``(C) Continuous open enrollment and 
                disenrollment for first 3 months in subsequent 
                years.--
                          ``(i) In general.--Subject to clause 
                        (ii), at any time during the first 3 
                        months of a year after 2001, or, if the 
                        individual first becomes a MedicarePlus 
                        eligible individual during a year after 
                        2001, during the first 3 months of such 
                        year in which the individual is a 
                        MedicarePlus eligible individual, a 
                        MedicarePlus eligible individual may 
                        change the election under subsection 
                        (a)(1).
                          ``(ii) Limitation of one change per 
                        year.--An individual may exercise the 
                        right under clause (i) only once a 
                        year. The limitation under this clause 
                        shall not apply to changes in elections 
                        effected during an annual, coordinated 
                        election period under paragraph (3) or 
                        during a special enrollment period 
                        under paragraph (4).
          ``(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 an annual, coordinated election 
                period.
                  ``(B) Annual, coordinated election period.--
                For purposes of this section, the term `annual, 
                coordinated election period' means, with 
                respect to a calendar year (beginning with 
                2001), the month of October before such year.
                  ``(C) MedicarePlus health fairs.--In the 
                month of October of each year (beginning with 
                1998), the Secretary shall provide for a 
                nationally coordinated educational and 
                publicity campaign to inform MedicarePlus 
                eligible individuals about MedicarePlus plans 
                and the election process provided under this 
                section.
          ``(4) Special election periods.--Effective as of 
        January 1, 2001, an individual may discontinue an 
        election of a MedicarePlus plan 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 plan's 
                certification under this part has been 
                terminated or the organization has terminated 
                or otherwise discontinued providing the plan;
                  ``(B) the individual is no longer eligible to 
                elect the plan because of a change in the 
                individual's place of residence or other change 
                in circumstances (specified by the Secretary, 
                but not including termination of the 
                individual's enrollment on the basis described 
                in clause (i) or (ii) of subsection (g)(3)(B));
                  ``(C) the individual demonstrates (in 
                accordance with guidelines established by the 
                Secretary) that--
                          ``(i) the organization offering the 
                        plan substantially violated a material 
                        provision of the organization's 
                        contract under this part in relation to 
                        the individual (including the failure 
                        to provide an enrollee on a timely 
                        basis medically necessary care for 
                        which benefits are available under the 
                        plan or the failure to provide such 
                        covered care in accordance with 
                        applicable quality standards); or
                          ``(ii) the organization (or an agent 
                        or other entity acting on the 
                        organization's behalf) materially 
                        misrepresented the plan's provisions in 
                        marketing the plan to the individual; 
                        or
                  ``(D) the individual meets such other 
                exceptional conditions as the Secretary may 
                provide.
          ``(5) Special rules for msa plans.--Notwithstanding 
        the preceding provisions of this subsection, an 
        individual--
                  ``(A) may elect an MSA plan only during--
                          ``(i) an initial open enrollment 
                        period described in paragraph (1),
                          ``(ii) an annual, coordinated 
                        election period described in paragraph 
                        (3)(B), or
                          ``(iii) the months of October 1998 
                        and October 1999; and
                  ``(B) may not discontinue an election of an 
                MSA plan except during the periods described in 
                clause (ii) or (iii) of subparagraph (A) and 
                under paragraph (4).
  ``(f) Effectiveness of Elections and Changes of Elections.--
          ``(1) During initial coverage election period.--An 
        election of coverage made during the initial coverage 
        election period under subsection (e)(1) shall take 
        effect upon the date the individual becomes entitled to 
        benefits under part A and enrolled under part B, except 
        as the Secretary may provide (consistent with section 
        1838) in order to prevent retroactive coverage.
          ``(2) During continuous open enrollment periods.--An 
        election or change of coverage made under subsection 
        (e)(2) shall take effect with the first day of the 
        first calendar month following the date on which the 
        election is made.
          ``(3) Annual, coordinated election period.--An 
        election or change of coverage made during an annual, 
        coordinated election period (as defined in subsection 
        (e)(3)(B)) in a year shall take effect as of the first 
        day of the following year.
          ``(4) Other periods.--An election or change of 
        coverage made during any other period under subsection 
        (e)(4) shall take effect in such manner as the 
        Secretary provides in a manner consistent (to the 
        extent practicable) with protecting continuity of 
        health benefit coverage.
  ``(g) Guaranteed Issue and Renewal.--
          ``(1) In general.--Except as provided in this 
        subsection, a MedicarePlus organization shall provide 
        that at any time during which elections are accepted 
        under this section with respect to a MedicarePlus plan 
        offered by the organization, the organization will 
        accept without restrictions individuals who are 
        eligible to make such election.
          ``(2) Priority.--If the Secretary determines that a 
        MedicarePlus organization, in relation to a 
        MedicarePlus plan it offers, has a capacity limit and 
        the number of MedicarePlus eligible individuals who 
        elect the plan under this section exceeds the capacity 
        limit, the organization may limit the election of 
        individuals of the plan under this section but only if 
        priority in election is provided--
                  ``(A) first to such individuals as have 
                elected the plan at the time of the 
                determination, and
                  ``(B) then to other such individuals in such 
                a manner that does not discriminate, on a basis 
                described in section 1852(b), among the 
                individuals (who seek to elect the plan).
        The preceding sentence shall not apply if it would 
        result in the enrollment of enrollees substantially 
        nonrepresentative, as determined in accordance with 
        regulations of the Secretary, of the medicare 
        population in the service area of the plan.
          ``(3) Limitation on termination of election.--
                  ``(A) In general.--Subject to subparagraph 
                (B), a MedicarePlus organization may not for 
                any reason terminate the election of any 
                individual under this section for a 
                MedicarePlus plan it offers.
                  ``(B) Basis for termination of election.--A 
                MedicarePlus organization may terminate an 
                individual's election under this section with 
                respect to a MedicarePlus plan it offers if--
                          ``(i) any net monthly premiums 
                        required with respect to such plan are 
                        not paid on a timely basis (consistent 
                        with standards under section 1856 that 
                        provide for a grace period for late 
                        payment of net monthly premiums),
                          ``(ii) the individual has engaged in 
                        disruptive behavior (as specified in 
                        such standards), or
                          ``(iii) the plan is terminated with 
                        respect to all individuals under this 
                        part in the area in which the 
                        individual resides.
                  ``(C) Consequence of termination.--
                          ``(i) Terminations for cause.--Any 
                        individual whose election is terminated 
                        under clause (i) or (ii) of 
                        subparagraph (B) is deemed to have 
                        elected the medicare fee-for-service 
                        program option described in subsection 
                        (a)(1)(A).
                          ``(ii) Termination based on plan 
                        termination or service area 
                        reduction.--Any individual whose 
                        election is terminated under 
                        subparagraph (B)(iii) shall have a 
                        special election period under 
                        subsection (e)(4)(A) in which to change 
                        coverage to coverage under another 
                        MedicarePlus plan. Such an individual 
                        who fails to make an election during 
                        such period is deemed to have chosen to 
                        change coverage to the medicare fee-
                        for-service program option described in 
                        subsection (a)(1)(A).
                  ``(D) Organization obligation with respect to 
                election forms.--Pursuant to a contract under 
                section 1857, each MedicarePlus organization 
                receiving an election form under subsection 
                (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.
  ``(h) Approval of Marketing Material and Application Forms.--
          ``(1) Submission.--No marketing material or 
        application form may be distributed by a MedicarePlus 
        organization to (or for the use of) MedicarePlus 
        eligible individuals unless--
                  ``(A) at least 45 days before the date of 
                distribution the organization has submitted the 
                material or form to the Secretary for review, 
                and
                  ``(B) the Secretary has not disapproved the 
                distribution of such material or form.
          ``(2) Review.--The standards established under 
        section 1856 shall include guidelines for the review of 
        all such material or form submitted and under such 
        guidelines the Secretary shall disapprove (or later 
        require the correction of) such material or form if the 
        material or form is materially inaccurate or misleading 
        or otherwise makes a material misrepresentation.
          ``(3) Deemed approval (1-stop shopping).--In the case 
        of material or form that is submitted under paragraph 
        (1)(A) to the Secretary or a regional office of the 
        Department of Health and Human Services and the 
        Secretary or the office has not disapproved the 
        distribution of marketing material or form under 
        paragraph (1)(B) with respect to a MedicarePlus plan in 
        an area, the Secretary is deemed not to have 
        disapproved such distribution in all other areas 
        covered by the plan and organization except to the 
        extent that such material or form is specific only to 
        an area involved.
          ``(4) Prohibition of certain marketing practices.--
        Each MedicarePlus organization shall conform to fair 
        marketing standards, in relation to MedicarePlus plans 
        offered under this part, included in the standards 
        established under section 1856. Such standards shall 
        include aprohibition against a MedicarePlus 
organization (or agent of such an organization) completing any portion 
of any election form used to carry out elections under this section on 
behalf of any individual.
  ``(i) Effect of Election of MedicarePlus Plan Option.--
Subject to sections 1852(a)(5), 1857(f)(2), and 1857(g)--
          ``(1) payments under a contract with a MedicarePlus 
        organization under section 1853(a) with respect to an 
        individual electing a MedicarePlus plan offered by the 
        organization shall be instead of the amounts which (in 
        the absence of the contract) would otherwise be payable 
        under parts A and B for items and services furnished to 
        the individual, and
          ``(2) subject to subsections (e) and (f) of section 
        1853, only the MedicarePlus organization shall be 
        entitled to receive payments from the Secretary under 
        this title for services furnished to the individual.

                 ``benefits and beneficiary protections

  ``Sec. 1852. (a) Basic Benefits.--
          ``(1) In general.--Except as provided in section 
        1859(b)(2) for MSA plans, each MedicarePlus plan shall 
        provide to members enrolled under this part, through 
        providers and other persons that meet the applicable 
        requirements of this title and part A of title XI--
                  ``(A) those items and services for which 
                benefits are available under parts A and B to 
                individuals residing in the area served by the 
                plan, and
                  ``(B) additional benefits required under 
                section 1854(f)(1)(A).
          ``(2) Satisfaction of requirement.--A MedicarePlus 
        plan (other than an MSA plan) offered by a MedicarePlus 
        organization satisfies paragraph (1)(A), with respect 
        to benefits for items and services furnished other than 
        through a provider that has a contract with the 
        organization offering the plan, if the plan provides 
        (in addition to any cost sharing provided for under the 
        plan) for at least the total dollar amount of payment 
        for such items and services as would otherwise be 
        authorized under parts A and B (including any balance 
        billing permitted under such parts).
          ``(3) Supplemental benefits.--
                  ``(A) Benefits included subject to 
                secretary's approval.--Each MedicarePlus 
                organization may provide to individuals 
                enrolled under this part (without affording 
                those individuals an option to decline the 
                coverage) supplemental health care benefits 
                that the Secretary may approve. The Secretary 
                shall approve any such supplemental benefits 
                unless the Secretary determines that including 
                such supplemental benefits would substantially 
                discourage enrollment by MedicarePlus eligible 
                individuals with the organization.
                  ``(B) At enrollees' option.--A MedicarePlus 
                organization may provide to individuals 
                enrolled under this part (other than under an 
                MSA plan) supplemental health care benefits 
                that the individuals may elect, at their 
                option, to have covered.
          ``(4) 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 
        a MedicarePlus plan under circumstances in which 
        payment under this title is made secondary pursuant to 
        section 1862(b)(2)) charge or authorize the provider of 
        such services to charge, in accordance with the charges 
        allowed under such a law, plan, 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.
          ``(5) National coverage determinations.--If there is 
        a national coverage determination made in the period 
        beginning on the date of an announcement under section 
        1853(b) and ending on the date of the next announcement 
        under such section and the Secretary projects that the 
        determination will result in a significant change in 
        the costs to a MedicarePlus organization of providing 
        the benefits that are the subject of such national 
        coverage determination and that such change in costs 
        was not incorporated in the determination of the annual 
        MedicarePlus capitation rate under section 1853 
        included in the announcement made at the beginning of 
        such period--
                  ``(A) such determination shall not apply to 
                contracts under this part until the first 
                contract year that begins after the end of such 
                period, and
                  ``(B) if such coverage determination provides 
                for coverage of additional benefits or coverage 
                under additional circumstances, section 1851(i) 
                shall not apply to payment for such additional 
                benefits or benefits provided under such 
                additional circumstances until the first 
                contract year that begins after the end of such 
                period,
        unless otherwise required by law.
  ``(b) Antidiscrimination.--
          ``(1) In general.--A MedicarePlus organization may 
        not deny, limit, or condition the coverage or provision 
        of benefits under this part, for individuals permitted 
        to be enrolled with the organization under this part, 
        based on any health status-related factor described in 
        section 2702(a)(1) of the Public Health Service Act.
          ``(2) Construction.--Paragraph (1) shall not be 
        construed as requiring a MedicarePlus organization to 
        enroll individuals who are determined to have end-stage 
        renal disease, except as provided under section 
        1851(a)(3)(B).
  ``(c) Detailed Description of Plan Provisions.--A 
MedicarePlus organization shall disclose, in clear, accurate, 
andstandardized form to each enrollee with a MedicarePlus plan 
offered by the organization under this part at the time of enrollment 
and at least annually thereafter, the following information regarding 
such plan:
          ``(1) Service area.--The plan's service area.
          ``(2) Benefits.--Benefits offered (and not offered) 
        under the plan offered, including information described 
        in section 1851(d)(3)(A) and exclusions from coverage 
        and, if it is an MSA plan, a comparison of benefits 
        under such a plan with benefits under other 
        MedicarePlus plans.
          ``(3) Access.--The number, mix, and distribution of 
        plan providers and any point-of-service option 
        (including the supplemental premium for such option).
          ``(4) Out-of-area coverage.--Out-of-area coverage 
        provided by the plan.
          ``(5) Emergency coverage.--Coverage of emergency 
        services and urgently needed care, including--
                  ``(A) the appropriate use of emergency 
                services, including use of the 911 telephone 
                system or its local equivalent in emergency 
                situations and an explanation of what 
                constitutes an emergency situation;
                  ``(B) the process and procedures of the plan 
                for obtaining emergency services; and
                  ``(C) the locations of (i) emergency 
                departments, and (ii) other settings, in which 
                plan physicians and hospitals provide emergency 
                services and post-stabilization care..
          ``(6) Supplemental benefits.--Supplemental benefits 
        available from the organization offering the plan, 
        including--
                  ``(A) whether the supplemental benefits are 
                optional,
                  ``(B) the supplemental benefits covered, and
                  ``(C) the premium price for the supplemental 
                benefits.
          ``(7) Prior authorization rules.--Rules regarding 
        prior authorization or other review requirements that 
        could result in nonpayment.
          ``(8) Plan grievance and appeals procedures.--Any 
        appeal or grievance rights and procedures.
          ``(9) Quality assurance program.--A description of 
        the organization's quality assurance program under 
        subsection (e).
  ``(d) Access to Services.--
          ``(1) In general.--A MedicarePlus organization 
        offering a MedicarePlus plan may select the providers 
        from whom the benefits under the plan are provided so 
        long as--
                  ``(A) the organization makes such benefits 
                available and accessible to each individual 
                electing the plan within the plan service area 
                with reasonable promptness and in a manner 
                which assures continuity in the provision of 
                benefits;
                  ``(B) when medically necessary in the opinion 
                of the treating health care provider the 
                organization makes such benefits available and 
                accessible 24 hours a day and 7 days a week;
                  ``(C) the plan provides for reimbursement 
                with respect to services which are covered 
                under subparagraphs (A) and (B) and which are 
                provided to such an individual other than 
                through the organization, if--
                          ``(i) the services were medically 
                        necessary in the opinion of the 
                        treating health care provider 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,
                          ``(ii) the services were renal 
                        dialysis services and were provided 
                        other than through the organization 
                        because the individual was temporarily 
                        out of the plan's service area, or
                          ``(iii) the services are maintenance 
                        care or post-stabilization care covered 
                        under the guidelines established under 
                        paragraph (2);
                  ``(D) the organization provides access to 
                appropriate providers, including credentialed 
                specialists, for treatment and services when 
                such treatment and services are determined to 
                be medically necessary in the professional 
                opinion of the treating health care provider, 
                in consultation with the individual; and
                  ``(E) coverage is provided for emergency 
                services (as defined in paragraph (3)) without 
                regard to prior authorization or the emergency 
                care provider's contractual relationship with 
                the organization.
          ``(2) Guidelines respecting coordination of post-
        stabilization care.--A MedicarePlus plan shall comply 
        with such guidelines as the Secretary may prescribe 
        relating to promoting efficient and timely coordination 
        of appropriate maintenance and post-stabilization care 
        of an enrollee after the enrollee has been determined 
        to be stable under section 1867.
          ``(3) Definition of emergency services.--In this 
        subsection--
                  ``(A) In general.--The term `emergency 
                services' means, with respect to an individual 
                enrolled with an organization, covered 
                inpatient and outpatient services that--
                          ``(i) are furnished by a provider 
                        that is qualified to furnish such 
                        services under this title, and
                          ``(ii) are needed to evaluate or 
                        stabilize an emergency medical 
                        condition (as defined in subparagraph 
                        (B)).
                  ``(B) Emergency medical condition based on 
                prudent layperson.--The term `emergency medical 
                condition' means a medical condition 
                manifesting itself by acute symptoms of 
                sufficient severity such that a prudent 
                layperson, who possesses an average knowledgeof 
health and medicine, could reasonably expect the absence of immediate 
medical attention to result in--
                          ``(i) placing the health of the 
                        individual (or, with respect to a 
                        pregnant woman, the health of the woman 
                        or her unborn child) in serious 
                        jeopardy,
                          ``(ii) serious impairment to bodily 
                        functions, or
                          ``(iii) serious dysfunction of any 
                        bodily organ or part.
          ``(4) Determination of hospital length of stay.--
                  ``(A) In general.--A MedicarePlus 
                organization shall cover the length of an 
                inpatient hospital stay under this part as 
                determined by the attending physician (or other 
                attending health care provider to the extent 
                permitted under State law) in consultation with 
                the patient to be medically appropriate.
                  ``(B) Construction.--Nothing in this 
                paragraph shall be construed--
                          ``(i) as requiring the provision of 
                        inpatient coverage if the attending 
                        physician (or other attending health 
                        care provider to the extent permitted 
                        under State law) and patient determine 
                        that a shorter period of hospital stay 
                        is medically appropriate, or
                          ``(ii) as affecting the application 
                        of deductibles and coinsurance.
  ``(e) Quality Assurance Program.--
          ``(1) In general.--Each MedicarePlus organization 
        must have arrangements, consistent with any regulation, 
        for an ongoing quality assurance program for health 
        care services it provides to individuals enrolled with 
        MedicarePlus plans of the organization.
          ``(2) Elements of program.--The quality assurance 
        program shall--
                  ``(A) stress health outcomes and provide for 
                the collection, analysis, and reporting of data 
                (in accordance with a quality measurement 
                system that the Secretary recognizes) that will 
                permit measurement of outcomes and other 
                indices of the quality of MedicarePlus plans 
                and organizations;
                  ``(B) provide for the establishment of 
                written protocols for utilization review, based 
                on current standards of medical practice;
                  ``(C) provide review by physicians and other 
                health care professionals of the process 
                followed in the provision of such health care 
                services;
                  ``(D) monitor and evaluate high volume and 
                high risk services and the care of acute and 
                chronic conditions;
                  ``(E) evaluate the continuity and 
                coordination of care that enrollees receive;
                  ``(F) have mechanisms to detect both 
                underutilization and overutilization of 
                services;
                  ``(G) after identifying areas for 
                improvement, establish or alter practice 
                parameters;
                  ``(H) take action to improve quality and 
                assesses the effectiveness of such action 
                through systematic followup;
                  ``(I) make available information on quality 
                and outcomes measures to facilitate beneficiary 
                comparison and choice of health coverage 
                options (in such form and on such quality and 
                outcomes measures as the Secretary determines 
                to be appropriate);
                  ``(J) be evaluated on an ongoing basis as to 
                its effectiveness;
                  ``(K) include measures of consumer 
                satisfaction; and
                  ``(L) provide the Secretary with such access 
                to information collected as may be appropriate 
                to monitor and ensure the quality of care 
                provided under this part.
          ``(3) External review.--Each MedicarePlus 
        organization shall, for each MedicarePlus plan it 
        operates, have an agreement with an independent quality 
        review and improvement organization approved by the 
        Secretary to perform functions of the type described in 
        sections 1154(a)(4)(B) and 1154(a)(14) with respect to 
        services furnished by MedicarePlus plans for which 
        payment is made under this title.
          ``(4) Treatment of accreditation.--The Secretary 
        shall provide that a MedicarePlus organization is 
        deemed to meet requirements of paragraphs (1) through 
        (3) of this subsection and subsection (h) (relating to 
        confidentiality and accuracy of enrollee records) if 
        the organization is accredited (and periodically 
        reaccredited) by a private organization under a process 
        that the Secretary has determined assures that the 
        organization, as a condition of accreditation, applies 
        and enforces standards with respect to the requirements 
        involved that are no less stringent than the standards 
        established under section 1856 to carry out the 
        respective requirements.
  ``(f) 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. The organization shall provide notice of any 
        coverage denial, which notice shall include a statement 
        of the reasons for the denial and a description of the 
        grievance and appeals processes available.
          ``(2) Reconsiderations.--
                  ``(A) In general.--Subject to subsection 
                (g)(4), a reconsideration of a determination of 
                an organization denying coverage shall be made 
                within 30 days of the date of receipt of 
                medical information, but not later than 60 days 
                after the date of the determination.
                  ``(B) Physician decision on certain 
                reconsiderations.--A reconsideration relating 
                to a determination to deny coverage based on a 
                lack of medicalnecessity shall be made only by 
a physician with appropriate expertise in the field of medicine which 
necessitates treatment who is other than a physician involved in the 
initial determination.
  ``(g) 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 with MedicarePlus plans of the 
        organization under this part.
          ``(2) Appeals.--An enrollee with a MedicarePlus plan 
        of a MedicarePlus 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 paragraph, and in 
        applying section 205(l) thereto, any reference therein 
        to the Commissioner of Social Security or the Social 
        Security Administration shall be considered a reference 
        to the Secretary or the Department of Health and Human 
        Services, respectively.
          ``(3) Independent review of coverage denials.--The 
        Secretary shall contract with an independent, outside 
        entity to review and resolve in a timely manner 
        reconsiderations that affirm denial of coverage.
          ``(4) Expedited determinations and 
        reconsiderations.--
                  ``(A) Receipt of requests.--An enrollee in a 
                MedicarePlus plan may request, either in 
                writing or orally, an expedited determination 
                or reconsideration by the MedicarePlus 
                organization regarding a matter described in 
                paragraph (2). The organization shall also 
                permit the acceptance of such requests by 
                physicians.
                  ``(B) Organization procedures.--
                          ``(i) In general.--The MedicarePlus 
                        organization shall maintain procedures 
                        for expediting organization 
                        determinations and reconsiderations 
                        when, upon request of an enrollee, the 
                        organization determines that the 
                        application of normal time frames for 
                        making a determination (or a 
                        reconsideration involving a 
                        determination) could seriously 
                        jeopardize the life or health of the 
                        enrollee or the enrollee's ability to 
                        regain maximum function.
                          ``(ii) Timely response.--In an urgent 
                        case described in clause (i), the 
                        organization shall notify the enrollee 
                        (and the physician involved, as 
                        appropriate) of the determination (or 
                        determination on the reconsideration) 
                        as expeditiously as the enrollee's 
                        health condition requires, but not 
                        later than 72 hours (or 24 hours in the 
                        case of a reconsideration) of the time 
                        of receipt of the request for the 
                        determination or reconsideration (or 
                        receipt of the information necessary to 
                        make the determination or 
                        reconsideration), or such longer period 
                        as the Secretary may permit in 
                        specified cases.
                          ``(iii) Secretarial report.--The 
                        Secretary shall annually report 
                        publicly on the number and disposition 
                        of denials and appeals within each 
                        MedicarePlus organization, and those 
                        reviewed and resolved by the 
                        independent entities under this 
                        subsection.
  ``(h) Confidentiality and Accuracy of Enrollee Records.--Each 
MedicarePlus organization shall establish procedures--
          ``(1) to safeguard the privacy of individually 
        identifiable enrollee information,
          ``(2) to maintain accurate and timely medical records 
        and other health information for enrollees, and
          ``(3) to assure timely access of enrollees to their 
        medical information.
  ``(i) Information on Advance Directives.--Each MedicarePlus 
organization shall meet the requirement of section 1866(f) 
(relating to maintaining written policies and procedures 
respecting advance directives).
  ``(j) Rules Regarding Physician Participation.--
          ``(1) Procedures.--Each MedicarePlus organization 
        shall establish reasonable procedures relating to the 
        participation (under an agreement between a physician 
        and the organization) of physicians under MedicarePlus 
        plans 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 such 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) Prohibiting interference with provider advice 
        to enrollees.--
                  ``(A) In general.--Subject to subparagraphs 
                (B) and (C), a MedicarePlus organization (in 
                relation to an individual enrolled under a 
                MedicarePlus plan offered by the organization 
                under this part) shall not prohibit or 
                otherwise restrict a covered health care 
                professional (as defined in subparagraph (D)) 
                from advising such an individual who is a 
                patient of the professional about the health 
                status of the individual or medical care or 
                treatment for the individual's condition or 
                disease, regardless of whether benefits for 
                such care or treatment are provided under the 
                plan, if the professional is acting within the 
                lawful scope of practice.
                  ``(B) Conscience protection.--Subparagraph 
                (A) shall not be construed as requiring a 
                MedicarePlus plan to provide, reimburse for, or 
                provide coverage of a counseling or referral 
                service if the MedicarePlus organization 
                offering the plan--
                          ``(i) objects to the provision of 
                        such service on moral or religious 
                        grounds; and
                          ``(ii) in the manner and through the 
                        written instrumentalities such 
                        MedicarePlus organization deems 
                        appropriate, makes available 
                        information on its policies regarding 
                        such service to prospective enrollees 
                        before or during enrollment and to 
                        enrollees within 90 days after the date 
                        that the organization or plan adopts a 
                        change in policy regarding such a 
                        counseling or referral service.
                  ``(C) Construction.--Nothing in subparagraph 
                (B) shall be construed to affect disclosure 
                requirements under State law or under the 
                Employee Retirement Income Security Act of 
                1974.
                  ``(D) Health care professional defined.--For 
                purposes of this paragraph, the term `health 
                care professional' means a physician (as 
                defined in section 1861(r)) or other health 
                care professional if coverage for the 
                professional's services is provided under the 
                MedicarePlus plan for the services of the 
                professional. Such term includes a podiatrist, 
                optometrist, chiropractor, psychologist, 
                dentist, physician assistant, physical or 
                occupational therapist and therapy assistant, 
                speech-language pathologist, audiologist, 
                registered or licensed practical nurse 
                (including nurse practitioner, clinical nurse 
                specialist, certified registered nurse 
                anesthetist, and certified nurse-midwife), 
                licensed certified social worker, registered 
                respiratory therapist, and certified 
                respiratory therapy technician.
          ``(4) Limitations on health care provider incentive 
        plans.--
                  ``(A) In general.--No MedicarePlus 
                organization may operate any health care 
                provider 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 health care provider or health 
                        care provider 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 health 
                        care provider or health care provider 
                        group at substantial financial risk (as 
                        determined by the Secretary) for 
                        services not provided by the health 
                        care provider or health care provider 
                        group, the organization--
                                  ``(I) provides stop-loss 
                                protection for the health care 
                                provider or group that is 
                                adequate and appropriate, based 
                                on standards developed by the 
                                Secretary that take into 
                                account the number of health 
                                care providers 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 
                                health care provider or group, 
                                and
                                  ``(II) conducts periodic 
                                surveys of both individuals 
                                enrolled and individuals 
                                previously enrolled with the 
                                organization to determine the 
                                degree of access of such 
                                individuals to services 
                                provided by the organization 
                                and satisfaction with the 
                                quality of such services.
                          ``(iii) The organization provides the 
                        Secretary with descriptive information 
                        regarding the plan, sufficient to 
                        permit the Secretary to determine 
                        whether the plan is in compliance with 
                        the requirements of this subparagraph.
                  ``(B) Health care provider incentive plan 
                defined.--In this paragraph, the term `health 
                care provider incentive plan' means any 
                compensation arrangement between a MedicarePlus 
                organization and a health care provider or 
                health care provider 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.
                  ``(C) Health care provider defined.--For the 
                purposes of this paragraph, the term `health 
                care provider' has the meaning given the term 
                `health care professional' in paragraph (3)(D).
          ``(5) Limitation on provider indemnification.--A 
        MedicarePlus organization may not provide (directly or 
        indirectly) for a provider (or group of providers) to 
        indemnify the organization against any liability 
        resulting from a civil action brought for any damage 
        caused to an enrollee with a MedicarePlus plan of the 
        organization under this part by the organization's 
        denial of medically necessary care.
          ``(6) Limitation on non-compete clause.--A 
        MedicarePlus organization may not (directly or 
        indirectly) seek to enforce any contractual provision 
        which prevents a provider whose contractual obligations 
        to the organization for the provision of services 
        through the organization have ended from joining or 
        forming any competing MedicarePlusorganization that is 
a provider-sponsored organization in the same area.
  ``(k) Treatment of Services Furnished by Certain Providers.--
A physician or other entity (other than a provider of services) 
that does not have a contract establishing payment amounts for 
services furnished to an individual enrolled under this part 
with a MedicarePlus organization shall accept as payment in 
full for covered services under this title that are furnished 
to such an individual the amounts that the physician or other 
entity could collect if the individual were not so enrolled. 
Any penalty or other provision of law that applies to such a 
payment with respect to an individual entitled to benefits 
under this title (but not enrolled with a MedicarePlus 
organization under this part) also applies with respect to an 
individual so enrolled.
  ``(l) Disclosure of Use of DSH and Teaching Hospitals.--Each 
MedicarePlus organization shall provide the Secretary with 
information on--
          ``(1) the extent to which the organization provides 
        inpatient and outpatient hospital benefits under this 
        part--
                  ``(A) through the use of hospitals that are 
                eligible for additional payments under section 
                1886(d)(5)(F)(i) (relating to so-called DSH 
                hospitals), or
                  ``(B) through the use of teaching hospitals 
                that receive payments under section 1886(h); 
                and
          ``(2) the extent to which differences between payment 
        rates to different hospitals reflect the 
        disproportionate share percentage of low-income 
        patients and the presence of medical residency training 
        programs in those hospitals.
  ``(m) Out-of-Network Access.--If an organization offers to 
members enrolled under this section one plan which provides for 
coverage of services covered under parts A and B primarily 
through providers and other persons who are members of a 
network of providers and other persons who have entered into a 
contract with the organization to provide such services, 
nothing in this section shall be construed as preventing the 
organization from offering such members (at the time of 
enrollment) another plan which provides for coverage of such 
items which are not furnished through such network providers.
  ``(n) Non-Preemption of State Law.--A State may establish or 
enforce requirements with respect to beneficiary protections in 
this section, but only if such requirements are more stringent 
than the requirements established under this section.
  ``(o) Nondiscrimination in Selection of Network Health 
Professionals.--
          ``(1) In general.--A MedicarePlus organization 
        offering a MedicarePlus plan offering network coverage 
        shall not discriminate in selecting the members of its 
        health professional network (or in establishing the 
        terms and conditions for membership in such network) on 
        the basis of the race, national origin, gender, age, or 
        disability (other than a disability that impairs the 
        ability of an individual to provide health care 
        services or that may threaten the health of enrollees) 
        of the health professional.
          ``(2) Appropriate range of services.--A MedicarePlus 
        organization shall not deny any health care 
        professionals, based solely on the license or 
        certification as applicable under State law, the 
        ability to participate in providing covered health care 
        services, or be reimbursed or indemnified by a network 
        plan for providing such services under this part.
          ``(3) Definitions.--For purposes of this subsection:
                  ``(A) Network.--The term `network' means, 
                with respect to a MedicarePlus organization 
                offering a MedicarePlus plan, the participating 
                health professionals and providers through whom 
                the organization provides health care items and 
                services to enrollees.
                  ``(B) Network coverage.--The term `network 
                coverage' means a MedicarePlus plan offered by 
                a MedicarePlus organization that provides or 
                arranges for the provision of health care items 
                and services to enrollees through participating 
                health professionals and providers.
                  ``(C) Participating.--The term 
                `participating' means, with respect to a health 
                professional or provider, a health professional 
                or provider that provides health care items and 
                services to enrollees under network coverage 
                under an agreement with the MedicarePlus 
                organization offering the coverage.
  ``(p) Special Rule for Unrestricted Fee-for-Service MSA 
Plans.--Subsections (j)(1) and (k) shall not apply to a 
MedicarePlus organization with respect to an MSA plan it offers 
if the plan does not limit the providers through whom benefits 
may be obtained under the plan.

                ``payments to medicareplus organizations

  ``Sec. 1853. (a) Payments to Organizations.--
          ``(1) Monthly payments.--
                  ``(A) In general.--Under a contract under 
                section 1857 and subject to subsections (e) and 
                (f), the Secretary shall make monthly payments 
                under this section in advance to each 
                MedicarePlus organization, with respect to 
                coverage of an individual under this part in a 
                MedicarePlus payment area for a month, in an 
                amount equal to \1/12\ of the annual 
                MedicarePlus capitation rate (as calculated 
                under subsection (c)) with respect to that 
                individual for that area, adjusted for such 
                risk factors as age, disability status, gender, 
                institutional status, and such other factors as 
                the Secretary determines to be appropriate, so 
                as to ensure actuarial equivalence. The 
                Secretary may add to, modify, or substitute for 
                such factors, if such changes will improve the 
                determination of actuarial equivalence.
                  ``(B) Special rule for end-stage renal 
                disease.--The Secretary shall establish 
                separate rates of payment to a MedicarePlus 
                organization with respect to classes of 
                individuals determined to have end-stage renal 
                disease and enrolled in a MedicarePlus plan 
ofthe organization. Such rates of payment shall be actuarially 
equivalent to rates paid to other enrollees in the MedicarePlus payment 
area (or such other area as specified by the Secretary). In accordance 
with regulations, the Secretary shall provide for the application of 
the seventh sentence of section 1881(b)(7) to payments under this 
section covering the provision of renal dialysis treatment in the same 
manner as such sentence applies to composite rate payments described in 
such sentence.
          ``(2) Adjustment to reflect number of enrollees.--
                  ``(A) In general.--The amount of payment 
                under this subsection may be retroactively 
                adjusted to take into account any difference 
                between the actual number of individuals 
                enrolled with an organization under this part 
                and the number of such individuals estimated to 
                be so enrolled in determining the amount of the 
                advance payment.
                  ``(B) Special rule for certain enrollees.--
                          ``(i) In general.--Subject to clause 
                        (ii), the Secretary may make 
                        retroactive adjustments under 
                        subparagraph (A) to take into account 
                        individuals enrolled during the period 
                        beginning on the date on which the 
                        individual enrolls with a MedicarePlus 
                        organization under a plan operated, 
                        sponsored, or contributed to by the 
                        individual's employer or former 
                        employer (or the employer or former 
                        employer of the individual's spouse) 
                        and ending on the date on which the 
                        individual is enrolled in the 
                        organization under this part, except 
                        that for purposes of making such 
                        retroactive adjustments under this 
                        subparagraph, such period may not 
                        exceed 90 days.
                          ``(ii) Exception.--No adjustment may 
                        be made under clause (i) with respect 
                        to any individual who does not certify 
                        that the organization provided the 
                        individual with the information 
                        required to be disclosed under section 
                        1852(c) at the time the individual 
                        enrolled with the organization.
          ``(3) Establishment of risk adjustment factors.--
                  ``(A) Report.--The Secretary shall develop, 
                and submit to Congress by not later than 
                October 1, 1999, a report on a method of risk 
                adjustment of payment rates under this section 
                that accounts for variations in per capita 
                costs based on health status. Such report shall 
                include an evaluation of such method by an 
                outside, independent actuary of the actuarial 
                soundness of the proposal.
                  ``(B) Data collection.--In order to carry out 
                this paragraph, the Secretary shall require 
                MedicarePlus organizations (and eligible 
                organizations with risk-sharing contracts under 
                section 1876) to submit, for periods beginning 
                on or after January 1, 1998, data regarding 
                inpatient hospital services and other services 
                and other information the Secretary deems 
                necessary.
                  ``(C) Initial implementation.--The Secretary 
                shall first provide for implementation of a 
                risk adjustment methodology that accounts for 
                variations in per capita costs based on health 
                status and other demographic factors for 
                payments by no later than January 1, 2000.
  ``(b) Annual Announcement of Payment Rates.--
          ``(1) Annual announcement.--The Secretary shall 
        annually determine, and shall announce (in a manner 
        intended to provide notice to interested parties) not 
        later than August 1 before the calendar year 
        concerned--
                  ``(A) the annual MedicarePlus capitation rate 
                for each MedicarePlus payment area for the 
                year, and
                  ``(B) the risk and other factors to be used 
                in adjusting such rates under subsection 
                (a)(1)(A) for payments for months in that year.
          ``(2) Advance notice of methodological changes.--At 
        least 45 days before making the announcement under 
        paragraph (1) for a year, the Secretary shall provide 
        for notice to MedicarePlus organizations of proposed 
        changes to be made in the methodology from the 
        methodology and assumptions used in the previous 
        announcement and shall provide such organizations an 
        opportunity to comment on such proposed changes.
          ``(3) Explanation of assumptions.--In each 
        announcement made under paragraph (1), the Secretary 
        shall include an explanation of the assumptions and 
        changes in methodology used in the announcement in 
        sufficient detail so that MedicarePlus organizations 
        can compute monthly adjusted MedicarePlus capitation 
        rates for individuals in each MedicarePlus payment area 
        which is in whole or in part within the service area of 
        such an organization.
  ``(c) Calculation of Annual MedicarePlus Capitation Rates.--
          ``(1) In General.--For purposes of this part, each 
        annual MedicarePlus capitation rate, for a MedicarePlus 
        payment area for a contract year consisting of a 
        calendar year, is equal to the largest of the amounts 
        specified in the following subparagraphs (A), (B), or 
        (C):
                  ``(A) Blended capitation rate.--The sum of--
                          ``(i) area-specific percentage for 
                        the year (as specified under paragraph 
                        (2) for the year) of the annual area-
                        specific MedicarePlus capitation rate 
                        for the year for the MedicarePlus 
                        payment area, as determined under 
                        paragraph (3), and
                          ``(ii) national percentage (as 
                        specified under paragraph (2) for the 
                        year) of the input-price-adjusted 
                        annual national MedicarePlus capitation 
                        rate for the year, as determined under 
                        paragraph (4),
                multiplied by the payment adjustment factors 
                described in subparagraphs (A) and (B) of 
                paragraph (5).
                  ``(B) Minimum amount.--12 multiplied by the 
                following amount:
                          ``(i) For 1998, $350 (but not to 
                        exceed, in the case of an area outside 
                        the 50 States and the District of 
                        Columbia, 150 percent of the annual per 
                        capita rate of payment for 1997 
                        determined under section 1876(a)(1)(C) 
                        for the area).
                          ``(ii) For a succeeding year, the 
                        minimum amount specified in this clause 
                        (or clause (i)) for the preceding year 
                        increased by the national per capita 
                        MedicarePlus growth percentage, 
                        specified under paragraph (6) for that 
                        succeeding year.
                  ``(C) Minimum percentage increase.--
                          ``(i) For 1998, the annual per capita 
                        rate of payment for 1997 determined 
                        under section 1876(a)(1)(C) for the 
                        MedicarePlus payment area.
                          ``(ii) For 1999 and 2000, 101 percent 
                        of the annual MedicarePlus capitation 
                        rate under this paragraph for the area 
                        for the previous year.
                          ``(iii) For a subsequent year, 102 
                        percent of the annual MedicarePlus 
                        capitation rate under this paragraph 
                        for the area for the previous year.
          ``(2) Area-specific and national percentages.--For 
        purposes of paragraph (1)(A)--
                  ``(A) for 1998, the `area-specific 
                percentage' is 90 percent and the `national 
                percentage' is 10 percent,
                  ``(B) for 1999, the `area-specific 
                percentage' is 85 percent and the `national 
                percentage' is 15 percent,
                  ``(C) for 2000, the `area-specific 
                percentage' is 80 percent and the `national 
                percentage' is 20 percent,
                  ``(D) for 2001, the `area-specific 
                percentage' is 75 percent and the `national 
                percentage' is 25 percent, and
                  ``(E) for a year after 2001, the `area-
                specific percentage' is 70 percent and the 
                `national percentage' is 30 percent.
          ``(3) Annual area-specific medicareplus capitation 
        rate.--
                  ``(A) In general.--For purposes of paragraph 
                (1)(A), subject to subparagraph (B), the annual 
                area-specific MedicarePlus capitation rate for 
                a MedicarePlus payment area--
                          ``(i) for 1998 is the annual per 
                        capita rate of payment for 1997 
                        determined under section 1876(a)(1)(C) 
                        for the area, increased by the national 
                        per capita MedicarePlus growth 
                        percentage for 1998 (as defined in 
                        paragraph (6)); or
                          ``(ii) for a subsequent year is the 
                        annual area-specific MedicarePlus 
                        capitation rate for the previous year 
                        determined under this paragraph for the 
                        area, increased by the national per 
                        capita MedicarePlus growth percentage 
                        for such subsequent year.
                  ``(B) Removal of medical education and 
                disproportionate share hospital payments from 
                calculation of adjusted average per capita 
                cost.--
                          ``(i) In general.--In determining the 
                        area-specific MedicarePlus capitation 
                        rate under subparagraph (A), for a year 
                        (beginning with 1998), the annual per 
                        capita rate of payment for 1997 
                        determined under section 1876(a)(1)(C) 
                        shall be adjusted to exclude from the 
                        rate the applicable percent (specified 
                        in clause (ii)) of the payment 
                        adjustments described in subparagraph 
                        (C).
                          ``(ii) Applicable percent.--For 
                        purposes of clause (i), the applicable 
                        percent for--
                                  ``(I) 1998 is 20 percent,
                                  ``(II) 1999 is 40 percent,
                                  ``(III) 2000 is 60 percent,
                                  ``(IV) 2001 is 80 percent, 
                                and
                                  ``(V) a succeeding year is 
                                100 percent.
                  ``(C) Payment adjustment.--The payment 
                adjustments described in this subparagraph are 
                payment adjustments which the Secretary 
                estimates were payable during 1997--
                          ``(i) under section 1886(d)(5)(F) for 
                        hospitals serving a disproportionate 
                        share of low-income patients,
                          ``(ii) for the indirect costs of 
                        medical education under section 
                        1886(d)(5)(B), and
                          ``(iii) for direct graduate medical 
                        education costs under section 1886(h),
                multiplied by a ratio (estimated by the 
                Secretary) of total payments under subsection 
                (h) and section 1858 in 1998 to payments under 
                such subsection and payments under such section 
                in such year for hospitals not reimbursed under 
                section 1814(b)(3).
          ``(4) Input-price-adjusted annual national 
        medicareplus capitation rate.--
                  ``(A) In general.--For purposes of paragraph 
                (1)(A), the input-price-adjusted annual 
                national MedicarePlus capitation rate for a 
                MedicarePlus payment area for a year is equal 
                to the sum, for all the types of medicare 
                services (as classified by the Secretary), of 
                the product (for each such type of service) 
                of--
                          ``(i) the national standardized 
                        annual 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 ofsuch 
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 annual 
                medicareplus capitation rate.--In subparagraph 
                (A)(i), the `national standardized annual 
                MedicarePlus capitation rate' for a year is 
                equal to--
                          ``(i) the sum (for all MedicarePlus 
                        payment areas) of the product of--
                                  ``(I) the annual area-
                                specific MedicarePlus 
                                capitation rate for that year 
                                for the area under paragraph 
                                (3), and
                                  ``(II) the average number of 
                                medicare beneficiaries residing 
                                in that area in the year, 
                                multiplied by the average of 
                                the risk factor weights used to 
                                adjust payments under 
                                subsection (a)(1)(A) for such 
                                beneficiaries in such area; 
                                divided by
                          ``(ii) the sum of the products 
                        described in clause (i)(II) for all 
                        areas for that year.
                  ``(C) Special rules for 1998.--In applying 
                this paragraph for 1998--
                          ``(i) medicare services shall be 
                        divided into 2 types of services: part 
                        A services and part B services;
                          ``(ii) the proportions described in 
                        subparagraph (A)(ii)--
                                  ``(I) for part A services 
                                shall be the ratio (expressed 
                                as a percentage) of the 
                                national average annual per 
                                capita rate of payment for part 
                                A for 1997 to the total 
                                national average annual per 
                                capita rate of payment for 
                                parts A and B for 1997, and
                                  ``(II) for part B services 
                                shall be 100 percent minus the 
                                ratio described in subclause 
                                (I);
                          ``(iii) for part A services, 70 
                        percent of payments attributable to 
                        such services shall be adjusted by the 
                        index used under section 1886(d)(3)(E) 
                        to adjust payment rates for relative 
                        hospital wage levels for hospitals 
                        located in the payment area involved;
                          ``(iv) for part B services--
                                  ``(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, 40 percent shall be 
                                adjusted by the index described 
                                in clause (iii); and
                          ``(v) the index values shall be 
                        computed based only on the beneficiary 
                        population who are 65 years of age or 
                        older and who are not determined to 
                        have end stage renal disease.
                The Secretary may continue to apply the rules 
                described in this subparagraph (or similar 
                rules) for 1999.
          ``(5) Payment adjustment budget neutrality factors.--
        For purposes of paragraph (1)(A)--
                  ``(A) Blended rate payment adjustment 
                factor.--For each year, the Secretary shall 
                compute a blended rate payment adjustment 
                factor such that, not taking into account 
                subparagraphs (B) and (C) of paragraph (1) and 
                the application of the payment adjustment 
                factor described in subparagraph (B) but taking 
                into account paragraph (7), the aggregate of 
                the payments that would be made under this part 
                is equal to the aggregate payments that would 
                have been made under this part (not taking into 
                account such subparagraphs and such other 
                adjustment factor) if the area-specific 
                percentage under paragraph (1) for the year had 
                been 100 percent and the national percentage 
                had been 0 percent.
                  ``(B) Floor-and-minimum-update payment 
                adjustment factor.--For each year, the 
                Secretary shall compute a floor-and-minimum-
                update payment adjustment factor so that, 
                taking into account the application of the 
                blended rate payment adjustment factor under 
                subparagraph (A) and subparagraphs (B) and (C) 
                of paragraph (1) and the application of the 
                adjustment factor under this subparagraph, the 
                aggregate of the payments under this part shall 
                not exceed the aggregate payments that would 
                have been made under this part if subparagraphs 
                (B) and (C) of paragraph (1) did not apply and 
                if the floor-and-minimum-update payment 
                adjustment factor under this subparagraph was 
                1.
          ``(6) National per capita medicareplus growth 
        percentage defined.--
                  ``(A) In general.--In this part, the 
                `national per capita MedicarePlus growth 
                percentage' for a year is the percentage 
                determined by the Secretary, by April 30th 
                before the beginning of the year involved, to 
                reflect the Secretary's estimate of the 
                projected per capita rate of growth in 
                expenditures under this title for an individual 
                entitled to benefits under part A and enrolled 
                under part B, reduced by the number of 
                percentage points specified in subparagraph (B) 
                for the year. Separate determinations may be 
                made for aged enrollees, disabled enrollees, 
                and enrollees with end-stage renal disease. 
                Such percentage shall include an adjustment for 
                over or under projection in the growth 
                percentage for previous years.
                  ``(B) Adjustment.--The number of percentage 
                points specified in this subparagraph is--
                          ``(i) for 1998, 0.5 percentage 
                        points,
                          ``(ii) for 1999, 0.5 percentage 
                        points,
                          ``(iii) for 2000, 0.5 percentage 
                        points,
                          ``(iv) for 2001, 0.5 percentage 
                        points,
                          ``(v) for 2002, 0.5 percentage 
                        points, and
                          ``(vi) for a year after 2002, 0 
                        percentage points.
          ``(7) treatment of areas with highly variable payment 
        rates.--In the case of a MedicarePlus payment area for 
        which the annual per capita rate of payment determined 
        under section 1876(a)(1)(C) for 1997 varies by more 
        than 20 percent from such rate for 1996, for purposes 
        of this subsection the Secretary may substitute for 
        such rate for 1997 a rate that is more representative 
        of the costs of the enrollees in the area.
  ``(d) MedicarePlus Payment Area Defined.--
          ``(1) In general.--In this part, except as provided 
        in paragraph (3), the term `MedicarePlus payment area' 
        means a county, or equivalent area specified by the 
        Secretary.
          ``(2) Rule for esrd beneficiaries.--In the case of 
        individuals who are determined to have end stage renal 
        disease, the MedicarePlus payment area shall be a State 
        or such other payment area as the Secretary specifies.
          ``(3) Geographic adjustment.--
                  ``(A) In general.--Upon written request of 
                the chief executive officer of a State for a 
                contract year (beginning after 1998) made at 
                least 7 months before the beginning of the 
                year, the Secretary shall make a geographic 
                adjustment to a MedicarePlus payment area in 
                the State otherwise determined under paragraph 
                (1)--
                          ``(i) to a single statewide 
                        MedicarePlus payment area,
                          ``(ii) to the metropolitan based 
                        system described in subparagraph (C), 
                        or
                          ``(iii) to consolidating into a 
                        single MedicarePlus payment area 
                        noncontiguous counties (or equivalent 
                        areas described in paragraph (1)) 
                        within a State.
                Such adjustment shall be effective for payments 
                for months beginning with January of the year 
                following the year in which the request is 
                received.
                  ``(B) Budget neutrality adjustment.--In the 
                case of a State requesting an adjustment under 
                this paragraph, the Secretary shall adjust the 
                payment rates otherwise established under this 
                section for MedicarePlus payment areas in the 
                State in a manner so that the aggregate of the 
                payments under this section in the State shall 
                not exceed the aggregate payments that would 
                have been made under this section for 
                MedicarePlus payment areas in the State in the 
                absence of the adjustment under this paragraph.
                  ``(C) Metropolitan based system.--The 
                metropolitan based system described in this 
                subparagraph is one in which--
                          ``(i) all the portions of each 
                        metropolitan statistical area in the 
                        State or in the case of a consolidated 
                        metropolitan statistical area, all of 
                        the portions of each primary 
                        metropolitan statistical area within 
                        the consolidated area within the State, 
                        are treated as a single MedicarePlus 
                        payment area, and
                          ``(ii) all areas in the State that do 
                        not fall within a metropolitan 
                        statistical area are treated as a 
                        single MedicarePlus payment area.
                  ``(D) Areas.--In subparagraph (C), the terms 
                `metropolitan statistical area', `consolidated 
                metropolitan statistical area', and `primary 
                metropolitan statistical area' mean any area 
                designated as such by the Secretary of 
                Commerce.
  ``(e) Special Rules for Individuals Electing MSA Plans.--
          ``(1) In general.--If the amount of the monthly 
        premium for an MSA plan for a MedicarePlus payment area 
        for a year is less than \1/12\ of the annual 
        MedicarePlus capitation rate applied under this section 
        for the area and year involved, the Secretary shall 
        deposit an amount equal to 100 percent of such 
        difference in a 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 an MSA plan, no payment shall be 
        made under paragraph (1) on behalf of an individual for 
        a month unless the individual--
                  ``(A) has established before the beginning of 
                the month (or by such other deadline as the 
                Secretary may specify) a MedicarePlus MSA (as 
                defined in section 138(b)(2) of the Internal 
                Revenue Code of 1986), and
                  ``(B) if the individual has established more 
                than one such 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 an 
        MSA plan 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.
  ``(f) 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 (e)(1) shall be made from 
the Federal Hospital Insurance Trust Fund and the Federal 
Supplementary Medical Insurance Trust Fund in such proportion 
as the Secretary determines reflects the relative weight that 
benefits under part A and under part B represents of the 
actuarial value of the total benefits under this title. Monthly 
payments otherwise payable under this section for October 2001 
shall be paid on the last business day of September 2001.
  ``(g) Special Rule for Certain Inpatient Hospital Stays.--In 
the case of an individual who is receiving inpatient hospital 
services from a subsection (d) hospital (as defined in section 
1886(d)(1)(B)) as of the effective date of the individual's--
          ``(1) election under this part of a MedicarePlus plan 
        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 
                plan or the medicare fee-for-service program 
                option described in section 1851(a)(1)(A) (as 
                the case may be) elected before the election 
                with such organization,
                  ``(B) the elected organization shall not be 
                financially responsible for payment for such 
                services until the date after the date of the 
                individual's discharge, and
                  ``(C) the organization shall nonetheless be 
                paid the full amount otherwise payable to the 
                organization under this part; or
          ``(2) termination of election with respect to a 
        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.

                               ``premiums

  ``Sec. 1854. (a) Submission and Charging of Premiums.--
          ``(1) In general.--Subject to paragraph (3), 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 premium for 
                coverage for services under section 1852(a) 
                under each MedicarePlus plan it offers under 
                this part in each MedicarePlus payment area (as 
                defined in section 1853(d)) in which the plan 
                is being offered; and
                  ``(B) the enrollment capacity in relation to 
                the plan in each such area.
          ``(2) Terminology.--In this part--
                  ``(A) the term `monthly premium' means, with 
                respect to a MedicarePlus plan offered by a 
                MedicarePlus organization, the monthly premium 
                filed under paragraph (1), not taking into 
                account the amount of any payment made toward 
                the premium under section 1853; and
                  ``(B) the term `net monthly premium' means, 
                with respect to such a plan and an individual 
                enrolled with the plan, the premium (as defined 
                in subparagraph (A)) for the plan reduced by 
                the amount of payment made toward such premium 
                under section 1853.
  ``(b) Monthly Premium Charged.--The monthly amount of the 
premium charged by a MedicarePlus organization for a 
MedicarePlus plan offered in a MedicarePlus payment area to an 
individual under this part shall be equal to the net monthly 
premium plus any monthly premium charged in accordance with 
subsection (e)(2) for supplemental benefits.
  ``(c) Uniform Premium.--The monthly premium and monthly 
amount charged under subsection (b) of a MedicarePlus 
organization under this part may not vary among individuals who 
reside in the same MedicarePlus payment area.
  ``(d) Terms and Conditions of Imposing Premiums.--Each 
MedicarePlus organization shall permit the payment of net 
monthly premiums on a monthly basis and may terminate election 
of individuals for a MedicarePlus plan for failure to make 
premium payments only in accordance with section 
1851(g)(3)(B)(i). A MedicarePlus organization is not authorized 
to provide for cash or other monetary rebates as an inducement 
for enrollment or otherwise.
  ``(e) Limitation on Enrollee Cost-Sharing.--
          ``(1) For basic and additional benefits.--Except as 
        provided in paragraph (2), in no event may--
                  ``(A) the net monthly premium (multiplied by 
                12) and the actuarial value of the deductibles, 
                coinsurance, and copayments applicable on 
                average to individuals enrolled under this part 
                with a MedicarePlus plan of an organization 
                with respect to required benefits described in 
                section 1852(a)(1) and additional benefits (if 
                any) required under subsection (f)(1) for a 
                year, exceed
                  ``(B) the actuarial value of the deductibles, 
                coinsurance, and copayments that would be 
                applicable on average to individuals entitled 
                to benefits under part A and enrolled under 
                part B if they were not members of a 
                MedicarePlus organization for the year.
          ``(2) For supplemental benefits.--If the MedicarePlus 
        organization provides to its members enrolled under 
        this part supplemental benefits described in section 
        1852(a)(3), the sum of the monthly premium rate 
        (multiplied by 12) charged for such supplemental 
        benefits and the actuarial value of its deductibles, 
        coinsurance, and copayments charged with respect to 
        such benefits may not exceed the adjusted community 
        rate for such benefits (as defined in subsection 
        (f)(4)).
          ``(3) Exception for msa plans.--Paragraphs (1) and 
        (2) do not apply to an MSA plan.
          ``(4) Determination on other basis.--If the Secretary 
        determines that adequate data are not available to 
        determine the actuarial value under paragraph (1)(A) or 
        (2), the Secretary may determine such amount with 
        respect to all individuals in the MedicarePlus payment 
        area, the State, or in the United States, eligible to 
        enroll in the MedicarePlus plan involved under this 
        part or on the basis of other appropriate data.
  ``(f) Requirement for Additional Benefits.--
          ``(1) Requirement.--
                  ``(A) In general.--Each MedicarePlus 
                organization (in relation to a MedicarePlus 
                plan it offers) shall provide that if there is 
                an excess amount (as defined in subparagraph 
                (B)) for the plan for a contract year, subject 
                to the succeeding provisions of this 
                subsection, the organization shall provide to 
                individuals such additional benefits (as the 
                organization may specify) in a value which is 
                at least equal to the adjusted excess amount 
                (as defined in subparagraph (C)).
                  ``(B) Excess amount.--For purposes of this 
                paragraph, the `excess amount', for an 
                organization for a plan, is the amount (if any) 
                by which--
                          ``(i) the average of the capitation 
                        payments made to the organization under 
                        section 1853 for the plan at the 
                        beginning of contract year, exceeds
                          ``(ii) the actuarial value of the 
                        required benefits described in section 
                        1852(a)(1) under the plan for 
                        individuals under this part, as 
                        determined based upon an adjusted 
                        community rate described in paragraph 
                        (4) (as reduced for the actuarial value 
                        of the coinsurance and deductibles 
                        under parts A and B).
                  ``(C) Adjusted excess amount.--For purposes 
                of this paragraph, the `adjusted excess 
                amount', for an organization for a plan, is the 
                excess amount reduced to reflect any amount 
                withheld and reserved for the organization for 
                the year under paragraph (2).
                  ``(D) No application to msa plans.--
                Subparagraph (A) shall not apply to an MSA 
                plan.
                  ``(E) Uniform application.--This paragraph 
                shall be applied uniformly for all enrollees 
                for a plan in a MedicarePlus payment 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) Stabilization fund.--A MedicarePlus 
        organization may provide that a part of the value of an 
        excess amount described in paragraph (1) be withheld 
        and reserved in the Federal Hospital Insurance Trust 
        Fund and in the Federal Supplementary Medical Insurance 
        Trust Fund (in such proportions as the Secretary 
        determines to be appropriate) by the Secretary for 
        subsequent annual contract periods, to the extent 
        required to stabilize and prevent undue fluctuations in 
        the additional benefits offered in those subsequent 
        periods by the organization in accordance with such 
        paragraph. Any of such value of the amount reserved 
        which is not provided as additional benefits described 
        in paragraph (1)(A) to individuals electing the 
        MedicarePlus plan of the organization in accordance 
        with such paragraph prior to the end of such periods, 
        shall revert for the use of such trust funds.
          ``(3) Determination based on insufficient data.--For 
        purposes of this subsection, if the Secretary finds 
        that there is insufficient enrollment experience 
        (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.
          ``(4) Adjusted community rate.--
                  ``(A) In general.--For purposes of this 
                subsection, subject to subparagraph (B), the 
                term `adjusted community rate' for a service or 
                services means, at the election of a 
                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 plan 
                        under this part if the rate of payment 
                        were determined under a `community 
                        rating system' (as defined in section 
                        1302(8) of the Public Health Service 
                        Act, other than subparagraph (C)), or
                          ``(ii) such portion of the weighted 
                        aggregate premium, which the Secretary 
                        annually estimates would apply to such 
                        an individual, as the Secretary 
                        annually estimates is attributable to 
                        that service or services,
                but adjusted for differences between the 
                utilization characteristics of the individuals 
                electing coverage under this part and the 
                utilization characteristics of the other 
                enrollees with the plan (or, if the Secretary 
                finds that adequate data are not available to 
                adjust for those differences, the differences 
                between the utilization characteristics of 
                individuals selecting other MedicarePlus 
                coverage, or MedicarePlus eligible 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 plan of the 
                organization may be computed (in a manner 
                specified by the Secretary) using data in the 
                general commercial marketplace or (during a 
                transition period) based on the costs incurred 
                by the organization in providing such a plan.
  ``(g) Periodic Auditing.--The Secretary shall provide for the 
annual auditing of the financial records (including data 
relating to medicare utilization, costs, and computation of the 
adjusted community rate) of at least one-third of the 
MedicarePlus organizations offering MedicarePlus plans under 
this part. The Comptroller General shall monitor auditing 
activities conducted under this subsection.
  ``(h) Prohibition of State Imposition of Premium Taxes.--No 
State may impose a premium tax or similar tax with respect to 
premiums on MedicarePlus plans or the offering of such plans.

     ``organizational and financial requirements for medicareplus 
            organizations; provider-sponsored organizations

  ``Sec. 1855. (a) Organized and Licensed Under State Law.--
          ``(1) In general.--Subject to paragraphs (2) and (3), 
        a MedicarePlus organization shall be organized and 
        licensed under State law as a risk-bearing entity 
        eligible to offer health insurance or health benefits 
        coverage in each State in which it offers a 
        MedicarePlus plan.
          ``(2) Special exception for provider-sponsored 
        organizations.--
                  ``(A) In general.--In the case of a provider-
                sponsored organization that seeks to offer a 
                MedicarePlus plan in a State, the Secretary 
                shall waive the requirement of paragraph (1) 
                that the organization be licensed in that State 
                if--
                          ``(i) the organization files an 
                        application for such waiver with the 
                        Secretary, and
                          ``(ii) the Secretary determines, 
                        based on the application and other 
                        evidence presented to the Secretary, 
                        that any of the grounds for approval of 
                        the application described in 
                        subparagraph (B), (C), or (D) has been 
                        met.
                  ``(B) Failure to act on licensure application 
                on a timely basis.--A ground for approval of 
                such a waiver application is that the State has 
                failed to complete action on a licensing 
                application of the organization within 90 days 
                of the date of the State's receipt of the 
                application. No period before the date of the 
                enactment of this section shall be included in 
                determining such 90-day period.
                  ``(C) Denial of application based on 
                discriminatory treatment.--A ground for 
                approval of such a waiver application is that 
                the State has denied such a licensing 
                application and--
                          ``(i) the State has imposed 
                        documentation or information 
                        requirements not related to solvency 
                        requirements that are not generally 
                        applicable to other entities engaged in 
                        substantially similar business, or
                          ``(ii) the standards or review 
                        process imposed by the State as a 
                        condition of approval of the license 
                        imposes any material requirements, 
                        procedures, or standards (other than 
                        requirements and standards relating to 
                        solvency) to such organizations that 
                        are not generally applicable to other 
                        entities engaged in substantially 
                        similar business.
                  ``(D) Denial of application based on 
                application of solvency requirements.--A ground 
                for approval of such a waiver application is 
                that the State has denied such a licensing 
                application based (in whole or in part) on the 
                organization's failure to meet applicable 
                solvency requirements and--
                          ``(i) such requirements are not the 
                        same as the solvency standards 
                        established under section 1856(a); or
                          ``(ii) the State has imposed as a 
                        condition of approval of the license 
                        any documentation or information 
                        requirements relating to solvency or 
                        other material requirements, 
                        procedures, or standards relating to 
                        solvency that are different from the 
                        requirements, procedures, and standards 
                        applied by the Secretary under 
                        subsection (d)(2).
                For purposes of this subparagraph, the term 
                `solvency requirements' means requirements 
                relating to solvency and other matters covered 
                under the standards established under section 
                1856(a).
                  ``(E) Treatment of waiver.--Subject to 
                section 1852(m), in the case of a waiver 
                granted under this paragraph for a provider-
                sponsored organization--
                          ``(i) the waiver shall be effective 
                        for a 36-month period, except it may be 
                        renewed based on a subsequent 
                        application filed during the last 6 
                        months of such period,
                          ``(ii) the waiver is conditioned upon 
                        the pendency of the licensure 
                        application during the period the 
                        waiver is in effect, and
                          ``(iii) any provisions of State law 
                        which relate to the licensing of the 
                        organization and which prohibit the 
                        organization from providing coverage 
                        pursuant to a contract under this part 
                        shall be superseded.
                Nothing in this subparagraph shall be construed 
                as limiting the number of times such a waiver 
                may be renewed. Nothing in clause (iii) shall 
                be construed as waiving any provision of State 
                law which relates to quality of care or 
                consumer protection (and does not relate to 
                solvency standards) and which is imposed on a 
                uniform basis and is generally applicable to 
                other entities engaged in substantially similar 
                business.
                  ``(F) Prompt action on application.--The 
                Secretary shall grant or deny such a waiver 
                application within 60 days after the date the 
                Secretary determines that a substantially 
                complete application has been filed. Nothing in 
                this section shall be construed as preventing 
                an organization which has had such a waiver 
                application denied from submitting a subsequent 
                waiver application.
          ``(3) Exception if required to offer more than 
        medicareplus plans.--Paragraph (1) shall not apply to a 
        MedicarePlus organization in a State if the State 
        requires the organization, as a condition of licensure, 
        to offer any product or plan other than a MedicarePlus 
        plan.
          ``(4) Licensure does not substitute for or constitute 
        certification.--The fact that an organization is 
        licensed in accordance with paragraph (1) does not deem 
        the organization to meet other requirements imposed 
        under this part.
  ``(b) Prepaid Payment.--A MedicarePlus organization shall be 
compensated (except for premiums, deductibles, coinsurance, and 
copayments) for the provision of health care services to 
enrolled members under the contract under this part by a 
payment which is paid on a periodic basis without regard to the 
date the health care services are provided and which is fixed 
without regard to the frequency, extent, or kind of health care 
service actually provided to a member.
  ``(c) Assumption of Full Financial Risk.--The MedicarePlus 
organization shall assume full financial risk on aprospective 
basis for the provision of the health care services (except, at the 
election of the organization, hospice care) for which benefits are 
required to be provided under section 1852(a)(1), except that the 
organization--
          ``(1) may obtain insurance or make other arrangements 
        for the cost of providing to any enrolled member such 
        services the aggregate value of which 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.
  ``(d) Certification of Provision Against Risk of Insolvency 
for Unlicensed PSOs.--
          ``(1) In general.--Each MedicarePlus organization 
        that is a provider-sponsored organization, that is not 
        licensed by a State under subsection (a), and for which 
        a waiver application has been approved under subsection 
        (a)(2), shall meet standards established under section 
        1856(a) relating to the financial solvency and capital 
        adequacy of the organization.
          ``(2) Certification process for solvency standards 
        for psos.--The Secretary shall establish a process for 
        the receipt and approval of applications of a provider-
        sponsored organization described in paragraph (1) for 
        certification (and periodic recertification) of the 
        organization as meeting such solvency standards. Under 
        such process, the Secretary shall act upon such an 
        application not later than 60 days after the date the 
        application has been received.
  ``(e) Provider-Sponsored Organization Defined.--
          ``(1) In general.--In this part, the term `provider-
        sponsored organization' means a public or private 
        entity--
                  ``(A) that is established or organized by a 
                health care provider, or group of affiliated 
                health care providers,
                  ``(B) that provides a substantial proportion 
                (as defined by the Secretary in accordance with 
                paragraph (2)) of the health care items and 
                services under the contract under this part 
                directly through the provider or affiliated 
                group of providers, and
                  ``(C) with respect to which those affiliated 
                providers that share, directly or indirectly, 
                substantial financial risk with respect to the 
                provision of such items and services have at 
                least a majority financial interest in the 
                entity.
          ``(2) Substantial proportion.--In defining what is a 
        `substantial proportion' for purposes of paragraph 
        (1)(B), the Secretary--
                  ``(A) shall take into account (i) the need 
                for such an organization to assume 
                responsibility for a substantial proportion of 
                services in order to assure financial stability 
                and (ii) 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) both providers are part of a controlled 
                group of corporations under section 1563 of the 
                Internal Revenue Code of 1986, or
                  ``(C) both providers are part of an 
                affiliated service group under section 414 of 
                such Code.
          ``(4) Control.--For purposes of paragraph (3), 
        control is presumed to exist if one party, directly or 
        indirectly, owns, controls, or holds the power to vote, 
        or proxies for, not less than 51 percent of the voting 
        rights or governance rights of another.
          ``(5) Health care provider defined.--In this 
        subsection, the term `health care provider' means--
                  ``(A) any individual who is engaged in the 
                delivery of health care services in a State and 
                who is required by State law or regulation to 
                be licensed or certified by the State to engage 
                in the delivery of such services in the State, 
                and
                  ``(B) any entity that is engaged in the 
                delivery of health care services in a State and 
                that, if it is required by State law or 
                regulation to be licensed or certified by the 
                State to engage in the delivery of such 
                services in the State, is so licensed.
          ``(6) Regulations.--The Secretary shall issue 
        regulations to carry out this subsection.

                      ``establishment of standards

  ``Sec. 1856. (a) Establishment of Solvency Standards for 
Provider-Sponsored Organizations.--
          ``(1) Establishment.--
                  ``(A) In general.--The Secretary shall 
                establish, on an expedited basis and using a 
                negotiated rulemaking process under subchapter 
                III of chapter 5 of title 5, United States 
                Code, standards described in section 1855(d)(1) 
                (relating to the financial solvency andcapital 
adequacy of the organization) that entities must meet to qualify as 
provider-sponsored organizations under this part.
                  ``(B) Factors to consider for solvency 
                standards.--In establishing solvency standards 
                under subparagraph (A) for provider-sponsored 
                organizations, the Secretary shall consult with 
                interested parties and shall take into 
                account--
                          ``(i) the delivery system assets of 
                        such an organization and ability of 
                        such an organization to provide 
                        services directly to enrollees through 
                        affiliated providers, and
                          ``(ii) alternative means of 
                        protecting against insolvency, 
                        including reinsurance, unrestricted 
                        surplus, letters of credit, guarantees, 
                        organizational insurance coverage, 
                        partnerships with other licensed 
                        entities, and valuation attributable to 
                        the ability of such an organization to 
                        meet its service obligations through 
                        direct delivery of care.
                  ``(C) Enrollee protection against 
                insolvency.--Such standards shall include 
                provisions to prevent enrollees from being held 
                liable to any person or entity for the 
                MedicarePlus organization's debts in the event 
                of the organization's insolvency.
          ``(2) Publication of notice.--In carrying out the 
        rulemaking process under this subsection, the 
        Secretary, after consultation with the National 
        Association of Insurance Commissioners, the American 
        Academy of Actuaries, organizations representative of 
        medicare beneficiaries, and other interested parties, 
        shall publish the notice provided for under section 
        564(a) of title 5, United States Code, by not later 
        than 45 days after the date of the enactment of this 
        section.
          ``(3) Target date for publication of rule.--As part 
        of the notice under paragraph (2), and for purposes of 
        this subsection, the `target date for publication' 
        (referred to in section 564(a)(5) of such title) shall 
        be April 1, 1998.
          ``(4) Abbreviated period for submission of 
        comments.--In applying section 564(c) of such title 
        under this subsection, `15 days' shall be substituted 
        for `30 days'.
          ``(5) Appointment of negotiated rulemaking committee 
        and facilitator.--The Secretary shall provide for--
                  ``(A) the appointment of a negotiated 
                rulemaking committee under section 565(a) of 
                such title by not later than 30 days after the 
                end of the comment period provided for under 
                section 564(c) of such title (as shortened 
                under paragraph (4)), and
                  ``(B) the nomination of a facilitator under 
                section 566(c) of such title by not later than 
                10 days after the date of appointment of the 
                committee.
          ``(6) Preliminary committee report.--The negotiated 
        rulemaking committee appointed under paragraph (5) 
        shall report to the Secretary, by not later than 
        January 1, 1998, regarding the committee's progress on 
        achieving a consensus with regard to the rulemaking 
        proceeding and whether such consensus is likely to 
        occur before 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 date 
        of publication.
          ``(8) Interim, final effect.--The Secretary shall 
        publish a rule under this subsection in the Federal 
        Register by not later than the target date of 
        publication. Such rule shall be effective and final 
        immediately on an interim basis, but is subject to 
        change and revision after public notice and opportunity 
        for a period (of not less than 60 days) for public 
        comment. In connection with such rule, the Secretary 
        shall specify the process for the timely review and 
        approval of applications of entities to be certified as 
        provider-sponsored organizations pursuant to such rules 
        and consistent with this subsection.
          ``(9) Publication of rule after public comment.--The 
        Secretary shall provide for consideration of such 
        comments and republication of such rule by not later 
        than 1 year after the target date of publication.
  ``(b) Establishment of Other Standards.--
          ``(1) In general.--The Secretary shall establish by 
        regulation other standards (not described in subsection 
        (a)) for MedicarePlus organizations and plans 
        consistent with, and to carry out, this part.
          ``(2) Use of current standards.--Consistent with the 
        requirements of this part, standards established under 
        this subsection shall be based on standards established 
        under section 1876 to carry out analogous provisions of 
        such section. The Secretary shall also consider State 
        model and other standards relating to consumer 
        protection and assuring quality of care.
          ``(3) Use of interim standards.--For the period in 
        which this part is in effect and standards are being 
        developed and established under the preceding 
        provisions of this subsection, the Secretary shall 
        provide by not later than June 1, 1998, for the 
        application of such interim standards (without regard 
        to any requirements for notice and public comment) as 
        may be appropriate to provide for the expedited 
        implementation of this part. Such interim standards 
        shall not apply after the date standards are 
        established under the preceding provisions of this 
        subsection.
          ``(4) Application of new standards to entities with a 
        contract.--In the case of a 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).
          ``(5) Relation to state laws.--Subject to section 
        1852(m), the standards established under this 
        subsection shall supersede any State law or regulation 
        with respect to MedicarePlus plans which are offered by 
        MedicarePlus organizations under this part to the 
        extent such law or regulation is inconsistent with such 
        standards. The previous sentence shall not be construed 
        as superseding a State law or regulation that is not 
        related to solvency, that is applied on a uniform basis 
        and is generally applicable to other entities engaged 
        in substantially similar business, and that provides 
        consumer protections in addition to, or more stringent 
        than, those provided under the standards under this 
        subsection.

              ``contracts with medicareplus organizations

  ``Sec. 1857. (a) In General.--The Secretary shall not permit 
the election under section 1851 of a MedicarePlus plan offered 
by a MedicarePlus organization under this part, and no payment 
shall be made under section 1853 to an organization, unless the 
Secretary has entered into a contract under this section with 
the organization with respect to the offering of such plan. 
Such a contract with an organization may cover more than one 
MedicarePlus plan. Such contract shall provide that the 
organization agrees to comply with the applicable requirements 
and standards of this part and the terms and conditions of 
payment as provided for in this part.
  ``(b) Minimum Enrollment Requirements.--
          ``(1) In general.--Subject to paragraphs (2) and (3), 
        the Secretary may not enter into a contract under this 
        section with a MedicarePlus organization 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 msa plan.--Paragraph (1) shall 
        not apply with respect to a contract that relates only 
        to an MSA plan.
          ``(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)(3) 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; or
                  ``(C) no longer substantially meets the 
                applicable conditions of this part.
          ``(3) Effective date of contracts.--The effective 
        date of any contract executed pursuant to this section 
        shall be specified in the contract, except that in no 
        case shall a contract under this section which provides 
        for coverage under an MSA plan be effective before 
        January 1998 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) 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.--
          ``(1) In general.--The contract shall contain such 
        other terms and conditions not inconsistent with this 
        part (including requiring the organization to provide 
        the Secretary with such information) as the Secretary 
        may find necessary and appropriate.
          ``(2) Cost-sharing in enrollment-related costs.--The 
        contract with a MedicarePlus organization shall require 
        the payment to the Secretary for the organization's pro 
        rata share (as determined by the Secretary) of the 
        estimated costs to be incurred by the Secretary in 
        carrying out section 1851 (relating to enrollment and 
        dissemination of information) and section 4360 of the 
        Omnibus Budget Reconciliation Act of 1990 (relating to 
        the health insurance counseling and assistance 
        program). Such payments are appropriated to defray the 
        costs described in the preceding sentence, to remain 
        available until expended.
          ``(3) Notice to enrollees in case of 
        decertification.--If a contract with a MedicarePlus 
        organization is terminated under this section, the 
        organization shall notify each enrollee with the 
        organization under this part of such termination.
  ``(f) Prompt Payment by MedicarePlus Organization.--
          ``(1) Requirement.--A contract under this part shall 
        require a MedicarePlus organization to provide prompt 
        payment (consistent with the provisions of sections 
        1816(c)(2) and 1842(c)(2)) of claims submitted for 
        services and supplies furnished to individuals pursuant 
        to the contract, if the services or supplies are not 
        furnished under a contract between the organization and 
        the provider or supplier.
          ``(2) Secretary's option to bypass noncomplying 
        organization.--In the case of a MedicarePlus eligible 
        organization which the Secretary determines, after 
        notice and opportunity for a hearing, has failed to 
        make payments of amounts in compliance with paragraph 
        (1), the Secretary may provide for direct payment of 
        the amounts owed to providers and suppliers for covered 
        services and supplies furnished to individuals enrolled 
        under this part under the contract. If the Secretary 
        provides for the direct payments, the Secretary shall 
        provide for an appropriate reduction in the amount of 
        payments otherwise made to the organization under this 
        part to reflect the amount of the Secretary's payments 
        (and the Secretary's costs in making the payments).
  ``(g) Intermediate Sanctions.--
          ``(1) In general.--If the Secretary determines that a 
        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 net monthly premiums on 
                individuals enrolled under this part in excess 
                of the net monthly premiums permitted;
                  ``(C) acts to expel or to refuse to re-enroll 
                an individual in violation of the provisions of 
                this part;
                  ``(D) engages in any practice that would 
                reasonably be expected to have the effect of 
                denying or discouraging enrollment (except as 
                permitted by this part) by eligible individuals 
                with the organization whose medical condition 
                or history indicates a need for substantial 
                future medical services;
                  ``(E) misrepresents or falsifies information 
                that is furnished--
                          ``(i) to the Secretary under this 
                        part, or
                          ``(ii) to an individual or to any 
                        other entity under this part;
                  ``(F) fails to comply with the requirements 
                of section 1852(j)(3); or
                  ``(G) employs or contracts with any 
                individual or entity that is excluded from 
                participation under this title under section 
                1128 or 1128A for the provision of health care, 
                utilization review, medical social work, or 
                administrative services or employs or contracts 
                with any entity for the provision (directly or 
                indirectly) through such an excluded individual 
                or entity of such services;
        the Secretary may provide, in addition to any other 
        remedies authorized by law, for any of the remedies 
        described in paragraph (2).
          ``(2) Remedies.--The remedies described in this 
        paragraph are--
                  ``(A) civil money penalties of not more than 
                $25,000 for each determination under paragraph 
                (1) or, with respect to a determination under 
                subparagraph (D) or (E)(i) of such paragraph, 
                of not more than $100,000 for each such 
                determination, plus, with respect to a 
                determination under paragraph (1)(B), double 
                the excess amount charged in violation of such 
                paragraph (and the excess amount charged shall 
                be deducted from the penalty and returned to 
                the individual concerned), and plus, with 
                respect to a determination under paragraph 
                (1)(D), $15,000 for each individual not 
                enrolled as a result of the practice involved,
                  ``(B) suspension of enrollment of individuals 
                under this part after the date the Secretary 
                notifies the organization of a determination 
                under paragraph (1) and until the Secretary is 
                satisfied that the basis for such determination 
                has been corrected and is not likely to recur, 
                or
                  ``(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 (g) during which the deficiency that 
                is the basis of a determination under 
                subsection (c)(2) exists.
                  ``(C) Suspension of enrollment of individuals 
                under this part after the date the Secretary 
                notifies the organization of a determination 
                under subsection (c)(2) and until the Secretary 
                is satisfied that the deficiency thatis the 
basis for the determination has been corrected and is not likely to 
recur.
  ``(h) Procedures for Termination.--
          ``(1) In general.--The Secretary may terminate a 
        contract with a MedicarePlus organization under this 
        section in accordance with formal investigation and 
        compliance procedures established by the Secretary 
        under which--
                  ``(A) the Secretary provides the organization 
                with the reasonable opportunity to develop and 
                implement a corrective action plan to correct 
                the deficiencies that were the basis of the 
                Secretary's determination under subsection 
                (c)(2);
                  ``(B) the Secretary shall impose more severe 
                sanctions on an organization that has a history 
                of deficiencies or that has not taken steps to 
                correct deficiencies the Secretary has brought 
                to the organization's attention;
                  ``(C) there are no unreasonable or 
                unnecessary delays between the finding of a 
                deficiency and the imposition of sanctions; and
                  ``(D) the Secretary provides the organization 
                with reasonable notice and opportunity for 
                hearing (including the right to appeal an 
                initial decision) before terminating the 
                contract.
          ``(2) Civil money penalties.--The provisions of 
        section 1128A (other than subsections (a) and (b)) 
        shall apply to a civil money penalty under subsection 
        (f) or under paragraph (2) or (3) of subsection (g) in 
        the same manner as they apply to a civil money penalty 
        or proceeding under section 1128A(a).
          ``(3) Exception for imminent and serious risk to 
        health.--Paragraph (1) shall not apply if the Secretary 
        determines that a delay in termination, resulting from 
        compliance with the procedures specified in such 
        paragraph prior to termination, would pose an imminent 
        and serious risk to the health of individuals enrolled 
        under this part with the organization.

                ``definitions; miscellaneous provisions

  ``Sec. 1859. (a) Definitions Relating to MedicarePlus 
Organizations.--In this part--
          ``(1) MedicarePlus organization.--The term 
        `MedicarePlus organization' means a public or private 
        entity that is certified under section 1856 as meeting 
        the requirements and standards of this part for such an 
        organization.
          ``(2) Provider-sponsored organization.--The term 
        `provider-sponsored organization' is defined in section 
        1855(e)(1).
  ``(b) Definitions Relating to MedicarePlus Plans.--
          ``(1) MedicarePlus plan.--The term `MedicarePlus 
        plan' means health benefits coverage offered under a 
        policy, contract, or plan by a MedicarePlus 
        organization pursuant to and in accordance with a 
        contract under section 1857.
          ``(2) MSA plan.--
                  ``(A) In general.--The term `MSA plan' means 
                a MedicarePlus plan that--
                          ``(i) provides reimbursement for at 
                        least the items and services described 
                        in section 1852(a)(1) in a year but 
                        only after the enrollee incurs 
                        countable expenses (as specified under 
                        the plan) equal to the amount of an 
                        annual deductible (described in 
                        subparagraph (B));
                          ``(ii) counts as such expenses (for 
                        purposes of such deductible) at least 
                        all amounts that would have been 
                        payable under parts A and B, and that 
                        would have been payable by the enrollee 
                        as deductibles, coinsurance, or 
                        copayments, if the enrollee had elected 
                        to receive benefits through the 
                        provisions of such parts; and
                          ``(iii) provides, after such 
                        deductible is met for a year and for 
                        all subsequent expenses for items and 
                        services referred to in clause (i) in 
                        the year, for a level of reimbursement 
                        that is not less than--
                                  ``(I) 100 percent of such 
                                expenses, or
                                  ``(II) 100 percent of the 
                                amounts that would have been 
                                paid (without regard to any 
                                deductibles or coinsurance) 
                                under parts A and B with 
                                respect to such expenses,
                        whichever is less.
                  ``(B) Deductible.--The amount of annual 
                deductible under an MSA plan--
                          ``(i) for contract year 1999 shall be 
                        not more than $6,000; and
                          ``(ii) for a subsequent contract year 
                        shall be not more than the maximum 
                        amount of such deductible for the 
                        previous contract year under this 
                        subparagraph increased by the national 
                        per capita MedicarePlus growth 
                        percentage under section 1853(c)(6) for 
                        the year.
                If the amount of the deductible under clause 
                (ii) is not a multiple of $50, the amount shall 
                be rounded to the nearest multiple of $50.
  ``(c) Other References to Other Terms.--
          ``(1) MedicarePlus eligible individual.--The term 
        `MedicarePlus eligible individual' is defined in 
        section 1851(a)(3).
          ``(2) MedicarePlus payment area.--The term 
        `MedicarePlus payment area' is defined in section 
        1853(d).
          ``(3) National per capita medicareplus growth 
        percentage.--The `national per capita MedicarePlus 
        growth percentage' is defined in section 1853(c)(6).
          ``(4) Monthly premium; net monthly premium.--The 
        terms `monthly premium' and `net monthly premium' are 
        defined in section 1854(a)(2).
  ``(d) Coordinated Acute and Long-term Care Benefits Under a 
MedicarePlus Plan.--Nothing in this part shall be construed as 
preventing a State from coordinating benefits under a medicaid 
plan under title XIX with those provided under a MedicarePlus 
plan in a manner that assures continuity of a full-range of 
acute care and long-term care services to poor elderly or 
disabled individuals eligible for benefits under this title and 
under such plan.
  ``(e) Restriction on Enrollment for Certain MedicarePlus 
Plans.--
          ``(1) In general.--In the case of a MedicarePlus 
        religious fraternal benefit society plan described in 
        paragraph (2), notwithstanding any other provision of 
        this part to the contrary and in accordance with 
        regulations of the Secretary, the society offering the 
        plan may restrict the enrollment of individuals under 
        this part to individuals who are members of the church, 
        convention, or group described in paragraph (3)(B) with 
        which the society is affiliated.
          ``(2) Medicareplus religious fraternal benefit 
        society plan described.--For purposes of this 
        subsection, a MedicarePlus religious fraternal benefit 
        society plan described in this paragraph is a 
        MedicarePlus plan described in section 1851(a)(2)(A) 
        that--
                  ``(A) is offered by a religious fraternal 
                benefit society described in paragraph (3) only 
                to members of the church, convention, or group 
                described in paragraph (3)(B); and
                  ``(B) permits all such members to enroll 
                under the plan without regard to health status-
                related factors.
        Nothing in this subsection shall be construed as 
        waiving any plan requirements relating to financial 
        solvency. In developing solvency standards under 
        section 1856, the Secretary shall take into account 
        open contract and assessment features characteristic of 
        fraternal insurance certificates.
          ``(3) Religious fraternal benefit society defined.--
        For purposes of paragraph (2)(A), a `religious 
        fraternal benefit society' described in this section is 
        an organization that--
                  ``(A) is exempt from Federal income taxation 
                under section 501(c)(8) of the Internal Revenue 
                Code of 1986;
                  ``(B) is affiliated with, carries out the 
                tenets of, and shares a religious bond with, a 
                church or convention or association of churches 
                or an affiliated group of churches;
                  ``(C) offers, in addition to a MedicarePlus 
                religious fraternal benefit society plan, 
                health coverage to individuals not entitled to 
                benefits under this title who are members of 
                such church, convention, or group; and
                  ``(D) does not impose any limitation on 
                membership in the society based on any health 
                status-related factor.
          ``(4) Payment adjustment.--Under regulations of the 
        Secretary, in the case of individuals enrolled under 
        this part under a MedicarePlus religious fraternal 
        benefit society plan described in paragraph (2), the 
        Secretary shall provide for such adjustment to the 
        payment amounts otherwise established under section 
        1854 as may be appropriate to assure an appropriate 
        payment level, taking into account the actuarial 
        characteristics and experience of such individuals.''.
  (b) Report on Coverage of Beneficiaries with End-Stage Renal 
Disease.--The Secretary of Health and Human Services shall 
provide for a study on the feasibility and impact of removing 
the limitation under section 1851(b)(3)(B) of the Social 
Security Act (as inserted by subsection (a)) on eligibility of 
most individuals medically determined to have end-stage renal 
disease to enroll in MedicarePlus plans. By not later than 
October 1, 1998, the Secretary shall submit to Congress a 
report on such study and shall include in the report such 
recommendations regarding removing or restricting the 
limitation as may be appropriate.
  (c) Report on MedicarePlus Teaching Programs and Use of DSH 
and Teaching Hospitals.--Based on the information provided to 
the Secretary of Health and Human Services under section 
1852(k) of the Social Security Act and such information as the 
Secretary may obtain, by not later than October 1, 1999, the 
Secretary shall submit to Congress a report on graduate medical 
education programs operated by MedicarePlus organizations and 
the extent to which MedicarePlus organizations are providing 
for payments to hospitals described in such section.

SEC. 4002. TRANSITIONAL RULES FOR CURRENT MEDICARE HMO PROGRAM.

  (a) Authorizing Transitional Waiver of 50:50 Rule.--Section 
1876(f) (42 U.S.C. 1395mm(f)) is amended--
          (1) in paragraph (2), by striking ``The Secretary'' 
        and inserting ``Subject to paragraph (4), the 
        Secretary'', and
          (2) by adding at the end the following new paragraph:
  ``(4) Effective for contract periods beginning after December 
31, 1996, the Secretary may waive or modify the requirement 
imposed by paragraph (1) to the extent the Secretary finds that 
it is in the public interest.''.
  (b) Transition.--Section 1876 (42 U.S.C. 1395mm) is amended 
by adding at the end the following new subsection:
  ``(k)(1) Except as provided in paragraph (3), the Secretary 
shall not enter into, renew, or continue any risk-sharing 
contract under this section with an eligible organization for 
any contract year beginning on or after--
          ``(A) the date standards for MedicarePlus 
        organizations and plans are first established under 
        section 1856 with respect to MedicarePlus organizations 
        that are insurers or health maintenance organizations, 
        or
          ``(B) in the case of such an organization with such a 
        contract in effect as of the date such standards were 
        first established, 1 year after such date.
  ``(2) The Secretary shall not enter into, renew, or continue 
any risk-sharing contract under this section with an eligible 
organization for any contract year beginning on or after 
January 1, 2000.
  ``(3) An individual who is enrolled in part B only and is 
enrolled in an eligible organization with a risk-sharing 
contract under this section on December 31, 1998, may continue 
enrollment in such organization in accordance with regulations 
issued by not later then July 1, 1998.
  ``(4) Notwithstanding subsection (a), the Secretary shall 
provide that payment amounts under risk-sharing contracts under 
this section for months in a year (beginning with January 1998) 
shall be computed--
          ``(A) with respect to individuals entitled to 
        benefits under both parts A and B, by substituting 
        payment rates under section 1853(a) for the payment 
        rates otherwise established under subsection 1876(a), 
        and
          ``(B) with respect to individuals only entitled to 
        benefits under part B, by substituting an appropriate 
        proportion of such rates (reflecting the relative 
        proportion of payments under this title attributable to 
        such part) for the payment rates otherwise established 
        under subsection (a).
For purposes of carrying out this paragraph for payments for 
months in 1998, the Secretary shall compute, announce, and 
apply the payment rates under section 1853(a) (notwithstanding 
any deadlines specified in such section) in as timely a manner 
as possible and may (to the extent necessary) provide for 
retroactive adjustment in payments made under this section not 
in accordance with such rates.''.
  (c) Enrollment Transition Rule.--An individual who is 
enrolled on December 31, 1998, with an eligible organization 
under section 1876 of the Social Security Act (42 U.S.C. 
1395mm) shall be considered to be enrolled with that 
organization on January 1, 1999, under part C of title XVIII of 
such Act if that organization has a contract under that part 
for providing services on January 1, 1999 (unless the 
individual has disenrolled effective on that date).
  (d) Advance Directives.--Section 1866(f) (42 U.S.C. 1395c(f)) 
is amended--
          (1) in paragraph (1)--
                  (A) by inserting ``1855(i),'' after 
                ``1833(s),'', and
                  (B) by inserting ``, MedicarePlus 
                organization,'' after ``provider of services''; 
                and
          (2) in paragraph (2)(E), by inserting ``or a 
        MedicarePlus organization'' after ``section 
        1833(a)(1)(A)''.
  (e) Extension of Provider Requirement.--Section 1866(a)(1)(O) 
(42 U.S.C. 1395cc(a)(1)(O)) is amended--
          (1) by striking ``in the case of hospitals and 
        skilled nursing facilities,'';
          (2) by striking ``inpatient hospital and extended 
        care'';
          (3) by inserting ``with a MedicarePlus organization 
        under part C or'' after ``any individual enrolled'';
          (4) by striking ``(in the case of hospitals) or 
        limits (in the case of skilled nursing facilities)''; 
        and
          (5) by inserting ``(less any payments under section 
        1858)'' after ``under this title''.
  (f) Additional Conforming Changes.--
          (1) Conforming references to previous part C.--Any 
        reference in law (in effect before the date of the 
        enactment of this Act) to part C of title XVIII of the 
        Social Security Act is deemed a reference to part D of 
        such title (as in effect after such date).
          (2) Secretarial submission of legislative proposal.--
        Not later than 90 days after the date of the enactment 
        of this Act, the Secretary of Health and Human Services 
        shall submit to the appropriate committees of Congress 
        a legislative proposal providing for such technical and 
        conforming amendments in the law as are required by the 
        provisions of this chapter.
  (g) Immediate Effective Date for Certain Requirements for 
Demonstrations.--Section 1857(e)(2) of the Social Security Act 
(requiring contribution to certain costs related to the 
enrollment process comparative materials) applies to 
demonstrations with respect to which enrollment is effected or 
coordinated under section 1851 of such Act.
  (h) Use of Interim, Final Regulations.--In order to carry out 
the amendments made by this chapter in a timely manner, the 
Secretary of Health and Human Services may promulgate 
regulations that take effect on an interim basis, after notice 
and pending opportunity for public comment.
  (i) Transition Rule for PSO Enrollment.--In applying 
subsection (g)(1) of section 1876 of the Social Security Act 
(42 U.S.C. 1395mm) to a risk-sharing contract entered into with 
an eligible organization that is a provider-sponsored 
organization (as defined in section 1855(e)(1) of such Act, as 
inserted by section 4001) for a contract year beginning on or 
after January 1, 1998, there shall be substituted for the 
minimum number of enrollees provided under such section the 
minimum number of enrollees permitted under section 1857(b)(1) 
of such Act (as so inserted).

SEC. 4003. CONFORMING CHANGES IN MEDIGAP PROGRAM.

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

 Subchapter B--Special Rules for MedicarePlus Medical Savings Accounts

SEC. 4006. MEDICAREPLUS MSA.

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

``SEC. 138. MEDICAREPLUS MSA.

  ``(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 part C of title XVIII of the 
Social Security Act.
  ``(b) MedicarePlus MSA.--For purposes of this section, the 
term `MedicarePlus MSA' means a medical savings account (as 
defined in section 220(d))--
          ``(1) which is designated as a MedicarePlus MSA,
          ``(2) with respect to which no contribution may be 
        made other than--
                  ``(A) a contribution made by the Secretary of 
                Health and Human Services pursuant to part C of 
                title XVIII of the Social Security Act, or
                  ``(B) a trustee-to-trustee transfer described 
                in subsection (c)(4),
          ``(3) the governing instrument of which provides that 
        trustee-to-trustee transfers described in subsection 
        (c)(4) may be made to and from such account, and
          ``(4) which is established in connection with an MSA 
        plan described in section 1859(b)(2) of the Social 
        Security Act.
  ``(c) Special Rules for Distributions.--
          ``(1) Distributions for qualified medical expenses.--
        In applying section 220 to a MedicarePlus MSA--
                  ``(A) qualified medical expenses shall not 
                include amounts paid for medical care for any 
                individual other than the account holder, and
                  ``(B) section 220(d)(2)(C) shall not apply.
          ``(2) Penalty for distributions from medicareplus msa 
        not used for qualified medical expenses if minimum 
        balance not maintained.--
                  ``(A) In general.--The tax imposed by this 
                chapter for any taxable year in which there is 
                a payment or distribution from a 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 such MSA as of 
                                the close of the calendar year 
                                preceding the calendar year in 
                                which the taxable year begins, 
                                over
                                  ``(II) an amount equal to 60 
                                percent of the deductible under 
                                the MedicarePlus MSA plan 
                                covering the account holder as 
                                of January 1 of the calendar 
                                year in which the taxable year 
                                begins.
                Section 220(f)(2) shall not apply to any 
                payment or distribution from a MedicarePlus 
                MSA.
                  ``(B) Exceptions.--Subparagraph (A) shall not 
                apply if the payment or distribution is made on 
                or after the date the account holder--
                          ``(i) becomes disabled within the 
                        meaning of section 72(m)(7), or
                          ``(ii) dies.
                  ``(C) Special rules.--For purposes of 
                subparagraph (A)--
                          ``(i) all MedicarePlus MSAs of the 
                        account holder shall be treated as 1 
                        account,
                          ``(ii) all payments and distributions 
                        not used exclusively to pay the 
                        qualified medical expenses of the 
                        account holder during any taxable year 
                        shall be treated as 1 distribution, and
                          ``(iii) any distribution of property 
                        shall be taken into account at its fair 
                        market value on the date of the 
                        distribution.
          ``(3) Withdrawal of erroneous contributions.--Section 
        220(f)(2) and paragraph (2) of this subsection shall 
        not apply to any payment or distribution from a 
        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.--Section 
        220(f)(2) and paragraph (2) of this subsection 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.
  ``(d) Special Rules for Treatment of Account After Death of 
Account Holder.--In applying section 220(f)(8)(A) to an account 
which was a MedicarePlus MSA of a decedent, the rules of 
section 220(f) shall apply in lieu of the rules of subsection 
(c) of this section with respect to the spouse as the account 
holder of such MedicarePlus MSA.
  ``(e) Reports.--In the case of a MedicarePlus MSA, the report 
under section 220(h)--
          ``(1) shall include the fair market value of the 
        assets in such MedicarePlus MSA as of the close of each 
        calendar year, and
          ``(2) shall be furnished to the account holder--
                  ``(A) not later than January 31 of the 
                calendar year following the calendar year to 
                which such reports relate, and
                  ``(B) in such manner as the Secretary 
                prescribes in such regulations.
  ``(f) Coordination With Limitation on Number of Taxpayers 
Having Medical Savings Accounts.--Subsection (i) of section 220 
shall not apply to an individual with respect to a MedicarePlus 
MSA, and MedicarePlus MSA's shall not be taken into account in 
determining whether the numerical limitations under section 
220(j) are exceeded.''
  (b) Technical Amendments.--
          (1) The last sentence of section 4973(d) of such Code 
        is amended by inserting ``or section 138(c)(3)'' after 
        ``section 220(f)(3)''.
          (2) Subsection (b) of section 220 of such Code is 
        amended by adding at the end the following new 
        paragraph:
          ``(7) Medicare eligible individuals.--The limitation 
        under this subsection for any month with respect to an 
        individual shall be zero for the first month such 
        individual is entitled to benefits under title XVIII of 
        the Social Security Act and for each month 
        thereafter.''
          (3) The table of sections for part III of subchapter 
        B of chapter 1 of such Code is amended by striking the 
        last item and inserting the following:

``Sec. 138. MedicarePlus MSA.
``Sec. 139. Cross references to other Acts.''

  (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1998.

  Subchapter C--GME, IME, and DSH Payments for Managed Care Enrollees

SEC. 4008. GRADUATE MEDICAL EDUCATION AND INDIRECT MEDICAL EDUCATION 
                    PAYMENTS FOR MANAGED CARE ENROLLEES.

  (a) Payments to Managed Care Organizations Operating Graduate 
Medical Education Programs.--Section 1853 (as inserted by 
section 4001) is amended by adding at the end the following:
  ``(h) Payments for Direct Costs of Graduate Medical Education 
Programs.--
          ``(1) Additional payment to be made.--Effective 
        January 1, 1998, each contract with a MedicarePlus 
        organization under this section (and each risk-sharing 
        contract with an eligible organization under section 
        1876) shall provide for an additional payment for 
        Medicare's share of allowable direct graduate medical 
        education costs incurred by such an organization for an 
        approved medical residency program.
          ``(2) Allowable costs.--If the organization has an 
        approved medical residency program that incurs all or 
        substantially all of the costs of the program, subject 
        to section 1858(a)(3), the allowable costs for such a 
        program shall equal the national average per resident 
        amount times the number of full-time-equivalent 
        residents in the program in non-hospital settings.
          ``(3) Definitions.--As used in this subsection:
                  ``(A) The terms `approved medical residency 
                program', `direct graduate medical education 
                costs', and `full-time-equivalent residents' 
                have the same meanings as under section 
                1886(h).
                  ``(B) The term `Medicare's share' means, with 
                respect to a MedicarePlus or eligible 
                organization, the ratio of the number of 
                individuals enrolled with the organization 
                under this part (or enrolled under a risk-
                sharing contract under section 1876, 
                respectively) to the total number of 
                individuals enrolled with the organization.
                  ``(C) The term `national average per resident 
                amount' means an amount estimated by the 
                Secretary to equal the weighted average amount 
                that would be paid per full-time-equivalent 
                resident under section 1886(h) for the calendar 
                year (determined separately for primary care 
                residency programs as defined under section 
                1886(h) (including obstetrics and gynecology 
                residency programs) and for other residency 
                programs).''.
  (b) Payments to Hospitals for Direct and Indirect Costs of 
Graduate Medical Education Programs Attributable to Managed 
Care Enrollees.--Part C of title XVIII, as amended by section 
4001, is amended by inserting after section 1857 the following 
new section:

``payments to hospitals for certain costs attributable to managed care 
                               enrollees

  ``Sec. 1858. (a) Costs of Graduate Medical Education.--
          ``(1) In general.--For portions of cost reporting 
        periods occurring on or after January 1, 1998, the 
        Secretary shall provide for an additional payment 
        amount for each subsection (d) hospital (as defined in 
        section1886(d)(1)(B)), each PPS-exempt hospital 
described in clause (i) through (v) of such section, and for each 
hospital reimbursed under a reimbursement system authorized section 
1814(b)(3) that--
                  ``(A) furnishes services to individuals who 
                are enrolled under a risk-sharing contract with 
                an eligible organization under section 1876 and 
                who are entitled to part A and to individuals 
                who are enrolled with a MedicarePlus 
                organization under part C, and
                  ``(B) has an approved medical residency 
                training program.
          ``(2) Payment amount.--
                  ``(A) In general.--Subject to paragraph 
                (3)(B), the amount of the payment under this 
                subsection shall be the sum of--
                          ``(i) the amount determined under 
                        subparagraph (B), and
                          ``(ii) the amount determined under 
                        subparagraph (C).
                Clause (ii) shall not apply in the case of a 
                hospital that is not a PPS-exempt hospital 
                described in clause (i) through (v) of section 
                1886(d)(1)(B),
                  ``(B) Direct amount.--The amount determined 
                under this subparagraph for a period is equal 
                to the product of--
                          ``(i) the aggregate approved amount 
                        (as defined in section 1886(h)(3)(B)) 
                        for that period; and
                          ``(ii) the fraction of the total 
                        number of inpatient-bed-days (as 
                        established by the Secretary) during 
                        the period which are attributable to 
                        individuals described in paragraph (1).
                  ``(C) Indirect amount.--The amount determined 
                under this subparagraph is equal to the product 
                of--
                          ``(i) the amount of the indirect 
                        teaching adjustment factor applicable 
                        to the hospital under section 
                        1886(d)(5)(B); and
                          ``(ii) the product of--
                                  ``(I) the number of 
                                discharges attributable to 
                                individuals described in 
                                paragraph (1), and
                                  ``(II) the estimated average 
                                per discharge amount that would 
                                otherwise have been paid under 
                                section 1886(d)(1)(A) if the 
                                individuals had not been 
                                enrolled as described in such 
                                paragraph.
                  ``(D) Special rule.--The Secretary shall 
                establish rules for the application of 
                subparagraph (B) and for the computation of the 
                amounts described in subparagraph (C)(i)) and 
                subparagraph (C)(ii)(I) to a hospital 
                reimbursed under a reimbursement system 
                authorized under section 1814(b)(3) in a manner 
                similar to the manner of applying such 
                subparagraph and computing such amounts as if 
                the hospital were not reimbursed under such 
                section.
          ``(3) Limitation.--
                  ``(A) Determinations.--At the beginning of 
                each year, the Secretary shall--
                          ``(i) estimate the sum of the amount 
                        of the payments under this subsection 
                        and the payments under section 1853(h), 
                        for services or discharges occurring in 
                        the year, and
                          ``(ii) determine the amount of the 
                        annual payment limit under subparagraph 
                        (C) for such year.
                  ``(B) Imposition of limit.--If the amount 
                estimated under subparagraph (A)(i) for a year 
                exceeds the amount determined under 
                subparagraph (A)(ii) for the year, then the 
                Secretary shall adjust the amounts of the 
                payments described in subparagraph (A)(i) for 
                the year in a pro rata manner so that the total 
                of such payments in the year do not exceed the 
                annual payment limit determined under 
                subparagraph (A)(ii) for that year.
                  ``(C) Annual payment limit.--
                          ``(i) In general.--The annual payment 
                        limit under this subparagraph for a 
                        year is the sum, over all counties or 
                        MedicarePlus payment areas, of the 
                        product of--
                                  ``(I) the annual GME per 
                                capita payment rate (described 
                                in clause (ii)) for the county 
                                or area, and
                                  ``(II) the Secretary's 
                                projection of average 
                                enrollment of individuals 
                                described in paragraph (1) who 
                                are residents of that county or 
                                area, adjusted to reflect the 
                                relative demographic or risk 
                                characteristics of such 
                                enrollees.
                          ``(ii) GME per capita payment rate.--
                        The GME per capita payment rate 
                        described in this clause for a 
                        particular county or MedicarePlus 
                        payment area for a year is the GME 
                        proportion (as specified in clause 
                        (iii)) of the annual MedicarePlus 
                        capitation rate (as calculated under 
                        section 1853(c)) for the county or area 
                        and year involved.
                          ``(iii) GME proportion.--For purposes 
                        of clause (ii), the GME proportion for 
                        a county or area and a year is equal to 
                        the phase-in percentage (specified in 
                        clause (vi)) of the ratio of (I) the 
                        projected GME payment amount for the 
                        county or area (as determined under 
                        clause (v)), to (II) the average per 
                        capita cost for the county or area for 
                        the year (determined under clause 
                        (vi)).
                          ``(iv) Phase-in percentage.--The 
                        phase-in percentage specified in this 
                        clause for--
                                  ``(I) 1998 is 20 percent,
                                  ``(II) 1999 is 40 percent,
                                  ``(III) 2000 is 60 percent,
                                  ``(IV) 2001 is 80 percent, or
                                  ``(V) any subsequent year is 
                                100 percent.
                          ``(v) Projected GME payment amount.--
                        The projected GME payment amount for a 
                        county or area--
                                  ``(I) for 1998, is the amount 
                                included in the per capita rate 
                                of payment for 1997 determined 
                                under section 1876(a)(1)(C) for 
                                the payment adjustments 
                                described in section 
                                1886(d)(5)(B) and section 
                                1886(h) for that county or 
                                area, adjusted by the general 
                                GME update factor (as defined 
                                in clause (vii)) for 1998, or
                                  ``(II) for a subsequent year, 
                                is the projected GME payment 
                                amount for the county or area 
                                for the previous year, adjusted 
                                by the general GME update 
                                factor for such subsequent 
                                year.
The Secretary shall determine the amount described in subclause 
(I) for a county or other area that includes hospitals 
reimbursed under section 1814(b)(3) as though such hospitals 
had not been reimbursed under such section.
                          ``(vi) Average per capita cost.--The 
                        average per capita cost for the county 
                        or area determined under this clause 
                        for--
                                  ``(I) 1998 is the annual per 
                                capita rate of payment for 1997 
                                determined under section 
                                1876(a)(1)(C) for the county or 
                                area, increased by the national 
                                per capita MedicarePlus growth 
                                percentage for 1998 (as defined 
                                in section 1853(c)(6), but 
                                determined without regard to 
                                the adjustment described in 
                                subparagraph (B) of such 
                                section); or
                                  ``(II) a subsequent year is 
                                the average per capita cost 
                                determined under this clause 
                                for the previous year increased 
                                by the national per capita 
                                MedicarePlus growth percentage 
                                for the year involved (as 
                                defined in section 1853(c)(6), 
                                but determined without regard 
                                to the adjustment described in 
                                subparagraph (B) of such 
                                section).
                          ``(vii) General gme update factor.--
                        For purposes of clause (v), the 
                        `general GME update factor' for a year 
                        is equal to the Secretary's estimate of 
                        the national average percentage change 
                        in average per capita payments under 
                        sections 1886(d)(5)(B) and 1886(h) from 
                        the previous year to the year involved. 
                        Such amount takes into account changes 
                        in law and regulation affecting payment 
                        amounts under such sections.''.

SEC. 4009. DISPROPORTIONATE SHARE HOSPITAL PAYMENTS FOR MANAGED CARE 
                    ENROLLEES.

  Section 1858, as inserted by section 4008(b), is further 
amended by adding at the end the following new subsection:
  ``(b) Disproportionate Share Hospital Payments.--
          ``(1) In general.--For portions of cost reporting 
        periods occurring on or after January 1, 1998, the 
        Secretary shall provide for an additional payment 
        amount for each subsection (d) hospital (as defined in 
        section 1886(d)(1)(B)) and for each hospital reimbursed 
        a demonstration project reimbursement system under 
        section 1814(b)(3) that--
                  ``(A) furnishes services to individuals who 
                are enrolled under a risk-sharing contract with 
                an eligible organization under section 1876 and 
                who are entitled to part A and to individuals 
                who are enrolled with a MedicarePlus 
                organization under this part, and
                  ``(B) is (or, if it were not reimbursed under 
                section 1814(b)(3), would qualify as) a 
                disproportionate share hospital described in 
                section 1886(d)(5)(F)(i).
          ``(2) Amount of payment.--Subject to paragraph 
        (3)(B), the amount of the payment under this subsection 
        shall be the product of--
                  ``(A) the amount of the disproportionate 
                share adjustment percentage applicable to the 
                hospital under section 1886(d)(5)(F); and
                  ``(B) the product described in subsection 
                (a)(2)(C)(ii).
        The Secretary shall establish rules for the computation 
        of the amount described in subparagraph (A) for a 
        hospital reimbursed under section 1814(b)(3).
          ``(3) Limit.--
                  ``(A) Determination.--At the beginning of 
                each year, the Secretary shall--
                          ``(i) estimate the sum of the 
                        payments under this subsection for 
                        services or discharges occurring in the 
                        year, and
                          ``(ii) determine the amount of the 
                        annual payment limit under subparagraph 
                        (C)) for such year.
                  ``(B) Imposition of limit.--If the amount 
                estimated under subparagraph (A)(i) for a year 
                exceeds the amount determined under 
                subparagraph (A)(ii) for the year, then the 
                Secretary shall adjust the amounts of the 
                payments under this subsection for the year in 
                a pro rata manner so that the total of such 
                payments in the year do not exceed the annual 
                payment limit determined under subparagraph 
                (A)(ii) for that year.
                  ``(C) Annual payment limit.--The annual 
                payment limit under this subparagraph for a 
                year shall be determined in the same manner as 
                the annual payment limit is determined under 
                clause (i) of subsection (a)(3)(C), except 
                that, for purposes of this clause, any 
                reference in clauses (i) through (vii) of such 
                subsection--
                          ``(i) to a payment adjustment under 
                        subsection (a) is deemed a reference to 
                        a payment adjustment under this 
                        subsection, or
                          ``(ii) to payments or payment 
                        adjustments under section 1886(d)(5)(B) 
                        and 1886(h) isdeemed a reference to 
payments and payment adjustments under section 1886(d)(5)(F).''.

             CHAPTER 2--INTEGRATED LONG-TERM CARE PROGRAMS

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

SEC. 4011. REFERENCE TO COVERAGE OF PACE UNDER THE MEDICARE PROGRAM.

  For provision amending title XVIII of the Social Security Act 
to provide for payments to, and coverage of benefits under, 
Programs of All-inclusive Care for the Elderly (PACE), see 
section 3431.

SEC. 4012. REFERENCE TO ESTABLISHMENT OF PACE PROGRAM AS MEDICAID STATE 
                    OPTION.

  For provision amending title XIX of the Social Security Act 
to establish the PACE program as a medicaid State option, see 
section 3432.

         Subchapter B--Social Health Maintenance Organizations

SEC. 4015. SOCIAL HEALTH MAINTENANCE ORGANIZATIONS (SHMOS).

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

                      Subchapter C--Other Programs

SEC. 4018. ORDERLY TRANSITION OF MUNICIPAL HEALTH SERVICE DEMONSTRATION 
                    PROJECTS.

  Section 9215 of the Consolidated Omnibus Budget 
Reconciliation Act of 1985, as amended by section 6135 of OBRA-
1989 and section 13557 of OBRA-1993, is further amended--
          (1) by inserting ``(a)'' before ``The Secretary'', 
        and
          (2) by adding at the end the following: ``Subject to 
        subsection (c), the Secretary may further extend such 
        demonstration projects through December 31, 2000, but 
        only with respect to individuals who are enrolled with 
        such projects before January 1, 1998.
  ``(b) The Secretary shall work with each such demonstration 
project to develop a plan, to be submitted to the Committee on 
Ways and Means of the House of Representatives and the 
Committee on Finance of the Senate by March 31, 1998, for the 
orderly transition of demonstration projects and the project 
enrollees to a non-demonstration project health care delivery 
system, such as through integration with a private or public 
health plan, including a medicaid managed care or MedicarePlus 
plan.
  ``(c) A demonstration project under subsection (a) which does 
not develop and submit a transition plan under subsection (b) 
by March 31, 1998, or, if later, 6 months after the date of the 
enactment of this Act, shall be discontinued as of December 31, 
1998. The Secretary shall provide appropriate technical 
assistance to assist in the transition so that disruption of 
medical services to project enrollees may be minimized.''.

SEC. 4019. EXTENSION OF CERTAIN MEDICARE COMMUNITY NURSING ORGANIZATION 
                    DEMONSTRATION PROJECTS.

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

            CHAPTER 3--MEDICARE PAYMENT ADVISORY COMMISSION

SEC. 4021. MEDICARE PAYMENT ADVISORY COMMISSION.

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

                 ``medicare payment advisory commission

  ``Sec. 1805. (a) Establishment.--There is hereby established 
the Medicare Payment Advisory Commission (in this section 
referred to as the `Commission').
  ``(b) Duties.--
          ``(1) Review of payment policies and annual 
        reports.--The Commission shall--
                  ``(A) review payment policies under this 
                title, including the topics described in 
                paragraph (2);
                  ``(B) make recommendations to Congress 
                concerning such payment policies; and
                  ``(C) by not later than March 1 of each year 
                (beginning with 1998), submit a report to 
                Congress containing the results of such reviews 
                and its recommendationsconcerning such policies 
and an examination of issues affecting the medicare program.
          ``(2) Specific topics to be reviewed.--
                  ``(A) Medicareplus program.--Specifically, 
                the Commission shall review, with respect to 
                the MedicarePlus program under part C, the 
                following:
                          ``(i) The methodology for making 
                        payment to plans under such program, 
                        including the making of differential 
                        payments and the distribution of 
                        differential updates among different 
                        payment areas.
                          ``(ii) The mechanisms used to adjust 
                        payments for risk and the need to 
                        adjust such mechanisms to take into 
                        account health status of beneficiaries.
                          ``(iii) The implications of risk 
                        selection both among MedicarePlus 
                        organizations and between the 
                        MedicarePlus option and the medicare 
                        fee-for-service option.
                          ``(iv) The development and 
                        implementation of mechanisms to assure 
                        the quality of care for those enrolled 
                        with MedicarePlus organizations.
                          ``(v) The impact of the MedicarePlus 
                        program on access to care for medicare 
                        beneficiaries.
                          ``(vi) The appropriate role for the 
                        medicare program in addressing the 
                        needs of individuals with chronic 
                        illnesses.
                          ``(vii) Other major issues in 
                        implementation and further development 
                        of the MedicarePlus program.
                  ``(B) Fee-for-service system.--Specifically, 
                the Commission shall review payment policies 
                under parts A and B, including--
                          ``(i) the factors affecting 
                        expenditures for services in different 
                        sectors, including the process for 
                        updating hospital, skilled nursing 
                        facility, physician, and other fees,
                          ``(ii) payment methodologies, and
                          ``(iii) their relationship to access 
                        and quality of care for medicare 
                        beneficiaries.
                  ``(C) Interaction of medicare payment 
                policies with health care delivery generally.--
                Specifically, the Commission shall review the 
                effect of payment policies under this title on 
                the delivery of health care services other than 
                under this title and assess the implications of 
                changes in health care delivery in the United 
                States and in the general market for health 
                care services on the medicare program.
          ``(3) Comments on certain secretarial reports.--If 
        the Secretary submits to Congress (or a committee of 
        Congress) a report that is required by law and that 
        relates to payment policies under this title, the 
        Secretary shall transmit a copy of the report to the 
        Commission. The Commission shall review the report and, 
        not later than 6 months after the date of submittal of 
        the Secretary's report to Congress, shall submit to the 
        appropriate committees of Congress written comments on 
        such report. Such comments may include such 
        recommendations as the Commission deems appropriate.
          ``(4) Agenda and additional reviews.--The Commission 
        shall consult periodically with the chairmen and 
        ranking minority members of the appropriate committees 
        of Congress regarding the Commission's agenda and 
        progress towards achieving the agenda. The Commission 
        may conduct additional reviews, and submit additional 
        reports to the appropriate committees of Congress, from 
        time to time on such topics relating to the program 
        under this title as may be requested by such chairmen 
        and members and as the Commission deems appropriate.
          ``(5) Availability of reports.--The Commission shall 
        transmit to the Secretary a copy of each report 
        submitted under this subsection and shall make such 
        reports available to the public.
          ``(6) Appropriate committees.--For purposes of this 
        section, the term `appropriate committees of Congress' 
        means the Committees on Ways and Means and Commerce of 
        the House of Representatives and the Committee on 
        Finance of the Senate.
  ``(c) Membership.--
          ``(1) Number and appointment.--The Commission shall 
        be composed of 11 members appointed by the Comptroller 
        General.
          ``(2) Qualifications.--
                  ``(A) In general.--The membership of the 
                Commission shall include individuals with 
                national recognition for their expertise in 
                health finance and economics, actuarial 
                science, health facility management, health 
                plans and integrated delivery systems, 
                reimbursement of health facilities, allopathic 
                and osteopathic physicians, and other providers 
                of health services, and other related fields, 
                who provide a mix of different professionals, 
                broad geographic representation, and a balance 
                between urban and rural representatives.
                  ``(B) Inclusion.--The membership of the 
                Commission shall include (but not be limited 
                to) physicians and other health professionals, 
                employers, third party payers, individuals 
                skilled in the conduct and interpretation of 
                biomedical, health services, and health 
                economics research and expertise in outcomes 
                and effectiveness research and technology 
                assessment. Such membership shall also include 
                representatives of consumers and the elderly.
                  ``(C) Majority nonproviders.--Individuals who 
                are directly involved in the provision, or 
                management of the delivery, of items and 
                services covered under this title shall not 
                constitute a majority of the membership of the 
                Commission.
                  ``(D) Ethical disclosure.--The Comptroller 
                General shall establish a system for public 
                disclosure bymembers of the Commission of 
financial and other potential conflicts of interest relating to such 
members.
          ``(3) Terms.--
                  ``(A) In general.--The terms of members of 
                the Commission shall be for 3 years except that 
                the Comptroller General shall designate 
                staggered terms for the members first 
                appointed.
                  ``(B) Vacancies.--Any member appointed to 
                fill a vacancy occurring before the expiration 
                of the term for which the member's predecessor 
                was appointed shall be appointed only for the 
                remainder of that term. A member may serve 
                after the expiration of that member's term 
                until a successor has taken office. A vacancy 
                in the Commission shall be filled in the manner 
                in which the original appointment was made.
          ``(4) Compensation.--While serving on the business of 
        the Commission (including traveltime), a member of the 
        Commission shall be entitled to compensation at the per 
        diem equivalent of the rate provided for level IV of 
        the Executive Schedule under section 5315 of title 5, 
        United States Code; and while so serving away from home 
        and 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.
          ``(5) Chairman; vice chairman.--The Comptroller 
        General shall designate a member of the Commission, at 
        the time of appointment of the member, as Chairman and 
        a member as Vice Chairman for that term of appointment.
          ``(6) Meetings.--The Commission shall meet at the 
        call of the Chairman.
  ``(d) Director and Staff; Experts and Consultants.--Subject 
to such review as the Comptroller General deems necessary to 
assure the efficient administration of the Commission, the 
Commission may--
          ``(1) employ and fix the compensation of an Executive 
        Director (subject to the approval of the Comptroller 
        General) and such other personnel as may be necessary 
        to carry out its duties (without regard to the 
        provisions of title 5, United States Code, governing 
        appointments in the competitive service);
          ``(2) seek such assistance and support as may be 
        required in the performance of its duties from 
        appropriate Federal departments and agencies;
          ``(3) enter into contracts or make other 
        arrangements, as may be necessary for the conduct of 
        the work of the Commission (without regard to section 
        3709 of the Revised Statutes (41 U.S.C. 5));
          ``(4) make advance, progress, and other payments 
        which relate to the work of the Commission;
          ``(5) provide transportation and subsistence for 
        persons serving without compensation; and
          ``(6) prescribe such rules and regulations as it 
        deems necessary with respect to the internal 
        organization and operation of the Commission.
  ``(e) Powers.--
          ``(1) Obtaining official data.--The Commission may 
        secure directly from any department or agency of the 
        United States information necessary to enable it to 
        carry out this section. Upon request of the Chairman, 
        the head of that department or agency shall furnish 
        that information to the Commission on an agreed upon 
        schedule.
          ``(2) Data collection.--In order to carry out its 
        functions, the Commission shall--
                  ``(A) utilize existing information, both 
                published and unpublished, where possible, 
                collected and assessed either by its own staff 
                or under other arrangements made in accordance 
                with this section,
                  ``(B) carry out, or award grants or contracts 
                for, original research and experimentation, 
                where existing information is inadequate, and
                  ``(C) adopt procedures allowing any 
                interested party to submit information for the 
                Commission's use in making reports and 
                recommendations.
          ``(3) Access of gao to information.--The Comptroller 
        General shall have unrestricted access to all 
        deliberations, records, and nonproprietary data of the 
        Commission, immediately upon request.
          ``(4) Periodic audit.--The Commission shall be 
        subject to periodic audit by the Comptroller General.
  ``(f) Authorization of Appropriations.--
          ``(1) Request for appropriations.--The Commission 
        shall submit requests for appropriations in the same 
        manner as the Comptroller General submits requests for 
        appropriations, but amounts appropriated for the 
        Commission shall be separate from amounts appropriated 
        for the Comptroller General.
          ``(2) Authorization.--There are authorized to be 
        appropriated such sums as may be necessary to carry out 
        the provisions of this section; 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 Advisory Commission''.
          (2) PPRC.--
                  (A) In general.--Title XVIII is amended by 
                striking section 1845 (42 U.S.C. 1395w-1).
                  (B) Elimination of certain reports.--Section 
                1848 (42 U.S.C. 1395w-4) is amended by striking 
                subparagraph (B) of subsection (f)(1).
                  (C) Conforming amendments.--Section 1848 (42 
                U.S.C. 1395w-4) is amended by striking 
                ``Physician Payment Review Commission'' and 
                inserting ``Medicare Payment Advisory 
                Commission'' each place it appears in 
                subsections (c)(2)(B)(iii), (g)(6)(C), and 
                (g)(7)(C).
  (c) Effective Date; Transition.--
          (1) In general.--The Comptroller General shall first 
        provide for appointment of members to the Medicare 
        Payment Advisory Commission (in this subsection 
        referred to as ``MedPAC'') by not later than September 
        30, 1997.
          (2) Transition.--As quickly as possible after the 
        date a majority of members of MedPAC are first 
        appointed, the Comptroller General, in consultation 
        with the Prospective Payment Assessment Commission (in 
        this subsection referred to as ``ProPAC'') and the 
        Physician Payment Review Commission (in this subsection 
        referred to as ``PPRC''), shall provide for the 
        termination of the ProPAC and the PPRC. As of the date 
        of termination of the respective Commissions, the 
        amendments made by paragraphs (1) and (2), 
        respectively, of subsection (b) become effective. The 
        Comptroller General, to the extent feasible, shall 
        provide for the transfer to the MedPAC of assets and 
        staff of the ProPAC and the PPRC, without any loss of 
        benefits or seniority by virtue of such transfers. Fund 
        balances available to the ProPAC or the PPRC for any 
        period shall be available to the MedPAC for such period 
        for like purposes.
          (3) Continuing responsibility for reports.--The 
        MedPAC shall be responsible for the preparation and 
        submission of reports required by law to be submitted 
        (and which have not been submitted by the date of 
        establishment of the MedPAC) by the ProPAC and the 
        PPRC, and, for this purpose, any reference in law to 
        either such Commission is deemed, after the appointment 
        of the MedPAC, to refer to the MedPAC.

                     CHAPTER 4--MEDIGAP PROTECTIONS

SEC. 4031. MEDIGAP PROTECTIONS.

  (a) Guaranteeing Issue Without Preexisting Conditions for 
Continuously Covered Individuals.--Section 1882(s) (42 U.S.C. 
1395ss(s)) is amended--
          (1) in paragraph (3), by striking ``paragraphs (1) 
        and (2)'' and inserting ``this subsection'',
          (2) by redesignating paragraph (3) as paragraph (4), 
        and
          (3) by inserting after paragraph (2) the following 
        new paragraph:
  ``(3)(A) The issuer of a medicare supplemental policy--
          ``(i) may not deny or condition the issuance or 
        effectiveness of a medicare supplemental policy 
        described in subparagraph (C) that is offered and is 
        available for issuance to new enrollees by such issuer;
          ``(ii) may not discriminate in the pricing of such 
        policy, because of health status, claims experience, 
        receipt of health care, or medical condition; and
          ``(iii) may not impose an exclusion of benefits based 
        on a pre-existing condition under such policy,
in the case of an individual described in subparagraph (B) who 
seeks to enroll under the policy not later than 63 days after 
the date of the termination of enrollment described in such 
subparagraph and who submits evidence of the date of 
termination or disenrollment along with the application for 
such medicare supplemental policy.
  ``(B) An individual described in this subparagraph is an 
individual described in any of the following clauses:
          ``(i) The individual is enrolled under an employee 
        welfare benefit plan that provides health benefits that 
        supplement the benefits under this title and the plan 
        terminates or ceases to provide all such supplemental 
        health benefits to the individual.
          ``(ii) The individual is enrolled with a MedicarePlus 
        organization under a MedicarePlus plan under part C, 
        and there are circumstances permitting discontinuance 
        of the individual's election of the plan under section 
        1851(e)(4).
          ``(iii) The individual is enrolled with an eligible 
        organization under a contract under section 1876, a 
        similar organization operating under demonstration 
        project authority, with an organization under an 
        agreement under section 1833(a)(1)(A), or with an 
        organization under a policy described in subsection 
        (t), and such enrollment ceases under the same 
        circumstances that would permit discontinuance of an 
        individual's election of coverage under section 
        1851(e)(4) and, in the case of a policy described in 
        subsection (t), there is no provision under applicable 
        State law for the continuation of coverage under such 
        policy.
          ``(iv) The individual is enrolled under a medicare 
        supplemental policy under this section and such 
        enrollment ceases because--
                  ``(I) of the bankruptcy or insolvency of the 
                issuer or because of other involuntary 
                termination of coverage or enrollment under 
                such policy and there is no provision under 
                applicable State law for the continuation of 
                such coverage;
                  ``(II) the issuer of the policy substantially 
                violated a material provision of the policy; or
                  ``(III) the issuer (or an agent or other 
                entity acting on the issuer's behalf) 
                materially misrepresented the policy's 
                provisions in marketing the policy to the 
                individual.
          ``(v) The individual--
                  ``(I) was enrolled under a medicare 
                supplemental policy under this section,
                  ``(II) subsequently terminates such 
                enrollment and enrolls, for the first time, 
                with any MedicarePlus organization under a 
                MedicarePlus plan under part C, any eligible 
                organization under a contract under section 
                1876, any similar organization operating under 
                demonstration project authority, any 
                organization under an agreement under section 
                1833(a)(1)(A), or any policy described in 
                subsection (t), and
                  ``(III) the subsequent enrollment under 
                subclause (II) is terminated by the enrollee 
                during the first 6 months (or 3 months for 
                terminations occurring on or after January 1, 
                2003) of such enrollment.
          ``(vi) The individual--
                  ``(I) was enrolled under a medicare 
                supplemental policy under this section,
                  ``(II) subsequently terminates such 
                enrollment and enrolls, for the first time, 
                during or after the annual, coordinated 
                election period under section 1851(e)(3)(B) 
                occurring during 2002, with an organization or 
                policy described in clause (v)(II), and
                  ``(III) the subsequent enrollment under 
                subclause (II) is terminated by the enrollee 
                during the next annual, coordinated election 
                period under such section.
  ``(C)(i) Subject to clauses (ii) and (iii), a medicare 
supplemental policy described in this subparagraph has a 
benefit package classified as `A', `B', `C', or `F' under the 
standards established under subsection (p)(2).
  ``(ii) Only for purposes of an individual described in 
subparagraph (B)(v), a medicare supplemental policy described 
in this subparagraph also includes (if available from the same 
issuer) the same medicare supplemental policy referred to in 
such subparagraph in which the individual was most recently 
previously enrolled.
  ``(iii) For purposes of applying this paragraph in the case 
of a State that provides for offering of benefit packages other 
than under the classification referred to in clause (i), the 
references to benefit packages in such clause are deemed 
references to comparable benefit packages offered in such 
State.
  ``(D) At the time of an event described in subparagraph (B) 
because of which an individual ceases enrollment or loses 
coverage or benefits under a contract or agreement, policy, or 
plan, the organization that offers the contract or agreement, 
the insurer offering the policy, or the administrator of the 
plan, respectively, shall notify the individual of the rights 
of the individual, and obligations of issuers of medicare 
supplemental policies, under subparagraph (A).''.
  (b) Limitation on Imposition of Preexisting Condition 
Exclusion During Initial Open Enrollment Period.--Section 
1882(s)(2) (42 U.S.C. 1395ss(s)(2)) is amended--
          (1) in subparagraph (B), by striking ``subparagraph 
        (C)'' and inserting ``subparagraphs (C) and (D)'', and
          (2) by adding at the end the following new 
        subparagraph:
  ``(D) In the case of a policy issued during the 6-month 
period described in subparagraph (A) to an individual who is 65 
years of age or older as of the date of issuance and who as of 
the date of the application for enrollment has a continuous 
period of creditable coverage (as defined in 2701(c) of the 
Public Health Service Act) of--
          ``(i) at least 6 months, the policy may not exclude 
        benefits based on a pre-existing condition; or
          ``(ii) of less than 6 months, if the policy excludes 
        benefits based on a preexisting condition, the policy 
        shall reduce the period of any preexisting condition 
        exclusion by the aggregate of the periods of creditable 
        coverage (if any, as so defined) applicable to the 
        individual as of the enrollment date.
The Secretary shall specify the manner of the reduction under 
clause (ii), based upon the rules used by the Secretary in 
carrying out section 2701(a)(3) of such Act.''.
  (c) Effective Dates.--
          (1) Guaranteed issue.--The amendment made by 
        subsection (a) shall take effect on July 1, 1998.
          (2) Limit on preexisting condition exclusions.--The 
        amendment made by subsection (b) shall apply to 
        policies issued on or after July 1, 1998.
  (d) Transition Provisions.--
          (1) In general.--If the Secretary of Health and Human 
        Services identifies a State as requiring a change to 
        its statutes or regulations to conform its regulatory 
        program to the changes made by this section, the State 
        regulatory program shall not be considered to be out of 
        compliance with the requirements of section 1882 of the 
        Social Security Act due solely to failure to make such 
        change until the date specified in paragraph (4).
          (2) NAIC standards.--If, within 9 months after the 
        date of the enactment of this Act, the National 
        Association of Insurance Commissioners (in this 
        subsection referred to as the ``NAIC'') modifies its 
        NAIC Model Regulation relating to section 1882 of the 
        Social Security Act (referred to in such section as the 
        1991 NAIC Model Regulation, as modified pursuant to 
        section 171(m)(2) of the Social Security Act Amendments 
        of 1994 (Public Law 103-432) and as modified pursuant 
        to section 1882(d)(3)(A)(vi)(IV) of the Social Security 
        Act, as added by section 271(a) of the Health Insurance 
        Portability and Accountability Act of 1996 (Public Law 
        104-191) to conform to the amendments made by this 
        section, such revised regulation incorporating the 
        modifications shall be considered to be the applicable 
        NAIC model regulation (including the revised NAIC model 
        regulation and the 1991 NAIC Model Regulation) for the 
        purposes of such section.
          (3) Secretary standards.--If the NAIC does not make 
        the modifications described in paragraph (2) within the 
        period specified in such paragraph, the Secretary of 
        Health and Human Services shall make the modifications 
        described in such paragraph and such revised regulation 
        incorporating the modifications shall be considered to 
        be the appropriate Regulation for the purposes of such 
        section.
          (4) Date specified.--
                  (A) In general.--Subject to subparagraph (B), 
                the date specified in this paragraph for a 
                State is the earlier of--
                          (i) the date the State changes its 
                        statutes or regulations to conform its 
                        regulatory program to the changes made 
                        by this section, or
                          (ii) 1 year after the date the NAIC 
                        or the Secretary first makes the 
                        modifications under paragraph (2) or 
                        (3), respectively.
                  (B) Additional legislative action required.--
                In the case of a State which the Secretary 
                identifies as--
                          (i) requiring State legislation 
                        (other than legislation appropriating 
                        funds) to conform its regulatory 
                        program to the changes made in this 
                        section, but
                          (ii) having a legislature which is 
                        not scheduled to meet in 1999 in a 
                        legislative session in which such 
                        legislation may be considered,
                the date specified in this paragraph is the 
                first day of the first calendar quarter 
                beginning after the close ofthe first 
legislative session of the State legislature that begins on or after 
July 1, 1999. For purposes of the previous sentence, in the case of a 
State that has a 2-year legislative session, each year of such session 
shall be deemed to be a separate regular session of the State 
legislature.

SEC. 4032. MEDICARE PREPAID COMPETITIVE PRICING DEMONSTRATION PROJECT.

  (a) Establishment of Project.--The Secretary of Health and 
Human Services shall provide, beginning not later than 1 year 
after the date of the enactment of this Act, for implementation 
of a project (in this section referred to as the ``project'') 
to demonstrate the application of, and the consequences of 
applying, a market-oriented pricing system for the provision of 
a full range of medicare benefits in a geographic area.
  (b) Research Design Advisory Committee.--
          (1) In general.--Before implementing the project 
        under this section, the Secretary shall appoint a 
        national advisory committee, including independent 
        actuaries and individuals with expertise in competitive 
        health plan pricing, to make recommendations to the 
        Secretary concerning the appropriate research design 
        for implementing the project.
          (2) Initial recommendations.--The committee initially 
        shall submit recommendations respecting the method for 
        area selection, benefit design among plans offered, 
        structuring choice among health plans offered, methods 
        for setting the price to be paid to plans, collection 
        of plan information (including information concerning 
        quality and access to care), information dissemination, 
        and methods of evaluating the results of the project.
          (3) Advice during implementation.--Upon 
        implementation of the project, the committee shall 
        continue to advise the Secretary on the application of 
        the design in different areas and changes in the 
        project based on experience with its operations.
  (c) Area Selection.--
          (1) In general.--Taking into account the 
        recommendations of the advisory committee submitted 
        under subsection (b), the Secretary shall designate 
        areas in which the project will operate.
          (2) Appointment of area advisory committee.--Upon the 
        designation of an area for inclusion in the project, 
        the Secretary shall appoint an area advisory committee, 
        composed of representatives of health plans, providers, 
        and medicare beneficiaries in the area, to advise the 
        Secretary concerning how the project will actually be 
        implemented in the area. Such advice may include advice 
        concerning the marketing and pricing of plans in the 
        area and other salient factors relating.
  (d) Monitoring and Report.--
          (1) Monitoring impact.--Taking into consideration the 
        recommendations of the general advisory committee 
        (appointed under subsection (b)), the Secretary shall 
        closely monitor the impact of projects in areas on the 
        price and quality of, and access to, medicare covered 
        services, choice of health plan, changes in enrollment, 
        and other relevant factors.
          (2) Report.--The Secretary shall periodically report 
        to Congress on the progress under the project under 
        this section.
  (e) Waiver Authority.--The Secretary of Health and Human 
Services may waive such requirements of section 1876 (and such 
requirements of part C of title XVIII, as amended by chapter 
1), of the Social Security Act as may be necessary for the 
purposes of carrying out the project.
  (f) Relationship to Other Authority.--Except pursuant to this 
section the Secretary of Health and Human Services may not 
conduct or continue any medicare demonstration project relating 
to payment of health maintenance organizations, MedicarePlus 
organizations, or similar prepaid managed care entities on the 
basis of a competitive bidding process or pricing system 
described in subsection (a) rather than on the bases described 
in section 1853 or 1876 of the Social Security Act.

                   Subtitle B--Prevention Initiatives

SEC. 4101. SCREENING MAMMOGRAPHY.

  (a) Providing Annual Screening Mammography for Women Over Age 
39.--Section 1834(c)(2)(A) (42 U.S.C. 1395m(c)(2)(A)) is 
amended--
          (1) in clause (iii), to read as follows:
                          ``(iii) In the case of a woman over 
                        39 years of age, payment may not be 
                        made under this part for screening 
                        mammography performed within 11 months 
                        following the month in which a previous 
                        screening mammography was performed.''; 
                        and
          (2) by striking clauses (iv) and (v).
  (b) Waiver of Deductible.--The first sentence of section 
1833(b) (42 U.S.C. 1395l(b)) is amended--
          (1) by striking ``and'' before ``(4)'', and
          (2) by inserting before the period at the end the 
        following: ``, and (5) such deductible shall not apply 
        with respect to screening mammography (as described in 
        section 1861(jj))''.
  (c) Conforming Amendment.--Section 1834(c)(1)(C) of such Act 
(42 U.S.C. 1395m(c)(1)(C)) is amended by striking ``, subject 
to the deductible established under section 1833(b),''.
  (d) Effective Date.--The amendments made by this section 
shall apply to items and services furnished on or after January 
1, 1998.

SEC. 4102. SCREENING PAP SMEAR AND PELVIC EXAMS.

  (a) Coverage of Pelvic Exam; Increasing Frequency of Coverage 
of Pap Smear.--Section 1861(nn) (42 U.S.C. 1395x(nn)) is 
amended--
          (1) in the heading, by striking ``Smear'' and 
        inserting ``Smear; Screening Pelvic Exam'';
          (2) by inserting ``or vaginal'' after ``cervical'' 
        each place it appears;
          (3) by striking ``(nn)'' and inserting ``(nn)(1)'';
          (4) by striking ``3 years'' and all that follows and 
        inserting ``3 years, or during the preceding year in 
        the case of a woman described in paragraph (3).''; and
          (5) by adding at the end the following new 
        paragraphs:
  ``(2) The term `screening pelvic exam' means a pelvic 
examination provided to a woman if the woman involved has not 
had such an examination during the preceding 3 years, or during 
the preceding year in the case of a woman described in 
paragraph (3), and includes a clinical breast examination.
  ``(3) A woman described in this paragraph is a woman who--
          ``(A) is of childbearing age and has not had a test 
        described in this subsection during each of the 
        preceding 3 years that did not indicate the presence of 
        cervical or vaginal cancer; or
          ``(B) is at high risk of developing cervical or 
        vaginal cancer (as determined pursuant to factors 
        identified by the Secretary).''.
  (b) Waiver of Deductible.--The first sentence of section 
1833(b) (42 U.S.C. 1395l(b)), as amended by section 4101(b), is 
amended--
          (1) by striking ``and'' before ``(5)'', and
          (2) by inserting before the period at the end the 
        following: ``, and (6) such deductible shall not apply 
        with respect to screening pap smear and screening 
        pelvic exam (as described in section 1861(nn))''.
  (c) Conforming Amendments.--Sections 1861(s)(14) and 
1862(a)(1)(F) (42 U.S.C. 1395x(s)(14), 1395y(a)(1)(F)) are each 
amended by inserting ``and screening pelvic exam'' after 
``screening pap smear''.
  (d) Payment Under Physician Fee Schedule.--Section 
1848(j)(3)(42 U.S.C. 1395w-4(j)(3)) is amended by striking 
``and (4)'' and inserting ``, (4) and (14) (with respect to 
services described in section 1861(nn)(2))''.
  (e) Effective Date.--The amendments made by this section 
shall apply to items and services furnished on or after January 
1, 1998.
  (f) Report on Rescreening Pap Smears.--Not later than 6 
months after the date of the enactment of this Act, the 
Secretary of Health and Human Services shall submit to Congress 
a report on the extent to which the use of supplemental 
computer-assisted diagnostic tests consisting of interactive 
automated computer-imaging of an exfoliative cytology test, in 
conjunction with the pap smears, improves the early detection 
of cervical or vaginal cancer and the costs implications for 
coverage of such supplemental tests under the medicare program.

SEC. 4103. PROSTATE CANCER SCREENING TESTS.

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

                   ``Prostate Cancer Screening Tests

  ``(oo)(1) The term `prostate cancer screening test' means a 
test that consists of any (or all) of the procedures described 
in paragraph (2) provided for the purpose of early detection of 
prostate cancer to a man over 50 years of age who has not had 
such a test during the preceding year.
  ``(2) The procedures described in this paragraph are as 
follows:
          ``(A) A digital rectal examination.
          ``(B) A prostate-specific antigen blood test.
          ``(C) For years beginning after 2001, such other 
        procedures as the Secretary finds appropriate for the 
        purpose of early detection of prostate cancer, taking 
        into account changes in technology and standards of 
        medical practice, availability, effectiveness, costs, 
        and such other factors as the Secretary considers 
        appropriate.''.
  (b) Payment for Prostate-specific Antigen Blood Test Under 
Clinical Diagnostic Laboratory Test Fee Schedules.--Section 
1833(h)(1)(A) (42 U.S.C. 1395l(h)(1)(A)) is amended by 
inserting after ``laboratory tests'' the following: 
``(including prostate cancer screening tests under section 
1861(oo) consisting of prostate-specific antigen blood 
tests)''.
  (c) Conforming Amendment.--Section 1862(a) (42 U.S.C. 
1395y(a)) is amended--
          (1) in paragraph (1)--
                  (A) in subparagraph (E), by striking ``and'' 
                at the end,
                  (B) in subparagraph (F), by striking the 
                semicolon at the end and inserting ``, and'', 
                and
                  (C) by adding at the end the following new 
                subparagraph:
          ``(G) in the case of prostate cancer screening tests 
        (as defined in section 1861(oo)), which are performed 
        more frequently than is covered under such section;''; 
        and
          (2) in paragraph (7), by striking ``paragraph (1)(B) 
        or under paragraph (1)(F)'' and inserting 
        ``subparagraphs (B), (F), or (G) of paragraph (1)''.
  (d) Payment Under Physician Fee Schedule.--Section 
1848(j)(3)(42 U.S.C. 1395w-4(j)(3)), as amended by section 
4102, is amended by inserting ``(2)(P) (with respect to 
services described in subparagraphs (A) and (C) of section 
1861(oo),'' after ``(2)(G)''
  (e) Effective Date.--The amendments made by this section 
shall apply to items and services furnished on or after January 
1, 1998.

SEC. 4104. COVERAGE OF COLORECTAL SCREENING.

  (a) Coverage.--
          (1) In general.--Section 1861 (42 U.S.C. 1395x), as 
        amended by section 4103(a), is amended--
                  (A) in subsection (s)(2)--
                          (i) by striking ``and'' at the end of 
                        subparagraph (P);
                          (ii) by adding ``and'' at the end of 
                        subparagraph (Q); and
                          (iii) by adding at the end the 
                        following new subparagraph:
          ``(R) colorectal cancer screening tests (as defined 
        in subsection (pp)); and''; and
                  (B) by adding at the end the following new 
                subsection:

                  ``Colorectal Cancer Screening Tests

  ``(pp)(1) The term `colorectal cancer screening test' means 
any of the following procedures furnished to an individual for 
the purpose of early detection of colorectal cancer:
          ``(A) Screening fecal-occult blood test.
          ``(B) Screening flexible sigmoidoscopy.
          ``(C) In the case of an individual at high risk for 
        colorectal cancer, screening colonoscopy.
          ``(D) Screening barium enema, if found by the 
        Secretary to be an appropriate alternative to screening 
        flexible sigmoidoscopy under subparagraph (B) or 
        screening colonoscopy under subparagraph (C).
          ``(E) For years beginning after 2002, such other 
        procedures as the Secretary finds appropriate for the 
        purpose of early detection of colorectal cancer, taking 
        into account changes in technology and standards of 
        medical practice, availability, effectiveness, costs, 
        and such other factors as the Secretary considers 
        appropriate.
  ``(2) In paragraph (1)(C), an `individual at high risk for 
colorectal cancer' is an individual who, because of family 
history, prior experience of cancer or precursor neoplastic 
polyps, a history of chronic digestive disease condition 
(including inflammatory bowel disease, Crohn's Disease, or 
ulcerative colitis), the presence of any appropriate recognized 
gene markers for colorectal cancer, or other predisposing 
factors, faces a high risk for colorectal cancer.''.
          (2) Deadline for decision on coverage of screening 
        barium enema.--Not later than 2 years after the date of 
        the enactment of this section, the Secretary of Health 
        and Human Services shall issue and publish a 
        determination on the treatment of screening barium 
        enema as a colorectal cancer screening test under 
        section 1861(pp) (as added by subparagraph (B)) as an 
        alternative procedure to a screening flexible 
        sigmoidoscopy or screening colonoscopy.
  (b) Frequency and Payment Limits.--
          (1) In general.--Section 1834 (42 U.S.C. 1395m) is 
        amended by inserting after subsection (c) the following 
        new subsection:
  ``(d) Frequency and Payment Limits for Colorectal Cancer 
Screening Tests.--
          ``(1) Screening fecal-occult blood tests.--
                  ``(A) Payment limit.--In establishing fee 
                schedules under section 1833(h) with respect to 
                colorectal cancer screening tests consisting of 
                screening fecal-occult blood tests, except as 
                provided by the Secretary under paragraph 
                (4)(A), the payment amount established for 
                tests performed--
                          ``(i) in 1998 shall not exceed $5; 
                        and
                          ``(ii) in a subsequent year, shall 
                        not exceed the limit on the payment 
                        amount established under this 
                        subsection for such tests for the 
                        preceding year, adjusted by the 
                        applicable adjustment under section 
                        1833(h) for tests performed in such 
                        year.
                  ``(B) Frequency limit.--Subject to revision 
                by the Secretary under paragraph (4)(B), no 
                payment may be made under this part for 
                colorectal cancer screening test consisting of 
                a screening fecal-occult blood test--
                          ``(i) if the individual is under 50 
                        years of age; or
                          ``(ii) if the test is performed 
                        within the 11 months after a previous 
                        screening fecal-occult blood test.
          ``(2) Screening flexible sigmoidoscopies.--
                  ``(A) Fee schedule.--The Secretary shall 
                establish a payment amount under section 1848 
                with respect to colorectal cancer screening 
                tests consisting of screening flexible 
                sigmoidoscopies that is consistent with payment 
                amounts under such section for similar or 
                related services, except that such payment 
                amount shall be established without regard to 
                subsection (a)(2)(A) of such section.
                  ``(B) Payment limit.--In the case of 
                screening flexible sigmoidoscopy services--
                          ``(i) the payment amount may not 
                        exceed such amount as the Secretary 
                        specifies, based upon the rates 
                        recognized under this part for 
                        diagnostic flexible sigmoidoscopy 
                        services; and
                          ``(ii) that, in accordance with 
                        regulations, may be performed in an 
                        ambulatory surgical center and for 
                        which the Secretary permits ambulatory 
                        surgical center payments under this 
                        part and that are performed in an 
                        ambulatory surgical center or hospital 
                        outpatient department, the payment 
                        amount under this part may not exceed 
                        the lesser of (I) the payment rate that 
                        wouldapply to such services if they 
were performed in a hospital outpatient department, or (II) the payment 
rate that would apply to such services if they were performed in an 
ambulatory surgical center.
                  ``(C) Special rule for detected lesions.--If 
                during the course of such screening flexible 
                sigmoidoscopy, a lesion or growth is detected 
                which results in a biopsy or removal of the 
                lesion or growth, payment under this part shall 
                not be made for the screening flexible 
                sigmoidoscopy but shall be made for the 
                procedure classified as a flexible 
                sigmoidoscopy with such biopsy or removal.
                  ``(D) Frequency limit.--Subject to revision 
                by the Secretary under paragraph (4)(B), no 
                payment may be made under this part for a 
                colorectal cancer screening test consisting of 
                a screening flexible sigmoidoscopy--
                          ``(i) if the individual is under 50 
                        years of age; or
                          ``(ii) if the procedure is performed 
                        within the 47 months after a previous 
                        screening flexible sigmoidoscopy.
          ``(3) Screening colonoscopy for individuals at high 
        risk for colorectal cancer.--
                  ``(A) Fee schedule.--The Secretary shall 
                establish a payment amount under section 1848 
                with respect to colorectal cancer screening 
                test consisting of a screening colonoscopy for 
                individuals at high risk for colorectal cancer 
                (as defined in section 1861(pp)(2)) that is 
                consistent with payment amounts under such 
                section for similar or related services, except 
                that such payment amount shall be established 
                without regard to subsection (a)(2)(A) of such 
                section.
                  ``(B) Payment limit.--In the case of 
                screening colonoscopy services--
                          ``(i) the payment amount may not 
                        exceed such amount as the Secretary 
                        specifies, based upon the rates 
                        recognized under this part for 
                        diagnostic colonoscopy services; and
                          ``(ii) that are performed in an 
                        ambulatory surgical center or hospital 
                        outpatient department, the payment 
                        amount under this part may not exceed 
                        the lesser of (I) the payment rate that 
                        would apply to such services if they 
                        were performed in a hospital outpatient 
                        department, or (II) the payment rate 
                        that would apply to such services if 
                        they were performed in an ambulatory 
                        surgical center.
                  ``(C) Special rule for detected lesions.--If 
                during the course of such screening 
                colonoscopy, a lesion or growth is detected 
                which results in a biopsy or removal of the 
                lesion or growth, payment under this part shall 
                not be made for the screening colonoscopy but 
                shall be made for the procedure classified as a 
                colonoscopy with such biopsy or removal.
                  ``(D) Frequency limit.--Subject to revision 
                by the Secretary under paragraph (4)(B), no 
                payment may be made under this part for a 
                colorectal cancer screening test consisting of 
                a screening colonoscopy for individuals at high 
                risk for colorectal cancer if the procedure is 
                performed within the 23 months after a previous 
                screening colonoscopy.
          ``(4) Reductions in payment limit and revision of 
        frequency.--
                  ``(A) Reductions in payment limit for 
                screening fecal-occult blood tests.--The 
                Secretary shall review from time to time the 
                appropriateness of the amount of the payment 
                limit established for screening fecal-occult 
                blood tests under paragraph (1)(A). The 
                Secretary may, with respect to tests performed 
                in a year after 2000, reduce the amount of such 
                limit as it applies nationally or in any area 
                to the amount that the Secretary estimates is 
                required to assure that such tests of an 
                appropriate quality are readily and 
                conveniently available during the year.
                  ``(B) Revision of frequency.--
                          ``(i) Review.--The Secretary shall 
                        review periodically the appropriate 
                        frequency for performing colorectal 
                        cancer screening tests based on age and 
                        such other factors as the Secretary 
                        believes to be pertinent.
                          ``(ii) Revision of frequency.--The 
                        Secretary, taking into consideration 
                        the review made under clause (i), may 
                        revise from time to time the frequency 
                        with which such tests may be paid for 
                        under this subsection, but no such 
                        revision shall apply to tests performed 
                        before January 1, 2001.
          ``(5) Limiting charges of nonparticipating 
        physicians.--
                  ``(A) In general.--In the case of a 
                colorectal cancer screening test consisting of 
                a screening flexible sigmoidoscopy or a 
                screening colonoscopy provided to an individual 
                at high risk for colorectal cancer for which 
                payment may be made under this part, if a 
                nonparticipating physician provides the 
                procedure to an individual enrolled under this 
                part, the physician may not charge the 
                individual more than the limiting charge (as 
                defined in section 1848(g)(2)).
                  ``(B) Enforcement.--If a physician or 
                supplier knowing and willfully imposes a charge 
                in violation of subparagraph (A), the Secretary 
                may apply sanctions against such physician or 
                supplier in accordance with section 
                1842(j)(2).''.
          (2) Special rule for screening barium enema.--If the 
        Secretary of Health and Human Services issues a 
        determination under subsection (a)(2) that screening 
        barium enema should be covered as a colorectal cancer 
        screening test under section 1861(pp) (as added by 
        subsection (a)(1)(B)), the Secretary shall establish 
        frequency limits(including revisions of frequency 
limits) for such procedure consistent with the frequency limits for 
other colorectal cancer screening tests under section 1834(d) (as added 
by subsection (b)(1)), and shall establish payment limits (including 
limits on charges of nonparticipating physicians) for such procedure 
consistent with the payment limits under part B of title XVIII for 
diagnostic barium enema procedures.
  (c) Conforming Amendments.--(1) Paragraphs (1)(D) and (2)(D) 
of section 1833(a) (42 U.S.C. 1395l(a)) are each amended by 
inserting ``or section 1834(d)(1)'' after ``subsection 
(h)(1)''.
  (2) Section 1833(h)(1)(A) (42 U.S.C. 1395l(h)(1)(A)) is 
amended by striking ``The Secretary'' and inserting ``Subject 
to paragraphs (1) and (4)(A) of section 1834(d), the 
Secretary''.
  (3) Clauses (i) and (ii) of section 1848(a)(2)(A) (42 U.S.C. 
1395w-4(a)(2)(A)) are each amended by inserting after ``a 
service'' the following: ``(other than a colorectal cancer 
screening test consisting of a screening colonoscopy provided 
to an individual at high risk for colorectal cancer or a 
screening flexible sigmoidoscopy)''.
  (4) Section 1862(a) (42 U.S.C. 1395y(a)), as amended by 
section 4103(c), is amended--
          (A) in paragraph (1)--
                  (i) in subparagraph (F), by striking ``and'' 
                at the end,
                  (ii) in subparagraph (G), by striking the 
                semicolon at the end and inserting ``, and'', 
                and
                  (iii) by adding at the end the following new 
                subparagraph:
          ``(H) in the case of colorectal cancer screening 
        tests, which are performed more frequently than is 
        covered under section 1834(d);''; and
          (B) in paragraph (7), by striking ``or (G)'' and 
        inserting ``(G), or (H)''.
  (d) Effective Date.--The amendments made by this section 
shall apply to items and services furnished on or after January 
1, 1998.

SEC. 4105. DIABETES SCREENING TESTS.

  (a) Coverage of Diabetes Outpatient Self-management Training 
Services.--
          (1) In general.--Section 1861 (42 U.S.C. 1395x), as 
        amended by sections 4103(a) and 4104(a), is amended--
                  (A) in subsection (s)(2)--
                          (i) by striking ``and'' at the end of 
                        subparagraph (Q);
                          (ii) by adding ``and'' at the end of 
                        subparagraph (R); and
                          (iii) by adding at the end the 
                        following new subparagraph:
          ``(S) diabetes outpatient self-management training 
        services (as defined in subsection (qq)); and''; and
                  (B) by adding at the end the following new 
                subsection:

        ``Diabetes Outpatient Self-Management Training Services

  ``(qq)(1) The term `diabetes outpatient self-management 
training services' means educational and training services 
furnished to an individual with diabetes by a certified 
provider (as described in paragraph (2)(A)) in an outpatient 
setting by an individual or entity who meets the quality 
standards described in paragraph (2)(B), but only if the 
physician who is managing the individual's diabetic condition 
certifies that such services are needed under a comprehensive 
plan of care related to the individual's diabetic condition to 
provide the individual with necessary skills and knowledge 
(including skills related to the self-administration of 
injectable drugs) to participate in the management of the 
individual's condition.
  ``(2) In paragraph (1)--
          ``(A) a `certified provider' is a physician, or other 
        individual or entity designated by the Secretary, that, 
        in addition to providing diabetes outpatient self-
        management training services, provides other items or 
        services for which payment may be made under this 
        title; and
          ``(B) a physician, or such other individual or 
        entity, meets the quality standards described in this 
        paragraph if the physician, or individual or entity, 
        meets quality standards established by the Secretary, 
        except that the physician or other individual or entity 
        shall be deemed to have met such standards if the 
        physician or other individual or entity meets 
        applicable standards originally established by the 
        National Diabetes Advisory Board and subsequently 
        revised by organizations who participated in the 
        establishment of standards by such Board, or is 
        recognized by an organization that represents 
        individuals (including individuals under this title) 
        with diabetes as meeting standards for furnishing the 
        services.''.
          (2) Payment Under Physician Fee Schedule.--Section 
        1848(j)(3)(42 U.S.C. 1395w-4(j)(3)) as amended in 
        sections 4102 and 4103, is amended by inserting 
        ``(2)(S),'' before ``(3),''.
          (3) Consultation with organizations in establishing 
        payment amounts for services provided by physicians.--
        In establishing payment amounts under section 1848 of 
        the Social Security Act for physicians' services 
        consisting of diabetes outpatient self-management 
        training services, the Secretary of Health and Human 
        Services shall consult with appropriate organizations, 
        including such organizations representing individuals 
        or medicare beneficiaries with diabetes, in determining 
        the relative value for such services under section 
        1848(c)(2) of such Act.
  (b) Blood-testing Strips for Individuals With Diabetes.--
          (1) Including strips and monitors as durable medical 
        equipment.--The first sentence of section 1861(n) (42 
        U.S.C. 1395x(n)) is amended by inserting before the 
        semicolon the following: ``, and includes blood-
testingstrips and blood glucose monitors for individuals with diabetes 
without regard to whether the individual has Type I or Type II diabetes 
or to the individual's use of insulin (as determined under standards 
established by the Secretary in consultation with the appropriate 
organizations)''.
          (2) 10 percent reduction in payments for testing 
        strips.--Section 1834(a)(2)(B)(iv) (42 U.S.C. 
        1395m(a)(2)(B)(iv)) is amended by adding before the 
        period the following: ``(reduced by 10 percent, in the 
        case of a blood glucose testing strip furnished after 
        1997 for an individual with diabetes)''.
  (c) Establishment of Outcome Measures for Beneficiaries With 
Diabetes.--
          (1) In general.--The Secretary of Health and Human 
        Services, in consultation with appropriate 
        organizations, shall establish outcome measures, 
        including glysolated hemoglobin (past 90-day average 
        blood sugar levels), for purposes of evaluating the 
        improvement of the health status of medicare 
        beneficiaries with diabetes mellitus.
          (2) Recommendations for modifications to screening 
        benefits.--Taking into account information on the 
        health status of medicare beneficiaries with diabetes 
        mellitus as measured under the outcome measures 
        established under subparagraph (A), the Secretary shall 
        from time to time submit recommendations to Congress 
        regarding modifications to the coverage of services for 
        such beneficiaries under the medicare program.
  (d) Effective Date.--The amendments made by this section 
shall apply to items and services furnished on or after January 
1, 1998.

SEC. 4106. STANDARDIZATION OF MEDICARE COVERAGE OF BONE MASS 
                    MEASUREMENTS.

  (a) In General.--Section 1861 (42 U.S.C. 1395x), as amended 
by sections 4103(a), 4104(a), 4105(a), is amended--
          (1) in subsection (s)--
                  (A) in paragraph (12)(C), by striking ``and'' 
                at the end,
                  (B) by striking the period at the end of 
                paragraph (14) and inserting ``; and'',
                  (C) by redesignating paragraphs (15) and (16) 
                as paragraphs (16) and (17), respectively, and
                  (D) by inserting after paragraph (14) the 
                following new paragraph:
          ``(15) bone mass measurement (as defined in 
        subsection (rr)).''; and
          (2) by inserting after subsection (qq) the following 
        new subsection:

                        ``Bone Mass Measurement

  ``(rr)(1) The term `bone mass measurement' means a radiologic 
or radioisotopic procedure or other procedure approved by the 
Food and Drug Administration performed on a qualified 
individual (as defined in paragraph (2)) for the purpose of 
identifying bone mass or detecting bone loss or determining 
bone quality, and includes a physician's interpretation of the 
results of the procedure.
  ``(2) For purposes of this subsection, the term `qualified 
individual' means an individual who is (in accordance with 
regulations prescribed by the Secretary)--
          ``(A) an estrogen-deficient woman at clinical risk 
        for osteoporosis;
          ``(B) an individual with vertebral abnormalities;
          ``(C) an individual receiving long-term 
        glucocorticoid steroid therapy;
          ``(D) an individual with primary hyperparathyroidism; 
        or
          ``(E) an individual being monitored to assess the 
        response to or efficacy of an approved osteoporosis 
        drug therapy.
  ``(3) The Secretary shall establish such standards regarding 
the frequency with which a qualified individual shall be 
eligible to be provided benefits for bone mass measurement 
under this title.''.
  (b) Payment Under Physician Fee Schedule.--Section 1848(j)(3) 
(42 U.S.C. 1395w-4(j)(3)), as amended by sections 4102, 4103, 
and 4105, is amended--
          (1) by striking ``(4) and (14)'' and inserting ``(4), 
        (14)'' and
          (2) by inserting ``and (15)'' after ``1861(nn)(2))''.
  (c) Conforming Amendments.--Sections 1864(a), 1902(a)(9)(C), 
and 1915(a)(1)(B)(ii)(I) (42 U.S.C. 1395aa(a), 1396a(a)(9)(C), 
and 1396n(a)(1)(B)(ii)(I)) are amended by striking ``paragraphs 
(15) and (16)'' each place it appears and inserting 
``paragraphs (16) and (17)''.
  (d) Effective Date.--The amendments made by this section 
shall apply to bone mass measurements performed on or after 
July 1, 1998.

SEC. 4107. VACCINES OUTREACH EXPANSION.

  (a) Extension of Influenza and Pneumococcal Vaccination 
Campaign.--In order to increase utilization of pneumococcal and 
influenza vaccines in medicare beneficiaries, the Influenza and 
Pneumococcal Vaccination Campaign carried out by the Health 
Care Financing Administration in conjunction with the Centers 
for Disease Control and Prevention and the National Coalition 
for Adult Immunization, is extended until the end of fiscal 
year 2002.
  (b) Appropriation.--There are hereby appropriated for each of 
fiscal years 1998 through 2002, $8,000,000 to the Campaign 
described in subsection (a). Of the amount of such 
appropriation in each fiscal year, 60 percent of such 
appropriation shall be payable from the Federal Hospital 
Insurance Trust Fund, and 40 percent shall be payable from the 
Federal Supplementary Medical Insurance Trust Fund under title 
XVIII of the Social Security Act (42 U.S.C. 1395i, 1395t).

SEC. 4108. STUDY ON PREVENTIVE BENEFITS.

  (a) Study.--The Secretary of Health and Human Services shall 
request the National Academy of Sciences, inconjunction with 
the United States Preventive Services Task Force, to analyze the 
expansion or modification of preventive benefits provided to medicare 
beneficiaries under title XVIII of the Social Security Act. The 
analysis shall consider both the short term and long term benefits, and 
costs to the medicare program, of such expansion or modification,
  (b) Report.--
          (1) Initial report.--Not later than 2 years after the 
        date of the enactment of this Act, the Secretary shall 
        submit a report on the findings of the analysis 
        conducted under subsection (a) to the Committee on Ways 
        and Means and the Committee on Commerce of the House of 
        Representatives and the Committee on Finance of the 
        Senate.
          (2) Contents.--Such report shall include specific 
        findings with respect to coverage of the following 
        preventive benefits:
                  (A) Nutrition therapy, including parenteral 
                and enteral nutrition.
                  (B) Skin cancer screening.
                  (C) Medically necessary dental care.
                  (D) Routine patient care costs for 
                beneficiaries enrolled in approved clinical 
                trial programs.
                  (E) Elimination of time limitation for 
                coverage of immunosuppressive drugs for 
                transplant patients.
          (3) Funding.--From funds appropriated to the 
        Department of Health and Human Services for fiscal 
        years 1998 and 1999, the Secretary shall provide for 
        such funding as may be necessary for the conduct of the 
        analysis by the National Academy of Sciences under this 
        section.

                     Subtitle C--Rural Initiatives

SEC. 4206. INFORMATICS, TELEMEDICINE, AND EDUCATION DEMONSTRATION 
                    PROJECT.

  (a) Purpose and Authorization.--
          (1) In general.--Not later than 9 months after the 
        date of enactment of this section, the Secretary of 
        Health and Human Services shall provide for a 
        demonstration project described in paragraph (2).
          (2) Description of project.--
                  (A) In general.--The demonstration project 
                described in this paragraph is a single 
                demonstration project to use eligible health 
                care provider telemedicine networks to apply 
                high-capacity computing and advanced networks 
                to improve primary care (and prevent health 
                care complications) to medicare beneficiaries 
                with diabetes mellitus who are residents of 
                medically underserved rural areas or residents 
                of medically underserved inner-city areas.
                  (B) Medically underserved defined.--As used 
                in this paragraph, the term ``medically 
                underserved'' has the meaning given such term 
                in section 330(b)(3) of the Public Health 
                Service Act (42 U.S.C. 254b(b)(3)).
          (3) Waiver.--The Secretary shall waive such 
        provisions of title XVIII of the Social Security Act as 
        may be necessary to provide for payment for services 
        under the project in accordance with subsection (d).
          (4) Duration of project.--The project shall be 
        conducted over a 4-year period.
  (b) Objectives of Project.--The objectives of the project 
include the following:
          (1) Improving patient access to and compliance with 
        appropriate care guidelines for individuals with 
        diabetes mellitus through direct telecommunications 
        link with information networks in order to improve 
        patient quality-of-life and reduce overall health care 
        costs.
          (2) Developing a curriculum to train, and providing 
        standards for credentialing and licensure of, health 
        professionals (particularly primary care health 
        professionals) in the use of medical informatics and 
        telecommunications.
          (3) Demonstrating the application of advanced 
        technologies, such as video-conferencing from a 
        patient's home, remote monitoring of a patient's 
        medical condition, interventional informatics, and 
        applying individualized, automated care guidelines, to 
        assist primary care providers in assisting patients 
        with diabetes in a home setting.
          (4) Application of medical informatics to residents 
        with limited English language skills.
          (5) Developing standards in the application of 
        telemedicine and medical informatics.
          (6) Developing a model for the cost-effective 
        delivery of primary and related care both in a managed 
        care environment and in a fee-for-service environment.
  (c) Eligible Health Care Provider Telemedicine Network 
Defined.--For purposes of this section, the term ``eligible 
health care provider telemedicine network'' means a consortium 
that includes at least one tertiary care hospital (but no more 
than 2 such hospitals), at least one medical school, no more 
than 4 facilities in rural or urban areas, and at least one 
regional telecommunications provider and that meets the 
following requirements:
          (1) The consortium is located in an area with one of 
        the highest concentrations of medical schools and 
        tertiary care facilities in the United States and has 
        appropriate arrangements (within or outside the 
        consortium) with such schools and facilities, 
        universities, and telecommunications providers, in 
        order to conduct the project.
          (2) The consortium submits to the Secretary an 
        application at such time, in such manner, and 
        containing such information as the Secretary may 
        require, including a description of the use to which 
        the consortium would apply any amounts received under 
        the project and the source and amount of non-Federal 
        funds used in the project.
          (3) The consortium guarantees that it will be 
        responsible for payment for all costs of the project 
        that are not paid under this section and that the 
        maximum amount of payment that may be made to the 
        consortium under thissection shall not exceed the 
amount specified in subsection (d)(3).
  (d) Coverage as Medicare Part B Services.--
          (1) In general.--Subject to the succeeding provisions 
        of this subsection, services related to the treatment 
        or management of (including prevention of complications 
        from) diabetes for medicare beneficiaries furnished 
        under the project shall be considered to be services 
        covered under part B of title XVIII of the Social 
        Security Act.
          (2) Payments.--
                  (A) In general.--Subject to paragraph (3), 
                payment for such services shall be made at a 
                rate of 50 percent of the costs that are 
                reasonable and related to the provision of such 
                services. In computing such costs, the 
                Secretary shall include costs described in 
                subparagraph (B), but may not include costs 
                described in subparagraph (C).
                  (B) Costs that may be included.--The costs 
                described in this subparagraph are the 
                permissible costs (as recognized by the 
                Secretary) for the following:
                          (i) The acquisition of telemedicine 
                        equipment for use in patients' homes 
                        (but only in the case of patients 
                        located in medically underserved 
                        areas).
                          (ii) Curriculum development and 
                        training of health professionals in 
                        medical informatics and telemedicine.
                          (iii) Payment of telecommunications 
                        costs (including salaries and 
                        maintenance of equipment), including 
                        costs of telecommunications between 
                        patients' homes and the eligible 
                        network and between the network and 
                        other entities under the arrangements 
                        described in subsection (c)(1).
                          (iv) Payments to practitioners and 
                        providers under the medicare programs.
                  (C) Costs not included.--The costs described 
                in this subparagraph are costs for any of the 
                following:
                          (i) The purchase or installation of 
                        transmission equipment (other than such 
                        equipment used by health professionals 
                        to deliver medical informatics services 
                        under the project).
                          (ii) The establishment or operation 
                        of a telecommunications common carrier 
                        network.
                          (iii) Construction (except for minor 
                        renovations related to the installation 
                        of reimbursable equipment) or the 
                        acquisition or building of real 
                        property.
          (3) Limitation.--The total amount of the payments 
        that may be made under this section shall not exceed 
        $30,000,000.
          (4) Limitation on cost-sharing.--The project may not 
        impose cost sharing on a medicare beneficiary for the 
        receipt of services under the project in excess of 20 
        percent of the recognized costs of the project 
        attributable to such services.
  (e) Reports.--The Secretary shall submit to the Committees on 
Ways and Means and Commerce of the House of Representatives and 
the Committee on Finance of the Senate interim reports on the 
project and a final report on the project within 6 months after 
the conclusion of the project. The final report shall include 
an evaluation of the impact of the use of telemedicine and 
medical informatics on improving access of medicare 
beneficiaries to health care services, on reducing the costs of 
such services, and on improving the quality of life of such 
beneficiaries.
  (f) Definitions.--For purposes of this section:
          (1) Interventional informatics.--The term 
        ``interventional informatics'' means using information 
        technology and virtual reality technology to intervene 
        in patient care.
          (2) Medical informatics.--The term ``medical 
        informatics'' means the storage, retrieval, and use of 
        biomedical and related information for problem solving 
        and decision-making through computing and 
        communications technologies.
          (3) Project.--The term ``project'' means the 
        demonstration project under this section.

              Subtitle D--Anti-Fraud and Abuse Provisions

SEC. 4301. PERMANENT EXCLUSION FOR THOSE CONVICTED OF 3 HEALTH CARE 
                    RELATED CRIMES.

  Section 1128(c)(3) (42 U.S.C. 1320a-7(c)(3)) is amended--
          (1) in subparagraph (A), by inserting ``or in the 
        case described in subparagraph (G)'' after ``subsection 
        (b)(12)'';
          (2) in subparagraphs (B) and (D), by striking ``In 
        the case'' and inserting ``Subject to subparagraph (G), 
        in the case''; and
          (3) by adding at the end the following new 
        subparagraph:
  ``(G) In the case of an exclusion of an individual under 
subsection (a) based on a conviction occurring on or after the 
date of the enactment of this subparagraph, if the individual 
has (before, on, or after such date and before the date of the 
conviction for which the exclusion is imposed) been convicted--
          ``(i) on one previous occasion of one or more 
        offenses for which an exclusion may be effected under 
        such subsection, the period of the exclusion shall be 
        not less than 10 years, or
          ``(ii) on 2 or more previous occasions of one or more 
        offenses for which an exclusion may be effected under 
        such subsection, the period of the exclusion shall be 
        permanent.''.

SEC. 4302. AUTHORITY TO REFUSE TO ENTER INTO MEDICARE AGREEMENTS WITH 
                    INDIVIDUALS OR ENTITIES CONVICTED OF FELONIES.

  (a) Medicare Part A.--Section 1866(b)(2) (42 U.S.C. 
1395cc(b)(2)) is amended--
          (1) by striking ``or'' at the end of subparagraph 
        (B);
          (2) by striking the period at the end of subparagraph 
        (C) and inserting ``, or''; and
          (3) by adding after subparagraph (C) the following 
        new subparagraph:
                  ``(D) has ascertained that the provider has 
                been convicted of a felony under Federal or 
                State law for an offense which the Secretary 
                determines is inconsistent with the best 
                interests of program beneficiaries.''.
  (b) Medicare Part B.--Section 1842 (42 U.S.C. 1395u) is 
amended by adding after subsection (r) the following new 
subsection:
  ``(s) The Secretary may refuse to enter into an agreement 
with a physician or supplier under subsection (h) or may 
terminate or refuse to renew such agreement, in the event that 
such physician or supplier has been convicted of a felony under 
Federal or State law for an offense which the Secretary 
determines is inconsistent with the best interests of program 
beneficiaries.''.
  (c) Medicaid.--Section 1902(a)(23) (42 U.S.C. 1396(a)) is 
amended--
          (1) by relocating the matter that precedes ``provide 
        that, (A)'' immediately before the semicolon;
          (2) by inserting a semicolon after ``1915'';
          (3) by striking the comma after ``Guam'' and 
        inserting a semicolon; and
          (4) by inserting before the semicolon at the end the 
        following: ``and except that this provision does not 
        require a State to provide medical assistance for such 
        services furnished by a person or entity convicted of a 
        felony under Federal or State law for an offense which 
        the State agency determines is inconsistent with the 
        best interests of beneficiaries under the State plan''.
  (d) Effective Date.--The amendments made by this section 
shall take effect on the date of the enactment of this Act and 
apply to the entry and renewal of contracts on or after such 
date.

SEC. 4303. INCLUSION OF TOLL-FREE NUMBER TO REPORT MEDICARE WASTE, 
                    FRAUD, AND ABUSE IN EXPLANATION OF BENEFITS FORMS.

  (a) In General.--Section 1842(h)(7) (42 U.S.C. 1395u(h)(7)) 
is amended--
          (1) by striking ``and'' at the end of subparagraph 
        (D),
          (2) by striking the period at the end of subparagraph 
        (E), and
          (3) by adding at the end the following new 
        subparagraph:
          ``(E) a toll-free telephone number maintained by the 
        Inspector General in the Department of Health and Human 
        Services for the receipt of complaints and information 
        about waste, fraud, and abuse in the provision or 
        billing of services under this title.''.
  (b) Effective Date.--The amendments made by subsection (a) 
shall apply to explanations of benefits provided on or after 
such date (not later than January 1, 1999) as the Secretary of 
Health and Human Services shall provide.

SEC. 4304. LIABILITY OF MEDICARE CARRIERS AND FISCAL INTERMEDIARIES FOR 
                    CLAIMS SUBMITTED BY EXCLUDED PROVIDERS.

  (a) Reimbursement to the Secretary for Amounts Paid to 
Excluded Providers.--
          (1) Requirements for fiscal intermediaries.--
                  (A) In general.--Section 1816 (42 U.S.C. 
                1395h) is amended by adding at the end the 
                following new subsection:
  ``(m) An agreement with an agency or organization under this 
section shall require that such agency or organization 
reimburse the Secretary for any amounts paid by the agency or 
organization for a service under this title which is furnished, 
directed, or prescribed by an individual or entity during any 
period for which the individual or entity is excluded pursuant 
to section 1128, 1128A, or 1156, from participation in the 
program under this title, if the amounts are paid after the 
Secretary notifies the agency or organization of the 
exclusion.''.
                  (B) Conforming amendment.--Subsection (i) of 
                such section is amended by adding at the end 
                the following new paragraph:
  ``(4) Nothing in this subsection shall be construed to 
prohibit reimbursement by an agency or organization under 
subsection (m).''.
          (2) Requirements for carriers.--Section 1842(b)(3) 
        (42 U.S.C. 1395u(b)(3)) is amended--
                  (A) by striking ``and'' at the end of 
                subparagraph (I); and
                  (B) by inserting after subparagraph (I) the 
                following new subparagraph:
          ``(J) will reimburse the Secretary for any amounts 
        paid by the carrier for an item or service under this 
        part which is furnished, directed, or prescribed by an 
        individual or entity during any period for which the 
        individual or entity is excluded pursuant to section 
        1128, 1128A, or 1156, from participation in the program 
        under this title, if the amounts are paid after the 
        Secretary notifies the carrier of the exclusion, and''.
          (3) Medicaid Provision.--Section 1902(a)(39) (42 
        U.S.C. 1396a(a)(39)) is amended by inserting before the 
        semicolon at the end the following: ``, and provide 
        further for reimbursement to the Secretary of any 
        payments made under the plan or any item or service 
        furnished, directed, or prescribed by the excluded 
        individual or entity during such period, after the 
        Secretary notifies the State of such exclusion''.
  (b) Conforming Repeal of Mandatory Payment Rule.--Paragraph 
(2) of section 1862(e) (42 U.S.C. 1395y(e)) is amended to read 
as follows:
  ``(2) No individual or entity may bill (or collect any amount 
from) any individual for any item or service for which payment 
is denied under paragraph (1). No person is liable for payment 
of any amounts billed for such an item or service in violation 
of the previous sentence.''.
  (c) Effective Dates.--The amendments made by this section 
shall apply to contracts and agreements entered into, renewed, 
or extended after the date of the enactment of this Act, but 
only with respect to claims submitted on or after the later of 
January 1, 1998, or the date such entry, renewal, or extension 
becomes effective.

SEC. 4305. EXCLUSION OF ENTITY CONTROLLED BY FAMILY MEMBER OF A 
                    SANCTIONED INDIVIDUAL.

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

SEC. 4306. IMPOSITION OF CIVIL MONEY PENALTIES.

  (a) Civil Money Penalties for Persons That Contract With 
Excluded Individuals.--Section 1128A(a) (42 U.S.C. 1320a-7a(a)) 
is amended--
          (1) by striking ``or'' at the end of paragraph (4);
          (2) by adding ``or'' at the end of paragraph (5); and
          (3) by adding after paragraph (5) the following new 
        paragraph:
          ``(6) arranges or contracts (by employment or 
        otherwise) with an individual or entity that the person 
        knows or should know is excluded from participation in 
        a Federal health care program (as defined in section 
        1128B(f)), for the provision of items or services for 
        which payment may be made under such a program;''.
  (b) Effective Dates.--The amendments made by subsection (a) 
shall apply to arrangements and contracts entered into after 
the date of the enactment of this Act.

SEC. 4307. DISCLOSURE OF INFORMATION AND SURETY BONDS.

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

SEC. 4308. PROVISION OF CERTAIN IDENTIFICATION NUMBERS.

  (a) Requirements to Disclose Employer Identification Numbers 
(EINS) and Social Security Account Numbers (SSNs).--Section 
1124(a)(1) (42 U.S.C. 1320a-3(a)(1)) is amended by inserting 
before the period at the end the following: ``and supply the 
Secretary with both the employer identification number 
(assigned pursuant to section 6109 of the Internal Revenue Code 
of 1986) and social security account number (assigned under 
section 205(c)(2)(B)) of the disclosing entity, each person 
with an ownership or control interest (as defined in subsection 
(a)(3)), and any subcontractor in which the entity directly or 
indirectly has a 5 percent or more ownership interest. Use of 
the social security account number under this section shall be 
limited to identity verification and identity matching purposes 
only. The social security account number shall not be disclosed 
to any person or entity other than the Secretary, the Social 
Security Administration, or the Secretary of the Treasury, In 
obtaining the social security account numbers of the disclosing 
entity and other persons described in this section, the 
Secretary shall comply with section 7 of the Privacy Act of 
1974 (5 U.S.C. 552a note)''.
  (b) Other Medicare Providers.--Section 1124A (42 U.S.C. 
1320a-3a) is amended--
          (1) in subsection (a)--
                  (A) by striking ``and'' at the end of 
                paragraph (1);
                  (B) by striking the period at the end of 
                paragraph (2) and inserting ``; and''; and
                  (C) by adding at the end the following new 
                paragraph:
          ``(3) including the employer identification number 
        (assigned pursuant to section 6109 of the Internal 
        Revenue Code of 1986) and social security account 
        number (assigned under section 205(c)(2)(B)) of the 
        disclosing part B provider and any person, managing 
        employee, or other entity identified or described under 
        paragraph (1) or (2).''; and
          (2) in subsection (c) by inserting ``(or, for 
        purposes of subsection (a)(3), any entity receiving 
        payment)'' after ``on an assignment-related basis''.
  (c) Verification by Social Security Administration (ssa).--
Section 1124A (42 U.S.C. 1320a-3a) is amended--
          (1) by redesignating subsection (c) as subsection 
        (d); and
          (2) by inserting after subsection (b) the following 
        new subsection:
  ``(c) Verification.--
          ``(1) Transmittal by hhs.--The Secretary shall 
        transmit--
                  ``(A) to the Commissioner of Social Security 
                information concerning each social security 
                account number (assigned under section 
                205(c)(2)(B)), and
                  ``(B) to the Secretary of the Treasury 
                information concerning each employer 
                identification number (assigned pursuant to 
                section 6109 of the Internal Revenue Code of 
                1986),
        supplied to the Secretary pursuant to subsection (a)(3) 
        or section 1124(c) to the extent necessary for 
        verification of such information in accordance with 
        paragraph (2).
          ``(2) Verification.--The Commissioner of Social 
        Security and the Secretary of the Treasury shall verify 
        the accuracy of, or correct, the information supplied 
        by the Secretary to such official pursuant to paragraph 
        (1), and shall report such verifications or corrections 
        to the Secretary.
          ``(3) Fees for verification.--The Secretary shall 
        reimburse the Commissioner and Secretary of the 
        Treasury, at a rate negotiated between the Secretary 
        and such official, for the costs incurred by such 
        official in performing the verification and correction 
        services described in this subsection.''.
  (d) Report.--Before this subsection shall be effective, the 
Secretary of Health and Human Services shall submit to Congress 
a report on steps the Secretary has taken to assure the 
confidentiality of social security account numbers that will be 
provided to the Secretary under the amendments made by this 
section. If Congress determines that the Secretary has not 
taken adequate steps to assure the confidentiality of social 
security account numbers to be provided to the Secretary under 
the amendments made by this section, the amendments made by 
this section shall not take effect.
  (e) Effective Dates.--Subject to subsection (d)--
          (1) the amendment made by subsection (a) shall apply 
        to the application of conditions of participation, and 
        entering into and renewal of contracts and agreements, 
        occurring more than 90 days after the date of 
        submission of the report under subsection (d); and
          (2) the amendments made by subsection (b) shall apply 
        to payment for items and services furnished more than 
        90 days after the date of submission of such report.

SEC. 4309. ADVISORY OPINIONS REGARDING CERTAIN PHYSICIAN SELF-REFERRAL 
                    PROVISIONS.

  Section 1877(g) (42 U.S.C. 1395nn(g)) is amended by adding at 
the end the following new paragraph:
          ``(6) Advisory opinions.--
                  ``(A) In general.--The Secretary shall issue 
                written advisory opinions concerning whether a 
                referral relating to designated health services 
                (other than clinical laboratory services) is 
                prohibited under this section.
                  ``(B) 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.
                  ``(C) Application of certain procedures.--The 
                Secretary shall, to the extent practicable, 
                apply the regulations promulgated under section 
                1128D(b)(5) to the issuance of advisory 
                opinions under this paragraph.
                  ``(D) Applicability.--This paragraph shall 
                apply to requests for advisory opinions made 
                during the period described in section 
                1128D(b)(6).''.

SEC. 4310. NONDISCRIMINATION IN POST-HOSPITAL REFERRAL TO HOME HEALTH 
                    AGENCIES.

  (a) Notification of Availability of Home Health Agencies As 
Part of Discharge Planning Process.--Section 1861(ee)(2) (42 
U.S.C. 1395x(ee)(2)) is amended--
          (1) in subparagraph (D), by inserting before the 
        period the following: ``, including the availability of 
        home health services through individuals and entities 
        that participate in the program under this title and 
        that serve the area in which the patient resides and 
        that request to be listed by the hospital as 
        available''; and
          (2) by adding at the end the following:
          ``(H) Consistent with section 1802, the discharge 
        plan shall--
                  ``(i) not specify or otherwise limit the 
                qualified provider which may provide post-
                hospital home health services, and
                  ``(ii) identify (in a form and manner 
                specified by the Secretary) any home health 
                agency (to whom the individual is referred) in 
                which the hospital has a disclosable financial 
                interest (as specified by the Secretary 
                consistent with section 1866(a)(1)(R)) or which 
                has such an interest in the hospital.''.
  (b) Maintenance and Disclosure of Information on Post-
Hospital Home Health Agencies.--Section 1866(a)(1) (42 U.S.C. 
1395cc(a)(1)) is amended--
          (1) by striking ``and'' at the end of subparagraph 
        (Q),
          (2) by striking the period at the end of subparagraph 
        (R), and
          (3) by adding at the end the following:
          ``(S) in the case of a hospital that has a financial 
        interest (as specified by the Secretary in regulations) 
        in a home health agency, or in which such an agency has 
        such a financial interest, or in which another entity 
        has such a financial interest (directly or indirectly) 
        with such hospital and such an agency, to maintain and 
        disclose to the Secretary (in a form and manner 
        specified by the Secretary) information on--
                  ``(i) the nature of such financial interest,
                  ``(ii) the number of individuals who were 
                discharged from the hospital and who were 
                identified as requiring home health services, 
                and
                  ``(iii) the percentage of such individuals 
                who received such services from such provider 
                (or another such provider).''.
  (c) Disclosure of Information to the Public.--Title XI is 
amended by inserting after section 1145 the following new 
section:

   ``public disclosure of certain information on hospital financial 
                     interest and referral patterns

  ``Sec. 1146. The Secretary shall make available to the 
public, in a form and manner specified by the Secretary, 
information disclosed to the Secretary pursuant to section 
1866(a)(1)(R).''.
  (d) Effective Dates.--
          (1) The amendments made by subsection (a) shall apply 
        to discharges occurring on or after 90 days after the 
        date of the enactment of this Act.
          (2) The Secretary of Health and Human Services shall 
        issue regulations by not later than 1 year after the 
        date of the enactment of this Act to carry out the 
        amendments made by subsections (b) and (c) and such 
        amendments shall take effect as of such date (on or 
        after the issuance of such regulations) as the 
        Secretary specifies in such regulations.

SEC. 4311. OTHER FRAUD AND ABUSE RELATED PROVISIONS.

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

                Subtitle E--Prospective Payment Systems

                    CHAPTER 2--PAYMENT UNDER PART B

   Subchapter A--Payment for Hospital Outpatient Department Services

SEC. 4411. ELIMINATION OF FORMULA-DRIVEN OVERPAYMENTS (FDO) FOR CERTAIN 
                    OUTPATIENT HOSPITAL SERVICES.

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

SEC. 4412. EXTENSION OF REDUCTIONS IN PAYMENTS FOR COSTS OF HOSPITAL 
                    OUTPATIENT SERVICES.

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

SEC. 4413. PROSPECTIVE PAYMENT SYSTEM FOR HOSPITAL OUTPATIENT 
                    DEPARTMENT SERVICES.

  (a) In General.--Section 1833 (42 U.S.C. 1395l) is amended by 
adding at the end the following:
  ``(t) Prospective Payment System for Hospital Outpatient 
Department Services.--
          ``(1) In general.--With respect to hospital 
        outpatient services designated by the Secretary (in 
        this section referred to as `covered OPD services') and 
        furnished during a year beginning with 1999, the amount 
        of payment under this part shall be determined under a 
        prospective payment system established by the Secretary 
        in accordance with this subsection.
          ``(2) System requirements.--Under the payment 
        system--
                  ``(A) the Secretary shall develop a 
                classification system for covered OPD services;
                  ``(B) the Secretary may establish groups of 
                covered OPD services, within the classification 
                system described in subparagraph (A), so that 
                services classified within each group are 
                comparable clinically and with respect to the 
                use of resources;
                  ``(C) the Secretary shall, using data on 
                claims from 1996 and using data from the most 
                recent available cost reports, establish 
                relative payment weights for covered OPD 
                services (and any groups of such services 
                described in subparagraph (B)) based on median 
                hospital costs and shall determine projections 
                of the frequency of utilization of each such 
                service (or group of services) in 1999;
                  ``(D) the Secretary shall determine a wage 
                adjustment factor to adjust the portion of 
                payment and coinsurance attributable to labor-
                related costs for relative differences in labor 
                and labor-related costs across geographic 
                regions in a budget neutral manner;
                  ``(E) the Secretary shall establish other 
                adjustments, in a budget neutral manner, as 
                determined to be necessary to ensure equitable 
                payments, such as outlier adjustments, 
                adjustments to account for variations in 
                coinsurance payments for procedures with 
                similar resource costs, or adjustments for 
                certain classes of hospitals; and
                  ``(F) the Secretary shall develop a method 
                for controlling unnecessary increases in the 
                volume of covered OPD services.
          ``(3) Calculation of base amounts.--
                  ``(A) Aggregate amounts that would be payable 
                if deductibles were disregarded.--The Secretary 
                shall estimate the total amounts that would be 
                payable from the Trust Fund under this part for 
                covered OPD services in 1999, determined 
                without regard to this subsection, as though 
                the deductible under section 1833(b) did not 
                apply, and as though the coinsurance described 
                in section 1866(a)(2)(A)(ii) (as in effect 
                before the date of the enactment of this 
                subsection) continued to apply.
                  ``(B) Unadjusted copayment amount.--
                          ``(i) In general.--For purposes of 
                        this subsection, subject to clause 
                        (ii), the `unadjusted copayment amount' 
                        applicable to a covered OPD service (or 
                        group of such services) is 20 percent 
                        of national median of the charges for 
                        the service (or services within the 
                        group) furnished during 1996, updated 
                        to 1999 using the Secretary's estimate 
                        of charge growth during the period.
                          ``(ii) Adjusted to be 20 percent when 
                        fully phased in.--If the pre-deductible 
                        payment percentage for a covered OPD 
                        service (or group of such services) 
                        furnished in a year would be equal to 
                        or exceed 80 percent, then the 
                        unadjusted copayment amount shall be 25 
                        percent of amount determined under 
                        subparagraph (D)(i).
                          ``(iii) Rules for new services.--The 
                        Secretary shall establish rules for 
                        establishment of an unadjusted 
                        copayment amount for a covered OPD 
                        service not furnished during 1996, 
                        based upon its classification within a 
                        group of such services.
                  ``(C) Calculation of conversion factors.--
                                  ``(I) In general.--The 
                                Secretary shall establish a 
                                1999 conversion factor for 
                                determining the medicare pre-
                                deductible OPD fee payment 
                                amounts for each covered OPD 
                                service (or group of such 
                                services) furnished in 1999. 
                                Such conversion factor shall be 
                                established on the basis of the 
                                weights and frequencies 
                                described in paragraph (2)(C) 
                                and in a manner such that the 
                                sum for all services and groups 
                                of the products (described in 
                                subclause (II) for each such 
                                service or group) equals the 
                                total projected amount 
                                described in subparagraph (A).
                          ``(II) Product described.--The 
                        product described in this subclause, 
                        for a service or group, is the product 
                        of the medicare pre-deductible OPD fee 
                        payment amounts (taking into account 
                        appropriate adjustments described in 
                        paragraphs (2)(D) and (2)(E)) and the 
                        frequencies for such service or group.
                          ``(ii) Subsequent years.--Subject to 
                        paragraph (8)(B), the Secretary shall 
                        establish a conversion factor for 
                        covered OPD services furnished in 
                        subsequent years in an amount equal to 
                        the conversion factor established under 
                        this subparagraph and applicable to 
                        such services furnished in the previous 
                        year increased by the OPD payment 
                        increase factor specified under clause 
                        (iii) for the year involved.
                          ``(iii) OPD payment increase 
                        factor.--For purposes of this 
                        subparagraph, the `OPD payment increase 
                        factor' for services furnished in a 
                        year is equal to the sum of--
                                  ``(I) market basket 
                                percentage increase (applicable 
                                under section 
                                1886(b)(3)(B)(iii)) to hospital 
                                discharges occurring during the 
                                fiscal year ending in such 
                                year, and
                                  ``(II) in the case of a 
                                covered OPD service (or group 
                                of such services) furnished in 
                                a year in which the pre-
                                deductible payment percentage 
                                would not exceed 80 percent, 
                                3.5 percentage points, but in 
                                no case greater than such 
                                number of percentage points as 
                                will result in the pre-
                                deductible payment percentage 
                                exceeding 80 percent.
                        In applying the previous sentence for 
                        years beginning with 2000, the 
                        Secretary may substitute forthe market 
basket percentage increase under subclause (I) an annual percentage 
increase that is computed and applied with respect to covered OPD 
services furnished in a year in the same manner as the market basket 
percentage increase is determined and applied to inpatient hospital 
services for discharges occurring in a fiscal year.
                  ``(D) Pre-deductible payment percentage.--The 
                pre-deductible payment percentage for a covered 
                OPD service (or group of such services) 
                furnished in a year is equal to the ratio of--
                          ``(i) the conversion factor 
                        established under subparagraph (C) for 
                        the year, multiplied by the weighting 
                        factor established under paragraph 
                        (2)(C) for the service (or group), to
                          ``(ii) the sum of the amount 
                        determined under clause (i) and the 
                        unadjusted copayment amount determined 
                        under subparagraph (B) for such service 
                        or group.
                  ``(E) Calculation of medicare opd fee 
                schedule amounts.--The Secretary shall compute 
                a medicare OPD fee schedule amount for each 
                covered OPD service (or group of such services) 
                furnished in a year, in an amount equal to the 
                product of--
                          ``(i) the conversion factor computed 
                        under subparagraph (C) for the year, 
                        and
                          ``(ii) the relative payment weight 
                        (determined under paragraph (2)(C)) for 
                        the service or group.
          ``(4) Medicare payment amount.--The amount of payment 
        made from the Trust Fund under this part for a covered 
        OPD service (and such services classified within a 
        group) furnished in a year is determined as follows:
                  ``(A) Fee schedule and copayment amount.--Add 
                (i) the medicare OPD fee schedule amount 
                (computed under paragraph (3)(E)) for the 
                service or group and year, and (ii) the 
                unadjusted copayment amount (determined under 
                paragraph (3)(B)) for the service or group.
                  ``(B) Subtract applicable deductible.--Reduce 
                the adjusted sum by the amount of the 
                deductible under section 1833(b), to the extent 
                applicable.
                  ``(C) Apply payment proportion to 
                remainder.--Multiply the amount so determined 
                under subparagraph (B) by the pre-deductible 
                payment percentage (as determined under 
                paragraph (3)(D)) for the service or group and 
                year involved.
                  ``(D) Labor-related adjustment.--The amount 
                of payment is the product determined under 
                subparagraph (C) with the labor-related portion 
                of such product adjusted for relative 
                differences in the cost of labor and other 
                factors determined by the Secretary, as 
                computed under paragraph (2)(D).
          ``(5) Copayment amount.--
                  ``(A) In general.--Except as provided in 
                subparagraph (B), the copayment amount under 
                this subsection is determined as follows:
                          ``(i) Unadjusted copayment.--Compute 
                        the amount by which the amount 
                        described in paragraph (4)(B) exceeds 
                        the amount of payment determined under 
                        paragraph (4)(C).
                          ``(ii) Labor adjustment.--The 
                        copayment amount is the difference 
                        determined under clause (i) with the 
                        labor-related portion of such 
                        difference adjusted for relative 
                        differences in the cost of labor and 
                        other factors determined by the 
                        Secretary, as computed under paragraphs 
                        (2)(D). The adjustment under this 
                        clause shall be made in a manner that 
                        does not result in any change in the 
                        aggregate copayments made in any year 
                        if the adjustment had not been made.
                  ``(B) Election to offer reduced copayment 
                amount.--The Secretary shall establish a 
                procedure under which a hospital, before the 
                beginning of a year (beginning with 1999), may 
                elect to reduce the copayment amount otherwise 
                established under subparagraph (A) for some or 
                all covered OPD services to an amount that is 
                not less than 25 percent of the medicare OPD 
                fee schedule amount (computed under paragraph 
                (3)(E)) for the service involved, adjusted for 
                relative differences in the cost of labor and 
                other factors determined by the Secretary, as 
                computed under subparagraphs (D) and (E) of 
                paragraph (2). Under such procedures, such 
                reduced copayment amount may not be further 
                reduced or increased during the year involved 
                and the hospital may disseminate information on 
                the reduction of copayment amount effected 
                under this subparagraph.
                  ``(C) No impact on deductibles.--Nothing in 
                this paragraph shall be construed as affecting 
                a hospital's authority to waive the charging of 
                a deductible under section 1833(b).
          ``(6) Periodic review and adjustments components of 
        prospective payment system.--
                  ``(A) Periodic review.--The Secretary may 
                periodically review and revise the groups, the 
                relative payment weights, and the wage and 
                other adjustments described in paragraph (2) to 
                take into account changes in medical practice, 
                changes in technology, the addition of new 
                services, new cost data, and other relevant 
                information and factors.
                  ``(B) Budget neutrality adjustment.--If the 
                Secretary makes adjustments under subparagraph 
                (A), then the adjustments for a year may not 
                cause the estimated amount of expenditures 
                under this part for the year to increase or 
                decrease from the estimated amount of 
                expenditures under this part that would have 
                been made if the adjustments had not been made.
                  ``(C) Update factor.--If the Secretary 
                determines under methodologies described in 
                subparagraph (2)(F) that the volume of services 
                paid for under this subsection increased beyond 
                amounts established through those 
                methodologies, the Secretary may appropriately 
                adjust the update to the conversion factor 
                otherwise applicable in a subsequent year.
          ``(7) Special rule for ambulance services.--The 
        Secretary shall pay for hospital outpatient services 
        that are ambulance services on the basis described in 
        the matter in subsection (a)(1) preceding subparagraph 
        (A).
          ``(8) Special rules for certain hospitals.--In the 
        case of hospitals described in section 
        1886(d)(1)(B)(v)--
                  ``(A) the system under this subsection shall 
                not apply to covered OPD services furnished 
                before January 1, 2000; and
                  ``(B) the Secretary may establish a separate 
                conversion factor for such services in a manner 
                that specifically takes into account the unique 
                costs incurred by such hospitals by virtue of 
                their patient population and service intensity.
          ``(9) Limitation on review.--There shall be no 
        administrative or judicial review under section 1869, 
        1878, or otherwise of--
                  ``(A) the development of the classification 
                system under paragraph (2), including the 
                establishment of groups and relative payment 
                weights for covered OPD services, of wage 
                adjustment factors, other adjustments, and 
                methods described in paragraph (2)(F);
                  ``(B) the calculation of base amounts under 
                paragraph (3);
                  ``(C) periodic adjustments made under 
                paragraph (6); and
                  ``(D) the establishment of a separate 
                conversion factor under paragraph (8)(B).''.
  (b) Coinsurance.--Section 1866(a)(2)(A)(ii) (42 U.S.C. 
1395cc(a)(2)(A)(ii)) is amended by adding at the end the 
following: ``In the case of items and services for which 
payment is made under part B under the prospective payment 
system established under section 1833(t), clause (ii) of the 
first sentence shall be applied by substituting for 20 percent 
of the reasonable charge, the applicable copayment amount 
established under section 1833(t)(5).''.
  (c) Treatment of Reduction in Copayment Amount.--Section 
1128A(i)(6) (42 U.S.C. 1320a-7a(i)(6)) is amended--
          (1) by striking ``or'' at the end of subparagraph 
        (B),
          (2) by striking the period at the end of subparagraph 
        (C) and inserting ``; or'', and
          (3) by adding at the end the following new 
        subparagraph:
                  ``(D) a reduction in the copayment amount for 
                covered OPD services under section 
                1833(t)(5)(B).''.
  (d) Conforming Amendments.--
          (1) Approved asc procedures performed in hospital 
        outpatient departments.--
                  (A)(i) Section 1833(i)(3)(A) (42 U.S.C. 
                13951(i)(3)(A)) is amended--
                          (I) by inserting ``before January 1, 
                        1999,'' after ``furnished'', and
                          (II) by striking ``in a cost 
                        reporting period''.
                  (ii) The amendment made by clause (i) shall 
                apply to services furnished on or after January 
                1, 1999.
                  (B) Section 1833(a)(4) (42 U.S.C. 
                13951(a)(4)) is amended by inserting ``or 
                subsection (t)'' before the semicolon.
          (2) Radiology and other diagnostic procedures.--
                  (A) Section 1833(n)(1)(A) (42 U.S.C. 
                1395l(n)(1)(A)) is amended by inserting ``and 
                before January 1, 1999,'' after ``October 1, 
                1988,'' and after ``October 1, 1989,''.
                  (B) Section 1833(a)(2)(E) (42 U.S.C. 
                1395l(a)(2)(E)) is amended by inserting ``or, 
                for services or procedures performed on or 
                after January 1, 1999, (t)'' before the 
                semicolon.
          (3) Other hospital outpatient services.--Section -
        1833(a)(2)(B) (42 U.S.C. 1395l(a)(2)(B)) is amended--
                  (A) in clause (i), by inserting ``furnished 
                before January 1, 1999,'' after ``(i)'',
                  (B) in clause (ii), by inserting ``before 
                January 1, 1999,'' after ``furnished'',
                  (C) by redesignating clause (iii) as clause 
                (iv),and
                  (D) by inserting after clause (ii), the 
                following new clause:
                          ``(iii) if such services are 
                        furnished on or after January 1, 1999, 
                        the amount determined under subsection 
                        (t), or''.

                 Subchapter B--Rehabilitation Services

SEC. 4421. REHABILITATION AGENCIES AND SERVICES.

  (a) Payment Based on Fee Schedule.--
          (1) Special payment rules.--Section 1833(a) (42 
        U.S.C. 1395l(a)) is amended--
                  (A) in paragraph (2) in the matter before 
                subparagraph (A), by inserting ``(C),'' before 
                ``(D)'';
                  (B) in paragraph (6), by striking ``and'' at 
                the end;
                  (C) in paragraph (7), by striking the period 
                at the end and inserting ``; and'';
                  (D) by adding at the end the following new 
                paragraph:
          ``(8) in the case of services described in section 
        1832(a)(2)(C) (that are not described in section 
        1832(a)(2)(B)), the amounts described in section 
        1834(k).''.
          (2) Payment rates.--Section 1834 (42 U.S.C. 1395m) is 
        amended by adding at the end the following new 
        subsection:
  ``(k) Payment for Outpatient Therapy Services.--
          ``(1) In general.--With respect to outpatient 
        physical therapy services (which includes outpatient 
        speech-language pathology services) and outpatient 
        occupational therapy services for which payment is 
        determined under this subsection, the payment basis 
        shall be--
                  ``(A) for services furnished during 1998, the 
                amount determined under paragraph (2); or
                  ``(B) for services furnished during a 
                subsequent year, 80 percent of the lesser of--
                          ``(i) the actual charge for the 
                        services, or
                          ``(ii) the applicable fee schedule 
                        amount (as defined in paragraph (3)) 
                        for the services.
          ``(2) Payment in 1998 based upon charges or adjusted 
        reasonable costs.--The amount under this paragraph for 
        services is the lesser of--
                  ``(A) the charges imposed for the services, 
                or
                  ``(B) the adjusted reasonable costs (as 
                defined in paragraph (4)) for the services,
        less 20 percent of the amount of the charges imposed 
        for such services.
          ``(3) Applicable fee schedule amount.--In this 
        paragraph, the term `applicable fee schedule amount' 
        means, with respect to services furnished in a year, 
        the fee schedule amount established under section 1848 
        for such services furnished during the year or, if 
        there is no such fee schedule amount established for 
        such services, for such comparable services as the 
        Secretary specifies.
          ``(4) Adjusted reasonable costs.--In paragraph (2), 
        the term `adjusted reasonable costs' means reasonable 
        costs determined reduced by--
                  ``(A) 5.8 percent of the reasonable costs for 
                operating costs, and
                  ``(B) 10 percent of the reasonable costs for 
                capital costs.
          ``(5) Uniform coding.--For claims for services 
        submitted on or after April 1, 1998, for which the 
        amount of payment is determined under this subsection, 
        the claim shall include a code (or codes) under a 
        uniform coding system specified by the Secretary that 
        identifies the services furnished.
          ``(6) Restraint on billing.--The provisions of 
        subparagraphs (A) and (B) of section 1842(b)(18) shall 
        apply to therapy services for which payment is made 
        under this subsection in the same manner as they apply 
        to services provided by a practitioner described in 
        section 1842(b)(18)(C).''.
  (b) Application of Standards to Outpatient Occupational and 
Physical Therapy Services Provided As an Incident to a 
Physician's Professional Services.--Section 1862(a), as amended 
by section 4401(b), (42 U.S.C. 1395y(a)) 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:
          ``(18) in the case of outpatient occupational therapy 
        services or outpatient physical therapy services 
        furnished as an incident to a physician's professional 
        services (as described in section 1861(s)(2)(A)), that 
        do not meet the standards and conditions under the 
        second sentence of section 1861(g) or 1861(p) as such 
        standards and conditions would apply to such therapy 
        services if furnished by a therapist.''.
  (c) Applying Financial Limitation to All Rehabilitation 
Services.--Section 1833(g) (42 U.S.C. 1395l(g)) is amended--
          (1) in the first sentence, by striking ``services 
        described in the second sentence of section 1861(p)'' 
        and inserting ``physical therapy services of the type 
        described in section 1861(p) (regardless of who 
        furnishes the services or whether the services may be 
        covered as physicians' services so long as the services 
        are furnished other than in a hospital setting)'', and
          (2) in the second sentence, by striking ``outpatient 
        occupational therapy services which are described in 
        the second sentence of section 1861(p) through the 
        operation of section 1861(g)'' and inserting 
        ``occupational therapy services (of the type that are 
        described in section 1861(p) through the operation of 
        section 1861(g)), regardless of who furnishes the 
        services or whether the services may be covered as 
        physicians' services so long as the services are 
        furnished other than in a hospital setting''.
  (d) Effective Date.--The amendments made by this section 
apply to services furnished on or after January 1, 1998; except 
that the amendments made by subsection (c) apply to services 
furnished on or after January 1, 1999.

SEC. 4422. COMPREHENSIVE OUTPATIENT REHABILITATION FACILITIES (CORF).

  (a) Payment Based on Fee Schedule.--
          (1) Special payment rules.--Section 1833(a) (42 
        U.S.C. 1395l(a)), as amended by section 4421(a), is 
        amended--
                  (A) in paragraph (3), by striking 
                ``subparagraphs (D) and (E) of section 
                1832(a)(2)'' and inserting ``section 
                1832(a)(2)(E)'';
                  (B) in paragraph (7), by striking ``and'' at 
                the end;
                  (C) in paragraph (8), by striking the period 
                at the end and inserting ``; and'';
                  (D) by adding at the end the following new 
                paragraph:
          ``(9) in the case of services described in section 
        1832(a)(2)(E), the amounts described in section 
        1834(k).''.
          (2) Payment rates.--Section 1834(k) (42 U.S.C. 
        1395m(k)), as added by section 4421(a), is amended--
                  (A) in the heading, by inserting ``and 
                Comprehensive Outpatient Rehabilitation 
                Facility Services'' after ``Therapy Services''; 
                and
                  (B) in paragraph (1), by inserting ``and with 
                respect to comprehensive outpatient 
                rehabilitation facility services'' after 
                ``occupational therapy services''.
  (b) Effective Date.--The amendments made by subsection (a) 
shall apply to services furnished on or after January 1, 1998, 
and to portions of cost reporting periods occurring on or after 
such date.

                    Subchapter C--Ambulance Services

SEC. 4431. PAYMENTS FOR AMBULANCE SERVICES.

  (a) Interim Reductions.--
          (1) Payments determined on reasonable cost basis.--
        Section 1861(v)(1) (42 U.S.C. 1395x(v)(1)) is amended 
        by adding at the end the following new subparagraph:
          ``(U) In determining the reasonable cost of ambulance 
        services (as described in subsection (s)(7)) provided 
        during a fiscal year (beginning with fiscal year 1998 
        and ending with fiscal year 2002), the Secretary shall 
        not recognize the costs per trip in excess of costs 
        recognized as reasonable for ambulance services 
        provided on a per trip basis during the previous fiscal 
        year after application of this subparagraph, increased 
        by the percentage increase in the consumer price index 
        for all urban consumers (U.S. city average) as 
        estimated by the Secretary for the 12-month period 
        ending with the midpoint of the fiscal year involved 
        reduced (in the case of each of fiscal years 1998 and 
        1999) by 1 percentage point.''.
          (2) Payments determined on reasonable charge basis.--
        Section 1842(b) (42 U.S.C. 1395u(b)) is amended by 
        adding at the end the following new paragraph:
  ``(19) For purposes of section 1833(a)(1), the reasonable 
charge for ambulance services (as described in section 
1861(s)(7)) provided during a fiscal year (beginning with 
fiscal year 1998 and ending with fiscal year 2002) may not 
exceed the reasonable charge for such services provided during 
the previous fiscal year after the application of this 
subparagraph, increased by the percentage increase in the 
consumer price index for all urban consumers (U.S. city 
average) as estimated by the Secretary for the 12-month period 
ending with the midpoint of the year involved reduced (in the 
case of each of fiscal years 1998 and 1999) by 1 percentage 
point.''.
  (b) Establishment of Prospective Fee Schedule.--
          (1) Payment in accordance with fee schedule.--Section 
        1833(a)(1) (42 U.S.C. 1395l(a)(1)), as amended by 
        section 4619(b)(1), is amended--
                  (A) by striking ``and (P)'' and inserting 
                ``(P)''; and
                  (B) by striking the semicolon at the end and 
                inserting the following: ``, and (Q) with 
                respect to ambulance service, the amounts paid 
                shall be 80 percent of the lesser of the actual 
                charge for the services or the amount 
                determined by a fee schedule established by the 
                Secretary under section 1834(l);''.
          (2) Establishment of schedule.--Section 1834 (42 
        U.S.C. 1395m), as amended by section 4421(a)(2), is 
        amended by adding at the end the following new 
        subsection:
  ``(l) Establishment of Fee Schedule for Ambulance Services.--
          ``(1) In general.--The Secretary shall establish a 
        fee schedule for payment for ambulance services under 
        this part through a negotiated rulemaking process 
        described in title 5, United States Code, and in 
        accordance with the requirements of this subsection.
          ``(2) Considerations.--In establishing such fee 
        schedule the Secretary shall--
                  ``(A) establish mechanisms to control 
                increases in expenditures for ambulance 
                services under this part;
                  ``(B) establish definitions for ambulance 
                services which link payments to the type of 
                services provided;
                  ``(C) consider appropriate regional and 
                operational differences;
                  ``(D) consider adjustments to payment rates 
                to account for inflation and other relevant 
                factors; and
                  ``(E) phase in the application of the payment 
                rates under the fee schedule in an efficient 
                and fair manner.
          ``(3) Savings.--In establishing such fee schedule the 
        Secretary shall--
                  ``(A) ensure that the aggregate amount of 
                payments made for ambulance services under this 
                part during 2000 does not exceed the aggregate 
                amount of payments which would have been made 
                for such services under this part during such 
                year if the amendments made by section 4431 of 
                the Balanced Budget Act of 1997 had not been 
                made; and
                  ``(B) set the payment amounts provided under 
                the fee schedule for services furnished in 2001 
                and each subsequent year at amounts equal to 
                the payment amounts under the fee schedule for 
                service furnished during the previous year, 
                increased by the percentage increase in the 
                consumer price index for all urban consumers 
                (U.S. city average) for the 12-month period 
                ending with June of the previous year.
          ``(4) Consultation.--In establishing the fee schedule 
        for ambulance services under this subsection, the 
        Secretary shall consult with various national 
        organizations representing individuals and entities who 
        furnish and regulate ambulance services and share with 
        such organizations relevant data in establishing such 
        schedule.
          ``(5) Limitation on review.--There shall be no 
        administrative or judicial review under section 1869 or 
        otherwise of the amounts established under the fee 
        schedule forambulance services under this subsection, 
including matters described in paragraph (2).
          ``(6) Restraint on billing.--The provisions of 
        subparagraphs (A) and (B) of section 1842(b)(18) shall 
        apply to ambulance services for which payment is made 
        under this subsection in the same manner as they apply 
        to services provided by a practitioner described in 
        section 1842(b)(18)(C).''.
          (3) Effective date.--The amendments made by this 
        section apply to ambulance services furnished on or 
        after January 1, 2000.
  (c) Authorizing Payment for Paramedic Intercept Service 
Providers in Rural Communities.--In promulgating regulations to 
carry out section 1861(s)(7) of the Social Security Act (42 
U.S.C. 1395x(s)(7)) with respect to the coverage of ambulance 
service, the Secretary of Health and Human Services may include 
coverage of advanced life support services (in this subsection 
referred to as ``ALS intercept services'') provided by a 
paramedic intercept service provider in a rural area if the 
following conditions are met:
          (1) The ALS intercept services are provided under a 
        contract with one or more volunteer ambulance services 
        and are medically necessary based on the health 
        condition of the individual being transported.
          (2) The volunteer ambulance service involved--
                  (A) is certified as qualified to provide 
                ambulance service for purposes of such section,
                  (B) provides only basic life support services 
                at the time of the intercept, and
                  (C) is prohibited by State law from billing 
                for any services.
          (3) The entity supplying the ALS intercept services--
                  (A) is certified as qualified to provide such 
                services under the medicare program under title 
                XVIII of the Social Security Act, and
                  (B) bills all recipients who receive ALS 
                intercept services from the entity, regardless 
                of whether or not such recipients are medicare 
                beneficiaries.

SEC. 4432. DEMONSTRATION OF COVERAGE OF AMBULANCE SERVICES UNDER 
                    MEDICARE THROUGH CONTRACTS WITH UNITS OF LOCAL 
                    GOVERNMENT.

  (a) Demonstration Project Contracts with Local Governments.--
The Secretary of Health and Human Services shall establish up 
to 3 demonstration projects under which, at the request of a 
county or parish, the Secretary enters into a contract with the 
county or parish under which--
          (1) the county or parish furnishes (or arranges for 
        the furnishing) of ambulance services for which payment 
        may be made under part B of title XVIII of the Social 
        Security Act for individuals residing in the county or 
        parish who are enrolled under such part, except that 
        the county or parish may not enter into the contract 
        unless the contract covers at least 80 percent of the 
        individuals residing in the county or parish who are 
        enrolled under such part;
          (2) any individual or entity furnishing ambulance 
        services under the contract meets the requirements 
        otherwise applicable to individuals and entities 
        furnishing such services under such part; and
          (3) for each month during which the contract is in 
        effect, the Secretary makes a capitated payment to the 
        county or parish in accordance with subsection (b).
The projects may extend over a period of not to exceed 3 years 
each.
  (b) Amount of Payment.--
          (1) In general.--The amount of the monthly payment 
        made for months occurring during a calendar year to a 
        county or parish under a demonstration project contract 
        under subsection (a) shall be equal to the product of--
                  (A) the Secretary's estimate of the number of 
                individuals covered under the contract for the 
                month; and
                  (B) \1/12\ of the capitated payment rate for 
                the year established under paragraph (2).
          (2) Capitated payment rate defined.--In this 
        subsection, the ``capitated payment rate'' applicable 
        to a contract under this subsection for a calendar year 
        is equal to 95 percent of--
                  (A) for the first calendar year for which the 
                contract is in effect, the average annual per 
                capita payment made under part B of title XVIII 
                of the Social Security Act with respect to 
                ambulance services furnished to such 
                individuals during the 3 most recent calendar 
                years for which data on the amount of such 
                payment is available; and
                  (B) for a subsequent year, the amount 
                provided under this paragraph for the previous 
                year increased by the percentage increase in 
                the consumer price index for all urban 
                consumers (U.S. city average) for the 12-month 
                period ending with June of the previous year.
  (c) Other Terms of Contract.--The Secretary and the county or 
parish may include in a contract under this section such other 
terms as the parties consider appropriate, including--
          (1) covering individuals residing in additional 
        counties or parishes (under arrangements entered into 
        between such counties or parishes and the county or 
        parish involved);
          (2) permitting the county or parish to transport 
        individuals to non-hospital providers if such providers 
        are able to furnish quality services at a lower cost 
        than hospital providers; or
          (3) implementing such other innovations as the county 
        or parish may propose to improve the quality of 
        ambulance services and control the costs of such 
        services.
  (d) Contract Payments in Lieu of Other Benefits.--Payments 
under a contract to a county or parish under this section shall 
be instead of the amounts which (in the absence of the 
contract) would otherwise be payable under partB of title XVIII 
of the Social Security Act for the services covered under the contract 
which are furnished to individuals who reside in the county or parish.
  (e) Report on Effects of Capitated Contracts.--
          (1) Study.--The Secretary shall evaluate the 
        demonstration projects conducted under this section. 
        Such evaluation shall include an analysis of the 
        quality and cost-effectiveness of ambulance services 
        furnished under the projects.
          (2) Report.--Not later than January 1, 2000, the 
        Secretary shall submit a report to Congress on the 
        study conducted under paragraph (1), and shall include 
        in the report such recommendations as the Secretary 
        considers appropriate, including recommendations 
        regarding modifications to the methodology used to 
        determine the amount of payments made under such 
        contracts and extending or expanding such projects.

                 CHAPTER 3--PAYMENT UNDER PARTS A AND B

SEC. 4441. PROSPECTIVE PAYMENT FOR HOME HEALTH SERVICES.

  (a) In General.--Title XVIII (42 U.S.C. 1395 et seq.), as 
amended by section 4011, is amended by adding at the end the 
following new section:

             ``prospective payment for home health services

  ``Sec. 1895. (a) In General.--Notwithstanding section 
1861(v), the Secretary shall provide, for cost reporting 
periods beginning on or after October 1, 1999, for payments for 
home health services in accordance with a prospective payment 
system established by the Secretary under this section.
  ``(b) System of Prospective Payment for Home Health 
Services.--
          ``(1) In general.--The Secretary shall establish 
        under this subsection a prospective payment system for 
        payment for all costs of home health services. Under 
        the system under this subsection all services covered 
        and paid on a reasonable cost basis under the medicare 
        home health benefit as of the date of the enactment of 
        the this section, including medical supplies, shall be 
        paid for on the basis of a prospective payment amount 
        determined under this subsection and applicable to the 
        services involved. In implementing the system, the 
        Secretary may provide for a transition (of not longer 
        than 4 years) during which a portion of such payment is 
        based on agency-specific costs, but only if such 
        transition does not result in aggregate payments under 
        this title that exceed the aggregate payments that 
        would be made if such a transition did not occur.
          ``(2) Unit of payment.--In defining a prospective 
        payment amount under the system under this subsection, 
        the Secretary shall consider an appropriate unit of 
        service and the number, type, and duration of visits 
        provided within that unit, potential changes in the mix 
        of services provided within that unit and their cost, 
        and a general system design that provides for continued 
        access to quality services.
          ``(3) Payment basis.--
                  ``(A) Initial basis.--
                          ``(i) In general.--Under such system 
                        the Secretary shall provide for 
                        computation of a standard prospective 
                        payment amount (or amounts). Such 
                        amount (or amounts) shall initially be 
                        based on the most current audited cost 
                        report data available to the Secretary 
                        and shall be computed in a manner so 
                        that the total amounts payable under 
                        the system for fiscal year 2000 shall 
                        be equal to the total amount that would 
                        have been made if the system had not 
                        been in effect but if the reduction in 
                        limits described in clause (ii) had 
                        been in effect. Such amount shall be 
                        standardized in a manner that 
                        eliminates the effect of variations in 
                        relative case mix and wage levels among 
                        different home health agencies in a 
                        budget neutral manner consistent with 
                        the case mix and wage level 
adjustmentsprovided under paragraph (4)(A). Under the system, the 
Secretary may recognize regional differences or differences based upon 
whether or not the services or agency are in an urbanized area.
                          ``(ii) Reduction.--The reduction 
                        described in this clause is a reduction 
                        by 15 percent in the cost limits and 
                        per beneficiary limits described in 
                        section 1861(v)(1)(L), as those limits 
                        are in effect on September 30, 1999.
                  ``(B) Annual update.--
                          ``(i) In general.--The standard 
                        prospective payment amount (or amounts) 
                        shall be adjusted for each fiscal year 
                        (beginning with fiscal year 2001) in a 
                        prospective manner specified by the 
                        Secretary by the home health market 
                        basket percentage increase applicable 
                        to the fiscal year involved.
                          ``(ii) Home health market basket 
                        percentage increase.--For purposes of 
                        this subsection, the term `home health 
                        market basket percentage increase' 
                        means, with respect to a fiscal year, a 
                        percentage (estimated by the Secretary 
                        before the beginning of the fiscal 
                        year) determined and applied with 
                        respect to the mix of goods and 
                        services included in home health 
                        services in the same manner as the 
                        market basket percentage increase under 
                        section 1886(b)(3)(B)(iii) is 
                        determined and applied to the mix of 
                        goods and services comprising inpatient 
                        hospital services for the fiscal year.
                  ``(C) Adjustment for outliers.--The Secretary 
                shall reduce the standard prospective payment 
                amount (or amounts) under this paragraph 
                applicable to home health services furnished 
                during a period by such proportion as will 
                result in an aggregate reduction in payments 
                for the period equal to the aggregate increase 
                in payments resulting from the application of 
                paragraph (5) (relating to outliers).
          ``(4) Payment computation.--
                  ``(A) In general.--The payment amount for a 
                unit of home health services shall be the 
                applicable standard prospective payment amount 
                adjusted as follows:
                          ``(i) Case mix adjustment.--The 
                        amount shall be adjusted by an 
                        appropriate case mix adjustment factor 
                        (established under subparagraph (B)).
                          ``(ii) Area wage adjustment.--The 
                        portion of such amount that the 
                        Secretary estimates to be attributable 
                        to wages and wage-related costs shall 
                        be adjusted for geographic differences 
                        in such costs by an area wage 
                        adjustment factor (established under 
                        subparagraph (C)) for the area in which 
                        the services are furnished or such 
                        other area as the Secretary may 
                        specify.
                  ``(B) Establishment of case mix adjustment 
                factors.--The Secretary shall establish 
                appropriate case mix adjustment factors for 
                home health services in a manner that explains 
                a significant amount of the variation in cost 
                among different units of services.
                  ``(C) Establishment of area wage adjustment 
                factors.--The Secretary shall establish area 
                wage adjustment factors that reflect the 
                relative level of wages and wage-related costs 
                applicable to the furnishing of home health 
                services in a geographic area compared to the 
                national average applicable level. Such factors 
                may be the factors used by the Secretary for 
                purposes of section 1886(d)(3)(E).
          ``(5) Outliers.--The Secretary may provide for an 
        addition or adjustment to the payment amount otherwise 
        made in the case of outliers because of unusual 
        variations in the type or amount of medically necessary 
        care. The total amount of the additional payments or 
        payment adjustments made under this paragraph with 
        respect to a fiscal year may not exceed 5 percent of 
        the total payments projected or estimated to be made 
        based on the prospective payment system under this 
        subsection in that year.
          ``(6) Proration of prospective payment amounts.--If a 
        beneficiary elects to transfer to, or receive services 
        from, another home health agency within the period 
        covered by the prospective payment amount, the payment 
        shall be prorated between the home health agencies 
        involved.
  ``(c) Requirements for Payment Information.--With respect to 
home health services furnished on or after October 1, 1998, no 
claim for such a service may be paid under this title unless--
          ``(1) the claim has the unique identifier (provided 
        under section 1842(r)) for the physician who prescribed 
        the services or made the certification described in 
        section 1814(a)(2) or 1835(a)(2)(A); and
          ``(2) in the case of a service visit described in 
        paragraph (1), (2), (3), or (4) of section 1861(m), the 
        claim has information (coded in an appropriate manner) 
        on the length of time of the service visit, as measured 
        in 15 minute increments.
  ``(d) Limitation on Review.--There shall be no administrative 
or judicial review under section 1869, 1878, or otherwise of--
          ``(1) the establishment of a transition period under 
        subsection (b)(1);
          ``(2) the definition and application of payment units 
        under subsection (b)(2);
          ``(3) the computation of initial standard prospective 
        payment amounts under subsection (b)(3)(A) (including 
        the reduction described in clause (ii) of such 
        subsection);
          ``(4) the adjustment for outliers under subsection 
        (b)(3)(C);
          ``(5) case mix and area wage adjustments under 
        subsection (b)(4);
          ``(6) any adjustments for outliers under subsection 
        (b)(5); and
          ``(7) the amounts or types of exceptions or 
        adjustments under subsection (b)(7).''.
  (b) Elimination of Periodic Interim Payments for Home Health 
Agencies.--Section 1815(e)(2) (42 U.S.C. 1395g(e)(2)) is 
amended--
          (1) by inserting ``and'' at the end of subparagraph 
        (C),
          (2) by striking subparagraph (D), and
          (3) by redesignating subparagraph (E) as subparagraph 
        (D).
  (c) Conforming Amendments.--
          (1) Payments under part a.--Section 1814(b) (42 
        U.S.C. 1395f(b)) is amended in the matter preceding 
        paragraph (1) by striking ``and 1886'' and inserting 
        ``1886, and 1895''.
          (2) Treatment of items and services paid under part 
        b.--
                  (A) Payments under part b.--Section 
                1833(a)(2) (42 U.S.C. 1395l(a)(2)) is amended--
                          (i) by amending subparagraph (A) to 
                        read as follows:
                  ``(A) with respect to home health services 
                (other than a covered osteoporosis drug) (as 
                defined in section 1861(kk)), the amount 
                determined under the prospective payment system 
                under section 1895;'';
                          (ii) by striking ``and'' at the end 
                        of subparagraph (E);
                          (iii) by adding ``and'' at the end of 
                        subparagraph (F); and
                          (iv) by adding at the end the 
                        following new subparagraph:
                  ``(G) with respect to items and services 
                described in section 1861(s)(10)(A), the lesser 
                of--
                          ``(i) the reasonable cost of such 
                        services, as determined under section 
                        1861(v), or
                          ``(ii) the customary charges with 
                        respect to such services,
                or, if such services are furnished by a public 
                provider of services, or by another provider 
                which demonstrates to the satisfaction of the 
                Secretary that a significant portion of its 
                patients are low-income (and requests that 
                payment be made under this provision), free of 
                charge or at nominal charges to the public, the 
                amount determined in accordance with section 
                1814(b)(2);''.
                  (B) Requiring payment for all items and 
                services to be made to agency.--
                          (i) In general.--The first sentence 
                        of section 1842(b)(6) (42 U.S.C. 
                        1395u(b)(6)), as amended by section 
                        4401(b)(2), is amended--
                                  (I) by striking ``and (E)'' 
                                and inserting ``(E)''; and
                                  (II) by striking the period 
                                at the end and inserting the 
                                following: ``, and (F) in the 
                                case of home health services 
                                furnished to an individual who 
                                (at the time the item or 
                                service is furnished) is under 
                                a plan of care of a home health 
                                agency, payment shall be made 
                                to the agency (without regard 
                                to whether or not the item or 
                                service was furnished by the 
                                agency, by others under 
                                arrangement with them made by 
                                the agency, or when any other 
                                contracting or consulting 
                                arrangement, or otherwise).''.
                          (ii) Conforming amendment.--Section 
                        1832(a)(1) (42 U.S.C. 1395k(a)(1)), as 
                        amended by section 4401(b), is amended 
                        by striking ``and section 
                        1842(b)(6)(E)'' and inserting ``, 
                        section 1842(b)(6)(E), and section 
                        1842(b)(6)(F)''.
                  (C) Exclusions from coverage.--Section 
                1862(a) (42 U.S.C. 1395y(a)), as amended by 
                sections 4401(b) and 4421(b), is amended--
                          (i) by striking ``or'' at the end of 
                        paragraph (17);
                          (ii) by striking the period at the 
                        end of paragraph (18) and inserting ``; 
                        or''; and
                          (iii) inserting after paragraph (18) 
                        the following new paragraph:
          ``(19) where such expenses are for home health 
        services furnished to an individual who is under a plan 
        of care of the home health agency if the claim for 
        payment for such services is not submitted by the 
        agency.''.
  (d) Effective Date.--Except as otherwise provided, the 
amendments made by this section shall apply to cost reporting 
periods beginning on or after October 1, 1999.

             Subtitle G--Provisions Relating to Part B Only

                    CHAPTER 1--PHYSICIANS' SERVICES

SEC. 4601. ESTABLISHMENT OF SINGLE CONVERSION FACTOR FOR 1998.

  (a) In General.--Section 1848(d)(1) (42 U.S.C. 1395w-4(d)(1)) 
is amended--
          (1) by redesignating subparagraph (C) as subparagraph 
        (D), and
          (2) by inserting after subparagraph (B) the 
        following:
                  ``(C) Special rules for 1998.--The single 
                conversion factor for 1998 under this 
                subsection shall be the conversion factor for 
                primary care services for 1997, increased by 
                the Secretary's estimate of the weighted 
                average of the three separate updates that 
                would otherwise occur were it not for the 
                enactment of chapter 1 of subtitle G of title X 
                of the Balanced Budget Act of 1997.''.
  (b) Conforming Amendments.--Section 1848 (42 U.S.C. 1395w-4) 
is amended--
          (1) by striking ``(or factors)'' each place it 
        appears in subsection (d)(1)(A) and (d)(1)(D)(ii) (as 
        redesignated by subsection (a)(1)),
          (2) in subsection (d)(1)(A), by striking ``or 
        updates'',
          (3) in subsection (d)(1)(D) (as redesignated by 
        subsection (a)(1)), by striking ``(or updates)'' each 
        place it appears, and
          (4) in subsection (i)(1)(C), by striking ``conversion 
        factors'' and inserting ``the conversion factor''.

SEC. 4602. ESTABLISHING UPDATE TO CONVERSION FACTOR TO MATCH SPENDING 
                    UNDER SUSTAINABLE GROWTH RATE.

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

SEC. 4603. REPLACEMENT OF VOLUME PERFORMANCE STANDARD WITH SUSTAINABLE 
                    GROWTH RATE.

  (a) In General.--Section 1848(f) (42 U.S.C. 1395w-4(f)) is 
amended by striking paragraphs (2) through (5) and inserting 
the following:
          ``(2) Specification of growth rate.--The sustainable 
        growth rate for all physicians' services for a fiscal 
        year (beginning with fiscal year 1998) shall be equal 
        to the product of--
                  ``(A) 1 plus the Secretary's estimate of the 
                weighted average percentage increase (divided 
                by 100) in the fees for all physicians' 
                services in the fiscal year involved,
                  ``(B) 1 plus the Secretary's estimate of the 
                percentage change (divided by 100) in the 
                average number of individuals enrolled under 
                this part (other than MedicarePlus plan 
                enrollees) from the previous fiscal year to the 
                fiscal year involved,
                  ``(C) 1 plus the Secretary's estimate of the 
                projected percentage growth in real gross 
                domestic product per capita (divided by 100) 
                from the previous fiscal year to the fiscal 
                year involved, and
                  ``(D) 1 plus the Secretary's estimate of the 
                percentage change (divided by 100) in 
                expenditures for all physicians' services in 
                the fiscal year (compared with the previous 
                fiscal year) which will result from changes in 
                law and regulations, determined without taking 
                into account estimated changes in expenditures 
                due to changes in the volume and intensity of 
                physicians' services resulting from changes in 
                the update to the conversion factor under 
                subsection (d)(3),
        minus 1 and multiplied by 100.
          ``(3) Definitions.--In this subsection:
                  ``(A) Services included in physicians' 
                services.--The term `physicians' services' 
                includes other items and services (such as 
                clinical diagnostic laboratory tests and 
                radiology services), specified by the 
                Secretary, that are commonly performed or 
                furnished by a physician or in a physician's 
                office, but does not include services furnished 
                to a MedicarePlus plan enrollee.
                  ``(B) MedicarePlus plan enrollee.--The term 
                `MedicarePlus plan enrollee' means, with 
                respect to a fiscal year, an individual 
                enrolled under this part who has elected to 
                receive benefits under this title for the 
                fiscal year through a MedicarePlus plan offered 
                under part C, and also includes an individual 
                who is receiving benefits under this part 
                through enrollment with an eligible 
                organization with a risk-sharing contract under 
                section 1876.''.
  (b) Conforming Amendments.--Section 1848(f) (42 U.S.C. 1395w-
4(f)) is amended--
          (1) in the heading, by striking ``Volume Performance 
        Standard Rates of Increase'' and inserting 
        ``Sustainable Growth Rate''; and
          (2) in paragraph (1)--
                  (A) in the heading, by striking ``volume 
                performance standard rates of increase'' and 
                inserting ``sustainable growth rate'',
                  (B) by striking subparagraphs (A) and (B); 
                and
                  (C) in paragraph (1)(C)--
                          (i) in the heading, by striking 
                        ``performance standard rates of 
                        increase'' and inserting ``sustainable 
                        growth rate'';
                          (ii) in the first sentence, by 
                        striking ``with 1991), the performance 
                        standard rates of increase'' and all 
                        that follows through the first period 
                        and inserting ``with 1999), the 
                        sustainable growth rate for the fiscal 
                        year beginning in that year.''; and
                          (iii) in the second sentence, by 
                        striking ``January 1, 1990, the 
                        performance standard rate of increase 
                        under subparagraph (D) for fiscal year 
                        1990'' and inserting ``January 1, 1999, 
                        the sustainable growth rate for fiscal 
                        year 1999''.

SEC. 4604. PAYMENT RULES FOR ANESTHESIA SERVICES.

  (a) In General.--Section 1848(d)(1) (42 U.S.C. 1395w-
4(d)(1)), as amended by section 4601, is amended--
                  (A) in subparagraph (C), striking ``The 
                single'' and inserting ``Except as provided in 
                subparagraph (D), the single'';
                  (B) by redesignating subparagraph (D) as 
                subparagraph (E); and
                  (C) by inserting after subparagraph (C) the 
                following new subparagraph:
                  ``(D) Special rules for anesthesia 
                services.--The separate conversion factor for 
                anesthesia services for a year shall be equal 
                to 46 percent of the single conversion factor 
                established for other physicians' services, 
                except as adjusted for changes in work, 
                practice expense, or malpractice relative value 
                units. ''.
  (b) Classification of Anesthesia Services.--The first 
sentence of section 1848(j)(1) (42 U.S.C. 1395w-4(j)(1)) is 
amended--
          (1) by striking ``and including anesthesia 
        services''; and
          (2) by inserting before the period the following: 
        ``(including anesthesia services)''.
  (c) Effective Date.--The amendments made by this section 
shall apply to services furnished on or after January 1, 1998.

SEC. 4605. IMPLEMENTATION OF RESOURCE-BASED PHYSICIAN PRACTICE EXPENSE.

  (a) 1-Year Delay in Implementation.--Section 1848(c) (42 
U.S.C. 1395w-4(c)) is amended--
          (1) in paragraph (2)(C)(ii), in the matter before 
        subclause (I) and after subclause (II), by striking 
        ``1998'' and inserting ``1999'' each place it appears; 
        and
          (2) in paragraph (3)(C)(ii), by striking ``1998'' and 
        inserting ``1999''.
  (b) Phased-in Implementation.--
          (1) In general.--Section 1848(c)(2)(C)(ii) (42 U.S.C. 
        1395w-4(c)(2)(C)(ii)) is further amended--
                  (A) by striking the comma at the end of 
                clause (ii) and inserting a period and the 
                following:
                        ``For 1999, such number of units shall 
                        be determined based 75 percent on such 
                        product and based 25 percent on the 
                        relative practice expense resources 
                        involved in furnishing the service. For 
                        2000, such number of units shall be 
                        determined based 50 percent on such 
                        product and based 50 percent on such 
                        relative practice expense resources. 
                        For 2001, such number of units shall be 
                        determined based 25 percent on such 
                        product and based 75 percent on such 
                        relative practice expense resources. 
                        For a subsequent year, such number of 
                        units shall be determined based 
                        entirely on such relative practice 
                        expense resources.''.
          (2) Conforming amendment.--Section 1848(c)(3)(C)(ii) 
        (42 U.S.C. 1395w-4(c)(3)(C)(ii)), as amended by 
        subsection (a)(2), is amended by striking ``1999'' and 
        inserting ``2002''.
  (c) Requirements for Developing New Resource-Based Practice 
Expense Relative Value Units.--
          (1) Development.--For purposes of section 
        1848(c)(2)(C) of the Social Security Act, the Secretary 
        of Health and Human Services shall develop new 
        resource-based relative value units. In developing such 
        units the Secretary shall--
                  (A) utilize, to the maximum extent 
                practicable, generally accepted accounting 
                principles and standards which (i) recognize 
                all staff, equipment, supplies, and expenses, 
                not just those which can be tied to specific 
                procedures, and (ii) use actual data on 
                equipment utilization and other key 
                assumptions, such as the proportion of costs 
                which are direct versus indirect;
                  (B) study whether hospital cost reduction 
                efforts and changing practice patterns may have 
                increased physician practice costs under part B 
                of the medicare program;
                  (C) consider potential adverse effects on 
                patient access under the medicare program; and
                  (D) consult with organizations representing 
                physicians regarding methodology and data to be 
                used, including data for impact projections, in 
                order to ensure that sufficient input has been 
                received by the affected physician community.
          (2) Report.--The Secretary shall transmit a report by 
        March 1, 1998, on the development of resource-based 
        relative value units under paragraph (1) to the 
        Committee on Ways and Means and the Committee on 
        Commerce of the House of Representatives and the 
        Committee on Finance of the Senate. The report shall 
        include a presentation of data to be used in developing 
        the value units and an explanation of the methodology.
          (3) Notice of proposed rulemaking.--The Secretary 
        shall publish a notice of proposed rulemaking with the 
        new resource-based relative value units on or before 
        May 1, 1998, and shall allow for a 90-day public 
        comment period.
          (4) Items included.--The proposed new rule shall 
        include the following:
                  (A) Detailed impact projections which compare 
                new proposed payment amounts on data on actual 
                physician practice expenses.
                  (B) Impact projections for specialties and 
                subspecialties, geographic payment localities, 
                urban versus rural localities, and academic 
                versus nonacademic medical staffs.
                  (C) Impact projections on access to care for 
                medicare patients and physician employment of 
                clinical and administrative staff.

SEC. 4606. DISSEMINATION OF INFORMATION ON HIGH PER DISCHARGE RELATIVE 
                    VALUES FOR IN-HOSPITAL PHYSICIANS' SERVICES.

  (a) Determination and Notice Concerning Hospital-Specific Per 
Discharge Relative Values.--
          (1) In general.--For 1999 and 2001 the Secretary of 
        Health and Human Services shall determine for each 
        hospital--
                  (A) the hospital-specific per discharge 
                relative value under subsection (b); and
                  (B) whether the hospital-specific relative 
                value is projected to be excessive (as 
                determined based on such value represented as a 
                percentage of the median of hospital-specific 
                per discharge relative values determined under 
                subsection (b)).
          (2) Notice to medical staffs and carriers.--The 
        Secretary shall notify the medical executive committee 
        of each hospital identifies under paragraph (1)(B) as 
        having an excessive hospital-specific relative value, 
        of the determinations made with respect to the medical 
        staff under paragraph (1).
  (b) Determination of Hospital-Specific Per Discharge Relative 
Values.--
          (1) In general.--For purposes of this section, the 
        hospital-specific per discharge relative value for the 
        medical staff of a hospital (other than a teaching 
        hospital) for a year, shall be equal to the average per 
        discharge relative value (as determined under section 
        1848(c)(2) of the Social Security Act) for physicians' 
        services furnished to inpatients of the hospital by the 
        hospital's medical staff (excluding interns and 
        residents) during the second year preceding that 
        calendar year, adjusted for variations in case-mix and 
        disproportionate share status among hospitals (as 
        determined by the Secretary under paragraph (3)).
          (2) Special rule for teaching hospitals.--The 
        hospital-specific relative value projected for a 
        teaching hospital in a year shall be equal to the sum 
        of--
                  (A) the average per discharge relative value 
                (as determined under section 1848(c)(2) of such 
                Act) for physicians' services furnished to 
                inpatients of the hospital by the hospital's 
                medical staff (excluding interns and residents) 
                during the second year preceding that calendar 
                year, and
                  (B) the equivalent per discharge relative 
                value (as determined under such section) for 
                physicians' services furnished to inpatients of 
                the hospital by interns and residents of the 
                hospital during the second year preceding that 
                calendar year, adjusted for variations in case-
                mix, disproportionate share status, and 
                teaching status among hospitals (as determined 
                by the Secretary under paragraph (3)).
        The Secretary shall determine the equivalent relative 
        value unit per discharge for interns and residents 
        based on the best available data and may make such 
        adjustment in the aggregate.
          (3) Adjustment for teaching and disproportionate 
        share hospitals.--The Secretary shall adjust the 
        allowable per discharge relative values otherwise 
        determined under this subsection to take into account 
        the needs of teaching hospitals and hospitals receiving 
        additional payments under subparagraphs (F) and (G) of 
        section 1886(d)(5) of the Social Security Act. The 
        adjustment for teaching status or disproportionate 
        share shall not be less than zero.
  (c) Definitions.--For purposes of this section:
          (1) Hospital.--The term ``hospital'' means a 
        subsection (d) hospital as defined in section 1886(d) 
        of the Social Security Act (42 U.S.C. 1395ww(d)) .
          (2) Medical staff.--An individual furnishing a 
        physician's service is considered to be on the medical 
        staff of a hospital--
                  (A) if (in accordance with requirements for 
                hospitals established by the Joint Commission 
                on Accreditation of Health Organizations)--
                          (i) the individual is subject to 
                        bylaws, rules, and regulations 
                        established by the hospital to provide 
                        a framework for the self-governance of 
                        medical staff activities,
                          (ii) subject to the bylaws, rules, 
                        and regulations, the individual has 
                        clinical privileges granted by the 
                        hospital's governing body, and
                          (iii) under the clinical privileges, 
                        the individual may provide physicians'' 
                        services independently within the scope 
                        of the individual's clinical 
                        privileges, or
                  (B) if the physician provides at least one 
                service to an individual entitled to benefits 
                under this title in that hospital.
          (3) Physicians' services.--The term ``physicians'' 
        services'' means the services described in section 
        1848(j)(3) of the Social Security Act (42 U.S.C. 1395w-
        4(j)(3)).
          (4) Rural area; urban area.--The terms ``rural area'' 
        and ``urban area'' have the meaning given those terms 
        under section 1886(d)(2)(D) of such Act (42 U.S.C. 
        1395ww(d)(2)(D)).
          (5) Secretary.--The term ``Secretary'' means the 
        Secretary of Health and Human Services .
          (6) Teaching hospital.--The term ``teaching 
        hospital'' means a hospital which has a teaching 
        program approved as specified in section 1861(b)(6) of 
        the Social Security Act (42 U.S.C. 1395x(b)(6)).

SEC. 4607. NO X-RAY REQUIRED FOR CHIROPRACTIC SERVICES.

  (a) In General.--Section 1861(r)(5) (42 U.S.C. 1395x(r)(5)) 
is amended by striking ``demonstrated by X-ray to exist''.
  (b) Effective Date.--The amendment made by subsection (a) 
applies to services furnished on or after January 1, 1998.
  (c) Utilization Guidelines.--The Secretary of Health and 
Human Services shall develop and implement utilization 
guidelines relating to the coverage of chiropractic services 
under part B of title XVIII of the Social Security Act in cases 
in which a subluxation has not been demonstrated by X-ray to 
exist.

SEC. 4608. TEMPORARY COVERAGE RESTORATION FOR PORTABLE 
                    ELECTROCARDIOGRAM TRANSPORTATION.

  (a) In General.--Effective for electrocardiogram tests 
performed during 1998, the Secretary of Health and Human 
Services shall restore separate payment, under part B of title 
XVIII of the Social Security Act, for the transportation of 
electrocardiogram equipment (HCPCS code R0076) based upon the 
status code and relative value units established for such 
service as of December 31, 1996.
  (b) Report.--By not later than July 1, 1998, the Comptroller 
General shall submit to Congress a report on the 
appropriateness of continuing such payment.

                  CHAPTER 2--OTHER PAYMENT PROVISIONS

SEC. 4611. PAYMENTS FOR DURABLE MEDICAL EQUIPMENT.

  (a) Reduction in Payment Amounts for Items of Durable Medical 
Equipment.--
          (1) Freeze in update for covered items.--Section 
        1834(a)(14) (42 U.S.C. 1395m(a)(14)) is amended--
                  (A) by striking ``and'' at the end of 
                subparagraph (A);
                  (B) in subparagraph (B)--
                          (i) by striking ``a subsequent year'' 
                        and inserting ``1993, 1994, 1995, 1996, 
                        and 1997'', 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 1998 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) and inserting a semicolon;
                  (B) in clause (iv), by striking ``a 
                subsequent year'' and inserting ``1996 and 
                1997'', and
                  (C) by adding at the end the following new 
                clauses:
                          ``(v) for each of the years 1998 
                        through 2002, 1 percent, and
                          ``(vi) 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;''.
  (b) Payment Freeze for Parenteral and Enteral Nutrients, 
Supplies, and Equipment.--In determining the amount of payment 
under part B of title XVIII of the Social Security Act with 
respect to parenteral and enteral nutrients, supplies, and 
equipment during each of the years 1998 through 2002, the 
charges determined to be reasonable with respect to such 
nutrients, supplies, and equipment may not exceed the charges 
determined to be reasonable with respect to such nutrients, 
supplies, and equipment during 1995.

SEC. 4612. 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, 1995, 1996, and 1997'', 
                and
                  (B) by striking the period at the end and 
                inserting a semicolon; and
          (3) by adding at the end the following new clauses:
                          ``(v) in each of the years 1998 
                        through 2002, 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. 4613. 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 inserting ``and 
1998 through 2002'' after ``1995''.
  (b) Lowering Cap on Payment Amounts.--Section 1833(h)(4)(B) 
(42 U.S.C. 1395l(h)(4)(B)) is amended--
          (1) in clause (vi), by striking ``and'' at the end;
          (2) in clause (vii)--
                  (A) by inserting ``and before January 1, 
                1998,'' after ``1995,'', and
                  (B) by striking the period at the end and 
                inserting ``, and''; and
          (3) by adding at the end the following new clause:
          ``(viii) after December 31, 1997, is equal to 72 
        percent of such median.''.

SEC. 4614. SIMPLIFICATION IN ADMINISTRATION OF LABORATORY TESTS.

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

SEC. 4615. UPDATES FOR AMBULATORY SURGICAL SERVICES.

  Section 1833(i)(2)(C) (42 U.S.C. 1395l(i)(2)(C)) is amended 
by striking all that follows ``shall be increased'' and 
inserting the following: ``as follows:
          ``(i) For fiscal years 1996 and 1997, by the 
        percentage increase in the consumer price index for all 
        urban consumers (U.S. city average) as estimated by the 
        Secretary for the 12-month period ending with the 
        midpoint of the year involved.
          ``(ii) For each of fiscal years 1998 through 2002 by 
        such percentage increase minus 2.0 percentage points.
          ``(iii) For each succeeding fiscal year by such 
        percentage increase.''.

SEC. 4616. REIMBURSEMENT FOR DRUGS AND BIOLOGICALS.

  (a) In General.--Section 1842 (42 U.S.C. 1395u) is amended by 
inserting after subsection (n) the following new subsection:
  ``(o) If a physician's, supplier's, or any other person's 
bill or request for payment for services includes a charge for 
a drug or biological for which payment may be made under this 
part and the drug or biological is not paid on a cost or 
prospective payment basis as otherwise provided in this part, 
the amountpayable for the drug or biological is equal to 95 
percent of the average wholesale price.''.
  (b) Effective Date.--The amendments made by subsection (a) 
apply to drugs and biologicals furnished on or after January 1, 
1998.

SEC. 4617. COVERAGE OF ORAL ANTI-NAUSEA DRUGS UNDER CHEMOTHERAPEUTIC 
                    REGIMEN.

  (a) In General.--Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)), 
as amended, is amended by inserting after subparagraph (S) the 
following new subparagraph:
          ``(T) an oral drug (which is approved by the Federal 
        Food and Drug Administration) prescribed for use as an 
        acute anti-emetic used as part of an anticancer 
        chemotherapeutic regimen if the drug is administered by 
        a physician (or as prescribed by a physician)--
                  ``(i) for use immediately before, immediately 
                after, or at the time of the administration of 
                the anticancer chemotherapeutic agent; and
                  ``(ii) as a full replacement for the anti-
                emetic therapy which would otherwise be 
                administered intravenously.''.
  (b) Payment Levels.--Section 1834 (42 U.S.C. 1395m), as 
amended by sections 4421(a)(2) and 4431(b)(2), is amended by 
adding at the end the following new subsection:
  ``(m) Special Rules for Payment for Oral Anti-Nausea Drugs.--
          ``(1) Limitation on per dose payment basis.--Subject 
        to paragraph (2), the per dose payment basis under this 
        part for oral anti-nausea drugs (as defined in 
        paragraph (3)) administered during a year shall not 
        exceed 90 percent of the average per dose payment basis 
        for the equivalent intravenous anti-emetics 
        administered during the year, as computed based on the 
        payment basis applied during 1996.
          ``(2) Aggregate limit.--The Secretary shall make such 
        adjustment in the coverage of, or payment basis for, 
        oral anti-nausea drugs so that coverage of such drugs 
        under this part does not result in any increase in 
        aggregate payments per capita under this part above the 
        levels of such payments per capita that would otherwise 
        have been made if there were no coverage for such drugs 
        under this part.
          ``(3) Oral anti-nausea drugs defined.--For purposes 
        of this subsection, the term `oral anti-nausea drugs' 
        means drugs for which coverage is provided under this 
        part pursuant to section 1861(s)(2)(P).''.
  (c) Effective Date.--The amendments made by this section 
shall apply to items and services furnished on or after January 
1, 1998.

SEC. 4618. RURAL HEALTH CLINIC SERVICES.

  (a) Per-Visit Payment Limits for Provider-Based Clinics.--
          (1) Extension of limit.--
                  (A) In general.--The matter in section 
                1833(f) (42 U.S.C. 1395l(f)) preceding 
                paragraph (1) is amended by striking 
                ``independent rural health clinics'' and 
                inserting ``rural health clinics (other than 
                such clinics in rural hospitals with less than 
                50 beds)''.
                  (B) Effective date.--The amendment made by 
                subparagraph (A) applies to services furnished 
                after 1997.
          (2) Technical clarification.--Section 1833(f)(1) (42 
        U.S.C. 1395l(f)(1)) is amended by inserting ``per 
        visit'' after ``$46''.
  (b) Assurance of Quality Services.--
          (1) In general.--Subparagraph (I) of the first 
        sentence of section 1861(aa)(2) (42 U.S.C. 
        1395x(aa)(2)) is amended to read as follows:
                  ``(I) has a quality assessment and 
                performance improvement program, and 
                appropriate procedures for review of 
                utilization of clinic services, as the 
                Secretary may specify,''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall take effect on January 1, 1998.
  (c) Waiver of Certain Staffing Requirements Limited to 
Clinics in Program.--
          (1) In general.--Section 1861(aa)(7)(B) (42 U.S.C. 
        1395x(aa)(7)(B)) is amended by inserting before the 
        period at the end the following: ``, or if the facility 
        has not yet been determined to meet the requirements 
        (including subparagraph (J) of the first sentence of 
        paragraph (2)) of a rural health clinic''.
          (2) Effective date.--The amendment made by paragraph 
        (1) applies to waiver requests made after 1997.
  (d) Refinement of Shortage Area Requirements.--
          (1) Designation reviewed triennially.--Section 
        1861(aa)(2) (42 U.S.C. 1395x(aa)(2)) is amended in the 
        second sentence, in the matter in clause (i) preceding 
        subclause (I)--
                  (A) by striking ``and that is designated'' 
                and inserting ``and that, within the previous 
                three-year period, has been designated''; and
                  (B) by striking ``or that is designated'' and 
                inserting ``or designated''.
          (2) Area must have shortage of health care 
        practitioners.--Section 1861(aa)(2) (42 U.S.C. 
        1395x(aa)(2)), as amended by paragraph (1), is further 
        amended in the second sentence, in the matter in clause 
        (i) preceding subclause (I)--
                  (A) by striking the comma after ``personal 
                health services''; and
                  (B) by inserting ``and in which there are 
                insufficient numbers of needed health care 
                practitioners (as determined by the 
                Secretary),'' after ``Bureau of the Census)''.
          (3) Previously qualifying clinics grandfathered only 
        to prevent shortage.--Section 1861(aa)(2) (42 U.S.C. 
        1395x(aa)(2)) is amended in thethird sentence by 
inserting before the period ``if it is determined, in accordance with 
criteria established by the Secretary in regulations, to be essential 
to the delivery of primary care services that would otherwise be 
unavailable in the geographic area served by the clinic''.
          (4) Effective dates; implementing regulations.--
                  (A) In general.--Except as otherwise 
                provided, the amendments made by the preceding 
                paragraphs take effect on January 1 of the 
                first calendar year beginning at least one 
                month after enactment of this Act.
                  (B) Current rural health clinics.--The 
                amendments made by the preceding paragraphs 
                take effect, with respect to entities that are 
                rural health clinics under title XVIII of the 
                Social Security Act on the date of enactment of 
                this Act, on January 1 of the second calendar 
                year following the calendar year specified in 
                subparagraph (A).
                  (C) Grandfathered clinics.--
                          (i) In general.--The amendment made 
                        by paragraph (3) shall take effect on 
                        the effective date of regulations 
                        issued by the Secretary under clause 
                        (ii).
                          (ii) Regulations.--The Secretary 
                        shall issue final regulations 
                        implementing paragraph (3) that shall 
                        take effect no later than January 1 of 
                        the third calendar year beginning at 
                        least one month after enactment of this 
                        Act.

SEC. 4619. INCREASED MEDICARE REIMBURSEMENT FOR NURSE PRACTITIONERS AND 
                    CLINICAL NURSE SPECIALISTS.

  (a) Removal of Restrictions on Settings.--
          (1) In general.--Clause (ii) of section 1861(s)(2)(K) 
        (42 U.S.C. 1395x(s)(2)(K)) is amended to read as 
        follows:
          ``(ii) services which would be physicians' services 
        if furnished by a physician (as defined in subsection 
        (r)(1)) and which are performed by a nurse practitioner 
        or clinical nurse specialist (as defined in subsection 
        (aa)(5)) working in collaboration (as defined in 
        subsection (aa)(6)) with a physician (as defined in 
        subsection (r)(1)) which the nurse practitioner or 
        clinical nurse specialist is legally authorized to 
        perform by the State in which the services are 
        performed, and such services and supplies furnished as 
        an incident to such services as would be covered under 
        subparagraph (A) if furnished incident to a physician's 
        professional service, but only if no facility or other 
        provider charges or is paid any amounts with respect to 
        the furnishing of such services;''.
          (2) Conforming amendments.--(A) Section 1861(s)(2)(K) 
        of such Act (42 U.S.C. 1395x(s)(2)(K)) is further 
        amended--
                  (i) in clause (i), by inserting ``and such 
                services and supplies furnished as incident to 
                such services as would be covered under 
                subparagraph (A) if furnished incident to a 
                physician's professional service; and'' after 
                ``are performed,''; and
                  (ii) by striking clauses (iii) and (iv).
          (B) Section 1861(b)(4) (42 U.S.C. 1395x(b)(4)) is 
        amended by striking ``clauses (i) or (iii) of 
        subsection (s)(2)(K)'' and inserting ``subsection 
        (s)(2)(K)''.
          (C) Section 1862(a)(14) (42 U.S.C. 1395y(a)(14)) is 
        amended by striking ``section 1861(s)(2)(K)(i) or 
        1861(s)(2)(K)(iii)'' and inserting ``section 
        1861(s)(2)(K)''.
          (D) Section 1866(a)(1)(H) (42 U.S.C. 1395cc(a)(1)(H)) 
        is amended by striking ``section 1861(s)(2)(K)(i) or 
        1861(s)(2)(K)(iii)'' and inserting ``section 
        1861(s)(2)(K)''.
          (E) Section 1888(e)(2)(A)(ii) (42 U.S.C. 
        1395yy(e)(2)(A)(ii)), as added by section 10401(a), is 
        amended by striking ``through (iii)'' and inserting 
        ``and (ii)''.
  (b) Increased Payment.--
          (1) Fee schedule amount.--Clause (O) of section 
        1833(a)(1) (42 U.S.C. 1395l(a)(1)) is amended to read 
        as follows: ``(O) with respect to services described in 
        section 1861(s)(2)(K)(ii) (relating to nurse 
        practitioner or clinical nurse specialist services), 
        the amounts paid shall be equal to 80 percent of (i) 
        the lesser of the actual charge or 85 percent of the 
        fee schedule amount provided under section 1848, or 
        (ii) in the case of services as an assistant at 
        surgery, the lesser of the actual charge or 85 percent 
        of the amount that would otherwise be recognized if 
        performed by a physician who is serving as an assistant 
        at surgery; and''.
          (2) Conforming amendments.--(A) Section 1833(r) (42 
        U.S.C. 1395l(r)) is amended--
                  (i) in paragraph (1), by striking ``section 
                1861(s)(2)(K)(iii) (relating to nurse 
                practitioner or clinical nurse specialist 
                services provided in a rural area)'' and 
                inserting ``section 1861(s)(2)(K)(ii) (relating 
                to nurse practitioner or clinical nurse 
                specialist services)'';
                  (ii) by striking paragraph (2);
                  (iii) in paragraph (3), by striking ``section 
                1861(s)(2)(K)(iii)'' and inserting ``section 
                1861(s)(2)(K)(ii)''; and
                  (iv) by redesignating paragraph (3) as 
                paragraph (2).
          (B) Section 1842(b)(12)(A) (42 U.S.C. 
        1395u(b)(12)(A)) is amended, in the matter preceding 
        clause (i), by striking ``clauses (i), (ii), or (iv) of 
        section 1861(s)(2)(K) (relating to physician assistants 
        and nurse practitioners)'' and inserting ``section 
        1861(s)(2)(K)(i) (relating to physician assistants)''.
  (c) Direct Payment for Nurse Practitioners and Clinical Nurse 
Specialists.--
          (1) In general.--Section 1832(a)(2)(B)(iv) (42 U.S.C. 
        1395k(a)(2)(B)(iv)) is amended by striking ``provided 
        in a rural area (as defined in section1886(d)(2)(D))'' 
and inserting ``but only if no facility or other provider charges or is 
paid any amounts with respect to the furnishing of such services''.
          (2) Conforming amendment.--Section 1842(b)(6)(C) (42 
        U.S.C. 1395u(b)(6)(C)) is amended--
                  (A) by striking ``clauses (i), (ii), or 
                (iv)'' and inserting ``clause (i)''; and
                  (B) by striking ``or nurse practitioner''.
  (d) Definition of Clinical Nurse Specialist Clarified.--
Section 1861(aa)(5) (42 U.S.C. 1395x(aa)(5)) is amended--
          (1) by inserting ``(A)'' after ``(5)'';
          (2) by striking ``The term `physician assistant' '' 
        and all that follows through ``who performs'' and 
        inserting ``The term `physician assistant' and the term 
        `nurse practitioner' mean, for purposes of this title, 
        a physician assistant or nurse practitioner who 
        performs''; and
          (3) by adding at the end the following new 
        subparagraph:
  ``(B) The term `clinical nurse specialist' means, for 
purposes of this title, an individual who--
          ``(i) is a registered nurse and is licensed to 
        practice nursing in the State in which the clinical 
        nurse specialist services are performed; and
          ``(ii) holds a master's degree in a defined clinical 
        area of nursing from an accredited educational 
        institution.''.
  (e) Effective Date.--The amendments made by this section 
shall apply with respect to services furnished and supplies 
provided on and after January 1, 1998.

SEC. 4620. INCREASED MEDICARE REIMBURSEMENT FOR PHYSICIAN ASSISTANTS.

  (a) Removal of Restriction on Settings.--Section 
1861(s)(2)(K)(i) (42 U.S.C. 1395x(s)(2)(K)(i)) is amended--
          (1) by striking ``(I) in a hospital'' and all that 
        follows through ``shortage area,'', and
          (2) by adding at the end the following: ``but only if 
        no facility or other provider charges or is paid any 
        amounts with respect to the furnishing of such 
        services,''.
  (b) Increased Payment.--Paragraph (12) of section 1842(b) (42 
U.S.C. 1395u(b)), as amended by section 4619(b)(2)(B), is 
amended to read as follows:
  ``(12) With respect to services described in section 
1861(s)(2)(K)(i)--
          ``(A) payment under this part may only be made on an 
        assignment-related basis; and
          ``(B) the amounts paid under this part shall be equal 
        to 80 percent of (i) the lesser of the actual charge or 
        85 percent of the fee schedule amount provided under 
        section 1848 for the same service provided by a 
        physician who is not a specialist; or (ii) in the case 
        of services as an assistant at surgery, the lesser of 
        the actual charge or 85 percent of the amount that 
        would otherwise be recognized if performed by a 
        physician who is serving as an assistant at surgery.''.
  (c) Removal of Restriction on Employment Relationship.--
Section 1842(b)(6) (42 U.S.C. 1395u(b)(6)) is amended by adding 
at the end the following new sentence: ``For purposes of clause 
(C) of the first sentence of this paragraph, an employment 
relationship may include any independent contractor 
arrangement, and employer status shall be determined in 
accordance with the law of the State in which the services 
described in such clause are performed.''.
  (d) Effective Date.--The amendments made by this section 
shall apply with respect to services furnished and supplies 
provided on and after January 1, 1998.

SEC. 4621. RENAL DIALYSIS-RELATED SERVICES.

  (a) Auditing of Cost Reports.--The Secretary shall audit a 
sample of cost reports of renal dialysis providers for 1995 and 
for each third year thereafter.
  (b) Implementation of Quality Standards.--The Secretary of 
Health and Human Services shall develop and implement, by not 
later than January 1, 1999, a method to measure and report 
quality of renal dialysis services provided under the medicare 
program under title XVIII of the Social Security Act in order 
to reduce payments for inappropriate or low quality care.

SEC. 4622. PAYMENT FOR COCHLEAR IMPLANTS AS CUSTOMIZED DURABLE MEDICAL 
                    EQUIPMENT.

  (a) In General.--Section 1834(h)(1)(E) (42 U.S.C. 
1395m(h)(1)(E)) is amended by adding at the end the following: 
``Payment for cochlear implants shall be made in accordance 
with subsection (a)(4), and, in applying such subsection to 
cochlear implants, carriers shall take into consideration 
technological innovations and data on charges to the extent 
that such charges reflect such innovations.''.
  (b) Effective Date.--The amendment made by subsection (a) 
applies to implants implanted on or after January 1, 1998.

                       CHAPTER 3--PART B PREMIUM

SEC. 4631. PART B PREMIUM.

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

            Subtitle H--Provisions Relating to Parts A and B

       CHAPTER 1--PROVISIONS RELATING TO MEDICARE SECONDARY PAYER

SEC. 4701. PERMANENT EXTENSION AND REVISION OF CERTAIN SECONDARY PAYER 
                    PROVISIONS.

  (a) 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)''.
  (b) Individuals With End Stage Renal Disease.--
          (1) In general.--Section 1862(b)(1)(C) (42 U.S.C. 
        1395y(b)(1)(C)) is amended--
                  (A) in the first sentence, by striking ``12-
                month'' each place it appears and inserting 
                ``30-month'', and
                  (B) by striking the second sentence.
          (2) Effective date.--The amendments made by paragraph 
        (1) shall apply to items and services furnished on or 
        after the date of the enactment of this Act and with 
        respect to periods beginning on or after the date that 
        is 18 months prior to such date.
  (c) IRS-SSA-HCFA Data Match.--
          (1) Social security act.--Section 1862(b)(5)(C) (42 
        U.S.C. 1395y(b)(5)(C)) is amended by striking clause 
        (iii).
          (2) Internal revenue code.--Section 6103(l)(12) of 
        the Internal Revenue Code of 1986 is amended by 
        striking subparagraph (F).

SEC. 4702. CLARIFICATION OF TIME AND FILING LIMITATIONS.

  (a) 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.''.
  (b) Effective Date.--The amendment made by subsection (a) 
applies to items and services furnished after 1990. The 
previous sentence shall not be construed as permitting any 
waiver of the 3-year-period requirement (imposed by such 
amendment) in the case of items and services furnished more 
than 3 years before the date of the enactment of this Act.

SEC. 4703. PERMITTING RECOVERY AGAINST THIRD PARTY ADMINISTRATORS.

  (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) Clarification of Beneficiary Liability.--Section 
1862(b)(1) (42 U.S.C. 1395y(b)(1)) is amended by adding at the 
end the following new subparagraph:
                  ``(F) Limitation on beneficiary liability.--
                An individual who is entitled to benefits under 
                this title and is furnished an item or service 
                for which such benefits are incorrectly paid is 
                not liable for repayment of such benefits under 
                this paragraph unless payment of such benefits 
                was made to the individual.''.
  (c) Effective Date.--The amendments made by this section 
apply to items and services furnished on or after the date of 
the enactment of this Act.

                    CHAPTER 2--HOME HEALTH SERVICES

SEC. 4711. RECAPTURING SAVINGS RESULTING FROM TEMPORARY FREEZE ON 
                    PAYMENT INCREASES FOR HOME HEALTH SERVICES.

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

SEC. 4712. INTERIM PAYMENTS FOR HOME HEALTH SERVICES.

  (a) Reductions in Cost Limits.--Section 1861(v)(1)(L)(i) (42 
U.S.C. 1395x(v)(1)(L)(i)) is amended--
          (1) by moving the indentation of subclauses (I) 
        through (III) 2-ems to the left;
          (2) in subclause (I), by inserting ``of the mean of 
        the labor-related and nonlabor per visit costs for 
        freestanding home health agencies'' before the comma at 
        the end;
          (3) in subclause (II), by striking ``, or'' and 
        inserting ``of such mean,'';
          (4) in subclause (III)--
                  (A) by inserting ``and before October 1, 
                1997,'' after ``July 1, 1987,'', and
                  (B) by striking the comma at the end and 
                inserting ``of such mean, or''; and
          (5) by striking the matter following subclause (III) 
        and inserting the following:
          ``(IV) October 1, 1997, 105 percent of the median of 
        the labor-related and nonlabor per visit costs for 
        freestanding home health agencies.''.
  (b) Delay In Updates.--Section 1861(v)(1)(L)(iii) (42 U.S.C. 
1395x(v)(1)(L)(iii)) is amended by inserting ``, or on or after 
July 1, 1997, and before October 1, 1997'' after ``July 1, 
1996''.
  (c) Additions to Cost Limits.--Section 1861(v)(1)(L) (42 
U.S.C. 1395x(v)(1)(L)), as amended by section 4711(a), is 
amended by inserting adding at the end the following new 
clauses:
  ``(v) For services furnished by home health agencies for cost 
reporting periods beginning on or after October 1, 1997, the 
Secretary shall provide for an interim system of limits. 
Payment shall not exceed the costs determined under the 
preceding provisions of this subparagraph or, if lower, the 
product of--
          ``(I) an agency-specific per beneficiary annual 
        limitation calculated based 75 percent on the 
        reasonable costs (including nonroutine medical 
        supplies) for the agency's 12-month cost reporting 
        period ending during 1994, and based 25 percent on the 
        standardized regional average of such costs for the 
        agency's region for cost reporting periods ending 
        during 1994, such costs updated by the home health 
        market basket index; and
          ``(II) the agency's unduplicated census count of 
        patients (entitled to benefits under this title) for 
        the cost reporting period subject to the limitation.
  ``(vi) For services furnished by home health agencies for 
cost reporting periods beginning on or after October 1, 1997, 
the following rules apply:
          ``(I) For new providers and those providers without a 
        12-month cost reporting period ending in calendar year 
        1994, the per beneficiary limitation shall be equal to 
        the median of these limits (or the Secretary's best 
        estimates thereof) applied to other home health 
        agencies as determined by the Secretary. A home health 
        agency that has altered its corporate structure or name 
        shall not be considered a new provider for this 
        purpose.
          ``(II) For beneficiaries who use services furnished 
        by more than one home health agency, the per 
        beneficiary limitations shall be prorated among the 
        agencies.''.
  (d) Development of Case Mix System.--The Secretary of Health 
and Human Services shall expand research on a prospective 
payment system for home health agencies under the medicare 
program that ties prospective payments to a unit of service, 
including an intensive effort to develop a reliable case mix 
adjuster that explains a significant amount of the variances in 
costs.
  (e) Submission of Data for Case Mix System.--Effective for 
cost reporting periods beginning on or after October 1, 1997, 
the Secretary of Health and Human Services may require all home 
health agencies to submit additional information that the 
Secretary considers necessary for the development of a reliable 
case mix system.

SEC. 4713. CLARIFICATION OF PART-TIME OR INTERMITTENT NURSING CARE.

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

SEC. 4714. STUDY ON DEFINITION OF HOMEBOUND.

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

SEC. 4715. PAYMENT BASED ON LOCATION WHERE HOME HEALTH SERVICE IS 
                    FURNISHED.

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

SEC. 4716. NORMATIVE STANDARDS FOR HOME HEALTH CLAIMS DENIALS,

  (a) In General.--Section 1862(a)(1) (42 U.S.C. 1395y(a)(1)), 
as amended by section 4103(c), is amended--
          (1) by striking ``and'' at the end of subparagraph 
        (G),
          (2) by striking the semicolon at the end of 
        subparagraph (H) and inserting ``, and'', and
          (3) by inserting after subparagraph (H) the following 
        new subparagraph:
          ``(I) the frequency and duration of home health 
        services which are in excess of normative guidelines 
        that the Secretary shall establish by regulation;''.
  (b) Notification.--The Secretary of Health and Human Services 
may establish a process for notifying a physician in cases in 
which the number of home health service visits furnished under 
the medicare program pursuant to a prescription or 
certification of the physician significantly exceeds such 
threshold (or thresholds) as the Secretary specifies. The 
Secretary may adjust such threshold to reflect demonstrated 
differences in the need for home health services among 
different beneficiaries.
  (c) Effective Date.--The amendments made by this section 
apply to services furnished on or after October 1, 1997.

SEC. 4717. NO HOME HEALTH BENEFITS BASED SOLELY ON DRAWING BLOOD.

  (a) In General.--Sections 1814(a)(2)(C) and 1835(a)(2)(A) (42 
U.S.C. 1395f(a)(2)(C), 1395n(a)(2)(A)) are each amended by 
inserting ``(other than solely venipuncture for the purpose of 
obtaining a blood sample)'' after ``skilled nursing care''.
  (b) Effective Date.--The amendments made by subsection (a) 
apply to home health services furnished after the 6-month 
period beginning after the date of enactment of this Act.

SEC. 4718. MAKING PART B PRIMARY PAYOR FOR CERTAIN HOME HEALTH 
                    SERVICES.

  (a) In General.--Section 1833(d) (42 U.S.C. 1395l(d)) is 
amended--
          (1) by striking ``(d) No'' and inserting ``(d)(1) 
        Subject to paragraph (2), no'', and
          (2) by adding at the end the following new paragraph:
  ``(2) Payment shall be made under this part (rather than 
under part A), for an individual entitled to benefits under 
part A, for home health services, other than the first 100 
visits of post-hospital home health services furnished to an 
individual.''.
  (b) Post-hospital Home Health Services.--Section 1861 (42 
U.S.C. 1395x) is amended by adding at the end the following:
  ``(ss) Post-Hospital Home Health Services.--The term `post-
hospital home health services' means home health services 
furnished to an individual under a plan of treatment 
established when the individual was an inpatient of a hospital 
or rural primary care hospital for not less than 3 consecutive 
days before discharge, or during a covered post-hospital 
extended care stay, if home health services are initiated for 
the individual within 30 days after discharge from the 
hospital, rural primary care hospital or extended care 
facility.''.
  (c) Payments Under Part B.--Subparagraph (A) of section 
1833(a)(2) (42 U.S.C. 1395l(a)(2)) is amended to read as 
follows:
                  ``(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 amounts determined under section 
                1861(v)(1)(L) or section 1893, or, if the 
                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);''.
  (d) Phase-In of Additional Part B Costs In Determination of 
Part B Monthly Premium.--Section 1839(a) (42 U.S.C. 1395r(a)) 
is amended--
          (1) in paragraph (3) in last the sentence inserted by 
        section 4631(a) of this title, by inserting ``(except 
        as provided in paragraph (5)(B))'' before the period, 
        and
          (2) by adding after paragraph (4) the following:
  ``(5)(A) The Secretary shall, at the time of determining the 
monthly actuarial rate under paragraph (1) for 1998 through 
2003, shall determine a transitional monthly actuarial rate for 
enrollees age 65 and over in the same manner as such rate is 
determined under paragraph (1), except that there shall be 
excluded from such determination an estimate of any benefits 
and administrative costs attributable to home health services 
for which payment would have been made under part A during the 
year but for paragraph (2) of section 1833(d).
  ``(B) The monthly premium for each individual enrolled under 
this part for each month for a year (beginning with 1998 and 
ending with 2003) shall be equal to 50 percent of the monthly 
actuarial rate determined under subparagraph (A) increased by 
the following proportion of the difference between such premium 
and the monthly premium otherwise determined under paragraph 
(3) (without regard to this paragraph):
          ``(i) For a month in 1998, \1/7\.
          ``(ii) For a month in 1999, \2/7\.
          ``(iii) For a month in 2000, \3/7\.
          ``(iv) For a month in 2001, \4/7\.
          ``(v) For a month in 2002, \5/7\.
          ``(vi) For a month in 2003, \6/7\.''.
  (e) Maintaining Appeal Rights for Home Health Services.--
Section 1869(b)(2)(B) (42 U.S.C. 1395ff(b)(2)(B)) is amended by 
inserting ``(or $100 in the case of home health services)'' 
after ``$500''.
  (f) Report.--Not later than October 1, 1999, the Secretary of 
Health and Human Services shall submit a report to the 
Committees on Commerce and Ways and Means of the House of 
Representatives and the Committee on Finance of the Senate on 
the impact on home health utilization and admissions to 
hospitals and skilled nursing facilities of the amendment made 
by subsection (b). The Secretary shall further reexamine and 
submit a report to such Committees on this impact 1 year after 
the full implementation of the prospective payment system for 
home health services into the medicare program, effected under 
the amendments made by section 4441.
  (g) Effective Date.--The amendments made by this section 
apply to services furnished on or after October 1, 1997.

          CHAPTER 3--BABY BOOM GENERATION MEDICARE COMMISSION

SEC. 4721. BIPARTISAN 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 Bipartisan 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) Methods used by other nations to respond 
                to comparable demographic patterns in 
                eligibility for health care benefits for 
                elderly and disabled individuals.
                  (C) Modifying age-based eligibility to 
                correspond to changes in age-based eligibility 
                under the OASDI program.
                  (D) Trends in employment-related health care 
                for retirees, including the use of medical 
                savings accounts and similar financing devices.
                  (E) The role medicare should play in 
                addressing the needs of persons with chronic 
                illness.
  (c) Membership.--
          (1) Appointment.--The Commission shall be composed of 
        15 voting members as follows:
                  (A) 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.
                  (B) 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.
                  (C) The 3 ex officio members of the Board of 
                Trustees of the Federal Hospital Insurance 
                Trust Fund and of the Federal Supplementary 
                Medical Insurance Trust Fund who are Cabinet 
                level officials.
          (2) Chairman and vice chairman.--As the first item of 
        business at the Commission's first meeting (described 
        in paragraph (5)(B)), the Commission shall elect a 
        Chairman and Vice Chairman from among its members. The 
        individuals elected as Chairman and Vice Chairman may 
        not be of the same political party and may not have 
        been appointed to the Commission by the same appointing 
        authority.
          (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 (f).
          (5) Meetings.--
                  (A) The Commission shall meet at the call of 
                its Chairman or a majority of its members.
                  (B) The Commission shall hold its first 
                meeting not later than February 1, 1998.
          (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) Advisory Panel.--
          (1) In general.--The Chairman, in consultation with 
        the Vice Chairman, may establish a panel (in this 
        section referred to as the ``Advisory Panel'') 
        consisting of health care experts, consumers, 
        providers, and others to advise and assist the members 
        of the Commission in carrying out the duties described 
        in subsection (b). The panel shall have only those 
        powers that the Chairman, in consultation with the Vice 
        Chairman, determines are necessary and appropriate to 
        assist the Commission in carrying out such duties.
          (2) Compensation.--Members of the Advisory Panel are 
        not entitled to receive compensation for service on the 
        Advisory Panel. Subject to the approval of the chairman 
        of the Commission, members may be reimbursed for 
        travel, subsistence, and other necessary expenses 
        incurred in carrying out the duties of the Advisory 
        Panel.
  (e) 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.
  (f) 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 
providesuch 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) 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.
  (g) Report.--Not later than May 1, 1999, 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.
  (h) Termination.--The Commission shall terminate 30 days 
after the date of submission of the report required in 
subsection (g).
  (i) Authorization of Appropriations.--There are authorized to 
be appropriated $1,500,000 to carry out 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 under title XVIII of the Social 
Security Act (42 U.S.C. 1395i, 1395t).

  CHAPTER 4--PROVISIONS RELATING TO DIRECT GRADUATE MEDICAL EDUCATION

SEC. 4731. LIMITATION ON PAYMENT BASED ON NUMBER OF RESIDENTS AND 
                    IMPLEMENTATION OF ROLLING AVERAGE FTE COUNT.

  Section 1886(h)(4) (42 U.S.C. 1395ww(h)(4)) is amended by 
adding after subparagraph (E) the following:
                  ``(F) Limitation on number of residents for 
                certain fiscal years.--Such rules shall provide 
                that for purposes of a cost reporting period 
                beginning on or after October 1, 1997, the 
                total number of full-time equivalent residents 
                before application of weighting factors (as 
                determined under this paragraph) with respect 
                to a hospital's approved medical residency 
                training program may not exceed the number of 
                full-time equivalent residents with respect to 
                the hospital's most recent cost reporting 
                period ending on or before December 31, 1996.
                  ``(G) Counting interns and residents for fy 
                1998 and subsequent years.--
                          ``(i) FY 1998.--For the hospital's 
                        first cost reporting period beginning 
                        during fiscal year 1998, subject to the 
                        limit described in subparagraph (F), 
                        the total number of full-time 
                        equivalent residents, for determining 
                        the hospital's graduate medical 
                        education payment, shall equal the 
                        average of the full-time equivalent 
                        resident counts for the cost reporting 
                        period and the preceding cost reporting 
                        period.
                          ``(ii) Subsequent years.--For each 
                        subsequent cost reporting period, 
                        subject to the limit described in 
                        subparagraph (F), the total number of 
                        full-time equivalent residents, for 
                        determining the hospital's graduate 
                        medical education payment, shall equal 
                        the average of the actual full-time 
                        equivalent resident counts for the cost 
                        reporting period and preceding two cost 
                        reporting periods.
                          ``(iii) Adjustment for short 
                        periods.--If a hospital's cost 
                        reporting period beginning on or after 
                        October 1, 1997, is not equal to twelve 
                        months, the Secretary shall make 
                        appropriate modifications to ensure 
                        that the average full-time equivalent 
                        resident counts pursuant to clause (ii) 
                        are based on the equivalent of full 12-
                        month cost reporting periods.
                          ``(iv) Exclusion of residents in 
                        dentistry.--Residents in an approved 
                        medical residency training program in 
                        dentistry shall not be counted for 
                        purposes of this subparagraph and 
                        subparagraph (F).''.

SEC. 4732. PHASED-IN LIMITATION ON HOSPITAL OVERHEAD AND SUPERVISORY 
                    PHYSICIAN COMPONENT OF DIRECT MEDICAL EDUCATION 
                    COSTS.

  (a) In General.--Section 1886(h)(3) (42 U.S.C. 1395ww(h)(3)) 
is amended--
          (1) in subparagraph (B), by inserting ``subject to 
        subparagraph (D),'' after ``subparagraph (A)'', and
          (2) by adding at the end the following:
                  ``(D) Phased-in limitation on hospital 
                overhead and supervisory physician component.--
                          ``(i) In general.--In the case of a 
                        hospital for which the overhead GME 
                        amount (as defined in clause (ii)) for 
                        the base period exceeds an amount equal 
                        to the 75th percentile of the overhead 
                        GME amounts in such period for all 
                        hospitals (weightedto reflect the full-
time equivalent resident counts for all approved medical residency 
training programs), subject to clause (iv), the hospital's approved FTE 
resident amount (for periods beginning on or after October 1, 1997) 
shall be reduced from the amount otherwise applicable (as previously 
reduced under this subparagraph) by an overhead reduction amount. The 
overhead reduction amount is equal to the lesser of--
                                  ``(I) 20 percent of the 
                                reference reduction amount 
                                (described in clause (iii)) for 
                                the period, or
                                  ``(II) 15 percent of the 
                                hospital's overhead GME amount 
                                for the period (as otherwise 
                                determined before the reduction 
                                provided under this 
                                subparagraph for the period 
                                involved).
                          ``(ii) Overhead gme amount.--For 
                        purposes of this subparagraph, the term 
                        `overhead GME amount' means, for a 
                        hospital for a period, the product of--
                                  ``(I) the percentage of the 
                                hospital's approved FTE 
                                resident amount for the base 
                                period that is not attributable 
                                to resident salaries and fringe 
                                benefits, and
                                  ``(II) the hospital's 
                                approved FTE resident amount 
                                for the period involved.
                          ``(iii) Reference reduction amount.--
                                  ``(I) In general.--The 
                                reference reduction amount 
                                described in this clause for a 
                                hospital for a cost reporting 
                                period is the base difference 
                                (described in subclause (II)) 
                                updated, in a compounded manner 
                                for each period from the base 
                                period to the period involved, 
                                by the update applied for such 
                                period to the hospital's 
                                approved FTE resident amount.
                                  ``(II) Base difference.--The 
                                base difference described in 
                                this subclause for a hospital 
                                is the amount by which the 
                                hospital's overhead GME amount 
                                in the base period exceeded the 
                                75th percentile of such amounts 
                                (as described in clause (i)).
                          ``(iv) Maximum reduction to 75th 
                        percentile.--In no case shall the 
                        reduction under this subparagraph 
                        effected for a hospital for a period 
                        (below the amount that would otherwise 
                        apply for the period if this 
                        subparagraph did not apply for any 
                        period) exceed the reference reduction 
                        amount for the hospital for the period.
                          ``(v) Base period.--For purposes of 
                        this subparagraph, the term `base 
                        period' means the cost reporting period 
                        beginning in fiscal year 1984 or the 
                        period used to establish the hospital's 
                        approved FTE resident amount for 
                        hospitals that did not have approved 
                        residency training programs in fiscal 
                        year 1984.
                          ``(vi) Rules for hospitals initiating 
                        residency training programs.--The 
                        Secretary shall establish rules for the 
                        application of this subparagraph in the 
                        case of a hospital that initiates 
                        medical residency training programs 
                        during or after the base period.''.
  (b) Effective Date.--The amendments made by subsection (a) 
shall apply to per resident payment amounts attributable to 
periods beginning on or after October 1, 1997.

SEC. 4733. PERMITTING PAYMENT TO NON-HOSPITAL PROVIDERS.

  (a) In General.--Section 1886 (42 U.S.C. 1395ww) is amended 
by adding at the end the following:
  ``(k) Payment to Non-Hospital Providers.--
          ``(1) Report.--The Secretary shall submit to 
        Congress, not later than 18 months after the date of 
        the enactment of this subsection, a proposal for 
        payment to qualified non-hospital providers for their 
        direct costs of medical education, if those costs are 
        incurred in the operation of an approved medical 
        residency training program described in subsection (h). 
        Such proposal shall specify the amounts, form, and 
        manner in which such payments will be made and the 
        portion of such payments that will be made from each of 
        the trust funds under this title.
          ``(2) Effectiveness.--Except as otherwise provided in 
        law, the Secretary may implement such proposal for 
        residency years beginning not earlier than 6 months 
        after the date of submittal of the report under 
        paragraph (1).
          ``(3) Qualified non-hospital providers.--For purposes 
        of this subsection, the term `qualified non-hospital 
        provider' means--
                  ``(A) a Federally qualified health center, as 
                defined in section 1861(aa)(4);
                  ``(B) a rural health clinic, as defined in 
                section 1861(aa)(2); and
                  ``(C) such other providers (other than 
                hospitals) as the Secretary determines to be 
                appropriate.''.
  (b) Prohibition on Double Payments; Budget Neutrality 
Adjustment.--Section 1886(h)(3)(B) (42 U.S.C. 1395ww(h)(3)(B)) 
is amended by adding at the end the following:
                ``The Secretary shall reduce the aggregate 
                approved amount to the extent payment is made 
                under subsection (k) for residents included in 
                the hospital's count of full-time equivalent 
                residents and, in the case of residents not 
                included in any such count, the Secretary shall 
                provide for such a reduction in aggregate 
                approved amounts under this subsection as will 
                assure that the application of subsection (k) 
                does not result in any increase in expenditures 
                under this title in excess of those that would 
                have occurred if subsection (k) were not 
                applicable.''.

SEC. 4734. INCENTIVE PAYMENTS UNDER PLANS FOR VOLUNTARY REDUCTION IN 
                    NUMBER OF RESIDENTS.

  Section 1886(h) (42 U.S.C. 1395ww(h)) is further amended by 
adding at the end the following new paragraph:
          ``(6) Incentive payment under plans for voluntary 
        reduction in number of residents.--
                  ``(A) In general.--In the case of a voluntary 
                residency reduction plan for which an 
                application is approved under subparagraph (B), 
                the qualifying entity submitting the plan shall 
                be paid an applicable hold harmless percentage 
                (as specified in subparagraph (E)) of the sum 
                of--
                          ``(i) amount (if any) by which--
                                  ``(I) the amount of payment 
                                which would have been made 
                                under this subsection if there 
                                had been a 5 percent reduction 
                                in the number of full-time 
                                equivalent residents in the 
                                approved medical education 
                                training programs of the 
                                qualifying entity as of June 
                                30, 1997, exceeds
                                  ``(II) the amount of payment 
                                which is made under this 
                                subsection, taking into account 
                                the reduction in such number 
                                effected under the reduction 
                                plan; and
                          ``(ii) the amount of the reduction in 
                        payment under 1886(d)(5)(B) (for 
                        hospitals participating in the 
                        qualifying entity) that is attributable 
                        to the reduction in number of residents 
                        effected under the plan below 95 
                        percent of the number of full-time 
                        equivalent residents in such programs 
                        of such entity as of June 30, 1997.
                  ``(B) Approval of plan applications.--The 
                Secretary may not approve the application of a 
                qualifying entity unless--
                          ``(i) the application is submitted in 
                        a form and manner specified by the 
                        Secretary and by not later than March 
                        1, 2000,
                          ``(ii) the application provides for 
                        the operation of a plan for the 
                        reduction in the number of full-time 
                        equivalent residents in the approved 
                        medical residency training programs of 
                        the entity consistent with the 
                        requirements of subparagraph (D);
                          ``(iii) the entity elects in the 
                        application whether such reduction will 
                        occur over--
                                  ``(I) a period of not longer 
                                than 5 residency training 
                                years, or
                                  ``(II) a period of 6 
                                residency training years,
                        except that a qualifying entity 
                        described in subparagraph (C)(i)(III) 
                        may not make the election described in 
                        subclause (II); and
                          ``(iv) the Secretary determines that 
                        the application and the entity and such 
                        plan meet such other requirements as 
                        the Secretary specifies in regulations.
                  ``(C) Qualifying entity.--
                          ``(i) In general.--For purposes of 
                        this paragraph, any of the following 
                        may be a qualifying entity:
                                  ``(I) Individual hospitals 
                                operating one or more approved 
                                medical residency training 
                                programs.
                                  ``(II) Subject to clause 
                                (ii), two or more hospitals 
                                that operate such programs and 
                                apply for treatment under this 
                                paragraph as a single 
                                qualifying entity.
                                  ``(III) Subject to clause 
                                (iii), a qualifying consortium 
                                (as described in section 4735 
                                of the Balanced Budget Act of 
                                1997).
                          ``(ii) Additional requirement for 
                        joint programs.--In the case of an 
                        application by a qualifying entity 
                        described in clause (i)(II), the 
                        Secretary may not approve the 
                        application unless the application 
                        represents that the qualifying entity 
                        either--
                                  ``(I) in the case of an 
                                entity that meets the 
                                requirements of clause (v) of 
                                subparagraph (D) will not 
                                reduce the number of full-time 
                                equivalent residents in primary 
                                care during the period of the 
                                plan, or
                                  ``(II) in the case of another 
                                entity will not reduce the 
                                proportion of its residents in 
                                primary care (to the total 
                                number of residents) below such 
                                proportion as in effect as of 
                                the applicable time described 
                                in subparagraph (D)(vi).
                          ``(iii) Additional requirement for 
                        consortia.--In the case of an 
                        application by a qualifying entity 
                        described in clause (i)(III), the 
                        Secretary may not approve the 
                        application unless the application 
                        represents that the qualifying entity 
                        will not reduce the proportion of its 
                        residents in primary care (to the total 
                        number of residents) below such 
                        proportion as in effect as of the 
                        applicable time described in 
                        subparagraph (D)(vi).
                  ``(D) Residency reduction requirements.--
                          ``(i) Individual hospital 
                        applicants.--In the case of a 
                        qualifying entity described in 
                        subparagraph (C)(i)(I), the number of 
                        full-time equivalent residents in all 
                        the approved medical residency training 
                        programs operated by or through the 
                        entity shall be reduced as follows:
                                  ``(I) If base number of 
                                residents exceeds 750 
                                residents, by a number equal to 
                                at least 20 percent of such 
                                base number.
                                  ``(II) Subject to subclause 
                                (IV), if base number of 
                                residents exceeds 500, but is 
                                less than 750 residents, by 150 
                                residents.
                                  ``(III) Subject to subclause 
                                (IV), if base number of 
                                residents does not exceed 500 
                                residents, by a number equal to 
                                at least 25 percent of such 
                                base number.
                                  ``(IV) In the case of a 
                                qualifying entity which is 
                                described in clause (v) and 
                                which elects treatment under 
                                this subclause, by a number 
                                equal to at least 20 percent of 
                                such base number.
                          ``(ii) Joint applicants.--In the case 
                        of a qualifying entity described in 
                        subparagraph (C)(i)(II), the number of 
                        full-time equivalent residents in all 
                        the approved medical residency training 
                        programs operated by or through the 
                        entity shall be reduced as follows:
                                  ``(I) Subject to subclause 
                                (II), by a number equal to at 
                                least 25 percent of such base 
                                number.
                                  ``(II) In the case of a 
                                qualifying entity which is 
                                described in clause (v) and 
                                which elects treatment under 
                                this subclause, by a number 
                                equal to at least 20 percent of 
                                such base number.
                          ``(iii) Consortia.--In the case of a 
                        qualifying entity described in 
                        subparagraph (C)(i)(III), the number of 
                        full-time equivalent residents in all 
                        the approved medical residency training 
                        programs operated by or through the 
                        entity shall be reduced by a number 
                        equal to at least 20 percent of such 
                        base number.
                          ``(iv) Manner of reduction.--The 
                        reductions specified under the 
                        preceding provisions of this 
                        subparagraph for a qualifying entity 
                        shall be below the base number of 
                        residents for that entity and shall be 
                        fully effective not later than--
                                  ``(I) the 5th residency 
                                training year in which the 
                                application under subparagraph 
                                (B) is effective, in the case 
                                of an entity making the 
                                election described in 
                                subparagraph (B)(iii)(I), or
                                  ``(II) the 6th such residency 
                                training year, in the case of 
                                an entity making the election 
                                described in subparagraph 
                                (B)(iii)(II).
                          ``(v) Entities providing assurance of 
                        maintenance of primary care 
                        residents.--An entity is described in 
                        this clause if--
                                  ``(I) the base number of 
                                residents for the entity is 
                                less than 750;
                                  ``(II) the number of full-
                                time equivalent residents in 
                                primary care included in the 
                                base number of residents for 
                                the entity is at least 10 
                                percent of such base number; 
                                and
                                  ``(III) the entity represents 
                                in its application under 
                                subparagraph (B) that there 
                                will be no reduction under the 
                                plan in the number of full-time 
                                equivalent residents in primary 
                                care.
                        If a qualifying entity fails to comply 
                        with the representation described in 
                        subclause (III), the entity shall be 
                        subject to repayment of all amounts 
                        paid under this paragraph, in 
                        accordance with procedures established 
                        to carry out subparagraph (F).
                          ``(vi) Base number of residents 
                        defined.--For purposes of this 
                        paragraph, the term `base number of 
                        residents' means, with respect to a 
                        qualifying entity operating approved 
                        medical residency training programs, 
                        the number of full-time equivalent 
                        residents in such programs (before 
                        application of weighting factors) of 
                        the entity as of the most recent cost 
                        reporting period ending before June 30, 
                        1997, or, if less, for anysubsequent 
cost reporting period that ends before the date the entity makes 
application under this paragraph.
                  ``(E) Applicable hold harmless percentage.--
                          ``(i) In general.--For purposes of 
                        subparagraph (A), the `applicable hold 
                        harmless percentage' is the percentages 
                        specified in clause (ii) or clause 
                        (iii), as elected by the qualifying 
                        entity in the application submitted 
                        under subparagraph (B).
                          ``(ii) 5-year reduction plan.--In the 
                        case of an entity making the election 
                        described in subparagraph (B)(iii)(I), 
                        the percentages specified in this 
                        clause are, for the--
                                  ``(I) first and second 
                                residency training years in 
                                which the reduction plan is in 
                                effect, 100 percent,
                                  ``(II) third such year, 75 
                                percent,
                                  ``(III) fourth such year, 50 
                                percent, and
                                  ``(IV) fifth such year, 25 
                                percent.
                          ``(iii) 6-year reduction plan.--In 
                        the case of an entity making the 
                        election described in subparagraph 
                        (B)(iii)(II), the percentages specified 
                        in this clause are, for the--
                                  ``(I) first residency 
                                training year in which the 
                                reduction plan is in effect, 
                                100 percent,
                                  ``(II) second such year, 95 
                                percent,
                                  ``(III) third such year, 85 
                                percent,
                                  ``(IV) fourth such year, 70 
                                percent,
                                  ``(V) fifth such year, 50 
                                percent, and
                                  ``(VI) sixth such year, 25 
                                percent.
                  ``(F) Penalty for increase in number of 
                residents in subsequent years.--If payments are 
                made under this paragraph to a qualifying 
                entity, if the entity (or any hospital 
                operating as part of the entity) increases the 
                number of full-time equivalent residents above 
                the number of such residents permitted under 
                the reduction plan as of the completion of the 
                plan, then, as specified by the Secretary, the 
                entity is liable for repayment to the Secretary 
                of the total amounts paid under this paragraph 
                to the entity.
                  ``(G) Treatment of rotating residents.--In 
                applying this paragraph, the Secretary shall 
                establish rules regarding the counting of 
                residents who are assigned to institutions the 
                medical residency training programs in which 
                are not covered under approved applications 
                under this paragraph.''.
  (b) Relation to Demonstration Projects and Authority.--
          (1) Section 1886(h)(6) of the Social Security Act, 
        added by subsection (a), shall not apply to any 
        residency training program with respect to which a 
        demonstration project described in paragraph (3) has 
        been approved by the Health Care Financing 
        Administration as of May 27, 1997. The Secretary of 
        Health and Human Services shall take such actions as 
        may be necessary to assure that (in the manner 
        described in subparagraph (A) of such section) in no 
        case shall payments be made under such a project with 
        respect to the first 5 percent reduction in the base 
        number of full-time equivalent residents otherwise used 
        under the project.
          (2) Effective May 27, 1997, the Secretary of Health 
        and Human Services is not authorized to approve any 
        demonstration project described in paragraph (3) for 
        any residency training year beginning before July 1, 
        2006.
          (3) A demonstration project described in this 
        paragraph is a project that provides for additional 
        payments under title XVIII of the Social Security Act 
        in connection with reduction in the number of residents 
        in a medical residency training program.
  (c) 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 first promulgate 
regulations, that take effect on an interim basis, after notice 
and pending opportunity for public comment, by not later than 6 
months after the date of the enactment of this Act.

SEC. 4735. DEMONSTRATION PROJECT ON USE OF CONSORTIA.

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

SEC. 4736. RECOMMENDATIONS ON LONG-TERM PAYMENT POLICIES REGARDING 
                    FINANCING TEACHING HOSPITALS AND GRADUATE MEDICAL 
                    EDUCATION.

  (a) In General.--The Medicare Payment Advisory Commission 
(established under section 1805 of the Social Security Act and 
in this section referred to as the ``Commission'') shall 
examine and develop recommendations on whether and to what 
extent medicare payment policies and other Federal policies 
regarding teaching hospitals and graduate medical education 
should be reformed. Such recommendations shall include 
recommendations regarding each of the following:
          (1) The financing of graduate medical education, 
        including consideration of alternative broad-based 
        sources of funding for such education and models for 
        the distribution of payments under any all-payer 
        financing mechanism.
          (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 of the 
        Social Security Act.
          (3) Possible methodologies for making payments for 
        graduate medical education and the selection of 
        entities to receive such payments. Matters considered 
        under this paragraph shall include--
                  (A) issues regarding children's hospitals and 
                approved medical residency training programs in 
                pediatrics, and
                  (B) whether and to what extent payments are 
                being made (or should be made) for training in 
                the various nonphysician health professions, 
                including social workers and psychologists.
          (4) Federal policies regarding international medical 
        graduates.
          (5) The dependence of schools of medicine on service-
        generated income.
          (6) Whether and to what extent the needs of the 
        United States regarding the supply of physicians, in 
        the aggregate and in different specialties, will change 
        during the 10-year period beginning on October 1, 1997, 
        and whether and to what extent any such changes will 
        have significant financial effects on teaching 
        hospitals.
          (7) Methods for promoting an appropriate number, mix, 
        and geographical distribution of health professionals.
  (c) Consultation.--In conducting the study under subsection 
(a), the Commission shall consult with the Council on Graduate 
Medical Education and individuals with expertise in the area of 
graduate medical education, including--
          (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, approved medical 
        residency training programs, and teaching hospitals 
        that sponsor 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 
        representative fields of non-physician health 
        professionals;
          (5) individuals with substantial experience in the 
        study of issues regarding the composition of the health 
        care workforce of the United States; and
          (6) individuals with expertise on the financing of 
        health care.
  (d) Report.--Not later than 2 years after the date of the 
enactment of this Act, the Commission shall submit to the 
Congress a report providing its recommendations under this 
section and the reasons and justifications for such 
recommendations.

SEC. 4737. MEDICARE SPECIAL REIMBURSEMENT RULE FOR CERTAIN COMBINED 
                    RESIDENCY PROGRAMS.

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

                      CHAPTER 5--OTHER PROVISIONS

SEC. 4741. CENTERS OF EXCELLENCE.

  (a) In General.--Title XVIII is amended by inserting after 
section 1888 the following:

                        ``centers of excellence

  ``Sec. 1889. (a) In General.--The Secretary shall use a 
competitive process to contract with specific hospitals or 
other entities for furnishing services related to surgical 
procedures, and for furnishing services (unrelated to surgical 
procedures) to hospital inpatients that the Secretary 
determines to be appropriate. The services may include any 
services covered under this title that the Secretary determines 
to be appropriate, including post-hospital services.
  ``(b) Quality Standards.--
          ``(1) In general.--Only entities that meet quality 
        standards established by the Secretary shall be 
        eligible to contract under this section. Contracting 
        entities shall implement a quality improvement plan 
        approved by the Secretary.
          ``(2) Participation decision based on quality.--
        Subject to subsection (c), the Secretary shall consider 
        quality as the primary factor in selecting hospitals or 
        other entities to enter into contracts under this 
        section.
  ``(c) Payment.--Payment under this section shall be made on 
the basis of negotiated all-inclusive rates. The amount of 
payment made by the Secretary to an entity under this title for 
services covered under a contract shall not exceed the 
aggregate amount of the payments that the Secretary would have 
otherwise made for the services.
  ``(d) Contract Period.--A contract period shall be 3 years 
(subject to renewal), so long as the entity continues to meet 
quality and other contractual standards.
  ``(e) Incentives for Use of Centers.--Entities under a 
contract under this section may furnish additional services (at 
no cost to an individual entitled to benefits under this title) 
or waive cost-sharing, subject to the approval of the 
Secretary.
  ``(f) Limit on Number of Centers.--The Secretary shall limit 
the number of centers in a geographic area to the number needed 
to meet projected demand for contracted services.''.
  (b) Effective Date.--The amendment made by subsection (a) 
applies to services furnished on or after October 1, 1997.

SEC. 4742. MEDICARE PART B SPECIAL ENROLLMENT PERIOD AND WAIVER OF PART 
                    B LATE ENROLLMENT PENALTY AND MEDIGAP SPECIAL OPEN 
                    ENROLLMENT PERIOD FOR CERTAIN MILITARY RETIREES AND 
                    DEPENDENTS.

  (a) Medicare Part B Special Enrollment Period; Waiver of Part 
B Penalty for Late Enrollment.--
          (1) In general.--In the case of any eligible 
        individual (as defined in subsection (c)), the 
        Secretary of Health and Human Services shall provide 
        for a special enrollment period during which the 
        individual may enroll under part B of title XVIII of 
        the Social Security Act. Such period shall be for a 
        period of 6 months and shall begin with the first month 
        that begins at least 45 days after the date of the 
        enactment of this Act.
          (2) Coverage period.--In the case of an eligible 
        individual who enrolls during the special enrollment 
        period provided under paragraph (1), the coverage 
        period under part B of title XVIII of the Social 
        Security Act shall begin on the first day of the month 
        following the month in which the individual enrolls.
          (3) Waiver of part b late enrollment penalty.--In the 
        case of an eligible individual who enrolls during the 
        special enrollment period provided under paragraph (1), 
        there shall be no increase pursuant to section 1839(b) 
        of the Social Security Act in the monthly premium under 
        part B of title XVIII of such Act.
  (b) Medigap Special Open Enrollment Period.--Notwithstanding 
any other provision of law, an issuer of a medicare 
supplemental policy (as defined in section 1882(g) of the 
Social Security Act)--
          (1) may not deny or condition the issuance or 
        effectiveness of a medicare supplemental policy that 
        has a benefit package classified as ``A'', ``B'', 
        ``C'', or ``F'' under the standards established under 
        section 1882(p)(2) of the Social Security Act (42 
        U.S.C. 1395rr(p)(2)); and
          (2) may not discriminate in the pricing of the policy 
        on the basis of the individual's health status, medical 
        condition (including both physical and mental 
        illnesses), claims experience, receipt of health care, 
        medical history, genetic information, evidence of 
        insurability (including conditions arising out of acts 
        of domestic violence), or disability;
in the case of an eligible individual who seeks to enroll (and 
is enrolled) during the 6-month period described in subsection 
(a)(1).
  (c) Eligible Individual Defined.--In this section, the term 
``eligible individual'' means an individual--
          (1) who, as of the date of the enactment of this Act, 
        has attained 65 years of age and was eligible to enroll 
        under part B of title XVIII of the Social Security Act, 
        and
          (2) who at the time the individual first satisfied 
        paragraph (1) or (2) of section 1836 of the Social 
        Security Act--
                  (A) was a covered beneficiary (as defined in 
                section 1072(5) of title 10, United States 
                Code), and
                  (B) did not elect to enroll (or to be deemed 
                enrolled) under section 1837 of the Social 
                Security Act during the individual's initial 
                enrollment period.
The Secretary of Health and Human Services shall consult with 
the Secretary of Defense in the identification of eligible 
individuals.

SEC. 4743. COMPETITIVE BIDDING FOR CERTAIN ITEMS AND SERVICES.

  (a) Establishment of Demonstration.--Not later than 1 year 
after the date of the enactment of this Act, the Secretary of 
Health and Human Services shall establish and operate over a 2-
year period a demonstration project in 2 geographic regions 
selected by the Secretary under which (notwithstanding any 
provision of title XVIII of the Social Security Act to the 
contrary) the amount of payment made under the medicare program 
for a selected item or service furnished in the region shall be 
equal to the price determined pursuant to a competitive bidding 
process which meets the requirements of subsection (b).
  (b) Requirements for Competitive Bidding Process.--The 
competitive bidding process used under the demonstration 
project under this section shall meet such requirements as the 
Secretary may impose to ensure the cost-effective delivery to 
medicare beneficiaries in the project region of items and 
services of high quality.
  (c) Determination of Selected Items or Services.--The 
Secretary shall select items and services to be subject to the 
demonstration project under this section if the Secretary 
determines that the use of competitive bidding with respect to 
the item or service under the project will be appropriate and 
cost-effective. In determining the items or services to be 
selected, the Secretary shall consult with an advisory 
taskforce which includes representatives of providers and 
suppliers of items and services (including small business 
providers and suppliers) in each geographic region in which the 
project will be effective.

                  Subtitle I--Medical Liability Reform

                     CHAPTER 1--GENERAL PROVISIONS

SEC. 4801. FEDERAL REFORM OF HEALTH CARE LIABILITY ACTIONS.

  (a) Applicability.--This subtitle governs 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 or 
applicable Federal law to the extent such law is inconsistent 
with the limitations contained in this subtitle. This subtitle 
shall not preempt any State or applicable Federal 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 
        chapter 97 of title 28, United States Code;
          (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. 4802. 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) Device.--The term ``device'' has the same meaning 
        given such term in section 201(h) of the Federal Food, 
        Drug, and Cosmetic Act (21 U.S.C. 321(h)).
          (7) Drug.--The term ``drug'' has the same meaning 
        given such term in section 201(g)(1) of the Federal 
        Food, Drug, and Cosmetic Act (21 U.S.C. 321(g)(1)).
          (8) Economic loss.--The term ``economic loss'' means 
        any pecuniary loss resulting from harm (including the 
        loss of earnings or other benefits related to 
        employment, medical expense loss, replacement services 
        loss, loss due to death, burial costs, and loss of 
        business or employment opportunities), to the extent 
        recovery for such loss is allowed under applicable 
        State or Federal law.
          (9) Harm.--The term ``harm'' means--
                  (A) any physical injury, illness, or death of 
                the claimant, or
                  (B) any mental anguish or emotional injury to 
                the claimant caused by or causing the claimant 
                physical injury or illness.
          (10) 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 health care liability 
        claim.
          (11) Health care liability claim.--The term ``health 
        care liability claim'' means a claim in which the 
        claimant alleges that harm was caused by the provision 
        of (or the failure to provide) health care services or 
        the use of a medical product, regardless of the theory 
        of liability on which the claim is based.
          (12) 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.
          (13) Manufacturer.--The term ``manufacturer'' means--
                  (A) any person who is engaged in a business 
                to produce, create, make, or construct any 
                product (or component part of a product) and 
                who (i) designs or formulates the product (or 
                component part of the product), or (ii) has 
                engaged another person to design or formulate 
                the product (or component part of the product);
                  (B) a product seller, but only with respect 
                to those aspects of a product (or component 
                part of a product) which are created or 
                affected when, before placing the product in 
                the stream of commerce, the product seller 
                produces, creates, makes or constructs and 
                designs, or formulates, or has engaged another 
                person to design or formulate, an aspect of the 
                product (or component part of the product) made 
                by another person; or
                  (C) any product seller not described in 
                subparagraph (B) which holds itself out as a 
                manufacturer to the user of the product.
          (14) Noneconomic damages.--The term ``noneconomic 
        damages'' means damages paid to an individual for pain 
        and suffering, inconvenience, emotional distress, 
        mental anguish, loss of society and companionship, 
        injury to reputation, humiliation, and other 
        subjective, nonpecuniary losses.
          (15) Person.--The term ``person'' means any 
        individual, corporation, company, association, firm, 
        partnership, society, joint stock company, or any other 
        entity, including any governmental entity.
          (16) Product seller.--
                  (A) In general.--The term ``product seller'' 
                means a person who in the course of a business 
                conducted for that purpose--
                          (i) sells, distributes, rents, 
                        leases, prepares, blends, packages, 
                        labels, or otherwise is involved in 
                        placing a product in the stream of 
                        commerce; or
                          (ii) installs, repairs, refurbishes, 
                        reconditions, or maintains the harm-
                        causing aspect of the product.
                  (B) Exclusion.--The term ``product seller'' 
                does not include--
                          (i) a seller or lessor of real 
                        property;
                          (ii) a provider of professional 
                        services in any case in which the sale 
                        or use of a product is incidental to 
                        the transaction and the essence of the 
                        transaction is the furnishing of 
                        judgment, skill, or services; or
                          (iii) any person who--
                                  (I) acts in only a financial 
                                capacity with respect to the 
                                sale of a product; or
                                  (II) leases a product under a 
                                lease arrangement in which the 
                                lessor does not initially 
                                select the leased product and 
                                does not during the lease term 
                                ordinarily control the daily 
                                operations and maintenance of 
                                the product.
          (17) 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.
          (18) 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 or any 
        political subdivision of any of the foregoing.

SEC. 4803. 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.

     CHAPTER 2--UNIFORM STANDARDS FOR HEALTH CARE LIABILITY ACTIONS

SEC. 4811. STATUTE OF LIMITATIONS.

  (a) General Rule.--Except as provided in subsection (b), a 
health care liability action may be filed not later than 2 
years after the date on which the claimant discovered or, in 
the exercise of reasonable care, should have discovered--
          (1) the harm that is the subject of the action; and
          (2) the cause of the harm.
  (b) Exception.--A person with a legal disability (as 
determined under applicable law) may file a health care 
liability action not later than 2 years after the date on which 
the person ceases to have the legal disability.
  (c) Transitional Provision Relating to Extension of Period 
for Bringing Certain Actions.--If any provision of subsection 
(a) or (b) shortens the period during which a health care 
liability action could be otherwise brought pursuant to another 
provision of law, the claimant may, notwithstanding subsections 
(a) and (b), bring the health care liability action not later 
than 2 years after the date of enactment of this Act.

SEC. 4812. 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 harm 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) Fair share rule for noneconomic damages.--
                  (A) General rule.--In a health care liability 
                action, the liability of each defendant for 
                noneconomic damages shall be several only and 
                shall not be joint.
                  (B) Amount of liability.--
                          (i) In general.--Each defendant shall 
                        be liable only for the amount of 
                        noneconomic damages attributable to the 
                        defendant in direct proportion to the 
                        percentage of responsibility of the 
                        defendant (determined in accordance 
                        with paragraph (2)) for the harm to the 
                        claimant with respect to which the 
                        defendant is liable. The court shall 
                        render a separate judgment against each 
                        defendant in an amount determined 
                        pursuant to the preceding sentence.
                          (ii) Percentage of responsibility.--
                        For purposes of determining the amount 
                        of noneconomic damages attributable to 
                        a defendantunder this section, the 
trier of fact shall determine the percentage of responsibility of each 
person responsible for the claimant's harm, whether or not such person 
is a party to the action.
  (b) Treatment of Punitive Damages.--
          (1) General rule.--Punitive damages may, to the 
        extent permitted by applicable law, be awarded in a 
        health care liability action against a defendant if the 
        claimant establishes by clear and convincing evidence 
        that the harm suffered was result of conduct 
        manifesting a conscious, flagrant indifference to the 
        rights or safety of others.
          (2) Required proportionality.--The amount of punitive 
        damages that may be awarded in a health care liability 
        action shall not exceed 3 times the amount of damages 
        awarded to the claimant for economic loss, or $250,000, 
        whichever is greater. This subsection shall be applied 
        by the court, and application of this subsection shall 
        not be disclosed to the jury.
  (c) Bifurcation at Request of Any Party.--
          (1) In general.--At the request of any party the 
        trier of fact in any action that is subject to this 
        section shall consider in a separate proceeding, held 
        subsequent to the determination of the amount of 
        compensatory damages, whether punitive damages are to 
        be awarded for the harm that is the subject of the 
        action and the amount of the award.
          (2) Inadmissibility of evidence relative only to a 
        claim of punitive damages in a proceeding concerning 
        compensatory damages.--If any party requests a separate 
        proceeding under paragraph (1), in a proceeding to 
        determine whether the claimant may be awarded 
        compensatory damages, any evidence, argument, or 
        contention that is relevant only to the claim of 
        punitive damages, as determined by applicable law, 
        shall be inadmissible.
  (d) Drugs and Devices.--
          (1)(A) Punitive damages shall not be awarded against 
        a manufacturer or product seller of a drug or device 
        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 
                or device was approved by the Food and Drug 
                Administration; or
                  (ii) the drug or device 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 
        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.
  (e) 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 exceed $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, with the amount and schedule of such payments 
        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.
  (f) 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 a 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. 4813. 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.

           TITLE V--COMMITTEE ON EDUCATION AND THE WORKFORCE

                      Subtitle A--TANF Block Grant

SEC. 5001. WELFARE-TO-WORK GRANTS.

  (a) Grants to States.--Section 403(a) of the Social Security 
Act (42 U.S.C. 603(a)) is amended by adding at the end the 
following:
          ``(5) Welfare-to-work grants.--
                  ``(A) Formula grants.--
                          ``(i) Entitlement.--A State shall be 
                        entitled to receive from the Secretary 
                        a grant for each fiscal year specified 
                        in subparagraph (H) of this paragraph 
                        for which the State is a welfare-to-
                        work State, in an amount that does not 
                        exceed the lesser of--
                                  ``(I) 2 times the total of 
                                the expenditures by the State 
                                (excluding qualified State 
                                expenditures (as defined in 
                                section 409(a)(7)(B)(i)) and 
                                expenditures described in 
                                section 409(a)(7)(B)(iv)) 
                                during the fiscal year for 
                                activities described in 
                                subparagraph (C)(i) of this 
                                paragraph; or
                                  ``(II) the allotment of the 
                                State under clause (iii) of 
                                this subparagraph for the 
                                fiscal year.
                          ``(ii) Welfare-to-work state.--A 
                        State shall be considered a welfare-to-
                        work State for a fiscal year for 
                        purposes of this subparagraph if the 
                        Secretary, after consultation (and the 
                        sharing of any plan or amendment 
                        thereto submitted under this clause) 
                        with the Secretary of Health and Human 
                        Services and the Secretary of Housing 
                        and Urban Development, determines that 
                        the State meets the following 
                        requirements:
                                  ``(I) The State has submitted 
                                to the Secretary (in the form 
                                of an addendum to the State 
                                plan submitted under section 
                                402) a plan which--
                                          ``(aa) describes how, 
                                        consistent with this 
                                        subparagraph, the State 
                                        will use any funds 
                                        provided under this 
                                        subparagraph during the 
                                        fiscal year;
                                          ``(bb) specifies the 
                                        formula to be used 
                                        pursuant to clause (vi) 
                                        to distribute funds in 
                                        the State, and 
                                        describes the process 
                                        by which the formula 
                                        was developed; and
                                          ``(cc) contains 
                                        evidence that the plan 
                                        was developed through a 
                                        collaborative process 
                                        that, at a minimum, 
                                        included sub-State 
                                        areas.
                                  ``(II) The State has provided 
                                the Secretary with an estimate 
                                of the amount that the State 
                                intends to expend during the 
                                fiscal year (excluding 
                                expenditures described in 
                                section 409(a)(7)(B)(iv)) for 
                                activities described in 
                                subparagraph (C)(i) of this 
                                paragraph.
                                  ``(III) The State has agreed 
                                to negotiate in good faith with 
                                the Secretary of Health and 
                                Human Services with respect to 
                                the substance of any evaluation 
                                under section 413(j), and to 
                                cooperate with the conduct of 
                                any such evaluation.
                                  ``(IV) The State is an 
                                eligible State for the fiscal 
                                year.
                          ``(iii) Allotments to welfare-to-work 
                        states.--The allotment of a welfare-to-
                        work State for a fiscal year shall be 
                        the available amount for the fiscal 
                        year multiplied by the State percentage 
                        for the fiscal year.
                          ``(iv) Available amount.--As used in 
                        clause (iii), the term `available 
                        amount' means, for a fiscal year, 95 
                        percent of--
                                  ``(I) the amount specified in 
                                subparagraph (H) for the fiscal 
                                year; minus
                                  ``(II) the total of the 
                                amounts reserved pursuant to 
                                subparagraphs (F) and (G) for 
                                the fiscal year.
                          ``(v) State percentage.--As used in 
                        clause (iii), the term `State 
                        percentage' means, with respect to a 
                        fiscal year, \1/2\ of the sum of--
                                          ``(I) the percentage 
                                        represented by the 
                                        number of individuals 
                                        in the State whose 
                                        income is less than the 
                                        poverty line divided by 
                                        the number of such 
                                        individuals in the 
                                        United States; and
                                          ``(II) the percentage 
                                        represented by the 
                                        number of individuals 
                                        who are adult 
                                        recipients of 
                                        assistance under the 
                                        State program funded 
                                        under this part divided 
                                        by the number of 
                                        individuals in the 
                                        United States who are 
                                        adult recipients of 
                                        assistance under any 
                                        State program funded 
                                        under this part.
                          ``(vi) Distribution of funds within 
                        states.--
                                  ``(I) In general.--A State to 
                                which a grant is made under 
                                this subparagraph shall 
                                distribute not less than 85 
                                percent of the grant funds 
                                among the service delivery 
                                areas in the State, in 
                                accordance with a formula 
                                which--
                                          ``(aa) determines the 
                                        amount to be 
                                        distributed for the 
                                        benefit of a service 
                                        delivery area in 
                                        proportion to the 
                                        number (if any) by 
                                        which the number of 
                                        individuals residing in 
                                        the service delivery 
                                        area with an income 
                                        that is less than the 
                                        poverty line exceeds 5 
                                        percent of the 
                                        population of the 
                                        service delivery area, 
                                        relative to such number 
                                        for the other service 
                                        delivery areas in the 
                                        State, and accords a 
                                        weight of not less than 
                                        50 percent to this 
                                        factor;
                                          ``(bb) may determine 
                                        the amount to be 
                                        distributed for the 
                                        benefit of a service 
                                        delivery area in 
                                        proportion to the 
                                        number of adults 
                                        residing in the service 
                                        delivery area who are 
                                        recipients of 
                                        assistance under the 
                                        State program funded 
                                        under this part 
                                        (whether in effect 
                                        before or after the 
                                        amendments made by 
                                        section 103(a) of the 
                                        Personal Responsibility 
                                        and Work Opportunity 
                                        Reconciliation Act 
                                        first applied tothe 
State) for at least 30 months (whether or not consecutive) relative to 
the number of such adults residing in the other service delivery areas 
in the State; and
                                          ``(cc) may determine 
                                        the amount to be 
                                        distributed for the 
                                        benefit of a service 
                                        delivery area in 
                                        proportion to the 
                                        number of unemployed 
                                        individuals residing in 
                                        the service delivery 
                                        area relative to the 
                                        number of such 
                                        individuals residing in 
                                        the other service 
                                        delivery areas in the 
                                        State.
                                  ``(II) Special rule.--
                                Notwithstanding subclause (I), 
                                if the formula used pursuant to 
                                subclause (I) would result in 
                                the distribution of less than 
                                $100,000 during a fiscal year 
                                for the benefit of a service 
                                delivery area, then in lieu of 
                                distributing such sum in 
                                accordance with the formula, 
                                such sum shall be available for 
                                distribution under subclause 
                                (III) during the fiscal year.
                                  ``(III) Projects to help 
                                long-term recipients of 
                                assistance into the work 
                                force.--The Governor of a State 
                                to which a grant is made under 
                                this subparagraph may 
                                distribute not more than 15 
                                percent of the grant funds 
                                (plus any amount required to be 
                                distributed under this 
                                subclause by reason of 
                                subclause (II)) to projects 
                                that appear likely to help 
                                long-term recipients of 
                                assistance under the State 
                                program funded under this part 
                                (whether in effect before or 
                                after the amendments made by 
                                section 103(a) of the Personal 
                                Responsibility and Work 
                                Opportunity Reconciliation Act 
                                first applied to the State) 
                                enter the work force.
                          ``(vii) Administration.--
                                  ``(I) In general.--A grant 
                                made under this subparagraph to 
                                a State shall be administered 
                                by the State agency that is 
                                administering, or supervising 
                                the administration of, the 
                                State program funded under this 
                                part, or by another State 
                                agency designated by the 
                                Governor of the State.
                                  ``(II) Spending by private 
                                industry councils.--The private 
                                industry council for a service 
                                delivery area shall have sole 
                                authority, in coordination with 
                                the chief elected official (as 
                                described in section 103(c) of 
                                the Job Training Partnership 
                                Act) of the service delivery 
                                area, to expend the amounts 
                                provided for a service delivery 
                                area under subparagraph 
                                (vi)(I).
                  ``(B) Demonstration projects.--
                          ``(i) In general.--The Secretary, in 
                        consultation with the Secretary of 
                        Health and Human Services and the 
                        Secretary of Housing and Urban 
                        Development, shall make grants in 
                        accordance with this subparagraph among 
                        eligible applicants based on the 
                        likelihood that the applicant can 
                        successfully make long-term placements 
                        of individuals into the work force.
                          ``(ii) Eligible applicants.--As used 
                        in clause (i), the term `eligible 
                        applicant' means a private industry 
                        council or a political subdivision of a 
                        State.
                          ``(iii) Determination of grant 
                        amount.--In determining the amount of a 
                        grant to be made under this 
                        subparagraph for a demonstration 
                        project proposed by an applicant, the 
                        Secretary shall provide the applicant 
                        with an amount sufficient to ensure 
                        that the project has a reasonable 
                        opportunity to be successful, taking 
                        into account the number of long-term 
                        recipients of assistance under a State 
                        program funded under this part, the 
                        level of unemployment, the job 
                        opportunities and job growth, the 
                        poverty rate, and such other factors as 
                        the Secretary deems appropriate, in the 
                        area to be served by the project.
                          ``(iv) Funding.--For grants under 
                        this subparagraph for each fiscal year 
                        specified in subparagraph (H), there 
                        shall be available to the Secretary an 
                        amount equal to the sum of--
                                  ``(I) 5 percent of--
                                          ``(aa) the amount 
                                        specified in 
                                        subparagraph (H) for 
                                        the fiscal year; minus
                                          ``(bb) the total of 
                                        the amounts reserved 
                                        pursuant to 
                                        subparagraphs (F) and 
                                        (G) for the fiscal 
                                        year;
                                  ``(II) any amount available 
                                for grants under this paragraph 
                                for the immediately preceding 
                                fiscal year that has not been 
                                obligated;
                                  ``(III) any amount reserved 
                                pursuant to subparagraph (F) 
                                for the immediately preceding 
                                fiscal year that has not been 
                                obligated; and
                                  ``(IV) any available amount 
                                (as defined in subparagraph 
                                (A)(iv)) for the immediately 
                                preceding fiscal year that has 
                                not been obligated by a State 
                                or sub-State entity.
                        Amounts made available pursuant to this 
                        clause are authorized to remain 
                        available until the end of fiscal year 
                        2001.
                  ``(C) Limitations on use of funds.--
                          ``(i) Allowable activities.--An 
                        entity to which funds are provided 
                        under this paragraph may use the funds 
                        to move into the work force recipients 
                        of assistance under the program funded 
                        under this part of the State in which 
                        the entity is located, by means of any 
                        of the following:
                                  ``(I) Job creation through 
                                public or private sector 
                                employment wage subsidies.
                                  ``(II) On-the-job training.
                                  ``(III) Contracts with job 
                                placement companies or public 
                                job placement programs.
                                  ``(IV) Job vouchers.
                                  ``(V) Job retention or 
                                support services if such 
                                services are not otherwise 
                                available.
                          ``(ii) Required beneficiaries.--An 
                        entity that operates a project with 
                        funds provided under this paragraph 
                        shall expend at least 90 percent of all 
                        funds provided to the project for the 
                        benefit of recipients of assistance 
                        under the program funded under this 
                        part of the State in which theentity is 
located who meet the requirements of any of the following subclauses:
                                  ``(I) The individual has 
                                received assistance under the 
                                State program funded under this 
                                part (whether in effect before 
                                or after the amendments made by 
                                section 103 of the Personal 
                                Responsibility and Work 
                                Opportunity Reconciliation Act 
                                of 1996 first apply to the 
                                State) for at least 30 months 
                                (whether or not consecutive).
                                  ``(II) At least 2 of the 
                                following apply to the 
                                recipient:
                                          ``(aa) The individual 
                                        has not completed 
                                        secondary school or 
                                        obtained a certificate 
                                        of general equivalency, 
                                        and has low skills in 
                                        reading and 
                                        mathematics.
                                          ``(bb) The individual 
                                        requires substance 
                                        abuse treatment for 
                                        employment.
                                          ``(cc) The individual 
                                        has a poor work 
                                        history.
                                The Secretary shall prescribe 
                                such regulations as may be 
                                necessary to interpret this 
                                subclause.
                                  ``(III) Within 12 months, the 
                                individual will become 
                                ineligible for assistance under 
                                the State program funded under 
                                this part by reason of a 
                                durational limit on such 
                                assistance, without regard to 
                                any exemption provided pursuant 
                                to section 408(a)(7)(C) that 
                                may apply to the individual.
                          ``(iii) Limitation on applicability 
                        of section 404.--The rules of section 
                        404, other than subsections (b), (f), 
                        and (h) of section 404, shall not apply 
                        to a grant made under this paragraph.
                          ``(iv) Prohibition against provision 
                        of services by private industry 
                        council.--A private industry council 
                        may not directly provide services using 
                        funds provided under this paragraph.
                          ``(v) Prohibition against use of 
                        grant funds for any other fund matching 
                        requirement.--An entity to which funds 
                        are provided under this paragraph shall 
                        not use any part of the funds to 
                        fulfill any obligation of any State, 
                        political subdivision, or private 
                        industry council to contribute funds 
                        under other Federal law.
                          ``(vi) Deadline for expenditure.--An 
                        entity to which funds are provided 
                        under this paragraph shall remit to the 
                        Secretary any part of the funds that 
                        are not expended within 3 years after 
                        the date the funds are so provided.
                  ``(D) Individuals with income less than the 
                poverty line.--For purposes of this paragraph, 
                the number of individuals with an income that 
                is less than the poverty line shall be 
                determined based on the methodology used by the 
                Bureau of the Census to produce and publish 
                intercensal poverty data for 1993 for States 
                and counties.
                  ``(E) Definitions.--As used in this 
                paragraph:
                          ``(i) Private industry council.--The 
                        term `private industry council' means, 
                        with respect to a service delivery 
                        area, the private industry council (or 
                        successor entity) established for the 
                        service delivery area pursuant to the 
                        Job Training Partnership Act.
                          ``(ii) Secretary.--The term 
                        `Secretary' means the Secretary of 
                        Labor, except as otherwise expressly 
                        provided.
                          ``(iii) Service delivery area.--The 
                        term `service delivery area' shall have 
                        the meaning given such term for 
                        purposes of the Job Training 
                        Partnership Act (or successor area).
                  ``(F) Funding for indian tribes.--1 percent 
                of the amount specified in subparagraph (H) for 
                each fiscal year shall be reserved for grants 
                to Indian tribes under section 412(a)(3).
                  ``(G) Evaluations.--0.5 percent of the amount 
                specified in subparagraph (H) for each fiscal 
                year shall be reserved for use by the Secretary 
                of Health and Human Services to carry out 
                section 413(j).
                  ``(H) Funding.--The amount specified in this 
                subparagraph is--
                          ``(i) $750,000,000 for fiscal year 
                        1998;
                          ``(ii) $1,250,000,000 for fiscal year 
                        1999; and
                          ``(iii) $1,000,000,000 for fiscal 
                        year 2000.
                  ``(I) Budget scoring.--Notwithstanding 
                section 457(b)(2) of the Balanced Budget and 
                Emergency Deficit Control Act of 1985, the 
                baseline shall assume that no grant shall be 
                made under this paragraph or under section 
                412(a)(3) after fiscal year 2001.''.
  (b) Grants to Territories.--Section 1108(a) of such Act (42 
U.S.C. 1308(a)) is amended by inserting ``(except section 
403(a)(5))'' after ``title IV''.
  (c) Grants to Indian Tribes.--Section 412(a) of such Act (42 
U.S.C. 612(a)) is amended by adding at the end the following:
          ``(3) Welfare-to-work grants.--
                  ``(A) In general.--The Secretary shall make a 
                grant in accordance with this paragraph to an 
                Indian tribe for each fiscal year specified in 
                section 403(a)(5)(H) for which the Indian tribe 
                is a welfare-to-work tribe, in such amount as 
                the Secretary deems appropriate, subject to 
                subparagraph (B) of this paragraph.
                  ``(B) Welfare-to-work tribe.--An Indian tribe 
                shall be considered a welfare-to-work tribe for 
                a fiscal year for purposes of this paragraph if 
                the Indian tribe meets the following 
                requirements:
                          ``(i) The Indian tribe has submitted 
                        to the Secretary (in the form of an 
                        addendum to the tribal family 
                        assistance plan, if any, of the Indian 
                        tribe) a plan which describes how, 
                        consistent with section 403(a)(5), the 
                        Indian tribe will use any funds 
                        provided under this paragraph during 
                        the fiscal year.
                          ``(ii) The Indian tribe has provided 
                        the Secretary with an estimate of the 
                        amount that the Indian tribe intends to 
                        expend during the fiscal year 
                        (excluding tribal expenditures 
                        described in section 409(a)(7)(B)(iv)) 
                        for activities described in section 
                        403(a)(5)(C)(i).
                          ``(iii) The Indian tribe has agreed 
                        to negotiate in good faith with the 
                        Secretary of Health and Human Services 
                        with respect to the substance of any 
                        evaluation under section 413(j), and to 
                        cooperate with the conduct of any such 
                        evaluation.
                  ``(C) Limitations on use of funds.--Section 
                403(a)(5)(C) shall apply to funds provided to 
                Indian tribes under this paragraph in the same 
                manner in which such section applies to funds 
                provided under section 403(a)(5).''.
  (d) Funds Received From Grants To Be Disregarded in Applying 
Durational Limit on Assistance.--Section 408(a)(7) of such Act 
(42 U.S.C. 608(a)(7)) is amended by adding at the end the 
following:
                  ``(G) Inapplicability to welfare-to-work 
                grants and assistance.--For purposes of 
                subparagraph (A) of this paragraph, a grant 
                made under section 403(a)(5) shall not be 
                considered a grant made under section 403, and 
                assistance from funds provided under section 
                403(a)(5) shall not be considered 
                assistance.''.
  (e) Evaluations.--Section 413 of such Act (42 U.S.C. 613) is 
amended by adding at the end the following:
  ``(j) Evaluation of Welfare-To-Work Programs.--The 
Secretary--
          ``(1) shall, in consultation with the Secretary of 
        Labor, develop a plan to evaluate how grants made under 
        sections 403(a)(5) and 412(a)(3) have been used; and
          ``(2) may evaluate the use of such grants by such 
        grantees as the Secretary deems appropriate, in 
        accordance with an agreement entered into with the 
        grantees after good-faith negotiations.''.

SEC. 5002. NONDISPLACEMENT.

  Section 407(f) of the Social Security Act (42 U.S.C. 607(f)) 
is amended to read as follows:
  ``(f) Nondisplacement in Work Activities.--
          ``(1) Prohibitions.--
                  ``(A) General prohibition.--A participant in 
                a work activity pursuant to section 403(a)(5) 
                or this section shall not displace (including a 
                partial displacement, such as a reduction in 
                the hours of nonovertime work, wages, or 
                employment benefits) any individual who, as of 
                the date of the participation, is an employee.
                  ``(B) Prohibition on impairment of 
                contracts.--A work activity shall not impair an 
                existing contract for services or collective 
                bargaining agreement, and a work activity that 
                would be inconsistent with the terms of a 
                collective bargaining agreement shall not be 
                undertaken without the written concurrence of 
                the labor organization and employer concerned.
                  ``(C) Other prohibitions.--A participant in a 
                work activity shall not be employed in a job--
                          ``(i) when any other individual is on 
                        layoff from the same or any 
                        substantially equivalent job;
                          ``(ii) when the employer has 
                        terminated the employment of any 
                        regular employee or otherwise reduced 
                        the workforce of the employer with the 
                        intention of filling the vacancy so 
                        created with the participant; or
                          ``(iii) which is created in a 
                        promotional line that will infringe in 
                        any way upon the promotional 
                        opportunities of employed individuals.
          ``(2) Health and safety.--Health and safety standards 
        established under Federal and State law otherwise 
        applicable to working conditions of employees shall be 
        equally applicable to working conditions of 
        participants engaged in a work activity. To the extent 
        that a State workers' compensation law applies, 
        workers' compensation shall be provided to participants 
        on the same basis as the compensation is provided to 
        other individuals in the State in similar employment.
          ``(3) Nondiscrimination.--In addition to the 
        protections provided under the provisions of law 
        specified in section 408(c), an individual may not be 
        discriminated against with respect to participation in 
        work activities by reason of gender.
          ``(4) Grievance procedure.--
                  ``(A) In general.--Each State to which a 
                grant is made under section 403 shall establish 
                and maintain a procedure for grievances or 
                complaints alleging violations of paragraph 
                (1), (2), or (3) from participants and other 
                interested or affected parties. The procedure 
                shall include an opportunity for a hearing and 
                be completed within 60 days after the grievance 
                or complaint is filed.
                  ``(B) Investigation.--
                          ``(i) In general.--The Secretary of 
                        Labor shall investigate an allegation 
                        of a violation of paragraph (1), (2), 
                        or (3) if--
                                  ``(I) a decision relating to 
                                the violation is not reached 
                                within 60 days after the date 
                                of the filing of the grievance 
                                or complaint, and either party 
                                appeals to the Secretary of 
                                Labor; or
                                  ``(II) a decision relating to 
                                the violation is reached within 
                                the 60-day period, and the 
                                party to which the decision is 
                                adverse appeals the decision to 
                                the Secretary of Labor.
                          ``(ii) Additional requirement.--The 
                        Secretary of Labor shall make a final 
                        determination relating to an appeal 
                        made under clause (i) no later than 120 
                        days after receiving the appeal.
                  ``(C) Remedies.--Remedies for violation of 
                paragraph (1), (2), or (3) shall be limited 
                to--
                          ``(i) suspension or termination of 
                        payments under section 403;
                          ``(ii) prohibition of placement of a 
                        participant with an employer that has 
                        violated paragraph (1), (2), or (3);
                          ``(iii) where applicable, 
                        reinstatement of an employee, payment 
                        of lost wages and benefits, and 
                        reestablishment of other relevant 
                        terms, conditions and privileges of 
                        employment; and
                          ``(iv) where appropriate, other 
                        equitable relief.''.

SEC. 5003. CLARIFICATION OF LIMITATION ON NUMBER OF PERSONS WHO MAY BE 
                    TREATED AS ENGAGED IN WORK BY REASON OF 
                    PARTICIPATION IN EDUCATIONAL ACTIVITIES.

  (a) In General.--Section 407(c)(2)(D) of the Social Security 
Act (42 U.S.C. 607(c)(2)(D)) is amended to read as follows:
                  ``(D) Limitation on number of persons who may 
                be treated as engaged in work by reason of 
                participation in educational activities.--For 
                purposes of determining monthly participation 
                rates under paragraphs (1)(B)(i) and (2)(B) of 
                subsection (b), not more than 20 percent of the 
                number of individuals in all families and in 2-
                parent families, respectively, in a State who 
                are treated as engaged in work for a month may 
                consist of individuals who are determined to be 
                engaged in work for the month by reason of 
                participation in vocational educational 
                training, or deemed to be engaged in work for 
                the month by reason of subparagraph (C) of this 
                paragraph.''.
  (b) Retroactivity.--The amendment made by subsection (a) of 
this section shall take effect as if included in the enactment 
of section 103(a) of the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996.

SEC. 5004. COMPENSATION; MAXIMUM REQUIRED HOURS OF WORK ACTIVITIES.

  (a) In General.--Section 407 of the Social Security Act (42 
U.S.C. 607) is amended by adding at the end the following:
  ``(j) Compensation.--A State to which a grant is made under 
section 403 may not require a recipient of assistance under the 
State program funded under this part to participate in a work 
activity described in paragraph (1), (2), or (3) of subsection 
(d) unless the recipient is compensated at the same rates, 
including periodic increases, as trainees or employees who are 
similarly situated in similar occupations by the same employer 
and who have similar training, experience and skills, and such 
rates shall be in accordance with applicable law.
  ``(k) Limitation on Number of Hours Per Month That a 
Recipient of Assistance May Be Required To Participate in On-
the-Job Training, andwith a Public Agency or Nonprofit 
Organization.--
          ``(1) In general.--A State to which a grant is made 
        under section 403 may not require a recipient of 
        assistance under the State program funded under this 
        part to be assigned to on-the-job training, and to a 
        work experience or community service position with a 
        public agency or nonprofit organization during a month 
        for more than the allowable number of hours determined 
        for the month under paragraph (2).
          ``(2) Allowable number of hours.--
                  ``(A) In general.--Subject to subparagraph 
                (B), the allowable number of hours determined 
                for a month under this paragraph is--
                          ``(i) the value of the includible 
                        benefits provided by the State to the 
                        recipient during the month; divided by
                          ``(ii) the minimum wage rate in 
                        effect during the month under section 6 
                        of the Fair Labor Standards Act of 
                        1938.
                  ``(B) State option to take account of certain 
                work activities.--
                          ``(i) In general.--In determining the 
                        allowable number of hours for a month 
                        for a sufficiently employed recipient, 
                        the State may subtract from the 
                        allowable number of hours calculated 
                        under subparagraph (A) the number of 
                        hours during the month for which the 
                        recipient participates in a work 
                        activity described in paragraph (6), 
                        (8), (9), or (11) of subsection (d).
                          ``(ii) Sufficiently employed 
                        recipient.--As used in clause (i), the 
                        term `sufficiently employed recipient' 
                        means, with respect to a month, a 
                        recipient who is employed during the 
                        month for a number of hours that is not 
                        less than--
                                  ``(I) the sum of the dollar 
                                value of any assistance 
                                provided to the recipient 
                                during the month under the 
                                State program funded under this 
                                part, and the dollar value 
                                equivalent of any benefits 
                                provided to the recipient 
                                during the month under the food 
                                stamp program under the Food 
                                Stamp Act of 1977; divided by
                                  ``(II) the minimum wage rate 
                                in effect during the month 
                                under section 6 of the Fair 
                                Labor Standards Act of 1938.
          ``(3) Definition of value of the includible 
        benefits.--As used in paragraph (2)(A), the term `value 
        of the includible benefits' means, with respect to a 
        recipient--
                  ``(A) the dollar value of any assistance 
                under the State program funded under this part;
                  ``(B) the dollar value equivalent of any 
                benefits under the food stamp program under the 
                Food Stamp Act of 1977;
                  ``(C) at the option of the State, the dollar 
                value of benefits under the State plan approved 
                under title XIX, as determined in accordance 
                with paragraph (4);
                  ``(D) at the option of the State, the dollar 
                value of child care assistance; and
                  ``(E) at the option of the State, the dollar 
                value of housing benefits.
          ``(4) Valuation of medicaid benefits.--Annually, the 
        Secretary shall publish a table that specifies the 
        dollar value of the insurance coverage provided under 
        title XIX to a family of each size, which may take 
        account of geographical variations or other factors 
        identified by the Secretary.
          ``(5) Treatment of recipients assigned to certain 
        positions with a public agency or nonprofit 
        organization.--A recipient of assistance under a State 
        program funded under this part who is engaged in work 
        experience or community service with a public agency or 
        nonprofit organization shall not be considered an 
        employee of the public agency or the nonprofit 
        organization.''.
  (b) Retroactivity.--The amendment made by subsection (a) of 
this section shall take effect as if included in the enactment 
of section 103(a) of the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996.

SEC. 5005. PENALTY FOR FAILURE OF STATE TO REDUCE ASSISTANCE FOR 
                    RECIPIENTS REFUSING WITHOUT GOOD CAUSE TO WORK.

  (a) In General.--Section 409(a) of the Social Security Act 
(42 U.S.C. 609(a)) is amended by adding at the end the 
following:
          ``(13) Penalty for failure to reduce assistance for 
        recipients refusing without good cause to work.--
                  ``(A) In general.--If the Secretary 
                determines that a State to which a grant is 
                made under section 403 in a fiscal year has 
                violated section 407(e) during the fiscal year, 
                the Secretary shall reduce the grant payable to 
                the State under section 403(a)(1) for the 
                immediately succeeding fiscal year by an amount 
                equal to not less than 1 percent and not more 
                than 5 percent of the State family assistance 
                grant.
                  ``(B) Penalty based on severity of failure.--
                The Secretary shall impose reductions under 
                subparagraph (A) with respect to a fiscal year 
                based on the degree of noncompliance.''.
  (b) Retroactivity.--The amendment made by subsection (a) of 
this section shall take effect as if included in the enactment 
of section 103(a) of the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996.

                 Subtitle B--Higher Education Programs

SEC. 5101. MANAGEMENT AND RECOVERY OF RESERVES.

  (a) Amendment.--Section 422 of the Higher Education Act of 
1965 (20 U.S.C. 1072) is amended by adding after subsection (g) 
the following new subsection:
  ``(h) Recall of Reserves; Limitations on Use of Reserve Funds 
and Assets.--(1) Notwithstanding any other provision of law, 
the Secretary shall, except as otherwise provided in this 
subsection, recall $1,000,000,000 from the reserve funds held 
by guaranty agencies on September 1, 2002.
  ``(2) Funds recalled by the Secretary under this subsection 
shall be deposited in the Treasury.
  ``(3) The Secretary shall require each guaranty agency to 
return reserve funds under paragraph (1) based on such agency's 
required share of recalled reserve funds held by guaranty 
agencies as of September 30, 1996. For purposes of this 
paragraph, a guaranty agency's required share of recalled 
reserve funds shall be determined as follows:
          ``(A) The Secretary shall compute each agency's 
        reserve ratio by dividing (i) the amount held in such 
        agency's reserve funds as of September 30, 1996 (but 
        reflecting later accounting or auditing adjustments 
        approved by the Secretary), by (ii) the original 
        principal amount of all loans for which such agency has 
        an outstanding insurance obligation as of such date.
          ``(B) If the reserve ratio of any agency as computed 
        under subparagraph (A) exceeds 2.0 percent, the 
        agency's required share shall include so much of the 
        amounts held in such agency's reserve fund as exceed a 
        reserve ratio of 2.0 percent.
          ``(C) If any additional amount is required to be 
        recalled under paragraph (1) (after deducting the total 
        of the required shares calculated under subparagraph 
        (B)), the agencies' required shares shall include 
        additional amounts--
                  ``(i) determined by imposing on each such 
                agency an equal percentage reduction in the 
                amount of each agency's reserve fund remaining 
                after deduction of the amount recalled under 
                subparagraph (B); and
                  ``(ii) the total of which equals the 
                additional amount that is required to be 
                recalled under paragraph (1) (after deducting 
                the total of the required shares calculated 
                under subparagraph (B)).
  ``(4) Within 90 days after the beginning of each of fiscal 
years 1998 through 2002, each guaranty agency shall transfer a 
portion of each agency's required share determined under 
paragraph (3) to a restricted account established by the 
guaranty agency that is of a type selected by the guaranty 
agency with the approval of the Secretary. Funds transferred to 
such restricted accounts shall be invested in obligations 
issued or guaranteed by the United States or in other similarly 
low-risk securities. A guaranty agency shall not use the funds 
in such a restricted account for any purpose without the 
express written permission of the Secretary, except that a 
guaranty agency may use the earnings from such restricted 
account to assist in meeting the agency's operational expenses 
under this part. In each of fiscal years 1998 through 2002, 
each agency shall transfer its required share to such 
restricted account in 5 equal annual installments, except 
that--
          ``(A) a guarantee agency that has a reserve ratio (as 
        computed under subparagraph (3)(A)) equal to or less 
        than 1.10 percent may transfer its required share to 
        such account in 4 equal installments beginning in 
        fiscal year 1999; and
          ``(B) a guarantee agency may transfer such required 
        share to such account in accordance with such other 
        payment schedules as are approved by the Secretary.
  ``(5) If, on September 1, 2002, the total amount in the 
restricted accounts described in paragraph (4) is less than the 
amount the Secretary is required to recall under paragraph (1), 
the Secretary may require the return of the amount of the 
shortage from other reserve funds held by guaranty agencies 
under procedures established by the Secretary.
  ``(6) The Secretary may take such reasonable measures, and 
require such information, as may be necessary to ensure that 
guaranty agencies comply with the requirements of this 
subsection. Notwithstanding any other provision of this part, 
if the Secretary determines that a guaranty agency is not in 
compliance with the requirements of this subsection, such 
agency may not receive any other funds under this part until 
the Secretary determines that such agency is in compliance.
  ``(7) The Secretary shall not have any authority to direct a 
guaranty agency to return reserve funds under subsection 
(g)(1)(A) during the period from the date of enactment of this 
subsection through September 30, 2002, and any reserve funds 
otherwise returned under subsection (g)(1) during such period 
shall be treated as amounts recalled under this subsection and 
shall not be available under subsection (g)(4).
  ``(8) For purposes of this subsection, the term `reserve 
funds' when used with respect to a guaranty agency--
          ``(A) includes any cash reserve funds held by the 
        guaranty agency, or held by, or under the control of, 
        any other entity; and
          ``(B) does not include buildings, equipment, or other 
        nonliquid assets.''.
  (b) Conforming Amendment.--Section 428(c)(9)(A) of the Higher 
Education Act of 1965 (20 U.S.C. 1078(c)(9)(A)) is amended--
          (1) in the first sentence, by striking ``for the 
        fiscal year of the agency that begins in 1993''; and
          (2) by striking the third sentence.

SEC. 5102. REPEAL OF DIRECT LOAN ORIGINATION FEES TO INSTITUTIONS OF 
                    HIGHER EDUCATION.

  Section 452 of the Higher Education Act of 1965 (20 U.S.C. 
1087b) is amended--
          (1) by striking subsection (b); and
          (2) by redesignating subsections (c) and (d) as 
        subsections (b) and (c), respectively.

SEC. 5103. FUNDS FOR ADMINISTRATIVE EXPENSES.

  Subsection (a) of section 458 of the Higher Education Act of 
1965 (20 U.S.C. 1087h(a)) is amended to read as follows:
  ``(a) In General.--(1) Each fiscal year, there shall be 
available to the Secretary from funds not otherwise 
appropriated, funds to be obligated for--
          ``(A) administrative costs under this part and part 
        B, including the costs of the direct student loan 
        programs under this part, and
          ``(B) administrative cost allowances payable to 
        guaranty agencies under part B and calculated in 
        accordance with paragraph (2),
not to exceed (from such funds not otherwise appropriated) 
$532,000,000 in fiscal year 1998, $610,000,000 in fiscal year 
1999, $705,000,000 in fiscal year 2000, $750,000,000 in fiscal 
year 2001, and $750,000,000 in fiscal year 2002. Administrative 
cost allowances under subparagraph (B) of this paragraph shall 
be paid quarterly and used in accordance with section 428(f). 
The Secretary may carry over funds available under this section 
to a subsequent fiscal year.
  ``(2) Administrative cost allowances payable to guaranty 
agencies under paragraph (1)(B) shall be calculated on the 
basis of 0.85 percent of the total principal amount of loans 
upon which insurance is issued on or after the date of 
enactment of the Balanced Budget Act of 1997, except that such 
allowances shall not exceed--
          ``(A) $170,000,000 for each of the fiscal years 1998 
        and 1999; or
          ``(B) $150,000,000 for each of the fiscal years 2000, 
        2001, and 2002.''.

SEC. 5104. SECRETARY'S EQUITABLE SHARE OF COLLECTIONS ON CONSOLIDATED 
                    DEFAULTED LOANS.

  Section 428(c)(6)(A) of the Higher Education Act of 1965 (20 
U.S.C. 1078(c)(6)(A)) is amended--
          (1) in the matter preceding clause (i), by striking 
        ``made by the borrower'' and inserting ``made by or on 
        behalf of the borrower, including payments made to 
        discharge loans made under this title to obtain a 
        consolidation loan pursuant to this part or part D,''; 
        and
          (2) in clause (ii), by striking ``(ii) an amount 
        equal to 27 percent of such payments (subject to 
        subparagraph (D) of this paragraph) for costs related'' 
        and inserting the following:
          ``(ii) an amount equal to 27 percent of such payments 
        for covered costs, except that the amount determined 
        under this clause for such covered costs shall be (I) 
        18.5 percent of such payments for defaulted loans 
        consolidated pursuant to this part or part D on or 
        after July 1, 1997; and (II) 18.5 percent of such 
        payments for defaulted loans consolidated pursuant to 
        this part or part D on or after the date of enactment 
        of the Higher Education Amendments of 1992 with respect 
        to any guaranty agency that has, after such date, made 
        deductions from such payments under this clause (ii) in 
        an amount equal to 18.5 percent of such payments.
For purposes of clause (ii) of this subparagraph, the term 
`covered costs' means costs related''.

SEC. 5105. EXTENSION OF STUDENT AID PROGRAMS.

  Title IV of the Higher Education Act of 1965 (20 U.S.C. 1070 
et seq.) is amended--
          (1) in section 424(a), by striking ``1998.'' and 
        ``2002.'' and inserting ``2002.'' and ``2006.'', 
        respectively;
          (2) in section 428(a)(5), by striking ``1998,'' and 
        ``2002.'' and inserting ``2002,'' and ``2006.'', 
        respectively; and
          (3) in section 428C(e), by striking ``1998.'' and 
        inserting ``2002.''.

      Subtitle C--Repeal of Smith-Hughes Vocational Education Act

SEC. 5201. REPEAL OF SMITH-HUGHES VOCATIONAL EDUCATION ACT.

  The Act of February 23, 1917 (39 Stat. 929; 20 U.S.C. 11) 
(commonly known as the ``Smith-Hughes Vocational Education 
Act'') is repealed.

   Subtitle D--Expansion of Portability and Health Insurance Coverage

SEC. 5301. SHORT TITLE OF SUBTITLE.

  This subtitle may be cited as the ``Expansion of Portability 
and Health Insurance Coverage Act of 1997''.

SEC. 5302. RULES GOVERNING ASSOCIATION HEALTH PLANS.

  (a) In General.--Subtitle B of title I of the Employee 
Retirement Income Security Act of 1974 is amended by adding 
after part 7 the following new part:

           ``Part 8--Rules Governing Association Health Plans

``SEC. 801. ASSOCIATION HEALTH PLANS.

  ``(a) In General.--For purposes of this part, the term 
`association health plan' means a group health plan--
          ``(1) whose sponsor is (or is deemed under this part 
        to be) described in subsection (b), and
          ``(2) under which at least one option of health 
        insurance coverage offered by a health insurance issuer 
        (which may include, among other options, managed care 
        options, point of service options, and preferred 
        provider options) is provided to participants and 
        beneficiaries.
  ``(b) Sponsorship.--The sponsor of a group health plan is 
described in this subsection if such sponsor--
          ``(1) is organized and maintained in good faith, with 
        a constitution and bylaws specifically stating its 
        purpose and providing for periodic meetings on at least 
        an annual basis, as a trade association, an industry 
        association (including a rural electric cooperative 
        association or a rural telephone cooperative 
        association), a professional association, or a chamber 
        of commerce (or similar business group, including a 
        corporation or similar organization that operates on a 
        cooperative basis (within the meaning of section 1381 
        of the Internal Revenue Code of 1986)), for substantial 
        purposes other than that of obtaining or providing 
        medical care,
          ``(2) is established as a permanent entity which 
        receives the active support of its members and collects 
        from its members on a periodic basis dues or payments 
        necessary to maintain eligibility for membership in the 
        sponsor, and
          ``(3) does not condition such dues or payments or 
        coverage under the plan on the basis of health status-
        related factors with respect to the employees of its 
        members (or affiliated members), or the dependents of 
        such employees, and does not condition such dues or 
        payments on the basis of group health plan 
        participation.
Any sponsor consisting of an association of entities which meet 
the requirements of paragraphs (1) and (2) shall be deemed to 
be a sponsor described in this subsection.

``SEC. 802. CERTIFICATION OF ASSOCIATION HEALTH PLANS.

  ``(a) In General.--The Secretary shall prescribe by 
regulation a procedure under which, subject to subsection (b), 
the Secretary shall certify association health plans which 
apply for certification as meeting the requirements of this 
part.
  ``(b) Standards.--Under the procedure prescribed pursuant to 
subsection (a), the Secretary shall certify an association 
health plan as meeting the requirements of this part only if 
the Secretary is satisfied that--
          ``(1) such certification--
                  ``(A) is administratively feasible,
                  ``(B) is not adverse to the interests of the 
                individuals covered under the plan, and
                  ``(C) is protective of the rights and 
                benefits of the individuals covered under the 
                plan, and
          ``(2) the applicable requirements of this part are 
        met (or, upon the date on which the plan is to commence 
        operations, will be met) with respect to the plan.
  ``(c) Requirements Applicable to Certified Plans.--An 
association health plan with respect to which certification 
under this part is in effect shall meet the applicable 
requirements of this part, effective on the date of 
certification (or, if later, on the date on which the plan is 
to commence operations).
  ``(d) Requirements for Continued Certification.--The 
Secretary may provide by regulation for continued certification 
under this part, including requirements relating to any 
commencement, by an association health plan which has been 
certified under this part, of a benefit option which does not 
consist of health insurance coverage.
  ``(e) Class Certification for Fully-Insured Plans.--The 
Secretary shall establish a class certification procedure for 
association health plans under which all benefits consist of 
health insurance coverage. Under such procedure, the Secretary 
shall provide for the granting of certification under this part 
to the plans in each class of such association health plans 
upon appropriate filing under such procedure in connection with 
plans in such class and payment of the prescribed fee under 
section 807(a).

``SEC. 803. REQUIREMENTS RELATING TO SPONSORS AND BOARDS OF TRUSTEES.

  ``(a) Sponsor.--The requirements of this subsection are met 
with respect to an association health plan if--
          ``(1) the sponsor (together with its immediate 
        predecessor, if any) has met (or is deemed under this 
        part to have met) for a continuous period of not less 
        than 3 years ending with the date of the application 
        for certification under this part, the requirements of 
        paragraphs (1) and (2) of section 801(b), and
          ``(2) the sponsor meets (or is deemed under this part 
        to meet) the requirements of section 801(b)(3).
  ``(b) Board of Trustees.--The requirements of this subsection 
are met with respect to an association health plan if the 
following requirements are met:
          ``(1) Fiscal control.--The plan is operated, pursuant 
        to a trust agreement, by a board of trustees which has 
        complete fiscal control over the plan and which is 
        responsible for all operations of the plan.
          ``(2) Rules of operation and financial controls.--The 
        board of trustees has in effect rules of operation and 
        financial controls, based on a 3-year plan of 
        operation, adequate to carry out the terms of the plan 
        and to meet all requirements of this title applicable 
        to the plan.
          ``(3) Rules governing relationship to participating 
        employers and to contractors.--
                  ``(A) In general.--Except as provided in 
                subparagraph (B), the members of the board of 
                trustees are individuals selected from 
                individuals who are the owners, officers, 
                directors, or employees of the participating 
                employers or who are partners in the 
                participating employers and actively 
                participate in the business.
                  ``(B) Limitation.--
                          ``(i) General rule.--Except as 
                        provided in clauses (ii) and (iii), no 
                        such member is an owner, officer, 
                        director, or employee of, or partner 
                        in, a contract administrator or other 
                        service provider to the plan.
                          ``(ii) Limited exception for 
                        providers of services solely on behalf 
                        of the sponsor.--Officers or employees 
                        of a sponsor which is a service 
                        provider (other than a contract 
                        administrator) to the plan may be 
                        members of the board if they constitute 
                        not more than 25 percent of the 
                        membership of the board and they do not 
                        provide services to the plan other than 
                        on behalf of the sponsor.
                          ``(iii) Treatment of providers of 
                        medical care.--In the case of a sponsor 
                        which is an association whose 
                        membership consists primarily of 
                        providers of medical care, clause (i) 
                        shall not apply in the case of any 
                        service provider described in 
                        subparagraph (A) who is a provider of 
                        medical care under the plan.
                  ``(C) Sole authority.--The board has sole 
                authority to approve applications for 
                participation in the plan and to contract with 
                a service provider to administer the day-to-day 
                affairs of the plan.
  ``(c) Treatment of Franchise Networks.--In the case of a 
group health plan which is established and maintained by a 
franchiser for a franchise network consisting of its 
franchisees--
          ``(1) the requirements of subsection (a) and section 
        801(a)(1) shall be deemed met if such requirements 
        would otherwise be met if the franchiser were deemed to 
        be the sponsor referred to in section 801(b), such 
        network were deemed to be an association described in 
        section 801(b), and each franchisee were deemed to be a 
        member (of the association and the sponsor) referred to 
        in section 801(b), and
          ``(2) the requirements of section 804(a)(1) shall be 
        deemed met.
  ``(d) Certain Collectively Bargained Plans.--
          ``(1) In general.--In the case of a group health plan 
        described in paragraph (2)--
                  ``(A) the requirements of subsection (a) and 
                section 801(a)(1) shall be deemed met,
                  ``(B) the joint board of trustees shall be 
                deemed a board of trustees with respect to 
                which the requirements of subsection (b) are 
                met, and
                  ``(C) the requirements of section 804 shall 
                be deemed met.
          ``(2) Requirements.--A group health plan is described 
        in this paragraph if--
                  ``(A) the plan is a multiemployer plan,
                  ``(B) the plan is in existence on April 1, 
                1997, and would be described in section 
                3(40)(A)(i) but solely for the failure to meet 
                the requirements of section 3(40)(C)(ii) or (to 
                the extent provided in regulations of the 
                Secretary) solely for the failure to meet the 
                requirements of subparagraph (D) of section 
                3(40), or
                  ``(C)(i) the plan is in existence on April 1, 
                1997, has been in existence as of such date for 
                at least 3 years, meets the requirements of 
                paragraphs (2) and (3) of section 801(b), and 
                would be described in section 3(40)(A)(i) but 
                solely for the failure to meet the requirements 
                of subparagraph (C)(i) or (C)(ii), and
                  ``(ii) individuals who are members of the 
                plan sponsor--
                          ``(I) participate by elections in the 
                        organizational governance of the plan 
                        sponsor,
                          ``(II) are eligible for appointment 
                        as trustee of the plan or for 
                        participation in the appointment of 
                        trustees of the plan, and
                          ``(III) if covered under the plan, 
                        have full rights under the plan of a 
                        participant in an employee welfare 
                        benefit plan.
  ``(e) Certain Plans Not Meeting Single Employer 
Requirement.--
          ``(1) In general.--In any case in which the majority 
        of the employees covered under a group health plan are 
        employees of a single employer (within the meaning of 
        clauses (i) and (ii) of section 3(40)(B)), if all other 
        employees covered under the plan are employed by 
        employers who are related to such single employer--
                  ``(A) the requirements of subsection (a) and 
                section 801(a)(1) shall not apply if such 
                single employer is the sponsor of the plan, and
                  ``(B) the requirements of subsection (b) 
                shall be deemed met if the board of trustees is 
                the named fiduciary in connection with the 
                plan.
          ``(2) Related employers.--For purposes of paragraph 
        (1), employers are `related' if there is among all such 
        employers a common ownership interest or a substantial 
        commonality of business operations based on common 
        suppliers or customers.

``SEC. 804. PARTICIPATION AND COVERAGE REQUIREMENTS.

  ``(a) Covered Employers and Individuals.--The requirements of 
this subsection are met with respect to an association health 
plan if, under the terms of the plan--
          ``(1) all participating employers must be members or 
        affiliated members of the sponsor, except that, in the 
        case of a sponsor which is a professional association 
        or other individual-based association, if at least one 
        of the officers, directors, or employees of an 
        employer, or at least one of the individuals who are 
        partners in an employer and who actively participates 
        in the business, is a member or affiliated member of 
        the sponsor, participating employers may also include 
        such employer, and
          ``(2) all individuals commencing coverage under the 
        plan after certification under this part must be--
                  ``(A) active or retired owners (including 
                self-employed individuals), officers, 
                directors, or employees of, or partners in, 
                participating employers, or
                  ``(B) the beneficiaries of individuals 
                described in subparagraph (A).
  ``(b) Coverage of Previously Uninsured Employees.--The 
requirements of this subsection are met with respect to an 
association health plan if, under the terms of the plan, no 
affiliated member of the sponsor may be offered coverage under 
the plan as a participating employer unless--
          ``(1) the affiliated member was an affiliated member 
        on the date of certification under this part, or
          ``(2) during the 12-month period preceding the date 
        of the offering of such coverage, the affiliated member 
        has not maintained or contributed to a group health 
        plan with respect to any of its employees who would 
        otherwise be eligible to participate in such 
        association health plan.
  ``(c) Individual Market Unaffected.--The requirements of this 
subsection are met with respect to an association health plan 
if, under the terms of the plan, no participating employer may 
provide health insurance coverage in the individual market for 
any employee not covered under the plan which is similar to the 
coverage contemporaneously provided to employees of the 
employer under the plan, if such exclusion of the employee from 
coverage under the plan is based on a health status-related 
factor with respect to the employee and such employee would, 
but for such exclusion on such basis, be eligible for coverage 
under the plan.
  ``(d) Prohibition of Discrimination Against Employers and 
Employees Eligible To Participate.--The requirements of this 
subsection are met with respect to an association health plan 
if--
          ``(1) under the terms of the plan, no employer 
        meeting the preceding requirements of this section is 
        excluded as a participating employer, unless--
                  ``(A) participation or contribution 
                requirements of the type referred to in section 
                2711 of the Public Health Service Act are not 
                met with respect to the excluded employer, or
                  ``(B) the excluded employer does not satisfy 
                a required minimum level of employment 
                uniformly applicable to participating 
                employers,
          ``(2) the applicable requirements of sections 701, 
        702, and 703 are met with respect to the plan, and
          ``(3) applicable benefit options under the plan are 
        actively marketed to all eligible participating 
        employers.

``SEC. 805. OTHER REQUIREMENTS RELATING TO PLAN DOCUMENTS, CONTRIBUTION 
                    RATES, AND BENEFIT OPTIONS.

  ``(a) In General.--The requirements of this section are met 
with respect to an association health plan if the following 
requirements are met:
          ``(1) Contents of governing instruments.--The 
        instruments governing the plan include a written 
        instrument, meeting the requirements of an instrument 
        required under section 402(a)(1), which--
                  ``(A) provides that the board of trustees 
                serves as the named fiduciary required for 
                plans under section 402(a)(1) and serves in the 
                capacity of a plan administrator (referred to 
                in section 3(16)(A)),
                  ``(B) provides that the sponsor of the plan 
                is to serve as plan sponsor (referred to in 
                section 3(16)(B)), and
                  ``(C) incorporates the requirements of 
                section 806.
          ``(2) Contribution rates must be nondiscriminatory.--
                  ``(A) The contribution rates for any 
                participating employer do not vary 
                significantly on the basis of the claims 
                experience of such employer and do not vary on 
                the basis of the type of business or industry 
                in which such employer is engaged.
                  ``(B) Nothing in this title or any other 
                provision of law shall be construed to preclude 
                an association health plan, or a health 
                insurance issuer offering health insurance 
                coverage in connection with an association 
                health plan, from setting contribution rates 
                based on the claims experience of the plan, to 
                the extent contribution rates under the plan 
                meet the requirements of section 702(b).
          ``(3) Floor for number of covered individuals with 
        respect to certain plans.--If any benefit option under 
        the plan does not consist of health insurance coverage, 
        the plan has as of the beginning of the plan year not 
        fewer than 1,000 participants and beneficiaries.
          ``(4) Regulatory requirements.--Such other 
        requirements as the Secretary may prescribe by 
        regulation as necessary to carry out the purposes of 
        this part.
  ``(b) Ability of Association Health Plans To Design Benefit 
Options.--Nothing in this part or any provision of State law 
(as defined in section 514(c)(1)) shall be construed to 
preclude an association health plan, or a health insurance 
issuer offering health insurance coverage in connection with an 
association health plan, from exercising its sole discretion in 
selecting the specific items and services consisting of medical 
care to be included as benefits under such plan or coverage, 
except in the case of any law to the extent that it (1) 
prohibits an exclusion of a specific disease from such 
coverage, or (2) is not preempted under section 731(a)(1) with 
respect to matters governed by section 711 or 712.

``SEC. 806. MAINTENANCE OF RESERVES AND PROVISIONS FOR SOLVENCY FOR 
                    PLANS PROVIDING HEALTH BENEFITS IN ADDITION TO 
                    HEALTH INSURANCE COVERAGE.

  ``(a) In General.--The requirements of this section are met 
with respect to an association health plan if--
          ``(1) the benefits under the plan consist solely of 
        health insurance coverage, or
          ``(2) if the plan provides any additional benefit 
        options which do not consist of health insurance 
        coverage, the plan--
                  ``(A) establishes and maintains reserves with 
                respect to such additional benefit options, in 
                amounts recommended by the qualified actuary, 
                consisting of--
                          ``(i) a reserve sufficient for 
                        unearned contributions,
                          ``(ii) a reserve sufficient for 
                        benefit liabilities which have been 
                        incurred, which have not been 
                        satisfied, and for which risk of loss 
                        has not yet been transferred, and for 
                        expected administrative costs with 
                        respect to such benefit liabilities,
                          ``(iii) a reserve sufficient for any 
                        other obligations of the plan, and
                          ``(iv) a reserve sufficient for a 
                        margin of error and other fluctuations, 
                        taking into account the specific 
                        circumstances of the plan,
                and
                  ``(B) establishes and maintains aggregate 
                excess/stop loss insurance and solvency 
                indemnification, with respect to such 
                additional benefit options for which risk of 
                loss has not yet been transferred, as follows:
                          ``(i) The plan shall secure aggregate 
                        excess/stop loss insurance for the plan 
                        with an attachment point which is not 
                        greater than 125 percent of expected 
                        gross annual claims. The Secretary may 
                        by regulation provide for upward 
                        adjustments in the amount of such 
                        percentage in specified circumstances 
                        in which the plan specifically provides 
                        for and maintains reserves in excess of 
                        the amounts required under subparagraph 
                        (A).
                          ``(ii) The plan shall secure a means 
                        of indemnification for any claims which 
                        the plan is unable to satisfy by reason 
                        of a termination pursuant to section 
                        809(b) (relating to mandatory 
                        termination).
Any regulations prescribed by the Secretary pursuant to 
paragraph (2)(B)(i) may allow for such adjustments in the 
required levels of excess/stop loss insurance as the qualified 
actuary may recommend, taking into account the specific 
circumstances of the plan.
  ``(b) Minimum Surplus in Addition to Claims Reserves.--The 
requirements of this subsection are met if the plan establishes 
and maintains surplus in an amount at least equal to the excess 
of--
          ``(1) the greater of--
                  ``(A) 25 percent of expected incurred claims 
                and expenses for the plan year, or
                  ``(B) $400,000,
        over
          ``(2) the amount required under subsection 
        (a)(2)(A)(ii).
  ``(c) Additional Requirements.--In the case of any 
association health plan described in subsection (a)(2), the 
Secretary may provide such additional requirements relating to 
reserves and excess/stop loss insurance as the Secretary 
considers appropriate. Such requirements may be provided, by 
regulation or otherwise, with respect to any such plan or any 
class of such plans.
  ``(d) Adjustments for Excess/Stop Loss Insurance.--The 
Secretary may provide for adjustments to the levels of reserves 
otherwise required under subsections (a) and (b) with respect 
to any plan or class of plans to take into account excess/stop 
loss insurance provided with respect to such plan or plans.
  ``(e) Alternative Means of Compliance.--The Secretary may 
permit an association health plan described in subsection 
(a)(2) to substitute, for all or part of the requirements of 
this section, such security, guarantee, hold-harmless 
arrangement, or other financial arrangement as the Secretary 
determines to be adequate to enable the plan to fully meet all 
its financial obligations on a timely basis and is otherwise no 
less protective of the interests of participants and 
beneficiaries than the requirements for which it is 
substituted. The Secretary may takeinto account, for purposes 
of this subsection, evidence provided by the plan or sponsor which 
demonstrates an assumption of liability with respect to the plan. Such 
evidence may be in the form of a contract of indemnification, lien, 
bonding, insurance, letter of credit, recourse under applicable terms 
of the plan in the form of assessments of participating employers, 
security, or other financial arrangement.
  ``(f) Excess/Stop Loss Insurance.--For purposes of this 
section, the term `excess/stop loss insurance' means, in 
connection with an association health plan, a contract under 
which an insurer (meeting such minimum standards as may be 
prescribed in regulations of the Secretary) provides for 
payment to the plan with respect to claims under the plan in 
excess of an amount or amounts specified in such contract.

``SEC. 807. REQUIREMENTS FOR APPLICATION AND RELATED REQUIREMENTS.

  ``(a) Filing Fee.--Under the procedure prescribed pursuant to 
section 802(a), an association health plan shall pay to the 
Secretary at the time of filing an application for 
certification under this part a filing fee in the amount of 
$5,000, which shall be available, to the extent provided in 
appropriation Acts, to the Secretary for the sole purpose of 
administering the certification procedures applicable with 
respect to association health plans.
  ``(b) Information To Be Included in Application for 
Certification.--An application for certification under this 
part meets the requirements of this section only if it 
includes, in a manner and form prescribed in regulations of the 
Secretary, at least the following information:
          ``(1) Identifying information.--The names and 
        addresses of--
                  ``(A) the sponsor, and
                  ``(B) the members of the board of trustees of 
                the plan.
          ``(2) States in which plan intends to do business.--
        The States in which participants and beneficiaries 
        under the plan are to be located and the number of them 
        expected to be located in each such State.
          ``(3) Bonding requirements.--Evidence provided by the 
        board of trustees that the bonding requirements of 
        section 412 will be met as of the date of the 
        application or (if later) commencement of operations.
          ``(4) Plan documents.--A copy of the documents 
        governing the plan (including any bylaws and trust 
        agreements), the summary plan description, and other 
        material describing the benefits that will be provided 
        to participants and beneficiaries under the plan.
          ``(5) Agreements with service providers.--A copy of 
        any agreements between the plan and contract 
        administrators and other service providers.
          ``(6) Funding report.--In the case of association 
        health plans providing benefits options in addition to 
        health insurance coverage, a report setting forth 
        information with respect to such additional benefit 
        options determined as of a date within the 120-day 
        period ending with the date of the application, 
        including the following:
                  ``(A) Reserves.--A statement, certified by 
                the board of trustees of the plan, and a 
                statement of actuarial opinion, signed by a 
                qualified actuary, that all applicable 
                requirements of section 806 are or will be met 
                in accordance with regulations which the 
                Secretary shall prescribe.
                  ``(B) Adequacy of contribution rates.--A 
                statement of actuarial opinion, signed by a 
                qualified actuary, which sets forth a 
                description of the extent to which contribution 
                rates are adequate to provide for the payment 
                of all obligations and the maintenance of 
                required reserves under the plan for the 12-
                month period beginning with such date within 
                such 120-day period, taking into account the 
                expected coverage and experience of the plan. 
                If the contribution rates are not fully 
                adequate, the statement of actuarial opinion 
                shall indicate the extent to which the rates 
                are inadequate and the changes needed to ensure 
                adequacy.
                  ``(C) Current and projected value of assets 
                and liabilities.--A statement of actuarial 
                opinion signed by a qualified actuary, which 
                sets forth the current value of the assets and 
                liabilities accumulated under the plan and a 
                projection of the assets, liabilities, income, 
                and expenses of the plan for the 12-month 
                period referred to in subparagraph (B). The 
                income statement shall identify separately the 
                plan's administrative expenses and claims.
                  ``(D) Costs of coverage to be charged and 
                other expenses.--A statement of the costs of 
                coverage to be charged, including an 
                itemization of amounts for administration, 
                reserves, and other expenses associated with 
                the operation of the plan.
                  ``(E) Other information.--Any other 
                information which may be prescribed in 
                regulations of the Secretary as necessary to 
                carry out the purposes of this part.
  ``(c) Filing Notice of Certification With States.--A 
certification granted under this part to an association health 
plan shall not be effective unless written notice of such 
certification is filed with the applicable State authority of 
each State in which at least 25 percent of the participants and 
beneficiaries under the plan are located. For purposes of this 
subsection, an individual shall be considered to be located in 
the State in which a known address of such individual is 
located or in which such individual is employed.
  ``(d) Notice of Material Changes.--In the case of any 
association health plan certified under this part, descriptions 
of material changes in any information which was required to be 
submitted with the application for the certification under this 
part shall be filed in such form and manner as shall be 
prescribed in regulations of the Secretary. The Secretary may 
require by regulation prior notice of material changes with 
respect to specified matters which might serve as the basis for 
suspension or revocation of the certification.
  ``(e) Reporting Requirements for Certain Association Health 
Plans.--An association health plan certified under this part 
which provides benefit options in addition to health insurance 
coverage for such plan year shall meet the requirements of 
section 103 by filing an annual report under such section which 
shall include information described in subsection (b)(6) with 
respect to the plan year and, notwithstanding section 
104(a)(1)(A), shall be filed not later than 90 days after the 
close of the plan year (or on such later date as may be 
prescribed by the Secretary).
  ``(f) Engagement of Qualified Actuary.--The board of trustees 
of each association health plan which provides benefits options 
in addition to health insurance coverage and which is applying 
for certification under this part or is certified under this 
part shall engage, on behalf of all participants and 
beneficiaries, a qualified actuary who shall be responsible for 
the preparation of the materials comprising information 
necessary to be submitted by a qualified actuary under this 
part. The qualified actuary shall utilize such assumptions and 
techniques as are necessary to enable such actuary to form an 
opinion as to whether the contents of the matters reported 
under this part--
          ``(1) are in the aggregate reasonably related to the 
        experience of the plan and to reasonable expectations, 
        and
          ``(2) represent such actuary's best estimate of 
        anticipated experience under the plan.
The opinion by the qualified actuary shall be made with respect 
to, and shall be made a part of, the annual report.

``SEC. 808. NOTICE REQUIREMENTS FOR VOLUNTARY TERMINATION.

  ``Except as provided in section 809(b), an association health 
plan which is or has been certified under this part may 
terminate (upon or at any time after cessation of accruals in 
benefit liabilities) only if the board of trustees--
          ``(1) not less than 60 days before the proposed 
        termination date, provides to the participants and 
        beneficiaries a written notice of intent to terminate 
        stating that such termination is intended and the 
        proposed termination date,
          ``(2) develops a plan for winding up the affairs of 
        the plan in connection with such termination in a 
        manner which will result in timely payment of all 
        benefits for which the plan is obligated, and
          ``(3) submits such plan in writing to the Secretary.
Actions required under this section shall be taken in such form 
and manner as may be prescribed in regulations of the 
Secretary.

``SEC. 809. CORRECTIVE ACTIONS AND MANDATORY TERMINATION.

  ``(a) Actions To Avoid Depletion of Reserves.--An association 
health plan which is certified under this part and which 
provides benefits other than health insurance coverage shall 
continue to meet the requirements of section 806, irrespective 
of whether such certification continues in effect. The board of 
trustees of such plan shall determine quarterly whether the 
requirements of section 806 are met. In any case in which the 
board determines that there is reason to believe that there is 
or will be a failure to meet such requirements, or the 
Secretary makes such a determination and so notifies the board, 
the board shall immediately notify the qualified actuary 
engaged by the plan, and such actuary shall, not later than the 
end of the next following month, make such recommendations to 
the board for corrective action as the actuary determines 
necessary to ensure compliance with section 806. Not later than 
30 days after receiving from the actuary recommendations for 
corrective actions, the board shall notify the Secretary (in 
such form and manner as the Secretary may prescribe by 
regulation) of such recommendations of the actuary for 
corrective action, together with a description of the actions 
(if any) that the board has taken or plans to take in response 
to such recommendations. The board shall thereafter report to 
the Secretary, in such form and frequency as the Secretary may 
specify to the board, regarding corrective action taken by the 
board until the requirements of section 806 are met.
  ``(b) Mandatory Termination.--In any case in which--
          ``(1) the Secretary has been notified under 
        subsection (a) of a failure of an association health 
        plan which is or has been certified under this part and 
        is described in section 806(a)(2) to meet the 
        requirements of section 806 and has not been notified 
        by the board of trustees of the plan that corrective 
        action has restored compliance with such requirements, 
        and
          ``(2) the Secretary determines that there is a 
        reasonable expectation that the plan will continue to 
        fail to meet the requirements of section 806,
the board of trustees of the plan shall, at the direction of 
the Secretary, terminate the plan and, in the course of the 
termination, take such actions as the Secretary may require, 
including satisfying any claims referred to in section 
806(a)(2)(B)(ii) and recovering for the plan any liability 
under subsection (a)(2)(B)(ii) or (e) of section 806, as 
necessary to ensure that the affairs of the plan will be, to 
the maximum extent possible, wound up in a manner which will 
result in timely provision of all benefits for which the plan 
is obligated.
  ``(c) Guarantee Fund.--In any case in which claims against an 
association health plan terminated under subsection (b) remain 
outstanding after all actions required under subsection (b) 
have been undertaken in connection with the termination, the 
Secretary shall assess all ongoing association health plans 
which are or have been certified under this part and are 
described in section 806(a)(2) in an amount--
          ``(1) expressed as a uniform percentage of claims 
        paid by such plans per year for coverage, other than 
        health insurance coverage, commencing with the last 
        plan year ending before the date of the termination, 
        and
          ``(2) equal, in the aggregate, to the total amount of 
        such outstanding claims,
except that any such assessment shall not exceed 2 percent per 
year. The Secretary shall promptly pay such outstanding claims 
with the amounts assessed pursuant to this subsection. The 
Secretary shall deposit and hold such assessments in a 
guarantee fund which shall be established by the Secretary for 
payment of such claims until such payment of such claims has 
been completed. The Secretary may invest amounts of the fund in 
such obligations as the Secretary considers appropriate.

``SEC. 810. SPECIAL RULES FOR CHURCH PLANS.

  ``(a) Election for Church Plans.--Notwithstanding section 
4(b)(2), if a church, a convention or association of churches, 
or an organization described in section 3(33)(C)(i) maintains a 
church plan which is a group health plan (as defined in section 
733(a)(1)), and such church, convention, association, or 
organization makes an election with respect to such plan under 
this subsection (in such form and manner as the Secretary may 
by regulation prescribe), then the provisions of this section 
shall apply to such plan, with respect to benefits provided 
under such plan consisting of medical care, as if section 
4(b)(2) did not contain an exclusion for church plans. Nothing 
in this paragraph shall be construed to render any other 
section of this title applicable to church plans, except to the 
extent that such other section is incorporated by reference in 
this section.
  ``(b) Effect of Election.--
          ``(1) Preemption of state insurance laws regulating 
        covered church plans.--Subject to paragraphs (2) and 
        (3), this section shall supersede any and all State 
        laws which regulate insurance insofar as they may now 
        or hereafter regulate church plans to which this 
        section applies or trusts established under such church 
        plans.
          ``(2) General state insurance regulation 
        unaffected.--
                  ``(A) In general.--Except as provided in 
                subparagraph (B) and paragraph (3), nothing in 
                this section shall be construed to exempt or 
                relieve any person from any provision of State 
                law which regulates insurance.
                  ``(B) Church plans not to be deemed insurance 
                companies or insurers.--Neither a church plan 
                to which this section applies, nor any trust 
                established under such a church plan, shall be 
                deemed to be an insurance company or other 
                insurer or to be engaged in the business of 
                insurance for purposes of any State law 
                purporting to regulate insurance companies or 
                insurance contracts.
          ``(3) Preemption of certain state laws relating to 
        premium rate regulation and benefit mandates.--The 
        provisions of subsections (a)(2)(B) and (b) of section 
        805 shall apply with respect to a church plan to which 
        this section applies in the same manner and to the same 
        extent as such provisions apply with respect to 
        association health plans.
          ``(4) Definitions.--For purposes of this subsection--
                  ``(A) State law.--The term `State law' 
                includes all laws, decisions, rules, 
                regulations, or other State action having the 
                effect of law, of any State. A law of the 
                United States applicable only to the District 
                of Columbia shall be treated as a State law 
                rather than a law of the United States.
                  ``(B) State.--The term `State' includes a 
                State, any political subdivision thereof, or 
                any agency or instrumentality of either, which 
                purports to regulate, directly or indirectly, 
                the terms and conditions of church plans 
                covered by this section.
  ``(c) Requirements for Covered Church Plans.--
          ``(1) Fiduciary rules and exclusive purpose.--A 
        fiduciary shall discharge his duties withrespect to a 
church plan to which this section applies--
                  ``(A) for the exclusive purpose of:
                          ``(i) providing benefits to 
                        participants and their beneficiaries; 
                        and
                          ``(ii) defraying reasonable expenses 
                        of administering the plan;
                  ``(B) with the care, skill, prudence and 
                diligence under the circumstances then 
                prevailing that a prudent man acting in a like 
                capacity and familiar with such matters would 
                use in the conduct of an enterprise of a like 
                character and with like aims; and
                  ``(C) in accordance with the documents and 
                instruments governing the plan.
        The requirements of this paragraph shall not be treated 
        as not satisfied solely because the plan assets are 
        commingled with other church assets, to the extent that 
        such plan assets are separately accounted for.
          ``(2) Claims procedure.--In accordance with 
        regulations of the Secretary, every church plan to 
        which this section applies shall--
                  ``(A) provide adequate notice in writing to 
                any participant or beneficiary whose claim for 
                benefits under the plan has been denied, 
                setting forth the specific reasons for such 
                denial, written in a manner calculated to be 
                understood by the participant;
                  ``(B) afford a reasonable opportunity to any 
                participant whose claim for benefits has been 
                denied for a full and fair review by the 
                appropriate fiduciary of the decision denying 
                the claim; and
                  ``(C) provide a written statement to each 
                participant describing the procedures 
                established pursuant to this paragraph.
          ``(3) Annual statements.--In accordance with 
        regulations of the Secretary, every church plan to 
        which this section applies shall file with the 
        Secretary an annual statement--
                  ``(A) stating the names and addresses of the 
                plan and of the church, convention, or 
                association maintaining the plan (and its 
                principal place of business);
                  ``(B) certifying that it is a church plan to 
                which this section applies and that it complies 
                with the requirements of paragraphs (1) and 
                (2);
                  ``(C) identifying the States in which 
                participants and beneficiaries under the plan 
                are or likely will be located during the 1-year 
                period covered by the statement; and
                  ``(D) containing a copy of a statement of 
                actuarial opinion signed by a qualified actuary 
                that the plan maintains capital, reserves, 
                insurance, other financial arrangements, or any 
                combination thereof adequate to enable the plan 
                to fully meet all of its financial obligations 
                on a timely basis.
          ``(4) Disclosure.--At the time that the annual 
        statement is filed by a church plan with the Secretary 
        pursuant to paragraph (3), a copy of such statement 
        shall be made available by the Secretary to the State 
        insurance commissioner (or similar official) of any 
        State. The name of each church plan and sponsoring 
        organization filing an annual statement in compliance 
        with paragraph (3) shall be published annually in the 
        Federal Register.
  ``(c) Enforcement.--The Secretary may enforce the provisions 
of this section in a manner consistent with section 502, to the 
extent applicable with respect to actions under section 
502(a)(5), and with section 3(33)(D), except that, other than 
for the purpose of seeking a temporary restraining order, a 
civil action may be brought with respect to the plan's failure 
to meet any requirement of this section only if the plan fails 
to correct its failure within the correction period described 
in section 3(33)(D). The other provisions of part 5 (except 
sections 501(a), 503, 512, 514, and 515) shall apply with 
respect to the enforcement and administration of this section.
  ``(d) Definitions and Other Rules.--For purposes of this 
section--
          ``(1) In general.--Except as otherwise provided in 
        this section, any term used in this section which is 
        defined in any provision of this title shall have the 
        definition provided such term by such provision.
          ``(2) Seminary students.--Seminary students who are 
        enrolled in an institution of higher learning described 
        in section 3(33)(C)(iv) and who are treated as 
        participants under the terms of a church plan to which 
        this section applies shall be deemed to be employees as 
        defined in section 3(6) if the number of such students 
        constitutes an insignificant portion of the total 
        number of individuals who are treated as participants 
        under the terms of the plan.

``SEC. 811. DEFINITIONS AND RULES OF CONSTRUCTION.

  ``(a) Definitions.--For purposes of this part--
          ``(1) Group health plan.--The term `group health 
        plan' has the meaning provided in section 733(a)(1).
          ``(2) Medical care.--The term `medical care' has the 
        meaning provided in section 733(a)(2).
          ``(3) Health insurance coverage.--The term `health 
        insurance coverage' has the meaning provided in section 
        733(b)(1).
          ``(4) Health insurance issuer.--The term `health 
        insurance issuer' has the meaning provided in section 
        733(b)(2).
          ``(5) Health status-related factor.--The term `health 
        status-related factor' has the meaning provided in 
        section 733(d)(2).
          ``(6) Individual market.--
                  ``(A) In general.--The term `individual 
                market' means the market for health insurance 
                coverage offered to individuals other than in 
                connection with a group health plan.
                  ``(B) Treatment of very small groups.--
                          ``(i) In general.--Subject to clause 
                        (ii), such term includes coverage 
                        offered in connection with a group 
                        health plan that has fewer than 2 
                        participants as current employees or 
                        participants described in section 
                        732(d)(3) on the first day of the plan 
                        year.
                          ``(ii) State exception.--Clause (i) 
                        shall not apply in the case of health 
                        insurance coverage offered in a State 
                        if such State regulates the coverage 
                        described in such clause in the same 
                        manner and to the same extent as 
                        coverage in the small group market (as 
                        defined in section 2791(e)(5) of the 
                        Public Health Service Act) is regulated 
                        by such State.
          ``(7) Participating employer.--The term 
        `participating employer' means, in connection with an 
        association health plan, any employer, if any 
        individual who is an employee of such employer, a 
        partner in such employer, or a self-employed individual 
        who is such employer (or any dependent, as defined 
        under the terms of the plan, of such individual) is or 
        was covered under such plan in connection with the 
        status of such individual as such an employee, partner, 
        or self-employed individual in relation to the plan.
          ``(8) Applicable state authority.--The term 
        `applicable State authority' means, with respect to a 
        health insurance issuer in a State, the State insurance 
        commissioner or official or officials designated by the 
        State to enforce the requirements of title XXVII of the 
        Public Health Service Act for the State involved with 
        respect to such issuer.
          ``(9) Qualified actuary.--The term `qualified 
        actuary' means an individual who is a member of the 
        American Academy of Actuaries or meets such reasonable 
        standards and qualifications as the Secretary may 
        provide by regulation.
          ``(10) Affiliated member.--The term `affiliated 
        member' means, in connection with a sponsor, a person 
        eligible to be a member of the sponsor or, in the case 
        of a sponsor with member associations, a person who is 
        a member, or is eligible to be a member, of a member 
        association.
  ``(b) Rules of Construction.--
          ``(1) Employers and employees.--For purposes of 
        determining whether a plan, fund, or program is an 
        employee welfare benefit plan which is an association 
        health plan, and for purposes of applying this title in 
        connection with such plan, fund, or program so 
        determined to be such an employee welfare benefit 
        plan--
                  ``(A) in the case of a partnership, the term 
                `employer' (as defined in section (3)(5)) 
                includes the partnership in relation to the 
                partners, and the term `employee' (as defined 
                in section (3)(6)) includes any partner in 
                relation to the partnership, and
                  ``(B) in the case of a self-employed 
                individual, the term `employer' (as defined in 
                section 3(5)) and the term `employee' (as 
                defined in section 3(6)) shall include such 
                individual.
          ``(2) Plans, funds, and programs treated as employee 
        welfare benefit plans.--In the case of any plan, fund, 
        or program which was established or is maintained for 
        the purpose of providing medical care (through the 
        purchase of insurance or otherwise) for employees (or 
        their dependents) covered thereunder and which 
        demonstrates to the Secretary that all requirements for 
        certification under this part would be met with respect 
        to such plan, fund, or program if such plan, fund, or 
        program were a group health plan, such plan, fund, or 
        program shall be treated for purposes of this title as 
        an employee welfare benefit plan on and after the date 
        of such demonstration.''.
  (b) Conforming Amendments to Preemption Rules.--
          (1) Section 514(b)(6) of such Act (29 U.S.C. 
        1144(b)(6)) is amended by adding at the end the 
        following new subparagraph:
  ``(E) The preceding subparagraphs of this paragraph do not 
apply with respect to any State law in the case of an 
association health plan which is certified under part 8.''.
          (2) Section 514 of such Act (29 U.S.C. 1144) is 
        amended--
                  (A) in subsection (b)(4), by striking 
                ``Subsection (a)'' and inserting ``Subsections 
                (a) and (d)'';
                  (B) in subsection (b)(5), by striking 
                ``subsection (a)'' in subparagraph (A) and 
                inserting ``subsection (a) of this section and 
                subsections (a)(2)(B) and (b) of section 805'', 
                and by striking ``subsection (a)'' in 
                subparagraph (B) and inserting ``subsection (a) 
                of this section or subsection (a)(2)(B) or (b) 
                of section 805'';
                  (C) by redesignating subsection (d) as 
                subsection (e); and
                  (D) by inserting after subsection (c) the 
                following new subsection:
  ``(d)(1) Except as provided in subsection (b)(4), the 
provisions of this title shall supersede any and all State laws 
insofar as they may now or hereafter preclude a health 
insurance issuer from offering health insurance coverage in 
connection with an association health plan which is certified 
under part 8.
  ``(2) Except as provided in paragraphs (4) and (5) of 
subsection (b) of this section--
          ``(A) In any case in which health insurance coverage 
        of any policy type is offered under an association 
        health plan certified under part 8 to a participating 
        employer operating in such State, the provisions of 
        this title shall supersede any and all laws of such 
        State insofar as they may preclude a health insurance 
        issuer from offering health insurance coverage of the 
        same policy type to other employers operating in the 
        State which are eligible for coverage under such 
        association health plan, whether or not such other 
        employers are participating employers in such plan.
          ``(B) In any case in which health insurance coverage 
        of any policy type is offered under an association 
        health plan in a State and the filing, with the 
        applicable State authority, of the policy form in 
        connection with such policy type is approved by such 
        State authority, the provisions of this title shall 
        supersede any and all laws of any other State in which 
        health insurance coverage of such type is offered, 
        insofar as they may preclude, upon the filing in the 
        same form and manner of such policy form with the 
        applicable State authority in such other State, the 
        approval of the filing in such other State.
  ``(3) For additional provisions relating to association 
health plans, see subsections (a)(2)(B) and (b) of section 805.
  ``(4) For purposes of this subsection, the term `association 
health plan' has the meaning provided in section 801(a), and 
the terms `health insurance coverage', `participating 
employer', and `health insurance issuer' have the meanings 
provided such terms in section 811, respectively.''.
          (3) Section 514(b)(6)(A) of such Act (29 U.S.C. 
        1144(b)(6)(A)) is amended--
                  (A) in clause (i)(II), by striking ``and'' at 
                the end;
                  (B) in clause (ii), by inserting ``and which 
                does not provide medical care (within the 
                meaning of section 733(a)(2)),'' after 
                ``arrangement,'', and by striking ``title.'' 
                and inserting ``title, and''; and
                  (C) by adding at the end the following new 
                clause:
          ``(iii) subject to subparagraph (E), in the case of 
        any other employee welfare benefit plan which is a 
        multiple employer welfare arrangement and which 
        provides medical care (within the meaning of section 
        733(a)(2)), any law of any State which regulates 
        insurance may apply.''.
  (c) Plan Sponsor.--Section 3(16)(B) of such Act (29 U.S.C. 
102(16)(B)) is amended by adding at the end the following new 
sentence: ``Such term also includes a person serving as the 
sponsor of an association health plan under part 8.''.
  (d) Savings Clause.--Section 731(c) of such Act is amended by 
inserting ``or part 8'' after ``this part''.
  (e) Clerical Amendment.--The table of contents in section 1 
of the Employee Retirement Income Security Act of 1974 is 
amended by inserting after the item relating to section 734 the 
following new items:

           ``Part 8--Rules Governing Association Health Plans

``Sec. 801. Association health plans.
``Sec. 802. Certification of association health plans.
``Sec. 803. Requirements relating to sponsors and boards of trustees.
``Sec. 804. Participation and coverage requirements.
``Sec. 805. Other requirements relating to plan documents, contribution 
          rates, and benefit options.
``Sec. 806. Maintenance of reserves and provisions for solvency for 
          plans providing health benefits in addition to health 
          insurance coverage.
``Sec. 807. Requirements for application and related requirements.
``Sec. 808. Notice requirements for voluntary termination.
``Sec. 809. Corrective actions and mandatory termination.
``Sec. 810. Special rules for church plans.
``Sec. 811. Definitions and rules of construction.''

SEC. 5303. CLARIFICATION OF TREATMENT OF SINGLE EMPLOYER ARRANGEMENTS.

  Section 3(40)(B) of the Employee Retirement Income Security 
Act of 1974 (29 U.S.C. 1002(40)(B)) is amended--
          (1) in clause (i), by inserting ``for any plan year 
        of any such plan, or any fiscal year of any such other 
        arrangement;'' after ``single employer'', and by 
        inserting ``during such year or at any time during the 
        preceding 1-year period'' after ``control group'';
          (2) in clause (iii)--
                  (A) by striking ``common control shall not be 
                based on an interest of less than 25 percent'' 
                and inserting ``an interest of greater than 25 
                percent may not be required as the minimum 
                interest necessary for common control''; and
                  (B) by striking ``similar to'' and inserting 
                ``consistent and coextensive with'';
          (3) by redesignating clauses (iv) and (v) as clauses 
        (v) and (vi), respectively; and
          (4) by inserting after clause (iii) the following new 
        clause:
          ``(iv) in determining, after the application of 
        clause (i), whether benefits are provided to employees 
        of two or more employers, the arrangement shall be 
        treated as having only 1 participating employer if, 
        after the application of clause (i), the number of 
        individuals who are employees and former employees of 
        any one participating employer and who are covered 
        under the arrangement is greater than 75 percent of the 
        aggregate number of all individuals who are employees 
        or former employees of participating employers and who 
        are covered under the arrangement,''.

SEC. 5304. CLARIFICATION OF TREATMENT OF CERTAIN COLLECTIVELY BARGAINED 
                    ARRANGEMENTS.

  (a) In General.--Section 3(40)(A)(i) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 
1002(40)(A)(i)) is amended to read as follows:
          ``(i)(I) under or pursuant to one or more collective 
        bargaining agreements which are reached pursuant to 
        collective bargaining described in section 8(d) of the 
        National Labor Relations Act (29 U.S.C. 158(d)) or 
        paragraph Fourth of section 2 of the Railway Labor Act 
        (45 U.S.C. 152, paragraph Fourth) or which are reached 
        pursuant to labor-management negotiations under similar 
        provisions ofState public employee relations laws, and 
(II) in accordance with subparagraphs (C), (D), and (E),''.
  (b) Limitations.--Section 3(40) of such Act (29 U.S.C. 
1002(40)) is amended by adding at the end the following new 
subparagraphs:
  ``(C) For purposes of subparagraph (A)(i)(II), a plan or 
other arrangement shall be treated as established or maintained 
in accordance with this subparagraph only if the following 
requirements are met:
          ``(i) The plan or other arrangement, and the employee 
        organization or any other entity sponsoring the plan or 
        other arrangement, do not--
                  ``(I) utilize the services of any licensed 
                insurance agent or broker for soliciting or 
                enrolling employers or individuals as 
                participating employers or covered individuals 
                under the plan or other arrangement; or
                  ``(II) pay a commission or any other type of 
                compensation to a person, other than a full 
                time employee of the employee organization (or 
                a member of the organization to the extent 
                provided in regulations of the Secretary), that 
                is related either to the volume or number of 
                employers or individuals solicited or enrolled 
                as participating employers or covered 
                individuals under the plan or other 
                arrangement, or to the dollar amount or size of 
                the contributions made by participating 
                employers or covered individuals to the plan or 
                other arrangement;
        except to the extent that the services used by the 
        plan, arrangement, organization, or other entity 
        consist solely of preparation of documents necessary 
        for compliance with the reporting and disclosure 
        requirements of part 1 or administrative, investment, 
        or consulting services unrelated to solicitation or 
        enrollment of covered individuals.
          ``(ii) As of the end of the preceding plan year, the 
        number of covered individuals under the plan or other 
        arrangement who are identified to the plan or 
        arrangement and who are neither--
                  ``(I) employed within a bargaining unit 
                covered by any of the collective bargaining 
                agreements with a participating employer (nor 
                covered on the basis of an individual's 
                employment in such a bargaining unit); nor
                  ``(II) present employees (or former employees 
                who were covered while employed) of the 
                sponsoring employee organization, of an 
                employer who is or was a party to any of the 
                collective bargaining agreements, or of the 
                plan or other arrangement or a related plan or 
                arrangement (nor covered on the basis of such 
                present or former employment);
        does not exceed 15 percent of the total number of 
        individuals who are covered under the plan or 
        arrangement and who are present or former employees who 
        are or were covered under the plan or arrangement 
        pursuant to a collective bargaining agreement with a 
        participating employer. The requirements of the 
        preceding provisions of this clause shall be treated as 
        satisfied if, as of the end of the preceding plan year, 
        such covered individuals are comprised solely of 
        individuals who were covered individuals under the plan 
        or other arrangement as of the date of the enactment of 
        the Expansion of Portability and Health Insurance 
        Coverage Act of 1997 and, as of the end of the 
        preceding plan year, the number of such covered 
        individuals does not exceed 25 percent of the total 
        number of present and former employees enrolled under 
        the plan or other arrangement.
          ``(iii) The employee organization or other entity 
        sponsoring the plan or other arrangement certifies to 
        the Secretary each year, in a form and manner which 
        shall be prescribed in regulations of the Secretary 
        that the plan or other arrangement meets the 
        requirements of clauses (i) and (ii).
  ``(D) For purposes of subparagraph (A)(i)(II), a plan or 
arrangement shall be treated as established or maintained in 
accordance with this subparagraph only if--
          ``(i) all of the benefits provided under the plan or 
        arrangement consist of health insurance coverage; or
          ``(ii)(I) the plan or arrangement is a multiemployer 
        plan; and
          ``(II) the requirements of clause (B) of the proviso 
        to clause (5) of section 302(c) of the Labor Management 
        Relations Act, 1947 (29 U.S.C. 186(c)) are met with 
        respect to such plan or other arrangement.
  ``(E) For purposes of subparagraph (A)(i)(II), a plan or 
arrangement shall be treated as established or maintained in 
accordance with this subparagraph only if--
          ``(i) the plan or arrangement is in effect as of the 
        date of the enactment of the Expansion of Portability 
        and Health Insurance Coverage Act of 1997, or
          ``(ii) the employee organization or other entity 
        sponsoring the plan or arrangement--
                  ``(I) has been in existence for at least 3 
                years or is affiliated with another employee 
                organization which has been in existence for at 
                least 3 years, or
                  ``(II) demonstrates to the satisfaction of 
                the Secretary that the requirements of 
                subparagraphs (C) and (D) are met with respect 
                to the plan or other arrangement.''.
  (c) Conforming Amendments to Definitions of Participant and 
Beneficiary.--Section 3(7) of such Act (29 U.S.C. 1002(7)) is 
amended by adding at the end the following new sentence: ``Such 
term includes an individual who is a covered individual 
described in paragraph (40)(C)(ii).''.

SEC. 5305. ENFORCEMENT PROVISIONS RELATING TO ASSOCIATION HEALTH PLANS.

  (a) Criminal Penalties for Certain Willful 
Misrepresentations.--Section 501 of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1131) is amended--
          (1) by inserting ``(a)'' after ``Sec. 501.''; and
          (2) by adding at the end the following new 
        subsection:
  ``(b) Any person who, either willfully or with willful 
blindness, falsely represents, to any employee, any employee's 
beneficiary, any employer, the Secretary, or any State, a plan 
or other arrangement established or maintained for the purpose 
of offering or providing any benefit described in section 3(1) 
to employees or their beneficiaries as--
          ``(1) being an association health plan which has been 
        certified under part 8;
          ``(2) having been established or maintained under or 
        pursuant to one or more collective bargaining 
        agreements which are reached pursuant to collective 
        bargaining described in section 8(d) of the National 
        Labor Relations Act (29 U.S.C. 158(d)) or paragraph 
        Fourth of section 2 of the Railway Labor Act (45 U.S.C. 
        152, paragraph Fourth) or which are reached pursuant to 
        labor-management negotiations under similar provisions 
        of State public employee relations laws; or
          ``(3) being a plan or arrangement with respect to 
        which the requirements of subparagraph (C), (D), or (E) 
        of section 3(40) are met;
shall, upon conviction, be imprisoned not more than five years, 
be fined under title 18, United States Code, or both.''.
  (b) Cease Activities Orders.--Section 502 of such Act (29 
U.S.C. 1132) is amended by adding at the end the following new 
subsection:
  ``(n)(1) Subject to paragraph (2), upon application by the 
Secretary showing the operation, promotion, or marketing of an 
association health plan (or similar arrangement providing 
benefits consisting of medical care (as defined in section 
733(a)(2))) that--
          ``(A) is not certified under part 8, is subject under 
        section 514(b)(6) to the insurance laws of any State in 
        which the plan or arrangement offers or provides 
        benefits, and is not licensed, registered, or otherwise 
        approved under the insurance laws of such State; or
          ``(B) is an association health plan certified under 
        part 8 and is not operating in accordance with the 
        requirements under part 8 for such certification,
a district court of the United States shall enter an order 
requiring that the plan or arrangement cease activities.
  ``(2) Paragraph (1) shall not apply in the case of an 
association health plan or other arrangement if the plan or 
arrangement shows that--
          ``(A) all benefits under it referred to in paragraph 
        (1) consist of health insurance coverage; and
          ``(B) with respect to each State in which the plan or 
        arrangement offers or provides benefits, the plan or 
        arrangement is operating in accordance withapplicable 
State laws that are not superseded under section 514.
  ``(3) The court may grant such additional equitable relief, 
including any relief available under this title, as it deems 
necessary to protect the interests of the public and of persons 
having claims for benefits against the plan.''.
  (c) Responsibility for Claims Procedure.--Section 503 of such 
Act (29 U.S.C. 1133) is amended by adding at the end (after and 
below paragraph (2)) the following new sentence:
``The terms of each association health plan which is or has 
been certified under part 8 shall require the board of trustees 
or the named fiduciary (as applicable) to ensure that the 
requirements of this section are met in connection with claims 
filed under the plan.''.

SEC. 5306. COOPERATION BETWEEN FEDERAL AND STATE AUTHORITIES.

  Section 506 of the Employee Retirement Income Security Act of 
1974 (29 U.S.C. 1136) is amended by adding at the end the 
following new subsection:
  ``(c) Responsibility of States With Respect to Association 
Health Plans.--
          ``(1) Agreements with states.--A State may enter into 
        an agreement with the Secretary for delegation to the 
        State of some or all of the Secretary's authority under 
        sections 502 and 504 to enforce the requirements for 
        certification under part 8. The Secretary shall enter 
        into the agreement if the Secretary determines that the 
        delegation provided for therein would not result in a 
        lower level or quality of enforcement of the provisions 
        of this title.
          ``(2) Delegations.--Any department, agency, or 
        instrumentality of a State to which authority is 
        delegated pursuant to an agreement entered into under 
        this paragraph may, if authorized under State law and 
        to the extent consistent with such agreement, exercise 
        the powers of the Secretary under this title which 
        relate to such authority.
          ``(3) Recognition of primary domicile state.--In 
        entering into any agreement with a State under 
        subparagraph (A), the Secretary shall ensure that, as a 
        result of such agreement and all other agreements 
        entered into under subparagraph (A), only one State 
        will be recognized, with respect to any particular 
        association health plan, as the primary domicile State 
        to which authority has been delegated pursuant to such 
        agreements.''.

SEC. 5307. EFFECTIVE DATE AND TRANSITIONAL RULES.

  (a) Effective Date.--The amendments made by sections 5302, 
5305, and 5306 shall take effect on January 1, 1999. The 
amendments made by sections 5303 and 5304 shall take effect on 
the date of the enactment of this Act. The Secretary of Labor 
shall issue all regulations necessary to carry out the 
amendments made by this Act before January 1, 1999.
  (b) Exception.--Section 801(a)(2) of the Employee Retirement 
Income Security Act of 1974 (added by section 5302) does not 
apply with respect to group health plans (as defined in section 
733(a)(1) of such Act) existing on April 1, 1997, which do not 
provide health insurance coverage (as defined in section 
733(b)(1) of such Act) on such date.

         TITLE VI--COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT

                       Subtitle A--Postal Service

SEC. 6001. REPEAL OF AUTHORIZATION OF TRANSITIONAL APPROPRIATIONS FOR 
                    THE UNITED STATES POSTAL SERVICE.

  (a) Repeal.--
          (1) In general.--Section 2004 of title 39, United 
        States Code, is repealed.
          (2) Technical and conforming amendments.--
                  (A) The table of sections for chapter 20 of 
                such title is amended by repealing the item 
                relating to section 2004.
                  (B) Section 2003(e)(2) of such title is 
                amended by striking ``sections 2401 and 2004'' 
                each place it appears and inserting ``section 
                2401''.
  (b) Clarification That Liabilities Formerly Paid Pursuant to 
Section 2004 Remain Liabilities Payable by the Postal 
Service.--Section 2003 of title 39, United States Code, is 
amended by adding at the end the following:
  ``(h) Liabilities of the former Post Office Department to the 
Employees' Compensation Fund (appropriations for which were 
authorized by former section 2004, as in effect before the 
effective date of this subsection) shall be liabilities of the 
Postal Service payable out of the Fund.''.
  (c) Effective Date.--
          (1) In general.--This section and the amendments made 
        by this section shall take effect on the date of the 
        enactment of this Act or October 1, 1997, whichever is 
        later.
          (2) Provisions relating to payments for fiscal year 
        1998.--
                  (A) Amounts not yet paid.--No payment may be 
                made to the Postal Service Fund, on or after 
                the date of the enactment of this Act, pursuant 
                to any appropriation for fiscal year 1998 
                authorized by section 2004 of title 39, United 
                States Code (as in effect before the effective 
                date of this section).
                  (B) Amounts paid.--If any payment to the 
                Postal Service Fund is or has been made 
                pursuant to an appropriation for fiscal year 
                1998 authorized by such section 2004, then, an 
                amount equal to the amount of such payment 
                shall be paid from such Fund into the 
Treasuryas miscellaneous receipts before October 1, 1998.

                       Subtitle B--Civil Service

SEC. 6101. CONTRIBUTIONS UNDER THE CIVIL SERVICE RETIREMENT SYSTEM.

      (a) Individual Contributions.--
          (1) In general.--Subsection (c) of section 8334 of 
        title 5, United States Code, is amended to read as 
        follows:
  ``(c) Each employee or Member credited with civilian service 
after July 31, 1920, for which retirement deductions or 
deposits have not been made, may deposit with interest an 
amount equal to the following percentages of his basic pay 
received for that service:

                                                                                                                
                                         ``Percentage of basic pay                                              
                                                                                   Service period               
                                                                                                                
Employee...............................  2.50.....................  August 1, 1920, to June 30, 1926.           
                                         3.50.....................  July 1, 1926, to June 30, 1942.             
                                         5........................  July 1, 1942, to June 30, 1948.             
                                         6........................  July 1, 1948, to October 31, 1956.          
                                         6.50.....................  November 1, 1956, to December 31, 1969.     
                                         7........................  January 1, 1970, to December 31, 1998.      
                                         7.25.....................  January 1, 1999, to December 31, 1999.      
                                         7.40.....................  January 1, 2000, to December 31, 2000.      
                                         7.50.....................  January 1, 2001, to December 31, 2002.      
                                         7........................  After December 31, 2002.                    
Member or employee for Congressional                                                                            
 employee service......................  2.50.....................  August 1, 1920, to June 30, 1926.           
                                         3.50.....................  July 1, 1926, to June 30, 1942.             
                                         5........................  July 1, 1942, to June 30, 1948.             
                                         6........................  July 1, 1948, to October 31, 1956.          
                                         6.50.....................  November 1, 1956, to December 31, 1969.     
                                         7.50.....................  January 1, 1970, to December 31, 1998.      
                                         7.75.....................  January 1, 1999, to December 31, 1999.      
                                         7.90.....................  January 1, 2000, to December 31, 2000.      
                                         8........................  January 1, 2001, to December 31, 2002.      
                                         7.50.....................  After December 31, 2002.                    
Member for Member service..............  2.50.....................  August 1, 1920, to June 30, 1926.           
                                         3.50.....................  July 1, 1926, to June 30, 1942.             
                                         5........................  July 1, 1942, to August 1, 1946.            
                                         6........................  August 2, 1946, to October 31, 1956.        
                                         7.50.....................  November 1, 1956, to December 31, 1969.     
                                         8........................  January 1, 1970, to December 31, 1998.      
                                         8.25.....................  January 1, 1999, to December 31, 1999.      
                                         8.40.....................  January 1, 2000, to December 31, 2000.      
                                         8.50.....................  January 1, 2001, to December 31, 2002.      
                                         8........................  After December 31, 2002.                    
Law enforcement officer for law                                                                                 
 enforcement service and firefighter                                                                            
 for firefighter service...............  2.50.....................                                              
                                         3.50.....................  August 1, 1920, to June 30, 1926.           
                                                                    July 1, 1926, to June 30, 1942.             
                                         5........................  July 1, 1942, to June 30, 1948.             
                                         6........................  July 1, 1948, to October 31, 1956.          
                                         6.50.....................  November 1, 1956, to December 31, 1969.     
                                         7........................  January 1, 1970, to December 31, 1974.      
                                         7.50.....................  January 1, 1975, to December 31, 1998.      
                                         7.75.....................  January 1, 1999, to December 31, 1999.      
                                         7.90.....................  January 1, 2000, to December 31, 2000.      
                                         8........................  January 1, 2001, to December 31, 2002.      
                                         7.50.....................  After December 31, 2002.                    
Bankruptcy judge.......................  2.50.....................  August 1, 1920, to June 30, 1926.           
                                         3.50.....................  July 3, 1926, to June 30, 1942.             
                                         5........................  July 1, 1942, to June 30, 1948.             
                                         6........................  July 1, 1948, to October 31, 1956.          
                                         6.50.....................  November 1, 1956, to December 31, 1969.     
                                         7........................  January 1, 1970, to December 31, 1983.      
                                         8........................  January 1, 1984, to December 31, 1998.      
                                         8.25.....................  January 1, 1999, to December 31, 1999.      
                                         8.40.....................  January 1, 2000, to December 31, 2000.      
                                         8.50.....................  January 1, 2001, to December 31, 2002.      
                                         8........................  After December 31, 2002.                    
Judge of the United States Court of                                                                             
 Appeals for the Armed Forces for                                                                               
 service as a judge of that court......  6........................                                              
                                         6.50.....................  May 5, 1950, to October 31, 1956.           
                                                                    November 1, 1956, to December 31, 1969.     
                                         7........................  January 1, 1970, to (but not including) the 
                                                                     date of the enactment of the Department of 
                                                                     Defense Authorization Act, 1984.           
                                         8........................  The date of the enactment of the Department 
                                                                     of Defense Authorization Act, 1984, to     
                                                                     December 31, 1998.                         
                                         8.25.....................  January 1, 1999, to December 31, 1999.      
                                         8.40.....................  January 1, 2000, to December 31, 2000.      
                                         8.50.....................  January 1, 2001, to December 31, 2002.      
                                         8........................  After December 31, 2002.                    
United States magistrate...............  2.50.....................  August 1, 1920, to June 30, 1926.           
                                         3.50.....................  July 1, 1926, to June 30, 1942.             
                                         5........................  July 1, 1942, to June 30, 1948.             
                                         6........................  July 1, 1948, to October 31, 1956.          
                                         6.50.....................  November 1, 1956, to December 31, 1969.     
                                         7........................  January 1, 1970, to September 30, 1987.     
                                         8........................  October 1, 1987, to December 31, 1998.      
                                         8.25.....................  January 1, 1999, to December 31, 1999.      
                                         8.40.....................  January 1, 2000, to December 31, 2000.      
                                         8.50.....................  January 1, 2001, to December 31, 2002.      
                                         8........................  After December 31, 2002.                    
Claims Court Judge.....................  2.50.....................  August 1, 1920, to June 30, 1926.           
                                         3.50.....................  July 1, 1926, to June 30, 1942.             
                                         5........................  July 1, 1942, to June 30, 1948.             
                                         6........................  July 1, 1948, to October 31, 1956.          
                                         6.50.....................  November 1, 1956, to December 31, 1969.     
                                         7........................  January 1, 1970, to September 30, 1988.     
                                         8........................  October 1, 1988, to December 31, 1998.      
                                         8.25.....................  January 1, 1999, to December 31, 1999.      
                                         8.40.....................  January 1, 2000, to December 31, 2000.      
                                         8.50.....................  January 1, 2001, to December 31, 2002.      
                                         8........................  After December 31, 2002.                    
                                                                                                                

Notwithstanding the preceding provisions of this subsection and 
any provision of section 206(b)(3) of the Federal Employees' 
Retirement Contribution Temporary Adjustment Act of 1983, the 
percentage of basic pay required under this subsection in the 
case of an individual described in section 8402(b)(2) shall, 
with respect to any covered service (as defined by section 
203(a)(3) of such Act) performed by such individual after 
December 31, 1983, and before January 1, 1987, be equal to 1.3 
percent, and, with respect to any such service performed after 
December 31, 1986, be equal to the amount that would have been 
deducted from the employee's basic pay under subsection (k) of 
this section if the employee's pay had been subject to that 
subsection during such period.''.
          (2) Deductions.--The first sentence of section 
        8334(a)(1) of title 5, United States Code, is amended 
        to read as follows: ``The employing agency shall deduct 
        and withhold from the basic pay of an employee, Member, 
        Congressional employee, law enforcement officer, 
        firefighter, bankruptcy judge, judge of the United 
        States Court of Appeals for the Armed Forces, United 
        States magistrate, or Claims Court judge, as the case 
        may be, the percentage of basic pay applicable under 
        subsection (c).''.
          (3) Other service.--
                  (A) Military service.--Section 8334(j) of 
                title 5, United States Code, is amended--
                          (i) in paragraph (1)(A) by inserting 
                        ``and subject to paragraph (5),'' after 
                        ``Except as provided in subparagraph 
                        (B),''; and
                          (ii) by adding at the end the 
                        following:
  ``(5) Effective with respect to any period of military 
service performed after December 31, 1998, and before January 
1, 2003, the percentage of basic pay under section 204 of title 
37 payable under paragraph (1) shall be equal to the same 
percentage as would be applicable under section 8334(c) for 
that same period for service as an `employee', subject to 
paragraph (1)(B).''.
                  (B) Volunteer service.--Section 8334(l) of 
                title 5, United States Code, is amended--
                          (i) in paragraph (1) by striking the 
                        period at the end and inserting ``, 
                        subject to paragraph (4).''; and
                          (ii) by adding at the end the 
                        following:
  ``(4) Effective with respect to any period of service as a 
volunteer or volunteer leader performed after December 31, 
1998, and before January 1, 2003, the percentage of the 
readjustment allowance or stipend (as the case may be) payable 
under paragraph (1) shall be equal to the same percentage as 
would be applicable under section 8334(c) for that same period 
for service as an `employee'.''.
  (b) Government Contributions.--
          (1) In general.--Section 8334 of title 5, United 
        States Code, is amended by adding at the end the 
        following:
  ``(m)(1) This subsection shall govern for purposes of 
determining the amount to be contributed under the second 
sentence of subsection (a)(1) with respect to any service--
          ``(A) which is performed after September 30, 1997, 
        and before January 1, 2003; and
          ``(B) as to which a contribution under such sentence 
        would otherwise be payable.
  ``(2) The amount of the contribution required under the 
second sentence of subsection (a)(1) with respect to any 
service described in paragraph (1) shall (instead of the amount 
which would otherwise apply under such sentence) be equal to 
the amount of basic pay received for such service by the 
employee or Member involved, multiplied by the percentage under 
paragraph (3).
  ``(3)(A) The percentage under this paragraph is, with respect 
to any service, equal to the sum of--
          ``(i) the percentage which would have been applicable 
        under subsection (c), with respect to such service, if 
        it had been performed in fiscal year 1997, plus
          ``(ii) the applicable percentage under subparagraph 
        (B).
  ``(B) The applicable percentage under this subparagraph is, 
with respect to service performed--
          ``(i) after September 30, 1997, and before October 1, 
        2002, 1.51 percent; or
          ``(ii) after September 30, 2002, and before January 
        1, 2003, 0 percent.
  ``(4) An amount determined under this subsection with respect 
to any period of service shall, for purposes of subsection 
(k)(1)(B) (and any other provision of law which similarly 
refers to contributions under the second sentence of subsection 
(a)(1)), be treated as the amount required under such sentence 
with respect to such service.
  ``(5)(A) Notwithstanding paragraphs (1) through (4), the 
amount to be contributed by the Postal Service by reason of the 
second sentence of subsection (a)(1) with respect to any 
service performed by an officer or employee of the Postal 
Service during the period described in subparagraph (A) of 
paragraph (1) shall be determined as if section 6101 of the 
Balanced Budget Act of 1997 had never been enacted.
  ``(B) For purposes of this paragraph, the term `Postal 
Service' means the United States Postal Service and the Postal 
Rate Commission.''.
          (2) Conforming amendment.--The second sentence of 
        section 8334(a)(1) of title 5, United States Code, is 
        amended by striking the period and inserting ``, 
        subject to subsection (m).''.

SEC. 6102. CONTRIBUTIONS UNDER THE FEDERAL EMPLOYEES' RETIREMENT 
                    SYSTEM.

  (a) Individual Contributions.--
          (1) In general.--Subsection (a) of section 8422 of 
        title 5, United States Code, is amended--
                  (A) in paragraph (1) by striking ``paragraph 
                (2).'' and inserting ``paragraph (2) or (3), as 
                applicable.'';
                  (B) in paragraph (2) by striking ``The 
                applicable'' and inserting ``Subject to 
                paragraph (3), the applicable''; and
                  (C) by adding at the end the following:
  ``(3)(A) The applicable percentage under this subsection 
shall, for purposes of service performed after December 31, 
1998, and before January 1, 2003, be equal to--
          ``(i) the applicable percentage under subparagraph 
        (B), minus
          ``(ii) the percentage then in effect under section 
        3101(a) of the Internal Revenue Code of 1986 (relating 
        to rate of tax for old-age, survivors, and disability 
        insurance).
  ``(B) The applicable percentage under this subparagraph shall 
be as follows:

                                                                                                                
                                         ``Percentage of basic pay                                              
                                                                                   Service period               
                                                                                                                
Employee...............................  7.25.....................  January 1, 1999, to December 31, 1999.      
                                         7.40.....................  January 1, 2000, to December 31, 2000.      
                                         7.50.....................  January 1, 2001, to December 31, 2002.      
Congressional employee.................  7.75.....................  January 1, 1999, to December 31, 1999.      
                                         7.90.....................  January 1, 2000, to December 31, 2000.      
                                         8........................  January 1, 2001, to December 31, 2002.      
Member.................................  7.75.....................  January 1, 1999, to December 31, 1999.      
                                         7.90.....................  January 1, 2000, to December 31, 2000.      
                                         8........................  January 1, 2001, to December 31, 2002.      
Law enforcement officer................  7.75.....................  January 1, 1999, to December 31, 1999.      
                                         7.90.....................  January 1, 2000, to December 31, 2000.      
                                         8........................  January 1, 2001, to December 31, 2002.      
Firefighter............................  7.75.....................  January 1, 1999, to December 31, 1999.      
                                         7.90.....................  January 1, 2000, to December 31, 2000.      
                                         8........................  January 1, 2001, to December 31, 2002.      
Air traffic controller.................  7.75.....................  January 1, 1999, to December 31, 1999.      
                                         7.90.....................  January 1, 2000, to December 31, 2000.      
                                         8........................  January 1, 2001, to December 31, 2002.''.   
                                                                                                                

          (2) Other service.--
                  (A) Military service.--Section 8422(e) of 
                title 5, United States Code, is amended--
                          (i) in paragraph (1)(A) by inserting 
                        ``and subject to paragraph (5),'' after 
                        ``Except as provided in subparagraph 
                        (B),''; and
                          (ii) by adding at the end the 
                        following:
  ``(5) Effective with respect to any period of military 
service performed after December 31, 1998, and before January 
1, 2003, the percentage of basic pay under section 204 of title 
37 payable under paragraph (1) shall be equal to the sum of the 
percentage specified in paragraph (1), plus--
          ``(A) .25 percent, if performed after December 31, 
        1998, and before January 1, 2000;
          ``(B) .40 percent, if performed after December 31, 
        1999, and before January 1, 2001;
          ``(C) .50 percent, if performed after December 31, 
        2000, and before January 1, 2003.''.
                  (B) Volunteer service.--Section 8422(f) of 
                title 5, United States Code, is amended--
                          (i) in paragraph (1) by striking the 
                        period at the end and inserting ``, 
                        subject to paragraph (4).''; and
                          (ii) by adding at the end the 
                        following:
  ``(4) Effective with respect to any period of service as a 
volunteer or volunteer leader performed after December 31, 
1998, and before January 1, 2003, the percentage of the 
readjustment allowance or stipend (as the case may be) payable 
under paragraph (1) shall be equal to the sum of the percentage 
specified in paragraph (1), plus--
          ``(A) .25 percent, if performed after December 31, 
        1998, and before January 1, 2000;
          ``(B) .40 percent, if performed after December 31, 
        1999, and before January 1, 2001;
          ``(C) .50 percent, if performed after December 31, 
        2000, and before January 1, 2003.''.
  (b) Government Contributions.--
          (1) In general.--Section 8423 of title 5, United 
        States Code, is amended by adding at the end the 
        following:
  ``(d)(1) This subsection shall govern for purposes of 
determining the amount to be contributed by an employing agency 
for any period (or portion thereof)--
          ``(A) which is occurs after September 30, 1997, and 
        before January 1, 2003; and
          ``(B) as to which a contribution under subsection (a) 
        would otherwise be payable by such agency.
  ``(2) The amount of the contribution required under 
subsection (a) with respect to any period (or portion thereof) 
described in paragraph (1) shall (instead of the amount which 
would otherwise apply) be equal to the amount which would be 
required under subsection (a) if section 6102(a) of the 
Balanced Budget Act of 1997 had never been enacted.''.
          (2) Conforming amendment.--Section 8423(a)(1) of 
        title 5, United States Code, is amended by striking 
        ``Each'' and inserting ``Subject to subsection (d), 
        each''.

SEC. 6103. GOVERNMENT CONTRIBUTION FOR HEALTH BENEFITS.

  (a) In General.--Section 8906 of title 5, United States Code, 
is amended by striking subsection (a) and all that follows 
through the end of paragraph (1) of subsection (b) and 
inserting the following:
  ``(a)(1) The Office of Personnel Management shall, not later 
than October 1 of each year, determine the weighted average of 
the subscription charges that will be in effect during the 
following contract year with respect to--
          ``(A) enrollments under this chapter for self alone; 
        and
          ``(B) enrollments under this chapter for self and 
        family.
  ``(2) In determining each weighted average under paragraph 
(1), the weight to be given to a particular subscription charge 
shall, with respect to each plan (and option) to which it is to 
apply, be commensurate with the number of enrollees enrolled in 
such plan (and option) as of March 31 of the year in which the 
determination is being made.
  ``(3) For purposes of paragraph (2), the term `enrollee' 
means any individual who, during the contract year for which 
the weighted average is to be used under this section, will be 
eligible for a Government contribution for health benefits.
  ``(b)(1) Except as provided in paragraphs (2) and (3), the 
biweekly Government contribution for health benefits for an 
employee or annuitant enrolled in a health benefits plan under 
this chapter is adjusted to an amount equal to 72 percent of 
the weighted average under subsection (a)(1)(A) or (B), as 
applicable. For an employee, the adjustment begins on the first 
day of the employee's first pay period of each year. For an 
annuitant, the adjustment begins on the first day of the first 
period of each year for which an annuity payment is made.''.
  (b) Effective Date.--This section and the amendment made by 
this section shall take effect on the first day of the contract 
year that begins in 1999, except that nothing in this 
subsection shall prevent the Office of Personnel Management 
from taking any action, before such first day, which it 
considers necessary in order to ensure the timely 
implementation of such amendment.

SEC. 6104. EFFECTIVE DATE.

  (a) In General.--Except as provided in section 6103, this 
subtitle shall take effect on--
          (1) October 1, 1997; or
          (2) if later, the date of the enactment of this Act.
  (b) Special Rule.--If the date of the enactment of this Act 
is later than October 1, 1997, then, for purposes of applying 
the amendments made by sections 6101 and 6102--
          (1) any reference in any such amendment to 
        ``September 30, 1997'' shall be treated as referring to 
        the day before the date of the enactment of this Act; 
        and
          (2) any reference in any such amendment to ``October 
        1, 1997'' shall be treated as referring to the date of 
        the enactment of this Act.

       TITLE VII--COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

SEC. 7001. EXTENSION OF HIGHER VESSEL TONNAGE DUTIES.

  (a) Extension of Duties.--Section 36 of the Act of August 5, 
1909 (36 Stat. 111; 46 U.S.C. App. 121), is amended by striking 
``for fiscal years 1991, 1992, 1993, 1994, 1995, 1996, 1997, 
1998,'' each place it appears and inserting ``for fiscal years 
through fiscal year 2002,''.
  (b) Conforming Amendment.--The Act entitled ``An Act 
concerning tonnage duties on vessels entering otherwise than by 
sea'', approved March 8, 1910 (36 Stat. 234; 46 U.S.C. App. 
132), is amended by striking ``for fiscal years 1991, 1992, 
1993, 1994, 1995, 1996, 1997, and 1998,'' and inserting ``for 
fiscal years through fiscal year 2002,''.

SEC. 7002. SALE OF GOVERNORS ISLAND, NEW YORK.

  (a) In General.--Notwithstanding any other provision of law, 
no earlier than fiscal year 2002, the Administrator of General 
Services shall dispose of by sale at fair market value all 
rights, title, and interests of the United States in and to the 
land of, and improvements to, Governors Island, New York.
  (b) Right of First Refusal.--Before a sale is made under 
subsection (a) to any other parties, the State of New York and 
the city of New York shall be given the right of first refusal 
to purchase all or part of Governors Island. Such right may be 
exercised by either the State of New York or the city of New 
York or by both parties acting jointly.
  (c) Proceeds.--Proceeds from the disposal of Governors Island 
under subsection (a) shall be deposited in the general fund of 
the Treasury and credited as miscellaneous receipts.

SEC. 7003. SALE OF AIR RIGHTS.

  (a) In General.--Notwithstanding any other provision of law, 
the Administrator of General Services shall sell, at fair 
market value and in a manner to be determined by the 
Administrator, the air rights adjacent to Washington Union 
Station described in subsection (b), including air rights 
conveyed to the Administrator under subsection (d). The 
Administrator shall complete the sale by such date as is 
necessary to ensure that the proceeds from the sale will be 
deposited in accordance with subsection (c).
  (b) Description.--The air rights referred to in subsection 
(a) total approximately 16.5 acres and are depicted on the plat 
map of the District of Columbia as follows:
          (1) Part of lot 172, square 720.
          (2) Part of lots 172 and 823, square 720.
          (3) Part of lot 811, square 717.
  (c) Proceeds.--Before September 30, 2002, proceeds from the 
sale of air rights under subsection (a) shall be deposited in 
the general fund of the Treasury and credited as miscellaneous 
receipts.
  (d) Conveyance of Amtrak Air Rights.--
          (1) General rule.--As a condition of future Federal 
        financial assistance, Amtrak shall convey to the 
        Administrator of General Services on or before December 
        31, 1997, at no charge, all of the air rights of Amtrak 
        described in subsection (b).
          (2) Failure to comply.--If Amtrak does not meet the 
        condition established by paragraph (1), Amtrak shall be 
        prohibited from obligating Federal funds after March 1, 
        1998.

               TITLE VIII--COMMITTEE ON VETERANS' AFFAIRS

SEC. 8001. SHORT TITLE; TABLE OF CONTENTS.

  (a) Short Title.--This title may be cited as the ``Veterans 
Reconciliation Act of 1997''.
  (b) Table of Contents.--The table of contents for this title 
is as follows:

Sec. 8001. Short title; table of contents.

             Subtitle A--Extension of Temporary Authorities

Sec. 8011. Authority to require that certain veterans make copayments in 
          exchange for receiving health-care benefits.
Sec. 8012. Medical care cost recovery for non-service-connected 
          disabilities of service-connected veterans.
Sec. 8013. Department of Veterans Affairs medical-care receipts.
Sec. 8014. Income verification authority.
Sec. 8015. Limitation on pension for certain recipients of medicaid-
          covered nursing home care.
Sec. 8016. Home loan fees.
Sec. 8017. Procedures applicable to liquidation sales on defaulted home 
          loans guaranteed by the Secretary of Veterans Affairs.
Sec. 8018. Enhanced loan asset sale authority.

                        Subtitle B--Other Matters

Sec. 8021. Rounding down of cost-of-living adjustments in compensation 
          and DIC rates.
Sec. 8022. Withholding of payments and benefits.

             Subtitle A--Extension of Temporary Authorities

SEC. 8011. AUTHORITY TO REQUIRE THAT CERTAIN VETERANS MAKE COPAYMENTS 
                    IN EXCHANGE FOR RECEIVING HEALTH-CARE BENEFITS.

  (a) Hospital and Medical Care.--
          (1) Extension.--Section 1710(f)(2)(B) of title 38, 
        United States Code, is amended by inserting ``before 
        September 30, 2002,'' after ``(B)''.
          (2) Repeal of superseded provision.--Section 8013(e) 
        of the Omnibus Budget Reconciliation Act of 1990 (38 
        U.S.C. 1710 note) is repealed.
  (b) Outpatient Medications.--Section 1722A(c) of title 38, 
United States Code, is amended by striking out ``September 30, 
1998'' and inserting in lieu thereof ``September 30, 2002''.

SEC. 8012. MEDICAL CARE COST RECOVERY FOR NON-SERVICE-CONNECTED 
                    DISABILITIES OF SERVICE-CONNECTED VETERANS.

  Section 1729(a)(2)(E) of title 38, United States Code, is 
amended by striking out ``before October 1, 1998,'' and 
inserting ``before October 1, 2002,''.

SEC. 8013. DEPARTMENT OF VETERANS AFFAIRS MEDICAL-CARE RECEIPTS.

  (a) Allocation of Receipts.--(1) Chapter 17 of title 38, 
United States Code, is amended by inserting after section 1729 
the following new section:

``Sec. 1729A. Department of Veterans Affairs Medical Care Collections 
                    Fund

  ``(a) There is in the Treasury a fund to be known as the 
Department of Veterans Affairs Medical Care Collections Fund.
  ``(b) Amounts recovered or collected after September 30, 
1997, under any of the following provisions of law shall be 
deposited in the fund:
          ``(1) Section 1710(f) of this title.
          ``(2) Section 1710(g) of this title.
          ``(3) Section 1711 of this title.
          ``(4) Section 1722A of this title.
          ``(5) Section 1729 of this title.
          ``(6) Public Law 87-693, popularly known as the 
        `Federal Medical Care Recovery Act' (42 U.S.C. 2651 et 
        seq.), to the extent that a recovery or collection 
        under that law is based on medical care or services 
        furnished under this chapter.
  ``(c)(1) Amounts in the fund are available to the Secretary 
for the following purposes:
          ``(A) Furnishing medical care and services under this 
        chapter, to be available during any fiscal year for the 
        same purposes and subject to the same limitations as 
        apply to amounts appropriated for that fiscal year for 
        medical care.
          ``(B) Expenses of the Department for the 
        identification, billing, auditing, and collection of 
        amounts owed the United States by reason of medical 
        care and services furnished under this chapter.
  ``(2)(A) If for fiscal year 1998, 1999, or 2000 the Secretary 
determines that the total amount to be recovered for that 
fiscal year under the provisions of law specified in subsection 
(b) will be less than the amount contained in the latest 
Congressional Budget Office baseline estimate (computed under 
section 257 of the Balanced Budget and Emergency Deficit 
Control Act of 1985) for the amount of such recoveries for that 
fiscal year by at least $25,000,000, the Secretary shall 
promptly certify to the Secretary of the Treasury the amount of 
the shortfall (as estimated by the Secretary) that is in excess 
of $25,000,000. Upon receipt of such a certification, the 
Secretary of the Treasury shall, not later than 30 days after 
receiving the certification, deposit in the fund, from any 
unobligated amounts in the Treasury, an amount equal to the 
amount certified by the Secretary.
  ``(B) For a fiscal year for which a deposit is made under 
subparagraph (A), if the Secretary subsequently determines that 
the actual amount recovered for that fiscal year under the 
provisions of law specified in subsection (b) is greater than 
the amount estimated by the Secretary that was used for 
purposes of the certification by the Secretary under 
subparagraph (A), the Secretary shall pay into the general fund 
of the Treasury, from amounts available for medical care, an 
amount equal to the difference between the amount actually 
recovered and the amount so estimated (but not in excess of the 
amount of the deposit under subparagraph (A) pursuant to such 
certification).
  ``(C) For a fiscal year for which a deposit is made under 
subparagraph (A), if the Secretary subsequently determines that 
the actual amount recovered for that fiscal year under the 
provisions of law specified in subsection (b) is less than the 
amount estimated by the Secretary that was used for purposes of 
the certification by the Secretary under subparagraph (A), the 
Secretary shall promptly certify to the Secretary of the 
Treasury the amount of the shortfall. Upon receipt of such a 
certification, the Secretary of the Treasury shall, not later 
than 30 days after receiving the certification, deposit in the 
fund, from any unobligated amounts in the Treasury, an amount 
equal to the amount certified by the Secretary.
  ``(d)(1) The Secretary may allocate amounts available to the 
Secretary under subsection (c) among components of the 
Department in such manner as the Secretary considers 
appropriate.
  ``(2) The Secretary shall establish a policy for the 
allocation under paragraph (1) of amounts in the fund. Such 
policy shall be designed so as to facilitate the realization of 
the maximum feasible collections under the provisions of law 
specified in subsection (b). In developing the policy, the 
Secretary shall take into account any factors beyond the 
control of the Secretary that the Secretary considers may 
impede such collections.
  ``(e)(1) The Secretary shall submit to the Committees on 
Veterans' Affairs of the Senate and House of Representatives 
quarterly reports on the operation of this section for fiscal 
years 1998, 1999, and 2000 and for the first quarter of fiscal 
year 2001. Each such report shall specify the amount collected 
under each of the provisions specified in subsection (b) during 
the preceding quarter and the amount originally estimated to be 
collected under each such provision during such quarter.
  ``(2) A report under paragraph (1) for a quarter shall be 
submitted not later than 45 days after the end of that 
quarter.''.
  (2) The table of sections at the beginning of such chapter is 
amended by inserting after the item relating to section 1729 
the following new item:

``1729A. Department of Veterans Affairs Medical Care Collections 
          Fund.''.

  (b) Conforming Amendments.--Chapter 17 of such title is 
amended as follows:
          (1) Section 1710(f) is amended by striking out 
        paragraph (4) and redesignating paragraph (5) as 
        paragraph (4).
          (2) Section 1710(g) is amended by striking out 
        paragraph (4).
          (3) Section 1722A(b) is amended by striking out 
        ``Department of Veterans Affairs Medical-Care Cost 
        Recovery Fund'' and inserting in lieu thereof 
        ``Department of Veterans Affairs Medical Care 
        Collections Fund''.
          (4) Section 1729 is amended by striking out 
        subsection (g).
  (c) Termination of Medical-Care Cost Recovery Fund.--The 
amount of the unobligated balance remaining in the Department 
of Veterans Affairs Medical-Care Cost Recovery Fund 
(established pursuant to section 1729(g)(1) of title 38, United 
States Code), at the close of September 30, 1997, shall be 
deposited, not later than December 31, 1997, in the Treasury as 
miscellaneous receipts, and that fund shall be terminated when 
the deposit occurs.
  (d) Determination of Amounts Subject to Recovery.--Section 
1729 of title 38, United States Code, is amended--
          (1) in subsection (a)(1), by striking out ``the 
        reasonable cost of'' and inserting in lieu thereof 
        ``reasonable charges for'';
          (2) in subsection (c)(2)--
                  (A) by striking out ``the reasonable cost 
                of'' in the first sentence of subparagraph (A) 
                and in subparagraph (B) and inserting in lieu 
                thereof ``reasonable charges for''; and
                  (B) by striking out ``cost'' in the second 
                sentence of subparagraph (A) and inserting in 
                lieu thereof ``charges''.
  (e) Technical Amendment.--Paragraph (2) of section 712(b) of 
title 38, United States Code, is amended--
          (1) by striking out subparagraph (B); and
          (2) by redesignating subparagraph (C) as subparagraph 
        (B).
  (f) Implementation.--(1) Not later than January 1, 1999, the 
Secretary of Veterans Affairs shall submit to the Committees on 
Veterans' Affairs of the Senate and House of Representatives a 
report on the implementation of this section. The report shall 
describe the collections under each of the provisions specified 
in section 1729A(b) of title 38, United States Code, as added 
by subsection (a). Information on such collections shall be 
shown for each of the health service networks (known as 
Veterans Integrated Service Networks) and, to the extent 
practicable for each facility within each such network. The 
Secretary shall include in the report an analysis of 
differences among the networks with respect to (A) the market 
in which the networks operates, (B) the effort expended to 
achieve collections, (C) the efficiency of such effort, and (D) 
any other relevant information.
  (2) The Secretary shall adjust the allocation policy 
established under section 1729A(d)(2) of title 38, United 
States Code, as added by subsection (a), to take account of 
differences in collections that the Secretary determines are 
attributable to the different markets in which networks operate 
and shall include in the report under paragraph (1) a 
description of such adjustments.
  (g) Effective Date.--(1) Except as provided in paragraph (2), 
this section and the amendments made by this section shall take 
effect on October 1, 1997.
  (2) The amendments made by subsection (d) shall take effect 
on the date of the enactment of this Act.

SEC. 8014. INCOME VERIFICATION AUTHORITY.

  (a) Extension.--Section 5317(g) of title 38, United States 
Code, is amended by striking out ``September 30, 1998'' and 
inserting in lieu thereof ``September 30, 2002''.
  (b) Social Security and Tax Return Information.--Section 
6103(l)(7) of the Internal Revenue Code of 1986 is amended by 
striking out ``Clause (viii) shall not apply after September 
30, 1998'' and inserting in lieu thereof ``Clause (viii) shall 
not apply after September 30, 2002''.

SEC. 8015. LIMITATION ON PENSION FOR CERTAIN RECIPIENTS OF MEDICAID-
                    COVERED NURSING HOME CARE.

  Section 5503(f)(7) of title 38, United States Code, is 
amended by striking out ``September 30, 1998'' and inserting in 
lieu thereof ``September 30, 2002''.

SEC. 8016. HOME LOAN FEES.

  (a) Increase in Loan Fee Under Property Management Program.--
Paragraph (2) of section 3729(a) of title 38, United States 
Code, is amended--
          (1) in subparagraph (A), by striking out ``or 
        3733(a)'';
          (2) by striking out ``and'' at the end of 
        subparagraph (D);
          (3) by striking out the period at the end of 
        subparagraph (E) and inserting in lieu thereof ``; 
        and''; and
          (4) by adding at the end the following new 
        subparagraph:
          ``(F) in the case of a loan made under section 
        3733(a) of this title, the amount of such fee shall be 
        2.25 percent of the total loan amount.''.
  (b) Extensions.--Such section is further amended--
          (1) in paragraph (4)--
                  (A) by striking out ``October 1, 1998'' and 
                inserting in lieu thereof ``October 1, 2002''; 
                and
                  (B) by striking out ``or (E)'' and inserting 
                in lieu thereof ``(E), or (F)''; and
          (2) in paragraph (5)(C), by striking out ``October 1, 
        1998'' and inserting in lieu thereof ``October 1, 
        2002''.

SEC. 8017. PROCEDURES APPLICABLE TO LIQUIDATION SALES ON DEFAULTED HOME 
                    LOANS GUARANTEED BY THE SECRETARY OF VETERANS 
                    AFFAIRS.

  Section 3732(c)(11) of title 38, United States Code, is 
amended by striking out ``October 1, 1998'' and inserting 
``October 1, 2002''.

SEC. 8018. ENHANCED LOAN ASSET SALE AUTHORITY.

  Section 3720(h)(2) of title 38, United States Code, is 
amended by striking out ``December 31, 1997'' and inserting in 
lieu thereof ``September 30, 2002''.

                       Subtitle B--Other Matters

SEC. 8021. ROUNDING DOWN OF COST-OF-LIVING ADJUSTMENTS IN COMPENSATION 
                    AND DIC RATES.

  (a) Compensation COLAS.--(1) Chapter 11 of title 38, United 
States Code, is amended by inserting after section 1102 the 
following new section:

``Sec. 1103. Cost-of-living adjustments

  ``(a) In the computation of cost-of-living adjustments for 
fiscal years 1998 through 2002 in the rates of, and dollar 
limitations applicable to, compensation payable under this 
chapter, such adjustments shall be made by a uniform percentage 
that is no more than the percentage equal to the social 
security increase for that fiscal year, with all increased 
monthly rates and limitations (other than increased rates or 
limitations equal to a whole dollar amount) rounded down to the 
next lower whole dollar amount.
  ``(b) For purposes of this section, the term `social security 
increase' means the percentage by which benefit amounts payable 
under title II of the Social Security Act (42 U.S.C. 401 et 
seq.) are increased for any fiscal year as a result of a 
determination under section 215(i) of such Act (42 U.S.C. 
415(i)).''.
  (2) The table of sections at the beginning of such chapter is 
amended by inserting after the item relating to section 1102 
the following new item:

``1103. Cost-of-living adjustments.''.

  (b) Out-Year DIC COLAs.--(1) Chapter 13 of title 38, United 
States Code, is amended by inserting after section 1302 the 
following new section:

``Sec. 1303. Cost-of-living adjustments

  ``(a) In the computation of cost-of-living adjustments for 
fiscal years 1998 through 2002 in the rates of dependency and 
indemnity compensation payable under this chapter, such 
adjustments shall be made by a uniform percentage that is no 
more than the percentage equal to the social security increase 
for that fiscal year, with all increased monthly rates (other 
than increased rates equal to a whole dollar amount) rounded 
down to the next lower whole dollar amount.
  ``(b) For purposes of this section, the term `social security 
increase' means the percentage by which benefit amounts payable 
under title II of the Social Security Act (42 U.S.C. 401 et 
seq.) are increased for any fiscal year as a result of a 
determination under section 215(i) of such Act (42 U.S.C. 
415(i)).''.
  (2) The table of sections at the beginning of such chapter is 
amended by inserting after the item relating to section 1302 
the following new item:

``1303. Cost-of-living adjustments.''.

SEC. 8022. WITHHOLDING OF PAYMENTS AND BENEFITS.

  (a) Notice Required in Lieu of Consent or Court Order.--
Section 3726 of title 38, United States Code, is amended by 
striking out ``unless'' and all that follows and inserting in 
lieu thereof the following: ``unless the Secretary provides 
such veteran or surviving spouse with notice by certified mail 
with return receipt requested of the authority of the Secretary 
to waive the payment of indebtedness under section 5302(b) of 
this title. If the Secretary does not waive the entire amount 
of the liability, the Secretary shall then determine whether 
the veteran or surviving spouse should be released from 
liability under section 3713(b) of this title. If the Secretary 
determines that the veteran or surviving spouse should not be 
released from liability, the Secretary shall notify the veteran 
or surviving spouse of that determination and provide a notice 
of the procedure for appealing that determination, unless the 
Secretary has previously made such determination and notified 
the veteran or surviving spouse of the procedure for appealing 
the determination.''.
  (b) Conforming Amendment.--Section 5302(b) of such title is 
amended by inserting ``with return receipt requested'' after 
``certified mail''.
  (c) Effective Date.--The amendments made by this section 
shall apply with respect to any indebtedness to the United 
States arising pursuant to chapter 37 of title 38, United 
States Code, before, on, or after the date of the enactment of 
this Act.

           TITLE IX--COMMITTEE ON WAYS AND MEANS--NONMEDICARE

SEC. 9000. TABLE OF CONTENTS.

  The table of contents of this title is as follows:

Sec. 9000. Table of contents.

                      Subtitle A--TANF Block Grant

Sec. 9001. Welfare-to-work grants.
Sec. 9002. Limitation on amount of Federal funds transferable to title 
          XX programs.
Sec. 9003. Clarification of limitation on number of persons who may be 
          treated as engaged in work by reason of participation in 
          vocational educational training.
Sec. 9004. Required hours of work; health and safety.
Sec. 9005. Penalty for failure of State to reduce assistance for 
          recipients refusing without good cause to work.

                Subtitle B--Supplemental Security Income

Sec. 9101. Requirement to perform childhood disability redeterminations 
          in missed cases.
Sec. 9102. Repeal of maintenance of effort requirements applicable to 
          optional State programs for supplementation of SSI benefits.
Sec. 9103. Fees for Federal administration of State supplementary 
          payments.

                  Subtitle C--Child Support Enforcement

Sec. 9201. Clarification of authority to permit certain redisclosures of 
          wage and claim information.

     Subtitle D--Restricting Welfare and Public Benefits for Aliens

Sec. 9301. Extension of eligibility period for refugees and certain 
          other qualified aliens from 5 to 7 years for SSI and medicaid.
Sec. 9302. SSI eligibility for aliens receiving SSI on August 22, 1996.
Sec. 9303. SSI eligibility for permanent resident aliens who are members 
          of an Indian tribe.
Sec. 9304. Verification of eligibility for State and local public 
          benefits.
Sec. 9305. Derivative eligibility for benefits.
Sec. 9306. Effective date.

                  Subtitle E--Unemployment Compensation

Sec. 9401. Clarifying provision relating to base periods.
Sec. 9402. Increase in Federal unemployment account ceiling.
Sec. 9403. Special distribution to States from Unemployment Trust Fund.
Sec. 9404. Interest-free advances to State accounts in Unemployment 
          Trust Fund restricted to States which meet funding goals.
Sec. 9405. Exemption of service performed by election workers from the 
          Federal unemployment tax.
Sec. 9406. Treatment of certain services performed by inmates.
Sec. 9407. Exemption of service performed for an elementary or secondary 
          school operated primarily for religious purposes from the 
          Federal unemployment tax.
Sec. 9408. State program integrity activities for unemployment 
          compensation.

                Subtitle F--Increase in Public Debt Limit

Sec. 9501. Increase in public debt limit.

                      Subtitle A--TANF Block Grant

SEC. 9001. WELFARE-TO-WORK GRANTS.

  (a) Grants to States.--
          (1) In general.--Section 403(a) of the Social 
        Security Act (42 U.S.C. 603(a)) is amended by adding at 
        the end the following:
          ``(5) Welfare-to-work grants.--
                  ``(A) Noncompetitive grants.--
                          ``(i) Entitlement.--A State shall be 
                        entitled to receive from the Secretary 
                        a grant for each fiscal year specified 
                        in subparagraph (H) of this paragraph 
                        for which the State is a welfare-to-
                        work State, in an amount that does not 
                        exceed the lesser of----
                                  ``(I) 2 times the total of 
                                the expenditures by the State 
                                (excluding qualified State 
                                expenditures (as defined in 
                                section 409(a)(7)(B)(i)) and 
                                any expenditure described in 
                                subclause (I), (II), or (IV) of 
                                section 409(a)(7)(B)(iv)) 
                                during the fiscal year for 
                                activities described in 
                                subparagraph (C)(i) of this 
                                paragraph; or
                                  ``(II) the allotment of the 
                                State under clause (iii) of 
                                this subparagraph for the 
                                fiscal year.
                          ``(ii) Welfare-to-work state.--A 
                        State shall be considered a welfare-to-
                        work State for a fiscal year for 
                        purposes of this subparagraph if the 
                        Secretary, after consultation (and the 
                        sharing of any plan or amendment 
                        thereto submitted under this clause) 
                        with the Secretary of Health and Human 
                        Services and the Secretary of Housing 
                        and Urban Development, determines that 
                        the State meets the following 
                        requirements:
                                  ``(I) The State has submitted 
                                to the Secretary (in the form 
                                of an addendum to the State 
                                plan submitted under section 
                                402) a plan which--
                                          ``(aa) describes how, 
                                        consistent with this 
                                        subparagraph, the State 
                                        will use any funds 
                                        provided under this 
                                        subparagraph during the 
                                        fiscal year;
                                          ``(bb) specifies the 
                                        formula to be used 
                                        pursuant to clause (vi) 
                                        to distribute funds in 
                                        the State, and 
                                        describes the process 
                                        by which the formula 
                                        was developed;
                                          ``(cc) contains 
                                        evidence that the plan 
                                        was developed in 
                                        consultation and 
                                        coordination with sub-
                                        State areas; and
                                          ``(dd) is approved by 
                                        the agency 
                                        administering the State 
                                        program funded under 
                                        this part.
                                  ``(II) The State has provided 
                                the Secretary with an estimate 
                                of the amount that the State 
                                intends to expend during the 
                                fiscal year (excluding 
                                expenditures described in 
                                section 409(a)(7)(B)(iv)) for 
                                activities described in 
                                subparagraph (C)(i) of this 
                                paragraph.
                                  ``(III) The State has agreed 
                                to negotiate in good faith with 
                                the Secretary of Health and 
                                Human Services with respect to 
                                the substance of any evaluation 
                                under section 413(j), and to 
                                cooperate with the conduct of 
                                any such evaluation.
                                  ``(IV) The State is an 
                                eligible State for the fiscal 
                                year.
                                  ``(V) Qualified State 
                                expenditures (within the 
                                meaning of section 409(a)(7)) 
                                are at least 80 percent of 
                                historic State expenditures 
                                (within the meaning of such 
                                section), with respect to the 
                                fiscal year or the immediately 
                                preceding fiscal year.
                          ``(iii) Allotments to welfare-to-work 
                        states.--The allotment of a welfare-to-
                        work State for a fiscal year shall be 
                        the available amount for the fiscal 
                        year multiplied by the State percentage 
                        for the fiscal year.
                          ``(iv) Available amount.--As used in 
                        this subparagraph, the term `available 
                        amount' means, for a fiscal year, the 
                        sum of--
                                  ``(I) 50 percent of the sum 
                                of--
                                          ``(aa) the amount 
                                        specified in 
                                        subparagraph (H) for 
                                        the fiscal year, minus 
                                        the total of the 
                                        amounts reserved 
                                        pursuant to 
                                        subparagraphs (F) and 
                                        (G) for the fiscal 
                                        year; and
                                          ``(bb) any amount 
                                        reserved pursuant to 
                                        subparagraph (F) for 
                                        the immediately 
                                        preceding fiscal year 
                                        that has not been 
                                        obligated; and
                                  ``(II) any available amount 
                                for the immediately preceding 
                                fiscal year that has not been 
                                obligated by a State or sub-
                                State entity.
                                  ``(v) State percentage.--As 
                                used in clause (iii), the term 
                                `State percentage' means, with 
                                respect to a fiscal year, \1/3\ 
                                of the sum of--
                                          ``(aa) the percentage 
                                        represented by the 
                                        number of individuals 
                                        in the State whose 
                                        income is less than the 
                                        poverty line divided by 
                                        the number of such 
                                        individuals in the 
                                        United States;
                                          ``(bb) the percentage 
                                        represented by the 
                                        number of unemployed 
                                        individuals in the 
                                        State divided by the 
                                        number of such 
                                        individuals in the 
                                        United States; and
                                          ``(cc) the percentage 
                                        represented by the 
                                        number of individuals 
                                        who are adult 
                                        recipients of 
                                        assistance under the 
                                        State program funded 
                                        under this part divided 
                                        by the number of 
                                        individuals in the 
                                        United States who are 
                                        adult recipients of 
                                        assistance under any 
                                        State program funded 
                                        under this part.
                          ``(vi) Distribution of funds within 
                        states.--
                                  ``(I) In general.--A State to 
                                which a grant is made under 
                                this subparagraph shall 
                                distribute not less than 85 
                                percent of the grant funds 
                                among the service delivery 
                                areas in the State, in 
                                accordance with a formula 
                                which--
                                          ``(aa) determines the 
                                        amount to be 
                                        distributed for the 
                                        benefit of a service 
                                        delivery area in 
                                        proportion to the 
                                        number (if any) by 
                                        which the number of 
                                        individuals residing in 
                                        the service delivery 
                                        area with an income 
                                        that is less than the 
                                        poverty line exceeds 5 
                                        percent of the 
                                        population of the 
                                        service delivery area, 
                                        relative to such number 
                                        for the other service 
                                        delivery areas in the 
                                        State, and accords a 
                                        weight of not less than 
                                        50 percent to this 
                                        factor;
                                          ``(bb) may determine 
                                        the amount to be 
                                        distributed for the 
                                        benefit of a service 
                                        delivery area in 
                                        proportion to the 
                                        number of adults 
                                        residing in the service 
                                        delivery area who are 
                                        recipients of 
                                        assistance under the 
                                        State program funded 
                                        under this part 
                                        (whether in effect 
                                        before or after the 
                                        amendments made by 
                                        section 103(a) of the 
                                        Personal Responsibility 
                                        and Work Opportunity 
                                        Reconciliation Act 
                                        first applied to the 
                                        State) for at least 30 
                                        months (whether or not 
                                        consecutive) relative 
                                        to the number of such 
                                        adults residing in the 
                                        other service delivery 
                                        areas in the State; and
                                          ``(cc) may determine 
                                        the amount to be 
                                        distributed for the 
                                        benefit of a service 
                                        delivery area in 
                                        proportion to the 
                                        number of unemployed 
                                        individuals residing in 
                                        the service delivery 
                                        area relative to the 
                                        number of such 
                                        individuals residing in 
                                        the other service 
                                        delivery areas in the 
                                        State.
                                  ``(II) Special rule.--
                                Notwithstanding subclause (I), 
                                if the formula used pursuant to 
                                subclause (I) would result in 
                                the distribution of less than 
                                $100,000 during a fiscal year 
                                for the benefit of a service 
                                delivery area, then in lieu of 
                                distributing such sum in 
                                accordance with the formula, 
                                such sum shall be available for 
                                distribution under subclause 
                                (III) during the fiscal year.
                                  ``(III) Projects to help 
                                long-term recipients of 
                                assistance into the work 
                                force.--The Governor of a State 
                                to which a grant is made under 
                                this subparagraph may 
                                distribute not more than 15 
                                percent of the grant funds 
                                (plus any amount required to be 
                                distributed under this 
                                subclause by reason of 
                                subclause (II)) to projects 
                                that appear likely to help 
                                long-term recipients of 
                                assistance under the State 
                                program funded under this part 
                                (whether in effect before or 
                                after the amendments made by 
                                section 103(a) of the Personal 
                                Responsibility and Work 
                                Opportunity Reconciliation Act 
                                first applied to the State) 
                                enter the work force.
                          ``(vii) Administration.--
                                  ``(I) In general.--A grant 
                                made under this subparagraph to 
                                a State shall be administered 
                                by the State agency that is 
                                administering, or supervising 
                                the administration of, the 
                                State program funded under this 
                                part, or by another State 
                                agency designated by the 
                                Governor of the State.
                                  ``(II) Spending by private 
                                industry councils.--The private 
                                industry council for a service 
                                delivery area shall have sole 
                                authority to expend the amounts 
                                provided for the benefit of a 
                                service delivery area under 
                                subparagraph (vi)(I), pursuant 
                                to an agreement with the agency 
                                that is administering the State 
                                program funded under this part 
                                in the service delivery area.
                  ``(B) Competitive grants.--
                          ``(i) In general.--The Secretary, in 
                        consultation with the Secretary of 
                        Health and Human Services and the 
                        Secretary of Housing and Urban 
                        Development, shall award grants in 
                        accordance with this subparagraph, in 
                        fiscal years 1998 and 2000, for 
                        projects proposed by eligible 
                        applicants, based on the following:
                                  ``(I) The effectiveness of 
                                the proposal in--
                                          ``(aa) expanding the 
                                        base of knowledge about 
                                        programs aimed at 
                                        moving recipients of 
                                        assistance under State 
                                        programs funded under 
                                        this part who are least 
                                        job ready into the work 
                                        force.
                                          ``(bb) moving 
                                        recipients of 
                                        assistance under State 
                                        programs funded under 
                                        this part who are least 
                                        job ready into the work 
                                        force; and
                                          ``(cc) moving 
                                        recipients of 
                                        assistance under State 
                                        programs funded under 
                                        this part who are least 
                                        job ready into the work 
                                        force, even in labor 
                                        markets that have a 
                                        shortage of low-skill 
                                        jobs.
                                  ``(II) At the discretion of 
                                the Secretary, any of the 
                                following:
                                          ``(aa) The history of 
                                        success of the 
                                        applicant in moving 
                                        individuals with 
                                        multiple barriers into 
                                        work.
                                          ``(bb) Evidence of 
                                        the applicant's ability 
                                        to leverage private, 
                                        State, and local 
                                        resources.
                                          ``(cc) Use by the 
                                        applicant of State and 
                                        local resources beyond 
                                        those required by 
                                        subparagraph (A).
                                          ``(dd) Plans of the 
                                        applicant to coordiate 
                                        with other 
                                        organizations at the 
                                        local and State level.
                                          ``(ee) Use by the 
                                        applicant of current or 
                                        former recipients of 
                                        assistance under a 
                                        State program funded 
                                        under this part as 
                                        mentors, case managers, 
                                        or service providers.
                          ``(ii) Eligible applicants.--As used 
                        in clause (i), the term `eligible 
                        applicant' means a private industry 
                        council or a political subdivision of a 
                        State that submits a proposal that is 
                        approved by the agency administering 
                        the State program funded under this 
                        part.
                          ``(iii) Determination of grant 
                        amount.--In determining the amount of a 
                        grant to be made under this 
                        subparagraph for a project proposed by 
                        an applicant, the Secretary shall 
                        provide the applicant with an amount 
                        sufficient to ensure that the project 
                        has a reasonable opportunity to be 
                        successful, taking into account the 
                        number of long-term recipients of 
                        assistance under a State program funded 
                        under this part, the level of 
                        unemployment, the job opportunities and 
                        job growth, the poverty rate, and such 
                        other factors as the Secretary deems 
                        appropriate, in the area to be served 
                        by the project.
                          ``(iv) Targeting of funds to certain 
                        areas.--
                                  ``(I) Cities with greatest 
                                number of persons with income 
                                less than the poverty line.--
                                The Secretary shall use not 
                                less than 65 percent of the 
                                funds available for grants 
                                under this subparagraph for a 
                                fiscal year to award grants for 
                                expenditures in cities that are 
                                among the 100 cities in the 
                                United States with the highest 
                                number of residents with an 
                                income that is less than the 
                                poverty line.
                                  ``(II) Rural areas.--
                                          ``(aa) In general.--
                                        The Secretary shall use 
                                        not less than 25 
                                        percent of the funds 
                                        available for grants 
                                        under this subparagraph 
                                        for a fiscal year to 
                                        award grants for 
                                        expenditures in rural 
                                        areas.
                                          ``(bb) Rural area 
                                        defined.--As used in 
                                        item (aa), the term 
                                        `rural area' means a 
                                        city, town, or 
                                        unincorporated area 
                                        that has a population 
                                        of 50,000 or fewer 
                                        inhabitants and that is 
                                        not an urbanized area 
                                        immediately adjacent to 
                                        a city, town, or 
                                        unincorporated area 
                                        that has a population 
                                        of more than 50,000 
                                        inhabitants.
                          ``(v) Funding.--For grants under this 
                        subparagraph for each fiscal year 
                        specified in subparagraph (H), there 
                        shallbe available to the Secretary an 
amount equal to the sum of--
                                  ``(I) 50 percent of the sum 
                                of--
                                          ``(aa) the amount 
                                        specified in 
                                        subparagraph (H) for 
                                        the fiscal year, minus 
                                        the total of the 
                                        amounts reserved 
                                        pursuant to 
                                        subparagraphs (F) and 
                                        (G) for the fiscal 
                                        year; and
                                          ``(bb) any amount 
                                        reserved pursuant to 
                                        subparagraph (F) for 
                                        the immediately 
                                        preceding fiscal year 
                                        that has not been 
                                        obligated; and
                                  ``(II) any amount available 
                                for grants under this 
                                subparagraph for the 
                                immediately preceding fiscal 
                                year that has not been 
                                obligated.
                  ``(C) Limitations on use of funds.--
                          ``(i) Allowable activities.--An 
                        entity to which funds are provided 
                        under this paragraph may use the funds 
                        to move into the work force recipients 
                        of assistance under the program funded 
                        under this part of the State in which 
                        the entity is located and the 
                        noncustodial parent of any minor who is 
                        such a recipient, by means of any of 
                        the following:
                                  ``(I) Job creation through 
                                public or private sector 
                                employment wage subsidies.
                                  ``(II) On-the-job training.
                                  ``(III) Contracts with public 
                                or private providers of 
                                readiness, placement, and post-
                                employment services.
                                  ``(IV) Job vouchers for 
                                placement, readiness, and 
                                postemployment services.
                                  ``(V) Job support services 
                                (excluding child care services) 
                                if such services are not 
                                otherwise available.
                          ``(ii) Required beneficiaries.--An 
                        entity that operates a project with 
                        funds provided under this paragraph 
                        shall expend at least 90 percent of all 
                        funds provided to the project for the 
                        benefit of recipients of assistance 
                        under the program funded under this 
                        part of the State in which the entity 
                        is located who meet the requirements of 
                        each of the following subclauses:
                                  ``(I) At least 2 of the 
                                following apply to the 
                                recipient:
                                          ``(aa) The individual 
                                        has not completed 
                                        secondary school or 
                                        obtained a certificate 
                                        of general equivalency, 
                                        and has low skills in 
                                        reading and 
                                        mathematics.
                                          ``(bb) The individual 
                                        requires substance 
                                        abuse treatment for 
                                        employment.
                                          ``(cc) The individual 
                                        has a poor work 
                                        history.
                                The Secretary shall prescribe 
                                such regulations as may be 
                                necessary to interpret this 
                                subclause.
                                  ``(II) The individual--
                                          ``(aa) has received 
                                        assistance under the 
                                        State program funded 
                                        under this part 
                                        (whether in effect 
                                        before or after the 
                                        amendments made by 
                                        section 103 of the 
                                        Personal Responsibility 
                                        and Work Opportunity 
                                        Reconciliation Act of 
                                        1996 first apply to the 
                                        State) for at least 30 
                                        months (whether or not 
                                        consecutive); or
                                          ``(bb) within 12 
                                        months, will become 
                                        ineligible for 
                                        assistance under the 
                                        State program funded 
                                        under this part by 
                                        reason of a durational 
                                        limit on such 
                                        assistance, without 
                                        regard to any exemption 
                                        provided pursuant to 
                                        section 408(a)(7)(C) 
                                        that may apply to the 
                                        individual.
                          ``(iii) Limitation on applicability 
                        of section 404.--The rules of section 
                        404, other than subsections (b), (f), 
                        and (h) of section 404, shall not apply 
                        to a grant made under this paragraph.
                          ``(iv) Limitations relating to 
                        private industry councils.--
                                  ``(I) No direct provision of 
                                services.--A private industry 
                                council may not directly 
                                provide services using funds 
                                provided under this paragraph.
                                  ``(II) Cooperation with tanf 
                                agency.--On a determination by 
                                the Secretary, in consultation 
                                with the Secretary of Health 
                                and Human Services and the 
                                Secretary of Housing and Urban 
                                Development, that the private 
                                industry council for a service 
                                delivery area in a State for 
                                which funds are provided under 
                                this paragraph and the agency 
                                administering the State program 
                                funded under this part are not 
                                adhering to the agreement 
                                referred to in subparagraph 
                                (A)(vii)(II) to implement any 
                                plan or project for which the 
                                funds are provided, the 
                                recipient of the funds shall 
                                remit the funds to the 
                                Secretary.
                          ``(v) Prohibition against use of 
                        grant funds for any other fund matching 
                        requirement.--An entity to which funds 
                        are provided under this paragraph shall 
                        not use any part of the funds to 
                        fulfill any obligation of any State, 
                        political subdivision, or private 
                        industry council to contribute funds 
                        under other Federal law.
                          ``(vi) Deadline for expenditure.--An 
                        entity to which funds are provided 
                        under this paragraph shall remit to the 
                        Secretary any part of the funds that 
                        are not expended within 3 years after 
                        the date the funds are so provided.
                  ``(D) Individuals with income less than the 
                poverty line.--For purposes of this paragraph, 
                the number of individuals with an income that 
                is less than the poverty line shall be 
                determined based on the methodology used by the 
                Bureau of the Census to produce and publish 
                intercensal poverty data for 1993 for States 
                and counties.
                  ``(E) Definitions.--As used in this 
                paragraph:
                          ``(i) Private industry council.--The 
                        term `private industry council' means, 
                        with respect to a service delivery 
                        area, the private industry council (or 
                        successor entity) established for the 
                        service delivery area pursuant to the 
                        Job Training Partnership Act.
                          ``(ii) Secretary.--The term 
                        `Secretary' means the Secretary of 
                        Labor, except as otherwise expressly 
                        provided.
                          ``(iii) Service delivery area.--The 
                        term `service delivery area' shall have 
                        the meaning given such term for 
                        purposes of the Job Training 
                        Partnership Act.
                  ``(F) Set-aside for indian tribes.--1 percent 
                of the amount specified in subparagraph (H) for 
                each fiscal year shall be reserved for grants 
                to Indian tribes under section 412(a)(3).
                  ``(G) Set-aside for evaluations.--0.5 percent 
                of the amount specified in subparagraph (H) for 
                each fiscal year shall be reserved for use by 
                the Secretary of Health and Human Services to 
                carry out section 413(j).
                  ``(H) Funding.--The amount specified in this 
                subparagraph is--
                          ``(i) $750,000,000 for fiscal year 
                        1998;
                          ``(ii) $1,250,000,000 for fiscal year 
                        1999; and
                          ``(iii) $1,000,000,000 for fiscal 
                        year 2000.
                  ``(I) Availability of funds.--Amounts 
                appropriated pursuant to this paragraph shall 
                remain available through fiscal year 2002.
                  ``(J) Budget scoring.--Notwithstanding 
                section 457(b)(2) of the Balanced Budget and 
                Emergency Deficit Control Act of 1985, the 
                baseline shall assume that no grant shall be 
                awarded under this paragraph or under section 
                412(a)(3) after fiscal year 2000.
                  ``(K) Worker protections.--
                          ``(i) Labor standards.--
                                  ``(I) Displacement.--
                                          ``(aa) Prohibition.--
                                        A participant in an 
                                        activity under this 
                                        paragraph shall not 
                                        displace (including a 
                                        partial displacement, 
                                        such as a reduction in 
                                        the hours of 
                                        nonovertime work, 
                                        wages, or employment 
                                        benefits) any currently 
                                        employed employee (as 
                                        of the date of the 
                                        participation).
                                          ``(bb) Prohibition on 
                                        impairment of 
                                        contracts.--An activity 
                                        under this paragraph 
                                        shall not impair an 
                                        existing contract for 
                                        services or collective 
                                        bargaining agreement, 
                                        and no such activity 
                                        that would be 
                                        inconsistent with the 
                                        terms of a collective 
                                        bargaining agreement 
                                        shall be undertaken 
                                        without the written 
                                        concurrence of the 
                                        labor organization and 
                                        employer concerned.
                                  ``(II) Other prohibitions.--A 
                                participant in an activity 
                                under this paragraph shall not 
                                be employed in a job--
                                          ``(aa) when any other 
                                        individual is on layoff 
                                        from the same or any 
                                        substantially 
                                        equivalent job;
                                          ``(bb) when the 
                                        employer has terminated 
                                        the employment of any 
                                        regular employee or 
                                        otherwise reduced the 
                                        workforce of the 
                                        employer with the 
                                        intention of filling 
                                        the vacancy so created 
                                        with the participant; 
                                        or
                                          ``(cc) which is 
                                        created in a 
                                        promotional line that 
                                        will infringe in any 
                                        way upon the 
                                        promotional 
                                        opportunities of 
                                        currently employed 
                                        individuals.
                                  ``(III) Health and safety.--
                                Health and safety standards 
                                established under Federal and 
                                State law otherwise applicable 
                                to working conditions of 
                                employees shall be equally 
                                applicable to working 
                                conditions of participants 
                                engaged in activities under 
                                this paragraph. To the extent 
                                that a State workers' 
                                compensation law applies, 
                                workers' compensation shall be 
                                provided to participants on the 
                                same basis as the compensation 
                                is provided to other 
                                individuals in the State in 
                                similar employment.
                                  ``(IV) Employment 
                                conditions.--Individuals in on-
                                the-job training or individuals 
                                employed in activities under 
                                this paragraph shall be 
                                provided benefits and working 
                                conditions at the same level 
                                and to the same extent as other 
                                trainees or employees working a 
                                similar length of time and 
                                doing the same type of work.
                                  ``(V) Opportunity to submit 
                                comments.--Interested parties 
                                shall be provided an 
                                opportunity to submit comments 
                                with respect to training 
                                programs proposed to be funded 
                                under this paragraph.
                          ``(ii) Grievance procedure.--
                                  ``(I) In general.--A State to 
                                which funds are provided under 
                                this paragraph shall establish 
                                and maintain a procedure for 
                                addressing grievances or 
                                complaints alleging violations 
                                of this paragraph from 
                                participants and other 
                                interested or affected parties. 
                                The procedure shall include an 
                                opportunity for a hearing and 
                                be completed within 60 days of 
                                filing the greivance or 
                                complaint.
                                  ``(II) Investigation.--
                                          ``(aa) In general.--
                                        The Secretary shall 
                                        investigate an 
                                        allegation of a 
                                        violation of this 
                                        paragraph if a decision 
                                        relating to the 
                                        allegation is made 
                                        within 60 days after 
                                        the date of the filing 
                                        of the grievance or 
                                        complaint and either 
                                        party appeals to the 
                                        Secretary, or if a 
                                        decision relating to 
                                        the allegation is made 
                                        within the 60-day 
                                        period and the party to 
                                        which the decision is 
                                        adverse appeals the 
                                        decision to the 
                                        Secretary.
                                          ``(bb) Additional 
                                        requirement.--The 
                                        Secretary shall make a 
                                        final determination 
                                        relating to an appeal 
                                        made under item (aa) no 
                                        later than 120 days 
                                        after receiving the 
                                        appeal.
                                  ``(III) Remedies.--Remedies 
                                shall be limited to--
                                          ``(aa) suspension or 
                                        termination of payments 
                                        under this paragraph;
                                          ``(bb) prohibition of 
                                        placement of a 
                                        participant with an 
                                        employer who has 
                                        violated this 
                                        subparagraph;
                                          ``(cc) where 
                                        applicable, 
                                        reinstatement of an 
                                        employee, payment of 
                                        lost wages and 
                                        benefits, and 
                                        reestablishment of 
                                        other relevant terms, 
                                        conditions and 
                                        privileges of 
                                        employment; and
                                          ``(dd) where 
                                        appropriate, other 
                                        equitable relief.''.
          (2) Conforming amendment.--Section 409(a)(7)(B)(iv) 
        of such Act (42 U.S.C. 609(a)(7)(B)(iv)) is amended to 
        read as follows:
                          ``(iv) Expenditures by the state.--
                        The term `expenditures by the State' 
                        does not include--
                                  ``(I) any expenditure from 
                                amounts made available by the 
                                Federal Government;
                                  ``(II) any State funds 
                                expended for the medicaid 
                                program under title XIX;
                                  ``(III) any State funds which 
                                are used to match Federal funds 
                                provided under section 
                                403(a)(5); or
                                  ``(IV) any State funds which 
                                are expended as a condition of 
                                receiving Federal funds other 
                                than under this part.
                        Notwithstanding subclause (IV) of the 
                        preceding sentence, such term includes 
                        expenditures by a State for child care 
                        in a fiscal year to the extent that the 
                        total amount of the expenditures does 
                        not exceed the amount of State 
                        expenditures in fiscal year 1994 or 
                        1995 (whichever is the greater) that 
                        equal the non-Federal share for the 
                        programs described in section 
                        418(a)(1)(A).''.
  (b) Grants to Outlying Areas.--Section 1108(a) of such Act 
(42 U.S.C. 1308(a)) is amended by inserting ``(except section 
403(a)(5))'' after ``title IV''.
  (c) Grants to Indian Tribes.--Section 412(a) of such Act (42 
U.S.C. 612(a)) is amended by adding at the end the following:
          ``(3) Welfare-to-work grants.--
                  ``(A) In general.--The Secretary shall award 
                a grant in accordance with this paragraph to an 
                Indian tribe for each fiscal year specified in 
                section 403(a)(5)(H) for which the Indian tribe 
                is a welfare-to-work tribe, in such amount as 
                the Secretary deems appropriate, subject to 
                subparagraph (B) of this paragraph.
                  ``(B) Welfare-to-work tribe.--An Indian tribe 
                shall be considered a welfare-to-work tribe for 
                a fiscal year for purposes of this paragraph if 
                the Indian tribe meets the following 
                requirements:
                          ``(i) The Indian tribe has submitted 
                        to the Secretary (in the form of an 
                        addendum to the tribal family 
                        assistance plan, if any, of the Indian 
                        tribe) a plan which describes how, 
                        consistent with section 403(a)(5), the 
                        Indian tribe will use any funds 
                        provided under this paragraph during 
                        the fiscal year.
                          ``(ii) The Indian tribe has provided 
                        the Secretary with an estimate of the 
                        amount that the Indian tribe intends to 
                        expend during the fiscal year 
                        (excluding tribal expenditures 
                        described in section 409(a)(7)(B)(iv)) 
                        for activities described in section 
                        403(a)(5)(C)(i).
                          ``(iii) The Indian tribe has agreed 
                        to negotiate in good faith with the 
                        Secretary of Health and Human Services 
                        with respect to the substance of any 
                        evaluation under section 413(j), and to 
                        cooperate with the conduct of any such 
                        evaluation.
                  ``(C) Limitations on use of funds.--Section 
                403(a)(5)(C) shall apply to funds provided to 
                Indian tribes under this paragraph in the same 
                manner in which such section applies to funds 
                provided under section 403(a)(5).''.
  (d) Funds Received From Grants To Be Disregarded in Applying 
Durational Limit on Assistance.--Section 408(a)(7) of such Act 
(42 U.S.C. 608(a)(7)) is amended by adding at the end the 
following:
                  ``(G) Inapplicability to welfare-to-work 
                grants and assistance.--For purposes of 
                subparagraph (A) of this paragraph, a grant 
                made under section 403(a)(5) shall not be 
                considered a grant made under section 403, and 
                assistance from funds provided under section 
                403(a)(5) shall not be considered 
                assistance.''.
  (e) Evaluations.--Section 413 of such Act (42 U.S.C. 613) is 
amended by adding at the end the following:
  ``(j) Evaluation of Welfare-to-Work Programs.--
          ``(1) Evaluation.--The Secretary--
                  ``(A) shall, in consultation with the 
                Secretary of Labor, develop a plan to evaluate 
                how grants made under sections 403(a)(5) and 
                412(a)(3) have been used;
                  ``(B) may evaluate the use of such grants by 
                such grantees as the Secretary deems 
                appropriate, in accordance with an agreement 
                entered into with the grantees after good-faith 
                negotiations; and
                  ``(C) is urged to include the following 
                outcome measures in the plan developed under 
                subparagraph (A):
                          ``(i) Placements in the labor force 
                        and placements in the labor force that 
                        last for at least 6 months.
                          ``(ii) Placements in the private and 
                        public sectors.
                          ``(iii) Earnings of individuals who 
                        obtain employment.
                          ``(iv) Average expenditures per 
                        placement.
          ``(2) Reports to the congress.--
                  ``(A) In general.--Subject to subparagraphs 
                (B) and (C), the Secretary, in consultation 
                with the Secretary of Labor and the Secretary 
                of Housing and Urban Development, shall submit 
                to the Congress reports on the projects funded 
                under sections 403(a)(5) and 412(a)(3) and on 
                the evaluations of the projects.
                  ``(B) Interim report.--Not later than January 
                1, 1999, the Secretary shall submit an interim 
                report on the matter described in subparagraph 
                (A).
                  ``(C) Final report.--Not later than January 
                1, 2001, (or at a later date, if the Secretary 
                informs the Committees of the Congress with 
                jurisdiction over the subject matter of the 
                report) the Secretary shall submit a final 
                report on the matter described in subparagraph 
                (A).''.

SEC. 9002. LIMITATION ON AMOUNT OF FEDERAL FUNDS TRANSFERABLE TO TITLE 
                    XX PROGRAMS.

  (a) In General.--Section 404(d) of the Social Security Act 
(42 U.S.C. 604(d)) is amended--
          (1) in paragraph (1), by striking ``A State may'' and 
        inserting ``Subject to paragraph (2), a State may''; 
        and
          (2) by amending paragraph (2) to read as follows:
          ``(2) Limitation on amount transferable to title xx 
        programs.--A State may use not more than 10 percent of 
        the amount of any grant made to the State under section 
        403(a) for a fiscal year to carry out State programs 
        pursuant to title XX.''.
  (b) Retroactivity.--The amendments made by subsection (a) of 
this section shall take effect as if included in the enactment 
of section 103(a) of the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996.

SEC. 9003. CLARIFICATION OF LIMITATION ON NUMBER OF PERSONS WHO MAY BE 
                    TREATED AS ENGAGED IN WORK BY REASON OF 
                    PARTICIPATION IN VOCATIONAL EDUCATIONAL TRAINING.

  (a) In General.--Section 407(c)(2)(D) of the Social Security 
Act (42 U.S.C. 607(c)(2)(D)) is amended to read as follows:
                  ``(D) Limitation on number of persons who may 
                be treated as engaged in work by reason of 
                participation in vocational educational 
                training.--For purposes of determining monthly 
                participation rates under paragraphs (1)(B)(i) 
                and (2)(B) ofsubsection (b), not more than 30 
percent of the number of individuals in all families and in 2-parent 
families, respectively, in a State who are treated as engaged in work 
for a month may consist of individuals who are determined to be engaged 
in work for the month by reason of participation in vocational 
educational training.''.
  (b) Retroactivity.--The amendment made by subsection (a) of 
this section shall take effect as if included in the enactment 
of section 103(a) of the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996.

SEC. 9004. REQUIRED HOURS OF WORK; HEALTH AND SAFETY.

  (a) In General.--Section 407 of the Social Security Act (42 
U.S.C. 607) is amended by adding at the end the following:
  ``(j) Limitation on Number of Hours Per Month That a 
Recipient of Assistance May Be Required to Work for a Public 
Agency or Nonprofit Organization.--
          ``(1) In general.--A State to which a grant is made 
        under section 403 may not require a recipient of 
        assistance under the State program funded under this 
        part to be assigned to a work experience, on-the-job 
        training, or community service position with a public 
        agency or nonprofit organization during a month for 
        more than the allowable number of hours determined for 
        the month under paragraph (2).
          ``(2) Allowable number of hours.--
                  ``(A) General method.--Subject to this 
                paragraph, the allowable number of hours 
                determined for a month under this paragraph--
                          ``(i) for a recipient to whom the 
                        benefit described in paragraph (3)(A) 
                        is provided during the month is--
                                  ``(I) the average value of 
                                the benefit provided by the 
                                State during the month to 
                                families that the State 
                                determines are similarly 
                                situated to the family of the 
                                recipient, or (at the option of 
                                the State) the value of the 
                                benefit provided by the State 
                                to the recipient during the 
                                month; divided by
                                  ``(II) the minimum wage rate 
                                in effect during the month 
                                under section 6 of the Fair 
                                Labor Standards Act of 1938;
                          ``(ii) for a recipient to whom the 
                        benefits described in subparagraphs (A) 
                        and (B) of paragraph (3) are provided 
                        during the month is--
                                  ``(I) the average value of 
                                such benefits provided by the 
                                State during the month to 
                                families that the State 
                                determines are similarly 
                                situated to the family of the 
                                recipient, or (at the option of 
                                the State) the value of such 
                                benefits provided by the State 
                                to the recipient during the 
                                month; divided by
                                  ``(II) the minimum wage rate 
                                in effect during the month 
                                under section 6 of the Fair 
                                Labor Standards Act of 1938;
                          ``(iii) for a recipient to whom the 
                        benefits described in subparagraphs 
                        (A), (B), and (C) of paragraph (3) are 
                        provided during the month is--
                                  ``(I) the average value of 
                                such benefits provided by the 
                                State during the month to 
                                families that the State 
                                determines are similarly 
                                situated to the family of the 
                                recipient, or (at the option of 
                                the State) the value of such 
                                benefits provided by the State 
                                to the recipient during the 
                                month; divided by
                                  ``(II) the minimum wage rate 
                                in effect during the month 
                                under section 6 of the Fair 
                                Labor Standards Act of 1938;
                          ``(iv) for a recipient to whom the 
                        benefits described in subparagraphs 
                        (A), (B), (C), and (D) of paragraph (3) 
                        are provided during the month is--
                                  ``(I) the average value of 
                                such benefits provided by the 
                                State during the month to 
                                families that the State 
                                determines are similarly 
                                situated to the family of the 
                                recipient, or (at the option of 
                                the State) the value of such 
                                benefits provided by the State 
                                to the recipient during the 
                                month; divided by
                                  ``(II) the minimum wage rate 
                                in effect during the month 
                                under section 6 of the Fair 
                                Labor Standards Act of 1938; 
                                and
                          ``(v) for a recipient to whom the 
                        benefits described in subparagraphs 
                        (A), (B), (C), (D), and (E) of 
                        paragraph (3) are provided during the 
                        month is--
                                  ``(I) the average value of 
                                such benefits provided by the 
                                State during the month to 
                                families that the State 
                                determines are similarly 
                                situated to the family of the 
                                recipient, or (at the option of 
                                the State) the value of such 
                                benefits provided by the State 
                                to the recipient during the 
                                month; divided by
                                  ``(II) the minimum wage rate 
                                in effect during the month 
                                under section 6 of the Fair 
                                Labor Standards Act of 1938.
                  ``(B) State option to take account of certain 
                work activities.--
                          ``(i) In general.--In determining the 
                        number of hours for a month for which a 
                        sufficiently employed recipient may be 
                        determined to be engaged in work under 
                        subsection (c)(1), the State may, 
                        notwithstanding subsection (c)(2), 
                        count the number of hours during the 
                        month for which the recipient 
                        participates in a work activity 
                        described in paragraph (6), (8), (9), 
                        (10), or (11) of subsection (d).
                          ``(ii) Sufficiently employed 
                        recipient.--As used in clause (i), the 
                        term `sufficiently employed recipient' 
                        means, with respect to a month, a 
                        recipient who is in a position 
                        described in paragraph (1) during the 
                        month for a number of hours that is not 
                        less than--
                                  ``(I) the sum of the dollar 
                                value of any assistance 
                                provided to the recipient 
                                during the month under the 
                                State program funded under this 
                                part, and the dollar value 
                                equivalent of any benefits 
                                provided to the recipient 
                                during the month under the food 
                                stamp program under the Food 
                                Stamp Act of 1977; divided by
                                  ``(II) the minimum wage rate 
                                in effect during the month 
                                under section 6 of the Fair 
                                Labor Standards Act of 1938.
          ``(3) Benefits.--As used in paragraph (2)(A), the 
        term `value of the benefits' means--
                  ``(A) in the case of assistance under the 
                State program funded under this part, the 
                dollar value of such assistance;
                  ``(B) in the case of food stamp benefits 
                under the food stamp program under the Food 
                Stamp Act of 1977, the dollar value equivalent 
                of such benefits;
                  ``(C) at the option of the State, in the case 
                of medical assistance benefits provided under 
                the State plan approved under title XIX, the 
                dollar value of such benefits, as determined in 
                accordance with paragraph (4);
                  ``(D) at the option of the State, in the case 
                of child care assistance, the dollar value of 
                such assistance; and
                  ``(E) at the option of the State, in the case 
                of housing benefits, the dollar value of such 
                benefits.
          ``(4) Valuation of medicaid benefits.--Annually, the 
        Secretary shall publish a table that specifies the 
        dollar value of the insurance coverage provided under 
        title XIX to a family of each size, which may take 
        account of geographical variations or other factors 
        identified by the Secretary.
          ``(5) Treatment of recipients assigned to certain 
        positions with a public agency or nonprofit 
        organization.--A recipient of assistance under a State 
        program funded under this part who is engaged in work 
        experience or community service with a public agency or 
        nonprofit organization shall not be considered an 
        employee of the public agency or the nonprofit 
        organization.
  ``(k) Health and Safety.--Health and safety standards 
established under Federal and State law otherwise applicable to 
working conditions of employees shall be equally applicable to 
working conditions of participants engaged in a work activity. 
To the extent that a State workers' compensation law applies, 
workers' compensation shall be provided to participants on the 
same basis as the compensation is provided to other individuals 
in the State in similar employment.''.
  (b) Retroactivity.--The amendment made by subsection (a) of 
this section shall take effect as if included in the enactment 
of section 103(a) of the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996.

SEC. 9005. PENALTY FOR FAILURE OF STATE TO REDUCE ASSISTANCE FOR 
                    RECIPIENTS REFUSING WITHOUT GOOD CAUSE TO WORK.

  (a) In General.--Section 409(a) of the Social Security Act 
(42 U.S.C. 609(a)) is amended by adding at the end the 
following:
          ``(13) Penalty for failure to reduce assistance for 
        recipients refusing without good cause to work.--
                  ``(A) In general.--If the Secretary 
                determines that a State to which a grant is 
                made under section 403 in a fiscal year has 
                violated section 407(e) during the fiscal year, 
                the Secretary shall reduce the grant payable to 
                the State under section 403(a)(1) for the 
                immediately succeeding fiscal year by an amount 
                equal to not less than 1 percent and not more 
                than 5 percent of the State family assistance 
                grant.
                  ``(B) Penalty based on severity of failure.--
                The Secretary shall impose reductions under 
                subparagraph (A) with respect to a fiscal year 
                based on the degree of noncompliance.''.
  (b) Retroactivity.--The amendment made by subsection (a) of 
this section shall take effect as if included in the enactment 
of section 103(a) of the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996.

                Subtitle B--Supplemental Security Income

SEC. 9101. REQUIREMENT TO PERFORM CHILDHOOD DISABILITY REDETERMINATIONS 
                    IN MISSED CASES.

  Section 211(d)(2) of the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996 (110 Stat. 2190) is 
amended--
          (1) in subparagraph (A)--
                  (A) in the 1st sentence, by striking ``1 
                year'' and inserting ``18 months''; and
                  (B) by inserting after the 1st sentence the 
                following: ``Any redetermination required by 
                the preceding sentence that is not performed 
                before the end of the period described in the 
                preceding sentence shall be performed as soon 
                as is practicable thereafter.''; and
          (2) in subparagraph (C), by adding at the end the 
        following: ``Before commencing a redetermination under 
        the 2nd sentence of subparagraph (A), in any case in 
        which the individual involved has not already been 
        notified of the provisions of this paragraph, the 
        Commissioner of Social Security shall notify the 
        individual involved of the provisions of this 
        paragraph.''.

SEC. 9102. REPEAL OF MAINTENANCE OF EFFORT REQUIREMENTS APPLICABLE TO 
                    OPTIONAL STATE PROGRAMS FOR SUPPLEMENTATION OF SSI 
                    BENEFITS.

  Section 1618 of the Social Security Act (42 U.S.C. 1382g) is 
repealed.

SEC. 9103. FEES FOR FEDERAL ADMINISTRATION OF STATE SUPPLEMENTARY 
                    PAYMENTS.

  (a) Fee Schedule.--
          (1) Optional state supplementary payments.--
                  (A) In general.--Section 1616(d)(2)(B) of the 
                Social Security Act (42 U.S.C. 1382e(d)(2)(B)) 
                is amended--
                          (i) by striking ``and'' at the end of 
                        clause (iii); and
                          (ii) by striking clause (iv) and 
                        inserting the following:
          ``(iv) for fiscal year 1997, $5.00;
          ``(v) for fiscal year 1998, $6.20;
          ``(vi) for fiscal year 1999, $7.60;
          ``(vii) for fiscal year 2000, $7.80;
          ``(viii) for fiscal year 2001, $8.10;
          ``(ix) for fiscal year 2002, $8.50; and
          ``(x) for fiscal year 2003 and each succeeding fiscal 
        year--
                  ``(I) the applicable rate in the preceding 
                fiscal year, increased by the percentage, if 
                any, by which the Consumer Price Index for the 
                month of June of the calendar year of the 
                increase exceeds the Consumer Price Index for 
                the month of June of the calendar year 
                preceding the calendar year of the increase, 
                and rounded to the nearest whole cent; or
                  ``(II) such different rate as the 
                Commissioner determines is appropriate for the 
                State.''.
                  (B) Conforming amendment.--Section 
                1616(d)(2)(C) of such Act (42 U.S.C. 
                1382e(d)(2)(C)) is amended by striking 
                ``(B)(iv)'' and inserting ``(B)(x)(II)''.
          (2) Mandatory state supplementary payments.--
                  (A) In general.--Section 212(b)(3)(B)(ii) of 
                Public Law 93-66 (42 U.S.C. 1382 note) is 
                amended--
                          (i) by striking ``and'' at the end of 
                        subclause (III); and
                          (ii) by striking subclause (IV) and 
                        inserting the following:
          ``(IV) for fiscal year 1997, $5.00;
          ``(V) for fiscal year 1998, $6.20;
          ``(VI) for fiscal year 1999, $7.60;
          ``(VII) for fiscal year 2000, $7.80;
          ``(VIII) for fiscal year 2001, $8.10;
          ``(IX) for fiscal year 2002, $8.50; and
          ``(X) for fiscal year 2003 and each succeeding fiscal 
        year--
                  ``(aa) the applicable rate in the preceding 
                fiscal year, increased by the percentage, if 
                any, by which the Consumer Price Index for the 
                month of June of the calendar year of the 
                increase exceeds the Consumer Price Index for 
                the month of June of the calendar year 
                preceding the calendar year of the increase, 
                and rounded to the nearest whole cent; or
                  ``(bb) such different rate as the 
                Commissioner determines is appropriate for the 
                State.''.
                  (B) Conforming amendment.--Section 
                212(b)(3)(B)(iii) of such Act (42 U.S.C. 1382 
                note) is amended by striking ``(ii)(IV)'' and 
                inserting ``(ii)(X)(bb)''.
  (b) Use of New Fees To Defray the Social Security 
Administration's Administrative Expenses.--
          (1) Credit to special fund for fiscal year 1998 and 
        subsequent years.--
                  (A) Optional state supplementary payment 
                fees.--Section 1616(d)(4) of the Social 
                Security Act (42 U.S.C. 1382e(d)(4)) is amended 
                to read as follows:
  ``(4)(A) The first $5 of each administration fee assessed 
pursuant to paragraph (2), upon collection, shall be deposited 
in the general fund of the Treasury of the United States as 
miscellaneous receipts.
  ``(B) That portion of each administration fee in excess of 
$5, and 100 percent of each additional services fee charged 
pursuant to paragraph (3), upon collection for fiscal year 1998 
and each subsequent fiscal year, shall be credited to a special 
fund established in the Treasury of the United States for State 
supplementary payment fees. The amounts so credited, to the 
extent and in the amounts provided in advance in appropriations 
Acts, shall be available to defray expenses incurred in 
carrying out this title and related laws.''.
                  (B) Mandatory state supplementary payment 
                fees.--Section 212(b)(3)(D) of Public Law 93-66 
                (42 U.S.C. 1382 note) is amended to read as 
                follows:
  ``(D)(i) The first $5 of each administration fee assessed 
pursuant to subparagraph (B), upon collection, shall be 
deposited in the general fund of the Treasury of the United 
States as miscellaneous receipts.
  ``(ii) The portion of each administration fee in excess of 
$5, and 100 percent of each additional services fee charged 
pursuant to subparagraph (C), upon collection for fiscal year 
1998 and each subsequent fiscal year, shall be credited to a 
special fund established in the Treasury of the United States 
for State supplementary payment fees. The amounts so credited, 
to the extent and in the amounts provided in advance in 
appropriations Acts, shall be available to defray expenses 
incurred in carrying out this section and title XVI of the 
Social Security Act and related laws.''.
          (2) Limitations on authorization of appropriations.--
        From amounts credited pursuant to section 1616(d)(4)(B) 
        of the Social Security Act and section 212(b)(3)(D)(ii) 
        of Public Law 93-66 to the special fund established in 
        the Treasury of the United States for State 
        supplementary payment fees, there is authorized to be 
        appropriated an amount not to exceed $35,000,000 for 
        fiscal year 1998, and such sums as may be necessary for 
        each fiscal year thereafter.

                 Subtitle C--Child Support Enforcement

SEC. 9201. CLARIFICATION OF AUTHORITY TO PERMIT CERTAIN REDISCLOSURES 
                    OF WAGE AND CLAIM INFORMATION.

  Section 303(h)(1)(C) of the Social Security Act (42 U.S.C. 
503(h)(1)(C)) is amended by striking ``section 453(i)(1) in 
carrying out the child support enforcement program under title 
IV'' and inserting ``subsections (i)(1), (i)(3), and (j) of 
section 453''.

     Subtitle D--Restricting Welfare and Public Benefits for Aliens

SEC. 9301. EXTENSION OF ELIGIBILITY PERIOD FOR REFUGEES AND CERTAIN 
                    OTHER QUALIFIED ALIENS FROM 5 TO 7 YEARS FOR SSI 
                    AND MEDICAID.

  (a) SSI.--Section 402(a)(2)(A) of the Personal Responsibility 
and Work Opportunity Reconciliation Act of 1996 (8 U.S.C. 
1612(a)(2)(A)) is amended to read as follows:
                  ``(A) Time-limited exception for refugees and 
                asylees.--
                          ``(i) SSI.--With respect to the 
                        specified Federal program described in 
                        paragraph (3)(A) paragraph 1 shall not 
                        apply to an alien until 7 years after 
                        the date--
                                  ``(I) an alien is admitted to 
                                the United States as a refugee 
                                under section 207 of the 
                                Immigration and Nationality 
                                Act;
                                  ``(II) an alien is granted 
                                asylum under section 208 of 
                                such Act; or
                                  ``(III) an alien's 
                                deportation is withheld under 
                                section 243(h) of such Act.
                          ``(ii) Food stamps.--With respect to 
                        the specified Federal program described 
                        in paragraph (3)(B), paragraph 1 shall 
                        not apply to an alien until 5 years 
                        after the date--
                                  ``(I) an alien is admitted to 
                                the United States as a refugee 
                                under section 207 of the 
                                Immigration and Nationality 
                                Act;
                                  ``(II) an alien is granted 
                                asylum under section 208 of 
                                such Act; or
                                  ``(III) an alien's 
                                deportation is withheld under 
                                section 243(h) of such Act.''.
  (b) Medicaid.--Section 402(b)(2)(A) of the Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996 
(8 U.S.C. 1612(b)(2)(A)) is amended to read as follows:
                  ``(A) Time-limited exception for refugees and 
                asylees.--
                          ``(i) Medicaid.--With respect to the 
                        designated Federal program described in 
                        paragraph (3)(C), paragraph 1 shall not 
                        apply to an alien until 7 years after 
                        the date--
                                  ``(I) an alien is admitted to 
                                the United States as a refugee 
                                under section 207 of the 
                                Immigration and Nationality 
                                Act;
                                  ``(II) an alien is granted 
                                asylum under section 208 of 
                                such Act; or
                                  ``(III) an alien's 
                                deportation is withheld under 
                                section 243(h) of such Act.
                          ``(ii) Other designated federal 
                        programs.--With respect to the 
                        designated Federal programs under 
                        paragraph (3) (other than subparagraph 
                        (C)), paragraph 1 shall not apply to an 
                        alien until 5 years after the date--
                                  ``(I) an alien is admitted to 
                                the United States as a refugee 
                                under section 207 of the 
                                Immigration and Nationality 
                                Act;
                                  ``(II) an alien is granted 
                                asylum under section 208 of 
                                such Act; or
                                  ``(III) an alien's 
                                deportation is withheld under 
                                section 243(h) of such Act.''.

SEC. 9302. SSI ELIGIBILITY FOR ALIENS RECEIVING SSI ON AUGUST 22, 1996.

  (a) In General.--Section 402(a)(2) of the Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996 
(8 U.S.C. 1612(a)(2)) is amended by adding after subparagraph 
(D) the following new subparagraph:
                  ``(E) Aliens receiving ssi on august 22, 
                1996.--With respect to eligibility for benefits 
                for the program defined in paragraph (3)(A) 
                (relating to the supplemental security income 
                program), paragraph (1) shall not apply toan 
alien who was receiving such benefits on August 22, 1996.''.
  (b) Status of Cuban and Haitian Entrants and Amerasian 
Permanent Resident Aliens.--For purposes of section 
402(a)(2)(E) of the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996, the following aliens 
shall be considered qualified aliens:
          (1) An alien who is a Cuban and Haitian entrant as 
        defined in section 501(e) of the Refugee Education 
        Assistance Act of 1980.
          (2) An alien admitted to the United States as an 
        Amerasian immigrant pursuant to section 584 of the 
        Foreign Operations, Export Financing, and Related 
        Programs Appropriations Act, 1988, as contained in 
        section 101(e) of Public Law 100-202, (other than an 
        alien admitted pursuant to section 584(b)(1)(C)).
  (c) Conforming Amendments.--Section 402(a)(2)(D) of the 
Personal Responsibility and Work Opportunity Reconciliation Act 
of 1996 (8 U.S.C. 1612(a)(D)) is amended--
          (1) by striking clause (i);
          (2) in the subparagraph heading by striking 
        ``benefits'' and inserting ``food stamps'';
          (3) by striking ``(ii) Food stamps'.--';
          (4) by redesignating subclauses (I), (II), and (III) 
        as clauses (i), (ii), and (iii).

SEC. 9303. SSI ELIGIBILITY FOR PERMANENT RESIDENT ALIENS WHO ARE 
                    MEMBERS OF AN INDIAN TRIBE.

  Section 402(a)(2) of the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996 (8 U.S.C. 1612(a)(2)) 
(as amended by section 9302) is amended by adding after 
subparagraph (E) the following new subparagraph:
                  ``(F) Permanent resident aliens who are 
                members of an indian tribe.--With respect to 
                eligibility for benefits for the program 
                defined in paragraph (3)(A) (relating to the 
                supplemental security income program), 
                paragraph (1) shall not apply to an alien who--
                          ``(i) is lawfully admitted for 
                        permanent residence under the 
                        Immigration and Nationality Act; and
                          ``(ii) is a member of an Indian tribe 
                        (as defined in section 4(e) of the 
                        Indian Self-Determination and Education 
                        Assistance Act).''.

SEC. 9304. VERIFICATION OF ELIGIBILITY FOR STATE AND LOCAL PUBLIC 
                    BENEFITS.

  (a) In General.--The Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996 is amended by adding 
after section 412 the following new section:

``SEC. 413. AUTHORIZATION FOR VERIFICATION OF ELIGIBILITY FOR STATE AND 
                    LOCAL PUBLIC BENEFITS.

  ``A State or political subdivision of a State is authorized 
to require an applicant for State and local public benefits (as 
defined in section 411(c)) to provide proof of eligibility.''.
  (b) Clerical Amendment.--Section 2 of the Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996 
is amended by adding after the item related to section 412 the 
following:

``Sec. 413. Authorization for verification of eligibility for state and 
          local public benefits.''.

SEC. 9305. DERIVATIVE ELIGIBILITY FOR BENEFITS.

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

``SEC. 436. DERIVATIVE ELIGIBILITY FOR BENEFITS.

  ``(a) Food Stamps.--Notwithstanding any other provision of 
law, an alien who under the provisions of this title is 
ineligible for benefits under the food stamp program (as 
defined in section 402(a)(3)(A)) shall not be eligible for such 
benefits because the alien receives benefits under the 
supplemental security income program (as defined in section 
402(a)(3)(B)).
  ``(b) Medicaid.--Notwithstanding any other provision of this 
title, an alien who under the provisions of this title is 
ineligible for benefits under the medicaid program (as defined 
in section 402(b)(3)(C)) shall be eligible for such benefits if 
the alien is receiving benefits under the supplemental security 
income program and title XIX of the Social Security Act 
provides for such derivative eligibility.''.
  (b) Clerical Amendment.--Section 2 of the Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996 
is amended by adding after the item related to section 435 the 
following:

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

SEC. 9306. EFFECTIVE DATE.

  Except as otherwise provided, the amendments made by this 
subtitle shall be effective as if included in the enactment of 
title IV of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996.

                 Subtitle E--Unemployment Compensation

SEC. 9401. CLARIFYING PROVISION RELATING TO BASE PERIODS.

  (a) In General.--No provision of a State law under which the 
base period for such State is defined or otherwise determined 
shall, for purposes of section 303(a)(1) of the Social Security 
Act (42 U.S.C. 503(a)(1)), be considered a provision for a 
method of administration.
  (b) Definitions.--For purposes of this section, the terms 
``State law'', ``base period'', and ``State'' shall have the 
meanings given them under section 205 of the Federal-State 
Extended Unemployment Compensation Act of 1970 (26 U.S.C. 3304 
note).
  (c) Effective Date.--This section shall apply for purposes of 
any period beginning before, on, or after the date of the 
enactment of this Act.

SEC. 9402. INCREASE IN FEDERAL UNEMPLOYMENT ACCOUNT CEILING.

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

SEC. 9403. SPECIAL DISTRIBUTION TO STATES FROM UNEMPLOYMENT TRUST FUND.

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

``Any amount allocated to a State under this section for fiscal 
year 2000, 2001, or 2002 may be used by such State only to pay 
expenses incurred by it for the administration of its 
unemployment compensation law, and may be so used by it without 
regard to any of the conditions prescribed in any of the 
preceding provisions of this paragraph.''

SEC. 9404. INTEREST-FREE ADVANCES TO STATE ACCOUNTS IN UNEMPLOYMENT 
                    TRUST FUND RESTRICTED TO STATES WHICH MEET FUNDING 
                    GOALS.

  (a) In General.--Paragraph (2) of section 1202(b) of the 
Social Security Act (42 U.S.C. 1322(b)) is amended--
          (1) by striking ``and'' at the end of subparagraph 
        (A),
          (2) by striking the period at the end of subparagraph 
        (B) and inserting ``, and'', and
          (3) by adding at the end the following new 
        subparagraph:
          ``(C) the average daily balance in the account of 
        such State in the Unemployment Trust Fund for each of 4 
        of the 5 calendar quarters preceding the calendar 
        quarter in which such advances were made exceeds the 
        funding goal of such State (as defined in subsection 
        (d)).''
  (b) Funding Goal Defined.--Section 1202 of the Social 
Security Act is amended by adding at the end the following new 
subsection:
  ``(d) For purposes of subsection (b)(2)(C), the term `funding 
goal' means, for any State for any calendar quarter, the 
average of the unemployment insurance benefits paid by such 
State during each of the 3 years, in the 20-year period ending 
with the calendar year containing such calendar quarter, during 
which the State paid the greatest amount of unemployment 
benefits.''
  (c) Effective Date.--The amendments made by this section 
shall apply to calendar years beginning after the date of the 
enactment of this Act.

SEC. 9405. EXEMPTION OF SERVICE PERFORMED BY ELECTION WORKERS FROM THE 
                    FEDERAL UNEMPLOYMENT TAX.

  (a) In General.--Paragraph (3) of section 3309(b) of the 
Internal Revenue Code of 1986 (relating to exemption for 
certain services) is amended--
          (1) by striking ``or'' at the end of subparagraph 
        (D),
          (2) by adding ``or'' at the end of subparagraph (E), 
        and
          (3) by inserting after subparagraph (E) the following 
        new subparagraph:
                  ``(F) as an election official or election 
                worker if the amount of remuneration received 
                by the individual during the calendar year for 
                services as an election official or election 
                worker is less than $1,000;''.
  (b) Effective Date.--The amendments made by this section 
shall apply with respect to service performed after the date of 
the enactment of this Act.

SEC. 9406. TREATMENT OF CERTAIN SERVICES PERFORMED BY INMATES.

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

SEC. 9407. EXEMPTION OF SERVICE PERFORMED FOR AN ELEMENTARY OR 
                    SECONDARY SCHOOL OPERATED PRIMARILY FOR RELIGIOUS 
                    PURPOSES FROM THE FEDERAL UNEMPLOYMENT TAX.

  (a) In General.--Paragraph (1) of section 3309(b) of the 
Internal Revenue Code of 1986 (relating to exemption for 
certain services) is amended--
          (1) by striking ``or'' at the end of subparagraph 
        (A), and
          (2) by inserting before the semicolon at the end the 
        following: ``, or (C) an elementary or secondary school 
        which is operated primarily for religious purposes, 
        which is described in section 501(c)(3), and which is 
        exempt from tax under section 501(a)''.
  (b) Effective Date.--The amendments made by this section 
shall apply with respect to service performed after the date of 
the enactment of this Act.

SEC. 9408. STATE PROGRAM INTEGRITY ACTIVITIES FOR UNEMPLOYMENT 
                    COMPENSATION.

  Section 901(c) of the Social Security Act (42 U.S.C. 1101(c)) 
is amended by adding at the end the following new paragraph:
  ``(5)(A) There are authorized to be appropriated out of the 
employment security administration account to carry out program 
integrity activities, in addition to any amounts available 
under paragraph (1)(A)(i)--
          ``(i) $89,000,000 for fiscal year 1998;
          ``(ii) $91,000,000 for fiscal year 1999;
          ``(iii) $93,000,000 fiscal year 2000;
          ``(iv) $96,000,000 for fiscal year 2001; and
          ``(v) $98,000,000 for fiscal year 2002.
  ``(B) In any fiscal year in which a State receives funds 
appropriated pursuant to this paragraph, the State shall expend 
a proportion of the funds appropriated pursuant to paragraph 
(1)(A)(i) to carry out program integrity activities that is not 
less than the proportion of the funds appropriated under such 
paragraph that was expended by the State to carry out program 
integrity activities in fiscal year 1997.
  ``(C) For purposes of this paragraph, the term `program 
integrity activities' means initial claims review activities, 
eligibility review activities, benefit payments control 
activities, and employer liability auditing activities.''.

               Subtitle F--Increase in Public Debt Limit

SEC. 9501. INCREASE IN PUBLIC DEBT LIMIT.

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

             TITLE X--COMMITTEE ON WAYS AND MEANS--MEDICARE

SEC. 10000. AMENDMENTS TO SOCIAL SECURITY ACT AND REFERENCES TO OBRA; 
                    TABLE OF CONTENTS OF TITLE.

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

Sec. 10000. Amendments to Social Security Act and references to OBRA; 
          table of contents of title.

                    Subtitle A--MedicarePlus Program

                     Chapter 1--MedicarePlus Program

                    SUBCHAPTER A--MEDICAREPLUS PROGRAM

Sec. 10001. Establishment of MedicarePlus program.

                     ``Part C--MedicarePlus Program

    ``Sec. 1851. Eligibility, election, and enrollment.
    ``Sec. 1852. Benefits and beneficiary protections.
    ``Sec. 1853. Payments to MedicarePlus organizations.
    ``Sec. 1854. Premiums.
    ``Sec. 1855. Organizational and financial requirements for 
              MedicarePlus organizations; provider-sponsored 
              organizations.
    ``Sec. 1856. Establishment of standards.
    ``Sec. 1857. Contracts with MedicarePlus organizations.
    ``Sec. 1859. Definitions; miscellaneous provisions.
Sec. 10002. Transitional rules for current medicare HMO program.
Sec. 10003. Conforming changes in medigap program.

   SUBCHAPTER B--SPECIAL RULES FOR MEDICAREPLUS MEDICAL SAVINGS ACCOUNTS

Sec. 10006. MedicarePlus MSA.

              Chapter 2--Integrated Long-term Care Programs

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

Sec. 10011. Coverage of PACE under the medicare program.
Sec. 10012. Establishment of PACE program as medicaid State option.
Sec. 10013. Effective date; transition.
Sec. 10014. Study and reports.

           SUBCHAPTER B--SOCIAL HEALTH MAINTENANCE ORGANIZATIONS

Sec. 10015. Social health maintenance organizations (SHMOs).

                       SUBCHAPTER C--OTHER PROGRAMS

Sec. 10018. Orderly transition of municipal health service demonstration 
          projects.
Sec. 10019. Extension of certain medicare community nursing organization 
          demonstration projects.

             Chapter 3--Medicare Payment Advisory Commission

Sec. 10021. Medicare Payment Advisory Commission.

                     Chapter 4--Medigap Protections

Sec. 10031. Medigap protections.
Sec. 10032. Medicare prepaid competitive pricing demonstration project.

    Chapter 5--Tax Treatment of Hospitals Participating in Provider-
                         sponsored Organizations

Sec. 10041. Tax treatment of hospitals which participate in provider-
          sponsored organizations.

                   Subtitle B--Prevention Initiatives

Sec. 10101. Screening mammography.
Sec. 10102. Screening pap smear and pelvic exams.
Sec. 10103. Prostate cancer screening tests.
Sec. 10104. Coverage of colorectal screening.
Sec. 10105. Diabetes screening tests.
Sec. 10106. Standardization of medicare coverage of bone mass 
          measurements.
Sec. 10107. Vaccines outreach expansion.
Sec. 10108. Study on preventive benefits.

                      Subtitle C--Rural Initiatives

Sec. 10201. Rural primary care hospital program.
Sec. 10202. Prohibiting denial of request by rural referral centers for 
          reclassification on basis of comparability of wages.
Sec. 10203. Hospital geographic reclassification permitted for purposes 
          of disproportionate share payment adjustments.
Sec. 10204. Medicare-dependent, small rural hospital payment extension.
Sec. 10205. Geographic reclassification for certain disproportionately 
          large hospitals.
Sec. 10206. Floor on area wage index.
Sec. 10207. Informatics, telemedicine, and education demonstration 
          project.

               Subtitle D--Anti-Fraud and Abuse Provisions

Sec. 10301. Permanent exclusion for those convicted of 3 health care 
          related crimes.
Sec. 10302. Authority to refuse to enter into medicare agreements with 
          individuals or entities convicted of felonies.
Sec. 10303. Inclusion of toll-free number to report medicare waste, 
          fraud, and abuse in explanation of benefits forms.
Sec. 10304. Liability of medicare carriers and fiscal intermediaries for 
          claims submitted by excluded providers.
Sec. 10305. Exclusion of entity controlled by family member of a 
          sanctioned individual.
Sec. 10306. Imposition of civil money penalties.
Sec. 10307. Disclosure of information and surety bonds.
Sec. 10308. Provision of certain identification numbers.
Sec. 10309. Advisory opinions regarding certain physician self-referral 
          provisions.
Sec. 10310. Other fraud and abuse related provisions.

                 Subtitle E--Prospective Payment Systems

                     Chapter 1--Payment Under Part A

Sec. 10401. Prospective payment for skilled nursing facility services.
Sec. 10402. Prospective payment for inpatient rehabilitation hospital 
          services.

                     Chapter 2--Payment Under Part B

     SUBCHAPTER A--PAYMENT FOR HOSPITAL OUTPATIENT DEPARTMENT SERVICES

Sec. 10411. Elimination of formula-driven overpayments (FDO) for certain 
          outpatient hospital services.
Sec. 10412. Extension of reductions in payments for costs of hospital 
          outpatient services.
Sec. 10413. Prospective payment system for hospital outpatient 
          department services.

                   SUBCHAPTER B--REHABILITATION SERVICES

Sec. 10421. Rehabilitation agencies and services.
Sec. 10422. Comprehensive outpatient rehabilitation facilities (CORF).

                     SUBCHAPTER C--AMBULANCE SERVICES

Sec. 10431. Payments for ambulance services.
Sec. 10432. Demonstration of coverage of ambulance services under 
          medicare through contracts with units of local government.

                 Chapter 3--Payment Under Parts A and B

Sec. 10441. Prospective payment for home health services.

                Subtitle F--Provisions Relating to Part A

                   Chapter 1--Payment Of PPS Hospitals

Sec. 10501. PPS hospital payment update.
Sec. 10502. Capital payments for PPS hospitals.
Sec. 10503. Freeze in disproportionate share.
Sec. 10504. Medicare capital asset sales price equal to book value.
Sec. 10505. Elimination of IME and DSH payments attributable to outlier 
          payments.
Sec. 10506. Reduction in adjustment for indirect medical education.
Sec. 10507. Treatment of transfer cases.
Sec. 10508. Increase base payment rate to Puerto Rico hospitals.

               Chapter 2--Payment Of PPS Exempt Hospitals

Sec. 10511. Payment update.
Sec. 10512. Reductions to capital payments for certain PPS-exempt 
          hospitals and units.
Sec. 10513. Cap on TEFRA limits.
Sec. 10514. Change in bonus and relief payments.
Sec. 10515. Change in payment and target amount for new providers.
Sec. 10516. Rebasing.
Sec. 10517. Treatment of certain long-term care hospitals.
Sec. 10518. Elimination of exemptions; report on exceptions and 
          adjustments.

            Chapter 3--Provisions Related to Hospice Services

Sec. 10521. Payments for hospice services.
Sec. 10522. Payment for home hospice care based on location where care 
          is furnished.
Sec. 10523. Hospice care benefits periods.
Sec. 10524. Other items and services included in hospice care.
Sec. 10525. Contracting with independent physicians or physician groups 
          for hospice care services permitted.
Sec. 10526. Waiver of certain staffing requirements for hospice care 
          programs in non-urbanized areas.
Sec. 10527. Limitation on liability of beneficiaries for certain hospice 
          coverage denials.
Sec. 10528. Extending the period for physician certification of an 
          individual's terminal illness.
Sec. 10529. Effective date.

          Chapter 4--Modification of Part A Home Health Benefit

Sec. 10531. Modification of part A home health benefit for individuals 
          enrolled under part B.

                   Chapter 5--Other Payment Provisions

Sec. 10541. Reductions in payments for enrollee bad debt.
Sec. 10542. Permanent extension of hemophilia pass-through.
Sec. 10543. Reduction in part A medicare premium for certain public 
          retirees.

             Subtitle G--Provisions Relating to Part B Only

                     Chapter 1--Physicians' Services

Sec. 10601. Establishment of single conversion factor for 1998.
Sec. 10602. Establishing update to conversion factor to match spending 
          under sustainable growth rate.
Sec. 10603. Replacement of volume performance standard with sustainable 
          growth rate.
Sec. 10604. Payment rules for anesthesia services.
Sec. 10605. Implementation of resource-based physician practice expense.
Sec. 10606. Dissemination of information on high per discharge relative 
          values for in-hospital physicians' services.
Sec. 10607. No X-ray required for chiropractic services.
Sec. 10608. Temporary coverage restoration for portable 
          electrocardiogram transportation.

                   Chapter 2--Other Payment Provisions

Sec. 10611. Payments for durable medical equipment.
Sec. 10612. Oxygen and oxygen equipment.
Sec. 10613. Reduction in updates to payment amounts for clinical 
          diagnostic laboratory tests.
Sec. 10614. Simplification in administration of laboratory tests.
Sec. 10615. Updates for ambulatory surgical services.
Sec. 10616. Reimbursement for drugs and biologicals.
Sec. 10617. Coverage of oral anti-nausea drugs under chemotherapeutic 
          regimen.
Sec. 10618. Rural health clinic services.
Sec. 10619. Increased medicare reimbursement for nurse practitioners and 
          clinical nurse specialists.
Sec. 10620. Increased medicare reimbursement for physician assistants.
Sec. 10621. Renal dialysis-related services.

                        Chapter 3--Part B Premium

Sec. 10631. Part B premium.

            Subtitle H--Provisions Relating to Parts A and B

       Chapter 1--Provisions Relating to Medicare Secondary Payer

Sec. 10701. Permanent extension and revision of certain secondary payer 
          provisions.
Sec. 10702. Clarification of time and filing limitations.
Sec. 10703. Permitting recovery against third party administrators.

                     Chapter 2--Home Health Services

Sec. 10711. Recapturing savings resulting from temporary freeze on 
          payment increases for home health services.
Sec. 10712. Interim payments for home health services.
Sec. 10713. Clarification of part-time or intermittent nursing care.
Sec. 10714. Study of definition of homebound.
Sec. 10715. Payment based on location where home health service is 
          furnished.
Sec. 10716. Normative standards for home health claims denials,
Sec. 10717. No home health benefits based solely on drawing blood.

           Chapter 3--Baby Boom Generation Medicare Commission

Sec. 10721. Bipartisan Commission on the Effect of the Baby Boom 
          Generation on the Medicare Program.

   Chapter 4--Provisions Relating to Direct Graduate Medical Education

Sec. 10731. Limitation on payment based on number of residents and 
          implementation of rolling average FTE count.
Sec. 10732. Phased-in limitation on hospital overhead and supervisory 
          physician component of direct medical education costs.
Sec. 10733. Permitting payment to non-hospital providers.
Sec. 10734. Incentive payments under plans for voluntary reduction in 
          number of residents.
Sec. 10735. Demonstration project on use of consortia.
Sec. 10736. Recommendations on long-term payment policies regarding 
          financing teaching hospitals and graduate medical education.
Sec. 10737. Medicare special reimbursement rule for certain combined 
          residency programs.

                       Chapter 5--Other Provisions

Sec. 10741. Centers of excellence.
Sec. 10742. Medicare part B special enrollment period and waiver of part 
          B late enrollment penalty and medigap special open enrollment 
          period for certain military retirees and dependents.
Sec. 10743. Protections under the medicare program for disabled workers 
          who lose benefits under a group health plan.
Sec. 10744. Placement of advance directive in medical record.

                  Subtitle I--Medical Liability Reform

                      Chapter 1--General Provisions

Sec. 10801. Federal reform of health care liability actions.
Sec. 10802. Definitions.
Sec. 10803. Effective date.

     Chapter 2--Uniform Standards for Health Care Liability Actions

Sec. 10811. Statute of limitations.
Sec. 10812. Calculation and payment of damages.
Sec. 10813. Alternative dispute resolution.

                    Subtitle A--MedicarePlus Program

                    CHAPTER 1--MEDICAREPLUS PROGRAM

                   Subchapter A--MedicarePlus Program

SEC. 10001. ESTABLISHMENT OF 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--MedicarePlus Program

                ``eligibility, election, and enrollment

  ``Sec. 1851. (a) Choice of Medicare Benefits Through 
MedicarePlus Plans.--
          ``(1) In general.--Subject to the provisions of this 
        section, each MedicarePlus eligible individual (as 
        defined in paragraph (3)) is entitled to elect to 
        receive benefits under this title--
                  ``(A) through the medicare fee-for-service 
                program under parts A and B, or
                  ``(B) through enrollment in a MedicarePlus 
                plan under this part.
          ``(2) Types of medicareplus plans that may be 
        available.--A MedicarePlus plan may be any of the 
        following types of plans of health insurance:
                  ``(A) Coordinated care plans.--Coordinated 
                care plans which provide health care services, 
                including health maintenance organization plans 
                and preferred provider organization plans.
                  ``(B) Plans offered by provider-sponsored 
                organization.--A MedicarePlus plan offered by a 
                provider-sponsored organization, as defined in 
                section 1855(e).
                  ``(C) Combination of msa plan and 
                contributions to medicareplus msa.--An MSA 
                plan, as defined in section 1859(b)(2), and a 
                contribution into a MedicarePlus medical 
                savings account (MSA).
          ``(3) MedicarePlus eligible individual.--
                  ``(A) In general.--In this title, subject to 
                subparagraph (B), the term `MedicarePlus 
                eligible individual' means an individual who is 
                entitled to benefits under part A and enrolled 
                under part B.
                  ``(B) Special rule for end-stage renal 
                disease.--Such term shall not include an 
                individual medically determined to have end-
                stage renal disease, except that an individual 
                who develops end-stage renal disease while 
                enrolled in a MedicarePlus plan may continue to 
                be enrolled in that plan.
  ``(b) Special Rules.--
          ``(1) Residence requirement.--
                  ``(A) In general.--Except as the Secretary 
                may otherwise provide, an individual is 
                eligible to elect a MedicarePlus plan offered 
                by a MedicarePlus organization only if the 
                organization serves the geographic area in 
                which the individual resides.
                  ``(B) Continuation of enrollment permitted.--
                Pursuant to rules specified by the Secretary, 
                the Secretary shall provide that an individual 
                may continue enrollment in a plan, 
                notwithstanding that the individual no longer 
                resides in the service area of the plan, so 
                long as the plan provides benefits for 
                enrollees located in the area in which the 
                individual resides.
          ``(2) Special rule for certain individuals covered 
        under fehbp or eligible for veterans or military health 
        benefits, veterans .--
                  ``(A) FEHBP.--An individual who is enrolled 
                in a health benefit plan under chapter 89 of 
                title 5, United States Code, is not eligible to 
                enroll in an MSA plan until such time as the 
                Director of the Office of Management and Budget 
                certifies to the Secretary that the Office of 
                Personnel Management has adopted policies which 
                will ensure that the enrollment of such 
                individuals in such plans will not result in 
                increased expenditures for the Federal 
                Government for health benefit plans under such 
                chapter.
                  ``(B) VA and dod.--The Secretary may apply 
                rules similar to the rules described in 
                subparagraph (A) in the case of individuals who 
                are eligible for health care benefits under 
                chapter 55 of title 10, United States Code, or 
                under chapter 17 of title 38 of such Code.
          ``(3) Limitation on eligibility of qualified medicare 
        beneficiaries and other medicaid beneficiaries to 
        enroll in an MSA plan.--An individual who is a 
        qualified medicare beneficiary (as defined in section 
        1905(p)(1)), a qualified disabled and working 
        individual (described in section 1905(s)), an 
        individual described in section 1902(a)(10)(E)(iii), or 
        otherwise entitled to medicare cost-sharing under a 
        State plan under title XIX is not eligible to enroll in 
        an MSA plan.
          ``(4) Coverage under msa plans on a demonstration 
        basis.--
                  ``(A) In general.--An individual is not 
                eligible to enroll in an MSA plan under this 
                part--
                          ``(i) on or after January 1, 2003, 
                        unless the enrollment is the 
                        continuation of such an enrollment in 
                        effect as of such date; or
                          ``(ii) as of any date if the number 
                        of such individuals so enrolled as of 
                        such date has reached 500,000.
                Under rules established by the Secretary, an 
                individual is not eligible to enroll (or 
                continue enrollment) in an MSA plan for a year 
                unless the individual provides assurances 
                satisfactory to the Secretary that the 
                individual will reside in the United States for 
                at least 183 days during the year.
                  ``(B) Evaluation.--The Secretary shall 
                regularly evaluate the impact of permitting 
                enrollment in MSA plans under this part on 
                selection (including adverse selection), use of 
                preventive care, access to care, and the 
                financial status of the Trust Funds under this 
                title.
                  ``(C) Reports.--The Secretary shall submit to 
                Congress periodic reports on the numbers of 
                individuals enrolled in such plans and on the 
                evaluation being conducted under subparagraph 
                (B). The Secretary shall submit such a report, 
                by not later than March 1, 2002, on whether the 
                time limitation under subparagraph (A)(i) 
                should be extended or removed and whether to 
                change the numerical limitation under 
                subparagraph (A)(ii).
  ``(c) Process for Exercising Choice.--
          ``(1) In general.--The Secretary shall establish a 
        process through which elections described in subsection 
        (a) are made and changed, including the form and manner 
        in which such elections are made and changed. Such 
        elections shall be made or changed only during coverage 
        election periods specified under subsection (e) and 
        shall become effective as provided in subsection (f).
          ``(2) Coordination through medicareplus 
        organizations.--
                  ``(A) Enrollment.--Such process shall permit 
                an individual who wishes to elect a 
                MedicarePlus plan 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 plan 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.
          ``(3) Default.--
                  ``(A) Initial election.--
                          ``(i) In general.--Subject to clause 
                        (ii), an individual who fails to make 
                        an election during an initial election 
                        period under subsection (e)(1) is 
                        deemed to have chosen the medicare fee-
                        for-service program option.
                          ``(ii) Seamless continuation of 
                        coverage.--The Secretary may establish 
                        procedures under which an individual 
                        who is enrolled in a health plan (other 
                        than MedicarePlus plan) offered by a 
                        MedicarePlus organization at the time 
                        of the initial election period and who 
                        fails to elect to receive coverage 
                        other than through the organization is 
                        deemed to have elected the MedicarePlus 
                        plan offered by the organization (or, 
                        if the organization offers more than 
                        one such plan, such plan or plans as 
                        the Secretary identifies under such 
                        procedures).
                  ``(B) Continuing periods.--An individual who 
                has made (or is deemed to have made) an 
                election under this section is considered to 
                have continued to make such election until such 
                time as--
                          ``(i) the individual changes the 
                        election under this section, or
                          ``(ii) a MedicarePlus plan is 
                        discontinued, if the individual had 
                        elected such plan at the time of the 
                        discontinuation.
  ``(d) Providing Information To Promote Informed Choice.--
          ``(1) In general.--The Secretary shall provide for 
        activities under this subsection to broadly disseminate 
        information to medicare beneficiaries (and prospective 
        medicare beneficiaries) on the coverage options 
        provided under this section in order to promote an 
        active, informed selection among such options.
          ``(2) Provision of notice.--
                  ``(A) Open season notification.--At least 30 
                days before the beginning of each annual, 
                coordinated election period (as defined in 
                subsection (e)(3)(B)), the Secretary shall mail 
                to each MedicarePlus eligible individual 
                residing in an area the following:
                          ``(i) General information.--The 
                        general information described in 
                        paragraph (3).
                          ``(ii) List of plans and comparison 
                        of plan options.--A list identifying 
                        the MedicarePlus plans that are (or 
                        will be) available to residents of the 
                        area and information described in 
                        paragraph (4) concerning such plans. 
                        Such information shall be presented in 
                        a comparative form.
                          ``(iii) MedicarePlus monthly 
                        capitation rate.--The amount of the 
                        monthly MedicarePlus capitation rate 
                        for the area.
                          ``(iv) Additional information.--Any 
                        other information that the Secretary 
                        determines will assist the individual 
                        in making the election under this 
                        section.
                The mailing of such information shall be 
                coordinated with the mailing of any annual 
                notice under section 1804.
                  ``(B) Notification to newly medicareplus 
                eligible individuals.--To the extent 
                practicable, the Secretary shall, not later 
                than 2 months before the beginning of the 
                initial MedicarePlus enrollment period for an 
                individual described in subsection (e)(1), mail 
                to the individual the information described in 
                subparagraph (A).
                  ``(C) Form.--The information disseminated 
                under this paragraph shall be written and 
                formatted using language that is easily 
                understandable by medicare beneficiaries.
                  ``(D) Periodic updating.--The information 
                described in subparagraph (A) shall be updated 
                on at least an annual basis to reflect changes 
                in the availability of MedicarePlus plans and 
                the benefits and monthly premiums (and net 
                monthly premiums) for such plans.
          ``(3) General information.--General information under 
        this paragraph, with respect to coverage under this 
        part during a year, shall include the following:
                  ``(A) Benefits under fee-for-service program 
                option.--A general description of the benefits 
                covered (and not covered) under the medicare 
                fee-for-service program under parts A and B, 
                including--
                          ``(i) covered items and services,
                          ``(ii) beneficiary cost sharing, such 
                        as deductibles, coinsurance, and 
                        copayment amounts, and
                          ``(iii) any beneficiary liability for 
                        balance billing.
                  ``(B) Part b premium.--The part B premium 
                rates that will be charged for part B coverage.
                  ``(C) Election procedures.--Information and 
                instructions on how to exercise election 
                options under this section.
                  ``(D) Rights.--The general description of 
                procedural rights (including grievance and 
                appeals procedures) of beneficiaries under the 
                medicare fee-for-service program and the 
                MedicarePlus program and right to be protected 
                against discrimination based on health status-
                related factors under section 1852(b).
                  ``(E) Information on medigap and medicare 
                select.--A general description of the benefits, 
                enrollment rights, and other requirements 
                applicable to medicare supplemental policies 
                under section 1882 and provisions relating to 
                medicare select policies described in section 
                1882(t).
                  ``(F) Potential for contract termination.--
                The fact that a MedicarePlus organization may 
                terminate or refuse to renew its contract under 
                this part and the effect the termination or 
                nonrenewal of its contract may have on 
                individuals enrolled with the MedicarePlus plan 
                under this part.
          ``(4) Information comparing plan options.--
        Information under this paragraph, with respect to a 
        MedicarePlus plan for a year, shall include the 
        following:
                  ``(A) Benefits.--The benefits covered (and 
                not covered) under the plan, including--
                          ``(i) covered items and services 
                        beyond those provided under the 
                        medicare fee-for-service program,
                          ``(ii) any beneficiary cost sharing,
                          ``(iii) any maximum limitations on 
                        out-of-pocket expenses, and
                          ``(iv) in the case of an MSA plan, 
                        differences in cost sharing and balance 
                        billing under such a plan compared to 
                        under other MedicarePlus plans.
                  ``(B) Premiums.--The monthly premium (and net 
                monthly premium), if any, for the plan.
                  ``(C) Service area.--The service area of the 
                plan.
                  ``(D) Quality and performance.--To the extent 
                available, plan quality and performance 
                indicatorsfor the benefits under the plan (and 
how they compare to such indicators under the medicare fee-for-service 
program under parts A and B in the area involved), including--
                          ``(i) disenrollment rates for 
                        medicare enrollees electing to receive 
                        benefits through the plan for the 
                        previous 2 years (excluding 
                        disenrollment due to death or moving 
                        outside the plan's service area),
                          ``(ii) information on medicare 
                        enrollee satisfaction,
                          ``(iii) information on health 
                        outcomes, and
                          ``(iv) the recent record regarding 
                        compliance of the plan with 
                        requirements of this part (as 
                        determined by the Secretary).
                  ``(E) Supplemental benefits options.--Whether 
                the organization offering the plan offers 
                optional supplemental benefits and the terms 
                and conditions (including premiums) for such 
                coverage.
          ``(5) Maintaining a toll-free number and internet 
        site.--The Secretary shall maintain a toll-free number 
        for inquiries regarding MedicarePlus options and the 
        operation of this part in all areas in which 
        MedicarePlus plans are offered and an Internet site 
        through which individuals may electronically obtain 
        information on such options and MedicarePlus plans.
          ``(6) Use of nonfederal entities.--The Secretary may 
        enter into contracts with non-Federal entities to carry 
        out activities under this subsection.
          ``(7) Provision of information.--A MedicarePlus 
        organization shall provide the Secretary with such 
        information on the organization and each MedicarePlus 
        plan it offers as may be required for the preparation 
        of the information referred to in paragraph (2)(A).
  ``(e) Coverage Election Periods.--
          ``(1) Initial choice upon eligibility to make 
        election if medicareplus plans available to 
        individual.--If, at the time an individual first 
        becomes entitled to benefits under part A and enrolled 
        under part B, there is one or more MedicarePlus plans 
        offered in the area in which the individual resides, 
        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 such time. Such 
        period shall be specified in a manner so that, in the 
        case of an individual who elects a MedicarePlus plan 
        during the period, coverage under the plan becomes 
        effective as of the first date on which the individual 
        may receive such coverage.
          ``(2) Open enrollment and disenrollment 
        opportunities.--Subject to paragraph (5)--
                  ``(A) Continuous open enrollment and 
                disenrollment through 2000.--At any time during 
                1998, 1999, and 2000, a MedicarePlus eligible 
                individual may change the election under 
                subsection (a)(1).
                  ``(B) Continuous open enrollment and 
                disenrollment for first 6 months during 2001.--
                          ``(i) In general.--Subject to clause 
                        (ii), at any time during the first 6 
                        months of 2001, or, if the individual 
                        first becomes a MedicarePlus eligible 
                        individual during 2001, during the 
                        first 6 months during 2001 in which the 
                        individual is a MedicarePlus eligible 
                        individual, a MedicarePlus eligible 
                        individual may change the election 
                        under subsection (a)(1).
                          ``(ii) Limitation of one change per 
                        year.--An individual may exercise the 
                        right under clause (i) only once during 
                        2001. The limitation under this clause 
                        shall not apply to changes in elections 
                        effected during an annual, coordinated 
                        election period under paragraph (3) or 
                        during a special enrollment period 
                        under paragraph (4).
                  ``(C) Continuous open enrollment and 
                disenrollment for first 3 months in subsequent 
                years.--
                          ``(i) In general.--Subject to clause 
                        (ii), at any time during the first 3 
                        months of a year after 2001, or, if the 
                        individual first becomes a MedicarePlus 
                        eligible individual during a year after 
                        2001, during the first 3 months of such 
                        year in which the individual is a 
                        MedicarePlus eligible individual, a 
                        MedicarePlus eligible individual may 
                        change the election under subsection 
                        (a)(1).
                          ``(ii) Limitation of one change per 
                        year.--An individual may exercise the 
                        right under clause (i) only once a 
                        year. The limitation under this clause 
                        shall not apply to changes in elections 
                        effected during an annual, coordinated 
                        election period under paragraph (3) or 
                        during a special enrollment period 
                        under paragraph (4).
          ``(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 an annual, coordinated election 
                period.
                  ``(B) Annual, coordinated election period.--
                For purposes of this section, the term `annual, 
                coordinated election period' means, with 
                respect to a calendar year (beginning with 
                2001), the month of October before such year.
                  ``(C) MedicarePlus health fairs.--In the 
                month of October of each year (beginning with 
                1998), the Secretary shall provide for a 
                nationally coordinated educational and 
                publicity campaign to inform MedicarePlus 
                eligible individuals about MedicarePlus plans 
                and the election process provided under this 
                section.
          ``(4) Special election periods.--Effective as of 
        January 1, 2001, an individual may discontinue an 
        election of a MedicarePlus plan 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 plan's 
                certification under this part has been 
                terminated or the organization has terminated 
                or otherwise discontinued providing the plan;
                  ``(B) the individual is no longer eligible to 
                elect the plan because of a change in the 
                individual's place of residence or other change 
                in circumstances (specified by the Secretary, 
                but not including termination of the 
                individual's enrollment on the basis described 
                in clause (i) or (ii) of subsection (g)(3)(B));
                  ``(C) the individual demonstrates (in 
                accordance with guidelines established by the 
                Secretary) that--
                          ``(i) the organization offering the 
                        plan substantially violated a material 
                        provision of the organization's 
                        contract under this part in relation to 
                        the individual (including the failure 
                        to provide an enrollee on a timely 
                        basis medically necessary care for 
                        which benefits are available under the 
                        plan or the failure to provide such 
                        covered care in accordance with 
                        applicable quality standards); or
                          ``(ii) the organization (or an agent 
                        or other entity acting on the 
                        organization's behalf) materially 
                        misrepresented the plan's provisions in 
                        marketing the plan to the individual; 
                        or
                  ``(D) the individual meets such other 
                exceptional conditions as the Secretary may 
                provide.
          ``(5) Special rules for msa plans.--Notwithstanding 
        the preceding provisions of this subsection, an 
        individual--
                  ``(A) may elect an MSA plan only during--
                          ``(i) an initial open enrollment 
                        period described in paragraph (1),
                          ``(ii) an annual, coordinated 
                        election period described in paragraph 
                        (3)(B), or
                          ``(iii) the months of October 1998 
                        and October 1999; and
                  ``(B) may not discontinue an election of an 
                MSA plan except during the periods described in 
                clause (ii) or (iii) of subparagraph (A) and 
                under paragraph (4).
  ``(f) Effectiveness of Elections and Changes of Elections.--
          ``(1) During initial coverage election period.--An 
        election of coverage made during the initial coverage 
        election period under subsection (e)(1) shall take 
        effect upon the date the individual becomes entitled to 
        benefits under part A and enrolled under part B, except 
        as the Secretary may provide (consistent with section 
        1838) in order to prevent retroactive coverage.
          ``(2) During continuous open enrollment periods.--An 
        election or change of coverage made under subsection 
        (e)(2) shall take effect with the first day of the 
        first calendar month following the date on which the 
        election is made.
          ``(3) Annual, coordinated election period.--An 
        election or change of coverage made during an annual, 
        coordinated election period (as defined in subsection 
        (e)(3)(B)) in a year shall take effect as of the first 
        day of the following year.
          ``(4) Other periods.--An election or change of 
        coverage made during any other period under subsection 
        (e)(4) shall take effect in such manner as the 
        Secretary provides in a manner consistent (to the 
        extent practicable) with protecting continuity of 
        health benefit coverage.
  ``(g) Guaranteed Issue and Renewal.--
          ``(1) In general.--Except as provided in this 
        subsection, a MedicarePlus organization shall provide 
        that at any time during which elections are accepted 
        under this section with respect to a MedicarePlus plan 
        offered by the organization, the organization will 
        accept without restrictions individuals who are 
        eligible to make such election.
          ``(2) Priority.--If the Secretary determines that a 
        MedicarePlus organization, in relation to a 
        MedicarePlus plan it offers, has a capacity limit and 
        the number of MedicarePlus eligible individuals who 
        elect the plan under this section exceeds the capacity 
        limit, the organization may limit the election of 
        individuals of the plan under this section but only if 
        priority in election is provided--
                  ``(A) first to such individuals as have 
                elected the plan at the time of the 
                determination, and
                  ``(B) then to other such individuals in such 
                a manner that does not discriminate, on a basis 
                described in section 1852(b), among the 
                individuals (who seek to elect the plan).
        The preceding sentence shall not apply if it would 
        result in the enrollment of enrollees substantially 
        nonrepresentative, as determined in accordance with 
        regulations of the Secretary, of the medicare 
        population in the service area of the plan.
          ``(3) Limitation on termination of election.--
                  ``(A) In general.--Subject to subparagraph 
                (B), a MedicarePlus organization may not for 
                any reason terminate the election of any 
                individual under this section for a 
                MedicarePlus plan it offers.
                  ``(B) Basis for termination of election.--A 
                MedicarePlus organization may terminate an 
                individual's election under this section with 
                respect to a MedicarePlus plan it offers if--
                          ``(i) any net monthly premiums 
                        required with respect to such plan are 
                        not paid on a timely basis (consistent 
                        with standards under section 1856 that 
                        provide for a grace period for late 
                        payment of net monthly premiums),
                          ``(ii) the individual has engaged in 
                        disruptive behavior (as specified in 
                        such standards), or
                          ``(iii) the plan is terminated with 
                        respect to all individuals under this 
                        part in the area in which the 
                        individual resides.
                  ``(C) Consequence of termination.--
                          ``(i) Terminations for cause.--Any 
                        individual whose election is terminated 
                        under clause (i) or (ii) of 
                        subparagraph (B) is deemed to have 
                        elected the medicare fee-for-service 
                        program option described in subsection 
                        (a)(1)(A).
                          ``(ii) Termination based on plan 
                        termination or service area 
                        reduction.--Any individual whose 
                        election is terminated under 
                        subparagraph (B)(iii) shall have a 
                        special election period under 
                        subsection (e)(4)(A) in which to change 
                        coverage to coverage under another 
                        MedicarePlus plan. Such an individual 
                        who fails to make an election during 
                        such period is deemed to have chosen to 
                        change coverage to the medicare fee-
                        for-service program option described in 
                        subsection (a)(1)(A).
                  ``(D) Organization obligation with respect to 
                election forms.--Pursuant to a contract under 
                section 1857, each MedicarePlus organization 
                receiving an election form under subsection 
                (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.
  ``(h) Approval of Marketing Material and Application Forms.--
          ``(1) Submission.--No marketing material or 
        application form may be distributed by a MedicarePlus 
        organization to (or for the use of) MedicarePlus 
        eligible individuals unless--
                  ``(A) at least 45 days before the date of 
                distribution the organization has submitted the 
                material or form to the Secretary for review, 
                and
                  ``(B) the Secretary has not disapproved the 
                distribution of such material or form.
          ``(2) Review.--The standards established under 
        section 1856 shall include guidelines for the review of 
        all such material or form submitted and under such 
        guidelines the Secretary shall disapprove (or later 
        require the correction of) such material or form if the 
        material or form is materially inaccurate or misleading 
        or otherwise makes a material misrepresentation.
          ``(3) Deemed approval (1-stop shopping).--In the case 
        of material or form that is submitted under paragraph 
        (1)(A) to the Secretary or a regional office of the 
        Department of Health and Human Services and the 
        Secretary or the office has not disapproved the 
        distribution of marketing material or form under 
        paragraph (1)(B) with respect to a MedicarePlus plan in 
        an area, the Secretary is deemed not to have 
        disapproved such distribution in all other areas 
        covered by the plan and organization except to the 
        extent that such material or form is specific only to 
        an area involved.
          ``(4) Prohibition of certain marketing practices.--
        Each MedicarePlus organization shall conform to fair 
        marketing standards, in relation to MedicarePlus plans 
        offered under this part, included in the standards 
        established under section 1856. Such standards shall 
        include a prohibition against a MedicarePlus 
        organization (or agent of such an organization) 
        completing any portion of any election form used to 
        carry out elections under this section on behalf of any 
        individual.
  ``(i) Effect of Election of MedicarePlus Plan Option.--
Subject to sections 1852(a)(5), 1857(f)(2), and 1857(g)--
          ``(1) payments under a contract with a MedicarePlus 
        organization under section 1853(a) with respect to an 
        individual electing a MedicarePlus plan offered by the 
        organization shall be instead of the amounts which (in 
        the absence of the contract) would otherwise be payable 
        under parts A and B for items and services furnished to 
        the individual, and
          ``(2) subject to subsections (e) and (f) of section 
        1853, only the MedicarePlus organization shall be 
        entitled to receive payments from the Secretary under 
        this title for services furnished to the individual.

                 ``benefits and beneficiary protections

  ``Sec. 1852. (a) Basic Benefits.--
          ``(1) In general.--Except as provided in section 
        1859(b)(2) for MSA plans, each MedicarePlus plan shall 
        provide to members enrolled under this part, through 
        providers and other persons that meet the applicable 
        requirements of this title and part A of title XI--
                  ``(A) those items and services for which 
                benefits are available under parts A and B to 
                individuals residing in the area served by the 
                plan, and
                  ``(B) additional benefits required under 
                section 1854(f)(1)(A).
          ``(2) Satisfaction of requirement.--A MedicarePlus 
        plan (other than an MSA plan) offered by a MedicarePlus 
        organization satisfies paragraph (1)(A), with respect 
        to benefits for items and services furnished other than 
        through a provider that has a contract with the 
        organization offering the plan, if the plan provides 
        (in addition to any cost sharing provided for under the 
        plan) for at least the total dollar amount of payment 
        for such items and services as would otherwise be 
        authorized under parts A and B (including any balance 
        billing permitted under such parts).
          ``(3) Supplemental benefits.--
                  ``(A) Benefits included subject to 
                secretary's approval.--Each MedicarePlus 
                organization may provide to individuals 
                enrolled under this part, other than under an 
                MSA plan, (without affording those individuals 
                an option to decline the coverage) supplemental 
                health care benefits that the Secretary may 
                approve. The Secretary shall approve any such 
                supplemental benefits unless the Secretary 
                determines that including such supplemental 
                benefits would substantially discourage 
                enrollment by MedicarePlus eligible individuals 
                with the organization.
                  ``(B) At enrollees' option.--A MedicarePlus 
                organization may provide to individuals 
                enrolled under this part, other than under an 
                MSA plan, supplemental health care benefits 
                that the individuals may elect, at their 
                option, to have covered.
          ``(4) 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 
        a MedicarePlus plan under circumstances in which 
        payment under this title is made secondary pursuant to 
        section 1862(b)(2)) charge or authorize the provider of 
        such services to charge, in accordance with the charges 
        allowed under such a law, plan, 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.
          ``(5) National coverage determinations.--If there is 
        a national coverage determination made in the period 
        beginning on the date of an announcement under section 
        1853(b) and ending on the date of the next announcement 
        under such section and the Secretary projects that the 
        determination will result in a significant change in 
        the costs to a MedicarePlus organization of providing 
        the benefits that are the subject of such national 
        coverage determination and that such change in costs 
        was not incorporated in the determination of the annual 
        MedicarePlus capitation rate under section 1853 
        included in the announcement made at the beginning of 
        such period--
                  ``(A) such determination shall not apply to 
                contracts under this part until the first 
                contract year that begins after the end of such 
                period, and
                  ``(B) if such coverage determination provides 
                for coverage of additional benefits or coverage 
                under additional circumstances, section 1851(i) 
                shall not apply to payment for such additional 
                benefits or benefits provided under such 
                additional circumstances until the first 
                contract year that begins after the end of such 
                period,
        unless otherwise required by law.
  ``(b) Antidiscrimination.--
          ``(1) In general.--A MedicarePlus organization may 
        not deny, limit, or condition the coverage or provision 
        of benefits under this part, for individuals permitted 
        to be enrolled with the organization under this part, 
        based on any health status-related factor described in 
        section 2702(a)(1) of the Public Health Service Act.
          ``(2) Construction.--Paragraph (1) shall not be 
        construed as requiring a MedicarePlus organization to 
        enroll individuals who are determined to have end-stage 
        renal disease, except as provided under section 
        1851(a)(3)(B).
  ``(c) Detailed Description of Plan Provisions.--A 
MedicarePlus organization shall disclose, in clear, accurate, 
and standardized form to each enrollee with a MedicarePlus plan 
offered by the organization under this part at the time of 
enrollment and at least annually thereafter, the following 
information regarding such plan:
          ``(1) Service area.--The plan's service area.
          ``(2) Benefits.--Benefits offered (and not offered) 
        under the plan offered, including information described 
        in section 1851(d)(3)(A) and exclusions from coverage 
        and, if it is an MSA plan, a comparison of benefits 
        under such a plan with benefits under other 
        MedicarePlus plans.
          ``(3) Access.--The number, mix, and distribution of 
        plan providers.
          ``(4) Out-of-area coverage.--Out-of-area coverage 
        provided by the plan.
          ``(5) Emergency coverage.--Coverage of emergency 
        services and urgently needed care, including--
                  ``(A) the appropriate use of emergency 
                services, including use of the 911 telephone 
                system or its local equivalent in emergency 
                situations and an explanation of what 
                constitutes an emergency situation;
                  ``(B) the process and procedures of the plan 
                for obtaining emergency services; and
                  ``(C) the locations of (i) emergency 
                departments, and (ii) other settings, in which 
                plan physicians and hospitals provide emergency 
                services and post-stabilization care.
          ``(6) Supplemental benefits.--Supplemental benefits 
        available from the organization offering the plan, 
        including--
                  ``(A) whether the supplemental benefits are 
                optional,
                  ``(B) the supplemental benefits covered, and
                  ``(C) the premium price for the supplemental 
                benefits.
          ``(7) Prior authorization rules.--Rules regarding 
        prior authorization or other review requirements that 
        could result in nonpayment.
          ``(8) Plan grievance and appeals procedures.--Any 
        appeal or grievance rights and procedures.
          ``(9) Quality assurance program.--A description of 
        the organization's quality assurance program under 
        subsection (e).
  ``(d) Access to Services.--
          ``(1) In general.--A MedicarePlus organization 
        offering a MedicarePlus plan may select the providers 
        from whom the benefits under the plan are provided so 
        long as--
                  ``(A) the organization makes such benefits 
                available and accessible to each individual 
                electing the plan within the plan service area 
                with reasonable promptness and in a manner 
                which assures continuity in the provision of 
                benefits;
                  ``(B) when medically necessary the 
                organization makes such benefits available and 
                accessible 24 hours a day and 7 days a week;
                  ``(C) the plan provides for reimbursement 
                with respect to services which are covered 
                under subparagraphs (A) and (B) and which are 
                provided to such an individual other than 
                through the organization, if--
                          ``(i) the services were medically 
                        necessary and immediately required 
                        because of an unforeseen illness, 
                        injury, or condition, and it was not 
                        reasonable given the circumstances to 
                        obtain the services through the 
                        organization,
                          ``(ii) the services were renal 
                        dialysis services and were provided 
                        other than through the organization 
                        because the individual was temporarily 
                        out of the plan's service area, or
                          ``(iii) the services are maintenance 
                        care or post-stabilization care covered 
                        under the guidelines established under 
                        paragraph (2);
                  ``(D) the organization provides access to 
                appropriate providers, including credentialed 
                specialists, for medically necessary treatment 
                and services; and
                  ``(E) coverage is provided for emergency 
                services (as defined in paragraph (3)) without 
                regard to prior authorization or the emergency 
                care provider's contractual relationship with 
                the organization.
          ``(2) Guidelines respecting coordination of post-
        stabilization care.--A MedicarePlus plan shall comply 
        with such guidelines as the Secretary may prescribe 
        relating to promoting efficient and timely coordination 
        of appropriate maintenance and post-stabilization care 
        of an enrollee after the enrollee has been determined 
        to be stable under section 1867.
          ``(3) Definition of emergency services.--In this 
        subsection--
                  ``(A) In general.--The term `emergency 
                services' means, with respect to an individual 
                enrolled with an organization, covered 
                inpatient and outpatient services that--
                          ``(i) are furnished by a provider 
                        that is qualified to furnish such 
                        services under this title, and
                          ``(ii) are needed to evaluate or 
                        stabilize an emergency medical 
                        condition (as defined in subparagraph 
                        (B)).
                  ``(B) Emergency medical condition based on 
                prudent layperson.--The term `emergency medical 
                condition' means a medical condition 
                manifesting itself by acute symptoms of 
                sufficient severity such that a prudent 
                layperson, who possesses an average knowledge 
                of health and medicine, could reasonably expect 
                the absence of immediate medical attention to 
                result in--
                          ``(i) placing the health of the 
                        individual (or, with respect to a 
                        pregnant woman, the health of the woman 
                        or her unborn child) in serious 
                        jeopardy,
                          ``(ii) serious impairment to bodily 
                        functions, or
                          ``(iii) serious dysfunction of any 
                        bodily organ or part.
  ``(e) Quality Assurance Program.--
          ``(1) In general.--Each MedicarePlus organization 
        must have arrangements, consistent with any regulation, 
        for an ongoing quality assurance program for health 
        care services it provides to individuals enrolled with 
        MedicarePlus plans of the organization.
          ``(2) Elements of program.--The quality assurance 
        program shall--
                  ``(A) stress health outcomes and provide for 
                the collection, analysis, and reporting of data 
                (in accordance with a quality measurement 
                system that the Secretary recognizes) that will 
                permit measurement of outcomes and other 
                indices of the quality of MedicarePlus plans 
                and organizations;
                  ``(B) provide for the establishment of 
                written protocols for utilization review, based 
                on current standards of medical practice;
                  ``(C) provide review by physicians and other 
                health care professionals of the process 
                followed in the provision of such health care 
                services;
                  ``(D) monitor and evaluate high volume and 
                high risk services and the care of acute and 
                chronic conditions;
                  ``(E) evaluate the continuity and 
                coordination of care that enrollees receive;
                  ``(F) have mechanisms to detect both 
                underutilization and overutilization of 
                services;
                  ``(G) after identifying areas for 
                improvement, establish or alter practice 
                parameters;
                  ``(H) take action to improve quality and 
                assesses the effectiveness of such action 
                through systematic followup;
                  ``(I) make available information on quality 
                and outcomes measures to facilitate beneficiary 
                comparison and choice of health coverage 
                options (in such form and on such quality and 
                outcomes measures as the Secretary determines 
                to be appropriate);
                  ``(J) be evaluated on an ongoing basis as to 
                its effectiveness;
                  ``(K) include measures of consumer 
                satisfaction; and
                  ``(L) provide the Secretary with such access 
                to information collected as may be appropriate 
                to monitor and ensure the quality of care 
                provided under this part.
          ``(3) External review.--Each MedicarePlus 
        organization shall, for each MedicarePlus plan it 
        operates, have an agreement with an independent quality 
        review and improvement organization approved by the 
        Secretary to perform functions of the type described in 
        sections 1154(a)(4)(B) and 1154(a)(14) with respect to 
        services furnished by MedicarePlus plans for which 
        payment is made under this title.
          ``(4) Treatment of accreditation.--The Secretary 
        shall provide that a MedicarePlus organization is 
        deemed to meet requirements of paragraphs (1) through 
        (3) of this subsection and subsection (h) (relating to 
        confidentiality and accuracy of enrollee records) if 
        the organization is accredited (and periodically 
        reaccredited) by a private organization under a process 
        that the Secretary has determined assures that the 
        organization, as a condition of accreditation, applies 
        and enforces standards with respect to the requirements 
        involved that are no less stringent than the standards 
        established under section 1856 to carry out the 
        respective requirements.
  ``(f) 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) Reconsiderations.--
                  ``(A) In general.--Subject to subsection 
                (g)(4), a reconsideration of a determination of 
                an organization denying coverage shall be made 
                within 30 days of the date of receipt of 
                medical information, but not later than 60 days 
                after the date of the determination.
                  ``(B) Physician decision on certain 
                reconsiderations.--A reconsideration relating 
                to a determination to deny coverage based on a 
                lack of medical necessity shall be made only by 
                a physician other than a physician involved in 
                the initial determination.
  ``(g) Grievances and Appeals.--
          ``(1) Grievance mechanism.--Each 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 with MedicarePlus plans of the 
        organization under this part.
          ``(2) Appeals.--An enrollee with a MedicarePlus plan 
        of a MedicarePlus 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 paragraph, and in 
        applying section 205(l) thereto, any reference therein 
        to the Commissioner of Social Security or the Social 
        Security Administration shall be considered a reference 
        to the Secretary or the Department of Health and Human 
        Services, respectively.
          ``(3) Independent review of certain coverage 
        denials.--The Secretary shall contract with an 
        independent, outside entity to review and resolve 
        reconsiderations that affirm denial of coverage.
          ``(4) Expedited determinations and 
        reconsiderations.--
                  ``(A) Receipt of requests.--An enrollee in a 
                MedicarePlus plan may request, either in 
                writing or orally, an expedited determination 
                or reconsideration by the MedicarePlus 
                organization regarding a matter described in 
                paragraph (2). The organization shall also 
                permit the acceptance of such requests by 
                physicians.
                  ``(B) Organization procedures.--
                          ``(i) In general.--The MedicarePlus 
                        organization shall maintain procedures 
                        for expediting organization 
                        determinations and reconsiderations 
                        when, upon request of an enrollee, the 
                        organization determines that the 
                        application of normal time frames for 
                        making a determination (or a 
                        reconsideration involving a 
                        determination) could seriously 
                        jeopardize the life or health of the 
                        enrollee or the enrollee's ability to 
                        regain maximum function.
                          ``(ii) Timely response.--In an urgent 
                        case described in clause (i), the 
                        organization shall notify the enrollee 
                        (and the physician involved, as 
                        appropriate) of the determination (or 
                        determination on the reconsideration) 
                        as expeditiously as the enrollee's 
                        health condition requires, but not 
                        later than 72 hours (or 24 hours in the 
                        case of a reconsideration) of the time 
                        of receipt of the request for the 
                        determination or reconsideration (or 
                        receipt of the information necessary to 
                        make the determination or 
                        reconsideration), or such longer period 
                        as the Secretary may permit in 
                        specified cases.
  ``(h) Confidentiality and Accuracy of Enrollee Records.--Each 
MedicarePlus organization shall establish procedures--
          ``(1) to safeguard the privacy of individually 
        identifiable enrollee information,
          ``(2) to maintain accurate and timely medical records 
        and other health information for enrollees, and
          ``(3) to assure timely access of enrollees to their 
        medical information.
  ``(i) Information on Advance Directives.--Each MedicarePlus 
organization shall meet the requirement of section 1866(f) 
(relating to maintaining written policies and procedures 
respecting advance directives).
  ``(j) Rules Regarding Physician Participation.--
          ``(1) Procedures.--Each MedicarePlus organization 
        shall establish reasonable procedures relating to the 
        participation (under an agreement between a physician 
        and the organization) of physicians under MedicarePlus 
        plans 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 such 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) Prohibiting interference with provider advice 
        to enrollees.--
                  ``(A) In general.--Subject to subparagraphs 
                (B) and (C), a MedicarePlus organization (in 
                relation to an individual enrolled under a 
                MedicarePlus plan offered by the organization 
                under this part) shall not prohibit or 
                otherwise restrict a covered health care 
                professional (as defined in subparagraph (D)) 
                from advising such an individual who is a 
                patient of the professional about the health 
                status of the individual or medical care or 
                treatment for the individual's condition or 
                disease, regardless of whether benefits for 
                such care or treatment are provided under the 
                plan, if the professional is acting within the 
                lawful scope of practice.
                  ``(B) Conscience protection.--Subparagraph 
                (A) shall not be construed as requiring a 
                MedicarePlus plan to provide, reimburse for, or 
                provide coverage of a counseling or referral 
                service if the MedicarePlus organization 
                offering the plan--
                          ``(i) objects to the provision of 
                        such service on moral or religious 
                        grounds; and
                          ``(ii) in the manner and through the 
                        written instrumentalities such 
                        MedicarePlus organization deems 
                        appropriate, makes available 
                        information on its policies regarding 
                        such service to prospective enrollees 
                        before or during enrollment and to 
                        enrollees within 90 days after the date 
                        that the organization or plan adopts a 
                        change in policy regarding such a 
                        counseling or referral service.
                  ``(C) Construction.--Nothing in subparagraph 
                (B) shall be construed to affect disclosure 
                requirements under State law or under the 
                Employee Retirement Income Security Act of 
                1974.
                  ``(D) Health care professional defined.--For 
                purposes of this paragraph, the term `health 
                care professional' means a physician (as 
                defined in section 1861(r)) or other health 
                care professional if coverage for the 
                professional's services is provided under the 
                MedicarePlus plan for the services of the 
                professional. Such term includes a podiatrist, 
                optometrist, chiropractor, psychologist, 
                dentist, physician assistant, physical or 
                occupational therapist and therapy assistant, 
                speech-language pathologist, audiologist, 
                registered or licensed practical nurse 
                (including nurse practitioner, clinical nurse 
                specialist, certified registered nurse 
                anesthetist, and certified nurse-midwife), 
                licensed certified social worker, registered 
                respiratory therapist, and certified 
                respiratory therapy technician.
          ``(4) Limitations on physician incentive plans.--
                  ``(A) In general.--No MedicarePlus 
                organization may operate any physician 
                incentive plan (as defined in subparagraph (B)) 
                unless the following requirements are met:
                          ``(i) No specific payment is made 
                        directly or indirectly under the plan 
                        to a physician or physician group as an 
                        inducement to reduce or limit medically 
                        necessary services provided with 
                        respect to a specific individual 
                        enrolled with the organization.
                          ``(ii) If the plan places a physician 
                        or physician group at substantial 
                        financial risk (as determined by the 
                        Secretary) for services not provided by 
                        the physician or physician group, the 
                        organization--
                                  ``(I) provides stop-loss 
                                protection for the physician or 
                                group that is adequate and 
                                appropriate, based on standards 
                                developed by the Secretary that 
                                take into account the number of 
                                physicians placed at such 
                                substantial financial risk in 
                                the group or under the plan and 
                                the number of individuals 
                                enrolled with the organization 
                                who receive services from the 
                                physician or group, and
                                  ``(II) conducts periodic 
                                surveys of both individuals 
                                enrolled and individuals 
                                previously enrolled with the 
                                organization to determine the 
                                degree of access of such 
                                individuals to services 
                                provided by the organization 
                                and satisfaction with the 
                                quality of such services.
                          ``(iii) The organization provides the 
                        Secretary with descriptive information 
                        regarding the plan, sufficient to 
                        permit the Secretary to determine 
                        whether the plan is in compliance with 
                        the requirements of this subparagraph.
                  ``(B) Physician incentive plan defined.--In 
                this paragraph, the term `physician incentive 
                plan' means any compensation arrangement 
                between a 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.
          ``(5) Limitation on provider indemnification.--A 
        MedicarePlus organization may not provide (directly or 
        indirectly) for a provider (or group of providers) to 
        indemnify the organization against any liability 
        resulting from a civil action brought for any damage 
        caused to an enrollee with a MedicarePlus plan of the 
        organization under this part by the organization's 
        denial of medically necessary care.
  ``(k) Treatment of Services Furnished by Certain Providers.--
A physician or other entity (other than a provider of services) 
that does not have a contract establishing payment amounts for 
services furnished to an individual enrolled under this part 
with a MedicarePlus organization (other than under an MSA plan) 
shall accept as payment in full for covered services under this 
title that are furnished to such an individual the amounts that 
the physician or other entity could collect if the individual 
were not so enrolled. Any penalty or other provision of law 
that applies to such a payment with respect to an individual 
entitled to benefits under this title (but not enrolled with a 
MedicarePlus organization under this part) also applies with 
respect to an individual so enrolled.
  ``(l) Disclosure of Use of DSH and Teaching Hospitals.--Each 
MedicarePlus organization shall provide the Secretary with 
information on--
          ``(1) the extent to which the organization provides 
        inpatient and outpatient hospital benefits under this 
        part--
                  ``(A) through the use of hospitals that are 
                eligible for additional payments under section 
                1886(d)(5)(F)(i) (relating to so-called DSH 
                hospitals), or
                  ``(B) through the use of teaching hospitals 
                that receive payments under section 1886(h); 
                and
          ``(2) the extent to which differences between payment 
        rates to different hospitals reflect the 
        disproportionate share percentage of low-income 
        patients and the presence of medical residency training 
        programs in those hospitals.

                ``payments to medicareplus organizations

  ``Sec. 1853. (a) Payments to Organizations.--
          ``(1) Monthly payments.--
                  ``(A) In general.--Under a contract under 
                section 1857 and subject to subsections (e) and 
                (f), the Secretary shall make monthly payments 
                under this section in advance to each 
                MedicarePlus organization, with respect to 
                coverage of an individual under this part in a 
                MedicarePlus payment area for a month, in an 
                amount equal to \1/12\ of the annual 
                MedicarePlus capitation rate (as calculated 
                under subsection (c)) with respect to that 
                individual for that area, adjusted for such 
                risk factors as age, disability status, gender, 
                institutional status, and such other factors as 
                the Secretary determines to be appropriate, so 
                as to ensure actuarial equivalence. The 
                Secretary may add to, modify, or substitute for 
                such factors, if such changes will improve the 
                determination of actuarial equivalence.
                  ``(B) Special rule for end-stage renal 
                disease.--The Secretary shall establish 
                separate rates of payment to a MedicarePlus 
                organization with respect to classes of 
                individuals determined to have end-stage renal 
                disease and enrolled in a MedicarePlus plan of 
                the organization. Such rates of payment shall 
                be actuarially equivalent to rates paid to 
                other enrollees in the MedicarePlus payment 
                area (or such other area as specified by the 
                Secretary). In accordance with regulations, the 
                Secretary shall provide for the application of 
                the seventh sentence of section 1881(b)(7) to 
                payments under this section covering the 
                provision of renal dialysis treatment in the 
                same manner as such sentence applies to 
                composite rate payments described in such 
                sentence.
          ``(2) Adjustment to reflect number of enrollees.--
                  ``(A) In general.--The amount of payment 
                under this subsection may be retroactively 
                adjusted to take into account any difference 
                between the actual number of individuals 
                enrolled with an organization under this part 
                and the number of such individuals estimated to 
                be so enrolled in determining the amount of the 
                advance payment.
                  ``(B) Special rule for certain enrollees.--
                          ``(i) In general.--Subject to clause 
                        (ii), the Secretary may make 
                        retroactive adjustments under 
                        subparagraph (A) to take into account 
                        individuals enrolled during the period 
                        beginning on the date on which the 
                        individual enrolls with a MedicarePlus 
                        organization under a plan operated, 
                        sponsored, or contributed to by the 
                        individual's employer or former 
                        employer (or the employer or former 
                        employer of the individual's spouse) 
                        and ending on the date on which the 
                        individual is enrolled in the 
                        organization under this part, except 
                        that for purposesof 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 information 
                        required to be disclosed under section 
                        1852(c) at the time the individual 
                        enrolled with the organization.
          ``(3) Establishment of risk adjustment factors.--
                  ``(A) Report.--The Secretary shall develop, 
                and submit to Congress by not later than 
                October 1, 1999, a report on a method of risk 
                adjustment of payment rates under this section 
                that accounts for variations in per capita 
                costs based on health status. Such report shall 
                include an evaluation of such method by an 
                outside, independent actuary of the actuarial 
                soundness of the proposal.
                  ``(B) Data collection.--In order to carry out 
                this paragraph, the Secretary shall require 
                MedicarePlus organizations (and eligible 
                organizations with risk-sharing contracts under 
                section 1876) to submit, for periods beginning 
                on or after January 1, 1998, data regarding 
                inpatient hospital services and other services 
                and other information the Secretary deems 
                necessary.
                  ``(C) Initial implementation.--The Secretary 
                shall first provide for implementation of a 
                risk adjustment methodology that accounts for 
                variations in per capita costs based on health 
                status and other demographic factors for 
                payments by no later than January 1, 2000.
  ``(b) Annual Announcement of Payment Rates.--
          ``(1) Annual announcement.--The Secretary shall 
        annually determine, and shall announce (in a manner 
        intended to provide notice to interested parties) not 
        later than August 1 before the calendar year 
        concerned--
                  ``(A) the annual MedicarePlus capitation rate 
                for each MedicarePlus payment area for the 
                year, and
                  ``(B) the risk and other factors to be used 
                in adjusting such rates under subsection 
                (a)(1)(A) for payments for months in that year.
          ``(2) Advance notice of methodological changes.--At 
        least 45 days before making the announcement under 
        paragraph (1) for a year, the Secretary shall provide 
        for notice to MedicarePlus organizations of proposed 
        changes to be made in the methodology from the 
        methodology and assumptions used in the previous 
        announcement and shall provide such organizations an 
        opportunity to comment on such proposed changes.
          ``(3) Explanation of assumptions.--In each 
        announcement made under paragraph (1), the Secretary 
        shall include an explanation of the assumptions and 
        changes in methodology used in the announcement in 
        sufficient detail so that MedicarePlus organizations 
        can compute monthly adjusted MedicarePlus capitation 
        rates for individuals in each MedicarePlus payment area 
        which is in whole or in part within the service area of 
        such an organization.
  ``(c) Calculation of Annual MedicarePlus Capitation Rates.--
          ``(1) In General.--For purposes of this part, each 
        annual MedicarePlus capitation rate, for a MedicarePlus 
        payment area for a contract year consisting of a 
        calendar year, is equal to the largest of the amounts 
        specified in the following subparagraphs (A), (B), or 
        (C):
                  ``(A) Blended capitation rate.--The sum of--
                          ``(i) area-specific percentage for 
                        the year (as specified under paragraph 
                        (2) for the year) of the annual area-
                        specific MedicarePlus capitation rate 
                        for the year for the MedicarePlus 
                        payment area, as determined under 
                        paragraph (3), and
                          ``(ii) national percentage (as 
                        specified under paragraph (2) for the 
                        year) of the input-price-adjusted 
                        annual national MedicarePlus capitation 
                        rate for the year, as determined under 
                        paragraph (4),
                multiplied by the payment adjustment factors 
                described in subparagraphs (A) and (B) of 
                paragraph (5).
                  ``(B) Minimum amount.--12 multiplied by the 
                following amount:
                          ``(i) For 1998, $350 (but not to 
                        exceed, in the case of an area outside 
                        the 50 States and the District of 
                        Columbia, 150 percent of the annual per 
                        capita rate of payment for 1997 
                        determined under section 1876(a)(1)(C) 
                        for the area).
                          ``(ii) For a succeeding year, the 
                        minimum amount specified in this clause 
                        (or clause (i)) for the preceding year 
                        increased by the national per capita 
                        MedicarePlus growth percentage, 
                        specified under paragraph (6) for that 
                        succeeding year.
                  ``(C) Minimum percentage increase.--
                          ``(i) For 1998, 102 percent of the 
                        annual per capita rate of payment for 
                        1997 determined under section 
                        1876(a)(1)(C) for the MedicarePlus 
                        payment area.
                          ``(ii) For a subsequent year, 102 
                        percent of the annual MedicarePlus 
                        capitation rate under this paragraph 
                        for the area for the previous year.
          ``(2) Area-specific and national percentages.--For 
        purposes of paragraph (1)(A)--
                  ``(A) for 1998, the `area-specific 
                percentage' is 90 percent and the `national 
                percentage' is 10 percent,
                  ``(B) for 1999, the `area-specific 
                percentage' is 80 percent and the `national 
                percentage' is 20 percent,
                  ``(C) for 2000, the `area-specific 
                percentage' is 70 percent and the `national 
                percentage' is 30 percent,
                  ``(D) for 2001, the `area-specific 
                percentage' is 60 percent and the `national 
                percentage' is 40 percent, and
                  ``(E) for a year after 2001, the `area-
                specific percentage' is 50 percent and the 
                `national percentage' is 50 percent.
          ``(3) Annual area-specific medicareplus capitation 
        rate.--For purposes of paragraph (1)(A), the annual 
        area-specific MedicarePlus capitation rate for a 
        MedicarePlus payment area--
                  ``(A) for 1998 is the annual per capita rate 
                of payment for 1997 determined under section 
                1876(a)(1)(C) for the area, increased by the 
                national per capita MedicarePlus growth 
                percentage for 1998 (as defined in paragraph 
                (6)); or
                  ``(B) for a subsequent year is the annual 
                area-specific MedicarePlus capitation rate for 
                the previous year determined under this 
                paragraph for the area, increased by the 
                national per capita MedicarePlus growth 
                percentage for such subsequent year.
          ``(4) Input-price-adjusted annual national 
        medicareplus capitation rate.--
                  ``(A) In general.--For purposes of paragraph 
                (1)(A), the input-price-adjusted annual 
                national MedicarePlus capitation rate for a 
                MedicarePlus payment area for a year is equal 
                to the sum, for all the types of medicare 
                services (as classified by the Secretary), of 
                the product (for each such type of service) 
                of--
                          ``(i) the national standardized 
                        annual 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 annual 
                medicareplus capitation rate.--In subparagraph 
                (A)(i), the `national standardized annual 
                MedicarePlus capitation rate' for a year is 
                equal to--
                          ``(i) the sum (for all MedicarePlus 
                        payment areas) of the product of--
                                  ``(I) the annual area-
                                specific MedicarePlus 
                                capitation rate for that year 
                                for the area under paragraph 
                                (3), and
                                  ``(II) the average number of 
                                medicare beneficiaries residing 
                                in that area in the year, 
                                multiplied by the average of 
                                the risk factor weights used to 
                                adjust payments under 
                                subsection (a)(1)(A) for such 
                                beneficiaries in such area; 
                                divided by
                          ``(ii) the sum of the products 
                        described in clause (i)(II) for all 
                        areas for that year.
                  ``(C) Special rules for 1998.--In applying 
                this paragraph for 1998--
                          ``(i) medicare services shall be 
                        divided into 2 types of services: part 
                        A services and part B services;
                          ``(ii) the proportions described in 
                        subparagraph (A)(ii)--
                                  ``(I) for part A services 
                                shall be the ratio (expressed 
                                as a percentage) of the 
                                national average annual per 
                                capita rate of payment for part 
                                A for 1997 to the total 
                                national average annual per 
                                capita rate of payment for 
                                parts A and B for 1997, and
                                  ``(II) for part B services 
                                shall be 100 percent minus the 
                                ratio described in subclause 
                                (I);
                          ``(iii) for part A services, 70 
                        percent of payments attributable to 
                        such services shall be adjusted by the 
                        index used under section 1886(d)(3)(E) 
                        to adjust payment rates for relative 
                        hospital wage levels for hospitals 
                        located in the payment area involved;
                          ``(iv) for part B services--
                                  ``(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, 40 percent shall be 
                                adjusted by the index described 
                                in clause (iii); and
                          ``(v) the index values shall be 
                        computed based only on the beneficiary 
                        population who are 65 years of age or 
                        older and who are not determined to 
                        have end stage renal disease.
                The Secretary may continue to apply the rules 
                described in this subparagraph (or similar 
                rules) for 1999.
          ``(5) Payment adjustment budget neutrality factors.--
        For purposes of paragraph (1)(A)--
                  ``(A) Blended rate payment adjustment 
                factor.--For each year, the Secretary shall 
                compute a blended rate payment adjustment 
                factor such that, not taking into account 
                subparagraphs (B) and (C) of paragraph (1) and 
                the application of the payment adjustment 
                factor described in subparagraph (B), the 
                aggregate of the payments that would be made 
                under this part is equal to the aggregate 
                payments that wouldhave been made under this 
part (not taking into account such subparagraphs and such other 
adjustment factor) if the area-specific percentage under paragraph (1) 
for the year had been 100 percent and the national percentage had been 
0 percent.
                  ``(B) Floor-and-minimum-update payment 
                adjustment factor.--For each year, the 
                Secretary shall compute a floor-and-minimum-
                update payment adjustment factor so that, 
                taking into account the application of the 
                blended rate payment adjustment factor under 
                subparagraph (A) and subparagraphs (B) and (C) 
                of paragraph (1) and the application of the 
                adjustment factor under this subparagraph, the 
                aggregate of the payments under this part shall 
                not exceed the aggregate payments that would 
                have been made under this part if subparagraphs 
                (B) and (C) of paragraph (1) did not apply and 
                if the floor-and-minimum-update payment 
                adjustment factor under this subparagraph was 
                1.
          ``(6) National per capita medicareplus growth 
        percentage defined.--
                  ``(A) In general.--In this part, the 
                `national per capita MedicarePlus growth 
                percentage' for a year is the percentage 
                determined by the Secretary, by April 30th 
                before the beginning of the year involved, to 
                reflect the Secretary's estimate of the 
                projected per capita rate of growth in 
                expenditures under this title for an individual 
                entitled to benefits under part A and enrolled 
                under part B, reduced by the number of 
                percentage points specified in subparagraph (B) 
                for the year. Separate determinations may be 
                made for aged enrollees, disabled enrollees, 
                and enrollees with end-stage renal disease. 
                Such percentage shall include an adjustment for 
                over or under projection in the growth 
                percentage for previous years.
                  ``(B) Adjustment.--The number of percentage 
                points specified in this subparagraph is--
                          ``(i) for 1998, 0.5 percentage 
                        points,
                          ``(ii) for 1999, 0.5 percentage 
                        points,
                          ``(iii) for 2000, 0.5 percentage 
                        points,
                          ``(iv) for 2001, 0.5 percentage 
                        points,
                          ``(v) for 2002, 0.5 percentage 
                        points, and
                          ``(vi) for a year after 2002, 0 
                        percentage points.
  ``(d) MedicarePlus Payment Area Defined.--
          ``(1) In general.--In this part, except as provided 
        in paragraph (3), the term `MedicarePlus payment area' 
        means a county, or equivalent area specified by the 
        Secretary.
          ``(2) Rule for esrd beneficiaries.--In the case of 
        individuals who are determined to have end stage renal 
        disease, the MedicarePlus payment area shall be a State 
        or such other payment area as the Secretary specifies.
          ``(3) Geographic adjustment.--
                  ``(A) In general.--Upon written request of 
                the chief executive officer of a State for a 
                contract year (beginning after 1998) made at 
                least 7 months before the beginning of the 
                year, the Secretary shall make a geographic 
                adjustment to a MedicarePlus payment area in 
                the State otherwise determined under paragraph 
                (1)--
                          ``(i) to a single statewide 
                        MedicarePlus payment area,
                          ``(ii) to the metropolitan based 
                        system described in subparagraph (C), 
                        or
                          ``(iii) to consolidating into a 
                        single MedicarePlus payment area 
                        noncontiguous counties (or equivalent 
                        areas described in paragraph (1)) 
                        within a State.
                Such adjustment shall be effective for payments 
                for months beginning with January of the year 
                following the year in which the request is 
                received.
                  ``(B) Budget neutrality adjustment.--In the 
                case of a State requesting an adjustment under 
                this paragraph, the Secretary shall adjust the 
                payment rates otherwise established under this 
                section for MedicarePlus payment areas in the 
                State in a manner so that the aggregate of the 
                payments under this section in the State shall 
                not exceed the aggregate payments that would 
                have been made under this section for 
                MedicarePlus payment areas in the State in the 
                absence of the adjustment under this paragraph.
                  ``(C) Metropolitan based system.--The 
                metropolitan based system described in this 
                subparagraph is one in which--
                          ``(i) all the portions of each 
                        metropolitan statistical area in the 
                        State or in the case of a consolidated 
                        metropolitan statistical area, all of 
                        the portions of each primary 
                        metropolitan statistical area within 
                        the consolidated area within the State, 
                        are treated as a single MedicarePlus 
                        payment area, and
                          ``(ii) all areas in the State that do 
                        not fall within a metropolitan 
                        statistical area are treated as a 
                        single MedicarePlus payment area.
                  ``(D) Areas.--In subparagraph (C), the terms 
                `metropolitan statistical area', `consolidated 
                metropolitan statistical area', and `primary 
                metropolitan statistical area' mean any area 
                designated as such by the Secretary of 
                Commerce.
  ``(e) Special Rules for Individuals Electing MSA Plans.--
          ``(1) In general.--If the amount of the monthly 
        premium for an MSA plan for a MedicarePlus payment area 
        for a year is less than \1/12\ of the annual 
        MedicarePlus capitation rate applied under this section 
        for the area and yearinvolved, the Secretary shall 
deposit an amount equal to 100 percent of such difference in 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 an MSA plan, no payment shall be 
        made under paragraph (1) on behalf of an individual for 
        a month unless the individual--
                  ``(A) has established before the beginning of 
                the month (or by such other deadline as the 
                Secretary may specify) a MedicarePlus MSA (as 
                defined in section 138(b)(2) of the Internal 
                Revenue Code of 1986), and
                  ``(B) if the individual has established more 
                than one such 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 an 
        MSA plan 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.
  ``(f) 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 (e)(1) shall be made from 
the Federal Hospital Insurance Trust Fund and the Federal 
Supplementary Medical Insurance Trust Fund in such proportion 
as the Secretary determines reflects the relative weight that 
benefits under part A and under part B represents of the 
actuarial value of the total benefits under this title. Monthly 
payments otherwise payable under this section for October 2001 
shall be paid on the last business day of September 2001.
  ``(g) Special Rule for Certain Inpatient Hospital Stays.--In 
the case of an individual who is receiving inpatient hospital 
services from a subsection (d) hospital (as defined in section 
1886(d)(1)(B)) as of the effective date of the individual's--
          ``(1) election under this part of a MedicarePlus plan 
        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 
                plan or the medicare fee-for-service program 
                option described in section 1851(a)(1)(A) (as 
                the case may be) elected before the election 
                with such organization,
                  ``(B) the elected organization shall not be 
                financially responsible for payment for such 
                services until the date after the date of the 
                individual's discharge, and
                  ``(C) the organization shall nonetheless be 
                paid the full amount otherwise payable to the 
                organization under this part; or
          ``(2) termination of election with respect to a 
        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.

                               ``premiums

  ``Sec. 1854. (a) Submission and Charging of Premiums.--
          ``(1) In general.--Subject to paragraph (3), 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 premium for 
                coverage for services under section 1852(a) 
                under each MedicarePlus plan it offers under 
                this part in each MedicarePlus payment area (as 
                defined in section 1853(d)) in which the plan 
                is being offered; and
                  ``(B) the enrollment capacity in relation to 
                the plan in each such area.
          ``(2) Terminology.--In this part--
                  ``(A) the term `monthly premium' means, with 
                respect to a MedicarePlus plan offered by a 
                MedicarePlus organization, the monthly premium 
                filed under paragraph (1), not taking into 
                account the amount of any payment made toward 
                the premium under section 1853; and
                  ``(B) the term `net monthly premium' means, 
                with respect to such a plan and an individual 
                enrolled with the plan, the premium (as defined 
                in subparagraph (A)) for the plan reduced by 
                the amount of payment made toward such premium 
                under section 1853.
  ``(b) Monthly Premium Charged.--The monthly amount of the 
premium charged by a MedicarePlus organization for a 
MedicarePlus plan offered in a MedicarePlus payment area to an 
individual under this part shall be equal to the net monthly 
premium plus any monthly premium charged in accordance with 
subsection (e)(2) for supplemental benefits.
  ``(c) Uniform Premium.--The monthly premium and monthly 
amount charged under subsection (b) of a MedicarePlus 
organization under this part may not vary among individuals who 
reside in the same MedicarePlus payment area.
  ``(d) Terms and Conditions of Imposing Premiums.--Each 
MedicarePlus organization shall permit the payment of net 
monthly premiums on a monthly basis and may terminate election 
of individuals for a MedicarePlus plan for failure to make 
premium payments only in accordance with section 
1851(g)(3)(B)(i). A MedicarePlus organization is not authorized 
to provide for cash or other monetary rebates as an inducement 
for enrollment or otherwise.
  ``(e) Limitation on Enrollee Cost-Sharing.--
          ``(1) For basic and additional benefits.--Except as 
        provided in paragraph (2), in no event may--
                  ``(A) the net monthly premium (multiplied by 
                12) and the actuarial value of the deductibles, 
                coinsurance, and copayments applicable on 
                average to individuals enrolled under this part 
                with a MedicarePlus plan of an organization 
                with respect to required benefits described in 
                section 1852(a)(1) and additional benefits (if 
                any) required under subsection (f)(1) for a 
                year, exceed
                  ``(B) the actuarial value of the deductibles, 
                coinsurance, and copayments that would be 
                applicable on average to individuals entitled 
                to benefits under part A and enrolled under 
                part B if they were not members of a 
                MedicarePlus organization for the year.
          ``(2) For supplemental benefits.--If the MedicarePlus 
        organization provides to its members enrolled under 
        this part supplemental benefits described in section 
        1852(a)(3), the sum of the monthly premium rate 
        (multiplied by 12) charged for such supplemental 
        benefits and the actuarial value of its deductibles, 
        coinsurance, and copayments charged with respect to 
        such benefits may not exceed the adjusted community 
        rate for such benefits (as defined in subsection 
        (f)(4)).
          ``(3) Exception for msa plans.--Paragraphs (1) and 
        (2) do not apply to an MSA plan.
          ``(4) Determination on other basis.--If the Secretary 
        determines that adequate data are not available to 
        determine the actuarial value under paragraph (1)(A) or 
        (2), the Secretary may determine such amount with 
        respect to all individuals in the MedicarePlus payment 
        area, the State, or in the United States, eligible to 
        enroll in the MedicarePlus plan involved under this 
        part or on the basis of other appropriate data.
  ``(f) Requirement for Additional Benefits.--
          ``(1) Requirement.--
                  ``(A) In general.--Each MedicarePlus 
                organization (in relation to a MedicarePlus 
                plan it offers) shall provide that if there is 
                an excess amount (as defined in subparagraph 
                (B)) for the plan for a contract year, subject 
                to the succeeding provisions of this 
                subsection, the organization shall provide to 
                individuals such additional benefits (as the 
                organization may specify) in a value which is 
                at least equal to the adjusted excess amount 
                (as defined in subparagraph (C)).
                  ``(B) Excess amount.--For purposes of this 
                paragraph, the `excess amount', for an 
                organization for a plan, is the amount (if any) 
                by which--
                          ``(i) the average of the capitation 
                        payments made to the organization under 
                        section 1853 for the plan at the 
                        beginning of contract year, exceeds
                          ``(ii) the actuarial value of the 
                        required benefits described in section 
                        1852(a)(1) under the plan for 
                        individuals under this part, as 
                        determined based upon an adjusted 
                        community rate described in paragraph 
                        (4) (as reduced for the actuarial value 
                        of the coinsurance and deductibles 
                        under parts A and B).
                  ``(C) Adjusted excess amount.--For purposes 
                of this paragraph, the `adjusted excess 
                amount', for anorganization for a plan, is the 
excess amount reduced to reflect any amount withheld and reserved for 
the organization for the year under paragraph (2).
                  ``(D) No application to msa plans.--
                Subparagraph (A) shall not apply to an MSA 
                plan.
                  ``(E) Uniform application.--This paragraph 
                shall be applied uniformly for all enrollees 
                for a plan in a MedicarePlus payment 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) Stabilization fund.--A MedicarePlus 
        organization may provide that a part of the value of an 
        excess amount described in paragraph (1) be withheld 
        and reserved in the Federal Hospital Insurance Trust 
        Fund and in the Federal Supplementary Medical Insurance 
        Trust Fund (in such proportions as the Secretary 
        determines to be appropriate) by the Secretary for 
        subsequent annual contract periods, to the extent 
        required to stabilize and prevent undue fluctuations in 
        the additional benefits offered in those subsequent 
        periods by the organization in accordance with such 
        paragraph. Any of such value of the amount reserved 
        which is not provided as additional benefits described 
        in paragraph (1)(A) to individuals electing the 
        MedicarePlus plan of the organization in accordance 
        with such paragraph prior to the end of such periods, 
        shall revert for the use of such trust funds.
          ``(3) Determination based on insufficient data.--For 
        purposes of this subsection, if the Secretary finds 
        that there is insufficient enrollment experience 
        (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.
          ``(4) Adjusted community rate.--
                  ``(A) In general.--For purposes of this 
                subsection, subject to subparagraph (B), the 
                term `adjusted community rate' for a service or 
                services means, at the election of a 
                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 plan 
                        under this part if the rate of payment 
                        were determined under a `community 
                        rating system' (as defined in section 
                        1302(8) of the Public Health Service 
                        Act, other than subparagraph (C)), or
                          ``(ii) such portion of the weighted 
                        aggregate premium, which the Secretary 
                        annually estimates would apply to such 
                        an individual, as the Secretary 
                        annually estimates is attributable to 
                        that service or services,
                but adjusted for differences between the 
                utilization characteristics of the individuals 
                electing coverage under this part and the 
                utilization characteristics of the other 
                enrollees with the plan (or, if the Secretary 
                finds that adequate data are not available to 
                adjust for those differences, the differences 
                between the utilization characteristics of 
                individuals selecting other MedicarePlus 
                coverage, or MedicarePlus eligible 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 plan of the 
                organization may be computed (in a manner 
                specified by the Secretary) using data in the 
                general commercial marketplace or (during a 
                transition period) based on the costs incurred 
                by the organization in providing such a plan.
  ``(g) Periodic Auditing.--The Secretary shall provide for the 
annual auditing of the financial records (including data 
relating to medicare utilization, costs, and computation of the 
adjusted community rate) of at least one-third of the 
MedicarePlus organizations offering MedicarePlus plans under 
this part. The Comptroller General shall monitoring auditing 
activities conducted under this subsection.
  ``(h) Prohibition of State Imposition of Premium Taxes.--No 
State may impose a premium tax or similar tax with respect to 
premiums on MedicarePlus plans or the offering of such plans.

     ``organizational and financial requirements for medicareplus 
            organizations; provider-sponsored organizations

  ``Sec. 1855. (a) Organized and Licensed Under State Law.--
          ``(1) In general.--Subject to paragraphs (2) and (3), 
        a MedicarePlus organization shall be organized and 
        licensed under State law as a risk-bearing entity 
        eligible to offer health insurance or health benefits 
        coverage in each State in which it offers a 
        MedicarePlus plan.
          ``(2) Special exception for provider-sponsored 
        organizations.--
                  ``(A) In general.--In the case of a provider-
                sponsored organization that seeks to offer a 
                MedicarePlus plan in a State, the Secretary 
                shall waive the requirement of paragraph (1) 
                that the organization be licensed in that State 
                if--
                          ``(i) the organization files an 
                        application for such waiver with the 
                        Secretary, and
                          ``(ii) the Secretary determines, 
                        based on the application and other 
                        evidence presented to the Secretary, 
                        that any of the grounds for approval of 
                        the application described in 
                        subparagraph (B), (C), or (D) has been 
                        met.
                  ``(B) Failure to act on licensure application 
                on a timely basis.--A ground for approval of 
                such a waiver application is that the State has 
                failed to complete action on a licensing 
                application of the organization within 90 days 
                of the date of the State's receipt of the 
                completed application. No period before the 
                date of the enactment of this section shall be 
                included in determining such 90-day period.
                  ``(C) Denial of application based on 
                discriminatory treatment.--A ground for 
                approval of such a waiver application is that 
                the State has denied such a licensing 
                application and--
                          ``(i) the State has imposed 
                        documentation or information 
                        requirements not related to solvency 
                        requirements that are not generally 
                        applicable to other entities engaged in 
                        substantially similar business, or
                          ``(ii) the standards or review 
                        process imposed by the State as a 
                        condition of approval of the license 
                        imposes any material requirements, 
                        procedures, or standards (other than 
                        requirements and standards relating to 
                        solvency) to such organizations that 
                        are not generally applicable to other 
                        entities engaged in substantially 
                        similar business.
                  ``(D) Denial of application based on 
                application of solvency requirements.--A ground 
                for approval of such a waiver application is 
                that the State has denied such a licensing 
                application based (in whole or in part) on the 
                organization's failure to meet applicable 
                solvency requirements and--
                          ``(i) such requirements are not the 
                        same as the solvency standards 
                        established under section 1856(a); or
                          ``(ii) the State has imposed as a 
                        condition of approval of the license 
                        any documentation or information 
                        requirements relating to solvency or 
                        other material requirements, 
                        procedures, or standards relating to 
                        solvency that are different from the 
                        requirements, procedures, and standards 
                        applied by the Secretary under 
                        subsection (d)(2).
                For purposes of this subparagraph, the term 
                `solvency requirements' means requirements 
                relating to solvency and other matters covered 
                under the standards established under section 
                1856(a).
                  ``(E) Treatment of waiver.--In the case of a 
                waiver granted under this paragraph for a 
                provider-sponsored organization--
                          ``(i) the waiver shall be effective 
                        for a 36-month period, except it may be 
                        renewed based on a subsequent 
                        application filed during the last 6 
                        months of such period, and
                          ``(ii) any provisions of State law 
                        which relate to the licensing of the 
                        organization and which prohibit the 
                        organization from providing coverage 
                        pursuant to a contract under this part 
                        shall be superseded.
                Nothing in this subparagraph shall be construed 
                as limiting the number of times such a waiver 
                may be renewed.
                  ``(F) Prompt action on application.--The 
                Secretary shall grant or deny such a waiver 
                application within 60 days after the date the 
                Secretary determines that a substantially 
                complete application has been filed. Nothing in 
                this section shall be construed as preventing 
                an organization which has had such a waiver 
                application denied from submitting a subsequent 
                waiver application.
          ``(3) Exception if required to offer more than 
        medicareplus plans.--Paragraph (1) shall not apply to a 
        MedicarePlus organization in a State if the State 
        requires the organization, as a condition of licensure, 
        to offer any product or plan other than a MedicarePlus 
        plan.
          ``(4) Licensure does not substitute for or constitute 
        certification.--The fact that an organization is 
        licensed in accordance with paragraph (1) does not deem 
        the organization to meet other requirements imposed 
        under this part.
  ``(b) Prepaid Payment.--A MedicarePlus organization shall be 
compensated (except for premiums, deductibles, coinsurance, and 
copayments) for the provision of health care services to 
enrolled members under the contract under this part by a 
payment which is paid on a periodic basis without regard to the 
date the health care services are provided and which is fixed 
without regard to the frequency, extent, or kind of health care 
service actually provided to a member.
  ``(c) Assumption of Full Financial Risk.--The MedicarePlus 
organization shall assume full financial risk on a prospective 
basis for the provision of the health care services (except, at 
the election of the organization, hospice care) for which 
benefits are required to be provided under section 1852(a)(1), 
except that the organization--
          ``(1) may obtain insurance or make other arrangements 
        for the cost of providing to any enrolled member such 
        services the aggregate value of which 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.
  ``(d) Certification of Provision Against Risk of Insolvency 
for Unlicensed PSOs.--
          ``(1) In general.--Each MedicarePlus organization 
        that is a provider-sponsored organization, that is not 
        licensed by a State under subsection (a), and for which 
        a waiver application has been approved under subsection 
        (a)(2), shall meet standards established under section 
        1856(a) relating to the financial solvency and capital 
        adequacy of the organization.
          ``(2) Certification process for solvency standards 
        for psos.--The Secretary shall establish a process for 
        the receipt and approval of applications of a provider-
        sponsored organization described in paragraph (1) for 
        certification (and periodic recertification) of the 
        organization as meeting such solvency standards. Under 
        such process, the Secretary shall act upon such an 
        application not later than 60 days after the date the 
        application has been received.
  ``(e) Provider-Sponsored Organization Defined.--
          ``(1) In general.--In this part, the term `provider-
        sponsored organization' means a public or private 
        entity--
                  ``(A) that is established or organized by a 
                health care provider, or group of affiliated 
                health care providers,
                  ``(B) that provides a substantial proportion 
                (as defined by the Secretary in accordance with 
                paragraph (2)) of the health care items and 
                services under the contract under this part 
                directly through the provider or affiliated 
                group of providers, and
                  ``(C) with respect to which those affiliated 
                providers that share, directly or indirectly, 
                substantial financial risk with respect to the 
                provision of such items and services have at 
                least a majority financial interest in the 
                entity.
          ``(2) Substantial proportion.--In defining what is a 
        `substantial proportion' for purposes of paragraph 
        (1)(B), the Secretary--
                  ``(A) shall take into account (i) the need 
                for such an organization to assume 
                responsibility for a substantial proportion of 
                services in order to assure financial stability 
                and (ii) 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) both providers are part of a controlled 
                group of corporations under section 1563 of the 
                Internal Revenue Code of 1986, or
                  ``(C) both providers are part of an 
                affiliated service group under section 414 of 
                such Code.
          ``(4) Control.--For purposes of paragraph (3), 
        control is presumed to exist if one party, directly or 
        indirectly, owns, controls, or holds the power to vote, 
        or proxies for, not less than 51 percent of the voting 
        rights or governance rights of another.
          ``(5) Health care provider defined.--In this 
        subsection, the term `health care provider' means--
                  ``(A) any individual who is engaged in the 
                delivery of health care services in a State and 
                who is required by State law or regulation to 
                be licensed or certified by the State to engage 
                in the delivery of such services in the State, 
                and
                  ``(B) any entity that is engaged in the 
                delivery of health care services in a State and 
                that, if it is required by State law or 
                regulation to be licensed or certified by the 
                State to engage in the delivery of such 
                services in the State, is so licensed.
          ``(6) Regulations.--The Secretary shall issue 
        regulations to carry out this subsection.

                      ``establishment of standards

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

              ``contracts with medicareplus organizations

  ``Sec. 1857. (a) In General.--The Secretary shall not permit 
the election under section 1851 of a MedicarePlus plan offered 
by a MedicarePlus organization under this part, and no payment 
shall be made under section 1853 to an organization, unless the 
Secretary has entered into a contract under this section with 
the organization with respect to the offering of such plan. 
Such a contract with an organization may cover more than one 
MedicarePlus plan. Such contract shall provide that the 
organization agrees to comply with the applicable requirements 
and standards of this part and the terms and conditions of 
payment as provided for in this part.
  ``(b) Minimum Enrollment Requirements.--
          ``(1) In general.--Subject to paragraphs (2) and (3), 
        the Secretary may not enter into a contract under this 
        section with a MedicarePlus organization 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 msa plan.--Paragraph (1) shall 
        not apply with respect to a contract that relates only 
        to an MSA plan.
          ``(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 
        if the Secretary determines that the organization--
                  ``(A) has failed substantially to carry out 
                the contract;
                  ``(B) is carrying out the contract in a 
                manner inconsistent with the efficient and 
                effective administration of this part; or
                  ``(C) no longer substantially meets the 
                applicable conditions of this part.
          ``(3) Effective date of contracts.--The effective 
        date of any contract executed pursuant to this section 
        shall be specified in the contract, except that in no 
        case shall a contract under this section which provides 
        for coverage under an MSA plan be effective before 
        January 1999 with respect to such coverage.
          ``(4) Previous terminations.--The Secretary may not 
        enter into a contract with a 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) 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.--
          ``(1) In general.--The contract shall contain such 
        other terms and conditions not inconsistent with this 
        part (including requiring the organization to provide 
        the Secretary with such information) as the Secretary 
        may find necessary and appropriate.
          ``(2) Cost-sharing in enrollment-related costs.--The 
        contract with a MedicarePlus organization shall require 
        the payment to the Secretary for the organization's pro 
        rata share (as determined by the Secretary) of the 
        estimated costs to be incurred by the Secretary in 
        carrying out section 1851 (relating to enrollment and 
        dissemination of information). Such payments are 
        appropriated to defray the costs described in the 
        preceding sentence, to remain available until expended.
  ``(f) Prompt Payment by MedicarePlus Organization.--
          ``(1) Requirement.--A contract under this part shall 
        require a MedicarePlus organization to provide prompt 
        payment (consistent with the provisions of sections 
        1816(c)(2) and 1842(c)(2)) of claims submitted for 
        services and supplies furnished to individuals pursuant 
        to the contract, if the services or supplies are not 
        furnished under a contract between the organization and 
        the provider or supplier.
          ``(2) Secretary's option to bypass noncomplying 
        organization.--In the case of a MedicarePlus eligible 
        organization which the Secretary determines, after 
        notice and opportunity for a hearing, has failed to 
        make payments of amounts in compliance with paragraph 
        (1), the Secretary may provide for direct payment of 
        the amounts owed to providers and suppliers for covered 
        services and supplies furnished to individuals enrolled 
        under this part under the contract. If the Secretary 
        provides for the direct payments, the Secretary shall 
        provide for an appropriate reduction in the amount of 
        payments otherwise made to the organization under this 
        part to reflect the amount of the Secretary's payments 
        (and the Secretary's costs in making the payments).
  ``(g) Intermediate Sanctions.--
          ``(1) In general.--If the Secretary determines that a 
        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 adverselyaffected 
(or has substantial likelihood of adversely affecting) the individual;
                  ``(B) imposes net monthly premiums on 
                individuals enrolled under this part in excess 
                of the net monthly premiums permitted;
                  ``(C) acts to expel or to refuse to re-enroll 
                an individual in violation of the provisions of 
                this part;
                  ``(D) engages in any practice that would 
                reasonably be expected to have the effect of 
                denying or discouraging enrollment (except as 
                permitted by this part) by eligible individuals 
                with the organization whose medical condition 
                or history indicates a need for substantial 
                future medical services;
                  ``(E) misrepresents or falsifies information 
                that is furnished--
                          ``(i) to the Secretary under this 
                        part, or
                          ``(ii) to an individual or to any 
                        other entity under this part;
                  ``(F) fails to comply with the requirements 
                of section 1852(j)(3); or
                  ``(G) employs or contracts with any 
                individual or entity that is excluded from 
                participation under this title under section 
                1128 or 1128A for the provision of health care, 
                utilization review, medical social work, or 
                administrative services or employs or contracts 
                with any entity for the provision (directly or 
                indirectly) through such an excluded individual 
                or entity of such services;
        the Secretary may provide, in addition to any other 
        remedies authorized by law, for any of the remedies 
        described in paragraph (2).
          ``(2) Remedies.--The remedies described in this 
        paragraph are--
                  ``(A) civil money penalties of not more than 
                $25,000 for each determination under paragraph 
                (1) or, with respect to a determination under 
                subparagraph (D) or (E)(i) of such paragraph, 
                of not more than $100,000 for each such 
                determination, plus, with respect to a 
                determination under paragraph (1)(B), double 
                the excess amount charged in violation of such 
                paragraph (and the excess amount charged shall 
                be deducted from the penalty and returned to 
                the individual concerned), and plus, with 
                respect to a determination under paragraph 
                (1)(D), $15,000 for each individual not 
                enrolled as a result of the practice involved,
                  ``(B) suspension of enrollment of individuals 
                under this part after the date the Secretary 
                notifies the organization of a determination 
                under paragraph (1) and until the Secretary is 
                satisfied that the basis for such determination 
                has been corrected and is not likely to recur, 
                or
                  ``(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 (g) during which the deficiency that 
                is the basis of a determination under 
                subsection (c)(2) exists.
                  ``(C) Suspension of enrollment of individuals 
                under this part after the date the Secretary 
                notifies the organization of a determination 
                under subsection (c)(2) and until the Secretary 
                is satisfied that the deficiency that is the 
                basis for the determination has been corrected 
                and is not likely to recur.
  ``(h) Procedures for Termination.--
          ``(1) In general.--The Secretary may terminate a 
        contract with a MedicarePlus organization under this 
        section in accordance with formal investigation and 
        compliance procedures established by the Secretary 
        under which--
                  ``(A) the Secretary provides the organization 
                with the reasonable opportunity to develop and 
                implement a corrective action plan to correct 
                the deficiencies that were the basis of the 
                Secretary's determination under subsection 
                (c)(2);
                  ``(B) the Secretary provides the organization 
                with reasonable notice and opportunity for 
                hearing (including the right to appeal an 
                initial decision) before terminating the 
                contract.
          ``(2) Civil money penalties.--The provisions of 
        section 1128A (other than subsections (a) and (b)) 
        shall apply to a civil money penalty under subsection 
        (f) or under paragraph (2) or (3) of subsection (g) in 
        the same manner as they apply to a civil money penalty 
        or proceeding under section 1128A(a).
          ``(3) Exception for imminent and serious risk to 
        health.--Paragraph (1) shall not apply if the Secretary 
        determines that a delay in termination, resulting from 
        compliance with the procedures specified in such 
        paragraph prior to termination, would pose an imminent 
        and serious risk to the health of individuals enrolled 
        under this part with the organization.

                ``definitions; miscellaneous provisions

  ``Sec. 1859. (a) Definitions Relating to MedicarePlus 
Organizations.--In this part--
          ``(1) MedicarePlus organization.--The term 
        `MedicarePlus organization' means a public or private 
        entity that is certified under section 1856 as meeting 
        the requirements and standards of this part for such an 
        organization.
          ``(2) Provider-sponsored organization.--The term 
        `provider-sponsored organization' is defined in section 
        1855(e)(1).
  ``(b) Definitions Relating to MedicarePlus Plans.--
          ``(1) MedicarePlus plan.--The term `MedicarePlus 
        plan' means health benefits coverage offered under a 
        policy, contract, or plan by a MedicarePlus 
        organization pursuant to and in accordance with a 
        contract under section 1857.
          ``(2) MSA plan.--
                  ``(A) In general.--The term `MSA plan' means 
                a MedicarePlus plan that--
                          ``(i) provides reimbursement for at 
                        least the items and services described 
                        in section 1852(a)(1) in a year but 
                        only after the enrollee incurs 
                        countable expenses (as specified under 
                        the plan) equal to the amount of an 
                        annual deductible (described in 
                        subparagraph (B));
                          ``(ii) counts as such expenses (for 
                        purposes of such deductible) at least 
                        all amounts that would have been 
                        payable under parts A and B, and that 
                        would have been payable by the enrollee 
                        as deductibles, coinsurance, or 
                        copayments, if the enrollee had elected 
                        to receive benefits through the 
                        provisions of such parts; and
                          ``(iii) provides, after such 
                        deductible is met for a year and for 
                        all subsequent expenses for items and 
                        services referred to in clause (i) in 
                        the year, for a level of reimbursement 
                        that is not less than--
                                  ``(I) 100 percent of such 
                                expenses, or
                                  ``(II) 100 percent of the 
                                amounts that would have been 
                                paid (without regard to any 
                                deductibles or coinsurance) 
                                under parts A and B with 
                                respect to such expenses,
                        whichever is less.
                  ``(B) Deductible.--The amount of annual 
                deductible under an MSA plan--
                          ``(i) for contract year 1999 shall be 
                        not more than $6,000; and
                          ``(ii) for a subsequent contract year 
                        shall be not more than the maximum 
                        amount of such deductible for the 
                        previous contract year under this 
                        subparagraph increased by the national 
                        per capita MedicarePlus growth 
                        percentage under section 1853(c)(6) for 
                        the year.
                If the amount of the deductible under clause 
                (ii) is not a multiple of $50, the amount shall 
                be rounded to the nearest multiple of $50.
  ``(c) Other References to Other Terms.--
          ``(1) MedicarePlus eligible individual.--The term 
        `MedicarePlus eligible individual' is defined in 
        section 1851(a)(3).
          ``(2) MedicarePlus payment area.--The term 
        `MedicarePlus payment area' is defined in section 
        1853(d).
          ``(3) National per capita medicareplus growth 
        percentage.--The `national per capita MedicarePlus 
        growth percentage' is defined in section 1853(c)(6).
          ``(4) Monthly premium; net monthly premium.--The 
        terms `monthly premium' and `net monthly premium' are 
        defined in section 1854(a)(2).
  ``(d) Coordinated Acute and Long-term Care Benefits Under a 
MedicarePlus Plan.--Nothing in this part shall be construed as 
preventing a State from coordinating benefits under a medicaid 
plan under title XIX with those provided under a MedicarePlus 
plan in a manner that assures continuity of a full-range of 
acute care and long-term care services to poor elderly or 
disabled individuals eligible for benefits under this title and 
under such plan.
  ``(e) Restriction on Enrollment for Certain MedicarePlus 
Plans.--
          ``(1) In general.--In the case of a MedicarePlus 
        religious fraternal benefit society plan described in 
        paragraph (2), notwithstanding any other provision of 
        this part to the contrary and in accordance with 
        regulations of the Secretary, the society offering the 
        plan may restrict the enrollment of individuals under 
        this part to individuals who are members of the church, 
        convention, or group described in paragraph (3)(B) with 
        which the society is affiliated.
          ``(2) Medicareplus religious fraternal benefit 
        society plan described.--For purposes of this 
        subsection, a MedicarePlus religious fraternal benefit 
        society plan described in this paragraph is a 
        MedicarePlus plan described in section 1851(a)(2)(A) 
        that--
                  ``(A) is offered by a religious fraternal 
                benefit society described in paragraph (3) only 
                to members of the church, convention, or group 
                described in paragraph (3)(B); and
                  ``(B) permits all such members to enroll 
                under the plan without regard to health status-
                related factors.
        Nothing in this subsection shall be construed as 
        waiving any plan requirements relating to financial 
        solvency. In developing solvency standards under 
        section 1856, the Secretary shall take into account 
        open contract and assessment features characteristic of 
        fraternal insurance certificates.
          ``(3) Religious fraternal benefit society defined.--
        For purposes of paragraph (2)(A), a `religious 
        fraternal benefit society' described in this section is 
        an organization that--
                  ``(A) is exempt from Federal income taxation 
                under section 501(c)(8) of the Internal Revenue 
                Code of 1986;
                  ``(B) is affiliated with, carries out the 
                tenets of, and shares a religious bond with, a 
                church or convention or association of churches 
                or an affiliated group of churches;
                  ``(C) offers, in addition to a MedicarePlus 
                religious fraternal benefit society plan, 
                health coverage to individuals not entitled to 
                benefits under this title who are members of 
                such church, convention, or group; and
                  ``(D) does not impose any limitation on 
                membership in the society based on any health 
                status-related factor.
          ``(4) Payment adjustment.--Under regulations of the 
        Secretary, in the case of individuals enrolled under 
        this part under a MedicarePlus religious fraternal 
        benefit society plan described in paragraph (2), the 
        Secretary shall provide for such adjustment to the 
        payment amounts otherwise established under section 
        1854 as may be appropriate to assure an appropriate 
        payment level, taking into account the actuarial 
        characteristics and experience of such individuals.''.
  (b) Report on Coverage of Beneficiaries With End-Stage Renal 
Disease.--The Secretary of Health and Human Services shall 
provide for a study on the feasibility and impact of removing 
the limitation under section 1851(b)(3)(B) of the Social 
Security Act (as inserted by subsection (a)) on eligibility of 
most individuals medically determined to have end-stage renal 
disease to enroll in MedicarePlus plans. By not later than 
October 1, 1998, the Secretary shall submit to Congress a 
report on such study and shall include in the report such 
recommendations regarding removing or restricting the 
limitation as may be appropriate.
  (c) Report on MedicarePlus Teaching Programs and Use of DSH 
and Teaching Hospitals.--Based on the information provided to 
the Secretary of Health and Human Services under section 
1852(k) of the Social Security Act and such information as the 
Secretary may obtain, by not later than October 1, 1999, the 
Secretary shall submit to Congress a report on graduate medical 
education programs operated by MedicarePlus organizations and 
the extent to which MedicarePlus organizations are providing 
for payments to hospitals described in such section.

SEC. 10002. TRANSITIONAL RULES FOR CURRENT MEDICARE HMO PROGRAM.

  (a) Authorizing Transitional Waiver of 50:50 Rule.--Section 
1876(f) (42 U.S.C. 1395mm(f)) is amended--
          (1) in paragraph (2), by striking ``The Secretary'' 
        and inserting ``Subject to paragraph (4), the 
        Secretary'', and
          (2) by adding at the end the following new paragraph:
  ``(4) Effective for contract periods beginning after December 
31, 1996, the Secretary may waive or modify the requirement 
imposed by paragraph (1) to the extent the Secretary finds that 
it is in the public interest.''.
  (b) Transition.--Section 1876 (42 U.S.C. 1395mm) is amended 
by adding at the end the following new subsection:
  ``(k)(1) Except as provided in paragraph (3), the Secretary 
shall not enter into, renew, or continue any risk-sharing 
contract under this section with an eligible organization for 
any contract year beginning on or after--
          ``(A) the date standards for MedicarePlus 
        organizations and plans are first established under 
        section 1856 with respect to MedicarePlus organizations 
        that are insurers or health maintenance organizations, 
        or
          ``(B) in the case of such an organization with such a 
        contract in effect as of the date such standards were 
        first established, 1 year after such date.
  ``(2) The Secretary shall not enter into, renew, or continue 
any risk-sharing contract under this section with an eligible 
organization for any contract year beginning on or after 
January 1, 2000.
  ``(3) An individual who is enrolled in part B only and is 
enrolled in an eligible organization with a risk-sharing 
contract under this section on December 31, 1998, may continue 
enrollment in such organization in accordance with regulations 
issued by not later than July 1, 1998.
  ``(4) Notwithstanding subsection (a), the Secretary shall 
provide that payment amounts under risk-sharing contracts under 
this section for months in a year (beginning with January 1998) 
shall be computed--
          ``(A) with respect to individuals entitled to 
        benefits under both parts A and B, by substituting 
        payment rates under section 1853(a) for the payment 
        rates otherwise established under subsection 1876(a), 
        and
          ``(B) with respect to individuals only entitled to 
        benefits under part B, by substituting an appropriate 
        proportion of such rates (reflecting the relative 
        proportion of payments under this title attributable to 
        such part) for the payment rates otherwise established 
        under subsection (a).
For purposes of carrying out this paragraph for payments for 
months in 1998, the Secretary shall compute, announce, and 
apply the payment rates under section 1853(a) (notwithstanding 
any deadlines specified in such section) in as timely a manner 
as possible and may (to the extent necessary) provide for 
retroactive adjustment in payments made under this section not 
in accordance with such rates.''.
  (c) Enrollment Transition Rule.--An individual who is 
enrolled on December 31, 1998, with an eligible organization 
under section 1876 of the Social Security Act (42 U.S.C. 
1395mm) shall be considered to be enrolled with that 
organization on January 1, 1999, under part C of title XVIII of 
such Act if that organization has a contract under that part 
for providing services on January 1, 1999 (unless the 
individual has disenrolled effective on that date).
  (d) Advance Directives.--Section 1866(f) (42 U.S.C. 
1395cc(f)) is amended--
          (1) in paragraph (1)--
                  (A) by inserting ``1855(i),'' after 
                ``1833(s),'', and
                  (B) by inserting ``, MedicarePlus 
                organization,'' after ``provider of services''; 
                and
          (2) in paragraph (2)(E), by inserting ``or a 
        MedicarePlus organization'' after ``section 
        1833(a)(1)(A)''.
  (e) Extension of Provider Requirement.--Section 1866(a)(1)(O) 
(42 U.S.C. 1395cc(a)(1)(O)) is amended--
          (1) by striking ``in the case of hospitals and 
        skilled nursing facilities,'';
          (2) by striking ``inpatient hospital and extended 
        care'';
          (3) by inserting ``with a MedicarePlus organization 
        under part C or'' after ``any individual enrolled''; 
        and
          (4) by striking ``(in the case of hospitals) or 
        limits (in the case of skilled nursing facilities)''.
  (f) Additional Conforming Changes.--
          (1) Conforming references to previous part C.--Any 
        reference in law (in effect before the date of the 
        enactment of this Act) to part C of title XVIII of the 
        Social Security Act is deemed a reference to part D of 
        such title (as in effect after such date).
          (2) Secretarial submission of legislative proposal.--
        Not later than 90 days after the date of the enactment 
        of this Act, the Secretary of Health and Human Services 
        shall submit to the appropriate committees of Congress 
        a legislative proposal providing for such technical and 
        conforming amendments in the law as are required by the 
        provisions of this chapter.
  (g) Immediate Effective Date for Certain Requirements for 
Demonstrations.--Section 1857(e)(2) of the Social Security Act 
(requiring contribution to certain costs related to the 
enrollment process comparative materials) applies to 
demonstrations with respect to which enrollment is effected or 
coordinated under section 1851 of such Act.
  (h) Use of Interim, Final Regulations.--In order to carry out 
the amendments made by this chapter in a timely manner, the 
Secretary of Health and Human Services may promulgate 
regulations that take effect on an interim basis, after notice 
and pending opportunity for public comment.
  (i) Transition Rule for PSO Enrollment.--In applying 
subsection (g)(1) of section 1876 of the Social Security Act 
(42 U.S.C. 1395mm) to a risk-sharing contract entered into with 
an eligible organization that is a provider-sponsored 
organization (as defined in section 1855(e)(1) of such Act, as 
inserted by section 10001) for a contract year beginning on or 
after January 1, 1998, there shall be substituted for the 
minimum number of enrollees provided under such section the 
minimum number of enrollees permitted under section 1857(b)(1) 
of such Act (as so inserted).

SEC. 10003. CONFORMING CHANGES IN MEDIGAP PROGRAM.

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

 Subchapter B--Special Rules for MedicarePlus Medical Savings Accounts

SEC. 10006. MEDICAREPLUS MSA.

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

``SEC. 138. MEDICAREPLUS MSA.

  ``(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 part C of title XVIII of the 
Social Security Act.
  ``(b) MedicarePlus MSA.--For purposes of this section, the 
term `MedicarePlus MSA' means a medical savings account (as 
defined in section 220(d))--
          ``(1) which is designated as a MedicarePlus MSA,
          ``(2) with respect to which no contribution may be 
        made other than--
                  ``(A) a contribution made by the Secretary of 
                Health and Human Services pursuant to part C of 
                title XVIII of the Social Security Act, or
                  ``(B) a trustee-to-trustee transfer described 
                in subsection (c)(4),
          ``(3) the governing instrument of which provides that 
        trustee-to-trustee transfers described in subsection 
        (c)(4) may be made to and from such account, and
          ``(4) which is established in connection with an MSA 
        plan described in section 1859(b)(2) of the Social 
        Security Act.
  ``(c) Special Rules for Distributions.--
          ``(1) Distributions for qualified medical expenses.--
        In applying section 220 to a MedicarePlus MSA--
                  ``(A) qualified medical expenses shall not 
                include amounts paid for medical care for any 
                individual other than the account holder, and
                  ``(B) section 220(d)(2)(C) shall not apply.
          ``(2) Penalty for distributions from medicareplus msa 
        not used for qualified medical expenses if minimum 
        balance not maintained.--
                  ``(A) In general.--The tax imposed by this 
                chapter for any taxable year in which there is 
                a payment or distribution from a 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 such MSA as of 
                                the close of the calendar year 
                                preceding the calendar year in 
                                which the taxable year begins, 
                                over
                                  ``(II) an amount equal to 60 
                                percent of the deductible under 
                                the MedicarePlus MSA plan 
                                covering the account holder as 
                                of January 1 of the calendar 
                                year in which the taxable year 
                                begins.
                Section 220(f)(2) shall not apply to any 
                payment or distribution from a MedicarePlus 
                MSA.
                  ``(B) Exceptions.--Subparagraph (A) shall not 
                apply if the payment or distribution is made on 
                or after the date the account holder--
                          ``(i) becomes disabled within the 
                        meaning of section 72(m)(7), or
                          ``(ii) dies.
                  ``(C) Special rules.--For purposes of 
                subparagraph (A)--
                          ``(i) all MedicarePlus MSAs of the 
                        account holder shall be treated as 1 
                        account,
                          ``(ii) all payments and distributions 
                        not used exclusively to pay the 
                        qualified medical expenses of the 
                        account holder during any taxable year 
                        shall be treated as 1 distribution, and
                          ``(iii) any distribution of property 
                        shall be taken into account at its fair 
                        market value on the date of the 
                        distribution.
          ``(3) Withdrawal of erroneous contributions.--Section 
        220(f)(2) and paragraph (2) of this subsection shall 
        not apply to any payment or distribution from a 
        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.--Section 
        220(f)(2) and paragraph (2) of this subsection 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.
  ``(d) Special Rules for Treatment of Account After Death of 
Account Holder.--In applying section 220(f)(8)(A) to an account 
which was a MedicarePlus MSA of a decedent, the rules of 
section 220(f) shall apply in lieu of the rules of subsection 
(c) of this section with respect to the spouse as the account 
holder of such MedicarePlus MSA.
  ``(e) Reports.--In the case of a MedicarePlus MSA, the report 
under section 220(h)--
          ``(1) shall include the fair market value of the 
        assets in such MedicarePlus MSA as of the close of each 
        calendar year, and
          ``(2) shall be furnished to the account holder--
                  ``(A) not later than January 31 of the 
                calendar year following the calendar year to 
                which such reports relate, and
                  ``(B) in such manner as the Secretary 
                prescribes in such regulations.
  ``(f) Coordination With Limitation on Number of Taxpayers 
Having Medical Savings Accounts.--Subsection (i) of section 220 
shall not apply to an individual with respect to a MedicarePlus 
MSA, and MedicarePlus MSA's shall not be taken into account in 
determining whether the numerical limitations under section 
220(j) are exceeded.''
  (b) Technical Amendments.--
          (1) The last sentence of section 4973(d) of such Code 
        is amended by inserting ``or section 138(c)(3)'' after 
        ``section 220(f)(3)''.
          (2) Subsection (b) of section 220 of such Code is 
        amended by adding at the end the following new 
        paragraph:
          ``(7) Medicare eligible individuals.--The limitation 
        under this subsection for any month with respect to an 
        individual shall be zero for the first month such 
        individual is entitled to benefits under title XVIII of 
        the Social Security Act and for each month 
        thereafter.''
          (3) The table of sections for part III of subchapter 
        B of chapter 1 of such Code is amended by striking the 
        last item and inserting the following:

                  ``Sec. 138. MedicarePlus MSA.
                  ``Sec. 139. Cross references to other Acts.''

  (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1998.

             CHAPTER 2--INTEGRATED LONG-TERM CARE PROGRAMS

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

SEC. 10011. COVERAGE OF PACE UNDER THE MEDICARE PROGRAM.

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

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

  ``Sec. 1894. (a) Receipt of Benefits Through Enrollment in 
PACE Program; Definitions for PACE Program Related Terms.--
          ``(1) Benefits through enrollment in a pace 
        program.--In accordance with this section, in the case 
        of an individual who is entitled to benefits under part 
        A or enrolled under part B and who is a PACE program 
        eligible individual (as defined in paragraph (5)) with 
        respect to a PACE program offered by a PACE provider 
        under a PACE program agreement--
                  ``(A) the individual may enroll in the 
                program under this section; and
                  ``(B) so long as the individual is so 
                enrolled and in accordance with regulations--
                          ``(i) the individual shall receive 
                        benefits under this title solely 
                        through such program, and
                          ``(ii) the PACE provider is entitled 
                        to payment under and in accordance with 
                        this section and such agreement for 
                        provision of such benefits.
          ``(2) PACE program defined.--For purposes of this 
        section and section 1932, the term `PACE program' means 
        a program of all-inclusive care for the elderly that 
        meets the following requirements:
                  ``(A) Operation.--The entity operating the 
                program is a PACE provider (as defined in 
                paragraph (3)).
                  ``(B) Comprehensive benefits.--The program 
                provides comprehensive health care services to 
                PACE program eligible individuals in accordance 
                with the PACE program agreement and regulations 
                under this section.
                  ``(C) Transition.--In the case of an 
                individual who is enrolled under the program 
                under this section and whose enrollment ceases 
                for any reason (including the individual no 
                longer qualifies as a PACE program eligible 
                individual, the termination of a PACE program 
                agreement, or otherwise), the program provides 
                assistance to the individual in obtaining 
                necessary transitional care through appropriate 
                referrals and making the individual's medical 
                records available to new providers.
          ``(3) PACE provider defined.--
                  ``(A) In general.--For purposes of this 
                section, the term `PACE provider' means an 
                entity that--
                          ``(i) subject to subparagraph (B), is 
                        (or is a distinct part of) a public 
                        entity or a private, nonprofit entity 
                        organized for charitable purposes under 
                        section 501(c)(3) of the Internal 
                        Revenue Code of 1986, and
                          ``(ii) has entered into a PACE 
                        program agreement with respect to its 
                        operation of a PACE program.
                  ``(B) Treatment of private, for-profit 
                providers.--Clause (i) of subparagraph (A) 
                shall not apply--
                          ``(i) to entities subject to a 
                        demonstration project waiver under 
                        subsection (h); and
                          ``(ii) after the date the report 
                        under section 10014(b) of the Balanced 
                        Budget Act of 1997 is submitted, unless 
                        the Secretary determines that any of 
                        the findings described in subparagraph 
                        (A), (B), (C) or (D) of paragraph (2) 
                        of such section are true.
          ``(4) PACE program agreement defined.--For purposes 
        of this section, the term `PACE program agreement' 
        means, with respect to a PACE provider, an agreement, 
        consistent with this section, section 1932 (if 
        applicable), and regulations promulgated to carry out 
        such sections, between the PACE provider and the 
        Secretary, or an agreement between the PACE provider 
        and a State administering agency for the operation of a 
        PACE program by the provider under such sections.
          ``(5) PACE program eligible individual defined.--For 
        purposes of this section, the term `PACE program 
        eligible individual' means, with respect to a PACE 
        program, an individual who--
                  ``(A) is 55 years of age or older;
                  ``(B) subject to subsection (c)(4), is 
                determined under subsection (c) to require the 
                level of care required under the State medicaid 
                plan for coverage of nursing facility services;
                  ``(C) resides in the service area of the PACE 
                program; and
                  ``(D) meets such other eligibility conditions 
                as may be imposed under the PACE program 
                agreement for the program under subsection 
                (e)(2)(A)(ii).
          ``(6) PACE protocol.--For purposes of this section, 
        the term `PACE protocol' means the Protocol for the 
        Program of All-inclusive Care for the Elderly (PACE), 
        as published by On Lok, Inc., as of April 14, 1995.
          ``(7) PACE demonstration waiver program defined.--For 
        purposes of this section, the term `PACE demonstration 
        waiver program' means a demonstration program under 
        either of the following sections (as in effect before 
        the date of their repeal):
                  ``(A) Section 603(c) of the Social Security 
                Amendments of 1983 (Public Law 98-21), as 
                extended by section 9220 of the Consolidated 
                Omnibus Budget Reconciliation Act of 1985 
                (Public Law 99-272).
                  ``(B) Section 9412(b) of the Omnibus Budget 
                Reconciliation Act of 1986 (Public Law 99-509).
          ``(8) State administering agency defined.--For 
        purposes of this section, the term `State administering 
        agency' means, with respect to the operation of a PACE 
        program in a State, the agency of that State (which may 
        be the single agency responsible for administration of 
        the State plan under title XIX in the State) 
        responsible for administering PACE program agreements 
        under this section and section 1932 in the State.
          ``(9) Trial period defined.--
                  ``(A) In general.--For purposes of this 
                section, the term `trial period' means, with 
                respect to a PACE program operated by a PACE 
                provider under a PACE program agreement, the 
                first 3 contract years under such agreement 
                with respect to such program.
                  ``(B) Treatment of entities previously 
                operating pace demonstration waiver programs.--
                Each contract year (including a year occurring 
                before the effective date of this section) 
                during which an entity has operated a PACE 
                demonstration waiver program shall be counted 
                under subparagraph (A) as a contract year 
                during which the entity operated a PACE program 
                as a PACE provider under a PACE program 
                agreement.
          ``(10) Regulations.--For purposes of this section, 
        the term `regulations' refers to interim final or final 
        regulations promulgated under subsection (f) to carry 
        out this section and section 1932.
  ``(b) Scope of Benefits; Beneficiary Safeguards.--
          ``(1) In general.--Under a PACE program agreement, a 
        PACE provider shall--
                  ``(A) provide to PACE program eligible 
                individuals, regardless of source of payment 
                and directly or under contracts with other 
                entities, at a minimum--
                          ``(i) all items and services covered 
                        under this title (for individuals 
                        enrolled under this section) and all 
                        items and services covered under title 
                        XIX, but without any limitation or 
                        condition as to amount, duration, or 
                        scope and without application of 
                        deductibles, copayments, coinsurance, 
                        or other cost-sharing that would 
                        otherwise apply under this title or 
                        such title, respectively; and
                          ``(ii) all additional items and 
                        services specified in regulations, 
                        based upon those required under the 
                        PACE protocol;
                  ``(B) provide such enrollees access to 
                necessary covered items and services 24 hours 
                per day, every day of the year;
                  ``(C) provide services to such enrollees 
                through a comprehensive, multidisciplinary 
                health and social services delivery system 
                which integrates acute and long-term care 
                services pursuant to regulations; and
                  ``(D) specify the covered items and services 
                that will not be provided directly by the 
                entity, and to arrange for delivery of those 
                items and services through contracts meeting 
                the requirements of regulations.
          ``(2) Quality assurance; patient safeguards.--The 
        PACE program agreement shall require the PACE provider 
        to have in effect at a minimum--
                  ``(A) a written plan of quality assurance and 
                improvement, and procedures implementing such 
                plan, in accordance with regulations, and
                  ``(B) written safeguards of the rights of 
                enrolled participants (including a patient bill 
                of rights and procedures for grievances and 
                appeals) in accordance with regulations and 
                with other requirements of this title and 
                Federal and State law designed for the 
                protection of patients.
  ``(c) Eligibility Determinations.--
          ``(1) In general.--The determination of whether an 
        individual is a PACE program eligible individual--
                  ``(A) shall be made under and in accordance 
                with the PACE program agreement, and
                  ``(B) who is entitled to medical assistance 
                under title XIX, shall be made (or who is not 
                so entitled, may be made) by the State 
                administering agency.
          ``(2) Condition.--An individual is not a PACE program 
        eligible individual (with respect to payment under this 
        section) unless the individual's health status has been 
        determined, in accordance with regulations, to be 
        comparable to the health status of individuals who have 
        participated in the PACE demonstration waiver programs. 
        Such determination shall be based upon information on 
        health status and related indicators (such as medical 
        diagnoses and measures of activities of daily living, 
        instrumental activities of daily living, and cognitive 
        impairment) that are part of a uniform minimum data set 
        collected by PACE providers on potential eligible 
        individuals.
          ``(3) Annual eligibility recertifications.--
                  ``(A) In general.--Subject to subparagraph 
                (B), the determination described in subsection 
                (a)(5)(B) for an individual shall be 
                reevaluated at least once a year.
                  ``(B) Exception.--The requirement of annual 
                reevaluation under subparagraph (A) may be 
                waived during a period in accordance with 
                regulations in those cases where the State 
                administering agency determines that there is 
                no reasonable expectation of improvement or 
                significant change in an individual's condition 
                during the period because of the advanced age, 
                severity of the advanced age, severity of 
                chronic condition, or degree of impairment of 
                functional capacity of the individual involved.
          ``(4) Continuation of eligibility.--An individual who 
        is a PACE program eligible individual may be deemed to 
        continue to be such an individual notwithstanding a 
        determination that the individual no longer meets the 
        requirement of subsection (a)(5)(B) if, in accordance 
        with regulations, in the absence of continued coverage 
        under a PACE program the individual reasonably would be 
        expected to meet such requirement within the succeeding 
        6-month period.
          ``(5) Enrollment; disenrollment.--The enrollment and 
        disenrollment of PACE program eligible individuals in a 
        PACE program shall be pursuant to regulations and the 
        PACE program agreement and shall permit enrollees to 
        voluntarily disenroll without cause at any time.
  ``(d) Payments to PACE Providers on a Capitated Basis.--
          ``(1) In general.--In the case of a PACE provider 
        with a PACE program agreement under this section, 
        except as provided in this subsection or by 
        regulations, the Secretary shall make prospective 
        monthly payments of a capitation amount for each PACE 
        program eligible individual enrolled under the 
        agreement under this section in the same manner and 
        from the same sources as payments are made to a 
        MedicarePlus organization under section 1854 (or, for 
        periods beginning before January 1, 1999, to an 
        eligible organization under a risk-sharing contract 
        under section 1876). Such payments shall be subject to 
        adjustment in the manner described in section 
        1854(a)(2) or section 1876(a)(1)(E), as the case may 
        be.
          ``(2) Capitation amount.--The capitation amount to be 
        applied under this subsection for a provider for a 
        contract year shall be an amount specified in the PACE 
        program agreement for the year. Such amount shall be 
        based upon payment rates established for purposes of 
        payment under section 1854 (or, for periods before 
        January 1, 1999, for purposes of risk-sharing contracts 
        under section 1876) and shall be adjusted to take into 
        account the comparative frailty of PACE enrollees and 
        such other factors as the Secretary determines to be 
        appropriate. Such amount under such an agreement shall 
        be computed in a manner so that the total payment level 
        for all PACE program eligible individuals enrolled 
        under a program is less than the projected payment 
        under this title for a comparable population not 
        enrolled under a PACE program.
  ``(e) PACE Program Agreement.--
          ``(1) Requirement.--
                  ``(A) In general.--The Secretary, in close 
                cooperation with the State administering 
                agency, shall establish procedures for entering 
                into, extending, and terminating PACE program 
                agreements for the operation of PACE programs 
                by entities that meet the requirements for a 
                PACE provider under this section, section 1932, 
                and regulations.
                  ``(B) Numerical limitation.--
                          ``(i) In general.--The Secretary 
                        shall not permit the number of PACE 
                        providers with which agreements are in 
                        effect under this section or under 
                        section 9412(b) of the Omnibus Budget 
                        Reconciliation Act of 1986 to exceed--
                                  ``(I) 40 as of the date of 
                                the enactment of this section, 
                                or
                                  ``(II) as of each succeeding 
                                anniversary of such date, the 
                                numerical limitation under this 
                                subparagraph for the preceding 
                                year plus 20.
                        Subclause (II) shall apply without 
                        regard to the actual number of 
                        agreements in effect as of a previous 
                        anniversary date.
                          ``(ii) Treatment of certain private, 
                        for-profit providers.--The numerical 
                        limitation in clause (i) shall not 
                        apply to a PACE provider that--
                                  ``(I) is operating under a 
                                demonstration project waiver 
                                under subsection (h), or
                                  ``(II) was operating under 
                                such a waiver and subsequently 
                                qualifies for PACE provider 
                                status pursuant to subsection 
                                (a)(3)(B)(ii).
          ``(2) Service area and eligibility.--
                  ``(A) In general.--A PACE program agreement 
                for a PACE program--
                          ``(i) shall designate the service 
                        area of the program;
                          ``(ii) may provide additional 
                        requirements for individuals to qualify 
                        as PACE program eligible individuals 
                        with respect to the program;
                          ``(iii) shall be effective for a 
                        contract year, but may be extended for 
                        additional contract years in the 
                        absence of a notice by a party to 
                        terminate and is subject to termination 
                        by the Secretary and the State 
                        administering agency at any time for 
                        cause (as provided under the 
                        agreement);
                          ``(iv) shall require a PACE provider 
                        to meet all applicable State and local 
                        laws and requirements; and
                          ``(v) shall have such additional 
                        terms and conditions as the parties may 
                        agree to consistent with this section 
                        and regulations.
                  ``(B) Service area overlap.--In designating a 
                service area under a PACE program agreement 
                under subparagraph (A)(i), the Secretary (in 
                consultation with the State administering 
                agency) may exclude from designation an area 
                that is already covered under another PACE 
                program agreement, in order to avoid 
                unnecessary duplication of services and avoid 
                impairing the financial and service viability 
                of an existing program.
          ``(3) Data collection.--
                  ``(A) In general.--Under a PACE program 
                agreement, the PACE provider shall--
                          ``(i) collect data;
                          ``(ii) maintain, and afford the 
                        Secretary and the State administering 
                        agency access to, the records relating 
                        to the program, including pertinent 
                        financial, medical, and personnel 
                        records; and
                          ``(iii) make to the Secretary and the 
                        State administering agency reports that 
                        the Secretary finds (in consultation 
                        with State administering agencies) 
                        necessary to monitor the operation, 
                        cost, and effectiveness of the PACE 
                        program under this title and title XIX.
                  ``(B) Requirements during trial period.--
                During the first three years of operation of a 
                PACE program (either under this section or 
                under a PACE demonstration waiver program), the 
                PACE provider shall provide such additional 
                data as the Secretary specifies in regulations 
                in order to perform the oversight required 
                under paragraph (4)(A).
          ``(4) Oversight.--
                  ``(A) Annual, close oversight during trial 
                period.--During the trial period (as defined in 
                subsection (a)(9)) with respect to a PACE 
                program operated by a PACE provider, the 
                Secretary (in cooperation with the State 
                administering agency) shall conduct a 
                comprehensive annual review of the operation of 
                the PACE program by the provider in order to 
                assure compliance with the requirements of this 
                section and regulations. Such a review shall 
                include--
                          ``(i) an on-site visit to the program 
                        site;
                          ``(ii) comprehensive assessment of a 
                        provider's fiscal soundness;
                          ``(iii) comprehensive assessment of 
                        the provider's capacity to provide all 
                        PACE services to all enrolled 
                        participants;
                          ``(iv) detailed analysis of the 
                        entity's substantial compliance with 
                        all significant requirements of this 
                        section and regulations; and
                          ``(v) any other elements the 
                        Secretary or State agency considers 
                        necessary or appropriate.
                  ``(B) Continuing oversight.--After the trial 
                period, the Secretary (in cooperation with the 
                State administering agency) shall continue to 
                conduct such review of the operation of PACE 
                providers and PACE programs as may be 
                appropriate, taking into account the 
                performance level of a provider and compliance 
                of a provider with all significant requirements 
                of this section and regulations.
                  ``(C) Disclosure.--The results of reviews 
                under this paragraph shall be reported promptly 
                to the PACE provider, along with any 
                recommendations for changes to the provider's 
                program, and shall be made available to the 
                public upon request.
          ``(5) Termination of pace provider agreements.--
                  ``(A) In general.--Under regulations--
                          ``(i) the Secretary or a State 
                        administering agency may terminate a 
                        PACE program agreement for cause, and
                          ``(ii) a PACE provider may terminate 
                        such an agreement after appropriate 
                        notice to the Secretary, the State 
                        agency, and enrollees.
                  ``(B) Causes for termination.--In accordance 
                with regulations establishing procedures for 
                termination of PACE program agreements, the 
                Secretary or a State administering agency may 
                terminate a PACE program agreement with a PACE 
                provider for, among other reasons, the fact 
                that--
                          ``(i) the Secretary or State 
                        administering agency determines that--
                                  ``(I) there are significant 
                                deficiencies in the quality of 
                                care provided to enrolled 
                                participants; or
                                  ``(II) the provider has 
                                failed to comply substantially 
                                with conditions for a program 
                                or provider under this section 
                                or section 1932; and
                          ``(ii) the entity has failed to 
                        develop and successfully initiate, 
                        within 30 days of the date of the 
                        receipt of written notice of such a 
                        determination, and continue 
                        implementation of a plan to correct the 
                        deficiencies.
                  ``(C) Termination and transition 
                procedures.--An entity whose PACE provider 
                agreement is terminated under this paragraph 
                shall implement the transition procedures 
                required under subsection (a)(2)(C).
          ``(6) Secretary's oversight; enforcement authority.--
                  ``(A) In general.--Under regulations, if the 
                Secretary determines (after consultation with 
                the State administering agency) that a PACE 
                provider is failing substantially to comply 
                with the requirements of this section and 
                regulations, the Secretary (and the State 
                administering agency) may take any or all of 
                the following actions:
                          ``(i) Condition the continuation of 
                        the PACE program agreement upon timely 
                        execution of a corrective action plan.
                          ``(ii) Withhold some or all further 
                        payments under the PACE program 
                        agreement under this section or section 
                        1932 with respect to PACE program 
                        services furnished by such provider 
                        until the deficiencies have been 
                        corrected.
                          ``(iii) Terminate such agreement.
                  ``(B) Application of intermediate 
                sanctions.--Under regulations, the Secretary 
                may provide for the application against a PACE 
                provider of remedies described in section 
                1857(f)(2) (or, for periods before January 1, 
                1999, section 1876(i)(6)(B)) or 1903(m)(5)(B) 
                in the case of violations by the provider of 
                the type described in section 1857(f)(1) (or 
                1876(i)(6)(A) for such periods) or 
                1903(m)(5)(A), respectively (in relation to 
                agreements, enrollees, and requirements under 
                this section or section 1932, respectively).
          ``(7) Procedures for termination or imposition of 
        sanctions.--Under regulations, the provisions of 
        section 1857(g) (or for periods before January 1, 1999, 
        section 1876(i)(9)) shall apply to termination and 
        sanctions respecting a PACE program agreement and PACE 
        provider under this subsection in the same manner as 
        they apply to a termination and sanctions with respect 
        to a contract and a MedicarePlus organization under 
        part C (or for such periods an eligible organization 
        under section 1876).
          ``(8) Timely consideration of applications for pace 
        program provider status.--In considering an application 
        for PACE provider program status, the application shall 
        be deemed approved unless the Secretary, within 90 days 
        after the date of the submission of the application to 
        the Secretary, either denies such request in writing or 
        informs the applicant in writing with respect to any 
        additional information that is needed in order to make 
        a final determination with respect to the application. 
        After the date the Secretary receives such additional 
        information, the application shall be deemed approved 
        unless the Secretary, within 90 days of such date, 
        denies such request.
  ``(f) Regulations.--
          ``(1) In general.--The Secretary shall issue interim 
        final or final regulations to carry out this section 
        and section 1932.
          ``(2) Use of pace protocol.--
                  ``(A) In general.--In issuing such 
                regulations, the Secretary shall, to the extent 
                consistent with the provisions of this section, 
                incorporate the requirements applied to PACE 
                demonstration waiver programs under the PACE 
                protocol.
                  ``(B) Flexibility.--The Secretary (in close 
                consultation with State administering agencies) 
                may modify or waive such provisions of the PACE 
                protocol in order to provide for reasonable 
                flexibility in adapting the PACE service 
                delivery model to the needs of particular 
                organizations (such as those in rural areas or 
                those that may determine it appropriate to use 
                non-staff physicians accordingly to State 
                licensing law requirements) under this section 
                and section 1932 where such flexibility is not 
                inconsistent with and would not impair the 
                essential elements, objectives, and 
                requirements of the this section, including--
                          ``(i) the focus on frail elderly 
                        qualifying individuals who require the 
                        level of care provided in a nursing 
                        facility;
                          ``(ii) the delivery of comprehensive, 
                        integrated acute and long-term care 
                        services;
                          ``(iii) the interdisciplinary team 
                        approach to care management and service 
                        delivery;
                          ``(iv) capitated, integrated 
                        financing that allows the provider to 
                        pool payments received from public and 
                        private programs and individuals; and
                          ``(v) the assumption by the provider 
                        over time of full financial risk.
          ``(3) Application of certain additional beneficiary 
        and program protections.--
                  ``(A) In general.--In issuing such 
                regulations and subject to subparagraph (B), 
                the Secretary may apply with respect to PACE 
                programs, providers, and agreements such 
                requirements of part C (or, for periods before 
                January 1, 1999, section 1876) and section 
                1903(m) relating to protection of beneficiaries 
                and program integrity as would apply to 
                MedicarePlus organizations under part C (or for 
                such periods eligible organizations under risk-
                sharing contracts under section 1876) and to 
                health maintenance organizations under prepaid 
                capitation agreements under section 1903(m).
                  ``(B) Considerations.--In issuing such 
                regulations, the Secretary shall--
                          ``(i) take into account the 
                        differences between populations served 
                        and benefits provided under this 
                        section and under part C (or, for 
                        periods before January 1, 1999, section 
                        1876) and section 1903(m);
                          ``(ii) not include any requirement 
                        that conflicts with carrying out PACE 
                        programs under this section; and
                          ``(iii) not include any requirement 
                        restricting the proportion of enrollees 
                        who are eligible for benefits under 
                        this title or title XIX.
  ``(g) Waivers of Requirements.--With respect to carrying out 
a PACE program under this section, the following requirements 
of this title (and regulations relating to such requirements) 
are waived and shall not apply:
          ``(1) Section 1812, insofar as it limits coverage of 
        institutional services.
          ``(2) Sections 1813, 1814, 1833, and 1886, insofar as 
        such sections relate to rules for payment for benefits.
          ``(3) Sections 1814(a)(2)(B), 1814(a)(2)(C), and 
        1835(a)(2)(A), insofar as they limit coverage of 
        extended care services or home health services.
          ``(4) Section 1861(i), insofar as it imposes a 3-day 
        prior hospitalization requirement for coverage of 
        extended care services.
          ``(5) Sections 1862(a)(1) and 1862(a)(9), insofar as 
        they may prevent payment for PACE programservices to 
individuals enrolled under PACE programs.
  ``(h) Demonstration Project for For-Profit Entities.--
          ``(1) In general.--In order to demonstrate the 
        operation of a PACE program by a private, for-profit 
        entity, the Secretary (in close consultation with State 
        administering agencies) shall grant waivers from the 
        requirement under subsection (a)(3) that a PACE 
        provider may not be a for-profit, private entity.
          ``(2) Similar terms and conditions.--
                  ``(A) In general.--Except as provided under 
                subparagraph (B), and paragraph (1), the terms 
                and conditions for operation of a PACE program 
                by a provider under this subsection shall be 
                the same as those for PACE providers that are 
                nonprofit, private organizations.
                  ``(B) Numerical limitation.--The number of 
                programs for which waivers are granted under 
                this subsection shall not exceed 10. Programs 
                with waivers granted under this subsection 
                shall not be counted against the numerical 
                limitation specified in subsection (e)(1)(B).
  ``(i) Construction.--Nothing in this section or section 1932 
shall be construed as preventing a PACE provider from entering 
into contracts with other governmental or nongovernmental 
payers for the care of PACE program eligible individuals who 
are not eligible for benefits under part A, or enrolled under 
part B, or eligible for medical assistance under title XIX.''.

SEC. 10012. ESTABLISHMENT OF PACE PROGRAM AS MEDICAID STATE OPTION.

  (a) In General.--Title XIX is amended--
          (1) in section 1905(a) (42 U.S.C. 1396d(a))--
                  (A) by striking ``and'' at the end of 
                paragraph (24);
                  (B) by redesignating paragraph (25) as 
                paragraph (26); and
                  (C) by inserting after paragraph (24) the 
                following new paragraph:
          ``(25) services furnished under a PACE program under 
        section 1932 to PACE program eligible individuals 
        enrolled under the program under such section; and'';
          (2) by redesignating section 1932, as redesignated by 
        section 114(a) of Public Law 104-193, as section 1933, 
        and
          (3) by inserting after section 1931 the following new 
        section:

``SEC. 1932. PROGRAM OF ALL-INCLUSIVE CARE FOR THE ELDERLY (PACE).

  ``(a) Option.--
          ``(1) In general.--A State may elect to provide 
        medical assistance under this section with respect to 
        PACE program services to PACE program eligible 
        individuals who are eligible for medical assistance 
        under the State plan and who are enrolled in a PACE 
        program under a PACE program agreement. Such 
        individuals need not be eligible for benefits under 
        part A, or enrolled under part B, of title XVIII to be 
        eligible to enroll under this section.
          ``(2) Benefits through enrollment in pace program.--
        In the case of an individual enrolled with a PACE 
        program pursuant to such an election--
                  ``(A) the individual shall receive benefits 
                under the plan solely through such program, and
                  ``(B) the PACE provider shall receive payment 
                in accordance with the PACE program agreement 
                for provision of such benefits.
          ``(3) Application of definitions.--The definitions of 
        terms under section 1894(a) shall apply under this 
        section in the same manner as they apply under section 
        1894.
  ``(b) Application of Medicare Terms and Conditions.--Except 
as provided in this section, the terms and conditions for the 
operation and participation of PACE program eligible 
individuals in PACE programs offered by PACE providers under 
PACE program agreements under section 1894 shall apply for 
purposes of this section.
  ``(c) Adjustment in Payment Amounts.--In the case of 
individuals enrolled in a PACE program under this section, the 
amount of payment under this section shall not be the amount 
calculated under section 1894(d), but shall be an amount, 
specified under the PACE agreement, which is less than the 
amount that would otherwise have been made under the State plan 
if the individuals were not so enrolled. The payment under this 
section shall be in addition to any payment made under section 
1894 for individuals who are enrolled in a PACE program under 
such section.
  ``(d) Waivers of Requirements.--With respect to carrying out 
a PACE program under this section, the following requirements 
of this title (and regulations relating to such requirements) 
shall not apply:
          ``(1) Section 1902(a)(1), relating to any requirement 
        that PACE programs or PACE program services be provided 
        in all areas of a State.
          ``(2) Section 1902(a)(10), insofar as such section 
        relates to comparability of services among different 
        population groups.
          ``(3) Sections 1902(a)(23) and 1915(b)(4), relating 
        to freedom of choice of providers under a PACE program.
          ``(4) Section 1903(m)(2)(A), insofar as it restricts 
        a PACE provider from receiving prepaid capitation 
        payments.
  ``(e) Post-Eligibility Treatment of Income.--A State may 
provide for post-eligibility treatment of income for 
individuals enrolled in PACE programs under this section in the 
same manner as a State treats post-eligibility income for 
individuals receiving services under a waiver under section 
1915(c).''.
  (b) Conforming Amendments.--
          (1) Section 1902(j) (42 U.S.C. 1396a(j)) is amended 
        by striking ``(25)'' and inserting ``(26)''.
          (2) Section 1924(a)(5) (42 U.S.C. 1396r-5(a)(5)) is 
        amended--
                  (A) in the heading, by striking ``from 
                organizations receiving certain waivers'' and 
                inserting ``under pace programs'', and
                  (B) by striking ``from any organization'' and 
                all that follows and inserting ``under a PACE 
                demonstration waiver program (as defined in 
                subsection (a)(7) of section 1894) or under a 
                PACE program under section 1932.''.
          (3) Section 1903(f)(4)(C) (42 U.S.C. 1396b(f)(4)(C)) 
        is amended by inserting ``or who is a PACE program 
        eligible individual enrolled in a PACE program under 
        section 1932,'' after ``section 1902(a)(10)(A),''.

SEC. 10013. EFFECTIVE DATE; TRANSITION.

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

SEC. 10014. STUDY AND REPORTS.

  (a) Study.--
          (1) In general.--The Secretary of Health and Human 
        Services (in close consultation with State 
        administering agencies, as defined in section 
        1894(a)(8) of the Social Security Act) shall conduct a 
        study of the quality and cost of providing PACE program 
        services under the medicare and medicaid programs under 
        the amendments made by this subchapter.
          (2) Study of private, for-profit providers.--Such 
        study shall specifically compare the costs, quality, 
        and access to services by entities that are private, 
        for-profit entities operating under demonstration 
        projects waivers granted under section 1894(h) of the 
        Social Security Act with the costs, quality, and access 
        to services of other PACE providers.
  (b) Report.--
          (1) In general.--Not later than 4 years after the 
        date of the enactment of this Act, the Secretary shall 
        provide a report to Congress on the impact of such 
        amendments on quality and cost of services. The 
        Secretary shall include in such report such 
        recommendations for changes in the operation of such 
        amendments as the Secretary deems appropriate.
          (2) Treatment of private, for-profit providers.--The 
        report shall include specific findings on whether any 
        of the following findings is true:
                  (A) The number of covered lives enrolled with 
                entities operating under demonstration project 
                waivers under section 1894(h) of the Social 
                Security Act is fewer than 800 (or such lesser 
                number as the Secretary may find statistically 
                sufficient to make determinations respecting 
                findings described in the succeeding 
                subparagraphs).
                  (B) The population enrolled with such 
                entities is less frail than the population 
                enrolled with other PACE providers.
                  (C) Access to or quality of care for 
                individuals enrolled with such entities is 
                lower than such access or quality for 
                individuals enrolled with other PACE providers.
                  (D) The application of such section has 
                resulted in an increase in expenditures under 
                the medicare or medicaid programs above the 
                expenditures that would have been made if such 
                section did not apply.
  (c) Information Included in Annual Recommendations.--The 
Medicare Payment Advisory Commission shall include in its 
annual report under section 1805(b)(1)(B) of the Social 
Security Act recommendations on the methodology and level of 
payments made to PACE providers under section 1894(d) of such 
Act and on the treatment of private, for-profit entities as 
PACE providers.

         Subchapter B--Social Health Maintenance Organizations

SEC. 10015. SOCIAL HEALTH MAINTENANCE ORGANIZATIONS (SHMOS).

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

                      Subchapter C--Other Programs

SEC. 10018. ORDERLY TRANSITION OF MUNICIPAL HEALTH SERVICE 
                    DEMONSTRATION PROJECTS.

  Section 9215 of the Consolidated Omnibus Budget 
Reconciliation Act of 1985, as amended by section 6135 of OBRA-
1989 and section 13557 of OBRA-1993, is further amended--
          (1) by inserting ``(a)'' before ``The Secretary'', 
        and
          (2) by adding at the end the following: ``Subject to 
        subsection (c), the Secretary may further extend such 
        demonstration projects through December 31, 2000, but 
        only with respect to individuals are enrolled with such 
        projects before January 1, 1998.
  ``(b) The Secretary shall work with each such demonstration 
project to develop a plan, to be submitted to the Committee on 
Ways and Means of the House of Representatives and the 
Committee on Finance of the Senate by March 31, 1998, for the 
orderly transition of demonstration projects and the project 
enrollees to a non-demonstration project health care delivery 
system, such as through integration with private or public 
health plan, including a medicaid managed care or MedicarePlus 
plan.
  ``(c) A demonstration project under subsection (a) which does 
not develop and submit a transition plan under subsection (b) 
by March 31, 1998, or, if later, 6 months after the date of the 
enactment of this Act, shall be discontinued as of December 31, 
1998. The Secretary shall provide appropriate technical 
assistance to assist in the transition so that disruption of 
medical services to project enrollees may be minimized.''.

SEC. 10019. EXTENSION OF CERTAIN MEDICARE COMMUNITY NURSING 
                    ORGANIZATION DEMONSTRATION PROJECTS.

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

            CHAPTER 3--MEDICARE PAYMENT ADVISORY COMMISSION

SEC. 10021. MEDICARE PAYMENT ADVISORY COMMISSION.

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

                 ``medicare payment advisory commission

  ``Sec. 1805. (a) Establishment.--There is hereby established 
the Medicare Payment Advisory Commission (in this section 
referred to as the `Commission').
  ``(b) Duties.--
          ``(1) Review of payment policies and annual 
        reports.--The Commission shall--
                  ``(A) review payment policies under this 
                title, including the topics described in 
                paragraph (2);
                  ``(B) make recommendations to Congress 
                concerning such payment policies;
                  ``(C) by not later than March 1 of each year 
                (beginning with 1998), submit a report to 
                Congress containing the results of such reviews 
                and its recommendations concerning such 
                policies; and
                  ``(D) by not later than June 1 of each year 
                (beginning with 1998), submit a report to 
                Congress containing an examination of issues 
                affecting the medicare program, including the 
                implications of changes in health care delivery 
                in the United States and in the market for 
                health care services on the medicare program.
          ``(2) Specific topics to be reviewed.--
                  ``(A) Medicareplus program.--Specifically, 
                the Commission shall review, with respect to 
                the MedicarePlus program under part C, the 
                following:
                          ``(i) The methodology for making 
                        payment to plans under such program, 
                        including the making ofdifferential 
payments and the distribution of differential updates among different 
payment areas.
                          ``(ii) The mechanisms used to adjust 
                        payments for risk and the need to 
                        adjust such mechanisms to take into 
                        account health status of beneficiaries.
                          ``(iii) The implications of risk 
                        selection both among MedicarePlus 
                        organizations and between the 
                        MedicarePlus option and the medicare 
                        fee-for-service option.
                          ``(iv) The development and 
                        implementation of mechanisms to assure 
                        the quality of care for those enrolled 
                        with MedicarePlus organizations.
                          ``(v) The impact of the MedicarePlus 
                        program on access to care for medicare 
                        beneficiaries.
                          ``(vi) Other major issues in 
                        implementation and further development 
                        of the MedicarePlus program.
                  ``(B) Fee-for-service system.--Specifically, 
                the Commission shall review payment policies 
                under parts A and B, including--
                          ``(i) the factors affecting 
                        expenditures for services in different 
                        sectors, including the process for 
                        updating hospital, skilled nursing 
                        facility, physician, and other fees,
                          ``(ii) payment methodologies, and
                          ``(iii) their relationship to access 
                        and quality of care for medicare 
                        beneficiaries.
                  ``(C) Interaction of medicare payment 
                policies with health care delivery generally.--
                Specifically, the Commission shall review the 
                effect of payment policies under this title on 
                the delivery of health care services other than 
                under this title and assess the implications of 
                changes in health care delivery in the United 
                States and in the general market for health 
                care services on the medicare program.
          ``(3) Comments on certain secretarial reports.--If 
        the Secretary submits to Congress (or a committee of 
        Congress) a report that is required by law and that 
        relates to payment policies under this title, the 
        Secretary shall transmit a copy of the report to the 
        Commission. The Commission shall review the report and, 
        not later than 6 months after the date of submittal of 
        the Secretary's report to Congress, shall submit to the 
        appropriate committees of Congress written comments on 
        such report. Such comments may include such 
        recommendations as the Commission deems appropriate.
          ``(4) Agenda and additional reviews.--The Commission 
        shall consult periodically with the chairmen and 
        ranking minority members of the appropriate committees 
        of Congress regarding the Commission's agenda and 
        progress towards achieving the agenda. The Commission 
        may conduct additional reviews, and submit additional 
        reports to the appropriate committees of Congress, from 
        time to time on such topics relating to the program 
        under this title as may be requested by such chairmen 
        and members and as the Commission deems appropriate.
          ``(5) Availability of reports.--The Commission shall 
        transmit to the Secretary a copy of each report 
        submitted under this subsection and shall make such 
        reports available to the public.
          ``(6) Appropriate committees.--For purposes of this 
        section, the term `appropriate committees of Congress' 
        means the Committees on Ways and Means and Commerce of 
        the House of Representatives and the Committee on 
        Finance of the Senate.
  ``(c) Membership.--
          ``(1) Number and appointment.--The Commission shall 
        be composed of 19 members appointed by the Comptroller 
        General.
          ``(2) Qualifications.--
                  ``(A) In general.--The membership of the 
                Commission shall include individuals with 
                national recognition for their expertise in 
                health finance and economics, actuarial 
                science, health facility management, health 
                plans and integrated delivery systems, 
                reimbursement of health facilities, allopathic 
                and osteopathic physicians, and other providers 
                of health services, and other related fields, 
                who provide a mix of different professionals, 
                broad geographic representation, and a balance 
                between urban and rural representatives.
                  ``(B) Inclusion.--The membership of the 
                Commission shall include (but not be limited 
                to) physicians and other health professionals, 
                employers, third party payers, individuals 
                skilled in the conduct and interpretation of 
                biomedical, health services, and health 
                economics research and expertise in outcomes 
                and effectiveness research and technology 
                assessment. Such membership shall also include 
                representatives of consumers and the elderly.
                  ``(C) Majority nonproviders.--Individuals who 
                are directly involved in the provision, or 
                management of the delivery, of items and 
                services covered under this title shall not 
                constitute a majority of the membership of the 
                Commission.
                  ``(D) Ethical disclosure.--The Comptroller 
                General shall establish a system for public 
                disclosure by members of the Commission of 
                financial and other potential conflicts of 
                interest relating to such members.
          ``(3) Terms.--
                  ``(A) In general.--The terms of members of 
                the Commission shall be for 3 years except that 
                the Comptroller General shall designate 
                staggered terms for the members first 
                appointed.
                  ``(B) Vacancies.--Any member appointed to 
                fill a vacancy occurring before the expiration 
                of the term for which the member's predecessor 
                was appointed shall beappointed only for the 
remainder of that term. A member may serve after the expiration of that 
member's term until a successor has taken office. A vacancy in the 
Commission shall be filled in the manner in which the original 
appointment was made.
          ``(4) Compensation.--While serving on the business of 
        the Commission (including traveltime), a member of the 
        Commission shall be entitled to compensation at the per 
        diem equivalent of the rate provided for level IV of 
        the Executive Schedule under section 5315 of title 5, 
        United States Code; and while so serving away from home 
        and 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.
          ``(5) Chairman; vice chairman.--The Comptroller 
        General shall designate a member of the Commission, at 
        the time of appointment of the member, as Chairman and 
        a member as Vice Chairman for that term of appointment.
          ``(6) Meetings.--The Commission shall meet at the 
        call of the Chairman.
  ``(d) Director and Staff; Experts and Consultants.--Subject 
to such review as the Comptroller General deems necessary to 
assure the efficient administration of the Commission, the 
Commission may--
          ``(1) employ and fix the compensation of an Executive 
        Director (subject to the approval of the Comptroller 
        General) and such other personnel as may be necessary 
        to carry out its duties (without regard to the 
        provisions of title 5, United States Code, governing 
        appointments in the competitive service);
          ``(2) seek such assistance and support as may be 
        required in the performance of its duties from 
        appropriate Federal departments and agencies;
          ``(3) enter into contracts or make other 
        arrangements, as may be necessary for the conduct of 
        the work of the Commission (without regard to section 
        3709 of the Revised Statutes (41 U.S.C. 5));
          ``(4) make advance, progress, and other payments 
        which relate to the work of the Commission;
          ``(5) provide transportation and subsistence for 
        persons serving without compensation; and
          ``(6) prescribe such rules and regulations as it 
        deems necessary with respect to the internal 
        organization and operation of the Commission.
  ``(e) Powers.--
          ``(1) Obtaining official data.--The Commission may 
        secure directly from any department or agency of the 
        United States information necessary to enable it to 
        carry out this section. Upon request of the Chairman, 
        the head of that department or agency shall furnish 
        that information to the Commission on an agreed upon 
        schedule.
          ``(2) Data collection.--In order to carry out its 
        functions, the Commission shall--
                  ``(A) utilize existing information, both 
                published and unpublished, where possible, 
                collected and assessed either by its own staff 
                or under other arrangements made in accordance 
                with this section,
                  ``(B) carry out, or award grants or contracts 
                for, original research and experimentation, 
                where existing information is inadequate, and
                  ``(C) adopt procedures allowing any 
                interested party to submit information for the 
                Commission's use in making reports and 
                recommendations.
          ``(3) Access of gao to information.--The Comptroller 
        General shall have unrestricted access to all 
        deliberations, records, and nonproprietary data of the 
        Commission, immediately upon request.
          ``(4) Periodic audit.--The Commission shall be 
        subject to periodic audit by the Comptroller General.
  ``(f) Authorization of Appropriations.--
          ``(1) Request for appropriations.--The Commission 
        shall submit requests for appropriations in the same 
        manner as the Comptroller General submits requests for 
        appropriations, but amounts appropriated for the 
        Commission shall be separate from amounts appropriated 
        for the Comptroller General.
          ``(2) Authorization.--There are authorized to be 
        appropriated such sums as may be necessary to carry out 
        the provisions of this section. Sixty percent of such 
        appropriation shall be payable from the Federal 
        Hospital Insurance Trust Fund, and 40 percent of such 
        appropriation shall be payable from the Federal 
        Supplementary Medical Insurance Trust Fund.''.
  (b) Abolition of ProPAC and PPRC.--
          (1) Propac.--
                  (A) In general.--Section 1886(e) (42 U.S.C. 
                1395ww(e)) is amended--
                          (i) by striking paragraphs (2) and 
                        (6); and
                          (ii) in paragraph (3), by striking 
                        ``(A) The Commission'' and all that 
                        follows through ``(B)''.
                  (B) Conforming amendment.--Section 1862 (42 
                U.S.C. 1395y) is amended by striking 
                ``Prospective Payment Assessment Commission'' 
                each place it appears in subsection (a)(1)(D) 
                and subsection (i) and inserting ``Medicare 
                Payment Advisory Commission''.
          (2) PPRC.--
                  (A) In general.--Title XVIII is amended by 
                striking section 1845 (42 U.S.C. 1395w-1).
                  (B) Elimination of certain reports.--Section 
                1848 (42 U.S.C. 1395w-4) is amended--
                          (i) by striking subparagraph (F) of 
                        subsection (d)(2),
                          (ii) by striking subparagraph (B) of 
                        subsection (f)(1), and
                          (iii) in subsection (f)(3), by 
                        striking ``Physician Payment Review 
                        Commission,''.
                  (C) Conforming amendments.--Section 1848 (42 
                U.S.C. 1395w-4) is amended by striking 
                ``Physician Payment Review Commission'' and 
                inserting ``Medicare Payment Advisory 
                Commission'' each place it appears in 
                subsections (c)(2)(B)(iii), (g)(6)(C), and 
                (g)(7)(C).
  (c) Effective Date; Transition.--
          (1) In general.--The Comptroller General shall first 
        provide for appointment of members to the Medicare 
        Payment Advisory Commission (in this subsection 
        referred to as ``MedPAC'') by not later than September 
        30, 1997.
          (2) Transition.--As quickly as possible after the 
        date a majority of members of MedPAC are first 
        appointed, the Comptroller General, in consultation 
        with the Prospective Payment Assessment Commission (in 
        this subsection referred to as ``ProPAC'') and the 
        Physician Payment Review Commission (in this subsection 
        referred to as ``PPRC''), shall provide for the 
        termination of the ProPAC and the PPRC. As of the date 
        of termination of the respective Commissions, the 
        amendments made by paragraphs (1) and (2), 
        respectively, of subsection (b) become effective. The 
        Comptroller General, to the extent feasible, shall 
        provide for the transfer to the MedPAC of assets and 
        staff of the ProPAC and the PPRC, without any loss of 
        benefits or seniority by virtue of such transfers. Fund 
        balances available to the ProPAC or the PPRC for any 
        period shall be available to the MedPAC for such period 
        for like purposes.
          (3) Continuing responsibility for reports.--The 
        MedPAC shall be responsible for the preparation and 
        submission of reports required by law to be submitted 
        (and which have not been submitted by the date of 
        establishment of the MedPAC) by the ProPAC and the 
        PPRC, and, for this purpose, any reference in law to 
        either such Commission is deemed, after the appointment 
        of the MedPAC, to refer to the MedPAC.

                     CHAPTER 4--MEDIGAP PROTECTIONS

SEC. 10031. MEDIGAP PROTECTIONS.

  (a) Guaranteeing Issue Without Preexisting Conditions for 
Continuously Covered Individuals.--Section 1882(s) (42 U.S.C. 
1395ss(s)) is amended--
          (1) in paragraph (3), by striking ``paragraphs (1) 
        and (2)'' and inserting ``this subsection'',
          (2) by redesignating paragraph (3) as paragraph (4), 
        and
          (3) by inserting after paragraph (2) the following 
        new paragraph:
  ``(3)(A) The issuer of a medicare supplemental policy--
          ``(i) may not deny or condition the issuance or 
        effectiveness of a medicare supplemental policy 
        described in subparagraph (C) that is offered and is 
        available for issuance to new enrollees by such issuer;
          ``(ii) may not discriminate in the pricing of such 
        policy, because of health status, claims experience, 
        receipt of health care, or medical condition; and
          ``(iii) may not impose an exclusion of benefits based 
        on a pre-existing condition under such policy,
in the case of an individual described in subparagraph (B) who 
seeks to enroll under the policy not later than 63 days after 
the date of the termination of enrollment described in such 
subparagraph and who submits evidence of the date of 
termination or disenrollment along with the application for 
such medicare supplemental policy.
  ``(B) An individual described in this subparagraph is an 
individual described in any of the following clauses:
          ``(i) The individual is enrolled under an employee 
        welfare benefit plan that provides health benefits that 
        supplement the benefits under this title and the plan 
        terminates or ceases to provide all such supplemental 
        health benefits to the individual.
          ``(ii) The individual is enrolled with a MedicarePlus 
        organization under a MedicarePlus plan under part C, 
        and there are circumstances permitting discontinuance 
        of the individual's election of the plan under section 
        1851(c)(4).
          ``(iii) The individual is enrolled with an eligible 
        organization under a contract under section 1876, a 
        similar organization operating under demonstration 
        project authority, with an organization under an 
        agreement under section 1833(a)(1)(A), or with an 
        organization under a policy described in subsection 
        (t), and such enrollment ceases under the same 
        circumstances that would permit discontinuance of an 
        individual's election of coverage under section 
        1851(c)(4) and, in the case of a policy described in 
        subsection (t), there is no provision under applicable 
        State law for the continuation of coverage under such 
        policy.
          ``(iv) The individual is enrolled under a medicare 
        supplemental policy under this section and such 
        enrollment ceases because--
                  ``(I) of the bankruptcy or insolvency of the 
                issuer or because of other involuntary 
                termination of coverage or enrollment under 
                such policy and there is no provision under 
                applicable State law for the continuation of 
                such coverage;
                  ``(II) the issuer of the policy substantially 
                violated a material provision of the policy; or
                  ``(III) the issuer (or an agent or other 
                entity acting on the issuer's behalf) 
                materially misrepresentedthe policy's 
provisions in marketing the policy to the individual.
          ``(v) The individual--
                  ``(I) was enrolled under a medicare 
                supplemental policy under this section,
                  ``(II) subsequently terminates such 
                enrollment and enrolls, for the first time, 
                with any MedicarePlus organization under a 
                MedicarePlus plan under part C, any eligible 
                organization under a contract under section 
                1876, any similar organization operating under 
                demonstration project authority, any 
                organization under an agreement under section 
                1833(a)(1)(A), or any policy described in 
                subsection (t), and
                  ``(III) the subsequent enrollment under 
                subclause (II) is terminated by the enrollee 
                during the first 6 months (or 3 months for 
                terminations occurring on or after January 1, 
                2003) of such enrollment.
  ``(C)(i) Subject to clauses (ii) and (iii), a medicare 
supplemental policy described in this subparagraph has a 
benefit package classified as `A', `B', `C', or `F' under the 
standards established under subsection (p)(2).
  ``(ii) Only for purposes of an individual described in 
subparagraph (B)(v), a medicare supplemental policy described 
in this subparagraph also includes (if available from the same 
issuer) the same medicare supplemental policy referred to in 
such subparagraph in which the individual was most recently 
previously enrolled.
  ``(iii) For purposes of applying this paragraph in the case 
of a State that provides for offering of benefit packages other 
than under the classification referred to in clause (i), the 
references to benefit packages in such clause are deemed 
references to comparable benefit packages offered in such 
State.
  ``(D) At the time of an event described in subparagraph (B) 
because of which an individual ceases enrollment or loses 
coverage or benefits under a contract or agreement, policy, or 
plan, the organization that offers the contract or agreement, 
the insurer offering the policy, or the administrator of the 
plan, respectively, shall notify the individual of the rights 
of the individual, and obligations of issuers of medicare 
supplemental policies, under subparagraph (A).''.
  (b) Limitation on Imposition of Preexisting Condition 
Exclusion During Initial Open Enrollment Period.--Section 
1882(s)(2) (42 U.S.C. 1395ss(s)(2)) is amended--
          (1) in subparagraph (B), by striking ``subparagraph 
        (C)'' and inserting ``subparagraphs (C) and (D)'', and
          (2) by adding at the end the following new 
        subparagraph:
  ``(D) In the case of a policy issued during the 6-month 
period described in subparagraph (A) to an individual who is 65 
years of age or older as of the date of issuance and who as of 
the date of the application for enrollment has a continuous 
period of creditable coverage (as defined in 2701(c) of the 
Public Health Service Act) of--
          ``(i) at least 6 months, the policy may not exclude 
        benefits based on a pre-existing condition; or
          ``(ii) of less than 6 months, if the policy excludes 
        benefits based on a preexisting condition, the policy 
        shall reduce the period of any preexisting condition 
        exclusion by the aggregate of the periods of creditable 
        coverage (if any, as so defined) applicable to the 
        individual as of the enrollment date.
The Secretary shall specify the manner of the reduction under 
clause (ii), based upon the rules used by the Secretary in 
carrying out section 2701(a)(3) of such Act.''.
  (c) Effective Dates.--
          (1) Guaranteed issue.--The amendment made by 
        subsection (a) shall take effect on July 1, 1998.
          (2) Limit on preexisting condition exclusions.--The 
        amendment made by subsection (b) shall apply to 
        policies issued on or after July 1, 1998.
  (d) Transition Provisions.--
          (1) In general.--If the Secretary of Health and Human 
        Services identifies a State as requiring a change to 
        its statutes or regulations to conform its regulatory 
        program to the changes made by this section, the State 
        regulatory program shall not be considered to be out of 
        compliance with the requirements of section 1882 of the 
        Social Security Act due solely to failure to make such 
        change until the date specified in paragraph (4).
          (2) NAIC standards.--If, within 9 months after the 
        date of the enactment of this Act, the National 
        Association of Insurance Commissioners (in this 
        subsection referred to as the ``NAIC'') modifies its 
        NAIC Model Regulation relating to section 1882 of the 
        Social Security Act (referred to in such section as the 
        1991 NAIC Model Regulation, as modified pursuant to 
        section 171(m)(2) of the Social Security Act Amendments 
        of 1994 (Public Law 103-432) and as modified pursuant 
        to section 1882(d)(3)(A)(vi)(IV) of the Social Security 
        Act, as added by section 271(a) of the Health Insurance 
        Portability and Accountability Act of 1996 (Public Law 
        104-191) to conform to the amendments made by this 
        section, such revised regulation incorporating the 
        modifications shall be considered to be the applicable 
        NAIC model regulation (including the revised NAIC model 
        regulation and the 1991 NAIC Model Regulation) for the 
        purposes of such section.
          (3) Secretary standards.--If the NAIC does not make 
        the modifications described in paragraph (2) within the 
        period specified in such paragraph, the Secretary of 
        Health and Human Services shall make the modifications 
        described in such paragraph and such revised regulation 
        incorporating the modifications shall be considered to 
        be the appropriate Regulation for the purposes of such 
        section.
          (4) Date specified.--
                  (A) In general.--Subject to subparagraph (B), 
                the date specified in this paragraph for a 
                State is the earlier of--
                          (i) the date the State changes its 
                        statutes or regulations to conform its 
                        regulatory program to the changes made 
                        by this section, or
                          (ii) 1 year after the date the NAIC 
                        or the Secretary first makes the 
                        modifications under paragraph (2) or 
                        (3), respectively.
                  (B) Additional legislative action required.--
                In the case of a State which the Secretary 
                identifies as--
                          (i) requiring State legislation 
                        (other than legislation appropriating 
                        funds) to conform its regulatory 
                        program to the changes made in this 
                        section, but
                          (ii) having a legislature which is 
                        not scheduled to meet in 1999 in a 
                        legislative session in which such 
                        legislation may be considered,
                the date specified in this paragraph is the 
                first day of the first calendar quarter 
                beginning after the close of the first 
                legislative session of the State legislature 
                that begins on or after July 1, 1999. For 
                purposes of the previous sentence, in the case 
                of a State that has a 2-year legislative 
                session, each year of such session shall be 
                deemed to be a separate regular session of the 
                State legislature.

SEC. 10032. MEDICARE PREPAID COMPETITIVE PRICING DEMONSTRATION PROJECT.

  (a) Establishment of Project.--The Secretary of Health and 
Human Services shall provide, beginning not later than 1 year 
after the date of the enactment of this Act, for implementation 
of a project (in this section referred to as the ``project'') 
to demonstrate the application of, and the consequences of 
applying, a market-oriented pricing system for the provision of 
a full range of medicare benefits in a geographic area.
  (b) Research Design Advisory Committee.--
          (1) In general.--Before implementing the project 
        under this section, the Secretary shall appoint a 
        national advisory committee, including independent 
        actuaries and individuals with expertise in competitive 
        health plan pricing, to make recommendations to the 
        Secretary concerning the appropriate research design 
        for implementing the project.
          (2) Initial recommendations.--The committee initially 
        shall submit recommendations respecting the method for 
        area selection, benefit design among plans offered, 
        structuring choice among health plans offered, methods 
        for setting the price to be paid to plans, collection 
        of plan information (including information concerning 
        quality and access to care), information dissemination, 
        and methods of evaluating the results of the project.
          (3) Advice during implementation.--Upon 
        implementation of the project, the committee shall 
        continue to advise the Secretary on the application of 
        the design in different areas and changes in the 
        project based on experience with its operations.
  (c) Area Selection.--
          (1) In general.--Taking into account the 
        recommendations of the advisory committee submitted 
        under subsection (b), the Secretary shall designate 
        areas in which the project will operate.
          (2) Appointment of area advisory committee.--Upon the 
        designation of an area for inclusion in the project, 
        the Secretary shall appoint an area advisory committee, 
        composed of representatives of health plans, providers, 
        and medicare beneficiaries in the area, to advise the 
        Secretary concerning how the project will actually be 
        implemented in the area. Such advice may include advice 
        concerning the marketing and pricing of plans in the 
        area and other salient factors relating.
  (d) Monitoring and Report.--
          (1) Monitoring impact.--Taking into consideration the 
        recommendations of the general advisory committee 
        (appointed under subsection (b)), the Secretary shall 
        closely monitor the impact of projects in areas on the 
        price and quality of, and access to, medicare covered 
        services, choice of health plan, changes in enrollment, 
        and other relevant factors.
          (2) Report.--The Secretary shall periodically report 
        to Congress on the progress under the project under 
        this section.
  (e) Waiver Authority.--The Secretary of Health and Human 
Services may waive such requirements of section 1876 (and such 
requirements of part C of title XVIII, as amended by chapter 
1), of the Social Security Act as may be necessary for the 
purposes of carrying out the project.

    CHAPTER 5--TAX TREATMENT OF HOSPITALS PARTICIPATING IN PROVIDER-
                        SPONSORED ORGANIZATIONS

SEC. 10041. TAX TREATMENT OF HOSPITALS WHICH PARTICIPATE IN PROVIDER-
                    SPONSORED ORGANIZATIONS.

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

SEC. 10101. SCREENING MAMMOGRAPHY.

  (a) Providing Annual Screening Mammography for Women Over Age 
39.--Section 1834(c)(2)(A) (42 U.S.C. 1395m(c)(2)(A)) is 
amended--
          (1) in clause (iii), to read as follows:
                          ``(iii) In the case of a woman over 
                        39 years of age, payment may not be 
                        made under this part for screening 
                        mammography performed within 11 months 
                        following the month in which a previous 
                        screening mammography was performed.''; 
                        and
          (2) by striking clauses (iv) and (v).
  (b) Waiver of Deductible.--The first sentence of section 
1833(b) (42 U.S.C. 1395l(b)) is amended--
          (1) by striking ``and'' before ``(4)'', and
          (2) by inserting before the period at the end the 
        following: ``, and (5) such deductible shall not apply 
        with respect to screening mammography (as described in 
        section 1861(jj))''.
  (c) Conforming Amendment.--Section 1834(c)(1)(C) of such Act 
(42 U.S.C. 1395m(c)(1)(C)) is amended by striking ``, subject 
to the deductible established under section 1833(b),''.
  (d) Effective Date.--The amendments made by this section 
shall apply to items and services furnished on or after January 
1, 1998.

SEC. 10102. SCREENING PAP SMEAR AND PELVIC EXAMS.

  (a) Coverage of Pelvic Exam; Increasing Frequency of Coverage 
of Pap Smear.--Section 1861(nn) (42 U.S.C. 1395x(nn)) is 
amended--
          (1) in the heading, by striking ``Smear'' and 
        inserting ``Smear; Screening Pelvic Exam'';
          (2) by inserting ``or vaginal'' after ``cervical'' 
        each place it appears;
          (3) by striking ``(nn)'' and inserting ``(nn)(1)'';
          (4) by striking ``3 years'' and all that follows and 
        inserting ``3 years, or during the preceding year in 
        the case of a woman described in paragraph (3).''; and
          (5) by adding at the end the following new 
        paragraphs:
  ``(2) The term `screening pelvic exam' means a pelvic 
examination provided to a woman if the woman involved has not 
had such an examination during the preceding 3 years, or during 
the preceding year in the case of a woman described in 
paragraph (3), and includes a clinical breast examination.
  ``(3) A woman described in this paragraph is a woman who--
          ``(A) is of childbearing age and has not had a test 
        described in this subsection during each of the 
        preceding 3 years that did not indicate the presence of 
        cervical or vaginal cancer; or
          ``(B) is at high risk of developing cervical or 
        vaginal cancer (as determined pursuant to factors 
        identified by the Secretary).''.
  (b) Waiver of Deductible.--The first sentence of section 
1833(b) (42 U.S.C. 1395l(b)), as amended by section 10101(b), 
is amended--
          (1) by striking ``and'' before ``(5)'', and
          (2) by inserting before the period at the end the 
        following: ``, and (6) such deductible shall not apply 
        with respect to screening pap smear and screening 
        pelvic exam (as described in section 1861(nn))''.
  (c) Conforming Amendments.--Sections 1861(s)(14) and 
1862(a)(1)(F) (42 U.S.C. 1395x(s)(14), 1395y(a)(1)(F)) are each 
amended by inserting ``and screening pelvic exam'' after 
``screening pap smear''.
  (d) Payment Under Physician Fee Schedule.--Section 1848(j)(3) 
(42 U.S.C. 1395w-4(j)(3)) is amended by striking ``and (4)'' 
and inserting ``(4) and (14) (with respect to services 
described in section 1861(nn)(2))''.
  (e) Effective Date.--The amendments made by this section 
shall apply to items and services furnished on or after January 
1, 1998.

SEC. 10103. PROSTATE CANCER SCREENING TESTS.

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

                   ``Prostate Cancer Screening Tests

  ``(oo)(1) The term `prostate cancer screening test' means a 
test that consists of any (or all) of the procedures described 
in paragraph (2) provided for the purpose of early detection of 
prostate cancer to a man over 50 years of age who has not had 
such a test during the preceding year.
  ``(2) The procedures described in this paragraph are as 
follows:
          ``(A) A digital rectal examination.
          ``(B) A prostate-specific antigen blood test.
          ``(C) For years beginning after 2001, such other 
        procedures as the Secretary finds appropriate for the 
        purpose of early detection of prostate cancer, taking 
        into account changes in technology and standards of 
        medical practice, availability, effectiveness, costs, 
        and such other factors as the Secretary considers 
        appropriate.''.
  (b) Payment for Prostate-Specific Antigen Blood Test Under 
Clinical Diagnostic Laboratory Test Fee Schedules.--Section 
1833(h)(1)(A) (42 U.S.C. 1395l(h)(1)(A)) is amended by 
inserting after ``laboratory tests'' the following: 
``(including prostate cancer screening tests under section 
1861(oo) consisting of prostate-specific antigen blood 
tests)''.
  (c) Conforming Amendment.--Section 1862(a) (42 U.S.C. 
1395y(a)) is amended--
          (1) in paragraph (1)--
                  (A) in subparagraph (E), by striking ``and'' 
                at the end,
                  (B) in subparagraph (F), by striking the 
                semicolon at the end and inserting ``, and'', 
                and
                  (C) by adding at the end the following new 
                subparagraph:
          ``(G) in the case of prostate cancer screening tests 
        (as defined in section 1861(oo)), which are performed 
        more frequently than is covered under such section;''; 
        and
          (2) in paragraph (7), by striking ``paragraph (1)(B) 
        or under paragraph (1)(F)'' and inserting 
        ``subparagraph (B), (F), or (G) of paragraph (1)''.
  (d) Payment Under Physician Fee Schedule.--Section 1848(j)(3) 
(42 U.S.C. 1395w-4(j)(3)), as amended by section 10102, is 
amended by inserting ``, (2)(P) (with respect to services 
described in subparagraphs (A) and (C) of section 1861(oo)'' 
after ``(2)(G)''
  (e) Effective Date.--The amendments made by this section 
shall apply to items and services furnished on or after January 
1, 1998.

SEC. 10104. COVERAGE OF COLORECTAL SCREENING.

  (a) Coverage.--
          (1) In general.--Section 1861 (42 U.S.C. 1395x), as 
        amended by section 10103(a), is amended--
                  (A) in subsection (s)(2)--
                          (i) by striking ``and'' at the end of 
                        subparagraph (P);
                          (ii) by adding ``and'' at the end of 
                        subparagraph (Q); and
                          (iii) by adding at the end the 
                        following new subparagraph:
          ``(R) colorectal cancer screening tests (as defined 
        in subsection (pp)); and''; and
                  (B) by adding at the end the following new 
                subsection:

                  ``Colorectal Cancer Screening Tests

  ``(pp)(1) The term `colorectal cancer screening test' means 
any of the following procedures furnished to an individual for 
the purpose of early detection of colorectal cancer:
          ``(A) Screening fecal-occult blood test.
          ``(B) Screening flexible sigmoidoscopy.
          ``(C) In the case of an individual at high risk for 
        colorectal cancer, screening colonoscopy.
          ``(D) Screening barium enema, if found by the 
        Secretary to be an appropriate alternative to screening 
        flexible sigmoidoscopy under subparagraph (B) or 
        screening colonoscopy under subparagraph (C).
          ``(E) For years beginning after 2002, such other 
        procedures as the Secretary finds appropriate for the 
        purpose of early detection of colorectal cancer, taking 
        into account changes in technology and standards of 
        medical practice, availability, effectiveness, costs, 
        and such other factors as the Secretary considers 
        appropriate.
  ``(2) In paragraph (1)(C), an `individual at high risk for 
colorectal cancer' is an individual who, because of family 
history, prior experience of cancer or precursor neoplastic 
polyps, a history of chronic digestive disease condition 
(including inflammatory bowel disease, Crohn's Disease, or 
ulcerative colitis), the presence of any appropriate recognized 
gene markers for colorectal cancer, or other predisposing 
factors, faces a high risk for colorectal cancer.''.
          (2) Deadline for decision on coverage of screening 
        barium enema.--Not later than 2 years after the date of 
        the enactment of this section, the Secretary of Health 
        and Human Services shall issue and publish a 
        determination on the treatment of screening barium 
        enema as a colorectal cancer screening test under 
        section 1861(pp) (as added by subparagraph (B)) as an 
        alternative procedure to a screening flexible 
        sigmoidoscopy or screening colonoscopy.
  (b) Frequency and Payment Limits.--
          (1) In general.--Section 1834 (42 U.S.C. 1395m) is 
        amended by inserting after subsection (c) the following 
        new subsection:
  ``(d) Frequency and Payment Limits for Colorectal Cancer 
Screening Tests.--
          ``(1) Screening fecal-occult blood tests.--
                  ``(A) Payment limit.--In establishing fee 
                schedules under section 1833(h) with respect to 
                colorectal cancer screening tests consisting of 
                screening fecal-occult blood tests, except as 
                provided by the Secretary under paragraph 
                (4)(A), the payment amount established for 
                tests performed--
                          ``(i) in 1998 shall not exceed $5; 
                        and
                          ``(ii) in a subsequent year, shall 
                        not exceed the limit on the payment 
                        amount established under this 
                        subsection for such tests for the 
                        preceding year, adjusted by the 
                        applicable adjustment under section 
                        1833(h) for tests performed in such 
                        year.
                  ``(B) Frequency limit.--Subject to revision 
                by the Secretary under paragraph (4)(B), no 
                payment may be made under this part for 
                colorectal cancer screening test consisting of 
                a screening fecal-occult blood test--
                          ``(i) if the individual is under 50 
                        years of age; or
                          ``(ii) if the test is performed 
                        within the 11 months after a previous 
                        screening fecal-occult blood test.
          ``(2) Screening flexible sigmoidoscopies.--
                  ``(A) Fee schedule.--The Secretary shall 
                establish a payment amount under section 1848 
                with respect to colorectal cancer screening 
                tests consisting of screening flexible 
                sigmoidoscopies that is consistent with payment 
                amounts under such section for similar or 
                related services, except that such payment 
                amount shall be established without regard to 
                subsection (a)(2)(A) of such section.
                  ``(B) Payment limit.--In the case of 
                screening flexible sigmoidoscopy services--
                          ``(i) the payment amount may not 
                        exceed such amount as the Secretary 
                        specifies, based upon the rates 
                        recognized under this part for 
                        diagnostic flexible sigmoidoscopy 
                        services; and
                          ``(ii) that, in accordance with 
                        regulations, may be performed in an 
                        ambulatory surgical center and for 
                        which the Secretary permits ambulatory 
                        surgical center payments under this 
                        part and that are performed in an 
                        ambulatory surgical center or hospital 
                        outpatient department, the payment 
                        amount under this part may not exceed 
                        the lesser of (I) the payment rate that 
                        would apply to such services if they 
                        were performed in a hospital outpatient 
                        department, or (II) the payment rate 
                        that would apply to such services if 
                        they were performed in an ambulatory 
                        surgical center.
                  ``(C) Special rule for detected lesions.--If, 
                during the course of such screening flexible 
                sigmoidoscopy, a lesion or growth is detected 
                which results in a biopsy or removal of the 
                lesion or growth, payment under this part shall 
                not be made for the screening flexible 
                sigmoidoscopy but shall be made for the 
                procedure classified as a flexible 
                sigmoidoscopy with such biopsy or removal.
                  ``(D) Frequency limit.--Subject to revision 
                by the Secretary under paragraph (4)(B), no 
                payment may be made under this part for a 
                colorectal cancer screening test consisting of 
                a screening flexible sigmoidoscopy--
                          ``(i) if the individual is under 50 
                        years of age; or
                          ``(ii) if the procedure is performed 
                        within the 47 months after a previous 
                        screening flexible sigmoidoscopy.
          ``(3) Screening colonoscopy for individuals at high 
        risk for colorectal cancer.--
                  ``(A) Fee schedule.--The Secretary shall 
                establish a payment amount under section 1848 
                with respect to colorectal cancer screening 
                test consisting of a screening colonoscopy for 
                individuals at high risk for colorectal cancer 
                (as defined in section 1861(pp)(2)) that is 
                consistent with payment amounts under such 
                section for similar or related services, except 
                that such payment amount shall be established 
                without regard to subsection (a)(2)(A) of such 
                section.
                  ``(B) Payment limit.--In the case of 
                screening colonoscopy services--
                          ``(i) the payment amount may not 
                        exceed such amount as the Secretary 
                        specifies, based upon the rates 
                        recognized under this part for 
                        diagnostic colonoscopy services; and
                          ``(ii) that are performed in an 
                        ambulatory surgical center or hospital 
                        outpatient department, the payment 
                        amount under this part may not exceed 
                        the lesser of (I) the payment rate that 
                        would apply to such services if they 
                        were performed in a hospital outpatient 
                        department, or (II) the payment rate 
                        that would apply to such services if 
                        they were performed in an ambulatory 
                        surgical center.
                  ``(C) Special rule for detected lesions.--If 
                during the course of such screening 
                colonoscopy, a lesion or growth is detected 
                which results in a biopsy or removal of the 
                lesion or growth, payment under this part shall 
                not be made for the screening colonoscopy but 
                shall be made for the procedure classified as a 
                colonoscopy with such biopsy or removal.
                  ``(D) Frequency limit.--Subject to revision 
                by the Secretary under paragraph (4)(B), no 
                payment may be made under this part for a 
                colorectal cancer screening test consisting of 
                a screening colonoscopy for individuals at high 
                risk for colorectal cancer if the procedure is 
                performed within the 23 months after a previous 
                screening colonoscopy.
          ``(4) Reductions in payment limit and revision of 
        frequency.--
                  ``(A) Reductions in payment limit for 
                screening fecal-occult blood tests.--The 
                Secretary shall review from time to time the 
                appropriateness of the amount of the payment 
                limit established for screening fecal-occult 
                blood tests under paragraph (1)(A). The 
                Secretary may, with respect to tests performed 
                in a year after 2000, reduce the amount of such 
                limit as it applies nationally or in any area 
                to the amount that the Secretary estimates is 
                required to assure that such tests of an 
                appropriate quality are readily and 
                conveniently available during the year.
                  ``(B) Revision of frequency.--
                          ``(i) Review.--The Secretary shall 
                        review periodically the appropriate 
                        frequency for performing colorectal 
                        cancer screening tests based on age and 
                        such other factors as the Secretary 
                        believes to be pertinent.
                          ``(ii) Revision of frequency.--The 
                        Secretary, taking into consideration 
                        the review made under clause (i), may 
                        revise from time to time the frequency 
                        with which such tests may be paid for 
                        under this subsection, but no such 
                        revision shall apply to tests performed 
                        before January 1, 2001.
          ``(5) Limiting charges of nonparticipating 
        physicians.--
                  ``(A) In general.--In the case of a 
                colorectal cancer screening test consisting of 
                a screening flexible sigmoidoscopy or a 
                screening colonoscopy provided to an individual 
                at high risk for colorectal cancer for which 
                payment may be made under this part, if a 
                nonparticipating physician provides the 
                procedure to an individual enrolled under this 
                part, the physician may not charge the 
                individual more than the limiting charge (as 
                defined in section 1848(g)(2)).
                  ``(B) Enforcement.--If a physician or 
                supplier knowing and willfully imposes a charge 
                in violation of subparagraph (A), the Secretary 
                may apply sanctions against such physician or 
                supplier in accordance with section 
                1842(j)(2).''.
          (2) Special rule for screening barium enema.--If the 
        Secretary of Health and Human Services issues a 
        determination under subsection (a)(2) that screening 
        barium enema should be covered as a colorectal cancer 
        screening test under section 1861(pp) (as added by 
        subsection (a)(1)(B)), the Secretary shall establish 
        frequency limits (including revisions of frequency 
        limits) for such procedure consistent with the 
        frequency limits for other colorectal cancer screening 
        tests under section 1834(d) (as added by subsection 
        (b)(1)), and shall establish payment limits (including 
        limits on charges of nonparticipating physicians) for 
        such procedure consistent with the payment limits under 
        part B of title XVIII for diagnostic barium enema 
        procedures.
  (c) Conforming Amendments.--(1) Paragraphs (1)(D) and (2)(D) 
of section 1833(a) (42 U.S.C. 1395l(a)) are eachamended by 
inserting ``or section 1834(d)(1)'' after ``subsection (h)(1)''.
  (2) Section 1833(h)(1)(A) (42 U.S.C. 1395l(h)(1)(A)) is 
amended by striking ``The Secretary'' and inserting ``Subject 
to paragraphs (1) and (4)(A) of section 1834(d), the 
Secretary''.
  (3) Clauses (i) and (ii) of section 1848(a)(2)(A) (42 U.S.C. 
1395w-4(a)(2)(A)) are each amended by inserting after ``a 
service'' the following: ``(other than a colorectal cancer 
screening test consisting of a screening colonoscopy provided 
to an individual at high risk for colorectal cancer or a 
screening flexible sigmoidoscopy)''.
  (4) Section 1862(a) (42 U.S.C. 1395y(a)), as amended by 
section 10103(c), is amended--
          (A) in paragraph (1)--
                  (i) in subparagraph (F), by striking ``and'' 
                at the end,
                  (ii) in subparagraph (G), by striking the 
                semicolon at the end and inserting ``, and'', 
                and
                  (iii) by adding at the end the following new 
                subparagraph:
          ``(H) in the case of colorectal cancer screening 
        tests, which are performed more frequently than is 
        covered under section 1834(d);''; and
          (B) in paragraph (7), by striking ``or (G)'' and 
        inserting ``(G), or (H)''.
  (d) Effective Date.--The amendments made by this section 
shall apply to items and services furnished on or after January 
1, 1998.

SEC. 10105. DIABETES SCREENING TESTS.

  (a) Coverage of Diabetes Outpatient Self-Management Training 
Services.--
          (1) In general.--Section 1861 (42 U.S.C. 1395x), as 
        amended by sections 10103(a) and 10104(a), is amended--
                  (A) in subsection (s)(2)--
                          (i) by striking ``and'' at the end of 
                        subparagraph (Q);
                          (ii) by adding ``and'' at the end of 
                        subparagraph (R); and
                          (iii) by adding at the end the 
                        following new subparagraph:
          ``(S) diabetes outpatient self-management training 
        services (as defined in subsection (qq)); and''; and
                  (B) by adding at the end the following new 
                subsection:

        ``Diabetes Outpatient Self-Management Training Services

  ``(qq)(1) The term `diabetes outpatient self-management 
training services' means educational and training services 
furnished to an individual with diabetes by a certified 
provider (as described in paragraph (2)(A)) in an outpatient 
setting by an individual or entity who meets the quality 
standards described in paragraph (2)(B), but only if the 
physician who is managing the individual's diabetic condition 
certifies that such services are needed under a comprehensive 
plan of care related to the individual's diabetic condition to 
provide the individual with necessary skills and knowledge 
(including skills related to the self-administration of 
injectable drugs) to participate in the management of the 
individual's condition.
  ``(2) In paragraph (1)--
          ``(A) a `certified provider' is a physician, or other 
        individual or entity designated by the Secretary, that, 
        in addition to providing diabetes outpatient self-
        management training services, provides other items or 
        services for which payment may be made under this 
        title; and
          ``(B) a physician, or such other individual or 
        entity, meets the quality standards described in this 
        paragraph if the physician, or individual or entity, 
        meets quality standards established by the Secretary, 
        except that the physician or other individual or entity 
        shall be deemed to have met such standards if the 
        physician or other individual or entity meets 
        applicable standards originally established by the 
        National Diabetes Advisory Board and subsequently 
        revised by organizations who participated in the 
        establishment of standards by such Board, or is 
        recognized by an organization that represents 
        individuals (including individuals under this title) 
        with diabetes as meeting standards for furnishing the 
        services.''.
          (2) Payment Under Physician Fee Schedule.--Section 
        1848(j)(3)(42 U.S.C. 1395w-4(j)(3)) as amended in 
        sections 10102 and 10103, is amended by inserting 
        ``(2)(S),'' before ``(3),''.
          (3) Consultation with organizations in establishing 
        payment amounts for services provided by physicians.--
        In establishing payment amounts under section 1848 of 
        the Social Security Act for physicians' services 
        consisting of diabetes outpatient self-management 
        training services, the Secretary of Health and Human 
        Services shall consult with appropriate organizations, 
        including such organizations representing individuals 
        or medicare beneficiaries with diabetes, in determining 
        the relative value for such services under section 
        1848(c)(2) of such Act.
  (b) Blood-testing Strips for Individuals With Diabetes.--
          (1) Including strips and monitors as durable medical 
        equipment.--The first sentence of section 1861(n) (42 
        U.S.C. 1395x(n)) is amended by inserting before the 
        semicolon the following: ``, and includes blood-testing 
        strips and blood glucose monitors for individuals with 
        diabetes without regard to whether the individual has 
        Type I or Type II diabetes or to the individual's use 
        of insulin (as determined under standards established 
        by the Secretary in consultation with the appropriate 
        organizations)''.
          (2) 10 percent reduction in payments for testing 
        strips.--Section 1834(a)(2)(B)(iv) (42 U.S.C. 
        1395m(a)(2)(B)(iv)) is amended by adding before the 
        period the following: ``(reduced by 10 percent, in the 
        case ofa blood glucose testing strip furnished after 
1997 for an individual with diabetes)''.
  (c) Establishment of Outcome Measures for Beneficiaries With 
Diabetes.--
          (1) In general.--The Secretary of Health and Human 
        Services, in consultation with appropriate 
        organizations, shall establish outcome measures, 
        including glysolated hemoglobin (past 90-day average 
        blood sugar levels), for purposes of evaluating the 
        improvement of the health status of medicare 
        beneficiaries with diabetes mellitus.
          (2) Recommendations for modifications to screening 
        benefits.--Taking into account information on the 
        health status of medicare beneficiaries with diabetes 
        mellitus as measured under the outcome measures 
        established under subparagraph (A), the Secretary shall 
        from time to time submit recommendations to Congress 
        regarding modifications to the coverage of services for 
        such beneficiaries under the medicare program.
  (d) Effective Date.--The amendments made by this section 
shall apply to items and services furnished on or after January 
1, 1998.

SEC. 10106. STANDARDIZATION OF MEDICARE COVERAGE OF BONE MASS 
                    MEASUREMENTS.

  (a) In General.--Section 1861 (42 U.S.C. 1395x), as amended 
by sections 10103(a), 10104(a), 10105(a), is amended--
          (1) in subsection (s)--
                  (A) in paragraph (12)(C), by striking ``and'' 
                at the end,
                  (B) by striking the period at the end of 
                paragraph (14) and inserting ``; and'',
                  (C) by redesignating paragraphs (15) and (16) 
                as paragraphs (16) and (17), respectively, and
                  (D) by inserting after paragraph (14) the 
                following new paragraph:
          ``(15) bone mass measurement (as defined in 
        subsection (rr)).''; and
          (2) by inserting after subsection (qq) the following 
        new subsection:

                        ``Bone Mass Measurement

  ``(rr)(1) The term `bone mass measurement' means a radiologic 
or radioisotopic procedure or other procedure approved by the 
Food and Drug Administration performed on a qualified 
individual (as defined in paragraph (2)) for the purpose of 
identifying bone mass or detecting bone loss or determining 
bone quality, and includes a physician's interpretation of the 
results of the procedure.
  ``(2) For purposes of this subsection, the term `qualified 
individual' means an individual who is (in accordance with 
regulations prescribed by the Secretary)--
          ``(A) an estrogen-deficient woman at clinical risk 
        for osteoporosis;
          ``(B) an individual with vertebral abnormalities;
          ``(C) an individual receiving long-term 
        glucocorticoid steroid therapy;
          ``(D) an individual with primary hyperparathyroidism; 
        or
          ``(E) an individual being monitored to assess the 
        response to or efficacy of an approved osteoporosis 
        drug therapy.
  ``(3) The Secretary shall establish such standards regarding 
the frequency with which a qualified individual shall be 
eligible to be provided benefits for bone mass measurement 
under this title.''.
  (b) Payment under Physician Fee Schedule.--Section 1848(j)(3) 
(42 U.S.C. 1395w-4(j)(3)), as amended by sections 10102, 10103, 
and 10105, is amended--
          (1) by striking ``(4) and (14)'' and inserting ``(4), 
        (14)'' and
          (2) by inserting `` and (15)'' after 
        ``1861(nn)(2))''.
  (c) Conforming Amendments.--Sections 1864(a), 1902(a)(9)(C), 
and 1915(a)(1)(B)(ii)(I) (42 U.S.C. 1395aa(a), 1396a(a)(9)(C), 
and 1396n(a)(1)(B)(ii)(I)) are amended by striking ``paragraphs 
(15) and (16)'' each place it appears and inserting 
``paragraphs (16) and (17)''.
  (d) Effective Date.--The amendments made by this section 
shall apply to bone mass measurements performed on or after 
July 1, 1998.

SEC. 10107. VACCINES OUTREACH EXPANSION.

  (a) Extension of Influenza and Pneumococcal Vaccination 
Campaign.--In order to increase utilization of pneumococcal and 
influenza vaccines in medicare beneficiaries, the Influenza and 
Pneumococcal Vaccination Campaign carried out by the Health 
Care Financing Administration in conjunction with the Centers 
for Disease Control and Prevention and the National Coalition 
for Adult Immunization, is extended until the end of fiscal 
year 2002.
  (b) Authorization of Appropriation.--There are hereby 
authorized to be appropriated for each of fiscal years 1998 
through 2002, $8,000,000 for the Campaign described in 
subsection (a). Of the amount so authorized to be appropriated 
in each fiscal year, 60 percent of the amount so appropriated 
shall be payable from the Federal Hospital Insurance Trust 
Fund, and 40 percent shall be payable from the Federal 
Supplementary Medical Insurance Trust Fund.

SEC. 10108. STUDY ON PREVENTIVE BENEFITS.

  (a) Study.--The Secretary of Health and Human Services shall 
request the National Academy of Sciences, in conjunction with 
the United States Preventive Services Task Force, to analyze 
the expansion or modification of preventive benefits provided 
to medicare beneficiaries under title XVIII of the Social 
Security Act. The analysis shall consider both the short term 
and long term benefits, and costs to the medicare program, of 
such expansion or modification,
  (b) Report.--
          (1) Initial report.--Not later than 2 years after the 
        date of the enactment of this Act, the Secretary shall 
        submit a report on the findings of the analysis 
        conducted under subsection (a) to the Committee on Ways 
        and Means and the Committee on Commerce of the House of 
        Representatives and the Committee on Finance of the 
        Senate.
          (2) Contents.--Such report shall include specific 
        findings with respect to coverage of the following 
        preventive benefits:
                  (A) Nutrition therapy, including parenteral 
                and enteral nutrition.
                  (B) Medically necessary dental care.
                  (C) Routine patient care costs for 
                beneficiaries enrolled in approved clinical 
                trial programs.
                  (D) Elimination of time limitation for 
                coverage of immunosuppressive drugs for 
                transplant patients.
          (3) Funding.--From funds appropriated to the 
        Department of Health and Human Services for fiscal 
        years 1998 and 1999, the Secretary shall provide for 
        such funding as may be necessary for the conduct of the 
        analysis by the National Academy of Sciences under this 
        section.

                     Subtitle C--Rural Initiatives

SEC. 10201. RURAL PRIMARY CARE HOSPITAL PROGRAM.

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

             ``medicare rural primary care hospital program

  ``Sec. 1820. (a) State Designation of Facilities.--
          ``(1) In general.--A State may designate one or more 
        facilities as a rural primary care hospital in 
        accordance with paragraph (2).
          ``(2) Criteria for designation as rural primary care 
        hospital.--A State may designate a facility as a rural 
        primary care hospital if the facility--
                  ``(A) is a nonprofit or public hospital, and 
                is located in a county (or equivalent unit of 
                local government) in a rural area (as defined 
                in section 1886(d)(2)(D)) that--
                          ``(i) is located a distance that 
                        corresponds to a travel time of greater 
                        than 30 minutes (using the guidelines 
                        specified under part IB1(b) of Appendix 
                        A to part 5 of title 42, Code of 
                        Federal Regulations, as in effect on 
                        October 1, 1996), from a hospital, or 
                        another facility described in this 
                        subsection, or
                          ``(ii) is certified by the State as 
                        being a necessary provider of health 
                        care services to residents in the area 
                        because of local geography or service 
                        patterns;
                  ``(B) makes available 24-hour emergency care 
                services;
                  ``(C) provides at any time not more than 15 
                acute care inpatient beds (meeting such 
                standards as the Secretary may establish) for 
                providing inpatient care for a period not to 
                exceed 96 hours (unless a longer period is 
                required because transfer to a hospital is 
                precluded because of inclement weather or other 
                emergency conditions), except that a peer 
                review organization or equivalent entity may, 
                on request, waive the 96-hour restriction on a 
                case-by-case basis;
                  ``(D) meets such staffing requirements as 
                would apply under section 1861(e) to a hospital 
                located in a rural area, except that--
                          ``(i) the facility need not meet 
                        hospital standards relating to the 
                        number of hours during a day, or days 
                        during a week, in which the facility 
                        must be open and fully staffed, except 
                        insofar as the facility is required to 
                        make available emergency care services 
                        as determined under subparagraph (B) 
                        and must have nursing services 
                        available on a 24-hour basis, but need 
                        not otherwise staff the facility except 
                        when an inpatient is present,
                          ``(ii) the facility may provide any 
                        services otherwise required to be 
                        provided by a full-time, on-site 
                        dietitian, pharmacist, laboratory 
                        technician, medical technologist, and 
                        radiological technologist on a part-
                        time, off-site basis under arrangements 
                        as defined in section 1861(w)(1), and
                          ``(iii) the inpatient care described 
                        in subparagraph (C) may be provided by 
                        a physician's assistant, nurse 
                        practitioner, or clinical nurse 
                        specialist subject to the oversight of 
                        a physician who need not be present in 
                        the facility;
                  ``(E) meets the requirements of subparagraph 
                (I) of paragraph (2) of section 1861(aa); and
                  ``(F) has executed and in effect an agreement 
                described in subsection (b)(1).
  ``(b) Agreements.--
          ``(1) In general.--Each rural primary care hospital 
        shall have an agreement with respect to each item 
        described in paragraph (2) with at least 1 hospital (as 
        defined in section 1861(e)).
          ``(2) Items described.--The items described in this 
        paragraph are the following:
                  ``(A) Patient referral and transfer.
                  ``(B) The development and use of 
                communications systems including (where 
                feasible)--
                          ``(i) telemetry systems, and
                          ``(ii) systems for electronic sharing 
                        of patient data.
                  ``(C) The provision of emergency and non-
                emergency transportation between the facility 
                and the hospital.
          ``(3) Credentialing and quality assurance.--Each 
        rural primary care hospital shall have an agreement 
        with respect to credentialing and quality assurance 
        with at least 1--
                  ``(A) hospital,
                  ``(B) peer review organization or equivalent 
                entity, or
                  ``(C) other appropriate and qualified entity 
                identified by the State.
  ``(c) Certification by the Secretary.--The Secretary shall 
certify a facility as a rural primary care hospital if the 
facility--
          ``(1) is designated as a rural primary care hospital 
        by the State in which it is located; and
          ``(2) meets such other criteria as the Secretary may 
        require.
  ``(d) Permitting Maintenance of Swing Beds.--Nothing in this 
section shall be construed to prohibit a State from designating 
or the Secretary from certifying a facility as a rural primary 
care hospital solely because, at the time the facility applies 
to the State for designation as a rural primary care hospital, 
there is in effect an agreement between the facility and the 
Secretary under section 1883 under which the facility's 
inpatient hospital facilities are used for the provision of 
extended care services, so long as the total number of beds 
that may be used at any time for the furnishing of either such 
services or acute care inpatient services does not exceed 25 
beds and the number of beds used at any time for acute care 
inpatient services does not exceed 15 beds. For purposes of the 
previous sentence, any bed of a unit of the facility that is 
licensed as a distinct-part skilled nursing facility at the 
time the facility applies to the State for designation as a 
rural primary care hospital shall not be counted.
  ``(e) Waiver of Conflicting Part A Provisions.--The Secretary 
is authorized to waive such provisions of this part and part C 
as are necessary to conduct the program established under this 
section.''.
  (b) Payment on a Reasonable Cost Basis.--
          (1) Medicare part a.--Section 1814(l) (42 U.S.C. 
        1395f(l)) is amended to read as follows:
  ``(l) Payment for Inpatient Rural Primary Care Hospital 
Services.--The amount of payment under this part for inpatient 
rural primary care hospital services is the reasonable costs of 
the rural primary care hospital in providing such services.''.
          (2) Medicare part b.--Section 1834(g) (42 U.S.C. 
        1395m(g)) is amended to read as follows:
  ``(g) Payment for Outpatient Rural Primary Care Hospital 
Services.--The amount of payment under this part for outpatient 
rural primary care hospital services is the reasonable costs of 
the rural primary care hospital in providing such services.''.
  (c) Lengthening Maximum Period of Permitted Inpatient Stay.--
Section 1814(a)(8) (42 U.S.C. 1395f(a)(8)) is amended by 
striking ``72 hours'' and inserting ``96 hours''.
  (d) Payment Continued to Designated Essential Access 
Community Hospitals and Designated Rural Primary Care 
Hospitals.--
          (1) Essential access community hospitals.--Section 
        1886(d)(5)(D) (42 U.S.C. 1395ww(d)(5)(D)) is amended--
                  (A) in clause (iii)(III), by inserting ``as 
                in effect on September 30, 1997'' before the 
                period at the end; and
                  (B) in clause (v), by inserting ``as in 
                effect on September 30, 1997'' after 
                ``1820(i)(1)'' and after ``1820(g)''.
          (2) Rural primary care hospitals.--Section 
        1861(mm)(1) (42 U.S.C. 1395x(mm)(1)) is amended by 
        striking ``1820(i)(2).'' and inserting ``1820(c), and 
        includes a facility designated by the Secretary under 
        section 1820(i)(2) as in effect on September 30, 
        1997.''.
          (3) Medical assistance facility.--Any facility that, 
        as of March 1, 1997, operated as a limited service 
        rural hospital under a demonstration described in 
        section 4008(i)(1) of the Omnibus Budget Reconciliation 
        Act of 1990 (42 U.S.C. 1395b-1 note) shall be treated 
        as a rural primary care hospital for the purposes of 
        title XVIII of the Social Security Act so long as it 
        continues to meet the requirements of the demonstration 
        protocol relating to staffing, services, quality 
        assurance, and related factors.
  (e) Conforming Amendment.--Section 1883(a)(1) (42 U.S.C. 
1395tt(a)(1)) is amended by inserting ``or rural primary care 
hospital'' after ``Any hospital''.
  (f) Effective Date.--The amendments made by this section 
shall apply to services furnished in cost reporting periods 
beginning on or after October 1, 1997.

SEC. 10202. PROHIBITING DENIAL OF REQUEST BY RURAL REFERRAL CENTERS FOR 
                    RECLASSIFICATION ON BASIS OF COMPARABILITY OF 
                    WAGES.

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

SEC. 10203. HOSPITAL GEOGRAPHIC RECLASSIFICATION PERMITTED FOR PURPOSES 
                    OF DISPROPORTIONATE SHARE PAYMENT ADJUSTMENTS.

  (a) In General.--Section 1886(d)(10)(C)(i) (42 U.S.C. 
1395ww(d)(10)(C)(i)) is amended--
          (1) by striking ``or'' at the end of subclause (I);
          (2) by striking the period at the end of subclause 
        (II) and inserting ``, or''; and
          (3) by inserting after subclause (II) the following:
          ``(III) eligibility for and amount of additional 
        payment amounts under paragraph (5)(F).''.
  (b) Applicable Guidelines.--Such Board shall apply the 
guidelines established for reclassification under subclause (I) 
of section 1886(d)(10)(C)(i) of such Act to reclassification 
under subclause (III) of such section until the Secretary of 
Health and Human Services promulgates separate guidelines for 
reclassification under such subclause (III).

SEC. 10204. MEDICARE-DEPENDENT, SMALL RURAL HOSPITAL PAYMENT EXTENSION.

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

SEC. 10205. GEOGRAPHIC RECLASSIFICATION FOR CERTAIN DISPROPORTIONATELY 
                    LARGE HOSPITALS.

  (a) New Guidelines for Reclassification.--Notwithstanding the 
guidelines published under subparagraph (D)(i)(I) of section 
1886(d)(10) of the Social Security Act (42 U.S.C. 
1395ww(d)(10)), the Secretary of Health and Human Services 
shall publish and use alternative guidelines under which a 
hospital described in subsection (b) qualifies for geographic 
reclassification under such section for a fiscal year beginning 
with fiscal year 1998.
  (b) Hospitals Covered.--A hospital described in this 
subsection is a hospital that demonstrates that--
          (1) the average hourly wage paid by the hospital is 
        not less than 108 percent of the average hourly wage 
        paid by all other hospitals located in the Metropolitan 
        Statistical Area (or the New England County 
        Metropolitan Area) in which the hospital is located; 
        and
          (2) not less than 40 percent of the adjusted 
        uninflated wages paid by all hospitals located in such 
        Area is attributable to wages paid by the hospital.

SEC. 10206. 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, 1997, the area wage index applicable under such 
section to any hospital which is not located in a rural area 
(as defined in section 1886(d)(2)(D) of such Act) may not be 
less than the area wage indices applicable under such section 
to hospitals located in rural areas in the State in which the 
hospital is located.
  (b) Implementation.--The Secretary of Health and Human 
Services shall adjust the area wage indices referred to in 
subsection (a) for hospitals not described in such subsection 
in a manner which assures that the aggregate payments made 
under section 1886(d) of the Social Security Act 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.

SEC. 10207. INFORMATICS, TELEMEDICINE, AND EDUCATION DEMONSTRATION 
                    PROJECT.

  (a) Purpose and Authorization.--
          (1) In general.--Not later than 9 months after the 
        date of enactment of this section, the Secretary of 
        Health and Human Services shall provide for a 
        demonstration project described in paragraph (2).
          (2) Description of project.--
                  (A) In general.--The demonstration project 
                described in this paragraph is a single 
                demonstration project to use eligible health 
                care provider telemedicine networks to apply 
                high-capacity computing and advanced networks 
                to improve primary care (and preventhealth care 
complications) to medicare beneficiaries with diabetes mellitus who are 
residents of medically underserved rural areas or residents of 
medically underserved inner-city areas.
                  (B) Medically underserved defined.--As used 
                in this paragraph, the term ``medically 
                underserved'' has the meaning given such term 
                in section 330(b)(3) of the Public Health 
                Service Act (42 U.S.C. 254b(b)(3)).
          (3) Waiver.--The Secretary shall waive such 
        provisions of title XVIII of the Social Security Act as 
        may be necessary to provide for payment for services 
        under the project in accordance with subsection (d).
          (4) Duration of project.--The project shall be 
        conducted over a 4-year period.
  (b) Objectives of Project.--The objectives of the project 
include the following:
          (1) Improving patient access to and compliance with 
        appropriate care guidelines for individuals with 
        diabetes mellitus through direct telecommunications 
        link with information networks in order to improve 
        patient quality-of-life and reduce overall health care 
        costs.
          (2) Developing a curriculum to train, and providing 
        standards for credentialing and licensure of, health 
        professionals (particularly primary care health 
        professionals) in the use of medical informatics and 
        telecommunications.
          (3) Demonstrating the application of advanced 
        technologies, such as video-conferencing from a 
        patient's home, remote monitoring of a patient's 
        medical condition, interventional informatics, and 
        applying individualized, automated care guidelines, to 
        assist primary care providers in assisting patients 
        with diabetes in a home setting.
          (4) Application of medical informatics to residents 
        with limited English language skills.
          (5) Developing standards in the application of 
        telemedicine and medical informatics.
          (6) Developing a model for the cost-effective 
        delivery of primary and related care both in a managed 
        care environment and in a fee-for-service environment.
  (c) Eligible Health Care Provider Telemedicine Network 
Defined.--For purposes of this section, the term ``eligible 
health care provider telemedicine network'' means a consortium 
that includes at least one tertiary care hospital (but no more 
than 2 such hospitals), at least one medical school, no more 
than 4 facilities in rural or urban areas, and at least one 
regional telecommunications provider and that meets the 
following requirements:
          (1) The consortium is located in an area with one of 
        the highest concentrations of medical schools and 
        tertiary care facilities in the United States and has 
        appropriate arrangements (within or outside the 
        consortium) with such schools and facilities, 
        universities, and telecommunications providers, in 
        order to conduct the project.
          (2) The consortium submits to the Secretary an 
        application at such time, in such manner, and 
        containing such information as the Secretary may 
        require, including a description of the use to which 
        the consortium would apply any amounts received under 
        the project and the source and amount of non-Federal 
        funds used in the project.
          (3) The consortium guarantees that it will be 
        responsible for payment for all costs of the project 
        that are not paid under this section and that the 
        maximum amount of payment that may be made to the 
        consortium under this section shall not exceed the 
        amount specified in subsection (d)(3).
  (d) Coverage as Medicare Part B Services.--
          (1) In general.--Subject to the succeeding provisions 
        of this subsection, services related to the treatment 
        or management of (including prevention of complications 
        from) diabetes for medicare beneficiaries furnished 
        under the project shall be considered to be services 
        covered under part B of title XVIII of the Social 
        Security Act.
          (2) Payments.--
                  (A) In general.--Subject to paragraph (3), 
                payment for such services shall be made at a 
                rate of 50 percent of the costs that are 
                reasonable and related to the provision of such 
                services. In computing such costs, the 
                Secretary shall include costs described in 
                subparagraph (B), but may not include costs 
                described in subparagraph (C).
                  (B) Costs that may be included.--The costs 
                described in this subparagraph are the 
                permissible costs (as recognized by the 
                Secretary) for the following:
                          (i) The acquisition of telemedicine 
                        equipment for use in patients' homes 
                        (but only in the case of patients 
                        located in medically underserved 
                        areas).
                          (ii) Curriculum development and 
                        training of health professionals in 
                        medical informatics and telemedicine.
                          (iii) Payment of telecommunications 
                        costs (including salaries and 
                        maintenance of equipment), including 
                        costs of telecommunications between 
                        patients' homes and the eligible 
                        network and between the network and 
                        other entities under the arrangements 
                        described in subsection (c)(1).
                          (iv) Payments to practitioners and 
                        providers under the medicare programs.
                  (C) Costs not included.--The costs described 
                in this subparagraph are costs for any of the 
                following:
                          (i) The purchase or installation of 
                        transmission equipment (other than such 
                        equipment used by health professionals 
                        to deliver medical informatics services 
                        under the project).
                          (ii) The establishment or operation 
                        of a telecommunications common carrier 
                        network.
                          (iii) Construction (except for minor 
                        renovations related to the installation 
                        of reimbursableequipment) or the 
acquisition or building of real property.
          (3) Limitation.--The total amount of the payments 
        that may be made under this section shall not exceed 
        $30,000,000.
          (4) Limitation on cost-sharing.--The project may not 
        impose cost sharing on a medicare beneficiary for the 
        receipt of services under the project in excess of 20 
        percent of the recognized costs of the project 
        attributable to such services.
  (e) Reports.--The Secretary shall submit to the Committees on 
Ways and Means and Commerce of the House of Representatives and 
the Committee on Finance of the Senate interim reports on the 
project and a final report on the project within 6 months after 
the conclusion of the project. The final report shall include 
an evaluation of the impact of the use of telemedicine and 
medical informatics on improving access of medicare 
beneficiaries to health care services, on reducing the costs of 
such services, and on improving the quality of life of such 
beneficiaries.
  (f) Definitions.--For purposes of this section:
          (1) Interventional informatics.--The term 
        ``interventional informatics'' means using information 
        technology and virtual reality technology to intervene 
        in patient care.
          (2) Medical informatics.--The term ``medical 
        informatics'' means the storage, retrieval, and use of 
        biomedical and related information for problem solving 
        and decision-making through computing and 
        communications technologies.
          (3) Project.--The term ``project'' means the 
        demonstration project under this section.

              Subtitle D--Anti-Fraud and Abuse Provisions

SEC. 10301. PERMANENT EXCLUSION FOR THOSE CONVICTED OF 3 HEALTH CARE 
                    RELATED CRIMES.

  Section 1128(c)(3) (42 U.S.C. 1320a-7(c)(3)) is amended--
          (1) in subparagraph (A), by inserting ``or in the 
        case described in subparagraph (G)'' after ``subsection 
        (b)(12)'';
          (2) in subparagraphs (B) and (D), by striking ``In 
        the case'' and inserting ``Subject to subparagraph (G), 
        in the case''; and
          (3) by adding at the end the following new 
        subparagraph:
  ``(G) In the case of an exclusion of an individual under 
subsection (a) based on a conviction occurring on or after the 
date of the enactment of this subparagraph, if the individual 
has (before, on, or after such date and before the date of the 
conviction for which the exclusion is imposed) been convicted--
          ``(i) on one previous occasion of one or more 
        offenses for which an exclusion may be effected under 
        such subsection, the period of the exclusion shall be 
        not less than 10 years, or
          ``(ii) on 2 or more previous occasions of one or more 
        offenses for which an exclusion may be effected under 
        such subsection, the period of the exclusion shall be 
        permanent.''.

SEC. 10302. AUTHORITY TO REFUSE TO ENTER INTO MEDICARE AGREEMENTS WITH 
                    INDIVIDUALS OR ENTITIES CONVICTED OF FELONIES.

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

SEC. 10303. INCLUSION OF TOLL-FREE NUMBER TO REPORT MEDICARE WASTE, 
                    FRAUD, AND ABUSE IN EXPLANATION OF BENEFITS FORMS.

  (a) In General.--Section 1842(h)(7) (42 U.S.C. 1395u(h)(7)) 
is amended--
          (1) by striking ``and'' at the end of subparagraph 
        (C),
          (2) by striking the period at the end of subparagraph 
        (D) and inserting ``; and'', and
          (3) by adding at the end the following new 
        subparagraph:
          ``(E) a toll-free telephone number maintained by the 
        Inspector General in the Department of Health and Human 
        Services for the receipt of complaints and information 
        about waste, fraud, and abuse in the provision or 
        billing of services under this title.''.
  (b) Effective Date.--The amendments made by subsection (a) 
shall apply to explanations of benefits provided on or after 
such date (not later than January 1, 1999) as the Secretary of 
Health and Human Services shall provide.

SEC. 10304. LIABILITY OF MEDICARE CARRIERS AND FISCAL INTERMEDIARIES 
                    FOR CLAIMS SUBMITTED BY EXCLUDED PROVIDERS.

  (a) Reimbursement to the Secretary for Amounts Paid to 
Excluded Providers.--
          (1) Requirements for fiscal intermediaries.--
                  (A) In general.--Section 1816 (42 U.S.C. 
                1395h) is amended by adding at the end the 
                following new subsection:
  ``(m) An agreement with an agency or organization under this 
section shall require that such agency or organization 
reimburse the Secretary for any amounts paid by the agency or 
organization for a service under this title which is furnished, 
directed, or prescribed by an individual or entity during any 
period for which the individual or entity is excluded pursuant 
to section 1128, 1128A, or 1156, from participation in the 
program under this title, if the amounts are paid after the 
Secretary notifies the agency or organization of the 
exclusion.''.
                  (B) Conforming amendment.--Subsection (i) of 
                such section is amended by adding at the end 
                the following new paragraph:
  ``(4) Nothing in this subsection shall be construed to 
prohibit reimbursement by an agency or organization under 
subsection (m).''.
          (2) Requirements for carriers.--Section 1842(b)(3) 
        (42 U.S.C. 1395u(b)(3)) is amended--
                  (A) by striking ``and'' at the end of 
                subparagraph (I); and
                  (B) by inserting after subparagraph (I) the 
                following new subparagraph:
          ``(J) will reimburse the Secretary for any amounts 
        paid by the carrier for an item or service under this 
        part which is furnished, directed, or prescribed by an 
        individual or entity during any period for which the 
        individual or entity is excluded pursuant to section 
        1128, 1128A, or 1156, from participation in the program 
        under this title, if the amounts are paid after the 
        Secretary notifies the carrier of the exclusion, and''.
          (3) Reference to medicaid provision.--For provision 
        imposing similar restrictions on States under the 
        medicaid program under title XIX of the Social Security 
        Act, see section ____.
  (b) Conforming Repeal of Mandatory Payment Rule.--Paragraph 
(2) of section 1862(e) (42 U.S.C. 1395y(e)) is amended to read 
as follows:
  ``(2) No individual or entity may bill (or collect any amount 
from) any individual for any item or service for which payment 
is denied under paragraph (1). No person is liable for payment 
of any amounts billed for such an item or service in violation 
of the previous sentence.''.
  (c) Effective Dates.--The amendments made by this section 
shall apply to contracts and agreements entered into, renewed, 
or extended after the date of the enactment of this Act, but 
only with respect to claims submitted on or after the later of 
January 1, 1998, or the date such entry, renewal, or extension 
becomes effective.

SEC. 10305. EXCLUSION OF ENTITY CONTROLLED BY FAMILY MEMBER OF A 
                    SANCTIONED INDIVIDUAL.

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

SEC. 10306. IMPOSITION OF CIVIL MONEY PENALTIES.

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

SEC. 10307. DISCLOSURE OF INFORMATION AND SURETY BONDS.

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

SEC. 10308. PROVISION OF CERTAIN IDENTIFICATION NUMBERS.

  (a) Requirements to Disclose Employer Identification Numbers 
(EINS) and Social Security Account Numbers (SSNs).--Section 
1124(a)(1) (42 U.S.C. 1320a-3(a)(1)) is amended by inserting 
before the period at the end the following: ``and supply the 
Secretary with both the employer identification number 
(assigned pursuant to section 6109 of the Internal Revenue Code 
of 1986) and social security account number (assigned under 
section 205(c)(2)(B)) of the disclosing entity, each person 
with an ownership or control interest (as defined in subsection 
(a)(3)), and any subcontractor in which the entity directly or 
indirectly has a 5 percent or more ownership interest''.
  (b) Other Medicare Providers.--Section 1124A (42 U.S.C. 
1320a-3a) is amended--
          (1) in subsection (a)--
                  (A) by striking ``and'' at the end of 
                paragraph (1);
                  (B) by striking the period at the end of 
                paragraph (2) and inserting ``; and''; and
                  (C) by adding at the end the following new 
                paragraph:
          ``(3) including the employer identification number 
        (assigned pursuant to section 6109 of the Internal 
        Revenue Code of 1986) and social security account 
        number (assigned under section 205(c)(2)(B)) of the 
        disclosing part B provider and any person, managing 
        employee, or other entity identified or described under 
        paragraph (1) or (2).''; and
          (2) in subsection (c) by inserting ``(or, for 
        purposes of subsection (a)(3), any entity receiving 
        payment)'' after ``on an assignment-related basis''.
  (c) Verification by Social Security Administration (ssa).--
Section 1124A (42 U.S.C. 1320a-3a) is amended--
          (1) by redesignating subsection (c) as subsection 
        (d); and
          (2) by inserting after subsection (b) the following 
        new subsection:
  ``(c) Verification.--
          ``(1) Transmittal by hhs.--The Secretary shall 
        transmit--
                  ``(A) to the Commissioner of Social Security 
                information concerning each social security 
                account number (assigned under section 
                205(c)(2)(B)), and
                  ``(B) to the Secretary of the Treasury 
                information concerning each employer 
                identification number (assigned pursuant to 
                section 6109 of the Internal Revenue Code of 
                1986),
        supplied to the Secretary pursuant to subsection (a)(3) 
        or section 1124(c) to the extent necessary for 
        verification of such information in accordance with 
        paragraph (2).
          ``(2) Verification.--The Commissioner of Social 
        Security and the Secretary of the Treasury shall verify 
        the accuracy of, or correct, the information supplied 
        by the Secretary to such official pursuant to paragraph 
        (1), and shall report such verifications or corrections 
        to the Secretary.
          ``(3) Fees for verification.--The Secretary shall 
        reimburse the Commissioner and Secretary of the 
        Treasury, at a rate negotiated between the Secretary 
        and such official, for the costs incurred by such 
        official in performing the verification and correction 
        services described in this subsection.''.
  (d) Report.--The Secretary of Health and Human Services shall 
submit to Congress a report on steps the Secretary has taken to 
assure the confidentiality of social security account numbers 
that will be provided to the Secretary under the amendments 
made by this section.
  (e) Effective Dates.--
          (1) The amendment made by subsection (a) shall apply 
        to the application of conditions of participation, and 
        entering into and renewal of contracts and agreements, 
        occurring more than 90 days after the date of 
        submission of the report under subsection (d).
          (2) The amendments made by subsection (b) shall apply 
        to payment for items and services furnished more than 
        90 days after the date of submission of such report.

SEC. 10309. ADVISORY OPINIONS REGARDING CERTAIN PHYSICIAN SELF-REFERRAL 
                    PROVISIONS.

  Section 1877(g) (42 U.S.C. 1395nn(g)) is amended by adding at 
the end the following new paragraph:
          ``(6) Advisory opinions.--
                  ``(A) In general.--The Secretary shall issue 
                written advisory opinions concerning whether a 
                referral relating to designated health services 
                (other than clinical laboratory services) is 
                prohibited under this section.
                  ``(B) 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.
                  ``(C) Application of certain procedures.--The 
                Secretary shall, to the extent practicable, 
                apply the regulations promulgated under section 
                1128D(b)(5) to the issuance of advisory 
                opinions under this paragraph.
                  ``(D) Applicability.--This paragraph shall 
                apply to requests for advisory opinions made 
                during the period described in section 
                1128D(b)(6).''.

SEC. 10310. OTHER FRAUD AND ABUSE RELATED PROVISIONS.

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

                Subtitle E--Prospective Payment Systems

                    CHAPTER 1--PAYMENT UNDER PART A

SEC. 10401. PROSPECTIVE PAYMENT FOR SKILLED NURSING FACILITY SERVICES.

  (a) In General.--Section 1888 (42 U.S.C. 1395yy) is amended 
by adding at the end the following new subsection:
  ``(e) Prospective Payment.--
          ``(1) Payment provision.--Notwithstanding any other 
        provision of this title, subject to paragraph (7), the 
        amount of the payment for all costs (as defined in 
        paragraph (2)(B)) of covered skilled nursing facility 
        services (as defined in paragraph (2)(A)) for each day 
        of such services furnished--
                  ``(A) in a cost reporting period during the 
                transition period (as defined in paragraph 
                (2)(E)), is equal to the sum of--
                          ``(i) the non-Federal percentage of 
                        the facility-specific per diem rate 
                        (computed under paragraph (3)), and
                          ``(ii) the Federal percentage of the 
                        adjusted Federal per diem rate 
                        (determined under paragraph (4)) 
                        applicable to the facility; and
                  ``(B) after the transition period is equal to 
                the adjusted Federal per diem rate applicable 
                to the facility.
          ``(2) Definitions.--For purposes of this subsection:
                  ``(A) Covered skilled nursing facility 
                services.--
                          ``(i) In general.--The term `covered 
                        skilled nursing facility services'--
                                  ``(I) means post-hospital 
                                extended care services as 
                                defined in section 1861(i) for 
                                which benefits are provided 
                                under part A; and
                                  ``(II) includes all items and 
                                services (other than services 
                                described in clause (ii)) for 
                                which payment may be made under 
                                part B and which are furnished 
                                to an individual who is a 
                                resident of a skilled nursing 
                                facility during the period in 
                                which the individual is 
                                provided covered post-hospital 
                                extended care services.
                          ``(ii) Services excluded.--Services 
                        described in this clause are 
                        physicians' services, services 
                        described by clauses (i) through (iii) 
                        of section 1861(s)(2)(K), certified 
                        nurse-midwife services, qualified 
                        psychologist services, services of a 
                        certified registered nurse anesthetist, 
                        items and services described in 
                        subparagraphs in (F) and (O) of section 
                        1861(s)(2), and, only with respect to 
                        services furnished during 1998, the 
                        transportation costs of 
                        electrocardiagram equipment for 
                        electrocardiogram tests services (HCPCS 
                        Code R0076). Services described in this 
                        clause do not include any physical, 
                        occupational, or speech-language 
                        therapy services regardless of whether 
                        or not the services are furnished by, 
                        or under the supervision of, a 
                        physician or other health care 
                        professional.
                  ``(B) All costs.--The term `all costs' means 
                routine service costs, ancillary costs, and 
                capital-related costs of covered skilled 
                nursing facility services, but does not include 
                costs associated with approved educational 
                activities.
                  ``(C) Non-federal percentage; federal 
                percentage.--For--
                          ``(i) the first cost reporting period 
                        (as defined in subparagraph (D)) of a 
                        facility, the `non-Federal percentage' 
                        is 75 percent and the `Federal 
                        percentage' is 25 percent;
                          ``(ii) the next cost reporting period 
                        of such facility, the `non-Federal 
                        percentage' is 50 percent and the 
                        `Federal percentage' is 50 percent; and
                          ``(iii) the subsequent cost reporting 
                        period of such facility, the `non-
                        Federal percentage' is 25 percent and 
                        the `Federal percentage' is 75 percent.
                  ``(D) First cost reporting period.--The term 
                `first cost reporting period' means, with 
                respect to a skilled nursing facility, the 
                first cost reporting period of the facility 
                beginning on or after July 1, 1998.
                  ``(E) Transition period.--
                          ``(i) In general.--The term 
                        `transition period' means, with respect 
                        to a skilled nursing facility, the 3 
                        cost reporting periods of the facility 
                        beginning with the first cost reporting 
                        period.
                          ``(ii) Treatment of new skilled 
                        nursing facilities.--In the case of a 
                        skilled nursing facility that does not 
                        have a settled cost report for a cost 
                        reporting period before July 1, 1998, 
                        payment for such services shall be made 
                        under this subsection as if all 
                        services were furnished after the 
                        transition period.
          ``(3) Determination of facility specific per diem 
        rates.--The Secretary shall determine a facility-
        specific per diem rate for each skilled nursing 
        facility for a cost reporting period as follows:
                  ``(A) Determining base payments.--The 
                Secretary shall determine, on a per diem basis, 
                the total of--
                          ``(i) the allowable costs of extended 
                        care services for the facility for cost 
                        reporting periods beginning in 1995 
                        with appropriate adjustments (as 
                        determined by the Secretary) to non-
                        settled cost reports, and
                          ``(ii) an estimate of the amounts 
                        that would be payable under part B 
                        (disregarding any applicable 
                        deductibles, coinsurance and 
                        copayments) for covered skilled nursing 
                        facility services described in 
                        paragraph (2)(A)(i)(II) furnished 
                        during such period to an individual who 
                        is a resident of the facility, 
                        regardless of whether or not the 
                        payment was made to the facility or to 
                        another entity.
                  ``(B) Update to cost reporting period before 
                first cost reporting period.--The Secretary 
                shall update the amount determined under 
                subparagraph (A), for each cost reporting 
                period after the cost reporting period 
                described in subparagraph (A)(i) and up to the 
                cost reporting period immediately preceding the 
                first cost reporting period, by the skilled 
                nursing facility historical trend factor.
                  ``(C) Updating to applicable cost reporting 
                period.--The Secretary shall further update 
                such amount for each cost reporting period 
                beginning with the first cost reporting period 
                and up to and including the cost reporting 
                period involved by a factor equal tothe skilled 
nursing facility market basket percentage increase.
          ``(4) Federal per diem rate.--
                  ``(A) Determination of historical per diem 
                for freestanding facilities.--For each 
                freestanding skilled nursing facility that 
                received payments for post-hospital extended 
                care services during a cost reporting period 
                beginning in fiscal year 1995 and that was 
                subject to (and not exempted from) the per diem 
                limits referred to in paragraph (1) or (2) of 
                subsection (a) (and facilities described in 
                subsection (d), if appropriate), the Secretary 
                shall estimate, on a per diem basis for such 
                cost reporting period, the total of--
                          ``(i) the allowable costs of extended 
                        care services for the facility for cost 
                        reporting periods beginning in 1995 
                        with appropriate adjustments (as 
                        determined by the Secretary) to non-
                        settled cost reports, and
                          ``(ii) an estimate of the amounts 
                        that would be payable under part B 
                        (disregarding any applicable 
                        deductibles, coinsurance and 
                        copayments) for covered skilled nursing 
                        facility services described in 
                        paragraph (2)(A)(i)(II) furnished 
                        during such period to an individual who 
                        is a resident of the facility, 
                        regardless of whether or not the 
                        payment was made to the facility or to 
                        another entity.
                  ``(B) Update to fiscal year 1998.--The 
                Secretary shall update the amount determined 
                under subparagraph (A), for each cost reporting 
                period after the cost reporting period 
                described in subparagraph (A)(i) and up to the 
                cost reporting period immediately preceding the 
                first cost reporting period, by the skilled 
                nursing facility historical trend factor for 
                such period.
                  ``(C) Computation of standardized per diem 
                rate.--The Secretary shall standardize the 
                amount updated under subparagraph (B) for each 
                facility by--
                          ``(i) adjusting for variations among 
                        facility by area in the average 
                        facility wage level per diem, and
                          ``(ii) adjusting for variations in 
                        case mix per diem among facilities.
                  ``(D) Computation of weighted average per 
                diem rate.--The Secretary shall compute a 
                weighted average per diem rate by computing an 
                average of the standardized amounts computed 
                under subparagraph (C), weighted for each 
                facility by number of days of extended care 
                services furnished during the cost reporting 
                period referred to in subparagraph (A). The 
                Secretary may compute and apply such average 
                separately for facilities located in urban and 
                rural areas (as defined in section 
                1886(d)(2)(D)).
                  ``(E) Updating.--
                          ``(i) Fiscal year 1998.--For fiscal 
                        year 1998, the Secretary shall compute 
                        for each skilled nursing facility an 
                        unadjusted Federal per diem rate equal 
                        to the weighted average per diem rate 
                        computed under subparagraph (D) and 
                        applicable to the facility increased by 
                        skilled nursing facility market basket 
                        percentage change for the fiscal year 
                        involved.
                          ``(ii) Subsequent fiscal years.--For 
                        each subsequent fiscal year the 
                        Secretary shall compute for each 
                        skilled nursing facility an unadjusted 
                        Federal per diem rate equal to the 
                        Federal per diem rate computed under 
                        this subparagraph for the previous 
                        fiscal year and applicable to the 
                        facility increased by the skilled 
                        nursing facility market basket 
                        percentage change for the fiscal year 
                        involved.
                          ``(F) Adjustment for case mix 
                        creep.--Insofar as the Secretary 
                        determines that such adjustments under 
                        subparagraph (G)(i) for a previous 
                        fiscal year (or estimates that such 
                        adjustments for a future fiscal year) 
                        did (or are likely to) result in a 
                        change in aggregate payments under this 
                        subsection during the fiscal year that 
                        are a result of changes in the coding 
                        or classification of residents that do 
                        not reflect real changes in case mix, 
                        the Secretary may adjust unadjusted 
                        Federal per diem rates for subsequent 
                        years so as to discount the effect of 
                        such coding or classification changes.
                  ``(G) Application to specific facilities.--
                The Secretary shall compute for each skilled 
                nursing facility for each fiscal year 
                (beginning with fiscal year 1998) an adjusted 
                Federal per diem rate equal to the unadjusted 
                Federal per diem rate determined under 
                subparagraph (E), as adjusted under 
                subparagraph (F), and as further adjusted as 
                follows:
                          ``(i) Adjustment for case mix.--The 
                        Secretary shall provide for an 
                        appropriate adjustment to account for 
                        case mix. Such adjustment shall be 
                        based on a resident classification 
                        system, established by the Secretary, 
                        that accounts for the relative resource 
                        utilization of different patient types. 
                        The case mix adjustment shall be based 
                        on resident assessment data and other 
                        data that the Secretary considers 
                        appropriate.
                          ``(ii) Adjustment for geographic 
                        variations in labor costs.--The 
                        Secretary shall adjust the portion of 
                        such per diem rate attributable to 
                        wages and wage-related costs for the 
                        area in which the facility is located 
                        compared to the national average of 
                        such costs using an appropriate wage 
                        index as determined by the Secretary. 
                        Such adjustment shall be done in a 
                        manner that does not result in 
                        aggregate payments under this 
                        subsection that are greater or less 
                        than those that would otherwise be made 
                        if such adjustment had not been made.
                  ``(H) Publication of information on per diem 
                rates.--The Secretary shall provide for 
                publication in the Federal Register, before the 
                July 1 preceding each fiscal year (beginning 
                with fiscal year 1999), of--
                          ``(i) the unadjusted Federal per diem 
                        rates to be applied to days of covered 
                        skilled nursing facility services 
                        furnished during the fiscal year,
                          ``(ii) the case mix classification 
                        system to be applied under subparagraph 
                        (G)(i) with respect to such services 
                        during the fiscal year, and
                          ``(iii) the factors to be applied in 
                        making the area wage adjustment under 
                        subparagraph (G)(ii) with respect to 
                        such services.
          ``(5) Skilled nursing facility market basket index, 
        percentage, and historical trend factor.--For purposes 
        of this subsection:
                  ``(A) Skilled nursing facility market basket 
                index.--The Secretary shall establish a skilled 
                nursing facility market basket index that 
                reflects changes over time in the prices of an 
                appropriate mix of goods and services included 
                in covered skilled nursing facility services.
                  ``(B) Skilled nursing facility market basket 
                percentage.--The term `skilled nursing facility 
                market basket percentage' means, for a fiscal 
                year or other annual period and as calculated 
                by the Secretary, the percentage change in the 
                skilled nursing facility market basket index 
                (established under subparagraph (A)) from the 
                midpoint of the prior fiscal year (or period) 
                to the midpoint of the fiscal year (or other 
                period) involved.
                  ``(C) Skilled nursing facility historical 
                trend factor.--The term `skilled nursing 
                facility historical trend factor' means, for a 
                fiscal year or other annual period and as 
                calculated by the Secretary, the percentage 
                change in the skilled nursing facility routine 
                cost index (used in applying per diem routine 
                cost limits under subsection (a)) from the 
                midpoint of the prior fiscal year (or period) 
                to the midpoint of the fiscal year (or other 
                period) involved, reduced (on an annualized 
                basis) by 1 percentage point.
          ``(6) Submission of resident assessment data.--A 
        skilled nursing facility shall provide the Secretary, 
        in a manner and within the timeframes prescribed by the 
        Secretary, the resident assessment data necessary to 
        develop and implement the rates under this subsection. 
        For purposes of meeting such requirement, a skilled 
        nursing facility may submit the resident assessment 
        data required under section 1819(b)(3), using the 
        standard instrument designated by the State under 
        section 1819(e)(5).
          ``(7) Transition for medicare low volume skilled 
        nursing facilities and swing bed hospitals.--
                  ``(A) In general.--The Secretary shall 
                determine an appropriate manner in which to 
                apply this subsection to the facilities 
                described in subparagraph (B), taking into 
                account the purposes of this subsection, and 
                shall provide that at the end of the transition 
                period (as defined in paragraph (2)(E)) such 
                facilities shall be paid only under this 
                subsection. Payment shall not be made under 
                this subsection to such facilities for cost 
                reporting periods beginning before such date 
                (not earlier than July 1, 1999) as the 
                Secretary specifies.
                  ``(B) Facilities described.--The facilities 
                described in this subparagraph are--
                          ``(i) skilled nursing facilities for 
                        which payment is made for routine 
                        service costs during a cost reporting 
                        period, ending prior to the date of the 
                        implementation of this paragraph, on 
                        the basis of prospective payments under 
                        section 1888(d), or
                          ``(ii) facilities that have in effect 
                        an agreement described in section 1883, 
                        for which payment is made for the 
                        furnishing of extended care services on 
                        a reasonable cost basis under section 
                        1814(l) (as in effect on and after such 
                        date).
          ``(8) Limitation on review.--There shall be no 
        administrative or judicial review under section 1869, 
        1878, or otherwise of--
                  ``(A) the establishment of facility specific 
                per diem rates under paragraph (3);
                  ``(B) the establishment of Federal per diem 
                rates under paragraph (4), including the 
                computation of the standardized per diem rates 
                under paragraph (4)(C), adjustments and 
                corrections for case mix under paragraphs 
                (4)(F) and (4)(G)(i), and adjustments for 
                variations in labor-related costs under 
                paragraph (4)(G)(ii); and
                  ``(C) the establishment of transitional 
                amounts under paragraph (7).''.
  (b) Consolidated Billing.--
          (1) For snf services.--Section 1862(a) (42 U.S.C. 
        1395y(a)) is amended--
                  (A) by striking ``or'' at the end of 
                paragraph (15),
                  (B) by striking the period at the end of 
                paragraph (16) and inserting ``; or'', and
                  (C) by inserting after paragraph (16) the 
                following new paragraph:
          ``(17) which are covered skilled nursing facility 
        services described in section 1888(e)(2)(A)(i) and 
        which are furnished to an individual who is a resident 
        of a skilled nursing facility by an entity other than 
        the skilled nursing facility, unless the services are 
        furnished under arrangements (as defined in section 
        1861(w)(1)) with the entity made by the skilled nursing 
        facility.''.
          (2) Requiring payment for all part b items and 
        services to be made to facility.--The first sentenceof 
section 1842(b)(6) (42 U.S.C. 1395u(b)(6)) is amended--
                  (A) by striking ``and (D)'' and inserting 
                ``(D)''; and
                  (B) by striking the period at the end and 
                inserting the following: ``, and (E) in the 
                case of an item or service (other than services 
                described in section 1888(e)(2)(A)(ii)) 
                furnished to an individual who (at the time the 
                item or service is furnished) is a resident of 
                a skilled nursing facility, payment shall be 
                made to the facility (without regard to whether 
                or not the item or service was furnished by the 
                facility, by others under arrangement with them 
                made by the facility, under any other 
                contracting or consulting arrangement, or 
                otherwise).''.
          (3) Payment rules.--Section 1888(e) (42 U.S.C. 
        1395yy(e)), as added by subsection (a), is amended by 
        adding at the end the following:
          ``(9) Payment for certain services.--In the case of 
        an item or service furnished by a skilled nursing 
        facility (or by others under arrangement with them made 
        by a skilled nursing facility or under any other 
        contracting or consulting arrangement or otherwise) for 
        which payment would otherwise (but for this paragraph) 
        be made under part B in an amount determined in 
        accordance with section 1833(a)(2)(B), the amount of 
        the payment under such part shall be based on such 
        existing or other fee schedules as the Secretary 
        establishes.
          ``(10) Required coding.--No payment may be made under 
        part B for items and services (other than services 
        described in paragraph (2)(A)(ii)) furnished to an 
        individual who is a resident of a skilled nursing 
        facility unless the claim for such payment includes a 
        code (or codes) under a uniform coding system specified 
        by the Secretary that identifies the items or services 
        delivered.''.
          (4) Conforming amendments.--
                  (A) Section 1819(b)(3)(C)(i) (42 U.S.C. 
                1395i-3(b)(3)(C)(i)) is amended by striking 
                ``Such'' and inserting ``Subject to the 
                timeframes prescribed by the Secretary under 
                section 1888(t)(6), such''.
                  (B) Section 1832(a)(1) (42 U.S.C. 
                1395k(a)(1)) is amended by striking ``(2);'' 
                and inserting ``(2) and section 
                1842(b)(6)(E);''.
                  (C) Section 1833(a)(2)(B) (42 U.S.C. 
                1395l(a)(2)(B)) is amended by inserting ``or 
                section 1888(e)(9)'' after ``section 1886''.
                  (D) Section 1861(h) (42 U.S.C 1395x(h)) is 
                amended--
                          (i) in the opening paragraph, by 
                        striking ``paragraphs (3) and (6)'' and 
                        inserting ``paragraphs (3), (6), and 
                        (7)'', and
                          (ii) in paragraph (7), after 
                        ``skilled nursing facilities'', by 
                        inserting ``, or by others under 
                        arrangements with them made by the 
                        facility''.
                    (E) Section 1866(a)(1)(H) (42 U.S.C. 
                1395cc(a)(1)(H)) is amended--
                            (i) by redesignating clauses (i) 
                        and (ii) as subclauses (I) and (II) 
                        respectively,
                          (ii) by inserting ``(i)'' after 
                        ``(H)'', and
                          (iii) by adding after clause (i), as 
                        so redesignated, the following new 
                        clause:
          ``(ii) in the case of skilled nursing facilities 
        which provide covered skilled nursing facility 
        services--
                  ``(I) that are furnished to an individual who 
                is a resident of the skilled nursing facility, 
                and
                  ``(II) for which the individual is entitled 
                to have payment made under this title,
        to have items and services (other than services 
        described in section 1888(e)(2)(A)(ii)) furnished by 
        the skilled nursing facility or otherwise under 
        arrangements (as defined in section 1861(w)(1)) made by 
        the skilled nursing facility,''.
  (c) Medical Review Process.--In order to ensure that medicare 
beneficiaries are furnished appropriate services in skilled 
nursing facilities, the Secretary of Health and Human Services 
shall establish and implement a thorough medical review process 
to examine the effects of the amendments made by this section 
on the quality of covered skilled nursing facility services 
furnished to medicare beneficiaries. In developing such a 
medical review process, the Secretary shall place a particular 
emphasis on the quality of non-routine covered services and 
physicians' services for which payment is made under title 
XVIII of the Social Security Act for which payment is made 
under section 1848 of such Act.
  (d) Effective Date.--The amendments made by this section are 
effective for cost reporting periods beginning on or after July 
1, 1998; except that the amendments made by subsection (b) 
shall apply to items and services furnished on or after July 1, 
1998.

SEC. 10402. PROSPECTIVE PAYMENT FOR INPATIENT REHABILITATION HOSPITAL 
                    SERVICES.

  (a) In General.--Section 1886 (42 U.S.C. 1395ww) is amended 
by adding at the end the following new subsection:
  ``(j) Prospective Payment for Inpatient Rehabilitation 
Services.--
          ``(1) Payment during transition period.--
                  ``(A) In general.--Notwithstanding section 
                1814(b), but subject to the provisions of 
                section 1813, the amount of the payment with 
                respect to the operating and capital costs of 
                inpatient hospital services of a rehabilitation 
                hospital or a rehabilitation unit (in this 
                subsection referred to as a `rehabilitation 
                facility'), in a cost reporting period 
                beginning on or after October 1, 2000, and 
                before October 1, 2003, is equal to the sum 
                of--
                          ``(i) the TEFRA percentage (as 
                        defined in subparagraph (C)) of the 
                        amount that would havebeen paid under 
part A with respect to such costs if this subsection did not apply, and
                          ``(ii) the prospective payment 
                        percentage (as defined in subparagraph 
                        (C)) of the product of (I) the per unit 
                        payment rate established under this 
                        subsection for the fiscal year in which 
                        the payment unit of service occurs, and 
                        (II) the number of such payment units 
                        occurring in the cost reporting period.
                  ``(B) Fully implemented system.--
                Notwithstanding section 1814(b), but subject to 
                the provisions of section 1813, the amount of 
                the payment with respect to the operating and 
                capital costs of inpatient hospital services of 
                a rehabilitation facility for a payment unit in 
                a cost reporting period beginning on or after 
                October 1, 2003, is equal to the per unit 
                payment rate established under this subsection 
                for the fiscal year in which the payment unit 
                of service occurs.
                  ``(C) TEFRA and prospective payment 
                percentages specified.--For purposes of 
                subparagraph (A), for a cost reporting period 
                beginning--
                          ``(i) on or after October 1, 2000, 
                        and before October 1, 2001, the `TEFRA 
                        percentage' is 75 percent and the 
                        `prospective payment percentage' is 25 
                        percent;
                          ``(ii) on or after October 1, 2001, 
                        and before October 1, 2002, the `TEFRA 
                        percentage' is 50 percent and the 
                        `prospective payment percentage' is 50 
                        percent; and
                          ``(iii) on or after October 1, 2002, 
                        and before October 1, 2003, the `TEFRA 
                        percentage' is 25 percent and the 
                        `prospective payment percentage' is 75 
                        percent.
                  ``(D) Payment unit.--For purposes of this 
                subsection, the term `payment unit' means a 
                discharge, day of inpatient hospital services, 
                or other unit of payment defined by the 
                Secretary.
          ``(2) Patient case mix groups.--
                  ``(A) Establishment.--The Secretary shall 
                establish--
                          ``(i) classes of patients of 
                        rehabilitation facilities (each in this 
                        subsection referred to as a `case mix 
                        group'), based on such factors as the 
                        Secretary deems appropriate, which may 
                        include impairment, age, related prior 
                        hospitalization, comorbidities, and 
                        functional capability of the patient; 
                        and
                          ``(ii) a method of classifying 
                        specific patients in rehabilitation 
                        facilities within these groups.
                  ``(B) Weighting factors.--For each case mix 
                group the Secretary shall assign an appropriate 
                weighting which reflects the relative facility 
                resources used with respect to patients 
                classified within that group compared to 
                patients classified within other groups.
                  ``(C) Adjustments for case mix.--
                          ``(i) In general.--The Secretary 
                        shall from time to time adjust the 
                        classifications and weighting factors 
                        established under this paragraph as 
                        appropriate to reflect changes in 
                        treatment patterns, technology, case 
                        mix, number of payment units for which 
                        payment is made under this title, and 
                        other factors which may affect the 
                        relative use of resources. Such 
                        adjustments shall be made in a manner 
                        so that changes in aggregate payments 
                        under the classification system are a 
                        result of real changes and are not a 
                        result of changes in coding that are 
                        unrelated to real changes in case mix.
                          ``(ii) Adjustment.--Insofar as the 
                        Secretary determines that such 
                        adjustments for a previous fiscal year 
                        (or estimates that such adjustments for 
                        a future fiscal year) did (or are 
                        likely to) result in a change in 
                        aggregate payments under the 
                        classification system during the fiscal 
                        year that are a result of changes in 
                        the coding or classification of 
                        patients that do not reflect real 
                        changes in case mix, the Secretary 
                        shall adjust the per payment unit 
                        payment rate for subsequent years so as 
                        to discount the effect of such coding 
                        or classification changes.
                  ``(D) Data collection.--The Secretary is 
                authorized to require rehabilitation facilities 
                that provide inpatient hospital services to 
                submit such data as the Secretary deems 
                necessary to establish and administer the 
                prospective payment system under this 
                subsection.
          ``(3) Payment rate.--
                  ``(A) In general.--The Secretary shall 
                determine a prospective payment rate for each 
                payment unit for which such rehabilitation 
                facility is entitled to receive payment under 
                this title. Subject to subparagraph (B), such 
                rate for payment units occurring during a 
                fiscal year shall be based on the average 
                payment per payment unit under this title for 
                inpatient operating and capital costs of 
                rehabilitation facilities using the most recent 
                data available (as estimated by the Secretary 
                as of the date of establishment of the system) 
                adjusted--
                          ``(i) by updating such per-payment-
                        unit amount to the fiscal year involved 
                        by the weighted average of the 
                        applicable percentage increases 
                        provided under subsection (b)(3)(B)(ii) 
                        (for cost reporting periods beginning 
                        during the fiscal year) covering the 
                        period from the midpoint of the period 
                        for such data through the midpoint of 
                        fiscal year 2000 and by an increase 
                        factor (described in subparagraph (C)) 
                        specified by the Secretary for 
                        subsequent fiscal years up to the 
                        fiscal year involved;
                          ``(ii) by reducing such rates by a 
                        factor equal to the proportion of 
                        payments under this subsection(as 
estimated by the Secretary) based on prospective payment amounts which 
are additional payments described in paragraph (4) (relating to outlier 
and related payments) or paragraph (7);
                          ``(iii) for variations among 
                        rehabilitation facilities by area under 
                        paragraph (6);
                          ``(iv) by the weighting factors 
                        established under paragraph (2)(B); and
                          ``(v) by such other factors as the 
                        Secretary determines are necessary to 
                        properly reflect variations in 
                        necessary costs of treatment among 
                        rehabilitation facilities.
                  ``(B) Budget neutral rates.--The Secretary 
                shall establish the prospective payment amounts 
                under this subsection for payment units during 
                fiscal years 2001 through 2004 at levels such 
                that, in the Secretary's estimation, the amount 
                of total payments under this subsection for 
                such fiscal years (including any payment 
                adjustments pursuant to paragraphs (4), (6), 
                and (7)) shall be equal to 99 percent of the 
                amount of payments that would have been made 
                under this title during the fiscal years for 
                operating and capital costs of rehabilitation 
                facilities had this subsection not been 
                enacted. In establishing such payment amounts, 
                the Secretary shall consider the effects of the 
                prospective payment system established under 
                this subsection on the total number of payment 
                units from rehabilitation facilities and other 
                factors described in subparagraph (A).
                  ``(C) Increase factor.--For purposes of this 
                subsection for payment units in each fiscal 
                year (beginning with fiscal year 2001), the 
                Secretary shall establish an increase factor. 
                Such factor shall be based on an appropriate 
                percentage increase in a market basket of goods 
                and services comprising services for which 
                payment is made under this subsection, which 
                may be the market basket percentage increase 
                described in subsection (b)(3)(B)(iii).
          ``(4) Outlier and special payments.--
                  ``(A) Outliers.--
                          ``(i) In general.--The Secretary may 
                        provide for an additional payment to a 
                        rehabilitation facility for patients in 
                        a case mix group, based upon the 
                        patient being classified as an outlier 
                        based on an unusual length of stay, 
                        costs, or other factors specified by 
                        the Secretary.
                          ``(ii) Payment based on marginal cost 
                        of care.--The amount of such additional 
                        payment under clause (i) shall be 
                        determined by the Secretary and shall 
                        approximate the marginal cost of care 
                        beyond the cutoff point applicable 
                        under clause (i).
                          ``(iii) Total payments.--The total 
                        amount of the additional payments made 
                        under this subparagraph for payment 
                        units in a fiscal year may not exceed 5 
                        percent of the total payments projected 
                        or estimated to be made based on 
                        prospective payment rates for payment 
                        units in that year.
                  ``(B) Adjustment.--The Secretary may provide 
                for such adjustments to the payment amounts 
                under this subsection as the Secretary deems 
                appropriate to take into account the unique 
                circumstances of rehabilitation facilities 
                located in Alaska and Hawaii.
          ``(5) Publication.--The Secretary shall provide for 
        publication in the Federal Register, on or before 
        September 1 before each fiscal year (beginning with 
        fiscal year 2001, of the classification and weighting 
        factors for case mix groups under paragraph (2) for 
        such fiscal year and a description of the methodology 
        and data used in computing the prospective payment 
        rates under this subsection for that fiscal year.
          ``(6) Area wage adjustment.--The Secretary shall 
        adjust the proportion, (as estimated by the Secretary 
        from time to time) of rehabilitation facilities' costs 
        which are attributable to wages and wage-related costs, 
        of the prospective payment rates computed under 
        paragraph (3) for area differences in wage levels by a 
        factor (established by the Secretary) reflecting the 
        relative hospital wage level in the geographic area of 
        the rehabilitation facility compared to the national 
        average wage level for such facilities. Not later than 
        October 1, 2001 (and at least every 36 months 
        thereafter), the Secretary shall update the factor 
        under the preceding sentence on the basis of a survey 
        conducted by the Secretary (and updated as appropriate) 
        of the wages and wage-related costs incurred in 
        furnishing rehabilitation services. Any adjustments or 
        updates made under this paragraph for a fiscal year 
        shall be made in a manner that assures that the 
        aggregated payments under this subsection in the fiscal 
        year are not greater or less than those that would have 
        been made in the year without such adjustment.
          ``(7) Additional adjustments.--The Secretary may 
        provide by regulation for--
                  ``(A) an additional payment to take into 
                account indirect costs of medical education and 
                the special circumstances of hospitals that 
                serve a significantly disproportionate number 
                of low-income patients in a manner similar to 
                that provided under subparagraphs (B) and (F), 
                respectively, of subsection (d)(5); and
                  ``(B) such other exceptions and adjustments 
                to payment amounts under this subsection in a 
                manner similar to that provided under 
                subsection (d)(5)(I) in relation to payments 
                under subsection (d).
          ``(8) Limitation on review.--There shall be no 
        administrative or judicial review under section 1869, 
        1878, or otherwise of--
                  ``(A) the establishment of case mix groups, 
                of the methodology for the classification of 
                patients within such groups, and of the 
                appropriate weighting factors thereof under 
                paragraph (2),
                  ``(B) the establishment of the prospective 
                payment rates under paragraph (3),
                  ``(C) the establishment of outlier and 
                special payments under paragraph (4),
                  ``(D) the establishment of area wage 
                adjustments under paragraph (6), and
                  ``(E) the establishment of additional 
                adjustments under paragraph (7).''.
  (b) Conforming Amendments.--Section 1886(b) of such Act (42 
U.S.C. 1395ww(b)) is amended--
          (1) in paragraph (1), by inserting ``and other than a 
        rehabilitation facility described in subsection 
        (j)(1)'' after ``subsection (d)(1)(B)'', and
          (2) in paragraph (3)(B)(i), by inserting ``and 
        subsection (j)'' after ``For purposes of subsection 
        (d)''.
  (c) Effective Date.--The amendments made by this section 
shall apply to cost reporting periods beginning on or after 
October 1, 2000, except that the Secretary of Health and Human 
Services may require the submission of data under section 
1886(j)(2)(D) of the Social Security Act (as added by 
subsection (a)) on and after the date of the enactment of this 
section.

                    CHAPTER 2--PAYMENT UNDER PART B

   Subchapter A--Payment for Hospital Outpatient Department Services

SEC. 10411. ELIMINATION OF FORMULA-DRIVEN OVERPAYMENTS (FDO) FOR 
                    CERTAIN OUTPATIENT HOSPITAL SERVICES.

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

SEC. 10412. EXTENSION OF REDUCTIONS IN PAYMENTS FOR COSTS OF HOSPITAL 
                    OUTPATIENT SERVICES.

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

SEC. 10413. PROSPECTIVE PAYMENT SYSTEM FOR HOSPITAL OUTPATIENT 
                    DEPARTMENT SERVICES.

  (a) In General.--Section 1833 (42 U.S.C. 1395l) is amended by 
adding at the end the following:
  ``(t) Prospective Payment System for Hospital Outpatient 
Department Services.--
          ``(1) In general.--With respect to hospital 
        outpatient services designated by the Secretary (in 
        this section referred to as `covered OPD services') and 
        furnished during a year beginning with 1999, the amount 
        of payment under this part shall be determined under a 
        prospective payment system established by the Secretary 
        in accordance with this subsection.
          ``(2) System requirements.--Under the payment 
        system--
                  ``(A) the Secretary shall develop a 
                classification system for covered OPD services;
                  ``(B) the Secretary may establish groups of 
                covered OPD services, within the classification 
                system described in subparagraph (A), so that 
                services classified within each group are 
                comparable clinically and with respect to the 
                use of resources;
                  ``(C) the Secretary shall, using data on 
                claims from 1996 and using data from the most 
                recent available cost reports, establish 
                relative payment weights for covered OPD 
                services (and any groups of such services 
                described in subparagraph (B)) based on median 
                hospital costs and shall determine projections 
                of the frequency of utilization of each such 
                service (or group of services) in 1999;
                  ``(D) the Secretary shall determine a wage 
                adjustment factor to adjust the portion of 
                payment and coinsurance attributable to labor-
                related costs for relative differences in labor 
                and labor-related costs across geographic 
                regions in a budget neutral manner;
                  ``(E) the Secretary shall establish other 
                adjustments, in a budget neutral manner, as 
                determined to be necessary to ensure equitable 
                payments, such as outlier adjustments, 
                adjustments to account for variations in 
                coinsurance payments for procedures with 
                similar resource costs, or adjustments for 
                certain classes of hospitals; and
                  ``(F) the Secretary shall develop a method 
                for controlling unnecessary increases in the 
                volume of covered OPD services.
          ``(3) Calculation of base amounts.--
                    ``(A) Aggregate amounts that would be 
                payable if deductibles were disregarded.--The 
                Secretary shall estimate the total amounts that 
                would be payable from the Trust Fund under this 
                part for covered OPD services in 1999, 
                determined without regard to this subsection, 
                as though the deductible under section 1833(b) 
                did not apply, and as though the coinsurance 
                described in section 1866(a)(2)(A)(ii) (as in 
                effect before the date of the enactment of this 
                subsection) continued to apply.
                    ``(B) Unadjusted copayment amount.--
                            ``(i) In general.--For purposes of 
                        this subsection, subject to clause 
                        (ii), the `unadjusted copayment amount' 
                        applicable to a covered OPD service (or 
                        group of such services) is 20 percent 
                        of national median of the charges for 
                        the service (or services within the 
                        group) furnished during 1996, updated 
                        to 1999 using the Secretary's estimate 
                        of charge growth during the period.
                          ``(ii) Adjusted to be 20 percent when 
                        fully phased in.--If the pre-deductible 
                        payment percentage for a covered OPD 
                        service (or group of such services) 
                        furnished in a year would be equal to 
                        or exceed 80 percent, then the 
                        unadjusted copayment amount shall be 25 
                        percent of amount determined under 
                        subparagraph (D)(i).
                          ``(iii) Rules for new services.--The 
                        Secretary shall establish rules for 
                        establishment of an unadjusted 
                        copayment amount for a covered OPD 
                        service not furnished during 1996, 
                        based upon its classification within a 
                        group of such services.
                    ``(C) Calculation of conversion factors.--
                            ``(i) For 1999.--
                                    ``(I) In general.--The 
                                Secretary shall establish a 
                                1999 conversion factor for 
                                determining the medicare pre-
                                deductible OPD fee payment 
                                amounts for each covered OPD 
                                service (or group of such 
                                services) furnished in 1999. 
                                Such conversion factor shall be 
                                established on the basis of the 
                                weights and frequencies 
                                described in paragraph (2)(C) 
                                and in a manner such that the 
                                sum for all services and groups 
                                of the products (described in 
                                subclause (II) for each such 
                                service or group) equals the 
                                total projected amount 
                                described in subparagraph (A).
                                    ``(II) Product described.--
                                The product described in this 
                                subclause, for a service or 
                                group, is the product of the 
                                medicare pre-deductible OPD fee 
                                payment amounts (taking into 
                                account appropriate adjustments 
                                described in paragraphs (2)(D) 
                                and (2)(E)) and the frequencies 
                                for such service or group.
                          ``(ii) Subsequent years.--Subject to 
                        paragraph (8)(B), the Secretary shall 
                        establish a conversion factor for 
                        covered OPD services furnished in 
                        subsequent years in an amount equal to 
                        the conversion factor established under 
                        this subparagraph and applicable to 
                        such services furnished in the previous 
                        year increased by the OPD payment 
                        increase factor specified under clause 
                        (iii) for the year involved.
                          ``(iii) OPD payment increase 
                        factor.--For purposes of this 
                        subparagraph, the `OPD payment increase 
                        factor' for services furnished in a 
                        year is equal to the sum of--
                                  ``(I) market basket 
                                percentage increase (applicable 
                                under section 
                                1886(b)(3)(B)(iii) to hospital 
                                discharges occurring during the 
                                fiscal year ending in such 
                                year, and
                                  ``(II) in the case of a 
                                covered OPD service (or group 
                                of such services) furnished in 
                                a year in which the pre-
                                deductible payment percentage 
                                would not exceed 80 percent, 
                                3.5 percentage points, but in 
                                no case greater than such 
                                number of percentage points as 
                                will result in the pre-
                                deductible payment percentage 
                                exceeding 80 percent.
                        In applying the previous sentence for 
                        years beginning with 2000, the 
                        Secretary may substitute for the market 
                        basket percentage increase under 
                        subclause (I) an annual percentage 
                        increase that is computed and applied 
                        with respect to covered OPD services 
                        furnished in a year in the same manner 
                        as the market basket percentage 
                        increase is determined and applied to 
                        inpatient hospital services for 
                        discharges occurring in a fiscal year.
                  ``(D) Pre-deductible payment percentage.--The 
                pre-deductible payment percentage for a covered 
                OPD service (or group of such services) 
                furnished in a year is equal to the ratio of--
                          ``(i) the conversion factor 
                        established under subparagraph (C) for 
                        the year, multiplied by the weighting 
                        factor established under paragraph 
                        (2)(C) for the service (or group), to
                          ``(ii) the sum of the amount 
                        determined under clause (i) and the 
                        unadjusted copayment amount determined 
                        under subparagraph (B) for such service 
                        or group.
                  ``(E) Calculation of medicare opd fee 
                schedule amounts.--The Secretary shall compute 
                a medicare OPD fee schedule amount for each 
                covered OPD service (or group of such services) 
                furnished in a year, in an amount equal to the 
                product of--
                          ``(i) the conversion factor computed 
                        under subparagraph (C) for the year, 
                        and
                          ``(ii) the relative payment weight 
                        (determined under paragraph (2)(C)) for 
                        the service or group.
          ``(4) Medicare payment amount.--The amount of payment 
        made from the Trust Fund under this part for a covered 
        OPD service (and such services classified within a 
        group) furnished in a year is determined as follows:
                  ``(A) Fee schedule and copayment amount.--Add 
                (i) the medicare OPD fee schedule amount 
                (computed under paragraph (3)(E)) for the 
                service or group and year, and (ii) the 
                unadjusted copayment amount (determined under 
                paragraph (3)(B)) for the service or group.
                  ``(B) Subtract applicable deductible.--Reduce 
                the sum determined under subparagraph (A) by 
                the amount of the deductible under section 
                1833(b), to the extent applicable.
                  ``(C) Apply payment proportion to 
                remainder.--Multiply the amount so determined 
                under subparagraph (B) by the pre-deductible 
                payment percentage (as determined under 
                paragraph (3)(D)) for the service or group and 
                year involved.
                  ``(D) Labor-related adjustment.--The amount 
                of payment is the product determined under 
                subparagraph (C) with the labor-related portion 
                of such product adjusted for relative 
                differences in the cost of labor and other 
                factors determined by the Secretary, as 
                computed under paragraph (2)(D).
          ``(5) Copayment amount.--
                  ``(A) In general.--Except as provided in 
                subparagraph (B), the copayment amount under 
                this subsection is determined as follows:
                          ``(i) Unadjusted copayment.--Compute 
                        the amount by which the amount 
                        described in paragraph (4)(B) exceeds 
                        the amount of payment determined under 
                        paragraph (4)(C).
                          ``(ii) Labor adjustment.--The 
                        copayment amount is the difference 
                        determined under clause (i) with the 
                        labor-related portion of such 
                        difference adjusted for relative 
                        differences in the cost of labor and 
                        other factors determined by the 
                        Secretary, as computed under paragraphs 
                        (2)(D). The adjustment under this 
                        clause shall be made in a manner that 
                        does not result in any change in the 
                        aggregate copayments made in any year 
                        if the adjustment had not been made.
                  ``(B) Election to offer reduced copayment 
                amount.--The Secretary shall establish a 
                procedure under which a hospital, before the 
                beginning of a year (beginning with 1999), may 
                elect to reduce the copayment amount otherwise 
                established under subparagraph (A) for some or 
                all covered OPD services to an amount that is 
                not less than 25 percent of the medicare OPD 
                fee schedule amount (computed under paragraph 
                (3)(E)) for the service involved, adjusted for 
                relative differences in the cost of labor and 
                other factors determined by the Secretary, as 
                computed under subparagraphs (D) and (E) of 
                paragraph (2). Under such procedures, such 
                reduced copayment amount may not be further 
                reduced or increased during the year involved 
                and the hospital may disseminate information on 
                the reduction of copayment amount effected 
                under this subparagraph.
                  ``(C) No impact on deductibles.--Nothing in 
                this paragraph shall be construed as affecting 
                a hospital's authority to waive the charging of 
                a deductible under section 1833(b).
          ``(6) Periodic review and adjustments components of 
        prospective payment system.--
                  ``(A) Periodic review.--The Secretary may 
                periodically review and revise the groups, the 
                relative payment weights, and the wage and 
                other adjustments described in paragraph (2) to 
                take into account changes in medical practice, 
                changes in technology, the addition of new 
                services, new cost data, and other relevant 
                information and factors.
                  ``(B) Budget neutrality adjustment.--If the 
                Secretary makes adjustments under subparagraph 
                (A), then the adjustments for a year may not 
                cause the estimated amount of expenditures 
                under this part for the year to increase or 
                decrease from the estimated amount of 
                expenditures under this part that would have 
                been made if the adjustments had not been made.
                  ``(C) Update factor.--If the Secretary 
                determines under methodologies described in 
                subparagraph (2)(F) that the volume of services 
                paid for under this subsection increased beyond 
                amounts established through those 
                methodologies, the Secretary may appropriately 
                adjust the update to the conversion factor 
                otherwise applicable in a subsequent year.
          ``(7) Special rule for ambulance services.--The 
        Secretary shall pay for hospital outpatient services 
        that are ambulance services on the basis described in 
        the matter in subsection (a)(1) preceding subparagraph 
        (A).
          ``(8) Special rules for certain hospitals.--In the 
        case of hospitals described in section 
        1886(d)(1)(B)(v)--
                  ``(A) the system under this subsection shall 
                not apply to covered OPD services furnished 
                before January 1, 2000; and
                  ``(B) the Secretary may establish a separate 
                conversion factor for such services in a manner 
                that specifically takes into account the unique 
                costs incurred by such hospitals by virtue of 
                their patient population and service intensity.
          ``(9) Limitation on review.--There shall be no 
        administrative or judicial review under section 1869, 
        1878, or otherwise of--
                  ``(A) the development of the classification 
                system under paragraph (2), including the 
                establishment ofgroups and relative payment 
weights for covered OPD services, of wage adjustment factors, other 
adjustments, and methods described in paragraph (2)(F);
                  ``(B) the calculation of base amounts under 
                paragraph (3);
                  ``(C) periodic adjustments made under 
                paragraph (6); and
                  ``(D) the establishment of a separate 
                conversion factor under paragraph (8)(B).''.
  (b) Coinsurance.--Section 1866(a)(2)(A)(ii) (42 U.S.C. 
1395cc(a)(2)(A)(ii)) is amended by adding at the end the 
following: ``In the case of items and services for which 
payment is made under part B under the prospective payment 
system established under section 1833(t), clause (ii) of the 
first sentence shall be applied by substituting for 20 percent 
of the reasonable charge, the applicable copayment amount 
established under section 1833(t)(5).''.
  (c) Treatment of Reduction in Copayment Amount.--Section 
1128A(i)(6) (42 U.S.C. 1320a-7a(i)(6)) is amended--
          (1) by striking ``or'' at the end of subparagraph 
        (B),
          (2) by striking the period at the end of subparagraph 
        (C) and inserting ``; or'', and
          (3) by adding at the end the following new 
        subparagraph:
                  ``(D) a reduction in the copayment amount for 
                covered OPD services under section 
                1833(t)(5)(B).''.
  (d) Conforming Amendments.--
          (1) Approved asc procedures performed in hospital 
        outpatient departments.--
                  (A)(i) Section 1833(i)(3)(A) (42 U.S.C. 
                13951(i)(3)(A)) is amended--
                          (I) by inserting ``before January 1, 
                        1999,'' after ``furnished'', and
                          (II) by striking ``in a cost 
                        reporting period''.
                  (ii) The amendment made by clause (i) shall 
                apply to services furnished on or after January 
                1, 1999.
                  (B) Section 1833(a)(4) (42 U.S.C. 
                13951(a)(4)) is amended by inserting ``or 
                subsection (t)'' before the semicolon.
          (2) Radiology and other diagnostic procedures.--
                  (A) Section 1833(n)(1)(A) (42 U.S.C. 
                1395l(n)(1)(A)) is amended by inserting ``and 
                before January 1, 1999,'' after ``October 1, 
                1988,'' and after ``October 1, 1989,''.
                  (B) Section 1833(a)(2)(E) (42 U.S.C. 
                1395l(a)(2)(E)) is amended by inserting ``or, 
                for services or procedures performed on or 
                after January 1, 1999, (t)'' before the 
                semicolon.
          (3) Other hospital outpatient services.--Section 
        1833(a)(2)(B) (42 U.S.C. 1395l(a)(2)(B)) is amended--
                  (A) in clause (i), by inserting ``furnished 
                before January 1, 1999,'' after ``(i)'',
                  (B) in clause (ii), by inserting ``before 
                January 1, 1999,'' after ``furnished'',
                  (C) by redesignating clause (iii) as clause 
                (iv), and
                  (D) by inserting after clause (ii), the 
                following new clause:
                          ``(iii) if such services are 
                        furnished on or after January 1, 1999, 
                        the amount determined under subsection 
                        (t), or''.

                 Subchapter B--Rehabilitation Services

SEC. 10421. REHABILITATION AGENCIES AND SERVICES.

  (a) Payment Based on Fee Schedule.--
          (1) Special payment rules.--Section 1833(a) (42 
        U.S.C. 1395l(a)) is amended--
                  (A) in paragraph (2) in the matter before 
                subparagraph (A), by inserting ``(C),'' before 
                ``(D)'';
                  (B) in paragraph (6), by striking ``and'' at 
                the end;
                  (C) in paragraph (7), by striking the period 
                at the end and inserting ``; and'';
                  (D) by adding at the end the following new 
                paragraph:
          ``(8) in the case of services described in section 
        1832(a)(2)(C) (that are not described in section 
        1832(a)(2)(B)), the amounts described in section 
        1834(k).''.
          (2) Payment rates.--Section 1834 (42 U.S.C. 1395m) is 
        amended by adding at the end the following new 
        subsection:
  ``(k) Payment for Outpatient Therapy Services.--
          ``(1) In general.--With respect to outpatient 
        physical therapy services (which includes outpatient 
        speech-language pathology services) and outpatient 
        occupational therapy services for which payment is 
        determined under this subsection, the payment basis 
        shall be--
                  ``(A) for services furnished during 1998, the 
                amount determined under paragraph (2); or
                  ``(B) for services furnished during a 
                subsequent year, 80 percent of the lesser of--
                          ``(i) the actual charge for the 
                        services, or
                          ``(ii) the applicable fee schedule 
                        amount (as defined in paragraph (3)) 
                        for the services.
          ``(2) Payment in 1998 based upon adjusted reasonable 
        costs.--The amount under this paragraph for services is 
        the lesser of--
                  ``(A) the charges imposed for the services, 
                or
                  ``(B) the adjusted reasonable costs (as 
                defined in paragraph (4)) for the services,
        less 20 percent of the amount of the charges imposed 
        for such services.
          ``(3) Applicable fee schedule amount.--In this 
        paragraph, the term `applicable fee schedule 
amount'means, with respect to services furnished in a year, the fee 
schedule amount established under section 1848 for such services 
furnished during the year or, if there is no such fee schedule amount 
established for such services, for such comparable services as the 
Secretary specifies.
          ``(4) Adjusted reasonable costs.--In paragraph (2), 
        the term `adjusted reasonable costs' means reasonable 
        costs determined reduced by--
                  ``(A) 5.8 percent of the reasonable costs for 
                operating costs, and
                  ``(B) 10 percent of the reasonable costs for 
                capital costs.
          ``(5) Uniform coding.--For claims for services 
        submitted on or after April 1, 1998, for which the 
        amount of payment is determined under this subsection, 
        the claim shall include a code (or codes) under a 
        uniform coding system specified by the Secretary that 
        identifies the services furnished.
          ``(6) Restraint on billing.--The provisions of 
        subparagraphs (A) and (B) of section 1842(b)(18) shall 
        apply to therapy services for which payment is made 
        under this subsection in the same manner as they apply 
        to services provided by a practitioner described in 
        section 1842(b)(18)(C).''.
  (b) Application of Standards to Outpatient Occupational and 
Physical Therapy Services Provided As an Incident to a 
Physician's Professional Services.--Section 1862(a), as amended 
by section 10401(b), (42 U.S.C. 1395y(a)) 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:
          ``(18) in the case of outpatient occupational therapy 
        services or outpatient physical therapy services 
        furnished as an incident to a physician's professional 
        services (as described in section 1861(s)(2)(A)), that 
        do not meet the standards and conditions under the 
        second sentence of section 1861(g) or 1861(p) as such 
        standards and conditions would apply to such therapy 
        services if furnished by a therapist.''.
  (c) Applying Financial Limitation to All Rehabilitation 
Services.--Section 1833(g) (42 U.S.C. 1395l(g)) is amended--
          (1) in the first sentence, by striking ``services 
        described in the second sentence of section 1861(p)'' 
        and inserting ``physical therapy services of the type 
        described in section 1861(p) (regardless of who 
        furnishes the services or whether the services may be 
        covered as physicians' services so long as the services 
        are furnished other than in a hospital setting)'', and
          (2) in the second sentence, by striking ``outpatient 
        occupational therapy services which are described in 
        the second sentence of section 1861(p) through the 
        operation of section 1861(g)'' and inserting 
        ``occupational therapy services (of the type that are 
        described in section 1861(p) through the operation of 
        section 1861(g)), regardless of who furnishes the 
        services or whether the services may be covered as 
        physicians' services so long as the services are 
        furnished other than in a hospital setting''.
  (d) Indexing Limitation.--Section 1833(g) (42 U.S.C. 
1395l(g)), as amended by subsection (c), is further amended--
          (1) by striking ``$900'' each place it appears and 
        inserting ``the amount specified in paragraph (2) for 
        the year'',
          (2) by inserting ``(1)'' after ``(g)'',
          (3) by designating the last sentence as a paragraph 
        (3), and
          (4) by inserting before paragraph (3), as so 
        designated, the following:
  ``(2) The amount specified in this paragraph--
          ``(A) for 1999, and each preceding year, is $900, and
          ``(B) for a subsequent year is the amount specified 
        in this paragraph for the preceding year increased by 
        the Secretary's estimate of the projected percentage 
        growth in real gross domestic product per capita from 
        the fiscal year ending in the preceding year to the 
        fiscal year ending in such subsequent year.''.
  (e) Effective Date.--The amendments made by this section 
apply to services furnished on or after January 1, 1998; except 
that the amendments made by subsection (c) apply to services 
furnished on or after January 1, 1999.

SEC. 10422. COMPREHENSIVE OUTPATIENT REHABILITATION FACILITIES (CORF).

  (a) Payment Based on Fee Schedule.--
          (1) Special payment rules.--Section 1833(a) (42 
        U.S.C. 1395l(a)), as amended by section 10421(a), is 
        amended--
                  (A) in paragraph (3), by striking 
                ``subparagraphs (D) and (E) of section 
                1832(a)(2)'' and inserting ``section 
                1832(a)(2)(E)'';
                  (B) in paragraph (7), by striking ``and'' at 
                the end;
                  (C) in paragraph (8), by striking the period 
                at the end and inserting ``; and'';
                  (D) by adding at the end the following new 
                paragraph:
          ``(9) in the case of services described in section 
        1832(a)(2)(E), the amounts described in section 
        1834(k).''.
          (2) Payment rates.--Section 1834(k) (42 U.S.C. 
        1395m(k)), as added by section 10421(a), is amended--
                  (A) in the heading, by inserting ``and 
                Comprehensive Outpatient Rehabilitation 
                Facility Services'' after ``Therapy Services''; 
                and
                  (B) in paragraph (1), by inserting ``and with 
                respect to comprehensive outpatient 
                rehabilitation facility services'' after 
                ``occupational therapy services''.
  (b) Effective Date.--The amendments made by subsection (a) 
shall apply to services furnished on or after January 1, 1998, 
and to portions of cost reporting periods occurring on or after 
such date.

                    Subchapter C--Ambulance Services

SEC. 10431. PAYMENTS FOR AMBULANCE SERVICES.

  (a) Interim Reductions.--
          (1) Payments determined on reasonable cost basis.--
        Section 1861(v)(1) (42 U.S.C. 1395x(v)(1)) is amended 
        by adding at the end the following new subparagraph:
          ``(U) In determining the reasonable cost of ambulance 
        services (as described in subsection (s)(7)) provided 
        during a fiscal year (beginning with fiscal year 1998 
        and ending with fiscal year 2002), the Secretary shall 
        not recognize any costs in excess of costs recognized 
        as reasonable for ambulance services provided during 
        the previous fiscal year after application of this 
        subparagraph, increased by the percentage increase in 
        the consumer price index for all urban consumers (U.S. 
        city average) as estimated by the Secretary for the 12-
        month period ending with the midpoint of the fiscal 
        year involved reduced (in the case of each of fiscal 
        years 1998 and 1999) by 1 percentage point.''.
          (2) Payments determined on reasonable charge basis.--
        Section 1842(b) (42 U.S.C. 1395u(b)) is amended by 
        adding at the end the following new paragraph:
  ``(19) For purposes of section 1833(a)(1), the reasonable 
charge for ambulance services (as described in section 
1861(s)(7)) provided during a fiscal year (beginning with 
fiscal year 1998 and ending with fiscal year 2002) may not 
exceed the reasonable charge for such services provided during 
the previous fiscal year after the application of this 
paragraph, increased by the percentage increase in the consumer 
price index for all urban consumers (U.S. city average) as 
estimated by the Secretary for the 12-month period ending with 
the midpoint of the year involved reduced (in the case of each 
of fiscal years 1998 and 1999) by 1 percentage point.''.
  (b) Establishment of Prospective Fee Schedule.--
          (1) Payment in accordance with fee schedule.--Section 
        1833(a)(1) (42 U.S.C. 1395l(a)(1)), as amended by 
        section 10619(b)(1), is amended--
                  (A) by striking ``and (P)'' and inserting 
                ``(P)''; and
                  (B) by striking the semicolon at the end and 
                inserting the following: ``, and (Q) with 
                respect to ambulance service, the amounts paid 
                shall be 80 percent of the lesser of the actual 
                charge for the services or the amount 
                determined by a fee schedule established by the 
                Secretary under section 1834(l);''.
          (2) Establishment of schedule.--Section 1834 (42 
        U.S.C. 1395m), as amended by section 10421(a)(2), is 
        amended by adding at the end the following new 
        subsection:
  ``(l) Establishment of Fee Schedule for Ambulance Services.--
          ``(1) In general.--The Secretary shall establish a 
        fee schedule for payment for ambulance services under 
        this part through a negotiated rulemaking process 
        described in title 5, United States Code, and in 
        accordance with the requirements of this subsection.
          ``(2) Considerations.--In establishing such fee 
        schedule the Secretary shall--
                  ``(A) establish mechanisms to control 
                increases in expenditures for ambulance 
                services under this part;
                  ``(B) establish definitions for ambulance 
                services which link payments to the type of 
                services provided;
                  ``(C) consider appropriate regional and 
                operational differences;
                  ``(D) consider adjustments to payment rates 
                to account for inflation and other relevant 
                factors; and
                  ``(E) phase in the application of the payment 
                rates under the fee schedule in an efficient 
                and fair manner.
          ``(3) Savings.--In establishing such fee schedule the 
        Secretary shall--
                  ``(A) ensure that the aggregate amount of 
                payments made for ambulance services under this 
                part during 2000 does not exceed the aggregate 
                amount of payments which would have been made 
                for such services under this part during such 
                year if the amendments made by section 10431 of 
                the Balanced Budget Act of 1997 had not been 
                made; and
                  ``(B) set the payment amounts provided under 
                the fee schedule for services furnished in 2001 
                and each subsequent year at amounts equal to 
                the payment amounts under the fee schedule for 
                service furnished during the previous year, 
                increased by the percentage increase in the 
                consumer price index for all urban consumers 
                (U.S. city average) for the 12-month period 
                ending with June of the previous year.
          ``(4) Consultation.--In establishing the fee schedule 
        for ambulance services under this subsection, the 
        Secretary shall consult with various national 
        organizations representing individuals and entities who 
        furnish and regulate ambulance services and share with 
        such organizations relevant data in establishing such 
        schedule.
          ``(5) Limitation on review.--There shall be no 
        administrative or judicial review under section 1869 or 
        otherwise of the amounts established under the fee 
        schedule for ambulance services under this subsection, 
        including matters described in paragraph (2).
          ``(6) Restraint on billing.--The provisions of 
        subparagraphs (A) and (B) of section 1842(b)(18) shall 
        apply to ambulance services for which payment is made 
        under this subsection in the same manner as they apply 
        to services provided by a practitioner described in 
        section 1842(b)(18)(C).''.
          (3) Effective date.--The amendments made by this 
        section apply to ambulance services furnished on or 
        after January 1, 2000.
  (c) Authorizing Payment for Paramedic Intercept Service 
Providers in Rural Communities.--In promulgating regulations to 
carry out section 1861(s)(7) of the Social Security Act (42 
U.S.C. 1395x(s)(7)) with respect to the coverage of ambulance 
service, the Secretary of Health and Human Services may include 
coverage of advanced life support services (in this subsection 
referred to as ``ALS intercept services'') provided by a 
paramedic intercept service provider in a rural area if the 
following conditions are met:
          (1) The ALS intercept services are provided under a 
        contract with one or more volunteer ambulance services 
        and are medically necessary based on the health 
        condition of the individual being transported.
          (2) The volunteer ambulance service involved--
                  (A) is certified as qualified to provide 
                ambulance service for purposes of such section,
                  (B) provides only basic life support services 
                at the time of the intercept, and
                  (C) is prohibited by State law from billing 
                for any services.
          (3) The entity supplying the ALS intercept services--
                  (A) is certified as qualified to provide such 
                services under the medicare program under title 
                XVIII of the Social Security Act, and
                  (B) bills all recipients who receive ALS 
                intercept services from the entity, regardless 
                of whether or not such recipients are medicare 
                beneficiaries.

SEC. 10432. DEMONSTRATION OF COVERAGE OF AMBULANCE SERVICES UNDER 
                    MEDICARE THROUGH CONTRACTS WITH UNITS OF LOCAL 
                    GOVERNMENT.

  (a) Demonstration Project Contracts With Local Governments.--
The Secretary of Health and Human Services shall establish up 
to 3 demonstration projects under which, at the request of a 
county or parish, the Secretary enters into a contract with the 
county or parish under which--
          (1) the county or parish furnishes (or arranges for 
        the furnishing) of ambulance services for which payment 
        may be made under part B of title XVIII of the Social 
        Security Act for individuals residing in the county or 
        parish who are enrolled under such part, except that 
        the county or parish may not enter into the contract 
        unless the contract covers at least 80 percent of the 
        individuals residing in the county or parish who are 
        enrolled under such part;
          (2) any individual or entity furnishing ambulance 
        services under the contract meets the requirements 
        otherwise applicable to individuals and entities 
        furnishing such services under such part; and
          (3) for each month during which the contract is in 
        effect, the Secretary makes a capitated payment to the 
        county or parish in accordance with subsection (b).
The projects may extend over a period of not to exceed 3 years 
each.
  (b) Amount of Payment.--
          (1) In general.--The amount of the monthly payment 
        made for months occurring during a calendar year to a 
        county or parish under a demonstration project contract 
        under subsection (a) shall be equal to the product of--
                  (A) the Secretary's estimate of the number of 
                individuals covered under the contract for the 
                month; and
                  (B) \1/12\ of the capitated payment rate for 
                the year established under paragraph (2).
          (2) Capitated payment rate defined.--In this 
        subsection, the ``capitated payment rate'' applicable 
        to a contract under this subsection for a calendar year 
        is equal to 95 percent of--
                  (A) for the first calendar year for which the 
                contract is in effect, the average annual per 
                capita payment made under part B of title XVIII 
                of the Social Security Act with respect to 
                ambulance services furnished to such 
                individuals during the 3 most recent calendar 
                years for which data on the amount of such 
                payment is available; and
                  (B) for a subsequent year, the amount 
                provided under this paragraph for the previous 
                year increased by the percentage increase in 
                the consumer price index for all urban 
                consumers (U.S. city average) for the 12-month 
                period ending with June of the previous year.
  (c) Other Terms of Contract.--The Secretary and the county or 
parish may include in a contract under this section such other 
terms as the parties consider appropriate, including--
          (1) covering individuals residing in additional 
        counties or parishes (under arrangements entered into 
        between such counties or parishes and the county or 
        parish involved);
          (2) permitting the county or parish to transport 
        individuals to non-hospital providers if such providers 
        are able to furnish quality services at a lower cost 
        than hospital providers; or
          (3) implementing such other innovations as the county 
        or parish may propose to improve the quality of 
        ambulance services and control the costs of such 
        services.
  (d) Contract Payments in Lieu of Other Benefits.--Payments 
under a contract to a county or parish under this section shall 
be instead of the amounts which (in the absence of the 
contract) would otherwise be payable under part B of title 
XVIII of the Social Security Act for the services covered under 
the contract which are furnished to individuals who reside in 
the county or parish.
  (e) Report on Effects of Capitated Contracts.--
          (1) Study.--The Secretary shall evaluate the 
        demonstration projects conducted under this section. 
        Such evaluation shall include an analysis of the 
        quality and cost-effectiveness of ambulance services 
        furnished under the projects.
          (2) Report.--Not later than January 1, 2000, the 
        Secretary shall submit a report to Congress on the 
        study conducted under paragraph (1), and shall include 
        in the report such recommendations as the Secretary 
        considers appropriate, including recommendations 
        regarding modifications to the methodology used to 
        determine the amount of payments made under such 
        contracts and extending or expanding such projects.

                 CHAPTER 3--PAYMENT UNDER PARTS A AND B

SEC. 10441. PROSPECTIVE PAYMENT FOR HOME HEALTH SERVICES.

  (a) In General.--Title XVIII (42 U.S.C. 1395 et seq.), as 
amended by section 10011, is amended by adding at the end the 
following new section:

             ``prospective payment for home health services

  ``Sec. 1895. (a) In General.--Notwithstanding section 
1861(v), the Secretary shall provide, for cost reporting 
periods beginning on or after October 1, 1999, for payments for 
home health services in accordance with a prospective payment 
system established by the Secretary under this section.
  ``(b) System of Prospective Payment for Home Health 
Services.--
          ``(1) In general.--The Secretary shall establish 
        under this subsection a prospective payment system for 
        payment for all costs of home health services. Under 
        the system under this subsection all services covered 
        and paid on a reasonable cost basis under the medicare 
        home health benefit as of the date of the enactment of 
        this section, including medical supplies, shall be paid 
        for on the basis of a prospective payment amount 
        determined under this subsection and applicable to the 
        services involved. In implementing the system, the 
        Secretary may provide for a transition (of not longer 
        than 4 years) during which a portion of such payment is 
        based on agency-specific costs, but only if such 
        transition does not result in aggregate payments under 
        this title that exceed the aggregate payments that 
        would be made if such a transition did not occur.
          ``(2) Unit of payment.--In defining a prospective 
        payment amount under the system under this subsection, 
        the Secretary shall consider an appropriate unit of 
        service and the number, type, and duration of visits 
        provided within that unit, potential changes in the mix 
        of services provided within that unit and their cost, 
        and a general system design that provides for continued 
        access to quality services.
          ``(3) Payment basis.--
                  ``(A) Initial basis.--
                          ``(i) In general.--Under such system 
                        the Secretary shall provide for 
                        computation of a standard prospective 
                        payment amount (or amounts). Such 
                        amount (or amounts) shall initially be 
                        based on the most current audited cost 
                        report data available to the Secretary 
                        and shall be computed in a manner so 
                        that the total amounts payable under 
                        the system for fiscal year 2000 shall 
                        be equal to the total amount that would 
                        have been made if the system had not 
                        been in effect but if the reduction in 
                        limits described in clause (ii) had 
                        been in effect. Such amount shall be 
                        standardized in a manner that 
                        eliminates the effect of variations in 
                        relative case mix and wage levels among 
                        different home health agencies in a 
                        budget neutral manner consistent with 
                        the case mix and wage level adjustments 
                        provided under paragraph (4)(A). Under 
                        the system, the Secretary may recognize 
                        regional differences or differences 
                        based upon whether or not the services 
                        or agency are in an urbanized area.
                          ``(ii) Reduction.--The reduction 
                        described in this clause is a reduction 
                        by 15 percent in the cost limits and 
                        per beneficiary limits described in 
                        section 1861(v)(1)(L), as those limits 
                        are in effect on September 30, 1999.
                  ``(B) Annual update.--
                          ``(i) In general.--The standard 
                        prospective payment amount (or amounts) 
                        shall be adjusted for each fiscal year 
                        (beginning with fiscal year 2001) in a 
                        prospective manner specified by the 
                        Secretary by the home health market 
                        basket percentage increase applicable 
                        to the fiscal year involved.
                          ``(ii) Home health market basket 
                        percentage increase.--For purposes of 
                        this subsection, the term `home health 
                        market basket percentage increase' 
                        means, with respect to a fiscal year, a 
                        percentage (estimated by the Secretary 
                        before the beginning of the fiscal 
                        year) determined and applied with 
                        respect to the mix of goods and 
                        services included in home health 
                        services in the same manner as the 
                        market basket percentage increase under 
                        section 1886(b)(3)(B)(iii) is 
                        determined and applied to the mix of 
                        goods and services comprising inpatient 
                        hospital services for the fiscal year.
                  ``(C) Adjustment for outliers.--The Secretary 
                shall reduce the standard prospective payment 
                amount (or amounts) under this paragraph 
                applicable to home health services furnished 
                during a period by such proportion as will 
                result in an aggregate reduction in payments 
                for the period equal to the aggregate increase 
                in payments resulting from the application of 
                paragraph (5) (relating to outliers).
          ``(4) Payment computation.--
                  ``(A) In general.--The payment amount for a 
                unit of home health services shall be the 
                applicable standard prospective payment amount 
                adjusted as follows:
                          ``(i) Case mix adjustment.--The 
                        amount shall be adjusted by an 
                        appropriate case mix adjustment factor 
                        (established under subparagraph (B)).
                          ``(ii) Area wage adjustment.--The 
                        portion of such amount that the 
                        Secretary estimates to be attributable 
                        to wages and wage-related costs shall 
                        be adjusted for geographic differences 
                        in such costs by an area wage 
                        adjustment factor (established under 
                        subparagraph (C)) for the area in which 
                        the services are furnished or such 
                        other area as the Secretary may 
                        specify.
                  ``(B) Establishment of case mix adjustment 
                factors.--The Secretary shall establish 
                appropriate case mix adjustment factors for 
                home health services in a manner that explains 
                a significant amount of the variation in cost 
                among different units of services.
                  ``(C) Establishment of area wage adjustment 
                factors.--The Secretary shall establish area 
                wage adjustment factors that reflect the 
                relative level of wages and wage-related costs 
                applicable to the furnishing of home health 
                services in a geographic area compared to the 
                national average applicable level. Such factors 
                may be the factors used by the Secretary for 
                purposes of section 1886(d)(3)(E).
          ``(5) Outliers.--The Secretary may provide for an 
        addition or adjustment to the payment amount otherwise 
        made in the case of outliers because of unusual 
        variations in the type or amount of medically necessary 
        care. The total amount of the additional payments or 
        payment adjustments made under this paragraph with 
        respect to a fiscal year may not exceed 5 percent of 
        the total payments projected or estimated to be made 
        based on the prospective payment system under this 
        subsection in that year.
          ``(6) Proration of prospective payment amounts.--If a 
        beneficiary elects to transfer to, or receive services 
        from, another home health agency within the period 
        covered by the prospective payment amount, the payment 
        shall be prorated between the home health agencies 
        involved.
  ``(c) Requirements for Payment Information.--With respect to 
home health services furnished on or after October 1, 1998, no 
claim for such a service may be paid under this title unless--
          ``(1) the claim has the unique identifier (provided 
        under section 1842(r)) for the physician who prescribed 
        the services or made the certification described in 
        section 1814(a)(2) or 1835(a)(2)(A); and
          ``(2) in the case of a service visit described in 
        paragraph (1), (2), (3), or (4) of section 1861(m), the 
        claim has information (coded in an appropriate manner) 
        on the length of time of the service visit, as measured 
        in 15 minute increments.
  ``(d) Limitation on Review.--There shall be no administrative 
or judicial review under section 1869, 1878, or otherwise of--
          ``(1) the establishment of a transition period under 
        subsection (b)(1);
          ``(2) the definition and application of payment units 
        under subsection (b)(2);
          ``(3) the computation of initial standard prospective 
        payment amounts under subsection (b)(3)(A) (including 
        the reduction described in clause (ii) of such 
        subsection);
          ``(4) the establishment of the adjustment for 
        outliers under subsection (b)(3)(C);
          ``(5) the establishment of case mix and area wage 
        adjustments under subsection (b)(4);
          ``(6) the establishment of any adjustments for 
        outliers under subsection (b)(5); and
          ``(7) the amounts or types of adjustments under 
        subsection (b)(7).''.
  (b) Elimination of Periodic Interim Payments for Home Health 
Agencies.--Section 1815(e)(2) (42 U.S.C. 1395g(e)(2)) is 
amended--
          (1) by inserting ``and'' at the end of subparagraph 
        (C),
          (2) by striking subparagraph (D), and
          (3) by redesignating subparagraph (E) as subparagraph 
        (D).
  (c) Conforming Amendments.--
          (1) Payments under part a.--Section 1814(b) (42 
        U.S.C. 1395f(b)) is amended in the matter preceding 
        paragraph (1) by striking ``and 1886'' and inserting 
        ``1886, and 1895''.
          (2) Treatment of items and services paid under part 
        b.--
                  (A) Payments under part b.--Section 
                1833(a)(2) (42 U.S.C. 1395l(a)(2)) is amended--
                          (i) by amending subparagraph (A) to 
                        read as follows:
                  ``(A) with respect to home health services 
                (other than a covered osteoporosis drug) (as 
                defined in section 1861(kk)), the amount 
                determined under the prospective payment system 
                under section 1895;'';
                          (ii) by striking ``and'' at the end 
                        of subparagraph (E);
                          (iii) by adding ``and'' at the end of 
                        subparagraph (F); and
                          (iv) by adding at the end the 
                        following new subparagraph:
                  ``(G) with respect to items and services 
                described in section 1861(s)(10)(A), the lesser 
                of--
                          ``(i) the reasonable cost of such 
                        services, as determined under section 
                        1861(v), or
                          ``(ii) the customary charges with 
                        respect to such services,
                or, if such services are furnished by a public 
                provider of services, or by another provider 
                which demonstrates to the satisfaction of the 
                Secretary that a significant portion of its 
                patients are low-income (and requests that 
                payment be made under this provision), free of 
                charge or at nominal charges to the public, the 
                amount determined in accordance with section 
                1814(b)(2);''.
                  (B) Requiring payment for all items and 
                services to be made to agency.--
                          (i) In general.--The first sentence 
                        of section 1842(b)(6) (42 U.S.C. 
                        1395u(b)(6)), as amended by section 
                        10401(b)(2), is amended--
                                  (I) by striking ``and (E)'' 
                                and inserting ``(E)''; and
                                  (II) by striking the period 
                                at the end and inserting the 
                                following: ``, and (F) in the 
                                case of home health services 
                                furnished to an individual who 
                                (at the time the item or 
                                service is furnished) is under 
                                a plan of care of a home health 
                                agency, payment shall be made 
                                to the agency (without regard 
                                to whether or not the item or 
                                service was furnished by the 
                                agency, by others under 
                                arrangement with them made by 
                                the agency, or when any other 
                                contracting or consulting 
                                arrangement, or otherwise).''.
                          (ii) Conforming amendment.--Section 
                        1832(a)(1) (42 U.S.C. 1395k(a)(1)), as 
                        amended by section 10401(b), is amended 
                        by striking ``and section 
                        1842(b)(6)(E)'' and inserting ``, 
                        section 1842(b)(6)(E), and section 
                        1842(b)(6)(F)''.
                  (C) Exclusions from coverage.--Section 
                1862(a) (42 U.S.C. 1395y(a)), as amended by 
                sections 10401(b) and 10421(b), is amended--
                          (i) by striking ``or'' at the end of 
                        paragraph (17);
                          (ii) by striking the period at the 
                        end of paragraph (18) and inserting ``; 
                        or''; and
                          (iii) inserting after paragraph (18) 
                        the following new paragraph:
          ``(19) where such expenses are for home health 
        services furnished to an individual who is under a plan 
        of care of the home health agency if the claim for 
        payment for such services is not submitted by the 
        agency.''.
  (d) Effective Date.--Except as otherwise provided, the 
amendments made by this section shall apply to cost reporting 
periods beginning on or after October 1, 1999.

               Subtitle F--Provisions Relating to Part A

                  CHAPTER 1--PAYMENT OF PPS HOSPITALS

SEC. 10501. PPS HOSPITAL PAYMENT UPDATE.

  Section 1886(b)(3)(B)(i) (42 U.S.C. 1395ww(b)(3)(B)(i)) is 
amended--
          (1) by striking ``and'' at the end of subclause 
        (XII), and
          (2) by striking subclause (XIII) and inserting the 
        following:
          ``(XIII) for fiscal year 1998, 0 percent,
          ``(XIV) for each of the fiscal years 1999 through 
        2002, the market basket percentage increase minus 1.0 
        percentage point for hospitals in all areas, and
          ``(XV) for fiscal year 2003 and each subsequent 
        fiscal year, the market basket percentage increase for 
        hospitals in all areas.''.

SEC. 10502. CAPITAL PAYMENTS FOR PPS HOSPITALS.

  (a) Maintaining Savings From Temporary Reduction in PPS 
Capital Rates.--Section 1886(g)(1)(A) (42 U.S.C. 
1395ww(g)(1)(A)) is amended by adding at the end the following: 
``In addition to the reduction described in the preceding 
sentence, for discharges occurring on or after October 1, 1997, 
the Secretary shall apply the budget neutrality adjustment 
factor used to determine the Federal capital payment rate in 
effect on September 30, 1995 (as described in section 412.352 
of title 42 of the Code of Federal Regulations), to (i) the 
unadjusted standard Federal capital payment rate (as described 
in section 412.308(c) of that title, as in effect on September 
30, 1997), and (ii) the unadjusted hospital-specific rate (as 
described in section 412.328(e)(1) of that title, as in effect 
on September 30, 1997).''.
  (b) 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)) is amended--
                  (A) by redesignating subparagraph (C) as 
                subparagraph (F), and
                  (B) by inserting after subparagraph (B) the 
                following subparagraphs:
  ``(C) The exceptions under the system provided by the 
Secretary under subparagraph (B)(iii) shall include the 
provision of exception payments under the special exceptions 
process provided under section 412.348(g) of title 42, Code of 
Federal Regulations (as in effect on September 1, 1995), except 
that the Secretary shall revise such process, effective for 
discharges occurring after September 30, 1997, as follows:
          ``(i) 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 (or such lower 
        percentage, but no lower than 75 percent, as the 
        Secretary may provide to comply with subparagraph (D)).
          ``(iii) A hospital shall be considered to meet the 
        requirement that it complete the project involved no 
        later than the end of the hospital's last cost 
        reporting period beginning before 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 by September 1, 
                1995, and
                  ``(II) by September 1, 1995, the hospital has 
                expended on the project at least $750,000 or 10 
                percent of the estimated cost of the project.
          ``(iv) Offsetting amounts, as described in section 
        412.348(g)(8)(ii) of title 42, Code of Federal 
        Regulations, shall apply except that subparagraph (B) 
        of such section shall be revised to require that the 
        additional payment that would otherwise be payable for 
        the cost reporting period shall be reduced by the 
        amount (if any) by which the hospital's current year 
        medicare capital payments (excluding, if applicable, 75 
        percent of the hospital's capital-related 
        disproportionate share payments) exceeds its medicare 
        capital costs for such year.
  ``(D) The Secretary may reduce the percent specified under 
subparagraph (C)(ii) (but not below 75 percent) and shall 
reduce the Federal capital rate for a fiscal year by such 
percentage as the Secretary determines to be necessary to 
ensure that the application of subparagraph (C) does not result 
in an increase in the total amount that would have been paid 
under this subsection in the fiscal year if such subparagraph 
did not apply.
  ``(E) The Secretary shall provide for publication in the 
Federal Register each year (beginning with 1999) a description 
of the distributional impact of the application of subparagraph 
(C) on hospitals which receive, and do not receive, an 
exception payment under such subparagraph.''.
          (2) Conforming amendment.--Section 1886(g)(1)(B)(iii) 
        (42 U.S.C. 1395ww(g)(1)(B)(iii)) is amended by striking 
        ``may provide'' and inserting ``shall provide (in 
        accordance with subparagraph (C))''.

SEC. 10503. FREEZE IN DISPROPORTIONATE SHARE.

  (a) No Update in Disproportionate Share for Fiscal Years 1998 
and 1999.--Section 1886(d)(5)(F) (42 U.S.C. 1395ww(d)(5)(F)) is 
amended in clause (ii) by adding at the end the following new 
sentence: ``For discharges occurring on or after October 1, 
1997, the sum described in subclause (I) shall be determined as 
if the applicable percentage increase described in subsection 
(b)(3)(B)(i) for discharges for fiscal years 1998 and 1999 were 
zero percent.''.
  (b) Development of Revised Qualifying Criteria and Payment 
Methodology for Hospitals That Serve a Disproportionate Share 
of Low-Income Patients.--
          (1) Development of proposal.--The Secretary of Health 
        and Human Services shall develop a proposal to modify 
        the current qualifying criteria and payment methodology 
        under which hospitals that are paid under section 
        1886(d) of the Social Security Act (42 U.S.C. 
        1395ww(d)) receive an additional payment because they 
        serve a disproportionate share of low-income patients.
          (2) Report.--Not later than April 1, 1999, the 
        Secretary shall transmit the proposal developed under 
        paragraph (1) to the Committee on Ways and Means of the 
        House of Representatives and the Committee on Finance 
        of the Senate.

SEC. 10504. MEDICARE CAPITAL ASSET SALES PRICE EQUAL TO BOOK VALUE.

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

SEC. 10505. ELIMINATION OF IME AND DSH PAYMENTS ATTRIBUTABLE TO OUTLIER 
                    PAYMENTS.

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

SEC. 10506. REDUCTION IN ADJUSTMENT FOR INDIRECT MEDICAL EDUCATION.

  (a) In General.--Section 1886(d)(5)(B)(ii) (42 U.S.C. 
1395ww(d)(5)(B)(ii)) is amended to read as follows:
          ``(ii) For purposes of clause (i)(II), the indirect 
        teaching adjustment factor for discharges occurring--
                  ``(I) on or after October 1, 1988 and before 
                October 1, 1997, is equal to 1.89  
                (((1+r) to the nth power) -1),
                  ``(II) during fiscal year 1998, is equal to 
                1.62  (((1+r) to the nth power) -1), 
                and
                  ``(III) during or after fiscal year 1999, is 
                equal to 1.35  (((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 
        0.405, subject to clause (vi).''.
  (b) 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 adding at the end the 
following: ``except that the Secretary shall not take into 
account any reductions in the amount of additional payments 
under paragraph (5)(B)(ii) resulting from the amendments made 
by section 10506(a) of the Balanced Budget Act of 1997,''.
  (c) Limitation on Number of Residents for Certain Fiscal 
Years.--Section 1886(d)(5)(B) (42 U.S.C. 1395ww(d)(5)(B)), as 
amended by subsection (a), is amended by adding at the end the 
following new clauses:
          ``(v) In determining the adjustment with respect to a 
        hospital for discharges occurring on or after October 
        1, 1997, the total number of interns and residents in 
        either a hospital or non-hospital setting may not 
        exceed the number of interns and residents in the 
        hospital with respect to the hospital's cost reporting 
        period beginning on or before December 31, 1996.
          ``(vi) For purposes of clause (ii)--
                  ``(I) `r' may not exceed the ratio of the 
                number of interns and residents as determined 
                under clause (v) with respect to the hospital 
                for its most recent cost reporting period, to 
                the hospital's available beds (as defined by 
                the Secretary) during that cost reporting 
                period,
                  ``(II) for the hospital's first cost 
                reporting period beginning on or after October 
                1, 1997, subject to the limits described in 
                clauses (iv) and (v), the total number of full-
                time equivalent residents for payment purposes 
                shall equal the average of the actual full-time 
                equivalent resident count for the hospital's 
                most recent cost reporting period and the 
                preceding cost reporting period, and
                  ``(III) for the cost reporting period 
                beginning on or after October 1, 1998, and each 
                subsequent cost reporting period, subject to 
                the limits described in clauses (iv) and (v), 
                the total number of full-time equivalent 
                residents for payment purposes shall equal the 
                average of the actual full-time equivalent 
                resident count for the cost reporting period 
                and the preceding two cost reporting periods.
          ``(vii) If the hospital's fiscal year 1998 or later 
        cost reporting period is not equal to twelve months, 
        the Secretary shall make appropriate modifications to 
        ensure that the average full-time equivalent residency 
        count pursuant to subclauses (II) and (III) of clause 
        (vi) is based on the equivalent of full twelve month 
        cost reporting periods.
          ``(viii) The Secretary may establish rules, 
        consistent with the policies in clauses (v) through 
        (vii) and in subsection (h)(6)(A)(ii), with respect to 
        the application of clauses (v) through (vii) in the 
        case of medical residency training programs established 
        on or after January 1, 1997.''.

SEC. 10507. TREATMENT OF TRANSFER CASES.

  (a) Transfers to PPS Exempt Hospitals and Skilled Nursing 
Facilities.--Section 1886(d)(5)(I) (42 U.S.C. 1395ww(d)(5)(I)) 
is amended by adding at the end the following new clause:
   ``(iii) In carrying out this subparagraph, the Secretary 
shall treat the term `transfer case' as including the case of 
an individual who, upon discharge from a subsection (d) 
hospital--
          ``(I) is admitted as an inpatient to a hospital or 
        hospital unit that is not a subsection (d) hospital for 
        the receipt of inpatient hospital services; or
          ``(II) is admitted to a skilled nursing facility or 
        facility described in section 1861(y)(1) for the 
        receipt of extended care services.''.
  (b) Transfers for Purposes of Home Health Services.--Section 
1886(d)(5)(I)(iii) (42 U.S.C. 1395ww(d)(5)(I)(iii)), as amended 
by subsection (a), is amended--
          (1) in subclause (I), by striking ``or'';
          (2) in subclause (II), by striking the period at the 
        end and inserting ``; or'' and
          (2) by adding at the end the following new subclause:
          ``(III) receives home health services from a home 
        health agency, if such services relate to the condition 
        or diagnosis for which such individual received 
        inpatient hospital services from the subsection (d) 
        hospital, and if such services are provided within an 
        appropriate period as determined by the Secretary in 
        regulations promulgated not later than September 1, 
        1998.''.
  (c) Effective Dates.--
          (1) The amendment made by subsection (a) shall apply 
        with respect to discharges occurring on or after 
        October 1, 1997.
          (2) The amendment made by subsection (b) shall apply 
        with respect to discharges occurring on or after 
        October 1, 1998.

SEC. 10508. INCREASE BASE PAYMENT RATE TO PUERTO RICO HOSPITALS.

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

               CHAPTER 2--PAYMENT OF PPS EXEMPT HOSPITALS

SEC. 10511. PAYMENT UPDATE.

  (a) In General.--Section 1886(b)(3)(B) (42 U.S.C. 
1395ww(b)(3)(B)) is amended--
          (1) in clause (ii)--
                  (A) by striking ``and'' at the end of 
                subclause (V),
                  (B) by redesignating subclause (VI) as 
                subclause (VIII); and
                  (C) by inserting after subclause (V), the 
                following new subclauses:
          ``(VI) for fiscal year 1998, is 0 percent;
          ``(VII) for fiscal years 1999 through 2002, is the 
        applicable update factor specified under clause (vi) 
        for the fiscal year; and''; and
          (2) by adding at the end the following new clause:
  ``(vi) For purposes of clause (ii)(VII) for a fiscal year, if 
a hospital's allowable operating costs of inpatient hospital 
services recognized under this title for the most recent cost 
reporting period for which information is available--
          ``(I) is equal to, or exceeds, 110 percent of the 
        hospital's target amount (as determined under 
        subparagraph (A)) for such cost reporting period, the 
        applicable update factor specified under this clause is 
        the market basket percentage;
          ``(II) exceeds 100 percent, but is less than 110 
        percent, of such target amount for the hospital, the 
        applicable update factor specified under this clause is 
        0 percent or, if greater, the market basket percentage 
        minus 0.25 percentage points for each percentage point 
        by which such allowable operating costs (expressed as a 
        percentage of such target amount) is less than 110 
        percent of such target amount;
          ``(III) is equal to, or less than 100 percent, but 
        exceeds \2/3\ of such target amount for the hospital, 
        the applicable update factor specified under this 
        clause is 0 percent or, if greater, the market basket 
        percentage minus 2.5 percentage points; or
          ``(IV) does not exceed \2/3\ of such target amount 
        for the hospital, the applicable update factor 
        specified under this clause is 0 percent.''.
  (b) No Effect of Payment Reduction on Exceptions and 
Adjustments.--Section 1886(b)(4)(A)(ii) (42 U.S.C. 
1395ww(b)(4)(A)(ii)) is amended by adding at the end the 
following new sentence: ``In making such reductions, the 
Secretary shall treat the applicable update factor described in 
paragraph (3)(B)(vi) for a fiscal year as being equal to the 
market basket percentage for that year.''.

SEC. 10512. REDUCTIONS TO CAPITAL PAYMENTS FOR CERTAIN PPS-EXEMPT 
                    HOSPITALS AND UNITS.

  Section 1886(g) (42 U.S.C. 1395ww(g)) is amended by adding at 
the end the following new paragraph:
  ``(4) In determining the amount of the payments that are 
attributable to portions of cost reporting periods occurring 
during fiscal years 1998 through 2002 and that may be made 
under this title with respect to capital-related costs of 
inpatient hospital services of a hospital which is described in 
clause (i), (ii), or (iv) of subsection (d)(1)(B) or a unit 
described in the matter after clause (v) of such subsection, 
the Secretary shall reduce the amounts of such payments 
otherwise determined under this title by 10 percent.''.

SEC. 10513. CAP ON TEFRA LIMITS.

  Section 1886(b)(3) (42 U.S.C. 1395ww(b)(3)) is amended--
          (1) in subparagraph (A) by striking ``subparagraphs 
        (C), (D), and (E)'' and inserting ``subparagraph (C) 
        and succeeding subparagraphs'', and
          (2) by adding at the end the following:
  ``(F)(i) In the case of a hospital or unit that is within a 
class of hospital described in clause (ii), for cost reporting 
periods beginning on or after October 1, 1997, and before 
October 1, 2002, such target amount may not be greater than the 
90th percentile of the target amounts for such hospitals within 
such class for cost reporting periods beginning during that 
fiscal year.
  ``(ii) For purposes of this subparagraph, each of the 
following shall be treated as a separate class of hospital:
          ``(I) Hospitals described in clause (i) of subsection 
        (d)(1)(B) and psychiatric units described in the matter 
        following clause (v) of such subsection.
          ``(II) Hospitals described in clause (ii) of such 
        subsection and rehabilitation units described in the 
        matter following clause (v) of such subsection.
          ``(III) Hospitals described in clause (iv) of such 
        subsection.''.

SEC. 10514. CHANGE IN BONUS AND RELIEF PAYMENTS.

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

SEC. 10515. CHANGE IN PAYMENT AND TARGET AMOUNT FOR NEW PROVIDERS.

  Section 1886(b) (42 U.S.C. 1395ww(b)) is amended--
          (1) by inserting after paragraph (1) the following 
        new paragraph:
  ``(2)(A) Notwithstanding paragraph (1), in the case of a 
hospital or unit that is within a class of hospital described 
in subparagraph (B) which first receives payments under this 
section on or after October 1, 1997--
          ``(i) for each of the first 2 full or partial cost 
        reporting periods, the amount of the payment with 
        respect to operating costs described in paragraph (1) 
        under part A on a per discharge or per admission basis 
        (as the case may be) is equal to the lesser of--
                  ``(I) the amount of operating costs for such 
                respective period, or
                  ``(II) 150 percent of the national median of 
                the operating costs for hospitals in the same 
                class as the hospital for cost reporting 
                periods beginning during the same fiscal year, 
                as adjusted under subparagraph (C); and
          ``(ii) for purposes of computing the target amount 
        for the subsequent cost reporting period, the target 
        amount for the preceding cost reporting period is equal 
        to the amount determined under clause (i) for such 
        preceding period.
  ``(B) For purposes of this paragraph, each of the following 
shall be treated as a separate class of hospital:
          ``(i) Hospitals described in clause (i) of subsection 
        (d)(1)(B) and psychiatric units described in the matter 
        following clause (v) of such subsection.
          ``(ii) Hospitals described in clause (ii) of such 
        subsection and rehabilitation units described in the 
        matter following clause (v) of such subsection.
          ``(iii) A class of hospitals described in subsection 
        (d)(1)(B)(iv) that the Secretary shall establish based 
        upon a measure of case mix that takes into account 
        acuity.
          ``(iv) Hospitals described in subsection 
        (d)(1)(B)(iv) that are not within the class described 
        in clause (iii).
  ``(C) In applying subparagraph (A)(i)(II) in the case of a 
hospital or unit, the Secretary shall provide for an 
appropriate adjustment to the labor-related portion of the 
amount determined under such subparagraph to take into account 
differences between average wage-related costs in the area of 
the hospital and the national average of such costs within the 
same class of hospital.''; and
          (2) in paragraph (3)(A), as amended in section 10513, 
        by inserting ``and in paragraph (2)(A)(ii),'' before 
        ``for purposes of''.

SEC. 10516. REBASING.

  (a) Option of Rebasing for Hospitals in Operation Before 
1990.--Section 1886(b)(3)(42 U.S.C. 1395ww(b)(3)), as amended 
in section 10513, is amended by adding at the end the following 
new subparagraph:
  ``(G)(i) In the case of a hospital (or unit described in the 
matter following clause (v) of subsection (d)(1)(B)) that 
received payment under this subsection for inpatient hospital 
services furnished during cost reporting periods before October 
1, 1990, that is within a class of hospital described in clause 
(iii), and that elects (in a form and manner determined by the 
Secretary) this subparagraph to apply to the hospital, the 
target amount for the hospital's 12-month cost reporting period 
beginning during fiscal year 1998 is equal to the average 
described in clause (ii).
  ``(ii) The average described in this clause for a hospital or 
unit shall be determined by the Secretary as follows:
          ``(I) The Secretary shall determine the allowable 
        operating costs for inpatient hospital services for the 
        hospital or unit for each of the 5 cost reporting 
        periods for which the Secretary has the most recent 
        settled cost reports as of the date of the enactment of 
        this subparagraph.
          ``(II) The Secretary shall increase the amount 
        determined under subclause (I) for each cost reporting 
        period by the applicable percentage increase under 
        subparagraph (B)(ii) for each subsequent cost reporting 
        period up to the cost reporting period described in 
        clause (i).
          ``(III) The Secretary shall identify among such 5 
        cost reporting periods the cost reporting periods for 
        which the amount determined under subclause (II) is the 
        highest, and the lowest.
          ``(IV) The Secretary shall compute the averages of 
        the amounts determined under subclause (II) for the 3 
        cost reporting periods not identified under subclause 
        (III).
  ``(iii) For purposes of this subparagraph, each of the 
following shall be treated as a separate class of hospital:
          ``(I) Hospitals described in clause (i) of subsection 
        (d)(1)(B) and psychiatric units described in the matter 
        following clause (v) of such subsection.
          ``(II) Hospitals described in clause (ii) of such 
        subsection and rehabilitation units described in the 
        matter following clause (v) of such subsection.
          ``(III) Hospitals described in clause (iii) of such 
        subsection.
          ``(IV) Hospitals described in clause (iv) of such 
        subsection.
          ``(V) Hospitals described in clause (v) of such 
        subsection.''.
  (b) Certain Long-Term Care Hospitals.--Section 1886(b)(3) (42 
U.S.C. 1395ww(b)(3)), as amended by subsection (a), is amended 
by adding at the end the following new subparagraph:
  ``(H)(i) In the case of a qualified long-term care hospital 
(as defined in clause (ii)) that elects (in a form and manner 
determined by the Secretary) this subparagraph to apply to the 
hospital, the target amount for the hospital's 12-month cost 
reporting period beginning during fiscal year 1998 is equal to 
the 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 1996, increased by the applicable 
percentage increase for the cost reporting period beginning 
during fiscal year 1997.
  ``(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 each of 
the 2 cost reporting periods for which the Secretary has the 
most recent settled cost reports as of the date of the 
enactment of this subparagraph for each of which--
          ``(I) the hospital's allowable operating costs of 
        inpatient hospital services recognized under this title 
        exceeded 115 percent of the hospital's target amount, 
        and
          ``(II) the hospital would have a disproportionate 
        patient percentage of at least 70 percent (as 
        determined by the Secretary under subsection 
        (d)(5)(F)(vi)) if the hospital were a subsection (d) 
        hospital.''.
  (c) Certain Long-Term Care Cancer Hospitals.--
          (1) In general.--Section 1886(d)(1)(B)(iv) (42 U.S.C. 
        1395ww(d)(1)(B)(iv)) is amended by adding at the end 
        the following: ``a hospital that first received payment 
        under this subsection in 1986 which has an average 
        inpatient length of stay (as determined by the 
        Secretary) of greater than 20 days and that has 80 
        percent or more of its annual total inpatient 
        discharges with a principal diagnosis that reflects a 
        finding of neoplastic disease, or''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall apply to cost reporting periods beginning on 
        or after the date of the enactment of this Act.

SEC. 10517. TREATMENT OF CERTAIN LONG-TERM CARE HOSPITALS.

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

SEC. 10518. ELIMINATION OF EXEMPTIONS; REPORT ON EXCEPTIONS AND 
                    ADJUSTMENTS.

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

           CHAPTER 3--PROVISIONS RELATED TO HOSPICE SERVICES

SEC. 10521. PAYMENTS FOR HOSPICE SERVICES.

  (a) Payment Update.--Section 1814(i)(1)(C)(ii) (42 U.S.C. 
1395f(i)(1)(C)(ii)) is amended--
          (1) in subclause (V), by striking ``and'' at the end;
          (2) by redesignating subclause (VI) as subclause 
        (VII); and
          (3) by inserting after subclause (V) the following 
        new subclause:
          ``(VI) for each of fiscal years 1998 through 2002, 
        the market basket percentage increase for the fiscal 
        year involved minus 1.0 percentage points; and''.
  (b) Report.--Section 1814(i) (42 U.S.C. 1395f(i)) is amended 
by adding at the end the following new paragraph:
  ``(3) The Secretary shall provide for the collection of data, 
from hospice programs providing hospice care for which payment 
is made under this subsection, with respect to the costs for 
providing such care for each fiscal year beginning with fiscal 
year 1999.''.

SEC. 10522. PAYMENT FOR HOME HOSPICE CARE BASED ON LOCATION WHERE CARE 
                    IS FURNISHED.

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

SEC. 10523. HOSPICE CARE BENEFITS PERIODS.

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

SEC. 10524. OTHER ITEMS AND SERVICES INCLUDED IN HOSPICE CARE.

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

SEC. 10525. CONTRACTING WITH INDEPENDENT PHYSICIANS OR PHYSICIAN GROUPS 
                    FOR HOSPICE CARE SERVICES PERMITTED.

  Section 1861(dd)(2) (42 U.S.C. 1395x(dd)(2)) is amended--
          (1) in subparagraph (A)(ii)(I), by striking ``(F),''; 
        and
          (2) in subparagraph (B)(i), by inserting ``or, in the 
        case of a physician described in subclause (I), under 
        contract with'' after ``employed by''.

SEC. 10526. WAIVER OF CERTAIN STAFFING REQUIREMENTS FOR HOSPICE CARE 
                    PROGRAMS IN NON-URBANIZED AREAS.

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

SEC. 10527. LIMITATION ON LIABILITY OF BENEFICIARIES FOR CERTAIN 
                    HOSPICE COVERAGE DENIALS.

  Section 1879(g) (42 U.S.C. 1395pp(g)) is amended--
          (1) by redesignating paragraphs (1) and (2) as 
        subparagraphs (A) and (B), respectively, and moving 
        such subparagraphs 2 ems to the right;
          (2) by striking ``is,'' and inserting ``is--'';
          (3) by making the remaining text of subsection (g), 
        as amended, that follows ``is--'' a new paragraph (1) 
        and indenting such paragraph 2 ems to the right;
          (4) by striking the period at the end and inserting 
        ``; and''; and
          (5) by adding at the end the following new paragraph:
          ``(2) with respect to the provision of hospice care 
        to an individual, a determination that the individual 
        is not terminally ill.''.

SEC. 10528. EXTENDING THE PERIOD FOR PHYSICIAN CERTIFICATION OF AN 
                    INDIVIDUAL'S TERMINAL ILLNESS.

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

SEC. 10529. EFFECTIVE DATE.

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

         CHAPTER 4--MODIFICATION OF PART A HOME HEALTH BENEFIT

SEC. 10531. MODIFICATION OF PART A HOME HEALTH BENEFIT FOR INDIVIDUALS 
                    ENROLLED UNDER PART B.

  (a) In General.--Section 1812 (42 U.S.C. 1395d) is amended--
          (1) in subsection (a)(3), by striking ``home health 
        services'' and inserting ``for individuals not enrolled 
        in part B, home health services, and for individuals so 
        enrolled, part A home health services (as defined in 
        subsection (g))'';
          (2) by redesignating subsection (g) as subsection 
        (h); and
          (3) by inserting after subsection (f) the following 
        new subsection:
  ``(g)(1) For purposes of this section, the term `part A home 
health services' means--
          ``(A) for services furnished during each year 
        beginning with 1998 and ending with 2002, home health 
        services subject to the transition reduction applied 
        under paragraph (2)(C) for services furnished during 
        the year, and
          ``(B) for services furnished on or after January 1, 
        2003, post-institutional home health services for up to 
        100 visits during a home health spell of illness.
  ``(2) For purposes of paragraph (1)(B), the Secretary shall 
specify, before the beginning of each year beginning with 1998 
and ending with 2002, a transition reduction in the home health 
services benefit under this part as follows:
          ``(A) The Secretary first shall estimate the amount 
        of payments that would have been made under this part 
        for home health services furnished during the year if--
                  ``(i) part A home health services were all 
                home health services, and
                  ``(ii) part A home health services were 
                limited to services described in paragraph 
                (1)(B).
          ``(B)(i) The Secretary next shall compute a transfer 
        reduction amount equal to the appropriate proportion 
        (specified under clause (ii)) of the amount by which 
        the amount estimated under subparagraph (A)(i) for the 
        year exceeds the amount estimated under subparagraph 
        (A)(ii) for the year.
          ``(ii) For purposes of clause (i), the `appropriate 
        proportion' is equal to--
                  ``(I) \1/6\ for 1998,
                  ``(II) \2/6\ for 1999,
                  ``(III) \3/6\ for 2000,
                  ``(IV) \4/6\ for 2001, and
                  ``(V) \5/6\ for 2002.
          ``(C) The Secretary shall establish a transition 
        reduction by specifying such a visit limit (during a 
        home health spell of illness) or such a post-
        institutional limitation on home health services 
        furnished under this part during the year as the 
        Secretary estimates will result in a reduction in the 
        amount of payments that would otherwise be made under 
        this part for home health services furnished during the 
        year equal to the transfer amount computed under 
        subparagraph (B)(i) for the year.
  ``(3) Payment under this part for home health services 
furnished an individual enrolled under part B--
                  ``(A) during a year beginning with 1998 and 
                ending with 2003, may not be made for services 
                that are not within the visit limit or other 
                limitation specified by the Secretary under the 
                transition reduction under paragraph (3)(C) for 
                services furnished during the year; or
                  ``(B) on or after January 1, 2004, may not be 
                made for home health services that are not 
                post-institutional home health services or for 
                post-institutional furnished to the individual 
                after such services have been furnished to the 
                individual for a total of 100 visits during a 
                home health spell of illness.
  ``(4) With respect to computing the monthly actuarial rate 
for enrollees age 65 and over for purposes of applying section 
1839, such rate shall be computed as though any reference in a 
previous provision of this subsection to 2002 or 2003 is a 
reference to the succeeding year and as through the appropriate 
proportion described in paragraph (3)(B)(ii) were equal to--
          ``(A) \1/7\ for 1998,
          ``(B) \2/7\ for 1999,
          ``(C) \3/7\ for 2000,
          ``(D) \4/7\ for 2001,
          ``(E) \5/7\ for 2002, and
          ``(F) \6/7\ for 2003.''.
  (b) Post-institutional Home Health Services Defined.--Section 
1861 (42 U.S.C. 1395x), as amended by section 10105(a)(1)(B) is 
amended by adding at the end the following:

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

  ``(rr)(1) The term `post-institutional home health services' 
means home health services furnished to an individual--
          ``(A) after discharge from a hospital or rural 
        primary care hospital in which the individual was an 
        inpatient for not less than 3 consecutive days before 
        such discharge if such home health services were 
        initiated within 14 days after the date of such 
        discharge; or
          ``(B) after discharge from a skilled nursing facility 
        in which the individual was provided post-hospital 
        extended care services if such home health services 
        were initiated within 14 days after the date of such 
        discharge.
  ``(2) The term `home health spell of illness' with respect to 
any individual means a period of consecutive days--
          ``(A) beginning with the first day (not included in a 
        previous home health spell of illness) (i) on which 
        such individual is furnished post-institutional home 
        health services, and (B) which occurs in a month for 
        which the individual is entitled to benefits under part 
        A, and
          ``(B) ending with the close of the first period of 60 
        consecutive days thereafter on each of which the 
        individual is neither an inpatient of a hospital or 
        rural primary care hospital nor an inpatient of a 
        facility described in section 1819(a)(1) or subsection 
        (y)(1) nor provided home health services.''.
  (c) Maintaining Appeal Rights for Home Health Services.--
Section 1869(b)(2)(B) (42 U.S.C. 1395ff(b)(2)(B)) is amended by 
inserting ``(or $100 in the case of home health services)'' 
after ``$500''.
  (d) Maintaining Seamless Administration Through Fiscal 
Intermediaries.--Section 1842(b)(2) (42 U.S.C. 1395u(b)(2)) is 
amended by adding at the end the following:
  ``(E) With respect to the payment of claims for home health 
services under this part that, but for the amendments made by 
section 10531 of the Balanced Budget Act of 1997, would be 
payable under part A instead of under this part, the Secretary 
shall continue administration of such claims through fiscal 
intermediaries under section 1816.''.
  (e) Effective Date.--The amendments made by this section 
apply to services furnished on or after January 1, 1998. For 
purpose of applying such amendments, any home health spell of 
illness that began, but not end, before such date shall be 
considered to have begun as of such date.

                  CHAPTER 5--OTHER PAYMENT PROVISIONS

SEC. 10541. REDUCTIONS IN PAYMENTS FOR ENROLLEE BAD DEBT.

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

SEC. 10542. PERMANENT EXTENSION OF HEMOPHILIA PASS-THROUGH.

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

SEC. 10543. REDUCTION IN PART A MEDICARE PREMIUM FOR CERTAIN PUBLIC 
                    RETIREES.

  (a) In General.--Section 1818(d) (42 U.S.C. 1395i-2(d)) is 
amended--
          (1) in paragraph (2), by striking ``paragraph (4)'' 
        and inserting ``paragraphs (4) and (5)''; and
          (2) by adding at the end the following new paragraph:
  ``(5)(A) The amount of the monthly premium shall be zero in 
the case of an individual who is a person described in 
subparagraph (B) for a month, if--
          ``(i) the individual's premium under this section for 
        the month is not (and will not be) paid for, in whole 
        or in part, by a State (under title XIX or otherwise), 
        a political subdivision of a State, or an agency or 
        instrumentality of one or more States or political 
        subdivisions thereof; and
          ``(ii) in each of 60 months before such month, the 
        individual was enrolled in this part under this section 
        and the payment of the individual's premium under this 
        section for the month was not paid for, in whole or in 
        part, by a State (under title XIX or otherwise), a 
        political subdivision of a State, or an agency or 
        instrumentality of one or more States or political 
        subdivisions thereof.
  ``(B) A person described in this subparagraph for the month 
is a person who establishes to the satisfaction of the 
Secretary that, as of the last day of the previous month--
          ``(i)(I) the person was receiving cash benefits under 
        a qualified State or local government retirement system 
        (as defined in subparagraph (C)) on the basis of the 
        person's employment in one or more positions covered 
        under any such system, and (II) the person would have 
        at least 40 quarters of coverage under title II if 
        remuneration for medicare qualified government 
        employment (as defined in paragraph (1) of section 
        210(p), but determined without regard to paragraph (3) 
        of such section) paid to such person were treated as 
        wages paid to such person and credited for purposes of 
        determining quarters of coverage under section 213;
          ``(ii)(I) the person was married (and had been 
        married for the previous 1-year period) to an 
        individual who is described in clause (i), or (II) the 
        person met the requirement of clause (i)(II) and was 
        married (and had been married for the previous 1-year 
        period) to an individual described in clause (i)(I);
          ``(iii) the person had been married to an individual 
        for a period of at least 1 year (at the time of such 
        individual's death) if (I) the individual was described 
        in clause (i) at the time of the individual's death, or 
        (II) the person met the requirement of clause (i)(II) 
        and the individual was described in clause (i)(I) at 
        the time of the individual's death; or
          ``(iv) the person is divorced from an individual and 
        had been married to the individual for a period of at 
        least 10 years (at the time of the divorce) if (I) the 
        individual was described in clause (i) at the time of 
        the divorce, or (II) the person met the requirement of 
        clause (i)(II) and the individual was described in 
        clause (i)(I) at the time of the divorce.
  ``(C) For purposes of subparagraph (B)(i)(I), the term 
`qualified State or local government retirement system' means a 
retirement system that--
          ``(i) is established or maintained by a State or 
        political subdivision thereof, or an agency or 
        instrumentality of one or more States or political 
        subdivisions thereof;
          ``(ii) covers positions of some or all employees of 
        such a State, subdivision, agency, or instrumentality; 
        and
          ``(iii) does not adjust cash retirement benefits 
        based on eligibility for a reduction in premium under 
        this paragraph.''.
  (b) Effective Date.--The amendments made by subsection (a) 
shall apply to premiums for months beginning with January 1998, 
and months before such month may be taken into account for 
purposes of meeting the requirement of section 
1818(d)(5)(B)(iii) of the Social Security Act, as added by 
subsection (a).

             Subtitle G--Provisions Relating to Part B Only

                    CHAPTER 1--PHYSICIANS' SERVICES

SEC. 10601. ESTABLISHMENT OF SINGLE CONVERSION FACTOR FOR 1998.

  (a) In General.--Section 1848(d)(1) (42 U.S.C. 1395w-4(d)(1)) 
is amended--
          (1) by redesignating subparagraph (C) as subparagraph 
        (D), and
          (2) by inserting after subparagraph (B) the 
        following:
                  ``(C) Special rules for 1998.--The single 
                conversion factor for 1998 under this 
                subsection shall be the conversion factor for 
                primary care services for 1997, increased by 
                the Secretary's estimate of the weighted 
                average of the three separate updates that 
                would otherwise occur were it not for the 
                enactment of chapter 1 of subtitle G of title X 
                of the Balanced Budget Act of 1997.''.
  (b) Conforming Amendments.--Section 1848 (42 U.S.C. 1395w-4) 
is amended--
          (1) by striking ``(or factors)'' each place it 
        appears in subsection (d)(1)(A) and (d)(1)(D)(ii) (as 
        redesignated by subsection (a)(1)),
          (2) in subsection (d)(1)(A), by striking ``or 
        updates'',
          (3) in subsection (d)(1)(D) (as redesignated by 
        subsection (a)(1)), by striking ``(or updates)'' each 
        place it appears, and
          (4) in subsection (i)(1)(C), by striking ``conversion 
        factors'' and inserting ``the conversion factor''.

SEC. 10602. ESTABLISHING UPDATE TO CONVERSION FACTOR TO MATCH SPENDING 
                    UNDER SUSTAINABLE GROWTH RATE.

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

SEC. 10603. REPLACEMENT OF VOLUME PERFORMANCE STANDARD WITH SUSTAINABLE 
                    GROWTH RATE.

  (a) In General.--Section 1848(f) (42 U.S.C. 1395w-4(f)) is 
amended by striking paragraphs (2) through (5) and inserting 
the following:
          ``(2) Specification of growth rate.--The sustainable 
        growth rate for all physicians' services for a fiscal 
        year (beginning with fiscal year 1998) shall be equal 
        to the product of--
                  ``(A) 1 plus the Secretary's estimate of the 
                weighted average percentage increase (divided 
                by 100) in the fees for all physicians' 
                services in the fiscal year involved,
                  ``(B) 1 plus the Secretary's estimate of the 
                percentage change (divided by 100) in the 
                average number of individuals enrolled under 
                this part (other than MedicarePlus plan 
                enrollees) from the previous fiscal year to the 
                fiscal year involved,
                  ``(C) 1 plus the Secretary's estimate of the 
                projected percentage growth in real gross 
                domestic product per capita (divided by 100) 
                from the previous fiscal year to the fiscal 
                year involved, and
                  ``(D) 1 plus the Secretary's estimate of the 
                percentage change (divided by 100) in 
                expenditures for all physicians' services in 
                the fiscal year (compared with the previous 
                fiscal year) which will result from changes in 
                law and regulations, determined without taking 
                into account estimated changes in expenditures 
                due to changes in the volume and intensity of 
                physicians' services resulting from changes in 
                the update to the conversion factor under 
                subsection (d)(3),
        minus 1 and multiplied by 100.
          ``(3) Definitions.--In this subsection:
                  ``(A) Services included in physicians' 
                services.--The term `physicians' services' 
                includes other items and services (such as 
                clinical diagnostic laboratory tests and 
                radiology services), specified by the 
                Secretary, that are commonly performed or 
                furnished by a physician or in a physician's 
                office, but does not include services furnished 
                to a MedicarePlus plan enrollee.
                  ``(B) MedicarePlus plan enrollee.--The term 
                `MedicarePlus plan enrollee' means, with 
                respect to a fiscal year, an individual 
                enrolled under this part who has elected to 
                receive benefits under this title for the 
                fiscal year through a MedicarePlus plan offered 
                under part C, and also includes an individual 
                who is receiving benefits under this part 
                through enrollment with an eligible 
                organization with a risk-sharing contract under 
                section 1876.''.
  (b) Conforming Amendments.--Section 1848(f) (42 U.S.C. 1395w-
4(f)) is amended--
          (1) in the heading, by striking ``Volume Performance 
        Standard Rates of Increase'' and inserting 
        ``Sustainable Growth Rate''; and
          (2) in paragraph (1)--
                  (A) in the heading, by striking ``volume 
                performance standard rates of increase'' and 
                inserting ``sustainable growth rate'',
                  (B) by striking subparagraphs (A) and (B); 
                and
                  (C) in paragraph (1)(C)--
                          (i) in the heading, by striking 
                        ``performance standard rates of 
                        increase'' and inserting ``sustainable 
                        growth rate'';
                          (ii) in the first sentence, by 
                        striking ``with 1991), the performance 
                        standard rates of increase'' and all 
                        that follows through the first period 
                        and inserting ``with 1999), the 
                        sustainable growth rate for the fiscal 
                        year beginning in that year.''; and
                          (iii) in the second sentence, by 
                        striking ``January 1, 1990, the 
                        performance standard rate of increase 
                        under subparagraph (D) for fiscal year 
                        1990'' and inserting ``January 1, 1999, 
                        the sustainable growth rate for fiscal 
                        year 1999''.

SEC. 10604. PAYMENT RULES FOR ANESTHESIA SERVICES.

  (a) In General.--Section 1848(d)(1) (42 U.S.C. 1395w-
4(d)(1)), as amended by section 10601(a), is amended--
          (1) in subparagraph (C), striking ``The single'' and 
        inserting ``Except as provided in subparagraph (D), the 
        single'';
          (2) by redesignating subparagraph (D) as subparagraph 
        (E); and
          (3) by inserting after subparagraph (C) the following 
        new subparagraph:
                  ``(D) Special rules for anesthesia 
                services.--The separate conversion factor for 
                anesthesia services for a year shall be equal 
                to 46 percent of the single conversion factor 
                established for other physicians' services, 
                except as adjusted for changes in work, 
                practice expense, or malpractice relative value 
                units.''.
  (b) Classification of Anesthesia Services.--The first 
sentence of section 1848(j)(1) (42 U.S.C. 1395w-4(j)(1)) is 
amended--
          (1) by striking ``and including anesthesia 
        services''; and
          (2) by inserting before the period the following: 
        ``(including anesthesia services)''.
  (c) Effective Date.--The amendments made by this section 
shall apply to services furnished on or after January 1, 1998.

SEC. 10605. IMPLEMENTATION OF RESOURCE-BASED PHYSICIAN PRACTICE 
                    EXPENSE.

  (a) 1-Year Delay in Implementation.--Section 1848(c) (42 
U.S.C. 1395w-4(c)) is amended--
          (1) in paragraph (2)(C)(ii), in the matter before 
        subclause (I) and after subclause (II), by striking 
        ``1998'' and inserting ``1999'' each place it appears; 
        and
          (2) in paragraph (3)(C)(ii), by striking ``1998'' and 
        inserting ``1999''.
  (b) Phased-In Implementation.--Section 1848(c)(2)(C)(ii) (42 
U.S.C. 1395w-4(c)(2)(C)(ii)) is further amended--
          (1) in subparagraph (C)(ii), in the matter following 
        subclause (II), by inserting ``, to the extent provided 
        under subparagraph (G),'' after ``based'', and
          (2) by adding at the end the following new 
        subparagraph:
                  ``(G) Transitional rule for resource-based 
                practice expense units.--In applying 
                subparagraph (C)(ii) for 1999, 2000, 2001, and 
                any subsequent year, the number of units under 
                such subparagraph shall be based 75 percent, 50 
                percent, 25 percent, and 0 percent, 
                respectively, on the practice expense relative 
                value units in effect in 1998 (or the 
                Secretary's imputation of such units for new or 
                revised codes) and the remainder on the 
                relative value expense resources involved in 
                furnishing the service.''.

SEC. 10606. DISSEMINATION OF INFORMATION ON HIGH PER DISCHARGE RELATIVE 
                    VALUES FOR IN-HOSPITAL PHYSICIANS' SERVICES.

  (a) Determination and Notice Concerning Hospital-Specific Per 
Discharge Relative Values.--
          (1) In general.--For 1999 and 2001 the Secretary of 
        Health and Human Services shall determine for each 
        hospital--
                  (A) the hospital-specific per discharge 
                relative value under subsection (b); and
                  (B) whether the hospital-specific relative 
                value is projected to be excessive (as 
                determined based on such value represented as a 
                percentage of the median of hospital-specific 
                per discharge relative values determined under 
                subsection (b)).
          (2) Notice to medical staffs and carriers.--The 
        Secretary shall notify the medical executive committee 
        of each hospital identified under paragraph (1)(B) as 
        having an excessive hospital-specific relative value, 
        of the determinations made with respect to the medical 
        staff under paragraph (1).
  (b) Determination of Hospital-Specific Per Discharge Relative 
Values.--
          (1) In general.--For purposes of this section, the 
        hospital-specific per discharge relative value for the 
        medical staff of a hospital (other than a teaching 
        hospital) for a year, shall be equal to the average per 
        discharge relative value (as determined under section 
        1848(c)(2) of the Social Security Act) for physicians' 
        services furnished to inpatients of the hospital by the 
        hospital's medical staff (excluding interns and 
        residents) during the second year preceding that 
        calendar year, adjusted for variations in case-mix and 
        disproportionate share status among hospitals (as 
        determined by the Secretary under paragraph (3)).
          (2) Special rule for teaching hospitals.--The 
        hospital-specific relative value projected for a 
        teaching hospital in a year shall be equal to the sum 
        of--
                  (A) the average per discharge relative value 
                (as determined under section 1848(c)(2) of such 
                Act) for physicians' services furnished to 
                inpatients of the hospital by the hospital's 
                medical staff (excluding interns and residents) 
                during the second year preceding that calendar 
                year, and
                  (B) the equivalent per discharge relative 
                value (as determined under such section) for 
                physicians' services furnished to inpatients of 
                the hospital by interns and residents of the 
                hospital during the second year preceding that 
                calendar year, adjusted for variations in case-
                mix, disproportionate share status, and 
                teaching status among hospitals (as determined 
                by the Secretary under paragraph (3)).
        The Secretary shall determine the equivalent relative 
        value unit per discharge for interns and residents 
        based on the best available data and may make such 
        adjustment in the aggregate.
          (3) Adjustment for teaching and disproportionate 
        share hospitals.--The Secretary shall adjust the 
        allowable per discharge relative values otherwise 
        determined under this subsection to take into account 
        the needs of teaching hospitals and hospitals receiving 
        additional payments under subparagraphs (F) and (G) of 
        section 1886(d)(5) of the Social Security Act. The 
        adjustment for teaching status or disproportionate 
        share shall not be less than zero.
  (c) Definitions.--For purposes of this section:
          (1) Hospital.--The term ``hospital'' means a 
        subsection (d) hospital as defined in section 1886(d) 
        of the Social Security Act (42 U.S.C. 1395ww(d)) .
          (2) Medical staff.--An individual furnishing a 
        physician's service is considered to be on the medical 
        staff of a hospital--
                  (A) if (in accordance with requirements for 
                hospitals established by the Joint Commission 
                on Accreditation of Health Organizations)--
                          (i) the individual is subject to 
                        bylaws, rules, and regulations 
                        established by the hospital to provide 
                        a framework for the self-governance of 
                        medical staff activities,
                          (ii) subject to the bylaws, rules, 
                        and regulations, the individual has 
                        clinical privileges granted by the 
                        hospital's governing body, and
                          (iii) under the clinical privileges, 
                        the individual may provide physicians' 
                        services independently within the scope 
                        of the individual's clinical 
                        privileges, or
                  (B) if the physician provides at least one 
                service to an individual entitled to benefits 
                under this title in that hospital.
          (3) Physicians' services.--The term ``physicians 
        services'' means the services described in section 
        1848(j)(3) of the Social Security Act (42 U.S.C. 1395w-
        4(j)(3)).
          (4) Rural area; urban area.--The terms ``rural area'' 
        and ``urban area'' have the meaning given those terms 
        under section 1886(d)(2)(D) of such Act (42 U.S.C. 
        1395ww(d)(2)(D)).
          (5) Secretary.--The term ``Secretary'' means the 
        Secretary of Health and Human Services .
          (6) Teaching hospital.--The term ``teaching 
        hospital'' means a hospital which has a teaching 
        program approved as specified in section 1861(b)(6) of 
        the Social Security Act (42 U.S.C. 1395x(b)(6)).

SEC. 10607. NO X-RAY REQUIRED FOR CHIROPRACTIC SERVICES.

  (a) In General.--Section 1861(r)(5) (42 U.S.C. 1395x(r)(5)) 
is amended by striking ``demonstrated by X-ray to exist''.
  (b) Effective Date.--The amendment made by subsection (a) 
applies to services furnished on or after January 1, 1998.

SEC. 10608. TEMPORARY COVERAGE RESTORATION FOR PORTABLE 
                    ELECTROCARDIOGRAM TRANSPORTATION.

  (a) In General.--Effective for electrocardiogram tests 
furnished during 1998, the Secretary of Health and Human 
Services shall restore separate payment, under part B of title 
XVIII of the Social Security Act, for the transportation of 
electrocardiogram equipment (HCPCS code R0076) based upon the 
status code and relative value units established for such 
service as of December 31, 1996.
  (b) Determination.--By not later than July 1, 1998, the 
Secretary of Health and Human Services shall determine, taking 
into account the study of coverage of portable 
electrocardiogram transportation conducted by the Comptroller 
General and other relevant information, including information 
submitted by interested parties, whether coverage of portable 
electrocardiogram transportation should be provided under part 
B of title XVIII of the Social Security Act.

                  CHAPTER 2--OTHER PAYMENT PROVISIONS

SEC. 10611. PAYMENTS FOR DURABLE MEDICAL EQUIPMENT.

  (a) Reduction in Payment Amounts for Items of Durable Medical 
Equipment.--
          (1) Freeze in update for covered items.--Section 
        1834(a)(14) (42 U.S.C. 1395m(a)(14)) is amended--
                  (A) by striking ``and'' at the end of 
                subparagraph (A);
                  (B) in subparagraph (B)--
                          (i) by striking ``a subsequent year'' 
                        and inserting ``1993, 1994, 1995, 1996, 
                        and 1997'', 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 1998 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) and inserting a semicolon;
                  (B) in clause (iv), by striking ``a 
                subsequent year'' and inserting ``1996 and 
                1997'', and
                  (C) by adding at the end the following new 
                clauses:
                          ``(v) for each of the years 1998 
                        through 2002, 1 percent, and
                          ``(vi) 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;''.
  (c) Payment Freeze for Parenteral and Enteral Nutrients, 
Supplies, and Equipment.--In determining the amount of payment 
under part B of title XVIII of the Social Security Act with 
respect to parenteral and enteral nutrients, supplies, and 
equipment during each of the years 1998 through 2002, the 
charges determined to be reasonable with respect to such 
nutrients, supplies, and equipment may not exceed the charges 
determined to be reasonable with respect to such nutrients, 
supplies, and equipment during 1995.

SEC. 10612. 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, 1995, 1996, and 1997'', 
                and
                  (B) by striking the period at the end and 
                inserting a semicolon; and
          (3) by adding at the end the following new clauses:
                          ``(v) in each of the years 1998 
                        through 2002, 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. 10613. 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 inserting ``and 
1998 through 2002'' after ``1995''.
  (b) Lowering Cap on Payment Amounts.--Section 1833(h)(4)(B) 
(42 U.S.C. 1395l(h)(4)(B)) is amended--
          (1) in clause (vi), by striking ``and'' at the end;
          (2) in clause (vii)--
                  (A) by inserting ``and before January 1, 
                1998,'' after ``1995,'', and
                  (B) by striking the period at the end and 
                inserting ``, and''; and
          (3) by adding at the end the following new clause:
          ``(viii) after December 31, 1997, is equal to 72 
        percent of such median.''.

SEC. 10614. SIMPLIFICATION IN ADMINISTRATION OF LABORATORY TESTS.

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

SEC. 10615. UPDATES FOR AMBULATORY SURGICAL SERVICES.

  Section 1833(i)(2)(C) (42 U.S.C. 1395l(i)(2)(C)) is amended 
by striking all that follows ``shall be increased'' and 
inserting the following: ``as follows:
          ``(i) For fiscal years 1996 and 1997, by the 
        percentage increase in the consumer price index for all 
        urban consumers (U.S. city average) as estimated by the 
        Secretary for the 12-month period ending with the 
        midpoint of the year involved.
          ``(ii) For each of fiscal years 1998 through 2002 by 
        such percentage increase minus 2.0 percentage points.
          ``(iii) For each succeeding fiscal year by such 
        percentage increase.''.

SEC. 10616. REIMBURSEMENT FOR DRUGS AND BIOLOGICALS.

  (a) In General.--Section 1842 (42 U.S.C. 1395u) is amended by 
inserting after subsection (n) the following new subsection:
  ``(o) If a physician's, supplier's, or any other person's 
bill or request for payment for services includes a charge for 
a drug or biological for which payment may be made under this 
part and the drug or biological is not paid on a cost or 
prospective payment basis as otherwise provided in this part, 
the amount payable for the drug or biological is equal to 95 
percent of the average wholesale price.''.
  (b) Effective Date.--The amendments made by subsection (a) 
apply to drugs and biologicals furnished on or after January 1, 
1998.

SEC. 10617. COVERAGE OF ORAL ANTI-NAUSEA DRUGS UNDER CHEMOTHERAPEUTIC 
                    REGIMEN.

  (a) In General.--Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)), 
as amended, is further amended--
          (1) by striking ``and'' at the end of subparagraph 
        (R); and
          (2) by inserting after subparagraph (S) the following 
        new subparagraph:
          ``(T) an oral drug (which is approved by the Federal 
        Food and Drug Administration) prescribed for use as an 
        acute anti-emetic used as part of an anticancer 
        chemotherapeutic regimen if the drug is administered by 
        a physician (or under the supervision of a physician)--
                  ``(i) for use immediately before, immediately 
                after, or at the time of the administration of 
                the anticancer chemotherapeutic agent; and
                  ``(ii) as a full replacement for the anti-
                emetic therapy which would otherwise be 
                administered intravenously.''.
  (b) Payment Levels.--Section 1834 (42 U.S.C. 1395m), as 
amended by sections 10421(a)(2) and 10431(b)(2), is amended by 
adding at the end the following new subsection:
  ``(m) Special Rules for Payment for Oral Anti-Nausea Drugs.--
          ``(1) Limitation on per dose payment basis.--Subject 
        to paragraph (2), the per dose payment basis under this 
        part for oral anti-nausea drugs (as defined in 
        paragraph (3)) administered during a year shall not 
        exceed 90 percent of the average per dose payment basis 
        for the equivalent intravenous anti-emetics 
        administered during the year, as computed based on the 
        payment basis applied during 1996.
          ``(2) Aggregate limit.--The Secretary shall make such 
        adjustment in the coverage of, or payment basis for, 
        oral anti-nausea drugs so that coverage of such drugs 
        under this part does not result in any increase in 
        aggregate payments per capita under this part above the 
        levels of such payments per capita that would otherwise 
        have been made if there were no coverage for such drugs 
        under this part.
          ``(3) Oral anti-nausea drugs defined.--For purposes 
        of this subsection, the term `oral anti-nausea drugs' 
        means drugs for which coverage is provided under this 
        part pursuant to section 1861(s)(2)(P).''.
  (c) Effective Date.--The amendments made by this section 
shall apply to items and services furnished on or after January 
1, 1998.

SEC. 10618. RURAL HEALTH CLINIC SERVICES.

  (a) Per-Visit Payment Limits for Provider-Based Clinics.--
          (1) Extension of limit.--
                  (A) In general.--The matter in section 
                1833(f) (42 U.S.C. 1395l(f)) preceding 
                paragraph (1) is amended by striking 
                ``independent rural health clinics'' and 
                inserting ``rural health clinics (other than 
                such clinics in rural hospitals with less than 
                50 beds)''.
                  (B) Effective date.--The amendment made by 
                subparagraph (A) applies to services furnished 
                after 1997.
          (2) Technical clarification.--Section 1833(f)(1) (42 
        U.S.C. 1395l(f)(1)) is amended by inserting ``per 
        visit'' after ``$46''.
  (b) Assurance of Quality Services.--
          (1) In general.--Subparagraph (I) of the first 
        sentence of section 1861(aa)(2) (42 U.S.C. 
        1395x(aa)(2)) is amended to read as follows:
          ``(I) has a quality assessment and performance 
        improvement program, and appropriate procedures for 
        review of utilization of clinic services, as the 
        Secretary may specify,''.
                  (2) Effective date.--The amendment made by 
                paragraph (1) shall take effect on January 1, 
                1998.
  (c) Waiver of Certain Staffing Requirements Limited to 
Clinics in Program.--
          (1) In general.--Section 1861(aa)(7)(B) (42 U.S.C. 
        1395x(aa)(7)(B)) is amended by inserting before the 
        period at the end the following: ``, or if the facility 
        has not yet been determined to meet the requirements 
        (including subparagraph (J) of the first sentence of 
        paragraph (2)) of a rural health clinic''.
          (2) Effective date.--The amendment made by paragraph 
        (1) applies to waiver requests made after 1997.
  (d) Refinement of Shortage Area Requirements.--
          (1) Designation reviewed triennially.--Section 
        1861(aa)(2) (42 U.S.C. 1395x(aa)(2)) is amended in the 
        second sentence, in the matter in clause (i) preceding 
        subclause (I)--
                  (A) by striking ``and that is designated'' 
                and inserting ``and that, within the previous 
                three-year period, has been designated''; and
                  (B) by striking ``or that is designated'' and 
                inserting ``or designated''.
          (2) Area must have shortage of health care 
        practitioners.--Section 1861(aa)(2) (42 U.S.C. 
        1395x(aa)(2)), as amended by paragraph (1), is further 
        amended in the second sentence, in the matter in clause 
        (i) preceding subclause (I)--
                  (A) by striking the comma after ``personal 
                health services''; and
                  (B) by inserting ``and in which there are 
                insufficient numbers of needed health care 
                practitioners (as determined by the 
                Secretary),'' after ``Bureau of the Census)''.
          (3) Previously qualifying clinics grandfathered only 
        to prevent shortage.--Section 1861(aa)(2) (42 U.S.C. 
        1395x(aa)(2)) is amended in the third sentence by 
        inserting before the period ``if it is determined, in 
        accordance with criteria established by the Secretary 
        in regulations, to be essential to the delivery of 
        primary care services that would otherwise be 
        unavailable in the geographic area served by the 
        clinic''.
          (4) Effective dates; implementing regulations.--
                  (A) In general.--Except as otherwise 
                provided, the amendments made by the preceding 
                paragraphs take effect on January 1 of the 
                first calendar year beginning at least one 
                month after enactment of this Act.
                  (B) Current rural health clinics.--The 
                amendments made by the preceding paragraphs 
                take effect, with respect to entities that are 
                rural health clinics under title XVIII of the 
                Social Security Act on the date of enactment of 
                this Act, on January 1 of the second calendar 
                year following the calendar year specified in 
                subparagraph (A).
                  (C) Grandfathered clinics.--
                          (i) In general.--The amendment made 
                        by paragraph (3) shall take effect on 
                        the effective date of regulations 
                        issued by the Secretary under clause 
                        (ii).
                          (ii) Regulations.--The Secretary 
                        shall issue final regulations 
                        implementing paragraph (3) that shall 
                        take effect no later than January 1 of 
                        the third calendar year beginning at 
                        least one month after enactment of this 
                        Act.

SEC. 10619. INCREASED MEDICARE REIMBURSEMENT FOR NURSE PRACTITIONERS 
                    AND CLINICAL NURSE SPECIALISTS.

  (a) Removal of Restrictions on Settings.--
          (1) In general.--Clause (ii) of section 1861(s)(2)(K) 
        (42 U.S.C. 1395x(s)(2)(K)) is amended to read as 
        follows:
          ``(ii) services which would be physicians' services 
        if furnished by a physician (as defined in subsection 
        (r)(1)) and which are performed by a nurse practitioner 
        or clinical nurse specialist (as defined in subsection 
        (aa)(5)) working in collaboration (as defined in 
        subsection (aa)(6)) with a physician (as defined in 
        subsection (r)(1)) which the nurse practitioner or 
        clinical nurse specialist is legally authorized to 
        perform by the State in which the services are 
        performed, and such services and supplies furnished as 
        an incident to such services as would be covered under 
        subparagraph (A) if furnished incident to a physician's 
        professional service, but only if no facility or other 
        provider charges or is paid any amounts with respect to 
        the furnishing of such services;''.
          (2) Conforming amendments.--(A) Section 1861(s)(2)(K) 
        of such Act (42 U.S.C. 1395x(s)(2)(K)) is further 
        amended--
                  (i) in clause (i), by inserting ``and such 
                services and supplies furnished as incident to 
                such services as would be covered under 
                subparagraph (A) if furnished incident to a 
                physician's professional service,'' after ``are 
                performed,''; and
                  (ii) by striking clauses (iii) and (iv).
          (B) Section 1861(b)(4) (42 U.S.C. 1395x(b)(4)) is 
        amended by striking ``clauses (i) or (iii) of 
        subsection (s)(2)(K)'' and inserting ``subsection 
        (s)(2)(K)''.
          (C) Section 1862(a)(14) (42 U.S.C. 1395y(a)(14)) is 
        amended by striking ``section 1861(s)(2)(K)(i) or 
        1861(s)(2)(K)(iii)'' and inserting ``section 
        1861(s)(2)(K)''.
          (D) Section 1866(a)(1)(H) (42 U.S.C. 1395cc(a)(1)(H)) 
        is amended by striking ``section 1861(s)(2)(K)(i) or 
        1861(s)(2)(K)(iii)'' and inserting ``section 
        1861(s)(2)(K)''.
          (E) Section 1888(e)(2)(A)(ii) (42 U.S.C. 
        1395yy(e)(2)(A)(ii)), as added by section 10401(a), is 
        amended by striking ``through (iii)'' and inserting 
        ``and (ii)''.
  (b) Increased Payment.--
          (1) Fee schedule amount.--Clause (O) of section 
        1833(a)(1) (42 U.S.C. 1395l(a)(1)) is amended to read 
        as follows: ``(O) with respect to services described in 
        section 1861(s)(2)(K)(ii) (relating to nurse 
        practitioner or clinical nurse specialist services), 
        the amounts paid shall be equal to 80 percent of (i) 
        the lesser of the actual charge or 85 percent of the 
        fee schedule amount provided under section 1848, or 
        (ii) in the case of services as an assistant at 
        surgery, the lesser of the actual charge or 85 percent 
        of the amount that would otherwise be recognized if 
        performed by a physician who is serving as an assistant 
        at surgery; and''.
          (2) Conforming amendments.--(A) Section 1833(r) (42 
        U.S.C. 1395l(r)) is amended--
                  (i) in paragraph (1), by striking ``section 
                1861(s)(2)(K)(iii) (relating to nurse 
                practitioner or clinical nurse specialist 
                services provided in a rural area)'' and 
                inserting ``section 1861(s)(2)(K)(ii) (relating 
                to nurse practitioner or clinical nurse 
                specialist services)'';
                  (ii) by striking paragraph (2);
                  (iii) in paragraph (3), by striking ``section 
                1861(s)(2)(K)(iii)'' and inserting ``section 
                1861(s)(2)(K)(ii)''; and
                  (iv) by redesignating paragraph (3) as 
                paragraph (2).
          (B) Section 1842(b)(12)(A) (42 U.S.C. 
        1395u(b)(12)(A)) is amended, in the matter preceding 
        clause (i), by striking ``clauses (i), (ii), or (iv) of 
        section 1861(s)(2)(K) (relating to a physician 
        assistants and nurse practitioners)'' and inserting 
        ``section 1861(s)(2)(K)(i) (relating to physician 
        assistants),''.
  (c) Direct Payment for Nurse Practitioners and Clinical Nurse 
Specialists.--
          (1) In general.--Section 1832(a)(2)(B)(iv) (42 U.S.C. 
        1395k(a)(2)(B)(iv)) is amended by striking ``provided 
        in a rural area (as defined in section 1886(d)(2)(D))'' 
        and inserting ``but only if no facility or other 
        provider charges or is paid any amounts with respect to 
        the furnishing of such services''.
          (2) Conforming amendment.--Section 1842(b)(6)(C) (42 
        U.S.C. 1395u(b)(6)(C)) is amended--
                  (A) by striking ``clauses (i), (ii), or 
                (iv)'' and inserting ``clause (i)''; and
                  (B) by striking ``or nurse practitioner''.
  (d) Definition of Clinical Nurse Specialist Clarified.--
Section 1861(aa)(5) (42 U.S.C. 1395x(aa)(5)) is amended--
          (1) by inserting ``(A)'' after ``(5)'';
          (2) by striking ``The term `physician assistant' '' 
        and all that follows through ``who performs'' and 
        inserting ``The term `physician assistant' and the term 
        `nurse practitioner' mean, for purposes of this title, 
        a physician assistant or nurse practitioner who 
        performs''; and
          (3) by adding at the end the following new 
        subparagraph:
  ``(B) The term `clinical nurse specialist' means, for 
purposes of this title, an individual who--
          ``(i) is a registered nurse and is licensed to 
        practice nursing in the State in which the clinical 
        nurse specialist services are performed; and
          ``(ii) holds a master's degree in a defined clinical 
        area of nursing from an accredited educational 
        institution.''.
  (e) Effective Date.--The amendments made by this section 
shall apply with respect to services furnished and supplies 
provided on and after January 1, 1998.

SEC. 10620. INCREASED MEDICARE REIMBURSEMENT FOR PHYSICIAN ASSISTANTS.

  (a) Removal of Restriction on Settings.--Section 
1861(s)(2)(K)(i) (42 U.S.C. 1395x(s)(2)(K)(i)) is amended--
          (1) by striking ``(I) in a hospital'' and all that 
        follows through ``shortage area,'', and
          (2) by adding at the end the following: ``but only if 
        no facility or other provider charges or is paid any 
        amounts with respect to the furnishing of such 
        services,''.
  (b) Increased Payment.--Paragraph (12) of section 1842(b) (42 
U.S.C. 1395u(b)), as amended by section 10619(b)(2)(B), is 
amended to read as follows:
  ``(12) With respect to services described in section 
1861(s)(2)(K)(i)--
          ``(A) payment under this part may only be made on an 
        assignment-related basis; and
          ``(B) the amounts paid under this part shall be equal 
        to 80 percent of (i) the lesser of the actual charge or 
        85 percent of the fee schedule amount provided under 
        section 1848 for the same service provided by a 
        physician who is not a specialist; or (ii) in the case 
        of services as an assistant at surgery, the lesser of 
        the actual charge or 85 percent of the amount that 
        would otherwise be recognized if performed by a 
        physician who is serving as an assistant at surgery.''.
  (c) Removal of Restriction on Employment Relationship.--
Section 1842(b)(6) (42 U.S.C. 1395u(b)(6)) is amended by adding 
at the end the following new sentence: ``For purposes of clause 
(C) of the first sentence of this paragraph, an employment 
relationship may include any independent contractor 
arrangement, and employer status shall be determined in 
accordance with the law of the State in which the services 
described in such clause are performed.''.
  (d) Effective Date.--The amendments made by this section 
shall apply with respect to services furnished and supplies 
provided on and after January 1, 1998.

SEC. 10621. RENAL DIALYSIS-RELATED SERVICES.

  (a) Auditing of Cost Reports.--The Secretary shall audit a 
sample of cost reports of renal dialysis providers for 1995 and 
for each third year thereafter.
  (b) Implementation of Quality Standards.--The Secretary of 
Health and Human Services shall develop and implement, by not 
later than January 1, 1999, a method to measure and report 
quality of renal dialysis services provided under the medicare 
program under title XVIII of the Social Security Act in order 
to reduce payments for inappropriate or low quality care.

                       CHAPTER 3--PART B PREMIUM

SEC. 10631. PART B PREMIUM.

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

            Subtitle H--Provisions Relating to Parts A and B

       CHAPTER 1--PROVISIONS RELATING TO MEDICARE SECONDARY PAYER

SEC. 10701. PERMANENT EXTENSION AND REVISION OF CERTAIN SECONDARY PAYER 
                    PROVISIONS.

  (a) 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)''.
  (b) Individuals With End Stage Renal Disease.--
          (1) In general.--Section 1862(b)(1)(C) (42 U.S.C. 
        1395y(b)(1)(C)) is amended--
                  (A) in the first sentence, by striking ``12-
                month'' each place it appears and inserting 
                ``30-month'', and
                  (B) by striking the second sentence.
          (2) Effective date.--The amendments made by paragraph 
        (1) shall apply to items and services furnished on or 
        after the date of the enactment of this Act and with 
        respect to periods beginning on or after the date that 
        is 18 months prior to such date.
  (c) IRS-SSA-HCFA Data Match.--
          (1) Social security act.--Section 1862(b)(5)(C) (42 
        U.S.C. 1395y(b)(5)(C)) is amended by striking clause 
        (iii).
          (2) Internal revenue code.--Section 6103(l)(12) of 
        the Internal Revenue Code of 1986 is amended by 
        striking subparagraph (F).

SEC. 10702. CLARIFICATION OF TIME AND FILING LIMITATIONS.

  (a) 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.''.
  (b) Effective Date.--The amendment made by subsection (a) 
applies to items and services furnished after 1990. The 
previous sentence shall not be construed as permitting any 
waiver of the 3-year-period requirement (imposed by such 
amendment) in the case of items and services furnished more 
than 3 years before the date of the enactment of this Act.

SEC. 10703. PERMITTING RECOVERY AGAINST THIRD PARTY ADMINISTRATORS.

  (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) Clarification of Beneficiary Liability.--Section 
1862(b)(1) (42 U.S.C. 1395y(b)(1)) is amended by adding at the 
end the following new subparagraph:
                  ``(F) Limitation on beneficiary liability.--
                An individual who is entitled to benefits under 
                this title and is furnished an item or service 
                for which such benefits are incorrectly paid is 
                not liable for repayment of such benefits under 
                this paragraph unless payment of such benefits 
                was made to the individual.''.
  (c) Effective Date.--The amendments made by this section 
apply to items and services furnished on or after the date of 
the enactment of this Act.

                    CHAPTER 2--HOME HEALTH SERVICES

SEC. 10711. RECAPTURING SAVINGS RESULTING FROM TEMPORARY FREEZE ON 
                    PAYMENT INCREASES FOR HOME HEALTH SERVICES.

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

SEC. 10712. INTERIM PAYMENTS FOR HOME HEALTH SERVICES.

  (a) Reductions in Cost Limits.--Section 1861(v)(1)(L)(i) (42 
U.S.C. 1395x(v)(1)(L)(i)) is amended--
          (1) by moving the indentation of subclauses (I) 
        through (III) 2-ems to the left;
          (2) in subclause (I), by inserting ``of the mean of 
        the labor-related and nonlabor per visit costs for 
        freestanding home health agencies'' before the comma at 
        the end;
          (3) in subclause (II), by striking ``, or'' and 
        inserting ``of such mean,'';
          (4) in subclause (III)--
                  (A) by inserting ``and before October 1, 
                1997,'' after ``July 1, 1987,'', and
                  (B) by striking the comma at the end and 
                inserting ``of such mean, or''; and
          (5) by striking the matter following subclause (III) 
        and inserting the following:
          ``(IV) October 1, 1997, 105 percent of the median of 
        the labor-related and nonlabor per visit costs for 
        freestanding home health agencies.''.
  (b) Delay In Updates.--Section 1861(v)(1)(L)(iii) (42 U.S.C. 
1395x(v)(1)(L)(iii)) is amended by inserting ``, or on or after 
July 1, 1997, and before October 1, 1997'' after ``July 1, 
1996''.
  (c) Additions to Cost Limits.--Section 1861(v)(1)(L) (42 
U.S.C. 1395x(v)(1)(L)), as amended by section 10711(a), is 
amended by adding at the end the following new clauses:
  ``(v) For services furnished by home health agencies for cost 
reporting periods beginning on or after October 1, 1997, the 
Secretary shall provide for an interim system of limits. 
Payment shall not exceed the costs determined under the 
preceding provisions of this subparagraph or, if lower, the 
product of--
          ``(I) an agency-specific per beneficiary annual 
        limitation calculated based 75 percent on the 
        reasonable costs (including nonroutine medical 
        supplies) for the agency's 12-month cost reporting 
        period ending during 1994, and based 25 percent on the 
        standardized regional average of such costs for the 
        agency's region, as applied to such agency, for cost 
        reporting periods ending during 1994, such costs 
        updated by the home health market basket index; and
          ``(II) the agency's unduplicated census count of 
        patients (entitled to benefits under this title) for 
        the cost reporting period subject to the limitation.
  ``(vi) For services furnished by home health agencies for 
cost reporting periods beginning on or after October 1, 1997, 
the following rules apply:
          ``(I) For new providers and those providers without a 
        12-month cost reporting period ending in calendar year 
        1994, the per beneficiary limitation shall be equal to 
        the median of these limits (or the Secretary's best 
        estimates thereof) applied to other home health 
        agencies as determined by the Secretary. A home health 
        agency that has altered its corporate structure or name 
        shall not be considered a new provider for this 
        purpose.
          ``(II) For beneficiaries who use services furnished 
        by more than one home health agency, the per 
        beneficiary limitations shall be prorated among the 
        agencies.''.
  (d) Development of Case Mix System.--The Secretary of Health 
and Human Services shall expand research on a prospective 
payment system for home health agencies under the medicare 
program that ties prospective payments to a unit of service, 
including an intensive effort to develop a reliable case mix 
adjuster that explains a significant amount of the variances in 
costs.
  (e) Submission of Data for Case Mix System.--Effective for 
cost reporting periods beginning on or after October 1, 1997, 
the Secretary of Health and Human Services may require all home 
health agencies to submit additional information that the 
Secretary considers necessary for the development of a reliable 
case mix system.

SEC. 10713. CLARIFICATION OF PART-TIME OR INTERMITTENT NURSING CARE.

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

SEC. 10714. STUDY ON DEFINITION OF HOMEBOUND.

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

SEC. 10715. PAYMENT BASED ON LOCATION WHERE HOME HEALTH SERVICE IS 
                    FURNISHED.

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

SEC. 10716. NORMATIVE STANDARDS FOR HOME HEALTH CLAIMS DENIALS,

  (a) In General.--Section 1862(a)(1) (42 U.S.C. 1395y(a)(1)), 
as amended by section 10616(c), is amended--
          (1) by striking ``and'' at the end of subparagraph 
        (G),
          (2) by striking the semicolon at the end of 
        subparagraph (H) and inserting ``, and'', and
          (3) by inserting after subparagraph (H) the following 
        new subparagraph:
          ``(I) the frequency and duration of home health 
        services which are in excess of normative guidelines 
        that the Secretary shall establish by regulation;''.
  (b) Notification.--The Secretary of Health and Human Services 
may establish a process for notifying a physician in cases in 
which the number of home health service visits furnished under 
the medicare program pursuant to a prescription or 
certification of the physician significantly exceeds such 
threshold (or thresholds) as the Secretary specifies. The 
Secretary may adjust such threshold to reflect demonstrated 
differences in the need for home health services among 
different beneficiaries.
  (c) Effective Date.--The amendments made by this section 
apply to services furnished on or after October 1, 1997.

SEC. 10717. NO HOME HEALTH BENEFITS BASED SOLELY ON DRAWING BLOOD.

  (a) In General.--Sections 1814(a)(2)(C) and 1835(a)(2)(A) (42 
U.S.C. 1395f(a)(2)(C), 1395n(a)(2)(A)) are each amended by 
inserting ``(other than solely venipuncture for the purpose of 
obtaining a blood sample)'' after ``skilled nursing care''.
  (b) Effective Date.--The amendments made by subsection (a) 
apply to home health services furnished after the 6-month 
period beginning after the date of enactment of this Act.

          CHAPTER 3--BABY BOOM GENERATION MEDICARE COMMISSION

SEC. 10721. BIPARTISAN 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 Bipartisan 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,
                  (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, and
                  (C) study the feasibility and desirability of 
                establishing--
                          (i) an independent commission on 
                        medicare to make recommendations 
                        annually on how best to match the 
                        structure of the medicare program to 
                        available funding for the program,
                          (ii) an expedited process for 
                        consideration of such recommendations 
                        by Congress, and
                          (iii) a default mechanism to enforce 
                        Congressional spending targets for the 
                        program if Congress fails to approve 
                        such recommendations.
          (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) Methods used by other nations to respond 
                to comparable demographic patterns in 
                eligibility for health care benefits for 
                elderly and disabled individuals.
                  (C) Modifying age-based eligibility to 
                correspond to changes in age-based eligibility 
                under the OASDI program.
                  (D) 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 voting members as follows:
                  (A) 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.
                  (B) 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.
                  (C) The 3 ex officio members of the Board of 
                Trustees of the Federal Hospital Insurance 
                Trust Fund and of the Federal Supplementary 
                Medical Insurance Trust Fund who are Cabinet 
                level officials.
          (2) Chairman and vice chairman.--As the first item of 
        business at the Commission's first meeting (described 
        in paragraph (5)(B)), the Commission shall elect a 
        Chairman and Vice Chairman from among its members. The 
        individuals elected as Chairman and Vice Chairman may 
        not be of the same political party and may not have 
        been appointed to the Commission by the same appointing 
        authority.
          (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 (f).
          (5) Meetings.--
                  (A) The Commission shall meet at the call of 
                its Chairman or a majority of its members.
                  (B) The Commission shall hold its first 
                meeting not later than February 1, 1998.
          (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) Advisory Panel.--
          (1) In general.--The Chairman, in consultation with 
        the Vice Chairman, may establish a panel (in this 
        section referred to as the ``Advisory Panel'') 
        consisting of health care experts, consumers, 
        providers, and others to advise and assist the members 
        of the Commission in carrying out the duties described 
        in subsection (b). The panel shall have only those 
        powers that the Chairman, in consultation with the Vice 
        Chairman, determines are necessary and appropriate to 
        assist the Commission in carrying out such duties.
          (2) Compensation.--Members of the Advisory Panel are 
        not entitled to receive compensation for service on the 
        Advisory Panel. Subject to the approval of the chairman 
        of the Commission, members may be reimbursed for 
        travel, subsistence, and other necessary expenses 
        incurred in carrying out the duties of the Advisory 
        Panel.
  (e) 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.
  (f) 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) 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.
  (g) Report.--(1) Not later than May 1, 1999, 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.
  (2) Not later than 12 months after the date of the enactment 
of this Act, the Commission shall report to the Congress on the 
matters specified in subsection (b)(1)(C). If the Commission 
determines that it is feasible and desirable to establish the 
processes described in such subsection, the report under this 
paragraph shall include specific recommendations on changes in 
law (such as changes in the Congressional Budget Act of 1974 
and the Balanced Budget and Emergency Deficit Control Act of 
1985) as are needed to implement its recommendations.
  (h) Termination.--The Commission shall terminate 30 days 
after the date of submission of the report required in 
subsection (g).
  (i) Authorization of Appropriations.--There are authorized to 
be appropriated $1,500,000 to carry out 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 under title XVIII of the Social 
Security Act (42 U.S.C. 1395i, 1395t).

  CHAPTER 4--PROVISIONS RELATING TO DIRECT GRADUATE MEDICAL EDUCATION

SEC. 10731. LIMITATION ON PAYMENT BASED ON NUMBER OF RESIDENTS AND 
                    IMPLEMENTATION OF ROLLING AVERAGE FTE COUNT.

  Section 1886(h)(4) (42 U.S.C. 1395ww(h)(4)) is amended by 
adding after subparagraph (E) the following:
                  ``(F) Limitation on number of residents for 
                certain fiscal years.--Such rules shall provide 
                that for purposes of a cost reporting period 
                beginning on or after October 1, 1997, the 
                total number of full-time equivalent residents 
                before application of weighting factors (as 
                determined under this paragraph) with respect 
                to a hospital's approved medical residency 
                training program may not exceed the number of 
                full-time equivalent residents with respect to 
                the hospital's most recent cost reporting 
                period ending on or before December 31, 1996. 
                The Secretary may establish rules, consistent 
                with the policies in the previous sentence and 
                paragraph (6), with respect to the application 
                of the previous sentence in the case of medical 
                residency training programs established on or 
                after January 1, 1997.
                  ``(G) Counting interns and residents for fy 
                1998 and subsequent years.--
                          ``(i) FY 1998.--For the hospital's 
                        first cost reporting period beginning 
                        during fiscal year 1998, subject to the 
                        limit described in subparagraph (F), 
                        the total number of full-time 
                        equivalent residents, for determining 
                        the hospital's graduate medical 
                        education payment, shall equal the 
                        average of the full-time equivalent 
                        resident counts for the cost reporting 
                        period and the preceding cost reporting 
                        period.
                          ``(ii) Subsequent years.--For each 
                        subsequent cost reporting period, 
                        subject to the limit described in 
                        subparagraph (F), the total number of 
                        full-time equivalent residents, for 
                        determining the hospital's graduate 
                        medical education payment, shall equal 
                        the average of the actual full-time 
                        equivalent resident counts for the cost 
                        reporting period and preceding two cost 
                        reporting periods.
                          ``(iii) Adjustment for short 
                        periods.--If a hospital's cost 
                        reporting period beginning on or after 
                        October 1, 1997, is not equal to twelve 
                        months, the Secretary shall make 
                        appropriate modifications to ensure 
                        that the average full-time equivalent 
                        resident counts pursuant to clause (ii) 
                        are based on the equivalent of full 12-
                        month cost reporting periods.''.

SEC. 10732. PHASED-IN LIMITATION ON HOSPITAL OVERHEAD AND SUPERVISORY 
                    PHYSICIAN COMPONENT OF DIRECT MEDICAL EDUCATION 
                    COSTS.

  (a) In General.--Section 1886(h)(3) (42 U.S.C. 1395ww(h)(3)) 
is amended--
          (1) in subparagraph (B), by inserting ``subject to 
        subparagraph (D),'' after ``subparagraph (A)'', and
          (2) by adding at the end the following:
                  ``(D) Phased-in limitation on hospital 
                overhead and supervisory physician component.--
                          ``(i) In general.--In the case of a 
                        hospital for which the overhead GME 
                        amount (as defined in clause (ii)) for 
                        the base period exceeds an amount equal 
                        to the 75th percentile of the overhead 
                        GME amounts in such period for all 
                        hospitals (weighted to reflect the 
                        full-time equivalent resident counts 
                        for all approved medical residency 
                        training programs), subject to clause 
                        (iv), the hospital's approved FTE 
                        resident amount (for periods beginning 
                        on or after October 1, 1997) shall be 
                        reduced from the amount otherwise 
                        applicable (as previously reduced under 
                        this subparagraph) by an overhead 
                        reduction amount. The overhead 
                        reduction amount is equal to the lesser 
                        of--
                                  ``(I) 20 percent of the 
                                reference reduction amount 
                                (described in clause (iii)) for 
                                the period, or
                                  ``(II) 15 percent of the 
                                hospital's overhead GME amount 
                                for the period (as otherwise 
                                determined before the reduction 
                                provided under this 
                                subparagraph for the period 
                                involved).
                          ``(ii) Overhead gme amount.--For 
                        purposes of this subparagraph, the term 
                        `overhead GME amount' means, for a 
                        hospital for a period, the product of--
                                  ``(I) the percentage of the 
                                hospital's approved FTE 
                                resident amount for the base 
                                period that is not attributable 
                                to resident salaries and fringe 
                                benefits, and
                                  ``(II) the hospital's 
                                approved FTE resident amount 
                                for the period involved.
                          ``(iii) Reference reduction amount.--
                                  ``(I) In general.--The 
                                reference reduction amount 
                                described in this clause for a 
                                hospital for a cost reporting 
                                period is the base difference 
                                (described in subclause (II)) 
                                updated, in a compounded manner 
                                for each period from the base 
                                period to the period involved, 
                                by the update applied for such 
                                period to the hospital's 
                                approved FTE resident amount.
                                  ``(II) Base difference.--The 
                                base difference described in 
                                this subclause for a hospital 
                                is the amount by which the 
                                hospital's overhead GME amount 
                                in the base period exceeded the 
                                75th percentile of such amounts 
                                (as described in clause (i)).
                          ``(iv) Maximum reduction to 75th 
                        percentile.--In no case shall the 
                        reduction under this subparagraph 
                        effected for a hospital for a period 
                        (below the amount that would otherwise 
                        apply for the period if this 
                        subparagraph did not apply for any 
                        period) exceed the reference reduction 
                        amount for the hospital for the period.
                          ``(v) Base period.--For purposes of 
                        this subparagraph, the term `base 
                        period' means the cost reporting period 
                        beginning in fiscal year 1984 or the 
                        period used to establish the hospital's 
                        approved FTE resident amount for 
                        hospitals that did not have approved 
                        residency training programs in fiscal 
                        year 1984.
                          ``(vi) Rules for hospitals initiating 
                        residency training programs.--The 
                        Secretary shall establish rules for the 
                        application of this subparagraph in the 
                        case of a hospital that initiates 
                        medical residency training programs 
                        during or after the base period.''.
  (b) Effective Date.--The amendments made by subsection (a) 
shall apply to per resident payment amounts attributable to 
periods beginning on or after October 1, 1997.

SEC. 10733. PERMITTING PAYMENT TO NON-HOSPITAL PROVIDERS.

  (a) In General.-- Section 1886 (42 U.S.C. 1395ww) is amended 
by adding at the end the following:
  ``(k) Payment to Non-Hospital Providers.--
          ``(1) Report.--The Secretary shall submit to 
        Congress, not later than 18 months after the date of 
        the enactment of this subsection, a proposal for 
        payment to qualified non-hospital providers for their 
        direct costs of medical education, if those costs are 
        incurred in the operation of an approved medical 
        residency training program described in subsection (h). 
        Such proposal shall specify the amounts, form, and 
        manner in which such payments will be made and the 
        portion of such payments that will be made from each of 
        the trust funds under this title.
          ``(2) Effectiveness.--Except as otherwise provided in 
        law, the Secretary may implement such proposal for 
        residency years beginning not earlier than 6 months 
        after the date of submittal of the report under 
        paragraph (1).
          ``(3) Qualified non-hospital providers.--For purposes 
        of this subsection, the term `qualified non-hospital 
        provider' means--
                  ``(A) a Federally qualified health center, as 
                defined in section 1861(aa)(4);
                  ``(B) a rural health clinic, as defined in 
                section 1861(aa)(2);
                  ``(C) MedicarePlus organizations; and
                  ``(D) such other providers (other than 
                hospitals) as the Secretary determines to be 
                appropriate.''.
  (b) Prohibition on Double Payments; Budget Neutrality 
Adjustment.--Section 1886(h)(3)(B) (42 U.S.C. 1395ww(h)(3)(B)) 
is amended by adding at the end the following:
                ``The Secretary shall reduce the aggregate 
                approved amount to the extent payment is made 
                under subsection (k) for residents included in 
                the hospital's count of full-time equivalent 
                residents and, in the case of residents not 
                included in any such count, the Secretary shall 
                provide for such a reduction in aggregate 
                approved amounts under this subsection as will 
                assure that the application of subsection (k) 
                does not result in any increase in expenditures 
                under this title in excess of those that would 
                have occurred if subsection (k) were not 
                applicable.''.

SEC. 10734. INCENTIVE PAYMENTS UNDER PLANS FOR VOLUNTARY REDUCTION IN 
                    NUMBER OF RESIDENTS.

  (a) In General.--Section 1886(h) (42 U.S.C. 1395ww(h)) is 
further amended by adding at the end the following new 
paragraph:
          ``(6) Incentive payment under plans for voluntary 
        reduction in number of residents.--
                  ``(A) In general.--In the case of a voluntary 
                residency reduction plan for which an 
                application is approved under subparagraph (B), 
                the qualifying entity submitting the plan shall 
                be paid an applicable hold harmless percentage 
                (as specified in subparagraph (E)) of the sum 
                of--
                          ``(i) amount (if any) by which--
                                  ``(I) the amount of payment 
                                which would have been made 
                                under this subsection if there 
                                had been a 5 percent reduction 
                                in the number of full-time 
                                equivalent residents in the 
                                approved medical education 
                                training programs of the 
                                qualifying entity as of June 
                                30, 1997, exceeds
                                  ``(II) the amount of payment 
                                which is made under this 
                                subsection, taking into account 
                                the reduction in such number 
                                effected under the reduction 
                                plan; and
                          ``(ii) the amount of the reduction in 
                        payment under 1886(d)(5)(B) (for 
                        hospitals participating in the 
                        qualifying entity) that is attributable 
                        to the reduction in number of residents 
                        effected under the plan below 95 
                        percent of the number of full-time 
                        equivalent residents in such programs 
                        of such entity as of June 30, 1997.
                  ``(B) Approval of plan applications.--The 
                Secretary may not approve the application of a 
                qualifying entity unless--
                          ``(i) the application is submitted in 
                        a form and manner specified by the 
                        Secretary and by not later than March 
                        1, 2000,
                          ``(ii) the application provides for 
                        the operation of a plan for the 
                        reduction in the number of full-time 
                        equivalent residents in the approved 
                        medical residency training programs of 
                        the entity consistent with the 
                        requirements of subparagraph (D);
                          ``(iii) the entity elects in the 
                        application whether such reduction will 
                        occur over--
                                  ``(I) a period of not longer 
                                than 5 residency training 
                                years, or
                                  ``(II) a period of 6 
                                residency training years,
                        except that a qualifying entity 
                        described in subparagraph (C)(i)(III) 
                        may not make the election described in 
                        subclause (II); and
                          ``(iv) the Secretary determines that 
                        the application and the entity and such 
                        plan meet such other requirements as 
                        the Secretary specifies in regulations.
                  ``(C) Qualifying entity.--
                          ``(i) In general.--For purposes of 
                        this paragraph, any of the following 
                        may be a qualifying entity:
                                  ``(I) Individual hospitals 
                                operating one or more approved 
                                medical residency training 
                                programs.
                                  ``(II) Subject to clause 
                                (ii), two or more hospitals 
                                that operate such programs and 
                                apply for treatment under this 
                                paragraph as a single 
                                qualifying entity.
                                  ``(III) Subject to clause 
                                (iii), a qualifying consortium 
                                (as described in section 10735 
                                of the Balanced Budget Act of 
                                1997).
                          ``(ii) Additional requirement for 
                        joint programs.--In the case of an 
                        application by a qualifying entity 
                        described in clause (i)(II), the 
                        Secretary may not approve the 
                        application unless the application 
                        represents that the qualifying entity 
                        either--
                                  ``(I) in the case of an 
                                entity that meets the 
                                requirements of clause (v) of 
                                subparagraph (D) will not 
                                reduce the number of full-time 
                                equivalent residents in primary 
                                care during the period of the 
                                plan, or
                                  ``(II) in the case of another 
                                entity will not reduce the 
                                proportion of its residents in 
                                primary care (to the total 
                                number of residents) below such 
                                proportion as in effect as of 
                                the applicable time described 
                                in subparagraph (D)(vi).
                          ``(iii) Additional requirement for 
                        consortia.--In the case of an 
                        application by a qualifying entity 
                        described in clause (i)(III), the 
                        Secretary may not approve the 
                        application unless the application 
                        represents that the qualifying entity 
                        will not reduce the proportion of its 
                        residents in primary care (to the total 
                        number of residents) below such 
                        proportion as in effect as of the 
                        applicable time described in 
                        subparagraph (D)(vi).
                  ``(D) Residency reduction requirements.--
                          ``(i) Individual hospital 
                        applicants.--In the case of a 
                        qualifying entity described in 
                        subparagraph (C)(i)(I), the number of 
                        full-time equivalent residents in all 
                        the approved medical residency training 
                        programs operated by or through the 
                        entity shall be reduced as follows:
                                  ``(I) If base number of 
                                residents exceeds 750 
                                residents, by a number equal to 
                                at least 20 percent of such 
                                base number.
                                  ``(II) Subject to subclause 
                                (IV), if base number of 
                                residents exceeds 500, but is 
                                less than 750, residents, by 
                                150 residents.
                                  ``(III) Subject to subclause 
                                (IV), if base number of 
                                residents does not exceed 500 
                                residents, by a number equal to 
                                at least 25 percent of such 
                                base number.
                                  ``(IV) In the case of a 
                                qualifying entity which is 
                                described in clause (v) and 
                                which elects treatment under 
                                this subclause, by a number 
                                equal to at least 20 percent of 
                                such base number.
                          ``(ii) Joint applicants.--In the case 
                        of a qualifying entity described in 
                        subparagraph (C)(i)(II), the number of 
                        full-time equivalent residents in all 
                        the approved medical residency training 
                        programs operated by or through the 
                        entity shall be reduced as follows:
                                  ``(I) Subject to subclause 
                                (II), by a number equal to at 
                                least 25 percent of such base 
                                number.
                                  ``(II) In the case of a 
                                qualifying entity which is 
                                described in clause (v) and 
                                which elects treatment under 
                                this subclause, by a number 
                                equal to at least 20 percent of 
                                such base number.
                          ``(iii) Consortia.--In the case of a 
                        qualifying entity described in 
                        subparagraph (C)(i)(III), the number of 
                        full-time equivalent residents in all 
                        the approved medical residency training 
                        programs operated by or through the 
                        entity shall be reduced by a number 
                        equal to at least 20 percent of such 
                        base number.
                          ``(iv) Manner of reduction.--The 
                        reductions specified under the 
                        preceding provisions of this 
                        subparagraph for a qualifying entity 
                        shall be below the base number of 
                        residents for that entity and shall be 
                        fully effective not later than--
                                  ``(I) the 5th residency 
                                training year in which the 
                                application under subparagraph 
                                (B) is effective, in the case 
                                of an entity making the 
                                election described in 
                                subparagraph (B)(iii)(I), or
                                  ``(II) the 6th such residency 
                                training year, in the case of 
                                an entity making the election 
                                described in subparagraph 
                                (B)(iii)(II).
                          ``(v) Entities providing assurance of 
                        maintenance of primary care 
                        residents.--An entity is described in 
                        this clause if--
                                  ``(I) the base number of 
                                residents for the entity is 
                                less than 750;
                                  ``(II) the number of full-
                                time equivalent residents in 
                                primary care included in the 
                                base number of residents for 
                                the entity is at least 10 
                                percent of such base number; 
                                and
                                  ``(III) the entity represents 
                                in its application under 
                                subparagraph (B) that there 
                                will be no reduction under the 
                                plan in the number of full-time 
                                equivalent residents in primary 
                                care.
                        If a qualifying entity fails to comply 
                        with the representation described in 
                        subclause (III), the entity shall be 
                        subject to repayment of all amounts 
                        paid under this paragraph, in 
                        accordance with procedures established 
                        to carry out subparagraph (F).
                          ``(vi) Base number of residents 
                        defined.--For purposes of this 
                        paragraph, the term `base number of 
                        residents' means, with respect to a 
                        qualifying entity operating approved 
                        medical residency training programs, 
                        the number of full-time equivalent 
                        residents in such programs (before 
                        application of weighting factors) of 
                        the entity as of the most recent cost 
                        reporting period ending before June 30, 
                        1997, or, if less, for any subsequent 
                        cost reporting period that ends before 
                        the date the entity makes application 
                        under this paragraph.
                  ``(E) Applicable hold harmless percentage.--
                          ``(i) In general.--For purposes of 
                        subparagraph (A), the `applicable hold 
                        harmless percentage' is the percentages 
                        specified in clause (ii) or clause 
                        (iii), as elected by the qualifying 
                        entity in the application submitted 
                        under subparagraph (B).
                          ``(ii) 5-year reduction plan.--In the 
                        case of an entity making the election 
                        described in subparagraph (B)(iii)(I), 
                        the percentages specified in this 
                        clause are, for the--
                                  ``(I) first and second 
                                residency training years in 
                                which the reduction plan is in 
                                effect, 100 percent,
                                  ``(II) third such year, 75 
                                percent,
                                  ``(III) fourth such year, 50 
                                percent, and
                                  ``(IV) fifth such year, 25 
                                percent.
                          ``(iii) 6-year reduction plan.--In 
                        the case of an entity making the 
                        election described in subparagraph 
                        (B)(iii)(II), the percentages specified 
                        in this clause are, for the--
                                  ``(I) first residency 
                                training year in which the 
                                reduction plan is in effect, 
                                100 percent,
                                  ``(II) second such year, 95 
                                percent,
                                  ``(III) third such year, 85 
                                percent,
                                  ``(IV) fourth such year, 70 
                                percent,
                                  ``(V) fifth such year, 50 
                                percent, and
                                  ``(VI) sixth such year, 25 
                                percent.
                  ``(F) Penalty for increase in number of 
                residents in subsequent years.--If payments are 
                made under this paragraph to a qualifying 
                entity, if the entity (or any hospital 
                operating as part of the entity) increases the 
                number of full-time equivalent residents above 
                the number of such residents permitted under 
                the reduction plan as of the completion of the 
                plan, then, as specified by the Secretary, the 
                entity is liable for repayment to the Secretary 
                of the total amounts paid under this paragraph 
                to the entity.
                  ``(G) Treatment of rotating residents.--In 
                applying this paragraph, the Secretary shall 
                establish rules regarding the counting of 
                residents who are assigned to institutions the 
                medical residency training programs in which 
                are not covered under approved applications 
                under this paragraph.''.
  (b) Relation to Demonstration Projects and Authority.--
          (1) Section 1886(h)(6) of the Social Security Act, 
        added by subsection (a), shall not apply to any 
        residency training program with respect to which a 
        demonstration project described in paragraph (3) has 
        been approved by the Health Care Financing 
        Administration as of May 27, 1997. The Secretary of 
        Health and Human Services shall take such actions as 
        may be necessary to assure that (in the manner 
        described in subparagraph (A) of such section) in no 
        case shall payments be made under such a project with 
        respect to the first 5 percent reduction in the base 
        number of full-time equivalent residents otherwise used 
        under the project.
          (2) Effective May 27, 1997, the Secretary of Health 
        and Human Services is not authorized to approve any 
        demonstration project described in paragraph (3) for 
        any residency training year beginning before July 1, 
        2006.
          (3) A demonstration project described in this 
        paragraph is a project that provides for additional 
        payments under title XVIII of the Social Security Act 
        in connection with reduction in the number of residents 
        in a medical residency training program.
  (c) 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 first promulgate 
regulations, that take effect on an interim basis, after notice 
and pending opportunity for public comment, by not later than 6 
months after the date of the enactment of this Act.

SEC. 10735. DEMONSTRATION PROJECT ON USE OF CONSORTIA.

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

SEC. 10736. RECOMMENDATIONS ON LONG-TERM PAYMENT POLICIES REGARDING 
                    FINANCING TEACHING HOSPITALS AND GRADUATE MEDICAL 
                    EDUCATION.

  (a) In General.--The Medicare Payment Advisory Commission 
(established under section 1805 of the Social Security Act and 
in this section referred to as the ``Commission'') shall 
examine and develop recommendations on whether and to what 
extent medicare payment policies and other Federal policies 
regarding teaching hospitals and graduate medical education 
should be reformed. Such recommendations shall include 
recommendations regarding each of the following:
          (1) The financing of graduate medical education, 
        including consideration of alternative broad-based 
        sources of funding for such education and models for 
        the distribution of payments under any all-payer 
        financing mechanism.
          (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 of the 
        Social Security Act.
          (3) Possible methodologies for making payments for 
        graduate medical education and the selection of 
        entities to receive such payments. Matters considered 
        under this paragraph shall include--
                  (A) issues regarding children's hospitals and 
                approved medical residency training programs in 
                pediatrics, and
                  (B) whether and to what extent payments are 
                being made (or should be made) for 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) Whether and to what extent the needs of the 
        United States regarding the supply of physicians, in 
        the aggregate and in different specialties, will change 
        during the 10-year period beginning on October 1, 1997, 
        and whether and to what extent any such changes will 
        have significant financial effects on teaching 
        hospitals.
          (7) Methods for promoting an appropriate number, mix, 
        and geographical distribution of health professionals.
  (c) Consultation.--In conducting the study under subsection 
(a), the Commission shall consult with the Council on Graduate 
Medical Education and individuals with expertise in the area of 
graduate medical education, including--
          (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, approved medical 
        residency training programs, and teaching hospitals 
        that sponsor 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 
        representative fields of non-physician health 
        professionals;
          (5) individuals with substantial experience in the 
        study of issues regarding the composition of the health 
        care workforce of the United States; and
          (6) individuals with expertise on the financing of 
        health care.
  (d) Report.--Not later than 2 years after the date of the 
enactment of this Act, the Commission shall submit to the 
Congress a report providing its recommendations under this 
section and the reasons and justifications for such 
recommendations.

SEC. 10737. MEDICARE SPECIAL REIMBURSEMENT RULE FOR CERTAIN COMBINED 
                    RESIDENCY PROGRAMS.

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

                      CHAPTER 5--OTHER PROVISIONS

SEC. 10741. CENTERS OF EXCELLENCE.

  (a) In General.--Title XVIII is amended by inserting after 
section 1888 the following:

                        ``centers of excellence

  ``Sec. 1889. (a) In General.--The Secretary shall use a 
competitive process to contract with specific hospitals or 
other entities for furnishing services related to surgical 
procedures, and for furnishing services (unrelated to surgical 
procedures) to hospital inpatients that the Secretary 
determines to be appropriate. The services may include any 
services covered under this title that the Secretary determines 
to be appropriate, including post-hospital services.
  ``(b) Quality Standards.--Only entities that meet quality 
standards established by the Secretary shall be eligible to 
contract under this section. Contracting entities shall 
implement a quality improvement plan approved by the Secretary.
  ``(c) Payment.--Payment under this section shall be made on 
the basis of negotiated all-inclusive rates. The amount of 
payment made by the Secretary to an entity under this title for 
services covered under a contract shall be less than the 
aggregate amount of the payments that the Secretary would have 
otherwise made for the services.
  ``(d) Contract Period.--A contract period shall be 3 years 
(subject to renewal), so long as the entity continues to meet 
quality and other contractual standards.
  ``(e) Incentives for Use of Centers.--Entities under a 
contract under this section may furnish additional services (at 
no cost to an individual entitled to benefits under this title) 
or waive cost-sharing, subject to the approval of the 
Secretary.
  ``(f) Limit on Number of Centers.--The Secretary shall limit 
the number of centers in a geographic area to the number needed 
to meet projected demand for contracted services.''.
  (b) Effective Date.--The amendment made by subsection (a) 
applies to services furnished on or after October 1, 1997.

SEC. 10742. MEDICARE PART B SPECIAL ENROLLMENT PERIOD AND WAIVER OF 
                    PART B LATE ENROLLMENT PENALTY AND MEDIGAP SPECIAL 
                    OPEN ENROLLMENT PERIOD FOR CERTAIN MILITARY 
                    RETIREES AND DEPENDENTS.

  (a) Medicare Part B Special Enrollment Period; Waiver of Part 
B Penalty for Late Enrollment.--
          (1) In general.--In the case of any eligible 
        individual (as defined in subsection (c)), the 
        Secretary of Health and Human Services shall provide 
        for a special enrollment period during which the 
        individual may enroll under part B of title XVIII of 
        the Social Security Act. Such period shall be for a 
        period of 6 months and shall begin with the first month 
        that begins at least 45 days after the date of the 
        enactment of this Act.
          (2) Coverage period.--In the case of an eligible 
        individual who enrolls during the special enrollment 
        period provided under paragraph (1), the coverage 
        period under part B of title XVIII of the Social 
        Security Act shall begin on the first day of the month 
        following the month in which the individual enrolls.
          (3) Waiver of part b late enrollment penalty.--In the 
        case of an eligible individual who enrolls during the 
        special enrollment period provided under paragraph (1), 
        there shall be no increase pursuant to section 1839(b) 
        of the Social Security Act in the monthly premium under 
        part B of title XVIII of such Act.
  (b) Medigap Special Open Enrollment Period.--Notwithstanding 
any other provision of law, an issuer of a medicare 
supplemental policy (as defined in section 1882(g) of the 
Social Security Act)--
          (1) may not deny or condition the issuance or 
        effectiveness of a medicare supplemental policy that 
        has a benefit package classified as ``A'', ``B'', 
        ``C'', or ``F'' under the standards established under 
        section 1882(p)(2) of the Social Security Act (42 
        U.S.C. 1395rr(p)(2)); and
          (2) may not discriminate in the pricing of the policy 
        on the basis of the individual's health status, medical 
        condition (including both physical and mental 
        illnesses), claims experience, receipt of health care, 
        medical history, genetic information, evidence of 
        insurability (including conditions arising out of acts 
        of domestic violence), or disability;
in the case of an eligible individual who seeks to enroll (and 
is enrolled) during the 6-month period described in subsection 
(a)(1).
  (c) Eligible Individual Defined.--In this section, the term 
``eligible individual'' means an individual--
          (1) who, as of the date of the enactment of this Act, 
        has attained 65 years of age and was eligible to enroll 
        under part B of title XVIII of the Social Security Act, 
        and
          (2) who at the time the individual first satisfied 
        paragraph (1) or (2) of section 1836 of the Social 
        Security Act--
                  (A) was a covered beneficiary (as defined in 
                section 1072(5) of title 10, United States 
                Code), and
                  (B) did not elect to enroll (or to be deemed 
                enrolled) under section 1837 of the Social 
                Security Act during the individual's initial 
                enrollment period.
The Secretary of Health and Human Services shall consult with 
the Secretary of Defense in the identification of eligible 
individuals.

SEC. 10743. PROTECTIONS UNDER THE MEDICARE PROGRAM FOR DISABLED WORKERS 
                    WHO LOSE BENEFITS UNDER A GROUP HEALTH PLAN.

  (a) No Premium Penalty for Late Enrollment.--The second 
sentence of section 1839(b) (42 U.S.C. 1395r(b)) is amended by 
inserting ``and not pursuant to a special enrollment period 
under section 1837(i)(4)'' after ``section 1837)''.
  (b) Special Medicare Enrollment Period.--
          (1) In general.--Section 1837(i) (42 U.S.C. 1395p(i)) 
        is amended by adding at the end the following new 
        paragraph:
  ``(4)(A) In the case of an individual who is entitled to 
benefits under part A pursuant to section 226(b) and--
          ``(i) who at the time the individual first satisfies 
        paragraph (1) or (2) of section 1836--
                  ``(I) 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 or otherwise, and
                  ``(II) has elected not to enroll (or to be 
                deemed enrolled) under this section during the 
                individual's initial enrollment period; and
          ``(ii) whose continuous enrollment under such group 
        health plan is involuntarily terminated at a time when 
        the enrollment under the plan is not by reason of the 
        individual's (or the individual's spouse's) current 
        employment,
there shall be a special enrollment period described in 
subparagraph (B).
  ``(B) The special enrollment period referred to in 
subparagraph (A) is the 6-month period beginning on the date of 
the enrollment termination described in subparagraph 
(A)(ii).''.
          (2) Coverage period.--Section 1838(e) (42 U.S.C. 
        1395q(e)) is amended--
                  (A) by inserting ``or 1837(i)(4)(B)'' after 
                ``1837(i)(3)'' the first place it appears, and
                  (B) by inserting ``or specified in section 
                1837(i)(4)(A)(i)'' after ``1837(i)(3)'' the 
                second place it appears''.
  (c) Effective Date.--The amendments made by this section 
shall apply to involuntary terminations of coverage under a 
group health plan occurring on or after the date of the 
enactment of this Act.

SEC. 10744. PLACEMENT OF ADVANCE DIRECTIVE IN MEDICAL RECORD.

  (a) In General.--Section 1866(f)(1)(B) (42 U.S.C. 
1395cc(f)(1)(B)) is amended by striking ``in the individual's 
medical record'' and inserting ``in a prominent part of the 
individual's current medical record''.
  (b) Effective Date.--The amendment made by subsection (a) 
shall apply to provider agreements entered into, renewed, or 
extended on or after such date (not later than 1 year after the 
date of the enactment of this Act) as the Secretary of Health 
and Human Services specifies.

                  Subtitle I--Medical Liability Reform

                     CHAPTER 1--GENERAL PROVISIONS

SEC. 10801. 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--
          (1) 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, or
          (2) an action under the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1001 et seq.).
  (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. 10802. 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. 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) Drug.--The term ``drug'' has the meaning given 
        such term in section 201(g)(1) of the Federal Food, 
        Drug, and Cosmetic Act (21 U.S.C. 321(g)(1)).
          (7) Economic loss.--The term ``economic loss'' means 
        any pecuniary loss resulting from injury (including the 
        loss of earnings or other benefits related to 
        employment, medical expense loss, replacement services 
        loss, loss due to death, burial costs, and loss of 
        business or employment opportunities), to the extent 
        recovery for such loss is allowed under applicable 
        State law.
          (8) Harm.--The term ``harm'' means any legally 
        cognizable wrong or injury for which punitive damages 
        may be imposed.
          (9) 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, 
                or
                  (D) a MedicarePlus product (offered under 
                part C of title XVIII of the Social Security 
                Act),
        that provides benefits with respect to health care 
        services.
          (10) 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 benefit 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, defendants, or causes of action.
          (11) 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.
          (12) Health care provider.--The term ``health care 
        provider'' means any person 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.
          (13) 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.
          (14) Medical device.--The term ``medical device'' has 
        the meaning given such term in section 201(h) of the 
        Federal Food, Drug, and Cosmetic Act (21 U.S.C. 
        321(h)).
          (15) 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.
          (16) Person.--The term ``person'' means any 
        individual, corporation, company, association, firm, 
        partnership, society, joint stock company, or any other 
        entity, including any governmental entity.
          (17) Product seller.--
                  (A) In general.--Subject to subparagraph (B), 
                the term ``product seller'' means a person who, 
                in the course of a business conducted for that 
                purpose--
                          (i) sells, distributes, rents, 
                        leases, prepares, blends, packages, 
                        labels, or is otherwise involved in 
                        placing, a product in the stream of 
                        commerce, or
                          (ii) installs, repairs, or maintains 
                        the harm-causing aspect of a product.
                  (B) Exclusion.--Such term does not include--
                          (i) a seller or lessor of real 
                        property;
                          (ii) a provider of professional 
                        services in any case in which the sale 
                        or use of a product is incidental to 
                        the transaction and the essence of the 
                        transaction is the furnishing of 
                        judgment, skill, or services; or
                          (iii) any person who--
                                  (I) acts in only a financial 
                                capacity with respect to the 
                                sale of a product; or
                                  (II) leases a product under a 
                                lease arrangement in which the 
                                selection, possession, 
                                maintenance, and operation of 
                                the product are controlled by a 
                                person other than the lessor.
          (18) 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.
          (19) State.--The term ``State'' means each of the 
        several States, the District of Columbia, Puerto Rico, 
        the Virgin Islands, Guam, American Samoa, the Northern 
        Mariana Islands, and any other territory or possession 
        of the United States.

SEC. 10803. 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.

     CHAPTER 2--UNIFORM STANDARDS FOR HEALTH CARE LIABILITY ACTIONS

SEC. 10811. 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. 10812. 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 the 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 paragraph shall be applied by the court 
        and shall not be disclosed to the jury.
          (3) Applicability.--This subsection shall apply to 
        any health care liability action brought in any Federal 
        or State court on any theory where punitive damages are 
        sought. This subsection does not create a cause of 
        action for punitive damages. This subsection does not 
        preempt or supersede any State or Federal law to the 
        extent that such law would further limit the award of 
        punitive damages.
          (4) 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.
          (5) Drugs and devices.--
                  (A) In general.--(i) Punitive damages shall 
                not be awarded against a manufacturer or 
                product seller of a drug or medical device 
                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 formulationor 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 
which caused the harm, and such drug, device, packaging, or labeling 
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.
                  (ii) Clause (i) 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.
                  (B) Packaging.--In a health care liability 
                action for harm which is alleged to relate to 
                the adequacy of the packaging or labeling 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 or product seller of the drug 
                shall not be held liable for punitive damages 
                unless such packaging or labeling is found by 
                the court by clear and convincing evidence to 
                be substantially out of compliance with such 
                regulations.
  (c) 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.
  (d) 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.
          (3) Application to settlements.--This subsection 
        shall apply to an action that is settled as well as an 
        action that is resolved by a fact finder.

SEC. 10813. 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.
             Statement of the House Committee on the Budget

                   ON THE BALANCED BUDGET ACT OF 1997

                                ------                                


    The Bipartisan Budget Agreement reached earlier this year 
represents an historic achievement. It demonstrated that 
Congress and the administration could commit themselves to 
major reforms of government programs so that the Federal budget 
can be balanced in 2002. It also called for a substantial 
reduction in the tax burden for middle-income Americans.
    This legislation--the Balanced Budget Act of 1997--reflects 
the good faith efforts of House authorizing committees to 
fulfill the first part of that agreement through systemic, 
fundamental reforms of government entitlements. A second 
measure, called the Revenue Reconciliation Act of 1997, 
provides approximately $85 billion in net tax relief over 5 
years. Together, these twin bills respond to the reconciliation 
directives of the House Concurrent Resolution on the Budget for 
Fiscal Year 1998, (H. Con. Res. 84), which embraced the 
Bipartisan Budget Agreement.
    The underlying accomplishments of the budget agreement 
warrant repeating. They include the following:

  - It balances the Federal budget in 2002 and is projected to 
        run surpluses each year thereafter through 2002.

  - It provides a total of $85 billion in net tax relief over 
        the next 5 years and $250 billion through 2007--the 
        vast majority of it going to middle-income working 
        families.

  - It delays Medicare bankruptcy for 10 years.

  - It reduces total Federal spending to 18.9 percent of gross 
        domestic product [GDP] by 2002--the first time since 
        1974 that Federal spending has been below 20 percent of 
        GDP.

  - It slows the growth of total Federal spending to 3 percent 
        a year for the next 5 years.

  - It achieves roughly $182 billion in entitlement savings 
        over the next 5 years, and approximately $700 billion 
        over the next 10 years.

  - It slows the growth of nondefense discretionary outlays to 
        less than one-half of 1 percent a year over the next 5 
        years, compared with an average of 6 percent a year for 
        the past 10 years.

  - It saves taxpayers approximately $13 billion over the next 
        5 years, and $142 billion over the next 10 years, 
        through lower interest payments.

  - It proves Congress and the administration can achieve 
        common goals without compromising fundamental 
        principles.

    Yet as sweeping as these achievements are, they represent 
only the first step in what must be a long-term commitment to 
keep Congress' fiscal house in order. The forthcoming 
retirement of the baby boom generation will bring a massive new 
wave of challenges for Federal policymakers--challenges that, 
if left unaddressed, could overwhelm not only the Federal 
budget, but the entire economy as well.
    Still, this budget agreement is an indispensable first 
step. Congress should swiftly pass this implementing 
legislation, and the President should sign it, so that we can 
move on together to face the challenges ahead.
                          House of Representatives,
                                  Committee on Agriculture,
                                     Washington, DC, June 16, 1997.
Hon. John Kasich,
Chairman, Committee on the Budget,
Washington, DC.
    Dear Chairman Kasich: I am transmitting herewith the 
results of the Committee on Agriculture's consideration of 
recommendations with respect to the reconciliation bill for 
fiscal year 1998, provided for under H. Con. Res. 84, the 
Concurrent Resolution on the Budget--Fiscal Year 1998.
    The instructions to this Committee contained in the 
conference report to H. Con. Res. 84 filed by the Budget 
Committee (H. Rept. 105-116) on June 4, 1997 related to changes 
in laws within the Committee on Agriculture's jurisdiction that 
provide direct spending under provisions of the Food Stamp Act 
of 1977. The enclosed recommendations adopted by this Committee 
in a business meeting on June 12, 1997, in the presence of a 
majority quorum, comply with those instructions.
    During the markup of the recommendations several amendments 
were offered, one of which was adopted, one withdrawn, and one 
failed adoption. The Ranking Minority Member offered an 
amendment that it was claimed would reduce a State's food stamp 
funds only to the extent that States took advantage of an 
opportunity to attribute costs to the Food Stamp program which 
were really incurred as part of their administration of their 
temporary assistance to needy families (TANF) block grant under 
Title I of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996. Claimed savings from such policy 
changes that effect shifts in administrative costs from TANF to 
food stamps were preliminarily estimated to exceed $1.5 billion 
in budget authority and outlays in fiscal year 1998 through 
2002. The amendment further provided that such savings realized 
from the amendment were to be used for, among other things, 
spending for agricultural programs such as nutrition, crop 
insurance, etc. While the alternative use of the funds for 
producer-related Department of Agriculture programs was 
enticing to several Members, it was admitted by the sponsor of 
the amendment that the Congressional Budget Office had 
determined that such a shift of funds would constitute an 
intergovernmental unfunded mandate on States under section 421 
of the Congressional Budget Act. The sponsor claimed the CBO 
determination was technical, but would be subject to a point of 
order on the House Floor. After considerable debate, the 
amendment was rejected on a recorded vote of 30 nays to 13 
ayes.
    I am enclosing a hard copy of the Committee's 
recommendations on Title I--Agriculture that achieve the 
spending increases as contained in the instructions contained 
in H. Con. Res. 84 and as requested in your letter of May 30, 
1997. There is also enclosed a hard copy of the Section-by-
Section Analysis and a Congressional Budget Office cost 
estimate of the recommendations, as well as a Microsoft Word 
7.0 disk of the recommendations. There are also enclosed a hard 
copy of the Ramseyer; and the remainder of the contents of the 
report filed pursuant to Rule XI of the Rules of the House, 
including the Brief Explanation, Committee Consideration, the 
Purpose and Need, etc. for the Committee's recommendations, as 
well as a set of Minority Views.
    The Committee staff was advised Friday afternoon that the 
Committee's recommendations for the reconciliation bill could 
be forwarded to you Monday morning without affecting your 
Committee's schedule. Accordingly, this letter with enclosures 
was held over until this morning for delivery to your office in 
Room 309 CHOB.
            Sincerely,
                                     Robert F. (Bob) Smith,
                                                          Chairman.
    Enclosures.

                           Brief Explanation

    States are permitted to exempt 15% of the number of able 
bodied, 18 to 50 year old persons subject to the food stamp 
work requirement, after all other waivers have been approved.
    Funding for additional work activity is added to the food 
stamp employment and training program. The Secretary is 
directed to allocate funding among states based on the number 
of able bodied 18 to 50 year old persons in each state, after 
the Secretary approves waivers requested by states due to high 
unemployment or insufficient jobs.
    States are provided the authority to contract for the 
delivery of food stamp benefits through the use of any entity 
(governmental or non-governmental) for the purpose of making 
food stamp eligibility determinations for individuals and 
households.

                            Purpose and Need

    The Concurrent Resolution on the Budget for Fiscal Year 
1998 directs the Committee on Agriculture to increase spending 
for the food stamp program by $1.5 billion over five years. The 
Committee on Agriculture is to redirect existing food stamp 
employment and training funds and to add funding to create 
additional work activity for able bodied persons between 18 and 
50 years, who have no dependents.

                      Section-by-Section Analysis

Section 1001. Exemption

    A state agency may provide an exemption for a portion of 
those individuals subject to the work requirement time limits 
established under section 6(0).
    The average monthly number of exemptions a state agency may 
grant is limited to 15% of the estimated number of individuals 
to whom the requirement time limits apply. These ``covered 
individuals'' are those: not excepted (because of age, 
disability, etc.); not living in an area for which a waiver has 
been granted for high unemployment or insufficient jobs; not 
complying with the work requirement; and not in their first (or 
second) 3 months of eligibility under the work requirement time 
limits. If a state chooses to provide exemptions under this new 
rule, it can do so in any way, including defining categories of 
applicants and recipients who will be exempted, so long as it 
adheres to the 15% limit.
    For FY 1998, the Secretary will determine the estimated 
number of covered individuals from which a state can exempt 
15%, using the FY 1996 recipient survey conducted under the 
Integrated Quality Control System and other information deemed 
necessary by the Secretary due to the timing of the survey and 
its limitations. The estimate will reflect adjustments for 
those covered by current-law exceptions (e.g., age, 
disability), those covered by waivers, and those in their first 
and second 3-month periods of eligibility under the work 
requirement. In later fiscal years, the number of covered 
individuals from which a state can exempt 15% will be estimated 
by adjusting the FY 1998 number to reflect changes in the 
state's food stamp caseload in the prior year and the 
Secretary's estimate of changes in the proportion of recipients 
living in areas covered by waivers.
    If a state's food stamp participation, during a fiscal 
year, varies significantly from the prior year's caseload, the 
Secretary will adjust, upward or downward, the estimated number 
of covered individuals from which the state may exempt 15% to 
reflect the increase or decrease.
    If a state exempts more or less than 15% of covered 
individuals in a fiscal year, the Secretary must decrease or 
increase the number of allowable exemptions, in the next fiscal 
year, to correspond to the number of exemptions by which the 
state was over or under 15% in the previous year.
    The Secretary can require documentation from states to 
ensure compliance with the rules governing the new 15% 
exemption.

Section 1002. Additional funding for employment and training

    New money is added to the existing mandatory unmatched 
federal grants to states for the employment and training 
program for food stamp recipients. Current grant levels, 
totaling $81 million for FY 1998, $84 million for FY 1999, $86 
million for FY 2000, $88 million for FY 2001, and $90 million 
for FY 2002, are increased to $221 million for FY 1998, $224 
million for FY 1999, $226 million for FY 2000, $228 million for 
FY 2001, and $210 million for FY 2002. The amounts provided are 
to remain available until expended, so as to facilitate 
reallocation of any unused funds.
    The total grant amounts noted above (including ``old'' and 
``new'' money) will be allocated to state agencies using a 
reasonable formula, determined by the Secretary. The formula 
will reflect each state's proportion of able-bodied adults 
without dependents subject to the work requirement time limits 
who are not excepted (e.g. because of age, disability) but not 
including those residing in areas for which a waiver has been 
granted for high unemployment or insufficient jobs, unless the 
state is providing them employment and training services. The 
current law requiring a minimum unmatched federal grant of 
$50,000 per state agency is retained.
    State agencies are required to use 75% of their unmatched 
federal grant allocations (including ``old'' and ``new'' money) 
to serve food stamp recipients subject to work requirement time 
limits who are not excepted (e.g., by reason of age, 
disability). They may not use any of their unmatched federal 
grant allocations for food stamp participantswho also receive 
benefits under the state's Temporary Assistance for Needy Families 
(TANF) block grant.
    State agencies not expending all of the unmatched federal 
money allocated them for a fiscal year will notify the 
Secretary, and, on notification, the Secretary must reallocate 
these funds as the Secretary considers appropriate and 
equitable, which may include reallocation in the following 
fiscal year.
    In order to receive the additional unmatched federal grant 
funding provided in this law (i.e., the amount by which their 
allocation under the new law exceeds the allocation under prior 
law), state agencies must maintain their federally matched 
expenditure for employment and training and workfare program 
administrative/operating costs at not less than the FY 1996 
level.
    The Secretary may require documentation from states to 
ensure compliance with the new rules governing allocation and 
use of employment and training funds.
    Beginning one year after enactment, the Secretary must 
report to the House and Senate Agriculture Committees on 
whether the additional unmatched federal grant funding provided 
in this law has been utilized by state agencies to increase the 
number of employment and training program work slots (for 
recipients subject to the work requirement time limits) in the 
most efficient and effective manner.

Section 1003. Authorizing use of nongovernmental personnel in making 
        determinations of eligibility for benefits under the Food Stamp 
        Program.

    States are allowed to contract for the delivery of food 
stamp benefits with any entity (governmental or non-
governmental) for the purpose of making food stamp eligibility 
determinations for individuals and households. The utilization 
of any non-Federal entity to make food stamp eligibility 
determinations will not affect the conditions for eligibility 
of benefits, the right to challenge determinations regarding 
eligibility or rights to benefits, or determinations regarding 
quality control or error rates.

                        Committee Consideration

     The Committee on Agriculture met, pursuant to notice, with 
a majority quorum present, on June 12, 1997, to consider its 
recommendations to the Budget Committee as provided in the 
Budget Resolution Instructions contained in the conference 
report to H. Con. Res. 84 (H. Rept. 105-116) with respect to 
recommendations for Title I--Agriculture in the Reconciliation 
Bill for Fiscal Year 1998.
     The Chairman called the meeting to order and recognized 
Ranking Minority Member Stenholm for a brief opening statement 
and gave all other Members permission to submit statements for 
the record.
     The Chairman recognized professional staff for a brief 
explanation and then laid before the Committee Members for 
their consideration his recommendations for Title I--
Agriculture of a proposed Budget Reconciliation Bill to be 
introduced by the Budget Committee.
     A brief discussion occurred on the Committee 
recommendations, and Mr. Smith of Michigan questioned U.S. 
Department of Agriculture representatives concerning the status 
of the implementation of the electronic benefit program being 
implemented by the States.
     Without objection, the Committee recommendations for Title 
I--Agriculture were considered as original text and open for 
amendment at any point.
     Thereafter, Mrs. Clayton was recognized to offer and 
explain an amendment concerning establishing minimum 
performance standards for the employment and training programs 
carried out by the States under the food stamp program. Mrs. 
Clayton further noted that the amendment was not the 
Administration's proposal and that it was comparable to a 
provision adopted the Senate Committee on Agriculture, 
Nutrition and Forestry.
     Discussion occurred on the amendment with Mr. Goodlatte 
indicating his opposition to the amendment because he wanted to 
give the States as much flexibility as possible in running the 
program. Mr. Goodlatte also indicated that he would like to 
work this matter out in the conference with the Senate and 
would prefer to leave some room for negotiations on the part of 
the House conferees.
     Further discussion occurred on the bill, with Ranking 
Minority Member Stenholm noting that concessions had been made 
in producing the Committee recommendations in that the 
Committee was requiring the States to maintain 100 percent of 
effort regarding jobs, which was significantly better than the 
Senate provisions adopted in the Senate Committee on 
Agriculture, Nutrition, and Forestry.
     Chairman Smith requested that Mrs. Clayton withdraw her 
amendment and stated that the Committee would work with her on 
the provision. Given that offer, without objection, Mrs. 
Clayton withdrew her amendment.
     Mr. Stenholm was then recognized to offer and explain an 
amendment which would make certain changes to the food stamp 
program that would affect savings in direct spending with the 
resulting savings therefrom to provide funding for nutrition 
and other agriculture programs, including the federal crop 
insurance program. Mr. Stenholm acknowledged that there likely 
would be a point of order made against the amendment because 
the Congressional Budget Office had determined the amendment 
would be considered an unfunded mandate to the States. He urged 
the Committee to support hisamendment and to let the Rules 
Committee and/or the full House of Representatives determine the 
unfunded mandate issue, rather than the Committee.
    Chairman Smith stated that he had been working continuously 
with Mr. Stenholm in an effort to make the amendment work. As a 
Member representing an agricultural Congressional District, he 
supported the funding of many of the items included in the 
amendment that helped farmers. The Chairman also noted that in 
spite of his wish to support the amendment, the decision of the 
Congressional Budget Office that the amendment constituted an 
unfunded mandate for States put a different character on it 
inasmuch as it would be subject to a point of order.
    Lengthy discussion occurred on the amendment with Messrs. 
Condit, Peterson, and others speaking on the matter of the 
unfunded mandate and what would happen on the House Floor if a 
point of order were made. Other discussion occurred on how the 
Appropriations Committee would interpret whatever action the 
Committee on Agriculture took with respect to the amendment. 
Chairman Smith called for a vote and by a voice vote the 
amendment was ruled as not agreed to. Mr. Stenholm requested a 
roll call vote and Chairman Smith directed that a roll call 
vote be taken. By a recorded vote of 30 nays and 13 yeas, the 
Stenholm amendment was not adopted. See Roll Call Vote No. 1.
    Mr. Combest was recognized to offer and explain an 
amendment which would authorize the use of nongovernmental 
personnel in making determinations of eligibility for benefits 
under the food stamp program. Mr. Combest further noted that 
his amendment, as it related to the food stamp program, was 
nearly identical to H.R. 1709, which had been introduced by the 
Chairman of the Ways and Means Committee, and was cosponsored 
by over 40 Members, including the Chairman and Ranking Minority 
Member of the Agriculture Committee, and the Chairman of the 
Commerce Committee. Mr. Combest stated that there was no cost 
associated with the amendment.
    Mr. Combest further stated that the State of Texas had been 
working with the Administration to receive a waiver which would 
allow this welfare delivery program, and that after negotiating 
for ten months that the waiver had been denied.
    Discussion occurred on the amendment with Messrs. Holden 
and Peterson expressing concern that it was premature to 
consider the amendment and that more study and hearings should 
be held. Mr. Stenholm indicated that he had tried to bring 
parties together to forge a compromise on this issue, and that 
since this had not happened that he would support the Combest 
amendment.
    Chairman Smith called for a vote on the Combest amendment, 
and by voice vote the Chair ruled that the amendment was 
adopted. Mr. Holden requested a roll call vote and the Chair 
directed that a recorded vote be taken. By a recorded vote of 
24 yeas to 19 nays, the Combest amendment was adopted. See Roll 
Call Vote #2.
    Mr. Combest moved that the Committee's recommendations, as 
amended, be adopted and that the Chairman be authorized to 
forward such recommendations, and other materials as directed 
to be included by the Speaker, to the Budget Committee. By 
voice vote, and in the presence of a majority quorum, the 
Combest motion was adopted.
    Chairman Smith noted that Members would have two working 
days to file Minority, Supplemental, or other Views, but he 
requested that the Chief Counsel be advised if views would not 
be available until Saturday, so that the Counsel would be 
available to receive the views and to file them with the Budget 
Committee on Saturday, June 14, 1997.
    Without objection, staff was given instructions to make 
such technical, clarifying, or conforming changes as 
appropriate without changing the substance of the legislation.
    The meeting adjourned, subject to the call of the Chair.

                  Reporting the Bill--Roll Call Votes

    In compliance with clause 2(l)(2)(b) of rule XI of the 
House of Representatives, the Committee sets forth the record 
of the following roll call votes taken with respect to 
consideration of the recommendations regarding the 
Reconciliation Bill for Fiscal Year 1998:

                            Roll Call No. 1

    Summary: To prevent states from allocating additional 
administrative costs to the food stamp program and reallocate 
the savings to fund certain other agricultural, rural 
development, research, and nutrition programs.
    Offered by: Mr. Stenholm.
    Results: Failed by a roll call vote: 13 yeas/30 nays/7 not 
voting.
    Yeas--1. Cong. Smith, MI; 2. Cong. Lewis; 3. Cong. 
Stenholm; 4. Cong. Peterson; 5. Cong. Dooley; 6. Cong. Minge; 
7. Cong. Holden; 8. Cong. Baesler; 9. Cong. Berry; 10. Cong. 
McIntyre; 11. Cong. Etheridge; 12. Cong. Johnson; 13. Cong. 
Boswell.
    Nays--1. Cong. Smith, OR; 2. Cong. Combest; 3. Cong. 
Barrett; 4. Cong. Ewing; 5. Cong. Doolittle; 6. Cong. 
Goodlatte; 7. Cong. Pombo; 8. Cong. Canady; 9. Cong. Everett; 
10. Cong. Lucas; 11. Cong. Chenoweth; 12. Cong. Hostettler; 13. 
Cong. Bryant; 14. Cong. Foley; 15. Cong. Chambliss; 16. Cong. 
Emerson; 17. Cong. Moran; 18. Cong. Blunt; 19. Cong. Pickering; 
20. Cong. Schaffer; 21. Cong. Jenkins; 22. Cong. Cooksey; 23. 
Cong. Condit; 24. Cong. Clayton; 25. Cong. Hilliard; 26. Cong. 
Bishop; 27. Cong. Thompson; 28. Cong. Baldacci; 29. Cong. 
Goode; 30. Cong. Stabenow.
    Not Voting--1. Cong. Boehner; 2. Cong. LaHood; 3. Cong. 
Thune; 4. Cong. Brown; 5. Cong. Pomeroy; 6. Cong. Farr; 7. 
Cong. John.

                            Roll Call No. 2

    Summary: To authorize use of nongovernmental personnel in 
making determinations of eligibility for benefits under the 
food stamp program.
    Offered by: Mr. Combest.
    Results: Passed by a roll call vote: 24 yeas/19 nays/7 not 
voting.
    Yeas--1. Cong. Smith, OR; 2. Cong. Combest; 3. Cong. 
Barrett; 4. Cong. Ewing; 5. Cong. Doolittle; 6. Cong. 
Goodlatte; 7. Cong. Pombo; 8. Cong. Canady; 9. Cong. Smith, MI; 
10. Cong. Everett; 11. Cong. Lucas; 12. Cong. Lewis; 13. Cong. 
Chenoweth; 14. Cong. Hostettler; 15. Cong. Foley; 16. Cong. 
Chambliss; 17. Cong. Emerson; 18. Cong. Moran; 19. Cong. 
Pickering; 20. Cong. Thune; 21. Cong. Jenkins; 22. Cong. 
Cooksey; 23. Cong. Stenholm; 24. Cong. Goode.
    Nays--1. Cong. Condit; 2. Cong. Peterson; 3. Cong. Dooley; 
4. Cong. Clayton; 5. Cong. Minge; 6. Cong. Hilliard; 7. Cong. 
Pomeroy; 8. Cong. Holden; 9. Cong. Baesler; 10. Cong. Bishop; 
11. Cong. Thompson; 12. Cong. Baldacci; 13. Cong. Berry; 14. 
Cong. McIntyre; 15. Cong. Stabenow; 16. Cong. Etheridge; 17. 
Cong. John; 18. Cong. Johnson; 19. Cong. Boswell.
    Not Voting--1. Cong. Boehner; 2. Cong. Bryant; 3. Cong. 
LaHood; 4. Cong. Blunt; 5. Cong. Schaffer; 6. Cong. Brown; 7. 
Cong. Farr.

           Budget Act Compliance (Sections 308, 403, and 424)

    The provisions of clause 2(l)(3)(B) of rule XI of the Rules 
of the House of Representatives and section 308(a)(1) of the 
Congressional Budget Act of 1974 (relating to estimates of new 
budget authority, new spending authority, new credit authority, 
or increased or decreased revenues or tax expenditures) are not 
considered applicable. The estimate and comparison required to 
be prepared by the Director of the Congressional Budget Office 
under clause 2(l)(3)(C) of rule XI of the Rules of the House of 
Representatives and sections 403 and 424 of the Congressional 
Budget Act of 1974 submitted to the Committee on Agriculture 
prior to the filing of this report are as follows:

                   Constitutional Authority Statement

    Pursuant to clause 2(l)(4) of rule XI of the Rules of the 
House of Representatives, the Committee on Agriculture finds 
the Constitutional authority for this legislation in Article I, 
clause 8, section 18, that grants Congress the power to make 
all laws necessary and proper for carrying out the powers 
vested by Congress in the Government of the United States or in 
any department or officer thereof.

                          Oversight Statement

    No summary of oversight findings and recommendations made 
by the Committee on Government Reform and Oversight as provided 
for in clause 2(l)(3)(D) of rule XI, and under clause 4(c)(2) 
of rule X of the Rules of the House of Representatives was 
available to the Committee on Agriculture with reference to the 
subject matter specifically addressed by the Chairman's 
recommendations of the Committee on Agriculture for Title I--
Agriculture to be included in the Budget Reconciliation Bill 
for Fiscal Year 1998.

                      Committee Oversight Findings

    Pursuant to clause 2(l)(3)(A) of rule XI, and clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
the Committee on Agriculture's oversight findings and 
recommendations are reflected in the body of this report.

                        Committee Cost Estimate

    Pursuant to clause 7(a) of rule XIII of the rules of the 
House of Representatives, the Committee report incorporates the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to sections 403 and 424 of the 
Congressional Budget Act of 1974.

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 16, 1997.
Hon. Robert F. Smith,
Chairman, Committee on Agriculture,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for the reconciliation 
recommendations of the House Committee on Agriculture, as 
approved on June 12, 1997.
    The estimate shows the budgetary effects of the committee's 
proposals over the 1998-2007 period. CBO understands that the 
Committee on the Budget will be responsible for interpreting 
how these proposals compare with the reconciliation 
instructions in the budget resolution. The estimate assumes 
that the reconciliation bill will be enacted by August 15; the 
estimate could change if the bill is enacted later.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Dorothy 
Rosenbaum.
            Sincerely,
                                         June E. O'Neill, Director.
    Enclosure.

               congressional budget office cost estimate

Reconciliation Recommendations of the House Committee on Agriculture 
        (Title I)

    Summary: The House Agriculture Committee reconciliation 
recommendations would increase federal Food Stamp spending by 
$1.5 billion over the 1998-2002 period.
    The Personal Responsibility and Work Opportunity 
Reconciliation Act (PRWORA) of 1996 limited Food Stamp receipt 
to a period of three months in any 36-month period for able-
bodied adults who do not have dependent children and who are 
not working or participating in an appropriate training or work 
activity. The title would allow states to exempt some 
individuals from this limitation and would provide additional 
federal Food Stamp Employment and Training funds to states.
    The title does not contain any intergovernmental or 
private-sector mandates as defined in the Unfunded Mandates 
Reform Act of 1995 (UMRA) and would impose no costs on state, 
local, or tribal governments.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of the title for the 1998-2002 period is shown 
in the following table. The appendix table shows the budgetary 
impacts through 2007.
    The effects of this legislation fall within budget function 
600 (Income Security).

     ESTIMATED BUDGETARY IMPACT OF THE RECONCILIATION RECOMMENDATIONS OF THE HOUSE COMMITTEE ON AGRICULTURE     
----------------------------------------------------------------------------------------------------------------
                                                               Outlays by fiscal years in millions of dollars   
                                                           -----------------------------------------------------
                                                              1997     1998     1999     2000     2001     2002 
----------------------------------------------------------------------------------------------------------------
                                                 DIRECT SPENDING                                                
                                                                                                                
Food Stamp Spending Under Current Law.....................   23,794   24,450   25,884   27,226   28,645   29,417
                                                           =====================================================
Proposed Changes:                                                                                               
    Section 1001: Exemptions..............................        0      110      110      110      120      130
    Section 1002: Additional funding for employment and                                                         
     training.............................................        0      160      190      200      200      170
                                                           -----------------------------------------------------
      Total Changes.......................................        0      270      300      310      320      300
                                                           =====================================================
Spending Under Title I....................................   23,794   24,720   26,814   27,536   28,965   29,717
----------------------------------------------------------------------------------------------------------------

    Basis of estimate: The Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996 limited Food Stamp 
receipt to a period of three months in any 36-month period for 
able-bodied adults who do not have dependent children and who 
are not working or participating in an appropriate training or 
work activity. An individual can reestablish eligibility for 
another three-month period after a month of working or 
participating in an allowable employment or training program. 
The Secretary of Agriculture can provide a waiver from the 
provision for areas that have an unemployment rate greater than 
ten percent or insufficient jobs. The Department of Agriculture 
estimates that currently about 35 percent of the people who 
otherwise would be affected by this provision live in areas 
that are covered by a waiver.
    Title I contains two provisions that address this component 
of current law. The first would allow states to exempt a 
certain number of individuals from the requirements. The second 
would provide additional federal money for Food Stamp 
Employment and Training. A thirdprovision would allow states to 
use nongovernmental personnel to make eligibility determinations in the 
Food Stamp Program.

Section 1001. Exemption

    Under this provision, each state would be allowed to 
continue food stamp benefits past the three month limit for 15 
percent of the state's covered individuals, as estimated 
annually by the Secretary of Agriculture based on Food Stamp 
Program administrative data. Covered individuals would be 
defined as individuals who are covered by the time-limit 
provision by virtue of their age, work status, and household 
circumstances, do not live in an area that is covered by a 
waiver, and are not receiving benefits under a three-month 
period of eligibility.
    Based on CBO's analysis of the Food Stamp administrative 
data and projections of Food Stamp participation, CBO assumes 
that approximately 1.1 million Food Stamp recipients would, in 
fiscal year 1998, be able-bodied, between the ages of 18 and 50 
with no children in the home, and not working or complying with 
an appropriate work activity. Of these individuals, CBO assumes 
that 75 percent would not be in a three-month period of 
eligibility and, of the remainder, 65 percent would not reside 
in a waiver area.
    Under these assumptions, the Secretary would identify 
approximately 550,000 individuals nationwide as covered 
individuals, and would distribute the number among the states. 
States could, therefore, allow a total of about 82,000 people 
(15 percent) to receive food stamps each month who would 
otherwise be ineligible. CBO assumes that only about 74,000 
people would actually continue to receive benefits because a 
few states would choose not to implement the exemption. 
Continuing food stamps for these newly exempt individuals (at 
an average cost of about $120 a month) would increase Food 
Stamp outlays by $110 million in 1998, $130 million in 2002, 
and $580 million over the 1998-2002 period.

Section 1002. Additional funding for employment and training

    Under current law, the Food Stamp Employment and Training 
component of the Food Stamp Program has two federal funding 
sources. The federal government provides a stated amount 
annually in funds that do not require a state match. States may 
also draw down an unlimited amount of additional funds at a 50 
percent match rate. In 1996, the federal government provided 
about $75 million dollars in federal-only funds and about the 
same amount as a match to state funds.
    Section 1002 would increase the federal-only Food Stamp 
Employment and Training funds by $140 million in each of fiscal 
years 1998 to 2001 and by $120 million in fiscal year 2002. The 
bill would require that states spend at least 75 percent of the 
federal-only money on employment and training services for 
people who are potentially subject to the three-month time 
limit based on their age and other characteristics, regardless 
of whether they live in a waiver area or a non-waiver area. 
Furthermore, in order to receive the additional amounts of 
federal funds a state must continue to spend state funds at its 
fiscal year 1996 level. In addition to the increase in federal-
only employment and training funds, CBO estimates that this 
section would increase Food Stamp benefits and slightly reduce 
federal matching funds for employment and training. In total, 
CBO estimates that Section 1002 would increase federal outlays 
by $920 million over the 1998-2002 period.
    CBO expects that states will spend some of the new money on 
the types of employment and training services that the Food 
Stamp Act outlines as appropriate for meeting the work 
requirement. CBO estimates that it costs states an average of 
about $100 a month in 1997 to serve someone in an appropriate 
employment or training activity. If an individual resides in an 
area that is not covered by a waiver and receives an 
appropriate service, that person would remain eligible for Food 
Stamps past the three-month limit. CBO assumes that states will 
spend 75 percent of the new money in areas that are not covered 
by a waiver. Of this amount, CBO further assumes that in fiscal 
year 1998 states would spend 25 percent of the money that they 
spend in non-waiver areas on appropriate services, resulting in 
20,000 individuals remaining eligible for Food Stamps at a cost 
of $28 million in that year. By 2001, CBO expects that states 
would spend 65 percent of the money that they spend in non-
waiver area on appropriate services, resulting in 45,000 
individuals remaining eligible at a cost of about $70 million. 
In 2002 the amount of new federal funds is somewhat lower, so 
slightly fewer people would remain eligible (40,000) at a loser 
cost ($60 million).
    CBO also assumes that under current law states would have 
increased their own spending modestly over the years to account 
for inflation. Because the bill would require states to 
maintain their effort on their own funds at a flat amount and 
provides such a large amount of new federal funds, CBO expects 
that in the aggregate states would withdraw a small amount of 
their own spending on employment and training services. Because 
these funds would have received a federal match, CBO estimates 
that federal outlays would be lower by $4 million in 1998 and 
$9 million in 2002.

Section 1003: Authorizing use of nongovernmental personnel in making 
        determinations of eligibility for benefits

    Section 1003 would allow states to employ nongovernmental 
personnel to make eligibility determinations in the Food Stamp 
Program. Although the provision could either increase or 
decrease spending for the Food Stamp Program, CBO estimates 
that it would have no net effect on federal spending compared 
with current law.
    Intergovernmental and private-sector impact: This title 
contains no intergovernmental or private-sector mandates as 
defined in UMRA. This title would provide states with 
additional funds for Food Stamp employment and training 
programs totaling $140 million in fiscal year 1998 and $680 
million over the 1998-2002 period if they meet certain 
maintenance-of-effort requirements. This title would also allow 
states the option to use nongovernmental personnel in making 
eligibility determinations under the Food Stamp Program.
    Estimate prepared by: Federal Cost: Dorothy Rosenbaum (226-
2820). Impact on State, Local, and Tribal Governments: Marc 
Nicole (225-3220). Impact on the Private Sector: Ralph Smith 
(226-2659).
    Estimate approved by: Paul N. Van de Water, Assistant 
Director for Budget Analysis.

                                                  APPENDIX TABLE--FEDERAL BUDGETARY EFFECTS OF TITLE I                                                  
                                                        [By fiscal year, in millions of dollars]                                                        
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                    1998-2002  1998-2007
                                                     1998    1999    2000    2001    2002    2003    2004    2005    2006    2007     Total      Total  
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     DIRECT SPENDING                                                                    
                                                                                                                                                        
Section 1001. Exemption:                                                                                                                                
    Budget Authority..............................     110     110     110     120     130     130     130     140     140     140       580      1,260 
    Outlays.......................................     110     110     110     120     130     130     130     140     140     140       580      1,260 
Section 1002. Additional funding for Employment                                                                                                         
 and Training:                                                                                                                                          
    Budget Authority..............................     160     190     200     200     170     170     180     180     180     180       920      1,810 
    Outlays.......................................     160     190     200     200     170     170     180     180     180     180       920      1,810 
Total, Direct Spending:                                                                                                                                 
    Budget Authority..............................     270     300     310     320     300     300     310     320     320     320     1,500      3,070 
    Outlays.......................................     270     300     310     320     300     300     310     320     320     320     1,500      3,070 
--------------------------------------------------------------------------------------------------------------------------------------------------------

                      Advisory Committee Statement

    No advisory committee within the meaning of section 5(b) of 
the Federal Advisory Committee Act was created by this 
legislation.

                Applicability to the Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act (Public Law 
104-1).

    Changes in Existing Law Made by Title I of 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):

                         FOOD STAMP ACT OF 1977

          * * * * * * *

                     ELIGIBILITY DISQUALIFICATIONS

  Sec. 6. (a) * * *
          * * * * * * *
  (o) Work Requirement.--
          (1) * * *
          (2) Work requirement.--Subject to the other 
        provisions of this subsection, no individual shall be 
        eligible to participate in the food stamp program as a 
        member of any household if, during the preceding 36-
        month period, the individual received food stamp 
        benefits for not less than 3 months (consecutive or 
        otherwise) during which the individual did not--
                  (A) * * *
                  (D) receive benefits pursuant to paragraph 
                (3), (4), [or (5)] (5), or (6).
          * * * * * * *
          (5) 15-percent exemption.--
                  (A) Definitions.--In this paragraph:
                          (i) Caseload.--The term ``caseload'' 
                        means the average monthly number of 
                        individuals receiving food stamps 
                        during the 12-month period ending the 
                        preceding June 30.
                          (ii) Covered individual.--The term 
                        ``covered individual'' means a food 
                        stamp recipient, or an individual 
                        denied eligibility for food stamp 
                        benefits solely due to paragraph (2), 
                        who--
                                  (I) is not eligible for an 
                                exception under paragraph (3);
                                  (II) does not reside in an 
                                area covered by a waiver 
                                granted under paragraph (4);
                                  (III) is not complying with 
                                subparagraph (A), (B), or (C) 
                                of paragraph (2);
                                  (IV) is not in the first 3 
                                months of eligibility under 
                                paragraph (2); and
                                  (V) is not receiving benefits 
                                under paragraph (6).
                  (B) General rule.--Subject to subparagraphs 
                (C) through (F), a State agency may provide an 
                exemption from the requirements of paragraph 
                (2) for covered individuals.
                  (C) Fiscal year 1998.--Subject to 
                subparagraph (E), for fiscal year 1998, a State 
                agency may provide a number of exemptions such 
                that the average monthly number of the 
                exemptions in effect during the fiscal year 
                does not exceed 15 percent of the number of 
                covered individuals in the State in fiscal year 
                1998, as estimated by the Secretary, based on 
                the survey conducted to carry out section 16(c) 
                for fiscal year 1996 and such other factors as 
                the Secretary considers appropriate due to the 
                timing and limitations of the survey.
                  (D) Subsequent fiscal years.--Subject to 
                subparagraphs (E) and (F), for fiscal year 1999 
                and each subsequent fiscal year, a State agency 
                may provide a number of exemptions such that 
                the average monthly number of the exemptions in 
                effect during the fiscal year does not exceed 
                15 percent of the number of covered individuals 
                in the State, as estimated by the Secretary 
                under subparagraph (C), adjusted by the 
                Secretary to reflect changes in the State's 
                caseload and the Secretary's estimate of 
                changes in the proportion of food stamp 
                recipients covered by waivers granted under 
                paragraph (4).
                  (E) Caseload adjustments.--The Secretary 
                shall adjust the number of individuals 
                estimated for a State under subparagraph (C) or 
                (D) during a fiscal year if the number of food 
                stamp recipients in the State varies by a 
                significant number from the caseload, as 
                determined by the Secretary.
                  (F) Exemption adjustments.--During fiscal 
                year 1999 and each subsequent fiscal year, the 
                Secretary shall increase or decrease the number 
                of individuals who may be granted an exemption 
                by a State agency to the extent that the 
                average monthly number of exemptions in effect 
                in the State for the preceding fiscal year is 
                greater or less than the average monthly number 
                of exemptions estimated for the State agency 
                during such preceding fiscal year.
                  (G) Reporting requirement.--A State agency 
                shall submit such reports to the Secretary as 
                the Secretary determines are necessary to 
                ensure compliance with this paragraph.
          [(5)] (6) Subsequent eligibility.--
                  (A) Regaining eligibility.--An individual 
                denied eligibility under paragraph (2) shall 
                regain eligibility to participate in the food 
                stamp program if, during a 30-day period, the 
                individual--
                          (i) works 80 or more hours;
                          (ii) participates in and complies 
                        with the requirements of a work program 
                        for 80 or more hours, as determined by 
                        a State agency; or
                          (iii) participates in and complies 
                        with the requirements of a program 
                        under section 20 or a comparable 
                        program established by a State or 
                        political subdivision of a State.
                  (B) Maintaining eligibility.--An individual 
                who regains eligibility under subparagraph (A) 
                shall remain eligible as long as the individual 
                meets the requirements of subparagraph (A), 
                (B), or (C) of paragraph (2).
                  (C) Loss of employment.--
                          (i) In general.--An individual who 
                        regained eligibility under subparagraph 
                        (A) and who no longer meets the 
                        requirements of subparagraph (A), (B), 
                        or (C) of paragraph (2) shall remain 
                        eligible for a consecutive 3-month 
                        period, beginning on the date the 
                        individual first notifies the State 
                        agency that the individual no longer 
                        meets the requirements of subparagraph 
                        (A), (B), or (C) of paragraph (2).
                          (ii) Limitation.--An individual shall 
                        not receive any benefits pursuant to 
                        clause (i) for more than a single 3-
                        month period in any 36-month period.
          [(6)] (7) Other program rules.--Nothing in this 
        subsection shall make an individual eligible for 
        benefits under this Act if the individual is not 
        otherwise eligible for benefits under the other 
        provisions of this Act.
          * * * * * * *

            ADMINISTRATIVE COST-SHARING AND QUALITY CONTROL

  Sec. 16. (a) * * *
          * * * * * * *
  (h) Funding of Employment and Training Programs.--
          [(1) In general.--
                  [(A) Amounts.--To carry out employment and 
                training programs, the Secretary shall reserve 
                for allocation to State agencies from funds 
                made available for each fiscal year under 
                section 18(a)(1) the amount of--
                          [(i) for fiscal year 1996, 
                        $75,000,000;
                          [(ii) for fiscal year 1997, 
                        $79,000,000;
                          [(iii) for fiscal year 1998, 
                        $81,000,000;
                          [(iv) for fiscal year 1999, 
                        $84,000,000;
                          [(v) for fiscal year 2000, 
                        $86,000,000;
                          [(vi) for fiscal year 2001, 
                        $88,000,000; and
                          [(vii) for fiscal year 2002, 
                        $90,000,000.
                  [(B) Allocation.--The Secretary shall 
                allocate the amounts reserved under 
                subparagraph (A) among the State agencies using 
                a reasonable formula (as determined by the 
                Secretary) that gives consideration to the 
                population in each State affected by section 
                6(o).
                  [(C) Reallocation.--
                          [(i) Notification.--A State agency 
                        shall promptly notify the Secretary if 
                        the State agency determines that the 
                        State agency will not expend all of the 
                        funds allocated to the State agency 
                        under subparagraph (B).
                          [(ii) Reallocation.--On notification 
                        under clause (i), the Secretary shall 
                        reallocate the funds that the State 
                        agency will not expend as the Secretary 
                        considers appropriate and equitable.
                  [(D) Minimum allocation.--Notwithstanding 
                subparagraphs (A) through (C), the Secretary 
                shall ensure that each State agency operating 
                an employment and training program shall 
                receive not less than $50,000 for each fiscal 
                year.]
          (1) In general.--
                  (A) Amounts.--To carry out employment and 
                training programs, the Secretary shall reserve 
                for allocation to State agencies, to remain 
                available until expended, from funds made 
                available for each fiscal year under section 
                18(a)(1) the amount of--
                          (i) for fiscal year 1996, 
                        $75,000,000;
                          (ii) for fiscal year 1997, 
                        $79,000,000;
                          (iii) for fiscal year 1998, 
                        $221,000,000;
                          (iv) for fiscal year 1999, 
                        $224,000,000;
                          (v) for fiscal year 2000, 
                        $226,000,000;
                          (vi) for fiscal year 2001, 
                        $228,000,000; and
                          (vii) for fiscal year 2002, 
                        $210,000,000.
                  (B) Limitations.--The Secretary shall ensure 
                that--
                          (i) the funds provided in this 
                        subparagraph shall not be used for food 
                        stamp recipients who receive benefits 
                        under a State program funded under part 
                        A of title IV of the Social Security 
                        Act (42 U.S.C. 601 et seq.); and
                          (ii) not less than 75 percent of the 
                        funds provided in this subparagraph 
                        shall be used by a State agency for the 
                        employment and training of food stamp 
                        recipients not excepted by section 
                        6(o)(3).
                  (C) Allocation.--
                          (i) Allocation formula.--The 
                        Secretary shall allocate the amounts 
                        reserved under subparagraph (A) among 
                        the State agencies using a reasonable 
                        formula, as determined and adjusted by 
                        the Secretary each fiscal year, to 
                        reflect changes in each State's 
                        caseload (as defined in section 
                        6(o)(5)(A)) that reflects the 
                        proportion of food stamp recipients who 
                        reside in each State--
                                  (I) who are not eligible for 
                                an exception under section 
                                6(o)(3); and
                                  (II) who do not reside in an 
                                area subject to the waiver 
                                granted by the Secretary under 
                                section 6(o)(4), if the State 
                                agency does not provide 
                                employment and training 
                                services in the area to food 
                                stamp recipients not excepted 
                                by section 6(o)(3).
                          (ii) Reporting requirement.--A State 
                        agency shall submit such reports to the 
                        Secretary as the Secretary determines 
                        are necessary to ensure compliance with 
                        this paragraph.
                  (D) Reallocation.--
                          (i) Notification.--A State agency 
                        shall promptly notify the Secretary if 
                        the State agency determines that it 
                        will not expend all of the funds 
                        allocated to it under subparagraph (B).
                          (ii) Reallocation.--On notification 
                        under clause (i), the Secretary shall 
                        reallocate the funds that the State 
                        agency will not expend as the Secretary 
                        considers appropriate and equitable.
                  (E) Minimum allocation.--Notwithstanding 
                subparagraphs (A) through (C), the Secretary 
                shall ensure that each State agency operating 
                an employment and training program shall 
                receive not less than $50,000 for each fiscal 
                year.
                  (F) Maintenance of effort.--To receive the 
                additional funding under subparagraph (A), as 
                provided by the amendment made by section 1002 
                of the Balanced Budget Act of 1997, a State 
                agency shall maintain the expenditures of the 
                State agency for employment and training 
                programs and workfare programs for any fiscal 
                year under paragraph (2), and administrative 
                expenses under section 20(g)(1), at a level 
                that is not less than the level of the 
                expenditures by the State agency to carry out 
                the programs for fiscal year 1996.
          (2) Report to congress on additional funding.--
        Beginning one year after the date of the enactment of 
        this paragraph, the Secretary shall submit an annual 
        report to the Committee on Agriculture of the House of 
        Representatives and the Committee on Agriculture, 
        Nutrition, and Forestry of the Senate regarding whether 
        the additional funding provided under paragraph (1)(A) 
        has been utilized by State agencies to increase the 
        number of work slots in their employment and training 
        programs and workfare for recipients subject to section 
        6(o) in the most efficient and effective manner.
  [(2)] (3) If, in carrying out such program during such fiscal 
year, a State agency incurs costs that exceed the amount 
allocated to the State agency under paragraph (1), the 
Secretary shall pay such State agency an amount equal to 50 per 
centum of such additional costs, subject to the first 
limitation in [paragraph (3)] paragraph (4), including the 
costs for case management and casework to facilitate the 
transition from economic dependency to self-sufficiency through 
work.
  [(3)] (4) The Secretary shall also reimburse each State 
agency in an amount equal to 50 per centum of the total amount 
of payments made or costs incurred by the State agency in 
connection with transportation costs and other expenses 
reasonably necessary and directly related to participation in 
an employment and training program under section 6(d)(4), 
except that such total amount shall not exceed an amount 
representing $25 per participant per month for costs of 
transportation and other actual costs (other than dependent 
care costs) and an amount equal to the payment made under 
section 6(d)(4)(I)(i)(II) but not more than the applicable 
local market rate, and such reimbursement shall not be made out 
of funds allocated under paragraph (1).
  [(4)] (5) Funds provided to a State agency under this 
subsection may be used only for operating an employment and 
training program under section 6(d)(4), and may not be used for 
carrying out other provisions of this Act.
  [(5)] (6) The Secretary shall monitor the employment and 
training programs carried out by State agencies under section 
6(d)(4) to measure their effectiveness in terms of the increase 
in the numbers of household members who obtain employment and 
the numbers of such members who retain such employment as a 
result of their participation in such employment and training 
programs.
          * * * * * * *

                RESEARCH, DEMONSTRATION, AND EVALUATIONS

  Sec. 17. (a)(1) * * *
  (b)(1)(A) The Secretary may conduct on a trial basis, in one 
or more areas of the United States, pilot or experimental 
projects designed to test program changes that might increase 
the efficiency of the food stamp program and improve the 
delivery of food stamp benefits to eligible households, and may 
waive any requirement of this Act to the extent necessary for 
the project to be conducted.
                  (B) Project requirements.--
                          (i) * * *
          * * * * * * *
                          (iv) Impermissible projects.--The 
                        Secretary may not conduct a project 
                        under subparagraph (A) that--
                                  (I) * * *
          * * * * * * *
                                  (III) is inconsistent with--
                                          (aa) * * *
          * * * * * * *
                                          (hh) subsection (a), 
                                        (c), (g), [(h)(2), or 
                                        (h)(3) of section 16] 
                                        (h)(3), or (h)(4) of 
                                        section 16;
          * * * * * * *

         FOOD STAMP PORTION OF MINNESOTA FAMILY INVESTMENT PLAN

  Sec. 22. (a) * * *
          * * * * * * *
  (d) Funding.--
          (1) If an application submitted under subsection (a) 
        complies with the requirements specified in subsection 
        (b), then the Secretary shall--
                  (A) approve such application; and
                  (B) subject to subsection (b)(12) from the 
                funds appropriated under this Act provide grant 
                awards and pay the State each calendar quarter 
                for--
                          (i) the cost of food assistance 
                        provided under the Project equal to the 
                        amount that would have otherwise been 
                        issued in the form of coupons under the 
                        food stamp program had the Project not 
                        been implemented, as estimated under a 
                        methodology satisfactory to the 
                        Secretary after negotiations with the 
                        State; and
                          (ii) the administrative costs 
                        incurred by the State to provide food 
                        assistance under the Project that are 
                        authorized under subsections (a), (g), 
                        [(h)(2), and (h)(3) of section 16] 
                        (h)(3), and (h)(4) of section 16 equal 
                        to the amount that otherwise would have 
                        been paid under such subsections had 
                        the Project not been implemented, as 
                        estimated under a methodology 
                        satisfactory to the Secretary after 
                        negotiations with the State: Provided, 
                        That payments made under subsection (g) 
                        of section 16 shall equal payments that 
                        would have been made if the Project had 
                        not been implemented.
          * * * * * * *
                              ----------                              

                          House of Representatives,
               Committee on Banking and Financial Services,
                                     Washington, DC, June 13, 1997.
Hon. John Kasich,
Chairman, House Budget Committee,
Washington, DC.
    Dear Mr. Chairman: The Banking Committee reported out on 
June 11, 1997 three authorizing provisions that achieve 
specific spending and revenue amounts outlined in the 
Concurrent Budget Resolution for FY1998. Specifically, the 
Committee is charged with recommending legislation under its 
jurisdiction to effect $136 million in budget savings in FY1998 
and $1.59 billion in savings over the five-year period from FY 
1998 through FY2002.
    Enclosed is the legislative language for Title II, report 
language, and other information you requested in your May 30, 
1997 letter. CBO cost estimates are attached.
            Sincerely,
                                          James A. Leach, Chairman.

     Purposes and Summary of Major Policy Decisions in Legislation

    The Committee under the Concurrent Budget Resolution for 
FY1998 is required to effect $0.136 billion in budget savings 
in FY1998 and $1.59 billion in savings over the five-year 
period from FY1998 to FY2002. The three provisions reported-out 
of Committee reflect reforms to existing FHA and Section 8 
(U.S. Housing Act of 1937) project-based multifamily housing 
programs that will ensure savings for the federal government 
and ultimately the U.S. taxpayer.
    The FHA Single Family Assignment Program was originally 
terminated and replaced by Section 407 of The Balanced Budget 
Downpayment Act, I for mortgages executed on and after April 
26, 1996 through September 30, 1996. The Appropriations 
Committee subsequently made mortgages executed in FY 1996 and 
later added mortgages executed in FY 1997 eligible for the 
replacement program, to achieve offsets for discretionary 
spending. Permanent changes made by the Banking Committee will 
achieve real savings for the taxpayers and is a valid policy 
goal.
    A review of the former FHA single family assignment 
program, by the General Accounting Office, indicated only 
limited success. In most cases, defaulted borrowers ultimately 
faced foreclosure and thus additional costs to FHA and the 
taxpayer. Some indicators estimated approximately up to 70% in 
defaulted loans from the assignment program. Rather than 
eliminate the assignment program, the Committee recommended in 
1995 a replacement program that provided FHA with flexible 
tools, similar to the private-sector mortgage markets, to 
address defaulted borrowers who had a realistic opportunity to 
retain their homes after a short-term calamity. Therefore, this 
replacement program provides HUD with discretionary authority, 
rather than a mandatory requirement, to accept applicants to 
the assignment program.
    The Section 8 Rental Assistance Program provides project-
based rental/multi-family assistance for families under 80% of 
area medium income. As a counter-part to public housing, this 
form of housing is operated by the private sector and is 
subsidized by the federal government in return for housing low- 
and very-low income families. The Annual Adjustment Factors 
(AAF) increases the per-unit subsidy annually in order to keep 
pace with any increases in area rents. Rather than 
automatically increase rents for every project-based rent, the 
annual increases are limited for Section 8 New Construction, 
Moderate Rehabilitation and Substantial Rehabilitation projects 
where unit rents exceed the HUD established Fair Market Rents 
for the relevant housing area. This reform will continue the 
process of realigning subsidized units with the rents of 
similar unassisted units in the area. Additionally, Section 8 
annual rent increases would be limited for those Section 8 
units in which there has been no tenant turnover since the 
preceding annual rent adjustment, by reducing the AAF by one 
percentage point. For example, if the published AAF is 1.03, 
which would provide a 3% rent increase, the AAF would be 
reduced to 1.02, and provide a 2% rent increase instead.

                                Hearings

    There were no hearings during the 105th Congress on Section 
8 or FHA assignment reforms.

                        Constitutional Authority

    In compliance with clause 2(l)(4) of rule XI of the Rules 
of the House of Representatives, the constitutional authority 
for Congress to enact this legislation is derived from the 
general welfare clause (Article I, Sec. 8).

                            Committee Votes

    There were no roll call votes. The Committee passed by 
voice vote to adopt and favorably report the authorization 
provisions, pursuant to Subsection (c)(2) of Section 105 of the 
Concurrent Budget Resolution for FY 1998.

               Congressional Budget Office Cost Estimates

    The Cost estimate pursuant to Clause 2(l)(3)(C) of rule XI, 
of the Rules of the House of Representatives and Section 403 of 
the Congressional Budget Act of 1974, is attached.

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 13, 1997.
Hon. James A. Leach,
Chairman, Committee on Banking and Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for the reconciliation 
recommendations of the House Committee on Banking and Financial 
Services.
    The estimate shows the budgetary effects of the committee's 
proposals over the 1998-2002 period, and an attached table 
shows the effects through 2007. CBO understands that the 
Committee on the Budget will be responsible for interpreting 
how these proposals compare with the reconciliation 
instructions in the budget resolution. This estimate assumes 
the reconciliation bill will be enacted by August 15, 1997; the 
estimate could change if the bill is enacted later.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Susanne S. 
Mehlman (for the FHA provision), and Carla Pedone (for rental 
assistance provisions).
            Sincerely,
                                          Paul Van de Water
                                   (For June E. O'Neill, Director).
    Enclosure.

Reconciliation recommendations of the House Committee on Banking and 
        Financial Services (Title II)

    Summary: This bill would permanently prohibit the Federal 
Housing Administration (FHA) from providing foreclosure 
avoidance relief to mortgagors who have defaulted in making 
payments on FHA-insured single-family mortgages. This bill also 
would make two changes affecting rent adjustments for section 8 
housing. First, it would generally prohibit rent increases for 
projects assisted under the section 8 new construction and 
substantial or moderate rehabilitation programs, if their 
assisted rents exceeded the fair market rent (FMR) established 
by the Department of Housing and Urban Development (HUD) for 
that housing area. Another provision in the bill would limit 
rent increases for units without tenant turnover.
    Estimated cost to the Federal Government: CBO estimates 
that the committee's proposals would reduce direct spending by 
about $1.8 billion over the 1998-2002 period. This title also 
would provide for potential discretionary savings of $824 
million in outlays over the next five years, subject to 
appropriations action. The estimated budgetary effects of these 
proposals over the 1998-2002 period are shown in the following 
table.

ESTIMATED BUDGETARY IMPACT OF THE RECONCILIATION RECOMMENDATIONS OF THE HOUSE COMMITTEE ON BANKING AND FINANCIAL
                                                    SERVICES                                                    
----------------------------------------------------------------------------------------------------------------
                                                               By fiscal years in millions of dollars--         
                                                     -----------------------------------------------------------
                                                        1997      1998      1999      2000      2001      2002  
----------------------------------------------------------------------------------------------------------------
                                      FHA SINGLE-FAMILY MORTGAGE INSURANCE                                      
                                                                                                                
Spending Under Current Law:                                                                                     
    Estimated Budget Authority......................      -772      -977    -1,226    -1,221    -1,109    -1,095
    Estimated Outlays...............................      -772      -977    -1,226    -1,221    -1,109    -1,095
Proposed Changes:                                                                                               
    Estimated Budget Authority......................         0      -136      -161      -183      -183      -183
    Estimated Outlays...............................         0      -136      -161      -183      -183      -183
Spending Under Title II:                                                                                        
    Estimated Budget Authority......................      -772    -1,113    -1,387    -1,404    -1,292    -1,278
    Estimated Outlays...............................      -772    -1,113    -1,387    -1,404    -1,292    -1,278
                                                                                                                
                                           SECTION 8 RENTAL ASSISTANCE                                          
                                                                                                                
Spending Under Current Law: \1\                                                                                 
    Estimated Budget Authority......................     3,550    10,286    12,295    14,424    16,085    17,641
    Estimated Outlays...............................    15,941    16,360    17,025    17,717    18,402    19,121
Proposed Changes:                                                                                               
    Direct Spending:                                                                                            
    Estimated Budget Authority......................         0         0         0         0         0         0
    Estimated Outlays...............................         0         0       -88      -219      -294      -323
Spending Subject to Appropriations:                                                                             
    Estimated Authorization Level...................         0         0      -103      -199      -323      -457
    Estimated Outlays...............................         0         0       -40      -139      -257      -388
Spending Under Title II:                                                                                        
    Estimated Authorization Level...................     3,550    10,286    12,192    14,225    15,762    17,184
    Estimated Outlays...............................    15,941    16,360    16,897    17,359    17,851    18,410
                                                                                                                
                                    TOTAL PROPOSED CHANGES IN DIRECT SPENDING                                   
                                                                                                                
    Estimated Budget Authority......................         0      -136      -161      -183      -183      -183
    Estimated Outlays...............................         0      -136      -249      -402      -477      -506
----------------------------------------------------------------------------------------------------------------
\1\ CBO's baseline with annual adjustments for anticipated inflation.                                           

    The effects of this legislation fall within budget 
functions 600 (income security) and 370 (commerce and housing 
credit)

Basis of estimate

            Elimination of FHA's single-family assignment program
    Under current law, FHA's assignment program has been 
suspended through fiscal year 1997. Section 2002 would 
permanently eliminate the assignment program, enabling FHA to 
foreclose quickly on properties that would otherwise enter the 
assignment program. CBO estimates that more rapid foreclosure 
would reduce FHA's costs by decreasing the amount of taxes and 
other expenses that FHA would pay while holding these 
properties. Early foreclosures also would expedite the receipt 
of sales revenues that FHA would collect on the affected 
properties. CBO estimates that 16 percent of all claims from 
new loan guarantees will eventually enter the assignment 
program if it continues in place. Based on information provided 
by FHA. We estimate that eliminating the program would increase 
FHA's recoveries on such defaults by an average of 30 to 40 
percent.
    CBO estimates that the decrease in FHA's costs from 
defaults would reduce direct spending by $846 million over the 
next five years. These estimated savings represent the net 
decrease in subsidy costs of new loan guarantees expected to be 
made by FHA over the 1998-2002 period. Under current law, FHA 
guarantees of new single-family mortgage result in offsetting 
receipts on the budget because the credit subsidies are 
estimated to be negative. (That is, guarantee fees for new 
mortgages more than offset the costs of expected defaults.) 
Eliminating the assignment program would make such subsidies 
more negative and the estimated change in those subsidy 
receipts would be recorded in the years in which new loans are 
guaranteed. For example, estimated savings for 1998 represent 
the present value (subsidy) savings of a avoided costs in all 
future years associated with the new guarantees made in 1998.
            Rent adjustment for section 8 housing
    Section 8 of the United States Housing Act of 1937 provides 
for annual adjustments in the maximum rents that owners receive 
on behalf of assisted tenants. The bill would make permanent, 
starting in fiscal year 1999, two provisions enacted in the 
appropriations act for 1997 that eliminate or reduce those 
adjustment factors for certain units. Because the federal 
government pays part of the rental costs, CBO estimates that 
those two provisions combined would save the government $924 
million over the 1998-2002 period on subsidies for existing 
rental contracts.
    Section 2003 would bar rent increases in projects assisted 
under the section 8 new construction and substantial or 
moderate rehabilitation programs, if their assisted rents 
exceed the higher of the local market rents for similar 
unassisted units or the FMR, which is set by HUD at the 40th 
percentile of local rents. CBO estimates that this provision 
would reduce spending for existing contracts by $773 million 
over the five-year period. We estimate that this provision 
would initially affect about three-quarters of all units 
assisted under these programs. Over time, however, that 
proportion would decrease by about 4 percent per year, as some 
of the assisted rents would begin to fall below the market 
rents or the FMR. In addition, the number of units affected 
would decline sharply each year as contracts expire. In all, 
CBO estimates the average number of affected units to decline 
from about 787,000 in 1999 to 418,000 in 2002.
    Section 2004 would reduce by 1 percentage point rent 
increases for units occupied by the same families at the time 
of the last annual rent adjustment. (Such families are often 
referred to as stayers.) This provision would reduce outlays 
for existing contracts by an estimated $151 million over the 
five-year period. CBO estimates that, in a given year, this 
provision would affect between 80 and 85 percent of assisted 
units that receive an annual rent adjustment. (The provision 
would generate no savings from units that would be affected by 
section 2003.) Because of expiring contracts, the number of 
affected units is estimated to decline from about 430,000 in 
1999 to about 230,000 in 2002.
    Savings that would result from the application of these two 
provisions to future contract renewals would depend on annual 
appropriation levels and thus would not be considered direct 
spending. Assuming that all expiring contracts would be 
renewed, CBO estimates that these two provisions combined would 
produce savings from future appropriations of $824 million over 
the 1998-2002 period.

Intergovernmental and private-sector impact

    This bill contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act of 
1995, and would not impose any costs on state, local, or tribal 
governments.
    Estimate prepared by: FHA Single Family Mortgage 
Insurance--Susanne S. Mehlman (226-2860), Rental Assistance 
Program--Carla Pedone (226-2820)
    Estimate approved by: Robert A. Sunshine, Deputy Assistant 
Director for Budget Analysis.

            ESTIMATED BUDGETARY EFFECTS OF TITLE II--RECONCILIATION RECOMMENDATIONS OF THE HOUSE COMMITTEE ON BANKING AND FINANCIAL SERVICES            
                                                        [In millions of dollars, by fiscal year]                                                        
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                               1998-2007
                                             1998      1999      2000      2001      2002      2003      2004      2005      2006      2007      Total  
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               CHANGES IN DIRECT SPENDING                                                               
                                                                                                                                                        
FHA Single Family Assignment Reform:                                                                                                                    
    Estimated Budget Authority...........      -136      -161      -183      -183      -183      -183      -183      -183      -183      -183     -1,761
    Estimated Outlays....................      -136      -161      -183      -183      -183      -183      -183      -183      -183      -183     -1,761
Freeze Rents for High Cost Areas:                                                                                                                       
    Estimated Budget Authority...........         0         0         0         0         0         0         0         0         0         0          0
    Estimated Outlays....................         0       -71      -182      -248      -272      -268      -245      -239      -237      -235     -1,996
Reduce Rent Increases for Stayers by 1                                                                                                                  
 Percentage Point:                                                                                                                                      
    Estimated Budget Authority...........         0         0         0         0         0         0         0         0         0         0          0
    Estimated Outlays....................         0       -17       -37       -46       -51       -53       -55       -62       -69       -78       -466
Total:                                                                                                                                                  
    Estimated Budget Authority...........      -136      -161      -183      -183      -183      -183      -183      -183      -183      -183     -1,761
    Estimated Outlays....................      -136      -249      -402      -477      -506      -504      -483      -484      -489      -494     -4,224
                                                                                                                                                        
                                                      CHANGES IN SPENDING SUBJECT TO APPROPRIATION                                                      
                                                                                                                                                        
Freeze Rents for High Cost Areas:                                                                                                                       
    Estimated Authorization Level........         0       -15       -48      -101      -171      -250      -329      -402      -471      -543     -2,330
    Estimated Outlays....................         0        -4       -26       -69      -133      -209      -292      -367      -437      -506     -2,043
Reduce Rent Increases for Stayers by 1                                                                                                                  
 Percentage Point:                                                                                                                                      
    Estimated Authorization Level........         0       -88      -151      -222      -286      -344      -394      -439      -480      -521     -2,925
    Estimated Outlays....................         0       -36      -113      -188      -255      -317      -371      -418      -460      -500     -2,658
Total:                                                                                                                                                  
    Estimated Authorization Level........         0      -103      -199      -323      -457      -594      -723      -841      -951    -1,064     -5,255
    Estimated Outlays....................         0       -40      -139      -257      -388      -526      -663      -785      -897    -1,006     -4,701
--------------------------------------------------------------------------------------------------------------------------------------------------------

                      Committee Oversight Findings

    In compliance with clause 2(l)(3)(A) of rule XI of the 
Rules of the House of Representatives, the Committee reports 
that the findings and recommendations of the Committee, based 
on oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of the House of Representatives, are 
incorporated in the descriptive portions of this report.

         Committee on Government Reform and Oversight Findings

    No findings and recommendations of the Committee on 
Government Reform and Oversight were received as referred to in 
clause 2(l)(3)(D) of rule XI and clause 4(c)(2) of rule X of 
the Rules of the House of Representatives.

                      Advisory Committee Statement

    No advisory committees within the meaning of Section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                    Congressional Accountability Act

    The reporting requirement under Section 102(b)(3) of the 
Congressional Accountability Act (P.L. 104-1) is inapplicable 
because this legislation does not relate to terms and 
conditions of employment or access to public services or 
accommodations

       Congressional Budget Office Federal Mandate Cost Estimate

    The cost estimate pursuant to Section 424 of the Unfunded 
Mandates Reform Act (P.L. 104-4) is attached.

                      Section-by-Section Analysis

     TITLE II--COMMITTEE ON BANKING AND FINANCIAL SERVICES

Section 2001. Table of contents

Section 2002. Extension of foreclosure avoidance and borrower 
        assistance provisions for FHA single family housing mortgage 
        insurance program

    This section extends permanently the FHA Assignment Reforms 
from Section 407 of the Balanced Budget Downpayment Act, I. 
Section 407 amended Sections 204(a) and 230 of the National 
Housing Act to authorize HUD to pay mortgagees for undertaking 
loss mitigation measures, to greatly restrict HUD's ability to 
accept assignments of mortgages, and to make clear that no law 
compels HUD either to provide an alternative to foreclosure or 
to take assignment of mortgages. It reformed the assignment 
process to achieve cost savings comparable to those achieved in 
the private sector by working out delinquent loans to avoid 
foreclosure and minimizing losses to the mortgage insurer.

Section 2003. Adjustment of maximum monthly rents for certain dwelling 
        units in new construction and substantial or moderate 
        rehabilitation projects assisted under section 8 rental 
        assistance program

    For FY 1999 and subsequent years, this provision limits the 
application of the annual adjustment factor (AAF) \1\ for 
Section 8 New Construction, Substantial Rehabilitation, or 
Moderate Rehabilitation projects where the rents are adjusted 
using the AAF and the rents are in excess of the fair market 
rents (``FMRs'') for that housing area. For such projects, the 
Secretary may adjust rents, but only to the extent that the 
owner demonstrates that the adjusted rent would not exceed the 
rent for a similar unassisted unit. For FY 1998, it is expected 
that the HUD appropriations Act will continue this same policy, 
which has been in effect during FY 1996, FY 1996 prior to April 
26, 1996, and FY 1997.
---------------------------------------------------------------------------
    \1\ AAFs are used to adjust rents for many Section 8 contracts to 
reflect increases in rents in the market area.
---------------------------------------------------------------------------

Section 2004. Adjustment of maximum monthly rents for non-turnover 
        dwelling units assisted under section 8 rental assistance 
        program

    For FY 1999 and subsequent fiscal years, this provision 
reduces the AAF by one percentage point for those Section 8 
units in which there has been no turnover since the preceding 
annual rental adjustment, except that the AAF shall not be 
reduced to less than 1.0 (so rents will not be reduced because 
of the one percentage point reduction). For FY 1998, it is 
expected that the HUD appropriations Act will continue this 
same policy, which has been in effect during FY 1996, FY 1996 
prior to April 26, 1996, and FY 1997.

   Changes in Existing Law Made by Title II of 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):

       SECTION 407 OF THE THE BALANCED BUDGET DOWNPAYMENT ACT, I

              fha single-family assignment program reform

  Sec. 407. (a) * * *
          * * * * * * *
  (c) Applicability of Amendments.--Except as provided in 
subsection (e), the amendments made by subsections (a) and (b) 
shall apply [only] with respect to mortgages insured under the 
National Housing Act that are originated before, on, or after 
October 1, 1995.
          * * * * * * *
  [(e) Effectiveness and Applicability.--If this Act is enacted 
after the date of enactment of the Balanced Budget Act of 
1995--
          [(1) subsections (a), (b), (c), and (d) of this 
        section shall not take effect; and
          [(2) section 2052(c) of the Balanced Budget Act of 
        1995 is amended by striking ``that are originated on or 
        after October 1, 1995'' and inserting in lieu thereof 
        ``that are originated before, during, and after fiscal 
        year 1996.''.]
  This Act may be cited as ``The Balanced Budget Downpayment 
Act, I''.
                              ----------                              


               SECTION 8 OF THE UNITED STATES HOUSING ACT

                    lower income housing assistance

  Sec. 8. (a) * * *
          * * * * * * *
  (c)(1) * * *
  (2)(A) The assistance contract shall provide for adjustment 
annually or more frequently in the maximum monthly rents for 
units covered by the contract to reflect changes in the fair 
market rentals established in the housing area for similar 
types and sizes of dwelling units or, if the Secretary 
determines, on the basis of a reasonable formula. However, 
where the maximum monthly rent, for a unit in a new 
construction, substantial rehabilitation, or moderate 
rehabilitation project, to be adjusted using an annual 
adjustment factor exceeds the fair market rental for an 
existing dwelling unit in the market area, the Secretary shall 
adjust the rent only to the extent that the owner demonstrates 
that the adjusted rent would not exceed the rent for an 
unassisted unit of similar quality, type, and age in the same 
market area, as determined by the Secretary. The immediately 
foregoing sentence shall be effective only during fiscal year 
1995, fiscal year 1996 prior to April 26, 1996, and fiscal year 
1997, and during fiscal year 1999 and thereafter. Except for 
assistance under the certificate program, for any unit occupied 
by the same family at the time of the last annual rental 
adjustment, where the assistance contract provides for the 
adjustment of the maximum monthly rent by applying an annual 
adjustment factor and where the rent for a unit is otherwise 
eligible for an adjustment based on the full amount of the 
factor, 0.01 shall be subtracted from the amount of the factor, 
except that the factor shall not be reduced to less than 1.0. 
In the case of assistance under the certificate program, 0.01 
shall be subtracted from the amount of the annual adjustment 
factor (except that the factor shall not be reduced to less 
than 1.0), and the adjusted rent shall not exceed the rent for 
a comparable unassisted unit of similar quality, type, and age 
in the market area. The immediately foregoing two sentences 
shall be effective only during fiscal year 1995, fiscal year 
1996 prior to April 26, 1996, and fiscal year 1997, and during 
fiscal year 1999 and thereafter.
          * * * * * * *
                           House of Representative,
                                      Committee on Commerce
                                     Washington, DC, June 17, 1997.
Hon. John R. Kasich,
Chairman, Committee on the Budget, Washington, DC
    Dear Mr. Chairman: I am transmitting herewith the 
recommendations of the Committee on Commerce for changes in 
NonMedicare laws within its jurisdiction, pursuant to the 
provisions of section 310 of the Congressional Budget Act of 
1974 and H. Con. Res. 84, the Concurrent Resolution of the 
Budget--Fiscal Years 1998-2002.
    The enclosed recommendations were embodied in a series of 
Committee Prints adopted by the Committee on June 11 and 12, 
1997. Pursuant to your instructions, the legislative language 
of these Committee Prints has been incorporated into title III 
as follows:
    Title III--Committee on Commerce--NonMedicare: Subtitle A: 
Nuclear Regulatory Commission Annual Charges; Subtitle B: Lease 
of Excess Strategic Petroleum Reserve, Capacity; Subtitle C: 
Sale of DOE Assets; Subtitle D: Communications; Subtitle E: 
Medicaid; and Subtitle F. Child Health Assistance Program.
    Enclosed is the legislative language for Title III, the 
accompanying report language, and a Ramsayer submission for 
Subtitles A through D. I have been informed that the 
Legislative Counsel's Office has made arrangements with your 
staff to submit the Ramsayer language for Subtitles E and F 
directly to the Budget Committee to expedite your Committee's 
action.
    The Committee's recommendations for title IV--Committee on 
Commerce--Medicare will be transmitted to your office 
separately.
    If you have any questions concerning the Committee's 
recommendations, if I can be of any further assistance to you 
as you proceed with your Committee's deliberations, please do 
not hesitate to contact me.
            Sincerely,
                                              Tom Bliley, Chairman.
    Enclosures.
         TITLE III--COMMITTEE ON COMMERCE--NONMEDICARE

        Subtitle A--Nuclear Regulatory Commission Annual Charges

                          Purpose and Summary

     Subtitle A extends the Nuclear Regulatory Commission's 
(NRC's) authority to collect up to 100 percent of its budget 
from user fees through Fiscal Year 2002.

                  Background and Need for Legislation

     Millions of Americans, on a daily basis, benefit from use 
of radioactive materials, from the electricity produced by 
nuclear reactors to the widespread use of nuclear materials in 
medical and industrial applications. The NRC is responsible for 
ensuring the safety of civilian uses of nuclear materials, and 
the independence and integrity of this agency is essential to 
maintaining public confidence in the use of such materials. 
Thus, a reliable stream of long-term funding is vital to 
assuring the uninterrupted operation of this important 
organization.
     The NRC budget is paid for entirely through user fees and 
annual charges on its licensees, except for work on the high-
level nuclear waste repository which is paid for through the 
Nuclear Waste Fund. User fees are an equitable way of paying 
for the cost of Federal regulation. By collecting user fees, 
those who use an agency's resources pay the costs of funding 
that agency. Those who use the greatest amount of the agency's 
resources are required to pay the greatest annual fees. In the 
case of the NRC, nuclear licensees pay for the cost of Federal 
regulation and then pass that cost on to their customers. The 
result is an equitable one: those who do not buy electricity or 
products utilizing nuclear materials do not bear the costs 
associated with regulating them.
     Section 6101 of the Omnibus Budget Reconciliation Act of 
1990 (P.L. 101-508) requires the Nuclear Regulatory Commission 
to collect annual charges from its licensees to provide 
offsetting collections to pay for its programs. Specifically, 
section 6101 allows the NRC to collect amounts which, when 
added to other amounts collected by the NRC (such as fees 
collected under the Independent Offices Appropriation Act of 
1952, 31 U.S.C. 9701), equals 100 percent. However, current law 
only provides authority to collect fees and annual charges 
equal to 100 percent of the budget through Fiscal Year 1998. 
After that time, absent an extension, NRC's permanent authority 
to collect 33 percent of its budget through fees and annual 
charges, as provided by Section 7601 of the Consolidated 
Omnibus Budget Reconciliation Act of 1985 (P.L. 99-272), would 
take effect.
     Currently, the NRC budget is made up of money collected 
through three different methodologies. First, the NRC receives 
appropriations from the Nuclear Waste Fund established under 
section 302(c) of the Nuclear Waste Policy Act of 1982 (42 
U.S.C. 10222(c)) for licensing the Department of Energy's 
nuclear waste management program. Charges for these activities 
are not recovered through annual charges because nuclear 
utilities pay for the cost of these activities through their 
payments to the Nuclear Waste Fund. Thus, recovery of Nuclear 
Waste Fund appropriations through the annual charge would 
constitute double payment by utilities. Second, the NRC 
recovers a portion of its budget through fees assessed on 
licensees under the Independent Offices Appropriation Act of 
1952 (31 U.S.C. 9701). This Act provides that anyone receiving 
a service or a thing of value from the NRC shall pay the NRC's 
cost of providing that service or thing of value. The purpose 
of this provision is to recover the costs of providing 
individually identifiable services to applicants and holders of 
NRC licensees from the recipients of those services. The third 
collection methodology involves the recovery of annual charges 
for generic NRC activities that benefit all licensees.
     Subtitle A extends NRC's authority to collect up to 100 
percent of its budget through user fees and annual charges 
through Fiscal Year 2002. This extension will generate revenues 
in amounts sufficient to offset expenditures by the NRC. The 
NRC is charged by the Omnibus Budget Reconciliation Act of 1990 
to assess these charges under the principle that licensees who 
require the greatest expenditures of the NRC's resources should 
pay the greatest annual charge. Section 3001 of Subtitle A does 
not alter, in any way, the fee structure as currently 
administered by the NRC.

                                Hearings

     The Committee's Subcommittee on Energy and Power has not 
held hearings on Subtitle A. In the 104th Congress, the 
Subcommittee on Energy and Power did hold a general oversight 
hearing on the Nuclear Regulatory Commission on September 5, 
1996.

                        Committee Consideration

     On June 5, 1997, the Subcommittee on Energy and Power met 
in open session and approved for Full Committee consideration a 
Committee Print entitled ``Title III, Subtitle A--Nuclear 
Regulatory Commission Annual Charges,'' without amendment, by a 
voice vote. On June 11, 1997, the Committee met in open session 
and ordered a Committee Print entitled ``Title III, Subtitle 
A--Nuclear Regulatory Commission Annual Charges'' transmitted 
to the House Committee on the Budget, without amendment, for 
inclusion in the 1997 Omnibus Budget Reconciliation Act by a 
voice vote, a quorum being present.

                            Roll Call Votes

     Clause 2(l)(2)(B) of rule XI of the Rules of the House of 
Representatives requires the Committee to list the recorded 
votes on the motion to report legislation and amendments 
thereto. There were no recorded votes taken in connection with 
ordering Subtitle A transmitted to the House Committee on the 
Budget. A motion by Mr. Bliley to order Subtitle A transmitted 
to the House Committee on the Budget, without amendment, for 
inclusion in the 1997 Omnibus Budget Reconciliation Act was 
agreed to by a voice vote, a quorum being present.

                      Committee Oversight Findings

    Pursuant to clause 2(l)(3)(A) of rule XI of the Rules of 
the House of Representatives, the Committee has not held 
oversight or legislative hearings on this Subtitle.

              Committee on Government Reform and Oversight

    Pursuant to clause 2(l)(3)(D) of rule XI of the Rules of 
the House of Representatives, no oversight findings have been 
submitted to the Committee by the Committee on Government 
Reform and Oversight.

                        Committee Cost Estimate

    In compliance with clause 7(a) of rule XIII of the Rules of 
the House of Representatives, the Committee believes that 
enactment of Subtitle A would result in no additional costs to 
the Federal government.

                  Congressional Budget Office Estimate

    Pursuant to clause 2(l)(3)(C) of rule XI of the Rules of 
the House of Representatives, a letter from the Congressional 
Budget Office providing a cost estimate for all six subtitles 
of Title III is found at the conclusion of the report on this 
Title of the bill.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
Subtitle.

                   Constitutional Authority Statement

    Pursuant to clause 2(l)(4) of rule XI of the Rules of the 
House of Representatives, the Committee finds that the 
Constitutional authority for this legislation is provided in 
Article I, section 8, clause 3, which grants Congress the power 
to regulate commerce with foreign nations, among the several 
States, and with the Indian tribes.

             Section-by-Section Analysis of the Legislation

    Section 3001 of Subtitle A amends section 6101(a)(3) of the 
Omnibus Budget Reconciliation Act of 1990 to extend the current 
authority to collect annual charges and user fees which pay for 
the budget of the NRC from September 30, 1998, to September 30, 
2002.

               Changes in Existing Law Made by Subtitle A

    The changes in existing law made by Subtitle A are included 
at the conclusion of the report on this Title of the bill.

    Subtitle B--Lease of Excess Strategic Petroleum Reserve Capacity

                          Purpose and Summary

    Subtitle B gives the Department of Energy the authority to 
lease to foreign countries space in the Strategic Petroleum 
Reserve that is not currently being used by the United States.

                  Background and Need for Legislation

    The Energy Policy and Conservation Act (EPCA), as amended, 
authorized the Department of Energy (DOE) to build and maintain 
a one billion barrel Strategic Petroleum Reserve (SPR or 
Reserve) to protect the U.S. in an energy emergency and to 
comply with U.S. obligations under the International Energy 
Agreement (IEA). Today, the SPR is capable of storing up to 680 
million barrels of oil at four sites in Louisiana and Texas. 
(The closure of the Weeks Island, Louisiana site reduced 
Reserve capacity by approximately 70 million barrels; from a 
maximum capacity of 750 million barrels to today's 680 million 
barrels.) In addition, after three oil sales of a total of 28 
million barrels in FY 96 and FY 97 to raise revenues, 
approximately only 563 million barrels of oil are stored in the 
Reserve today.
    In light of current budgetary constraints, it is unlikely 
that any new oil will be purchased for storage in the Reserve 
for the foreseeable future. Thus, Subtitle B would allow DOE to 
lease the excess storage capacity of the Reserve (approximately 
110 million barrels) to foreign governments or their agents. 
U.S. allies, like South Korea and Japan, have expressed an 
interest in leasing such space in order to meet their 
obligations under the IEA. (The IEA requires its member nations 
to maintain oil reserves equal to a 90 days supply of that 
country's net imports.) This leasing option may prove very 
attractive to some of these countries because the United States 
has some of the lowest costs of building and maintaining 
strategic oil reserves. For example, it costs Japan 
approximately $50 per barrel to create oil storage space and 
five dollars a barrel annually to store oil in that space. In 
contrast, it is estimated that creating new SPR capacity in the 
U.S. would cost about $9 per barrel. In addition, it costs the 
U.S. about 30 cents per barrel to operate and maintain the oil 
currently stored in the Reserve. It has been estimated that the 
U.S. could receive as much as $1.20 per barrel annually if such 
leasing is authorized.
    Importantly, Subtitle B requires that the fee for allowing 
such leasing must fully compensate the U.S. for the costs of 
storage and removal of such oil and the cost of any replacement 
facilities necessitated by the removal of such oil. Subtitle B 
also requires that such storage not affect the ability of the 
U.S. to withdraw its own oil in an energy emergency or to meet 
its IEA obligations. Finally, Subtitle B provides that funds 
collected pursuant to this section after September 30, 2002, 
shall be used to purchase oil for, or operate and maintain the 
Reserve.

                                Hearings

    The Committee's Subcommittee on Energy and Power did not 
hold hearings on Subtitle B.

                        Committee Consideration

    On June 5, 1997, the Subcommittee on Energy and Power met 
in open session and approved for Full Committee consideration a 
Committee Print entitled ``Title III, Subtitle B--Lease of 
Excess Strategic Petroleum Reserve Capacity,'' without 
amendment, by a voice vote. On June 11, 1997, the Committee met 
in open session and ordered a Committee Print entitled ``Title 
III, Subtitle B--Lease of Excess Strategic Petroleum Reserve 
Capacity'' transmitted to the House Committee on the Budget, 
without amendment, for inclusion in the 1997 Omnibus Budget 
Reconciliation Act, by a voice vote, a quorum being present.

                            Roll Call Votes

    Clause 2(l)(2)(B) of rule XI of the Rules of the House of 
Representatives requires the Committee to list the recorded 
votes on the motion to report legislation and amendments 
thereto. There were no recorded votes taken in connection with 
ordering Subtitle B transmitted to the House Committee on the 
Budget. A motion by Mr. Bliley to order Subtitle B transmitted 
to the House Committee on the Budget, without amendment, for 
inclusion in the 1997 Omnibus Budget Reconciliation Act was 
agreed to by a voice vote, a quorum being present.

                      Committee Oversight Findings

    Pursuant to clause 2(l)(3)(A) of rule XI of the Rules of 
the House of Representatives, the Committee has not held 
oversight or legislative hearings on this Subtitle.

              Committee on Government Reform and Oversight

    Pursuant to clause 2(l)(3)(D) of rule XI of the Rules of 
the House of Representatives, no oversight findings have been 
submitted to the Committee by the Committee on Government 
Reform and Oversight.

                        Committee Cost Estimate

    In compliance with clause 7(a) of rule XIII of the Rules of 
the House of Representatives, the Committee believes that 
enactment of Subtitle B would result in no additional costs to 
the Federal government.

                  Congressional Budget Office Estimate

    Pursuant to clause 2(l)(3)(C) of rule XI of the Rules of 
the House of Representatives, a letter from the Congressional 
Budget Office providing a cost estimate for all six subtitles 
of Title III is found at the conclusion of the report on this 
Title of the bill.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                   Constitutional Authority Statement

    Pursuant to clause 2(l)(4) of rule XI of the Rules of the 
House of Representatives, the Committee finds that the 
Constitutional authority for this legislation is provided in 
Article I, section 8, clause 3, which grants Congress the power 
to regulate commerce with foreign nations, among the several 
States, and with the Indian tribes.

             Section-by-Section Analysis of the Legislation

    Subtitle B adds a new section 168 to Part B of Title I of 
the Energy Policy and Conservation Act.
    Subsection (a) of Subtitle B makes the following amendments 
to Part B of Title I of EPCA:
    Section 168(a) provides DOE with the authority to lease 
underutilized SPR facilities to foreign governments or their 
representatives. This section also provides that petroleum 
products stored under this part are not part of the SPR and may 
be exported from the U.S. without a license.
    Section 168(b) requires that the price received for the 
leasing of these underutilized facilities must fully compensate 
the U.S. for petroleum removal and storage costs, as well as 
the cost of building replacement facilities necessitated as a 
result of withdrawals of any such oil.
    Section 168(c) provides that any agreements entered into 
pursuant to this provision may not impair the ability of the 
U.S. to withdraw, distribute, or sell its own petroleum from 
the SPR in response to an energy emergency or to comply with 
obligations of the U.S. under the IEA.
    Section 168(d) provides that after September 30, 2002, any 
funds collected from the leasing of underutilized SPR 
facilities shall be used by the Secretary of Energy for the 
purchase of oil for, and operation and maintenance costs, of 
the Strategic Petroleum Reserve.
    Subsection (b) of Subtitle B provides for conforming 
changes to be made to the table of contents of EPCA.

               Changes in Existing Law Made by Subtitle B

    The changes in existing law made by Subtitle B are included 
at the conclusion of the report on this Title of the bill.

                     Subtitle C--Sale of DOE Assets

                          Purpose and Summary

    Subtitle C directs the Department of Energy (DOE) to sell 
3.2 million pounds of surplus natural and low-enriched uranium 
per year during the period Fiscal Year 1999 through Fiscal Year 
2002 at not less than fair market value, subject to a 
determination that such sale or sales would not have an adverse 
material impact on the domestic uranium mining, conversion, or 
enrichment industry.

                  Background and Need for Legislation

    The Department of Energy owns substantial amounts of 
natural and low-enriched uranium that have substantial 
commercial value. The Department has declared about 21.5 
million pounds of natural uranium equivalent to be surplus. 
This surplus uranium is stored at the Department's gaseous 
diffusion plants in Paducah, Kentucky, and Portsmouth, Ohio.
    Selling this material in an orderly manner would allow the 
beneficial use of an asset that is no longer needed by the 
Federal government. In addition, sale of these surplus assets 
would relieve the Department of the storage costs and other 
liabilities associated with long-term storage of this material. 
Further, revenue from the sale of surplus uranium assets would 
benefit the taxpayers by producing savings that help balance 
the Federal budget.
    Congress authorized the Department to sell surplus uranium 
from its inventory in the USEC Privatization Act of 1996 
(Public Law 104-134) as long as certain conditions are met. 
Section 3112(d) of the Act provides that ``no sale or transfer 
of natural or low-enriched uranium shall be made unless--(A) 
the President determines that the material is not necessary for 
national security needs, (B) the Secretary determines that the 
sale of the material will not have an adverse material impact 
on the domestic uranium mining, conversion, or enrichment 
industry, taking into account the sales of uranium under the 
Russian HEU Agreement and the Suspension Agreement, and (C) the 
price paid to the Secretary will not be less than the fair 
market value of the material.''
    The conditions contained in the USEC Privatization Act are 
intended to protect various interests; first, the national 
security interest, since the President must determine that the 
material is not necessary for national security needs before a 
sale can take place; second, assuring that sales do not have an 
adverse material impact on the domestic uranium industry, since 
a precondition for any sale is a determination by the Secretary 
that sale of the material would not have an adverse material 
impact on the domestic mining, conversion, and enrichment 
industry; and third, the taxpayer interest, by requiring that 
the price paid to the Secretary will not be less than the fair 
market value of the material.
    Proposals to sell surplus uranium are not new. The USEC 
Privatization Act of 1996 permitted DOE to sell surplus uranium 
subject to certain conditions, and the Department has taken 
steps to sell 3.2 million pounds of uranium in Fiscal Year 
1997. In January 1997, the Secretary issued a finding that 
sales at that level would not have an adverse material impact 
on the domestic uranium industry, and DOE is proceeding with 
that sale. In addition, the Fiscal Year 1997 Energy and Water 
Development Appropriations Act of 1996 (Public Law 104-206) 
provided that ``revenues received from the Department for 
uranium programs [including sales of uranium] and estimated to 
total $42,200,000 in fiscal year 1997, shall be retained and 
used for the specific purpose of offsetting costs incurred by 
the Department for such activities, notwithstanding the 
provisions of 31 U.S.C. 3302(b) and 42 U.S.C. 2296(b)(2).'' 
Further, the President has proposed selling larger amounts of 
surplus uranium through 2002.
    Subtitle C directs the Department of Energy (DOE) to sell 
3.2 million pounds of surplus natural and low-enriched uranium 
per year during the period Fiscal Year 1999 through Fiscal Year 
2002 at not less than fair market value, subject to a 
determination that such sale or sales would not have an adverse 
material impact on the domestic uranium mining, conversion, or 
enrichment industry.
    Subtitle C is consistent with the USEC Privatization Act. 
First, only those materials already determined by the President 
to be surplus can be sold by the Department under Subtitle C. 
This determination was made through a process involving the 
President's Nuclear Weapons Council and the Department of 
Energy, resulting in a finding that the Department has 21.5 
million pounds of surplus natural and low-enriched uranium. 
Second, the Secretary must make the same determination as 
required by section 3112(d)(2)(B) of the USEC Privatization Act 
before any sales can take place. Third, Subtitle C requires 
that sales be ``made at a price not less than the fair market 
value of the uranium and in a manner that maximizes proceeds to 
the Treasury.'' Uranium is a commodity whose market price is 
well-established.
    Subtitle C directs the Secretary to make a single 
determination under section 3112(d)(2)(B) of the USEC 
Privatization Act of 1996 for the period Fiscal Year 1999 
through Fiscal Year 2002. This permits the Department to engage 
in spot sales, short-term sales, long-term sales, or any 
combination of the above, as long as sales are ``made at a 
price not less than the fair market value of the uranium and in 
a manner that maximizes proceeds to the Treasury.'' A 
determination that covers the period Fiscal Year 1999 through 
Fiscal Year 2002 permits the Department to engage in advance 
sales for delivery in future years. It is believed that advance 
sales will provide greater stability for uranium prices, while 
spot sales may exacerbate the volatility of spot market prices.
    The Committee expects the Department will exercise this 
discretion in a manner that maximizes proceeds to the Treasury. 
For example, if the Department can maximize proceeds by 
engaging in long-term sales compared to other alternatives, the 
Committee expects the agency will favor long-term sales over 
spot market and short-term sales. Moreover, sales of surplus 
uranium under Subtitle C are not required until Fiscal Year 
1999, which enables the Departmentto time future sales to 
obtain the best price over the period Fiscal Year 1999 through Fiscal 
Year 2002.
    Importantly, sales of surplus uranium under Subtitle C are 
much less than the levels proposed by the Administration. The 
President proposed selling up to $100 million in surplus 
uranium per year during Fiscal Years 1998 through 2001, and 
$200 million in Fiscal Year 2002. By contrast, sales under 
Subtitle C are expected to generate about $45 million per year 
in revenue. Sales at the level proposed by the President and 
considered by the Department may not only have an adverse 
material impact on the uranium mining, conversion, and 
enrichment industry, but also significantly lower uranium 
prices and fail to maximize proceeds to the Treasury from 
sales.
    In addition, Subtitle C provides for sale of only a portion 
of DOE's surplus uranium. The President has declared 21.5 
million pounds of natural uranium equivalent to be surplus, but 
Subtitle C provides for sales of roughly half of this existing 
surplus. The Department retains its authority to sell 
additional amounts of surplus uranium under the USEC 
Privatization Act, as long as such sales are consistent with 
section 3112(d) of that Act.
    Analysis by the Department of Energy indicated sales of 3.2 
million pounds in 1997 will have an immaterial impact on 
domestic uranium prices, reducing projected prices by less than 
one percent. In addition, the Department estimated a 3.2 
million pound sale would reduce production by about 1.2 
percent. Significantly, both these fluctuations are well within 
the yearly fluctuations in price and production experienced by 
the domestic uranium mining industry and are not expected to 
adversely affect domestic uranium produces. Sales at higher 
levels--such as proposed by the President and under 
consideration by the Department--may have a significant adverse 
impact on uranium prices. The Department has indicated it will 
mitigate the impact of sales on the uranium conversion industry 
through selling the uranium conversion component separate from 
the natural uranium component. The Department projects there 
will be no adverse material impact on the domestic uranium 
enrichment industry from sales of surplus natural uranium.
    Sales under Subtitle C are limited to 12.8 million pounds 
of the 21.5 million pounds determined by the President to be no 
longer needed for national security needs. Subtitle C does not 
direct the Department to sell any material derived from Russian 
highly-enriched uranium under the Russian HEU Agreement, the 
Suspension Agreement, and the terms of the USEC Privatization 
Act of 1996. Disposition of highly-enriched uranium received 
from Russia will continue to be governed by the Russian HEU 
Agreement, the Suspension Agreement, and the USEC Privatization 
Act.
    The Committee observes that the sale of surplus uranium 
assets is a very different situation than that presented by the 
sale of Conrail or the Naval Petroleum Reserves. These 
instances involved sales of enterprises operated by the Federal 
government, not the sale of surplus assets no longer needed to 
discharge the missions of the Department. The Department has 
only two options with respect to surplus uranium: (1) continue 
to store and maintain surplus uranium at the expense of 
taxpayers; or (2) sell these surplus assets at a fair market 
price and in a manner that maximizes the proceeds to the 
Treasury. Subtitle C directs the Department to pursue the 
latter course of action.
    The valuation of surplus uranium is not a difficult matter, 
since it is a commodity with well-established prices. By 
contrast, there were great difficulties determining the value 
of Conrail and the Naval Petroleum Reserves. For that reason, 
the taxpayer protections are different. Subtitle C bars sales 
of surplus uranium at less than fair market value. This 
protects the taxpayer interest, because the fair market value 
of uranium can be easily determined. The taxpayer protections 
for the sale of the Naval Petroleum Reserves were different 
because the value of the Naval Petroleum Reserves was much more 
difficult to determine.

                                Hearings

    The Committee's Subcommittee on Energy and Power did not 
hold hearings on Subtitle C. The Subcommittee held hearings on 
Privatization of the United States Enrichment Corporation on 
February 24, 1995.

                        Committee Consideration

    On June 5, 1997, the Subcommittee on Energy and Power met 
in open session and approved for Full Committee consideration a 
Committee Print entitled ``Title III, Subtitle C--Sale of DOE 
Assets,'' without amendment, by a voice vote. On June 11, 1997, 
the Committee met in open session and ordered Subtitle C 
transmitted to the House Committee on the Budget, as amended, 
for inclusion in the 1997 Omnibus Budget Reconciliation Act, by 
a voice vote, a quorum being present.

                            Roll Call Votes

    Clause 2(l)(2)(B) of rule XI of the Rules of the House of 
Representatives requires the Committee to list the recorded 
votes on the motion to report legislation and amendments 
thereto. There were no recorded votes taken in connection with 
ordering Subtitle C transmitted to the House Committee on the 
Budget. A motion by Mr. Bliley to order Subtitle C transmitted 
to the House Committee on the Budget, as amended, for inclusion 
in the 1997 Omnibus Budget Reconciliation Act was agreed to by 
a voice vote, a quorum being present. The roll call vote and 
voice votes on amendments for Subtitle C, including the names 
of those Members voting for and against, are as follows:


       Committee on Commerce--105th Congress Voice Votes, 6/11/97

    Bill: Committee Print entitled ``Title III, Subtitle C--
Sale of DOE Assets''
    Amendment: Amendment in the Nature of a Substitute by Mr. 
Schaefer re: narrow the sale requirement to sales of natural 
and low-enriched uranium deemed surplus by the Department of 
Energy.
    Disposition: Agreed to, by a voice vote.
    Motion: Motion by Mr. Bliley to order the Committee Print 
entitled ``Title III, Subtitle C--Sale of DOE Assets'', 
amended, transmitted to the Committee on the Budget for 
inclusion in the 1997 Omnibus Budget Reconciliation Act.
    Disposition: Agreed to, by a voice vote.

                      Committee Oversight Findings

    Pursuant to clause 2(l)(3)(A) of rule XI of the Rules of 
the House of Representatives, the Committee has not held 
oversight or legislative hearings on this Subtitle.

              Committee on Government Reform and Oversight

    Pursuant to clause 2(l)(3)(D) of rule XI of the Rules of 
the House of Representatives, no oversight findings have been 
submitted to the Committee by the Committee on Government 
Reform and Oversight.

                        Committee Cost Estimate

    In compliance with clause 7(a) of rule XIII of the Rules of 
the House of Representatives, the Committee believes that 
enactment of Subtitle C would result in no additional costs to 
the Federal government.

                  Congressional Budget Office Estimate

    Pursuant to clause 2(l)(3)(C) of rule XI of the Rules of 
the House of Representatives, a letter from the Congressional 
Budget Office providing a cost estimate for all six subtitles 
of Title III is attached.

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 16, 1997.
Hon. Tom Bliley,
Chairman, Committee on Commerce,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for the non-Medicare 
reconciliation recommendations of the House Committee on 
Commerce (Title III). The estimate for the committee's 
recommendations for Medicare (Title IV) is being provided under 
separate cover.
    The estimate includes a summary table that shows the 
budgetary effects of the committee's proposals over the 1998-
2002 period, and additional, more detailed tables of estimated 
effects through 2007. CBO understands that the Committee on the 
Budget will be responsible for interpreting how these proposals 
compare with the reconciliation instructions in the budget 
resolution. This estimate assumes the reconciliation bill will 
be enacted by August 15, 1997; the estimate could change if the 
bill is enacted later.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are listed at 
the end of the estimate.
            Sincerely,
                                         June E. O'Neill, Director.
    Enclosure.

Non-Medicare Reconciliation Recommendations of the House Committee on 
        Commerce (Title III)

    Summary: Title III contains five subtitles aimed at 
providing budgetary savings from federal energy programs, 
auctions of licenses for use of portions of the electromagnetic 
spectrum, and Medicaid. A sixth subtitle would provide for 
increased direct spending by funding a child health care 
initiative. CBO estimates that enacting the provisions of Title 
III would product net budgetary savings totaling $6.9 billion 
over the 1998-2002 period.
    By extending the Nuclear Regulatory Commission's (NRC's) 
authority to collect fees from utilities. Subtitle A would 
impose an intergovernmental and private-sector mandate as 
defined by the unfunded Mandates Reform Act of 1995 (UMRA). 
This provision would not impose costs above the threshold 
established in that law for intergovernmental mandates ($50 
million in 1996, adjusted for inflation). CBO cannot determine 
whether the direct costs of this provision would exceed the 
annual threshold for private-sector mandates ($100 million in 
1996, adjusted for inflation), because UMRA is unclear as to 
how to define the direct cost associated with extending an 
existing mandate that has not yet expired. Depending on how 
they are measured, the direct costs to the private sector could 
exceed the threshold. Other subtitles of Title III contain 
provisions that, while not mandates as define in UMRA, would 
have significant impacts on the budgets of state, local, and 
tribal governments.
    Description of majors provisions: Subtitle A would extend 
through 2002 the NRC's authority to charge fees to offset 100 
percent of its general fund appropriation.
    Subtitle B would revise the terms under which the 
Department of Energy (DOE) could lease excess capacity of the 
Strategic Petroleum Reserve (SPR) to foreign governments and 
would direct the department to spend any income derived from 
leasing after fiscal year 2002 on SPR-related activities 
without further appropriation. The fees charged for storage 
would have to fully compensate the United States for all of the 
costs associated with storing and removing the oil, including 
the cost of replacement facilities, if necessitated by the 
leasing activity.
    Subtitle C would direct DOE to sell specified amounts of 
natural and low enriched uranium that have been declared 
surplus to national security needs. DOE would be required to 
sell 3.2 million pounds during each of the fiscal years 1999 
through 2002, subject to certain conditions. In particular, 
before selling the uranium, DOE would have to determine that 
selling the specified amounts over the 1999-2002 period would 
satisfy existing statutory criteria regarding the sale of such 
materials from DOE's stockpiles, and proceeds from the sales 
would have to be collected and deposited in the general fund of 
the Treasury between 1999 and 2002.
    Subtitle D contains several provisions relating to 
assignment of licenses for using the electromagnetic spectrum. 
It would instruct the Federal Communications Commission (FCC) 
to use competitive bidding to assign licenses for most mutually 
exclusive applications of the electromagnetic spectrum and it 
would extend the FCC's authority to conduct such auctions 
through fiscal year 2002. Under current law, that authority 
expires at the end of fiscal year 1998. The subtitle also would 
amend current law by broadening the commission's authority to 
use competitive bidding to assign licenses. Current law 
restricts the use of competitive bidding to those mutually 
exclusive applications in which the licensee would receive 
compensation from subscribers to a communications service.
    In addition, Subtitle D would require the FCC and the 
Department of Commerce, through the National Telecommunications 
and Information Administration (NTIA), to make available blocks 
of spectrum for allocation for commercial use and to assign the 
rights to use those blocks by competitive bidding, if the FCC 
determines that various specified conditions are met for each 
of the blocks of spectrum identified in the subtitle. The 
additional licenses that could be assigned by competitive 
bidding would grant the right to use 100 megahertz (MHz) of 
spectrum located below 3 gigahertz (GHz) currently under the 
FCC's jurisdiction and an additional 20 MHz also below 3 GHz to 
be identified by the NTIA and transferred to the FCC's 
jurisdiction.
    Under current law, a part of the spectrum currently 
reserved for television broadcasting will become available for 
reallocation as broadcasters comply (over the next several 
years) with the FCC's direction to adopt digital television 
broadcasting technology to replace the current analog 
technology. This subtitle would make available for licensing 
and assignment by competitive bidding certain frequencies that 
are currently allocated for analog television broadcasting, 
including a part of the spectrum between 746 MHz and 806 MHz 
(frequenciescurrently allocated for primary use by ultra high 
frequency television broadcasting on channels 60 through 69).
    The requirement that the commission use competitive bidding 
to assign the rights to use the frequencies noted in Subtitle D 
would be conditional. In all cases, the FCC would be directed 
to refrain from using competitive bidding unless it determines 
that license sales granting the use of various frequencies will 
meet specified dollar targets for aggregate winning bids. In 
addition, the commission would be authorized to void the 
results of any auctions that take place but fail to meet 
targets for aggregate winning bids. Moreover, the commission 
could choose to delay assignment of licenses by competitive 
budding if it determines that conducing auctions at a later 
date ``will better attain the objectives of recovering for the 
public a fair portion of the value of the public spectrum 
resource and avoiding unjust enrichment.'' Finally, for the 
frequencies between 746 MHz and 806 MHz, the FCC would not be 
permitted to make allocations and assign licenses by auction 
unless each qualifying low-power television station (as defined 
in the title) is assigned a frequency below 746 MHz to continue 
its operation.
    Subtitle E would reduce federal payments for 
disproportionate share hospitals (DSH). Except for states whose 
DSH spending in 1995 was under 1 percent of medical assistance 
spending, state allotments would depend on whether a state was 
designated as a high- or low-DSH state in 1997. For high-DSH 
states, allotments would equal each state's 1995 DSH spending 
reduced by 2 percent in 1998, with larger reductions in later 
years, reaching 40 percent in 2002. For low-DSH states, the 
state allotment would equal the state's 1995 spending reduced 
by half of the percentage reduction applied to high-DSH states.
    This subtitle also includes provisions giving states 
greater flexibility in how they administer their Medicaid 
programs. The Boren amendment, which requires states to 
reimburse hospitals and nursing homes at ``reasonable and 
adequate'' rates, would be repealed. States would also have 
greater leeway to implement managed care programs, expand 
eligibility, change benefits, and meet federal requirements for 
administrative activities.
    Subtitle F establishes a Child Health Assistance Program 
that would provide matching grants to states for the provision 
of child health care assistance to uninsured, low-income 
children. The money would be allocated on the basis of 
participating states' shares of the total number of uninsured 
children, adjusted for the average cost of health care. The 
state matching requirement would be 20 percent. States would 
have substantial discretion in how to spend these funds, and 
could use them to purchase health insurance coverage from group 
plans, arrange for health care services directly through 
providers, expand their Medicaid programs, or use other 
approved methods.
    Estimated cost to the Federal Government: CBO estimates 
that the provisions of Title III would reduce direct spending 
by $6.7 billion over the next five years. That estimated impact 
would come from enacting Subtitles B, D, E, and F. In addition, 
we estimates that enacting Subtitle C would yield $184 million 
in asset sale proceeds over the same period. Gross budgetary 
savings would total $24.5 billion over the 1998-2002 period, 
but that amount would be partially offset by new direct 
spending, primarily under Subtitle F, totaling $17.6 billion 
over the same period. Enacting Subtitle A would, by itself, 
have no budgetary impact relative to the budget resolution 
baseline.
    Table 1 summarizes the estimated budgetary impact of Title 
III over the 1998-2002 period. More detailed tables showing 
estimated budgetary effects through 2007 appear at the end of 
this estimate. Table 2 summarizes the 10-year budgetary effects 
by subtitle. Table 3 displays detailed estimates for Subtitle D 
(Communications), while Table 4 presents detailed estimates for 
Subtitle E (Medicaid).
    The budgetary effects of this legislation fall within 
budget functions 270 (energy), 370 (commerce and housing 
credit), 550 (health), and 950 (undistributed offsetting 
receipts).
    Basis of estimate:

       nuclear regulatory commission annual charges (subtitle a)

    This provision would extend through 2002 the NRC's 
authority to charge fees to offset 100 percent of its general 
fund appropriation. Under current law, after 1998 the NRC would 
be authorized to set fees on the industries it regulates 
sufficient to cover only 33 percent of its budget. Because the 
amount of fees collected under this provision would be 
determined by the size of the NRC's general fund appropriation, 
this provision would not affect direct spending.
    Assuming future appropriations for the NRC continue at the 
1997 level adjusted for inflation, enactment of this provision 
would increase offsetting collections by an average of about 
$340 million annually over the 1999-2002 period. Under rules 
for projecting discretionary spending established in the Budget 
Enforcement Act of 1990, however, the baseline projection of 
NRC spending for the 1998-2002 period is based on the agency's 
net spending level in 1997. Because the 1997 level reflects fee 
collections sufficient to offset 100 percent of the NRC's 
general fund appropriations, the provision to extend full-cost 
recovery does not produce any discretionary savings relative to 
the budget resolution baseline.

 TABLE 1.--ESTIMATED BUDGETARY IMPACT OF THE NON-MEDICARE RECONCILIATION RECOMMENDATIONS OF THE HOUSE COMMITTEE 
                                                   ON COMMERCE                                                  
                                    [By fiscal year, in millions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                                                  1998      1999      2000      2001      2002  
----------------------------------------------------------------------------------------------------------------
                                           CHANGES IN DIRECT SPENDING                                           
Subtitle B: Lease of Excess SPR Capacity:                                                                       
    Estimated budget authority................................         0        -1        -2        -4        -6
    Estimated outlays.........................................         0        -1        -2        -4        -6
Subtitle D: Receipts from Spectrum Auctions:                                                                    
    Estimated budget authority................................         0      -800    -2,100    -3,000    -3,800
    Estimated outlays.........................................         0      -800    -2,100    -3,000    -3,800
Subtitle E: Medicaid:                                                                                           
    Estimated budget authority................................       260      -700    -2,360    -3,620    -4,960
    Estimated outlays.........................................       260      -700    -2,360    -3,620    -4,960
Subtitle F: State Child Health Coverage:                                                                        
    Estimated budget authority................................     2,880     2,880     2,880     2,880     2,880
    Estimated outlays.........................................     2,880     2,880     2,880     2,880     2,880
Total Proposed Changes in Direct Spending:                                                                      
    Estimated budget authority................................     3,140     1,379    -1,582    -3,744    -5,886
    Estimated outlays.........................................     3,140     1,379    -1,582    -3,744    -5,886
                                                                                                                
                                            RECEIPTS FROM ASSET SALES                                           
                                                                                                                
Subtitle C: Sale of DOE Assets:                                                                                 
    Estimated budget authority................................         0       -10       -52       -52       -70
    Estimated outlays.........................................         0       -10       -52       -52       -70
                                                                                                                
                                  ADDITIONAL SPENDING SUBJECT TO APPROPRIATION                                  
                                                                                                                
Subtitle D: Spectrum Auction Expenses:                                                                          
    Estimated budget authority................................        12        12        12        12        12
    Estimated outlays.........................................        11        12        12        12        12
----------------------------------------------------------------------------------------------------------------

               lease of excess spr capacity (subtitle b)

    This subtitle would remove some of the statutory 
impediments to leasing the excess capacity of the SPR to 
foreign governments. For example, products stored on behalf of 
foreign governments would not be considered part of the U.S. 
reserve and could be exported. Estimates of how much of the 
excess capacity (currently about 110 million barrels) would be 
leased are speculative, because the decision to lease resides 
with foreign governments, not DOE. At this time, most nations 
needing capacity either have plans for domestic storage or face 
regulatory barriers to using U.S. facilities. CBO expects, 
however, that one or more nations would chose to store small 
quantities of oil in the SPR to accommodate growth in their 
storage requirements or to satisfy other strategic objectives. 
We estimate that such leasing activity would generate receipts 
totaling about $13 million over the 1999-2002 period, assuming 
a storage fee of about $1.20 per barrel (in 1997 dollars). 
Beginning in 2003, this provision would no longer generate net 
receipts because DOE would be authorized to spend the proceeds 
from leasing to purchase oil for the reserve without further 
appropriation.

                    sale of doe assets (subtitle c)

    CBO estimates that enacting Subtitle C would generate asset 
sale proceeds totaling $184 million over the 1992-2002 period. 
Under current law, DOE is required to sell uranium from its 
stockpile to raise a total of $77 million to offset 
appropriations provided for fiscal years 1996 and 1997. CBO 
projects that DOE will sell about three million pounds of 
uranium in 1998 and about 1.5 million pounds in 1999 to meet 
the $77 million target in current law. Based on recent 
departmental findings supporting that effort, CBO expects that, 
under the conditions specified in this subtitle, the Secretary 
could justify selling a total of 3.2 million pounds per year 
through 2002. Because we expect DOE to be marketing about 1.5 
million pounds in 1999 under current law, we assume that DOE 
would sell slightly less than 2 million pounds under this new 
authority that year. Hence, the estimate of $184 million in 
proceeds attributable to Subtitle C is based on an assumed 
sales total of about 11 million pounds of uranium over the 
1999-2002 period. Based on information provided by the 
department and committee staff, we assume that the uranium 
being sold as a result of this provision would be in addition 
to the Russian-derived uranium that must be sold over the same 
period. Finally, the spending required to conduct the sale 
would have not net effect on outlays, because this bill would 
require DOE to finance such costs using unobligated balances 
that otherwise would have been spent on other activities.

              receipts from spectrum auctions (subtitle d)

    CBO estimates that the federal government would collect 
$9.7 billion in offsetting receipts over the 1998-2002 period 
from enacting the provisions contained in Subtitle D. This 
estimate reflects the likelihood that some of the auctions 
authorized by the subtitle would either not occur in the next 
five years or would yield relatively low aggregate winning 
bids. CBO believes that significantly higher aggregate auction 
receipts could be obtained under auction authority without the 
restrictions included in Subtitle D. Estimates for the major 
components of Subtitle D are discussed below and displayed in 
Table 3.
    CBO expects that extending and broadening the FCC's 
authority to auction licenses through 2002 (under section 3301) 
would increase receipts by $5.8 billion over the 1998-2002 
period. Most of the estimated receipts would be generated by 
the auction of licenses permitting the use of frequencies above 
3 GHz that have not been specifically designated for 
reallocation or auction under existing law. CBO anticipates 
that, in complying with its mandate to assign licenses for most 
mutually exclusive applications of the spectrum by competitive 
bidding, the commission will make available such frequencies 
under the general authority provided by this section.
    In addition, CBO estimates that the provisions of section 
3301 that require the FCC to use competitive bidding to assign 
the rights to use 120 MHz of frequencies below 3 GHz (100 MHz 
to be reallocated by the FCC and 20 MHz to be identified by the 
NTIA) would generate receipts of $3.2 billion over the 1998-
2002 period. This estimate reflects the significant probability 
that some auctions would not be held in the next five years and 
that some would be voided under the conditions set forth in the 
legislation. CBO's estimate of receipts for future FCC auctions 
is based on the expectation that prices for FCC licenses will 
fall from the levels of recent years as more spectrum is 
brought to the market. CBO has further reduced its estimate for 
the 102 MHz of spectrum identified for auction in this subtitle 
because the legislation does not specify the location on the 
electromagnetic spectrum for 55 MHz of the 100 MHz that it 
would require the commission to reallocate and auction. There 
is some doubt as to whether sufficient spectrum can be 
identified and auctioned to meet the 120 MHz target. Moreover, 
the subtitle directs the commission to refrain from holding 
auctions under certain circumstances, and authorizes it to void 
the results of auctions if the targeted level of two-thirds of 
$7.5 billion in aggregate winning bids is not achieved. These 
provisions create the prospect that the commission will decide 
not to conduct some auctions and will void the results of 
others. Our estimate reflects these uncertainties.
    CBO estimates that enacting section 3302, which pertains to 
the recovery and auction of frequencies now allocated for 
analog television broadcasting, would yield $700 million 
inauction receipts. This section requires the FCC to delay the recovery 
of the frequencies used by analog TV broadcasters in a market beyond 
December 31, 2006, if more than 5 percent of households in that market 
continue to rely exclusively on over-the-air terrestrial analog 
television signals. It would therefore significant uncertainty as to 
when bidders would be able to use the frequencies and could reduce 
auction receipts by 50 percent or more. Accordingly, the $700 million 
figure reflects (1) the possibility that the FCC might refrain from 
conducting the auction, (2) a lower estimate of the likely receipts if 
the commission holds the auction, and (3) the possibility that the 
commission would void the auction results because receipts would fall 
below the target of two-thirds of $4 billion.
    CBO estimates that no receipts would result from enacting 
section 3303, which pertains to the current television 
frequencies between 746 MHz and 806 MHz. Subsection (f) would 
require the FCC to assign each qualifying low-power television 
station a frequency below 746 MHz to permit continued operation 
before it allocates and assigns by auction any new licenses in 
the 746 MHz to 806 MHz range. Based on information from the 
FCC, CBO believes that there is not enough free spectrum below 
746 MHz to allow the commission to carry out that requirements.

                         Medicaid (Subtitle E)

    Subtitle E includes provisions to give states greater 
leeway in how they administer their Medicaid programs, maintain 
quality assurance, and reduce federal payments for 
disproportionate share hospitals (DSH). Some of these 
provisions would not significantly affect spending and others 
would increase spending. On balance, however, the subtitle 
would reduce federal outlays by $11.4 billion over the 1998-
2002 period (see Table 4). The assumptions underlying the 
estimates of costs or savings for provisions that would affect 
federal spending are described below.

                  Chapter 1--State Flexibility Reforms

    The provisions in this chapter would give states increased 
flexibility to implement managed care programs, set payment 
rates, expand eligibility, implement programs of all-inclusive 
care for the elderly (PACE), change benefit requirements; and 
meet federal requirements for administrative activities.
    Determination of Hospital Stay.--CBO estimates that 
requiring Medicaid health plans to allow physicians or other 
attending health care providers and patients to determine the 
appropriate length of inpatient hospital stays would increase 
costs by $0.8 billion over five years. This provision would 
lead to an increase in the number of inpatient days, with the 
result that states would have to pay health plans higher 
capitation rates to cover enrollees.
    Payment for Federally Qualified Health Care Services 
(FQHCs).--This provision would phase out over five years the 
requirement that states reimburse rural health clinics (RHCs) 
and most federally qualified health centers on a cost basis. 
The provision would eliminate cost-based reimbursement for 
organizations designated by the Health Resources and Services 
Administration as look-alike FQHCs. Without the requirement 
that payments reflect costs, CBO assumes that states would 
lower reimbursement rates to FQHCs and RHCs to be more 
consistent with overall Medicaid payment rates at the end of 
the phase-out period. CBO estimates that this provision would 
reduce Medicaid costs by $0.3 billion over the next five years.
    Repeal the Boren Amendment.--The Boren Amendment requires 
states to reimburse hospitals and nursing homes at rates that 
are ``reasonable and adequate to meet the costs which must be 
incurred by efficiently and economically operated facilities in 
order to provide care and services in conformity with 
applicable state and federal laws, regulations, and quality and 
safety standards.'' Many states have argued that suits or 
threats of suits under the Boren Amendment have been an 
important cause of rapid increases in provider reimbursement 
rates.
    CBO estimates that the repeal of the Boren Amendment would 
reduce spending by about $1.2 billion over the 1998-2002 
period. This estimate assumes that reimbursement rates for 
institutional providers would increase more slowly than if 
providers could continue to use the threat of Boren suits as 
leverage against the states. About 40 percent of the savings 
would come from payments to hospitals and 60 percent would come 
from payments to nursing homes.
    Although payments to these providers are generally 
increasing overall, CBO's projections of Medicaid spending 
under current law assume that some states reduce provider 
reimbursement rates in any given year. Accordingly, the floor 
would increase costs slightly in 1998 because it would prevent 
these states from reducing rates.
    12-Month Continuous Coverage.--This provision would allow 
states to enroll children for the entire year without regard to 
changes in the incomes of their families. Under current law, 
CBO estimates that children stay enrolled in the Medicaid 
program for an average of 9 months in any year. If all states 
opted to extend coverage for an entire year, Medicaid costs 
would increase by almost $14 billion. However, because this 
option would be so costly--and because few states take 
advantage of the option to provide 6-month continuous coverage 
under Section 1115 or Section 1915(b) waivers--CBO estimates 
that states accounting for only 5 percent of total costs would 
choose the option. Thus, this provision would cost $0.7 billion 
over the 1998-2002 period.
    This provision would increase the average number of 
children enrolled on the Medicaid program in any month by 
130,000. But because some of these children would otherwise 
have been insured, the number of children would decline by 
about 80,000.
    Payment of Home Health Related Medicare Part B Premium.--
This provision would expand the Specified Low-Income Medicare 
Beneficiary (SLMB) program, which pays the Medicare Part B 
premium for Medicaid enrollees with family incomes between 100 
percent and 120 percent of the poverty level. Under the 
provision, the federal government would reimburse states for 
100 percent of costs for the portion of the Medicare Part B 
premium attributable to home health spending for enrollees with 
family incomes between 120 and 175 percent of the federal 
poverty level. CBO estimates that federal outlays would 
increase by $0.5 billion over the 1998-2002 period.
    Physician Assistants.--Expanding Medicaid benefits for 
services of physician assistants would increase costs by $0.1 
billion during the 1998-2002 period. Although most state 
Medicaid programs already pay for these services, there are 
several states for which this policy would represent a change 
from current law. CBO's estimate accounts for costs due to 
increased demand for physician assistant services that would 
accompany this policy change in these states and, to a lesser 
degree, for induced demand in the other states that would occur 
with the inclusion of this provision. Half of the costs 
attributable to new demand for services would be offset by 
lower spending for physician services that are covered under 
current law.

                      chapter 2--quality assurance

    CBO estimates that the application of the prudent layperson 
standard for emergency medical conditions to contracts with 
Medicaid HMOs would increase costs by $0.1 billion over five 
years. This provision would increase managed care plans' 
liability for emergency room use and, therefore, increase 
premiums for Medicaid managed care plans and thus federal 
spending.

                      chapter 3--federal payments

    This chapter specifies allotments that would limit the 
amount of federal reimbursement available for state 
disproportionate share hospital (DSH) programs over the 1998-
2002 period. The bill classifies states into three categories 
according to how their DSH spending compared with total medical 
assistance payments. The allotment for a state whose DSH 
spending in 1995 was under 1 percent of medical assistance 
spending that year would equal the state's 1995 amount. The 
allotment for a state designated as a high-DSH state in 1997--
one whose DSH payments were greater than 12 percent of medical 
assistance payments--would equal the state's 1995 spending 
reduced by 2 percent in 1998, 5 percent in 1999, 20 percent in 
2000, 30 percent in 2001 and 40 percent in 2002 and subsequent 
years. The allotment for any other state would equal the 
state's 1995 spending reduced by half of the percentage 
reduction applied to high-DSH states. The bill also specifies 
that DSH payments would be made directly to hospitals and not 
included in the capitation payments for managed care plans. 
This chapter also includes provisions that would guarantee that 
DSH payments to certain children's and teaching hospitals be no 
less than DSH payments made to such hospitals in 1995 for 
fiscal year 1999. This amount would be increased by overall 
Medicaid growth for subsequent years.
    CBO estimates that these provisions would reduce federal 
outlays by $13.1 billion over the 1998-2002 period. This 
estimate takes into account state responses to the reduced 
availability of DSH money and interactions with the Child 
Health Assistance Program (CHAP) in Subtitle F of the bill. It 
is based on the preliminary designations of high- and low-DSH 
states published in the Federal Register on January 31, 1997.
    By itself, a policy to limit DSH spending would not be 
fully effective because states could restore some of the lost 
federal revenues by increasing their use of intergovernmental 
transfers or Medicaid maximization techniques. 
(Intergovernmental transfers are a process by which public 
hospitals or other public facilities transfer money to the 
state, which then uses these funds to make DSH payments--mainly 
to those same facilities--and receives federal matching dollars 
for those payments. Medicaid maximization refers to states 
shifting to the Medicaid program activities that were 
previously financed without federal assistance.) CBO estimates 
that these strategies would reduce the savings from limits on 
DSH spending by 25 percent. In this case, however, states would 
not feel the full effects of the limits because some of their 
CHAP funds could be used for existing state activities, such as 
health insurance programs or direct provision of health care 
services to uninsured children. Because of this flexibility, 
the reduction in payments to states to which CBO applies the 25 
percent factor is smaller, and net federal savings from 
limiting DSH spending are larger than would be the case for a 
stand-alone policy.
    Finally, this subtitle would provide $20 million a year to 
be allocated among the 12 states with the highest number of 
undocumented aliens for emergency health services provided to 
them.

          child health assistance program (chap)--(subtitle f)

    The Child Health Assistance Program would provide funds 
enabling states to initiate and expand the provision of child 
health care assistance to uninsured, low-income children. The 
bill would provide $2.9 billion per year ($14.4 billion over 
the 1998-2002 period) to finance these activities. Of this 
amount, 0.5 percent would be allocated to the territories. 
Theremaining money would be distributed according to each state's share 
of the total number of uninsured children in all states, adjusted for 
the average cost of health care. The state matching requirement would 
be 20 percent.
    The bill would provide states with a great deal of 
flexibility in how to spend these funds. State could purchase 
health insurance coverage from group plans, arrange for health 
care services directly through providers, expand their Medicaid 
programs, or use other methods approved by the Secretary. CBO 
makes no specific assumption about which approach states would 
choose. However, CBO assumes it unlikely that states would opt 
to use their state allocations to expand the Medicaid program.
    Given the range of options from which a state could choose, 
the number of children who would be covered under the programs 
cannot be estimated with precision. Whereas some states would 
choose to purchase insurance coverage, others might choose to 
provide health care services directly. Access to health care 
for uninsured children would increase under both approaches, 
but only the former approach would be counted as an increase in 
health insurance coverage. Further, not all of this spending 
would represent a net increase in health care services. CBO 
assumes that states would use some of the money to substitute 
for funds that are currently being spent on these services, 
including payments to disproportionate share hospitals, state 
health programs, and administrative activities.
    After accounting for spending on the provision of direct 
services and other activities, CBO assumes that states could 
cover about 500,000 children through new health insurance 
programs. In addition, CBO estimates that in the process of 
enrolling children in these programs, states would identify 
some children who were eligible for Medicaid and would enroll 
them in that program. As a result, federal Medicaid outlays 
would increase by $0.7 billion over the 1998-2002 period; on a 
full-year equivalent basis, Medicaid enrollment would increase 
by about 125,000 children annually. Not all of the children 
newly enrolled in State programs or Medicaid would otherwise 
have been uninsured, however, so that the net effect of this 
provision would be to reduce the number of uninsured children 
by about 380,000.
    Subtitle F would also allow states the option to provide 
Medicaid coverage to children during a period of presumptive 
eligibility. CBO estimates that this provision would increase 
federal costs of $0.5 billion over five years. Of this amount, 
$0.1 billion would be deducted from states' CHAP allotments for 
spending during a period of presumptive eligibility. The 
remaining $0.4 billion would be attributable to an overall 
increase in Medicaid enrollment. (These costs are shown under 
Subtitle E in Table 4.) CBO assumes that states would limit the 
entities authorized to determine eligibility to those who 
currently so do for pregnant women.
    Estimated impact on State, local, and tribal governments: 
By extending the NRC's authority to collect fees from publicly 
owned utilities, Subtitle A would impose an intergovernmental 
mandate as defined by UMRA, but this mandate would not impose 
costs above the threshold established in that law ($50 million 
in 1996, adjusted for inflation). Other subtitles of Title III 
contain provisions that would have significant impacts on the 
budgets of state, local, and tribal governments.

                                mandates

    Subtitle A would extend, through fiscal year 2002, the 
NRC's authority to charge fees to offset 100 percent of its 
general fund appropriation. The existing authority to charge 
these fees expires after fiscal year 1998. After that year, NRC 
would be authorized to set fees equal to only 33 percent of its 
budget. CBO cannot determine whether this mandate would impose 
any direct costs because UMRA is unclear as to how to define 
costs associated with extending an existing mandate that has 
not yet expired.
    In any case, this mandate would impose costs on state, 
local and tribal governments significantly below the threshold 
established by UMRA. The amount of fees collected under this 
provision would depend on the level of future appropriations. 
Assuming appropriations remain at the 1997 level, adjusted for 
inflation, CBO estimates that this provision would result in 
additional collections of about $340 million annually over the 
1999-2002 period. CBO estimates that a small percentage of 
these fees--less than five percent--would be paid by publicly 
owned utilities, so this provision would result in additional 
costs to state, local, and tribal governments totaling no more 
than $20 million per year.

                       other significant impacts

    Communications (Subtitle D).--This subtitle would instruct 
the FCC to allocate a portion of the spectrum to state and 
local governments for public safety services. It would also 
allow state and local governments to use unassigned radio 
frequencies for public safety purposes under certain 
circumstances.
    Medicaid (Subtitle E).--By expanding benefits and 
eligibility, CBO estimates that this subtitle would increase 
net state Medicaid spending excluding DSH. The subtitle would 
also decrease the federal government's share of DSH payments by 
$13.1 billion over the next five years but contains a provision 
that would require states to maintain their DSH payments to 
certain teaching and children's hospitals at 1995 levels 
(increased annually by the rate of growth of their Medicaid 
programs). This reduction in DSH payments would not constitute 
a mandate under UMRA because reductions in federal funding to 
states for large entitlement programs are not mandates if 
states have the flexibility to reduce their own programmatic or 
financial responsibilities under the program. States have 
significant programmatic flexibility under Medicaid. Finally, 
this title would provide states with $100 million over the next 
five years to provide emergency health services to undocumented 
aliens.
    Child Health Coverage (Subtitle F).--This subtitle would 
create a new program--Child Health Assistance Program (CHAP)--
that would provide states with $14.4 billion over the next five 
years to provide assistance to low income children who are 
uninsured in obtaining health coverage. States would provide 20 
percent of this program's funding.
    Estimated impact on the private sector: CBO has identified 
one private-sector mandate in Title III. Subtitle A would 
impose a mandate on the private sector by extending the Nuclear 
Regulatory Commission's authority to collect annual charges 
from nuclear utilities, resulting in additional collections 
averaging $340 million a year from 1999 through 2002. CBO 
estimates that most of the fees would be paid by investor-owned 
nuclear utilities.
    CBO cannot determine whether the direct costs of this 
mandate would exceed the annual threshold defined in UMRA, 
because UMRA is unclear as to how to define the direct costs 
associated with extending an existing mandate that has not yet 
expired. Measured against the private-sector costs that would 
be incurred if current law remains in place and the annual fee 
declines, the total direct cost of extending this mandate would 
be about $300 million annually, beginning in fiscal year 1999. 
In this case the cost of the mandate would exceed the annual 
threshold for the private sector as defined in UMRA. By 
contrast, measured against current private-sector costs, the 
direct cost of the mandate would be zero.
    Estimate prepared by--Federal Costs: NRC Fees--Kim Cawley 
(226-2860); SPR Leasing and DOE Asset Sales--Kathleen Gramp 
(226-2860); Spectrum--Rachel Forward (226-2860); David Moore 
and Perry Beider (226-2940); Medicaid--Robin Rudowitz and 
Jeanne De Sa (226-9010); Child Health Care Initiative--Robin 
Rudowitz and Jeanne De Sa (226-9010).
    Impact on State, Local, and Tribal Governments: NRC Fees--
Marjorie Miller (225-3220); Medicaid and Child Health Care 
Initiative--John Patterson (225-3220); Other provisions--Pepper 
Santalucia (225-3220).
    Impact on the Private Sector: Medicaid and Child Health 
Care Initiative--Linda Bilheimer (226-2673); Other provisions--
Jean Wooster and Patrice Gordon (226-2940).
    Estimate approved by: Paul N. Van de Water, Assistant 
Director for Budget Analysis.

              TABLE 2.--ESTIMATED 10-YEAR BUDGETARY EFFECTS OF TITLE III: RECONCILIATION RECOMMENDATIONS OF THE HOUSE COMMITTEE ON COMMERCE             
                                                        [In millions of dollars, by fiscal years]                                                       
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                               1998-2007
                                    1998       1999       2000       2001       2002       2003       2004       2005       2006       2007      Total  
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              Summary of Changes in Direct Spending and Asset Sale Proceeds                                             
                                                                                                                                                        
Subtitle A. NRC Fees:                                                                                                                                   
    Estimated Budget Authority.      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)
    Estimated Outlays..........      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)
Subtitle B. Lease of Excess SPR                                                                                                                         
 Capacity:                                                                                                                                              
    Estimated Budget Authority.          0         -1         -2         -4         -6          0          0          0          0          0        -13
    Estimated Outlays..........          0         -1         -2         -4         -6         -6          0          0          0          0        -19
Subtitle C. Sale of DOE Assets:                                                                                                                         
    Estimated Budget Authority.          0        -10        -52        -52        -70          0          0          0          0          0       -184
    Estimated Outlays..........          0        -10        -52        -52        -70          0          0          0          0          0       -184
Subtitle D. Receipts from                                                                                                                               
 Spectrum Auctions:                                                                                                                                     
    Estimated Budget Authority.          0       -800     -2,100     -3,000     -3,800          0          0          0          0          0     -9,700
    Estimated Outlays..........          0       -800     -2,100     -3,000     -3,800          0          0          0          0          0     -9,700
Subtitle E. Medicaid:\2\                                                                                                                                
    Estimated Budget Authority.        260       -700     -2,360     -3,620     -4,960     -5,880     -6,790     -7,850     -9,010    -10,300    -51,190
    Estimated Outlays..........        260       -700     -2,360     -3,620     -4,960     -5,880     -6,790     -7,850     -9,010    -10,300    -51,190
Subtitle F. State Child Health                                                                                                                          
 Coverage:                                                                                                                                              
    Estimated Budget Authority.      2,880      2,880      2,880      2,880      2,880      2,880      2,880      2,880      2,880      2,880     28,800
    Estimated Outlays..........      2,880      2,880      2,880      2,880      2,880      2,880      2,880      2,880      2,880      2,880     28,800
Total Changes in Direct                                                                                                                                 
 Spending and Asset Sale                                                                                                                                
 Proceeds:                                                                                                                                              
    Estimated Budget Authority.      3,140      1,369     -1,634     -3,796     -5,956     -2,980     -3,910     -4,970     -6,130     -7,420    -32,287
    Estimated Outlays..........      3,140      1,369     -1,634     -3,796     -5,956     -2,986     -3,910     -4,970     -6,130     -7,420    -32,293
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Not Applicable; extension of NRC fees at their current full-cost recovery rate has no affect on direct spending because such fees are recorded in   
  the budget as offsetting collections credited to appropriations. The amount of fees that would be collected under Subtitle A would be determined by   
  the annual general fund appropriation for NRC operations.                                                                                             
\2\ These estimates assume continuation of 2002 DSH policy for 2003 through 2007.                                                                       


                           TABLE 3.--ESTIMATED 10-YEAR BUDGETARY EFFECTS OF SUBTITLE D OF TITLE III: RECONCILIATION RECOMMENDATIONS OF THE HOUSE COMMITTEE ON COMMERCE                          
                                                                            [In millions of dollars, by fiscal years]                                                                           
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                                                       1997-2007
                                                                 1997       1998       1999       2000       2001       2002       2003       2004       2005       2006       2007      Total  
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                    Estimated Budgetary Effects of Subtitle D--Communications                                                                   
                                                                                                                                                                                                
                                                                              DIRECT SPENDING (OFFSETTING RECEIPTS)                                                                             
                                                                                                                                                                                                
Auction Receipts Under Current Law:                                                                                                                                                             
    Estimated Budget Authority..............................     -9,600     -7,100     -1,600       -550       -150          0          0          0          0          0          0    -19,000
    Estimated Outlays.......................................     -9,600     -7,100     -1,800       -550       -150          0          0          0          0          0          0    -19,000
Proposed Changes:                                                                                                                                                                               
    Broaden and Extend:                                                                                                                                                                         
        Estimated Budget Authority..........................          0          0       -800     -1,500     -1,700     -1,800          0          0          0          0          0     -5,800
        Estimated Outlays...................................          0          0       -800     -1,500     -1,700     -1,800          0          0          0          0          0     -5,800
    Reallocation of 120 Mhz:                                                                                                                                                                    
        Estimated Budget Authority..........................          0          0          0       -600     -1,300     -1,300          0          0          0          0          0     -3,200
        Estimated Outlays...................................          0          0          0       -600     -1,300     -1,300          0          0          0          0          0     -3,200
    Analog Return and Channels 60-69:                                                                                                                                                           
        Estimated Budget Authority..........................          0          0          0          0          0       -700          0          0          0          0          0       -700
        Estimated Outlays...................................          0          0          0          0          0       -700          0          0          0          0          0       -700
    Total Changes:                                                                                                                                                                              
        Estimated Budget Authority..........................          0          0       -800     -2,100     -3,000     -3,800          0          0          0          0          0     -9,700
        Estimated Outlays...................................          0          0       -800     -2,100     -3,000     -3,800          0          0          0          0          0     -9,700
Auction Receipts Under Subtitle D:                                                                                                                                                              
    Estimated Budget Authority..............................     -9,600     -7,100     -2,400     -2,650     -3,150     -3,800          0          0          0          0          0    -28,700
    Estimated Outlays.......................................     -9,600     -7,100     -2,400     -2,650     -3,150     -3,800          0          0          0          0          0    -28,700
                                                                                                                                                                                                
                                                                                SPENDING SUBJECT TO APPROPRIATION                                                                               
                                                                                                                                                                                                
FCC Spending Under Current Law:                                                                                                                                                                 
    Estimated Authorization Level \1\.......................         37         38         40         41         43         44         46         47         49         51         53        452
    Estimated Outlays.......................................         35         38         40         41         43         44         46         47         49         51         53        452
Proposed Changes--Auction Expenses:                                                                                                                                                             
    Estimated Authorization Level \1\.......................          0         12         12         12         12         12          0          0          0          0          0         60
    Estimated Outlays.......................................          0         11         12         12         12         12          1          0          0          0          0         60
FCC Spending Under Subtitle D:                                                                                                                                                                  
    Estimated Authorization Level \1\.......................         37         50         52         53         55         56         46         47         49         51         53        512
    Estimated Outlays.......................................         35         49         52         53         55         56         47         47         49         51         53        512
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ The 1997 level is the amount appropriated for that year. Amounts shown for subsequent years are CBO baseline projections.                                                                   


                                       TABLE 4.--MEDICAID AND CHILD HEALTH ASSISTANCE PROPOSALS, AS APPROVED BY THE COMMITTEE ON COMMERCE ON JUNE 12, 1997                                      
                                                                            [By fiscal years, in billions of dollars]                                                                           
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                                            1998-2002  1998-2007
                                                                 1998       1999       2000       2001       2002       2003       2004       2005       2006       2007      Total      Total  
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Subtitle E--Medicaid:                                                                                                                                                                           
      Spending Under Current Law............................      105.3      113.6      122.9      132.8      143.8      155.9      168.7      183.1      198.9      216.2      618.4    1,541.2
Chapter 1--State Flexibility Reforms:                                                                                                                                                           
    Use of Managed Care:                                                                                                                                                                        
        Determination of hospital stay......................        0.1        0.1        0.1        0.2        0.2        0.2        0.2        0.3        0.3        0.3        0.8        2.1
    Payment Methodology:                                                                                                                                                                        
        FQHC payment reform.................................       -0.0       -0.0       -0.0       -0.1       -0.1       -0.2       -0.2       -0.2       -0.2       -0.3       -0.3       -1.4
        Repeal of Boren Requirements........................        0.0       -0.1       -0.2       -0.4       -0.5       -0.7       -0.9       -1.1       -1.4       -1.6       -1.2       -6.9
        Extension of moratorium for certain IMDs \1\........        0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.0
    Eligibility:                                                                                                                                                                                
        Option for 12 month continuous eligibility..........        0.1        0.1        0.1        0.1        0.2        0.2        0.2        0.2        0.2        0.2        0.7        1.6
        Payment of home-health Medicare B premium...........        0.0        0.1        0.1        0.1        0.2        0.2        0.3        0.3        0.3        0.3        0.5        1.9
    PACE:                                                                                                                                                                                       
        PACE as Medicaid option \2\.........................        0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.0
    Benefits:                                                                                                                                                                                   
        Benefits for services of Physician Assistants.......        0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.1        0.3
Chapter 2--Quality Assurance:                                                                                                                                                                   
    Application of standards for emergency conditions.......        0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.1        0.2
Chapter 3--Federal Payments:                                                                                                                                                                    
    Disproportionate Share \3\..............................       -0.2       -1.1       -2.7       -3.9       -5.1       -5.9       -6.7       -7.6       -8.6      -.9.6      -13.1      -51.6
    Emergency health services for aliens....................        0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.1        0.2
    Medicaid interaction with CHAP..........................        0.1        0.1        0.1        0.1        0.1        0.2        0.2        0.2        0.2        0.2        0.7        1.5
    Presumptive eligiblity for low-income children \4\......        0.1        0.1        0.1        0.1        0.1        0.1        0.1        0.1        0.1        0.1        0.4        0.9
      Total Change in Spending..............................        0.3       -0.7       -2.4       -3.6       -5.0       -5.9       -6.8       -7.8       -9.0      -10.3      -11.4      -51.2
      Spending Under Proposal...............................      105.6      112.9      120.5      129.2      138.8      150.0      161.9      176.3      189.9      205.9      607.0    1,490.0
Subtitle F--Child Health Assistance Program (CHAP):                                                                                                                                             
    Total Federal Allotments................................        2.9        2.9        2.9        2.9        2.9        2.9        2.9        2.9        2.9        2.9       14.4       28.8
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Would increase federal costs by about $500,000 per year.                                                                                                                                    
\2\ Would increase Medicare outlays by $8 million over 5 years.                                                                                                                                 
\3\ Estimate includes interaction with CHAP.                                                                                                                                                    
\4\ This provision is included in Subtitle F.                                                                                                                                                   

                       Federal Mandates Statement

     The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                      Advisory Committee Statement

     No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                   Constitutional Authority Statement

     Pursuant to clause 2(l)(4) of rule XI of the Rules of the 
House of Representatives, the Committee finds that the 
Constitutional authority for this legislation is provided in 
Article I, section 8, clause 3, which grants Congress the power 
to regulate commerce with foreign nations, among the several 
States, and with the Indian tribes.

             Section-by-Section Analysis of the Legislation

Section 3201. Sale of DOE surplus uranium assets

     Subsection (a) directs the Secretary of Energy to sell 3.2 
million pounds per year of natural and low-enriched uranium 
that the President has determined is not necessary for national 
security needs during the period Fiscal Year 1999 through 
Fiscal Year 2002.
     Paragraph (1) provides that such sales shall be for 
delivery after January 1, 1999.
     Paragraph (2) conditions any sale of surplus uranium on a 
determination, for the period Fiscal Year 1999 through Fiscal 
Year 2002, by the Secretary under section 3112(d)(2)(B) of the 
USEC Privatization Act of 1996 (42 U.S.C.2297h-10(d)(2)(B)).
     Paragraph (3) requires that any sale or sales be made at a 
price not less than fair market value of the uranium and in a 
manner that maximizes proceeds to the Treasury.
     The Secretary is directed to receive the proceeds from 
such sale in the period Fiscal Year 1999 through Fiscal Year 
2002 and deposit such proceeds in the General Fund of the 
Treasury.
     Subsection (b) provides that the cost of making the sales 
required by subsection (a) shall be covered by unobligated 
balances of appropriations of the Department of Energy.

               Changes in Existing Law Made by Subtitle C

     Subtitle C makes no changes in existing law.

                Minority, Additional or Dissenting Views

     Minority Views on Subtitle C are provided at the 
conclusion of the report on this Title of the bill.

                       Subtitle D--Communications

                          Purpose and Summary

     The purposes of Subtitle D are: (1) to broaden and to 
extend the Federal Communications Commission's (FCC's) 
authority to assign licenses for radio-based services by means 
of competitive bidding, or specifically ``auctions;'' (2) to 
direct the FCC and the National Telecommunications and 
Information Administration (NTIA) to make certain spectrum 
reallocations; and (3) to instruct the FCC to assign most of 
the licenses for the use of the reallocated spectrum by means 
of auctions.
     Subtitle D consists of four sections. Section 3301 extends 
the FCC's auction authority through the end of Fiscal Year 
2002. It also broadens the FCC's auction authority by requiring 
all radio-based licenses for which mutually exclusive 
applications are filed with the FCC to be assigned by means of 
competitive bidding, unless the license is intended for a 
service which is exempted from the FCC's auction authority. 
Section 3301 also directs the FCC and the NTIA collectively to 
reallocate 120 megahertz (MHz) of spectrum located below 3 
gigahertz (GHz) for commercial use, and to assign through 
competitive bidding the licenses to use the newly allocated 
spectrum. The FCC is further charged with ensuring that the 
public recovers a minimum level of receipts.
     Section 3302 establishes a statutory framework for both 
auctioning and recapturing the 78 MHz of spectrum that current 
television broadcast licensees use to transmit in analog 
format. It precludes the FCC from renewing any analog license 
beyond December 31, 2006, unless a certain number of households 
in a given market continue to rely exclusively on over-the-air 
analog signals. The licenses to use the recaptured 78 MHz of 
spectrum will be assigned through competitive bidding beginning 
in 2001. The FCC must ensure that the public recovers a minimum 
level of receipts.
     Section 3303 allocates and assigns the 60 MHz of spectrum 
located between television broadcast channels 60 through 69 to 
public safety services and for general commercial use. The FCC 
is directed to set aside up to 24 MHz of the 60 MHz total for 
public safety, and the remaining 36 MHz for general commercial 
use to be assigned by means of competitive bidding. With regard 
to the 36 MHz slated for auction, the FCC must ensure that the 
public recovers a minimum level of receipts.
     Finally, section 3304 directs the FCC to initiate its 
statutorily mandated evaluation of its competitive bidding 
systems no later than July 1, 1997.

                  Background and Need for Legislation

Spectrum management

    The radio ``spectrum'' is not a physical object, but 
instead is a conceptual tool used to organize and map a set of 
physical phenomena. Electric and magnetic fields produce waves 
that move through space at different speeds, or 
``frequencies.'' The set of all possible frequencies is called 
the electromagnetic spectrum. The most widely used portion of 
the electromagnetic spectrum for radio communications is the 
portion of the spectrum ranging from 10 kilohertz (KHz) to 300 
GHz. Spectrum may be shared by two or more users, but in many 
cases, the use of a frequency at a given location typically 
excludes the use of that frequency, and maybe even adjacent 
frequencies, from being used by others. Spectrum, in other 
words, is a finite (though non-depletable) resource.
     The right to use the electromagnetic spectrum is essential 
to the provision of such services as mobile telephone service 
and television broadcasting. It also is essential for such 
public goods as local law enforcement and national defense 
communications. The FCC allocates use of the radio spectrum for 
private parties and for State and local governments. NTIA, an 
agency within the Department of Commerce, is responsible for 
the same management activities for Federal government use of 
the radio spectrum. NTIA utilizes the Interdepartmental Radio 
Advisory Committee (IRAC) to establish priorities and encourage 
efficient spectrum use by Federal government users.

Spectrum auctions

     Prior to 1993, licenses for use of the radio spectrum were 
assigned in one of three possible ways: (1) on a first-come, 
first-served basis; (2) through comparative hearings; or (3) by 
lottery. Each of these methods had shortcomings and proved to 
be an inefficient way to assign licenses. Therefore, as part of 
the Omnibus Budget Reconciliation Act of 1993 (OBRA 93), 
Congress gave the FCC authority to use competitive bidding to 
assign licenses when more than one applicant seeks an exclusive 
license to provide telecommunications service on a subscription 
or fee-for-service basis. For example, the FCC traditionally 
could not use auctions for non-subscription services (such as 
the traditional broadcast services of radio and television), 
even though mutual exclusivity typically exists. Likewise, the 
FCC may not use auctions where two parties are capable of 
sharing spectrum, notwithstanding the fact that both parties 
intend to use the spectrum for subscription-based services. The 
FCC's auction authority is scheduled to expire on September 30, 
1998.
     Auctions, for the most part, have proven to be consistent 
with the Committee's long-term goals for telecommunications 
policy. The FCC has used auctions to assign licenses for 
competing applicants far more expeditiously than under 
comparative hearings or lotteries. A wide array of innovative 
radio-based services, including personal communications 
services (PCS), narrowband and broadband paging services, and 
direct broadcast satellite services (DBS), have expeditiously 
reached consumers as a result of auctions. Auctions also ensure 
that licenses are assigned to the entity that most values the 
frequencies. Consequently, consumers now enjoy the benefits of 
new and improved services that are offered in a more price-
competitive marketplace.
     Auctions are also administratively efficient. They 
expedite licensing, and thus ensure that new or additional 
services are rapidly deployed. In addition, since the advent of 
auctions in 1993, the FCC has recorded winning bids of 
approximately $23 billion and has collected receipts of more 
than $10 billion. Auctions thus have made a contribution to 
reducing the Federal deficit, something comparative hearings 
and lotteries never did.
     Still, the Committee is concerned that some policymakers 
have come to view auctions exclusively as a tool for balancing 
the Federal budget, and that this view poses a threat to long- 
term telecommunications policy. The Committee believes that 
auctions must be designed to serve spectrum management goals, 
and not short-term budgetary needs. Otherwise, auctions will be 
held for the sake of raising money, rather than on the basis of 
technological availability and clearly identified consumer 
demand. Indeed, the inevitable (not to mention absurd) result 
of an auction policy driven solely by budgetary considerations 
would be a dictate to the FCC that it reallocate every single 
megahertz for competitive bidding--without regard for incumbent 
licensees--and that the FCC hold those auctions as soon as 
possible.
     The Committee also notes that policymakers must be careful 
in advocating auctions on the basis of expected revenues. The 
process of predicting the outcome of spectrum auctions is an 
imprecise one. Thus, American taxpayers should not be misled to 
believe that a critical resource of theirs will be sold at a 
premium, only to find out that in the end, the scarce resource 
was given away at ``fire sale'' prices. For example, Congress, 
in response to budgetary pressures, passed legislation in 1996 
directing the FCC to auction licenses for flexible-use wireless 
communications services (WCS) located in the 2.3 GHz band. The 
Congressional Budget Office initially predicted the WCS auction 
would raise $2.9 billion. In the end, the WCS auction raised 
only $13.6 million, less than 0.5 percent of the expected 
outcome.
     Thus, while the Committee concludes that the FCC's auction 
authority should be broadened and extended, it also seeks to 
ensure that the FCC designs its future auctions to reflect more 
than just budgetary considerations. Auctions were originally 
intended to speed the deployment of new services, as well as to 
guarantee that the American public is fairly compensated for 
the use of one of its most precious resources. The Committee is 
confident that Subtitle D serves these overarching goals. The 
Committee, however, intends to remain vigilant in overseeing 
the FCC's administration of its auction authority. Indeed, the 
Committee will not hesitate to let the FCC's auction authority 
expire on September 30, 2002, if, and when, auctions no longer 
serve the Committee's stated objectives.

                                Hearings

     On Wednesday, February 12, 1997, the Committee's 
Subcommittee on Telecommunications, Trade, and Consumer 
Protection held an oversight hearing on Spectrum Management 
Policy. Mr. Robert Wright, President and Chief Executive 
Officer (CEO) of NBC, began the hearing with a brief 
demonstration on digital television. The demonstration was 
followed by testimony from: The Honorable Larry Irving, 
Administrator for the National Telecommunications and 
Information Administration (NTIA); The Honorable Reed Hundt, 
Chairman of the FCC; Mr. Michael Amarosa, Deputy Commissioner 
for the New York City Police Department; Mr. James Keelor, 
President of Cosmos Broadcasting; and Mr. Benjamin Scott, 
President and CEO of PrimeCo PCS.

                        Committee Consideration

     On June 5, and June 10, 1997, the Subcommittee on 
Telecommunications, Trade, and Consumer Protection met in open 
session and considered a Committee Print entitled ``Title III, 
Subtitle D--Communications.'' On June 10, 1997, the 
Subcommittee approved for Full Committee consideration the 
Committee Print entitled ``Title III, Subtitle D--
Communications,'' amended, by a roll call vote of 13 yeas to 12 
nays, with 1 voting ``Pass''. On June 11, 1997, the Committee 
met in open session and ordered a Committee Print entitled 
``Title III, Subtitle D--Communications'' transmitted to the 
House Committee on the Budget, amended, for inclusion in the 
1997 Omnibus Budget Reconciliation Act by a roll call vote of 
27 yeas to 22 nays.

                            Roll Call Votes

     Pursuant to Clause 2(l)(2)(B) of rule XI of the Rules of 
the House of Representatives, following are listed the recorded 
votes on the motion to order Subtitle D transmitted to the 
House Committee on the Budget, and on amendments thereto, 
including the names of those Members voting for and against.


      Committee on Commerce--105th Congress, Voice Votes, 6/11/97

    Bill: Committee Print entitled ``Title III, Subtitle D--
Communications''.
    Amendment: Amendment by Mr. Oxley re: test of combinatorial 
bidding systems.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment by Mr. Dingell re: eliminate the 
effective dates for spectrum auctions.
    Disposition: Agreed to, as amended, by a voice vote.
    Amendment: Amendment by Mr. Oxley re: repeal of FCC fee 
retention authority.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment by Mr. Gillmor re: clarify the 
definition of public safety services.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment by Mr. Rush re: require the FCC to 
complete the inquiry into spectrum auctions.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment by Mr. Rogan re: use of public safety 
spectrum in congested areas.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment to the Oxley Amendment by Mr. Klug re: 
eliminate the limitation on cross ownership of a newspaper and 
a broadcast station in the same market.
    Disposition: Agreed to, by a voice vote. Previously a roll 
call vote (Roll Call Vote #8) was begun on the amendment and 
then suspended by unanimous consent.
    Amendment: Amendment by Mr. Gordon re: exemption from 
auctions for unlicensed spectrum users (Part 15).
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment by Mr. Oxley re: require the FCC to 
provide sufficient time between the auction notice and the 
commencement of auction.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment to the Furse Amendment by Mr. Gordon 
re: modify labeling requirement to permit industry involvement 
on a portion of the requirement.
    Disposition: Not agreed to, by a voice vote.

                      Committee Oversight Findings

    Pursuant to clause 2(l)(3)(A) of rule XI of the Rules of 
the House of Representatives, the Subcommittee on 
Telecommunications, Trade, and Consumer Protection held an 
oversight hearing and made findings that are reflected in this 
report.

              Committee on Government Reform and Oversight

    Pursuant to clause 2(l)(3)(D) of rule XI of the Rules of 
the House of Representatives, no oversight findings have been 
submitted to the Committee by the Committee on Government 
Reform and Oversight.

                        Committee Cost Estimate

    In compliance with clause 7(a) of rule XIII of the Rules of 
the House of Representatives, the Committee believes that 
cumulative effect of enacting of Subtitle D would result in no 
additional costs to the Federal government.

                  Congressional Budget Office Estimate

    Pursuant to clause 2(l)(3)(C) of rule XI of the Rules of 
the House of Representatives, a letter from the Congressional 
Budget Office providing a cost estimate for all six subtitles 
of Title III is found at the conclusion of the report on this 
Title of the bill.

             Section-by-Section Analysis of the Legislation

Section 3301. Spectrum auctions

            (a) Extension and expansion of auction authority
    Subsection 3301(a) amends section 309(j) of the 
Communications Act, which grants to the FCC authority to use 
auctions as a means of granting licenses for radio-based 
services. The subsection requires the FCC to employ a system of 
competitive bidding if presented with mutually exclusive 
applications for the use of spectrum. The Committee makes 
clear, however, that the FCC must continue to seek solutions to 
avoid a finding of mutual exclusivity. Notwithstanding the 
FCC's broadened auction authority, this subsection explicitly 
exempts certain services from such authority. The exemption, 
for example, applies to licenses for public safety radio 
services, including private, internal radio services offered by 
both State and local government entities, as well as non-
government entities. The exemption also applies to initial 
licenses for digital television service that the FCC chooses to 
assign to existing analog television licensees.
    Subsection 3301(a) also directs the FCC, in designing 
future auctions, to conduct a pilot test of a system known as 
``contingent combinatorial bidding'' by operating an FCC 
auction using such a system. Contingent combinatorial bidding 
(also known as contingent package bidding) is an auction system 
that allows prospective bidders to bid on various combinations, 
or packages, of licenses in a single bid, and allows bidders to 
enter multiple alternative bids within a single auction round. 
The Committee believes that using a contingent combinatorial 
bidding system may allow the FCC to conduct auctions more 
efficiently and effectively. Potential licensees may be able to 
better tailor their bidding to obtain the best possible license 
configuration for their needs, creating the most efficient use 
of the spectrum. This system may also potentially enhance 
auction revenues for the U.S. Treasury. The FCC is encouraged 
to test this system as soon as practicable, and may perform the 
test on its own or by contract.
    Subsection 3301(a) further requires the FCC to ensure that 
interested bidders have sufficient time: (1) before the 
issuance of bidding rules, to comment on any proposed rules; 
and (2) after the issuance of bidding rules, to develop 
business plans, assess market conditions, and evaluate the 
availability of service equipment. By adopting this language, 
the Committee intends for the FCC to protect against future 
auctions that attract only a few participants because of 
insufficient time to gather the information that is necessary 
for a robust auction.
    Subsection 3301(a) also extends the FCC's auction authority 
to September 30, 2002, and repeals the FCC's authority to 
select licensees randomly from among competing applications. It 
also repeals the FCC's authority to retain auction receipts for 
the purpose of offsetting the cost of conducting auctions. In 
repealing the FCC's fee retention authority, subsection 3301(a) 
ensures that Congress will have a proper accounting of all of 
the FCC's expenditures.
    The FCC's broadened auction authority under subsection 
3301(a) does not cover any licenses for which the FCC has 
accepted mutually exclusive applications prior to the date of 
enactment of the Balanced Budget Act of 1997. The Committee is 
aware that numerous applications for new stations on vacant 
NTSC channels were filed on or before the September 20, 1996, 
deadline established by the FCC for the filing of applications. 
And according to established procedures, the FCC will announce 
that competing applications to these applications may be filed 
when cut-off notices are issued. The Committee expects the FCC 
to process these applications promptly, and to also establish 
cut-off dates for competing applications. This process will 
ensure that all such applications are filed and accepted by the 
FCC prior to the enactment of this legislation.
            (b) Commission obligation to make additional spectrum 
                    available by auction
    Subsection 3301(b) directs the FCC to reallocate, in the 
aggregate, 100 MHz of spectrum. This spectrum must be located 
below 3 GHz, and be comprised of individual bands spanning not 
less than 25 MHz (unless smaller bands can be expected to 
produce greater receipts). The spectrum must also not have been 
previously identified by the FCC or NTIA for reallocation, or 
been allocated by the FCC for unlicensed use pursuant to FCC 
rules. The FCC shall include the 45 MHz located between 1710 
MHz through 1755 MHz as part of the total 100 MHz it must 
reallocate pursuant to section 3301(b), notwithstanding the 
fact that the 45 MHz is currently allocated for Federal 
government exclusive use.
    The FCC must assign the radio frequencies at issue here by 
means of competitive bidding by September 30, 2002, and in so 
doing, must take into account the cost of relocating incumbent 
licensees, give consideration to internationally-established 
spectrum allocations, and ensure that future licensees do not 
interfere with space research and earth-exploration services. 
In the event the FCC cannot effectively relocate incumbent 
users on bands of frequencies available to the FCC, then the 
FCC must notify the NTIA about the need for additional bands.
            (c) Identification and reallocation of frequencies
    In the event the FCC makes a notification to the NTIA that 
it cannot relocate incumbent users, pursuant to subsection 
3301(b), then subsection 3301(c) directs the NTIA to issue a 
report to Congress and the President recommending bands of 
frequencies that could be reallocated to the FCC to accommodate 
those users that have been displaced by the FCC. The FCC would 
have one year from the receipt of NTIA's report to implement a 
plan that reallocates and assigns these bands to displaced 
incumbent users.
            (d) Identification and reallocation of auctionable 
                    frequencies
    Subsection 3301(d) requires the NTIA to submit a 
reallocation report to Congress, identifying and recommending 
for reallocation a single frequency band of at least 20 MHz, 
and which is located below 3 GHz. The Committee has determined 
that the best way to promote efficiency by Federal government 
users and to free up this vital resource for use by the general 
public is to mandate that the Secretary of Commerce find 
spectrum that can be relinquished. The Committee is confident 
that 20 MHz can be located below 3 GHz that can be reallocated 
to use by non-Government users without impairing the mission of 
any government agency. The FCC would have a year to implement a 
plan to allocate and assign the full 20 MHz in accordance with 
the Communications Act's competitive bidding provisions.
            (e) Minimum recovery for public required
    In recognition of the scarcity (and hence, the value) of 
spectrum below 3 GHz, subsection 3301(e) directs the FCC to 
establish auction procedures to ensure that the American 
taxpayer recovers at least two-thirds of the $7.5 billion in 
currently projected receipts. The Committee recognizes that the 
FCC will hold a series of auctions to assign licenses using the 
120 MHz at issue in section 3301. The Committee does not, 
however, expect the FCC to wait until the last auction is 
completed to determine whether the total winning bids for all 
auctions exceeds two-thirds of $7.5 billion. Rather, subsection 
3301(e) permits the FCC to partition the total minimum recovery 
among separate auctions, or even among separate bands, regions, 
or markets. Moreover, to the extent an auction fails to obtain 
its total (or subtotal) minimum recovery, the FCC is authorized 
under subsection 3301(e)(2) to void the auction. The FCC may 
also use minimum bid requirements to obtain the total (or 
subtotal) minimum recovery.
    Subsection 3301(e) thus gives the FCC fairly wide latitude 
in fashioning a methodology to secure a total minimum recovery 
of two-thirds of $7.5 billion. Accordingly, the FCC is 
precluded under subsection 3301(e)(3) from conducting any 
auctions unless the FCC determines that its methodology will 
secure two-thirds of $7.5 billion. If the FCC refrains from 
conducting any competitive bidding proceedings pursuant to the 
requirement under subsection 3301(e)(3), or pursuant to its 
permissive authority under subsection 3301(e)(2), then 
subsection 3301(e)(4) gives the FCC the discretion to hold 
those auctions at a future date.

Section 3302. Auction of recaptured broadcast television spectrum

    Section 3302 adds a new subsection 309(j)(14) to the 
Communications Act to require the FCC to reclaim the 6 MHz 
broadcasters now use for analog transmission by no later than 
December 31, 2006. The FCC, however, must grant extensions to 
broadcasters in those markets where more than five percent of 
the households continue to rely exclusively on an over-the-air, 
analog broadcast signal.
    The Committee adopted the five percent threshold to ensure 
that a substantial number of American households are able to 
make a smooth transition to digital television. While the 
Committee seeks to clear the 78 MHz of broadcast spectrum as 
soon as practicable, the Committee is concerned that an 
inflexible date will cause serious disruption to consumers. The 
Committee believes that the provision of free, over-the-air 
television is an important governmental interest, and that 
analog television service should not be terminated if a 
significant number of Americans rely on such over-the-air 
service. The Committee expects that the FCC will administer the 
five percent threshold by a generally-applicable rule, and not 
require every broadcaster in a market to file a waiver 
petition.
    Section 3302 also directs the FCC to assign the full 78 MHz 
that is reclaimed from incumbent broadcast licensees by means 
of competitive bidding. The FCC is required to commence bidding 
by July 1, 2001. To the extent that the FCC allocates the 
reclaimed spectrum for digital television broadcast service, 
section 3302 precludes the FCC from enforcing either the 
duopoly rule or the newspaper cross-ownership rule against 
qualified licensees intending to use the spectrum for digital 
television service. The Committee finds that this limited 
prohibition on enforcement of these FCC rules will serve the 
public interest in two ways.
    First, it limits the enforcement of otherwise obsolete 
rules. The Committee finds that given the multiplicity of 
information outlets in today's society, including broadcast 
television, cable television, satellite-based services, 
newspapers, on-line news services, and the Internet, these 
ownership rules have outlived their usefulness. The Committee 
fully expects that the FCC will provide for even greater and 
more immediate relaxation of these rules in the course of its 
mandatory biennial review of ownership rules.
    Second, section 3302's limited prohibition on enforcement 
of the duopoly and cross-ownership rules will likely increase 
the pool of bidders for the 78 MHz of spectrum. The Committee 
believes that relaxation of these rules in this context will 
entice both broadcast station owners and newspaper owners to 
participate in the 2001 auction for these frequencies. As a 
result, the winning bids are likely to be higher than without 
the owners' participation.
    In recognition of the scarcity (and hence, the value) of 
spectrum below 3 GHz, section 3302 directs the FCC to establish 
auction procedures to ensure that the American taxpayer 
recovers at least two-thirds of the $4.0 billion in currently 
projected receipts. The Committee recognizes that the FCC may 
hold a series of auctions to assign licenses using the 78 MHz 
at issue here. The Committee does not, however, expect the FCC 
to wait until the last auction is completed to determine 
whether the total winning bids for all auctions exceeds two-
thirds of $4.0 billion. Rather, section 3302 permits the FCC to 
partition the total minimum recovery among separate auctions, 
or even among separate bands, regions, or markets. Moreover, to 
the extent an auction fails to obtain its total (or subtotal) 
minimum recovery, the FCC is authorized under new subsection 
309(j)(14)(C)(ii) to void the auction. The FCC may also use 
minimum bid requirements to obtain the total (or subtotal) 
minimum recovery.
    Section 3302 thus gives the FCC fairly wide latitude in 
fashioning a methodology to secure a total minimum recovery of 
two-thirds of $4.0 billion. Accordingly, the FCC is precluded 
under section 3302 from conducting any auctions unless the FCC 
determines that its methodology will secure two-thirds of $4.0 
billion. If the FCC refrains from conducting any competitive 
bidding proceedings pursuant to this requirement under new 
subsection 309(j)(14)(C)(iii), or pursuant to its permissive 
authority under new subsection 309(j)(14)(C)(ii), then new 
subsection 309(j)(14)(C)(iv) gives the FCC the discretion to 
hold those auctions at a future date.
    Section 3302 defines both ``digital television service'' 
and ``analog television service.''

Section 3303. Allocation and assignment of new public safety and 
        commercial licenses

            (a) In general
    Subsection 3303(a) directs the FCC to reallocate on a 
national, regional, or market basis 24 MHz in television 
broadcast channels 60 through 69 to public safety, unless the 
FCC finds that the needs of public safety can be met in 
particular areas with allocations of less than 24 MHz. The 
Committee has learned from public safety representatives that 
they do not necessarily need 24 MHz in every market, especially 
in rural markets. This explains why the Committee refrained 
from making a nationwide block allocation of 24 MHz. The 
Committee thus encourages the FCC to closely evaluate the 
public safety needs for each market.
    The FCC must allocate the remainder of the spectrum located 
in channels 60 through 69 for commercial use, and to assign 
these commercial licenses by means of competitive bidding.
            (b) Assignment
    In light of the critical public safety needs in some 
markets, subsection 3303(b) requires the FCC to assign public 
safety licenses by no later than March 31, 1998. The Committee 
emphasizes that the definition of ``public safety services'' in 
subsection 3303(g) is quite narrow, particularly in relation to 
the service exemption found in subsection 3301(a) for ``public 
safety radio services.'' The FCC is required to commence 
bidding for the commercial licenses no later than July 1, 2001.
            (c) Licensing of unused frequencies for public safety radio 
                    services
    The Committee recognizes that in some heavily congested 
markets, such as Los Angeles, California, 24 MHz of spectrum is 
simply not available in channels 60 through 69 for immediate 
reallocation. Subsection 3303(c) thus directs the FCC to waive 
its eligibility and other rules to permit public safety to use 
any unassigned radio frequencies. The Committee regards such 
waivers as extraordinary, and thus to qualify for such a 
waiver, a State or local governmental agency must demonstrate 
to the FCC that no other frequencies allocated to public safety 
are immediately available, that the proposed use of unassigned 
frequencies will cause no harmful interference to incumbent 
users in the proposed band, and that public safety usage is 
consistent with other existing public safety channel 
allocations in the same geographic area. The Committee, once 
again, notes that this provision will be applicable in only a 
limited number of circumstances.
            (d) Conditions on licenses
    This subsection imposes technical restrictions on public 
safety and commercial licensees operating in channels 60 
through 69 in order to prevent interference with television 
broadcasters' analog and digital service. The Committee 
recognizes the inherent difficulty of inter-service sharing of 
spectrum between different spectrum users, and thus the FCC 
must adopt rules to ensure that current users of the spectrum 
suffer no new interference from the new spectrum uses that will 
be introduced in this band. It is the intent of the Committee 
that the protection for full-service analog television service 
provided for by this subsection shall include protection for 
the service proposed to be provided by any application for a 
new station on a vacant NTSC channel that was or is filed on or 
before the deadline established by the FCC for such a filing, 
including any cut-off date for competing applications. Public 
safety and commercial licensees are permitted to aggregate or 
disaggregate their licenses to create smaller or larger 
spectrum blocks.
            (e) Minimum recovery for public required
    In recognition of the scarcity (and hence, the value) of 
spectrum below 3 GHz, section 3303 directs the FCC to establish 
auction procedures to ensure that the American taxpayer 
recovers at least two-thirds of the $1.9 billion in currently 
projected receipts. The Committee recognizes that the FCC may 
hold a series of auctions to assign licenses using the 36 MHz 
at issue in section 3303. The Committee does not, however, 
expect the FCC to wait until the last auction is completed to 
determine whether the total winning bids for all auctions 
exceeds two-thirds of $1.9 billion. Rather, subsection 3303(e) 
permits the FCC to partition the total minimum recovery among 
separate auctions, or even among separate bands, regions, or 
markets. Moreover, to the extent an auction fails to obtain its 
total (or subtotal) minimum recovery, the FCC is authorized 
under subsection 3303(e)(2) to void the auction. The FCC may 
also use minimum bid requirements to obtain the total (or 
subtotal) minimum recovery.
    Subsection 3303(e) thus gives the FCC fairly wide latitude 
in fashioning a methodology to secure a total minimum recovery 
of two-thirds of $1.9 billion. Accordingly, the FCC is 
precluded under subsection 3303(e) from conducting any auctions 
unless the FCC determines that its methodology will secure two-
thirds of $1.9 billion. If the FCC refrains from conducting any 
competitive bidding proceedings pursuant to this requirement 
under subsection 3303(e)(3), or pursuant to its permissive 
authority under subsection 3303(e)(2), then subsection 
3303(e)(4) gives the FCC the discretion to hold those auctions 
at a future date.
            (f) Protection of qualifying low-power stations
    Subsection 3303(f) directs the FCC to assure that each 
qualifying low power television station is assigned a frequency 
below 746 megahertz prior to making any allocation or 
assignment under this section. The Committee emphasizes that 
subsection 3303(g) narrowly defines ``qualifying low-power 
television stations'' to mean only those stations that 
broadcast at least 18 hours a day, with at least 3 hours a week 
of locally-originated programming. The FCC must make any 
assignments called for by subsection 3303(f) consistent with 
the primary status of incumbent licensees below 746 megahertz 
and the secondary status of low-power television stations. The 
FCC shall ensure that primary spectrum users will suffer no new 
or additional interference.
            (g) Definitions
    This subsection defines certain terms used in this 
Subtitle.

Section 3304. Inquiry required

    Section 309(j)(12) of the Communications Act requires the 
FCC to conduct a public inquiry and report to Congress, no 
later than September 30, 1997, on a range of topics relating to 
its use of competitive bidding systems. Section 3304 of 
Subtitle D orders the FCC to initiate this inquiry no later 
than July 1, 1997.

               Changes in Existing Law Made by Subtitle D

    The changes in existing law made by Subtitle D are included 
at the conclusion of the report on this Title of the bill.

                Minority, Additional or Dissenting Views

    Minority and Dissenting Views on Subtitle D are provided at 
the conclusion of the report on this Title of the bill.

                          Subtitle E--Medicaid

                          Purpose and Summary

    The purpose of Subtitle E of Title III is to modify Title 
XIX of the Social Security Act in a manner providing for 
greater operational and administrative flexibility for the 
States, enhanced protections and quality assurance for 
recipients, and program savings for the purpose of achieving a 
balanced Federal budget in Fiscal Year 2002.

                  Background and Need for Legislation

    Established in 1965, Medicaid is a joint Federal-State 
entitlement program that pays for medical services and 
institutional care on behalf of certain low-income persons. 
Each State designs and administers its own Medicaid program 
within Federal guidelines. States are required to cover certain 
population groups, including recipients of cash assistance 
programs, income-eligible families with pregnant women and 
children, and aged, blind, and disabled persons.
    In 1967, Federal and State spending under Medicaid was $2.4 
billion. For Fiscal Year 1997, Medicaid is expected to serve 47 
million persons at a combined cost to the Federal and State 
governments of $170 billion. The Federal share of this cost is 
expected to be $98 billion, or about 57 percent of total 
Medicaid spending. The $98 billion in Federal funds is the 
single largest source of Federal funds to the States. By 2007, 
the Congressional Budget Office (CBO) projects that Federal and 
State Medicaid expenditures will reach $372 billion.
    During Fiscal Years 1990 through 1994, Medicaid spending 
grew at an annual average rate of 18.9 percent. This rapid 
growth was due to increased enrollment, medical care inflation, 
and State initiatives to maximize collection of Federal funds. 
Spending growth subsided in recent years, however, with the 
annual growth rate decelerating to just 3.3 percent in 1996. 
This decline in the growth of Medicaid spending was attributed 
to Federally imposed limits on disproportionate share hospital 
(DSH) payments and greater flexibility accorded to the States, 
which allowed for cost-saving innovations in program 
administration, delivery, and management. Nevertheless, CBO 
predicts that Medicaid spending will once again increase by 7.7 
percent in 1997, and continue to grow over the next decade at 
an average annual rate of 8.1 percent.
    Despite recent decreases in Medicaid spending growth, 
Medicaid remains the single largest program in virtually every 
State budget. As a share of State spending, Medicaid grew from 
just over 10 percent in 1987 to 19 percent in 1995. As a 
result, the Medicaid program has had the unintended effect of 
curtailing State investment in a variety of other programs, 
including education, child welfare services, law enforcement, 
and transportation. Absent reform, the continued growth of the 
Medicaid program raises the prospect of severe financial crisis 
in the States in the years to come.
    Although States are given the option of extending coverage 
to other individuals, they have little operational or 
administrative flexibility. As a result, Governors and other 
elected officials have long complained that the Medicaid 
program is too rigid to enable them to develop more innovative 
health care delivery strategies.
    One of the problems frequently raised by the States 
concerns the role of the Health Care Financing Administration 
(HCFA). Medicaid is administered at the Federal level by HCFA, 
a division of the Department of Health and Human Services. 
Through a network of regional offices, HCFA is supposed to work 
with State Medicaid departments to ensure appropriate 
management of the Medicaid program. Many States complain, 
however, that HCFA's role is less a matter of coordinated 
cooperation than an example of excess Federal micro management.
    A number of States have sought waivers, the only form of 
relief currently available under Federal statute. Section 
1915(b) program waivers allow States to restrict the providers 
from whom recipients may receive care, or to mandate 
participation in a managed care program for a specific 
population or geographical area. There are currently 96 Section 
1915 program waivers operating in 42 States. Section 1115(a) 
research and demonstration waivers allow States to experiment 
with new, more flexible benefit packages and eligibility 
criteria than permitted by the Medicaid statute. Although many 
States have sought Section 1115 waivers, the application 
process is lengthy, complex, and expensive. To date, HCFA has 
approved only 16 State waivers, 6 of which have not yet been 
implemented. At least 9 other State applications have been 
pending at HCFA for as long as over two years without any 
definitive action taken.
    On February 4, 1997, the National Governors' Association 
(NGA) unanimously adopted The Governors' Agenda for the 105th 
Congress, which expressed their recommendations for reforming 
the Medicaid program. As part of their agenda, the NGA opposes 
a per capita cap on Federal Medicaid spending, and any other 
measure that would shift greater financial responsibility for 
the program onto the States. In addition, the NGA urges a 
repeal of the Boren Amendment, and seeks greater State 
flexibility in establishing managed care networks and 
controlling Medicaid eligibility standards and benefits by 
repealing Medicaid waiver requirements.
    Following on its efforts with the Medicaid Transformation 
Act of 1995 and the Medicaid Restructuring Act of 1996, the 
Committee's proposal to reform the Medicaid program within the 
Balanced Budget Act of 1997 would remove the program's most 
restrictive barriers to innovation and quality. By replacing 
many existing waiver requirements with simple plan amendments, 
the measure would restore States' control over their Medicaid 
programs. In addition, the measure facilitates the use of 
innovative and cost-effective health service delivery 
mechanisms, such as managed care and primary care case 
management, while strengthening quality assurance protections. 
Although these changes do not constitute complete Medicaid 
reform, if enacted, they would represent the single most 
important improvement to the administration, operations, and 
service delivery of the Medicaid program.

                                Hearings

    The Committee's Subcommittee on Health and Environment has 
not held hearings specifically on Subtitle E. The Health and 
Environment Subcommittee, however, held an oversight hearing on 
the Medicaid program and a variety of reform issues on Tuesday, 
March 11, 1997. Testifying before the Subcommittee on March 11, 
1997, were: The Honorable Michael O. Leavitt, Governor, State 
of Utah; The Honorable Bob Miller, Governor, State of Nevada; 
Mr. William Scanlon, Director of Health Financing Systems, U.S. 
General Accounting Office; Gail Wilensky, Ph.D., Chair, Board 
of Directors, Physician Payment Review Commission; and Diane 
Rowland, Senior Vice President, Henry J. Kaiser Family 
Foundation.

                        Committee Consideration

    On June 10, 1997, the Subcommittee on Health and 
Environment met in open session and approved for Full Committee 
consideration a Committee Print entitled ``Title III, Subtitle 
E--Medicaid,'' amended, by a roll call vote of 16 yeas to 12 
nays. On June 12, 1997, the Committee met in open session and 
ordered the Committee Print entitled ``Title III, Subtitle E--
Medicaid'' transmitted to the House Committee on the Budget, 
amended, for inclusion in the 1997 Omnibus Budget 
Reconciliation Act, by a roll call vote of 28 yeas to 18 nays.

                            Roll Call Votes

    Pursuant to Clause 2(l)(2)(B) of rule XI of the Rules of 
the House of Representatives, following are listed the recorded 
votes on the motion to order Subtitle E transmitted to the 
House Committee on the Budget, and on amendments thereto, 
including the names of those Members voting for and against.


      Committee on Commerce--105th Congress, Voice Votes, 6/12/97

    Bill: Committee Print entitled ``Title III, Subtitle E--
Medicaid''
    Amendment: Amendment by Mr. Bilirakis re: treatment of 
taxes on certain hospitals which provide free care.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment by Mr. Upton re: extension of a waiver 
for an institution for individuals with mental diseases.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment by Mr. Deal re: Medicaid disability 
eligibility.
    Disposition: Withdrawn, by unanimous consent.
    Amendment: Amendment by Mr. Brown re: additional fraud and 
abuse protections in managed care.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment by Mr. Klug re: permit States to apply 
stricter State managed care standards.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment by Mr. Coburn re: grievance procedures 
under managed care plans.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment by Mr. Waxman re: patient choice.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment by Mr. Towns re: nurse mid-wives.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment by Mr. Upton re: rural health clinics.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment by Mr. Greenwood re: blood factor 
settlement payments.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment to the Waxman Amendment by Mr. Bilbray 
re: protecting DSH payments of certain children's and teaching 
hospitals.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment by Mr. Norwood re: solvency standards 
for certain HMOs.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment to the Deal Amendment by Mr. Bilbray 
re: Medicaid disability eligibility and alien funding.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment by Mr. Furse re: increase the limit on 
Federal Medicaid payments to the territories.
    Disposition: Withdrawn, by unanimous consent.
    Amendment: Amendment by Mr. Bliley re: substitution of a 
conscience clause to the Gag Rule.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment by Mr. Strickland re: provides that 
hospital length-of-stays can be determined by a health care 
provider.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment by Mr. Waxman re: provide that a State 
may permit an individual to choose a managed care entity from 
those who meet the requirements.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment by Mr. Lazio re: standards relating to 
access to obstetrical and gynecological services under managed 
care plans.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment by Mr. Waxman re: provide that the 
conscience clause should only be available to a religious based 
HMO.
    Disposition: Withdrawn, by unanimous consent.

                      Committee Oversight Findings

    Pursuant to clause 2(l)(3)(A) of rule XI of the Rules of 
the House of Representatives, the Committee held an oversight 
hearing and made findings that are reflected in the report on 
this Subtitle.

              Committee on Government Reform and Oversight

    Pursuant to clause 2(l)(3)(D) of rule XI of the Rules of 
the House of Representatives, no oversight findings have been 
submitted to the Committee by the Committee on Government 
Reform and Oversight.

                        Committee Cost Estimate

    In compliance with clause 7(a) of rule XIII of the Rules of 
the House of Representatives, the Committee believes that 
enactment of Subtitle E would result in no additional costs to 
the Federal Government.

                  Congressional Budget Office Estimate

    Pursuant to clause 2(l)(3)(C) of rule XI of the Rules of 
the House of Representatives, a letter from the Congressional 
Budget Office providing a cost estimate for all six subtitles 
of Title III is found at the conclusion of the report on this 
Title of the bill.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                   Constitutional Authority Statement

    Pursuant to clause 2(l)(4) of rule XI of the Rules of the 
House of Representatives, the Committee finds that the 
Constitutional authority for this legislation is provided in 
Article I, section 8, clause 3, which grants Congress the power 
to regulate commerce with foreign nations, among the several 
States, and with the Indian tribes.

             Section-by-Section Analysis of the Legislation

                      Chapter 1--State Flexibility

                   Subchapter A--Use of Managed Care

Section 3401. State options to provide benefits through managed care 
        entities

    Section 3401 gives States the option of providing benefits 
through a managed care entity, including primary care case 
managers (discussed below), without requiring a section 1915(b) 
waiver. States would be allowed to require that individuals 
eligible for medical assistance under the State plan enroll in 
a capitated managed care plan or with a primary care case 
manager. A State would be permitted to restrict the number of 
plans or providers it contracts with, consistent with quality 
of care. Individuals must be permitted to choose their manager 
or managed care entity from among those that meet Medicaid 
requirements. Individuals must be given a choice of at least 
two managed care entities or managers. In the case of rural 
areas, eligible individuals who are required to enroll with a 
single entity must be given the option of obtaining covered 
services through an alternative provider; those individuals 
offered no alternative to a single entity or manager must be 
given the choice of at least two providers within the managed 
care entity or through the primary care case manager. Native 
Americans/Alaskan Natives could only be required to enroll in a 
managed care entity if it is a participating Indian Health 
Service, tribally operated health, or urban Indian Health 
program. The provision would permit States to lock 
beneficiaries into plans for up to 6 months. As under current 
law, beneficiaries would be allowed to disenroll from a plan at 
any time for cause.
    States could not require either special needs children or 
Qualified Medicare Beneficiaries to enroll in managed care 
plans. As under current law, access to family planning 
providers could not be restricted.

Section 3402. Elimination of 75/25 restriction on risk contracts.

    Section 3402 eliminates the ``75/25'' rule. As a proxy for 
quality, current law requires that plans limit their enrollment 
of Medicaid and Medicare beneficiaries to less than 75 percent 
of total enrollment (known as the ``75/25'' rule). This 
requirement may be waived for community, migrant, or 
Appalachian health centers which receive Federal grant funds 
and meet certain other conditions. It may be waived temporarily 
for a publicly owned contracting plan, a plan with more than 
25,000 enrollees that serves a designated ``medically 
underserved'' area and that previously participated in an 
approved demonstration project, or a plan that has had a 
Medicaid contract for less than 3 years, if the plan is making 
continuous and reasonable efforts to comply with the 75 percent 
limit. For some HMOs, the ``75/25'' rule has been bypassed 
through State demonstration waivers or through specific Federal 
legislation.

Section 3403. Primary care case management services as state option 
        without need for waiver

    Section 3403 adds primary care case management as an 
optional service States may provide without a waiver. Primary 
care case management services would be those case management 
and primary care services a physician or physician group 
practice, or, at State option, nurse practitioner, certified 
nurse-midwife, or physician assistant contracts with the State 
to provide. These include covered primary care services 
provided or arranged for directly by the primary care case 
manager and other services as specified under the contract. The 
contract would have to provide that: (1) hours of operation are 
reasonable and adequate; (2) enrollment is restricted to those 
living reasonably near a service delivery site; (3) a 
sufficient number of providers are employed or contracted with 
to meet the needs of enrollees; (4) individuals are not 
discriminated against in enrollment based on health status or 
need for care; (5) enrollees are allowed to disenroll without 
cause during the first month of enrollment and disenroll at any 
time for cause. Enrollees could not be locked in to a provider 
for more than 6 months. Primary care services would include all 
health care and laboratory services customarily provided by or 
through a general practitioner, family medicine physician, 
internal medicine physician, obstetrician/gynecologist, or 
pediatrician.

Section 3404. Change in threshold amount for contracts requiring 
        Secretary's prior approval

    Section 3404 raises from $100,000 to $1,000,000 the managed 
care contract expenditure level requiring prior approval from 
the Secretary of Health and Human Services, effective 1998. In 
future years, the amount would be indexed for inflation 
according to the percentage increase in the consumer price 
index for all urban consumers over the previous year.

Section 3405. Determination of hospital stay

    Section 3405 requires that the length of an inpatient 
hospital stay be determined by the patient and his attending 
physician or other attending health care provider, based on 
medical appropriateness. Nothing in Medicaid law could be 
construed as requiring the provision of inpatient care if the 
patient and his or her attending physician determine a shorter 
period of hospital stay is medically appropriate. The provision 
would not affect the application of deductibles and co-
insurance.

                   Subchapter B--Payment Methodology

Section 3411. Flexibility in payment methods

    Under the so-called Boren amendment, States are required to 
pay hospitals, nursing facilities, and intermediate care 
facilities for the mentally retarded (ICFs/MR) rates that are 
``reasonable and adequate'' to cover the costs which must be 
incurred by ``efficiently and economically operated 
facilities.'' A number of Federal courts have ruled that State 
systems failed to meet the test of ``reasonableness'' and some 
States have had to increase payments to these providers as a 
result of these judicial interpretations.
    Section 3411 repeals the Boren Amendment and establishes a 
public notice process for setting payment rates for hospitals, 
nursing facilities, and ICFs/MR. In the case of hospitals, 
rates would have to take into account the situation of 
hospitals that serve a disproportionate number of low-income 
patients with special needs. For hospitals and nursing 
facilities, each State would have to assure that the average 
level of payments furnished during the 18-month period 
beginning October 1, 1997, is not less than the average level 
of payments that would be made for such services based on rates 
in effect as of May 1, 1997. It is the Committee's intention 
that, following enactment of this Act, neither this nor any 
other provision of Section 1902 will be interpreted as 
establishing a cause of action for hospitals and nursing 
facilities relative to the adequacy of the rates they receive.

Section 3412. Payment for center and clinic services

    Under current law, State Medicaid programs are required to 
cover ambulatory services that are furnished by Federally 
qualified health centers (FQHCs) and rural health clinics 
(RHCs). Medicaid payments for ambulatory services that are 
provided by FQHCs or RHCs must be equal to 100 percent of the 
facilities' reasonable costs for providing the services. If an 
FQHC enters into a contract with a HMO that contracts with a 
State Medicaid program, the HMO must pay the FQHC 100 percent 
of reasonable costs and the State's capitation payment to the 
HMO must reflect the 100 percent rate that is due to the FQHC.
    Section 3412 would require States to continue to pay 100 
percent of reasonable costs for services furnished by FQHCs and 
RHCs during Fiscal Years 1998 and 1999, but permits them to 
reduce rates in later years. States would be required to pay 
FQHCs and RHCs at least 95 percent of costs for services 
furnished during FY 2000, 90 percent for FY 2001, and 85 
percent for FY 2002.
    To ease the transition from cost-based payment rates, the 
provision specifies two special payment rules that would be 
applicable during Fiscal Years 1998-2002. First, States would 
be required to make supplemental payments to FQHCs and RHCs. 
Such payments would be equal to the difference between the 
contracted amount and the cost-based amount. Second, in the 
case of a contract between an FQHC and an HMO, the HMO would 
have to pay the FQHC or RHC at least as much as it would pay 
any other provider for similar services.
     Section 3412 also requires the Comptroller General to 
report, not later than February 1, 2001, on the impact of these 
amendments on access to health care for Medicaid beneficiaries 
and the uninsured, and on the ability of FQHCs and RHCs to 
become integrated in a managed care system.

Section 3413. Treatment of State taxes imposed on certain hospitals 
        that provide free care

    Currently, States may not claim for Federal matching 
payments State spending generated from provider-related 
donations or health care taxes that are not broad-based. Health 
care provider-specific taxes are not considered broad-based 
and, thus, may not be used to claim Federal matching payments 
for Medicaid spending. Section 3413 amends the definition of 
the term ``broad-based health care related tax'' to specify 
that taxes that exclude hospitals which are exempt from 
taxation under Section 501(c)(3) of the Internal Revenue code 
and do not accept Medicaid or Medicare reimbursement would 
qualify for Federal matching payments if used as State Medicaid 
spending. The provision would also prohibit States from 
claiming Federal matching payments for State spending generated 
from health care taxes applied to these facilities.

                       Subchapter C--Eligibility

Section 3421. State option of continuous eligibility for 12 months; 
        clarification of State option to cover all children under 19 
        years of age

    Section 3421 permits a State to provide a full continuous 
12 months of eligibility for children up to age 19 or an age 
specified by the State.

Section 3422. Payment of home-health-related Medicare Part B premium 
        amount for certain low-income individuals

    States are currently required to pay Medicare Part B 
premiums for Medicare beneficiaries who have incomes up to 120 
percent of the official poverty line. In response to the Part B 
premium increase that will result from the transfer of Medicare 
home health spending from Part A to Part B, Section 3422 
provides for premium assistance for low-income beneficiaries 
who do not currently receive Medicaid premium assistance. This 
section requires State Medicaid programs to cover that portion 
of the Medicare Part B premium attributable to the transfer of 
certain home health post-institutional visits from Part A to 
Part B for Medicare beneficiaries with incomes ranging from 120 
percent to 175 percent of poverty. The Federal government would 
pay 100 percent of these costs.

Section 3423. Penalty for fraudulent eligibility

    Section 3423 clarifies a current law anti-fraud protection 
by providing that a person who, for a fee, assists an 
individual to dispose of assets in order to obtain Medicaid 
eligibility for nursing home care, may be subject to criminal 
liability if the individual disposes of assets and a period of 
ineligibility is imposed against such individual. It is the 
Committee's expectation that, consistent with the Attorney 
General's interpretation in the recent judgment of the United 
States District Court for the District of Oregon in Peebler v. 
Reno, this provision would apply in cases where the transfer of 
assets results in the imposition of a period of ineligibility 
for Medicaid benefits.

Section 3424. Treatment of certain settlement payments

    Under a recent settlement, four manufacturers of blood 
plasma products will pay $100,000 to each of 6,200 hemophilia 
patients who are infected with human immunodeficiency virus 
(HIV). Some of the HIV-infected patients are receiving, or may 
apply for, Medicaid benefits. The amount of the settlement 
would exceed the income and resource limits for Medicaid 
eligibility. Section 3424 specifies that payments made from the 
blood products settlement shall not be considered income or 
resources in determining Medicaid eligibility, or the amount of 
benefits under Medicaid.

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

     OBRA 86 required the Secretary to grant waivers of certain 
Medicare and Medicaid requirements to not more than 10 public 
or non-profit private community-based organizations to provide 
health and long-term care services on a capitated basis to 
frail elderly persons at risk of institutionalization. These 
projects, known as the Programs of All Inclusive Care for the 
Elderly, or PACE projects, were intended to determine whether 
an earlier demonstration program, ON LOK, serving frail elderly 
persons, could be replicated across the country. OBRA 90 
expanded the number of organizations eligible for waivers to 
15.
     Sections 3431, 3432, 3433, and 3434 repeal current ON LOK 
and PACE project demonstration waiver authority and establish 
PACE as a State option under Medicaid. Persons enrolled in PACE 
would be eligible for Medicaid and need not be eligible for 
Medicare. Enrollees would receive Medicaid covered benefits 
solely thorough the PACE program. PACE providers would offer 
comprehensive health care services to eligible individuals in 
accordance with a PACE program agreement and regulations. In 
general, PACE providers would be public or private nonprofit 
entities, except for entities (up to 10) participating in a 
demonstration to test the operation of a PACE program by 
private, for-profit entities.

                         Subchapter E--Benefits

Section 3441. Elimination of requirement to pay for private insurance

     Under current law, the ability of States to enroll 
individuals in private insurance is restricted by requirements 
that they identify cases in which it would be cost-effective to 
enroll a Medicaid-eligible individual in a private insurance 
plan and, as a condition of eligibility, require the individual 
to enroll in the plan. Section 3441 removes the identification 
and enrollment requirements and gives States a more flexible 
option of purchasing private insurance for recipients.

Section 3442. Permitting same copayments in health maintenance 
        organizations as in fee-for-service

     Section 3442 eliminates the prohibition on enrollment 
fees, coinsurance, or other cost-sharing charges for services 
furnished by health maintenance organizations (HMOs).

Section 3443. Physician qualification requirements

     This provision repeals the minimum qualifications for 
physicians who furnish services to a child under age 21 or to a 
pregnant woman.

Section 3444. Elimination of requirement of prior institutionalization 
        with respect to habilitation services furnished under a waiver 
        for home or community-based services

     Under current law, States may obtain waivers to provide a 
broad range of home and community-based services, including 
habilitation services, to persons who otherwise would require 
institutional care. Habilitation services, however, may be 
provided only to an individual who has been discharged from a 
nursing facility or an intermediate care facility for the 
mentally retarded. Section 3444 repeals the prior 
institutionalization requirement that applies to habilitation 
services offered under these home and community-based programs.

Section 3445. Benefits for services of physician assistants

     This provision permits States to cover services furnished 
by a physician assistant which the assistant is legally 
authorized to perform under State law and with the supervision 
of a physician.

Section 3446. Study and report on actuarial value of EPSDT benefit

     This provision requires the Secretary to provide for a 
study on the actuarial value of early and periodic screening, 
diagnostic, and treatment (EPSDT) services. The study would 
include an examination of the value attributable to the non-
screening portions of EPSDT services.

                      Subchapter F--Administration

Section 3451. Elimination of duplicative inspection of care 
        requirements for ICFs/MR and mental hospitals

     Under current law, States that provide services in mental 
hospitals and in intermediate care facilities for the mentally 
retarded (ICFs/MR) must provide for periodic inspections of 
care for each Medicaid beneficiary who receives services in the 
institution. Inspections of care have been conducted to assure 
that persons are receiving the appropriate level of care of 
adequate quality. The Department of Health and Human Services 
has established a new survey outcome-oriented process for 
mental hospitals and ICFs/MR. Section 3451 eliminates 
inspection of care reviews in mental hospitals and ICFs/MR and 
retains survey and certification reviews for the facilities.

Section 3452. Alternative sanctions for noncompliant ICFs/MR

     Under current law, ICFs/MR must meet certain requirements 
and standards for safety and for the proper provision of care. 
If a State finds that a facility is out of compliance with the 
requirements, the facility's participation in Medicaid can be 
terminated, or the State can withhold payment for new 
admissions to the facility until the deficiencies have been 
corrected. States have limited sanctions available for use for 
ICFs/MR that are found to have deficiencies that do not 
jeopardize the health and safety of patients. Section 3452 
allows States to establish alternative remedies that are 
demonstrated to be effective in deterring noncompliance.

Section 3453. Modification of MMIS requirements

     This provision deletes current statutory language that 
relates to 1980s requirements for the Medicaid Managed 
Information System (MMIS). It would require each State to 
operate a system that is adequate to provide efficient, 
economical, and effective administration, and is compatible 
with the claims processing and information retrieval systems 
that are used to administer the Medicare program. In addition, 
for claims filed on or after Jan. 1, 1999, the provision would 
require each State's system to electronically transmit data to 
the Secretary in a specific format.

Section 3454. Facilitating imposition of State alternative remedies on 
        non-compliant nursing facilities

     This provision eliminates the requirement for States to 
repay Federal funds for failure of a facility to correct 
deficiencies according to an approved plan of correction.

Section 3455. Medically accepted indication

     Each State is required to provide for a drug use review 
(DUR) program to assure that covered outpatient drugs are 
appropriate, medically necessary, and are not likely to result 
in adverse medical results. Under the DUR program, data on drug 
use is to be assessed against predetermined standards 
consistent with compendia specified in the law. Section 3455 
adds the DRUGDEX Information System to specified compendia for 
assessing data on drug use.

Section 3456. Continuation of State-wide Section 1115 Medicaid waivers

     This provision amends Section 1115 of the Act to provide 
for a simplified renewal or extension process. Within a year 
before the expiration date of a waiver project, the chief 
executive officer of a State could submit a written request to 
the Secretary of Health and Human Services (HHS) to extend the 
project for up to 3 years. If the Secretary did not respond to 
therequest within 6 months, the request would be deemed to have 
been granted. The deadline for a final report on the project would be 
extended until 1 year after the waivers would originally have expired, 
and the Secretary's evaluation of the project would be due up to 1 year 
after the final report. The project extension would be on the same 
terms and conditions that applied to the project before the extension. 
If budget neutrality was an original condition of approval of a waiver 
project, the Secretary would be required to assure that such condition 
was met in the extension of the project. In so doing, the Secretary 
would have to take into account the Secretary's best estimate of rates 
of change in expenditures at the time of the extension.
     It is the Committee's intent that a State operating under 
a Section 1115 research and demonstration waiver be permitted 
to use disproportionate share funds allotted to the State for 
the purpose of coverage expansion at the discretion of the 
State.

Section 3457. Authorizing administrative streamlining and privatizing 
        modifications under the Medicaid Program

     This provision would allow Medicaid eligibility 
determinations to be made by an entity that is not a State or 
local government, or by an individual who is not an employee of 
a State or local government. The conditions for eligibility and 
the right to challenge determinations would not be affected by 
this change; nor would determinations regarding quality control 
or error rates.

Section 3458. Extension of moratorium

     Medicaid payment for services provided by institutions for 
mental disease (IMD) may be made only for beneficiaries who are 
under age 21 or over age 65. For two specified facilities, 
previous legislation has imposed a moratorium on determination 
of the facilities as IMDs. This provision extends the 
classification of the two facilities as IMDs for purposes of 
Medicaid reimbursement.
     To facilitate its intended review and reform of the 
designation and payment of IMDs, the Committee calls on the 
States to collect data, on per-recipient and per-inpatient 
bases, relating to the utilization and cost of care provided to 
Medicaid recipients served by IMDs. This data will assist the 
Committee and other interested Federal agencies in the creation 
of a reliable baseline for IMD recipient expenditures, upon 
which cost estimates of statutory reform may be made.

                      Chapter 2--Quality Assurance

Section 3461. Requirements to ensure quality and access to care under 
        managed care plans

     States entering into contracts with managed care entities 
are required under this provision to establish a quality 
assurance program, consistent with standards that the Secretary 
would establish and monitor, in consultation with States and 
that do not preempt the application of stricter State 
standards. State quality assurance programs would be required 
to include: (1) standards for adequate access to primary care 
and specialized services, including pediatric services for 
special needs children; (2) procedures for monitoring and 
evaluating quality of care that includes submitting quality 
assurance data using requirements for entities with Medicare 
contracts or other requirements as approved by the Secretary, 
and periodic assessment of quality improvement strategies; and 
(3) provisions for financial reporting.
     Managed care entities would be required to submit to the 
State any information the State may find necessary to monitor 
care, maintain an internal quality assurance program consistent 
with the State's quality assurance program described above, and 
provide effective grievance procedures.
     Health maintenance organizations with contracts in effect 
under Section 1876 of the Social Security Act or MedicarePlus 
organizations with contracts in effect under Part C of Title 
XVIII of the Social Security Act could, at State option, be 
deemed to be in compliance with the requirements of Section 
1903(m) pertaining to managed care entities.
     The provision would allow States to deem those managed 
care entities that have been accredited by an accrediting 
organization to be in compliance with the requirements of 
Section 1903(m) pertaining to managed care entities. Such an 
accrediting organization must be: (1) private and nonprofit; 
(2) in existence for the primary purpose of accrediting managed 
organizations or health care providers; and (3) independent of 
health care providers or an association of health care 
providers. The Secretary would be required to specify 
requirements for the standards and process by which a managed 
care entity may be accredited by such an accrediting 
organization. The provisions of this section would apply to 
agreements between State agencies and managed care entities 
entered into or renewed on or after January 1, 1999.

Section 3462. Solvency standards for certain health maintenance 
        organizations

     Effective for contracts entered into or renewed on or 
after October 1, 1998, this section requires an HMO to either 
meet the same solvency standards set by the States for private 
HMOs or be licensed or certified by the State as a risk-bearing 
entity. Such requirements shall not apply to an organization 
if: (1) the organization does not provide inpatient and 
physician services; (2) the organization is a public entity; 
(3) the organization's solvency is guaranteed by the State; or 
(4) the organization is a Federally qualified health center. 
Such requirements shall not apply to fully capitated HMOs under 
contract as of the date of enactment of this Act until 3 years 
after the date of enactment of this Act.

Section 3463. Application of a prudent layperson standard for emergency 
        medical condition and prohibition of gag rule restrictions

     This provision requires that contracts with managed care 
plans provide for coverage for emergency services without 
regard to: (1) whether the emergency care provider has an 
arrangement with the plan; and (2) prior authorization. Plans 
would be required to comply with 'such guidelines as the 
Secretary may prescribe relating to promoting efficiency and timely 
coordination of appropriate maintenance and post-stabilization care 
provided to an enrollee determined to be stable by a medical screening 
examination required under the Examination and Treatment under 
Emergency Medical Conditions and Women in Labor requirements of the 
Social Security Act (Section 1867).
     Emergency services would be defined, with respect to an 
individual enrolled with a participating HMO, as covered 
inpatient and outpatient services that are furnished by a 
qualified provider and needed to evaluate or stabilize an 
emergency medical condition. An emergency medical condition 
would be defined as one manifesting itself by acute symptoms of 
sufficient severity such that a prudent layperson, who 
possesses an average knowledge of health and medicine, could 
reasonably expect the absence of immediate medical attention to 
result in: (a) placing the health of the individual in serious 
jeopardy (and in case of a pregnant woman, her health or that 
of her unborn child); (b) serious impairment to bodily 
functions; or (c) serious dysfunction of any bodily organ or 
part.
     The provision also prohibits interference with physician 
advice to enrollees. A participating health plan could not 
prohibit or otherwise restrict covered health care 
professionals from talking to their patients about their health 
status, health care, or treatment options, regardless of 
whether benefits for such care or treatment were provided under 
the plan so long as the professional is acting within the 
lawful scope of practice. ``Covered health care professional'' 
would include physicians, and other health care professionals 
(as specified).
     HMOs would not be required to provide, reimburse, or 
provide coverage of a counseling or referral service if they 
objected to the provision of such service on moral or religious 
grounds. HMOs would be required to inform prospective and 
current enrollees of any such services they did not provide 
before or during enrollment or within 90 days after the date 
that the HMO adopts a change in policy regarding such a 
counseling or referral service.
     In subsection (B), the Committee has adopted a 
``conscience protection'' provision. Subsection (B) is intended 
to ensure that MedicarePlus organizations motivated by 
religious or moral beliefs can comply with subsection (A) while 
maintaining ethical integrity. Specifically, subsection (A) 
should not be construed to require MedicarePlus organizations 
to provide, reimburse for, or provide coverage of a counseling 
or referral service if the organization offering the plan 
objects to the provision of such service on moral or religious 
grounds. The provision is consistent with the intent of 
subsection (A) because health care professionals under contract 
with a MedicarePlus organization are free to advise their 
patients about relevant medical care or treatment. However, 
subsection (B) makes clear that neither the organization nor 
its employees must provide a counseling service or a referral 
service, nor does the organization have to reimburse for, or 
provide coverage of, such service, if it objects to such 
service on moral or religious grounds.
     Subsection (B)(ii) is a requirement that MedicarePlus 
organizations make available to prospective and current 
enrollees information on its policies regarding the counseling 
and referral services to which it objects on moral or religious 
grounds. The Committee has permitted the plans to make this 
information on its policies available through written 
instrumentalities in the manner which the MedicarePlus 
organization deems appropriate so as to remove discretion from 
the Secretary or any other government entity to impose 
burdensome regulatory, legal, or stylistic requirements with 
respect to this subsection. However, the Committee intends that 
the information not be made available in a manner that 
intentionally obfuscates or seeks to deceive a prospective or 
current enrollee.
     Subsection (B)(ii) requires a MedicarePlus organization to 
make such information on its policies available to prospective 
enrollees before or during enrollment. The subsection also 
makes clear that if a plan changes such a policy or adopts a 
new policy regarding a counseling or referral service to which 
it has moral or religious objections during the plan year, that 
it must make available information to current enrollees within 
90 days of such a policy change regarding such a counseling 
service.
     Subsection (B)(iii) is a construction clause making clear 
that nothing in subsection (B) should be construed to affect 
disclosure requirements under the State law or under the 
Employee Retirement Income Security Act of 1974.
     The Committee emphasizes that the underlying guarantees of 
the Federal Medicaid laws remain in force for managed care 
enrollees and that States cannot abrogate these guarantees 
through a limited contract with a managed care organization. If 
the managed care provider with which a beneficiary is enrolled 
is unwilling or unable to provide a particular service (such as 
a full range of nondirective counseling, referral, and services 
for reproductive health care), the State must treat such a 
service as having been ``carved out'' of its contract with the 
organization and take positive steps to ensure that the service 
is truly available without burden to beneficiaries through 
another system or provider and that the beneficiaries know of 
this availability. The Committee intends that the prospective 
and updated notices of the organization's unwillingness or 
inability to provide some services be made in a clear and 
complete manner. Services that must be sought outside the 
organization should be identified in an easily understood way 
and not as blanket generalizations or in complex or arcane 
terms.

Section 3464. Additional fraud and abuse protections in managed care

    This provision requires that a State, in consultation with 
a medical care advisory committee, approve all marketing 
material an HMO wishes to distribute, prior to distribution. 
HMOs would be prohibited from: (1) distributing any marketing 
material containing false or misleading information; (2) 
seeking to influence enrollment in conjunction with the sale of 
any other insurance; and (3) directly or indirectly conducting 
door-to-door, telephonic, or other ``cold call'' marketing of 
enrollment. HMOs would be required to distribute marketing 
information to their entire service area. Before an individual 
is enrolled in a plan, HMOs would be required to comply with 
conditions the Secretary would prescribe to ensure that they 
are provided with accurate oral and written information 
sufficient to make an informed enrollment decision. The State 
would be prohibited from contracting with an HMO found to have 
distributed false or misleading marketing information.
    An HMO could not knowingly affiliate with a person (or an 
affiliate of such person) debarred, suspended, or otherwise 
excluded from participating in procurement activities under the 
Federal acquisition regulation, or from participating in 
nonprocurement activities under regulations issued pursuant to 
Executive Order 12549. Specifically, an HMO could not have such 
a person as a director, officer, partner, or person with 
beneficial ownership of more than 5 percent of the organization 
equity. Further, an HMO could not have an employment, 
consulting, or other agreement with such a person for items and 
services related to the organization's contract with the State.
    If a State found an HMO contractor to be out of compliance 
with the above requirements, it could continue an existing 
agreement with such organization unless the Secretary, in 
consultation with the Inspector General of the Department, 
directs otherwise. The State could not renew or otherwise 
extend the duration of an existing contract with such 
organization unless the Secretary, in consultation with the 
Inspector General of the Department of HHS, provided to the 
State and to Congress compelling reasons for such renewal or 
extension.
    States would be required to have conflict-of-interest 
safeguards in effect relating to State officers and employees 
having responsibilities over contracts with managed care 
entities. Such safeguards must be at least as effective as the 
Federal safeguards provided under Section 27 of the Office of 
Federal Procurement Policy Act.
    Federal financial participation (FFP) would be available in 
expenditures for the use of an enrollment broker in marketing 
HMOs and other managed care entities to eligible individuals, 
on the condition that the broker is independent of any plan or 
provider in the State, and that no person who is an owner, 
employee, consultant, or has a contract with the broker has any 
financial relationship with participating managed care entities 
or providers, or has been excluded from participating in 
Medicaid or Medicare.

Section 3465. Grievances under managed care plans

    This provision requires that contracts with capitated 
managed care entities provide for compliance with the following 
grievance and appeals requirements. One, participating managed 
care entities must provide a meaningful and expedited procedure 
for resolving grievances between the entity and its enrollees. 
Such a procedure would include notice and hearing requirements. 
Two, the managed care entity must inform plan enrollees in a 
timely manner of any denial, termination, or reduction of 
services. The plan must clearly state the reason for the denial 
of service. The plan must provide enrollees with an explanation 
of the plan's complaint process and of all other appeal rights 
available to them. And, three, plans must establish a board of 
appeals to resolve grievances concerning denials of coverage or 
payment for services. The board shall consist of 
representatives of the managed care entity, including physician 
and nonphysicians; consumers who are not plan enrollees; and 
providers with expertise in the field of medicine which 
necessitates treatment. The board shall hear and resolve filed 
complaints within 30 days. This provision would not replace or 
supersede any other Medicaid appeal mechanisms.

Section 3466. Standards relating to access to obstetrical and 
        gynecological services under managed care plans

     Managed care plans requiring or allowing enrollees to 
designate their primary care provider are required by this 
provision to permit female enrollees to designate a 
participating obstetrician-gynecologist as their primary care 
provider. Enrollees who have designated other providers as 
their primary care provider must be permitted to obtain 
obstetric and gynecologic care from a participating 
obstetrician-gynecologist without prior authorization. The 
ordering of any other gynecologic care by the participating 
obstetrician-gynecologist would be considered prior 
authorization for such care.

                      Chapter 3--Federal Payments

Section 3471. Reforming disproportionate share payments under state 
        medicaid programs

    This provision establishes additional caps on the State DSH 
allotments for Fiscal Years 1998-2002. The State DSH allotments 
for States in which 1995 DSH payments were less than 1 percent 
of total medical assistance spending would be frozen at the 
level of payments for DSH adjustments in those States in 1995. 
For States classified as ``high'' DSH States for Fiscal Year 
1997, DSH allotments would be reduced from the higher of 1995 
or 1996 payment levels. The reduction percentage for ``high'' 
DSH States would be equal to 2 percent in 1998, 5 percent in 
1999, 20 percent in 2000, 30 percent in 2001, and 40 percent in 
2002. All other States' DSH payments would be equal to the 
higher of 1995 or 1996 DSH payments levels reduced by one half 
of the reduction percentages for ``high'' DSH States. The 
provisions of this section would become effective beginning 
with Fiscal Year 1998.
    The Committee has long been critical of DSH cuts as a 
source of Medicaid savings. In the 104th Congress, it reported 
two Medicaid reform measures that preserved all current DSH 
funds and provided for positive rates of growth in every 
subsequent year. Following the Administration's proposed 
reduction in DSH funding, and the inclusion of this proposal in 
the budget agreement, the Committee is focusing its concern on 
the potential impact of DSH reductions on children's hospitals 
and on urban and rural facilities serving high volumes of low-
income and uninsured patients. Many of these ``safety net'' 
hospitals rely on DSH funding to subsidize care for these 
patients and, in some cases, to serve as teaching facilities 
and to provide such essential services as burn care, trauma 
care, neonatal intensive care, and services to high-risk 
pregnant women. The Committee expects States, in allocating DSH 
funds among eligible providers, to take into account the needs 
of these hospitals and the impact of possible DSH reductions on 
access to care for vulnerable patients and in underserved 
areas. The Committee further expects the Secretary to monitor 
the implementation of this section and to report to the 
Committee on the extent to which these reductions may adversely 
impact access to care for low-income children and their 
families.

Section 3472. Additional funding for state emergency health services 
        furnished to undocumented aliens

    This provision provides for additional funding for 
emergency health services furnished to undocumented aliens for 
Fiscal Years 1998 through 2002. For each of the five fiscal 
years, $20 million would be available to distribute among the 
12 States (including the District of Columbia) having the 
highest number of undocumented aliens. In a fiscal year, each 
State's portion of total funds available would be based on its 
share of total undocumented aliens in all of the eligible 
States. Each State's allotment would be available for the 
following fiscal year. The number of undocumented aliens in a 
State would be based on estimates prepared by the Statistics 
Division of the Immigration and Naturalization Services as of 
October 1992.

               Changes in Existing Law Made by Subtitle E

    The changes in existing law made by Subtitle E are included 
at the conclusion of the report on this Title of the bill.

                Minority, Additional or Dissenting Views

    Minority and Additional Views on Subtitle E are provided at 
the conclusion of the report on this Title of the bill.

              Subtitle F--Child Health Assistance Program

                          Purpose and Summary

    The purpose of Subtitle F of Title III is to establish a 
mechanism enabling States to expand the provision of coverage 
and services to low-income uninsured children through such 
means as enrollment in the Medicaid program and in private 
health coverage plans, purchase of services provided by 
children's hospitals and community health centers, and 
improvement of initiatives dedicated to enhancing children's 
access to health services, coverage, and education.

                  Background and Need for Legislation

    In June 1996, the U.S. General Accounting Office (GAO) 
issued its report on ``Health Insurance for Children''--and 
helped to spark a national debate on how to decrease the rate 
of uninsurance among low-income children in America. In its 
report, GAO published an alarming finding: ``In 1994, an 
estimated 3.5 million children--fully 35 percent of all 
uninsured children--were eligible for Medicaid coverage that 
they did not receive.''
    In short, despite unprecedented levels of Medicaid spending 
and Federal control, many Medicaid-eligible children do not 
receive the services to which they are entitled.
    Over the last three decades, the Medicaid program has 
experienced unprecedented growth in both its cost and the 
complexity of its Federal mandates and regulations. Although 
this evolution has been defended by some as making the Medicaid 
program more responsive to the needs of low-income Americans, 
GAO's recent finding suggests that a different approach may be 
necessary to finally ensuring that the nation's low-income 
children do not lack the health coverage and services they 
need. In fact, the persistent problem of child uninsurance 
indicates that, despite its provision of substantial Federal 
funding and its passage of numerous operations mandates, 
Congress has yet to give the States the tools they need to 
ensure that low-income uninsured children receive the 
assistance they currently lack.
    Washington's failure to give States the tools they need to 
expand the provision of coverage and services to at-risk 
children has had a serious impact on the nation's health, its 
health care marketplace, and--most of all--on the children 
themselves. Uninsured children, including those eligible for 
Medicaid coverage they do not now receive, are less likely to 
receive the primary and preventive care needed to improve their 
lifelong health. Medicaid-eligible children who are not 
enrolled in the program are less likely to receive the primary 
and preventive care that can improve their lifelong health. 
Without such care, these children are more likely to be served 
by the so-called ``sick-care'' system, as opposed to the health 
care system. As a result, many of them may receive care only 
when they have already become sick, rather than in time to 
prevent many common ailments. In addition, these children may 
need more costly corrective treatment to address ailments that 
could have been prevented with coverage providing for 
consistent primary care.
    Due to such circumstances, many of these children may also 
face a lifetime of more significant health needs and higher 
medical expenses. Care provided to correct an existing ailment 
is generally more expensive than preventive care. In fact, 
leading researchers in the field of pediatrics have estimated 
that uninsured children may face lifelong medical expenses that 
could be as much as 20 percent higher than the cost of care 
borne by children who regularly receive the coverage or 
services they need.
    The cost of health care services provided to uninsured 
children is often borne by taxpayer-funded public institutions, 
charitable organizations, or insured Americans who indirectly 
bear those expenses in the form of higher service costs (a 
practice known as cost-shifting). As a result, the lack of an 
effective and broad-based strategy for expanding coverage and 
service delivery for uninsured low-income children--not to 
mention the Medicaid program's failure to cover all eligible 
children--has created serious inefficiencies in the health care 
marketplace.
    The need for an effective and broad-based strategy is 
timely not solely because of the pressing needs of low-income 
uninsured children but because of the tremendous gains made 
independently by States in this effort. For example, States 
have made significant progress in expanding children's coverage 
under Medicaid despite restrictive Federal regulations. In 
fact, GAO estimates that over a third of all Medicaid-covered 
children were made eligible by voluntary State expansions.
    In an effort to further address the lack of coverage and 
services among low-income children, many States have also 
undertaken a variety of initiatives aimed at reducing 
uninsurance among children. Principal among these efforts are 
State partnerships with nonprofit organizations and private 
corporations to develop innovative health programs that have 
expanded access to responsive and effective health care for 
targeted youths. State- and privately-funded programs have been 
successful in large part because they tend to achieve a number 
of objectives essential to expanded children's coverage. Most 
notably, they:
          cover children who would otherwise be uninsured,
          complement existing Medicaid coverage,
          limit costs and utilize income-sensitive cost-
        sharing,
          emphasize primary and preventive services,
          integrate a wide range of providers and carriers, and
          utilize existing State, nonprofit, and private 
        administrative systems.
    As these successes indicate, advances in the coverage of 
children have occurred when States have the flexibility to 
achieve maximum coverage through the Medicaid program and 
related initiatives. The objective of the Child Health 
Assistance Program (CHAP) proposal, therefore, is to provide 
States with the tools they need to effectively provide needed 
services andexpand Medicaid and private coverage to low-income 
uninsured children in a manner that will increase their access to and 
use of quality primary and preventive care.

                                Hearings

    The Committee's Subcommittee on Health and Environment has 
not held hearings specifically on Subtitle F. The Health and 
Environment Subcommittee, however, held oversight hearings on 
the Medicaid program and a variety of reform issues, including 
State initiatives that incorporate children's health 
initiatives, on July 26, 1995, and on March 11, 1997.
    Testifying before the Subcommittee on July 26, 1995 were: 
The Honorable Fife Symington, Governor of Arizona, accompanied 
by Dr. Mabel Chen, Director, Arizona Health Care Cost 
Containment System; The Honorable Kay C. James, Secretary of 
Health and Human Resources, Commonwealth of Virginia; The 
Honorable Charles Condon, Attorney General of South Carolina; 
Mr. Bruce Vladeck, Administrator, Health Care Financing 
Administration; Michael D. McKinney, M.D., Commissioner, 
Department of Health and Human Services, State of Texas; Mr. 
Robert Corker, Commissioner, Department of Finance and 
Administration, State of Tennessee; Ms. Jean Thorne, Director, 
Office of Medical Assistance Programs, Oregon Department of 
Human Resources, State of Oregon; Ms. Debra Ward, MPH, 
Director, Governmental Relations, United Health Plan; Mr. 
Michael W. Murray, Executive Director, Health Plan of San 
Mateo; Ms. Judith Stavisky, Associate Vice President for Health 
Services, Mercy Health Plan; Ms. Maura Bluestone, President and 
CEO, The Bronx Health Plan; and Dr. Jesse Jampol, HIP Health 
Insurance Plan.
    Testifying before the Subcommittee on March 11, 1997, were: 
The Honorable Michael O. Leavitt, Governor, State of Utah; The 
Honorable Bob Miller, Governor, State of Nevada; Mr. William 
Scanlon, Director of Health Financing Systems, U.S. General 
Accounting Office; Gail Wilensky, Ph.D., Chair, Board of 
Directors, Physician Payment Review Commission; and Diane 
Rowland, Senior Vice President, Henry J. Kaiser Family 
Foundation.

                        Committee Consideration

    On June 10, 1997, the Subcommittee on Health and 
Environment met in open session and approved for Full Committee 
consideration a Committee Print entitled ``Title III, Subtitle 
F--Child Health Assistance Program,'' amended, by a voice vote. 
On June 12, 1997, the Committee met in open session and ordered 
the Committee Print entitled ``Title III, Subtitle F--Child 
Health Assistance Program'' transmitted to the House Committee 
on the Budget, amended, for inclusion in the 1997 Omnibus 
Budget Reconciliation Act, by a roll call vote of 39 yeas to 7 
nays.

                            Roll Call Votes

    Pursuant to Clause 2(l)(2)(B) of rule XI of the Rules of 
the House of Representatives, following are listed the recorded 
votes on the motion to order Subtitle F transmitted to the 
House Committee on the Budget, and on amendments thereto, 
including the names of those Members voting for and against.


      Committee on Commerce--105th Congress, Voice Votes, 6/12/97

    Bill: Committee Print entitled ``Title II, Subtitle F--
Child Health Assistance Program.''
    Amendment: Amendment by Mr. Whitfield re: make the 
authorization for CHAP discretionary starting in 2003.
    Disposition: Withdrawn, by unanimous consent.
    Amendment: Amendment by Mr. Lazio re: change the formula of 
distribution of funds for CHAP.
    Disposition: Withdrawn, by unanimous consent.
    Amendment: Amendment by Ms. DeGette re: Medicaid 
presumptive eligiblity for low-income children.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment by Mr. Waxman re: strike the direct 
service option.
    Disposition: Not agreed to, by a voice vote.
    Amendment: Amendment by Mr. Stupak re: add a new section on 
voluntary purchasing cooperatives.
    Disposition: Withdrawn, by unanimous consent.

                      Committee Oversight Findings

    Pursuant to clause 2(l)(3)(A) of rule XI of the Rules of 
the House of Representatives, the Committee held oversight 
hearings and made findings that are reflected in the report on 
this Subtitle.

              Committee on Government Reform and Oversight

    Pursuant to clause 2(l)(3)(D) of rule XI of the Rules of 
the House of Representatives, no oversight findings have been 
submitted to the Committee by the Committee on Government 
Reform and Oversight.

                        Committee Cost Estimate

    In compliance with clause 7(a) of rule XIII of the Rules of 
the House of Representatives, the Committee states that 
enactment of Subtitle F would create a new initiative that is 
estimated to cost approximately $16 billion over five years.

                  Congressional Budget Office Estimate

    Pursuant to clause 2(l)(3)(C) of rule XI of the Rules of 
the House of Representatives, a letter from the Congressional 
Budget Office providing a cost estimate for all six subtitles 
of Title III is found at the conclusion of the report on this 
Title of the bill.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                   Constitutional Authority Statement

    Pursuant to clause 2(l)(4) of rule XI of the Rules of the 
House of Representatives, the Committee finds that the 
Constitutional authority for this legislation is provided in 
Article I, section 8, clause 3, which grants Congress the power 
to regulate commerce with foreign nations, among the several 
States, and with the Indian tribes.

             Section-by-Section Analysis of the Legislation

Section 3501. Short title of subtitle; table of contents

    This section states that the short title of this Subtitle 
is the ``Child Health Assistance Program Act of 1997'', and 
sets forth the table of contents for the Subtitle.

Section 3502. Establishment of child health assistance program

            New section 2101. Purpose; State child health plans
    Current Law. Medicaid, Title XIX of the Social Security 
Act, provides almost 21 million children with health coverage. 
States choosing to participate in the Medicaid program are 
required to cover children in families who would have qualified 
to receive Aid to Families with Dependent Children (AFDC) under 
the program rules in effect on August 22, 1996; children under 
age 6 in families with income below 133 percent of the Federal 
poverty level; and children under age 14 in families with 
income below 100 percent of the Federal poverty level. Coverage 
for children between the ages of 14 and 18 and in families with 
income below 100 percent of the Federal poverty level is being 
phased-in through 2002. States also have the option to cover 
other categories of low-income children under Medicaid and many 
have done so. All 50 States currently participate in Medicaid. 
The Maternal and Child Health (MCH) Block Grant is authorized 
under Title V of the Social Security Act to improve the health 
of all mothers and children consistent with the goals 
established under the Public Health Service Act. The program 
makes block grants to States to enable them to coordinate 
programs, develop systems, and provide a broad range of direct 
health services.
    Explanation of Provision. The provision would establish a 
new Title XXI of the Social Security Act, Child Health 
Assistance Program. This program would establish entitlement to 
States for grants to expand access to health insurance for 
eligible children.
    New Section 2101 would establish the purpose of the 
program: to provide funds to States to enable them to initiate 
and expand the provision of child care assistance to uninsured, 
low-income children in an effective and efficient manner that 
is coordinated with other sources for obtaining creditable 
coverage. Creditable coverage would mean coverage under: (a) a 
group health plan; (b) other health insurance plans; (c) 
Medicare; (d) Medicaid; (e) Department of Defense health 
programs; (f) Department of Veterans' Affairs health care; (g) 
the Federal Employees Health Benefits Program; (h) a medical 
care program of the Indian health service or tribal 
organization; (i) a State health benefits risk pool; (j) a 
public health plan; and (k) other specified coverage.
    The assistance could be provided through various approaches 
that would be specified in a State plan, including coverage 
under group health plans or group or individual health 
insurance coverage, the State's Medicaid plan, or direct 
purchase of services from providers. To be eligible for Federal 
assistance, a State would have to submit a plan to the 
Secretary of Healthand Human Services (the Secretary) that 
specified how the State intended to use the Federal funds to provide 
health assistance to needy children consistent with Federal 
requirements (as described below). States that meet the requirements 
would be entitled to Federal assistance from funds appropriated for 
this purpose, and unless otherwise established by State law or judicial 
precedent, it is the Committee's intention that the Governor shall be 
responsible for the distribution of these funds and the development and 
implementation of the State plan required as a condition of 
eligibility. No State would be eligible for payments before October 1, 
1997.
            New section 2102. Contents of State child health plan
    A State child health plan would have to include a 
description of: (a) the current insurance status of children, 
including targeted low-income children; (b) current State 
efforts to provide or obtain creditable coverage for uncovered 
children; and (c) how the plan is designed to be coordinated 
with current State efforts to increase creditable coverage of 
children. A State plan also would have to include a description 
of the standards to be used to determine the eligibility of 
targeted low-income children for child health insurance under 
the plan. Eligibility standards could include geography, age, 
income and resources, residency, disability status, and others 
as specified. The eligibility standards could not, within any 
defined class or group of covered targeted low-income children, 
cover children with higher family incomes without covering 
children with lower family incomes. They also could not deny 
eligibility to a child based on a preexisting medical condition 
(defined as a limitation or exclusion of benefits relating to a 
condition based on the fact that the condition was present 
before the date of enrollment, whether or not any medical 
advice, diagnosis, care, or treatment was recommended or 
received before such date).
    In addition, a State plan would have to describe the 
methods of establishing and continuing eligibility and 
enrollment, including a methodology for computing family income 
that meets requirements specified in the provision. Procedures 
established for eligibility would have to ensure: (a) that only 
targeted low-income children received the assistance; (b) that 
children found through screening to be eligible for medical 
assistance under the State's Medicaid program were enrolled in 
Medicaid; (c) that the new insurance did not substitute for 
coverage under group health plans; and (d) that there was 
coordination with other public and private programs providing 
creditable coverage for low-income children. This provision 
would not create an entitlement for any individual to child 
health assistance under a State child health plan.
    The child health assistance provided under the plan would 
be required to include at least the following items and 
services: inpatient and outpatient hospital care, physician 
services, laboratory and x-ray, well-baby and well child care 
including immunizations unless the care is provided under a 
group health plan. It is the Committee's intention that primary 
and preventive dental services be included in the definition of 
well child care, since the Committee recognizes that oral 
health is an essential component of overall health and that 
low-income children suffer disproportionately from dental 
disease. If the care is provided under a group health plan, 
then the benefits under the plan could be no less for CHAP 
beneficiaries than the benefits provided for other individuals 
covered by that plan. A State plan would have to describe the 
nature of the assistance to be provided including: cost-
sharing, the health care delivery method (e.g., managed care, 
fee-for-service, direct provision of services, or vouchers), 
and utilization control systems. A plan could vary premiums, 
deductibles, coinsurance and other cost-sharing based on family 
income of the targeted low-income children only in a manner 
that did not favor children from higher-income families over 
those from lower incomes. Cost sharing would not be allowed for 
preventive services or benefits. A plan could not permit the 
imposition of any preexisting medical condition exclusion for 
covered benefits. If the plan provided for benefits through a 
group health plan or group insurance, preexisting condition 
exclusions could be imposed only to the extent that such 
exclusions are permitted under the Health Insurance Portability 
and Accountability Act (P.L. 104-191). States would be required 
to assure access to specialty care as required by eligible 
children who have chronic or life-threatening conditions. A 
State would not be permitted to pay benefits to an individual 
to the extent that such benefits were available to the 
individual under another public or private health care 
insurance program. Payments in the form of a voucher or cash 
would not be considered income for purposes of eligibility for 
or benefits provided under any means-tested Federal or 
Federally-assisted program.
    Finally, a State plan would have to describe the procedures 
to be used to accomplish outreach and enrollment assistance to 
families of eligible children and to coordinate with other 
public and private health insurance programs.
            New section 2103. Allotments
    For each of the Fiscal Years 1998 through 2002, a total 
allotment of $2.88 billion would be available for the State 
Child Health Assistance Program. The funds would be allotted to 
States based on the number of uncovered children in a base 
period in a State and the relative cost of health care services 
in that State with a floor of $2 million for States and the 
District of Columbia. The base would be determined by taking 
the State's average number of uninsured children for the years 
1993 through 1995 as reported in the March 1994, March 1995, 
and March 1996 supplements to the Current Population Surveys of 
the Bureau of the Census. The Secretary would be required to 
allot 0.5 percent of the total amount of funds to the 
territories, in a manner specified by the provision. In the 
case of a State electing the increased Medicaid match (see 
below), the amount of the State's allotment would be reduced by 
the amount of the State's additional Federal Medicaid payment. 
States would have 3 years to spend their allotments.
            New section 2104. Payments to States
    The Secretary would be required to make quarterly payments 
to each State with an approved child health assistance plan in 
amounts up to 80 percent of program spending during that 
quarter for child health assistance, other initiatives for 
improving child health, outreach and administration of the 
plan, except that no more than 15 percent of the total program 
spending could be used for other child health initiatives, 
outreach and administration. The Secretary would establish 
rules regarding the extent to which funds could be used to 
purchase family coverage for families that include targeted 
low-income children. The rules would allow suchpayment if the 
State demonstrates that the purchase of such coverage is cost effective 
when compared with the cost of covering only the targeted low-income 
children in the families involved.
    Child health assistance funds may not be used to: (a) cover 
children who would be eligible for Medicaid using the income 
and assets standards or methodologies as in effect on June 1, 
1997; (b) pay for the services of a provider who has been 
excluded from participation under the MCH or Social Services 
Block Grant programs, Medicare or other Federal programs except 
for emergency services not provided in hospital emergency 
rooms; (c) pay for services that a private insurer would be 
obligated to cover but for a provision of its insurance 
contract that limits its obligation because the child is 
eligible for child health assistance; (d) pay for services for 
which payment can reasonably be expected to be made under any 
other Federally operated or financed health insurance program 
or the Indian Health Service; or (e) pay for abortions, except 
in the case of a pregnancy resulting from rape or incest, or 
unless the mother is in danger of death unless an abortion is 
performed.
    Federal funds or program spending that is largely 
subsidized by Federal funds may not be claimed as the required 
non-Federal share of costs.
    The Secretary may make payments to States on the basis of 
advance estimates of spending made by the State and other 
investigations that the Secretary may find necessary, and may 
adjust payments as necessary to account for an overpayment or 
underpayment in prior quarters.
            New section 2105. Process for submission, approval, and 
                    amendment of State child health plans
    As a condition of receiving funding under this title, a 
State would be required to submit a State child health plan for 
approval by the Secretary. A State plan would become effective 
beginning in a specified calendar quarter that is at least 60 
days after the plan is submitted. A State may amend its State 
child health plan at any time with a plan amendment. Plan 
amendments must be approved for the purposes of this title and 
would take effect on dates as specified in the amendment. 
Amendments restricting or limiting eligibility or benefits 
could not take effect until there had been public notice of the 
change. The Secretary would be required to promptly review 
State plans and amendments to determine compliance with the 
requirements of this title. Unless the State were notified in 
writing within 90 days that a plan or amendment was disapproved 
and the reasons for disapproval or that additional information 
was needed, the plan or amendment would be deemed approved. In 
the case of a disapproval, the Secretary would provide a State 
with a reasonable opportunity for correction.
    Child health assistance programs would have to be conducted 
in accordance with the State plan and any approved amendments. 
The Secretary would establish a process for enforcing 
requirements under this title. Approved plans would continue in 
effect unless amended or unless the Secretary found the plan 
out of compliance with this title.
            New section 2106. Strategic objectives and performance 
                    goals
    A State child health plan would be required to identify: 
(a) specific strategic objectives aimed at increasing health 
coverage among low-income children; (b) performance goals for 
each strategic objective identified; and (c) performance 
measures that are objective and verifiable, so that when 
compared with the performance goals, indicate the State's 
performance under this title. Plans must include assurances 
that the State will collect data, maintain records, and furnish 
reports as required by the Secretary as well as provide the 
required annual assessments and evaluations. The Secretary 
would be required to have access to any records or information 
for reviews or audits as deemed necessary.
    Plans would be required to include a description of the 
process for obtaining ongoing public involvement in the design 
and implementation of the plan, and the plan's budget to be 
updated periodically including details on the sources of the 
non-Federal share of plan spending.
    The following sections of Title XI would apply to States' 
Child Health Assistance Insurance programs as they do under 
Title XIX: Section 1101(a)(1) relating to the definition of a 
State; Section 1116 relating to administrative and judicial 
review; Section 1124 relating to disclosure of ownership and 
related information; Section 1126 relating to disclosure of 
information about certain convicted individuals; Section 
1128B(d) relating to criminal penalties; and Section 1132 
relating to periods within which claims must be filed.
            New section 2107. Annual reports and evaluations
    A State would be required to provide an annual report to 
the Secretary by January 1 following the end of each fiscal 
year assessing the operation of the plan and the progress made 
in reducing the number of uncovered low-income children during 
the prior fiscal year. States would also be required to provide 
a State evaluation by March 31, 2000, assessing (a) the 
effectiveness of the State plan in increasing the number of 
children with health coverage; (b) the effectiveness of 
specific elements of the plan, such as characteristics of 
families and children assisted and quality of coverage 
provided; (c) the effectiveness of other public and private 
programs in the State in increasing health coverage for 
children; (d) State activities to coordinate the plan with 
other public and private programs providing health care 
coverage; (e) trends in the State affecting the provision of 
health care to children; (f) plans for improving the 
availability of health insurance and health care for children; 
and (g) recommendations for improving the program, among other 
matters the State and Secretary consider appropriate. The 
Secretary would be required to compile a report based on the 
State evaluation to submit to Congress and make available to 
the public by December 31, 2000.
            New section 2108. Definitions
    This section defines the following terms: child health 
assistance, targeted low-income child, Medicaid applicable 
income level, child, creditable health coverage, group health 
plan and health insurance coverage, low income, poverty line, 
preexisting condition exclusion, State child health plan, and 
uncovered child.

Section 3503. Optional use of State child health assistance funds for 
        enhanced Medicaid match for expanded Medicaid eligibility

    Current Law. States participating in the Medicaid program 
are required to cover children under age 6 in families with 
income under 133 percent of the Federal poverty level and older 
children under age 14 in families with income under 100 percent 
of the Federal poverty level. Children between 14 and 18 will 
have coverage phased-in by the year 2002. States may extend 
optional eligibility to other categories of low-income 
children.
    The costs of providing Medicaid coverage are shared by the 
States and the Federal government. The Federal share is 
determined by a formula that takes into account the average per 
capita income in the State relative to the national average. 
States with lower per capita incomes have higher Federal 
matching rates. These Federal matching rates range from a floor 
of 50 percent to almost 80 percent.
    Explanation of Provision. States may choose to use a 
portion of their Title XXI funds to increase the Federal 
matching share of the costs of extending Medicaid coverage to 
targeted low-income children. Targeted low-income children are 
those who do not qualify for Medicaid as in effect on June 1, 
1997, and whose family income is below the higher of 75 
percentage points over the Medicaid applicable income level, or 
133 percent of the poverty line. In order to qualify for the 
enhanced Federal matching funds States must use income and 
resource standards and methodologies to determine eligibility 
for Medicaid that are no more restrictive than those in place 
in the State on June 1, 1997. Qualifying States must also 
report such information as the Secretary deems necessary to 
calculate the remaining child health insurance assistance funds 
available after the enhanced Federal match and to assure that 
no more than 15 percent of those funds are used for activities 
other than providing health care coverage. The enhanced Federal 
matching funds could not exceed the total amount of the child 
health assurance funds allotted to the State under Section 
2104.
    The enhanced medical assistance percentage would be equal 
to the Federal medical assistance percentage increased by the 
number of percentage points equal to 30 percent multiplied by 
the number of percentage points by which the Federal medical 
assistance percentage is less than 100 percent. States would be 
allowed to impose limits on the number of optional targeted 
low-income children whose health care costs are eligible for 
enhanced Federal matching payments under this provision. All 
provisions in this section become effective on October 1, 1997.

Section 3504. Medicaid presumptive eligibility for low-income children

    Current Law. States have the option to allow presumptive 
eligibility for pregnant women. Under presumptive eligibility, 
health care providers are able to grant pregnant women with 
immediate, short-term Medicaid eligibility at the provider site 
while formal determination is being made. Presumptive 
eligibility is intended to provide immediate access to prenatal 
care services. As of 1996, 30 States have opted to provide 
presumptive eligibility.
    Explanation of Provision. The provision would allow States 
to provide for a presumptive eligibility period for children 
under the age of 19. The presumptive eligibility period would 
begin when a qualified entity determines, based on preliminary 
information, that the family income of the child is below the 
applicable income eligibility threshold for the State Medicaid 
program, and ends when a formal determination is made. For 
children on whose behalf an application is not filed, the 
presumptive eligibility period would end on the last day of the 
month following the month when the period began.

               Changes in Existing Law Made by Subtitle F

    The changes in existing law made by Subtitle F are included 
at the conclusion of the report on this Title of the bill.

                Minority, Additional or Dissenting Views

    Minority Views on Subtitle F are provided at the conclusion 
of the report on this Title of the bill.

                  Congressional Budget Office Estimate

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 16, 1997.
Hon. Tom Bliley,
Chairman, Committee on Commerce, U.S. House of Representatives, 
        Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for the non-Medicare 
reconciliation recommendations of the House Committee on 
Commerce (Title III). The estimate for the committee's 
recommendations for Medicare (Title IV) is being provided under 
separate cover.
    The estimate includes a summary table that shows the 
budgetary effects of the committee's proposals over the 1998-
2002 period, and additional, more detailed tables of estimated 
effect through 2007. CBO understands that the Committee on the 
Budget will be responsible for interpreting how these proposals 
compare with the reconciliation instructions in the budget 
resolution. This estimate assumes the reconciliation bill will 
be enacted by August 15, 1997; the estimate could change if the 
bill is enacted later.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are listed at 
the end of the estimate.
            Sincerely,
                                         June E. O'Neill, Director.
    Enclosure.

Non-Medicare Reconciliation Recommendations of the House Committee on 
        Commerce (Title III)

    Summary: Title III contains five subtitles aimed at 
providing budgetary savings from federal energy programs, 
auctions of licenses for use of portions of the electromagnetic 
spectrum, and Medicaid. A sixth subtitle would provide for 
increased direct spending by funding a child health care 
initiative. CBO estimates that enacting the provisions of Title 
III would produce net budgetary savings totaling $6.9 billion 
over the 1998-2002 period.
    By extending the Nuclear Regulatory Commission's (NRC's) 
authority to collect fees from utilities, Subtitle A would 
impose an intergovernmental and private-sector mandate as 
defined by the Unfunded Mandates Reform Act of 1995 (UMRA). 
This provision would not impose costs above the threshold 
established in that law for intergovernmental mandates ($50 
million in 1996, adjusted for inflation). CBO cannot determine 
whether the direct costs of this provision would exceed the 
annual threshold for private-sector mandates ($100 million in 
1996, adjusted for inflation), because UMRA is unclear as to 
how to define the direct costs associated with extending an 
existing mandate that has not yet expired. Depending on how 
they are measured, the direct costs to the private sector could 
exceed the threshold. Other subtitles of Title III contain 
provisions that, while not mandates as defined in UMRA, would 
have significant impacts on the budgets of state, local, and 
tribal governments.
    Description of Major Provisions: Subtitle A would extend 
through 2002 the NRC's authority to charge fees to offset 100 
percent of its general fund appropriation.
    Subtitle B would revise the terms under which the 
Department of Energy (DOE) could lease excess capacity of the 
Strategic Petroleum Reserve (SPR) to foreign governments and 
would direct the department to spend any income derived from 
leasing after fiscal year 2002 on SPR-related activities 
without further appropriation. The fees charged for storage 
would have to fully compensate the United States for all the 
costs associated with storing and removing the oil, including 
the cost of replacement facilities, if necessitated by the 
leasing activity.
    Subtitle C would direct DOE to sell specified amounts of 
natural and low enriched uranium that have been declared 
surplus to national security needs. DOE would be required to 
sell 3.2 million pounds during each of the fiscal years 1999 
through 2002, subject to certain conditions. In particular, 
before selling the uranium, DOE would have to determine that 
selling the specified amounts over the 1999-2002 period would 
satisfy existing statutory criteria regarding the sale of such 
materials from DOE's stockpiles, and proceeds from the sales 
would have to be collected and deposited in the general fund of 
the Treasury between 1999 and 2002.
    Subtitle D contains several provisions relating to 
assignment of licenses for using the electromagnetic spectrum. 
It would instruct the Federal Communications Commission (FCC) 
to use competitive bidding to assign licenses for most mutually 
exclusive applications of the electromagnetic spectrum and it 
would extend the FCC's authority to conduct such auctions 
through fiscal year 2002. Under current law, that authority 
expires at the end of fiscal year 1998. The subtitle also would 
amend current law by broadening the commission's authority to 
use competitive bidding to assign licenses. Current law 
restricts the use of competitive bidding to those mutually 
exclusive applications in which the licensee would receive 
compensation from subscribers to a communications service.
    In addition, Subtitle D would require the FCC and the 
Department of Commerce, through the National Telecommunications 
and Information Administration (NTIA), to make available blocks 
of spectrum for allocation for commercial use and to assign the 
rights to use those blocks by competitive bidding, if the FCC 
determines that various specified conditions are met for each 
of the blocks of spectrum identified in the subtitle. The 
additional licenses that could be assigned by competitive 
bidding would grant the right to use 100 megahertz (MHz) of 
spectrum located below 3 gigahertz (GHz) currently under the 
FCC's jurisdiction and an addition 20 MHz also below 3 GHz to 
be identified by the NTIA and transferred to the FCC's 
jurisdiction.
    Under current law, a part of the spectrum currently 
reserved for television broadcasting will become available for 
reallocation as broadcasters comply (over the next several 
years) with the FCC's direction to adopt digital television 
broadcasting technology to replace the current analog 
technology. This subtitle would make available for licensing 
and assignment by competitive bidding certain frequencies that 
are currently allocated for analog television broadcasting, 
including a part of the spectrum between 746 MHz and 806 MHz 
(frequenciescurrently allocated for primary use by ultra high 
frequency television broadcasting on channels 60 through 69).
    The requirement that the commission use competitive bidding 
to assign the rights to use the frequencies noted in Subtitle D 
would be conditional. In all cases, the FCC would be directed 
to refrain from using competitive bidding unless it determines 
that license sales granting the use of various frequencies will 
meet specified dollar targets for aggregate winning bids. In 
addition, the commission would be authorized to void the 
results of any actions that take place but fail to meet targets 
for aggregate wining bids. Moreover, the commission could 
choose to delay assignment of licenses by competitive bidding 
if it determines that conducting auctions at a later date 
``will better attain the objectives of recovering for the 
public a fair portion of the value of the public spectrum 
resource and avoiding unjust enrichment.'' Finally, for the 
frequencies between 746 MHz and 806 MHz, the FCC would not be 
permitted to make allocations and assign licenses by auction 
unless each qualifying low-power television station (as defined 
in the title) is assigned a frequency below 746 MHz to continue 
its operation.
    Subtitle E would reduce federal payments for 
disproportionate share hospitals (DSH). Except for states whose 
DSH spending in 1995 was under 1 percent of medical assistance 
spending state allotments would depend on whether a state was 
designated as a high- or low-DSH state in 1997. For high-DSH 
states, allotments would equal each state's 1995 DSH spending 
reduced by 2 percent in 1998, with larger reductions in later 
years, reaching 40 percent in 2002. For low-DSH states, the 
state allotment would equal the state's 1995 spending reduced 
by half of the percentage reduction applied to high-DSH states.
    This subtitle also includes provisions giving states 
greater flexibility in how they administer their Medicaid 
programs. The Boren amendment, which requires states to 
reimburse hospitals and nursing homes at ``reasonable and 
adequate'' rates, would be repealed. States would also have 
greater leeway to implement managed care programs, expand 
eligibility, change benefits, and meet federal requirements for 
administrative activities.
    Subtitle F establishes a Child Health Assistance Program 
that would provide matching grants to states for the provisions 
of child health care assistance to uninsured, low-income 
children. The money would be allocated on the basis of 
participating states' shares of the total number of uninsured 
children, adjusted for the average cost of health care. The 
state matching requirement would be 20 percent. States would 
have substantial discretion in how to spend these funds, and 
could use them to purchase health insurance coverage from group 
plans, arrange for health care services directly through 
providers, expand their Medicaid programs, or use other 
approved methods.
    Estimated Cost to the Federal Government: CBO estimates 
that the provisions of Title III would reduce direct spending 
by $6.7 billion over the next five years. That estimated impact 
would come from enacting Subtitles B, D, E, and F. In addition, 
we estimate that enacting Subtitle C would yield $184 million 
in asset sale proceeds over the same period. Gross budgetary 
savings would total $24.5 billion over the 1998-2002 period, 
but that amount would be partially offset by new direct 
spending, primarily under Subtitle F, totaling $17.6 billion 
over the same period. Enacting Subtitle A would, by itself, 
have no budgetary impact relative to the budget resolution 
baseline.
    Table 1 summarizes the estimated budgetary impact of Title 
III over the 1998-2002 period. More detailed table showing 
estimated budgetary effects through 2007 appear at the end of 
this estimate. Table 2 summarizes the 10-year budgetary effects 
by subtitle. Table 3 displays detailed estimates for Subtitle D 
(Communications), while Table 4 presents detailed estimates for 
Subtitle E (Medicaid).
    The budgetary effects of this legislation fall within 
budget functions 270 (energy), 370 (commerce and housing 
credit), 550 (health), and 950 (undistributed offsetting 
receipts).

Basis of estimate

            Nuclear Regulatory Commission Annual Charges (Subtitle A)
    This provision would extend through 2002 the NRC's 
authority to charge fees to offset 100 percent of its general 
fund appropriation. Under current law, after 1998 the NRC would 
be authorized to set fees on the industries it regulates 
sufficient to cover only 33 percent of its budget. Because the 
amount of fees collected under this provision would be 
determined by the size of the NRC's general fund appropriation, 
this provision would not affect direct spending.
    Assuming future appropriations for the NRC continue at the 
1997 level adjusted for inflation, enactment of this provision 
would increase offsetting collections by an average of about 
$340 million annually over the 1999-2002 period. Under rules 
for projecting discretionary spending established in the Budget 
Enforcement Act of 1990, however, the baseline projection of 
NRC spending for the 1998-2002 period is based on the agency's 
net spending level in 1997. Because the 1997 level reflects fee 
collections sufficient to offset 100 percent of the NRC's 
general fund appropriations, the provision to extend full-cost 
recovery does not produce any discretionary savings relative to 
the budget resolution baseline.

TABLE 1. ESTIMATED BUDGETARY IMPACT OF THE NON-MEDICARE RECONCILIATION RECOMMENDATIONS OF THE HOUSE COMMITTEE ON
                                                    COMMERCE                                                    
                                    [By fiscal year, in millions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                                                  1998      1999      2000      2001      2002  
----------------------------------------------------------------------------------------------------------------
                                           CHANGES IN DIRECT SPENDING                                           
                                                                                                                
Subtitle B: Lease of Excess SPR Capacity:                                                                       
    Estimated budget authority................................         0        -1        -2        -4        -6
    Estimated outlays.........................................         0        -1        -2        -4        -6
Subtitle D: Receipts from Spectrum Auctions:                                                                    
    Estimated budget authority................................         0      -800    -2,100    -3,000    -3,800
    Estimated outlays.........................................         0      -800    -2,100    -3,000    -3,800
Subtitle E: Medicaid:                                                                                           
    Estimated budget authority................................       260      -700    -2,360    -3,620    -4,960
    Estimated outlays.........................................       260      -700    -2,360    -3,620    -4,960
Subtitle F: State Child Health Coverage:                                                                        
    Estimated budget authority................................     2,880     2,880     2,880     2,880     2,880
    Estimated outlays.........................................     2,880     2,880     2,880     2,880     2,880
Total Proposed Changes in Direct Spending:                                                                      
    Estimated budget authority................................     3,140     1,379    -1,582    -3,744    -5,886
    Estimated outlays.........................................     3,140     1,379    -1,582    -3,744    -5,886
                                                                                                                
                                            RECEIPTS FROM ASSET SALES                                           
                                                                                                                
Subtitle C: Sale of DOE Assets:                                                                                 
    Estimated budget authority................................         0       -10       -52       -52       -70
    Estimated outlays.........................................         0       -10       -52       -52       -70
                                                                                                                
                                  ADDITIONAL SPENDING SUBJECT TO APPROPRIATION                                  
                                                                                                                
Subtitle D: Spectrum Auction Expenses:                                                                          
    Estimated authorization level.............................        12        12        12        12        12
    Estimated outlays.........................................        11        12        12        12        12
----------------------------------------------------------------------------------------------------------------

Lease of excess SPR capacity (Subtitle B)

    This subtitle would remove some of the statutory 
impediments to leasing the excess capacity of the SPR to 
foreign governments. For example, products stored on behalf of 
foreign governments would not be considered part of the U.S. 
reserve and could be exported. Estimates of how much of the 
excess capacity (currently about 110 million barrels) would be 
leased are speculative, because the decision to lease resides 
with foreign governments, not DOE. At this time, most nations 
needing capacity either have plans for domestic storage or face 
regulatory barriers to using U.S. facilities. CBO expects, 
however, that one or more nations would chose to store small 
quantities of oil in the SPR to accommodate growth in their 
storage requirements or to satisfy other strategic objectives. 
We estimate that such leasing activity would generate receipts 
totaling about $13 million over the 1999-2002 period, assuming 
a storage fee of about $1.20 per barrel (in 1997 dollars). 
Beginning in 2003, this provision would no longer generate net 
receipts because DOE would be authorized to spend the proceeds 
from leasing to purchase oil for the reserve without further 
appropriation.

Sale of DOE assets (Subtitle C)

    CBO estimates that enacting Subtitle C would generate asset 
sale proceeds totaling $184 million over the 1999-2002 period. 
Under current law, DOE is required to sell uranium from its 
stockpile to raise a total of $77 million to offset 
appropriations provided for fiscal years 1996 and 1997. CBO 
projects that DOE will sell about three million pounds of 
uranium in 1998 and about 1.5 million pounds in 1999 to meet 
the $77 million target in current law. Based on recent 
departmental findings supporting that effort, CBO expects that, 
under the conditions specified in this subtitle, the Secretary 
could justify selling a total of 3.2 million pounds per year 
through 2002. Because we expect DOE to be marketing about 1.5 
million pounds in 1999 under current law, we assume that DOE 
would sell slightly less than 2 million pounds under this new 
authority that year. Hence, the estimate of $184 million in 
proceeds attributable to Subtitle C is based on an assumed 
sales total of about 11 million pounds of uranium over the 
1999-2002 period. Based on information provided by the 
department and committee staff, we assume that the uranium 
being sold as a result of this provision would be in addition 
to the Russian-derived uranium that must be sold over the same 
period. Finally, the spending required to conduct the sale 
would have no net effect on outlays, because this bill would 
require DOE to finance such costs using unobligated balances 
that otherwise would have been spent on other activities.

Receipts from spectrum auctions (Subtitle D)

    CBO estimates that the federal government would collect 
$9.7 billion in offsetting receipts over the 1998-2002 period 
from enacting the provisions contained in Subtitle D. This 
estimate reflects the likelihood that some of the auctions 
authorized by the subtitle would either not occur in the next 
five years or would yield relatively low aggregate winning 
bids. CBO believes that significantly higher aggregate auction 
receipts could be obtained under auction authority without the 
restrictions included in Subtitle D. Estimates for the major 
components of Subtitle D are discussed below and displayed in 
Table 3.
    CBO expects that extending and broadening the FCC's 
authority to auction licenses through 2002 (under section 3301) 
would increase receipts by $5.8 billion over the 1998-2002 
period. Most of the estimated receipts would be generated by 
the auction of licenses permitting the use of frequencies above 
3 GHz that have not been specifically designated for 
reallocation or auction under existing law. CBO anticipates 
that, in complying with its mandate to assign licenses for most 
mutually exclusive applications of the spectrum by competitive 
bidding, the commission will make available such frequencies 
under the general authority provided by this section.
    In addition, CBO estimates that the provisions of section 
3301 that require the FCC to use competitive bidding to assign 
the rights to use 120 MHz of frequencies below 3 GHz (100 MHz 
to be reallocated by the FCC and 20 MHz to be identified by the 
NTIA) would generate receipts of $3.2 billion over the 1998-
2002 period. This estimate reflects the significant probability 
that some auctions would not be held in the next five years and 
that some would be voided under the conditions set forth in the 
legislation. CBO's estimate of receipts for future FCC auctions 
is based on the expectation that prices for FCC licenses will 
fall from the levels of recent years as more spectrum is 
brought to the market. CBO has further reduced its estimate for 
the 120 MHz of spectrum identified for auction in this subtitle 
because the legislation does not specify the location on the 
electromagnetic spectrum for 55 MHz of the 100 MHz that it 
would require the commission to reallocate and auction. There 
is some doubt as to whether sufficient spectrum can be 
identified and auctioned to meet the 120 MHz target. Moreover, 
the subtitle directs the commission to refrain from holding 
auctions under certain circumstances, and authorizes it to void 
the results of auctions if the targeted level of two-thirds of 
$7.5 billion in aggregate winning bids is not achieved. These 
provisions create the prospect that the commission will decide 
not to conduct some auctions and will void the results of 
others. Our estimate reflects these uncertainties.
    CBO estimates that enacting section 3302, which pertains to 
the recovery and auction of frequencies now allocated for 
analog television broadcasting, would yield $700 million 
inauction receipts. This section requires the FCC to delay the recovery 
of the frequencies used by analog TV broadcasters in a market beyond 
December 31, 2006, if more than 5 percent of households in that market 
continue to rely exclusively on over-the-air terrestrial analog 
television signals. It would therefore introduce significant 
uncertainty as to when bidders would be able to use the frequencies and 
could reduce auction receipts by 50 percent or more. Accordingly, the 
$700 million figure reflects (1) the possibility that the FCC might 
refrain from conducting the auction, (2) a lower estimate of the likely 
receipts if the commission holds the auction, and (3) the possibility 
that the commission would void the auction results because receipts 
would fall below the target of two-thirds of $4 billion.
    CBO estimates that no receipts would result from enacting 
section 3303, which pertains to the current television 
frequencies between 746 MHz and 806 MHz. Subsection (f) would 
require the FCC to assign each qualifying low-power television 
station a frequency below 746 MHz to permit continued operation 
before it allocates and assigns by auction any new licenses in 
the 746 MHz to 806 MHz range. Based on information from the 
FCC, CBO believes that there is not enough free spectrum below 
746 MHz to allow the commission to carry out that requirement.

Medicaid (Subtitle E)

    Subtitle E includes provisions to give states greater 
leeway in how they administer their Medicaid programs, maintain 
quality assurance, and reduce federal payments for 
disproportionate share hospitals (DSH). Some of these 
provisions would not significantly affect spending and others 
would increase spending. On balance, however, the subtitle 
would reduce federal outlays by $11.4 billion over the 1998-
2002 period (see Table 4). The assumptions underlying the 
estimates of costs or savings for provisions that would affect 
federal spending are described below.
            Chapter 1--State flexibility reforms
    The provisions in this chapter would give states increased 
flexibility to implement managed care programs, set payment 
rates, expand eligibility, implement programs of all-inclusive 
care for the elderly (PACE), change benefit requirements; and 
meet federal requirements for administrative activities.
    Determination of Hospital Stay. CBO estimates that 
requiring Medicaid health plans to allow physicians or other 
attending health care providers and patients to determine the 
appropriate length of inpatient hospital stays would increase 
costs by $0.8 billion over five years. This provision would 
lead to an increase in the number of inpatient days, with the 
result that states would have to pay health plans higher 
capitation rates to cover enrollees.
    Payment for Federally Qualified Health Center Services 
(FQHCs). This provision would phase out over five years the 
requirement that states reimburse rural health clinics (RHCs) 
and most federally qualified health centers on a cost basis. 
The provision would eliminate cost-based reimbursement for 
organizations designated by the Health Resources and Services 
Administration as look-alike FQHCs. Without the requirement 
that payments reflect costs, CBO assumes that states would 
lower reimbursement rates to FQHCs and RHCs to be more 
consistent with overall Medicaid payment rates at the end of 
the phase-out period. CBO estimates that this provision would 
reduce Medicaid costs by $0.3 billion over the next five years.
    Repeal the Boren Amendment. The Boren Amendment requires 
states to reimburse hospitals and nursing homes at rates that 
are ``reasonable and adequate to meet the costs which must be 
incurred by efficiently and economically operated facilities in 
order to provide care and services in conformity with 
applicable state and federal laws, regulations, and quality and 
safety standards.'' Many states have argued that suits or 
threats of suits under the Boren Amendment have been an 
important cause of rapid increases in provider reimbursement 
rates.
    CBO estimates that the repeal of the Boren Amendment would 
reduce spending by about $1.2 billion over the 1998-2002 
period. This estimate assumes that reimbursement rates for 
institutional providers would increase more slowly than if 
providers could continue to use the threat of Boren suits as 
leverage against the states. About 40 percent of the savings 
would come from payments to hospitals and 60 percent would come 
from payments to nursing homes.
    Although payments to these providers are generally 
increasing overall, CBO's projections of Medicaid spending 
under current law assume that some states reduce provider 
reimbursement rates in any given year. Accordingly, the floor 
would increase costs slightly in 1998 because it would prevent 
these states from reducing rates.
    12-Month Continuous Coverage. This provision would allow 
states to enroll children for the entire year without regard to 
changes in the incomes of their families. Under current law, 
CBO estimates that children stay enrolled in the Medicaid 
program for an average of 9 months in any year. If all states 
opted to extend coverage for an entire year, Medicaid costs 
would increase by almost $14 billion. However, because this 
option would be so costly--and because few states take 
advantage of the option to provide 6-month continuous coverage 
under Section 1115 or Section 1915(b) waivers--CBO estimates 
that states accounting for only 5 percent of total costs would 
choose the option. Thus, this provision would cost $0.7 billion 
over the 1998-2002 period.
    This provision would increase the average number of 
children enrolled on the Medicaid program in any month by 
130,000. But because some of these children would otherwise 
have been insured, the number of uninsured children would 
decline by about 80,000.
    Payment of Home Health Related Medicare Part B Premium. 
This provision would expand the Specified Low-Income Medicare 
Beneficiary (SLMB) program, which pays the Medicare Part B 
premium for Medicaid enrollees with family incomes between 100 
percent and 120 percent of the poverty level. Under the 
provision, the federal government would reimburse states for 
100 percent of costs for the portion of the Medicare Part B 
premium attributable to home health spending for enrollees with 
family incomes between 120 and 175 percent of the federal 
poverty level. CBO estimates that federal outlays would 
increase by $0.5 billion over the 1998-2002 period.
    Physician Assistants. Expanding Medicaid benefits for 
services of physician assistants would increase costs by $0.1 
billion during the 1998-2002 period. Although most state 
Medicaid programs already pay for these services, there are 
several states for which this policy would represent a change 
from current law. CBO's estimate accounts for costs due to 
increased demand for physician assistant services that would 
accompany this policy change in these states and, to a lesser 
degree, for induced demand in the other states that would occur 
with the inclusion of this provision. Half of the costs 
attributable to new demand for services would be offset by 
lower spending for physician services that are covered under 
current law.
            Chapter 2--Quality assurance
    CBO estimates that the application of the prudent layperson 
standard for emergency medical conditions to contracts with 
Medicaid HMOs would increase costs of $0.1 billion over five 
years. This provision would increase managed care plans' 
liability for emergency room use and, therefore, increase 
premiums for Medicaid managed care plans and thus federal 
spending.
            Chapter 3--Federal payments
    This chapter specifies allotments that would limit the 
amount of federal reimbursement available for state 
disproportionate share hospital (DSH) programs over the 1998-
2002 period. The bill classifies states into three categories 
according to how their DSH spending compared with total medical 
assistance payments. The allotment for a state whose DSH 
spending in 1995 was under 1 percent of medical assistance 
spending that year would equal the state's 1995 amount. The 
allotment for a state designated as a high-DSH state in 1997--
one whose DSH payments were greater than 12 percent of medical 
assistance payments--would equal the state's 1995 spending 
reduced by 2 percent in 1998, 5 percent in 1999, 20 percent in 
2000, 30 percent in 2001 and 40 percent in 2002 and subsequent 
years. The allotment for any state would equal the state's 1995 
spending reduced by half of the percentage reduction applied to 
high-DSH states. The bill also specifies that DSH payments 
would be made directly to hospitals and not included in the 
capitation payments for managed care plans. This chapter also 
includes provisions that would guarantee that DSH payments to 
certain children's and teaching hospitals be no less than DSH 
payments made to such hospitals in 1995 for fiscal year 1999. 
This amount would be increased by overall Medicaid growth for 
subsequent years.
    CBO estimates that these provisions would reduce federal 
outlays by $13.1 billion over the 1998-2002 period. This 
estimate takes into account state responses to the reduced 
availability of DSH money and interactions with the Child 
Health Assistance Program (CHAP) in Subtitle F of the bill. It 
is based on the preliminary designations of high- and low-DSH 
states published in the Federal Register on January 31, 1997.
    By itself, a policy to limit DSH spending would not be 
fully effective because states could restore some of the lost 
federal revenues by increasing their use of intergovernmental 
transfers or Medicaid maximization techniques. 
(Intergovernmental transfers are a process by which public 
hospitals or other public facilities transfer money to the 
state, which then uses these funds to make DSH payments--mainly 
to those same facilities--and receives federal matching dollars 
for those payments. Medicaid maximization refers to states 
shifting to the Medicaid program activities that were 
previously financed without federal assistance.) CBO estimates 
that these strategies would reduce the savings from limits on 
DSH spending by 25 percent. In this case, however, states would 
not feel the full effects of the limits because some of their 
CHAP funds could be used for existing state activities, such as 
health insurance programs or direct provision of health care 
services to uninsured children. Because of this flexibility, 
the reduction in payments to states to which CBO applies the 25 
percent factor is smaller, and net federal savings from 
limiting DSH spending are larger than would be the case for a 
stand-alone policy.
    Finally, this subtitle would provide $20 million a year to 
be allocated among the 12 states with the highest number of 
undocumented aliens for emergency health services provided to 
them.

Child Health Assistant Program (CHAP)--(Subtitle F)

    The Child Health Assistant Program would provide funds 
enabling states to initiate and expand the provision of child 
health care assistance to uninsured, low-income children. The 
bill would provide $2.9 billion per year ($14.4 billion over 
the 1998-2002 period) to finance these activities. Of this 
amount, 0.5 percent would be allocated to the territories. 
Theremaining money would be distributed according to each state's share 
of the total number of uninsured children in all states, adjusted for 
the average cost of health care. The state matching requirement would 
be 20 percent.
    The bill would provide states with a great deal of 
flexibility in how to spend these funds. States could purchase 
health insurance coverage from group plans, arrange for health 
care services directly through providers, expand their Medicaid 
programs, or use other methods approved by the Secretary. CBO 
makes no specific assumption about which approach states would 
choose. However, CBO assumes it unlikely that states would opt 
to use their state allocations to expand the Medicaid program.
    Given the range of options from which a state could choose, 
the number of children who would be covered under the programs 
cannot be estimated with precision. Whereas some states would 
choose to purchase insurance coverage, others might choose to 
provide health care services directly. Access to health care 
for uninsured children would increase under both approaches, 
but only the former approach would be counted as an increase in 
health insurance coverage. Further, not all of this spending 
would represent a net increase in health care services. CBO 
assumes that states would use some of the money to substitute 
for funds that are currently being spent on these services, 
including payments to disproportionate share hospitals, state 
health programs, and administrative activities.
    After accounting for spending on the provision of direct 
services and other activities, CBO assumes the states could 
cover about 500,000 children through new health insurance 
programs. In addition, CBO estimates that in the process of 
enrolling children in these programs, states would identify 
some children who were eligible for Medicaid and would enroll 
them in that program. As a result, federal Medicaid outlays 
would increase by $0.7 billion over the 1998-2002 period; on a 
full-year equivalent basis, Medicaid enrollment would increase 
by about 125,000 children annually. Not all of the children 
newly enrolled in state programs or Medicaid would otherwise 
have been uninsured, however, so that the net effect of this 
provision would be to reduce the number of uninsured children 
by about 380,000.
    Subtitle F would allow states the option to provide 
Medicaid coverage to children during a period of presumptive 
eligibility. CBO estimates that this provision would increase 
federal costs by $0.5 billion over five years. Of this amount, 
$0.1 billion would be deducted from states' CHAP allotments for 
spending during a period of presumptive eligibility. The 
remaining $0.4 billion would be attributable to an overall 
increase in Medicaid enrollment. (These costs are shown under 
Subtitle E in Table 4.) CBO assumes that the states would limit 
the entities authorized to determine eligibility to those who 
currently do so for pregnant women.
    Estimated impact on State, local, and tribal governments: 
By extending the NRC's authority to collect fees from publicly 
owned utilities, Subtitle A would impose an intergovernmental 
mandate as defined by UMRA, but this mandate would not impose 
costs above the threshold established in that law ($50 million 
in 1996, adjusted for inflation). Other subtitles of Title III 
contain provisions that would have significant impacts on the 
budgets of state, local, and tribal governments.

Mandates

    Subtitle A would extend, through fiscal year 2002, the 
NRC's authority to charge fees to offset 100 percent of its 
general fund appropriation. The existing authority to charge 
these fees expires after fiscal year 1998. After that year, NRC 
would be authorized to set fees equal to only 33 percent of its 
budget. CBO cannot determine whether this mandate would impose 
any direct costs because UMRA is unclear as to how to define 
costs associated with extending an existing mandate that has 
not yet expired.
    In any case, this mandate would impose costs on state, 
local and tribal governments significantly below the threshold 
established by UMRA. The amount of fees collected under this 
provision would depend on the level of future appropriations. 
Assuming appropriations remain at the 1997 level, adjusted for 
inflation, CBO estimates that this provision would result in 
additional collections of about $340 million annually over the 
1999-2002 period. CBO estimates that a small percentage of 
these fees--less than five percent--would be paid by publicly 
owned utilities, so this provision would result in additional 
costs to state, local, and tribal governments totaling no more 
than $20 million per year.

Other significant impacts

    Communications (Subtitle D).--This subtitle would instruct 
the FCC to allocate a portion of the spectrum to state and 
local governments for public safety services. It would also 
allow state and local governments to use unassigned radio 
frequencies for public safety purposes under certain 
circumstances.
    Medicaid (Subtitle E).--By expanding benefits and 
eligibility, CBO estimates that this subtitle would increase 
net state Medicaid spending excluding DSH. The subtitle would 
also decrease the federal government's share of DSH payments by 
$13.1 billion over the next five years but contains a provision 
that would require states to maintain their DSH payments to 
certain teaching and children's hospitals at 1995 levels 
(increased annually by the rate of growth of their Medicaid 
programs). This reduction in DSH payments would not constitute 
a mandate under UMRA because reductions in federal funding to 
states for large entitlement programs are not mandates if 
states have the flexibility to reduce their own programmatic or 
financial responsibilities under the program. States have 
significant programmatic flexibility under Medicaid. Finally, 
this title would provide states with $100 million over the next 
five years to provide emergency health services to undocumented 
aliens.
    Child Health Coverage (Subtitle F).--This subtitle would 
create a new program--Child Health Assistance Program (CHAP)--
that would provide states with $14.4 billion over the next five 
years to provide assistance to low income children who are 
uninsured in obtaining health coverage. States would provide 20 
percent of this program's funding.
    Estimated impact on the private sector: CBO has identified 
one private-sector mandate in Title III. Subtitle A would 
impose a mandate on the private sector by extending the Nuclear 
Regulatory Commission's authority to collect annual charges 
from nuclear utilities, resulting in additional collections 
averaging $340 million a year from 1999 through 2002. CBO 
estimates that most of the fees would be paid by investor-owned 
nuclear utilities.
    CBO cannot determine whether the direct costs of this 
mandate would exceed the annual threshold in UMRA, because UMRA 
is unclear as to how to define the direct costs associated with 
extending an existing mandate that has not yet expired. 
Measured against the private-sector costs that would be 
incurred if current law remains in place and the annual fee 
declines, the total direct cost of extending this mandate would 
be about $300 million annually, beginning in fiscal year 1999. 
In this case the cost of the mandate would exceed the annual 
threshold for the private sector as defined in UMRA. By 
contrast, measured against current private-sector costs, the 
direct cost of the mandate would be zero.
    Estimate prepared by: Federal Costs: NRC Fees--Kim Cawley 
(226-2860); SPR Leasing and DOE Asset Sales--Kathleen Gramp 
(226-2860); Spectrum--Rachel Forward (226-2860); David Moore 
and Perry Beider (226-2940); Medicaid--Robin Rudowitz and 
Jeanne De Sa (226-9010); Child Health Care Initiative--Robin 
Rudowitz and Jeanne De Sa (226-9010).
    Impact on State, Local and Tribal Governments: NRC Fees--
Marjorie Miller (225-3220); Medicaid and Child Health Care 
Initiative--John Patterson (225-3220); Other provisions--Pepper 
Santalucia (225-3220).
    Impact on the Private Sector: Medicaid and Child Health 
Care Initiative--Linda Bilheimer (226-2673); Other provisions--
Jean Wooster and Patrice Gordon (226-2940).
    Estimate approved by: Paul N. Van De Water, Assistant 
Director for Budget Analysis.

              TABLE 2. ESTIMATED 10-YEAR BUDGETARY EFFECTS OF TITLE III: RECONCILIATION RECOMMENDATIONS OF THE HOUSE COMMITTEE ON COMMERCE              
                                                         [In million of dollars, by fiscal year]                                                        
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                               1998-2007
                                    1998       1999       2000       2001       2002       2003       2004       2005       2006       2007      total  
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              Summary of Changes in Direct Spending and Asset Sale Proceeds                                             
                                                                                                                                                        
Subtitle A: NRC Fees:                                                                                                                                   
    Estimated budget authority.        (1)        (1)        (1)        (1)        (1)        (1)        (1)        (1)        (1)        (1)        (1)
    Estimated outlays..........        (1)        (1)        (1)        (1)        (1)        (1)        (1)        (1)        (1)        (1)        (1)
Subtitle B: Lease of Excess SPR                                                                                                                         
 Capacity:                                                                                                                                              
    Estimated budget authority.          0         -1         -2         -4         -6          0          0          0          0          0        -13
    Estimated outlays..........          0         -1         -2         -4         -6         -6          0          0          0          0        -19
Subtitle C: Sale of DOE Assets:                                                                                                                         
    Estimated budget authority.          0        -10        -52        -52        -70          0          0          0          0          0       -184
    Estimated outlays..........          0        -10        -52        -52        -70          0          0          0          0          0       -184
Subtitle D: Receipts from                                                                                                                               
 Spectrum Auctions:                                                                                                                                     
    Estimated budget authority.          0       -800     -2,100     -3,000     -3,800          0          0          0          0          0     -9,700
    Estimated outlays..........          0       -800     -2,100     -3,000     -3,800          0          0          0          0          0     -9,700
Subtitle E: Medicaid: 2                                                                                                                                 
    Estimated budget authority.        260       -700     -2,360     -3,620     -4,960     -5,860     -6,790     -7,850     -9,010    -10,300    -51,190
    Estimated outlays..........        260       -700     -2,360     -3,620     -4,960     -5,860     -6,790     -7,850     -9,010    -10,300    -51,190
Subtitle F: State Child Health                                                                                                                          
 Coverage:                                                                                                                                              
    Estimated budget authority.      2,880      2,880      2,880      2,880      2,880      2,880      2,880      2,880      2,880      2,880     28,800
    Estimated outlays..........      2,880      2,880      2,880      2,880      2,880      2,880      2,880      2,880      2,880      2,880     28,800
Total changes in direct                                                                                                                                 
 spending and asset sale                                                                                                                                
 proceeds:                                                                                                                                              
    Estimated budget authority.      3,140      1,369     -1,634     -3,796     -5,956     -2,980     -3,910     -4,970     -6,130     -7,420    -32,287
    Estimated outlays..........      3,140      1,369     -1,634     -3,796     -5,956     -2,986     -3,910     -4,970     -6,130     -7,420    -32,293
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Not Applicable; extension of NRC fees at their current full-cost recovery rate has no effect on direct spending because such fees are recorded in the 
  budget as offsetting collections credited to appropriations. The amount of fees that would be collected under Subtitle A would be determined by the   
  annual general fund appropriation for NRC operations.                                                                                                 
2 These estimates assume continuation of 2002 DSH policy for 2003 through 2007.                                                                         


       TABLE 3. ESTIMATED 10-YEAR BUDGETARY EFFECTS OF SUBTITLE D OF TITLE III: RECONCILIATION RECOMMENDATIONS OF THE HOUSE COMMITTEE ON COMMERCE       
                                                         [In million of dollars, by fiscal year]                                                        
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                               1997-2007
                                   1997      1998      1999      2000      2001      2002      2003      2004      2005      2006      2007      total  
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                Estimated Budgetary Effects of Subtitle D--Communications                                               
                                                                                                                                                        
                                                          Direct Spending (Offsetting Receipts)                                                         
                                                                                                                                                        
Auction Receipts Under Current                                                                                                                          
 Law:                                                                                                                                                   
    Estimated Budget Authority.    -9,600    -7,100    -1,600      -550      -150         0         0         0         0         0         0    -19,000
    Estimated Outlays..........    -9,600    -7,100    -1,600      -550      -150         0         0         0         0         0         0    -19,000
Proposed Changes:                                                                                                                                       
    Broaden and Extend:                                                                                                                                 
    Estimated Budget Authority.         0         0      -800    -1,500    -1,700    -1,800         0         0         0         0         0     -5,800
    Estimated Outlays..........         0         0      -800    -1,500    -1,700    -1,800         0         0         0         0         0     -5,800
    Reallocation of 120 Mhz:                                                                                                                            
    Estimated Budget Authority.         0         0         0      -600    -1,300    -1,300         0         0         0         0         0     -3,200
    Estimated Outlays..........         0         0         0      -600    -1,300    -1,300         0         0         0         0         0     -3,200
    Analog Return and Channels                                                                                                                          
     60-69:                                                                                                                                             
    Estimated Budget Authority.         0         0         0         0         0      -700         0         0         0         0         0       -700
    Estimated Outlays..........         0         0         0         0         0      -700         0         0         0         0         0       -700
    Total Changes:                                                                                                                                      
    Estimated Budget Authority.         0         0      -800    -2,100    -3,000    -3,000         0         0         0         0         0     -9,700
    Estimated Outlays..........         0         0      -800    -2,100    -3,000    -3,000         0         0         0         0         0     -9,700
Auction Receipts Under Subtitle                                                                                                                         
 D:                                                                                                                                                     
    Estimated Budget Authority.    -9,600    -7,100    -2,400    -2,650    -3,150    -3,800         0         0         0         0         0    -28,700
    Estimated Outlays..........    -9,600    -7,100    -2,400    -2,650    -3,150    -3,800         0         0         0         0         0    -28,700
                                                                                                                                                        
                                                            SPENDING SUBJECT TO APPROPRIATION                                                           
                                                                                                                                                        
FCC Spending Under Current Law:                                                                                                                         
    Estimated Authorization                                                                                                                             
     Level 1...................        37        38        40        41        43        44        46        47        49        51        53        452
    Estimated Outlays..........        35        38        40        41        43        44        46        47        49        51        53        452
Proposed Changes--Auction                                                                                                                               
 Expenses:                                                                                                                                              
    Estimated Authorization                                                                                                                             
     Level.....................         0        12        12        12        12        12         0         0         0         0         0         60
    Estimated Outlays..........         0        11        12        12        12        12         1         0         0         0         0         60
FCC Spending Under Subtitle D:                                                                                                                          
    Estimated Authorization                                                                                                                             
     Level 1...................        37        50        52        53        55        56        46        47        49        51        53        512
    Estimated Outlays..........        35        49        52        53        55        56        47        47        49        51        53        512
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 The 1997 level is the amount appropriated for that year. Amounts shown for subsequent years are CBO baseline projections.                             


                    TABLE 4. MEDICAID AND CHILD HEALTH ASSISTANCE PROPOSALS AS APPROVED BY THE COMMITTEE ON COMMERCE ON JUNE 12, 1997                   
                                                        [By fiscal year, in billions of dollars]                                                        
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                    1998-2002  1998-2007
                                            1998     1999     2000     2001     2002     2003     2004     2005     2006     2007     Total      Total  
--------------------------------------------------------------------------------------------------------------------------------------------------------
Subtitle E--Medicaid:                                                                                                                                   
    Spending Under Current Law..........    105.3    113.6    122.9    132.8    143.8    155.9    168.7    183.1    198.9    216.2     618.4    1,541.2 
Chapter 1--State Flexibility Reforms:                                                                                                                   
    Use of Managed Care:                                                                                                                                
        Determination of hospital stay..      0.1      0.1      0.1      0.2      0.2      0.2      0.2      0.3      0.3      0.3       0.8        2.1 
    Payment Methodology:                                                                                                                                
        FQHC payment reform.............     -0.0     -0.0     -0.0     -0.1     -0.1     -0.2     -0.2     -0.2     -0.2     -0.3      -0.3       -1.4 
        Repeal of Boren Requirements....      0.0     -0.1     -0.2     -0.4     -0.5     -0.7     -0.9     -1.1     -1.4     -1.6      -1.2       -6.9 
        Extension of moratorium for                                                                                                                     
         certain IMDs \1\...............      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0       0.0        0.0 
    Eligibility:                                                                                                                                        
        Option for 12 month continuous                                                                                                                  
         eligibility....................      0.1      0.1      0.1      0.1      0.2      0.2      0.2      0.2      0.2      0.2       0.7        1.6 
        Payment of home-health Medicare                                                                                                                 
         B premium......................      0.0      0.1      0.1      0.1      0.2      0.2      0.3      0.3      0.3      0.3       0.5        1.9 
    PACE:                                                                                                                                               
        PACE as Medicaid option \2\.....      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0       0.0        0.0 
    Benefits:                                                                                                                                           
        Benefits for services of                                                                                                                        
         Physician Assistants...........      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0       0.1        0.3 
Chapter 2--Quality Assurance:                                                                                                                           
    Application of standards for                                                                                                                        
     emergency conditions...............      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0       0.1        0.2 
Chapter 3--Federal Payments:                                                                                                                            
    Disproportionate Share \3\..........     -0.2     -1.1     -2.7     -3.9     -5.1     -5.9     -6.7     -7.6     -8.6     -9.6     -13.1      -51.6 
    Emergency health services for aliens      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0       0.1        0.2 
    Medicaid interaction with CHAP......      0.1      0.1      0.1      0.1      0.1      0.2      0.2      0.2      0.2      0.2       0.7        1.5 
    Presumptive eligibility for low-                                                                                                                    
     income children \4\................      0.1      0.1      0.1      0.1      0.1      0.1      0.1      0.1      0.1      0.1       0.4        0.9 
      Total Change in Spending..........      0.3     -0.7     -2.4     -3.6     -5.0     -5.9     -6.8     -7.8     -9.0    -10.3     -11.4      -51.2 
      Spending Under Proposal...........    105.6    112.9    120.5    129.2    138.8    150.0    161.9    175.3    189.9    205.9     607.0    1,490.0 
Subtitle F--Child Health Assistance                                                                                                                     
 Program (CHAP):                                                                                                                                        
    Total Federal Allotments............      2.9      2.9      2.9      2.9      2.9      2.9      2.9      2.9      2.9      2.9      14.4       28.8 
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Would increase federal costs by about $500,000 per year.                                                                                            
\2\ Would increase Medicare outlays by $8 million over 5 years.                                                                                         
\3\ Estimate includes interaction with CHAP.                                                                                                            
\4\ This provision is included in Subtitle F.                                                                                                           

   Changes in Existing Law Made by Title III of 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):



          * * * * * * *

     SECTION 6101 OF THE OMNIBUS BUDGET RECONCILIATION ACT OF 1990

SEC. 6101. NRC USER FEES AND ANNUAL CHARGES.

    (a) Annual Assessment.--
          (1) * * *
          * * * * * * *
          (3) Last assessment of annual charges.--The last 
        assessment of annual charges under subsection (c) shall 
        be made not later than September 30, [1998] 2002.
          * * * * * * *
                              ----------                              


                   ENERGY POLICY AND CONSERVATION ACT

          * * * * * * *

        TITLE I--MATTERS RELATED TO DOMESTIC SUPPLY AVAILABILITY

          * * * * * * *

                   Part B--Strategic Petroleum Reserve

Sec. 151. Declaration of policy.
     * * * * * * *
Sec. 168. Use of underutilized facilities.
          * * * * * * *

        TITLE I--MATTERS RELATED TO DOMESTIC SUPPLY AVAILABILITY

                  Part B--Strategic Petroleum Reserve

          * * * * * * *


                    use of underutilized facilities


  Sec. 168. (a) Authority.--Notwithstanding any other provision 
of this title, the Secretary, by lease or otherwise, for any 
term and under such other conditions as the Secretary considers 
necessary or appropriate, may store in underutilized Strategic 
Petroleum Reserve facilities petroleum product owned by a 
foreign government or its representative. Petroleum products 
stored under this section are not part of the Strategic 
Petroleum Reserve and may be exported without license from the 
United States.
  (b) Protection of Facilities.--All agreements entered into 
pursuant to subsection (a) shall contain provisions providing 
for fees to fully compensate the United States for all costs of 
storage and removals of petroleum products, including the cost 
of replacement facilities necessitated as a result of any 
withdrawals.
  (c) Access to Stored Oil.--The Secretary shall ensure that 
agreements to store petroleum products for foreign governments 
or their representatives do not affect the ability of the 
United States to withdraw, distribute, or sell petroleum from 
the Strategic Petroleum Reserve in response to an energy 
emergency or to the obligations of the United States under the 
Agreement on an International Energy Program.
  (d) Availability of Funds.--Funds collected through the 
leasing of Strategic Petroleum Reserve facilities authorized by 
subsection (a) after September 30, 2002, shall be used by the 
Secretary of Energy without further appropriation for the 
purchase of oil for, and operation and maintenance costs of, 
the Strategic Petroleum Reserve.
          * * * * * * *

                       COMMUNICATIONS ACT OF 1934

          * * * * * * *

                TITLE III--PROVISIONS RELATING TO RADIO

                       PART I--GENERAL PROVISIONS

          * * * * * * *

SEC. 309. ACTION UPON APPLICATIONS; FORM OF AND CONDITIONS ATTACHED TO 
                    LICENSES.

  (a) * * *
          * * * * * * *
  [(i) Random Selection.--
          [(1) General authority.--If--
                  [(A) there is more than one application for 
                any initial license or construction permit 
                which will involve a use of the electromagnetic 
                spectrum; and
                  [(B) the Commission has determined that the 
                use is not described in subsection (j)(2)(A);
        then the Commission shall have the authority to grant 
        such license or permit to a qualified applicant through 
        the use of a system of random selection.
      [(2) No license or construction permit shall be granted 
to an applicant selected pursuant to paragraph (1) unless the 
Commission determines the qualifications of such applicant 
pursuant to subsection (a) and section 308(b). When substantial 
and material questions of fact exist concerning such 
qualifications, the Commission shall conduct a hearing in order 
to make such determinations. For the purposes of making such 
determinations, the Commission may, by rule, and 
notwithstanding any other provision of law--
          [(A) adopt procedures for the submission of all or 
        part of the evidence in written form;
          [(B) delegate the function of presiding at the taking 
        of written evidence to Commission employees other than 
        administrative law judges; and
          [(C) omit the determination required by subsection 
        (a) with respect to any application other than the one 
        selected pursuant to paragraph (1).
      [(3)(A) The Commission shall establish rules and 
procedures to ensure that, in the administration of any system 
of random selection under this subsection used for granting 
licenses or construction permits for any media of mass 
communications, significant preferences will be granted to 
applicants or groups of applicants, the grant to which of the 
license or permit would increase the diversification of 
ownership of the media of mass communications. To further 
diversify the ownership of the media of mass communications, an 
additional significant preference shall be granted to any 
applicant controlled by a member or members of minority group.
      [(B) The Commission shall have authority to require each 
qualified applicant seeking a significant preference under 
subparagraph (A) to submit to the Commission such information 
as may be necessary to enable the Commission to make a 
determination regarding whether such applicant shall be granted 
such preference. Such information shall be submitted in such 
form, at such times, and in accordance with such procedures, as 
the Commission may require.
      [(C) For purposes of this paragraph:
  [(i) The term ``media of mass communication'' includes 
television, radio, cable television, multipoint distribution 
service, direct broadcast satellite service, and other 
services, the licensed facilities of which may be substantially 
devoted toward providing programming or other information 
services within the editorial control of the licensee.
  [(ii) The term ``minority group'' includes Blacks, Hispanics, 
American Indians, Alaska Natives, Asians, and Pacific 
Islanders.
  [(4)(A) The Commission shall, after notice and opportunity 
for hearing, prescribe rules establishing a system of random 
selection for use by the Commission under this subsection in 
any instance in which the Commission, in its discretion, 
determines that such use is appropriate for the granting of any 
license or permit in accordance with paragraph (1).
  [(B) The Commission shall have authority to amend such rules 
from time to time to the extent necessary too carry out the 
provisions of this subsection. Any such amendment shall be made 
after notice and opportunity for hearing.
  [(C) Not later than 180 days after the date of enactment of 
this subparagraph, the Commission shall prescribe such transfer 
disclosures and antitrafficking restrictions and payment 
schedules as are necessary to prevent the unjust enrichment of 
recipients of licenses or permits as a result of the methods 
employed to issue licenses under this subsection.]
  (j) Use of Competitive Bidding.--
          [(1) General authority.--If mutually exclusive 
        applications are accepted for filing for any initial 
        license or construction permit which will involve a use 
        of the electromagnetic spectrum described in paragraph 
        (2), then the Commission shall have the authority, 
        subject to paragraph (10), to grant such license or 
        permit to a qualified applicant through the use of a 
        system of competitive bidding that meets the 
        requirements of this subsection.
          [(2) Uses to which bidding may apply.--A use of the 
        electromagnetic spectrum is described in this paragraph 
        if the Commission determines that--
                  [(A) the principal use of such spectrum will 
                involve, or is reasonably likely to involve, 
                the licensee receiving compensation from 
                subscribers in return for which the licensee--
                          [(i) enables those subscribers to 
                        receive communications signals that are 
                        transmitted utilizing frequencies on 
                        which the licensee is licensed to 
                        operate; or
                          [(ii) enables those subscribers to 
                        transmit directly communications 
                        signals utilizing frequencies on which 
                        the licensee is licensed to operate; 
                        and
                  [(B) a system of competitive bidding will 
                promote the objectives described in paragraph 
                (3).]
          (1) General authority.--If, consistent with the 
        obligations described in paragraph (6)(E), mutually 
        exclusive applications are accepted for any initial 
        license or construction permit which will involve an 
        exclusive use of the electromagnetic spectrum, then the 
        Commission shall grant such license or permit to a 
        qualified applicant through a system of competitive 
        bidding that meets the requirements of this subsection.
          (2) Exemptions.--The competitive bidding authority 
        granted by this subsection shall not apply to licenses 
        or construction permits issued by the Commission--
                  (A) that, as the result of the Commission 
                carrying out the obligations described in 
                paragraph (6)(E), are not mutually exclusive;
                  (B) for public safety radio services, 
                including private internal radio services used 
                by non-Government entities, that--
                          (i) protect the safety of life, 
                        health, or property; and
                          (ii) are not made commercially 
                        available to the public;
                  (C) for initial licenses or construction 
                permits assigned by the Commission to existing 
                terrestrial broadcast licensees for new 
                terrestrial digital television services; or
                  (D) for public telecommunications services, 
                as defined in section 397(14) of the 
                Communications Act of 1934 (47 U.S.C. 397(14)), 
                when the license application is for channels 
                reserved for noncommercial use.
          (3) Design of systems of competitive bidding.--For 
        each class of licenses or permits that the Commission 
        grants through the use of a competitive bidding system, 
        the Commission shall, by regulation, establish a 
        competitive bidding methodology. The Commission shall 
        seek to design and test multiple alternative 
        methodologies under appropriate circumstances. The 
        Commission shall, directly or by contract, provide for 
        the design and conduct (for purposes of testing) of 
        competitive bidding using a contingent combinatorial 
        bidding system that permits prospective bidders to bid 
        on combinations or groups of licenses in a single bid 
        and to enter multiple alternative bids within a single 
        bidding round. In identifying classes of licenses and 
        permits to be issued by competitive bidding, in 
        specifying eligibility and other characteristics of 
        such licenses and permits, and in designing the 
        methodologies for use under this subsection, the 
        Commission shall include safeguards to protect the 
        public interest in the use of the spectrum and shall 
        seek to promote the purposes specified in section 1 of 
        this Act and the following objectives:
                  (A) * * *
          * * * * * * *
                  (C) recovery for the public of a portion of 
                the value of the public spectrum resource made 
                available for commercial use and avoidance of 
                unjust enrichment through the methods employed 
                to award uses of that resource; [and]
                  (D) efficient and intensive use of the 
                electromagnetic spectrum[.]; and
                  (E) ensuring that, in the scheduling of any 
                competitive bidding under this subsection, an 
                adequate period is allowed--
                          (i) before issuance of bidding rules, 
                        to permit notice and comment on 
                        proposed auction procedures; and
                          (ii) after issuance of bidding rules, 
                        to ensure that interested parties have 
                        a sufficient time to develop business 
                        plans, assess market conditions, and 
                        evaluate the availability of equipment 
                        for the relevant services.
          * * * * * * *
          (8) Treatment of revenues.--
                  (A) * * *
                  [(B) Retention of revenues.--Notwithstanding 
                subparagraph (A), the salaries and expenses 
                account of the Commission shall retain as an 
                offsetting collection such sums as may be 
                necessary from such proceeds for the costs of 
                developing and implementing the program 
                required by this subsection. Such offsetting 
                collections shall be available for obligation 
                subject to the terms and conditions of the 
                receiving appropriations account, and shall be 
                deposited in such accounts on a quarterly 
                basis. Any funds appropriated to the Commission 
                for fiscal years 1994 through 1998 for the 
                purpose of assigning licenses using random 
                selection under subsection (i) shall be used by 
                the Commission to implement this subsection. 
                Such offsetting collections are authorized to 
                remain available until expended.]
                  [(C)] (B) Deposit and use of auction escrow 
                accounts.--Any deposits the Commission may 
                require for the qualification of any person to 
                bid in a system of competitive bidding pursuant 
                to this subsection shall be deposited in an 
                interest bearing account at a financial 
                institution designated for purposes of this 
                subsection by the Commission (after 
                consultation with the Secretary of the 
                Treasury). Within 45 days following the 
                conclusion of the competitive bidding--
                          (i) the deposits of successful 
                        bidders shall be paid to the Treasury;
                          (ii) the deposits of unsuccessful 
                        bidders shall be returned to such 
                        bidders; and
                          (iii) the interest accrued to the 
                        account shall be transferred to the 
                        Telecommunications Development Fund 
                        established pursuant to section 714 of 
                        this Act.
          * * * * * * *
          (11) Termination.--The authority of the Commission to 
        grant a license or permit under this subsection shall 
        expire September 30, [1998] 2002.
          * * * * * * *
          (13) Recovery of value of public spectrum in 
        connection with pioneer preferences.--
                  (A) * * *
          * * * * * * *
                  (F) Expiration.--The authority of the 
                Commission to provide preferential treatment in 
                licensing procedures (by precluding the filing 
                of mutually exclusive applications) to persons 
                who make significant contributions to the 
                development of a new service or to the 
                development of new technologies that 
                substantially enhance an existing service shall 
                expire on [September 30, 1998] the date of 
                enactment of the Balanced Budget Act of 1997.
          * * * * * * *
          (14) Auction of recaptured broadcast television 
        spectrum.--
                  (A) Limitations on terms of terrestrial 
                television broadcast licenses.--A television 
                license that authorizes analog television 
                services may not be renewed to authorize such 
                service for a period that extends beyond 
                December 31, 2006. The Commission shall grant 
                by regulation an extension of such date to 
                licensees in a market if the Commission 
                determines that more than 5 percent of 
                households in such market continue to rely 
                exclusively on over-the-air terrestrial analog 
                television signals.
                  (B) Spectrum reversion and resale.--
                          (i) The Commission shall ensure that, 
                        when the authority to broadcast analog 
                        television services under a license 
                        expires pursuant to subparagraph (A), 
                        each licensee shall return spectrum 
                        according to the Commission's direction 
                        and the Commission shall reclaim such 
                        spectrum.
                          (ii) Licensees for new services 
                        occupying spectrum reclaimed pursuant 
                        to clause (i) shall be selected in 
                        accordance with this subsection. The 
                        Commission shall start such selection 
                        process by July 1, 2001, with payment 
                        pursuant to rules established by the 
                        Commission under this subsection.
                  (C) Minimum recovery for public required.--
                          (i) Methodology to secure minimum 
                        amounts required.--In establishing, 
                        pursuant to section 309(j)(3) of the 
                        Communications Act of 1934 (47 U.S.C. 
                        309(j)(3)), a competitive bidding 
                        methodology with respect to the 
                        frequencies required to be assigned by 
                        competitive bidding under subparagraph 
                        (B) of this paragraph, the Commission 
                        shall establish procedures that are 
                        designed to secure winning bids 
                        totaling not less than two-thirds of 
                        $4,000,000,000.
                          (ii) Authority.--In establishing such 
                        methodology, the Commission is 
                        authorized--
                                  (I) to partition the total 
                                required to be obtained under 
                                clause (i) among separate 
                                competitive bidding 
                                proceedings, or among separate 
                                bands, regions, or markets;
                                  (II) to void any such 
                                separated competitive bidding 
                                proceeding that fails to obtain 
                                the partitioned subtotal that 
                                pertains to that proceeding; 
                                and
                                  (III) to prescribe minimum 
                                bids or other bidding 
                                requirements to obtain such 
                                aggregate total.
                          (iii) Licenses withheld.--
                        Notwithstanding any other requirement 
                        of this paragraph, the Commission shall 
                        refrain from conducting any competitive 
                        bidding pursuant to the methodology 
                        established pursuant to this 
                        subparagraph unless the Commission 
                        determines that such methodology will 
                        secure winning bids totaling not less 
                        than two-thirds of $4,000,000,000.
                          (iv) Authority to rebid at a later 
                        time to secure statutory objectives.--
                        Nothing in clause (ii) or (iii) shall 
                        preclude or limit the Commission from 
                        assigning the frequencies described in 
                        clause (i) by competitive bidding at 
                        such later date (than the date required 
                        by this paragraph) as the Commission 
                        determines, in its discretion, will 
                        better attain the objectives of 
                        recovering for the public a fair 
                        portion of the value of the public 
                        spectrum resource and avoiding unjust 
                        enrichment.
                  (D) Certain limitations on qualified bidders 
                prohibited.--In prescribing any regulations 
                relating to the qualification of bidders for 
                spectrum reclaimed pursuant to subparagraph 
                (B)(i), the Commission shall not--
                          (i) preclude any party from being a 
                        qualified bidder for spectrum that is 
                        allocated for any use that includes 
                        digital television service on the basis 
                        of--
                                  (I) the Commission's duopoly 
                                rule (47 C.F.R. 73.3555(b)); or
                                  (II) the Commission's 
                                newspaper cross-ownership rule 
                                (47 C.F.R. 73.3555(d)); or
                          (ii) apply either such rule to 
                        preclude such a party that is a 
                        successful bidder in a competitive 
                        bidding for such spectrum from using 
                        such spectrum for digital television 
                        service.
                  (E) Definitions.--As used in this paragraph:
                          (i) The term ``digital television 
                        service'' means television service 
                        provided using digital technology to 
                        enhance audio quality and video 
                        resolution, as further defined in the 
                        Memorandum Opinion, Report, andOrder of 
the Commission entitled ``Advanced Television Systems and Their Impact 
Upon the Existing Television Service'', MM Docket No. 87-268 and any 
subsequent Commission proceedings dealing with digital television.
                          (ii) The term ``analog television 
                        service'' means service provided 
                        pursuant to the transmission standards 
                        prescribed by the Commission in section 
                        73.682(a) of its regulation (47 CFR 
                        73.682(a)).
          * * * * * * *
                              ----------                              


NATIONAL TELECOMMUNICATIONS AND INFORMATION ADMINISTRATION ORGANIZATION 
                                  ACT

          * * * * * * *

  TITLE I--NATIONAL TELECOMMUNICATIONS AND INFORMATION ADMINISTRATION

          * * * * * * *

              PART B--TRANSFER OF AUCTIONABLE FREQUENCIES

          * * * * * * *

SEC. 113. IDENTIFICATION OF REALLOCABLE FREQUENCIES.

  (a) * * *
          * * * * * * *
  (b) Minimum Amount of Spectrum Recommended.--
          (1) [In general] Initial reallocation report.--In 
        accordance with the provisions of this section, the 
        Secretary shall recommend for reallocation in the first 
        report required by subsection (a), for use other than 
        by Federal Government stations under section 305 of the 
        1934 Act (47 U.S.C. 305), bands of frequencies that in 
        the aggregate span not less than 200 megahertz, that 
        are located below 5 gigahertz, and that meet the 
        criteria specified in paragraphs (1) through (5) of 
        subsection (a). Such bands of frequencies shall include 
        bands of frequencies, located below 3 gigahertz, that 
        span in the aggregate not less than 100 megahertz.
          (2) Mixed uses permitted to be counted.--Bands of 
        frequencies which a report of the Secretary under 
        subsection (a) or (d)(1) recommends be partially 
        retained for use by Federal Government stations, but 
        which are also recommended to be reallocated to be made 
        available under the 1934 Act for use by non-Federal 
        stations, may be counted toward the minimum spectrum 
        required by paragraph (1) or (3) of this subsection, 
        except that--
                  (A) the bands of frequencies counted under 
                this paragraph may not count toward more than 
                one-half of the minimums required by paragraph 
                (1) or (3) of this subsection;
          * * * * * * *
          (3) Second reallocation report.--In accordance with 
        the provisions of this section, the Secretary shall 
        recommend for reallocation in the second report 
        required by subsection (a), for use other than by 
        Federal Government stations under section 305 of the 
        1934 Act (47 U.S.C. 305), a band or bands of 
        frequencies that--
                  (A) in the aggregate span not less than 20 
                megahertz;
                  (B) individually span not less than 20 
                megahertz, unless a combination of smaller 
                bands can reasonably be expected to produce 
                greater receipts;
                  (C) are located below 3 gigahertz; and
                  (D) meet the criteria specified in paragraphs 
                (1) through (5) of subsection (a).
          * * * * * * *
  (f) Additional Reallocation Report.--If the Secretary 
receives a notice from the Commission pursuant to section 
3301(b)(3) of the Balanced Budget Act of 1997, the Secretary 
shall prepare and submit to the President, the Commission, and 
the Congress a report recommending for reallocation for use 
other than by Federal Government stations under section 305 of 
the 1934 Act (47 U.S.C. 305), bands of frequencies that are 
suitable for the uses identified in the Commission's notice. 
The Commission shall, not later than one year after receipt of 
such report, prepare, submit to the President and the Congress, 
and implement, a plan for the immediate allocation and 
assignment of such frequencies under the 1934 Act to incumbent 
licencees described in section 3301(b)(3) of the Balanced 
Budget Act of 1997.

SEC. 114. WITHDRAWAL OR LIMITATION OF ASSIGNMENT TO FEDERAL GOVERNMENT 
                    STATIONS.

  (a) In General.--The President shall--
          (1) within 6 months after receipt of a report by the 
        Secretary under subsection [(a) or (d)(1)] (a), (d)(1), 
        or (f) of section 113, withdraw the assignment to a 
        Federal Government station of any frequency which the 
        report recommends for immediate reallocation;
          (2) within either such 6-month period, limit the 
        assignment to a Federal Government station of any 
        frequency which the report recommends be made 
        immediately available for mixed use under section 
        113(b)(2);
          * * * * * * *

SEC. 115. DISTRIBUTION OF FREQUENCIES BY THE COMMISSION.

  (a) * * *
  (b) Allocation and Assignment of Remaining Available 
Frequencies.--With respect to the frequencies made available 
for reallocation pursuant to section 113(e)(3), the Commission 
shall, not later than 1 year after receipt of [the report 
required by section 113(a)] the initial reallocation report 
required by section 113(a), prepare, submit to the President 
and the Congress, and implement, a plan for the allocation and 
assignment under the 1934 Act of such frequencies. Such plan 
shall--
          (1) * * *
          * * * * * * *
  (c) Allocation and Assignment of Frequencies Identified in 
the Second Reallocation Report.--With respect to the 
frequencies made available for reallocation pursuant to section 
113(b)(3), the Commission shall, not later than one year after 
receipt of the second reallocation report required by such 
section, prepare, submit to the President and the Congress, and 
implement, a plan for the immediate allocation and assignment 
under the 1934 Act of all such frequencies in accordance with 
section 309(j) of such Act.
          * * * * * * *
                          House of Representatives,
                                     Committee on Commerce,
                                     Washington, DC, June 17, 1997.
Hon. John R. Kasich,
Chairman, Committee on the Budget,
Washington, DC.
    Dear Mr. Chairman: I am transmitting herewith the 
recommendations of the Committee on Commerce for changes in 
Medicare laws within the jurisdiction, pursuant to the 
provisions of section 310 of the Congressional Budget Act of 
1974 and H. Con. Res. 84, the Concurrent Resolution on the 
Budget--Fiscal Years 1998-2002.
    The enclosed recommendations were embodied in a Committee 
Print adopted by the Committee on June 12, 1997. Pursuant to 
your instructions, the legislative language of this Committee 
Print has been incorporated into Title IV--Committee on 
Commerce--Medicare.
    Enclosed is the legislative language for Title IV, the 
accompanying report language, and the Minority Views. I have 
been informed that the Legislative Counsel's Office has made 
arrangements with your staff to submit the Ramsayer language 
for Title IV directly to the Budget Committee to expedite your 
Committee's action.
    If you have any questions concerning the Committee's 
recommendations, or if I can be of any further assistance to 
you as you proceed with the Committee's deliberations, please 
do not hesitate to contact me.
            Sincerely,
                                              Tom Bliley, Chairman.

               TITLE IV--COMMITTEE ON COMMERCE--MEDICARE

                          Purpose and Summary

    Recently, the Board of Trustees of the Federal Hospital 
Insurance Trust Fund and the Supplementary Medical Insurance 
Trust Fund issued their annual reports which pointed to 
significant short- and long-term financing crises in both Part 
A and Part B of Medicare. With respect to the Hospital 
Insurance (HI) Trust Fund, the Trustees noted:

          As we reported for the last several years, one of the 
        Medicare Trust Funds, the Hospital Insurance Fund, 
        would be exhausted in four years without legislation 
        that addresses its financial imbalance.

    The Trustees also expressed very strong concerns regarding 
the Supplementary Medical Insurance (SMI) Trust Fund. Although 
the SMI Program is currently actuarially sound because it 
receives most of its funds from general revenues, the Trustees 
noted:

          SMI benefits have been growing rapidly. Outlays have 
        increased 45 percent over the past 5 years (33 percent 
        on a per-beneficiary basis). During this period the 
        program grew about 14 percent faster than the economy 
        as a whole, despite efforts to control SMI costs.
          SMI expenditures are expected to continue to grow 
        faster than the economy as a whole. SMI outlays were 
        almost 1 percent of the Gross Domestic Product (GDP) in 
        1996 and are projected to grow about 2.5 percent in 
        2020.
          We note with great concern the past and projected 
        rapid growth in the cost of the program. Therefore, we 
        urge the Congress to take appropriate steps to more 
        effectively control SMI costs. Prompt, effective, and 
        decisive action is necessary.

    To address the twin financial crises facing Medicare, the 
Committee on Commerce has adopted legislation which will place 
Part B of Medicare, the part of the program which is under the 
Committee's primary jurisdiction, on a long-term sustainable 
growth path. -
    In addition to providing responsible and sustainable 
financing for Medicare, the Committee's bill will provide 
Medicare beneficiaries with the same choices in health delivery 
that younger Americans receive from their employers. While 
Medicare enrollees will be guaranteed the right to remain in 
traditional fee-for-service Medicare, they will now have the 
right to choose new and innovative health plans such as the 
following: (1) Provider Sponsored Organizations; (2) Health 
Care Maintenance Organizations with and without Point of 
Service options; (3) Medical Savings Accounts under a new 
demonstration authority; and (4) Preferred Provider Networks.
    This legislation was developed after several months of 
public hearings by the Subcommittee on Health and the 
Environment. Testimony was received from dozens of witnesses 
including health care providers, health care economists, 
actuaries, and other health care experts.

                  Background and Need for Legislation

    Medicare is a Federal health insurance program for the aged 
and certain disabled individuals. It consists of two parts: 
Part A is the hospital insurance (HI) program; and Part B is 
the supplementary medical insurance (SMI) program. Most 
Americans age 65 or older are automatically entitled to health 
coverage under Part A, whereas participation in Part B is 
voluntary. Also eligible, after a two-year waiting period, are 
people under age 65 who are receiving Social Security 
disability benefits.
    The cost and scope of the Medicare program have placed its 
future financial viability in jeopardy. According to the 1997 
report of the Board of Trustees, both Part A and Part B of the 
Medicare program require immediate attention if they are to 
remain a solvent and integral component in the health care 
coverage of America's seniors. In light of the importance of 
the Medicare program to the lives of millions of Americans, the 
Medicare legislation was developed to preserve, protect, and 
strengthen the program for the current and future generations 
of beneficiaries.
    According to the Medicare Trustees, the Hospital Insurance 
(HI) Trust Fund is projected to run out of reserves in just 
four years. The Trustees also called for action to restructure 
the Supplementary Medical Insurance (SMI) program because the 
rate of growth in this program is unsustainable. SMI growth 
directly affects Medicare beneficiary Part B Premiums as well 
as the overall Federal budget from which the largest share of 
SMI costs are financed.
    Among the factors that initiated Congressional action on 
this critical issue is the fact that recent Medicare cost 
increases compare very unfavorably to those in the private 
health care market. According to data from the Congressional 
Budget Office, Medicare spending growth is more than two times 
greater than the increase in private health care costs.
    For all of the above reasons, this legislation was 
developed to preserve, protect and strengthen the Medicare 
program. To achieve these objectives, the following criteria 
guided the Committee's reform efforts:
          (1) Policy improvements to make Medicare solvent for 
        at least 10 years, and ensure that Medicare continues 
        to increase spending each year. However, Medicare 
        spending will be brought in line with the need to 
        ensure Part B affordability, rather than permitting the 
        program's uncontrolled spending growth rates as in the 
        past;
          (2) Policy improvements 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;
          (3) Policy improvements that expand coverage for 
        mammography screening (annual mammograms for all women 
        ages 40 and over; waiving of screening deductible); pap 
        smear/pelvic screening (pelvic screening every 3 years; 
        yearly for high-risk women); prostate cancer screening 
        (annually for men over 50; covers digital rectal exam 
        or PSA); colorectal screening (men over 50; fecal-
        occult blood test, flexible sigmoidoscopy for high-risk 
        individuals, and barium enema if recommended by the 
        Secretary of Health and Human Services (the 
        Secretary)), diabetes screening (self-management 
        training, glucose monitors and testing strips); and 
        vaccines (extension of influenza and pneumonia campaign 
        through 2002); and
          (4) The establishment of a Bipartisan Commission on 
        the Effect of the Baby Boom Generation on the Medicare 
        Program to make recommendations to the Congress on the 
        reforms necessary to ensure the preservation of the 
        program, in light of anticipated demographic pressures 
        on the program's financing.

                               Hearings-

    The Committee's Subcommittee on Health and Environment has 
not held hearings specifically on Title IV. However, the 
Subcommittee on Health and Environment has held a number of 
hearings in the 105th Congress on the Medicare program and a 
variety of reform issues.
    Testifying before the Subcommittee on February 12, 1997, on 
the Department of health and Human Services's Proposed Budget 
for FY 1998, were: Dr. Bruce Vladeck, Administrator, Health 
Care Financing Administration; and Mr. Paul N. Van de Water, 
Assistant Director for Budget Analysis, Congressional Budget 
Office.
    Testifying before the Subcommittee on February 27, 1997, on 
Medicare Managed Care: Payment and Related Issues, were: Mr. 
Bruce M. Fried, Director, Office of Managed Care, Health Care 
Financing Administration; Jonathan Ratner, Ph.D., Associate 
Director, Health Financing Systems, Health, Education, and 
Human Services, U.S. General Accounting Office; Donald A. 
Young, M.D., Executive Director, Prospective Payment Assessment 
Commission; and Roger S. Taylor, M.D., M.P.A., Commissioner, 
Physician Payment Review Commission.
    Testifying before the Subcommittee on March 5, 1997, on 
Medicare Home Health Care, were: Dr. Bruce Vladeck, 
Administrator, Health Care Financing Administration; Mr. 
Michael F. Mangano, Principal Deputy Inspector General, 
Department of Health and Human Services; Mr. William Scanlon, 
Director, Health Financing Systems, Health, Education, and 
Human Services, U.S. General Accounting Office; Donald A. 
Young, M.D., Executive Director, Prospective Payment Assessment 
Commission; Ms. Margaret J. Cushman, President, VNAHealth Care 
Inc., representing the National Association for Home Care; and James C. 
Pyles, Esq., Powers, Pyles, Sutter, and Verville, representing the Home 
Health Prospective Payment Work Group.
    Testifying before the Subcommittee on March 19, 1997, on 
Medicare Provider Service Networks, were: The Honorable James 
C. Greenwood, Member of Congress; The Honorable Charles W. 
Stenholm, Member of Congress; Ms. Josephine Musser, President, 
National Association of Insurance Commissioners; William F. 
Bluhm, FSA, MAA, Vice President, Health, The American Academy 
of Actuaries; The Honorable Bill Gradison, President, Health 
Insurance Association of America; Ms. Mary Nell Lehnhard, 
Senior Vice President Office of Policy and Representation, Blue 
Cross and Blue Shield Association; Mr. Thomas R. Sobocinski, 
President and CEO, Physicians Plus Insurance Corporation 
representing the American Association of Health Plans; Richard 
F. Corlin, M.D., Speaker of the House of Delegates, American 
Medical Association; Mr. John C. McMeekin, President and CEO 
Crozer-Keystone Health System, representing the American 
Hospital Association; and Robert Margolis, M.D., Chairman, 
American Medical Group Association.
    Testifying before the Subcommittee on April 11, 1997, on 
Medicare Preventive Benefits and Quality Standards, were: The 
Honorable Newt Gingrich, Speaker of the House, U.S. House of 
Representatives; The Honorable George R. Nethercutt, Jr., 
Member of Congress; Ms. Bernice Steinhardt, Director Health 
Services Quality and Public Health Issues, U.S. General 
Accounting Office; Mr. Alan Altschuler, Chairman of the Board, 
American Diabetes Association; Resa Levetan, M.D., Director of 
Diabetes, Medlantic Research Institute, Washington Hospital 
Center; Marvin M. Schuster, M.D., President, American College 
of Gastroenterology; James B. Regan, M.D., Assistant Professor 
of Surgery, Division of Urology, Georgetown University Medical 
Center representing the American Urological Association, Inc.; 
Peter G. Taber, M.D., Chief of Gastroenterology Division, 
University of Pennsylvania; and Robert Harmon, M.D., MPH 
Member, Board of Directors, Partnership for Prevention, 
representing the American Gastroenterological Association.

                        Committee Consideration

    On June 10, 1997, the Subcommittee on Health and 
Environment met in open session and approved for Full Committee 
consideration a Committee Print entitled ``Title IV--Committee 
on Commerce--Medicare,'' amended, by a roll call vote of 15 
yeas to 11 nays. On June 12, 1997, the Committee met in open 
session and ordered the Committee Print entitled ``Title IV--
Committee on Commerce--Medicare'' transmitted to the House 
Committee on the Budget, amended, for inclusion in the 1997 
Omnibus Budget Reconciliation Act, by a roll call vote of 30 
yeas to 17 nays.

                            Roll Call Votes

    Pursuant to Clause 2(l)(2)(B) of rule XI of the Rules of 
the House of Representatives, following are listed the recorded 
votes on the motion to order Title IV transmitted to the House 
Committee on the Budget, and on amendments thereto, including 
the names of those Members voting for and against.


      Committee on Commerce--105th Congress, Voice Votes, 6/12/97

    Bill: Committee Print entitled ``Title IV--Committee on 
Commerce--Medicare.''
    Amendment: Amendment by Mr. Hastert re: development and 
implementation of utilization guidelines for the coverage of 
chiropractic services.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment by Mr. Coburn re: protect the 
confidentiality of the use of Social Security numbers.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment by Mr. Klink re: limiting the 
liability of MSAs.
    Disposition: Withdrawn, by unanimous consent.
    Amendment: Amendment by Mr. Stearns re: establish a 
National Fund for Health Research.
    Disposition: Withdrawn, by unanimous consent.
    Amendment: Amendment by Mr. Green re: Medigap enrollment.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment to Mrs. Cubin re: add a new section 
dealing with requirements for developing new resource-based 
practice expense relative value units (RVUs).
    Disposition: Withdrawn, by unanimous consent.
    Amendment: Amendment by Mr. Pallone re: establish a 
demonstration project on Medicare coverage of pharmacy 
professional services and disease management services provided 
to individuals with certain medical conditions.
    Disposition: Not agreed to, by a voice vote.
    Amendment: Amendment by Mrs. Cubin re: adding ``to the 
maximum extent practicable'' to the requirements for developing 
a new resource-based value unit to be followed by HCFA.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment by Mr. Brown re: nondiscrimination by 
health plans against a provider based on license.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment by Mr. Pallone re: require the 
Medicare Payment Commission to review the role of the Medicare 
program in addressing chronic illnesses.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment by Mr. Colburn re: home health agency 
referrals.
    Disposition: Withdrawn, by unanimous consent.
    Amendment: Amendment by Mr. Colburn re: definition of 
homebound individuals.
    Disposition: Not agreed to, by a voice vote.
    Amendment: Amendment by Mr. Stearns re: ambulance services 
cost per trip.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment by Mr. Engel re: report on rescreening 
pap smears.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment by Mr. Engel re: study of new home 
health requirements.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment by Mr. Colburn re: strike penalties 
for services by excluded providers.
    Disposition: Withdrawn, by unanimous consent.
    Amendment: Amendment by Mr. Strickland re: add a provision 
that any attending health care provider can determine length-
of-stay.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment by Mr. Coburn re: unrestricted FFS 
plans.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment by Mr. Coburn re: strike penalties for 
services by excluded providers.
    Disposition: Agreed to, by a voice vote.

                      Committee Oversight Findings

    Pursuant to clause 2(l)(3)(A) of rule XI of the Rules of 
the House of Representatives, the Committee has held oversight 
hearings and made findings that are reflected in the report on 
this Title.

              Committee on Government Reform and Oversight

    Pursuant to clause 2(l)(3)(D) of rule XI of the Rules of 
the House of Representatives, no oversight findings have been 
submitted to the Committee by the Committee on Government 
Reform and Oversight.

                        Committee Cost Estimate

    In compliance with clause 7(a) of rule XIII of the Rules of 
the House of Representatives, the Committee adopts as its own 
the cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 403 of the Congressional 
Budget Act of 1974.

                  Congressional Budget Office Estimate

    Pursuant to clause 2(l)(3)(C) of rule XI of the Rules of 
the House of Representatives, the following is a letter from 
the Congressional Budget Office providing a cost estimate for 
Title IV.

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 16, 1997.
Hon. Tom Bliley,
Chairman, Committee on Commerce,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
reviewed Title IV, the Medicare reconciliation recommendations 
of the Committee on Commerce, as approved by the committee on 
June 12, 1997.
    The enclosed tables show the federal budgetary effects of 
the committee's proposals over the 1998-2007 period. CBO 
understands that the Committee on the Budget will be 
responsible for interpreting how these proposals compare with 
the reconciliation instructions in the budget resolution. The 
estimate assumes that the reconciliation bill will be enacted 
by August 15, with timely implementation of the policies that 
would take effect at the beginning of fiscal year 1998. The 
estimate could change if the bill is enacted later.
    Title IV is broadly similar to the Medicare recommendations 
of the Committee on Ways and Means, as included in Title X. It 
would provide for the establishment of MedicarePlus plans, 
expand preventive benefits, reduce payment rates to certain 
health care providers, increase premiums required of 
beneficiaries, and make other changes to reduce the growth of 
Medicare spending. Because of jurisdictional differences, Title 
IV does not contain provisions relating only to Part A of 
Medicare (Subtitle F of Title X).
    The proposal would give Medicare beneficiaries the option 
to remain in the existing fee-for-service Medicare program or 
to enroll in MedicarePlus plans, which would replace Medicare's 
current risk plans. MedicarePlus plans would include health 
maintenance organizations, point-of-service plans, preferred 
provider organizations, as well as insurance plans operated in 
conjunction with a medical savings account. New or expanded 
benefits would be added for mammography, pap smears and pelvic 
exams, screening for prostate and colorectal cancer, diabetes 
self-management and supplies, and the diagnosis of 
osteoporosis.
    The proposal would also establish new payment methods for 
outpatient hospital services and home health services. It would 
reduce projected payment rates for physicians' services, 
clinical laboratory services, and durable medical equipment. 
The premium for Part B of Medicare (Supplementary Medical 
Insurance) would be set to cover 25 percent of program costs in 
future years, as it is now, instead of being allowed to decline 
as a share of spending, as would be the case under current law. 
Finally, the proposal contains several provisions to expand and 
improve accounting of claims where Medicare is secondary payer.
    Title IV would impose several intergovernmental mandates as 
defined in the Unfunded Mandates Reform Act (UMRA). The title 
would prohibit states from imposing premium taxes on 
MedicarePlus plans. It would also extend and expand the 
existing mandate that employment-based health insurance plans, 
including those sponsored by state and local governments, be 
the primary payer for the working disabled and for individuals 
with endstage renal disease. CBO is uncertain whether the 
threshold for intergovernmental mandates ($50 million in 1996, 
adjusted annually for inflation) would be exceeded in any of 
the next five years, because UMRA is unclear about including 
the costs of extending an existing mandate. If the costs of 
extending the primary payer requirement are included, then the 
total costs of the intergovernmental mandates in this title 
would be at or near the threshold in 1999. If such costs are 
not included, then the threshold would not be exceeded in any 
year. Other mandates included in the title would impose no 
significant costs on state, local, or tribal governments.
    Title IV also contains several private-sector mandates as 
defined in UMRA. The expansion of the primary payer requirement 
for employment-based health insurance plans would impose direct 
costs on the private sector of $110 million in 1998 and $140 
million in 2002. If the costs of extending the primary payer 
requirement are included, the direct costs of this mandate 
would be about $1\1/2\ billion a year after 1998. The title 
would also require Medigap plans to guarantee issue and 
prohibit coverage exclusions for continuously covered Medicare 
enrollees switching plans; the costs of this mandate would 
amount to $10 million in 1998 and $30 million in 2002. Other 
mandates included in the title would impose no significant 
costs on the private sector.
    If you wish further details on these estimates, we will be 
pleased to provide them.
            Sincerely,
                                         June E. O'Neill, Director.
    Enclosures.

                                              MEDICARE PROVISIONS AS APPROVED BY THE COMMITTEE ON COMMERCE                                              
                                                        [By fiscal year, in billions of dollars]                                                        
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              1997      1998      1999      2000      2001      2002      2003      2004      2005      2006      2007  
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            DIRECT SPENDING UNDER CURRENT LAW                                                           
                                                                                                                                                        
Benefit payments including mandatory                                                                                                                    
 administration...........................     208.8     227.0     248.2     273.0     285.6     313.7     339.4     368.2     409.8     437.6     464.1
Combined Part A and Part B Premiums.......     -20.2     -21.4     -22.4     -23.4     -24.5     -25.6     -26.7     -28.0     -29.3     -30.7     -32.3
                                           -------------------------------------------------------------------------------------------------------------
      Total, Medicare spending............     188.6     205.5     225.7     249.5     261.1     288.1     312.6     340.3     380.5     407.0     431.8
                                           =============================================================================================================
                                                                CHANGE IN DIRECT SPENDING                                                               
                                                                                                                                                        
Benefit payments including mandatory                                                                                                                    
 administration...........................       0.0      -2.6      -7.4     -11.2      -7.2     -18.6     -14.3     -14.9     -16.9     -18.5     -19.8
Combined Part A and Part B Premiums.......       0.0       0.4      -0.5      -2.0      -3.8      -6.1      -8.9     -12.2     -15.6     -19.0     -22.5
                                           -------------------------------------------------------------------------------------------------------------
      Total, Medicare spending............       0.0      -2.2      -7.9     -13.2     -11.0     -24.7     -23.2     -27.2     -32.5     -37.5     -42.3
                                           =============================================================================================================
                                                             DIRECT SPENDING UNDER PROPOSAL                                                             
                                                                                                                                                        
Benefit payments including mandatory                                                                                                                    
 administration...........................     208.8     224.4     240.8     261.8     278.5     295.1     325.0     353.3     392.9     419.1     444.3
Combined Part A and Part B Premiums.......     -20.2     -21.0     -23.0     -25.5     -28.3     -31.7     -35.6     -40.2     -44.9     -49.7     -54.8
                                           -------------------------------------------------------------------------------------------------------------
      Total, Medicare spending............     188.6     203.3     217.8     236.3     250.1     263.5     289.4     313.1     348.0     369.4     389.5
--------------------------------------------------------------------------------------------------------------------------------------------------------


                                              MEDICARE PROVISIONS AS APPROVED BY THE COMMITTEE ON COMMERCE                                              
                                                        [By fiscal year, in billions of dollars]                                                        
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                         1997     1998     1999     2000     2001     2002     2003     2004     2005     2006     2007 
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                CHANGE IN DIRECT SPENDING                                                               
                                                                                                                                                        
Subtitle A--Medicare Plus Program:                                                                                                                      
    Payments to Risk-Based Plans \1\.................      0.0     -0.6     -1.6     -3.6      0.4    -11.6     -8.2     -9.5    -12.1    -13.3    -14.3
    Payback of Education and DSH.....................      0.0      0.2      0.7      1.5      2.1      3.5      4.4      5.1      6.3      6.9      7.3
    Coverage of PACE Under Medicare \2\..............      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0
    PACE as State Medicaid Option and Demos..........      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0
    Social Health Maintenance Organizations (SHMOs)..      0.0      0.0      0.1      0.1      0.0      0.0      0.0      0.0      0.0      0.0      0.0
    Municipal Health Services Plans..................      0.0      0.0      0.0      0.1      0.0      0.0      0.0      0.0      0.0      0.0      0.0
    Community Nursing Demo. Extension................      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0
    Medigap Changes..................................      0.0      0.0      0.0      0.1      0.1      0.1      0.1      0.1      0.1      0.1      0.1
    Competitive Pricing Demos........................      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0
                                                      --------------------------------------------------------------------------------------------------
      Total, Subtotal A..............................      0.0     -0.2     -0.7     -1.8     -2.6     -8.1     -3.8     -4.3     -5.7     -6.4     -6.9
                                                      ==================================================================================================
Subtitle B--Prevention Initiatives:                                                                                                                     
    Screening Mammography............................      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0
    Screening Pap Smears and Pelvic Exams............      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0
    Prostate Cancer Screening........................      0.0      0.2      0.2      0.2      0.2      0.2      0.2      0.2      0.2      0.2      0.2
    Colorectal Cancer Screening Part A...............      0.0      0.0      0.0      0.0      0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0
    Colorectal Cancer Screening Part B...............      0.0      0.1      0.1      0.1      0.1      0.1      0.1      0.1      0.1      0.1      0.1
    Diabetes Self Management Part A..................      0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0
    Diabetes Self Mgmt. & Supplies Part B............      0.0      0.4      0.5      0.5      0.5      0.5      0.5      0.5      0.5      0.5      0.5
    Bone Mass Measurement............................      0.0      0.0      0.0      0.1      0.1      0.1      0.1      0.1      0.1      0.1      0.1
    Vaccine Outreach.................................      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0
                                                      --------------------------------------------------------------------------------------------------
      Total, Subtitle B..............................      0.0      0.7      1.0      1.0      1.0      0.9      0.9      0.9      0.9      0.9      0.9
                                                      ==================================================================================================
Subtitle C--Telemedicine, Education, Informatics.....      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0
                                                      ==================================================================================================
Subtitle D--Fraud and Abuse:                                                                                                                            
    Advisory Opinions Regarding Self-Referral........      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0
    Fraud and Abuse Provisions.......................      0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.1     -0.1
      Total, Subtitle D..............................      0.0      0.0      0.0      0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0
                                                      ==================================================================================================
Subtitle E--Prospective Payment Systems:                                                                                                                
    Outpatient Hospital PPS (includes buydown).......      0.0     -1.3     -2.0     -1.7     -1.4     -1.0     -0.5      0.1      0.7      1.5      2.3
    OUtpatient Therapy Providers.....................      0.0     -0.1     -0.5     -0.5     -0.5     -0.6     -0.6     -0.7     -0.7     -0.8     -0.8
    Ambulance Payments and Fee Schedule..............      0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0
    Paramedic Intercept Services in Rural Areas......      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0
    Demonstration of Contracts with State and Local                                                                                                     
     Governments.....................................      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0
    PPS for Home Health Services.....................      0.0      0.0      0.0     -1.7     -1.3     -1.4     -1.5     -1.6     -1.7     -1.8     -1.9
                                                      --------------------------------------------------------------------------------------------------
      Total, Subtitle E..............................      0.0     -1.4     -2.4     -3.9     -3.2     -2.9     -2.6     -2.2     -1.7     -1.1     -0.5
                                                      ==================================================================================================
Subtitle G--Provisions Relating to Part B Only:                                                                                                         
    Physician Payment System (includes Anesthesia)                                                                                                      
     \3\.............................................      0.0     -0.0     -0.7     -1.3     -1.6     -1.6     -1.0     -0.7     -0.9     -1.5     -2.2
    Resource-Based Physician Practice Expense........      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0
    Physician Profiling for High-Cost Staff..........      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0
    Eliminate X-Ray Requirement for Chiropractors....      0.0      0.0      0.1      0.1      0.2      0.2      0.3      0.3      0.4      0.5      0.5
    Payment for Portable EKG Transfer \4\............      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0
    Durable Medical Equipment, P+O and PEN...........      0.0      0.0     -0.1     -0.2     -0.2     -0.3     -0.4     -0.4     -0.5     -0.5     -0.5
    Oxygen...........................................      0.0     -0.2     -0.3     -0.3     -0.4     -0.4     -0.5     -0.6     -0.6     -0.7     -0.7
    Lab Updates......................................      0.0     -0.2     -0.4     -0.5     -0.6     -0.8     -0.9     -0.9     -1.0     -1.1     -1.1
    Lab Administrative Simplification................      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0
    Ambulatory Surgical Centers......................      0.0     -0.0     -0.0     -0.1     -0.1     -0.1     -0.2     -0.2     -0.2     -0.2     -0.2
    Pharmaceutical Payments \5\......................      0.0     -0.1     -0.1     -0.1     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.1
    Coverage of Oral Anti-emetics....................      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0
    Rural Health Clinic Services.....................      0.0     -0.0     -0.0     -0.0     -0.0     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1
    NPs, PAs, and CNSs...............................      0.0      0.0      0.1      0.1      0.1      0.2      0.2      0.3      0.3      0.3      0.3
    Dialysis Audits and Quality Standards............      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0
    Cochlear Implants................................      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0
    Part B Premium...................................      0.0      0.3      0.6      2.2      4.0      6.3      9.2     12.5     15.9     19.4     23.0
                                                      --------------------------------------------------------------------------------------------------
      Total, Subtitle G..............................      0.0      0.2      2.2      4.4      6.7      9.2     11.7     14.8     18.6     22.8     27.1
                                                      ==================================================================================================
Subtitle H:                                                                                                                                             
    MSP Extension, 30 month ESRD.....................      0.0     -0.1     -1.7     -1.8     -1.9     -2.0     -2.1     -2.2     -2.3     -2.5     -2.6
    Clarification of Time & Filing Limitations,                                                                                                         
     Recovery against TPAs...........................      0.0     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1
    Home Health Policies.............................      0.0     -1.0     -1.9     -2.3     -2.8     -3.2     -3.7     -4.2     -4.8     -5.3     -6.0
    Direct Graduate Medical Education \6\............      0.0     -0.1     -0.1     -0.2     -0.3     -0.4     -0.5     -0.6     -0.7     -0.8     -0.9
    Part B Premium Penalty and Gap for Military                                                                                                         
     Retirees--Benefits..............................      0.0      0.1      0.2      0.3      0.3      0.3      0.3      0.4      0.4      0.4      0.4
    Part B Premium Penalty and Gap for Military                                                                                                         
     Retirees--Premium...............................      0.0     -0.0     -0.0     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1
    Centers of Excellence............................      0.0     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1
                                                      --------------------------------------------------------------------------------------------------
      Total, Subtitle H..............................      0.0     -1.3     -3.8     -4.3     -4.9     -5.6     -6.2     -7.0     -7.7     -8.5     -9.3
                                                      ==================================================================================================
Subtitle I--Medical Liability Reform.................      0.0     -0.0     -0.0     -0.0     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1
                                                      ==================================================================================================
Part A premium Interaction...........................      0.0      0.1      0.1      0.2      0.2      0.3      0.3      0.4      0.4      0.5      0.6
                                                      ==================================================================================================
      Total, Medicare Net OUtlays....................      0.0     -2.2     -7.9    -13.2    -11.0    -24.7    -23.2    -27.2    -32.5    -37.5    -42.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ October 1, 2001 Medicare Plus payments would be accelerated to September 2001.                                                                      
\2\ Includes interaction with Merdicaid.                                                                                                                
\3\ Assumes limits on adjustments to MEI are +3% and -7%.                                                                                               
\4\ Assumes payments are limited to services provided in calendar year 1998.                                                                            
\5\ Payments for prescription drugs would equal AWP-5%, effective January 1, 1998.                                                                      
\6\ Direct graduate medical education proposals include changes in number of residents counted, phased cap on overhead, incentive payments, consortia,  
  and combined primary care residencies.                                                                                                                
                                                                                                                                                        
Note.--Assumes enactment on August 15, 1997 with no delay in implementation of FY98 policies. Later enactment would reduce savings.                     


                                               MEDICARE PROVISIONS AS APPROVED BY THE COMMITTEE ON COMMERCE                                             
                                                        [By fiscal year, in billions of dollars]                                                        
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              1997      1998      1999      2000      2001      2002      2003      2004      2005      2006      2007  
--------------------------------------------------------------------------------------------------------------------------------------------------------
          MEMORANDUM                                                                                                                                    
                                                                                                                                                        
Monthly Part B Premium (By                                                                                                                              
 calendar year):                                                                                                                                        
    Estimated Premium under                                                                                                                             
     proposal................      $42.50     $43.80    $44.80    $49.30    $54.10    $59.70    $66.30    $74.10    $82.70    $91.00    $99.40   $107.70
    Estimated Premium under                                                                                                                             
     current law.............      $42.50     $43.80    $45.80    $47.10    $48.50    $50.00    $51.50    $53.00    $54.60    $56.20    $57.90    $59.70
Home Health Transfer:                                                                                                                                   
    Amount of HH Transfer, in                                                                                                                           
     billions of dollars.....  ...........  ........       9.8      13.4      13.8      14.9      16.1      17.3      18.6      19.9      21.2      22.7
    HMO Interaction: Spending                                                                                                                           
     Transferred to Part B...  ...........  ........       0.2       0.6       1.2       1.7       2.7       3.9       5.5       7.4       8.2       9.0
Impact on Medicaid Spending                                                                                                                             
 (in billions of dollars):                                                                                                                              
    Federal from Premiums....  ...........  ........      -0.0       0.1       0.2       0.3       0.6       0.8       1.1       1.4       1.8       2.1
    State and Local from                                                                                                                                
     Premiums................  ...........  ........      -0.0       0.0       0.1       0.3       0.4       0.6       0.9       1.1       1.3       1.6
      Total, Federal and                                                                                                                                
       State and Local from                                                                                                                             
       Premiums..............  ...........  ........      -0.0       0.1       0.3       0.6       1.0       1.4       2.0       2.5       3.1       3.6
    Rural Health Clinic                                                                                                                                 
     Services--Federal Share.  ...........  ........      -0.0      -0.0      -0.0      -0.0      -0.0      -0.0      -0.0      -0.0      -0.0      -0.1
    Rural Health Clinic                                                                                                                                 
     Services--State and                                                                                                                                
     Local Share.............  ...........  ........      -0.0      -0.0      -0.0      -0.0      -0.0      -0.0      -0.0      -0.0      -0.0      -0.0
      Total, Federal and                                                                                                                                
       State and Local from                                                                                                                             
       Rural Clinics.........  ...........  ........      -0.0      -0.0      -0.0      -0.1      -0.1      -0.1      -0.1      -0.1      -0.1      -0.1
      Total, Federal.........  ...........  ........      -0.1       0.0       0.2       0.3       0.5       0.8       1.1       1.4       1.7       2.0
      Total, State and Local.  ...........  ........      -0.0       0.0       0.1       0.2       0.4       0.6       0.8       1.1       1.3       1.5
        Total, Federal and                                                                                                                              
         State and Local.....  ...........  ........      -0.1       0.0       0.3       0.6       0.9       1.4       1.9       2.4       3.0       3.5
--------------------------------------------------------------------------------------------------------------------------------------------------------

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                   Constitutional Authority Statement

    Pursuant to clause 2(l)(4) of rule XI of the Rules of the 
House of Representatives, the Committee finds that the 
Constitutional authority for this legislation is provided in 
Article I, section 8, clause 3, which grants Congress the power 
to regulate commerce with foreign nations, among the several 
States, and with the Indian tribes.

             Section-by-Section Analysis of the Legislation

                    Subtitle A--MedicarePlus Program

                    Chapter 1--MedicarePlus Program

                       subchapter a--medicareplus

Section 4001. Establishment of MedicarePlus Program

            New section 1851 of the Social Security Act. Eligibility, 
                    election, and enrollment
    Current 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. (A CMP is a health plan that is not a federally 
qualified HMO but that meets specific Medicare requirements.) 
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 any of the 
HMO's/CMP's projected cost savings between Medicare's 
capitation payment and what it would cost the organization to 
provide Medicare benefits to its commercial enrollees through 
the provision of additional benefits. (It could also return the 
``savings'' to Medicare.)
    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. A 
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 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 of HHS 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. 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 Social Security Act would be 
amended to insert a new Part C, MedicarePlus Program. New 
Section 1851 of Part C of the Social Security Act would specify 
requirements related to eligibility, election of coverage, and 
enrollment.
    a. Types of Choices. Under the provision, every individual 
entitled to Medicare Part A and enrolled under Part B could 
elect to receive benefits through two options: (i) the existing 
Medicare fee-for-service program (Medicare FFS) or (ii) through 
a MedicarePlus plan. The exception to this would be individuals 
medically determined to have end-stage renal disease (ESRD). 
They would not be able to elect MedicarePlus. Individuals who 
develop ESRD while enrolled in a plan could continue in that 
plan. A MedicarePlus plan could be offered by: (i) a 
coordinated care plan (including an HMO or preferred provider 
organization (PPO)), (ii) a provider sponsored organization 
(PSO); and (iii) a combination of a medical savings account 
(MSA) and contributions to a MedicarePlus MSA.
    b. Special Rules. In general, an individual would be 
eligible to elect a MedicarePlus plan offered by a MedicarePlus 
organization only if the organization served the geographic 
area in which the individual resided. Enrollment could continue 
if the plan provided benefits for enrollees located in the area 
to which the individual moved. An individual eligible for an 
annuity under the Federal Employee Health Benefits Program 
(FEHBP) would not be eligible for an MSA plan until the Office 
of Management and Budget adopted policies to ensure that such 
enrollment did not result in increased expenditures for the 
federal government to FEHBP plans. The Secretary could apply 
similar rules in the case of individuals who are eligible for 
Departments of Defense or Veterans' Affairs health care. An 
individual who is a qualified Medicare beneficiary (QMB), a 
qualified disabled and working individual, a specified low-
income Medicare beneficiary (SLMB), or otherwise entitled to 
Medicare cost-sharing assistance under a State Medicaid 
program, would not be eligible to enroll in an MSA plan.
    In addition, individuals would not be eligible to enroll in 
an MSA plan on or after January 1, 2003, or as of any date if 
the number of individuals enrolled in MSA plans reached 
500,000. Individuals enrolling in MSA plans prior to either of 
those two events would be allowed to continue such enrollment. 
The Secretary would be required to regularly evaluate and 
report to Congress on the impact of permitting enrollment of 
MSA plans on selection (including adverse selection), use of 
preventive care, access to care, and the financial status of 
the Trust Funds. In addition, the Secretary would be required 
to submit to Congress periodic reports on the number of 
individuals enrolled in MSA plans and to submit a report to 
Congress by no later than March 1, 2002 on whether the 4-year 
time limitation should be extended or removed, and whether any 
change should be made to the number of individuals permitted to 
enroll in Medicare MSAs.
    c. Process for Exercising Choice. The Secretary would be 
required to establish a process for elections (and changing 
elections) of Medicare fee-for-service (FFS) and MedicarePlus 
options. Elections would be made (or changed) only during 
specified coverage election periods. An individual who wished 
to elect a MedicarePlus plan would do so by filing an 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 
Medicare FFS option. The Secretary would be required to 
establish procedures under which individuals enrolled with a 
MedicarePlus organization at the time of the initial election 
period and who failed to elect to receive coverage other than 
through the organization would be deemed to have elected the 
MedicarePlus plan offered by the organization (or, if the 
organization offered more than one such plan, such plan as the 
Secretary provided for under such procedures). An individual 
who made (or was deemed to have made) an election would be 
considered to have continued such election until the individual 
changed the election or the plan was discontinued.
    d. Providing 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. At least 30 days 
before each annual, coordinated election period, the Secretary 
wouldsend to each MedicarePlus eligible person a notice 
containing the information specified below in order to assist the 
individual in making an election. This would include general 
information, a list of plan options and comparative plan option 
information, the MedicarePlus monthly capitation rate, and other 
information determined by the Secretary to be helpful in making 
elections. This information would have to be written in language easily 
understood by Medicare beneficiaries. The Secretary would be required 
to coordinate the mailing of this information with annual mailing of 
other Medicare information required under current law. To the extent 
practicable, the Secretary would provide such information to new 
MedicarePlus individuals at least two months prior to their initial 
enrollment period.
    The required general election information would include 
information on: (i) services covered and not covered by 
Medicare FFS (including benefits, cost-sharing, and beneficiary 
liability for balance billing); (ii) the Part B premium amount, 
(iii) election procedures, (iv) rights including grievance and 
appeals procedures under Medicare FFS and MedicarePlus and the 
right to be protected against discrimination based on health 
status-related factors, (v) information on Medigap and Medicare 
Select policies, and (vi) the right of the organization to 
terminate the contract and what this would mean for enrollees.
    Comparative plan option information would have to include: 
(i) a description of benefits including any covered beyond 
Medicare FFS, any reductions in cost-sharing and any maximum 
limits on out-of-pocket costs, whether provider networks are 
used, coverage of emergency care, grievance and appeal 
information, and in the case of MSA plans, the differences in 
their cost sharing compared to other MedicarePlus plans; (ii) 
the monthly premium (and net monthly premium) for the plan; 
(iii) the service area of the plan; (iv) to the extent 
available, quality indicators (compared with indicators for 
Medicare FFS) including disenrollment rates, enrollee 
satisfaction and health outcomes, and whether the plan is out 
of compliance with any federal requirements; and (v) 
information on any supplemental coverage. The required 
information would be updated at least annually.
    The Secretary would be required to maintain a toll-free 
number and Internet site for inquiries regarding MedicarePlus 
options and plans. A MedicarePlus organization would be 
required to provide the Secretary with such information on the 
organization and its plans as the Secretary needed to prepare 
the information described above for Medicare beneficiaries. The 
Secretary could enter into contracts with appropriate non-
federal entities to carry out these information activities.
    e. Coverage Election Periods. Individuals would first have 
a choice (``initial election'') between Medicare FFS and 
MedicarePlus plans (if there were one or more MedicarePlus 
plans to choose from in their area) upon eligibility for 
Medicare. The Secretary would designate a time for the election 
such that coverage would become effective when the individual 
was eligible to begin coverage.
    From 1998 through 2000, there would be continuous open 
enrollment and disenrollment, when eligible individuals could 
switch MedicarePlus plans or move into or out of the Medicare 
FFS program option. For the first 6 months during 2001, there 
would also be continuous open enrollment and disenrollment, but 
individuals could only change their election once during 2001 
(except for during the annual coordinated open enrollment 
period or a special enrollment period (as described below)). 
During subsequent years, individuals would be able to enroll in 
a MedicarePlus option and disenroll from it at any time during 
the first 3 months of a year (or during the first 3 months 
after an individual became eligible to enroll in a MedicarePlus 
plan). Such changes could be made only once a year except 
during annual coordinated election and special enrollment 
periods.
    Beginning in October 2000, there would be an annual, 
coordinated election period during which individuals could 
change elections for the following calendar year. The Secretary 
would be required to hold MedicarePlus health fairs in October 
of each year, beginning with 1998. Such fairs would provide for 
nationally, coordinated educational and publicity campaigns to 
inform MedicarePlus eligibles about MedicarePlus plans and the 
election process, including the annual, coordinated election 
periods.
    Starting January 1, 2001, special election periods would be 
provided in which an individual could discontinue an election 
of a MedicarePlus plan and make a new election if: (i) the 
organization's or plan's certification was terminated or the 
organization terminated or otherwise discontinued providing the 
plan; (ii) the person who elected a MedicarePlus plan was no 
longer eligible because of a change in residence or certain 
other changes in circumstances; (iii) the individual 
demonstrated that the organization offering the plan violated 
its contract with Medicare (including the failure to provide 
the enrollee on a timely basis medically necessary care or to 
provide such care in accordance with applicable quality 
standards), or misrepresented the plan in its marketing; or (4) 
the individual encountered other exceptional conditions 
specified by the Secretary.
    Special rules would apply for MSA plans. Individuals could 
elect a MSA plan only during: (i) an initial open enrollment 
period; (ii) an annual, coordinated election period, or (iii) 
October 1998 and October 1999. Such individuals could not 
discontinue an election of an MSA plan except during an annual, 
coordinated election period, October 1998 and October 1999, or 
if the MSA plan had been decertified or terminated.
    f. Effectiveness of Elections. An election made during the 
initial election period would become effective when the 
individual became entitled to Medicare benefits, except as the 
Secretary might provide in order to prevent retroactive 
coverage. During continuous open enrollment periods, an 
election or change of elections would take effect with the 
first calendar month after the election was made. An election 
or change of coverage made during a coordinated 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.
    g. Guaranteed Issue and Renewal. MedicarePlus organizations 
would be required to accept MedicarePlus eligibles without 
restriction during election periods. If the organization hada 
capacity limit, it could limit enrollment but only if priority were 
given to those who had already elected the plan and then to other 
persons in a manner that did not discriminate on the basis of health-
status related factors (which include health status, medical condition 
(including both physical and mental illnesses), claims experience, 
receipt of health care, medical history, genetic information, evidence 
of insurability (including conditions arising out of acts of domestic 
violence) and disability). This would not apply if it would result in 
enrollment that is substantially misrepresentative of the Medicare 
population in the service area.
    MedicarePlus organizations could not terminate an 
enrollee's election except for failure to pay premiums on a 
timely basis, disruptive behavior, or because of plan 
termination of all MedicarePlus individuals. Individuals 
terminated for cause would be deemed to have elected Medicare 
FFS. An individual whose plan was terminated would have a 
special election period to change into another MedicarePlus 
plan. If the individual failed to make an election, he or she 
would be deemed to be Medicare FFS. Plans would have to 
transmit to the Secretary a copy of each enrollee's election 
form.
    h. Approval of Marketing Material. The provision would 
require MedicarePlus plans to submit marketing material to the 
Secretary at least 45 days before distribution. The material 
could then be distributed if not disapproved by the Secretary. 
Medicare's new standards for plans (established as described 
below under new section 1856) would have to include guidelines 
for the review of all marketing material submitted. Under these 
guidelines, the Secretary would have to disapprove marketing 
materials if they were materially inaccurate or misleading.
    Each MedicarePlus organization would have to conform to 
fair marketing standards, including a prohibition on a 
MedicarePlus organization (or its agent) completing any portion 
of any election form on behalf of any individual.
    i. Effect of Election of MedicarePlus Plan Option. Payments 
under a contract with a MedicarePlus organization with respect 
to an individual electing a MedicarePlus plan offered by an 
organization would be instead of the amounts which otherwise 
would have been payable under Medicare Parts A and B.
            New section 1852. Benefits and beneficiary protections
    Current 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 and quality 
assurance.
    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.
    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.
    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 (QRO) to perform reviews. QROs must meet many of 
the same standards as PROs, but have not contracted with 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. On April 30, 1997, Health Care Financing Administration 
(HCFA) issuedfinal rules for establishing an expedited review 
process for Medicare beneficiaries enrolled in HMOs and CMPs.
    Hospitals and other providers are required under Medicare 
as a condition of participation to ask whether an individual 
has an advance directive and make a notice of such in the 
patient's record. Such hospitals and other providers also have 
to provide upon admission and at other specified times written 
information to adult patients: on applicable advance directive 
laws of the relevant State and of the advance directive 
policies of the provider.
    Payments to Medicare HMOs/CMPs include amounts that reflect 
Medicare's fee-for-service payments to hospitals in an area for 
indirect and direct medical education costs and 
disproportionate share adjustments.
    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. In addition, there is no provision in current law 
for medical savings account plans for Medicare beneficiaries.
    Explanation of Provision. The provision establishes a new 
Section 1852 specifying Federal requirements related to 
MedicarePlus plan benefits and beneficiary protections.
    a. Basic Benefits. Each MedicarePlus plan, except an MSA 
plan, would be required to provide benefits for at least the 
items and services for which benefits are available under Parts 
A and B of Medicare and any additional health services as the 
Secretary may approve under section 1854 of this provision (see 
below). A MedicarePlus plan would meet this requirement if, for 
items and services furnished other than through a provider that 
has a contract with the organization offering the plan, the 
plan provides (in addition to any cost sharing provided for 
under the plan) for at least the dollar amount of payment as 
would otherwise be authorized under Medicare FFS (including any 
balance billing permitted under Medicare FFS). These cost-
sharing limitations would not apply to an individual enrolled 
under an MSA plan.
    MedicarePlus organizations could offer under their 
MedicarePlus plans supplemental benefits. Supplemental benefits 
approved by the Secretary may be offered without affording 
enrollees an option to decline them. Alternatively, a 
MedicarePlus organization could provide to enrollees (other 
than those in an MSA plan) optional supplemental benefits. A 
MedicarePlus plan could seek payment from other payors, such as 
insurers or employer plans, in circumstances where secondary 
payor rules apply.
    The provision would establish a policy relating to a 
national coverage determination made between the annual 
announcements of MedicarePlus payment rates. The application of 
the determination would be delayed if the determination would 
result in a significant change in costs to the MedicarePlus 
plan, and such change was not incorporated in the MedicarePlus 
payment rate established for that period. In such cases, the 
national coverage determination would apply to the first 
contract year beginning after such period. If the determination 
provided for coverage of additional benefits or benefits under 
additional circumstances, it would also apply to the first 
contract year beginning after such period, unless otherwise 
required by law.
    b. Antidiscrimination. A MedicarePlus organization could 
not deny, limit, or condition the coverage or provision of 
benefits under this part based on any health-status related 
factor (health status, medical condition (including both 
physical and mental illnesses), claims experience, receipt of 
health care, medical history, genetic information, evidence of 
insurability (including conditions arising out of acts of 
domestic violence) and disability). This requirement should not 
be construed to mean that a MedicarePlus organization had to 
enroll individuals determined to have ESRD.
    c. Detailed Description of Plan Provisions. The provision 
would require each MedicarePlus plan to disclose in clear, 
accurate, and standardized form to each enrollee at the time of 
enrollment and annually thereafter, the following information 
about the plan: (i) its service area; (ii) its benefits and 
exclusions from coverage (and, in the case of an MSA plan, a 
comparison with other MedicarePlus plans); (iii) the number, 
mix, and distribution of participating providers, and whether 
there is a point-of-service option and, if so, the premium for 
it (iv) permitted out-of-area coverage; (v) coverage of and 
procedures for obtaining emergency services (including the 
appropriate use of 911 or local equivalent); (vi) any 
supplemental coverage, including the benefits and premium price 
and whether they are optional; (vii) any prior authorization or 
other rules that could result in nonpayment; (viii) any 
grievance and appeals procedures; and (ix) its quality 
assurance program.
    d. Access to Services. The provision would permit a 
MedicarePlus organization offering a MedicarePlus plan to 
restrict the providers from whom benefits could be provided so 
long as: (i) the organization makes the benefits available and 
accessible to each individual electing the plan within the 
service area with reasonable promptness and in a manner which 
assures continuity in the provision of benefits; (ii) when 
medically necessary, the organization makes benefits available 
and accessible 24 hours a day, 7 days a week; (iii) the plan 
provides reimbursement for covered out-of-network services if 
the services are medically necessary and immediately required 
because of unforeseen illness, injury, or condition and it is 
not reasonable to provide the services through the organization 
or met other conditions; (iv) the organization provides access 
to appropriate providers, including credentialed specialists, 
for medically necessary treatment and services; and (v) 
coverage is provided for emergency services without regard to 
either prior authorization requirements or the emergency care 
entity's contractual relationship with the organization.
    A MedicarePlus organization would be required to comply 
with such guidelines as the Secretary may prescribe relating to 
promoting efficiency and timely coordination of appropriate 
maintenance and post-stabilization care provided to an enrollee 
determined to be stable by a medical screening examination 
required under the Examination and Treatment under Emergency 
Medical Conditions and Women in Labor requirements of the 
Social Security Act (Section 1867).
    Emergency services mean covered inpatient and outpatient 
services that are furnished to an enrollee of a MedicarePlus 
organization by a provider qualified to provide services under 
Medicare, and are needed to evaluate or stabilize an emergency 
medical condition.
    An emergency medical condition is one manifesting itself by 
acute symptoms of sufficient severity such that a prudent 
layperson, who possesses an average knowledge of health and 
medicine, could reasonably expect the absence of immediate 
medical attention to result in: (i) placing the health of the 
individual in serious jeopardy (and in case of a pregnant 
women, her health or that of her unborn child); (ii) serious 
impairment to bodily functions, or (iii) serious dysfunction of 
any bodily organ or part.
    A MedicarePlus organization would be required to ensure 
that the length of an inpatient hospital stay covered under 
Medicare be determined by the attending physician (or other 
attending health care provider to the extent permitted under 
State law) and the patient to be medically appropriate. This 
should not be construed as requiring the provision of inpatient 
coverage if the attending physician or provider and patient 
determine that a shorter stay is medically appropriate or as 
affecting the application of deductibles and coinsurance.
    e. Quality Assurance Program. The provision would require a 
MedicarePlus organization to have arrangements (established in 
accordance with regulations of the Secretary) for an ongoing 
quality assurance program for services provided to its 
MedicarePlus enrollees. The program has to: (i) stress health 
outcomes and provide for the collection, analysis, and 
reporting of data that will permit measurement of outcomes and 
other indices of MedicarePlus plans and organizations; (ii) 
provide for written protocols for utilization review; (ii) 
provide review by physicians and other health care 
professionals of the process followed in the provision of 
health services; (iv) monitor and evaluate high volume and high 
risk services and the care of acute and chronic conditions; (v) 
evaluate the continuity and coordination of care; (vi) have 
mechanisms in place to detect both underutilization and 
overutilization; (vii) after identifying areas for improvement, 
establish or alter practice parameters; (viii) take action to 
improve quality and assess effectiveness of such actions; (ix) 
make available information on quality and outcomes measures to 
facilitate beneficiary comparison and choice; (x) be evaluated 
on an ongoing basis; (xi) include measures of consumer 
satisfaction; and (xii) provide the Secretary with such access 
to information collected as may be appropriate to monitor and 
ensure quality.
    Each organization would be required to have an agreement 
with an independent quality review and improvement 
organization, approved by the Secretary, for each plan it 
operates, to perform functions such as quality review, review 
for the appropriateness of setting of care, adequacy of access, 
beneficiary outreach, and review of complaints about poor 
quality of care. A MedicarePlus organization would be deemed to 
meet the requirements for quality assurance external review if 
it is accredited by a private organization under a process that 
the Secretary has determined assures that the organization 
applies and enforces standards that are no less stringent than 
those specified under the plan standards requirements 
established by this provision (see new Section 1856 as 
described below).
    f. Coverage Determinations. A MedicarePlus organization 
would be required to make determinations regarding 
authorization requests for nonemergency care on a timely basis 
and to provide notice of any denial and the reasons for it. An 
explanation of the grievance and appeals process would also 
have to be provided. Reconsideration of denials would generally 
have to be decided within 30 days of receiving medical 
information, but not later than 60 days after the coverage 
determination. Physicians would be the only individuals 
permitted to make decisions to deny coverage based on medical 
necessity.
    g. Grievances and Appeals. The provision would require each 
MedicarePlus organization to provide meaningful procedures for 
hearing and resolving grievances. 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. The Secretary would be required to contract with an 
independent, outside entity to review and resolve appeals of 
denials of coverage related to urgent or emergency services.
    An enrollee in a MedicarePlus plan could request an 
expedited determination by the organization regarding an 
appeal. Such requests could also come from physicians. The 
organization would have to maintain procedures for expediting 
organization determinations when, upon request of an enrollee, 
the organization determined that the application of a normal 
time frame for making a determination or a reconsideration 
could seriously jeopardize the life or health of an enrollee or 
the enrollee's ability to regain maximum function. In an urgent 
case, the organization would have to notify the enrollee (and 
physician involved) of the determination as expeditiously as 
the enrollee's condition requires, but not later than 72 hours 
(or 24 hours in the case of a reconsideration), or such longer 
period as the Secretary may permit in specified cases. The 
Secretary would have to annually report publicly on the number 
and disposition of denials and appeals within each 
organization, and those resolved by the independent entity.
    h. Confidentiality and Accuracy of Enrollee Records. Each 
MedicarePlus organization would be required to establish 
procedures to safeguard the privacy of individually 
identifiable enrollee information, to maintain accurate and 
timely medical records and other health information, and to 
assure timely access of enrollees to their medical records.
    i. Information on Advance Directives. Each MedicarePlus 
organization would be required to maintain written policies and 
procedures respecting advance directives.
    j. Rules Regarding Physician Participation. Each 
MedicarePlus organization would be required to establish 
reasonable procedures relating to the participation of 
physicians under a MedicarePlus plan offered by the 
organization. The procedures would include: (i) providing 
notice of the rules regarding participation; (ii) providing 
written notice of adverse participation decisions; and (iii) 
providing a process for appealing adverse decisions. The 
organization would be required to consult with physicians who 
have entered into participation agreements regarding the 
organization's medical policy, quality, and medical management 
procedures.
    The provision (patient's right to know) would prohibit 
interference with physician advice to enrollees. A MedicarePlus 
organization could not prohibit a covered health professional 
from advising a patient about the patient's health status or 
about medical care or treatment for the patient's condition or 
disease, regardless of whether benefits for such care or 
treatment are provided under the plan if the professional is 
acting wishing the lawful scope of practice.
    The Committee has adopted a conscience protection 
provision. This provision is intended to ensure that 
MedicarePlus organizations motivated by religious or moral 
beliefs can comply with the general rule while maintaining 
ethical integrity. Specifically, the patient's right to know 
provision should not be construed to require MedicarePlus 
organizations to provide, reimburse for, or provide coverage of 
a counseling or referral service if the organization offering 
the plan objects to the provision of such service on moral or 
religious grounds. The provision is consistent with the intent 
of the patient right's to know provision because health care 
professionals under contract with a MedicarePlus organization 
are free to advise their patients about relevant medical care 
or treatment. However, this provision makes clear that neither 
the organization nor it's employees must provide a counseling 
service or a referral service, nor does the organization have 
to reimburse for, or provide coverage of, such service, if it 
objects to such service on moral or religious grounds.
    This provision also has a requirement that MedicarePlus 
organizations make available to prospective and current 
enrollees information on its policies regarding the counseling 
and referral services to which it objects on moral or religious 
grounds. The Committee has permitted the plans to make this 
information on its policies available through written 
instrumentalities in the manner which the MedicarePlus 
organization deems appropriate so as to remove discretion from 
the Secretary or any other government entity to impose 
burdensome regulatory, legal or stylistic requirements with 
respect to this subsection. However, the Committee intends that 
the information not be made available in a manner that 
intentionally obfuscates or seeks to deceive a prospective or 
current enrollee. Rather, the Committee intends for such notice 
to be provided in a manner that would be meaningful to 
beneficiaries and reasonably inform them of any policies 
resulting in plan restrictions.
    This provision also requires a MedicarePlus organization to 
make such information on it's policies available to prospective 
enrollees before or during enrollment. The subsection also 
makes clear that if a plan changes such a policy or adopts a 
new policy regarding a counseling or referral service to which 
it has moral or religious objections during the plan year, that 
it must make available information to current enrollees within 
90 days of such a policy change regarding such a counseling 
service.
    This provision has a construction clause making clear that 
nothing in subsection (B) should be construed to affect 
disclosure requirements under the State law or under the 
Employee Retirement Income Security Act of 1974.
    The provision would limit the use of health care provider 
incentive plans. The provision would define an incentive plan 
as any compensation arrangement between a MedicarePlus 
organization and a provider or provider group that has the 
effect, directly or indirectly, of reducing or limiting 
services provided. The provision would prohibit MedicarePlus 
plans from operating such a provider incentive plan unless the 
following conditions were met. No specific payment could be 
made, directly or indirectly, to a provider or provider group 
as an inducement to reduce or limit medically necessary 
services provided with respect to a specific individual. If the 
plan placed a provider or provider group at substantial 
financial risk, the organization would be required to provide 
adequate and appropriate stop-loss protection and to conduct 
periodic surveys of currently and previously enrolled 
individuals to determine the degree of access to and 
satisfaction with the quality of services. Further, the 
organization would be required to provide the Secretary with 
sufficient descriptive information for the Secretary to 
determine compliance with these requirements.
    A MedicarePlus organization would not be able to provide 
(directly or indirectly) for a provider (or group of providers) 
to indemnify the organization against any liability resulting 
from a civil action brought by or on behalf of an enrollee for 
any damage caused to the enrollee by the organization's denial 
of medically necessary care.
    A MedicarePlus organization could not (directly or 
indirectly) seek to enforce contractual provisions which 
prevent providers whose contractual obligations to the 
organization for the provision of medical services through the 
organization have ended from joining or forming any competing 
MedicarePlus PSO in the same area.
    k. Treatment of Services Furnished by Certain Providers. 
Physician or other entity (other than a provider of services) 
that does not have a contract establishing payment amounts for 
services furnished to an individual enrolled with a 
MedicarePlus organization would be required to accept as 
payment in full for covered services the amounts that the 
physician or other entity could collect if the individual were 
in Medicare FFS. Any penalty or other provision of law that 
applies to such a payment under Medicare FFS would also apply 
with respect to an individual covered under a MedicarePlus 
plan.
    l. Disclosure of Use of DSH and Teaching Hospitals. Each 
MedicarePlus organization would have to provide the Secretary 
with information on (i) the extent to which it provides 
inpatient and outpatient hospital benefits under MedicarePlus 
through the use of hospitals that are eligible for 
disproportionate share hospital adjustments or through the use 
of teaching hospitals that receive indirect and direct graduate 
medical education payments, and (ii) the extentto which 
differences between payment rates to different hospitals reflect the 
disproportionate share percentage of low-income patients and the 
presence of medical residency training programs in those hospitals.
    m. Out-of-Network Access. The provision requires that if a 
MedicarePlus organization offers one plan which provides for 
coverage primarily through network providers, that it also be 
allowed to offer individuals (at the time of enrollment) 
another plan which provides for coverage through non-network 
providers.
    n. Non-Preemption of State Law. A State could establish or 
enforce requirements with respect to beneficiary protections in 
this section but only if such requirements were more stringent.
    o. Nondiscrimination in Selection of Network Health 
Professionals. A MedicarePlus plan offering network coverage 
could not discriminate in selecting the members of its health 
professional network (or in establishing the terms and 
conditions for membership in the network) on the basis of the 
race, national origin, gender, age, or disability (other than a 
disability that impairs the ability of an individual to provide 
health care services of that may threaten the health of 
enrollees) of the health professional. A MedicarePlus 
organization could not deny any health care professionals, 
based solely on the license or certification as applicable 
under State law, the ability to participate in providing 
covered health care services or to be reimbursed or indemnified 
for providing such services.
    p. Special Rule for Unrestricted Fee-for-Service MSA Plan. 
A MedicarePlus MSA plan that is a fee-for-service plan would 
not be subject to the requirements described above relating to 
procedures for establishing physician participation in the plan 
or the limitations on balance billing.
            New section 1853. Payments to MedicarePlus organizations.
    Current Law. Under a Medicare risk contract, an HMO agrees 
to provide or arrange for 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 (AAPCC). The other, the adjusted community rate 
(ACR), is discussed below (see new Section 1854).
    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, whether they are also 
eligible for Medicaid, whether they are working and being 
covered under an employer plan, and the county of their 
residence. These AAPCC values are calculated in three 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 
        calculated only for fee-for-service beneficiaries by 
        removing both reimbursement and enrollment attributable 
        to Medicare beneficiaries in prepaid plans.
          Once the county AAPCC is calculated, it is then 
        adjusted for the demographic variables described above, 
        such as age, sex, and 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.
    Medicare payments to risk-contract HMOs include amounts 
that reflect Medicare's fee-for-service payments to hospitals 
in an area for disproportionate share adjustment.
    Explanation of Provision. The provision would establish a 
new Section 1853 specifying the methodology for determining 
payment to MedicarePlus plans and the procedures for announcing 
rates and paying plans.
    a. In General. Under a MedicarePlus contract, the Secretary 
would be required to make monthly payments in advance to each 
MedicarePlus organization for each covered individual in a 
payment area in an amount equal to 1/12 of the annual 
MedicarePlus capitation rate with respect to that individual 
for that area. The payment would be adjusted for such risk 
factors as age, disability status, gender, institutional 
status, and other such factors as the Secretary determined to 
be appropriate, so as to ensure actuarial equivalence. The 
Secretary could add to, modify, or substitute for such factors, 
if such changes would improve the determination of actuarial 
equivalence. The Secretary would be required to establish 
separate rates of payment with respect to individuals with end 
stage renal disease (ESRD). Payments to organizations could be 
retroactively adjusted for (i) actual versus the estimated 
enrollment used to determine the amount of advance payment; and 
(ii) individuals' change of enrollment from a MedicarePlus 
organization sponsored or contributed to by an employer to a 
MedicarePlus organization.
    Risk Adjustment. The Secretary would be required to develop 
and submit to Congress by no later than October 1, 1999, a 
report on a method of risk adjustment of payment rates that 
accounts for variations in per capita costs based on health 
status. This report would have to include an evaluation of the 
proposal by an independent actuary of the actuarial soundness 
ofthe proposal. The Secretary would have to require 
MedicarePlus organizations (and risk-contract plans) to submit, for 
periods beginning on or after January 1, 1998, data regarding inpatient 
hospital and other services and other information the Secretary deems 
necessary. The Secretary would have to provide for implementation of a 
risk adjustment methodology that accounts for variations in per capita 
costs based on health status by no later than January 1, 2000.
    b. Annual Announcement of Payment Rates. Payments to plans 
would be calculated based on the annual MedicarePlus capitation 
rate. The Secretary would be required to annually determine, 
and announce no later than August 1 before the calendar year 
concerned: (i) the annual MedicarePlus capitation rate for each 
MedicarePlus payment area for the year, and (ii) the risk and 
other factors to be used in adjusting such rates for payments 
for months in that year. 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.
    c. Calculation of Annual MedicarePlus Capitation Rates. The 
annual MedicarePlus capitation rate, for a payment area (for a 
contract for a calendar year) would be equal to the greatest of 
the following:
    (A) A blended capitation rate, defined as the sum of:
          (1) the area-specific percentage (as defined below) 
        of the annual area-specific MedicarePlus capitation 
        rate for the year for the payment area, and
          (2) the national percentage (as defined below) of the 
        input-price adjusted annual national MedicarePlus 
        capitation rate for the year. (This sum is multiplied 
        by the budget neutrality adjustment factors (described 
        below).
    (B) A minimum (i.e., ``floor'') monthly payment amount set 
at $350 for 1998 (but not to exceed, in the case of an area 
outside the 50 States and the District of Columbia, 150 percent 
of the 1997 AAPCC). For a subsequent year, this payment amount 
would be increased by the national per capita MedicarePlus 
growth percentage for that year.
    (C) A minimum percentage increase (i.e., ``hold harmless'') 
amount. In 1998, the payment area would receive a MedicarePlus 
capitation rate that is 100 percent of its 1997 AAPCC. For 1999 
and 2000, it would be 101 percent of the previous year's rate. 
For 2001 and subsequent years, it would be 102 percent of the 
previous year's rate.
    There are five elements in the blended capitation rate 
referred to in ``A'' above: First, the area-specific and 
national percentages are as follows:
          1998--the area-specific percentage is 90% and the 
        national percentage is 10%.
          1999--the area-specific percentage is 85% and the 
        national percentage is 15%.
          2000--the area-specific percentage is 80% and the 
        national percentage is 20%.
          2001--the area-specific percentage is 75% and the 
        national percentage is 25%.
          After 2001--the area-specific percentage is 70% and 
        the national percentage is 30%.
    Second, the annual area-specific MedicarePlus capitation 
rate for a MedicarePlus payment area would be calculated as 
follows, after removing certain amounts from historical payment 
amounts (as described below):
          For 1998--the annual per capita rate of payment for 
        1997 (as determined under the current law calculation 
        to derive the AAPCC), increased by the national average 
        per capita growth percentage for 1998 (as defined 
        below); or
          For a subsequent year--the annual area-specific 
        MedicarePlus capitation rate for the previous year, 
        increased by the national per capita MedicarePlus 
        growth percentage for such subsequent year.
    Third, in determining the area-specific MedicarePlus 
capitation rate, amounts attributable to payments for hospitals 
serving a disproportionate share of low-income patients, 
payments for the indirect costs of medical education, and 
payments for direct graduate medical education costs, should be 
deducted from the 1997 payment amount as follows:
          1998--20% of such payments
          1999--40% of such payments
          2000--60% of such payments
          2001--80% of such payments
          2002--100% of such payments
    Fourth, the input-price-adjusted annual national 
MedicarePlus capitation rate for a MedicarePlus payment area 
for a year would be equal to the sum, for all types of Medicare 
services, of the product of three amounts: (i) the national 
standardized annual MedicarePlus capitation rate for the year 
(defined as the weighted average of area-specific MedicarePlus 
capitation rates), (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 service) 
the relative input price of such services in the area as 
compared to the national average input price of such services. 
(In applying (iii), the Secretary would use those indices that 
are used in applying (or updating) national payment rates for 
specific areas and localities.) Special rules specified in the 
provision would apply for 1998 (and optionally for 1999) in 
providing for the input price adjustment.
    Fifth, in calculating the payment rates, the Secretary 
would be required to apply a budget neutrality adjustment to 
the blended rate payments. This adjustment would ensure that 
theaggregate of payments equals that which would have been made 
if the payment was based on 100 percent of the area-specific 
MedicarePlus capitation rates for each payment area. In doing this, the 
budget neutral amount for each county would be equal to the sum of the 
area-specific rates used to compute the blended rates multiplied by the 
product of the update factor and the number of enrollees in that 
county.
    With respect to the blended and the minimum payment rate 
categories described in ``A'' and ``B'' above, the national per 
capita MedicarePlus growth percentage is the percentage 
determined by the Secretary, by April 30th before the beginning 
of the year involved, to reflect the Secretary's estimate of 
the projected per capita rate of growth in expenditures under 
Medicare Parts A and B, reduced by 0.5 percentage points for 
1998-2002, and by 0 percentage points for years thereafter. 
Separate determinations would have to be made for aged 
enrollees, disabled enrollees, and enrollees with ESRD. The 
percentage adjustment would have to reflect an adjustment for 
over or under projecting the percentage growth for previous 
years.
    In the case of a MedicarePlus payment area for which the 
AAPCC for 1997 varies by more than 20 percent from such rate 
for 1996, the Secretary, where appropriate, could substitute 
for the 1997 rate a rate that is more representative of the 
cost of the enrollees in the area.
    d. MedicarePlus Payment Area. The provision defines a 
MedicarePlus payment area as a county or equivalent area 
specified by the Secretary. In the case of individuals 
determined to have ESRD, the MedicarePlus payment area would be 
each State, or other payment areas as the Secretary specified.
    Upon request of a State for a contract year (beginning 
after 1998) made at least 7 months before the beginning of the 
year, the Secretary would redefine MedicarePlus payment areas 
in the State to: (1) a single Statewide MedicarePlus payment 
area; (2) a metropolitan system (described in the provision); 
or (3) a single MedicarePlus payment area consolidating 
noncontiguous counties (or equivalent areas) within a State. 
This adjustment would be effective for payments for months 
beginning with January of the year following the year in which 
the request was received. The Secretary would be required to 
make an adjustment to payment areas in the State to ensure 
budget neutrality.
    e. Special Rules for Individuals Electing MSA Plans. If the 
monthly premium for a MSA plan for a MedicarePlus payment area 
was less than \1/12\ of the annual MedicarePlus capitation rate 
for the area and year involved, the Secretary would deposit the 
difference in a MedicarePlus MSA established by the individual. 
No payment would be made unless the individual had established 
the MedicarePlus MSA before the beginning of the month or by 
such other deadline the Secretary specifies. If the individual 
had more than one account, he or she would designate one to the 
receive the payment. The payment for the first month for which 
a MSA plan was effective for a year would also include amounts 
for successive months in the year. For cases when an MSA 
election was terminated before the end of the year, the 
Secretary would establish a procedure to recover deposits 
attributable to the remaining months.
    f. Payments from Trust Funds. Payments to the MedicarePlus 
organizations and payments to MedicarePlus MSAs, 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 of the total benefits.
    g. Special Rule for Certain Inpatient Hospital Stays. In 
the case of an individual receiving inpatient hospital services 
from a hospital covered under Medicare's prospective payment 
system (PPS) as of the effective date of the (1) individual's 
election of a MedicarePlus plan: (a) payment for such services 
until the date of the individual's discharge would be made as 
if the individual did not elect coverage under the MedicarePlus 
plan; (b) the elected organization would not be financially 
responsible for payment for such services until the date of the 
individual's discharge; and (c) the organization would 
nevertheless be paid the full amount otherwise payable to the 
organization; or (2) termination of enrollment with a 
MedicarePlus organization: (a) the organization would be 
financially responsible for payment for such services after the 
date of termination and until the date of discharge; (b) 
payment for such services during the stay would not be made 
under Medicare's PPS system; and (c) the terminated 
organization would not receive any payment with respect to the 
individual during the period in which the individual was not 
enrolled.
    h. Payments to Managed Care Organizations Operating 
Graduate Medical Education Programs. See Section 4008 below.
            New section 1854. Premiums
    Current Law. Section 1876 provides for requirements 
relating to benefits, payment to the plans by Medicare, and 
payments to the plans by beneficiaries. 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 
organizationachieves 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 reserve days for 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.
    Explanation of Provision. The provision creates a new 
Section 1854 specifying requirements for the determination of 
premiums charged by MedicarePlus organizations to MedicarePlus 
enrollees.
    a. Submission and Charging of Premiums. Each MedicarePlus 
organization would be required annually to file with the 
Secretary the amount of the monthly premium for coverage under 
each of the plans it would be offering in each payment area, 
and the enrollment capacity in relation to the plan in each 
such area. The net monthly premium is the premium for covered 
services reduced by the monthly MedicarePlus capitation 
payment.
    b. Monthly Premium Charged. The monthly amount of premium 
charged in a payment area to an enrollee would equal the net 
monthly premium plus any monthly premium charged (in accordance 
with (e) below) for supplemental benefits.
    c. Uniform Premium. Premiums could not vary among 
individuals who resided in the same payment area.
    d. Terms and Conditions of Imposing Premiums. Each 
MedicarePlus organization would have to permit monthly payment 
of premiums. An organization could terminate election of 
individuals for a MedicarePlus plan for failure to make premium 
payments but only under specified conditions. A MedicarePlus 
organization could not provide for cash or other monetary 
rebates as an inducement for enrollment or otherwise.
    e. Limitation on Enrollee Cost-Sharing. In no case could 
the actuarial value of the net monthly premium rate, 
deductibles, coinsurance, and copayments applicable on average 
to individuals enrolled with a MedicarePlus plan with respect 
to required benefits exceed the actuarial value of the 
deductibles, coinsurance, and copayments applicable on average 
to individuals in Medicare FFS. For supplemental benefits, the 
premium for such benefits and the actuarial value of its 
deductibles, coinsurance, and copayments could not exceed the 
adjusted community rate for such benefits. These provisions 
would not apply to an MSA plan. If the Secretary determined 
that adequate data were not available to determine the 
actuarial value of the cost-sharing elements of the plan, the 
Secretary could determine the amount.
    If the actuarial value of the benefits under the 
MedicarePlus plan (as determined based upon the ACR) for 
individuals was less than the average of the capitation 
payments made to the organization for the plan at the beginning 
of a contract year, the organization would have to provide 
additional benefits in a value which was at least as much as 
the amount by which the capitation payment exceeded the ACR. 
These benefits would have to be uniform for all enrollees in a 
plan area. (The excess amount could, however, be lower if the 
organization elected to withhold some of it for a 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.
    f. Periodic Auditing. The Secretary would be required to 
provide annually for the auditing of the financial records 
(including data relating to utilization and computation of the 
ACR) of at least one-third of the MedicarePlus organizations 
offering MedicarePlus plans. The General Accounting Office 
(GAO) would be required to monitor such auditing activities.
    g. Prohibition of State Imposition of Premium Taxes. No 
State could impose a premium tax or similar tax on the premiums 
of MedicarePlus plans or the offering of such plans.
            New Section 1855. Organizational and financial requirements 
                    for MedicarePlus organizations; provider-sponsored 
                    organizations
    Current 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 a competitive medical plan (CMP) which is an 
organizations that meets specified requirements (it provides 
physician, inpatient, laboratory, and other services, and 
provides out-of-area coverage); (2) the organization is paid a 
predetermined amount without regard to the frequency, extent, 
or kind of services actuallydelivered 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 provision for protection 
against the risk of insolvency.
    Provider Sponsored Organizations (PSOs) that are not 
organized under the laws of a State and are neither a Federally 
qualified HMO or CMP are not eligible to contract with Medicare 
under the risk contract program. A PSO is a term generally used 
to describe a cooperative venture of a group of providers who 
control its health service delivery and financial arrangements.
    Explanation of Provision. The provision adds a new Section 
1855 to the Social Security Act providing organizational and 
financial requirements for MedicarePlus organizations, 
including PSOs.
    a. Organized and Licensed Under State Law. A MedicarePlus 
organization would have to be organized and licensed under 
State law as a risk-bearing entity eligible to offer health 
insurance or health benefits coverage in each State in which it 
offers a MedicarePlus plan. A special exception would apply, 
however, for PSOs. In general, a PSO seeking to offer a 
MedicarePlus plan could apply to the Secretary for a waiver of 
the State licensing requirement. The Secretary would be 
required to grant or deny a waiver application within 60 days 
of a completed application.
    The Secretary would grant a waiver of the State licensing 
requirement for an organization that is a PSO if the Secretary 
determined that: (i) the State had failed to substantially 
complete action on a licensing application within 90 days of 
the receipt of an application (not including any period before 
the date of enactment) (this section is not intended to allow 
for the submission of incomplete ``shell'' applications); or 
(ii) the State denied such a licensing application and (a) the 
State had imposed documentation or information requirements not 
related to solvency requirements that were not generally 
applicable to other entities engaged in substantially similar 
business, or (b) the State's standards or review process 
imposed any material requirements, procedures, or standards 
(other than requirements relating to solvency) on such 
organizations that were not generally applicable to other 
entities engaged in substantially similar business; or (iii) 
the State used its own solvency requirements which were not the 
same as the Federal requirements to deny the licensing 
application, or the State had imposed as a condition of 
licensure approval any documentation requirements relating to 
solvency or other material requirements, procedures, or 
standards that were different from the requirements, 
procedures, or standards applied by the Secretary.
    In the case of a waiver granted under this paragraph for a 
PSO: (i) the waiver would be effective for a 36-month period, 
except it could be renewed based on a subsequent application 
filed during the last 6 months of such period; (ii) the waiver 
was conditioned upon the pendency of the licensure application 
during the period the waiver was in effect; and (iii) any 
provision of State law related to the licensing of the 
organization which prohibited the organization from providing 
coverage pursuant to a MedicarePlus contract would be 
preempted. Waivers could be renewed more than once.
    Nothing in (iii) should be construed as waiving any 
provision of State law relating to quality of care or consumer 
protection (and not to solvency standards) and which is imposed 
uniformly and is generally applicable to other entities engaged 
in substantially similar business.
    The State licensing requirement would not apply to a 
MedicarePlus organization in a State if the State required the 
organization, as a condition of licensure, to offer any plan 
other than a MedicarePlus plan. The fact that an organization 
was licensed under State law would not substitute for or 
constitute certification.
    b. 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.
    c. Assumption of Full Financial Risk. The MedicarePlus 
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 costs in excess of 
$5,000, services needing to be provided other than through the 
organization; and obtain insurance or make other arrangements 
for not more than 90 percent of the amount by which its fiscal 
year costs exceed 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.
    d. Certification of Provision Against Risk of Insolvency 
for Unlicensed PSOs. Each MedicarePlus PSO, that is not 
licensed by a State and for which a waiver of State law has 
been approved by the Secretary, would be required to meet 
Federal financial solvency and capital adequacy standards (see 
new Section 1856 as described below). The Secretary would be 
required to establish a process for the receipt and approval of 
applications of entities for certification (and periodic 
recertification) of a PSO as meeting the Federal solvency 
standards. The Secretary would be required to act upon the 
PSO's certification application within 60 days of its receipt.
    e. Provider-Sponsored Organization (PSO) Defined. A PSO is 
a public or private entity that is established or organized by 
a health care 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, and with respect to those affiliated providers that 
share, directly or indirectly, substantial financial risk, has 
at least a majority interest in the entity. 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 assurefinancial stability and other factors. 
``Affiliation,'' ``control,'' and ``health care provider'' are 
specifically defined. The Secretary would be required to issue 
regulations to carry out this provision.
            New Section 1856. Establishment of standards; certification 
                    of organizations and plans
    Current 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 Provider Sponsored Organizations 
(PSOs).
    Explanation of Provision. The provision would add a new 
Section 1856 providing for the establishment of Federal 
standards for MedicarePlus plans, including solvency standards 
for PSOs.
    a. Establishment of Solvency Standards for PSOs. The 
provision would require the Secretary of HHS to establish, on 
an expedited basis and using a negotiated rule-making process, 
standards related to financial solvency and capital adequacy of 
organizations seeking to qualify as PSOs. The target date for 
publication of the resulting rules would be April 1, 1998. The 
Secretary would be required to consult with interested parties 
and to take into account: (i) the delivery system assets of 
such an organization and ability of it to provide services 
directly to enrollees through affiliated providers, and (ii) 
alternative means of protection against insolvency, including 
reinsurance, unrestricted surplus, letters of credit, 
guarantees, organizational insurance coverage, etc. Such 
standards would have to include provisions to prevent enrollees 
from being held liable to any person or entity for the 
MedicarePlus organization's debts in the event of its 
insolvency. The negotiated rule-making committee would be 
appointed by the Secretary. If the committee reported by 
January 1, 1998 that it had failed to make significant progress 
towards consensus or was unlikely to reach consensus by a 
target date, the Secretary could terminate the process and 
provide for the publication of a rule. If the committee was not 
terminated, it would have to report with the proposed rule by 
March 1, 1998. The Secretary would then publish the rule on a 
final, interim basis, but be subject to change after public 
notice and comment. In connection with the rule, the Secretary 
would specify the process for timely review and approval of 
applications of entities to be certified as PSOs consistent 
with this subsection. The Secretary would be required to 
provide for consideration of such comments and republication of 
the rule within 1 year of its publication.
    b. Establishment of Other Standards. The Secretary would be 
required to establish by regulation other standards (not 
included in (a)) for MedicarePlus organizations and plans 
consistent with, and to carry out, this part. By June 1, 1998, 
the Secretary would be required to issue interim standards 
based on currently applicable standards for Medicare HMOs/CMPs. 
In establishing standards, the Secretary would be required to 
consider model State and other standards relating to quality of 
care and consumer protection. Subject to the non-preemption 
provision of section 1852 (see above) relating to State 
beneficiary protection requirements that are more stringent, 
the new standards established under this provision would 
supersede any State law or regulation with respect to 
MedicarePlus plans offered by Medicare contractors to the 
extent that such State law or regulations was inconsistent with 
such standards. This should not be construed as superseding a 
State law or regulation that is not related to solvency, that 
is applied on a uniform basis and is generally applicable to 
other entities engaged in substantially similar business, and 
that provides consumer protections in addition to, or more 
stringent than, those provided under this subsection.
            New Section 1857. Contracts with MedicarePlus organizations
    Current 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, 
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 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 as a risk contractor, HMOs/CMPs generally 
must have at least 5,000 members. However, if HMOs/CMPs 
primarily serve members outside urbanized areas, they may have 
fewer members (regulations specify at least 1,500). 
Organizations eligible for Medicare cost contracts also may 
have fewer than 5,000 members (regulations specify 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 
doing 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.
    The Secretary is encouraged to use this waiver authority to 
grant, immediately on enactment, a waiver of the 50-50 
requirement to a health plan providing quality health care 
services to Medicaid beneficiaries, including innovative health 
promotion and disease prevention programs, particularly if such 
a plan was unintentionally prevented from participating in the 
Medicare risk market through provisions of the Social Security 
and Technical Corrections Act of 1994.
    Explanation of Provision. The provision establishes a new 
Section 1857 specifying requirements for organizations to 
become MedicarePlus contractors with the Medicare program.
    a. In General. The Secretary would not permit the election 
of a MedicarePlus plan and no payment would be made to an 
organization unless the Secretary had entered into a contract 
with the organization with respect to the plan. A contract with 
an organization could cover more than one MedicarePlus plan. 
Contracts would provide that organizations agree to comply with 
applicable requirements and standards.
    b. Minimum Enrollment Requirements. The Secretary would be 
prohibited from entering into a contract with a MedicarePlus 
organization 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 (as 
established in new Section 1856 described above) 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. These lower 
minimum enrollment requirements relating to PSOs are effective 
January 1, 1998. In addition, the Secretary could waive this 
requirement during an organization's first 3 contract years. 
Minimum enrollment requirements would not apply to a contract 
that related only to an MSA plan.
    c. Contract Period and Effectiveness. Contracts would be 
for at least 1 year, and could be made automatically renewable 
in the absence of notice by either party of intention to 
terminate. The Secretary could terminate a contract at any time 
or impose intermediate sanctions described below if the 
Secretary determined that the organization: (i) had failed 
substantially to carry out the contract; (ii) was carrying it 
out in a manner substantially inconsistent with the efficient 
and effective administration of MedicarePlus; or (iii) no 
longer substantially met MedicarePlus conditions. Contracts 
would specify their effective date, but contracts providing 
coverage under an MSA plan could not take effect before January 
1998. The Secretary would not contract with an organization 
that had terminated its MedicarePlus contract within the 
previous 5 years, except in special circumstances as determined 
by the Secretary. The authority of the Secretary with respect 
to MedicarePlus plans could be performed without regard to laws 
or regulations relating to contracts of the United States that 
the Secretary determined were inconsistent with the purposes of 
Medicare.
    d. Protections Against Fraud and Beneficiary Protections. 
Contracts 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, as 
well as the organization's facilities if there were reasonable 
evidence of need for such inspection; in addition, they would 
have the right to audit and inspect any books and records that 
pertain either to the ability of the organization to bear the 
risk of potential financial loss or to services performed or 
determinations of amounts payable under the contract. Contracts 
would also require the organization to provide and pay for 
advance written notice to each enrollee of a termination, along 
with a description of alternatives for obtaining benefits. They 
would also require that organizations notify the Secretary of 
loans and other special financial arrangements made with 
subcontractors, affiliates, and related parties.
    MedicarePlus organizations would be required to report 
financial information to the Secretary, including information 
demonstrating that the organization was fiscally sound, a copy 
of the financial report filed with HCFA containing information 
required under Section 1124 of the Social Security Act, and a 
description of transactions between the organization and 
parties in interest. These transactions would include: (i) any 
sale, exchange, or leasing of property; (ii) any furnishing for 
consideration of goods, services, and facilities (but generally 
not including employees' salaries or health services provided 
to members); and (iii) any lending of money or other extension 
of credit. Financial information would be available to 
enrollees upon reasonable request. Consolidated financial 
statements could be required when the organization controls, is 
controlled by, or is under common control with another entity.
    With respect to financial information, 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 directly or 
indirectly is a beneficial owner of more than 5 percent of its 
equity; 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 
nonprofit MedicarePlus organization, an incorporator or member 
of such corporation; (ii) any entity in which a person 
described in (i) is an officer or director; a partner; has 
directly or indirectly a beneficial interest in more than 5 
percent of the equity; or has a mortgage, deed of trust, note, 
or other interest valuing more than 5 percent of the assets of 
the 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 (i).
    e. Additional Contract Terms. Contracts would contain other 
terms and conditions (including requirements for information) 
as the Secretary found necessary and appropriate. Contracts 
would require payments to the Secretary for the organization's 
pro rata share of the estimated costs to be incurred by the 
Secretary relating to enrollment and dissemination of 
information, and for certain counseling and assistance 
programs. These payments would be appropriated to defray such 
costs and would remain available until expended. If a contract 
with a MedicarePlus organization was terminated, the 
organization would have to notify each enrollee.
    f. Prompt Payment by MedicarePlus Organization. Contracts 
would require a MedicarePlus organization to provide prompt 
payment of claims submitted for services and supplies furnished 
to individuals pursuant to the contract, if they are not 
furnished under acontract between the organization and the 
provider or supplier. If the Secretary determined (after notice and 
opportunity for a hearing) that the organization had failed to pay 
claims promptly, the Secretary could provide for direct payment of the 
amounts owed providers and suppliers. In these cases, the Secretary 
would reduce MedicarePlus payments otherwise made to the organization 
to reflect the amount of the payments and the Secretary's cost in 
making them.
    g. Intermediate Sanctions. The Secretary would be 
authorized to carry out specific remedies in the event that a 
MedicarePlus organization: (i) 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; (ii) imposed 
net monthly premiums on individuals that were in excess of the 
net monthly premiums permitted; (iii) acted to expel or refused 
to re-enroll an individual in violation of MedicarePlus 
requirements; (iv) engaged in any practice that would 
reasonably be expected to have the effect of denying or 
discouraging enrollment (except as permitted by MedicarePlus) 
of eligible individuals whose medical condition or history 
indicates a need for substantial future medical services; (v) 
misrepresented or falsified information to the Secretary or 
others; (vi) failed to comply with rules regarding physician 
participation; or (vii) employed or contracted with any 
individual or entity that was excluded from participation in 
Medicare under Section 1128 or Section 1128A of the Social 
Security Act (relating to sanctions for program violations) for 
the provision of health care, utilization review, medical 
social work, or administrative services, or employed or 
contracted with any entity for the provision (directly or 
indirectly) 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 described 
above or not more than $100,000 with respect to misrepresenting 
information furnished to the Secretary or denying enrollment to 
persons with a preexisting medical condition. In cases of the 
latter failure, the Secretary could also levy a $15,000 fine 
for each individual not enrolled. In cases of excess premium 
charges, 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 for them after notifying the 
organization of an adverse determination, until the Secretary 
was satisfied that the failure had been corrected and would not 
likely recur.
    Other intermediate sanctions could be imposed if the 
Secretary determined that a failure had occurred other than 
those described above. These include: (i) 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; (ii) civil money penalties of not 
more than $10,000 for each week after the Secretary initiated 
procedures for imposing sanctions; and (iii) suspension of 
enrollment until the Secretary is satisfied the deficiency had 
been corrected and would not likely recur.
    h. Procedures for Termination. The Secretary could 
terminate a contract in accordance with formal investigation 
and compliance procedures under which (i) the Secretary 
provides the organization with an opportunity to develop and 
implement a corrective action plan, (ii) the Secretary imposes 
more severe sanctions on organizations that have a history of 
deficiencies or have not taken steps to correct those the 
Secretary brought to their attention, (iii) there are no 
unreasonable or unnecessary delays between finding a deficiency 
and imposing sanctions, and (iv) the Secretary provides 
reasonable notice and opportunity for a hearing, including the 
right to appeal an initial decision, before imposing any 
sanction or terminating the contract. The provisions of Section 
1128A (other than subsections (a) and (b)) would apply to a 
civil money penalty in the same manner as they apply to a civil 
money penalty or proceeding under that section. The Secretary 
would be authorized not to delay termination of a contract 
(resulting from the formal investigation and compliance 
procedures) if such termination would pose an imminent and 
serious risk to enrollees' health.
            New Section 1858. Payments to hospitals for certain costs 
                    attributable to managed care enrollees
    See Sections 4008 and 4009 below.
            New Section 1859. Definitions and miscellaneous provisions
    Current Law. No provision.
    Explanation of Provision. The provision establishes a new 
Section 1859 including definitions and other provisions.
    Definition of MedicarePlus Organization. A MedicarePlus 
organization is a public or private entity that is certified 
under Section 1856 as meeting the MedicarePlus requirements and 
standards for such an organization (described above).
    Definition of MedicarePlus Plan. A MedicarePlus plan is a 
health benefits coverage offered under a policy, contract, or 
plan by a MedicarePlus organization pursuant to and in 
accordance with a contract under Section 1857 (described 
above).
    Definition of MSA Plan. A MSA plan is a MedicarePlus plan 
that (i) provides reimbursement for at least the items and 
services for which benefits are available under Medicare Parts 
A and B to individuals but only after the enrollee incurs 
countable expenses (as specified in the plan) equal to the 
amount of the annual deductible; (ii) counts as such expenses 
at least all amounts that would have been payable under Parts A 
and B or by the enrollee as deductibles, coinsurance, or 
copayments if the enrollee had elected to receive benefits 
through those parts; and (iii) provides, after the deductible 
is met for a year (and for all subsequent expenses referred to 
in (i) in the year) for a level of reimbursement that is not 
less than the lesser of (A) 100 percent of such expenses, or 
(B) 100 percent of the amount that would have been paid 
(without regard to any deductibles or coinsurance) under 
Medicare Parts A and B. For contract year 1999, the annual 
deductible under a MSA plan could not be more than $6,000. For 
a subsequent contract year, the annual deductible could not be 
more than the maximum amountfor the previous contract year 
increased by the national per capita MedicarePlus growth percentage and 
rounded to the nearest multiple of $50.
    Coordinated Acute and Long-Term Care Benefits under a 
MedicarePlus Plan. A State would not be prevented from 
coordinating benefits under a Medicaid plan and a MedicarePlus 
plan in a manner that assures continuity of a full range of 
acute care and long-term care services to poor elderly or 
disabled individuals eligible for Medicare benefits under a 
MedicarePlus plan.
    Restrictions on Enrollment for Certain MedicarePlus Plans. 
A MedicarePlus religious fraternal benefit society plan could 
restrict enrollment to individuals who are members of the 
church, convention, or group with which the society is 
affiliated. A MedicarePlus religious fraternal benefit society 
plan would be a MedicarePlus plan that (i) is offered by a 
religious fraternal benefit society only to members of the 
church, convention, or affiliated group, and (ii) permits all 
members to enroll without regard to health status-related 
factors. This provision could not be construed as waiving plan 
requirements for financial solvency. In developing solvency 
standards, the Secretary would take into account open contract 
and assessment features characteristic of fraternal insurance 
certificates. Under regulations, the Secretary would provide 
for adjustments to payment amounts under Section 1854 to assure 
an appropriate payment level, taking account of the actuarial 
characteristics and experience of the individuals enrolled in 
such a plan.
    A religious fraternal benefit society is an organization 
that (i) is exempt from Federal income taxation under Section 
501(c)(8) of the Internal Revenue Code; (ii) is affiliated 
with, carries out the tenets of, and shares a religious bond 
with, a church or convention or association of churches or an 
affiliated group of churches; (iii) offers, in addition to a 
MedicarePlus religious fraternal benefit society plan, at least 
the same level of health coverage to individuals entitled to 
Medicare benefits who are members of such church, convention, 
or group; and (iv) does not impose any limitation on membership 
in the society based on any health status-related factor.
    Reports. (1) The Secretary would provide for a study on the 
feasibility and impact of removing the restriction on 
beneficiaries with end-stage renal disease from enrolling in a 
MedicarePlus MSA plan. No later than October 1, 1998, the 
Secretary would submit to Congress a report on this study and 
include recommendations regarding removing or restricting the 
limitation as may be appropriate. (2) No later than October 1, 
1999, the Secretary would submit to Congress a report on the 
extent to which MedicarePlus organizations are providing 
payments to disproportionate share hospitals and teaching 
hospitals. The report would be based on information provided to 
the Secretary by MedicarePlus organizations as required under 
the requirements of this provision and such information as the 
Secretary may obtain.

Section 4002. Transitional rules for current Medicare HMO Program

    Current Law. No provision for transition rules. Medicare's 
requirements for managed care plans are specified in Section 
1876 of the Social Security Act. Current law requires that to 
be a risk contractor, no more than 50 percent of the 
organization's enrollees may be Medicare or Medicaid 
beneficiaries. The 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.
    Explanation of Provision. Effective for contract periods 
beginning after December 31, 1996, the Secretary could waive or 
modify the 50/50 rule to the extent the Secretary finds the 
waiver is in the public interest.
    The provision would allow a PSO with at least 1,500 
enrollees in urban areas and 500 enrollees in rural areas to 
qualify for a risk-sharing contract beginning on or after 
January 1, 1998.
    The Secretary would be prohibited from entering into, 
renewing, or continuing any risk-sharing contract under Section 
1876 for any contract year beginning on or after the date 
MedicarePlus standards are first established for MedicarePlus 
organizations that are insurers or HMOs. If the organization 
had a contract in effect on that date, the prohibition would be 
effective 1 year later. The Secretary could not enter into, 
renew, or continue a risk-sharing contract for any contract 
year beginning on or after January 1, 2000. An individual who 
is enrolled in Medicare Part B only and also in an organization 
with a risk-sharing contract on December 31, 1998, could 
continue enrollment in accordance with regulations issued not 
later than July 1, 1998.
    For individuals enrolled under both Medicare Part A and 
Part B, payments for risk-sharing contracts for months 
beginning with January 1998 would be computed by substituting 
the MedicarePlus payment rates specified in this bill. For 
individuals enrolled only under Part B, the substitution would 
be based upon the proportion of those rates that reflects the 
proportion of payments under title XVIII of the Social Security 
Act (i.e., Medicare) attributable to Part B. With respect to 
months in 1998, the Secretary would compute, announce, and 
apply the MedicarePlus payment rates in as timely manner as 
possible (notwithstanding deadlines in Section 1853(a) as 
described above) and could provide for retroactive adjustments 
in risk-sharing contract payments not in accordance with those 
rates.
    An individual who is enrolled on December 31, 1998, with an 
organization having a Section 1876 contract would be considered 
to be enrolled with that organization under MedicarePlus if the 
organization has a MedicarePlus contract for providing services 
on January 1, 1999, unless the individual had disenrolled 
effective that date.
    Any reference in law in effect before the date of enactment 
of this legislation to Part C of Medicare would be deemed a 
reference to Part D as in effect after such date.
    Not later than 90 days after enactment of this legislation, 
the Secretary would submit to Congress a legislative proposal 
providing for technical and conforming amendments as the 
MedicarePlus provisions require.
    Required MedicarePlus organization contributions for costs 
related to enrollment and dissemination of information would 
apply to demonstrations if their enrollment were effected or 
coordinated under Section 1851.
    In order to carry out the MedicarePlus provisions in a 
timely manner, the Secretary could (after notice and 
opportunity for public comment) promulgate regulations that 
take effect on an interim basis.

Section 4003. Conforming changes in Medigap Program

    Current Law. Current law contains rules regarding the sale 
of Medicare supplement policies (generally referred to as 
``Medigap'' policies). Included are prohibitions governing the 
sale of duplicative policies and exceptions to the general 
prohibitions.
    Explanation of Provision.  The provision would include 
conforming language to the duplication provisions for persons 
electing a MedicarePlus plan. Included in the general 
prohibitions would be a general prohibition against selling to 
a person electing a MedicarePlus plan a Medicare supplemental 
policy with the knowledge that it duplicated benefits to which 
the individual was otherwise entitled to under Medicare or 
another supplemental policy. The provision would further 
specify that a MedicarePlus policy is not included within the 
definition of a Medicare supplementary policy.
    The provision would prohibit the sale of certain policies 
to a person electing a high deductible plan. Specifically, the 
prohibition would apply to the sale of policies providing 
coverage for expenses that are otherwise required to be counted 
toward meeting the annual deductible amount provided under a 
medical savings account (MSA) plan.

 Subchapter B--Special Rules for MedicarePlus Medical Savings Accounts

Section 4006. MedicarePlus MSA.

    Current Law.  Under present law, the value of Medicare 
coverage and benefits is not includable 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 (including expenses for 
insurance providing medical care) to the extent that the total 
of such expenses exceeds 7.5 percent of the taxpayer's adjusted 
gross income (``AGI'').
    Within limits, contributions to a medical savings account 
(``MSA'') are deductible in determining AGI if made by an 
eligible individual and are excludable from gross income and 
wages for employment tax purposes if made by the employer of an 
eligible individual.\1\ Individuals covered under Medicare are 
not eligible to have an MSA.
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    \1\ The number of MSAs which can be established is subject to a 
cap.
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    Earnings on amounts in an MSA are not currently includable 
in income. Distributions from an MSA for medical expenses of 
the MSA account holder and his or her spouse or dependents are 
not includable in income. For this purpose, medical expenses 
are defined as under the itemized deduction for medical 
expenses, except that medical expenses do not include any 
insurance premiums other than premiums for long-term care 
insurance, continuation coverage (so-called ``COBRA 
coverage''), or premiums for coverage while an individual is 
receiving unemployment compensation. Distributions not used for 
medical expenses are subject to an additional 15 percent tax 
unless the distribution is made after age 65, death, or 
disability.
    Under present law, there are no provisions for MedicarePlus 
medical savings accounts (``MedicarePlus MSAs'').
    Explanation of provision.  Under the bill, individuals who 
are eligible for Medicare are permitted to choose either the 
traditional Medicare program or a MedicarePlus MSA plan. To the 
extent an individual chooses such a plan, the Secretary of 
Health and Human Services makes a specified contribution 
directly into a MedicarePlus MSA designated by such individual. 
Only contributions by the Secretary of Health and Human 
Services can be made to a MedicarePlus MSA and such 
contributions are not included in the taxable income of the 
MedicarePlus MSA holder. Income earned on amounts held in a 
MedicarePlus MSA are not currently includable in taxable 
income. Withdrawals from a MedicarePlus MSA are excludable from 
taxable income if used for the qualified medical expenses of 
the MedicarePlus MSA holder. Withdrawals from a MedicarePlus 
MSA that are not used for the qualified medical expenses of the 
account holder are includable in income and may be subject to 
an additional tax (described below).
    Definition of MedicarePlus MSAs. In general a MedicarePlus 
MSA is an MSA that is designated as MedicarePlus MSA and to 
which only the contribution that can be made are those by the 
Secretary of Health and Human Services.\2\ Thus a MedicarePlus 
MSA is 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'').\3\ The trustee of a MedicarePlus MSA can 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 will administer the trust will be 
consistent with applicable requirements.
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    \2\ Medicare Plus MSAs are not taken into account for purposes of 
the cap on non-MedicarePlus MSAs, nor are they subject to that cap.
    \3\ 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 the MedicarePlus MSA plan at the 
time of the distribution.\4\ Qualified medical expenses are 
defined as under the rules relating to the itemized deduction 
for medical expenses. However, for this purpose, qualified 
medical expenses would not include any insurance premiums other 
than premiums for long-term care insurance, continuation 
insurance (so-called ``COBRA coverage''), or premium for 
coverage while an individual is receiving unemployment 
compensation. Distributions from a MedicarePlus MSA that are 
excludable from gross income under the provision can not be 
taken into account for purposes of the itemized deduction for 
medical expenses.
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    \4\ Under the provision, medical expenses of the account holder's 
spouse or dependents would not be treated as qualified medical 
expenses.
---------------------------------------------------------------------------
    Distributions for purposes other than qualified medical 
expenses are includable in taxable income. An additional tax of 
50 percent applies 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 does 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 provision includes a corrective mechanism so that if 
contributions for a year are erroneously made by the Secretary 
of Health and Human Services, such erroneous contributions can 
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. If the beneficiary 
of a MedicarePlus MSA is not the account holder's spouse, the 
MedicarePlus MSA is no longer treated as a MedicarePlus MSA and 
the value of the MedicarePlus MSA on the account holder's date 
of death is included in the taxable income of the beneficiary 
for the taxable year in which the death occurred (under the 
rules applicable to MSAs generally). If the account holder 
fails to name a beneficiary, the value of the MedicarePlus MSA 
on the account holder's date of death is to be included in the 
taxable income of the account holder's final income tax return 
(under the rules applicable to MSA generally).
    In all cases, the value of the MedicarePlus MSA is included 
in the account holder's gross estate for estate tax purposes.
    Reason for Change. The Committee believes that introduction 
of significant innovations from the private sector, coupled 
with the full transfer of responsibility for health care 
choices to enrollees who choose to participate in private 
sector health plans, will be effective in tempering the growth 
of Medicare spending while providing opportunities for 
beneficiaries to improve upon the traditional government-
defined Medicare benefit package. In addition, the Committee 
believes that senior citizens should be provided with greater 
power over their own health care choices and expenses.
    Effective Date. The provision is effective with respect to 
taxable years beginning after December 31, 1998.

    Subchapter C--GME, IME, DSH Payments for Managed Care Enrollees

Section 4008.-Graduate medical education and indirect medical education 
        payments for managed care enrollees

    Current Law. Medicare payments to risk-contract HMOs 
include amounts that reflect Medicare's fee-for-service 
payments to hospitals in an area for indirect and direct 
graduate medical education (GME) costs.
    Explanation of the Provision. The provision inserts a new 
subsection (h) into Section 1853 (see above) providing for 
payments to certain managed care organizations.
    (a) Payments to Medicare managed care organizations. The 
proposal would provide a mechanism for the allocation of 
payments for direct Graduate Medical Education (GME), Indirect 
Medical Education (IME) and disproportionate share hospitals 
(DSH) costs carved out from the AAPCCs and MedicarePlus 
capitation rates to be made to risk contract plans under 
Section 1876 and MedicarePlus organizations (i.e., Medicare 
managed care organizations). Beginning January 1, 1998, each 
contract with a MedicarePlus organization would be required to 
provide an additional payment for Medicare's share of allowable 
direct GME costs incurred by the organization for an approved 
medical residency program. A MedicarePlus organization that 
incurred all or substantially all of the costs of the medical 
residency program would receive a payment equal to the national 
average per resident amount times the number of full-time-
equivalent (FTE) residents in the program in non-hospital 
settings. The Secretary would be required to estimate the 
national average per resident amount equal to the weighted 
averageamount that would be paid per FTE resident under the 
direct GME payment in a calendar year. A separate determination would 
be required to be made for primary care residency programs as defined 
by Medicare, including obstetrics and gynecology residency programs.
    (b) Part C of Medicare, as amended by Section 4001 of this 
provision, would be amended by inserting a new section 1858, 
``Payments to Hospitals for Certain Costs Attributable to 
Managed Care Enrollees.''
    Payments to Hospitals. The Secretary would be required to 
make additional payments for the direct GME costs to PPS 
hospitals and hospitals located in a State with a State 
hospital reimbursement control system for services furnished to 
Medicare beneficiaries enrolled in managed care. These payments 
would be phased in over 5 years in the same proportion as 
amounts are deducted (carved out) from Medicare managed care 
plans under the new Section 1853 established by this provision 
(see above). Total payments under this provision could not 
exceed amounts deducted (carved out) of the MedicarePlus 
capitation rates. Subject to certain limits, the direct GME 
payment amount would be equal to the product of: (1) the 
aggregate approved amount of direct GME payments for the 
period, and (2) the fraction of the total number of inpatient-
bed-days determined by the Secretary during the period which 
was attributable to Medicare managed care enrollees. The 
Secretary would be required to separately determine the direct 
GME payment amounts that would be paid to hospitals in a State 
with a reimbursement control system.
    The IME payment amount would be determined, subject to 
certain limits, as equal to the product of: (1) the amount of 
the IME adjustment factor applicable to the hospital under PPS, 
and (2) the product of (i) the number of discharges 
attributable to Medicare managed care enrollees and (ii) the 
estimated average per discharge amount that would other wise 
have been paid under PPS if the individuals had not been 
enrolled in a managed care plan. The Secretary would also be 
required to make payments for the costs attributable to 
Medicare managed care enrollees, subject to certain limits in 
the same way as the direct GME payment amount. The Secretary 
would be required to separately determine the IME payment 
amounts that would be paid to hospitals in a State with a 
reimbursement control system.
    As rates paid to MedicarePlus organizations are being 
reduced to allow for the direct payment to hospitals for the 
direct and indirect costs of graduate medical education and 
disproportionate share hospital payments, it is the intent of 
the Committee that rates charged to MedicarePlus organizations 
by hospitals who receive such direct payments shall be reduced 
by the amount of such payments. In other words, it is the 
intent of the Committee that health plan will be able to 
negotiate new contracts with lower payment rates with academic 
medical centers and disproportionate share hospitals to offset 
the reduction in AAPCC payments due to the ``carve out'' of 
GME, IME, and DSH.

Section 4009. Disproportionate share hospital payments for managed care 
        enrollees

    Current Law. Medicare payments to risk-contract HMOs 
include amounts that reflect Medicare's fee-for-service 
payments to hospitals in an area for disproportionate share 
adjustment.
    Explanation of Provision. The provision would require the 
Secretary to provide additional payments for PPS hospitals and 
hospitals in a State with a State hospital reimbursement 
control system for hospitals that furnish services to Medicare 
risk plan enrollees under Section 1876 and MedicarePlus 
enrollees (i.e., Medicare managed care enrollees). These 
payments would be phased in over 5 years in the same proportion 
as amounts are deducted (carved out) from Medicare managed care 
plans under the new Section 1853 established by this provision 
(see above). Subject to certain limits, the DSH payment would 
be equal to the product of (1) the DSH adjustment factor that 
would be attributable to the hospital under PPS, and (2) the 
product of: (i) the aggregate approved amount of direct GME for 
the hospital during that period, and (ii) the fraction of the 
total number of inpatient-bed days attributable to Medicare 
managed care. The Secretary would be required to separately 
determine the DSH payment amount that would be paid to 
hospitals in a State with a reimbursement control system.

             Chapter 2--Integrated Long-Term Care Programs

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

Section 4011-4014. Coverage of PACE under the Medicare Program

    Current Law. OBRA 86 required the Secretary to grant 
waivers of certain Medicare and Medicaid requirements to not 
more than 10 public or non-profit private community-based 
organizations to provide health and long-term care services on 
a capitated basis to frail elderly persons at risk of 
institutionalization. These projects, known as the Programs of 
All Inclusive Care for the Elderly, or PACE projects, were 
intended to determine whether an earlier demonstration program, 
ON LOK, could be replicated across the country. OBRA 90 
expanded the number of organizations eligible for waivers to 
15.
    Explanation of Provision. The provision would repeal 
current ON LOK and PACE project demonstration waiver authority 
and establish in Medicare law PACE as a permanent benefit 
category eligible for coverage and reimbursement under the 
Medicare program. PACE providers would offer comprehensive 
health care services to eligible individuals in accordance with 
a PACE program agreement and regulations. In general, PACE 
providers would be public or private nonprofit entities, except 
for entities (up to 10) participating in a demonstration to 
test the operation of a PACE program by private, for-profit 
entities.
    The Secretary would be required to make prospective monthly 
capitation payments for each PACE program enrollee in the same 
manner and from the same sources as payments are made to a 
MedicarePlus organization. The amount would be adjusted to take 
into account thecomparative frailty of PACE enrollees and such 
other factors as the Secretary determines to be appropriate. The total 
payment level for all PACE program enrollees would be required to be 
less than the projected payment under Medicare for a comparable 
population not enrolled in PACE.
    For purposes of carrying out a PACE program, certain 
Medicare requirements would be waived, including those 
pertaining to limits on coverage of institutional services, 
rules for payment for benefits, limits on coverage of SNF and 
home health services, the 3-day prior hospitalization 
requirement for SNF care, and other coverage rules.
    The Secretary would be required to promulgate regulations 
for PACE in a timely manner so that entities may establish and 
operate PACE programs under Medicare and Medicaid beginning not 
later than 1 year after enactment.
    During the transition from demonstration waiver authority 
to permanent provider status, applications for waivers (subject 
to the numerical limitation) would be deemed approved unless 
the Secretary, within 90 days after the date of submission, 
either denies the request in writing or informs the applicant 
in writing that additional information is needed. After the 
date the Secretary receives the additional information, the 
application would be deemed approved unless the Secretary, 
within 90 days, denies the request.
    During the 3-year period beginning on the date of 
enactment, the Secretary would be required to give priority, in 
processing applications of entities seeking to qualify as PACE 
programs under Medicare or Medicaid (1) first, to entities that 
are operating a PACE demonstration waiver program, (2) then, to 
entities that have applied to operate a program as of May 1, 
1997. In awarding additional waivers under the original PACE 
demonstration authority, the Secretary would be required to 
give priority to any entities that have applied for a waiver as 
of May 1, 1997, and to any entity that, as of May 1, 1997, has 
formally contracted with a State to provide services on a 
capitation basis with an understanding that the entity was 
seeking to become a PACE provider. The Secretary would be 
required to give special consideration, in the processing of 
applications for PACE provider status and for demonstration 
waivers, to entities which, as of May 1, 1997, have indicated 
through formal activities (such as entering into contracts for 
feasibility studies) a specific intent to become a PACE 
provider. Repeal of waiver demonstration authority would not 
apply to waivers granted before the initial effective date of 
regulations. Repeals would apply to waivers granted before this 
date only after allowing organizations a transition period (of 
up to 24 months) in order to permit sufficient time for an 
orderly transition from demonstration project authority to 
general authority.
    The Secretary (in close consultation with States) would be 
required to conduct a study of the quality and cost of 
providing PACE program services under the Medicare and Medicaid 
programs. This study would be required specifically to compare 
the costs, quality, and access to services offered by private 
for-profit entities operating under the new demonstration 
described above with the costs, quality, and access to services 
of other PACE providers. The Secretary would be required to 
report to Congress on findings of the study (including specific 
finding on private for-profit providers), together with 
recommendations for changes, not later than 4 years after 
enactment. The Medicare Payment Evaluation Commission would be 
required to include in its annual report to Congress 
recommendations on the methodology and level of payments made 
to PACE providers and on the treatment of private for-profit 
PACE providers.
    The provision would also establish PACE as a State option 
under Medicaid. See Medicaid, Title III, Subtitle E for 
description.

     Subchapter B--Social Health Maintenance Organizations (SHMOs)

Section 4015. Social Health Maintenance Organizations (SHMOs).

    Current Law. The Deficit Reduction Act of 1984 required the 
Secretary to grant 3-year waivers for demonstrations of social 
health maintenance organizations (SHMOs) which provide 
integrated health and long-term care services on a prepaid 
capitation basis. The waivers have been extended on several 
occasions since then and a second generation of projects was 
authorized by OBRA 90.
    Explanation of Provision. The provision would require the 
Secretary to extend waivers for SHMOs through December 31, 
2000, and to submit a final report on the projects by March 31, 
2001. The limit on the number of persons served per site would 
be expanded from 12,000 to 36,000. The Secretary would also be 
required to submit to Congress by January 1, 1999, a plan, 
including an appropriate transition, for the integration of 
health plans offered by first and second generation SHMOs and 
similar plans into the MedicarePlus program. The report on the 
plan would be required to include recommendations on 
appropriate payment levels for SHMO plans, including an 
analysis of the extent to which it is appropriate to apply the 
MedicarePlus risk adjustment factors to SHMO populations.

                      Subchapter C--Other Programs

Section 4018. Orderly transition of Municipal Health Service 
        Demonstration Projects

    Current Law. Under a general demonstration authority, the 
Health Care Financing Administration began waiving in the late 
1970s certain Medicare requirements to conduct the Municipal 
Health Services Demonstration. This project has been conducted 
in four cities--Baltimore, Cincinnati, Milwaukee, and San Jose. 
As originally conceived, the project was intended to encourage 
the use of municipal health centers, in place of more costly 
hospital emergency rooms and outpatient departments, by 
eliminating coinsurance and deductibles, expanding the range of 
covered services, and paying the cities the full cost of 
delivering services at the clinics. Waivers have been extended 
several times since the inception of the project by budget 
reconciliation bills.
    Explanation of Provision. The provision would extend the 
demonstration through December 31, 2000, but only with respect 
to persons enrolled in the projects before January 1, 1998.The 
Secretary would be required to work with each demonstration project to 
develop a plan, to be submitted to the House Ways and Means and Senate 
Finance Committees by March 31, 1998, for the orderly transition of 
projects and project enrollees to a non-demonstration health plan, such 
as a Medicaid managed care or MedicarePlus plan. A demonstration 
project which does not develop and submit a transition plan by March 
31, 1998 or within 6 months after enactment of the Act, whichever is 
later, would be discontinued as of December 31, 1998. The Secretary 
would be required to provide appropriate technical assistance to assist 
in the transition so that disruption of medical services to project 
enrollees would be minimized.

Section 4019. Community Nursing Organization Demonstration Projects

    Current Law. OBRA 87 required the Secretary to conduct 
demonstration projects to test a prepaid capitated, nurse-
managed system of care. Covered services include home health 
care, durable medical equipment, and certain ambulatory care 
services. Four sites (Mahomet, Illinois; Tucson, Arizona; New 
York, New York; and St. Paul, Minnesota) were awarded contracts 
in September 1992, and represent a mix of urban and rural sites 
and different types of health provider, including a home health 
agency, a hospital-based system, and a large multi-specialty 
clinic. The community nursing organization (CNO) sites 
completed development activities and implemented the 
demonstration in January 1994, with service delivery beginning 
February 1994.
    Explanation of Provision. The provision would extend the 
CNO demonstration for an additional period of 2 years, and the 
deadline for the report on the results of the demonstration 
would be not later than 6 months before the end of the 
extension.

            Chapter 3--Medicare Payment Advisory Commission

Section 4021. Medicare Payment Advisory Commission

    Current 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.
    The law specified that both Commissions were to be 
appointed by the Director of the Office of Technology 
Assessment and funded through appropriations from the Medicare 
trust funds. In 1995, the Office of Technology Assessment was 
abolished. In May 1997, P.L. 105-13 was enacted; this 
legislation extended the terms of those Commission members 
whose terms were slated to expire in 1997 to May 1, 1998.
    Explanation of Provision. The provision would establish the 
Medicare Payment Advisory Commission (hereafter referred to as 
the Commission) to review and make recommendations to Congress 
concerning payment policies under Medicare. The Commission 
would be required to submit a report to Congress by March 1 of 
each year (beginning in 1998) containing the results of its 
reviews of payment policies and its recommendations concerning 
such policies and an examination of issues affecting the 
Medicare program.
    The Commission would be charged with the following specific 
review responsibilities with respect to the MedicarePlus 
program: (1) the methodology for making payments to the plans, 
including the making of differential payments and the 
distribution of differential updates among different payment 
areas; (2) the risk adjustment mechanisms and the need to 
adjust such mechanisms to take into account health status; (3) 
the implications of risk selection among MedicarePlus 
organizations and between the MedicarePlus option and the 
Medicare fee-for-service option; (4) in relation to payment 
under MedicarePlus, the development and implementation of 
quality assurance mechanisms for those enrolled with 
MedicarePlus organizations; (5) the impact of the MedicarePlus 
program on beneficiary access to care; (6) the appropriate role 
for Medicare in addressing the needs of individuals with 
chronic illnesses; and (7) other major issues in implementation 
and further development of the MedicarePlus program.
    In addition, the Commission would be required to review 
payments policies under Medicare Parts A and B fee-for-service 
system, including: (1) factors affecting expenditures in 
different sectors, including the process for updating hospital, 
skilled nursing facility, physician, and other fees; (2) 
payment methodologies; and (3) the relationship of payment 
policies to access and quality of care. It would also review 
the effect of Medicare payment policies on the delivery of 
health care services not provided under Medicare and assess the 
implications of changes in the health services market on 
Medicare.
    The Commission would be required to evaluate required 
reports on payment policies submitted by the Secretary to 
Congress (or a committee of Congress). The Commission would be 
required to submit a report on the evaluation within 6 months 
of the Secretary's report. The commission would also be 
required to consult with the Chairmen and ranking Members of 
the appropriate committees of Congress (House Ways and Means, 
House Commerce, and Senate Finance) regarding its agenda. The 
Commission would be authorized to submit from time to time 
other reports as requested by such Chairmen and Members and as 
it deemed appropriate. The reports would be made public.
    The Commission would be composed of 11 members appointed by 
the Comptroller General, with the first appointments being made 
by September 30, 1997. These members would have to meet 
specific qualifications (such as national recognition for their 
expertise). Commission membership would consist of a broad mix 
of different professionals, a broad geographic representation, 
and a balance between urban and rural representatives. It 
wouldinclude representatives of consumers and the elderly. Health care 
providers could not constitute a majority of the membership. 
Commissioners would serve for 3-year staggered terms. The provision 
would include a mechanism for filling vacancies, compensating 
commissioners, appointing a chair and vice chair; convening meetings; 
and providing for the executive director and other 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 would require the Commission to submit 
appropriations requests in the same manner as the Comptroller 
General does; however, the amounts appropriated for each would 
be separate. It would authorize such sums as may be necessary 
to be appropriated from the Medicare trust funds (60 percent 
from Part A and 40 percent from Part B).
    The Commission would require that the Comptroller first 
provide for appointment of members of the Commission (to be 
known as MedPAC) by not later than September 30, 1997. As 
quickly as possible after they were first appointed, the 
Comptroller General (in consultation with ProPac and PPRC) 
would provide for termination of these entities. As of that 
date, ProPac and PPRC would be abolished. To the extent 
possible, the Comptroller General would be required to provide 
for the transfer to the new commission assets and staff of the 
former commissions without any loss of benefits or seniority by 
virtue of such transfers. Fund balances available to the former 
commissions would be transferred to the new commission. MedPAC 
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.

                     Chapter 4--Medigap Protections

Section 4031. Medigap protections

    Current Law. Medigap is the term used to describe 
individually-purchased Medicare supplement policies. In 1990, 
Congress provided for a standardization of Medigap policies; 
the intention was to enable consumers to better understand 
policy choices. Implementing regulations generally limit the 
number of different types of Medigap plans that can be sold in 
a State to no more than 10 standard benefit plans; these are 
known as Plans A through J. The Plan A standardized package 
covers a basic benefits package. Each of the other nine plans 
includes the basic benefits plus a different combination of 
additional benefits.
    All insurers offering Medigap policies are required to 
offer a 6-month open enrollment period for persons turning age 
65. This is known as guaranteed open enrollment. There is no 
guaranteed open enrollment provision for the under-65 disabled 
population.
    At the time insurers sell a Medigap policy, whether or not 
during an open enrollment period, they are permitted to limit 
or exclude coverage for services related to a preexisting 
health condition; such exclusions cannot be imposed for more 
than 6 months. An individual who has met the preexisting 
condition limitation in one Medigap policy does not have to 
meet the requirement under a new policy for previously covered 
benefits. However, an insurer could impose exclusions for newly 
covered benefits.
    Federal requirements for open enrollment and limits on 
preexisting condition exclusions are designed to insure 
beneficiaries have access to Medigap protection. However, 
persons who disenroll (or wish to disenroll) from managed care 
plans and move back into fee-for-service Medicare may not have 
the same access to Medigap coverage as those who join during 
the open enrollment period.
    Explanation of Provision. The provision would guarantee 
issuance of a Medigap ``A'', ``B'', ``C'', or ``F'' policy 
without a pre-existing condition exclusion for certain 
continuously covered individuals. The insurer also would be 
prohibited from discriminating in the pricing of such policy on 
the basis of the individual's health status, claims experience, 
receipt of health care, or medical condition.
    The provision would specify those persons covered under the 
guaranteed issuance provision. They include:
          Individuals enrolled under an employee welfare 
        benefit plan that provides benefits supplementing 
        Medicare and the plan terminates or ceases to provide 
        such benefits.
          Persons enrolled with a MedicarePlus organization who 
        discontinue under circumstances permitting 
        disenrollment other than during an annual election 
        period. (These include: (1) the termination of the 
        entity's certification, (2) the individual moves 
        outside of the entity's service area; or (3) the 
        individual elects termination due to cause.)
          Persons enrolled with a risk or cost contract HMO, a 
        similar organization operating under a demonstration 
        project authority, a Medicare SELECT policy, and 
        enrollment ceases for the reasons noted above, and in 
        the case of a SELECT policy, there is no applicable 
        provision in State law for continuation of such 
        coverage.
          Individuals enrolled under a Medigap policy and 
        enrollment ceases because of the bankruptcy or 
        insolvency of the issuer, or because of other 
        involuntary termination of coverage and there is no 
        provision under applicable State law for the 
        continuation of such coverage.
          The guaranteed issue provision would also apply to an 
        individual who: (1) was enrolled under a Medigap 
        policy; (2) subsequently terminates such enrollment and 
        enrolls with a MedicarePlus organization, a risk or 
        cost contract HMO, a similar organization operating 
        under a demonstration project authority, or a Medicare 
        SELECT policy; and (3) terminates such enrollment 
        within 6 months (or within 3 months beginning in 2003), 
        but only if the individual was never previously 
        enrolled with such an entity. The guarantee would also 
        apply to personswho terminate such first time 
enrollment (occurring in 2002 or later) during the next coordinated 
annual coordinated election period. At the time of the event which 
results in the cessation of enrollment or loss of coverage, the 
organization, insurer, or plan administrator (whichever is appropriate) 
would notify the individual of his or her rights and the obligations of 
issuers of Medigap policies. The individual must seek to enroll under 
the Medigap ``A'', ``B'', ``C'', or ``F'' policy not later than 63 days 
after termination of other enrollment and provide evidence of the date 
of termination or disenrollment along with the application for such 
Medicare supplemental policy. Individuals who re-enroll with a Medigap 
plan after the one time test of MedicarePlus could re-enroll in the 
same Medigap policy (if still available from the same issuer) as they 
had before trying MedicarePlus.
    The provision would limit the application of a preexisting 
condition exclusion during the initial 6-month open enrollment 
period. Specifically, such an exclusion could not be imposed on 
an individual who, on the date of application, had a continuous 
period of at least 6 months of health insurance coverage 
defined as ``creditable coverage'' under the Health Insurance 
Portability and Accountability Act (HIPAA). If the individual 
had less than 6 months coverage, the policy would reduce the 
period of any pre-existing exclusion by the aggregate of 
periods of ``creditable coverage'' applicable to the individual 
as of the enrollment date. The rules used to determine the 
reduction would be based on rules used under HIPAA.
    The provision would give the National Association of 
Insurance Commissioners (NAIC) 9 months to modify its 
regulations to conform to the new requirements. If the NAIC, 
did not make the changes within this time, the Secretary would 
make the appropriate modification in the regulations.
    The provision would be effective July 1, 1998. In general, 
a State would not be deemed out of compliance due solely to 
failure to make changes before 1 year after the date the NAIC 
or Secretary made changes in its regulations. A longer time may 
be permitted if a State requires legislation.

Section 4032. Medicare prepaid competitive pricing demonstration 
        project

    Current Law. Under Section 402 of the Social Security 
Amendments of 1967 (P.L. 90-248, 42 U.S.C. 1395b-1), the 
Secretary is authorized to develop and engage in experiments 
and demonstration projects for specified purposes, including to 
determine whether, and if so, which changes in methods of 
payment or reimbursement for Medicare services, including a 
change to methods based on negotiated rates, would have the 
effect of increasing the efficiency and economy of such health 
services. Under this authority, HCFA is seeking to demonstrate 
the application of competitive bidding as a method for 
establishing payments for risk contract HMOs in the Denver 
area. HCFA's actions have been challenged in the courts.
    Explanation of Provision. The provision requires the 
Secretary of HHS to provide for a demonstration of competitive 
pricing for private health plans participating in Medicare.
    a. Establishment of Project. The Secretary would be 
required to provide, no later than one year after enactment, 
for implementation of a project to demonstrate the application 
of, and the consequences of applying, a market-oriented pricing 
system for the provision of a full range of Medicare benefits 
in several geographic areas.
    b. Research Design Advisory Committee. Before implementing 
the project, the Secretary would be required to appoint a 
national advisory committee, including independent actuaries 
and individuals with expertise in competitive health plan 
pricing, to recommend to the Secretary the appropriate research 
design for implementing the project, including the method for 
area selection, benefit design among plans offered, structuring 
choice among health plans offered, methods for setting the 
price to be paid to plans, collection of plan information, 
information dissemination, and methods of evaluating the 
results of the project. Upon implementation of the project, the 
Committee would continue to advise the Secretary on the 
application of the design in different areas and changes in the 
project based on experience with its operations.
    c. Area Selection. Taking into account the national 
advisory committee's recommendations, the Secretary would be 
required to designate demonstration areas. Upon such 
designation, the Secretary would be required to appoint an area 
advisory committee, composed of representatives of health 
plans, providers, and beneficiaries in each demonstration area. 
The committee could advise the Secretary on marketing and 
pricing of plans in the area, and other relevant factors.
    d. Monitoring and Report. Taking into considerations the 
recommendations of the advisory committee (established under 
(b)), the Secretary would be required to closely monitor the 
impact of projects in areas on the price and quality of, and 
access to, Medicare covered services, choice of plans, changes 
in enrollment, and other relevant factors. The Secretary would 
be required to periodically report to Congress on project 
progress.
    e. Waiver Authority. The provision authorizes the Secretary 
to waive such requirements of Section 1876 (relating to 
Medicare risk, cost, and HCPP plans) and of MedicarePlus as may 
be needed to carry out the demonstration project.
    f. Denver Demonstration. Except as specified above, the 
Secretary would be prohibited from conducting or continuing any 
ongoing demonstration project (i.e., the Denver demonstration) 
designed to demonstrate competitive bidding as an alternative 
to paying plans on the basis of the AAPCCs (as specified under 
current law) or the Medicare Plus capitation rates (as 
established under new Section 1853 of the provision).

                   SUBTITLE B--PREVENTION INITIATIVES

Section 4101. Screening mammography

    Current Law. Medicare provides coverage for screening 
mammograms. Frequency of coverage is dependent on the age and 
risk factors of the woman. For women ages 35-39, onetest is 
authorized. For women ages 40-49, a test is covered every 24 months, 
except, an annual test is authorized for women at high risk. Annual 
tests are covered for women ages 50-64. For women aged 65 and over, the 
program covers one test every 24 months. Medicare's Part B deductible 
and coinsurance apply for these services.
    Explanation of provision. The proposal would authorize 
coverage for annual mammograms for all women ages 40 and over. 
It would also waive the deductible for screening mammograms. 
These provisions would be effective January 1, 1998.

Section 4102. Screening pap smear and pelvic exams

    Medicare covers a screening Pap smear once every 3 years 
for purposes of early detection of cervical cancer. The 
Secretary is permitted to specify a shorter time period in the 
case of women at high risk of developing cervical cancer.
    Explanation of provision. The provision would authorize 
coverage, every 3 years, for a screening pelvic exam which 
would include a clinical breast examination. It would modify 
the purpose of Pap smears to include early detection of vaginal 
cancer.
    The provision would specify that for both Pap smears and 
screening pelvic exams, coverage would be authorized on a 
yearly basis for women at high risk of developing cervical or 
vaginal cancer (as determined pursuant to factors identified by 
the Secretary). Coverage would also be authorized on a yearly 
basis for a woman of childbearing age who had not had a test in 
each of the preceding 3 years that did not indicate the 
presence of cervical or vaginal cancer. The provision would 
waive the deductible for screening Pap smears and screening 
pelvic exams. The provisions would be effective January 1, 
1998.
    The provision would require the Secretary, within 6 months 
of enactment, to submit a report to Congress on the extent to 
which the use of supplemental computer-assisted diagnostic 
tests (consisting of interactive automated computer imaging of 
an exfoliative cytology test) in conjunction with pap smears 
improves the early detection of cervical or vaginal cancer. The 
report must also consider cost implications.

Section 4103. Prostate cancer screening tests

    Current law. Medicare does not cover prostate cancer 
screening tests.
    Explanation of provision. The provision would authorize an 
annual prostate cancer screening test for men over age 50. The 
test could consist of any (or all) of the following procedures: 
(1) a digital rectal exam; (2) a prostate-specific antigen 
blood test; and (3) after 2001, other procedures as the 
Secretary finds appropriate for the purpose of early detection 
of prostate cancer, taking into account such factors as changes 
in technology and standards of medical practice, availability, 
effectiveness, and costs.
    The provision would specify that payment for prostate-
specific antigen blood tests would be made under the clinical 
laboratory fee schedule. The provisions would be effective 
January 1, 1998.

Section 4104. Coverage of colorectal screening

    Current law. Medicare does not cover preventive colorectal 
screening procedures. Such services are covered only as 
diagnostic services.
    Explanation of provision. The provision would authorize 
coverage of colorectal cancer screening tests. A test covered 
under the provision would be any of the following procedures 
furnished for the purpose of early detection of colorectal 
cancer: (1) screening fecal-occult blood test; (2) screening 
flexible sigmoidoscopy; (3) screening colonoscopy for a high-
risk individual; (4) screening barium enema, if found by the 
Secretary to be an appropriate alternative to screening 
flexible sigmoidoscopy or screening colonoscopy; and (5) after 
2002, other procedures as the Secretary finds appropriate for 
the purpose of early detection of colorectal cancer, taking 
into account such factors as changes in technology and 
standards of medical practice, availability, effectiveness, and 
costs. A high-risk individual (for purposes of coverage for 
screening colonoscopy) would be defined as one who faces a high 
risk for colorectal cancer because of family history, prior 
experience of cancer or precursor neoplastic polyps, a history 
of chronic digestive disease condition (including inflammatory 
bowel disease, Crohn's disease or ulcerative colitis), the 
presence of any appropriate recognized gene markers, or other 
predisposing factors. The Secretary would be required to make a 
decision with respect to coverage of screening barium enema 
tests within 2 years of enactment; the determination would be 
published.
    The provision would establish frequency and payment limits 
for the tests. For screening fecal-occult blood tests, payment 
would be made under the lab fee schedule. In 1998, the payment 
amount could not exceed $5; in future years the update would be 
limited to the update applicable under the fee schedule. 
Medicare could not make payments if the test were performed on 
an individual under age 50 or within 11 months of a previous 
screening fecal-occult blood test.
    The provision would require the Secretary to establish a 
payment amount under the physician fee schedule for screening 
flexible sigmoidoscopies that is consistent with payment 
amounts for similar or related services. The payment amount 
could not exceed the amount the Secretary specifies, based upon 
the rates recognized for diagnostic flexible sigmoidoscopy 
services. For services performed in ambulatory surgical centers 
or hospital outpatient departments, the payment amount could 
not exceed the lesser of the payment rate that would apply to 
such services if they were performed at either site. Medicare 
could not make payments for a screening flexible sigmoidoscopy 
if the test were performed on an individual under age 50 or 
within 47 months of a previous screening flexible 
sigmoidoscopy.
    The provision would require the Secretary to establish a 
payment amount under the physician fee schedule for screening 
colonoscopy for high risk individuals that is consistent with 
payment amounts for similar or related services. The payment 
amount could not exceed the amount the Secretary specifies, 
based upon the rates recognized for diagnostic colonoscopy 
services. For services performed in ambulatory surgical centers 
or hospital outpatient departments, the payment amount could 
not exceed the lesser of the payment rate that would apply to 
such services if they were performed at either site. Medicare 
could not make payments if the test were performed on a high-
risk individual within 23 months of a previous screening 
colonoscopy.
    The provision would establish special payment rules, in the 
case of both a screening flexible sigmoidoscopy or screening 
colonoscopy, if a lesion or growth is discovered during the 
procedure which results in a biopsy or removal of the lesion or 
growth during the procedure. In these cases, payment would be 
made for the procedure classified as either a flexible 
sigmoidoscopy with such biopsy or removal or screening 
colonoscopy with such biopsy or removal.
    The provision would require the Secretary to review from 
time to time the appropriateness of the amount of the payment 
limit for fecal-occult blood tests. The Secretary could, 
beginning after 2000, reduce the amount of the limit as it 
applies nationally or in a given area to the amount the 
Secretary estimates is required to assure that such tests of an 
appropriate quality are readily and conveniently available.
    The provision would require the Secretary to review 
periodically the appropriate frequency for performing 
colorectal cancer screening tests based on age and other 
factors the Secretary believes to be pertinent. The Secretary 
may revise from time to time the frequency limitations, but no 
revisions could occur before January 1, 2001.
    Nonparticipating physicians providing screening flexible 
sigmoidoscopies or screening colonoscopies for high risk 
individuals would be subject to limiting charge provisions 
applicable for physicians services. The Secretary could impose 
sanctions if a physician or supplier knowingly and willfully 
imposed a charge in violation of this requirement.
    The provision would require the Secretary to establish 
payment limits and frequency limits for screening barium enema 
tests if the Secretary issues a determination that such tests 
should be covered. Payment limits would be consistent with 
those established for diagnostic barium enema procedures.
    The provisions would be effective January 1, 1998.

Section 4105. Diabetes screening tests

    Current law. In general, Medicare covers only those items 
and services which are medically reasonable and necessary for 
the diagnosis or treatment of illness or injury. In addition, 
Medicare covers home blood glucose monitors and associated 
testing strips for certain diabetes patients. Home blood 
glucose monitors enable diabetics to measure their blood 
glucose levels and then alter their diets or insulin dosages to 
ensure that they are maintaining an adequate blood glucose 
level. Home glucose monitors and testing strips are covered 
under Medicare's durable medical equipment benefit. Coverage of 
home blood glucose monitors is currently limited to certain 
diabetics, formerly referred to as Type I diabetics, if: (1) 
the patient is an insulin-treated diabetic; (2) the patient is 
capable of being trained to use the monitor in an appropriate 
manner, or, in some cases, another responsible person is 
capable of being trained to use the equipment and monitor the 
patient to assure that the intended effect is achieved; and (3) 
the device is designed for home rather than clinical use.
    Explanation of provision. Effective January 1, 1998, the 
provision would include among Medicare's covered benefits 
diabetes outpatient self-management training services. These 
services would include educational and training services 
furnished to an individual with diabetes by a certified 
provider in an outpatient setting meeting certain quality 
standards. They would be covered only if the physician who is 
managing the individual's diabetic condition certifies that the 
services are needed under a comprehensive plan of care to 
provide the individual with necessary skills and knowledge 
(including skills related to the self-administration of 
injectable drugs) to participate in the management of the 
individual's condition. Certified providers for these purposes 
would be defined as physicians or other individuals or entities 
designated by the Secretary that, in addition to providing 
diabetes outpatient self-management training services, provide 
other items or services reimbursed by Medicare. Providers would 
have to meet quality standards established by the Secretary. 
They would be deemed to have met the Secretary's standards if 
they meet standards originally established by the National 
Diabetes Advisory Board and subsequently revised by 
organizations who participated in the establishment of 
standards of the Board, or if they are recognized by an 
organization representing persons with diabetes as meeting 
standards for furnishing such services. In establishing payment 
amounts for diabetes outpatient self-management training 
provided by physicians and determining the relative value for 
these services, the Secretary would be required to consult with 
appropriate organizations, including organizations representing 
persons or Medicare beneficiaries with diabetes.
    In addition, beginning January 1, 1998, the provision would 
extend Medicare coverage of blood glucose monitors and testing 
strips to Type II diabetics and without regard to a person's 
use of insulin (as determined under standards established by 
the Secretary in consultation with appropriate organization). 
The provision would also reduce the national payment limit for 
testing strips by 10 percent beginning in 1998.
    The Secretary, in consultation with appropriate 
organizations, would be required to establish outcome measures, 
including glysolated hemoglobin (past 90-day average blood 
sugar levels), for purposes of evaluating the improvement of 
the health status of Medicare beneficiaries with diabetes. The 
Secretary would also be required to submit recommendations to 
Congress from time to time on modifications to coverage of 
services for these beneficiaries.
    The Committee notes the important role of registered 
dieticians and other qualified nutrition professionals in 
providing dietary counseling and education services related to 
diabetes self-management training. These health care 
professionals are trained and authorized by the States to 
perform these services and regularly do so in private sector 
health plans. While this section does not authorize direct 
reimbursement for these professionals to perform diabetes self-
management services, nothing in this bill precludes them from 
providing services under arrangements with individuals or 
entities authorized to receive payment for services under this 
Title.

Section 4106. Standardization of Medicare coverage of bone mass 
        measurements

    Current law. Medicare does not include specific coverage of 
bone mass measurement.
    Explanation of provision. The provision authorizes coverage 
of bone mass measurement for the following high risk persons: 
an estrogen-deficient woman at clinical risk for osteoporosis; 
an individual with vertebral abnormalities; an individual 
receiving long-term glucocorticoid steroid therapy, and an 
individual with primary hyperparathyroidism, or an individual 
being monitored to assess the response to or efficacy of an 
approved osteoporosis drug therapy. The Secretary would be 
required to establish frequency limits. Payments would be made 
under the physician fee schedule. The provision would be 
effective July 1, 1998.

Section 4107. Vaccines outreach expansion

    Current law. The Health Care Financing Administration, in 
conjunction with the Centers for Disease Control and the 
National Coalition for Adult Immunization, conducts an 
Influenza and Pneumococcal Vaccination Campaign. The Campaign 
is scheduled to cease operations in 2000.
    Explanation of provision. The provision would extend the 
campaign through the end of FY 2002. The provision would 
appropriate $8 million for each Fiscal Year 1998 through 2002 
to the Campaign; 60 percent of the appropriation would come 
from the Federal Hospital Insurance Trust Fund and 40 percent 
from the Federal Supplementary Medical Insurance Trust Fund.

Section 4108. Study on preventive benefits

    Current Law. No provision.
    Explanation of provision. The provision would require the 
Secretary to request the National Academy of Sciences, in 
conjunction with the United States Preventive Services Task 
Force, to analyze the expansion or modification of preventive 
services covered under Medicare. The study would consider both 
the short term and long term benefits and costs to Medicare. 
The study would have to include specific findings with respect 
to the following: (1) nutrition therapy, including parenteral 
and enteral nutrition; (2) standardization of coverage for bone 
mass measurement; (3) medically necessary dental care; (4) 
routine patient care costs for beneficiaries enrolled in 
approved clinical trial programs; and (5) elimination of time 
limitation for coverage of immunosuppressive drugs for 
transplant patients. The Secretary would be required to provide 
such funding as may be necessary in FY 1998 and FY 1999.

                     Subtitle C--Rural Initiatives

Section 4206. Informatics, telemedicine, and education demonstration 
        project

    Current law. No provision.
    Explanation of provision. The provision would require the 
Secretary to begin, no later than 9 months after enactment, a 
4-year demonstration project designed to use eligible health 
care provider telemedicine networks to apply high-capacity 
computing and advanced networks for the provision of health 
care to Medicare beneficiaries who are residents of medically 
underserved rural and inner-city areas. The project would focus 
on improvements in primary care and prevention of complications 
for those residents with diabetes mellitus. The objectives of 
the project would include: (1) improving patient access to and 
compliance with appropriate care guidelines for chronic 
diseases through direct telecommunications links with 
information networks; (2) developing a curriculum to train, and 
provide standards for credentialing and licensure of, health 
professionals (particularly primary care) in the use of medical 
informatics and telecommunications; (3) demonstrating the 
application of advanced technologies to assist primary care 
providers in assisting patients with chronic illnesses in a 
home setting; (4) applying medical informatics to residents 
with limited English language skills; (5) developing standards 
in the application of telemedicine and medical informatics; and 
(6) developing a model for the cost-effective delivery of 
primary and related care both in a managed care and fee-for-
service environment.
    The provision defines an eligible health care provider 
telemedicine network as a consortium that includes at least one 
tertiary care hospital, at least one medical school (but no 
more than two such hospitals), and at least one regional 
telecommunications provider, no more than four facilities in 
rural or urban areas, and meets certain additional 
requirements. The provision would define those services to be 
covered under Part B for the purposes of this demonstration 
project. Medicare payment for covered Part B services would be 
made at a rate of 50 percent of the reasonable costs of 
providing such services. The Secretary would be required to 
recognize the following project costs as permissible costs for 
coverage under Part B: (1) the acquisition of telemedicine 
equipment for use in patient homes; (2) curriculum development 
and training of health professionals in medical informatics and 
telemedicine, (3) payment of certain telecommunications costs, 
including costs of telecommunications between patients' homes 
and the eligible network and between the network and other 
entities under the arrangements described in the bill; and (4) 
payments to practitioners and providers under Medicare. Costs 
not covered under Part B would include: (1) purchase or 
installation of transmission equipment, (2) the establishment 
or operation of a telecommunications commoncarrier network, (3) 
the costs of construction (except for minor renovations related to the 
installation of reimbursable equipment), or (4) the acquisition or 
building of real property.
    The total amount of Medicare payments permitted under the 
project would be $30 million. The project would be prohibited 
from imposing cost sharing on a Medicare beneficiary for the 
receipt of services under the project of more than 20 percent 
of the recognized costs of the project attributable to these 
services. The Secretary would be required to submit to the 
House Committee on Ways and Means, House Committee on Commerce 
and the Senate Committee on Finance interim reports on the 
project and a final report on the project within 6 months of 
the conclusion of the project. The final report would be 
required to include an evaluation of the impact of the use of 
telemedicine and medical informatics on improving the access of 
Medicare beneficiaries to health care services, on reducing the 
costs of such services, and on improving the quality of life of 
such beneficiaries.
    The Committee continues to recognize the need to make 
quality mental health care services available to Medicare 
beneficiaries and is particularly concerned about access to 
such services in rural communities. The Committee encourages 
the Secretary to assess the availability and geographic 
distribution of mental health professionals who are Medicare 
providers and to submit information to the Committee 
identifying characteristics of the program that may serve to 
impede beneficiary access to mental health services.

              Subtitle D--Anti-Fraud and Abuse Provisions

Section 4301. Permanent exclusion for those convicted of 3 health care 
        related crimes

    Current law. Section 1128(a) of the Social Security Act 
directs the Secretary of Health and Human Services to 
mandatorily exclude individuals and entities from participation 
in the Medicare program and State health care programs 
(Medicaid, Title V Maternal and Child Health Block Grants, and 
Title XX Social Services Block Grants) upon conviction of 
certain criminal offenses including Medicare and Medicaid 
program-related crimes, patient abuse crimes, health care fraud 
felonies, and felonies relating to controlled substances. Such 
mandatory exclusions are, in most cases, for a minimum period 
of 5 years.
    Explanation of provision. The provision would provide that 
if an individual has been mandatorily excluded by the Secretary 
from participation in Federal health care programs, as defined 
in Section 1128b(f) of the Social Security Act (see Section 
4311 of this title), and State health care programs, because of 
a conviction relating to Medicare and Medicaid program-related 
crimes, patient abuse, or felonies related to health care fraud 
or controlled substances, that the exclusion be either for a 
period of 10 years if the individual has been convicted on only 
one previous occasion of one or more offenses for which such an 
exclusion may be imposed, or that the exclusion be permanent if 
the individual has been convicted on two or more previous 
occasions of one or more offenses for which such an exclusion 
may be imposed. The provision would apply to exclusions based 
on a conviction occurring on or after the date of enactment of 
this section where the individual has had prior convictions 
occurring before, on or after the date of enactment of this 
section.

Section 4302. Authority to refuse to enter into Medicare agreements 
        with individuals or entities convicted of felonies

    Current law. Section 1866 of the Social Security Act sets 
forth certain conditions under which providers may become 
qualified to participate in the Medicare program. The Secretary 
may refuse to enter into an agreement with a provider, or may 
refuse to renew or may terminate such an agreement, if the 
Secretary determines that the provider has failed to comply 
with provisions of the agreement, other applicable Medicare 
requirements and regulations, or if the provider has been 
excluded from participation in a health care program under 
Section 1128 or 1128A of the Social Security Act. Section 1842 
of the Social Security Act permits physicians and suppliers to 
enter into agreements with the Secretary under which they 
become ``participating'' physicians or suppliers under the 
Medicare program.
    Explanation of provision. The provision would add a new 
section giving the Secretary authority to refuse to enter into 
an agreement, or refuse to renew or terminate an agreement with 
a provider if the provider has been convicted of a felony under 
Federal or State law for an offense which the Secretary 
determines is inconsistent with the best interests of program 
beneficiaries. This authority would extend to the Secretary's 
agreements with physicians or suppliers who become 
``participating'' physicians or suppliers under the Medicare 
program. Similar provisions would apply to the Medicaid 
program. This section would take effect as of the date of 
enactment of this Act, and apply to new and renewed contracts 
on or after that date.

Section 4303. Inclusion of toll-free number to report Medicare waste, 
        fraud and abuse in explanation of benefits forms

    Current law. An explanation of benefits is provided to 
beneficiaries in conjunction with Medicare claims payments. The 
explanation provides certain information including a toll-free 
telephone number for enrollees to obtain information on 
participating physicians and suppliers.
    Explanation of provision. The provision would specify that 
each explanation of benefits form contain a toll-free telephone 
number maintained by the Inspector General in the Department of 
Health and Human Services for persons to report complaints and 
information about waste, fraud and abuse in Medicare services 
or billing for services.

Section 4304. Liability of Medicare carriers and fiscal intermediaries 
        for claims submitted by excluded persons

    Current law. Carriers and fiscal intermediaries are the 
entities which process claims for Medicare. Intermediaries 
process claims submitted by institutional providers of services 
and carriers process claims submitted by physicians and 
suppliers.
    Explanation of provision. The provision would provide that 
agreements with fiscal intermediaries or carriers require that 
such organizations reimburse the Secretary for any amounts paid 
for services under Medicare which have been furnished, 
directed, or prescribed by an individual or entity during any 
period in which the individual or entity has been excluded from 
participation under Medicare, if the amounts have been paid 
after the fiscal intermediary or carrier has received notice of 
the exclusion. Similar restrictions would be imposed upon 
States under the Medicaid program. These provisions would apply 
to contracts and agreements entered into, renewed, or extended 
after the date of enactment of this Act, but only with respect 
to claims submitted on or after either January 1, 1998, or the 
effective date of the contract, whichever is later.

Section 4305. Exclusion of entity controlled by family member of a 
        sanctioned individual

    Current law. Section 1128 of the Social Security act 
authorizes the Secretary of HHS to impose mandatory and 
permissive exclusions of individuals and entities from 
participation in the Medicare program, Medicaid program and 
programs receiving funds under the Title V Maternal and Child 
Health Services Block Grant, or the Title XX Social Services 
Block Grant. The Secretary may exclude any entity which the 
Secretary determines has a person with a direct or indirect 
ownership or control interest of 5 percent or more in the 
entity or who is an officer, director, agent, or managing 
employee of the entity, where that person has been convicted of 
a specified criminal offense, or against whom a civil monetary 
penalty has been assessed, or who has been excluded from 
participation under Medicare or a State health care program.
    Explanation of provision. The provision would provide that 
if a person transfers an ownership or control interest in an 
entity to an immediate family member or to a member of the 
household of the person in anticipation of, or following, a 
conviction, assessment or exclusion against the person, that 
the entity may be excluded from participation in Federal health 
care programs (see Section 4311 of this bill) on the basis of 
that transfer. The terms ``immediate family member'' and 
``member of the household'' are defined in this section. This 
provision would take effect 45 days after enactment of this 
Act.

Section 4306. Imposition of civil money penalties

    Current law. Section 1128A of the Social Security Act sets 
forth a list of fraudulent activities relating to claims 
submitted for payments for items of services under a Federal 
health care program. Civil money penalties of up to $10,000 for 
each item or service may be assessed. In addition, the 
Secretary of HHS (or head of the department or agency for the 
Federal health care program involved) may also exclude the 
person involved in the fraudulent activity from participation 
in a Federal health care program, defined as any program 
providing health benefits, whether directly or otherwise, which 
is funded directly, in whole or in part, by the United States 
Government (other than the Federal Employees Health Benefits 
Program).
    Explanation of provision. The provision would add a new 
civil money penalty for cases in which a person contracts with 
an excluded provider for the provision of health care items or 
services, where the person knows or should know that the 
provider has been excluded from participation in a Federal 
health care program.

Section 4307. Disclosure of information and surety bonds

    Current law. Section 1834(a) of the Social Security Act 
establishes requirements for payments under Medicare for 
covered items defined as durable medical equipment. Home health 
agencies are required, under Section 1861(o) of the Social 
Security Act, to meet specified conditions in order to provide 
health care services under Medicare, including requirements, 
set by the Secretary, relating to bonding or establishing of 
escrow accounts, as the Secretary finds necessary for the 
effective and efficient operation of the Medicare program.
    Explanation of provision. The provision would require that 
suppliers of durable medical equipment provide the Secretary 
with full and complete information as to persons with an 
ownership or control interest in the supplier, or in any 
subcontractor in which the supplier has a direct or indirect 5 
percent or more ownership interest, other information 
concerning such ownership or control, and a surety bond for at 
least $50,000. Home health agencies, comprehensive outpatient 
rehabilitation facilities, and rehabilitation agencies would 
also be required to provide a surety bond for at least $50,000. 
The Secretary may impose the surety bond requirement which 
applies to durable medical equipment suppliers to suppliers of 
ambulance services and certain clinics that furnish medical and 
other health services (other than physicians' services). In 
each of these cases the Secretary could waive the surety bond 
requirement if the entity provides a comparable surety bond 
under State law.
    The amendments with respect to suppliers of durable medical 
equipment would apply to equipment furnished on or after 
January 1, 1998. The amendments with respect to home health 
agencies would apply to services furnished on or after such 
date, and the Secretary of HHS is directed to modify 
participation agreements with home health agencies to provide 
for implementation of these amendments on a timely basis. The 
amendments with respect to ambulance services, certain clinics, 
comprehensive outpatient rehabilitation facilities and 
rehabilitation agencies would take effect on the date of 
enactment of this Act.

Section 4308. Provision of certain identification numbers

    Current law. Section 1124 of the Social Security Act 
requires that entities participating in Medicare, Medicaid and 
the Maternal and Child Health Block Grant programs (including 
providers, clinical laboratories, renal disease facilities, 
health maintenance organizations, carriers and fiscal 
intermediaries), provide certain information regarding the 
identity of each person with an ownership or control interest 
in the entity, or in any subcontractor in which the entity has 
a direct or indirect 5 percent or more ownership interest. 
Section 1124A of the Social Security Act requires that 
providers under part B of Medicare also provide information 
regarding persons with ownership or control interest in a 
provider, or in any subcontractor in which the provider has a 
direct or indirect 5 percent or more ownership interest.
    Explanation of provision. The provision would require that 
all Medicare providers supply the Secretary with both the 
employer identification number and social security account 
number of each disclosing entity, each person with an ownership 
or control interest, and any subcontractor in which the entity 
has a direct or indirect 5 percent or more ownership interest. 
The Secretary of HHS is directed to transmit to the 
Commissioner of Social Security information concerning each 
social security account number and to the Secretary of the 
Treasury information concerning each employer identification 
number supplied to the Secretary for verification of such 
information. Social security numbers would not be disclosed to 
other persons or entities, and use of such numbers would be 
limited to verification and matching purposes only. The 
Secretary would reimburse the Commissioner and the Secretary of 
the Treasury for costs incurred in performing the verification 
services required by this provision. The Secretary of HHS would 
report to Congress on the steps taken to assure confidentiality 
of social security numbers to be provided to the Secretary 
under this section before it becomes effective. This section's 
reporting requirements would then become effective 90 days 
after submission of the Secretary's report to Congress on 
confidentiality of social security numbers.

Section 4309. Advisory opinions regarding certain physician self-
        referral provisions

    Current law. Section 1877 of the Social Security Act 
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 certain referrals to the 
entity for services for which Medicare would otherwise pay.
    Explanation of provision. The provision would require the 
Secretary of HHS to issue written advisory opinions concerning 
whether a physician referral relating to designated health 
services (other than clinical laboratory services) is 
prohibited under Section 1877 of the Social Security Act. Such 
opinions would be binding as to the Secretary and the party 
requesting the opinion. To the extent practicable, the 
Secretary is to apply the regulations issued under the advisory 
opinion provisions of Section 1128D of the Social Security Act 
to the issuance of advisory opinions under this provision.

Section 4310. Notification of availability of providers as part of 
        discharge planning process

    Current law. Hospitals are required to have a discharge 
planning process meeting certain requirements. The discharge 
planning evaluation must include an evaluation of the patient's 
need for likely post-hospital services and the availability of 
those services.
    Explanation of provision. The provision would include, as 
part of this evaluation, the availability of those services 
through individuals and entities that participate in Medicare, 
serve the geographic area where the patient resides, and 
request to be listed by the hospital as available. The 
provision would prohibit the discharge plan from specifying or 
otherwise limiting the qualified provider which may provide 
post-hospital care. The plan would also identify any provider 
(to whom the individual is referred) in which the hospital has 
a disclosable financial interest or which has such disclosable 
interest in the hospital.
    The Committee intends that a hospital, for a Medicare 
beneficiary who is not enrolled in a managed care plan, may not 
restrict the selection of a qualified home health agency to 
provided post-hospital services for such agency expressed by 
the patient.
    The provision would require hospitals with a financial 
interest in a provider of post-hospital services (including an 
entity which furnishes durable medical equipment) to maintain 
and disclose to the Secretary information on the nature of the 
financial interest; the number of individuals who were 
discharged from the hospital who were identified as requiring 
the type of services provided by such provider; and, the 
percentage of such individuals who receive services from such 
provider or another such provider. The provision would further 
require the Secretary to make available disclosed information 
to the public.

Section 4311. Other fraud and abuse related provisions

    Current law. Section 1128D provides for safe harbors, 
advisory opinions, and fraud alerts as guidance regarding 
application of health care fraud and abuse sanctions. Section 
1128E of the Social Security Act directs the Secretary of HHS 
to establish a national health care fraud and abuse data 
collection program for the reporting of final adverse actions 
against health care providers, suppliers, or practitioners.
    Explanation of provision. The provision would make certain 
technical changes in provisions added by the Health Insurance 
Portability and Accountability Act of 1996. The provision would 
also provide that mandatory and permissive exclusions under 
Section 1128 apply to any Federal health care program, defined 
as any program providing health benefits, whether directly or 
otherwise, which is funded directly, in whole or in part, by 
the United States Government (other than the Federal Employees 
Health Benefits Program). A new provision is added to the 
health care fraud and abuse data collection program to provide 
a civil money penalty of up to $25,000 to be imposed against a 
health plan that fails to report information on an adverse 
action required to be reported under this program. The 
Secretary would also publicize those government agencies which 
fail to report information on adverse actions as required.
    The change in the Federal programs under which a person may 
be excluded under Section 1128 of the Social Security Act would 
be effective on the date of enactment of this Act. The sanction 
provision for failure to report adverse action information as 
required under Section 1128E of the Social Security Act would 
apply to failures occurring on or after the date of the 
enactment of this Act. The other amendments made by this 
section would be effective as if included in the enactment of 
the Health Insurance Portability and Accountability Act of 
1996.

                Subtitle E--Prospective Payment Systems

                    Chapter 2--Payment Under Part B

   Subchapter A--Payment for Hospital Outpatient Department Services

Section 4411. Elimination of formula-driven overpayments [FDO] for 
        certain outpatient hospital services

    Current 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 fee schedule 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 fee schedule portion is based, in part, 
on ambulatory surgery center payment rates or the rates for 
radiology and diagnostic services in other settings, net of 
beneficiary coinsurance (for those settings). The hospital cost 
portion and the ambulatory surgical center (ASC) cost portion 
are 42 percent and 58 percent, respectively. For diagnostic 
services the hospital cost portion is 50 percent and the fee 
schedule portion is 50 percent.
    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 in other settings 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 than 
under current law. Medicare's payment for hospital outpatient 
services would equal the blended amounts 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, 1997.

Section 4412. Extension of reductions in payments for costs of hospital 
        outpatient services

    Current law.
    a. Reduction in payments for capital-related costs. 
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.
    b. Reduction in payments for non-capital-related costs. 
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.
    a. Reduction in payments for capital-related costs. The 
provision would extend the 10 percent reduction in payments for 
outpatient capital through FY 1999 and during FY 2000 before 
January 1, 2000.
    b. Reduction in payments for non-capital-related costs. The 
5.8 percent reduction for outpatient services paid on a cost 
basis would be extended through FY 1999 and during FY 2000 
before January 1, 2000.

Section 4413. Prospective payment system for hospital outpatient 
        department services [ODP]

    Current 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 fee schedule 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 fee schedule portion is based, in part, 
on ambulatory surgery center payment rates or the rates for 
radiology and diagnostic services in other settings, net of 
beneficiary coinsurance (for those settings). For cost 
reporting periods beginning on or after January 1, 1991, the 
hospital cost portion and the ASC cost portion are 42 percent 
and 58 percent, respectively. For diagnostic services the 
hospital cost portion is 50 percent and the fee schedule 
portion is 50 percent.
    Explanation of provision. The provision would require the 
Secretary to establish a prospective payment system for covered 
OPD services furnished beginning in 1999. The Secretary would 
be required to develop a classification system for covered OPD 
services, such that services classified within each group would 
be comparable clinically and with respect to the use of 
resources. The Secretary would be required to establish 
relative payment rates for covered OPD services using 1996 
hospital claims and cost report data, and determine projections 
of the frequency of utilization of each such service or group 
of services in 1999. The Secretary would be required to 
determine a wage adjustment factor to adjust the portions of 
payment attributable to labor-related costs for relative 
geographic differences in labor and labor-related costs that 
would be applied in a budget neutral manner. The Secretary 
would be required to establish other adjustments as necessary, 
including adjustments to account for variations in coinsurance 
payments for procedures with similar resource costs, to ensure 
equitable payments under the system. The Secretary would also 
be required to develop a method for controlling unnecessary 
increases in the volume of covered OPD services.
    Hospitals OPD copayments would be limited to 20 percent of 
the national median of the charges for the service (or services 
within the group) furnished in 1996 updated to 1999 using the 
Secretary's estimate of charge growth during this period. The 
Secretary would be required to establish rules for the 
establishment of a coinsurance payment amount for a covered OPD 
service not furnished during 1996, based on its classification 
within a group of such services.
    For 1999, the Secretary would be required to establish a 
conversion factor for determining the Medicare OPD fee payment 
amounts for each covered OPD service (or group of services) 
furnished in 1999 so that the sum of the products of the 
Medicare OPD fee payment amounts and the frequencies for each 
service or group would be required to equal the total amounts 
estimated by the Secretary that would be paid for OPD services 
in 1999. In subsequent years, the Secretary would be required 
to establish a conversion factor for covered OPD services 
furnished in an amount equal to the conversion factor 
established for 1999 and applicable to services furnished in 
the previous year increased by the OPD payment increase factor. 
The increase factor would be equal to the hospital market 
basket (MB) percentage increase plus 3.5 percentage points. 
When the amount of the beneficiary coinsurance for an 
individual procedure is equal to 20 percent of the total 
payment, both the coinsurance and the Medicare program payment 
would be increased by the market basket.
    The Secretary would be required to establish a procedure 
under which a hospital, before the beginning of a year 
(starting with 1999), could elect to reduce the coinsurance 
payment for some or all covered OPD services to an amount that 
is not less than 25 percent of the total (Medicare program plus 
beneficiary coinsurance payment) amount for the service 
involved, adjusted for relative differences in labor costs and 
other factors. A reduced copayment amount could not be further 
reduced or increased during the year involved, and hospitals 
could disseminate information on the reduction of copayment 
amount.
    The Secretary would be authorized periodically to review 
and revise the groups, relative payment weights, and the wage 
and other adjustments to take into account changes in medical 
practice, medical technology, the addition of new services new 
cost data, and other relevant information. Any adjustments made 
by the Secretary would be made in a budget neutral manner. If 
the Secretary determined that the volume of services paid for 
under this subsection increased beyond amounts established 
through those methodologies, the Secretary would be authorized 
to adjust the update to the conversion factor otherwise 
applicable in a subsequent year.
    The provision would provide that the copayment for covered 
OPD services would be determined by the provisions of this bill 
instead of the standard 20 percent coinsurance for other Part B 
services. The provision would prohibit administrative or 
judicial review of the prospective payment system. The 
provision would also provide for conforming amendments 
regarding approved ambulatory surgical center procedures 
performed in hospital OPDs, for radiology and other diagnostic 
procedures, and for other hospital outpatient services.
    In the interest of achieving better clinical homogeneity 
and comparability of economic resources of services and 
products provided on a hospital outpatient basis, the Committee 
encourages the Secretary to develop appropriate categories of 
hospital outpatient services and items. It is anticipated that 
this will facilitate identification of those products whose 
costs do not correlate with the procedure with which they are 
used. Following such identification, the Secretary may consider 
instituting a system of separate payment or creating separate 
classification groups for such products, if such a change would 
more accurately reflect the clinical and economic components of 
the total service provided.
    The Committee also strongly encourages the Secretary to 
make any appropriate adjustments to prospective payment rates 
that would reflect the patient mix and treatments of 
freestanding cancer centers.

                 Subchapter B--Rehabilitation Services

Section 4421. Rehabilitation agencies and services

    Current law. Medicare provides for special payment rules 
for certain types of providers of services covered under Part B 
and paid out of the SMI Trust Fund.
    Explanation of provision. For outpatient physical therapy 
and occupational therapy services, payments for services 
provided in 1998 would be the least of: (1) the actual charges 
for the services; (2) the adjusted reasonable costs for the 
services, defined as reasonable costs reduced by 5.8 percent of 
the reasonable costs for operating costs and 10 percent of the 
reasonable cost for capital; or (3) a blended rate equal to the 
sum of 50 percent of the adjusted reasonable cost for the 
services and 50 percent of the applicable physician fee 
schedule amount for the services. After 1998, payment for these 
services would be 80 percent of the lesser of the actual charge 
for the services, or the applicable physician fee schedule 
amount. The provision would also exclude from Medicare coverage 
outpatient occupational therapy and physical therapy services 
furnished as an incident to a physician's professional services 
that did not meet the standards provided for outpatient 
physical therapy services furnished by a provider in a clinic, 
rehabilitation agency, public health agency, or by others under 
an arrangement with and under the supervision of such 
providers.
    The provision would also apply the per beneficiary cap of 
$900 per year for outpatient physical therapy services.

Section 4422. Comprehensive outpatient rehabilitation facilities 
        [CORFs]

    Current law. Medicare provides for special payment rules 
for certain types of providers of services covered under Part B 
and paid out of the SMI Trust Fund.
    Explanation of provision. CORF payments for services 
provided in 1998, would be the least of: (1) the charges for 
the services; (2) the adjusted reasonable costs for the 
services,defined as reasonable costs reduced by 5.8 percent of 
the reasonable costs for operating costs and 10 percent of the 
reasonable cost for capital; or (3) a blended rate equal to the sum of 
50 percent of the adjusted reasonable cost for the services and 50 
percent of the applicable physician fee schedule amount for the 
services. After 1998, payment for these services would be 80 percent of 
the lesser of the actual charge for the services, or the applicable 
physician fee schedule amount.

                    Subchapter C--Ambulance Services

Section 4431. Payments for ambulance services

    Current law. Payment for ambulance services provided by 
freestanding suppliers is based on reasonable charge screens 
developed by individual carriers based on local billings. 
Hospital or other provider-based ambulance services are paid on 
a reasonable cost basis; payment cannot exceed what would be 
paid to a freestanding suppliers.
    Explanation of provision. The provision would specify 
payment limits for ambulance services for FY 1998 through FY 
2002. For ambulance services paid on a reasonable cost basis, 
the annual increase in the costs recognized as reasonable on a 
per trip basis would be limited to the percentage increase in 
the consumer price index reduced for fiscal years 1998 and 1999 
by 1 percent. Similarly, for ambulance services furnished on a 
reasonable charge basis, the annual increase in the charges 
recognized as reasonable would be limited to the percentage 
increase in the consumer price index reduced for fiscal years 
1998 and 1999 by 1 percent.
    The provision would require the Secretary to establish a 
fee schedule for ambulance services through a negotiated rule-
making process. In establishing the fee schedule, the Secretary 
would be required to: (1) establish mechanisms to control 
Medicare expenditure increases; (2) establish definitions for 
services; (3) consider appropriate regional and operational 
differences; (4) consider adjustments to payment rates to 
account for inflation and other relevant factors; and (5) 
phase-in the application of the payment rates in an efficient 
and fair manner. In establishing the fee schedule, the 
Secretary would be required to consult with various national 
organizations representing individuals and entities who furnish 
and regulate ambulance services. The Secretary would be 
required to assure that payments in FY 2000 under the fee 
schedule did not exceed the aggregate amount of payments which 
would have been made in the absence of the fee schedule. The 
annual increase in the payment amounts in each subsequent year 
would be limited to the increase in the consumer price index. 
Medicare payments would equal 80 percent of the lesser of the 
fee schedule amount or the actual charge.
    The provision would authorize payment for advanced life 
support (ALS) services provided by paramedic intercept service 
providers in rural areas. The ALS services would be provided 
under contract with one or more volunteer ambulance services. 
The volunteer ambulance service involved must be certified as 
qualified to provide the service, provide only basic life 
support services at the time of the intercept, and be 
prohibited by State law from billing for services. The ALS 
service provider must be certified to provide the services and 
bill all recipients (not just Medicare beneficiaries) for ALS 
intercept services.

Section 4432. Demonstration of coverage of ambulance services under 
        Medicare through contracts with units of local government

    Current law. No provision.
    Explanation of provision. The provision would require the 
Secretary to establish up to three demonstration projects under 
which, at the request of a county or parish, the Secretary 
enters into agreement with such entity to furnish or arrange 
for the furnishing of ambulance services. The county or parish 
could not enter into a contract unless the contract covered at 
least 80 percent of the residents enrolled in Part B. 
Individuals or entities furnishing services would have to meet 
the requirements otherwise applicable. The Secretary would make 
monthly per capita payments to the county or parish. In the 
first year, the capitated payment would equal 95 percent of the 
average annual per capita payment for ambulance services made 
in the most recent 3 years for which data is available. In 
subsequent years, it would the amount established for the 
preceding year increased by the CPI. Payments under the 
contract would be in lieu of other payments for ambulance 
services.
    The contract could provide for the inclusion of persons 
residing in additional counties or parishes, permit 
transportation to non-hospital providers, and implement other 
innovations proposed by the county or parish.
    The Secretary would be required to evaluate the 
demonstration projects and report by January 1, 2000, on the 
study including recommendations regarding modifications to the 
payment methodology and whether to extend or expand such 
projects.

                 Chapter 3--Payment Under Parts A and B

Section 4441. Prospective payment for home health services

    Current law. Medicare reimburses home health agencies on a 
retrospective cost-based basis. This means that agencies are 
paid after services are delivered for the reasonable costs (as 
defined by the program) they have incurred for the care they 
provide to program beneficiaries, up to certain limits. In 
provisions contained in the Orphan Drug Act of 1983, 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 Health Care Financing Administration 
(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 
begun a second project, referred to as Phase II, to test 
prospective payment on a per episode basis, and has also 
undertaken research to develop a home health case-mix adjustor 
that would translate patients' varying service needs into 
specific reimbursement rates.
    Explanation of provision. The provision would require the 
Secretary to establish a prospective payment system for home 
health and implement the system beginning October 1, 1999. All 
services covered and paid on a reasonable cost basis at the 
time of enactment of this section, including medical supplies, 
would be required to be paid on a prospective basis. In 
implementing the system, the Secretary could provide for a 
transition of not longer than 4 years during which a portion of 
the payment would be based on agency-specific costs, but only 
if aggregate payments were not greater than they would have 
been if a transition had not occurred.
    In establishing the prospective system, the Secretary would 
be authorized to consider an appropriate unit of service, as 
well as the number, type, and duration of visits provided 
within that unit, potential changes in the mix of services 
provided within that unit and their cost, and a general system 
design that provides for continued access to quality services.
    Under the new system, the Secretary would compute a 
standard prospective payment amount (or amounts) that would 
initially be based on the most current audited cost report data 
available to the Secretary. For fiscal year 2000, payment 
amounts under the prospective system would be computed in such 
a way that total payments would equal amounts that would have 
been paid had the system not been in effect, but would also 
reflect a 15 percent reduction in cost limits and per 
beneficiary limits in effect September 30, 1999. Payment 
amounts would be standardized in a manner that eliminates the 
effect of variations in relative case mix and wage levels among 
different home health agencies in a budget neutral manner. The 
Secretary could recognize regional differences or differences 
based on whether or not services are provided in an urbanized 
area. Beginning with FY 2001, standard prospective payment 
amounts would be adjusted by the home health market basket.
    The payment amount for a unit of home health service would 
be adjusted by a case mix adjustor factor established by the 
Secretary to explain a significant amount of the variation in 
the cost of different units of service. The labor-related 
portion of the payment amount would be adjusted by an area wage 
adjustment factor that would reflect the relative level of 
wages and wage- related costs in a particular geographic area 
as compared to the national average. The Secretary could 
provide for additions or adjustments to payment amounts for 
outliers because of unusual variations in the type or amount of 
medically necessary care. The total amount of outlier payments 
could not exceed 5 percent of total payments projected or 
estimated to be made in a year. The Secretary would be required 
to reduce the standard prospective payments by amounts that in 
the aggregate would equal outlier adjustments. If a beneficiary 
were to transfer to or receive services from another home 
health agency within the period covered by a prospective 
payment amount, then the payment would be prorated between the 
agencies involved.
    Claims for home health services furnished on or after 
October 1, 1998, would be required to contain an appropriate 
identifier for the physician prescribing home health services 
or certifying the need for care. Claims would also be required 
to include, for four home health service categories, 
information (coded in an appropriate manner) on the length of 
time of a service, as measured in 15-minute increments. The 
four categories of services for which time information would 
have to be included on a claim would be: skilled nursing care; 
therapies--physical and occupational therapy and speech 
language pathology; medical social services; and home health 
aide services.
    Administrative or judicial review would not be permitted 
for the transition period (if any) for the prospective system; 
the definition and application of payment units; the 
computation of initial standard payment amounts; adjustments 
for outlier, case-mix and area wage adjustments; and the 
amounts or types of exceptions or adjustments to the 
prospective payment amounts.
    Periodic interim payments for home health services would be 
eliminated. All home health care agencies would be paid 
according to the prospective payment system.
    In order for home health services to be considered covered 
care, home health care agencies would be required to submit 
claims for all services, and all payments would be made to a 
home health agency without regard to whether or not the item or 
service was furnished by the agency, by others under 
arrangement, or under any other contracting or consulting 
arrangement.

             Subtitle G--Provisions Relating to Part B Only

                    Chapter 1--Physicians' Services

Section 4601. Establishment of single conversion factor for 1998

    Current law. Medicare pays for physicians services on the 
basis of a fee schedule. The fee schedule assigns relative 
values to services. Relative values reflect three factors: 
physician work (time, skill, and intensity involved in the 
service), practice expenses, and malpractice costs. These 
relative values are adjusted for geographic variations in the 
costs of practicing medicine. Geographically-adjusted relative 
values are converted into a dollar payment amount by a dollar 
figure known as the conversion factor. There are three 
conversion factors--one for surgical services, one for primary 
care services, and one for other services. The conversion 
factors in 1997 are $40.96 for surgical services, $35.77 for 
primary care services, and $33.85 for other services.
    Explanation of provision. The provision would set a single 
conversion factor for 1998, based on the 1997 primary care 
conversion factor, updated to 1998 by the Secretary's estimate 
of the weighted average of the three separate updates that 
would occur in the absence of the legislation.

Section 4602. Establishing update to conversion factor to match 
        spending under sustainable growth rate

    Current law. The conversion factors are updated each year 
by a formula specified in the law. The update equals inflation 
plus or minus actual rate of spending growth in a prior period 
compared to a target known as the Medicare volume performance 
standard (MVPS).(For example, fiscal year 1995 data were used 
in calculating the calendar 1997 update.) However, regardless of actual 
performance during a base period, there is a 5 percentage point limit 
on the amount of the reduction. There is no limit on the amount of the 
increase.
    Explanation of provision. The provision would specify the 
update to the conversion factor that would apply beginning in 
1999 (unless otherwise provided for by law). The provision 
would specify that the update to the single conversion factor 
for a year would equal the Medicare Economic Index (MEI) 
subject to an adjustment to match spending under a sustainable 
growth rate. Specifically, the update for a year would be 
calculated by multiplying: (1) 1 plus the percentage change in 
the MEI, times (2) 1 plus the update adjustment factor 
(expressed as a percentage) for the year. The result would be 
reduced by 1 and multiplied by 100.
    The provision links the update to the sustainable growth 
rate. The update adjustment factor would be calculated as 
follows: First, the Secretary would estimate the difference 
between the cumulative sum of allowed expenditures for July 1, 
1997 through June 30 of the year involved and the cumulative 
sum of actual expenditures for July 1, 1997 through June 30 of 
the preceding year. This amount would be divided by the actual 
expenditures for the 12-month period (ending June 30) of the 
preceding year, increased by the applicable sustainable growth 
rate. For the 12-month period ending June 30, 1997, allowed 
expenditures would be defined as actual expenditures for the 
period, as estimated by the Secretary. For a subsequent 12-
month period, allowed expenditures would be defined as allowed 
expenditures established for the previous period, increased by 
the sustainable growth rate established for the fiscal year 
which begins during that 12-month period.
    The provision would establish limits on the amount of 
variation from the MEI; the update could not be more than three 
percentage points above or seven percentage points below the 
MEI.

Section 4603. Replacement of volume performance standard with 
        sustainable growth rate

    Current law. The Medicare Volume Performance Standard 
(MVPS), used to calculate the update in the conversion factor, 
is a goal for the rate of expenditure growth from one fiscal 
year to the next. The MVPS for a year is based on estimates of 
several factors (changes in fees, enrollment, volume and 
intensity, and laws and regulations). The calculation is 
subject to a reduction known as the performance standard 
factor.
    Explanation of provision. The provision would replace the 
MVPS with the sustainable growth rate based on real gross 
domestic product (GDP) growth. Specifically, the rate for FY 
1998 and subsequent years would be equal to the product of: (1) 
1 plus the weighted average percentage change in fees for all 
physicians services in the fiscal year; (2) 1 plus the 
percentage change in the average number of individuals enrolled 
under Part B (other than private plan enrollees) from the 
previous fiscal year; (3) 1 plus the Secretary's estimate of 
the percentage growth in real GDP per capita from the previous 
fiscal year; and (4) 1 plus the Secretary's estimate of the 
percentage change in expenditures for all physicians services 
in the fiscal year which will result from changes in law and 
regulations (excluding changes in volume and intensity 
resulting from changes in the conversion factor update). The 
result would be reduced by one and multiplied by 100. The term 
``physicians services'' would exclude services furnished to a 
MedicarePlus plan enrollee.

Section 4604. Payment rules for anesthesia services

    Current law. Anesthesia services are paid under a separate 
fee schedule (based on base and time units) with a separate 
conversion factor. The 1997 conversion factor is $16.68.
    Explanation of provision. The provision would specify that 
the conversion factor would equal 46 percent of the conversion 
factor established for other services for the year.

Section 4605. Implementation of resource-based physician practice 
        expense

    Current law. P.L. 103-432 required that the Secretary 
develop and provide for the implementation, beginning in 1998, 
of a resource-based methodology for payment of practice 
expenses under the physician fee schedule. Such expenses are 
currently paid on the basis of historical charges.
    Explanation of provision. The provision would delay 
implementation of the practice expense methodology for 1 year 
until 1999. It would provide for a phase-in of the new 
methodology. In 1999, 25 percent of the practice payment would 
be based on the new methodology. This percentage would increase 
to 50 percent in 2000 and 75 percent in 2001. Beginning in 
2002, the payment would be based solely on the new methodology.
    The provision would require the Secretary, to develop new 
resource-based relative value units. In developing the units, 
the Secretary would be required to utilize, to the maximum 
extent practicable, generally accepted accounting principles 
and standards which recognize all staff, equipment, supplies 
and expenses, not just those that can be tied to specific 
procedures. The Secretary would be required to use actual data 
on equipment utilization and other key assumptions such as the 
proportion of costs which are direct versus indirect. The 
Secretary would be required to study whether hospital cost 
reduction methods and changing practice patterns may have 
increased physician practice costs and consider adverse effects 
on patient access. The Secretary would further be required to 
consult with organizations representing physicians regarding 
methodology and data to be used.
    The Secretary would be required to transmit a report to the 
House Committee on Ways and Means, House Committee on Commerce 
and the Senate Committee on Finance by March 1, 1998. The 
report would include a presentation of the data used and an 
explanation of the methodology.
    The Secretary would be required to publish a notice of 
proposed rulemaking by May 1, 1998, and allow for a 90-day 
public comment period.
    The proposed rule would include: (1) detailed impact 
projections which compare proposed payment amounts with data on 
actual practice expenses; (2) impact projections for 
specialties, sub-specialties, geographic payment localities, 
urban versus rural localities, and academic versus non-academic 
medical staffs; and (3) impact projections on access to care 
for Medicare patients and physician employment of clinical and 
administrative staff.

Section 4606. Dissemination of hospital-specific per admission relative 
        values for inpatient hospital services.

    Current Law. In general, the law does not include a 
specific limit on the number or mix of physicians services 
provided in connection with an inpatient hospital stay. 
(However, the law does require that certain services provided 
in connection with a surgery be included in a global surgical 
package and not billed separately.)
    Explanation of Provision. During 1999 and 2001, the 
Secretary would determine for each hospital the hospital-
specific per admission relative value amount for the following 
year and whether this amount is projected to be excessive 
(based on the 1998 national median of such values). The 
Secretary would be required to notify the medical executive 
committee of each hospital having been identified as having an 
excessive hospital-specific relative value.
    The hospital-specific relative value projected for a non-
teaching hospital would be the average per admission relative 
value for inpatient physicians services furnished by the 
medical staff for the second preceding calendar year, adjusted 
for variations in case mix and disproportionate share status. 
For teaching hospitals, the projected hospital-specific 
relative value would be: (1) the average per admission relative 
value for inpatient physicians services furnished by the 
medical staff for the second preceding calendar year; plus (2) 
the equivalent per admission relative value for physicians 
services furnished by interns and residents during the second 
preceding year, adjusted for case-mix, disproportionate share 
status, and teaching status among hospitals. The Secretary 
would be required to determine the equivalent relative value 
unit per intern and resident based on the best available data 
and could make such adjustment in the aggregate. The Secretary 
would be required to adjust the allowable per admission 
relative value otherwise determined to take into account the 
needs of teaching hospitals and hospitals receiving additional 
payments under PPS as disproportionate share hospitals or on 
the basis of their classification as Medicare-dependent small 
rural hospitals. The adjustment for teaching or 
disproportionate share status could not be less than zero.

Section 4607. No x-ray required for chiropractic services.

    Current Law. Medicare covers chiropractic services 
involving manual manipulation of the spine to correct a 
subluxation demonstrated to exist by X-ray. Medicare 
regulations prohibit payment for the X-ray either if performed 
by a chiropractor or ordered by a chiropractor.
    Explanation of Provision. The provision would eliminate the 
X-ray requirement effective January 1, 1998. It would also 
require the Secretary to develop and implement utilization 
guidelines relating to coverage of chiropractic services when a 
subluxation has not been demonstrated to exist by X-ray.

Section 4608. Temporary coverage restoration for portable 
        electrocardiogram transportation.

    Current Law. Medicare regulations for the 1997 physician 
fee schedule eliminated the separate payment for transportation 
of EKG equipment by any supplier.
    Explanation of Provision. The provision would restore 
separate payment for 1 year, 1998, for transportation of EKG 
equipment based on the coding in effect in 1996. By July 1, 
1998, GAO would submit a report to Congress on the 
appropriateness of continuing such payment.

                  Chapter 2--Other Payment Provisions

Section 4611. Payments for durable medical equipment.

            Current Law
    (a) Freeze in Durable Medical Equipment (DME) Updates. 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 
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).
    (b) Update for Orthotics and Prosthetics. Prosthetics and 
orthotics are paid according to a fee schedule with principles 
similar to the DME fee schedule. The fee schedule establishes 
regional payment limits for covered items. The payment limits 
have floors and ceilings. The floor is equal to 90 percent of 
the weighted average of regional payment amounts and the 
ceiling is 120 percent. Fee schedule amounts are updated 
annually by CPI-U.
    -(c) Payment Freeze for Parenteral and Enteral Nutrients, 
Supplies, and Equipment (PEN). Parenteral and enteral 
nutrients, supplies, and equipment are paid on the basis of the 
lowest reasonable charge levels at which items are widely and 
consistently available in the community.
            Explanation of Provision
    (a) Freeze in Durable Medical Equipment (DME) Updates. The 
provision would eliminate updates to the DME fee schedules for 
the period 1998 through 2002.
    (b) Update for Orthotics and Prosthetics. The update for 
the prosthetics and orthotics fee schedule would be limited to 
1 percent for each of the years 1998 through 2002.
    (c) Payment Freeze for Parenteral and Enteral Nutrients, 
Supplies, and Equipment (PEN). Payments for PEN would be frozen 
at 1995 levels for the period 1998 through 2002.

Section 4612. Oxygen and oxygen equipment

    Current Law. Under Medicare oxygen and oxygen equipment are 
considered durable medical equipment and are paid according to 
a DME fee schedule. The fee schedule establishes a national 
payment limit for oxygen and oxygen equipment.
    Explanation of Provision. The provision would reduce the 
national payment limit for oxygen and oxygen equipment by 20 
percent for each of the years 1998 through 2002.

Section 4613. Reduction in updates to payment amounts for clinical 
        diagnostic laboratory tests

    Current Law.  Clinical diagnostic laboratory tests are paid 
on the basis of an area wide fee schedules. The law sets a cap 
on payment amounts equal to 76 percent of the median of all fee 
schedules for the test. The fee schedules amounts are updated 
by the percentage change in the CPI.
    Explanation of Provision. The provision would freeze fee 
schedule payments for the 1998-2002 period. It would also lower 
the cap from 76 percent of the median to 72 percent of the 
median beginning in 1998.

Section 4614. Simplification in administration of laboratory services 
        benefit

    Current Law. Significant variations exist among carriers in 
rules governing requirements labs must meet in filing claims 
for payments.
    Explanation of Provision. The provision would require the 
Secretary to divide the country into no more than five regions 
and designate a single carrier for each region to process 
laboratory claims no later than January 1, 1999. One of the 
carriers would be selected as a central statistical resource. 
The allocation of claims to a particular carrier would be based 
on whether the carrier serves the geographic area where the 
specimen was collected or other method selected by the 
Secretary.
    The provision would require the Secretary, by July 1, 1998, 
to adopt uniform coverage, administration, and payment policies 
for lab tests using a negotiated rule-making process. The 
policies would be designed to promote uniformity and program 
integrity and reduce administrative burdens with respect to 
clinical diagnostic laboratory tests in connection with 
beneficiary information submitted with a claim, physicians' 
obligations for documentation and record keeping, claims filing 
procedures, documentation, and frequency limitations.
    The provision would permit the use of interim regional 
policies where a uniform national policy had not been 
established and there is a demonstrated need for policy to 
respond to aberrant utilization or provision of unnecessary 
services. The Secretary would establish a process under which 
designated carriers could collectively develop and implement 
interim national standards for up to 2 years.
    The Secretary would be required to conduct a review, at 
least every 2 years, of uniform national standards. The review 
would consider whether to incorporate or supersede interim 
regional or national policies.
    With regard to the implementation of new requirements in 
the period prior to the adoption of uniform policies, and the 
development of interim regional and interim national standards, 
carriers must provide advance notice to interested parties and 
allow a 45 day period for parties to submit comments on 
proposed modifications.
    The provision would require the inclusion of a laboratory 
representative on carrier advisory committees. The 
representative would be selected by the committee from 
nominations submitted by national and local organizations 
representing independent clinical labs.

Section 4615. Updates for ambulatory surgical services

    Current Law. Medicare pays for ambulatory surgical center 
(ASC) services on the basis of prospectively determined rates. 
These rates are updated annually by the CPI-U. OBRA 93 
eliminated updates for ASCs for FY 1994 and FY 1995.
    Explanation of Provision. The provision would set the 
updates for FY 1996 and FY 1997 at the percentage increase in 
the CPI-U. For FY 1998 through FY 2002, the update increase 
would be the increase in the CPI-U minus 2.0 percentage points. 
For and succeeding fiscal years, the update increase would be 
the increase in the CPI-U.

Section 4616. Reimbursement for drugs and biologicals

    Current Law. Payment for drugs is based on the lower of the 
estimated acquisition cost or the national average wholesale 
price. Payment may also be made as part of a reasonable cost or 
prospective payment.
    Explanation of Provision. The provision would specify that 
in any case where payment is not made on a cost or prospective 
payment basis, the payment would equal 95 percent of the 
average wholesale price, as specified by the Secretary.

Section 4617. Coverage of oral anti-nausea drugs under chemotherapeutic 
        regimen

    Current Law. Medicare provides coverage for certain oral 
cancer drugs. The Administration has specified that Medicare 
will pay for self-administrable oral or rectal versions of 
self-administered anti-emetic drugs when they are needed for 
the administration and absorption of primary Medicare covered 
oral anti-cancer chemotherapeutic agents when a high likelihood 
of vomiting exists.
    Explanation of Provision. The provision would provide 
coverage, under specified conditions, for an oral drug used as 
an acute anti-emetic used as part of an anticancer 
chemotherapeutic regimen. It would have to be administered by 
or under the supervision of a physician for use immediately 
before, at the time of or immediately after the administration 
of the chemotherapeutic agent and used as a full replacement 
for the anti-emetic therapy which would otherwise be 
administered intravenously.
    The provision would establish a per dose payment limit 
equal to 90 percent of the average per dose payment basis for 
the equivalent intravenous anti-emetics administered during the 
year, as computed based on the payment basis applied in 1996. 
The Secretary would be required to make adjustments in the 
coverage of, or payment, for the anti-nausea drugs so that an 
increase in aggregate payments per capita does not result.

Section 4618. Rural health clinics (RHCs)

    Current Law. Medicare establishes payment limits for RHC 
services provided by independent RHCs. RHCs, among other 
requirements, must have appropriate procedures for utilization 
review of clinic services. The Secretary is required to waive 
the RHC requirement for certain staffing of health 
professionals if the clinic has been unable to hire a physician 
assistant, nurse practitioner, or certified nurse-midwife in 
the previous 9 years. The Secretary is prohibited from granting 
a waiver to a facility if the request for the waiver is made 
less than 6 months after the date of the expiration of previous 
waiver of the facility. RHCs are required to be located in a 
health professionals shortage area. For RHCs that are in 
operation and subsequently fail to meet the requirement of 
being located in a health professions shortage area, the 
Secretary would be required to continue to consider the 
facility to meet the health professions shortage area 
requirement.
    Explanation of Provision. The provision would apply per-
visit payment limits to all RHCs, other than such clinics in 
rural hospitals with fewer than 50 beds. The provision would 
require that RHCs have a quality assessment and performance 
improvement program, in addition to appropriate procedures for 
utilization review. The provision would amend the waiver on the 
staffing requirement, to provide a waiver if the facility has 
not yet been determined to meet the requirement of having a 
nurse practitioner, physician assistant, or a certified nurse-
midwife available 50 percent of the time the clinic operates. 
The provision would require that shortage designations for RHCs 
be reviewed every 3 years. The provision would further amend 
the shortage area requirement by adding that RHCs must be 
located in area in which there are insufficient numbers of 
needed health care practitioners as determined by the 
Secretary. The provision would require that RHCs that are in 
operation and subsequently fail to meet the requirement of 
being located in a health professions shortage area, continue 
to be considered to meet the health professions shortage 
requirement, but only when, under criteria established by the 
Secretary in regulations, to be essential to the delivery of 
primary care services that would otherwise be unavailable in 
the geographic area served by the clinic. The Secretary would 
be required to issue final regulations implementing the 
grandfathered clinics that would be required to take effect no 
later than January 1 of the third calendar year beginning at 
least 1 month after enactment. The provision would take effect 
on the effective date of the regulations.

Section 4619. Increased Medicare reimbursement for nurse practitioners 
        and clinical nurse specialists

    Current Law. Separate payments are made for nurse 
practitioner (NP) services provided in collaboration with a 
physician, which are furnished in a nursing facility. 
Recognized payments equal 85 percent of the physician fee 
schedule amount. Nurse practitioners and clinical nurse 
specialists (CNSs) are paid directly for services provided in 
collaboration with a physician in a rural area. Payment equals 
75 percent of the physician fee schedule amount for services 
furnished in a hospital and 85 percent of the fee schedule 
amount for other services.
    Explanation of Provision. The provision would remove the 
restriction on settings. It would also provide that payment for 
NP and CNS services could only be made if no facility or other 
provider charges are paid in connection with the service. 
Payment would equal 80 percent of the lesser of either the 
actual charge or 85 percent of the fee schedule amount for the 
same service if provided by a physician. For assistant-at-
surgery services, payment would equal 80 percent of the lesser 
of either the actual charge or 85 percent of the amount that 
would be recognized for a physician serving as an assistant at 
surgery. The provision would authorize direct payment for NP 
and CNS services.
    The provision would clarify that a clinical nurse 
specialist is a registered nurse licensed to practice in the 
State and who holds a master's degree in a defined clinical 
area of nursing from an accredited educational institution.

Section 4620. Increased Medicare reimbursement for physician assistants

    Current Law. Separate payments are made for physician 
assistant (PA) services when provided under the supervision of 
a physician: (1) in a hospital, skilled nursing or nursing 
facility, (2) as an assistant at surgery, or (3) in a rural 
area designated as a health professional shortage area.
    Explanation of Provision. The provision would remove the 
restriction on settings. It would also provide that payment for 
PA services could only be made if no facility or other provider 
charges are paid in connection with the service. Payment would 
equal 80 percent of the lesser of either the actual charge or 
85 percent of the fee schedule amount for the same service if 
provided by a physician. For assistant-at-surgery services, 
payment would equal 80 percent of the lesser of either the 
actual charge or 85 percent of the amount that would be 
recognized for a physician serving as an assistant at surgery. 
The provision would further provide that the PA could be in an 
independent contractor relationship with the physician. 
Employer status would be determined in accordance with State 
law.

Section 4621. Renal dialysis-related services

    Current Law. Medicare covers persons who suffer from end-
stage renal disease. Facilities providing dialysis services 
must meet certain requirements.
    Explanation of Provision. The provision would require the 
Secretary to audit a sample of cost reports of renal dialysis 
providers for 1995 and for each third year thereafter. The 
Secretary would also be required to develop and implement by 
January 1, 1999, a method to measure and report on the quality 
of renal dialysis services provided under Medicare in order to 
reduce payments for inappropriate or low quality care.

Section 4622. Payment for cochlear implants as customized durable 
        medical equipment

    This provision would transfer cochlear implants from its 
current prosthetic fee schedule to that of a customized device 
in the durable medical equipment classification.

                       Chapter 3--Part B Premium

Section 4631. Part B premium

    Current Law. When Medicare was established in 1965, the 
Part B monthly premium was intended to equal 50 percent of 
program costs. The remainder was to be financed by Federal 
general revenues, i.e., tax dollars. Legislation enacted in 
1972 limited the annual percentage increase in the premium to 
the same percentage by which social security benefits were 
adjusted for cost-of-living increases (i.e., cost-of-living or 
COLA adjustments). As a result, revenues dropped to below 25 
percent of program costs in the early 1980s. Since the early 
1980s, Congress has regularly voted to set the premium equal to 
25 percent of costs. Under current law, the 25 percent 
provision is extended through 1998; the COLA limitation would 
again apply in 1999.
    Explanation of Provision. The provision would permanently 
set the Part B premium at 25 percent of program costs.

            Subtitle H--Provisions Relating to Parts A and B

       Chapter 1--Provisions Relating to Medicare Secondary Payer

Section 4701. Permanent extension of certain secondary payer provisions

    Current Law. Generally, Medicare is the primary payer, that 
is, it pays health claims first, with an individual's private 
or other public plan filling in some or all of the coverage 
gaps. In certain cases, the individual's other coverage pays 
first, while Medicare is the secondary payer. This is known as 
the Medicare secondary payer (MSP) program. The MSP provisions 
apply to group health plans for the working aged, large group 
health plans for the disabled, and employer health plans 
(regardless of size) for the end-stage renal disease (ESRD) 
population for 18 months. The MSP provisions for the disabled 
expire October 1, 1998. The MSP provisions for the ESRD 
population apply for 12 months, except the period is extended 
to 18 months for the February 1, 1991-October 1, 1998 period.
    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 Social 
Security Administration and Internal Revenue Service files to 
identify cases where a working beneficiary (or working spouse) 
may have employer-based health insurance coverage.
    Explanation of Provision. The provision would make 
permanent the provisions relating to the disabled and the data 
match program.
    The provision would extend application of the MSP 
provisions for the ESRD population for 30 months. This would 
apply to items and services furnished on or after enactment 
with respect to periods beginning on or after the date that is 
18 months prior to enactment.

Section 4702. Clarification of time and filing limitations

    Current Law. In many cases where MSP recoveries are sought, 
claims have never been filed with the primary payer. 
Identification of potential recoveries under the data match 
process typically takes several years--considerably in excess 
of the period many health plans allow for claims filing. A 1994 
appeals court decision held that HCFA could not recover 
overpayments without regard to an insurance plan's filing 
requirements.
    Explanation of Provision. The provision would specify that 
the U.S. could seek to recover payments if the request for 
payments was submitted to the entity required or responsible to 
pay within 3 years from the date the item or service was 
furnished. This provision would apply notwithstanding any other 
claims filing time limits that may apply under an employer 
group health plan. The provision would apply to items and 
services furnished after 1990. The provision should not be 
construed as permitting any waiver of the 3-year requirement in 
the case of items and services furnished more than 3 years 
before enactment.

Section 4703. Permitting recovery against third party administrators

    Current Law. A 1994 appeals court decision held that HCFA 
could not recover from third party administrators of self-
insured plans.
    Explanation of Provision. The provision would permit 
recovery from third party administrators of primary plans. 
However, recovery would not be permitted 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.
    The provision would clarify that the beneficiary is not 
liable in MSP recovery cases unless the benefits were paid 
directly to the beneficiary.
    The provision would apply to services furnished on or after 
enactment.

                    Chapter 2--Home Health Services

Section 4711. Recapturing savings resulting from temporary freeze on 
        payment increases from home health services

    Current 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. Cost 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.
    The Omnibus Budget Reconciliation Act of 1993 (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. In establishing home health 
limits for cost reporting periods beginning after September 30, 
1997, the Secretary would be required to capture the savings 
stream resulting from the OBRA 93 freeze of home health limits 
by not allowing for the market basket updates to the limits 
that occurred during the cost reporting periods July 1, 1994, 
through June 30, 1996. In granting exemptions or exceptions to 
the cost limits, the Secretary would not consider the preceding 
provision for recapturing savings from the OBRA 93 freeze.

Section 4712. Interim payments for home health services

    Current Law. Limits for individual home health services are 
set at 112 percent of the mean labor-related and nonlabor per 
visit costs for freestanding agencies (i.e., agencies not 
affiliated with hospitals), and are applied in the aggregate to 
all agency visits. The limits are effective for cost reporting 
periods beginning on or after July 1 of a given year and ending 
June 30 of the following year.
    Explanation of Provision. The provision would reduce per 
visit cost limits to 105 percent of the national median of 
labor-related and nonlabor costs for freestanding home health 
agencies, effective for cost-reporting periods beginning 
October 1, 1997 (in effect, also delaying the cycle for 
updating the limits).
    For cost reporting periods beginning on or after October 1, 
1997, home health agencies would be paid the lesser of: (1) 
their actual costs (i.e., allowable reasonable costs); (2) the 
per visit limits, reduced to 105 percent of the national 
median, applied in the aggregate; or (3) a new agency-specific 
per beneficiary annual limit calculated from 1994 reasonable 
costs (including non-routine medical supplies), based on a 
blend of 75 percent of agency-specific costs and 25 percent 
regional average costs, updated by the home health market 
basket, and applied to the agency's unduplicated census count 
of patients. For new providers and those providers without a 
12-month cost reporting period ending in calendar year 1994, 
the per beneficiary limit would be equal to the median of these 
limits (or the Secretary's best estimates) applied to home 
health agencies. Home health agencies that have altered their 
corporate structure or name would not be considered new 
providers for these purposes. For beneficiaries using more than 
one home health agency, the per beneficiary limit would be 
prorated among the agencies.
    The Secretary would be required to expand research on a 
prospective payment system for home health that ties 
prospective payments to a unit of service, including an 
intensive effort to develop a reliable case mix adjuster that 
explains a significant amount of variance in cost. The 
Secretary would be authorized to require all home health 
agencies to submit additional information that is necessary for 
the development of a reliable case-mix system, effective for 
cost reporting periods beginning on or after October 1, 1997.

Section 4713. Clarification of part-time or intermittent nursing care

    Current Law. Both Parts A and B of Medicare cover home 
health visits for persons who need skilled nursing care on an 
intermittent basis or physical therapy or speech therapy. Once 
beneficiaries qualify for the benefit, the program covers part-
time or intermittent nursing care provided by or under the 
supervision of a registered nurse and part-time or intermittent 
homehealth aide services, among other services. Coverage 
guidelines issued by HCFA have defined part-time and intermittent.
    Explanation of Provision. Effective for services furnished 
on or after October 1, 1997, the provision would include in 
Medicare statute definitions for part-time and intermittent 
skilled nursing and home health aide. For purposes of receiving 
skilled nursing and home health aide services, ``part-time or 
intermittent'' would mean skilled nursing and home health aide 
services furnished any number of day per week as long as they 
are furnished (combined) less than 8 hours each day and 28 or 
fewer hours each week (or, subject to review on a case-by-case 
basis as to the need for care, less than 8 hours each day and 
35 or fewer hours per week). For purposes of qualifying for 
Medicare's home health benefit because of a need for 
intermittent skilled nursing care, ``intermittent'' would mean 
skilled nursing care that is either provided or needed on fewer 
than 7 days each week, or less than 8 hours of each day for 
periods of 21 days or less (with extensions in exceptional 
circumstances when the need for additional care is finite and 
predictable).

Section 4714. Study of definition of homebound

    Current Law. In order to be eligible for home health care, 
a Medicare beneficiary must be confined to his or her home. The 
law specifies that this ``homebound'' requirement is met when 
the beneficiary has a condition that restricts the ability of 
the individual to leave home, except with the assistance of 
another individual or with the aid of a supportive device (such 
as crutches, a cane, a wheelchair, or a walker), or if the 
individual has a condition such that leaving his or her home is 
medically contraindicated. The law further specifies that while 
an individual does not have to be bedridden to be considered 
confined to home, the condition of the individual should be 
such that there exists a normal inability to leave home, that 
leaving home requires a considerable and taxing effort by the 
individual, and that absences from home are infrequent or of 
relatively short duration, or are attributable to the need to 
receive medical treatment.
    Explanation of Provision. The provision would require the 
Secretary to conduct a study of the criteria that should be 
applied, and the method for applying the criteria, in 
determining whether an individual is considered homebound for 
purposes of qualifying for Medicare's home health benefit. 
Criteria would have to include the extent and circumstances 
under which a person may be absent from the home but 
nonetheless qualify. The Secretary would be required to submit 
to Congress a report on the study, together with specific 
recommendations, by October 1, 1998.

Section 4715. Payment based on location where home health service is 
        furnished

    Current Law. Some home health agencies are established with 
the home office in an urban area and branch offices in rural 
areas. Payment is based on the where the service is billed, in 
this case the urban area with its higher wage rate, even if the 
service had been delivered in a rural area.
    Explanation of Provision. Effective for cost reporting 
periods beginning on or after October 1, 1997, home health 
agencies would be required to submit claims on the basis of the 
location where a service is actually furnished.

Section 4716. Normative standards for home health claims denials

    Current Law. As long as they remain eligible, home health 
users are entitled to unlimited number of visits.
    Explanation of Provision. The provision would authorize the 
Secretary to establish normative guidelines for the frequency 
and duration of home health services. Payments would be denied 
for visits that exceed the normative standard. The provision 
would also authorize the Secretary to establish a process for 
notifying a physician when the number of home health visits 
furnished according to a prescription or certification of the 
physician significantly exceeds the threshold normative number 
of visits that would be covered for specific conditions or 
situations.

Section 4717. No home health benefits based solely on drawing blood

    Current Law. In order to qualify for Medicare's home health 
benefit, a person must be homebound and be in need a 
intermittent skilled nursing care or physical or speech 
therapy.
    Explanation of Provision. The provision would clarify that 
a person could not qualify for Medicare's home health benefit 
solely on the basis of needing skilled nursing care for 
venipuncture for the purpose of obtaining a blood sample.

Section 4718. Making Part B primary payor for certain home health 
        services

            (a) Making Part B primary payor for certain home health 
                    services
    Current Law. Both Parts A and B of Medicare cover home 
health. Neither part of the program applies deductibles or 
coinsurance to covered visits, and beneficiaries are entitled 
to an unlimited number of visits as long as they meet 
eligibility criteria. Section 1833(d) of Medicare law prohibits 
payments to be made under Part B for covered services to the 
extent that individuals are also covered under Part A for the 
same services. As a result, the comparatively few persons who 
have no Part A coverage are the only beneficiaries for whom 
payments are made under Part B.
    Explanation of Provision. Effective October 1, 1997, the 
provision would transfer from Part A to Part B home health 
visits that are not post-hospital home health services. Post-
hospital home health service services would be defined as the 
first 100 visits furnished to an individual under a plan of 
treatment established when the individual is an inpatient of a 
hospital or rural primary care hospital for at least 3 
consecutive days, or during a covered SNF stay, so long as 
services are initiated within 30 days after discharge from the 
institution.
    The Secretary would be required to calculate the increase 
in the Part B premium attributable to the transfer of visits to 
Part B. This increase would be phased in between 1998 and 2003. 
For 1998, the Part B premium would be increased by one-seventh 
of the extra costs due to the transfer; for 1999, the Part B 
premium would be increased by two-sevenths of the extra costs; 
for 2000, three-sevenths; for 2001, four-sevenths; for 2002, 
five-sevenths; and for 2003, six-sevenths of the extra costs 
due to the transfer.
            (b) Maintaining appeal rights for home health services
    Current Law. Medicare beneficiaries have a right to a 
hearing before an administrative law judge for disputed claims 
of at least $500.
    Explanation of Provision. The provision would lower the 
hearing threshold to $100 for home health services covered 
under Part B.
            (c) Report
    Current Law. No provision.
    Explanation of Provision. The Secretary would be required 
to submit to Congress by October 1, 1999, a report on the 
impact on home health utilization and admissions to hospitals 
and skilled nursing facilities of covering only the first 100 
post-hospital home health visits under Part A of Medicare. In 
addition, the Secretary would be required to re-examine and 
submit a report on this impact 1 year after the full 
implementation of the home health prospective payment system 
required under this bill.

          Chapter 3--Baby Boom Generation Medicare Commission

Section 4721. Bipartisan Commission on the Effect of the Baby Boom 
        Generation on the Medicare Program

    Current Law. No provision.
    Explanation of Provision. The provision would establish a 
commission to be known as the Bipartisan 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 beginning approximately 
in 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) 
methods used by other nations to respond to comparable 
demographics; (3) modifying age-based eligibility to correspond 
to that under the OASDI program; and (4) trends in employment-
related health care for retirees, including the use of medical 
savings accounts and similar financing devices; and (5) the 
role Medicare should play in addressing the needs of persons 
with chronic illness.
    The Commission would be composed of 15 voting members, 6 
appointed by the Majority Leader of the Senate in consultation 
with the Minority Leader, of whom no more than 4 are of the 
same party; 6 by the Speaker of the House, after consultation 
with the Minority Leader, of whom no more than 4 are in the 
same party; and 3 ex officio members of the Board of Trustees 
of the Federal Hospital Insurance Trust Fund and of the Federal 
Supplementary Medical Insurance Trust Fund who are Cabinet-
level officials. 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. The Chairman, in 
consultation with the vice chairman, could appoint an advisory 
panel. 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 the Congressional Budget Office (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, 1999, 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 
legislative initiatives respecting how to accomplish this 
objective. The Commission would terminate 30 days after the 
date of submission of the mandated report. An amount of $1.5 
million would be authorized to be appropriated; 60 percent 
would be payable from the Federal Hospital Insurance Trust Fund 
and 40 percent from the Federal Supplementary Medical Insurance 
Trust Fund.

  Chapter 4--Provisions Relating to Direct Graduate Medical Education

Section 4731. Limitation on payment based on number of residents and 
        implementation of rolling average FTE count

    Current Law. The direct costs of approved graduate medical 
education (GME) programs (such as the salaries of residents and 
faculty, and other costs related to medical education 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 FY 1984, increased by 1 percent for hospital 
costreporting periods beginning July 1, 1985, 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 FY 1994 and FY 1995, 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 in 
the initial residency training period. For residents not in their 
initial residency period, the weighing factor is 50 percent. On or 
after July 1, 1986, residents who are foreign medical graduates can 
only be counted as FTE residents if they have passed designated 
examinations.
    Explanation of Provision. For cost reporting periods 
beginning on or after October 1, 1997, the provision would 
limit the total number of full-time equivalent (FTE) residents 
(excluding dental residents) for which Medicare would make 
payments to the number of FTE residents in training during the 
hospital's cost reporting period ending December 31, 1996. For 
the cost reporting period beginning on or after October 1, 
1997, the total number of FTE equivalent residents counted for 
determining the hospital's direct GME payment would equal the 
average FTE counts for the cost reporting period and the 
preceding cost reporting period. For each subsequent cost 
reporting period, the total number of FTEs residents counted 
for determining the hospital's direct GME payment, would be 
equal to the average of the actual FTE counts for the cost 
reporting period and preceding two cost reporting periods. The 
provision would allow that, if a hospital's cost reporting 
period beginning on or after October 1, 1997, was not equal to 
12 months, the Secretary would make appropriate modifications 
to ensure that the average FTE resident counts are base on the 
equivalent of full 12-month cost reporting periods.

Section 4732. Phased-in limitation on hospital overhead and supervisory 
        physician component of direct medical education costs

    Current Law. Medicare's direct medical education costs for 
a cost reporting period includes an aggregate amount that is 
the product of the hospital's approved FTE, resident amount and 
the weighted average number of FTE residents in the hospitals 
approved medical residency training programs in that period.
    Explanation of Provision. The provision would phase-in a 
limitation on hospital overhead and supervisory physician 
costs. For hospitals with overhead GME amounts in a base period 
that exceed the 75 percentile of the weighted overhead GME 
amount in such period for all hospitals, the GME amount made 
for periods beginning on or after October 1, 1997, would be 
reduced by the lesser of: (1) 20 percent of the amount by which 
the overhead GME amount exceeds the 75th percentile amount, or 
(2) 15 percent of the hospital's overhead GME amount otherwise 
determined without regard to this provision. The overhead GME 
amount for a period would be the product of the percentage of 
the hospital's per resident payment amount for the base period 
that was not attributable to salaries and fringe benefits, and 
the hospital specific per resident payment amount for the 
period involved. The base period would be defined as the cost 
reporting period beginning in FY 1984 or the period used to 
establish the hospital's per resident payment amount for 
hospitals that did not have approved residency training 
programs in FY 1984. The Secretary would be required to 
establish rules for the application of this provision in the 
case of a hospital that initiated medical residency training 
programs during or after the base cost reporting period.

Section 4733. Permitting payment to non-hospital providers

    Current Law. No provision.
    Explanation of Provision. The provision would require the 
Secretary to submit to Congress, no later than 18 months after 
enactment, a proposal for payment to qualified non-hospital 
providers for their direct costs of medical education, if those 
costs are incurred in the operation of a Medicare approved 
medical residency training program. The proposal would be 
required to specify the amounts, form, and manner in which such 
payments would be made, and the portion of the payments that 
would be made from each of the Medicare trust funds. The 
Secretary would be authorized to implement the proposal for 
residency years beginning no earlier than 6 months after the 
date the report is submitted. Qualified non-hospital providers 
would include Federally qualified health centers, rural health 
clinics, MedicarePlus organizations, and other providers the 
Secretary determined to be appropriate.
    The provision would also require the Secretary to reduce 
the aggregate approved amount to the extent payment would be 
made to non-hospital providers for residents included in the 
hospital's count of FTE residents, and in the case of residents 
not included in the FTE count, the Secretary would be required 
to provide for such a reduction in aggregate approved amounts 
under this subsection to assure that the application of non-
hospital providers does not result in any increase in 
expenditures than would have occurred if payments were not made 
to non-hospital providers.

Section 4734. Incentive payments under plans for voluntary reduction in 
        number of residents

    Current Law. No provision.
    Explanation of Provision. The provision would establish a 
program to provide incentive payments to hospitals that 
developed plans for the voluntary reduction in the number of 
residents in a training program. For voluntary residency 
reduction plans for which an application was approved, the 
qualifying entity submitting the plan would be required to be 
paid an applicable hold harmless percentage equal to the sum of 
the amount by which (1) the amount of payment which would have 
been made under this subsection if there had been a 5 percent 
reduction in the number of FTE residents in the approved 
medical education training programs as of June 30, 1997, 
exceeded the amount of the payment which would be made taking 
into account the reduction in the number effected FTEs under 
the plan; and (2) the amount of the reduction in payment under 
Medicare's indirect medical education adjustment that was 
attributable to the reduction in the number of residents 
effected under the plan.
    The provision would prohibit the Secretary from approving 
the application of a qualifying entity unless: (1) the 
application was submitted in a form and manner specified by not 
later than March 1, 2000; (2) the application provided for the 
operation of a plan for the reduction in the number of FTE 
residents in the approved medical residency training programs 
of the entity were consistent with those specified in the 
provision; (3) the entity elected whether such reduction occurs 
over a period of not longer than 5 residency training years, or 
6 residency training years; (4) the Secretary determined that 
the application and the entity and the plan meet other 
requirements as the Secretary specifies in regulations.
    The provision specifies that qualifying entities would 
include individual hospitals operating one or more approved 
medical residency training programs; two or more hospitals 
operating residency programs that apply as a single qualifying 
entity; or a qualifying consortium. In the case of an 
application by a qualifying entity consisting of two hospitals, 
the Secretary would be prohibited from approving the 
application unless the application represented that the 
qualifying entity either (1) would not reduce the number of FTE 
residents in primary care during the period of the plan, or (2) 
would not reduce the proportion of its residents in primary 
care (to the total number of residents) below such proportion 
as in effect during the period the residency reduction plan was 
in effect. In the case of an application from a consortia, the 
Secretary would be prohibited from approving the application 
unless the application represented that the qualifying entity 
would not reduce the proportion of residents in primary care 
(to total residents) below such proportion in effect during the 
period the residency reduction plan was in effect.
    For individual hospital applicants, the number of FTE 
residents in all the approved medical residency training 
programs operated by or through the facility would be required 
to be reduced as follows: (1) if the base number of residents 
exceeded 750 residents, by a number equal to at least 20 
percent of the base number; (2) if the base number of residents 
exceeded 500, but was less than 750 residents, by 150 
residents; (3) if the base number of residents did not exceed 
500 residents, by a number equal to at least 25 percent of the 
base number; (4) in the case of a qualifying entity that was a 
consortia, by a number equal to at least 20 percent of the base 
number. The reductions in the number of FTE residents in the 
approved medical residency programs operated through or by an 
entity would be below the base number of residents for the 
entity and would be fully effective no later than the 5th 
residency training year for entities electing a 5-year plan, or 
the 6th residency training year for entities making the 
election of a 6-year reduction plan.
    The provision would require that entities provide assurance 
that in reducing the number of residents, entities maintained 
their primary care residents. Entities would be required to 
provide assurance that they would maintain the number of 
primary care residents if: (1) the base number of residents is 
less than 750; (2) the number of FTE residents in primary care 
included in the base year was at least 10 percent of the total 
number of residents; and (3) the entity represented in its 
application that there would be no reduction under the plan in 
the number of FTE residents in primary care. If the entity 
failed to comply with the requirement that the number of FTE 
residents in primary care were maintained, the entity would be 
subject to repayment of all amounts received under this 
program.
    The base number of residents would be defined as the number 
of FTE residents in residency training program of the entity as 
of June 30, 1997. The ``applicable hold harmless percentage'' 
for entities electing a 5-year reduction plan would be 100 
percent for the first and second residency training years in 
the reduction plan; 75 percent in the third year; 50 percent in 
the fourth year; and 25 percent in the fifth year. The 
``applicable hold harmless percentage'' for entities electing a 
6-year reduction plan would be 100 percent in the first 
residency training year of the plan; 95 percent in the second 
year of the plan; 85 percent in the third year; 70 percent in 
the fourth year; 50 percent in the fifth year; 25 percent in 
the sixth year. In addition, if payments were made under this 
program to an entity that increased the number of FTE residents 
above the number provided in the plan, the entity would then be 
liable for repayment to the Secretary of the total amount paid 
under the plan. The Secretary would also be required to 
establish rules regarding the counting of residents who are 
assigned to institutions that do not have medical residency 
training programs participating in a residency reduction plan.
    The requirements of the residency reduction plan would not 
apply to any residency training demonstration project approved 
by HCFA as of May 27, 1997. The Secretary would be required to 
take necessary action to assure that in no case the amount of 
payments under the plan would exceed 95 percent of what 
payments would have been prior to the plan for direct GME 
payments under Medicare. As of May 27, 1997, the Secretary 
would be prohibited from approving any demonstration project 
that would provide for additional Medicare payments in 
connection with reductions in the number of residents in a 
training program for any residency training year beginning 
before July 1, 2006. The Secretary would be authorized to 
promulgate regulations, that take effect on an interim basis, 
after notice and pending opportunity for public comment, by no 
later than 6 months after the date of enactment.

Section 4735. Demonstration project on use of consortia

    Current Law. No provision.
    Explanation of Provision. The provision would require the 
Secretary to establish a demonstration project under which, 
instead of making direct GME payments to teaching hospitals, 
the Secretary would make payments to each consortium that met 
the requirements of the demonstration project. A qualifying 
consortia would be required to be in compliance with the 
following: (1) the consortium would consist of an approved 
medical residency training program in a teaching hospital and 
one or more of the following entities: a school of allopathic 
or osteopathic medicine, another teaching hospital, another 
approved medical residency training program, a Federally 
qualified health center, a medical group practice, a managed 
care entity, an entity providing outpatient services, or an 
entity determined to be appropriate by the Secretary; (2) the 
members of the consortium would have agreed to participate in 
the programs of graduate medical education that are operated by 
entities in the consortium; (3) with respectto receipt by the 
consortium of direct GME payments, the members of the consortium would 
agree on a method for allocating the payments among the members; and 
(4) the consortium would meet additional requirements established by 
the Secretary. The total payments to a qualifying consortium for a 
fiscal year would not be permitted to exceed the amount that would have 
been paid under the direct GME payment to teaching hospitals in the 
consortium. The payments would be required to be made in such 
proportion from each of the Medicare trust funds as the Secretary 
specifies.

Section 4736. Recommendations on long-term payment policies regarding 
        financing teaching hospitals and graduate medical education

    Current Law. No provision.
    Explanation of Provision. The provision would require the 
Medicare Payment Advisory Commission (established by the bill) 
to examine and develop recommendations on whether and to what 
extent Medicare payment policies and other Federal policies 
regarding teaching hospitals and graduate medical education 
should be reformed. The Commission's recommendations would be 
required to include each of the following: (1) the financing of 
graduate medical education, including consideration of 
alternative broad-based sources of funding for such education 
and models for the distribution of payments under any all-payer 
financing mechanism; (2) the financing of teaching hospitals, 
including consideration of the difficulties encountered by such 
hospitals as competition among health care entities increases, 
including consideration of the effects on teaching hospitals of 
the method of financing used for the MedicarePlus program under 
Part C of Medicare; (3) possible methodologies for making 
payments for graduated medical education and the selection of 
entities to receive such payments, including consideration of 
matters as (A) issues regarding children's hospitals and 
approved medical residency training programs in pediatrics, and 
(B) whether and to what extent payments were being made (or 
should be made) for training in the various nonphysician health 
professions; (4) Federal policies regarding international 
graduates; (5) the dependence of schools of medicine on 
service-generated income; (6) whether and to what extent the 
needs of the U.S. regarding the supply of physicians, in the 
aggregate and in different specialties, would change during the 
10-year period beginning on October 1, 1997, and whether and to 
what extent any such changes would have significant financial 
effects of teaching hospitals; (7) methods for promoting an 
appropriate number, mix, and geographical distribution of 
health professionals; and (8) the treatment of dual training 
programs in primary care fields.
    The Commission would be required to consult with the 
Council on Graduate Medical Education and individuals with 
expertise in the area of graduate medical education, including 
(1) deans from allopathic and osteopathic schools of medicine; 
(2) chief executive officers (or their equivalent) from 
academic health centers, integrated health care systems, 
approved medical residency training programs, and teaching 
hospitals that sponsor 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 U.S. health care workforce; and (6) 
individuals with expertise on the financing of health care.
    The Commission would be required to submit a report to the 
Congress no later than 2 years after enactment providing its 
recommendations under this section and the reasons and 
justifications for such recommendations.

Section 4737. Medicare special reimbursement rule for certain combined 
        residency programs

    This provision establishes that residents enrolled in a 
combined medical residency training programs in which all of 
the individual programs (that are combined) are for training a 
primary care resident, the period of board eligibility will be 
the minimum number of years of formal training required to 
satisfy the requirements for initial board eligibility in the 
longest of the individual programs plus one additional year. 
This provision applies to residents enrolled in a combined 
medical residency training program that includes an obstetrics 
and gynecology program so long as the program with which the 
obstetrics and gynecology program is combined is a primary care 
training program.

                      Chapter 5--Other Provisions

Section 4741. Centers of excellence

    Current Law. No provision.
    Explanation of Provision. The provision would create a new 
program, the Centers of Excellence, under which the Secretary 
would be required to use a competitive process to contract with 
specific hospitals or other entities for furnishing services 
related to surgical procedures, and for furnishing services 
(unrelated to surgical procedures) to hospital inpatients that 
the Secretary determines to be appropriate. The services could 
include any services covered by Medicare that the Secretary 
determined were appropriate, including post-hospital services. 
The Secretary would be required to contract with entities that 
meet quality standards established by the Secretary, and 
contracting entities would be required to implement a quality 
improvement plan approved by the Secretary.
    Payment for services provided under the program would be 
made on the basis of a negotiated all-inclusive rate. The 
amount of payment made for services covered under a contract 
would be required to be equal to or less than the aggregate 
amount of payments that would have been made otherwise for 
these same services. The contract period would be required to 
be 3 years, and could be renewed as long as the entity 
continued to meet quality and other contractual standards. The 
Secretary would be prohibited from considering price as a 
factor in selecting hospitals or other entities to participate 
in the program, except to ensure that payments would be equal 
to or less than would have been otherwise. Entities under these 
contracts would be permitted to furnish additional services (at 
no cost to a Medicare beneficiary) or waive costsharing, 
subject to approval by the Secretary. The Secretary would be required 
to limit the number of centers in a geographic area to the number 
needed to meet project demand for contracted services.

Section 4742. Medicare Part B special enrollment period and waiver of 
        Part B late enrollment penalty and Medigap special open 
        enrollment period for certain military retirees and dependents

    Current Law. Persons generally enroll in Part B when they 
turn 65. Persons who delay enrollment in the program after 
their initial enrollment period are subject to a premium 
penalty. This penalty is a surcharge equal to 10 percent of the 
premium amount for each 12 months of delayed enrollment. There 
is no upper limit on the amount of penalty that may apply. 
Further, the penalty continues to apply for the entire time the 
individual is enrolled in Part B.
    Some persons declined Part B coverage because they thought 
they would be able to get health care coverage at a nearby 
military base; many of these bases subsequently closed.
    Explanation of Provision. The provision would waive the 
delayed enrollment penalty for certain persons who enroll 
during a special 6-month enrollment period which begins with 
the first month that begins at least 45 days after enactment. 
An individual covered under this provision is one: (1) who, on 
the date of enactment is at least 65 and eligible to enroll in 
Part B; (2) who, at the time the individual first met the 
enrollment requirements was a ``covered beneficiary'' under the 
military medical and dental care program. Covered beneficiary 
as defined in Section 1072(5) of Title 10 of the U.S. Code 
excludes an active duty beneficiary. Part B coverage would 
begin the month after enrollment.
    The provision would also guarantee issuance of a Medigap 
type ``A'', ``B'', ``C'', or ``F'' policy to an individual who 
enrolls with a Medigap plan during the same 6-month enrollment 
period.

Section 4743. Competitive bidding

    Current Law. Medicare does not use competitive bidding for 
the selection of providers authorized to provide covered 
services to beneficiaries.
    Explanation of Provision. The provision would require the 
Secretary, within 1 year of enactment, to establish and 
operate, over a 2-year period, demonstration projects in two 
geographic areas selected by the Secretary. Under the 
demonstration, the amount of payment for selected items or 
services furnished in the region would be the amount determined 
pursuant to a competitive bidding process. The process would 
have to meet the requirements imposed by the Secretary to 
ensure cost-effective delivery to beneficiaries of items and 
services of high quality.
    The Secretary would select the items and services based on 
a determination that the use of competitive bidding would be 
appropriate and cost effective. The Secretary would be required 
to consult with an advisory task force which included 
representatives of providers and suppliers (including small 
business providers and suppliers) in each project region.

                  Subtitle I--Medical Liability Reform

                     Chapter 1--General Provisions

Section 4801. Federal reform of health care liability actions

    Current Law. There are no uniform Federal standards 
governing health care liability actions.
    Explanation of Provision. The provision would provide for 
Federal standards in health care liability actions. It would 
govern 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 
or applicable Federal law to the extent State law provisions 
were inconsistent with the new requirements. However, it would 
not preempt State law or applicable Federal law to the extent 
such law provisions were more stringent. The provision would 
not affect or waive the defense of sovereign immunity asserted 
by any State or the U.S., affect the applicability of the 
Foreign Sovereign Immunities Act of 1976, preempt State choice-
of- law rules with respect to claims brought by a foreign 
nation or citizen, or affect the right of any court to transfer 
venue.

Section 4802. Definitions

    Current Law. No provision.
    Explanation of Provision. The provision would define the 
following terms for purposes of the reforms: actual damages; 
alternative dispute resolution system; claimant; clear and 
convincing evidence; collateral source payments; device; drug; 
economic loss; harm; health care liability action; health care 
liability claim; health care provider; manufacturer; 
noneconomic damages; person; product seller; punitive damages; 
and State.

Section 4803. Effective date

    Current 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 on or 
after thedate of enactment. The provision would also apply to 
any health care liability claim subject to an alternative dispute 
resolution system.

     Chapter 2--Uniform Standards for Health Care Liability Actions

Section 4811. Statute of limitations

    Current 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. (A tort 
case is a civil action to recover damages, other than for a 
breach of contract.)
    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 2 years after the harm was discovered or 
reasonably should have been discovered. A person with a legal 
disability could file an action not later than 2 years after 
the person ceased to have a legal disability. If either of 
these provisions shortened the time period otherwise available, 
a claim could be brought up to 2 years after enactment.

Section 4812. Calculation and payment of damages

    Current 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 the harm to that claimant. The court would 
render a separate judgment against each defendant. The trier of 
fact would determine the percentage of responsibility of each 
person responsible for the harm, whether or not the person is 
party to the action.
    The provision would permit the award of punitive damages 
(to the extent allowed under applicable law) only if the 
claimant established by clear and convincing evidence that the 
harm was the result of conduct that 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 of punitive damages would be 
determined by the court and not be disclosed to the jury.
    The provision would permit either party to request a 
separate proceeding (bifurcation), held subsequent to 
determination of compensatory damages, 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 compensatory damages should be 
awarded.
    The provision would prohibit the award of punitive damages 
against a manufacturer or product seller in a case where a drug 
or device was subject to premarket approval by the Food and 
Drug Administration (FDA) (or generally recognized as safe and 
effective according to conditions established by the FDA), 
unless there was misrepresentation or fraud. A manufacturer 
would not be held liable for punitive damages related to 
adequacy of required tamper resistant packaging unless the 
packaging or labeling was found by clear and convincing 
evidence to be substantially out of compliance with the 
regulations.
    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 are paid or 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.

Section 4813. Alternative dispute resolution

    Current Law. No provision.
    Explanation of Provision. The provision would 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 relating to statute of 
limitations, non-economic damages, joint and several liability, 
punitive damages, collateral source rule, and periodic 
payments.

                Changes in Existing Law Made by Title IV

                          SOCIAL SECURITY ACT

          * * * * * * *

     TITLE XI--GENERAL PROVISIONS, PEER REVIEW, AND ADMINISTRATIVE 
                             SIMPLIFICATION

          * * * * * * *

                       Part A--General Provisions

          * * * * * * *

            disclosure of ownership and related information

  Sec. 1124. (a)(1) The Secretary shall by regulation or by 
contract provision provide that each disclosing entity (as 
defined in paragraph (2)) shall--
          (A) as a condition of the disclosing entity's 
        participation in, or certification or recertification 
        under, any of the programs established by titles V, 
        XVIII, and XIX, or
          (B) as a condition for the approval or renewal of a 
        contract or agreement between the disclosing entity and 
        the Secretary or the appropriate State agency under any 
        of the programs established under titles V, XVIII, and 
        XIX,
supply the Secretary or the appropriate State agency with full 
and complete information as to the identity of each person with 
an ownership or control interest (as defined in paragraph (3)) 
in the entity or in any subcontractor (as defined by the 
Secretary in regulations) in which the entity directly or 
indirectly has a 5 per centum or more ownership interest and 
supply the Secretary with both the employer identification 
number (assigned pursuant to section 6109 of the Internal 
Revenue Code of 1986) and social security account number 
(assigned under section 205(c)(2)(B)) of the disclosing entity, 
each person with an ownership or control interest (as defined 
in subsection (a)(3)), and any subcontractor in which the 
entity directly or indirectly has a 5 percent or more ownership 
interest.
          * * * * * * *

  disclosure requirements for other providers under part b of medicare

  Sec. 1124A. (a) Disclosure Required to Receive Payment.--No 
payment may be made under part B of title XVIII for items or 
services furnished by any disclosing part B provider unless 
such provider has provided the Secretary with full and complete 
information--
          (1) on the identity of each person with an ownership 
        or control interest in the provider or in any 
        subcontractor (as defined by the Secretary in 
        regulations) in which the provider directly or 
        indirectly has a 5 percent or more ownership interest; 
        [and]
          (2) with respect to any person identified under 
        paragraph (1) or any managing employee of the 
        provider--
                  (A) on the identity of any other entities 
                providing items or services for which payment 
                may be made under title XVIII with respect to 
                which such person or managing employee is a 
                person with an ownership or control interest at 
                the time such information is supplied or at any 
                time during the 3-year period ending on the 
                date such information is supplied, and
                  (B) as to whether any penalties, assessments, 
                or exclusions have been assessed against such 
                person or managing employee under section 1128, 
                1128A, or 1128B[.]; and
          (3) including the employer identification number 
        (assigned pursuant to section 6109 of the Internal 
        Revenue Code of 1986) and social security account 
        number (assigned under section 205(c)(2)(B)) of the 
        disclosing part B provider and any person, managing 
        employee, or other entity identified or described under 
        paragraph (1) or (2).
          * * * * * * *
  (c) Verification.--
          (1) Transmittal by hhs.--The Secretary shall 
        transmit--
                  (A) to the Commissioner of Social Security 
                information concerning each social security 
                account number (assigned under section 
                205(c)(2)(B)), and
                  (B) to the Secretary of the Treasury 
                information concerning each employer 
                identification number (assigned pursuant to 
                section 6109 of the Internal Revenue Code of 
                1986),
        supplied to the Secretary pursuant to subsection (a)(3) 
        or section 1124(c) to the extent necessary for 
        verification of such information in accordance with 
        paragraph (2).
          (2) Verification.--The Commissioner of Social 
        Security and the Secretary of the Treasury shall verify 
        the accuracy of, or correct, the information supplied 
        by the Secretary to such official pursuant to paragraph 
        (1), and shall report such verifications or corrections 
        to the Secretary.
          (3) Fees for verification.--The Secretary shall 
        reimburse the Commissioner and Secretary of the 
        Treasury, at a rate negotiated between the Secretary 
        and such official, for the costs incurred by such 
        official in performing the verification and correction 
        services described in this subsection.
  [(c)] (d) Definitions.--For purposes of this section--
          (1) the term ``disclosing part B provider'' means any 
        entity receiving payment on an assignment-related basis 
        (or, for purposes of subsection (a)(3), any entity 
        receiving payment) for furnishing items or services for 
        which payment may be made under part B of title XVIII, 
        except that such term does not include an entity 
        described in section 1124(a)(2);
          * * * * * * *

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

  Sec. 1128. (a) Mandatory Exclusion.--The Secretary shall 
exclude the following individuals and entities from 
participation in [any program under title XVIII and shall 
direct that the following individuals and entities be excluded 
from participation in any State health care program (as defined 
in subsection (h))] any Federal health care program (as defined 
in section 1128B(f)):
          (1) * * *
          * * * * * * *
  (b) Permissive Exclusion.--The Secretary may exclude the 
following individuals and entities from participation in [any 
program under title XVIII and may direct that the following 
individuals and entities be excluded from participation in any 
State health care program] any Federal health care program (as 
defined in section 1128B(f)):
          (1) * * *
          * * * * * * *
          (8) Entities controlled by a sanctioned individual.--
        Any entity with respect to which the Secretary 
        determines that a person--
                  (A)(i) who has a direct or indirect ownership 
                or control interest of 5 percent or more in the 
                entity or with an ownership or control interest 
                (as defined in section 1124(a)(3)) in that 
                entity, [or]
                  (ii) who is an officer, director, agent, or 
                managing employee (as defined in section 
                1126(b)) of that entity[--]; or
                  (iii) who was described in clause (i) but is 
                no longer so described because of a transfer of 
                ownership or control interest, in anticipation 
                of (or following) a conviction, assessment, or 
                exclusion described in subparagraph (B) against 
                the person, to an immediate family member (as 
                defined in subsection (j)(1)) or a member of 
                the household of the person (as defined in 
                subsection (j)(2)) who continues to maintain an 
                interest described in such clause--
        is a person--
          * * * * * * *
  (c) Notice, Effective Date, and Period of Exclusion.--(1) * * 
*
          * * * * * * *
  (3)(A) The Secretary shall specify, in the notice of 
exclusion under paragraph (1) and the written notice under 
section 1128A, the minimum period (or, in the case of an 
exclusion of an individual under subsection (b)(12) or in the 
case described in subparagraph (G), the period) of the 
exclusion.
  (B) [In the case] Subject to subparagraph (G), in the case of 
an exclusion under subsection (a), the minimum period of 
exclusion shall be not less than five years, except that, upon 
the request of a State, the Secretary may waive the exclusion 
under subsection (a)(1) in the case of an individual or entity 
that is the sole community physician or sole source of 
essential specialized services in a community. The Secretary's 
decision whether to waive the exclusion shall not be 
reviewable.
          * * * * * * *
  (D) [In the case] Subject to subparagraph (G), 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 published regulations that a shorter period is appropriate 
because of mitigating circumstances or that a longer period is 
appropriate because of aggravating circumstances.
          * * * * * * *
  (G) In the case of an exclusion of an individual under 
subsection (a) based on a conviction occurring on or after the 
date of the enactment of this subparagraph, if the individual 
has (before, on, or after such date and before the date of the 
conviction for which the exclusion is imposed) been convicted--
          (i) on one previous occasion of one or more offenses 
        for which an exclusion may be effected under such 
        subsection, the period of the exclusion shall be not 
        less than 10 years, or
          (ii) on 2 or more previous occasions of one or more 
        offenses for which an exclusion may be effected under 
        such subsection, the period of the exclusion shall be 
        permanent.
          * * * * * * *
  (j) Definition of Immediate Family Member and Member of 
Household.--For purposes of subsection (b)(8)(A)(iii):
          (1) The term ``immediate family member'' means, with 
        respect to a person--
                  (A) the husband or wife of the person;
                  (B) the natural or adoptive parent, child, or 
                sibling of the person;
                  (C) the stepparent, stepchild, stepbrother, 
                or stepsister of the person;
                  (D) the father-, mother-, daughter-, son-, 
                brother-, or sister-in-law of the person;
                  (E) the grandparent or grandchild of the 
                person; and
                  (F) the spouse of a grandparent or grandchild 
                of the person.
          (2) The term ``member of the household'' means, with 
        respect to a person, any individual sharing a common 
        abode as part of a single family unit with the person, 
        including domestic employees and others who live 
        together as a family unit, but not including a roomer 
        or boarder.

                        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) * * *
          * * * * * * *
                  (D) is for a medical or other item or service 
                furnished, ordered, or prescribed by such 
                person during a period in which the person was 
                excluded (pursuant to this title or title 
                XVIII) from the program under which the claim 
                was made [pursuant to a determination by the 
                Secretary under this section or under section 
                1128, 1156, 1160(b) (as in effect on September 
                2, 1982), 1862(d) (as in effect on the date of 
                the enactment of the Medicare and Medicaid 
                Patient and Program Protection Act of 1987), or 
                1866(b) or as a result of the application of 
                the provisions of section 1842(j)(2), or],
                  (E) is for a medical or other item or service 
                ordered or prescribed by a person excluded 
                (pursuant to this title or title XVIII) from 
                the program under which the claim was made, and 
                the person furnishing such item or service 
                knows or should know of such exclusion, or
                  [(E)] (F) is for a pattern of medical or 
                other items or services that a person knows or 
                should know are not medically necessary;
          * * * * * * *
          (4) in the case of a person who is not an 
        organization, agency, or other entity, is excluded from 
        participating in a program under title XVIII or a State 
        health care program in accordance with this subsection 
        or under section 1128 and who, at the time of a 
        violation of this subsection--
                  (A) retains a direct or indirect ownership or 
                control interest in an entity that is 
                participating in a program under title XVIII or 
                a State health care program, and who knows or 
                should know of the action constituting the 
                basis for the exclusion; or
                  (B) is an officer or managing employee (as 
                defined in section 1126(b)) of such an entity; 
                [or]
          (5) offers to or transfers remuneration to any 
        individual eligible for benefits under title XVIII of 
        this Act, or under a State health care program (as 
        defined in section 1128(h)) that such person knows or 
        should know is likely to influence such individual to 
        order or receive from a particular provider, 
        practitioner, or supplier any item or service for which 
        payment may be made, in whole or in part, under title 
        XVIII, or a State health care program (as so defined); 
        or
          (6) arranges or contracts (by employment or 
        otherwise) with an individual or entity that the person 
        knows or should know is excluded from participation in 
        a Federal health care program (as defined in section 
        1128B(f)), for the provision of items or services for 
        which payment may be made under such a program;
shall be subject, in addition to any other penalties that may 
be prescribed by law, to a civil money penalty of not more than 
$10,000 for each item or service (or, in cases under paragraph 
(3), $15,000 for each individual with respect to whom false or 
misleading information was given; in cases under paragraph (4), 
$10,000 for each day the prohibited relationship occurs). In 
addition, such a person shall be subject to an assessment of 
not more than 3 times the amount claimed for each such item or 
service in lieu of damages sustained by the United States or a 
State agency because of such claim. In addition the Secretary 
may make a determination in the same proceeding to exclude the 
person from participation in the Federal health care programs 
(as defined in section 1128B(f)(1)) and to direct the 
appropriate State agency to exclude the person from 
participation in any State health care program.
          * * * * * * *
  (i) For the purposes of this section:
          (1) * * *
          * * * * * * *
          (6) The term ``remuneration'' includes the waiver of 
        coinsurance and deductible amounts (or any part 
        thereof), and transfers of items or services for free 
        or for other than fair market value. The term 
        ``remuneration'' does not include--
                  (A) * * *
                  (B) differentials in coinsurance and 
                deductible amounts as part of a benefit plan 
                design as long as the differentials have been 
                disclosed in writing to all beneficiaries, 
                third party payers, and providers, to whom 
                claims are presented and as long as the 
                differentials meet the standards as defined in 
                regulations promulgated by the Secretary not 
                later than 180 days after the date of the 
                enactment of the Health Insurance Portability 
                and Accountability Act of 1996; [or]
                  (C) incentives given to individuals to 
                promote the delivery of preventive care as 
                determined by the Secretary in regulations so 
                promulgated[.]; or
                  (D) a reduction in the copayment amount for 
                covered OPD services under section 
                1833(t)(5)(B).
          * * * * * * *

guidance regarding application of health care fraud and abuse sanctions

  Sec. 1128D. (a) * * *
  (b) Advisory Opinions.--
          (1) Issuance of advisory opinions.--The Secretary, in 
        consultation with the Attorney General, shall issue 
        written advisory opinions as provided in this 
        subsection.
          (2) Matters subject to advisory opinions.--The 
        Secretary shall issue advisory opinions as to the 
        following matters:
                  (A) * * *
          * * * * * * *
                  (D) What constitutes an inducement to reduce 
                or limit services to individuals entitled to 
                benefits under title XVIII or title XIX within 
                the meaning of section [1128B(b)] 1128A(b).
          * * * * * * *

          health care fraud and abuse data collection program

  Sec. 1128E. (a) * * *
  (b) Reporting of Information.--
          (1) * * *
          * * * * * * *
          (6) Sanctions for failure to report.--
                  (A) Health plans.--Any health plan that fails 
                to report information on an adverse action 
                required to be reported under this subsection 
                shall be subject to a civil money penalty of 
                not more than $25,000 for each such adverse 
                action not reported. Such penalty shall be 
                imposed and collected in the same manner as 
                civil money penalties under subsection (a) of 
                section 1128A are imposed and collected under 
                that section.
                  (B) Governmental agencies.--The Secretary 
                shall provide for a publication of a public 
                report that identifies those Government 
                agencies that have failed to report information 
                on adverse actions as required to be reported 
                under this subsection.
          * * * * * * *
  (g) Definitions and Special Rules.--For purposes of this 
section:
          (1) * * *
          * * * * * * *
          (3) Government agency.--The term ``Government 
        agency'' shall include:
                  (A) The Department of Justice.
                  (B) The Department of Health and Human 
                Services.
                  (C) Any other Federal agency that either 
                administers or provides payment for the 
                delivery of health care services, including, 
                but not limited to the Department of Defense 
                and the [Veterans' Administration] Department 
                of Veterans Affairs.
          * * * * * * *
          (5) Determination of conviction.--For purposes of 
        paragraph (1), the existence of a conviction shall be 
        determined under [paragraph (4)] paragraphs (1) through 
        (4) of section 1128(i).
          * * * * * * *


public disclosure of certain information on hospital financial interest 
                         and referral patterns


  Sec. 1146. The Secretary shall make available to the public, 
in a form and manner specified by the Secretary, information 
disclosed to the Secretary pursuant to section 1866(a)(1)(R).

        TITLE XVIII--HEALTH INSURANCE FOR THE AGED AND DISABLED

          * * * * * * *


                  medicare payment advisory commission


  Sec. 1805. (a) Establishment.--There is hereby established 
the Medicare Payment Advisory Commission (in this section 
referred to as the ``Commission'').
  (b) Duties.--
          (1) Review of payment policies and annual reports.--
        The Commission shall--
                  (A) review payment policies under this title, 
                including the topics1833. described in 
                paragraph (2);
                  (B) make recommendations to Congress 
                concerning such payment policies; and
                  (C) by not later than March 1 of each year 
                (beginning with 1998), submit a report to 
                Congress containing the results of such reviews 
                and its recommendations concerning such 
                policies and an examination of issues affecting 
                the medicare program.
          (2) Specific topics to be reviewed.--
                  (A) Medicareplus program.--Specifically, the 
                Commission shall review, with respect to the 
                MedicarePlus program under part C, the 
                following:
                          (i) The methodology for making 
                        payment to plans under such program, 
                        including the making of differential 
                        payments and the distribution of 
                        differential updates among different 
                        payment areas.
                          (ii) The mechanisms used to adjust 
                        payments for risk and the need to 
                        adjust such mechanisms to take into 
                        account health status of beneficiaries.
                          (iii) The implications of risk 
                        selection both among MedicarePlus 
                        organizations and between the 
                        MedicarePlus option and the medicare 
                        fee-for-service option.
                          (iv) The development and 
                        implementation of mechanisms to assure 
                        the quality of care for those enrolled 
                        with MedicarePlus organizations.
                          (v) The impact of the MedicarePlus 
                        program on access to care for medicare 
                        beneficiaries.
                          (vi) Other major issues in 
                        implementation and further development 
                        of the MedicarePlus program.
                  (B) Fee-for-service system.--Specifically, 
                the Commission shall review payment policies 
                under parts A and B, including--
                          (i) the factors affecting 
                        expenditures for services in different 
                        sectors, including the process for 
                        updating hospital, skilled nursing 
                        facility, physician, and other fees,
                          (ii) payment methodologies, and
                          (iii) their relationship to access 
                        and quality of care for medicare 
                        beneficiaries.
                  (C) Interaction of medicare payment policies 
                with health care delivery generally.--
                Specifically, the Commission shall review the 
                effect of payment policies under this title on 
                the delivery of health care services other than 
                under this title and assess the implications of 
                changes inhealth care delivery in the United 
States and in the general market for health care services on the 
medicare program.
          (3) Comments on certain secretarial reports.--If the 
        Secretary submits to Congress (or a committee of 
        Congress) a report that is required by law and that 
        relates to payment policies under this title, the 
        Secretary shall transmit a copy of the report to the 
        Commission. The Commission shall review the report and, 
        not later than 6 months after the date of submittal of 
        the Secretary's report to Congress, shall submit to the 
        appropriate committees of Congress written comments on 
        such report. Such comments may include such 
        recommendations as the Commission deems appropriate.
          (4) Agenda and additional reviews.--The Commission 
        shall consult periodically with the chairmen and 
        ranking minority members of the appropriate committees 
        of Congress regarding the Commission's agenda and 
        progress towards achieving the agenda. The Commission 
        may conduct additional reviews, and submit additional 
        reports to the appropriate committees of Congress, from 
        time to time on such topics relating to the program 
        under this title as may be requested by such chairmen 
        and members and as the Commission deems appropriate.
          (5) Availability of reports.--The Commission shall 
        transmit to the Secretary a copy of each report 
        submitted under this subsection and shall make such 
        reports available to the public.
          (6) Appropriate committees.--For purposes of this 
        section, the term ``appropriate committees of 
        Congress'' means the Committees on Ways and Means and 
        Commerce of the House of Representatives and the 
        Committee on Finance of the Senate.
  (c) Membership.--
          (1) Number and appointment.--The Commission shall be 
        composed of 13 members appointed by the Comptroller 
        General.
          (2) Qualifications.--
                  (A) In general.--The membership of the 
                Commission shall include individuals with 
                national recognition for their expertise in 
                health finance and economics, actuarial 
                science, health facility management, health 
                plans and integrated delivery systems, 
                reimbursement of health facilities, allopathic 
                and osteopathic physicians, and other providers 
                of health services, and other related fields, 
                who provide a mix of different professionals, 
                broad geographic representation, and a balance 
                between urban and rural representatives.
                  (B) Inclusion.--The membership of the 
                Commission shall include (but not be limited 
                to) physicians and other health professionals, 
                employers, third party payers, individuals 
                skilled in the conduct and interpretation of 
                biomedical, health services, and health 
                economics research and expertise in outcomes 
                and effectiveness research and technology 
                assessment. Such membership shall also include 
                representatives of consumers and the elderly.
                  (C) Majority nonproviders.--Individuals who 
                are directly involved in the provision, or 
                management of the delivery, of items and 
                services covered under this title shall not 
                constitute a majority of the membership of the 
                Commission.
                  (D) Ethical disclosure.--The Comptroller 
                General shall establish a system for public 
                disclosure by members of the Commission of 
                financial and other potential conflicts of 
                interest relating to such members.
          (3) Terms.--
                  (A) In general.--The terms of members of the 
                Commission shall be for 3 years except that the 
                Comptroller General shall designate staggered 
                terms for the members first appointed.
                  (B) Vacancies.--Any member appointed to fill 
                a vacancy occurring before the expiration of 
                the term for which the member's predecessor was 
                appointed shall be appointed only for the 
                remainder of that term. A member may serve 
                after the expiration of that member's term 
                until a successor has taken office. A vacancy 
                in the Commission shall be filled in the manner 
                in which the original appointment was made.
          (4) Compensation.--While serving on the business of 
        the Commission (including traveltime), a member of the 
        Commission shall be entitled to compensation at the per 
        diem equivalent of the rate provided for level IV of 
        the Executive Schedule under section 5315 of title 5, 
        United States Code; and while so serving away from home 
        and 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.
          (5) Chairman; vice chairman.--The Comptroller General 
        shall designate a member of the Commission, at the time 
        of appointment of the member, as Chairman and a member 
        as Vice Chairman for that term of appointment.
          (6) Meetings.--The Commission shall meet at the call 
        of the Chairman.
  (d) Director and Staff; Experts and Consultants.--Subject to 
such review as the Comptroller General deems necessary to 
assure the efficient administration of the Commission, the 
Commission may--
          (1) employ and fix the compensation of an Executive 
        Director (subject to the approval of the Comptroller 
        General) and such other personnel as may be necessary 
        to carry out its duties (without regard to the 
        provisions of title 5, United States Code, governing 
        appointments in the competitive service);
          (2) seek such assistance and support as may be 
        required in the performance of its duties from 
        appropriate Federal departments and agencies;
          (3) enter into contracts or make other arrangements, 
        as may be necessary for the conduct of the work of the 
        Commission (without regard to section 3709 of the 
        Revised Statutes (41 U.S.C. 5));
          (4) make advance, progress, and other payments which 
        relate to the work of the Commission;
          (5) provide transportation and subsistence for 
        persons serving without compensation; and
          (6) prescribe such rules and regulations as it deems 
        necessary with respect to the internal organization and 
        operation of the Commission.
  (e) Powers.--
          (1) Obtaining official data.--The Commission may 
        secure directly from any department or agency of the 
        United States information necessary to enable it to 
        carry out this section. Upon request of the Chairman, 
        the head of that department or agency shall furnish 
        that information to the Commission on an agreed upon 
        schedule.
          (2) Data collection.--In order to carry out its 
        functions, the Commission shall--
                  (A) utilize existing information, both 
                published and unpublished, where possible, 
                collected and assessed either by its own staff 
                or under other arrangements made in accordance 
                with this section,
                  (B) carry out, or award grants or contracts 
                for, original research and experimentation, 
                where existing information is inadequate, and
                  (C) adopt procedures allowing any interested 
                party to submit information for the 
                Commission's use in making reports and 
                recommendations.
          (3) Access of gao to information.--The Comptroller 
        General shall have unrestricted access to all 
        deliberations, records, and nonproprietary data of the 
        Commission, immediately upon request.
          (4) Periodic audit.--The Commission shall be subject 
        to periodic audit by the Comptroller General.
  (f) Authorization of Appropriations.--
          (1) Request for appropriations.--The Commission shall 
        submit requests for appropriations in the same manner 
        as the Comptroller General submits requests for 
        appropriations, but amounts appropriated for the 
        Commission shall be separate from amounts appropriated 
        for the Comptroller General.
          (2) Authorization.--There are authorized to be 
        appropriated such sums as may be necessary to carry out 
        the provisions of this section. 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.

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

          * * * * * * *

                           SCOPE OF BENEFITS

  Sec. 1812. (a) The benefits provided to an individual by the 
insurance program under this part shall consist of entitlement 
to have payment made on his behalf or, in the case of payments 
referred to in section 1814(d)(2) to him (subject to the 
provisions of this part) for--
          (1) * * *
          * * * * * * *
          (3) [home health services] for individuals not 
        enrolled in part B, home health services, and for 
        individuals so enrolled, part A home health services 
        (as defined in subsection (g)); and
          (4) in lieu of certain other benefits, hospice care 
        with respect to the individual during up to two periods 
        of 90 days each[, a subsequent period of 30 days, and a 
        subsequent extension period] and an unlimited number of 
        subsequent periods of 60 days each with respect to 
        which the individual makes an election under subsection 
        (d)(1).
          * * * * * * *

         CONDITIONS OF AND LIMITATIONS ON PAYMENT FOR SERVICES

               Requirement of Requests and Certifications

  Sec. 1814. (a) Except as provided in subsections (d) and (g) 
and in section 1876, payment for services furnished an 
individual may be made only to providers of services which are 
eligible therefor under section 1866 and only if--
          (1) * * *
          (2) a physician, or, in the case of services 
        described in subparagraph (B), a physician, or a nurse 
        practitioner or clinical nurse specialist who does not 
        have a direct or indirect employment relationship with 
        the facility but is working in collaboration with a 
        physician, certifies (and recertifies, where such 
        services are furnished over a period of time, in such 
        cases, with such frequency, and accompanied by such 
        supporting material, appropriate to the case involved, 
        as may be provided by regulations, except that the 
        first of such recertifications shall be required in 
        each case of inpatient hospital services not later than 
        the 20th day of such period) that--
                  (A) * * *
          * * * * * * *
                  (C) in the case of home health services, such 
                services are or were required because the 
                individual is or was confined to his home 
                (except when receiving items and services 
                referred to in section 1861(m)(7)) and needs or 
                needed skilled nursing care (other than solely 
                venipuncture for the purpose of obtaining a 
                blood sample) on an intermittent basis or 
                physical or speech therapy or, in the case of 
                an individual who has been furnished home 
                health services based on such a need and who no 
                longer has such a need for such care or 
                therapy, continues or continued to need 
                occupational therapy; a plan for furnishing 
                such services to such individual has been 
                established and is periodically reviewed by a 
                physician; and such services are or were 
                furnished while the individual was under the 
                care of a physician; or
          * * * * * * *

                        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] 1886, and 1895, be--
          (1) * * *
          * * * * * * *

                    PAYMENT TO PROVIDERS OF SERVICES

  Sec. 1815. (a) * * *
          * * * * * * *
  (e)(1) * * *
  (2) The Secretary shall provide (or continue to provide) for 
payment on a periodic interim payment basis (under the 
standards established under section 405.454(j) of title 42, 
Code of Federal Regulations, as in effect on October 1, 1986) 
with respect to--
          (A) * * *
          * * * * * * *
          (C) extended care services; and
          [(D) home health services; and]
          [(E)] (D) hospice care;
if the provider of such services elects to receive, and 
qualifies for, such payments.
          * * * * * * *

 USE OF PUBLIC AGENCIES OR PRIVATE ORGANIZATIONS TO FACILITATE PAYMENT 
                        TO PROVIDERS OF SERVICES

  Sec. 1816. (a) * * *
          * * * * * * *
  (i)(1) * * *
          * * * * * * *
  (4) Nothing in this subsection shall be construed to prohibit 
reimbursement by an agency or organization under subsection 
(m).
          * * * * * * *
  (m) An agreement with an agency or organization under this 
section shall require that such agency or organization 
reimburse the Secretary for any amounts paid by the agency or 
organization fora service under this title which is furnished, 
directed, or prescribed by an individual or entity during any period 
for which the individual or entity is excluded pursuant to section 
1128, 1128A, or 1156, from participation in the program under this 
title, if the amounts are paid after the Secretary notifies the agency 
or organization of the exclusion.

   HOSPITAL INSURANCE BENEFITS FOR UNINSURED ELDERLY INDIVIDUALS NOT 
                           OTHERWISE ELIGIBLE

  Sec. 1818. (a) * * *
          * * * * * * *
  (d)(1) * * *
  (2) The Secretary shall, during September of each year 
determine and promulgate the dollar amount which shall be 
applicable for premiums for months occurring in the following 
year. Subject to [paragraph (4)] paragraphs (4) and (5), the 
amount of an individual's monthly premium under this section 
shall be equal to the monthly actuarial rate determined under 
paragraph (1) for that following year. Any amount determined 
under the preceding sentence which is not a multiple of $1 
shall be rounded to the nearest multiple of $1 (or, if it is a 
multiple of 50 cents but not a multiple of $1, to the next 
higher multiple of $1).
          * * * * * * *
  (5)(A) The amount of the monthly premium shall be zero in the 
case of an individual who is a person described in subparagraph 
(B) for a month, if--
          (i) the individual's premium under this section for 
        the month is not (and will not be) paid for, in whole 
        or in part, by a State (under title XIX or otherwise), 
        a political subdivision of a State, or an agency or 
        instrumentality of one or more States or political 
        subdivisions thereof; and
          (ii) in each of 60 months before such month, the 
        individual was enrolled in this part under this section 
        and the payment of the individual's premium under this 
        section for the month was not paid for, in whole or in 
        part, by a State (under title XIX or otherwise), a 
        political subdivision of a State, or an agency or 
        instrumentality of one or more States or political 
        subdivisions thereof.
  (B) A person described in this subparagraph for a month is a 
person who establishes to the satisfaction of the Secretary 
that, as of the last day of the previous month--
          (i)(I) the person was receiving cash benefits under a 
        qualified State or local government retirement system 
        (as defined in subparagraph (C)) on the basis of the 
        person's employment in one or more positions covered 
        under any such system, and (II) the person would have 
        at least 40 quarters of coverage under title II if 
        remuneration for medicare qualified government 
        employment (as defined in paragraph (1) of section 
        210(p), but determined without regard to paragraph (3) 
        of such section) paid to such person were treated as 
        wages paid to such person and credited for purposes of 
        determining quarters of coverage under section 213;
          (ii)(I) the person was married (and had been married 
        for the previous 1-year period) to an individual who is 
        described in clause (i), or (II) the person met the 
        requirement of clause (i)(II) and was married (and had 
        been married for the previous 1-year period) to an 
        individual described in clause (i)(I);
          (iii) the person had been married to an individual 
        for a period of at least 1 year (at the time of such 
        individual's death) if (I) the individual was described 
        in clause (i) at the time of the individual's death, or 
        (II) the person met the requirement of clause (i)(II) 
        and the individual was described in clause (i)(I) at 
        the time of the individual's death; or
          (iv) the person is divorced from an individual and 
        had been married to the individual for a period of at 
        least 10 years (at the time of the divorce) if (I) the 
        individual was described in clause (i) at the time of 
        the divorce, or (II) the person met the requirement of 
        clause (i)(II) and the individual was described in 
        clause (i)(I) at the time of the divorce.
  (C) For purposes of subparagraph (B)(i)(I), the term 
``qualified State or local government retirement system'' means 
a retirement system that--
          (i) is established or maintained by a State or 
        political subdivision thereof, or an agency or 
        instrumentality of one or more States or political 
        subdivisions thereof;
          (ii) covers positions of some or all employees of 
        such a State, subdivision, agency, or instrumentality; 
        and
          (iii) does not adjust cash retirement benefits based 
        on eligibility for a reduction in premium under this 
        paragraph.
          * * * * * * *

   Part B--Supplementary Medical Insurance Benefits for the Aged and 
                                Disabled

                           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), section 1842(b)(6)(E), and section 
        1842(b)(6)(F); and
          (2) entitlement to have payment made on his behalf 
        (subject to the provisions of this part) for--
                  (A) home health services (other than items 
                described in subparagraph (G) or subparagraph 
                (I));
                  (B) medical and other health services (other 
                than items described in subparagraph (G) or 
                subparagraph (I)) furnished by a provider of 
                services or by others under arrangement with 
                them made by a provider of services, 
                excluding--
                          (i) * * *
          * * * * * * *
                          (iv) services of a nurse practitioner 
                        or clinical nurse specialist [provided 
                        in a rural area (as defined in section 
                        1886(d)(2)(D))] but only if no facility 
                        or other provider charges or is paid 
                        any amounts with respect to the 
                        furnishing of such services; and
          * * * * * * *

                          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) in the case of services described in section 
        1832(a)(1)--80 percent of the reasonable charges for 
        the services; except that (A) an organization which 
        provides medical and other health services (or arranges 
        for their availability) on a prepayment basis may elect 
        to be paid 80 percent of the reasonable cost of 
        services for which payment may be made under this part 
        on behalf of individuals enrolled in such organization 
        in lieu of 80 percent of the reasonable charges for 
        such services if the organization undertakes to charge 
        such individuals no more than 20 percent of such 
        reasonable cost plus any amounts payable by them as a 
        result of subsection (b), (B) with respect to items and 
        services described in section 1861(s)(10)(A), the 
        amounts paid shall be 100 percent of the reasonable 
        charges for such items and services, (C) with respect 
        to expenses incurred for those physicians' services for 
        which payment may be made under this part that are 
        described in section 1862(a)(4), the amounts paid shall 
        be subject to such limitations as may be prescribed by 
        regulations, (D) with respect to clinical diagnostic 
        laboratory tests for which payment is made under this 
        part (i) on the basis of a fee schedule under 
        subsection (h)(1) or section 1834(d)(1), the amount 
        paid shall be equal to 80 percent (or 100 percent, in 
        the case of such tests for which payment is made on an 
        assignment-related basis) of the lesser of the amount 
        determined under such fee schedule, the limitation 
        amount for that test determined under subsection 
        (h)(4)(B), or the amount of the charges billed for the 
        tests, or (ii) on the basis of a negotiated rate 
        established under subsection (h)(6), the amount paid 
        shall be equal to 100 percent of such negotiated rate, 
        (E) with respect to services furnished to individuals 
        who have been determined to have end stage renal 
        disease, the amounts paid shall be determined subject 
        to the provisions of section 1881, (F) with respect to 
        clinical social worker services under section 
        1861(s)(2)(N), the amounts paid shall be 80 percent of 
        the lesser of (i) the actual charge for the services or 
        (ii) 75 percent of the amount determined for payment of 
        a psychologist under clause (L), (H) with respect to 
        services of a certified registered nurse anesthetist 
        under section 1861(s)(11), the amounts paid shall be 80 
        percent of the least of the actual charge, the 
        prevailing charge that would be recognized (or, for 
        services furnished on or after January 1, 1992, the fee 
        schedule amount provided under section 1848) if the 
        services had been performed by an anesthesiologist, or 
        the fee schedule for such services established by the 
        Secretary in accordance with subsection (l), (I) with 
        respect to covered items (described in section 
        1834(a)(13)), the amounts paid shall be the amounts 
        described in section 1834(a)(1), and (J) with respect 
        to expenses incurred for radiologist services (as 
        defined in section 1834(b)(6)), subject to section 
        1848, the amounts paid shall be 80 percent of the 
        lesser of the actual charge for the services or the 
        amount provided under the fee schedule established 
        under section 1834(b), (K) with respect to certified 
        nurse-midwife services under section 1861(s)(2)(L), the 
        amounts paid shall be 80 percent of the lesser of the 
        actual charge for the services or the amount determined 
        by a fee schedule established by the Secretary for the 
        purposes of this subparagraph (but in no event shall 
        such fee schedule exceed 65 percent of the prevailing 
        charge that would be allowed for the same service 
        performed by a physician, or, for services furnished on 
        or after January 1, 1992, 65 percent of the fee 
        schedule amount provided under section 1848 for the 
        same service performed by a physician), (L) with 
        respect to qualified psychologist services under 
        section 1861(s)(2)(M), the amounts paid shall be 80 
        percent of the lesser of the actual charge for the 
        services or the amount determined by a fee schedule 
        established by the Secretary for the purposes of this 
        subparagraph, (M) with respect to prosthetic devices 
        and orthotics and prosthetics (as defined in section 
        1834(h)(4)), the amounts paid shall be the amounts 
        described in section 1834(h)(1), (N) with respect to 
        expenses incurred for physicians' services (as defined 
        in section 1848(j)(3)), the amounts paid shall be 80 
        percent of the payment basis determined under section 
        1848(a)(1), [(O) with respect to services described in 
        section 1861(s)(2)(K)(iii) (relating to nurse 
        practitioner or clinical nurse specialist services 
        provided in a rural area), the amounts paid shall be 80 
        percent of the lesser of the actual charge or the 
        prevailing charge that would be recognized (or, for 
        services furnished on or after January 1, 1992, the fee 
        schedule amount provided under section 1848) if the 
        services had been performed by a physician (subject to 
        the limitation described in subsection (r)(2)), and] 
        (O) with respect to services described in section 
        1861(s)(2)(K)(ii) (relating to nurse practitioner or 
        clinical nurse specialist services), the amounts paid 
        shall be equal to 80 percent of (i) the lesser of the 
        actual charge or 85 percent of the fee schedule amount 
        provided under section 1848 for the same service 
        provided by a physician who is not a specialist, or 
        (ii) in the case of services as an assistant at 
        surgery, the lesser of the actual charge or 85 percent 
        of the amount that would otherwise be recognized if 
        performed by a physician who is serving as an assistant 
        at surgery; (P) with respect to surgical dressings, the 
        amounts paid shall be the amounts determined under 
        section 1834(i)[;], and (Q) with respect to ambulance 
        service, the amounts paid shall be 80 per-cent of the 
lesser of the actual charge for the services or the amount determined 
by a fee schedule established by the Secretary under section 1834(l);
          (2) in the case of services described in section 
        1832(a)(2) (except those services described in 
        subparagraphs (C), (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 
                (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 amounts determined under section 
                1861(v)(1)(L) or section 1893, or, if the 
                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) with respect to other items and services 
                (except those described in subparagraph (C), 
                (D), or (E) of this paragraph and except as may 
                be provided in section 1886 or section 
                1888(e)(9))--
                          (i) furnished before January 1, 1999, 
                        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--
                                less the amount a provider may 
                                charge as described in clause 
                                (ii) of section 1866(a)(2)(A), 
                                but in no case may the payment 
                                for such other services exceed 
                                80 percent of such reasonable 
                                cost, or
                          (ii) if such services are furnished 
                        before January 1, 1999, 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 clause), free of 
                        charge or at nominal charges to the 
                        public, 80 percent of the amount 
                        determined in accordance with section 
                        1814(b)(2), or
                          (iii) if such services are furnished 
                        on or after January 1, 1999, the amount 
                        determined under subsection (t), or
                          [(iii)] (iv) if (and for so long as) 
                        the conditions described in section 
                        1814(b)(3) are met, the amounts 
                        determined under the reimbursement 
                        system described in such section;
                  (C) with respect to services described in the 
                second sentence of section 1861(p), 80 percent 
                of the reasonable charges for such services;
                  (D) with respect to clinical diagnostic 
                laboratory tests for which payment is made 
                under this part (i) on the basis of a fee 
                schedule determined under subsection (h)(1) or 
                section 1834(d)(1), the amount paid shall be 
                equal to 80 percent (or 100 percent, in the 
                case of such tests for which payment is made on 
                an assignment-related basis or to a provider 
                having an agreement under section 1866) of the 
                lesser of the amount determined under such fee 
                schedule, the limitation amount for that test 
                determined under subsection (h)(4)(B), or the 
                amount of the charges billed for the tests, or 
                (ii) on the basis of a negotiated rate 
                established under subsection (h)(6), the amount 
                paid shall be equal to 100 percent of such 
                negotiated rate for such tests;
                  (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) or, 
                for services or procedures performed on or 
                after January 1, 1999, (t); [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 nominalcharges to the public, the 
amount determined in accordance with section 1814(b)(2);
          (3) in the case of services described in 
        [subparagraphs (D) and (E) of section 1832(a)(2)] 
        section 1832(a)(2)(E), the costs which are reasonable 
        and related to the cost of furnishing such services or 
        which are based on such other tests of reasonableness 
        as the Secretary may prescribe in regulations, 
        including those authorized under section 1861(v)(1)(A), 
        less the amount a provider may charge as described in 
        clause (ii) of section 1866(a)(2)(A), but in no case 
        may the payment for such services (other than for items 
        and services described in section 1861(s)(10)(A)) 
        exceed 80 percent of such costs;
          (4) in the case of facility services described in 
        section 1832(a)(2)(F), and outpatient hospital facility 
        services furnished in connection with surgical 
        procedures specified by the Secretary pursuant to 
        section 1833(i)(1)(A), the applicable amount as 
        determined under paragraph (2) or (3) of subsection (i) 
        or subsection (t);
          (5) in the case of covered items (described in 
        section 1834(a)(13)) the amounts described in section 
        1834(a)(1);
          (6) in the case of outpatient rural primary care 
        hospital services, the amounts described in section 
        1834(g); [and]
          (7) in the case of prosthetic devices and orthotics 
        and prosthetics (as described in section 1834(h)(4)), 
        the amounts described in section 1834(h)[.];
          (8) in the case of services described in section 
        1832(a)(2)(C), the amounts described in section 
        1834(k); and
          (9) in the case of services described in section 
        1832(a)(2)(E), the amounts described in section 
        1834(k).
  (b) Before applying subsection (a) with respect to expenses 
incurred by an individual during any calendar year, the total 
amount of the expenses incurred by such individual during such 
year (which would, except for this subsection, constitute 
incurred expenses from which benefits payable under subsection 
(a) are determinable) shall be reduced by a deductible of $75 
for calendar years before 1991 and $100 for 1991 and subsequent 
years; except that (1) such total amount shall not include 
expenses incurred for items and services described in section 
1861(s)(10)(A), (2) such deductible shall not apply with 
respect to home health services (other than a covered 
osteoporosis drug (as defined in section 1861(kk))), (3) such 
deductible shall not apply with respect to clinical diagnostic 
laboratory tests for which payment is made under this part (A) 
under subsection (a)(1)(D)(i) or (a)(2)(D)(i) on an assignment-
related basis, or to a provider having an agreement under 
section 1866, or (B) on the basis of a negotiated rate 
determined under subsection (h)(6), [and] (4) such deductible 
shall not apply to Federally qualified health center services, 
(5) such deductible shall not apply with respect to screening 
mammography (as described in section 1861(jj)), and (6) such 
deductible shall not apply with respect to screening pap smear 
and screening pelvic exam (as described in section 1861(nn)). 
The total amount of the expenses incurred by an individual as 
determined under the preceding sentence shall, after the 
reduction specified in such sentence, be further reduced by an 
amount equal to the expenses incurred for the first three pints 
of whole blood (or equivalent quantities of packed red blood 
cells, as defined under regulations) furnished to the 
individual during the calendar year, except that such 
deductible for such blood shall in accordance with regulations 
be appropriately reduced to the extent that there has been a 
replacement of such blood (or equivalent quantities of packed 
red blood cells, as so defined); and for such purposes blood 
(or equivalent quantities of packed red blood cells, as so 
defined) furnished such individual shall be deemed replaced 
when the institution or other person furnishing such blood (or 
such equivalent quantities of packed red blood cells, as so 
defined) is given one pint of blood for each pint of blood (or 
equivalent quantities of packed red blood cells, as so defined) 
furnished such individual with respect to which a deduction is 
made under this sentence. The deductible under the previous 
sentence for blood or blood cells furnished an individual in a 
year shall be reduced to the extent that a deductible has been 
imposed under section 1813(a)(2) to blood or blood cells 
furnished the individual in the year.
          * * * * * * *
  [(d) No] (d)(1) Subject to paragraph (2), no payment may be 
made under this part with respect to any services furnished an 
individual to the extent that such individual is entitled (or 
would be entitled except for section 1813) to have payment made 
with respect to such services under part A.
    (2) Payment shall be made under this part (rather than 
under part A), for an individual entitled to benefits under 
part A, for home health services, other than the first 100 
visits of post-hospital home health services furnished to an 
individual.
          * * * * * * *
  (f) In establishing limits under subsection (a) on payment 
for rural health clinic services provided by [independent rural 
health clinics] rural health clinics (other than such clinics 
in rural hospitals with less than 50 beds), the Secretary shall 
establish such limit, for services provided--
          (1) in 1988, after March 31, at $46 per visit, and
          (2) in a subsequent year, at the limit established 
        under this subsection for the previous year increased 
        by the percentage increase in the MEI (as defined in 
        section 1842(i)(3)) applicable to primary care services 
        (as defined in section 1842(i)(4)) furnished as of the 
        first day of that year.
  (g) In the case of [services described in the second sentence 
of section 1861(p)] outpatient physical therapy services (other 
than in a hospital setting), with respect to expenses incurred 
in any calendar year, no more than $900 shall be considered as 
incurred expenses for purposes of subsections (a) and (b). In 
the case of outpatient occupational therapy services [which are 
described in the second sentence of section 1861(p) through the 
operation of section 1861(g)], with respect to expenses 
incurred in any calendar year, no more than $900 shall be 
considered as incurred expenses for purposes of subsections (a) 
and (b).
  (h)(1)(A) [The Secretary] Subject to paragraphs (1) and 
(4)(A) of section 1834(d), the Secretary shall establish fee 
schedules for clinical diagnostic laboratory tests (including 
prostate cancer screening tests under section 1861(oo) 
consisting of prostate-specificantigen blood 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 and 1998 through 2002 shall be 0 percent.
          * * * * * * *
  (4)(A) * * *
  (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, 
        1998, is equal to 76 percent of such median[.], and
          (viii) after December 31, 1997, is equal to 72 
        percent of such median.
  (i)(1) * * *
  (2)(A) * * *
          * * * * * * *
  (C) Notwithstanding the second sentence of subparagraph (A) 
or the second sentence of subparagraph (B), if the Secretary 
has not updated amounts established under such subparagraphs 
with respect to facility services furnished during a fiscal 
year (beginning with fiscal year 1996), such amounts shall be 
increased [by the percentage increase in the consumer price 
index for all urban consumers (U.S. city average) as estimated 
by the Secretary for the 12-month period ending with the 
midpoint of the year involved.] as follows:
          (i) For fiscal years 1996 and 1997, by the percentage 
        increase in the consumer price index for all urban 
        consumers (U.S. city average) as estimated by the 
        Secretary for the 12-month period ending with the 
        midpoint of the year involved.
          (ii) For each succeeding fiscal year by such 
        percentage increase minus 2.0 percentage points.
  (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 before January 1, 
1999, in connection with surgical procedures specified under 
paragraph (1)(A) [in a cost reporting period] shall be equal to 
the lesser of--
          (i) the amount determined with respect to such 
        services under subsection (a)(2)(B); or
          (ii) the blend amount (described in subparagraph 
        (B)).
  (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 before January 1, 1999, and for 
services described in subsection (a)(2)(E)(ii) furnished under 
this part on or after October 1, 1989, and before January 1, 
1999, shall be equal to the lesser of--
          (i) the amount determined with respect to such 
        services under subsection (a)(2)(B), or
          (ii) the blend amount for radiology services and 
        diagnostic procedures determined in accordance with 
        subparagraph (B).
  (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).
          * * * * * * *
  (r)(1) With respect to services described in [section 
1861(s)(2)(K)(iii) (relating to nurse practitioner or clinical 
nurse specialist services provided in a rural area)] section 
1861(s)(2)(K)(ii) (relating to nurse practitioner or clinical 
nurse specialist services), payment may be made on the basis of 
a claim or request for payment presented by the nurse 
practitioner or clinical nurse specialist furnishing such 
services, or by a hospital, rural primary care hospital, 
skilled nursing facility or nursing facility (as defined in 
section 1919(a)), physician, group practice, or ambulatory 
surgical center with which the nurse practitioner or clinical 
nurse specialist has an employment or contractual relationship 
that provides for payment to be made under this part for such 
services to such hospital, physician, group practice, or 
ambulatory surgical center.
  [(2)(A) For purposes of subsection (a)(1)(O), the prevailing 
charge for services described in section 1861(s)(2)(K)(iii) may 
not exceed the applicable percentage (as defined in 
subparagraph (B)) of the prevailing charge (or, for services 
furnished on or after January 1, 1992, the fee schedule amount 
provided under section 1848) determined for such services 
performed by physicians who are not specialists.
  [(B) In subparagraph (A), the term ``applicable percentage'' 
means--
          [(i) 75 percent in the case of services performed in 
        a hospital, and
          [(ii) 85 percent in the case of other services.]
  [(3)] (2) No hospital or rural primary care hospital that 
presents a claim or request for payment under this part for 
services described in [section 1861(s)(2)(K)(iii)] section 
1861(s)(2)(K)(ii) may treat any uncollected coinsurance amount 
imposed under this part with respect to such services as a bad 
debt of such hospital for purposes of this title.
          * * * * * * *
  (t) Prospective Payment System for Hospital Outpatient 
Department Services.--
          (1) In general.--With respect to hospital outpatient 
        services designated by the Secretary (in this section 
        referred to as ``covered OPD services'') and furnished 
        during a year beginning with 1999, the amount of 
        payment under this part shall be determined under a 
        prospective payment system established by the Secretary 
        in accordance with this subsection.
          (2) System requirements.--Under the payment system--
                  (A) the Secretary shall develop a 
                classification system for covered OPD services;
                  (B) the Secretary may establish groups of 
                covered OPD services, within the classification 
                system described in subparagraph (A), so that 
                services classified within each group are 
                comparable clinically and with respect to the 
                use of resources;
                  (C) the Secretary shall, using data on claims 
                from 1997 and using data from the most recent 
                available cost reports, establish relative 
                payment weights for covered OPD services (and 
                any groups of such services described in 
                subparagraph (B)) based on median hospital 
                costs and shalldetermine projections of the 
frequency of utilization of each such service (or group of services) in 
1999;
                  (D) the Secretary shall determine a wage 
                adjustment factor to adjust the portion of 
                payment and coinsurance attributable to labor-
                related costs for relative differences in labor 
                and labor-related costs across geographic 
                regions in a budget neutral manner;
                  (E) the Secretary shall establish other 
                adjustments as determined to be necessary to 
                ensure equitable payments, such as outlier 
                adjustments or adjustments for certain classes 
                of hospitals; and
                  (F) the Secretary shall develop a method for 
                controlling unnecessary increases in the volume 
                of covered OPD services.
          (3) Calculation of base amounts.--
                  (A) Aggregate amounts that would be payable 
                if deductibles were disregarded.--The Secretary 
                shall estimate the total amounts that would be 
                payable from the Trust Fund under this part for 
                covered OPD services in 1999, determined 
                without regard to this subsection, as though 
                the deductible under section 1833(b) did not 
                apply, and as though the coinsurance described 
                in section 1866(a)(2)(A)(ii) (as in effect 
                before the date of the enactment of this 
                subsection) continued to apply.
                  (B) Unadjusted copayment amount.--For 
                purposes of this subsection, the ``unadjusted 
                copayment amount'' applicable to a covered OPD 
                service (or group of such services) is 20 
                percent of national median of the charges for 
                the service (or services within the group) 
                furnished during 1997, updated to 1999 using 
                the Secretary's estimate of charge growth 
                during the period. The Secretary shall 
                establish rules for establishment of an 
                unadjusted copayment amount for a covered OPD 
                service not furnished during 1997, based upon 
                its classification within a group of such 
                services.
                  (C) Calculation of conversion factors.--
                          (i) For 1999.--On the basis of the 
                        weights and frequencies described in 
                        paragraph (2)(C), the Secretary shall 
                        establish a 1999 conversion factor for 
                        determining the medicare pre-deductible 
                        OPD fee payment amounts for each 
                        covered OPD service (or group of such 
                        services) furnished in 1999 so that the 
                        sum of the products of the medicare 
                        pre-deductible OPD fee payment amounts 
                        (taking into account appropriate 
                        adjustments described in paragraphs 
                        (2)(D) and (2)(E)) and the frequencies, 
                        for each service or group (as the case 
                        may be), shall equal the total project 
                        amount described in subparagraph (A).
                          (ii) Subsequent years.--Subject to 
                        paragraph (8)(B), the Secretary shall 
                        establish a conversion factor for 
                        covered OPD services furnished in 
                        subsequent years in an amount equal to 
                        the conversion factor established under 
                        this subparagraph and applicable to 
                        such services furnished in the previous 
                        year increased by the OPD payment 
                        increase factor specified under clause 
                        (iii) for the year involved.
                          (iii) OPD payment increase factor.--
                        For purposes of this subparagraph, the 
                        ``OPD payment increase factor'' for 
                        services furnished in a year is equal 
                        to the market basket percentage 
                        increase (applicable under section 
                        1886(b)(3)(B)(iii) to hospital 
                        discharges occurring during the fiscal 
                        year ending in such year) plus 3.5 
                        percentage points. In applying the 
                        previous sentence for years beginning 
                        with 2000, the Secretary may substitute 
                        for the market basket percentage 
                        increase an annual percentage increase 
                        that is computed and applied with 
                        respect to covered OPD services 
                        furnished in a year in the same manner 
                        as the market basket percentage 
                        increase is determined and applied to 
                        inpatient hospital services for 
                        discharges occurring in a fiscal year.
                  (D) Pre-deductible payment percentage.--The 
                pre-deductible payment percentage for a covered 
                OPD service (or group of such services) 
                furnished in a year is equal to the ratio of--
                          (i) the conversion factor established 
                        under subparagraph (C) for the year, 
                        multiplied by the weighting factor 
                        established under paragraph (2)(C) for 
                        the service (or group), to
                          (ii) the sum of the amount determined 
                        under clause (i) and the unadjusted 
                        copayment amount determined under 
                        subparagraph (B) for such service or 
                        group.
                  (E) Calculation of medicare opd fee schedule 
                amounts.--The Secretary shall compute a 
                medicare OPD fee schedule amount for each 
                covered OPD service (or group of such services) 
                furnished in a year, in an amount equal to the 
                product of--
                          (i) the conversion factor computed 
                        under subparagraph (C) for the year, 
                        and
                          (ii) the relative payment weight 
                        (determined under paragraph (2)(C)) for 
                        the service or group.
          (4) Medicare payment amount.--The amount of payment 
        made from the Trust Fund under this part for a covered 
        OPD service (and such services classified within a 
        group) furnished in a year is determined as follows:
                  (A) Fee schedule and copayment amount.--Add 
                (i) the medicare OPD fee schedule amount 
                (computed under paragraph (3)(E)) for the 
                service or group and year, and (ii) the 
                unadjusted copayment amount (determined under 
                paragraph (3)(B)) for the service or group.
                  (B) Subtract applicable deductible.--Reduce 
                by the adjusted sum by the amount of the 
                deductible under section 1833(b), to the extent 
                applicable.
                  (C) Apply payment proportion to remainder.--
                Multiply the amount so determined under 
                subparagraph (B) by the pre-deductible payment 
                percentage (as determinedunder paragraph 
(3)(D)) for the service or group and year involved.
                  (D) Labor-related adjustment.--The amount of 
                payment is the product determined under 
                subparagraph (C) with the labor-related portion 
                of such product adjusted for relative 
                differences in the cost of labor and other 
                factors determined by the Secretary, as 
                computed under paragraph (2)(D).
          (5) Copayment amount.--
                  (A) In general.--Except as provided in 
                subparagraph (B), the copayment amount under 
                this subsection is determined as follows:
                          (i) Unadjusted copayment.--Compute 
                        the amount by which the amount 
                        described in paragraph (4)(B) exceeds 
                        the amount of payment determined under 
                        paragraph (4)(C).
                          (ii) Labor adjustment.--The copayment 
                        amount is the difference determined 
                        under clause (i) with the labor-related 
                        portion of such difference adjusted for 
                        relative differences in the cost of 
                        labor and other factors determined by 
                        the Secretary, as computed under 
                        paragraphs (2)(D). The adjustment under 
                        this clause shall be made in a manner 
                        that does not result in any change in 
                        the aggregate copayments made in any 
                        year if the adjustment had not been 
                        made.
                  (B) Election to offer reduced copayment 
                amount.--The Secretary shall establish a 
                procedure under which a hospital, before the 
                beginning of a year (beginning with 1999), may 
                elect to reduce the copayment amount otherwise 
                established under subparagraph (A) for some or 
                all covered OPD services to an amount that is 
                not less than 25 percent of the medicare OPD 
                fee schedule amount (computed under paragraph 
                (3)(E)) for the service involved, adjusted for 
                relative differences in the cost of labor and 
                other factors determined by the Secretary, as 
                computed under subparagraphs (D) and (E) of 
                paragraph (2). Under such procedures, such 
                reduced copayment amount may not be further 
                reduced or increased during the year involved 
                and the hospital may disseminate information on 
                the reduction of copayment amount effected 
                under this subparagraph.
                  (C) No impact on deductibles.--Nothing in 
                this paragraph shall be construed as affecting 
                a hospital's authority to waive the charging of 
                a deductible under section 1833(b).
          (6) Periodic review and adjustments components of 
        prospective payment system.--
                  (A) Periodic review.--The Secretary may 
                periodically review and revise the groups, the 
                relative payment weights, and the wage and 
                other adjustments described in paragraph (2) to 
                take into account changes in medical practice, 
                changes in technology, the addition of new 
                services, new cost data, and other relevant 
                information and factors.
                  (B) Budget neutrality adjustment.--If the 
                Secretary makes adjustments under subparagraph 
                (A), then the adjustments for a year may not 
                cause the estimated amount of expenditures 
                under this part for the year to increase or 
                decrease from the estimated amount of 
                expenditures under this part that would have 
                been made if the adjustments had not been made.
                  (C) Update factor.--If the Secretary 
                determines under methodologies described in 
                subparagraph (2)(F) that the volume of services 
                paid for under this subsection increased beyond 
                amounts established through those 
                methodologies, the Secretary may appropriately 
                adjust the update to the conversion factor 
                otherwise applicable in a subsequent year.
          (7) Special rule for ambulance services.--The 
        Secretary shall pay for hospital outpatient services 
        that are ambulance services on the basis described in 
        the matter in subsection (a)(1) preceding subparagraph 
        (A).
          (8) Special rules for certain hospitals.--In the case 
        of hospitals described in section 1886(d)(1)(B)(v)--
                  (A) the system under this subsection shall 
                not apply to covered OPD services furnished 
                before January 1, 2000; and
                  (B) the Secretary may establish a separate 
                conversion factor for such services in a manner 
                that specifically takes into account the unique 
                costs incurred by such hospitals by virtue of 
                their patient population and service intensity.
          (9) Limitation on review.--There shall be no 
        administrative or judicial review under section 1878 or 
        otherwise of--
                  (A) the development of the classification 
                system under paragraph (2), including the 
                establishment of groups and relative payment 
                weights for covered OPD services, of wage 
                adjustment factors, other adjustments, and 
                methods described in paragraph (2)(F);
                  (B) the calculation of base amounts under 
                paragraph (3);
                  (C) periodic adjustments made under paragraph 
                (6); and
                  (D) the establishment of a separate 
                conversion factor under paragraph (8)(B).

        special payment rules for particular items and services

  Sec. 1834. (a) Payment for Durable Medical Equipment.--
          (1) * * *
          (2) Payment for inexpensive and other routinely 
        purchased durable medical equipment.--
                  (A) * * *
                  (B) Payment amount.--For purposes of 
                subparagraph (A), the amount specified in this 
                subparagraph, with respect to the purchase or 
                rental of an item furnished in a carrier 
                service area--
                          (i) * * *
          * * * * * * *
                          (iv) in 1993 and each subsequent year 
                        is the national limited payment amount 
                        for the item or devicecomputed under 
subparagraph (C)(ii) for that year (reduced by 10 percent, in the case 
of a blood glucose testing strip furnished after 1997 for an individual 
with diabetes).
          * * * * * * *
          (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) in 1989 and in 1990, is 100 
                        percent of the local average monthly 
                        payment rate computed under 
                        subparagraph (A)(ii) for the item;
                          (ii) in 1991, is the sum of (I) 67 
                        percent of the local average monthly 
                        payment rate computed under 
                        subparagraph (A)(ii)(II) for the item 
                        for 1991, and (II) 33 percent of the 
                        national limited monthly payment rate 
                        computed under subparagraph (B)(i) for 
                        the item for 1991;
                          (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, 1995, 1996, and 1997, is the 
                        national limited monthly payment rate 
                        computed under subparagraph (B) for the 
                        item for that year[.];
                          (v) in each of the years 1998 through 
                        2002, 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, 1995, 
                1996, and 1997, 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 1998 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.
          * * * * * * *
          (16) Conditions for issuance of provider number.--The 
        Secretary shall not provide for the issuance (or 
        renewal) of a provider number for a supplier of durable 
        medical equipment, for purposes of payment under this 
        part for durable medical equipment furnished by the 
        supplier, unless the supplier provides the Secretary on 
        a continuing basis with--
                  (A)(i) full and complete information as to 
                the identity of each person with an ownership 
                or control interest (as defined in section 
                1124(a)(3)) in the supplier or in any 
                subcontractor (as defined by the Secretary in 
                regulations) in which the supplier directly or 
                indirectly has a 5 percent or more ownership 
                interest, and
                  (ii) to the extent determined to be feasible 
                under regulations of the Secretary, the name of 
                any disclosing entity (as defined in section 
                1124(a)(2)) with respect to which a person with 
                such an ownership or control interest in the 
                supplier is a person with such an ownership or 
                control interest in the disclosing entity; and
                  (B) a surety bond in a form specified by the 
                Secretary and in an amount that is not less 
                than $50,000.
        The Secretary may waive the requirement of a bond under 
        subparagraph (B) in the case of a supplier that 
        provides a comparable surety bond under State law.
          * * * * * * *
  (c) Payments and Standards for Screening Mammography.--
          (1) In general.--Notwithstanding any other provision 
        of this part, with respect to expenses incurred for 
        screening mammography (as defined in section 
        1861(jj))--
                  (A) * * *
          * * * * * * *
                  (C) the amount of the payment under this part 
                shall[, subject to the deductible established 
                under section 1833(b),] be equal to 80 percent 
                of the least of--
                          (i) the actual charge for the 
                        screening,
                          (ii) the fee schedule established 
                        under subsection (b) or the fee 
                        schedule established under section 
                        1848, whichever is applicable, with 
                        respect to both theprofessional and 
technical components of the screening mammography, or
                          (iii) the limit established under 
                        paragraph (3) for the screening 
                        mammography.
          (2) Frequency covered.--
                  (A) In general.--Subject to revision by the 
                Secretary under subparagraph (B)--
                          (i) No payment may be made under this 
                        part for screening mammography 
                        performed on a woman under 35 years of 
                        age.
                          (ii) Payment may be made under this 
                        part for only 1 screening mammography 
                        performed on a woman over 34 years of 
                        age, but under 40 years of age.
                          [(iii) In the case of a woman over 39 
                        years of age, but under 50 years of 
                        age, who--
                                  [(I) is at a high risk of 
                                developing breast cancer (as 
                                determined pursuant to factors 
                                identified by the Secretary), 
                                payment may not be made under 
                                this part for a screening 
                                mammography performed within 
                                the 11 months following the 
                                month in which a previous 
                                screening mammography was 
                                performed, or
                                  [(II) is not at a high risk 
                                of developing breast cancer, 
                                payment may not be made under 
                                this part for a screening 
                                mammography performed within 
                                the 23 months following the 
                                month in which a previous 
                                screening mammography was 
                                performed.
                          [(iv) In the case of a woman over 49 
                        years of age, but under 65 years of 
                        age, payment may not be made under this 
                        part for screening mammography 
                        performed within 11 months following 
                        the month in which a previous screening 
                        mammography was performed.
                          [(v) In the case of a woman over 64 
                        years of age, payment may not be made 
                        for screening mammography performed 
                        within 23 months following the month in 
                        which a previous screening mammography 
                        was performed.]
                          (iii) In the case of a woman over 39 
                        years of age, payment may not be made 
                        under this part for screening 
                        mammography performed within 11 months 
                        following the month in which a previous 
                        screening mammography was performed.
          * * * * * * *
  (d) Frequency and Payment Limits for Colorectal Cancer 
Screening Tests.--
          (1) Screening fecal-occult blood tests.--
                  (A) Payment limit.--In establishing fee 
                schedules under section 1833(h) with respect to 
                colorectal cancer screening tests consisting of 
                screening fecal-occult blood tests, except as 
                provided by the Secretary under paragraph 
                (4)(A), the payment amount established for 
                tests performed--
                          (i) in 1998 shall not exceed $5; and
                          (ii) in a subsequent year, shall not 
                        exceed the limit on the payment amount 
                        established under this subsection for 
                        such tests for the preceding year, 
                        adjusted by the applicable adjustment 
                        under section 1833(h) for tests 
                        performed in such year.
                  (B) Frequency limit.--Subject to revision by 
                the Secretary under paragraph (4)(B), no 
                payment may be made under this part for 
                colorectal cancer screening test consisting of 
                a screening fecal-occult blood test--
                          (i) if the individual is under 50 
                        years of age; or
                          (ii) if the test is performed within 
                        the 11 months after a previous 
                        screening fecal-occult blood test.
          (2) Screening flexible sigmoidoscopies.--
                  (A) Fee schedule.--The Secretary shall 
                establish a payment amount under section 1848 
                with respect to colorectal cancer screening 
                tests consisting of screening flexible 
                sigmoidoscopies that is consistent with payment 
                amounts under such section for similar or 
                related services, except that such payment 
                amount shall be established without regard to 
                subsection (a)(2)(A) of such section.
                  (B) Payment limit.--In the case of screening 
                flexible sigmoidoscopy services--
                          (i) the payment amount may not exceed 
                        such amount as the Secretary specifies, 
                        based upon the rates recognized under 
                        this part for diagnostic flexible 
                        sigmoidoscopy services; and
                          (ii) that, in accordance with 
                        regulations, may be performed in an 
                        ambulatory surgical center and for 
                        which the Secretary permits ambulatory 
                        surgical center payments under this 
                        part and that are performed in an 
                        ambulatory surgical center or hospital 
                        outpatient department, the payment 
                        amount under this part may not exceed 
                        the lesser of (I) the payment rate that 
                        would apply to such services if they 
                        were performed in a hospital outpatient 
                        department, or (II) the payment rate 
                        that would apply to such services if 
                        they were performed in an ambulatory 
                        surgical center.
                  (C) Special rule for detected lesions.--If 
                during the course of such screening flexible 
                sigmoidoscopy, a lesion or growth is detected 
                which results in a biopsy or removal of the 
                lesion or growth, payment under this part shall 
                not be made for the screening flexible 
                sigmoidoscopy but shall be made for the 
                procedure classified as a flexible 
                sigmoidoscopy with such biopsy or removal.
                  (D) Frequency limit.--Subject to revision by 
                the Secretary under paragraph (4)(B), no 
                payment may be made under this part for a 
                colorectal cancer screening test consisting of 
                a screening flexible sigmoidoscopy--
                          (i) if the individual is under 50 
                        years of age; or
                          (ii) if the procedure is performed 
                        within the 47 months after a previous 
                        screening flexible sigmoidoscopy.
          (3) Screening colonoscopy for individuals at high 
        risk for colorectal cancer.--
                  (A) Fee schedule.--The Secretary shall 
                establish a payment amount under section 1848 
                with respect to colorectal cancer screening 
                test consisting of a screening colonoscopy for 
                individuals at high risk for colorectal cancer 
                (as defined in section 1861(pp)(2)) that is 
                consistent with payment amounts under such 
                section for similar or related services, except 
                that such payment amount shall be established 
                without regard to subsection (a)(2)(A) of such 
                section.
                  (B) Payment limit.--In the case of screening 
                colonoscopy services--
                          (i) the payment amount may not exceed 
                        such amount as the Secretary specifies, 
                        based upon the rates recognized under 
                        this part for diagnostic colonoscopy 
                        services; and
                          (ii) that are performed in an 
                        ambulatory surgical center or hospital 
                        outpatient department, the payment 
                        amount under this part may not exceed 
                        the lesser of (I) the payment rate that 
                        would apply to such services if they 
                        were performed in a hospital outpatient 
                        department, or (II) the payment rate 
                        that would apply to such services if 
                        they were performed in an ambulatory 
                        surgical center.
                  (C) Special rule for detected lesions.--If 
                during the course of such screening 
                colonoscopy, a lesion or growth is detected 
                which results in a biopsy or removal of the 
                lesion or growth, payment under this part shall 
                not be made for the screening colonoscopy but 
                shall be made for the procedure classified as a 
                colonoscopy with such biopsy or removal.
                  (D) Frequency limit.--Subject to revision by 
                the Secretary under paragraph (4)(B), no 
                payment may be made under this part for a 
                colorectal cancer screening test consisting of 
                a screening colonoscopy for individuals at high 
                risk for colorectal cancer if the procedure is 
                performed within the 23 months after a previous 
                screening colonoscopy.
          (4) Reductions in payment limit and revision of 
        frequency.--
                  (A) Reductions in payment limit for screening 
                fecal-occult blood tests.--The Secretary shall 
                review from time to time the appropriateness of 
                the amount of the payment limit established for 
                screening fecal-occult blood tests under 
                paragraph (1)(A). The Secretary may, with 
                respect to tests performed in a year after 
                2000, reduce the amount of such limit as it 
                applies nationally or in any area to the amount 
                that the Secretary estimates is required to 
                assure that such tests of an appropriate 
                quality are readily and conveniently available 
                during the year.
                  (B) Revision of frequency.--
                          (i) Review.--The Secretary shall 
                        review periodically the appropriate 
                        frequency for performing colorectal 
                        cancer screening tests based on age and 
                        such other factors as the Secretary 
                        believes to be pertinent.
                          (ii) Revision of frequency.--The 
                        Secretary, taking into consideration 
                        the review made under clause (i), may 
                        revise from time to time the frequency 
                        with which such tests may be paid for 
                        under this subsection, but no such 
                        revision shall apply to tests performed 
                        before January 1, 2001.
          (5) Limiting charges of nonparticipating 
        physicians.--
                  (A) In general.--In the case of a colorectal 
                cancer screening test consisting of a screening 
                flexible sigmoidoscopy or a screening 
                colonoscopy provided to an individual at high 
                risk for colorectal cancer for which payment 
                may be made under this part, if a 
                nonparticipating physician provides the 
                procedure to an individual enrolled under this 
                part, the physician may not charge the 
                individual more than the limiting charge (as 
                defined in section 1848(g)(2)).
                  (B) Enforcement.--If a physician or supplier 
                knowing and willfully imposes a charge in 
                violation of subparagraph (A), the Secretary 
                may apply sanctions against such physician or 
                supplier in accordance with section 1842(j)(2).
          * * * * * * *
  (h) Payment for Prosthetic Devices and Orthotics and 
Prosthetics.--
          (1) General rule for payment.--
                  (A) * * *
          * * * * * * *
                  (E) Exception for certain items.--Payment for 
                ostomy supplies, tracheostomy supplies, and 
                urologicals shall be made in accordance with 
                subparagraphs (B) and (C) of section 
                1834(a)(2). Payment for cochlear implants shall 
                be made in accordance with subsection (a)(4), 
                and, in applying such subsection to cochlear 
                implants, carriers shall take into 
                consideration technological innovations and 
                data on charges to the extent that such charges 
                reflect such innovations.
          * * * * * * *
          (4) Definitions.--In this subsection--
                  (A) the term ``applicable percentage 
                increase'' means--
                          (i) * * *
          * * * * * * *
                          (iii) for 1994 and 1995, 0 percent[, 
                        and];
                          (iv) for [a subsequent year] 1996 and 
                        1997, 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;
                          (v) for each of the years 1998 
                        through 2002, 1 percent, and
                          (vi) 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;
          * * * * * * *
  (k) Payment for Outpatient Therapy Services and Comprehensive 
Outpatient Rehabilitation Facility Services.--
          (1) In general.--With respect to outpatient physical 
        therapy services (which includes outpatient speech-
        language pathology services) and outpatient 
        occupational therapy services and with respect to 
        comprehensive outpatient rehabilitation facility 
        services for which payment is determined under this 
        subsection, the payment basis shall be--
                  (A) for services furnished during 1998, the 
                amount determined under paragraph (2); or
                  (B) for services furnished during a 
                subsequent year, 80 percent of the lesser of--
                          (i) the actual charge for the 
                        services, or
                          (ii) the applicable fee schedule 
                        amount (as defined in paragraph (3)) 
                        for the services.
          (2) Payment in 1998 based upon blended rate.--The 
        amount under this paragraph for services is the least 
        of the following amounts, less 20 percent of the amount 
        of the charges imposed for such services:
                  (A) Charges.--The charges imposed for the 
                services.
                  (B) Adjusted reasonable costs.--The adjusted 
                reasonable costs (as defined in paragraph (4)) 
                for the services.
                  (C) Blended rate.--An amount equal to the sum 
                of--
                          (i) 50 percent of the lesser of the 
                        amount of the charges or the adjusted 
                        reasonable costs for the services, and
                          (ii) 50 percent of the applicable fee 
                        schedule amount for the services.
          (3) Applicable fee schedule amount.--In this 
        paragraph, the term ``applicable fee schedule amount'' 
        means, with respect to services furnished in a year, 
        the fee schedule amount established under section 
        1848(b) for such services furnished during the year or, 
        if there is no such fee schedule amount established for 
        such services, for such comparable services as the 
        Secretary specifies.
          (4) Adjusted reasonable costs.--In paragraph (2), the 
        term ``adjusted reasonable costs'' means reasonable 
        costs determined reduced by--
                  (A) 5.8 percent of the reasonable costs for 
                operating costs, and
                  (B) 10 percent of the reasonable costs for 
                capital costs.
  (l) Establishment of Fee Schedule for Ambulance Services.--
          (1) In general.--The Secretary shall establish a fee 
        schedule for payment for ambulance services under this 
        part through a negotiated rulemaking process described 
        in title 5, United States Code, and in accordance with 
        the requirements of this subsection.
          (2) Considerations.--In establishing such fee 
        schedule the Secretary shall--
                  (A) establish mechanisms to control increases 
                in expenditures for ambulance services under 
                this part;
                  (B) establish definitions for ambulance 
                services which link payments to the type of 
                services provided;
                  (C) consider appropriate regional and 
                operational differences;
                  (D) consider adjustments to payment rates to 
                account for inflation and other relevant 
                factors; and
                  (E) phase in the application of the payment 
                rates under the fee schedule in an efficient 
                and fair manner.
          (3) Savings.--In establishing such fee schedule the 
        Secretary shall--
                  (A) ensure that the aggregate amount of 
                payments made for ambulance services under this 
                part during 2000 does not exceed the aggregate 
                amount of payments which would have been made 
                for such services under this part during such 
                year if the amendments made by section 10431 of 
                the Medicare Amendments Act of 1997 had not 
                been made; and
                  (B) set the payment amounts provided under 
                the fee schedule for services furnished in 2001 
                and each subsequent year at amounts equal to 
                the payment amounts under the fee schedule for 
                service furnished during the previous year, 
                increased by the percentage increase in the 
                consumer price index for all urban consumers 
                (U.S. city average) for the 12-month period 
                ending with June of the previous year.
          (3) Consultation.--In establishing the fee schedule 
        for ambulance services under this subsection, the 
        Secretary shall consult with various national 
        organizations representing individuals and entities who 
        furnish and regulate ambulance services and share with 
        such organizations relevant data in establishing such 
        schedule.
          (4) Limitation on review.--There shall be no 
        administrative or judicial review under section 1878 or 
        otherwise of the amounts established under the fee 
        schedule for ambulance services under this subsection, 
        including matters described in paragraph (2).
  (m) Special Rules for Payment for Oral Anti-Nausea Drugs.--
          (1) Limitation on per dose payment basis.--Subject to 
        paragraph (2), the per dose payment basis under this 
        part for oral anti-nausea drugs (as defined in 
        paragraph (3)) administered during a year shall not 
        exceed 90 percent of the average per dose payment basis 
        for the equivalent intravenous anti-emetics 
        administered during the year, as computed based on 
        payment basis applied during 1996.
          (2) Aggregate limit.--The Secretary shall make such 
        adjustment in the coverage of, or payment basis for, 
        oral anti-nausea drugs so that coverage of such drugs 
        under this part does not result in any increase in 
        aggregate payments per capita under this part above the 
        levels of such payments per capita that would otherwise 
        have been made if there were no coverage for such drugs 
        under this part.
          (3) Oral anti-nausea drugs defined.--For purposes of 
        this subsection, the term ``oral anti-nausea drugs'' 
        means drugs for which coverage is provided under this 
        part pursuant to section 1861(s)(2)(P).

        procedure for payment of claims of providers of services

  Sec. 1835. (a) Except as provided in subsections (b), (c), 
and (e), payment for services described in section 1832(a)(2) 
furnished an individual may be made only to providers of 
services which are eligible therefor under section 1866(a), and 
only if--
          (1) written request, signed by such individual, 
        except in cases in which the Secretary finds it 
        impracticable for the individual to do so, is filed for 
        such payment in such form, in such manner and by such 
        person or persons as the Secretary may by regulation 
        prescribe, no later than the close of the period of 3 
        calendar years following the year in which such 
        services are furnished (deeming any services furnished 
        in the last 3 calendar months of any calendar year to 
        have been furnished in the succeeding calendar year) 
        except that, where the Secretary deems that efficient 
        administration so requires, such period may be reduced 
        to not less than 1 calendar year; and
          (2) a physician certifies (and recertifies, where 
        such services are furnished over a period of time, in 
        such cases, with such frequency, and accompanied by 
        such supporting material, appropriate to the case 
        involved, as may be provided by regulations) that--
                  (A) in the case of home health services (i) 
                such services are or were required because the 
                individual is or was confined to his home 
                (except when receiving items and services 
                referred to in section 1861(m)(7)) and needs or 
                needed skilled nursing care (other than solely 
                venipuncture for the purpose of obtaining a 
                blood sample) on an intermittent basis or 
                physical or speech therapy or, in the case of 
                an individual who has been furnished home 
                health services based on such a need and who no 
                longer has such a need for such care or 
                therapy, continues or continued to need 
                occupational therapy, (ii) a plan for 
                furnishing such services to such individual has 
                been established and is periodically reviewed 
                by a physician, and (iii) such services are or 
                were furnished while the individual is or was 
                under the care of a physician;
          * * * * * * *

                           enrollment periods

  Sec. 1837. (a) * * *
          * * * * * * *
  (i)(1) In the case of an individual who--
          (A) * * *
          * * * * * * *
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) * * *
          * * * * * * *
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) * * *
  (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)(1) * * *
  (2) The monthly premium of each individual enrolled under 
this part for each month after December 1983 shall, except as 
provided in subsections [(b) and (e)] (b), (c), and (f), be the 
amount determined under paragraph (3).
  (3) [The Secretary shall, during September of 1983 and of 
each year thereafter, determine and promulgate the monthly 
premium applicable for individuals enrolled under this part for 
the succeeding calendar year. The monthly premium shall (except 
as otherwise provided in subsection (e)) be equal to the 
smaller of--
          [(A) the monthly actuarial rate for enrollees age 65 
        and over, determined according to paragraph (1) of this 
        subsection, for that calendar year, or
          [(B) the monthly premium rate most recently 
        promulgated by the Secretary under this paragraph, 
        increased by a percentage determined as follows: The 
        Secretary shall ascertain the primary insurance amount 
        computed under section 215(a)(1), based upon average 
        indexed monthly earnings of $900, that applied to 
        individuals who became eligible for and entitled to 
        old-age insurance benefits on November 1 of the year 
        before the year of the promulgation. He shall increase 
        the monthly premium rate by the same percentage by 
        which that primary insurance amount is increased when, 
        by reason of the law in effect at the time the 
        promulgation is made, it is so computed to apply to 
        those individuals for the following November 1.] The 
        Secretary, during September of each year, shall 
        determine and promulgate a monthly premium rate for the 
        succeeding calendar year. That monthly premium rate 
        shall be equal to 50 percent of the monthly actuarial 
        rate for enrollees age 65 and over, determined 
        according to paragraph (1), for that succeeding 
        calendar year (except as provided in paragraph (5)(B)).
          * * * * * * *
  (5)(A) The Secretary shall, at the time of determining the 
monthly actuarial rate under paragraph (1) for 1998 through 
2003, shall determine a transitional monthly actuarial rate for 
enrollees age 65 and over in the same manner as such rate is 
determined under paragraph (1), except that there shall be 
excluded from such determination an estimate of any benefits 
and administrative costs attributable to home health services 
for which payment would have been made under part A during the 
year but for paragraph (2) of section 1833(d).
  (B) The monthly premium for each individual enrolled under 
this part for each month for a year (beginning with 1998 and 
ending with 2003) shall be equal to 50 percent of the monthly 
actuarial rate determined under subparagraph (A) increased by 
the following proportion of the difference between such premium 
and the monthly premium otherwise determined under paragraph 
(3) (without regard to this paragraph):
          (i) For a month in 1998, \1/7\.
          (ii) For a month in 1999, \2/7\.
          (iii) For a month in 2000, \3/7\.
          (iv) For a month in 2001, \4/7\.
          (v) For a month in 2002, \5/7\.
          (vi) For a month in 2003, \6/7\.
Whenever the Secretary promulgates the dollar amount which 
shall be applicable as the monthly premium rate for any period, 
he shall, at the time such promulgation is announced, issue a 
public statement setting forth the actuarial assumptions and 
bases employed by him in arriving at the amount of an adequate 
actuarial rate for enrollees age 65 and older as provided in 
paragraph (1) [and the derivation of the dollar amounts 
specified in this paragraph].
  (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 December 1995 and prior to January 
1999 shall be an amount equal to 50 percent of the monthly 
actuarial rate for enrollees age 65 and over, as determined 
under subsection (a)(1) and applicable to such month.
  [(B) Notwithstanding the provisions of subsection (a), the 
monthly premium for each individual enrolled under this part 
for each month in--
          [(i) 1991 shall be $29.90,
          [(ii) 1992 shall be $31.80,
          [(iii) 1993 shall be $36.60,
          [(iv) 1994 shall be $41.10, and
          [(v) 1995 shall be $46.10.
  [(2) Any increases in premium amounts taking effect prior to 
January 1998 by reason of paragraph (1) shall be taken into 
account for purposes of determining increases thereafter under 
subsection (a)(3).]
          * * * * * * *
  [(g)] (e)(1) Upon the request of a State, the Secretary may 
enter into an agreement with the State under which the State 
agrees to pay on a quarterly or other periodic basis to the 
Secretary (to be deposited in the Treasury to the credit of the 
Federal Supplementary Medical Insurance Trust Fund) an amount 
equal to the amount of the part B late enrollment premium 
increases withrespect to the premiums for eligible individuals 
(as defined in paragraph (3)(A)).
          * * * * * * *

             use of carriers for administration of benefits

  Sec. 1842. (a) * * *
  (b)(1) * * *
          * * * * * * *
  (3) Each such contract shall provide that the carrier--
          (A) * * *
          * * * * * * *
          (I) will submit annual reports to the Secretary 
        describing the steps taken to recover payments made 
        under this part for items or services for which payment 
        has been or could be made under a primary plan (as 
        defined in section 1862(b)(2)(A)); [and]
          (J) will reimburse the Secretary for any amounts paid 
        by the carrier for an item or service under this part 
        which is furnished, directed, or prescribed by an 
        individual or entity during any period for which the 
        individual or entity is excluded pursuant to section 
        1128, 1128A, or 1156, from participation in the program 
        under this title, if the amounts are paid after the 
        Secretary notifies the carrier of the exclusion, and
          * * * * * * *
  (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)] clause (i) 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. 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[.], (E) in the case 
of an item or service (other than services described in section 
1888(e)(2)(A)(ii)) furnished to an individual who (at the time 
the item or service is furnished) is a resident of a skilled 
nursing facility, payment shall be made to the facility 
(without regard to whether or not the item or service was 
furnished by the facility, by others under arrangement with 
them made by the facility, under any other contracting or 
consulting arrangement, or otherwise), and (F) in the case of 
home health services furnished to an individual who (at the 
time the item or service is furnished) is under a plan of care 
of a home health agency, payment shall be made to the agency 
(without regard to whether or not the item or service was 
furnished by the agency, by others under arrangement with them 
made by the agency, or when any other contracting or consulting 
arrangement, or otherwise). For purposes of clause (C) of the 
first sentence of this paragraph, an employment relationship 
may include any independent contractor arrangement, and 
employer status shall be determined in accordance with the law 
of the State in which the services described in such clause are 
performed.
          * * * * * * *
  [(12)(A) With respect to services described in clauses (i), 
(ii), or (iv) of section 1861(s)(2)(K) (relating to a physician 
assistants and nurse practitioners)--
          [(i) payment under this part may only be made on an 
        assignment-related basis; and
          [(ii) the prevailing charges determined under 
        paragraph (3) shall not exceed--
                  [(I) in the case of services performed as an 
                assistant at surgery, 65 percent of the amount 
                that would otherwise be recognized if performed 
                by a physician who is serving as an assistant 
                at surgery, or
                  [(II) in other cases, the applicable 
                percentage (as defined in subparagraph (B)) of 
                the prevailing charge rate determined for such 
                services (or, for services furnished on or 
                after January 1, 1992, the fee schedule amount 
                specified in section 1848) performed by 
                physicians who are not specialists.
  [(B) In subparagraph (A)(ii)(II), the term ``applicable 
percentage'' means--
          [(i) 75 percent in the case of services performed 
        (other than as an assistant at surgery) in a hospital, 
        and
          [(ii) 85 percent in the case of other services.]
  (12) With respect to services described in section 
1861(s)(2)(K)(i)--
          (A) payment under this part may only be made on an 
        assignment-related basis; and
          (B) the amounts paid under this part shall be equal 
        to 80 percent of (i) the lesser of the actual charge or 
        85 percent of the fee schedule amount provided under 
        section 1848 for the same service provided by a 
        physician who is not a specialist; or (ii) in the case 
        of services as an assistant at surgery, the lesser of 
        the actual charge or 85 percent of the amount that 
        would otherwise be recognized if performed by a 
        physician who is serving as an assistant at surgery.
          * * * * * * *
  (19) For purposes of section 1833(a)(1), the reasonable 
charge for ambulance services (as described in section 
1861(s)(7)) provided during a fiscal year (beginning with 
fiscal year 1998 and ending with fiscal year 2002) may not 
exceed the reasonable charge for such services provided during 
the previous fiscal year, increased by the percentage increase 
in the consumer price index for all urban consumers (U.S. city 
average) as estimated by the Secretary for the 12-month period 
ending with the midpoint of the year involved reduced (in the 
case of each of fiscal years 1998 and 1999) by 1 percentage 
point.
          * * * * * * *
  (o) If a physician's, supplier's, or any other person's bill 
or request for payment for services includes a charge for a 
drug or biological for which payment may be made under this 
part and the drug or biological is not paid on a cost or 
prospective payment basis as otherwise provided in this part, 
the amount payable for the drug or biological shall not exceed 
95 percent of the average wholesale price, as specified by the 
Secretary.
          * * * * * * *
  (s) The Secretary may refuse to enter into an agreement with 
a physician or supplier under subsection (h) or may terminate 
or refuse to renew such agreement, in the event that such 
physician or supplier has been convicted of a felony under 
Federal or State law for an offense which the Secretary 
determines is inconsistent with the best interests of program 
beneficiaries.
          * * * * * * *

   appropriations to cover government contributions and contingency 
                                reserve

  Sec. 1844. (a) There are authorized to be appropriated from 
time to time, out of any moneys in the Treasury not otherwise 
appropriated, to the Federal Supplementary Medical Insurance 
Trust Fund--
          (1)(A) a Government contribution equal to the 
        aggregate premiums payable for a month for enrollees 
        age 65 and over under this part and deposited in the 
        Trust Fund, multiplied by the ratio of--
                  (i) twice the dollar amount of the 
                actuarially adequate rate per enrollee age 65 
                and over as determined under section 1839(a)(1) 
                for such month minus the dollar amount of the 
                premium per enrollee for such month, as 
                determined under section 1839(a)(3) [or 
                1839(e), as the case may be], to
                  (ii) the dollar amount of the premium per 
                enrollee for such month, plus
          (B) a Government contribution equal to the aggregate 
        premiums payable for a month for enrollees under age 65 
        under this part and deposited in the Trust Fund, 
        multiplied by the ratio of--
                  (i) twice the dollar amount of the 
                actuarially adequate rate per enrollee under 
                age 65 as determined under section 1839(a)(4) 
                for such month minus the dollar amount of the 
                premium per enrollee for such month, as 
                determined under section 1839(a)(3) [or 
                1839(e), as the case may be], to
          * * * * * * *

                  [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) Payment Based on Fee Schedule.--
          (1) * * *
          (2) Transition to full fee schedule.--
                  (A) Limiting reductions and increases to 15 
                percent in 1992.--
                          (i) Limit on increase.--In the case 
                        of a service (other than a colorectal 
                        cancer screening test consisting of a 
                        screening colonoscopy provided to an 
                        individual at high risk for colorectal 
                        cancer or a screening flexible 
                        sigmoidoscopy) in a fee schedule area 
                        (as defined in subsection (j)(2)) for 
                        which the adjusted historical payment 
                        basis (as defined in subparagraph (D)) 
                        is less than 85 percent of the fee 
                        schedule amount for services furnished 
                        in 1992, there shall be substituted for 
                        the fee schedule amount an amount equal 
                        to the adjusted historical payment 
                        basis plus 15 percent of the fee 
                        schedule amount otherwise established 
                        (without regard to this paragraph).
                          (ii) Limit in reduction.--In the case 
                        of a service (other than a colorectal 
                        cancer screening test consisting of a 
                        screening colonoscopy provided to an 
                        individual at high risk for colorectal 
                        cancer or a screening flexible 
                        sigmoidoscopy) in a fee schedule area 
                        for which the adjusted historical 
                        payment basis exceeds 115 percent of 
                        the fee schedule amount for services 
                        furnished in 1992, there shall be 
                        substituted for the fee schedule amount 
                        an amount equal to the adjusted 
                        historical payment basis minus 15 
                        percent of the fee schedule amount 
                        otherwise established (without regard 
                        to this paragraph).
          * * * * * * *
  (c) Determination of Relative Values for Physicians' 
Services.--
          (1) * * *
          (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 Advisory Commission and 
                        organizations representing physicians.
                  (C) Computation of relative value units for 
                components.--For purposes of this section for 
                each physicians' service--
                          (i) * * *
                          (ii) Practice expense relative value 
                        units.--The Secretary shall determine a 
                        number of practice expense relative 
                        value units for the service for years 
                        before [1998] 1999 equal to the product 
                        of--
                                  (I) the base allowed charges 
                                (as defined in subparagraph 
                                (D)) for the service, and
                                  (II) the practice expense 
                                percentage for the service (as 
                                determined under paragraph 
                                (3)(C)(ii)),
                        and for years beginning with [1998] 
                        1999 based, to the extent provided 
                        under subparagraph (G), on the relative 
                        practice expense resources involved in 
                        furnishing the service.
          (3) Component percentages.--For purposes of paragraph 
        (2), the Secretary shall determine a work percentage, a 
        practice expense percentage, and a malpractice 
        percentage for each physician's service as follows:
                  (A) * * *
          * * * * * * *
                  (C) Determination of component percentages.--
                          (i) * * *
                          (ii) Practice expense percentage.--
                        For years before [1998] 2002, the 
                        practice expense percentage for a 
                        service (or class of services) is equal 
                        to the sum (for all physician 
                        specialties) of--
                                  (I) the average percentage 
                                division for the practice 
                                expense component for each 
                                physician specialty (determined 
                                under subparagraph (B)), 
                                multiplied by
                                  (II) the proportion 
                                (determined under subparagraph 
                                (A)) of such service (or 
                                services) performed by 
                                physicians in that specialty.
          * * * * * * *
  (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 rules for 1998.--Except as 
                provided in subparagraph (D), the single 
                conversion factor for 1998under this subsection 
shall be the conversion factor for primary care services for 1997, 
increased by the Secretary's estimate of the weighted average of the 
three separate updates that would otherwise occur were it not for the 
enactment of chapter 1 of subtitle G of title X of the Balanced Budget 
Act of 1997.
                  (D) Special rules for anesthesia services.--
                The separate conversion factor for anesthesia 
                services for a year shall be equal to 46 
                percent of the single conversion factor 
                established for other physicians' services, 
                except as adjusted for changes in work, 
                practice expense, or malpractice relative value 
                units.
                  [(C)] (E) 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
                          [(v) 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.--Unless otherwise provided by 
                law, subject to subparagraph (D) and the 
                budget-neutrality factor determined by the 
                Secretary under subsection (c)(2)(B)(ii), the 
                update to the single conversion factor 
                established in paragraph (1)(C) for a year 
                beginning with 1999 is equal to the product 
                of--
                          (i) 1 plus the Secretary's estimate 
                        of the percentage increase in the MEI 
                        (as defined in section 1842(i)(3)) for 
                        the year (divided by 100), and
                          (ii) 1 plus the Secretary's estimate 
                        of the update adjustment factor for the 
                        year (divided by 100),
                minus 1 and multiplied by 100.
                  (B) Update adjustment factor.--For purposes 
                of subparagraph (A)(ii), the ``update 
                adjustment factor'' for a year is equal to the 
                quotient (as estimated by the Secretary) of--
                          (i) the difference between (I) the 
                        sum of the allowed expenditures for 
                        physicians' services (as determined 
                        under subparagraph (C)) during the 
                        period beginning July 1, 1997, and 
                        ending on June 30 of the year involved, 
                        and (II) the sum of the amount of 
                        actual expenditures for physicians' 
                        services furnished during the period 
                        beginning July 1, 1997, and ending of 
                        June 30 of the preceding year; divided 
                        by
                          (ii) the allowed expenditures for 
                        physicians' services for the 12-month 
                        period ending on June 30 of the year 
                        involved.
                  (C) Determination of allowed expenditures.--
                For purposes of this paragraph, the allowed 
                expenditures for physicians' services for the 
                12-month period ending with June 30 of--
                          (i) 1997 is equal to the actual 
                        expenditures for physicians' services 
                        furnished during such 12-month period, 
                        as estimated by the Secretary; or
                          (ii) a subsequent year is equal to 
                        the allowed expenditures for 
                        physicians' services for the previous 
                        year, increased by the sustainable 
                        growth rate under subsection (f) for 
                        the fiscal year which begins during 
                        such 12-month period.
                  (D) Restriction on variation from medicare 
                economic index.--Notwithstanding the amount of 
                the update adjustment factor determined under 
                subparagraph (B) for a year, the update in the 
                conversion factor under this paragraph for the 
                year may not be--
                          (i) greater than 100 times the 
                        following amount: (1.04 + (MEI 
                        percentage/100)) - 1; or
                          (ii) less than 100 times the 
                        following amount: (0.94 + (MEI 
                        percentage/100)) -1,
                where ``MEI percentage'' means the Secretary's 
                estimate of the percentage increase in the MEI 
                (as defined in section 1842(i)(2)) for the year 
                involved.
          * * * * * * *
  (f) Medicare [Volume Performance Standard Rates of Increase] 
Sustainable Growth Rate.--
          (1) Process for establishing medicare [volume 
        performance standard rates of increase] sustainable 
        growth rate.--
                  [(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] sustainable growth rate.--
                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.] with 1999), the 
                sustainable growth rate 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] January 
                1, 1999, the sustainable growth rate for fiscal 
                year 1999.
          * * * * * * *
          [(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 
thepercentage 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.]
          (2) Specification of growth rate.--The sustainable 
        growth rate for all physicians' services for a fiscal 
        year (beginning with fiscal year 1998) shall be equal 
        to the product of--
                  (A) 1 plus the Secretary's estimate of the 
                weighted average percentage increase (divided 
                by 100) in the fees for all physicians' 
                services in the fiscal year involved,
                  (B) 1 plus the Secretary's estimate of the 
                percentage change (divided by 100) in the 
                average number of individuals enrolled under 
                this part (other than MedicarePlus plan 
                enrollees) from the previous fiscal year to the 
                fiscal year involved,
                  (C) 1 plus the Secretary's estimate of the 
                projected percentage growth in real gross 
                domestic product per capita (divided by 100) 
                from the previous fiscal year to the fiscal 
                year involved, and
                  (D) 1 plus the Secretary's estimate of the 
                percentage change (divided by 100) in 
                expenditures for all physicians' services in 
                the fiscal year (compared with the previous 
                fiscal year) which will result from changes in 
                law and regulations, determined without taking 
                into account estimated changes in expenditures 
                due to changes in the volume and intensity of 
                physicians' services resulting from changes in 
                the update to the conversion factor under 
                subsection (d)(3),
        minus 1 and multiplied by 100.
          (3) Definitions.--In this subsection:
                  (A) Services included in physicians' 
                services.--The term ``physicians' services'' 
                includes other items and services (such as 
                clinical diagnostic laboratory tests and 
                radiology services), specified by the 
                Secretary, that are commonly performed or 
                furnished by a physician or in a physician's 
                office, but does not include services furnished 
                to a MedicarePlus plan enrollee.
                  (B) MedicarePlus plan enrollee.--The term 
                ``MedicarePlus plan enrollee'' means, with 
                respect to a fiscal year, an individual 
                enrolled under this part who has elected to 
                receive benefits under this title for the 
                fiscal year through a MedicarePlus plan offered 
                under part C, and also includes an individual 
                who is receiving benefits under this part 
                through enrollment with an eligible 
                organization with a risk-sharing contract under 
                section 1876.
  (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 Advisory 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 Advisory 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 
                utili-zation 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),
          * * * * * * *
  (j) Definitions.--In this section:
          (1) Category.--The term ``category'' means, with 
        respect to physicians' services, surgical services (as 
        defined by the Secretary [and including anesthesia 
        services]), primary care services (as defined in 
        section 1842(i)(4)), and all other physicians' 
        services. The Secretary shall define surgical services 
        and publish such definitions in the Federal Register no 
        later than May 1, 1990, after consultation with 
        organizations representing physicians (including 
        anesthesia services).
          * * * * * * *

                      Part C--MedicarePlus Program


                 eligibility, election, and enrollment


  Sec. 1851. (a) Choice of Medicare Benefits Through 
MedicarePlus Plans.--
          (1) In general.--Subject to the provisions of this 
        section, each MedicarePlus eligible individual (as 
        defined in paragraph (3)) is entitled to elect to 
        receive benefits under this title--
                  (A) through the medicare fee-for-service 
                program under parts A and B, or
                  (B) through enrollment in a MedicarePlus plan 
                under this part.
          (2) Types of medicareplus plans that may be 
        available.--A MedicarePlus plan may be any of the 
        following types of plans of health insurance:
                  (A) Coordinated care plans.--Coordinated care 
                plans which provide health care services, 
                including health maintenance organization plans 
                and preferred provider organization plans.
                  (B) Plans offered by provider-sponsored 
                organization.--A MedicarePlus plan offered by a 
                provider-sponsored organization, as defined in 
                section 1855(e).
                  (C) Combination of msa plan and contributions 
                to medicareplus msa.--An MSA plan, as defined 
                in section 1859(b)(2), and a contribution into 
                a MedicarePlus medical savings account (MSA).
          (3) MedicarePlus eligible individual.--
                  (A) In general.--In this title, subject to 
                subparagraph (B), the term ``MedicarePlus 
                eligible individual'' means an individual who 
                is entitled to benefits under part A and 
                enrolled under part B.
                  (B) Special rule for end-stage renal 
                disease.--Such term shall not include an 
                individual medically determined to have end-
                stage renal disease, except that an individual 
                who develops end-stage renal disease while 
                enrolled in a MedicarePlus plan may continue to 
                be enrolled in that plan.
  (b) Special Rules.--
          (1) Residence requirement.--
                  (A) In general.--Except as the Secretary may 
                otherwise provide, an individual is eligible to 
                elect a MedicarePlus plan offered by a 
                MedicarePlus organization only if the 
                organization serves the geographic area in 
                which the individual resides.
                  (B) Continuation of enrollment permitted.--
                Pursuant to rules specified by the Secretary, 
                the Secretary shall provide that an individual 
                may continue enrollment in a plan, 
                notwithstanding that the individual no longer 
                resides in the service area of the plan, so 
                long as the plan provides benefits for 
                enrollees located in the area in which the 
                individual resides.
          (2) Special rule for certain individuals covered 
        under fehbp or eligible for veterans or military health 
        benefits, veterans.--
                  (A) FEHBP.--An individual who is enrolled in 
                a health benefit plan under chapter 89 of title 
                5, United States Code, is not eligible to 
                enroll in an msa plan until such time as the 
                Director of the Office of Management and Budget 
                certifies to the Secretary that the Office of 
                Personnel Management has adopted policies which 
                will ensure that the enrollment of such 
                individuals in such plans will not result in 
                increased expenditures for the Federal 
                Government for health benefit plans under such 
                chapter.
                  (B) VA and dod.--The Secretary may apply 
                rules similar to the rules described in 
                subparagraph (A) in the case of individuals who 
                are eligible for health care benefits under 
                chapter 55 of title 10, United States Code, or 
                under chapter 17 of title 38 of such Code.
          (3) Limitation on eligibility of qualified medicare 
        beneficiaries and other medicaid beneficiaries to 
        enroll in an msa plan.--An individual who is a 
        qualified medicare beneficiary (as defined in section 
        1905(p)(1)), a qualified disabled and working 
        individual (described in section 1905(s)), an 
        individual described in section 1902(a)(10)(E)(iii), or 
        otherwise entitled to medicare cost-sharing under a 
        State plan under title XIX is not eligible to enroll in 
        an MSA plan.
          (4) Coverage under msa plans on a demonstration 
        basis.--
                  (A) In general.--An individual is not 
                eligible to enroll in an MSA plan under this 
                part--
                          (i) on or after January 1, 2003, 
                        unless the enrollment is the 
                        continuation of such an enrollment in 
                        effect as of such date; or
                          (ii) as of any date if the number of 
                        such individuals so enrolled as of such 
                        date has reached 500,000.

                Under rules established by the Secretary, an 
                individual is not eligible to enroll (or 
                continue enrollment) in an MSA plan for a year 
                unless the individual provides assurances 
                satisfactory to the Secretary that the 
                individual will reside in the United States for 
                at least 183 days during the year.
                  (B) Evaluation.--The Secretary shall 
                regularly evaluate the impact of permitting 
                enrollment in MSA plans under this part on 
                selection (including adverse selection), use of 
                preventive care, access to care, and the 
                financial status of the Trust Funds under this 
                title.
                  (C) Reports.--The Secretary shall submit to 
                Congress periodic reports on the numbers of 
                individuals enrolled in such plans and on the 
                evaluation being conducted under subparagraph 
                (B). The Secretary shall submit such a report, 
                by not later than March 1, 2002, on whether the 
                time limitation under subparagraph (A)(i) 
                should be extended or removed and whether to 
                change the numerical limitation under 
                subparagraph (A)(ii).
  (c) Process for Exercising Choice.--
          (1) In general.--The Secretary shall establish a 
        process through which elections described in subsection 
        (a) are made and changed, including the form and manner 
        in which such elections are made and changed. Such 
        elections shall be made or changed only during coverage 
        election periods specified under subsection (e) and 
        shall become effective as provided in subsection (f).
          (2) Coordination through medicareplus 
        organizations.--
                  (A) Enrollment.--Such process shall permit an 
                individual who wishes to elect a MedicarePlus 
                plan 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 
                plan 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.
          (3) Default.--
                  (A) Initial election.--
                          (i) In general.--Subject to clause 
                        (ii), an individual who fails to make 
                        an election during an initial election 
                        period under subsection (e)(1) is 
                        deemed to have chosen the medicare fee-
                        for-service program option.
                          (ii) Seamless continuation of 
                        coverage.--The Secretary may establish 
                        procedures under which an individual 
                        who is enrolled in a health plan (other 
                        than MedicarePlus plan) offered by a 
                        MedicarePlus organization at the time 
                        of the initial election period and who 
                        fails to elect to receive coverage 
                        other than through the organization is 
                        deemed to have elected the MedicarePlus 
                        plan offered by the organization (or, 
                        if the organization offers more than 
                        one such plan, such plan or plans as 
                        the Secretary identifies under such 
                        procedures).
                  (B) Continuing periods.--An individual who 
                has made (or is deemed to have made) an 
                election under this section is considered to 
                have continued to make such election until such 
                time as--
                          (i) the individual changes the 
                        election under this section, or
                          (ii) a MedicarePlus plan is 
                        discontinued, if the individual had 
                        elected such plan at the time of the 
                        discontinuation.
  (d) Providing Information To Promote Informed Choice.--
          (1) In general.--The Secretary shall provide for 
        activities under this subsection to broadly disseminate 
        information to medicare beneficiaries (and prospective 
        medicare beneficiaries) on the coverage options 
        provided under this section in order to promote an 
        active, informed selection among such options.
          (2) Provision of notice.--
                  (A) Open season notification.--At least 30 
                days before the beginning of each annual, 
                coordinated election period (as defined in 
                subsection (e)(3)(B)), the Secretary shall mail 
                to each MedicarePlus eligible individual 
                residing in an area the following:
                          (i) General information.--The general 
                        information described in paragraph (3).
                          (ii) List of plans and comparison of 
                        plan options.--A list identifying the 
                        MedicarePlus plans that are (or will 
                        be) available to residents of the area 
                        and information described in paragraph 
                        (4) concerning such plans. Such 
                        information shall be presented in a 
                        comparative form.
                          (iii) MedicarePlus monthly capitation 
                        rate.--The amount of the monthly 
                        MedicarePlus capitation rate for the 
                        area.
                          (iv) Additional information.--Any 
                        other information that the Secretary 
                        determines will assist the individual 
                        in making the election under this 
                        section.
                The mailing of such information shall be 
                coordinated with the mailing of any annual 
                notice under section 1804.
                  (B) Notification to newly medicareplus 
                eligible individuals.--To the extent 
                practicable, the Secretary shall, not later 
                than 2 months before the beginning of the 
                initial MedicarePlus enrollment period for an 
                individual described in subsection (e)(1), mail 
                to the individual the information described in 
                subparagraph (A).
                  (C) Form.--The information disseminated under 
                this paragraph shall be written and formatted 
                using language that is easily understandable by 
                medicare beneficiaries.
                  (D) Periodic updating.--The information 
                described in subparagraph (A) shall be updated 
                on at least an annual basis to reflect changes 
                in the availability of MedicarePlusplans and 
the benefits and monthly premiums (and net monthly premiums) for such 
plans.
          (3) General information.--General information under 
        this paragraph, with respect to coverage under this 
        part during a year, shall include the following:
                  (A) Benefits under fee-for-service program 
                option.--A general description of the benefits 
                covered (and not covered) under the medicare 
                fee-for-service program under parts A and B, 
                including--
                          (i) covered items and services,
                          (ii) beneficiary cost sharing, such 
                        as deductibles, coinsurance, and 
                        copayment amounts, and
                          (iii) any beneficiary liability for 
                        balance billing.
                  (B) Part b premium.--The part B premium rates 
                that will be charged for part B coverage.
                  (C) Election procedures.--Information and 
                instructions on how to exercise election 
                options under this section.
                  (D) Rights.--The general description of 
                procedural rights (including grievance and 
                appeals procedures) of beneficiaries under the 
                medicare fee-for-service program and the 
                MedicarePlus program and right to be protected 
                against discrimination based on health status-
                related factors under section 1852(b).
                  (E) Information on medigap and medicare 
                select.--A general description of the benefits, 
                enrollment rights, and other requirements 
                applicable to medicare supplemental policies 
                under section 1882 and provisions relating to 
                medicare select policies described in section 
                1882(t).
                  (F) Potential for contract termination.--The 
                fact that a MedicarePlus organization may 
                terminate or refuse to renew its contract under 
                this part and the effect the termination or 
                nonrenewal of its contract may have on 
                individuals enrolled with the MedicarePlus plan 
                under this part.
          (4) Information comparing plan options.--Information 
        under this paragraph, with respect to a MedicarePlus 
        plan for a year, shall include the following:
                  (A) Benefits.--The benefits covered (and not 
                covered) under the plan, including--
                          (i) covered items and services beyond 
                        those provided under the medicare fee-
                        for-service program,
                          (ii) any beneficiary cost sharing,
                          (iii) any maximum limitations on out-
                        of-pocket expenses, and
                          (iv) in the case of an MSA plan, 
                        differences in cost sharing under such 
                        a plan compared to under other 
                        MedicarePlus plans.
                          (v) the use of provider networks and 
                        the restriction on payments for 
                        services furnished other than by other 
                        through the organization,
                          (vi) the organization's coverage of 
                        emergency and urgently needed care,
                          (vii) the appeal and grievance rights 
                        of enrollees,
                          (viii) number of grievances and 
                        appeals, and information on their 
                        disposition in the aggregate,
                          (ix) procedures used by the 
                        organization to control utilization of 
                        services and expenditures, and
                          (x) any exclusions in the types of 
                        providers participating in the plan's 
                        network.
                  (B) Premiums.--The monthly premium (and net 
                monthly premium), if any, for the plan.
                  (C) Service area.--The service area of the 
                plan.
                  (D) Quality and performance.--To the extent 
                available, plan quality and performance 
                indicators for the benefits under the plan (and 
                how they compare to such indicators under the 
                medicare fee-for-service program under parts A 
                and B in the area involved), including--
                          (i) disenrollment rates for medicare 
                        enrollees electing to receive benefits 
                        through the plan for the previous 2 
                        years (excluding disenrollment due to 
                        death or moving outside the plan's 
                        service area),
                          (ii) information on medicare enrollee 
                        satisfaction,
                          (iii) information on health outcomes, 
                        and
                          (iv) the recent record regarding 
                        compliance of the plan with 
                        requirements of this part (as 
                        determined by the Secretary).
                  (E) Supplemental benefits options.--Whether 
                the organization offering the plan offers 
                optional supplemental benefits and the terms 
                and conditions (including premiums) for such 
                coverage.
          (5) Maintaining a toll-free number and internet 
        site.--The Secretary shall maintain a toll-free number 
        for inquiries regarding MedicarePlus options and the 
        operation of this part in all areas in which 
        MedicarePlus plans are offered and an Internet site 
        through which individuals may electronically obtain 
        information on such options and MedicarePlus plans.
          (6) Use of nonfederal entities.--The Secretary may 
        enter into contracts with non-Federal entities to carry 
        out activities under this subsection.
          (7) Provision of information.--A MedicarePlus 
        organization shall provide the Secretary with such 
        information on the organization and each MedicarePlus 
        plan it offers as may be required for the preparation 
        of the information referred to in paragraph (2)(A).
  (e) Coverage Election Periods.--
          (1) Initial choice upon eligibility to make election 
        if medicareplus plans available to individual.--If, at 
        the time an individual first becomes entitled to 
        benefits under part A and enrolled under part B, there 
        is one or more MedicarePlus plans offered in the area 
        in which the individual resides, 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 such time. Such period shall be specified 
        in a manner so that, in the case of an individual who 
        elects a MedicarePlus plan during the period, coverage 
        under the planbecomes effective as of the first date on 
which the individual may receive such coverage.
          (2) Open enrollment and disenrollment 
        opportunities.--Subject to paragraph (5)--
                  (A) Continuous open enrollment and 
                disenrollment through 2000.--At any time during 
                1998, 1999, and 2000, a MedicarePlus eligible 
                individual may change the election under 
                subsection (a)(1).
                  (B) Continuous open enrollment and 
                disenrollment for first 6 months during 2001.--
                          (i) In general.--Subject to clause 
                        (ii), at any time during the first 6 
                        months of 2001, or, if the individual 
                        first becomes a MedicarePlus eligible 
                        individual during 2001, during the 
                        first 6 months during 2001 in which the 
                        individual is a MedicarePlus eligible 
                        individual, a MedicarePlus eligible 
                        individual may change the election 
                        under subsection (a)(1).
                          (ii) Limitation of one change per 
                        year.--An individual may exercise the 
                        right under clause (i) only once during 
                        2001. The limitation under this clause 
                        shall not apply to changes in elections 
                        effected during an annual, coordinated 
                        election period under paragraph (3) or 
                        during a special enrollment period 
                        under paragraph (4).
                  (C) Continuous open enrollment and 
                disenrollment for first 3 months in subsequent 
                years.--
                          (i) In general.--Subject to clause 
                        (ii), at any time during the first 3 
                        months of a year after 2001, or, if the 
                        individual first becomes a MedicarePlus 
                        eligible individual during a year after 
                        2001, during the first 3 months of such 
                        year in which the individual is a 
                        MedicarePlus eligible individual, a 
                        MedicarePlus eligible individual may 
                        change the election under subsection 
                        (a)(1).
                          (ii) Limitation of one change per 
                        year.--An individual may exercise the 
                        right under clause (i) only once a 
                        year. The limitation under this clause 
                        shall not apply to changes in elections 
                        effected during an annual, coordinated 
                        election period under paragraph (3) or 
                        during a special enrollment period 
                        under paragraph (4).
          (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 an annual, coordinated election 
                period.
                  (B) Annual, coordinated election period.--For 
                purposes of this section, the term ``annual, 
                coordinated election period'' means, with 
                respect to a calendar year (beginning with 
                2001), the month of October before such year.
                  (C) MedicarePlus health fairs.--In the month 
                of October of each year (beginning with 1998), 
                the Secretary shall provide for a nationally 
                coordinated educational and publicity campaign 
                to inform MedicarePlus eligible individuals 
                about MedicarePlus plans and the election 
                process provided under this section.
          (4) Special election periods.--Effective as of 
        January 1, 2001, an individual may discontinue an 
        election of a MedicarePlus plan 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 plan's 
                certification under this part has been 
                terminated or the organization has terminated 
                or otherwise discontinued providing the plan;
                  (B) the individual is no longer eligible to 
                elect the plan because of a change in the 
                individual's place of residence or other change 
                in circumstances (specified by the Secretary, 
                but not including termination of the 
                individual's enrollment on the basis described 
                in clause (i) or (ii) of subsection (g)(3)(B));
                  (C) the individual demonstrates (in 
                accordance with guidelines established by the 
                Secretary) that--
                          (i) the organization offering the 
                        plan substantially violated a material 
                        provision of the organization's 
                        contract under this part in relation to 
                        the individual (including the failure 
                        to provide an enrollee on a timely 
                        basis medically necessary care for 
                        which benefits are available under the 
                        plan or the failure to provide such 
                        covered care in accordance with 
                        applicable quality standards); or
                          (ii) the organization (or an agent or 
                        other entity acting on the 
                        organization's behalf) materially 
                        misrepresented the plan's provisions in 
                        marketing the plan to the individual; 
                        or
                  (D) the individual meets such other 
                exceptional conditions as the Secretary may 
                provide.
          (5) Special rules for msa plans.--Notwithstanding the 
        preceding provisions of this subsection, an 
        individual--
                  (A) may elect an MSA plan only during--
                          (i) an initial open enrollment period 
                        described in paragraph (1),
                          (ii) an annual, coordinated election 
                        period described in paragraph (3)(B), 
                        or
                          (iii) the months of October 1998 and 
                        October 1999; and
                  (B) may not discontinue an election of an MSA 
                plan except during the periods described in 
                clause (ii) or (iii) of subparagraph (A) and 
                under paragraph (4).
  (f) Effectiveness of Elections and Changes of Elections.--
          (1) During initial coverage election period.--An 
        election of coverage made during the initial coverage 
        election period under subsection (e)(1) shall take 
        effect upon the date the individual becomes entitled to 
        benefits under part A and enrolled under part B, except 
        as the Secretary may provide (consistent with section 
        1838) in order to prevent retroactive coverage.
          (2) During continuous open enrollment periods.--An 
        election or change of coverage made under subsection 
        (e)(2) shall take effect with the first day of the 
        first calendar month following the date on which the 
        election is made.
          (3) Annual, coordinated election period.--An election 
        or change of coverage made during an annual, 
        coordinated election period (as defined in subsection 
        (e)(3)(B)) in a year shall take effect as of the first 
        day of the following year.
          (4) Other periods.--An election or change of coverage 
        made during any other period under subsection (e)(4) 
        shall take effect in such manner as the Secretary 
        provides in a manner consistent (to the extent 
        practicable) with protecting continuity of health 
        benefit coverage.
  (g) Guaranteed Issue and Renewal.--
          (1) In general.--Except as provided in this 
        subsection, a MedicarePlus organization shall provide 
        that at any time during which elections are accepted 
        under this section with respect to a MedicarePlus plan 
        offered by the organization, the organization will 
        accept without restrictions individuals who are 
        eligible to make such election.
          (2) Priority.--If the Secretary determines that a 
        MedicarePlus organization, in relation to a 
        MedicarePlus plan it offers, has a capacity limit and 
        the number of MedicarePlus eligible individuals who 
        elect the plan under this section exceeds the capacity 
        limit, the organization may limit the election of 
        individuals of the plan under this section but only if 
        priority in election is provided--
                  (A) first to such individuals as have elected 
                the plan at the time of the determination, and
                  (B) then to other such individuals in such a 
                manner that does not discriminate, on a basis 
                described in section 1852(b), among the 
                individuals (who seek to elect the plan).

        The preceding sentence shall not apply if it would 
        result in the enrollment of enrollees substantially 
        nonrepresentative, as determined in accordance with 
        regulations of the Secretary, of the medicare 
        population in the service area of the plan.
          (3) Limitation on termination of election.--
                  (A) In general.--Subject to subparagraph (B), 
                a MedicarePlus organization may not for any 
                reason terminate the election of any individual 
                under this section for a MedicarePlus plan it 
                offers.
                  (B) Basis for termination of election.--A 
                MedicarePlus organization may terminate an 
                individual's election under this section with 
                respect to a MedicarePlus plan it offers if--
                          (i) any net monthly premiums required 
                        with respect to such plan are not paid 
                        on a timely basis (consistent with 
                        standards under section 1856 that 
                        provide for a grace period for late 
                        payment of net monthly premiums),
                          (ii) the individual has engaged in 
                        disruptive behavior (as specified in 
                        such standards), or
                          (iii) the plan is terminated with 
                        respect to all individuals under this 
                        part in the area in which the 
                        individual resides.
                  (C) Consequence of termination.--
                          (i) Terminations for cause.--Any 
                        individual whose election is terminated 
                        under clause (i) or (ii) of 
                        subparagraph (B) is deemed to have 
                        elected the medicare fee-for-service 
                        program option described in subsection 
                        (a)(1)(A).
                          (ii) Termination based on plan 
                        termination or service area 
                        reduction.--Any individual whose 
                        election is terminated under 
                        subparagraph (B)(iii) shall have a 
                        special election period under 
                        subsection (e)(4)(A) in which to change 
                        coverage to coverage under another 
                        MedicarePlus plan. Such an individual 
                        who fails to make an election during 
                        such period is deemed to have chosen to 
                        change coverage to the medicare fee-
                        for-service program option described in 
                        subsection (a)(1)(A).
                  (D) Organization obligation with respect to 
                election forms.--Pursuant to a contract under 
                section 1857, each MedicarePlus organization 
                receiving an election form under subsection 
                (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.
  (h) Approval of Marketing Material and Application Forms.--
          (1) Submission.--No marketing material or application 
        form may be distributed by a MedicarePlus organization 
        to (or for the use of) MedicarePlus eligible 
        individuals unless--
                  (A) at least 45 days before the date of 
                distribution the organization has submitted the 
                material or form to the Secretary for review, 
                and
                  (B) the Secretary has not disapproved the 
                distribution of such material or form.
          (2) Review.--The standards established under section 
        1856 shall include guidelines for the review of all 
        such material or form submitted and under such 
        guidelines the Secretary shall disapprove (or later 
        require the correction of) such material or form if the 
        material or form is materially inaccurate or misleading 
        or otherwise makes a material misrepresentation.
          (3) Deemed approval (1-stop shopping).--In the case 
        of material or form that is submitted under paragraph 
        (1)(A) to the Secretary or a regional office of the 
        Department of Health and Human Services and the 
        Secretary or the office has not disapproved the 
        distribution of marketing material or form under 
        paragraph (1)(B) with respect to a MedicarePlus plan in 
        an area, the Secretary is deemed not to have 
        disapproved such distribution in all other areas 
        covered by the plan and organization except to the 
        extent that such material or form is specific only to 
        an area involved.
          (4) Prohibition of certain marketing practices.--Each 
        MedicarePlus organization shall conform to fair 
        marketing standards, in relation to MedicarePlus plans 
        offered under thispart, included in the standards 
established under section 1856. Such standards shall include a 
prohibition against a MedicarePlus organization (or agent of such an 
organization) completing any portion of any election form used to carry 
out elections under this section on behalf of any individual.
  (i) Effect of Election of MedicarePlus Plan Option.--Subject 
to sections 1852(a)(5), 1857(f)(2), and 1857(g)--
          (1) payments under a contract with a MedicarePlus 
        organization under section 1853(a) with respect to an 
        individual electing a MedicarePlus plan offered by the 
        organization shall be instead of the amounts which (in 
        the absence of the contract) would otherwise be payable 
        under parts A and B for items and services furnished to 
        the individual, and
          (2) subject to subsections (e) and (f) of section 
        1853, only the MedicarePlus organization shall be 
        entitled to receive payments from the Secretary under 
        this title for services furnished to the individual.


                  benefits and beneficiary protections


  Sec. 1852. (a) Basic Benefits.--
          (1) In general.--Except as provided in section 
        1859(b)(2) for MSA plans, each MedicarePlus plan shall 
        provide to members enrolled under this part, through 
        providers and other persons that meet the applicable 
        requirements of this title and part A of title XI--
                  (A) those items and services for which 
                benefits are available under parts A and B to 
                individuals residing in the area served by the 
                plan, and
                  (B) additional benefits required under 
                section 1854(f)(1)(A).
          (2) Satisfaction of requirement.--A MedicarePlus plan 
        (other than an MSA plan) offered by a MedicarePlus 
        organization satisfies paragraph (1)(A), with respect 
        to benefits for items and services furnished other than 
        through a provider that has a contract with the 
        organization offering the plan, if the plan provides 
        (in addition to any cost sharing provided for under the 
        plan) for at least the total dollar amount of payment 
        for such items and services as would otherwise be 
        authorized under parts A and B (including any balance 
        billing permitted under such parts).
          (3) Supplemental benefits.--
                  (A) Benefits included subject to secretary's 
                approval.--Each MedicarePlus organization may 
                provide to individuals enrolled under this part 
                (without affording those individuals an option 
                to decline the coverage) supplemental health 
                care benefits that the Secretary may approve. 
                The Secretary shall approve any such 
                supplemental benefits unless the Secretary 
                determines that including such supplemental 
                benefits would substantially discourage 
                enrollment by MedicarePlus eligible individuals 
                with the organization.
                  (B) At enrollees' option.--A MedicarePlus 
                organization may provide to individuals 
                enrolled under this part (other than under an 
                MSA plan), supplemental health care benefits 
                that the individuals may elect, at their 
                option, to have covered.
          (4) 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 a MedicarePlus plan under 
        circumstances in which payment under this title is made 
        secondary pursuant to section 1862(b)(2)) charge or 
        authorize the provider of such services to charge, in 
        accordance with the charges allowed under such a law, 
        plan, 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.
          (5) National coverage determinations.--If there is a 
        national coverage determination made in the period 
        beginning on the date of an announcement under section 
        1853(b) and ending on the date of the next announcement 
        under such section and the Secretary projects that the 
        determination will result in a significant change in 
        the costs to a MedicarePlus organization of providing 
        the benefits that are the subject of such national 
        coverage determination and that such change in costs 
        was not incorporated in the determination of the annual 
        MedicarePlus capitation rate under section 1853 
        included in the announcement made at the beginning of 
        such period--
                  (A) such determination shall not apply to 
                contracts under this part until the first 
                contract year that begins after the end of such 
                period, and
                  (B) if such coverage determination provides 
                for coverage of additional benefits or coverage 
                under additional circumstances, section 1851(i) 
                shall not apply to payment for such additional 
                benefits or benefits provided under such 
                additional circumstances until the first 
                contract year that begins after the end of such 
                period,
        unless otherwise required by law.
  (b) Antidiscrimination.--
          (1) In general.--A MedicarePlus organization may not 
        deny, limit, or condition the coverage or provision of 
        benefits under this part, for individuals permitted to 
        be enrolled with the organization under this part, 
        based on any health status-related factor described in 
        section 2702(a)(1) of the Public Health Service Act.
          (2) Construction.--Paragraph (1) shall not be 
        construed as requiring a MedicarePlus organization to 
        enroll individuals who are determined to have end-stage 
        renal disease, except as provided under section 
        1851(a)(3)(B).
  (c) Detailed Description of Plan Provisions.--A MedicarePlus 
organization shall disclose, in clear, accurate, and 
standardized form to each enrollee with a MedicarePlus plan 
offered by the organization under this part at the time of 
enrollment and at least annually thereafter, the following 
information regarding such plan:
          (1) Service area.--The plan's service area.
          (2) Benefits.--Benefits offered (and not offered) 
        under the plan offered, including information described 
        in section 1851(d)(3)(A) and exclusions from coverage 
        and, if it is an MSA plan, a comparison of benefits 
        under such a plan with benefits under other 
        MedicarePlus plans.
          (3) Access.--The number, mix, and distribution of 
        plan providers and any point-of-service option 
        (including the supplemental premium for such option).
          (4) Out-of-area coverage.--Out-of-area coverage 
        provided by the plan.
          (5) Emergency coverage.--Coverage of emergency 
        services and urgently needed care, including--
                  (A) the appropriate use of emergency 
                services, including use of the 911 telephone 
                system or its local equivalent in emergency 
                situations and an explanation of what 
                constitutes an emergency situation;
                  (B) the process and procedures of the plan 
                for obtaining emergency services; and
                  (C) the locations of (i) emergency 
                departments, and (ii) other settings, in which 
                plan physicians and hospitals provide emergency 
                services and post-stabilization care.
          (6) Supplemental benefits.--Supplemental benefits 
        available from the organization offering the plan, 
        including--
                  (A) whether the supplemental benefits are 
                optional,
                  (B) the supplemental benefits covered, and
                  (C) the premium price for the supplemental 
                benefits.
          (7) Prior authorization rules.--Rules regarding prior 
        authorization or other review requirements that could 
        result in nonpayment.
          (8) Plan grievance and appeals procedures.--Any 
        appeal or grievance rights and procedures.
          (9) Quality assurance program.--A description of the 
        organization's quality assurance program under 
        subsection (e).
  (d) Access to Services.--
          (1) In general.--A MedicarePlus organization offering 
        a MedicarePlus plan may select the providers from whom 
        the benefits under the plan are provided so long as--
                  (A) the organization makes such benefits 
                available and accessible to each individual 
                electing the plan within the plan service area 
                with reasonable promptness and in a manner 
                which assures continuity in the provision of 
                benefits;
                  (B) when medically necessary in the opinion 
                of the treating health care provider the 
                organization makes such benefits available and 
                accessible 24 hours a day and 7 days a week;
                  (C) the plan provides for reimbursement with 
                respect to services which are covered under 
                subparagraphs (A) and (B) and which are 
                provided to such an individual other than 
                through the organization, if--
                          (i) the services were medically 
                        necessary in the opinion of the 
                        treating health care provider 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,
                          (ii) the services were renal dialysis 
                        services and were provided other than 
                        through the organization because the 
                        individual was temporarily out of the 
                        plan's service area, or
                          (iii) the services are maintenance 
                        care or post-stabilization care covered 
                        under the guidelines established under 
                        paragraph (2);
                  (D) the organization provides access to 
                appropriate providers, including credentialed 
                specialists, for treatment and services when 
                such treatment and services are determined to 
                be medically necessary in the professional 
                opinion of the treating health care provider, 
                in consultation with the individual; and
                  (E) coverage is provided for emergency 
                services (as defined in paragraph (3)) without 
                regard to prior authorization or the emergency 
                care provider's contractual relationship with 
                the organization.
          (2) Guidelines respecting coordination of post-
        stabilization care.--A MedicarePlus plan shall comply 
        with such guidelines as the Secretary may prescribe 
        relating to promoting efficient and timely coordination 
        of appropriate maintenance and post-stabilization care 
        of an enrollee after the enrollee has been determined 
        to be stable under section 1867.
          (3) Definition of emergency services.--In this 
        subsection--
                  (A) In general.--The term ``emergency 
                services'' means, with respect to an individual 
                enrolled with an organization, covered 
                inpatient and outpatient services that--
                          (i) are furnished by a provider that 
                        is qualified to furnish such services 
                        under this title, and
                          (ii) are needed to evaluate or 
                        stabilize an emergency medical 
                        condition (as defined in subparagraph 
                        (B)).
                  (B) Emergency medical condition based on 
                prudent layperson.--The term ``emergency 
                medical condition'' means a medical condition 
                manifesting itself by acute symptoms of 
                sufficient severity such that a prudent 
                layperson, who possesses an average knowledge 
                of health and medicine, could reasonably expect 
                the absence of immediate medical attention to 
                result in--
                          (i) placing the health of the 
                        individual (or, with respect to a 
                        pregnant woman, the health of the woman 
                        or her unborn child) in serious 
                        jeopardy,
                          (ii) serious impairment to bodily 
                        functions, or
                          (iii) serious dysfunction of any 
                        bodily organ or part.
          (4) Determination of hospital length of stay.--
                  (A) In general.--A MedicarePlus organization 
                shall cover the length of an inpatient hospital 
                stay under this part as determined by the 
                attending physician (or other attending health 
                care provider to the extent permitted 
underState law) in consultation with the patient to be medically 
appropriate.
                  (B) Construction.--Nothing in this paragraph 
                shall be construed--
                          (i) as requiring the provision of 
                        inpatient coverage if the attending 
                        physician (or other attending health 
                        care provider to the extent permitted 
                        under State law) and patient determine 
                        that a shorter period of hospital stay 
                        is medically appropriate, or
                          (ii) as affecting the application of 
                        deductibles and coinsurance.
  (e) Quality Assurance Program.--
          (1) In general.--Each MedicarePlus organization must 
        have arrangements, consistent with any regulation, for 
        an ongoing quality assurance program for health care 
        services it provides to individuals enrolled with 
        MedicarePlus plans of the organization.
          (2) Elements of program.--The quality assurance 
        program shall--
                  (A) stress health outcomes and provide for 
                the collection, analysis, and reporting of data 
                (in accordance with a quality measurement 
                system that the Secretary recognizes) that will 
                permit measurement of outcomes and other 
                indices of the quality of MedicarePlus plans 
                and organizations;
                  (B) provide for the establishment of written 
                protocols for utilization review, based on 
                current standards of medical practice;
                  (C) provide review by physicians and other 
                health care professionals of the process 
                followed in the provision of such health care 
                services;
                  (D) monitor and evaluate high volume and high 
                risk services and the care of acute and chronic 
                conditions;
                  (E) evaluate the continuity and coordination 
                of care that enrollees receive;
                  (F) have mechanisms to detect both 
                underutilization and overutilization of 
                services;
                  (G) after identifying areas for improvement, 
                establish or alter practice parameters;
                  (H) take action to improve quality and 
                assesses the effectiveness of such action 
                through systematic followup;
                  (I) make available information on quality and 
                outcomes measures to facilitate beneficiary 
                comparison and choice of health coverage 
                options (in such form and on such quality and 
                outcomes measures as the Secretary determines 
                to be appropriate);
                  (J) be evaluated on an ongoing basis as to 
                its effectiveness;
                  (K) include measures of consumer 
                satisfaction; and
                  (L) provide the Secretary with such access to 
                information collected as may be appropriate to 
                monitor and ensure the quality of care provided 
                under this part.
          (3) External review.--Each MedicarePlus organization 
        shall, for each MedicarePlus plan it operates, have an 
        agreement with an independent quality review and 
        improvement organization approved by the Secretary to 
        perform functions of the type described in sections 
        1154(a)(4)(B) and 1154(a)(14) with respect to services 
        furnished by MedicarePlus plans for which payment is 
        made under this title.
          (4) Treatment of accreditation.--The Secretary shall 
        provide that a MedicarePlus organization is deemed to 
        meet requirements of paragraphs (1) through (3) of this 
        subsection and subsection (h) (relating to 
        confidentiality and accuracy of enrollee records) if 
        the organization is accredited (and periodically 
        reaccredited) by a private organization under a process 
        that the Secretary has determined assures that the 
        organization, as a condition of accreditation, applies 
        and enforces standards with respect to the requirements 
        involved that are no less stringent than the standards 
        established under section 1856 to carry out the 
        respective requirements.
  (f) 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. The organization shall provide notice of any 
        coverage denial, which notice shall include a statement 
        of the reasons for the denial and a description of the 
        grievance and appeals processes available.
          (2) Reconsiderations.--
                  (A) In general.--Subject to subsection 
                (g)(4), a reconsideration of a determination of 
                an organization denying coverage shall be made 
                within 30 days of the date of receipt of 
                medical information, but not later than 60 days 
                after the date of the determination.
                  (B) Physician decision on certain 
                reconsiderations.--A reconsideration relating 
                to a determination to deny coverage based on a 
                lack of medical necessity shall be made only by 
                a physician with appropriate expertise in the 
                field of medicine which necessitates treatment 
                who is other than a physician involved in the 
                initial determination.
  (g) 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 with MedicarePlus plans of the 
        organization under this part.
          (2) Appeals.--An enrollee with a MedicarePlus plan of 
        a MedicarePlus 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), andboth 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 paragraph, and in applying section 205(l) thereto, any reference 
therein to the Commissioner of Social Security or the Social Security 
Administration shall be considered a reference to the Secretary or the 
Department of Health and Human Services, respectively.
          (3) Independent review of coverage denials.--The 
        Secretary shall contract with an independent, outside 
        entity to review and resolve in a timely manner 
        reconsiderations that affirm denial of coverage.
          (4) Expedited determinations and reconsiderations.--
                  (A) Receipt of requests.--An enrollee in a 
                MedicarePlus plan may request, either in 
                writing or orally, an expedited determination 
                or reconsideration by the MedicarePlus 
                organization regarding a matter described in 
                paragraph (2). The organization shall also 
                permit the acceptance of such requests by 
                physicians.
                  (B) Organization procedures.--
                          (i) In general.--The MedicarePlus 
                        organization shall maintain procedures 
                        for expediting organization 
                        determinations and reconsiderations 
                        when, upon request of an enrollee, the 
                        organization determines that the 
                        application of normal time frames for 
                        making a determination (or a 
                        reconsideration involving a 
                        determination) could seriously 
                        jeopardize the life or health of the 
                        enrollee or the enrollee's ability to 
                        regain maximum function.
                          (ii) Timely response.--In an urgent 
                        case described in clause (i), the 
                        organization shall notify the enrollee 
                        (and the physician involved, as 
                        appropriate) of the determination (or 
                        determination on the reconsideration) 
                        as expeditiously as the enrollee's 
                        health condition requires, but not 
                        later than 72 hours (or 24 hours in the 
                        case of a reconsideration) of the time 
                        of receipt of the request for the 
                        determination or reconsideration (or 
                        receipt of the information necessary to 
                        make the determination or 
                        reconsideration), or such longer period 
                        as the Secretary may permit in 
                        specified cases.
                          (iii) Secretarial report.--The 
                        Secretary shall annually report 
                        publicly on the number and disposition 
                        of denials and appeals within each 
                        MedicarePlus organization, and those 
                        reviewed and resolved by the 
                        independent entities under this 
                        subsection.
  (h) Confidentiality and Accuracy of Enrollee Records.--Each 
MedicarePlus organization shall establish procedures--
          (1) to safeguard the privacy of individually 
        identifiable enrollee information,
          (2) to maintain accurate and timely medical records 
        and other health information for enrollees, and
          (3) to assure timely access of enrollees to their 
        medical information.
  (i) Information on Advance Directives.--Each MedicarePlus 
organization shall meet the requirement of section 1866(f) 
(relating to maintaining written policies and procedures 
respecting advance directives).
  (j) Rules Regarding Physician Participation.--
          (1) Procedures.--Each MedicarePlus organization shall 
        establish reasonable procedures relating to the 
        participation (under an agreement between a physician 
        and the organization) of physicians under MedicarePlus 
        plans 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 such 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) Prohibiting interference with provider advice to 
        enrollees.--
                  (A) In general.--Subject to subparagraphs (B) 
                and (C), a MedicarePlus organization (in 
                relation to an individual enrolled under a 
                MedicarePlus plan offered by the organization 
                under this part) shall not prohibit or 
                otherwise restrict a covered health care 
                professional (as defined in subparagraph (D)) 
                from advising such an individual who is a 
                patient of the professional about the health 
                status of the individual or medical care or 
                treatment for the individual's condition or 
                disease, regardless of whether benefits for 
                such care or treatment are provided under the 
                plan, if the professional is acting within the 
                lawful scope of practice.
                  (B) Conscience protection.--Subparagraph (A) 
                shall not be construed as requiring a 
                MedicarePlus plan to provide, reimburse for, or 
                provide coverage of a counseling or referral 
                service if the MedicarePlus organization 
                offering the plan--
                          (i) objects to the provision of such 
                        service on moral or religious grounds; 
                        and
                          (ii) in the manner and through the 
                        written instrumentalities such 
                        MedicarePlus organization deems 
                        appropriate, makes available 
                        information on its policies regarding 
                        such service to prospective enrollees 
                        before or during enrollment and to 
                        enrollees within 90 days after the date 
                        that the organization or plan adopts a 
                        change in policy regarding such a 
                        counseling or referral service.
                  (C) Construction.--Nothing in subparagraph 
                (B) shall be construed to affect disclosure 
                requirements under State law or under the 
                Employee Retirement Income Security Act of 
                1974.
                  (D) Health care professional defined.--For 
                purposes of this paragraph, the term ``health 
                care professional'' means a physician (as 
                defined in section 1861(r)) or other health 
                care professional if coverage for the 
                professional's services is provided under the 
                MedicarePlus plan for the services of the 
                professional. Such term includes a podiatrist, 
                optometrist, chiropractor, psychologist, 
                dentist, physician assistant, physical or 
                occupational therapist and therapy assistant, 
                speech-language pathologist, audiologist, 
                registered or licensed practical nurse 
                (including nurse practitioner, clinical nurse 
                specialist, certified registered nurse 
                anesthetist, and certified nurse-midwife), 
                licensed certified social worker, registered 
                respiratory therapist, and certified 
                respiratory therapy technician.
          (4) Limitations on health care provider incentive 
        plans.--
                  (A) In general.--No MedicarePlus organization 
                may operate any health care provider 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 health care provider or health 
                        care provider 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 health care 
                        provider or health care provider group 
                        at substantial financial risk (as 
                        determined by the Secretary) for 
                        services not provided by the health 
                        care provider or health care provider 
                        group, the organization--
                                  (I) provides stop-loss 
                                protection for the health care 
                                provider or group that is 
                                adequate and appropriate, based 
                                on standards developed by the 
                                Secretary that take into 
                                account the number of health 
                                care providers 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 
                                health care provider or group, 
                                and
                                  (II) conducts periodic 
                                surveys of both individuals 
                                enrolled and individuals 
                                previously enrolled with the 
                                organization to determine the 
                                degree of access of such 
                                individuals to services 
                                provided by the organization 
                                and satisfaction with the 
                                quality of such services.
                          (iii) The organization provides the 
                        Secretary with descriptive information 
                        regarding the plan, sufficient to 
                        permit the Secretary to determine 
                        whether the plan is in compliance with 
                        the requirements of this subparagraph.
                  (B) Health care provider incentive plan 
                defined.--In this paragraph, the term ``health 
                care provider incentive plan'' means any 
                compensation arrangement between a MedicarePlus 
                organization and a health care provider or 
                health care provider 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.
                  (C) Health care provider defined.--For the 
                purposes of this paragraph, the term ``health 
                care provider'' has the meaning given the term 
                ``health care professional'' in paragraph 
                (3)(D).
          (5) Limitation on provider indemnification.--A 
        MedicarePlus organization may not provide (directly or 
        indirectly) for a provider (or group of providers) to 
        indemnify the organization against any liability 
        resulting from a civil action brought for any damage 
        caused to an enrollee with a MedicarePlus plan of the 
        organization under this part by the organization's 
        denial of medically necessary care.
          (6) Limitation on non-compete clause.--A MedicarePlus 
        organization may not (directly or indirectly) seek to 
        enforce any contractual provision which prevents a 
        provider whose contractual obligations to the 
        organization for the provision of services through the 
        organization have ended from joining or forming any 
        competing MedicarePlus organization that is a provider-
        sponsored organization in the same area.
  (k) Treatment of Services Furnished by Certain Providers.--A 
physician or other entity (other than a provider of services) 
that does not have a contract establishing payment amounts for 
services furnished to an individual enrolled under this part 
with a MedicarePlus organization shall accept as payment in 
full for covered services under this title that are furnished 
to such an individual the amounts that the physician or other 
entity could collect if the individual were not so enrolled. 
Any penalty or other provision of law that applies to such a 
payment with respect to an individual entitled to benefits 
under this title (but not enrolled with a MedicarePlus 
organization under this part) also applies with respect to an 
individual so enrolled.
  (l) Disclosure of Use of DSH and Teaching Hospitals.--Each 
MedicarePlus organization shall provide the Secretary with 
information on--
          (1) the extent to which the organization provides 
        inpatient and outpatient hospital benefits under this 
        part--
                  (A) through the use of hospitals that are 
                eligible for additional payments under section 
                1886(d)(5)(F)(i) (relating to so-called DSH 
                hospitals), or
                  (B) through the use of teaching hospitals 
                that receive payments under section 1886(h); 
                and
          (2) the extent to which differences between payment 
        rates to different hospitals reflect the 
        disproportionate share percentage of low-income 
        patients and the presence of medical residency training 
        programs in those hospitals.
  (m) Out-of-Network Access.--If an organization offers to 
members enrolled under this section one plan which provides for 
coverage of services covered under parts A and B primarily 
through providers and other persons who are members of a 
network of providers and other persons who have entered into a 
contract with theorganization to provide such services, nothing 
in this section shall be construed as preventing the organization from 
offering such members (at the time of enrollment) another plan which 
provides for coverage of such items which are not furnished through 
such network providers.
  (n) Non-Preemption of State Law.--A State may establish or 
enforce requirements with respect to beneficiary protections in 
this section, but only if such requirements are more stringent 
than the requirements established under this section.
  (o) Nondiscrimination in Selection of Network Health 
Professionals.--
          (1) In general.--A MedicarePlus organization offering 
        a MedicarePlus plan offering network coverage shall not 
        discriminate in selecting the members of its health 
        professional network (or in establishing the terms and 
        conditions for membership in such network) on the basis 
        of the race, national origin, gender, age, or 
        disability (other than a disability that impairs the 
        ability of an individual to provide health care 
        services or that may threaten the health of enrollees) 
        of the health professional.
          (2) Appropriate range of services.--A MedicarePlus 
        organization shall not deny any health care 
        professionals, based solely on the license or 
        certification as applicable under State law, the 
        ability to participate in providing covered health care 
        services, or be reimbursed or indemnified by a network 
        plan for providing such services under this part.
          (2) Definitions.--For purposes of this subsection:
                  (A) Network.--The term ``network'' means, 
                with respect to a MedicarePlus organization 
                offering a MedicarePlus plan, the participating 
                health professionals and providers through whom 
                the organization provides health care items and 
                services to enrollees.
                  (B) Network coverage.--The term ``network 
                coverage'' means a MedicarePlus plan offered by 
                a MedicarePlus organization that provides or 
                arranges for the provision of health care items 
                and services to enrollees through participating 
                health professionals and providers.
                  (C) Participating.--The term 
                ``participating'' means, with respect to a 
                health professional or provider, a health 
                professional or provider that provides health 
                care items and services to enrollees under 
                network coverage under an agreement with the 
                MedicarePlus organization offering the 
                coverage.
  (p) Special Rule for Unrestricted Fee-for-Service MSA 
Plans.--Subsections (j)(1) and (k) shall not apply to a 
MedicarePlus organization with respect to an MSA plan it offers 
if the plan does not limit the providers through whom benefits 
may be obtained under the plan.


                 payments to medicareplus organizations


  Sec. 1853. (a) Payments to Organizations.--
          (1) Monthly payments.--
                  (A) In general.--Under a contract under 
                section 1857 and subject to subsections (e) and 
                (f), the Secretary shall make monthly payments 
                under this section in advance to each 
                MedicarePlus organization, with respect to 
                coverage of an individual under this part in a 
                MedicarePlus payment area for a month, in an 
                amount equal to \1/12\ of the annual 
                MedicarePlus capitation rate (as calculated 
                under subsection (c)) with respect to that 
                individual for that area, adjusted for such 
                risk factors as age, disability status, gender, 
                institutional status, and such other factors as 
                the Secretary determines to be appropriate, so 
                as to ensure actuarial equivalence. The 
                Secretary may add to, modify, or substitute for 
                such factors, if such changes will improve the 
                determination of actuarial equivalence.
                  (B) Special rule for end-stage renal 
                disease.--The Secretary shall establish 
                separate rates of payment to a MedicarePlus 
                organization with respect to classes of 
                individuals determined to have end-stage renal 
                disease and enrolled in a MedicarePlus plan of 
                the organization. Such rates of payment shall 
                be actuarially equivalent to rates paid to 
                other enrollees in the MedicarePlus payment 
                area (or such other area as specified by the 
                Secretary). In accordance with regulations, the 
                Secretary shall provide for the application of 
                the seventh sentence of section 1881(b)(7) to 
                payments under this section covering the 
                provision of renal dialysis treatment in the 
                same manner as such sentence applies to 
                composite rate payments described in such 
                sentence.
          (2) Adjustment to reflect number of enrollees.--
                  (A) In general.--The amount of payment under 
                this subsection may be retroactively adjusted 
                to take into account any difference between the 
                actual number of individuals enrolled with an 
                organization under this part and the number of 
                such individuals estimated to be so enrolled in 
                determining the amount of the advance payment.
                  (B) Special rule for certain enrollees.--
                          (i) In general.--Subject to clause 
                        (ii), the Secretary may make 
                        retroactive adjustments under 
                        subparagraph (A) to take into account 
                        individuals enrolled during the period 
                        beginning on the date on which the 
                        individual enrolls with a MedicarePlus 
                        organization under a plan operated, 
                        sponsored, or contributed to by the 
                        individual's employer or former 
                        employer (or the employer or former 
                        employer of the individual's spouse) 
                        and ending on the date on which the 
                        individual is enrolled in the 
                        organization under this part, except 
                        that for purposes of making such 
                        retroactive adjustments under this 
                        subparagraph, such period may not 
                        exceed 90 days.
                          (ii) Exception.--No adjustment may be 
                        made under clause (i) with respect to 
                        any individual who does not certify 
                        that the organization provided the 
                        individual with the information 
                        required to be disclosed under section 
                        1852(c) at the time the individual 
                        enrolled with the organization.
          (3) Establishment of risk adjustment factors.--
                  (A) Report.--The Secretary shall develop, and 
                submit to Congress by not later than October 1, 
                1999, a report on a method of risk adjustment 
                of payment rates under this section that 
                accounts for variations in per capita costs 
                based on health status. Such report shall 
                include an evaluation of such method by an 
                outside, independent actuary of the actuarial 
                soundness of the proposal.
                  (B) Data collection.--In order to carry out 
                this paragraph, the Secretary shall require 
                MedicarePlus organizations (and eligible 
                organizations with risk-sharing contracts under 
                section 1876) to submit, for periods beginning 
                on or after January 1, 1998, data regarding 
                inpatient hospital services and other services 
                and other information the Secretary deems 
                necessary.
                  (C) Initial implementation.--The Secretary 
                shall first provide for implementation of a 
                risk adjustment methodology that accounts for 
                variations in per capita costs based on health 
                status and other demographic factors for 
                payments by no later than January 1, 2000.
  (b) Annual Announcement of Payment Rates.--
          (1) Annual announcement.--The Secretary shall 
        annually determine, and shall announce (in a manner 
        intended to provide notice to interested parties) not 
        later than August 1 before the calendar year 
        concerned--
                  (A) the annual MedicarePlus capitation rate 
                for each MedicarePlus payment area for the 
                year, and
                  (B) the risk and other factors to be used in 
                adjusting such rates under subsection (a)(1)(A) 
                for payments for months in that year.
          (2) Advance notice of methodological changes.--At 
        least 45 days before making the announcement under 
        paragraph (1) for a year, the Secretary shall provide 
        for notice to MedicarePlus organizations of proposed 
        changes to be made in the methodology from the 
        methodology and assumptions used in the previous 
        announcement and shall provide such organizations an 
        opportunity to comment on such proposed changes.
          (3) Explanation of assumptions.--In each announcement 
        made under paragraph (1), the Secretary shall include 
        an explanation of the assumptions and changes in 
        methodology used in the announcement in sufficient 
        detail so that MedicarePlus organizations can compute 
        monthly adjusted MedicarePlus capitation rates for 
        individuals in each MedicarePlus payment area which is 
        in whole or in part within the service area of such an 
        organization.
  (c) Calculation of Annual MedicarePlus Capitation Rates.--
          (1) In General.--For purposes of this part, each 
        annual MedicarePlus capitation rate, for a MedicarePlus 
        payment area for a contract year consisting of a 
        calendar year, is equal to the largest of the amounts 
        specified in the following subparagraphs (A), (B), or 
        (C):
                  (A) Blended capitation rate.--The sum of--
                          (i) area-specific percentage for the 
                        year (as specified under paragraph (2) 
                        for the year) of the annual area-
                        specific MedicarePlus capitation rate 
                        for the year for the MedicarePlus 
                        payment area, as determined under 
                        paragraph (3), and
                          (ii) national percentage (as 
                        specified under paragraph (2) for the 
                        year) of the input-price-adjusted 
                        annual national MedicarePlus capitation 
                        rate for the year, as determined under 
                        paragraph (4),
                multiplied by the payment adjustment factors 
                described in subparagraphs (A) and (B) of 
                paragraph (5).
                  (B) Minimum amount.--12 multiplied by the 
                following amount:
                          (i) For 1998, $350 (but not to 
                        exceed, in the case of an area outside 
                        the 50 States and the District of 
                        Columbia, 150 percent of the annual per 
                        capita rate of payment for 1997 
                        determined under section 1876(a)(1)(C) 
                        for the area).
                          (ii) For a succeeding year, the 
                        minimum amount specified in this clause 
                        (or clause (i)) for the preceding year 
                        increased by the national per capita 
                        MedicarePlus growth percentage, 
                        specified under paragraph (6) for that 
                        succeeding year.
                  (C) Minimum percentage increase.--
                          (i) For 1998, the annual per capita 
                        rate of payment for 1997 determined 
                        under section 1876(a)(1)(C) for the 
                        MedicarePlus payment area.
                          (ii) For 1999 and 2000, 101 percent 
                        of the annual MedicarePlus capitation 
                        rate under this paragraph for the area 
                        for the previous year.
                          (iii) For a subsequent year, 102 
                        percent of the annual MedicarePlus 
                        capitation rate under this paragraph 
                        for the area for the previous year.
          (2) Area-specific and national percentages.--For 
        purposes of paragraph (1)(A)--
                  (A) for 1998, the ``area-specific 
                percentage'' is 90 percent and the ``national 
                percentage'' is 10 percent,
                  (B) for 1999, the ``area-specific 
                percentage'' is 85 percent and the ``national 
                percentage'' is 15 percent,
                  (C) for 2000, the ``area-specific 
                percentage'' is 80 percent and the ``national 
                percentage'' is 20 percent,
                  (D) for 2001, the ``area-specific 
                percentage'' is 75 percent and the ``national 
                percentage'' is 25 percent, and
                  (E) for a year after 2001, the ``area-
                specific percentage'' is 70 percent and the 
                ``national percentage'' is 30 percent.
          (3) Annual area-specific medicareplus capitation 
        rate.--
                  (A) In general.--For purposes of paragraph 
                (1)(A), subject to subparagraph (B), the annual 
                area-specific MedicarePlus capitation rate for 
                a MedicarePlus payment area--
                          (i) for 1998 is the annual per capita 
                        rate of payment for 1997 determined 
                        under section 1876(a)(1)(C) for the 
                        area, increased by the national per 
                        capita MedicarePlus growth percentage 
                        for 1998 (as defined in paragraph (6)); 
                        or
                          (ii) for a subsequent year is the 
                        annual area-specific MedicarePlus 
                        capitation rate for the previous year 
                        determined under this paragraph for the 
                        area, increased by the national per 
                        capita MedicarePlus growth percentage 
                        for such subsequent year.
                  (B) Removal of medical education and 
                disproportionate share hospital payments from 
                calculation of adjusted average per capita 
                cost.--
                          (i) In general.--In determining the 
                        area-specific MedicarePlus capitation 
                        rate under subparagraph (A), for a year 
                        (beginning with 1998), the annual per 
                        capita rate of payment for 1997 
                        determined under section 1876(a)(1)(C) 
                        shall be adjusted to exclude from the 
                        rate the applicable percent (specified 
                        in clause (ii)) of the payment 
                        adjustments described in subparagraph 
                        (C).
                          (ii) Applicable percent.--For 
                        purposes of clause (i), the applicable 
                        percent for--
                                  (I) 1998 is 20 percent,
                                  (II) 1999 is 40 percent,
                                  (III) 2000 is 60 percent,
                                  (IV) 2001 is 80 percent, and
                                  (V) a succeeding year is 100 
                                percent.
                  (C) Payment adjustment.--The payment 
                adjustments described in this subparagraph are 
                payment adjustments which the Secretary 
                estimates were payable during 1997--
                          (i) under section 1886(d)(5)(F) for 
                        hospitals serving a disproportionate 
                        share of low-income patients,
                          (ii) for the indirect costs of 
                        medical education under section 
                        1886(d)(5)(B), and
                          (iii) for direct graduate medical 
                        education costs under section 1886(h),
                multiplied by a ratio (estimated by the 
                Secretary) of total payments under subsection 
                (h) and section 1858 in 1998 to payments under 
                such subsection and payments under such section 
                in such year for hospitals not reimbursed under 
                section 1814(b)(3).
          (4) Input-price-adjusted annual national medicareplus 
        capitation rate.--
                  (A) In general.--For purposes of paragraph 
                (1)(A), the input-price-adjusted annual 
                national MedicarePlus capitation rate for a 
                MedicarePlus payment area for a year is equal 
                to the sum, for all the types of medicare 
                services (as classified by the Secretary), of 
                the product (for each such type of service) 
                of--
                          (i) the national standardized annual 
                        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 annual medicareplus 
                capitation rate.--In subparagraph (A)(i), the 
                ``national standardized annual MedicarePlus 
                capitation rate'' for a year is equal to--
                          (i) the sum (for all MedicarePlus 
                        payment areas) of the product of--
                                  (I) the annual area-specific 
                                MedicarePlus capitation rate 
                                for that year for the area 
                                under paragraph (3), and
                                  (II) the average number of 
                                medicare beneficiaries residing 
                                in that area in the year, 
                                multiplied by the average of 
                                the risk factor weights used to 
                                adjust payments under 
                                subsection (a)(1)(A) for such 
                                beneficiaries in such area; 
                                divided by
                          (ii) the sum of the products 
                        described in clause (i)(II) for all 
                        areas for that year.
                  (C) Special rules for 1998.--In applying this 
                paragraph for 1998--
                          (i) medicare services shall be 
                        divided into 2 types of services: part 
                        A services and part B services;
                          (ii) the proportions described in 
                        subparagraph (A)(ii)--
                                  (I) for part A services shall 
                                be the ratio (expressed as a 
                                percentage) of the national 
                                average annual per capita rate 
                                of payment for part A for 1997 
                                to the total national average 
                                annual per capita rate of 
                                payment for parts A and B for 
                                1997, and
                                  (II) for part B services 
                                shall be 100 percent minus the 
                                ratio described in subclause 
                                (I);
                          (iii) for part A services, 70 percent 
                        of payments attributable to such 
                        services shall be adjusted by the index 
                        used under section 1886(d)(3)(E) to 
                        adjust payment rates for relative 
                        hospital wage levels for hospitals 
                        located in the payment area involved;
                          (iv) for part B services--
                                  (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, 40 percent shall be 
                                adjusted by the index described 
                                in clause (iii); and
                          (v) the index values shall be 
                        computed based only on the beneficiary 
                        population who are 65 years of age or 
                        older and who are not determined to 
                        have end stage renal disease.

                The Secretary may continue to apply the rules 
                described in this subparagraph (or similar 
                rules) for 1999.
          (5) Payment adjustment budget neutrality factors.--
        For purposes of paragraph (1)(A)--
                  (A) Blended rate payment adjustment factor.--
                For each year, the Secretary shall compute a 
                blended rate payment adjustment factor such 
                that, not taking into account subparagraphs (B) 
                and (C) of paragraph (1) and the application of 
                the payment adjustment factor described in 
                subparagraph (B) but taking into account 
                paragraph (7), the aggregate of the payments 
                that would be made under this part is equal to 
                the aggregate payments that would have been 
                made under this part (not taking into account 
                such subparagraphs and such other adjustment 
                factor) if the area-specific percentage under 
                paragraph (1) for the year had been 100 percent 
                and the national percentage had been 0 percent.
                  (B) Floor-and-minimum-update payment 
                adjustment factor.--For each year, the 
                Secretary shall compute a floor-and-minimum-
                update payment adjustment factor so that, 
                taking into account the application of the 
                blended rate payment adjustment factor under 
                subparagraph (A) and subparagraphs (B) and (C) 
                of paragraph (1) and the application of the 
                adjustment factor under this subparagraph, the 
                aggregate of the payments under this part shall 
                not exceed the aggregate payments that would 
                have been made under this part if subparagraphs 
                (B) and (C) of paragraph (1) did not apply and 
                if the floor-and-minimum-update payment 
                adjustment factor under this subparagraph was 
                1.
          (6) National per capita medicareplus growth 
        percentage defined.--
                  (A) In general.--In this part, the ``national 
                per capita MedicarePlus growth percentage'' for 
                a year is the percentage determined by the 
                Secretary, by April 30th before the beginning 
                of the year involved, to reflect the 
                Secretary's estimate of the projected per 
                capita rate of growth in expenditures under 
                this title for an individual entitled to 
                benefits under part A and enrolled under part 
                B, reduced by the number of percentage points 
                specified in subparagraph (B) for the year. 
                Separate determinations may be made for aged 
                enrollees, disabled enrollees, and enrollees 
                with end-stage renal disease. Such percentage 
                shall include an adjustment for over or under 
                projection in the growth percentage for 
                previous years.
                  (B) Adjustment.--The number of percentage 
                points specified in this subparagraph is--
                          (i) for 1998, 0.5 percentage points,
                          (ii) for 1999, 0.5 percentage points,
                          (iii) for 2000, 0.5 percentage 
                        points,
                          (iv) for 2001, 0.5 percentage points,
                          (v) for 2002, 0.5 percentage points, 
                        and
                          (vi) for a year after 2002, 0 
                        percentage points.
          (7) treatment of areas with highly variable payment 
        rates.--In the case of a MedicarePlus payment area for 
        which the annual per capita rate of payment determined 
        under section 1876(a)(1)(C) for 1997 varies by more 
        than 20 percent from such rate for 1996, for purposes 
        of this subsection the Secretary may substitute for 
        such rate for 1997 a rate that is more representative 
        of the costs of the enrollees in the area.
  (d) MedicarePlus Payment Area Defined.--
          (1) In general.--In this part, except as provided in 
        paragraph (3), the term ``MedicarePlus payment area'' 
        means a county, or equivalent area specified by the 
        Secretary.
          (2) Rule for esrd beneficiaries.--In the case of 
        individuals who are determined to have end stage renal 
        disease, the MedicarePlus payment area shall be a State 
        or such other payment area as the Secretary specifies.
          (3) Geographic adjustment.--
                  (A) In general.--Upon written request of the 
                chief executive officer of a State for a 
                contract year (beginning after 1998) made at 
                least 7 months before the beginning of the 
                year, the Secretary shall make a geographic 
                adjustment to a MedicarePlus payment area in 
                the State otherwise determined under paragraph 
                (1)--
                          (i) to a single statewide 
                        MedicarePlus payment area,
                          (ii) to the metropolitan based system 
                        described in subparagraph (C), or
                          (iii) to consolidating into a single 
                        MedicarePlus payment area noncontiguous 
                        counties (or equivalent areas described 
                        in paragraph (1)) within a State.

                Such adjustment shall be effective for payments 
                for months beginning with January of the year 
                following the year in which the request is 
                received.
                  (B) Budget neutrality adjustment.--In the 
                case of a State requesting an adjustment under 
                this paragraph, the Secretary shall adjust the 
                payment rates otherwise established under this 
                section for MedicarePlus payment areas in the 
                State in a manner so that the aggregate of the 
                payments under this section in the State shall 
                not exceed the aggregate payments that would 
                have been made under this section for 
                MedicarePlus payment areas in the State in the 
                absence of the adjustment under this paragraph.
                  (C) Metropolitan based system.--The 
                metropolitan based system described in this 
                subparagraph is one in which--
                          (i) all the portions of each 
                        metropolitan statistical area in the 
                        State or in the case of a consolidated 
                        metropolitan statistical area, all of 
                        the portions of each primary 
                        metropolitan statistical area within 
                        the consolidated area within the State, 
                        are treated as a single MedicarePlus 
                        payment area, and
                          (ii) all areas in the State that do 
                        not fall within a metropolitan 
                        statistical area are treated as a 
                        single MedicarePlus payment area.
                  (D) Areas.--In subparagraph (C), the terms 
                ``metropolitan statistical area'', 
                ``consolidated metropolitan statistical area'', 
                and ``primary metropolitan statistical area'' 
                mean any area designated as such by the 
                Secretary of Commerce.
  (e) Special Rules for Individuals Electing MSA Plans.--
          (1) In general.--If the amount of the monthly premium 
        for an MSA plan for a MedicarePlus payment area for a 
        year is less than \1/12\ of the annual MedicarePlus 
        capitation rate applied under this section for the area 
        and year involved, the Secretary shall deposit an 
        amount equal to 100 percent of such difference in a 
        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 an MSA plan, no payment shall be 
        made under paragraph (1) on behalf of an individual for 
        a month unless the individual--
                  (A) has established before the beginning of 
                the month (or by such other deadline as the 
                Secretary may specify) a MedicarePlus MSA (as 
                defined in section 138(b)(2) of the Internal 
                Revenue Code of 1986), and
                  (B) if the individual has established more 
                than one such 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 an 
        MSA plan 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.
  (f) 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 (e)(1) shall be made from the Federal 
Hospital Insurance Trust Fund and the Federal Supplementary 
Medical Insurance Trust Fund in such proportion as the 
Secretary determines reflects the relative weight that benefits 
under part A and under part B represents of the actuarial value 
of the total benefits under this title. Monthly payments 
otherwise payable under this section for October 2001 shall be 
paid on the last business day of September 2001.
  (g) Special Rule for Certain Inpatient Hospital Stays.--In 
the case of an individual who is receiving inpatient hospital 
services from a subsection (d) hospital (as defined in section 
1886(d)(1)(B)) as of the effective date of the individual's--
          (1) election under this part of a MedicarePlus plan 
        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 plan 
                or the medicare fee-for-service program option 
                described in section 1851(a)(1)(A) (as the case 
                may be) elected before the election with such 
                organization,
                  (B) the elected organization shall not be 
                financially responsible for payment for such 
                services until the date after the date of the 
                individual's discharge, and
                  (C) the organization shall nonetheless be 
                paid the full amount otherwise payable to the 
                organization under this part; or
          (2) termination of election with respect to a 
        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.
  (h) Payments for Direct Costs of Graduate Medical Education 
Programs.--
          (1) Additional payment to be made.--Effective January 
        1, 1998, each contract with a MedicarePlus organization 
        under this section (and each risk-sharing contract with 
        an eligible organization under section 1876) shall 
        provide for an additional payment for Medicare's share 
        of allowable direct graduate medical education costs 
        incurred by such an organization for an approved 
        medical residency program.
          (2) Allowable costs.--If the organization has an 
        approved medical residency program that incurs all or 
        substantially all of the costs of the program, subject 
        to section 1858(a)(3), the allowable costs for such a 
        program shall equal the national average per resident 
        amount times the number of full-time-equivalent 
        residents in the program in non-hospital settings.
          (3) Definitions.--As used in this subsection:
                  (A) The terms ``approved medical residency 
                program'', ``direct graduate medical education 
                costs'', and ``full-time-equivalent residents'' 
                have the same meanings as under section 
                1886(h).
                  (B) The term ``Medicare's share'' means, with 
                respect to a MedicarePlus or eligible 
                organization, the ratio of the number of 
                individuals enrolled with the organization 
                under this part (or enrolled under a risk-
                sharing contract under section 1876, 
                respectively) to the total number of 
                individuals enrolled with the organization.
                  (C) The term ``national average per resident 
                amount'' means an amount estimated by the 
                Secretary to equal the weighted average amount 
                that would be paid per full-time-equivalent 
                resident under section 1886(h) for the calendar 
                year (determined separately for primary care 
                residency programs as defined under section 
                1886(h) (including obstetrics and gynecology 
                residency programs) and for other residency 
                programs).


                                premiums


  Sec. 1854. (a) Submission and Charging of Premiums.--
          (1) In general.--Subject to paragraph (3), 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 premium for 
                coverage for services under section 1852(a) 
                under each MedicarePlus plan it offers under 
                this part in each MedicarePlus payment area (as 
                defined in section 1853(d)) in which the plan 
                is being offered; and
                  (B) the enrollment capacity in relation to 
                the plan in each such area.
          (2) Terminology.--In this part--
                  (A) the term ``monthly premium'' means, with 
                respect to a MedicarePlus plan offered by a 
                MedicarePlus organization, the monthly premium 
                filed under paragraph (1), not taking into 
                account the amount of any payment made toward 
                the premium under section 1853; and
                  (B) the term ``net monthly premium'' means, 
                with respect to such a plan and an individual 
                enrolled with the plan, the premium (as defined 
                in subparagraph (A)) for the plan reduced by 
                the amount of payment made toward such premium 
                under section 1853.
  (b) Monthly Premium Charged.--The monthly amount of the 
premium charged by a MedicarePlus organization for a 
MedicarePlus plan offered in a MedicarePlus payment area to an 
individual under this part shall be equal to the net monthly 
premium plus any monthly premium charged in accordance with 
subsection (e)(2) for supplemental benefits.
  (c) Uniform Premium.--The monthly premium and monthly amount 
charged under subsection (b) of a MedicarePlus organization 
under this part may not vary among individuals who reside in 
the same MedicarePlus payment area.
  (d) Terms and Conditions of Imposing Premiums.--Each 
MedicarePlus organization shall permit the payment of net 
monthly premiums on a monthly basis and may terminate election 
of individuals for a MedicarePlus plan for failure to make 
premium payments only in accordance with section 
1851(g)(3)(B)(i). A MedicarePlus organization is not authorized 
to provide for cash or other monetary rebates as an inducement 
for enrollment or otherwise.
  (e) Limitation on Enrollee Cost-Sharing.--
          (1) For basic and additional benefits.--Except as 
        provided in paragraph (2), in no event may--
                  (A) the net monthly premium (multiplied by 
                12) and the actuarial value of the deductibles, 
                coinsurance, and copayments applicable on 
                average to individuals enrolled under this part 
                with a MedicarePlus plan of an organization 
                with respect to required benefits described in 
                section 1852(a)(1) and additional benefits (if 
                any) required under subsection (f)(1) for a 
                year, exceed
                  (B) the actuarial value of the deductibles, 
                coinsurance, and copayments that would be 
                applicable on average to individuals entitled 
                to benefits under part A and enrolled under 
                part B if they were not members of a 
                MedicarePlus organization for the year.
          (2) For supplemental benefits.--If the MedicarePlus 
        organization provides to its members enrolled under 
        this part supplemental benefits described in section 
        1852(a)(3), the sum of the monthly premium rate 
        (multiplied by 12) charged for such supplemental 
        benefits and the actuarial value of its deductibles, 
        coinsurance, and copayments charged with respect to 
        such benefits may not exceed the adjusted community 
        rate for such benefits (as defined in subsection 
        (f)(4)).
          (3) Exception for msa plans.--Paragraphs (1) and (2) 
        do not apply to an MSA plan.
          (4) Determination on other basis.--If the Secretary 
        determines that adequate data are not available to 
        determine the actuarial value under paragraph (1)(A) or 
        (2), the Secretary may determine such amount with 
        respect to all individuals in the MedicarePlus payment 
        area, the State, or in the United States, eligible to 
        enroll in the MedicarePlus plan involved under this 
        part or on the basis of other appropriate data.
  (f) Requirement for Additional Benefits.--
          (1) Requirement.--
                  (A) In general.--Each MedicarePlus 
                organization (in relation to a MedicarePlus 
                plan it offers) shall provide that if there is 
                an excess amount (as defined in subparagraph 
                (B)) for the plan for a contract year, subject 
                to the succeeding provisions of this 
                subsection, the organization shall provide to 
                individuals such additional benefits (as the 
                organization may specify) in a value which is 
                at least equal to the adjusted excess amount 
                (as defined in subparagraph (C)).
                  (B) Excess amount.--For purposes of this 
                paragraph, the ``excess amount'', for an 
                organization for a plan, is the amount (if any) 
                by which--
                          (i) the average of the capitation 
                        payments made to the organization under 
                        section 1853 for the plan at the 
                        beginning of contract year, exceeds
                          (ii) the actuarial value of the 
                        required benefits described in section 
                        1852(a)(1) under the plan for 
                        individuals under this part, as 
                        determined based upon an adjusted 
                        community rate described in paragraph 
                        (4) (as reduced for the actuarial value 
                        of the coinsurance and deductibles 
                        under parts A and B).
                  (C) Adjusted excess amount.--For purposes of 
                this paragraph, the ``adjusted excess amount'', 
                for an organization for a plan, is the excess 
                amount reduced to reflect any amount withheld 
                and reserved for the organization for the year 
                under paragraph (2).
                  (D) No application to msa plans.--
                Subparagraph (A) shall not apply to an MSA 
                plan.
                  (E) Uniform application.--This paragraph 
                shall be applied uniformly for all enrollees 
                for a plan in a MedicarePlus payment 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) Stabilization fund.--A MedicarePlus organization 
        may provide that a part of the value of an excess 
        amount described in paragraph (1) be withheld and 
        reserved in the Federal Hospital Insurance Trust Fund 
        and in the Federal Supplementary Medical Insurance 
        Trust Fund (in such proportions as the Secretary 
        determines to be appropriate) by the Secretary for 
        subsequent annual contract periods, to the extent 
        required to stabilize and prevent undue fluctuations in 
        the additional benefits offered in those subsequent 
        periods by the organization in accordance with such 
        paragraph. Any of such value of the amount reserved 
        which is not provided as additional benefits described 
        in paragraph (1)(A) to individuals electing the 
        MedicarePlus plan of the organization in accordance 
        with such paragraph prior to the end of such periods, 
        shall revert for the use of such trust funds.
          (3) Determination based on insufficient data.--For 
        purposes of this subsection, if the Secretary finds 
        that there is insufficient enrollment experience 
        (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.
          (4) Adjusted community rate.--
                  (A) In general.--For purposes of this 
                subsection, subject to subparagraph (B), the 
                term ``adjusted community rate'' for a service 
                or services means, at the election of a 
                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 plan 
                        under this part if the rate of payment 
                        were determined under a ``community 
                        rating system'' (as defined in section 
                        1302(8) of the Public Health Service 
                        Act, other than subparagraph (C)), or
                          (ii) such portion of the weighted 
                        aggregate premium, which the Secretary 
                        annually estimates would apply to such 
                        an individual, as the Secretary 
                        annually estimates is attributable to 
                        that service or services,
                but adjusted for differences between the 
                utilization characteristics of the individuals 
                electing coverage under this part and the 
                utilization characteristics of the other 
                enrollees with the plan (or, if the Secretary 
                finds that adequate data are not available to 
                adjust for those differences, the differences 
                between the utilization characteristics of 
                individuals selecting other MedicarePlus 
                coverage, or MedicarePlus eligible 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 plan of the 
                organization may be computed (in a manner 
                specified by the Secretary) using data in the 
                general commercial marketplace or (during a 
                transition period) based on the costs incurred 
                by the organization in providing such a plan.
  (g) Periodic Auditing.--The Secretary shall provide for the 
annual auditing of the financial records (including data 
relating to medicare utilization, costs, and computation of the 
adjusted community rate) of at least one-third of the 
MedicarePlus organizations offering MedicarePlus plans under 
this part. The Comptroller General shall monitor auditing 
activities conducted under this subsection.
  (h) Prohibition of State Imposition of Premium Taxes.--No 
State may impose a premium tax or similar tax with respect to 
premiums on MedicarePlus plans or the offering of such plans.


      organizational and financial requirements for medicareplus 
            organizations; provider-sponsored organizations


  Sec. 1855. (a) Organized and Licensed Under State Law.--
          (1) In general.--Subject to paragraphs (2) and (3), a 
        MedicarePlus organization shall be organized and 
        licensed under State law as a risk-bearing entity 
        eligible to offer health insurance or health benefits 
        coverage in each State in which it offers a 
        MedicarePlus plan.
          (2) Special exception for provider-sponsored 
        organizations.--
                  (A) In general.--In the case of a provider-
                sponsored organization that seeks to offer a 
                MedicarePlus plan in a State, the Secretary 
                shall waive the requirement of paragraph (1) 
                that the organization be licensed in that State 
                if--
                          (i) the organization files an 
                        application for such waiver with the 
                        Secretary, and
                          (ii) the Secretary determines, based 
                        on the application and other evidence 
                        presented to the Secretary, that any of 
                        the grounds for approval of the 
                        application described in subparagraph 
                        (B), (C), or (D) has been met.
                  (B) Failure to act on licensure application 
                on a timely basis.--A ground for approval of 
                such a waiver application is that the State has 
                failed to complete action on a licensing 
                application of the organization within 90 days 
                of the date of the State's receipt of the 
                completed application. No period before the 
                date of the enactment of this section shall be 
                included in determining such 90-day period.
                  (C) Denial of application based on 
                discriminatory treatment.--A ground for 
                approval of such a waiverapplication is that 
the State has denied such a licensing application and--
                          (i) the State has imposed 
                        documentation or information 
                        requirements not related to solvency 
                        requirements that are not generally 
                        applicable to other entities engaged in 
                        substantially similar business, or
                          (ii) the standards or review process 
                        imposed by the State as a condition of 
                        approval of the license imposes any 
                        material requirements, procedures, or 
                        standards (other than requirements and 
                        standards relating to solvency) to such 
                        organizations that are not generally 
                        applicable to other entities engaged in 
                        substantially similar business.
                  (D) Denial of application based on 
                application of solvency requirements.--A ground 
                for approval of such a waiver application is 
                that the State has denied such a licensing 
                application based (in whole or in part) on the 
                organization's failure to meet applicable 
                solvency requirements and--
                          (i) such requirements are not the 
                        same as the solvency standards 
                        established under section 1856(a); or
                          (ii) the State has imposed as a 
                        condition of approval of the license 
                        any documentation or information 
                        requirements relating to solvency or 
                        other material requirements, 
                        procedures, or standards relating to 
                        solvency that are different from the 
                        requirements, procedures, and standards 
                        applied by the Secretary under 
                        subsection (d)(2).
                For purposes of this subparagraph, the term 
                ``solvency requirements'' means requirements 
                relating to solvency and other matters covered 
                under the standards established under section 
                1856(a).
                  (E) Treatment of waiver.--In the case of a 
                waiver granted under this paragraph for a 
                provider-sponsored organization--
                          (i) the waiver shall be effective for 
                        a 36-month period, except it may be 
                        renewed based on a subsequent 
                        application filed during the last 6 
                        months of such period,
                          (ii) the waiver is conditioned upon 
                        the pendency of the licensure 
                        application during the period the 
                        waiver is in effect, and
                          (iii) any provisions of State law 
                        which relate to the licensing of the 
                        organization and which prohibit the 
                        organization from providing coverage 
                        pursuant to a contract under this part 
                        shall be superseded.
                Nothing in this subparagraph shall be construed 
                as limiting the number of times such a waiver 
                may be renewed. Nothing in clause (iii) shall 
                be construed as waiving any provision of State 
                law which relates to quality of care or 
                consumer protection (and does not relate to 
                solvency standards) and which is imposed on a 
                uniform basis and is generally applicable to 
                other entities engaged in substantially similar 
                business.
                  (F) Prompt action on application.--The 
                Secretary shall grant or deny such a waiver 
                application within 60 days after the date the 
                Secretary determines that a substantially 
                complete application has been filed. Nothing in 
                this section shall be construed as preventing 
                an organization which has had such a waiver 
                application denied from submitting a subsequent 
                waiver application.
          (3) Exception if required to offer more than 
        medicareplus plans.--Paragraph (1) shall not apply to a 
        MedicarePlus organization in a State if the State 
        requires the organization, as a condition of licensure, 
        to offer any product or plan other than a MedicarePlus 
        plan.
          (4) Licensure does not substitute for or constitute 
        certification.--The fact that an organization is 
        licensed in accordance with paragraph (1) does not deem 
        the organization to meet other requirements imposed 
        under this part.
  (b) Prepaid Payment.--A MedicarePlus organization shall be 
compensated (except for premiums, deductibles, coinsurance, and 
copayments) for the provision of health care services to 
enrolled members under the contract under this part by a 
payment which is paid on a periodic basis without regard to the 
date the health care services are provided and which is fixed 
without regard to the frequency, extent, or kind of health care 
service actually provided to a member.
  (c) Assumption of Full Financial Risk.--The MedicarePlus 
organization shall assume full financial risk on a prospective 
basis for the provision of the health care services (except, at 
the election of the organization, hospice care) for which 
benefits are required to be provided under section 1852(a)(1), 
except that the organization--
          (1) may obtain insurance or make other arrangements 
        for the cost of providing to any enrolled member such 
        services the aggregate value of which 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.
  (d) Certification of Provision Against Risk of Insolvency for 
Unlicensed PSOs.--
          (1) In general.--Each MedicarePlus organization that 
        is a provider-sponsored organization, that is not 
        licensed by a State under subsection (a), and for which 
        a waiver application has been approved under subsection 
        (a)(2), shall meet standardsestablished under section 
1856(a) relating to the financial solvency and capital adequacy of the 
organization.
          (2) Certification process for solvency standards for 
        psos.--The Secretary shall establish a process for the 
        receipt and approval of applications of a provider-
        sponsored organization described in paragraph (1) for 
        certification (and periodic recertification) of the 
        organization as meeting such solvency standards. Under 
        such process, the Secretary shall act upon such an 
        application not later than 60 days after the date the 
        application has been received.
  (e) Provider-Sponsored Organization Defined.--
          (1) In general.--In this part, the term ``provider-
        sponsored organization'' means a public or private 
        entity--
                  (A) that is established or organized by a 
                health care provider, or group of affiliated 
                health care providers,
                  (B) that provides a substantial proportion 
                (as defined by the Secretary in accordance with 
                paragraph (2)) of the health care items and 
                services under the contract under this part 
                directly through the provider or affiliated 
                group of providers, and
                  (C) with respect to which those affiliated 
                providers that share, directly or indirectly, 
                substantial financial risk with respect to the 
                provision of such items and services have at 
                least a majority financial interest in the 
                entity.
          (2) Substantial proportion.--In defining what is a 
        ``substantial proportion'' for purposes of paragraph 
        (1)(B), the Secretary--
                  (A) shall take into account (i) the need for 
                such an organization to assume responsibility 
                for a substantial proportion of services in 
                order to assure financial stability and (ii) 
                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) both providers are part of a controlled 
                group of corporations under section 1563 of the 
                Internal Revenue Code of 1986, or
                  (C) both providers are part of an affiliated 
                service group under section 414 of such Code.
          (4) Control.--For purposes of paragraph (3), control 
        is presumed to exist if one party, directly or 
        indirectly, owns, controls, or holds the power to vote, 
        or proxies for, not less than 51 percent of the voting 
        rights or governance rights of another.
          (5) Health care provider defined.--In this 
        subsection, the term ``health care provider'' means--
                  (A) any individual who is engaged in the 
                delivery of health care services in a State and 
                who is required by State law or regulation to 
                be licensed or certified by the State to engage 
                in the delivery of such services in the State, 
                and
                  (B) any entity that is engaged in the 
                delivery of health care services in a State and 
                that, if it is required by State law or 
                regulation to be licensed or certified by the 
                State to engage in the delivery of such 
                services in the State, is so licensed.
          (6) Regulations.--The Secretary shall issue 
        regulations to carry out this subsection.


                       establishment of standards


  Sec. 1856. (a) Establishment of Solvency Standards for 
Provider-Sponsored Organizations.--
          (1) Establishment.--
                  (A) In general.--The Secretary shall 
                establish, on an expedited basis and using a 
                negotiated rulemaking process under subchapter 
                III of chapter 5 of title 5, United States 
                Code, standards described in section 1855(d)(1) 
                (relating to the financial solvency and capital 
                adequacy of the organization) that entities 
                must meet to qualify as provider-sponsored 
                organizations under this part.
                  (B) Factors to consider for solvency 
                standards.--In establishing solvency standards 
                under subparagraph (A) for provider-sponsored 
                organizations, the Secretary shall consult with 
                interested parties and shall take into 
                account--
                          (i) the delivery system assets of 
                        such an organization and ability of 
                        such an organization to provide 
                        services directly to enrollees through 
                        affiliated providers, and
                          (ii) alternative means of protecting 
                        against insolvency, including 
                        reinsurance, unrestricted surplus, 
                        letters of credit, guarantees, 
                        organizational insurance coverage, 
                        partnerships with other licensed 
                        entities, and valuation attributable to 
                        the ability of such an organization to 
                        meet its service obligations through 
                        direct delivery of care.
                  (C) Enrollee protection against insolvency.--
                Such standards shall include provisions to 
                prevent enrollees from being held liable to any 
                person or entity for the MedicarePlus 
                organization's debts in the event of the 
                organization's insolvency.
          (2) Publication of notice.--In carrying out the 
        rulemaking process under this subsection, the 
        Secretary, after consultation with the National 
        Association of Insurance Commissioners, the American 
        Academy of Actuaries, organizations representative of 
        medicare beneficiaries, and other interested parties, 
        shall publish the notice provided for under section 
        564(a) of title 5, United States Code, by not later 
        than 45 days after the date of the enactment of this 
        section.
          (3) Target date for publication of rule.--As part of 
        the notice under paragraph (2), and for purposes of 
        this subsection, the ``target date for publication'' 
        (referred to in section 564(a)(5) of such title) shall 
        be April 1, 1998.
          (4) Abbreviated period for submission of comments.--
        In applying section 564(c) of such title under this 
        subsection, ``15 days'' shall be substituted for ``30 
        days''.
          (5) Appointment of negotiated rulemaking committee 
        and facilitator.--The Secretary shall provide for--
                  (A) the appointment of a negotiated 
                rulemaking committee under section 565(a) of 
                such title by not later than 30 days after the 
                end of the comment period provided for under 
                section 564(c) of such title (as shortened 
                under paragraph (4)), and
                  (B) the nomination of a facilitator under 
                section 566(c) of such title by not later than 
                10 days after the date of appointment of the 
                committee.
          (6) Preliminary committee report.--The negotiated 
        rulemaking committee appointed under paragraph (5) 
        shall report to the Secretary, by not later than 
        January 1, 1998, regarding the committee's progress on 
        achieving a consensus with regard to the rulemaking 
        proceeding and whether such consensus is likely to 
        occur before 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 date 
        of publication.
          (8) Interim, final effect.--The Secretary shall 
        publish a rule under this subsection in the Federal 
        Register by not later than the target date of 
        publication. Such rule shall be effective and final 
        immediately on an interim basis, but is subject to 
        change and revision after public notice and opportunity 
        for a period (of not less than 60 days) for public 
        comment. In connection with such rule, the Secretary 
        shall specify the process for the timely review and 
        approval of applications of entities to be certified as 
        provider-sponsored organizations pursuant to such rules 
        and consistent with this subsection.
          (9) Publication of rule after public comment.--The 
        Secretary shall provide for consideration of such 
        comments and republication of such rule by not later 
        than 1 year after the target date of publication.
  (b) Establishment of Other Standards.--
          (1) In general.--The Secretary shall establish by 
        regulation other standards (not described in subsection 
        (a)) for MedicarePlus organizations and plans 
        consistent with, and to carry out, this part.
          (2) Use of current standards.--Consistent with the 
        requirements of this part, standards established under 
        this subsection shall be based on standards established 
        under section 1876 to carry out analogous provisions of 
        such section. The Secretary shall also consider State 
        model and other standards relating to consumer 
        protection and assuring quality of care.
          (3) Use of interim standards.--For the period in 
        which this part is in effect and standards are being 
        developed and established under the preceding 
        provisions of this subsection, the Secretary shall 
        provide by not later than June 1, 1998, for the 
        application of such interim standards (without regard 
        to any requirements for notice and public comment) as 
        may be appropriate to provide for the expedited 
        implementation of this part. Such interim standards 
        shall not apply after the date standards are 
        established under the preceding provisions of this 
        subsection.
          (4) Application of new standards to entities with a 
        contract.--In the case of a 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).
          (5) Relation to state laws.--Subject to section 
        1852(m), the standards established under this 
        subsection shall supersede any State law or regulation 
        with respect to MedicarePlus plans which are offered by 
        MedicarePlus organizations under this part to the 
        extent such law or regulation is inconsistent with such 
        standards. The previous sentence shall not be construed 
        as superseding a State law or regulation that is not 
        related to solvency, that is applied on a uniform basis 
        and is generally applicable to other entities engaged 
        in substantially similar business, and that provides 
        consumer protections in addition to, or more stringent 
        than, those provided under the standards under this 
        subsection.


               contracts with medicareplus organizations


  Sec. 1857. (a) In General.--The Secretary shall not permit 
the election under section 1851 of a MedicarePlus plan offered 
by a MedicarePlus organization under this part, and no payment 
shall be made under section 1853 to an organization, unless the 
Secretary has entered into a contract under this section with 
the organization with respect to the offering of such plan. 
Such a contract with an organization may cover more than one 
MedicarePlus plan. Such contract shall provide that the 
organization agrees to comply with the applicable requirements 
and standards of this part and the terms and conditions of 
payment as provided for in this part.
  (b) Minimum Enrollment Requirements.--
          (1) In general.--Subject to paragraphs (2) and (3), 
        the Secretary may not enter into a contract under this 
        section with a MedicarePlus organization 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 msa plan.--Paragraph (1) shall not 
        apply with respect to a contract that relates only to 
        an MSA plan.
          (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)(3) 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; or
                  (C) no longer substantially meets the 
                applicable conditions of this part.
          (3) Effective date of contracts.--The effective date 
        of any contract executed pursuant to this section shall 
        be specified in the contract, except that in no case 
        shall a contract under this section which provides for 
        coverage under an MSA plan be effective before January 
        1998 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) 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 ofa 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.--
          (1) In general.--The contract shall contain such 
        other terms and conditions not inconsistent with this 
        part (including requiring the organization to provide 
        the Secretary with such information) as the Secretary 
        may find necessary and appropriate.
          (2) Cost-sharing in enrollment-related costs.--The 
        contract with a MedicarePlus organization shall require 
        the payment to the Secretary for the organization's pro 
        rata share (as determined by the Secretary) of the 
        estimated costs to be incurred by the Secretary in 
        carrying out section 1851 (relating to enrollment and 
        dissemination of information) and section 4360 of the 
        Omnibus Budget Reconciliation Act of 1990 (relating to 
        the health insurance counseling and assistance 
        program). Such payments are appropriated to defray the 
        costs described in the preceding sentence, to remain 
        available until expended.
          (3) Notice to enrollees in case of decertification.--
        If a contract with a MedicarePlus organization is 
        terminated under this section, the organization shall 
        notify each enrollee with the organization under this 
        part of such termination.
  (f) Prompt Payment by MedicarePlus Organization.--
          (1) Requirement.--A contract under this part shall 
        require a MedicarePlus organization to provide prompt 
        payment (consistent with the provisions of sections 
        1816(c)(2) and 1842(c)(2)) of claims submitted for 
        services and supplies furnished to individuals pursuant 
        to the contract, if the services or supplies are not 
        furnished under a contract between the organization and 
        the provider or supplier.
          (2) Secretary's option to bypass noncomplying 
        organization.--In the case of a MedicarePlus eligible 
        organization which the Secretary determines, after 
        notice and opportunity for a hearing, has failed to 
        make payments of amounts in compliance with paragraph 
        (1), the Secretary may provide for direct payment of 
        the amounts owed to providers and suppliers for covered 
        services and supplies furnished to individuals enrolled 
        under this part under the contract. If the Secretary 
        provides for the direct payments, the Secretary shall 
        provide for an appropriate reduction in the amount of 
        payments otherwise made to the organization under this 
        part to reflect the amount of the Secretary's payments 
        (and the Secretary's costs in making the payments).
  (g) Intermediate Sanctions.--
          (1) In general.--If the Secretary determines that a 
        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 net monthly premiums on 
                individuals enrolled under this part in excess 
                of the net monthly premiums permitted;
                  (C) acts to expel or to refuse to re-enroll 
                an individual in violation of the provisions of 
                this part;
                  (D) engages in any practice that would 
                reasonably be expected to have the effect of 
                denying or discouraging enrollment (except as 
                permitted by this part) by eligible individuals 
                with the organization whose medical condition 
                or history indicates a need for substantial 
                future medical services;
                  (E) misrepresents or falsifies information 
                that is furnished--
                          (i) to the Secretary under this part, 
                        or
                          (ii) to an individual or to any other 
                        entity under this part;
                  (F) fails to comply with the requirements of 
                section 1852(j)(3); or
                  (G) employs or contracts with any individual 
                or entity that is excluded from participation 
                under this title under section 1128 or 1128A 
                for the provision of health care, utilization 
                review, medical social work, or administrative 
                services or employs or contracts with any 
                entity for the provision (directly or 
                indirectly) through such an excluded individual 
                or entity of such services;
        the Secretary may provide, in addition to any other 
        remedies authorized by law, for any of the remedies 
        described in paragraph (2).
          (2) Remedies.--The remedies described in this 
        paragraph are--
                  (A) civil money penalties of not more than 
                $25,000 for each determination under paragraph 
                (1) or, with respect to a determination under 
                subparagraph (D) or (E)(i) of suchparagraph, 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 (g) during which the deficiency that 
                is the basis of a determination under 
                subsection (c)(2) exists.
                  (C) Suspension of enrollment of individuals 
                under this part after the date the Secretary 
                notifies the organization of a determination 
                under subsection (c)(2) and until the Secretary 
                is satisfied that the deficiency that is the 
                basis for the determination has been corrected 
                and is not likely to recur.
  (h) Procedures for Termination.--
          (1) In general.--The Secretary may terminate a 
        contract with a MedicarePlus organization under this 
        section in accordance with formal investigation and 
        compliance procedures established by the Secretary 
        under which--
                  (A) the Secretary provides the organization 
                with the reasonable opportunity to develop and 
                implement a corrective action plan to correct 
                the deficiencies that were the basis of the 
                Secretary's determination under subsection 
                (c)(2);
                  (B) the Secretary shall impose more severe 
                sanctions on an organization that has a history 
                of deficiencies or that has not taken steps to 
                correct deficiencies the Secretary has brought 
                to the organization's attention;
                  (C) there are no unreasonable or unnecessary 
                delays between the finding of a deficiency and 
                the imposition of sanctions; and
                  (D) the Secretary provides the organization 
                with reasonable notice and opportunity for 
                hearing (including the right to appeal an 
                initial decision) before terminating the 
                contract.
          (2) Civil money penalties.--The provisions of section 
        1128A (other than subsections (a) and (b)) shall apply 
        to a civil money penalty under subsection (f) or under 
        paragraph (2) or (3) of subsection (g) in the same 
        manner as they apply to a civil money penalty or 
        proceeding under section 1128A(a).
          (3) Exception for imminent and serious risk to 
        health.--Paragraph (1) shall not apply if the Secretary 
        determines that a delay in termination, resulting from 
        compliance with the procedures specified in such 
        paragraph prior to termination, would pose an imminent 
        and serious risk to the health of individuals enrolled 
        under this part with the organization.


 payments to hospitals for certain costs attributable to managed care 
                               enrollees


  Sec. 1858. (a) Costs of Graduate Medical Education.--
          (1) In general.--For portions of cost reporting 
        periods occurring on or after January 1, 1998, the 
        Secretary shall provide for an additional payment 
        amount for each subsection (d) hospital (as defined in 
        section 1886(d)(1)(B)), each PPS-exempt hospital 
        described in clause (i) through (v) of such section, 
        and for each hospital reimbursed under a reimbursement 
        system authorized section 1814(b)(3) that--
                  (A) furnishes services to individuals who are 
                enrolled under a risk-sharing contract with an 
                eligible organization under section 1876 and 
                who are entitled to part A and to individuals 
                who are enrolled with a MedicarePlus 
                organization under part C, and
                  (B) has an approved medical residency 
                training program.
          (2) Payment amount.--
                  (A) In general.--Subject to paragraph (3)(B), 
                the amount of the payment under this subsection 
                shall be the sum of--
                          (i) the amount determined under 
                        subparagraph (B), and
                          (ii) the amount determined under 
                        subparagraph (C).
                Clause (ii) shall not apply in the case of a 
                hospital that is not a PPS-exempt hospital 
                described in clause (i) through (v) of section 
                1886(d)(1)(B),
                  (B) Direct amount.--The amount determined 
                under this subparagraph for a period is equal 
                to the product of--
                          (i) the aggregate approved amount (as 
                        defined in section 1886(h)(3)(B)) for 
                        that period; and
                          (ii) the fraction of the total number 
                        of inpatient-bed-days (as established 
                        by the Secretary) during the period 
                        which are attributable to individuals 
                        described in paragraph (1).
                  (C) Indirect amount.--The amount determined 
                under this subparagraph is equal to the product 
                of--
                          (i) the amount of the indirect 
                        teaching adjustment factor applicable 
                        to the hospital under section 
                        1886(d)(5)(B); and
                          (ii) the product of--
                                  (I) the number of discharges 
                                attributable to individuals 
                                described in paragraph (1), and
                                  (II) the estimated average 
                                per discharge amount that would 
                                otherwise have been paid under 
                                section 1886(d)(1)(A) if the 
                                individuals had not been 
                                enrolled as described in such 
                                paragraph.
                  (D) Special rule.--The Secretary shall 
                establish rules for the application of 
                subparagraph (B) and for the computation of the 
                amounts described in subparagraph (C)(i)) and 
                subparagraph (C)(ii)(I) to a hospital 
                reimbursed under a reimbursement system 
                authorized under section 1814(b)(3) in a manner 
                similar to the manner of applying such 
                subparagraph and computing such amounts as if 
                the hospital were not reimbursed under such 
                section.
          (3) Limitation.--
                  (A) Determinations.--At the beginning of each 
                year, the Secretary shall--
                          (i) estimate the sum of the amount of 
                        the payments under this subsection and 
                        the payments under section 1853(h), for 
                        services or discharges occurring in the 
                        year, and
                          (ii) determine the amount of the 
                        annual payment limit under subparagraph 
                        (C) for such year.
                  (B) Imposition of limit.--If the amount 
                estimated under subparagraph (A)(i) for a year 
                exceeds the amount determined under 
                subparagraph (A)(ii) for the year, then the 
                Secretary shall adjust the amounts of the 
                payments described in subparagraph (A)(i) for 
                the year in a pro rata manner so that the total 
                of such payments in the year do not exceed the 
                annual payment limit determined under 
                subparagraph (A)(ii) for that year.
                  (C) Annual payment limit.--
                          (i) In general.--The annual payment 
                        limit under this subparagraph for a 
                        year is the sum, over all counties or 
                        MedicarePlus payment areas, of the 
                        product of--
                                  (I) the annual GME per capita 
                                payment rate (described in 
                                clause (ii)) for the county or 
                                area, and
                                  (II) the Secretary's 
                                projection of average 
                                enrollment of individuals 
                                described in paragraph (1) who 
                                are residents of that county or 
                                area, adjusted to reflect the 
                                relative demographic or risk 
                                characteristics of such 
                                enrollees.
                          (ii) GME per capita payment rate.--
                        The GME per capita payment rate 
                        described in this clause for a 
                        particular county or MedicarePlus 
                        payment area for a year is the GME 
                        proportion (as specified in clause 
                        (iii)) of the annual MedicarePlus 
                        capitation rate (as calculated under 
                        section 1853(c)) for the county or area 
                        and year involved.
                          (iii) GME proportion.--For purposes 
                        of clause (ii), the GME proportion for 
                        a county or area and a year is equal to 
                        the phase-in percentage (specified in 
                        clause (vi)) of the ratio of (I) the 
                        projected GME payment amount for the 
                        county or area (as determined under 
                        clause (v)), to (II) the average per 
                        capita cost for the county or area for 
                        the year (determined under clause 
                        (vi)).
                          (iv) Phase-in percentage.--The phase-
                        in percentage specified in this clause 
                        for--
                                  (I) 1998 is 20 percent,
                                  (II) 1999 is 40 percent,
                                  (III) 2000 is 60 percent,
                                  (IV) 2001 is 80 percent, or
                                  (V) any subsequent year is 
                                100 percent.
                          (v) Projected GME payment amount.--
                        The projected GME payment amount for a 
                        county or area--
                                  (I) for 1998, is the amount 
                                included in the per capita rate 
                                of payment for 1997 determined 
                                under section 1876(a)(1)(C) for 
                                the payment adjustments 
                                described in section 
                                1886(d)(5)(B) and section 
                                1886(h) for that county or 
                                area, adjusted by the general 
                                GME update factor (as defined 
                                in clause (vii)) for 1998, or
                                  (II) for a subsequent year, 
                                is the projected GME payment 
                                amount for the county or area 
                                for the previous year, adjusted 
                                by the general GME update 
                                factor for such subsequent 
                                year.
The Secretary shall determine the amount described in subclause 
(I) for a county or other area that includes hospitals 
reimbursed under section 1814(b)(3) as though such hospitals 
had not been reimbursed under such section.
                          (vi) Average per capita cost.--The 
                        average per capita cost for the county 
                        or area determined under this clause 
                        for--
                                  (I) 1998 is the annual per 
                                capita rate of payment for 1997 
                                determined under section 
                                1876(a)(1)(C) for the county or 
                                area, increased by the national 
                                per capita MedicarePlus growth 
                                percentage for 1998 (as defined 
                                in section 1853(c)(6), but 
                                determined without regard to 
                                the adjustment described in 
                                subparagraph (B) of such 
                                section); or
                                  (II) a subsequent year is the 
                                average per capita cost 
                                determined under this clause 
                                for the previous year increased 
                                by the national per capita 
                                MedicarePlus growth percentage 
                                for the year involved (as 
                                defined in section 1853(c)(6), 
                                butdetermined without regard to 
the adjustment described in subparagraph (B) of such section).
                          (vii) General gme update factor.--For 
                        purposes of clause (v), the ``general 
                        GME update factor'' for a year is equal 
                        to the Secretary's estimate of the 
                        national average percentage change in 
                        average per capita payments under 
                        sections 1886(d)(5)(B) and 1886(h) from 
                        the previous year to the year involved. 
                        Such amount takes into account changes 
                        in law and regulation affecting payment 
                        amounts under such sections.
  (b) Disproportionate Share Hospital Payments.--
          (1) In general.--For portions of cost reporting 
        periods occurring on or after January 1, 1998, the 
        Secretary shall provide for an additional payment 
        amount for each subsection (d) hospital (as defined in 
        section 1886(d)(1)(B)) and for each hospital reimbursed 
        a demonstration project reimbursement system under 
        section 1814(b)(3) that--
                  (A) furnishes services to individuals who are 
                enrolled under a risk-sharing contract with an 
                eligible organization under section 1876 and 
                who are entitled to part A and to individuals 
                who are enrolled with a MedicarePlus 
                organization under this part, and
                  (B) is (or, if it were not reimbursed under 
                section 1814(b)(3), would qualify as) a 
                disproportionate share hospital described in 
                section 1886(d)(5)(F)(i).
          (2) Amount of payment.--Subject to paragraph (3)(B), 
        the amount of the payment under this subsection shall 
        be the product of--
                  (A) the amount of the disproportionate share 
                adjustment percentage applicable to the 
                hospital under section 1886(d)(5)(F); and
                  (B) the product described in subsection 
                (a)(2)(C)(ii).
        The Secretary shall establish rules for the computation 
        of the amount described in subparagraph (A) for a 
        hospital reimbursed under section 1814(b)(3).
          (3) Limit.--
                  (A) Determination.--At the beginning of each 
                year, the Secretary shall--
                          (i) estimate the sum of the payments 
                        under this subsection for services or 
                        discharges occurring in the year, and
                          (ii) determine the amount of the 
                        annual payment limit under subparagraph 
                        (C)) for such year.
                  (B) Imposition of limit.--If the amount 
                estimated under subparagraph (A)(i) for a year 
                exceeds the amount determined under 
                subparagraph (A)(ii) for the year, then the 
                Secretary shall adjust the amounts of the 
                payments under this subsection for the year in 
                a pro rata manner so that the total of such 
                payments in the year do not exceed the annual 
                payment limit determined under subparagraph 
                (A)(ii) for that year.
                  (C) Annual payment limit.--The annual payment 
                limit under this subparagraph for a year shall 
                be determined in the same manner as the annual 
                payment limit is determined under clause (i) of 
                subsection (a)(3)(C), except that, for purposes 
                of this clause, any reference in clauses (i) 
                through (vii) of such subsection--
                          (i) to a payment adjustment under 
                        subsection (a) is deemed a reference to 
                        a payment adjustment under this 
                        subsection, or
                          (ii) to payments or payment 
                        adjustments under section 1886(d)(5)(B) 
                        and 1886(h) is deemed a reference to 
                        payments and payment adjustments under 
                        section 1886(d)(5)(F).


                 definitions; miscellaneous provisions


  Sec. 1859. (a) Definitions Relating to MedicarePlus 
Organizations.--In this part--
          (1) MedicarePlus organization.--The term 
        ``MedicarePlus organization'' means a public or private 
        entity that is certified under section 1856 as meeting 
        the requirements and standards of this part for such an 
        organization.
          (2) Provider-sponsored organization.--The term 
        ``provider-sponsored organization'' is defined in 
        section 1855(e)(1).
  (b) Definitions Relating to MedicarePlus Plans.--
          (1) MedicarePlus plan.--The term ``MedicarePlus 
        plan'' means health benefits coverage offered under a 
        policy, contract, or plan by a MedicarePlus 
        organization pursuant to and in accordance with a 
        contract under section 1857.
          (2) MSA plan.--
                  (A) In general.--The term ``MSA plan'' means 
                a MedicarePlus plan that--
                          (i) provides reimbursement for at 
                        least the items and services described 
                        in section 1852(a)(1) in a year but 
                        only after the enrollee incurs 
                        countable expenses (as specified under 
                        the plan) equal to the amount of an 
                        annual deductible (described in 
                        subparagraph (B));
                          (ii) counts as such expenses (for 
                        purposes of such deductible) at least 
                        all amounts that would have been 
                        payable under parts A and B, and that 
                        would have been payable by the enrollee 
                        as deductibles, coinsurance, or 
                        copayments, if the enrollee had elected 
                        to receive benefits through the 
                        provisions of such parts; and
                          (iii) provides, after such deductible 
                        is met for a year and for all 
                        subsequent expenses for items and 
                        services referred to in clause (i) in 
                        the year, for a level of reimbursement 
                        that is not less than--
                                  (I) 100 percent of such 
                                expenses, or
                                  (II) 100 percent of the 
                                amounts that would have been 
                                paid (without regard to any 
                                deductibles or coinsurance) 
                                under parts A and B with 
                                respect to such expenses,
                        whichever is less.
                  (B) Deductible.--The amount of annual 
                deductible under an MSA plan--
                          (i) for contract year 1999 shall be 
                        not more than $6,000; and
                          (ii) for a subsequent contract year 
                        shall be not more than the maximum 
                        amount of such deductible for the 
                        previous contract year under this 
                        subparagraph increased by the national 
                        per capita MedicarePlus growth 
                        percentage under section 1853(c)(6) for 
                        the year.
                If the amount of the deductible under clause 
                (ii) is not a multiple of $50, the amount shall 
                be rounded to the nearest multiple of $50.
  (c) Other References to Other Terms.--
          (1) MedicarePlus eligible individual.--The term 
        ``MedicarePlus eligible individual'' is defined in 
        section 1851(a)(3).
          (2) MedicarePlus payment area.--The term 
        ``MedicarePlus payment area'' is defined in section 
        1853(d).
          (3) National per capita medicareplus growth 
        percentage.--The ``national per capita MedicarePlus 
        growth percentage'' is defined in section 1853(c)(6).
          (4) Monthly premium; net monthly premium.--The terms 
        ``monthly premium'' and ``net monthly premium'' are 
        defined in section 1854(a)(2).
  (d) Coordinated Acute and Long-term Care Benefits Under a 
MedicarePlus Plan.--Nothing in this part shall be construed as 
preventing a State from coordinating benefits under a medicaid 
plan under title XIX with those provided under a MedicarePlus 
plan in a manner that assures continuity of a full-range of 
acute care and long-term care services to poor elderly or 
disabled individuals eligible for benefits under this title and 
under such plan.
  (e) Restriction on Enrollment for Certain MedicarePlus 
Plans.--
          (1) In general.--In the case of a MedicarePlus 
        religious fraternal benefit society plan described in 
        paragraph (2), notwithstanding any other provision of 
        this part to the contrary and in accordance with 
        regulations of the Secretary, the society offering the 
        plan may restrict the enrollment of individuals under 
        this part to individuals who are members of the church, 
        convention, or group described in paragraph (3)(B) with 
        which the society is affiliated.
          (2) Medicareplus religious fraternal benefit society 
        plan described.--For purposes of this subsection, a 
        MedicarePlus religious fraternal benefit society plan 
        described in this paragraph is a MedicarePlus plan 
        described in section 1851(a)(2)(A) that--
                  (A) is offered by a religious fraternal 
                benefit society described in paragraph (3) only 
                to members of the church, convention, or group 
                described in paragraph (3)(B); and
                  (B) permits all such members to enroll under 
                the plan without regard to health status-
                related factors.
        Nothing in this subsection shall be construed as 
        waiving any plan requirements relating to financial 
        solvency. In developing solvency standards under 
        section 1856, the Secretary shall take into account 
        open contract and assessment features characteristic of 
        fraternal insurance certificates.
          (3) Religious fraternal benefit society defined.--For 
        purposes of paragraph (2)(A), a ``religious fraternal 
        benefit society'' described in this section is an 
        organization that--
                  (A) is exempt from Federal income taxation 
                under section 501(c)(8) of the Internal Revenue 
                Code of 1986;
                  (B) is affiliated with, carries out the 
                tenets of, and shares a religious bond with, a 
                church or convention or association of churches 
                or an affiliated group of churches;
                  (C) offers, in addition to a MedicarePlus 
                religious fraternal benefit society plan, 
                health coverage to individuals not entitled to 
                benefits under this title who are members of 
                such church, convention, or group; and
                  (D) does not impose any limitation on 
                membership in the society based on any health 
                status-related factor.
          (4) Payment adjustment.--Under regulations of the 
        Secretary, in the case of individuals enrolled under 
        this part under a MedicarePlus religious fraternal 
        benefit society plan described in paragraph (2), the 
        Secretary shall provide for such adjustment to the 
        payment amounts otherwise established under section 
        1854 as may be appropriate to assure an appropriate 
        payment level, taking into account the actuarial 
        characteristics and experience of such individuals.

                  Part [C] D--Miscellaneous Provisions

              definitions of services, institutions, etc.

  Sec. 1861. For purposes of this title--

                            Spell of Illness

  (a) * * *
          * * * * * * *

                      Inpatient Hospital Services

  (b) The term ``inpatient hospital services'' means the 
following items and services furnished to an inpatient of a 
hospital and (except as provided in paragraph (3)) by the 
hospital--
          (1) * * *
          * * * * * * *
excluding, however--
          (4) medical or surgical services provided by a 
        physician, resident, or intern, services described by 
        [clauses (i) or (iii) of subsection (s)(2)(K)] 
        subsection (s)(2)(K), certified nurse-midwife services, 
        qualified psychologist services, and services of a 
        certified registered nurse anesthetist; and
          * * * * * * *

                         Extended Care Services

  (h) The term ``extended care services'' means the following 
items and services furnished to an inpatient of a skilled 
nursing facility and (except as provided in [paragraphs (3) and 
(6)] paragraphs (3), (6), and (7)) by such skilled nursing 
facility--
          (1) * * *
          * * * * * * *
          (7) such other services necessary to the health of 
        the patients as are generally provided by skilled 
        nursing facilities, or by others under arrangements 
        with them made by the facility;
excluding, however, any item or service if it would not be 
included under subsection (b) if furnished to an inpatient of a 
hospital.
          * * * * * * *

                          Home Health Services

  (m) The term ``home health services'' means the following 
items and services furnished to an individual, who is under the 
care of a physician, by a home health agency or by others under 
arrangements with them made by such agency, under a plan (for 
furnishing such items and services to such individual) 
established and periodically reviewed by a physician, which 
items and services are, except as provided in paragraph (7), 
provided on a visiting basis in a place of residence used as 
such individual's home--
          (1) * * *
          * * * * * * *
excluding, however, any item or service if it would not be 
included under subsection (b) if furnished to an inpatient of a 
hospital. For purposes of paragraphs (1) and (4), the term 
``part-time or intermittent services'' means skilled nursing 
and home health aide services furnished any number of days per 
week as long as they are furnished (combined) less than 8 hours 
each day and 28 or fewer hours each week (or, subject to review 
on a case-by-case basis as to the need for care, less than 8 
hours each day and 35 or fewer hours per week). For purposes of 
sections 1814(a)(2)(C) and 1835(a)(2)(A), ``intermittent'' 
means skilled nursing care that is either provided or needed on 
fewer than 7 days each week, or less than 8 hours of each day 
of skilled nursing and home health aide services combined for 
periods of 21 days or less (with extensions in exceptional 
circumstances when the need for additional care is finite and 
predictable).

                       Durable Medical Equipment

  (n) The term ``durable medical equipment'' includes iron 
lungs, oxygen tents, hospital beds, and wheelchairs (which may 
include a power-operated vehicle that may be appropriately used 
as a wheelchair, but only where the use of such a vehicle is 
determined to be necessary on the basis of the individual's 
medical and physical condition and the vehicle meets such 
safety requirements as the Secretary may prescribe) used in the 
patient's home (including an institution used as his home other 
than an institution that meets the requirements of subsection 
(e)(1) of this section or section 1819(a)(1)), whether 
furnished on a rental basis or purchased, and includes blood-
testing strips and blood glucose monitors for individuals with 
diabetes without regard to whether the individual has Type I or 
Type II diabetes or to the individual's use of insulin (as 
determined under standards established by the Secretary in 
consultation with the appropriate organizations); except that 
such term does not include such equipment furnished by a 
supplier who has used, for the demonstration and use of 
specific equipment, an individual who has not met such minimum 
training standards as the Secretary may establish with respect 
to the demonstration and use of such specific equipment. With 
respect to a seat-lift chair, such term includes only the seat-
lift mechanism and does not include the chair.

                           Home Health Agency

  (o) The term ``home health agency'' means a public agency or 
private organization, or a subdivision of such an agency or 
organization, which--
          (1) * * *
          * * * * * * *
          (7) meets such additional requirements (including 
        conditions relating to bonding or establishing of 
        escrow accounts as the Secretary finds necessary for 
        the financial security of the program and including 
        providing the Secretary on a continuing basis with a 
        surety bond in a form specified by the Secretary and in 
        an amount that is not less than $50,000) as the 
        Secretary finds necessary for the effective and 
        efficient operation of the program;
except that for purposes of part A such term shall not include 
any agency or organization which is primarily for the care and 
treatment of mental diseases. The Secretary may waive the 
requirement of a bond under paragraph (7) in the case of an 
agency or organization that provides a comparable surety bond 
under State law.

                  Outpatient Physical Therapy Services

  (p) The term ``outpatient physical therapy services'' means 
physical therapy services furnished by a provider of services, 
a clinic, rehabilitation agency, or a public health agency, or 
by others under an arrangement with, and under the supervision 
of, such provider, clinic, rehabilitation agency, or public 
health agency to an individual as an outpatient--
          (1) * * *
          * * * * * * *
          (4) any such service--
                  (A) if furnished by a clinic or 
                rehabilitation agency, or by others under 
                arrangements with such clinic or agency, unless 
                such clinic or rehabilitation agency--
                          (i) * * *
          * * * * * * *
                          (v) meets such other conditions 
                        relating to the health and safety of 
                        individuals who are furnished services 
                        by such clinic or agency on an 
                        outpatient basis, as the Secretary may 
                        find necessary, and provides the 
                        Secretary, to the extent required by 
                        the Secretary, on a continuing basis 
                        with a surety bond in a form specified 
                        by the Secretary and in an amount that 
                        is not less than $50,000, orThe 
Secretary may waive the requirement of a bond under paragraph (4)(A)(v) 
in the case of a clinic or agency that provides a comparable surety 
bond under State law.
          * * * * * * *

                               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. 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) * * *
          * * * * * * *
          (K)(i) services which would be physicians' services 
        if furnished by a physician (as defined in subsection 
        (r)(1)) and which are performed by a physician 
        assistant (as defined in subsection (aa)(5)) under the 
        supervision of a physician (as so defined) [(I) in a 
        hospital, skilled nursing facility, or nursing facility 
        (as defined in section 1919(a)), (II) as an assistant 
        at surgery, or (III) in a rural area (as defined in 
        section 1886(d)(2)(D)) that is designated, under 
        section 332(a)(1)(A) of the Public Health Service Act, 
        as a health professional shortage area,] and which the 
        physician assistant is legally authorized to perform by 
        the State in which the services are performed, and such 
        services and supplies furnished as incident to such 
        services as would be covered under subparagraph (A) if 
        furnished as an incident to a physician's professional 
        service, but only if no facility or other provider 
        charges or is paid any amounts with respect to the 
        furnishing of such services,
          [(ii) services which would be physicians' services if 
        furnished by a physician (as defined in subsection 
        (r)(1)) and which are performed by a nurse practitioner 
        (as defined in subsection (aa)(5)) working in 
        collaboration (as defined in subsection (aa)(6)) with a 
        physician (as defined in subsection (r)(1)) in a 
        skilled nursing facility or nursing facility (as 
        defined in section 1919(a)) which the nurse 
        practitioner is legally authorized to perform by the 
        State in which the services are performed,
          [(iii) services which would be physicians' services 
        if furnished by a physician (as defined in subsection 
        (r)(1)) and which are performed by a nurse practitioner 
        or clinical nurse specialist (as defined in subsection 
        (aa)(5)) working in collaboration (as defined in 
        subsection (aa)(6)) with a physician (as defined in 
        subsection (r)(1)) in a rural area (as defined in 
        section 1886(d)(2)(D)) which the nurse practitioner or 
        clinical nurse specialist is authorized to perform by 
        the State in which the services are performed, and such 
        services and supplies furnished as an incident to such 
        services as would be covered under subparagraph (A) if 
        furnished as an incident to a physician's professional 
        service, and
          [(iv) such services and supplies furnished as an 
        incident to services described in clause (i) or (ii) as 
        would be covered under subparagraph (A) if furnished as 
        an incident to a physician's professional service;]
          (ii) services which would be physicians' services if 
        furnished by a physician (as defined in subsection 
        (r)(1)) and which are performed by a nurse practitioner 
        or clinical nurse specialist (as defined in subsection 
        (aa)(5)) working in collaboration (as defined in 
        subsection (aa)(6)) with a physician (as defined in 
        subsection (r)(1)) which the nurse practitioner or 
        clinical nurse specialist is legally authorized to 
        perform by the State in which the services are 
        performed, and such services and supplies furnished as 
        an incident to such services as would be covered under 
        subparagraph (A) if furnished incident to a physician's 
        professional service, but only if no facility or other 
        provider charges or is paid any amounts with respect to 
        the furnishing of such services;
          * * * * * * *
          (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 safeand effective use of such drug, 
and items related to the administration of such drug; [and]
          (P) prostate cancer screening tests (as defined in 
        subsection (oo));
          (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;
          (R) colorectal cancer screening tests (as defined in 
        subsection (pp));
          (S) diabetes outpatient self-management training 
        services (as defined in subsection (qq)); and
          (T) an oral drug (which is approved by the Federal 
        Food and Drug Administration) prescribed for use as an 
        acute anti-emetic used as part of an anticancer 
        chemotherapeutic regimen if the drug is administered by 
        a physician (or under the supervision of a physician)--
                  (i) for use immediately before, immediately 
                after, or at the time of the administration of 
                the anticancer chemotherapeutic agent; and
                  (ii) as a full replacement for the anti-
                emetic therapy which would otherwise be 
                administered intravenously.
          * * * * * * *
          (14) screening pap smear and screening pelvic exam.
          * * * * * * *

                            Reasonable Cost

  (v)(1)(A) * * *
          * * * * * * *
  (H) In determining such reasonable cost with respect to home 
health agencies, the Secretary may not include--
          (i) any costs incurred in connection with bonding or 
        establishing an escrow account by any such agency as a 
        result of [the financial security requirement] the 
        financial security and surety bond requirements 
        described in subsection (o)(7);
          (ii) in the case of home health agencies to which 
        [the financial security requirement] the financial 
        security and surety bond requirements described in 
        subsection (o)(7) applies, any costs attributed to 
        interest charged such an agency in connection with 
        amounts borrowed by the agency to repay overpayments 
        made under this title to the agency, except that such 
        costs may be included in reasonable cost if the 
        Secretary determines that the agency was acting in good 
        faith in borrowing the amounts;
          * * * * * * *
  (L)(i) The Secretary, in determining the amount of the 
payments that may be made under this title with respect to 
services furnished by home health agencies, may not recognize 
as reasonable (in the efficient delivery of such services) 
costs for the provision of such services by an agency to the 
extent these costs exceed (on the aggregate for the agency) for 
cost reporting periods beginning on or after--
          (I) July 1, 1985, and before July 1, 1986, 120 
        percent of the mean of the labor-related and nonlabor 
        per visit costs for freestanding home health agencies,
          (II) July 1, 1986, and before July 1, 1987, 115 
        percent[, or] of such mean,
          (III) July 1, 1987, and before October 1, 1997, 112 
        percent[,] of such mean, or
[of the mean of the labor-related and nonlabor per visit costs 
for free standing home health agencies.]
          (IV) October 1, 1997, 105 percent of the median of 
        the labor-related and nonlabor per visit costs for 
        freestanding home health agencies.
          * * * * * * *
  (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, or on or after July 1, 1997, 
and before October 1, 1997), 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] service is furnished 
(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).
  (iv) In establishing limits under this subparagraph for cost 
reporting periods beginning after September 30, 1997, the 
Secretary shall not take into account any changes in the home 
health market basket, as determined by the Secretary, with 
respect to cost reporting periods which began on or after July 
1, 1994, and before July 1, 1996.
  (v) For services furnished by home health agencies for cost 
reporting periods beginning on or after October 1, 1997, the 
Secretary shall provide for an interim system of limits. 
Payment shall be the lower of--
          (I) costs determined under the preceding provisions 
        of this subparagraph, or
          (II) an agency-specific per beneficiary annual 
        limitation calculated from the agency's 12-month cost 
        reporting period ending on or after January 1, 1994, 
        and on or before December 31, 1994, based on reasonable 
        costs (including nonroutine medical supplies), updated 
        by the home health market basket index.
The per beneficiary limitation in subclause (II) shall be 
multiplied by the agency's unduplicated census count of 
patients (entitled to benefits under this title) for the cost 
reporting period subject to the limitation to determine the 
aggregate agency specific per beneficiary limitation.
  (vi) For services furnished by home health agencies for cost 
reporting periods beginning on or after October 1, 1997, the 
following rules apply:
          (I) For new providers and those providers without a 
        12-month cost reporting period ending in calendar year 
        1994, the per beneficiary limitation shall be equal to 
        the median of these limits (or the Secretary's best 
        estimates thereof) applied to other home health 
        agencies as determined by the Secretary. A home health 
        agency that has altered its corporate structure or name 
        shall not be considered a new provider for this 
        purpose.
          (II) For beneficiaries who use services furnished by 
        more than one home health agency, the per beneficiary 
        limitations shall be prorated among the agencies.
          * * * * * * *
  (O)(i) In establishing an appropriate allowance for 
depreciation and for interest on capital indebtedness [and (if 
applicable) a return on equity capital] with respect to an 
asset of a [hospital or skilled nursing facility] provider of 
services which has undergone a change of ownership, such 
regulations shall provide, except as provided in clause [(iv)] 
(iii), that the valuation of the asset after such change of 
ownership shall be [the lesser of the allowable acquisition 
cost of such asset to the owner of record as of the date of the 
enactment of this subparagraph (or, in the case of an asset not 
in existence as of such date, the first owner of record of the 
asset after such date), or the acquisition cost of such asset 
to the new owner.] the historical cost of the asset, as 
recognized under this title, less depreciation allowed, to the 
owner of record as of the date of enactment of the Balanced 
Budget Act of 1997 (or, in the case of an asset not in 
existence as of that date, the first owner of record of the 
asset after that date).
  [(ii) Such regulations shall provide for recapture of 
depreciation in the same manner as provided under the 
regulations in effect on June 1, 1984.]
  [(iii)] (ii) Such regulations shall not recognize, as 
reasonable in the provision of health care services, costs 
(including legal fees, accounting and administrative costs, 
travel costs, and the costs of feasibility studies) 
attributable to the negotiation or settlement of the sale or 
purchase of any capital asset (by acquisition or merger) for 
which any payment has previously been made under this title.
  [(iv)] (iii) In the case of the transfer of a hospital from 
ownership by a State to ownership by a nonprofit corporation 
without monetary consideration, the basis for capital 
allowances to the new owner shall be the book value of the 
hospital to the State at the time of the transfer.
          * * * * * * *
  (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 1999 
and during fiscal year 2000 before January 1, 2000.
  (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 1999 and during 
fiscal year 2000 before January 1, 2000.
          * * * * * * *
  (T) In determining such reasonable costs for hospitals, the 
amount of bad debts otherwise treated as allowable costs which 
are attributable to the deductibles and coinsurance amounts 
under this title shall be reduced--
          (i) for cost reporting periods beginning during 
        fiscal year 1998, by 75 percent,
          (ii) for cost reporting periods beginning during 
        fiscal year 1999, by 40 percent, and
          (iii) for cost reporting periods beginning during a 
        subsequent fiscal year, by 50 percent.
  (U) In determining the reasonable cost of ambulance services 
(as described in section 1861(s)(7)) provided during a fiscal 
year (beginning with fiscal year 1998 and ending with fiscal 
year 2002), the Secretary shall not recognize any costs in 
excess of costs recognized as reasonable for ambulance services 
provided during the previous fiscal year, increased by the 
percentage increase in the consumer price index for all urban 
consumers (U.S. city average) as estimated by the Secretary for 
the 12-month period ending with the midpoint of the fiscal year 
involved reduced (in the case of each of fiscal years 1998 and 
1999) by 1 percentage point.
          * * * * * * *

  Rural Health Clinic Services and Federally Qualified Health Center 
                                Services

  (aa)(1) * * *
  (2) The term ``rural health clinic'' means a facility which 
--
          (A) * * *
          * * * * * * *
          [(I) has appropriate procedures for review of 
        utilization of clinic services to the extent that the 
        Secretary determines to be necessary and feasible;]
          (I) has a quality assessment and performance 
        improvement program, and appropriate procedures for 
        review of utilization of clinic services, as the 
        Secretary may specify,
          * * * * * * *
For the purposes of this title, such term includes only a 
facility which (i) is located in an area that is not an 
urbanized area (asdefined by the Bureau of the Census) and in 
which there are insufficient numbers of needed health care 
practitioners (as determined by the Secretary), [and that is 
designated] and that, within the previous three-year period, has been 
designated by the chief executive officer of the State and certified by 
the Secretary as an area with a shortage of personal health services[, 
or that is designated] or designated by the Secretary either (I) as an 
area with a shortage of personal health services under section 
330(b)(3) or 1302(7) of the Public Health Service Act, (II) as a health 
professional shortage area described in section 332(a)(1)(A) of that 
Act because of its shortage of primary medical care manpower, (III) as 
a high impact area described in section 329(a)(5) of that Act, of (IV) 
as an area which includes a population group which the Secretary 
determines has a health manpower shortage under section 332(a)(1)(B) of 
that Act, (ii) has filed an agreement with the Secretary by which it 
agrees not to charge any individual or other person for items or 
services for which such individual is entitled to have payment made 
under this title, except for the amount of any deductible or 
coinsurance amount imposed with respect to such items or services (not 
in excess of the amount customarily charged for such items and services 
by such clinic), pursuant to subsections (a) and (b) of section 1833, 
(iii) employs a physician assistant or nurse practitioner, and (iv) is 
not a rehabilitation agency or a facility which is primarily for the 
care and treatment of mental diseases. A facility that is in operation 
and qualifies as a rural health clinic under this title or title XIX 
and that subsequently fails to satisfy the requirement of clause (i) 
shall be considered, for purposes of this title and title XIX, as still 
satisfying the requirement of such clause if it is determined, in 
accordance with criteria established by the Secretary in regulations, 
to be essential to the delivery of primary care services that would 
otherwise be unavailable in the geographic area served by the clinic. 
If a State agency has determined under section 1864(a) that a facility 
is a rural health clinic and the facility has applied to the Secretary 
for approval as such a clinic, the Secretary shall notify the facility 
of the Secretary's approval or disapproval not later than 60 days after 
the date of the State agency determination or the application 
(whichever is later).
          * * * * * * *
  (5) [The term ``physician assistant'', the term ``nurse 
practitioner'', and the term ``clinical nurse specialist'' 
mean, for purposes of this title, a physician assistant, nurse 
practitioner, or clinical nurse specialist who performs] (A) 
The term ``physician assistant'' and the term ``nurse 
practitioner'' mean, for purposes of this title, a physician 
assistant or nurse practitioner who performs such services as 
such individual is legally authorized to perform (in the State 
in which the individual performs such services) in accordance 
with State law (or the State regulatory mechanism provided by 
State law), and who meets such training, education, and 
experience requirements (or any combination thereof) as the 
Secretary may prescribe in regulations.
  (B) The term ``clinical nurse specialist'' means, for 
purposes of this title, an individual who--
          (i) is a registered nurse and is licensed to practice 
        nursing in the State in which the clinical nurse 
        specialist services are performed; and
          (ii) holds a master's degree in a defined clinical 
        area of nursing from an accredited educational 
        institution.
          * * * * * * *
  (7)(A) * * *
  (B) The Secretary may not grant such a waiver under 
subparagraph (A) to a facility if the request for the waiver is 
made less than 6 months after the date of the expiration of any 
previous such waiver for the facility, or if the facility has 
not yet been determined to meet the requirements (including 
subparagraph (J) of the first sentence of paragraph (2)) of a 
rural health clinic.
          * * * * * * *

       Comprehensive Outpatient Rehabilitation Facility Services

  (cc)(1) * * *
  (2) The term ``comprehensive outpatient rehabilitation 
facility'' means a facility which--
          (A) * * *
          * * * * * * *
          (I) meets such other conditions of participation as 
        the Secretary may find necessary in the interest of the 
        health and safety of individuals who are furnished 
        services by such facility, including conditions 
        concerning qualifications of personnel in these 
        facilities and providing the Secretary on a continuing 
        basis with a surety bond in a form specified by the 
        Secretary and in an amount that is not less than 
        $50,000.
          * * * * * * *

                       Discharge Planning Process

  (ee)(1) A discharge planning process of a hospital shall be 
considered sufficient if it is applicable to services furnished 
by the hospital to individuals entitled to benefits under this 
title and if it meets the guidelines and standards established 
by the Secretary under paragraph (2).
  (2) The Secretary shall develop guidelines and standards for 
the discharge planning process in order to ensure a timely and 
smooth transition to the most appropriate type of and setting 
for post-hospital or rehabilitative care. The guidelines and 
standards shall include the following:
          (A) * * *
          * * * * * * *
          (D) A discharge planning evaluation must include an 
        evaluation of a patient's likely need for appropriate 
        post-hospital services, including hospice services, and 
        the availability of those services , including the 
        availability of home health services through 
        individuals and entities that participate in the 
        program under this title and that serve the area in 
        which the patient resides and that request to be listed 
        by the hospital as available.
          * * * * * * *
          (H) Consistent with section 1802, the discharge plan 
        shall--
                  (i) not specify or otherwise limit the 
                qualified provider which may provide post-
                hospital home health services, and
                  (ii) identify (in a form and manner specified 
                by the Secretary) any home health agency (to 
                whom the individual is referred) in which the 
                hospital has a disclosable financial interest 
                (as specified by the Secretary consistent with 
                section 1866(a)(1)(R)) or which has such an 
                interest in the hospital.
          * * * * * * *

           Screening Pap [Smear] Smear; Screening Pelvic Exam

  (nn)(1) The term ``screening pap smear'' means a diagnostic 
laboratory test consisting of a routine exfoliative cytology 
test (Papanicolaou test) provided to a woman for the purpose of 
early detection of cervical cancer and includes a physician's 
interpretation of the results of the test, if the individual 
involved has not had such a test during the preceding [3 years 
(or such shorter period as the Secretary may specify in the 
case of a woman who is at high risk of developing cervical 
cancer (as determined pursuant to factors identified by the 
Secretary)).] 3 years, or during the preceding year in the case 
of a woman described in paragraph (3).
  (2) The term ``screening pelvic exam'' means an pelvic 
examination provided to a woman if the woman involved has not 
had such an examination during the preceding 3 years, or during 
the preceding year in the case of a woman described in 
paragraph (3), and includes a clinical breast examination.
  (3) A woman described in this paragraph is a woman who--
          (A) is of childbearing age and has not had a test 
        described in this subsection during each of the 
        preceding 3 years that did not indicate the presence of 
        cervical cancer; or
          (B) is at high risk of developing cervical cancer (as 
        determined pursuant to factors identified by the 
        Secretary).
          * * * * * * *

                    Prostate Cancer Screening Tests

  (oo)(1) The term ``prostate cancer screening test'' means a 
test that consists of any (or all) of the procedures described 
in paragraph (2) provided for the purpose of early detection of 
prostate cancer to a man over 50 years of age who has not had 
such a test during the preceding year.
  (2) The procedures described in this paragraph are as 
follows:
          (A) A digital rectal examination.
          (B) A prostate-specific antigen blood test.
          (C) For years beginning after 2001, such other 
        procedures as the Secretary finds appropriate for the 
        purpose of early detection of prostate cancer, taking 
        into account changes in technology and standards of 
        medical practice, availability,effectiveness, costs, 
and such other factors as the Secretary considers appropriate.

                   Colorectal Cancer Screening Tests

  (pp)(1) The term ``colorectal cancer screening test'' means 
any of the following procedures furnished to an individual for 
the purpose of early detection of colorectal cancer:
          (A) Screening fecal-occult blood test.
          (B) Screening flexible sigmoidoscopy.
          (C) In the case of an individual at high risk for 
        colorectal cancer, screening colonoscopy.
          (D) Screening barium enema, if found by the Secretary 
        to be an appropriate alternative to screening flexible 
        sigmoidoscopy under subparagraph (B) or screening 
        colonoscopy under subparagraph (C).
          (E) For years beginning after 2002, such other 
        procedures as the Secretary finds appropriate for the 
        purpose of early detection of colorectal cancer, taking 
        into account changes in technology and standards of 
        medical practice, availability, effectiveness, costs, 
        and such other factors as the Secretary considers 
        appropriate.
  (2) In paragraph (1)(C), an ``individual at high risk for 
colorectal cancer'' is an individual who, because of family 
history, prior experience of cancer or precursor neoplastic 
polyps, a history of chronic digestive disease condition 
(including inflammatory bowel disease, Crohn's Disease, or 
ulcerative colitis), the presence of any appropriate recognized 
gene markers for colorectal cancer, or other predisposing 
factors, faces a high risk for colorectal cancer.

         Diabetes Outpatient Self-Management Training Services

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

                         Bone Mass Measurement

  (rr)(1) The term ``bone mass measurement'' means a radiologic 
or radioisotopic procedure or other procedure approved by the 
Food and Drug Administration performed on a qualified 
individual (as defined in paragraph (2)) for the purpose of 
identifying bone mass or detecting bone loss or determining 
bone quality, and includes a physician's interpretation of the 
results of the procedure.
  (2) For purposes of this subsection, the term ``qualified 
individual'' means an individual who is (in accordance with 
regulations prescribed by the Secretary)--
          (A) an estrogen-deficient woman at clinical risk for 
        osteoporosis;
          (B) an individual with vertebral abnormalities;
          (C) an individual receiving long-term glucocorticoid 
        steroid therapy;
          (D) an individual with primary hyperparathyroidism; 
        or
          (E) an individual being monitored to assess the 
        response to or efficacy of an approved osteoporosis 
        drug therapy.
  (3) The Secretary shall establish such standards regarding 
the frequency with which a qualified individual shall be 
eligible to be provided benefits for bone mass measurement 
under this title.
  (ss) Post-Hospital Home Health Services.--The term `post-
hospital home health services' means home health services 
furnished to an individual under a plan of treatment 
established when the individual was an inpatient of a hospital 
or rural primary care hospital for not less than 3 consecutive 
days before discharge, or during a covered post-hospital 
extended care stay, if home health services are initiated for 
the individual within 30 days after discharge from the 
hospital, rural primary care hospital or extended care 
facility.

        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 Advisory 
        Commission or the Secretary, which are not reasonable 
        and necessary to carry out the purposes of section 
        1886(e)(6),
          (E) in the case of research conducted pursuant to 
        section 1142, which is not reasonable and necessary to 
        carry out the purposes of that section, [and]
          (F) in the case of screening mammography, which is 
        performed more frequently than is covered under section 
        1834(c)(2) or which is not conducted by a facility 
        described in section 1834(c)(1)(B), and, in the case of 
        screening pap smear and screening pelvic exam, which is 
        performed more frequently than is provided under 
        section 1861(nn)[;],
          (G) in the case of prostate cancer screening tests 
        (as defined in section 1861(oo)), which are performed 
        more frequently than is covered under such section,
          (H) in the case of colorectal cancer screening tests, 
        which are performed more frequently than is covered 
        under section 1834(d); and
          (I) the frequency and duration of home health 
        services which are in excess of normative guidelines 
        that the Secretary shall establish by regulation;
          * * * * * * *
          (7) where such expenses are for routine physical 
        checkups, eyeglasses (other than eyewear described in 
        section 1861(s)(8)) or eye examinations for the purpose 
        of prescribing, fitting, or changing eyeglasses, 
        procedures performed (during the course of any eye 
        examination) to determine the refractive state of the 
        eyes, hearing aids or examinations therefor, or 
        immunizations (except as otherwise allowed under 
        section 1861(s)(10) and [paragraph (1)(B) or under 
        paragraph (1)(F)] subparagraphs (B), (F), (G), or (H) 
        of paragraph (1));
          * * * * * * *
          (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)] 
        section 1861(s)(2)(K), 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;
          (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, or
          (B) which are for services of an assistant at surgery 
        to which section 1848(i)(2)(B) applies; [or]
          (16) in the case in which funds may not be used for 
        such items and services under the Assisted Suicide 
        Funding Restriction Act of 1997[.];
          * * * * * * *
          (18) in the case of outpatient occupational therapy 
        services or outpatient physical therapy services 
        furnished as an incident to a physician's professional 
        services (as described in section 1861(s)(2)(A)), that 
        do not meet the standards and conditions under the 
        second sentence of section 1861(g) or 1861(p) as such 
        standards and conditions would apply to such therapy 
        services if furnished by a therapist; or
          (19) 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.
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)] 
                        (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).
                          (ii) Exception for individuals with 
                        end stage renal disease.--Subparagraph 
                        (C) shall apply instead of clause (i) 
                        to an item or service furnished in a 
                        month to an individual if for the month 
                        the individual is, or (without regard 
                        to entitlement under section 226) would 
                        upon application be, entitled to 
                        benefits under section 226A.
                          [(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] 30-
                        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 
renaldisease 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] 
                30-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.]
          * * * * * * *
                  (F) Limitation on beneficiary liability.--An 
                individual who is entitled to benefits under 
                this title and is furnished an item or service 
                for which such benefits are incorrectly paid is 
                not liable for repayment of such benefits under 
                this paragraph unless payment of such benefits 
                was made to the individual.
          (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.
          * * * * * * *
  (e)(1) * * *
  [(2) Where an individual eligible for benefits under this 
title submits a claim for payment for items or services 
furnished by an individual or entity excluded from 
participation in the programs under this title, pursuant to 
section 1128, 1128A, 1156, 1160 (as in effect on September 2, 
1982), 1842(j)(2), 1862(d) (as in effect on the date of the 
enactment of the Medicare and Medicaid Patient and Program 
Protection Act of 1987), or 1866, and such beneficiary did not 
know or have reason to know that such individual or entity was 
so excluded, then, to the extent permitted by this title, and 
notwithstanding such exclusion, payment shall be made for such 
items or services. In each such case the Secretary shall notify 
the beneficiary of the exclusion of the individual or entity 
furnishing the items or services. Payment shall not be made for 
items or services furnished by an excluded individual or entity 
to a beneficiary after a reasonable time (as determined by the 
Secretary in regulations) after the Secretary has notified the 
beneficiary of the exclusion of that individual or entity.]
  (2) No individual or entity may bill (or collect any amount 
from) any individual for any item or service for which payment 
is denied under paragraph (1). No person is liable for payment 
of any amounts billed for such an item or service in violation 
of the previous sentence.
          * * * * * * *
  (i) In order to supplement the activities of the [Prospective 
Payment Assessment Commission] Medicare Payment Advisory 
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) * * *
          * * * * * * *

                 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) * * *
          * * * * * * *
          (H) in the case of hospitals which provide services 
        for which payment may be made under this title and in 
        the case of rural primary care hospitals which provide 
        rural primary care hospital services, to have all items 
        and services (other than physicians' services as 
        defined in regulations for purposes of section 
        1862(a)(14), and other than services described by 
        [section 1861(s)(2)(K)(i) or 1861(s)(2)(K)(iii)] 
        section1861(s)(2)(K), certified nurse-midwife services, 
qualified psychologist services, and services of a certified registered 
nurse anesthetist) (i) that are furnished to an individual who is a 
patient of the hospital, and (ii) for which the individual is entitled 
to have payment made under this title, furnished by the hospital or 
otherwise under arrangements (as defined in section 1861(w)(1)) made by 
the hospital,
          * * * * * * *
          (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 a MedicarePlus organization 
        under part C or 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 (less any 
        payments under section 1858) if the individuals were 
        not so enrolled;
          (P) in the case of home health agencies which provide 
        home health services to individuals entitled to 
        benefits under this title who require catheters, 
        catheter supplies, ostomy bags, and supplies related to 
        ostomy car (described in section 1861(m)(5)), to offer 
        to furnish such supplies to such an individual as part 
        of their furnishing of home health services,
          (Q) in the case of hospitals, skilled nursing 
        facilities, home health agencies, and hospice programs, 
        to comply with the requirement of subsection (f) 
        (relating to maintaining written policies and 
        procedures respecting advance directives); [and]
          (R) to contract only with a health care clearinghouse 
        (as defined in section 1171) that meets each standard 
        and implementation specification adopted or established 
        under part C of title XI on or after the date on which 
        the health care clearinghouse is required to comply 
        with the standard or specification[.]; and
          (S) in the case of a hospital that has a financial 
        interest (as specified by the Secretary in regulations) 
        in a home health agency, or in which such an agency has 
        such a financial interest, or in which another entity 
        has such a financial interest (directly or indirectly) 
        with such hospital and such an agency, to maintain and 
        disclose to the Secretary (in a form and manner 
        specified by the Secretary) information on--
                  (i) the nature of such financial interest,
                  (ii) the number of individuals who were 
                discharged from the hospital and who were 
                identified as requiring home health services, 
                and
                  (iii) the percentage of such individuals who 
                received such services from such provider (or 
                another such provider).
In the case of a hospital which has an agreement in effect with 
an organization described in subparagraph (F), which 
organization's contract with the Secretary under part B of 
title XI is terminated on or after October 1, 1984, the 
hospital shall not be determined to be out of compliance with 
the requirement of such subparagraph during the six month 
period beginning on the date of the termination of that 
contract.
  (2)(A) A provider of services may charge such individual or 
other person (i) the amount of any deduction or coinsurance 
amount imposed pursuant to section 1813(a)(1), (a)(3), or 
(a)(4), section 1833(b), or section 1861(y)(3) with respect to 
such items and services (not in excess of the amount 
customarily charged for such items and services by such 
provider), and (ii) an amount equal to 20 per centum of the 
reasonable charges for such items and services (not in excess 
of 20 per centum of the amount customarily charged for such 
items and services by such provider) for which payment is made 
under part B or which are durable medical equipment furnished 
as home health services (but in the case of items and services 
furnished to individuals with end-stage renal disease, an 
amount equal to 20 percent of the estimated amounts for such 
items and services calculated on the basis established by the 
Secretary). In the case of items and services described in 
section 1833(c), clause (ii) of the preceding sentence shall be 
applied by substituting for 20 percent the proportion which is 
appropriate under such section. A provider of services may not 
impose a charge under clause (ii) of the first sentence of this 
subparagraph with respect to items and services described in 
section 1861(s)(10)(A) and with respect to clinical diagnostic 
laboratory tests for which payment is made under part B. 
Notwithstanding the first sentence of this subparagraph, a home 
health agency may charge such an individual or person, with 
respect to covered items subject to payment under section 
1834(a), the amount of any deduction imposed under section 
1833(b) and 20 percent of the payment basis described in 
section 1834(a)(1)(B). In the case of items and services for 
which payment is made under part B under the prospective 
payment system established under section 1833(t), clause (ii) 
of the first sentence shall be applied by substituting for 20 
percent of the reasonable charge, the applicable copayment 
amount established under section 1833(t)(5).
          * * * * * * *
  (b)(1)
    (2) The Secretary may refuse to enter into an agreement 
under this section or, upon such reasonable notice to the 
provider and the public as may be specified in regulations, may 
refuse to renew or may terminate such an agreement after the 
Secretary--
          (A) * * *
          (B) has determined that the provider fails 
        substantially to meet the applicable provisions of 
        section 1861, [or]
          (C) has excluded the provider from participation in a 
        program under this title pursuant to section 1128 or 
        section 1128A[.], or
          (D) has ascertained that the provider has been 
        convicted of a felony under Federal or State law for an 
        offense which theSecretary determines is inconsistent 
with the best interests of program beneficiaries.
          * * * * * * *
  (f)(1) For purposes of subsection (a)(1)(Q) and sections 
1819(c)(2)(E), 1833(s), 1855(i), 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) * * *
          * * * * * * *
  (2) The written information described in paragraph (1)(A) 
shall be provided to an adult individual--
          (A) * * *
          * * * * * * *
          (E) in the case of an eligible organization (as 
        defined in section 1876(b)) or an organization provided 
        payments under section 1833(a)(1)(A) or a MedicarePlus 
        organization, at the time of enrollment of the 
        individual with the organization.
          * * * * * * *

                        determinations; appeals

  Sec. 1869. (a) * * *
  (b)(1) Any individual dissatisfied with any determination 
under subsection (a) as to--
          (A) * * *
          * * * * * * *
  (2) Notwithstanding paragraph (1)(C) and (1)(D), in the case 
of a claim arising--
          (A) * * *
          (B) under part B, a hearing shall not be available to 
        an individual under paragraph (1)(C) and (1)(D) if the 
        amount in controversy is less than $500 (or $100 in the 
        case of home health services) and judicial review shall 
        not be available to the individual under that paragraph 
        if the aggregate amount in controversy is less than 
        $1,000.
          * * * * * * *

 payments to health maintenance organizations and competitive medical 
                                 plans

  Sec. 1876. (a) * * *
          * * * * * * *
  (f)(1) * * *
  (2) [The Secretary] Subject to paragraph (4), the Secretary 
may modify or waive the requirement imposed by paragraph (1) 
only--
          (A) * * *
          * * * * * * *
  (4) Effective for contract periods beginning after December 
31, 1996, the Secretary may waive or modify the requirement 
imposed by paragraph (1) to the extent the Secretary finds that 
it is in the public interest.
          * * * * * * *
  (k)(1) Except as provided in paragraph (3), the Secretary 
shall not enter into, renew, or continue any risk-sharing 
contract under this section with an eligible organization for 
any contract year beginning on or after--
          (A) the date standards for MedicarePlus organizations 
        and plans are first established under section 1856 with 
        respect to MedicarePlus organizations that are insurers 
        or health maintenance organizations, or
          (B) in the case of such an organization with such a 
        contract in effect as of the date such standards were 
        first established, 1 year after such date.
  (2) The Secretary shall not enter into, renew, or continue 
any risk-sharing contract under this section with an eligible 
organization for any contract year beginning on or after 
January 1, 2000.
  (3) An individual who is enrolled in part B only and is 
enrolled in an eligible organization with a risk-sharing 
contract under this section on December 31, 1998, may continue 
enrollment in such organization in accordance with regulations 
issued by not later then July 1, 1998.
  (4) Notwithstanding subsection (a), the Secretary shall 
provide that payment amounts under risk-sharing contracts under 
this section for months in a year (beginning with January 1998) 
shall be computed--
          (A) with respect to individuals entitled to benefits 
        under both parts A and B, by substituting payment rates 
        under section 1853(a) for the payment rates otherwise 
        established under subsection 1876(a), and
          (B) with respect to individuals only entitled to 
        benefits under part B, by substituting an appropriate 
        proportion of such rates (reflecting the relative 
        proportion of payments under this title attributable to 
        such part) for the payment rates otherwise established 
        under subsection (a).
For purposes of carrying out this paragraph for payments for 
months in 1998, the Secretary shall compute, announce, and 
apply the payment rates under section 1853(a) (notwithstanding 
any deadlines specified in such section) in as timely a manner 
as possible and may (to the extent necessary) provide for 
retroactive adjustment in payments made under this section not 
in accordance with such rates.

               LIMITATION ON CERTAIN PHYSICIAN REFERRALS

  Sec. 1877. (a) * * *
          * * * * * * *
  (g) Sanctions.--
          (1) * * *
          * * * * * * *
          (6) Advisory opinions.--
                  (A) In general.--The Secretary shall issue 
                written advisory opinions concerning whether a 
                referral relating to designated health services 
                (other than clinical laboratory services) is 
                prohibited under this section.
                  (B) 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.
                  (C) Application of certain procedures.--The 
                Secretary shall, to the extent practicable, 
                apply the regulations promulgated under section 
                1128D(b)(5) to the issuance of advisory 
                opinions under this paragraph.
                  (D) Applicability.--This paragraph shall 
                apply to requests for advisory opinions made 
                during the period described in section 
                1128D(b)(6).
          * * * * * * *

   LIMITATION ON LIABILITY OF BENEFICIARY WHERE MEDICARE CLAIMS ARE 
                               DISALLOWED

  Sec. 1879.(a) * * *
          * * * * * * *
  (g) The coverage denial described in this subsection [is,] 
is--
          (1) with respect to the provision of home health 
        services to an individual, a failure to meet the 
        requirements of section 1814(a)(2)(C) or section 
        1835(a)(2)(A) in that the individual--
                  [(1)] (A) is or was not confined to his home, 
                or
                  [(2)] (B) does or did not need skilled 
                nursing care on an intermittent basis[.]; and
          (2) with respect to the provision of hospice care to 
        an individual, a determination that the individual is 
        not terminally ill.
          * * * * * * *

    certification of medicare supplemental health insurance policies

  Sec. 1882. (a) * * *
          * * * * * * *
  (d)(1) * * *
          * * * * * * *
  (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 (including an individual electing a 
MedicarePlus plan under section 1851)--
          (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) in the case of an individual not electing a 
        MedicarePlus plan a medicare supplemental policy with 
        knowledge that the individual is entitled to benefits 
        under another medicare supplemental policy or in the 
        case of an individual electing a MedicarePlus plan, a 
        medicare supplemental policy with knowledge that the 
        policy duplicates health benefits to which 
theindividual is otherwise entitled under the MedicarePlus plan or 
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.
  (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 plan) 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
          * * * * * * *
  (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 or a MedicarePlus plan or 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 
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.
          * * * * * * *
  (s)(1) * * *
  (2)(A) * * *
  (B) Subject to [subparagraph (C)] subparagraphs (C) and (D), 
subparagraph (A) shall not be construed as preventing the 
exclusion of benefits under a policy, during its first 6 
months, based on a pre-existing condition for which the 
policyholder received treatment or was otherwise diagnosed 
during the 6 months before the policy became effective.
          * * * * * * *
  (D) In the case of a policy issued during the 6-month period 
described in subparagraph (A) to an individual who is 65 years 
of age or older as of the date of issuance and who as of the 
date of the application for enrollment has a continuous period 
of creditable coverage (as defined in 2701(c) of the Public 
Health Service Act) of--
          (i) at least 6 months, the policy may not exclude 
        benefits based on a pre-existing condition; or
          (ii) of less than 6 months, if the policy excludes 
        benefits based on a preexisting condition, the policy 
        shall reduce the period of any preexisting condition 
        exclusion by the aggregate of the periods of creditable 
        coverage (if any, as so defined) applicable to the 
        individual as of the enrollment date.
The Secretary shall specify the manner of the reduction under 
clause (ii), based upon the rules used by the Secretary in 
carrying out section 2701(a)(3) of such Act.
  (3)(A) The issuer of a medicare supplemental policy--
          (i) may not deny or condition the issuance or 
        effectiveness of a medicare supplemental policy 
        described in subparagraph (C);
          (ii) may not discriminate in the pricing of the 
        policy, because of health status, claims experience, 
        receipt of health care, or medical condition; and
          (iii) may not impose an exclusion of benefits based 
        on a pre-existing condition,
in the case of an individual described in subparagraph (B) who 
seeks to enroll under the policy not later than 63 days after 
the date of the termination of enrollment described in such 
subparagraph and who submits evidence of the date of 
termination or disenrollment along with the application for 
such medicare supplemental policy.
  (B) An individual described in this subparagraph is an 
individual described in any of the following clauses:
          (i) The individual is enrolled under an employee 
        welfare benefit plan that provides health benefits that 
        supplement the benefits under this title and the plan 
        terminates or ceases to provide any such supplemental 
        health benefits to the individual.
          (ii) The individual is enrolled with a MedicarePlus 
        organization under a MedicarePlus plan under part C, 
        with an eligible organization under a contract under 
        section 1876, a similar organization operating under 
        demonstration project authority, with an organization 
        under an agreement under section 1833(a)(1)(A), with an 
        organization under a policy described in subsection 
        (t), or under a medicare supplemental policy under this 
        section, and such enrollment ceases because--
                  (I) the individual moves outside the service 
                area of the organization under such plan, 
                contract, agreement, or policy;
                  (II) because of the bankruptcy or insolvency 
                of the organization or issuer or because of 
                other involuntary termination of coverage or 
                enrollment under such plan, contract,agreement, 
or policy and there is no provision under applicable State law for the 
continuation of such coverage; or
                  (III) because the individual elects such 
                termination due to cause.
          (iii) The individual was enrolled under a medicare 
        supplemental policy under this section, subsequently 
        terminates such enrollment and enrolls with a 
        MedicarePlus organization under a MedicarePlus plan 
        under part C, with an eligible organization under a 
        contract under section 1876, with a similar 
        organization operating under demonstration project 
        authority, with an organization under an agreement 
        under section 1833(a)(1)(A), or under a policy 
        described in subsection (t), and such subsequent 
        enrollment is terminated by the enrollee during the 
        first 6 months (or 3 months for terminations occurring 
        on or after January 1, 2003) of such enrollment, but 
        only if the individual never was previously so 
        enrolled.
  (C) A medicare supplemental policy described in this 
subparagraph has a benefit package classified as ``A'', ``B'', 
or ``C'' under the standards established under subsection 
(p)(2).
  (D) At the time of an event described in subparagraph (B) 
because of which an individual ceases enrollment or loses 
coverage or benefits under a contract or agreement, policy, or 
plan, the organization that offers the contract or agreement, 
the insurer offering the policy, or the administrator of the 
plan, respectively, shall notify the individual of the rights 
of the individual, and obligations of issuers of medicare 
supplemental policies, under subparagraph (A).
  [(3)] (4) Any issuer of a medicare supplemental policy that 
fails to meet the requirements of [paragraphs (1) and (2)] this 
subsection is subject to a civil money penalty of not to exceed 
$5,000 for each such failure. 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).
          * * * * * * *
  (u)(1) It is unlawful for a person to sell or issue a policy 
described in paragraph (2) to an individual with knowledge that 
the individual has in effect under section 1851 an election of 
an MSA plan.
  (2) A policy described in this subparagraph is a health 
insurance policy that provides for coverage of expenses that 
are otherwise required to be counted toward meeting the annual 
deductible amount provided under the MSA plan.

          payment to hospitals for inpatient hospital services

  Sec. 1886. (a) * * *
          * * * * * * *
  (e)(1) * * *
  [(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 changethat 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. 
TheOffice 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.]
          * * * * * * *
  (h) Payments for Direct Graduate Medical Education Costs.--
          (1) * * *
          * * * * * * *
          (3) Hospital payment amount per resident.--
                  (A) * * *
                  (B) Aggregate approved amount.--As used in 
                subparagraph (A) subject to subparagraph (D), 
                the term ``aggregate approved amount'' means, 
                for a hospital cost reporting period, the 
                product of--
                          (i) the hospital's approved FTE 
                        resident amount (determined under 
                        paragraph (2)) for that period, and
                          (ii) the weighted average number of 
                        full-time-equivalent residents (as 
                        determined under paragraph (4)) in the 
                        hospital's approved medical residency 
                        training programs in that period.
                The Secretary shall reduce the aggregate 
                approved amount to the extent payment is made 
                under subsection (k) for residents included in 
                the hospital's count of full-time equivalent 
                residents and, in the case of residents not 
                included in any such count, the Secretary shall 
                provide for such a reduction in aggregate 
                approved amounts under this subsection as will 
                assure that the application of subsection (k) 
                does not result in any increase in expenditures 
                under this title in excess of those that would 
                have occurred if subsection (k) were not 
                applicable.
          * * * * * * *
                  (D) Phased-in limitation on hospital overhead 
                and supervisory physician component.--
                          (i) In general.--In the case of a 
                        hospital for which the overhead GME 
                        amount (as defined in clause (ii)) for 
                        the base period exceeds an amount equal 
                        to the 75th percentile of the overhead 
                        GME amounts in such period for all 
                        hospitals (weighted to reflect the 
                        full-time equivalent resident counts 
                        for all approved medical residency 
                        training programs), subject to clause 
                        (iv), the hospital's approved FTE 
                        resident amount (for periods beginning 
                        on or after October 1, 1997) shall be 
                        reduced from the amount otherwise 
                        applicable (as previously reduced under 
                        this subparagraph) by an overhead 
                        reduction amount. The overhead 
                        reduction amount is equal to the lesser 
                        of--
                                  (I) 20 percent of the 
                                reference reduction amount 
                                (described in clause (iii)) for 
                                the period, or
                                  (II) 15 percent of the 
                                hospital's overhead GME amount 
                                for the period (as otherwise 
                                determined before the reduction 
                                provided under this 
                                subparagraph for the period 
                                involved).
                          (ii) Overhead gme amount.--For 
                        purposes of this subparagraph, the term 
                        ``overhead GME amount'' means, for a 
                        hospital for a period, the product of--
                                  (I) the percentage of the 
                                hospital's approved FTE 
                                resident amount for the base 
                                period that is not attributable 
                                to resident salaries and fringe 
                                benefits, and
                                  (II) the hospital's approved 
                                FTE resident amount for the 
                                period involved.
                          (iii) Reference reduction amount.--
                                  (I) In general.--The 
                                reference reduction amount 
                                described in this clause for a 
                                hospital for a cost reporting 
                                period is the base difference 
                                (described in subclause (II)) 
                                updated, in a compounded manner 
                                for each period from the base 
                                period to the period involved, 
                                by the update applied for such 
                                period to the hospital's 
                                approved FTE resident amount.
                                  (II) Base difference.--The 
                                base difference described in 
                                this subclause for a hospital 
                                is the amount by which the 
                                hospital's overhead GME amount 
                                in the base period exceeded the 
                                75th percentile of such amounts 
                                (as described in clause (i)).
                          (iv) Maximum reduction to 75th 
                        percentile.--In no case shall the 
                        reduction under this subparagraph 
                        effected for a hospital for a period 
                        (below the amount that would otherwise 
                        apply for the period if this 
                        subparagraph did not apply for any 
                        period) exceed the reference reduction 
                        amount for the hospital for the period.
                          (v) Base period.--For purposes of 
                        this subparagraph, the term ``base 
                        period'' means the cost reporting 
                        period beginning in fiscal year 1984 or 
                        the period used to establish the 
                        hospital's approved FTE resident amount 
                        for hospitals that did not have 
                        approved residency training programs in 
                        fiscal year 1984.
                          (vi) Rules for hospitals initiating 
                        residency training programs.--The 
                        Secretary shall establish rules for the 
                        application of this subparagraph in the 
                        case of a hospital that initiates 
                        medical residency training programs 
                        during or after the base period.
          (4) Determination of full-time-equivalent 
        residents.--
                  (A) * * *
          * * * * * * *
                  (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, 1997, the 
                total number of full-time equivalent residents 
                before application of weighting factors (as 
                determined under this paragraph) with respect 
                to a hospital's approved medical residency 
                training program may not exceed the number of 
                full-time equivalent residents with respect to 
                the hospital's most recent cost reporting 
                period ending on or before December 31, 1996.
                  (G) Counting interns and residents for fy 
                1998 and subsequent years.--
                          (i) FY 1998.--For the hospital's 
                        first cost reporting period beginning 
                        during fiscal year 1998, subject to the 
                        limit described in subparagraph (F), 
                        the total number of full-time 
                        equivalent residents, for determining 
                        the hospital's graduate medical 
                        education payment, shall equal the 
                        average of the full-time equivalent 
                        resident counts for the cost reporting 
                        period and the preceding cost reporting 
                        period.
                          (ii) Subsequent years.--For each 
                        subsequent cost reporting period, 
                        subject to the limit described in 
                        subparagraph (F), the total number of 
                        full-time equivalent residents, for 
                        determining the hospital's graduate 
                        medical education payment, shall equal 
                        the average of the actual full-time 
                        equivalent resident counts for the cost 
                        reporting period and preceding two cost 
                        reporting periods.
                          (iii) Adjustment for short periods.--
                        If a hospital's cost reporting period 
                        beginning on or after October 1, 1997, 
                        is not equal to twelve months, the 
                        Secretary shall make appropriate 
                        modifications to ensure that the 
                        average full-time equivalent resident 
                        counts pursuant to clause (ii) are 
                        based on the equivalent of full 12-
                        month cost reporting periods.
                          (iv) Exclusion of residents in 
                        dentistry.--Residents in an approved 
                        medical residency training program in 
                        dentistry shall not be counted for 
                        purposes of this subparagraph and 
                        subparagraph (F).
          * * * * * * *
          (6) Incentive payment under plans for voluntary 
        reduction in number of residents.--
                  (A) In general.--In the case of a voluntary 
                residency reduction plan for which an 
                application is approved under subparagraph (B), 
                the qualifying entity submitting the plan shall 
                be paid an applicable hold harmless percentage 
                (as specified in subparagraph (E)) of the sum 
                of--
                          (i) amount (if any) by which--
                                  (I) the amount of payment 
                                which would have been made 
                                under this subsection if there 
                                had been a 5 percent reduction 
                                in the number of full-time 
                                equivalent residents in the 
                                approved medical education 
                                training programs of the 
                                qualifying entity as of June 
                                30, 1997, exceeds
                                  (II) the amount of payment 
                                which is made under this 
                                subsection, taking into account 
                                the reduction in such number 
                                effected under the reduction 
                                plan; and
                          (ii) the amount of the reduction in 
                        payment under 1886(d)(5)(B) (for 
                        hospitals participating in the 
                        qualifying entity) that is attributable 
                        to the reduction in number of residents 
                        effected under the plan below 95 
                        percent of the number of full-time 
                        equivalent residents in such programs 
                        of such entity as of June 30, 1997.
                  (B) Approval of plan applications.--The 
                Secretary may not approve the application of an 
                qualifying entity unless--
                          (i) the application is submitted in a 
                        form and manner specified by the 
                        Secretary and by not later than March 
                        1, 2000,
                          (ii) the application provides for the 
                        operation of a plan for the reduction 
                        in the number of full-time equivalent 
                        residents in the approved medical 
                        residency training programs of the 
                        entity consistent with the requirements 
                        of subparagraph (D);
                          (iii) the entity elects in the 
                        application whether such reduction will 
                        occur over--
                                  (I) a period of not longer 
                                than 5 residency training 
                                years, or
                                  (II) a period of 6 residency 
                                training years,
                        except that a qualifying entity 
                        described in subparagraph (C)(i)(III) 
                        may not make the election described in 
                        subclause (II); and
                          (iv) the Secretary determines that 
                        the application and the entity and such 
                        plan meet such other requirements as 
                        the Secretary specifies in regulations.
                  (C) Qualifying entity.--
                          (i) In general.--For purposes of this 
                        paragraph, any of the following may be 
                        a qualifying entity:
                                  (I) Individual hospitals 
                                operating one or more approved 
                                medical residency training 
                                programs.
                                  (II) Subject to clause (ii), 
                                two or more hospitals that 
                                operate such programs and apply 
                                for treatment under this 
                                paragraph as a single 
                                qualifying entity.
                                  (III) Subject to clause 
                                (iii), a qualifying consortium 
                                (as described in section 4735 
                                of the Balanced Budget Act of 
                                1997).
                          (ii) Additional requirement for joint 
                        programs.--In the case of an 
                        application by a qualifying entity 
                        described in clause (i)(II), the 
                        Secretary may not approve the 
                        application unless the application 
                        represents that the qualifying entity 
                        either--
                                  (I) in the case of an entity 
                                that meets the requirements of 
                                clause (v) of subparagraph (D) 
                                willnot reduce the number of 
full-time equivalent residents in primary care during the period of the 
plan, or
                                  (II) in the case of another 
                                entity will not reduce the 
                                proportion of its residents in 
                                primary care (to the total 
                                number of residents) below such 
                                proportion as in effect as of 
                                the applicable time described 
                                in subparagraph (D)(vi).
                          (iii) Additional requirement for 
                        consortia.--In the case of an 
                        application by a qualifying entity 
                        described in clause (i)(III), the 
                        Secretary may not approve the 
                        application unless the application 
                        represents that the qualifying entity 
                        will not reduce the proportion of its 
                        residents in primary care (to the total 
                        number of residents) below such 
                        proportion as in effect as of the 
                        applicable time described in 
                        subparagraph (D)(vi).
                  (D) Residency reduction requirements.--
                          (i) Individual hospital applicants.--
                        In the case of a qualifying entity 
                        described in subparagraph (C)(i)(I), 
                        the number of full-time equivalent 
                        residents in all the approved medical 
                        residency training programs operated by 
                        or through the entity shall be reduced 
                        as follows:
                                  (I) If base number of 
                                residents exceeds 750 
                                residents, by a number equal to 
                                at least 20 percent of such 
                                base number.
                                  (II) Subject to subclause 
                                (IV), if base number of 
                                residents exceeds 500, but is 
                                less than 750, residents, by 
                                150 residents.
                                  (III) Subject to subclause 
                                (IV), if base number of 
                                residents does not exceed 500 
                                residents, by a number equal to 
                                at least 25 percent of such 
                                base number.
                                  (IV) In the case of a 
                                qualifying entity which is 
                                described in clause (v) and 
                                which elects treatment under 
                                this subclause, by a number 
                                equal to at least 20 percent of 
                                such base number.
                          (ii) Joint applicants.--In the case 
                        of a qualifying entity described in 
                        subparagraph (C)(i)(II), the number of 
                        full-time equivalent residents in all 
                        the approved medical residency training 
                        programs operated by or through the 
                        entity shall be reduced as follows:
                                  (I) Subject to subclause 
                                (II), by a number equal to at 
                                least 25 percent of such base 
                                number.
                                  (II) In the case of a 
                                qualifying entity which is 
                                described in clause (v) and 
                                which elects treatment under 
                                this subclause, by a number 
                                equal to at least 20 percent of 
                                such base number.
                          (iii) Consortia.--In the case of a 
                        qualifying entity described in 
                        subparagraph (C)(i)(III), the number of 
                        full-time equivalent residents in all 
                        the approved medical residency training 
                        programs operated by or through the 
                        entity shall be reduced by a number 
                        equal to at least 20 percent of such 
                        base number.
                          (iv) Manner of reduction.--The 
                        reductions specified under the 
                        preceding provisions of this 
                        subparagraph for a qualifying entity 
                        shall be below the base number of 
                        residents for that entity and shall be 
                        fully effective not later than--
                                  (I) the 5th residency 
                                training year in which the 
                                application under subparagraph 
                                (B) is effective, in the case 
                                of an entity making the 
                                election described in 
                                subparagraph (B)(iii)(I), or
                                  (II) the 6th such residency 
                                training year, in the case of 
                                an entity making the election 
                                described in subparagraph 
                                (B)(iii)(II).
                          (v) Entities providing assurance of 
                        maintenance of primary care 
                        residents.--An entity is described in 
                        this clause if--
                                  (I) the base number of 
                                residents for the entity is 
                                less than 750;
                                  (II) the number of full-time 
                                equivalent residents in primary 
                                care included in the base 
                                number of residents for the 
                                entity is at least 10 percent 
                                of such base number; and
                                  (III) the entity represents 
                                in its application under 
                                subparagraph (B) that there 
                                will be no reduction under the 
                                plan in the number of full-time 
                                equivalent residents in primary 
                                care.
                        If a qualifying entity fails to comply 
                        with the representation described in 
                        subclause (III), the entity shall be 
                        subject to repayment of all amounts 
                        paid under this paragraph, in 
                        accordance with procedures established 
                        to carry out subparagraph (F).
                          (vi) Base number of residents 
                        defined.--For purposes of this 
                        paragraph, the term ``base number of 
                        residents'' means, with respect to a 
                        qualifying entity operating approved 
                        medical residency training programs, 
                        the number of full-time equivalent 
                        residents in such programs (before 
                        application of weighting factors) of 
                        the entity as of the most recent cost 
                        reporting period ending before June 30, 
                        1997, or, if less, for any subsequent 
                        cost reporting period that ends before 
                        the date the entity makes application 
                        under this paragraph.
                  (E) Applicable hold harmless percentage.--
                          (i) In general.--For purposes of 
                        subparagraph (A), the ``applicable hold 
                        harmless percentage'' is the 
                        percentages specified in clause (ii) or 
                        clause (iii), as elected by the 
                        qualifying entity in the application 
                        submitted under subparagraph (B).
                          (ii) 5-year reduction plan.--In the 
                        case of an entity making the election 
                        described in subparagraph (B)(iii)(I), 
                        the percentages specified in this 
                        clause are, for the--
                                  (I) first and second 
                                residency training years in 
                                which the reduction plan is in 
                                effect, 100 percent,
                                  (II) third such year, 75 
                                percent,
                                  (III) fourth such year, 50 
                                percent, and
                                  (IV) fifth such year, 25 
                                percent.
                          (iii) 6-year reduction plan.--In the 
                        case of an entity making the election 
                        described in subparagraph (B)(iii)(II), 
                        the percentages specified in this 
                        clause are, for the--
                                  (I) first residency training 
                                year in which the reduction 
                                plan is in effect, 100 percent,
                                  (II) second such year, 95 
                                percent,
                                  (III) third such year, 85 
                                percent,
                                  (IV) fourth such year, 70 
                                percent,
                                  (V) fifth such year, 50 
                                percent, and
                                  (VI) sixth such year, 25 
                                percent.
                  (F) Penalty for increase in number of 
                residents in subsequent years.--If payments are 
                made under this paragraph to a qualifying 
                entity, if the entity (or any hospital 
                operating as part of the entity) increases the 
                number of full-time equivalent residents above 
                the number of such residents permitted under 
                the reduction plan as of the completion of the 
                plan, then, as specified by the Secretary, the 
                entity is liable for repayment to the Secretary 
                of the total amounts paid under this paragraph 
                to the entity.
                  (G) Treatment of rotating residents.--In 
                applying this paragraph, the Secretary shall 
                establish rules regarding the counting of 
                residents who are assigned to institutions the 
                medical residency training programs in which 
                are not covered under approved applications 
                under this paragraph.
          * * * * * * *
  (k) Payment to Non-Hospital Providers.--
          (1) Report.--The Secretary shall submit to Congress, 
        not later than 18 months after the date of the 
        enactment of this subsection, a proposal for payment to 
        qualified non-hospital providers for their direct costs 
        of medical education, if those costs are incurred in 
        the operation of an approved medical residency training 
        program described in subsection (h). Such proposal 
        shall specify the amounts, form, and manner in which 
        such payments will be made and the portion of such 
        payments that will be made from each of the trust funds 
        under this title.
          (2) Effectiveness.--Except as otherwise provided in 
        law, the Secretary may implement such proposal for 
        residency years beginning not earlier than 6 months 
        after the date of submittal of the report under 
        paragraph (1).
          (3) Qualified non-hospital providers.--For purposes 
        of this subsection, the term ``qualified non-hospital 
        provider'' means--
                  (A) a Federally qualified health center, as 
                defined in section 1861(aa)(4);
                  (B) a rural health clinic, as defined in 
                section 1861(aa)(2); and
                  (C) such other providers (other than 
                hospitals) as the Secretary determines to be 
                appropriate.
          * * * * * * *


                         centers of excellence


  Sec. 1889. (a) In General.--The Secretary shall use a 
competitive process to contract with specific hospitals or 
other entities for furnishing services related to surgical 
procedures, and for furnishing services (unrelated to surgical 
procedures) to hospital inpatients that the Secretary 
determines to be appropriate. The services may include any 
services covered under this title that the Secretary determines 
to be appropriate, including post-hospital services.
  (b) Quality Standards.--Only entities that meet quality 
standards established by the Secretary shall be eligible to 
contract under this section. Contracting entities shall 
implement a quality improvement plan approved by the Secretary.
  (c) Payment.--Payment under this section shall be made on the 
basis of negotiated all-inclusive rates. The amount of payment 
made by the Secretary to an entity under this title for 
services covered under a contract shall be less than the 
aggregate amount of the payments that the Secretary would have 
otherwise made for the services.
  (d) Contract Period.--A contract period shall be 3 years 
(subject to renewal), so long as the entity continues to meet 
quality and other contractual standards.
  (e) Incentives for Use of Centers.--Entities under a contract 
under this section may furnish additional services (at no cost 
to an individual entitled to benefits under this title) or 
waive cost-sharing, subject to the approval of the Secretary.
  (f) Limit on Number of Centers.--The Secretary shall limit 
the number of centers in a geographic area to the number needed 
to meet projected demand for contracted services.

   conditions of participation for home health agencies; home health 
                                quality

  Sec. 1891. (a) * * *
          * * * * * * *
  (g) Payment on Basis of Location of Service.--A home health 
agency shall submit claims for payment for home health services 
under this title only on the basis of the geographic location 
at which the service is furnished, as determined by the 
Secretary.
          * * * * * * *


              prospective payment for home health services


  Sec. 1895. (a) In General.--Notwithstanding section 1861(v), 
the Secretary shall provide, for cost reporting periods 
beginning on or after October 1, 1999, for payments for home 
health services in accordance with a prospective payment system 
established by the Secretary under this section.
  (b) System of Prospective Payment for Home Health Services.--
          (1) In general.--The Secretary shall establish under 
        this subsection a prospective payment system for 
        payment for all costs of home health services. Under 
        the system under this subsection all services covered 
        and paid on a reasonable cost basis under the medicare 
        home health benefit as of the date of theenactment of 
the this section, including medical supplies, shall be paid for on the 
basis of a prospective payment amount determined under this subsection 
and applicable to the services involved. In implementing the system, 
the Secretary may provide for a transition (of not longer than 4 years) 
during which a portion of such payment is based on agency-specific 
costs, but only if such transition does not result in aggregate 
payments under this title that exceed the aggregate payments that would 
be made if such a transition did not occur.
          (2) Unit of payment.--In defining a prospective 
        payment amount under the system under this subsection, 
        the Secretary shall consider an appropriate unit of 
        service and the number, type, and duration of visits 
        provided within that unit, potential changes in the mix 
        of services provided within that unit and their cost, 
        and a general system design that provides for continued 
        access to quality services.
          (3) Payment basis.--
                  (A) Initial basis.--
                          (i) In general.--Under such system 
                        the Secretary shall provide for 
                        computation of a standard prospective 
                        payment amount (or amounts). Such 
                        amount (or amounts) shall initially be 
                        based on the most current audited cost 
                        report data available to the Secretary 
                        and shall be computed in a manner so 
                        that the total amounts payable under 
                        the system for fiscal year 2000 shall 
                        be equal to the total amount that would 
                        have been made if the system had not 
                        been in effect but if the reduction in 
                        limits described in clause (ii) had 
                        been in effect. Such amount shall be 
                        standardized in a manner that 
                        eliminates the effect of variations in 
                        relative case mix and wage levels among 
                        different home health agencies in a 
                        budget neutral manner consistent with 
                        the case mix and wage level adjustments 
                        provided under paragraph (4)(A). Under 
                        the system, the Secretary may recognize 
                        regional differences or differences 
                        based upon whether or not the services 
                        or agency are in an urbanized area.
                          (ii) Reduction.--The reduction 
                        described in this clause is a reduction 
                        by 15 percent in the cost limits and 
                        per beneficiary limits described in 
                        section 1861(v)(1)(L), as those limits 
                        are in effect on September 30, 1999.
                  (B) Annual update.--
                          (i) In general.--The standard 
                        prospective payment amount (or amounts) 
                        shall be adjusted for each fiscal year 
                        (beginning with fiscal year 2001) in a 
                        prospective manner specified by the 
                        Secretary by the home health market 
                        basket percentage increase applicable 
                        to the fiscal year involved.
                          (ii) Home health market basket 
                        percentage increase.--For purposes of 
                        this subsection, the term ``home health 
                        market basket percentage increase'' 
                        means, with respect to a fiscal year, a 
                        percentage (estimated by the Secretary 
                        before the beginning of the fiscal 
                        year) determined and applied with 
                        respect to the mix of goods and 
                        services included in home health 
                        services in the same manner as the 
                        market basket percentage increase under 
                        section 1886(b)(3)(B)(iii) is 
                        determined and applied to the mix of 
                        goods and services comprising inpatient 
                        hospital services for the fiscal year.
                  (C) Adjustment for outliers.--The Secretary 
                shall reduce the standard prospective payment 
                amount (or amounts) under this paragraph 
                applicable to home health services furnished 
                during a period by such proportion as will 
                result in an aggregate reduction in payments 
                for the period equal to the aggregate increase 
                in payments resulting from the application of 
                paragraph (5) (relating to outliers).
          (4) Payment computation.--
                  (A) In general.--The payment amount for a 
                unit of home health services shall be the 
                applicable standard prospective payment amount 
                adjusted as follows:
                          (i) Case mix adjustment.--The amount 
                        shall be adjusted by an appropriate 
                        case mix adjustment factor (established 
                        under subparagraph (B)).
                          (ii) Area wage adjustment.--The 
                        portion of such amount that the 
                        Secretary estimates to be attributable 
                        to wages and wage-related costs shall 
                        be adjusted for geographic differences 
                        in such costs by an area wage 
                        adjustment factor (established under 
                        subparagraph (C)) for the area in which 
                        the services are furnished or such 
                        other area as the Secretary may 
                        specify.
                  (B) Establishment of case mix adjustment 
                factors.--The Secretary shall establish 
                appropriate case mix adjustment factors for 
                home health services in a manner that explains 
                a significant amount of the variation in cost 
                among different units of services.
                  (C) Establishment of area wage adjustment 
                factors.--The Secretary shall establish area 
                wage adjustment factors that reflect the 
                relative level of wages and wage-related costs 
                applicable to the furnishing of home health 
                services in a geographic area compared to the 
                national average applicable level. Such factors 
                may be the factors used by the Secretary for 
                purposes of section 1886(d)(3)(E).
          (5) Outliers.--The Secretary may provide for an 
        addition or adjustment to the payment amount otherwise 
        made in the case of outliers because of unusual 
        variations in the type or amount of medically necessary 
        care. The total amount of the additional payments or 
        payment adjustments made under this paragraph with 
        respect to a fiscal year may not exceed 5 percent of 
        the total payments projected or estimated to be made 
        based on the prospective payment system under this 
        subsection in that year.
          (6) Proration of prospective payment amounts.--If a 
        beneficiary elects to transfer to, or receive services 
        from, another home health agency within the period 
        covered by the prospectivepayment amount, the payment 
shall be prorated between the home health agencies involved.
  (c) Requirements for Payment Information.--With respect to 
home health services furnished on or after October 1, 1998, no 
claim for such a service may be paid under this title unless--
          (1) the claim has the unique identifier (provided 
        under section 1842(r)) for the physician who prescribed 
        the services or made the certification described in 
        section 1814(a)(2) or 1835(a)(2)(A); and
          (2) in the case of a service visit described in 
        paragraph (1), (2), (3), or (4) of section 1861(m), the 
        claim has information (coded in an appropriate manner) 
        on the length of time of the service visit, as measured 
        in 15 minute increments.
  (d) Limitation on Review.--There shall be no administrative 
or judicial review under section 1869, 1878, or otherwise of--
          (1) the establishment of a transition period under 
        subsection (b)(1);
          (2) the definition and application of payment units 
        under subsection (b)(2);
          (3) the computation of initial standard prospective 
        payment amounts under subsection (b)(3)(A) (including 
        the reduction described in clause (ii) of such 
        subsection);
          (4) the adjustment for outliers under subsection 
        (b)(3)(C);
          (5) case mix and area wage adjustments under 
        subsection (b)(4);
          (6) any adjustments for outliers under subsection 
        (b)(5); and
          (7) the amounts or types of exceptions or adjustments 
        under subsection (b)(7).
          * * * * * * *

      TITLE XIX--GRANTS TO STATES FOR MEDICAL ASSISTANCE PROGRAMS

          * * * * * * *

                   state plans for medical assistance

  Sec. 1902. (a) * * *
          * * * * * * *
  (j) Notwithstanding any other requirement of this title, the 
Secretary may waive or modify any requirement of this title 
with respect to the medical assistance program in American 
Samoa and the Northern Mariana Islands, other than a waiver of 
the Federal medical assistance percentage, the limitation in 
section 1108(c), or the requirement that payment may be made 
for medical assistance only with respect to amounts expended by 
American Samoa or the Northern Mariana Islands for care and 
services described in paragraphs (1) through [(25)] (26) of 
section 1905(a).
          * * * * * * *

                           payment to states

  Sec. 1903. (a) * * *
          * * * * * * *
  (f)(1) * * *
          * * * * * * *
  (4) The limitations on payment imposed by the preceding 
provisions of this subsection shall not apply with respect to 
any amount expended by a State as medical assistance for any 
individual described in section 1902(a)(10)(A)(i)(III), 
1902(a)(10)(A)(i)(IV), 1902(a)(10)(A)(i)(V), 
1902(a)(10)(A)(i)(VI), 1902(a)(10)(A)(i)(VII), 
1902(a)(10)(A)(ii)(IX), 1902(a)(10)(A)(ii)(X), or 1905(p)(1) or 
for any individual--
          (A) * * *
          * * * * * * *
          (C) with respect to whom there is being paid, or who 
        is eligible, or would be eligible if he were not in a 
        medical institution, to have paid with respect to him, 
        a State supplementary payment and is eligible for 
        medical assistance equal in amount, duration, and scope 
        to the medical assistance made available to individuals 
        described in section 1902(a)(10)(A), or who is a PACE 
        program eligible individual enrolled in a PACE program 
        under section 1932, but only if the income of such 
        individual (as determined under section 1612, but 
        without regard to subsection (b) thereof) does not 
        exceed 300 percent of the supplemental security income 
        benefit rate established by section 1611(b)(1),
at the time of the provision of the medical assistance giving 
rise to such expenditure.
          * * * * * * *

                              definitions

  Sec. 1905. For purposes of this title--
  (a) The term ``medical assistance'' means payment of part or 
all of the cost of the following care and services (if provided 
in or after the third month before the month in which the 
recipient makes application for assistance or, in the case of 
medicare cost-sharing with respect to a qualified medicare 
beneficiary described in subsection (p)(1), if provided after 
the month in which the individual becomes such a beneficiary) 
for individuals, and, with respect to physicians' or dentists' 
services, at the option of the State, to individuals (other 
than individuals with respect to whom there is being paid, or 
who are eligible, or would be eligible if they were not in a 
medical institution, to have paid with respect to them a State 
supplementary payment and are eligible for medical assistance 
equal in amount, duration, and scope to the medical assistance 
made available to individuals described in section 
1902(a)(10)(A)) not receiving aid or assistance under any plan 
of the State approved under title I, X, XIV, or XVI, or part A 
of title IV, and with respect to whom supplemental security 
income benefits are not being paid under title XVI, who are--
          (i) under the age of 21, or, at the option of the 
        State, under the age of 20, 19, or 18 as the State may 
        choose,
          (ii) relatives specified in section 406(b)(1) with 
        whom a child is living if such child is (or would, if 
        needy, be) a dependent child under part A of title IV,
          (iii) 65 years of age or older,
          (iv) blind, with respect to States eligible to 
        participate in the State plan program established under 
        title XVI,
          (v) 18 years of age or older and permanently and 
        totally disabled, with respect to States eligible to 
        participate in the State plan program established under 
        title XVI,
          (vi) persons essential (as described in the second 
        sentence of this subsection) to individuals receiving 
        aid or assistance under State plans approved under 
        title I, X, XIV, or XVI,
          (vii) blind or disabled as defined in section 1614, 
        with respect to States not eligible to participate in 
        the State plan program established under title XVI,
          (viii) pregnant women,
          (ix) individuals provided extended benefits under 
        section 1925,
          (x) individuals described in section 1902(u)(1), or
          (xi) individuals described in section 1902(z)(1),
but whose income and resources are insufficient to meet all of 
such cost--
          (1) * * *
          * * * * * * *
          (24) personal care services furnished to an 
        individual who is not an inpatient or resident of a 
        hospital, nursing facility, intermediate care facility 
        for the mentally retarded, or institution for mental 
        disease that are (A) authorized for the individual by a 
        physician in accordance with a plan of treatment or (at 
        the option of the State) otherwise authorized for the 
        individual in accordance with a service plan approved 
        by the State, (B) provided by an individual who is 
        qualified to provide such services and who is not a 
        member of the individual's family, and (C) furnished in 
        a home or other location; [and]
          (25) services furnished under a PACE program under 
        section 1932 to PACE program eligible individuals 
        enrolled under the program under such section; and
          [(25)] (26) any other medical care, and any other 
        type of remedial care recognized under State law, 
        specified by the Secretary.
except as otherwise provided in paragraph (16), such term does 
not include--
          (A) any such payments with respect to care or 
        services for any individual who is an inmate of a 
        public institution (except as a patient in a medical 
        institution); or
          (B) any such payments with respect to care or 
        services for any individual who has not attained 65 
        years of age and who is a patient in an institution for 
        mental diseases.
For purposes of clause (vi) of the preceding sentence, a person 
shall be considered essential to another individual if such 
person is the spouse of and is living with such individual, the 
needs of such person are taken into account in determining the 
amount of aid or assistance furnished to such individual (under 
a State plan approved under title I, X, XIV, or XVI), and such 
person is determined, under such a State plan, to be essential 
to the well-being of such individual. The payment described in 
the first sentence may include expenditures for medicare cost-
sharing and for premiums under part B of title XVIII for 
individuals who are eligible for medical assistance under the 
plan and (A) are receiving aid or assistance under any plan of 
the State approved under title I, X, XIV, or XVI, or part A of 
title IV, or with respect to whom supplemental security income 
benefits are being paid under title XVI, or (B) with respect to 
whom there is being paid a State supplementary payment and are 
eligible for medical assistance equal in amount, duration, and 
scope to the medical assistance made available to individuals 
described in section 1902(a)(10)(A), and, except in the case of 
individuals 65 years of age or older and disabled individuals 
entitled to health insurance benefits under title XVIII who are 
not enrolled under part B of title XVIII, other insurance 
premiums for medical or any other type of remedial care or the 
cost thereof. No service (including counseling) shall be 
excluded from the definition of ``medical assistance'' solely 
because it is provided as a treatment service for alcoholism or 
drug dependency.
          * * * * * * *

treatment of income and resources for certain institutionalized spouses

  Sec. 1924. (a) Special Treatment for Institutionalized 
Spouses.--
          (1) * * *
          * * * * * * *
          (5) Application to individuals receiving services 
        [from organizations receiving certain waivers] under 
        pace programs.--This section applies to individuals 
        receiving institutional or noninstitutional services 
        [from any organization receiving a frail elderly 
        demonstration project waiver under section 9412(b) of 
        the Omnibus Budget Reconciliation Act of 1986 or a 
        waiver under section 603(c) of the Social Security 
        Amendments of 1983.] under a PACE demonstration waiver 
        program (as defined in subsection (a)(7) of section 
        1894) or under a PACE program under section 1932.
          * * * * * * *

SEC. 1932. PROGRAM OF ALL-INCLUSIVE CARE FOR THE ELDERLY (PACE).

  (a) Option.--
          (1) In general.--A State may elect to provide medical 
        assistance under this section with respect to PACE 
        program services to PACE program eligible individuals 
        who are eligible for medical assistance under the State 
        plan and who are enrolled in a PACE program under a 
        PACE program agreement. Such individuals need not be 
        eligible for benefits under part A, or enrolled under 
        part B, of title XVIII to be eligible to enroll under 
        this section.
          (2) Benefits through enrollment in pace program.--In 
        the case of an individual enrolled with a PACE program 
        pursuant to such an election--
                  (A) the individual shall receive benefits 
                under the plan solely through such program, and
                  (B) the PACE provider shall receive payment 
                in accordance with the PACE program agreement 
                for provision of such benefits.
          (3) Application of definitions.--The definitions of 
        terms under section 1894(a) shall apply under this 
        section in the same manner as they apply under section 
        1894.
  (b) Application of Medicare Terms and Conditions.--Except as 
provided in this section, the terms and conditions for the 
operation and participation of PACE program eligible 
individuals in PACE programs offered by PACE providers under 
PACE program agreements under section 1894 shall apply for 
purposes of this section.
  (c) Adjustment in Payment Amounts.--In the case of 
individuals enrolled in a PACE program under this section, the 
amount of payment under this section shall not be the amount 
calculated under section 1894(d), but shall be an amount, 
specified under the PACE agreement, which is less than the 
amount that would otherwise have been made under the State plan 
if the individuals were not so enrolled. The payment under this 
section shall be in addition to any payment made under section 
1894 for individuals who are enrolled in a PACE program under 
such section.
  (d) Waivers of Requirements.--With respect to carrying out a 
PACE program under this section, the following requirements of 
this title (and regulations relating to such requirements) 
shall not apply:
          (1) Section 1902(a)(1), relating to any requirement 
        that PACE programs or PACE program services be provided 
        in all areas of a State.
          (2) Section 1902(a)(10), insofar as such section 
        relates to comparability of services among different 
        population groups.
          (3) Sections 1902(a)(23) and 1915(b)(4), relating to 
        freedom of choice of providers under a PACE program.
          (4) Section 1903(m)(2)(A), insofar as it restricts a 
        PACE provider from receiving prepaid capitation 
        payments.
  (e) Post-Eligibility Treatment of Income.--A State may 
provide for post-eligibility treatment of income for 
individuals enrolled in PACE programs under this section in the 
same manner as a State treats post-eligibility income for 
individuals receiving services under a waiver under section 
1915(c).

         references to laws directly affecting medicaid program

  Sec. [1932.] 1933. (a) Authority or Requirements to Cover 
Additional Individuals.--For provisions of law which make 
additional individuals eligible for medical assistance under 
this title, see the following:
          (1) AFDC.--(A) * * *
          * * * * * * *
                              ----------                              


                     INTERNAL REVENUE CODE OF 1986

                        Subtitle A--Income Taxes

          * * * * * * *

                  CHAPTER 1--NORMAL TAXES AND SURTAXES

          * * * * * * *

        PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

        Sec. 101. Certain death benefits.
     * * * * * * *
        [Sec. 138. Cross references to other Acts.]
        Sec. 138. MedicarePlus MSA.
        Sec. 139. Cross references to other Acts.
          * * * * * * *

SEC. 138. MEDICAREPLUS MSA.

  (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 part C of title XVIII of the 
Social Security Act.
  (b) MedicarePlus MSA.--For purposes of this section, the term 
``MedicarePlus MSA'' means a medical savings account (as 
defined in section 220(d))--
          (1) which is designated as a MedicarePlus MSA,
          (2) with respect to which no contribution may be made 
        other than--
                  (A) a contribution made by the Secretary of 
                Health and Human Services pursuant to part C of 
                title XVIII of the Social Security Act, or
                  (B) a trustee-to-trustee transfer described 
                in subsection (c)(4),
          (3) the governing instrument of which provides that 
        trustee-to-trustee transfers described in subsection 
        (c)(4) may be made to and from such account, and
          (4) which is established in connection with an MSA 
        plan described in section 1859(b)(2) of the Social 
        Security Act.
  (c) Special Rules for Distributions.--
          (1) Distributions for qualified medical expenses.--In 
        applying section 220 to a MedicarePlus MSA--
                  (A) qualified medical expenses shall not 
                include amounts paid for medical care for any 
                individual other than the account holder, and
                  (B) section 220(d)(2)(C) shall not apply.
          (2) Penalty for distributions from medicareplus msa 
        not used for qualified medical expenses if minimum 
        balance not maintained.--
                  (A) In general.--The tax imposed by this 
                chapter for any taxable year in which there is 
                a payment ordistribution 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 such MSA as of 
                                the close of the calendar year 
                                preceding the calendar year in 
                                which the taxable year begins, 
                                over
                                  (II) an amount equal to 60 
                                percent of the deductible under 
                                the MedicarePlus MSA plan 
                                covering the account holder as 
                                of January 1 of the calendar 
                                year in which the taxable year 
                                begins.
                Section 220(f)(2) shall not apply to any 
                payment or distribution from a MedicarePlus 
                MSA.
                  (B) Exceptions.--Subparagraph (A) shall not 
                apply if the payment or distribution is made on 
                or after the date the account holder--
                          (i) becomes disabled within the 
                        meaning of section 72(m)(7), or
                          (ii) dies.
                  (C) Special rules.--For purposes of 
                subparagraph (A)--
                          (i) all MedicarePlus MSAs of the 
                        account holder shall be treated as 1 
                        account,
                          (ii) all payments and distributions 
                        not used exclusively to pay the 
                        qualified medical expenses of the 
                        account holder during any taxable year 
                        shall be treated as 1 distribution, and
                          (iii) any distribution of property 
                        shall be taken into account at its fair 
                        market value on the date of the 
                        distribution.
          (3) Withdrawal of erroneous contributions.--Section 
        220(f)(2) and paragraph (2) of this subsection shall 
        not apply to any payment or distribution from a 
        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.--Section 220(f)(2) 
        and paragraph (2) of this subsection 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.
  (d) Special Rules for Treatment of Account After Death of 
Account Holder.--In applying section 220(f)(8)(A) to an account 
which was a MedicarePlus MSA of a decedent, the rules of 
section 220(f) shall apply in lieu of the rules of subsection 
(c) of this section with respect to the spouse as the account 
holder of such MedicarePlus MSA.
  (e) Reports.--In the case of a MedicarePlus MSA, the report 
under section 220(h)--
          (1) shall include the fair market value of the assets 
        in such MedicarePlus MSA as of the close of each 
        calendar year, and
          (2) shall be furnished to the account holder--
                  (A) not later than January 31 of the calendar 
                year following the calendar year to which such 
                reports relate, and
                  (B) in such manner as the Secretary 
                prescribes in such regulations.
  (f) Coordination With Limitation on Number of Taxpayers 
Having Medical Savings Accounts.--Subsection (i) of section 220 
shall not apply to an individual with respect to a MedicarePlus 
MSA, and MedicarePlus MSA's shall not be taken into account in 
determining whether the numerical limitations under section 
220(j) are exceeded.

SEC. [138.] 139. CROSS REFERENCES TO OTHER ACTS.

    (a) * * *
          * * * * * * *

        PART VII--ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS

          * * * * * * *

SEC. 220. MEDICAL SAVINGS ACCOUNTS.

  (a) * * *
  (b) Limitations.--
          (1) * * *
          * * * * * * *
          (7) Medicare eligible individuals.--The limitation 
        under this subsection for any month with respect to an 
        individual shall be zero for the first month such 
        individual is entitled to benefits under title XVIII of 
        the Social Security Act and for each month thereafter.
          * * * * * * *

                   Subchapter F--Exempt Organizations

          * * * * * * *

                          PART I--GENERAL RULE

          * * * * * * *

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

  (a) * * *
          * * * * * * *
  (o) Treatment of Hospitals Participating in Provider-
Sponsored Organizations.--An organization shall not fail to be 
treated as organized and operated exclusively for a charitable 
purpose for purposes of subsection (c)(3) solely because a 
hospital which is owned and operated by such organization 
participates in a provider-sponsored organization (as defined 
in section 1853(e) of the Social Security Act), whether or not 
the provider-sponsored organization is exempt from tax. For 
purposes of subsection (c)(3), anyperson 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.
  [(o)] (p) 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 D--Miscellaneous Excise Taxes

          * * * * * * *

              CHAPTER 43--QUALIFIED PENSIONS, ETC., PLANS

          * * * * * * *

SEC. 4973. TAX ON EXCESS CONTRIBUTIONS TO INDIVIDUAL RETIREMENT 
                    ACCOUNTS, MEDICAL SAVINGS ACCOUNTS, CERTAIN SECTION 
                    403(B) CONTRACTS, AND CERTAIN INDIVIDUAL RETIREMENT 
                    ANNUITIES.

  (a) * * *
          * * * * * * *
  (d) Excess Contributions to Medical Savings Accounts.--For 
purposes of this section, in the case of medical savings 
accounts (within the meaning of section 220(d)), the term 
``excess contributions'' means the sum of--
          (1) * * *
          * * * * * * *
For purposes of this subsection, any contribution which is 
distributed out of the medical savings account in a 
distribution to which section 220(f)(3) or section 138(c)(3) 
applies shall be treated as an amount not contributed.

                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, 1998, 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).]
          * * * * * * *
                              ----------                              


     SECTION 9412 OF THE OMNIBUS BUDGET RECONCILIATION ACT OF 1986

SEC. 9412. WAIVER AUTHORITY FOR CHRONICALLY MENTALLY ILL AND FRAIL 
                    ELDERLY.

  (a) * * *
  [(b) Frail Elderly Demonstration Project Waivers.--
          [(1) The Secretary of Health and Human Services shall 
        grant waivers of certain requirements of titles XVIII 
        and XIX of the Social Security Act to not more than 10 
        public or nonprofit private community-based 
        organizations to enable such organizations to provide 
        comprehensive health care services on a capitated basis 
        to frail elderly patients at risk of 
        institutionalization.
          [(2)(A) Except as provided in subparagraph (B), the 
        terms and conditions of a waiver granted pursuant to 
        this subsection shall be substantially the same as the 
        terms and conditions of the On Lok waiver (referred to 
        in section 603(c) of the Social Security Amendments of 
        1983 and extended by section 9220 of the Consolidated 
        Omnibus Budget Reconciliation Act of 1985), including 
        permitting the organization to assume progressively 
        (over the initial 3-year period of the waiver) the full 
        financial risk.
          [(B) In order to receive a waiver under this 
        subsection, an organization must participate in an 
        organized initiative to replicate the findings of the 
        On Lok long-term care demonstration project (described 
        in section 603(c)(1) of the Social Security Amendments 
        of 1983).
          [(C) Subject to subparagraph (B), any waiver granted 
        pursuant to this subsection shall be for an initial 
        period of 3 years. The Secretary may extend such waiver 
        beyond such initial period for so long as the Secretary 
        finds that the organization complies with the terms and 
        conditions described in subparagraphs (A) and (B).]
                              ----------                              


         SECTION 603 OF THE SOCIAL SECURITY AMENDMENTS OF 1983

            REPORTS, EXPERIMENTS, AND DEMONSTRATION PROJECTS

  Sec. 603. (a) * * *
          * * * * * * *
  [(c) The Secretary shall approve, with appropriate terms and 
conditions as defined by the Secretary, within 30 days after 
the date of enactment of this Act--
          [(1) the risk-sharing application of On Lok Senior 
        Health Services (according to terms and conditions as 
        specified by the Secretary), dated July 2, 1982, for 
        waivers, pursuant to section 222 of the Social Security 
        Amendments of 1972 and section 402(a) of the Social 
        Security Amendments of 1967, of certain requirements of 
        title XVIII of the Social Security Act over a period of 
        36 months in order to carry out a long-term care 
        demonstration project, and
          [(2) the application of the Department of Health 
        Services, State of California, dated November 1, 1982, 
        pursuant to section 1115 of the Social Security Act, 
        for the waiver of certain requirements of title XIX of 
        such Act over a period of 36 months in order to carry 
        out a demonstration project for capitated reimbursement 
        for comprehensive long-term care services involving On 
        Lok Senior Health Services.]
          * * * * * * *
                              ----------                              


       THE CONSOLIDATED OMNIBUS BUDGET RECONCILIATION ACT OF 1985

          * * * * * * *

  TITLE IX--MEDICARE, MEDICAID, AND MATERNAL AND CHILD HEALTH PROGRAMS

          * * * * * * *

        PART 2--Provisions Relating to Parts A and B of Medicare

          * * * * * * *

                      Subpart B--Other Provisions

          * * * * * * *

SEC. 9215. EXTENSION OF CERTAIN MEDICARE MUNICIPAL HEALTH SERVICES 
                    DEMONSTRATION PROJECTS.

  (a) The Secretary of Health and Human Services shall extend 
through December 31, 1997, approval of four municipal health 
services demonstration projects (located in Baltimore, 
Cincinnati, Milwaukee, and San Jose) authorized under section 
402(a) of the Social Security Amendments of 1967. The Secretary 
shall submit a report to Congress on the waiver program with 
respect to the quality of health care, beneficiary costs, costs 
to the medicaid program and other payers, access to care, 
outcomes, beneficiary satisfaction, utilization differences 
among the different populations served by the projects, and 
such other factors as may be appropriate. Subject to subsection 
(c), the Secretary may further extend such demonstration 
projects through December 31, 2000, but only with respect to 
individuals enrolled with such projects before January 1, 1998.
  (b) The Secretary shall work with each such demonstration 
project to develop a plan, to be submitted to the Committee on 
Ways and Means of the House of Representatives and the 
Committee on Finance of the Senate by March 31, 1998, for the 
orderly transition of demonstration projects and the project 
enrollees to a non-demonstration project health care delivery 
system, such as through integration with private or public 
health plan, including a medicaid managed care or MedicarePlus 
plan.
  (c) A demonstration project under subsection (a) which does 
not develop and submit a transition plan under subsection (b) 
by March 31, 1998, or, if later, 6 months after the date of the 
enactment of this Act, shall be discontinued as of December 31, 
1998. The Secretary shall provide appropriate technical 
assistance to assist in the transition so that disruption of 
medical services to project enrollees may be minimized.
          * * * * * * *

[SEC. 9220. EXTENSION OF ON LOK WAIVER.

  [(a) Continued Approval.--
          [(1) Medicare waivers.--Notwithstanding any 
        limitations contained in section 222 of the Social 
        Security Amendments of 1972 and section 402(a) of the 
        Social Security Amendments of 1967, the Secretary of 
        Health and Human Services shall continue approval of 
        the risk-sharing application (described in section 
        603(c)(1) of Public Law 98-21) for waivers of certain 
        requirements of title XVIII of the Social Security Act 
        after the end of the period described in that section.
          [(2) Medicaid waivers.--Notwithstanding any 
        limitations contained in section 1115 of the Social 
        Security Act, the Secretary shall approve any 
        application of the Department of Health Services, State 
        of California, for a waiver of requirements of title 
        XIX of such Act in order to continue carrying out the 
        demonstration project referred to in section 603(c)(2) 
        of Public Law 98-21 after the end of the period 
        described in that section.
  [(b) Terms, Conditions, and Period of Approval.--The 
Secretary's approval of an application (or renewal of an 
application) under this section--
          [(1) shall be on the same terms and conditions as 
        applied with respect to the corresponding application 
        under section 603(c) of Public Law 98-21 as of July 1, 
        1985, except that requirements relating to collection 
        and evaluation of information for demonstration 
        purposes (and not for operational purposes) shall not 
        apply; and
          [(2) shall remain in effect until such time as the 
        Secretary finds that the applicant no longer complies 
        with the terms and conditions described in paragraph 
        (1).]
          * * * * * * *
                              ----------                              


     SECTION 4018 OF THE OMNIBUS BUDGET RECONCILIATION ACT OF 1987

SEC. 4018. SPECIAL RULES.

  (a) * * *
  (b) Extension of Waivers for Social Health Maintenance 
Organizations.--
          (1) The Secretary of Health and Human Services shall 
        extend without interruption, through December 31, 
        [1997] 2000, the approval of waivers granted under 
        subsection (a) of section 2355 of the Deficit Reduction 
        Act of 1984 for the demonstration project described in 
        subsection (b) of that section, subject to the terms 
        and conditions (other than duration of the project) 
        established under that section (as amended by paragraph 
        (2) of this subsection).
          (2) * * *
          * * * * * * *
          (4) The Secretary of Health and Human Services shall 
        submit a second interim report to the Congress on the 
        project referred to in paragraph (1) not later than 
        March 31, 1993, and shall submit a final report on the 
        demonstration projects conducted under section 2355 of 
        the Deficit Reduction Act of 1984 not later than March 
        31, [1998] 2001.
          * * * * * * *
                              ----------                              


             THE OMNIBUS BUDGET RECONCILIATION ACT OF 1993

          * * * * * * *

  TITLE XIII--REVENUE, HEALTH CARE, HUMAN RESOURCES, INCOME SECURITY, 
   CUSTOMS AND TRADE, FOOD STAMP PROGRAM, AND TIMBER SALE PROVISIONS

          * * * * * * *

 CHAPTER 2--HEALTH CARE, HUMAN RESOURCES, INCOME SECURITY, AND CUSTOMS 
                          AND TRADE PROVISIONS

                         Subchapter A--Medicare

          * * * * * * *

                 PART I--PROVISIONS RELATING TO PART A

SEC. 13501. PAYMENTS FOR PPS HOSPITALS.

    (a) * * *
          * * * * * * *
    (e) Extension for Medicare-Dependent, Small Rural 
Hospitals.--
            (1) * * *
            (2) Permitting hospitals to decline 
        reclassification.--If any hospital fails to qualify as 
        a medicare-dependent, small rural hospital under 
        section 1886(d)(5)(G)(i) of the Social Security Act as 
        a result of a decision by the Medicare Geographic 
        Classification Review Board under section 1886(d)(10) 
        of such Act to reclassify the hospital as being located 
        in an urban area for fiscal year 1993 [or fiscal year 
        1994] , fiscal year 1994, fiscal year 1998, fiscal year 
        1999, or fiscal year 2000, the Secretary of Health and 
        Human Services shall--
                    (A) * * *
          * * * * * * *

             PART III--PROVISIONS RELATING TO PARTS A AND B

          * * * * * * *
SEC. 13567. EXTENSION OF SOCIAL HEALTH MAINTENANCE 
            ORGANIZATION DEMONSTRATIONS.
    (a) * * *
          * * * * * * *
    (c) Expansion of Number of Members Per Site.--The Secretary 
of Health and Human Services may not impose a limit of less 
than [12,000] 24,000 on the number of individuals that may 
participate in a project conducted under section 2355 of the 
Deficit Reduction Act of 1984.
          * * * * * * *

     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].

                          SOCIAL SECURITY ACT

          * * * * * * *

     TITLE XI--GENERAL PROVISIONS, PEER REVIEW, AND ADMINISTRATIVE 
                             SIMPLIFICATION

                       Part A--General Provisions

                              definitions

  Sec. 1101. (a) When used in this Act--
          (1) The term ``State'', except where otherwise 
        provided, includes the District of Columbia and the 
        Commonwealth of Puerto Rico, and when used in titles 
        IV, V, VII, XI, [and XIX] XIX, and XXI includes the 
        Virgin Islands and Guam. Such term when used in titles 
        III, IX, and XII also includes the Virgin Islands. Such 
        term when used in title V and in part B of this title 
        also includes American Samoa, the Northern Mariana 
        Islands, and the Trust Territory of the Pacific 
        Islands. Such term when used in [title XIX] titles XIX 
        and XXI also includes the Northern Mariana Islands and 
        American Samoa. In the case of Puerto Rico, the Virgin 
        Islands, and Guam, titles I, X, and XIV, and title XVI 
        (as in effect without regard to the amendment made by 
        section 301 of the Social Security Amendments of 1972) 
        shall continue to apply, and the term ``State'' when 
        used in such titles (but not in title XVI as in effect 
        pursuant to such amendment after December 31, 1973) 
        includes Puerto Rico, the Virgin Islands, and Guam. 
        Such term when used in title XX also includes the 
        Virgin Islands, Guam, American Samoa, and the Northern 
        Mariana Islands. Such term when used in title IV also 
        includes American Samoa.
          * * * * * * *

      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) * * *
          * * * * * * *
          (47) at the option of the State, provide for making 
        ambulatory prenatal care available to pregnant women 
        during a presumptive eligibility period in accordance 
        with section 1920 and provide for making medical 
        assistance for items and services described in 
        subsection (a) of section 1920A available to children 
        during a presumptive eligibility period in accordance 
        with such section;
          * * * * * * *

                           PAYMENT TO STATES

  Sec. 1903. (a) * * *
          * * * * * * *
  (u)(1)(A) * * *
          * * * * * * *
  (D)(i) * * *
          * * * * * * *
  (v) In determining the amount of erroneous excess payments, 
there shall not be included any erroneous payments made for 
ambulatory prenatal care provided during a presumptive 
eligibility period (as defined in section 1920(b)(1)) or for 
items and services described in subsection (a) of section 1920A 
provided to a child during a presumptive eligibility period 
under such section.
          * * * * * * *

                              DEFINITIONS

  Sec. 1905. For purposes of this title--
  (a) * * *
  (b) The term ``Federal medical assistance percentage'' for 
any State shall be 100 per centum less the State percentage; 
and the State percentage shall be that percentage which bears 
the same ratio to 45 per centum as the square of the per capita 
income of such State bears to the square of the per capita 
income of the continental United States (including Alaska) and 
Hawaii; except that (1) the Federal medical assistance 
percentage shall in no case be less than 50 per centum or more 
than 83 per centum, and (2) the Federal medical assistance 
percentage for Puerto Rico, the Virgin Islands, Guam, the 
Northern Mariana Islands, and American Samoa shall be 50 per 
centum. The Federal medical assistance percentage for any State 
shall be determined and promulgated in accordance with the 
provisions of section 1101(a)(8)(B). Notwithstanding the first 
sentence of this section, the Federal medical assistance 
percentage shall be 100 per centum with respect to amounts 
expended as medical assistance for services which are received 
through an Indian Health Service facility whether operated by 
the Indian Health Service or by an Indian tribe or tribal 
organization (as defined in section 4 of the Indian Health Care 
Improvement Act. Notwithstanding the first sentence of this 
subsection, in the case of a State plan that meets the 
condition described in subsection (t)(1), with respect to 
expenditures for medical assistance for optional targeted low-
income children described in subsection (t)(2), the Federal 
medical assistance percentage is equal to the enhanced medical 
assistance percentage described in subsection (t)(3).
          * * * * * * *
  (t)(1) The conditions described in this paragraph for a State 
plan are as follows:
          (A) The plan is not applying income and resource 
        standards and methodologies for the purpose of 
        determining eligibility of individuals under section 
        1902(l) that are more restrictive than those applied as 
        of June 1, 1997, for the purpose of determining 
        eligibility of individuals under such section.
          (B) The plan provides for such reporting of 
        information about expenditures and payments 
        attributable to the operation of this subsection as the 
        Secretary deems necessary in order to carry out 
        sections 2103(d) and 2104(b)(2).
          (C) The amount of the increased payments under 
        section 1903(a) resulting from the application of this 
        subsection does not exceed the total amount of any 
        allotment not otherwise expended by the State under 
        section 2103 for the period involved.
  (2) For purposes of subsection (b), the term `optional 
targeted low-income child' means a targeted low-income child 
described in section 2108(b)(1) who would not qualify for 
medical assistance under the State plan under this title based 
on such plan as in effect on June 1, 1997 (taking into account 
the process of individuals aging into eligibility under section 
1902(l)(2)(D)).
  (3) The enhanced medical assistance percentage described in 
this paragraph for a State is equal to the Federal medical 
assistance percentage (as defined in the first sentence of 
subsection (b)) for the State increased by a number of 
percentage points equal to 30 percent of the number of 
percentage points by which (A) such Federal medical assistance 
percentage for the State, is less than (B) 100 percent.
  (4) Notwithstanding any other provision of this title, a 
State plan under this title may impose a limit on the number of 
optional targeted low-income children described in paragraph 
(2). The previous sentence shall not be construed as applying 
to any child to whom the State is required to provide medical 
assistance under this title.
          * * * * * * *


                  presumptive eligibility for children


  Sec. 1920A. (a) A State plan approved under section 1902 may 
provide for making medical assistance with respect to health 
care items and services covered under the State plan available 
to a child during a presumptive eligibility period.
  (3) In the case of a child who is determined by a qualified 
entity to be presumptively eligible for medical assistance 
under a State plan, the parent, guardian, or other person shall 
make application on behalf of the child for medical assistance 
under such plan by not later than the last day of the month 
following the month during which the determination is made, 
which application may be the application used for the receipt 
of medical assistance by individuals described in section 
1902(l)(1).
  (d) Notwithstanding any other provision of this title, 
medical assistance for items and services described in 
subsection (a) that--
          (1) are furnished to a child--
                  (A) during a presumptive eligibility period,
                  (B) by a entity that is eligible for payments 
                under the State plan; and
          (2) are included in the care and services covered by 
        a State plan;
shall be treated as medical assistance provided by such plan 
for purposes of section 1903.
          * * * * * * *

               TITLE XXI--CHILD HEALTH ASSISTANCE PROGRAM

SEC. 2101. PURPOSE; STATE CHILD HEALTH PLANS.

  (a) Purpose.--The purpose of this title is to provide funds 
to States to enable them to implement plans to initiate and 
expand the provision of child health care assistance to 
uninsured, low-income children in an effective and efficient 
manner that is coordinated with other sources of coverage for 
children. Such assistance may be provided for obtaining 
creditable health coverage through methods specified in the 
plan, which may include any or all of the following:
          (1) Providing benefits under the State's medicaid 
        plan under title XIX.
          (2) Obtaining coverage under group health plans or 
        group or individual health insurance coverage.
          (3) Direct purchase of services from providers.
          (4) Other methods specified under the plan.
  (b) State Child Health Plan Required.--A State is not 
eligible for payment under section 2104 unless the State has 
submitted to the Secretary under section 2105 a plan that--
          (1) sets forth how the State intends to use the funds 
        provided under this title to provide child health 
        assistance to needy children consistent with the 
        provisions of this title, and
          (2) is approved under section 2105.
  (c) State Entitlement.--This title constitutes budget 
authority in advance of appropriations Acts and represents the 
obligation of the Federal Government to provide for the payment 
to States of amounts provided under section 2104.
  (d) Effective Date.--No State is eligible for payments under 
section 2104 for any calendar quarter beginning before October 
1, 1997.

SEC. 2102. CONTENTS OF STATE CHILD HEALTH PLAN.

  (a) General Background and Description.--A State child health 
plan shall include a description, consistent with the 
requirements of this title, of--
          (1) the extent to which, and manner in which, 
        children in the State, including targeted low-income 
        children and other classes of children classified by 
        income and other relevant factors, currently have 
        creditable health coverage (as defined in section 
        2108(c)(2));
          (2) current State efforts to provide or obtain 
        creditable health coverage for uncovered children, 
        including the steps the State is taking to identify and 
        enroll all uncovered children who are eligible to 
        participate in public health insurance programs and 
        health insurance programs that involve public-private 
        partnerships;
          (3) how the plan is designed to be coordinated with 
        such efforts to increase coverage of children under 
        creditable health coverage; and
          (4) how the plan will comply with subsection (c)(5).
  (b) General Description of Eligibility Standards and 
Methodology.--
          (1) Eligibility standards.--
                  (A) In general.--The plan shall include a 
                description of the standards used to determine 
                the eligibility of targeted low-income children 
                for child health assistance under the plan. 
                Such standards may include (to the extent 
                consistent with this title) those relating to 
                the geographic areas to be served by the plan, 
                age, income and resources (including any 
                standards relating to spenddowns and 
                disposition of resources), residency, 
                disability status, immigration status, access 
                to or coverage under other health coverage, and 
                duration of eligibility. Such standards may not 
                discriminate on the basis of diagnosis.
                  (B) Limitations on eligibility standards.--
                Such eligibility standards--
                          (i) shall, within any defined group 
                        of covered targeted low-income 
                        children, not cover such children with 
                        higher family income without covering 
                        children with a lower family income, 
                        and
                          (ii) may not deny eligibility based 
                        on a child having a preexisting medical 
                        condition.
          (2) Methodology.--The plan shall include a 
        description of methods of establishing and continuing 
        eligibility and enrollment, including a methodology for 
        computing family income that is consistent with the 
        methodology used under section 1902(l)(3)(E).
          (3) Eligibility screening; coordination with other 
        health coverage programs.--The plan shall include a 
        description of procedures to be used to ensure--
                  (A) through both intake and followup 
                screening, that only targeted low-income 
                children are furnished child health assistance 
                under the State child health plan;
                  (B) that children found through the screening 
                to be eligible for medical assistance under the 
                State medicaid plan under title XIX are 
                enrolled for such assistance under such plan;
                  (C) that the insurance provided under the 
                State child health plan does not substitute for 
                coverage under group health plans; and
                  (D) coordination with other public and 
                private programs providing creditable coverage 
                for low-income children.
          (4) Nonentitlement.--Nothing in this title shall be 
        construed as providing an individual with an 
        entitlement to child health assistance under a State 
        child health plan.
  (c) Description of Assistance.--
          (1) In general.--A State child health plan shall 
        include a description of the child health assistance 
        provided under the plan for targeted low-income 
        children. The child health assistance provided to a 
        targeted low-income child under the plan in the form 
        described in paragraph (1) or (2) of section 2101(a) 
        shall include benefits (in an amount, duration, and 
        scope specified under the plan) for at least the 
        following categories of services:
                  (A) Inpatient and outpatient hospital 
                services.
                  (B) Physicians' surgical and medical 
                services.
                  (C) Laboratory and x-ray services.
                  (D) Well-baby and well-child care, including 
                age-appropriate immunizations.
        The previous sentence shall not apply to coverage under 
        a group health plan if the benefits under such coverage 
        for individuals under this title are no less than the 
        benefits for other individuals similarly covered under 
        the plan.
          (2) Items.--The description shall include the 
        following:
                  (A) Cost sharing.--Subject to paragraph (3), 
                the amount (if any) of premiums, deductibles, 
                coinsurance, and other cost sharing imposed.
                  (B) Delivery method.--The State's approach to 
                delivery of child health assistance, including 
                a general description of--
                          (i) the use (or intended use) of 
                        different delivery methods, which may 
                        include the delivery methods used under 
                        the medicaid plan under title XIX, fee-
                        for-service, managed care arrangements 
                        (such as capitated health care plans, 
                        case management, and case 
                        coordination), direct provision of 
                        health care services (such as through 
                        community health centers and 
                        disproportionate share hospitals), 
                        vouchers, and other delivery methods; 
                        and
                          (ii) utilization control systems.
          (3) Limitations on cost sharing.--
                  (A) No cost sharing on preventive benefits.--
                The plan may not impose deductibles, 
                coinsurance, or similar cost sharing with 
                respect to benefits for preventive services.
                  (B) Sliding scale.--To the extent 
                practicable, any premiums imposed under the 
                plan shall be imposed on a sliding scale 
                related to income and the plan may only vary 
                premiums, deductibles, coinsurance, and other 
                cost sharing based on the family income of 
                targeted low-income children only in a manner 
                that does not favor children from families with 
                higher income over children from families with 
                lower income.
          (4) Restriction on application of preexisting 
        condition exclusions.--
                  (A) In general.--Subject to subparagraph (B), 
                the State child health plan shall not permit 
                the imposition of any preexisting condition 
                exclusion for covered benefits under the plan.
                  (B) Group health plans and group health 
                insurance coverage.--If the State child health 
                plan provides for benefits through payment for, 
                or a contract with, a group health plan or 
                group health insurance coverage, the plan may 
                permit the imposition of a preexisting 
                condition exclusion but only insofar as it is 
                permitted under the applicable provisions of 
                part 7 of subtitle B of title I of theEmployee 
Retirement Income Security Act of 1974 and title XXVII of the Public 
Health Service Act.
          (5) Special protection for children with chronic 
        health conditions and special health care needs.--In 
        the case of a child who has a chronic condition, life-
        threatening condition, or combination of conditions 
        that warrants medical specialty care and who is 
        eligible for benefits under the plan with respect to 
        such care, the State child health plan shall assure 
        access to such care, including the use of a medical 
        specialist as a primary care provider.
          (6) Secondary payment.--Nothing in this section shall 
        be construed as preventing a State from denying 
        benefits to an individual to the extent such benefits 
        are available to the individual under another public or 
        private health care insurance program.
          (7) Treatment of cash payments.--Payments in the form 
        of cash or vouchers provided as child health or other 
        assistance under the State child health plan to 
        parents, guardians or other caretakers of a targeted 
        low-income child are not considered income for purpose 
        of eligibility for, or benefits provided under, any 
        means-tested Federal or Federally-assisted program.
  (d) Outreach and Coordination.--A State child health plan 
shall include a description of the procedures to be used by the 
State to accomplish the following:
          (1) Outreach.--Outreach to families of children 
        likely to be eligible for child health assistance under 
        the plan or under other public or private health 
        coverage programs to inform these families of the 
        availability of, and to assist them in enrolling their 
        children in, such a program.
          (2) Coordination with other health insurance 
        programs.--Coordination of the administration of the 
        State program under this subtitle with other public and 
        private health insurance programs.

SEC. 2103. ALLOTMENTS.

  (a) Total Allotment.--The total allotment that is available 
under this title for each fiscal year, beginning with fiscal 
year 1998, is $2,880,000,000.
  (b) Allotments to 50 States and District of Columbia.--
          (1) In general.--Subject to paragraphs (4) and (5), 
        of the total allotment available under subsection (a) 
        for a fiscal year, reduced by the amount of allotments 
        made under subsection (c) for the fiscal year, the 
        Secretary shall allot to each State (other than a State 
        described in such subsection) with a State child health 
        plan approved under this title the same proportion as 
        the ratio of--
                  (A) the product of (i) the number of 
                uncovered low-income children for the fiscal 
                year in the State (as determined under 
                paragraph (2)) and (ii) the State cost factor 
                for that State (established under paragraph 
                (3)); to
                  (B) the sum of the products computed under 
                subparagraph (A).
          (2) Number of uncovered low-income children.--For the 
        purposes of paragraph (1)(A)(i), the number of 
        uncovered low-income children for a fiscal year in a 
        State is equal to the arithmetic average of the number 
        of low-income children (as defined in section 
        2108(c)(4)) with no health insurance coverage, as 
        reported and defined in the three most recent March 
        supplements to the Current Population Survey of the 
        Bureau of the Census before the beginning of the fiscal 
        year.
          (3) Adjustment for geographic variations in health 
        costs.--
                  (A) In general.--For purposes of paragraph 
                (1)(A)(ii), the ``State cost factor'' for a 
                State for a fiscal year equal to the sum of--
                          (i) 0.15, and
                          (ii) 0.85 multiplied by the ratio 
                        of--
                                  (I) the annual average wages 
                                per employee for the State for 
                                such year (as determined under 
                                subparagraph (B)), to
                                  (II) the annual average wages 
                                per employee for the 50 States 
                                and the District of Columbia.
                  (B) Annual average wages per employee.--For 
                purposes of subparagraph (A), the ``annual 
                average wages per employee'' for a State, or 
                for all the States, for a fiscal year is equal 
                to the average of the annual wages per employee 
                for the State or for the 50 States and the 
                District of Columbia for employees in the 
                health services industry (SIC code 8000), as 
                reported by the Bureau of Labor Statistics of 
                the Department of Labor for each of the most 
                recent 3 years before the beginning of the 
                fiscal year involved.
          (4) Floor for states.--Subject to paragraph (5), in 
        no case shall the amount of the allotment under this 
        subsection for one of the 50 States or the District of 
        Columbia for a year be less than $2,000,000. To the 
        extent that the application of the previous sentence 
        results in an increase in the allotment to a State 
        above the amount otherwise provided, the allotments for 
        the other States and the District of Columbia under 
        this subsection shall be decreased in a pro rata manner 
        (but not below $2,000,000) so that the total of such 
        allotments in a fiscal year does not exceed the amount 
        otherwise provided for allotment under paragraph (1) 
        for that fiscal year.
          (5) Offset for expenditures under medicaid 
        presumptive eligibility.--The amount of the allotment 
        otherwise provided to a State under this subsection for 
        a fiscal year shall be reduced by the amount of the 
        payments made to the State under section 1903(a) for 
        calendar quarters during such fiscal year that are 
        attributable to provision of medical assistance to a 
        child during a presumptive eligibility period under 
        section 1920A.
  (c) Allotments to Territories.--
          (1) In general.--Subject to paragraph (3), of the 
        total allotment under subsection (a) for a fiscal year, 
        the Secretary shall allot 0.5 percent among each of the 
        commonwealths and territories described in paragraph 
        (4) in the same proportion as the percentage specified 
        in paragraph (2) for such commonwealth or territory 
        bears to the sum of such percentages for all such 
        commonwealths or territories so described.
          (2) Percentage.--The percentage specified in this 
        paragraph for--
                  (A) Puerto Rico is 91.6 percent,
                  (B) Guam is 3.5 percent,
                  (C) Virgin Islands is 2.6 percent,
                  (D) American Samoa is 1.2 percent, and
                  (E) the Northern Mariana Islands is 1.1 
                percent.
          (3) Floor.--In no case shall the amount of the 
        allotment health plan that meets the applicable 
        requirements of this title.
          (2) Approval.--Except as the Secretary may provide 
        under subsection (e), a State plan submitted under 
        paragraph (1)--
                  (A) shall be approved for purposes of this 
                title, and
                  (B) shall be effective beginning with a 
                calendar quarter that is specified in the plan, 
                but in no case earlier than the first calendar 
                quarter that begins at least 60 days after the 
                date the plan is submitted.
  (b) Plan Amendments.--
          (1) In general.--A State may amend, in whole or in 
        part, its State child health plan at any time through 
        transmittal of a plan amendment.
          (2) Approval.--except as the secretary may provide 
        under subsection (e), an amendment to a state plan 
        submitted under paragraph (1)--
                  (A) shall be approved for purposes of this 
                title, and
                  (B) shall be effective as provided in 
                paragraph (3).
          (3) Effective dates for amendments.--
                  (A) In general.--Subject to the succeeding 
                provisions of this paragraph, an amendment to a 
                State plan shall take effect on one or more 
                effective dates specified in the amendment.
                  (B) Amendments relating to eligibility or 
                benefits.--
                          (i) Notice requirement.--Any plan 
                        amendment that eliminates or restricts 
                        eligibility or benefits under the plan 
                        may not take effect unless the State 
                        certifies that it has provided prior or 
                        contemporaneous public notice of the 
                        change, in a form and manner provided 
                        under applicable State law.
                          (ii) Timely transmittal.--Any plan 
                        amendment that eliminates or restricts 
                        eligibility or benefits under the plan 
                        shall not be effective for longer than 
                        a 60-day period unless the amendment 
                        has been transmitted to the Secretary 
                        before the end of such period.
                  (C) Other amendments.--Any plan amendment 
                that is not described in subparagraph (C) 
                becomes effective in a State fiscal year may 
                not remain in effect after the end of such 
                fiscal year (or, if later, the end of the 90-
                day period on which it becomes effective) 
                unless the amendment has been transmitted to 
                the Secretary.
  (c) Disapproval of Plans and Plan Amendments.--
          (1) Prompt review of plan submittals.--The Secretary 
        shall promptly review State plans and plan amendments 
        submitted under this section to determine if they 
        substantially comply with the requirements of this 
        title.
          (2) 90-day approval deadlines.--A State plan or plan 
        amendment is considered approved unless the Secretary 
        notifies the State in writing, within 90 days after 
        receipt of the plan or amendment, that the plan or 
        amendment is disapproved (and the reasons for 
        disapproval) or that specified additional information 
        is needed.
          (3) Correction.--In the case of a disapproval of a 
        plan or plan amendment, the Secretary shall provide a 
        State with a reasonable opportunity for correction 
        before taking financial sanctions against the State on 
        the basis of such disapproval.
  (d) Program Operation.--
          (1) In general.--The State shall conduct the program 
        in accordance with the plan (and any amendments) 
        approved under subsection (c) and with the requirements 
        of this title.
          (2) Violations.--The Secretary shall establish a 
        process for enforcing requirements under this title. 
        Such process shall provide for the withholding of funds 
        in the case of substantial noncompliance with such 
        requirements. In the case of an enforcement action 
        against a State under this paragraph, the Secretary 
        shall provide a State with a reasonable opportunity for 
        correction before taking financial sanctions against 
        the State on the basis of such an action.
  (e) Continued Approval.--An approved State child health plan 
shall continue in effect unless and until the State amends the 
plan under subsection (b) or the Secretary finds substantial 
noncompliance of the plan with the requirements of this title 
under section subsection (d)(2).

SEC. 2106. STRATEGIC OBJECTIVES AND PERFORMANCE GOALS; PLAN 
                    ADMINISTRATION.

  (a) Strategic Objectives and Performance Goals.--
          (1) Description.--A State child health plan shall 
        include a description of--
                  (A) the strategic objectives,
                  (B) the performance goals, and
                  (C) the performance measures,
        the State has established for providing child health 
        assistance to targeted low-income children under the 
        plan and otherwise for maximizing health coverage for 
        other low-income children and children generally in the 
        State.
          (2) Strategic objectives.--Such plan shall identify 
        specific strategic objectives relating to increasing 
        the extent of creditable health coverage among targeted 
        low-income children and other low-income children.
          (3) Performance goals.--Such plan shall specify one 
        or more performance goals for each such strategic 
        objective so identified.
          (4) Performance measures.--Such plan shall describe 
        how performance under the plan will be--
                  (A) measured through objective, independently 
                verifiable means, and
                  (B) compared against performance goals, in 
                order to determine the State's performance 
                under this title.
  (b) Records, Reports, Audits, and Evaluation.--
          (1) Data collection, records, and reports.--A State 
        child health plan shall include an assurance that the 
        State will collect the data, maintain the records, and 
        furnish the reports to the Secretary, at the times and 
        in the standardized format the Secretary may require in 
        order to enable the Secretary to monitor State program 
        administration and compliance and to evaluate and 
        compare the effectiveness of State plans under this 
        title.
          (2) State assessment and study.--A State child health 
        plan shall include a description of the State's plan 
        for the annual assessments and reports under section 
        2107(a) and the evaluation required by section 2107(b).
          (3) Audits.--A State child health plan shall include 
        an assurance that the State will afford the Secretary 
        access to any records or information relating to the 
        plan for the purposes of review or audit.
  (c) Program Development Process.--A State child health plan 
shall include a description of the process used to involve the 
public in the design and implementation of the plan and the 
method for ensuring ongoing public involvement.
  (d) Program Budget.--A State child health plan shall include 
a description of the budget for the plan. The description shall 
be updated periodically as necessary and shall include details 
on the planned use of funds and the sources of the non-Federal 
share of plan expenditures, including any requirements for cost 
sharing by beneficiaries.
  (e) Application of Certain General Provisions.--The following 
sections in part A of title XI shall apply to States under this 
title in the same manner as they applied to a State under title 
XIX:
          (1) Section 1101(a)(1) (relating to definition of 
        State).
          (2) Section 1116 (relating to administrative and 
        judicial review), but only insofar as consistent with 
        the provisions of part B.
          (3) Section 1124 (relating to disclosure of ownership 
        and related information).
          (4) Section 1126 (relating to disclosure of 
        information about certain convicted individuals).
          (5) Section 1128B(d) (relating to criminal penalties 
        for certain additional charges).
          (6) Section 1132 (relating to periods within which 
        claims must be filed).

SEC. 2107. ANNUAL REPORTS; EVALUATIONS.

  (a) Annual Report.--The State shall--
          (1) assess the operation of the State plan under this 
        title in each fiscal year, including the progress made 
        in reducing the number of uncovered low-income 
        children; and
          (2) report to the Secretary, by January 1 following 
        the end of the fiscal year, on the result of the 
        assessment.
  (b) State Evaluations.--
          (1) In general.--By March 31, 2000, each State that 
        has a State child health plan shall submit to the 
        Secretary an evaluation that includes each of the 
        following:
                  (A) An assessment of the effectiveness of the 
                State plan in increasing the number of children 
                with creditable health coverage.;
                  (B) A description and analysis of the 
                effectiveness of elements of the State plan, 
                including--
                          (i) the characteristics of the 
                        children and families assisted under 
                        the State plan including age of the 
                        children, family income, and the 
                        assisted child's access to or coverage 
                        by other health insurance prior to the 
                        State plan and after eligibility for 
                        the State plan ends,
                          (ii) the quality of health coverage 
                        provided including the types of 
                        benefits provided,
                          (iii) the amount and level (payment 
                        of part or all of the premium) of 
                        assistance provided by the State,
                          (iv) the service area of the State 
                        plan,
                          (v) the time limits for coverage of a 
                        child under the State plan,
                          (vi) the State's choice of health 
                        insurance plans and other methods used 
                        for providing child health assistance , 
                        and
                          (vii) the sources of non-Federal 
                        funding used in the State plan;
                  (C) an assessment of the effectiveness of 
                other public and private programs in the State 
                in increasing the availability of affordable 
                quality individual and family health insurance 
                for children;
                  (D) a review and assessment of State 
                activities to coordinate the plan under this 
                title with other public and private programs 
                providing health care and health care 
                financing, including Medicaid and maternal and 
                child health services;
                  (E) an analysis of changes and trends in the 
                State that affect the provision of accessible, 
                affordable, quality health insurance and health 
                care to children;
                  (F) a description of any plans the State has 
                for improving the availability of health 
                insurance and health care for children;
                  (G) recommendations for improving the program 
                under this title; and
                  (H) any other matters the State and the 
                Secretary consider appropriate.
          (2) Report of the secretary.--The Secretary shall 
        submit to the Congress and make available to the public 
        by December 31, 2000, a report based on the evaluations 
        submitted by States under paragraph (1), containing any 
        conclusions and recommendations the Secretary considers 
        appropriate.

SEC. 2108. DEFINITIONS.

  (a) Child Health Assistance.--For purposes of this title, the 
term ``child health assistance'' means payment of part or all 
of the cost of any of the following, or assistance in the 
purchase, in whole or in part, of health benefit coverage that 
includes any of the following, for targeted low-income children 
(as defined in subsection (b)) as specified under the State 
plan:
          (1) Inpatient hospital services.
          (2) Outpatient hospital services.
          (3) Physician services.
          (4) Surgical services.
          (5) Clinic services (including health center 
        services) and other ambulatory health care services.
          (6) Prescription drugs and biologicals and the 
        administration of such drugs and biologicals, only if 
        such drugs and biologicals are not furnished for the 
        purpose of causing, or assisting in causing, the death, 
        suicide, euthanasia, or mercy killing of a person.
          (7) Over-the-counter medications.
          (8) Laboratory and radiological services.
          (9) Prenatal care and prepregnancy family planning 
        services and supplies.
          (10) Inpatient mental health services, including 
        services furnished in a State-operated mental hospital 
        and including residential or other 24-hour 
        therapeutically planned structured services.
          (11) Outpatient mental health services, including 
        services furnished in a State-operated mental hospital 
        and including community-based services.
          (12) Durable medical equipment and other medically-
        related or remedial devices (such as prosthetic 
        devices, implants, eyeglasses, hearing aids, dental 
        devices, and adaptive devices).
          (13) Disposable medical supplies.
          (14) Home and community-based health care services 
        and related supportive services (such as home health 
        nursing services, home health aide services, personal 
        care, assistance with activities of daily living, chore 
        services, day care services, respite care services, 
        training for family members, and minor modifications to 
        the home).
          (15) Nursing care services (such as nurse 
        practitioner services, nurse midwife services, advanced 
        practice nurse services, private duty nursing care, 
        pediatric nurse services, and respiratory care 
        services) in a home, school, or other setting.
          (16) Abortion only if necessary to save the life of 
        the mother or if the pregnancy is the result of an act 
        of rape or incest.
          (17) Dental services.
          (18) Inpatient substance abuse treatment services and 
        residential substance abuse treatment services.
          (19) Outpatient substance abuse treatment services.
          (20) Case management services.
          (21) Care coordination services.
          (22) Physical therapy, occupational therapy, and 
        services for individuals with speech, hearing, and 
        language disorders.
          (23) Hospice care.
          (24) Any other medical, diagnostic, screening, 
        preventive, restorative, remedial, therapeutic, or 
        rehabilitative services (whether in a facility, home, 
        school, or other setting) if recognized by State law 
        and only if the service is--
                  (A) prescribed by or furnished by a physician 
                or other licensed or registered practitioner 
                within the scope of practice as defined by 
                State law,
                  (B) performed under the general supervision 
                or at the direction of a physician, or
                  (C) furnished by a health care facility that 
                is operated by a State or local government or 
                is licensed under State law and operating 
                within the scope of the license.
          (25) Premiums for private health care insurance 
        coverage.
          (26) Medical transportation.
          (27) Enabling services (such as transportation, 
        translation, and outreach services) only if designed to 
        increase the accessibility of primary and preventive 
        health care services for eligible low-income 
        individuals.
          (28) Any other health care services or items 
        specified by the Secretary and not excluded under this 
        section.
  (b) Targeted Low-Income Child Defined.--For purposes of this 
title--
          (1) In general.--The term ``targeted low-income 
        child'' means a child--
                  (A) who has been determined eligible by the 
                State for child health assistance under the 
                State plan;
                  (B) whose family income (as determined under 
                the State child health plan)--
                          (i) exceeds the medicaid applicable 
                        income level (as defined in paragraph 
                        (2) and expressed as a percentage of 
                        the poverty line), but
                          (ii) but does not exceed an income 
                        level that is 75 percentage points 
                        higher (as so expressed) than the 
                        medicaid applicable income level, or, 
                        if higher, 133 percent of the poverty 
                        line for a family of the size involved; 
                        and
                  (C) who is not found to be eligible for 
                medical assistance under title XIX or covered 
                under a group health plan or under health 
                insurance coverage (as such terms are defined 
                in section 2791 of the Public Health Service 
                Act).
        Such term does not include a child who is an inmate of 
        a public institution.
          (2) Medicaid applicable income level.--The term 
        ``medicaid applicable income level'' means, with 
        respect to a child, the effective income level 
        (expressed as a percent of the poverty line) that has 
        been specified under the State plan under title XIX 
        (including under a waiver authorized by the Secretary 
        or under section 1902(r)(2)), as of June 1, 1997, for 
        the child to be eligible for medical assistance under 
        section 1902(l)(2) for the age of such child. In 
        applying the previous sentence in the case of a child 
        described in section 1902(l)(2)(D), such level shall be 
        applied taking into account the expanded coverage 
        effected among such children under such section with 
        the passage of time.
  (c) Additional Definitions.--For purposes of this title:
          (1) Child.--The term ``child'' means an individual 
        under 19 years of age.
          (2) Creditable health coverage.--The term 
        ``creditable health coverage'' has the meaning given 
        the term ``creditable coverage'' under section 2701(c) 
        of the Public Health Service Act (42 U.S.C. 300gg(c)) 
        and includes coverage (including the direct provision 
        of services) provided to a targeted low-income child 
        under this title.
          (3) Group health plan; health insurance coverage; 
        etc.--The terms ``group health plan'', ``group health 
        insurance coverage'', and ``health insurance coverage'' 
        have the meanings given such terms in section 2191 of 
        the Public Health Service Act.
          (4) Low-income.--The term ``low-income child'' means 
        a child whose family income is below 200 percent of the 
        poverty line for a family of the size involved.
          (5) Poverty line defined.--The term ``poverty line'' 
        has the meaning given such term in section 673(2) of 
        the Community Services Block Grant Act (42 U.S.C. 
        9902(2)), including any revision required by such 
        section.
          (6) Preexisting condition exclusion.--The term 
        ``preexisting condition exclusion'' has the meaning 
        given such term in section 2701(b)(1)(A) of the Public 
        Health Service Act (42 U.S.C. 300gg(b)(1)(A)).
          (7) State child health plan; plan.--Unless the 
        context otherwise requires, the terms ``State child 
        health plan'' and ``plan'' mean a State child health 
        plan approved under section 2105.
          (8) Uncovered child.--The term ``uncovered child'' 
        means a child that does not have creditable health 
        coverage.

                          SOCIAL SECURITY ACT

          * * * * * * *

     TITLE XI--GENERAL PROVISIONS, PEER REVIEW, AND ADMINISTRATIVE 
                             SIMPLIFICATION

          * * * * * * *
  Sec. 1115. (a) * * *
          * * * * * * *
  (e)(1) The provisions of this subsection shall apply to the 
extension of State-wide comprehensive demonstration project (in 
this subsection referred to as ``waiver project'') for which a 
waiver of compliance with requirements of title XIX is granted 
under subsection (a).
  (2) Not earlier than 1 year before the date the waiver under 
subsection (a) with respect to a waiver project would otherwise 
expire, the chief executive officer of the State which is 
operating the project may submit to the Secretary a written 
request for an extension, of up to 3 years, of the project.
  (3) If the Secretary fails to respond to the request within 6 
months after the date it is submitted, the request is deemed to 
have been granted.
  (4) If such a request is granted, the deadline for submittal 
of a final report under the waiver project is deemed to have 
been extended until the date that is 1 year after the date the 
waivers under subsection (a) with respect to the project would 
otherwise have expired.
  (5) The Secretary shall release an evaluation of each such 
project not later than 1 year after the date of receipt of the 
final report.
  (6) Subject to paragraphs (4) and (7), the extension of a 
waiver project under this subsection shall be on the same terms 
and conditions (including applicable terms and conditions 
relating to quality and access of services, budget neutrality, 
data and reporting requirements, and special population 
protections) that applied to the project before its extension 
under this subsection.
  (7) If an original condition of approval of a waiver project 
was that Federal expenditures under the project not exceed the 
Federal expenditures that would otherwise have been made, the 
Secretary shall take such steps as may be necessary to assure 
that, in the extension of the project under this subsection, 
such condition continues to be met. In applying the previous 
sentence, the Secretary shall take into account the Secretary's 
best estimate of rates of change in expenditures at the time of 
the extension.
          * * * * * * *

   criminal penalties for acts involving federal health care programs

  Sec. 1128B. (a) Whoever--
          (1) * * *
          * * * * * * *
          [(6) knowingly and willfully disposes of assets 
        (including by any transfer in trust) in order for an 
        individual to become eligible for medical assistance 
        under a State plan under title XIX, if disposing of the 
        assets results in the imposition of a period of 
        ineligibility for such assistance under section 
        1917(c),]
          (6) for a fee knowingly and willfully counsels or 
        assists an individual to dispose of assets (including 
        by any transfer in trust) in order for the individual 
        to become eligible for medical assistance under a State 
        plan under title XIX, if disposing of the assets 
        results in the imposition of a period of ineligibility 
        for such assistance under section 1917(c),
shall (i) in the case of such a statement, representation, 
concealment, failure, or conversion by any person in connection 
with the furnishing (by that person) of items or services for 
which payment is or may be made under the program, be guilty of 
a felony and upon conviction thereof fined not more than 
$25,000 or imprisoned for not more than five years or both, or 
(ii) in the case of such a statement, representation, 
concealment, [failure, or conversion by any other person] 
failure, conversion, or provision of counsel or assistance by 
any other person, be guilty of a misdemeanor and upon 
conviction thereof fined not more than $10,000 or imprisoned 
for not more than one year, or both. In addition, in any case 
where an individual who is otherwise eligible for assistance 
under a Federal health care program is convicted of an offense 
under the preceding provisions of this subsection, the 
administrator of such program may at its option 
(notwithstanding any other provision of such program) limit, 
restrict, or suspend the eligibility of that individual for 
such period (not exceeding one year) as it deems appropriate; 
but the imposition of a limitation, restriction, or suspension 
with respect to the eligibility of any individual under this 
sentence shall not affect the eligibility of any other person 
for assistance under the plan, regardless of the relationship 
between that individual and such other person.
          * * * * * * *

        TITLE XVIII--HEALTH INSURANCE FOR THE AGED AND DISABLED

          * * * * * * *


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


  Sec. 1894. (a) Receipt of Benefits Through Enrollment in PACE 
Program; Definitions for PACE Program Related Terms.--
          (1) Benefits through enrollment in a pace program.--
        In accordance with this section, in the case of an 
        individual who is entitled to benefits under part A or 
        enrolled under partB and who is a PACE program eligible 
individual with respect to a PACE program offered by a PACE provider 
under a PACE program agreement--
                  (A) the individual may enroll in the program 
                under this section; and
                  (B) so long as the individual is so enrolled 
                and in accordance with regulations--
                          (i) the individual shall receive 
                        benefits under this title solely 
                        through such program, and
                          (ii) the PACE provider is entitled to 
                        payment under and in accordance with 
                        this section and such agreement for 
                        provision of such benefits.
          (2) Application of definitions.--The definitions of 
        terms under section 1932(a) shall apply under this 
        section in the same manner as they apply under section 
        1932.
  (b) Application of Medicaid Terms and Conditions.--Except as 
provided in this section, the terms and conditions for the 
operation and participation of PACE program eligible 
individuals in PACE programs offered by PACE providers under 
PACE program agreements under section 1932 shall apply for 
purposes of this section.
  (c) Payment.--
          (1) Adjustment in payment amounts.--In the case of 
        individuals enrolled in a PACE program under this 
        section, the amount of payment under this section shall 
        not be the amount calculated under section 1932(d)(2), 
        but shall be an amount, specified under the PACE 
        agreement, based upon payment rates established for 
        purposes of payment under section 1854 (or, for periods 
        before January 1, 1999, for purposes of risk-sharing 
        contracts under section 1876) and shall be adjusted to 
        take into account the comparative frailty of PACE 
        enrollees and such other factors as the Secretary 
        determines to be appropriate. Such amount under such an 
        agreement shall be computed in a manner so that the 
        total payment level for all PACE program eligible 
        individuals enrolled under a program is less than the 
        projected payment under this title for a comparable 
        population not enrolled under a PACE program.
          (2) Form.--The Secretary shall make prospective 
        monthly payments of a capitation amount for each PACE 
        program eligible individual enrolled under this section 
        in the same manner and from the same sources as 
        payments are made to a MedicarePlus organization under 
        section 1854 (or, for periods beginning before January 
        1, 1999, to an eligible organization under a risk-
        sharing contract under section 1876). Such payments 
        shall be subject to adjustment in the manner described 
        in section 1854(a)(2) or section 1876(a)(1)(E), as the 
        case may be.
  (d) Waivers of Requirements.--With respect to carrying out a 
PACE program under this section, the following requirements of 
this title (and regulations relating to such requirements) are 
waived and shall not apply:
          (1) Section 1812, insofar as it limits coverage of 
        institutional services.
          (2) Sections 1813, 1814, 1833, and 1886, insofar as 
        such sections relate to rules for payment for benefits.
          (3) Sections 1814(a)(2)(B), 1814(a)(2)(C), and 
        1835(a)(2)(A), insofar as they limit coverage of 
        extended care services or home health services.
          (4) Section 1861(i), insofar as it imposes a 3-day 
        prior hospitalization requirement for coverage of 
        extended care services.
          (5) Sections 1862(a)(1) and 1862(a)(9), insofar as 
        they may prevent payment for PACE program services to 
        individuals enrolled under PACE programs.
          * * * * * * *

      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) * * *
          * * * * * * *
          (10) provide--
                  (A) * * *
          * * * * * * *
                  (C) that if medical assistance is included 
                for any group of individuals described in 
                section 1905(a) who are not described in 
                subparagraph (A) or (E), then--
                          (i) * * *
          * * * * * * *
                          (iv) if such medical assistance 
                        includes services in institutions for 
                        mental diseases or in an intermediate 
                        care facility for the mentally retarded 
                        (or both) for any such group, it also 
                        must include for all groups covered at 
                        least the care and services listed in 
                        paragraphs (1) through (5) and (17) of 
                        section 1905(a) or the care and 
                        services listed in any 7 of the 
                        paragraphs numbered (1) through [(24)] 
                        (27) of such section;
          * * * * * * *
                  (E)(i) for making medical assistance 
                available for medicare cost-sharing (as defined 
                in section 1905(p)(3)) for qualified medicare 
                beneficiaries described in section 1905(p)(1);
                  (ii) for making medical assistance available 
                for payment of medicare cost-sharing described 
                in section 1905(p)(3)(A)(i) for qualified 
                disabled and working individuals described in 
                section 1905(s); [and]
          * * * * * * *
                  (iv) subject to section 1905(p)(4), for 
                making medical assistance available for the 
                portion of medicare cost sharing described in 
                section 1905(p)(3)(A)(ii), that is attributable 
                to the application under section 1839(a)(5) of 
                section1833(d)(2) for individuals who would be 
described in clause (iii) but for the fact that their income exceeds 
120 percent, but is less than 175 percent, of the official poverty line 
(referred to in section 1905(p)(2)) for a family of the size involved;.
          * * * * * * *
          (13) provide--
                  [(A) for payment (except where the State 
                agency is subject to an order under section 
                1914) of the hospital services, nursing 
                facility services, and services in an 
                intermediate care facility for the mentally 
                retarded provided under the plan through the 
                use of rates (determined in accordance with 
                methods and standards developed by the State 
                which, in the case of nursing facilities, take 
                into account 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 
                complying with subsections (b) (other than 
                paragraph (3)(F) thereof), (c), and (d) of 
                section 1919 and provide (in the case of a 
                nursing facility with a waiver under section 
                1919(b)(4)(C)(ii)) for an appropriate reduction 
                to take into account the lower costs (if any) 
                of the facility for nursing care, and which, in 
                the case of hospitals, take into account the 
                situation of hospitals which serve a 
                disproportionate number of low income patients 
                with special needs and provide, in the case of 
                hospital patients receiving services at an 
                inappropriate level of care (under conditions 
                similar to those described in section 
                1861(v)(1)(G)), for lower reimbursement rates 
                reflecting the level of care actually received 
                (in a manner consistent with section 
                1861(v)(1)(G)) which the State finds, and makes 
                assurances satisfactory to the Secretary, are 
                reasonable and adequate to meet the costs which 
                must be incurred by efficiently and 
                economically operated facilities in order to 
                provide care and services in conformity with 
                applicable State and Federal laws, regulations, 
                and quality and safety standards and to assure 
                that individuals eligible for medical 
                assistance have reasonable access (taking into 
                account geographic location and reasonable 
                travel time) to inpatient hospital services of 
                adequate quality; and such State makes further 
                assurances, satisfactory to the Secretary, for 
                the filing of uniform cost reports by each 
                hospital, nursing facility, and intermediate 
                care facility for the mentally retarded and 
                periodic audits by the State of such reports;
                  [(B) that the State shall provide assurances 
                satisfactory to the Secretary that the payment 
                methodology utilized by the State for payments 
                to hospitals can reasonably be expected not to 
                increase such payments, solely as a result of a 
                change of ownership, in excess of the increase 
                which would result from the application of 
                section 1861(v)(1)(O);
                  [(C) that the State shall provide assurances 
                satisfactory to the Secretary that the 
                valuation of capital assets, for purposes of 
                determining payment rates for nursing 
                facilities and for intermediate care facilities 
                for the mentally retarded, will not be 
                increased (as measured from the date of 
                acquisition by the seller to the date of the 
                change of ownership), solely as a result of a 
                change of ownership, by more than the lesser 
                of--
                          [(i) one-half of the percentage 
                        increase (as measured over the same 
                        period of time, or, if necessary, as 
                        extrapolated retrospectively by the 
                        Secretary) in the Dodge Construction 
                        Systems Costs for Nursing Homes, 
                        applied in the aggregate with respect 
                        to those facilities which have 
                        undergone a change of ownership during 
                        the fiscal year, or
                          [(ii) one-half of the percentage 
                        increase (as measured over the same 
                        period of time) in the Consumer Price 
                        Index for All Urban Consumers (United 
                        States city average);]
                  (A) for a public process for determination of 
                rates of payment under the plan for hospital 
                services, nursing facility services, and 
                services of intermediate care facilities for 
                the mentally retarded under which--
                          (i) proposed rates are published, and 
                        providers, beneficiaries and their 
                        representatives, and other concerned 
                        State residents are given a reasonable 
                        opportunity for review and comment on 
                        the proposed rates;
                          (ii) final rates are published, 
                        together with justifications, and
                          (iii) in the case of hospitals, take 
                        into account (in a manner consistent 
                        with section 1923) the situation of 
                        hospitals which serve a 
                        disproportionate number of low income 
                        patients with special needs;
                  (B) that the State shall provide assurances 
                satisfactory to the Secretary that the average 
                level of payments under the plan for nursing 
                facility services (as determined on an 
                aggregate per resident-day basis) and the level 
                of payments under the plan for inpatient 
                hospital services (as determined on an 
                aggregate hospital payment basis) furnished 
                during the 18-month period beginning October 1, 
                1997, is not less than the average level of 
                payments that would be made under the plan 
                during such 18-month period for such respective 
                services (determined on such basis) based on 
                rates or payment basis in effect as of May 1, 
                1997;
                  (D) for payment for hospice care in amounts 
                no lower than the amounts, using the same 
                methodology, used under part A of title XVIII 
                and for payment of amounts under section 
                1905(o)(3); except that in the case of hospice 
                care which is furnished to an individual who is 
                a resident of a nursing facility or 
                intermediate care facility for the mentally 
                retarded, and who would be eligible under the 
                plan for nursing facility services or services 
                in an intermediate care facility for the 
                mentally retarded if he had not elected to 
                receive hospice care, there shall be paid an 
                additional amount, to take into account the 
                room and board furnished by the facility, equal 
                to at least 95 percentof the rate that would 
have been paid by the State under the plan for facility services in 
that facility for that individual; and
                  (E) \1\ (i) for payment for services 
                described in clause (B) or (C) of section 
                1905(a)(2) under the plan, of 100 percent (or 
                95 percent for services furnished during fiscal 
                year 2000, 90 percent for service furnished 
                during fiscal year 2001, and 85 percent for 
                services furnished during fiscal year 2002) of 
                costs which are reasonable and related to the 
                cost of furnishing such services or based on 
                such other tests of reasonableness, as the 
                Secretary prescribes in regulations under 
                section 1833(a)(3), or, in the case of services 
                to which those regulations do not apply, on the 
                same methodology used under section 1833(a)(3) 
                and (ii) in carrying out clause (i) in the case 
                of services furnished by a federally qualified 
                health center or a rural health clinic pursuant 
                to a contract between the center and a health 
                maintenance organization under section 1903(m), 
                for payment by the State of a supplemental 
                payment equal to the amount (if any) by which 
                the amount determined under clause (i) exceeds 
                the amount of the payments provided under such 
                contract; [and]
---------------------------------------------------------------------------
    \1\ Effective for services furnished on or after October 1, 2002, 
subparagraph (E) of section 1902(a)(13) is repealed.
---------------------------------------------------------------------------
                  [(F) for payment for home and community care 
                (as defined in section 1929(a) and provided 
                under such section) through rates which are 
                reasonable and adequate to meet the costs of 
                providing care, efficiently and economically, 
                in conformity with applicable State and Federal 
                laws, regulations, and quality and safety 
                standards;]
          * * * * * * *
          (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 (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
                          (ii) the submission to the Secretary 
                        of a plan (subject to approval by the 
                        Secretary) for pursuing claims against 
                        such third parties, which plan shall[--
                        ] be integrated with, and be monitored 
                        as a part of the Secretary's review of, 
                        the State's mechanized claims 
                        processing and information retrieval 
                        system under section 1903(r);
                                  [(I) be integrated with, and 
                                be monitored as a part of the 
                                Secretary's review of, the 
                                State's mechanized claims 
                                processing and information 
                                retrieval system under section 
                                1903(r), and]
                                  [(II) be subject to the 
                                provisions of section 
                                1903(r)(4) relating to 
                                reductions in Federal payments 
                                for failure to meet conditions 
                                of approval, but shall not be 
                                subject to any other financial 
                                penalty as a result of any 
                                other monitoring, quality 
                                control, or auditing 
                                requirements;]
          * * * * * * *
                  [(G) that the State plan shall meet the 
                requirements of section 1906 (relating to 
                enrollment of individuals under group health 
                plans in certain cases);]
                  [(H)] (G) that the State prohibits any health 
                insurer (including a group health plan, as 
                defined in section 607(1) of the Employee 
                Retirement Income Security Act of 1974, a 
                service benefit plan, and a health maintenance 
                organization), in enrolling an individual or in 
                making any payments for benefits to the 
                individual or on the individual's behalf, from 
                taking into account that the individual is 
                eligible for or is provided medical assistance 
                under a plan under this title for such State, 
                or any other State; and
                  [(I)] (H) that to the extent that payment has 
                been made under the State plan for medical 
                assistance in any case where a third party has 
                a legal liability to make payment for such 
                assistance, the State has in effect laws under 
                which, to the extent that payment has been made 
                under the State plan for medical assistance for 
                health care items or services furnished to an 
                individual, the State is considered to have 
                acquired the rights of such individual to 
                payment by any other party for such health care 
                items or services;
          (26) if the State plan includes medical assistance 
        for inpatientmental hospital services, [provide--
                  [(A) with respect to each patient] provide, 
                with respect to each patient receiving such 
                services, for a regular program of medical 
                review (including medical evaluation) of his 
                need for such services, and for a written plan 
                of care;
                  [(B) for periodic inspections to be made in 
                all mental institutions within the State by one 
                or more medical review teams (composed of 
                physicians and other appropriate health and 
                social service personnel) of the care being 
                provided to each person receiving medical 
                assistance, including (i) the adequacy of the 
                services available to meet his current health 
                needs and promote his maximum physical well-
                being, (ii) the necessity and desirability of 
                his continued placement in the institution, and 
                (iii) the feasibility of meeting his health 
                care needs through alternative institutional or 
                noninstitutional services; and
                  [(C) for full reports to the State agency by 
                each medical review team of the findings of 
                each inspection under subparagraph (B), 
                together with any recommendations;]
          * * * * * * *
          (31) with respect to services in an intermediate care 
        facility for the mentally retarded (where the State 
        plan includes medical assistance for such services) 
        [provide--
                  [(A) with respect to each patient] provide, 
                with respect to each patient receiving such 
                services, for a written plan of care, prior to 
                admission to or authorization of benefits in 
                such facility, in accordance with regulations 
                of the Secretary, and for a regular program of 
                independent professional review (including 
                medical evaluation) which shall periodically 
                review his need for such services;
                  [(B) with respect to each intermediate care 
                facility for the mentally retarded within the 
                State, for periodic onsite inspections of the 
                care being provided to each person receiving 
                medical assistance, by one or more independent 
                professional review teams (composed of a 
                physician or registered nurse and other 
                appropriate health and social service 
                personnel), including with respect to each such 
                person (i) the adequacy of the services 
                available to meet his current health needs and 
                promote his maximum physical well-being, (ii) 
                the necessity and desirability of his continued 
                placement in the facility, and (iii) the 
                feasibility of meeting his health care needs 
                through alternative institutional or 
                noninstitutional services; and
                  [(C) for full reports to the State agency by 
                each independent professional review team of 
                the findings of each inspection under 
                subparagraph (B), together with any 
                recommendations;]
          * * * * * * *
          (62) provide for a program for the distribution of 
        pediatric vaccines to program-registered providers for 
        the immunization of vaccine-eligible children in 
        accordance with section 1928; [and]
          (63) provide for administration and determinations of 
        eligibility with respect to individuals who are (or 
        seek to be) eligible for medical assistance based on 
        the application of section 1931[.]; and
          (64) provide, with respect to all contracts described 
        in section 1903(m)(2)(A) with an organization or 
        provider, that--
                  (A) the State agency develops and implements 
                a quality assessment and improvement strategy, 
                consistent with standards that the Secretary 
                shall establish, in consultation with the 
                States, and monitor and that do not preempt the 
                application of stricter State standards, which 
                includes--
                          (i) standards for access to care so 
                        that covered services are available 
                        within reasonable timeframes and in a 
                        manner that ensures continuity of care 
                        and adequate primary care and, where 
                        applicable, specialized services 
                        capacity, including pediatric 
                        specialized services for special needs 
                        children (as defined in section 
                        1915(i)); and
                          (ii) procedures for monitoring and 
                        evaluating the quality and 
                        appropriateness of care and services to 
                        beneficiaries that reflect the full 
                        spectrum of populations enrolled under 
                        the contract and that include--
                                  (I) requirements for 
                                provision of quality assurance 
                                data to the State using the 
                                data and information set that 
                                the Secretary shall specify 
                                with respect to entities 
                                contracting under section 1876 
                                or alternative data 
                                requirements approved by the 
                                Secretary;
                                  (II) regular and periodic 
                                examination of the scope and 
                                content of the quality 
                                improvement strategy; and
                                  (III) other aspects of care 
                                and service directly related to 
                                the improvement of quality of 
                                care (including grievance 
                                procedures and marketing and 
                                information standards); and
                  (B) that adequate provision is made, 
                consistent with standards that the Secretary 
                shall specify and monitor, with respect to 
                financial reporting under the contracts.
          * * * * * * *
  (e)(1) * * *
          * * * * * * *
  (12) At the option of the State, the plan may provide that an 
individual who is under an age specified by the State (not to 
exceed 19 years of age) and who is determined to be eligible 
for benefits under a State plan approved under this title under 
subsection (a)(10)(A) shall remain eligible for those benefits 
until the earlier of--
          (A) the end of a period (not to exceed 12 months) 
        following the determination; or
          (B) the time that the individual exceeds that age.
          * * * * * * *
  (i)(1) In addition to any other authority under State law, 
where a State determines that a intermediate care facility for 
the mentally retarded which is certified for participation 
under its plan no longer substantially meets the requirements 
for such a facility under this title and further determines 
that the facility's deficiencies--
          (A) immediately jeopardize the health and safety of 
        its patients, the State shall provide for the 
        termination of the facility's certification for 
        participation under the plan and may provide, or
          (B) do not immediately jeopardize the health and 
        safety of its patients, the State may, in lieu of 
        providing for terminating the facility's certification 
        for participation under the plan, [provide] establish 
        alternative remedies if the State demonstrates to the 
        Secretary's satisfaction that the alternative remedies 
        are effective in deterring noncompliance and correcting 
        deficiencies, and may provide
that no payment will be made under the State plan with respect 
to any individual admitted to such facility after a date 
specified by the State.
          * * * * * * *
  (j) Notwithstanding any other requirement of this title, the 
Secretary may waive or modify any requirement of this title 
with respect to the medical assistance program in American 
Samoa and the Northern Mariana Islands, other than a waiver of 
the Federal medical assistance percentage, the limitation in 
section 1108(f), or the requirement that payment may be made 
for medical assistance only with respect to amounts expended by 
American Samoa or the Northern Mariana Islands for care and 
services described in paragraphs (1) through [(25)] (28) of 
section 1905(a).
          * * * * * * *
  (l)(1) Individuals described in this paragraph are--
          (A) * * *
          * * * * * * *
          (D) children born after September 30, 1983 (or, at 
        the option of a State, after any earlier date), who 
        have attained 6 years of age but have not attained 19 
        years of age,
who are not described in any of subclauses (I) through (III) of 
subsection (a)(10)(A)(i) and whose family income does not 
exceed the income level established by the State under 
paragraph (2) for a family size equal to the size of the 
family, including the woman, infant, or child.
          * * * * * * *
  (aa)(1) Notwithstanding any other provision of law, no 
provision of law shall be construed as preventing any State 
from allowing determinations of eligibility to receive medical 
assistance under this title to be made by an entity that is not 
a State or local government, or by an individual who is not an 
employee of a State or local government, which meets such 
qualifications as the State determines. For purposes of any 
Federal law, such determinations shall be considered to be made 
by the State and by a State agency.
  (2) Nothing in this subsection shall be construed as 
affecting--
          (A) the conditions for eligibility for benefits 
        (including any conditions relating to income or 
        resources);
          (B) the rights to challenge determinations regarding 
        eligibility or rights to benefits; and
          (C) determinations regarding quality control or error 
        rates.

                           PAYMENT TO STATES

  Sec. 1903. (a) * * *
  (b)(1) * * *
          * * * * * * *
  (4) Notwithstanding the preceding provisions of this section, 
the amount determined under subsection (a)(1) for any State 
shall be decreased in a quarter by the amount of any health 
care related taxes (described in section 1902(w)(3)(A)) that 
are imposed on a hospital described in subsection (w)(3)(F) in 
that quarter.
  (5) Amounts expended by a State for the use an enrollment 
broker in marketing health maintenance organizations and other 
managed care entities to eligible individuals under this title 
shall be considered, for purposes of subsection (a)(7), to be 
necessary for the proper and efficient administration of the 
State plan but only if the following conditions are met with 
respect to the broker:
          (A) The broker is independent of any such entity and 
        of any health care providers (whether or not any such 
        provider participates in the State plan under this 
        title) that provide coverage of services in the same 
        State in which the broker is conducting enrollment 
        activities.
          (B) No person who is an owner, employee, consultant, 
        or has a contract with the broker either has any direct 
        or indirect financial interest with such an entity or 
        health care provider or has been excluded from 
        participation in the program under this title or title 
        XVIII or debarred by any Federal agency, or subject to 
        a civil money penalty under this Act.
          * * * * * * *
  (f)(1) * * *
          * * * * * * *
  (4) The limitations on payment imposed by the preceding 
provisions of this subsection shall not apply with respect to 
any amount expended by a State as medical assistance for any 
individual described in section 1902(a)(10)(A)(i)(III), 
1902(a)(10)(A)(i)(IV), 1902(a)(10)(A)(i)(V), 
1902(a)(10)(A)(i)(VI), 1902(a)(10)(A)(i)(VII), 
1902(a)(10)(A)(ii)(IX), 1902(a)(10)(A)(ii)(X), or 1905(p)(1) or 
for any individual--
          (A) * * *
          * * * * * * *
          (C) with respect to whom there is being paid, or who 
        is eligible, or would be eligible if he were not in a 
        medical institution, to have paid with respect to him, 
        a State supplementary payment and is eligible for 
        medical assistance equal in amount, duration, and scope 
        to the medical assistance made available to individuals 
        described in section 1902(a)(10)(A), or who is a PACE 
        program eligible individual enrolled in a PACE program 
        under section 1932, but only if the income of such 
        individual (as determined under section 1612, but 
        without regard to subsection (b) thereof) does not 
        exceed 300 percent of the supplemental security income 
        benefit rate established by section 1611(b)(1),
at the time of the provision of the medical assistance giving 
rise to such expenditure.
          * * * * * * *
  (i) Payment under the preceding provisions of this section 
shall not be made--
          (1) * * *
          * * * * * * *
          [(12) with respect to any amount expended for 
        physicians' services furnished by a physician on or 
        after January 1, 1992, to--
                  [(A) a child under 21 years of age, unless 
                the physician--
                          [(i) is certified in family practice 
                        or pediatrics by the medical specialty 
                        board recognized by the American Board 
                        of Medical Specialties for family 
                        practice or pediatrics or is certified 
                        in family practice or pediatrics by the 
                        medical specialty board recognized by 
                        the American Osteopathic Association,
                          [(ii) is employed by, or affiliated 
                        with, a Federally-qualified health 
                        center (as defined in section 
                        1905(l)(2)(B)),
                          [(iii) holds admitting privileges at 
                        a hospital participating in a State 
                        plan approved under this title,
                          [(iv) is a member of the National 
                        Health Service Corps,
                          [(v) documents a current, formal, 
                        consultation and referral arrangement 
                        with a pediatrician or family 
                        practitioner who has the certification 
                        described in clause (i) for purposes of 
                        specialized treatment and admission to 
                        a hospital,
                          [(vi) delivers such services in the 
                        emergency department of a hospital 
                        participating in the State plan 
                        approved under this title, or
                          [(vii) has been certified by the 
                        Secretary (or certified by the State in 
                        accordance with policies of the 
                        Secretary) as qualified to provide 
                        physicians' services to a child under 
                        21 years of age; or
                  [(B) to a pregnant woman (or during the 60 
                day period beginning on the date of termination 
                of the pregnancy) unless the physician--
                          [(i) is certified in family practice 
                        or obstetrics by the medical specialty 
                        board recognized by the American Board 
                        of Medical Specialties for family 
                        practice or obstetrics or is certified 
                        in family practice or obstetrics by the 
                        medical specialty board recognized by 
                        the American Osteopathic Association,
                          [(ii) is employed by, or affiliated 
                        with, a Federally-qualified health 
                        center (as defined in section 
                        1905(l)(2)(B)),
                          [(iii) holds admitting privileges at 
                        a hospital participating in a State 
                        plan approved under this title,
                          [(iv) is a member of the National 
                        Health Service Corps,
                          [(v) documents a current, formal, 
                        consultation and referral arrangement 
                        with an obstetrician or family 
                        practitioner who has the certification 
                        described in clause (i) for purposes of 
                        specialized treatment and admission to 
                        a hospital,
                          [(vi) delivers such services in the 
                        emergency department of a hospital 
                        participating in the State plan 
                        approved under this title, or
                          [(vii) has been certified by the 
                        Secretary (or certified by the State in 
                        accordance with policies of the 
                        Secretary) as qualified to provide 
                        physicians' services to pregnant women; 
                        or]
          * * * * * * *
  (m)(1)(A) The term ``health maintenance organization'' means 
a public or private organization, organized under the laws of 
any State, which meets the requirement of section 1902(w) is a 
qualified health maintenance organization (as defined in 
section 1310(d) of the Public Health Service Act) or which 
meets the requirement of section 1902(a) and--
          (i) * * *
          (ii) has made adequate provision against the risk of 
        insolvency, which provision is satisfactory to the 
        State, meets the requirements of subparagraph (C)(i) 
        (if applicable),  and which assures that individuals 
        eligible for benefits under this title are in no case 
        held liable for debts of the organization in case of 
        the organization's insolvency.
          * * * * * * *
  (C)(i) Subject to clause (ii), a provision meets the 
requirements of this subparagraph for an organization if the 
organization meets solvency standards established by the State 
for private health maintenance organizations or is licensed or 
certified by the State as a risk-bearing entity.
  (ii) Clause (i) shall not apply to an organization if--
          (I) the organization is not responsible for the 
        provision (directly or through arrangements with 
        providers of services) of inpatient hospital services 
        and physicians' services;
          (II) the organization is a public entity;
          (III) the solvency of the organization is guaranteed 
        by the State; or
          (IV) the organization is (or is controlled by) one or 
        more federally-qualified health centers and meets 
        solvency standards established by the State for such an 
        organization.
For purposes of subclause (IV), the term ``control'' means the 
possession, whether direct or indirect, of the power to direct 
or cause the direction of the management and policies of the 
organization through membership, board representation, or an 
ownership interest equal to or greater than 50.1 percent.
  (2)(A) Except as provided in subparagraphs (B), (C), and (G), 
no payment shall be made under this title to a State with 
respect to expenditures incurred by it for payment (determined 
under a prepaid capitation basis or under any other risk basis) 
for services provided by any entity (including a health 
insuring organization) which is responsible for the provision 
(directly or through arrangements with providers of services) 
of inpatient hospital services and any other service described 
in paragraph (2), (3), (4), (5), or (7) of section 1905(a) or 
for the provision of any three or more of the services 
described in such paragraphs unless--
          (i) the Secretary has determined that the entity is a 
        health maintenance organization as defined in paragraph 
        (1);
          [(ii) less than 75 percent of the membership of the 
        entity which is enrolled on a prepaid basis consists of 
        individuals who (I) are insured for benefits under part 
        B of title XVIII or forbenefits under both parts A and 
B of such title, or (II) are eligible to receive benefits under this 
title;]
          (iii) such services are provided for the benefit of 
        individuals eligible for benefits under this title in 
        accordance with a contract between the State and the 
        entity under which prepaid payments to the entity are 
        made on an actuarially sound basis and under which the 
        Secretary must provide prior approval for contracts 
        providing for expenditures in excess of [$100,000] 
        $1,000,000 for 1998 and, for a subsequent year, the 
        amount established under this clause for the previous 
        year increased by the percentage increase in the 
        consumer price index for all urban consumers over the 
        previous year;
          * * * * * * *
          (vi) such contract [(I) except as provided under 
        subparagraph (F),] permits individuals who have elected 
        under the plan to enroll with the entity for provision 
        of such benefits to terminate such enrollment [without 
        cause as of the beginning of the first calendar month 
        following a full calendar month after the request is 
        made for such termination, and (II) provides for 
        notification of each such individual, at the time of 
        the individual's enrollment, of such right to terminate 
        such enrollment;] in accordance with the provisions of 
        subparagraph (F);
          (vii) such contract provides that, in the case of 
        medically necessary services which were provided (I) to 
        an individual enrolled with the entity under the 
        contract and entitled to benefits with respect to such 
        services under the State's plan and (II) other than 
        through the organization because the services were 
        immediately required due to an unforeseen illness, 
        injury, or condition, either the entity or the State 
        provides for reimbursement with respect to those 
        services,
          (viii) such contract provides for disclosure of 
        information in accordance with section 1124 and 
        paragraph (4) of this subsection and compliance with 
        the requirements of paragraphs (10) and (11);
                  [(ix) such contract provides, in the case of 
                an entity that has entered into a contract for 
                the provision of services of such center with a 
                federally qualified health center, that (I) 
                rates of prepayment from the State are adjusted 
                to reflect fully the rates of payment specified 
                in section 1902(a)(13)(E), and (II) at the 
                election of such center payments made by the 
                entity to such a center for services described 
                in 1905(a)(2)(C) are made at the rates of 
                payment specified in section 1902(a)(13)(E);]
          (ix) \1\ such contract provides, in the case of an 
        entity that has entered into a contract for the 
        provision of services with a federally qualified health 
        center or a rural health clinic, that the entity shall 
        provide payment that is not less than the level and 
        amount of payment which the entity would make for the 
        services if the services were furnished by a provider 
        which is not a federally qualified health center or a 
        rural health clinic;
---------------------------------------------------------------------------
    \1\ Effective for services furnished on or after October 1, 2002, 
clause (ix) of section 1903(m)(2)(A) (42 U.S.C. 1396b(m)(2)(A)) is 
repealed.
---------------------------------------------------------------------------
          (x) any physician incentive plan that it operates 
        meets the requirements described in section 1876(i)(8); 
        [and]
          (xi) such contract provides for maintenance of 
        sufficient patient encounter data to identify the 
        physician who delivers services to patients[.];
          (xii) such contract provides for--
                  (I) submitting to the State agency such 
                information as may be necessary to monitor the 
                care delivered to members,
                  (II) maintenance of an internal quality 
                assurance program consistent with section 
                1902(a)(64)(A), and meeting standards that the 
                Secretary shall establish in regulations;
                  (III) providing effective procedures for 
                hearing and resolving grievances between the 
                entity and members enrolled with the 
                organization under this subsection;
          (xiii) the State has in effect conflict-of-interest 
        safeguards with respect to officers and employees of 
        the State with responsibilities relating to contracts 
        with such organizations and to any default enrollment 
        process that are at least as effective as the Federal 
        safeguards provided under section 27 of the Office of 
        Federal Procurement Policy Act (41 U.S.C. 423), against 
        conflicts of interest that apply with respect to 
        Federal procurement officials with comparable 
        responsibilities with respect to such contracts;
          (xiv) such contract provides for compliance of the 
        organization with the grievance and appeals 
        requirements described in paragraph (3); and
          (xv) the organization complies with the requirements 
        of paragraph (12).
          * * * * * * *
  [(C) Subparagraph (A)(ii) shall not apply with respect to 
payments under this title to a State with respect to 
expenditures incurred by it for payment for services by an 
entity during the three-year period beginning on the date of 
enactment of this subsection or beginning on the date the 
entity qualifies as a health maintenance organization (as 
determined by the Secretary), whichever occurs later, but only 
if the entity demonstrates to the satisfaction of the Secretary 
by the submission of plans for each year of such three-year 
period that it is making continuous efforts and progress toward 
achieving compliance with subparagraph (A)(ii).
  [(D) In the case of a health maintenance organization that is 
a public entity, the Secretary may modify or waive the 
requirement described in subparagraph (A)(ii) but only if the 
Secretary determines that the organization has taken and is 
taking reasonable efforts to enroll individuals who are not 
entitled to benefits under the State plan approved under this 
title or under title XVIII.
  [(E) In the case of a health maintenance organization that--
          [(i) is a nonprofit organization with at least 25,000 
        members,
          [(ii) is and has been a qualified health maintenance 
        organization (as defined in section 1310(d) of the 
        Public Health Service Act) for a period of at least 
        four years,
          (iii) provides basic health services through members 
        of the staff of the organization,
          [(iv) is located in an area designated as medically 
        underserved under section 1302(7) of the Public Health 
        Service Act, and
          [(v) previously received a waiver of the requirement 
        described in subparagraph (A)(ii) under section 1115,
the Secretary may modify or waive the requirement described in 
subparagraph (A)(ii) but only if the Secretary determines that 
special circumstances warrant such modification or waiver and 
that the organization has taken and is taking reasonable 
efforts to enroll individuals who are not entitled to benefits 
under the State plan approved under this title or under title 
XVIII.]
  (F) [In the case of--
          [(i) a contract with an entity described in 
        subparagraph (E) or (G), with a qualified health 
        maintenance organization (as defined in section 1310(d) 
        of the Public Health Service Act) which meets the 
        requirement of subparagraph (A)(ii), or or with an 
        eligible organization with a contract under section 
        1876 which meets the requirement of subparagraph 
        (A)(ii), or
          [(ii) a program pursuant to an undertaking described 
        in paragraph (6) in which at least 25 percent of the 
        membership enrolled on a prepaid basis are individuals 
        who (I) are not insured for benefits under part B of 
        title XVIII or eligible for benefits under this title, 
        and (II) (in the case of such individuals whose 
        prepayments are made in whole or in part by any 
        government entity) had the opportunity at the time of 
        enrollment in the program to elect other coverage of 
        health care costs that would have been paid in whole or 
        in part by any governmental entity,
a State plan] A State plan may restrict the period in which 
requests for termination of enrollment without cause under 
subparagraph [(A)(vi)(I)] (A)(vi) are permitted to the first 
month of each period of enrollment, each such period of 
enrollment not to exceed six months in duration, but only if 
the State provides notification, at least twice per year, to 
individuals enrolled with such entity or organization of the 
right to terminate such enrollment and the restriction on the 
exercise of this right. Such restriction shall not apply to 
requests for termination of enrollment for cause.
  (G) In the case of an entity which is receiving (and has 
received during the previous two years) a grant of at least 
$100,000 under section 329(d)(1)(A) or 330(d)(1) of the Public 
Health Service Act or is receiving (and has received during the 
previous two years) at least $100,000 (by grant, subgrant, or 
subcontract) under the Appalachian Regional Development Act of 
1965, [clauses (i) and (ii)] clause (i) of subparagraph (A) 
shall not apply.
          * * * * * * *
  (3)(A) An eligible organization must provide a meaningful and 
expedited procedure, which includes notice and hearing 
requirements, for resolving grievances between the organization 
(including any entity or individual through which the 
organization provides health care services) and members 
enrolled with the organization under this subsection. Under the 
procedure any member enrolled with the organization may at any 
time file orally or in writing a complaint to resolve 
grievances between the member and the organization before a 
board of appeals established under subparagraph (C).
  (B)(i) The organization must provide, in a timely manner, 
such an enrollee a notice of any denial of services in-network 
or denial of payment for out-of-network care or notice of 
termination or reduction of services.
  (ii) Such notice shall include the following:
          (I) A clear statement of the reason for the denial.
          (II) An explanation of the complaint process under 
        subparagraph (C) which is available to the enrollee 
        upon request.
          (III) An explanation of all other appeal rights 
        available to all enrollees.
          (IV) A description of how to obtain supporting 
        evidence for this hearing, including the patient's 
        medical records from the organization, as well as 
        supporting affidavits from the attending health care 
        providers.
  (C)(i) Each eligible organization shall establish a board of 
appeals to hear and make determinations on complaints by 
enrollees under this subsection concerning denials of coverage 
or payment for services (whether in-network or out-of-network) 
and the medical necessity and appropriateness of covered items 
and services.
  (ii) A board of appeals of an eligible organization shall 
consist of--
          (I) representatives of the organization, including 
        physicians, nonphysicians, administrators, and 
        enrollees;
          (II) consumers who are not enrollees; and
          (III) providers with expertise in the field of 
        medicine which necessitates treatment.
  (iii) A board of appeals shall hear and resolve complaints 
within 30 days after the date the complaint is filed with the 
board.
  (D) Nothing in this paragraph may be construed to replace or 
supersede any appeals mechanism otherwise provided for an 
individual entitled to benefits under this title.
          * * * * * * *
  (7) Deemed compliance.--
          (A) Medicare organizations.--At the option of a 
        State, the requirements of the previous provisions of 
        this subsection shall not apply with respect to a 
        health maintenance organization if the organization is 
        an eligible organization with a contract in effect 
        under section 1876 or a MedicarePlus organization with 
        a contract in effect under C of title XVIII.
          (B) Private accreditation.--
                  (i) In general.--At the option of a State, 
                such requirements shall not apply with respect 
                to a health maintenance organization if--
                          (I) the organization is accredited by 
                        an organization meeting the 
                        requirements described in subparagraph 
                        (C); and
                          (II) the standards and process under 
                        which the organization is accredited 
                        meet such requirements as are 
                        established under clause (ii), without 
                        regard to whether or not the time 
                        requirement of such clause is 
                        satisfied.
                  (ii) Standards and process.--Not later than 
                180 days after the date of the enactment of 
                this paragraph, theSecretary shall specify 
requirements for the standards and process under which a health 
maintenance organization is accredited by an organization meeting the 
requirements of subparagraph (C).
          (C) Accrediting organization.--An accrediting 
        organization meets the requirements of this 
        subparagraph if the organization--
                  (i) is a private, nonprofit organization;
                  (ii) exists for the primary purpose of 
                accrediting managed care organizations or 
                health care providers; and
                  (iii) is independent of health care providers 
                or associations of health care providers.
  (8)(A)(i) Each contract with a health maintenance 
organization under this subsection shall require the 
organization--
          (I) to provide coverage for emergency services (as 
        defined in subparagraph (B)) without regard to prior 
        authorization or the emergency care provider's 
        contractual relationship with the organization, and
          (II) to comply with guidelines established under 
        section 1852(d)(2) (respecting coordination of post-
        stabilization care) in the same manner as such 
        guidelines apply to MedicarePlus plans offered under 
        part C of title XVIII.
  (B) In subparagraph (A)(i)(I), the term ``emergency 
services'' means, with respect to an individual enrolled with 
an organization, covered inpatient and outpatient services 
that--
          (i) are furnished by a provider that is qualified to 
        furnish such services under this title, and
          (ii) are needed to evaluate or stabilize an emergency 
        medical condition (as defined in subparagraph (C)).
  (C) In subparagraph (B)(ii), the term ``emergency medical 
condition'' means a medical condition manifesting itself by 
acute symptoms of sufficient severity such that a prudent 
layperson, who possesses an average knowledge of health and 
medicine, could reasonably expect the absence of immediate 
medical attention to result in--
          (i) placing the health of the individual (or, with 
        respect to a pregnant woman, the health of the woman or 
        her unborn child) in serious jeopardy,
          (ii) serious impairment to bodily functions, or
          (iii) serious dysfunction of any bodily organ or 
        part.
  (9)(A) Subject to subparagraphs (B) and (C), under a contract 
under this subsection a health maintenance organization (in 
relation to an individual enrolled under the contract) shall 
not prohibit or otherwise restrict a covered health care 
professional (as defined in subparagraph (D)) from advising 
such an individual who is a patient of the professional about 
the health status of the individual or medical care or 
treatment for the individual's condition or disease, regardless 
of whether benefits for such care or treatment are provided 
under the plan, if the professional is acting within the lawful 
scope of practice.
  (B) Subparagraph (A) shall not be construed as requiring a 
health maintenance organization to provide, reimburse for, or 
provide coverage of a counseling or referral service if the 
organization--
          (i) objects to the provision of such service on moral 
        or religious grounds; and
          (ii) in the manner and through the written 
        instrumentalities such organization deems appropriate, 
        makes available information on its policies regarding 
        such service to prospective enrollees before or during 
        enrollment and to enrollees within 90 days after the 
        date that the organization or plan adopts a change in 
        policy regarding such a counseling or referral service.
  (C) Nothing in subparagraph (B) shall be construed to affect 
disclosure requirements under State law or under the Employee 
Retirement Income Security Act of 1974.
  (D) For purposes of this paragraph, the term ``health care 
professional'' means a physician (as defined in section 
1861(r)) or other health care professional if coverage for the 
professional's services is provided under the contract under 
this subsection for the services of the professional. Such term 
includes a podiatrist, optometrist, chiropractor, psychologist, 
dentist, physician assistant, physical or occupational 
therapist and therapy assistant, speech-language pathologist, 
audiologist, registered or licensed practical nurse (including 
nurse practitioner, clinical nurse specialist, certified 
registered nurse anesthetist, and certified nurse-midwife), 
licensed certified social worker, registered respiratory 
therapist, and certified respiratory therapy technician.
  (10)(A)(i) A health maintenance organization with respect to 
activities under this subsection may not distribute directly or 
through any agent or independent contractor marketing materials 
within any State--
          (I) without the prior approval of the State; and
          (II) that contain false or materially misleading 
        information.
  (ii) In the process of reviewing and approving such 
materials, the State shall provide for consultation with a 
medical care advisory committee.
  (iii) The State may not enter into or renew a contract with a 
health maintenance organization for the provision of services 
to individuals enrolled under the State plan under this title 
if the State determines that the entity distributed directly or 
through any agent or independent contractor marketing materials 
in violation of clause (i)(II).
  (B) A health maintenance organization shall distribute 
marketing materials to the entire service area of such 
organization.
  (C) A health maintenance organization, or any agency of such 
organization, may not seek to influence an individual's 
enrollment with the organization in conjunction with the sale 
of any other insurance.
  (D) Each health maintenance organization shall comply with 
such procedures and conditions as the Secretary prescribes in 
order to ensure that, before an individual is enrolled with the 
organization under this title, the individual is provided 
accurate oral and written and sufficient information to make an 
informed decision whether or not to enroll.
  (E) Each health maintenance organization shall not, directly 
or indirectly, conduct door-to-door, telephonic, or other `cold 
call' marketing of enrollment under this title.
  (11)(A) A health maintenance organization may not knowingly--
          (i) have a person described in subparagraph (C) as a 
        director, officer, partner, or person with beneficial 
        ownership of more than 5 percent of the organization 
        equity; or
          (ii) have an employment, consulting, or other 
        agreement with a person described in such subparagraph 
        for the provision of items and services that are 
        significant and material to the organization's 
        obligations under its contract with the State.
  (B) If a State finds that a health maintenance organization 
is not in compliance with clause (i) or (ii) of subparagraph 
(A), the State--
          (i) shall notify the Secretary of such noncompliance;
          (ii) may continue an existing agreement with the 
        organization unless the Secretary (in consultation with 
        the Inspector General of the Department of Health and 
        Human Services) directs otherwise; and
          (iii) may not renew or otherwise extend the duration 
        of an existing agreement with the organization unless 
        the Secretary (in consultation with the Inspector 
        General of the Department of Health and Human Services) 
        provides to the State and to the Congress a written 
        statement describing compelling reasons that exist for 
        renewing or extending the agreement.
  (C) A person is described in this subparagraph if such 
person--
          (i) is debarred, suspended, or otherwise excluded 
        from participating in procurement activities under the 
        Federal acquisition regulation or from participating in 
        nonprocurement activities under regulations issued 
        pursuant to Executive Order 12549; or
          (ii) is an affiliate (within the meaning of the 
        Federal acquisition regulation) of a person described 
        in clause (i).
  (12)(A) If a health maintenance organization, under a 
contract under this subsection, requires or provides for an 
enrollee to designate a participating primary care provider--
          (i) the organization shall permit a female enrollee 
        to designate an obstetrician-gynecologist who has 
        agreed to be designated as such, as the enrollee's 
        primary care provider; and
          (ii) if such an enrollee has not designated such a 
        provider as a primary care provider, the organization--
                  (I) may not require prior authorization by 
                the enrollee's primary care provider or 
                otherwise for coverage of obstetric and 
                gynecologic care provided by a participating 
                obstetrician-gynecologist, or a participating 
                health care professional practicing in 
                collaboration with the obstetrician-
                gynecologist and in accordance with State law, 
                to the extent such care is otherwise covered, 
                and
                  (II) shall treat the ordering of other 
                gynecologic care by such a participating 
                physician as the prior authorization of the 
                primary care provider with respect to such care 
                under the contract.
  (B) Nothing in subparagraph (A)(ii)(II) shall waive any 
requirements of coverage relating to medical necessity or 
appropriateness with respect to coverage of gynecologic care so 
ordered.
          * * * * * * *
  [(r)(1)(A) In order to receive payments under paragraphs 
(2)(A) and (7) of subsection (a) without being subject to per 
centum reductions set forth in subparagraph (C) of this 
paragraph, a State must provide that mechanized claims 
processing and information retrieval systems of the type 
described in subsection (a)(3)(B) and detailed in an advance 
planning document approved by the Secretary are operational on 
or before the deadline established under subparagraph (B).
  [(B) The deadline for operation of such systems for a State 
is September 30, 1985.
  [(C) If a State fails to meet the deadline established under 
subparagraph (B), the per centums specified in paragraphs 
(2)(A) and (7) of subsection (a) with respect to that State 
shall each be reduced by 5 percentage points for the first two 
quarters beginning on or after such deadline, and shall be 
further reduced by an additional 5 percentage points after each 
period consisting of two quarters during which the Secretary 
determines the State fails to meet the requirements of 
subparagraph (A); except that--
          [(i) neither such per centum may be reduced by more 
        than 25 percentage points by reason of this paragraph; 
        and
          [(ii) no reduction shall be made under this paragraph 
        for any quarter following the quarter during which such 
        State meets the requirements of subparagraph (A).
  [(2)(A) In order to receive payments under paragraphs (2)(A) 
and (7) of subsection (a) without being subject to the per 
centum reductions set forth in subparagraph (C) of this 
paragraph, a State must have its mechanized claims processing 
and information retrieval systems, of the type required to be 
operational under paragraph (1), initially approved by the 
Secretary in accordance with paragraph (5)(A) on or before the 
deadline established under subparagraph (B).
  [(B) The deadline for approval of such systems for a State is 
the last day of the fourth quarter that begins after the date 
on which the Secretary determines that such systems became 
operational as required under paragraph (1).
  [(C) If a State fails to meet the deadline established under 
subparagraph (B), the per centums specified in paragraphs 
(2)(A) and (7) of subsection (a) with respect to that State 
shall each be reduced by 5 percentage points for the first two 
quarters beginning after such deadline, and shall be further 
reduced by an additional 5 percentage points at the end of each 
period consisting of two quarters during which the State fails 
to meet the requirements of subparagraph (A); except that--
          [(i) neither such per centum may be reduced by more 
        than 25 percentage points by reason of this paragraph, 
        and
          [(ii) no reduction shall be made under this paragraph 
        for any quarter following the quarter during which such 
        State's systems are approved by the Secretary as 
        provided in subparagraph (A).
  [(D) Any State's systems which are approved by the Secretary 
for purposes of subsection (a)(3)(B) on or before the date of 
the enactment of this subsection shall be deemed to be 
initially approved for purposes of this subsection.
  [(3)(A) When a State's systems are initially approved, the 75 
per centum Federal matching provided in subsection (a)(3)(B) 
shall become effective with respect to such systems, 
retroactive to the first quarter beginning after the date on 
which such systems became operational as required under 
paragraph (1), except as provided in subparagraph (B).
  [(B) In the case of any State which was subject to a per 
centum reduction under paragraph (2), the per centum specified 
in subsection (a)(3)(B) shall be reduced by 5 percentage points 
for the first two quarters beginning after the deadline 
established under paragraph (2)(B), and shall be further 
reduced by an additional 5 percentage points at the end of each 
period consisting of two quarters beginning after such deadline 
and before the date on which such systems are initially 
approved, except that no reduction shall be made under this 
paragraph for any quarter following the quarter during which 
the State's systems are initially approved by the Secretary.
  [(4)(A) The Secretary shall review all approved systems not 
less often than once every three years, and shall reapprove or 
disapprove any such systems. Systems which fail to meet the 
current performance standards, system requirements, and any 
other conditions for approval developed by the Secretary under 
paragraph (6) shall be disapproved. Any State having systems 
which are so disapproved shall be subject to a per centum 
reduction under subparagraph (B). The Secretary shall make the 
determination of reapproval or disapproval and so notify the 
States not later than the end of the first quarter following 
the review period. Reviews may, at the Secretary's discretion, 
constitute reviews of the entire system or of only those 
standards, systems requirements, and other conditions which 
have demonstrated weakness in previous reviews.
  [(B) If the Secretary disapproves a State's systems under 
subparagraph (A), the Secretary shall, with respect to such 
State for quarters beginning after the determination of 
disapproval and before the first quarter beginning after such 
systems are reapproved, reduce the per centum specified in 
subsection (a)(3)(B) to a per centum of not less than 50 per 
centum and not more than 70 per centum as the Secretary 
determines to be appropriate and commensurate with the nature 
of noncompliance by such State; except that such per centum may 
not be reduced by more than 10 percentage points in any 4-
quarter period by reason of this subparagraph. No State shall 
be subject to a per centum reduction under this paragraph (i) 
before the fifth quarter beginning after such State's systems 
were initially approved, or (ii) on the basis of a review 
conducted before October 1, 1981.
  [(C) The Secretary may retroactively waive a per centum 
reduction imposed under subparagraph (B), if the Secretary 
determines that the State's systems meet all current 
performance standards and other requirements for reapproval and 
that such action would improve the administration of the 
State's plan under this title, except that no such waiver may 
extend beyond the four quarters immediately prior to the 
quarter in which the State's systems are reapproved.
  [(5)(A) In order to be initially approved by the Secretary, 
mechanized claims processing and information retrieval systems 
must be of the type described in subsection (a)(3)(B) and must 
meet the following requirements:]
  (r)(1) In order to receive payments under subsection (a) for 
use of automated data systems in administration of the State 
plan under this title, a State must have in operation 
mechanized claims processing and information retrieval systems 
that meet the requirements of this subsection and that the 
Secretary has found--
          (A) is adequate to provide efficient, economical, and 
        effective administration of such State plan;
          (B) is compatible with the claims processing and 
        information retrieval systems used in the 
        administration of title XVIII, and for this purpose--
                          (i) has a uniform identification 
                        coding system for providers, other 
                        payees, and beneficiaries under this 
                        title or title XVIII;
                          (ii) provides liaison between States 
                        and carriers and intermediaries with 
                        agreements under title XVIII to 
                        facilitate timely exchange of 
                        appropriate data; and
                          (iii) provides for exchange of data 
                        between the States and the Secretary 
                        with respect to persons sanctioned 
                        under this title or title XVIII;
          (C) is capable of providing accurate and timely data;
          (D) is complying with the applicable provisions of 
        part C of title XI;
          (E) is designed to receive provider claims in 
        standard formats to the extent specified by the 
        Secretary; and
          (F) effective for claims filed on or after January 1, 
        1999, provides for electronic transmission of claims 
        data in the format specified by the Secretary and 
        consistent with the Medicaid Statistical Information 
        System (MSIS) (including detailed individual enrollee 
        encounter data and other information that the Secretary 
        may find necessary).
  (2) In order to meet the requirements of this paragraph, 
mechanized claims processing and information retrieval systems 
must meet the following requirements:
          [(i)] (A) The systems must be capable of developing 
        provider, physician, and patient profiles which are 
        sufficient to provide specific information as to the 
        use of covered types of services and items, including 
        prescribed drugs.
          [(ii)] (B) The State must provide that information on 
        probable fraud or abuse which is obtained from, or 
        developed by, the systems, is made available to the 
        State's medicaid fraud control unit (if any) certified 
        under subsection (q) of this section.
          [(iii)] (C) The systems must meet all performance 
        standards and other requirements for initial approval 
        developed by the Secretary [under paragraph (6)].
  [(B) In order to be reapproved by the Secretary, mechanized 
claims processing and information retrieval systems must meet 
the requirements of subparagraphs (A)(i) and (A)(ii) and 
performance standards and other requirements for reapproval 
developed by the Secretary under paragraph (6).]
  [(6) The Secretary, with respect to State systems, shall--
          [(A) develop performance standards, system 
        requirements, and other conditions for approval for use 
        in initially approving such State systems, and shall 
        further develop written approval procedures for 
        conducting reviews for initial approval, including 
        specific criteria for assessing systems in operation to 
        insure that all such performance standards and other 
        requirements are met;
          [(B) by not later than October 1, 1980, develop an 
        initial set of performance standards, system 
        requirements, and other conditions for reapproval for 
        use in reapproving or disapproving State systems, and 
        shall further develop written reapproval procedures for 
        conducting reviews for reapproval, including specific 
        criteria for reassessing systems operations over a 
        period of at least six months during each fiscal year 
        to insure that all such performance standards and other 
        requirements are met on a continuous basis;
          [(C) provide that reviews for reapproval, conducted 
        before October 1, 1981, shall be for the purpose of 
        developing a systems performance data base and 
        assisting States to improve their systems, and that no 
        per centum reduction shall be made under paragraph (4) 
        on the basis of such a review;
          [(D) insure that review procedures, performance 
        standards, and other requirements developed under 
        subparagraph (B) are sufficiently flexible to allow for 
        differing administrative needs among the States, and 
        that such procedures, standards, and requirements are 
        of a nature which will permit their use by the States 
        for self-evaluation;
          [(E) notify all States of proposed procedures, 
        standards, and other requirements at least one quarter 
        prior to the fiscal year in which such procedures, 
        standards, and other requirements will be used for 
        conducting reviews for reapproval;
          [(F) periodically update the systems performance 
        standards, system requirements, review criteria, 
        objectives, regulations, and guides as the Secretary 
        shall from time to time deem appropriate;
          [(G) provide technical assistance to States in the 
        development and improvement of the systems so as to 
        continually improve the capacity of such systems to 
        effectively detect cases of fraud or abuse;
          [(H) for the purpose of insuring compatibility 
        between the State systems and the systems utilized in 
        the administration of title XVIII--
                  [(i) develop a uniform identification coding 
                system (to the extent feasible) for providers, 
                other persons receiving payments under the 
                State plans (approved under this title) or 
                under title XVIII, and beneficiaries of medical 
                services under such plans or title;
                  [(ii) provide liaison between States and 
                carriers and intermediaries having agreements 
                under title XVIII to facilitate timely exchange 
                of appropriate data; and
                  [(iii) improve the exchange of data between 
                the States and the Secretary with respect to 
                providers and other persons who have been 
                terminated, suspended, or otherwise sanctioned 
                under a State plan (approved under this title) 
                or under title XVIII;
          [(I) develop and disseminate clear definitions of 
        those types of reasonable costs relating to State 
        systems which are reimbursable under the provisions of 
        subsection (a)(3) of this section; and
          [(J) develop and disseminate performance standards 
        for assessing the State's third party collection 
        efforts in accordance with section 1902(a)(25)(A)(ii).
  [(7)(A) The Secretary shall waive the provisions of this 
subsection with respect to initial operation and approval of 
mechanized claims processing and information retrieval systems 
with respect to any State which--
          [(i) had a 1976 population (as reported by the Bureau 
        of the Census) of less than 1,000,000 and which made 
        total expenditures (including Federal reimbursement) 
        for which Federal financial participation is authorized 
        under this title of less than $100,000,000 in fiscal 
        year 1976 (as reported by such State for such year), or
          [(ii) is a Commonwealth, or territory or possession, 
        of the United States,
if such State reasonably demonstrates, and the Secretary does 
not formally disagree, that the application of such provisions 
would not significantly improve the efficiency of the 
administration of such State's plan under this title.
  [(B) If the Secretary determines that the application of the 
provisions described in subparagraph (A) to a State would 
significantly improve the efficiency of the administration of 
the State's plan under this title, the Secretary may withdraw 
the State's waiver under subparagraph (A) and, in such case, 
the Secretary shall impose a timetable for such State with 
respect to compliance with the provisions of this subsection 
and the imposition of per centum reductions. Such timetable 
shall be comparable to the timetable established under this 
subsection as to the amount of time allowed such State to 
comply and the timing of per centum reductions.
  [(8)(A) The per centum reductions provided for under this 
subsection shall not apply to a State for any quarter with 
respect to which the Secretary determines that such State is 
unable to comply with the relevant requirements of this 
subsection--
          [(i) for good cause (but such a waiver may not be for 
        a period in excess of 2 quarters), or
          [(ii) due to circumstances beyond the control of such 
        State.
  [(B) If the Secretary determines under subparagraph (A) that 
such a reduction will not apply to a State, the Secretary shall 
report to the Congress on the basis for each such determination 
and on the modification of all time limitations and deadlines 
as described in subparagraph (C).
  [(C) For purposes of determining all time limitations and 
deadlines imposed under this subsection, any time period during 
which a State was found under subparagraph (A)(ii) to be unable 
to comply with requirements of this subsection due to 
circumstances beyond its control shall not be taken into 
account, and the Secretaryshall modify all such time 
limitations and deadlines with respect to such State accordingly.]
          * * * * * * *
  (w)(1) * * *
          * * * * * * *
  (3)(A) * * *
  (B) In this subsection, the term ``broad-based health care 
related tax'' means a health care related tax which is imposed 
with respect to a class of health care items or services (as 
described in paragraph (7)(A)) or with respect to providers of 
such items or services and which, except as provided in 
subparagraphs (D) [and (E)] (E), and (F)--
          (i) * * *
          * * * * * * *
  (F) In no case shall a tax not qualify as a broad-based 
health care related tax under this paragraph because it does 
not apply to a hospital that is exempt from taxation under 
section 501(c)(3) of the Internal Revenue Code of 1986 and that 
does not accept payment under the State plan under this title 
or under title XVIII.
          * * * * * * *

                              DEFINITIONS

  Sec. 1905. For purposes of this title--
  (a) The term ``medical assistance'' means payment of part or 
all of the cost of the following care and services (if provided 
in or after the third month before the month in which the 
recipient makes application for assistance or, in the case of 
medicare cost-sharing with respect to a qualified medicare 
beneficiary described in subsection (p)(1), if provided after 
the month in which the individual becomes such a beneficiary) 
for individuals, and, with respect to physicians' or dentists' 
services, at the option of the State, to individuals (other 
than individuals with respect to whom there is being paid, or 
who are eligible, or would be eligible if they were not in a 
medical institution, to have paid with respect to them a State 
supplementary payment and are eligible for medical assistance 
equal in amount, duration, and scope to the medical assistance 
made available to individuals described in section 
1902(a)(10)(A)) not receiving aid or assistance under any plan 
of the State approved under title I, X, XIV, or XVI, or part A 
of title IV, and with respect to whom supplemental security 
income benefits are not being paid under title XVI, who are--
          (i) under the age of 21, or, at the option of the 
        State, under the age of 20, 19, or 18 as the State may 
        choose,
          * * * * * * *
but whose income and resources are insufficient to meet all of 
such cost--
          (1) * * *
          * * * * * * *
          (22) services furnished by a physician assistant (as 
        defined in section 1861(aa)(5)) which the assistant is 
        legally authorized to perform under State law and with 
        the supervision of a physician;
          [(22)] (23) home and community care (to the extent 
        allowed and as defined in section 1929) for 
        functionally disabled elderly individuals;
          [(23)] (24) community supported living arrangements 
        services (to the extent allowed and as defined in 
        section 1930);
          [(24)] (25) personal care services furnished to an 
        individual who is not an inpatient or resident of a 
        hospital, nursing facility, intermediate care facility 
        for the mentally retarded, or institution for mental 
        disease that are (A) authorized for the individual by a 
        physician in accordance with a plan of treatment or (at 
        the option of the State) otherwise authorized for the 
        individual in accordance with a service plan approved 
        by the State, (B) provided by an individual who is 
        qualified to provide such services and who is not a 
        member of the individual's family, and (C) furnished in 
        a home or other location; [and]
          (26) primary care case management services (as 
        defined in subsection (t));
          (27) services furnished under a PACE program under 
        section 1932 to PACE program eligible individuals 
        enrolled under the program under such section; and
          [(25)] (28) any other medical care, and any other 
        type of remedial care recognized under State law, 
        specified by the Secretary[.],
except as otherwise provided in paragraph (16), such term does 
not include--
          (A) * * *
          * * * * * * *
  (b) The term ``Federal medical assistance percentage'' for 
any State shall be 100 per centum less the State percentage; 
and the State percentage shall be that percentage which bears 
the same ratio to 45 per centum as the square of the per capita 
income of such State bears to the square of the per capita 
income of the continental United States (including Alaska) and 
Hawaii; except that (1) the Federal medical assistance 
percentage shall in no case be less than 50 per centum or more 
than 83 per centum, and (2) the Federal medical assistance 
percentage for Puerto Rico, the Virgin Islands, Guam, the 
Northern Mariana Islands, and American Samoa shall be 50 per 
centum. The Federal medical assistance percentage for any State 
shall be determined and promulgated in accordance with the 
provisions of section 1101(a)(8)(B). Notwithstanding the first 
sentence of this section, the Federal medical assistance 
percentage shall be 100 per centum with respect to amounts 
expended as medical assistance for services which are received 
through an Indian Health Service facility whether operated by 
the Indian Health Service or by an Indian tribe or tribal 
organization (as defined in section 4 of the Indian Health Care 
Improvement Act) and with respect to amounts expended for 
medical assistance described in section 1902(a)(10)(E)(iv) for 
individuals described in such section.
          * * * * * * *
  (l)(1) * * *
  (2)(A) * * *
  (B) The term ``Federally-qualified health center'' means a 
entity which--
          (i) * * *
          * * * * * * *
          (iii) based on the recommendation of the Health 
        Resources and Services Administration within the Public 
        Health Service, is determined by the Secretary to meet 
        the requirements for receiving such a grant and is not 
        other than an entity that is owned, controlled, or 
        operated by another provider, or
          * * * * * * *
  (t)(1) The term ``primary care case management services'' 
means case-management related services (including coordination 
and monitoring of health care services) provided by a primary 
care case manager under a primary care case management 
contract.
  (2)(A) The term ``primary care case manager'' means, with 
respect to a primary care case management contract, a provider 
described in subparagraph (B).
  (B) A provider described in this subparagraph is a provider 
that provides primary care case management services under 
contract and is--
          (i) a physician, a physician group practice, or an 
        entity employing or having other arrangements with 
        physicians; or
          (ii) at State option--
                  (I) a nurse practitioner (as described in 
                section 1905(a)(21));
                  (II) a certified nurse-midwife (as defined in 
                section 1861(gg)); or
                  (III) a physician assistant (as defined in 
                section 1861(aa)(5)).
  (3) The term ``primary care case management contract'' means 
a contract with a State agency under which a primary care case 
manager undertakes to locate, coordinate and monitor covered 
primary care (and such other covered services as may be 
specified under the contract) to all individuals enrolled with 
the primary care case manager, and which provides for--
          (A) reasonable and adequate hours of operation, 
        including 24-hour availability of information, 
        referral, and treatment with respect to medical 
        emergencies;
          (B) restriction of enrollment to individuals residing 
        sufficiently near a service delivery site of the entity 
        to be able to reach that site within a reasonable time 
        using available and affordable modes of transportation;
          (C) employment of, or contracts or other arrangements 
        with, sufficient numbers of physicians and other 
        appropriate health care professionals to ensure that 
        services under the contract can be furnished to 
        enrollees promptly and without compromise to quality of 
        care;
          (D) a prohibition on discrimination on the basis of 
        health status or requirements for health services in 
        enrollment, disenrollment, or reenrollment of 
        individuals eligible for medical assistance under this 
        title;
          (E) a right for an enrollee to terminate enrollment 
        without cause during the first month of each enrollment 
        period, which period shall not exceed six months in 
        duration, and to terminate enrollment at any time for 
        cause; and
          (F) if payment is made to the organization on a 
        prepaid capitated or other risk basis, compliance with 
        the requirements of section 1903(m)(2)(A)(xii) in the 
        same manner such requirements apply to a health 
        maintenance organization under section 1903(m)(2)(A).
  (4) For purposes of this subsection, the term ``primary 
care'' includes all health care services customarily provided 
in accordance with State licensure and certification laws and 
regulations, and all laboratory services customarily provided 
by or through, a general practitioner, family medicine 
physician, internal medicine physician, obstetrician/
gynecologist, or pediatrician.
          * * * * * * *

           Enrollment of individuals under group health plans

  Sec. 1906. (a) [For purposes of section 1902(a)(25)(G) and 
subject to subsection (d), each] Each State plan--
          (1) [shall] may implement guidelines established by 
        the Secretary, consistent with subsection (b), to 
        identify those cases in which enrollment of an 
        individual otherwise entitled to medical assistance 
        under this title in a group health plan (in which the 
        individual is otherwise eligible to be enrolled) is 
        cost-effective (as defined in subsection (e)(2));
          (2) [shall] may require, in case of an individual so 
        identified and as a condition of the individual being 
        or remaining eligible for medical assistance under this 
        title and subject to subsection (b)(2), notwithstanding 
        any other provision of this title, that the individual 
        (or in the case of a child, the child's parent) apply 
        for enrollment in the group health plan; and
          * * * * * * *
  [(d)(1) In the case of any State which is providing medical 
assistance to its residents under a waiver granted under 
section 1115, the Secretary shall require the State to meet the 
requirements of this section in the same manner as the State 
would be required to meet such requirement if the State had in 
effect a plan approved under this title.
  [(2) This section, and section 1902(a)(25)(G), shall only 
apply to a State that is one of the 50 States or the District 
of Columbia.]
          * * * * * * *

      provisions respecting inapplicability and waiver of certain 
                       requirements of this title

  Sec. 1915. (a) A State shall not be deemed to be out of 
compliance with the requirements of paragraphs (1), (10), or 
(23) of section 1902(a) solely by reason of the fact that the 
State (or any political subdivision thereof)--
          (1) has entered into--
                  (A) a contract with an organization which has 
                agreed to provide care and services in addition 
                to those offeredunder the State plan to 
individuals eligible for medical assistance who reside in the 
geographic area served by such organization and who elect to obtain 
such care and services from such organization, or by reason of the fact 
that the plan provides for payment for rural health clinic services 
only if those services are provided by a rural health clinic; or
                  (B) arrangements through a competitive 
                bidding process or otherwise for the purchase 
                of laboratory services referred to in section 
                1905(a)(3) or medical devices if the Secretary 
                has found that--
                          (i) adequate services or devices will 
                        be available under such arrangements, 
                        and
                          (ii) any such laboratory services 
                        will be provided only through 
                        laboratories--
                                  (I) which meet the applicable 
                                requirements of section 
                                1861(e)(9) or paragraphs (15) 
                                and (16) of section 1861(s), 
                                and such additional 
                                requirements as the Secretary 
                                may require, and
                                  (II) no more than 75 percent 
                                of whose charges for such 
                                services are for services 
                                provided to individuals who are 
                                entitled to benefits under this 
                                title or under part A or part B 
                                of title XVIII; [or]
          (2) restricts for a reasonable period of time the 
        provider or providers from which an individual 
        (eligible for medical assistance for items or services 
        under the State plan) can receive such items or 
        services, if--
                  (A) the State has found, after notice and 
                opportunity for a hearing (in accordance with 
                procedures established by the State), that the 
                individual has utilized such items or services 
                at a frequency or amount not medically 
                necessary (as determined in accordance with 
                utilization guidelines established by the 
                State), and
                  (B) under such restriction, individuals 
                eligible for medical assistance for such 
                services have reasonable access (taking into 
                account geographic location and reasonable 
                travel time) to such services of adequate 
                quality[.]; or
          (3) requires individuals, other than special needs 
        children (as defined in subsection (i)), eligible for 
        medical assistance for items or services under the 
        State plan to enroll with an entity that provides or 
        arranges for services for enrollees under a contract 
        pursuant to section 1903(m), or with a primary care 
        case manager (as defined in section 1905(t)(2)) (or 
        restricts the number of provider agreements with those 
        entities under the State plan, consistent with quality 
        of care), if--
                  (A) the State permits an individual to choose 
                the manager or managed care entity from among 
                the managed care organizations and primary care 
                case providers who meet the requirements of 
                this title;
                  (B)(i) individuals are permitted to choose 
                between at least 2 of those entities, or 2 of 
                the managers, or an entity and a manager, each 
                of which has sufficient capacity to provide 
                services to enrollees; or
                  (ii) with respect to a rural area--
                          (I) individuals who are required to 
                        enroll with a single entity are 
                        afforded the option to obtain covered 
                        services by an alternative provider; 
                        and
                          (II) an individual who is offered no 
                        alternative to a single entity or 
                        manager is given a choice between at 
                        least two providers within the entity 
                        or through the manager;
                  (C) no individual who is an Indian (as 
                defined in section 4 of the Indian Health Care 
                Improvement Act of 1976) is required to enroll 
                in any entity that is not one of the following 
                (and only if such entity is participating under 
                the plan): the Indian Health Service, an Indian 
                health program operated by an Indian tribe or 
                tribal organization pursuant to a contract, 
                grant, cooperative agreement, or compact with 
                the Indian Health Service pursuant to the 
                Indian Self-Determination Act (25 U.S.C. 450 et 
                seq.), or an urban Indian health program 
                operated by an urban Indian organization 
                pursuant to a grant or contract with the Indian 
                Health Service pursuant to title V of the 
                Indian Health Care Improvement Act (25 U.S.C. 
                1601 et seq.);
                  (D) the State restricts those individuals 
                from changing their enrollment without cause 
                for periods no longer than six months (and 
                permits enrollees to change enrollment for 
                cause at any time);
                  (E) the restrictions do not apply to 
                providers of family planning services (as 
                defined in section 1905(a)(4)(C)) and are not 
                conditions for payment of medicare cost sharing 
                pursuant to section 1905(p)(3); and
                  (F) prior to establishing an enrollment 
                requirement under this paragraph, the State 
                agency provides for public notice and comment 
                pursuant to requirements established by the 
                Secretary.
          * * * * * * *
  (c)(1) * * *
          * * * * * * *
  (5) For purposes of paragraph (4)(B), the term ``habilitation 
services''[, with respect to individuals who receive such 
services after discharge from a nursing facility or 
intermediate care facility for the mentally retarded]--
          (A) * * *
          * * * * * * *
  (i) For purposes of subsection (a)(3), the term ``special 
needs child'' means an individual under 19 years of age who--
          (1) is eligible for supplemental security income 
        under title XVI,
          (2) is described in section 501(a)(1)(D),
          (3) is described in section 1902(e)(3), or
          (4) is in foster care or otherwise in an out-of-home 
        placement.

use of enrollment fees, premiums, deductions, cost sharing, and similar 
                                charges

  Sec. 1916. (a) The State plan shall provide that in the case 
of individuals described in subparagraph (A) or (E)(i) of 
section 1902(a)(10) who are eligible under the plan--
          (1) no enrollment fee, premium, or similar charge 
        will be imposed under the plan (except for a premium 
        imposed under subsection (c));
          (2) no deduction, cost sharing or similar charge will 
        be imposed under the plan with respect to--
                  (A) * * *
          * * * * * * *
                  (D) emergency services (as defined by the 
                Secretary), family planning services and 
                supplies described in section 1905(a)(4)(C), or 
                (at the option of the State) services furnished 
                to such an individual by a health maintenance 
                organization (as defined in section 1903(m)) in 
                which he is enrolled, or
          * * * * * * *

                  REQUIREMENTS FOR NURSING FACILITIES

  Sec. 1919. (a) * * *
          * * * * * * *
  (h) Enforcement Process.--
          (1) * * *
          * * * * * * *
          (3) Secretarial authority.--
                  (A) * * *
          * * * * * * *
                  (D) 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 
                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, and
                          (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 State 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.
          * * * * * * *

  adjustment in payment for inpatient hospital services furnished by 
                    disproportionate share hospitals

  Sec. 1923. (a) Implementation of Requirement.--
          (1) A State plan under this title shall not be 
        considered to meet the requirement of section 
        1902(a)(13)(A) (insofar as it requires payments to 
        hospitals to take into account the situation of 
        hospitals which serve a disproportionate number of low 
        income patients with special needs), as of July 1, 
        1988, unless the State has submitted to the Secretary, 
        by not later than such date, an amendment to such plan 
        that--
                  (A) specifically defines the hospitals so 
                described (and includes in such definition any 
                disproportionate share hospital described in 
                subsection (b)(1) which meets the requirements 
                of subsection (d)), [and]
                  (B) provides, effective for inpatient 
                hospital services provided not later than July 
                1, 1988, for an appropriate increase in the 
                rate or amount of payment for such services 
                provided by such hospitals, consistent with 
                subsection (c)[.], and
                  (C) provides that payment adjustments under 
                the plan under this section for services 
                furnished by a hospital on or after October 1, 
                1997, for individuals entitled to benefits 
                under the plan, and enrolled with an entity 
                described in section 1903(m), under a primary 
                care case management system (described in 
                section 1905(t)), or other managed care plan--
                          (i) are made directly to the hospital 
                        by the State, and
                          (ii) are not used as part of, and are 
                        disregarded in determining the amount 
                        of, prepaid capitation paid under the 
                        State plan with respect to those 
                        services.
          * * * * * * *
  (f) Denial of Federal Financial Participation for Payments in 
Excess of Certain Limits.--
          (1) * * *
          (2) Determination of state dsh allotments.--
                  (A) In general.--Subject to subparagraph (B) 
                and paragraph (5), the State DSH allotment for 
                a fiscal year is equal to the State DSH 
                allotment for the previous fiscal year (or, for 
                fiscal year 1993, the State base allotment as 
                defined in paragraph (4)(C)), increased by--
                          (i) * * *
          * * * * * * *
          (5) Adjustments in dsh allotments.--
                  (A) Allotment frozen for states with very low 
                dsh expenditures.--In the case of a State for 
                which its State 1995 DSH spending did not 
                exceed 1 percent of thetotal amount 
expenditures made under the State plan under this title for medical 
assistance during fiscal year 1995 (as reported by the State no later 
than January 1, 1997, on HCFA Form 64), the DSH allotment for each of 
fiscal years 1998 through 2002 is equal to its State 1995 DSH spending.
                  (B) Full reduction for high dsh states.--In 
                the case of a State which was classified under 
                this subsection as a high DSH State for fiscal 
                year 1997, the DSH allotment for each of fiscal 
                years 1998 through 2002 is equal to the State 
                1995 DSH spending reduced by the full reduction 
                percentage (described in subparagraph (D)) for 
                the fiscal year involved.
                  (C) Half-reduction for other states.--In the 
                case of a State not described in subparagraph 
                (A) or (B), the DSH allotment for each of 
                fiscal years 1998 through 2002 is equal to the 
                State 1995 DSH spending reduced by \1/2\ of the 
                full reduction percentage for the fiscal year 
                involved.
                  (D) Full reduction percentage.--For purposes 
                of this paragraph, the ``full reduction 
                percentage'' for--
                          (i) fiscal year 1998 is 2 percent,
                          (ii) fiscal year 1999 is 5 percent,
                          (iii) fiscal year 2000 is 20 percent,
                          (iv) fiscal year 2001 is 30 percent, 
                        and
                          (v) fiscal year 2002 is 40 percent.
                  (E) Definitions.-- In this paragraph:
                          (i) State.--The term ``State'' means 
                        the 50 States and the District of 
                        Columbia.
                          (ii) State 1995 dsh spending.--The 
                        term ``State 1995 DSH spending'' means, 
                        with respect to a State, the total 
                        amount of payment adjustments made 
                        under subsection (c) under the State 
                        plan during fiscal year 1995 as 
                        reported by the State no later than 
                        January 1, 1997, on HCFA Form 64.
          * * * * * * *

treatment of income and resources for certain institutionalized spouses

  Sec. 1924. (a) Special Treatment for Institutionalized 
Spouses.--
          (1) * * *
          * * * * * * *
          (5) Application to individuals receiving services 
        [from organizations receiving certain waivers] under 
        pace programs.--This section applies to individuals 
        receiving institutional or noninstitutional services 
        [from any organization receiving a frail elderly 
        demonstration project waiver under section 9412(b) of 
        the Omnibus Budget Reconciliation Act of 1986 or a 
        waiver under section 603(c) of the Social Security 
        Amendments of 1983.] under a PACE demonstration waiver 
        program (as defined in subsection (a)(7) of section 
        1932) or under a PACE program under section 1894.
          * * * * * * *

                  payment for covered outpatient drugs

  Sec. 1927. (a) * * *
          * * * * * * *
  (g) Drug Use Review.--
          (1) In general.--
                  (A) * * *
                  (B) The program shall assess data on drug use 
                against predetermined standards, consistent 
                with the following:
                          (i) compendia which shall consist of 
                        the following:
                                  (I) American Hospital 
                                Formulary Service Drug 
                                Information;
                                  (II) United States 
                                Pharmacopeia-Drug Information; 
                                [and]
                                  (III) the DRUGDEX Information 
                                System; and
                                  [(III)] (IV) American Medical 
                                Association Drug Evaluations; 
                                and
                          (ii) the peer-reviewed medical 
                        literature.
          * * * * * * *


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


  Sec. 1932. (a) Option.--
          (1) In general.--A State may elect to provide medical 
        assistance under this section with respect to PACE 
        program services to PACE program eligible individuals 
        who are eligible for medical assistance under the State 
        plan and who are enrolled in a PACE program under a 
        PACE program agreement. Such individuals need not be 
        eligible for benefits under part A, or enrolled under 
        part B, of title XVIII to be eligible to enroll under 
        this section. In the case of an individual enrolled 
        with a PACE program pursuant to such an election--
                  (A) the individual shall receive benefits 
                under the plan solely through such program, and
                  (B) the PACE provider shall receive payment 
                in accordance with the PACE program agreement 
                for provision of such benefits.
        A State may limit through its PACE program agreement 
        the number of individuals who may be enrolled in a PACE 
        program under the State plan.
          (2) PACE program defined.--For purposes of this 
        section and section 1894, the term ``PACE program'' 
        means a program of all-inclusive care for the elderly 
        that meets the following requirements:
                  (A) Operation.--The entity operating the 
                program is a PACE provider (as defined in 
                paragraph (3)).
                  (B) Comprehensive benefits.--The program 
                provides comprehensive health care services to 
                PACE program eligible individuals in accordance 
                with the PACE program agreement and regulations 
                under this section.
                  (C) Transition.--In the case of an individual 
                who is enrolled under the program under this 
                section and whose enrollment ceases for any 
                reason (including the individual no longer 
                qualifies as a PACE program eligible 
                individual, the termination of a PACE program 
                agreement, or otherwise), the program provides 
                assistance to the individual in obtaining 
                necessary transitional care through appropriate 
                referrals and making the individual's medical 
                records available to new providers.
          (3) PACE provider defined.--
                  (A) In general.--For purposes of this 
                section, the term ``PACE provider'' means an 
                entity that--
                          (i) subject to subparagraph (B), is 
                        (or is a distinct part of) a public 
                        entity or a private, nonprofit entity 
                        organized for charitable purposes under 
                        section 501(c)(3) of the Internal 
                        Revenue Code of 1986, and
                          (ii) has entered into a PACE program 
                        agreement with respect to its operation 
                        of a PACE program.
                  (B) Treatment of private, for-profit 
                providers.--Clause (i) of subparagraph (A) 
                shall not apply--
                          (i) to entities subject to a 
                        demonstration project waiver under 
                        subsection (h); and
                          (ii) after the date the report under 
                        section 4014(b) of the Balanced Budget 
                        Act of 1997 is submitted, unless the 
                        Secretary determines that any of the 
                        findings described in subparagraph (A), 
                        (B), (C) or (D) of paragraph (2) of 
                        such section are true.
          (4) PACE program agreement defined.--For purposes of 
        this section, the term ``PACE program agreement'' 
        means, with respect to a PACE provider, an agreement, 
        consistent with this section, section 1894 (if 
        applicable), and regulations promulgated to carry out 
        such sections, between the PACE provider, the 
        Secretary, and a State administering agency for the 
        operation of a PACE program by the provider under such 
        sections.
          (5) PACE program eligible individual defined.--For 
        purposes of this section, the term ``PACE program 
        eligible individual'' means, with respect to a PACE 
        program, an individual who--
                  (A) is 55 years of age or older;
                  (B) subject to subsection (c)(4), is 
                determined under subsection (c) to require the 
                level of care required under the State medicaid 
                plan for coverage of nursing facility services;
                  (C) resides in the service area of the PACE 
                program; and
                  (D) meets such other eligibility conditions 
                as may be imposed under the PACE program 
                agreement for the program under subsection 
                (e)(2)(A)(ii).
          (6) PACE protocol.--For purposes of this section, the 
        term ``PACE protocol'' means the Protocol for the 
        Program of All-inclusive Care for the Elderly (PACE), 
        as published by On Lok, Inc., as of April 14, 1995.
          (7) PACE demonstration waiver program defined.--For 
        purposes of this section, the term ``PACE demonstration 
        waiver program'' means a demonstration program under 
        either of the following sections (as in effect before 
        the date of their repeal):
                  (A) Section 603(c) of the Social Security 
                Amendments of 1983 (Public Law 98-21), as 
                extended by section 9220 of the Consolidated 
                Omnibus Budget Reconciliation Act of 1985 
                (Public Law 99-272).
                  (B) Section 9412(b) of the Omnibus Budget 
                Reconciliation Act of 1986 (Public Law 99-509).
          (8) State administering agency defined.--For purposes 
        of this section, the term ``State administering 
        agency'' means, with respect to the operation of a PACE 
        program in a State, the agency of that State (which may 
        be the single agency responsible for administration of 
        the State plan under this title in the State) 
        responsible for administering PACE program agreements 
        under this section and section 1894 in the State.
          (9) Trial period defined.--
                  (A) In general.--For purposes of this 
                section, the term ``trial period'' means, with 
                respect to a PACE program operated by a PACE 
                provider under a PACE program agreement, the 
                first 3 contract years under such agreement 
                with respect to such program.
                  (B) Treatment of entities previously 
                operating pace demonstration waiver programs.--
                Each contract year (including a year occurring 
                before the effective date of this section) 
                during which an entity has operated a PACE 
                demonstration waiver program shall be counted 
                under subparagraph (A) as a contract year 
                during which the entity operated a PACE program 
                as a PACE provider under a PACE program 
                agreement.
          (10) Regulations.--For purposes of this section, the 
        term ``regulations'' refers to interim final or final 
        regulations promulgated under subsection (f) to carry 
        out this section and section 1894.
  (b) Scope of Benefits; Beneficiary Safeguards.--
          (1) In general.--Under a PACE program agreement, a 
        PACE provider shall--
                  (A) provide to PACE program eligible 
                individuals, regardless of source of payment 
                and directly or under contracts with other 
                entities, at a minimum--
                          (i) all items and services covered 
                        under title XVIII (for individuals 
                        enrolled under section 1894) and all 
                        items and services covered under this 
                        title, but without any limitation or 
                        condition as to amount, duration, or 
                        scope and without application of 
                        deductibles, copayments, coinsurance, 
                        or other cost-sharing that would 
                        otherwise apply under such title or 
                        this title, respectively; and
                          (ii) all additional items and 
                        services specified in regulations, 
                        based upon those required under the 
                        PACE protocol;
                  (B) provide such enrollees access to 
                necessary covered items and services 24 hours 
                per day, every day of the year;
                  (C) provide services to such enrollees 
                through a comprehensive, multidisciplinary 
                health and social servicesdelivery system which 
integrates acute and long-term care services pursuant to regulations; 
and
                  (D) specify the covered items and services 
                that will not be provided directly by the 
                entity, and to arrange for delivery of those 
                items and services through contracts meeting 
                the requirements of regulations.
          (2) Quality assurance; patient safeguards.--The PACE 
        program agreement shall require the PACE provider to 
        have in effect at a minimum--
                  (A) a written plan of quality assurance and 
                improvement, and procedures implementing such 
                plan, in accordance with regulations, and
                  (B) written safeguards of the rights of 
                enrolled participants (including a patient bill 
                of rights and procedures for grievances and 
                appeals) in accordance with regulations and 
                with other requirements of this title and 
                Federal and State law designed for the 
                protection of patients.
  (c) Eligibility Determinations.--
          (1) In general.--The determination of whether an 
        individual is a PACE program eligible individual--
                  (A) shall be made under and in accordance 
                with the PACE program agreement, and
                  (B) who is entitled to medical assistance 
                under this title, shall be made (or who is not 
                so entitled, may be made) by the State 
                administering agency.
          (2) Condition.--An individual is not a PACE program 
        eligible individual (with respect to payment under this 
        section) unless the individual's health status has been 
        determined, in accordance with regulations, to be 
        comparable to the health status of individuals who have 
        participated in the PACE demonstration waiver programs. 
        Such determination shall be based upon information on 
        health status and related indicators (such as medical 
        diagnoses and measures of activities of daily living, 
        instrumental activities of daily living, and cognitive 
        impairment) that are part of a uniform minimum data set 
        collected by PACE providers on potential eligible 
        individuals.
          (3) Annual eligibility recertifications.--
                  (A) In general.--Subject to subparagraph (B), 
                the determination described in subsection 
                (a)(5)(B) for an individual shall be 
                reevaluated at least once a year.
                  (B) Exception.--The requirement of annual 
                reevaluation under subparagraph (A) may be 
                waived during a period in accordance with 
                regulations in those cases where the State 
                administering agency determines that there is 
                no reasonable expectation of improvement or 
                significant change in an individual's condition 
                during the period because of the advanced age, 
                severity of the advanced age, severity of 
                chronic condition, or degree of impairment of 
                functional capacity of the individual involved.
          (4) Continuation of eligibility.--An individual who 
        is a PACE program eligible individual may be deemed to 
        continue to be such an individual notwithstanding a 
        determination that the individual no longer meets the 
        requirement of subsection (a)(5)(B) if, in accordance 
        with regulations, in the absence of continued coverage 
        under a PACE program the individual reasonably would be 
        expected to meet such requirement within the succeeding 
        6-month period.
          (5) Enrollment; disenrollment.--The enrollment and 
        disenrollment of PACE program eligible individuals in a 
        PACE program shall be pursuant to regulations and the 
        PACE program agreement and shall permit enrollees to 
        voluntarily disenroll without cause at any time.
  (d) Payments to PACE Providers on a Capitated Basis.--
          (1) In general.--In the case of a PACE provider with 
        a PACE program agreement under this section, except as 
        provided in this subsection or by regulations, the 
        State shall make prospective monthly payments of a 
        capitation amount for each PACE program eligible 
        individual enrolled under the agreement under this 
        section.
          (2) Capitation amount.--The capitation amount to be 
        applied under this subsection for a provider for a 
        contract year shall be an amount specified in the PACE 
        program agreement for the year. Such amount shall be an 
        amount, specified under the PACE agreement, which is 
        less than the amount that would otherwise have been 
        made under the State plan if the individuals were not 
        so enrolled and shall be adjusted to take into account 
        the comparative frailty of PACE enrollees and such 
        other factors as the Secretary determines to be 
        appropriate. The payment under this section shall be in 
        addition to any payment made under section 1894 for 
        individuals who are enrolled in a PACE program under 
        such section.
  (e) PACE Program Agreement.--
          (1) Requirement.--
                  (A) In general.--The Secretary, in close 
                cooperation with the State administering 
                agency, shall establish procedures for entering 
                into, extending, and terminating PACE program 
                agreements for the operation of PACE programs 
                by entities that meet the requirements for a 
                PACE provider under this section, section 1894, 
                and regulations.
                  (B) Numerical limitation.--
                          (i) In general.--The Secretary shall 
                        not permit the number of PACE providers 
                        with which agreements are in effect 
                        under this section or under section 
                        9412(b) of the Omnibus Budget 
                        Reconciliation Act of 1986 to exceed--
                                  (I) 40 as of the date of the 
                                enactment of this section, or
                                  (II) as of each succeeding 
                                anniversary of such date, the 
                                numerical limitation under this 
                                subparagraph for the preceding 
                                year plus 20.
                        Subclause (II) shall apply without 
                        regard to the actual number of 
                        agreements in effect as of a previous 
                        anniversary date.
                          (ii) Treatment of certain private, 
                        for-profit providers.--The numerical 
                        limitation in clause (i) shall not 
                        apply to a PACE provider that--
                                  (I) is operating under a 
                                demonstration project waiver 
                                under subsection (h), or
                                  (II) was operating under such 
                                a waiver and subsequently 
                                qualifies for PACE provider 
                                status pursuant to subsection 
                                (a)(3)(B)(ii).
          (2) Service area and eligibility.--
                  (A) In general.--A PACE program agreement for 
                a PACE program--
                          (i) shall designate the service area 
                        of the program;
                          (ii) may provide additional 
                        requirements for individuals to qualify 
                        as PACE program eligible individuals 
                        with respect to the program;
                          (iii) shall be effective for a 
                        contract year, but may be extended for 
                        additional contract years in the 
                        absence of a notice by a party to 
                        terminate and is subject to termination 
                        by the Secretary and the State 
                        administering agency at any time for 
                        cause (as provided under the 
                        agreement);
                          (iv) shall require a PACE provider to 
                        meet all applicable State and local 
                        laws and requirements; and
                          (v) shall have such additional terms 
                        and conditions as the parties may agree 
                        to consistent with this section and 
                        regulations.
                  (B) Service area overlap.--In designating a 
                service area under a PACE program agreement 
                under subparagraph (A)(i), the Secretary (in 
                consultation with the State administering 
                agency) may exclude from designation an area 
                that is already covered under another PACE 
                program agreement, in order to avoid 
                unnecessary duplication of services and avoid 
                impairing the financial and service viability 
                of an existing program.
          (3) Data collection.--
                  (A) In general.--Under a PACE program 
                agreement, the PACE provider shall--
                          (i) collect data,
                          (ii) maintain, and afford the 
                        Secretary and the State administering 
                        agency access to, the records relating 
                        to the program, including pertinent 
                        financial, medical, and personnel 
                        records, and
                          (iii) make to the Secretary and the 
                        State administering agency reports that 
                        the Secretary finds (in consultation 
                        with State administering agencies) 
                        necessary to monitor the operation, 
                        cost, and effectiveness of the PACE 
                        program under this title and title 
                        XVIII.
                  (B) Requirements during trial period.--During 
                the first three years of operation of a PACE 
                program (either under this section or under a 
                PACE demonstration waiver program), the PACE 
                provider shall provide such additional data as 
                the Secretary specifies in regulations in order 
                to perform the oversight required under 
                paragraph (4)(A).
          (4) Oversight.--
                  (A) Annual, close oversight during trial 
                period.--During the trial period (as defined in 
                subsection (a)(9)) with respect to a PACE 
                program operated by a PACE provider, the 
                Secretary (in cooperation with the State 
                administering agency) shall conduct a 
                comprehensive annual review of the operation of 
                the PACE program by the provider in order to 
                assure compliance with the requirements of this 
                section and regulations. Such a review shall 
                include--
                          (i) an on-site visit to the program 
                        site;
                          (ii) comprehensive assessment of a 
                        provider's fiscal soundness;
                          (iii) comprehensive assessment of the 
                        provider's capacity to provide all PACE 
                        services to all enrolled participants;
                          (iv) detailed analysis of the 
                        entity's substantial compliance with 
                        all significant requirements of this 
                        section and regulations; and
                          (v) any other elements the Secretary 
                        or State agency considers necessary or 
                        appropriate.
                  (B) Continuing oversight.--After the trial 
                period, the Secretary (in cooperation with the 
                State administering agency) shall continue to 
                conduct such review of the operation of PACE 
                providers and PACE programs as may be 
                appropriate, taking into account the 
                performance level of a provider and compliance 
                of a provider with all significant requirements 
                of this section and regulations.
                  (C) Disclosure.--The results of reviews under 
                this paragraph shall be reported promptly to 
                the PACE provider, along with any 
                recommendations for changes to the provider's 
                program, and shall be made available to the 
                public upon request.
          (5) Termination of pace provider agreements.--
                  (A) In general.--Under regulations--
                          (i) the Secretary or a State 
                        administering agency may terminate a 
                        PACE program agreement for cause, and
                          (ii) a PACE provider may terminate 
                        such an agreement after appropriate 
                        notice to the Secretary, the State 
                        agency, and enrollees.
                  (B) Causes for termination.--In accordance 
                with regulations establishing procedures for 
                termination of PACE program agreements, the 
                Secretary or a State administering agency may 
                terminate a PACE program agreement with a PACE 
                provider for, among other reasons, the fact 
                that--
                          (i) the Secretary or State 
                        administering agency determines that--
                                  (I) there are significant 
                                deficiencies in the quality of 
                                care provided to enrolled 
                                participants; or
                                  (II) the provider has failed 
                                to comply substantially with 
                                conditions for a program or 
                                provider under this section or 
                                section 1894; and
                          (ii) the entity has failed to develop 
                        and successfully initiate, within 30 
                        days of the date of the receipt of 
                        written notice of such a determination, 
                        and continue implementation of a plan 
                        to correct the deficiencies.
                  (C) Termination and transition procedures.--
                An entity whose PACE provider agreement is 
                terminated underthis paragraph shall implement 
the transition procedures required under subsection (a)(2)(C).
          (6) Secretary's oversight; enforcement authority.--
                  (A) In general.--Under regulations, if the 
                Secretary determines (after consultation with 
                the State administering agency) that a PACE 
                provider is failing substantially to comply 
                with the requirements of this section and 
                regulations, the Secretary (and the State 
                administering agency) may take any or all of 
                the following actions:
                          (i) Condition the continuation of the 
                        PACE program agreement upon timely 
                        execution of a corrective action plan.
                          (ii) Withhold some or all further 
                        payments under the PACE program 
                        agreement under this section or section 
                        1894 with respect to PACE program 
                        services furnished by such provider 
                        until the deficiencies have been 
                        corrected.
                          (iii) Terminate such agreement.
                  (B) Application of intermediate sanctions.--
                Under regulations, the Secretary may provide 
                for the application against a PACE provider of 
                remedies described in section 1857(f)(2) (or, 
                for periods before January 1, 1999, section 
                1876(i)(6)(B)) or 1903(m)(6)(B) in the case of 
                violations by the provider of the type 
                described in section 1857(f)(1) (or 
                1876(i)(6)(A) for such periods) or 
                1903(m)(6)(A), respectively (in relation to 
                agreements, enrollees, and requirements under 
                section 1894 or this section, respectively).
          (7) Procedures for termination or imposition of 
        sanctions.--Under regulations, the provisions of 
        section 1857(g) (or for periods before January 1, 1999, 
        section 1876(i)(9)) shall apply to termination and 
        sanctions respecting a PACE program agreement and PACE 
        provider under this subsection in the same manner as 
        they apply to a termination and sanctions with respect 
        to a contract and a MedicarePlus organization under 
        part C (or for such periods an eligible organization 
        under section 1876).
          (8) Timely consideration of applications for pace 
        program provider status.--In considering an application 
        for PACE provider program status, the application shall 
        be deemed approved unless the Secretary, within 90 days 
        after the date of the submission of the application to 
        the Secretary, either denies such request in writing or 
        informs the applicant in writing with respect to any 
        additional information that is needed in order to make 
        a final determination with respect to the application. 
        After the date the Secretary receives such additional 
        information, the application shall be deemed approved 
        unless the Secretary, within 90 days of such date, 
        denies such request.
  (f) Regulations.--
          (1) In general.--The Secretary shall issue interim 
        final or final regulations to carry out this section 
        and section 1894.
          (2) Use of pace protocol.--
                  (A) In general.--In issuing such regulations, 
                the Secretary shall, to the extent consistent 
                with the provisions of this section, 
                incorporate the requirements applied to PACE 
                demonstration waiver programs under the PACE 
                protocol.
                  (B) Flexibility.--The Secretary (in close 
                consultation with State administering agencies) 
                may modify or waive such provisions of the PACE 
                protocol in order to provide for reasonable 
                flexibility in adapting the PACE service 
                delivery model to the needs of particular 
                organizations (such as those in rural areas or 
                those that may determine it appropriate to use 
                non-staff physicians accordingly to State 
                licensing law requirements) under this section 
                and section 1932 where such flexibility is not 
                inconsistent with and would not impair the 
                essential elements, objectives, and 
                requirements of this section, including--
                          (i) the focus on frail elderly 
                        qualifying individuals who require the 
                        level of care provided in a nursing 
                        facility;
                          (ii) the delivery of comprehensive, 
                        integrated acute and long-term care 
                        services;
                          (iii) the interdisciplinary team 
                        approach to care management and service 
                        delivery;
                          (iv) capitated, integrated financing 
                        that allows the provider to pool 
                        payments received from public and 
                        private programs and individuals; and
                          (v) the assumption by the provider 
                        over time of full financial risk.
          (3) Application of certain additional beneficiary and 
        program protections.--
                  (A) In general.--In issuing such regulations 
                and subject to subparagraph (B), the Secretary 
                may apply with respect to PACE programs, 
                providers, and agreements such requirements of 
                part C of title XVIII (or, for periods before 
                January 1, 1999, section 1876) and section 
                1903(m) relating to protection of beneficiaries 
                and program integrity as would apply to 
                MedicarePlus organizations under such part C 
                (or for such periods eligible organizations 
                under risk-sharing contracts under section 
                1876) and to health maintenance organizations 
                under prepaid capitation agreements under 
                section 1903(m).
                  (B) Considerations.--In issuing such 
                regulations, the Secretary shall--
                          (i) take into account the differences 
                        between populations served and benefits 
                        provided under this section and under 
                        part C of title XVIII (or, for periods 
                        before January 1, 1999, section 1876) 
                        and section 1903(m);
                          (ii) not include any requirement that 
                        conflicts with carrying out PACE 
                        programs under this section; and
                          (iii) not include any requirement 
                        restricting the proportion of enrollees 
                        who are eligible for benefits under 
                        this title or title XVIII.
  (g) Waivers of Requirements.--With respect to carrying out a 
PACE program under this section, the following requirements of 
this title (and regulations relating to such requirements) 
shall not apply:
          (1) Section 1902(a)(1), relating to any requirement 
        that PACE programs or PACE program services be provided 
        in all areas of a State.
          (2) Section 1902(a)(10), insofar as such section 
        relates to comparability of services among different 
        population groups.
          (3) Sections 1902(a)(23) and 1915(b)(4), relating to 
        freedom of choice of providers under a PACE program.
          (4) Section 1903(m)(2)(A), insofar as it restricts a 
        PACE provider from receiving prepaid capitation 
        payments.
  (h) Demonstration Project for For-Profit Entities.--
          (1) In general.--In order to demonstrate the 
        operation of a PACE program by a private, for-profit 
        entity, the Secretary (in close consultation with State 
        administering agencies) shall grant waivers from the 
        requirement under subsection (a)(3) that a PACE 
        provider may not be a for-profit, private entity.
          (2) Similar terms and conditions.--
                  (A) In general.--Except as provided under 
                subparagraph (B), and paragraph (1), the terms 
                and conditions for operation of a PACE program 
                by a provider under this subsection shall be 
                the same as those for PACE providers that are 
                nonprofit, private organizations.
                  (B) Numerical limitation.--The number of 
                programs for which waivers are granted under 
                this subsection shall not exceed 10. Programs 
                with waivers granted under this subsection 
                shall not be counted against the numerical 
                limitation specified in subsection (e)(1)(B).
  (i) Post-Eligibility Treatment of Income.--A State may 
provide for post-eligibility treatment of income for 
individuals enrolled in PACE programs under this section in the 
same manner as a State treats post-eligibility income for 
individuals receiving services under a waiver under section 
1915(c).
  (j) Miscellaneous Provisions.--
          (1) Construction.--Nothing in this section or section 
        1894 shall be construed as preventing a PACE provider 
        from entering into contracts with other governmental or 
        nongovernmental payers for the care of PACE program 
        eligible individuals who are not eligible for benefits 
        under part A, or enrolled under part B, of title XVIII 
        or eligible for medical assistance under this title.


                     determination of hospital stay


  Sec. 1933. (a) In General.--A Medicaid health plan shall 
cover the length of an inpatient hospital stay under this title 
as determined by the attending physician (or other attending 
health care provider to the extent permitted under State law) 
in consultation with the patient to be medically appropriate.
  (b) Construction.--Nothing in this title shall be construed--
          (1) as requiring the provision of inpatient coverage 
        if the attending physician (or other attending health 
        care provider to the extent permitted under State law) 
        and patient determine that a shorter period of hospital 
        stay is medically appropriate, or
          (2) as affecting the application of deductibles and 
        coinsurance.

         REFERENCES TO LAWS DIRECTLY AFFECTING MEDICAID PROGRAM

  Sec. [1931.] 1934. (a) Authority or Requirements to Cover 
Additional Individuals.--For provisions of law which make 
additional individuals eligible for medical assistance under 
this title, see the following:
          (1) AFDC.--(A) Section 402(a)(32) of this Act 
        (relating to individuals who are deemed recipients of 
        aid but for whom a payment is not made).
          * * * * * * *
                              ----------                              


     SECTION 9412 OF THE OMNIBUS BUDGET RECONCILIATION ACT OF 1986

SEC. 9412. WAIVER AUTHORITY FOR CHRONICALLY MENTALLY ILL AND FRAIL 
                    ELDERLY.

  (a) * * *
  [(b) Frail Elderly Demonstration Project Waivers.--
          [(1) The Secretary of Health and Human Services shall 
        grant waivers of certain requirements of titles XVIII 
        and XIX of the Social Security Act to not more than 10 
        public or nonprofit private community-based 
        organizations to enable such organizations to provide 
        comprehensive health care services on a capitated basis 
        to frail elderly patients at risk of 
        institutionalization.
          [(2)(A) Except as provided in subparagraph (B), the 
        terms and conditions of a waiver granted pursuant to 
        this subsection shall be substantially the same as the 
        terms and conditions of the On Lok waiver (referred to 
        in section 603(c) of the Social Security Amendments of 
        1983 and extended by section 9220 of the Consolidated 
        Omnibus Budget Reconciliation Act of 1985), including 
        permitting the organization to assume progressively 
        (over the initial 3-year period of the waiver) the full 
        financial risk.
          [(B) In order to receive a waiver under this 
        subsection, an organization must participate in an 
        organized initiative to replicate the findings of the 
        On Lok long-term care demonstration project (described 
        in section 603(c)(1) of the Social Security Amendments 
        of 1983).
          [(C) Subject to subparagraph (B), any waiver granted 
        pursuant to this subsection shall be for an initial 
        period of 3 years. The Secretary may extend such waiver 
        beyond such initial period for so long as the Secretary 
        finds that the organization complies with the terms and 
        conditions described in subparagraphs (A) and (B).]
                              ----------                              


         SECTION 603 OF THE SOCIAL SECURITY AMENDMENTS OF 1983

            REPORTS, EXPERIMENTS, AND DEMONSTRATION PROJECTS

  Sec. 603. (a) * * *
          * * * * * * *
  [(c) The Secretary shall approve, with appropriate terms and 
conditions as defined by the Secretary, within 30 days after 
the date of enactment of this Act--
          [(1) the risk-sharing application of On Lok Senior 
        Health Services (according to terms and conditions as 
        specified by the Secretary), dated July 2, 1982, for 
        waivers, pursuant to section 222 of the Social Security 
        Amendments of 1972 and section 402(a) of the Social 
        Security Amendments of 1967, of certain requirements of 
        title XVIII of the Social Security Act over a period of 
        36 months in order to carry out a long-term care 
        demonstration project, and
          [(2) the application of the Department of Health 
        Services, State of California, dated November 1, 1982, 
        pursuant to section 1115 of the Social Security Act, 
        for the waiver of certain requirements of title XIX of 
        such Act over a period of 36 months in order to carry 
        out a demonstration project for capitated reimbursement 
        for comprehensive long-term care services involving On 
        Lok Senior Health Services.]
          * * * * * * *
                              ----------                              


 SECTION 9920 OF THE CONSOLIDATED OMNIBUS BUDGET RECONCILIATION ACT OF 
                                  1985

[SEC. 9220. EXTENSION OF ON LOK WAIVER.

  [(a) Continued Approval.--
          [(1) Medicare waivers.--Notwithstanding any 
        limitations contained in section 222 of the Social 
        Security Amendments of 1972 and section 402(a) of the 
        Social Security Amendments of 1967, the Secretary of 
        Health and Human Services shall continue approval of 
        the risk-sharing application (described in section 
        603(c)(1) of Public Law 98-21) for waivers of certain 
        requirements of title XVIII of the Social Security Act 
        after the end of the period described in that section.
          [(2) Medicaid waivers.--Notwithstanding any 
        limitations contained in section 1115 of the Social 
        Security Act, the Secretary shall approve any 
        application of the Department of Health Services, State 
        of California, for a waiver of requirements of title 
        XIX of such Act in order to continue carrying out the 
        demonstration project referred to in section 603(c)(2) 
        of Public Law 98-21 after the end of the period 
        described in that section.
  [(b) Terms, Conditions, and Period of Approval.--The 
Secretary's approval of an application (or renewal of an 
application) under this section--
          [(1) shall be on the same terms and conditions as 
        applied with respect to the corresponding application 
        under section 603(c) of Public Law 98-21 as of July 1, 
        1985, except that requirements relating to collection 
        and evaluation of information for demonstration 
        purposes (and not for operational purposes) shall not 
        apply; and
          [(2) shall remain in effect until such time as the 
        Secretary finds that the applicant no longer complies 
        with the terms and conditions described in paragraph 
        (1).]
          * * * * * * *
                              ----------                              


     SECTION 6408 OF THE OMNIBUS BUDGET RECONCILIATION ACT OF 1989

SEC. 6408. OTHER MEDICAID PROVISIONS.

  (a) Institutions for Mental Diseases.--
          (1) * * *
          * * * * * * *
          (3) Moratorium on treatment of certain facilities.--
        Any determination by the Secretary that Kent Community 
        Hospital Complex in Michigan or Saginaw Community 
        Hospital in Michigan is an institution for mental 
        diseases, for purposes of title XIX of the Social 
        Security Act shall not take effect until December 31, 
        [1995] 2002.
          * * * * * * *
          Committee on Education and the Workforce,
                                  House of Representatives,
                                     Washington, DC, June 13, 1997.
Hon. John R. Kasich,
Chairman, Committee on the Budget, U.S. House of Representatives, 
        Washington, DC.
    Pursuant to the reconciliation directives contained in the 
Conference Report on House Concurrent Resolution 84, the budget 
resolution for fiscal year 1998, I am pleased to transmit 
reconciliation recommendations for programs within the 
jurisdiction of the Committee on Education and the Workforce. 
The recommendations contained in this formal transmission were 
approved by the Full Committee on Thursday, June 12, 1997 by a 
vote of 24 ayes to 20 noes. A copy of the legislation, and 
report, including the Committee Views together with Summary, 
Section by Section Analysis, Ramseyer and other items necessary 
to comply with House Rules are enclosed. Also enclosed are 
dissenting and minority views. Pursuant to your letter of May 
30, 1997, the cost estimate will be forthcoming, but in no 
event later than Monday, June 16, 1997.
    I hope these proposals will be of assistance to your 
committee in meeting the budget reconciliation targets. If you 
have questions or comments, please do not hesitate to call me.
            Sincerely,
                                             Bill Goodling,
                                                          Chairman.
    Enclosures.

                COMMITTEE ON EDUCATION AND THE WORKFORCE

                                Purpose

    The purpose of Title V is to report legislative changes 
that reflect the bipartisan budget agreement approved by the 
President and Congressional leadership in May 1997 and to 
comply with the instructions of the Committee on the Budget to 
make changes in law necessary to achieve the direct spending 
and deficit reduction targets contained in the fiscal year 1998 
concurrent resolution on the budget.

                               Subtitle A

    The purpose of Subtitle A is to comply with the Budget 
Agreement by providing grants to States and localities to 
assist them in helping long-term welfare recipients enter 
employment and independence; and to clarify the application of 
various employment laws to certain welfare-to-work activities; 
to ensure the protection of participants in welfare-to-work 
activities; and to provide States with reasonable flexibility 
to meet work requirements.

                               Subtitle B

    The purpose of Subtitle B is to achieve savings from the 
student loan programs totaling $1,763,000,000 over a five year 
period. The savings are to be achieved by reducing 
administrative expenses associated with the Federal Family 
Education Loan Program and the Federal Direct Student Loan 
Program. The Budget Agreement set forth three areas for 
potential savings. These three areas have been included in 
Subtitle B of the Committee bill and the Committee has complied 
with the Budget Resolution.

                               Subtitle C

    The purpose of Subtitle C is to repeal the Smith Hughes Act 
which is a small, mandatory vocational education program 
thereby complying with the Budget Resolution and the 
Administration's FY98 budget request.

                               Subtitle D

    The purpose of Subtitle D is to deliver further 
improvements in the availability, affordability, and 
accountability of health insurance coverage, building on the 
ERISA provisions included under the Health Insurance 
Portability and Accountability Act (HIPAA). The subtitle amends 
ERISA to include the provisions of The Expanded Portability and 
Health Insurance Coverage Act of 1997 (EPHIC). EPHIC makes key 
health insurance reforms which will expand coverage and stop 
insurance fraud: (1) it would give franchise networks, union 
collectively-bargained plans, bona-fide trade, business and 
professional associations (e.g. chambers of commerce, 
retailers, wholesalers, printers, agricultural workers, 
grocers, churches, etc.) the ability to form large ERISA group 
health plans, thereby gaining the economies-of-scale so as to 
fully-insure or self-insure the workers, spouses and children 
of America's small businesses, just as large and mid-sized 
businesses have been able to do for 23 years since the passage 
of ERISA; and (2) it will end the jurisdictional confusion that 
has led to the proliferation of insurance fraud perpetrated by 
``bogus unions'' and other illegitimate operators by drawing 
bright lines regarding state and federal authority, by making 
legitimate association plans accountable and by adding new 
civil and criminal tools to end fraudulent schemes.

                            Committee Action

                         Subtitles A, B, and C

    On Thursday, June 12, 1997 the Committee, acting pursuant 
to the Conference Report on House Concurrent Resolution 84, 
considered its recommendations for the budget reconciliation. 
The Committee approved a Committee Print containing Subtitles A 
(Welfare to Work provisions), B (Higher Education Act 
provisions) and C (Smith Hughes repeal). The Committee 
favorably approved budget reconciliation recommendations in the 
Committee Print to be transmitted to the Committee on the 
Budget by a recorded vote of 24 ayes to 20 noes.

                               Subtitle D

    The Subcommittee on Employer-Employee Relations held a 
legislative hearing on EPHIC on May 8, 1997. Testimony was 
received from: the Honorable James P. Moran (D-VA, 8th 
District); Jack Faris, President and CEO, National Federation 
of Independent Business; Mary Castro, Vice President, Employee 
Benefits, Independent Grocers Alliance, Inc., Chicago, IL; 
Cathy Hurwit, Deputy Director, Citizen Action; Kathleen 
Sebelius, Commissioner of Insurance, State of Kansas; Donald 
Dressler, President of Insurance Services, Western Growers 
Association, on behalf of The Association Healthcare Coalition, 
Newport Beach, CA; and Jeffrey H. Joseph, Vice President, 
Domestic Policy, U.S. Chamber of Commerce.
    EPHIC was introduced by Representative Harris Fawell as 
H.R. 1515 on May 1, 1997. The bipartisan legislation has over 
140 cosponsors. EPHIC was introduced in the Senate by Senator 
Tim Hutchinson on May 9, 1997 (S. 729).
    On Wednesday, June 11, 1997, the Committee on Education and 
the Workforce discharged H.R. 1515 from subcommittee. On 
Thursday June 12, 1997, the Committee approved it, as amended, 
on a voice vote, and, by a vote of 24 ayes to 20 noes, ordered 
the bill favorably reported and incorporated into subtitle D of 
the reconciliation package transmitted to the Budget Committee 
and ordered reported the bill, amended, to the House of 
Representatives.

                                Summary

                               Subtitle A

    This proposal provides $3 billion, over four years, to 
provide targeted Federal assistance to fund State welfare to 
work services, in accordance with the parameters of the Budget 
Resolution. Under the Committee proposal, the Secretary of 
Labor must distribute 93.5% of welfare to work funds by formula 
to States, based on each State's share of poverty and adults 
receiving assistance under the State's Temporary Assistance to 
Needy Family (TANF) program. In order to qualify for funds, a 
State must match additional federal funds on a $1 (State) per 
$2 (Federal) basis, and submit a plan to the Secretary 
describing how it will spend the funds and the formula for 
distribution of funds within the State. States must distribute 
at least 85% of their allotment to Service Delivery Areas (SDA) 
based on a within State formula devised by the State, which 
must be based primarily on poverty but may also include long 
term welfare dependency and unemployment. Any service delivery 
area which would be allotted less than $100,000 under the 
State's formula will not receive funding; funds will revert to 
the State to be awarded to other areas or sub-areas within the 
SDA. Governors may use up to 15% of their State's allocation to 
fund projects designed to help long-term welfare recipients 
enter the workforce without regard to the within State 
allocation formula. Language in the bill also prohibits private 
industry councils from directly providing services with these 
funds.
    Of the remaining 6.5% of the funds, 5% would be reserved 
for the Secretary of Labor to award a limited number of 
demonstration grants on a competitive basis to private industry 
councils or other political subdivisions of a State. The 
purpose of these demonstration grants is to develop successful 
models for making placements of long-term welfare dependents 
into the workforce. In addition, any funds which were allocated 
by formula to the States but not obligated (because the State 
did not meet the match requirements or for any other reason) 
may be awarded through these competitive grants.
    In addition, 1% of the funds are reserved for Indian tribes 
and .5% is reserved for an evaluation by the Secretary of HHS, 
who must develop an evaluation plan in consultation with the 
Secretaries of Labor and HUD.
    Funds under this proposal may be spent only for job 
creation through public or private sector employment wage 
subsidies, on-the-job training, contracts with job placement 
companies or public job placement programs, job vouchers, and 
job retention or support services if such services are not 
otherwise available. Any entity receiving funds under either 
formula grants or demonstration grants must expend at least 90% 
of funds on participants who will become ineligible for TANF 
assistance within 12 months due to time limits; or have been on 
welfare for a total of at least 30 months; or who meet at least 
two of the following criteria: have not completed high school/
GED and has low skills; require substance abuse treatment for 
employment; or have a poor work history.
    As provided in the budget agreement, the funds available 
under this subtitle are a capped entitlement. The amount 
available for each year are $725 million for fiscal year 1998, 
$1.25 billion for fiscal year 1999, and $1.0 billion for fiscal 
year 2000.

Protections for welfare-to-work participants

    The Committee proposal includes several provisions that 
clarify the application of various employment laws and other 
protections to welfare-to-work participants including those who 
receive assistance from the new funding just described. The 
first amends the ``anti-displacement'' provisions in the 
Welfare Reform law by including provisions which were included 
in the Employment, Training and Literacy Enhancement Act of 
1997, passed on May 16, 1997. These provisions reflect the 
Committee's intention of a single set of federal rules for the 
various federally-funded employment and workforce development 
programs.
    Second, the Committee proposal specifies that federal or 
state health and safety standards that otherwise apply to 
employees of an employer also apply to non-employee 
participants in work activities in workplaces of that employer. 
In addition, the proposal specifies that employees must be 
covered by workers compensation on the same basis as other 
employees, in accordance with state law.
    Third, the proposal adds a provision prohibiting 
discrimination on the basis of gender with regard to 
participants in work activities under the welfare law. The 
current welfare law expressly incorporates several general 
anti-discrimination statutes (race, national origin, age, 
disability). This provision adds further protections against 
discrimination on the basis of gender in the work activities.
    Fourth, the proposal clarifies that welfare to work 
participants who are in employment positions must be paid at 
least the minimum wage. The proposal also clarifies that 
participants in work experience and community service with 
public agencies or non-profit organizations are not employees 
of those agencies or organizations. However, participants in 
these programs and in on-the-job training may not be required 
to participate for more hours in a month than their monthly 
welfare benefits divided by the federal minimum wage rate. For 
purposes of that calculation, the participant's monthly welfare 
benefits must include both cash assistance and food stamps and 
may also include the value of Medicaid, housing assistance, and 
child care assistance. Alternatively, a state may assign a 
participant to additional hours of other education and training 
activities in order to meet this requirement.

Other welfare provisions

    Limitation of Educational Activities: The proposal includes 
a clarification that the combined number of individuals allowed 
to participate in vocational education and completion of high 
school is 20 percent of all those counted as meeting the work 
requirements under section 40 of TANF.
    Pay-for-Performance Enforcement: Under the work 
requirements passed as part of welfare reform, States were 
required to reduce (pro rata) assistance for recipients 
refusing, without good cause, to work. However, no means of 
enforcing this provision was included with the initial 
provision. Under this proposal, the Secretary would be required 
to penalize any State failing to implement this provision at a 
rate of not less than one percent and not more than five 
percent of the State's family assistance grant.

                               subtitle b

    This legislation achieves savings from the student loan 
programs in accordance with the parameters of the Budget 
Agreement. It achieves a savings total of $1,763,000,000 by 
returning funds held in reserve accounts by guaranty agencies, 
reducing the mandatory administrative funds authorized in 
Section 458 of Part D of the Higher Education Act and 
eliminating a loan processing fee authorized under Part D of 
the Higher Education Act. This legislation also clarifies 
guarantor retention rates for student loans in default which 
are subsequently consolidated and returned to good standing.

                               subtitle c

    This legislation repeals the Smith Hughes Act, a small 
mandatory vocational education program created in 1917 and 
appropriated to the States as part of the Vocational Education 
Basic State Grant program under the Carl D. Perkins Vocational 
Education and Applied Technology Act. Repeal of this Act 
complies with the Budget Resolution and the Administration's 
FY98 budget request.

                               subtitle d

    EPHIC expands coverage to small businesses by clarifying 
current law to allow employers, particularly small employers, 
to band together voluntarily in associations (such as Chambers 
of Commerce) to form association health plans. Under the bill, 
these groups could fully insure and self-insure, gaining all of 
the advantages this entails including greater economies of 
scale and lower costs. The bill recognizes that the problem of 
the uninsured is one of small businesses unable to afford 
coverage for their workers: 80% of the 40 million uninsured are 
in families with at least one employed worker, the vast 
majority of whom are employed by small businesses.
    Moreover, the legislation stops health insurance fraud 
perpetrated by ``bogus unions'' and other illegitimate 
operators by making legitimate plans accountable and providing 
new state and federal enforcement powers to put a stop to 
fraudulent schemes.-

                            Committee Views

    Members of the Committee on Education and the Workforce 
believe there is nothing more important to the future of this 
country than all Americans having the opportunity for high 
quality education and training that will provide them with the 
skills needed to compete in the Information Age economy. The 
Committee also recognizes the importance of a balanced budget 
in achieving this goal. Balancing the budget and reducing our 
$5 trillion national debt will lower interest rates, create new 
jobs and produce a more stable future for our children. We 
believe the changes in this bill will take the first steps 
toward balancing our Federal budget and thereby helping every 
American--child, worker, student, family and entrepreneur--
achieve their highest potential.
    By using common sense solutions, this bill helps more 
people move from welfare into the workforce, protects student 
loan programs, and helps millions of uninsured workers provide 
health insurance coverage to their families.

                               subtitle a

    One of the most important and significant accomplishments 
of the 104th Congress was the enactment of comprehensive 
welfare reform, in the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996 (PRWORA). Welfare reform 
is already having a major impact in reducing welfare rolls and 
dependency.\1\
---------------------------------------------------------------------------
    \1\ Wolf, Richard. ``Welfare rolls show record decline'' USA Today. 
June 10, 1997. Excerpt:

        The number of people on welfare dropped a record 7% in 
      the first six months under a federal law that limits aid 
      and forces most recipients to work.
        Federal figures through March 1997, obtained by USA 
      Today, show the six-month rate of decline was the fastest 
      during a three-year period in which welfare rolls have 
      dropped by 22% from 14.4 million in March 1994 to 11.2 
      million in March 1997.
        THe unprecedented rate of decline is helping states make 
      welfare reform work. Their federal block grants are based 
      on caseloads from 1992-95, giving them more dollars from 
      fewer clients. Under the law, cutting welfare rolls also 
      reduces the number of people states must put to work 
      without losing federal funds. As a result, most states are 
      adding money to child care and other services needed to 
      help in the transition from welfare to work.
        The plummeting figures show no signs of abating:
        The 7% drop in the six months after the law took effect 
      last October was greater than a 6% drop in the previous six 
      months, and more than twice the 3% decline during the same 
      period a year ago.
        All but three states saw caseloads drop in the first six 
      months of the new law. Welfare rolls increased only in 
      Alaska, Hawaii, and West Virginia.
        Every month, welfare rolls shrink by 100,000 or more 
      clients, about a 1% decline.
        While the latest federal statistics are for March, states 
      are reporting caseloads declines since then. Florida's 
      welfare rolls dropped 9% between March and June. Texas lost 
      28,000 welfare recipients in the past two months, a 5% 
      drop. Ohio's caseload fell below 500,000 in May for first 
      time since the 1970s.
    Clearly one of the major challengers to continuing the 
successful implementation of welfare reform is addressing the 
challenges facing those individuals who have been trapped in 
the web of welfare for long periods of time, often living in 
communities in which welfare dependence has become a common way 
of life. Addressing the needs of these individuals has been a 
priority commitment of the 105th Congress.
    Under the budget agreement, this Committee, along with the 
Committee on Ways and Means, was instructed to develop 
implementing language to provide $3 billion, over four years, 
to target welfare-to-work services toward long-term welfare 
recipients.
    In developing this language, it was the top priority of 
this Committee to refrain from duplicating existing employment 
and training programs and delivery systems. Instead, the 
Committee seeks to ensure that these funds are integrated into 
existing employment and training systems at the State and local 
level. In doing so, the Committee is continuing its efforts to 
streamline and consolidate the multitude of Federal employment 
and trainingprograms undertaken with the Employment, Training 
and Literacy Enhancement Act of 1997, (ETLEA) which passed the House on 
May 16, 1997 by an overwhelming majority.
    In addition to program consolidation, ETLEA is based on 
three guiding principles--all of which relate directly to the 
proposed welfare-to-work grants. These include:
          Individual Choice: The proposal provides individuals 
        with choice in the selection of employment options by 
        making job placement vouchers one of the allowable 
        activities.
          Quality training and employment for the 21st Century: 
        The proposal ensures that the best providers of 
        services, including those in the private sector, are 
        able to compete to provide services and involving 
        employers in the design and implementation of 
        employment programs--to ensure they are relevant to the 
        needs of those businesses providing jobs in the 
        community. This is accomplished by directing welfare-
        to-work grants through Private Industry Councils 
        (PICs), and upon final passage of ETLEA, through 
        Workforce Development Boards, replacing PICs and 
        providing greater leadership in the design and 
        implementation of programs. In addition, these boards 
        will be responsible for implementation of full-service 
        employment centers at the local level which increase 
        the ease of access to high quality employment services. 
        It is the clear intent of the Committee that services 
        provided under welfare-to-work funding be available 
        through these integrated local systems.
          Driving resources and authority to local communities: 
        Under ETLEA a vast majority of available funds flow 
        directly to the local level in order to provide 
        services which best meet their unique needs. This same 
        approach is taken with welfare-to-work funding, 95 
        percent of which will flow directly to States and 
        localities by formula.

Welfare-to-work funding: Formula grants

    In accordance with the Budget agreement, welfare-to-work 
funding is to be targeted toward long-term welfare recipients. 
Consistent with this agreement, this legislation targets 
funding to this population in several ways. First, funding 
would be distributed to States by formula based equally on 
poverty and welfare caseload. The Committee recognizes that 
reliable data is not currently available with respect to State 
shares of long-term welfare recipients and intends for poverty 
and welfare caseload data to serve as a proxy for such measure.
    Further targeting of funds occurs at the State and local 
levels, through a State-developed formulas which must be based 
at least half on the relative proportion of excess poverty 
within Service Delivery Areas (as established under the Job 
Training Partnership Act) across the State. In addition, States 
may factor in the relative proportion of long-term welfare 
recipients within Service Delivery Areas and the relative 
proportion of unemployed individuals within such areas. In 
developing this formula, States must use a collaborative 
process. This is consistent with ETLEA, which establishes a 
formal collaborative process to carry out such functions as 
well as overall design of the State-wide employment and 
training delivery system. It is the intent of the Committee 
that this same collaborative process be designated to develop 
the within-State formula under this part. In the event a 
particular Service Delivery Area receives a grant less than 
$100,000, the funds would go to the Governor, to be pooled with 
additional Governor-held funding, in order to directly fund 
more substantial projects to help long-term recipients into the 
workforce.
    This formula structure provides that funds will be directed 
to those areas with a high proportion of long-term welfare 
recipients, while allowing states some flexibility in how to 
best utilize funds received under this part. In order to 
further ensure that long-term recipients be served within those 
areas, the legislation requires at least 90 percent of the 
locally driven funds be expended on recipients who have 
received assistance under TANF (or AFDC) for a minimum of 30 
months; have multiple barriers to employment as determined by a 
combination of a lack of high school diploma or GED and low 
basic skills and require substance abuse treatment or have a 
poor work history; or will become ineligible for assistance 
under the State TANF programs within 12 months.

States eligible to receive funds

    In order to receive federal funds from this funding, a 
State would be required to match each federal dollar received 
at a rate of $1 of State funds for every $2 received under 
these grants.

Administration of funds

    As previously outlined, it is the intent of this Committee 
to ensure welfare-to-work funds be administered through 
existing State and local employment and training delivery 
structures. To encourage this to happen at the State level, the 
Governor is provided authority to designate a State agency to 
oversee and administer welfare-to-work grants. In effect, this 
provides the option for States to designate agencies which have 
responsibility over State employment and training programs--
even if such agency does not administer the State's TANF grant. 
This is especially important in the several States which have 
established State Workforce Commissions charged with overseeing 
all employment and training funds.
    At the local level, sole authority for spending these funds 
is provided to Private Industry Councils (and their successor 
Workforce Development Boards). In administering these funds, 
the Committee intends for local boards to receive the full 
participation and cooperation with local welfare agencies to 
ensure services are not being duplicated and that recipients 
are provided access to a seamless delivery system which does 
not hamper their efforts to move into employment.

Demonstration grants

    The Committee recognizes the desire of the Administration 
to provide increased funding to the Secretary of Labor in order 
to provide direct grants to cities and other localities. In 
doing so, the Administration suggests that this would allow for 
increased research andevaluation on a far fewer number of 
localities having access to a greater amount of resources to implement 
welfare-to-work programs. While the Committee agrees on the need to 
evaluate promising approaches to serving long-term welfare recipients, 
it is our belief that this can best be done by distributing a far 
greater share of funds across all regions of the country--including 
both rural, suburban and metropolitan areas--and thus leverage far more 
local innovations. In addition, however, the bill reserves 5% of the 
funds (after set asides) for the Secretary of Labor to provide 
demonstration grants for projects which show the most promise in 
placing welfare recipients in long-term jobs. The Committee intends for 
the Secretary of Health and Human Services to work with the Secretary 
of Labor to evaluate such programs utilizing amounts made available 
from the welfare-to-work funding.

Allowable Activities

    The Committee intends that welfare-to-work grants be 
expended consistent with ``work-first'' policies under the TANF 
block grant--as opposed to concentrating on education and 
training. Accordingly, activities are limited to job creation 
through public or private sector employment wage subsidies; 
contracts with job placement companies or public job placement 
programs; and job vouchers. However, the language does allow 
for the provision of on-the-job training, which has shown much 
promise at increasing the earnings of welfare recipients by 
combining training within a workplace setting. The Committee 
also recognizes the need to allow for limited job retention and 
support services, although the language specifically limits the 
provision of these services to the extent they are not 
otherwise available.

Education limitation

    The Committee notes that in negotiating welfare reform last 
Congress, a provision was added to allow for up to 20 percent 
of all those who qualify as meeting the work participation 
standards to participate in vocational education or, with 
respect to single teenage heads of households without a high 
school diploma, attendance in high school. However, the 
provision as drafted, failed to clarify that the 20 percent 
limitation was with respect to those engaged in work as opposed 
to all those on welfare. Clearly, without this clarification, 
the work requirements would be greatly weakened by effectively 
reducing the real number of welfare recipients required to work 
in real jobs.
    The Committee stresses that this provision does not limit 
the ability for States to provide vocation education and high 
school to welfare recipients--but simply limits the number of 
such participants toward the work requirement. For example, in 
1997, with the participation rate at 25 percent--three fourths 
of the remaining caseload could also participate in vocational 
education or high school. The Committee also notes the firm 
belief in the importance of completion of high school, which is 
why attendance in high school for teenage heads of households 
is a requirement for receipt of assistance under welfare 
reform.

Penalty for not implementing ``pay-for-performance''

    Under the work requirements passed as part of welfare 
reform, States were supposed to reduce (pro rata) assistance 
for recipients refusing, without good cause, to work. However, 
because no means of enforcement were included, many States have 
ignored it. Under this proposal, the Secretary would be 
required to penalize any State failing to implement this 
provision at a rate of not less than, but not more than, one 
percent of their family assistance grant.

Protections for welfare-to-work participants

    Section 5002 of the Committee print amends section 407(f) 
of the Social Security Act with regard to 3 issues.
    The first of those three issues is the prohibition on 
displacement of current employees. Section 407(f) as amended by 
the Personal Responsibility and Work Opportunity Reconciliation 
Act (PRWORA) currently prohibits use of funds provided under 
the Act to employ or assign an individual to a position when 
another individual is laid off from the same or substantially 
equivalent job, or if the employer has terminated or otherwise 
reduced the workforce in order to fill the vacancy with a 
welfare recipient. The same section also requires that each 
State maintain a grievance procedure resolving complaints for 
alleged violations of this ``no displacement'' provision, and 
further states that State and local laws dealing with 
displacement which provide additional protections for employees 
are not preempted by this provision in federal law.
    The amendatory language for section 407(f) on displacement 
is adapted from the Employment, Training and Literacy 
Enhancement Act of 1997. It mirrors the current language of 
section 407(f) with the following exceptions: (1) in addition 
to prohibiting the filling of a position from which an employee 
is on layoff or has been terminated, it also prohibits 
displacing a currently employed employee or impairing an 
existing contract or collective bargaining agreement; (2) in 
addition to requiring that each State maintain a grievance 
procedure, it also provides that such State grievance procedure 
must include an opportunity for a hearing and be completed 
within 60 days of the filing of the grievance. In addition, the 
provision allows the Secretary of Labor to investigate cases in 
which a decision has not been made within 60 days, and to hear 
appeals from State determinations; (3) The provision specifies 
and limits the remedies that are available for violations of 
this section. Those remedies are: suspension or termination of 
payments, prohibition of future payments, reinstatement, lost 
wages, and other equitable relief. The Committee intends that 
the procedures and remedies provided are the exclusive remedy 
for violations of this section.
    The second issue addressed by Section 5002 is the inclusion 
of specific language on health and safety standards for 
participants in work activities under TANF. Section 5002 
specifies that federal and state health and safety standards 
that otherwise apply to employees would also apply to non-
employee participants in work activities under TANF. For 
example, if an employer is otherwise covered by health and 
safety standards promulgated by theOccupational Safety and 
Health Administration (OSHA), then those standards apply equally to any 
non-employee participants at the employer's places of work. However, if 
an employer is not otherwise covered by OSHA standards (because it is a 
public employer in a non-State plan State or has no employees), then 
the federal standards do not apply. In short, this provision does not 
extend federal or state requirements to new employers, but assures that 
employers who are covered must apply the same protections to non-
employee participants as are provided to employees to the extent they 
are engaged in covered activities.
    Third, section 5002 assures that participants in work 
activities are assured protection against discrimination. 
Section 408(c) of TANF references the following general 
provisions of law which prohibit discrimination in programs 
funded by the federal government: the Age Discrimination Act of 
1975; Section 504 of the Rehabilitation Act of 1973; the 
Americans with Disabilities Act of 1990; and Title VI of the 
Civil Rights Act of 1964. Section 5002 adds to that list of 
protections already provided for participants in work 
activities under TANF a prohibition on discrimination on the 
basis of gender. In addition, it provides that the grievance 
procedure described above be available to participants for 
violations of the above listed provisions on discrimination, 
including the prohibition on discrimination on the basis of 
gender. In addition, of course, participants in welfare to work 
activities under TANF, who are employees of public or private 
sector employers, are also covered by general employment laws, 
including Title VII of the Civil Rights Act of 1964, in the 
same manner and extent as any other employees, and participants 
in education activities may already be covered by Title IX of 
the Education Amendments of 1972.
    Section 5004 adds a new subsection to section 407 of the 
Social Security Act. A principal reason for this section is to 
address the confusion caused by a recent U.S. Department of 
Labor handbook on the application of labor and employment laws 
to participants in work activities under TANF.
    First, section 5004 states that participants in work 
activities under section 407(d) of the Social Security Act 
which are employment (``unsubsidized employment,'' ``subsidized 
private sector employment,'' and ``subsidized public sector 
employment'') must be paid in accordance with either the 
federal or state minimum wage law, whichever is higher, as well 
as any other aspects of applicable law to employment in that 
State or locality. Thus, for example, a welfare recipient who 
is hired by a private sector employer, whether or not the 
employer receives a subsidy for wages paid to that employee, is 
covered by laws applicable to other employees, including the 
federal or state minimum wage law, whichever is higher.
    Second, following a provision that was included in the 
Employment, Training and Literacy Enhancement Act of 1997, 
Section 5004 specifies that TANF recipients who are employed in 
above-listed work activities should receive compensation 
equivalent to other employees of the same employer who are in 
the same positions and have the same training, experience and 
skills.
    Third, section 5004 clarifies that recipients of assistance 
who are participating in ``work experience'' and ``community 
service'' through a public agency or nonprofit agency are not 
employees of that public agency or nonprofit organization. In 
including this provision and distinguishing ``employment'' from 
these ``workfare'' programs the Committee is clarifying the 
applicable law, not exempting persons heretofore covered from 
the labor and employment laws.
    In this regard, it should be pointed out that the 
predecessor federal welfare law, the Family Support Act of 
1988, passed by a Democratic Congress and signed by President 
Reagan included a ``workfare'' program, called Community Work 
Experience (CWEP). As is the case under section 5004, the 
Family Support Act distinguished employment from CWEP. 
Participants in CWEP were not considered employees, but were 
defined as participants who worked in exchange for their 
welfare benefits.
    Distinguishing employment from workfare is also consistent 
with the law under the federal Fair Labor Standards Act. In 
Johns v. Stewart 57 F.3d 1544 (10th Cir., 1995), the issue was 
presented whether participants in a state workfare program in 
Utah were employees under the FLSA. The Court of Appeals 
distinguished workfare from employment, citing factors such as 
participants being assigned rather than being hired, and the 
fact that workfare participation was intended to be part of an 
effort towards employment and independence from welfare. Both 
of those factors certainly describe ``work experience'' and 
``community service'' under TANF as well.
    Finally, it should be stated that the reason that this 
clarification is necessary is due to the confusion created by 
the Department of Labor's recent publication of a handbook 
entitled ``How Workplace Laws Apply to Welfare Recipients.'' 
After many months of quite public deliberation and political 
pressure, the Department of Labor's ``guidance'' provides no 
guidance at all. Contrary to most press reports on DOL's 
position, the handbook simply says, ``Welfare recipients in 
`workfare' arrangements, which require recipients to work in 
return for their welfare benefits, must be compensated at the 
minimum wage if they are classified as `employees' under the 
FLSA's broad definition.'' (emphasis added) By stating their 
``guidance'' in this way, DOL not only did not provide any real 
guidance, it in fact caused greater confusion for States trying 
to implement welfare reform, and suggested a broader-than-
justified reach of federal employment laws. The language of 
section 5004 is intended to clarify the law as the Department 
of Labor could have but chose not to do.
    Although section 5004 clarifies the law that participants 
in work experience and community service with non-profit 
organizations or public agencies are not employees, it also 
provides assurance to these participants and those in the on-
the-job training programs that they will receive welfare 
benefits at least equal to the federal minimum wage rate for 
each hour they participate in these activities. For purposes of 
this calculation, the participant's welfare benefit must 
include any cash assistance and food stamps received, and may, 
at state option, include the value of medicaid, child care, and 
housing assistance. In the alternative, section 5004 allows a 
State to count other education and training activities 
described in section 407(d) in order to meet the minimum hour 
requirements for participants in work experience, community 
service, and on-the-job training.
    It should be noted that in most cases a welfare recipient's 
total welfare benefit, including cash assistance, food stamps, 
medicaid, child care and housing assistance far exceeds the 
minimum wage times the number of hours of work activity 
required by federal law. A Heritage Foundation review of cash 
welfare plus food stamps plus medicaid benefits found that the 
average total welfare benefit in all states divided by the 
minimum number of hours of work activity under TANF results in 
a recipient receiving over $18 in welfare benefits for every 
hour required in a work activity to be counted under TANF.
    The handbook on ``How Workplace Laws Apply to Welfare 
Recipients'' issued by the Department of Labor includes an 
addendum from the Department of Agriculture which states that 
in most cases, under present law, States may count the value of 
food stamps in calculating any minimum wage obligation for 
recipients in either a ``workfare'' or ``work supplementation'' 
(subsidy) program. The provision in the legislation is 
consistent with this interpretation of current law, and extends 
the consideration of benefits for those in ``workfare'' 
positions under the new welfare reform law. This provision 
assures that participants in work experience, community 
service, and on-the-job training receive at least the minimum 
wage rate for each hour of participation in these activities 
and reflects a recognition of the real value of welfare 
benefits beyond any cash assistance received under TANF.
    It has been argued that by allowing States to count welfare 
benefits besides cash assistance received under TANF in this 
calculation, the provision somehow will encourage or even force 
States to reduce cash assistance to welfare recipients. This 
argument ignores the fact that States are allowed now to set 
the level and amount of cash assistance under TANF. Nothing in 
this legislation affects that in either direction. The 
provision simply allows States to maintain strong work 
requirements and reflects a realistic assessment of the value 
of non-cash welfare benefits.
    A fundamental purpose of welfare reform is to promote self 
sufficiency by emphasizing the importance of participating in 
work activities as a bridge to independence. The PRWORA states 
a clear preference that most recipients be placed in private 
sector employment, but that welfare also be used when 
employment positions are not available. Those who oppose these 
provisions, and seek to extend the reach of labor laws that 
apply to employment to all workfare positions ignore the 
historical distinction between employment and workfare, and 
would make it more difficult for states to implement workfare, 
and thereby undercut the work requirements of PRWORA.

                               Subtitle B

    The Budget Agreement assumes three areas of savings from 
the student loan programs. The first area is the return of 
reserve funds currently held by guaranty agencies. These funds 
have been accumulating over the years as loan volume has 
increased, defaults have decreased and guaranty agencies have 
become more efficient in their operations. Under the Higher 
Education Act, these funds are the property of the Federal 
Government and held by the guaranty agencies in a fiduciary 
capacity. These funds are used by guaranty agencies for payment 
of insurance claims to lenders, collection activities, default 
prevention activities and other operating expenses.
    As of September 30, 1996, the funds held by guaranty 
agencies in reserve accounts totaled $2,004,857,000. The Budget 
Agreement assumes that $1,000,000,000 of these funds will be 
returned to the Treasury in Fiscal Year 2002 and the Committee 
bill achieves this goal. In order to ensure that these funds 
will be available for return to the Treasury in 2002, the 
Committee requires each guaranty agency to make yearly 
transfers of funds to restricted accounts approved by the 
Secretary. Because the Committee is concerned with the 
continued viability of the Federal Family Education Loan 
Program, the Committee requires guaranty agencies with 
substantial reserve funds to return a larger share of funds 
than would be required using a straight proportional share. In 
addition, guaranty agencies with lower reserve ratios may delay 
their yearly fund transfers until Fiscal Year 1999 or in 
accordance with any other payment schedule approved by the 
Secretary.
    The Committee bill also contains a provision, adopted as an 
amendment offered by Representative McKeon, which clarifies the 
amount guarantors may retain on the collection of consolidated 
defaulted student loans. Specifically, this amendment 
establishes the collection retention rate for guaranty agencies 
at 18.5% for student loans in default which are subsequently 
consolidated and returned to good standing. The effective date 
for this provision is July 1, 1997, except that, for guaranty 
agencies which have been retaining 18.5% since enactment of the 
Higher Education Amendments of 1992, this provision applies as 
of the effective date of those amendments.
    Under the student loan provisions of the Higher Education 
Act, when a guarantor collects a loan which is in default, it 
may retain up to 27 percent of what it recovers in order to 
help pay collection costs. In 1992, when the Higher Education 
Act was last reauthorized, borrowers in default who made 
satisfactory payment arrangements were allowed by statute to 
consolidate their loans and return them to good standing. The 
purpose of this was two-fold. First, it gave students with 
defaulted loans a means of returning their loans to good 
standing and removing the default status from their record. 
Second, by giving borrowers an incentive to make satisfactory 
repayment arrangements, it helped the taxpayer recoup student 
loan dollars that would otherwise be lost.
    This option has proven popular, and guarantors have worked 
with students in establishing satisfactory repayment plans that 
will allow students to have their loans returned to good 
standing. In working to collect these loans, guarantors treated 
them as they would any other defaulted loan, and retained 27 
percent of collections as the law allowed. This has gone on for 
a number of years.
    On July 1st of this year, a new regulation recently put 
forward by the Department will go into effect. It changes the 
amount that guarantors can retain when they collect a defaulted 
loan through consolidation from 27 percent to not more than 
18.5 percent. The Committee is concerned that the Department 
has been retroactively imposing its views on this issue on 
guarantors in the student loan programs. The Department has 
been requiring guarantors inmany cases to refund any 
collections above the 18.5 percent level, even though the actual 
regulation is not yet in effect, going back to when the consolidation 
option became available in 1992.
    For the future, this provision resolves the current 
confusion and sets forth a clear and coherent policy for 
retention on the collection of these loans. This provision 
statutorily sets the retention rate at 18.5 percent, rather 
than allowing the Department of Education to arbitrarily set a 
lower retention rate through regulation or interpretation for 
future collections. The budget legislation requires guaranty 
agencies to relinquish control of $1 billion which they use to 
pay operating expenses in order to help us balance the budget. 
Allowing a retroactive change in the retention rate for these 
loans simply creates further financial uncertainty for guaranty 
agencies as they work to adjust to the loss of operating funds 
required under this legislation.
    The cost of this provision is minimal: under $500,000, and 
according to the Congressional Budget Office, there are more 
than enough savings in the Committee legislation to cover this 
cost so it will not hinder our attempts at balancing the 
budget.
    The Committee bill also saves $604 million over five years 
by reducing the mandatory administrative funds authorized in 
Section 458 of Part D of the Higher Education Act. These funds 
pay a majority of the expenses of the Federal Direct Student 
Loan Program and a portion of the administrative expenses of 
the Federal Family Education Loan Program. Specifically, 
administrative cost allowances to guaranty agencies are paid 
from this fund. Until enactment of the Federal Direct Student 
Loan Program in 1993, guaranty agencies received an 
administrative cost allowance equal to 1% of the student loan 
volume on which they issued insurance. However, as part of the 
Administration's effort to transition to 100% direct lending, 
the 1% payment to guaranty agencies was repealed and the 
funding for administrative costs of guaranty agencies was 
shifted to the Section 458 account.
    The Conferees to the Omnibus Budget Reconciliation Act of 
1993 filed a Committee Report which addressed this issue of 
administrative costs as follows: ``It is the understanding of 
the conferees that the Department of Education will pay on a 
timely basis to each guaranty agency an amount equivalent to 
that which they otherwise would have received under the 
administrative cost allowance provision terminated in this 
legislation. It is the intention of the conferees that funding 
for this payment will come from the administrative funds 
provided under section 458.'' Since 1993, the Committee has had 
a concern that due to the lack of statutory instructions, the 
Department of Education will stop paying administrative cost 
allowances to guaranty agencies and use the funds for purposes 
of the Federal Direct Student Loan Program. As a result of this 
concern, the Appropriations Committee has set the 
administrative cost reimbursement to guaranty agencies for 
Fiscal Years 1996 and 1997 in the respective Appropriations 
Bills.
    At the request of this Committee, the reimbursement was 
reduced to .85% in an effort to save money and reduce costs in 
the Federal Family Education Loan Program. This bill continues 
that policy by directing the Secretary to pay guaranty agencies 
from the existing Section 458 account .85% of the principal 
amount of loans on which insurance is issued, subject to a 
maximum spending of $170 million in Fiscal Years 1998 and 1999, 
and $150 million thereafter. The Section 458 account from which 
these funds are to be paid is an existing entitlement account 
for the administrative expenses of the Federal Direct Student 
Loan Program and the Federal Family Education Loan Program. 
This legislation simply designates a set portion of those 
mandatory funds strictly for payments to guaranty agencies. As 
such, it is limited to the funding levels already established 
in this bill and creates no additional budget costs to the 
Federal Government. At a time when we are requiring guaranty 
agencies to return $1,000,000,000 to the Federal Treasury, the 
Committee believes it is imperative for the Secretary to pay 
guaranty agencies a certain level of reimbursement for their 
administrative costs in order to give financial stability to 
all the guaranty agencies.
    The final provision of this bill provides for the 
elimination of a $10 application processing fee to institutions 
which participate in the Direct Student Loan Program. This 
provision saves $160 million over five years. Payment of this 
fee has been prohibited in the recent Appropriations bills.

                               subtitle C

    Since 1917, the Smith Hughes Act is a small, mandatory 
vocational education program which, while separately 
authorized, has been rolled into the Basic State Grant program 
under the Carl D. Perkins Vocational Education and Applied 
Technology Act. The Committee does not believe the Smith Hughes 
Act needs to continue as a separate program; however, the 
Committee recognizes that such funds should continue to be made 
available to the vocational education basic State grant 
program. By repealing the Smith Hughes Act, the Committee on 
Education and the Workforce has complied with the Budget 
Resolution and the Administration's FY98 budget request.

                               Subtitle D

Background and need for legislation

    This legislation addresses important health insurance 
reform issues in EPHIC, which are not new to this Committee and 
have been addressed in a bipartisan fashion in various 
legislation introduced in the past. The Committee has studied 
the need for such health insurance reform measures extensively 
over the past several years. During the 104th Congress, the 
Committee held extensive oversight and legislative hearings on 
H.R. 995, the ERISA Targeted Health Insurance Reform Act of 
1996 which formed the basis of the ERISA structure contained in 
the Health Insurance Portability and Accountability Act of 1996 
(P.L. 104-191).\2\
---------------------------------------------------------------------------
    \2\ The Subcommittee on Employer-Employee Relations held an 
oversight hearing, ``Health Insurance Reform--The ERISA Title I 
Framework: A 20-Year Success Story,'' on February 14, 1995. Testimony 
was received from: Representative Pat Williams; Former Representative 
John Erlenborn; Frank Cummings, LeBoeuf, Lamb, Greene & MacRae; Randall 
Johnson, Director of Benefits Planning, Motorola, Inc.; Ralph Brennan, 
President, Mr. B.'s, Inc.; William Goodrich, President, United 
Agribusiness League; and Brian Atchinson, Vice President, National 
Association of Insurance Commissioners, Superintendent, Bureau of 
Insurance, State of Maine.
    H.R. 995, The ERISA Targeted Health Insurance Reform Act, was 
introduced by Representative Harris Fawell on February 21, 1995. The 
bipartisan legislation has 50 cosponsors. H.R. 996, the Targeted 
Individual Health Insurance Reform Act, was introduced by 
Representative Fawell on the same date.
    The Subcommittee on Employer-Employee Relations held a legislative 
hearing to discuss H.R. 995 and H.R. 996 on March 10, 1995. During this 
hearing insurance reform issues concerning group-to-group portability, 
limits on preexisting condition exclusions, and small employer pooling 
were addressed. Testimony was received from: Jack Faris, President 
National Federation of Independent Business; Jerry Jasinowski, 
President, National Association of Manufacturers; Sean Sullivan, 
President and CEO, National Business Coalition on Health; Timothy 
Flaherty, American Medical Association; Charles Masten, Inspector 
General, U.S. Department of Labor; Gerald McGeehan, Graphic Arts 
Benefits Corp.; Kala Ladenheim, Intergovernmental Health Policy 
Project, George Washington University; and Judith Waxman, Director of 
Government Affairs of Families, USA.
    The subcommittee held a third hearing on March 28, 1995. During 
this hearing, the subcommittee continued its discussion on H.R. 995, 
H.R. 996, and targeted health insurance reform. Testimony was received 
from: Richard Lesher, President, U.S. Chamber of Commerce; Keith 
Richman, President, Medco Associates, Inc.; Jon Reiker, Vice President, 
Benefits, General Mills Restaurants, Inc.; Frank Cummings, LeBoeuf, 
Lamb, Greene & MacRae; and Lee Douglass, Insurance Commissioner of 
Arkansas, President, National Association of Insurance Commissioners.
    On March 6, 1996, the Committee on Economic and Educational 
Opportunities discharged H.R. 995 from the Subcommittee on Employer-
Employee Relations, approved H.R. 995, as amended, on a voice vote, 
and, by a vote of 24-18, ordered the bill favorably reported.
---------------------------------------------------------------------------
    During the 103rd Congress, the Full Committee and its 
subcommittees held 33 days of health care hearings throughout 
the United States. Several of these hearings focused on 
bipartisan legislation similar in scope to EPHIC. In addition, 
the Subcommittee on Labor-Management Relations held 11 days of 
markup and the Full Committee held 8 days of markup on H.R. 
3600.\3\-
---------------------------------------------------------------------------
    \3\ During the 103rd Congress, the full Committee held seven days 
of oversight hearings on the President's health care reform proposal, 
health care reform alternatives, regional health alliances, and the 
Cooper (H.R. 3222) and Michel (H.R. 3080) bills. The Subcommittee on 
Labor-Management Relations held 21 days of hearings on the following 
topics: oversight on the Administration's health care reform proposal; 
oversight on the effect of health care reform on workers and retirees, 
providers, the underserved, urban, and low-income populations, and 
children's mental health; and oversight on the effect of ERISA 
preemption on state health care reform efforts. In addition, the 
Subcommittee on Labor Standards, Occupational Health and Safety held 
two oversight hearings on the Health Security Act (H.R. 3600), the 
Subcommittee on Human Resources held an oversight hearing on health 
care reform and the existing long-term care network, and the 
Subcommittee on Select Education and Civil Rights held three oversight 
hearings on health care reform and its impact on schools and 
individuals with disabilities.
---------------------------------------------------------------------------
    In the 102nd Congress, hearings were held on bipartisan 
legislation which included provisions that would promote 
multiple employer pooling among small employers. EPHIC follows 
in the tradition of this bipartisan effort to promote pooling 
for small employers in the 102nd Congress. Today's efforts by 
the Committee build on what originated as a bipartisan concern 
over the number of uninsured and an endeavor to expand health 
insurance coverage to such employees and their families by 
reducing the cost of employer-sponsored health coverage.\4\
---------------------------------------------------------------------------
    \4\ During the 102nd Congress, the full Committee held an oversight 
hearing on national health reform and the Subcommittee on Labor-
Management Relations held six days of hearings on the following topics: 
Legislation relating to ERISA's preemption of certain State laws (H.R. 
1602 and H.R. 2782, Mr. Berman), oversight on health care access 
issues, oversight on access to affordable and adequate health care, 
oversight on small business health insurance problems, oversight on 
ERISA and cutbacks in health benefits, and the Multiple Employer Health 
Benefits Protection Act of 1991 (H.R. 2773, Mr. Petri), the Multiple 
Employer Self-Insurance Enforcement Act of 1992 (H.R. 4919, Mr. 
Hughes), and the Multiple Employer Welfare Arrangements Enforcement 
Improvements Act of 1992 (H.R. 5386, Mr. Petri).
---------------------------------------------------------------------------
    Expanding health insurance coverage through multiple 
employer pooling arrangements is not a new concept. In 1991, 
Rep. Petri introduced the first bill to accomplish the twin 
goals of providing solvency standards for legitimate self-
insured association health plans and giving the states more 
clear authority to end abusive schemes run by ``bogus unions'' 
and other illegitimate operators. This basic concept received 
bipartisan support (H.R. 2773 was cosponsored by Reps. 
Goodling, Gunderson, Armey, Fawell, Ballenger, Molinari, 
Barrett, Boehner, Klug, Grandy, Sensenbrenner, Roukema, Oxley, 
Henry, Martinez, Gillmor, Ireland, Quillen, Barnard, Kleczka, 
Morella, Edwards, Schaefer, Lewis, Barton, and Cox). Similar 
provisions were included in both the Republican Leader's bill 
(H.R. 3080, Rep. Michel) and the Bipartisan Health Care Reform 
Act of 1994 (H.R. 5228, Reps. Rowland, Cooper, Bilirakis, 
Grandy, McCurdy, Goss, Parker, Hastert, Stenholm, Thomas, 
Tanner, Boehlert, Deal, Castle, Lloyd, Houghton, Hefner, Klug, 
Long, Collins, Andrews, and Everett) introduced as alternatives 
to the Clinton Health Plan in the 103rd Congress.-
    This Committee has spent years establishing the need for 
the key elements of EPHIC, available and affordable health 
insurance. It is well documented that the most important 
incremental reforms that can be delivered to the American 
people are to improve group to group portability, by limiting 
preexisting condition exclusions, and facilitating through 
ERISA voluntary pooling by small employers on either a self-
insured or fully-insured basis. The HIPAA legislation (P.L. 
104-191) added needed protections for American workers in the 
first two areas--but more needs to be done to increase 
availability and affordability of coverage through the latter. 
Expanded coverage will become a reality if the cost of coverage 
can be made more affordable. Today 80% of the 40 million 
uninsured are in families with at least one employed worker, 
the vast majority of whom are employed by small businesses. 
Small business experts testified that 20 million Americans who 
now lack coverage might gain it under the type of pooling 
allowed under EPHIC--all through responsible changes that will 
expand choice in the marketplace. This is the kind of reform 
that Americans have demanded and deserve.

The need to preempt state benefit mandates to restore national 
        uniformity

    The issue of federal preemption in employee benefits is not 
new to this Committee. Throughout past deliberations on 
employee benefits, both employer and employee representatives 
stressed the enormous problems that had been created by 
separate, varying, or conflicting state regulation of these 
benefits. Congressional concern over national uniformity 
produced the Employee Retirement Income Security Act (ERISA) in 
1974. Employee health coverage under ERISA has flourished and 
the foundation for this expansive coverage is ERISA's 
preemption of costly and conflicting state regulation. Without 
this preemption, employers and the collective bargaining 
process would be subject to a patchwork of differing state 
rules and regulations, including mandates on specific types and 
levels of benefit coverage.
    Unfortunately, the proven benefits of preemption were 
eroded for many employers--particularly smaller employers--by 
the Supreme Court's ruling in Metropolitan Life Insurance Co. 
v. Massachusetts, 471 U.S. 724 (1985). In that decision, the 
court held that if an employer's health plan purchases a fully-
insured product offered by an insurer regulated by the states, 
then such insurance regulation may include imposing 
requirements that specific benefits be included in the products 
sold to the plan. For those small employers who can afford 
health insurance for their employees, a fully insured plan is 
often their only available option. The net effect of the 
Metropolitan Life decision has been to subject these smaller 
employers to the burdens of costly state mandates, thereby 
making health insurance for their employees even less 
affordable than it is for larger employers who have increased 
purchasing power.
    During Subcommittee hearings, the President of the National 
Federation of Independent Business testified, ``Small business 
owners often pay approximately 30% more than larger companies 
for similar benefits . . . In addition, they often pay another 
30% in premiums because of costly state mandates, . . . which 
prevent small business owners from shopping for only the basic 
care that they and their employees might need.'' The General 
Accounting Office reports that mandated benefits account for 
between 6 and 22 percent of all insurance claims, depending on 
the state (and the number of benefits it mandates) (GAO/HEHS 
96-161). A study by the National Center for Policy Analysis 
(NCPA) shows that one in five small companies that are not 
offering health benefits would do so in an environment free of 
state-mandated benefits. Were these businesses to begin 
offering plans, 6.3 million Americans (full-time workers and 
their dependents) would gain access to employer-sponsored 
coverage. According to another NCPA study, one out of every 
four uninsured people has been priced out of the market by 
state mandated benefit laws.
    The story--and success--of ERISA in expanding coverage 
proves beyond any doubt that the cornerstone of preemption has 
been critical to the growth and expansion of employer-provided 
health insurance. It also proves, the Supreme Court's ruling in 
Metropolitan Life Insurance Co. v. Massachusetts 
notwithstanding, that the preemption cornerstone needs to be 
extended to a larger class of employers, namely small 
businesses. In reporting EPHIC, the Committee has acted to 
build on the proven success of ERISA in this regard.

Why current ERISA law needs changes to clarify the status of 
        association health plans under Federal and State law

    Multiple employer plans are the most efficient means to 
deliver affordable health coverage to employees, particularly 
for smaller employers and employees who work in industries with 
high job mobility or above-average insurance risk. However, 
current law has not achieved the twin goals of preserving the 
self-insured multiple employer plans of legitimate business and 
industry associations and of keeping ``bogus unions'' and 
fraudulent insurance schemes from attempting to use the ERISA 
preemption clause as a shield to the promotion of their abusive 
health insurance practices.
    As described below, EPHIC meets these twin goals by 
enabling legitimate associations (including church plans, 
franchise networks, and certain large employer and 
collectively-bargained plans) to maintain or establish multiple 
employer plans by voluntarily seeking licensure in the few 
states permitting this or to seek federal certification which 
in effect invokes the ``exemption'' provision (sec. 
514(b)(6)(B)) under the current ERISA statute (reserve, 
eligibility, and other standards must be met; such requirements 
may be enforced by states if they desire, or otherwise by the 
Department of Labor). Entities that do not have either a state 
or federal certification are fully subject to state law 
(states, as they choose, may force them to meet any insurance 
or multiple employer plan licensing requirements or to shut 
them down). All such entities must register with DOL and the 
states and are subject to the criminalpenalties under ERISA for 
failure to do so (illegitimate entities will become criminal 
enterprises--the enforcement tool lacking today and hindering both 
federal and state enforcement efforts). In addition, the Department of 
Labor is given ``cease and desist'' authority to curtail the activities 
of any such illegitimate entities.
    The DOL Inspector General testified that the above 
described enforcement provisions are necessary and important 
changes to ERISA and the key to stopping health insurance 
fraud.
    The above described changes are necessary to clarify the 
extent of ERISA preemption of state law and the role of the 
states and the federal government in relation to multiple 
employer health entities (under current law these entities are 
termed ``multiple employer welfare arrangements'' or MEWAs). 
These entities may be either ``self-insured'' or ``fully-
insured.'' Under EPHIC fully-insured multiple employer plans 
are encouraged by permitting such plans to base premiums on 
their group experience and by preempting certain state benefit 
mandates and so-called state ``fictitious group'' laws--thus 
allowing them to compete on the same basis as self-insured 
plans with respect to these important elements.
    Under ERISA a MEWA is defined as a plan or other ``non-
plan'' arrangement established to provide benefits (e.g., 
health benefits) to the employees of two or more employers. 
Under current law, the breadth of this definition sweeps in the 
following types of entities: (1) all collectively-bargained 
multiple employer plans (including Taft-Hartley jointly-
trusteed multiple employer plans) unless the DOL ``finds'' them 
to be collectively-bargained (the Department has not made any 
such finding)--under the bill, a new statutory exemption is 
provided and the exemption safe-harbor is provided for certain 
plans failing the statutory rule; (2) large employer plans that 
include employees of entities outside the ``control group'' of 
the employer--many large employer plans and plans with 
franchisee participants are MEWAs--under the bill, a new 
statutory exemption is provided and an exemption safe-harbor is 
provided certain plans failing the statutory rule; (3) ``church 
plans'' currently exempt from ERISA may voluntarily seek 
certification under ERISA; (4) multiple employer entities, such 
as those maintained by legitimate trade, industry and 
professional associations, which meet the definition under 
ERISA of an ``employee benefit plan''--for which exemptions may 
be granted under the bill; and (5) other multiple employer 
welfare arrangements which do not meet the definition under 
ERISA of an ``employee benefit plan''--under the bill such 
entities are not eligible for an exemption and are fully 
subject to state law.
    In general, ERISA preempts state insurance and other laws 
``relating to an employee benefit plan''. As originally 
enacted, this broad preemption included multiple employer 
arrangements as long as they met the definition of an 
``employee benefit plan''. Any multiple employer entity that 
was not a plan did not have the benefit of ERISA preemption.
    Because illegitimate schemes (which did not rise to the 
level of ERISA ``employee benefit plans'') promoted by ``bogus 
unions'' and others were delaying and thwarting legitimate 
state enforcement efforts by claiming ERISA preemption (even 
though ineligible), ERISA was amended in 1983 in an attempt to 
clarify the ability of states to regulate the non-ERISA-plan 
entities as well as legitimate self-insured ERISA multiple 
employer plans (but the regulation by the states of the later 
was conditional, i.e., regulation is permitted only ``to the 
extent not inconsistent with the provisions . . .'' of ERISA 
Title I). This later clause was intended to encourage 
responsible regulation of legitimate ERISA plans, under 
specific state laws relating to these entities, but not to 
enable states to terminate legitimate ERISA plan entities 
solely because they were not ``insurance companies''--the later 
concept is incorporated in ERISA section 514 as the so-called 
``deemer clause'' prohibiting states from deeming ERISA plans 
to be in the business of insurance.
    Unfortunately the 1983 amendment has not achieved its 
intended purpose. While a few states have enacted specific 
statutes regulating legitimate self-insured multiple employer 
plans, others have intervened in the operations of legitimate 
arrangements meeting the ERISA plan definition and forced the 
involuntary termination of such arrangements. These state 
actions have been selective in nature and do not follow any 
consistent basis either within a state or among states (actions 
may vary depending on the entity involved--the size of the 
employer, the industry, the presence of collective-bargaining, 
etc.). As reported by the Committee, EPHIC provides a 
consistent basis for regulating the continued operations of 
legitimate ERISA multiple employer plans and provides that such 
plans may instead continue to choose to operate under the state 
laws specifically regulating such entities.
    Neither did the 1983 amendment achieve the objective of 
stemming the number of illegitimate enterprises that continue 
to bilk the public under arrangements that do not meet the 
ERISA definition of an ``employee benefit plan''. Therefore, 
EPHIC makes it clear that entities that have not received 
either an exemption under ERISA or a state license or 
certification are fully subject to state law and to improved 
federal civil and criminal enforcement. As requested by the 
National Association of Insurance Commissioners (NAIC), the 
qualification of their authority over non-certified self-
insured multiple employer entities is removed (i.e., the clause 
requiring state authority to be ``consistent with'' ERISA Title 
I is repealed).
    These clarifications of ERISA preemption relating to 
multiple employer arrangements will free substantial additional 
resources that have been spent to stop health insurance fraud 
and abuse. Moreover, the considerable state resources involved 
in stopping insurance fraud will be released for more 
productive purposes. Additional resources of the federal 
government can also be redirected more productively in 
administering the new law and helping expand more affordable 
health coverage.
    For example, the DOL Pension and Welfare Benefit 
Administration's (PWBA) Office of Civil Enforcement expends 
about 25% of all group health plan civil enforcement resources 
on problem entities and expends about 68% of all group health 
plan criminal enforcement resources on illegitimate MEWAs. The 
Office of the Solicitor of Labor expends about two-thirds of 
all group health plan enforcement on illegitimate MEWAs. In 
addition, the Office of the Inspector General has expended 
between 5-15% of all investigative resources (not just related 
to group health plans) on illegitimate MEWAs. For 1993, 1994, 
and 1995 combined, the PWBA has allocated about 43 employees 
and 33,400 hours on Clinton Health Insurance Reform efforts. 
With the passage of targeted health insurance reform, a large 
portion of these resources can be allocated to the 
administration of EPHIC.
    For nearly three decades the American people have looked to 
Congress to improve health insurance accessibility, 
affordability, and accountability. Finally, in the 104th 
Congress, the first real strides towards more portable and 
accountable health care were taken. HIPAA's major 
accomplishments included: (1) limiting exclusions for 
preexisting conditions; (2) ending ``job lock'' by making 
health coverage portable; (3) guaranteeing availability of 
health coverage for small employers; (4) prohibiting 
discrimination against employees and dependents based on health 
status; (5) guaranteeing renewability of health coverage to 
employers and individuals; and (6) helping individuals leaving 
or losing their job to maintain their health coverage. EPHIC 
builds on this base to address the next major hurdle--making 
insurance more available and affordable to millions of working 
Americans and their families.

EPHIC's reforms are built upon the bedrock of private health coverage

    EPHIC presents this Congress with perhaps its best 
opportunity since the passage of ERISA to expand access to 
affordable health insurance for the many American families who 
are currently uninsured.
    In 1974, Congress enacted the Employee Retirement Income 
Security Act or, as it came to be known, ERISA. In doing so, 
Congress shaped and put into place the cornerstone of our 
country's employee benefits law. More importantly, it laid the 
foundation upon which employers and negotiated multiemployer 
plans have been able to successfully provide benefits to 
workers and their families, including pensions, health and 
other benefits. EPHIC builds upon that success and seeks to 
expand health coverage to an even greater universe of employers 
and employees.
    By utilizing the time-tested features contained in ERISA, 
the legislation builds upon the successes produced by private 
sector innovation and market competition. It is a well-targeted 
and workable framework within which incremental health 
insurance reform can be enacted this year.
    As Representative John Erlenborn, an author of the original 
ERISA law and former member of the Committee, stated during 
hearings, ``it is my belief that Title I of ERISA has, over the 
past twenty years, proven to be a success and . . . the 
judgments that led to ERISA's enactment, continuing to rely on 
a voluntary system devised by employers and employees with the 
addition of protections for participants, are as valid today as 
when we [then] made them.'' Mr. Frank Cummings, a drafter of an 
early version of ERISA, stated ``this bill is the right step, 
at the right time, in the right direction.'' They made clear 
that the legislation addresses many problems faced by workers 
who are currently uninsured. Many other witnesses also 
testified on the benefits of using ERISA as the basis for 
expanding health insurance coverage.
    For example, Mr. Jack Faris, President of the National 
Federation of Independent Business, testified that NFIB 
considers association health plans created by EPHIC crucial to 
allowing small business to afford to insure their workers--and 
deemed it the NFIB's top legislative priority in health care. 
The most important construct of EPHIC is giving small business 
a chance to purchase health insurance on the same terms as big 
business. According to Mr. Faris, EPHIC ``successfully takes on 
the most vexing challenge when it comes to insurance reforms in 
the small group market: providing for portability, 
accessibility, renewability, and rate stability without causing 
a rate hike for those who already have coverage. Providing 
access on the one hand and holding prices down on the other is 
a difficult balance to find. We believe [EPHIC] addresses this 
matter in a responsible way.''
    Mr. Sean Sullivan, President and CEO of the National 
Business Coalition on Health, applauded the sponsors for 
seeking to allow the market to work for small employers the way 
we are making it work for larger businesses.'' Mr. Sullivan 
stated that if pooling provisions were to become law, roughly 
half of the uninsured, 20 million people, could possibly be 
covered.
    This assertion was seconded by Jeffrey Joseph, Vice 
President of Domestic Policy for the U.S. Chamber of Commerce. 
Mr. Joseph testified that one-half of the 41 million uninsured 
Americans, including 64 percent of all uninsured children, 
could gain access to affordable coverage under this 
legislation.
    Donald Dressler, President of Insurance Services, Western 
Growers Association, stressed that EPHIC would help enable the 
85% of those that are working (or are in families where there 
is someone working) but do not have health insurance, to 
finally afford it. It would make the plans competitive by 
providing consistent benefits and protections nationwide and 
would prevent association health plans from being driven out of 
the market because of increasing state mandates and increasing 
inconsistency between the states (i.e., increased employer 
costs), as has happened in the past. Mr. Dressler concluded 
that the choice is not between consumer protections and non-
consumer protections, but instead it is between insurance 
coverage or no insurance coverage.
    Mary Castro, Vice President, Independent Grocers Alliance, 
Inc. (IGA), testified that EPHIC would help small employers 
gain access to affordable insurance and would promote 
association-sponsored plans like the IGA plan, by allowing the 
employers to join together and take advantage of ``cost savings 
and administrative efficiencies currently enjoyed under ERISA 
by larger employees.'' She also believes that EPHIC would 
resolve the current jurisdictional problems association health 
plans are experiencing and contains many uniform safeguards 
that will protect consumers.
    Also, Mr. Jerry J. Jasinowski, President of the National 
Association of Manufacturers, said that he was pleased that an 
earlier version of EPHIC ``relies on competition, rather than 
government.'' Supportive of the principles on which EPHIC was 
designed, Mr. Jasinowski said the bill ``does what needs to be 
done . . . It enables competition and market forces--by 
facilitating purchasing groups within the ERISA framework--to 
allow smaller employers to band together and improve access to 
affordable coverage.''
    Dr. Timothy Flaherty, testifying on behalf of the American 
Medical Association's Board of trustees, commended the vision 
of the version of EPHIC introduced in the 104th Congress. Under 
such legislation, Dr. Flaherty said ``the world would begin to 
change for the better. Insurers would be encouraged to provide 
insurance. Businesses would be encouraged to focus more of 
their attention on business. And physicians would be freed up 
to focus more on providing quality medical services to their 
patients.'' The AMA believes such a bill would ``make health 
care markets more competitive and increase access without 
resorting to global budgets, price controls, government 
subsidies or creating a Canadian-style single payer system.''
    The Honorable Charles C. Masten, Inspector General of the 
U.S. Department of Labor, commented on the enforcement aspects 
of EPHIC's predecessor--which are found in EPHIC as well. Mr. 
Masten said that the legislation ``offers the promise of 
decreasing the level of fraud in health care benefit plans.'' 
``I believe that [it] will make it easier for the OIG and other 
enforcement agencies to detect and investigate fraudulent 
activities, by identifying and defining entities which have 
created problems under the current law, such as employee 
leasing arrangements, `associate' union memberships, and non-
existent unions,'' he said. The Committee agrees with the 
Inspector General that the strong enforcement aspects of EPHIC 
are necessary and important elements which are needed to stop 
insurance fraud and to bring increased accountability to the 
health care system.
    Committee testimony also included findings from a report 
entitled ``Small Group Market Reforms: A Snapshot of States' 
Experience.'' These findings of the Intergovernmental Health 
Policy Project of The George Washington University, were based 
on a survey of officials in 12 states that were among the 
earliest to enact small group market reforms. The main 
conclusion was that these small group reforms are unlikely to 
improve significantly either the affordability or availability 
of insurance for those working for small firms. The Committee 
believes that this evidence, substantiated with additional 
survey information provided the Committee from state insurance 
commissioners, suggests that the market and competition based 
reforms under the bill are necessary to empower small 
businesses to offer their employees more affordable coverage 
using the same techniques available to larger employers under 
ERISA.-
    As important as it is to note what EPHIC does, the 
Committee wishes to draw Members attention to what it does not 
do. For instance, by using the ERISA foundation the reported 
bill will not force Americans to give up their current health 
insurance coverage, but will serve to increase their choice of 
coverage. It will not impose government mandates. It will not 
require any new federal spending or taxes. Importantly, the 
bill will not create a new government-run health care 
bureaucracy that imposes price controls, mandates, and other 
impediments to high quality health care.

Expansion of coverage through association health plans

    The Expanded Portability and Health Insurance Coverage Act 
of 1997 will empower millions of workers and their families, 
particularly the many uninsured employees working for small 
businesses, to obtain more affordable health insurance. The 
bill will make health insurance more affordable--thus expanding 
coverage by lowering costs; more accessible--thus increasing 
choice by removing barriers; and more secure--thus improving 
portability and coverage after job loss.
    The Employee Benefit Research Institute (EBRI) has reported 
that about 80 percent of the 40 million uninsured Americans 
live in families with an employed worker who is likely to work 
for a small employer or be self-employed. Over 80% of all 
uninsured children are in families with working parents. 
Clearly, the problem of the uninsured, both children and 
adults, is predominantly a problem of small businesses lacking 
access to affordable coverage. Sadly, the choice is too often 
between paying for a Cadillac health insurance package or 
having no health insurance whatsoever. Too many Americans are 
paying for benefits they do not need, and too many others 
cannot get even the most basic coverage.
    Studies by KPGM Peat Marwick and Foster and Higgins report 
that in recent years, larger employers saw health costs 
decline. For example, recent increases of only .5% were no 
doubt due to the benefits of economies-of-scale larger 
employers enjoy--to structure plans to include managed care 
alternatives and to negotiate with providers for high quality 
health plans at lower costs. Conversely, the smallest employers 
experienced cost increases, for example up 6.5 percent in 1994. 
There is obviously a need to put equity into the system.
    Cost increases and increased regulation have discouraged 
small employers from offering health insurance--as a result the 
percentage of uninsured working for businesses with less than 
100 employees increased 12.5% in only two years, from 24% in 
1993 to 27% in 1995.
    The ERISA law has played an important role in driving down 
costs for medium and large employers and allowing virtual 
universal coverage for their employees. ERISA also allows 
employers and unions the option not only to insure but also to 
self-insure, giving them the low cost, quality, and choice 
advantages of uniform health benefit plans for all of their 
employees.
    Pooling smaller employers could also save them as much as 
30 percent in overhead costs, thus enabling employers to cover 
more employees and provide more benefits. ERISA plans are the 
foundation of private health care coverage in America. 
According to the Self-Insurance Institute of America, ERISA 
plans cover over 115 million Americans of which more than 50 
million people, including 60 percent of all workers and their 
dependents, are covered under plans that have self-insured 
coverage options.
    Former Delaware Governor Pete du Pont said it best: ``ERISA 
has worked--more people are insured than would be the case had 
it not been passed'' (Washington Times, May 10,1995).
    Rather than create a new federal law, EPHIC builds on the 
current successful ERISA framework upon which plan sponsors 
have relied for over twenty years. The enactment ofEPHIC would 
put the nation well on its way to closing the gap in coverage by 
offering millions of uninsured workers, their spouses and their 
children, the opportunity to access more affordable health coverage.
    It would give associations of retailers, wholesalers, 
printers, agricultural employees, churches, franchise networks, 
etc. and organizations such as the Chamber of Commerce or 
National Federation of Independent Business (NFIB) the ability 
to form large regional or national groups that could fully-
insure and self-insure, gaining all of the advantages that 
entails: economies-of-scale, bargaining power with providers, 
uniformity of plans, freedom from costly state-mandated benefit 
packages, and significantly lower overhead costs.
    As Mr. Jack Faris, President of the National Federation of 
Independent Business testified, ``Small business owners often 
pay approximately 30% more than larger companies for similar 
benefits because of higher administrative costs. In addition, 
they often pay another 30% in premiums because of costly state 
mandates for specific types of insurance coverage . . .''. 
EPHIC would expand these advantages that larger employers have 
through ERISA to the small and medium-size employer 
marketplace.
    Some mistakenly claim that expanding ERISA would empower 
the federal government over the states. Those who understand 
ERISA know better. Again, former Governor du Pont: ``The real 
issue is regulation, not federalism. By maintaining ERISA 
intact, or even better, expanding it so smaller employers, by 
voluntarily banding together, can utilize ERISA, the federal 
government would ensure that employers have the freedom they 
need to establish affordable health insurance policies, and 
that more and more employees have health insurance.'' EPHIC 
would expand coverage though the private market and without new 
taxes or costly mandates.

Expansion of coverage through self-insured association health plans

    As reported, the bill also builds on the ERISA cornerstone 
to empower employers, particularly smaller employers, to offer 
affordable coverage under association health plans that are 
self-insured. Expanding coverage to the uninsured truly is a 
winning proposition for all--employees (who would have 
coverage, perhaps for the first time), employers (who could 
afford to offer coverage), insurers (who would experience less 
cost shifting from the uninsured), and state governments (who 
would have fewer uninsured within their borders and reduced 
uncompensated care costs).
    Testifying on this approach, Mr. Sean Sullivan, President 
and CEO of the National Business Coalition on Health, an 
organization of employer coalitions whose members collectively 
provide health benefits to more than 35 million Americans, 
states: ``Under the umbrella of ERISA, real health care reform 
already is taking place, driven by employers seeking better 
value from providers in the competitive marketplace. Your 
legislation would empower thousands of small businesses to join 
this movement that is reinventing the health care system for 
the 21st century.''
    EPHIC builds on what works, rather than on what does not. 
What works is the 1974 Employee Retirement Income Security Act 
(ERISA), the successful and time-tested, free-market oriented 
cornerstone of employee benefits. What works is using and 
improving the incentives and momentum of the market, seeking to 
expand real coverage to areas that the market is capable of 
reaching. What does not work is government micro-management of 
employee health plans.
    ERISA has played an important role in driving down costs 
for medium and large employers, and allowing virtual 
``universal coverage'' for the employees of medium and large 
U.S. employers. ERISA allows an employer to self-insure, 
permitting companies to offer uniform health benefit plans to 
all of their employees, no matter where they work or reside. 
Under ERISA, employers and employees are free to voluntarily 
work out benefit packages that fit the needs of workers and 
their pocketbooks.
    Unfortunately, the smallest employers and the self-employed 
have not shared in the advantages of ERISA. EPHIC builds on 
ERISA to give smaller employers the same economies of scale and 
freedom to offer affordable coverage that larger employers 
enjoy. The bill clears the way for market forces to bring small 
employer costs down, while also carefully addressing the 
problems of insurance fraud and abuse.
    Under current law hundreds of legitimate association self-
insured multiple employer plans exist (e.g., nationwide plans 
for corner hardware and grocery stores, rural electric and 
telephone coops, etc.). However, federal standards do not exist 
to assure their solvency and only about a dozen states have 
enacted specific statutes to regulate them for solvency.
    To remedy this situation, the bill provides that legitimate 
associations, franchise networks, church plans, certain 
collectively-bargained plans and company affiliates may choose 
to either remain subject to the few state multiple plan laws or 
to apply for certification which would have the same effect as 
an ``exemption'' pursuant to a provision under current ERISA 
law which has not been implemented by the Department of Labor.
    As described in more detail below, this process will 
require self-insured multiple employer plans to meet solvency, 
fiduciary, and other necessary standards. This provision has 
been included in bipartisan legislation for over 5 years, 
including the bipartisan health care reform bill developed as 
an alternative to the Clinton health plan (H.R. 5228, 103rd 
Congress) and H.R. 995 in the 104th.
    As the National Center for Policy Analysis and the Heritage 
Foundation have found in their analyses, ERISA-based employer 
pooling is free-market and pro-competition.
    While some critics might express concern that the existence 
of self-insured multiple employer health plans could reduce the 
pool of small employers subject to state insurance laws, this 
is not the inevitable consequence of the pooling provisions 
under the bill.
    Without any change in the law the number of self-insured 
employers exempt from state law under ERISA will increase, as 
past experience shows, even among the very smallest single 
employer plans. However, under the bill the health insurance 
industry is put in a more competitive position than today in 
comparison with self-insured plans. Insured plans can now 
compete on the same basis regarding nationally uniform 
benefits, pooling, and premium structure. With the expansion of 
health coverage the number of workers covered under fully-
insured plans will increase, thus reversing the trend under 
current law. In addition, the small association health plans 
will look very much like their large-employer cousins (i.e., 
offering managed care, PPOs, and other cost effective insured 
options) which means that the insurance products offered under 
even self-insured plans would still be subject to state 
insurance regulation as the Supreme Court ruled in Metropolitan 
v. Massachusetts.
    The legislation would also draw bright lines regarding 
state and federal authority regarding self-insured multiple 
employer plans which does not currently exist. Today the law is 
confusing regarding the responsibility of the states and the 
Department of Labor under ERISA. Only a handful of states have 
specific statutes applicable to legitimate multiple employer 
plans--and even in these states there are other multiple 
employer plans operating without the benefit of solvency 
regulation. The several hundreds of existing self-insured 
multiple plans, therefore, are not being subjected to state or 
federal solvency regulation (a condition the bill corrects).
    Unfortunately, the illegitimate schemes which are 
perpetrated by bogus-unions and other fraudulent operators 
continue to proliferate despite the efforts of the Committee to 
correct the situation in 1983 (P.L. 97-473). Clearly the 
limited extent of state regulatory authority under current law 
has not been adequate to stem the problems that led to the 1983 
change to ERISA. The fact is that the problems presented by 
illegitimate non-ERISA-plans are inter-state in nature and the 
National Association of Insurance Commissioners (NAIC) 
testified that changes to federal law are needed. In prepared 
testimony, the President of the NAIC stated that ``states often 
engage in lengthy jurisdictional battles with [collectively 
bargained and staff arrangements] even before states can assert 
their regulatory authority. Consequently, under the current 
structure, many years can and often do pass before the courts 
ultimately determine that States can regulate a fraudulent 
MEWA.''
    To address this problem, the bill gives states and the 
federal government more authority to put an end to health 
insurance fraud. Under the bill, states are given clear and 
unrestricted authority to put a stop to illegitimate entities--
if an entity does not clearly show that they are either 
licensed by the state or have received an exemption under 
section 514 of ERISA, the state can shut it down. To the extent 
the entity flees a state's border, the Department of Labor is 
directed to assist the state to shut the entity down through 
new ``cease and desist'' authority under the bill. Under the 
bill, illegal entities become subject to criminal penalties if 
they try to hide their operations. This is why the Inspector 
General of the Department of Labor testified that the 
Department supports these provisions as ``necessary and 
important'' changes to ERISA. These provisions make the private 
health insurance system more truly accountable.
    The fact is that, under the bill, legitimate association 
self-insured arrangements will be subject to greater solvency 
regulation than union-sponsored multiemployer plans and the 
self-insured single-employer plans of even the smallest 
employers.

Clarification of duty of the Secretary of Labor to implement provisions 
        of current law providing for exemptions and solvency standards 
        for association health plans

    In general, the bill clarifies the conditions (solvency, 
etc.) under which association health plans providing medical 
care may apply for an exemption from certain state laws (states 
may enforce such conditions). The exemption process is 
contained under the current ERISA law. Also, the current ERISA 
law contains restrictions on the ability of states to fully 
regulate such entities.
    Specifically, current law section 514(b)(6)(A)(ii) of ERISA 
provides that in the case of such a partly insured or fully 
self-insured arrangement, any law of any State which regulates 
insurance may apply only ``to the extent not inconsistent with 
other parts of ERISA''. However, under section 514(b)(6)(B) the 
Department of Labor may issue an exemption from state law with 
respect to such self-insured arrangements (but has yet to issue 
a procedure or regulations to implement the exemption process 
as intended under amendments to ERISA enacted in 1983). The 
``to the extent not inconsistent'' language was intended to 
encourage states to enact specific statutes regulating such 
entities without forcing them to become ``insurance companies'' 
which is a key concept under the so-called ``deemer clause'' in 
ERISA section 514 (i.e., that ERISA ``employee benefit plans'' 
shall not be deemed to be in the business of insurance).
    Under a new part 8 of ERISA Title I, the bill clarifies 
that only certain legitimate association health plans (AHPs) 
and other arrangements (described below) are eligible for an 
exemption and thereby treated as ERISA employee welfare benefit 
plans. EPHIC enables legitimate associations (including church 
plans, franchise networks, and certain large employer and 
collectively-bargained plans) to maintain or establish multiple 
employer plans by voluntarily seeking licensure in the few 
states permitting this or to seek federal certification which 
in effect invokes the ``exemption'' provision (sec. 
514(b)(6)(B)) under the current ERISA statute (reserve, 
eligibility, and other standards must be met; such requirements 
may be enforced by states if they desire, or otherwise by the 
Department of Labor). Entities that do not have either a state 
or federal certification are fully subject to state law 
(states, as they choose, may force them to meet any insurance 
or multiple employer plan licensing requirements or to shut 
them down). All such entities must register with DOL and the 
states and are subject to the criminal penalties under ERISA 
for failure to do so (illegitimate entities will become 
criminal enterprises--the enforcement tool lacking today and 
hindering both federal and state enforcement efforts). In 
addition, the Department of Labor is given ``cease and desist'' 
authority to curtail the activities of any such illegitimate 
entities.
    Part 8 sets forth criteria which an association health plan 
must meet to qualify for an exemption. The Secretary shall 
grant an exemption to an AHP only if: (1) a complete 
application has been filed; (2) the application demonstrates 
compliance with eligibilityrequirements described below; (3) 
the Secretary finds that the exemption is administratively feasible, 
not adverse to the interests of the individuals covered under it, and 
protective of the rights and benefits of the individuals covered under 
the arrangement; (4) certain reserve, surplus and indemnification 
requirements (as described below) are met; and (5) all other terms of 
the exemption are met (e.g. including financial, actuarial, reporting, 
participation, and other requirements which may be specified as a 
condition of the exemption).
    Under the eligibility requirements for AHPs, an applicant 
must demonstrate that the arrangement's sponsor has been in 
existence for a continuous period of at least 3 years and 
organized and maintained in good faith, with a constitution and 
bylaws, as a trade association, an industry association, a 
professional association, or a chamber of commerce (or similar 
business group) for purposes other than that of obtaining or 
providing medical care. Also, the applicant must demonstrate 
that the sponsor is established as a permanent entity and has 
the active support of its members.
    In addition to the associations described above, certain 
other entities are eligible to seek an exemption as AHPs. These 
include: (1) franchise networks; (2) certain existing 
collectively bargained arrangements which fail to meet the 
statutory exemption criteria; (3) certain arrangements not 
meeting the statutory exemption criteria for single employer 
plans; and (4) certain church plans electing to seek an 
exemption.
    The bill also requires that the arrangement be operated, 
pursuant to a trust agreement, by a ``board of trustees'' which 
has complete fiscal control and which is responsible for all 
operations of the arrangement. The board of trustees must 
develop rules of operation and financial control based on a 
three-year plan of operation which is adequate to carry out the 
terms of the arrangement and to meet all applicable 
requirements of the exemption and Title I of ERISA. The Board 
of Trustees must be the ``named fiduciary'' under ERISA, thus 
being liable for any breach of fiduciary duty under Part 4 of 
the law.
    The Committee expects that the following requirements will 
have to be met by any entity which is certified as an AHP under 
the bill. In general, each AHP under which some or all benefits 
are not fully insured shall be required to establish and 
maintain reserves, recommended by the plan qualified actuary 
with respect to the self-insured portion of the plan, 
consisting of: (1) a reserve sufficient for unearned 
contributions; (2) a reserve sufficient for benefit liabilities 
which have been incurred, which have not been satisfied, and 
for which risk of loss has not yet been transferred, and for 
expected administrative costs with respect to such benefit 
liabilities; and (3) a reserve for any other obligations of the 
arrangement.
    The Committee expects that, in general, the plan will be 
required to maintain surplus in an amount equal to the greater 
of: (1) 25 percent of the amount of benefit liabilities 
expected to be incurred for the plan year and for which risk of 
loss has not been effectively transferred and 25 percent of the 
amount of expected administrative costs with respect to such 
benefit liabilities for the plan year; or (2) $400,000 less the 
amount of reserves described in (2) above.
    The Committee expects that in determining the amounts of 
reserves required in connection with any association health 
plan, the qualified actuary shall include a margin for error 
and other fluctuations taking into account the specific 
circumstances of such plan.
    The Committee expects that an AHP will have to maintain in 
force aggregate excess/stop loss insurance with an attachment 
point not greater than 125% of expected claims.
    The Committee also intends that AHPs operate in such a 
manner so as to preclude the chance that claims will be left 
unpaid upon plan termination. To obtain this result EPHIC 
requires each AHP that offers a self-insured option to maintain 
an effective means of indemnification for any obligations of 
the plan for which reserves are insufficient upon plan 
termination. As an ultimate backstop to the preceding, EPHIC 
provides for an assessment based guarantee fund which would be 
triggered only in the unlikely event that plan indemnification 
and other plan assets would prove insufficient.
    The Committee also intends that the Secretary may provide 
such additional requirements relating to reserves and excess/
stop loss coverage as the Secretary considers appropriate. Such 
requirements may be provided, by regulation or otherwise, with 
respect to any arrangement or any class of arrangements. It is 
anticipated that the Secretary may provide for adjustments to 
the levels of reserves otherwise required with respect to any 
arrangement or class of arrangements to take into account 
excess/stop loss coverage provided with respect to such plans.
    The Committee also intends that the Secretary shall permit 
an association health plan to substitute, for all or part of 
the reserves required, such security, guarantee, hold-harmless 
arrangements, insurance, or other financial arrangement as the 
Secretary determines to be adequate to enable the plan to fully 
satisfy all benefit liabilities on a timely basis. Such an 
alternative must not be less protective than the basic 
provisions for which it is substituted.
    The Committee also intends that the Secretary will provide 
by regulation, or otherwise, procedures for the quarterly 
reporting of financial and actuarial information by the board 
of trustees and the qualified actuary, in cases of any failure 
to meet the standards, in order to assure the financial 
responsibility of the plan. It is expected that notice 
requirements for voluntary termination and additional rules for 
mandatory termination, in cases in which this may be necessary, 
will also be promulgated.
    In addition to the above reserve and other consumer 
protections, EPHIC has strict rules to prevent so-called 
``anti-selection.'' First, the organizations eligible to 
sponsor AHPs cannot be structured to select only ``good risks'' 
because: (1) sponsors cannot be organized for the purpose of 
offering health insurance and must be in existence for at least 
3 years for substantial purposes other than establishing an AHP 
before becoming an eligible sponsor of an AHP; (2) sponsors can 
only be legitimate business associations, church plans, 
multiemployer and collectively-bargained arrangements, and 
franchise networks not otherwise in the health insurance 
business; and (3) since an AHP must meet the definition of 
``group health plan'' under ERISA and the Health Insurance 
Portability and Accountability Act (HIPAA), only bonafide 
associations of employers (not individuals) are eligible-this precludes 
typical so-called MEWAs consisting of unrelated employers from 
eligibility (in fact, increased state and federal enforcement is made 
applicable to such entities under EPHIC).
    Secondly, because AHPs must be ERISA ``group health 
plans'', the preexisting condition, portability, 
nondiscrimination, special enrollment, and renewability 
provisions under ERISA as added by HIPAA are applicable to such 
plans in the same manner as for insurers. Thus AHPs cannot deny 
enrollment to employees because of a preexisting medical 
condition or any health status factor. In addition, since EPHIC 
requires that AHPs must offer coverage to all employer members 
of the association without regard to claims experience, health 
status of workers, or other conditions, employers with more 
costly employees cannot be excluded. In fact, AHPs must 
``actively market'' coverage to all employers so as to preclude 
any selection against higher cost employers.
    Moreover, once coverage is offered to employers under an 
AHP, the renewability requirements of HIPAA ensures continued 
coverage eligibility. Also AHPs cannot set their premiums in a 
manner so as to force a high claims cost employer to pay higher 
premiums than other similarly situated employers in the plan so 
as to force such an employer out of the plan and into the non-
association insurance market.
    Anti-selection against the individual insurance market is 
also precluded under the bill by prohibiting employers who 
participate in AHPs from excluding sick employees and 
purchasing coverage for such individuals in the individual 
market.
    Rather than anti-selection in favor of ``good risks'', 
self-insured multiple employer plans serve today as a backstop 
to practices in the insurance industry which have denied 
higher-than-average risk industries the access to health 
insurance they have sought. For example, in testimony a 
California growers cooperative produced evidence of dozens of 
insurers who refused to underwrite health insurance coverage 
for the farm workers in their industry.
    A study by Lewin-VHI, Inc. demonstrates that the self-
insured population is not composed of ``lower health insurance 
risks'' than the population of employees covered under employer 
sponsored fully-insured health insurance policies. The anti-
selection argument is a specious one to mask the real issue 
that ERISA self-insured plans are not subject to state premium 
taxes. However, if directed at EPHIC this argument would be a 
hollow one since AHPs must offer at least one option of fully-
insured health insurance coverage which is subject to state 
premium taxes.
    The bill empowers employers, particularly small employers, 
to use the same time-tested ``self-insured'' concept that 
numerous states, counties, and cities use to secure health 
insurance coverage for their own employees. Approximately seven 
million employees are covered under public employee self-
insured plans.
    Under EPHIC the fully-insured market will again be 
competitive with ERISA self-insured single-employer plans, 
since employers and insurers will be able to fashion under AHPs 
the benefit packages employees desire and can afford on a 
nationally uniform basis (with certain exceptions state benefit 
mandates are preempted). The expanded coverage under voluntary 
AHPs will also prove useful to retaining and expanding the 
share of the health insurance market for insurers and HMOs.
    The intent of EPHIC is to help get the uninsured employees 
and their families into some sort of health insurance plan--
whether fully-insured or self-insured. This alone will help 
reduce the cost-shifting of the uncompensated care incurred by 
the uninsured which today increases the costs for those who are 
insured.

Conclusion

    EPHIC will open up the health insurance market to the 
millions of American workers and their families who today do 
not have access to or cannot afford private health insurance. 
It does so by removing the structural barriers that prevent 
some employers from voluntarily providing health insurance to 
their employees, either on their own or as part of an 
association health plan.
    The bill employs ERISA Title I to provide a twenty-first-
Century model of freedom for employees and employers to 
negotiate benefits, and provide a competitive environment to 
let market forces help reduce health care costs, thus making 
health insurance coverage more available and affordable for the 
American worker.
    The bill creates a competitive health care marketplace, 
removes barriers and conflicting regulations, provides 
important new protections and freedoms for workers in a more 
mobile society, and allows cost-saving innovations to be 
introduced into the marketplace.
    It is long overdue that cost-conscious small employers be 
given the same opportunity to achieve the economies-of-scale 
and freedom from excessive government regulation that large 
employers already have. The problems of uninsured workers and 
their families can be strongly attacked by removing barriers 
and allowing small employers to pool together to voluntarily 
form ERISA multiple employer health plans.
    EPHIC builds on what is already working and by letting the 
market roar, the increased health plan competition that results 
will mean improved access to more affordable coverage for 
millions of employees, particularly those working for small 
businesses who do not have health insurance.
    In conclusion, the only way major strides in expanding 
access to health coverage for the uninsured can be achieved in 
a voluntary market is to make reforms that bring down the cost 
of providing health coverage to employers, particularly small 
employers. Health care reform that is effective in expanding 
access and based on free market principles is possible. It is 
in the grasp of this Congress in the form of EPHIC. The way to 
expand coverage is the free marketapproach that is already 
working for over 50 million Americans now covered by an ERISA plan. We 
urge our colleagues to keep it working for those who already have 
coverage and expand the advantages of ERISA to those who do not by 
passing the provisions of EPHIC and taking an epic step toward reducing 
the number of uninsured Americans.

                           Section-by-Section

                               Subtitle A

    Section 5001. This Act may be cited as the ``Welfare-To-
Work Grants.''
    Section 5001(a) amends section 403(a) of the Social 
Security Act as follows:
          ``403(a)(5)(A)(i) specifies the process for 
        determining the level of funding entitled to each 
        welfare-to-work State.
          403(a)(5)(A)(ii) specifies criteria for which to 
        determine whether a State shall be considered a 
        welfare-to-work State.
          403(a)(5)(A)(iii) specifies the calculation to be 
        used in determining the allotments to welfare-to-work 
        States.
          403(a)(5)(A)(iv) defines the term `available amount' 
        for purposes of calculating allotments to welfare-to-
        work States.
          403(a)(5)(A)(v) defines the State percentage for 
        purposes of calculating allotments to welfare-to-work 
        States.
          403(a)(5)(A)(vi) specifies the process for the within 
        State distribution of funds. Including the 85 percent 
        which must be distributed by formula and the remainder 
        which the Governor may distribute to projects to help 
        long-term recipients of assistance into the workforce.
          403(a)(5)(A)(vii) specifies the State agencies 
        authorized to be designated to administer grants and 
        provides Private Industry Councils sole authority to 
        expend funds.
          403(a)(5)(B)(i) authorizes the Secretary of Labor to 
        make grants to eligible applicants for demonstration 
        projects.
          403(a)(5)(B)(ii) defines criteria for applicants 
        eligible for receipt of demonstration projects.
          403(a)(5)(B)(iii) sets forth criteria for the 
        determination of grant amounts made available for 
        individual demonstration projects.
          403(a)(5)(B)(iv) specifies calculation to be used to 
        determine the total amount available for demonstration 
        grants.
          403(a)(5)(C)(i) specifies allowable activities with 
        respect to the use of funds under this paragraph.
          403(a)(5)(C)(ii) specifies those beneficiaries 
        targeted for receipt of services.
          403(a)(5)(C)(iii) sets forth limitation of the 
        applicability of ``use of grant'' provisions under the 
        Temporary Assistance to Needy Families grant.
          403(a)(5)(C)(iv) prohibits Private Industry Councils 
        from providing direct services.
          403(a)(5)(C)(vi) sets deadline for expenditure of 
        funds.
          403(a)(5)(D) defines criteria for use in determining 
        the number of individuals with income less than 
        poverty.
          403(a)(5)(E) includes definitions for: private 
        industry council; the Secretary; and Service Delivery 
        Areas.
          403(a)(5)(F) reserves funding for Indian tribes.
          403(a)(5)(G) reserves funding for the Secretary to 
        conduct evaluations.
          403(a)(5)(H) specifies funding levels for each of the 
        fiscal years 1998 through 2000.
          403(a)(5)(I) sets limit as to the period of time for 
        which grants may be made.''
    Section 5001(b) amends section 1108(a) to exempt welfare-
to-work grant amounts from limitation on total payments to 
Territories.
    Section 5001(c) amends section 412(a) as follows:
          ``412(a)(3)(A) requires the Secretary to make 
        welfare-to-work grants to each Indian tribe that is a 
        welfare-to-work tribe.
          412(a)(3)(B) defines criteria for Indian tribe to be 
        considered a welfare-to-work tribe.
          412(a)(3)(C) sets forth limitations on the use of 
        funds provided to welfare-to-work tribes.
    Section 5001(d) amends section 408(a)(7) to clarify that 
funds received by an individual from welfare-to-work grants are 
to be disregarded in the application of durational limits on 
assistance.
    Section 5001(e) amends section 413 to require the Secretary 
to develop a plan on the evaluation of grants and to allow for 
the evaluation of the use of grants by grantees.
    Section 5002 amends section 407(f) as follows:
          ``407(f)(1) specifies prohibitions with respect to 
        the displacement or partial displacement of an employee 
        by a participant in a work activity; prohibits 
        impairment of contracts and includes additional 
        prohibitions with respect to work activities.
          407(f)(2) specifies health and safety standards 
        applicable to participants engaged in a work activity.
          407(f)(3) specifies non-discrimination provisions 
        applicable to participants engaged in a work activity.
          407(f)(4) specifies establishment of grievance 
        procedure for certain complaints and includes 
        provisions with respect to the investigation of such 
        grievances and remedies for violations.''
    Section 5003 amends section 407(c)(2)(D) to clarify the 
limitation on the number of persons who may be treated as 
engaged in work by reason of participation in educational 
activities.
    Section 5004 amends section 407 as follows:
          ``407(j) specifies the compensation required on 
        behalf of recipients participating in specified work 
        activities.
          407(k) specifies limitation on the number of hours 
        per month that a recipient of assistance may be 
        required to participate in on-the-job training and with 
        a public agency or nonprofit organization.''
    Section 5005 amends section 409(a) to include a penalty for 
failure of a State to reduce assistance for recipients refusing 
without good cause to work.

                               Subtitle B

    Section 5101 adds a new subsection (h) to Section 422 of 
the Higher Education Act which sets forth the amount of 
$1,000,000,000 to be recalled from cash reserve funds held by 
guaranty agencies by the Secretary and the method for ensuring 
that such funds are available in 2002 for return to the 
Treasury. This section dictates the calculation to be used to 
determine the amount of reserves to be returned by each 
individual guaranty agency. It also requires the transfer of 
reserve funds to restricted accounts on an annual basis or in 
accordance with a payment schedule agreed to by the Secretary. 
The funds transferred to the restricted accounts may not be 
used by the guaranty agencies, but the earnings on such 
accounts may be used to pay operating expenses.
    Section 5102 repeals the provision of the Higher Education 
Act authorizing the payment of direct loan origination fees to 
institutions of higher education.
    Section 5103 reduces the available funds under Section 458 
of Part D of the Higher Education Act to $532 million in Fiscal 
Year 1998, $610 million in Fiscal Year 1999, $705 million in 
Fiscal Year 2000, $750 million in Fiscal Year 2001 and $750 in 
Fiscal Year 2002. In addition, guaranty agencies are to receive 
administrative cost allowances from these funds calculated on 
the basis of .85% of the total principal amount of loans upon 
which insurance is issued on or after the date of enactment of 
this legislation subject to a maximum expenditure of $170 
million for each of the Fiscal Years 1998 and 1999 and $150 
million thereafter.
    Section 5104 extends the authorizing dates for the student 
loan programs.
    Section 5105 clarifies the amount guarantors may retain on 
the collection of consolidated defaulted student loans. This 
section establishes the collection retention rate for guaranty 
agencies at 18.5% for student loans in default which are 
subsequently consolidated and returned to good standing. The 
effective date for this provision is July 1, 1997, except that, 
for guaranty agencies which have been retaining 18.5% since 
enactment of the Higher Education Amendments of 1992, this 
provision applies as of the effective date of those amendments.

                               Subtitle C

    Section 5201 repeals the Smith Hughes Act.

                               Subtitle D

    Section 5301. This Act may be cited as the ``Expansion of 
Portability and Health Insurance Coverage Act of 1997'' or 
EPHIC.
    Section 5302 adds a new Part 8 (Rules Governing Regulation 
of Association Health Plans) to Title I of ERISA, as follows:
          801 states that the term ``association health plan'' 
        means a ``group health plan'' (which is defined in 
        ERISA as added by the Health Insurance Portability and 
        Accountability Act or HIPAA; under HIPAA such group 
        health plans are subject to all of the portability, 
        preexisting condition, nondiscrimination, special 
        enrollment, renewability and other provisions of ERISA 
        Part 7)--
          (1) under which at least one option of fully-insured 
        ``health insurance coverage'' offered by a health 
        insurance issuer is made available to plan participants 
        and beneficiaries, and
          (2) whose sponsor of the plan meets the following 
        conditions.
    The sponsor of an Association Health Plan (AHP) must be 
organized and maintained in good faith, with a constitution and 
bylaws specifically stating its purpose and providing for at 
least annual meetings, as a trade association, an industry 
association (including a rural electric or rural telephone 
cooperative), a professional association, or a chamber of 
commerce (or similar business group, including a similar 
organization that operates on a cooperative basis within the 
meaning of section 1381 of the IRC), for substantial purposes 
other than that of obtaining or providing medical care. Also, 
the applicant must demonstrate that the sponsor is established 
as a permanent entity, has the active support of its members, 
and collects dues or payments (to maintain eligibility) from 
its members without conditioning such on the basis of the 
health status or claims experience of plan participants or 
beneficiaries or on the basis of the member's participation in 
a group health plan.
    In addition to the associations described above, certain 
other entities are eligible to seek certification as AHPs. 
These include (1) franchise networks (section 803(c)), (2) 
multiemployer plans and certain existing collectively bargained 
arrangements which fail to meet the statutory exemption 
criteria (section 803(d)), and (3) certain arrangements not 
meeting the statutory exemption criteria for single employer 
plans (section 803(e)). Section 810 also makes eligible certain 
church plans voluntarily electing to come under the fiduciary, 
reporting, and actuarial standards contained in section 810.
    802 establishes a procedure for the certification of 
Association Health Plans as prescribed by the Secretary of 
Labor. The Secretary shall grant certification only if such 
certification is administratively feasible, not adverse to the 
interests of the individuals covered under it, and protective 
of the rights and benefits of the individuals covered under the 
plan. In essence, this procedure has the same effect as 
requiring the Secretary to implement the authority under 
current law to issue exemptions for association health plans 
(see ERISA section 514(b)(6)(B)). A ``class certification'' 
procedure is established to speed the approval of plans which 
offer only fully-insured health insurance coverage.
    An AHP that is certified must also meet the applicable 
requirements of Part 8 as described below.
    803 establishes additional eligibility requirements for 
AHPs. Applicants must demonstrate that the arrangement's 
sponsor has been in existence for a continuous period of at 
least 3 years for substantial purposes other than providing 
coverage under a group health plan.
    Subsection (b) also requires that the plan be operated, 
pursuant to a trust agreement, by a ``board of trustees'' which 
has complete fiscal control and which is responsible for all 
operations of the plan. The board of trustees must develop 
rules of operation and financial control based on a three-year 
plan of operation which is adequate to carry out the terms of 
the plan and to meet all applicable requirements of the 
certification and Title I of ERISA. The board of trustees must 
consist of individuals who are owners, officers, directors or 
employees of the employers who participate in the plan.
    In addition to the associations described in section 801, 
certain other entities are made eligible to seek certification 
as AHPs. These include (1) franchise networks (section 803(c)), 
(2) multiemployer plans and certain existing collectively 
bargained arrangements which fail to meet the statutory 
exemption criteria (section 803(d)), and (3) certain 
arrangements not meeting the statutory exemption criteria for 
single employer plans (section 803(e)). Section 810 also makes 
eligible certain church plans voluntarily electing 
certification.
    804 prohibits discrimination against eligible employers and 
employees by requiring that all employers who are association 
members be eligible for participation under the terms of the 
plan, that benefit options be actively marketed to all eligible 
members, and that eligible individuals of such participating 
employers not be excluded from enrolling in the plan because of 
health status. Plans may include minimum participation, 
contribution, and size requirements to the extent they meet the 
nondiscrimination and other rules under sections 701, 702, and 
703. Affiliated members of the plan sponsor may be offered 
coverage if they are affiliated at the time of certification or 
if they were previously uninsured for 12 months prior to being 
covered. The legislation will not affect the individual health 
insurance market adversely inasmuch as the bill requires that 
no participating employer may exclude an employee from 
enrollment under an AHP by purchasing an individual policy of 
health insurance coverage for such person based on their health 
status
    805 requires an association health plan to meet the 
following requirements: (1) its governing instruments must 
provide that the board of trustees serves as the named 
fiduciary and plan administrator, that the sponsor serves as 
plan sponsor, and that the reserve requirements of section 806 
are met; (2) the contribution rates for any particular employer 
must be nondiscriminatory-- they cannot vary only on the claims 
experience of the particular employer or on the type of 
business or industry in which the employer is engaged, 
regardless of how much such claims may be above or below 
average claims experience, (3) the plan has at least 1,000 
participants and beneficiaries if the plan does not consist 
solely of fully-insured health insurance coverage, and (4) the 
plan meets such other requirements as may be set forth in 
regulations by the Secretary.
    The rules also stipulate that association health plans must 
be allowed to design benefit options. Specifically, no 
provision of state law shall preclude an AHP or health 
insurance issuer from exercising its discretion in designing 
the items and services of medical care to be included as health 
insurance coverage under the plan, except to the extent that 
such law (1) prohibits a specific disease from such coverage, 
or (2) is not preempted under section 731(a)(1) with respect to 
the matters governed by section 711 (relating to maternal and 
newborn hospitalization) and section 712 (relating to mental 
health coverage).
    In addition, no provision of law shall be construed to 
preclude an AHP or health insurance issuer from setting 
contribution rates based on the experience under the plan to 
the extent such rates are nondiscriminatory as described above.
    806 requires AHPs offering benefit options that do not 
consist solely of fully-insured health insurance coverage to 
establish and maintain reserves sufficient for unearned 
contributions, benefit liabilities incurred but not yet 
satisfied and for which risk of loss has not been transferred, 
expected administrative costs, any other obligations and a 
margin for error recommended by the plan's qualified actuary. 
Surplus must be maintained in an amount at least equal to the 
larger of 25% of expected incurred claims and expenses for the 
year or $400,000 over the amount of reserves for incurred but 
unpaid claims. In addition, each plan must secure coverage from 
an insurer consisting of (1) aggregate stop-loss insurance with 
an attachment point not greater than 125% of expected gross 
claims, and (2) to prevent insolvency, indemnification for any 
claims which a plan is unable to satisfy by reason of a 
mandatory termination described under section 809(b). The 
Secretary may provide additional requirements relating to 
reserves and excess/stop loss insurance and may provide 
adjustments to the levels of reserves otherwise required to 
take into account the level of excess/stop loss insurance or 
other financial arrangements.
    807 sets forth additional criteria which association health 
plans must meet to qualify for certification. The Secretary 
shall grant certification to a plan only if: (1) a complete 
application has been filed, accompanied by the filing fee of 
$5,000; and (2) all other terms of the certification are met 
(including financial, actuarial, reporting, participation, and 
such other requirements as may be specified as a condition of 
the certification).
    The application must include the following: (1) identifying 
information about the arrangement and the states in which it 
will operate; (2) evidence that ERISA's bonding requirements 
will be met; (3) copies of all plan documents and agreements 
with service providers; (4) a funding report indicating that 
the reserve requirements of 806 will be met, that contribution 
rates will be adequate to cover obligations, and that a 
qualified actuary (a member in good standing of the American 
Academy of Actuaries or an actuary meeting such other standards 
the Secretary considers adequate) has issued an opinion with 
respect to the arrangement's assets, liabilities, and projected 
costs; and (5) any other information prescribed by the 
Secretary. Certified association health plans must notify the 
Secretary of any material changes in this information at any 
time, must file annual reports with the Secretary, and must 
engage a qualified actuary.
    808 requires that, except as provided in section 809, an 
AHP may terminate only if the board of trustees provides 60 
days advance written notice to participants and beneficiaries 
and submits to the Secretary a plan providing for timely 
payment of all benefit obligations.
    809 requires an AHP which offers benefit options which are 
not fully-insured to continue to meet the reserve requirements 
under section 806 even if its exemption is no longer in effect. 
The board of trustees of such an AHP must quarterly determine 
whether the reserve requirements of section 806 are being met 
and, if they are not, must, in consultation with the qualified 
actuary, develop a plan to ensure compliance and report such 
information to the Secretary. In any case where an AHP notifies 
the Secretary that it has failed to meet the reserve 
requirements and corrective action has not restored compliance, 
and the Secretary determines that there is a reasonable 
expectation that the plan will continue to fail to meet the 
requirements applicable to such AHPs, the Secretary may direct 
the board to terminate the arrangement. Under subsection (c), 
the Secretary of Labor is directed to assess self-insured 
association health plans up to 2% of self-insured claims per 
year to pay any outstanding claims of an AHP in the unlikely 
event that, upon the termination of any such plan, the 
reserves, stop-loss and indemnification insurance and other 
plan assets are insufficient to pay all claims incurred at the 
time of termination. Such assessments would be temporarily held 
in a guarantee fund and immediately paid out to settle any 
claims.
    810 permits church plans providing medical care to 
voluntarily elect to apply to the Department of Labor for 
certification. In order to receive an exemption from state 
insurance law, an electing church plan would be subject to the 
requirements of section 810 providing for compliance with 
fiduciary standards (exclusive purpose and prudence rules); 
claims procedures; annual certification by a qualified actuary 
that the plan maintains reserves, capital, insurance or other 
financial arrangements adequate to enable the plan to meet all 
of its financial obligations on a timely basis; and annual 
statements certifying plan compliance with the above.
    811 defines the following terms: group health plan, medical 
care, health insurance coverage, health insurance issuer, 
health status-related factor, individual market, participating 
employer, qualified actuary, applicable state authority and 
affiliated member. The terms are consistent with those added to 
ERISA by the Health Insurance Portability and Accountability 
Act. In addition, the terms ``employer'' and ``employee'' 
include self-employed individuals and partners for purposes of 
the application of Part 8 and the provisions of Title I as 
applicable to association health plans.
    Subsection (b). Conforming Amendments. This subsection 
contains (1) conforming changes to the definition of ``plan 
sponsor'' to include the sponsor of an AHP; (2) conforming 
changes to the Title I exception for church plans electing 
association health plan status; and (3) as described below, 
conforming changes to the section 514 preemption rules to 
reflect the policy changes under Part 8 with respect to 
association health plans. First, paragraph (6) of section 
514(b) is made inapplicable with respect to any state law in 
the case of a certified AHP. Secondly, a new subsection 514(d) 
(current subsection (d) is redesignated as (e)) clarifies the 
ability of health insurance issuers to offer health insurance 
coverage under AHPs and clarifies the ability of any health 
insurance issuer to offer health insurance coverage of the same 
policy type as offered in connection with a particular AHP to 
eligible employers, regardless of whether such employers choose 
or do notchoose to become members of the particular 
association. Health insurance coverage policy forms filed and approved 
in a particular state in connection with an insurer's offering under an 
association health plan are deemed to be approved in any other state in 
which such coverage is offered when the insurer provides a complete 
filing in the same form and manner to the authority in the other state. 
Also, this section removes the current restriction on state regulation 
of self-insured multiple employer welfare arrangements providing 
medical care (which do not elect to meet the certification requirements 
for AHPs) under section 514(b)(6)(A)(ii) by eliminating the requirement 
that such state laws otherwise ``be consistent with the provisions of 
ERISA Title I.'' Section 514 is also amended to include a cross-
reference to section 805(b) (relating to the ability of AHPs and health 
insurance issuers to design association health insurance options) and 
to section 805(a)(2)(B) (relating to the ability of AHPs and health 
insurance issuers to base contribution rates on the experience of such 
plans). Other than as described above, the preemptive provisions of 
section 514 continue to apply as under current law, including their 
application with respect to self-insured plans and direct contracting 
with providers under such plans. Financial agreements to provide 
medical care services under direct contracting arrangements between 
ERISA self-insured plans and providers of medical care do not 
constitute the business of insurance and are protected from state 
regulation under the general preemption rules of section 514 of ERISA, 
since ERISA self-insured plans retain the obligation to pay benefits in 
connection with such medical care and do not fully transfer the so-
called insurance risk for a premium as is the case under ``health 
insurance coverage'' (as that term is defined in ERISA). Direct 
contracting with providers is a common practice using traditional fee-
for-service arrangements. In recent years, the use of various forms of 
provider payments to create incentives to manage the cost and use of 
their services has taken hold and is rapidly becoming the predominant 
payment method under private ERISA group health plans as well as public 
plans. Examples of such payment methods include: fixed per diem 
payments that cover all inpatient costs; fixed per case payments that 
cover all inpatient costs; fixed global payments for an entire course 
of treatment that cover the costs of all providers and settings needed; 
and withholds bonus payments tied to utilization and/or cost targets. 
Under these types of arrangements, plans retain the obligation to pay 
for covered benefits. As such, these payment arrangements do not 
constitute the business of insurance under ERISA. In these situations, 
the medical care providers are not selling coverage to individuals, 
they are contracting with the employer plans to deliver medical care 
services. Delivering medical care services is the purpose of the 
arrangement, not the provision of insurance coverage.
    Section 5303 modifies the treatment of certain single 
employer arrangements under the section of ERISA that defines a 
multiple employer welfare arrangement (section 3(40)). The 
treatment of a single employer plan as being excluded from the 
definition of such an arrangement (and thus from state law) is 
clarified by defining the minimum interest required for two or 
more entities to be in ``common control'' as a percentage which 
cannot be required to be greater than 25%. Also a plan would be 
considered a single employer plan if less than 25% of the 
covered employees are employed by other participating 
employers.
    Section 5304 clarifies the conditions under which 
multiemployer and other collectively-bargained arrangements are 
exempted from the definition of a multiple employer welfare 
arrangement, and thus exempt from state law. This is intended 
to address the problem of ``bogus unions'' and other 
illegitimate health insurance operators. The provision amends 
the definition of such an arrangement to exclude a plan or 
arrangement which is established or maintained under or 
pursuant to a collective bargaining arrangement (as described 
in the National Labor Relations Act, the Railway Labor Act, and 
similar state public employee relations laws). (Current law 
requires the Secretary to ``find'' that a collective bargaining 
agreement exists, but no such finding has ever been issued). It 
then specifies additional conditions which must be met for such 
a plan to be a statutorily excluded collectively bargained 
arrangement and thus not a multiple employer welfare 
arrangement. These include:
          (1) The plan cannot utilize the services of any 
        licensed insurance agent or broker to solicit or enroll 
        employers or pay a commission or other form of 
        compensation to certain persons that is related to the 
        volume or number of employers or individuals solicited 
        or enrolled in the plan.
          (2) A maximum 15 percent rule applies to the number 
        of covered individuals in the plan who are not 
        employees (or their beneficiaries) within a bargaining 
        unit covered by any of the collective bargaining 
        agreements with a participating employer or who are not 
        present or former employees (or their beneficiaries) of 
        sponsoring employee organizations or employers who are 
        or were a party to any of the collective bargaining 
        agreements.
          (3) The employee organization or other entity 
        sponsoring the plan or arrangement must certify 
        annually to the Secretary the plan has met the previous 
        requirements.
          (4) If the plan or arrangement is not fully insured, 
        it must be a multiemployer plan meeting specific 
        requirements of the Labor Management Relations Act 
        (i.e., the requirement for joint labor-management 
        trusteeship under section 302(c)(5)(B)).
          (5) If the plan or arrangement is not in effect as of 
        the date of enactment, the employee organization or 
        other entity sponsoring the plan or arrangement must 
        have existed for at least 3 years or have been 
        affiliated with another employee organization in 
        existence for at least 3 years, or demonstrate to the 
        Secretary that certain of the above requirements have 
        been met.
    Section 5305 amends ERISA to establish enforcement 
provisions relating to association health plans and multiple 
employer welfare arrangements: (1) willful misrepresentation 
that an entity is an exempted AHP or collectively-bargained 
arrangement may result in criminal penalties; (2) the section 
provides for cease activity orders for arrangements found to be 
neither licensed, registered, or otherwise approved under State 
insurance law, or operating in accordance with the terms of a 
certification granted by the Secretary under part 8; and (3) 
the section provides for the responsibility of the named 
fiduciary or board of trustees of an AHP to comply with the 
required claims procedure under ERISA.
    Section 5306 amends section 506 of ERISA (relating to 
coordination and responsibility of agencies enforcing ERISA and 
related laws) to specify State responsibility with respect to 
Association Health Plans. A State may enter into an agreement 
with the Secretary for delegation to the State of some or all 
of the Secretary's authority under section 502 and 504 to 
enforce provisions applicable to certified AHPs. The Secretary 
is required to enter into the agreement if the Secretary 
determines that delegation to the State would not result in a 
lower level or quality of enforcement. However, if the 
Secretary delegates authority to a State, the Secretary can 
continue to exercise such authority concurrently with the 
State.
    Section 5307 states that in general, the amendments made by 
the Act are effective January 1, 1999. Sections 3 and 4 are 
effective upon date of enactment. In addition, the Secretary is 
required to issue all regulations needed to carry out the 
amendments before January 1, 1999.
    The provisions of section 801(a)(2) relating to health 
insurance coverage do not apply to group health plans existing 
on April 1, 1997 if they do not provide fully-insured health 
insurance coverage, but later qualify for certification.

  Statement of Oversight Findings and Recommendations of the Committee

    In compliance with clause 2(l)(3)(A) of rule XI of the 
Rules of the House of Representatives and 2(b)(l) of rule X of 
the Rules of the House of Representatives, the Committee's 
oversight findings and recommendations are reflected in the 
body of this report.

                    Government Reform and Oversight

    With respect to the requirement of clause 2(l)(3)(D) of 
rule XI of the Rules of the House of Representatives, the 
Committee has received no report of oversight findings and 
recommendations from the Committee on Government Reform and 
Oversight on the subject of the Committee recommendations.

                           Committee Estimate

    Clause 7 of rule XIII of the Rules of the House of 
Representatives requires an estimate and a comparison by the 
Committee of the costs which would be incurred in carrying out 
the Committee Recommendations. However, clause 7(d) of that 
rule provides that this requirement when the Committee has 
included in its report a timely submitted cost estimate of the 
bill prepared by the Director of the Congressional Budget 
Office under section 403 of the Congressional Budget Act of 
1974.

              Application of Law to the Legislative Branch

    Section 102(b)(3) OF Public Law 104-1 requires a 
description of the application of this bill to the legislative 
branch. The reconciliation recommendations make administrative 
reforms in student loan programs, establishes a system for 
spending an additional money through the Temporary Assistance 
to Needy Families block grant, repeals the Smith-Hughes Act of 
1917, and expands the portability of employer provided health 
insurance. These recommendations do not otherwise prohibit 
legislative branch employees from receiving the benefits of 
this legislation.

                       Unfunded Mandate Statement

    Section 423 of the Congressional Budget and Impoundment 
Control Act requires a statement of whether the provisions of 
the reported bill include unfunded mandates. The Committee 
received a letter regarding unfunded mandates from the Director 
of the Congressional Budget Office. See infra.

     Budget Authority and Congressional Budget Office Cost Estimate

    With respect to the requirement of clause 2(l)(3)(B) of 
rule XI of the House of Representatives and section 308(a) of 
the Congressional Budget Act of 1974 and with respect to 
requirements of clause 2(l)(3)(C) of rule XI of the House of 
Representatives and section 403 of the Congressional Budget Act 
of 1974, the Committee has received a cost estimate for the 
Committee Recommendation from the Director of the Congressional 
Budget Office.

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 16, 1997.
Hon. William F. Goodling,
Chairman, Committee on Education and the Workforce,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for the reconciliation 
recommendations of the House Committee on Education and the 
Workforce.
    The estimate shows the budgetary effects of the committee's 
proposals over the 1998-2007 period. CBO understands that the 
Committee on the Budget will be responsible for interpreting 
how these proposals compare with the resolution instructions in 
the budget resolution. This estimate assumes the reconciliation 
bill will be enacted by August 15, 1997; the estimate could 
change if the bill is enacted later.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Sheila 
Dacey (for Subtitle A), Deborah Kalcevic (for Subtitle B), and 
Christi Sadoti (for Subtitle C), Jeffrey Lemieux (for Subtitle 
D), and Marc Nicole and John Patterson (for state and local 
government impacts).
            Sincerely,
                                         June E. O'Neill, Director.
    Enclosure.

Reconciliation Recommendations of the House Committee on Education and 
        the Workforce (Title V)

    Summary: This bill would mandate a new welfare-to-work 
program, reduce the cost of the federal student loan programs, 
repeal the Smith-Hughes Act (which provides funds for 
vocational education), and modify the standards under which 
certain health plans can be certified. The bill would increase 
spending by $2.8 billion over the 1998-2002 period on the new 
welfare-to-work grant and save $1.8 billion in the student loan 
program.
    By preempting states from taking various regulatory actions 
in the health insurance market, Subtitle D of Title V would 
impose several intergovernmental mandates as defined in the 
Unfunded Mandates Reform Act of 1995 (UMRA). CBO is unable to 
estimate the size or direction of the impact that these 
mandates would have on state budgets and, therefore, cannot 
determine if the threshold established in UMRA would be 
exceeded. Title V contains no private-sector mandates as 
defined in UMRA.
    Estimated cost to the Federal Government: CBO estimates the 
committee's proposals would reduce federal outlays by $14 
million in 1998 and $794 million in 2002 but increase outlays 
by $1 billion over the 1998-2002 period. The estimated 
budgetary impact of these proposals over the 1998-2002 period 
is shown in the following table. The appendix table shows the 
budgetary effects through 2007.
    The budgetary impact of Title V falls within budget 
functions 500 (education, training, employment, and social 
services) and 550 (health).

  ESTIMATED BUDGETARY IMPACT OF THE RECONCILIATION RECOMMENDATIONS OF THE HOUSE COMMITTEE ON EDUCATION AND THE  
                                                    WORKFORCE                                                   
                                     [By fiscal year in millions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                                        1997      1998      1999      2000      2001      2002  
----------------------------------------------------------------------------------------------------------------
Subtitle A--Welfare-to-Work Program:                                                                            
    Budget Authority................................  ........       750     1,250     1,000  ........  ........
    Estimated Outlays...............................  ........       226       782     1,049       489       265
Subtitle B--Student Loans:                                                                                      
    Estimated Budget Authority......................     (\1\)      -456      -175       -85       -40    -1,045
    Estimated Outlays...............................     (\1\)      -239      -233      -155       -85    -1,052
Subtitle C--Vocational Education:                                                                               
    Budget Authority................................  ........        -7        -7        -7        -7        -7
    Estimated Outlays...............................  ........        -1        -7        -7        -7        -7
Subtitle D--Expansion of Portability and Health                                                                 
 Insurance Coverage:                                                                                            
    Estimated Budget Authority......................  ........         0         0         0         0         0
    Estimated Outlays...............................  ........         0         0         0         0         0
Total Changes in Direct Spending:                                                                               
    Estimated Budget Authority......................  ........       287     1,068       908       -47    -1,052
    Estimated Outlays...............................  ........       -14       542       887       397      -794
----------------------------------------------------------------------------------------------------------------
\1\ Less than $500,000.                                                                                         

    Basis of Estimate:
            Subtitle A--Welfare-to-work grants
    Subtitle A of the bill would establish welfare-to-work 
grants for states and localities to help recipients of 
Temporary Assistance for Needy Families (TANF) find jobs. 
Grants totaling up to $3 billion would be awarded--$750 million 
in 1998, $1.25 billion in 1999, and $1 billion in 2000. A small 
amount of the grant money would be set aside for special 
purposes: 1 percent for Indian tribes and 0.5 percent for 
evaluation of welfare-to-work programs. Of the remaining grant 
money, 95 percent would be allocated to non-competitive grants 
to states and 5 percent would go towards competitive grants to 
localities and private industry councils for demonstration 
projects.
    Non-competitive grants would be allocated to states based 
on a formula that equally considers states' shares of the 
national number of poor individuals and adult recipients of 
TANF. States must match the federal funds spending one dollar 
of state money for every two dollars of federal money (a 67 
percent federal match rate). Any funds that are not obligated 
by a state by the end of the fiscal year would be distributed 
as a competitive grant in the following year. To be eligible 
for federal matching, the state spending must be in addition to 
the maintenance of effort spending for the TANF program (80 
percent of a state's historic spending on Aid to Families with 
Dependent Children and related programs, or 75 percent if a 
state meets the work requirement of the TANF program). States 
would be required to pass through 85 percent of the grant money 
to private industry councils, which would have sole authority 
to spend the money after consulting with the state agency that 
administers the grant. The state could retain 15 percent of the 
money to fund welfare-to-work projects of the state's choice. 
Competitive grants for demonstration projects would be awarded 
directly to local governments and private industry councils and 
would not need to be matched by any state or local spending.
    Grantees could spend grant funds, either non-competitive or 
competitive, to help move recipients of TANF assistance into 
the workforce by means of job creation, on-the-job training, 
job placement, job vouchers or job retention and support 
services. Any funds that were not expended after three years 
would be returned.
    Based on conversations with officials in half a dozen large 
states, we believe that states would draw down most of the non-
competitive grant money. The officials indicated that the 67 
percent match rate would be very attractive to their states and 
that spending on welfare-to-work programs is politically 
popular. We assume most states would spend more than 80 percent 
of their historic level on benefit and work programs over this 
period under current law, and thus could draw down the federal 
grant without spending any additional state money.
    However, not all of the state officials were confident that 
their state would access all the money available. Some states 
with particularly low spending relative to their historic level 
would need to make a significant expansion of state spending in 
order to draw down the federal funds. Also, the requirement to 
pass most of the money through to private industry councils 
would make it less attractive for states to spend match money. 
The estimate assumes that 30 percent of the grant funds 
available in 1998 and 20 percent of the grant funds available 
in 1999 would not be used in those years but would be 
distributed in the immediately following years as competitive 
grants for demonstration projects. The estimate assumes that 
states would not use 20 percent of the funds available in 2000, 
but that these funds would not be redistributed because the 
bill does not allow grants to be made after 2000. The estimate 
assumes that states would spend the grant funds they draw down 
more slowly in the start-up years of the program than in the 
later years.
    Because no match is required, CBO assumes that all of the 
competitive grant money would be spent. However, the 
competitive grant funds would be spent a little more slowly 
than the non-competitive grant money because the process of 
awarding the money would delay spending.
    Based on discussions with committee staff, the estimate 
assumes that the legislative language will be changed in three 
ways. First, the bill would clarify that state spending that is 
used to match welfare-to-work grant dollars cannot also be used 
to match contingency fund dollars or child care matching 
program dollars. Second, the language would be modified to 
direct that the baseline will assume that no welfare-to-work 
grants are made after 2000, rather than 2001. Third, the 
committee staff indicated that revised language would adopt the 
Ways and Means Committee technical changes to the definition of 
expenditures by the state.
    CBO estimates that only $226 million of the $750 million 
available will be spent in 1998. This would increase to $1 
billion by 2000 and then decline to $265 million by 2002. In 
total, all but $189 million of the $3 billion would be spent.
            Subtitle B--Student loans
    Subtitle B of the bill would make three changes in the 
federal administrative costs and federal cash management of the 
student loan programs, which under current law are expected to 
guarantee or issue about 40 million new loans totaling $160 
billion over the next five years. The revisions to the program 
would leave program eligibility and loan capital financing 
unchanged. In combination, the proposed changes would lower 
program costs by $239 million in 1998 and $1.8 billion over the 
1998-2002 period, as shown in the following table.

                                     ESTIMATED FEDERAL COST OF STUDENT LOANS                                    
                                    [By fiscal year, in millions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                                   1997       1998       1999       2000       2001       2002  
----------------------------------------------------------------------------------------------------------------
Spending current law:                                                                                           
    Budget authority..........................      1,009      3,911      3,567      3,367      3,418      3,533
    Estimated outlays.........................        578      3,378      3,325      3,162      3,138      3,223
Proposed changes:                                                                                               
    Section 5101--Guaranty Agency reserves:                                                                     
        Budget authority......................  .........  .........  .........  .........  .........     -1,000
        Estimated outlays.....................  .........  .........  .........  .........  .........     -1,000
Section 5102--Direct loan processing fee:                                                                       
    Budget authority..........................  .........        -35        -35        -40        -40        -45
    Estimated outlays.........................  .........        -20        -30        -35        -35        -40
Section 5103--Section 458 funds                                                                                 
    Budget authority..........................  .........       -421       -140        -45          0          0
    Estimated outlays.........................  .........       -219       -203       -120        -50        -12
Section 5104--Guaranty Agency retention                                                                         
 allowances:                                                                                                    
    Budget authority..........................      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)
    Estimated outlays.........................      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)      (\1\)
                                               -----------------------------------------------------------------
    Subtotal, proposed changes:                                                                                 
        Budget authority......................      (\1\)       -456       -175        -85        -46     -1,045
        Estimated outlays.....................      (\1\)       -239       -233       -155        -85     -1,052
Spending under reconciliation recommendations:                                                                  
    Budget authority..........................      1,009      3,455      3,392      3,282      3,378      2,488
    Estimated outlays.........................        578      3,139      3,092      3,007      3,053      2,171
----------------------------------------------------------------------------------------------------------------
\1\ Less than $500,000                                                                                          

    Management and Recovery of Reserves. Section 5101 of this 
bill would require that the 36 guaranty agencies currently 
participating in the guaranteed student loan program return $1 
billion of their cash reserve funds to the federal government 
in 2002. The net cash reserves held by guaranty agencies have 
been growing in recent years due to recent changes in law that 
expanded borrowing levels and resulted in increased premium 
collections and lower default claims. As of September 1996, 
these agencies had combined net cash reserves of just over $2 
billion. The amount to be recalled exceeds the amount needed by 
these agencies to operate over the next five years. The bill 
would recall more of the funds from agencies with 
proportionately larger cash reserves. The CBO estimate assumes 
that the agencies would continue to receive insurance premiums, 
reinsurance payments, and federal administrative cost 
allowances, which are all provided for under current law. If 
these revenues were to be diminished, CBO would reassess the 
likelihood that the recall target could be attained.
    Repeal of Direct Loan Origination Fees to Institutions of 
Higher Education. Section 5102 would eliminate the separate per 
loan federal subsidy to schools or alternate originators to 
process applications for direct student loans. Direct payments 
to schools have been prohibited in the last two appropriations 
bills, allowing payment only to alternate originators. 
Eliminating these mandated payments would save $20 million in 
1998 and $160 million over the 1998-2002 period. The proposal 
would not prevent the Secretary of Education from using funds 
available under the capped administrative entitlement fund 
(Section 458 monies) to pay either schools or alternate 
originators to process the applications for direct student 
loans.
    Funds for Administrative Expenses. The Department of 
Education's Section 458 capped administrative entitlement fund 
would be reduced by $604 million over the five-year period to a 
new five-year total of $3.1 billion. Section 5103 would set new 
annual limits for this fund at $532 million in 1998, $610 
million in 1999, $705 million in 2000, and $750 million in 2001 
and 2002. The current five-year cumulative ceiling would be 
eliminated, and funds would be available for obligation until 
expended.
    Collections on Consolidated Defaulted Loans. Section 5104 
of this subtitle stipulates that the guaranty agency retention 
allowance on default collections that result from defaulted 
loans reentering repayment through loan consolidation would be 
18.5 percent. A new regulation, which takes effect July 1, 
1997, stipulates an amount to cover the collection cost of up 
to 18.5 percent. This provision would codify this share at 18.5 
percent and would make the 18.5 percent retention allowance 
retroactive to the enactment date of the Higher Education Act 
Amendments of 1992 for those agencies that had retained 18.5 
percent since 1992, reinforcing the effects of earlier 
Department of Education directives. This change is expected to 
have a negligible effect on program costs.
            Subtitle C--Vocational education
    This subtitle of the bill would repeal the Smith-Hughes 
Act, which permanently authorizes $7 million annually for 
grants to states for vocational education.

                                   ESTIMATED FEDERAL COST OF SMITH-HUGHES ACT                                   
                                    [By fiscal year, in millions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                                   1997       1998       1999       2000       2001       2002  
----------------------------------------------------------------------------------------------------------------
                                                 DIRECT SPENDING                                                
                                                                                                                
Spending current law:                                                                                           
    Budget authority..........................          7          7          7          7          7          7
    Estimated outlays.........................          7          7          7          7          7          7
Proposed changes:                                                                                               
    Budget authority..........................  .........         -7         -7         -7         -7         -7
    Estimated outlays.........................  .........         -1         -7         -7         -7         -7
Spending under reconciliation recommendations:                                                                  
    Budget authority..........................          7          0          0          0          0          0
    Estimated outlays.........................          7          6          0          0          0          0
----------------------------------------------------------------------------------------------------------------

            Subtitle D--Expansion of portability and health insurance 
                    coverage
    Subtitle D would allow organizations such as trade, 
industry, and professional associations and chambers of 
commerce to sponsor association health plans (AHPs) for their 
members and affiliated members. They could obtain federal 
certification for those plans, which would then be exempt from 
state regulation. Other health plans would also be eligible for 
certification as AHPs, including plans offered by franchisers 
to their franchisees, plans whose members are the employees of 
related employers, certain multiemployer plans and collectively 
bargained arrangements, and certain church plans.
    In general, sponsors of AHPs would have to offer at least 
one fully-insured option, and those with at least 1,000 
participants could also offer self-insured options. The bill 
specifiesstandards that such self-insured options would have to 
meet, but the solvency standards would probably be less rigorous than 
those required by the states for insured health plans. The bill 
provides that all AHPs would be assessed a percentage of their self-
insured claims to pay the claims of insolvent self-insured AHPs. But 
that assessment would not be made until a plan had been terminated, so 
there could be considerable lag time before funding to pay the 
outstanding claims was available. Moreover, the assessment could not 
exceed 2 percent of annual self-insured claims.
    Self-insured options would be exempt from state premium 
taxes, and all AHPs--both fully-insured and self-insured--would 
be exempt from state mandates for benefits. The effects of that 
exemption would extend beyond the members of AHPs. An insurer 
who offered a policy to an employer through an association plan 
could offer that same policy to any employer in the state who 
would be eligible for coverage under the association plan but 
did not participate. (It is unclear whether those eligible for 
coverage would include employers who were not members of the 
sponsoring association but would meet its eligibility 
criteria.)
    The subtitle could affect the health insurance market in 
three important ways. First, by exempting additional plans from 
state laws mandating the coverage of certain benefits or 
providers, the subtitle would reduce the cost of insurance for 
those plans. Reduced costs could lead to additional employers 
offering coverage to the workers. Second, by allowing AHPs to 
form under special circumstances, the subtitle could further 
segment the insurance marketplace, allowing groups of healthier 
people more leeway to form and receive favorable rates, and 
leaving other groups with greater percentages of sick enrollees 
and higher rates. Finally, because federal regulatory standards 
would probably be less strict than the state standards that 
would apply under current law, the subtitle could increase the 
risk of plan failures, adding an increased potential for 
disruption to the insurance market.
    Subtitle D could affect the federal budget in two ways. 
First, if the bill changed the amount of employer-paid health 
premiums, total federal revenues could change. Second, if the 
proposed changes caused people insured by government health 
programs to obtain private coverage, then federal outlays for 
those programs could change. Employer cost for current policies 
would be reduced if premiums fall. If lower premiums encouraged 
additional employers to offer coverage, however, the amount of 
employer-paid premiums would rise. On balance, CBO estimates 
that total employer contributions for health insurance would 
not change significantly. As a result, the Joint Committee on 
Taxation estimates that federal revenues would not change. CBO 
also estimates that the subtitle would cause no appreciable 
changes to federal outlays for Medicaid, Medicare, Federal 
Employees Health Benefits, or other government programs.
    Estimated impact on State, local, and tribal governments: 
By preempting certain state regulation of the health insurance 
market, this title would impose several intergovernmental 
mandates as defined in UMRA. CBO is unable to estimate the size 
or direction of the impact that these mandates would have on 
state budgets and, therefore, cannot determine if the threshold 
established in UMRA ($50 million in 1996, adjusted annually for 
inflation) would be exceeded. The title also contains other 
provisions that would have a significant impact of the budgets 
of state, local, and tribal governments.
            Mandates
    The title would preempt states from:
          Regulating or collecting premium taxes from 
        association health plans;
          Requiring health insurers who offer coverage to AHPs 
        to provide certain health benefits;
          Requiring health insurers to provide certain benefits 
        in other situations; and
          Prohibiting health insurers from offering coverage to 
        AHPs.
    In addition, the bill would exempt other health plan 
arrangements from state regulation by expanding the definition 
of single-employer arrangements and certain collectively 
bargained arrangements (both of which are exempt from state 
regulation).
    The health insurance market is extremely complex, and it is 
difficult to summarize the potential impacts that this title 
would have on state regulation and taxation. There are many 
types of health plans (indemnity, HMO, preferred provider 
organizations, and point of service). They can be insured or 
self-funded, and are provided by employers through a variety of 
arrangements (single employer, multiple employers, and 
collectively bargained under multiple employers). These factors 
combine to produce a vast array of health benefit arrangements 
that are regulated and taxed differently by states.
    This title would create more options and incentives for 
employers to adjust their health care arrangements in order to 
obtain less expensive coverage, and the ultimate impact on 
state premium tax revenues in highly uncertain. The bill would 
also affect state income tax collections as employers make 
adjustments in their employees' compensation packages in 
response to these mandates making health benefits less 
expensive.
            Other significant impacts
    Welfare-to-Work. Subtitle A would provide states and tribal 
governments with between $750 million and $1.25 billion 
annually for fiscal years 1998 through 2000 to move welfare 
recipients to work. In order to receive these funds, a state 
would have to match each federal dollar with 50 cents of its 
own funds.
    Work Requirement Under Temporary Assistance for Needy 
Families. The TANF work requirement (which specifies 
percentages of TANF families that must have a member engaged in 
work activities) would be modified in ways and CBO estimates 
would likely increase the net costs of meeting the work 
requirement. Such costs would not constitute a mandate as 
defined under UMRA because states have the flexibility to 
offset additional costs by tightening eligibility or reducing 
benefit levels.
    Education. Subtitle B would eliminate the mandate that the 
federal government help cover the cost of originating direct 
student loans. CBO estimates that public institutions could 
lose federal subsidies totaling $20 million in fiscal year 1998 
and $115 million over the 1998-2002 period. Subtitle C would 
repeal a grant program that provides $7 million annually to 
states for vocational education.
    Estimated impact on the private sector: Enactment of Title 
V would impose no private-sector mandates as defined under 
UMRA.
    Estimate prepared by: Federal cost: Deborah Kalceivic, 
Sheila Dacey, and Christi Sadoti; and Jeffrey Lemieux; impact 
on State, Local, and Tribal Governments: Marc Nicole and John 
Patterson; impact on Private Sector: Bruce Vavrichek.
    Estimate approved by: Paul N. Van de Water, Assistant 
Director for Budget Analysis.

              ESTIMATED BUDGETARY EFFECTS OF TITLE V--RECONCILIATION RECOMMENDATIONS OF THE HOUSE COMMITTEE ON EDUCATION AND THE WORKFORCE              
                                                        [In millions of dollars, by fiscal year]                                                        
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                               1998-2007
                                             1998      1999      2000      2001      2002      2003      2004      2005      2006      2007      total  
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               CHANGES IN DIRECT SPENDING                                                               
                                                                                                                                                        
Subtitle A--Welfare-to-work:                                                                                                                            
    Estimated budget authority...........       750     1,250     1,000  ........  ........  ........  ........  ........  ........  ........      3,000
    Estimated outlays....................       226       782     1,049       489       265  ........  ........  ........  ........  ........      2,811
Subtitle B--Student loans:                                                                                                                              
    Estimated budget authority...........      -456      -175       -85       -40    -1,045       -45       -50       -50       -55       -55     -2,056
    Estimated outlays....................      -239      -233      -155       -85    -1,052       -42       -45       -45       -50       -50     -1,996
Subtitle C--Vocational education:                                                                                                                       
    Estimated budget authority...........        -7        -7        -7        -7        -7        -7        -7        -7        -7        -7        -70
    Estimated outlays....................        -1        -7        -7        -7        -7        -7        -7        -7        -7        -7        -64
Subtitle D--FEHB:                                                                                                                                       
    Estimated budget authority...........         0         0         0         0         0         0         0         0         0         0          0
    Estimated outlays....................         0         0         0         0         0         0         0         0         0         0          0
Total                                                                                                                                                   
    Estimated budget authority...........       287     1,068       908       -47    -1,052       -52       -57       -67       -62       -62        874
    Estimated outlays....................       -14       542       887       397      -794       -49       -52       -52       -57       -57        751
--------------------------------------------------------------------------------------------------------------------------------------------------------

                   Constitutional Authority Statement

    Subtitles A, B, and C, are within the powers of Congress 
under the Tax and Spending Clause of the Constitution, Article 
I, Section 8, clause 1. Subtitle D is within the powers of 
Congress under the Commerce Clause of the Constitution, Article 
I, Section 8, clause 3.

                       Explanation of Amendments

    An explanation of amendments adopted in Committee is 
included in the body of the report.
    Rollcall: 1.
    Bill: Committee Print.
    Date: June 12, 1997.
    Amendment number: 1.
    Defeated: 19-25.
    Sponsor/Amendment: Mr. Clay/Amendment regarding labor 
requirements for workfare recipients.

------------------------------------------------------------------------
                                                                  Not   
           Member                Aye         No      Present     voting 
------------------------------------------------------------------------
Mr. Goodling, Chairman......  .........         X   .........  .........
Mr. Petri, Vice Chairman....  .........         X   .........  .........
Mrs. Roukema................  .........         X   .........  .........
Mr. Fawell..................  .........         X   .........  .........
Mr. Ballenger...............  .........         X   .........  .........
Mr. Barrett.................  .........         X   .........  .........
Mr. Hoekstra................  .........         X   .........  .........
Mr. McKeon..................  .........         X   .........  .........
Mr. Castle..................  .........         X   .........  .........
Mr. Johnson.................  .........         X   .........  .........
Mr. Talent..................  .........         X   .........  .........
Mr. Greenwood...............  .........         X   .........  .........
Mr. Knollenberg.............  .........         X   .........  .........
Mr. Riggs...................  .........         X   .........  .........
Mr. Graham..................  .........         X   .........  .........
Mr. Souder..................  .........         X   .........  .........
Mr. McIntosh................  .........         X   .........  .........
Mr. Norwood.................  .........         X   .........  .........
Mr. Paul....................  .........         X   .........  .........
Mr. Schaffer................  .........         X   .........  .........
Mr. Peterson................  .........         X   .........  .........
Mr. Upton...................  .........         X   .........  .........
Mr. Deal....................  .........         X   .........  .........
Mr. Hilleary................  .........         X   .........  .........
Mr. Scarborough.............  .........         X   .........  .........
Mr. Clay....................         X   .........  .........  .........
Mr. Miller..................         X   .........  .........  .........
Mr. Kildee..................         X   .........  .........  .........
Mr. Martinez................  .........  .........  .........         X 
Mr. Owens...................         X   .........  .........  .........
Mr. Payne...................         X   .........  .........  .........
Mrs. Mink...................         X   .........  .........  .........
Mr. Andrews.................         X   .........  .........  .........
Mr. Roemer..................         X   .........  .........  .........
Mr. Scott...................         X   .........  .........  .........
Ms. Woolsey.................         X   .........  .........  .........
Mr. Romero-Barcelo..........         X   .........  .........  .........
Mr. Fattah..................         X   .........  .........  .........
Mr. Hinojosa................         X   .........  .........  .........
Mrs. McCarthy...............         X   .........  .........  .........
Mr. Tierney.................         X   .........  .........  .........
Mr. Kind....................         X   .........  .........  .........
Ms. Sanchez.................         X   .........  .........  .........
Mr. Ford....................         X   .........  .........  .........
Mr. Kucinich................         X   .........  .........  .........
                             -------------------------------------------
      Totals................        19         25   .........         1 
------------------------------------------------------------------------

    Rollcall: 2.
    Bill: Committee Print.
    Date: June 12, 1997.
    Amendment number: 3.
    Defeated: 15-20.
    Sponsor/Amendment: Ms. Woolsey / Amendment regarding 
redundant non-discrimination requirements.

------------------------------------------------------------------------
                                                                  Not   
           Member                Aye         No      Present     voting 
------------------------------------------------------------------------
Mr. Goodling, Chairman......  .........         X   .........  .........
Mr. Petri, Vice Chairman....  .........  .........  .........         X 
Mrs. Roukema................  .........         X   .........  .........
Mr. Fawell..................  .........         X   .........  .........
Mr. Ballenger...............  .........         X   .........  .........
Mr. Barrett.................  .........         X   .........  .........
Mr. Hoekstra................  .........         X   .........  .........
Mr. McKeon..................  .........         X   .........  .........
Mr. Castle..................  .........         X   .........  .........
Mr. Johnson.................  .........         X   .........  .........
Mr. Talent..................  .........         X   .........  .........
Mr. Greenwood...............  .........  .........  .........         X 
Mr. Knollenberg.............  .........         X   .........  .........
Mr. Riggs...................  .........         X   .........  .........
Mr. Graham..................  .........         X   .........  .........
Mr. Souder..................  .........  .........  .........         X 
Mr. McIntosh................  .........         X   .........  .........
Mr. Norwood.................  .........         X   .........  .........
Mr. Paul....................  .........  .........  .........         X 
Mr. Schaffer................  .........         X   .........  .........
Mr. Peterson................  .........         X   .........  .........
Mr. Upton...................  .........         X   .........  .........
Mr. Deal....................  .........         X   .........  .........
Mr. Hilleary................  .........         X   .........  .........
Mr. Scarborough.............  .........  .........  .........         X 
Mr. Clay....................         X   .........  .........  .........
Mr. Miller..................  .........  .........  .........         X 
Mr. Kildee..................         X   .........  .........  .........
Mr. Martinez................         X   .........  .........  .........
Mr. Owens...................         X   .........  .........  .........
Mr. Payne...................         X   .........  .........  .........
Mrs. Mink...................         X   .........  .........  .........
Mr. Andrews.................         X   .........  .........  .........
Mr. Roemer..................         X   .........  .........  .........
Mr. Scott...................         X   .........  .........  .........
Ms. Woolsey.................         X   .........  .........  .........
Mr. Romero-Barcelo..........  .........  .........  .........         X 
Mr. Fattah..................         X   .........  .........  .........
Mr. Hinojosa................         X   .........  .........  .........
Mrs. McCarthy...............         X   .........  .........  .........
Mr. Tierney.................  .........  .........  .........         X 
Mr. Kind....................         X   .........  .........  .........
Mrs. Sanchez................  .........  .........  .........         X 
Mr. Ford....................  .........  .........  .........         X 
Mr. Kucinich................         X   .........  .........  .........
                             -------------------------------------------
      Totals................        15         20   .........        10 
------------------------------------------------------------------------

    Rollcall: 3.
    Bill: Committee Print.
    Date: June 12, 1997.
    Amendment number: 4.
    Defeated: 20-24.
    Sponsor/Amendment: Mr. Roemer/Substitute (for Subtitle A).

------------------------------------------------------------------------
                                                                  Not   
           Member                Aye         No      Present     voting 
------------------------------------------------------------------------
Mr. Goodling, Chairman......  .........         X   .........  .........
Mr. Petri, Vice Chairman....  .........         X   .........  .........
Mrs. Roukema................  .........         X   .........  .........
Mr. Fawell..................  .........         X   .........  .........
Mr. Ballenger...............  .........         X   .........  .........
Mr. Barrett.................  .........         X   .........  .........
Mr. Hoekstra................  .........         X   .........  .........
Mr. McKeon..................  .........         X   .........  .........
Mr. Castle..................  .........         X   .........  .........
Mr. Johnson.................  .........         X   .........  .........
Mr. Talent..................  .........         X   .........  .........
Mr. Greenwood...............  .........  .........  .........         X 
Mr. Knollenberg.............  .........         X   .........  .........
Mr. Riggs...................  .........         X   .........  .........
Mr. Graham..................  .........         X   .........  .........
Mr. Souder..................  .........         X   .........  .........
Mr. McIntosh................  .........         X   .........  .........
Mr. Norwood.................  .........         X   .........  .........
Mr. Paul....................  .........         X   .........  .........
Mr. Schaffer................  .........         X   .........  .........
Mr. Peterson................  .........         X   .........  .........
Mr. Upton...................  .........         X   .........  .........
Mr. Deal....................  .........         X   .........  .........
Mr. Hilleary................  .........         X   .........  .........
Mr. Scarborough.............  .........         X   .........  .........
Mr. Clay....................         X   .........  .........  .........
Mr. Miller..................         X   .........  .........  .........
Mr. Kildee..................         X   .........  .........  .........
Mr. Martinez................         X   .........  .........  .........
Mr. Owens...................         X   .........  .........  .........
Mr. Payne...................         X   .........  .........  .........
Mrs. Mink...................         X   .........  .........  .........
Mr. Andrews.................         X   .........  .........  .........
Mr. Roemer..................         X   .........  .........  .........
Mr. Scott...................         X   .........  .........  .........
Ms. Woolsey.................         X   .........  .........  .........
Mr. Romero-Barcelo..........         X   .........  .........  .........
Mr. Fattah..................         X   .........  .........  .........
Mr. Hinojosa................         X   .........  .........  .........
Mrs. McCarthy...............         X   .........  .........  .........
Mr. Tierney.................         X   .........  .........  .........
Mr. Kind....................         X   .........  .........  .........
Ms. Sanchez.................         X   .........  .........  .........
Mr. Ford....................         X   .........  .........  .........
Mr. Kucinich................         X   .........  .........  .........
                             -------------------------------------------
      Totals................        20         24   .........         1 
------------------------------------------------------------------------

    Rollcall: 4.
    Bill: Committee Print.
    Date: June 12, 1997.
    Amendment number: 7.
    Passed: 25-20.
    Sponsor/Amendment: Mrs. Mink/To sustain the Ruling of the 
Chair.

------------------------------------------------------------------------
                                                                  Not   
           Member                Aye         No      Present     voting 
------------------------------------------------------------------------
Mr. Goodling, Chairman......         X   .........  .........  .........
Mr. Petri, Vice Chairman....         X   .........  .........  .........
Mrs. Roukema................         X   .........  .........  .........
Mr. Fawell..................         X   .........  .........  .........
Mr. Ballenger...............         X   .........  .........  .........
Mr. Barrett.................         X   .........  .........  .........
Mr. Hoekstra................         X   .........  .........  .........
Mr. McKeon..................         X   .........  .........  .........
Mr. Castle..................         X   .........  .........  .........
Mr. Johnson.................         X   .........  .........  .........
Mr. Talent..................         X   .........  .........  .........
Mr. Greenwood...............         X   .........  .........  .........
Mr. Knollenberg.............         X   .........  .........  .........
Mr. Riggs...................         X   .........  .........  .........
Mr. Graham..................         X   .........  .........  .........
Mr. Souder..................         X   .........  .........  .........
Mr. McIntosh................         X   .........  .........  .........
Mr. Norwood.................         X   .........  .........  .........
Mr. Paul....................         X   .........  .........  .........
Mr. Schaffer................         X   .........  .........  .........
Mr. Peterson................         X   .........  .........  .........
Mr. Upton...................         X   .........  .........  .........
Mr. Deal....................         X   .........  .........  .........
Mr. Hilleary................         X   .........  .........  .........
Mr. Scarborough.............         X   .........  .........  .........
Mr. Clay....................  .........         X   .........  .........
Mr. Miller..................  .........         X   .........  .........
Mr. Kildee..................  .........         X   .........  .........
Mr. Martinez................  .........         X   .........  .........
Mr. Owens...................  .........         X   .........  .........
Mr. Payne...................  .........         X   .........  .........
Mrs. Mink...................  .........         X   .........  .........
Mr. Andrews.................  .........         X   .........  .........
Mr. Roemer..................  .........         X   .........  .........
Mr. Scott...................  .........         X   .........  .........
Ms. Woolsey.................  .........         X   .........  .........
Mr. Romero-Barcelo..........  .........         X   .........  .........
Mr. Fattah..................  .........         X   .........  .........
Mr. Hinojosa................  .........         X   .........  .........
Mrs. McCarthy...............  .........         X   .........  .........
Mr. Tierney.................  .........         X   .........  .........
Mr. Kind....................  .........         X   .........  .........
Ms. Sanchez.................  .........         X   .........  .........
Mr. Ford....................  .........         X   .........  .........
Mr. Kucinich................  .........         X   .........  .........
                             -------------------------------------------
      Totals................        25         20   .........  .........
------------------------------------------------------------------------

    Rollcall: 5.
    Bill: Committee Print.
    Date: June 12, 1997.
    Amendment number: 8.
    Defeated: 21-24.
    Sponsor/Amendment: Mr. Andrews/Amendment regarding 
administrative costs of Loan Program.

------------------------------------------------------------------------
                                                                  Not   
           Member                Aye         No      Present     voting 
------------------------------------------------------------------------
Mr. Goodling, Chairman......  .........         X   .........  .........
Mr. Petri, Vice Chairman....         X   .........  .........  .........
Mrs. Roukema................  .........         X   .........  .........
Mr. Fawell..................  .........         X   .........  .........
Mr. Ballenger...............  .........         X   .........  .........
Mr. Barrett.................  .........         X   .........  .........
Mr. Hoekstra................  .........         X   .........  .........
Mr. McKeon..................  .........         X   .........  .........
Mr. Castle..................  .........         X   .........  .........
Mr. Johnson.................  .........         X   .........  .........
Mr. Talent..................  .........         X   .........  .........
Mr. Greenwood...............  .........         X   .........  .........
Mr. Knollenberg.............  .........         X   .........  .........
Mr. Riggs...................  .........         X   .........  .........
Mr. Graham..................  .........         X   .........  .........
Mr. Souder..................  .........         X   .........  .........
Mr. McIntosh................  .........         X   .........  .........
Mr. Norwood.................  .........         X   .........  .........
Mr. Paul....................  .........         X   .........  .........
Mr. Schaffer................  .........         X   .........  .........
Mr. Peterson................  .........         X   .........  .........
Mr. Upton...................  .........         X   .........  .........
Mr. Deal....................  .........         X   .........  .........
Mr. Hilleary................  .........         X   .........  .........
Mr. Scarborough.............  .........         X   .........  .........
Mr. Clay....................         X   .........  .........  .........
Mr. Miller..................         X   .........  .........  .........
Mr. Kildee..................         X   .........  .........  .........
Mr. Martinez................         X   .........  .........  .........
Mr. Owens...................         X   .........  .........  .........
Mr. Payne...................         X   .........  .........  .........
Mrs. Mink...................         X   .........  .........  .........
Mr. Andrews.................         X   .........  .........  .........
Mr. Roemer..................         X   .........  .........  .........
Mr. Scott...................         X   .........  .........  .........
Ms. Woolsey.................         X   .........  .........  .........
Mr. Romero-Barcelo..........         X   .........  .........  .........
Mr. Fattah..................         X   .........  .........  .........
Mr. Hinojosa................         X   .........  .........  .........
Mrs. McCarthy...............         X   .........  .........  .........
Mr. Tierney.................         X   .........  .........  .........
Mr. Kind....................         X   .........  .........  .........
Ms. Sanchez.................         X   .........  .........  .........
Mr. Ford....................         X   .........  .........  .........
Mr. Kucinich................         X   .........  .........  .........
                             -------------------------------------------
      Totals................        21         24   .........  .........
------------------------------------------------------------------------

    Rollcall: 6.
    Bill: Committee Print.
    Date: June 12, 1997.
    Amendment number: 9.
    Defeated: 21-24.
    Sponsor/Amendment: Mr. Andrews/re: origination fee.

------------------------------------------------------------------------
                                                                  Not   
           Member                Aye         No      Present     voting 
------------------------------------------------------------------------
Mr. Goodling, Chairman......  .........         X   .........  .........
Mr. Petri, Vice Chairman....         X   .........  .........  .........
Mrs. Roukema................  .........         X   .........  .........
Mr. Fawell..................  .........         X   .........  .........
Mr. Ballenger...............  .........         X   .........  .........
Mr. Barrett.................  .........         X   .........  .........
Mr. Hoekstra................  .........         X   .........  .........
Mr. McKeon..................  .........         X   .........  .........
Mr. Castle..................  .........         X   .........  .........
Mr. Johnson.................  .........         X   .........  .........
Mr. Talent..................  .........         X   .........  .........
Mr. Greenwood...............  .........         X   .........  .........
Mr. Knollenberg.............  .........         X   .........  .........
Mr. Riggs...................  .........         X   .........  .........
Mr. Graham..................  .........         X   .........  .........
Mr. Souder..................  .........         X   .........  .........
Mr. McIntosh................  .........         X   .........  .........
Mr. Norwood.................  .........         X   .........  .........
Mr. Paul....................  .........         X   .........  .........
Mr. Schaffer................  .........         X   .........  .........
Mr. Peterson................  .........         X   .........  .........
Mr. Upton...................  .........         X   .........  .........
Mr. Deal....................  .........         X   .........  .........
Mr. Hilleary................  .........         X   .........  .........
Mr. Scarborough.............  .........         X   .........  .........
Mr. Clay....................         X   .........  .........  .........
Mr. Miller..................         X   .........  .........  .........
Mr. Kildee..................         X   .........  .........  .........
Mr. Martinez................         X   .........  .........  .........
Mr. Owens...................         X   .........  .........  .........
Mr. Payne...................         X   .........  .........  .........
Mrs. Mink...................         X   .........  .........  .........
Mr. Andrews.................         X   .........  .........  .........
Mr. Roemer..................         X   .........  .........  .........
Mr. Scott...................         X   .........  .........  .........
Ms. Woolsey.................         X   .........  .........  .........
Mr. Romero-Barcelo..........         X   .........  .........  .........
Mr. Fattah..................         X   .........  .........  .........
Mr. Hinojosa................         X   .........  .........  .........
Mrs. McCarthy...............         X   .........  .........  .........
Mr. Tierney.................         X   .........  .........  .........
Mr. Kind....................         X   .........  .........  .........
Ms. Sanchez.................         X   .........  .........  .........
Mr. Ford....................         X   .........  .........  .........
Mr. Kucinich................         X   .........  .........  .........
                             -------------------------------------------
      Totals................        21         24   .........  .........
------------------------------------------------------------------------

    Rollcall: 7.
    Bill: Committee Print.
    Date: June 12, 1997.
    Amendment number: 10.
    Passed: 24-21.
    Sponsor/Amendment: Mr. McKeon/establishes collection 
retention rate for guaranty agencies for student loans in good 
standing.

------------------------------------------------------------------------
                                                                  Not   
           Member                Aye         No      Present     voting 
------------------------------------------------------------------------
Mr. Goodling, Chairman......         X   .........  .........  .........
Mr. Petri, Vice Chairman....  .........         X   .........  .........
Mrs. Roukema................         X   .........  .........  .........
Mr. Fawell..................         X   .........  .........  .........
Mr. Ballenger...............         X   .........  .........  .........
Mr. Barrett.................         X   .........  .........  .........
Mr. Hoekstra................         X   .........  .........  .........
Mr. McKeon..................         X   .........  .........  .........
Mr. Castle..................         X   .........  .........  .........
Mr. Johnson.................         X   .........  .........  .........
Mr. Talent..................         X   .........  .........  .........
Mr. Greenwood...............         X   .........  .........  .........
Mr. Knollenberg.............         X   .........  .........  .........
Mr. Riggs...................         X   .........  .........  .........
Mr. Graham..................         X   .........  .........  .........
Mr. Souder..................         X   .........  .........  .........
Mr. McIntosh................         X   .........  .........  .........
Mr. Norwood.................         X   .........  .........  .........
Mr. Paul....................         X   .........  .........  .........
Mr. Schaffer................         X   .........  .........  .........
Mr. Peterson................         X   .........  .........  .........
Mr. Upton...................         X   .........  .........  .........
Mr. Deal....................         X   .........  .........  .........
Mr. Hilleary................         X   .........  .........  .........
Mr. Scarborough.............         X   .........  .........  .........
Mr. Clay....................  .........         X   .........  .........
Mr. Miller..................  .........         X   .........  .........
Mr. Kildee..................  .........         X   .........  .........
Mr. Martinez................  .........         X   .........  .........
Mr. Owens...................  .........         X   .........  .........
Mr. Payne...................  .........         X   .........  .........
Mrs. Mink...................  .........         X   .........  .........
Mr. Andrews.................  .........         X   .........  .........
Mr. Roemer..................  .........         X   .........  .........
Mr. Scott...................  .........         X   .........  .........
Ms. Woolsey.................  .........         X   .........  .........
Mr. Romero-Barcelo..........  .........         X   .........  .........
Mr. Fattah..................  .........         X   .........  .........
Mr. Hinojosa................  .........         X   .........  .........
Mrs. McCarthy...............  .........         X   .........  .........
Mr. Tierney.................  .........         X   .........  .........
Mr. Kind....................  .........         X   .........  .........
Mr. Sanchez.................  .........         X   .........  .........
Mr. Ford....................  .........         X   .........  .........
Mr. Kucinich................  .........         X   .........  .........
                             -------------------------------------------
      Totals................        24         21   .........  .........
------------------------------------------------------------------------

    Rollcall: 8.
    Bill: H.R. 1515.
    Date: June 12, 1997.
    Amendment number: 3.
    Passed: 25-20.
    Sponsor/Amendment: Mr. Payne/To sustain the Ruling of the 
Chair.

------------------------------------------------------------------------
                                                                  Not   
           Member                Aye         No      Present     voting 
------------------------------------------------------------------------
Mr. Goodling, Chairman......         X   .........  .........  .........
Mr. Petri, Vice Chairman....         X   .........  .........  .........
Mrs. Roukema................         X   .........  .........  .........
Mr. Fawell..................         X   .........  .........  .........
Mr. Ballenger...............         X   .........  .........  .........
Mr. Barrett.................         X   .........  .........  .........
Mr. Hoekstra................         X   .........  .........  .........
Mr. McKeon..................         X   .........  .........  .........
Mr. Castle..................         X   .........  .........  .........
Mr. Johnson.................         X   .........  .........  .........
Mr. Talent..................         X   .........  .........  .........
Mr. Greenwood...............         X   .........  .........  .........
Mr. Knollenberg.............         X   .........  .........  .........
Mr. Riggs...................         X   .........  .........  .........
Mr. Graham..................         X   .........  .........  .........
Mr. Souder..................         X   .........  .........  .........
Mr. McIntosh................         X   .........  .........  .........
Mr. Norwood.................         X   .........  .........  .........
Mr. Paul....................         X   .........  .........  .........
Mr. Schaffer................         X   .........  .........  .........
Mr. Peterson................         X   .........  .........  .........
Mr. Upton...................         X   .........  .........  .........
Mr. Deal....................         X   .........  .........  .........
Mr. Hilleary................         X   .........  .........  .........
Mr. Scarborough.............         X   .........  .........  .........
Mr. Clay....................  .........         X   .........  .........
Mr. Miller..................  .........         X   .........  .........
Mr. Kildee..................  .........         X   .........  .........
Mr. Martinez................  .........         X   .........  .........
Mr. Owens...................  .........         X   .........  .........
Mr. Payne...................  .........         X   .........  .........
Mrs. Mink...................  .........         X   .........  .........
Mr. Andrews.................  .........         X   .........  .........
Mr. Roemer..................  .........         X   .........  .........
Mr. Scott...................  .........         X   .........  .........
Ms. Woolsey.................  .........         X   .........  .........
Mr. Romero-Barcelo..........  .........         X   .........  .........
Mr. Fattah..................  .........         X   .........  .........
Mr. Hinojosa................  .........         X   .........  .........
Mrs. McCarthy...............  .........         X   .........  .........
Mr. Tierney.................  .........         X   .........  .........
Mr. Kind....................  .........         X   .........  .........
Ms. Sanchez.................  .........         X   .........  .........
Mr. Ford....................  .........         X   .........  .........
Mr. Kucinich................  .........         X   .........  .........
                             -------------------------------------------
      Totals................        25         20   .........  .........
------------------------------------------------------------------------

    Rollcall: 9.
    Bill: H.R. 1515.
    Date: June 12, 1997.
    Amendment number: 4A.
    Passed 25-20.
    Sponsor/amendment: Mr. Fawell/Amendment to the Payne 
Amendment.

------------------------------------------------------------------------
                                                                  Not   
           Member                Aye         No      Present     voting 
------------------------------------------------------------------------
Mr. Goodling, Chairman......         X   .........  .........  .........
Mr. Petri, Vice Chairman....         X   .........  .........  .........
Mrs. Roukema................         X   .........  .........  .........
Mr. Fawell..................         X   .........  .........  .........
Mr. Ballenger...............         X   .........  .........  .........
Mr. Barrett.................         X   .........  .........  .........
Mr. Hoekstra................         X   .........  .........  .........
Mr. McKeon..................         X   .........  .........  .........
Mr. Castle..................         X   .........  .........  .........
Mr. Johnson.................         X   .........  .........  .........
Mr. Talent..................         X   .........  .........  .........
Mr. Greenwood...............         X   .........  .........  .........
Mr. Knollenberg.............         X   .........  .........  .........
Mr. Riggs...................         X   .........  .........  .........
Mr. Graham..................         X   .........  .........  .........
Mr. Souder..................         X   .........  .........  .........
Mr. McIntosh................         X   .........  .........  .........
Mr. Norwood.................         X   .........  .........  .........
Mr. Paul....................         X   .........  .........  .........
Mr. Schaffer................         X   .........  .........  .........
Mr. Peterson................         X   .........  .........  .........
Mr. Upton...................         X   .........  .........  .........
Mr. Deal....................         X   .........  .........  .........
Mr. Hilleary................         X   .........  .........  .........
Mr. Scarborough.............         X   .........  .........  .........
Mr. Clay....................  .........         X   .........  .........
Mr. Miller..................  .........         X   .........  .........
Mr. Kildee..................  .........         X   .........  .........
Mr. Martinez................  .........         X   .........  .........
Mr. Owens...................  .........         X   .........  .........
Mr. Payne...................  .........         X   .........  .........
Mrs. Mink...................  .........         X   .........  .........
Mr. Andrews.................  .........         X   .........  .........
Mr. Roemer..................  .........         X   .........  .........
Mr. Scott...................  .........         X   .........  .........
Ms. Woolsey.................  .........         X   .........  .........
Mr. Romero-Barcelo..........  .........         X   .........  .........
Mr. Fattah..................  .........         X   .........  .........
Mr. Hinojosa................  .........         X   .........  .........
Mrs. McCarthy...............  .........         X   .........  .........
Mr. Tierney.................  .........         X   .........  .........
Mr. Kind....................  .........         X   .........  .........
Ms. Sanchez.................  .........         X   .........  .........
Mr. Ford....................  .........         X   .........  .........
Mr. Kucinich................  .........         X   .........  .........
                             -------------------------------------------
      Totals................        25         20   .........  .........
------------------------------------------------------------------------

    Rollcall: 10.
    Bill: H.R. 1515.
    Date: June 12, 1997.
    Amendment number: 5.
    Defeated: 22-22.
    Sponsor/Amendment: Mr. Kildee/Amendment regarding Federal 
preemption of State law.

------------------------------------------------------------------------
                                                                  Not   
           Member                Aye         No      Present     voting 
------------------------------------------------------------------------
Mr. Goodling, Chairman......  .........         X   .........  .........
Mr. Petri, Vice Chairman....  .........         X   .........  .........
Mrs. Roukema................         X   .........  .........  .........
Mr. Fawell..................  .........         X   .........  .........
Mr. Ballenger...............  .........         X   .........  .........
Mr. Barrett.................  .........         X   .........  .........
Mr. Hoekstra................  .........         X   .........  .........
Mr. McKeon..................  .........         X   .........  .........
Mr. Castle..................  .........         X   .........  .........
Mr. Johnson.................  .........         X   .........  .........
Mr. Talent..................  .........         X   .........  .........
Mr. Greenwood...............  .........         X   .........  .........
Mr. Knollenberg.............  .........         X   .........  .........
Mr. Riggs...................  .........         X   .........  .........
Mr. Graham..................  .........         X   .........  .........
Mr. Souder..................  .........  .........  .........         X 
Mr. McIntosh................  .........         X   .........  .........
Mr. Norwood.................         X   .........  .........  .........
Mr. Paul....................  .........         X   .........  .........
Mr. Schaffer................  .........         X   .........  .........
Mr. Peterson................  .........         X   .........  .........
Mr. Upton...................  .........         X   .........  .........
Mr. Deal....................  .........         X   .........  .........
Mr. Hilleary................  .........         X   .........  .........
Mr. Scarborough.............  .........         X   .........  .........
Mr. Clay....................         X   .........  .........  .........
Mr. Miller..................         X   .........  .........  .........
Mr. Kildee..................         X   .........  .........  .........
Mr. Martinez................         X   .........  .........  .........
Mr. Owens...................         X   .........  .........  .........
Mr. Payne...................         X   .........  .........  .........
Mrs. Mink...................         X   .........  .........  .........
Mr. Andrews.................         X   .........  .........  .........
Mr. Roemer..................         X   .........  .........  .........
Mr. Scott...................         X   .........  .........  .........
Ms. Woolsey.................         X   .........  .........  .........
Mr. Romero-Barcelo..........         X   .........  .........  .........
Mr. Fattah..................         X   .........  .........  .........
Mr. Hinojosa................         X   .........  .........  .........
Mrs. McCarthy...............         X   .........  .........  .........
Mr. Tierney.................         X   .........  .........  .........
Mr. Kind....................         X   .........  .........  .........
Ms. Sanchez.................         X   .........  .........  .........
Mr. Ford....................         X   .........  .........  .........
Mr. Kucinich................         X   .........  .........  .........
                             -------------------------------------------
      Totals................        22         22   .........         1 
------------------------------------------------------------------------

    Rollcall: 11.
    Bill: H.R. 1515.
    Date: June 12, 1997.
    Amendment number: 6.
    Defeated: 22-23.
    Sponsor/Amendment: Mr. Tierney / Amendment regarding 
Federal preemption of State law.

------------------------------------------------------------------------
                                                                  Not   
           Member                Aye         No      Present     voting 
------------------------------------------------------------------------
Mr. Goodling, Chairman......  .........         X   .........  .........
Mr. Petri, Vice Chairman....  .........         X   .........  .........
Mrs. Roukema................         X   .........  .........  .........
Mr. Fawell..................  .........         X   .........  .........
Mr. Ballenger...............  .........         X   .........  .........
Mr. Barrett.................  .........         X   .........  .........
Mr. Hoekstra................  .........         X   .........  .........
Mr. McKeon..................  .........         X   .........  .........
Mr. Castle..................  .........         X   .........  .........
Mr. Johnson.................  .........         X   .........  .........
Mr. Talent..................  .........         X   .........  .........
Mr. Greenwood...............  .........         X   .........  .........
Mr. Knollenberg.............  .........         X   .........  .........
Mr. Riggs...................  .........         X   .........  .........
Mr. Graham..................  .........         X   .........  .........
Mr. Souder..................  .........         X   .........  .........
Mr. McIntosh................  .........         X   .........  .........
Mr. Norwood.................         X   .........  .........  .........
Mr. Paul....................  .........         X   .........  .........
Mr. Schaffer................  .........         X   .........  .........
Mr. Peterson................  .........         X   .........  .........
Mr. Upton...................  .........         X   .........  .........
Mr. Deal....................  .........         X   .........  .........
Mr. Hilleary................  .........         X   .........  .........
Mr. Scarborough.............  .........         X   .........  .........
Mr. Clay....................         X   .........  .........  .........
Mr. Miller..................         X   .........  .........  .........
Mr. Kildee..................         X   .........  .........  .........
Mr. Martinez................         X   .........  .........  .........
Mr. Owens...................         X   .........  .........  .........
Mr. Payne...................         X   .........  .........  .........
Mrs. Mink...................         X   .........  .........  .........
Mr. Andrews.................         X   .........  .........  .........
Mr. Roemer..................         X   .........  .........  .........
Mr. Scott...................         X   .........  .........  .........
Ms. Woolsey.................         X   .........  .........  .........
Mr. Romero-Barcelo..........         X   .........  .........  .........
Mr. Fattah..................         X   .........  .........  .........
Mr. Hinojosa................         X   .........  .........  .........
Mrs. McCarthy...............         X   .........  .........  .........
Mr. Tierney.................         X   .........  .........  .........
Mr. Kind....................         X   .........  .........  .........
Ms. Sanchez.................         X   .........  .........  .........
Mr. Ford....................         X   .........  .........  .........
Mr. Kucinich................         X   .........  .........  .........
                             -------------------------------------------
      Totals................        22         23   .........  .........
------------------------------------------------------------------------

    Rollcall: 12.
    Bill: H.R. 1515.
    Date: June 12, 1997.
    Amendment Number: 7.
    Passed: 25-20.
    Sponsor/Amendment: Mr. Miller/To sustain the Ruling of the 
Chair.

------------------------------------------------------------------------
                                                                  Not   
           Member                Aye         No      Present     voting 
------------------------------------------------------------------------
Mr. Goodling, Chairman......         X   .........  .........  .........
Mr. Petri, Vice Chairman....         X   .........  .........  .........
Mrs. Roukema................         X   .........  .........  .........
Mr. Fawell..................         X   .........  .........  .........
Mr. Ballenger...............         X   .........  .........  .........
Mr. Barrett.................         X   .........  .........  .........
Mr. Hoekstra................         X   .........  .........  .........
Mr. McKeon..................         X   .........  .........  .........
Mr. Castle..................         X   .........  .........  .........
Mr. Johnson.................         X   .........  .........  .........
Mr. Talent..................         X   .........  .........  .........
Mr. Greenwood...............         X   .........  .........  .........
Mr. Knollenberg.............         X   .........  .........  .........
Mr. Riggs...................         X   .........  .........  .........
Mr. Graham..................         X   .........  .........  .........
Mr. Souder..................         X   .........  .........  .........
Mr. McIntosh................         X   .........  .........  .........
Mr. Norwood.................         X   .........  .........  .........
Mr. Paul....................         X   .........  .........  .........
Mr. Schaffer................         X   .........  .........  .........
Mr. Peterson................         X   .........  .........  .........
Mr. Upton...................         X   .........  .........  .........
Mr. Deal....................         X   .........  .........  .........
Mr. Hilleary................         X   .........  .........  .........
Mr. Scarborough.............         X   .........  .........  .........
Mr. Clay....................  .........         X   .........  .........
Mr. Miller..................  .........         X   .........  .........
Mr. Kildee..................  .........         X   .........  .........
Mr. Martinez................  .........         X   .........  .........
Mr. Owens...................  .........         X   .........  .........
Mr. Payne...................  .........         X   .........  .........
Mrs. Mink...................  .........         X   .........  .........
Mr. Andrews.................  .........         X   .........  .........
Mr. Roemer..................  .........         X   .........  .........
Mr. Scott...................  .........         X   .........  .........
Ms. Woolsey.................  .........         X   .........  .........
Mr. Romero-Barcelo..........  .........         X   .........  .........
Mr. Fattah..................  .........         X   .........  .........
Mr. Hinojosa................  .........         X   .........  .........
Mrs. McCarthy...............  .........         X   .........  .........
Mr. Tierney.................  .........         X   .........  .........
Mr. Kind....................  .........         X   .........  .........
Ms. Sanchez.................  .........         X   .........  .........
Mr. Ford....................  .........         X   .........  .........
Mr. Kucinich................  .........         X   .........  .........
      Totals................        25         20   .........  .........
                             -------------------------------------------
------------------------------------------------------------------------

    Rollcall: 13.
    Bill: H.R. 1515.
    Date: June 12, 1997.
    Passed: 23-21.
    Sponsor/Amendment: Chairman Goodling/Motion to adopt the 
Fawell Amendment in the Nature of a Substitute to H.R. 1515.

------------------------------------------------------------------------
                                                                  Not   
           Member                Aye         No      Present     voting 
------------------------------------------------------------------------
Mr. Goodling, Chairman......         X   .........  .........  .........
Mr. Petri, Vice Chairman....         X   .........  .........  .........
Mrs. Roukema................  .........         X   .........  .........
Mr. Fawell..................         X   .........  .........  .........
Mr. Ballenger...............         X   .........  .........  .........
Mr. Barrett.................         X   .........  .........  .........
Mr. Hoekstra................         X   .........  .........  .........
Mr. McKeon..................         X   .........  .........  .........
Mr. Castle..................         X   .........  .........  .........
Mr. Johnson.................         X   .........  .........  .........
Mr. Talent..................         X   .........  .........  .........
Mr. Greenwood...............         X   .........  .........  .........
Mr. Knollenberg.............         X   .........  .........  .........
Mr. Riggs...................         X   .........  .........  .........
Mr. Graham..................         X   .........  .........  .........
Mr. Souder..................         X   .........  .........  .........
Mr. McIntosh................         X   .........  .........  .........
Mr. Norwood.................  .........         X   .........  .........
Mr. Paul....................         X   .........  .........  .........
Mr. Schaffer................         X   .........  .........  .........
Mr. Peterson................         X   .........  .........  .........
Mr. Upton...................         X   .........  .........  .........
Mr. Deal....................         X   .........  .........  .........
Mr. Hilleary................         X   .........  .........  .........
Mr. Scarborough.............         X   .........  .........  .........
Mr. Clay....................  .........         X   .........  .........
Mr. Miller..................  .........  .........  .........         X 
Mr. Kildee..................  .........         X   .........  .........
Mr. Martinez................  .........         X   .........  .........
Mr. Owens...................  .........         X   .........  .........
Mr. Payne...................  .........         X   .........  .........
Mrs. Mink...................  .........         X   .........  .........
Mr. Andrews.................  .........         X   .........  .........
Mr. Roemer..................  .........         X   .........  .........
Mr. Scott...................  .........         X   .........  .........
Ms. Woolsey.................  .........         X   .........  .........
Mr. Romero-Barcelo..........  .........         X   .........  .........
Mr. Fattah..................  .........         X   .........  .........
Mr. Hinojosa................  .........         X   .........  .........
Mrs. McCarthy...............  .........         X   .........  .........
Mr. Tierney.................  .........         X   .........  .........
Mr. Kind....................  .........         X   .........  .........
Ms. Sanchez.................  .........         X   .........  .........
Mr. Ford....................  .........         X   .........  .........
Mr. Kucinich................  .........         X   .........  .........
                             -------------------------------------------
      Totals................        23         21   .........        21 
------------------------------------------------------------------------

    Rollcall: 14.
    Bill: Reconciliation.
    Passed: 24-20.
    Date: June 12, 1997.
    Sponsor/Amendment: Mr. Petri/Transmit Committee Print as 
amended to the Budget Committee.

------------------------------------------------------------------------
                                                                  Not   
           Member                Aye         No      Present     voting 
------------------------------------------------------------------------
Mr. Goodling, Chairman......         X   .........  .........  .........
Mr. Petri, Vice Chairman....         X   .........  .........  .........
Mrs. Roukema................         X   .........  .........  .........
Mr. Fawell..................         X   .........  .........  .........
Mr. Ballenger...............         X   .........  .........  .........
Mr. Barrett.................         X   .........  .........  .........
Mr. Hoekstra................         X   .........  .........  .........
Mr. McKeon..................         X   .........  .........  .........
Mr. Castle..................         X   .........  .........  .........
Mr. Johnson.................         X   .........  .........  .........
Mr. Talent..................         X   .........  .........  .........
Mr. Greenwood...............         X   .........  .........  .........
Mr. Knollenberg.............         X   .........  .........  .........
Mr. Riggs...................         X   .........  .........  .........
Mr. Graham..................         X   .........  .........  .........
Mr. Souder..................         X   .........  .........  .........
Mr. McIntosh................         X   .........  .........  .........
Mr. Norwood.................         X   .........  .........  .........
Mr. Paul....................  .........         X   .........  .........
Mr. Schaffer................         X   .........  .........  .........
Mr. Peterson................         X   .........  .........  .........
Mr. Upton...................         X   .........  .........  .........
Mr. Deal....................         X   .........  .........  .........
Mr. Hilleary................         X   .........  .........  .........
Mr. Scarborough.............         X   .........  .........  .........
Mr. Clay....................  .........         X   .........  .........
Mr. Miller..................  .........  .........  .........         X 
Mr. Kildee..................  .........         X   .........  .........
Mr. Martinez................  .........         X   .........  .........
Mr. Owens...................  .........         X   .........  .........
Mr. Payne...................  .........         X   .........  .........
Mrs. Mink...................  .........         X   .........  .........
Mr. Andrews.................  .........         X   .........  .........
Mr. Roemer..................  .........         X   .........  .........
Mr. Scott...................  .........         X   .........  .........
Ms. Woolsey.................  .........         X   .........  .........
Mr. Romero-Barcelo..........  .........         X   .........  .........
Mr. Fattah..................  .........         X   .........  .........
Mr. Hinojosa................  .........         X   .........  .........
Mrs. McCarthy...............  .........         X   .........  .........
Mr. Tierney.................  .........         X   .........  .........
Mr. Kind....................  .........         X   .........  .........
Ms. Sanchez.................  .........         X   .........  .........
Mr. Ford....................  .........         X   .........  .........
Mr. Kucinich................  .........         X   .........  .........
                             -------------------------------------------
      Totals................        24         20   .........         1 
------------------------------------------------------------------------

    Rollcall: 15.
    Bill: H.R. 1515/Reconciliation.
    Date: June 12, 1997.
    Passed: 24-20.
    Sponsor/Amendment: Mr. Petri/Report Reconciliation 
Recommendations to Budget Committee and Report to the House the 
bill H.R. 1515 as amended.

------------------------------------------------------------------------
                                                                  Not   
           Member                Aye         No      Present     voting 
------------------------------------------------------------------------
Mr. Goodling, Chairman......         X   .........  .........  .........
Mr. Petri, Vice Chairman....         X   .........  .........  .........
Mrs. Roukema................  .........         X   .........  .........
Mr. Fawell..................         X   .........  .........  .........
Mr. Ballenger...............         X   .........  .........  .........
Mr. Barrett.................         X   .........  .........  .........
Mr. Hoekstra................         X   .........  .........  .........
Mr. McKeon..................         X   .........  .........  .........
Mr. Castle..................         X   .........  .........  .........
Mr. Johnson.................         X   .........  .........  .........
Mr. Talent..................         X   .........  .........  .........
Mr. Greenwood...............         X   .........  .........  .........
Mr. Knollenberg.............         X   .........  .........  .........
Mr. Riggs...................         X   .........  .........  .........
Mr. Graham..................         X   .........  .........  .........
Mr. Souder..................         X   .........  .........  .........
Mr. McIntosh................         X   .........  .........  .........
Mr. Norwood.................  .........         X   .........  .........
Mr. Paul....................         X   .........  .........  .........
Mr. Schaffer................         X   .........  .........  .........
Mr. Peterson................         X   .........  .........  .........
Mr. Upton...................         X   .........  .........  .........
Mr. Deal....................         X   .........  .........  .........
Mr. Hilleary................         X   .........  .........  .........
Mr. Scarborough.............         X   .........  .........  .........
Mr. Clay....................  .........         X   .........  .........
Mr. Miller..................  .........         X   .........  .........
Mr. Kildee..................  .........         X   .........  .........
Mr. Martinez................  .........  .........  .........         X 
Mr. Owens...................  .........         X   .........  .........
Mr. Payne...................  .........         X   .........  .........
Mrs. Mink...................  .........         X   .........  .........
Mr. Andrews.................  .........         X   .........  .........
Mr. Roemer..................         X   .........  .........  .........
Mr. Scott...................  .........         X   .........  .........
Ms. Woolsey.................  .........         X   .........  .........
Mr. Romero-Barcelo..........  .........         X   .........  .........
Mr. Fattah..................  .........         X   .........  .........
Mr. Hinojosa................  .........         X   .........  .........
Mrs. McCarthy...............  .........         X   .........  .........
Mr. Tierney.................  .........         X   .........  .........
Mr. Kind....................  .........         X   .........  .........
Ms. Sanchez.................  .........         X   .........  .........
Mr. Ford....................  .........         X   .........  .........
Mr. Kucinich................  .........         X   .........  .........
                             -------------------------------------------
      Totals................        24         20   .........         1 
------------------------------------------------------------------------

    Changes in Existing Law Made by Title V of 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 italics, existing law in which no change is proposed 
is shown in roman):

                          SOCIAL SECURITY ACT

          * * * * * * *

TITLE IV--GRANTS TO STATES FOR AID AND SERVICES TO NEEDY FAMILIES WITH 
                CHILDREN AND FOR CHILD-WELFARE SERVICES

          * * * * * * *

            Part A--Aid to Families With Dependent Children

          * * * * * * *

SEC. 403. GRANTS TO STATES.

  (a) Grants.--
          (1) * * *
          * * * * * * *
          (5) Welfare-to-work grants.--
                  (A) Formula grants.--
                          (i) Entitlement.--A State shall be 
                        entitled to receive from the Secretary 
                        a grant for each fiscal year specified 
                        in subparagraph (H) of this paragraph 
                        for which the State is a welfare-to-
                        work State, in an amount that does not 
                        exceed the lesser of--
                                  (I) 2 times the total of the 
                                expenditures by the State 
                                (excluding qualified State 
                                expenditures (as defined in 
                                section 409(a)(7)(B)(i)) and 
                                expenditures described in 
                                section 409(a)(7)(B)(iv)) 
                                during the fiscal year for 
                                activities described in 
                                subparagraph (C)(i) of this 
                                paragraph; or
                                  (II) the allotment of the 
                                State under clause (iii) of 
                                this subparagraph for the 
                                fiscal year.
                          (ii) Welfare-to-work state.--A State 
                        shall be considered a welfare-to-work 
                        State for a fiscal year for purposes of 
                        this subparagraph if the Secretary, 
                        after consultation (and the sharing of 
                        any plan or amendment thereto submitted 
                        under this clause) with the Secretary 
                        of Health and Human Services and the 
                        Secretary of Housing and Urban 
                        Development, determines that the State 
                        meets the following requirements:
                                  (I) The State has submitted 
                                to the Secretary (in the form 
                                of an addendum to the State 
                                plan submitted under section 
                                402) a plan which--
                                          (aa) describes how, 
                                        consistent with this 
                                        subparagraph, the State 
                                        will use any funds 
                                        provided under this 
                                        subparagraph during the 
                                        fiscal year;
                                          (bb) specifies the 
                                        formula to be used 
                                        pursuant to clause (vi) 
                                        to distribute funds in 
                                        the State, and 
                                        describes the process 
                                        by which the formula 
                                        was developed; and
                                          (cc) contains 
                                        evidence that the plan 
                                        was developed through a 
                                        collaborative process 
                                        that, at a minimum, 
                                        included sub-State 
                                        areas.
                                  (II) The State has provided 
                                the Secretary with an estimate 
                                of the amount that the State 
                                intends to expend during the 
                                fiscal year (excluding 
                                expenditures described in 
                                section 409(a)(7)(B)(iv)) for 
                                activities described in 
                                subparagraph (C)(i) of this 
                                paragraph.
                                  (III) The State has agreed to 
                                negotiate in good faith with 
                                the Secretary of Health and 
                                Human Services with respect to 
                                the substance of any evaluation 
                                under section 413(j), and to 
                                cooperate with the conduct of 
                                any such evaluation.
                                  (IV) The State is an eligible 
                                State for the fiscal year.
                          (iii) Allotments to welfare-to-work 
                        states.--The allotment of a welfare-to-
                        work State for a fiscal year shall be 
                        the available amount for the fiscal 
                        year multiplied by the State percentage 
                        for the fiscal year.
                          (iv) Available amount.--As used in 
                        clause (iii), the term ``available 
                        amount'' means, for a fiscal year, 95 
                        percent of--
                                  (I) the amount specified in 
                                subparagraph (H) for the fiscal 
                                year; minus
                                  (II) the total of the amounts 
                                reserved pursuant to 
                                subparagraphs (F) and (G) for 
                                the fiscal year.
                          (v) State percentage.--As used in 
                        clause (iii), the term ``State 
                        percentage'' means, with respect to a 
                        fiscal year, \1/2\ of the sum of--
                                          (aa) the percentage 
                                        represented by the 
                                        number of individuals 
                                        in the State whose 
                                        income is less than the 
                                        poverty line divided by 
                                        the number of such 
                                        individuals in the 
                                        United States; and
                                          (bb) the percentage 
                                        represented by the 
                                        number of individuals 
                                        who are adult 
                                        recipients of 
                                        assistance under the 
                                        State program funded 
                                        under this part divided 
                                        by the number of 
                                        individuals in the 
                                        United States who are 
                                        adult recipients of 
                                        assistance under any 
                                        State program funded 
                                        under this part.
                          (vi) Distribution of funds within 
                        states.--
                                  (I) In general.--A State to 
                                which a grant is made under 
                                this subparagraph shall 
                                distribute not less than 85 
                                percent of the grant funds 
                                among theservice delivery areas 
in the State, in accordance with a formula which--
                                          (aa) determines the 
                                        amount to be 
                                        distributed for the 
                                        benefit of a service 
                                        delivery area in 
                                        proportion to the 
                                        number (if any) by 
                                        which the number of 
                                        individuals residing in 
                                        the service delivery 
                                        area with an income 
                                        that is less than the 
                                        poverty line exceeds 5 
                                        percent of the 
                                        population of the 
                                        service delivery area, 
                                        relative to such number 
                                        for the other service 
                                        delivery areas in the 
                                        State, and accords a 
                                        weight of not less than 
                                        50 percent to this 
                                        factor;
                                          (bb) may determine 
                                        the amount to be 
                                        distributed for the 
                                        benefit of a service 
                                        delivery area in 
                                        proportion to the 
                                        number of adults 
                                        residing in the service 
                                        delivery area who are 
                                        recipients of 
                                        assistance under the 
                                        State program funded 
                                        under this part 
                                        (whether in effect 
                                        before or after the 
                                        amendments made by 
                                        section 103(a) of the 
                                        Personal Responsibility 
                                        and Work Opportunity 
                                        Reconciliation Act 
                                        first applied to the 
                                        State) for at least 30 
                                        months (whether or not 
                                        consecutive) relative 
                                        to the number of such 
                                        adults residing in the 
                                        other service delivery 
                                        areas in the State; and
                                          (cc) may determine 
                                        the amount to be 
                                        distributed for the 
                                        benefit of a service 
                                        delivery area in 
                                        proportion to the 
                                        number of unemployed 
                                        individuals residing in 
                                        the service delivery 
                                        area relative to the 
                                        number of such 
                                        individuals residing in 
                                        the other service 
                                        delivery areas in the 
                                        State.
                                  (II) Special rule.--
                                Notwithstanding subclause (I), 
                                if the formula used pursuant to 
                                subclause (I) would result in 
                                the distribution of less than 
                                $100,000 during a fiscal year 
                                for the benefit of a service 
                                delivery area, then in lieu of 
                                distributing such sum in 
                                accordance with the formula, 
                                such sum shall be available for 
                                distribution under subclause 
                                (III) during the fiscal year.
                                  (III) Projects to help long-
                                term recipients of assistance 
                                into the work force.--The 
                                Governor of a State to which a 
                                grant is made under this 
                                subparagraph may distribute not 
                                more than 15 percent of the 
                                grant funds (plus any amount 
                                required to be distributed 
                                under this subclause by reason 
                                of subclause (II)) to projects 
                                that appear likely to help 
                                long-term recipients of 
                                assistance under the State 
                                program funded under this part 
                                (whether in effect before or 
                                after the amendments made by 
                                section 103(a) of the Personal 
                                Responsibility and Work 
                                Opportunity Reconciliation Act 
                                first applied to the State) 
                                enter the work force.
                          (vii) Administration.--
                                  (I) In general.--A grant made 
                                under this subparagraph to a 
                                State shall be administered by 
                                the State agency that is 
                                administering, or supervising 
                                the administration of, the 
                                State program funded under this 
                                part, or by another State 
                                agency designated by the 
                                Governor of the State.
                                  (II) Spending by private 
                                industry councils.--The private 
                                industry council for a service 
                                delivery area shall have sole 
                                authority, in coordination with 
                                the chief elected official (as 
                                described in section 103(c) of 
                                the Job Training Partnership 
                                Act) of the service delivery 
                                area, to expend the amounts 
                                provided for a service delivery 
                                area under subparagraph 
                                (vi)(I).
                  (B) Demonstration projects.--
                          (i) In general.--The Secretary, in 
                        consultation with the Secretary of 
                        Health and Human Services and the 
                        Secretary of Housing and Urban 
                        Development, shall make grants in 
                        accordance with this subparagraph among 
                        eligible applicants based on the 
                        likelihood that the applicant can 
                        successfully make long-term placements 
                        of individuals into the work force.
                          (ii) Eligible applicants.--As used in 
                        clause (i), the term ``eligible 
                        applicant'' means a private industry 
                        council or a political subdivision of a 
                        State.
                          (iii) Determination of grant 
                        amount.--In determining the amount of a 
                        grant to be made under this 
                        subparagraph for a demonstration 
                        project proposed by an applicant, the 
                        Secretary shall provide the applicant 
                        with an amount sufficient to ensure 
                        that the project has a reasonable 
                        opportunity to be successful, taking 
                        into account the number of long-term 
                        recipients of assistance under a State 
                        program funded under this part, the 
                        level of unemployment, the job 
                        opportunities and job growth, the 
                        poverty rate, and such other factors as 
                        the Secretary deems appropriate, in the 
                        area to be served by the project.
                          (iv) Funding.--For grants under this 
                        subparagraph for each fiscal year 
                        specified in subparagraph (H), there 
                        shall be available to the Secretary an 
                        amount equal to the sum of--
                                  (I) 5 percent of--
                                          (aa) the amount 
                                        specified in 
                                        subparagraph (H) for 
                                        the fiscal year; minus
                                          (bb) the total of the 
                                        amounts reserved 
                                        pursuant to 
                                        subparagraphs (F) and 
                                        (G) for the fiscal 
                                        year;
                                  (II) any amount available for 
                                grants under this paragraph for 
                                the immediately preceding 
                                fiscal year that has not been 
                                obligated;
                                  (III) any amount reserved 
                                pursuant to subparagraph (F) 
                                for the immediately preceding 
                                fiscal year that has not been 
                                obligated; and
                                  (IV) any available amount (as 
                                defined in subparagraph 
                                (A)(iv)) for the immediately 
                                preceding fiscal year that has 
                                not been obligated by a State 
                                or sub-State entity.
                        Amounts made available pursuant to this 
                        clause are authorized to remain 
                        available until the end of fiscal year 
                        2001.
                  (C) Limitations on use of funds.--
                          (i) Allowable activities.--An entity 
                        to which funds are provided under this 
                        paragraph may use the funds to move 
                        into the work force recipients of 
                        assistance under the program funded 
                        under this part of the State in which 
                        the entity is located, by means of any 
                        of the following:
                                  (I) Job creation through 
                                public or private sector 
                                employment wage subsidies.
                                  (II) On-the-job training.
                                  (III) Contracts with job 
                                placement companies or public 
                                job placement programs.
                                  (IV) Job vouchers.
                                  (V) Job retention or support 
                                services if such services are 
                                not otherwise available.
                          (ii) Required beneficiaries.--An 
                        entity that operates a project with 
                        funds provided under this paragraph 
                        shall expend at least 90 percent of all 
                        funds provided to the project for the 
                        benefit of recipients of assistance 
                        under the program funded under this 
                        part of the State in which the entity 
                        is located who meet the requirements of 
                        any of the following subclauses:
                                  (I) The individual has 
                                received assistance under the 
                                State program funded under this 
                                part (whether in effect before 
                                or after the amendments made by 
                                section 103 of the Personal 
                                Responsibility and Work 
                                Opportunity Reconciliation Act 
                                of 1996 first apply to the 
                                State) for at least 30 months 
                                (whether or not consecutive).
                                  (II) At least 2 of the 
                                following apply to the 
                                recipient:
                                          (aa) The individual 
                                        has not completed 
                                        secondary school or 
                                        obtained a certificate 
                                        of general equivalency, 
                                        and has low skills in 
                                        reading and 
                                        mathematics.
                                          (bb) The individual 
                                        requires substance 
                                        abuse treatment for 
                                        employment.
                                          (cc) The individual 
                                        has a poor work 
                                        history.
                                The Secretary shall prescribe 
                                such regulations as may be 
                                necessary to interpret this 
                                subclause.
                                  (III) Within 12 months, the 
                                individual will become 
                                ineligible for assistance under 
                                the State program funded under 
                                this part by reason of a 
                                durational limit on such 
                                assistance, without regard to 
                                any exemption provided pursuant 
                                to section 408(a)(7)(C) that 
                                may apply to the individual.
                          (iii) Limitation on applicability of 
                        section 404.--The rules of section 404, 
                        other than subsections (b), (f), and 
                        (h) of section 404, shall not apply to 
                        a grant made under this paragraph.
                          (iv) Prohibition against provision of 
                        services by private industry council.--
                        A private industry council may not 
                        directly provide services using funds 
                        provided under this paragraph.
                          (v) Prohibition against use of grant 
                        funds for any other fund matching 
                        requirement.--An entity to which funds 
                        are provided under this paragraph shall 
                        not use any part of the funds to 
                        fulfill any obligation of any State, 
                        political subdivision, or private 
                        industry council to contribute funds 
                        under other Federal law.
                          (vi) Deadline for expenditure.--An 
                        entity to which funds are provided 
                        under this paragraph shall remit to the 
                        Secretary any part of the funds that 
                        are not expended within 3 years after 
                        the date the funds are so provided.
                  (D) Individuals with income less than the 
                poverty line.--For purposes of this paragraph, 
                the number of individuals with an income that 
                is less than the poverty line shall be 
                determined based on the methodology used by the 
                Bureau of the Census to produce and publish 
                intercensal poverty data for 1993 for States 
                and counties.
                  (E) Definitions.--As used in this paragraph:
                          (i) Private industry council.--The 
                        term ``private industry council'' 
                        means, with respect to a service 
                        delivery area, the private industry 
                        council (or successor entity) 
                        established for the service delivery 
                        area pursuant to the Job Training 
                        Partnership Act.
                          (ii) Secretary.--The term 
                        ``Secretary'' means the Secretary of 
                        Labor, except as otherwise expressly 
                        provided.
                          (iii) Service delivery area.--The 
                        term ``service delivery area'' shall 
                        have the meaning given such term for 
                        purposes of the Job Training 
                        Partnership Act (or successor area).
                  (F) Funding for indian tribes.--1 percent of 
                the amount specified in subparagraph (H) for 
                each fiscal year shall be reserved for grants 
                to Indian tribes under section 412(a)(3).
                  (G) Evaluations.--0.5 percent of the amount 
                specified in subparagraph (H) for each fiscal 
                year shall be reserved for use by the Secretary 
                of Health and Human Services to carry out 
                section 413(j).
                  (H) Funding.--The amount specified in this 
                subparagraph is--
                          (i) $750,000,000 for fiscal year 
                        1998;
                          (ii) $1,250,000,000 for fiscal year 
                        1999; and
                          (iii) $1,000,000,000 for fiscal year 
                        2000.
                  (I) Budget scoring.--Notwithstanding section 
                457(b)(2) of the Balanced Budget and Emergency 
                DeficitControl Act of 1985, the baseline shall 
assume that no grant shall be made under this paragraph or under 
section 412(a)(3) after fiscal year 2001.
          * * * * * * *

SEC. 407. MANDATORY WORK REQUIREMENTS.

  (a) * * *
          * * * * * * *
  (c) Engaged in Work.--
          (1) * * *
          (2) Limitations and special rules.--
                  (A) * * *
          * * * * * * *
                  [(D) Number of persons that may be treated as 
                engaged in work by virtue of participation in 
                vocational education activities or being a teen 
                head of household who maintains satisfactory 
                school attendance.--For purposes of determining 
                monthly participation rates under paragraphs 
                (1)(B)(i) and (2)(B) of subsection (b), not 
                more than 20 percent of individuals in all 
                families and in 2-parent families may be 
                determined to be engaged in work in the State 
                for a month by reason of participation in 
                vocational educational training or deemed to be 
                engaged in work by reason of subparagraph (C) 
                of this paragraph.]
                  (D) Limitation on number of persons who may 
                be treated as engaged in work by reason of 
                participation in educational activities.--For 
                purposes of determining monthly participation 
                rates under paragraphs (1)(B)(i) and (2)(B) of 
                subsection (b), not more than 20 percent of the 
                number of individuals in all families and in 2-
                parent families, respectively, in a State who 
                are treated as engaged in work for a month may 
                consist of individuals who are determined to be 
                engaged in work for the month by reason of 
                participation in vocational educational 
                training, or deemed to be engaged in work for 
                the month by reason of subparagraph (C) of this 
                paragraph.
          * * * * * * *
  [(f) Nondisplacement in Work Activities.--
          [(1) In general.--Subject to paragraph (2), an adult 
        in a family receiving assistance under a State program 
        funded under this part attributable to funds provided 
        by the Federal Government may fill a vacant employment 
        position in order to engage in a work activity 
        described in subsection (d).
          [(2) No filling of certain vacancies.--No adult in a 
        work activity described in subsection (d) which is 
        funded, in whole or in part, by funds provided by the 
        Federal Government shall be employed or assigned--
                  [(A) when any other individual is on layoff 
                from the same or any substantially equivalent 
                job; or
                  [(B) if the employer has terminated the 
                employment of any regular employee or otherwise 
                caused an involuntary reduction of its 
                workforce in order to fill the vacancy so 
                created with an adult described in paragraph 
                (1).
          [(3) Grievance procedure.--A State with a program 
        funded under this part shall establish and maintain a 
        grievance procedure for resolving complaints of alleged 
        violations of paragraph (2).
          [(4) No preemption.--Nothing in this subsection shall 
        preempt or supersede any provision of State or local 
        law that provides greater protection for employees from 
        displacement.]
  (f) Nondisplacement in Work Activities.--
          (1) Prohibitions.--
                  (A) General prohibition.--A participant in a 
                work activity pursuant to section 403(a)(5) or 
                this section shall not displace (including a 
                partial displacement, such as a reduction in 
                the hours of nonovertime work, wages, or 
                employment benefits) any individual who, as of 
                the date of the participation, is an employee.
                  (B) Prohibition on impairment of contracts.--
                A work activity shall not impair an existing 
                contract for services or collective bargaining 
                agreement, and a work activity that would be 
                inconsistent with the terms of a collective 
                bargaining agreement shall not be undertaken 
                without the written concurrence of the labor 
                organization and employer concerned.
                  (C) Other prohibitions.--A participant in a 
                work activity shall not be employed in a job--
                          (i) when any other individual is on 
                        layoff from the same or any 
                        substantially equivalent job;
                          (ii) when the employer has terminated 
                        the employment of any regular employee 
                        or otherwise reduced the workforce of 
                        the employer with the intention of 
                        filling the vacancy so created with the 
                        participant; or
                          (iii) which is created in a 
                        promotional line that will infringe in 
                        any way upon the promotional 
                        opportunities of employed individuals.
          (2) Health and safety.--Health and safety standards 
        established under Federal and State law otherwise 
        applicable to working conditions of employees shall be 
        equally applicable to working conditions of 
        participants engaged in a work activity. To the extent 
        that a State workers' compensation law applies, 
        workers' compensation shall be provided to participants 
        on the same basis as the compensation is provided to 
        other individuals in the State in similar employment.
          (3) Nondiscrimination.--In addition to the 
        protections provided under the provisions of law 
        specified in section 408(c), an individual may not be 
        discriminated against with respect to participation in 
        work activities by reason of gender.
          (4) Grievance procedure.--
                  (A) In general.--Each State to which a grant 
                is made under section 403 shall establish and 
                maintain a procedure for grievances or 
                complaints alleging violations of paragraph 
                (1), (2), or (3) from participants and other 
                interested or affected parties. The procedure 
                shall include an opportunity for a hearing and 
                be completed within 60 days after the grievance 
                or complaint is filed.
                  (B) Investigation.--
                          (i) In general.--The Secretary of 
                        Labor shall investigate an allegation 
                        of a violation of paragraph (1), (2), 
                        or (3) if--
                                  (I) a decision relating to 
                                the violation is not reached 
                                within 60 days after the date 
                                of the filing of the grievance 
                                or complaint, and either party 
                                appeals to the Secretary of 
                                Labor; or
                                  (II) a decision relating to 
                                the violation is reached within 
                                the 60-day period, and the 
                                party to which the decision is 
                                adverse appeals the decision to 
                                the Secretary of Labor.
                          (ii) Additional requirement.--The 
                        Secretary of Labor shall make a final 
                        determination relating to an appeal 
                        made under clause (i) no later than 120 
                        days after receiving the appeal.
                  (C) Remedies.--Remedies for violation of 
                paragraph (1), (2), or (3) shall be limited 
                to--
                          (i) suspension or termination of 
                        payments under section 403;
                          (ii) prohibition of placement of a 
                        participant with an employer that has 
                        violated paragraph (1), (2), or (3);
                          (iii) where applicable, reinstatement 
                        of an employee, payment of lost wages 
                        and benefits, and reestablishment of 
                        other relevant terms, conditions and 
                        privileges of employment; and
                          (iv) where appropriate, other 
                        equitable relief.
          * * * * * * *
  (j) Compensation.--A State to which a grant is made under 
section 403 may not require a recipient of assistance under the 
State program funded under this part to participate in a work 
activity described in paragraph (1), (2), or (3) of subsection 
(d) unless the recipient is compensated at the same rates, 
including periodic increases, as trainees or employees who are 
similarly situated in similar occupations by the same employer 
and who have similar training, experience and skills, and such 
rates shall be in accordance with applicable law.
  (k) Limitation on Number of Hours Per Month That a Recipient 
of Assistance May Be Required to Participate in On-the-Job 
Training, and With a Public Agency or Nonprofit Organization.--
          (1) In general.--A State to which a grant is made 
        under section 403 may not require a recipient of 
        assistance under the State program funded under this 
        part to be assigned to on-the-job training, and to a 
        work experience or community service position with a 
        public agency or nonprofit organization during a month 
        for more than the allowable number of hours determined 
        for the month under paragraph (2).
          (2) Allowable number of hours.--
                  (A) In general.--Subject to subparagraph (B), 
                the allowable number of hours determined for a 
                month under this paragraph is--
                          (i) the value of the includible 
                        benefits provided by the State to the 
                        recipient during the month; divided by
                          (ii) the minimum wage rate in effect 
                        during the month under section 6 of the 
                        Fair Labor Standards Act of 1938.
                  (B) State option to take account of certain 
                work activities.--
                          (i) In general.--In determining the 
                        allowable number of hours for a month 
                        for a sufficiently employed recipient, 
                        the State may subtract from the 
                        allowable number of hours calculated 
                        under subparagraph (A) the number of 
                        hours during the month for which the 
                        recipient participates in a work 
                        activity described in paragraph (6), 
                        (8), (9), or (11) of subsection (d).
                          (ii) Sufficiently employed 
                        recipient.--As used in clause (i), the 
                        term ``sufficiently employed 
                        recipient'' means, with respect to a 
                        month, a recipient who is employed 
                        during the month for a number of hours 
                        that is not less than--
                                  (I) the sum of the dollar 
                                value of any assistance 
                                provided to the recipient 
                                during the month under the 
                                State program funded under this 
                                part, and the dollar value 
                                equivalent of any benefits 
                                provided to the recipient 
                                during the month under the food 
                                stamp program under the Food 
                                Stamp Act of 1977; divided by
                                  (II) the minimum wage rate in 
                                effect during the month under 
                                section 6 of the Fair Labor 
                                Standards Act of 1938.
          (3) Definition of value of the includible benefits.--
        As used in paragraph (2)(A), the term ``value of the 
        includible benefits'' means, with respect to a 
        recipient--
                  (A) the dollar value of any assistance under 
                the State program funded under this part;
                  (B) the dollar value equivalent of any 
                benefits under the food stamp program under the 
                Food Stamp Act of 1977;
                  (C) at the option of the State, the dollar 
                value of benefits under the State plan approved 
                under title XIX, as determined in accordance 
                with paragraph (4);
                  (D) at the option of the State, the dollar 
                value of child care assistance; and
                  (E) at the option of the State, the dollar 
                value of housing benefits.
          (4) Valuation of medicaid benefits.--Annually, the 
        Secretary shall publish a table that specifies the 
        dollar value of the insurance coverage provided under 
        title XIX to a family of each size, which may take 
        account of geographical variations or other factors 
        identified by the Secretary.
          (5) Treatment of recipients assigned to certain 
        positions with a public agency or nonprofit 
        organization.--A recipient of assistance under a State 
        program funded under this part who is engaged in work 
        experience or community service with a public agency or 
        nonprofit organization shall not be considered an 
        employee of the public agency or the nonprofit 
        organization.

SEC. 408. PROHIBITIONS; REQUIREMENTS.

  (a) In General.--
          (1) * * *
          * * * * * * *
          (7) No assistance for more than 5 years.--
                  (A) * * *
          * * * * * * *
                  (G) Inapplicability to welfare-to-work grants 
                and assistance.--For purposes of subparagraph 
                (A) of this paragraph, a grant made under 
                section 403(a)(5) shall not be considered a 
                grant made under section 403, and assistance 
                from funds provided under section 403(a)(5) 
                shall not be considered assistance.
          * * * * * * *

SEC. 409. PENALTIES.

  (a) In General.--Subject to this section:
          (1) * * *
          * * * * * * *
          (13) Penalty for failure to reduce assistance for 
        recipients refusing without good cause to work.--
                  (A) In general.--If the Secretary determines 
                that a State to which a grant is made under 
                section 403 in a fiscal year has violated 
                section 407(e) during the fiscal year, the 
                Secretary shall reduce the grant payable to the 
                State under section 403(a)(1) for the 
                immediately succeeding fiscal year by an amount 
                equal to not less than 1 percent and not more 
                than 5 percent of the State family assistance 
                grant.
                  (B) Penalty based on severity of failure.--
                The Secretary shall impose reductions under 
                subparagraph (A) with respect to a fiscal year 
                based on the degree of noncompliance.
          * * * * * * *

SEC. 412. DIRECT FUNDING AND ADMINISTRATION BY INDIAN TRIBES.

  (a) Grants for Indian Tribes.--
          (1) * * *
          * * * * * * *
          (3) Welfare-to-work grants.--
                  (A) In general.--The Secretary shall make a 
                grant in accordance with this paragraph to an 
                Indian tribe for each fiscal year specified in 
                section 403(a)(5)(H) for which the Indian tribe 
                is a welfare-to-work tribe, in such amount as 
                the Secretary deems appropriate, subject to 
                subparagraph (B) of this paragraph.
                  (B) Welfare-to-work tribe.--An Indian tribe 
                shall be considered a welfare-to-work tribe for 
                a fiscal year for purposes of this paragraph if 
                the Indian tribe meets the following 
                requirements:
                          (i) The Indian tribe has submitted to 
                        the Secretary (in the form of an 
                        addendum to the tribal family 
                        assistance plan, if any, of the Indian 
                        tribe) a plan which describes how, 
                        consistent with section 403(a)(5), the 
                        Indian tribe will use any funds 
                        provided under this paragraph during 
                        the fiscal year.
                          (ii) The Indian tribe has provided 
                        the Secretary with an estimate of the 
                        amount that the Indian tribe intends to 
                        expend during the fiscal year 
                        (excluding tribal expenditures 
                        described in section 409(a)(7)(B)(iv)) 
                        for activities described in section 
                        403(a)(5)(C)(i).
                          (iii) The Indian tribe has agreed to 
                        negotiate in good faith with the 
                        Secretary of Health and Human Services 
                        with respect to the substance of any 
                        evaluation under section 413(j), and to 
                        cooperate with the conduct of any such 
                        evaluation.
                  (C) Limitations on use of funds.--Section 
                403(a)(5)(C) shall apply to funds provided to 
                Indian tribes under this paragraph in the same 
                manner in which such section applies to funds 
                provided under section 403(a)(5).
          * * * * * * *

SEC. 413. RESEARCH, EVALUATIONS, AND NATIONAL STUDIES.

  (a) * * *
          * * * * * * *
  (j) Evaluation of Welfare-To-Work Programs.--The Secretary--
          (1) shall, in consultation with the Secretary of 
        Labor, develop a plan to evaluate how grants made under 
        sections 403(a)(5) and 412(a)(3) have been used; and
          (2) may evaluate the use of such grants by such 
        grantees as the Secretary deems appropriate, in 
        accordance with an agreement entered into with the 
        grantees after good-faith negotiations.
          * * * * * * *

     TITLE XI--GENERAL PROVISIONS, PEER REVIEW, AND ADMINISTRATIVE 
                             SIMPLIFICATION

          * * * * * * *

SEC. 1108.  ADDITIONAL GRANTS TO PUERTO RICO, THE VIRGIN ISLANDS, GUAM, 
                    AND AMERICAN SAMOA; LIMITATION ON TOTAL PAYMENTS.

  (a) Limitation on Total Payments to Each Territory.--
Notwithstanding any other provision of this Act, the total 
amount certified by the Secretary of Health and Human Services 
under titles I, X, XIV, and XVI, under parts A and E of title 
IV (except section 403(a)(5)), and under subsection (b) of this 
section, for payment to any territory for a fiscal year shall 
not exceed the ceiling amount for the territory for the fiscal 
year.
          * * * * * * *
                              ----------                              


                      HIGHER EDUCATION ACT OF 1965

          * * * * * * *

                      TITLE IV--STUDENT ASSISTANCE

          * * * * * * *

             Part B--Federal Family Education Loan Program

          * * * * * * *

SEC. 422. ADVANCES FOR RESERVE FUNDS OF STATE AND NONPROFIT PRIVATE 
                    LOAN INSURANCE PROGRAMS.

  (a) * * *
          * * * * * * *
  (h) Recall of Reserves; Limitations on Use of Reserve Funds 
and Assets.--(1) Notwithstanding any other provision of law, 
the Secretary shall, except as otherwise provided in this 
subsection, recall $1,000,000,000 from the reserve funds held 
by guaranty agencies on September 1, 2002.
  (2) Funds recalled by the Secretary under this subsection 
shall be deposited in the Treasury.
  (3) The Secretary shall require each guaranty agency to 
return reserve funds under paragraph (1) based on such agency's 
required share of recalled reserve funds held by guaranty 
agencies as of September 30, 1996. For purposes of this 
paragraph, a guaranty agency's required share of recalled 
reserve funds shall be determined as follows:
          (A) The Secretary shall compute each agency's reserve 
        ratio by dividing (i) the amount held in such agency's 
        reserve funds as of September 30, 1996 (but reflecting 
        later accounting or auditing adjustments approved by 
        the Secretary), by (ii) the original principal amount 
        of all loans for which such agency has an outstanding 
        insurance obligation as of such date.
          (B) If the reserve ratio of any agency as computed 
        under subparagraph (A) exceeds 2.0 percent, the 
        agency's required share shall include so much of the 
        amounts held in such agency's reserve fund as exceed a 
        reserve ratio of 2.0 percent.
          (C) If any additional amount is required to be 
        recalled under paragraph (1) (after deducting the total 
        of the required shares calculated under subparagraph 
        (B)), the agencies' required shares shall include 
        additional amounts--
                  (i) determined by imposing on each such 
                agency an equal percentage reduction in the 
                amount of each agency's reserve fund remaining 
                after deduction of the amount recalled under 
                subparagraph (B); and
                  (ii) the total of which equals the additional 
                amount that is required to be recalled under 
                paragraph (1) (afterdeducting the total of the 
required shares calculated under subparagraph (B)).
  (4) Within 90 days after the beginning of each of fiscal 
years 1998 through 2002, each guaranty agency shall transfer a 
portion of each agency's required share determined under 
paragraph (3) to a restricted account established by the 
guaranty agency that is of a type selected by the guaranty 
agency with the approval of the Secretary. Funds transferred to 
such restricted accounts shall be invested in obligations 
issued or guaranteed by the United States or in other similarly 
low-risk securities. A guaranty agency shall not use the funds 
in such a restricted account for any purpose without the 
express written permission of the Secretary, except that a 
guaranty agency may use the earnings from such restricted 
account to assist in meeting the agency's operational expenses 
under this part. In each of fiscal years 1998 through 2002, 
each agency shall transfer its required share to such 
restricted account in 5 equal annual installments, except 
that--
          (A) a guarantee agency that has a reserve ratio (as 
        computed under subparagraph (3)(A)) equal to or less 
        than 1.10 percent may transfer its required share to 
        such account in 4 equal installments beginning in 
        fiscal year 1999; and
          (B) a guarantee agency may transfer such required 
        share to such account in accordance with such other 
        payment schedules as are approved by the Secretary.
  (5) If, on September 1, 2002, the total amount in the 
restricted accounts described in paragraph (4) is less than the 
amount the Secretary is required to recall under paragraph (1), 
the Secretary may require the return of the amount of the 
shortage from other reserve funds held by guaranty agencies 
under procedures established by the Secretary.
  (6) The Secretary may take such reasonable measures, and 
require such information, as may be necessary to ensure that 
guaranty agencies comply with the requirements of this 
subsection. Notwithstanding any other provision of this part, 
if the Secretary determines that a guaranty agency is not in 
compliance with the requirements of this subsection, such 
agency may not receive any other funds under this part until 
the Secretary determines that such agency is in compliance.
  (7) The Secretary shall not have any authority to direct a 
guaranty agency to return reserve funds under subsection 
(g)(1)(A) during the period from the date of enactment of this 
subsection through September 30, 2002, and any reserve funds 
otherwise returned under subsection (g)(1) during such period 
shall be treated as amounts recalled under this subsection and 
shall not be available under subsection (g)(4).
  (8) For purposes of this subsection, the term ``reserve 
funds'' when used with respect to a guaranty agency--
          (A) includes any cash reserve funds held by the 
        guaranty agency, or held by, or under the control of, 
        any other entity; and
          (B) does not include buildings, equipment, or other 
        nonliquid assets.
          * * * * * * *

SEC. 424. SCOPE AND DURATION OF FEDERAL LOAN INSURANCE PROGRAM.

  (a) Limitations on Amounts of Loans Covered by Federal 
Insurance.--The total principal amount of new loans made and 
installments paid pursuant to lines of credit (as defined in 
section 435) to students covered by Federal loan insurance 
under this part shall not exceed $2,000,000,000 for the period 
from July 1, 1976, to September 30, 1976, and for each of the 
succeeding fiscal years ending prior to October 1, [1998.] 
2002. Thereafter, Federal loan insurance pursuant to this part 
may be granted only for loans made (or for loan installments 
paid pursuant to lines of credit) to enable students, who have 
obtained prior loans insured under this part, to continue or 
complete their educational program; but no insurance may be 
granted for any loan made or installment paid after September 
30, [2002.] 2006.
          * * * * * * *

SEC. 428. FEDERAL PAYMENTS TO REDUCE STUDENT INTEREST COSTS.

  (a) Federal Interest Subsidies.--
          (1) * * *
          * * * * * * *
          (5) Duration of authority to make interest subsidized 
        loans.--The period referred to in subparagraph (B) of 
        paragraph (1) of this subsection shall begin on the 
        date of enactment of this Act and end at the close of 
        September 30, [1998,] 2002, except that, in the case of 
        a loan made or insured under a student loan or loan 
        insurance program to enable a student who has obtained 
        a prior loan made or insured under such program to 
        continue his or her education program, such period 
        shall end at the close of September 30, [2002.] 2006.
          * * * * * * *
  (c) Guaranty Agreements for Reimbursing Losses.--
          (1) * * *
          * * * * * * *
          (6) Secretary's equitable share.--(A) For the purpose 
        of paragraph (2)(D), the Secretary's equitable share of 
        payments [made by the borrower] made by or on behalf of 
        the borrower, including payments made to discharge 
        loans made under this title to obtain a consolidation 
        loan pursuant to this part or part D, shall be that 
        portion of the payments remaining after the guaranty 
        agency with which the Secretary has an agreement under 
        this subsection has deducted from such payments--
                  (i) a percentage amount equal to the 
                complement of the reinsurance percentage in 
                effect when payment under the guaranty 
                agreement was made with respect to the loan; 
                and
                  [(ii) an amount equal to 27 percent of such 
                payments (subject to subparagraph (D) of this 
                paragraph) for costs related] (ii) an amount 
                equal to 27 percent of such payments for 
                covered costs, except that the amount 
                determined under this clause for such covered 
                costs shall be (I) 18.5 percent of such 
                payments for defaulted loans 
consolidatedpursuant to this part or part D on or after July 1, 1997; 
and (II) 18.5 percent of such payments for defaulted loans consolidated 
pursuant to this part or part D on or after the date of enactment of 
the Higher Education Amendments of 1992 with respect to any guaranty 
agency that has, after such date, made deductions from such payments 
under this clause (ii) in an amount equal to 18.5 percent of such 
payments.
For purposes of clause (ii) of this subparagraph, the term 
``covered costs'' means costs related to the student loan 
insurance program, including the administrative costs of 
collection of loans reimbursed under this subsection, the 
administrative costs of preclaims assistance for default 
prevention, the administrative costs of supplemental preclaims 
assistance for default prevention, and the administrative costs 
of monitoring the enrollment and payment status of students (as 
such terms are defined in subparagraph (B) or (C) of this 
paragraph).
          * * * * * * *
          (9) Guaranty agency reserve level.--(A) Each guaranty 
        agency which has entered into an agreement with the 
        Secretary pursuant to this subsection shall maintain a 
        current minimum reserve level of at least .5 percent of 
        the total attributable amount of all outstanding loans 
        guaranteed by such agency [for the fiscal year of the 
        agency that begins in 1993]. For purposes of this 
        paragraph, such total attributable amount does not 
        include amounts of outstanding loans transferred to the 
        guaranty agency from another guaranty agency pursuant 
        to a plan of the Secretary in response to the 
        insolvency of the latter such guaranty agency. [The 
        minimum reserve level shall increase to--
                  [(i) .7 percent of such total attributable 
                amount for the fiscal year of the agency that 
                begins in 1994;
                  [(ii) .9 percent of such total attributable 
                amount for the fiscal year of the agency that 
                begins in 1995; and
                  [(iii) 1.1 percent of such total attributable 
                amount for each fiscal year of the agency that 
                begins on or after January 1, 1996.]
          * * * * * * *

SEC. 428C. FEDERAL CONSOLIDATION LOANS.

  (a) * * *
          * * * * * * *
  (e) Termination of Authority.--The authority to make loans 
under this section expires at the close of September 30, 
[1998.] 2002. Nothing in this section shall be construed to 
authorize the Secretary to promulgate rules or regulations 
governing the terms or conditions of the agreements and 
certificates under subsection (b). Loans made under this 
section which are insured by the Secretary shall be considered 
to be new loans made to students for the purpose of section 
424(a).
          * * * * * * *

SEC. 452. FUNDS FOR ORIGINATION OF DIRECT STUDENT LOANS.

  (a) * * *
  [(b) Fees for Origination Services.--
          [(1) Fees for institutions.--The Secretary shall pay 
        fees to institutions of higher education (or a 
        consortium of such institutions) with agreements under 
        section 454(b), in an amount established by the 
        Secretary, to assist in meeting the costs of loan 
        origination. Such fees--
                  [(A) shall be paid by the Secretary based on 
                all the loans made under this part to a 
                particular borrower in the same academic year;
                  [(B) shall be subject to a sliding scale that 
                decreases the per borrower amount of such fees 
                as the number of borrowers increases; and
                  [(C)(i) for academic year 1994-1995, shall 
                not exceed a program-wide average of $10 per 
                borrower for all the loans made under this part 
                to such borrower in the same academic year; and
                  [(ii) for succeeding academic years, shall 
                not exceed such average fee as the Secretary 
                shall establish pursuant to regulations.
          [(2) Fees for alternative originators.--The Secretary 
        shall pay fees for loan origination services to 
        alternative originators of loans made under this part 
        in an amount established by the Secretary in accordance 
        with the terms of the contract described in section 
        456(b) between the Secretary and each such alternative 
        originator.]
  [(c)] (b) No Entitlement To Participate or Originate.--No 
institution of higher education shall have a right to 
participate in the programs authorized by this part, to 
originate loans, or to perform any program function under this 
part. Nothing in this subsection shall be construed so as to 
limit the entitlement of an eligible student attending a 
participating institution (or the eligible parent of such 
student) to borrow under this part.
  [(d)] (c) Delivery of Loan Funds.--Loan funds shall be paid 
and delivered to an institution by the Secretary prior to the 
beginning of the payment period established by the Secretary in 
a manner that is consistent with payment and delivery of basic 
grants under subpart 1 of part A of this title.
          * * * * * * *
                              ----------                              


                        ACT OF FEBRUARY 23, 1917

   (Commonly known as the ``Smith-Hughes Vocational Education Act'')

    [CHAP. 114.--An Act To provide for the promotion of vocational 
education; to provide for cooperation with the States in the promotion 
  of such education in agriculture and the trades and industries; to 
provide for cooperation with the States in the preparation of teachers 
   of vocational subjects; and to appropriate money and regulate its 
                              expenditure.

    [Be it enacted by the Senate and House of Representatives 
of the United States of America in Congress assembled, That 
there is hereby annually appropriated, out of any money in the 
Treasury not otherwise appropriated, the sums provided in 
sections two, three, and four of this Act, to be paid to the 
respective States for the purpose of cooperating with the 
States in paying the salaries of teachers, supervisors, and 
directors of agricultural subjects, and teachers of trade, home 
economics, and industrial subjects, and in the preparation of 
teachers of agricultural, trade, industrial, and home economics 
subjects; and the sum provided for in section seven for the use 
of the Federal Board for Vocational Education for the 
administration of this Act and for the purpose of making 
studies, investigations, and reports to aid in the organization 
and conduct of vocational education, which sums shall be 
expended, as hereinafter provided.
    [Sec. 2. That for the purpose of cooperating with the 
States in paying the salaries of teachers, supervisors, or 
directors of agricultural subjects there is hereby appropriated 
for the use of the States, subject to the provisions of this 
Act, for the fiscal year ending June thirtieth, nineteen 
hundred and eighteen, the sum of $500,000; for the fiscal year 
ending June thirtieth, nineteen hundred and nineteen; the sum 
of $750,000; for the fiscal year ending June thirtieth, 
nineteen hundred and twenty, the sum of $1,000,000; for the 
fiscal year ending June thirtieth, nineteen hundred and twenty-
one, the sum of $1,250,000; for the fiscal year ending June 
thirtieth, nineteen hundred and twenty-two, the sum of 
$1,500,000; for the fiscal year ending June thirtieth, nineteen 
hundred and twenty-three, the sum of $1,750,000; for the fiscal 
year ending June thirtieth, nineteen hundred and twenty-four, 
the sum of $2,000,000; for the fiscal year ending June 
thirtieth, nineteen hundred and twenty-five, the sum of 
$2,500,000; for the fiscal year ending June thirtieth, nineteen 
hundred and twenty-six, and annually thereafter, the sum of 
$3,000,000. Said sums shall be allotted to the States in the 
proportion which their rural population bears to the total 
rural population in the United States, not including outlying 
possessions, according to the last preceding United States 
census: Provided, That the allotment of funds to any State 
shall be not less than a minimum of $5,000 for any fiscal year 
prior to and including the fiscal year ending June thirtieth, 
nineteen hundred and twenty-three, nor less than $10,000 for 
any fiscal year thereafter, and there is hereby appropriated 
the following sums, or so much thereof as may be necessary, 
which shall be used for the purpose of providing the minimum 
allotment to the States provided for in this section: For the 
fiscal year ending June thirtieth, nineteen hundred and 
eighteen, the sum of $48,000; for the fiscal year ending June 
thirtieth, nineteen hundred and nineteen, the sum of $34,000; 
for the fiscal year ending June thirtieth, nineteen hundred and 
twenty, the sum of $24,000; for the fiscal year ending June 
thirtieth, nineteen hundred and twenty-one, the sum of $18,000; 
for the fiscal year ending June thirtieth, nineteen hundred and 
twenty-two, the sum of $14,000; for the fiscal year ending June 
thirtieth, nineteen hundred and twenty-three, the sum of 
$11,000; for the fiscal year ending June thirtieth, nineteen 
hundred and twenty-four, the sum of $9,000; for the fiscal year 
ending June thirtieth, nineteen hundred and twenty-five, the 
sum of $34,000; and annually thereafter the sum of $28,500.
    [Sec. 3. That for the purpose of cooperating with the 
states in paying the salaries of teachers of trade, home 
economics, and industrial subjects there is hereby appropriated 
for the use of the States for the fiscal year ending June 
thirtieth, nineteen hundred and eighteen, the sum of $500,000; 
for the fiscal year ending June thirtieth, nineteen hundred and 
nineteen, the sum of $750,000; for the fiscal year ending June 
thirtieth, nineteen hundred and twenty, the sum of $1,000,000; 
for the fiscal year ending June thirtieth, nineteen hundred and 
twenty-one, the sum of $1,250,000; for the fiscal year ending 
June thirtieth, nineteen hundred and twenty-two, the sum of 
$1,500,000; for the fiscal year ending June thirtieth, nineteen 
hundred and twenty-three, the sum of $1,750,000; for the fiscal 
year ending June thirtieth, nineteen hundred and twenty-four, 
the sum of $2,000,000; for the fiscal year ending June 
thirtieth, nineteen hundred and twenty-five, the sum of 
$2,500,000; for the fiscal year ending June thirtieth, nineteen 
hundred and twenty-six, the sum of $3,000,000; and annually 
thereafter the sum of $3,000,000. Said sums shall be allotted 
to the States in the proportion which their urban population 
bears to the total urban population in the United States, not 
including outlying possessions, according to the lastpreceding 
United States census: Provided, That the allotment of funds to any 
State shall be not less than a minimum of $5,000 for any fiscal year 
prior to and including the fiscal year ending June thirtieth, nineteen 
hundred and twenty-three, nor less than $10,000 for any fiscal year 
thereafter, and there is hereby appropriated the following sums, or so 
much thereof as may be needed, which shall be used for the purpose of 
providing the minimum allotment to the States provided for in this 
section: For the fiscal year ending June thirtieth, nineteen hundred 
and eighteen, the sum of $66,000; for the fiscal year ending June 
thirtieth, nineteen hundred and nineteen, the sum of $46,000; for the 
fiscal year ending June thirtieth, nineteen hundred and twenty, the sum 
of $34,000; for the fiscal year ending June thirtieth, nineteen hundred 
and twenty-one, the sum of $28,000; for the fiscal year ending June 
thirtieth, nineteen hundred and twenty-two, the sum of $25,000; for the 
fiscal year ending June thirtieth, nineteen hundred and twenty-three, 
the sum of $22,000; for the fiscal year ending June thirtieth, nineteen 
hundred and twenty-four, the sum $19,000; for the fiscal year ending 
June thirtieth, nineteen hundred and twenty-five, the sum of $56,000; 
for the fiscal year ending June thirtieth, nineteen hundred and twenty-
six and annually thereafter, the sum of $50,000.
    [That not more than twenty per centum of the money 
appropriated under this Act for the payment of salaries of 
teachers of trade, home economics, and industrial subjects, for 
any year shall be expended for the salaries of teachers of home 
economics subjects.
    [Sec. 4. That for the purpose of cooperating with the 
States in preparing teachers, supervisors, and directors of 
agricultural subjects and teachers of trade and industrial and 
home economics subjects there is hereby appropriated for the 
use of the States for the fiscal year ending June thirtieth, 
nineteen hundred and eighteen, the sum of $500,000; for the 
fiscal year ending June thirtieth, nineteen hundred and 
nineteen, the sum of $700,000; for the fiscal year ending June 
thirtieth, nineteen hundred and twenty, the sum of $900,000; 
for the fiscal year ending June thirtieth, nineteen hundred and 
twenty-one, and annually thereafter, the sum of $1,000,000. 
Said sums shall be allotted to the States in the proportion 
which their population bears to the total population of the 
United States, not including outlying possessions, according to 
the last preceding United States census: Provided, That the 
allotment of funds to any State shall be not less than a 
minimum of $5,000 for any fiscal year prior to and including 
the fiscal year ending June thirtieth, nineteen hundred and 
nineteen, nor less than $10,000 for any fiscal year there-
after. And there is hereby appropriated the following sums, or 
so much thereof as may be needed, which shall be used for the 
purpose of providing the minimum allotment provided for in this 
section: For the fiscal year ending June, thirtieth, nineteen 
hundred and eighteen, the sum of $46,000; for the fiscal year 
ending June thirtieth, nineteen hundred and nineteen, the sum 
of $32,000; for the fiscal year ending June thirtieth, nineteen 
hundred and twenty, the sum of $24,000; for the fiscal year 
ending June thirtieth, nineteen hundred and twenty-one, and 
annually thereafter, the sum of $105,200.
    [Sec. 5. That in order to secure the benefits of the 
appropriations provided for in sections two, three, and four of 
this Act, any State shall, through the legislative authority 
thereof, accept the provisions of this Act and designate or 
create a State board, consisting of not less than three 
members, and having all necessary power to cooperate, as herein 
provided, with the Federal Board for Vocational Education in 
the administration of the provisions of this Act. The State 
board of education, or other board having change of the 
administration of public education in the State, or any State 
board having charge of the administration of any kind of 
vocational education in the State may, if the State so elect, 
be designated as the State board for the purposes of this Act.
    [In any State the legislature of which does not meet in 
nineteen hundred and seventeen, if the governor of that State, 
so far as he is authorized to do so, shall accept the 
provisions of this Act and designate or create a State board of 
not less than three members to act in cooperation with the 
Federal Board for Vocational Education the Federal board shall 
recognize such local board for the purposes of this Act until 
the legislature of such State meets in due course and has been 
in session sixty days.
    [Any State may accept the benefits of any one or more of 
the respective funds herein appropriated, and it may defer the 
acceptance of the benefits of any one or more of such funds, 
and shall be required to meet only the conditions relative to 
the fund or funds the benefits of which it has accepted: 
Provided, That after June thirtieth nineteen hundred and 
twenty, no State shall receive any appropriation for salaries 
of teaches, supervisors, or directors of agricultural subjects, 
until it shall have taken advantage of at least the minimum 
amount appropriated for the training of teachers, supervisors, 
or directors of agricultural subjects, as provided for in this 
Act, and that after said date no State shall receive any 
appropriation for the salaries of teachers of trade, home 
economics, and industrial subjects until it shall have taken 
advantage of at least the minimum amount appropriated for the 
training of teachers of trade, home economics, and industrial 
subjects, as provided for in this Act.
    [Sec. 7. That there is hereby appropriated to the Federal 
Board for Vocational Education the sum of $200,000 annually, to 
be available from and after the passage of this Act, for the 
purpose of making or cooperating in making the studies, 
investigations, and reports provided for in section six of this 
Act, and for the purpose of paying the salaries of the 
officers, the assistants, and such office and other expenses as 
the board may deem necessary to the execution and 
administration of this Act.
    [Sec. 8. That in order to secure the benefits of the 
appropriation for any purpose specified in this Act, the State 
board shall prepare plans, showing the kinds of vocational 
education for which it is proposed that the appropriation shall 
be used; the kinds of schools and equipment; courses of study; 
methods of instruction; qualifications and in case of 
agricultural subjects the qualifications of supervisors or 
directors; plans for the training of teachers; and, in the case 
of agricultural subjects, plans for the supervision of 
agricultural education, as provided for in section ten. Such 
plans shall be submitted by the State board to the federal 
Board for Vocational Education, and if the Federal board finds 
the same to be in conformity with the provisions and purposes 
of this Act, the same shall be approved. The State board shall 
make an annual report to the Federal Board for Vocational 
Education, on or before September first of each year, on the 
work done in the State and the receipts and expenditures of 
money under the provisions of this Act.
    [Sec. 9. That the appropriation for the salaries of 
teachers, supervisors, or directors of agricultural subjects 
and of teachers of trade, home economics, and industrial 
subjects shall be devoted exclusively to the payment of 
salaries of such teachers, supervisors, or directors having the 
minimum qualifications set up for the State by the State board, 
with the approval of the Federal Board for Vocational 
Education. The cost of instruction supplementary to the 
instruction in agricultural and in trade, home economics, and 
industrial subjects provided for in this Act, necessary to 
build a well-rounded course of training, shall be borne by the 
State and local communities, and no part of the cost thereof 
shall be borne out of the appropriations herein made. The 
moneys expended under the provisions of this Act, in 
cooperation with the States, for the salaries of teachers, 
supervisors, or directors of agricultural subjects, or for the 
salaries of teachers of trade, home economics, and industrial 
subjects, shall be conditioned that for each dollar of Federal 
money expended for such salaries the State or local community, 
or both, shall expend an equal amount for such salaries; and 
that appropriations for the training of teachers of vocational 
subjects, as herein provided, shall be conditioned that such 
money be expended for maintenance of such training and that for 
each dollar of Federal money so expended for maintenance, the 
State or local community, or both, shall expend an equal amount 
for the maintenance of such training.
    [Sec. 10. That any State may use the appropriation for 
agricultural purposes, or any part thereof allotted to it, 
under the provisions of the Act, for the salaries of teachers, 
supervisors, or directors of agricultural subjects, either for 
the salaries of teachers of such subjects in schools or classes 
or for the salaries of supervisors or directors of such 
subjects under a plan of supervision for the State to be set up 
by the State board, with the approval of the Federal Board for 
Vocational Education. That in order to receive the benefits of 
such appropriation for the salaries of teachers, supervisors, 
or directors of agricultural subjects the State board of any 
State shall provide in its plan for agricultural education that 
such education shall be that which is under public supervision 
or control; that the controlling purpose of such education 
shall be to fit for useful employment; that such education 
shall be of less than college grade and be designed to meet the 
needs of persons over fourteen years of age who have entered 
upon or who are preparing to enter upon the work of the farm or 
of the farm home; that the State or local community, or both, 
shall provide the necessary plant and equipment determined upon 
by the State board, with the approval of the Federal Board for 
Vocational Education, as the minimum requirement for such 
education in schools and classes in the State; that the amount 
expended for the maintenance of such education in any school or 
class receiving the benefit of such appropriation shall be not 
less annually than the amount fixed by the State board, with 
the approval of the Federal board as the minimum for such 
schools or classes in the State; that such schools shall 
provide for directed or supervised practice in agriculture, 
either on a farm provided for by the school or other farm, for 
at least six months per year; that the teachers, supervisors, 
or directors of agricultural subjects shall have at least the 
minimum qualifications determined for the State by the State 
board, with the approval of the Federal Board for Vocational 
Education.
    [Sec. 11. That in order to receive the benefits of the 
appropriation for the salaries of teachers of trade, home 
economics, and industrial subjects the State board of any State 
shall provide in its plan for trade, home economics, and 
industrial education that such education shall be given in 
schools or classes under pubic supervision or control; that the 
controlling purpose of such education shall be to fit for 
useful employment; that such education shall be of less than 
college grade and shall be designed to meet the needs of 
persons over fourteen years of age who are preparing for a 
trade or industrial pursuit or who have entered upon the work 
of a trade or industrial pursuit; that the State or local 
community, or both, shall provide the necessary plant and 
equipment determined upon by the State board, with the approval 
of the Federal Board for Vocational Education, as the minimum 
requirements in such State for education for any given trade or 
industrial pursuit; that the total amount expended for the 
maintenance of such education in any school or class receiving 
the benefit of such appropriation shall be not less annually 
than the amount fixed by the State board, with the approval of 
the Federal board, as the minimum for such schools or classes 
in the State; that such schools or classes giving instruction 
to persons who have not entered upon employment shall require 
that at least half of the time of such instruction be given to 
practical work on a useful or productive basis, such 
instruction to extend over not less than nine months per year 
and not less than thirty hours per week; that at least one-
third of the sum appropriated to any State for the salaries of 
teachers of trade, home economics, and industrial subjects 
shall, if expended,be applied to part-time schools orclasses 
for workers over fourteen years of age who have entered upon 
employment, and such subjects in a part-time school or class may mean 
any subject given to enlarge the civic or vocational intelligence of 
such workers over fourteen and less than eighteen years of age; that 
such part-time schools or classes shall provide for not less than one 
hundred and forty-four hours of classroom instruction per year; that 
evening industrial schools shall fix the age of sixteen years as a 
minimum entrance requirement and shall confine instruction to that 
which is supplemental to the daily employment; that the teachers of any 
trade or industrial subject in any State shall have at least the 
minimum qualifications for teachers of such subject determined upon for 
such State by the State board, with the approval of the Federal Board 
for Vocational Education: Provided, That for cities and towns of less 
than twenty-five thousand population, according to the last preceding 
United States census, the State board, with the approval of the Federal 
Board for Vocational Education, may modify the conditions as to the 
length of course and hours of instruction per week for schools and 
classes giving instruction to those who have not entered upon 
employment, in order to meet the particular needs of such cities and 
towns.
    [Sec. 12. That is order for any State to receive the 
benefits of the appropriation in this Act for the training of 
teachers, supervisors, or directors of agricultural subjects, 
or of teachers of trade, industrial or home economics subjects, 
the State board of such State shall provide in its plan for 
such training that the same shall be carried out under the 
supervision of the State board; that such training shall be 
given in schools or classes under public supervision or 
control; that such training shall be given only to persons who 
have had adequate vocational experience or contact in the line 
of work for which they are preparing themselves as teachers, 
supervisors, or directors, or who are acquiring such experience 
or contact as a part of their training; and that the State 
board, with the approval of the Federal board, shall establish 
minimum requirements for such experience or contact for 
teachers, supervisors, or directors of agricultural subjects 
and for teachers of trade, industrial, and home economics 
subjects; that not more than sixty per centum nor less than 
twenty per centum of the money appropriated under this Act for 
the training of teachers of vocational subjects to any State 
for any year shall be expended for any one of the following 
purposes: For the preparation of teachers, supervisors, or 
directors of agricultural subjects, or the preparation of 
teachers of trade and industrial subjects, or the preparation 
of teachers of home economics subjects.
    [Sec. 13. That is order to secure the benefits of the 
appropriations for the salaries of teachers, supervisors, or 
directors of agricultural subjects, or for the salaries of 
teachers of trade, home economics, and industrial subjects, or 
for the training of teachers as herein provided, any State 
shall, through the legislative authority thereof, appoint as 
custodian for said appropriations its State treasurer, who 
shall receive and provide for the proper custody and 
disbursements of all money paid to the State from said 
appropriations.
    [Sec. 14. That the Federal Board for Vocational Education 
shall annually ascertain whether the several States are using, 
or are prepared to use, the money received by them in 
accordance with the provisions of this Act. On or before the 
first day of January of each year the Federal Board for 
Vocational Education shall certify to the Secretary of the 
Treasury each State which has accepted the provisions of this 
Act and complied therewith, certifying the amounts which each 
State is entitled to receive under the provisions of this Act. 
Upon such certification the Secretary of the Treasury shall pay 
quarterly to the custodian for vocational education of each 
State the moneys to which it is entitled under the provision of 
this Act. The moneys so received by the custodian for 
vocational education for any State and be paid out on the 
requisition of the State board as reimbursement for 
expenditures already incurred to such schools as are approved 
by said State board and are entitled to receive such moneys 
under the provisions of this Act.
    [Sec. 15. That whenever any portion of the fund annually 
allotted to any State has not been expended for the purpose 
provided for in this Act, a sum equal to such portion shall be 
deducted by the Federal board from the next succeeding annual 
allotment from such fund to such State.
    [Sec. 16. That the Federal Board for Vocational Education 
may withhold the allotment of moneys to any State whenever it 
shall be determined that such moneys are not being expended for 
the purposes and under the conditions of this Act.
    If any allotment is withheld from any State, the State 
board of such State may appeal to the Congress of the United 
States, and if the Congress shall not direct such sum to be 
paid it shall be covered into the Treasury.
    [SEC. 17. That if any portion of the moneys received by the 
custodian for vocational education of any State under this Act, 
for any given purpose named in this Act, shall, by any action 
or contingency, be diminished or lost, it shall be replaced by 
such State, and until so replaced no subsequent appropriation 
for such education shall be paid to such State. No portion of 
any moneys appropriated under this Act for the benefit of the 
States shall be applied directly or indirectly, to the 
purchase, erection, preservation, or repair of any building or 
buildings or equipment, or for the purchase or rental of lands, 
or for the support of any religious or privately owned or 
conducted school or college.
    [Sec. 18. That the Federal Board for Vocational Education 
shall make an annual report to Congress, on or before December 
first on the administration of this Act and shall include in 
such report the reports made by the State boards on the 
administration of this Act by each state and the expenditure of 
the money allotted to each State.]

 Changes in Existing Law Made by Subtitle D of Title V of 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 italics, existing law in which no change is proposed 
is shown in roman):

            EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974

          * * * * * * *

                            TABLE OF CONTENTS

     * * * * * * *

             TITLE I--PROTECTION OF EMPLOYEE BENEFIT RIGHTS

     * * * * * * *

                    Subtitle B--Regulatory Provisions

     * * * * * * *

            Part 8--Rules Governing Association Health Plans

Sec. 801. Association health plans.
Sec. 802. Certification of association health plans.
Sec. 803. Requirements relating to sponsors and boards of trustees.
Sec. 804. Participation and coverage requirements.
Sec. 805. Other requirements relating to plan documents, contribution 
          rates, and benefit options.
Sec. 806. Maintenance of reserves and provisions for solvency for plans 
          providing health benefits in addition to health insurance 
          coverage.
Sec. 807. Requirements for application and related requirements.
Sec. 808. Notice requirements for voluntary termination.
Sec. 809. Corrective actions and mandatory termination.
Sec. 810. Special rules for church plans.
Sec. 811. Definitions and rules of construction.
          * * * * * * *

             TITLE I--PROTECTION OF EMPLOYEE BENEFIT RIGHTS

                     Subtitle A--General Provisions

          * * * * * * *

                              DEFINITIONS

  Sec. 3. For purposes of this title:
  (1) * * *
          * * * * * * *
  (7) The term ``participant'' means any employee or former 
employee of an employer, or any member or former member of an 
employee organization, who is or may become eligible to receive 
a benefit of any type from an employee benefit plan which 
covers employees of such employer or members of such 
organization, or whose beneficiaries may be eligible to receive 
any such benefit. Such term includes an individual who is a 
covered individual described in paragraph (40)(C)(ii).
          * * * * * * *
  (16)(A) * * *
  (B) The term ``plan sponsor'' means (i) the employer in the 
case of an employee benefit plan established or maintained by a 
single employer, (ii) the employee organization in the case of 
a plan established or maintained by an employee organization, 
or (iii) in the case of a plan 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 the parties who establish or maintain the 
plan. Such term also includes a person serving as the sponsor 
of an association health plan under part 8.
          * * * * * * *
  (40)(A) The term ``multiple employer welfare arrangement'' 
means an employee welfare benefit plan, or any other 
arrangement (other than an employee welfare benefit plan), 
which is established or maintained for the purpose of offering 
or providing any benefit described in paragraph (1) to the 
employees of two or more employers (including one or more self-
employed individuals), or to their beneficiaries, except that 
such term does not include any such plan or other arrangement 
which is established or maintained--
          [(i) under or pursuant to one or more agreements 
        which the Secretary finds to be collective bargaining 
        agreements,]
          (i)(I) under or pursuant to one or more collective 
        bargaining agreements which are reached pursuant to 
        collective bargaining described in section 8(d) of the 
        National Labor Relations Act (29 U.S.C. 158(d)) or 
        paragraph Fourth of section 2 of the Railway Labor Act 
        (45 U.S.C. 152, paragraph Fourth) or which are reached 
        pursuant to labor-management negotiations under similar 
        provisions of State public employee relations laws, and 
        (II) in accordance with subparagraphs (C), (D), and 
        (E),
          * * * * * * *
  (B) For purposes of this paragraph--
          (i) two or more trades or businesses, whether or not 
        incorporated, shall be deemed a single employer for any 
        plan year of any such plan, or any fiscal year of any 
        such other arrangement; if such trades or businesses 
        are within the same control group during such year or 
        at any time during the preceding 1-year period,
          (ii) the term ``control group'' means a group of 
        trades or businesses under common control,
          (iii) the determination of whether a trade or 
        business is under ``common control'' with another trade 
        or business shall be determined under regulations of 
        the Secretary applying principles [similar to] 
        consistent and coextensive with the principles applied 
        in determining whether employees of two or more trades 
        or businesses are treated as employed by a single 
        employer under section 4001(b), except that, for 
        purposes of this paragraph, [common control shall not 
        be based on aninterest of less than 25 percent] an 
interest of greater than 25 percent may not be required as the minimum 
interest necessary for common control.
          (iv) in determining, after the application of clause 
        (i), whether benefits are provided to employees of two 
        or more employers, the arrangement shall be treated as 
        having only 1 participating employer if, after the 
        application of clause (i), the number of individuals 
        who are employees and former employees of any one 
        participating employer and who are covered under the 
        arrangement is greater than 75 percent of the aggregate 
        number of all individuals who are employees or former 
        employees of participating employers and who are 
        covered under the arrangement,
          [(iv)] (v) the term ``rural electric cooperative'' 
        means--
                  (I) any organization which is exempt from tax 
                under section 501(a) of the Internal Revenue 
                Code of 1986 and which is engaged primarily in 
                providing electric service on a mutual or 
                cooperative basis, and
                  (II) any organization described in paragraph 
                (4) or (6) of section 501(c) of the Internal 
                Revenue Code of 1986 which is exempt from tax 
                under section 501(a) of such Code and at least 
                80 percent of the members of which are 
                organizations described in subclause (I), and
          [(v)] (vi) the term ``rural telephone cooperative 
        association'' means an organization described in 
        paragraph (4) or (6) of section 501(c) of the Internal 
        Revenue Code of 1986 which is exempt from tax under 
        section 501(a) of such Code and at least 80 percent of 
        the members of which are organizations engaged 
        primarily in providing telephone service to rural areas 
        of the United States on a mutual, cooperative, or other 
        basis.
  (C) For purposes of subparagraph (A)(i)(II), a plan or other 
arrangement shall be treated as established or maintained in 
accordance with this subparagraph only if the following 
requirements are met:
          (i) The plan or other arrangement, and the employee 
        organization or any other entity sponsoring the plan or 
        other arrangement, do not--
                  (I) utilize the services of any licensed 
                insurance agent or broker for soliciting or 
                enrolling employers or individuals as 
                participating employers or covered individuals 
                under the plan or other arrangement; or
                  (II) pay a commission or any other type of 
                compensation to a person, other than a full 
                time employee of the employee organization (or 
                a member of the organization to the extent 
                provided in regulations of the Secretary), that 
                is related either to the volume or number of 
                employers or individuals solicited or enrolled 
                as participating employers or covered 
                individuals under the plan or other 
                arrangement, or to the dollar amount or size of 
                the contributions made by participating 
                employers or covered individuals to the plan or 
                other arrangement;
        except to the extent that the services used by the 
        plan, arrangement, organization, or other entity 
        consist solely of preparation of documents necessary 
        for compliance with the reporting and disclosure 
        requirements of part 1 or administrative, investment, 
        or consulting services unrelated to solicitation or 
        enrollment of covered individuals.
          (ii) As of the end of the preceding plan year, the 
        number of covered individuals under the plan or other 
        arrangement who are identified to the plan or 
        arrangement and who are neither--
                  (I) employed within a bargaining unit covered 
                by any of the collective bargaining agreements 
                with a participating employer (nor covered on 
                the basis of an individual's employment in such 
                a bargaining unit); nor
                  (II) present employees (or former employees 
                who were covered while employed) of the 
                sponsoring employee organization, of an 
                employer who is or was a party to any of the 
                collective bargaining agreements, or of the 
                plan or other arrangement or a related plan or 
                arrangement (nor covered on the basis of such 
                present or former employment);
        does not exceed 15 percent of the total number of 
        individuals who are covered under the plan or 
        arrangement and who are present or former employees who 
        are or were covered under the plan or arrangement 
        pursuant to a collective bargaining agreement with a 
        participating employer. The requirements of the 
        preceding provisions of this clause shall be treated as 
        satisfied if, as of the end of the preceding plan year, 
        such covered individuals are comprised solely of 
        individuals who were covered individuals under the plan 
        or other arrangement as of the date of the enactment of 
        the Expansion of Portability and Health Insurance 
        Coverage Act of 1997 and, as of the end of the 
        preceding plan year, the number of such covered 
        individuals does not exceed 25 percent of the total 
        number of present and former employees enrolled under 
        the plan or other arrangement.
          (iii) The employee organization or other entity 
        sponsoring the plan or other arrangement certifies to 
        the Secretary each year, in a form and manner which 
        shall be prescribed in regulations of the Secretary 
        that the plan or other arrangement meets the 
        requirements of clauses (i) and (ii).
  (D) For purposes of subparagraph (A)(i)(II), a plan or 
arrangement shall be treated as established or maintained in 
accordance with this subparagraph only if--
          (i) all of the benefits provided under the plan or 
        arrangement consist of health insurance coverage; or
          (ii)(I) the plan or arrangement is a multiemployer 
        plan; and
          (II) the requirements of clause (B) of the proviso to 
        clause (5) of section 302(c) of the Labor Management 
        Relations Act, 1947 (29 U.S.C. 186(c)) are met with 
        respect to such plan or other arrangement.
  (E) For purposes of subparagraph (A)(i)(II), a plan or 
arrangement shall be treated as established or maintained in 
accordance with this subparagraph only if--
          (i) the plan or arrangement is in effect as of the 
        date of the enactment of the Expansion of Portability 
        and Health Insurance Coverage Act of 1997, or
          (ii) the employee organization or other entity 
        sponsoring the plan or arrangement--
                  (I) has been in existence for at least 3 
                years or is affiliated with another employee 
                organization which has been in existence for at 
                least 3 years, or
                  (II) demonstrates to the satisfaction of the 
                Secretary that the requirements of 
                subparagraphs (C) and (D) are met with respect 
                to the plan or other arrangement.
          * * * * * * *

                 Part 5--Administration and Enforcement

                           CRIMINAL PENALTIES

  Sec. 501. (a) Any person who willfully violates any provision 
of part 1 of this subtitle, or any regulation or order issued 
under any such provision, shall upon conviction be fined not 
more than $5,000 or imprisoned not more than one year, or both; 
except that in the case of such violation by a person not an 
individual, the fine imposed upon such person shall be a fine 
not exceeding $100,000.
  (b) Any person who, either willfully or with willful 
blindness, falsely represents, to any employee, any employee's 
beneficiary, any employer, the Secretary, or any State, a plan 
or other arrangement established or maintained for the purpose 
of offering or providing any benefit described in section 3(1) 
to employees or their beneficiaries as--
          (1) being an association health plan which has been 
        certified under part 8;
          (2) having been established or maintained under or 
        pursuant to one or more collective bargaining 
        agreements which are reached pursuant to collective 
        bargaining described in section 8(d) of the National 
        Labor Relations Act (29 U.S.C. 158(d)) or paragraph 
        Fourth of section 2 of the Railway Labor Act (45 U.S.C. 
        152, paragraph Fourth) or which are reached pursuant to 
        labor-management negotiations under similar provisions 
        of State public employee relations laws; or
          (3) being a plan or arrangement with respect to which 
        the requirements of subparagraph (C), (D), or (E) of 
        section 3(40) are met;
shall, upon conviction, be imprisoned not more than five years, 
be fined under title 18, United States Code, or both.

                           CIVIL ENFORCEMENT

  Sec. 502. (a) * * *
          * * * * * * *
  (n)(1) Subject to paragraph (2), upon application by the 
Secretary showing the operation, promotion, or marketing of an 
association health plan (or similar arrangement providing 
benefits consisting of medical care (as defined in section 
733(a)(2))) that--
          (A) is not certified under part 8, is subject under 
        section 514(b)(6) to the insurance laws of any State in 
        which the plan or arrangement offers or provides 
        benefits, and is not licensed, registered, or otherwise 
        approved under the insurance laws of such State; or
          (B) is an association health plan certified under 
        part 8 and is not operating in accordance with the 
        requirements under part 8 for such certification,
a district court of the United States shall enter an order 
requiring that the plan or arrangement cease activities.
  (2) Paragraph (1) shall not apply in the case of an 
association health plan or other arrangement if the plan or 
arrangement shows that--
          (A) all benefits under it referred to in paragraph 
        (1) consist of health insurance coverage; and
          (B) with respect to each State in which the plan or 
        arrangement offers or provides benefits, the plan or 
        arrangement is operating in accordance with applicable 
        State laws that are not superseded under section 514.
  (3) The court may grant such additional equitable relief, 
including any relief available under this title, as it deems 
necessary to protect the interests of the public and of persons 
having claims for benefits against the plan.

                            CLAIMS PROCEDURE

  Sec. 503. In accordance with regulations of the Secretary, 
every employee benefit plan shall--
          (1) provide adequate notice in writing to any 
        participant or beneficiary whose claim for benefits 
        under the plan has been denied, setting forth the 
        specific reasons for such denial, written in a manner 
        calculated to be understood by the participant, and
          (2) afford a reasonable opportunity to any 
        participant whose claim for benefits has been denied 
        for a full and fair review by the appropriate named 
        fiduciary of the decision denying the claim.
The terms of each association health plan which is or has been 
certified under part 8 shall require the board of trustees or 
the named fiduciary (as applicable) to ensure that the 
requirements of this section are met in connection with claims 
filed under the plan.
          * * * * * * *

    COORDINATION AND RESPONSIBILITY OF AGENCIES ENFORCING EMPLOYEE 
        RETIREMENT INCOME SECURITY ACT AND RELATED FEDERAL LAWS

  Sec. 506. (a) * * *
          * * * * * * *
  (c) Responsibility of States With Respect to Association 
Health Plans.--
          (1) Agreements with states.--A State may enter into 
        an agreement with the Secretary for delegation to the 
        State of some or all of the Secretary's authority under 
        sections 502 and 504 to enforce the requirements for 
        certification under part 8. The Secretary shall enter 
        into the agreement if the Secretary determines that the 
        delegation provided for therein would not result in a 
        lower level or quality of enforcement of the provisions 
        of this title.
          (2) Delegations.--Any department, agency, or 
        instrumentality of a State to which authority is 
        delegated pursuant to an agreement entered into under 
        this paragraph may, if authorized under State law and 
        to the extent consistent with such agreement, exercise 
        the powers of the Secretary under this title which 
        relate to such authority.
          (3) Recognition of primary domicile state.--In 
        entering into any agreement with a State under 
        subparagraph (A), the Secretary shall ensure that, as a 
        result of such agreement and all other agreements 
        entered into under subparagraph (A), only one State 
        will be recognized, with respect to any particular 
        association health plan, as the primary domicile State 
        to which authority has been delegated pursuant to such 
        agreements.
          * * * * * * *

                          EFFECT ON OTHER LAWS

  Sec. 514. (a) * * *
  (b)(1) * * *
          * * * * * * *
  (4) [Subsection (a)] Subsections (a) and (d) shall not apply 
to any generally applicable criminal law of a State.
  (5)(A) Except as provided in subparagraph (B), [subsection 
(a)] subsection (a) of this section and subsections (a)(2)(B) 
and (b) of section 805 shall not apply to the Hawaii Prepaid 
Health Care Act (Haw. Rev. Stat. Sec. Sec. 393-1 through 393-
51).
  (B) Nothing in subparagraph (A) shall be construed to exempt 
from [subsection (a)] subsection (a) of this section and 
subsections (a)(2)(B) and (b) of section 805--
          (i) * * *
          * * * * * * *
  (6)(A) Notwithstanding any other provision of this section--
          (i) in the case of an employee welfare benefit plan 
        which is a multiple employer welfare arrangement and is 
        fully insured (or which is a multiple employer welfare 
        arrangement subject to an exemption under subparagraph 
        (B)), any law of any State which regulates insurance 
        may apply to such arrangement to the extent that such 
        law provides--
                  (I) standards, requiring the maintenance of 
                specified levels of reserves and specified 
                levels of contributions, which any such plan, 
                or any trust established under such a plan, 
                must meet in order to be considered under such 
                law able to pay benefits in full when due, and
                  (II) provisions to enforce such standards, 
                [and]
          (ii) in the case of any other employee welfare 
        benefit plan which is a multiple employer welfare 
        arrangement, and which does not provide medical care 
        (within the meaning of section 733(a)(2)), in addition 
        to this title, any law of any State which regulates 
        insurance may apply to the extent not inconsistent with 
        the preceding sections of this [title.] title, and
          (iii) subject to subparagraph (E), in the case of any 
        other employee welfare benefit plan which is a multiple 
        employer welfare arrangement and which provides medical 
        care (within the meaning of section 733(a)(2)), any law 
        of any State which regulates insurance may apply.
          * * * * * * *
  (E) The preceding subparagraphs of this paragraph do not 
apply with respect to any State law in the case of an 
association health plan which is certified under part 8.
          * * * * * * *
  (d)(1) Except as provided in subsection (b)(4), the 
provisions of this title shall supersede any and all State laws 
insofar as they may now or hereafter preclude a health 
insurance issuer from offering health insurance coverage in 
connection with an association health plan which is certified 
under part 8.
  (2) Except as provided in paragraphs (4) and (5) of 
subsection (b) of this section--
          (A) In any case in which health insurance coverage of 
        any policy type is offered under an association health 
        plan certified under part 8 to a participating employer 
        operating in such State, the provisions of this title 
        shall supersede any and all laws of such State insofar 
        as they may preclude a health insurance issuer from 
        offering health insurance coverage of the same policy 
        type to other employers operating in the State which 
        are eligible for coverage under such association health 
        plan, whether or not such other employers are 
        participating employers in such plan.
          (B) In any case in which health insurance coverage of 
        any policy type is offered under an association health 
        plan in a State and the filing, with the applicable 
        State authority, of the policy form in connection with 
        such policy type is approved by such State authority, 
        the provisions of this title shall supersede any and 
        all laws of any other State in which health insurance 
        coverage of such type is offered, insofar as they may 
        preclude, upon the filing in the same form and manner 
        of such policy form with the applicable State authority 
        in such other State, the approval of the filing in such 
        other State.
  (3) For additional provisions relating to association health 
plans, see subsections (a)(2)(B) and (b) of section 805.
  (4) For purposes of this subsection, the term ``association 
health plan'' has the meaning provided in section 801(a), and 
the terms ``health insurance coverage'', ``participating 
employer'', and ``health insurance issuer'' have the meanings 
provided such terms in section 811, respectively.
  [(d)] (e) Nothing in this title shall be construed to alter, 
amend, modify, invalidate, impair, or supersede any law of the 
United States (except as provided in sections 111 and 507(b)) 
or any rule or regulation issued under any such law.
          * * * * * * *

SEC. 731. PREEMPTION; STATE FLEXIBILITY; CONSTRUCTION.

  (a) * * *
          * * * * * * *
  (c) Rules of Construction.--Except as provided in section 
711, nothing in this part or part 8 shall be construed as 
requiringa group health plan or health insurance coverage to 
provide specific benefits under the terms of such plan or coverage.
          * * * * * * *

            Part 8--Rules Governing Association Health Plans

SEC. 801. ASSOCIATION HEALTH PLANS.

  (a) In General.--For purposes of this part, the term 
``association health plan'' means a group health plan--
          (1) whose sponsor is (or is deemed under this part to 
        be) described in subsection (b), and
          (2) under which at least one option of health 
        insurance coverage offered by a health insurance issuer 
        (which may include, among other options, managed care 
        options, point of service options, and preferred 
        provider options) is provided to participants and 
        beneficiaries.
  (b) Sponsorship.--The sponsor of a group health plan is 
described in this subsection if such sponsor--
          (1) is organized and maintained in good faith, with a 
        constitution and bylaws specifically stating its 
        purpose and providing for periodic meetings on at least 
        an annual basis, as a trade association, an industry 
        association (including a rural electric cooperative 
        association or a rural telephone cooperative 
        association), a professional association, or a chamber 
        of commerce (or similar business group, including a 
        corporation or similar organization that operates on a 
        cooperative basis (within the meaning of section 1381 
        of the Internal Revenue Code of 1986)), for substantial 
        purposes other than that of obtaining or providing 
        medical care,
          (2) is established as a permanent entity which 
        receives the active support of its members and collects 
        from its members on a periodic basis dues or payments 
        necessary to maintain eligibility for membership in the 
        sponsor, and
          (3) does not condition such dues or payments or 
        coverage under the plan on the basis of health status-
        related factors with respect to the employees of its 
        members (or affiliated members), or the dependents of 
        such employees, and does not condition such dues or 
        payments on the basis of group health plan 
        participation.
Any sponsor consisting of an association of entities which meet 
the requirements of paragraphs (1) and (2) shall be deemed to 
be a sponsor described in this subsection.

SEC. 802. CERTIFICATION OF ASSOCIATION HEALTH PLANS.

  (a) In General.--The Secretary shall prescribe by regulation 
a procedure under which, subject to subsection (b), the 
Secretary shall certify association health plans which apply 
for certification as meeting the requirements of this part.
  (b) Standards.--Under the procedure prescribed pursuant to 
subsection (a), the Secretary shall certify an association 
health plan as meeting the requirements of this part only if 
the Secretary is satisfied that--
          (1) such certification--
                  (A) is administratively feasible,
                  (B) is not adverse to the interests of the 
                individuals covered under the plan, and
                  (C) is protective of the rights and benefits 
                of the individuals covered under the plan, and
          (2) the applicable requirements of this part are met 
        (or, upon the date on which the plan is to commence 
        operations, will be met) with respect to the plan.
  (c) Requirements Applicable to Certified Plans.--An 
association health plan with respect to which certification 
under this part is in effect shall meet the applicable 
requirements of this part, effective on the date of 
certification (or, if later, on the date on which the plan is 
to commence operations).
  (d) Requirements for Continued Certification.--The Secretary 
may provide by regulation for continued certification under 
this part, including requirements relating to any commencement, 
by an association health plan which has been certified under 
this part, of a benefit option which does not consist of health 
insurance coverage.
  (e) Class Certification for Fully-Insured Plans.--The 
Secretary shall establish a class certification procedure for 
association health plans under which all benefits consist of 
health insurance coverage. Under such procedure, the Secretary 
shall provide for the granting of certification under this part 
to the plans in each class of such association health plans 
upon appropriate filing under such procedure in connection with 
plans in such class and payment of the prescribed fee under 
section 807(a).

SEC. 803. REQUIREMENTS RELATING TO SPONSORS AND BOARDS OF TRUSTEES.

  (a) Sponsor.--The requirements of this subsection are met 
with respect to an association health plan if--
          (1) the sponsor (together with its immediate 
        predecessor, if any) has met (or is deemed under this 
        part to have met) for a continuous period of not less 
        than 3 years ending with the date of the application 
        for certification under this part, the requirements of 
        paragraphs (1) and (2) of section 801(b), and
          (2) the sponsor meets (or is deemed under this part 
        to meet) the requirements of section 801(b)(3).
  (b) Board of Trustees.--The requirements of this subsection 
are met with respect to an association health plan if the 
following requirements are met:
          (1) Fiscal control.--The plan is operated, pursuant 
        to a trust agreement, by a board of trustees which has 
        complete fiscal control over the plan and which is 
        responsible for all operations of the plan.
          (2) Rules of operation and financial controls.--The 
        board of trustees has in effect rules of operation and 
        financial controls, based on a 3-year plan of 
        operation, adequate to carry out the terms of the plan 
        and to meet all requirements of this title applicable 
        to the plan.
          (3) Rules governing relationship to participating 
        employers and to contractors.--
                  (A) In general.--Except as provided in 
                subparagraph (B), the members of the board of 
                trustees are individuals selected from 
                individuals who are the owners, 
officers,directors, or employees of the participating employers or who 
are partners in the participating employers and actively participate in 
the business.
                  (B) Limitation.--
                          (i) General rule.--Except as provided 
                        in clauses (ii) and (iii), no such 
                        member is an owner, officer, director, 
                        or employee of, or partner in, a 
                        contract administrator or other service 
                        provider to the plan.
                          (ii) Limited exception for providers 
                        of services solely on behalf of the 
                        sponsor.--Officers or employees of a 
                        sponsor which is a service provider 
                        (other than a contract administrator) 
                        to the plan may be members of the board 
                        if they constitute not more than 25 
                        percent of the membership of the board 
                        and they do not provide services to the 
                        plan other than on behalf of the 
                        sponsor.
                          (iii) Treatment of providers of 
                        medical care.--In the case of a sponsor 
                        which is an association whose 
                        membership consists primarily of 
                        providers of medical care, clause (i) 
                        shall not apply in the case of any 
                        service provider described in 
                        subparagraph (A) who is a provider of 
                        medical care under the plan.
                  (C) Sole authority.--The board has sole 
                authority to approve applications for 
                participation in the plan and to contract with 
                a service provider to administer the day-to-day 
                affairs of the plan.
  (c) Treatment of Franchise Networks.--In the case of a group 
health plan which is established and maintained by a franchiser 
for a franchise network consisting of its franchisees--
          (1) the requirements of subsection (a) and section 
        801(a)(1) shall be deemed met if such requirements 
        would otherwise be met if the franchiser were deemed to 
        be the sponsor referred to in section 801(b), such 
        network were deemed to be an association described in 
        section 801(b), and each franchisee were deemed to be a 
        member (of the association and the sponsor) referred to 
        in section 801(b), and
          (2) the requirements of section 804(a)(1) shall be 
        deemed met.
  (d) Certain Collectively Bargained Plans.--
          (1) In general.--In the case of a group health plan 
        described in paragraph (2)--
                  (A) the requirements of subsection (a) and 
                section 801(a)(1) shall be deemed met,
                  (B) the joint board of trustees shall be 
                deemed a board of trustees with respect to 
                which the requirements of subsection (b) are 
                met, and
                  (C) the requirements of section 804 shall be 
                deemed met.
          (2) Requirements.--A group health plan is described 
        in this paragraph if--
                  (A) the plan is a multiemployer plan,
                  (B) the plan is in existence on April 1, 
                1997, and would be described in section 
                3(40)(A)(i) but solely for the failure to meet 
                the requirements of section 3(40)(C)(ii) or (to 
                the extent provided in regulations of the 
                Secretary) solely for the failure to meet the 
                requirements of subparagraph (D) of section 
                3(40), or
                  (C)(i) the plan is in existence on April 1, 
                1997, has been in existence as of such date for 
                at least 3 years, meets the requirements of 
                paragraphs (2) and (3) of section 801(b), and 
                would be described in section 3(40)(A)(i) but 
                solely for the failure to meet the requirements 
                of subparagraph (C)(i) or (C)(ii), and
                  (ii) individuals who are members of the plan 
                sponsor--
                          (I) participate by elections in the 
                        organizational governance of the plan 
                        sponsor,
                          (II) are eligible for appointment as 
                        trustee of the plan or for 
                        participation in the appointment of 
                        trustees of the plan, and
                          (III) if covered under the plan, have 
                        full rights under the plan of a 
                        participant in an employee welfare 
                        benefit plan.
  (e) Certain Plans Not Meeting Single Employer Requirement.--
          (1) In general.--In any case in which the majority of 
        the employees covered under a group health plan are 
        employees of a single employer (within the meaning of 
        clauses (i) and (ii) of section 3(40)(B)), if all other 
        employees covered under the plan are employed by 
        employers who are related to such single employer--
                  (A) the requirements of subsection (a) and 
                section 801(a)(1) shall not apply if such 
                single employer is the sponsor of the plan, and
                  (B) the requirements of subsection (b) shall 
                be deemed met if the board of trustees is the 
                named fiduciary in connection with the plan.
          (2) Related employers.--For purposes of paragraph 
        (1), employers are ``related'' if there is among all 
        such employers a common ownership interest or a 
        substantial commonality of business operations based on 
        common suppliers or customers.

SEC. 804. PARTICIPATION AND COVERAGE REQUIREMENTS.

  (a) Covered Employers and Individuals.--The requirements of 
this subsection are met with respect to an association health 
plan if, under the terms of the plan--
          (1) all participating employers must be members or 
        affiliated members of the sponsor, except that, in the 
        case of a sponsor which is a professional association 
        or other individual-based association, if at least one 
        of the officers, directors, or employees of an 
        employer, or at least one of the individuals who are 
        partners in an employer and who actively participates 
        in the business, is a member or affiliated member of 
        the sponsor, participating employers may also include 
        such employer, and
          (2) all individuals commencing coverage under the 
        plan after certification under this part must be--
                  (A) active or retired owners (including self-
                employed individuals), officers, directors, or 
                employees of, or partners in, participating 
                employers, or
                  (B) the beneficiaries of individuals 
                described in subparagraph (A).
  (b) Coverage of Previously Uninsured Employees.--The 
requirements of this subsection are met with respect to an 
association health plan if, under the terms of the plan, no 
affiliated member of the sponsor may be offered coverage under 
the plan as a participating employer unless--
          (1) the affiliated member was an affiliated member on 
        the date of certification under this part, or
          (2) during the 12-month period preceding the date of 
        the offering of such coverage, the affiliated member 
        has not maintained or contributed to a group health 
        plan with respect to any of its employees who would 
        otherwise be eligible to participate in such 
        association health plan.
  (c) Individual Market Unaffected.--The requirements of this 
subsection are met with respect to an association health plan 
if, under the terms of the plan, no participating employer may 
provide health insurance coverage in the individual market for 
any employee not covered under the plan which is similar to the 
coverage contemporaneously provided to employees of the 
employer under the plan, if such exclusion of the employee from 
coverage under the plan is based on a health status-related 
factor with respect to the employee and such employee would, 
but for such exclusion on such basis, be eligible for coverage 
under the plan.
  (d) Prohibition of Discrimination Against Employers and 
Employees Eligible to Participate.--The requirements of this 
subsection are met with respect to an association health plan 
if--
          (1) under the terms of the plan, no employer meeting 
        the preceding requirements of this section is excluded 
        as a participating employer, unless--
                  (A) participation or contribution 
                requirements of the type referred to in section 
                2711 of the Public Health Service Act are not 
                met with respect to the excluded employer, or
                  (B) the excluded employer does not satisfy a 
                required minimum level of employment uniformly 
                applicable to participating employers,
          (2) the applicable requirements of sections 701, 702, 
        and 703 are met with respect to the plan, and
          (3) applicable benefit options under the plan are 
        actively marketed to all eligible participating 
        employers.

SEC. 805. OTHER REQUIREMENTS RELATING TO PLAN DOCUMENTS, CONTRIBUTION 
                    RATES, AND BENEFIT OPTIONS.

  (a) In General.--The requirements of this section are met 
with respect to an association health plan if the following 
requirements are met:
          (1) Contents of governing instruments.--The 
        instruments governing the plan include a written 
        instrument, meeting the requirements of an instrument 
        required under section 402(a)(1), which--
                  (A) provides that the board of trustees 
                serves as the named fiduciary required for 
                plans under section 402(a)(1) and serves in the 
                capacity of a plan administrator (referred to 
                in section 3(16)(A)),
                  (B) provides that the sponsor of the plan is 
                to serve as plan sponsor (referred to in 
                section 3(16)(B)), and
                  (C) incorporates the requirements of section 
                806.
          (2) Contribution rates must be nondiscriminatory.--
                  (A) The contribution rates for any 
                participating employer do not vary 
                significantly on the basis of the claims 
                experience of such employer and do not vary on 
                the basis of the type of business or industry 
                in which such employer is engaged.
                  (B) Nothing in this title or any other 
                provision of law shall be construed to preclude 
                an association health plan, or a health 
                insurance issuer offering health insurance 
                coverage in connection with an association 
                health plan, from setting contribution rates 
                based on the claims experience of the plan, to 
                the extent contribution rates under the plan 
                meet the requirements of section 702(b).
          (3) Floor for number of covered individuals with 
        respect to certain plans.--If any benefit option under 
        the plan does not consist of health insurance coverage, 
        the plan has as of the beginning of the plan year not 
        fewer than 1,000 participants and beneficiaries.
          (4) Regulatory requirements.--Such other requirements 
        as the Secretary may prescribe by regulation as 
        necessary to carry out the purposes of this part.
  (b) Ability of Association Health Plans To Design Benefit 
Options.--Nothing in this part or any provision of State law 
(as defined in section 514(c)(1)) shall be construed to 
preclude an association health plan, or a health insurance 
issuer offering health insurance coverage in connection with an 
association health plan, from exercising its sole discretion in 
selecting the specific items and services consisting of medical 
care to be included as benefits under such plan or coverage, 
except in the case of any law to the extent that it (1) 
prohibits an exclusion of a specific disease from such 
coverage, or (2) is not preempted under section 731(a)(1) with 
respect to matters governed by section 711 or 712.

SEC. 806. MAINTENANCE OF RESERVES AND PROVISIONS FOR SOLVENCY FOR PLANS 
                    PROVIDING HEALTH BENEFITS IN ADDITION TO HEALTH 
                    INSURANCE COVERAGE.

  (a) In General.--The requirements of this section are met 
with respect to an association health plan if--
          (1) the benefits under the plan consist solely of 
        health insurance coverage, or
          (2) if the plan provides any additional benefit 
        options which do not consist of health insurance 
        coverage, the plan--
                  (A) establishes and maintains reserves with 
                respect to such additional benefit options, in 
                amounts recommended by the qualified actuary, 
                consisting of--
                          (i) a reserve sufficient for unearned 
                        contributions,
                          (ii) a reserve sufficient for benefit 
                        liabilities which have been incurred, 
                        which have not been satisfied, and for 
                        which risk of loss has not yet been 
                        transferred, and for expected 
                        administrative costs with respect to 
                        such benefit liabilities,
                          (iii) a reserve sufficient for any 
                        other obligations of the plan, and
                          (iv) a reserve sufficient for a 
                        margin of error and other fluctuations, 
                        taking into account the specific 
                        circumstances of the plan,
                and
                  (B) establishes and maintains aggregate 
                excess/stop loss insurance and solvency 
                indemnification, with respect to such 
                additional benefit options for which risk of 
                loss has not yet been transferred, as follows:
                          (i) The plan shall secure aggregate 
                        excess/stop loss insurance for the plan 
                        with an attachment point which is not 
                        greater than 125 percent of expected 
                        gross annual claims. The Secretary may 
                        by regulation provide for upward 
                        adjustments in the amount of such 
                        percentage in specified circumstances 
                        in which the plan specifically provides 
                        for and maintains reserves in excess of 
                        the amounts required under subparagraph 
                        (A).
                          (ii) The plan shall secure a means of 
                        indemnification for any claims which 
                        the plan is unable to satisfy by reason 
                        of a termination pursuant to section 
                        809(b) (relating to mandatory 
                        termination).
Any regulations prescribed by the Secretary pursuant to 
paragraph (2)(B)(i) may allow for such adjustments in the 
required levels of excess/stop loss insurance as the qualified 
actuary may recommend, taking into account the specific 
circumstances of the plan.
  (b) Minimum Surplus in Addition to Claims Reserves.--The 
requirements of this subsection are met if the plan establishes 
and maintains surplus in an amount at least equal to the excess 
of--
          (1) the greater of--
                  (A) 25 percent of expected incurred claims 
                and expenses for the plan year, or
                  (B) $400,000,
        over
          (2) the amount required under subsection 
        (a)(2)(A)(ii).
  (c) Additional Requirements.--In the case of any association 
health plan described in subsection (a)(2), the Secretary may 
provide such additional requirements relating to reserves and 
excess/stop loss insurance as the Secretary considers 
appropriate. Such requirements may be provided, by regulation 
or otherwise, with respect to any such plan or any class of 
such plans.
  (d) Adjustments for Excess/Stop Loss Insurance.--The 
Secretary may provide for adjustments to the levels of reserves 
otherwise required under subsections (a) and (b) with respect 
to any plan or class of plans to take into account excess/stop 
loss insurance provided with respect to such plan or plans.
  (e) Alternative Means of Compliance.--The Secretary may 
permit an association health plan described in subsection 
(a)(2) to substitute, for all or part of the requirements of 
this section, such security, guarantee, hold-harmless 
arrangement, or other financial arrangement as the Secretary 
determines to be adequate to enable the plan to fully meet all 
its financial obligations on a timely basis and is otherwise no 
less protective of the interests of participants and 
beneficiaries than the requirements for which it is 
substituted. The Secretary may take into account, for purposes 
of this subsection, evidence provided by the plan or sponsor 
which demonstrates an assumption of liability with respect to 
the plan. Such evidence may be in the form of a contract of 
indemnification, lien, bonding, insurance, letter of credit, 
recourse under applicable terms of the plan in the form of 
assessments of participating employers, security, or other 
financial arrangement.
  (f) Excess/Stop Loss Insurance.--For purposes of this 
section, the term ``excess/stop loss insurance'' means, in 
connection with an association health plan, a contract under 
which an insurer (meeting such minimum standards as may be 
prescribed in regulations of the Secretary) provides for 
payment to the plan with respect to claims under the plan in 
excess of an amount or amounts specified in such contract.

SEC. 807. REQUIREMENTS FOR APPLICATION AND RELATED REQUIREMENTS.

  (a) Filing Fee.--Under the procedure prescribed pursuant to 
section 802(a), an association health plan shall pay to the 
Secretary at the time of filing an application for 
certification under this part a filing fee in the amount of 
$5,000, which shall be available, to the extent provided in 
appropriation Acts, to the Secretary for the sole purpose of 
administering the certification procedures applicable with 
respect to association health plans.
  (b) Information To Be Included in Application for 
Certification.--An application for certification under this 
part meets the requirements of this section only if it 
includes, in a manner and form prescribed in regulations of the 
Secretary, at least the following information:
          (1) Identifying information.--The names and addresses 
        of--
                  (A) the sponsor, and
                  (B) the members of the board of trustees of 
                the plan.
          (2) States in which plan intends to do business.--The 
        States in which participants and beneficiaries under 
        the plan are to be located and the number of them 
        expected to be located in each such State.
          (3) Bonding requirements.--Evidence provided by the 
        board of trustees that the bonding requirements of 
        section 412 will be met as of the date of the 
        application or (if later) commencement of operations.
          (4) Plan documents.--A copy of the documents 
        governing the plan (including any bylaws and trust 
        agreements), the summary plan description, and other 
        material describing the benefits that will be provided 
        to participants and beneficiaries under the plan.
          (5) Agreements with service providers.--A copy of any 
        agreements between the plan and contract administrators 
        and other service providers.
          (6) Funding report.--In the case of association 
        health plans providing benefits options in addition to 
        health insurance coverage, a report setting forth 
        information with respect to such additional benefit 
        options determined as of a date within the120-day 
period ending with the date of the application, including the 
following:
                  (A) Reserves.--A statement, certified by the 
                board of trustees of the plan, and a statement 
                of actuarial opinion, signed by a qualified 
                actuary, that all applicable requirements of 
                section 806 are or will be met in accordance 
                with regulations which the Secretary shall 
                prescribe.
                  (B) Adequacy of contribution rates.--A 
                statement of actuarial opinion, signed by a 
                qualified actuary, which sets forth a 
                description of the extent to which contribution 
                rates are adequate to provide for the payment 
                of all obligations and the maintenance of 
                required reserves under the plan for the 12-
                month period beginning with such date within 
                such 120-day period, taking into account the 
                expected coverage and experience of the plan. 
                If the contribution rates are not fully 
                adequate, the statement of actuarial opinion 
                shall indicate the extent to which the rates 
                are inadequate and the changes needed to ensure 
                adequacy.
                  (C) Current and projected value of assets and 
                liabilities.--A statement of actuarial opinion 
                signed by a qualified actuary, which sets forth 
                the current value of the assets and liabilities 
                accumulated under the plan and a projection of 
                the assets, liabilities, income, and expenses 
                of the plan for the 12-month period referred to 
                in subparagraph (B). The income statement shall 
                identify separately the plan's administrative 
                expenses and claims.
                  (D) Costs of coverage to be charged and other 
                expenses.--A statement of the costs of coverage 
                to be charged, including an itemization of 
                amounts for administration, reserves, and other 
                expenses associated with the operation of the 
                plan.
                  (E) Other information.--Any other information 
                which may be prescribed in regulations of the 
                Secretary as necessary to carry out the 
                purposes of this part.
  (c) Filing Notice of Certification With States.--A 
certification granted under this part to an association health 
plan shall not be effective unless written notice of such 
certification is filed with the applicable State authority of 
each State in which at least 25 percent of the participants and 
beneficiaries under the plan are located. For purposes of this 
subsection, an individual shall be considered to be located in 
the State in which a known address of such individual is 
located or in which such individual is employed.
  (d) Notice of Material Changes.--In the case of any 
association health plan certified under this part, descriptions 
of material changes in any information which was required to be 
submitted with the application for the certification under this 
part shall be filed in such form and manner as shall be 
prescribed in regulations of the Secretary. The Secretary may 
require by regulation prior notice of material changes with 
respect to specified matters which might serve as the basis for 
suspension or revocation of the certification.
  (e) Reporting Requirements for Certain Association Health 
Plans.--An association health plan certified under this part 
which provides benefit options in addition to health insurance 
coverage for such plan year shall meet the requirements of 
section 103 by filing an annual report under such section which 
shall include information described in subsection (b)(6) with 
respect to the plan year and, notwithstanding section 
104(a)(1)(A), shall be filed not later than 90 days after the 
close of the plan year (or on such later date as may be 
prescribed by the Secretary).
  (f) Engagement of Qualified Actuary.--The board of trustees 
of each association health plan which provides benefits options 
in addition to health insurance coverage and which is applying 
for certification under this part or is certified under this 
part shall engage, on behalf of all participants and 
beneficiaries, a qualified actuary who shall be responsible for 
the preparation of the materials comprising information 
necessary to be submitted by a qualified actuary under this 
part. The qualified actuary shall utilize such assumptions and 
techniques as are necessary to enable such actuary to form an 
opinion as to whether the contents of the matters reported 
under this part--
          (1) are in the aggregate reasonably related to the 
        experience of the plan and to reasonable expectations, 
        and
          (2) represent such actuary's best estimate of 
        anticipated experience under the plan.
The opinion by the qualified actuary shall be made with respect 
to, and shall be made a part of, the annual report.

SEC. 808. NOTICE REQUIREMENTS FOR VOLUNTARY TERMINATION.

  Except as provided in section 809(b), an association health 
plan which is or has been certified under this part may 
terminate (upon or at any time after cessation of accruals in 
benefit liabilities) only if the board of trustees--
          (1) not less than 60 days before the proposed 
        termination date, provides to the participants and 
        beneficiaries a written notice of intent to terminate 
        stating that such termination is intended and the 
        proposed termination date,
          (2) develops a plan for winding up the affairs of the 
        plan in connection with such termination in a manner 
        which will result in timely payment of all benefits for 
        which the plan is obligated, and
          (3) submits such plan in writing to the Secretary.
Actions required under this section shall be taken in such form 
and manner as may be prescribed in regulations of the 
Secretary.

SEC. 809. CORRECTIVE ACTIONS AND MANDATORY TERMINATION.

  (a) Actions To Avoid Depletion of Reserves.--An association 
health plan which is certified under this part and which 
provides benefits other than health insurance coverage shall 
continue to meet the requirements of section 806, irrespective 
of whether such certification continues in effect. The board of 
trustees of such plan shall determine quarterly whether the 
requirements of section 806 are met. In any case in which the 
board determines that there is reason to believe that there is 
or will be a failure to meet such requirements, or the 
Secretary makes such a determination and so notifies the board, 
the board shall immediately notify the qualified actuary 
engaged by the plan, and such actuary shall, not later than the 
end of the next following month, make such recommendations to 
the board for corrective action as the actuary 
determinesnecessary to ensure compliance with section 806. Not later 
than 30 days after receiving from the actuary recommendations for 
corrective actions, the board shall notify the Secretary (in such form 
and manner as the Secretary may prescribe by regulation) of such 
recommendations of the actuary for corrective action, together with a 
description of the actions (if any) that the board has taken or plans 
to take in response to such recommendations. The board shall thereafter 
report to the Secretary, in such form and frequency as the Secretary 
may specify to the board, regarding corrective action taken by the 
board until the requirements of section 806 are met.
  (b) Mandatory Termination.--In any case in which--
          (1) the Secretary has been notified under subsection 
        (a) of a failure of an association health plan which is 
        or has been certified under this part and is described 
        in section 806(a)(2) to meet the requirements of 
        section 806 and has not been notified by the board of 
        trustees of the plan that corrective action has 
        restored compliance with such requirements, and
          (2) the Secretary determines that there is a 
        reasonable expectation that the plan will continue to 
        fail to meet the requirements of section 806,
the board of trustees of the plan shall, at the direction of 
the Secretary, terminate the plan and, in the course of the 
termination, take such actions as the Secretary may require, 
including satisfying any claims referred to in section 
806(a)(2)(B)(ii) and recovering for the plan any liability 
under section 806(f), as necessary to ensure that the affairs 
of the plan will be, to the maximum extent possible, wound up 
in a manner which will result in timely provision of all 
benefits for which the plan is obligated.
  (c) Guarantee Fund.--In any case in which claims against an 
association health plan terminated under subsection (b) remain 
outstanding after all actions required under subsection (b) 
have been undertaken in connection with the termination, the 
Secretary shall assess all ongoing association health plans 
which are or have been certified under this part and are 
described in section 806(a)(2) in an amount--
          (1) expressed as a uniform percentage of claims paid 
        by such plans per year for coverage, other than health 
        insurance coverage, commencing with the last plan year 
        ending before the date of the termination, and
          (2) equal, in the aggregate, to the total amount of 
        such outstanding claims,
except that any such assessment shall not exceed 2 percent per 
year. The Secretary shall promptly pay such outstanding claims 
with the amounts assessed pursuant to this subsection. The 
Secretary shall deposit and hold such assessments in a 
guarantee fund which shall be established by the Secretary for 
payment of such claims until such payment of such claims has 
been completed. The Secretary may invest amounts of the fund in 
such obligations as the Secretary considers appropriate.

SEC. 810. SPECIAL RULES FOR CHURCH PLANS.

  (a) Election for Church Plans.--Notwithstanding section 
4(b)(2), if a church, a convention or association of churches, 
or an organization described in section 3(33)(C)(i) maintains a 
church plan which is a group health plan (as defined in section 
733(a)(1)), and such church, convention, association, or 
organization makes an election with respect to such plan under 
this subsection (in such form and manner as the Secretary may 
by regulation prescribe), then the provisions of this section 
shall apply to such plan, with respect to benefits provided 
under such plan consisting of medical care, as if section 
4(b)(2) did not contain an exclusion for church plans. Nothing 
in this paragraph shall be construed to render any other 
section of this title applicable to church plans, except to the 
extent that such other section is incorporated by reference in 
this section.
  (b) Effect of Election.--
          (1) Preemption of state insurance laws regulating 
        covered church plans.--Subject to paragraphs (2) and 
        (3), this section shall supersede any and all State 
        laws which regulate insurance insofar as they may now 
        or hereafter regulate church plans to which this 
        section applies or trusts established under such church 
        plans.
          (2) General state insurance regulation unaffected.--
                  (A) In general.--Except as provided in 
                subparagraph (B) and paragraph (3), nothing in 
                this section shall be construed to exempt or 
                relieve any person from any provision of State 
                law which regulates insurance.
                  (B) Church plans not to be deemed insurance 
                companies or insurers.--Neither a church plan 
                to which this section applies, nor any trust 
                established under such a church plan, shall be 
                deemed to be an insurance company or other 
                insurer or to be engaged in the business of 
                insurance for purposes of any State law 
                purporting to regulate insurance companies or 
                insurance contracts.
          (3) Preemption of certain state laws relating to 
        premium rate regulation and benefit mandates.--The 
        provisions of subsections (a)(2)(B) and (b) of section 
        805 shall apply with respect to a church plan to which 
        this section applies in the same manner and to the same 
        extent as such provisions apply with respect to 
        association health plans.
          (4) Definitions.--For purposes of this subsection--
                  (A) State law.--The term ``State law'' 
                includes all laws, decisions, rules, 
                regulations, or other State action having the 
                effect of law, of any State. A law of the 
                United States applicable only to the District 
                of Columbia shall be treated as a State law 
                rather than a law of the United States.
                  (B) State.--The term ``State'' includes a 
                State, any political subdivision thereof, or 
                any agency or instrumentality of either, which 
                purports to regulate, directly or indirectly, 
                the terms and conditions of church plans 
                covered by this section.
  (c) Requirements for Covered Church Plans.--
          (1) Fiduciary rules and exclusive purpose.--A 
        fiduciary shall discharge his duties with respect to a 
        church plan to which this section applies--
                  (A) for the exclusive purpose of:
                          (i) providing benefits to 
                        participants and their beneficiaries; 
                        and
                          (ii) defraying reasonable expenses of 
                        administering the plan;
                  (B) with the care, skill, prudence and 
                diligence under the circumstances then 
                prevailing that a prudent man acting in a like 
                capacity and familiar with such matters would 
                use in the conduct of an enterprise of a like 
                character and with like aims; and
                  (C) in accordance with the documents and 
                instruments governing the plan.
        The requirements of this paragraph shall not be treated 
        as not satisfied solely because the plan assets are 
        commingled with other church assets, to the extent that 
        such plan assets are separately accounted for.
          (2) Claims procedure.--In accordance with regulations 
        of the Secretary, every church plan to which this 
        section applies shall--
                  (A) provide adequate notice in writing to any 
                participant or beneficiary whose claim for 
                benefits under the plan has been denied, 
                setting forth the specific reasons for such 
                denial, written in a manner calculated to be 
                understood by the participant;
                  (B) afford a reasonable opportunity to any 
                participant whose claim for benefits has been 
                denied for a full and fair review by the 
                appropriate fiduciary of the decision denying 
                the claim; and
                  (C) provide a written statement to each 
                participant describing the procedures 
                established pursuant to this paragraph.
          (3) Annual statements.--In accordance with 
        regulations of the Secretary, every church plan to 
        which this section applies shall file with the 
        Secretary an annual statement--
                  (A) stating the names and addresses of the 
                plan and of the church, convention, or 
                association maintaining the plan (and its 
                principal place of business);
                  (B) certifying that it is a church plan to 
                which this section applies and that it complies 
                with the requirements of paragraphs (1) and 
                (2);
                  (C) identifying the States in which 
                participants and beneficiaries under the plan 
                are or likely will be located during the 1-year 
                period covered by the statement; and
                  (D) containing a copy of a statement of 
                actuarial opinion signed by a qualified actuary 
                that the plan maintains capital, reserves, 
                insurance, other financial arrangements, or any 
                combination thereof adequate to enable the plan 
                to fully meet all of its financial obligations 
                on a timely basis.
          (4) Disclosure.--At the time that the annual 
        statement is filed by a church plan with the Secretary 
        pursuant to paragraph (3), a copy of such statement 
        shall be made available by the Secretary to the State 
        insurance commissioner (or similar official) of any 
        State. The name of each church plan and sponsoring 
        organization filing an annual statement in compliance 
        with paragraph (3) shall be published annually in the 
        Federal Register.
  (c) Enforcement.--The Secretary may enforce the provisions of 
this section in a manner consistent with section 502, to the 
extent applicable with respect to actions under section 
502(a)(5), and with section 3(33)(D), except that, other than 
for the purpose of seeking a temporary restraining order, a 
civil action may be brought with respect to the plan's failure 
to meet any requirement of this section only if the plan fails 
to correct its failure within the correction period described 
in section 3(33)(D). The other provisions of part 5 (except 
sections 501(a), 503, 512, 514, and 515) shall apply with 
respect to the enforcement and administration of this section.
  (d) Definitions and Other Rules.--For purposes of this 
section--
          (1) In general.--Except as otherwise provided in this 
        section, any term used in this section which is defined 
        in any provision of this title shall have the 
        definition provided such term by such provision.
          (2) Seminary students.--Seminary students who are 
        enrolled in an institution of higher learning described 
        in section 3(33)(C)(iv) and who are treated as 
        participants under the terms of a church plan to which 
        this section applies shall be deemed to be employees as 
        defined in section 3(6) if the number of such students 
        constitutes an insignificant portion of the total 
        number of individuals who are treated as participants 
        under the terms of the plan.

SEC. 811. DEFINITIONS AND RULES OF CONSTRUCTION.

  (a) Definitions.--For purposes of this part--
          (1) Group health plan.--The term ``group health 
        plan'' has the meaning provided in section 733(a)(1).
          (2) Medical care.--The term ``medical care'' has the 
        meaning provided in section 733(a)(2).
          (3) Health insurance coverage.--The term ``health 
        insurance coverage'' has the meaning provided in 
        section 733(b)(1).
          (4) Health insurance issuer.--The term ``health 
        insurance issuer'' has the meaning provided in section 
        733(b)(2).
          (5) Health status-related factor.--The term ``health 
        status-related factor'' has the meaning provided in 
        section 733(d)(2).
          (6) Individual market.--
                  (A) In general.--The term ``individual 
                market'' means the market for health insurance 
                coverage offered to individuals other than in 
                connection with a group health plan.
                  (B) Treatment of very small groups.--
                          (i) In general.--Subject to clause 
                        (ii), such term includes coverage 
                        offered in connection with a group 
                        health plan that has fewer than 2 
                        participants as current employees or 
                        participants described in section 
                        732(d)(3) on the first day of the plan 
                        year.
                          (ii) State exception.--Clause (i) 
                        shall not apply in the case of health 
                        insurance coverage offered in a State 
                        if such State regulates the coverage 
                        described in such clause in the same 
                        manner and to the same extent as 
                        coverage in the small group market (as 
                        defined in section 2791(e)(5) of the 
                        Public Health Service Act) is regulated 
                        by such State.
          (7) Participating employer.--The term ``participating 
        employer'' means, in connection with an association 
        health plan, any employer, if any individual who is an 
        employee of such employer, a partner in such employer, 
        or a self-employed individual who is such employer (or 
        any dependent, as defined under the terms of the plan, 
        of such individual) is or was covered under such plan 
        in connection with the status of such individual as 
        such an employee, partner, or self-employed individual 
        in relation to the plan.
          (8) Applicable state authority.--The term 
        ``applicable State authority'' means, with respect to a 
        health insurance issuer in a State, the State insurance 
        commissioner or official or officials designated by the 
        State to enforce the requirements of title XXVII of the 
        Public Health Service Act for the State involved with 
        respect to such issuer.
          (9) Qualified actuary.--The term ``qualified 
        actuary'' means an individual who is a member of the 
        American Academy of Actuaries or meets such reasonable 
        standards and qualifications as the Secretary may 
        provide by regulation.
          (10) Affiliated member.--The term ``affiliated 
        member'' means, in connection with a sponsor, a person 
        eligible to be a member of the sponsor or, in the case 
        of a sponsor with member associations, a person who is 
        a member, or is eligible to be a member, of a member 
        association.
  (b) Rules of Construction.--
          (1) Employers and employees.--For purposes of 
        determining whether a plan, fund, or program is an 
        employee welfare benefit plan which is an association 
        health plan, and for purposes of applying this title in 
        connection with such plan, fund, or program so 
        determined to be such an employee welfare benefit 
        plan--
                  (A) in the case of a partnership, the term 
                ``employer'' (as defined in section (3)(5)) 
                includes the partnership in relation to the 
                partners, and the term ``employee'' (as defined 
                in section (3)(6)) includes any partner in 
                relation to the partnership, and
                  (B) in the case of a self-employed 
                individual, the term ``employer'' (as defined 
                in section 3(5)) and the term ``employee'' (as 
                defined in section 3(6)) shall include such 
                individual.
          (2) Plans, funds, and programs treated as employee 
        welfare benefit plans.--In the case of any plan, fund, 
        or program which was established or is maintained for 
        the purpose of providing medical care (through the 
        purchase of insurance or otherwise) for employees (or 
        their dependents) covered thereunder and which 
        demonstrates to the Secretary that all requirements for 
        certification under this part would be met with respect 
        to such plan, fund, or program if such plan, fund, or 
        program were a group health plan, such plan, fund, or 
        program shall be treated for purposes of this title as 
        an employee welfare benefit plan on and after the date 
        of such demonstration.
                          House of Representatives,
              Committee on Government Reform and Oversight,
                                     Washington, DC, June 13, 1997.
Hon. John R. Kasich,
Chairman, Committee on the Budget,
Washington, DC.
    Dear Mr. Chairman: Pursuant to the reconciliation 
instructions of H. Con. Res. 84, the Concurrent Resolution on 
the Budget, I am pleased to transmit the recommendations of the 
Government Reform and Oversight Committee for inclusion of the 
1997 Reconciliation bill.
    Our package includes the federal civil service retirement 
reform proposals, as well as the proposal to eliminate 
transition payments to the U.S. Postal Service, as included in 
the fiscal year 1997 Budget Resolution.
    With best regards,
            Sincerely,
                                              Dan Burton, Chairman.

                         I. Purpose and Summary

    Pursuant to the reconciliation instructions of H. Con. Res. 
84, the Concurrent Resolution on the Budget, committees are 
required to achieve their reconciliation targets through 
changes in programs that reduce direct spending. Direct 
spending is defined as budget authority provided by law other 
than appropriations acts, entitlement authority, and the Food 
Stamp program. The Committee on Government Reform and Oversight 
is directed to meet a deficit reduction amount that 
theoretically can be met through legislation reducing direct 
spending or increasing revenue. All reconciled committees are 
required to meet targets for fiscal year 1998 and 2002, and for 
the total for fiscal years 1998 through 2002. The following 
report language and legislative text represents the Committee 
on Government Reform and Oversight's official submission to the 
Budget Committee to comply with the reconciliation guidelines 
as provided by the Committee on the Budget.

              II. Background and Need for the Legislation

    The Committee on the Budget approved a reconciliation 
resolution for fiscal year 1997 in the course of which it 
assigned the Committee on Government Reform and Oversight a 
target of $4.9 billion in savings over 5 years in Federal 
retirement programs. These savings, according to the Budget 
agreement reached between the President and the Congressional 
leadership, would be achieved by: (1) increasing the payment 
that agencies make to the Civil Service Retirement and 
Disability Fund (CSRDF) for their employees enrolled in the 
Civil Service Retirement System (CSRS); (2) by increasing the 
payroll deductions from civilian employees in Federal 
retirement systems; and (3) shifting to the Postal Service the 
cost of financing workers compensation benefits for pre-1971 
postal employees. The following table reflects the proposed 
increases and their scheduled effective dates.

                                           BUDGET RESOLUTION PROPOSAL                                           
                                    [Savings attributed, dollars in billions]                                   
----------------------------------------------------------------------------------------------------------------
                                             1998        1999        2000        2001        2002        Total  
----------------------------------------------------------------------------------------------------------------
Agency Increase (1.51%) (CSRS Only).....    $0.597      $0.591      $0.586      $0.582      $0.577      $2.933  
CSRS & FERS Increase Employee Deduction                                                                         
 (Incl. postal employees)...............     0                                                                  
                                             0           0.25%                                                  
                                                        $0.214       0.15%                                      
                                                                    $0.423       0.10%                          
                                                                                $0.571       0                  
                                                                                            $0.621       0      
                                                                                                        $1.829  
FECA reimbursement to Postal Service....    $0.035      $0.034      $0.033      $0.032      $0.031      $0.165  
                                                                                                     -----------
      Total Savings.....................  ..........  ..........  ..........  ..........  ..........    $4.927  
----------------------------------------------------------------------------------------------------------------
Savings data reflect scoring by Congressional Budget Office.                                                    

             III. Legislative Hearings and Committee Action

    Neither the Subcommittee on the Postal Service nor the 
Subcommittee on Civil Service held hearings in the 105th 
Congress on the Budget Reconciliation targets for the items 
within their jurisdiction. However, both subcommittees produced 
and marked up legislation which was considered by the full 
Committee on Government Reform and Oversight on June 11, 1997.
    On June 5, 1997, the Subcommittee on the Postal Service 
approved its legislative language that conforms to the 1997 
Budget Resolution target of $165 million in savings by shifting 
to the Postal Service the cost of financing workers 
compensation benefits for pre-1971 postal employees. No 
amendments were offered. The subject of this proposal is 
substantially similar to H.R. 1826, introduced in the 104th 
Congress by Subcommittee Chairman John M. McHugh, and acted on 
favorably by both the Subcommittee on the Postal Service and 
the Committee.
    On June 10, 1997, the Subcommittee on the Civil Service 
favorably passed legislative language that conforms to the 1997 
Budget Resolution target of $4.762 billion in savings by 
increasing the payment that agencies make to the Civil Service 
Retirement and Disability Fund (CSRDF) for their employees 
enrolled in the Civil Service Retirement System (CSRS) and by 
increasing the payroll deductions from civilian employees in 
Federal retirement systems.
    An amendment to address a shortcoming in the budget 
reconciliation instructions was offered by Representative Pete 
Sessions of the Civil Service Subcommittee, but failed. Rep. 
Sessions argued that the approach put forward in the 1997 
Budget Resolution forces Postal Employees and employees who 
contribute to the Federal Employee Retirement System (FERS), to 
subsidize the retirement benefits of other Federal employees. 
Both the Postal Service and its employees and the employees in 
the FERS currently pay the full or ``normal cost'' of their 
retirement. The Sessions amendment was an attempt to rectify 
this problem by having Civil Service Retirement System 
employees and employers to properly pay for their retirement 
benefits by contributing additional funds to fully fund the 
outstanding liabilities of the Civil Service Retirement System. 
Letters indicating support for this amendment from the postal 
community are provided in the Appendix.
    On June 11, 1997, the full Committee on Government Reform 
and Oversight favorably considered the legislative language 
which had passed the Subcommittee on the Postal Service and the 
Subcommittee on Civil Service, bringing the Committee in full 
compliance with its Budget Reconciliation target of $4.927 
billion over 5 years. An amendment to establish a permanent 
formula for calculating the Government's share of subscription 
charges (i.e., premiums) for the Federal Employee Health 
Benefits Program was offered by Rep. Connie Morella, and 
accepted.

                         IV. Oversight Findings

                     a. postal service subcommittee

    Under House Concurrent Resolution 84 which establishes the 
congressional budget for the United States Government for 
fiscal years, 1998-2002, the Committee on Government Reform and 
Oversight was instructed to generate total savings in mandatory 
spending of $165 million by fiscal year 2002 from programs 
within the jurisdiction of the Subcommittee on the Postal 
Service. To achieve this reduction in mandatory spending, the 
Subcommittee recommended the repeal of the Transitional 
Appropriation paid to the U.S. Postal Service. This action will 
produce on-budget savings of $35 million in 1998; $34 million 
in 1999; $33 million in 2000; $32 million in 2001, and $31 
million in 2002.
    5 U.S.C. Sec. 8147 established an account within the U.S. 
Treasury, the Employee Compensation Fund, to pay worker's 
compensation and other benefit claims of Federal Government 
employees. Upon enactment of the Postal Reorganization Act of 
1970, P.L. 91-375 (the Act), a method was implemented for the 
U.S. Postal Service to reimburse the fund for the claims of its 
employees.
    The Act, however, provided that such liabilities of the 
former Post Office Department were not the liabilities of the 
U.S. Postal Service. Since its inception, the U.S. Postal 
Service has requested an annual appropriation pursuant to 39 
U.S.C. Sec. 2004 to reimburse its contributions to the Employee 
Compensation Fund and offset the accrued annual leave benefits 
of former Post Office Department employees. The intent of 
Congress was to protect the U.S. Postal Service from the 
financial liabilities of the former Post Office Department.
    Prior to 1981, appropriation requests for Transitional 
Appropriations were approved on an annual basis. However, the 
Omnibus Budget Reconciliation Act of 1981, P.L. 97-35, deferred 
funding for most of the 1980's, except for fiscal year 1985. 
For fiscal year 1985, appropriations reimbursed the U.S. Postal 
Service for the deferred liabilities of fiscal years 1982, 
1983, and 1984 (P.L. 98-473). That Act also halted the 
appropriation to the U.S. Postal Service for the accrued annual 
leave liabilities of former Post Office Department employees. 
Since that time, the Transitional Appropriation request of the 
U.S. Postal Service has reflected only liabilities to the 
Employee Compensation Fund. Except for a $1,000 appropriation 
in fiscal year 1988, no Transitional Appropriations were 
provided to the U.S. Postal Service during the fiscal years 
1986 through 1989.
    From the introduction of the Postal Reorganization Act of 
1970 and throughout its consideration, Congress intended for 
the U.S. Postal Service to be self-financing and self-
sustaining. Indeed, many amendments passed by Congress in 
recent years have moved the U.S. Postal Service towards that 
goal, beginning with the removal of the U.S. Postal Service 
from the Federal budget with the enactment of the Omnibus 
Budget Reconciliation Act of 1989, P.L. 101-239.
    The Committee recognizes the progress the U.S. Postal 
Service has made in the twenty-seven years following enactment 
of the Postal Reorganization Act. The Postal Service has 
evolved from a taxpayer-subsidized executive branch department 
to a ratepayer-financed government corporation receiving less 
annual appropriation each year. Additionally, the U.S. Postal 
Service has reported approximately $3.5 billion in surplus 
revenues during the past two fiscal years.
    This fiscal surplus contrasts with the budget of the U.S. 
Government. Elimination of the authorization of the 
Transitional Appropriation assists the Federal Government in 
balancing its budget and is consistent with the intent of 
Congress that the U.S. Postal Service be financially self-
sufficient as envisioned in the passage of the Postal 
Reorganization Act of 1970.
    Adoption of this provision should have no measurable impact 
on postal finances, delivery and service. Legislative history 
of the Transitional Appropriation shows that Congress has 
routinely denied the U.S. Postal Service's request for 
reimbursement of these expenses during the past decade. 
Transitional Appropriations are estimated to be less than one 
percent of estimated operating expenses of the Postal Service. 
Furthermore, the Postal Service incurs workers' compensation 
costs in excess of $500 million annually for current employees. 
The addition of this small increased liability to that amount 
should not affect the overall fiscal stability of the Postal 
Service or its operations and service.
    The Committee recognizes that deficit reduction is not 
painless and commitments of taxpayer money made by previous 
Congresses may need to be modified to reflect current fiscal 
concerns. The obligation of this legislation is not unfairly 
burdensome nor inconsistent with past actions. Enactment of 
this measure will not alter the level of benefits paid to 
beneficiaries of the fund. It will consolidate and streamline a 
bifurcated workers' compensation financing system that will be 
funded by ratepayer revenues rather than taxpayer subsidies. 
The Committee, therefore, finds no compelling reason to 
continue authorization of the transitional appropriationsand 
believes that repeal of authorization of transitional appropriation for 
the Postal Service will advance efforts to reduce the nation's deficit 
and further promote financial self-sufficiency for the Postal Service.

                     B. Civil service subcommittee

    The Committee on the Budget approved a reconciliation 
resolution for fiscal year 1997 in the course of which it 
assigned the Committee on Government Reform and Oversight a 
target of $4.762 billion in savings over 5 years to be achieved 
by (1) increasing the payment that agencies make to the Civil 
Service Retirement and Disability Fund (CSRDF) for their 
employees enrolled in the Civil Service Retirement System 
(CSRS); and (2) by increasing the payroll deductions from 
civilian employees in Federal retirement systems.
    Agency payments incorporated into the budget resolution 
would increase 1.51 percent in FY 1998, and the same payment 
would be sustained throughout the five years of this budget 
cycle. This rate increase yields diminishing additional 
revenues each year because enrollment in the CSRS was closed 
effective January 1, 1984. As a result, CSRS employees are 
leaving Federal service (usually through retirement) and not 
being replaced in this retirement system.
    This proposal appears to provide equal treatment by 
reaching to all categories of civil servants and applying the 
same increase in payroll deduction rates to all employees. The 
proposal, however, contains inherent inequities because of the 
different payment levels incorporated into Federal employee 
retirement programs during the past twenty-eight years. This is 
particularly true for employees of the U.S. Postal Service.

Full normal costing

    The actuarial principle that governs most standards for 
payments into retirement systems in the concept that funds set 
aside today to pay for future benefits should reflect the 
future cost of providing the benefits earned by employees. When 
an amount equal to those benefits is set aside, the ``full 
normal cost'' of retirement is paid. Any funding above the 
``full normal cost'' level reflects an ``overfunding,'' while 
any shortfall would be described as an ``underfunding,'' 
creating an ``unfunded liability.'' Although the Office of 
Personnel Management has reported an aggregate unfunded 
liability for the CSRDF of $540.7 billion as of FY 95, that 
liability is entirely attributable to the CSRS rather than to 
employees enrolled in the Federal Employees Retirement System 
(FERS).
    FERS is fully funded in the sense that the combination of 
employee and agency contributions must equal the normal cost of 
the retirement benefit. Sections 8422 and 8423 of title 5, 
United States Code, define the cost sharing of the FERS benefit 
between the agency and the employee. For most employees, the 
employee share is determined by subtracting the Social Security 
(OASDI) rate (currently 6.2 percent) from 7 percent of basic 
pay, yielding a current rate of 0.8 percent. For Members of 
Congress, law enforcement officers, firefighters, air traffic 
controllers, and congressional employees, the Social Security 
rate is subtracted from 7.5% of basic pay, leaving a current 
rate of 1.3 percent.
    The current normal cost of FERS is 12.2 percent of payroll 
for most employees. The employer is responsible for the 11.4 
percent difference between the employee's 0.8 percent and the 
normal cost. (In April, the Office of Personnel Management 
announced that, because of changes in economic assumptions, the 
normal cost of FERS will drop from 12.2 percent to 11.5 
percent, effective October 1, 1997.) Separate normal cost 
determinations are made for Members of Congress and certain 
other employees.
    The CSRS cost sharing formulas are defined differently. For 
most CSRS employees, 7 percent of basic pay is deducted as 
their share of the cost of the benefit. (Law enforcement 
officers, firefighters, and congressional employees contribute 
7.5 percent of basic pay, while Members and certain Article I 
judges contribute 8 percent.) These amounts are set in statute, 
and the employer contributes a matching amount. The CSRS normal 
cost, however, is currently 25.14 percent of payroll. Thus, the 
matching employee and employer contributions does not fully 
fund the CSRS benefit. The additional shortfall, generally 
11.14 percent of payroll, must be made up by additional 
transfers from the Treasury.

The Postal Service pays full normal cost for CSRS and FERS

    The Postal Service, however, already pays the full normal 
cost of its employees' retirement benefits. Since the Postal 
Reorganization Act of 1970, postal employees' retirement 
payments have been the same as other federal employees. Since 
1974, however, Congress has required the Postal Service to pay 
the 11.14 percent of payroll costs (above and beyond employees' 
deductions and the agency's matching contribution) necessary to 
pay the full normal costs of CSRS retirement. The attached 
Table 1 \1\ outlines the series of legislative actions through 
which these payments have been required and, documents the 
$37.5 billion additional costs of employees' benefits that have 
been borne by the Postal Service since 1974. As CRS reports, 
``[T]he USPS fully funds the CSRS benefits for postal employees 
by paying the cost of retirement benefits attributable to pay 
raises and retiree COLAs.\2\ CRS also reports, ``For both 
postal workers and nonpostal federal employees, FERS is fully 
funded by the combination of employee contributions (currently 
0.8 percent of pay for most workers) and agency contributions 
(currently 11.4 percent of pay).'' \3\ In each of the laws 
cited on this table, the Postal Service has been required to 
pay, from its revenues, the costs of its employees' benefits, 
including unfunded liabilities of CSRS retirement costs. These 
payments include a revolving series of 15-year payments to the 
CSRDF. CRS concludes, ``The effect of the various laws that 
have required the USPS to pay the total cost of CSRS benefits 
for postal workers is that, unlike the CSRS for nonpostal 
federal workers, there are no unfunded postal CSRS 
liabilities.'' \4\
---------------------------------------------------------------------------
    \1\ ``Table 1. Laws Transferring Pension and Health Insurance Costs 
to the USPS,'' is from a Congressional Research Service Memorandum, 
``United States Postal Service Employee Benefit Costs,'' page CRS-6 
(May 30, 1997).
    \2\ Page CRS-2.
    \3\ Page CRS-2.
    \4\ Page CRS-7.

                    TABLE 1. LAWS TRANSFERRING PENSION AND HEALTH INSURANCE COSTS TO THE USPS                   
                                            [In millions of dollars]                                            
----------------------------------------------------------------------------------------------------------------
                                   FY 1990                        Fiscal years--                                
              Laws                   and   ------------------------------------------------------------   Total 
                                   before     1991      1992      1993      1994      1995      1996            
----------------------------------------------------------------------------------------------------------------
P.L. 93-349 CSRS................    15,406     1,775     1,896     1,938     1,996     2,134     2,362    27,507
OBRA `85 FEHB...................       329  ........  ........  ........  ........  ........  ........       329
OBRA `87 FEHB...................       430  ........  ........  ........  ........  ........  ........       430
OBRA `87 CSRS...................       350  ........  ........  ........  ........  ........  ........       350
OBRA `89 CSRS, COLAs............        74  ........  ........  ........  ........  ........  ........        74
OBRA `90 FEHB...................  ........       328       380       510       519       523       497     2,757
OBRA `90 CSRS, COLAs............  ........       421       491       551       620       689       750     3,522
OBRA `90 prior year COLAs and                                                                                   
 FEHB...........................  ........       272       313       378       472       705  ........     2,140
OBRA `93 \1\....................  ........  ........  ........  ........  ........  ........       347       347
                                 -------------------------------------------------------------------------------
      Total.....................    16,589     2,796     3,080     3,377     3,607     4,051     3,956    37,456
----------------------------------------------------------------------------------------------------------------
\1\ The payments required by OBRA of 1993 are $347 million in 1996, 1997, and 1998 for a total of $1.041 billion
  over those three years.                                                                                       
                                                                                                                
Source: Comprehensive Statement on Postal Operations, p. 62.                                                    

    As proposed by the Budget Committee, additional payments to 
the CSRDF by postal employees would result in employees from 
the USPS paying more than normal cost for their retirement 
benefits in both the FERS and CSRS systems.
    Furthermore, the Budget Committee proposes that non-postal 
agency payments into FERS not be reduced to offset the 
increased employee contributions. This would create an inequity 
of FERS employees paying more than the actual cost of their 
retirement benefits, in effect subsidizing the benefits of CSRS 
employees. To correct this inequity, the agency's contribution 
must be allowed to decrease in order to offset the higher 
individual contributions. In that way, the principle of normal 
cost is maintained.

Differences in cost benefits and payroll deductions

    Congress recognized the funding problems of the CSRS when 
it closed enrollment in that system effective January 1, 1984 
and when it creased FERS in 1987. Where CSRS had provided a 
single benefit, based on a 7 percent deduction from employees' 
pay and matching agency payments, FERS combined Social Security 
benefits, a defined benefit component (derived from the FERS 
payment), and a defined contribution component that would be 
derived from employees' contributions and matching agency 
payments to Thrift Savings Plan accounts.
    When FERS was established, the projected growth of unfunded 
liabilities in CSRS had become unsustainable. From its creation 
in 1920 through 1969, the payroll deduction that supported the 
CSRS benefit was increased on average every 6 years, from 2.5 
percent at the start to the 7 percent level that has been in 
place since 1969. The agency and employee deductions for CSRS 
have remained constant at 7 percent despite a period in the 
1970s when the unfunded liability grew at a very rapid rate.
    In contrast, since 1969, Social Security taxes have been 
increased steadily to provide additional funding for the 
benefits that are promised under the programs. In 1969, Social 
Security collected a 4.2 percent payroll tax to support Old 
Age, Survivors, and Disability Insurance and 0.6 percent to 
support Health Insurance (Medicare and Medicaid) on an earnings 
base of up to $7,800. Since 1969, Congress has periodically 
increased both the payroll deductions (currently 6.2 percent 
OASDI and 1.45 percent HI) and the earnings base (currently 
$65,400), as reflected in the attached table. Thus, while 
Congress required others, including FERS employees to 
contribute more in order to increase cash flows. CSRS 
contributions have remained frozen.

                                                           APPENDIX A. SOCIAL SECURITY FINANCING SCHEDULE FOR CALENDAR YEARS 1935-1997                                                          
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           Tax rate (percent), employer and                   Tax rate (percent), self-employed                 
                                                                 Calendar     Earnings              employee, each               Maximum   --------------------------------------  Maximum self-
                           Act of--                               years         base    --------------------------------------   employee                                         employment tax
                                                                                             OASDI         H1         Total        tax          OASDI         HI         Total                  
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1935-1947....................................................  1937-49           $3,000       1.0      ..........      1.0          $30.00  ............  ..........  ..........  ..............
1947.........................................................    1950             3,000       1.5      ..........      1.5           45.00  ............  ..........  ..........  ..............
1950.........................................................  1951-53            3,600       1.5      ..........      1.5           54.00       2.25     ..........       2.25           $81.00
                                                                 1954             3,600       2.0      ..........      2.0           72.00       3.0      ..........       3.0            108.00
1954.........................................................  1955-56            4,200       2.0      ..........      2.0           84.00       3.0      ..........       3.0            126.00
1956.........................................................  1957-58            4,200       2.25     ..........      2.25          94.50       3.375    ..........       3.375          141.75
1958.........................................................    1959             4,800       2.5      ..........      2.5          120.00       3.75     ..........       3.75           180.00
                                                               1960-61            4,800       3.0      ..........      3.0          144.00       4.5      ..........       4.5            216.00
1961.........................................................    1962             4,800       3.125    ..........      3.125        150.00       4.7      ..........       4.7            225.60
                                                               1963-65            4,800       3.625    ..........      3.625        174.00       5.4      ..........       5.4            259.20
1965.........................................................    1966             6,600       3.85         0.35        4.2          277.20       5.8            0.35       6.15           405.90
                                                                 1967             6,600       3.9           .5         4.4          290.40       5.9             .5        6.4            422.40
1967.........................................................    1968             7,800       3.8           .6         4.4          343.20       5.8             .6        6.4            499.20
                                                                 1969             7,800       4.2           .6         4.8          374.40       6.3             .6        6.9            538.20
1969.........................................................    1970             7,800       4.2           .6         4.8          374.40       6.3             .6        6.9            538.20
                                                                 1971             7,800       4.6           .6         5.2          405.60       6.9             .6        7.5            585.00
1971.........................................................    1972             9,000       4.6          6           5.2          468.00       6.9             .6        7.5            675.00
1972.........................................................    1973            10,800       4.85         1.0         5.85         631.80       7.0            1.0        8.0            874.00
1973.........................................................    1974            13,200       4.95          .9         5.85         772.20       7.0             .9        7.9          1,042.00
                                                                 1975            14,100       4.95          .9         5.85         824.85       7.0             .9        7.9          1,113.90
                                                                 1976            15,300       4.95          .9         5.85         895.05       7.0             .9        7.9          1,208.70
                                                                 1977            16,500       4.95          .9         5.85         965.25       7.0             .9        7.9          1,303.50
1977.........................................................    1978            17,700       5.05         1.0         6.05       1,070.85       7.1            1.0        8.1          1,433.70
                                                                 1979            22,900       5.08         1.05        6.13       1,403.77       7.05           1.05       8.1          1,854.90
                                                                 1980            25,900       5.08         1.05        6.13       1,587.67       7.05           1.05       8.1          2,097.90
                                                                 1981            29,700       5.35         1.3         6.65       1,975.05       8.00           1.3        9.3          2,762.10
                                                                 1982            32,400       5.40         1.3         6.70       2,170.80       8.05           1.3        9.35         3,029.40
                                                                 1983            35,700       5.40         1.3         6.70       2,391.90       8.05           1.3        9.35         3,337.95
1983.........................................................    1984            37,800       5.70         1.3         7.00       2,532.60      11.4            2.6       14.0          4,271.40
                                                                 1985            39,600       5.70         1.35        7.05       2,791.80      11.4            2.7       14.10         4,672.80
                                                                 1986             42,00       5.70         1.45        7.15       3,003.00      11.4            2.9       14.30         5,166.00
                                                                 1987            42,800       5.70         1.45        7.15       2,131.70      11.4            2.9       14.30         5,387.40
                                                                 1988            45,000       6.06         1.45        7.51       3,379.50      12.12           2.9       15.02         5,859.00
                                                                 1989            48,000       6.06         1.45        7.51       3,604.80      12.12           2.9       15.02         6,249.60
                                                                 1990            51,300       6.2          1.45        7.65       2,924.45      12.4            2.9       15.3          6,553.83
1990.........................................................    1991            53,400       6.2          1.45        7.65       5,123.30      12.4            2.9       15.3          8,658.38
                                                                 1992            55,500       6.2          1.45        7.65       5,328.90      12.4            2.9       15.3          9,005.84
                                                                 1993            57,600       6.2          1.45        7.65       5,528.70      12.4            2.9       15.3          9,343.50
1993.........................................................    1994            60,600       6.2          1.45        7.65    ...........      12.4            2.9       15.3    ..............
                                                                 1995            61,200       6.2          1.45        7.65    ...........      12.4            2.9       15.3    ..............
                                                                 1996            62,700       6.2          1.45        7.65    ...........      12.4            2.9       15.3    ..............
                                                                 1997            65,400       6.2          1.45        7.65    ...........      12.4            2.9       15.3    ..............
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Source: ``Summary of Major Changes in the Social Security Cash Benefits Program: 1935-1996.'' CRS (December 20, 1996).                                                                          

                   V. Explanation of the Legislation

                                Overview

                       a. postal service subtitle

    The bill eliminates the authorization for appropriation to 
the U.S. Postal Service for reimbursement for workers' 
compensation liabilities incurred by the former Post Office 
Department. The elimination of this funding will result in the 
Postal Service assuming the liabilities for this payment to the 
Employee Compensation Fund, within the Department of Labor, 
providing payments made to employees of the former Post Office 
Department.
    Under the existing framework, the Department of Labor 
assesses the U.S. Postal Service for claims to both its 
employees and those of the former Post Office Department. The 
U.S. Postal Service pays for its own employees and requests 
funding from Congress for the amount attributable to former 
Post Office Department employees.
    The legislation removes the Federal Government and Congress 
from the process and directs that employees of the former Post 
Office Department be treated the same as the current employees 
of the U.S. Postal Service for purposes of the Employee 
Compensation Fund.

                       b. civil service subtitle

    The Committee on the Budget has approved a reconciliation 
resolution for the current fiscal year in the course of which 
it assigned the Committee on Government Reform and Oversight a 
target of $4.762 billion in savings from the Federal retirement 
system. These savings, according to the Budget agreement 
reached between the President and the Congressional leadership, 
would be achieved by increasing the payment that agencies make 
to the Civil Service Retirement and Disability Fund (CSRDF) for 
their employees enrolled in the Civil Service Retirement System 
(CSRS) and by increasing the payroll deductions from civilian 
employees (including Postal Service employees) enrolled in CSRS 
and the Federal Employees' Retirement System (FERS).
    An amendment offered by Rep. Connie Morella amends 5 U.S.C. 
Sec. 8906 to establish a permanent formula for calculating the 
Government's share of subscription charges for the Federal 
Employees Health Benefits Program (FEHBP). The amendment 
requires the Office of Personnel Management (the Office) to 
determine, not later than October 1 of each year, the weighted 
average of the subscription charges that will be in effect 
during the following contract year by weighting the 
subscription charges of each option of each plan by the actual 
distribution of enrollments stated in the enrollment report as 
of March 31 of the year in which the determination is being 
made. The committee intends that the Office continue to produce 
and make publicly available the enrollment reports at least 
semi-annually.
    It is intended that the enrollment used in weighting 
include all individuals who are eligible to receive a 
contribution, including active Postal Service employees, in 
participating plans that will be continuing in the FEHBP during 
the contract year to which the weighted average applies. In 
making what should be a straightforward arithmetic calculation, 
the Office is not authorized to assume or estimate future 
enrollments. Finally the Committee intends that actions that 
the Office may deem necessary to take before the first day of 
the contract year that begins in 1999 to ensure the timely 
implementation of this amendment be restricted to routine 
ministerial activities; no additional regulatory flexibility 
nor policy discretion is intended by this amendment.

                           Section-by-Section

                     a. subtitle a--postal service

Section 6001. Repeal of authorization of transitional appropriations 
        for the United States Postal Service

    This section repeals Section 2004, of Title 39 United 
States Code and makes technical and conforming amendments. In 
particular, the section clarifies that liabilities of the 
former Post Office Department to the Employees' Compensation 
Fund (appropriations that were authorized by former section 
2004) shall be liabilities payable out of the Fund. This 
section and the amendments made by this section indicate that 
changes shall take effect on the date of enactment of the Act 
or October 1, 1997, whichever is later. It also states that no 
payments may be made to the Postal Service Fund on or after the 
date of enactment pursuant to section 2004 of title 39 United 
States Code. If any payment to the Postal Service Fund is or 
has been made pursuant to an appropriation for fiscal year 1998 
authorized by section 2004, then, an amount equal to the amount 
of the payment shall be paid from the Fund into the Treasury as 
miscellaneous receipts before October 1, 1998.

                      b. subtitle b--civil service

Section 6101. Contributions under the Civil Service Retirement System

    This section amends 5 U.S.C. Sec. 8334 to increase 
individual and Government retirement contributions under the 
Civil Service Retirement System. Subsection (a) gradually 
raises individual contributions by .5 percent of basic pay 
between January 1, 1999 through December 31, 2002. Individual 
contributions are increased by .25 percent on January 1, 1999, 
.15 percent on January 1, 2000, and .10 percent on January 1, 
2001. The amounts required for deposits covering military or 
volunteer service during that period are also increased by a 
corresponding amount. Subsection (b) requires Government 
employers (other than the United States Postal Service) to 
contribute an additional 1.51 percent of basic pay of CSRS 
employees for the period between October 1, 1997 through 
December 31, 2002.

Section 6102. Contributions under the Federal Employees Retirement 
        System

    This section amends 5 U.S.C. Sec. Sec. 8422 and 8423 to 
increase individual retirement contributions under the Federal 
employees Retirement System and to prevent offsetting decreases 
in Government contributions. Subsection (a) gradually raises 
individual contributions by .5 percent of basic pay between 
January 1, 1999 through December 31, 2002. Individual 
contributions are increased by .25 percent on January 1, 1999, 
.15 percent on January 1, 2000, and .10 percent on January 1, 
2001. The amounts required for deposits covering military or 
volunteer service during that period are also increased by a 
corresponding amount. Subsection (b) prevents the government 
contributions from declining as a result of the increased 
individual contributions required under subsection (a).

Section 6103. Government contribution for health benefits

    This section amends 5 U.S.C. Sec. 8906 to revise the 
formula for computing the Government's share of premiums under 
the Federal Employees Health Benefits Program (FEHBP). 
Subsection (a) provides a new formula for determining the 
Government's share. Under the revised formula, not later than 
October 1 of each year, the Office of Personnel Management 
(Office) shall compute the weighted average of premiums that 
will be in effect during the following contract year with 
respect to self alone and self and family policies. The weight 
given to the premium for each plan (and option) shall be 
commensurate with the number of enrollees in such plan (and 
option) entitled to a Government contribution as of March 31 of 
the year in which the determination is being made. Subsection 
(b) provides that this formula shall take effect on the first 
day of the contract year beginning in 1999. However, before 
that date the Office may take any steps necessary to ensure the 
timely implementation of the revised formula.

Section 6104. Effective date

    Except for section 6103, this subtitle shall take effect on 
the later of October 1, 1997 or the date of enactment. If the 
date of enactment is after October 1, 1997, references in this 
subtitle to October 1, 1997 and September 30, 1997 shall be 
treated as referring, respectively, to the date of enactment 
and the day before the date of enactment.

                      VI. Compliance With Rule XI

    Pursuant to rule XI, clause 2(l)(3)(A) of the Rules of the 
House of Representatives, under the authority of rule X, clause 
2(b)(1) and clause 3(f), the results and findings from 
Committee oversight activities are incorporated in the 
legislation and this report.

                  VII. Statement of CBO Cost Estimate

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 16. 1997.
Hon. Dan Burton,
Chairman, Committee on Government Reform and Oversight, U.S. House of 
        Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for the reconciliation 
recommendations of the House Committee on Government Reform and 
Oversight.
    The estimate shows the budgetary effects of the committee's 
proposals over the 1998-2007 period. CBO understands that the 
Committee on the Budget will be responsible for interpreting 
how these proposals compare with the reconciliation 
instructions in the budget resolution. The estimate assumes 
that the reconciliation bill will be enacted by August 15; the 
estimate could change if the bill is enacted later.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Paul 
Cullinan.
            Sincerely,
                                         Paul Van de Water,
                                             (for June E. O'Neill).
    Enclosure.

Reconciliation recommendations of the House Committee on Government 
        Reform and Oversight (Title VI)

    Summary: Title VI would make a number of changes affecting 
the retirement and health insurance programs for federal 
employees and annuitants. It would also end a payment currently 
required from the Treasury to the United States Postal Service. 
In total, these provisions would reduce on-budget direct 
spending by $3.0 billion, increase off-budget outlays by $44 
million, and increase federal revenues by $1.8 billion over the 
1998-2002 period. Part of these savings would result from 
increasing the amount of retirement costs charged to agency 
appropriations by a total of $2.8 billion over the 1998-2002 
period.
    This title contains no intergovernmental mandates as 
defined in the Unfunded Mandates Reform Act of 1995 (UMRA) and 
would impose no costs on state, local, and tribal governments. 
By increasing contributions required of federal employees to 
the civilian retirement system, the legislation would impose a 
private-sector mandate with a cost exceeding the statutory 
threshold.
    Estimated cost to the Federal Government: The estimated 
impact of the reconciliation recommendations of the House 
Committee on Government Reform and Oversight on direct spending 
and revenues through 2002 is shown in the following table. 
Tables in the basis of estimate provide more detail on the 
various subtitles, and the appendix table displays the 
budgetary effects through 2007.
    The outlays impacts of changes proposed in Title VI fall in 
budget functions 370 (commerce and housing credit), 550 
(health), and 950 (undistributed offsetting receipts).

     ESTIMATED EFFECTS OF THE RECONCILIATION RECOMMENDATIONS OF THE HOUSE COMMITTEE ON GOVERNMENT REFORM AND    
                                    OVERSIGHT ON DIRECT SPENDING AND REVENUES                                   
                                    [By fiscal year, in millions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                                              1997     1998     1999     2000     2001     2002 
----------------------------------------------------------------------------------------------------------------
                                                 DIRECT SPENDING                                                
                                                                                                                
Proposed Changes:                                                                                               
    Repeal of Transitional Appropriation for the U.S.                                                           
     Postal Service                                                                                             
        On-Budget.........................................        0      -35      -34      -33      -32      -31
        Off-Budget........................................        0       35        9        0        0        0
        Total Budget......................................        0        0      -25      -33      -32      -31
    Increase CSRS Agency Contributions by                                                                       
        1.51 percent beginning October 1997...............        0     -597     -580     -563     -548     -533
    Modify Government Contributions under FEHB                    0        0       -5       -7       -7       -8
Total Proposed Changes:                                                                                         
    On-Budget.............................................        0     -632     -619     -603     -587     -572
    Off-Budget............................................        0       35        9        0        0        0
    Total Budget..........................................        0     -597     -610     -603     -587     -572
                                                                                                                
                                                    REVENUES                                                    
                                                                                                                
Increase Employee Contributions to CSRS and FERS by 0.25                                                        
 percent in January 1999, an additional 0.15 percent in                                                         
 January 2000, and another 0.1 percent in January 2001....        0        0      208      413      551      598
----------------------------------------------------------------------------------------------------------------
Note: Components may not add to totals because of rounding.                                                     

    Basis of Estimate:
            Subtitle A, Postal Service
    Postal Service Transitional Payments.--Under current law, 
the United States Postal Service (USPS) receives a mandatory 
appropriation for compensation to individuals who sustained 
injuries while employed by the former Post Office Department. 
This legislation would terminate this annual payment, effective 
October 1, 1997.

                            ESTIMATED BUDGETARY EFFECTS OF SUBTITLE A, POSTAL SERVICE                           
                                    [By fiscal year, in millions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                                        1997      1998      1999      2000      2001      2002  
----------------------------------------------------------------------------------------------------------------
                                                 DIRECT SPENDING                                                
                                                                                                                
Spending Under Current Law:                                                                                     
    Postal Service                                                                                              
        On-Budget...................................        36        35        34        33        32        31
        Off-Budget..................................     1,380     2,654      -964    -1,262      -532       224
        Total Budget................................     1,416     2,689      -930    -1,229      -500       255
Proposed Changes:                                                                                               
    Repeal of Transitional Appropriation for the                                                                
     U.S. Postal Service                                                                                        
        On-Budget...................................         0       -35       -34       -33       -32       -31
        Off-Budget..................................         0        35         9         0         0         0
        Total Budget................................         0         0       -25       -33       -32       -31
Spending Under Proposed Changes:                                                                                
    Postal Service                                                                                              
        On-Budget...................................        36         0         0         0         0         0
        Off-Budget..................................     1,380     2,689      -955    -1,262      -532       224
        Total Budget................................     1,416     2,689      -955    -1,262      -532       224
----------------------------------------------------------------------------------------------------------------
Note: Components may not add to totals because of rounding.                                                     

    CBO estimates that enacting this legislation would reduce 
on-budget direct spending by $35 million in fiscal year 1998, 
and that annual savings would decline to $31 million by fiscal 
year 2002. But the USPS would have to continue to pay the costs 
that have been covered by the appropriation out of its own 
revenues. Thus, this legislation would cost the USPS, an off-
budget agency, $35 million in fiscal year 1998. Consistent with 
CBO's projections, we expect that the USPS would recover the 
additional cost of the transitional expenses by raising postal 
rates, which we assume will occur January 1, 1999. The net 
budgetary impact, combining on-budget and off-budget effects, 
would be zero for fiscal year 1998, savings of $25 million in 
1999, and savings averaging $32 million annually for fiscal 
years 2000 through 2002.
            Subtitle B, Civil Service
    The committee recommends changes in law affecting civilian 
employees of the federal government as well as enrollees in the 
Federal Employees Health Benefits (FEHB) program. The changes 
would affect the contributions made by both the employee and 
the employing agency for retirement and health benefits.
    Employee Contributions for Civilian Retirement.--This 
legislation would increase contributions by federal employees 
to the civilian retirement systems. CBO estimates that revenue 
from additional employee contributions would total $208 million 
in 1999 and $1.8 billion over the 1999-2002 period.
    Under current law, most workers covered by the Civil 
Service Retirement System (CSRS) contribute 7 percent of their 
basic pay to the retirement trust fund but pay no Social 
Security taxes. Employees covered by the Federal Employees' 
Retirement System (FERS) pay 6.2 percent in Social Security 
taxes (up to the ceiling on Social Security taxable wages) and 
0.8 percent to the retirement trust fund. Certain groups of 
employees contribute slightly more for federal retirement 
coverage and in turn receive more generous benefits. Law 
enforcement personnel, firefighters, air traffic controllers, 
and Congressional employees contribute 7.5 percent of salary to 
CSRS. Members of Congress and certain judicial officials 
contribute 8 percent. Employees with special retirement 
provisions pay an extra 0.5 percent of pay if enrolled in FERS.
    The legislation would set the contribution rate at 7.5 
percent for all CSRS employees (except Congressional staff, 
firefighters, and law enforcement personnel, whose contribution 
rates would rise to 8 percent, and Members of Congress and 
certain judges and magistrates, whose rates would rise to 8.5 
percent). FERS employees would also face the 0.5 percent 
contribution hike. These increases in contribution rates would 
be phased in over three years: 0.25 percentage points in 
January 1999, another 0.15 percentage points in 2000, and 0.1 
percentage points in 2001. The contribution rates would remain 
0.5 percentage points higher than under current law until the 
end of calendar year 2002, at which time the rates would return 
to their current level.
    Based on data from the Office of Personnel Management 
(OPM), CBO estimates that the fiscal year 1997 payroll base 
covered by CSRS and FERS is $80 billion for non-postal 
employees and about $25 billion for postal employees. This 
estimate uses CBO's baseline projections of General Schedule 
pay raises--which run about 3.0 percent annually--to project 
the payroll base after 1997. CSRS and FERS each currently cover 
about one-half of federal payroll. CBO estimates that the 
percentage of total payroll covered by CSRS will decline by 2 
to 3 percentage points each year, while the FERS payroll will 
grow at the same rate.

                          ESTIMATED BUDGETARY EFFECTS OF THE SUBTITLE B, CIVIL SERVICE                          
                                    [By fiscal year, in millions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                                   1997       1998       1999       2000       2001       2002  
----------------------------------------------------------------------------------------------------------------
                                                 DIRECT SPENDING                                                
                                                                                                                
Spending Under Current Law:                                                                                     
    Receipts of Employer Contributions to                                                                       
     Civilian Retirement......................    -16,366    -16,913    -17,160    -17,886    -18,520    -19,368
    Federal Employees Health Benefits.........      3,920      4,165      4,474      4,907      5,256      5,655
Proposed Changes:                                                                                               
    Increase CSRS Agency Contributions by 1.51                                                                  
     percent beginning October 1997...........          0       -597       -580       -563       -548       -533
    Government Contributions under FEHB.......          0          0         -5         -7         -7         -8
                                                                                                                
            TOTAL PROPOSED CHANGES                                                                              
                                                                                                                
Spending Under Title VI:                                                                                        
    Receipts of Employer Contributions to                                                                       
     Civilian Retirement......................    -16,366    -17,510    -17,740    -18,449    -19,068    -19,901
    Federal Employees Health Benefits.........      3,920      4,165      4,469      4,900      5,249      5,647
                                                                                                                
                                                    REVENUES                                                    
                                                                                                                
Increase Employee Contributions to CSRS and                                                                     
 FERS by 0.25 percent in January 1999, an                                                                       
 additional 0.15 percent in January 2000, and                                                                   
 another 0.1 percent in January 2001..........  .........  .........        208        413        551        598
----------------------------------------------------------------------------------------------------------------
Note: Components may not add to totals because of rounding.                                                     

    Employing Agency Contributions for Civilian Retirement. 
Subtitle B would also increase the contribution rates paid by 
federal agencies on behalf of their employees. CBO estimates 
that offsetting receipts (collections by the civilian 
retirement trust funds) would increase by $597 million in 1998 
and $2.8 billion over the five-year period.
    Under CSRS, each federal agency matches the employee 
contribution of 7.0, 7.5, or 8.0 percent, depending on the type 
of employee. Under FERS, the employer contributes an amount 
equal to a percentage of basic pay which when added to the 
employee contribution, equals the normal cost of FERS. The 
normal cost is the percentage of an employee's salary required 
to be contributed each year over the employee's working career 
to fully finance, with interest, all retirement benefits. The 
current normal cost for FERS used to determine most agency 
contributions is 12.2 percent, although this is scheduled to 
decline to 11.4 percent for most agencies in fiscal year 1998. 
Because employee contributions cover 0.8 percent of the normal 
cost most agencies now contribute 11.4 percent of each 
employee's salary to FERS, but this will fall to 10.6 percent 
in 1998. Agencies that employ those workers with special 
retirement provisions, like Congressional employees, Members of 
Congress, firefighters, and law enforcement personnel, are 
required to pay a higher percentage of salary to the retirement 
system, because these personnel have more costly retirement 
benefits and a greater normal cost.
    This legislation would increase matching contributions for 
CSRS by non-postal agencies by raising the contribution rate by 
1.51 percentage points (to 8.51 percent for most employees) 
from October 1997 through September 2002. Agency contributions 
are recorded as offsetting receipts of the retirement trust 
fund. Since CSRS is a closed system (federal employees hired 
after January 1, 1984, are covered under FERS), CBO expects the 
increase in contributions to CSRS to decline each year after 
1998. The legislation would maintain agency contributions for 
FERS at current levels, despite the fact that employee 
contributions are being increased. Consequently, the FERS 
program would receive more funding than would be required to 
ensure that total contributions per employee would be set at 
normal cost.
    Government Contributions to Federal Employee Health 
Benefits. This portion of the bill modifies the procedure for 
determining the share of health insurance premiums that the 
federal government pays on behalf of its employees and 
retirees. The FEHB program provides health insurance coverage 
for 4 million workers and annuitants, as well as their 4.6 
million dependents and survivors. Only the payments on behalf 
of annuitants are considered direct spending, because payments 
for employees are funded out of annual appropriations for the 
agencies that employ them. In 1997, the FEHB costs for 
annuitants are estimated to be $3.9 billion.
    The current formula used to calculate the federal share of 
premiums is based on the cost of five plans currently in the 
FEHB package and a ``phantom'' plan that acts as a placeholder 
for a former plan. The dollar amount of the maximum federal 
contribution is computed as 60 percent of the average costs of 
these six plans. However, in no plan can the federal 
contribution exceed 75 percent of the premium. The law 
establishing the current formula expires in 1999.
    The committee's recommendations would change the dollar 
limit on the federal contribution to 72 percent of the weighted 
average of the premiums of all plans to which federal workers 
and annuitants subscribe. Effectively, the federal share would 
be maintained at about its current level, but CBO estimates the 
new formula would establish a maximum contribution that would 
be very slightly lower than under the current formula. CBO 
estimates that the direct spending savings from the provisions 
would amount to less than $10 million annually through 2002.
    Estimated impact on State, local, and tribal governments: 
This title contains no intergovernmental mandates as defined in 
UMRA and would impose no costs on state, local, or tribal 
governments.
    Estimated impact on the private sector: The reconciliation 
recommendations of the House Committee on Government Reform and 
Oversight would impose a new private-sector mandate as defined 
in UMRA by increasing the contributions required of federal 
employees to the civilian retirement systems. Contributions to 
the civilian retirement systems, which are compulsory 
withholdings made by the government, are equivalent to a tax on 
the wages of federal employees. That equivalence is evidenced 
by the classification of federal employees' contributions to 
the retirement systems as a revenue in the federal budget. 
Therefore, CBO has determined that the increase in regulated 
contributions constitutes a new enforceable duty and fits the 
definition of a private-sector mandate under UMRA.
    CBO estimates that the direct costs of the new private-
sector mandate in Subtitle B would be $1.9 billion from January 
1999 until January 2003, at which time contribution rates would 
return to their current level. In effect, the proposed changes 
in Subtitle B increase taxes on the wages of federal employees 
starting in January 1999 and then sunset after four years. The 
table below shows the direct costs of increasing mandatory 
contributions by federal employees to CSRS and FERS.

----------------------------------------------------------------------------------------------------------------
                                                           1998    1999    2000    2001    2002    2003    Total
----------------------------------------------------------------------------------------------------------------
Direct costs of increasing employee contributions to                                                            
 CSRS and FERS by 0.25 percent in Jan. 1999, an                                                                 
 additional 0.15 percent in Jan. 2000, and another 0.1                                                          
 percent in Jan. 2001...................................       0     208     413     551     598     153   1,923
----------------------------------------------------------------------------------------------------------------

    Estimate prepared by: Federal Cost: Paul Cullinan and 
Jeffrey Lemieux; Impact on State, Local, and Tribal 
Governments: Theresa Gullo; and Impact on the Private Sector: 
Matthew Eyles.
    Estimate approved by: Robert A. Sunshine, Deputy Assistant 
Director for Budget Analysis.

APPENDIX TABLE.--ESTIMATED BUDGETARY EFFECTS OF TITLE VI, FISCAL YEARS 1998-2007; RECONCILIATION RECOMMENDATIONS OF HOUSE COMMITTEE ON GOVERNMENTAL REFORM AND OVERSIGHT AS APPROVED ON JUNE 11,
                                                                                              1997                                                                                              
                                                                            [By fiscal year, in millions of dollars]                                                                            
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                1997      1998      1999      2000      2001      2002      2003      2004      2005      2006      2007    1998-2002  1998-2007
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                         DIRECT SPENDING                                                                                        
Proposed Changes:                                                                                                                                                                               
    Repeal of Transitional Appropriation for the U.S. Postal                                                                                                                                    
     Service:                                                                                                                                                                                   
        On-Budget...........................................         0       -35       -34       -33       -32       -31       -30       -29       -28       -27       -26       -165       -305
        Off-Budget..........................................         0        35         9         0         0         0         0         0         0         0         0         44         44
                                                             -----------------------------------------------------------------------------------------------------------------------------------
            Total Budget....................................         0         0       -25       -33       -32       -31       -30       -29       -28       -27       -26       -121       -261
                                                             ===================================================================================================================================
    Increase CSRS Agency Contributions by 1.51 percent beg.                                                                                                                                     
     October 1997...........................................         0      -597      -580      -563      -546      -533         0         0         0         0         0      -2821      -2821
    Modify Government Contributions under FEHB..............         0         0        -5        -7        -7        -8        -9        -9       -10       -11       -12        -28        -78
    Direct Spending Total:                                                                                                                                                                      
        On-Budget...........................................         0      -632      -619      -603      -587      -572       -39       -38       -38       -38       -38      -3014      -3204
        Off-Budget..........................................         0        35         9         0         0         0         0         0         0         0         0         44         44
                                                             -----------------------------------------------------------------------------------------------------------------------------------
            Total Budget....................................         0      -597      -810      -603      -587      -572       -39       -38       -38       -38       -38      -2969      -3180
                                                                                                                                                                                                
                                                                                            REVENUES                                                                                            
                                                                                                                                                                                                
Increase Employee Contributions to CSRS and FERS by 0.25                                                                                                                                        
 percent in Jan. 1999, an additional 0.15 percent in Jan.                                                                                                                                       
 2000, and another 0.1 percent in Jan. 2001.................  ........  ........       208       413       551       598       153         0         0         0         0       1770       1923
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Components may not add to totals because of rounding.                                                                                                                                     

              VIII. Statement of Constitutional Authority

    Pursuant to rule XI, clause 2(1)(4) of the Rules of the 
House of Representatives, the Committee finds that Congress is 
specifically granted the power to enact this legislation under 
Article I, Section 8, clause 1 under which Congress is granted 
the ``Power To * * * provide for the * * * general Welfare of 
the United States[.]''

    IX. Federal Advisory Committee Act (5 U.S.C. App.), Section 5(b)

    The Committee finds that section 5(b) of Title 5 App., 
United States Code, is not applicable because this legislation 
does not authorize the establishment of any advisory committee.

                       X. Changes in Existing Law

    In compliance with clause 3 of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the legislation, as reported, are shown as follows:

   Changes in Existing Law Made by Title IV of 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):

                      TITLE 39, UNITED STATES CODE

          * * * * * * *

           PART III--MODERNIZATION AND FISCAL ADMINISTRATION

          * * * * * * *

                          CHAPTER 20--FINANCE

Sec.
2001. Definitions.
     * * * * * * *
[2004. Transitional appropriations.]
     * * * * * * *

Sec. 2003. The Postal Service Fund

  (a) * * *
          * * * * * * *
  (e)(1) The Fund shall be available for the payment of all 
expenses incurred by the Postal Service in carrying out its 
functions as provided by law and, subject to the provisions of 
section 3604 of this title, all of the expenses of the Postal 
Rate Commission. The Postmaster General shall transfer from the 
Fund to the Secretary of the Treasury for deposit in the 
Department of the Treasury Forfeiture Fund amounts appropriate 
to reflect the degree of participation of Department of the 
Treasury law enforcement organizations (described in section 
9703(p) of title 31) in the law enforcement effort resulting in 
the forfeiture pursuant to laws enforced or administered by the 
Postal Service. Neither the Fund nor any of the funds credited 
to it shall be subject to apportionment under the provisions of 
subchapter II of chapter 15 of title 31.
  (2) Funds appropriated to the Postal Service under [sections 
2401 and 2004] section 2401 of this title shall be apportioned 
as provided in this paragraph. From the total amounts 
appropriated to the Postal Service for any fiscal year under 
the authorizations contained in [sections 2401 and 2004] 
section 2401 of this title, the Secretary of the Treasury shall 
make available to the Postal Service 25 percent of such amount 
at the beginning of each quarter of such fiscal year.
          * * * * * * *
  (h) Liabilities of the former Post Office Department to the 
Employees' Compensation Fund (appropriations for which were 
authorized by former section 2004, as in effect before the 
effective date of this subsection) shall be liabilities of the 
Postal Service payable out of the Fund.

[Sec. 2004. Transitional appropriations

  [Such sums as are necessary to insure a sound financial 
transition for the Postal Service and a rate policy consistent 
with chapter 36 of this title are hereby authorized to be 
appropriated to the Fund without regard to fiscal-year 
limitation.]
          * * * * * * *
                              ----------                              


                      TITLE 5, UNITED STATES CODE

          * * * * * * *

                          PART III--EMPLOYEES

          * * * * * * *

                   Subpart G--Insurance and Annuities

          * * * * * * *

                         CHAPTER 83--RETIREMENT

          * * * * * * *

                SUBCHAPTER III--CIVIL SERVICE RETIREMENT

          * * * * * * *

Sec. 8334. Deductions, contributions, and deposits

  (a)(1) [The employing agency shall deduct and withhold 7 
percent of the basic pay of an employee, 7\1/2\ percent of the 
basic pay of a Congressional employee, a law enforcement 
officer, and a firefighter, and 8 percent of the basic pay of a 
Member, a Claims Court judge, a United States magistrate, a 
judge of the United States Court of Appeals for the Armed 
Forces, and a bankruptcy judge.] The employing agency shall 
deduct and withhold from the basic pay of an employee, Member, 
Congressional employee, law enforcement officer, firefighter, 
bankruptcy judge, judge of the United States Court of Appeals 
for the Armed Forces, United States magistrate, or Claims Court 
judge, as the case may be, the percentage of basic pay 
applicable under subsection (c). An equal amount shall be 
contributed from the appropriation or fund used to pay the 
employee or, in the case of an elected official, from an 
appropriation or fund available for payment of other salaries 
of the same office or establishment[.], subject to subsection 
(m). When an employee in the legislative branch is paid by the 
Chief Administrative Officer of the House of Representatives, 
the Chief Administrative Officer may pay from the applicable 
accounts of the House of Representativesthe contribution that 
otherwise would be contributed from the appropriation or fund used to 
pay the employee.
          * * * * * * *
  [(c) Each employee or Member credited with civilian service 
after July 31, 1920, for which retirement deductions or 
deposits have not been made, may deposit with interest an 
amount equal to the following percentages of his basic pay 
received for that service:

                                                                                                                
                                          [Percentage of basic pay                                              
                                                                                   Service period               
                                                                                                                
Employee...............................  2\1/2\...................  August 1, 1920, to June 30, 1926.           
                                         3\1/2\...................  July 1, 1926, to June 30, 1942.             
                                         5........................  July 1, 1942, to June 30, 1948.             
                                         6........................  July 1, 1948, to October 31, 1956.          
                                         6\1/2\...................  November 1, 1956, to December 31, 1969.     
                                         7........................  After December 31, 1969.                    
Member or employee for Congressional     2\1/2\...................  August 1, 1920, to June 30, 1926.           
 employee service.                                                                                              
                                         3\1/2\...................  July 1, 1926, to June 30, 1942.             
                                         5........................  July 1, 1942, to June 30, 1948.             
                                         6........................  July 1, 1948, to October 31, 1956.          
                                         6\1/2\...................  November 1, 1956, to December 31, 1969.     
                                         7\1/2\...................  After December 31, 1969.                    
Member for Member service..............  2\1/2\...................  August 1, 1920, to June 30, 1926.           
                                         3\1/2\...................  July 1, 1926, to June 30, 1942.             
                                         5........................  July 1, 1942, to August 1, 1946.            
                                         6........................  August 2, 1946, to October 31, 1956.        
                                         7\1/2\...................  November 1, 1956, to December 31, 1969.     
                                         8........................  After December 31, 1969.                    
Law enforcement officer for law          2\1/2\...................  August 1, 1920, to June 30, 1926.           
 enforcement service and firefighter     3\1/2\...................  July 1, 1926, to June 30, 1942.             
 for firefighter service.                                                                                       
                                         5........................  July 1, 1942, to June 30, 1948.             
                                         6........................  July 1, 1948, to October 31, 1956.          
                                         6\1/2\...................  November 1, 1956, to December 31, 1969.     
                                         7........................  January 1, 1970, to December 31, 1974.      
                                         7\1/2\...................  After December 31, 1974.                    
Bankruptcy judge.......................  2\1/2\...................  August 1, 1920, to June 30, 1926.           
                                         3\1/2\...................  July 3, 1926, to June 30, 1942.             
                                         5........................  July 1, 1942, to June 30, 1948.             
                                         6........................  July 1, 1948, to October 31, 1956.          
                                         6\1/2\...................  November 1, 1956, to December 31, 1969.     
                                         7........................  January 1, 1970, to December 31, 1983.      
                                         8........................  After December 31, 1983.                    
Judge of the United States Court of      6........................  May 5, 1950, to October 31, 1956.           
 Appeals for the Armed Forces for        6\1/2\...................  November 1, 1956, to December 31, 1969.     
 service as a judge of that court.                                                                              
                                         7........................  January 1, 1970, to (but not including) the 
                                                                     date of the enactment of the Department of 
                                                                     Defense Authorization Act, 1984.           
                                         8........................  On and after the date of the enactment of   
                                                                     the Department of Defense Authorization    
                                                                     Act, 1984.                                 
United States magistrate...............  2\1/2\...................  August 1, 1920, to June 30, 1926.           
                                         3\1/2\...................  July 1, 1926, to June 30, 1942.             
                                         5........................  July 1, 1942, to June 30, 1948.             
                                         6........................  July 1, 1948, to October 31, 1956.          
                                         6\1/2\...................  November 1, 1956, to December 31, 1969.     
                                         7........................  January 1, 1970, to September 30, 1987.     
                                         8........................  After September 30, 1987.                   
Claims Court Judge.....................  2\1/2\...................  August 1, 1920, to June 30, 1926.           
                                         3\1/2\...................  July 1, 1926, to June 30, 1942.             
                                         5........................  July 1, 1942, to June 30, 1948.             
                                         6........................  July 1, 1948, to October 31, 1956.          
                                         6\1/2\...................  November 1, 1956, to December 31, 1969.     
                                         7........................  January 1, 1970, to September 30, 1988.     
                                         8........................  After September 30, 1988.                   
                                                                                                                


Notwithstanding the preceding provisions of this subsection and 
any provision of section 206(b)(3) of the Federal Employees' 
Retirement Contribution Temporary Adjustment Act of 1983, the 
percentage of basic pay required under this subsection in the 
case of an individual described in section 8402(b)(2) shall, 
with respect to any covered service (as defined by section 
203(a)(3) of such Act) performed by such individual after 
December 31, 1983, and before January 1, 1987, be equal to 1.3 
percent, and, with respect to any such service performed after 
December 31, 1986, be equal to the amount that would have been 
deducted from the employee's basic pay under subsection (k) of 
this section if the employee's pay had been subject to that 
subsection during such period.]
  (c) Each employee or Member credited with civilian service 
after July 31, 1920, for which retirement deductions or 
deposits have not been made, may deposit with interest an 
amount equal to the following percentages of his basic pay 
received for that service:

                                                                                                                
                                         Percentage of basic pay                                                
                                                                                   Service period               
                                                                                                                
Employee...............................  2.50.....................  August 1, 1920, to June 30, 1926.           
                                         3.50.....................  July 1, 1926, to June 30, 1942.             
                                         5........................  July 1, 1942, to June 30, 1948.             
                                         6........................  July 1, 1948, to October 31, 1956.          
                                         6.50.....................  November 1, 1956, to December 31, 1969.     
                                         7........................  January 1, 1970, to December 31, 1998.      
                                         7.25.....................  January 1, 1999, to December 31, 1999.      
                                         7.40.....................  January 1, 2000, to December 31, 2000.      
                                         7.50.....................  January 1, 2001, to December 31, 2002.      
                                         7........................  After December 31, 2002.                    
Member or employee for Congressional                                                                            
 employee service......................  2.50.....................  August 1, 1920, to June 30, 1926.           
                                         3.50.....................  July 1, 1926, to June 30, 1942.             
                                         5........................  July 1, 1942, to June 30, 1948.             
                                         6........................  July 1, 1948, to October 31, 1956.          
                                         6.50.....................  November 1, 1956, to December 31, 1969.     
                                         7.50.....................  January 1, 1970, to December 31, 1998.      
                                         7.75.....................  January 1, 1999, to December 31, 1999.      
                                         7.90.....................  January 1, 2000, to December 31, 2000.      
                                         8........................  January 1, 2001, to December 31, 2002.      
                                         7.50.....................  After December 31, 2002.                    
Member for Member service..............  2.50.....................  August 1, 1920, to June 30, 1926.           
                                         3.50.....................  July 1, 1926, to June 30, 1942.             
                                         5........................  July 1, 1942, to August 1, 1946.            
                                         6........................  August 2, 1946, to October 31, 1956.        
                                         7.50.....................  November 1, 1956, to December 31, 1969.     
                                         8........................  January 1, 1970, to December 31, 1998.      
                                         8.25.....................  January 1, 1999, to December 31, 1999.      
                                         8.40.....................  January 1, 2000, to December 31, 2000.      
                                         8.50.....................  January 1, 2001, to December 31, 2002.      
                                         8........................  After December 31, 2002.                    
Law enforcement officer for law                                                                                 
 enforcement service and firefighter                                                                            
 for firefighter service...............  2.50.....................                                              
                                         3.50.....................  August 1, 1920, to June 30, 1926.           
                                                                    July 1, 1926, to June 30, 1942.             
                                         5........................  July 1, 1942, to June 30, 1948.             
                                         6........................  July 1, 1948, to October 31, 1956.          
                                         6.50.....................  November 1, 1956, to December 31, 1969.     
                                         7........................  January 1, 1970, to December 31, 1974.      
                                         7.50.....................  January 1, 1975, to December 31, 1998.      
                                         7.75.....................  January 1, 1999, to December 31, 1999.      
                                         7.90.....................  January 1, 2000, to December 31, 2000.      
                                         8........................  January 1, 2001, to December 31, 2002.      
                                         7.50.....................  After December 31, 2002.                    
Bankruptcy judge.......................  2.50.....................  August 1, 1920, to June 30, 1926.           
                                         3.50.....................  July 3, 1926, to June 30, 1942.             
                                         5........................  July 1, 1942, to June 30, 1948.             
                                         6........................  July 1, 1948, to October 31, 1956.          
                                         6.50.....................  November 1, 1956, to December 31, 1969.     
                                         7........................  January 1, 1970, to December 31, 1983.      
                                         8........................  January 1, 1984, to December 31, 1998.      
                                         8.25.....................  January 1, 1999, to December 31, 1999.      
                                         8.40.....................  January 1, 2000, to December 31, 2000.      
                                         8.50.....................  January 1, 2001, to December 31, 2002.      
                                         8........................  After December 31, 2002.                    
Judge of the United States Court of                                                                             
 Appeals for the Armed Forces for                                                                               
 service as a judge of that court......  6........................                                              
                                         6.50.....................  May 5, 1950, to October 31, 1956.           
                                                                    November 1, 1956, to December 31, 1969.     
                                         7........................  January 1, 1970, to (but not including) the 
                                                                     date of the enactment of the Department of 
                                                                     Defense Authorization Act, 1984.           
                                         8........................  The date of the enactment of the Department 
                                                                     of Defense Authorization Act, 1984, to     
                                                                     December 31, 1998.                         
                                         8.25.....................  January 1, 1999, to December 31, 1999.      
                                         8.40.....................  January 1, 2000, to December 31, 2000.      
                                         8.50.....................  January 1, 2001, to December 31, 2002.      
                                         8........................  After December 31, 2002.                    
United States magistrate...............  2.50.....................  August 1, 1920, to June 30, 1926.           
                                         3.50.....................  July 1, 1926, to June 30, 1942.             
                                         5........................  July 1, 1942, to June 30, 1948.             
                                         6........................  July 1, 1948, to October 31, 1956.          
                                         6.50.....................  November 1, 1956, to December 31, 1969.     
                                         7........................  January 1, 1970, to September 30, 1987.     
                                         8........................  October 1, 1987, to December 31, 1998.      
                                         8.25.....................  January 1, 1999, to December 31, 1999.      
                                         8.40.....................  January 1, 2000, to December 31, 2000.      
                                         8.50.....................  January 1, 2001, to December 31, 2002.      
                                         8........................  After December 31, 2002.                    
Claims Court Judge.....................  2.50.....................  August 1, 1920, to June 30, 1926.           
                                         3.50.....................  July 1, 1926, to June 30, 1942.             
                                         5........................  July 1, 1942, to June 30, 1948.             
                                         6........................  July 1, 1948, to October 31, 1956.          
                                         6.50.....................  November 1, 1956, to December 31, 1969.     
                                         7........................  January 1, 1970, to September 30, 1988.     
                                         8........................  October 1, 1988, to December 31, 1998.      
                                         8.25.....................  January 1, 1999, to December 31, 1999.      
                                         8.40.....................  January 1, 2000, to December 31, 2000.      
                                         8.50.....................  January 1, 2001, to December 31, 2002.      
                                         8........................  After December 31, 2002.                    
                                                                                                                

      
Notwithstanding the preceding provisions of this subsection and 
any provision of section 206(b)(3) of the Federal Employees' 
Retirement Contribution Temporary Adjustment Act of 1983, the 
percentage of basic pay required under this subsection in the 
case of an individual described in section 8402(b)(2) shall, 
with respect to any covered service (as defined by section 
203(a)(3) of such Act) performed by such individual after 
December 31, 1983, and before January 1, 1987, be equal to 1.3 
percent, and, with respect to any such service performed after 
December 31, 1986, be equal to the amount that would have been 
deducted from the employee's basic pay under subsection (k) of 
this section if the employee's pay had been subject to that 
subsection during such period.
          * * * * * * *
  (j)(1)(A) Except as provided in subparagraph (B), and subject 
to paragraph (5), each employee or Member who has performed 
military service before the date of the separation on which the 
entitlement to any annuity under this subchapter is based may 
pay, in accordance with such regulations as the Office shall 
issue, to theagency by which the employee is employed, or, in 
the case of a Member or a Congressional employee, to the Secretary of 
the Senate or the Chief Administrative Officer of the House of 
Representatives, as appropriate, an amount equal to 7 percent of the 
amount of the basic pay paid under section 204 of title 37 to the 
employee or Member for each period of military service after December 
1956. The amount of such payments shall be based on such evidence of 
basic pay for military service as the employee or Member may provide, 
or if the Office determines sufficient evidence has not been so 
provided to adequately determine basic pay for military service, such 
payment shall be based upon estimates of such basic pay provided to the 
Office under paragraph (4).
          * * * * * * *
  (5) Effective with respect to any period of military service 
performed after December 31, 1998, and before January 1, 2003, 
the percentage of basic pay under section 204 of title 37 
payable under paragraph (1) shall be equal to the same 
percentage as would be applicable under section 8334(c) for 
that same period for service as an ``employee'', subject to 
paragraph (1)(B).
          * * * * * * *
  (l)(1) Each employee or Member who has performed service as a 
volunteer or volunteer leader under part A of title VIII of the 
Economic Opportunity Act of 1964, as a full-time volunteer 
enrolled in a program of at least 1 year's duration under part 
A, B, or C of title I of the Domestic Volunteer Service Act of 
1973, or as a volunteer or volunteer leader under the Peace 
Corps Act before the date of the separation on which the 
entitlement to any annuity under this subchapter is based may 
pay, in accordance with such regulations as the Office of 
Personnel Management shall issue, an amount equal to 7 percent 
of the readjustment allowance paid to the employee or Member 
under title VIII of the Economic Opportunity Act of 1964 or 
section 5(c) or 6(1) of the Peace Corps Act or the stipend paid 
to the employee or Member under part A, B, or C of title I of 
the Domestic Volunteer Service Act of 1973, for each period of 
service as such a volunteer or volunteer leader[.], subject to 
paragraph (4).
          * * * * * * *
  (4) Effective with respect to any period of service as a 
volunteer or volunteer leader performed after December 31, 
1998, and before January 1, 2003, the percentage of the 
readjustment allowance or stipend (as the case may be) payable 
under paragraph (1) shall be equal to the same percentage as 
would be applicable under section 8334(c) for that same period 
for service as an ``employee''.
  (m)(1) This subsection shall govern for purposes of 
determining the amount to be contributed under the second 
sentence of subsection (a)(1) with respect to any service--
          (A) which is performed after September 30, 1997, and 
        before January 1, 2003; and
          (B) as to which a contribution under such sentence 
        would otherwise be payable.
  (2) The amount of the contribution required under the second 
sentence of subsection (a)(1) with respect to any service 
described in paragraph (1) shall (instead of the amount which 
would otherwise apply under such sentence) be equal to the 
amount of basic pay received for such service by the employee 
or Member involved, multiplied by the percentage under 
paragraph (3).
  (3)(A) The percentage under this paragraph is, with respect 
to any service, equal to the sum of--
          (i) the percentage which would have been applicable 
        under subsection (c), with respect to such service, if 
        it had been performed in fiscal year 1997, plus
          (ii) the applicable percentage under subparagraph 
        (B).
  (B) The applicable percentage under this subparagraph is, 
with respect to service performed--
          (i) after September 30, 1997, and before October 1, 
        2002, 1.51 percent; or
          (ii) after September 30, 2002, and before January 1, 
        2003, 0 percent.
  (4) An amount determined under this subsection with respect 
to any period of service shall, for purposes of subsection 
(k)(1)(B) (and any other provision of law which similarly 
refers to contributions under the second sentence of subsection 
(a)(1)), be treated as the amount required under such sentence 
with respect to such service.
  (5)(A) Notwithstanding paragraphs (1) through (4), the amount 
to be contributed by the Postal Service by reason of the second 
sentence of subsection (a)(1) with respect to any service 
performed by an officer or employee of the Postal Service 
during the period described in subparagraph (A) of paragraph 
(1) shall be determined as if section 6101 of the Balanced 
Budget Act of 1997 had never been enacted.
  (B) For purposes of this paragraph, the term ``Postal 
Service'' means the United States Postal Service and the Postal 
Rate Commission.
          * * * * * * *

            CHAPTER 84--FEDERAL EMPLOYEES' RETIREMENT SYSTEM

          * * * * * * *

                      SUBCHAPTER II--BASIC ANNUITY

          * * * * * * *

Sec. 8422. Deductions from pay; contributions for military service

  (a)(1) The employing agency shall deduct and withhold from 
basic pay of each employee and Member a percentage of basic pay 
determined in accordance with [paragraph (2).] paragraph (2) or 
(3), as applicable.
  (2) [The applicable] Subject to paragraph (3), the applicable 
percentage under this subsection for any pay period shall be--
          (A) * * *
          * * * * * * *
  (3)(A) The applicable percentage under this subsection shall, 
for purposes of service performed after December 31, 1998, and 
before January 1, 2003, be equal to--
          (i) the applicable percentage under subparagraph (B), 
        minus
          (ii) the percentage then in effect under section 
        3101(a) of the Internal Revenue Code of 1986 (relating 
        to rate of tax for old-age, survivors, and disability 
        insurance).
  (B) The applicable percentage under this subparagraph shall 
be as follows:

                                                                                                                
                                         Percentage of basic pay                                                
                                                                                   Service period               
                                                                                                                
Employee...............................  7.25.....................  January 1, 1999, to December 31, 1999.      
                                         7.40.....................  January 1, 2000, to December 31, 2000.      
                                         7.50.....................  January 1, 2001, to December 31, 2002.      
Congressional employee.................  7.75.....................  January 1, 1999, to December 31, 1999.      
                                         7.90.....................  January 1, 2000, to December 31, 2000.      
                                         8........................  January 1, 2001, to December 31, 2002.      
Member.................................  7.75.....................  January 1, 1999, to December 31, 1999.      
                                         7.90.....................  January 1, 2000, to December 31, 2000.      
                                         8........................  January 1, 2001, to December 31, 2002.      
Law enforcement officer................  7.75.....................  January 1, 1999, to December 31, 1999.      
                                         7.90.....................  January 1, 2000, to December 31, 2000.      
                                         8........................  January 1, 2001, to December 31, 2002.      
Firefighter............................  7.75.....................  January 1, 1999, to December 31, 1999.      
                                         7.90.....................  January 1, 2000, to December 31, 2000.      
                                         8........................  January 1, 2001, to December 31, 2002.      
Air traffic controller.................  7.75.....................  January 1, 1999, to December 31, 1999.      
                                         7.90.....................  January 1, 2000, to December 31, 2000.      
                                         8........................  January 1, 2001, to December 31, 2002.      
                                                                                                                

      
          * * * * * * *
  (e)(1)(A) Except as provided in subparagraph (B), and subject 
to paragraph (5), each employee or Member who has performed 
military service before the date of the separation on which the 
entitlement to any annuity under this subchapter, or subchapter 
V of this chapter, is based may pay, in accordance with such 
regulations as the Office shall issue, to the agency by which 
the employee is employed, or, in the case of a Member or a 
Congressional employee, to the Secretary of the Senate or the 
Chief Administrative Officer of the House of Representatives, 
as appropriate, an amount equal to 3 percent of the amount of 
the basic pay paid under section 204 of title 37 to the 
employee or Member for each period of military service after 
December 1956. The amount of such payments shall be based on 
such evidence of basic pay for military service as the employee 
or Member may provide, or if the Office determines sufficient 
evidence has not been so provided to adequately determine basic 
pay for military service, such payment shall be based on 
estimates of such basic pay provided to the Office under 
paragraph (4).
          * * * * * * *
  (5) Effective with respect to any period of military service 
performed after December 31, 1998, and before January 1, 2003, 
the percentage of basic pay under section 204 of title 37 
payable under paragraph (1) shall be equal to the sum of the 
percentage specified in paragraph (1), plus--
          (A) .25 percent, if performed after December 31, 
        1998, and before January 1, 2000;
          (B) .40 percent, if performed after December 31, 
        1999, and before January 1, 2001;
          (C) .50 percent, if performed after December 31, 
        2000, and before January 1, 2003.
  (f)(1) Each employee or Member who has performed service as a 
volunteer or volunteer leader under part A of title VIII of the 
Economic Opportunity Act of 1964, as a full-time volunteer 
enrolled in a program of at least 1 year's duration under part 
A, B, or C of title I of the Domestic Volunteer Service Act of 
1973, or as a volunteer or volunteer leader under the Peace 
Corps Act before the date of the separation on which the 
entitlement to any annuity under this subchapter, or subchapter 
V of this chapter, is based may pay, in accordance with such 
regulations as the Office of Personnel Management shall issue, 
an amount equal to 3 percent of the readjustment allowance paid 
to the employee or Member under title VIII of the Economic 
Opportunity Service Act of 1964 or section 5(c) or 6(1) of the 
Peace Corps Act or the stipend paid to the employee or Member 
under part A, B, or C of title I of the Domestic Volunteer 
Service Act of 1973, for each period of service as such a 
volunteer or volunteer leader[.], subject to paragraph (4).
          * * * * * * *
  (4) Effective with respect to any period of service as a 
volunteer or volunteer leader performed after December 31, 
1998, and before January 1, 2003, the percentage of the 
readjustment allowance or stipend (as the case may be) payable 
under paragraph (1) shall be equal to the sum of the percentage 
specified in paragraph (1), plus--
          (A) .25 percent, if performed after December 31, 
        1998, and before January 1, 2000;
          (B) .40 percent, if performed after December 31, 
        1999, and before January 1, 2001;
          (C) .50 percent, if performed after December 31, 
        2000, and before January 1, 2003.
          * * * * * * *

Sec. 8423. Government contributions

  (a)(1) [Each] Subject to subjection (d), each employing 
agency having any employees or Members subject to section 
8422(a) shall contribute to the Fund an amount equal to the sum 
of--
          (A) * * *
          * * * * * * *
  (d)(1) This subsection shall govern for purposes of 
determining the amount to be contributed by an employing agency 
for any period (or portion thereof)--
          (A) which occurs after September 30, 1997, and before 
        January 1, 2003; and
          (B) as to which a contribution under subsection (a) 
        would otherwise be payable by such agency.
  (2) The amount of the contribution required under subsection 
(a) with respect to any period (or portion thereof) described 
in paragraph (1) shall (instead of the amount which would 
otherwise apply) be equal to the amount which would be required 
under subsection (a) if section 6102(a) of the Balanced Budget 
Act of 1997 had never been enacted.
          * * * * * * *

                      CHAPTER 89--HEALTH INSURANCE

          * * * * * * *

Sec. 8906. Contributions

  [(a) The Office of Personnel Management shall determine the 
average of the subscription charges in effect on the beginning 
date of each contract year with respect to self alone or self 
and family enrollments under this chapter, as applicable, for 
the highest level of benefits offered by--
          [(1) the service benefit plan;
          [(2) the indemnity benefit plan;
          [(3) the two employee organization plans with the 
        largest number of enrollments, as determined by the 
        Office; and
          (4) the two comprehensive medical plans with the 
        largest number of enrollments, as determined by the 
        Office.
  [(b)(1) Except as provided by paragraphs (2) and (3) of this 
subsection, the biweekly Government contribution for health 
benefits for an employee or annuitant enrolled in a health 
benefits plan under this chapter is adjusted to an amount equal 
to 60 percent of the average subscription charge determined 
under subsection (a) of this section. For an employee, the 
adjustment begins on the first day of the employee's first pay 
period of each year. For an annuitant, the adjustment begins on 
the first day of the first period of each year for which an 
annuity payment is made.]
  (a)(1) The Office of Personnel Management shall, not later 
than October 1 of each year, determine the weighted average of 
the subscription charges that will be in effect during the 
following contract year with respect to--
          (A) enrollments under this chapter for self alone; 
        and
          (B) enrollments under this chapter for self and 
        family.
  (2) In determining each weighted average under paragraph (1), 
the weight to be given to a particular subscription charge 
shall, with respect to each plan (and option) to which it is to 
apply, be commensurate with the number of enrollees enrolled in 
such plan (and option) as of March 31 of the year in which the 
determination is being made.
  (3) For purposes of paragraph (2), the term `enrollee' means 
any individual who, during the contract year for which the 
weighted average is to be used under this section, will be 
eligible for a Government contribution for health benefits.
  (b)(1) Except as provided in paragraphs (2) and (3), the 
biweekly Government contribution for health benefits for an 
employee or annuitant enrolled in a health benefits plan under 
this chapter is adjusted to an amount equal to 72 percent of 
the weighted average under subsection (a)(1) (A) or (B), as 
applicable. For an employee, the adjustment begins on the first 
day of the employee's first pay period of each year. For an 
annuitant, the adjustment begins on the first day of the first 
period of each year for which an annuity payment is made.
          * * * * * * *

         XI. Congressional Accountability Act: Public Law 104-1

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act (P.L. 104-1).

                          XII. Budget Analysis

    Pursuant to rule XI, clause 2(l)(3)(B), and Section 
308(a)(1) of the Congressional Budget Act of 1974, the 
Committee finds that no new budget authority, new spending 
authority, new credit authority or an increase or decrease in 
revenues or tax expenditures results from enactment of this 
legislation.

   XIII. Unfunded Mandates Reform Act; Public Law 104-4, Section 423

    The committee finds that the legislation does not impose 
any Federal mandates within the meaning of section 423 of the 
Unfunded Mandates Reform Act (P.L. 104-4).

                             XIV. Appendix

                                     America's Postmasters,
                                                      June 8, 1997.
Hon. Dan Burton,
Chairman, Committee on Government Reform and Oversight, Washington, DC.
    Dear Chairman Burton: As the elected representatives of 
America's Postmasters, we would like to make clear our position 
on the federal budget resolution as it affects our members and 
all postal and federal employees. Singling out federal civil 
servants and reducing their incomes for the purpose of 
balancing the budget is ``unfair'' and ``discriminatory'' and 
we oppose this tactic.
    However, we wish to commend Chairman Mica for recognizing 
that since 1974 the U.S. Postal Service has paid enormous 
amounts of revenue into the U.S. Treasury in order to fully 
fund the retirements of its employees. These payments were 
required by the OBRAs of 1974, 1987, 1989, 1990 and 1993. The 
amount paid as a result of these OBRAs combined with ongoing 
contributions by USPS and its employees fully funds the costs 
of postal retirement. Therefore, we support Chairman Mica's 
plan to prevent additional raids on Postal Service employees.
    Unfortunately, past Congresses have turned to all federal 
civil servants, time and time again, as a source of ready funds 
to balance the budget. We do not need to recount the history 
for you. As you know, the figures are mind-boggling.
    We were led to believe that the leadership which was 
ushered in after the Congressional upheaval and transition of 
power in 1995 would look for new ways to do things. We urge you 
to recognize the value and worth of the federal workforce as it 
serves this country everyday. Don't tap into their income 
again.
    Thank you for your time and your consideration of our 
requests. We look forward to continuing to work with you in 
resolving these problems.
            Sincerely,
                                   William P. Brennan,
                                           President, National League 
                                               of Postmasters of the 
                                               U.S.
                                   Hugh Bates,
                                           President, National 
                                               Association of 
                                               Postmasters of the U.S.
                                ------                                

                                     America's Postmasters,
                                                     June 10, 1997.
Members of the Full Committee,
Committee on Government Reform and Oversight, House of Representatives, 
        Washington, DC.
    To All Members: As the elected representatives of America's 
Postmasters, we wish to state our support of Rep. Pete 
Session's amendment to the budget resolution which would 
prevent additional raids on Postal Service employees as a means 
to balance the budget. This amendment will be offered to the 
full Committee on Wednesday, June 11, and we ask you to support 
it.
    We commend Rep. Sessions and Subcommittee Chairman John 
Mica for recognizing that since 1974 the U.S. Postal Service 
has paid enormous amounts of revenue into the U.S. Treasury in 
order to fully fund the retirements of its employees. These 
payments were required by P.L. 93-349 and the OBRAs of 1987, 
1989, 1990 and 1993. The amount paid as a result of these OBRAs 
combined with ongoing contributions by USPS and its employees 
fully funds the costs of postal retirement.
    Unfortunately, past Congresses have turned to all federal 
civil servants, time and time again, as a source of ready funds 
to balance the budget. In defense of our fellow civil servants, 
we oppose tapping their income even one more time.
    At this time, Rep. Session's amendment is a step in the 
right direction. Again, we ask you to give it your full 
support.
    Thank you for your time and your consideration of our 
requests. We look forward to continuing to work with you in 
resolving these problems.
            Sincerely,
                                   William P. Brennan,
                                           President, National League 
                                               of Postmasters of the 
                                               U.S.
                                   Hugh Bates,
                                           President, National 
                                               Association of 
                                               Postmasters of the U.S.
                          House of Representatives,
            Committee on Transportation and Infrastructure,
                                     Washington, DC, June 13, 1997.
Hon. John R. Kasich,
Chairman, Committee on the Budget,
Washington, DC.
    Dear Mr. Chairman: On June 11, 1997, the Committee on 
Transportation and Infrastructure approved, by voice vote, 
recommendations for budget reconciliation. The accompanying 
legislation and report language serves as the Transportation 
and Infrastructure Committee's submission for both 
reconciliation bills provided for in the conference report on 
the Budget Resolution.
    The Congressional Budget Office (CBO) has advised the 
Committee that these recommendations will score as saving $736 
million in mandatory outlays over the next five fiscal years 
and meet all of the reconciliation instructions given to the 
Committee. CBO was unable to produce a written cost estimate 
prior to this transmittal. It is our understanding that CBO 
will be sending the cost estimate directly to the Budget 
Committee.
    With warm personal regards, I remain
            Sincerely,
                                             Bud Shuster, Chairman.

       TITLE VII: COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

                          Purpose and Summary

Sec. 7001. Extension of higher Vessel Tonnage Duties
    This provision maintains the current level of vessel 
tonnage duties through fiscal year 2002.
    The United States imposes a tonnage duty on a vessel which 
enters the U.S. from any port or place. The duty is also 
imposed on a vessel which departs from and returns to a U.S. 
port or place on a ``voyage to nowhere''.
    The tonnage duty is imposed on the cargo-carrying capacity 
of the vessel and is assessed regardless of whether the vessel 
is empty or is carrying cargo.
    A vessel arriving from a foreign port in the northern 
Western Hemisphere (Canada, Mexico, Central America, West 
Indies, Bahamas, Bermuda, and northern South America) and a 
vessel returning from a ``voyage to nowhere'' must pay a 
tonnage duty of nine cents per ton. However, the maximum 
payment for any vessel in a single year is 45 cents per ton.
    A vessel arriving from a foreign port anywhere else in the 
world must pay a tonnage duty of 27 cents per ton, not to 
exceed $1.35 per ton in a single year.
    Under current law, after fiscal year 1998, the tonnage 
duties will revert to earlier, lesser amounts (two cents per 
ton, not to exceed ten cents per ton in a single year for 
vessels entering from the northern Western Hemisphere and from 
``voyages to nowhere''; six cents per ton, not to exceed 30 
cents per ton for other vessels subject to the duty).
Sec. 7002. Sale of Governors Island, New York
    This section requires the Administrator of the General 
Services Administration to sell Governors Island, New York, at 
fair market value. The section waives all provisions of the 
Federal Property and Administrative Services Act, as amended, 
and gives the State of New York and the City of New York a 
right of first refusal to purchase the property. The proceeds 
of the sale will be deposited in the miscellaneous account of 
the U.S. Treasury.
    Governors Island is located in New York Harbor, south of 
Manhattan and west of Brooklyn. It houses the largest Coast 
Guard facility in the world, Support Center New York, which 
provides support for commands stationed on the island. The 172-
acre island is surrounded by a seawall and is reached by ferry 
from Manhattan.
    The Coast Guard must reduce its operating costs by $400 
million by the end of this fiscal year. To reach that goal, the 
Coast Guard has implemented a streamlining plan that includes a 
closure and relocation of the Coast Guard facilities on 
Governors Island.
    This summer, the Coast Guard will complete the relocation 
of Coast Guard facilities from Governors Island to new 
locations.

Sec. 7003. Sale of Union Station Air Rights

    This provision directs the sale of air rights over the 
train tracks at Union Station, Washington, D.C. These air 
rights cover approximately 16.5 acres and are bounded by Union 
Station on the south, 2nd Street NE on the east, K 
Street NE on the north and 1st Street NE on the 
west. The provision would direct the General Services 
Administration, notwithstanding any other provision of law, to 
sell these air rights, at fair market value, in a manner to be 
determined, with proceeds to be deposited prior to September 
30, 2002 in the general fund of the Treasury and credited as 
miscellaneous accounts. The air rights are a combination of the 
Department of Transportation and AMTRAK air rights. The 
provision calls for the transfer of AMTRAK air rights to the 
DOT without compensation to AMTRAK, then GSA would sell the air 
rights. It is estimated that the air rights would support the 
development of 2.8 million square feet of office space, plus 
parking for 1,500 cars.
    In 1992 the General Services Administration contracted for 
an appraisal of these air rights, and concluded that the value, 
net of construction of any supporting structure over the train 
tracks, was $50 million. However, the Congressional Budget 
Office, in scoring the proposed sale, assigned a value of $40 
million. Furthermore, CBO estimated that GSA would require 
about 18 months to effectively market and sell the air rights, 
which would include updating the appraisal, and any buyer would 
require some preliminary determination on zoning the property 
for future development. The proposal language would provide GSA 
ample time to market the air rights and secure a top offer.

                                Hearings

    The Committee did not conduct any hearings on the matters 
contained in this title. All three provisions were included, in 
nearly identical form, in the reconciliation title considered 
and approved by the committee last Congress.

                      Section-by-Section Analysis

Sec. 7001. Extension of higher tonnage duties

    This section maintains the current level of vessel tonnage 
duties through fiscal year 2002, consistent with the 
reconciliation instructions the committee received from the 
Budget Committee.
    A vessel arriving from a foreign port in the northern 
Western Hemisphere (Canada, Mexico, Central America, West 
Indies, Bahamas, Bermuda, and northern South America) and a 
vessel returning from a ``voyage to nowhere'' must pay a 
tonnage duty of 9 cents per ton. However, the maximum payment 
for any vessel in a single year is 45 cents per ton. A vessel 
arriving from a foreign port anywhere else in the world must 
pay a tonnage duty of 27 cents per ton, not to exceed $1.35 per 
ton in a single year.

Sec. 7002. Sale of Governors Island, NY

    This section requires the Administrator of the General 
Services Administration to sell Governors Island, NY, at fair 
market value. The section waives all provisions of the Federal 
Property and Administrative Services Act, as amended, and gives 
the State of New York and the city of New York a right to first 
refusal to purchase the property. The proceeds of the sale will 
be deposited in the miscellaneous account of the U.S. Treasury.

Sec. 7003. Sale of air rights

    This section directs the Administrator of the General 
Services Administration to sell approximately 16.5 acres of air 
rights adjacent to Washington, D.C., Union Station at fair 
market value in a manner determined by the Administrator.

   Changes in Existing Law Made by Title VII of 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):

                SECTION 36 OF THE ACT OF AUGUST 5, 1909

CHAP. 6.--An Act to provide revenue, equalize duties and encourage the 
        industries of the United States, and for other purposes.

  Sec. 36. That a tonnage duty of 9 cents per ton, not to 
exceed in the aggregate 45 cents per ton in any one year, [for 
fiscal years 1991, 1992, 1993, 1994, 1995, 1996, 1997, 1998,] 
for fiscal years through fiscal year 2002, and 2 cents per ton, 
not to exceed in the aggregate 10 cents per ton in any one 
year, for each fiscal year thereafter is hereby imposed at each 
entry on all vessels which shall be entered in any port of the 
United States from any foreign port or place in North America, 
Central America, the West India Islands, the Bahama Islands, 
the Bermuda Islands, or the coast of South America bordering on 
the Caribbean Sea, or Newfoundland, and on all vessels (except 
vessels of the United States, recreational vessels, and barges, 
as those terms are defined in section 2101 of title 46, United 
States Code) that depart a United States port or place and 
return to the same port or place without being entered in the 
United States from another port or place; and a duty of 27 
cents per ton, not to exceed $1.35 per ton per annum, [for 
fiscal years 1991, 1992, 1993, 1994, 1995, 1996, 1997, 1998,] 
for fiscal years through fiscal year 2002, and 6 cents per ton, 
not to exceed 30 cents per ton per annum, for each fiscal year 
thereafter is hereby imposed at each entry on all vessels which 
shall be entered in any port of the United States from any 
other foreign port. However, neither duty shall be imposed on 
vessels in distress or not engaged in trade.
          * * * * * * *
                              ----------                              


                          ACT OF MARCH 8, 1910

CHAP. 86.--An Act Concerning tonnage on vessels entering otherwise than 
                                by sea.

  Be it enacted by the Senate and House of Representatives of 
the United States of America in Congress assembled, That 
vessels entering otherwise than by sea from a foreign port at 
which tonnage or light-house dues or other equivalent tax or 
taxes are not imposed on vessels of the United States shall be 
exempt from the tonnage duty of 9 cents per ton, not to exceed 
in the aggregate 45 cents per ton in any one year, [for fiscal 
years 1991, 1992, 1993, 1994, 1995, 1996, 1997, and 1998,] for 
fiscal years through fiscal year 2002, and 2 cents per ton, not 
to exceed in the aggregate 10 cents per ton in any one year, 
for each fiscal year thereafter prescribed by section thirty-
six of the Act approved August fifth, nineteen hundred and 
nine, entitled ``An Act to provide revenue, equalize duties, 
and encourage the industries of the United States, and for 
other purposes.''

                       Summary of Committee Votes

    The Committee on Transportation and Infrastructure held a 
full committee markup on June 11, 1997. The committee print was 
adopted by voice vote.

                           CBO Cost Estimate

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 16, 1997.
Hon. Bud Shuster,
Chairman, Committee on Transportation and Infrastructure, House of 
        Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for the reconciliation 
recommendations of the House Committee on Transportation and 
Infrastructure.
    The estimate identifies the budgetary effects of the 
committee's proposals over the 1998-2007 period. CBO 
understands that the Committee on the Budget will be 
responsible for interpreting how these proposals compare with 
the reconciliation instructions in the budget resolution. This 
estimate assumes the reconciliation bill will be enacted by 
August 15, 1997.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Deborah 
Reis (for vessel tonnage duties and Governors Island) and Clare 
Doherty (for Union Station air rights).
            Sincerely,
                                         June E. O'Neill, Director.
    Enclosure.

Reconciliation Recommendations of the House Committee on Transportation 
        and Infrastructure (Title VII)

    Summary: CBO estimates that the provisions of this title 
would reduce the deficit by $736 million over the 1998-2002 
period by extending previously enacted increases in vessel 
tonnage duties and providing for the sale of certain federal 
assets. Implementing this title would result in additional 
discretionary spending of about $40 million over the same 
period, assuming appropriation of the necessary amounts. This 
title contains no intergovernmental mandates as defined in the 
Unfunded Mandates Reform Act of 1995 (UMRA) and would impose no 
costs on state, local, or tribal governments. The title would 
extend an expiring private-sector mandate on owners or 
operators of vessels that enter U.S. ports. It is unclear to 
CBO whether extension of an expiring mandate would impose new 
direct costs, as defined by UMRA, on the private sector. In any 
case, such costs would not exceed the $100 million threshold 
specified in UMRA.
    Estimated cost to the Federal Government: CBO estimates 
that the provisions of Title VII would reduce direct spending 
by $196 million over the 1998-2002 period. We estimate that the 
title also would result in proceeds from asset sales totaling 
$540 million in 2002. In addition, we estimate that 
implementing section 7002 would necessitate discretionary 
spending of about $40 million over the 1999-2002 period for 
continued maintenance of governors Island prior to its mandated 
sale in 2002. None of these provisions would affect the federal 
budget after 2002; hence, their estimated impact on the budget 
over 10 years is identical to the impact estimated for the 
first five years. CBO's estimate of the budgetary effects of 
this legislation is shown in the following table.

  ESTIMATED BUDGETARY IMPACT OF THE RECONCILIATION RECOMMENDATIONS OF THE HOUSE COMMITTEE ON TRANSPORTATION AND 
                                                 INFRASTRUCTURE                                                 
                                    [By fiscal year, in millions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                                              1997     1998     1999     2000     2001     2002 
----------------------------------------------------------------------------------------------------------------
                                                 DIRECT SPENDING                                                
                                                                                                                
Vessel Tonnage Fees Under Current Law: \1\                                                                      
    Estimated Budget Authority............................      -49      -49        0        0        0        0
    Estimated Outlays.....................................      -49      -49        0        0        0        0
Proposed Changes:                                                                                               
    Estimated Budget Authority............................        0        0      -49      -49      -49      -49
    Estimated Outlays.....................................        0        0      -49      -49      -49      -49
Vessel Tonnage Fees Under Proposal:                                                                             
    Estimated Budget Authority............................      -49      -49      -49      -49      -49      -49
    Estimated Outlays.....................................      -49      -49      -49      -49      -49      -49
                                                                                                                
                                          RECEIPTS FROM ASSET SALES \2\                                         
                                                                                                                
    Estimated Budget Authority............................        0        0        0        0        0     -540
    Estimated Outlays.....................................        0        0        0        0        0     -540
                                                                                                                
                                  ADDITIONAL SPENDING SUBJECT TO APPROPRIATION                                  
                                                                                                                
    Estimated Authorization Level.........................        0        0       10       10       10       10
    Estimated Outlays.....................................        0        0       10       10       10       10
----------------------------------------------------------------------------------------------------------------
\1\ These amounts represent proceeds from the increase in tonnage fees originally mandated in the Omnibus Budget
  Reconciliation Act of 1990, which are recorded in the budget as offsetting receipts. The tonnage fees that    
  were established prior to that time (and that are still in effect) are recoreded as governmental receipts     
  (i.e., revenues): the proceeds from those fees (about $15 million a year) are not included in this table.     
\2\ Based on critieria established in the 1998 budget resolution, CBO has determined that proceeds from the     
  asset sales in this bill should be counted in the budget totals for purposes of Congressional scoring. Under  
  the Balanced Budget Act, however, proceeds from asset sales are not counted in determining compliance with the
  discretionary spending limits or pay-as-you-go requirement.                                                   

    The effects of this legislation fall within budget 
functions 400 (transportation), 800 (general government), and 
950 (undistributed offsetting receipts).
    Basis of estimate: For purposes of this estimate, CBO 
assumes that the asset sales mandated by this title will take 
place as specified in the legislation and that any amounts 
estimated to be necessary for interim maintenance of these 
assets will be appropriated.
            Vessel tonnage duties
    Section 7001 would extend, through fiscal year 2002, the 
increase in vessel tonnage duties that was enacted (and 
subsequently extended) in two earlier reconciliation acts. 
These earlier acts increased per-ton duties from $0.02 to $0.09 
(up to a maximum of $0.45 per ton per year) on vessels entering 
the United States from western hemisphere foreign ports and 
from $0.06 to $0.27 (up to a maximum annual duty of $1.35 per 
ton) on those arriving from other foreign ports. As specified 
in the earlier acts, the additional amounts collected would be 
deposited into the general fund as offsetting receipts. Based 
on the current levels of shipping traffic at U.S. ports, CBO 
estimates that the enactment of this section would increase 
offsetting receipts by $49 million in each of fiscal years 1999 
through 2002.
            Sale of Governors Island, New York
    Section 7002 would direct the General Services 
Administration (GSA) to sell at fair market value all federal 
land and other property located on Governors Island in New York 
Harbor. The bill would grant New York City and the state of New 
York a right of first refusal to purchase all or part of the 
island. Proceeds from the sale would be deposited in the 
general fund of the U.S. Treasury as miscellaneous receipts. 
Based on information obtained from local agencies, GSA, and 
others, CBO estimates that selling the 172-acre island would 
generate offsetting receipts of about $500 million. Because the 
bill would prohibit the sale of this property before fiscal 
year 2002, we estimate that the $500 million would be deposited 
into the Treasury in that year. We estimate that until then the 
federal government would spend about $10 million annually to 
maintain the island, assuming appropriation of the necessary 
amounts. Such costs would be incurred under current law in 
1998, but the costs for continued maintenance after 1998 are 
not likely to occur in the absence of this legislation.
    Until recently, Governors Island was used by the U.S. Coast 
Guard as a major command center. That agency is in the process 
of closing the facility. Current plans call for relocation and 
certain restoration activities to be completed by the end of 
1998. Disposition of the site under existing law is uncertain 
and could include transfers to other federal agencies, 
conveyances at no cost to nonfederal agencies for public 
benefit uses, donations to nonprofit groups for homeless 
shelters, or sale. (Disposal of the island may not be possible 
without Congressional approval.) In any event, CBO believes 
that the federal government would realize little or no money 
from disposal of the island in the absence of legislation. 
Enacting section 7002 would ensure that the island would be 
sold rather than given away or retained by the federal 
government.
    The value of Governors Island cannot be determined 
precisely in the absence of formal appraisals, which have not 
yet been conducted. Based on available information, we estimate 
that sale of this asset would generate about $500 million. The 
proceeds would depend on whether disposal would occur in one 
transaction or as a combination of partial sales and on a 
variety of other factors, including future economic conditions 
and local zoning decisions. Thus, the government could receive 
considerably less than $500 million or as much as $1 billion. 
Moreover, conditions that might be imposed on the sale by 
federal agencies could delay or prevent any sale from taking 
place, as could expectations of restrictive zoning 
requirements.
    Finally, until the island is sold, GSA and the Coast Guard 
would have to maintain the property and provide for security, 
transportation, and utilities. Based on information provided by 
the affected agencies and assuming appropriation of the 
necessary amounts, we estimate that costs for these purposes 
would total about $10 million annually, beginning in 1999.
            Union Station air rights
    Section 7003 would compel Amtrak to convey the air rights 
that it owns behind the District of Columbia's Union Station to 
the Administrator of the General Services Administration. The 
Administrator would then be required to sell these air rights 
and other air rights that the federal government owns behind 
Union Station.
    CBO estimates that selling the 16.5 acres of air rights 
would yield $40 million in asset sale receipts in fiscal year 
2002. This estimate assumes that Amtrak would convey its air 
rights to the federal government so they can be sold. If Amtrak 
does not convey the air rights on or before December 31, 1997, 
the bill would prohibit Amtrak from obligating any of its 
federal grant money after March 1, 1998.
    Estimated impact on State, local, and tribal governments: 
Title VII contains no intergovernmental mandates as defined in 
UMRA and would impose no costs on state, local, or tribal 
governments.
    The bill provides the city and state of New York the right 
of first refusal in the purchase of Governors Island. Should 
either entity, or the two in partnership, choose to acquire the 
property in whole, CBO estimates that it would cost them 
approximately $500 million.
    Estimated impact on the private sector: Section 7001 would 
impose a mandate on the private sector by extending the current 
vessel tonnage duty. CBO estimates that the direct costs of 
this mandate would not exceed the annual $100 million threshold 
specified in UMRA.
    Under current law, the duty imposed on both domestic and 
foreign vessel owners at U.S. ports expires the end of the 
fiscal year 1998. At the time of expiration, this duty would 
revert to a prior lower amount. This bill would extend the 
current duty through fiscal year 2002.
    The direct cost of this mandate would depend on what base 
case is used. Measured against the private-sector costs that 
would be incurred if current law remains in place and the 
amount of the duty declines, the total cost of extending this 
mandate would be $49 million annually beginning in fiscal year 
1999. The cost to domestic vessel owners would be less than 
this amount, however, because owners of foreign vessels would 
incur a portion of those costs. In contrast, measured against 
current private-sector costs, the direct cost of this mandate 
would be zero, because duties would be extended at their 
current levels. It is unclear to CBO which comparison is 
required by UMRA. In either case, the cost of the additional 
duties imposed on owners of domestic vessels would not exceed 
the statutory threshold for private-sector mandates.
    Estimate prepared by--Federal Costs: Vessel Tonnage Fees 
and Government Island--Deborah Reis; Union Station Air Rights--
Clare Doherty; Impact on State, Local, and Tribal Governments: 
Karen McVey; Impact on the Private Sector: Jean Wooster.
    Estimate approved by: Robert A. Sunshine, Deputy Assistant 
Director for Budget Analysis.

                      Committee Oversight Findings

    Clause 2(l)(3)(A) of rule XI requires each committee report 
to contain oversight findings and recommendations required 
pursuant to clause 2(b)(1) of rule X. The Committee on 
Transportation and Infrastructure has no specific oversight 
findings.

       Oversight of Committee on Government Reform and Oversight

    Clause 2(l)(3)(D) of rule XI requires each committee report 
to contain a summary of the oversight findings and 
recommendations made by the Government Reform and Oversight 
Committee pursuant to clause 4(c)(2) of rule X, whenever such 
findings have been timely submitted. The Committee on 
Transportation and Infrastructure has received no such findings 
or recommendations from the Committee on Government Reform and 
Oversight.
                          House of Representatives,
                            Committee on Veterans' Affairs,
                                     Washington, DC, June 13, 1997.
Hon. John R. Kasich,
Chairman, Committee on the Budget,
Washington, DC.
    Dear John: Pursuant to the reconciliation directives 
contained in the Conference Report on House Concurrent 
Resolution 84, the budget resolution for fiscal year 1998, I am 
pleased to transmit the reconciliation recommendations for 
programs within the jurisdiction of the VA Committee. These 
recommendations were approved by the full VA Committee on June 
12, 1997, by a vote of 18 to 4. A copy of the legislative 
language is enclosed.
    The budget resolution instructs the VA Committee to report 
changes in laws within its jurisdiction that provide direct 
spending levels of $22,444,000,000 in outlays for fiscal year 
1998, $24,563,000,000 in outlays for fiscal year 2002, and 
$117,959,000,000 in outlays in fiscal years 1997 through 2002.
    The VA Committee recommendations include extensions of 
current laws, replacement of the Medical Care Cost Recovery 
Fund with a new fund, the Department of Veterans Affairs 
Medical Care Collections Fund, and other deficit reduction 
measures.
    I hope these recommendations will be of assistance to your 
committee.
            Sincerely,
                                               Bob Stump, Chairman.

  Reconciliation Recommendations of the Committee on Veterans' Affairs

                        Submitted June 13, 1997

               Title VIII--Committee on Veterans' Affairs

    Section 8001. Short title; table of contents.

             Subtitle A--Extension of Temporary Authorities

    Section 8011. Authority to require that certain veterans 
make copayments in exchange for receiving health-care benefits.
    Section 8012. Medical care cost recovery for nonservice-
connected disabilities of service-connected veterans.
    Section 8013. Department of Veterans Affairs medical-care 
receipts.
    Section 8014. Income verification authority.
    Section 8015. Limitation on pension for certain recipients 
of medicaid-covered nursing home care.
    Section 8016. Home loan fees.
    Section 8017. Procedures applicable to liquidation sales on 
defaulted home loans guaranteed by the Secretary of Veterans 
Affairs.
    Section 8018. Enhanced loan asset sale authority.

                       Subtitle B--Other Matters

    Section 8021. Rounding down of cost-of-living adjustments 
in compensation and DIC rates.
    Section 8022. Withholding of payments and benefits.

 Summary of Recommended Measures To Meet Reconciliation Target of the 
                     Committee on Veterans' Affairs

Section 8011. Authority to require that certain veterans make 
        copayments in exchange for receiving health care benefits

    Extends through 2002 existing VA authority to charge daily 
copayments for hospital and nursing home care required of 
higher-income (Category C) veterans. Also extends existing VA 
authority to collect $2 copayment for each 30-day supply of 
prescription medication for treatment of nonservice-connected 
conditions. (Severely disabled service-connected veterans and 
veterans with very low incomes are exempt from this 
requirement.)

Section 8012. Medical care cost recovery authority with respect to 
        nonservice-connected conditions of service-connected veterans

    Extends through 2002 existing VA authority to collect from 
third parties for care provided for a nonservice-connected 
condition of a veteran with a service-connected disability.

Section 8013. Department of Veterans Affairs medical care receipts

    Replaces the existing Medical Care Cost Recovery Fund with 
a new fund to be known as the Department of Veterans Affairs 
Medical Care Collections Fund. Monies recovered or collected 
for medical care after September 30, 1997, would be deposited 
in this fund and would be available to pay for the expenses 
associated with veterans' medical care. [The Department would 
be required to establish a policy to maximize collections and 
to distribute those funds to the medical centers which 
collected them.]
    The Committee measure differs from the Administration 
proposal in three key respects:
          The Committee provision would not make amounts 
        collected subject to action by the Appropriations 
        Committee, as proposed by the Administration;
          The Committee would change existing law to allow VA 
        to bill ``reasonable charges'' as most providers do 
        today, instead of reasonable costs, as currently 
        authorized; and
          The Committee measure includes a provision 
        authorizing additional funds in the event there is a 
        shortfall in anticipated collections.

Section 8014. Income verification authority

    Extends through 2002 existing VA authority to match income 
records with SSA and IRS for purposes of verifying income 
reported to qualify for needs-based veterans programs.

Section 8015. Limitation of monthly pension for certain recipients of 
        Medicaid-covered nursing home care

    Extends through 2002 existing authority to limit pension 
payments to $90 for veterans with no dependents whose pension 
would otherwise be attached (except for $30) to pay for their 
care in Medicaid-covered nursing homes.

Section 8016. Home loan fees

    Extends through 2002 current fee rates and surcharges for 
users of the VA Home Loan Program, and raises the fee for 
vendee loans to 2.25 percent.

Section 8017. Procedures applicable to liquidation sales on defaulted 
        home loans guaranteed by the Secretary of Veterans Affairs

    Extends through 2002 current VA post-foreclosure procedures 
used to determine whether it is more cost effective for VA to 
pay the loan guaranty or to purchase the home for resale.

Section 8018. Enhanced loan asset sale authority

    Extends through 2002 current VA authority to package home 
loans for secondary market resale.

Section 8021. Rounding down of compensation cost-of-living adjustments 
        (COLA) in compensation and DIC rates

    Provides that any COLA for compensation and DIC authorized 
in fiscal years 1998-2002 could not exceed the percentage 
increase applied to payments authorized for Social Security and 
would be ``rounded down'' to the next lower dollar.

Section 8022. Withholding of payments and benefits

    Authorizes VA to refer a veteran's (or surviving spouse's) 
home loan guaranty debt to another Federal agency for offset 
under certain circumstances. Referrals would be allowed if (a) 
the debtor is given notice, in writing, of VA's authority to 
waive debts under section 5302 of title 38; (b) VA makes an 
affirmative determination that the debtor should not be 
released from liability under section 3713(b) of title 38; (c) 
the debtor has been notified of procedures available to appeal 
a determination that a release of liability is not warranted. 
In effect, this provision allows VA to refer such debts to the 
Internal Revenue Service for offset against income tax refunds 
or, in the case of debtor who are Federal employees, to the 
debtor's employing agency for offset against salary or wages.

                         Purpose and Background

             Subtitle A--Extension of Temporary Authorities

Section 8011. Health care copayments

    Public Law 99-272 for the first time established copayment 
obligations for VA health care, requiring veterans with incomes 
exceeding so-called ``category A and B'' means test levels to 
agree to pay copayments as a condition of receiving VA care. 
(That law also provided that ``category C'' veterans were only 
eligible for care to the extent resources and facilities are 
available.) Public Law 101-508, the Omnibus Budget 
Reconciliation Act of 1990 (OBRA 90), eliminated the 
distinction between veterans in income categories ``B'' and 
``C'' and provided that in addition to the copayments 
established earlier, veterans in both so-called ``B'' and ``C'' 
income categories would be required to make per-diem payments 
of $10 for VA-provided hospital care and $5 for nursing home 
care. The per diem payment requirement, which would have 
expired under OBRA 90 on September 30, 1997, was extended 
through September 30, 1998, by Public Law 103-66 (OBRA 93).
    Section 1722A of title 38, United States Code, requires a 
veteran (other than a veteran who has a service-connected 
disability rated 50% or greater, or a veteran whose income is 
at or below the maximum annual rate of VA pension) to pay $2 
for each 30-day supply of medication furnished on an outpatient 
basis. Congress, in OBRA 93, extended this provision through 
September 30, 1998.
    Section 8011 of the bill would extend these expiring 
copayment authorities through September 30, 2002.

Section 8012. Medical care cost recover--Nonservice-connected care 
        furnished to service-connected veterans

    Section 1729 of title 38, United States Code, provides 
ongoing authority for the Department of Veterans Affairs to 
collect from a third party payer the reasonable cost of VA-
furnished care and treatment rendered a nonservice-connected 
veteran. That section of law also authorizes VA to collect from 
a health care payment plan the reasonable cost of medical care 
furnished for a nonservice-connected disability of a veteran 
who has a service-connected disability and who, under the 
health plan, is entitled to care or to payment of the expenses 
of that care. VA's authority to collect for nonservice-
connected care furnished a service-connected veteran was 
initially established as section 8011 of OBRA 90. Congress, in 
OBRA 93, extended the expiration date of that provision (which 
is codified at section 1729(a)(2)(E) of title 38) to October 1, 
1998.
    Section 8012 of the bill would extend this date until 
October 1, 2002.

Section 8013. Retention of medical care

    The Administration, in submitting its Fiscal Year 1998 
medical care budget, advised the Congress that the Department 
of Veterans Affairs would require $17.55 billion to operate a 
comprehensive, integrated health care system providing care to 
eligible veterans. Rather than requesting appropriations in 
that amount, the Administration presented the Congress with an 
unprecedented request. It proposed that the resources to 
support the needed funding level be comprised in part of funds 
which the Department collects from third parties and veterans' 
copayments. Under current law, such funds are deposited as 
miscellaneous receipts in the Treasury. The Administration 
proposed that Congress enact legislation to authorize VA to 
retain its medical care cost recoveries.
    This Committee has long supported legislation to permit VA 
to retain third party collections. Such support has been 
premised, however, on the view that collections should be 
retained, in whole or in part, to supplement medical care 
appropriations so as to expand and improve VA health care 
delivery. In its report to the Budget Committee on the Fiscal 
Year 1998 budget for the Department of Veterans Affairs, the 
Committee strongly recommended that VA medical care funding 
needs for Fiscal Year 1998 should be met through 
appropriations, in the amount of $17.6 billion. In expressing 
that view, the Committee also highlighted its concern regarding 
the speculative nature of future VA collections.
    As the Committee noted in its budget analysis, Medical Care 
Cost Recovery (MCCR) collections' projections for Fiscal Year 
1998 and the outyears are uncertain. VA's own 1996 strategic 
plan for the MCCR program highlighted the troublesome path it 
is on, and warned:

          Assumptions that (1) MCCR recoveries from third party 
        payers should continue to rise and (2) operating costs 
        associated with the recovery of this revenue should 
        diminish as a result of efficiencies ignore two 
        critical facts facing third party recovery. First VHA 
        inpatient workload is diminishing while outpatient 
        workload is increasing. Second * * * MCCR spends nearly 
        five times the amount to collect a dollar from 
        outpatient billing than it spends to collect a dollar 
        from inpatient billing * * * MCCR must also generate 
        approximately 20 outpatient bills to produce the 
        equivalent recovery of a single inpatient bill.

    Moreover, the VA's report acknowledges that ``there is no 
methodology that can accurately estimate the `full collection 
potential' of VA's MCCR program.''
    Factors beyond VA's control not only complicate accurate 
estimating but actually jeopardize VA's ability to increase its 
collections, the strategy on which VA's budget depends. Under 
laws governing eligibility for VA health care, the Department 
has little control over the number of patients it treats who 
have health insurance. As a group, veterans are aging and 
becoming eligible for Medicare. Most Medicare beneficiaries 
limit their insurance coverage to a Medicare supplemental plan, 
from which VA recoveries will be markedly lower because of the 
limited nature of that coverage. Under current law, of course, 
VA cannot recover any of the costs of a veteran's care from 
Medicare itself. Further impinging on collections' potential, 
the insurance market itself is changing rapidly with fee-for-
service models, from which VA has obtained substantial 
payments, giving way to health maintenance organizations and 
preferred provider plans, from which VA generally cannot gain 
recoveries. The Committee has been gravely concerned that these 
uncontrollable factors may take a far greater toll on 
collections than can be offset through untested improvements in 
program administration.
    Regrettably, the recent budget agreement appears not to 
have taken the Committee's concerns into account. That 
agreement adopted, in concept, the Administration's medical 
receipts-retention proposal and reflects the assumption that VA 
health care appropriations would be frozen or slightly reduced 
during the next five fiscal years at a level below the medical 
care appropriation level for the current fiscal year. This 
Committee does not accept, as a given, the assumption that VA 
medical care appropriations would be frozen for any period of 
time. Indeed, the Committee notes that the Appropriations 
Committees are no more bound by such assumptions than are the 
health care needs presented by an aging veteran population 
which depends on VA care.
    Freezing appropriations for veterans' medical care and 
making delivery of VA health care contingent on achieving third 
party collection goals could diminish substantially VA's 
capacity to provide veterans with benefits they have earned. 
Thus, in advancing legislation to provide for VA retention of 
medical care cost recoveries, the VA Committee specifically 
rejects that policy and reiterates its belief that third party 
collections should be available at least in part to augment 
rather than substitute for needed VA appropriations.
    In that regard, the Committee rejects--as inadequate to 
protect veterans' health care benefits--the mechanism for 
funding VA medical care reflected in both the budget resolution 
and the Administration's draft legislation. The Committee finds 
that this mechanism fails to offer any safeguard to ensure 
against the risk that collections will fail to meet budget 
targets. Yet, as discussed above, VA's own strategic plan for 
its medical care cost recovery program warns that factors 
beyond its control threaten to diminish medical care 
collections at the very time that budget imperatives 
arbitrarily assume increased collections. To guard against the 
risk of a significant shortfall in anticipated collections, 
section 8013 would establish a contingency mechanism for 
funding veterans' medical care programs. Under that mechanism, 
which would be in effect for three years, funds would be 
deposited in the new Medical Care Collections Fund from 
unobligated amounts in the Treasury in the event that the 
Secretary of Veterans Affairs, on the basis of an estimate, 
determined (and certified to the Secretary of the Treasury) 
that recoveries for a fiscal year would fall more than $25 
million below the level of the Congressional Budget Office's 
estimates for that fiscal year. In that event, VA would receive 
an amount representing the difference between the amount of the 
estimated shortfall and the ``trigger'' amount. The measure 
also provides for payment from the Treasury in a future year 
under circumstances where the actual shortfall exceeded the 
Secretary's estimate. In the Committee's view, this contingency 
mechanism represents an important safeguard for veterans' 
health care for the critical transition period during which VA 
implements and refines this new and untested authority.
    With other significant exceptions described below, section 
8013 reflects the general policy regarding retention of medical 
care cost recoveries proposed in the Administration's budget 
and the budget resolution. The reported measure would terminate 
the Department of Veterans Affairs Medical Care Cost Recovery 
Fund and establish a new fund in the Treasury to be known as 
the Department of Veterans Affairs Medical Care Collections 
Fund. Monies recovered or collected under specified provisions 
of chapter 17 of title 38, United States Code, after September 
30, 1997, would be deposited in the new fund. Such monies are 
no-year funds, available for furnishing medical care and 
services during any fiscal year and for collections-related 
expenses. While the measure does not explicitly draw limits on 
the use of funds for medical care and services, the Committee 
intends that such funds be used for provision of care, and are 
not available for renovation of administrative offices, for 
example. Under the 1997 Budget Agreement, expenditures from the 
fund would not be subject to otherwise applicable pay-as-you-go 
rules. A provision of law directing that collections be 
deposited in miscellaneous receipts of the Treasury would be 
repealed.
    In proposing that VA be given authority to retain third 
party collections, it is asserted that such authority would 
provide a strong incentive to maximize fully VA's collections 
potential. The Committee believes that the policies governing 
the allocation of funds from the new medical care collections 
fund will be critical to creating effective incentives. 
Accordingly, section 8013 would require that the Department 
establish a policy--which shall be designed to maximize 
collections, to the extent feasible--governing allocation of 
monies from the fund. The Committee believes that the policy 
must reflect the principle that monies should be distributed in 
such a manner as to permit facilities to benefit substantially 
from the success of their collection efforts. Moreover, 
facilities should incur measurable financial penalties where 
such efforts are deficient or conducted inefficiently. 
Consideration has been given to a proposal that would require a 
local facility retain in full the monies it recovers. Such a 
policy, however, may be inherently inequitable, potentially 
penalizing facilities in areas where factors beyond the 
Department's control artificially frustrate the most aggressive 
collections efforts, and providing a windfall to some others. 
(For example, the nature of the insurance market in certain 
regions of the country where managed care health plans 
represent a substantial sector for the insurance market could 
be such a factor, as could demographics.) In the Committee's 
view, VA's allocation policy should reflect a balance between 
local retention of funds to provide an incentive to maximize 
collections, and avoiding the imposition of financial penalties 
on facilities whose collections' potential is markedly limited 
by regional and other factors beyond the Department's control.
    Section 8013 would also require the Department to refine 
its data capture and analysis to determine the extent to which 
variability in collections is due to the market in which the 
facilities operate, the level of effort expended in 
collections, and the efficiency of collections efforts. The 
Committee understands that, in the absence of such data, VA's 
allocation policy for fiscal year 1998 cannot achieve and will 
not reflect the level of sophistication that would be 
anticipated if such data were available. The Committee also 
understands that management considerations argue persuasively, 
at least for fiscal year 1998, that VA's networks, which 
control other VA health care resources, should manage the 
allocation of medical care cost recovery collections consistent 
with the principles discussed above. The Committee expects 
that, as soon as practicable after VA refines its understanding 
of the factors accounting for collections variability, VA will 
refine its allocation policies, accordingly, to take account of 
that data.
    Section 8013 would require VA to submit quarterly report on 
its collections (accounting separately for collections under 
each of the authorities) to Congress as well as a separate 
report by January 1, 1999, detailing VA's collection experience 
for each of its 22 networks, and to the extent practicable, for 
each facility. In that report, VA would be required to analyze 
differences among the networks with respect to (1) the market 
in which the network operates (to include the extent to which 
managed care plans have penetrated the insurance market), (2) 
the effort expended to achieve collections, and (3) the 
efficiency of such effort. The Committee intends to oversee 
closely and aggressively VA's collections record and 
operations, and its efforts and actions to streamline and 
reduce costs of collection. The Committee is similarly 
concerned that the Department make every effort to refine its 
policies on dispersing collections to ensure that such policies 
maximize incentive and ensure equitable allocations in relation 
to collection effort and efficiency.
    The Committee measure differs from the Administration 
proposal in two other key respects:
          The Administration's draft bill limits the 
        availability of third party collections to such amounts 
        as are provided in advance in appropriations acts. The 
        Committee provision would instead have VA retain its 
        collections without prior action by the Appropriations 
        Committee. One of the underpinnings of the 
        Administration's proposal was that it would provide new 
        incentives to increase collections. But the inclusion 
        of a requirement making appropriations' action a 
        precondition to VA's retaining collections--and, thus, 
        introducing uncertainty as to whether those collections 
        would in fact be returned in full to the Department--
        would inevitably diminish the very incentive the 
        legislation is designed to instill.
          Currently, VA bills insurers on the basis of its 
        average cost. Accordingly, billings often fall markedly 
        below VA's (or virtually any other provider's) costs 
        and exceed such levels in other instances. (The 
        Administration draft bill did not propose changing this 
        concept.) The Committee measure aims to set a more 
        appropriate billing level by providing that VA recover 
        from insurers on the basis of reasonable charges for 
        each case.
    The Committee believes that the several policy changes it 
has adopted considerably strengthen the medical receipts 
retention concept. In the Committee's view, section 8013 offers 
a sound foundation for improved collections while safeguarding 
against the risk that factors beyond the Department's control 
could result in collections shortfalls and cutbacks in 
veteran's access to care.

Section 8014. Income verification authority

    VA administers a needs-based pension program and provides 
some health care on a means-tested basis. Section 5317 of title 
38 and section 6103 of title 26, the Internal Revenue Code, 
authorize VA to verify the eligibility of recipients of, or 
applicants for, VA needs-based benefits and VA means-tested 
medical care by gaining access to income records of the 
Department of Health and Human Services/Social Security 
Administration and the Internal Revenue Service. These 
provision were originally enacted as section 8051 of OBRA 90 
and extended by section 12004 of OBRA 93 to September 30, 1998.
    Section 8014 would extend VA's authority to verify this 
data through September 30,2002.

Section 8015. Limitation of monthly pension for certain recipients of 
        Medicaid-covered nursing home care

    Section 5503(f) of title 38 limits to $90 a month the 
maximum amount of VA nonservice-connected pension that may be 
paid to Medicaid-eligible veterans and surviving spouses who 
have no dependents and who are in nursing homes that 
participate in Medicaid. The payments may not be used to offset 
the costs of care. This section treats such individuals as if 
the care were being furnished at VA expense. This provision was 
originally enacted as section 8003 of OBRA 90, and extended by 
section 12005 of OBRA 93 to September 30, 1998.
    Nonservice-connected pension is a needs-based program that 
seeks to provide a minimum level of income to wartime veterans 
who are permanently and totally disabled because of nonservice-
connected causes. The minimum level of income is approximately 
equal to the poverty level, with additional amounts payable for 
dependents. Pension payments are offset dollar-for-dollar by 
any household income and can also be adjusted for unusual 
medical expenses. Today, the maximum pension for a single 
veteran with no dependents is $8,486.
    Section 8015 would extend the $90 limitation to September 
30, 2002.

Section 8016. Home loan fees

    Section 3729 specifies that borrowers who obtain VA-
guaranteed, insured or direct home loans will pay a fee. For 
first loans, the fees range from 0.5 percent to 2 percent, 
depending on the amount of down payment and the type of 
military or naval service (active duty or reserve). Purchasers 
of VA-owned foreclosed properties pay a fee of one percent. 
OBRA 93 added section 3729(a)(4) of title 38, to require a 
surcharge of .75 percent for all first-use loans. This 
provision expires on October 1, 1998.
    There is no limitation to the number of times a veteran may 
use the VA home loan program. Section 3729 of title 38 requires 
a three percent fee for all second and subsequent home loans 
with less than a five percent down payment. This provision 
expires on October 1, 1998.
    Section 8016 would extend the surcharge provision to 
September 30, 2002, and increase, from one percent to 2.25 
percent, the fee paid by purchasers of VA-owned properties. The 
provision would also extend VA's authority to charge the 3 
percent fee for second and subsequent use of the home loan 
program to October 1, 2002.

Section 8017. Procedures applicable to liquidation sales on defaulted 
        home loans guaranteed by the Secretary of Veterans Affairs

    Section 3732 of title 38 specifies that VA has two options 
when a property the financing of which is guaranteed under the 
VA Home Loan Guaranty Program, goes into foreclosure. VA may 
simply pay off the guaranty, or elect to purchase the property 
securing the loan in default and resell it. The decision on the 
course of action to take depends, generally, on VA calculations 
as to which action would be less costly and, therefore, more 
advantageous to the government. The Secretary's authority to 
use the ``no-bid'' procedures expires on December 31, 1997.
    Section 8017 would extend VA's authority to use the 
alternative ``no-bid'' formula to September 30, 2002.

Section 8018. Enhanced loan asset sale authority

    Section 3720(h) of title 38 authorizes VA to guarantee the 
timely payment of principal and interest to purchasers of real 
estate mortgage investment conduits (REMICs). REMICs are use to 
``bundle'' and market vendee loan notes. Such notes are made on 
direct loans made by VA to purchasers of VA-acquired real 
estate. Using this authority, VA guarantees to REMIC purchasers 
that principal and interest will be paid in a timely manner 
which in turn, enhances the value of the REMICs in the 
secondary market and increases the return to VA when such 
securities are sold. This provision expires on October 1, 1998.
    Section 8018 would extend VA's authority to market REMICs 
through October 1, 2002.

                       Subtitle B--Other Matters

Section 8021. Rounding down of compensation cost-of-living adjustments 
        in compensation and DIC rates

    Compensation is paid to veterans with service-connected 
disabilities. Amounts of compensation are based on a rating 
schedule that uses 10 percent increments from zero percent to 
100 percent. Fiscal year 1997 payments range from $94 for a 
veteran rated as 10 percent disabled to $1924 for a 100% 
disability rating.
    Dependency and Indemnity Compensation (DIC) is paid to the 
surviving spouse of a veteran who dies of a service-connected 
disability. Prior to the passage of Public Law 102-568, 
payments were based on the rank of the deceased veteran. With 
the passage of Public Law 102-568, compensation for deaths 
occurring after January 1, 1993, were based on a flat rate. 
With the addition of subsequent cost-of-living adjustments 
(COLA), that rate is now $794. However, survivors receiving 
payments in excess of the flat rate were ``grandmothered'' at 
the higher rates for deaths prior to January 1, 1993, The top 
rate for deaths prior to January 1, 1993, is now $1,774.
    Compensation and DIC payments are not indexed. Congress 
has, however, enacted legislation which, for a given year, has 
adjusted compensation and DIC benefits to reflect the 
percentage of change in the consumer price index (CPI) relative 
to the prior year. When such a COLA is enacted and new 
compensation and DIC rates are computed, the prior year's 
benefit--which is paid in ``round dollar'' amounts--is 
multiplied by a fraction which expresses the change in the CPI, 
and the product is then converted to a whole-dollar amount 
using ``normal'' rounding techniques. This is, if the product 
of the whole dollar amount multiplied by the CPI is a 
fractional dollar amount of $0.50 or more, the compensation or 
DIC payment is rounded up; if it is a fractional amount of 
$0.49 or less, it is rounded down. The projected 2.7 percent 
increase for 1998 is estimated to cost $313,500,000.
    Section 8021 would require that any increase authorized in 
the rates of compensation and DIC during fiscal years 1998-2002 
could not exceed the percentage increase applied to payments 
under title II of the Social Security Act. The provision would 
also require that such increases be rounded down to the next 
lower whole dollar. For example, based on a projected 2.7 
percent increase in the Social Security cost-of-living 
allowance, the current $94 payment for a 10 percent disability 
would be multiplied by 2.7 percent. The result would be $96.53, 
which would then be rounded down to $96.

Section 8022. Withholding of payments and benefits

    Section 3726 of title 38 prohibits the offset of federal 
payments other than veterans' or survivors' benefits, to 
recover losses incurred by VA arising from loans made to, 
assumed by, or guaranteed or insured on behalf of a veteran or 
surviving spouse. To offset losses through other federal 
payments such as salaries or federal tax refunds, the veteran 
or surviving spouse must consent in writing to the offset, or a 
court must determine the veteran or surviving spouse is liable.
    Section 8022 would eliminate the consent and court 
determination requirements. Prior to referring the debt to 
another federal agency for offset, such as the IRS, the 
Secretary would be required to notify the veteran or surviving 
spouse by certified mail of the process by which the Secretary 
may waive indebtedness under section 5302(b) of title 38. If 
such a request is filed, the Secretary must determine whether 
the veteran or surviving spouse is responsible for some or all 
of the liability incurred by the Secretary, and that decision 
may be appealed.

                                Hearings

    On February 13, 1997, the VA Committee held a hearing on 
the Administration's Fiscal Year 1998 Budget and its deficit 
reduction proposals;
    On February 27, 1997, the VA Committee held a second 
hearing on the Administration's Fiscal Year 1998 Budget; and
    On June 12, 1997, the VA Committee approved its 
reconciliation recommendations to the House Committee on the 
Budget by a vote of 18 to 4.

                      Section-by-Section Analysis

    Section 8011(a) would amend section 1710(f)(2)(B) of title 
38, United States Code, and extend for four years, through 
September 30, 2002, the per diem copayment requirements for 
hospital and nursing home care.
    Section 8011(b) would amend section 1722A(c) of title 38, 
and extend for four years, through September 30, 2002, VA's 
authority to collect medication copayment from certain 
veterans.
    Section 8012 would amend section 1729(a)(2)(E) of title 38, 
and extend for four years, though September 30, 2002, VA's 
authority to bill a health care payment plan on the basis of 
reasonable charges for each case of medical care furnished to a 
veteran who has a service-connected disability for treatment of 
a nonservice-connected disability.
    Section 8013(a) would add a new section, section 1729A, to 
title 38, and establish the Department of Veteran Affairs 
Medical Care Collections Fund. The VA Medical Care Collections 
Fund replaces the existing Medical Care Cost Recovery Fund. 
Monies recovered or collected for medical care after September 
30, 1997 would be deposited in the new fund and would be 
available to pay for expenses associated with veterans' medical 
care. This section would establish a contingency mechanism for 
funding VA medical care programs for three years, to guard 
against the risk of a shortfall in anticipated collections. 
Section 8013(a) would also require VA to establish a policy--
which shall be designated to maximize collections, to the 
extent feasible--governing allocation of moies from the fund. 
This section would require VA to submit to Congress quarterly 
reports on the operation of section 8013 for fiscal years 1998-
2000, and for the first quarter of fiscal year 2001.
    Section 8013(b) would make conforming amendments to chapter 
17 of title 38.
    Section 8013(c) would eliminate the Medical Care Cost 
Recovery Fund, established by section 1729(g)(1) of title 38, 
and any unobligated balance remaining on September 30, 1997, 
would be deposited in the U.S. Treasury as miscellaneous 
receipts, not later than December 31, 1997.
    Section 8013(d) would amend section 1729 of title 38, to 
allow VA to bill insurers on the basis of reasonable charges 
for each case.
    Section 8013(e) would amend section 712(b)(2) of title 38, 
to make a technical change, which would eliminate the current 
law exemption of MCCR employers for purposes of determination 
of, and limitations on the number of full time equivalent 
positions at VA. Current law providers that person involved in 
MCCR activities are exempt from the determination of the number 
of statutorily mandated VA full-time employees.
    Section 8013(f) would require that VA report to Congress by 
January 1, 1999, on the implementation of section 8013.
    Section 8013(f) would establish October 1, 1997, as the 
effective date for section 8013, except that the amendments 
made by section 8013(d) would take effect on the date of 
enactment of this Act.
    Section 8014 would amend section 5317(f) of title 38 and 
section 6103 of the Internal Revenue Code, and extend for four 
years, through September 30, 2002, VA's authority to verify 
income data furnished by VA by gaining access to relevant 
income records of the Internal Revenue Service and Social 
Security Administration.
    Section 8015 would amend section 5503(f)(7), and extend for 
four years through September 30, 2002, the $90 limitation on 
the maximum amount of VA pension which can be received by 
Medicaid-eligible veterans and surviving spouses who have no 
dependents and who are in nursing homes that participate in 
Medical.
    Section 8016 would amend section 3729(a) of title 38, and 
extend for four years, through September 30, 2002, the loan 
fees currently applicable to borrowers who obtain home loans 
guaranteed, insured, or made by VA.
    Section 8017 would amend section 3732(c)(11) of title 38, 
and extend for four years, through September 30, 2002, the 
procedures applicable to liquidation sales on defaulted home 
loans guaranteed by VA.
    Section 8018 would amend section 3720(h)(2) of title 38, 
and extend through September 30, 2002, VA's authority to 
guarantee the timely payment of principal and interest to 
purchasers of real estate mortgage investment conduits.
    Section 8021 would add new section 1103 (compensation) and 
1303 (DIC) to tile 38. Both sections would require that any 
cost-of-living (COLA) adjustments for compensation and DIC made 
during fiscal years 1998 through 2002 could not exceed the 
percentage increase applied to payments authorized for Social 
Security and would be ``rounded down'' to the next lower 
dollar.
    Section 8022 would amend section 3726 of title 38 to 
authorize VA to refer a veteran's (or surviving spouse's) home 
loan guaranty debt to another Federal agency for offset under 
certain circumstances. Referrals would be allowed if (a) the 
debtor is given notice, in writing, of VA's authority to waive 
debts under section 5302 of title 38; (b) VA makes an 
affirmative determination that the debtor should not be 
released from liability under section 3713(b) of title 38; and 
(c) the debtor has been notified of procedures available to 
appeal a determination that a release of liability is not 
warranted. In effect, this provision allows VA to refer such 
debts to the Internal Revenue Service for offset against income 
tax refunds or, in the case of debtors who are Federal 
employees, to the debtor's employing agency for offset against 
salary or wages.

  Changes in Existing Law Made by Title VIII of 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):

                      TITLE 38, UNITED STATES CODE

                       PART I--GENERAL PROVISIONS

          * * * * * * *

                          CHAPTER 7--EMPLOYEES

          * * * * * * *

Sec. 712. Full-time equivalent positions: limitation on reduction

  (a) * * *
  (b) In determining the number of full-time equivalent 
positions in the Department of Veterans Affairs during a fiscal 
year for purposes of ensuring under section 5(b) of the Federal 
Workforce Restructuring Act of 1994 (Public Law 103-226; 108 
Stat. 115; 5 U.S.C. 3101 note) that the total number of full-
time equivalent positions in all agencies of the Federal 
Government during a fiscal year covered by that section does 
not exceed the limit prescribed for that fiscal year under that 
section, the total number of full-time equivalent positions in 
the Department of Veterans Affairs during that fiscal year 
shall be the number equal to--
          (1) the number of such positions in the Department 
        during that fiscal year, reduced by
          (2) the sum of the following:
                  (A) * * *
                  [(B) The number of such positions held during 
                that fiscal year by persons involved in medical 
                care cost recovery activities under section 
                1729 of this title.]
                  [(C)] (B) The number of such positions in the 
                Department during that fiscal year held by 
                persons involved in providing health-care 
                resources under section 8111 or 8153 of this 
                title or under section 201 of the Veterans 
                Health Care Act of 1992 (Public Law 102-585; 
                106 Stat. 4949; 38 U.S.C. 8111 note).
          * * * * * * *

                       PART II--GENERAL BENEFITS

          * * * * * * *

   CHAPTER 11--COMPENSATION FOR SERVICE-CONNECTED DISABILITY OR DEATH

                          subchapter i--general

Sec.
1101.  Definitions.
1102.  Special provisions relating to surviving spouses.
1103.  Cost-of-living adjustments.
     * * * * * * *

                         SUBCHAPTER I--GENERAL

          * * * * * * *

Sec. 1103. Cost-of-living adjustments

  (a) In the computation of cost-of-living adjustments for 
fiscal years 1998 through 2002 in the rates of, and dollar 
limitations applicable to, compensation payable under this 
chapter, such adjustments shall be made by a uniform percentage 
that is no more than the percentage equal to the social 
security increase for that fiscal year, with all increased 
monthly rates and limitations (other than increased rates or 
limitations equal to a whole dollar amount) rounded down to the 
next lower whole dollar amount.
  (b) For purposes of this section, the term ``social security 
increase'' means the percentage by which benefit amounts 
payable under title II of the Social Security Act (42 U.S.C. 
401 et seq.) are increased for any fiscal year as a result of a 
determination under section 215(i) of such Act (42 U.S.C. 
415(i)).
          * * * * * * *

CHAPTER 13--DEPENDENCY AND INDEMNITY COMPENSATION FOR SERVICE-CONNECTED 
                                 DEATHS

                          subchapter i--general

Sec.
1301.  Definitions.
     * * * * * * *
1303.  Cost-of-living adjustments.
     * * * * * * *

                         SUBCHAPTER I--GENERAL

          * * * * * * *

Sec. 1303. Cost-of-living adjustments

  (a) In the computation of cost-of-living adjustments for 
fiscal years 1998 through 2002 in the rates of dependency and 
indemnity compensation payable under this chapter, such 
adjustments shall be made by a uniform percentage that is no 
more than the percentage equal to the social security increase 
for that fiscal year, with all increased monthly rates (other 
than increased rates equal to a whole dollar amount) rounded 
down to the next lower whole dollar amount.
  (b) For purposes of this section, the term ``social security 
increase'' means the percentage by which benefit amounts 
payable under title II of the Social Security Act (42 U.S.C. 
401 et seq.) are increased for any fiscal year as a result of a 
determination under section 215(i) of such Act (42 U.S.C. 
415(i)).
          * * * * * * *

   CHAPTER 17--HOSPITAL, NURSING HOME, DOMICILIARY, AND MEDICAL CARE

          * * * * * * *

   subchapter iii--miscellaneous provisions relating to hospital and 
           nursing home care and medical treatment of veterans

1721.  Power to make rules and regulations.
     * * * * * * *
1729A.   Department of Veterans Affairs Medical Care Collections Fund.
     * * * * * * *

 SUBCHAPTER II--HOSPITAL, NURSING HOME OR DOMICILIARY CARE AND MEDICAL 
                               TREATMENT

Sec. 1710. Eligibility for hospital, nursing home, and domiciliary care

  (a) * * *
          * * * * * * *
  (f)(1) The Secretary may not furnish hospital care or nursing 
home care under this section to a veteran who is eligible for 
such care under subsection (a)(3) of this section unless the 
veteran agrees to pay to the United States the applicable 
amount determined under paragraph (2) of this subsection.
  (2) A veteran who is furnished hospital care or nursing home 
care under this section and who is required under paragraph (1) 
of this subsection to agree to pay an amount to the United 
States in order to be furnished such care shall be liable to 
the United States for an amount equal to--
          (A) * * *
          (B) before September 30, 2002, an amount equal to $10 
        for every day the veteran receives hospital care and $5 
        for every day the veteran receives nursing home care.
          * * * * * * *
  [(4) Amounts collected or received on behalf of the United 
States under this subsection shall be deposited in the Treasury 
as miscellaneous receipts.]
  [(5)] (4) For the purposes of this subsection, the term 
``inpatient Medicare deductible'' means the amount of the 
inpatient hospital deductible in effect under section 1813(b) 
of the Social Security Act (42 U.S.C. 1895e(b)) on the first 
day of the 365-day period applicable under paragraph (3) of 
this subsection.
          * * * * * * *

   SUBCHAPTER III--MISCELLANEOUS PROVISIONS RELATING TO HOSPITAL AND 
          NURSING HOME CARE AND MEDICAL TREATMENT OF VETERANS

Sec. 1722A. Copayment for medications

  (a) * * *
  (b) Amounts collected under this section shall be deposited 
in the [Department of Veterans Affairs Medical-Care Cost 
Recovery Fund] Department of Veterans Affairs Medical Care 
Collections Fund.
  (c) The provisions of subsection (a) expire on September 30, 
[1998] 2002.
          * * * * * * *

Sec. 1729. Recovery by the United States of the cost of certain care 
                    and services

  (a)(1) Subject to the provisions of this section, in any case 
in which a veteran is furnished care or services under this 
chapter for a non-service-connected disability described in 
paragraph (2) of this subsection, the United States has the 
right to recover or collect [the reasonable cost of] reasonable 
charges for such care or services (as determined by the 
Secretary) from a third party to the extent that the veteran 
(or the provider of the care or services) would be eligible to 
receive payment for such care or services from such third party 
if the care or services had not been furnished by a department 
or agency of the United States.
  (2) Paragraph (1) of this subsection applies to a non-
service-connected disability--
          (A) * * *
          * * * * * * *
          (E) for which care and services are furnished before 
        October 1, [1998] 2002, under this chapter to a veteran 
        who--
                  (i) has a service-connected disability; and
                  (ii) is entitled to care (or payment of the 
                expenses of care) under a health-plan contract.
  (c)(1) The Secretary may compromise, settle, or waive any 
claim which the United States has under this section.
  (2)(A) The Secretary, after consultation with the Comptroller 
General of the United States, shall prescribe regulations for 
the purpose of determining [the reasonable cost of] reasonable 
charges for care or services under subsection (a)(1) of this 
section. Any determination of such [cost] charges shall be made 
in accordance with such regulations.
  (B) Such regulations shall provide that [the reasonable cost 
of] reasonable charges for care or services sought to be 
recovered or collected from a third-party liable under a 
health-plan contract may not exceed the amount that such third 
party demonstrates to the satisfaction of the Secretary it 
would pay for the care or services if provided by facilities 
(other than facilities of departments or agencies of the United 
States) in the same geographic area.
          * * * * * * *
  [(g)(1) There is established in the Treasury a fund to be 
known as the Department of Veterans Affairs Medical-Care Cost 
Recovery Fund (hereafter referred to in this section as the 
``Fund'').
  [(2) Amounts recovered or collected under this section shall 
be deposited in the Fund.
  [(3) Sums in the Fund shall be available to the Secretary for 
the following:
          [(A) Payment of necessary expenses for the 
        identification, billing, and collection of the cost of 
        care and services furnished under this chapter, and for 
        the administration and collection of payments required 
        under subsection (f) or (g) of section 1710 of this 
        title for hospital care, medical services, or nursing 
        home care and under section 1722A of this title for 
        medications, including--
                  [(i) the costs of computer hardware and 
                software, word processing and 
                telecommunications equipment, other equipment, 
                supplies, and furniture;
                  [(ii) personnel training and travel costs;
                  [(iii) personnel and administrative costs for 
                attorneys in the Office of General Counsel of 
                the Department and for support personnel of 
                such office;
                  [(iv) other personnel and administrative 
                costs; and
                  [(v) the costs of any contract for 
                identification, billing, or collection 
                services.
          [(B) Payment of the Secretary for reasonable charges, 
        as determined by the Secretary, imposed for (i) 
        services and utilities (including light, water, and 
        heat) furnished by the Secretary, (ii) recovery and 
        collection activities under this section, and (iii) 
        administration of the Fund.
  [(4) Not later than January 1 of each year, there shall be 
deposited into the Treasury as miscellaneous receipts an amount 
equal to the amount of the unobligated balance remaining in the 
Fund at the close of business on September 30 of the preceding 
year minus any part of such balance that the Secretary 
determines is necessary in order to enable the Secretary to 
defray, during the fiscal year in which the deposit is made, 
the expenses, payments, and costs described in paragraph (3).]
          * * * * * * *

Sec. 1729A. Department of Veterans Affairs Medical Care Collections 
                    Fund

  (a) There is in the Treasury a fund to be known as the 
Department of Veterans Affairs Medical Care Collections Fund.
  (b) Amounts recovered or collected after September 30, 1997, 
under any of the following provisions of law shall be deposited 
in the fund:
          (1) Section 1710(f) of this title.
          (2) Section 1710(g) of this title.
          (3) Section 1711 of this title.
          (4) Section 1722A of this title.
          (5) Section 1729 of this title.
          (6) Public Law 87-693, popularly known as the 
        ``Federal Medical Care Recovery Act'' (42 U.S.C. 2651 
        et seq.), to the extent that a recovery or collection 
        under that law is based on medical care or services 
        furnished under this chapter.
  (c)(1) Amounts in the fund are available to the Secretary for 
the following purposes:
          (A) Furnishing medical care and services under this 
        chapter, to be available during any fiscal year for the 
        same purposes and subject to the same limitations as 
        apply to amounts appropriated for that fiscal year for 
        medical care.
          (B) Expenses of the Department for the 
        identification, billing, auditing, and collection of 
        amounts owed the United States by reason of medical 
        care and services furnished under this chapter.
  (2)(A) If for fiscal year 1998, 1999, or 2000 the Secretary 
determines that the total amount to be recovered for that 
fiscal year under the provisions of law specified in subsection 
(b) will be less than the amount contained in the latest 
Congressional Budget Office baseline estimate (computed under 
section 257 of the Balanced Budget and Emergency Deficit 
Control Act of 1985) for the amount of such recoveries for that 
fiscal year by at least $25,000,000, the Secretary shall 
promptly certify to the Secretary of the Treasury the amount of 
the shortfall (as estimated by the Secretary) that is in excess 
of $25,000,000. Upon receipt of such a certification, the 
Secretary of the Treasury shall, not later than 30 days after 
receiving the certification, deposit in the fund, from any 
unobligated amounts in the Treasury, an amount equal to the 
amount certified by the Secretary.
  (B) For a fiscal year for which a deposit is made under 
subparagraph (A), if the Secretary subsequently determines that 
the actual amount recovered for that fiscal year under the 
provisions of law specified in subsection (b) is greater than 
the amount estimated by the Secretary that was used for 
purposes of the certification by the Secretary under 
subparagraph (A), the Secretary shall pay into the general fund 
of the Treasury, from amounts available for medical care, an 
amount equal to the difference between the amount actually 
recovered and the amount so estimated (but not in excess of the 
amount of the deposit under subparagraph (A) pursuant to such 
certification).
  (C) For a fiscal year for which a deposit is made under 
subparagraph (A), if the Secretary subsequently determines that 
the actual amount recovered for that fiscal year under the 
provisions of law specified in subsection (b) is less than the 
amount estimated by the Secretary that was used for purposes of 
the certification by the Secretary under subparagraph (A), the 
Secretary shall promptly certify to the Secretary of the 
Treasury the amount of the shortfall. Upon receipt of such a 
certification, the Secretary of the Treasury shall, not later 
than 30 days after receiving the certification, deposit in the 
fund, from any unobligated amounts in the Treasury, an amount 
equal to the amount certified by the Secretary.
  (d)(1) The Secretary may allocate amounts available to the 
Secretary under subsection (c) among components of the 
Department in such manner as the Secretary considers 
appropriate.
  (2) The Secretary shall establish a policy for the allocation 
under paragraph (1) of amounts in the fund. Such policy shall 
be designed so as to facilitate the realization of the maximum 
feasible collections under the provisions of law specified in 
subsection (b). In developing the policy, the Secretary shall 
take into account any factors beyond the control of the 
Secretary that the Secretary considers may impede such 
collections.
  (e)(1) The Secretary shall submit to the Committees on 
Veterans' Affairs of the Senate and House of Representatives 
quarterly reportson the operation of this section for fiscal 
years 1998, 1999, and 2000 and for the first quarter of fiscal year 
2001. Each such report shall specify the amount collected under each of 
the provisions specified in subsection (b) during the preceding quarter 
and the amount originally estimated to be collected under each such 
provision during such quarter.
  (2) A report under paragraph (1) for a quarter shall be 
submitted not later than 45 days after the end of that quarter.
          * * * * * * *

              PART III--READJUSTMENT AND RELATED BENEFITS

          * * * * * * *

              CHAPTER 37--HOUSING AND SMALL BUSINESS LOANS

          * * * * * * *

               SUBCHAPTER III--ADMINISTRATIVE PROVISIONS

          * * * * * * *

Sec. 3720. Powers of Secretary

  (a) * * *
          * * * * * * *
  (h)(1) The Secretary may, upon such terms and conditions as 
the Secretary considers appropriate, issue or approve the 
issuance of, and guarantee the timely payment of principal and 
interest on, certificates or other securities evidencing an 
interest in a pool of mortgage loans made in connection with 
the sale of properties acquired under this chapter.
  (2) The Secretary may not under this subsection guarantee the 
payment of principal and interest on certificates or other 
securities issued or approved after [December 31, 1997] 
September 30, 2002.
          * * * * * * *

Sec. 3726. Withholding of payments, benefits, etc.

  No officer, employee, department, or agency of the United 
States shall set off against, or otherwise withhold from, any 
veteran or the surviving spouse of any veteran any payments 
(other than benefit payments under any law administered by the 
Department of Veterans Affairs) which such veteran or surviving 
spouse would otherwise be entitled to receive because of any 
liability to the Secretary allegedly arising out of any loan 
made to, assumed by, or guaranteed or insured on account of, 
such veteran or surviving spouse under this chapter, [unless 
(1) there is first received the consent in writing of such 
veteran or surviving spouse, as the case may be, or (2) such 
liability and the amount thereof was determined by a court of 
competent jurisdiction in a proceeding to which such veteran or 
surviving spouse was a party.] unless the Secretary provides 
such veteran or surviving spouse with notice by certified mail 
with return receipt requested of the authority of the Secretary 
to waive the payment of indebtedness under section 5302(b) of 
this title. If the Secretary does not waive the entire amount 
of the liability, the Secretary shall then determine whether 
the veteran or surviving spouse should be released from 
liability under section 3713(b) of this title. If the Secretary 
determines that the veteran or surviving spouse should not be 
released from liability, the Secretary shall notify the veteran 
or surviving spouse of that determination and provide a notice 
of the procedure for appealing that determination, unless the 
Secretary has previously made such determination and notified 
the veteran or surviving spouse of the procedure for appealing 
the determination.
          * * * * * * *

Sec. 3729. Loan fee

  (a)(1) * * *
  (2) Except as provided in paragraphs (4) and (5) of this 
subsection, the amount of such fee shall be 1.25 percent of the 
total loan amount, except that--
          (A) in the case of a loan made under section 3711 [or 
        3733(a)] of this title or for any purpose specified in 
        section 3712 (other than section 3712(a)(1)(F)) of this 
        title, the amount of such fee shall be one percent of 
        the total loan amount;
          * * * * * * *
          (D) in the case of a loan made to, or guaranteed or 
        insured on behalf of, a veteran described in section 
        3701(b)(5) of this title under this chapter, the amount 
        of such fee shall be--
                  (i) * * *
          * * * * * * *
                  (iii) in the case of a loan for a purchase 
                (other than a purchase referred to in section 
                3712 of this title) or for construction with 
                respect to which the veteran has made a 
                downpayment of 5 percent or more of the total 
                purchase price or construction cost--
                          (I) * * *
                          (II) 1.25 percent of the total loan 
                        amount if such downpayment is 10 
                        percent or more of such price or cost; 
                        [and]
          (E) in the case of a loan guaranteed under section 
        3710(a)(8), 3710(a)(9)(B)(i), 3710(a)(11), 
        3712(a)(1)(F), or 3762(h) of this title, the amount of 
        such fee shall be 0.5 percent of the total loan 
        amount[.]; and
          (F) in the case of a loan made under section 3733(a) 
        of this title, the amount of such fee shall be 2.25 
        percent of the total loan amount.
          * * * * * * *
  (4) With respect to a loan closed after September 30, 1993, 
and before October 1, [1998] 2002, for which a fee is collected 
under paragraph (1), the amount of such fee, as computed under 
paragraph (2), shall be increased by 0.75 percent of the total 
loan amount other than in the case of a loan described in 
subparagraph (A), (D)(ii), [or (E)] (E) or (F) of paragraph 
(2).
  (5)(A) * * *
          * * * * * * *
  (C) This paragraph applies with respect to a loan closed 
after September 30, 1993, and before October 1, [1998] 2002.
          * * * * * * *

Sec. 3732. Procedure on default

  (a) * * *
          * * * * * * *
  (c)(1) For purposes of this subsection--
          (A) * * *
          * * * * * * *
  (11) This subsection shall apply to loans closed before 
October 1, [1998] 2002.
          * * * * * * *

               PART IV--GENERAL ADMINISTRATIVE PROVISIONS

          * * * * * * *

          CHAPTER 53--SPECIAL PROVISIONS RELATING TO BENEFITS

          * * * * * * *

Sec. 5302. Waiver of recovery of claims by the United States

  (a) * * *
  (b) With respect to any loan guaranteed, insured, or made 
under chapter 37 of this title, the Secretary shall, except as 
provided in subsection (c) of this section, waive payment of an 
indebtedness to the Department by the veteran (as defined in 
sections 101, 3701, and 3702(a)(2)(C)(ii) of this title), or 
the veteran's spouse, following default and loss of the 
property, where the Secretary determines that collection of 
such indebtedness would be against equity and good conscience. 
An application for relief under this subsection must be made 
within one year after the date on which the veteran receives 
notice by certified mail with return receipt requested from the 
Secretary of the indebtedness. The Secretary shall include in 
the notification a statement of the right of the veteran to 
submit an application for a waiver under this subsection and a 
description of the procedures for submitting the application.
          * * * * * * *

Sec. 5317. Use of income information from other agencies: notice and 
                    verification

  (a) * * *
          * * * * * * *
  (g) The authority of the Secretary to obtain information from 
the Secretary of the Treasury or the Secretary of Health and 
Human Services under section 6103(l)(7)(D)(viii) of the 
Internal Revenue Code of 1986 expires on September 30, [1998] 
2002.
          * * * * * * *

           CHAPTER 55--MINORS, INCOMPETENTS, AND OTHER WARDS

Sec. 5503. Hospitalized veterans and estates of incompetent 
                    institutionalized veterans

  (a) * * *
          * * * * * * *
  (f)(1) For the purposes of this subsection--
          (A) * * *
          * * * * * * *
  (7) This subsection expires on September 30, [1998] 2002.
          * * * * * * *
                              ----------                              


     SECTION 8013 OF THE OMNIBUS BUDGET RECONCILIATION ACT OF 1990

SEC. 8013. MODIFICATION OF HEALTH-CARE CATEGORIES AND COPAYMENTS.

  (a) * * *
          * * * * * * *
  [(e) Sunset.--The amendments made by this section expire on 
September 30, 1991.]
                              ----------                              


           SECTION 6103 OF THE INTERNAL REVENUE CODE OF 1986

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

  (a) * * *
          * * * * * * *
  (l) Disclosure of Returns and Return Information for Purposes 
other Than Tax Administration.--
          (1) * * *
          * * * * * * *
          (7) Disclosure of return information to Federal, 
        State, and local agencies administering certain 
        programs under the Social Security Act, the Food Stamp 
        Act of 1977, or title 38, United States Code or certain 
        housing assistance programs.
                  (A) * * *
          * * * * * * *
                  (D) Programs to which rule applies.--The 
                programs to which this paragraph applies are:
                          (i) * * *
          * * * * * * *
                          (viii)(I) * * *
                Only return information from returns with 
                respect to net earnings from self-employment 
                and wages may be disclosed under this paragraph 
                for use with respect to any program described 
                in clause (viii)(IV), Clause (viii) shall not 
                apply after September 30, [1998] 2002; and,
          * * * * * * *

                      Committee Oversight Findings

    The Committee's oversight findings are generally contained 
in the Purpose and Background portion of the VA Committee's 
reconciliation recommendations.

 Oversight Findings of the Committee on Government Reform and Oversight

    No oversight findings have been submitted to the VA 
Committee by the Committee on Government Reform and Oversight.

        ROLLCALL--MARKUP OF RECONCILIATION MEASURES AND H.R. 699        
------------------------------------------------------------------------
                                                                   Not  
             Name               Present   Absent    Yea    Nay    voting
------------------------------------------------------------------------
Bob Stump, AZ, Chairman......      X     ........  .....  .....  .......
Christopher H. Smith, NJ,                                               
 Vice Chairman...............      X     ........  .....  .....  .......
Michael Bilirakis, FL........  ........      X     .....  .....  .......
Floyd Spence, SC.............      X     ........  .....  .....  .......
Terry Everett, AL............      X     ........  .....  .....  .......
Steve Buyer, IN..............  ........      X     .....  .....  .......
Jack Quinn, NY...............      X     ........  .....  .....  .......
Spencer Bachus, AL...........  ........      X     .....  .....  .......
Cliff Stearns, FL............      X     ........  .....  .....  .......
Dan Schaefer, CO.............  ........      X     .....  .....  .......
Jerry Moran, KS..............      X     ........  .....  .....  .......
John Cooksey, LA.............      X     ........  .....  .....  .......
Asa Hutchinson, AR...........      X     ........  .....  .....  .......
J.D. Hayworth, AZ............      X     ........  .....  .....  .......
Helen Chenoweth, ID..........  ........      X     .....  .....  .......
Ray LaHood, IL...............      X     ........  .....  .....  .......
Lane Evans, IL, Ranking......      X     ........  .....  .....  .......
Joseph P. Kennedy II, MA.....      X     ........  .....  .....  .......
Bob Filner, CA...............      X     ........  .....  .....  .......
Luis V. Gutierrez, IL........      X     ........  .....  .....  .......
James E. Clyburn, SC.........      X     ........  .....  .....  .......
Corrine Brown, FL............      X     ........  .....  .....  .......
Mike Doyle, PA...............      X     ........  .....  .....  .......
Frank Mascara, PA............      X     ........  .....  .....  .......
Collin Peterson, MN..........      X     ........  .....  .....  .......
Julia Carson, IN.............  ........      X     .....  .....  .......
Silvestre Reyes, TX..........      X     ........  .....  .....  .......
Vic Snyder, AR...............      X     ........  .....  .....  .......
Ciro Rodriguez...............      X     ........  .....  .....  .......
                              ------------------------------------------
    Total....................    23         6      .....  .....  .......
------------------------------------------------------------------------


            ROLLCALL--KENNEDY AMENDMENT TO RECONCILIATION MEASURES TO STRIKE SEC. 8016 AND SEC. 8021            
----------------------------------------------------------------------------------------------------------------
                                                                                                           Not  
                               Name                                  Present   Absent   Yea      Nay     voting 
----------------------------------------------------------------------------------------------------------------
Bob Stump, AZ, Chairman...........................................  ........  .......  .....     x      ........
Christopher H. Smith, NJ, Vice Chairman...........................  ........  .......  .....     x      ........
Michael Bilirakis, FL.............................................  ........  .......  .....  ........     x    
Floyd Spence, SC..................................................  ........  .......  .....     x      ........
Terry Everett, AL.................................................  ........  .......  .....     x      ........
Steve Buyer, IN...................................................  ........  .......  .....  ........     x    
Jack Quinn, NY....................................................  ........  .......  .....     x      ........
Spencer Bachus, AL................................................  ........  .......  .....  ........     x    
Cliff Stearns, FL.................................................  ........  .......  .....     x      ........
Dan Schaffer, CO..................................................  ........  .......  .....  ........     x    
Jerry Moran, KS...................................................  ........  .......  .....  ........     x    
John Cooksey, LA..................................................  ........  .......  .....     x      ........
Asa Hutchinson, AR................................................  ........  .......  .....     x      ........
J.D. Hayworth, AZ.................................................  ........  .......  .....     x      ........
Helen Chenoweth, ID...............................................  ........  .......  .....  ........     x    
Ray LaHood, ID....................................................  ........  .......  .....     x      ........
Lane Evans, IL, Ranking...........................................  ........  .......  .....     x      ........
Joseph P. Kennedy II, MA..........................................  ........  .......   x     ........  ........
Bob Filner, CA....................................................  ........  .......   x     ........  ........
Luis V. Gutierrez, IL.............................................  ........  .......  .....     x      ........
James E. Clyburn, SC..............................................  ........  .......  .....     x      ........
Corrine Brown, FL.................................................  ........  .......   x     ........  ........
Mike Doyle, PA....................................................  ........  .......  .....     x      ........
Frank Mascara, PA.................................................  ........  .......  .....     x      ........
Collin Peterson, MN...............................................  ........  .......   x     ........  ........
Julia Carson, IN..................................................  ........  .......  .....  ........     x    
Silvestre Reyes, TX...............................................  ........  .......  .....     x      ........
Vic Snyder, AR....................................................  ........  .......  .....     x      ........
Ciro Rodriguez....................................................  ........  .......   x     ........  ........
                                                                   ---------------------------------------------
    Total.........................................................  ........  .......   5       17         7    
----------------------------------------------------------------------------------------------------------------


                                        ROLLCALL--RECONCILIATION MEASURES                                       
----------------------------------------------------------------------------------------------------------------
                                                                                                           Not  
                              Name                                Present   Absent     Yea       Nay     voting 
----------------------------------------------------------------------------------------------------------------
Bob Stump, AZ, Chairman........................................  ........  .......     x      ........  ........
Christopher H. Smith, NJ, Vice Chairman........................  ........  .......     x      ........  ........
Michael Bilirakis, FL..........................................  ........  .......  ........  ........     x    
Floyd Spence, SC...............................................  ........  .......     x      ........  ........
Terry Everett, AL..............................................  ........  .......     x      ........  ........
Steve Buyer, IN................................................  ........  .......  ........  ........     x    
Jack Quinn, NY.................................................  ........  .......     x      ........  ........
Spencer Bachus, AL.............................................  ........  .......  ........  ........     x    
Cliff Stearns, FL..............................................  ........  .......     x      ........  ........
Dan Schaffer, CO...............................................  ........  .......  ........  ........     x    
Jerry Moran, KS................................................  ........  .......  ........  ........     x    
John Cooksey, LA...............................................  ........  .......     x      ........  ........
Asa Hutchinson, AR.............................................  ........  .......     x      ........  ........
J.D. Hayworth, AZ..............................................  ........  .......     x      ........  ........
Helen Chenoweth, ID............................................  ........  .......  ........  ........     x    
Ray LaHood, IL.................................................  ........  .......     x      ........  ........
Lane Evans, IL, Ranking........................................  ........  .......     x      ........  ........
Joseph P. Kennedy II, MA.......................................  ........  .......  ........     x      ........
Bob Filner, CA.................................................  ........  .......  ........     x      ........
Luis V. Gutierrez, IL..........................................  ........  .......     x      ........  ........
James E. Clyburn, SC...........................................  ........  .......     x      ........  ........
Corrine Brown, FL..............................................  ........  .......  ........     x      ........
Mike Doyle, PA.................................................  ........  .......     x      ........  ........
Frank Mascara, PA..............................................  ........  .......     x      ........  ........
Collin Peterson, MN............................................  ........  .......  ........     x      ........
Julia Carson, IN...............................................  ........  .......  ........  ........     x    
Silvestre Reyes, TX............................................  ........  .......     x      ........  ........
Vic Snyder, AR.................................................  ........  .......     x      ........  ........
Ciro Rodriguez.................................................  ........  .......     x      ........  ........
                                                                ------------------------------------------------
    Total......................................................  ........  .......    18         4         7    
----------------------------------------------------------------------------------------------------------------

               Congressional Budget Office Cost Estimate

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 16, 1997.
Hon. Bob Stump,
 Chairman, Committee on Veterans' Affairs, House of Representatives, 
        Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for the reconciliation 
recommendations approved by the House Committee on Veterans' 
Affairs on June 12, 1997.
    The estimate shows the budgetary effects of the committee's 
proposals over the 1998-2007 period. CBO understands that the 
Committee on the Budget will be responsible for interpreting 
how these proposals compare with the reconciliation 
instructions in the budget resolution. This estimate assumes 
the reconciliation bill will be enacted by August 15, 1997; the 
estimate could change if the bill is enacted later.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Shawn 
Bishop, Sunita D'Monte, and Mary Helen Petrus.
            Sincerely,
                                         June E. O'Neill, Director.
    Enclosure.

Reconciliation Recommendations of the House Committee on Veterans' 
        Affairs (Title VIII)

    Summary: Title VIII would extend through 2002 provisions of 
the Omnibus Reconciliation Act of 1990 (OBRA) that affect 
programs for veterans, allow the Department of Veterans Affairs 
to spend certain receipts, and round down cost-of-living 
adjustments (COLAs) for veterans' disability compensation. CBO 
estimates the recommendations would raise direct spending by 
$322 million in 1998, but reduce it by about $594 million over 
the 1998-2002 period. The recommendations contain no 
intergovernmental or private-sector mandates as defined in the 
Unfunded Mandates Reform Act of 1995 (UMRA), but they would 
significantly increase Medicaid costs for state governments 
beginning in fiscal year 1999.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of the committee's recommendations over the 
fiscal years 1998 through 2002 is shown in Table 1. The 
projected impact over 10 years is shown in Table 6, which 
appears at the end of this estimate.
            Receipts for medical care
    The committee's recommendations contain provisions that 
would extend the authority of the Department of Veterans 
Affairs (VA) to collect certain receipts and would provide new 
authority to spend the amounts it collects under title VIII and 
current law. The combined budgetary effects are shown in Table 
2. In total, these provisions would increase direct spending by 
$1.5 billion over the 1998-2002 period.

                    TABLE 1. ESTIMATED BUDGETARY IMPACT OF TITLE VIII, FISCAL YEARS 1998-2002                   
                                    [By fiscal year, in millions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                                   1997       1998       1999       2000       2001       2002  
----------------------------------------------------------------------------------------------------------------
                                                VETERANS PROGRAMS                                               
                                                                                                                
Spending Under Current Law for Veterans                                                                         
 Programs: \1\                                                                                                  
    Estimated Budget Authority................     39,126     41,323     43,484     44,649     45,826     47,043
    Estimated Outlays.........................     39,445     41,793     43,378     46,287     43,920     46,971
Proposed Changes:                                                                                               
    Estimated Budget Authority................          0        460       -481       -502       -540       -564
    Estimated Outlays.........................          0        322       -448       -546       -495       -564
Spending Under Title VIII for Veterans                                                                          
 Programs:                                                                                                      
    Estimated Budget Authority................     39,126     41,783     43,003     44,147     45,286     46,479
    Estimated Outlays.........................     39,445     42,115     42,930     45,741     43,425     46,407
                                                                                                                
                                                    MEDICAID                                                    
                                                                                                                
Spending Under Current Law for Medicaid:                                                                        
    Estimated Budget Authority................     98,599    105,308    113,619    122,861    132,792    143,783
    Estimated Outlays.........................     98,599    105,308    113,619    122,861    132,792    143,783
Proposed Changes:                                                                                               
    Estimated Budget Authority................          0          0        282        280        283        292
    Estimated Outlays.........................          0          0        282        280        283        292
Spending Under Title VIII for Medicaid:                                                                         
    Estimated Budget Authority................     98,599    105,308    113,901    123,141    133,075    144,075
    Estimated Outlays.........................     98,599    105,308    113,901    123,141    133,075    144,075
                                                                                                                
                                    TOTAL PROPOSED CHANGES IN DIRECT SPENDING                                   
                                                                                                                
    Estimated Budget Authority................          0        460       -199       -222       -257       -272
    Estimated Outlays.........................          0        322       -166       -266       -212       -272
----------------------------------------------------------------------------------------------------------------
1 CBO's baseline with adjustments for anticipated inflation.                                                    
                                                                                                                
Note: The budgetary impact of the recommendations would fall under budget function 700 (veterans' affairs) and  
  550 (health).                                                                                                 

    Hospital Per Diems and Medical Care Copayments.--Section 
8011 would extend through September 30, 2002, VA's authority to 
collect per diem payments for inpatient hospitalizations and 
nursing home care, and other copayments for medical services 
provided to certain veterans. Under current law, veterans are 
subject to these copayments if they have no service-connected 
disability or a disability rated as less than 10 percent 
disabling, have high enough income, and are treated for a non-
service-connected ailment. Extending these provisions of law, 
which expire on September 30, 1998, would result in collections 
of about $2 million in 1999 and $11 million over the 1999-2002 
period.
    In addition, this section would extend through September 
30, 2002, VA's authority to collect copayments for outpatient 
medications that are prescribed for nonservice-connected 
conditions. The copayment would apply to all veterans, except 
those who have a service-connected disability rated at 50 
percent or more or whose income falls below a certain 
threshold. CBO estimates that these collections would amount to 
about $36 million in 1999 and $152 million over the 1999-2002 
period.
    Medical Care Cost Recovery.--Section 8012 would extend 
through September 30, 2002, VA's authority to collect from 
third-party insurers the cost of treating veterans with a 
service-connected disability for nonservice-connected ailments. 
CBO estimates that collections would amount to about $195 
million in 1999 and $829 million over five years, based on VA's 
recent experience and adjustments for anticipated inflation.
    Medical Care Collections Fund.--Section 8013 would allow VA 
to spend all amounts that it collects, including copayments, 
per diems, and third-party recoveries. Under current law, VA 
will collect about $486 million in 1998 and about $1.5 billion 
over the 1998-2002 period. Sections 8011, 8012, and 8014 of the 
bill would add about $1.1 billion over the five-year period to 
VA's collections that would be available for expenditure. Thus, 
this legislation would give VA additional spending authority 
totaling $2.6 billion over the 1998-2002 period.
    In addition, this section contains a provision that would 
allow VA to have direct spending authority if actual 
collections fall short of estimates. Specifically, Treasury 
funds would be made available to VA if the VA Secretary 
projects that its collections will fall $25 million or more 
below the latest CBO baseline estimate. Under that provision VA 
would have permanent, indefinite authority to spend the 
difference between $25 million and the amount of any shortfall 
greater than $25 million during fiscal years 1998, 1999, and 
2000.
    This provision has potential costs but no potential 
savings. If recoveries are less than CBO projects by at least 
$25 million, the deficit would be greater than under the 
baseline projection. If, on the other hand, recoveries are more 
than CBO projects, the additional funds would be spent and the 
deficit would be unaffected. On average, therefore, 
thisprovision would increase the expected deficit in any year, an 
increase that CBO estimates would be about $15 million a year for the 
three-year period.
    Income Verification.--Section 8014 would allow VA to use 
data from the IRS to verify the incomes of veterans receiving 
benefits from VA, including medical care. Under current law, 
veterans whose income falls below a certain level qualify for 
free medical treatment. Veterans who receive free treatment, 
but are later found to be ineligible through income 
verification, could be charged the standard Medicare deductible 
($760) for the first 90 days of care, and a $10 daily 
copayment. These payments revert to the Treasury as mandatory 
receipts. CBO estimates that VA would collect about $17 million 
in 1999 and $71 million over the 1999-2002 period as a result 
of this extension of its authority to verify incomes.

           TABLE 2. BUDGETARY IMPACT OF PROPOSED CHANGES AFFECTING RECEIPTS FOR VETERANS MEDICAL CARE           
                                    [By fiscal year, in millions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                                   1997       1998       1999       2000       2001       2002  
----------------------------------------------------------------------------------------------------------------
                                                 DIRECT SPENDING                                                
                                                                                                                
Receipts Under Current Law from Medical Care:                                                                   
    Estimated Budget Authority................       -580       -604       -365       -380       -395       -412
    Estimated Outlays.........................       -580       -603       -365       -380       -395       -412
Proposed Changes:                                                                                               
    Estimated Budget Authority................          0        501        257        267        262        273
    Estimated Outlays.........................          0        451        251        265        261        270
Receipts Under Title VIII from Medical Care:                                                                    
    Estimated Budget Authority................       -580       -103       -108       -113       -133       -139
    Estimated Outlays.........................       -580       -152       -114       -115       -134       -142
----------------------------------------------------------------------------------------------------------------

            Housing
    Veterans housing would be affected by four provisions. As 
shown in Table 3, these provisions would reduce direct spending 
by $1.0 billion over the 1998-2002 period.
    Home Loan Fees.--Section 8016 would raise the origination 
fee on direct loans and extend through 2002 two provisions of 
law pertaining to the veterans home loan program that expire on 
September 30, 1998. VA often acquires property when a 
guaranteed loan goes into foreclosure and issues a new direct 
loan (called a vendee loan) when the property is sold.
    This section would raise the fee on vendee loans, from 1 
percent to 2.25 percent of the loan amount, to match the 
premium charged by the Federal Housing Administration. CBO 
estimates that collections would rise by about $13 million a 
year.
    Under one provision that would be extended, VA must charge 
certain veterans a fee of 0.75 percent of the total loan 
amount. CBO estimates this provision would affect about 209,000 
loans each year and raise collections by about $150 million a 
year. Under current law, veterans can reuse their home loan 
guarantee benefit if their previous debt has been paid in full. 
The second provision of this section would require VA to 
collect a fee of 3 percent of the total loan amount from 
veterans who reuse this benefit. CBO estimates this fee would 
apply to about 30,000 loans each year and raise collections by 
about $57 million a year.
    Withholding of Payments and Benefits.--Section 8022 would 
permit VA to collect certain loan guarantee debts by reducing 
any federal salary or federal income tax return refund due to a 
veteran or surviving spouse. Under current law, before VA could 
use these means, either it would have to obtain the written 
consent of the debtor or the debt would have to be due to a 
court determination. Based on information from VA, CBO 
estimates this provision would raise collections by $90 million 
in 1998 from a stock of loans that originated several years. 
ago. There would be no effect after 1998 because this provision 
does not apply to debts from the home loan program as it 
currently operates.
    Liquidation Sales.--Section 8017 would extend from 1998 
through 2002 a provision of law that requires VA to consider 
the losses it might incur when selling a property acquired 
through foreclosure. Under current law, VA follows a formula 
defined in statute to decide whether to acquire the property or 
pay off the loan guarantee instead. The formula requires 
appraisals that may be valid at the time they are made, but do 
not account for changes in market conditions that may occur 
while VA prepares to dispose of the property. This provision 
would require VA to take account of losses from changes in 
housing prices that the appraisal does not capture. Losses of 
this type might be prevalent when housing prices are 
particularly volatile or if appraisals were biased for other 
reasons. Since 1978, VA has suffered a resale loss every year 
except 1993 and 1994. Recent losses average about $2,500 per 
home. Assuming this provision applies to approximately 2,000 
homes each year, CBO estimates it would save $5 million a year.
    Enhanced Loan Asset Sales.--Section 8018 would extend from 
December 31, 1997, through fiscal year 2002 VA's authority to 
guarantee the real estate mortgage conduits (REMICs) that are 
used to market vendee loans. Vendee loans are issued to the 
buyers of properties that VA acquires through foreclosures. VA 
then sells these loans on the secondary mortgage market by 
using REMICs. By guaranteeing the certificates issued on a pool 
of loans, VA obtains a better price but also assumes some risk.
    Because recent history indicates that receipts would 
increase by about 0.3 percent of sales, CBO estimates that this 
provision would save about $5 million a year based on sales of 
$1.6 billion. If this provision were not enacted, VA could 
market vendee loans under other provisions of law. 
Nevertheless, this provision would permit VA to realize a 
better price for a package of vendee loans than if it used a 
REMIC program of the Government National Mortgage Association

                 TABLE 3. BUDGETARY IMPACT OF PROPOSED CHANGES TO THE VETERANS HOME LOAN PROGRAM                
                                    [By fiscal year, in millions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                                              1997     1998     1999     2000     2001     2002 
----------------------------------------------------------------------------------------------------------------
                                                 DIRECT SPENDING                                                
                                                                                                                
Spending Under Current Law for Veterans Housing Programs:                                                       
    Estimated Budget Authority............................     -627      145      296      310      311      308
    Estimated Outlays.....................................     -695       71      229      252      256      261
Proposed Changes:                                                                                               
    Estimated Budget Authority............................        0      -16     -233     -232     -229     -224
    Estimated Outlays.....................................        0     -106     -233     -232     -229     -224
Spending Under Title VIII for Veterans Housing Programs:                                                        
    Estimated Budget Authority............................     -627      129       63       78       82       84
    Estimated Outlays.....................................     -695      -35       -4       20       27       37
----------------------------------------------------------------------------------------------------------------

            Pensions
    Veterans pensions would be affected by two provisions. As 
shown in Table 4, these provisions would reduce direct spending 
for veterans' pensions and increase spending for Medicaid, 
resulting in a net spending reduction of $0.7 billion over the 
1999-2002 period.
    Pension Limitation for Medicaid-Eligible Veterans in 
Nursing Homes.--Section 8015 would extend from September 30, 
1998, to September 30, 2002, the expiration date on a provision 
of law that sets a $90 per month limit on pensions for any 
veteran without a spouse or child, or for any survivor of a 
veteran, who is receiving Medicaid coverage in a Medicaid-
approved nursing home. It also allows the beneficiary to retain 
the pension instead of having to use it to defray nursing home 
costs.
    Based on VA's experience under current law, this estimate 
assumes that the extension of the expiration date would affect 
approximately 16,000 veterans and 27,000 survivors. According 
to VA, average savings were about $12,000 for veterans and 
$8,000 for survivors in 1996. Higher Medicaid payments to 
nursing homes would offset some of the savings credited to VA. 
Net savings would increase from $129 million in 1999 to $174 
million in 2002.
    Income Verification. Current law authorizes VA to acquire 
information on income reported to the Internal Revenue Service 
(IRS) to verify income reported by recipients of VA pension 
benefits. This authorization expires on September 30, 1998. 
Section 8014 would extend the expiration date to September 30, 
2002. This estimate is based on VA's recent experience, which 
has shown that about $4 million in new savings is achieved 
annually through this income match. Savings would grow from $4 
million in 1999 to $16 million in 2002 as each year a new 
cohort of veterans is subject to income verification.

                       TABLE 4. BUDGETARY IMPACT OF PROPOSED CHANGES TO VETERANS PENSIONS                       
                                    [By fiscal year, in millions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                                        1997      1998      1999      2000      2001      2002  
----------------------------------------------------------------------------------------------------------------
                                                VETERANS PENSIONS                                               
                                                                                                                
Spending Under Current Law for Veterans Pensions:                                                               
    Estimated Budget Authority......................     2,975     2,975     3,427     3,454     3,513     3,608
    Estimated Outlays...............................     2,975     2,989     3,399     3,751     3,203     3,604
Proposed Changes:                                                                                               
    Estimated Budget Authority......................         0         0      -452      -454      -463      -483
    Estimated Outlays...............................         0         0      -415      -491      -426      -482
Spending Under Title VIII for Veterans Pensions:                                                                
    Estimated Budget Authority......................     2,975     2,975     2,975     3,000     3,050     3,125
    Estimated Outlays...............................     2,975     2,989     2,984     3,049     2,777     3,122
                                                                                                                
                                                    MEDICAID                                                    
                                                                                                                
Spending Under Current Law for Medicaid:                                                                        
    Estimated Budget Authority......................    98,599   105,308   113,619   122,861   132,792   143,783
    Estimated Outlays...............................    98,599   105,308   113,619   122,861   132,792   143,783
Proposed Changes:                                                                                               
    Estimated Budget Authority......................         0         0       282       280       283       292
    Estimated Outlays...............................         0         0       282       280       283       292
Spending Under Title VIII for Medicaid:                                                                         
    Estimated Budget Authority......................    98,599   105,308   113,901   123,141   133,075   144,075
    Estimated Outlays...............................    98,599   105,308   113,901   123,141   133,075   144,075
                                                                                                                
                                    TOTAL PROPOSED CHANGES IN DIRECT SPENDING                                   
                                                                                                                
    Estimated Budget Authority......................         0         0      -170      -174      -180      -191
    Estimated Outlays...............................         0         0      -133      -211      -143      -190
----------------------------------------------------------------------------------------------------------------

            Compensation
    The budget resolution baseline assumes that monthly 
payments of disability compensation to veterans and monthly 
payments of dependency and indemnity compensation (DIC) to 
their survivors are increased by the same cost-of-living 
adjustment (COLA) payable to Social security recipients. The 
results of the adjustments are rounded to the nearest dollar. 
Section 8021 would require VA to round down, to the next lower 
dollar, adjustments to disability compensation and DIC through 
2002. CBO estimated the savings from this provision using the 
current table of monthly benefits and the number of 
beneficiaries assumed in the baseline. As shown in Table 5, 
savings from this section would be about $23 million in 1998, 
growing to $128 million in 2002.
    Estimated impact on State, local, and tribal governments: 
This title contains no intergovernmental mandates as defined in 
UMRA. It would, however, significantly increase Medicaid costs 
for state governments. CBO estimates that states would spend an 
additional $213 million for the Medicaid program in fiscal year 
1999 and an additional $857 million between 1999 and 2002. 
Under UMRA, these costs would not be considered mandate costs 
because states have the flexibility to offset them by reducing 
their programmatic or financial responsibilities elsewhere in 
the Medicaid program.
    The proposal would extend until September 30, 2002, the 
limitation on the monthly pension that certain veterans in 
nursing homes could receive. Under current law, this limitation 
will expire on September 30, 1998. The effect of the extension 
would be to require the Medicaid program to continue covering 
100 percent of the nursing home expenses of certain veterans 
after fiscal year 1998. The states' portion of these costs 
totals about $213 million annually. Under current law, the 
Department of Veterans Affairs and the veterans themselves 
would have paid these costs.

                     TABLE 5. BUDGETARY IMPACT OF PROPOSED CHANGES TO VETERANS COMPENSATION                     
                                    [By fiscal year, in millions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                                        1997      1998      1999      2000      2001      2002  
----------------------------------------------------------------------------------------------------------------
                                                 DIRECT SPENDING                                                
                                                                                                                
Spending Under Current Law for Veterans                                                                         
 Compensation:                                                                                                  
    Estimated Budget Authority......................    16,082    16,742    17,366    17,809    18,243    18,680
    Estimated Outlays...............................    15,942    16,687    17,314    19,257    16,723    18,643
Proposed Changes:                                                                                               
    Estimated Budget Authority......................         0       -25       -53       -83      -110      -130
    Estimated Outlays...............................         0       -23       -51       -88      -101      -128
Spending Under Title VIII for Veterans Compensation:                                                            
    Estimated Budget Authority......................    16,082    16,717    17,313    17,726    18,133    18,550
    Estimated Outlays...............................    15,942    16,664    17,263    19,169    16,622    18,515
----------------------------------------------------------------------------------------------------------------

    Estimated impact on the private sector: This bill would 
impose no new private-sector mandates as defined UMRA.
    Estimate prepared by--Federal Cost: Shawn Bishop (medical 
care), Sunita D'Monte (housing), and Mary Helen Petrus 
(compensation and pension); Impact on State, Local, and Tribal 
Governments: Marc Nicole; Impact on the Private Sector: Rachel 
Schmidt.
    Estimate approved by: Robert A. Sunshine, Deputy Assistant 
Director for Budget Analysis.

 TABLE 6.--ESTIMATED BUDGETARY EFFECTS OF TITLE VIII, FISCAL YEARS 1998-2007--RECONCILIATION RECOMMENDATIONS OF THE HOUSE COMMITTEE ON VETERANS' AFFAIRS
                                                        [In millions of dollars, by fiscal years]                                                       
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                               1998-2007
                                    1998       1999       2000       2001       2002       2003       2004       2005       2006       2007       total 
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              CHANGES IN VETERANS PROGRAMS                                                              
                                                                                                                                                        
Medical Care Receipts:                                                                                                                                  
    Estimated Budget Authority.        501        257        267        262        273        284        295        308        320        333      3,099
    Estimated Outlays..........        451        251        265        261        270        311        297        306        319        332      3,063
Housing:                                                                                                                                                
    Estimated Budget Authority.        -16       -233       -232       -229       -224          0          0          0          0          0       -934
    Estimated Outlays..........       -106       -233       -232       -229       -224          0          0          0          0          0     -1,024
Pensions:                                                                                                                                               
    Estimated Budget Authority.          0       -452       -454       -463       -483          0          0          0          0          0     -1,852
    Estimated Outlays..........          0       -415       -491       -426       -482          0          0          0          0          0     -1,814
Compensation:                                                                                                                                           
    Estimated Budget Authority.        -25        -53        -83       -110       -130          0          0          0          0          0       -401
    Estimated Outlays..........        -23        -51        -88       -101       -128          0          0          0          0          0       -391
    Total Veterans Programs:                                                                                                                            
        Estimated Budget                                                                                                                                
         Authority.............        460       -481       -502       -540       -564        284        295        308        320        333        -88
        Estimated Outlays......        322       -448       -546       -495       -564        311        297        306        319        332       -166
                                                                                                                                                        
                                                                   CHANGES IN MEDICAID                                                                  
                                                                                                                                                        
    Estimated Budget Authority.          0        282        280        283        292          0          0          0          0          0      1,137
    Estimated Outlays..........          0        282        280        283        292          0          0          0          0          0      1,137
                                                                                                                                                        
                                                             TOTAL CHANGE IN DIRECT SPENDING                                                            
                                                                                                                                                        
    Estimated Budget Authority.        460       -199       -222       -257       -272        284        295        308        320        333      1,049
    Estimated Outlays..........        322       -166       -266       -212       -272        311        297        306        319        332        971
--------------------------------------------------------------------------------------------------------------------------------------------------------

                       Committee on Ways and Means,
                                  House of Representatives,
                                     Washington, DC, June 13, 1997.
Hon. John Kasich,
Chairman, Committee on the Budget,
Washington, DC.
    Dear Mr. Chairman: On June 10, 1997, the Committee on Ways 
and Means, pursuant to H. Con. Res. 84, the Concurrent 
Resolution on the Budget of Fiscal Year 1998, ordered favorably 
reported, as amended, its budget reconciliation human resources 
recommendations to the Committee on Budget by a recorded vote 
of 21 to 18 with a quorum present. Accordingly, I am now 
transmitting these recommendations to you.
    Pursuant to your letter dated May 30, enclosed are the 
legislative language and explanatory report language.
    Please feel free to contact me or Pete Singleton if you 
have any questions. With best personal regards,
            Sincerely,
                                             Bill Archer, Chairman.
    Enclosures.

                 SUMMARY TABLE--BY SUBTITLE, BY PROGRAM, FEDERAL BUDGETARY EFFECTS OF WAYS AND MEANS RECONCILIATION PROPOSALS--TITLE IX                 
     [By fiscal year, in millions of dollars. Estimates based on draft legislative language and clarifications specified by Committee staff. Assumes    
                                                              enactment by August 15, 1997]                                                             
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                    1997-2002  1998-2002
                                                                     1997       1998       1999       2000       2001       2002      total      total  
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     DIRECT SPENDING                                                                    
                                                                                                                                                        
Subtitle A: Temporary Assistance for needy Families Block                                                                                               
 Grant,\1\ Welfare to Work Grants:                                                                                                                      
    Budget Authority............................................          0        750      1,250      1,000          0          0      3,000      3,000
    Outlays.....................................................          0        137        596      1,087        779        385      2,984      2,984
Subtitle B. Supplemental Security Income,\2\ \3\ SSI:                                                                                                   
    Budget Authority............................................          0       (35)       (70)       (80)       (90)      (105)      (380)      (380)
    Outlays.....................................................          0       (35)       (70)       (80)       (90)      (105)      (380)      (380)
Subtitle D: Restricting Welfare and Public Benefits for Aliens;                                                                                         
 SSI:                                                                                                                                                   
        Budget Authority........................................        200      1,900      1,650      1,525      1,150      1,175      7,600      7,400
        Outlays.................................................        200      1,900      1,650      1,525      1,150      1,175      7,600      7,400
    Food Stamp Program:                                                                                                                                 
        Budget Authority........................................          0          0          0          0          0          0          0          0
        Outlays.................................................          0          0          0          0          0          0          0          0
    Medicaid:                                                                                                                                           
        Budget Authority........................................         40        375        350        300        275        275      1,615      1,575
        Outlays.................................................         40        375        350        300        275        275      1,615      1,575
Total Subtitle D:                                                                                                                                       
    Budget Authority............................................        240      2,275      2,000      1,825      1,425      1,450      9,215      8,975
    Outlays.....................................................        240      2,275      2,000      1,825      1,425      1,450      9,215      8,975
Subtitle: Unemployment Compensation: \4\                                                                                                                
    Budget Authority............................................          0       (34)       (36)      (238)      (247)      (257)      (814)      (814)
    Outlays.....................................................          0       (34)       (36)      (238)      (247)      (257)      (814)      (814)
Total Direct Spending:                                                                                                                                  
    Budget Authority............................................        240      2,956      3,144      2,507      1,088      1,088     11,021     10,781
    Outlays.....................................................        240      2,343      2,490      2,594      1,867      1,473     11,005     10,765
                                                                                                                                                        
                                                                        REVENUES                                                                        
                                                                                                                                                        
Subtitle: Unemployment C........................................          0          0       (11)        488        495        410      1,380      1,380
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ This estimate assumes that states would use nearly all of the $3 billion in welfare-to-work grants that would be established by the proposal. We are
  continuing to survey some states about their likelihood of using this money.                                                                          
\2\ The bill proposes to repeal the maintenance-of-effort requirement for state supplementation of federal SSI benefits found in section 1618 of the    
  Social Security Act. That repeal would have no direct effect on the federal budget, but it could have indirect effects. Assuming that states reduce   
  their supplements in response to this provision, the principal indirect effects on federal outlays would be an increase in Food Stamp costs (as some  
  beneficiaries' Food Stamps would rise to offset a part of their lost supplements), and a decrease in Medicaid spending (as a few beneficiaries who    
  gain coverage solely through state supplements lose that coverage). CBO's best estimate is that these effects would be roughly offsetting, so that no 
  federal costs or savings are shown as a consequence of the repeal of Sec. 1618. The proposed legislation does not make clear whether the state of     
  California's ability to ``cash out'' Food Stamp benefits for SSI recipients, which is now based on its relatively high supplements and its compliance 
  with the maintenance-of-effort requirement, would end. (``Cashout'' means that a small part of the supplement is simply regarded as a substitute for  
  Food Stamp benefits.) However, CBO's conclusion about federal budgetary impacts from the repeal of the maintenance-of-effort requirement is not very  
  sensitive to assumptions about the continuation of California's cashout status.                                                                       
\3\ The bill would permit the proceeds from extra fees for federal administration of state supplements to be appropriated to help cover the             
  administrative expenses of the Social Security Administration. The bill does not, however, directly grant SSA authority to spend those proceeds.      
\4\ The unemployment benefit outlay savings shown assume an adjustment to the CBO March 1997 baseline to reflect increases due to the April 4, 1997     
  decision by the Seventh Circuit U.S. Court of Appeals, which affirmed the judgment of the district court in the case of Pennington v. Doherty.        
                                                                                                                                                        
Notes: Details may not add to totals because of rounding.                                                                                               

                            I. Introduction

                         A. Purpose and Summary

    The budget agreement worked out between the Congress and 
the Administration included several issues under the 
jurisdiction of the Committee on Ways and Means. These items 
are items about which the Committee or its Subcommittee on 
Human Resources has held hearings and introduced legislation 
over the past two years (with one exception) are contained in 
the Committee's reconciliation recommendation to the Committee 
on the Budget.
    Although the general purpose of this proposal is to balance 
the budget within 5 years, each of the 23 provisions in the 
Committee recommendation to the Committee on the Budget are 
good public policy and stand on their own merits. One set of 
proposals deals with issues raised by last year's welfare 
reform legislation. Here the Committee clarified work 
requirements and the number of hours certain workfare 
participants may work, given the amount of taxpayer-paid 
benefits they receive, while satisfying minimum wage 
requirements. The Committee also, in accord with the budget 
agreement, creates a new $3 billion welfare-to-work grant aimed 
at helping the most disadvantaged and least job ready welfare 
recipients obtain jobs.
    Another set of proposals addresses the issue of welfare 
benefits for noncitizens. The Committee proposal includes about 
$9 billion in welfare benefits for noncitizens who were 
receiving benefits when the welfare reform law, enacted last 
August, restricted welfare benefits for noncitizens. this 
policy will provide Supplemental Security Income (SSI) and 
Medicaid benefits to about 500,000 noncitizens who would 
otherwise lose them no later than October 1, 1997. The 
Committee proposal also extends from 5 years to 7 years the 
time during which refugees, asylees, and those whose 
deportation is being withheld can receive SSI and Medicaid, 
continues SSI benefits for permanent resident alien members of 
Indian tribes living along the U.S./Canada and U.S./Mexico 
border, and authorizes States and localities to require 
applicants for welfare benefits to provide proof of 
eligibility.
    Since passage of the welfare reform law last year, the 
Committee has closely followed implementation of the stricter 
eligibility guidelines for children receiving SSI benefits. 
Because implementation fell behind schedule, the Committee 
proposal gives the Social Security Administration an additional 
6 months to review cases in applying the new guidelines. The 
proposal also clarifies that regardless of when reviews are 
conducted, the new eligibility guidelines must be applied. In 
accordance with the budget agreement, the proposal requires the 
Social Security Administration to increase fees for including 
State SSI supplements in the Federal benefit check. It also 
would repeal the maintenance of effort requirement that States 
must maintain their State SSI supplement at 1983 levels.
    Finally, the Committee proposal, in reaction to the 
Pennington v. Doherty court decision by the Federal district 
court in Illinois, contains a proposal clarifying that States 
have complete authority in setting the base period for 
determining eligibility for unemployment benefits. Consistent 
with the budget agreement, the proposal increases the ceilings 
for the Federal unemployment compensation trust funds, limits 
transfers from Federal to State accounts to $100 million 
annually in the coming years, and authorizes specific amounts 
for unemployment compensation ``integrity'' activities designed 
to reduce overpayments. Given the recent concern with States' 
maintaining adequate reserves in their unemployment trust fund 
accounts, the proposal would reward States that reach a State-
specific criterion for high trust fund levels by granting these 
States interest-free loans if the necessity for borrowing from 
the Federal loan account should occur. Other provisions exclude 
certain inmates, poll workers, and employers of religious 
schools from eligibility for UI benefits.
    Taken together, the Committee proposal both fulfills the 
spending and savings terms of the budget agreement and reforms 
several of the important social programs under the Committee's 
jurisdiction.

                         B. Legislative History

    The Subcommittee on Human Resources of the Committee on 
Ways and Means held a hearing on February 13, 1997 on the 
President's Fiscal Year 1998 Budget and heard testimony from 
the Honorable Lamar Smith (TX), representatives of the Clinton 
Administration, and other interested parties.
    On June 6, 1997, the Subcommittee on Human Resources 
ordered favorably reported to the full Committee, as amended, 
budget reconciliation human resources recommendations by a 
recorded vote of 8 to 3 with a quorum present.
    On June 10, 1997, the Committee on Ways and Means approved 
and reported to the Committee on the Budget, as amended, budget 
reconciliation human resources recommendations by a recorded 
vote of 21 to 18.

                     II. Explanation of Provisions

                     Subtitle A--TANF Block Grants

Section 9001. Welfare-to-work grants

            Present law
    The law combines recent Federal funding levels for three 
repealed programs (AFDC, Emergency Assistance, and JOBS) into a 
single block grant ($16.5 billion annually through Fiscal Year 
2002). Each State is entitled to the sum it received for these 
programs in a recent year, but no part of the TANF grant is 
earmarked for any program component, such as benefits or work 
programs. The law also provides an average of $2.3 billion 
annually in a child care block grant.
            Explanation of provision
    After reserving 1 percent of each year's appropriation for 
Indian tribes and 0.5 percent for evaluation by the Secretary 
of HHS, the remainder of each year's appropriation is divided 
into two grant funds of $1.478 billion each. The first fund is 
used for grants to States and localities and is allocated by a 
formula based equally on each State's share of the national 
poor population, unemployed workers, and adults receiving 
assistance under the Temporary Assistance for Needy Families 
block grant. Funds may also be used to help noncustodial 
parents of children receiving benefits under the Temporary 
Assistance for Needy Families program enter the labor force. 
The second fund is used to support proposals submitted by 
private industry councils (authorized by the Job Training 
Partnership Act) or political subdivisions of States that are 
determined by the Secretary of Labor, in consultation with the 
Secretaries of Health and Human Services and Housing and Urban 
Development, to hold promise for helping long-term welfare 
recipients enter the workforce.
    Formula grants from the first fund are to be provided to 
States for the purpose of initiating projects that aim to place 
long-term welfare recipients in the workforce. Governors must 
distribute at least 85 percent of the State allotment to 
service delivery areas within the State. These funds must be 
distributed in accord with a formula devised by the governor 
that bases at least 50 percent of its allocation weight on 
poverty and may also include two additional factors, welfare 
recipients who have received benefits for 30 or more months and 
unemployment. Any service delivery area that, under this 
formula, would be allocated less than $100,000 will not receive 
any funds; these funds will instead revert to the governor. 
Governors may use up to 15 percent of the State allocation, 
plus any amounts remitted from service delivery areas that 
would be allotted less than $100,000, to fund projects designed 
to help long-term recipients enter the workforce. Formula grant 
funds for service delivery areas must be passed through to 
private industry councils; these councils have sole authority 
to expend funds, but they cannot conduct programs themselves 
and the agency responsible for the TANF program must approve 
the grant proposal.
    Competitive grants are awarded in FY 1998 and FY 2000, 
although approved projects can receive funds from the Secretary 
every year and have 3 years to spend funds once obligated, on 
the basis of the likelihood that program applicants can 
successfully make long-term placements of welfare-dependent 
individuals into the workforce. The Secretary must select 
projects that show promise in: (1) expanding the base of 
knowledge about welfare-to-work programs for the least job 
ready; (2) moving the least job ready recipients into the labor 
force; and (3) moving the least job ready recipients into the 
labor force even in labor markets that have a shortage of low-
skill jobs. Other factors the Secretary, at her discretion, may 
use to select projects include: history of success in moving 
individuals with multiple barriers into work; evidence of 
ability to leverage private, State, and local resources; use of 
State and local resources that exceed the required match; plans 
to coordinate with other organizations at the local and State 
level; and use of current or former welfare recipients as 
mentors, case managers, or service providers. Private industry 
councils or any political subdivision of a State may apply for 
funds. The Secretary cannot award grants unless the TANF agency 
has approved the grant application. Further, the Secretary, in 
consultation with the Secretaries of Health and Human Services 
and Housing and Urban Development, must terminate funds for a 
project upon a determination that the private industry council 
and the TANF agency are not adhering to the agreement. The 
Secretary must ensure that at least 65 percent of each year's 
amount available for competitive grants is awarded for projects 
in the 100 cities in the U.S. that have the highest number of 
poor adults and that at least 25 percent is reserved for 
spending in rural areas. Awards to each project must be based 
on the Secretary's determination of the amount needed for the 
project to be successful. Allowable activities include job 
creation, on-the-job training, contracts with public or private 
providers of employment services, job vouchers, and job support 
services. The Secretary must include several required outcome 
measures in the evaluation study and must report to Congress on 
program outcomes in 1999 and 2001.
    Funds under both the competitive grants and the formula 
grants can be spent only for job creation through public or 
private sector employment wage subsidies; on-the-job training; 
contracts with public or private providers of readiness, 
placement, and post-employment services; job vouchers for 
placement, readiness, and post-employment services; and job 
support services (not including child care) if such services 
are not otherwise available.Any entity receiving funds under 
either grant must expend at least 90 percent of the money on recipients 
who posses a pattern of characteristics that include long-term receipt 
of welfare, school dropout, drug addiction, a poor work history, and 
imminent termination of welfare benefits.
    Entitlement funds available under this program are $0.75 
billion for fiscal year 1998, $1.25 billion for fiscal year 
1999, and $1.0 billion for fiscal year 2000. The Secretary 
would be provided with funds to evaluate the welfare-to-work 
projects and is required to include several specific measures, 
such as success in job placements, in her evaluation of the 
program.
    The proposal also contains worker protections that would 
apply to work activities supported by funds from the new 
welfare-two-work grant. These protections would include worker 
displacement language, a prohibition on using recipients to 
violate collective bargaining contracts, health and safety 
standards, and a grievance procedure that includes financial 
sanctions against States that violate the grievance procedure.
            Reason for change
    After many years of research on welfare-to-work programs, 
there is now widespread agreement that good programs can help 
welfare recipients enter the workforce. However, it is also 
generally acknowledged that many welfare recipients, especially 
those with low education, low skills, and little job 
experience, have difficultly finding jobs and even more 
difficultly keeping jobs once they are found. In fact, the few 
programs that have made serious attempts to help the least job 
ready enter the labor force have found that extensive efforts 
are required to help these workers, both before and during the 
time they hold jobs, as well as after they have lost jobs.
    However, so few programs have attempted to help the least 
job-ready recipients enter the labor force that we know far too 
little about the types of activities that will be most 
successful in helping them. This grant program should help 
States and local governments work with the private sector in 
finding new ways to help these welfare recipients--as well as 
the noncustodial parents of children on welfare--make the 
difficult transition into the work force while simultaneously 
helping hundreds of thousands of such recipients actually enter 
the workforce. For that reason, it is especially important that 
the State or local TANF agency be directly involved in planning 
for, and carrying out, these job creation activities. It is the 
TANF agency that will be held accountable for meeting the work 
requirements and time limits of the welfare law. It is also 
important for the TANF agency and the local private industry 
council to work together so that unnecessary duplication can be 
avoided. The Committee proposal strikes the right balance 
between these important considerations. This grant program will 
become increasingly important as the most job ready adults 
welfare and the State welfare caseloads come to have 
increasingly high proportions of seriously disadvantaged 
recipients.
            Effective date
    Date of enactment (funds are available beginning in fiscal 
year 1998).

Section 9002. Limitation on amount of Federal funds transferable to 
        title XX programs

            Present law
    States may transfer up to 30 percent of their TANF funds to 
the Title XX block grant and the Child Care and Development 
Block Grant (CCDBG), but no more than one-third of the total 
transfer may go to the former. (For ever $1 transferred to 
Title XX, $2 must go to the child care block grant.)
            Explanation of provision
    The 30 percent transfer provision is replaced with a 
provision allowing State to transfer up to 30 percent of their 
TANF funds to the child care block grant and up to 10 percent 
of the TANF funds to the Title XX block grant. States may 
transfer funds to both block grants, but the total amount 
transferred man not exceed 30 percent of TANF funds in any 
year. The provision that transfer to the Title XX block grant 
can be spend only on children and families below 200 percent of 
the poverty level is retained.
            Reason for change
    States have vast new responsibilities under last year's 
welfare reform law. Notably, they must not only provide 
benefits for destitute families, but they must now do so while 
helping these families get back on their feet and become self-
sufficient. The mandatory work standards and time limits of the 
welfare reform legislation force States to mount effective 
programs in helping dependent families both during the time 
they are on welfare and once they enter the labor force. To 
achieve both the goal of providing welfare benefits and the 
goal of helping families become self sufficient, States need 
flexible source of funding. The block grant structure of 
Temporary Assistance for Needy Families, Title XX, and the 
Child Care and Development Block grants is an importanttool to 
help States achieve these difficult goals. These resources can be used 
by States even more effectively if they have the flexibility to 
transfer funds between these block grants so they can spend the money 
where it is needed most. This provisions will make it easier for States 
to transfer money to the Title XX block grant while ensuring that the 
money must be spent on families with children.
            Effective date
    August 22, 1996.

Section 9003. Clarification of limitation on number of persons who may 
        be treated as engaged in work by reason of participation in 
        education activities

            Present law
    The law restricts to 20 percent the proportion of persons 
in all families and in 2-parent families who may be treated as 
engaged in work for a month by reason of participating in 
vocational education training or, if single teenage household 
heads without a high school diploma, by reason of satisfactory 
attendance at secondary school or participation in education 
directly related to employment.
            Explanation of provision
    Rather than restrict to 20 percent the proportion of 
persons in all families and in 2-parent families who may be 
treated as engaged in work by reason of vocational educational 
training, secondary education, or education related to 
employment, this provision adjusts the limitation so that no 
more than 30 percent of those who qualify as meeting the work 
standard may do so by participating in vocational educational, 
training, secondary education, and other education related to 
employment. Teen heads of household are exempted form this 
limitation.
            Reason for change
    One purpose of the welfare reform law is to help adults on 
welfare become self-sufficient by entering the labor force. 
Based on years of experience with welfare-to-work programs on a 
vast research literature on these programs, the legislation was 
based on the judgment that the most effective approach to 
helping welfare recipients enter the labor force is by 
requiring actual work or by providing help in searching for 
work. Thus, the legislation emphasized work and job search and 
allowed a more moderate role for education. The Committee 
provision closes a loophole in the original legislation that 
allowed States, in fulfilling their work requirement, to count 
20 percent of their entire caseload if they were in education 
activities. The intent of the legislation was to allow States 
to count participants in educational activities up to 20 
percent of those required to meet the work requirement, not 20 
percent of the entire caseload. However, primarily because 40 
percent of TANF adult recipients have not completed high 
school, the Committee wanted to allow States to count a 
reasonable number of people participating in educational 
activities toward the work participation rate. Thus, the 
Committee proposal allows States to meet 30 percent, rather 
than 20 percent, of their work requirement with recipients in 
vocational educational activities and also allows States to 
exempt teen heads-of-household attending school from the 30 
percent limitation. This reinforces a provision of the 
underlying law which conditions the receipt of TANF benefits by 
a teen parent on satisfactory school attendance. Without this 
exemption, in some States, the limit on vocational education 
could accommodate only teen parents.
            Effective date
    August 21, 1996.

Section 9004. Required hours of work and labor provisions

            Present law
    The new welfare law is silent on the issue of coverage of 
TANF ``workforce'' participants by the Federal wage standards. 
TANF work activities include two workfare programs: work 
experience and community service. In these programs, recipients 
are required to perform services in exchange for their cash 
benefit. For single parents, required weekly hours of workfare 
(or other work activity) begin at 20 and, for those without a 
preschool child, rise to 30 in fiscal year 2000. For two-parent 
families, minimum average hours are 35 weekly. Application of 
Federal wage standards to TANF workfare programs would require 
some States to increase TANF benefits, especially for smaller 
families, and/or to add Food Stamp benefits in order to meet 
Federal wage standards with half-time (or \3/4\ time) workfare 
assignments.
            Explanation of provision
    The portion of Committee action addressing hours of work 
and wages can be summarized in several points. First, no 
employment position in the private sector is affected by the 
Committee recommendation. Thus, current statutes and 
regulations that govern minimumwage and other labor protections 
for private sector jobs are unaffected by the Committee proposal. 
Second, welfare recipients in workfare and training placements in the 
public and nonprofit sectors are not defined as employees for purposes 
of Federal labor legislation. Third, even though recipients in these 
placements are not employees, States are nonetheless constrained in the 
number of hours they may require welfare recipients to serve in these 
placements. More specifically, States may not require recipients to be 
employed by a public agency or nonprofit organization for a number of 
hours greater than the welfare benefits package divided by the minimum 
wage ($4.75 per hour until September 1, 1997, then $5.15 per hour).
    Fourth, the welfare benefits package used in the hours 
computation must include the dollar value of benefits provided 
under the Temporary Assistance for Needy Families (TANF) 
program plus the dollar value of benefits provided by the Food 
Stamp program. At State option, the welfare benefits package 
may also include the insurance value of Medicaid (as defined by 
the Secretary), the dollar value of child care benefits, and 
the dollar value of housing benefits. In conducting the hours 
of work computation, States may calculate the value of each 
benefit in the benefit package either by using the average 
value of each benefit in the State or by using the actual value 
of each benefit received by particular families.
    Finally, if recipients are employed for at least the number 
of hours equal to the dollar value of TANF benefits plus the 
dollar value of Food Stamp benefits divided by the Federal 
minimum wage, then States may subtract from the hours of work 
required to meet the participation standard (20 hours per week 
in 1997 and 1998, 25 hours in 1999, and 30 hours in 2000 and 
thereafter) the number of hours recipients participate in 
various educational activities.
    With regard to worker protections, all Federal and State 
health and safety standards apply to the working conditions of 
recipients engaged in any work activity under the TANF program. 
Workers' compensation must be provided to participants in work 
programs on the same basis as it is provided to other workers 
in the State in similar employment.
            Reason for change
    The Committee proposal applies minimum wage requirements to 
all welfare recipients while counting more taxpayer-provided 
benefits in determining the hours certain recipients can be 
required to work. A notable feature of the Committee approach 
is that positions in the private sector are treated exactly as 
they are under current law. The major goal of the welfare 
reform law was to help recipients leave welfare and establish 
their independence through work. Experience shows that most of 
these jobs will be in the private sector. Thus, the Committee 
provision leaves untouched all the current Federal protections 
for anyone who enters a private-sector job. The Committee 
provision also clarifies that work experience or community 
service positions in the public or nonprofit sectors are not 
considered employment for purposes of Federal legislation. 
Welfare recipients in such positions must participate for the 
number of hours equal to the value of their welfare benefits 
package divided by the Federal minimum wage. In order to 
promote flexibility for States in providing a minimum wage, 
States may also require participants to engage in educational 
activities if they have first worked for the number of hours 
equal to the value of TANF benefit plus Food Stamp benefit 
divided by the minimum wage.
    The following example illustrates how a State can meet work 
participation rates, while at the same time not requiring 
recipients to be employed in a workfare program for a number of 
hours greater than the value of their welfare benefits divided 
by the minimum wage. Assume that in the year 2000 when the work 
requirement is 30 hours a State places a recipient in a 
workfare position with a government or non-profit agency. 
Assume further that the recipient receives cash and Food Stamp 
benefits work $412 dollars per month (the Committee proposal 
allows States also to count the value of Medicaid, child care 
and housing benefits as part of the welfare benefits package). 
This recipient could then be required to work for $412 divided 
by the minimum wage of $5.15 or 20 hours per week (80 hours per 
month). If the Sate wants to count this recipient as meeting 
the work requirement, the State could either supply additional 
benefits worth approximately $206 per month, require the 
recipient to participate in educational activities for an 
additional 10 hours per week, or some combination of these two 
approaches. Thus, the Committee approach maintains the minimum 
wage and provides States with flexibility in meeting welfare 
reform work requirements. The Committee recommendation also 
applies health and safety standards and worker displacement 
protections to workfare positions held by TANF recipients.
            Effective date
    August 22, 1996.

Section 9005. Penalty for failure of state to reduce assistance for 
        recipients refusing without good cause to work

            Present law
    States are required to reduce benefits pro rata (or more, 
at the option of the State) during any period in which 
recipients refuse to meet work requirements.
            Explanation of provision
    The Secretary is required to reduce the annual TANF grant 
amount by between 1 and 5 percent in the case of States that do 
not reduce assistance pro rata for missed work.
            Reason for change
    The welfare reform law required States to reduce benefit 
payments in proportion to the amount of work they choose to 
miss. However, in reviewing the welfare reform plans submitted 
to the Department of Health and Human Services by States, there 
is little indication that States are planning the 
administrative procedures necessary to ensure that benefits are 
reduced in proportion to missed work assignments. Thus, the 
Committee directed the Secretary to impose fines on States that 
refuse to comply with this important provision of the welfare 
reform legislation.
            Effective date
    August 22, 1996.

                Subtitle B--Supplemental Security Income

Section 9101. Requirement to perform childhood disability 
        redeterminations in missed cases

            Present law
    By August 22, 1997 (one year after the date of enactment of 
P.L. 104-193), the Commissioner of the Social Security 
Administration (SSA) is expected to redetermine the eligibility 
of any child receiving SSI benefits on August 22, 1996, whose 
eligibility may be affected by changes in childhood disability 
eligibility criteria, including the new definition of childhood 
disability and the elimination of the individualized functional 
assessment. Benefits of current recipients will continue until 
the later of July 1, 1997 or a redetermination assessment. 
Should a child be found ineligible, benefits will end following 
redetermination. Within 1 year of attainment of age 18, SSA is 
expected to make a medical redetermination of current SSI 
childhood recipients using adult disability eligibility 
criteria. For low birth weight babies, a review must be 
conducted within 12 months after the birth of a child whose low 
birth weight is a contributing factor to his or her disability.
            Explanation of provision
    This provision extends from 1 year after the date of 
enactment to 18 months after the date of enactment the period 
by which SSA must redetermine the eligibility of any child 
receiving benefits on August 22, 1996 whose eligibility may be 
affected by changes in childhood disability. The provision also 
specifies that any child subject to an SSI redetermination 
under the terms of the welfare reform law whose redetermination 
does not occur during the 18-month period following enactment 
(that is, by February 22, 1998) is to be assessed as soon as 
practicable thereafter using the new eligibility standards 
applied to other children under the welfare reform law.
            Reason for change
    Due to delay in releasing implementing regulations, the 
Committee is extending from 12 months to 18 months the period 
of time for SSA to redetermine the eligibility of any child 
receiving SSI benefits on August 22, 1996 whose eligibility may 
be affected by changes in the childhood eligibility criteria. 
In addition, Congress intended that all children affected by 
the changes in P.L. 104-193 would be redetermined using the new 
eligibility criteria and not the medical improvement standard.
            Effective date
    August 22, 1996.

Section 9102. Repeal of maintenance of effort requirements applicable 
        to optional state programs for supplementation of SSI benefits

            Present law
    Since the beginning of the SSI program, States have had the 
option to supplement the Federal SSI payment with State funds. 
The purpose of section 1618 of the Social Security Act was to 
encourage States to pass along to SSI recipients the amount of 
any Federal SSI benefit increase. Under section 1618, a State 
that is found to be not in compliance with the ``pass along/
maintenance of effort'' provision is subject to loss of its 
Medicaid reimbursements. Section 1618 allows States to comply 
with the ``pass along/maintenance of effort'' provision by 
either maintaining their State supplementarypayment levels at 
or above 1983 levels or by maintaining total annual expenditures for 
supplementary payments (including any Federal cost-of-living 
adjustment) at a level at least equal to the prior 12-month period, 
provided that State was in compliance for that period. In effect, 
section 1618 requires that once a State elects to provide supplementary 
payments it must continue to do so.
            Explanation of provision
    The maintenance of effort requirements applicable to 
optional State programs for supplementation of SSI benefits are 
repealed.
            Reason for change
    In nearly every social program in which States pay a 
substantial portion of the benefits, States have the authority 
to establish benefit levels. However, in the Supplemental 
Security Income program, States that supplement the Federal 
benefit are required by Federal law to maintain benefits at or 
above their 1983 level. The Committee proposal, however, is 
based on the principle that States should be able to establish 
and to change benefits levels in accordance with the actions of 
elected State officials. Thus, the proposal overturns the 
Federal freeze on State supplemental payments and allows States 
complete control in setting their own benefits.
            Effective date
    Date of enactment.

Sec. 9103. Fees for Federal Administration of State Supplementary 
        Payments

            Present law
    P.L. 103-66, the Omnibus Budget Reconciliation Act of 1993, 
stipulated that part of the administrative cost of the SSI 
program was to be funded through a user fee. Since fiscal year 
1994, States have been required to pay a fee of Federal 
administration of State supplementary SSI payments. Thus, 
States that choose to have their supplementary SSI payments 
administered by the Social Security Administration must pay the 
Commissioner or Social Security $5 per payment for fiscal year 
1996 and each succeeding year, or a different rate deemed 
appropriate for the State by the Commissioner (the rate per 
payment was $1.67 in fiscal year 1994 and $3.33 in fiscal year 
1995).
            Explanation of provision
    The administrative fee charged by the Federal government 
for including State supplemental SSI payments with the Federal 
SSI check is increased as follows:

                                                                        
                                                          Administrative
                      Fiscal year                              fee      
                                                                        
1997...................................................        $5.00    
1998...................................................         6.20    
1999...................................................         7.60    
2000...................................................         7.80    
2001...................................................         8.10    
2002...................................................         8.50    
                                                                        

    For 2003 and subsequent years, the rate from the previous 
year is increased by the percentage by which the Consumer Price 
Index increased that year or a different amount established by 
the Commissioner. Revenue attributed to the increase in fees 
(i.e., amounts in excess of $5.00) each year would, subject to 
the appropriation process, be available to defray the Social 
Security Administration's administrative costs.
            Reason for change
    The basis for the 1993 Congressional decision to charge 
administrative fees against States that include their State 
supplement in the Federal SSI check is that States are using 
Federal administrative resources to fulfill a State function. 
Given that the Federal government is absorbing the cost of 
providing a service to States, it is reasonable to ask States 
to defray the Federal costs. The Committee proposal simply 
extends this principle into the future by increasing the fee 
States must pay in rough correlation with inflation and other 
factors that cause Federal costs to increase.
            Effective date
    Date of enactment.

                 Subtitle C--Child Support Enforcement

Section 9201. Clarification of Authority to Permit Certain 
        Redisclosures of Wage and Claim Information

            Present law
    P.L. 104-193 gives the Department of Health and Human 
Services (HHS) the authority to obtain information about the 
wages and unemployment compensation paid to individuals from 
State unemployment compensation agencies for the State 
Directory of New Hires. The State Directory of New Hires is 
then to furnish this wage and claim information, on a quarterly 
basis, to the National Directory of New Hires. P.L. 104-193 
also requires State unemployment compensation agencies to 
establish such safeguards as the Secretary of Labor determines 
are necessary to insure that the information disclosed to the 
National Directory of New Hires is used only for the purpose of 
administering programs under State plans approved under the 
Child Support Enforcement program, the Temporary Assistance for 
Needy Families (TANF) block grant, and for other purposes 
authorized in section 453 of the Social Security Act (as 
amended by P.L. 104-193).
            Explanation of provision
    Although the welfare reform law allowed HHS to disclose 
information from the Directory of New Hires to the Social 
Security Administration and to the Internal Revenue Service, 
the wording of a provision in the child support title of the 
legislation could be interpreted to contradict this policy. 
This wording is amended to clarify that HHS is authorized to 
share information from the Directory of New Hires with the 
Social Security Administration and the Internal Revenue 
Service.
            Reason for change
    This purely technical proposal is necessary to clarify 
current law and allow the Office of Child Support Enforcement 
to share information collected from States with the Social 
Security Administration and the Internal Revenue Service.
            Effective date
    August 22, 1996.

     Subtitle D--Restricting Welfare and Public Benefits for Aliens

Section 9301. Extension of eligibility period for refugees and certain 
        other qualified aliens from 5 to 7 years for SSI and Medicaid

            Present law
    Current law provides a 5-year exemption from: (1) the bar 
against SSI and Food Stamps; and (2) the provision allowing 
States to deny ``qualified aliens'' access to Medicaid, TANF, 
and Social Services Block Grant for three groups of aliens 
admitted for humanitarian reasons. These groups are (1) 
refugees, for 5 years after entry; (2) asylees, for 5 years 
after being granted asylum; and (3) aliens whose deportation is 
withheld on the grounds of likely persecution upon return, for 
5 years after such withholding.
            Explanation of provision
    This change would lengthen the period during which 
eligibility for SSI and Medicaid is guaranteed to three groups 
(refugees, asylees, and aliens whose deportation has been 
withheld) from 5 years to 7 years.
            Reason for change
    The 5-year exception in the welfare law was designed to 
allow refugees and asylees, who often arrive in the U.S. with 
few possessions, time to adjust to life here. However, because 
of delays in adjusting to permanent resident status, mandatory 
residency requirements before applying for citizenship, and 
recent increases in waiting times in the naturalization 
process, under the 5-year eligibility period many would become 
ineligible for welfare benefits despite their attempting to 
naturalize at their earliest opportunity. By extending the 
exception to allow these groups 7 instead of 5 years of 
eligibility, these noncitizens would be given more time to 
naturalize while continuing to receive welfare benefits without 
interruption.
            Effective date
    August 22, 1996.

Section 9302. SSI eligibility for aliens receiving SSI on August 22, 
        1996

            Present law
    SSI. The Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996 (P.L. 104-193) bars most ``qualified 
aliens'' from Supplemental Security Income (SSI) (sec. 402(a)). 
Current recipients must be screened for continuing eligibility 
during a 1-year period after enactment of the welfare law 
(i.e., by Aug. 22, 1997). The pending fiscal year 1997 
supplemental appropriations bill would extend this date until 
September 30, 1997.
    Medicaid.--States may exclude ``qualified aliens'' who 
entered the United States before enactment of the welfare law 
(August 22, 1996) from Medicaid beginning January 1, 1997 (sec. 
402(b)). Additionally, to the extent that legal immigrants' 
receipt of Medicaid is based only on their eligibility for SSI, 
some will lose Medicaid because of their ineligibility for SSI.
    Definitions and exemptions.--``Qualified aliens'' are 
defined by P.L. 104-193 (as amended by P.L. 104-208) as aliens 
admitted for legal permanent residence (i.e., immigrants), 
refugees, aliens paroled into the United States for at least 1 
year, aliens granted asylum or related relief, and certain 
abused spouses and children.
    Certain ``qualified aliens'' are exempted from the SSI ban 
and the State option to deny Medicaid, as well as from certain 
other restrictions. These groups include: (1) refugees for 5 
years after admission and asylees 5 years after obtaining 
asylum: (2) aliens who have worked, or may be credited with, 40 
``qualifying quarters.'' As defined by P.L. 104-193, a 
``qualifying quarter'' is a 3-month work period with sufficient 
income to qualify as a social security quarter and, with 
respect to periods beginning after 1996, during which the 
worker did not receive Federal means-based assistance (sec. 
435). The ``qualifying quarter'' test takes into account work 
performed by the alien, the alien's parent while the alien was 
under age 18, and the alien's spouse (provided the alien 
remains married to the spouse or the spouse is deceased); and 
(3) veterans, active duty members of the armed forces, and 
their spouses and unmarried dependent children.
            Explanation of provision
    Legal noncitizens who were receiving SSI benefits on August 
22, 1996 (the date of enactment of the welfare reform law) 
would remain eligible for SSI, despite underlying restrictions 
in the Personal Responsibility and Work Opportunity 
Reconciliation Act. This section also specifies that Cuban and 
Haitian entrants and Amerasian immigrants are to be considered 
qualified aliens, thereby continuing the SSI and Medicaid 
eligibility of those who were receiving SSI benefits on August 
22, 1996.
            Reason for change
    The new welfare law would restrict SSI and Food Stamp 
benefits for noncitizens, with the exception of those who have 
worked for at least 10 years or who have become naturalized 
citizens. However, to smooth the transition for those who were 
already receiving benefits, additional changes were sought to 
allow for continued cash and health care benefits. Under this 
change, Food Stamp benefits would remain generally restricted 
to noncitizens, and noncitizens not enrolled on SSI as of 
August 22, 1996 would remain ineligible for SSI benefits unless 
they naturalize or work for 10 or more years. For those in the 
U.S. when the President signed the new welfare law but who were 
not then on SSI, special exceptions in the naturalization 
process remain available to elderly noncitizens who have 
resided in the U.S. for a number of years and also for 
individuals with disabilities that prevent their passing the 
language or civics tests for naturalization. In addition, 
Medicaid is available at State option for all noncitizens 
residing in the U.S. on August 22, 1996.
            Effective date
    August 22, 1996.

Section 9303. SSI eligibility for permanent resident aliens who are 
        members of an Indian tribe

            Present law
    With limited exceptions, the Personal Responsibility and 
Work Opportunity Reconciliation Act of 1996 (P.L. 104-193) 
makes ``qualified aliens,'' including aliens lawfully admitted 
for permanent residence, ineligible for Supplemental Security 
Income (SSI). The limited exceptions to this bar do not include 
an exception based on membership in an Indian tribe.
    Though the immigration status of foreign-born Indians can, 
like that of other aliens, vary from individual to individual, 
immigration law does accord certain Indians entry rights that 
facilitate their residing here as legal permanent residents. 
Section 289 of the Immigration and Nationality Act of 1952 
(INA) preserves the right of free passage recognized in the Jay 
Treaty of 1794 by allowing ``American Indians born in Canada'' 
unimpeded entry and residency rights if they ``possess at least 
50 per centum of blood of the American Indian race.'' By 
regulation, individuals who enter the U.S. and reside here 
under this provision are regarded as lawful permanent resident 
aliens.
    Entirely separate from immigration law, the Indian Self-
Determination and Education Assistance Act defines ``Indian 
tribe'' as a tribe, band, nation, or other organized group that 
is recognized as eligible for special Indian programs and 
services. Recognition may be based on a treaty or statute, or 
may be drawn from the acknowledgment process. Not all Indian 
communities, nations, tribes, and other groups are Federally 
recognized.
            Explanation of provision
    Permanent resident Indians who are members of recognized 
tribes are eligible for SSI, despite restrictions in the 
welfare law on noncitizens' eligibility for benefits.
            Reason for change
    This change is made to protect the longstanding entry 
rights and access to benefits of members of certain Indian 
tribes residing in the U.S. as lawful permanent residents.
            Effective date
    August 22, 1996.

Section 9304. Verification of eligibility for State and local public 
        benefits

            Present law
    Last year's welfare reform law requires the Attorney 
General, in consultation with the Secretary of Health and Human 
Services, to promulgate regulations requiring verification that 
persons applying for Federal public benefits are citizens or 
qualified aliens and eligible for the benefits (sec. 432(a)). 
The law also requires that States administering programs that 
provide a Federal benefit have a verification system that 
complies with the regulation (sec. 432(b)). However, the law 
does not provide authority for State and local governments to 
verify eligibility for State or local public benefits.
            Explanation of provision
    This provision authorizes States or political subdivisions 
to require an applicant for State or local public benefits (as 
defined in section 411(c) of the Personal Responsibility and 
Work Opportunity Reconciliation Act of 1996) to provide proof 
of eligibility.
            Reason for change
    This change will allow States and local governments to 
require proof of eligibility, including evidence pertaining to 
citizenship status, for individuals seeking welfare benefits. 
(See section 506 of House Report 104-828.)
            Effective date
    August 22, 1996.

Section 9305. Derivative eligibility for benefits

            Present law
    States may exclude ``qualified aliens'' who entered the 
United States before enactment of the welfare law (August 22, 
1996) from Medicaid beginning January 1, 1997 (sec. 402(b)). 
Sec. 1902(a)(10) of the Social Security Act makes all 
individuals who are receiving SSI eligible for medical 
assistance under the Medicaid program. Under the welfare law, 
most ``qualified aliens'' are ineligible for both SSI and Food 
Stamps. Under section 5(a) of the Food Stamp Act, households in 
which each member receives SSI benefits are also eligible for 
Food Stamps.
            Explanation of provision
    This section clarifies that legal noncitizens eligible for 
SSI under the provisions of this subtitle are also eligible for 
Medicaid benefits. In addition, individuals made ineligible for 
Food Stamp benefits as a result of the welfare reform law are 
not to have their eligibility for Food Stamps restored as a 
result of the renewed eligibility for SSI.
            Reason for change
    This section clarifies that individuals receiving SSI 
benefits on August 22, 1996 (who under section 9302 of this 
subtitle would maintain eligibility for SSI benefits) would 
also be assured of coverage under Medicaid, despite provisions 
in welfare reform law that allow States the option of 
restricting Medicaid benefits for qualified aliens in the U.S. 
on August 22, 1996. Food Stamp benefits would remain generally 
restricted for noncitizens, despite individuals' continued 
eligibility for SSI.
            Effective date
    August 22, 1996.

Section 9306. Effective date

            Present law
    No provision.
            Explanation of provision
    Except as otherwise provided, the amendments made by this 
subtitle shall be effective as if included in the enactment of 
title IV of the Personal Responsibility and Work Opportunity 
Act of 1996.
            Reason for change
    This section clarifies that all provisions in this subtitle 
are to apply as if included in the welfare reform law (whose 
effective date was August 22, 1996).
            Effective date
    August 22, 1996.

                 Subtitle E--Unemployment Compensation

Section 9401. Clarifying provision relating to base periods

            Present law
    Federal law establishes broad guidelines for the operation 
of State unemployment insurance (UI) programs but leaves most 
of the details of eligibility and benefits to State 
determination. One of these general Federal guidelines calls 
for States to use administrative methods that ensure full 
payment of UI benefits ``when due.'' All states meet this 
requirement with program rules that the U.S. Department of 
Labor has found to be in compliance. In complying with the 
``when due'' clause, States must decide what ``base period'' to 
use in measuring a claimant's wage history for the purpose of 
determining individual eligibility and benefit entitlement. 
States have generally used a base period consisting of the 
first 4 of the last 5 completed calendar quarters. However, 
several States that use this base period also use an 
``alternative base period,'' usually the last 4 completed 
calendar quarters. This alternative base period is used for 
claimants who are found to be ineligible because their earnings 
were too low in the regular base period. Although current State 
base periods have Department of Labor approval, a Federal court 
in Illinois, in the case of Pennington v. Doherty, ruled that 
the State of Illinois is not in compliance with the ``when 
due'' clause because it could use a more recent base period, 
which would benefit a significant number of claimants. This 
case may be appealed further. If left standing, it will apply 
only to three States: Illinois, Indiana, and Wisconsin. 
However, similar suits have been filed in other States, and 
they could lead to a de facto national rules change based on 
judicial action.
            Explanation of provision
    The Committee amendment reinforces current policy by 
affirming that States have complete authority to set their own 
bae periods used in determining individuals' eligibility for 
unemployment insurance benefits.
            Reason for change
    Since the inception of the UI program in the 1930s, there 
has been general agreement that each State has the right to set 
its own base period used to determine eligibility for 
unemployment benefits. This general assumption recently was 
called into question by the Pennington decision. If the 
decision stands, according to the Congressional Budget Office 
(CBO), 41 States could be required to adopt alternative base 
periods at a cost of $400 million annually in added UI benefits 
plus increased administrative costs. CBO assumes that, without 
the Committee provision, States would increase their revenue 
collections (by raising payroll) to cover any increase in 
benefit outlays.
            Effective date
    This section shall apply for purposes of any period 
beginning before, on, or after the date of enactment of this 
Act.

Sections 9402 and 9403. Increase in federal unemployment account 
        ceiling and special distribution to states from the 
        unemployment trust fund

            Present law
    FUTA taxes are credited to Federal accounts in the 
Unemployment Trust Fund in proportions that are set by statute. 
Funds are held in reserve in these accounts to provide Federal 
spending authority for certain purposes. The Employment 
Security Administration Account (ESAA) funds Federal and State 
administration of the UI program. The Extended Unemployment 
Compensation Account (EUCA) finances the Federal share of 
extended UI benefits. The Federal Unemployment Account (FUA) 
provides authority for loans to States with insolvent UI 
benefit accounts. Each of theseaccounts has a statutory 
ceiling. ESAA's balance after the end of a fiscal year is reduced to 
40% of the prior-year appropriation from ESAA. Excess funds are 
transferred to EUCA and/or FUA. The ceilings on EUCA and FUA are set as 
a percent of total wages in employment covered by UI. The current 
ceilings are 0.5% of wages for EUCA and 0.25% of wages for FUA. If all 
three accounts reach their ceilings, excess funds are distributed among 
the 53 State benefit accounts in the Unemployment Trust Fund, after 
repayment of any outstanding general revenue advances to FUA and EUCA. 
These transfers to the State accounts are termed ``Reed Act transfers'' 
after the name of the legislation that authorized this use of excess 
FUTA funds. The Department of Labor projects that Reed Act transfers 
will be triggered beginning in fiscal year 2000 under present law.
            Explanation of provision
    This provision would double the Federal Unemployment 
Account ceiling from 0.25 percent to 0.50 percent of covered 
wages, effective at the beginning of fiscal year 2002. In 
addition, for each of fiscal years 2000, 2001, and 2002, if 
Federal account ceilings are reached, an annual total of more 
than $100 million in Reed Act transfers are to be made from 
Federal UI accounts to State accounts for use by States in 
administering their UI programs. (Annual amounts in excess of 
$100 million are to accrue to the Federal Unemployment Account, 
notwithstanding the ceiling). Funds are to be distributed among 
the States in the same manner as administrative funds from the 
Federal account are allocated.
            Reason for change
    This provision has two main effects: (1) raising the 
ceiling in the Federal Unemployment Account whole limiting Reed 
Act transfers allows for further buildup of funds pending a 
future recession requiring increased administrative resources; 
and (2) allowing $100 million in Reed Act transfers will assist 
States in the administration of their UI programs.
            Effective date
    The increase in the Federal Unemployment Account ceiling is 
to occur on October 1, 2001; special distributions are made 
beginning in fiscal year 2000, based on account balances at the 
end of the preceding fiscal year.

Section 9404. Interest-free advances to state accounts in unemployment 
        trust fund restricted to states which meet funding goals

            Present law
    The Unemployment Trust Fund has 53 benefits accounts for 
the UI programs of each State, the District of Columbia, Puerto 
Rico, and the Virgin Islands. Each of these jurisdictions 
raises revenue from their own payroll taxes to finance the UI 
benefits they pay to their jobless workers. State UI revenue 
collections are deposited with the U.S. Treasury, which credits 
the individual State accounts. Each State's benefit payments 
are reimbursed by the Federal government; these reimbursements 
are charged against their trust fund accounts. The balance in 
each account represents the amount available to a State for 
payment of UI benefits at any point in time. If a State account 
becomes insolvent, the State can receive an interest-bearing 
loan from the Federal government. Should a State account become 
insolvent during an economic downturn, adverse conditions can 
result for the State and its employers. Borrowing Federal funds 
imposes a cost on the State at a time when it may face other 
financial difficulties. The State may react by raising taxes on 
its employers, thereby discouraging economic activity during a 
period when its economy is already in decline. Thus, States 
strive to adopt financing policies that assure a positive 
balance will be maintained in their benefit accounts during all 
foreseeable circumstances, including economic downturns. 
However, account balances vary widely among the States in 
relation to the States' benefit payments and covered wages. As 
a result, some States find it necessary to borrow Federal funds 
more often than others. Congress has never applied Federal 
standards to State benefit account reserve levels.
            Explanation of provision
    States that maintain adequate reserves (defined as 
sufficient to cover, in 4 out of the 5 most recent calendar 
quarters, the average benefits paid during the 3 years out of 
the last 20 years in which the State paid the greatest UI 
benefits) would be allowed to receive interest-free, Federal 
loans for the operation of State UI program activities.
            Reason for change
    The provision would encourage States to maintain sufficient 
unemployment trust fund balances to cover the needs of 
unemployed workers in the event of a recession.
            Effective date
    Applies to calendar years beginning after the date of 
enactment.

Section 9405. Exemption of service performed by election workers from 
        the federal unemployment tax

            Present law
    The Federal Unemployment Tax Act generally requires States 
to cover under their unemployment compensation laws work 
performed in the employment of a State or local government. 
Only certain enumerated exceptions are allowed.
            Explanation of provision
    The proposal would exempt from FUTA taxes and UI benefits 
work performed as an election official or election worker. This 
exemption would apply only if the annual wages received by the 
individual for such service is less than $1,000.
            Reason for change
    The Committee believes that short-term employment as an 
election official or election worker should not be used as the 
basis for participation in the unemployment compensation 
system.
            Effective date
    Date of enactment.

Section 9406. Treatment of certain services performed by inmates

            Present law
    The Federal Unemployment Tax Act (FUTA) imposes a 6.2 
percent gross tax rate on the first $7,000 of wages paid 
annually by covered employers to each employee. Generally, 
wages are defined to include all remuneration for employment 
unless specifically exempted. There is no exemption for wages 
paid to persons committed to penal institutions. However, in 
the requirement of FUTA that States cover State and local 
employment, an exception is permitted for government wages paid 
to inmates.
            Explanation of provision
    The proposal would exempt wages paid to persons committed 
to penal institutions from the definition of wages for FUTA tax 
purposes. These persons would also be ineligible to claim 
unemployment benefits with respect to such wages.
            Reason for change
    The Committee provision prevents a person committed to a 
penal institution from qualifying for unemployment insurance 
benefits. The Committee also intends that if a State has denied 
unemployment benefits to a person because the person's 
qualifying wages were earned while the person was committed to 
a penal institution, before or after the effective date of this 
change, that such denial of unemployment benefits does not 
place that State's law out of conformity with Federal law and 
does not prevent certification of that State's law by the 
Secretary of Labor pursuant to section 3304 of the Internal 
Revenue Code of 1986.
            Effective date
    The proposal would be effective with respect to service 
performed after March 26, 1996.

Section 9407. Exemption of service performed for an elementary or 
        secondary school operated primarily for religious purposes from 
        the federal unemployment tax

            Present law
    The Federal Unemployment Tax Act requires States to cover 
under their unemployment compensation laws certain nonprofit 
organizations designated under FUTA. Specifically, FUTA exempts 
service performed in the employ of: (1) a church or convention 
or association of churches, or (2) an organization which is 
operated primarily for religious purposes and which is 
operated, supervised, controlled, or principally supported by a 
church or convention or association of churches. Individuals 
who are in the employ of entities with a religious orientation 
which are not affiliated with a particular church, or 
convention or association of churches are not exempt.
            Explanation of provision
    The proposal would exempt from both the FUTA tax and UI 
benefits work performed in an elementary or secondary school 
which is operated primarily for religious purposes. This 
exemption would be available to such schools even though they 
are not operated,supervised, controlled, or principally 
supported by a church or convention or association of churches. Persons 
performing such service would also be ineligible to claim benefits with 
respect to such wages.
            Reason for change
    The Committee believes that employees of certain schools 
with a religious orientation should be treated similarly for 
FUTA tax purposes regardless of the school's affiliation, or 
lack thereof, with a particular church, or convention, or 
association of churches.
            Effective date
    Date of enactment.

Section 9408. State program integrity activities for unemployment 
        compensation

            Present law
    Each State administers its UI program. Funding for 
administration is provided from FUTA. A portion of FUTA revenue 
is allocated to ESAA in the Unemployment Trust Fund. Congress 
makes annual appropriations from this account for UI 
administration. The Department of Labor decides how to allocate 
appropriated funds among the States based on its analysis of 
expected claims workloads in each State and each State's cost 
for personnel and nonpersonnel activities.
    While the specific uses of these State grants generally are 
left to each State as it decides how to administer UI in 
compliance with the applicable Federal and State laws, Congress 
has created specific spending authority from time to time to 
assure that certain Federal objectives are funded. For example, 
``worker profiling'' (the identification of claimants likely to 
experience long-term unemployment for the purpose of early 
intervention with employment services) has received earmarked 
funding in recent years.
    There is no separate spending authority for ``program 
integrity'' activities. These activities include initial claims 
reviews, eligibility reviews, financial controls over benefit 
payments, and audits of employer tax liabilities. Such 
activities are undertaken by the States using funds from the 
general UI administrative grants allocated to them by the 
Department of Labor from annual appropriations.
            Explanation of provision
    The Committee amendment provides special funding for 
unemployment insurance program integrity activities designed to 
improve the accuracy of benefit payments and employer tax 
collections through fiscal year 2002. The provision authorizes 
funding for integrity activities, defines integrity activities, 
and requires States to maintain integrity activity levels 
funded by the base grant for unemployment insurance 
administration.
            Reason for change
    Recent UI administrative funding has fallen below levels 
needed to maintain adequate State program integrity activities, 
including screening initial claims for separation issues to 
determine validity of claims, benefit payment control, tax 
field audits and eligibility reviews. Additional integrity 
activities paid for through these added funds would assist in 
assuring benefit payment accuracy, detection of overpayments 
(both fraud and non-fraud), collection of overpayments, and 
collection of under-reported taxes. Continued failure to 
adequately fund these activities will result in losses due to 
overpayment of benefits and undercollection of taxes, leading 
to higher taxes for employers and economic inefficiency.
            Effective date
    Date of enactment.

             Subtitle F--Increase in the Public Debt Limit

            Present law
    The statutory limit on the public debt currently is $5.5 
trillion. It was set at this level in P.L. 104-121, enacted 
into law on March 29, 1996.
            Reasons for change
    When the current debt limit is reached, the Treasury will 
be unable to meet the Federal Government's financial 
obligations and to manage the Federal debt effectively. 
Although the month of May 1997 ended with approximately $5.26 
trillion outstanding public debt that is subject to the current 
$5.5 trillion limitation, the Treasury Department requested 
that the Committee increase the statutory limit. Current 
estimates forecast that a limit of $5.95 trillion should be 
sufficient to cover Federal Government borrowing needs through 
December 14, 1999, as the Congress and Administration guide the 
Federal budget to balance in the year 2002.
    The Committee believes it is imperative to increase the 
debt limit on a permanent basis to facilitate the smooth 
functioning of the Federal Government and to prevent any 
disruption of financial markets.
            Explanation of provision
    The bill increases the statutory limit on the public debt 
to $5.95 trillion. The new debt limit has no expiration date.
            Effective date
    The provision is effective on the date of enactment.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 2(l)(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 Budget Reconciliation Human 
Resources Recommendations:

Motion to report Budget Reconciliation Human Resources Recommendations

    The Committee on Ways and Means approved the reconciliation 
human resources provisions by a rollcall vote of 21 yeas to 18 
nays (with a quorum being present). The vote was follows:

----------------------------------------------------------------------------------------------------------------
             Representatives                 Yea       Nay            Representatives            Yea       Nay  
----------------------------------------------------------------------------------------------------------------
Mr. Archer..............................        X   ........  Mr. Rangel.....................  .......        X 
Mr. Crane...............................        X   ........  Mr. Stark......................  .......        X 
Mr. Thomas..............................        X   ........  Mr. Matsui.....................  .......        X 
Mr. Shaw................................        X   ........  Mrs. Kennelly..................  .......        X 
Mrs. Johnson............................        X   ........  Mr. Coyne......................  .......        X 
Mr. Bunning.............................        X   ........  Mr. Levin......................  .......        X 
Mr. Houghton............................        X   ........  Mr. Cardin.....................  .......        X 
Mr. Herger..............................  ........        X   Mr. McDermott..................  .......        X 
Mr. McCrery.............................        X   ........  Mr. Kleczka....................  .......        X 
Mr. Camp................................        X   ........  Mr. Lewis......................  .......        X 
Mr. Ramstad.............................        X   ........  Mr. Neal.......................  .......        X 
Mr. Nussle..............................        X   ........  Mr. McNulty....................  .......        X 
Mr. Johnson.............................        X   ........  Mr. Jefferson..................  .......        X 
Ms. Dunn................................        X   ........  Mr. Tanner.....................  .......        X 
Mr. Collins.............................  ........        X   Mr. Becerra....................  .......        X 
Mr. Portman.............................        X   ........  Mrs. Thurman...................  .......        X 
Mr. English.............................        X   ........                                                    
Mr. Ensign..............................        X   ........                                                    
Mr. Christensen.........................        X   ........                                                    
Mr. Watkins.............................        X   ........                                                    
Mr. Hayworth............................        X   ........                                                    
Mr. Weller..............................        X   ........                                                    
Mr. Hulshof.............................        X   ........                                                    
----------------------------------------------------------------------------------------------------------------

Votes on amendments

    Rollcall votes were conducted on the following amendments 
to the Chairman's amendment in the nature of a substitute:
    An amendment by Mr. Tanner to Subtitle A, Section 9001, to 
award bonuses to States for meeting specific performance goals 
was defeated by a rollcall vote of 16 yeas to 19 nays. The vote 
was as follows:

----------------------------------------------------------------------------------------------------------------
             Representatives                 Yea       Nay            Representatives             Yea      Nay  
----------------------------------------------------------------------------------------------------------------
Mr. Archer..............................  ........        X   Mr. Rangel.....................        X   .......
Mr. Crane...............................  ........        X   Mr. Stark......................        X   .......
Mr. Thomas..............................  ........  ........  Mr. Matsui.....................        X   .......
Mr. Shaw................................  ........        X   Mrs. Kennelly..................        X   .......
Mrs. Johnson............................  ........        X   Mr. Coyne......................        X   .......
Mr. Bunning.............................  ........        X   Mr. Levin......................        X   .......
Mr. Houghton............................  ........        X   Mr. Cardin.....................        X   .......
Mr. Herger..............................  ........        X   Mr. McDermott..................        X   .......
Mr. McCrery.............................  ........        X   Mr. Kleczka....................        X   .......
Mr. Camp................................  ........        X   Mr. Lewis......................        X   .......
Mr. Ramstad.............................  ........        X   Mr. Neal.......................  ........  .......
Mr. Nussle..............................  ........  ........  Mr. McNulty....................        X   .......
Mr. Johnson.............................  ........  ........  Mr. Jefferson..................        X   .......
Ms. Dunn................................  ........        X   Mr. Tanner.....................        X   .......
Mr. Collins.............................  ........        X   Mr. Becerra....................        X   .......
Mr. Portman.............................  ........        X   Mrs. Thurman...................        X   .......
Mr. English.............................  ........        X                                                     
Mr. Ensign..............................        X   ........                                                    
Mr. Christensen.........................  ........        X                                                     
Mr. Watkins.............................  ........        X                                                     
Mr. Hayworth............................  ........        X                                                     
Mr. Weller..............................  ........        X                                                     
Mr. Hulshof.............................  ........        X                                                     
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Stark to strike Section 9003, Subtitle 
A, which limits to 30 percent the number of families 
participating in educational activities that may be counted 
towards the State's work participation rate was defeated by a 
rollcall vote of 16 yeas to 21 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
             Representatives                Yea       Nay             Representatives             Yea      Nay  
----------------------------------------------------------------------------------------------------------------
Mr. Archer..............................  .......        X   Mr. Rangel......................        X   .......
Mr. Crane...............................  .......        X   Mr. Stark.......................        X   .......
Mr. Thomas..............................  .......  ........  Mr. Matsui......................        X   .......
Mr. Shaw................................  .......        X   Mrs. Kennelly...................        X   .......
Mrs. Johnson............................  .......        X   Mr. Coyne.......................        X   .......
Mr. Bunning.............................  .......        X   Mr. Levin.......................        X   .......
Mr. Houghton............................  .......        X   Mr. Cardin......................        X   .......
Mr. Herger..............................  .......        X   Mr. McDermott...................        X   .......
Mr. McCrery.............................  .......        X   Mr. Kleczka.....................        X   .......
Mr. Camp................................  .......        X   Mr. Lewis.......................        X   .......
Mr. Ramstad.............................  .......  ........  Mr. Neal........................        X   .......
Mr. Nussle..............................  .......        X   Mr. McNulty.....................        X   .......
Mr. Johnson.............................  .......        X   Mr. Jefferson...................        X   .......
Ms. Dunn................................  .......        X   Mr. Tanner......................        X   .......
Mr. Collins.............................  .......        X   Mr. Becerra.....................        X   .......
Mr. Portman.............................  .......        X   Mrs. Thurman....................        X   .......
Mr. English.............................  .......        X                                                      
Mr. Ensign..............................  .......        X                                                      
Mr. Christensen.........................  .......        X                                                      
Mr. Watkins.............................  .......        X                                                      
Mr. Hayworth............................  .......        X                                                      
Mr. Weller..............................  .......        X                                                      
Mr. Hulshof.............................  .......        X                                                      
----------------------------------------------------------------------------------------------------------------

    An amendment by Mrs. Kennelly to Subtitle A, Section 9003, 
to remove teen parents from the 30 percent limitation on 
persons engaged in educational activities counting towards the 
participation rate was agreed to by a rollcall vote of 20 yeas 
to 17 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
            Representatives                 Yea       Nay            Representatives             Yea       Nay  
----------------------------------------------------------------------------------------------------------------
Mr. Archer.............................  ........        X   Mr. Rangel.....................        X   ........
Mr. Crane..............................  ........        X   Mr. Stark......................        X   ........
Mr. Thomas.............................  ........  ........  Mr. Matsui.....................        X   ........
Mr. Shaw...............................  ........        X   Mrs. Kennelly..................        X   ........
Mrs. Johnson...........................        X   ........  Mr. Coyne......................        X   ........
Mr. Bunning............................        X   ........  Mr. Levin......................        X   ........
Mr. Houghton...........................        X   ........  Mr. Cardin.....................        X   ........
Mr. Herger.............................  ........        X   Mr. McDermott..................        X   ........
Mr. McCrery............................  ........  ........  Mr. Kleczka....................        X   ........
Mr. Camp...............................  ........        X   Mr. Lewis......................        X   ........
Mr. Ramstad............................  ........        X   Mr. Neal.......................        X   ........
Mr. Nussle.............................  ........        X   Mr. McNulty....................        X   ........
Mr. Johnson............................  ........        X   Mr. Jefferson..................        X   ........
Ms. Dunn...............................  ........        X   Mr. Tanner.....................        X   ........
Mr. Collins............................        X   ........  Mr. Becerra....................        X   ........
Mr. Portman............................  ........        X   Mrs. Thurman...................        X   ........
Mr. English............................  ........        X                                                      
Mr. Ensign.............................  ........        X                                                      
Mr. Christensen........................  ........        X                                                      
Mr. Watkins............................  ........        X                                                      
Mr. Hayworth...........................  ........        X                                                      
Mr. Weller.............................  ........        X                                                      
Mr. Hulshof............................  ........        X                                                      
----------------------------------------------------------------------------------------------------------------

    An amendment by Stark to strike Section 9004, Subtitle A, 
relating to the allowable hours of work was defeated by a 
rollcall vote of 16 yeas to 22 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
            Representatives                 Yea       Nay            Representatives             Yea       Nay  
----------------------------------------------------------------------------------------------------------------
Mr. Archer.............................  ........  ........  Mr. Rangel.....................        X   ........
Mr. Crane..............................  ........        X   Mr. Stark......................        X   ........
Mr. Thomas.............................  ........        X   Mr. Matsui.....................        X   ........
Mr. Shaw...............................  ........        X   Mrs. Kennelly..................        X   ........
Mrs. Johnson...........................  ........        X   Mr. Coyne......................        X   ........
Mr. Bunning............................  ........        X   Mr. Levin......................        X   ........
Mr. Houghton...........................  ........        X   Mr. Cardin.....................        X   ........
Mr. Herger.............................  ........        X   Mr. McDermott..................        X   ........
Mr. McCrery............................  ........        X   Mr. Kleczka....................        X   ........
Mr. Camp...............................  ........        X   Mr. Lewis......................        X   ........
Mr. Ramstad............................  ........        X   Mr. Neal.......................        X   ........
Mr. Nussle.............................  ........        X   Mr. McNulty....................        X   ........
Mr. Johnson............................  ........        X   Mr. Jefferson..................        X   ........
Ms. Dunn...............................  ........        X   Mr. Tanner.....................        X   ........
Mr. Collins............................  ........        X   Mr. Becerra....................        X   ........
Mr. Portman............................  ........        X   Mrs. Thurman...................        X   ........
Mr. English............................  ........        X                                                      
Mr. Ensign.............................  ........        X                                                      
Mr. Christensen........................  ........        X                                                      
Mr. Watkins............................  ........        X                                                      
Mr. Hayworth...........................  ........        X                                                      
Mr. Weller.............................  ........        X                                                      
Mr. Hulshof............................  ........        X                                                      
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Matsui to strike Section 9102, Subtitle 
B, on the repeal of the State SSI maintenance of effort 
requirement, was defeated by a rollcall vote of 16 yeas to 23 
nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
            Representatives                 Yea       Nay            Representatives             Yea       Nay  
----------------------------------------------------------------------------------------------------------------
Mr. Archer.............................  ........        X   Mr. Rangel.....................        X   ........
Mr. Crane..............................  ........        X   Mr. Stark......................        X   ........
Mr. Thomas.............................  ........        X   Mr. Matsui.....................        X   ........
Mr. Shaw...............................  ........        X   Mrs. Kennelly..................        X   ........
Mrs. Johnson...........................  ........        X   Mr. Coyne......................        X   ........
Mr. Bunning............................  ........        X   Mr. Levin......................        X   ........
Mr. Houghton...........................  ........        X   Mr. Cardin.....................        X   ........
Mr. Herger.............................  ........        X   Mr. McDermott..................        X   ........
Mr. McCrery............................  ........        X   Mr. Kleczka....................        X   ........
Mr. Camp...............................  ........        X   Mr. Lewis......................        X   ........
Mr. Ramstad............................  ........        X   Mr. Neal.......................        X   ........
Mr. Nussle.............................  ........        X   Mr. McNulty....................        X   ........
Mr. Johnson............................  ........        X   Mr. Jefferson..................        X   ........
Ms. Dunn...............................  ........        X   Mr. Tanner.....................        X   ........
Mr. Collins............................  ........        X   Mr. Becerra....................        X   ........
Mr. Portman............................  ........        X   Mrs. Thurman...................        X   ........
Mr. English............................  ........        X                                                      
Mr. Ensign.............................  ........        X                                                      
Mr. Christensen........................  ........        X                                                      
Mr. Watkins............................  ........        X                                                      
Mr. Hayworth...........................  ........        X                                                      
Mr. Weller.............................  ........        X                                                      
Mr. Hulshof............................  ........        X                                                      
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Becerra to add a new Section 9305, 
Subtitle D, to allow legal immigrants present before August 22, 
1996, but disabled after that date, to be eligible for SSI, was 
defeated by a rollcall vote of 19 yeas to 20 nays. The vote was 
as follows:

----------------------------------------------------------------------------------------------------------------
            Representatives                 Yea       Nay            Representatives             Yea       Nay  
----------------------------------------------------------------------------------------------------------------
Mr. Archer.............................  ........        X   Mr. Rangel.....................        X   ........
Mr. Crane..............................  ........        X   Mr. Stark......................        X   ........
Mr. Thomas.............................        X   ........  Mr. Matsui.....................        X   ........
Mr. Shaw...............................  ........        X   Mrs. Kennelly..................        X   ........
Mrs. Johnson...........................        X   ........  Mr. Coyne......................        X   ........
Mr. Bunning............................  ........        X   Mr. Levin......................        X   ........
Mr. Houghton...........................  ........        X   Mr. Cardin.....................        X   ........
Mr. Herger.............................  ........        X   Mr. McDermott..................        X   ........
Mr. McCrery............................  ........        X   Mr. Kleczka....................        X   ........
Mr. Camp...............................  ........        X   Mr. Lewis......................        X   ........
Mr. Ramstad............................  ........        X   Mr. Neal.......................        X   ........
Mr. Nussle.............................  ........        X   Mr. McNulty....................        X   ........
Mr. Johnson............................  ........        X   Mr. Jefferson..................        X   ........
Ms. Dunn...............................  ........        X   Mr. Tanner.....................        X   ........
Mr. Collins............................        X   ........  Mr. Becerra....................        X   ........
Mr. Portman............................  ........        X   Mr. Thurman....................        X   ........
Mr. English............................  ........        X                                                      
Mr. Ensign.............................  ........        X                                                      
Mr. Christensen........................  ........        X                                                      
Mr. Watkins............................  ........        X                                                      
Mr. Hayworth...........................  ........        X                                                      
Mr. Weller.............................  ........        X                                                      
Mr. Hulshof............................  ........        X                                                      
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Coyne to strike Section 9401, Subtitle 
E, a provision clarifying State authority to determine base 
periods for determining eligibility for unemployment benefits 
was defeated by a rollcall vote of 17 yeas and 22 nays. The 
vote was as follows:

----------------------------------------------------------------------------------------------------------------
            Representatives                 Yea       Nay            Representatives             Yea       Nay  
----------------------------------------------------------------------------------------------------------------
Mr. Archer.............................  ........        X   Mr. Rangel.....................        X   ........
Mr. Crane..............................  ........        X   Mr. Stark......................        X   ........
Mr. Thomas.............................  ........        X   Mr. Matsui.....................        X   ........
Mr. Shaw...............................  ........        X   Mrs. Kennelly..................        X   ........
Mrs. Johnson...........................  ........        X   Mr. Coyne......................        X   ........
Mr. Bunning............................  ........        X   Mr. Levin......................        X   ........
Mr. Houghton...........................  ........        X   Mr. Cardin.....................        X   ........
Mr. Herger.............................  ........        X   Mr. McDermott..................        X   ........
Mr. McCrery............................  ........        X   Mr. Kleczka....................        X   ........
Mr. Camp...............................  ........        X   Mr. Lewis......................        X   ........
Mr. Ramstad............................  ........        X   Mr. Neal.......................        X   ........
Mr. Nussle.............................  ........        X   Mr. McNulty....................        X   ........
Mr. Johnson............................  ........        X   Mr. Jefferson..................        X   ........
Ms. Dunn...............................  ........        X   Mr. Tanner.....................        X   ........
Mr. Collins............................  ........        X   Mr. Becerra....................        X   ........
Mr. Portman............................  ........        X   Mrs. Thurman...................        X   ........
Mr. English............................        X   ........                                                     
Mr. Ensign.............................  ........        X                                                      
Mr. Christensen........................  ........        X                                                      
Mr. Watkins............................  ........        X                                                      
Mr. Hayworth...........................  ........        X                                                      
Mr. Weller.............................  ........        X                                                      
Mr. Hulshof............................  ........        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:
    The Committee agrees with the estimate prepared by the 
Congressional Budget Office (CBO) which is included below.

    b. statement regarding new budget authority and tax expenditures

    In compliance with clause 2(l)(3)(B) of Rule XI of the 
House of Representatives, the Committees states that the 
Committee recommendations result in increased budget authority 
fir direct spending programs relative to current law, and 
increased revenues.

      c. cost estimate prepared by the congressional budget office

    In compliance with clause 2(l)(3)(C) of Rule XI of the 
Rules of the House of Representatives 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, June 16, 1997.
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 Title IX of the 
proposed reconciliation bill, containing the non-Medicare 
spending recommendations of the Committee on Ways and Means.
    The estimate shows the budgetary effects of the committee's 
proposals over the 1998-2007 period. CBO understands that the 
Committee on the Budget will be responsible for interpreting 
how these proposals compare with the reconciliation 
instructions in the budget resolution. The estimate assumes 
that the reconciliation bill will be enacted by August 15; the 
estimate could change if the bill is enacted later.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Sheila 
Dacey, Kathy Ruffing, and Christina Hawley Sadoti for federal 
costs, and Leo Lex and John Patterson, for state and local 
impacts.
            Sincerely,
                                         June E. O'Neill, Director.

       ESTIMATED BUDGETARY IMPACT OF THE RECONCILIATION RECOMMENDATIONS OF THE COMMITTEE ON WAYS AND MEANS      
                                [Outlays by fiscal year, in millions of dollars)                                
----------------------------------------------------------------------------------------------------------------
                                                   1997       1998       1999       2000       2001       2002  
----------------------------------------------------------------------------------------------------------------
                                                 DIRECT SPENDING                                                
                                                                                                                
Spending Under Current Law                                                                                      
    Family Support \1\........................     20,121     21,825     22,194     22,767     22,836     22,889
    Supplemental Security Income (fees).......       -155       -140       -145       -150       -155       -160
    Supplemental Security Income (spending)                                                                     
     \2\......................................     27,458     26,135     28,001     32,593     29,733     34,638
    Medicaid \2\..............................     98,639    105,308    113,619    122,861    132,792    143,783
    Unemployment Compensation \3\.............     22,958     24,489     26,418     28,085     29,588     30,751
    Interest on UI loans to States............          0          0          0          0          0          0
Proposed Changes                                                                                                
    Family Support............................          0        137        596      1,087        691        350
    Suppmental Security Income (fees).........          0        -35        -70        -80        -90       -105
    Supplemental Security Income (spending)...          0      1,900      1,650      1,525      1,150      1,175
    Medicaid \4\..............................          0        375        350        300        275        275
    Unemployment Compensation.................          0        -29        -31       -233       -242       -252
    Interest on UI loans to States............          0         -5         -5         -5         -5         -5
                                               -----------------------------------------------------------------
        Total.................................          0      2,343      2,490      2,594      1,779      1,438
Spending Under Title IX                                                                                         
    Family Support............................     20,121     21,962     22,790     23,854     23,527     23,239
    Supplemental Security Income (fees).......       -155       -175       -215       -230       -245       -265
    Supplemental Security Income (spending)...     27,458     28,035     29,651     34,118     30,883     35,813
    Medicaid..................................     98,639    105,683    113,969    123,161    133,067    144,058
    Unemployment Compensation.................     22,958     24,460     26,387     27,852     29,346     30,499
    Interest on UI loans to States............          0         -5         -5         -5         -5         -5
                                                                                                                
                                                                                                                
                                                    REVENUES                                                    
                                                                                                                
Unemployment Insurance Revenues...............          0          0        -11        488        495        410
                                                                                                                
                                                     DEFICIT                                                    
                                                                                                                
    Total.....................................          0      2,343      2,501      2,106      1,284      1,028
----------------------------------------------------------------------------------------------------------------
\1\ Family support includes the Temporary Assistance for Needy Family block grant, federal administrative costs 
  for child support enforcement, the Child Care block grant, certain research funding enacted in the Personal   
  Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA), and residual outlays from several    
  programs that were repealed by PRWORA.                                                                        
\2\ CBO's March 1997 baseline estimates for Supplemental Income and Medicaid have been adjusted upward by $200  
  million and $40 million, respectively, because of the supplemental appropriation signed by the President on   
  June 12, 1997 (H.R. 1871).                                                                                    
\3\ CBO's Marcy 1997 baseline estimates for unemployment compensation have been adjusted to reflect increases   
  due to the April 4, 1997, decision of the even Circuit United States Court of Appeals, which affirmed the     
  judgment of the District Court in the case of Pennington v. Doherty.                                          
\4\ Medicaid would also be affected by the reconciliation recommendations of the Committee on Commerce (Title   
  III).                                                                                                         

                           Basis of Estimate

    CBO's estimates assume that the bill would be enacted by 
August 15, 1997. The following sections describe only those 
sections of the bill that are estimated to have significant 
budgetary effects.

          subtitle a, temporary assistance for needy families

    Section 9001 would establish welfare-to-work grants for 
states and localities to help recipients of Temporary 
Assistance for Needy Families (TANF) find jobs. Grants totaling 
up to $3 billion would be awarded--$750 million in 1998, $1.25 
billion in 1999, and $1 billion in 2000. A small amount of the 
grant money would be set aside for special purposes: 1 percent 
for Indian tribes and 0.5 percent for evaluation of welfare-to-
work programs. The remaining money would be divided evenly 
between non-competitive grants to states and competitive grants 
to localities and private industry councils.
    Non-competitive grants would be allocated to states based 
on a formula that equally considers states' shares of the 
nationwide number of poor individuals, unemployed individuals, 
and adult recipients of TANF. States must match the federal 
funds, spending one dollar of state money for every two dollars 
of federal money (a 67 percent federal match rate). To be 
eligible for federal matching, the state spending must be in 
addition to the maintenance of effort spending for the TANF 
program (80 percent of a state's historic spending on Aid to 
Families with Dependent Children and related programs.) States 
would be required to pass through 85 percent of the grant money 
to private industry councils and localities, which would have 
sole authority to spend the money after consulting with the 
state agency that administers the grant. The state could retain 
15 percent of the money to fund welfare-to-work projects of the 
state's choice.
    Competitive grants would be awarded directly to local 
governments and private industry councils and would not need to 
be matched by any state or local spending. The Secretary of 
Labor would be required to give at least 65 percent of the 
funds to cities that are among the 100 cities in the United 
States with the highest number of poor residents and at least 
25 percent of the funds to rural areas.
    Grantees could spend grant funds, either non-competitive or 
competitive, to help move recipients of TANF assistance into 
the workforce by means of job creation, on-the-job training, 
job placement, job vouchers or job retention, and support 
services. Any funds that were not obligated by a state or 
locality by the end of the fiscal year would be reallocated in 
the following year. Any funds that were not expended after 3 
years would be returned.
    Based on conversations with officials in half a dozen large 
states, CBO believes that states would draw down most of the 
non-competitive grant money. The officials indicated that the 
67 percent match rate would be very attractive to their states 
and that spending on welfare-to-work programs is politically 
popular. CBO assumes most states would spend more than 80 
percent of their historic level on benefit and work programs 
over this period under current law, and thus could draw down 
the federal grant without spending any additional state money.
    However, not all the state officials were confident that 
their state would tap all the money available. Some states with 
particularly low spending relative to their historic level 
would need to expand state spending significantly in order to 
draw down the federal funds. Also, the requirement to pass much 
of the money through to private industry councils would make it 
less attractive for states to spend match money. The estimate 
assumes that 30 percent of the grant funds available in 1998 
and 20 percent of thee grant funds available in 1999 would not 
be used in those years but would be carried over to the 
immediately following years. The estimate assumes that 20 
percent of the funds available in 2000 would not be used but 
would not be redistributed in 2001 because the bill does not 
allow grants to be made after 2000. States would spend the 
grant funds they draw down more slowly in the start-up years of 
the program than in the later years.
    Because no match is required, CBO assumes that all of the 
competitive grant money would be spent. However, the 
competitive grant funds would be spent a little more slowly 
than the non-competitive grant money because the process of 
awarding the grants would delay spending.
    Based on discussions with committee staff, the estimate 
assumes that the legislative language will be changed to 
clarify that state spending that is used to match welfare-to-
work grant dollars cannot also be used to match contingency 
fund dollars.
    CBO estimates that only $137 million of the $750 million 
available will be spent in 1998. This would increase to $1.1 
billion by 2000 and then decline to $350 million by 2002. In 
total, all but $139 million of the $3 billion would be spent.

                subtitle b, supplemental security income

    Subtitle B would reduce the deficit by an estimated $0.4 
billion over the 1998-2002 period by raising fees that the 
federal government charges some states in the Supplemental 
Security Income (SSI) program.
    Increased Fees for Administration of State Supplements.--
About 6 million people now receive federal SSI benefits, which 
may be as high as $484 a month per person. Many 
statessupplement that federal payment. As a convenience, states can 
request that the federal government administer the state supplement, so 
that beneficiaries receive a single check. About 2.7 million people get 
state supplements, of which 2.4 million are administered by the federal 
government and the rest by the states. Under a law enacted in 1993, the 
federal government charges states a fee of $5 per month for 
administering state supplements. Section 9103 of this bill would raise 
that in steps to $6.20 in fiscal year 1998 and to $8.50 in 2002. After 
2002, the fee would be increased for inflation.
    CBO assumed that the number of beneficiaries receiving 
federally-administered state supplementation would inch up to 
abut 2.7 million in 2002. Although states would be free under 
another provision of the bill to cease their supplementation 
entirely, CBO assumed that relatively few would do so. Many may 
choose to pay smaller supplements than they would under current 
law, but that choice would not affect the federal government's 
proceeds from the fee, which depend on the number of 
supplements rather than on their size. CBO also assumed that 
few states would switch to state-administered supplementation 
to avoid the fee, because of the administrative headaches that 
would entail. Multiplying the number of supplements by the 
additional fee yields estimated proceeds of $35 million in 1998 
and $105 million in 2002.
    Repeal of Maintenance-of-Effort Requirement. Section 9201 
of the bill would repeal the requirement (Section 1618 of the 
Social Security Act) that states which supplement the incomes 
of SSI recipients keep up that effort. States can choose 
between two methods of compliance with Section 1618: a 
``maintenance of expenditures'' method (spending at least as 
much on supplementation as in the previous year) or 
``maintenance of payments'' (maintaining per-capita supplements 
at 1983 levels). Currently, a total of about $3.6 billion in 
state supplements goes every year to approximately 2.7 million 
beneficiaries-figures that have changed little for several 
years.
    The principal effect of repealing this requirement would be 
on state budgets. Potential effects on the federal budget would 
be small, and too speculative to estimate reliably. If states 
opt to trim their supplements, for example, the federal 
government would automatically pay larger Food Stamp benefits 
in most states (with the possible exception of California, as 
discussed below). On the other hand, a small number of people 
who participate in Medicaid solely because of state supplements 
might lose that coverage, leading to small savings in Medicaid.
    California pays relatively generous supplements--accounting 
for more than half of the $3.6 billion paid nationwide, even 
though it has only about one-sixth of the nation's SSI 
caseload--and has special permission to offer no food stamps to 
SSI recipients. Its supplements are decreed by federal law to 
represent a ``cashout'' of the small food stamp benefit that 
the recipient could otherwise get. By repealing section 1618, 
this title would leave the legal basis of that cashout status 
tenuous; the issue would be left for the executive branch and--
very likely--the courts to decide. Even if California lost its 
cashout status, however, CBO believes that the effects on 
federal outlays would be fairly small. A large number of SSI 
beneficiaries in California would automatically become eligible 
for a small Food Stamp benefit; administrative costs in the 
Food Stamp program (which are split equally between the federal 
government and the state) would go up as a consequence; but a 
subset of recipients--those who live in households that include 
non-SSI recipients and whose income, for the first time, would 
begin to be counted with the other members'--would cause a 
fairly steep drop in household's food stamp benefit.

                        subtitle d--noncitizens

    Last year's welfare reform law, the Personal Responsibility 
and Work Opportunity Reconciliation Act of 1996 (PRWORA) ended 
the eligibility of most legal aliens for SSI benefits. 
Specifically, legal aliens could not receive SSI unless they 
fell in one of the exempted categories--chiefly refugees during 
their first 5 years in the United States, and aliens who had 
worked for 10 years or more in this country. (The same criteria 
were enacted for aliens seeking Food Stamp benefits.) The 
government stopped making new awards to legal aliens 
immediately after PRWORA's enactment The approximately half-
million legal aliens who were on the rolls at the PRWORA's 
enactment and who do not fall in one of the exempt categories 
faced the end of their SSI benefits in August or September, 
after a one-year grace period provided by PRWORA. The cutoff 
date was delayed to October 1, 1997, by the supplemental 
appropriation signed by the President on June 12, at an 
estimated cost in fiscal year 1997 of $0.2 billion.
    This bill would spare those aliens who were on the SSI 
rolls in August 1996 from losing their benefits after October 
1. CBO estimates that the number who would benefit from this 
provision, who totaled about 500,000 in August 1996, would 
average about 375,000 in fiscal year 1998 and 210,000 in 2002. 
That number falls for two reasons. First, the number would 
shrink naturally due to death or (less frequently) financial 
improvement; second, many who lost benefits as a result of 
PRWORSA were assumed by CBO to return to the rolls through 
naturalization. Multiplying the number of aliens retaining SSI 
eligibility by an average benefit--assumed to equal about $425 
in 1998 and $475 in 2002--yields outlays of $1.9 billion and 
$1.2 billion in those two years. The extra outlays would total 
$7.4 billion over the 1998-2002 period.
    This bill would also extend the window of SSI eligibility 
for refugees from 5 years to 7 years after their arrival in the 
United States. (Since aliens generally must live here 5 years 
before they can become naturalized, this change would give more 
aged and disabled refugees a chance to complete the process 
without losing benefits.) Refugees; eligibility would remain at 
5 years in the Food Stamp program. If the extension from 5 
years to 7 years for refugees were enacted as a free-standing 
measure, it would cost approximately $100 million a year in 
SSI. However, the extra cost from the extension in this bill is 
negligible. Most of its costin the 1997-2002 period as 
associated with refugees already in the country, and who have been here 
for more than 5 years or will soon hit the 5-year mark; but most of 
those people would be spared by the proposed ``grandfather'' provision 
for aliens on the rolls in August 1996.
    Legal aliens who lost SSI would not necessarily have lost 
Medicaid. PRWORA fundamentally left up to the states whether to 
provide Medicaid coverage for aliens who were in the United 
States legally in August 1996. (Much tougher rules, notably a 
ban on non-emergency Medicaid benefits for five years after 
entry, applied to immigrants other than refugees who enter the 
country after August 1996.) CBO assumed that, because most 
states provide Medicaid for the aged and disabled who are 
``medically needy,'' only about one-quarter of aliens who lost 
SSI would have lost or stopped participating in Medicaid. Under 
this bill, they would retain Medicaid. Multiplying those 
participants by an assumed average Medicaid cost of about 
$4,000 in 1998--reflecting the fact that aliens are clustered 
in states with lower-than-average federal matching rates and 
that, in the absence of regular Medicaid emergency Medicaid 
spending would have gone up--yields extra outlays of $0.3 
billion in 1998 and gradually diminishing amounts thereafter.

                 Subtitle E--Unemployment Compensation

    Subtitle E would clarify that state base period 
determinations are not administrative provisions, increase the 
federal unemployment account ceiling, provide for a special 
distribution of $100 million to states in fiscal years 2000-
2002, and restrict interest-free advances. In addition, 
Subtitle E would exempt from coverage under the federal 
unemployment tax act (FUTA) certain workers, including teachers 
at church-run schools, temporary election workers, and inmates 
who work in private businesses as part of a cooperative work 
program. The following table shows the budgetary effect of each 
of these provisions.

                                     [By fiscal year in millions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                                                 1997   1998    1999     2000     2001     2002 
----------------------------------------------------------------------------------------------------------------
                                                 DIRECT SPENDING                                                
                                                                                                                
Section 9401: Base Period Determination.......................  .....     -26     -28      -30      -31      -33
Section 9403: Special Distribution to States..................  .....  ......  ......     -200     -208     -216
Section 9404: Interest on Advances............................  .....      -5      -5       -5       -5       -5
Sections 9405, 9406, and 9407: Exemption from FUTA coverage of                                                  
 Certain Workers..............................................  .....      -3      -3       -3       -3       -3
                                                               -------------------------------------------------
      Total Changes...........................................  .....     -34     -36     -238     -247     -257
                                                               =================================================
                                                    REVENUES                                                    
                                                                                                                
Section 9401: Base Period Determination.......................  .....       0      -8      -30      -36      -37
Section 9403: Special Distribution to States..................  .....  ......  ......      521      534      450
Sections 9405, 9406, and 9407: Exemption from FUTA coverage of                                                  
 Certain Workers..............................................  .....  ......      -3       -3       -3       -3
                                                               -------------------------------------------------
      Total Changes...........................................  .....  ......     -11      488      495      410
----------------------------------------------------------------------------------------------------------------

    Base Period Determination.--Section 9401 would clarify that 
base periods, as defined under state law, are not considered 
methods of administration for purposes of section 303(a)(1) of 
the Social Security Act. Enacting this section would reduce 
federal outlays for unemployment compensation by $26 million 
for fiscal year 1998 and by $148 million over the 1998-2002 
period. Payroll taxes would be adjusted in order to compensate 
for these reductions. These payroll taxes are levied and 
collected by state governments but deposited with the federal 
government in the Unemployment Trust Fund (UTF). CBO estimates 
that revenue from payroll taxes would fall by $111 million over 
the 1998-2002 period. As a result, the deficit would be reduced 
by a total of $37 million over this five-year period. These 
savings assume that the CBO March 1997 baseline for 
unemployment benefit outlays and state deposit collections are 
adjusted to reflect increases due to the April 4, 1997, 
decision by the Seventh Circuit U.S. Court of Appeals, which 
affirmed the judgment in the District Court in the case of 
Pennington v. Doherty.
    Increase the Federal Unemployment Account Ceiling.--Section 
9402 would raise the statutory ceiling on the Federal 
Unemployment Account in the UTF from 0.25 percent of covered 
wages to 0.5 percent of covered wages beginning in fiscal year 
2002. This change would increase the ceiling from about $7 
billion under current law to about $14 billion. This increase 
would have no effect on revenues or outlays during fiscal years 
1998-2002 but would have sizeable impacts on both outlays and 
revenues beginning in fiscal year 2003.
    Special Distribution to States.--Section 9403 would 
eliminate certain transfers of UTF funds to states but allow 
for transfers of $100 million to take place in fiscal years 
2000, 2001, and 2002. Current provisions of the Social Security 
Act require that when all of the federal accounts within the 
UTF reach their statutory limits, excess federal income is 
transferred to the state benefits accounts. CBO estimates that 
the federal accounts would reach these limits at the end of 
fiscal year 1999 and that approximately $0.9 billion would be 
transferred to the states and be available for expenditure 
beginning in fiscal year 2000. Similar transfers would continue 
throughout the baseline projection period. CBO estimated that 
states would spend about $300 million of these transfers each 
year, with slight adjustments for inflation.
    This section would effectively increase the ceiling, 
because it would require amounts in excess of the ceiling, 
minus $100 million, to be held in the FUA regardless of the 
ceiling. This section would restrict transfers to $300 million 
over fiscal years 2000-2002, thereby reducing net outlays by 
$624 million compared to the current law. In contrast to CBO's 
baseline estimate, where state revenues would drop because of 
the transfer effected by the current FUA ceiling, CBO estimates 
that state tax rates would be maintained at levels that would 
yield roughly $1.5 billion more in revenues than had been 
estimated under current law. Enacting this section would reduce 
the federal deficit by about $2.1 billion over the 1998-2002 
period.
    Restriction on Interest-Free Advances to State Accounts.--
Section 9404 would require states to meet certain criteria in 
order to be eligible to receive interest-free advances to their 
state benefit account in the UTF. Under current law, states are 
not charged interest on advances if they are repaid in full by 
September 30 of the calendar year the advances were made, and 
if no other advances were made during that calendar year. This 
proposal would further require that states meet certain funding 
goals in four of the last five quarters before the quarter in 
which the advance was required.U.S.C.
    Currently, most states have sufficient balances in their 
benefit accounts and would not require advances in order to 
meet benefit payments. A few states, however, do not have 
balances that would meet the funding goal and could require 
advances within the projectionperiod. Section 9404 would 
require that these states be charged interest on their advances, even 
if they are paid back by September 30.
    In addition to intra-year borrowing due to timing of 
payroll tax receipts, states may require advances when economic 
conditions would cause outlays to increase or tax receipts to 
fall. Over the past five years (1992-1996), about $140 million 
in interest on advances was paid by the states. If this new 
policy had applied, interest payments would have been $20 
million more than under current law. Assuming a 25 percent 
probability that similar conditions would recur, CBO estimates 
that additional interest payments of about $5 million annually, 
on average, would be collected, for a net deficit reduction of 
$25 million over fiscal years 1998-2002. These interest 
payments are shown in the offsetting receipts account of the 
UTF in function 900.
    Exemption of Service Performed by Election Workers from the 
Federal Unemployment Tax Act (FUTA).--Seciton 9405 would exempt 
from FUTA coverage work performed by approximately 925,000 
temporary election workers who staff polling places for one to 
two days during a local, state, or federal election. CBO 
estimates that enacting this provision would reduce benefit 
outlays and revenues by $1 million a year.
    Exemption of Service Performed for an Elementary or 
Secondary School Operated Primarily for Religious Purposes from 
the Federal Unemployment Tax.--Section 9406 would eliminate 
FUTA coverage for approximately 71,000 elementary and secondary 
school teachers employed by religious organizations. CBO 
estimates that enacting this provision would reduce benefit 
outlays and revenues by $2 million a year.
    Treatment of Certain Services Performed by Inmates.--
Section 9407 would exempt from coverage under FUTA service 
performed by persons committed to penal institutions. Enactment 
of this section would reduce unemployment benefit outlays as 
well as FUTA and state employment tax revenues, but the amount 
is likely to be insignificant.
    Estimated impact on State, local, and tribal governments: 
This title would impose no new intergovernmental mandates as 
defined under the Unfunded Mandates Reform Act of 1995 (UMRA) 
and would repeal an existing mandate under the Supplemental 
Security Income (SSI) program. In addition, the title includes 
other provisions that would have a significant effect the 
budgets of state, local, and tribal governments.
            Repeal of mandatory SSI supplementation
    Current law requires states to maintain their per-capita 
SSI supplements at 1983 levels or maintain their total 
expenditures at the level from the previous year. Once a state 
elects to supplement SSI, federal law requires it to continue 
in order to remain eligible for Medicaid payments. Title IX 
would repeal this mandate.
    States currently supplement SSI annually with about $3.6 
billion of their own funds. Although some states supplement SSI 
beyond what is required, most of the $3.6 billion can be 
attributed to the mandate to maintain spending levels. However, 
under the welfare reform law, most legal aliens will no longer 
be eligible for SSI or state supplements after August 1997. 
(This title would allow many of these legal aliens to remain 
eligible for SSI and supplements.) Based on data from the 
Social Security Administration, CBO estimates that the annual 
cost of the mandate will decrease to about $3.0 billion after 
August 1997 as a result of welfare reform. Even though this 
mandate would be repealed, CBO does not expect that states 
would cut their supplement programs significantly.
    If the repeal of the maintenance-of-effort requirement 
results in California losing its cashout status, a large number 
of SSI beneficiaries in California would automatically become 
eligible for Food Stamps, and the state's share of the 
program's annual administrative costs would increase by $25 
million to $50 million.
            Other significant impacts
    Welfare to Work.--The title would provide states and tribal 
governments with between $750 million and $1.25 billion 
annually for fiscal years 1998 through 2000 to move welfare 
recipients to work. In order to receive these funds, states 
would have to match each federal dollar with 50 cents of its 
own funds and also meet the 80 percent maintenance of effort 
requirement under the Temporary Assistance for Needy Families 
(TANF) program.
    TANF Work Requirement.--The TANF work requirement (which 
specifies percentages of TANF families that must have a member 
engaged in work activities) would be modified in ways that CBO 
estimates would likely increase the net costs of meeting the 
work requirement. Such costs would not constitute a mandate as 
defined under UMRA because under TANF states have the 
flexibility to offset additional costs by tightening 
eligibility or reducing benefit levels.
    Fees for Administering SSI Supplements.--CBO estimates that 
states would spend an additional $105 million annually by 2002 
because of the increase in fees charged by the federal 
government to administer SSI supplements. The higher fees do 
not constitute a mandate because states contract voluntarily 
with the federal government to provide these services.
    Welfare and Public Benefits for Aliens.--Subtitle D would 
grandfather the eligibility of aliens receiving SSI on August 
22, 1996, enabling those aliens to continue receiving benefits. 
Assuming states continue to supplement SSI payments, the costs 
of these supplements would be approximately $400 million in 
1998. Because Section 9102 of the subtitle eliminates the 
requirement for states to comply with maintenance-of-effort 
requirements in the SSI program, continuing supplemental 
benefits for these aliens would not constitute a mandate under 
UMRA.
    The increased SSI eligibility that results from this 
subtitle would also lead to an increase in state costs for 
their share of Medicaid payments. These costs are estimated to 
total approximately $325 million in 1998, decreasing to $250 
million in 2002. Because states have the authority to make 
programmatic changes in the Medicaid program to offset these 
costs, they would not be considered mandates under UMRA.
    Unemployment Compensation.--This title contains a number of 
provisions that would affect states' costs under the federal 
Unemployment Compensation program. Because state participation 
in this program is not required by federal law, the changes 
made by this subtitle would not be considered mandates as 
defined by UMRA.
    The provision clarifying the base period for determining 
the eligibility of an applicant for unemployment would preserve 
the ability of states to define certain eligibility standards. 
The court decision that this provision would modify now applies 
to only three states (Illinois,Wisconsin, and Indiana). In the 
absence of this provision, however, 41 states could be required 
to adopt alternative base periods at a cost of $400 million 
annually in additional unemployment compensation benefits, as 
well as administrative costs.
    Provisions raising the FUA ceiling would reduce transfers 
to state unemployment accounts by a total of about $2.5 billion 
from fiscal year 2000 to fiscal year 2002.
    Under current law, states may receive interest-free 
advances to their state unemployment benefit accounts. 
Additional restrictions imposed by this title would result in 
fewer states qualifying for such loans. In total, CBO estimates 
that these restrictions would result in additional costs to 
state governments totaling approximately $5 million annually 
beginning in fiscal year 1998.
    Estimated impact on the private sector: This title contains 
no private-sector mandates as defined in the Unfunded Mandates 
Reform Act of 1995.
    Estimate prepared by: Federal Costs: Sheila Dacey, Kathy 
Ruffing, Christina Hawley Sadoti; Impact on State, Local, and 
Tribal Governments: Leo Lex and John Patterson; Impact on the 
Private Sector: Ralph Smith.
    Estimate approved by: Paul N. Van de Water, Assistant 
Director for Budget Analysis.

                                            APPENDIX TABLE: FEDERAL BUDGETARY EFFECTS OF TITLE IX BY SUBTITLE                                           
                                                        [By fiscal year, in millions of dollars]                                                        
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                    1998-2002  1998-2007
                                  1998      1999      2000      2001      2002      2003      2004      2005      2006      2007      Total      Total  
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     DIRECT SPENDING                                                                    
                                                                                                                                                        
Subtitle A: temporary                                                                                                                                   
 assistance for needy families                                                                                                                          
 block grant, welfare to work                                                                                                                           
 grants                                                                                                                                                 
    Budget Authority..........       750     1,250     1,000         0         0         0         0         0         0         0      3,000      3,000
    Outlays...................       137       596     1,087       691       350         0         0         0         0         0      2,861      2,881
Subtitle B: supplemental                                                                                                                                
 security income, SSI                                                                                                                                   
    Budget Authority..........       -35       -70       -80       -90      -105      -115      -130      -140      -155      -165       -380     -1,085
    Outlays...................       -35       -70       -80       -90      -105      -115      -130      -140      -155      -165       -380     -1,085
Subtitle D: restricting                                                                                                                                 
 welfare and public benefits                                                                                                                            
 for aliens                                                                                                                                             
    SSI                                                                                                                                                 
        Budget Authority......     1,900     1,650     1,525     1,150     1.175     1,150     1,025       950       725       525      7,400     11,775
        Outlays...............     1,900     1,650     1,525     1,150     1.175     1,150     1,025       950       725       525      7,400     11,775
    Medicaid                                                                                                                                            
        Budget Authority......       375       350       300       275       275       275       250       226       200       160      1,675      2,675
        Outlays...............       375       350       300       275       275       275       250       226       200       150      1,575      2,675
    Subtotal                                                                                                                                            
        Budget Authority......     2,275     2,000     1,825     1,425     1,450     1,425     1,275     1,175       925       675      8,975     14,450
        Outlays...............     2,275     2,000     1,825     1,425     1,450     1,425     1,275     1,175       925       675      8,975     14,450
Subtitle E: unemployment                                                                                                                                
 compensation                                                                                                                                           
    Budget Authority..........       -34       -36      -238      -247      -267      -367      -377      -388      -398      -410       -813     -2,752
    Outlays...................       -34       -36      -238      -247      -267      -367      -377      -388      -398      -410       -813     -2,752
      Total                                                                                                                                             
        Budget Authority......     2,956     3,144     2,507     1,088     1,088       943       768       647       372       100     10,782     13,613
        Outlays...............     2,343     2,490     2,594     1,779     1,438       943       768       647       372       100     10,643     13,474
                                                                                                                                                        
                                                                        REVENUES                                                                        
                                                                                                                                                        
SUBTITLE E: UNEMPLOYMENT                                                                                                                                
 COMPENSATION                          0       -11       488       495       410       358       292       209       143        59      1,380      2,442
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Details may not add to totals because of rounding.                                                                                                

 V. Other Matters Required To Be Discussed Under the Rules of the House

          a. committee oversight findings and recommendations

    In compliance with clause 2(l)(3)(A) of Rule XI of the 
Rules of the House of Representatives, the Committee concludes 
that the actions taken in this legislation are appropriate 
given its oversight activities related to the human resources 
programs within its jurisdiction.

b. summary of findings and recommendations of the government reform and 
                          oversight committee

    In compliance with clause 2(l)(3)(D) of Rule XI of the 
Rules of the House of Representatives, the Committee states 
that no oversight findings and recommendations have been 
submitted to this Committee by the Committee on Government 
Operations with respect to the provisions contained in this 
legislation.

                 c. constitutional authority statement

    With respect to clause 2(l)(4) of rule XI of the Rules of 
the House of Representatives, relating to Constitutional 
Authority, the Committee states that the Committee's action in 
reporting the bill is derived from Article I of the 
Constitution, Section 8 (``The Congress shall have power to lay 
and collect taxes, duties, imposts and excises to pay the debts 
and to provide for * * * the general Welfare of the United 
States * * *'').

   Changes in Existing Law Made by Title IX of 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 III--GRANTS TO STATES FOR UNEMPLOYMENT COMPENSATION 
                             ADMINISTRATION

          * * * * * * *

                        provisions of state law

  Sec. 303. (a) * * *
          * * * * * * *
  (h)(1) The State agency charged with the administration of 
the State law shall, on a reimbursable basis--
          (A) * * *
          * * * * * * *
          (C) establish such safeguards as the Secretary of 
        Labor determines are necessary to insure that 
        information disclosed under subparagraph (A) is used 
        only for purposes of section [453(i)(1) in carrying out 
        the child support enforcement program under title IV] 
        subsections (i)(1), (i)(3), and (j) of section 453.
          * * * * * * *

TITLE IV--GRANTS TO STATES FOR AID AND SERVICES TO NEEDY FAMILIES WITH 
                CHILDREN AND FOR CHILD-WELFARE SERVICES

          * * * * * * *

            Part A--Aid to Families With Dependent Children

          * * * * * * *

SEC. 403. GRANTS TO STATES.

  (a) Grants.--
          (1) * * *
          * * * * * * *
          (5) Welfare-to-work grants.--
                  (A) Noncompetitive grants.--
                          (i) Entitlement.--A State shall be 
                        entitled to receive from the Secretary 
                        a grant for each fiscal year specified 
                        in subparagraph (H) of this paragraph 
                        for which the State is a welfare-to-
                        work State, in an amount that does not 
                        exceed the lesser of----
                                  (I) 2 times the total of the 
                                expenditures by the State 
                                (excluding qualified State 
                                expenditures (as defined in 
                                section 409(a)(7)(B)(i)) and 
                                any expenditure described in 
                                subclause (I), (II), or (IV) of 
                                section 409(a)(7)(B)(iv)) 
                                during the fiscal year for 
                                activities described in 
                                subparagraph (C)(i) of this 
                                paragraph; or
                                  (II) the allotment of the 
                                State under clause (iii) of 
                                this subparagraph for the 
                                fiscal year.
                          (ii) Welfare-to-work state.--A State 
                        shall be considered a welfare-to-work 
                        State for a fiscal year for purposes of 
                        this subparagraph if the Secretary, 
                        after consultation (and the sharing of 
                        any plan or amendment thereto submitted 
                        under this clause) with the Secretary 
                        of Health and Human Services and the 
                        Secretary of Housing and Urban 
                        Development, determines that the State 
                        meets the following requirements:
                                  (I) The State has submitted 
                                to the Secretary (in the form 
                                of an addendum to the State 
                                plan submitted under section 
                                402) a plan which--
                                          (aa) describes how, 
                                        consistent with this 
                                        subparagraph, the State 
                                        will use any funds 
                                        provided under this 
                                        subparagraph during the 
                                        fiscal year;
                                          (bb) specifies the 
                                        formula to be used 
                                        pursuant to clause (vi) 
                                        to distribute funds in 
                                        the State, and 
                                        describes the process 
                                        by which the formula 
                                        was developed;
                                          (cc) contains 
                                        evidence that the plan 
                                        was developed in 
                                        consultation and 
                                        coordination with sub-
                                        State areas; and
                                          (dd) is approved by 
                                        the agency 
                                        administering the State 
                                        program funded under 
                                        this part.
                                  (II) The State has provided 
                                the Secretary with an estimate 
                                of the amount that the State 
                                intends to expend during the 
                                fiscal year (excluding 
                                expenditures described in 
                                section 409(a)(7)(B)(iv)) for 
                                activities described in 
                                subparagraph (C)(i) of this 
                                paragraph.
                                  (III) The State has agreed to 
                                negotiate in good faith with 
                                the Secretary of Health and 
                                Human Services with respect to 
                                the substance of any evaluation 
                                under section 413(j), and to 
                                cooperate with the conduct of 
                                any such evaluation.
                                  (IV) The State is an eligible 
                                State for the fiscal year.
                                  (V) Qualified State 
                                expenditures (within the 
                                meaning of section 409(a)(7)) 
                                are at least 80 percent of 
                                historic State expenditures 
                                (within the meaning of such 
                                section), with respect to the 
                                fiscal year or the immediately 
                                preceding fiscal year.
                          (iii) Allotments to welfare-to-work 
                        states.--The allotment of a welfare-to-
                        work State for a fiscal year shall be 
                        the available amount for the fiscal 
                        year multiplied by the State percentage 
                        for the fiscal year.
                          (iv) Available amount.--As used in 
                        this subparagraph, the term ``available 
                        amount'' means, for a fiscal year, the 
                        sum of--
                                  (I) 50 percent of the sum 
                                of--
                                          (aa) the amount 
                                        specified in 
                                        subparagraph (H) for 
                                        the fiscal year, minus 
                                        the total of the 
                                        amounts reserved 
                                        pursuant to 
                                        subparagraphs (F) and 
                                        (G) for the fiscal 
                                        year; and
                                          (bb) any amount 
                                        reserved pursuant to 
                                        subparagraph (F) for 
                                        the immediately 
                                        preceding fiscal year 
                                        that has not been 
                                        obligated; and
                                  (II) any available amount for 
                                the immediately preceding 
                                fiscal year that has not been 
                                obligated by a State or sub-
                                State entity.
                                  (v) State percentage.--As 
                                used in clause (iii), the term 
                                ``State percentage'' means, 
                                with respect to a fiscal year, 
                                \1/3\ of the sum of--
                                          (aa) the percentage 
                                        represented by the 
                                        number of individuals 
                                        in the State whose 
                                        income is less than the 
                                        poverty line divided by 
                                        the number of such 
                                        individuals in the 
                                        United States;
                                          (bb) the percentage 
                                        represented by the 
                                        number of unemployed 
                                        individuals in the 
                                        State divided by the 
                                        number of such 
                                        individuals in the 
                                        United States; and
                                          (cc) the percentage 
                                        represented by the 
                                        number of individuals 
                                        who are adult 
                                        recipients of 
                                        assistance under the 
                                        State program funded 
                                        under this part divided 
                                        by the number of 
                                        individuals in the 
                                        United States who are 
                                        adult recipients of 
                                        assistance under any 
                                        State program funded 
                                        under this part.
                          (vi) Distribution of funds within 
                        states.--
                                  (I) In general.--A State to 
                                which a grant is made under 
                                this subparagraph shall 
                                distribute not less than 85 
                                percent of the grant funds 
                                among the service delivery 
                                areas in the State, in 
                                accordance with a formula 
                                which--
                                          (aa) determines the 
                                        amount to be 
                                        distributed for the 
                                        benefit of a service 
                                        delivery area in 
                                        proportion to the 
                                        number (if any) by 
                                        which the number of 
                                        individuals residing in 
                                        the service delivery 
                                        area with an income 
                                        that is less than the 
                                        poverty line exceeds 5 
                                        percent of the 
                                        population of the 
                                        service delivery area, 
                                        relative to such number 
                                        for the other service 
                                        delivery areas in the 
                                        State, and accords a 
                                        weight of not less than 
                                        50 percent to this 
                                        factor;
                                          (bb) may determine 
                                        the amount to be 
                                        distributed for the 
                                        benefit of a service 
                                        delivery area in 
                                        proportion to the 
                                        number of adults 
                                        residing in the service 
                                        delivery area who are 
                                        recipients of 
                                        assistance under the 
                                        State program funded 
                                        under this part 
                                        (whether in effect 
                                        before or after the 
                                        amendments made by 
                                        section 103(a) of the 
                                        Personal Responsibility 
                                        and Work Opportunity 
                                        Reconciliation Act 
                                        first applied to the 
                                        State) for at least 30 
                                        months (whether or not 
                                        consecutive) relative 
                                        to the number of such 
                                        adults residing in the 
                                        other service delivery 
                                        areas in the State; and
                                          (cc) may determine 
                                        the amount to be 
                                        distributed for the 
                                        benefit of a service 
                                        delivery area in 
                                        proportion to the 
                                        number of unemployed 
                                        individuals residing in 
                                        the service delivery 
                                        area relative to the 
                                        number of such 
                                        individuals residing in 
                                        the other service 
                                        delivery areas in the 
                                        State.
                                  (II) Special rule.--
                                Notwithstanding subclause (I), 
                                if the formula used pursuant to 
                                subclause (I) would result in 
                                the distribution of less than 
                                $100,000 during a fiscal year 
                                for the benefit of a service 
                                delivery area, then in lieu of 
                                distributing such sum in 
                                accordance with the formula, 
                                such sum shall be available for 
                                distribution under subclause 
                                (III) during the fiscal year.
                                  (III) Projects to help long-
                                term recipients of assistance 
                                into the work force.--The 
                                Governor of a State to which a 
                                grant is made under this 
                                subparagraph may distribute not 
                                more than 15 percent of the 
                                grant funds (plus any amount 
                                required to be distributed 
                                under this subclause by reason 
                                of subclause (II)) to projects 
                                that appear likely to help 
                                long-term recipients of 
                                assistance under the State 
                                program funded under this part 
                                (whether in effect before or 
                                after the amendments made by 
                                section 103(a) of the Personal 
                                Responsibility and Work 
                                Opportunity Reconciliation Act 
                                first applied to the State) 
                                enter the work force.
                          (vii) Administration.--
                                  (I) In general.--A grant made 
                                under this subparagraph to a 
                                State shall be administered by 
                                the State agency that is 
                                administering, or supervising 
                                the administration of, the 
                                State program funded under this 
                                part, or by another State 
                                agency designated by the 
                                Governor of the State.
                                  (II) Spending by private 
                                industry councils.--The private 
                                industry council for a service 
                                delivery area shall have sole 
                                authority to expend the amounts 
                                provided for the benefit of a 
                                service delivery area under 
                                subparagraph (vi)(I), pursuant 
                                to an agreement with the agency 
                                that is administering the State 
                                program funded under this part 
                                in the service delivery area.
                  (B) Competitive grants.--
                          (i) In general.--The Secretary, in 
                        consultation with the Secretary of 
                        Health and Human Services and the 
                        Secretary of Housing and Urban 
                        Development, shall award grants in 
                        accordance with this subparagraph, in 
                        fiscal years 1998 and 2000, for 
                        projects proposed by eligible 
                        applicants, based on the following:
                                  (I) The effectiveness of the 
                                proposal in--
                                          (aa) expanding the 
                                        base of knowledge about 
                                        programs aimed at 
                                        moving recipients of 
                                        assistance under State 
                                        programs funded under 
                                        this part who are least 
                                        job ready into the work 
                                        force.
                                          (bb) moving 
                                        recipients of 
                                        assistance under State 
                                        programs funded under 
                                        this part who are least 
                                        job ready into the work 
                                        force; and
                                          (cc) moving 
                                        recipients of 
                                        assistance under State 
                                        programs funded under 
                                        this part who are least 
                                        job ready into the work 
                                        force, even in labor 
                                        markets that have a 
                                        shortage of low-skill 
                                        jobs.
                                  (II) At the discretion of the 
                                Secretary, any of the 
                                following:
                                          (aa) The history of 
                                        success of the 
                                        applicant in moving 
                                        individuals with 
                                        multiple barriers into 
                                        work.
                                          (bb) Evidence of the 
                                        applicant's ability to 
                                        leverage private, 
                                        State, and local 
                                        resources.
                                          (cc) Use by the 
                                        applicant of State and 
                                        local resources beyond 
                                        those required by 
                                        subparagraph (A).
                                          (dd) Plans of the 
                                        applicant to coordiate 
                                        with other 
                                        organizations at the 
                                        local and State level.
                                          (ee) Use by the 
                                        applicant of current or 
                                        former recipients of 
                                        assistance under a 
                                        State program funded 
                                        under this part as 
                                        mentors, case managers, 
                                        or service providers.
                          (ii) Eligible applicants.--As used in 
                        clause (i), the term ``eligible 
                        applicant'' means a private industry 
                        council or a political subdivision of a 
                        State that submits a proposal that is 
                        approved by the agency administering 
                        the State program funded under this 
                        part.
                          (iii) Determination of grant 
                        amount.--In determining the amount of a 
                        grant to be made under this 
                        subparagraph for a project proposed by 
                        an applicant, the Secretary shall 
                        provide the applicant with an amount 
                        sufficient to ensure that the project 
                        has a reasonable opportunity to be 
                        successful, taking into account the 
                        number of long-term recipients of 
                        assistance under a State program funded 
                        under this part, the level of 
                        unemployment, the job opportunities and 
                        job growth, the poverty rate, and such 
                        other factors as the Secretary deems 
                        appropriate, in the area to be served 
                        by the project.
                          (iv) Targeting of funds to certain 
                        areas.--
                                  (I) Cities with greatest 
                                number of persons with income 
                                less than the poverty line.--
                                The Secretary shall use not 
                                less than 65 percent of the 
                                funds available for grants 
                                under this subparagraph for a 
                                fiscal year to award grants for 
                                expenditures in cities that are 
                                among the 100 cities in the 
                                United States with the highest 
                                number of residents with an 
                                income that is less than the 
                                poverty line.
                                  (II) Rural areas.--
                                          (aa) In general.--The 
                                        Secretary shall use not 
                                        less than 25 percent of 
                                        the funds available for 
                                        grants under this 
                                        subparagraph for a 
                                        fiscal year to award 
                                        grants for expenditures 
                                        in rural areas.
                                          (bb) Rural area 
                                        defined.--As used in 
                                        item (aa), the term 
                                        ``rural area'' means a 
                                        city, town, or 
                                        unincorporated area 
                                        that has a population 
                                        of 50,000 or fewer 
                                        inhabitants and that is 
                                        not an urbanized area 
                                        immediately adjacent to 
                                        a city, town, or 
                                        unincorporated area 
                                        that has a population 
                                        of more than 50,000 
                                        inhabitants.
                          (v) Funding.--For grants under this 
                        subparagraph for each fiscal year 
                        specified in subparagraph (H), there 
                        shall be available to the Secretary an 
                        amount equal to the sum of--
                                  (I) 50 percent of the sum 
                                of--
                                          (aa) the amount 
                                        specified in 
                                        subparagraph (H) for 
                                        the fiscal year, minus 
                                        the total of the 
                                        amounts reserved 
                                        pursuant to 
                                        subparagraphs (F) and 
                                        (G) for the fiscal 
                                        year; and
                                          (bb) any amount 
                                        reserved pursuant to 
                                        subparagraph (F) for 
                                        the immediately 
                                        preceding fiscal year 
                                        that has not been 
                                        obligated; and
                                  (II) any amount available for 
                                grants under this subparagraph 
                                for the immediately preceding 
                                fiscal year that has not been 
                                obligated.
                  (C) Limitations on use of funds.--
                          (i) Allowable activities.--An entity 
                        to which funds are provided under this 
                        paragraph may use the funds to move 
                        into the work force recipients of 
                        assistance under the program funded 
                        under this part of the State in which 
                        the entity is located and the 
                        noncustodial parent of any minor who is 
                        such a recipient, by means of any of 
                        the following:
                                  (I) Job creation through 
                                public or private sector 
                                employment wage subsidies.
                                  (II) On-the-job training.
                                  (III) Contracts with public 
                                or private providers of 
                                readiness, placement, and post-
                                employment services.
                                  (IV) Job vouchers for 
                                placement, readiness, and 
                                postemployment services.
                                  (V) Job support services 
                                (excluding child care services) 
                                if such services are not 
                                otherwise available.
                          (ii) Required beneficiaries.--An 
                        entity that operates a project with 
                        funds provided under this paragraph 
                        shall expend at least 90 percent of all 
                        funds provided to the project for the 
                        benefit of recipients of assistance 
                        under the program funded under this 
                        part of the State in which the entity 
                        is located who meet the requirements of 
                        each of the following subclauses:
                                  (I) At least 2 of the 
                                following apply to the 
                                recipient:
                                          (aa) The individual 
                                        has not completed 
                                        secondary school or 
                                        obtained a certificate 
                                        of general equivalency, 
                                        and has low skills in 
                                        reading and 
                                        mathematics.
                                          (bb) The individual 
                                        requires substance 
                                        abuse treatment for 
                                        employment.
                                          (cc) The individual 
                                        has a poor work 
                                        history.
                                The Secretary shall prescribe 
                                such regulations as may be 
                                necessary to interpret this 
                                subclause.
                                  (II) The individual--
                                          (aa) has received 
                                        assistance under the 
                                        State program funded 
                                        under this part 
                                        (whether in effect 
                                        before or after the 
                                        amendments made by 
                                        section 103 of the 
                                        Personal Responsibility 
                                        and Work Opportunity 
                                        Reconciliation Act of 
                                        1996 first apply to the 
                                        State) for at least 30 
                                        months (whether or not 
                                        consecutive); or
                                          (bb) within 12 
                                        months, will become 
                                        ineligible for 
                                        assistance under the 
                                        State program funded 
                                        under this part by 
                                        reason of a durational 
                                        limit on such 
                                        assistance, without 
                                        regard to any exemption 
                                        provided pursuant to 
                                        section 408(a)(7)(C) 
                                        that may apply to the 
                                        individual.
                          (iii) Limitation on applicability of 
                        section 404.--The rules of section 404, 
                        other than subsections (b), (f), and 
                        (h) of section 404, shall not apply to 
                        a grant made under this paragraph.
                          (iv) Limitations relating to private 
                        industry councils.--
                                  (I) No direct provision of 
                                services.--A private industry 
                                council may not directly 
                                provide services using funds 
                                provided under this paragraph.
                                  (II) Cooperation with tanf 
                                agency.--On a determination by 
                                the Secretary, in consultation 
                                with the Secretary of Health 
                                and Human Services and the 
                                Secretary of Housing and Urban 
                                Development, that the private 
                                industry council for a service 
                                delivery area in a State for 
                                which funds are provided under 
                                this paragraph and the agency 
                                administering the State program 
                                funded under this part are not 
                                adhering to the agreement 
                                referred to in subparagraph 
                                (A)(vii)(II) to implement any 
                                plan or project for which the 
                                funds are provided, the 
                                recipient of the funds shall 
                                remit the funds to the 
                                Secretary.
                          (v) Prohibition against use of grant 
                        funds for any other fund matching 
                        requirement.--An entity to which funds 
                        are provided under this paragraph shall 
                        not use any part of the funds to 
                        fulfill any obligation of any State, 
                        political subdivision, or private 
                        industry council to contribute funds 
                        under other Federal law.
                          (vi) Deadline for expenditure.--An 
                        entity to which funds are provided 
                        under this paragraph shall remit to the 
                        Secretary any part of the funds that 
                        are not expended within 3 years after 
                        the date the funds are so provided.
                  (D) Individuals with income less than the 
                poverty line.--For purposes of this paragraph, 
                the number of individuals with an income that 
                is less than the poverty line shall be 
                determined based on the methodology used by the 
                Bureau of the Census to produce and publish 
                intercensal poverty data for 1993 for States 
                and counties.
                  (E) Definitions.--As used in this paragraph:
                          (i) Private industry council.--The 
                        term ``private industry council'' 
                        means, with respect to a service 
                        delivery area, the private industry 
                        council (or successor entity) 
                        established for the service delivery 
                        area pursuant to the Job Training 
                        Partnership Act.
                          (ii) Secretary.--The term 
                        ``Secretary'' means the Secretary of 
                        Labor, except as otherwise expressly 
                        provided.
                          (iii) Service delivery area.--The 
                        term ``service delivery area'' shall 
                        have the meaning given such term for 
                        purposes of the Job Training 
                        Partnership Act.
                  (F) Set-aside for indian tribes.--1 percent 
                of the amount specified in subparagraph (H) for 
                each fiscal year shall be reserved for grants 
                to Indian tribes under section 412(a)(3).
                  (G) Set-aside for evaluations.--0.5 percent 
                of the amount specified in subparagraph (H) for 
                each fiscal year shall be reserved for use by 
                the Secretary of Health and Human Services to 
                carry out section 413(j).
                  (H) Funding.--The amount specified in this 
                subparagraph is--
                          (i) $750,000,000 for fiscal year 
                        1998;
                          (ii) $1,250,000,000 for fiscal year 
                        1999; and
                          (iii) $1,000,000,000 for fiscal year 
                        2000.
                  (I) Availability of funds.--Amounts 
                appropriated pursuant to this paragraph shall 
                remain available through fiscal year 2002.
                  (J) Budget scoring.--Notwithstanding section 
                457(b)(2) of the Balanced Budget and Emergency 
                Deficit Control Act of 1985, the baseline shall 
                assume that no grant shall be awarded under 
                this paragraph or under section 412(a)(3) after 
                fiscal year 2000.
                  (K) Worker protections.--
                          (i) Labor standards.--
                                  (I) Displacement.--
                                          (aa) Prohibition.--A 
                                        participant in an 
                                        activity under this 
                                        paragraph shall not 
                                        displace (including a 
                                        partial displacement, 
                                        such as a reduction in 
                                        the hours of 
                                        nonovertime work, 
                                        wages, or employment 
                                        benefits) any currently 
                                        employed employee (as 
                                        of the date of the 
                                        participation).
                                          (bb) Prohibition on 
                                        impairment of 
                                        contracts.--An activity 
                                        under this paragraph 
                                        shall not impair an 
                                        existing contract for 
                                        services or collective 
                                        bargaining agreement, 
                                        and no such activity 
                                        that would be 
                                        inconsistent with the 
                                        terms of a collective 
                                        bargaining agreement 
                                        shall be undertaken 
                                        without the written 
                                        concurrence of the 
                                        labor organization and 
                                        employer concerned.
                                  (II) Other prohibitions.--A 
                                participant in an activity 
                                under this paragraph shall not 
                                be employed in a job--
                                          (aa) when any other 
                                        individual is on layoff 
                                        from the same or any 
                                        substantially 
                                        equivalent job;
                                          (bb) when the 
                                        employer has terminated 
                                        the employment of any 
                                        regular employee or 
                                        otherwise reduced the 
                                        workforce of the 
                                        employer with the 
                                        intention of filling 
                                        the vacancy so created 
                                        with the participant; 
                                        or
                                          (cc) which is created 
                                        in a promotional line 
                                        that will infringe in 
                                        any way upon the 
                                        promotional 
                                        opportunities of 
                                        currently employed 
                                        individuals.
                                  (III) Health and safety.--
                                Health and safety standards 
                                established under Federal and 
                                State law otherwise applicable 
                                to working conditions of 
                                employees shall be equally 
                                applicable to working 
                                conditions of participants 
                                engaged in activities under 
                                this paragraph. To the extent 
                                that a State workers' 
                                compensation law applies, 
                                workers' compensation shall be 
                                provided to participants on the 
                                same basis as the compensation 
                                is provided to other 
                                individuals in the State in 
                                similar employment.
                                  (IV) Employment conditions.--
                                Individuals in on-the-job 
                                training or individuals 
                                employed in activities under 
                                this paragraph shall be 
                                provided benefits and working 
                                conditions at the same level 
                                and to the same extent as other 
                                trainees or employees working a 
                                similar length of time and 
                                doing the same type of work.
                                  (V) Opportunity to submit 
                                comments.--Interested parties 
                                shall be provided an 
                                opportunity to submit comments 
                                with respect to training 
                                programs proposed to be funded 
                                under this paragraph.
                          (ii) Grievance procedure.--
                                  (I) In general.--A State to 
                                which funds are provided under 
                                this paragraph shall establish 
                                and maintain a procedure for 
                                addressing grievances or 
                                complaints alleging violations 
                                of this paragraph from 
                                participants and other 
                                interested or affected parties. 
                                The procedure shall include an 
                                opportunity for a hearing and 
                                be completed within 60 days of 
                                filing the greivance or 
                                complaint.
                                  (II) Investigation.--
                                          (aa) In general.--The 
                                        Secretary shall 
                                        investigate an 
                                        allegation of a 
                                        violation of this 
                                        paragraph if a decision 
                                        relating to the 
                                        allegation is made 
                                        within 60 days after 
                                        the date of the filing 
                                        of the grievance or 
                                        complaint and either 
                                        party appeals to the 
                                        Secretary, or if a 
                                        decision relating to 
                                        the allegation is made 
                                        within the 60-day 
                                        period and the party to 
                                        which the decision is 
                                        adverse appeals the 
                                        decision to the 
                                        Secretary.
                                          (bb) Additional 
                                        requirement.--The 
                                        Secretary shall make a 
                                        final determination 
                                        relating to an appeal 
                                        made under item (aa) no 
                                        later than 120 days 
                                        after receiving the 
                                        appeal.
                                  (III) Remedies.--Remedies 
                                shall be limited to--
                                          (aa) suspension or 
                                        termination of payments 
                                        under this paragraph;
                                          (bb) prohibition of 
                                        placement of a 
                                        participant with an 
                                        employer who has 
                                        violated this 
                                        subparagraph;
                                          (cc) where 
                                        applicable, 
                                        reinstatement of an 
                                        employee, payment of 
                                        lost wages and 
                                        benefits, and 
                                        reestablishment of 
                                        other relevant terms, 
                                        conditions and 
                                        privileges of 
                                        employment; and
                                          (dd) where 
                                        appropriate, other 
                                        equitable relief.
          * * * * * * *

SEC. 404. USE OF GRANTS.

  (a) * * *
          * * * * * * *
  (d) Authority To Use Portion of Grant for Other Purposes.--
          (1) In general.--[A State may] Subject to paragraph 
        (2), a State may use not more than 30 percent of the 
        amount of any grant made to the State under section 
        403(a) for a fiscal year to carry out a State program 
        pursuant to any or all of the following provisions of 
        law:
                  (A) Title XX of this Act.
                  (B) The Child Care and Development Block 
                Grant Act of 1990.
          [(2) Limitation on amount transferable to title xx 
        programs.--Notwithstanding paragraph (1), not more than 
        \1/3\ of the total amount paid to a State under this 
        part for a fiscal year that is used to carry out State 
        programs pursuant to provisions of law specified in 
        paragraph (1) may be used to carry out State programs 
        pursuant to title XX.]
          (2) Limitation on amount transferable to title xx 
        programs.--A State may use not more than 10 percent of 
        the amount of any grant made to the State under section 
        403(a) for a fiscal year to carry out State programs 
        pursuant to title XX.
          * * * * * * *

SEC. 407. MANDATORY WORK REQUIREMENTS.

  (a) * * *
          * * * * * * *
  (c) Engaged in Work.--
          (1) * * *
          (2) Limitations and special rules.--
                  (A) * * *
          * * * * * * *
                  [(D) Number of persons that may be treated as 
                engaged in work by virtue of participation in 
                vocational education activities or being a teen 
                head of household who maintains satisfactory 
                school attendance.--For purposes of determining 
                monthly participation rates under paragraphs 
                (1)(B)(i) and (2)(B) of subsection (b), not 
                more than 20 percent of individuals in all 
                families and in 2-parent families may be 
                determined to be engaged in work in the State 
                for a month by reason of participation in 
                vocational educational training or deemed to be 
                engaged in work by reason of subparagraph (C) 
                of this paragraph.]
                  (D) Limitation on number of persons who may 
                be treated as engaged in work by reason of 
                participation in vocational educational 
                training.--For purposes of determining monthly 
                participation rates under paragraphs (1)(B)(i) 
                and (2)(B) of subsection (b), not more than 30 
                percent of the number of individuals in all 
                families and in 2-parent families, 
                respectively, in a State who are treated as 
                engaged in work for a month may consist of 
                individuals who are determined to be engaged in 
                work for the month by reason of participation 
                in vocational educational training.
          * * * * * * *
  (j) Limitation on Number of Hours Per Month That a Recipient 
of Assistance May Be Required to Work for a Public Agency or 
Nonprofit Organization.--
          (1) In general.--A State to which a grant is made 
        under section 403 may not require a recipient of 
        assistance under the State program funded under this 
        part to be assigned to a work experience, on-the-job 
        training, or community service position with a public 
        agency or nonprofit organization during a month for 
        more than the allowable number of hours determined for 
        the month under paragraph (2).
          (2) Allowable number of hours.--
                  (A) General method.--Subject to this 
                paragraph, the allowable number of hours 
                determined for a month under this paragraph--
                          (i) for a recipient to whom the 
                        benefit described in paragraph (3)(A) 
                        is provided during the month is--
                                  (I) the average value of the 
                                benefit provided by the State 
                                during the month to families 
                                that the State determines are 
                                similarly situated to the 
                                family of the recipient, or (at 
                                the option of the State) the 
                                value of the benefit provided 
                                by the State to the recipient 
                                during the month; divided by
                                  (II) the minimum wage rate in 
                                effect during the month under 
                                section 6 of the Fair Labor 
                                Standards Act of 1938;
                          (ii) for a recipient to whom the 
                        benefits described in subparagraphs (A) 
                        and (B) of paragraph (3) are provided 
                        during the month is--
                                  (I) the average value of such 
                                benefits provided by the State 
                                during the month to families 
                                that the State determines are 
                                similarly situated to the 
                                family of the recipient, or (at 
                                the option of the State) the 
                                value of such benefits provided 
                                by the State to the recipient 
                                during the month; divided by
                                  (II) the minimum wage rate in 
                                effect during the month under 
                                section 6 of the Fair Labor 
                                Standards Act of 1938;
                          (iii) for a recipient to whom the 
                        benefits described in subparagraphs 
                        (A), (B), and (C) of paragraph (3) are 
                        provided during the month is--
                                  (I) the average value of such 
                                benefits provided by the State 
                                during the month to families 
                                that the State determines are 
                                similarly situated to the 
                                family of the recipient, or (at 
                                the option of the State) the 
                                value of such benefits provided 
                                by the State to the recipient 
                                during the month; divided by
                                  (II) the minimum wage rate in 
                                effect during the month under 
                                section 6 of the Fair Labor 
                                Standards Act of 1938;
                          (iv) for a recipient to whom the 
                        benefits described in subparagraphs 
                        (A), (B), (C), and (D) of paragraph (3) 
                        are provided during the month is--
                                  (I) the average value of such 
                                benefits provided by the State 
                                during the month to families 
                                that the State determines are 
                                similarly situated to the 
                                family of the recipient, or (at 
                                the option of the State) the 
                                value of such benefits provided 
                                by the State to the recipient 
                                during the month; divided by
                                  (II) the minimum wage rate in 
                                effect during the month under 
                                section 6 of the Fair Labor 
                                Standards Act of 1938; and
                          (v) for a recipient to whom the 
                        benefits described in subparagraphs 
                        (A), (B), (C), (D), and (E) of 
                        paragraph (3) are provided during the 
                        month is--
                                  (I) the average value of such 
                                benefits provided by the State 
                                during the month to families 
                                that the State determines are 
                                similarly situated to the 
                                family of the recipient, or (at 
                                the option of the State) the 
                                value of such benefits provided 
                                by the State to the recipient 
                                during the month; divided by
                                  (II) the minimum wage rate in 
                                effect during the month under 
                                section 6 of the Fair Labor 
                                Standards Act of 1938.
                  (B) State option to take account of certain 
                work activities.--
                          (i) In general.--In determining the 
                        number of hours for a month for which a 
                        sufficiently employed recipient may be 
                        determined to be engaged in work under 
                        subsection (c)(1), the State may, 
                        notwithstanding subsection (c)(2), 
                        count the number of hours during the 
                        month for which the recipient 
                        participates in a work activity 
                        described in paragraph (6), (8), (9), 
                        (10), or (11) of subsection (d).
                          (ii) Sufficiently employed 
                        recipient.--As used in clause (i), the 
                        term ``sufficiently employed 
                        recipient'' means, with respect to a 
                        month, a recipient who is in a position 
                        described in paragraph (1) during the 
                        month for a number of hours that is not 
                        less than--
                                  (I) the sum of the dollar 
                                value of any assistance 
                                provided to the recipient 
                                during the month under the 
                                State program funded under this 
                                part, and the dollar value 
                                equivalent of any benefits 
                                provided to the recipient 
                                during the month under the food 
                                stamp program under the Food 
                                Stamp Act of 1977; divided by
                                  (II) the minimum wage rate in 
                                effect during the month under 
                                section 6 of the Fair Labor 
                                Standards Act of 1938.
          (3) Benefits.--As used in paragraph (2)(A), the term 
        ``value of the benefits'' means--
                  (A) in the case of assistance under the State 
                program funded under this part, the dollar 
                value of such assistance;
                  (B) in the case of food stamp benefits under 
                the food stamp program under the Food Stamp Act 
                of 1977, the dollar value equivalent of such 
                benefits;
                  (C) at the option of the State, in the case 
                of medical assistance benefits provided under 
                the State plan approved under title XIX, the 
                dollar value of such benefits, as determined in 
                accordance with paragraph (4);
                  (D) at the option of the State, in the case 
                of child care assistance, the dollar value of 
                such assistance; and
                  (E) at the option of the State, in the case 
                of housing benefits, the dollar value of such 
                benefits.
          (4) Valuation of medicaid benefits.--Annually, the 
        Secretary shall publish a table that specifies the 
        dollar value of the insurance coverage provided under 
        title XIX to a family of each size, which may take 
        account of geographical variations or other factors 
        identified by the Secretary.
          (5) Treatment of recipients assigned to certain 
        positions with a public agency or nonprofit 
        organization.--A recipient of assistance under a State 
        program funded under this part who is engaged in work 
        experience or community service with a public agency or 
        nonprofit organization shall not be considered an 
        employee of the public agency or the nonprofit 
        organization.
  (k) Health and Safety.--Health and safety standards 
established under Federal and State law otherwise applicable to 
working conditions of employees shall be equally applicable to 
working conditions of participants engaged in a work activity. 
To the extent that a State workers' compensation law applies, 
workers' compensation shall be provided to participants on the 
same basis as the compensation is provided to other individuals 
in the State in similar employment.
          * * * * * * *

SEC. 408. PROHIBITIONS; REQUIREMENTS.

  (a) In General.--
          (1) * * *
          * * * * * * *
          (7) No assistance for more than 5 years.--
                  (A) * * *
          * * * * * * *
                  (G) Inapplicability to welfare-to-work grants 
                and assistance.--For purposes of subparagraph 
                (A) of this paragraph, a grant made under 
                section 403(a)(5) shall not be considered a 
                grant made under section 403, and assistance 
                from funds provided under section 403(a)(5) 
                shall not be considered assistance.
          * * * * * * *

SEC. 409. PENALTIES.

  (a) In General.--Subject to this section:
          (1) * * *
          * * * * * * *
          (7) Failure of any state to maintain certain level of 
        historic effort.--
                  (A) * * *
                  (B) Definitions.--As used in this paragraph:
                          (i) * * *
          * * * * * * *
                          [(iv) Expenditures by the state.--The 
                        term ``expenditures by the State'' does 
                        not include--
                                  [(I) any expenditures from 
                                amounts made available by the 
                                Federal Government;
                                  [(II) any State funds 
                                expended for the medicaid 
                                program under title XIX;
                                  [(III) any State funds which 
                                are used to match Federal 
                                funds; or
                                  [(IV) any State funds which 
                                are expended as a condition of 
                                receiving Federal funds under 
                                Federal programs other than 
                                under this part.
                        Notwithstanding subclause (IV) of the 
                        preceding sentence, such term includes 
                        expenditures by a State for child care 
                        in a fiscal year to the extent that the 
                        total amount of such expenditures does 
                        not exceed an amount equal to the 
                        amount of State expenditures in fiscal 
                        year 1994 or 1995 (whichever is 
                        greater) that equal the non-Federal 
                        share for the programs described in 
                        section 418(a)(1)(A).]
                          (iv) Expenditures by the state.--The 
                        term ``expenditures by the State'' does 
                        not include--
                                  (I) any expenditure from 
                                amounts made available by the 
                                Federal Government;
                                  (II) any State funds expended 
                                for the medicaid program under 
                                title XIX;
                                  (III) any State funds which 
                                are used to match Federal funds 
                                provided under section 
                                403(a)(5); or
                                  (IV) any State funds which 
                                are expended as a condition of 
                                receiving Federal funds other 
                                than under this part.
                        Notwithstanding subclause (IV) of the 
                        preceding sentence, such term includes 
                        expenditures by a State for child care 
                        in a fiscal year to the extent that the 
                        total amount of the expenditures does 
                        not exceed the amount of State 
                        expenditures in fiscal year 1994 or 
                        1995 (whichever is the greater) that 
                        equal the non-Federal share for the 
                        programs described in section 
                        418(a)(1)(A).
          * * * * * * *
          (13) Penalty for failure to reduce assistance for 
        recipients refusing without good cause to work.--
                  (A) In general.--If the Secretary determines 
                that a State to which a grant is made under 
                section 403 in a fiscal year has violated 
                section 407(e) during the fiscal year, the 
                Secretary shall reduce the grant payable to the 
                State under section 403(a)(1) for the 
                immediately succeeding fiscal year by an amount 
                equal to not less than 1 percent and not more 
                than 5 percent of the State family assistance 
                grant.
                  (B) Penalty based on severity of failure.--
                The Secretary shall impose reductions under 
                subparagraph (A) with respect to a fiscal year 
                based on the degree of noncompliance.
          * * * * * * *
  (j) Evaluation of Welfare-To-Work Programs.--
          (1) Evaluation.--The Secretary--
                  (A) shall, in consultation with the Secretary 
                of Labor, develop a plan to evaluate how grants 
                made under sections 403(a)(5) and 412(a)(3) 
                have been used;
                  (B) may evaluate the use of such grants by 
                such grantees as the Secretary deems 
                appropriate, in accordance with an agreement 
                entered into with the grantees after good-faith 
                negotiations; and
                  (C) is urged to include the following outcome 
                measures in the plan developed under 
                subparagraph (A):
                          (i) Placements in the labor force and 
                        placements in the labor force that last 
                        for at least 6 months.
                          (ii) Placements in the private and 
                        public sectors.
                          (iii) Earnings of individuals who 
                        obtain employment.
                          (iv) Average expenditures per 
                        placement.
          (2) Reports to the congress.--
                  (A) In general.--Subject to subparagraphs (B) 
                and (C), the Secretary, in consultation with 
                the Secretary of Labor and the Secretary of 
                Housing and Urban Development, shall submit to 
                the Congress reports on the projects funded 
                under section 403(a)(5) and 412(a)(3) and on 
                the evaluations of the projects.
                  (B) Interim report.--Not later than January 
                1, 1999, the Secretary shall submit an interim 
                report on the matter described in subparagraph 
                (A).
                  (C) Final report.--Not later than January 1, 
                2001, (or at a later date, if the Secretary 
                informs the Committees of the Congress with 
                jurisdiction over the subject matter of the 
                report) the Secretary shall submit a final 
                report on the matter described in subparagraph 
                (A).

   TITLE IX--MISCELLANEOUS PROVISIONS RELATING TO EMPLOYMENT SECURITY

               employment security administration account

                        Establishment of Account

  Sec. 901. (a) * * *
          * * * * * * *

                      Administrative Expenditures

  (c)(1) * * *
          * * * * * * *
  (5)(A) There are authorized to be appropriated out of the 
employment security administration account to carry out program 
integrity activities, in addition to any amounts available 
under paragraph (1)(A)(i)--
          (i) $89,000,000 for fiscal year 1998;
          (ii) $91,000,000 for fiscal year 1999;
          (iii) $93,000,000 fiscal year 2000;
          (iv) $96,000,000 for fiscal year 2001; and
          (v) $98,000,000 for fiscal year 2002.
  (B) In any fiscal year in which a State receives funds 
appropriated pursuant to this paragraph, the State shall expend 
a proportion of the funds appropriated pursuant to paragraph 
(1)(A)(i) to carry out program integrity activities that is not 
less than the proportion of the funds appropriated under such 
paragraph that was expended by the State to carry out program 
integrity activities in fiscal year 1997.
  (C) For purposes of this paragraph, the term ``program 
integrity activities'' means initial claims review activities, 
eligibility review activities, benefit payments control 
activities, and employer liability auditing activities.
          * * * * * * *

    Transfers to Federal Unemployment Account and Report to Congress

               transfers to federal unemployment account

  Sec. 902. (a) Whenever the Secretary of the Treasury 
determines pursuant to section 901(f) that there is an excess 
in the employment security administration account as of the 
close of any fiscal year and the entire amount of such excess 
is not retained in the employment security administration 
account or transferred to the extended unemployment 
compensation account as provided in section 901(f)(3), there 
shall be transferred (as of the beginning of the succeeding 
fiscal year) to the Federal unemployment account the balance of 
such excess or so much thereof as is required to increase the 
amount in the Federal unemployment account to whichever of the 
following is the greater:
          (1) $550 million, or
          (2) the amount (determined by the Secretary of Labor 
        and certified by him to the Secretary of the Treasury) 
        equal to [0.25 percent] 0.5 percent of the total wages 
        subject (determined without any limitation on amount) 
        to contributions under all State unemployment 
        compensation laws for the calendar year ending during 
        the fiscal year for which the excess is determined.
          * * * * * * *

                 amounts transferred to state accounts

                               In General

  Sec. 903. (a)(1) * * *
          * * * * * * *
  (3)(A) Notwithstanding any other provision of this section, 
for purposes of carrying out this subsection with respect to 
any excess amount (referred to in paragraph (1)) remaining in 
the employment security administration account as of the close 
of fiscal year 1999, 2000, or 2001, such amount shall--
          (i) to the extent of any amounts not in excess of 
        $100,000,000, be subject to subparagraph (B), and
          (ii) to the extent of any amounts in excess of 
        $100,000,000, be subject to subparagraph (C).
  (B) Paragraphs (1) and (2) shall apply with respect to any 
amounts described in subparagraph (A)(i), except that--
          (i) in carrying out the provisions of paragraph 
        (2)(B) with respect to such amounts (to determine the 
        portion of such amounts which is to be allocated to a 
        State for a succeeding fiscal year), the ratio to be 
        applied under such provisions shall be the same as the 
        ratio that--
                  (I) the amount of funds to be allocated to 
                such State for such fiscal year pursuant to 
                title III, bears to
                  (II) the total amount of funds to be 
                allocated to all States for such fiscal year 
                pursuant to title III,
        as determined by the Secretary of Labor, and
          (ii) the amounts allocated to a State pursuant to 
        this subparagraph shall be available to such State, 
        subject to the last sentence of subsection (c)(2).
Nothing in this paragraph shall preclude the application of 
subsection (b) with respect to any allocation determined under 
this subparagraph.
  (C) Any amounts described in clause (ii) of subparagraph (A) 
(remaining in the employment security administration account as 
of the close of any fiscal year specified in such subparagraph) 
shall, as of the beginning of the succeeding fiscal year, 
accrue to the Federal unemployment account, without regard to 
the limit provided in section 902(a).
          * * * * * * *

                       use of transferred amounts

  (c)(1) Except as provided in paragraph (2), amounts 
transferred to the account of a State pursuant to subsections 
(a) and (b) shall be used only in the payment of cash benefits 
to individuals with respect to their unemployment, exclusive of 
expenses of administration.
  (2) A State may, pursuant to a specific appropriation made by 
the legislative body of the State, use money withdrawn from its 
account in the payment of expenses incurred by it for the 
administration of its unemployment compensation law and public 
employment offices if and only if--
          (A) * * *
          * * * * * * *
Any amount allocated to a State under this section for fiscal 
year 2000, 2001, or 2002 may be used by such State only to pay 
expenses incurred by it for the administration of its 
unemployment compensation law, and may be so used by it without 
regard to any ofthe conditions prescribed in any of the 
preceding provisions of this paragraph.
          * * * * * * *

     TITLE XI--GENERAL PROVISIONS, PEER REVIEW, AND ADMINISTRATIVE 
                             SIMPLIFICATION

          * * * * * * *

SEC. 1108.  ADDITIONAL GRANTS TO PUERTO RICO, THE VIRGIN ISLANDS, GUAM, 
                    AND AMERICAN SAMOA; LIMITATION ON TOTAL PAYMENTS.

  (a) Limitation on Total Payments to Each Territory.--
Notwithstanding any other provision of this Act, the total 
amount certified by the Secretary of Health and Human Services 
under titles I, X, XIV, and XVI, under parts A and E of title 
IV (except section 403(a)(5)), and under subsection (b) of this 
section, for payment to any territory for a fiscal year shall 
not exceed the ceiling amount for the territory for the fiscal 
year.
          * * * * * * *

            TITLE XII--ADVANCES TO STATE UNEMPLOYMENT FUNDS

          * * * * * * *

      repayment by states of advances to state unemployment funds

  Sec. 1202. (a) * * *
  (b)(1) Except as otherwise provided in this subsection, each 
State shall pay interest on any advance made to such State 
under section 1201. Interest so payable with respect to periods 
during any calendar year shall be at the rate determined under 
paragraph (4) for such calendar year.
  (2) No interest shall be required to be paid under paragraph 
(1) with respect to any advance or advances made during any 
calendar year if--
          (A) such advances are repaid in full before the close 
        of September 30 of the calendar year in which the 
        advances were made, [and]
          (B) no other advance was made to such State under 
        section 1201 during such calendar year and after the 
        date on which the repayment of the advances was 
        completed[.], and
          (C) the average daily balance in the account of such 
        State in the Unemployment Trust Fund for each of 4 of 
        the 5 calendar quarters preceding the calendar quarter 
        in which such advances were made exceeds the funding 
        goal of such State (as defined in subsection (d)).
          * * * * * * *
  (d) For purposes of subsection (b)(2)(C), the term ``funding 
goal'' means, for any State for any calendar quarter, the 
average of the unemployment insurance benefits paid by such 
State during each of the 3 years, in the 20-year period ending 
with the calendar year containing such calendar quarter, during 
which the State paid the greatest amount of unemployment 
benefits.
          * * * * * * *

   TITLE XVI--SUPPLEMENTAL SECURITY INCOME FOR THE AGED, BLIND, AND 
                                DISABLED

          * * * * * * *

                     OPTIONAL STATE SUPPLEMENTATION

  Sec. 1616. (a) * * *
          * * * * * * *
  (d)(1) Any State which has entered into an agreement with the 
Commissioner of Social Security under this section which 
provides that the Commissioner of Social Security will, on 
behalf of the State (or political subdivision), make the 
supplementary payments to individuals who are receiving 
benefits under this title (or who would but for their income be 
eligible to receive such benefits), shall, at such times and in 
such installments as may be agreed upon between the 
Commissioner of Social Security and such State, pay to the 
Commissioner of Social Security an amount equal to the 
expenditures made by the Commissioner of Social Security as 
such supplementary payments, plus an administration fee 
assessed in accordance with paragraph (2) and any additional 
services fee charged in accordance with paragraph (3).
  (2)(A) The Commissioner of Social Security shall assess each 
State an administration fee in an amount equal to--
          (i) * * *
  (B) As used in subparagraph (A), the term ``applicable rate'' 
means--
          (i) for fiscal year 1994, $1.67;
          (ii) for fiscal year 1995, $3.33;
          (iii) for fiscal year 1996, $5.00; [and]
          [(iv) for fiscal year 1997 and each succeeding fiscal 
        year, $5.00, or such different rate as the Commissioner 
        of Social Security determines is appropriate for the 
        State.]
          (iv) for fiscal year 1997, $5.00;
          (v) for fiscal year 1998, $6.20;
          (vi) for fiscal year 1999, $7.60;
          (vii) for fiscal year 2000, $7.80;
          (viii) for fiscal year 2001, $8.10;
          (ix) for fiscal year 2002, $8.50; and
          (x) for fiscal year 2003 and each succeeding fiscal 
        year--
                  (I) the applicable rate in the preceding 
                fiscal year, increased by the percentage, if 
                any, by which the Consumer Price Index for the 
                month of June of the calendar year of the 
                increase exceeds the Consumer Price Index for 
                the month of June of the calendar year 
                preceding the calendar year of the increase, 
                and rounded to the nearest whole cent; or
                  (II) such different rate as the Commissioner 
                determines is appropriate for the State.
  (C) Upon making a determination under subparagraph [(B)(iv)] 
(B)(x)(II), the Commissioner of Social Security shall 
promulgate the determination in regulations, which may take 
into account the complexity of administering the State's 
supplementary payment program.
          * * * * * * *
  (d)(1) * * *
          * * * * * * *
  [(4) All administration fees and additional services fees 
collected pursuant to this subsection shall be deposited in the 
general fund of the Treasury of the United States as 
miscellaneous receipts.]
  (4)(A) The first $5 of each administration fee assessed 
pursuant to paragraph (2), upon collection, shall be deposited 
in the general fund of the Treasury of the United States as 
miscellaneous receipts.
  (B) That portion of each administration fee in excess of $5, 
and 100 percent of each additional services fee charged 
pursuant to paragraph (3), upon collection for fiscal year 1998 
and each subsequent fiscal year, shall be credited to a special 
fund established in the Treasury of the United States for State 
supplementary payment fees. The amounts so credited, to the 
extent and in the amounts provided in advance in appropriations 
Acts, shall be available to defray expenses incurred in 
carrying out this title and related laws.
          * * * * * * *

              [OPERATION OF STATE SUPPLEMENTATION PROGRAMS

  [Sec. 1618. (a) In order for any State which makes 
supplementary payments of the type described in section 1616(a) 
(including payments pursuant to an agreement entered into under 
section 212(a) of Public Law 93-66), on or after June 30, 1977, 
to be eligible for payments pursuant to title XIX with respect 
to expenditures for any calendar quarter which begins--
          [(1) after June 30, 1977, or, if later,
          [(2) after the calendar quarter in which it first 
        makes such supplementary payments,
such State must have in effect an agreement with the 
Commissioner of Social Security whereby the State will--
          [(3) continue to make such supplementary payments, 
        and
          [(4) maintain such supplementary payments at levels 
        which are not lower than the levels of such payments in 
        effect in December 1976, or, if no such payments were 
        made in that month, the levels for the first subsequent 
        month in which such payments were made.
  [(b)(1) The Commissioner of Social Security shall not find 
that a State has failed to meet the requirements imposed by 
paragraph (4) of subsection (a) with respect to the levels of 
its supplementary payments for a particular month or months if 
the State's expenditures for such payments in the twelve-month 
period (within which such month or months fall) beginning on 
the effective date of any increase in the level of supplemental 
security income benefits pursuant to section 1617 are not less 
than its expenditures for such payments in the preceding 
twelve-month period.
  [(2) For purposes of determining under paragraph (1) whether 
a State's expenditures for supplementary payments in the 12-
month period beginning on the effective date of any increase in 
the level of supplemental security income benefits are not less 
than the State's expenditures for such payments in the 
preceding 12-month period, the Commissioner of Social Security, 
in computing the State's expenditures, shall disregard, 
pursuant to a 1-time election of the State, all expenditures by 
the State for retroactive supplementary payments that are 
required to be made in connection with the retroactive 
supplemental security income benefits referred to in section 
5041 of the Omnibus Budget Reconciliation Act of 1990.
  [(c) Any State which satisfies the requirements of this 
section solely by reason of subsection (b) for a particular 
month or months in any 12-month period (described in such 
subsection) ending on or after June 30, 1982, may elect, with 
respect to any month in any subsequent 12-month period (so 
described), to apply subsection (a)(4) as though the reference 
to December 1976 in such subsection were a reference to the 
month of December which occurred in the 12-month period 
immediately preceding such subsequent period.
  [(d) The Commissioner of Social Security shall not find that 
a State has failed to meet the requirements imposed by 
paragraph (4) of subsection (a) with respect to the levels of 
its supplementary payments for any portion of the period July 
1, 1980, through June 30, 1981, if the State's expenditures for 
such payments in that twelve-month period were not less than 
its expenditures for such payments for the period July 1, 1976, 
through June 30, 1977 (or, if the State made no supplementary 
payments in the period July 1, 1976, through June 30, 1977, the 
expenditures for the first twelve-month period extending from 
July 1 through June 30 in which the State made such payments).
  [(e)(1) For any particular month after March 1983, a State 
which is not treated as meeting the requirements imposed by 
paragraph (4) of subsection (a) by reason of subsection (b) 
shall be treated as meeting such requirements if and only if--
          [(A) the combined level of its supplementary payments 
        (to recipients of the type involved) and the amounts 
        payable (to or on behalf of such recipients) under 
        section 1611(b) of this Act and section 211(a)(1)(A) of 
        Public Law 93-66, for that particular month,
is not less than--
          [(B) the combined level of its supplementary payments 
        (to recipients of the type involved) and the amounts 
        payable (to or on behalf of such recipients) under 
        section 1611(b) of this Act and section 211(a)(1)(A) of 
        Public Law 93-66, for March 1983, increased by the 
        amount of all cost-of-living adjustments under section 
        1617 (and any other benefit increases under this title) 
        which have occurred after March 1983 and before that 
        particular month.
  [(2) In determining the amount of any increase in the 
combined level involved under paragraph (1)(B) of this 
subsection, any portion of such amount which would otherwise be 
attributable to the increase under section 1617(c) shall be 
deemed instead to be equal to the amount of the cost-of-living 
adjustment which would have occurred in July 1983 (without 
regard to the 3-percent limitation contained in section 
215(i)(1)(B)) if section 111 of the Social Security Amendments 
of 1983 had not been enacted.
  [(f) The Commissioner of Social Security shall not find that 
a State has failed to meet the requirements imposed by 
subsection (a) with respect to the levels of its supplementary 
payments for the period January 1, 1984, through December 31, 
1985, if in the period January 1, 1986, through December 31, 
1986, its supplementary payment levels (other than to 
recipients of benefits determined under section 1611(e)(1)(B)) 
are not less than those in effect in December 1976, increased 
by a percentage equal to the percentage by which payments under 
section 1611(b) of this Act and section 211(a)(1)(A) of Public 
Law 93-66 have been increased as a result of all adjustments 
under section 1617(a) and (c) which have occurred after 
December 1976 and before February 1986.
  [(g) In order for any State which makes supplementary 
payments of the type described in section 1616(a) (including 
payments pursuant to an agreement entered into under section 
212(a) of Public Law 93-66) to recipients of benefits 
determined under section 1611(e)(1)(B), on or after October 1, 
1987, to be eligible for payments pursuant to title XIX with 
respect to any calendar quarter which begins--
          [(1) after October 1, 1987, or, if later
          [(2) after the calendar quarter in which it first 
        makes such supplementary payments to recipients of 
        benefits so determined,
such State must have in effect an agreement with the 
Commissioner of Social Security whereby the State will--
          [(3) continue to make such supplementary payments to 
        recipients of benefits so determined, and
          [(4) maintain such supplementary payments to 
        recipients of benefits so determined at levels which 
        assure (with respect to any particular month beginning 
        with the month in which this subsection is first 
        effective) that--
                  [(A) the combined level of such supplementary 
                payments and the amounts payable to or on 
                behalf of such recipients under section 
                1611(e)(1)(B) for that particular month,
        is not less than--
                  [(B) the combined level of such supplementary 
                payments and the amounts payable to or on 
                behalf of such recipients under section 
                1611(e)(1)(B) for October 1987 (or, if no such 
                supplementary payments were made for that 
                month, the combined level for the first 
                subsequent month for which such payments were 
                made), increased--
                          [(i) in a case to which clause (i) of 
                        such section 1611(e)(1)(B) applies or 
                        (with respect to the individual or 
                        spouse who is in the hospital, home, or 
                        facility involved) to which clause (ii) 
                        of such section applies, by $5, and
                          [(ii) in a case to which clause (iii) 
                        of such section 1611(e)(1)(B) applies, 
                        by $10.]
          * * * * * * *
                              ----------                              


PERSONAL RESPONSIBILITY AND WORK OPPORTUNITY RECONCILIATION ACT OF 1996

SEC. 2. TABLE OF CONTENTS.

  The table of contents for this Act is as follows:
          * * * * * * *

      TITLE IV--RESTRICTING WELFARE AND PUBLIC BENEFITS FOR ALIENS

          * * * * * * *

  Subtitle B--Eligibility for State and Local Public Benefits Programs

Sec. 411. Aliens who are not qualified aliens or nonimmigrants 
          ineligible for State and local public benefits.
     * * * * * * *
Sec. 413. Authorization for verification of eligibility for state and 
          local public benefits.
     * * * * * * *

                     Subtitle D--General Provisions

Sec. 431. Definitions.
     * * * * * * *
Sec. 436. Derivative eligibility for benefits.
     * * * * * * *

                 TITLE II--SUPPLEMENTAL SECURITY INCOME

SEC. 200. REFERENCE TO SOCIAL SECURITY ACT.

  Except as otherwise specifically provided, wherever 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.
          * * * * * * *

               Subtitle B--Benefits for Disabled Children

SEC. 211. DEFINITION AND ELIGIBILITY RULES.

  (a) * * *
          * * * * * * *
  (d) Effective Dates, Etc.--
          (1) * * *
          (2) Application to current recipients.--
                  (A) Eligibility redeterminations.--During the 
                period beginning on the date of the enactment 
                of this Act and ending on the date which is [1 
                year] 18 months after such date of enactment, 
                the Commissioner of Social Security shall 
                redetermine the eligibility of any individual 
                under age 18 who is eligible for supplemental 
                security income benefits by reason of 
                disability under title XVI of the Social 
                Security Act as of the date of the enactment of 
                this Act and whose eligibility for such 
                benefits may terminate by reason of the 
                provisions of, or amendments made by, 
                subsections (a) and (b) of this section. Any 
                redetermination required by the preceding 
                sentence that is not performed before the end 
                of the period described in the preceding 
                sentence shall be performed as soon as is 
                practicable thereafter. With respect to any 
                redetermination under this subparagraph--
                          (i) * * *
          * * * * * * *
                  (C) Notice.--Not later than January 1, 1997, 
                the Commissioner of Social Security shall 
                notify an individual described in subparagraph 
                (A) of the provisions of this paragraph. Before 
                commencing a redetermination under the 2nd 
                sentence of subparagraph (A), in any case in 
                which the individual involved has not already 
                been notified of the provisions of this 
                paragraph, the Commissioner of Social Security 
                shall notify the individual involved of the 
                provisions of this paragraph.
          * * * * * * *

      TITLE IV--RESTRICTING WELFARE AND PUBLIC BENEFITS FOR ALIENS

          * * * * * * *

              Subtitle A--Eligibility for Federal Benefits

          * * * * * * *

SEC. 402. LIMITED ELIGIBILITY OF QUALIFIED ALIENS FOR CERTAIN FEDERAL 
                    PROGRAMS.

  (a) Limited Eligibility for Specified Federal Programs.--
          (1) * * *
          (2) Exceptions.--
                  [(A) Time-limited exception for refugees and 
                asylees.--Paragraph (1) shall not apply to an 
                alien until 5 years after the date--
                          [(i) an alien is admitted to the 
                        United States as a refugee under 
                        section 207 of the Immigration and 
                        Nationality Act;
                          [(ii) an alien is granted asylum 
                        under section 208 of such Act; or
                          [(iii) an alien's deportation is 
                        withheld under section 243(h) of such 
                        Act.]
                  (A) Time-limited exception for refugees and 
                asylees.--
                          (i) SSI.--With respect to the 
                        specified Federal program described in 
                        paragraph (3)(A) paragraph 1 shall not 
                        apply to an alien until 7 years after 
                        the date--
                                  (I) an alien is admitted to 
                                the United States as a refugee 
                                under section 207 of the 
                                Immigration and Nationality 
                                Act;
                                  (II) an alien is granted 
                                asylum under section 208 of 
                                such Act; or
                                  (III) an alien's deportation 
                                is withheld under section 
                                243(h) of such Act.
                          (ii) Food stamps.--With respect to 
                        the specified Federal program described 
                        in paragraph (3)(B), paragraph 1 shall 
                        not apply to an alien until 5 years 
                        after the date--
                                  (I) an alien is admitted to 
                                the United States as a refugee 
                                under section 207 of the 
                                Immigration and Nationality 
                                Act;
                                  (II) an alien is granted 
                                asylum under section 208 of 
                                such Act; or
                                  (III) an alien's deportation 
                                is withheld under section 
                                243(h) of such Act.
          * * * * * * *
                  (D) Transition for aliens currently receiving 
                [benefits] food stamps.--
                          [(i) SSI.--
                                  [(I) In general.--With 
                                respect to the specified 
                                Federal program described in 
                                paragraph (3)(A), during the 
                                period beginning on the date of 
                                the enactment of this Act and 
                                ending on the date which is 1 
                                year after such date of 
                                enactment, the Commissioner of 
                                Social Security shall 
                                redetermine the eligibility of 
                                any individual who is receiving 
                                benefits under such program as 
                                of the date of the enactment of 
                                this Act and whose eligibility 
                                for such benefits may terminate 
                                by reason of the provisions of 
                                this subsection.
                                  [(II) Redetermination 
                                criteria.-- With respect to any 
                                redetermination under subclause 
                                (I), the Commissioner of Social 
                                Security shall apply the 
                                eligibility criteria for new 
                                applicants for benefits under 
                                such program.
                                  [(III) Grandfather 
                                provision.--The provisions of 
                                this subsection and the 
                                redetermination under subclause 
                                (I), shall only apply with 
                                respect to the benefits of an 
                                individual described in 
                                subclause (I) for months 
                                beginning on or after the date 
                                of the redetermination with 
                                respect to such individual.
                                  [(IV) Notice.--Not later than 
                                March 31, 1997, the 
                                Commissioner of Social Security 
                                shall notify an individual 
                                described in subclause (I) of 
                                the provisions of this clause.]
                          [(ii) Food stamps.--]
                          [(I)] (i) In general.--With respect 
                        to the specified Federal program 
                        described in paragraph (3)(B), 
                        ineligibility under paragraph (1) shall 
                        not apply until April 1, 1997, to an 
                        alien who received benefits under such 
                        program on the date of enactment of 
                        this Act, unless such alien is 
                        determined to be ineligible to receive 
                        such benefits under the Food Stamp Act 
                        of 1977. The State agency shall 
                        recertify the eligibility of all such 
                        aliens during the period beginning 
                        April 1, 1997, and ending August 22, 
                        1997.
                          [(II)] (ii) Recertification 
                        criteria.--With respect to any 
                        recertification under subclause (I), 
                        the State agency shall apply the 
                        eligibility criteria for applicants for 
                        benefits under such program.
                          [(III)] (iii) Grandfather 
                        provision.--The provisions of this 
                        subsection and the recertification 
                        under subclause (I) shall only apply 
                        with respect to the eligibility of an 
                        alien for a program for months 
                        beginning on or after the date of 
                        recertification, if on the date of 
                        enactment of this Act the alien is 
                        lawfully residing in any State and is 
                        receiving benefits under such program 
                        on such date of enactment.
                  (E) Aliens receiving ssi on august 22, 
                1996.--With respect to eligibility for benefits 
                for the program defined in paragraph (3)(A) 
                (relating to the supplemental security income 
                program), paragraph (1) shall not apply to an 
                alien who was receiving such benefits on August 
                22, 1996.
                  (F) Permanent resident aliens who are members 
                of an indian tribe.--With respect to 
                eligibility for benefits for the program 
                defined in paragraph (3)(A) (relating to the 
                supplemental security income program), 
                paragraph (1) shall not apply to an alien who--
                          (i) is lawfully admitted for 
                        permanent residence under the 
                        Immigration and Nationality Act; and
                          (ii) is a member of an Indian tribe 
                        (as defined in section 4(e) of the 
                        Indian Self-Determination and Education 
                        Assistance Act).
          * * * * * * *
  (b) Limited Eligibility for Designated Federal Programs.--
          (1) * * *
          (2) Exceptions.--Qualified aliens under this 
        paragraph shall be eligible for any designated Federal 
        program.
                  [(A) Time-limited exception for refugees and 
                asylees.--
                          [(i) An alien who is admitted to the 
                        United States as a refugee under 
                        section 207 of the Immigration and 
                        Nationality Act until 5 years after the 
                        date of an alien's entry into the 
                        United States.
                          [(ii) An alien who is granted asylum 
                        under section 208 of such Act until 5 
                        years after the date of such grant of 
                        asylum.
                          [(iii) An alien whose deportation is 
                        being withheld under section 243(h) of 
                        such Act until 5 years after such 
                        withholding.]
                  (A) Time-limited exception for refugees and 
                asylees.--
                          (i) Medicaid.--With respect to the 
                        designated Federal program described in 
                        paragraph (3)(C), paragraph 1 shall not 
                        apply to an alien until 7 years after 
                        the date--
                                  (I) an alien is admitted to 
                                the United States as a refugee 
                                under section 207 of the 
                                Immigration and Nationality 
                                Act;
                                  (II) an alien is granted 
                                asylum under section 208 of 
                                such Act; or
                                  (III) an alien's deportation 
                                is withheld under section 
                                243(h) of such Act.
                          (ii) Other designated federal 
                        programs.--With respect to the 
                        designated Federal programs under 
                        paragraph (3) (other than subparagraph 
                        (C)), paragraph 1 shall not apply to an 
                        alien until 5 years after the date--
                                  (I) an alien is admitted to 
                                the United States as a refugee 
                                under section 207 of the 
                                Immigration and Nationality 
                                Act;
                                  (II) an alien is granted 
                                asylum under section 208 of 
                                such Act; or
                                  (III) an alien's deportation 
                                is withheld under section 
                                243(h) of such Act.
          * * * * * * *

  Subtitle B--Eligibility for State and Local Public Benefits Programs

          * * * * * * *

SEC. 413. AUTHORIZATION FOR VERIFICATION OF ELIGIBILITY FOR STATE AND 
                    LOCAL PUBLIC BENEFITS.

  A State or political subdivision of a State is authorized to 
require an applicant for State and local public benefits (as 
defined in section 411(c)) to provide proof of eligibility.
          * * * * * * *

                     Subtitle D--General Provisions

          * * * * * * *

SEC. 436. DERIVATIVE ELIGIBILITY FOR BENEFITS.

  (a) Food Stamps.--Notwithstanding any other provision of law, 
an alien who under the provisions of this title is ineligible 
for benefits under the food stamp program (as defined in 
section 402(a)(3)(A)) shall not be eligible for such benefits 
because the alien receives benefits under the supplemental 
security income program (as defined in section 402(a)(3)(B)).
  (b) Medicaid.--Notwithstanding any other provision of this 
title, an alien who under the provisions of this title is 
ineligible for benefits under the medicaid program (as defined 
in section 402(b)(3)(C)) shall be eligible for such benefits if 
the alien is receiving benefits under the supplemental security 
income program and title XIX of the Social Security Act 
provides for such derivative eligibility.
          * * * * * * *
                              ----------                              


                 SECTION 212 OF THE ACT OF JULY 9, 1973

 AN ACT To extend the Renegotiation Act of 1951 for one year, and for 
                            other purposes.

    mandatory minimum state supplementation of ssi benefits program

  Sec. 212. (a) * * *
  (b)(1) * * *
          * * * * * * *
  (3)(A) * * *
  (B)(i) The Secretary shall assess each State an 
administration fee in an amount equal to--
          (I) the number of supplementary payments made by the 
        Secretary on behalf of the State under this subsection 
        for any month in a fiscal year; multiplied by
          (II) the applicable rate for the fiscal year.
  (ii) As used in clause (i), the term ``applicable rate'' 
means--
          (I) for fiscal year 1994, $1.67;
          (II) for fiscal year 1995, $3.33;
          (III) for fiscal year 1996, $5.00; [and]
          [(IV) for fiscal year 1997 and each succeeding fiscal 
        year, $5.00, or such different rate as the Secretary 
        determines is appropriate for the State, taking into 
        account the complexity of administering the State's 
        supplementary payment program.]
          (IV) for fiscal year 1997, $5.00;
          (V) for fiscal year 1998, $6.20;
          (VI) for fiscal year 1999, $7.60;
          (VII) for fiscal year 2000, $7.80;
          (VIII) for fiscal year 2001, $8.10;
          (IX) for fiscal year 2002, $8.50; and
          (X) for fiscal year 2003 and each succeeding fiscal 
        year--
                  (aa) the applicable rate in the preceding 
                fiscal year, increased by the percentage, if 
                any, by which the Consumer Price Index for the 
                month of June of the calendar year of the 
                increase exceeds the Consumer Price Index for 
                the month of June of the calendar year 
                preceding the calendar year of the increase, 
                and rounded to the nearest whole cent; or
                  (bb) such different rate as the Commissioner 
                determines is appropriate for the State.
  (iii) Upon making a determination under clause [(ii)(IV)] 
(ii)(X)(bb), the Secretary shall promulgate the determination 
inregulations, which may take into account the complexity of 
administering the State's supplementary payment program.
  (iv) All fees assessed pursuant to this subparagraph shall be 
transferred to the Secretary at the same time that amounts for 
such supplementary payments are required to be so transferred.
          * * * * * * *
  [(D) All administration fees and additional services fees 
collected pursuant to this paragraph shall be deposited in the 
general fund of the Treasury of the United States as 
miscellaneous receipts.]
  (D)(i) The first $5 of each administration fee assessed 
pursuant to subparagraph (B), upon collection, shall be 
deposited in the general fund of the Treasury of the United 
States as miscellaneous receipts.
  (ii) The portion of each administration fee in excess of $5, 
and 100 percent of each additional services fee charged 
pursuant to subparagraph (C), upon collection for fiscal year 
1998 and each subsequent fiscal year, shall be credited to a 
special fund established in the Treasury of the United States 
for State supplementary payment fees. The amounts so credited, 
to the extent and in the amounts provided in advance in 
appropriations Acts, shall be available to defray expenses 
incurred in carrying out this section and title XVI of the 
Social Security Act and related laws.
          * * * * * * *
                              ----------                              


                     INTERNAL REVENUE CODE OF 1986

                      Subtitle C--Employment Taxes

          * * * * * * *

                CHAPTER 23--FEDERAL UNEMPLOYMENT TAX ACT

          * * * * * * *

SEC. 3306. DEFINITIONS

  (a) * * *
          * * * * * * *
  (c) Employment.--For purposes of this chapter, the term 
``employment'' means any service performed prior to 1955, which 
was employment for purposes of subchapter C of chapter 9 of the 
Internal Revenue Code of 1939 under the law applicable to the 
period in which such service was performed, and (A) any 
service, of whatever nature, performed after 1954 by an 
employee for the person employing him, irrespective of the 
citizenship or residence of either, (i) within the United 
States, or (ii) on or in connection with an American vessel or 
American aircraft under a contract of service which is entered 
into within the United States or during the performance of 
which and while the employee is employed on the vessel or 
aircraft it touches at a port in the United States, if the 
employee is employed on and in connection with such vessel or 
aircraft when outside the United States, and (B) any service, 
of whatever nature, performed after 1971 outside the United 
States (except in a contiguous country with which the United 
States has an agreement relating to unemployment compensation) 
by a citizen of the United States as an employee of an American 
employer (as defined in subsection (j)(3)), except--
          (1) * * *
          * * * * * * *
          (19) service which is performed by a nonresident 
        alien individual for the period he is temporarily 
        present in the United States as a nonimmigrant under 
        subparagraph (F), (J), (M), or (Q) of section 
        101(a)(15) of the Immigration and Nationality Act, as 
        amended (8 U.S.C. 1101(a)(15)(F), (J), (M), or (Q)), 
        and which is performed to carry out the purpose 
        specified in subparagraph (F), (J), (M), or (Q), as the 
        case may be; [or]
          (20) service performed by a full time student (as 
        defined in subsection (q)) in the employ of an 
        organized camp--
                  (A) if such camp--
                          (i) did not operate for more than 7 
                        months in the calendar year and did not 
                        operate for more than 7 months in the 
                        preceding calendar year, or
                          (ii) had average gross receipts for 
                        any 6 months in the preceding calendar 
                        year which were not more than 33\1/3\ 
                        percent of its average gross receipts 
                        for the other 6 months in the preceding 
                        calendar year; and
                  (B) if such full time student performed 
                services in the employ of such camp for less 
                than 13 calendar weeks in such calendar 
                year[.]; or
          (21) service performed by a person committed to a 
        penal institution.
          * * * * * * *

SEC. 3309. STATE LAW COVERAGE OF SERVICES PERFORMED FOR NONPROFIT 
                    ORGANIZATIONS OR GOVERNMENTAL ENTITIES.

  (a) * * *
  (b) Section not to apply to certain service.--This section 
shall not apply to service performed--
          (1) in the employ of (A) a church or convention or 
        association of churches, [or] (B) an organization which 
        is operated primarily for religious purposes and which 
        is operated, supervised, controlled, or principally 
        supported by a church or convention or association of 
        churches, or (C) an elementary or secondary school 
        which is operated primarily for religious purposes, 
        which is described in section 501(c)(3), and which is 
        exempt from tax under section 501(a);
          (2) by a duly ordained, commissioned, or licensed 
        minister of a church in the exercise of his ministry or 
        by a member of a religious order in the exercise of 
        duties required by such order;
          (3) in the employ of a governmental entity referred 
        to in paragraph (7) of section 3306(c), if such service 
        is performed by an individual in the exercise of his 
        duties--
                  (A) * * *
          * * * * * * *
                  (D) as an employee serving on a temporary 
                basis in case of fire, storm, snow, earthquake, 
                flood, or similar emergency; [or]
                  (E) in a position which, under or pursuant to 
                the State law, is designated as (i) a major 
                nontenured policymaking or advisory position, 
                or (ii) a policymaking or advisory position the 
                performance of the duties of which ordinarily 
                does not require more than 8 hours per week; or
                  (F) as an election official or election 
                worker if the amount of remuneration received 
                by the individual during the calendar year for 
                services as an election official or election 
                worker is less than $1,000;
          * * * * * * *
                       Committee on Ways and Means,
                             U.S. House of Representatives,
                                     Washington, DC, June 13, 1997.
Hon. John R. Kasich,
Chairman, Committee on the Budget, U.S. House of Representatives, 
        Washington, DC.
    Dear Mr. Chairman: On June 9, 1997, the Committee on Ways 
and Means, pursuant to H. Con. Res. 84, the Concurrent 
Resolution on the Budget for fiscal Year 1998, ordered 
favorably reported, as amended, its budget reconciliation 
recommendations on health items, to the Committee on Budget by 
a recorded vote of 36 to 3. Accordingly, I am now transmitting 
these recommendations to you.
    Enclosed are the legislative language, explanatory report 
language, estimates of the Congressional Budget Office and 
Joint Committee on Taxation and additional views. Under 
separate covers, I am transmitting the Committee's 
recommendations on human resources items and revenue items.
    Please feel free to contact me or Pete Singleton if you 
have any questions. With best personal regards,
            Sincerely,
                                             Bill Archer, Chairman.
    Enclosures

                            I. Introduction

                         A. PURPOSE AND SUMMARY

    The goal of this legislation is to extend the financial 
life of the Medicare trust funds, to expand the private health 
plan choices available to Medicare beneficiaries, and improve 
the quality of Medicare coverage.
    The Board of Trustees of the Medicare Hospital Insurance 
and Supplementary Medical Insurance trust funds have urged the 
Congress for many years to take action to curb the significant 
financial imbalance in the trust funds both in the short and 
long terms. In response to these recommendations, the House of 
Representatives passed the Medicare Preservation Act of 1995 in 
the 104th Congress, and included that bill in the Balanced 
Budget Act of 1995 which was passed by the Congress. This 
legislation would have kept the Medicare Hospital Insurance 
trust in balance to the advent of the retirement of the baby 
boomer generation and stemmed the unsustainable growth in the 
Supplementary Medical Insurance trust fund. It would also have 
greatly expanded the private health plan choices available to 
Medicare beneficiaries. Unfortunately, the Act was vetoed by 
the President. So, no substantive action regarding the 
challenges facing Medicare was taken in the 104th Congress.
    This legislation would extend the life of the Medicare 
Hospital Insurance trust fund to 2007. More importantly, with 
the great increase in program cost that will accompany the 
retirement of the baby boomer generation after 2010, this 
measure makes the structural changes in the program that will 
provide a platform for meeting the longer term financial issues 
facing Medicare.
    The legislation expands the private health plan options 
available to beneficiaries, and will allow them to choose the 
type of coverage available to them during their working lives. 
The increased use of private health plans by beneficiaries will 
both improve coverage for most of those on Medicare, while 
offering them quality, cost-effective health care.
    Further, the legislation modernizes Medicare payment on the 
fee-for-service side of the program. Today, 89% of Medicare 
beneficiaries choose to remain in fee-for-service Medicare. 
Over time that number will decline, but there will always be 
beneficiaries who prefer traditional Medicare coverage. To keep 
that option cost-effective, it is critical that payment for 
services give providers the incentive to offer quality care at 
the best price for the program. This legislation achieve this 
objective by expanding the use of prospective payment in 
Medicare to home health, skilled nursing, outpatient hospital 
department, and other services.
    Also, to help control costs, the legislation expands on the 
anti-fraud and abuse initiatives in the Health Insurance 
Portability and Accountability Act of 1996. The legislation 
gives the power to Medicare to bar providers from the program 
who have been convicted of health care fraud,and requires 
certain new providers to post a $50,000 surety bond to assure that they 
will meet their obligations in offering Medicare services.
    The legislation further begins the process of improving the 
Medicare benefit package through its prevention initiatives. It 
will encourage more preventative screening and empower 
beneficiaries with diabetes to better treat their disease.
    This legislation achieves its objectives by improving the 
program and expanding opportunities for beneficiaries to seek 
and for providers to give more cost effective, quality health 
care without increasing current costs of health to Medicare 
beneficiaries.

                 B. BACKGROUND AND NEED FOR LEGISLATION

    As in past years, the Board of Trustees of the Medicare 
Federal Hospital Insurance (HI) and Supplementary Medical 
Insurance (SMI) trust funds have called for action on the 
financial crisis facing the Medicare program. The HI trust fund 
now spends more money than it receives in revenues from the 
payroll tax, and will run out of reserves in 2001 according to 
the intermediate assumptions of the Trustees report.
    In the report for this year, the Board of Trustees urge 
action on the HI trust fund:
    ``As we reported for the last several years, one of the 
Medicare trust funds, the Hospital Insurance fund, would be 
exhausted in four years without legislation that addresses its 
financial imbalance. Any trust fund exhaustion can and should 
be avoided, as it has been in the past.''
    Additionally, they note the need to attend to the 
unsustainable costs of the SMI trust fund:
    ``Costs of the Medical Supplementary Medical Insurance 
Program are rising rapidly and need to be addressed in the near 
term.''
    The short term imbalance in the Medicare Health Insurance 
trust fund and the excessive growth in the Supplementary 
Medical Insurance trust fund are fueled primarily by increasing 
health care costs. This cost growth, depending on the service, 
is due to ever-increasing prices, use of services, intensity of 
care, and new technologies. Once the baby boomer generation 
starts to retire, the rising proportion of Americans entitled 
to Medicare will present a new challenge and level of concern.
    The Ways and Means Committee believes that the short term 
cost inflation problem faced by Medicare, as well as this 
longer term demographic problem the retirement of the baby 
boomers, requires the attention of the Congress.
    The Committee has undertaken an effort to meet this 
challenge with a legislative program that contends with the 
short term cost inflation for both the HI and SMI trust funds. 
This program keeps the HI trust fund in balance to 2007. 
Further, the Committee takes steps to prepare the way for 
keeping Medicare in financial balance when it confronts the 
challenge of the baby boomer generation through the development 
of cost effective, private health plan options under 
MedicarePlus and the development of payment reform in costly 
areas of the Medicare fee- for-service program.
    Additionally, the Medicare benefits have not been changed 
significantly since the inception of the program in 1965. Over 
the last thirty years, priorities in medical care have changed. 
There is now more emphasis given to disease prevention and 
health promotion, and most benefits packages in the private 
sector reflect these trends. Medicare still does not.
    The Committee recognizes the need to modernize Medicare. 
Clearly life-extending and improving medical treatment is 
likely to be more effective the earlier a disease can be 
discovered, and better understanding of disease can empower 
beneficiaries with chronic illnesses to help take care of 
themselves.
    Finally, the Committee continues to have concern with fraud 
and abuse of the Medicare program. The General Accounting 
Office has reported over the years that as much as 10 percent 
of Medicare expenditures are lost to fraud and abuse. In the 
last Congress, the Health Insurance Portability and 
Accountability Act took action to curb these costs. The Act 
stiffened penalties and appropriated additional funds to root 
out health care crime. However, more can be done, and this 
legislation recognizes this need and provides further steps to 
get the ``bad apples'' among the health care providers out of 
Medicare and to keep them out.
    The Committee is committed to preserving and protecting 
Medicare as well as modernizing the program to expand the 
choices of coverage available to beneficiaries. This 
legislation has been developed to assure all Americans that the 
Medicare program will continue to improve with time and will be 
there for all those who expect it in their retirement years or 
if they become disabled.

                         C. LEGISLATIVE HISTORY

Committee recommendations

    The Committee's budget reconciliation health 
recommendations to the House Committee on Budget were ordered 
favorably reported by the Committee on June 9, 1997, by a vote 
of 36 ayes and 3 nays. These recommendations were initially 
developed by the Subcommittee on Health, which favorably 
reported them by a unanimous roll call vote of 13-0 on June 4, 
1997.
    These recommendations includes nine subtitles. Subtitle A 
provides for the Medicare Plus program which will provide 
beneficiaries greater choice of health coverage. Subtitle B 
expands Medicare coverage to increase health promotion and 
disease prevention. Subtitle C improves payment for certain 
rural hospitals. Subtitle D includes initiatives to reduce 
health care fraud and abuse. Subtitle E modernizes Medicare 
payment by placing many services under a perspective payment 
system. Subtitle F provides for refinements in payment under 
Part A of Medicare and Subtitle G provides for refinements in 
payment under Part B of medicare. Subtitle H concerns matter 
related to both Parts A and B of Medicare. Subtitle I provides 
for medical liability reform.

Committee action

    The Subcommittee on Health of the Committee on Ways and 
Means held the following hearings in the 105th Congress related 
to the Subcommittee's 1997 Budget Reconciliation proposals:
          February 13--Medicare Provisions in the President's 
        Budget
          February 25--Medicare HMO Payment Policies
          March 4--Medicare Home Health Care, Skilled Nursing 
        Facility, and other Post-Acute Care Payment Policies
          March 6--Medicare HMO Regulation and Quality
          March 11--Teaching Hospitals and Medicare 
        Disproportionate
          March 13--H.R. 15, the ``Medicare Preventive Benefit 
        Improvement Act of 1997''
          March 20--Recommendations Regarding Medicare Hospital 
        and Physician Payment Policies
          April 10--Rehabilitation and Long-Term Care Hospitals 
        Payments
          April 17--Medicare's Coverage Policy
          April 24--Medicare Provider-Sponsored Organizations
          April 29--Coordinated Care Options for Seniors
    On June 4, 1997 the Subcommittee on Health of the Committee 
on Ways and Means favorably reported to the full Committee as 
amended, budget reconciliation health recommendations by a 
recorded vote of 13 to 0 with a quorum present.
    On June 9, 1997 the Committee on Ways and Means approved, 
as amended, budget reconciliation health recommendations by a 
recorded vote of 36 to 3.
    On June 13, 1997 the Committee on Ways and Means forwarded 
to the Committee on the Budget its budget reconciliation health 
recommendations.

                     II. EXPLANATION OF PROVISIONS

                    Subtitle A--Medicareplus Program

                        Chapter 1: Medicare Plus

Section 10001. Establishment of Program

            New Section 1851 of the Social Security Act. Eligibility, 
                    election, and enrollment
    Current 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. (A CMP is a health plan that is not a federally 
qualified HMO but that meets specific Medicare requirements.) 
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 any of the 
HMO's/CMP's projected cost savings between Medicare's 
capitation payment and what it would cost the organization to 
provide Medicare benefits to its commercial enrollees through 
the provision of additional benefits. (It could also return the 
``savings'' to Medicare.)
    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. A 
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 the Department of Health and Human 
Services (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 Social Security Act would be 
amended to insert a new Part C, MedicarePlus Program. New 
section 1851 of Part C of the Social Security Act would specify 
requirements related to eligibility, election of coverage, and 
enrollment.
    a. Types of Choices. Under the provision, every individual 
entitled to Medicare Part A and enrolled under Part B could 
elect to receive benefits through two options: (i) the existing 
Medicare fee-for-service program (Medicare FFS) or (ii) through 
a MedicarePlus plan. The exception to this would be individuals 
medically determined to have ESRD. They would not be able to 
elect MedicarePlus. Individuals who developed ESRD while 
enrolled in a plan could continue in that plan. A MedicarePlus 
plan could be offered by: (i) a coordinated care plan 
(including an HMO or preferred provider organization ( PPO)), 
(ii) a provider sponsored organization (PSO); and (iii) a 
combination of a medical savings account (MSA) and 
contributions to a MedicarePlus MSA.
    b. Special Rules. In general, an individual would be 
eligible to elect a MedicarePlus plan offered by a MedicarePlus 
organization only if the organization served the geographic 
area in which in the individual resided. Enrollment could 
continue if the plan provided benefits for enrollees located in 
the area to which the individual moved. An individual eligible 
for an annuity under the Federal Employee Health Benefits 
Program would not be eligible for an MSA plan until the Office 
of Management and Budget adopted policies to ensure that such 
enrollment did not result in increased expenditures for the 
federal government to FEHBP plans. The Secretary could apply 
similar rules in the case of individuals who are eligible for 
Departments of Defense or Veterans' Affairs health care. An 
individual who is a qualified Medicare beneficiary (QMB), a 
qualified disabled and working individual, a specified low-
income Medicare beneficiary (SLMB), or otherwise entitled to 
Medicare cost-sharing assistance under a state Medicaid 
program, would not be eligible to enroll in an MSA plan.
    In addition, individuals would not be eligible to enroll in 
an MSA plan on or afterJanuary 1, 2003, or as of any date if 
the number of individuals enrolled in MSA plans reached 500,000. 
Individuals enrolling in MSA plans prior to either of those two events 
would be allowed to continue such enrollment. The Secretary is required 
to regularly evaluate and report to Congress on the impact of 
permitting enrollment of MSA plans on selection, adverse selection, use 
of preventive care, access to care, and the financial status of the 
Trust Funds. In addition, the Secretary is required to submit to 
Congress periodic reports on the number of individuals enrolled in MSA 
plans and to submit a report to Congress by no later than March 1, 2002 
on whether the four-year time limitation should be extended or removed, 
and whether any change should be made to the number of individuals 
permitted to enroll in Medicare MSAs.
    c. Process for Exercising Choice. The Secretary would be 
required to establish a process for elections (and changing 
elections) of Medicare FFS and MedicarePlus options. Elections 
would be made (or changed) only during specified coverage 
election periods. An individual who wished to elect a 
MedicarePlus plan could do so by filing an 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 
Medicare FFS option. The Secretary would be required to 
establish procedures under which individuals enrolled with a 
MedicarePlus organization at the time of the initial election 
period and who failed to elect to receive coverage other than 
through the organization would be deemed to have elected the 
MedicarePlus plan offered by the organization (or, if the 
organization offered more than one such plan, such plan as the 
Secretary provided for under such procedures). An individual 
who made (or was deemed to have made) an election would be 
considered to have continued such election until the individual 
changed the election or the plan was discontinued.
    d. Providing 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. At least 30 days 
before each annual, coordinated election period, the Secretary 
would send to each MedicarePlus eligible person a notice 
containing the information specified below in order to assist 
the individual in making an election. This would include 
general information, a list of plan options and comparative 
plan option information, the MedicarePlus monthly capitation 
rate, and other information determined by the Secretary to be 
helpful in making elections. This information would have to be 
written in language easily understood by Medicare 
beneficiaries. The Secretary would be required to coordinate 
the mailing of this information with annual mailing of other 
Medicare information required under current law. To the extent 
practicable, the Secretary would provide such information to 
new MedicarePlus individuals at least two months prior to their 
initial enrollment period.
    The required general election information would include 
information on: (i) services covered and not covered by 
Medicare FFS (including benefits, cost-sharing, and beneficiary 
liability for balance billing); (ii) the Part B premium amount, 
(iii) election procedures, (iv) rights including grievance and 
appeals procedures and the right to be protected against 
discrimination, (v) information on Medigap and Medicare Select 
policies, and (vi) the right of the organization to terminate 
the contract and what this would mean for enrollees.
    Comparative plan option information would have to include: 
(i) a description of benefits including any benefits covered 
beyond Medicare FFS, any reductions in cost-sharing and any 
maximum limits on out-of-pocket costs, and in the case of MSA 
plans, the differences in their cost sharing compared to other 
MedicarePlus plans; (ii) the monthly premium (and net monthly 
premium) for the plan; (iii) to the extent available, quality 
indicators (compared with indicators for Medicare FFS) 
including disenrollment rates, enrollee satisfaction and health 
outcomes, and whether the plan is out of compliance with any 
federal requirements; and (iv) information on any supplemental 
coverage. The required information would be updated at least 
annually.
    The Secretary would be required to maintain a toll-free 
number and Internet site for inquiries regarding MedicarePlus 
options and plans. A MedicarePlus organization would be 
required to provide the Secretary with such information on the 
organization and its plans as the Secretary needed to prepare 
the information described above for Medicare beneficiaries. The 
Secretary could enter into contracts with appropriate non-
Federal entities to carry out these information activities.
    e. Coverage Election Periods. Individuals would first have 
a choice (``initial election'') between Medicare FFS and 
MedicarePlus plans (if there were one or more MedicarePlus 
plans to choose from in their area) upon eligibility for 
Medicare. The Secretary would designate a time for the election 
such that coverage would become effective when the individual 
was eligible to begin coverage.
    From 1998 through 2000, there would be continuous open 
enrollment and disenrollment,under which eligible individuals 
could switch MedicarePlus plans or move into or out of the 
Medicare FFS program option. For the first 6 months during 
2001, there would also be continuous open enrollment and 
disenrollment, but individuals could change their election only 
once during 2001 (except during the annual coordinated open 
enrollment period or a special enrollment period (as described 
below)). During subsequent years, individuals would be able to 
enroll in a MedicarePlus option or disenroll from it at any 
time during the first 3 months of a year (or during the first 3 
months after an individual became eligible to enroll in a 
MedicarePlus plan). Such changes could be made only once a year 
except during annual coordinated election and special 
enrollment periods.
    Beginning in October, 2000, there would be an annual, 
coordinated election period during which individuals could 
change elections for the following calendar year. The Secretary 
would be required to hold MedicarePlus health fairs in October 
of each year, beginning with 1998. Such fairs would provide for 
nationally, coordinated educational and publicity campaigns to 
inform MedicarePlus eligibles about MedicarePlus plans and the 
election process, including the annual, coordinated election 
periods.
    Starting January 1, 2001, special election periods would be 
provided in which an individual could discontinue an election 
of a MedicarePlus plan and make a new election if: (i) the 
organization's or plan's certification were terminated or the 
organization terminated or otherwise discontinued providing the 
plan; (ii) the person who elected a MedicarePlus plan were no 
longer eligible because of a change in residence or certain 
other changes in circumstances; (iii) the individual 
demonstrated that the organization offering the plan violated 
its contract with Medicare (including the failure to provide 
the enrollee on a timely basis medically necessary care or to 
provide such care in accordance with applicable quality 
standards), or misrepresented the plan in its marketing; or (4) 
the individual encountered other exceptional conditions 
specified by the Secretary.
    Special rules would apply for MSA plans. Individuals could 
elect a MSA plan only during: (i) an initial open enrollment 
period; (ii) an annual, coordinated election period, or (iii) 
October 1998 and October 1999. Such individuals could not 
discontinue an election of an MSA plan except during an annual, 
coordinated election period, October 1998 and October 1999, or 
if the MSA plan had been decertified or terminated.
    f. Effectiveness of Elections. An election made during the 
initial election period would become effective when the 
individual became entitled to Medicare benefits, except as the 
Secretary might provide in order to prevent retroactive 
coverage. During continuous open enrollment periods, an 
election or change of elections would take effect with the 
first calendar month after the election was made. An election 
or change of coverage made during a coordinated 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.
    g. Guaranteed Issue and Renewal. MedicarePlus organizations 
would be required to accept MedicarePlus eligibles without 
restriction during election periods. If the organization had a 
capacity limit, it could limit enrollment but only if priority 
were given to those who had already elected the plan and then 
to other persons in a manner that did not discriminate on the 
basis of health-status related factors (which include health 
status, medical condition (including both physical and mental 
illnesses), claims experience, receipt of health care, medical 
history, genetic information, evidence of insurability 
(including conditions arising out of acts of domestic violence) 
and disability). These restrictions would not apply if they 
would result in enrollment substantially misrepresentative of 
the Medicare population in the service area.
    MedicarePlus organizations could not terminate an 
enrollee's election except for failure to pay premiums on a 
timely basis, disruptive behavior, or because of plan 
termination of all MedicarePlus individuals. Individuals 
terminated for cause would be deemed to have elected Medicare 
FFS. An individual whose plan was terminated would have a 
special election period to change into another MedicarePlus 
plan. If the individual failed to make an election, he or she 
would be deemed to be Medicare FFS. Plans would have to 
transmit to the Secretary a copy of each enrollee's election 
form.
    h. Approval of marketing material. The provision would 
require MedicarePlus plans to submit marketing material to the 
Secretary at least 45 days before distribution. The material 
could then be distributed if not disapproved by the Secretary. 
Medicare's new standards for plans (established as described 
below) would have to include guidelines for the review of all 
marketing material submitted. Under these guidelines, the 
Secretary would have to disapprove marketing materials if they 
were materially inaccurate or misleading.
    Each MedicarePlus organization would have to conform to 
fair marketing standards, including a prohibition on a 
MedicarePlus organization (or its agent) completing any portion 
of any election form on behalf of any individual.
    i. Effect of Election of MedicarePlus Plan Option. Payments 
under a contract with a MedicarePlus organization with respect 
to an individual electing a MedicarePlus plan offered by an 
organization would be instead of the amounts which otherwise 
would have been payable under Medicare Parts A and B.
    Reason for Change. Except for the addition of HMOs, modest 
benefit changes, and episodic reforms in provider payment 
methods, the Medicare program has remained essentially 
unchanged 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 and, to a great extent, have been captured by the 
Federal Employee Health Benefit Program. The creation of 
MedicarePlus will allow beneficiaries to have access to a wide 
array of private health plan choices in addition to traditional 
fee-for-service Medicare. In addition, it will enable the 
Medicare program to utilize innovations that have helped the 
private market contain costs and expand health care delivery 
options.
    One of the most significant innovations is the Medical 
Savings Account (MSA). Building upon the private market MSA 
demonstration program available to small employers and the 
self-employed under the recently-enacted bipartisan Health 
Insurance Portability and Accountability Act (HIPAA), the 
provision would authorize a demonstration of Medicare MSAs 
available to 500,000 of the 33 million senior citizens eligible 
for Medicare. The Committee notes that this demonstration is 
smaller relative to the size of the eligible population than 
the HIPAA demonstration program, reaching less than 2 percent 
of Medicare beneficiaries.
    There are several additional, critical components of the 
new MedicarePlus system. First, beneficiaries will for the 
first time have access to accurate information, including 
comparative information, about health plan choices. According 
to the 1990 Census, nearly 4 million people living in America 
over the age of 65 report that a language other than English is 
spoken in their home. The Committee believed that all 
beneficiaries, including those who are limited in their English 
proficiency, should have access to accurate and timely 
information about the array of private health plan options 
available under MedicarePlus. Therefore, the Committee intended 
that the language requiring the Secretary to promote ``active, 
informed selection among'' MedicarePlus plans and to provide 
information ``using language that is easily understandable 
byMedicare beneficiaries'' include such information as may be necessary 
to help all individuals eligible to enroll in MedicarePlus plans, 
including those with limited English proficiency.
    In addition, for the risk adjustment methods authorized by 
the Act to work to their full potential and to provide 
organizations offering MedicarePlus plans with incentives to 
keep beneficiaries healthy, the Committee believed that it was 
important to move away from a system where beneficiaries can 
enroll and disenroll from HMOs at virtually any time. 
Therefore, the provision provides a transition to a system of 
annual open enrollment periods based on the FEHBP choice model. 
This model balances promotion of active competition with 
protections for beneficiaries who wish to test the broad array 
of private health plan choices made available by the Act 
without losing their right to return to fee-for-service 
Medicare.
    Effective Date. Unless otherwise provided, the provision is 
generally effective upon enactment.
            New section 1852. Benefits and beneficiary protections
    Current 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 and quality 
assurance.
    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.
    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.
    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. On April 30, 1997, the Health Care Financing 
Administration (HCFA) issued final rules for establishing an 
expedited review process for Medicare beneficiaries enrolled in 
HMOs and CMPs.
    Hospitals and other providers are required under Medicare 
as a condition of participation to ask whether an individual 
has an advance directive and make a notice of such in the 
patient's record. Such hospitals and other providers also have 
to provide upon admission and at other specified times written 
information to adult patients: on applicable advance directive 
laws of the relevant state and of the advance directive 
policies of the provider.
    Payments to Medicare HMOs/CMPs include amounts that reflect 
Medicare's fee-for-service payments to hospitals in an area for 
indirect and direct medical education costs and 
disproportionate share adjustments.
    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 inducementto 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. In addition, there is no provision in current law 
for medical savings account plans for Medicare beneficiaries.
    Explanation of Provision. The provision establishes a new 
section 1852 specifying federal requirements related to 
MedicarePlus plan benefits and beneficiary protections.
    a. Basic Benefits. Each MedicarePlus plan, except an MSA 
plan, would be required to provide benefits for at least the 
items and services for which benefits are available under parts 
A and B of Medicare and any additional health services as the 
Secretary may approve. A MedicarePlus plan would meet this 
requirement if:
          (i) in the case of benefits furnished through 
        providers with a contract with the organization (i.e., 
        plan providers), the individual's liability for payment 
        for items and services did not exceed (after taking 
        into account any deductible which did not exceed any 
        deductible under Medicare FFS) 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 not elected coverage under 
        MedicarePlus, or (b) the applicable coinsurance or 
        copayment amounts that would have applied under 
        Medicare FFS provided under the contract, and
          (ii) in the case of benefits furnished through 
        providers without contracts with the organization 
        (i.e., out-of-plan providers), the MedicarePlus plan 
        provided for at least the dollar amount of payment for 
        such items and services as would otherwise have been 
        provided under Medicare FFS. Such providers could not 
        bill any more than they could under the balance billing 
        limits applicable under Medicare FFS.
    These cost-sharing limitations would not apply to an 
individual enrolled under an MSA plan.
    MedicarePlus organizations could offer, with the 
Secretary's approval, under their MedicarePlus plans 
supplemental benefits. If the supplemental benefits were 
offered only to MedicarePlus enrollees, the additional premium 
would have to be the same for all enrollees in the area. The 
benefits could be marketed and sold outside of the enrollment 
process described above. A MedicarePlus plan could seek payment 
from other payers, such as insurers or employer plans, in 
circumstances where secondary payer rules apply.
    The provision would establish a policy relating to a 
national coverage determination made between the annual 
announcements of MedicarePlus payment rates. The application of 
the determination would be delayed if the determination would 
result in a significant change in costs to the MedicarePlus 
plan, and such change were not incorporated into the 
MedicarePlus payment rate established for that period. In such 
cases, the national coverage determination would apply to the 
first contract year beginning after such period. If the 
determination provided for coverage of additional benefits or 
benefits under additional circumstances, it would also apply to 
the first contract year beginning after such period, unless 
otherwise required by law.
    b. Antidiscrimination. A MedicarePlus organization could 
not deny, limit, or condition the coverage or provision of 
benefits under this part based on any health-status related 
factor (health status, medical condition (including both 
physical and mental illnesses), claims experience, receipt of 
health care, medical history, genetic information, evidence of 
insurability (including conditions arising out of acts of 
domestic violence) and disability). This requirement should not 
be construed to mean that a MedicarePlus organization had to 
enroll individuals determined to have ESRD.
    c. Detailed Description of Plan Provisions. The provision 
would require each MedicarePlus plan to disclose in clear, 
accurate and standardized form to each enrollee at the time of 
enrollment and annually thereafter, the following information 
about the plan: (i) its service area; (ii) its benefits and 
exclusions from coverage (and, in the case of an MSA plan, a 
comparison with other MedicarePlus plans); (iii) the number, 
mix, and distribution of participating providers, (iv) 
permitted out-of-area coverage; (v) coverage of and procedures 
for obtaining emergency services (including the appropriate use 
of 911 or local equivalent); (vi) any optional supplemental 
coverage, including the benefits and premium price; (vii) any 
prior authorization or other rules that could result in 
nonpayment; (viii) any plan-specific grievance and appeals 
procedures; and (ix) its quality assurance program.
    d. Access to services. The provision would permit a 
MedicarePlus organization offering a MedicarePlus plan to 
restrict the providers from whom benefits could be provided so 
long as: (i) the organization makes the benefits available and 
accessible to each individual electing the plan within the 
service area with reasonable promptness and in a manner that 
assures continuity in the provision of benefits; (ii) when 
medically necessary, the organization makes benefits available 
and accessible 24 hours a day, 7 days a week; (iii) the plan 
provides reimbursement for out-of- network services if the 
services are medically necessary and immediately required 
because of unforeseen illness, injury, or condition and it is 
not reasonable to provide the services through the organization 
or met other conditions; (iv) the organization provides access 
to appropriate providers, including credentialed specialists, 
for medically necessary treatment and services; and (v) 
coverage is provided for emergency services without regard to 
either prior authorization requirements or the emergency care 
entity's contractual relationship with the organization.
    The provision specifies that in the case of emergency 
services furnished to a MedicarePlus enrollee by a Medicare 
participating physician or provider, the applicable 
participation agreement is deemed to provide that the physician 
or provider accept as payment in full the amount that would 
have been paid under Medicare part B (including beneficiary 
cost-sharing). In the event services are furnished by a 
physician or health care professional not participating 
inMedicare, the Medicare part B limitation on actual charges would 
apply. Emergency services described in this paragraph mean covered 
inpatient and outpatient services that are furnished to an enrollee of 
a MedicarePlus organization by a provider qualified to provide services 
under Medicare.
    A MedicarePlus organization would be required to comply 
with such guidelines as the Secretary may prescribe relating to 
promoting efficiency and timely coordination of appropriate 
maintenance and post-stabilization care provided to an enrollee 
determined to be stable by a medical screening examination 
required under the Examination and Treatment under Emergency 
Medical Conditions and Women in Labor requirements of the 
Social Security Act (section 1867).
    An emergency medical condition is one manifesting itself by 
acute symptoms of sufficient severity such that a prudent 
layperson, who possesses an average knowledge of health and 
medicine, could reasonably expect the absence of immediate 
medical attention to result in: (i) placing the health of the 
individual in serious jeopardy (and in case of a pregnant 
woman, her health or that of her unborn child; (ii) serious 
impairment to bodily functions, or (iii) serious dysfunction of 
any bodily organ or part. While the definition does not include 
an express reference to the term ``severe pain,'' the Committee 
did not intend for the omission to give rise to the inference 
that severe pain is not an indication of an emergency medical 
condition. Instead, it was the sense of the Committee that an 
express reference to ``pain'' was unnecessary because term 
``sufficient severity'' used in the definition was broad enough 
to encompass indications including severe pain.
    e. Quality assurance program. The provision would require a 
MedicarePlus organization to have arrangements (established in 
accordance with regulations of the Secretary) for an ongoing 
quality assurance program for services provided to its 
MedicarePlus enrollees. The program has to: (i) stress health 
outcomes and provide for the collection, analysis, and 
reporting of data that will permit measurement of outcomes and 
other indices of MedicarePlus plans and organizations; (ii) 
provide for written protocols for utilization review; (ii) 
provide review by physicians and other health care 
professionals of the process followed in the provision of 
health services; (iv) monitor and evaluate high volume and high 
risk services and the care of acute and chronic conditions; (v) 
evaluate the continuity and coordination of care; (vi) have 
mechanisms in place to detect both underutilization and 
overutilization; (vii) after identifying areas for improvement, 
establish or alter practice parameters; (viii) take actions to 
improve quality and assess effectiveness of such actions; (ix) 
make available information on quality and outcomes measures to 
facilitate beneficiary comparison and choice; (x) be evaluated 
on an ongoing basis; (xi) include measures of consumer 
satisfaction; and (xii) provide the Secretary with such access 
to information collected as may be appropriate to monitor and 
ensure quality.
    Each organization would be required to have an agreement 
with an independent quality review and improvement 
organization, approved by the Secretary, for each plan it 
operates, to perform functions such as quality review, review 
for the appropriateness of setting of care, adequacy of access, 
beneficiary outreach, and review of complaints about poor 
quality of care. A MedicarePlus organization would be deemed to 
meet the requirements for quality assurance external review if 
it is accredited by a private organization under a process that 
the Secretary has determined assures that the organization 
applies and enforces standards that are no less stringent than 
those specified under the plan standards requirements 
established by this provision (see new section 1856 as 
described below).
    f. Coverage Determinations. A MedicarePlus organization 
would be required to make determinations regarding 
authorization requests for nonemergency care on a timely basis. 
Appeals of denials would generally have to be decided within 30 
days of receiving medical information, but not later than 60 
days after the coverage determination. Physicians would be the 
only individuals permitted to make decisions to deny coverage 
based on medical necessity. Appeals of determinations involving 
a life-threatening or emergency situation would have to be made 
on an expedited basis.
    g. Grievances and Appeals. The provision would require each 
MedicarePlus organization to provide meaningful procedures for 
hearing and resolving grievances. 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. The Secretary would be required to contract with an 
independent, outside entity to review and resolve appeals of 
denials of coverage related to urgent or emergency services.
    An enrollee in a MedicarePlus plan could request an 
expedited determination by the organization regarding an 
appeal. Such requests could also come from physicians. The 
organization would have to maintain procedures for expediting 
organization determinations when, upon request of an enrollee, 
the organization determined that the application of a normal 
time frame for making a determination or a reconsideration 
could seriously jeopardize the life or health of an enrollee or 
the enrollee's ability to regain maximum function. In an urgent 
case, the organization would have to notify the enrollee (and 
physician involved) of the determination as expeditiously as 
the enrollee's condition requires, but not later than 72 hours 
(or 24 hours in the case of a reconsideration), or such longer 
period as the Secretary may permit in specified cases.
    h. Confidentiality and Accuracy of Enrollee Records. Each 
MedicarePlus organization would be required to establish 
procedures to safeguard the privacy of individually 
identifiable enrollee information, to maintain accurate and 
timely medical records and other health information, and to 
assure timely access of enrollees to their medical records.
    i. Information on Advance Directives. Each MedicarePlus 
organization would be required to maintain written policies and 
procedures respecting advance directives.
    j. Rules Regarding Physician Participation. Each 
MedicarePlus organization would be required to establish 
reasonable procedures relating to the participation of 
physicians under aMedicarePlus plan offered by the 
organization. The procedures would include: (i) providing notice of the 
rules regarding participation; (ii) providing written notice of adverse 
participation decisions; and (iii) providing a process for appealing 
adverse decisions. The organization would be required to consult with 
physicians who have entered into participation agreements regarding the 
organization's medical policy, quality, and medical management 
procedures.
    The provision would prohibit interference with physician 
advice to enrollees. A MedicarePlus organization could not 
prohibit a covered health professional from advising a patient 
about the patient's health status or about medical care or 
treatment for the patient's condition or disease, regardless of 
whether benefits for such care or treatment are provided under 
the plan if the professional is acting within the lawful scope 
of practice. ``Health care provider'' is defined to include 
physicians and other health care professionals (as specified). 
This provision should not be construed as requiring a 
MedicarePlus plan to provide, reimburse for, or provide 
coverage of a counseling or referral service if the 
MedicarePlus organization offering the plan objects to the 
provision of such service on moral or religious grounds, and, 
in the manner and through the written instrumentalities the 
MedicarePlus organization deems appropriate, makes available 
information on its policies regarding such service to 
prospective enrollees before or during enrollment. For those 
beneficiaries enrolled in the plan at any time a policy is 
adopted by the MedicarePlus organization or MedicarePlus plan 
regarding coverage of a counseling or referral service, the 
MedicarePlus organization offering such plan must notify 
enrollees of such policy within 90 days.
    The provision permits organizations offering MedicarePlus 
plans that object to the coverage or provision of counseling or 
referral services on moral or religious grounds to make 
information on these policies available in the manner and 
through the written instrumentalities the organization deems 
appropriate. This limitation was included primarily to remove 
discretion from the Secretary or other governmental entities 
that may seek to impose burdensome regulatory, legal, or 
stylistic requirements with respect to this notice requirement. 
This limitation is not intended to allow MedicarePlus 
organizations to intentionally obfuscate or seek to deceive 
prospective or current enrollees about their coverage policies. 
Rather, the Committee intends for such notice to be provided in 
a manner that would be meaningful to beneficiaries and 
reasonably inform them of any plan restrictions.
    The provision also would limit the use of physician 
incentive plans. The provision would define a physician 
incentive plan as any compensation arrangement between a 
MedicarePlus organization and a physician group that has the 
effect, directly or indirectly, of reducing or limiting 
services provided. The provision would prohibit MedicarePlus 
plans from operating such a physician incentive plan unless the 
following conditions were met. No specific payment could be 
made, directly or indirectly, to a physician group as an 
inducement to reduce or limit medically necessary services 
provided with respect to a specific individual. If the plan 
placed a physician or physician group at substantial financial 
risk, the organization would be required to provide adequate 
and appropriate stop-loss protection and to conduct periodic 
surveys of currently and previously enrolled individuals to 
determine the degree of access to and satisfaction with the 
quality of services. Further, the organization would be 
required to provide the Secretary with sufficient descriptive 
information for the Secretary to determine compliance with 
these requirements.
    A MedicarePlus organization would not be able to provide 
(directly or indirectly) for a provider (or group of providers) 
to indemnify the organization against any liability resulting 
from a civil action brought by or on behalf of an enrollee for 
any damage caused to the enrollee by the organization's denial 
of medically necessary care.
    Each MedicarePlus organization would have to provide the 
Secretary with information on (i) the extent to which it 
provides inpatient and outpatient hospital benefits under 
MedicarePlus through the use of hospitals that are eligible for 
disproportionate share hospital adjustments or through the use 
of teaching hospitals that receive indirect and direct graduate 
medical education payments, and (ii) the extent to which 
differences between payment rates to different hospitals 
reflect the disproportionate share percentage of low-income 
patients and the presence of medical residency training 
programs in those hospitals.
    Reason for Change. The provision contains significant new 
consumer protections for beneficiaries who choose to enroll in 
MedicarePlus plans. In many cases, these requirements either 
codify or expand upon existing regulations or practices and, in 
most instances, they go well beyond State consumer protection 
requirements. For example, the provision requires all 
MedicarePlus plans to clearly and accurately notify 
beneficiaries of their rights under the plan. Because of some 
of the unique features of MSA Plans, additional notification 
requirements were provided. In addition, the provision 
incorporates provisions prohibiting MedicarePlus plans from 
restricting providers' advice to beneficiaries about medical 
care or treatment, requires MedicarePlus plans to guarantee 
access to appropriate providers, including specialists, for 
medically necessary treatment and services, and restricts the 
use of physician incentive plans in certain situations.
    Finally, the Act codifies requirements for emergency 
coverage and resolution of urgent grievances and appeals. In 
both situations, the provision attempts to codify existing 
policy and regulation, while at the same time providing 
sufficient flexibility for the Secretary to modify such 
policies as circumstances may require. For example, the 
Committee believed that the coordination of health care 
services between emergency health care providers and 
MedicarePlus plans was critical. However, it chose not to 
specify rigid requirements for post-stabilization medical 
services in the legislative language. Instead, the Committee 
believed that the Secretary should be provided flexibility to 
determine such conditions, after extensive consultation with 
affected parties.
    Effective Date. Unless otherwise provided, the provision is 
generally applicable to contracts entered into or renewed on or 
after January 1, 1999.
            New section 1853. Payments to MedicarePlus organizations
    Current Law. Under a Medicare risk contract, an HMO agrees 
to provide or arrange for 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 below (see new section 1854).
    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, whether they are also 
eligible for Medicaid, whether they are working and being 
covered under an employer plan, and the county of their 
residence. These AAPCC values are calculated in three 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 
        calculated only for fee-for-service beneficiaries by 
        removing both reimbursement and enrollment attributable 
        to Medicare beneficiaries in prepaid plans.
          Once the county AAPCC is calculated, it is then 
        adjusted for the demographic variables described above, 
        such as age, sex, and 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 provision would establish a 
new section 1853 specifying the methodology for determining 
payment to MedicarePlus plans and the procedures for announcing 
rates and paying plans.
    a. In General. Under a MedicarePlus contract, the Secretary 
would be required to make monthly payments in advance to each 
MedicarePlus organization for each covered individual in a 
payment area in an amount equal to \1/12\ of the annual 
MedicarePlus capitation rate with respect to that individual 
for that area. The payment would be adjusted for such risk 
factors as age, disability status, gender, institutional 
status, and other such factors as the Secretary determined to 
be appropriate, so as to ensure actuarial equivalence. The 
Secretary could add to, modify, or substitute for such factors, 
if such changes would improve the determination of actuarial 
equivalence. The Secretary would be required to establish 
separate rates of payment with respect to individuals with end 
stage renal disease (ESRD). Payments to organizations could be 
retroactively adjusted for (i) actual versus the estimated 
enrollment used to determine the amount of advance payment; and 
(ii) individuals' change of enrollment from a MedicarePlus 
organization sponsored or contributed to by an employer to a 
MedicarePlus organization.
    Risk Adjustment: The Secretary would be required to develop 
and submit to Congress by no later than October 1, 1999, a 
report on a method of risk adjustment of payment rates that 
accounts for variations in per capita costs based on health 
status. This report would have to include an evaluation of the 
proposal by an independent actuary of the actuarial soundness 
of the proposal. The Secretary would have to require 
MedicarePlus organizations (and risk-contract plans) to submit, 
for periods beginning on or after January 1, 1998, data 
regarding inpatient hospital and other services and other 
information the Secretary deems necessary. The Secretary would 
have to provide for implementation of a risk adjustment 
methodology that accounts for variations in per capita costs 
based on health status by no later than January 1, 2000.
    b. Annual Announcement of Payment Rates. Payments to plans 
would be calculated based on the annual MedicarePlus capitation 
rate. The Secretary would be required to annually determine, 
and announce no later than August 1 before the calendar year 
concerned: (i) the annual MedicarePlus capitation rate for each 
MedicarePlus payment area for the year, and (ii) the risk and 
other factors to be used in adjusting such rates for payments 
for months in that year. 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.
    c. Calculation of Annual MedicarePlus Capitation Rates. The 
annual MedicarePlus capitation rate, for a payment area (for a 
contract for a calendar year) would be equal to the greatest of 
the following:
    (A) A blended capitation rate, defined as the sum of:
          (1) the area-specific percentage (as defined below) 
        of the annual area-specific MedicarePlus capitation 
        rate for the year for the payment area, and
          (2) the national percentage (as defined below) of the 
        input-price adjusted annual national MedicarePlus 
        capitation rate for the year. (This sum is multiplied 
        by the budget neutrality adjustment factors (described 
        below);
    (B) A minimum (i.e. ``floor'') monthly payment amount set 
at $350 for 1998 (but not to exceed, in the case of an area 
outside the 50 states and the District of Columbia, 150% of the 
1997 AAPCC). For a subsequent year, this payment amount would 
be increased by the national per capita MedicarePlus growth 
percentage for that year.
    (C) A minimum percentage increase. In 1998, the payment 
area would receive a rate that is 102% of its 1997 AAPCC. For a 
subsequent year, it would be 102% of the annual MedicarePlus 
capitation rate for the previous year.
    There are four elements in the blended capitation rate 
referred to in ``A'' above: First, the area-specific and 
national percentages are as follows:
          1998--the area-specific percentage is 90% and the 
        national percentage is 10%.
          1999--the area-specific percentage is 80% and the 
        national percentage is 20%.
          2000--the area-specific percentage is 70% and the 
        national percentage is 30%
          2001--the area-specific percentage is 60% and the 
        national percentage is 40%
          After 2001-- the area-specific percentage is 50% and 
        the national percentage is 50%.
    Second, the annual area-specific MedicarePlus capitation 
rate for a MedicarePlus payment area would be:
          For 1998-- the annual per capita rate of payment for 
        1997 (as determined under the current law calculation 
        to derive the AAPCC), increased by the national average 
        per capita growth percentage for 1998 (as defined 
        below), or
          For a subsequent year--the annual area-specific 
        MedicarePlus capitation rate for the previous year, 
        increased by the national per capita MedicarePlus 
        growth percentage for such subsequent year.
    Third, the input-price-adjusted annual national 
MedicarePlus capitation rate for a MedicarePlus payment area 
for a year would be equal to the sum, for all types of Medicare 
services, of the product of three amounts: (i) the national 
standardized annual MedicarePlus capitation rate for the year 
(defined as the weighted average of area-specific MedicarePlus 
capitation rates), (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 service) 
the relative input price of such services in the area as 
compared to the national average input price of such services. 
(In applying (iii), the Secretary would use those indices that 
are used in applying (or updating) national payment rates for 
specific areas and localities.) Special rules specified in the 
provision would apply for 1998 (and optionally for 1999) in 
providing for the input price adjustment.
    Fourth, in calculating the payment rates, the Secretary 
would be required to apply a budget neutrality adjustment to 
the blended rate payments. This adjustment would ensure that 
the aggregate of payments equals that which would have been 
made if the payment was based on 100% of the area-specific 
MedicarePlus capitation rates for each payment area. In doing 
this, the budget neutral amount for each county would be equal 
to the sum of the area-specific rates used to compute the 
blended rates multiplied by the product of the update factor 
and the number of enrollees in that county.
    With respect to the blended and the minimum payment rate 
categories described in ``A'' and ``B'' above, the national per 
capita MedicarePlus growth percentage is the percentage 
determined by the Secretary, by April 30th before the beginning 
of the year involved, to reflect the Secretary's estimate of 
the projected per capita rate of growth in expenditures under 
Medicare parts A and B, reduced by 0.5 percentage points for 
1998-2002, and by 0 percentage points for years thereafter. 
Separate determinations would have to be made for aged 
enrollees, disabled enrollees, and enrollees with ESRD. The 
percentage adjustment would have to reflect an adjustment for 
over or under projecting in the growth percentage for previous 
years.
    d. MedicarePlus Payment Area. The provision defines a 
MedicarePlus payment area as a county or equivalent area 
specified by the Secretary. In the case of individuals 
determined to have ESRD, the MedicarePlus payment area would be 
each state, or other payment areas as the Secretary specifies.
    Upon request of a state for a contract year (beginning 
after 1998) made at least 7 months before the beginning of the 
year, the Secretary would redefine MedicarePlus payment areas 
in the state to: (1) a single statewide MedicarePlus payment 
area; (2) a metropolitan system (described in the provision); 
or (3) a single MedicarePlus payment area consolidating 
noncontiguous counties (or equivalent areas) within a state. 
This adjustment would be effective for payments for months 
beginning with January of the year following the year in which 
the request was received. The Secretary would be required to 
make an adjustment to payment areas in the state to ensure 
budget neutrality.
    e. Special Rules for Individuals Electing MSA Plans. If the 
monthly premium for an MSA plan for a MedicarePlus payment area 
was less than \1/12\ of the annual MedicarePlus capitation rate 
for the area and year involved, the Secretary would deposit the 
difference in a MedicarePlus MSA established by the individual. 
No payment would be made unless the individual had established 
the MedicarePlus MSA before the beginning of the month or by 
such other deadline the Secretary specifies. If the individual 
had more than one account, he or she would designate one to the 
receive the payment. The payment for the first month for which 
a MSA plan was effective for a year would also include amounts 
for successive months in the year. For cases when an MSA 
election was terminated before the end of the year, the 
Secretary would establish a procedure to recover deposits 
attributable to the remaining months.
    f. Payments from Trust Funds. Payments to MedicarePlus 
organizations and payments to MedicarePlus MSAs, 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 Medicare's actuarial 
value of the total benefits.
    g. Special Rule for Certain Inpatient Hospital Stays. In 
the case of an individual receiving inpatient hospital services 
from a hospital covered under Medicare's prospective payment 
system as of the effective date of the (1) individual's 
election of a MedicarePlus plan: (a) payment for such services 
until the date of the individual's discharge would be made as 
if the individual did not elect coverage under the MedicarePlus 
plan; (b) the elected organization would not be financially 
responsible for payment for such services until the date of the 
individual's discharge; and (c) the organization would 
nevertheless be paid the full amount otherwise payable to the 
organization; or (2) termination of enrollment with a 
MedicarePlus organization: (a) the organization would be 
financially responsible for payment for such services after the 
date of termination and until the date of discharge; (b) 
payment for such services during the stay would not be made 
under Medicare's PPS system; and (c) the terminated 
organization would not receive any payment with respect to the 
individual during the period in which the individual was not 
enrolled.
    Reason for change. The current methodology for calculating 
capitation payments for managed care plans under the Medicare 
program has resulted in 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 tend to be lower in 
rural areas and are excessive in certain urban areas, relative 
to what is necessary to encourage or induce private plans to 
participate in these markets.
    The Committee believes that it is important to take steps 
to narrow these differences over a several year transition 
period. Contribution levels for each area are 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.
    The Committee is also very concerned about the inadequacy 
of Medicare's current risk adjustment methods and feels that 
the first step to improving risk adjustment is to collect 
additional clinical and financial data from managed care plans. 
Therefore, the Secretary is instructed to collect these data 
and to develop a risk adjuster that more adequately reflects 
the variation in health status among beneficiaries.
    Effective date. These provisions are effective upon 
enactment and would be applied for contracting periods 
beginning on or after January 1, 1998.
            New section 1854. Premiums
    Current Law. Section 1876 provides for requirements 
relating to benefits, payments to the plans by Medicare, and 
payments to the plans by beneficiaries. 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 reserve days for 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.
    Explanation of Provision. The provision creates a new 
section 1854 specifying requirements for the determination of 
premiums charged by MedicarePlus organizations to MedicarePlus 
enrollees.
    a. Submission and Charging of Premiums. Each MedicarePlus 
organization would be required annually to file with the 
Secretary the amount of the monthly premium for coverage under 
each of the plans it would be offering in each payment area, 
and the enrollment capacity in relation to the plan in each 
such area.
    b. Net Monthly Premium. The monthly premium charged for a 
plan offered in a payment area would equal \1/12\ of the amount 
(if any) by which the premium exceeded the MedicarePlus 
capitation rate.
    c. Uniform Premium. Premiums could not vary among 
individuals who resided in the same payment area.
    d. Terms and Conditions of Imposing Premiums. Each 
MedicarePlus organization would have to permit monthly payment 
of premiums. An organization could terminate election of 
individuals for a MedicarePlus plan for failure to make premium 
payments but only under specified conditions. A MedicarePlus 
organization could not provide for cash or other monetary 
rebates as an inducement for enrollment or otherwise.
    e. Limitation on Enrollee Cost-Sharing. In no case could 
the actuarial value of the deductibles, coinsurance, and 
copayments applicable on average to individuals enrolled with a 
MedicarePlus plan with respect to required benefits exceed the 
actuarial value of the premium rate, deductibles, coinsurance, 
and copayments applicable in Medicare FFS. This provision would 
not apply to an MSA plan. If the Secretary determined that 
adequate data were not available to determine the actuarial 
value of the cost-sharing elements of the plan, the Secretary 
could determine the amount.
    f. Requirement for Additional Benefits. The extent to which 
a MedicarePlus plan (other than a MSA plan) would have to 
provide additional benefits would depend on whether the plan's 
adjusted community rate (ACR) was lower than its average 
capitation payments. The ACR would mean, at the election of the 
MedicarePlus organization, either: (i) the rate of payment for 
services which the Secretary annually determined would apply to 
the individuals electing a MedicarePlus plan if the payment 
were determined under a community rating system, or (ii) 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 (during a 
transition period) or based on the costs incurred by the 
organization in providing such a plan.
    If the actuarial value of the benefits under the 
MedicarePlus plan (as determined based upon the ACR) for 
individuals was less than the average of the capitation 
payments made to the organization for the plan at the beginning 
of a contract year, the organization would have to provide 
additional benefits in a value which was at least as much as 
the amount by which the capitation payment exceeded the ACR. 
These benefits would have to be uniform for all enrollees in a 
plan area. (The excess amount could, however, be lower if the 
organization elected to withhold some of it for a 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.
    g. Periodic Auditing. The Secretary would be required to 
provide annually for the auditing of the financial records 
(including data relating to utilization and computation of the 
ACR) of at least one-third of the MedicarePlus organizations 
offering MedicarePlus plans. The General Accounting Office 
would be required to monitor such auditing activities.
    h. Prohibition of State Imposition of Premium Taxes. No 
state could impose a premium tax or similar tax on the premiums 
of MedicarePlus plans or the offering of such plans.
    Reason for Change. The Committee believes it is important 
to continue to allow beneficiaries to share in the efficiency 
gains of private managed care plans by receiving extra 
benefits. To assure that these benefits are provided at the 
appropriate levels, the Secretary is instructed to perform 
periodic auditing of the financial records of the MedicarePlus 
organizations.
    Because States may not impose taxes on the traditional 
Medicare fee-for-service program, the Committee believes it is 
appropriate to limit the imposition of State premium taxes and 
similar premium charges on MedicarePlus plans. A similar rule 
applies to health plans offered to federal government employees 
and dependents through the FEHBP.
            New section 1855. Organizational and financial requirements 
                    for MedicarePlus organizations; provider-sponsored 
                    organizations
    Current 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 a competitive medical plan (CMP) which is an 
organization that meets specified requirements (it provides 
physician, inpatient, laboratory, and other services, and 
provides 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 otherinsurance 
for catastrophic and other specified costs; and (5) the entity has made 
adequate protection against the risk of insolvency.
    Provider Sponsored Organizations (PSOs) that are not 
organized under the laws of a state and are neither a federally 
qualified HMO or CMP are not eligible to contract with Medicare 
under the risk contract program. A PSO is a term generally used 
to describe a cooperative venture of a group of providers who 
control its health service delivery and financial arrangements.
    Explanation of Provision. The provision adds a new section 
1855 to the Social Security Act providing organizational and 
financial requirements for MedicarePlus organizations, 
including PSOs.
    a. Organized and Licensed under State Law. In general, a 
MedicarePlus organization would have to be organized and 
licensed under state law as a risk-bearing entity eligible to 
offer health insurance or health benefits coverage in each 
state in which it offers a MedicarePlus plan. Special rules 
would apply for PSOs. In general, a PSO seeking to offer a 
MedicarePlus plan could apply to the Secretary for a waiver of 
the state licensing requirement. The Secretary would be 
required to grant or deny a waiver application within 60 days 
of a completed application.
    The Secretary would grant a waiver of the state licensing 
requirement for an organization that is a PSO if the Secretary 
determined that: (i) the state had failed to substantially 
complete action on a licensing application within 90 days of 
the receipt of a completed application (not including any 
period before the date of enactment), or (ii) the state denied 
such a licensing application and (a) the state had imposed 
documentation or information requirements not related to 
solvency requirements that are not generally applicable to 
other entities engaged in substantially similar business, or 
(b) the state's standards or review process imposed any 
material requirements, procedures, or standards (other than 
requirements relating to solvency) on such organizations that 
were not generally applicable to other entities engaged in 
substantially similar business; or (iii) the state used its own 
solvency requirements which were not the same as the federal 
requirements to deny the licensing application, or the state 
had imposed as a condition of licensure approval any 
documentation requirements relating to solvency or other 
material requirements, procedures, or standards that were 
different from the requirements, procedures, or standards 
applied by the Secretary.
    In the case of a waiver granted under this paragraph for a 
PSO: (i) the waiver would be effective for a 36-month period, 
except it could be renewed based on a subsequent application 
filed during the last 6 months of such period; and (ii) any 
provision of State law related to the licensing of the 
organization which prohibited the organization from providing 
coverage pursuant to a MedicarePlus contract would be 
preempted. Waivers could be renewed more than once.
    This requirement would not apply to a MedicarePlus 
organization in a state if the state required the organization, 
as a condition of licensure, to offer any plan other than a 
MedicarePlus plan. The fact that an organization was licensed 
under state law would not substitute for or constitute 
certification.
    b. 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.
    c. Assumption of Full Financial Risk. The MedicarePlus 
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 costs in excess of 
$5,000, services needing to be provided other than through the 
organization; and obtain insurance or make other arrangements 
for not more than 90 percent of the amount by which its fiscal 
year costs exceed 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.
    d. Certification of Provision Against Risk of Insolvency 
for Unlicensed PSOs. Each MedicarePlus PSO that is not licensed 
by a state and for which a waiver of state law has been 
approved by the Secretary would be required to meet federal 
financial solvency and capital adequacy standards (see new 
section 1856 as described below). These standards would have to 
ensure that enrollees would not be held financially liable in 
the event of a plan sponsor's insolvency. The Secretary would 
be required to establish a process for the receipt and approval 
of applications of entities for certification (and periodic 
recertification) of a PSO as meeting the federal solvency 
standards. The Secretary would be required to act upon the 
PSO's certification application within 60 days of its receipt.
    e. Provider-Sponsored Organization (PSO) Defined. A PSO is 
a public or private entity that is a provider or group of 
affiliated providers that provides a substantial portion of the 
required services under the contract directly through the 
provider or affiliated group of providers, and with respect to 
those affiliated providers that share, directly or indirectly, 
substantial financial risk, have at least a majority interest 
in the entity. 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 required services in order to assure financial stability and 
other factors. ``Affiliation,'' ``control,'' and ``health care 
provider'' are specifically defined. The Secretary would be 
required to issue regulations to carry out this provision.
    Reason for Change. This provision is intended to increase 
available MedicarePlus plan options by creating a mechanism to 
remove regulatory obstacles to the development of health plans 
organized and offered to beneficiaries directly by health care 
providers. Since certain states currently do not recognize in 
their regulatory processes the advantageous and unique features 
of PSOs, the provision would authorize the waiver of State 
licensing requirements and provide Federal certification of 
PSOs under certain circumstances.
    Effective Date. Unless otherwise provided, the provision is 
generally effective January 1, 1999.
            New section 1856. Establishment of standards; certification 
                    of organizations and plans
    Current 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 Provider Sponsored Organizations 
(PSOs).
    Explanation of Provision. The provision would add a new 
section 1856 providing for the establishment of federal 
standards for MedicarePlus plans, including solvency standards 
for PSOs.
    a. Establishment of Solvency Standards for PSOs. The 
provision would require the Secretary of HHS to establish, on 
an expedited basis and using a negotiated rule-making process, 
final standards related to financial solvency and capital 
adequacy of organizations seeking to qualify as PSOs. The 
target date for publication of the resulting rules would be 
April 1, 1998. The Secretary would be required to consult with 
interested parties and to take into account: (i) the delivery 
system assets of such an organization and ability of it to 
provide services directly to enrollees through affiliated 
providers, and (ii) alternative means of protection against 
insolvency, including reinsurance, unrestricted surplus, 
letters of credit, guarantees, organizational insurance 
coverage, etc. The negotiated rule-making committee would be 
appointed by the Secretary. If the committee reported by 
January 1, 1998 that it had failed to make significant progress 
towards consensus or was unlikely to reach consensus by a 
target date, the Secretary could terminate the process and 
provide for the publication of a rule. If the committee was not 
terminated, it would have to report with the proposed rule by 
March 1, 1998. The Secretary would then publish the rule on a 
final, interim basis, but it would be subject to change after 
public notice and comment. In connection with the rule, the 
Secretary would specify the process for timely review and 
approval of applications of entities to be certified as PSOs 
consistent with this subsection. The Secretary would be 
required to provide for consideration of such comments and 
republication of the rule within one year of its publication.
    b. Establishment of Other Standards. The Secretary would be 
required to establish by regulation other standards (not 
included in (a)) for MedicarePlus organizations and plans 
consistent with, and to carry out, this part. By June 1, 1998, 
the Secretary would be required to issue interim standards 
based on currently applicable standards for Medicare HMOs/CMPs. 
The new standards established under this provision would 
supersede any state law or regulation with respect to 
MedicarePlus plans offered by Medicare contractors to the 
extent that such state law or regulations was inconsistent with 
such standards.
    Reason for Change. Because the Committee believes that some 
States will not approve licenses for PSOs, the provision would 
authorize the development of federal solvency standards to be 
used by the Secretary to determine whether to certify PSOs in 
certain circumstances where the Secretary has determined that 
State licensing requirements should be waived. In developing 
solvency standards under this section through the negotiated 
rulemaking process, the Committee intends for the Secretary to 
consider the risk-based capital model recently developed by the 
National Association of Insurance Commissioners.
    Standards developed under this provision relating to 
requirements for certification other than solvency would apply 
to all MedicarePlus plans. Because of the breadth of the 
requirements in the legislation relating to MedicarePlus plans, 
the Committee believes it would be extremely difficult to craft 
an individual rule regarding preemption for each of these 
requirements, or to anticipate the myriad of interactions of 
such requirements with 50 different State laws.
    Therefore, the provision contained in the legislation 
preempting State laws and regulations that are inconsistent 
with the requirements of the Act provides a functional standard 
that would be subject to case-by-case determinations. In 
applying this standard, fact-finders should be guided primarily 
by the Committee's intent with respect to these provisions of 
the Act. The Committee intended for the requirements relating 
to MedicarePlus plans to accomplish two primary goals: (1) to 
encourage the development of a broad array of private health 
plan choices for beneficiaries; and (2) to ensure that 
beneficiaries choosing to enroll in such plans have protections 
available to ensure that they receive medically necessary and 
appropriate care in a timely manner.
    The Committee did not intend to preempt the entire field of 
State regulation relating to standards for MedicarePlus plans. 
On the other hand, the Committee did not intend to save all 
State laws. Therefore, State laws are not preempted simply 
because they differ from the standards relating to MedicarePlus 
plans outlined in this provision or because they impose 
additional requirements on such plans. However, State laws 
which would interfere with the application of these federal 
standards or would be inconsistent with the Committee's intent 
to make a broad array of private health plans available to 
beneficiaries, or to protect those beneficiaries, would be 
preempted.
     Effective Date. Unless otherwise provided, the provision 
is generally effective upon enactment.
            New section 1857. Contracts with MedicarePlus organizations
    Current 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, 
carries out the contract in a manner inconsistent with the 
efficient and effective administration of Medicare HMO law, or 
no longer meets therequirements specified for Medicare HMOs. 
The Secretary also has authority to impose 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 as a risk contractor, HMOs/CMPs generally 
must have at least 5,000 members. However, if HMOs/CMPs 
primarily serve members outside urbanized areas, they may have 
fewer members (regulations specify at least 1,500). 
Organizations eligible for Medicare cost contracts also may 
have fewer than 5,000 members (regulations specify 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 
doing 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. The provision establishes a new 
section 1857 specifying requirements for organizations to 
become MedicarePlus contractors with the Medicare program.
    a. In General. The Secretary would not permit the election 
of a MedicarePlus plan and no payment would be made to an 
organization unless the Secretary had entered into a contract 
with the organization with respect to the plan. A contract with 
an organization could cover more than one MedicarePlus plan. 
Contracts would provide that organizations agree to comply with 
applicable requirements and standards.
    b. Minimum Enrollment Requirements. The Secretary would be 
prohibited from entering into a contract with a MedicarePlus 
organization 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 (as 
established in new section 1856 described above) 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. These lower 
minimum enrollment requirements relating to PSOs are effective 
January 1, 1998. In addition, the Secretary could waive this 
requirement during an organization's first 3 contract years. 
Minimum enrollment requirements would not apply to a contract 
that related only to an MSA plan.
    c. Contract Period and Effectiveness. Contracts would be 
for at least one year, and could be made automatically 
renewable in the absence of notice by either party of intention 
to terminate. The Secretary could terminate a contract at any 
time or impose intermediate sanctions described below if the 
Secretary determined that the organization: (i) had failed 
substantially to carry out the contract; (ii) was carrying it 
out in a manner substantially inconsistent with the efficient 
and effective administration of MedicarePlus; or (iii) no 
longer substantially met MedicarePlus conditions. Contracts 
would specify their effective date, but contracts providing 
coverage under an MSA plan could not take effect before January 
1999. The Secretary would not contract with an organization 
that had terminated its MedicarePlus contract within the 
previous 5 years, except in special circumstances as determined 
by the Secretary. The authority of the Secretary with respect 
to MedicarePlus plans could be performed without regard to laws 
or regulations relating to contracts of the United States that 
the Secretary determined were inconsistent with the purposes of 
Medicare.
    d. Protections Against Fraud and Beneficiary Protections. 
Contracts would provide that the Secretary would have the right 
to inspect or otherwise evaluate the quality, appropriateness 
and timeliness of services, as well as the organization's 
facilities if there were reasonable evidence of need for such 
inspection; in addition, the Secretary would have the right to 
audit and inspect any books and records that pertain either to 
the ability of the organization to bear the risk of potential 
financial loss or to services performed or determinations of 
amounts payable under the contract. Contracts would also 
require the organization to provide and pay for advance written 
notice to each enrollee of a termination, along with a 
description of alternatives for obtaining benefits. They would 
also require that organizations notify the Secretary of loans 
and other special financial arrangements made with 
subcontractors, affiliates, and related parties.
    MedicarePlus organizations would be required to report 
financial information to the Secretary, including information 
demonstrating that the organization was fiscally sound, a copy 
of the financial report filed with HCFA containing information 
required under section 1124 of the Social Security Act, and a 
description of transactions between the organization and 
parties in interest. These transactions would include: (i) any 
sale, exchange, or leasing of property; (ii) any furnishing for 
consideration of goods, services, and facilities (but generally 
not including employees' salaries or health services provided 
to members); and (iii) any lending of money or other extension 
of credit. Financial information would be available to 
enrollees upon reasonable request. Consolidated financial 
statements could be required when the organization controls, is 
controlled by, or is under common control with another entity.
    With respect to financial information, the term ``party in 
interest'' means: (i) any director, officer, partner, or 
employee responsible for management or administration of a 
MedicarePlusorganization; any person who directly or indirectly 
is a beneficial owner of more than 5 percent of its equity; 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 nonprofit MedicarePlus organization, 
an incorporator or member of such corporation; (ii) any entity in which 
a person described in (i) is an officer or director; a partner; has 
directly or indirectly a beneficial interest in more than 5 percent of 
the equity; or has a mortgage, deed of trust, note, or other interest 
valuing more than 5 percent of the assets of the 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 (i).
    e. Additional Contract Terms. Contracts would contain other 
terms and conditions (including requirements for information) 
as the Secretary found necessary and appropriate. Contracts 
would require payments to the Secretary for the organization's 
pro rata share of the estimated costs to be incurred by the 
Secretary relating to enrollment and dissemination of 
information. These payments would be appropriated to defray 
such costs and would remain available until expended. If a 
contract with a MedicarePlus organization was terminated, the 
organization would notify each enrollee.
    f. Prompt Payment by MedicarePlus Organization. Contracts 
would require a MedicarePlus organization to provide prompt 
payment of claims submitted for services and supplies furnished 
to individuals pursuant to the contract, if they are not 
furnished under a contract between the organization and the 
provider or supplier. If the Secretary determined (after notice 
and opportunity for a hearing) that the organization had failed 
to pay claims promptly, the Secretary could provide for direct 
payment of the amounts owed providers and suppliers. In these 
cases, the Secretary would reduce MedicarePlus payments 
otherwise made to the organization to reflect the amount of the 
payments and the Secretary's cost in making them.
    g. Intermediate Sanctions. The Secretary would be 
authorized to carry out specific remedies in the event that a 
MedicarePlus organization: (i) 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; (ii) imposed 
net monthly premiums on individuals that were in excess of the 
net monthly premiums permitted; (iii) acted to expel or refused 
to re-enroll an individual in violation of MedicarePlus 
requirements; (iv) engaged in any practice that would 
reasonably be expected to have the effect of denying or 
discouraging enrollment (except as permitted by MedicarePlus) 
of eligible individuals whose medical condition or history 
indicates a need for substantial future medical services; (v) 
misrepresented or falsified information to the Secretary or 
others; (vi) failed to comply with rules regarding physician 
participation; or (vii) employed or contracted with any 
individual or entity that was excluded from participation in 
Medicare under section 1128 or 1128A of the Social Security Act 
(relating to sanctions for program violations) for the 
provision of health care, utilization review, medical social 
work, or administrative services, or employed or contracted 
with any entity for the provision (directly or indirectly) 
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 described 
above or not more than $100,000 with respect to misrepresenting 
information furnished to the Secretary or denying enrollment to 
persons with a preexisting medical condition. In cases of the 
latter failure, the Secretary could also levy a $15,000 fine 
for each individual not enrolled. In cases of excess premium 
charges, 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 for them after notifying the 
organization of an adverse determination, until the Secretary 
was satisfied that the failure had been corrected and would not 
likely recur.
    Other intermediate sanctions could be imposed if the 
Secretary determined that a failure had occurred other than 
those described above. These include: (i) 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; (ii) civil money penalties of not 
more $10,000 for each week after the Secretary initiated 
procedures for imposing sanctions; and (iii) suspension of 
enrollment until the Secretary is satisfied the deficiency had 
been corrected and would not likely recur.
    h. Procedures for Imposing Sanctions. The Secretary could 
terminate a contract or impose the sanctions described above in 
accordance with formal investigation and compliance procedures 
under which (i) the Secretary provides the organization with an 
opportunity to develop and implement a corrective action plan, 
(ii) the Secretary imposes more severe sanctions on 
organizations that have a history of deficiencies or have not 
taken steps to correct those the Secretary brought to their 
attention, (iii) there are no unreasonable or unnecessary 
delays between finding a deficiency and imposing sanctions, and 
(iv) the Secretary provides reasonable notice and opportunity 
for a hearing, including the right to appeal an initial 
decision, before imposing any sanction or terminating the 
contract. The provisions of section 1128A (other than 
subsections (a) and (b)) would apply to a civil money penalty 
in the same manner as they apply to a civil money penalty or 
proceeding under that section.
    Reason for Change. The contracting and sanction provisions 
in this section of the Act were intended to largely mirror 
existing requirements applicable to Medicare risk plans. One 
major change from existing law is the modification of the 
minimum enrollment requirements, effective on January 1, 1998, 
for PSOs. This modification was intended to reduce barriers to 
the formation of PSOs and to help make PSOs available to 
Medicare beneficiaries as soon as possible.
    Effective Date. The provision is generally effective 
January 1, 1999. However, the enrollment requirements relating 
to PSOs are effective January 1, 1998.
            New section 1859. Definitions and miscellaneous provisions
    Current Law. No provision.
    Explanation of Provision. The provision establishes a new 
section 1859 including definitions and other provisions.
    Definition of MedicarePlus Organization. A MedicarePlus 
organization is a public or private entity that is certified 
under section 1856 as meeting the MedicarePlus requirements and 
standards for such an organization (described above).
    Definition of MedicarePlus Plan. A MedicarePlus plan is 
health benefits coverage offered under a policy, contract, or 
plan by a MedicarePlus organization pursuant to and in 
accordance with a contract under section 1857 (described 
above).
    Definition of MSA Plan. A MSA plan is a MedicarePlus plan 
that (i) provides reimbursement for at least the items and 
services for which benefits are available under Medicare parts 
A and B to individuals residing in the area served by the plan 
and additional health services the Secretary may approve, but 
only after the enrollee incurs countable expenses (as specified 
in the plan) equal to the amount of the annual deductible; (ii) 
counts as such expenses at least all amounts that would have 
been payable under parts A and B or by the enrollee as 
deductibles, coinsurance, or copayments if the enrollee had 
elected to receive benefits through those parts; and (iii) 
provides, after the deductible is met for a year (and for all 
subsequent expenses referred to in (i) in the year) for a level 
of reimbursement that is not less than the lesser of (A) 100 
percent of such expenses, or (B) 100 percent of the amount that 
would have been paid (without regard to any deductibles or 
coinsurance) under Medicare parts A and B. For contract year 
1999, the annual deductible under a MSA plan could not be more 
than $6,000. For a subsequent contract year, the annual 
deductible could not be more than the maximum amount for the 
previous contract year increased by the national per capita 
MedicarePlus growth percentage and rounded to the nearest 
multiple of $50.
    Coordinated Acute and Long-Term Care Benefits under a 
MedicarePlus Plan. A state would not be prevented from 
coordinating benefits under a Medicaid plan and a MedicarePlus 
plan in a manner that assures continuity of a full range of 
acute care and long-term care services to poor elderly or 
disabled individuals eligible for Medicare benefits under a 
MedicarePlus plan.
    Restrictions on Enrollment for Certain MedicarePlus Plans. 
A MedicarePlus religious fraternal benefit society plan could 
restrict enrollment to individuals who are members of the 
church, convention, or group with which the society is 
affiliated. A MedicarePlus religious fraternal benefit society 
plan would be a MedicarePlus plan that (i) is offered by a 
religious fraternal benefit society only to members of the 
church, convention, or affiliated group, and (ii) permits all 
members to enroll without regard to health status-related 
factors. This provision could not be construed as waiving plan 
requirements for financial solvency. In developing solvency 
standards, the Secretary would take into account open contract 
and assessment features characteristic of fraternal insurance 
certificates. Under regulations, the Secretary would provide 
for adjustments to payment amounts under section 1854 to assure 
an appropriate payment level, taking account of the actuarial 
characteristics of the individuals enrolled in such a plan.
    A religious fraternal benefit society is an organization 
that (i) is exempt from Federal income taxation under section 
501(c)(8) of the Internal Revenue Code; (ii) is affiliated 
with, carries out the tenets of, and shares a religious bond 
with, a church or convention or association of churches or an 
affiliated group of churches; (iii) offers, in addition to a 
MedicarePlus religious fraternal benefit society plan, at least 
the same level of health coverage to individuals entitled to 
Medicare benefits who are members of such church, convention, 
or group; and (iv) does not impose any limitation on membership 
in the society based on any health status-related factor.
    Reports. (1) The Secretary would provide for a study on the 
feasibility and impact of removing the restriction on 
beneficiaries with end-stage renal disease from enrolling in a 
MSA MedicarePlus plan. No later than October 1, 1998, the 
Secretary would submit to Congress a report on this study and 
include recommendations regarding removing or restricting the 
limitation as may be appropriate. (2) No later than October 1, 
1999, the Secretary would submit to Congress a report on the 
extent to which MedicarePlus organizations are providing 
payments to disproportionate share hospitals and teaching 
hospitals. The report would be based on information provided to 
the Secretary under section 1852(k) and other information, such 
as hospital claims data, the Secretary obtains.
    Reason for Change. This provision contains definitions and 
other provisions necessary to ensure expanded health plan 
choices for Medicare beneficiaries.
    The Committee included two reports by the Secretary. The 
first addresses the end stage renal disease population. The 
Committee believes that it was important to examine the special 
needs of individuals with ERSD and the impact of allowing them 
to enroll in MedicarePlus plans. In particular, the Committee 
would like the Secretary to examine whether it is appropriate 
to have a special set of requirements for plans that want to 
enroll these beneficiaries. Specific requirements might include 
certain personnel requirements (nephrologists, nephrology 
nurses, and renal nutritionists), evidence of access to 
dialysis facilities, and evidence of a contract or agreement 
with at least one transplant provider. In addition, the 
Committee is very concerned by the MedicarePlus payment rate 
that combines four very different types of patients into a 
single State-wide rate. These groups are: (1) patients who are 
unable to receive a transplant and receive dialysis services, 
(2) pre-transplant dialysis patients, (3) transplant patients, 
and (4) those who have received a transplant and are receiving 
immunosuppresive agents. The Committee would like the Secretary 
to develop a more refined method for determining payment rates 
for ESRD beneficiaries.
    The Committee also believes that it is important to review 
the inclusion of Medicare teaching and disproportionate share 
hospital payments in the calculation of the MedicarePlusrates. 
There currently is limited data regarding the use of both teaching and 
disproportionate share hospitals by TEFRA risk plan enrollees or the 
rates health plans pay those hospitals. By collecting data regarding 
the use of these hospitals and the graduate medical programs operated 
by or in cooperation with health plans, the Secretary will be able to 
determine the extent to which health plans are using Medicare special 
payments included in their rates to fund these activities that Medicare 
subsidizes through its prospective payment system for fee for service 
Medicare beneficiaries. In addition, this information may provide 
evidence as to whether or not the Medicare program should redefine the 
settings in which it pays for the costs of these activities.

Section 10002. Transitional rules for current Medicare HMO program

    Current Law. No provision for transition rules. Current law 
requires that to be a risk contractor, no more than 50 percent 
of the organization's enrollees may be Medicare or Medicaid 
beneficiaries. The 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.
    Explanation of Provision. Effective for contract periods 
beginning after December 31, 1996, the Secretary could waive or 
modify the 50:50 rule to the extent the Secretary finds the 
waiver is in the public interest.
    The Secretary would be prohibited from entering into, 
renewing, or continuing any risk-sharing contract under section 
1876 for any contract year beginning on or after the date 
MedicarePlus standards are first established for MedicarePlus 
organizations that are insurers or HMOs. If the organization 
had a contract in effect on that date, the prohibition would be 
effective one year later. The Secretary could not enter into, 
renew, or continue a risk-sharing contract for any contract 
year beginning on or after January 1, 2000. An individual who 
is enrolled in Medicare part B only and also in an organization 
with a risk-sharing contract on December 31, 1998 could 
continue enrollment in accordance with regulations issued not 
later than July 1, 1998.
    For individuals enrolled under both Medicare part A and 
part B, payments for risk-sharing contracts for months 
beginning with January 1998 would be computed by substituting 
the MedicarePlus payment rates specified in this bill. For 
individuals enrolled only under part B, the substitution would 
be based upon the proportion of those rates that reflects the 
proportion of payments under title XVIII of the Social Security 
Act (i.e., Medicare) attributable to part B. With respect to 
months in 1998, the Secretary would compute, announce, and 
apply the MedicarePlus payment rates in as timely manner as 
possible (notwithstanding deadlines in section 1853(a) as 
described above) and could provide for retroactive adjustments 
in risk-sharing contract payments not in accordance with those 
rates.
    An individual who is enrolled on December 31, 1998 with an 
organization having a section 1876 contract would be considered 
to be enrolled with that organization under MedicarePlus if the 
organization has a MedicarePlus contract for providing services 
on January 1, 1999, unless the individual had disenrolled 
effective that date.
    Hospitals would accept Medicare payment rates as payment in 
full for inpatient emergency services covered under Medicare 
that an out-of-plan provider furnishes enrollees in a 
MedicarePlus plan which does not have a contract establishing 
such payment amounts.
    Any reference in law in effect before the date of enactment 
of this legislation to part C of Medicare would be deemed a 
reference to part D as in effect after such date.
    Not later than 90 days after enactment of this legislation, 
the Secretary would submit to Congress a legislative proposal 
providing for technical and conforming amendments as the 
MedicarePlus provisions require.
    Required MedicarePlus organization contributions for costs 
related to enrollment and dissemination of information would 
apply to demonstrations if their enrollment were effected or 
coordinated under section 1851.
    In order to carry out the MedicarePlus provisions in a 
timely manner, the Secretary could (after notice and 
opportunity for public comment) promulgate regulations that 
take effect on an interim basis.
    Reason for Change. The Ways and Means Committee received 
testimony, including testimony during an April 17, 1997 hearing 
from the Chair of the Physician Payment Review Commission 
(PPRC), that the 50:50 rule is an arbitrary and outdated method 
for assuring health plan quality. Testimony at the hearing 
indicated in some instances, can be detrimental to 
beneficiaries. HCFA currently is collecting enhanced data on 
health plan quality, outcomes, and consumer satisfaction 
through measurement tools developed by the National Committee 
on Quality Assurance, the Foundation for Accountability, and 
others. In addition, the Act authorizes the collection of 
additional information relating to the quality of MedicarePlus 
plans. Therefore, Committee believes it was unnecessary to 
continue in effect the 50:50 rule after January 1, 1999. 
Between the date of enactment and January 1, 1999, the 
provision grants the Secretary broad authority to waive the 
50:50 rule when the public interest requires. The Committee 
expects that the Secretary would use this authority, among 
other things, to provide extensions of existing waivers. In 
particular, the Committee intends that the Secretary grant 
waivers to the Wellness Plan in Southeastern Michigan and the 
Watts Health Foundation providing care in medically-underserved 
inner city areas.

Section 10003. Changes in Medigap program

    Current law. Current law contains rules regarding the sale 
of Medicare supplement policies (generally referred to as 
``Medigap'' policies). Included are prohibitions governing the 
sale of duplicative policies and exceptions to the general 
prohibitions.
    Explanation of Provision. The provision would include 
conforming language to the duplication provisions for persons 
electing a MedicarePlus plan. Included in the general 
prohibitions would be a general prohibition against selling to 
a person electing a MedicarePlus plan a Medicare supplemental 
policy with the knowledge that it duplicated benefits to which 
the individual was otherwise entitled to under Medicare or 
another supplemental policy. The provision would further 
specify that a MedicarePlus policy is not included within the 
definition of a Medicare supplementary policy.
    The provision would prohibit the sale of certain policies 
to a person electing a high deductible plan. Specifically, the 
prohibition would apply to the sale of policies providing 
coverage for expenses that are otherwise required to be counted 
toward meeting the annual deductible amount provided under a 
medical savings account (MSA) plan.
    Reason for Change. The provision is necessary to conform 
existing law requirements relating to duplication to the 
MedicarePlus program.
    Effective Date. The provision generally would become 
effective January 1, 1999.

 Subchapter B. Special Rules for MedicarePlus Medical Savings Accounts

Section 10006. Description of taxation of MedicarePlus medical savings 
        accounts

    Current Law. Under present law, the value of Medicare 
coverage and benefits is not includable 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 (including expenses for 
insurance providing medical care) to the extent that the total 
of such expenses exceeds 7.5 percent of the taxpayer's adjusted 
gross income (``AGI'').
    Within limits, contributions to a medical savings account 
(``MSA'') are deductible in determining AGI if made by an 
eligible individual and are excludable from gross income and 
wages for employment tax purposes if made by the employer of an 
eligible individual.\1\ Individuals covered under Medicare are 
not eligible to have an MSA.
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    \1\ The number of MSAs which can be established is subject to a 
cap.
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    Earnings on amounts in an MSA are not currently includable 
in income. Distributions from an MSA for medical expenses of 
the MSA account holder and his or her spouse or dependents are 
not includable in income. For this purpose, medical expenses 
are defined as under the itemized deduction for medical 
expenses, except that medical expenses do not include any 
insurance premiums other than premiums for long-term care 
insurance, continuation coverage (so-called ``COBRA 
coverage''), or premiums for coverage while an individual is 
receiving unemployment compensation. Distributions not used for 
medical expenses are subject to an additional 15-percent tax 
unless the distribution is made after age 65, death, or 
disability.
    Under present law, there are no tax provisions for 
MedicarePlus medical savings accounts (``MedicarePlus MSAs'').
    Explanation of Provision. Under the bill, individuals who 
are eligible for Medicare are permitted to choose either the 
traditional Medicare program or a MedicarePlus MSA plan. To the 
extent an individual chooses such a plan, the Secretary of 
Health and Human Services makes a specified contribution 
directly into a MedicarePlus MSA designated by such individual. 
Only contributions by the Secretary of Health and Human 
Services can be made to a MedicarePlus MSA and such 
contributions are not included in the taxable income of the 
MedicarePlus MSA holder. Income earned on amounts held in a 
MedicarePlus MSA are not currently includable in taxable 
income. Withdrawals from a MedicarePlus MSA are excludable from 
taxable income if used for the qualified medical expenses of 
the MedicarePlus MSA holder. Withdrawals from a MedicarePlus 
MSA that are not used for the qualified medical expenses of the 
account holder are includable in income and may be subject to 
an additional tax (described below).
    Definition of MedicarePlus MSAs. In general, a MedicarePlus 
MSA is an MSA that is designated as MedicarePlus MSA and to 
which the only contributions that can be made are those by the 
Secretary of Health and Human Services.\2\ Thus, a MedicarePlus 
MSA is 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'').\3\ The trustee of a MedicarePlus MSA can 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 will administer the trust will be 
consistent with applicable requirements.
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    \2\ MedicarePlus MSAs are not taken into account for purposes of 
the cap on non-MedicarePlus MSAs, nor are they subject to that cap.
    \3\ 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 distrusted 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 the MedicarePlus MSA plan at the 
time of the distribution.\4\ Qualified medical expenses are 
defined as under the rules relating to the itemized deduction 
for medical expenses. However, for this purpose, qualified 
medical expenses would not include any insurance premiums other 
than premiums for long-term care insurance, continuation 
insurance (so-called ``COBRA coverage''), or premium for 
coverage while an individual is receiving unemployment 
compensation. Distributions from a MedicarePlus MSA that are 
excludable from gross income under the provision can not be 
taken into account for purposes of the itemized deduction for 
medical expenses.
---------------------------------------------------------------------------
    \4\ Under the provision, medical expenses of the account holder's 
spouse or dependents would not be treated as qualified medical 
expenses:
---------------------------------------------------------------------------
    Distributions for purposes other than qualified medical 
expenses are includable in taxable income. An additional tax of 
50 percent applies 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 does not apply to 
distributions on account of the disability or death of the 
account holder.
    Following is an example of how the amount available to be 
withdrawn from a MedicarePlus MSA without penalty is 
calculated.

------------------------------------------------------------------------
                                       Year 1   Year 2   Year 3   Year 4
------------------------------------------------------------------------
Deductible..........................    3,000    3,000    3,000    3,000
60 percent of deductible............    1,800    1,800    1,800    1,800
Contribution........................    1,300    1,300    1,300    1,300
Opening Account \1\.................    1,300    2,130    3,030    4,030
Withdrawals for medical expenses....      600      600      600      600
Closing Account.....................      830    1,730    2,730    3,830
Amount available for non-medical                                        
 withdrawal without penalties (4.-                                      
 2., or 0 if less than 0)...........        0      330    1,230    2,230
Interest Income.....................      130      200      300     400 
------------------------------------------------------------------------
\1\ Opening account is calculated by adding closing amount from prior   
  year to contribution amount for the year.                             

    Direct trustee-to-trustee transfers could be made from one 
MedicarePlus MSA to another MedicarePlus MSA without income 
inclusion.
    The provision 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 can 
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. If the beneficiary 
of a MedicarePlus MSA is not the account holder's spouse, the 
MedicarePlus MSA is no longer treated as a MedicarePlus MSA and 
the value of the MedicarePlus MSA on the account holder's date 
of death is included in the taxable income of the beneficiary 
for the taxable year in which the death occurred (under the 
rules applicable to MSAs generally). If the account holder 
fails to name a beneficiary, the value of the MedicarePlus MSA 
on the account holder's date of death is to be included in the 
taxable income of the account holder's final income tax return 
(under the rules applicable to MSAs generally).
    In all cases, the value of the MedicarePlus MSA is included 
in the account holder's gross estate for estate tax purposes.
    Reason for Change. The Committee believes that introduction 
of significant innovations from the private sector, coupled 
with the full transfer of responsibility for health care 
choices to enrollees who choose to participate in private 
sector health plans will be effective in tempering the growth 
of Medicare spending while providing opportunities for certain 
beneficiaries to improve upon the traditional government-
defined Medicare benefit package. In addition, the Committee 
believes that senior citizens should be provided with greater 
power over their own health care choices and expenses.
    Effective Date. The provision is effective with respect to 
taxable years beginning after December 31, 1998.

             Chapter 2.--Integrated Long-Term Care Programs

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

Section 10011-10014. Coverage of PACE under the Medicare Program

    Current Law. OBRA 86 required the Secretary to grant 
waivers of certain Medicare and Medicaid requirements to up to 
10 public or non-profit private community-based organizations 
to provide health and long-term care services on a capitated 
basis to frail elderly persons at risk of institutionalization. 
These projects, known as the Programs of All Inclusive Care for 
the Elderly, or PACE projects, were intended to determine 
whether an earlier demonstration program, On Lok, could be 
replicated across the country. OBRA 90 expanded the number of 
organizations eligible for waivers to 15.
    Explanation of Provision. The provision would establish 
PACE as a permanent benefit category eligible for coverage and 
reimbursement under the Medicare program and as an optional 
benefit under the Medicaid program. PACE providers would offer 
comprehensive health care services to eligible individuals in 
accordance with regulations and program agreements between the 
providers, the Secretary, and state administering agency. In 
general, PACE providers would be public or private nonprofit 
entities, except for entities (up to 10) participating in a 
demonstration to test the operation of a PACE program by 
private, for-profit entities.
    Eligible individuals would be 55 years of age or older 
requiring nursing facility level of care, reside in the service 
area of the program, and meet such other conditions as may be 
required under the program agreement. Enrollees would be 
required to receive all covered benefits through the program.
    Eligibility would be determined by the State agency 
responsible for administering PACE program agreements. An 
individual's health status would have to be comparable to that 
of persons who participate in the PACE demonstration. Enrollees 
would be reevaluated annually to determine continued 
qualification for nursing facility level of care, except where 
the State determines there would be no reasonable expectation 
of improvement or significant change in an individual's 
condition because of advanced age, severity of chronic 
condition or degree of impairment. A person could continue to 
be considered a PACE eligible individual, even though that 
person no longer requires nursing facility level of care, if in 
the absence of continued coverage, the individual reasonably 
would be expected to meet the requirement within the succeeding 
6-month period. Enrollment and disenrollment in a PACE program 
would be done according to regulation and enrollees would be 
permitted to voluntarily disenroll without cause at any time.
    At a minimum, a PACE provider would be required to provide 
to eligible persons, regardless of source of payment and 
directly or under contracts with other entities, all items and 
services covered under Medicare and Medicaid without any 
limitation as to amount, duration, or scope and without 
application of deductibles, copayments, coinsurance, or other 
cost-sharing provisions. PACE providers would be required to 
provide enrollees access to necessary covered items and 
services on a continuous basis, 24 hours per day, 365 days a 
year. Services would be provided through a comprehensive, 
multidisciplinary team that integrates acute and long-term care 
services. Providers also would specify covered items and 
services that would not be provided directly, and arrange for 
delivery of these services through contracts meeting regulatory 
requirements.
    Under the regulation, a provider would be required to have 
a written plan of quality assurance and improvement and 
implementing procedures as well as written safeguards of the 
enrollee rights.
    The Secretary would be required to make prospective monthly 
capitation payments for each PACE program enrollee in the same 
manner and from the same sources as payments are made to a 
MedicarePlus organization. The amount would be adjusted to take 
into account the comparative frailty of PACE enrollees and such 
other factors as the Secretary determines to be appropriate. 
The total payment level for all PACE program enrollees would be 
required to be less than the projected payment under Medicare 
for a comparable population not enrolled under PACE.
    The Secretary, in cooperation with the State agency, would 
establish procedures for entering into, extending, and 
terminating PACE agreements. The Secretary could not enter into 
more than 40 agreements (including those in effect as the 
result of demonstration waivers) as of enactment, and 20 
additional agreements upon each succeeding anniversary date 
(without regard to the actual number of agreements in effect as 
of a previous anniversary date). The numeric limitation would 
not apply to a provider operating under the for-profit 
demonstration or which subsequently qualifies for PACE provider 
status.
    A PACE agreement would designate its service area and could 
include additional eligibility requirements for individuals. 
The Secretary (in consultation with the State) could exclude an 
area already covered under another agreement, so as to avoid 
unnecessary duplication of services and/or impairing the 
financial and service viability of an existing program. 
Agreements would be effective for a year, and could be extended 
in the absence of notice to terminate, but would be subject to 
termination by the Secretary or the State at any time for 
cause.
    Under an agreement, providers would be required to collect 
and maintain data, provide the Secretary and State access to 
records relating to the program, including pertinent financial, 
medical and personnel records; and make reports to the 
Secretary and the State necessary to monitor operation, cost, 
and effectiveness. During a provider's first 3 years of 
operation, it would be required to provide such additional data 
as the Secretary might specify for comprehensive annual review. 
Subsequently, the Secretary would continue to conduct reviews 
of PACE providers as might be appropriate, to evaluate 
performance levels and compliance with regulations.
    During the 3-year period beginning with enactment, the 
Secretary would give priority, in processing applications to: 
(1) entities that are operating a PACE demonstration waiver 
program; and, (2) entities that applied to operate a program as 
of May 1, 1997. In awarding additional waivers under the 
original demonstration authority, the Secretary would also be 
required to give priority to entities which applied for waivers 
as of May 1, 1997, and to entities that as of May 1, 1997, have 
formally contracted with States to provide services on a 
capitation basis with an understanding that they were seeking 
to become PACE providers. The Secretary would give special 
consideration, in the processing of PACE applications for 
provider status and demonstration waivers, to entities which as 
of May 1, 1997, indicated through formal activities (such as 
entering into contracts for feasibility studies) a specific 
intent to become PACE providers. Repeal of waiver demonstration 
authority would not apply to waivers granted before the initial 
effective date of regulations. Repeals would apply to waivers 
granted before this date only after allowing organizations a 
transition period (of up to 24 months) in order to permit 
sufficient time for orderly transition from demonstration to 
general authority.
    The Secretary (in close consultation with States) would be 
required to conduct a study of the quality and cost of 
providing PACE services under Medicare and Medicaid. This study 
would specifically compare cost, quality, and access to 
services offered by private for-profit entities operating under 
the new demonstration described above with the costs, quality, 
and access to services of other PACE providers. The Secretary 
would report to Congress on findings of the study (including 
specific findings on private for-profit providers), together 
with any recommendations for changes, not later than 4 years 
after enactment. The Medicare Payment Evaluation Commission 
would include in its annual report to Congress recommendations 
on the methodology and level of payments made to PACE providers 
and on the treatment of private for-profit PACE providers.
    Reason for Change. Today, twelve PACE programs sponsored by 
public and nonprofit community-based organizations care for 
more than 3,300 frail older adults across the country who might 
otherwise be institutionalized. PACE programs enroll 
individuals and assume full financial risk for comprehensive 
benefits without limit as to dollars or duration. PACE programs 
focus only on the needs of frail elderly individuals eligible 
for both Medicare and Medicaid who have chronic illness(es) so 
severe as to qualify them for nursing facility levels of care. 
The frail elderly. Since the PACE demonstration was initially 
authorized by Congress in 1986, projects have proven they can 
effectively meet the needs of these beneficiaries through 
comprehensive, community-based active care designed to enhance 
independence and function as a substitute for high-cost 
institutional care.
    Analyses of PACE have found that the programs yield 
significant savings to the federal and state governments 
relative to their costs for comparable individuals not enrolled 
in PACE. Careful expansion of this proved program will make 
this high-quality, cost-effective alternative available to 
eligible elderly individuals throughout the country. The 
Committee believes that PACE should not necessarily be limited 
exclusively to public, nonprofit entities. However, since the 
complex mix of services offered under PACE has only been 
demonstrated by non-profit social welfare organizations, pilots 
are needed to determine how well for-profit entities can meet 
the needs of the frail elderly. The proposal would test the 
PACE program through a four-year demonstration of for-profit 
entities with full participation after the Secretary of Health 
and Human Services determines that quality of care remains high 
while Medicare costs have not increased.
    Effective date. The provision would be effective upon 
enactment.

     Subchapter B--Social Health Maintenance Organizations (SHMOs)

Section 10015. Social health maintenance organizations (SHMOs)

    Current Law. The Deficit Reduction Act of 1984 required the 
Secretary to grant 3-year waivers for demonstrations of social 
health maintenance organizations (SHMOs) which provide 
integrated health and long-term care services on a prepaid 
capitation basis. The waivers have been extended on several 
occasions since then and a second generation of projects was 
authorized by OBRA 90.
    Explanation of Provision. The provision would require the 
Secretary to extend waivers for SHMOs through December 31, 
2000, and to submit a final report on the projects by March 31, 
2001. The limit on the number of persons served per site would 
be expanded from 12,000 to 24,000. The Secretary also would be 
required to submit to Congress by January 1, 1999, a plan, 
including an appropriate transition, for the integration of 
health plans offered by first and second generation SHMOs and 
similar plans into the MedicarePlus program. The report on the 
plan would be required to include recommendations on 
appropriate payment levels for SHMO plans, including an 
analysis of the extent to which it is appropriate to apply the 
MedicarePlus risk adjustment factors to SHMO populations.
    Reason for Change. The demonstration waivers for the SHMO 
program would have expired effective December 31, 1997. At the 
same time, the Committee believed that this should be the last 
such waiver extension and that all HCFA efforts previously 
focused on ``testing'' the SHMO concept during the last 13 
years should be shifted immediately toward efforts to make 
SHMOs a permanent option available for beneficiaries under the 
MedicarePlus program.
    Effective Date. The provision would be effective upon 
enactment.
    Under regulations, procedures for termination of PACE 
agreements, the Secretary or State could terminate for, among 
other reasons, significant deficiencies in the quality of care, 
failure to comply substantially with conditions of 
participation, or failure to develop and successfully initiate 
within 30 days of notice a plan to correct deficiencies.
    If the Secretary determines (after consultation with the 
State) that a provider fails substantially to comply with 
program requirements, the Secretary and State could take any or 
all of the following actions: (1) condition continuation upon 
timely execution of a corrective action plan; (2) withhold some 
or all payments until the deficiencies were corrected; or, (3) 
terminate the agreement. The Secretary could provide for the 
application of intermediate sanctions for certain deficiencies. 
Procedures for termination and sanctions of PACE programs would 
be the same as those that apply to Medicare managed care 
entities.
    The Secretary would issue interim and final regulations to 
carry out the statutory provisions for PACE. The Secretary 
would incorporate the requirements applied to PACE 
demonstration waiver programs under the PACE Protocol, to the 
extent consistent with this section. The Secretary (in close 
consultation with States) could modify or waive provisions of 
the PACE Protocol to provide reasonable flexibility in adapting 
the PACE service delivery model to the needs of particular 
organizations (such as those in rural areas or those that may 
wish to use non-staff physicians) where flexibility is not 
inconsistent with and would not impair the essential elements, 
objectives, and requirements of the PACE program. The Secretary 
could also apply to PACE requirements which apply to managed 
care plans, taking into account differences in populations 
served and not including requirements restricting the 
proportion of enrollees eligible for Medicare and Medicaid.
    Certain Medicare requirements would be waived for PACE, 
including those pertaining to limits on coverage of 
institutional services, rules for payment for benefits, limits 
on coverage of SNF and home health services, the 3-day prior 
hospitalization requirement for SNF care, and other coverage 
rules.
    The Secretary would be required to promulgate regulations 
for PACE in a timely manner so that entities may establish and 
operate PACE programs beginning not later than 1 year after 
enactment.
    During the transition from demonstration waiver authority 
to permanent provider status, applications for waivers (subject 
to the numerical limitation) would be deemed approved unless 
the Secretary, within 90 days after the date of submission, 
either denies the request in writing or informs the applicant 
in writing that additional information is needed. After the 
date the Secretary receives the additional information, the 
application would be deemed approved unless the Secretary, 
within 90 days, denies the request. The same time frames would 
be applicable to non-waiver applications for PACE.

                      SUBCHAPTER C--OTHER PROGRAMS

Section 10018. Orderly transition of municipal health service 
        demonstration projects

    Current Law. Under a general demonstration authority, the 
Health Care Financing Administration began waiving in the late 
1970s certain Medicare requirements to conduct the Municipal 
Health Services Demonstration. This project has been conducted 
in four cities--Baltimore, Cincinnati, Milwaukee, and San Jose. 
As originally conceived, the project was intended to encourage 
the use of municipal health centers, in place of more costly 
hospital emergency rooms and outpatient departments, by 
eliminating coinsurance and deductibles, expanding the range of 
covered services, and paying the cities the full cost of 
delivering services at the clinics. Waivers have been extended 
several times since the inception of the project by budget 
reconciliation bills.
    Explanation of Provision. The provision would extend the 
demonstration through December 31, 2000, but only with respect 
to persons enrolled in the projects before January 1, 1998. The 
Secretary would be required to work with each demonstration 
project to develop a plan, to be submitted to the House Ways 
and Means and Senate Finance Committees by March 31, 1998, for 
the orderly transition of projects and project enrollees to a 
non-demonstration health plan, such as a Medicaid managed care 
or MedicarePlus plan. A demonstration project which does not 
develop and submit a transition plan by March 31, 1998 or 
within 6 months after enactment of the Act, whichever is later, 
would be discontinued as of December 31, 1998. The Secretary 
would be required to provide appropriate technical assistance 
to assist in the transition so that disruption of medical 
services to project enrollees would be minimized.
    Reason for Change. The Committee recognizes that the 
Municipal Health Services Program has brought enhanced benefits 
to inner-city beneficiaries for many years. However, with the 
increased availability of Medicare HMOs and other MedicarePlus 
plans made possible by this Act, the Committee believes it is 
not longer necessary or cost-effective to continue this program 
in its current form.
    Effective Date. The provision would be effective upon 
enactment.

Section 10019. Community Nursing Organization Demonstration Projects

    Current Law. OBRA 87 required the Secretary to conduct 
demonstration projects to test a prepaid capitated, nurse-
managed system of care. Covered services include home health 
care, durable medical equipment, and certain ambulatory care 
services. Four sites (Mahomet, Illinois; Tucson, Arizona; New 
York, New York; and St. Paul, Minnesota) were awarded contracts 
in September, 1992, and represent a mix of urban and rural 
sites and different types of health provider, including a home 
health agency, a hospital-based system, and a large multi-
specialtyclinic. The community nursing organization (CNO) sites 
completed development activities and implemented the demonstration in 
January 1994, with service delivery beginning February 1994.
    Explanation of Provision. The provision would extend the 
CNO demonstration for an additional period of 2 years, and the 
deadline for the report on the results of the demonstration 
would be not later than 6 months before the end of the 
extension.
    Reason for Change. Current demonstration provides 
innovative care options and home- and community-based services 
for the elderly and individuals with disabilities. CNOs offer 
extra benefits without increasing Medicare costs because their 
emphasis on primary and preventive care and coordinated 
management of patient care. The Committee was interested in 
further analysis on whether the combination of capitated 
payments and nurse case management will promote timely and 
appropriate use of community nursing and ambulatory care 
services and reduce the use of costly acute care services.
    Effective Date. The provision would be effective upon 
enactment.

            Chapter 3--Medicare Payment Advisory Commission

Section 10021. Medicare payment advisory commission

    Current 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.
    The law specified that both Commissions were to be 
appointed by the Director of the Office of Technology 
Assessment and funded through appropriations from the Medicare 
trust funds. In 1995, the Office of Technology Assessment was 
abolished. In May 1997, P.L. 105-13 was enacted; this 
legislation extended the terms of those Commission members 
whose terms were slated to expire in 1997 to May 1, 1998.
    Explanation of Provision. The provision would establish the 
Medicare Payment Advisory Commission (hereafter referred to as 
the Commission) to review and make recommendations to Congress 
concerning payment policies under Medicare. The Commission 
would be required to submit a report to Congress by March 1 of 
each year (beginning in 1998) containing the results of its 
reviews of payment policies and its recommendations concerning 
such policies and an examination of issues affecting the 
Medicare program.
    The Commission would be charged with the following specific 
review responsibilities with respect to the MedicarePlus 
program: (1) the methodology for making payments to the plans, 
including the making of differential payments and the 
distribution of differential updates among different payment 
areas; (2) the risk adjustment mechanisms and the need to 
adjust such mechanisms to take into account health status; (3) 
the implications of risk selection among MedicarePlus 
organizations and between the MedicarePlus option and the 
Medicare fee-for- service option; (4) in relation to payment 
under MedicarePlus, the development and implementation of 
quality assurance mechanisms for those enrolled with 
MedicarePlus organizations; (5) the impact of the MedicarePlus 
program on beneficiary access to care; and (6) other major 
issues in implementation and further development of the 
MedicarePlus program.
    In addition, the Commission would be required to review 
payment policies under Medicare parts A and B fee-for-service 
system, including: (1) factors affecting expenditures in 
different sectors, including the process for updating hospital, 
skilled nursing facility, physician, and other fees; (2) 
payment methodologies; and (3) the relationship of payment 
policies to access and quality of care. It would also review 
the effect of Medicare payment policies on the delivery of 
health care services not provided under Medicare and assess the 
implications of changes in the health services market on 
Medicare.
    The Commission would be required to evaluate required 
reports on payment policies submitted by the Secretary to 
Congress (or a committee of Congress). The Commission would be 
required to submit a report on the evaluation within six months 
of the Secretary's report. The commission would also be 
required to consult with the chairmen and ranking members of 
the appropriate committees of Congress (House Ways and Means, 
House Commerce, and Senate Finance) regarding its agenda. The 
Commission would be authorized to submit from time to time 
other reports as requested by such chairman and members and as 
it is deemed appropriate. The reports would be made public.
    The Commission would be composed of 19 members appointed by 
the Comptroller General, with the first appointments being made 
by September 30, 1997. These members would have to meet 
specific qualifications (such as national recognition for their 
expertise). Commission membership would consist of a broad mix 
of different professionals, a broad geographic representation, 
and a balance between urban and rural representatives. It would 
include representatives of consumers and the elderly. Health 
care providers could not constitute a majority of the 
membership. Commissioners would serve for 3-year staggered 
terms. The provision would include a mechanism for filling 
vacancies, compensating commissioners, appointing a chair and 
vice chair; convening meetings; and providing for the executive 
director and other staff, experts, and consultants. The 
Commission would be authorized to secure directlyfrom 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 would require the Commission to submit 
appropriations requests in the same manner as the Comptroller 
General does; however, the amounts appropriated for each would 
be separate. It would authorize such sums as may be necessary 
to be appropriated from the Medicare trust funds (60 percent 
from part A and 40 percent from part B).
    The Commission would require that the Comptroller first 
provide for appointment of members of the Commission (to be 
known as MedPAC) by not later than September 30, 1997. As 
quickly as possible after they were first appointed, the 
Comptroller General (in consultation with ProPac and PPRC) 
would provide for termination of these entities. As of that 
date, ProPAC and PPRC would be abolished. To the extent 
possible, the Comptroller General would be required to provide 
for the transfer to the new commission assets and staff of the 
former commissions without any loss of benefits or seniority by 
virtue of such transfers. Fund balances available to the former 
commissions would be transferred to the new commission. MedPAC 
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 
MedicarePlus area. This area 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.
    The Committee is concerned with the impact of the Part A 
proposals on Medicare dependent hospitals, defined as those 
which treat more than 60 percent Medicare patients and do not 
receive indirect medical education or disproportionate share 
payments. The Committee is assigning MedPAC to include in its 
March 1 report analysis on the financial performance of 
hospitals with high Medicare shares.
    Effective date. These provisions are effective upon 
enactment.

Section 10031. Medigap protections

    Current Law. Medigap is the term used to describe 
individually-purchased Medicare supplement policies. In 1990, 
Congress provided for a standardization of Medigap policies; 
the intention was to enable consumers to better understand 
policy choices. Implementing regulations generally limit the 
number of different types of Medigap plans that can be sold in 
a state to no more than 10 standard benefit plans; these are 
known as Plans A through J. The Plan A standardized package 
covers a basic benefits package. Each of the other 9 plans 
includes the basic benefits plus a different combination of 
additional benefits.
    All insurers offering Medigap policies are required to 
offer a 6-month open enrollment period for persons turning age 
65. This is known as guaranteed open enrollment. There is no 
guaranteed open enrollment provision for the under-65 disabled 
population.
    At the time insurers sell a Medigap policy, whether or not 
during an open enrollment period, they are permitted to limit 
or exclude coverage for services related to a preexisting 
health condition; such exclusions cannot be imposed for more 
than 6 months. An individual who has met the preexisting 
condition limitation in one Medigap policy does not have to 
meet the requirement under a new policy for previously covered 
benefits. However, an insurer could impose exclusions for newly 
covered benefits.
    Federal requirements for open enrollment and limits on 
preexisting condition exclusions are designed to insure 
beneficiaries have access to Medigap protection. However, 
persons who disenroll (or wish to disenroll) from managed care 
plans and move back into fee-for-service Medicare may not have 
the same access to Medigap coverage as those who join during 
the open enrollment period.
    Explanation of Provision. The provision would guarantee 
issuance of a Medigap ``A'', ``B'', ``C'', or ``F'' policy 
without a pre-existing condition exclusion for certain 
continuously covered individuals. The insurer also would be 
prohibited from discriminating in the pricing of such policy on 
the basis of the individual's health status, medical condition, 
claims experience, and receipt of health care.
    The provision would specify those persons covered under the 
guaranteed issuance provision. The provision would apply to an 
individual enrolled under an employee welfare benefit plan that 
provides benefits supplementing Medicare and the plan 
terminates or ceases to provide such benefits.
    The provision would apply to persons enrolled with a 
MedicarePlus organization and there are circumstances 
permitting discontinuance of the individual's election of the 
plan under section 1851(e)(4). It would also apply to 
individuals enrolled in a risk or cost contract HMO, a similar 
organization operating under demonstration project authority, 
or a Medicare SELECT policy who encounter circumstances 
permitting discontinuance of the individual's election of the 
plan under section 1851(e)(4) and there is no provision under 
applicable State law for the continuation of coverage under 
such policy. In addition, the provision would apply to 
individuals enrolled in a Medicare supplemental policy whose 
enrollment ceases because (1) the issuer becomes bankrupt or 
insolvent and there is not provision under applicable State law 
for the continuance ofsuch coverage; (2) the issuer 
substantially violates a material provision of the policy; or (3) the 
issuer materially misrepresented the policy's provisions during 
marketing.
    The provision would also apply to an individual who: (1) 
was enrolled under a Medigap policy; (2) subsequently 
terminates such enrollment and enrolls with a MedicarePlus 
organization, a risk or cost contract HMO, a similar 
organization operating under a demonstration project authority, 
or a Medicare SELECT policy; and (3) terminates such enrollment 
within 6 months (or within 3 months beginning in 2003), but 
only if the individual was never previously enrolled with such 
an entity. Such individuals could also return to the Medigap 
policy in which they were previously enrolled if such policy is 
still available from the same issuer. At the time of the event 
which results in the cessation of enrollment or loss of 
coverage, the organization, insurer, or plan administrator 
(whichever is appropriate) would notify the individual of his 
or her rights and the obligations of issuers of Medigap 
policies. The individual must seek to enroll under the 
applicable Medigap policy not later than 63 days after 
termination of other enrollment and provide evidence of the 
date of termination or disenrollment along with the application 
for such Medicare supplemental policy.
    The provision would limit the application of a preexisting 
condition exclusion during the initial 6-month open enrollment 
period. Specifically, such an exclusion could not be imposed on 
an individual who, on the date of application, had a continuous 
period of at least 6 months of health insurance coverage 
defined as ``creditable coverage'' under the Health Insurance 
Portability and Accountability Act (HIPAA). If the individual 
had less than 6 months coverage, the policy would reduce the 
period of any pre-existing exclusion by the aggregate of 
periods of ``creditable coverage'' applicable to the individual 
as of the enrollment date. The rules used to determine the 
reduction would be based on rules used under HIPAA..
    The provision would give the National Association of 
Insurance Commissioners (NAIC) nine months to modify its 
regulations to conform to the new requirements. If the NAIC, 
did not make the changes within this time, the Secretary would 
make the appropriate modification in the regulations.
    The provision would be effective July 1, 1998. In general, 
a state would not be deemed out of compliance due solely to 
failure to make changes before one year after the date the NAIC 
or Secretary made changes in its regulations. A longer time may 
be permitted if a state requires legislation.
    Reasons for change. The provision is intended to extend 
basic protections, similar to those provided in the recently 
enacted Health Insurance Portability and Accountability Act, to 
certain Medicare beneficiaries who may lose coverage under a 
Medicare Plus or Medigap plan for reasons largely outside of 
their control. The Committee notes that, currently, the ``A'', 
``B'', ``C'', and ``F'' plans account for nearly 80 percent of 
total Medigap enrollment. With regard to MedicarePlus, the 
provision also is intended to work in conjunction with the plan 
election procedures specified in the Act in order to facilitate 
private health plan choices. At the same time, the provision 
attempts to protect against adverse risk selection and limit 
price increases for the significant number of beneficiaries 
already enrolled in Medicare supplemental policies that could 
have resulted from more expansive requirements.
    The provision was not intended to require organizations 
that do not offer an ``A,'' ``B,'' ``C'', or ``F'' Medicare 
supplemental policy to offer those types of policies to 
beneficiaries who may become eligible for such coverage as a 
result of this provision.
    Effective date. Unless otherwise provided, the provision is 
generally effective July 1, 1998.

Section 10032. Medicare Prepaid Competitive Pricing Demonstration 
        Project

    Current law. Under section 402 of the Social Security 
Amendments of 1967 (P.L. 90-248, 42 U.S.C. 1395b-1), the 
Secretary is authorized to develop and engage in experiments 
and demonstration projects for specified purposes, including to 
determine whether, and if so, which changes in methods of 
payment or reimbursement for Medicare services, including a 
change to methods based on negotiated rates, would have the 
effect of increasing the efficiency and economy of such health 
services. Under this authority, HCFA is seeking to demonstrate 
the application of competitive bidding as a method for 
establishing payments for risk contract HMOs in the Denver 
area. HCFA's actions have been challenged in the courts.
    Explanation of provision. The provision requires the 
Secretary of HHS to provide for a demonstration of competitive 
pricing for private health plans participating in Medicare.
    a. Establishment of project. The Secretary would be 
required to provide, no later than one year after enactment, 
for implementation of a project to demonstrate the application 
of, and the consequences of applying, a market-oriented pricing 
system for the provision of a full range of Medicare benefits 
in several geographic areas.
    b. Research design advisory committee. Before implementing 
the project, the Secretary would be required to appoint a 
national advisory committee, including independent actuaries 
and individuals with expertise in competitive health plan 
pricing, to recommend to the Secretary the appropriate research 
design for implementing the project, including the method for 
area selection, benefit design among plans offered, structuring 
choice among health plans offered, methods for setting the 
price to be paid to plans, collection of plan information, 
information dissemination, and methods of evaluating the 
results of the project. Upon implementation of the project, the 
Committee would continue to advise the Secretary on the 
application of the design in different areas and changes in the 
project based on experience with its operations.
    c. Area selection. Taking into account the national 
advisory committee's recommendations, the Secretary would be 
required to designate demonstration areas. Upon such 
designation, the Secretary would be required to appoint an area 
advisory committee, composed of representatives of health 
plans, providers, and beneficiaries in each demonstration area. 
The committee could advise the Secretary on marketing and 
pricing of plans in the area, and other relevant factors.
    d. Monitoring and report. Taking into considerations the 
recommendations of the advisory committee (established under 
(b)), the Secretary would be required to closely monitor the 
impact of projects in areas on the price and quality of, and 
access to, Medicare covered services, choice of plans, changes 
in enrollment, and other relevant factors. The Secretary would 
be required to periodically report to Congress on project 
progress.
    e. Waiver authority. The provision authorizes the Secretary 
to waive such requirements of section 1876 (relating to 
Medicare risk, cost, and HCPP plans) and of MedicarePlus as may 
be needed to carry out the demonstration project.
    Reason for change. The Health Care Financing Administration 
(HCFA) recently has encountered difficulty implementing a 
competitive pricing demonstration project for risk contractors 
in two different regions of the country. The Committee believed 
that one reason HCFA experienced difficulties was the failure 
to develop appropriate demonstration models, sensitive to 
differences in market areas. Another reason was the failure to 
appropriately consult with persons with expertise in health 
plan pricing, and local health plans and beneficiaries with a 
keen interest in the impact of such a demonstration project on 
the Medicare market in their areas. While providing clear 
authority to carry out such demonstration projects in the 
future, the provision requires HCFA to address perceived 
shortcomings in its previous attempts at this type of 
demonstration.
    Effective date. The provision is effective upon enactment.

Section 10041. Tax treatment of hospitals which participate in 
        provider-sponsored organizations

    Current law. To qualify as a charitable tax-exempt 
organization described in Internal Revenue Code (the ``Code'') 
section 501(c)(3), an organization must be organized and 
operated exclusively for religious, charitable, scientific, 
testing for public safety, literary, or educational purposes, 
or to foster international sports competition, or for the 
prevention of cruelty to children or animals. Although section 
501(c)(3) does not specifically mention furnishing medical care 
and operating a nonprofit hospital, such activities have long 
been considered to further charitable purposes, provided that 
the organization benefits the community as a whole.
    No part of the net earnings of a 501(c)(3) organization may 
inure to the benefit of any private shareholder or individual. 
No substantial part of the activities of a 501(c)(3) 
organization may consist of carrying on propaganda, or 
otherwise attempting to influence legislation, and such 
organization may not participate in, or intervene in, any 
political campaign on behalf of (or in opposition to) any 
candidate for public office. In addition, under section 501(m), 
an organization described in section 501(c)(3) or 501(c)(4) is 
exempt from tax only if no substantial part of its activities 
consists of providing commercial-type insurance.
    A tax-exempt organization may, subject to certain 
limitations, enter into a joint venture or partnership with a 
for-profit organization without affecting its tax-exempt 
status. Under current ruling practice, the IRS examines the 
facts and circumstances of each arrangement to determine (1) 
whether the venture itself and the participation of the tax-
exempt organization therein furthers a charitable purpose, and 
(2) whether the sharing of profits and losses or other aspects 
of the arrangement entail improper private inurement or more 
than incidental private benefit.\1\
---------------------------------------------------------------------------
    \1\ See IRS General Counsel Memorandum 39862; Annoucement 92-83, 
1992-22 I.R.B. 59 (IRS Audit Guidelines for Hospitals). Even where no 
prohibited private inurement exists, however, more than incidental 
private benefits conferred on individuals may result in the 
organization not being operated ``exclusively'' for an exempt purpose. 
See, e.g., American Campaign Academy v. Commissioner, 92 T.C. 1053 
(1989).
---------------------------------------------------------------------------
    Explanation of provision. The provision provides that an 
organization does not fail to be treated as organized and 
operated exclusively for a charitable purpose for purposes of 
Code section 501(c)(3) solely because a hospital which is owned 
and operated by such organization participates in a provider-
sponsored organization (``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 
(whether taxable or tax-exempt) is deemed to satisfy the first 
part of the inquiry under current IRS ruling practice.\2\
---------------------------------------------------------------------------
    \2\ The qualification of a hospital as a tax-exempt charitable 
organization under section 501(c)(3) is determined as under present 
law. See Rev. Rul. 69-545, 1969-2 C.B. 117.
---------------------------------------------------------------------------
    The provision does not change present-law restrictions on 
private inurement and private benefit. However, the provision 
provides that any person with a material financial interest in 
such a PSO shall be treated as a private shareholder or 
individual with respect to the hospital for purposes of 
applying the private inurement prohibition in Code section 
501(c)(3). Accordingly, the facts and circumstances of each PSO 
arrangement are 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 fair 
market value, or a non-exempt partner receives more than 
reasonable compensation for the sale of property or services to 
the joint venture).
    The provision does not change present-law restrictions on 
lobbying and political activities. In addition, the 
restrictions of Code section 501(m) on the provision of 
commercial-type insurance continue to apply.
    Reason for change. The provision is necessary to ensure 
that certain providers not lose tax-exempt status simply 
because they join or form a PSO.
    Effective date. The provision is effective on the date of 
enactment.

                   Subtitle B--Prevention Initiatives

Section 10101. Screening mammography

    Current law. Medicare provides coverage for screening 
mammograms. Frequency of coverage is dependent on the age and 
risk factors of the woman. For women ages 35-39, one test is 
authorized. For women ages 40-49, a test is covered every 24 
months, except, an annual test is authorized for women at high 
risk. Annual tests are covered for women ages 50-64. For women 
aged 65 and over, the program covers one test every 24 months. 
Medicare's Part B deductible and coinsurance apply for these 
services.
    Explanation of provision. The proposal would authorize 
coverage for annual mammograms for all women ages 40 and over. 
It would also waive the deductible for screening mammograms. 
These provisions would be effective January 1, 1998.
    Reason for change. One in every eight American women are 
affected by breast cancer during their lifetime and over 40,000 
women die from breast cancer each year. Both the National 
Cancer Institute (NCI) and the American Cancer Society (ACS) 
recently recommended that women age 40 and over receive annual 
mammograms. According to NCI, annual mammograms can reduce the 
death rate from breast cancer by 17 percent among these women. 
In addition, there are currently 40 States that require private 
health insurance companies to pay for mammograms for women in 
their 40s.
    The application of the Part B deductible to annual 
screening mammography is waived because research indicates that 
out of pocket costs of screening present a barrier to certain 
beneficiaries seeking preventative mammograms, particularly low 
income beneficiaries. Although Medicare coverage of screening 
mammography began in 1991, only 14 percent of eligible 
beneficiaries without supplemental insurance received a 
mammogram during the first two years of the benefit.
    Effective date. The provision is effective January 1, 1998.

Section 10102. Screening pap smear and pelvic exams

    Medicare covers a screening Pap smear once every 3 years. 
The Secretary is permitted to specify a shorter time period in 
the case of women at high risk of developing cancer.
    Explanation of provision. The provision would authorize 
coverage, every 3 years, for a screening pelvic exam which 
would include a clinical breast examination. The provision 
would specify that for both Pap smears and screening pelvic 
exams, coverage would be authorized on a yearly basis for women 
at high risk of developing cancer (as determined pursuant to 
factors identified by the Secretary). Coverage would also be 
authorized on a yearly basis for a woman of childbearing age 
who had not had a test in each of the preceding three years 
that did not indicate the presence of cancer.
    The provision would waive the deductible for screening Pap 
smears and screening pelvic exams.
    Reason for change. An estimated 15,700 new cases of 
cervical cancer are diagnosed each year, and 4,900 women die 
from this disease annually. The incidence of invasive cervical 
cancer has decreased significantly over the last 40 years, due 
in large part to organized early detection programs. According 
to the Guide to Clinical Preventive Services published by the 
United States Preventive Services Task Force, routine screening 
for cervical cancer with Pap testing in recommended for all 
women who are or have been sexually active and who have a 
cervix. As with mammograms, the provision waives the 
application of the Part B deductible to these services because 
there is evidence that out of pocket cost reduce Pap 
screenings, especially for low-income women.
    Effective date. The provision is effective January 1, 1998.

Section 10103. Prostate cancer screening tests

    Current law. Medicare does not cover prostate cancer 
screening tests.
    Explanation of provision. The provision would authorize an 
annual prostate cancer screening test for men over age 50. The 
test could consist of any (or all) of the following procedures: 
(1) a digital rectal exam; (2) a prostate-specific antigen 
blood test; and (3) after 2001, other procedures as the 
Secretary finds appropriate for the purpose of early detection 
of prostate cancer, taking into account such factors as changes 
in technology and standards of medical practice, availability, 
effectiveness, and costs.
    The provision would specify that payment for prostate-
specific antigen blood tests would be made under the clinical 
laboratory fee schedule.
    Reason for change. Prostate cancer is the most common 
noncutaneous cancer in American men. After lung cancer, it 
accounts for more cancer deaths in men than any other single 
cancer, accounting for nearly 250,000 new cases and over 40,000 
deaths in the United States in 1995. Risk increases with age, 
beginning at age 50, and is also higher among African American 
men. Early detection may be extremely important because ten-
year survival rates are 75 percent when the cancer is confined 
to the prostate and five-year survival rates for early-stage 
disease are extremely high.
    Effective date. The provision is effective January 1, 1998.

Section 10104. Coverage of colorectal screening

    Current law. Medicare does not cover preventive colorectal 
screening procedures. Such services are covered only as 
diagnostic services.
    Explanation of provision. The provision would authorize 
coverage of colorectal cancer screening tests. A test covered 
under the provision would be any of the following procedures 
furnished for the purpose of early detection of colorectal 
cancer: (1) screening fecal-occult blood test; (2) screening 
flexible sigmoidoscopy; (3) screening colonoscopy for a high-
risk individual; (4) screening barium enema, if found by the 
Secretary to be an appropriate alternative to screening 
flexible sigmoidoscopy or screening colonoscopy; and (5) after 
2002, other procedures as the Secretary finds appropriate for 
the purpose of early detection of colorectal cancer, taking 
into account such factors as changes in technology and 
standards of medical practice, availability, effectiveness, and 
costs. A high-risk individual (for purposes of coverage for 
screening colonoscopy) would be defined as one who faces a high 
risk for colorectal cancer because of family history, prior 
experience of cancer or precursor neoplastic polyps, a history 
of chronic digestive disease condition (including inflammatory 
bowel disease, Crohn's disease or ulcerative colitis), the 
presence of any appropriate recognized gene markers, or other 
predisposing factors. The Secretary would be required to make a 
decision with respect to coverage of screening barium enema 
tests within two years of enactment; the determination would be 
published.
    The provision would establish frequency and payment limits 
for the tests. For screening fecal-occult blood tests, payment 
would be made under the lab fee schedule. In 1998, the payment 
amount could not exceed $5; in future years the update would be 
limited to the update applicable under the fee schedule. 
Medicare could not make payments if the test were performed on 
an individual under age 50 or within 11 months of a previous 
screening fecal-occult blood test.
    The provision would require the Secretary to establish a 
payment amount under the physician fee schedule for screening 
flexible sigmoidoscopies that is consistent with payment 
amounts for similar or related services. The payment amount 
could not exceed the amount the Secretary specifies, based upon 
the rates recognized for diagnostic flexible sigmoidoscopy 
services. For services performed in ambulatory surgical centers 
or hospital outpatient departments, the payment amount could 
not exceed the lesser of the payment rate that would apply to 
such services if they were performed at either site. Medicare 
could not make payments for a screening flexible sigmoidoscopy 
if the test were performed on an individual under age 50 or 
within 47 months of a previous screening flexible 
sigmoidoscopy.
    The provision would require the Secretary to establish a 
payment amount under the physician fee schedule for screening 
colonoscopy for high risk individuals that is consistent with 
payment amounts for similar or related services. The payment 
amount could not exceed the amount the Secretary specifies, 
based upon the rates recognized for diagnostic colonoscopy 
services. For services performed in ambulatory surgical centers 
or hospital outpatient departments, the payment amount could 
not exceed the lesser of the payment rate that would apply to 
such services if they were performed at either site. Medicare 
could not make payments if the test were performed on a high-
risk individual within 23 months of a previous screening 
colonoscopy.
    The provision would establish special payment rules, in the 
case of both a screening flexible sigmoidoscopy or screening 
colonoscopy, if a lesion or growth is discovered during the 
procedure which results in a biopsy or removal of the lesion or 
growth during the procedure. In these cases, payment would be 
made for the procedure classified as either a flexible 
sigmoidoscopy with such biopsy or removal or screening 
colonoscopy with such biopsy or removal.
    The provision would require the Secretary to review from 
time to time the appropriateness of the amount of the payment 
limit for fecal-occult blood tests. The Secretary could, 
beginning after 2000, reduce the amount of the limit as it 
applies nationally or in a given area to the amount the 
Secretary estimates is required to assure that such tests of an 
appropriate quality are readily and conveniently available.
    The provision would require the Secretary to review 
periodically the appropriate frequency for performing 
colorectal cancer screening tests based on age and other 
factors the Secretary believes to be pertinent. The Secretary 
may revise from time to time the frequency limitations, but no 
revisions could occur before January 1, 2001.
    Nonparticipating physicians providing screening flexible 
sigmoidoscopies or screening colonoscopies for high risk 
individuals would be subject to limiting charge provisions 
applicable for physicians services. The Secretary could impose 
sanctions if a physician or supplier knowingly and willfully 
imposed a charge in violation of this requirement.
    The provision would require the Secretary to establish 
payment limits and frequency limits for screening barium enema 
tests if the Secretary issues a determination that such tests 
should be covered. Payment limits would be consistent with 
those established for diagnostic barium enema procedures.
    Reason for change. Colorectal cancer is the third most 
common form of cancer for both men and women and the United 
States. It is the second-leading cause of cancer deaths, 
accounting for nearly 55,000 deaths annually. Early screening 
and detection is extremely important because estimated five-
year survival rates are 91 percent in persons with localized 
disease and 60 percent in persons with regional spread. 
Numerous experts, including Dr. Michael McGinnis, testified 
before the Health Subcommittee that the screening regimen 
authorized for coverage under legislation forming the basis of 
this provision was consistent with available studies and 
recommendations of the U.S. Preventive Services Task Force.
    In addition, Dr. Louis Sullivan, former Secretary of Health 
and Human Services wrote the Chairman of the Committee in a May 
5 letter that the colorectal screening provisions embodied in 
this provision ``prescribes the most economical, most 
responsible package it would do the most good possible within 
the fiscal restraints that are the reality of modern 
government.''
    While there has been some disagreement between experts 
about whether or not barium enema screenings should be covered, 
the testimony before the Ways and Means Health Subcommittee 
demonstrated that the efficacy of barium enema as a screening 
device has not been definitively established. In the only true 
screening study of barium enema x-ray, published by the Mayo 
Clinic in 1996, single contrast barium enema x-ray detected 
polyps in only 3 percent of asymptomatic average-risk persons. 
In addition, the National Polyp Study found in 1994 that barium 
enema x-ray detected only 44 percent of polyps larger than one 
centimeter. Because there is not sufficient scientific evidence 
of the effectiveness of barium enema screening at this time, 
the provision authorizes coverage for that procedure only after 
the Secretary determines that barium screening is an 
appropriate alternative to screening flexible sigmoidoscopy or 
screening colonoscopy. The Committee emphasizes, however, that 
the Secretary could make this decision at any time following 
the effective date of the provision, as long as such decision 
were made no later than two years after January 1, 1998.
    Effective date. Unless otherwise provided, the provision 
would be effective January 1, 1998.

Section 10105. Diabetes Screening Tests

    Current law. In general, Medicare covers only those items 
and services which are medically reasonable and necessary for 
the diagnosis or treatment of illness or injury. In addition, 
Medicare covers home blood glucose monitors and associated 
testing strips for certain diabetes patients. Home blood 
glucose monitors enable diabetics to measure their blood 
glucose levels and then alter their diets or insulin dosages to 
ensure that they are maintaining an adequate blood glucose 
level. Home glucose monitors and testing strips are covered 
under Medicare's durable medical equipment benefit. Coverage of 
home blood glucose monitors is currently limited to certain 
diabetics, formerly referred to as Type I diabetics, if: (1) 
the patient is an insulin-treated diabetic; (2) the patient is 
capable of being trained to use the monitor in an appropriate 
manner, or, in some cases, another responsible person is 
capable of being trained to use the equipment and monitor the 
patient to assure that the intended effect is achieved; and (3) 
the device is designed for home rather than clinical use.
    Explanation of provision. Effective January 1, 1998, the 
provision would include among Medicare's covered benefits 
diabetes outpatient self-management training services. These 
services would include educational and training services 
furnished to an individual with diabetes by a certified 
provider in an outpatient setting meeting certain quality 
standards. They would be covered only if the physician who is 
managing the individual's diabetic condition certifies that the 
services are needed under a comprehensive plan of care to 
provide the individual with necessary skills and knowledge 
(including skills related to the self-administration of 
injectable drugs) to participate in the management of the 
individual's condition. Certified providers for these purposes 
would be defined as physicians or other individuals or entities 
that, in addition to providing diabetes outpatient self-
management training services, provide other items or services 
reimbursed by Medicare. Providers would have to meet quality 
standards established by the Secretary. They would be deemed to 
have met the Secretary's standards if they meet standards 
originally established by the National Diabetes Advisory Board 
and subsequently revised by organizations who participated in 
the establishment of standards of the Board, or if they are 
recognized by an organization representing persons with 
diabetes as meeting standards for furnishing such services. In 
establishing payment amounts for diabetes outpatient self-
management training provided by physicians and determining the 
relative value for these services, the Secretary would be 
required to consult with appropriate organizations, including 
organizations representing persons or Medicare beneficiaries 
with diabetes.
    In addition, beginning January 1, 1998, the provision would 
extend Medicare coverage of blood glucose monitors and testing 
strips to Type II diabetics and without regard to a person's 
use of insulin (as determined under standards established by 
the Secretary in consultation with appropriate organization). 
The provision would also reduce the national payment limit used 
by Medicare for testing strips by 10% beginning in 1998.
    The Secretary, in consultation with appropriate 
organizations, would be required to establish outcome measures, 
including glysolated hemoglobin (past 90-day average blood 
sugar levels), for purposes of evaluating the improvement of 
the health status of Medicare beneficiaries with diabetes. The 
Secretary would also be required to submit recommendations to 
Congress from time to time on modifications to coverage of 
services for these beneficiaries.
    Reasons for change. This provision is intended to empower 
Medicare beneficiaries with diabetes to better manage and 
control their condition. The Committee believes that this 
provision significant savings; we believe this provision will, 
provide significant Medicare savings over time due to reduced 
hospitalizations and complications arising from diabetes.
    Nearly 20 percent of Americans over age 65 have diabetes, 
although less than half of these cases remain undiagnosed. 
Despite that fact that only 9 percent of Medicare beneficiaries 
are diagnosed with diabetes, $28.6 billion is spent annually to 
treat these beneficiaries for diabetes and complications 
arising from the disease. With early detection, education, 
self-monitoring, and proper treatment, many of the 
complications that result from diabetes, such as kidney 
failure, amputation, blindness, nerve damage, heart disease, 
strokes, and lengthy hospitalizations, can be avoided. To 
better analyze and evaluate the improvements in health status 
that may result from this new disease management benefit, the 
provision authorizes the Secretary, in consultation with 
appropriate organizations, to establish and continually update 
diabetes outcome measures.
    The provision would allow reimbursement for physicians, as 
well as other providers designated by the Secretary who 
currently are reimbursed by Medicare. The Committee intends 
that these additional classes of providers have expertise in 
diabetes self-management training and, consistent with the 
standards set forth in the provision, demonstrate the ability 
to provide counseling and training in a cost-effective way to 
beneficiaries.
    Finally, to help keep the costs of this new benefit 
reasonable and because of the increased utilization of test 
strips which will result from this new benefit, the provision 
includes the Administration's proposal to reduce the Medicare 
national payment limit for testing strips by 10 percent.
    The Committee is aware that there are a wealth of 
innovative disease management programs that are not now covered 
by Medicare. However, there is not sufficient evidence at this 
time that indicates these programs will be cost-effective for 
Medicare.
    Effective date. The provision would be effective January 1, 
1998.

Section 10106. Standardization of medicare coverage of bone mass 
        measurements

    Current law. There is no national coverage rule under 
Medicare regarding bone mass measurement screenings. Currently, 
approximately half of the carriers reimburse for bone mass 
measurement for certain Medicare eligible women who are at 
high-risk for osteoporosis.
    Explanation of provision. The provision would authorize 
Medicare coverage on a national basis regarding coverage for 
bone mass measurement for the following Medicare beneficiaries: 
(i) beneficiaries determined to be estrogen-deficient; (ii) 
beneficiaries who have vertebral abnormalities; (iii) 
beneficiaries receiving long-term glucocorticoid steroid 
therapy; (iv) beneficiaries with primary hyperparathyroidism; 
or (v) beneficiaries being monitored to assess the response to 
or efficacy of an approved osteoporosis drug therapy. Bone mass 
measurement is defined as a radiologic or radioisotopic 
procedure, or other procedure approved by the Food and Drug 
Administration, for the purpose of identifying bone mass or 
detecting bone loss or determining bone quality. Payments for 
bone mass measurement with respect to qualified beneficiaries 
would be made under the Medicare physician fee schedule.
    Reason for change. Because Medicare coverage decisions are 
made locally by individual carriers, there are no consistent 
national policies regarding payment for most bone mass 
measurement. Many women at risk for developing osteoporosis do 
not have access to coverage for early detection.
    Effective date. The provision would be effective July 1, 
1998.

Section 10107. Vaccines outreach expansion

    Current law. The Health Care Financing Administration, in 
conjunction with the Centers for Disease Control and the 
National Coalition for Adult Immunization, conducts an 
Influenza and Pneumococcal Vaccination Campaign. The Campaign 
is scheduled to cease operations in 2000.
    Explanation of provision. The provision would authorize the 
extension of the campaign through the end of FY 2002. In 
addition, the provision would authorize the appropriation of $8 
million for each fiscal year 1998--2002 to the Campaign.
    Reason for change. There is evidence that education and 
outreach efforts alone can increase utilization. For example, 
pneumonia and influenza vaccination rates have increased 8 
percent during the past few years due largely to educational 
outreach efforts. Therefore, this provision would nearly double 
the $9 million annual budget of the Health Care Financing 
Administration's Influenza and Pneumococcal Vaccination 
Campaign through 2000, and extend the program for two 
additional years through 2002.
    Effective date. The provision would be effective upon 
enactment.

Section 10108. Study on preventive benefits

    Current law. No provision
    Explanation of provision. The provision would require the 
Secretary to request the National Academy of Sciences, in 
conjunction with the United States Preventive Services Task 
Force, to analyze the expansion or modification of preventive 
services covered under Medicare. The study would consider both 
the short term and long term benefits and costs to Medicare. 
The study would have to include specific findings with respect 
to the following: (1) nutrition therapy, including parenteral 
and enteral nutrition; (2) medically necessary dental care; (3) 
routine patient care costs for beneficiaries enrolled in 
approved clinical trial programs; and (4) elimination of time 
limitation for coverage of immunosuppressive drugs for 
transplant patients. The Secretary would be required to provide 
such funding as may be necessary in FY 1998 and FY 1999.
    Reason for change. Because of widespread interest in 
expanding and updating Medicare's current benefit package to 
focus more attention on prevention, this provision is intended 
to signal the interest of the Committee in continuing to 
reexamine Medicare's benefits in light of evolving scientific 
evidence about the costs and benefits of various prevention 
initiatives.
    Effective date. The provision would be effective upon 
enactment.

                     Subtitle C--Rural Initiatives

Section 10201. Rural primary care hospital program

    Current law. Under the Essential Access Community Hospital 
(EACH) demonstration program, seven states received grants to 
develop rural health networks consisting of essential access 
community hospitals (EACHs) and rural primary care hospitals 
(RPCHs). In order to have been designated by a State as a RPCH, 
a facility was required to meet certain criteria, including a 
requirement that inpatient stays not exceed 72 hours.
    Montana also has a limited hospital program called the 
Medical Assistance Facility (MAF).
    Explanation of provision. The provision would expand the 
Medicare Rural Primary Care Hospital Program under which a 
state could designate one or more facilities as a rural primary 
care hospital (RPCH). A facility could be designated as an RPCH 
if it was a nonprofit or public hospital located in a county in 
a rural area that is located at a distance that corresponds to 
travel time of more than 30 minutes from another hospital or 
RPCH, or is certified by the state as being a necessary 
provider of health care services. An RPCH would be required to 
provide 24-hour emergency care services, provide not more than 
15 acute care inpatient beds and a total of 25 swing beds for 
providing inpatient care for a period not to exceed 96 hours 
(except under certain conditions), and would not have to meet 
all the staffing requirements that apply to hospitals under 
Medicare.
    RPCHs would be required to have agreements with at least 
one hospital for patient referral and transfer, the development 
and use of communication systems including telemetry systems 
and systems for electronic sharing of patient data, and the 
provision of emergency and non-emergency transportation between 
the facility and the hospital. Each RPCH would also be required 
to have an agreement concerning credentialing and quality 
assurance with at least one hospital, peer review organization 
or equivalent entity, or other appropriate and qualified entity 
identified by the state.
    Payment for inpatient and outpatient services provided at 
RPCHs would be made on the basis of reasonable costs of 
providing such services. Such payment would also continue for 
designated EACH hospitals as well as for the MAF demonstration 
program.
    Reason for change. This new category of hospitals will 
enhance access to health care services for rural residents by 
assisting hospitals to convert to outpatient, emergency and 
limited inpatient service facilities. These facilities will 
also assist rural areas to recruit physicians and other health 
care practitioners to that community.
    The Committee intends that RPCHs could have swing beds 
either through a swing bed agreement when the hospital 
initially became a RPCH, or through a swing bed agreement under 
Section 1820(f)(3). With regard to the number of beds, the 
Committee intends that RPCHs will only use 15 beds for 
delivering acute care inpatient services. However, if the RPCH 
has a swing bed agreement, then it may have 15 swing beds plus 
up to an additional 10 beds for extended care services. These 
standards are intended to provide flexibility to facilities 
that deliver primarily acute care services but occasionally, in 
response to changes in patient needs, must use most or all of 
their beds for extended care services.
    Effective date. The provision would be effective upon 
enactment.

Section 10202. Prohibiting denial of request by rural referral centers 
        for reclassification on basis of comparability of wages

    Current law. Rural Referral 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 living 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 hospitals (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.
    Under Section 1886(d)(10)(d), RRCs are allowed to apply to 
the Medicare Geographic Classification Review Board (MGCRB) to 
be reclassified for purposes of wage index adjustment. (A wage 
index adjustment translates to higher prospective payment 
system reimbursement for the reclassified hospitals.) To be 
reclassified, RRCs must meet two thresholds: (1) the hospital's 
average hourly wage must be at least 108 percent of the 
statewide rural hourly wage; and, (2) the hospital's average 
hourly wage must be at least 84 percent of the average hourly 
wage of the target urban area to which the RRC is applying.
    RRCs were 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, until FY1995 when 
the standardized payment amount for ``other urban'' and 
``rural'' were combined into a single payment category, ``other 
areas.''
    OBRA 93 extended the classification through FY1994 for 
those referral centers classified as of September 30, 1992.
    Explanation of provision. The provision would prohibit the 
MGCRB from rejecting a hospital's request for reclassification 
on the basis of any comparison between the average hourly wage 
of any hospital ever classified as a RRC and the average hourly 
wage of hospitals in the area in which the RRC is located. The 
provision would also permanently grandfather RRC status for any 
hospitals designated since 1991.
    Reason for change. RRCs compete with urban hospitals for 
specialty professionals and often must pay higher salaries to 
attract such professionals to rural areas. Moreover, RRCs rely 
on the increased income provided by the wage index adjustment 
for their unique recruiting needs. Lastly, RRCs have difficulty 
satisfying the 108 percent threshold because their average 
hourly wages are disproportionately weighted down by their non-
specialized labor.
    Effective date. The provision would be effective upon 
enactment.

Section 10203. Hospital geographic reclassification permitted for 
        purposes of disproportionate share payment adjustments

    Current law. The Medicare Geographic Classification Review 
Board is required to consider the applications from PPS 
hospitals requesting that the Secretary change the hospital's 
geographic classification for purposes of determining for a 
fiscal year the hospital's average standardized amount and the 
wage index used to adjust the DRG payment to reflect area 
differences in hospital wage levels.
    Explanation of the provision. The provision would permit 
hospitals to request geographic reclassification for the 
purposes of receiving additional disproportionate share 
hospital (DSH) payment amounts provided to hospitals that treat 
a disproportionate share of low-income patients. The provision 
would require the Board to apply the guidelines established for 
reclassification for the standardized amount to applications 
for DSH payments until the Secretary promulgates separate 
guidelines for reclassification for DSH.
    Reason for change. In September 1995, HCFA no longer 
allowed rural hospitals to be reclassified from ``rural'' to 
``other urban'' areas for purposes of the standardized amount. 
By eliminating the availability of standardized amount 
reclassification, HCFA also eliminated other important benefits 
that accompanied standardized amount reclassification, such as 
DSH payment adjustments.
    Effective date. The provision would be effective upon 
enactment.

Section 10204. Medicare-Dependent Small Rural Hospital Payment 
        Extension

    Current law. Medicare-dependent small rural hospitals are 
hospitals located in a rural area, with 100 beds or less, that 
are not classified as a sole community provider, and for which 
not less than 60 percent of inpatient days or discharges in the 
hospital cost reporting period are attributable to Medicare. 
These hospitals were reimbursed on the same basis as sole 
community hospitals. The designation for Medicare-dependent 
small rural hospitals expired on October 1, 1994.
    Explanation of provision. The provision would reinstate and 
extend the classification, and extend the target amount through 
October 1, 2001. The provision would also permit hospitals to 
decline reclassification.
    Reason for change. The program would provide needed 
financial resources to rural hospitals faced with financial 
problems. ProPAC estimates show that both aggregate Medicare 
PPS and total margins for these hospitals are significantly 
lower than other comparable hospitals.
    Effective date. The provision would be effective upon 
enactment.

Section 10205. Floor on area wage index

    Current 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, 1997, the area wage index applicable for any 
hospital which was not located in a rural area could not be 
less than 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.

Section 10206. Geographic reclassification for certain 
        disproportionately large hospitals

    Current law. OBRA 1989 created the five member panel and 
set forth criteria for the Medicare Geographic Classification 
Review Board (MGCRB) to use in issuing its decisions concerning 
geographic reclassification of hospitals as rural or urban for 
prospective payment purposes of Medicare's hospital 
reimbursement. In 1992, HCFA issued guidelines requiring that 
hospitals seeking reclassification for years beginning with FY 
1994 to have an average hourly wage of at least 108 percent of 
the average hourly wage of hospitals in its home region.
    Explanation of provision. The provision would allow certain 
relatively large hospitals to be reclassified by the MGCRB if 
the hospital has 40 percent of the wages in a region and its 
wages are 108 percent or higher than the other hospitals in the 
region.
    Reason for change: The current hospital geographic 
classification system does not work well for a certain class of 
leading hospitals in a small MSA, which have significantly 
higher wages than the other hospitals in the MSA because of the 
extra specialty, trauma, and other services they provide. While 
these large hospitals materially influence the average hourly 
wage in the MSA, they do not dominate it. Thus the way the 
formula works, a small MSA's major hospital may have wages much 
larger than the other hospitals in the region, but when its 
wages are averaged with the others, it falls below the 108% 
threshold--thus suffering major Medicare payment reductions and 
a reduced ability to provide advanced medical services in that 
region. The provision allows certain large hospitals in this 
situation to be eligible for reclassification.
    Effective date. The provision would be effective for fiscal 
year 1998.

Section 10207. Informatics, telemedicine, and education demonstration 
        project

    Current law. No provision.
    Explanation of Provision. The provision would require the 
Secretary to conduct, no later than 9 months after enactment, a 
4-year demonstration project designed to use eligible health 
care provider telemedicine networks to apply high-capacity 
computing and advanced networks for the provision of health 
care to Medicare beneficiaries who are residents of medically 
underserved rural and inner-city areas. The project would focus 
on improvements in primary care and prevention of complications 
for those residents with diabetes mellitus. The objectives of 
the project would include: (1) improving patient access to and 
compliance with appropriate care guidelines for chronic 
diseases through direct telecommunications links with 
information networks; (2) developing a curriculum to train, and 
provide standards for credentialing and licensure of, health 
professionals (particularly primary care) in the use of medical 
informatics and telecommunications; (3) demonstrating the 
application of advanced technologies to assist primary care 
providers in assisting patients with chronic illnesses in a 
home setting; (4) applying medical informatics to residents 
with limited English language skills; (5) developing standards 
in the application of telemedicine and medical informatics; and 
(6) developing a model for the cost-effective delivery of 
primary and related care both in a managed care and fee-for-
service environment.
    The provision defines an eligible health care provider 
telemedicine network as a consortium that includes at least one 
tertiary care hospital (but no more than two such hospitals), 
at least one medical school, and at least one regional 
telecommunications provider, no more than four facilities in 
rural or urban areas, and meets certain additional 
requirements. The provision would define those services to be 
covered under Part B for the purposes of this demonstration 
project. Medicare payment for covered Part B services would be 
made at a rate of 50% of the reasonable costs of providing such 
services. The Secretary would be required to recognize the 
following project costs as permissible costs for covered under 
Part B: (1) the acquisition of telemedicine equipment for use 
in patient homes; (2) curriculum development and training of 
health professionals in medical informatics and telemedicine, 
(3) payment of certain telecommunications costs, including 
costs of telecommunications between patients' homes and the 
eligible network and between the network and other entities 
under the arrangements described in the bill; and (4) payments 
to practitioners and providers under Medicare. Costs not 
covered under Part B would include: (1) purchase or 
installation of transmission equipment, (2) the establishment 
or operation of a telecommunications common carrier network, 
(3) the costs of construction (except for minor renovations 
related to the installation of reimbursable equipment), or (4) 
the acquisition or building of real property.
    The total amount of Medicare payments permitted under the 
project would be $30 million. The project would be prohibited 
from imposing cost sharing on a Medicare beneficiary for the 
receipt of services under the project of more than 20% of the 
recognized costs of the project attributable to these services. 
The Secretary would be required to submit to the House 
Committees on Ways and Means and Commerce and the Senate 
Committee on Finance interim reports on the project and a final 
report on the project within 6 months of the conclusion of the 
project. The final report would be required to include an 
evaluation of the impact of the use of telemedicine and medical 
informatics on improving the access of Medicare beneficiaries 
to health care services, on reducing the costs of such 
services, and on improving the quality of life of such 
beneficiaries.
    Reason for change. Americans living in rural and poor inner 
city areas have less access to specialty medical care and 
receive a disproportionate level of primary care by visiting 
hospital emergency rooms. Telemedicine may prove to be a 
promising tool to reach these individuals quickly. The 
Committee believes that while there are currently several 
ongoing telemedicine demonstrations, none exist in Medicare 
which examine chronic management issues related to diabetes 
mellitus. The Committee is concerned however that more 
information is needed on how to develop methodology for Part B 
payment purposes so that Medicare is not paying double for 
these services, and continues to urge HCFA to submit its 
recommendations on how to implement telemedicine methodology as 
described in the Health Insurance Portability and 
Accountability Act of 1996.
    Effective date. The provision would be effective upon 
enactment.

    Subtitle D--Anti-Fraud and Abuse Provisions and Administrative 
                              Efficiencies

             Chapter 1.--Fraud and Abuse Related Provisions

Section 10301. Permanent exclusion for those convicted of 3 health care 
        related crimes

    Current law. Section 1128(a) of the Social Security Act 
directs the Secretary of Health and Human Services to 
mandatorily exclude individuals and entities from participation 
in the Medicare program and state health care programs 
(Medicaid, Title V Maternal and Child Health Block Grants, and 
Title XX Social Services Block Grants) upon conviction of 
certain criminal offenses including Medicare and Medicaid 
program-related crimes, patient abuse crimes, health care fraud 
felonies, and felonies relating to controlled substances. Such 
mandatory exclusions are, in most cases, for a minimum period 
of 5 years.
    Explanation of provision. The provision would specify that 
if an individual is excluded by the Secretary of Health and 
Human Services from participation in federal health care 
programs, as defined in Section 1128b(f) of the Social Security 
Act, or state health care programs because of a conviction 
relating to Medicare and Medicaid program-related crimes, 
patient abuse, or felonies related to health care fraud or 
controlled substances, then the exclusion would be for a period 
of 10 years if the individual had been convicted on one 
previous occasion of one or more offenses for which such an 
exclusion may be imposed. If an individual had been convicted 
on two or more previous occasions of an offense for which an 
exclusion may be imposed, the exclusion would be permanent. The 
provision would apply to exclusions based on a conviction 
occurring on or after the date of enactment of this section 
where the individual has had prior convictions occurring 
before, on, or after the date of enactment of this section.
    Reason for change. Like all the provisions of Subtitle D, 
this provision builds on the historic anti-fraud and abuse 
provisions in the Health Insurance Portability and 
Accountability Act (HIPAA), which created new classes of health 
care crimes, increased civil penalties for health care fraud, 
and established a national health care fraud and abuse control 
program to coordinate federal, State and local law enforcement 
efforts. In addition, the Secretary and Attorney General were 
required to provide guidance to health care providers through 
the issuance of safe harbors, advisory opinions and special 
fraud alerts.
    According to the Inspector General of the Department of 
Health and Human Services, ``even after conviction and a 
subsequent program exclusion, there are instances where 
individuals and entities continue to engage in health care 
fraud and abuse.'' Letter of June 3, 1997 from June Gibbs 
Brown, Inspector General, to Chairman William M. Thomas 
(``Brown letter'') of the Ways and Means Health Subcommittee. 
The Inspector General believes that ``continuing misconduct 
poses ongoing risk to both federal health care programs and 
beneficiaries.'' See Brown letter. This ``three strikes, you're 
out'' provision will act as a strong deterrent to providers and 
health plans, helping to ensure the integrity of our federal 
health care programs.
    There is precedent for this type of federal punishment. The 
Violent Crime and Law Enforcement Act of 1994 was introduced to 
require a sentence of life imprisonment for a third conviction 
for certain violent or drug offenses. The Committee believes 
that Medicare beneficiaries deserve the same type of 
protection.
    Effective date. The provision is effective upon enactment.

Section 10302. Authority to refuse to enter into Medicare agreements 
        with individuals or entities convicted of felonies

    Current law. Section 1866 of the Social Security Act sets 
forth certain conditions under which providers may become 
qualified to participate in the Medicare program. The Secretary 
may refuse to enter into an agreement with a provider, or may 
refuse to renew or may terminate such an agreement, if the 
Secretary determines that the provider has failed to comply 
with provisions of the agreement, other applicable Medicare 
requirements and regulations, or if the provider has been 
excluded from participation in a health care program under 
section 1128 or 1128A of the Social Security Act. Section 1842 
of the Social Security Act permits physicians and suppliers to 
enter into agreements with the Secretary under which they 
become ``participating'' physicians or suppliers under the 
Medicare program.
    Explanation of provision. The provision would allow the 
Secretary to refuse to enter into an agreement, or refuse to 
renew or terminate an agreement with a provider if the provider 
has been convicted of a felony under federal or state law for 
an offense which the Secretary determines is inconsistent with 
the best interests of program beneficiaries. This authority 
would extend to the Secretary's agreements with physicians or 
suppliers who become ``participating'' physicians or suppliers 
under the Medicare program. Similar provisions would apply to 
the Medicaid program.
    Reason for change. This is an important measure that will 
help to protect beneficiaries from potential harm. At the same 
time, however, the Committee recognizes that this 
recommendation could be read to provide broad authority to the 
Secretary. Therefore, it is the intent of the Committee that 
the Secretary exercise considerable discretion in utilizing 
this authority and weigh extremely carefully any decision to 
refuse to enter into an agreement, or to non-renew or terminate 
an agreement only where there is clear evidence that 
beneficiaries will be harmed by entering into a relationship or 
renewing a relationship with a provider, physician or supplier.
    Effective date. The provision would take effect as of the 
date of enactment of this Act, and apply to new and renewed 
contracts on or after that date.

Sec. 10303. Inclusion of toll-free number to report Medicare waste, 
        fraud, and abuse in explanation of benefits forms

    Current law. The Health Insurance Portability and 
Accountability Act of 1996 (HIPAA) required the Secretary to 
establish a program to encourage individuals to report 
information on individuals and entities who have engaged in 
acts or omissions which would constitute grounds for the 
imposition of a sanction under sections 1128, 1128A, or 1128B 
of the Social Security Act, or who otherwise have engaged in 
fraud and abuse against the Medicare program. The Secretary was 
authorized by HIPAA to pay a portion of amounts collected as a 
result of these reports to the individual making such report.
    Explanation of provision. The provision would require the 
Inspector General of the Department of Health and Human 
Services to maintain a toll-free telephone number for the 
receipt of complaints and information about waste, fraud, and 
abuse in the provision or billing of Medicare services. It also 
would the Secretary to include in each Medicare beneficiary's 
explanation of benefits form this toll-free telephone number so 
that beneficiaries can report instances of waste, fraud, and 
abuse in the Medicare program.
    Reason for change. Over 90 percent of Medicare 
beneficiaries use their benefits at the same time during the 
year and receive an explanation of benefits form at least once 
each year. Medicare beneficiaries often detect billing 
irregularities and over-charges at the time they examine their 
explanation of benefits forms. This provision is intended to 
augment government enforcement efforts by empowering 
beneficiaries with easy, direct access to persons authorized to 
enforce penalties against fraud and abuse in the Medicare 
program.

Section 10304. Liability of Medicare carriers and fiscal intermediaries 
        for claims submitted by excluded persons

    Current law. Carriers and fiscal intermediaries are the 
entities which process claims for Medicare. Intermediaries 
process claims submitted by Part A providers of services and 
carriers process claims submitted by Part B providers.
    Explanation of provision. The provision would specify that 
agreements with fiscal intermediaries or carriers require that 
such organizations reimburse the Secretary for any amounts paid 
for services under Medicare which have been furnished, 
directed, or prescribed by an individual or entity during any 
period in which the individual or entity has been excluded from 
participation under Medicare, if the amounts have been paid 
after the fiscal intermediary or carrier has received notice of 
the exclusion. Similar restrictions would be imposed upon 
states under the Medicaid program.
    Reason for change. This provision is intended to ensure 
that Medicare contractors and State Medicaid agencies are 
vigilant in checking the eligibility of health care providers 
for reimbursement. Currently, when erroneous payments are made 
to excluded individuals, the Medicare and Medicaid programs 
incur the damages.
    Effective date. These provisions would apply to contracts 
and agreements entered into, renewed, or extended after the 
date of enactment of this Act, but only with respect to claims 
submitted on or after either January 1, 1998, or the effective 
date of the contract, whichever is later.

Section 10305. Exclusion of entity controlled by family member of a 
        sanctioned individual

    Current law. Section 1128 of the Social Security Act 
authorizes the Secretary of HHS to impose mandatory and 
permissive exclusions of individuals and entities from 
participation in the Medicare program, Medicaid program and 
programs receiving funds under the Title V Maternal and Child 
Health Services Block Grant, or the Title XX Social Services 
Block Grant. The Secretary may exclude any entity which the 
Secretary determines has a person with a direct or indirect 
ownership or control interest of 5 percent or more in the 
entity or who is an officer, director, agent, or managing 
employee of the entity, where that person has been convicted of 
a specified criminal offense, or against whom a civil monetary 
penalty has been assessed, or who has been excluded from 
participation under Medicare or a state health care program.
    Explanation of provision. The provision would specify that 
if a person transfers an ownership or control interest in an 
entity to an immediate family member or to a member of the 
household of the person in anticipation of, or following, a 
conviction, assessment or exclusion against the person, that 
the entity may be excluded from participation in Federal health 
care programs (see Section X309 of this bill) on the basis of 
that transfer. The terms ``immediate family member'' and 
``member of the household'' are defined in this section.
    Reason for change. According to the HHS Office of Inspector 
General, some excluded health care providers have been able to 
escape the impact of their sanction by transferring ownership 
and control interests in health care entities to family or 
household members. These individuals are then able to retain 
silent control of health care businesses that participate in 
Medicare and State health care programs despite exclusion from 
these programs. This provision will enable the OIG to prevent 
this scam.
    Effective date. The provision would effective 45 days after 
enactment.

Section 10306. Imposition of civil money penalties

    Current law. Section 1128A of the Social Security Act sets 
forth a list of fraudulent activities relating to claims 
submitted for payments for items of services under a Federal 
healthcare program. Civil money penalties of up to $10,000 for 
each item or service may be assessed. In addition, the Secretary of HHS 
(or head of the department or agency for the Federal health care 
program involved) may also exclude the person involved in the 
fraudulent activity from participation in a Federal health care 
program, defined as any program providing health benefits, whether 
directly or otherwise, which is funded directly, in whole or in part, 
by the United States Government (other than the Federal Employees 
Health Benefits Program).
    Explanation of provision. The provision would add a new 
civil money penalty for cases in which a person contracts with 
an excluded provider for the provision of health care items or 
services, where the person knows or should know that the 
provider has been excluded from participation in a Federal 
health care program. A civil money penalty is also added for 
cases in which a person provides a service ordered or 
prescribed by an excluded provider, where that person knows or 
should know that the provider has been excluded from 
participation in a Federal health care program.
    Reason for change. This provision is intended to ensure 
that Medicare contractors are vigilant in checking the 
eligibility of health care providers for reimbursement. 
Currently, when erroneous payments are made to excluded 
individuals, the Medicare and Medicaid programs incur the 
damages.
    Effective date. The provision would apply to arrangements 
and contracts entered into after the date of enactment of the 
Act.

Section 10307. Disclosure of information and surety bonds

    Current law. Section 1834(a) of the Social Security Act 
establishes requirements for payments under Medicare for 
covered items defined as durable medical equipment. Home health 
agencies are required, under Section 1861(o) of the Social 
Security Act, to meet specified conditions in order to provide 
health care services under Medicare, including requirements, 
set by the Secretary, relating to bonding or establishing of 
escrow accounts, as the Secretary finds necessary for the 
effective and efficient operation of the Medicare program.
    Explanation of provision. The provision would require that 
suppliers of durable medical equipment provide the Secretary 
with full and complete information as to persons with an 
ownership or control interest in the supplier, or in any 
subcontractor in which the supplier has a direct or indirect 5 
percent or more ownership interest, other information 
concerning such ownership or control, and a surety bond for at 
least $50,000. Home health agencies, comprehensive outpatient 
rehabilitation facilities, and rehabilitation agencies would 
also be required to provide a surety bond for at least $50,000. 
The Secretary may impose the surety bond requirement which 
applies to durable medical equipment suppliers to suppliers of 
ambulance services and certain clinics that furnish medical and 
other health services (other than physicians' services).
    The amendments with respect to suppliers of durable medical 
equipment would apply to equipment furnished on or after 
January 1, 1998. The amendments with respect to home health 
agencies would apply to services furnished on or after such 
date, and the Secretary of HHS is directed to modify 
participation agreements with home health agencies to provide 
for implementation of these amendments on a timely basis. The 
amendments with respect to ambulance services, certain clinics, 
comprehensive outpatient rehabilitation facilities and 
rehabilitation agencies would take effect on the date of 
enactment of this Act.
    Reason for change. This provision is intended to protect 
Medicare and the integrity of the Medicare program from ``fly-
by-night operators'' who can quickly and inexpensively set up 
sham businesses in order to fraudulently collect Medicare 
reimbursement. It is modeled after a successful program 
instituted by the State of Florida.
    Effective date. The provision would apply with respect to 
items and services furnished on or after January 1, 1998.

Section 10308. Provision of Certain Identification Numbers

    Current law. Section 1124 of the Social Security Act 
requires that entities participating in Medicare, Medicaid and 
the Maternal and Child Health Block Grant programs (including 
providers, clinical laboratories, renal disease facilities, 
health maintenance organizations, carriers and fiscal 
intermediaries), provide certain information regarding the 
identity of each person with an ownership or control interest 
in the entity, or in any subcontractor in which the entity has 
a direct or indirect 5 percent or more ownership interest. 
Section 1124A of the Social Security Act requires that 
providers under Part B of Medicare also provide information 
regarding persons with ownership or control interest in a 
provider, or in any subcontractor in which the provider has a 
direct or indirect 5 percent or more ownership interest.
    Explanation of provision. The provision would require that 
all Medicare providers supply the Secretary with both the 
employer identification number and social security account 
number of each disclosing entity, each person with an ownership 
or control interest, and any subcontractor in which the entity 
has a direct or indirect 5 percent or more ownership interest. 
The Secretary of HHS is directed to transmit to the 
Commissioner of Social Security information concerning each 
Social Security number and to the Secretary of the Treasury 
information concerning each employer identification number 
supplied to the Secretary for verification of such information. 
The Secretary would reimburse the Commissioner and the 
Secretary of the Treasury for costs incurred in performing the 
verification services required by this provision. The Secretary 
of HHS would report to Congress on the steps taken to assure 
confidentiality of Social Security numbers to be provided to 
the Secretary of HHS under this section. This section's 
reporting requirements would then become effective 90 days 
after submission of the Secretary's report to Congress on 
confidentiality of Social Security numbers.
    Reason for change. This provision is intended to provide 
the Secretary of HHS with additional information necessary to 
determine whether giving a provider number to a provider, 
physician, or supplier is in the best interest of 
beneficiaries. It also is intended to serve as a deterrent to 
individuals with past records of fraud and abuse who seek to 
provide services through the Medicare program. Because the 
Committee believes it is extremely important to protect the 
privacy and confidentiality of physicians, the provision does 
not take effect until the Administration provides a report to 
the relevant committees of Congress to provide assurance that 
there are adequate measures in place to protect the privacy of 
physicians.
    Effective date. The reporting requirements of this 
provision are applicable to conditions of participation, 
entering and renewal of contracts, and payments for items and 
services furnished more than 90 days after the submission of 
the report described above.

Section 10309. Advisory opinions regarding certain physician self-
        referral provisions

    Current law. Section 1877 of the Social Security Act 
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 referrals to certain 
entities for services for which Medicare would otherwise pay.
    Explanation of provision. The provision would require the 
Secretary of HHS to issue written advisory opinions concerning 
whether a physician referral relating to designated health 
services (other than clinical laboratory services) is 
prohibited under Section 1877 of the Social Security Act. Such 
opinions would be binding as to the Secretary and the party 
requesting the opinion. To the extent practicable, the 
Secretary is to apply the regulations issued under the advisory 
opinion provisions of Section 1128D of the Social Security Act 
to the issuance of advisory opinions under this provision.
    Reasons for change. The so-called Stark II amendments of 
1993 include a series of prohibitions designed to regulate the 
structure and operation of physician practices in ways that 
could interfere with the integration of physician practices and 
improved patient access. Despite the fact that the law was 
passed four years ago, regulations have not yet been issued 
because of the law's complexity. This provision is intended to 
provide some guidance to physicians seeking to comply with 
Stark II by extending the application of the binding advisory 
opinion structure authorized under HIPAA.
    Effective date. The provision is effective upon enactment.

Section 10310. Other fraud and abuse related provisions

    Current law. Section 1128D provides for safe harbors, 
advisory opinions, and fraud alerts as guidance regarding 
application of health care fraud and abuse sanctions. Section 
1128E of the Social Security Act directs the Secretary of HHS 
to establish a national health care fraud and abuse data 
collection program for the reporting of final adverse actions 
against health care providers, suppliers, or practitioners.
    Explanation of provision. The provision would make certain 
technical changes in provisions added by HIPAA. The provision 
would also provide that mandatory and permissive exclusions 
under Section 1128 apply to any Federal health care program, 
defined as any program providing health benefits, whether 
directly or otherwise, which is funded directly, in whole or in 
part, by the United States Government (other than the Federal 
Employees Health Benefits Program). A new provision is added to 
the health care fraud and abuse data collection program to 
provide a civil money penalty of up to $25,000 to be imposed 
against a health plan that fails to report information on an 
adverse action required to be reported under this program. The 
Secretary would also publicize those government agencies which 
fail to report information on adverse actions as required.
    The change in the federal programs under which a person may 
be excluded under Section 1128 of the Social Security Act would 
be effective on the date of enactment of this Act. The sanction 
provision for failure to report adverse action information as 
required under Section 1128E of the Social Security Act would 
apply to failures occurring on or after the date of the 
enactment of this Act.
    Reasons for change. Because it is often difficult to track 
providers and physicians who move from one State to another, it 
is possible under current law for individuals and entities to 
avoid civil monetary penalties and continue providing services 
through Medicaid even after they have been excluded from the 
Medicare program. This provision would address that situation 
by extending the exclusion authority of the HHS Office of 
Inspector General to any federal health care program, other 
than the Federal Employee Health Benefit Program.
    The provision instituting monetary penalties for failure by 
private entities to report adverse actions to the health care 
fraud and abuse data collection program and publicizing 
failures by public entities to report such adverse actions is 
intended to improve coordination of fraud and abuse control 
efforts through the Medicare Integrity Program established by 
HIPAA.
    Effective date. The amendments made by this section 
generally would be effective as if included in the enactment of 
HIPAA.

                Subtitle E--Prospective Payment Systems

                    Chapter 1--Payment Under Part A

Section 10401. Prospective payment for skilled nursing facility [SNF] 
        services

    Current law. Currently Medicare reimburses the great bulk 
of SNF care on a retrospective cost-based basis. This means 
that SNFs are paid after services are delivered for the 
reasonable costs (as defined by the program) they have incurred 
for the care they provide. For Medicare reimbursement purposes, 
the costs SNFs incur for providing services to beneficiaries 
can be divided into three major categories: (1) routine 
services costs that include nursing, room and board, 
administration, and other overhead; (2) ancillary services, 
such as physical and occupational therapy and speech language 
pathology, laboratory services, drugs, supplies and other 
equipment; and (3) capital-related costs.
    Routine costs are subject to national average per diem 
limits. Separate per diem routine cost limits are established 
for freestanding and hospital-based SNFs by urban or rural 
area. Freestanding SNF routine limits are set at 112% of the 
average per diem labor-related andnonlabor-related costs. 
Hospital-based SNF limits are set at the limit for freestanding SNFs, 
plus 50% of the difference between the freestanding limits and 112% of 
the average per diem routine services costs of hospital-based SNFs. 
Routine cost limits for SNF care are required to be updated every 2 
years. In the interim the Secretary applies a SNF market basket 
developed by The Health Care Financing Administration to reflect 
changes in the price of goods and services purchased by SNFs. OBRA93 
eliminated updates in SNF routine cost limits for cost reporting 
periods beginning in FY1994 and FY1995.
    Ancillary service and capital costs are both paid on the 
basis of reasonable costs and neither are subject to limits.
    Congress on a number of occasions has required the 
Secretary to develop alternative methods for paying for SNF 
care on a prospective basis. In response, The Health Care 
Financing Administration has conducted research to develop a 
prospective payment system that uses a patient classification 
system, known as resource utilization groups, that will account 
for variations in resource use among Medicare SNF patients.
    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 (but not ancillary services) 
and is calculated separately for urban and rural areas, 
adjusted to reflect differences in wage levels. Prospective 
rates can not exceed the routine service costs limits 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.
    Explanation of provision. The provision would phase in a 
prospective payment system for SNF care that would pay a 
Federal per diem rate for covered SNF services. Covered 
services would include Part A SNF benefits as well as all 
services for which payment may be made under Part B during the 
period when the beneficiary is provided covered SNF care 
(excluding, however, physician services, certain nurse 
practitioner and physician assistant services, certified nurse-
midwife services, qualified psychologist services, services of 
a certified registered nurse anesthetist, certain dialysis 
services and drugs and in 1998, the transportation costs of 
electrocardiogram equipment). The per diem payment would cover 
routine service costs, ancillary and capital-related costs, but 
would not include costs associated with approved educational 
activities.
    During a transition period lasting through the three cost 
reporting periods beginning on or after July 1, 1998, a portion 
of the per diem payment to a SNF would be based on a facility-
specific rate, and the remaining portion on the Federal rate. 
For the first cost reporting period, the facility specific 
percentage would be 75 percent and Federal per diem percentage 
would be 25. For the second cost reporting period, the 
facility-specific percentage would be 50 percent and the 
Federal 50. For the last period, the facility-specific 
percentage would be 25 percent and the Federal 75.
    In determining for a cost reporting period the facility-
specific per diem rate for each SNF, the Secretary would 
calculate, on a per diem basis, the total allowable costs 
(costs up to the payment limits and exceptions payments) for 
covered Part A SNF benefits and estimates of amounts that would 
be payable under Part B for services described above, 
regardless of whether or not payment had been made for the Part 
B services to the facility or another entity. The Part A 
calculations would be done using cost reports for cost 
reporting periods beginning in fiscal year 1995, with 
appropriate adjustments made to non-settled fiscal year 1995 
cost reports. This total would be updated to the relevant cost 
reporting period by the SNF historical trend factor. The SNF 
historical trend factor for a fiscal year or other annual 
period would be defined as the percentage change, from the 
midpoint of a prior fiscal year to the midpoint of the year 
involved, in the SNF routine cost index used for per diem 
routine cost limits, reduced (on an annualized basis) by 1 
percentage point. Beginning with the first cost reporting 
period of the transition, the facility-specific per diem rate 
would be updated by the SNF market basket.
    For the Federal per diem rate, the Secretary would first 
estimate, on a per diem basis for each freestanding SNF that 
received Medicare payments during a cost reporting period 
beginning in fiscal year 1995 and that was subject to (and not 
exempted from) routine cost limits of current law, the total 
allowable costs (costs up to the payment limits and exceptions 
payments) for covered Part A SNF benefits and an estimate of 
amounts that would be payable under Part B, regardless of 
whether or not payment had been made for the Part B services to 
the facility or another entity. The Part A calculations would 
be done using cost reports for cost reporting periods beginning 
in fiscal year 1995, with appropriate adjustments to non-
settled fiscal year 1995 cost reports. This total would be 
updated to the relevant cost reporting period by the SNF 
historical trend factor (again reflecting a 1 percentage point 
reduction in the routine cost index). The Secretary would 
standardize the updated amount for each facility by adjusting 
for variations among facilities in average wage levels and case 
mix. The Secretary would then compute a weighted average per 
diem rate. This would equal the average of the standardized 
amounts, weighted for each facility by the number of covered 
days of care provided during the cost reporting period. The 
Secretary could compute and apply an average separately for 
facilities located in urban and rural areas.
    Beginning with fiscal year 1998, the Secretary would be 
required to compute for each SNF an unadjusted Federal per diem 
rate equal to the weighted average per diem rate, updated by 
the SNF market basket. The actual per diem rate paid to a SNF 
would include adjustments for case mix based on a resident 
classification system established by the Secretary to account 
for relative resource utilization of different patient types. 
The labor-related portion of the rate would also include budget 
neutral adjustments to reflect the relative level of wages and 
wage-related costs for the geographic area in which the 
facility is located. To deal with case-mix ``creep'' when 
changes in the coding or classification of residents result in 
higher aggregate payments that do not reflect real changes in 
case mix, the Secretary would be authorized to adjust per diem 
rates to discount the effect of coding changes.
    The Secretary would be required to publish in the Federal 
Register before July 1 preceding each fiscal year (beginning 
with fiscal year 1999): (1) the unadjusted Federal per diem 
rates for covered SNF care during the fiscal year; (2) the case 
mix classification system to be applied to the rates; and (3) 
the factors to be applied in making area wage adjustments. SNFs 
would be required to provide the Secretary resident assessment 
data necessary to develop and implement per diem rates in the 
manner and within the timeframes prescribed by the Secretary.
    Low volume SNFs and rural hospitals using inpatient beds to 
provide SNF care (swing-bed hospitals) would be included in the 
new prospective per diem payment system in a manner and 
timeframe established by the Secretary (but not earlier than 
July 1, 1999). If the Secretary includes the low volume 
providers immediately, she should include their costs in 
establishing the Federal per diem rates.
    For beneficiaries residing in SNFs but no longer eligible 
for Part A SNF care, payments for Part B covered services would 
have to be made to the facility without regard as to whether or 
not the item or service was furnished by the facility, by 
others under arrangement, or under any other contracting or 
consulting arrangement. Payments for Part B services would be 
based on existing or other fee schedules established by the 
Secretary. Claims for Part B items and services would be 
required to include a code identifying the items or services 
delivered.
    The Secretary would be required to establish and implement 
a thorough medical review process to examine the effects of the 
new prospective payment system on the quality of covered SNF 
care. In this medical review process, the Secretary would be 
required to place a particular emphasis on the quality of 
ancillary services and physician services.
    Reason for change. Between 1990 and 1996, there were 5,045 
new Medicare-certified skilled nursing facilities. During this 
same period, Medicare's average payment per day rose from $100 
to $286. Much of this growth has been fueled by Medicare's 
cost-based reimbursement system which helps finance start-up 
costs and encourages providers to deliver more and more 
services to each beneficiary. The Committee believes that 
moving from cost-based reimbursement to prospective payment, 
which rewards efficiency, will make Medicare a more prudent 
purchaser of these services. The Committee is also aware that 
under a prospective payment system that includes all services 
there may be incentives to decrease the use of ancillary 
services. To ensure that beneficiaries are receiving the 
appropriate amount of these services, the Secretary shall 
require consistent coding of the ancillary services delivered 
to all SNF patients. This will then allow for an evaluation of 
the effect of the new system on the provision of such services.
    An analysis by the Congressional Budget Office found that 
Medicare Part B payments to SNFs for rehabilitation services 
more than tripled between 1990 and 1995. The Committee feels 
that it is important for the Secretary to monitor these Part B 
services, especially those delivered to Medicare SNF patients 
who have exhausted their Part A benefit but remain in a SNF.
    Effective date. The provision would be effective for cost-
reporting periods beginning on or after July 1, 1998.

Section 10402. Prospective Payment For Inpatient Rehabilitation 
        Hospital Services Based on Discharges Classified By Patient 
        Case Mix Groups

    Current 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.
    Explanation of provision. The provision would require the 
Secretary to establish a prospective payment system for 
inpatient rehabilitation hospital services based on patient 
case mix groups.
    For this system, the Secretary would be required to 
establish (1) classes of discharges of rehabilitation 
facilities by patient case mix groups based on impairment, age, 
related prior hospitalization, comorbidities, and functional 
capability of the discharged individual and other appropriate 
factors; and (2) a method of classifying specific discharges 
from rehabilitation facilities within these groups.
    The provision would require the Secretary to assign each 
case mix group an appropriate weighting which would reflect the 
relative facility resources used with respect to discharges 
classified within a group compared to discharges classified 
within other groups. The Secretary would be required to adjust 
the classifications and weighting factors to correct for 
forecast errors and to reflect changes in treatment patterns, 
technology, case mix, number of discharges paid for under 
Medicare, and other factors which might affect the relative use 
of resources. The Secretary would be authorized to require 
rehabilitation facilities providing inpatient hospital services 
to submit data on discharges classified according to case mix 
group or other rehabilitation impairment groups, measurement of 
functional disability, and other patient assessment factors as 
deemed necessary to establish and administer the prospective 
payment system.
    The Secretary would be required to determine a prospective 
payment rate for each payment unit for which a rehabilitation 
facility is entitled to be paid under Medicare. The payment 
rate would be based on the average payment per discharge under 
Medicare for operating and capital costs of rehabilitation 
facilities using the latest available data, adjusted by (1) 
updating such per-unit amounts to the fiscal year involved by 
the applicable percentage increasesprovided by the bill for 
each fiscal year and up to FY2000, and an increase factor specified by 
the Secretary for subsequent fiscal years; (2) reducing such rates by a 
factor equal to the proportion of payments by Medicare for outliers; 
(3) variations among rehabilitation facilities by areas; (4) weighting 
factors described in the bill; and (5) other factors the Secretary 
determines are necessary to reflect variations in necessary costs of 
treatment among rehabilitation facilities.
    Prospective payment rates would be phased in between 
October 1, 2000 and before October 1, 2003, by blending the 
prospective rate with the TEFRA percentage of the hospital's 
target amount that would have been paid under Part A if this 
provision did not apply, and the prospective payment percentage 
of the per unit payment rate established by the Secretary. For 
cost reporting periods beginning on or after October 1, 2000 
and before October 1, 2001, the TEFRA percentage would be 75% 
and the prospective payment percentage would be 25%; for cost 
reporting periods on or after October 1, 2001, and before 
October 1, 2002, the TEFRA percentage would be 50% and the 
prospective payment percentage would be 50%; for cost reporting 
periods on or after October 1, 2002, and before October 1, 
2003, the TEFRA percentage would be 25% and the prospective 
payment percentage would be 75%. Payment rates on or after 
October 1, 2003, would be equal to the per unit fully 
prospective payment rate. Payment per unit would mean a 
discharge, day of inpatient hospital services, or other unit of 
payment specified by the Secretary.
    For fiscal years 2001 through 2004, the Secretary would be 
required to establish prospective payment amounts that were 
budget neutral, so that total payments for rehabilitation 
hospitals would equal 99% of the amount of payments that would 
have been made if prospective payments had not been made. The 
Secretary would be required to develop an increase factor which 
could be based on an appropriate percentage increase in a 
market basket of goods and services purchased by rehabilitation 
hospitals. The Secretary would also be required to provide for 
additional payments for outlier cases that involved unusually 
long length of stay or were very costly, or other factors. 
These adjustments would be made in a budget neutral manner. The 
Secretary would also be required to adjust prospective payments 
to rehabilitation facilities by a wage index that reflected 
area differences for wages and wage-related costs. No later 
than October 1, 2001, the Secretary would be required to update 
the area wage adjustment factor based on a survey of wages and 
wage related costs of providing rehabilitation services.
    Reason for change. Between 1990 and 1994, Medicare payments 
to rehabilitation hospitals and units more than doubled from 
$1.9 billion to $3.9 billion. At the Health Subcommittee 
hearing on April 10, 1997 on Medicare payments to 
Rehabilitation facilities, several experts testified regarding 
problems with the current payment method and the feasibility of 
implementing a prospective payment system in the near future. 
The Committee believes that a prospective payment system would 
increase efficiency and should be implemented as soon as 
possible.
    Effective date. These provisions are effective upon 
enactment. The prospective payment system will be implemented 
for cost reporting periods beginning on or after October 1, 
2000.

                    Chapter 2.--Payment Under Part B

   subchapter a--payment for hospital outpatient department services

Section 10411. Elimination of formula-driven overpayments [FDO] for 
        certain outpatient hospital services.

    Current 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 fee schedule 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 fee schedule portion is based, in part, 
on ambulatory surgery center payment rates or the rates for 
radiology and diagnostic services in other settings, net of 
beneficiary coinsurance (for those settings). The hospital cost 
portion and the fee schedule portion for surgical and radiology 
services are 42% and 58%, respectively. For diagnostic services 
the hospital cost portion is 50 percent and the fee schedule 
portion is 50 percent.
    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 in other settings 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, 1997.
    Reason for change. Because of an 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 coinsurance payment.
    Effective date. This provision shall apply to services 
furnished during portions of cost reporting periods occurring 
on or after October 1, 1997.

Section 10412. Extension of reductions in payments for costs of 
        hospital outpatient services

            Current law
    a. Reduction in payments for capital-related costs. 
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 FY1998.
    b. Reduction in payments for non-capital-related costs. 
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 FY1998.
            Explanation of provision
    a. Reduction in payments for capital-related costs. The 
provision would extend the 10 percent reduction in payments for 
outpatient capital through FY1999 and during FY2000 before 
January 1, 2000.
    b. Reduction in payments for non-capital-related costs. The 
5.8 percent reduction for outpatient services paid on a cost 
basis would be extended through FY1999 and during FY2000 before 
January 1, 2000.
    Reason for change. These provisions would otherwise expire.
    Effective date. These provisions are effective for cost 
reporting periods beginning on or after October 1, 1997.

Section 10413. Prospective payment system for hospital outpatient 
        department services

    Current 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 fee schedule 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 fee schedule portion is based on 
ambulatory surgery center payment rates or the rates for 
radiology and diagnostic services in other settings, net of 
beneficiary coinsurance (for these other settings). For cost 
reporting periods beginning on or after January 1, 1991, the 
hospital cost portion and the fee schedule portion for surgical 
and radiology services are 42 percent and 58 percent, 
respectively. For diagnostic services the hospital cost portion 
is 50 percent and the fee schedule portion is 50 percent.
    Explanation of provision. The provision would require the 
Secretary to establish a prospective payment system for covered 
OPD services furnished beginning in 1999. The Secretary would 
be required to develop a classification system for covered OPD 
services, such that services classified within each group would 
be comparable clinically and with respect to the use of 
resources. The Secretary would be required to establish 
relative payment rates for covered OPD services using 1996 
hospital claims and cost report data, and determine projections 
of the frequency of utilization of each such service or group 
of services in 1999. The Secretary would be required to 
determine a wage adjustment factor to adjust the portions of 
payment attributable to labor-related costs for relative 
geographic differences in labor and labor-related costs that 
would be applied in a budget neutral manner. The Secretary 
would be required to establish other adjustments as necessary, 
including adjustments to account for variations in coinsurance 
payments for procedures with similar resource costs, to ensure 
equitable payments under the system. The Secretary would also 
be required to develop a method for controlling unnecessary 
increases in the volume of covered OPD services.
    Hospitals OPD coinsurance payments would be limited to 20% 
of the national median of the charges for the service (or 
services within the group) furnished in 1996 updated to 1999 
using the Secretary's estimate of charge growth during this 
period. The Secretary would be required to establish rules for 
the establishment of a coinsurance payment amount for a covered 
OPD service not furnished during 1996, based on its 
classification within a group of such services.
    For 1999, the Secretary would be required to establish a 
conversion factor for determining the Medicare OPD fee payment 
amounts for each covered OPD service (or group of services) 
furnished in 1999 so that the sum of the products of the 
Medicare OPD fee payment amounts and the frequencies for each 
service or group would be required to equal the total amounts 
estimated by the Secretary that would be paid for OPD services 
in 1999. In subsequent years, the Secretary would be required 
to establish a conversion factor for covered OPD services 
furnished in an amount equal to the conversion factor 
established for 1999 and applicable to services furnished in 
the previous year increased by the OPD payment increase factor. 
The increase factor would be equal to the hospital market 
basket (MB) percentage increase plus 3.5 percentage points. 
When the amount of the beneficiary coinsurance for an 
individual procedure is equal to 20 percent of the total 
payment, both the coinsurance and the Medicare program payment 
would be increased by the market basket.
    The Secretary would be required to establish a procedure 
under which a hospital, before the beginning of a year 
(starting with 1999), could elect to reduce the coinsurance 
payment for some or all covered OPD services to an amount that 
is not less than 20% of the total (Medicare program plus 
beneficiary coinsurance payment) amount for the service 
involved, adjusted for relative differences in labor costs and 
other factors. A reduced coinsurance payment could not be 
further reduced or increased during the year involved, and 
hospitals could disseminate information on the reduction of 
coinsurance amounts.
    The Secretary would be authorized periodically to review 
and revise the groups, relative payment weights, and the wage 
and other adjustments to take into account changes in medical 
practice, medical technology, the addition of new services new 
cost data, and other relevant information. Any adjustments made 
by the Secretary would be made in a budget neutral manner.If 
the Secretary determined that the volume of services paid for under 
this subsection increased beyond amounts established through those 
methodologies, the Secretary would be authorized to adjust the update 
to the conversion factor otherwise applicable in a subsequent year.
    The provision would provide that the coinsurance payment 
for covered OPD services would be determined by the provisions 
of this bill instead of the standard 20% coinsurance for other 
Part B services. The provision would also provide for 
conforming amendments regarding approved ambulatory surgical 
center procedures performed in hospital OPDs, for radiology and 
other diagnostic procedures, and for other hospital outpatient 
services.
    Reason for change. Medicare reimburses hospitals for 
outpatient department services under a variety of complex 
methods that are based on cost, charges, or blended payments. 
The Committee believes that a prospective payment system will 
be simple to administer and will offer incentives to providers 
to operate more efficiently.
    The Committee has given the Secretary discretion in 
determining the adjustment factors that will be applied to the 
OPD prospective rates. In examining the necessary adjustment 
factors, the Committee would like the Secretary to examine 
whether an adjustment is warranted for those Eye and Ear 
specialty hospitals that received payments under a different 
blend formula for cost reporting periods beginning on or after 
October 1, 1988 and before January 1, 1995.
    The Committee is also concerned about the level of 
beneficiary coinsurance payments for hospital outpatient 
department services. Since Medicare beneficiaries pay 20 
percent of charges for services received in a hospital 
outpatient department, their coinsurance payments are often 
much higher than those in other settings. A ProPAC analysis 
found that the median coinsurance for many hospital outpatient 
department services in 1995 was two to three times higher than 
the rates in other ambulatory settings. By freezing coinsurance 
payments at the 1999 level, while Medicare payments increase 
over time, beneficiary liability will decline relative to 
Medicare payments over time. Further, the provision enables 
hospitals to further reduce beneficiary liability by allowing 
hospitals the flexibility to charge lower coinsurance payments.
    Effective date. The provision is effective for services 
delivered on or after January 1, 1999.

                 Subchapter B--Rehabilitation Services

Section 10421. Rehabilitation agencies and services

    Current law. Medicare provides for special payment rules 
for certain types of providers of services covered under Part B 
and paid out of the SMI Trust Fund.
    Explanation of provision. For outpatient physical therapy 
and occupational therapy services, Medicare program payments 
for services provided in 1998 would be, the least of the actual 
charges for the services or the adjusted reasonable costs for 
the services minus beneficiary coinsurance payments. Adjusted 
reasonable costs are defined as operating costs reduced by 5.8% 
and capital costs reduced by 10%. After 1998, payment for these 
services would be 80% of the lesser of the actual charge for 
the services, or 80% of the applicable physician fee schedule 
amount. The provision would also exclude from Medicare coverage 
outpatient occupational therapy and physical therapy services 
furnished as an incident to a physician's professional services 
that did not meet the standards provided for outpatient 
physical therapy services furnished by a provider in a clinic, 
rehabilitation agency, public health agency, or by others under 
an arrangement with and under the supervision of such 
providers.
    The provision would also apply the per beneficiary cap of 
$900 per year for outpatient therapy services beginning in 
1999. The cap would be increased each year by the estimated 
increase in gross domestic product (GDP).
    Reason for change. Between 1990 and 1995, Medicare payments 
to rehabilitation agencies increased more than threefold . 
During this same period, Part B therapy services delivered by 
skilled nursing facilities grew from $151 million to $827 
million. These services are paid based on ``allowable costs'' 
and are not subjected to the $900 cap that is applied to 
independent therapists who deliver similar services. The 
Committee believes that a prospective payment system based on 
an existing fee schedule with a similar cap would be easy to 
administer, would reward efficient providers, and would apply 
consistent limits to providers delivering similar services.
    Effective date. These provisions are effective for services 
on or after January 1, 1998.

Section 10422. Comprehensive outpatient rehabilitation facilities 
        [CORFs]

    Current law. Medicare provides for special payment rules 
for certain types of providers of services covered under Part B 
and paid out of the SMI Trust Fund.
    Explanation of provision. CORF payments for services 
provided in 1998 would be, the least of the actual charges for 
the services or the adjusted reasonable costs for the services 
minus beneficiary coinsurance payments. Adjusted reasonable 
costs are defined as operating costs reduced by 5.8% and 
capital costs reduced by 10%. After 1998, payment for these 
services would be 80% of the lesser of the actual charge for 
the services, or 80% of the applicable physician fee schedule 
amount. The provision would also exclude from Medicare coverage 
outpatient occupational therapy and physical therapy services 
furnished as an incident to a physician's professional services 
that did not meet the standards provided for outpatient 
physical therapy services furnished by a provider in a clinic, 
rehabilitation agency, public health agency, or by others under 
an arrangement with and under the supervision of such 
providers.
    The provision would also apply the per beneficiary cap of 
$900 per year for outpatient therapy services beginning in 
1999. The cap would be increased each year by the estimated 
increase in gross domestic product (GDP).
    Reason for change. Medicare CORF payments increased at an 
average annual rate of 32 percent between 1990 and 1995. These 
services are paid on a cost basis and are not subject to a $900 
cap that is applied in other settings. The Committee believes 
that a prospective payment system will provide proper 
incentives for cost-effective delivery of services.
    Effective date. This provision is effective for services 
delivered on or after January 1, 1998.

                    Subchapter C--Ambulance Services

Section 10431. Payments for ambulance services

    Current law. Payment for ambulance services provided by 
freestanding suppliers is based on reasonable charge screens 
developed by individual carriers based on local billings. 
Hospital or other provider-based ambulance services are paid on 
a reasonable cost basis; payment cannot exceed what would be 
paid to freestanding suppliers.
    Explanation of provision. The provision would specify 
payment rules for ambulance services for fiscal year 1998 
through fiscal year 2002. For ambulance services paid on a 
reasonable cost basis, the annual increase in the costs 
recognized as reasonable would be limited to the percentage 
increase in the consumer price index, reduced for fiscal years 
1998 and 1999 by 1 percent. Similarly, for ambulance services 
furnished on a reasonable charge basis, the annual increase in 
the charges recognized as reasonable would be limited to the 
percentage increase in the consumer price index, reduced for 
fiscal years 1998 and 1999 by 1 percent.
    The provision would require the Secretary to establish a 
fee schedule for ambulance services through a negotiated rule-
making process. In establishing the fee schedule, the Secretary 
would be required to: (1) establish mechanisms to control 
Medicare expenditure increases; (2) establish definitions for 
services; (3) consider appropriate regional and operational 
differences; (4) consider adjustments to payment rates to 
account for inflation and other relevant factors; and (5) 
phase-in the application of the payment rates in an efficient 
and fair manner. The Secretary would be required to assure that 
payments in fiscal year 2000 under the fee schedule did not 
exceed the aggregate amount of payments which would have been 
made in the absence of the fee schedule. The annual increase in 
the payment amounts in each subsequent year would be limited to 
the increase in the consumer price index. Medicare payments 
would equal 80% of the lesser of the fee schedule amount or the 
actual charge.
    In addition, the provision would authorize payment for 
advanced life support (ALS) services provided by paramedic 
intercept service providers in rural areas. The ALS services 
would be provided in conjunction with one or more volunteer 
ambulance services. The volunteer ambulance service involved 
must be certified as qualified to provide the service, have a 
contractual agreement with the ALS intercept service, provide 
only basic life support services at the time of the intercept, 
and be prohibited by state law from billing for services. The 
ALS service provider must be certified to provide the services 
and bill all recipients (not just Medicare beneficiaries) for 
ALS intercept services.
    Reason for change. Implementation of an ambulance fee 
schedule will provide greater ease of administration, 
predictable rate increases, and opportunities for efficient 
providers. In addition, the provision provides the Health Care 
Financing Administration with the authority necessary to 
reimburse non-transporting ALS services that are critical to 
providing emergency care in rural areas.
    Effective date. The provision is effective upon enactment.

Section 10432. Demonstration of coverage of ambulance services under 
        Medicare through contracts with units of local government

    Current law. No provision.
    Explanation of provision. The provision would require the 
Secretary to establish up to 3 demonstration projects under 
which, at the request of a county or parish, the Secretary 
enters into agreement with such entity to furnish or arrange 
for the furnishing of ambulance services. The county or parish 
could not enter into a contract unless the contract covered at 
least 80% of the residents enrolled in Part B. Individuals or 
entities furnishing services would have to meet the 
requirements otherwise applicable. The Secretary would make 
monthly per capita payments to the county or parish. In the 
first year, the capitated payment would equal 95% of the 
average annual per capita payment made in the most recent 3 
years for which data is available. In subsequent years, it 
would equal 95% of the amount established for the preceding 
year increased by the CPI.
    The contract could provide for the inclusion of persons 
residing in additional counties or parishes, permit 
transportation to non-hospital providers, and implement other 
innovations proposed by the county or parish.
    The Secretary would be required to evaluate the 
demonstration projects and report by January 1, 2000, on the 
study including recommendations regarding modifications to the 
payment methodology and whether to extend or expand such 
projects.
    Reason for Change. This demonstration authorized by this 
provision will help provide important data as to whether 
permitting transportation to non-hospital providers will yield 
innovations and cost-efficiencies for the Medicare program.
    Effective Date. The provision is effective upon enactment.

                 Chapter 3--Payment Under Parts A and B

Section 10441. Prospective payment for home health services

    Current law. Medicare reimburses home health agencies on a 
retrospective cost-based basis. This means that agencies are 
paid after services are delivered for the reasonable costs (as 
defined by the program) they have incurred for the care they 
provide to program beneficiaries, up to certain limits. In 
provisions contained in the Orphan Drug Act of 1983, 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 Health Care Financing Administration 
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. The Health Care 
Financing Administration has begun a second project, referred 
to as Phase II, to test prospective payment on a per episode 
basis, and has also undertaken research to develop a home 
health case-mix adjustor that would translate patients' varying 
service needs into specific reimbursement rates.
    Explanation of provision. The provision would require the 
Secretary to establish a prospective payment system for home 
health and implement the system beginning October 1, 1999. All 
services covered and paid on a reasonable cost basis at the 
time of enactment of this section, including medical supplies, 
would be required to be paid on a prospective basis. In 
implementing the system, the Secretary could provide for a 
transition of not longer than 4 years during which a portion of 
the payment would be based on agency-specific costs, but only 
if aggregate payments were not greater than they would have 
been if a transition had not occurred.
    In establishing the prospective system, the Secretary would 
be authorized to consider an appropriate unit of service and 
the number of visits provided within that unit, potential 
changes in the mix of services provided within that unit and 
their cost, and a general system design that provides for 
continued access to quality services.
    Under the new system, the Secretary would compute a 
standard prospective payment amount (or amounts) that would 
initially be based on the most current audited cost report data 
available to the Secretary. For fiscal year 2000, payment 
amounts under the prospective system would be computed in such 
a way that total payments would equal amounts that would have 
been paid had the system not been in effect, but would also 
reflect a 15% reduction in cost limits and per beneficiary 
limits in effect September 30, 1999. Payment amounts would be 
standardized in a manner that eliminates the effect of 
variations in relative case mix and wage levels among different 
home health agencies in a budget neutral manner. The Secretary 
could recognize regional differences or differences based on 
whether or not services are provided in an urbanized area. 
Beginning with fiscal year 2001, standard prospective payment 
amounts would be adjusted by the home health market basket.
    The payment amount for a unit of home health service would 
be adjusted by a case mix adjustor factor established by the 
Secretary to explain a significant amount of the variation in 
the cost of different units of service. The labor-related 
portion of the payment amount would be adjusted by an area wage 
adjustment factor that would reflect the relative level of 
wages and wage-related costs in a particular geographic area as 
compared to the national average. The Secretary could provide 
for additions or adjustments to payment amounts for outliers 
because of unusual variations in the type or amount of 
medically necessary care. The total amount of outlier payments 
could not exceed 5 percent of total payments projected or 
estimated to be made in a year. The Secretary would be required 
to reduce the standard prospective payments by amounts that in 
the aggregate would equal outlier adjustments. If a beneficiary 
were to transfer to or receive services from another home 
health agency within the period covered by a prospective 
payment amount, then the payment would be prorated between the 
agencies involved.
    Claims for home health services furnished on or after 
October 1, 1998, would be required to contain an appropriate 
identifier for the physician prescribing home health services 
or certifying the need for care. Claims would also be required 
to include information (coded in an appropriate manner) on the 
length of time of a service, as measured in 15 minute 
increments. The categories of services for which time 
information would have to be included on a claim would be 
skilled nursing care; therapies--physical and occupational 
therapy and speech language pathology; medical social services; 
and home health aide services.
    Periodic interim payments for home health services would be 
eliminated. All home health care agencies would be paid 
according to the prospective payment system.
    In order for home health services to be considered covered 
care, home health care agencies would be required to submit 
claims for all services, and all payments would be made to a 
home health agency without regard to whether or not the item or 
service was furnished by the agency, by others under 
arrangement, or under any other contacting or consulting 
arrangement.
    Reason for change. Medicare's payments for home health care 
services are one of the fastest growing components of the 
Medicare program. In 1988, Part A home health care spending 
represented 3.6 percent of total Part A spending. By 1994, the 
share of Part A spendingattributable to home health care 
services climbed to 11.7 percent. Much of this growth was fueled by 
relatively generous payments, coverage policies, and little agency 
oversight.
    At a March 4, 1997 Health Subcommittee hearing on Medicare 
home health care services, experts testified that the current 
definition of a visit left much room for too much discretion 
and variation among agencies. The Committee believes that it is 
important to require consistent coding in timed increments in 
order to evaluate the types of services delivered to Medicare 
beneficiaries.
    Since the mid-1980s, Congress has required the Secretary to 
develop an appropriate case-mix adjuster. This proposal would 
require the Secretary to not only develop but also implement a 
case-mix adjusted prospective payment system within two years.
    Effective date. The proposal would be effective October 1, 
1999.

               Subtitle F--Provisions Relating to Part A

                  Chapter 1.--Payment of PPS Hospitals

Section 10501. PPS hospital payment update

    Current 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 costliness of the case, 
based on the diagnosis related group (DRG) to which the 
discharge is assigned. Additional payments are made for the 
following: extraordinary costly cases (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 (MBI), 
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 in FY 1998 for all PPS 
hospitals is equal to the percentage increase in the market 
basket.
    Explanation of provision. The proposal sets the update 
factor for FY 1998 at 0% for all hospitals in all areas; for FY 
1999-2002, at MBI minus 1.0 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 1994, PPS hospitals' Medicare 
inpatient operating costs per discharge decreased for the first 
time. While hospital case-mix (patient acuity) has increased 
over the past several years, reductions in both hospital cost 
growth--reflecting changes in the amount and timing of services 
furnished during inpatient stays--and in the average length of 
stay have contributed significantly to lower hospital costs. In 
addition, as hospitals are able to increase their productivity 
by improving management techniques and taking advantage of 
technologies that reduce costs, the Committee believes that the 
Medicare program should share in these savings. Finally, ProPAC 
estimates the PPS margin (which compares Medicare operating and 
capital payments to costs) is 14.2 percent in FY 1997 and will 
be more than 16 percent in FY 1998 under current law.
    The proposal to freeze the hospital PPS update is not a 
freeze on hospital payments. Medicare's payments to hospitals 
are still expected to increase by at least 1.9 percent because 
of case-mix increases.
    Historically, the Health Care Financing Administration 
(HCFA) has analyzed only Medicare Provider Analysis and Review 
(MedPAR) data in its annual recalibration of diagnosis related 
group (DRG) relative weights and when considering whether to 
reclassify certain procedures within the DRG system. Because 
the International Classification of Disease 9th Revision 
Clinical Modification (ICD-9-CM) system used in conjunction 
with MedPAR may not be fully updated, tracking the 
administration of inpatient drug therapies; however, certain 
drug therapies essentially are eliminated from HCFAs 
recalibration and reclassification process. Thus, in order to 
insure that Medicare beneficiaries have access to innovative, 
new drug therapies, HCFA should consider reliable, validated 
data other than MedPAR data in annually recalibrating and 
reclassifying the DRGs. Furthermore, any new procedure coding 
system adopted under S. 262 of the Health Insurance Portability 
and Accountability Act of 1996 (HIPAA), P.L. 104-91, should 
include a means of tracking the administration of drug 
therapies such that future MedPAR data shall contain 
information regarding the utilization of specific drugs.
    Effective date. The provision would be effective upon 
enactment.

Section 10502. Capital payments for PPS hospitals

    Current law. In FY1992, 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 thetransition, 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 equaled 90 
percent of estimated Medicare-allowed capital costs. In FY 
1996, the budget neutrality requirement was lifted. In 
addition, the cost-based updates are replaced by an ``update 
framework'' (developed by HCFA and proposed in the June 2, 1995 
Federal Register), which determines 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. With the expiration of the budget neutrality 
language in 1996, the federal capital rate jumped 22.6 percent.
    Explanation of provision. The provision would require the 
Secretary to rebase the capital payment rates for FY 1998 using 
the actual rates in effect in FY 1995, by applying the budget 
neutrality adjustment factor used to determine the federal 
capital payment rate on September 30, 1995 to the unadjusted 
standard federal capital payment rate in effect on September 
30, 1997, and to the unadjusted hospital-specific rate in 
effect on September 30, 1997.
    The provision would also revise the exceptions process for 
certain capital projects provided under PPS.
    Reason for change. Most areas of the United States continue 
to have more hospital beds than necessary. Payments for capital 
costs have been found to be overestimated by as much as 17 
percent. These payment rates reflect two errors: a 7.4 percent 
overstatement of the FY 1992 base payments rates, and the 
application of updates for FYs 1993 through 1995 that were 
based on historical trends, instead of an update framework 
which reflects anticipated hospital costs.
    Effective date. The provision would be effective upon 
enactment.

Section 10503. Freeze in disproportionate share

    Current law. Under PPS, an adjustment is made to the 
payment to hospitals that serve a disproportionate share of 
low-income patients. The disproportionate share hospital (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 hospital's location, 
and the disproportionate patient percentage. A hospital's 
disproportionate patient percentage is the sum of (1) the total 
number of inpatient days attributable to Federal SSI 
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 (SCH);
                  (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 82.5 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 provision would freeze DSH 
payments for discharges for FY 1998 and FY 1999. The Secretary 
would be required to develop a proposal to modify thecurrent 
definitions for DSH payments and transmit the proposal developed to the 
Committees on Ways and Means of the House and Finance of the Senate by 
April 1, 1999.
    Reason for change. DSH payments have increased from $1.1 
billion in 1989 to $4.3 billion in 1996, in large part because 
of legislative changes made in 1989 and 1990. The proposal 
would limit the increase in payments for FYs 1998 and 1999. 
Further, growth in this area is not necessarily justified and 
requires further evaluation. To address the deterioration in 
the current payment methodology due to changes in both welfare 
and Medicaid, the Secretary would develop a proposal to more 
accurately distribute Medicare payments to hospitals that serve 
a disproportionate number of low-income patients.
    Effective date. The provision would be effective upon 
enactment.

Section 10504. Medicare capital asset sales price equal to book value

    Current law. Medicare provides for establishing an 
appropriate allowance for depreciation and for interest on 
capital indebtedness and a return on equity capital when a 
hospital has undergone a change of ownership. The valuation of 
the asset is the lesser of the allowable acquisition costs of 
the asset to the owner of record, or the acquisition cost of 
such asset to the new owner.
    Explanation of provision. The provision would eliminate the 
allowance for return on equity capital, and would provide for a 
depreciation adjustment of the historical cost of the asset 
recognized by Medicare, less depreciation allowed, to the owner 
of record as of the date of enactment of this bill, or to the 
first owner of record of the asset in the case of an asset not 
in existence as of the date of enactment. The provision would 
apply to changes of ownership that occur three months after the 
date of enactment.
    Reason for change. The Committee is concerned with 
providers which may be gaming the system by creating specious 
``losses'' in order to be eligible for additional Medicare 
payments. According to the Department of Health and Human 
Services Office of the Inspector General, Medicare lost $233 
million and stands to lose $289 million in depreciation 
adjustments for hospitals sold between 1990 and 1996. Moreover, 
new losses reported to Medicare have more than quadrupled 
between 1990 and 1996.
    Effective date. The provision would be effective upon 
enactment.

Section 10505. Elimination of indirect medical education [IME] 
        adjustment and DSH payments attributable to outlier payments

    Current law. Medicare provides outlier payments to 
hospitals that are intended to protect them from the risk of 
large financial losses associated with cases having 
exceptionally high costs or unusually long hospital stays. 
Beginning in FY 1998, the length of stay outlier policy will 
terminate, and hospitals will receive outlier payments only for 
very high cost cases. For each DRG, a specific dollar loss 
threshold is set, and outlier payments are calculated based on 
the amount by which a hospital's costs exceed this loss 
threshold. For teaching and disproportionate share hospitals, 
however, their estimated cost for each case is reduced by the 
amount of the hospital's IME and DSH payment adjustments. The 
amount by which the estimated cost exceeds the outlier 
threshold thus is less for a case treated at a teaching or 
disproportionate share hospital, resulting in lower outlier 
payments. The lower outlier payment amount is then increased by 
the hospital's IME and DSH adjustments, but this generally is 
not enough to offset the loss in outlier payments resulting 
from the reduced cost estimate for the case.
    Explanation of provision. The provision would result in 
teaching and disproportionate share hospitals being treated 
like all other hospitals in the calculation of outlier payment 
amounts. Their estimated costs per case would not be reduced by 
their IME and DSH payments, and an additional IME or DSH 
adjustment would not be added to these payments. The provision 
would apply to discharges occurring after September 30, 1997.
    Reason for change. All hospitals should be treated equally 
regarding outlier payments. When calculating outlier payments, 
teaching hospitals and hospitals which treat a disproportionate 
share of low-income patients should not be penalized. Outlier 
payments should be based on the loss incurred on the case 
excluding the hospital's teaching or disproportionate 
adjustments.
    Effective date. The provision would be effective upon 
enactment.

Section 10506. Reduction in adjustment for indirect medical education

    Current law. Medicare recognizes the costs of graduate 
medical education in teaching hospitals and the higher costs of 
providing services in those institutions. Medicare recognizes 
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 compensate hospitals for indirect costs 
attributable to the involvement of residents in patient care 
and the severity of illness of patients requiring specialized 
services available only in teaching hospitals. The additional 
payment to a hospital is based on a formula that provides an 
increase of approximately 7.7 percent in the DRG payment, for 
each 10 percent increase in the hospital teaching intensity 
(based on its intern and resident-to-bed).
    Explanation of provision. The IME adjustment would be 
reduced from the aggregate 7.7% to 6.6% in FY 1998, and to 5.5% 
during and after FY 1999. For discharges occurring on or after 
October 1, 1997, the total number of residents and interns in 
either a hospital or non-hospital setting could not exceed the 
number of interns and residents reported on the hospital's cost 
report for the period ending December 31, 1996. For hospital's 
first cost reporting period beginning on or after October 1, 
1997, the total number of FTE residents and interns for payment 
purposes would equal the average of the actual FTE resident and 
intern count for the costreporting period and the preceding 
year's cost reporting period. For the cost reporting period beginning 
October 1, 1998, and each subsequent cost reporting period, subject to 
certain limits, the total number of FTE residents and interns for 
payment purposes would equal the average of the actual FTE resident 
count for the cost reporting period and the preceding two year's cost 
reporting periods. The Secretary would have discretion to establish 
rules for new residency programs.
    Reason for change. In its March 1, 1997 report, ProPAC 
recommended reducing the IME adjustment finding that the 
current level of the teaching adjustment continues to be higher 
than appropriate.
    Effective date. The effective date for these provisions, 
unless otherwise specified would apply to hospital discharges 
as of October 1, 1997.

Section 10507. Treatment of transfer cases

    Current law. No provision. PPS hospitals that move patients 
to PPS-exempt hospitals and distinct-part hospital units, or 
skilled nursing facilities are currently considered to have 
``discharged'' the patient and receive a full DRG payment.
    Explanation of provision. The provision would define a 
``transfer case'' to include an individual discharged from a 
PPS hospital who is: (1) admitted as an inpatient to a hospital 
or distinct-part hospital unit that is not a PPS hospital for 
further inpatient hospital services; (2) is admitted to a 
skilled nursing facility or other extended care facility for 
extended care services; or (3) receives home health services 
from a home health agency if such services directly relate to 
the condition or diagnosis for which the individual received 
inpatient hospital services, and if such services were provided 
within an appropriate period, as determined by the Secretary in 
regulations promulgated no later than September 1, 1998. Under 
the provision, a PPS hospital that ``transferred'' a patient 
would be paid on a per diem basis up to the full DRG payment.
    The provision, with respect to transfers from PPS-exempt 
hospitals and SNFs, would apply to discharges occurring on or 
after October 1, 1997. For home health care, the provision 
would apply to discharges occurring on or after September 1, 
1998.
    Reason for change. Over the past decade, hospital length of 
stays have fallen by more than 25 percent. As patients are 
discharged from the hospital to post acute care services 
earlier (resulting from the increases in service efficiencies), 
the Committee believes that Medicare should capture some of the 
savings and not pay twice for these services provided in 
different settings.
    Effective date. The provision affecting transfers relating 
to PPS-exempt hospitals and SNFs would be effective upon 
enactment. Transfer policies related to home health care would 
be effective for discharges occurring on or after September 1, 
1998.

Section 10508. Increase base payment rate to Puerto Rico hospitals

    Current law. Medicare's hospital PPS includes a special 
provision for determining payment to hospitals in Puerto Rico. 
These hospitals are paid a blended rate based on a standardized 
payment amount for large urban or other areas specific to 
Puerto Rico and the national standardized payment amount for 
all areas combined. The two rates have weights of 75 percent 
and 25 percent, respectively.
    Explanation of provision. The provision would adjust the 
base payment rate to Puerto Rico hospitals to 50 percent local 
and 50 percent national.
    Reason for change. While the PPS margin for urban hospitals 
in Puerto Rico was substantially higher than in the United 
States through 1992, it was almost 15 percentage points below 
the national figure by 1995. This difference corresponds to a 
13 percentage point cumulative difference between the cost 
increases in Puerto Rico and the United States.
    Effective date. The provision would be effective October 1, 
1997.

               Chapter 2--Payment of PPS Exempt Hospitals

Section 10511. Payment update

    Current 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.
    Updates to the target amounts for fiscal years 1994 through 
1997 range from the PPS-excluded market basket index (MBI) to 
the MBI minus 1.0 percentage point, depending on how a 
hospital's costs compare to its target amount. For fiscal years 
1998 and beyond, the updates are the market basket percentage 
increase.
    Explanation of provision. The provision would set the 
FY1998 update to 0%, and for FY1999 through FY2002, the update 
factor would be based on the hospital's target amount. If a 
hospital's allowable operating costs of inpatient hospital 
services recognized under Medicare for the most recent cost 
reporting period (1) is equal to, or exceeds, 110% of the 
hospital's target amount, the applicable update factor 
specified under this clause is the market basket percentage; 
(2) exceeds 100%, but is less than 110% of the hospital target 
amount, the applicable update factor is the market basket 
percentage minus 0.25 percentage points for each percentage 
point by which the allowable operating costs (expressed as a 
percentage of the target amount) is less than 110% of such 
target amount; (3) is equal to, or less than 100% of the 
hospital target amount, but exceeds 2/3 of the target amount 
for the hospital, the update factor would be the market basket 
percentage minus 2.5 percentage points; or (4) does not exceed 
2/3 of the hospital's target amount, the update factor would be 
0%.
    Reason for change. Payments to PPS-exempt hospitals 
represent some of the fastest growing expenditures to Medicare. 
Between 1990 and 1994, rehabilitation facility payments 
increased at an average annual rate of 19.7 percent. During 
this same period, long-term care hospital payments increased at 
an average annual growth rate of 41.4 percent. The Committee 
believes that the update factor should reflect each hospital's 
financial performance, relative to its TEFRA limit.
    Effective date. This provision would be effective for cost 
reporting periods beginning on or after October 1, 1997.

Section 10512. Reductions to capital payments for certain PPS-exempt 
        hospitals and units

    Current law. Medicare pays for capital costs for PPS exempt 
hospitals on a reasonable cost basis.
    Explanation of provision. The provision would require the 
Secretary to reduce capital payment amounts for PPS-exempt 
hospitals and distinct part units by 10% for fiscal years 1998 
through 2002.
    Reason for change. This provision would contribute toward 
slowing the rate of growth in the Part A program.
    Effective date. This provision would be effective for cost 
reporting periods beginning on or after October 1, 1997.

Section 10513. Cap on TEFRA limits

    Current law. Medicare places limits, referred to as ``TEFRA 
limits,'' on the annual increases allowed for the operating 
costs of certain categories of hospitals.
    Explanation of provision. The provision would set the 
target amounts for PPS-exempt hospitals or units for cost 
reporting periods beginning on or after October 1, 1997 and 
before October 1, 2002. The target amounts could not be greater 
than the 90th percentile of the target amounts for cost 
reporting periods beginning during that fiscal year. The cap on 
the target amounts would apply to psychiatric, rehabilitation, 
and long-term care hospitals and distinct-part units of such 
hospitals.
    Reasons for change. At a hearing on April 10, 1997 on PPS-
exempt hospital payment policies, the Health Subcommittee heard 
testimony regarding the calculation of TEFRA limits and the 
costs that are included in those limits. An examination of 
TEFRA limits across providers revealed significant variation. 
The Committee believes that for each provider group, TEFRA 
limits should be capped at the 90th percentile.
    Effective date. This provision would be effective for cost 
reporting periods beginning on or after October 1, 1997.

Section 10514. Change in bonus payments

    Current law. Medicare provides for bonus payments for 
hospitals whose operating costs are less than or equal to the 
target amount, as well as making relief payments to hospitals 
whose costs exceed their target amount. If the hospital's costs 
are less than or equal to the target amount for that period, 
the hospital receives a bonus payment equal to 50% of the 
amount by which the target amount exceeds the amount of the 
operating costs, or 5% of the target amount, whichever is less. 
If a hospital's operating costs are greater than the target 
amount, the amount of the payment is equal to (1) the target 
amount, plus (2) an additional amount equal to 50% of the 
amount by which the operating costs exceed the target amount, 
but not more than 10% of the target amount.
    Explanation of Provision. The provision would allow bonuses 
of (1) 10% of the amount by which the target amount exceeds the 
amount of operating costs, or (2) 1% of operating costs, 
whichever is less. The provision would change the relief 
payments to provide that costs would be required to exceed 110% 
in order to receive relief payments and that the relief payment 
could not be more than 20% of the target amount.
    Reason for change. Bonus payments for PPS-exempt providers 
were established to reward providers who were able to keep 
their costs below their TEFRA limit. In recent years, there has 
been significant growth in the number of new PPS-exempt 
providers. Many of these providers have higher costs during 
their first few years of operation than established providers, 
resulting in higher TEFRA limits. While originally intended to 
reward providers and reduce Medicare spending, these bonus 
payments, have actually increased Medicare spending. The 
Committee believes that this is an appropriate area to reduce 
to contribute savings toward slowing the rate of growth in Part 
A spending.
    Effective date. This provision would be effective for cost 
reporting periods beginning on or after October 1, 1997.

Section 10515. Change in payment and target amount for new providers

    Current law. No provision.
    Explanation of provision. The provision would establish 
different payment and target amount rules for hospitals or 
distinct-part units within hospitals that first receive 
Medicare payments on or after October 1, 1997. The provision 
would apply to psychiatric, rehabilitation, and long-term care 
hospitals and distinct-part units of hospitals. For the first 
two full or partial cost reporting periods, the amount of 
payment for operating costs under Part A on a per discharge or 
per admission basis would be equal to the lesser of the amount 
of operating costs for the respective period, or 150% of the 
national median operating costs for hospitals in the same class 
of hospital for cost reporting periods beginning during the 
same fiscal year, adjusted for labor-related costs. This same 
limited target amount would then be updated in subsequent years 
using the update factor described above.
    For determining national median operating costs for 
hospitals in the same class, the Secretary would be required to 
provide for an appropriate adjustment to the labor-related 
portion of the amount determined to take into account 
differences between average wage-related costs in the area the 
hospital is located in and the national average of such costs 
within the same class of hospital. The Secretary would also be 
required to create subclasses of long-term care hospitals based 
on differences in the case mix and patient acuity in 
calculating and applying the 150% of the national median cost 
limits.
    Reason for change. The Committee has examined data on the 
growth in the number of PPS-exempt providers and believes that 
the current system has fueled an excessive increase in new 
providers. The increase results partly from the fact that 
Medicare covers all allowable costs, without limits. Between 
1990 and 1996, the number of rehabilitation facilities 
increased 29 percent and the number of long-term care hospitals 
doubled. In its March Report to Congress, ProPAC recommended 
eliminating the initial exemption period for new providers and 
recommended basing initial payments on the average for 
facilities serving similar patients.
    In establishing the 150 percent of the national median 
limit for long-term care hospitals, the Committee believes that 
it was important for the Secretary to recognize differences in 
the acuity of patients across hospitals. The Committee expects 
that the Secretary will use existing data or will collect any 
additional data that is necessary to separate this group into 
well-defined subgroups when implementing this provision.
    Effective date. This provision is effective for cost 
reporting periods beginning on or after October 1, 1997.

Section 10516. Rebasing

    Current law. No provision.
    Explanation of provision. The provision would give 
psychiatric, rehabilitation, and long-term care hospitals and 
psychiatric and rehabilitation distinct units of hospitals that 
received Medicare payments for services furnished during cost 
reporting periods ending before October 1, 1990, the option of 
electing that the hospital's target amount for the 12-month 
cost reporting period beginning during FY1998 would be rebased. 
The rebased target amount would be equal to an average 
determined by the Secretary as follows: (1) the Secretary would 
be required to determine the allowable operating cost for 
inpatient hospital services for the hospital or hospital unit 
for each of the 5 cost reporting periods for which the 
Secretary had settled cost reports as of the date of enactment; 
(2) the Secretary would be required to increase the amount 
determined for the 5 cost reporting periods by the applicable 
percentage increase used to update costs for each of the cost 
reporting periods; (3) the Secretary would be required to 
identify among the 5 cost reporting periods the periods for 
which the updated cost amount was the highest and the lowest; 
(4) the Secretary would be required to compute the average cost 
per discharge of the updated cost report amounts for the 3 cost 
reporting periods that were not the highest or the lowest 
amounts.
    The provision would also allow certain qualified long-term 
care hospitals that elect to do so, to apply for rebasing of 
their target amount beginning during FY1998. The target amount 
for the hospital's 12-month cost reporting period would be 
equal to the allowable operating costs of inpatient hospital 
services recognized by Medicare for the 12-month cost reporting 
periods beginning during FY1996, increased by the applicable 
percentage increase for the cost reporting period beginning 
during FY1997. The provision defines a qualified long-term care 
hospital as a PPS-exempt hospital that received Medicare 
payments during each of the 2 cost reporting periods for which 
the Secretary has the most recent settled cost reports as of 
the date of enactment. In addition, for each of the 2 cost 
reports the hospital's allowable operating costs of inpatient 
hospital services under Medicare exceeded 115% of the 
hospital's target amount, and the hospital had a 
disproportionate patient percentage of at least 70%.
    Reason for change. TEFRA payment limits are based on 
historical data. For some of the providers, their TEFRA limits 
are based on data that are more than a decade old and do not 
reflect current costs or treatment patterns. ProPAC analysis 
found that providers that have been operating under the TEFRA 
system for several years generally do not perform as well 
financially as newer providers. The Committee believes that 
using more recent data and recalculating the TEFRA limits for 
the providers that were in operation before 1990 is warranted.
    Effective date. This provision is effective for cost 
reporting periods beginning on or after October 1, 1997.

Section 10517. Treatment of certain long-term care hospitals

    Current law. No provision.
    Explanation of provision. The provision would extend the 
status of a hospital that was classified by the Secretary on or 
before September 30, 1995, as a long-term care hospital, 
notwithstanding that it was located in the same building as, or 
on the same campus as, another hospital. The provision would 
apply to discharges occurring on or after October 1, 1995.
    Reason for change. Certain hospitals that have provided 
quality care to Medicare beneficiaries are in jeopardy because 
of new HCFA regulations which would make them no longer 
eligible to qualify as long-term care hospitals. This provision 
would ensure that they would continue to qualify as long as 
they maintained an average length of stay of 25 days and other 
Medicare certification requirements.
    Effective date. This provision applies to discharges on or 
after October 1, 1995.

Section 10518. Elimination of exemptions; report on exceptions and 
        adjustments

    Current law. The Secretary is required to provide an 
exemption from various provisions of the law regarding Medicare 
payments to PPS-excluded hospitals.
    Explanation of provision. The provision would amend the 
law, replacing the term ``exemption from, or an exception and 
adjustment to,'' with ``an exception and adjustment to'' each 
place it appears, eliminating exemption from the target 
amounts. The provision would apply to hospitals that qualify as 
PPS-excluded facilities on or after October 1, 1997.
    The provision would also require the Secretary to publish 
annually in the Federal Register a report describing the total 
amount of payments made to PPS-excluded hospitals and units for 
cost reporting periods ending during the previous fiscal year.
    Reason for change. The Committee is concerned that under 
the current system, a significant portion of providers receive 
exceptions payments which are not regularly tallied by HCFA. 
The Committee believes that it is important for the Secretary 
to monitor these payments and to keep an accurate account of 
their impact on Part A expenditures.
    Effective date. This provision is effective for cost 
reporting periods ending on or after October 1, 1997.

           Chapter 3--Provisions Related to Hospice Services

Section 10521. Payments for hospice services

    Current law. Medicare covers hospice care, in lieu of most 
other Medicare benefits, for terminally ill beneficiaries. 
Payment for hospice care is based on one of four prospectively 
determined rates, which correspond to four different levels of 
care, each day a beneficiary is under the care of the hospice. 
The four rate categories are routine home care, continuous home 
care, inpatient respite care, and general inpatient care. The 
prospective payment rates are updated annually by the hospital 
market basket (MB).
    Explanation of provision. For each of the fiscal years 1998 
through 2002, the hospice prospective payment rates would be 
updated by the market basket minus 1.0 percentage point. The 
Secretary would be required to collect data from participating 
hospices on the costs of care they provide for each fiscal year 
beginning with FY 1999.
    Reason for change. Hospice services are among the fastest 
growing in all of Medicare. Total Medicare hospice payments 
have grown from $533 million in 1991 to $1.9 billion in 1995. 
Reimbursement per patient has increased from $4,365 in 1991 to 
$6,056 in 1995. Because the Committee is concerned that data is 
not being collected on margins of these services, the proposal 
would require the Secretary to begin collecting data on costs 
relating to such hospice services.
    Effective date. The provision relating to payments would be 
effective upon enactment. The Secretary would begin collecting 
data for each fiscal year beginning FY 1999.

Section 10522. Payment for home hospice care based on location where 
        care is furnished

    Current law. Hospices generally bill Medicare on the basis 
of the location of the home office, rather than where service 
is actually delivered.
    Explanation of provision. Effective for cost reporting 
periods beginning on or after October 1, 1997, hospices would 
be required to submit claims on the basis of the location where 
a service is actually furnished.
    Reason for change. HCFA has found that some hospice 
agencies have located in urban areas despite providing services 
in rural areas. Many agencies do this because current law 
allows for higher reimbursement in urban areas. The Committee 
believes that payment should reflect the location of the 
service provided by an entity, not where its headquarters are 
located.
    Effective date. The provision would be effective October 1, 
1997.

Section 10523. Hospice care benefits periods

    Current law. Persons electing Medicare's hospice benefit 
are covered for four benefit periods: two 90-day periods, a 
subsequent 30-day period, and a final period of unlimited 
duration.
    Explanation of provisions. Hospice benefit periods would be 
restructured to include two 90-day periods, followed by an 
unlimited number of 60-day periods. The medical director or 
physician member of the hospice interdisciplinary team would 
have to re-certify at the beginning of the 60-day periods that 
the beneficiary is terminally ill.
    Reason for change. The current hospice benefit provides for 
unlimited periods of time in the final benefit period. The 
Office of Inspector General has found that in many cases, 
patients are not terminally ill and should not qualify for the 
hospice benefit.
    Effective date. The provision would be effective upon 
enactment.

Section 10524. Other items and services included in hospice care

    Current law. Hospice services are defined in Medicare 
statute to include nursing care; physical and occupational 
therapy and speech language pathology services; medical social 
services; home health aide services; homemaker services; 
medical supplies (including drugs and biologicals) and medical 
appliances; physician services; short-term inpatient care 
(including both respite care and procedures necessary for pain 
control and acute and chronic symptom management); and 
counseling. Beneficiaries electing hospice waive coverage to 
most Medicare services when the services they need are related 
to the terminal illness.
    Explanation of provisions. The definition for hospice care 
would be amended to include the above-enumerated services as 
well as any other item or service which is specified in a 
patient's plan of care and which Medicare may pay for.
    Reason for change. The existing statute is ambiguous on the 
definition of hospice care regarding certain services. On the 
one hand, the beneficiary when qualifying for hospice must 
waive coverage under Part B for most services when they are 
related to the terminal illness. On the other hand, some items 
and services are not clearly listed under the hospice benefit 
because they are considered to be medical--not palliative--
treatment For example, certain treatments may be necessary 
(e.g., such as radiation) for both medical reasons and for pain 
relief.
    Effective date. The provision would be effective upon 
enactment.

Section 10525. Contracting with independent physicians or physician 
        groups for hospice care services permitted

    Current law. Medicare law requires that hospices routinely 
provide directly substantially all of certain specified 
services, often referred to as core services. Physician 
services are among these core services. HCFA has defined 
``directly'' to require that services be provided by hospice 
employees.
    Explanation of provisions. The provision would delete 
physician services from a hospice's core services and allow 
hospices to employ or contract with physicians for their 
services.
    Reasons for change. HCFA has interpreted the existing 
statute as requiring an employer/employee relationship between 
the hospice agency and its Medical Director and other staff 
physicians. Because of the increasing difficulty hospices 
experience in recruiting part-time physician employees, the 
Committee believes that hospices should be able to contract for 
physician services, independent contractor physicians or 
physician groups.
    Effective date. The provision would be effective upon 
enactment.

Section 10526. Waiver of certain staffing requirements for hospice care 
        programs in non-urbanized areas

    Current law. Hospices must provide certain services in 
order to participate in Medicare.
    Explanation of provisions. The provision would allow the 
Secretary to waive requirements with regard to hospices having 
to provide certain services so long as they are notlocated in 
urbanized areas and can demonstrate to the satisfaction of the 
Secretary that they have been unable, despite diligent efforts, 
to recruit appropriate personnel. For these hospices, the 
Secretary could waive specifically the provision of physical or 
occupational therapy or speech-language pathology services and 
dietary counseling.
    Reason for change. Certain hospices in rural areas have 
difficulty becoming Medicare certified because of shortages of 
certain health professionals. The Committee believes if a 
hospice can show that, despite diligent efforts, it was unable 
to recruit certain personnel, waivers to these staffing 
requirements should be granted by the Secretary.
    Effective date. The provision would be effective upon 
enactment.

Section 10527. Limitation on liability of beneficiaries and providers 
        for certain hospice coverage denials

    Current law. Medicare law provides financial relief to 
beneficiaries and providers for certain services for which 
Medicare payment would otherwise be denied. Medicare payment 
under this ``limitation of liability'' provision is dependent 
on a finding that the beneficiary or provider did not know and 
could not reasonably have been expected to know that services 
would not be covered on one of several bases.
    Explanation of provision. The provision would extend 
limitation of liability protection to determinations that an 
individual is not terminally ill.
    Reason for change. While waiver of liability for 
``reasonable and necessary'' is still available on a case-by-
case basis, the statute does not refer to denials of hospice 
claims on the basis that the beneficiary allegedly did not meet 
the terminal illness eligibility requirement. HCFA has 
instructed its fiscal intermediaries to begin focused medical 
review of these waiver determinations. Waiver of liability 
protection of beneficiaries is needed and appropriate where 
denials are based on six-month prognosis issues.
    Effective date. The provision would be effective upon 
enactment.

Section 10528. Extending the period for physician certification of an 
        individual's terminal illness

    Current law. At the beginning of the first 90-day period 
when a Medicare beneficiary elects hospice, both the 
individual's attending physician and the hospice physician must 
certify in writing that the beneficiary is terminally ill not 
later than 2 days after hospice is initiated (or, verbally not 
later than 2 days after care is initiated and in writing not 
later than 8 days after care has begun).
    Explanation of provision. The provision would eliminate the 
specific time frame specified in statute for completion of 
physicians' certifications for admission to hospice to require 
only that physicians certify that a beneficiary is terminally 
ill at the beginning of the initial 90-day period.
    Reason for change. Existing statutory requirements for 
timeliness in documenting physician certifications of terminal 
illness are very specific in the hospice benefit, creating the 
potential for technical denials where, for example, the 
paperwork is completed more than eight days after the patient 
is admitted. The provision would eliminate the specific time 
frame specified in statute for completion of physicians' 
certifications for admission to hospice, to require only that 
certifications be made at the beginning of each benefit period. 
The Committee expects that this will allow the Secretary the 
flexibility to require that written certifications must be 
obtained before the hospice may submit a bill for services 
rendered to the patient after the beginning of each period.
    Effective date. The provision would be effective upon 
enactment.

Section 10539. Effective date

    Current law. No provision.
    Explanation of provision. The provision would specify that 
except as otherwise indicated, the hospice reforms would apply 
on or after the date of the enactment of the bill.
    Effective date. The provision is generally effective upon 
enactment.

Section 10531. Modification of Part A home health benefit for 
        individuals enrolled under Part B

    Current law. Both Parts A and B of Medicare cover home 
health. Neither part of the program applies deductibles or 
coinsurance to covered visits, and beneficiaries are entitled 
to an unlimited number of visits as long as they meet 
eligibility criteria. Section 1833(d) of Medicare law prohibits 
payments to be made under part B for covered services to the 
extent that individuals are also covered under Part A for the 
same services. As a result, the comparatively few persons who 
have no Part A coverage are the only beneficiaries for whom 
payments are made under Part B.
    Explanation of provision. The provision would gradually 
transfer from Part A to Part B home health visits that are not 
part of the first 100 visits following a beneficiary's stay in 
a hospital or skilled nursing facility and during a home health 
spell of illness. The transfer would be phased in between 1998 
and 2002. In order to determine what portion of visits to 
transfer in a given year, the Secretary would first estimate 
the amount of payments that would have been made if (1) Part A 
home health services had the definition they did before 
enactment of this section and (2) Part A home health services 
were limited to the 100 visits following an institutional stay. 
The Secretary would next determine the difference between the 
two amounts for each year 1998 through 2002 and then multiply 
that amount by a proportion specified for the given year. For 
1998, the proportion is 1/6; for 1999, 2/6; for 2000, 3/6; for 
2001, 4/6; and for 2002, 5/6. The Secretary would be required 
to specify a visit limit or a post-institutional limitation 
that would result in a reduction in the amount of Part A home 
health payments equal to the transfer amount specified above. 
On or after January 1, 2003, Part A would cover only post- 
institutional home health services for up to 100 visits during 
a home health spell of illness, except for those persons with 
Part A coverage only who would be covered for services without 
regard to the post-institutional limitation.
    Post-institutional home health services would be defined as 
services furnished to a Medicare beneficiary: (1) after an 
inpatient hospital or rural primary care hospital stay of at 
least 3 days, initiated within 14 days after discharge; or (2) 
after a stay in a skilled nursing facility, initiated within 14 
days after discharge. Home health spell of illness would be 
defined as the period beginning when a patient first receives 
post-institutional home health services and ending when the 
beneficiary has not received inpatient hospital, skilled 
nursing facility, or home health services for 60 days.
    Reason for change. The Committee believes that the transfer 
of Part A home health care services to Part B should be done in 
a manner that would have the least impact on general fund 
contributions to the Supplemental Medical Insurance Trust Fund.
    Effective date. This provision applies to services 
delivered on or after January 1, 1998.

                  Chapter 4.--Other Payment Provisions

Section 10541. Reductions in payments for enrollee's bad debt

    Current 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 provision would reduce the 
allowable costs of bad debt payments to providers to 75% for 
cost reporting periods beginning during FY1998; 60% for cost 
reporting periods beginning during FY1999; and 50% for cost 
reporting periods beginning during FY2000 and each subsequent 
fiscal year.
    Reason for Change. Providers require greater incentives to 
aggressively pursue bad debt related to Medicare coinsurance 
and deductibles. Current policy provides little incentive to do 
so because Medicare reimburses certain hospitals and other 
providers for its bad debt related to Medicare on an allowable 
cost basis.
    Effective date. The effective date for these provisions, 
unless otherwise specified, would apply to hospital cost 
reports beginning after October 1, 1997.

Section 10542. Permanent extension of hemophilia pass-through

    Current 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 provision 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 the clotting factor.
    Effective Date. The provision would be effective upon 
enactment.

Section 10543. Reduction in Part A Medicare premium for certain public 
        retirees

    Current Law. Almost all persons age 65 or over are 
automatically entitled to Part A. These individuals (or their 
spouses) established entitlement during their working careers 
by paying the hospital insurance (HI) payroll tax on earnings 
covered by either the social security or railroad retirement 
systems.
    Persons not automatically entitled to Part A include some 
state and local government employees. State and local 
governments can choose whether or not to participate in 
Medicare for employees hired before April 1, 1986. They are 
required to participate (and pay the employer share of the 
payroll taxes) for all employees hired after that date.
    Persons not automatically entitled to Part A may obtain 
coverage by paying the Part A premium. The 1997 premium is 
$311. Beginning in 1994, certain persons are entitled to a 
reduction in the voluntary premium amount. Persons entitled to 
a reduction are those who (1) had at least 30 quarters of 
coverage under social security; (2) had been married for at 
least the previous year to a worker who had at least 30 
quarters of coverage; (3) had been married for at least one 
year to a worker who had at least 30 quarters of coverage 
before the worker died; or (4) are divorced from (after at 
least 10 years of marriage to) a worker with at least 30 
quarters of coverage. The otherwise applicable premium amount 
was reduced 25% in 1994, 30% in 1995, 35% in 1996, 40% in 1997, 
and 45% in 1998 and subsequent years.
    Explanation of Provision. The provision would set the Part 
A premium at zero for certain retirees from public sector 
employment. For an individual to be covered under this 
provision, he or she must have been receiving cash benefits 
under a qualified State or local government retirement system 
on the basis of the individual's employment over at least 40 
calendar quarters (or on the basis of some combination of such 
covered employment and quarters of coverage under social 
security totaling at least 40 quarters). Also included would be 
an individual: (1) married for at least a year to an individual 
who had at least 40 quarters of such coverage; (2) had been 
married for at least a year to a worker who had at least 40 
quarters of coverage before the worker died; or (3) are 
divorced from (after at least 10 years of marriage to) a worker 
with at least 40 quarters of coverage. Individuals covered 
under this provision are those whose premium will not be paid 
in whole or part by a state (including under its Medicaid 
program), a political subdivision of a state, or agency or 
instrumentality of one or more states or political 
subdivisions. Further, for each of the preceding 60 months, the 
individual's premium was not paid in whole or in part by such 
governmental entity.
    The provision would specify that a qualified state or local 
government retirement system is one which: (1) is established 
or maintained by a state or political subdivision, or an agency 
or instrumentality of one or more states or political 
subdivisions thereof; (2) covers positions of some or all 
employees of such entity; and (3) does not adjust cash 
retirement benefits based on eligibility for a premium 
reduction.
    The provision would be effective January 1, 1998, except 
that months before that date could be counted in determining 
whether an individual met the 60 month requirement specified 
above.
    Reason for Change. Today, there are many retired public 
employees whose governmental unit did not participate in 
Medicare. For many of these individuals, their original health 
insurance plans have become very expensive, basically 
compelling them to purchase Medicare Part A coverage. As a 
result, monthly premiums for those who buy in themselves can be 
between $250 a month or $3,000 a year.
    Effective date. The provision shall apply to premiums for 
months beginning with January 1998, and months before may be 
taken into account in the determination of the 60 month 
requirement.

             Subtitle G--Provisions Relating to Part B Only

                    Chapter 1.--Physicians' Services

Section 10601. Establishment of single conversion factor for 1998

    Current Law. Medicare pays for physicians services on the 
basis of a fee schedule. The fee schedule assigns relative 
values to services. Relative values reflect three factors: 
physician work (time, skill, and intensity involved in the 
service), practice expenses, and malpractice costs. These 
relative values are adjusted for geographic variations in the 
costs of practicing medicine. Geographically-adjusted relative 
values are converted into a dollar payment amount by a dollar 
figure known as the conversion factor. There are three 
conversion factors--one for surgical services, one for primary 
care services, and one for other services. (There is also a 
separate conversion factor for anesthesia services because 
payment for these services are based on base units, which 
reflect complexity, and time units.) The conversion factors in 
1997 are $40.96 for surgical services, $35.77 for primary care 
services, and $33.85 for other services.
    Explanation of Provision. The provision would set a single 
conversion factor for 1998, based on the 1997 primary care 
conversion factor, updated to 1998 by the Secretary's estimate 
of the weighted average of the three separate updates that 
would occur in the absence of the legislation.
    Reason for change. The Health Subcommittee received 
testimony at its March 13, 1997 hearing on Physician Policies 
from the Physician Payment Review Commission (PPRC) and several 
physician groups supporting physician payment reform and a move 
to a single conversion factor. This will eliminate the 
distortions that exist in the current system and will place a 
greater emphasis on the use of primary care services.
    Effective date. This provision is effective for services 
delivered on or after January 1, 1998.

Section 10602. Establishing update to conversion factor to match 
        spending under sustainable growth rate

    Current Law. The conversion factors are updated each year 
by a formula specified in the law. The update equals inflation 
plus or minus actual rate of spending growth in a prior 
periodcompared to a target known as the Medicare volume performance 
standard (MVPS). (For example, fiscal year 1995 data were used in 
calculating the calendar 1997 update.) However, regardless of actual 
performance during a base period, there is a 5 percentage point limit 
on the amount of the reduction. There is no limit on the amount of the 
increase.
    Explanation of Provision. The provision would specify the 
update to the conversion factor that would apply beginning in 
1999 (unless otherwise provided for by law). The provision 
would specify that the update to the single conversion factor 
for a year would equal the change in the Medicare Economic 
Index (MEI) subject to an adjustment to match spending under a 
sustainable growth rate. Specifically, the update for a year 
would be calculated by multiplying: (1) 1 plus the percentage 
change in the MEI, times (2) 1 plus the update adjustment 
factor (expressed as a percentage) for the year. The result 
would be reduced by 1 and multiplied by 100.
    The provision would specify that the update adjustment 
factor for a year would equal the difference between (1) the 
cumulative sum of allowed expenditures from July 1, 1997 
through June 30 of the year involved and (2) the cumulative sum 
of actual expenditures from July 1, 1997 through June 30 of the 
previous year, divided by (3) the actual expenditures for the 
12-month period (ending June 30) involved increased by the 
sustainable growth rate for the year involved (see description 
of the sustainable growth rate below). For the 12-month period 
ending June 30, 1997, allowed expenditures would be defined as 
actual expenditures for the period, as estimated by the 
Secretary. For a subsequent 12-month period, allowed 
expenditures would be defined as allowed expenditures 
established for the previous period, increased by the 
sustainable growth rate established for the fiscal year which 
begins during that 12-month period.
    The provision would establish limits on the maximum and 
minimum update each year. The update could not be more than 
three percentage points above or seven percentage points below 
the MEI.
    Reason for change. The PPRC has strongly recommended moving 
to a single performance standard and update. Currently, 
separate updates and performance standards are determined for 
each of the separate categories of physician 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 services should be paid the 
same amount regardless of the patient or service to which it is 
attached.
    Effective date. This provision would apply to services 
delivered on or after January 1, 1998.

Section 10603. Replacement of volume performance standard with 
        sustainable growth rate

    Current Law. The Medicare Volume Performance Standard 
(MVPS), used to calculate the update in the conversion factor, 
is a goal for the rate of expenditure growth from one fiscal 
year to the next. The MVPS for a year is based on estimates of 
several factors (changes in fees, enrollment, volume and 
intensity, and laws and regulations). The calculation is 
subject to a reduction known as the performance standard 
factor.
    Explanation of Provision. The provision would replace the 
MVPS with the sustainable growth rate. The rate for FY 1998 and 
subsequent years would be equal to the product of: (1) 1 plus 
the weighted average percentage change in fees for all 
physicians services in the fiscal year; (2) 1 plus the 
percentage change in the average number of individuals enrolled 
under Part B (other than private plan enrollees) from the 
previous fiscal year; (3) 1 plus the Secretary's estimate of 
the percentage growth in real gross domestic product per capita 
from the previous fiscal year; and (4) 1 plus the Secretary's 
estimate of the percentage change in expenditures for all 
physicians services in the fiscal year which will result from 
changes in law (excluding changes in volume and intensity 
resulting from changes in the conversion factor update). The 
result would be reduced by one and multiplied by 100. The term 
``physicians services'' would exclude services furnished to a 
MedicarePlus plan enrollee.
    Reason for change. The PPRC has recommended that a 
performance standard formula be linked to projected growth in 
real gross domestic product per capita instead of a five-year 
historical trend less an arbitrary deduction. This 
recommendation provides a more realistic and affordable goal 
that links the budget targets to the economy as a whole.

Section 10604. Payment rules for anesthesia services

    Current Law. Anesthesia services are paid under a separate 
fee schedule (based on base and time units) with a separate 
conversion factor. The 1997 conversion factor is $16.68.
    Explanation of Provision. The provision would specify that 
the conversion factor would equal 46% of the conversion factor 
established for other services for the year, except as adjusted 
for changes in work, practice expense, or malpractice relative 
value units.
    Reason for change. PPRC's analysis of the conversion factor 
for anesthesia services found that after the five-year review 
process, the conversion factor for anesthesia services 
represented 46 percent of the conversion factor for all other 
services. The Committee believes that this is an appropriate 
level for future conversion factors. The Committee recognizes, 
however, that the appropriate level may be higher or lower in 
future years, depending on changes in technology and other 
factors and therefore, this percentage may need to be adjusted 
in future years to reflect changes in work, practice expense, 
or malpractice relative value units.
    Effective date. This provision is effective upon enactment.

Section 10605. Implementation of resource-based physician practice 
        expense

    Current Law. P.L. 103-432 required that the Secretary 
develop and provide for the implementation, beginning in 1998, 
of a resource-based methodology for payment of practice 
expenses under the physician fee schedule. Such expenses are 
currently paid on the basis of historical charges.
    Explanation of Provision. The provision would delay 
implementation of the practice expense methodology for one year 
until 1999. It would provide for a phase-in of the new 
methodology. In 1999, 25 percent of the practice payment would 
be based on the new methodology. This percentage would increase 
to 50 percent in 2000 and 75 percent in 2001. Beginning in 
2002, the payment would be based solely on the new methodology.
    Reason for change. The Committee is very concerned by the 
Secretary's plan to move to a system of resource-based practice 
expense relative value units that is based on limited data and 
results in significant changes in payment across specialties. 
Preliminary data released by HCFA in January 1997 shows that 
some specialties will see payment reductions of more than 40 
percent while others would see significant increases. The 
Committee believes that it is important for the Secretary to 
delay the implementation for one year in order to gather 
additional data regarding both direct and indirect practice 
costs and to work with the specialty societies to refine the 
system.
    The Committee is concerned that the new system may have a 
significant impact on hospital-based physicians. The Committee 
would like the Secretary to submit a report to Congress on the 
anticipated impact of the resource-based practice expense 
relative value units on hospital-based physicians by November 
1, 1998.
    Given the magnitude of the expected changes, the Committee 
believes that the resource-based practice expense relative 
value units should be phased in over several years. This will 
allow for a smoother transition for physicians facing 
significant decreases and allow the Secretary several 
opportunities to refine the calculations.
    Effective date. These provisions are effective upon 
enactment.

Section 10606. Dissemination of hospital-specific per admission 
        relative value

    Current Law. In general, the law does not include a 
specific limit on the number or mix of physicians services 
provided in connection with an inpatient hospital stay. 
(However, the law does require that certain services provided 
in connection with a surgery be included in a global surgical 
package and not billed for separately.)
    Explanation of Provision. During 1999 and 2001, the 
Secretary would determine for each hospital, using already 
existing hospital and physician claims data, the estimated 
hospital-specific per discharge relative value for the 
following year and whether this amount is projected to be 
excessive (based on the 1998 national median of such values). 
The Secretary would be required to notify the medical executive 
committee of each hospital which was identified as having an 
excessive hospital-specific relative value.
    The hospital-specific relative value projected for a non-
teaching hospital would adjusted for variations in case mix and 
disproportionate share status. For teaching hospitals, the 
projected hospital-specific relative value would be: (1) the 
average per admission relative value for inpatient physicians 
services furnished by the medical staff; plus (2) the 
equivalent per admission relative value for physicians services 
furnished by interns and, adjusted for case-mix, 
disproportionate share status, and teaching status among 
hospitals. The Secretary would be required to determine the 
equivalent relative value unit per intern and resident based on 
the best available data and could make such adjustment in the 
aggregate. The Secretary would be required to adjust the 
allowable per admission relative value otherwise determined to 
take into account the needs of teaching hospitals and hospitals 
receiving additional payments under PPS as disproportionate 
share hospitals or on the basis of their classification as 
medicare-dependent small rural hospitals. The adjustment for 
teaching or disproportionate share status could not be less 
than zero.
    Reason for change. Private managed care plans have learned 
to effectively control costs by providing information to their 
providers regarding their use patterns. The Committee believes 
that disseminating information regarding the variation in 
services delivered by physicians in the inpatient setting maybe 
an important tool for monitoring Medicare cost growth and 
informing physicians regarding their spending patterns.
    Effective date. This provision is effective upon enactment.

Section 10607. No x-ray required for chiropractic services

    Current Law. Medicare covers chiropractic services 
involving manual manipulation of the spine to correct a 
subluxation demonstrated to exist by X-ray. Medicare 
regulations prohibit payment for the X-ray either if performed 
by a chiropractor or ordered by a chiropractor.
    Explanation of Provision. The provision would eliminate the 
X-ray requirement effective January 1, 1998.
    Reason for Change. Current law places limitations on 
chiropractors' ability to treat patients.

Section 10608. Temporary coverage restoration for portable 
        electrocardiogram transportation

    Current Law. The Secretary recently suspended separate 
payments for transportation of electrocardiogram equipment to 
beneficiaries in their home or in skilled nursing facilities.
    Explanation of Provision. The provision would reinstate 
separate payments under Part B during calendar year 1998 for 
the transportation of electrocardiogram equipment to 
beneficiaries in their home or in skilled nursing facilities 
based on the status code and relative value units established 
for such service as of December 31, 1996. The Secretary is 
required to make a determination by no later than July 1, 1998 
regarding whether the coverage of portable electrocardiogram 
equipment required by this provision should be continued after 
1998.
    Reason for Change. The General Accounting Office (GAO) 
currently is conducting a study regarding the impact on 
beneficiaries of the discontinuance of separate payment for 
transportation of electrocardiogram equipment. The Committee 
believes that these payments should be continued to protect 
beneficiaries pending the publication of the GAO report and a 
determination by the Secretary, taking into consideration the 
findings of GAO and other relevant information, as to whether 
or not separate payment for such transportation should be 
continued.
    Effective Date. The provision is effective January 1, 1998.

                  Chapter 2--Other Payment Provisions

Section 10611. Payments for durable medical equipment

            Current law
    (a) Freeze in Durable Medical Equipment (DME) Updates. 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 are 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 
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.
    (b) Update for Orthotics and Prosthetics. Prosthetics and 
orthotics are paid according to a fee schedule with principles 
similar to the DME fee schedule. The fee schedule establishes 
regional payment limits for covered items. The payment limits 
have floors and ceilings. The floor is equal to 90 percent of 
the weighted average of regional payment amounts and the 
ceiling is 120 percent. Fee schedule amounts are updated 
annually by CPI-U.
    (c) Payment Freeze for Parenteral and Enteral Nutrients, 
Supplies, and Equipment. Parenteral and enteral nutrients, 
supplies, and equipment are paid on the basis of the lowest 
reasonable charge levels at which items are widely and 
consistently available in the community.
            Explanation of provision
    (a) Freeze in Durable Medical Equipment (DME) Updates. The 
provision would eliminate updates to the DME fee schedules for 
the period 1998 through 2002.
    (b) Update for Orthotics and Prosthetics. The update for 
the prosthetics and orthotics fee schedule would be limited to 
1 percent for each of the years 1998 through 2002.
    (c) Payment Freeze for Parenteral and Enteral Nutrients, 
Supplies, and Equipment. Payments for PEN would be frozen at 
1995 levels for the period 1998 through 2002.
    Reason for Change. The provisions on parenteral and enteral 
payments would otherwise expire, and experience in recent years 
justifies these payment policies.
    Effective Date. The provisions are effective upon 
enactment.

Section 10612. Oxygen and oxygen equipment

    Current Law. Under Medicare oxygen and oxygen equipment are 
considered durable medical equipment and are paid according to 
a DME fee schedule. The fee schedule establishes a national 
payment limit for oxygen and oxygen equipment.
    Explanation of Provision. The provision would reduce the 
national payment limit for oxygen and oxygen equipment by 20 
percent in 1998 through 2002.
    Reason for Change. In 1996, nearly 480,000 beneficiaries 
received home oxygen at a cost of $1.7 billion. Experience in 
recent years and newly available data from the GAO comparing 
rates paid for oxygen and oxygen equipment in the Medicare and 
Veterans' programs justifies this payment policy. The GAO 
report found that Medicare's fee schedule allowances for home 
oxygen are significantly higher than the rates paid for oxygen 
by the Department of Veterans Affairs (VA), which uses 
competitive contracting arrangements. During the period 
examined by GAO, Medicare paid more than twice as much as the 
VA for oxygen. Even after adding a 30 percent ``adjustment'' to 
account for additional administrative burdens associated with 
filing Medicare claims and other differences between the two 
programs, the GAOconcluded that monthly Medicare payments for 
oxygen are still $120 more per patient than the rates paid by the VA.
    Effective Date. The provisions are effective upon 
enactment.

Section 10613. Reduction in updates to payment amounts for clinical 
        diagnostic laboratory tests

    Current Law. Clinical diagnostic laboratory tests are paid 
on the basis of areawide fee schedules. The law sets a cap on 
payment amounts equal to 76% of the median of all fee schedules 
for the test. The fee schedule amounts are updated by the 
percentage change in the CPI. Variations exist among carriers 
in rules governing requirements labs must meet in filing claims 
for payments .
    Explanation of Provision. The provision would freeze fee 
schedule payments for the 1998-2002 period. It would also lower 
the cap from 76% of the median to 72% of the median beginning 
in 1998.
    Reason for Change. Experience in recent years, coupled with 
the administrative efficiencies that can be expected from 
implementation of the provisions in section 10614 regarding 
administrative simplification of laboratory claims, justifies 
this payment policy.
    Effective Date. The provision is effective upon enactment.

Section 10614. Simplification in administration of laboratory services 
        benefit

    Current Law. Significant variations exist among carriers in 
rules governing requirements labs must meet in filing claims 
for payments .
    Explanation of Provision. The provision would require the 
Secretary to divide the country into no more than 5 regions and 
designate a single carrier for each region to process 
laboratory claims no later than January 1, 1999. One of the 
carriers would be selected as a central statistical resource. 
The assignment of claims to a particular carrier would be based 
on whether the carrier serves the geographic area where the 
specimen was collected or an other method selected by the 
Secretary.
    The provision would require the Secretary, by July 1, 1998, 
to adopt uniform coverage, administration, and payment policies 
for lab tests using a negotiated rule-making process. The 
policies would be designed to promote uniformity and program 
integrity and reduce administrative burdens with respect to 
clinical diagnostic laboratory tests in connection with 
beneficiary information submitted with a claim, physicians' 
obligations for documentation and recordkeeping, claims filing 
procedures, documentation, and frequency limitations.
    The provision would provide that during the period prior to 
the implementation of uniform policies, carriers could 
implement new requirements under certain circumstances.
    The provision would permit the use of interim regional 
policies where a uniform national policy had not been 
established. The Secretary would establish a process under 
which designated carriers could collectively develop and 
implement interim national standards for up to 2 years.
    The Secretary would be required to conduct a review, at 
least every 2 years, of uniform national standards. The review 
would consider whether to incorporate or supercede interim 
regional or national policies.
    With regard to the implementation of new requirements in 
the period prior to the adoption of uniform policies, and the 
development of interim regional and interim national standards, 
carriers must provide advance notice to interested parties and 
allow a 45 day period for parties to submit comments on 
proposed modifications.
    The provision would require the inclusion of a laboratory 
representative on carrier advisory committees. The 
representative would be selected by the committee from 
nominations submitted by national and local organizations 
representing independent clinical labs.
    Reason for Change. Significant concerns have been raised 
regarding the widely varying payment policies and concomitant 
documentation requirements of Medicare carriers regarding 
claims for clinical laboratory tests. This situation is 
compounded because many laboratories send claims to multiple 
carriers. For example, for a simple cholesterol test, the 
carrier for one part of new York State accepts 735 different 
diagnosis codes, while another carrier in another part of New 
York accepts only 341 codes. And, in Michigan and Illinois, the 
carrier accepts only 9 codes for this test. The provision is 
intended to promote efficiency, increase uniformity, and reduce 
administrative burdens in claims administration and billing 
procedures.
    Effective Date. The provision is effective upon enactment.

Section 10615. Updates for ambulatory surgical services

    Current Law. Medicare pays for ambulatory surgical center 
(ASC) services on the basis of prospectively determined rates. 
These rates are updated annually by the CPI-U. OBRA 93 
eliminated updates for ASCs for FY1994 and FY1995.
    Explanation of Provision. The provision would set the 
updates for FY 1998 through FY2002 at the increase in the CPI-U 
minus 2.0 percentage points.
    Reason for change. This provision would contribute to 
slowing unsustainable growth in Part B expenditures.
    Effective date. This provision is effective for services 
delivered on or after October 1, 1997.

Section 10616. Reimbursement for drugs and biologicals

    Current Law. Payment for drugs is based on the lower of the 
estimated acquisition cost or the national average wholesale 
price. Payment may also be made as part of a reasonable cost or 
prospective payment.
    Explanation of Provision. The provision would specify that 
in any case where payment is not made on a cost or prospective 
payment basis, the payment shall be equal to 95 percent of the 
average wholesale price for the drug or biological involved.
    Reason for Change. The Inspector General for the Department 
of Health and Human Services has found evidence that over the 
past several years Medicare has paid significantly more for 
drugs and biologicals than physicians and pharmacists pay to 
acquire such pharmaceuticals. For example, the Office of 
Inspector General reports that Medicare reimbursement for the 
top 10 oncology drugs ranges from 20 percent to nearly 1000 
percent per dosage more than acquisition costs. The Committee 
intends that the Secretary, in determining the average 
wholesale price, should take into consideration commercially 
available information including such information as may be 
published or reported in various commercial reporting services. 
The Committee will monitor AWPs to ensure that this provision 
does not simply result in a 5% increase in AWPs.
    Effective Date. The provision is effective January 1, 1998.

Section 10617. Coverage of oral anti-nausea drugs under 
        chemotherapeutic regimen

    Current Law. Medicare provides coverage for certain oral 
cancer drugs. The Administration has specified that Medicare 
will pay for anti-emetic drugs when they are needed for the 
administration and absorption of primary Medicare covered oral 
anticancer chemotherapeutic agents when a high likelihood of 
vomiting exists.
    Explanation of Provision. The provision would provide 
coverage, under specified conditions, for a self-administered 
oral drug used as an acute anti-emetic used as part of an 
anticancer chemotherapeutic regimen. It would have to be 
administered by or under the supervision of a physician for use 
immediately before, during or after the administration of the 
chemotherapeutic agent and used as a full replacement for the 
anti-emetic therapy which would otherwise be administered 
intravenously.
    The provision would establish a per dose payment limit 
equal to 90 percent of the average per dose payment basis for 
the equivalent intravenous anti-emetics administered during the 
year, as computed based on the payment basis applied in 1996. 
The Secretary would be required to make adjustments in the 
coverage of or payment for the anti-nausea drugs so that an 
increase in aggregate payments per capita does not result.
    Reason for Change. In certain cases, HCFA does not provide 
coverage for pharmaceuticals approved for coverage by the Food 
and Drug Administration, even when such pharmaceuticals meet 
criteria necessary for coverage under current law.
    Effective Date. The provision is effective January 1, 1998.

Section 10618. Rural health clinics (RHCs)

    Current Law. Medicare establishes payment limits for RHC 
services provided by independent (RHCs). RHCs, among other 
requirements, must have appropriate procedures for utilization 
review of clinic services. The Secretary is required to waive 
the RHC requirement for certain staffing of health 
professionals if the clinic has been unable to hire a physician 
assistant, nurse practitioner, or certified nurse-midwife in 
the previous nine years. The Secretary is prohibited from 
granting a waiver to a facility if the request for the waiver 
is made less than 6 months after the date of the expiration of 
previous waiver of the facility. RHCs are required to be 
located in a health professional shortage area. For RHCs that 
are in operation and subsequently fail to meet the requirement 
of being located in a health professional shortage area , the 
Secretary would be required to continue to consider the 
facility to meet the health professions shortage area 
requirement.
    Explanation of Provision. The provision would apply per-
visit payment limits to all RHCs, other than such clinics in 
rural hospitals with less than 50 beds. The provision would 
require that RHCs have a quality assessment and performance 
improvement program, in addition to appropriate procedures for 
utilization review. The provision would amend the waiver on the 
staffing requirement, to provide a waiver if the facility can 
not meet the requirement of having a nurse practitioner, 
physician assistant, or a certified nurse-midwife available 50% 
of the time the clinic operates; such a waiver is only 
available to clinics once they have been certified. The 
provision would require that shortage designations for RHCs be 
reviewed every three years. The provision would further amend 
the shortage area requirement by adding that RHCs must be 
located in areas in which there are insufficient numbers of 
needed health care practitioners as determined by the 
Secretary. The provision would require that operating RHCs that 
subsequently fail to meet the requirement of being located in a 
health professional shortage area, continue to be considered to 
meet the health professional shortage requirement, but only 
when,under criteria established by the Secretary in 
regulations, the RHCs are determined to be essential to the delivery of 
primary care services that would otherwise be unavailable in the 
geographic area served by the clinic. The Secretary would be required 
to issue final regulations implementing the grandfathered clinics that 
would take effect no later than January 1 of the third calendar year 
beginning at least one month after enactment. The provision would take 
effect on the effective date of the regulations.
    Reason for Change. The number of RHCs has grown by more 
than 30 percent a year since 1989. Unlike independent RHCs, 
provider-based RHCs are not subject to a per visit payment cap 
and as a result, costs for provider-based RHCs are increasing 
more rapidly. The Committee believes that there should be 
recertification requirements for RHCs.
    Effective Date. The provision would be effective January 1 
of the second calendar year following enactment of the bill.

Section 10619. Increased Medicare reimbursement for nurse practitioners 
        and clinical nurse specialists

    Current Law. Separate payments are made for nurse 
practitioner (NP) services provided in collaboration with a 
physician, which are furnished in a nursing facility. 
Recognized payments equal 85% of the physician fee schedule 
amount. Nurse practitioners and clinical nurse specialists 
(CNSs) are paid directly for services provided in collaboration 
with a physician in a rural area. Payment equals 75% of the 
physician fee schedule amount for services furnished in a 
hospital and 85% of the fee schedule amount for other services.
    Explanation of Provision. The provision would remove the 
restriction on settings. It would also provide that payment for 
NP and CNS services could only be made if no facility or other 
provider charges are paid in connection with the service. 
Payment would equal 80% of the lesser of either the actual 
charge or 85% of the fee schedule amount for the same service 
if provided by a physician. For assistant-at-surgery services, 
payment would equal 80% of the lesser of either the actual 
charge or 85% of the amount that would be recognized for a 
physician serving as an assistant at surgery. The provision 
would authorize direct payment for NP and CNS services.
    The provision would clarify that a clinical nurse 
specialist is a registered nurse licensed to practice in the 
state and who holds a master's degree in a defined clinical 
area of nursing from an accredited educational institution.
    Reason for change. Medicare does not provide direct 
reimbursement for services provided by NPs and CNSs in certain 
settings.
    Effective date. The provision applies to services furnished 
or supplies provided on or after January 1, 1998.

Section 10620. Increased Medicare reimbursement for physician 
        assistants

    Current Law. Separate payments are made for physician 
assistant (PA) services when provided under the supervision of 
a physician: (1) in a hospital, skilled nursing or nursing 
facility, (2) as an assistant at surgery, or (3) in a rural 
area designated as a health professional shortage area.
    Explanation of Provision. The provision would remove the 
restriction on settings. It would also provide that payment for 
PA services could only be made if no facility or other provider 
charges are paid in connection with the service. Payment would 
equal 80% of the lesser of either the actual charge or 85% of 
the fee schedule amount for the same service if provided by a 
physician. For assistant-at-surgery services, payment would 
equal 80% of the lesser of either the actual charge or 85% of 
the amount that would be recognized for a physician serving as 
an assistant at surgery. The provision would further provide 
that the PA could be in an independent contractor relationship 
with the physician. Employer status would be determined in 
accordance with state law.
    Reason for change. Medicare does not provide direct 
reimbursement for services provided by PAs in certain 
facilities.
    Effective Date. The provision applies to services furnished 
or supplies provided on or after January 1, 1998.

Section 10621. Renal dialysis-related services

    Current law. Medicare covers persons who suffer from end-
stage renal disease. Facilities providing dialysis services 
must meet certain requirements.
    Explanation of provision. The provision would require the 
Secretary to audit a sample of cost reports of renal dialysis 
providers for 1995 and for each third year thereafter. The 
Secretary would also be required to develop and implement by 
January 1, 1999, a method to measure and report on the quality 
of renal dialysis services provided under Medicare in order to 
reduce payments for inappropriate or low quality care.
    Reason for change. In its March Report to Congress, ProPAC 
recommended that HCFA regularly audit a sample of cost reports 
for dialysis facilities in order to validate the accuracy of 
the data and to assess the adequacy of Medicare's payment 
rates. The establishment of quality standards is more important 
than ever as more ESRD patients participate in managed care 
plans.
    Effective date. This provision is effective upon enactment.

                       Chapter 3--Part B Premium

Section 10631. Part B premium

    Current Law. When Medicare was established in 1965, the 
Part B monthly premium was intended to equal 50% of program 
costs. The remainder was to be financed by federal general 
revenues, i.e., tax dollars. Legislation enacted in 1972 
limited the annual percentage increase in the premium to the 
same percentage by which social security benefits were adjusted 
for cost-of- living increases (i.e., cost-of-living or COLA 
adjustments). As a result, revenues dropped to below 25% of 
program costs in the early 1980s. Since the early 1980s, 
Congress has regularly voted to set the premium equal to 25% of 
costs. Under current law, the 25% provision is extended through 
1998; the COLA limitation would again apply in 1999.
    Explanation of Provision. In conjunction with the transfer 
of a portion of home health care spending from Part A to Part 
B, this provision would transition to the calculation of a Part 
B premium equal to 25% of program costs.
    Reason for Change. The Committee is committed to moving to 
a premium that reflects 25 percent of Part B spending as soon 
as possible.
    Effective date. This provision is effective on January 1, 
1998.

             Subtitle H--Provisions Relating To Parts A & B

       Chapter 1--Provisions Relating to Medicare Secondary Payer

Section 10701. Permanent extension of certain secondary payer 
        provisions

    Current Law. Generally, Medicare is the primary payer, that 
is, it pays health claims first, with an individual's private 
or other public plan filling in some or all of the coverage 
gaps. In certain cases, the individual's other coverage pays 
first, while Medicare is the secondary payer. This is known as 
the Medicare secondary payer (MSP) program. The MSP provisions 
apply to group health plans for the working aged, large group 
health plans for the disabled, and employer health plans 
(regardless of size) for the end-stage renal disease (ESRD) 
population for 18 months. The MSP provisions for the disabled 
expire October 1, 1998. The MSP provisions for the ESRD 
population apply for 12 months, except the period is extended 
to 18 months for the February 1, 1991--October 1, 1998 period.
    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 Social 
Security Administration and Internal Revenue Service files to 
identify cases where a working beneficiary (or working spouse) 
may have employer-based health insurance coverage.
    Explanation of Provision. The provision would make 
permanent the provisions relating to the disabled and the data 
match program.
    The provision would extend application of the MSP 
provisions for the ESRD population for 30-months.
    Reason for Change. The provision would otherwise expire.
    Effective Date. The provision would apply to items and 
services furnished on or after enactment with respect to 
periods beginning on or after the date that is 18 months prior 
to enactment.

Section 10702. Clarification of time and filing limitations

    Current Law. In many cases where MSP recoveries are sought, 
claims have never been filed with the primary payer. 
Identification of potential recoveries under the data match 
process typically takes several years--considerably in excess 
of the period many health plans allow for claims filing. A 1994 
appeals court decision held that HCFA could not recover 
overpayments without regard to an insurance plan's filing 
requirements.
    Explanation of Provision. The provision would specify that 
the United States government could seek to recover payments if 
the request for payments was submitted to the entity required 
or responsible to pay within three years from the date the item 
or service was furnished. This provision would apply 
notwithstanding any other claims filing time limits that may 
apply under an employer group health plan. The provision should 
not be construed as permitting any waiver of the 3-year 
requirement in the case of items and services furnished more 
than 3 years before enactment.
    Reason for Change. Recent court decisions have reduced the 
effectiveness of MSP recovery efforts.
    Effective Date. The provision would apply to items and 
services furnished after 1990.

Section 10703. Clarification of liability of third party administrators

    Current Law. A 1994 appeals court decision held that HCFA 
could not recover from third party administrators of self-
insured plans.
    Explanation of Provision. The provision would permit 
recovery from third party administrators of primary plans. 
However, recovery would not be permitted 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.
    The provision would clarify that the beneficiary is not 
liable in MSP recovery cases unless the benefits were paid 
directly to the beneficiary.
    Reason for Change. Recent court decisions have reduced the 
effectiveness of MSP recovery efforts. In addition, the 
provision is necessary to protect beneficiaries from liability 
in certain cases.
    Effective Date. The provision would apply to services 
furnished on or after enactment.

                    Chapter 2--Home Health Services

Section 10711. Recapturing savings resulting from temporary freeze on 
        payment increases from home health services

    Current 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. Cost 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.
    The Omnibus Budget Reconciliation Act of 1993 (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. In establishing home health 
limits for cost reporting periods beginning after September 30, 
1997, the Secretary would be required to capture the savings 
stream resulting from the OBRA 93 freeze of home health limits 
by not allowing for the market basket updates to the limits 
that occurred during the cost reporting periods July 1, 1994 
through June 30, 1996. In granting exemptions or exceptions to 
the cost limits, the Secretary would not consider the preceding 
provision for recapturing savings from the OBRA 93 freeze.
    Reason for Change. The two-year freeze established in OBRA 
1993 expired in 1996. Since that time, spending has reverted to 
over-inflated levels. The provision would permanently capture 
the savings and not allow for these inflated levels that 
occurred during the freeze.
    Effective Date. The provision would be effective upon 
enactment.

Section 10712. Interim payments for home health services

    Current Law. Limits for individual home health services are 
set at 112 percent of the mean labor-related and nonlabor per 
visit costs for freestanding agencies (i.e., agencies not 
affiliated with hospitals). The limits are effective for cost 
reporting periods beginning on or after July 1 of a given year 
and ending June 30 of the following year.
    Explanation of Provision. The provision would reduce per 
visit cost limits to 105 percent of the national median of 
labor-related and nonlabor costs for freestanding home health 
agencies, effective for cost-reporting periods beginning 
October 1, 1997 ( in effect, delaying the cycle for updating 
the limits).
    For cost reporting periods beginning on or after October 1, 
1997, home health agencies would be paid the lesser of: (1) 
their actual costs (i.e., allowable reasonable costs); (2) the 
per visit limits, reduced to 105% of the national median; or 
(3) a new blended agency-specific per beneficiary annual limit. 
The blended per beneficiary limit would be based 75 percent on 
an agency's own costs per beneficiary and 25 percent on the 
average cost per beneficiary for agencies in the same census 
region (adjusted for differences in labor costs). These costs 
would be calculated using cost reports for cost reporting 
periods ending in 1994, updated by the home health market 
basket and would include the costs associated with non-routine 
medical supplies. For new providers and those providers without 
a 12-month cost reporting period ending in calendar year 1994, 
the per beneficiary limit would be equal to the median of these 
limits (or the Secretary's best estimates) applied to home 
health agencies. Home health agencies that have altered their 
corporate structure or name would not be considered new 
providers for these purposes. For beneficiaries using more than 
one home health agency, the per beneficiary limitation would be 
prorated among the agencies.
    The Secretary would be required to expand research on a 
prospective payment system for home health that ties 
prospective payments to a unit of service, including an 
intensive effort to develop a reliable case mix adjuster that 
explains a significant amount of variance in cost. The 
Secretary would be authorized to require all home health 
agencies to submit additional information that is necessary for 
the development of a reliable case-mix system, effective for 
cost reporting periods beginning on or after October 1, 1997.
    Reason for Change. The Committee supports breaking the link 
with cost-based reimbursement for home health care services as 
soon as possible and moving towards the establishment of a 
case-mix adjusted prospective payment system. However, the 
Committee is seriously concerned with proposals to establish a 
per visit payment system because of the strong incentives for 
home health agencies to shorten the duration and intensity of 
all visits, regardless of the needs and characteristics of the 
patient. In addition, because Medicare does not provide for a 
definition of a visit, the Medicare program would have great 
difficulty providing oversight of the quality of care being 
furnished to its beneficiaries. Finally, the Committee is 
concerned that more data collection was needed to ensure that 
the Secretary would move towards implementation of a 
prospective payment system by October 1, 1999. As a result, the 
provision would revise the current cost limits to limit over-
utilization and curb excessive home health care spending.
    Effective Date. The provision would be effective upon 
enactment.

Section 10713. Clarification of part-time or intermittent nursing care

    Current Law. Both Parts A and B of Medicare cover home 
health visits for persons who need skilled nursing care on an 
intermittent basis or physical therapy or speech therapy. Once 
beneficiaries qualify for the benefit, the program covers part-
time or intermittent nursing care provided by or under the 
supervision of a registered nurse and part-time or intermittent 
home health aide services, among other services. Coverage 
guidelines issued by HCFA have defined part-time and 
intermittent.
    Explanation of Provision. Effective for services furnished 
on or after October 1, 1997, the provision would include in 
Medicare statute definitions for part-time and intermittent 
skilled nursing and home health aide services. For purposes of 
receiving skilled nursing and home health aide services, 
``part-time or intermittent'' would mean skilled nursing and 
home health aide services furnished any number of days per week 
as long as they are furnished (combined) less than 8 hours each 
day and 28 or fewer hours each week (or, subject to review on a 
case-by-case basis as to the need for care, less than 8 hours 
each day and 35 or fewer hours per week). For purposes of 
qualifying for Medicare's home health benefit because of a need 
for intermittent skilled nursing care, ``intermittent'' would 
mean skilled nursing care that is either provided or needed on 
fewer than 7 days each week, or less than 8 hours of each day 
for periods of 21 days or less (with extensions in exceptional 
circumstances when the need for additional care is finite and 
predictable).
    Reason for Change. The number of home health visits 
provided to beneficiaries receiving home health care has nearly 
tripled in recent years from an average of 26 visits per year 
in 1989 to an average of 76 visits per year in 1996. The 
skyrocketing growth in home health care reflects in part weak 
criteria and definitions of the current home health care 
benefit.
    Effective Date. The provision would be effective upon 
enactment.

Section 10714. Study on definition of homebound

    Current Law. In order to be eligible for home health care, 
a Medicare beneficiary must be confined to his or her home. The 
law specifies that this ``homebound'' requirement is met when 
the beneficiary has a condition that restricts the ability of 
the individual to leave home, except with the assistance of 
another individual or with the aid of a supportive device (such 
as crutches, a cane, a wheelchair, or a walker), or if the 
individual has a condition such that leaving his or her home is 
medically contraindicated. The law further specifies that while 
an individual does not have to be bedridden to be considered 
confined to home, the condition of the individual should be 
such that there exists a normal inability to leave home, that 
leaving home requires a considerable and taxing effort by the 
individual, and that absences from home are infrequent or of 
relatively short duration, or are attributable to the need to 
receive medical treatment.
    Explanation of Provision. The provision would require the 
Secretary of Health and Human Services to conduct a study on 
the criteria that should be applied with regards to the 
determination of whether an individual is considered homebound 
for purposes of receiving the home health benefit. The 
Secretary would be required to report no later than October 1, 
1998 to Congress and make specific recommendations on such 
criteria.
    Reasons for change. The current definition of homebound is 
vague and overly broad, allowing for considerable discretion in 
interpretation and opens opportunities for fraud and abuse. 
Review of HCFA home health data shows that Medicare routinely 
reimburses care to beneficiaries who are not truly homebound. 
As a result, Medicare is currently reimbursing for items and 
services related to home health care which were never intended 
to be covered. The Committee is concerned with the current 
vagueness of the definition and its impact on enforcement. The 
Committee believes that the current definition should be 
strengthened and that the definition of homebound not be 
expanded beyond Medicare's current covered benefits.
    Effective Date. The provision would be effective upon 
enactment.

Section 10715. Payment based on location where home health service is 
        furnished

    Current Law. Some home health agencies are established with 
the home office in an urban area and branch offices in rural 
areas. Payment is based on where the service is billed, in this 
case the urban area with its higher wage rate, even if the 
service had been delivered in a rural area.
    Explanation of Provision. Effective for cost reporting 
periods beginning on or after October 1, 1997, home health 
agencies would be required to submit claims on the basis of the 
location where a service is actually furnished.
    Reason for Change. Currently, an increasing number of home 
health agencies are locating in urban areas in order to receive 
higher Medicare reimbursement rates. The recommendations would 
require home health agencies to submit claims for home health 
care services in the location of where the service was 
provided.
    Effective Date. The proposal would be effective upon 
enactment.

Section 10716. Normative standards for home health claims denials

    Current Law. As long as they remain eligible, home health 
users are entitled to unlimited number of visits.
    Explanation of Provision. The provision would authorize the 
Secretary to establish normative guidelines for the frequency 
and duration of home health services. Payments would be denied 
for visits that exceed the normative standards. The provision 
would also authorize the Secretary to establish a process for 
notifying a physician in which the number of home health visits 
furnished according to a prescription or certification of the 
physician significantly exceedsthe threshold normative number 
of visits that would be covered for specific conditions or situations.
    Reason for Change. Under current law, when Medicare denies 
payment for a home health visit, the agency must prove that a 
specific visit was not medically necessary, thereby creating 
difficulties in enforcement. Allowing the Secretary to 
establish more objective criteria will help Medicare gain more 
control over excessive home health care utilization.
    Effective Date. The proposal would be effective upon 
enactment.

Section 10717. No home health benefits based solely on drawing blood

    Current Law. In order to qualify for Medicare's home health 
benefit, a person must be homebound and be in need of 
intermittent skilled nursing care or physical or speech 
therapy.
    Explanation of Provision. The provision would clarify that 
a person could not qualify for Medicare's home health benefit 
on the basis of needing skilled nursing care for venipuncture 
for the purpose of obtaining a blood sample.
    Reason for Change. Eliminating venipuncture as a qualified 
skilled service for Medicare home health eligibility would 
limit payments for other home health services for beneficiaries 
who would otherwise be ineligible for services under the home 
health benefit. This proposal would close a loophole and 
continue to allow beneficiaries to receive blood monitoring 
services under Part B.
    Effective Date. The proposal would be effective upon 
enactment.

          Chapter 3--Baby Boom Generation Medicare Commission

Section 10721. Bipartisan commission on the effect of the baby boom 
        generation on the medicare program

    Current Law. No provision.
    Explanation of Provision. The provision would establish a 
commission to be known as the Bipartisan 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; (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; and (3) study 
the feasibility and desirability of establishing an independent 
Commission to make annual recommendations to Congress for 
consideration under an expedited process. 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) methods 
used by other nations to respond to comparable demographics; 
(3) modifying age-based eligibility to correspond to that under 
the OASDI program; and (4) 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 voting members, 6 
appointed by the Majority Leader of the Senate in consultation 
with the Minority Leader, of whom no more than 4 are of the 
same party; 6 by the Speaker of the House, after consultation 
with the Minority Leader, of whom no more than 4 are in the 
same party; and 3 ex officio members of the Board of Trustees 
of the Federal Hospital Insurance Trust Fund and of the Federal 
Supplementary Medical Insurance Trust Fund who are Cabinet 
level officials. 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. The Chairman, in 
consultation with the vice chairman, could appoint an advisory 
panel. 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 it to 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, 1999, 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 30 
days after the date of submission of the mandated report. An 
amount of $1.5 million would be authorized to be appropriated; 
60% would be payable from the Federal Hospital Insurance Trust 
Fund and 40% from the Federal Supplementary Medical Insurance 
Trust Fund. In addition, within 12 months of enactment, the 
Commission could report to Congress on specific recommendations 
regarding changes in the law to implement its recommendations.
    Reason for Change. While the Act brings Medicare into 
fiscal balance until 2007 and provides additional choices for 
Medicare beneficiaries through MedicarePlus reforms, the 
significant demographic shift occurring with the retirement of 
the so-called baby boom generation will require further 
Congressional action to preserve the Medicare program for the 
long-term.
    Effective Date. The provision would be effective upon 
enactment.

  Chapter 4--Provisions Relating to Direct Graduate Medical Education

Section 10731. Limitation on payment based on number of residents and 
        implementation of rolling average FTE count

    Current Law. The direct costs of approved graduate medical 
education (GME) programs (such as the salaries of residents and 
faculty, and other costs related to medical education 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, 1985, 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 in the initial residency training period. For 
residents not in their initial residency period, the weighting 
factor is 50 percent. On or after July 1, 1986, residents who 
are foreign medical graduates can only be counted as FTE 
residents if they have passed designated examinations.
    Explanation of Provision. For cost reporting periods 
beginning on or after October 1, 1997, the provision would 
limit the total number of full-time equivalent (FTE) residents 
for which Medicare would make payments to the number of FTE 
residents in training during the hospital's cost reporting 
period ending December 31, 1996. For the cost reporting period 
beginning on or after October 1, 1997, the total number of FTE 
equivalent residents counted for determining the hospital's 
direct GME payment would equal the average FTE counts for the 
cost reporting period and the preceding cost reporting period. 
For each subsequent cost reporting period, the total number of 
FTEs residents counted for determining the hospital's direct 
GME payment, would be equal to the average of the actual FTE 
counts for the cost reporting period and preceding two cost 
reporting periods. The provision would allow that, if a 
hospital's cost reporting period beginning on or after October 
1, 1997, was not equal to 12 months, the Secretary would make 
appropriate modifications to ensure that the average FTE 
resident counts are base on the equivalent of full 12-month 
cost reporting periods. The provision would require the 
Secretary to establish rules for new residency medical training 
programs.
    Reason for Change. Hospitals have little incentive to 
reduce the size of their residency programs because they 
receive large Medicare payments for each resident. Since 
residents primarily provide patient care, the subsidy creates 
an incentive for teaching hospitals to substitute them in lieu 
of other types of caregivers (physician assistants and nurse 
practitioners).
    Because of the Committee's concern with the impact of the 
provision on new residency programs, the Secretary is asked to 
develop rules for new programs. The Committee believes that 
this can be done in such a way so that an aggregate cap could 
be applied to residency training programs that are under the 
auspices of the same school of graduate medical education, but 
use multiple sites for training. The Committee is concerned 
that absent such an aggregate cap, there may be room for gaming 
through trading or even possible sales of residency positions 
to other sites.
    Effective Date. The provision would be effective upon 
enactment.

Section 10732. Phased-in limitation on hospital overhead and 
        supervisory physician component of direct medical education 
        costs

    Current Law. Medicare's direct medical education costs for 
a cost reporting period includes an aggregate amount that is 
the product of the hospital's approved FTE resident amount and 
the weighted average number of FTE residents in the hospital's 
approved medical residency training programs in that period.
    Explanation of Provision. The provision would phase-in over 
five years a limitation on hospital overhead and supervisory 
physician costs. For hospitals with overhead GME amounts that 
exceed the 75 percentile of the overhead GME for all hospitals, 
the GME amount made for periods beginning on or after October 
1, 1997, would be reduced by the lesser of: (1) 20% of the 
amount by which the overhead GME amount exceeds the 75th 
percentile amount, or (2) 15% of the hospital's overhead GME 
amount otherwise determined without regard to this provision.
    The overhead GME amount for a period would be the product 
of the percentage of the hospital's per resident payment amount 
for the base period that was not attributable to salaries and 
fringe benefits, and the hospital specific per resident payment 
amount for the period involved. The base period would be 
defined as the cost reporting period beginning in FY1984 or the 
period used to establish the hospital's per resident payment 
amount for hospitals that did not have approved residency 
training programs in FY1984.
    Reason for Change. There is considerable variation in 
hospital-specific per resident payment amounts. Per resident 
payment amounts range from less than $20,000 to well over 
$100,000. Furthermore, twenty-five percent of residents are in 
hospitals with a per resident payment amount of less than 
$48,000, while another twenty-five percent are in hospitals 
with per resident payment amounts over $77,000. The Committee 
is concerned that this variation is generally inequitable and 
unjustified, and that differences in the cost of doing business 
from one area to another do not explain the vast difference in 
cost.

Section 10733. Permitting payment to non-hospital providers

    Current Law. No provision.
    Explanation of Provision. The provision would require the 
Secretary to submit to Congress, no later than 18 months after 
enactment, a proposal for payment to qualified non-hospital 
providers for their direct costs of medical education, if those 
costs are incurred in theoperation of a Medicare approved 
medical residency training program. The proposal would be required to 
specify the amounts, form, and manner in which such payments would be 
made, and the portion of the payments that would be made from each of 
the Medicare trust funds. The Secretary would be authorized to 
implement the proposal for residency years beginning no earlier than 6 
months after the date the report is submitted. Qualified non-hospital 
providers would include federally qualified health centers, rural 
health clinics, MedicarePlus organizations, and other providers the 
Secretary determines to be appropriate.
    The provision would also require the Secretary to reduce 
the hospital's approved amount to the extent payment would be 
made to non-hospital providers for residents included in the 
hospital's count of FTE residents. In the case of residents not 
included in the FTE count, the Secretary would be required to 
provide for such a reduction in aggregate approved amounts 
under this subsection to assure that the application of non-
hospital providers does not result in any increase in 
expenditures than would have occurred if payments were not made 
to non-hospital providers.
    Reason for Change. Medicare's current system restricts GME 
payments to hospitals and discourages the development of 
training in alternative sites such as federally qualified 
health centers, rural health clinics and health maintenance 
organizations. Although residents spend time in ambulatory 
settings, that time is only recognized for Medicare's direct 
GME payment if the hospital incurs all or substantially all of 
the costs of training. Medicare's policy does not reflect the 
changes that have occurred in resident training since Medicare 
was enacted. Today, training is not limited exclusively to 
teaching hospitals.
    Effective Date. The provision would be effective upon 
enactment.

Section 10734. Incentive payments under plans for voluntary reduction 
        in number of residents

    Current Law. No provision.
    Explanation of Provision. The provision would establish a 
program to provide incentive payments to hospitals that 
developed plans for the voluntary reduction in the number of 
residents in a training program. For voluntary residency 
reduction plans for which an application was approved, the 
qualifying entity submitting the plan would be required to be 
paid an applicable percentage (defined below) equal to the sum 
of the following: (1) the amount of payment which would have 
been made under this subsection if there had been a 5% 
reduction in the number of FTE residents in the approved 
medical education training programs as of June 30, 1997, 
exceeded the amount of the payment which would be made taking 
into account the reduction in the number of effected FTEs under 
the plan; and, (2) the amount of the reduction in payment under 
Medicare's indirect medical education adjustment that was 
attributable to the reduction in the number of residents 
effected under the plan.
    The base number of residents would be defined as the number 
of FTE residents in residency training program of the entity as 
of June 30, 1997. The ``applicable hold harmless percentage'' 
for entities electing a 5-year reduction plan would be 100% for 
the first and second residency training years in the reduction 
plan; 75% in the third year; 50% in the fourth year; and 25% in 
the fifth year. The ``applicable hold harmless percentage'' for 
entities electing a 6-year reduction plan would be 100% in the 
first residency training year of the plan; 95% in the second 
year of the plan; 85% in the third year; 70% in the fourth 
year; 50% in the fifth year; 25% in the sixth year. In 
addition, if payments were made under this program to an entity 
that increased the number of FTE residents above the number 
provided in the plan, the entity would then be liable for 
repayment to the Secretary of the total amount paid under the 
plan. The Secretary would also be required to establish rules 
regarding the counting of residents who are assigned to 
institutions that do not have medical residency training 
programs participating in a residency reduction plan.
    The provision specifies that qualifying entities would 
include individual hospitals operating one or more approved 
medical residency training programs; two or more hospitals 
operating residency programs that apply as a single qualifying 
entity; or a qualifying consortium. In the case of an 
application by a qualifying entity consisting of two hospitals, 
the Secretary would be prohibited from approving the 
application unless the application represented that the 
qualifying entity either would not: (1) reduce the number of 
FTE residents in primary care during the period of the plan, or 
(2) reduce the proportion of its residents in primary care (to 
the total number of residents) below such proportion as in 
effect during the period the residency reduction plan was in 
effect. In the case of an application from a consortia, the 
Secretary would be prohibited from approving the application 
unless the application represented that the qualifying entity 
would not reduce the proportion of residents in primary care 
(to total residents) below such proportion in effect during the 
period the residency reduction plan was in effect.
    For individual hospital applicants, the number of FTE 
residents in all the approved medical residency training 
programs operated by or through the facility would be required 
to be reduced as follows: (1) if the base number of residents 
exceeded 750 residents, by a number equal to at least 20% of 
the base number; (2) if the base number of residents exceeded 
500, but was less than 750 residents, by 150 residents; (3) if 
the base number of residents did not exceed 500 residents, by a 
number equal to at least 25% of the base number; (4) in the 
case of a qualifying entity that was a consortia, by a number 
equal to at least 20% of the base number. The reductions in the 
number of FTE residents in the approved medical residency 
programs operated through or by an entity would be below the 
base number of residents for the entity and would be fully 
effective no later than the 5th residency training year for 
entities electing a 5-year plan, or the 6th residency training 
year for entities making the election of a 6-year reduction 
plan.
    The provision would require that entities provide assurance 
that in reducing the number of residents, entities maintained 
their primary care residents. Entities would be required to 
provide assurance that they would maintain the number of 
primary care residents if: (1) the base number of residents is 
less than 750; (2) the number of FTE residents in primary care 
included in the base year was at least 10% of the total number 
of residents; and (3) the entity represented inits application 
that there would be no reduction under the plan in the number of FTE 
residents in primary care. If the entity failed to comply with the 
requirement that the number of FTE residents in primary care were 
maintained, the entity would be subject to repayment of all amounts 
received under this program.
    The requirements of the residency reduction plan would not 
apply to any residency training demonstration project approved 
by HCFA as of May 27, 1997. The Secretary would be required to 
take necessary action to assure that in no case the amount of 
payments under the plan would exceed 95% of what payments would 
have been prior to the plan for direct GME payments under 
Medicare. As of May 27, 1997, the Secretary would be prohibited 
from approving any demonstration project that would provide for 
additional Medicare payments in connection with reductions in 
the number of residents in a training program for any residency 
training year beginning before July 1, 2006. The Secretary 
would be authorized to promulgate regulations, that take effect 
on an interim basis, after notice and pending opportunity for 
public comment, by no later than 6 months after the date of 
enactment.
    Reason for Change. Teaching hospitals have few incentives 
to reduce residency slots because Medicare's indirect and 
direct GME payment is based on the teaching hospital's total 
number of residents. The February 1997 HCFA GME demonstration 
in New York encourages teaching hospitals to reduce their 
number of residents by providing GME payments provided that 
hospitals agree to meet the terms and conditions of the 
demonstration, which require a 20 to 25 percent reduction in 
the number of residents over a five or six year period.
    Several issues, however, have been raised about the 
demonstration. First, the New York demonstration provided for 
incentive payments for all residency reductions, including the 
initial five percent reduction. Concerns have been expressed 
that while other teaching hospitals around the country were 
responding to market pressures and beginning to reduce their 
number of residents, participating New York hospitals would be 
receiving incentive payments that were not available to other 
teaching hospitals which had already (or were in the process) 
of reducing residency positions. Second, other states were not 
able to participate in the demonstration thereby creating an 
unlevel playing field.
    Effective Date. The provision would be effective on an 
interim basis through regulations six months after enactment.

Section 10735. Demonstration project on use of consortia

    Current Law. No provision.
    Explanation of Provision. The provision would require the 
Secretary to establish a demonstration project under which, 
instead of making direct GME payments to teaching hospitals, 
the Secretary would make payments to each consortium that met 
the requirements of the demonstration project. A qualifying 
consortia would be required to be in compliance with the 
following: (1) the consortium would consist of an approved 
medical residency training program in a teaching hospital and 
one or more of the following entities: a school of allopathic 
or osteopathic medicine, another teaching hospital, including a 
children's hospital, another approved medical residency 
training program, a federally qualified health center, a 
medical group practice, a managed care entity, an entity 
providing outpatient services, or an entity determined to be 
appropriate by the Secretary; (2) the members of the consortium 
would have agreed to participate in the programs of graduate 
medical education that are operated by entities in the 
consortium; (3) with respect to receipt by the consortium of 
direct GME payments, the members of the consortium would agree 
on a method for allocating the payments among the members; and 
(4) the consortium would meet additional requirements 
established by the Secretary. The total payments to a 
qualifying consortium for a fiscal year would not be permitted 
to exceed the amount that would have been paid under the direct 
GME payment to teaching hospitals in the consortium. The 
payments would be required to be made in such proportion from 
each of the Medicare trust funds as the Secretary specifies.
    Reason for Change. Consortia are thought of as a way to 
reduce the degree of centralized decision making involved in 
distributing graduate medical education funds. Funding 
consortia, instead of individual teaching hospitals, could help 
to lessen the inconsistencies between current payment policies 
and resident supply and specialty distribution decisions driven 
by other recent changes in health care delivery and financing.
    When determining qualifying consortia, consideration should 
be given to locations where approved medical residency training 
programs for geriatric medicine are conducted. These locations 
include skilled nursing facilities, adult day treatment 
programs, hospice programs and rehabilitation facilities.
    Effective Date. The provision would be effective upon 
enactment.

Section 10736. Recommendations on long-term payment policies regarding 
        financing teaching hospitals and graduate medical education

    Current Law.  No provision.
    Explanation of Provision.  The provision would require the 
Medicare Payment Advisory Commission (established by the bill) 
to examine and develop recommendations on whether and to what 
extent Medicare payment policies and other federal policies 
regarding teaching hospitals and graduate medical education 
should be reformed. The Commission's recommendations would be 
required to include each of the following: (1) the financing of 
graduate medical education, including consideration of 
alternative broad-based sources of funding for such education 
and models for the distribution of payments under any all-payer 
financing mechanism; (2) the financing of teaching hospitals, 
including consideration of the difficulties encountered by such 
hospitals as competition among health care entities increases, 
including consideration of the effects on teaching hospitals of 
the method of financing used for the MedicarePlus program under 
part C of Medicare; (3) possible methodologies for making 
payments for graduated medical education and the selection of 
entities to receive such payments, including considerationof 
matters as (A) issues regarding children's hospitals and approved 
medical residency training programs in pediatrics, and (B) whether and 
to what extent payments were being made (or should be made) for 
training in the various nonphysician health professions; (4) federal 
policies regarding international graduates; (5) the dependence of 
schools of medicine on service-generated income; (6) whether and to 
what extent the needs of the U.S. regarding the supply of physicians, 
in the aggregate and in different specialties, would change during the 
10-year period beginning on October 1, 1997, and whether and to what 
extent any such changes would have significant financial effects of 
teaching hospitals; and, (7) methods for promoting an appropriate 
number, mix, and geographical distribution of health professionals.
    The Commission would be required to consult with the 
Council on Graduate Medical Education and individuals with 
expertise in the area of graduate medical education, including 
(1) deans from allopathic and osteopathic schools of medicine; 
(2) chief executive officers (or their equivalent) from 
academic health centers, integrated health care systems, 
approved medical residency training programs, and teaching 
hospitals that sponsor 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 
allopathic and osteopathic schools of dentistry and approved 
medical residency training programs in oral surgery; (5) 
individuals with experience from representative fields of non-
physician health professionals; (6) individuals with experience 
in thee study of issues regarding the composition of the U.S. 
health care workforce; and, (7) individuals with expertise on 
the financing of health care.
    The Commission would be required to submit a report to the 
Congress no later than 2 years after enactment providing its 
recommendations under this section and the reasons and 
justifications for such recommendations.
    Reasons 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 Committee agrees that much more needs to be 
done in this area.
    Today, Medicare is the nation's primary funding source for 
the costs of graduate medical education. These expenditures 
have ensured the U.S. position as the world leader in medical 
education and allow us to provide the highest qualify health 
care to our citizens.
    Because the private health care market is changing so 
dramatically, the Committee strongly believes that a stable, 
adequate funding source for teaching hospitals and graduate 
medical education is needed. However, at this time, there is no 
agreement about the exact structure of that funding source. The 
Committee is assigning the Medicare Payment Advisory Commission 
to review issues relating to graduate medical education and 
teaching hospital payment to indicate its strong commitment to 
finding a solution for the future of teaching hospitals and 
graduate medical education funding in the United States.
    Effective Date. The provision would be effective upon 
enactment.

Section 10737. Medicare special reimbursement rule for certain combined 
        residency programs.

    Current Law. Combined programs run concurrently for a 
period of time that is longer than the required time for 
certification in either program, but shorter than would be 
required if the programs were taken sequentially. Medicare 
makes direct GME payments for residents in their initial 
residency period. The initial residency period is defined as 
the number of years of formal training necessary to satisfy 
specialty requirements for board eligibility, but not more than 
5 years, with an exception for residents in preventive care or 
geriatrics who are allowed a period of up to 2 additional years 
in the initial residency training period. Residents in their 
initial residency period are counted as 1.0 FTE during their 
initial residency period and as 0.5 FTE for subsequent years. 
For combined residency training programs there is no special 
provision in current law, so that regardless of the number of 
additional years the second program requires for certification, 
during the initial residency period residents are counted as a 
full (1.0) FTE and subsequent years are paid at half (0.5) the 
FTE.
    Explanation of Provision. The provision would provide a new 
rule for those residents enrolled in dual primary care 
residency training programs. Specifically, the period of board 
eligibility shall be the minimum number of years of formal 
training required to satisfy the requirements for initial board 
eligibility in the longest of the individual programs plus one 
additional year.
    Reason for Change. Certain rural and underserved urban 
areas have a shortage of primary care physicians. This 
provision would help increase the number of physicians who 
practice primary care medicine by supporting training to the 
full extent required for board certification in more than one 
area of primary care medicine. The Committee is supportive of 
efforts to ensure that a sufficient number of primary care 
physicians receive training.
    Effective Date. The provision is effective for residency 
years beginning on of after July 1, 1997.

Section 10741. Centers of excellence

    Current Law. No provision.
    Explanation of Provision. The provision would create a new 
program, the Centers of Excellence, under which the Secretary 
would be required to use a competitive process to contract with 
specific hospitals or other entities for furnishing services 
related to surgical procedures, and for furnishing services 
(unrelated to surgical procedures) to hospital inpatients that 
the Secretary determines to be appropriate. The services could 
include any services covered by Medicare that the Secretary 
determined were appropriate, including post-hospital services. 
The Secretary would be required to contract with entities that 
meet quality standards established by the Secretary, and 
contracting entities would be required to implement a quality 
improvement plan approved by the Secretary.
    Payment for services provided under the program would be 
made on the basis of a negotiated all-inclusive rate. The 
amount of payment made for services covered under a contract 
would be required to be less than the aggregate amount of 
payments that would have been made otherwise for these same 
services. The contract period would be required to be 3 years, 
and could be renewed as long as the entity continued to meet 
quality and other contractual standards. Entities under these 
contracts would be permitted to furnish additional services (at 
no cost to a Medicare beneficiary) or waive cost-sharing, 
subject to approval by the Secretary. The Secretary would be 
required to limit the number of centers in a geographic area to 
the number needed to meet project demand for contracted 
services.
    Reason for change. Private managed care plans have been 
able to reduce expenditures by bundling together groups of 
services for payment purposes and giving providers of those 
services incentives to economize. The Committee believes that 
the Centers of Excellence program would provide an opportunity 
for the Secretary to use private sector tools and Medicare 
purchasing power to reduce aggregate expenditures.
    The Committee is aware, however, that some well respected 
centers have been reluctant to participate in the current 
Centers of Excellence demonstration projects. Reasons cited for 
not participating include: an emphasis on discounting over 
quality, lack of sufficient severity adjusters for within DRG 
variation; waivers of coinsurance that benefit primarily 
medigap insurers; and requirements to provide extra amenities 
to certain Medicare patients that are not provided to all 
patients. The Committee believes that the discounted payment 
rates should reflect such factors as quality results, long term 
cost savings resulting from better outcomes, and severity 
adjustments.
    Effective date. This provision is effective upon enactment.

Section 10742. Medicare part B special enrollment period and waiver of 
        part B late enrollment penalty and medigap special open 
        enrollment period for certain military retirees and dependents

    Current Law. Persons generally enroll in Part B when they 
turn 65. Persons who delay enrollment in the program after 
their initial enrollment period are subject to a premium 
penalty. This penalty is a surcharge equal to 10% of the 
premium amount for each 12 months of delayed enrollment. There 
is no upper limit on the amount of penalty that may apply. 
Further, the penalty continues to apply for the entire time the 
individual is enrolled in Part B.
    Some persons declined Part B coverage because they thought 
they would be able to get health care coverage at a nearby 
military base; many of these bases subsequently closed.
    Explanation of Provision. The provision would waive the 
delayed enrollment penalty for certain persons who enroll 
during a special six month enrollment period which begins with 
the first month that begins at least 45 days after enactment. 
An individual covered under this provision is one: (1) who, on 
the date of enactment is at least 65 and eligible to enroll in 
Part B; (2) who, at the time the individual first met the 
enrollment requirements was a ``covered beneficiary'' under the 
military medical and dental care program. Covered beneficiary 
as defined in section 1072(5) of title 10 of the U.S. Code 
excludes an active duty beneficiary. Part B coverage would 
begin the month after enrollment.
    The provision would also guarantee issuance of a Medigap 
type ``A'', ``B'', ``C'', or ``F'' policy to an individual who 
enrolls with a Medigap plan during the same 6-month enrollment 
period.
    Reason for Change. The provision allows a safe-harbor 
period for military retirees and dependents who may otherwise 
face reductions in health care services due to military base 
closings and realignments in military health care services so 
that they may enroll in Medicare Part B and certain Medigap 
plans.
    Effective Date. The provision would be effective upon 
enactment.

Section 10743. Protections under the medicare program for disabled 
        workers who lose benefits under a group health plan

    Current Law. Persons generally enroll in Part B when they 
turn 65. Persons who delay enrollment in the program after 
their initial enrollment period are subject to a premium 
penalty. This penalty is a surcharge equal to 10% of the 
premium amount for each 12 months of delayed enrollment. There 
is no upper limit on the amount of penalty that may apply. 
Further, the penalty continues to apply for the entire time the 
individual is enrolled in Part B.
    Some persons declined Part B coverage because they thought 
they would be able to continue to get health care coverage from 
their employer-sponsored health plan.
    Explanation of Provision. The provision would waive the 
Part B enrollment penalty for certain disabled retired workers 
who were continuously enrolled in a group health plan and whose 
coverage was involuntarily terminated. To qualify, individuals 
must be disabled and continuously enrolled under a group health 
plan at the time they first become eligible to enroll in 
Medicare Part B. Individuals meeting these requirements may 
enroll in Medicare Part B without penalty within the 6-month 
enrollment period beginning on the date their employer-provided 
coverage is terminated at a time when enrollment under the plan 
is not by reason of the individual's, or the individual's 
spouse's, current employment.
    Reason for Change. The provision is designed to make full 
Medicare participation more accessible for certain disabled 
individuals who have lost coverage through no fault of their 
own and may otherwise find Medicare Part B enrollment penalties 
a significant barrier to obtaining coverage for physician 
services and other Part B services.
    Effective Date. The provision is effective upon enactment.

Section 10744. Placement of advance directive in medical record

    Current Law. The Patient Self-Determination Act of 1990 
requires that hospitals, skilled nursing facilities, home 
health agencies, hospice programs and health maintenance 
organizations which participate in Medicare guarantee that 
every adult receiving medical care be given written information 
concerning patient involvement in treatment decisions. 
Providers must document in the medical record whether the 
patient has an advance directive or not.
    Explanation of Provision. The provision would require that 
the individual's medical record be placed in a prominent part 
of the individual's current medical record.
    Reason for Change. While significant progress has been made 
regarding the use of advanced directives and durable powers of 
attorney, issues remain regarding the accessible of forms 
related to the patient's advanced directive or durable power of 
attorney. Requiring that such information be placed in a 
prominent part of the patient's chart would assist health care 
providers in accessing such information in a more timely 
fashion.

                  Subtitle I--Medical Liability Reform

                     Chapter 1.--General Provisions

Section 10801. Federal reform of health care liability actions

    Current 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 also not apply 
to actions under the Employment Retirement Income Security Act. 
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. The provision would not affect 
or waive the defense of sovereign immunity asserted by any 
State or the U.S., affect the applicability of the Foreign 
Sovereign Immunities Act of 1976, preempt State choice-of-law 
rules with respect to claims brought by a foreign nation or 
citizen, or affect the right of any court to transfer venue.
    Reason for Change. The provision is necessary to reduce 
health care costs and promote efficiencies in health care 
delivery. There is now considerable evidence, based on actual 
State experience, that these reforms will reduce costs 
associated with the practice of defensive medicine. The 
American Academy of Actuaries recently completed a study in 
which they found that comprehensive State malpractice reforms, 
including reforms limiting non-economic damages and instituting 
joint-and-several liability resulted in lower malpractice costs 
and insurance premiums.
    Professor Mark McClellan of Stanford University found even 
more dramatic results directly applicable to the Medicare 
program. Professor McClellan found that State malpractice 
reforms resulted in lower average spending on heart attack 
patients and patients with ischemic heart disease, with little 
or no effect on readmission or mortality rates. In other words, 
effective health care was not sacrificed by providing lower-
cost health care to patients. In addition, McClellan concluded 
that the Medicare program could save up to $600 million dollars 
a year on heart disease alone if the type of malpractice 
reforms contained in this Subtitle of the Act were enacted.
    While medical liability reform has largely been undertaken 
at the State level, federal reforms are necessary because of 
State constitutional impediments to reform. For example: (1) 
statutes of limitation have been held to violate State 
constitutions in Arizona and New Hampshire; (2) limits on 
punitive damages have been held unconstitutional in Alabama; 
and (3) periodic payment schedules have been held to violate 
State constitutions in Arizona, New Hampshire, and Ohio. 
Moreover, because federal government contributions constitute a 
considerable proportion of total health care spending in the 
United States, there is a significant federal interest in 
medical liability reform.
    Effective Date. The provision is generally effective upon 
enactment, except that health care liability claims or actions 
arising prior to the date of enactment are governed by the 
applicable statute of limitations in effect at the time the 
injury occurred.

Section 10802. Definitions

    Current 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; drug; 
economic loss; harm; health benefit plan; health care liability 
action; health care liability claim; health care provider; 
health care service; medical device; noneconomic damages; 
person; product seller; punitive damages; and State.
    Effective Date. The provision is generally effective upon 
enactment, except that health care liability claims or actions 
arising prior to the date of enactment are governed by the 
applicable statute of limitations in effect at the time the 
injury occurred.

Section 10803. Effective date

    Current 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 on or 
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.
    Effective Date. The provision is generally effective upon 
enactment, except that health care liability claims or actions 
arising prior to the date of enactment are governed by the 
applicable statute of limitations in effect at the time the 
injury occurred.

     Chapter 2--Uniform Standards for Health Care Liability Actions

Section 10811. Statute of limitations

    Current 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. (A tort 
case is a civil action to recover damages, other than for a 
breach of contract.)
    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.
    Reason for Change. This provision is necessary to prevent 
frivolous and unnecessary litigation and to provide a 
reasonable period of repose to providers.
    Effective Date. The provision is generally effective upon 
enactment, except that health care liability claims or actions 
arising prior to the date of enactment are governed by the 
applicable statute of limitations in effect at the time the 
injury occured.

Section 10812. Calculation and payment of damages

    Current 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 of punitive damages would be determined 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 
against a manufacturer or product seller in a case where a drug 
or medical device was subject to premarket approval by the Food 
and Drug Administration (or generally recognized as safe 
according to conditions established by the FDA), unless there 
was misrepresentation or fraud. A manufacturer or product 
seller would not be held liable for punitive damages related to 
adequacy of required tamper resistant packaging unless the 
packaging or labeling was found by clear and convincing 
evidence to be substantially out of compliance with the 
regulations.
    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 are any amounts paid or 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.
    Reason for Change. The provision is necessary to reduce the 
burden of paying large health care claims, and because similar 
reforms enacted at the State level have lowered health care 
costs.

Section 10813. Alternative dispute resolution

    Current Law. No Provision.
    Explanation of Provision. The provision would 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 relating to statute of 
limitations, non-economic damages, joint and several liability, 
punitive damages, collateral source rule, and periodic 
payments.
    Reason for Change. The provision is necessary to encourage 
early settlements of liability actions and to promote the 
resolution of such claims in a more convenient, timely, and 
affordable manner.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 2(l)(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 budget reconciliation health 
recommendations:

Motion to report budget reconciliation health recommendations

    The Committee on Ways and Means ordered favorably reported 
to the Committee on the Budget its budget reconciliation health 
recommendations by a roll call vote of 36 yeas to 3 nays (with 
a quorum being present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................        X   ........  .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................        X   ........  .........  Mr. Stark........        X   ........  .........
Mr. Thomas.....................        X   ........  .........  Mr. Matsui.......        X   ........  .........
Mr. Shaw.......................        X   ........  .........  Mrs. Kennelly....        X   ........  .........
Mrs. Johnson...................        X   ........  .........  Mr. Coyne........        X   ........  .........
Mr. Bunning....................        X   ........  .........  Mr. Levin........        X   ........  .........
Mr. Houghton...................        X   ........  .........  Mr. Cardin.......        X   ........  .........
Mr. Herger.....................        X   ........  .........  Mr. McDermott....  ........        X   .........
Mr. McCrery....................        X   ........  .........  Mr. Kleczka......        X   ........  .........
Mr. Camp.......................        X   ........  .........  Mr. Lewis........        X   ........  .........
Mr. Ramstad....................        X   ........  .........  Mr. Neal.........        X   ........  .........
Mr. Nussle.....................        X   ........  .........  Mr. McNulty......  ........        X   .........
Mr. Johnson....................        X   ........  .........  Mr. Jefferson....  ........        X   .........
Ms. Dunn.......................        X   ........  .........  Mr. Tanner.......        X   ........  .........
Mr. Collins....................        X   ........  .........  Mr. Becerra......        X   ........  .........
Mr. Portman....................        X   ........  .........  Mrs. Thurman.....        X   ........  .........
Mr. English....................        X   ........  .........                                                  
Mr. Ensign.....................        X   ........  .........                                                  
Mr. Christensen................        X   ........  .........                                                  
Mr. Watkins....................        X   ........  .........                                                  
Mr. Hayworth...................        X   ........  .........                                                  
Mr. Weller.....................        X   ........  .........                                                  
Mr. Hulshof....................        X   ........  .........                                                  
----------------------------------------------------------------------------------------------------------------

Votes on amendments

    Roll call votes were conducted on the following amendments 
to the Chairman's amendment in the nature of a substitute:
    An amendment by Mr. Becerra to Subtitle A to eliminate Part 
B premiums for beneficiaries above 120 percent and below 150 
percent of poverty and reduce MSA demonstration was defeated by 
a roll call vote of 15 yeas to 22 nays. The vote was as 
follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mrs. Kennelly....        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. Bunning....................  ........  ........  .........  Mr. Levin........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Cardin.......  ........  ........  .........
Mr. Herger.....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Lewis........        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Tanner.......        X   ........  .........
Mr. Collins....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. English....................  ........        X   .........                                                  
Mr. Ensign.....................  ........        X   .........                                                  
Mr. Christensen................  ........        X   .........                                                  
Mr. Watkins....................  ........        X   .........                                                  
Mr. Hayworth...................  ........        X   .........                                                  
Mr. Weller.....................  ........        X   .........                                                  
Mr. Hulsoff....................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Tanner to Subtitle A to provide a 
Department of Defense Subvention program demonstration and 
reduce MSA demonstration to 300,000 was defeated by a roll call 
vote of 18 yeas to 19 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mrs. Kennelly....        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. Bunning....................  ........  ........  .........  Mr. Levin........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Cardin.......  ........  ........  .........
Mr. Herger.....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Lewis........        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. McNulty......        X   ........  .........
 Mr. Johnson...................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Tanner.......        X   ........  .........
Mr. Collins....................        X   ........  .........  Mr. Becerra......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. English....................  ........        X   .........                                                  
Mr. Ensign.....................        X   ........                                                             
Mr. Christensen................  ........        X   .........                                                  
Mr. Watkins....................        X   ........                                                             
Mr. Hayworth...................  ........        X   .........                                                  
Mr. Weller.....................  ........        X   .........                                                  
Mr. Hulshof....................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. McDermott to Subtitle A to create a 
Children's Hospital Graduate Medical Education Trust Fund was 
defeated by 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. Rangel.......  ........  ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mrs. Kennelly....        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. Bunning....................  ........  ........  .........  Mr. Levin........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Cardin.......  ........  ........  .........
Mr. Herger.....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Lewis........        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Tanner.......        X   ........  .........
Mr. Collins....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. English....................  ........        X   .........                                                  
Mr. Ensign.....................  ........        X   .........                                                  
Mr. Christensen................  ........        X   .........                                                  
Mr. Watkins....................  ........        X   .........                                                  
Mr. Hayworth...................  ........        X   .........                                                  
Mr. Weller.....................  ........        X   .........                                                  
Mr. Hulshof....................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

    An amendment by Mrs. Thurman to Subtitle D to repeal three 
HIPAA provisions regarding advisory opinions, and limitations 
on managed care programs, and modifications of standard of 
proof in certain cases, and additional minor provisions was 
defeated by roll call vote of 16 yeas and 21 nays. The vote was 
as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mrs. Kennelly....        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. Bunning....................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Lewis........        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Nussle.....................  ........  ........  .........  Mr. McNulty......        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Tanner.......        X   ........  .........
Mr. Collins....................  ........  ........  .........  Mr. Becerra......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. English....................  ........        X   .........                                                  
Mr. Ensign.....................  ........        X   .........                                                  
Mr. Christensen................  ........        X   .........                                                  
Mr. Watkins....................  ........        X   .........                                                  
Mr. Hayworth...................  ........        X   .........                                                  
Mr. Weller.....................  ........        X   .........                                                  
Mr. Hulshof....................  ........        X                                                              
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Lewis to Subtitle F to strike 
provisions that would provide cost reimbursement for hospital 
capital expenditures related to property taxes and payments in 
lieu of taxes was agreed to by a roll call vote of 20 yeas to 
19 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................        X   ........  .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mrs. Kennelly....        X   ........  .........
Mrs. Johnson...................        X   ........  .........  Mr. Coyne........        X   ........  .........
Mr. Bunning....................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Camp.......................        X   ........  .........  Mr. Lewis........        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Ms. Dunn.......................        X   ........  .........  Mr. Tanner.......        X   ........  .........
Mr. Collins....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. English....................  ........        X   .........  .................  ........  ........  .........
Mr. Ensign.....................  ........        X   .........  .................  ........  ........  .........
Mr. Christensen................  ........        X   .........  .................  ........  ........  .........
Mr. Watkins....................  ........        X   .........  .................  ........  ........  .........
Mr. Hayworth...................  ........        X   .........  .................  ........  ........  .........
Mr. Weller.....................  ........        X   .........  .................  ........  ........  .........
Mr. Hulshof....................  ........        X   .........  .................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Kleczka to strike Subtitle I on 
malpractice was defeated by a roll call vote of 15 yeas to 24 
nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mrs. Kennelly....        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. Bunning....................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Lewis........        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. McNulty......  ........        X   .........
Mr. Johnson....................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Tanner.......  ........        X   .........
Mr. Collins....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. English....................        X   ........  .........  .................  ........  ........  .........
Mr. Ensign.....................  ........        X   .........  .................  ........  ........  .........
Mr. Christensen................  ........        X   .........  .................  ........  ........  .........
Mr. Watkins....................  ........        X   .........  .................  ........  ........  .........
Mr. Hayworth...................  ........        X   .........  .................  ........  ........  .........
Mr. Weller.....................  ........        X   .........  .................  ........  ........  .........
Mr. Hulshof....................  ........        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 budget of this bill, the Budget 
Reconciliation Health Recommendation, as reported: The 
Committee agrees with the estimate prepared by the 
Congressional Budget Office (CBO) which is included below.

    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 the 
legislation would result in net decreased budget authority for 
direct spending programs relative to current law, and new tax 
expenditures.

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 2(l)(3)(C) of rule XI of the 
Rules of the House of Representatives 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, June 16, 1997.
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 federal cost estimate, intergovernmental 
mandate statement, and private-sector mandate statement for the 
Medicare reconciliation recommendations approved by the House 
Committee on Ways and Means on June 9, 1997.
    The federal cost estimate shows the budgetary effects of 
the committee's proposals over the 1998-2007 period. CBO 
understands that the Committee on the Budget will be 
responsible for interpreting how these proposals compare with 
the reconciliation instructions in the budget resolution. The 
estimate assumes the reconciliation bill will be enacted by 
August 15, 1997, with timely implementation of policies that 
would take effect at the beginning of fiscal year 1998. The 
estimate could change if the bill is enacted later.
    If you wish further details on these estimates, we will be 
pleased to provide them.
            Sincerely,
                                         June E. O'Neill, Director.
    Enclosures.

Medicare Reconciliation Recommendations of the House Committee on Ways 
        and Means (Title X)

    Summary.--The bill would provide for the establishment of 
MedicarePlus plans, expand preventive benefits, reduce payment 
rates to certain health care providers, increase premiums 
required of beneficiaries, and make other changes to reduce the 
growth of Medicare spending and extend the solvency of the 
Hospital Insurance trust fund.
    CBO projects that under current law spending for Medicare 
benefits would grow at an annual rate of 8.5 percent from 1997 
to 2002. The bill would slow the rate of growth to 5.9 percent 
a year on average. Compared with spending under current law, 
the bill would reduce Medicare outlays by $115.0 billion over 
the 1998-2002 period. The bill would postpone the projected 
depletion of the Hospital Insurance trust fund from 2002 to 
2007.
    The bill would give Medicare beneficiaries the option to 
remain in the existing fee-for-service Medicare program or to 
enroll in MedicarePlus plans, which would replace Medicare's 
current risk plans. MedicarePlus plans would include health 
maintenance organizations (HMOs), point-of-service (POS) plans, 
preferred provider organizations (PPOs), provider-sponsored 
organizations (PSOs), as well insurance plans operated in 
conjunction with a medical savings account (MSA). New or 
expanded benefits would be added for mammography, pap smears 
and pelvic exams, screening for prostate and colorectal cancer, 
diabetes self-management and supplies, and the diagnosis of 
osteoporosis.
    Payments to hospitals, home health agencies, skilled 
nursing facilities, and other providers of health care services 
would be scaled back from the levels anticipated under current 
law. The proposal would reduce projected payment rates for 
physicians' services, inpatient and outpatient hospital 
services, hospitals' cost of capital, disproportionate share 
hospitals, clinical laboratory services, and durable medical 
equipment. The proposal would also establish new payment 
methods for nursing facilities, outpatient hospital services, 
home health services, and rehabilitation hospitals.
    To delay the depletion of the trust fund for Hospital 
Insurance (HI, or Part A), the bill would transfer payment of 
certain home health services from Part A to Part B of Medicare 
(also known as Supplementary Medical Insurance, or SMI). After 
a phase-in period of 6 years, only the first 100 home health 
visits following a hospitalization would be payable under part 
A. The impact of this transfer on the Part B premium would be 
phased in over 7 years, however. Otherwise, the premium for 
Part B would be set to cover 25 percent of program costs in 
future years, as it is now, instead being allowed to decline as 
a share of spending, as would be the case under current law.
    Estimated cost to the Federal Government.--Compared with 
spending projected under current law, the bill would reduce 
Medicare outlays by $6.8 billion in fiscal year 1998, $41.2 
billion in 2002, and $115.0 billion over the 1998-2002 period. 
Major elements of the savings are:
          $18.1 billion from provisions related to the 
        MedicarePlus program, including reductions in the rate 
        of growth in payments to HMOs (subtitle A).
          $23.1 billion associated with the formation of 
        prospective payment systems for skilled nursing 
        facilities, rehabilitation hospitals, outpatient 
        hospital services, outpatient therapy providers, and 
        home health services (subtitle E).
          $37.1 billion from slower growth of payments to 
        hospitals and other changes (subtitle F).
          $22.9 billion from reducing payments for physician 
        services, laboratory services, durable medical 
        equipment and maintaining the Part B premium at 25 
        percent of program costs (subtitle G).
          $19.8 billion from reductions in home health 
        payments, extension of Medicare's secondary-payer 
        status for enrollees with employment-based coverage, 
        and other miscellaneous changes (subtitle H).
          $0.2 billion from medical liability reforms (subtitle 
        I).
    These savings would be partially offset by the following 
items of cost:
          $4.6 billion for prevention initiatives (subtitle B).
          $0.4 billion for rural health care (subtitle C).
          $1.1 billion from reductions in premiums for people 
        purchasing Part A.
    The bill would also increase federal spending for Medicaid 
by $1.0 billion over the 1998-2002 periods.
    Table 1 summarizes the effects of the bill on Medicare. 
Table 2 (attached) shows the budgetary effects of each subtitle 
and major provisions for 1998 through 2007.

   TABLE 1. BUDGETARY IMPACT OF THE MEDICARE RECONCILIATION PROPOSALS OF THE HOUSE COMMITTEE ON WAYS AND MEANS  
----------------------------------------------------------------------------------------------------------------
                                                                By fiscal years, in billions of dollars         
                                                     -----------------------------------------------------------
                                                        1997      1998      1999      2000      2001      2002  
----------------------------------------------------------------------------------------------------------------
                                      PROJECTED SPENDING UNDER CURRENT LAW                                      
                                                                                                                
Benefit payments \1\................................     208.8     227.0     248.2     273.0     285.6     313.7
Premiums............................................     -20.2     -21.4     -22.4     -23.4     -24.5     -25.6
                                                     -----------------------------------------------------------
    Total, Medicare.................................     188.6     205.5     225.7     249.5     261.1     288.1
                                                                                                                
                                                PROPOSED CHANGES                                                
                                                                                                                
Benefit payments \1\................................         0       -72     -16.3     -23.2     -21.4     -35.2
Premiums............................................         0       0.5      -0.4      -1.9      -3.7      -6.1
                                                     -----------------------------------------------------------
    Total, Medicare.................................         0      -6.8     -16.8     -25.1     -25.1     -41.2
                                                                                                                
                                        PROJECTED SPENDING UNDER PROPOSAL                                       
                                                                                                                
Benefit payments \1\................................     208.8     219.7     231.8     249.8     264.2     278.5
Premiums............................................     -20.2     -21.0     -22.9     -25.4     -28.2     -31.6
                                                     -----------------------------------------------------------
    Total, Medicare.................................     188.6     198.8     208.9     224.4     236.0     246.9
----------------------------------------------------------------------------------------------------------------
\1\ Includes mandatory administrative costs.                                                                    
                                                                                                                
Note: Totals may not add because of rounding.                                                                   

    Basis of estimate.--Many provisions of the bill would 
reduce reimbursements to fee-for-service providers by reducing 
the price paid for a unit of service. To estimate the savings 
from these provisions, CBO compared the rate of increase in 
payments under the bill with the rate of increase projected 
under current law. For example, under the bill, hospital 
payments per admission would increase approximately 3 
percentage points less in 1998 than under current law and 1 
percentage point less each year thereafter. The estimated 
savings from this provision equals the change in the payment 
per admission times the projected number of admissions, 
assuming no change in the number of fee-for-service 
beneficiaries and adjusting for the effects of behavioral 
responses by providers.
    Reducing payments to fee-for-service providers would also 
reduce payments to risk-based plans, because Medicare currently 
pays these plans 95 percent of the estimated average cost of 
comparable beneficiaries in the fee-for-service sector. These 
savings are included in the part of the estimate relating to 
MedicarePlus plans (subtitle A). The bill would further reduce 
payments to risk plans by lowering the payment rate to 92.5 
percent of fee-for-service costs over 5 years. The MedicarePlus 
estimate also includes the incremental costs associated with 
additional enrollment in Medicare's capitated sector.
    CBO's estimate of the effects of the bill uses the economic 
and technical assumptions underlying the baseline used for the 
1998 budget resolution. The following paragraphs provide 
further details on the estimating process and the most 
important assumptions.

Subtitle A, MedicarePlus program

    Subtitle A would reduce Medicare outlays by an estimated 
$18.1 billion over the 1998-2002 period. Reductions in payments 
to capitated, risk-based plans would save $18.6 billion. Those 
savings would be partially offset by $0.2 billion in new 
spending for changes to the portability and issuance rules for 
Medigap plans and $0.3 billion for specialized capitated 
programs and other items.
            Payments to risk-based plans
    Over the 1998-2002 period, estimated savings in payments to 
risk-based plans would total $18.6 billion. The components of 
this change are shown in Table 3 (attached). About $23.7 
billion in savings would result from slower growth in 
capitation payments for MedicarePlus plans, and Medicare 
outlays would increase by $5.0 billion for people choosing PSOs 
and high-deductible/MSA plans. The proposal would also 
accelerate MedicarePlus payments that otherwise would have been 
payable on October 1, 2001, to the last business day of 
September 2001. That provision would shift approximately $4.8 
billion in spending from fiscal year 2002 to fiscal year 2001 
but would have no impact on total Medicare spending over the 
five-year period.
    Slower Growth in Capitation Payments. The bill would retain 
a link between fee-for-service spending and capitation payments 
but would reduce the growth of capitation payments by 0.5 
percentage points a year for 5 years. As under current law, 
variation in fee-for-service costs among different enrollee 
groups (defined by age, sex, reason for entitlement, and other 
factors) would be used to adjust capitation payments to reflect 
the demographic mix of each plan's enrollees. Of the $23.7 
billion in five-year savings from slower growth in capitation 
rates, $20.5 billion stems from reductions in the growth of 
fee-for-service spending, and $3.2 billion is the result of the 
0.5 percentage-point reduction in the update.
    Enrollment in Capitated Plans. CBO projects that the share 
of Medicare beneficiaries in risk-based capitated plans will 
grow from 12 percent in 1997 to 23 percent in 2002 under 
current law. This growth is expected for two main reasons. 
First, each year a larger share of newly eligible beneficiaries 
will have had experience with managed care plans during their 
working years. Second, the cost of Medigap policies is likely 
to continue to rise.
    The bill would later alter Medicare in ways intended to 
encourage more plans and more enrollment in its capitated 
sector, called MedicarePlus. Options in the MedicarePlus sector 
would be expanded to include the whole range of plans now 
available to privately insured people--including both closed-
and open-panel HMOs, preferred provider organizations, fee-for-
service indemnity plans, provider-sponsored organizations, and 
MSA plans. The Secretary of Health and Human Services (HHS) 
would establish an annual open enrollment period for 
MedicarePlus plans and would provide enrollees with comparative 
information about the options available to them. Enrollees in 
MSA plans would be required to maintain a medical savings 
account into which Medicare's contributions in excess of the 
premium would be deposited. (The bill would limit enrollment in 
MSA plans to 500,000.) Outside of the MedicarePlus program, the 
bill would allow for increased portability of Medigap insurance 
under certain conditions.
    A number of elements in the bill would tend to accelerate 
enrollment in capitated plans. More risk-based plans would be 
willing to participate, because additional sponsors and 
organizational forms would be permitted. For the first time all 
beneficiaries would have uniform, comprehensive, and timely 
comparative information about the Medicare options available to 
them. Finally, the availability of PSOs and MSAs and the 
reduction ofgeographic differences in payment rates would 
expand Medicare's capitated sector to rural areas.
    Other factors would tend to reduce enrollment in capitated 
plans. Capitation rates would grow slightly more slowly than 
costs in the fee-for-service sector, potentially eroding the 
additional benefits that many risk-based plans now provide. 
Provisions requiring some plans to increase coverage of 
emergency services and modify certain incentives for providers 
could also limit the ability of those plans to offer additional 
benefits. Finally, expanded coverage of preventive and other 
benefits in Medicare's fee-for-service program might encourage 
some beneficiaries to remain in the fee-for-service system.
    CBO's estimate assumes that the bill would increase 
enrollment in Medicare's capitated sector to 27 percent of the 
total by 2002. All of the net additional enrollment is assumed 
to flow to PSO's and MSA plans. Enrollment in PSO's would grow 
from zero to a 3 percent share, and enrollment in high-
deductible, MSA plans would reach the 500,000 cap in 2000. CBO 
assumes that the share of Medicare enrollment in traditional 
risk plans would be 23 percent in 2002, the same as in CBO's 
baseline.
    Floor on Payment Rates. Because average fee-for-service 
spending in rural areas tends to be low, Medicare's capitation 
payments in rural counties tend to be low as well. Risk plans 
have therefore tended to avoid low-payment counties or to 
charge additional premiums for beneficiaries residing in those 
areas.
    The Ways and Means bill would set a floor of $350 a month 
per person, on average, for capitation payments. The bill would 
further reduce geographic differences in payments by paying 
risk plans a blend of national and local rates. In 1998, plans 
would receive a payment based 10 percent on national rates and 
90 percent on local rates; in 2002 and thereafter, payments 
would be based on a 50-50 blend.
    Enrollment in capitated plans, especially PSO's and MSA 
plans, would increase in rural areas because of the new 
incentives. As a result of the increases in rural payment 
rates, Medicare's costs would rise because payment rates to 
capitated plans would exceed the payments that would have been 
made had enrollees remained in fee-for-service. CBO estimates 
that the impact of the rural payment changes would increase 
Medicare spending by $1.6 billion between 1998 and 2002. Most 
of the additional costs would probably be associated with PSO's 
offering MedicarePlus plans in areas that otherwise would have 
had limited access to risk plans.
    Costs from Enrollment in MSA Plans. The bill would 
introduce on a demonstration basis an option in MedicarePlus 
for an MSA plan. Up to 500,000 beneficiaries would be allowed 
to enroll in the option through January 2003. By March 2002, 
the Secretary of HHS would recommend changes in the enrollment 
limit based on evaluations of the option up to that time.
    Beneficiaries choosing the option would be required to 
select a MedicarePlus plan that met certain requirements on its 
deductible and reimbursements. The MedicarePlus plan would have 
to provide coverage of at least the items and services covered 
by Parts A and B of the fee-for-service sector, but only after 
a deductible was met. The deductible could not exceed $6,000. 
For expenses above the deductible, the plan would have to 
reimburse at least 100 percent of the amounts that would have 
been paid under parts A and B. Thus enrollees could incur out-
of-pocket costs after meeting their deductible because Medicare 
does not provide catastrophic coverage.
    Medicare would deposit in the enrollee's MSA any excess of 
the capitation amount over the cost of the enrollee's medical 
insurance plan. Enrollees could withdraw funds from their MSA 
to pay for qualifying medical expenses or other purposes. 
Withdrawals for other purposes, however, would be subject to a 
50 percent penalty tax to the extent they reduced the account 
balance in the current year below 60 percent of the deductible 
of their insurance plan. As long as withdrawals for non-medical 
purposes did not deplete the balance in the MSA below this 
threshold, they would be free from tax or penalty. In addition, 
interest earned on MSA balances would be excluded from income 
taxation. Medigap insurers would not be allowed to sell Medigap 
policies to MSA enrollees to cover expenses under the 
deductible.
    The bill would not require those who switched to an 
alternative MedicarePlus option or to the traditional Medicare 
fee-for-service sector to repay remaining balances in their MSA 
or amounts spent in earlier years on nonqualified purposes. 
Beneficiaries who were also enrolled in the Federal Employee 
Health Benefits Plan (FEHBP) would be ineligible for the MSA 
plan, until such time as coordination policies had been adopted 
to ensure that such enrollment would not increase federal 
expenditures for FEHBP.
    MSA plans with a high deductible would tend to experience 
more favorable risk selection than would other MedicarePlus 
plans or the fee-for-service sector. Beneficiaries could take 
financial advantage of the system by choosing a high-deductible 
plan when they were healthy and moving to another MedicarePlus 
plan or the fee-for-service sector if they developed medical 
problems or wanted to schedule expensive non-emergency 
procedure, such as a hip replacement. However the bill would 
limit the impact of favorable selection by allowingonly 500,000 
beneficiaries to enroll, requiring enrollments to be for a full year, 
and by limiting enrollment beyond January 2003.
    The CBO estimate assumes that Medicare's risk adjusters 
would not fully compensate for favorable selection into MSA 
plans. CBO also assumes that the number of people selecting the 
MSA option would grow to the limit of 500,000 by 2000. With 
this level or participation, Medicare's costs would increase by 
$2.0 billion over five years.
    Costs from Enrollment in Provider-Sponsored Organizations. 
Although the bill would generally require MedicarePlus plans to 
be licensed by the states, PSOs could obtain a waiver from 
state requirements in certain circumstances. In particular, 
unlicensed PSOs could become certified Medicare PSOs if the 
states imposed more rigorous solvency standards on PSOs than 
the federal government required. The bill directs the Secretary 
of HHS to establish solvency standards for PSOs that take into 
account the delivery system assets of the organization, the 
ability of the organization to provide services directly to 
enrollees, and a variety of alternative means of protecting 
against insolvency. Those provisions could result in solvency 
standards for PSOs being less rigorous than those for other, 
state-licensed MedicarePlus plans. In addition, PSOs would face 
considerably lower minimum enrollment requirements than other 
plans.
    Looser standards would encourage the development of PSOs, 
especially when taken in conjunction with the $350 minimum 
payment for MedicarePlus plans. Rural beneficiaries, in 
particular, might have more health plan choices as a result. 
PSOs might also have a competitive advantage compared to other 
MedicarePlus plans, which would be subject to state licensing 
requirements.
    Greater availability of PSOs could exacerbate risk 
selection problems in Medicare because doctors in many 
provider-sponsored networks would be able to steer healthy 
patients to the network and advise sick patients to remain in 
Medicare's fee-for-service program. Assuming that the number of 
people selecting a PSO would grow gradually to 3 percent by 
2002, the PSO option would increase total program costs by an 
estimated $1.4 billion over 5 years.
            Medigap portability
    CBO estimates that guaranteeing issue of Medigap coverage 
to certain elderly beneficiaries would raise Medicare spending 
by $0.2 billion over the 1998-2002 period. CBO assumes that 
approximately 25,000 people would newly purchase Medigap 
coverage each year and that about 20,000 people would drop 
coverage. CBO assumes that those gaining coverage would 
generally be less healthy than people who dropped coverage as a 
result of price increases. Because gap coverage would increase 
beneficiaries' use of Medicare services, each new Medigap 
enrollee would cost Medicare about $2,200 a year. CBO assumes 
that half of those beneficiaries dropping coverage would join a 
capitated plan. Therefore, CBO estimates that the savings to 
Medicare from those dropping coverage would be quite low--only 
about $700 a year for each beneficiary.
            Other provisions
    Other provisions in Subtitle A, including funding for 
specialized capitation programs, would add about $0.3 billion 
in Medicare spending.

Subtitle B, Prevention initiatives

    CBO estimates that the expansion of clinical preventive 
services under this bill would increase Medicare spending by 
$4.6 billion over the 1998-2002 period. The proposal would 
provide for both new and expanded coverage of screening tests 
for breast, cervical, prostate, and colorectal cancer. It would 
waive the Part B deductible for some screening tests and 
provide new and expanded Medicare coverage of services and 
supplies for the management of diabetes. It would also provide 
a uniform coverage policy for bone mass measurements, which 
would include screening for women at risk for osteoporosis. In 
general, the estimated net cost of each proposal equals 
spending on newly-covered services and supplies, plus spending 
on follow-up diagnostic tests and treatment, less expected 
savings in treatment costs from the early detection of disease 
and the improvement of medical management.

Subtitle C, Rural initiatives

    The bill would spend an additional $0.4 billion over five 
years to assist rural hospitals and would authorize a $30 
million demonstration project for telemedicine. It would 
consolidate and make permanent several existing limited service 
hospital demonstrations. Eligible hospitals must be located at 
least 30 minutes away from another hospital, have no more than 
15 acute-care beds, and discharge or transfer patients within 
96 hours of admission. These hospitals would be paid on the 
basis of costs in the first two years of limited service 
operation and on the basis of updated base-period costs 
thereafter. This provision would increase Medicare spending by 
$0.2 billion through 2002. A second provision would pay a blend 
of prospective-payment and cost-based amounts to small rural 
hospitals that depend on Medicare for at least 60 percent of 
inpatient cases. This provision would increase Medicare 
spending by an additional $0.2 billion.
    The proposal would direct the Secretary of HHS to establish 
a telemedicine demonstration project to improve primary care 
for diabetics living in medically underserved areas. 
Toparticipate in the project, a telemedicine network would have to be 
located in an area with one of the highest concentrations of medical 
schools and tertiary care facilities in the United States.

Subtitle D, Fraud and abuse

    The bill would tighten some anti-fraud measures and loosen 
others, with no net savings or costs. To help Medicare track 
excluded and fraudulent providers, Medicare providers other 
than individual practitioners and groups of practitioners would 
be required to submit their Social Security and employer 
identification numbers. In addition, the bill would require 
durable medical equipment suppliers to provide Medicare with a 
surety bond of not less than $50,000. Other providers would be 
required to provide bonds as determined by the Secretary of 
HHS. By deterring and eliminating some fraudulent providers of 
these services, CBO estimates this provision would reduce the 
growth in the number of providers and services paid by 
Medicare, saving $0.2 billion over the 1998-2002 period.
    Another provision would require the Secretary to issue 
written advisory opinions on whether a referral for medical 
services was prohibited under the physician self-referral 
provisions of the Social Security Act. Because these advisory 
opinions could hinder the HHS Inspector General's ability to 
prosecute fraud and abuse cases successfully, CBO estimates 
that this provisions would cost $0.2 billion over five years.

Subtitle E, Prospective payment systems

    The proposal would require the Secretary to implement 
prospective payment systems or fee schedules for skilled 
nursing facilities, rehabilitation hospitals, outpatient 
hospital services, outpatient therapy providers, and home 
health services. CBO estimates that these provisions would save 
$23.1 billion over five years. For some of these items, CBO 
estimates that the savings would stem from the new payment 
regime; in other cases, the savings stem from traditional 
savings mechanisms, such as reducing cost limits.
            Skilled nursing facilities
    Under current law, skilled nursing facilities (SNFs) are 
reimbursed for routine services (nursing, room and board, 
administrative costs, and other overhead) on the basis of 
reasonable costs, subject to per diem limits. Nonroutine, or 
ancillary, services and capital payments are also paid on a 
reasonable cost basis, but these payments are not subject to 
limits. SNF expenditures have been increasing rapidly in recent 
years and are expected to grow at an average annual rate of 
about 8 percent between now and 2002. The primary sources of 
growth have been growth in nonroutine services, especially 
therapy services, and growth in the number of beneficiaries 
using SNF services.
    The bill would establish a prospective payment system for 
skilled nursing services. Payments would be based on a per-diem 
rate covering all three types of nursing facility costs 
(routine, ancillary, and capital). During a transition period, 
the rate would be a blend of facility-specific and national 
costs, updated by the SNF market basket index minus one 
percentage point up to the year preceding implementation and by 
the full index amount therafter. The facility-specific rate 
would be based on allowable costs, and the national rate would 
be based on costs for all freestanding facilities, excluding 
exemption payments for new facilities. SNFs would be required 
to bill Medicare for almost all services their residents 
receive, and other entities would be prohibited from billing 
for beneficiaries receiving Medicare-covered services while in 
SNFs.
    The proposal would save an estimated $9.8 billion over five 
years. Under current law, nursing facilities can and have 
increased daily reimbursement by providing more and more 
ancillary services to residents. Under the proposed change, 
facilities that receive a fixed daily payment rate would no 
longer have an incentive to provide more ancillary services to 
their patients.
            Rehabilitation hospitals
    Rehabilitation hospitals and distinct rehabilitation units 
of hospitals are currently excluded from the prospective 
payment system (PPS). Payments to these hospitals are 
determined based on a comparison of actual costs and updated 
historical costs. The bill would require the Secretary to 
establish a system for classifying patients and to implement a 
prospective payment system for discharges in fiscal year 2001 
and thereafter. The PPS would be phased in over four years, 
with hospitals paid a blend of prospective and cost-based 
amounts for 2001 through 2003. (The proposals in Subtitle F 
affecting non-PPS hospitals would affect discharges starting in 
1998).
    The proposal specifics that payment rates should be 
established such that aggregate payments to rehabilitation 
hospitals and units in the first year (2001) equal what 
spending would have been had the prospective payment system not 
been established. The Secretary would be directed to adjust 
payment rates for case-mix ``creep'' (changes in case mix that 
do not reflect changes in the resource requirements of patients 
treated in rehabilitation hospitals and units) and errors in 
forecasting real case-mix change.
    CBO estimates that this provision would increase medicare 
spending in the short term and lower spending in the long run. 
Spending would rise by $0.3 billion over the 1998-2002 period 
but would fall by $0.8 billion over the 10-year period through 
2007. This patternstems from two components of the transition 
to a prospective payment system. First, although the PPS is intended to 
budget-neutral with respect to payments to rehabilitation hospitals and 
units, concurrent changes in payments to other hospitals, skilled 
nursing facilities, and home health agencies would likely result in a 
shift of patients into rehabilitation hospitals. That shift would not 
be fully accounted for in implementing the budget neutrality provision. 
Second, CBO assumes that the Secretary would underadjust for case-mix 
creep in the early years of the prospective payment system. Experience 
shows that coding practices change when patient classification systems 
used for payment are revised. Because the classification system for 
rehabilitation patients would be based on data that have not been used 
for payment purposes, there would be extraordinary case-mix creep until 
coding practices stabilized. It would take several years for this 
stabilization to occur and for Medicare to adjust payment rates to 
compensate for case-mix creep.
            Hospital outpatient services
    Under current law, beneficiaries pay 20 percent of charges 
for hospital outpatient services. After adjusting for 
coinsurance, Medicare pays the lesser of the hospital's cost, 
charge, or a blend of cost and the respective fee from the 
physician fee schedule. Because charges have grown faster than 
costs and the fee schedule, beneficiaries currently pay 47 
percent of the total amount reimbursed to hospitals. 
Nonetheless, Medicare's spending for outpatient services has 
risen rapidly. The bill contains provisions designed to deal 
with both of these issues. On balance, they would reduce 
Medicare's spending by $7.2 billion over the 1998-2002 period.
    Three provisions are aimed at reducing the rate of growth 
of Medicare spending for outpatient services. First, the bill 
would revise Medicare's payment formula to account fully for 
the beneficiary's coinsurance. Second, it would extend the 
reductions in payments for capital and other costs made by the 
Omnibus Budget Reconciliation Act of 1993. Third, it would 
establish a fee schedule for outpatient services. The fee 
schedule would be implemented in January 1999 without changing 
projected Medicare or beneficiary spending in that year. If the 
amounts in the fee schedule were updated by the rate of 
increase in the hospital market basket, these three provisions 
would save a total of $9.5 billion over five years.
    To effect a gradual reduction in coinsurance rates, 
beneficiaries' total payments would be frozen at the 1999 
amount. Medicare's fee schedule amounts would be increased by 
an additional 3.5 percentage points a year above the market 
basket to soften the effect of the freeze on hospitals. This 
provision would cost $2.2 billion over 5 years.
            Outpatient therapy providers
    Under current law, Medicare reimbursement and 
beneficiaries' copayment for services provided by independent 
physical therapists and independent occupational therapists are 
based on the physician fee schedule. A beneficiary is covered 
for up to $900 worth of services for each type of provider per 
year.
    Therapy services provided in any other outpatient therapy 
setting--hospital outpatient department, SNF, comprehensive 
outpatient facility (CORF), or rehabilitation agency--are 
reimbursed by Medicare based on cost and beneficiaries pay 20 
percent of charges. Therapy services provided by a physician 
are reimbursed on the physician fee schedule. Medicare does not 
limit the amount of services the beneficiary may use per year 
for these providers.
    This bill would apply the reimbursement method currently 
used for independent therapists to all outpatient therapy 
providers except hospital outpatient departments. SNFs, CORFs, 
and rehabilitation agencies would be reimbursed according to 
the physician fee schedule, and beneficiaries would be covered 
for up to $900 worth of services by each type of provider per 
year. Beginning in January 2000, the limit on each type of 
provider would be updated annually. Total spending on therapy 
services would not be capped. The provision would reduce 
spending by $2.1 billion through over the 1998-2002 period.
            Home health services
    Under current law, home health agencies (HHAs) are 
reimbursed on a retrospective cost basis up to an agency-
specific aggregate limit. This limit is the product of per-
visit cost limits (by type of home health service) and the 
number of visits an agency provides. The current system 
provides no incentive for agencies below their limits to 
control costs. Agencies near or above their limits have an 
incentive to decrease the average cost per visit but do not 
face any meaningful constraint on total reimbursement. Home 
health expenditures, visits, and users have all been increasing 
rapidly in recent years, and expenditures are expected to grow 
at an average annual rate of 9 percent through 2002.
    Both Subtitle E and Subtitle H would revise payments for 
home health benefits. Subtitle H would reduce agency-specific 
cost limits and establish an interim payment system under which 
home health agencies would be paid the lesser of actual costs, 
the per-visit limit, or a new agency-specific annual limit on 
spending. That limit would be based on the product of per-
beneficiary spending limits and the number of beneficiaries 
served by an agency. Per beneficiary spending limits would 
reflect reasonable costs in 1994, updated by a home health 
market basket index. The proposal would also require that 
payments be based on the location where home health services 
were provided not where the services were billed. Subtitle E 
would require that the Secretary, beginning in fiscal year 
2000, provide for payments for home health services under a 
prospective payment system. Prospective payment rates would be 
based on cost limits and per-beneficiary limits decreased by 15 
percent. These rates would be updated by the home health market 
basket in future years. Periodic interim payments would be 
eliminated for home health agencies.
    The proposal would save an estimated $15.6 billion over 
five years--$11.3 billion from the reduced cost limits and 
interim payment system in Subtitle H and $4.4 billion from the 
15 percent rate cut in Subtitle E. Although the proposal would 
limit the growth of spending per home health user, CBO assumes 
that some savings would be offset by efforts of home health 
agencies to increase the number of users. Without additional 
detail regarding how a prospective payment system would work, 
CBO cannot estimate any additional impact from its 
implementation.

Subtitle F, Provisions relating to part A only

    The largest amount of Medicare savings in the package--
$37.1 billion between 1998 and 2002--results from policies in 
Subtitle F concerning spending for hospital services. Subtitle 
F also includes a provision that would allow certain state and 
local government retirees to purchase Medicare at reduced 
rates. Subtitle F and Subtitle H both contain provisions 
affecting Medicare payments for medical education.
            Update for PPS hospitals
    Under current law, the basic operating payment for 
inpatient cases treated in hospitals paid under the prospective 
payment system is increased each year by the rate of growth in 
the hospital market basket--a measure of changes in hospital 
input prices. The market basket is projected to increase by 3.0 
percent in fiscal year 1998 and by about 3.5 percent in each 
subsequent year. The bill would freeze the basic payment in 
fiscal 1998 and reduce the updates by 1 percentage point in 
fiscal years 1999 through 2002. This provision would save $14.0 
billion through 2002.
            PPS hospital capital
    The bill would reduce reimbursements to hospitals paid 
under the prospective payment system for their inpatient 
capital-related costs and would change the distribution of 
capital payments.
    During the transition to a fully prospective payment system 
for capital spending, payments are determined by a complicated 
method based on a number of factors, including federal and 
hospital-specific payment rates. These rates are increased 
annually. Recent data suggest that the initial federal and 
hospital-specific rates have been overestimated. The Omnibus 
Budget Reconciliation Act of 1990 directed the Secretary to set 
rates during fiscal years 1992 through 1995 that resulted in a 
10 percent reduction in the amounts that would have been paid 
under the old reasonable cost system. The bill would reinstate 
the 15.7 percent reduction factor that was used to adjust the 
federal and hospital-specific capital rates under the 
transitional rate-setting mechanism in fiscal year 1995. This 
provision would save $4.7 billion over five years.
    The special exceptions payments for hospitals that have 
begun and will complete large capital projects during the 
transition to fully-prospective capital payments would be 
modified in a budget-neutral manner. The proposed change would 
increase the number of hospitals that qualify for special 
exceptions payments, and would increase the amount of the 
payment to each qualifying hospital. The federal capital rate 
would be reduced to offset the increase in special exceptions 
payments. The number of hospitals that would qualify for these 
payments and the amount that would be redistributed are 
unknown.
            Hospital depreciation
    When a hospital is sold, Medicare pays a share of the 
amount by which the depreciated value of capital assets exceeds 
book value. This proposals would set depreciated value equal to 
book value at the time of a sale, producing $0.3 billion in 
savings through 2002.
            Outlier payments
    Medicare provides outlier payments to hospitals for 
patients whose cost of care is well above average. The proposal 
would modify the formula used to calculate outlier costs and 
payments, resulting in $2.2 billion in savings through 2002.
            Graduate medical education
    Medicare currently has two mechanisms to pay for costs 
incurred by hospitals that train physicians. Medicare's 
indirect medical education (IME) payments are an add-on to the 
payments Medicare makes to PPS hospitals to reflect the higher 
patient care costs incurred by teaching hospitals. Medicare 
also uses the graduate medical education (GME) pass-through 
payment to cover its share of the cost of operating a teaching 
program (including residents' salaries and benefits, physician 
supervisory costs, and overhead) on a per-resident basis.
    The proposal would reduce both IME and GME spending by 
reducing the number of residents counted for the purposes of 
these payments, and by modifying the payment formulas. Under 
the current IME adjustment, a hospital receives 7.7 percent 
more in payments for each 0.1 increase in the resident-to-bed 
ratio. The proposal would reduce this factor to 5.5 percent for 
each 0.1 increase in the resident-to-bed ratio by 1999. These 
changes to IME would save $6.7 billion through 2002.
    GME spending would be reduced through a phased reduction of 
the overhead and physician supervisory component of the per-
resident amounts in hospitals where those amounts exceed the 
75th percentile. The proposal would also permit the Secretary 
to provide incentive payments to hospitals that commit to 
substantial reductions in the number of residents trained. 
Medicare and the participating hospitals would share in the 
resulting reduction in GME (and IME) spending for five or six 
years, after which all savings would accrue to Medicare. The 
proposal would also permit Medicare to make GME payments tonon-
hospital providers and consortia of hospitals and medical schools. 
These changes in GME policies (included in Subtitle H) would reduce GME 
spending by $1.2 billion in the 1998-2002 period.
            Treatment of transfer cases
    Medicare currently pays PPS hospitals for cases that are 
transferred to another PPS hospital on a per diem basis, up to 
the full prospective payment amount. The PPS hospital that 
ultimately discharges the patient is paid the full prospective 
amount. Payment rates are recalibrated each year in an attempt 
to ensure that changes in transferring patterns do not increase 
aggregate Medicare spending. The proposal would extend the 
transfer payment and recalibration mechanisms to include cases 
that are transferred from a PPS hospital to a non-PPS hospital, 
a skilled nursing facility, or a home health agency. This 
proposal would save $3.7 billion through 2002.
            PPS-exempt hospitals
    Payments to hospitals excluded from PPS are based on a 
comparison of actual costs and updated historical costs. 
Hospitals in which actual costs are less than updated 
historical costs (the target amount) are paid actual costs plus 
incentive payments. The incentive payments are half of the 
difference between actual costs and the target amount, up to a 
maximum of 10 percent of the target amount. Hospitals in which 
actual costs exceed the target amount are paid the target 
amount plus penalty payments of half of the difference, up to a 
maximum of 10 percent of the target amount.
    The proposal would limit the target amounts and reduce 
incentive and penalty payments. The target amounts for existing 
providers would be capped at the 90th percentile of target 
amounts, with separate caps established for rehabilitation 
hospitals and units, psychiatric hospitals and units, and long-
term hospitals. (Children's hospitals and cancer hospitals 
would not be subject to these caps.) The target amount for new 
providers would be capped at 150 percent of the median in each 
category. Incentive payments would be limited to 10 percent of 
the difference between actual costs and the new target amounts, 
with a maximum of 1 percent of operating costs. There would be 
no penalty payments for the first 10 percentage points by which 
costs exceed the target amount, and penalty payments would be 
limited to 10 percent of the target amount. Hospitals in which 
costs exceeded the target amount would receive annual updates 
equal to the increase in the hospital market basket. This 
update would be reduced in stages to 2.5 percentage points less 
than the market basket increase for hospitals in which costs 
were at least 10 percent below the target amount. Hospitals in 
which costs were less than two-thirds of the target amount 
would not get an update. Capital payments to hospitals excluded 
from PPS would be reduced by 10 percent. These provisions would 
reduce spending by $5.2 billion through 2002. The annual 
savings would total $1.5 billion in 2002 but would decline in 
subsequent years, because the changes in the incentive payment 
formula would likely contribute to faster growth in both 
hospitals' costs and cost-based payments.
            Reduction for enrollee bad debt
    Medicare beneficiaries are required to pay a deductible for 
a spell of illness that results in admission to a hospital and 
coinsurance for inpatient days in excess of 60 days. Medicare 
pays hospitals for the amount of these deductibles and 
coinsurance that hospitals do not collect. The proposal would 
phase-in a reduction in these bad debt payments to half of the 
amount that hospitals did not collect from beneficiaries, 
resulting in $0.6 billion in savings through 2002.
            State and local buy-in
    Employees of certain state or local government agencies 
hired before 1986 were not required to pay Hospital Insurance 
payroll taxes. Those who have reached age 65 but have not 
earned entitlement to Part A coverage through other employment 
(or through the employment of a spouse) are permitted to enroll 
in Part A by paying a monthly premium. In most of these cases 
the Part A premium is paid by the state or local government 
employer on behalf of the individual. However, about 30,000 
individuals pay their own premiums; most are former teachers in 
the California school systems. The bill would permit such 
individuals who Part A premiums are not paid by a former 
employer to enroll in Part A for free after they have paid the 
Part A premium for five years. Premiums paid prior to enactment 
would be counted toward the five-year requirement. CBO 
estimates that this provision would reduce Part A premium 
receipts from individuals who would be paying their own 
premiums by $0.7 billion through 2002. Others, who would have 
chosen not to pay the Part A premium would be induced to enroll 
by the prospect for free Part A coverage after five years. 
Likewise, some who have chosen not to enroll in Part B would 
also be induced to enroll. Payments for benefits on behalf of 
costs for these new enrollees are estimated to exceed the 
additional premium receipts by $0.1 billion through 2002.

Subtitle G, Provisions relating to part B only

    Major items in subtitle G include a revised system for 
paying physicians; additional spending for chiropractic 
services; reduced payment rates for laboratory services, 
durable medical equipment, and oxygen; changes in payments for 
drugs and biologicals; changes in standards for rural health 
clinics; direct payment of non-physician providers; and 
increases in Part B premiums. These provisions would save a 
total of $22.9 billion over the 1998-2002 period.
            Physicians' services
    The fees that Medicare pays for physician services are 
determined by a complicated set of formulas based on trends in 
practice costs, utilization, and other factors. The formulas 
generally attempt to reward physicians as a group for low 
growth of physicianspending by raising fees in subsequent years 
and to penalize them for rapid growth of spending by cutting future 
fees.
    This bill would simplify the setting of physician fees. In 
general, fees would be set so that overall physician spending 
would increase at the rate of growth in gross domestic product. 
By comparing actual spending with a cumulative target, and by 
increasing the range over which the Secretary could adjust fees 
to meet that target, the new formulas would better ensure that 
spending remains on track. Because the new spending targets 
would be lower than CBO's projections of physician spending 
under current law, this provision would save $5.3 billion in 
the 1998-2002 period.
    Medicare's payments to physicians are based on a conversion 
factor, which averages $35.95 in 1997. Under current law, the 
conversion factor is projected to decline to about $35.66 in 
2002. Under the bill, it would decline somewhat more rapidly, 
to about $32.63 in 2002.
            Eliminate X-ray requirement for chiropractors
    Under current law, Medicare payment to chiropractors is 
permitted only for treatment of a subluxation of the spine. 
Chiropractors must document the subluxation and the need for 
treatment with an X-ray of the patient. The proposal would 
eliminate the requirement for an X-ray. CBO assumes waiving the 
requirement for a diagnostic X-ray would add to the demand for 
chiropractic services. Over 5 years, CBO estimates that the 
additional costs would total $0.6 billion.
            Durable medical equipment, orthotics and prosthetics, and 
                    parenteral and enteral nutrition
    Payment rates for durable medical equipment, and orthotics 
and prosthetics would be frozen at 1997 levels through 2002. 
Starting in 2003, payments would be updated by the CPI-U. 
Updated for parenteral and enteral nutrition (PEN) would be 
reduced to their 1995 level for fiscal years 1998-2002. These 
provisions would save $0.8 billion over the 1998-2002 period.
            Oxygen and oxygen equipment
    Payments for oxygen and oxygen equipment would be cut by 20 
percent in 1998 and frozen through 2002. This provision would 
result in $1.6 billion in savings between 1998 and 2002.
            Laboratory updates
    Under the proposal, the payment update for laboratory 
services would be frozen through 2002. This provision would 
also reduce the laboratory payment limit from 76 percent of the 
median fee schedule amount to 72 percent of this amount. These 
changes would save medicare $2.5 billion cumulatively through 
2002.
            Laboratory administrative simplification
    The proposal would standardize the claims processing system 
for most laboratory services covered under Part B. The 
Secretary would select five regional carriers to process claims 
for all laboratory services, except those furnished in an 
independent physician's office. Claims would be processed by 
the regional carrier covering the area where the lab specimen 
was collected.
    The Secretary would also be required to use a negotiated 
rulemaking process to adopt uniform coverage, payment and 
administration policies for laboratory tests. The proposal 
would allow regional carriers to implement interim coverage 
policies in situations where no uniform national policy existed 
and carriers would be required to respond to excessive or 
fraudulent spending. The Secretary would review these interim 
policies every two years and decide whether to incorporate them 
into national policy. She would also periodically review 
proposals to change the uniform national policies.
    Because there are no data indicating whether employing 
regional carriers and instituting uniform national policies 
would result in program costs or savings, CBO estimates that 
this provision would have no net budgetary effect.
            Pharmaceutical payments
    This provision would change the payment basis for drugs and 
biologicals covered under Part B. Currently, Medicare pays the 
average wholesale price (AWP) for drugs, which is a price 
reported by the manufacturer. Under the proposal, Medicare 
would pay 95 percent of the AWP for all drugs and biologicals 
covered under Part B, except those paid on a cost or 
prospective basis. Because the provision has no mechanism for 
controlling inflation in drug prices, CBO assumes that 
manufacturers would raise the AWP for their products to 
compensate for the payment cuts. Nevertheless, the provision 
would save $0.4 billion over five years.
            Coverage of oral anti-emetics
    The bill would allow Part B payment for oral anti-nausea 
drugs used as part of a chemotherapeutic regimen, but only if 
they were administered by a physician as a full replacement for 
intravenous (IV) antiemetic therapy. Reimbursement for oral 
antiemetics would be limited to 90 percent of the average 
payment amount for the equivalent IV antiemetic. CBO estimates 
that this provision would be budget neutral because payment for 
the oral drug would be indexed to the 1996 payment amount for 
the equivalent IV drug. The pharmaceutical reimbursement 
proposal described above would also help control the costs of 
covering oral antiemetics.
            Rural health clinic services
    To expand health care services in areas with few providers, 
Medicare certifies providers serving shortage areas as rural 
health clinics and reimburses them based on their costs. This 
amount is higher than that received by comparable providers 
serving non-shortage areas. Once providers are classified as 
rural health clinics, the shortage-area requirement is no 
longer reviewed. This bill would require verification of the 
status of these clinics every three years and would use the 
physician fee schedule to pay providers no longer serving a 
shortage. In addition, the bill would apply the per-visit cap 
currently applied to independent rural health clinics to 
provider-based clinics. CBO estimates these provisions would 
save $0.2 billion over the 1998-2002 period.
            Payments to nurse practitioners, physician assistants, and 
                    clinical nurse specialists
    The proposal would allow Medicare to reimburse nurse 
practitioners, physician assistants, and clinical nurse 
specialists directly at 85 percent of the physician fee 
schedule rates under certain circumstances in all areas of the 
country. Direct payments would be allowed in outpatient, home, 
and inpatient settings. Medicare would also relax its physician 
supervision requirements to some extent. In some cases, direct 
payments at 85 percent would substitute for payments made under 
current law at 100 percent of the fee schedule amounts. 
Nonetheless, CBO estimates that additional demand for services 
would more than offset any savings achieved for lowering rates. 
CBO estimates that this provision would add approximately $0.5 
billion to Medicare outlays over five years.
            Part B premiums
    Part B premiums currently cover 25 percent of program 
costs. After 1998, however, the premium is to increase by the 
rate of the cost-of-living adjustment for Social Security and 
will fall as a share of costs. The proposal would set the 
premium to cover 25 percent of program costs after 1998. In 
addition, home health spending transferred to Part B would 
affect the premiums as if the transfer was phased-in evenly 
over 7 years. CBO estimates the savings from this proposal, net 
of interactions with other provisions, would total $12.9 
billion between 1998 and 2002. Approximately $9.3 billion of 
that savings would result from the home health transfer.
    The following table shows monthly premiums under current 
law and the proposal and the incremental effect of the home 
health transfer on the premium amount (by calendar year, in 
dollars):

----------------------------------------------------------------------------------------------------------------
                                                                                                   Effect of the
                          Calendar year                             Current law      Proposal       home health 
                                                                                                     transfer   
----------------------------------------------------------------------------------------------------------------
1998............................................................           45.80           44.80            1.30
1999............................................................           47.10           49.30            2.70
2000............................................................           48.50           54.20            4.20
2001............................................................           50.00           59.80            6.00
2002............................................................           51.50           66.60            8.20
2003............................................................           53.00           74.40           10.50
2004............................................................           54.60           83.10           12.90
----------------------------------------------------------------------------------------------------------------

Subtitle H, provisions relating to parts A and B

    Of the $19.3 billion in savings attributed to policies 
under subtitle H, $11.3 billion result from changes in payments 
for home health care, which have been discussed above under 
subtitle E. Extensions and expansions of Medicare rules that 
make employment-based health plans primary payers for certain 
beneficiaries account for an additional $7.9 billion in 
savings. About $1.2 billion in savings results from changes in 
Medicare payments for direct graduate medical education and 
$0.3 billion from a policy to designate certain centers of 
excellence for specialized care. CBO estimates that a proposal 
to allow reduced premiums for certain military retirees and 
disabled workers would add about $1.0 billion in new spending 
to the Medicare program.
            Medicare as secondary payer
    This bill contains several proposals to expand and improve 
accounting of claims where Medicare is secondary payer. It 
would permanently extend Medicare as secondary payer for the 
working disabled and permanently authorize the data match 
requirement for employers. It would expand from 12 or 18 months 
to 30 months the period before Medicare becomes the primary 
insurer for working beneficiaries with end-stage renal disease. 
CBO estimates that these provisions would save $7.5 billion 
between 1998 and 2002.
    The proposal would also improve accounting for secondary 
payer situations by permitting Medicare to notify primary 
insurers of erroneous payments for up to three years after a 
claim is filed. In addition, the bill would enable Medicare to 
require reimbursement from third-party administrators of health 
insurance plans in cases where Medicare erroneously made the 
primary payment. CBO estimates that this provision would save 
$0.4 billion over five years.
            Reduced premiums for certain military retirees and disabled 
                    workers
    CBO estimates that a provision to waive Part B late 
enrollment penalties for certain military retirees and disabled 
workers will add $1.3 billion to Medicare's costs, partially 
offset by additional premium collections of $0.3 billion. For 
military retirees, the premium penalty for late enrollment 
would be waived for a limited period of time. For disabled 
workers losing employment-based retiree health insurance, the 
premium penalty would be waived with no time limit. CBO assumes 
that, as a result, 100,000 additional military retirees and 
10,000 additional disabled workers would enroll in Part B by 
2002.
            Subtitle I, medical liability reform
    This subtitle would revise medical liability law and 
preempt less restrictive state laws. It would cap noneconomic 
damages at $250,000 and limit punitive damages to the greater 
of $250,000 or three times the amount of economic damages. 
Punitive damages would be awarded only if the claimant could 
establish intentional harm or conscious and flagrant 
indifference on the part of the defendant. The proposal would 
establish a two-year statute of limitations for medical 
liability cases, starting on the date the alleged injury was, 
or should reasonably have been, discovered. In any event, no 
legal action could be taken more than five years after the date 
the alleged injury occurred. Defendants in liability cases 
would be allowed to introduce evidence of collateral source 
payments. Finally, the proposal would require that these 
reforms apply to any alternative dispute resolution system used 
to resolve medical liability claims. These reforms would apply 
to all medical liability actions in state or federal court that 
are initiated after the enactment of the subtitle. Liability 
suits concerning injuries that occurred before enactment of 
this subtitle would be governed by the statute of limitations 
in effect at the time that the injury occurred.
    If these provisions were enacted, carriers of medical 
malpractice insurance would likely lower their premiums 
slightly. This reduction would in turn lower Medicare physician 
payments, which are partly based on the cost of malpractice 
insurance. CBO estimates that the resulting savings to Medicare 
would be $0.2 billion over five years.
    Estimate prepared by: Tom Bradley, Cyndi Dudzinski, Anne 
Hunt, Jennifer Jenson, Jeff Lemieux, Murray Ross, and Robin 
Rudowitz.
    Estimate approved by: Paul N. Van de Water, Assistant 
Director for Budget Analysis.

                                       TABLE 2. MEDICARE PROVISIONS AS APPROVED BY THE COMMITTEE ON WAYS AND MEANS                                      
                                                        [By fiscal year, in billions of dollars]                                                        
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                     1997     1998     1999     2000     2001     2002     2003     2004     2005     2006     2007    '98-02    '98-07 
--------------------------------------------------------------------------------------------------------------------------------------------------------
    CHANGE IN DIRECT SPENDING                                                                                                                           
                                                                                                                                                        
Subtitle A Medicare Plus Program:                                                                                                                       
    Payments to risk-based plans                                                                                                                        
     \1\.........................      0.0     -0.9     -2.2     -4.2      0.1    -11.5     -7.7     -9.1    -11.9    -13.3    -14.5     -18.6     -75.2
    Medicare plus funding of peer                                                                                                                       
     review......................      0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.1     -0.1      -0.1      -0.4
    Coverage of PACE under                                                                                                                              
     Medicare....................      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0       0.0       0.1
    PACE as State Medicaid option                                                                                                                       
     and demos...................      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0       0.0       0.0
    Social health maintenance                                                                                                                           
     organizations (SHMOs).......      0.0      0.0      0.1      0.1      0.0      0.0      0.0      0.0      0.0      0.0      0.0       0.2       0.2
    Municipal health services                                                                                                                           
     plans.......................      0.0      0.0      0.0      0.1      0.0      0.0      0.0      0.0      0.0      0.0      0.0       0.2       0.2
    Community nursing demo                                                                                                                              
     extension...................      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0       0.1       0.1
    Medigap changes..............      0.0      0.0      0.0      0.1      0.1      0.1      0.1      0.1      0.1      0.1      0.1       0.2       0.6
    Competitive pricing demos....      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0       0.0       0.0
      Total, Subtitle A..........      0.0     -0.7     -2.0     -4.1      0.2    -11.5     -7.7     -9.0    -11.9    -13.3    -14.4     -18.1     -74.5
                                                                                                                                                        
Subtitle B Prevention                                                                                                                                   
 Initiatives:                                                                                                                                           
    Screening mammography........      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0       0.2       0.4
    Screening pap smears and                                                                                                                            
     pelvic exams................      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0       0.1       0.3
    Prostate screening...........      0.0      0.2      0.2      0.2      0.2      0.2      0.2      0.2      0.2      0.2      0.2       1.0       2.0
    Colorectal screening Part A..      0.0      0.0      0.0      0.0      0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0       0.1      -0.0
    Colorectal screening Part B..      0.0      0.1      0.1      0.1      0.1      0.1      0.1      0.1      0.1      0.1      0.1       0.5       0.9
    Diabetes self management Part                                                                                                                       
     A...........................      0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0      -0.1      -0.1
    Diabetes self management Part                                                                                                                       
     B...........................      0.0      0.4      0.5      0.5      0.5      0.5      0.5      0.5      0.5      0.5      0.5       2.5       5.2
    Bone mass measurement........      0.0      0.0      0.0      0.1      0.1      0.1      0.1      0.1      0.1      0.1      0.1       0.3       0.6
      Total, Subtitle B..........      0.0      0.7      1.0      1.0      1.0      0.9      0.9      0.9      0.9      0.9      0.9       4.6       9.2
                                                                                                                                                        
Subtitle C Rural Initiatives:                                                                                                                           
    Rural primary care hospitals.      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0       0.2       0.3
    Reclassification of rural                                                                                                                           
     referral center(s)..........      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0       0.0       0.1
    Goegraphic reclassification                                                                                                                         
     for DSH.....................      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0       0.0       0.0
    Medicare dependent hospitals.      0.0      0.0      0.1      0.1      0.0      0.0      0.0      0.0      0.0      0.0      0.0       0.2       0.2
    Floor on area wage index.....      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0       0.0       0.0
    Telemedicine, education,                                                                                                                            
     medical informatics.........      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0       0.0       0.0
      Total, Subtitle C..........      0.0      0.1      0.1      0.1      0.1      0.0      0.0      0.0      0.0      0.0      0.0       0.4       0.7
                                                                                                                                                        
Subtitle D Fraud and Abuse:                                                                                                                             
    Advisory opinions regarding                                                                                                                         
     self-referral...............      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0       0.2       0.2
    Fraud and abuse provisions...      0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.1     -0.1      -0.2      -0.4
      Total, Subtitle D..........      0.0      0.0      0.0      0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0      -0.0      -0.2
                                                                                                                                                        
Subtitle E Prospective Payment                                                                                                                          
 Systems:                                                                                                                                               
    PPS for skilled nursing                                                                                                                             
     facilities, Part A impact                                                                                                                          
     \2\.........................      0.0     -0.0     -1.2     -2.2     -2.7     -3.3     -3.7     -4.1     -4.5     -4.9     -5.4      -9.5     -32.2
    PPS for SNFs, Part B impact..      0.0     -0.0     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1      -0.3      -0.8
    PPS for rehabilitation                                                                                                                              
     hospitals...................      0.0      0.0      0.0      0.0      0.1      0.2      0.3      0.1     -0.2     -0.5     -0.9       0.3      -0.8
    Outpatient hospital PPS                                                                                                                             
     (includes buydown)..........      0.0     -1.3     -2.0     -1.7     -1.4     -1.0     -0.5      0.1      0.7      1.5      2.3      -7.2      -3.2
    Outpatient therapy providers.      0.0     -0.1     -0.5     -0.5     -0.5     -0.5     -0.5     -0.6     -0.6     -0.6     -0.6      -2.1      -5.0
    Ambulance payments and fee                                                                                                                          
     schedule....................      0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0      -0.0      -0.1
    Paramedic intercept services                                                                                                                        
     in rural areas..............      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0       0.1       0.3
    Demonstration of contracts                                                                                                                          
     with State and local                                                                                                                               
     governments.................      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0       0.0       0.0
    PPS for home health services.      0.0      0.0      0.0     -1.7     -1.3     -1.4     -1.5     -1.6     -1.7     -1.8     -1.9      -4.4     -12.9
      Total, Subtitle E..........      0.0     -1.4     -3.7     -6.1     -5.9     -6.0     -6.0     -6.1     -6.3     -6.5     -6.6     -23.1     -54.7
                                                                                                                                                        
Subtitle F Provisions Relating to                                                                                                                       
 Part A Only:                                                                                                                                           
    PPS update...................      0.0     -1.4     -2.1     -2.8     -3.5     -4.2     -4.4     -4.5     -4.7     -4.8     -4.9     -14.0     -37.3
    PPS capital--update and                                                                                                                             
     property tax................      0.0     -0.6     -0.8     -0.8     -1.3     -1.3     -1.4     -1.4     -1.4     -1.4     -1.4      -4.7     -11.8
    PPS capital--exceptions......      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0       0.0       0.0
    Freeze in DSH................      0.0      0.0     -0.1     -0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      -0.1      -0.1
    Hospital depreciation........      0.0     -0.0     -0.0     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1      -0.3      -0.6
    Eliminate IME/DSH for                                                                                                                               
     outliers....................      0.0     -0.4     -0.4     -0.4     -0.5     -0.5     -0.5     -0.5     -0.5     -0.5     -0.6      -2.2      -4.8
    Reduce IME adjustment........      0.0     -0.6     -1.2     -1.4     -1.6     -1.8     -2.0     -2.2     -2.5     -2.7     -3.0      -6.7     -19.1
    Treatment of transfer cases..      0.0     -0.6     -0.6     -0.8     -0.8     -0.9     -0.9     -0.9     -0.9     -1.0     -1.0      -3.7      -8.5
    Puerto Rico standardized                                                                                                                            
     amount......................      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0       0.0       0.1
    PPS-exempt--update, target                                                                                                                          
     cap, and incentives.........      0.0     -0.5     -0.9     -1.1     -1.2     -1.4     -1.3     -1.3     -1.2     -1.1     -1.0      -4.9     -10.9
    PPS-exempt--capital, new                                                                                                                            
     providers, and other                                                                                                                               
     policies....................      0.0     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1     -0.0     -0.1     -0.1     -0.1      -0.5      -0.8
    LTC hospitals located within                                                                                                                        
     other hospitals.............      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0       0.0       0.0
    Hospice policies.............      0.0     -0.0     -0.0     -0.0     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1      -0.2      -0.6
    Home health transfer.........      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0       0.0       0.0
    Reduction for enrollee bad                                                                                                                          
     debt........................      0.0     -0.0     -0.1     -0.1     -0.2     -0.2     -0.2     -0.2     -0.2     -0.2     -0.2      -0.6      -1.5
    Extend hemophilia pass                                                                                                                              
     through.....................      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0       0.0       0.1
    Grandfather certain long-term                                                                                                                       
     hospital....................      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0       0.0       0.0
    State/local buy-in--new HI                                                                                                                          
     benefits for new enrollees..      0.0      0.0      0.0      0.0      0.1      0.1      0.2      0.2      0.3      0.4      0.6       0.2       1.9
    State/local buy-in--HI                                                                                                                              
     premiums for old enrollees..      0.0      0.1      0.1      0.1      0.1      0.2      0.2      0.2      0.3      0.4      0.5       0.7       2.2
    State/local buy in--HI                                                                                                                              
     premiums for new enrollees..      0.0      0.0     -0.0     -0.0     -0.1     -0.1     -0.2     -0.2     -0.3     -0.3     -0.4      -0.2      -1.5
    State/local buy-in--new SMI                                                                                                                         
     benefits for new enrollees..      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.1      0.1      0.1      0.2       0.1       0.5
    State/local buy-in--SMI                                                                                                                             
     premiums for new enrollees..      0.0      0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0      -0.0      -0.2
      Total, Subtitle F..........      0.0     -4.0     -6.3     -7.5     -9.1    -10.2    -10.7    -11.0    -11.2    -11.4    -11.4     -37.1     -92.9
                                                                                                                                                        
Subtitle G Provisions Relating to                                                                                                                       
 Part B Only:                                                                                                                                           
    Physician payment system                                                                                                                            
     (includes anesthesia) \2\...      0.0     -0.0     -0.7     -1.3     -1.6     -1.6     -1.0     -0.7     -0.9     -1.5     -2.2      -5.3     -11.7
    Resource-based physician                                                                                                                            
     practice expense............      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0       0.0       0.0
    Physician profiling for high-                                                                                                                       
     cost staff..................      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0       0.0       0.0
    Eliminate X-ray requirement                                                                                                                         
     for chiropractors...........      0.0      0.0      0.1      0.1      0.2      0.2      0.3      0.3      0.4      0.5      0.5       0.6       2.6
    Reestablish payment for                                                                                                                             
     transport of portable EKG                                                                                                                          
     \3\.........................      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0       0.0       0.0
    Durable medical equipment,                                                                                                                          
     P+O and PEN.................      0.0      0.0     -0.1     -0.2     -0.2     -0.3     -0.4     -0.4     -0.5     -0.5     -0.5      -0.8      -3.1
    Oxygen.......................      0.0     -0.2     -0.3     -0.3     -0.4     -0.4     -0.5     -0.6     -0.6     -0.7     -0.7      -1.6      -4.7
    Lab updates..................      0.0     -0.2     -0.4     -0.5     -0.6     -0.8     -0.9     -0.9     -1.0     -1.1     -1.1      -2.5      -7.5
    Lab administrative                                                                                                                                  
     simplification..............      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0       0.0       0.0
    Ambulatory surgical centres..      0.0     -0.0     -0.0     -0.1     -0.1     -0.1     -0.2     -0.2     -0.2     -0.2     -0.2      -0.4      -1.3
    Pharmaceutical payments \4\..      0.0     -0.1     -0.1     -0.1     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.1      -0.4      -0.6
    Coverage of oral anti-emetics      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0       0.0       0.0
    Rural health clinic services.      0.0     -0.0     -0.0     -0.0     -0.0     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1      -0.2      -0.6
    NPs, PAs, and CNSs...........      0.0      0.0      0.1      0.1      0.1      0.2      0.2      0.3      0.3      0.3      0.3       0.5       1.9
    Dialysis audits and quality                                                                                                                         
     standards...................      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0       0.0       0.0
    Part B premium...............      0.0      0.3     -0.6     -2.2     -4.0     -6.4     -9.3    -12.7    -16.2    -19.7    -23.3     -12.9     -94.0
      Total, Subtitle G..........      0.0     -0.2     -2.2     -4.5     -6.8     -9.3    -11.9    -15.0    -18.8    -23.1    -27.3     -22.9    -119.0
                                                                                                                                                        
Subtitle H:                                                                                                                                             
    MSP extension, 30 month ESRD.      0.0     -0.1     -1.7     -1.8     -1.9     -2.0     -2.1     -2.2     -2.3     -2.5     -2.6      -7.5     -19.2
    Clarification of time and                                                                                                                           
     filing limitations, recovery                                                                                                                       
     against TPAs................      0.0     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1      -0.4      -0.9
    Home health policies.........      0.0     -1.0     -1.9     -2.3     -2.8     -3.2     -3.7     -4.2     -4.8     -5.3     -6.0     -11.3     -35.3
    Direct GME: Resident counts                                                                                                                         
     and non-hospital providers..      0.0     -0.1     -0.1     -0.1     -0.2     -0.2     -0.3     -0.3     -0.4     -0.5     -0.5      -0.7      -2.7
    Direct GME: Cap on overhead..      0.0     -0.0     -0.0     -0.1     -0.1     -0.1     -0.2     -0.2     -0.2     -0.2     -0.2      -0.3      -1.1
    Direct GME: Incentive                                                                                                                               
     payments....................      0.0     -0.0     -0.0     -0.0     -0.1     -0.1     -0.1     -0.1     -0.2     -0.2     -0.2      -0.2      -1.1
    Direct GME: Consortia........      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0       0.0       0.0
    Centers of excellence........      0.0     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1      -0.3      -0.8
    Part B premium penalty and                                                                                                                          
     gap for military retirees--                                                                                                                        
     benefits....................      0.0      0.1      0.2      0.3      0.3      0.3      0.3      0.4      0.4      0.4      0.4       1.2       3.1
    Part B premium penalty and                                                                                                                          
     gap for military retirees--                                                                                                                        
     premiums....................      0.0     -0.0     -0.0     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1      -0.3      -0.8
    Part B premium penalty for                                                                                                                          
     disabled workers--benefits..      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.0      0.1      0.1       0.1       0.3
    Part B premium penalty for                                                                                                                          
     disabled workers--premiums..      0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0      -0.0      -0.1
      Total, Subtitle H..........      0.0     -1.3     -3.8     -4.3     -4.9     -5.5     -6.2     -7.0     -7.7     -8.5     -9.3     -19.8     -58.4
                                                                                                                                                        
Subtitle I Medical Liability                                                                                                                            
 Reform..........................      0.0     -0.0     -0.0     -0.0     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1      -0.2      -0.6
                                                                                                                                                        
Part A Premium Interaction.......      0.0      0.1      0.1      0.2      0.3      0.4      0.5      0.5      0.6      0.7      0.8       1.1       4.1
                                  ======================================================================================================================
    Total, Medicare net outlays..      0.0     -6.8    -16.8    -25.1    -25.1    -41.2    -41.2    -46.7    -54.6    -61.2    -67.5    -115.0    -386.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes--Assumes enactment on August 15, 1997 with no delay in implementation of FY98 policies. Later enactment would reduce savings.                     
\1\ October 1, 2001 Medicare Plus payments accelerated to September 2001.                                                                               
\2\ Assumes limits on adjustments to MEI are +3% and -7%.                                                                                               
\3\ Assumes payments would be limited to services provided in calendar year 1998.                                                                       
\4\ Payments for prescription drugs would equal AWP-5%, effective January 1, 1998.                                                                      


                                                           TABLE 2. MEDICARE PROVISIONS AS APPROVED BY THE COMMITTEE ON WAYS AND MEANS                                                          
                                                                            [By fiscal year, in billions of dollars]                                                                            
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                                                                           1997     1998     1999     2000     2001     2002     2003     2004     2005      2006       2007     '98-02   '98-07
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                        MEMORANDUM                                                                                                                                                              
                                                                                                                                                                                                
Monthly Part B Premium (By calendar year)                                                                                                                                                       
    Estimated Premium under proposal......................     $42.50     $43.80   $44.80   $49.30   $54.20   $59.80   $66.60   $74.40   $83.10   $91.50    $100.00    $108.20  .......  .......
    Estimated Premium under current law...................     $42.50     $43.80   $45.80   $47.10   $48.50   $50.00   $51.50   $53.00   $54.60   $56.20     $57.90     $59.70  .......  .......
                                                                                                                                                                                                
Home Health Transfer                                                                                                                                                                            
    Amount of HH Transfer, in billions of dollars.........  ...........  .......      1.2      3.9      6.3      9.3     12.8     16.6     18.6     19.9       21.2       22.7     33.6    132.5
    HMO Interaction: Spending Transferred to Part B.......  ...........  .......      0.2      0.6      1.3      1.8      2.9      4.2      5.9      8.0        9.0        9.8      6.8     43.7
                                                                                                                                                                                                
Impact on Medicaid Spending (In billions of dollars)                                                                                                                                            
    Federal Spending for Premiums.........................  ...........  .......     -0.0      0.1      0.2      0.4      0.6      0.8      1.1      1.5        1.8        2.1      1.1      8.4
    State and Local Spending for Premiums.................  ...........  .......     -0.0      0.0      0.1      0.3      0.4      0.6      0.9      1.1        1.3        1.6      0.9      6.4
                                                                                                                                                                                                
        Total Federal and State and Local from Premiums...  ...........  .......     -0.0      0.1      0.3      0.6      1.0      1.5      2.0      2.6        3.1        3.7      2.0     14.8
                                                                                                                                                                                                
    Rural Health Clinic Services--Federal Share...........  ...........  .......     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0       -0.0       -0.1     -0.1     -0.4
    Rural Health Clinic Services--State and Local Share...  ...........  .......     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0     -0.0       -0.0       -0.0     -0.1     -0.3
                                                                                 ---------------------------------------------------------------------------------------------------------------
        Total Federal and State and Local from Rural                                                                                                                                            
         Clinics..........................................  ...........  .......     -0.0     -0.0     -0.0     -0.1     -0.1     -0.1     -0.1     -0.1       -0.1       -0.1     -0.2     -0.6
                                                                                                                                                                                                
        Total, Federal....................................  ...........  .......     -0.1      0.0      0.2      0.3      0.5      0.8      1.1      1.4        1.7        2.0      1.0      8.1
        Total, State and Local............................  ...........  .......     -0.0      0.0      0.1      0.2      0.4      0.6      0.8      1.1        1.3        1.5      0.7      6.1
                                                                                 ---------------------------------------------------------------------------------------------------------------
            Total, Federal and State and Local............  ...........  .......     -0.1      0.0      0.3      0.6      0.9      1.4      1.9      2.5        3.0        3.6      1.7     14.2
                                                                                                                                                                                                
Status of Hospital Insurance Trust Fund (In billions of                                                                                                                                         
 dollars)                                                                                                                                                                                       
    Income................................................  ...........    127.7    131.0    136.5    142.2    147.7    154.0    160.3    166.6    173.4      180.3      187.1  .......  .......
    Outlays...............................................  ...........    137.4    142.5    146.5    152.7    154.1    162.5    169.7    179.4    195.4      204.6      212.7  .......  .......
    Surplus...............................................  ...........     -9.7    -11.5    -10.0    -10.5     -6.3     -8.5     -9.4    -12.8    -22.0      -24.3      -25.6  .......  .......
    Balance at End of Year................................  ...........    115.6    104.1     94.1     83.6     77.2     68.8     59.4     46.6     24.6        0.3      -25.3  .......  .......
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Notes.--Assumes enactment on August 15, 1997 with no delay in implementation of FY98 policies. Later enactment would reduce savings.                                                            


                        TABLE 3. COMPONENTS OF THE CHANGE IN PAYMENT TO RISK-BASED PLANS                        
                                    [By fiscal year, in billions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                                   1998       1999       2000       2001       2002    1998-2002
----------------------------------------------------------------------------------------------------------------
Slower growth in fee-for-service spending.....       -0.9       -2.6       -4.7       -5.3       -7.0      -20.5
Reducing update by 0.5 percentage points a                                                                      
 year.........................................       -0.1       -0.3       -0.6       -0.8       -1.3       -3.2
Accelerating October 2001 payment.............          0          0          0        4.8       -4.8          0
                                               -----------------------------------------------------------------
    Subtotal..................................       -1.0       -3.0       -5.4       -1.3      -13.1      -23.7
Floor on payment rates........................          0        0.2        0.3        0.5        0.6        1.6
Risk selection in provider-sponsored                                                                            
 organizations................................          0        0.2        0.3        0.4        0.5        1.4
Risk selection in high-deductible/MSA plans...          0        0.4        0.5        0.5        0.6        2.0
                                               -----------------------------------------------------------------
    Subtotal..................................        0.1        0.8        1.1        1.4        1.6        5.0
      Total...................................       -0.9       -2.2       -4.2       -0.1      -11.5      -18.6
                                               =================================================================
Memoranda:                                                                                                      
    Enrollment in counties initially subject                                                                    
     to floor on payments (millions)..........        0.1        0.4        0.6        0.8        1.0           
    Incremental Cost Per Enrollee (dollar)....        500        550        550        550        600           
    Enrollment in provider-sponored                                                                             
     organizations (millions).................        0.1        0.4        0.6        0.8        1.0           
    Incremental cost per enrollee (dollars)...        500        500        500        500        500           
    Enrollment in high-deductible/MSA plans                                                                     
     (millions)...............................          0        0.4        0.5        0.5        0.5           
    Incremental cost per enrollee (dollars)...          0      1,000      1,000      1,050      1,150  .........
----------------------------------------------------------------------------------------------------------------
Source: Congressional Budget Office.                                                                            

    CONGRESSIONAL BUDGET OFFICE INTERGOVERNMENTAL MANDATE STATEMENT

Medicare Reconciliation Recommendations of the House Committee on Ways 
        and Means (Title X)

    Summary.--Title X would make numerous changes to the 
Medicare program in order to achieve federal budgetary savings. 
Some of these changes would impose intergovernmental mandates 
and affect the budgets of state, local, and tribal governments.
    Intergovernmental mandates contained in bill.--The title 
would impose several intergovernmental mandates as defined in 
the Unfunded Mandates Reform Act (UMRA). Specifically, the 
title would:
          Prohibit states from imposing premium taxes on 
        MedicarePlus plans;
          extend and expand the existing mandate that health 
        plans sponsored by state and local governments for 
        their employees be the primary payer for the working 
        disabled and for individuals with end-stage renal 
        disease (ESRD);
          preempt states from prohibiting certain provider 
        sponsored organizations (PSOs) from operating as 
        Medicare Plus organizations in their state;
          preempt state laws that are inconsistent with the 
        standards for MedicarePlus plans and organizations 
        developed by the Secretary of Health and Human 
        Services;
          impose a notification requirement on health plans 
        that are sponsored by state and local governments and 
        supplement Medicare;
          preempt certain state laws affecting medical 
        liability; and
          require separate court proceedings for punitive 
        damages in medical liability cases if either party 
        requests it.
    Estimated direct costs of mandates to State, local, and 
tribal governments.--Is the Statutory Threshold Exceeded?
    CBO is uncertain whether the threshold for 
intergovernmental mandates ($50 million in 1996, adjusted 
annually for inflation) would be exceeded in any of the next 
five years, because UMRA is unclear about including the costs 
of extending an existing mandate. If the costs of extending the 
primary payer requirement are included, then the total costs of 
the intergovernmental mandates in this title would be at or 
near the threshold in 1999. If such costs are not included, 
then the threshold would not be exceeded in any year.
    Total direct costs of mandates.--The costs of complying 
with the intergovernmental mandates contained in this bill are 
summarized in the following table.

                                   DIRECT COSTS OF INTERGOVERNMENTAL MANDATES                                   
                                [By federal fiscal year, in millions of dollars]                                
----------------------------------------------------------------------------------------------------------------
                                                              1997     1998     1999     2000     2001     2002 
----------------------------------------------------------------------------------------------------------------
Premium tax preemption....................................        0       20       25       33       33       42
Expand primary payer requirement..........................        0        6        2        0        0        0
Medical liability (requirement and preemption)............        0    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)
Other mandates............................................        0    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)
                                                           -----------------------------------------------------
      Total, without extension............................        0       26       27       33       33       42
Extend primary payer requirement..........................        0        0       24        0        0        0
                                                           -----------------------------------------------------
      Total, with extension...............................        0       26       51       33       33       42
----------------------------------------------------------------------------------------------------------------
\1\ Less than $500,000.                                                                                         

    Basis of estimate.--Preemption of Premium taxes collected 
by States
    A handful of states currently collect premium taxes from 
Medicare managed care plans that would be excluded from state 
premium tax collections by this title. Based on the tax rates, 
average payment per enrollee, and managed care enrollment in 
these states, CBO estimates that states will collect about $15 
million in premium taxes from these managed care plans in 1997 
under current law. Assuming such tax collections increase by an 
average of 25 percent over the next five years (largely as a 
result of enrollment growth in these plans), CBO estimates that 
this preemption would result in a loss of state tax collections 
totaling about $20 million to $40 million annually over the 
1998-2002 period.
    Medicare as Secondary Payer.--Under current law, employment 
based health plans (including state and local government plans) 
are mandated to be the primary payer (with Medicare being the 
secondary payer) for individuals with ESRD for the first 18 
months of Medicare eligibility and for the working disabled 
without time limitations. These requirements will expire on 
October 1, 1998, when these employment based plans will become 
the primary payer for individuals with ESRD for only the first 
12 months and the secondary payer for the working disabled. 
This title would extend these requirements and expand them by 
making employment based health plans the primary payer for 
individuals with ESRD for the first 30 months.
    Expanding the Requirement.--By itself, expanding the ESRD 
requirement to 30 months would shift spending of between $20 
million and $25 million annually from Medicare to health plans 
sponsored by state and local governments. (Based on data from 
the Current Population Survey, CBO estimates that health plans 
sponsored by state and local governments account for about 15 
percent of the shift from Medicare to employment-based health 
plans.) As a result of higher health care costs, state and 
local governments would reduce other elements of their 
employees' compensation packages by a corresponding amount. 
Some governmental entities, however, would be unable to 
immediately adjust the compensation package of all their 
employees. About 40 percent of state and local employees are 
members of unions and are covered by collectively bargaining 
agreements that fix compensation packages for, on average, 
about two years. During this transitional period, state and 
local governments would face additional costs totaling $8 
million. In the long run, the total amount of compensation paid 
by state and local governments would not change.
    Extending the requirement.--Extending the primary payer 
requirement beyond 1998 would shift an additional $240 million 
to $280 million in spending annually from Medicare to the state 
and local plans. State and local governments would face 
additional direct costs of $24 million in 1999 until they shift 
these costs to their employees.
    Medical liability.--The preemption of state laws affecting 
medical liability that are less stringent than provided for in 
this title would decrease the incentive for people to bring 
malpractice suits. This decrease would likely reduce state 
judicial costs. However, the requirement that state courts 
provide separate proceedings for punitive damages if requested 
by either party would increase judicial costs. Based on data 
from the National Center for State Courts and an analysis of 
medical liability laws in each state from the Association of 
Trial Lawyers of America, CBO estimates that these two effects 
would largely offset each other and the net change in costs 
would not be significant.
    Other mandates.--CBO estimates that the other mandates 
discussed above would impose no significant costs on state, 
local, or tribal governments.
    Appropriation or other federal financial assistance 
provided in bill to cover mandate costs.--None.
    Other significant impacts on State, local, and tribal 
governments.--Public Hospitals and clinics.--The proposed 
reductions in Medicare spending would reduce the revenues of 
public hospitals and clinics. According to the Prospective 
Payment Assessment Commission, hospitals owned by urban and 
rural governments (which do not include those owned by states, 
special taxing districts, and public universities) account for 
about 15 percent of the payments under Medicare's prospective 
payment system. In addition, according to the National 
Association of Public Hospitals and Health Systems (which 
represents 100 large safety net hospitals that are in urban 
areas), Medicare accounts for about 20 percent of its members' 
net revenue and inpatient days.
    Medicaid and Part B premium.--The title would make the Part 
B monthly premium collected from enrollees increase faster than 
it would under current law. Because states are required under 
the Medicaid program to pay for about 43 percent of Part B 
premiums for low-income Medicare beneficiaries, state spending 
for these individuals would increase by $900 million between 
1998 and 2002. This requirement would not constitute a mandate 
under UMRA, however, because new requirements for large 
entitlement programs are not mandates if the states have the 
flexibility to offset costs by reducing their own financial or 
programmatic responsibilities in the program. Under Medicaid, 
states have the ability to reduce their coverage of optional 
services or benefits to offset these additional costs.
    Medicaid and rural health clinics.--The title would drop 
the requirement that Medicaid reimburse certain rural health 
clinics on a cost basis. The states' share of these savings 
would total about $100 million over five years.
    Estimate prepared by: John Patterson.
    Estimate approved by: Paul N. Van de Water, Assistant 
Director for Budget Analysis.

      CONGRESSIONAL BUDGET OFFICE PRIVATE-SECTOR MANDATE STATEMENT

Medicare Reconciliation Recommendations of the House Committee on Ways 
        and Means (Title X)

    Summary.--Title X would make numerous changes to the 
Medicare program in order to achieve federal budget savings. 
Some of these changes would impose private-sector mandates 
affecting private insurers.
    Private-sector mandates contained in bill.--Title X 
contains several private-sector mandates as defined in the 
Unfunded Mandates Reform Act of 1995. These mandates would 
affect employment-based health insurance plans and medigap 
plans.
            Mandates on employment-based health insurance plans
    Section 10701 of the bill would make permanent an existing 
mandate on health insurance providers that requires them to 
treat Medicare as second payer (MSP) for disabled enrollees who 
have employment-based insurance through current employment, 
either their own or that of their spouse. It would also make 
permanent a current provision that makes Medicare the second 
payer for Medicare enrollees with end-stage renal disease 
(ESRD) who have employment-based insurance. Under current law, 
both of these private-sector mandates expire at the end of 
fiscal year 1998. In addition, the bill would increase the 
length of time for which an employment-based plan would be 
primary payer for ESRD enrollees from 18 months to 30 months.
            Mandates on employment-based and medigap plans
    Section 10031 of the bill would impose a mandate on private 
insurers who provide supplemental insurance to Medicare 
enrollees. In particular, if those insurers terminated their 
policies, they would have to notify enrollees of the legal 
obligations of issuers of Medicare supplemental policies and of 
enrollees' rights in the purchase of replacement policies. The 
bill would impose a similar requirement on HMOs and other plans 
in the Medicare Plus sector, but for these plans the 
requirement would be a condition for participating in the 
Medicare program and, as such, would not be a mandate under 
UMRA.
            Mandates on medigap plans
    Section 10031 of the bill would impose two additional 
mandates on medigap plans. First, it would prohibit coverage 
exclusions for preexisting conditions for aged Medicare 
enrollees who purchased a medigap plan within 6 months of their 
enrollment in Part B, so long as they had insurance coverage 
for at least six months prior to medigap enrollment. Second, 
the bill would require medigap plans, under specified 
conditions, to issue policies (limited to standardized plans A, 
B, C, or F) to Medicare enrollees who wished to change their 
coverage from another medigap plan, an HMO, or employment-based 
insurance as long as any lapse in coverage was no more than 63 
days. Medigap plans would also be prohibited from having 
coverage exclusions for preexisiting conditions in this 
circumstance. Under current law, medigap plans may exclude 
coverage for up to six months for preexisting conditions that 
the patient was treated for during the six months prior to 
medigap enrollment.
    Section 10742 would impose an additional mandate on medigap 
plans. It would require that medigap insurers hold a one-time 
special open enrollment period of six months for certain 
military retirees and their dependents. It would not prohibit 
medigap plans from imposing a six-month coverage exclusion for 
preexisting conditions in this case. Those people affected 
would have to be 65 or older and eligible to enroll under Part 
B of Medicare at the time of enactment. Further, when they 
first became eligible for Part B, they must have been eligible 
for health benefits from the Department of Defense and they 
must have elected not to enroll in part B.
    Estimated direct cost to the private sector.--CBO estimates 
that the direct costs of the private-sector mandates in title X 
would total $120 million in fiscal year 1998. In 1999-2002, the 
costs could be considerably higher, depending on how the 
Unfunded Mandates Reform Act is interpreted regarding the 
extension of a mandate that is scheduled to expire under 
current law (see below). Under one interpretation, the mandate 
costs of this title would be about $150 million in 1999; 
underanother interpretation, the mandate costs in 1999 would be $1.4 
billion. The estimates for each of the specific mandates in title X are 
shown in the following table.

                                     DIRECT COSTS OF PRIVATE-SECTOR MANDATES                                    
                                        [Fiscal year dollars in millions]                                       
----------------------------------------------------------------------------------------------------------------
                        Provision                             1998       1999       2000       2001       2002  
----------------------------------------------------------------------------------------------------------------
MSP Extension                                                                                                   
    Cost compared to no MSP mandate......................        110      1,370      1,440      1,520      1,600
    Cost compared to current MSP mandate.................        110        120        120        130        140
Notification.............................................          0          0          0          0          0
Medigap Requirements at Initial Enrollment...............          0          0          0          0          0
Medigap Requirements when Changing Plans.................         10         30         30         30         30
Medigap Open Enrollment for Certain Military Retirees and                                                       
 Dependents..............................................          0          0          0          0          0
                                                          ------------------------------------------------------
Total Cost                                                                                                      
    Compared to no MSP mandate...........................        120      1,400      1,470      1,550      1,630
    Compared to current MSP mandate......................        120        150        150        160        170
----------------------------------------------------------------------------------------------------------------

    The remainder of this analysis discusses the basis for 
CBO's estimate of the direct costs of these private-sector 
mandates.
            Direct cost of mandates on employment-based insurance plans
    The MSP provisions in the bill would transfer the primary 
liability for most Medicare-covered services from Medicare to 
the employment-based plans that enroll disabled Medicare 
beneficiaries who have a current employment link. Thus, the 
total cost of these provisions would equal the savings to the 
Medicare program, which are described in CBO's federal cost 
estimate for this title. To calculate the share of these costs 
attributable to private-sector plans, CBO used information from 
the Mach 1996 Current Population Survey. According to that 
source, about 80 percent of the approximately 500,000 disabled 
Medicare enrollees who would be affected by these provisions 
have insurance from private-sector employers. (About 15 percent 
of the affected disabled enrollees have insurance from state or 
local government employers, and the remaining 5 percent have 
insurance through the federal government as an employer.) The 
total cost to private-sector plans of extending of MSP mandate 
beyond 1998 would be $1,250 million in 1999, rising to $1,460 
in 2002. The cost of increasing from 18 months to 30 months the 
ESRD provision would be $110 million in 1998, rising to $140 
million in 2002.
    It is unclear to CBO how to treat the cost of extending an 
expiring mandate in terms of its direct private-sector impact. 
The Unfunded Mandates Reform Act could be interpreted as 
requiring the estimate of the direct cost of mandate extension 
to be based on a comparison with costs under the existing 
mandate. In that case, the direct cost of extending the mandate 
would be zero, and the only cost of the MSP provisions would be 
the cost of increasing from 18 months to 30 months the ESRD 
provision. An alternative interpretation is that the estimate 
of direct cost should assume the mandate expires at the end of 
fiscal year 1998, as under current law. The direct cost of the 
mandate under that approach would be the cost of extending the 
expiration date of the MSP provisions, plus the cost of the 
additional ESRD provision. The private-sector mandate cost 
under each of these interpretations is displayed in the table.
            Direct cost of mandate on employment-based and medigap 
                    plans
    The direct cost of the proposed notification mandate would 
be negligible. Plans terminating coverage would have to notify 
policyholders even without this mandate, and the incremental 
costs of including a sheet notifying those people of their 
legal rights concerning replacement coverage would be minimal.
            Direct cost of mandates on medigap plans
    There would be negligible costs from the mandate to 
prohibit medigap plans from excluding coverage for preexisting 
conditions for Medicare enrollees who purchased a medigap plan 
within six months of becoming eligible for and enrolling in 
Medicare Part B, and who had health insurance coverage prior to 
Medicare enrollment. At most, this provision would increase the 
average annual medigap premium of approximately $1,300 by about 
$6--under the extreme assumption that virtually all services 
used by the affected enrollees during the first six months of 
medigap coverage would otherwise be excluded from coverage. 
However, according to the American Academy of Actuaries few 
medigap plans enforceexclusion provisions for those enrolling 
at age 65. Hence, CBO estimates no costs for this mandate.
    Regarding the mandate on medigap plans that would require 
them to guarantee issue and prohibit coverage exclusions for 
continuously covered Medicare enrollees switching plans, only 
movement by HMO enrollees into medigap plans would impose new 
costs on the plans. This provision is already law for people 
who switch from one medigap plan to another, and people moving 
from employment-based plans to medigap plans would be unlikely 
to be more costly than the average medigap enrollee. However, 
analysis by the Physician Payment Review Commission indicates 
that HMO enrollees who return to the fee-for-service sector are 
about 60 percent more costly than average.
    Because the American Association of Retired Persons (AARP) 
sponsors guaranteed-issue community-rated medigap plans at all 
states, the guaranteed-issue provision should, by itself, have 
no effect on HMO disenrollment rates or average premium costs 
for current medicap enrollees--although it might lower AARP 
premiums (and premiums for those Blue Cross plans that have 
community rating) while increasing the premiums of other plans. 
But the prohibition of coverage exclusions for continuously 
covered enrollees might increase the number of HMO enrollees 
who returned to the fee-for-service sector, and it would 
increase covered benefit costs for the medigap plans chosen by 
HMO disenrollees.
    However, the bill would prohibit coverage exclusions by 
medigap plans only in a limited set of cases--for those who 
were involuntarily disenrolled from an HMO because they 
relocated or the HMO no longer served their area, and a one-
time prohibition for those who left an HMO within the first six 
months of enrolling. About 0.5 percent of HMO enrollees return 
to the fee-for-service sector for involuntary reasons 
(Physician Payment Review Commission, Annual Report, 1997). 
About 10 percent of first-time HMO enrollees return to the fee-
for-service sector within six months. (Prospective Payment 
Assessment Commission, Report to the Congress, June 1996). 
Given current HMO enrollment and projected growth rates, this 
implies that about 3 percent of HMO enrollees (or about 170,000 
people) in 1998 would return to the fee-for-service sector and 
be affected by this mandate. As a result, average annual 
premiums for medigap enrollees might increase by about $3 when 
fully effective. The costs of this mandate on medigap plans 
would be about $10 million in fiscal year 1998 and about $30 
million in 2002.
    The cost of the mandate requiring a one-time open 
enrollment period for certain military retirees and their 
dependents would be negligible. It would have no appreciable 
effect on average premium costs for current medigap enrollees 
because medigap coverage is already offered in every state by 
AARP with continuous open enrollment, and because this mandate 
would prohibit plans from imposing a 6-month coverage exclusion 
for preexisting conditions.
    Appropriation or other Federal financial assistance 
provided in bill to cover mandate costs.--None
    Estimate prepared by.--Sandra Christensen.
    Estimate approved by.--Joseph Antos, Assistant Director for 
Health and Human Resources.

     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 is appropriate to enact the provisions contained 
in the bill.

B. SUMMARY OF FINDINGS AND RECOMMENDATIONS OF THE COMMITTEE 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. CONSTITUTIONAL AUTHORITY STATEMENT

    With respect to clause 2(l)(4) of rule XI of the Rules of 
the House of Representatives, relating to Constitutional 
Authority, the Committee states that the Committee's action in 
reporting the bill is derived from Article I of the 
Constitution, Section 8 (``The Congress shall have power to lay 
and collect taxes, duties, imposts and excises, to pay the 
debts and to provide for * * * the general Welfare of the 
United States * * *'').

                VI. APPLICABILITY OF HOUSE RULE XXI 5(C)

    Clause 5(c) of rule XXI 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 the Budget Reconciliation Health Recommendations 
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 the Budget 
Reconciliation Health Recommendations that constitutes a 
Federal income tax rate increase within the meaning of House 
Rule XX1 5(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 
Advisory Commission and the Bi-Partisan Commission on the 
Effect of the Baby Boom Generation on the Medicare Program in 
section 10721, 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 RECOMMENDATIONS 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 the 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, PEER REVIEW, AND ADMINISTRATIVE 
                             SIMPLIFICATION

          * * * * * * *

                       Part A--General Provisions

          * * * * * * *

            disclosure of ownership and related information

    Sec. 1124. (a)(1) The Secretary shall by regulation or by 
contract provision provide that each disclosing entity (as 
defined in paragraph (2)) shall--
                  (A) as a condition of the disclosing entity's 
                participation in, or certification or 
                recertification under, any of the programs 
                established by titles V, XVIII, and XIX, or
                  (B) as a condition for the approval or 
                renewal of a contract or agreement between the 
                disclosing entity and the Secretary or the 
                appropriate State agency under any of the 
                programs established under titles V, XVIII, and 
                XIX,
supply the Secretary or the appropriate State agency with full 
and complete information as to the identity of each person with 
an ownership or control interest (as defined in paragraph (3)) 
in the entity or in any subcontractor (as defined by the 
Secretary in regulations) in which the entity directly or 
indirectly has a 5 per centum or more ownership interest and 
supply the Secretary with the both the employer identification 
number (assigned pursuant to section 6109 of the Internal 
Revenue Code of 1986) and social security account number 
(assigned under section 205(c)(2)(B)) of the disclosing entity, 
each person with an ownership or control interest (as defined 
in subsection (a)(3)), and any subcontractor in which the 
entity directly or indirectly has a 5 percent or more ownership 
interest.
          * * * * * * *

  disclosure requirements for other providers under part b of medicare

    Sec. 1124A. (a) Disclosure Required To Receive Payment.--No 
payment may be made under part B of title XVIII for items or 
services furnished by any disclosing part B provider unless 
such provider has provided the Secretary with full and complete 
information--
          (1) on the identity of each person with an ownership 
        or control interest in the provider or in any 
        subcontractor (as defined by the Secretary in 
        regulations) in which the provider directly or 
        indirectly has a 5 percent or more ownership interest; 
        [and]
          (2) with respect to any person identified under 
        paragraph (1) or any managing employee of the 
        provider--
                  (A) on the identity of any other entities 
                providing items or services for which payment 
                may be made under title XVIII with respect to 
                which such person or managing employee is a 
                person with an ownership or control interest at 
                the time such information is supplied or at any 
                time during the 3-year period ending on the 
                date such information is supplied, and
                  (B) as to whether any penalties, assessments, 
                or exclusions have been assessed against such 
                person or managing employee under section 1128, 
                1128A, or 1128B[.]; and
          (3) including the employer identification number 
        (assigned pursuant to section 6109 of the Internal 
        Revenue Code of 1986) and social security account 
        number (assigned under section 205(c)(2)(B)) of the 
        disclosing part B provider and any person, managing 
        employee, or other entity identified or described under 
        paragraph (1) or (2).
          * * * * * * *
    (c) Verification.--
          (1) Transmittal by hhs.--The Secretary shall 
        transmit--
                  (A) to the Commissioner of Social Security 
                information concerning each social security 
                account number (assigned under section 
                205(c)(2)(B)), and
                  (B) to the Secretary of the Treasury 
                information concerning each employer 
                identification number (assigned pursuant to 
                section 6109 of the Internal Revenue Code of 
                1986),
supplied to the Secretary pursuant to subsection (a)(3) or 
section 1124(c) to the extent necessary for verification of 
such information in accordance with paragraph (2).
          (2) Verification.--The Commissioner of Social 
        Security and the Secretary of the Treasury shall verify 
        the accuracy of, or correct, the information supplied 
        by the Secretary to such official pursuant to paragraph 
        (1), and shall report such verifications or corrections 
        to the Secretary.
          (3) Fees for verification.--The Secretary shall 
        reimburse the Commissioner and Secretary of the 
        Treasury, at a rate negotiated between the Secretary 
        and such official, for the costs incurred by such 
        official in performing the verification and correction 
        services described in this subsection.
    [(c)] (d) Definitions.--For purposes of this section--
          (1) the term ``disclosing part B provider'' means any 
        entity receiving payment on an assignment-related basis 
        (or, for purposes of subsection (a)(3), any entity 
        receiving payment) for furnishing items or services for 
        which payment may be madeunder part B of title XVIII, 
except that such term does not include an entity described in section 
1124(a)(2);
          * * * * * * *

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

  Sec. 1128. (a) Mandatory Exclusion.--The Secretary shall 
exclude the following individuals and entities from 
participation in [any program under title XVIII and shall 
direct that the following individuals and entities be excluded 
from participation in any State health care program (as defined 
in subsection (h))] any Federal health care program (as defined 
in section 1128B(f)):
          (1) * * *
          * * * * * * *
  (b) Permissive Exclusion.--The Secretary may exclude the 
following individuals and entities from participation in [any 
program under title XVIII and may direct that the following 
individuals and entities be excluded from participation in any 
State health care program] any Federal health care program (as 
defined in section 1128B(f)):
          (1) * * *
          * * * * * * *
          (8) Entities controlled by a sanctioned individual.--
        Any entity with respect to which the Secretary 
        determines that a person--
                  (A)(i) who has a direct or indirect ownership 
                or control interest of 5 percent or more in the 
                entity or with an ownership or control interest 
                (as defined in section 1124(a)(3)) in that 
                entity, [or]
                  (ii) who is an officer, director, agent, or 
                managing employee (as defined in section 
                1126(b)) of that entity[--]; or
                  (iii) who was described in clause (i) but is 
                no longer so described because of a transfer of 
                ownership or control interest, in anticipation 
                of (or following) a conviction, assessment, or 
                exclusion described in subparagraph (B) against 
                the person, to an immediate family member (as 
                defined in subsection (j)(1)) or a member of 
                the household of the person (as defined in 
                subsection (j)(2)) who continues to maintain an 
                interest described in such clause--
        is a person--
          * * * * * * *
    (c) Notice, Effective Date, and Period of Exclusion.--(1) * 
* *
          * * * * * * *
    (3)(A) The Secretary shall specify, in the notice of 
exclusion under paragraph (1) and the written notice under 
section 1128A, the minimum period (or, in the case of an 
exclusion of an individual under subsection (b)(12) or in the 
case described in subparagraph (G), the period) of the 
exclusion.
    (B) [In the case] Subject to subparagraph (G), in the case 
of an exclusion under subsection (a), the minimum period of 
exclusion shall be not less than five years, except that, upon 
the request of a State, the Secretary may waive the exclusion 
under subsection (a)(1) in the case of an individual or entity 
that is the sole community physician or sole source of 
essential specialized services in a community. The Secretary's 
decision whether to waive the exclusion shall not be 
reviewable.
          * * * * * * *
    (D) [In the case] Subject to subparagraph (G), 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 published regulations that a shorter period is appropriate 
because of mitigating circumstances or that a longer period is 
appropriate because of aggravating circumstances.
          * * * * * * *
    (G) In the case of an exclusion of an individual under 
subsection (a) based on a conviction occurring on or after the 
date of the enactment of this subparagraph, if the individual 
has (before, on, or after such date and before the date of the 
conviction for which the exclusion is imposed) been convicted--
          (i) on one previous occasion of one or more offenses 
        for which an exclusion may be effected under such 
        subsection, the period of the exclusion shall be not 
        less than 10 years, or
          (ii) on 2 or more previous occasions of one or more 
        offenses for which an exclusion may be effected under 
        such subsection, the period of the exclusion shall be 
        permanent.
          * * * * * * *
    (j) Definition of Immediate Family Member and Member of 
Household.--For purposes of subsection (b)(8)(A)(iii):
          (1) The term ``immediate family member'' means, with 
        respect to a person--
                  (A) the husband or wife of the person;
                  (B) the natural or adoptive parent, child, or 
                sibling of the person;
                  (C) the stepparent, stepchild, stepbrother, 
                or stepsister of the person;
                  (D) the father-, mother-, daughter-, son-, 
                brother-, or sister-in-law of the person;
                  (E) the grandparent or grandchild of the 
                person; and
                  (F) the spouse of a grandparent or grandchild 
                of the person.
          (2) The term ``member of the household'' means, with 
        respect to any person, any individual sharing a common 
        abode as part of a single family unit with the person, 
        including domestic employees and others who live 
        together as a family unit, but not including a roomer 
        or boarder.

                        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) * * *
          * * * * * * *
                  (D) is for a medical or other item or service 
                furnished, ordered, or prescribed by such 
                person during a period in which the person was 
                excluded (pursuant to this title or title 
                XVIII) from the program under which the claim 
                was made [pursuant to a determination by the 
                Secretary under this section or under section 
                1128, 1156, 1160(b) (as in effect on September 
                2, 1982), 1862(d) (as in effect on the date of 
                the enactment of the Medicare and Medicaid 
                Patient and Program Protection Act of 1987), or 
                1866(b) or as a result of the application of 
                the provisions of section 1842(j)(2), or],
                  (E) is for a medical or other item or service 
                ordered or prescribed by a person excluded 
                (pursuant to this title or title XVIII) from 
                the program under which the claim was made, and 
                the person furnishing such item or service 
                knows or should know of such exclusion, or
                  [(E)] (F) is for a pattern of medical or 
                other items or services that a person knows or 
                should know are not medically necessary;
          * * * * * * *
          (4) in the case of a person who is not an 
        organization, agency, or other entity, is excluded from 
        participating in a program under title XVIII or a State 
        health care program in accordance with this subsection 
        or under section 1128 and who, at the time of a 
        violation of this subsection--
                  (A) retains a direct or indirect ownership or 
                control interest in an entity that is 
                participating in a program under title XVIII or 
                a State health care program, and who knows or 
                should know of the action constituting the 
                basis for the exclusion; or
                  (B) is an officer or managing employee (as 
                defined in section 1126(b)) of such an entity; 
                [or]
          (5) offers to or transfers remuneration to any 
        individual eligible for benefits under title XVIII of 
        this Act, or under a State health care program (as 
        defined in section 1128(h)) that such person knows or 
        should know is likely to influence such individual to 
        order or receive from a particular provider, 
        practitioner, or supplier any item or service for which 
        payment may be made, in whole or in part, under title 
        XVIII, or a State health care program (as so defined); 
        or
          (6) arranges or contracts (by employment or 
        otherwise) with an individual or entity that the person 
        knows or should know is excluded from participation in 
        a Federal health care program (as defined in section 
        1128B(f)), for the provision of items or services for 
        which payment may be made under such a program;
shall be subject, in addition to any other penalties that may 
be prescribed by law, to a civil money penalty of not more than 
$10,000 for each item or service (or, in cases under paragraph 
(3), $15,000 for each individual with respect to whom false or 
misleading information was given; in cases under paragraph (4), 
$10,000 for each day the prohibited relationship occurs). In 
addition, such a person shall be subject to an assessment of 
not more than 3 times the amount claimed for each such item or 
service in lieu of damages sustained by the United States or a 
State agency because of such claim. In addition the Secretary 
may make a determination in the same proceeding to exclude the 
person from participation in the Federal health care programs 
(as defined in section 1128B(f)(1)) and to direct the 
appropriate State agency to exclude the person from 
participation in any State health care program.
          * * * * * * *
  (i) For the purposes of this section:
          (1) * * *
          * * * * * * *
          (6) The term ``remuneration'' includes the waiver of 
        coinsurance and deductible amounts (or any part 
        thereof), and transfers of items or services for free 
        or for other than fair market value. The term 
        ``remuneration'' does not include--
                  (A) * * *
                  (B) differentials in coinsurance and 
                deductible amounts as part of a benefit plan 
                design as long as the differentials have been 
                disclosed in writing to all beneficiaries, 
                third party payers, and providers, to whom 
                claims are presented and as long as the 
                differentials meet the standards as defined in 
                regulations promulgated by the Secretary not 
                later than 180 days after the date of the 
                enactment of the Health Insurance Portability 
                and Accountability Act of 1996; [or]
                  (C) incentives given to individuals to 
                promote the delivery of preventive care as 
                determined by the Secretary in regulations so 
                promulgated[.]; or
                  (D) a reduction in the copayment amount for 
                covered OPD services under section 
                1833(t)(5)(B).
          * * * * * * *

guidance regarding application of health care fraud and abuse sanctions

    Sec. 1128D. (a) * * *
    (b) Advisory Opinions.--
          (1) Issuance of advisory opinions.--The Secretary, in 
        consultation with the Attorney General, shall issue 
        written advisory opinions as provided in this 
        subsection.
          (2) Matters subject to advisory opinions.--The 
        Secretary shall issue advisory opinions as to the 
        following matters:
                  (A) * * *
          * * * * * * *
                  (D) What constitutes an inducement to reduce 
                or limit services to individuals entitled to 
                benefits under titleXVIII or title XIX within 
the meaning of section [1128B(b)] 1128A(b).
          * * * * * * *

          health care fraud and abuse data collection program

    Sec. 1128E. (a) * * *
    (b) Reporting of Information.--
          (1) * * *
          * * * * * * *
          (6) Sanctions for failure to report.--
                  (A) Health plans.--Any health plan that fails 
                to report information on an adverse action 
                required to be reported under this subsection 
                shall be subject to a civil money penalty of 
                not more than $25,000 for each such adverse 
                action not reported. Such penalty shall be 
                imposed and collected in the same manner as 
                civil money penalties under subsection (a) of 
                section 1128A are imposed and collected under 
                that section.
                  (B) Governmental agencies.--The Secretary 
                shall provide for a publication of a public 
                report that identifies those Government 
                agencies that have failed to report information 
                on adverse actions as required to be reported 
                under this subsection.
          * * * * * * *
    (g) Definitions and Special Rules.--For purposes of this 
section:
          (1) * * *
          * * * * * * *
          (3) Government agency.--The term ``Government 
        agency'' shall include:
                  (A) The Department of Justice.
                  (B) The Department of Health and Human 
                Services.
                  (C) Any other Federal agency that either 
                administers or provides payment for the 
                delivery of health care services, including, 
                but not limited to the Department of Defense 
                and the [Veterans' Administration] Department 
                of Veterans Affairs.
          * * * * * * *
          (5) Determination of conviction.--For purposes of 
        paragraph (1), the existence of a conviction shall be 
        determined under [paragraph (4)] paragraphs (1) through 
        (4) of section 1128(i).
          * * * * * * *

        TITLE XVIII--HEALTH INSURANCE FOR THE AGED AND DISABLED

          * * * * * * *


                  medicare payment advisory commission


    Sec. 1805. (a) Establishment.--There is hereby established 
the Medicare Payment Advisory Commission (in this section 
referred to as the ``Commission'').
    (b) Duties.--
          (1) Review of payment policies and annual reports.--
        The Commission shall--
                  (A) review payment policies under this title, 
                including the topics described in paragraph 
                (2);
                  (B) make recommendations to Congress 
                concerning such payment policies;
                  (C) by not later than March 1 of each year 
                (beginning with 1998), submit a report to 
                Congress containing the results of such reviews 
                and its recommendations concerning such 
                policies and an examination of issues affecting 
                the Medicare program; and
                  (D) by not later than June 1 of each year 
                (beginning with 1998), submit a report to 
                Congress containing an examination of issues 
                affecting the Medicare program, including the 
                implications of changes in health care delivery 
                in the United States and in the market for 
                health care services on the Medicare program.
          (2) Specific topics to be reviewed.--
                  (A) Medicareplus program.--Specifically, the 
                Commission shall review, with respect to the 
                MedicarePlus program under part C, the 
                following:
                          (i) The methodology for making 
                        payment to plans under such program, 
                        including the making of differential 
                        payments and the distribution of 
                        differential updates among different 
                        payment areas.
                          (ii) The mechanisms used to adjust 
                        payments for risk and the need to 
                        adjust such mechanisms to take into 
                        account health status of beneficiaries.
                          (iii) The implications of risk 
                        selection both among MedicarePlus 
                        organizations and between the 
                        MedicarePlus option and the medicare 
                        fee-for-service option.
                          (iv) The development and 
                        implementation of mechanisms to assure 
                        the quality of care for those enrolled 
                        with MedicarePlus organizations.
                          (v) The impact of the MedicarePlus 
                        program on access to care for medicare 
                        beneficiaries.
                          (vi) Other major issues in 
                        implementation and further development 
                        of the MedicarePlus program.
                  (B) Fee-for-service system.--Specifically, 
                the Commission shall review payment policies 
                under parts A and B, including--
                          (i) the factors affecting 
                        expenditures for services in different 
                        sectors, including the process for 
                        updating hospital, skilled nursing 
                        facility, physician, and other fees,
                          (ii) payment methodologies, and
                          (iii) their relationship to access 
                        and quality of care for medicare 
                        beneficiaries.
                  (C) Interaction of medicare payment policies 
                with health care delivery generally.--
                Specifically, the Commission shall review the 
                effect of payment policies under this title on 
                the delivery of health care services other than 
                under this title and assess the implications of 
                changes in health care delivery in the United 
                States and in the general market for health 
                care services on the medicare program.
          (3) Comments on certain secretarial reports.--If the 
        Secretary submits to Congress (or a committee of 
        Congress) a report that is required by law and that 
        relates to payment policies under this title, the 
        Secretary shall transmit a copy of the report to the 
        Commission. The Commission shall review the report and, 
        not later than 6 months after the date of submittal of 
        the Secretary's report to Congress, shall submit to the 
        appropriate committees of Congress written comments on 
        such report. Such comments may include such 
        recommendations as the Commission deems appropriate.
          (4) Agenda and additional reviews.--The Commission 
        shall consult periodically with the chairmen and 
        ranking minority members of the appropriate committees 
        of Congress regarding the Commission's agenda and 
        progress towards achieving the agenda. The Commission 
        may conduct additional reviews, and submit additional 
        reports to the appropriate committees of Congress, from 
        time to time on such topics relating to the program 
        under this title as may be requested by such chairmen 
        and members and as the Commission deems appropriate.
          (5) Availability of reports.--The Commission shall 
        transmit to the Secretary a copy of each report 
        submitted under this subsection and shall make such 
        reports available to the public.
          (6) Appropriate committees.--For purposes of this 
        section, the term ``appropriate committees of 
        Congress'' means the Committees on Ways and Means and 
        Commerce of the House of Representatives and the 
        Committee on Finance of the Senate.
  (c) Membership.--
          (1) Number and appointment.--The Commission shall be 
        composed of 19 members appointed by the Comptroller 
        General.
          (2) Qualifications.--
                  (A) In general.--The membership of the 
                Commission shall include individuals with 
                national recognition for their expertise in 
                health finance and economics, actuarial 
                science, health facility management, health 
                plans and integrated delivery systems, 
                reimbursement of health facilities, allopathic 
                and osteopathic physicians, and other providers 
                of health services, and other related fields, 
                who provide a mix of different professionals, 
                broad geographic representation, and a balance 
                between urban and rural representatives.
                  (B) Inclusion.--The membership of the 
                Commission shall include (but not be limited 
                to) physicians and other health professionals, 
                employers, third party payers, individuals 
                skilled in the conduct and interpretation of 
                biomedical, health services, and health 
                economics research and expertise in outcomes 
                and effectiveness research and technology 
                assessment. Such membership shall also include 
                representatives of consumers and the elderly.
                  (C) Majority nonproviders.--Individuals who 
                are directly involved in the provision, or 
                management of the delivery, of items and 
                services covered under this title shall not 
                constitute a majority of the membership of the 
                Commission.
                  (D) Ethical disclosure.--The Comptroller 
                General shall establish a system for public 
                disclosure by members of the Commission of 
                financial and other potential conflicts of 
                interest relating to such members.
          (3) Terms.--
                  (A) In general.--The terms of members of the 
                Commission shall be for 3 years except that the 
                Comptroller General shall designate staggered 
                terms for the members first appointed.
                  (B) Vacancies.--Any member appointed to fill 
                a vacancy occurring before the expiration of 
                the term for which the member's predecessor was 
                appointed shall be appointed only for the 
                remainder of that term. A member may serve 
                after the expiration of that member's term 
                until a successor has taken office. A vacancy 
                in the Commission shall be filled in the manner 
                in which the original appointment was made.
          (4) Compensation.--While serving on the business of 
        the Commission (including traveltime), a member of the 
        Commission shall be entitled to compensation at the per 
        diem equivalent of the rate provided for level IV of 
        the Executive Schedule under section 5315 of title 5, 
        United States Code; and while so serving away from home 
        and 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.
          (5) Chairman; vice chairman.--The Comptroller General 
        shall designate a member of the Commission, at the time 
        of appointment of the member, as Chairman and a member 
        as Vice Chairman for that term of appointment.
          (6) Meetings.--The Commission shall meet at the call 
        of the Chairman.
          (d) Director and Staff; Experts and Consultants.--
        Subject to such review as the Comptroller General deems 
        necessary toassure the efficient administration of the 
Commission, the Commission may--
          (1) employ and fix the compensation of an Executive 
        Director (subject to the approval of the Comptroller 
        General) and such other personnel as may be necessary 
        to carry out its duties (without regard to the 
        provisions of title 5, United States Code, governing 
        appointments in the competitive service);
          (2) seek such assistance and support as may be 
        required in the performance of its duties from 
        appropriate Federal departments and agencies;
          (3) enter into contracts or make other arrangements, 
        as may be necessary for the conduct of the work of the 
        Commission (without regard to section 3709 of the 
        Revised Statutes (41 U.S.C. 5));
          (4) make advance, progress, and other payments which 
        relate to the work of the Commission;
          (5) provide transportation and subsistence for 
        persons serving without compensation; and
          (6) prescribe such rules and regulations as it deems 
        necessary with respect to the internal organization and 
        operation of the Commission.
  (e) Powers.--
          (1) Obtaining official data.--The Commission may 
        secure directly from any department or agency of the 
        United States information necessary to enable it to 
        carry out this section. Upon request of the Chairman, 
        the head of that department or agency shall furnish 
        that information to the Commission on an agreed upon 
        schedule.
          (2) Data collection.--In order to carry out its 
        functions, the Commission shall--
                  (A) utilize existing information, both 
                published and unpublished, where possible, 
                collected and assessed either by its own staff 
                or under other arrangements made in accordance 
                with this section,
                  (B) carry out, or award grants or contracts 
                for, original research and experimentation, 
                where existing information is inadequate, and
                  (C) adopt procedures allowing any interested 
                party to submit information for the Commissions 
                use in making reports and recommendations.
          (3) Access of gao to information.--The Comptroller 
        General shall have unrestricted access to all 
        deliberations, records, and nonproprietary data of the 
        Commission, immediately upon request.
          (4) Periodic audit.--The Commission shall be subject 
        to periodic audit by the Comptroller General.
  (f) Authorization of Appropriations.--
          (1) Request for appropriations.--The Commission shall 
        submit requests for appropriations in the same manner 
        as the Comptroller General submits requests for 
        appropriations, but amounts appropriated for the 
        Commission shall be separate from amounts appropriated 
        for the Comptroller General.
          (2) Authorization.--There are authorized to be 
        appropriated such sums as may be necessary to carry out 
        the provisions of this section, 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.

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

          * * * * * * *

                           SCOPE OF BENEFITS

  Sec. 1812. (a) The benefits provided to an individual by the 
insurance program under this part shall consist of entitlement 
to have payment made on his behalf or, in the case of payments 
referred to in section 1814(d)(2) to him (subject to the 
provisions of this part) for--
          (1) * * *
          * * * * * * *
          (3) [home health services] for individuals not 
        enrolled in part B, home health services, and for 
        individuals so enrolled, part A home health services 
        (as defined in subsection (g)); and
          (4) in lieu of certain other benefits, hospice care 
        with respect to the individual during up to two periods 
        of 90 days each[, a subsequent period of 30 days, and a 
        subsequent extension period] and an unlimited number of 
        subsequent periods of 60 days each with respect to 
        which the individual makes an election under subsection 
        (d)(1).
          * * * * * * *
  (d)(1) Payment under this part may be made for hospice care 
provided with respect to an individual only during two periods 
of 90 days each[, a subsequent period of 30 days, and a 
subsequent extension period] and an unlimited number of 
subsequent periods of 60 days each during the individuals 
lifetime and only, with respect to each such period, if the 
individual makes an election under this paragraph to receive 
hospice care under this part provided by, or under arrangements 
made by, a particular hospice program instead of certain other 
benefits under this title.
  (2)(A) * * *
  (B) After an individual makes such an election with respect 
to a [90- or 30-day period or a subsequent extension period] 
90-day period or a subsequent 60-day period, the individual may 
revoke the election during the period, in which case--
          (i) * * *
          * * * * * * *
  (g)(1) For purposes of this section, the term ``part A home 
health services'' means--
          (A) for services furnished during each year beginning 
        with 1998 and ending with 2002, home health services 
        subject to the transition reduction applied under 
        paragraph (2)(C) for services furnished during the 
        year, and
          (B) for services furnished on or after January 1, 
        2003, post-institutional home health services for up to 
        100 visits during a home health spell of illness.
  (2) For purposes of paragraph (1)(B), the Secretary shall 
specify, before the beginning of each year beginning with 1998 
and ending with 2002, a transition reduction in the home health 
services benefit under this part as follows:
          (A) The Secretary first shall estimate the amount of 
        payments that would have been made under this part for 
        home health services furnished during the year if--
                  (i) part A home health services were all home 
                health services, and
                  (ii) part A home health services were limited 
                to services described in paragraph (1)(B).
          (B)(i) The Secretary next shall compute a transfer 
        reduction amount equal to the appropriate proportion 
        (specified under clause (ii)) of the amount by which 
        the amount estimated under subparagraph (A)(i) for the 
        year exceeds the amount estimated under subparagraph 
        (A)(ii) for the year.
          (ii) For purposes of clause (i), the ``appropriate 
        proportion is equal to--
                  (I) \1/6\ for 1998,
                  (II) \2/6\ for 1999,
                  (III) \3/6\ for 2000,
                  (IV) \4/6\ for 2001, and
                  (V) \5/6\ for 2002.
          (C) The Secretary shall establish a transition 
        reduction by specifying such a visit limit (during a 
        home health spell of illness) or such a post-
        institutional limitation on home health services 
        furnished under this part during the year as the 
        Secretary estimates will result in a reduction in the 
        amount of payments that would otherwise be made under 
        this part for home health services furnished during the 
        year equal to the transfer amount computed under 
        subparagraph (B)(i) for the year.
  (3) Payment under this part for home health services 
furnished an individual enrolled under part B--
                  (A) during a year beginning with 1998 and 
                ending with 2003, may not be made for services 
                that are not within the visit limit or other 
                limitation specified by the Secretary under the 
                transition reduction under paragraph (3)(C) for 
                services furnished during the year; or
                  (B) on or after January 1, 2004, may not be 
                made for home health services that are not 
                post-institutional home health services or for 
                post-institutional furnished to the individual 
                after such services have been furnished to the 
                individual for a total of 100 visits during a 
                home health spell of illness.
  (4) With respect to computing the monthly actuarial rate for 
enrollees age 65 and over for purposes of applying section 
1839, such rate shall be computed as though any reference in a 
previous provision of this subsection to 2002 or 2003 is a 
reference to the succeeding year and as through the appropriate 
proportion described in paragraph (3)(B)(ii) were equal to--
          (A) \1/7\ for 1998,
          (B) \2/7\ for 1999,
          (C) \3/7\ for 2000,
          (D) \4/7\ for 2001,
          (E) \5/7\ for 2002, and
          (F) \6/7\ for 2003.
  [(g)] (h) For definition of ``spell of illness, and for 
definitions of other terms used in this part, see section 1861.
          * * * * * * *

         CONDITIONS OF AND LIMITATIONS ON PAYMENT FOR SERVICES

               Requirement of Requests and Certifications

  Sec. 1814. (a) Except as provided in subsections (d) and (g) 
and in section 1876, payment for services furnished an 
individual may be made only to providers of services which are 
eligible therefor under section 1866 and only if--
          (1) * * *
          (2) a physician, or, in the case of services 
        described in subparagraph (B), a physician, or a nurse 
        practitioner or clinical nurse specialist who does not 
        have a direct or indirect employment relationship with 
        the facility but is working in collaboration with a 
        physician, certifies (and recertifies, where such 
        services are furnished over a period of time, in such 
        cases, with such frequency, and accompanied by such 
        supporting material, appropriate to the case involved, 
        as may be provided by regulations, except that the 
        first of such recertifications shall be required in 
        each case of inpatient hospital services not later than 
        the 20th day of such period) that--
                  (A) * * *
          * * * * * * *
                  (C) in the case of home health services, such 
                services are or were required because the 
                individual is or was confined to his home 
                (except when receiving items and services 
                referred to in section 1861(m)(7)) and needs or 
                needed skilled nursing care (other than solely 
                venipuncture for the purpose of obtaining a 
                blood sample) on an intermittent basis or 
                physical or speech therapy or, in the case of 
                an individual who has been furnished home 
                health services based on such a need and who no 
                longer has such a need for such care or 
                therapy, continues or continued to need 
                occupational therapy; a plan for furnishing 
                such services to such individual has been 
                established and is periodically reviewed by a 
                physician; and such services are or were 
                furnished while the individual was under the 
                care of a physician; or
          * * * * * * *
          (7) in the case of hospice care provided an 
        individual--
                  (A)(i) in the first 90-day period--
                          (I) the individuals attending 
                        physician (as defined in section 
                        1861(dd)(3)(B)), and
                          (II) the medical director (or 
                        physician member of the 
                        interdisciplinary group described in 
                        section 1861(dd)(2)(B)) of the hospice 
                        program providing (or arranging for) 
                        the care,
                each certify in writing[, not later than 2 days 
                after hospice care is initiated (or, if each 
                certify verbally not later than 2 days after 
                hospice care is initiated, not later than 8 
                days after such care is initiated)] at the 
                beginning of the period, that the individual is 
                terminally ill (as defined in section 
                1861(dd)(3)(A)), and
                  (ii) in a subsequent 90- or [30-day] 60-day 
                period, the medical director or physician 
                described in clause (i)(II) recertifies at the 
                beginning of the period that the individual is 
                terminally ill[, and].
                          [(iii) in a subsequent extension 
                        period, the medical director or 
                        physician described in clause (i)(II) 
                        recertifies at the beginning of the 
                        period that the individual is 
                        terminally ill;]
          * * * * * * *
          (8) in the case of inpatient rural primary care 
        hospital services, a physician certifies that the 
        individual may reasonably be expected to be discharged 
        or transferred to a hospital within [72] 96 hours after 
        admission to the rural primary care hospital.
To the extent provided by regulations, the certification and 
recertification requirements of paragraph (2) shall be deemed 
satisfied where, at a later date, a physician, nurse 
practitioner, or clinical nurse specialist (as the case may be) 
makes certification of the kind provided in subparagraph (A), 
(B), (C), or (D) of paragraph (2) (whichever would have 
applied), but only where such certification is accompanied by 
such medical and other evidence as may be required by such 
regulations. With respect to the physician certification 
required by paragraph (2) for home health services furnished to 
any individual by a home health agency (other than an agency 
which is a governmental entity) and with respect to the 
establishment and review of a plan for such services, the 
Secretary shall prescribe regulations which shall become 
effective no later than July 1, 1981, and which prohibit a 
physician who has a significant ownership interest in, or a 
significant financial or contractual relationship with, such 
home health agency from performing such certification and from 
establishing or reviewing such plan, except that such 
prohibition shall not apply with respect to a home health 
agency which is a sole community home health agency (as 
determined by the Secretary). For purposes of the preceding 
sentence, service by a physician as an uncompensated officer or 
director of a home health agency shall not constitute having a 
significant ownership interest in, or a significant financial 
or contractual relationship with, such agency. For purposes of 
paragraph (2)(C), an individual shall be considered to be 
``confined to his home if the individual has a condition, due 
to an illness or injury, that restricts the ability of the 
individual to leave his or her home except with the assistance 
of another individual or the aid of a supportive device (such 
as crutches, a cane, a wheelchair, or a walker), or if the 
individual has a condition such that leaving his or her home is 
medically contraindicated. While an individual does not have to 
be bedridden to be considered ``confined to his home, the 
condition of the individual should be such that there exists a 
normal inability to leave home, that leaving home requires a 
considerable and taxing effort by the individual, and that 
absences of the individual from home are infrequent or of 
relatively short duration, or are attributable to the need to 
receive medical treatment. With respect to the previous two 
sentences, the individual must have a condition due to an 
illness or injury that restricts the individuals ability to 
leave the home for more than an average of 16 hours per 
calendar month for purposes other than to receive medical 
treatment that cannot be provided in the home; infrequent means 
an average of 5 or fewer absences per calendar month, excluding 
absences to receive medical treatment that cannot be furnished 
in the home; short duration means an absence from the home of 3 
or fewer hours, on average per absence, within a calendar month 
excluding absences to receive medical treatment that cannot be 
furnished in the home; and medical treatment means any services 
that are furnished by the physician or furnished based on and 
in conformance with the physicians order, by or under the 
supervision of a licensed health professional, and for the 
purpose of diagnosis or treatment of an illness or injury.

                        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] 1886, and 1895, be--
          (1) * * *
          * * * * * * *

                        Payment for Hospice Care

    (i)(1)(A) * * *
          * * * * * * *
    (C)(i) * * *
    (ii) With respect to routine home care and other services 
included in hospice care furnished during a subsequent fiscal 
year, the payment rates for such care and services shall be the 
payment rates in effect under this subparagraph during the 
previous fiscal year increased by--
          (I) * * *
          * * * * * * *
          (V) for fiscal year 1997, the market basket 
        percentage increase for the fiscal year minus 0.5 
        percentage point; [and]
          (VI) for each of fiscal years 1998 through 2002, the 
        market basket percentage increase for the fiscal year 
        involved minus 1.0 percentage points; and
          [(VI)] (VII) for a subsequent fiscal year, the market 
        basket percentage increase for the fiscal year.
    (2)(A) * * *
          * * * * * * *
    (D) A hospice program shall submit claims for payment for 
hospice care furnished in an individuals home under this title 
only on the basis of the geographic location at which the 
service is furnished, as determined by the Secretary.
    (3) The Secretary shall provide for the collection of data, 
from hospice programs providing hospice care for which payment 
is made under this subsection, with respect to the costs for 
providing such care for each fiscal year beginning with fiscal 
year 1999.

      [Payment for Inpatient Rural Primary Care Hospital Services

    [(l)(1) The amount of payment under this part for inpatient 
rural primary care hospital services--
          [(A) in the case of the first 12-month cost reporting 
        period for which the facility operates as such a 
        hospital, is the reasonable costs of the facility in 
        providing inpatient rural primarycare hospital services 
during such period, as such costs are determined on a per diem basis, 
and
          [(B) in the case of a later reporting period, is the 
        per diem payment amount established under this 
        paragraph for the preceding 12-month cost reporting 
        period, increased by the applicable percentage increase 
        under section 1886(b)(3)(B)(i) for that particular cost 
        reporting period applicable to hospitals located in a 
        rural area.
The payment amounts otherwise determined under this paragraph 
shall be reduced, to the extent necessary, to avoid duplication 
of any payment made under section 1820(a)(2) (or under section 
4005(e) of the Omnibus Budget Reconciliation Act of 1987) to 
cover the provision of inpatient rural primary care hospital 
services.
  [(2) The Secretary shall develop a prospective payment system 
for determining payment amounts for inpatient rural primary 
care hospital services under this part furnished on or after 
January 1, 1996.]
  (l) Payment for Inpatient Rural Primary Care Hospital 
Services.--The amount of payment under this part for inpatient 
rural primary care hospital services is the reasonable costs of 
the rural primary care hospital in providing such services.

                    PAYMENT TO PROVIDERS OF SERVICES

  Sec. 1815. (a) * * *
          * * * * * * *
  (e)(1) * * *
  (2) The Secretary shall provide (or continue to provide) for 
payment on a periodic interim payment basis (under the 
standards established under section 405.454(j) of title 42, 
Code of Federal Regulations, as in effect on October 1, 1986) 
with respect to--
          (A) * * *
          * * * * * * *
          (C) extended care services; and
          [(D) home health services; and
          [(E)] (D) hospice care;
if the provider of such services elects to receive, and 
qualifies for, such payments.
          * * * * * * *

 USE OF PUBLIC AGENCIES OR PRIVATE ORGANIZATIONS TO FACILITATE PAYMENT 
                        TO PROVIDERS OF SERVICES

  Sec. 1816. (a) * * *
          * * * * * * *
  (i)(1) * * *
          * * * * * * *
  (4) Nothing in this subsection shall be construed to prohibit 
reimbursement by an agency or organization under subsection 
(m).
          * * * * * * *
  (m) An agreement with an agency or organization under this 
section shall require that such agency or organization 
reimburse the Secretary for any amounts paid by the agency or 
organization for a service under this title which is furnished, 
directed, or prescribed by an individual or entity during any 
period for which the individual or entity is excluded pursuant 
to section 1128, 1128A, or 1156, from participation in the 
program under this title, if the amounts are paid after the 
Secretary notifies the agency or organization of the exclusion.

   HOSPITAL INSURANCE BENEFITS FOR UNINSURED ELDERLY INDIVIDUALS NOT 
                           OTHERWISE ELIGIBLE

  Sec. 1818. (a) * * *
          * * * * * * *
  (d)(1) * * *
  (2) The Secretary shall, during September of each year 
determine and promulgate the dollar amount which shall be 
applicable for premiums for months occurring in the following 
year. Subject to [paragraph (4)] paragraphs (4) and (5), the 
amount of an individuals monthly premium under this section 
shall be equal to the monthly actuarial rate determined under 
paragraph (1) for that following year. Any amount determined 
under the preceding sentence which is not a multiple of $1 
shall be rounded to the nearest multiple of $1 (or, if it is a 
multiple of 50 cents but not a multiple of $1, to the next 
higher multiple of $1).
          * * * * * * *
  (5)(A) The amount of the monthly premium shall be zero in the 
case of an individual who is a person described in subparagraph 
(B) for a month, if--
          (i) the individuals premium under this section for 
        the month is not (and will not be) paid for, in whole 
        or in part, by a State (under title XIX or otherwise), 
        a political subdivision of a State, or an agency or 
        instrumentality of one or more States or political 
        subdivisions thereof; and
          (ii) in each of 60 months before such month, the 
        individual was enrolled in this part under this section 
        and the payment of the individuals premium under this 
        section for the month was not paid for, in whole or in 
        part, by a State (under title XIX or otherwise), a 
        political subdivision of a State, or an agency or 
        instrumentality of one or more States or political 
        subdivisions thereof.
  (B) A person described in this subparagraph for an month is a 
person who establishes to the satisfaction of the Secretary 
that, as of the last day of the previous month--
          (i)(I) the person was receiving cash benefits under a 
        qualified State or local government retirement system 
        (as defined in subparagraph (C)) on the basis of the 
        persons employment in one or more positions covered 
        under any such system, and (II) the person would have 
        at least 40 quarters of coverage under title II if 
        remuneration for medicare qualified government 
        employment (as defined in paragraph (1) of section 
        210(p), but determined without regard to paragraph (3) 
        of such section) paid to such person were treated as 
        wages paid to such person andcredited for purposes of 
determining quarters of coverage under section 213;
          (ii)(I) the person was married (and had been married 
        for the previous 1-year period) to an individual who is 
        described in clause (i), or (II) the person met the 
        requirement of clause (i)(II) and was married (and had 
        been married for the previous 1-year period) to an 
        individual described in clause (i)(I);
          (iii) the person had been married to an individual 
        for a period of at least 1 year (at the time of such 
        individuals death) if (I) the individual was described 
        in clause (i) at the time of the individuals death, or 
        (II) the person met the requirement of clause (i)(II) 
        and the individual was described in clause (i)(I) at 
        the time of the individuals death; or
          (iv) the person is divorced from an individual and 
        had been married to the individual for a period of at 
        least 10 years (at the time of the divorce) if (I) the 
        individual was described in clause (i) at the time of 
        the divorce, or (II) the person met the requirement of 
        clause (i)(II) and the individual was described in 
        clause (i)(I) at the time of the divorce.
  (C) For purposes of subparagraph (B)(i)(I), the term 
``qualified State or local government retirement system means a 
retirement system that--
          (i) is established or maintained by a State or 
        political subdivision thereof, or an agency or 
        instrumentality of one or more States or political 
        subdivisions thereof;
          (ii) covers positions of some or all employees of 
        such a State, subdivision, agency, or instrumentality; 
        and
          (iii) does not adjust cash retirement benefits based 
        on eligibility for a reduction in premium under this 
        paragraph.
          * * * * * * *

  requirements for, and assuring quality of care in, skilled nursing 
                               facilities

  Sec. 1819. (a) * * *
  (b) Requirements Relating to Provision of Services.--
          (1)
          (3) Residents' assessment.--
                  (A) * * *
          * * * * * * *
                  (C) Frequency.--
                          (i) In general.--[Such] Subject to 
                        the timeframes prescribed by the 
                        Secretary under section 1888(t)(6), 
                        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.
          * * * * * * *

              [essential access community hospital program

  [Sec. 1820. (a) In General.--There is hereby established a 
program under which the Secretary--
          [(1) shall make grants to not more than 7 States to 
        carry out the activities described in subsection 
        (d)(1);
          [(2) shall make grants to eligible hospitals and 
        facilities (or consortia of hospitals and facilities) 
        to carry out the activities described in subsection 
        (d)(2); and
          [(3) shall designate (under subsection (i)) hospitals 
        and facilities located in States receiving grants under 
        paragraph (1) as essential access community hospitals 
        or rural primary care hospitals.
  [(b) Eligibility of States for Grants.--A State is eligible 
to receive a grant under subsection (a)(1) only if the State 
submits to the Secretary, at such time and in such form as the 
Secretary may require, an application containing--
          [(1) assurances that the State--
                  [(A) has developed, or is in the process of 
                developing, a State rural health care plan 
                that--
                          [(i) provides for the creation of one 
                        or more rural health networks (as 
                        defined in subsection (g)) in the 
                        State,
                          [(ii) promotes regionalization of 
                        rural health services in the State,
                          [(iii) improves access to hospital 
                        and other health services for rural 
                        residents of the State, and
                          [(iv) enhances the provision of 
                        emergency and other transportation 
                        services related to health care;
                  [(B) has developed the rural health care plan 
                described in subparagraph (A) in consultation 
                with the hospital association of the State and 
                rural hospitals located in the State (or, in 
                the case of a State in the process of 
                developing such plan, that assures the 
                Secretary that it will consult with its State 
                hospital association and rural hospitals 
                located in the State in developing such plan); 
                and
                  [(C) has designated, or is in the process of 
                designating, rural non-profit or public 
                hospitals or facilities located in the State as 
                essential access community hospitals or rural 
                primary care hospitals within such networks; 
                and
          [(2) such other information and assurances as the 
        Secretary may require.
  [(c) Eligibility of Hospitals and Consortia for Grants.--
          [(1) In general.--Except as provided in paragraph (3) 
        or subsection (k), a hospital or facility is eligible 
        to receive a grant under subsection (a)(2) only if the 
        hospital or facility--
                  [(A) is located in a State receiving a grant 
                under subsection (a)(1);
                  [(B) is designated as an essential access 
                community hospital or a rural primary care 
                hospital by the State inwhich it is located or 
is a member of a rural health network (as defined in subsection (g));
                  [(C) submits to the State in which it is 
                located and to the Secretary, at such time and 
                in such form as the Secretary may require, an 
                application containing such information and 
                assurances as the Secretary may require; and
                  [(D) the State in which the hospital or 
                facility is located certifies to the Secretary 
                that--
                          [(i) the receiving of such a grant by 
                        the hospital or facility is consistent 
                        with the State's rural health care plan 
                        (described in subsection (b)(1)(A)), 
                        and
                          [(ii) the State has approved the 
                        application submitted under 
                        subparagraph (C).
          [(2) Treatment of consortia.--A consortium of 
        hospitals or facilities each of which is part of the 
        same rural health network is eligible to receive a 
        grant under subsection (a)(2) if each of its members 
        would individually be eligible to receive such a grant.
          [(3) Eligibility of rpc hospitals not located in a 
        state receiving grant.--A facility designated as a 
        rural primary care hospital by the Secretary under 
        subsection (i)(2)(C) shall be eligible to receive a 
        grant under subsection (a)(2).
  [(d) Activities for Which Grants May Be Used.--
          [(1) Grants to states.--A State shall use a grant 
        received under subsection (a)(1) to carry out the 
        program established under this section in the State. 
        Such grant may be used for engaging in activities 
        relating to planning and implementing a rural health 
        care plan and rural health networks, designating 
        hospitals or facilities in the State as essential 
        access community hospitals or rural primary care 
        hospitals, and developing and supporting communication 
        and emergency transportation systems.
          [(2) Grants to hospitals, facilities, and 
        consortia.--A hospital or facility shall use a grant 
        received under subsection (a)(2) to finance the costs 
        it incurs in converting itself to a rural primary care 
        hospital or an essential access community hospital or 
        in becoming part of a rural health network in the State 
        in which it is located, including capital costs, costs 
        incurred in the development of necessary communications 
        systems, and costs incurred in the development of an 
        emergency transportation system. A consortium shall use 
        a grant received under subsection (a)(2) to finance the 
        costs it incurs in converting hospitals or facilities 
        that are part of the consortium into rural primary care 
        hospitals or in developing and implementing a rural 
        health network consisting of its members in the State 
        in which it is located, including capital costs, costs 
        incurred in the development of necessary communications 
        systems, and costs incurred in the development of an 
        emergency transportation system.
  [(e) Designation by State of Essential Access Community 
Hospitals.--A State may designate a hospital as an essential 
access community hospital only if the hospital--
          [(1)(A) except in the case of a hospital located in 
        an urban area, is located more than 35 miles from any 
        hospital that either (i) has been designated as an 
        essential access community hospital or (ii) is 
        classified by the Secretary as a rural referral center 
        under section 1886(d)(5)(C), or (B) meets such other 
        criteria relating to geographic location as the State 
        may impose with the approval of the Secretary;
          [(2) has at least 75 inpatient beds or is located 
        more than 35 miles from any other hospital;
          [(3) has in effect an agreement to provide emergency 
        and medical backup services to rural primary care 
        hospitals participating in the rural health network of 
        which it is a member and throughout its service area;
          [(4) has in effect an agreement, with each rural 
        primary care hospital participating in the rural health 
        network of which it is a member, to accept patients 
        transferred from such primary care hospital, to receive 
        data from and transmit data to such primary care 
        hospital, and to provide staff privileges to physicians 
        providing care at such primary care hospital; and
          [(5) meets any other requirements imposed by the 
        State with the approval of the Secretary.
  [(f) Designation by State of Rural Primary Care Hospitals.--
          [(1) Criteria for designation.--A State may designate 
        a facility as a rural primary care hospital only if the 
        facility--
                  [(A) is located in a rural area (as defined 
                in section 1866(d)(2)(D)), or is located in a 
                county whose geographic area is substantially 
                larger than the average geographic area for 
                urban counties in the United States and whose 
                hospital service area is characteristic of 
                service areas of hospitals located in rural 
                areas;
                  [(B) at the time such facility applies to the 
                State for designation as a rural primary care 
                hospital, is a hospital (or, in the case of a 
                facility that closed during the 12-month period 
                that ends on the date the facility applies for 
                such designation, at the time the facility 
                closed), with a participation agreement in 
                effect under section 1866(a) and had not been 
                found, on the basis of a survey under section 
                1864, to be in violation of any requirement to 
                participate as a hospital under this title;
                  [(C) has ceased, or agrees (upon the approval 
                of such application) to cease, providing 
                inpatient care (except as required under 
                subparagraph (F));
                  [(D) in the case of a facility that is a 
                member of a rural health network, has in effect 
                an agreement to participate with other 
                hospitals and facilities in the communications 
                system of such network, including the network's 
                system for the electronic sharing of patient 
                data, including telemetry and medical records, 
                if the network has in operation such a system;
                  [(E) makes available 24-hour emergency care;
                  [(F) subject to paragraph (4), provides not 
                more than 6 inpatient beds (meeting such 
                conditions as the Secretary may establish) for 
                providing inpatient care to patients requiring 
                stabilization before discharge or transfer to 
ahospital, except that the facility may not provide any inpatient 
hospital services--
                          [(i) to any patient whose attending 
                        physician does not certify that the 
                        patient may reasonably be expected to 
                        be discharged or transferred to a 
                        hospital within 72 hours of admission 
                        to the facility; or
                          [(ii) consisting of surgery or any 
                        other service requiring the use of 
                        general anesthesia (other than surgical 
                        procedures specified by the Secretary 
                        under section 1833(i)(1)(A)), unless 
                        the attending physician certifies that 
                        the risk associated with transferring 
                        the patient to a hospital for such 
                        services outweighs the benefits of 
                        transferring the patient to a hospital 
                        for such services.
                  [(G) 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 
                        subparagraph (E),
                          [(ii) the facility may provide any 
                        services otherwise required to be 
                        provided by a full-time, on-site 
                        dietician, pharmacist, laboratory 
                        technician, medical technologist, and 
                        radiological technologist on a part-
                        time, off-site basis, and
                          [(iii) the inpatient care described 
                        in subparagraph (F) may be provided by 
                        a physician's assistant or nurse 
                        practitioner, subject to the oversight 
                        of a physician; and
                  [(H) meets the requirements of subparagraphs 
                (C) through (J) of paragraph (2) of section 
                1861(aa) and of clauses (ii) and (iv) of the 
                second sentence of that paragraph, 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) Preference given to hospitals or facilities 
        participating in rural health network.--In designating 
        facilities as rural primary care hospitals under 
        paragraph (1), the State shall give preference to 
        hospitals or facilities participating in a rural health 
        network.
          [(3) Permitting rural primary care hospitals to 
        maintain swing beds.--Nothing in this subsection shall 
        be construed to prohibit a State from designating a 
        facility as a rural primary care hospital solely 
        because, at the time the facility applies to the State 
        for designation as a rural primary care hospital, there 
        is in effect an agreement between the facility and the 
        Secretary under section 1883 under which the facility's 
        inpatient hospital facilities are used for the 
        furnishing of extended care services, except that the 
        number of beds used for the furnishing of such services 
        may not exceed the total number of licensed inpatient 
        beds at the time the facility applies to the State for 
        such designation (minus the number of inpatient beds 
        used for providing inpatient care pursuant to paragraph 
        (1)(F)). For purposes of the previous sentence, the 
        number of beds of the facility used for the furnishing 
        of extended care services shall not include any beds of 
        a unit of the facility that is licensed as a distinct-
        part skilled nursing facility at the time the facility 
        applies to the State for designation as a rural primary 
        care hospital.
          [(4) Limitation on average length of inpatient 
        stays.--The Secretary may terminate a designation of a 
        rural primary care hospital under paragraph (1) if the 
        Secretary finds that the average length of stay for 
        inpatients at the facility during the previous year in 
        which the designation was in effect exceeded 72 hours. 
        In determining the compliance of a facility with the 
        requirement of the previous sentence, there shall not 
        be taken into account periods of stay of inpatients in 
        excess of 72 hours to the extent such periods exceed 72 
        hours because transfer to a hospital is precluded 
        because of inclement weather or other emergency 
        conditions.
  [(g) Rural Health Network Defined.--For purposes of this 
section, the term ``rural health network'' means, with respect 
to a State, an organization--
          [(1) consisting of--
                  [(A) at least 1 hospital that--
                          [(i) the State has designated or 
                        plans to designate as an essential 
                        access community hospital under 
                        subsection (b)(1)(C),
                          [(ii) is classified by the Secretary 
                        as a regional referral center under 
                        section 1886(d)(5)(C), or
                          [(iii) is located in an urban area 
                        and meets the criteria for 
                        classification as a regional referral 
                        center under such section, and
                  [(B) at least 1 facility that the State has 
                designated or plans to designate as a rural 
                primary care hospital, and
          [(2) the members of which have entered into 
        agreements regarding--
                  [(A) patient referral and transfer,
                  [(B) the development and use of 
                communications systems, including (where 
                feasible) telemetry systems and systems for 
                electronic sharing of patient data, and
                  [(C) the provision of emergency and non-
                emergency transportation among the members.
  [(h) Limit on Amount of Grant to Hospital or Facility.--A 
grant made to a hospital or facility under subsection (a)(2) 
may not exceed $200,000.
  [(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));
                  [(ii) is designated as an essential access 
                community hospital by the State in which it is 
                located (except as provided in subparagraph (B) 
                or subsection (k)); and
                  [(iii) meets such other criteria as the 
                Secretary may require.
          [(B) In the case of a hospital that is not eligible 
        for designation as an essential access community 
        hospital under this paragraph solely because it is not 
        designated as an essential access community hospital by 
        the State in which it is located, the Secretary may 
        designate such hospital as an essential access 
        community hospital under this paragraph if the hospital 
        is not so designated by the State in which it is 
        located solely because of its failure to meet the 
        criteria described in paragraph (2) of subsection (e).
          [(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));
                  [(ii) is designated as a rural primary care 
                hospital by the State in which it is located 
                (except as provided in subparagraph (B) or 
                subsection (k)); and
                  [(iii) meets such other criteria as the 
                Secretary may require.
          [(B) In the case of a facility that is not eligible 
        for designation as a rural primary care hospital under 
        this paragraph solely because it is not designated as a 
        rural primary care hospital by the State in which it is 
        located, the Secretary may designate such facility as a 
        rural primary care hospital under this paragraph if the 
        facility is not so designated by the State in which it 
        is located solely because of its failure to meet the 
        criteria described in subparagraphs (C), (F), or (G) of 
        subsection (f)(1).
          [(C) The Secretary may designate not more than 15 
        facilities as rural primary care hospitals under this 
        paragraph that do not meet the requirements of clauses 
        (i) and (ii) of subparagraph (A) if such a facility 
        meets the criteria described in subparagraphs (A), (B), 
        and (E) of subsection (f)(1), except that nothing in 
        this subparagraph shall be construed to prohibit the 
        Secretary from designating a facility as a rural 
        primary care hospital solely because the facility has 
        entered into an agreement with the Secretary under 
        section 1883 under which the facility's inpatient 
        hospital facilities may be used for the furnishing of 
        extended care services. In designating facilities as 
        rural primary care hospitals under this subparagraph, 
        the Secretary shall give preference to facilities not 
        meeting the requirements of clause (i) of subparagraph 
        (A) that have entered into an agreement described in 
        subsection (g)(2) with a rural health network located 
        in a State receiving a grant under subsection (a)(1).
  [(j) Waiver of Conflicting Part A Provisions.--The Secretary 
is authorized to waive such provisions of this part and part C 
as are necessary to conduct the program established under this 
section.
  [(k) Eligibility of Hospitals Not Located in Participating 
States.--Notwithstanding any other provision of this section--
          [(1) for purposes of including a hospital or facility 
        as a member institution of a rural health network, a 
        State may designate a hospital or facility that is not 
        located in the State as an essential access community 
        hospital or a rural primary care hospital if the 
        hospital or facility is located in an adjoining State 
        and is otherwise eligible for designation as such a 
        hospital;
          [(2) the Secretary may designate a hospital or 
        facility that is not located in a State receiving a 
        grant under subsection (a)(1) as an essential access 
        community hospital or a rural primary care hospital if 
        the hospital or facility is a member institution of a 
        rural health network of a State receiving a grant under 
        such subsection; and
          [(3) a hospital or facility designated pursuant to 
        this subsection shall be eligible to receive a grant 
        under subsection (a)(2).
  [(l) Authorization of Appropriations.--There are authorized 
to be appropriated from the Federal Hospital Insurance Trust 
Fund for each of the fiscal years 1990 through 1997--
          [(1) $10,000,000 for grants to States under 
        subsection (a)(1); and
          [(2) $15,000,000 for grants to hospitals, facilities, 
        and consortia under subsection (a)(2).]


              medicare rural primary care hospital program


  Sec. 1820. (a) State Designation of Facilities.--
          (1) In general.--A State may designate one or more 
        facilities as a rural primary care hospital in 
        accordance with paragraph (2).
          (2) Criteria for designation as rural primary care 
        hospital.--A State may designate a facility as a rural 
        primary care hospital if the facility--
                  (A) is a nonprofit or public hospital, and is 
                located in a county (or equivalent unit of 
                local government) in a rural area (as defined 
                in section 1886(d)(2)(D)) that--
                          (i) is located a distance that 
                        corresponds to a travel time of greater 
                        than 30 minutes (using the guidelines 
                        specified under part IB1(b) of Appendix 
                        A to part 5 of title 42, Code of 
                        Federal Regulations, as in effect on 
                        October 1, 1996), from a hospital, or 
                        another facility described in this 
                        subsection, or
                          (ii) is certified by the State as 
                        being a necessary provider of health 
                        care services to residents in the area 
                        because of local geography or service 
                        patterns; ``
                  (B) makes available 24-hour emergency care 
                services;
                  (C) provides at any time not more than 15 
                acute care inpatient beds (meeting such 
                standards as the Secretary may establish) for 
                providing inpatient care for a period not to 
                exceed 96 hours (unless a longer period is 
                required because transfer to a hospital is 
                precluded because of inclement weather or other 
                emergency conditions), except that apeer review 
organization or equivalent entity may, on request, waive the 96-hour 
restriction on a case-by-case basis;
                  (D) meets such staffing requirements as would 
                apply under section 1861(e) to a hospital 
                located in a rural area, except that--
                          (i) the facility need not meet 
                        hospital standards relating to the 
                        number of hours during a day, or days 
                        during a week, in which the facility 
                        must be open and fully staffed, except 
                        insofar as the facility is required to 
                        make available emergency care services 
                        as determined under subparagraph (B) 
                        and must have nursing services 
                        available on a 24-hour basis, but need 
                        not otherwise staff the facility except 
                        when an inpatient is present,
                          (ii) the facility may provide any 
                        services otherwise required to be 
                        provided by a full-time, on-site 
                        dietitian, pharmacist, laboratory 
                        technician, medical technologist, and 
                        radiological technologist on a part-
                        time, off-site basis under arrangements 
                        as defined in section 1861(w)(1), and
                          (iii) the inpatient care described in 
                        subparagraph (C) may be provided by a 
                        physicians assistant, nurse 
                        practitioner, or clinical nurse 
                        specialist subject to the oversight of 
                        a physician who need not be present in 
                        the facility;
                  (E) meets the requirements of subparagraph 
                (I) of paragraph (2) of section 1861(aa); and
                  (F) has executed and in effect an agreement 
                described in subsection (b)(1).
  (b) Agreements.--
          (1) In general.--Each rural primary care hospital 
        shall have an agreement with respect to each item 
        described in paragraph (2) with at least 1 hospital (as 
        defined in section 1861(e)).
          (2) Items described.--The items described in this 
        paragraph are the following:
                  (A) Patient referral and transfer.
                  (B) The development and use of communications 
                systems including (where feasible)--
                          (i) telemetry systems, and
                          (ii) systems for electronic sharing 
                        of patient data.
                  (C) The provision of emergency and non-
                emergency transportation among the facility and 
                the hospital.
          (3) Credentialing and quality assurance.--Each rural 
        primary care hospital shall have an agreement with 
        respect to credentialing and quality assurance with at 
        least 1--
                  (A) hospital,
                  (B) peer review organization or equivalent 
                entity, or
                  (C) other appropriate and qualified entity 
                identified by the State.
  (c) Certification by the Secretary.--The Secretary shall 
certify a facility as a rural primary care hospital if the 
facility--
          (1) is designated as a rural primary care hospital by 
        the State in which it is located; and
          (2) meets such other criteria as the Secretary may 
        require.
  (d) Permitting Maintenance of Swing Beds.--Nothing in this 
section shall be construed to prohibit a State from designating 
or the Secretary from certifying a facility as a rural primary 
care hospital solely because, at the time the facility applies 
to the State for designation as a rural primary care hospital, 
there is in effect an agreement between the facility and the 
Secretary under section 1883 under which the facility's 
inpatient hospital facilities are used for the provision of 
extended care services, so long as the total number of beds 
that may be used at any time for the furnishing of either such 
services or acute care inpatient services does not exceed 25 
beds and the number of beds used at any time for acute care 
inpatient services does not exceed 15 beds. For purposes of the 
previous sentence, any bed of a unit of the facility that is 
licensed as a distinct-part skilled nursing facility at the 
time the facility applies to the State for designation as a 
rural primary care hospital shall not be counted.
  (e) Waiver of Conflicting Part A Provisions.--The Secretary 
is authorized to waive such provisions of this part and part C 
as are necessary to conduct the program established under this 
section.

   Part B--Supplementary Medical Insurance Benefits for the Aged and 
                                Disabled

                          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), section 1842(b)(6)(E), and section 
        1842(b)(6)(F); and
          (2) entitlement to have payment made on his behalf 
        (subject to the provisions of this part) for--
                  (A) home health services (other than items 
                described in subparagraph (G) or subparagraph 
                (I));
                  (B) medical and other health services (other 
                than items described in subparagraph (G) or 
                subparagraph (I)) furnished by a provider of 
                services or by others under arrangement with 
                them made by a provider of services, 
                excluding--
                          (i) * * *
          * * * * * * *
                          (iv) services of a nurse practitioner 
                        or clinical nurse specialist [provided 
                        in a rural area (as defined in section 
                        1886(d)(2)(D))] but only if no facility 
                        or other provider charges or is paid 
                        any amounts with respect to the 
                        furnishing of such services; and
          * * * * * * *

                          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) in the case of services described in section 
        1832(a)(1)--80 percent of the reasonable charges for 
        the services; except that (A) an organization which 
        provides medical and other health services (or arranges 
        for their availability) on a prepayment basis may elect 
        to be paid 80 percent of the reasonable cost of 
        services for which payment may be made under this part 
        on behalf of individuals enrolled in such organization 
        in lieu of 80 percent of the reasonable charges for 
        such services if the organization undertakes to charge 
        such individuals no more than 20 percent of such 
        reasonable cost plus any amounts payable by them as a 
        result of subsection (b), (B) with respect to items and 
        services described in section 1861(s)(10)(A), the 
        amounts paid shall be 100 percent of the reasonable 
        charges for such items and services, (C) with respect 
        to expenses incurred for those physicians' services for 
        which payment may be made under this part that are 
        described in section 1862(a)(4), the amounts paid shall 
        be subject to such limitations as may be prescribed by 
        regulations, (D) with respect to clinical diagnostic 
        laboratory tests for which payment is made under this 
        part (i) on the basis of a fee schedule under 
        subsection (h)(1) or section 1834(d)(1), the amount 
        paid shall be equal to 80 percent (or 100 percent, in 
        the case of such tests for which payment is made on an 
        assignment-related basis) of the lesser of the amount 
        determined under such fee schedule, the limitation 
        amount for that test determined under subsection 
        (h)(4)(B), or the amount of the charges billed for the 
        tests, or (ii) on the basis of a negotiated rate 
        established under subsection (h)(6), the amount paid 
        shall be equal to 100 percent of such negotiated rate, 
        (E) with respect to services furnished to individuals 
        who have been determined to have end stage renal 
        disease, the amounts paid shall be determined subject 
        to the provisions of section 1881, (F) with respect to 
        clinical social worker services under section 
        1861(s)(2)(N), the amounts paid shall be 80 percent of 
        the lesser of (i) the actual charge for the services or 
        (ii) 75 percent of the amount determined for payment of 
        a psychologist under clause (L), (H) with respect to 
        services of a certified registered nurse anesthetist 
        under section 1861(s)(11), the amounts paid shall be 80 
        percent of the least of the actual charge, the 
        prevailing charge that would be recognized (or, for 
        services furnished on or after January 1, 1992, the fee 
        schedule amount provided under section 1848) if the 
        services had been performed by an anesthesiologist, or 
        the fee schedule for such services established by the 
        Secretary in accordance with subsection (l), (I) with 
        respect to covered items (described in section 
        1834(a)(13)), the amounts paid shall be the amounts 
        described in section 1834(a)(1), and (J) with respect 
        to expenses incurred for radiologist services (as 
        defined in section 1834(b)(6)), subject to section 
        1848, the amounts paid shall be 80 percent of the 
        lesser of the actual charge for the services or the 
        amount provided under the fee schedule established 
        under section 1834(b), (K) with respect to certified 
        nurse-midwife services under section 1861(s)(2)(L), the 
        amounts paid shall be 80 percent of the lesser of the 
        actual charge for the services or the amount determined 
        by a fee schedule established by the Secretary for the 
        purposes of this subparagraph (but in no event shall 
        such fee schedule exceed 65 percent of the prevailing 
        charge that would be allowed for the same service 
        performed by a physician, or, for services furnished on 
        or after January 1, 1992, 65 percent of the fee 
        schedule amount provided under section 1848 for the 
        same service performed by a physician), (L) with 
        respect to qualified psychologist services under 
        section 1861(s)(2)(M), the amounts paid shall be 80 
        percent of the lesser of the actual charge for the 
        services or the amount determined by a fee schedule 
        established by the Secretary for the purposes of this 
        subparagraph, (M) with respect to prosthetic devices 
        and orthotics and prosthetics (as defined in section 
        1834(h)(4)), the amounts paid shall be the amounts 
        described in section 1834(h)(1), (N) with respect to 
        expenses incurred for physicians' services (as defined 
        in section 1848(j)(3)), the amounts paid shall be 80 
        percent of the payment basis determined under section 
        1848(a)(1), [(O) with respect to services described in 
        section 1861(s)(2)(K)(iii) (relating to nurse 
        practitioner or clinical nurse specialist services 
        provided in a rural area), the amounts paid shall be 80 
        percent of the lesser of the actual charge or the 
        prevailing charge that would be recognized (or, for 
        services furnished on or after January 1, 1992, the fee 
        schedule amount provided under section 1848) if the 
        services had been performed by a physician (subject to 
        the limitation described in subsection (r)(2)), and] 
        (O) with respect to services described in section 
        1861(s)(2)(K)(ii) (relating to nurse practitioner or 
        clinical nurse specialist services), the amounts paid 
        shall be equal to 80 percent of (i) the lesser of the 
        actual charge or 85 percent of the fee schedule amount 
        provided under section 1848 or (ii) in the case of 
        services as an assistant at surgery, the lesser of the 
        actual charge or 85 percent of the amount that would 
        otherwise be recognized if performed by a physician who 
        is serving as an assistant at surgery; (P) with respect 
        to surgical dressings, the amounts paid shall be the 
        amounts determined under section 1834(i)[;], and (Q) 
        with respect to ambulance service, the amounts paid 
        shall be 80 percent of the lesser of the actual charge 
        for the services or the amount determined by a fee 
        schedule established by the Secretary under section 
        1834(l);
          (2) in the case of services described in section 
        1832(a)(2) (except those services described in 
        subparagraphs (C), (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 
                (other than a covered osteoporosis drug (as 
                defined in section 1861(kk)), the amount 
                determined under the prospective payment system 
                under section 1895;
                  (B) with respect to other items and services 
                (except those described in subparagraph (C), 
                (D), or (E) of this paragraph and except as may 
                be provided in section 1886 or section 
                1888(e)(9))--
                          (i) furnished before January 1, 1999, 
                        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,--less the amount a 
                                provider may charge as 
                                described in clause (ii) of 
                                section 1866(a)(2)(A), but in 
                                no case may the payment for 
                                such other services exceed 80 
                                percent of such reasonable 
                                cost, or
                          (ii) if such services are furnished 
                        before January 1, 1999, 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 clause), free of 
                        charge or at nominal charges to the 
                        public, 80 percent of the amount 
                        determined in accordance with section 
                        1814(b)(2), or
                          (iii) if such services are furnished 
                        on or after January 1, 1999, the amount 
                        determined under subsection (t), or
                          [(iii)] (iv) if (and for so long as) 
                        the conditions described in section 
                        1814(b)(3) are met, the amounts 
                        determined under the reimbursement 
                        system described in such section;
                  (C) with respect to services described in the 
                second sentence of section 1861(p), 80 percent 
                of the reasonable charges for such services;
                  (D) with respect to clinical diagnostic 
                laboratory tests for which payment is made 
                under this part (i) on the basis of a fee 
                schedule determined under subsection (h)(1) or 
                section 1834(d)(1), the amount paid shall be 
                equal to 80 percent (or 100 percent, in the 
                case of such tests for which payment is made on 
                an assignment-related basis or to a provider 
                having an agreement under section 1866) of the 
                lesser of the amount determined under such fee 
                schedule, the limitation amount for that test 
                determined under subsection (h)(4)(B), or the 
                amount of the charges billed for the tests, or 
                (ii) on the basis of a negotiated rate 
                established under subsection (h)(6), the amount 
                paid shall be equal to 100 percent of such 
                negotiated rate for such tests;
                  (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) or, 
                for services or procedures performed on or 
                after January 1, 1999, (t); [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);
          (3) in the case of services described in 
        [subparagraphs (D) and (E) of section 1832(a)(2)] 
        section 1832(a)(2)(E), the costs which are reasonable 
        and related to the cost of furnishing such services or 
        which are based on such other tests of reasonableness 
        as the Secretary may prescribe in regulations, 
        including those authorized under section 1861(v)(1)(A), 
        less the amount a provider may charge as described in 
        clause (ii) of section 1866(a)(2)(A), but in no case 
        may the payment for such services (other than for items 
        and services described in section 1861(s)(10)(A)) 
        exceed 80 percent of such costs;
          (4) in the case of facility services described in 
        section 1832(a)(2)(F), and outpatient hospital facility 
        services furnished in connection with surgical 
        procedures specified by theSecretary pursuant to 
section 1833(i)(1)(A), the applicable amount as determined under 
paragraph (2) or (3) of subsection (i) or subsection (t);
          (5) in the case of covered items (described in 
        section 1834(a)(13)) the amounts described in section 
        1834(a)(1);
          (6) in the case of outpatient rural primary care 
        hospital services, the amounts described in section 
        1834(g); [and]
          (7) in the case of prosthetic devices and orthotics 
        and prosthetics (as described in section 1834(h)(4)), 
        the amounts described in section 1834(h)[.];
          (8) in the case of services described in section 
        1832(a)(2)(C), (that are not described in section 
        1832(a)(2)(B)), the amounts described in section 
        1834(k); and
          (9) in the case of services described in section 
        1832(a)(2)(E), the amounts described in section 
        1834(k).
  (b) Before applying subsection (a) with respect to expenses 
incurred by an individual during any calendar year, the total 
amount of the expenses incurred by such individual during such 
year (which would, except for this subsection, constitute 
incurred expenses from which benefits payable under subsection 
(a) are determinable) shall be reduced by a deductible of $75 
for calendar years before 1991 and $100 for 1991 and subsequent 
years; except that (1) such total amount shall not include 
expenses incurred for items and services described in section 
1861(s)(10)(A), (2) such deductible shall not apply with 
respect to home health services (other than a covered 
osteoporosis drug (as defined in section 1861(kk))), (3) such 
deductible shall not apply with respect to clinical diagnostic 
laboratory tests for which payment is made under this part (A) 
under subsection (a)(1)(D)(i) or (a)(2)(D)(i) on an assignment-
related basis, or to a provider having an agreement under 
section 1866, or (B) on the basis of a negotiated rate 
determined under subsection (h)(6), [and] (4) such deductible 
shall not apply to Federally qualified health center services, 
(5) such deductible shall not apply with respect to screening 
mammography (as described in section 1861(jj)), and (6) such 
deductible shall not apply with respect to screening pap smear 
and screening pelvic exam (as described in section 1861(nn)). 
The total amount of the expenses incurred by an individual as 
determined under the preceding sentence shall, after the 
reduction specified in such sentence, be further reduced by an 
amount equal to the expenses incurred for the first three pints 
of whole blood (or equivalent quantities of packed red blood 
cells, as defined under regulations) furnished to the 
individual during the calendar year, except that such 
deductible for such blood shall in accordance with regulations 
be appropriately reduced to the extent that there has been a 
replacement of such blood (or equivalent quantities of packed 
red blood cells, as so defined); and for such purposes blood 
(or equivalent quantities of packed red blood cells, as so 
defined) furnished such individual shall be deemed replaced 
when the institution or other person furnishing such blood (or 
such equivalent quantities of packed red blood cells, as so 
defined) is given one pint of blood for each pint of blood (or 
equivalent quantities of packed red blood cells, as so defined) 
furnished such individual with respect to which a deduction is 
made under this sentence. The deductible under the previous 
sentence for blood or blood cells furnished an individual in a 
year shall be reduced to the extent that a deductible has been 
imposed under section 1813(a)(2) to blood or blood cells 
furnished the individual in the year.
          * * * * * * *
  (f) In establishing limits under subsection (a) on payment 
for rural health clinic services provided by [independent rural 
health clinics] rural health clinics (other than such clinics 
in rural hospitals with less than 50 beds), the Secretary shall 
establish such limit, for services provided--
          (1) in 1988, after March 31, at $46 per visit, and
          (2) in a subsequent year, at the limit established 
        under this subsection for the previous year increased 
        by the percentage increase in the MEI (as defined in 
        section 1842(i)(3)) applicable to primary care services 
        (as defined in section 1842(i)(4)) furnished as of the 
        first day of that year.
  (g)(1) In the case of [services described in the second 
sentence of section 1861(p)] physical therapy services of the 
type described in section 1861(p) (regardless of who furnishes 
the services or whether the services may be covered as 
physicians' services so long as the services are furnished 
other than in a hospital setting), with respect to expenses 
incurred in any calendar year, no more than the amount 
specified in paragraph (2) for the year shall be considered as 
incurred expenses for purposes of subsections (a) and (b).
  (2) The amount specified in this paragraph--
          (A) for 1999, and each preceding year, is $900, and
          (B) for a subsequent year is the amount specified in 
        this paragraph for the preceding year increased by the 
        Secretary's estimate of the projected percentage growth 
        in real gross domestic product per capita from the 
        fiscal year ending in the preceding year to the fiscal 
        year ending in such subsequent year.
  (3) In the case of [outpatient occupational therapy services 
which are described in the second sentence of section 1861(p) 
through the operation of section 1861(g)] occupational therapy 
services (of the type that are described in section 1861(p) 
through the operation of section 1861(g)), regardless of who 
furnishes the services or whether the services may be covered 
as physicians' services so long as the services are furnished 
other than in a hospital setting, with respect to expenses 
incurred in any calendar year, no more than the amount 
specified in paragraph (2) for the year shall be considered as 
incurred expenses for purposes of subsections (a) and (b).
  (h)(1)(A) [The Secretary] Subject to paragraphs (1) and 
(4)(A) of section 1834(d), the Secretary shall establish fee 
schedules for clinical diagnostic laboratory tests (including 
prostate cancer screening tests under section 1861(oo) 
consisting of prostate-specific antigen blood 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 theprevailing 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 and 1998 through 2002 shall be 0 percent.
          * * * * * * *
  (4)(A) * * *
  (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, 
        1998, is equal to 76 percent of such median[.], and
          (viii) after December 31, 1997, is equal to 72 
        percent of such median.
  (i)(1) * * *
  (2)(A) * * *
          * * * * * * *
  (C) Notwithstanding the second sentence of subparagraph (A) 
or the second sentence of subparagraph (B), if the Secretary 
has not updated amounts established under such subparagraphs 
with respect to facility services furnished during a fiscal 
year (beginning with fiscal year 1996), such amounts shall be 
increased [by the percentage increase in the consumer price 
index for all urban consumers (U.S. city average) as estimated 
by the Secretary for the 12-month period ending with the 
midpoint of the year involved.] as follows:
          (i) For fiscal years 1996 and 1997, by the percentage 
        increase in the consumer price index for all urban 
        consumers (U.S. city average) as estimated by the 
        Secretary for the 12-month period ending with the 
        midpoint of the year involved.
          (ii) For each of fiscal years 1998 through 2002 by 
        such percentage increase minus 2.0 percentage points.
          (iii) For each succeeding fiscal year by such 
        percentage increase.
  (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 before January 1, 
1999, in connection with surgical procedures specified under 
paragraph (1)(A) [in a cost reporting period] shall be equal to 
the lesser of--
          (i) the amount determined with respect to such 
        services under subsection (a)(2)(B); or
          (ii) the blend amount (described in subparagraph 
        (B)).
  (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 before January 1, 1999, and for 
services described in subsection (a)(2)(E)(ii) furnished under 
this part on or after October 1, 1989, and before January 1, 
1999, shall be equal to the lesser of--
          (i) the amount determined with respect to such 
        services under subsection (a)(2)(B), or
          (ii) the blend amount for radiology services and 
        diagnostic procedures determined in accordance with 
        subparagraph (B).
  (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).
          * * * * * * *
  (r)(1) With respect to services described in [section 
1861(s)(2)(K)(iii) (relating to nurse practitioner or clinical 
nurse specialist services provided in a rural area)] section 
1861(s)(2)(K)(ii) (relating to nurse practitioner or clinical 
nurse specialist services), payment may be made on the basis of 
a claim or request for payment presented by the nurse 
practitioner or clinical nurse specialist furnishing such 
services, or by a hospital, rural primary care hospital, 
skilled nursing facility or nursing facility (asdefined in 
section 1919(a)), physician, group practice, or ambulatory surgical 
center with which the nurse practitioner or clinical nurse specialist 
has an employment or contractual relationship that provides for payment 
to be made under this part for such services to such hospital, 
physician, group practice, or ambulatory surgical center.
  [(2)(A) For purposes of subsection (a)(1)(O), the prevailing 
charge for services described in section 1861(s)(2)(K)(iii) may 
not exceed the applicable percentage (as defined in 
subparagraph (B)) of the prevailing charge (or, for services 
furnished on or after January 1, 1992, the fee schedule amount 
provided under section 1848) determined for such services 
performed by physicians who are not specialists.
  [(B) In subparagraph (A), the term ``applicable percentage'' 
means--
          [(i) 75 percent in the case of services performed in 
        a hospital, and
          [(ii) 85 percent in the case of other services.]
  [(3)] (2) No hospital or rural primary care hospital that 
presents a claim or request for payment under this part for 
services described in [section 1861(s)(2)(K)(iii)] section 
1861(s)(2)(K)(ii) may treat any uncollected coinsurance amount 
imposed under this part with respect to such services as a bad 
debt of such hospital for purposes of this title.
          * * * * * * *
  (t) Prospective Payment System for Hospital Outpatient 
Department Services.--
          (1) In general.--With respect to hospital outpatient 
        services designated by the Secretary (in this section 
        referred to as ``covered OPD services'') and furnished 
        during a year beginning with 1999, the amount of 
        payment under this part shall be determined under a 
        prospective payment system established by the Secretary 
        in accordance with this subsection.
          (2) System requirements.--Under the payment system--
                  (A) the Secretary shall develop a 
                classification system for covered OPD services;
                  (B) the Secretary may establish groups of 
                covered OPD services, within the classification 
                system described in subparagraph (A), so that 
                services classified within each group are 
                comparable clinically and with respect to the 
                use of resources;
                  (C) the Secretary shall, using data on claims 
                from 1996 and using data from the most recent 
                available cost reports, establish relative 
                payment weights for covered OPD services (and 
                any groups of such services described in 
                subparagraph (B)) based on median hospital 
                costs and shall determine projections of the 
                frequency of utilization of each such service 
                (or group of services) in 1999;
                  (D) the Secretary shall determine a wage 
                adjustment factor to adjust the portion of 
                payment and coinsurance attributable to labor-
                related costs for relative differences in labor 
                and labor-related costs across geographic 
                regions in a budget neutral manner;
                  (E) the Secretary shall establish other 
                adjustments, in a budget neutral manner, as 
                determined to be necessary to ensure equitable 
                payments, such as outlier adjustments, 
                adjustments to account for variations of 
                coinsurance payments for procedures with 
                similar resource costs, or adjustments for 
                certain classes of hospitals; and
                  (F) the Secretary shall develop a method for 
                controlling unnecessary increases in the volume 
                of covered OPD services.
          (3) Calculation of base amounts.--
                  (A) Aggregate amounts that would be payable 
                if deductibles were disregarded.--The Secretary 
                shall estimate the total amounts that would be 
                payable from the Trust Fund under this part for 
                covered OPD services in 1999, determined 
                without regard to this subsection, as though 
                the deductible under section 1833(b) did not 
                apply, and as though the coinsurance described 
                in section 1866(a)(2)(A)(ii) (as in effect 
                before the date of the enactment of this 
                subsection) continued to apply.
                  (B) Unadjusted copayment amount.--
                          (i) In general.--For purposes of this 
                        subsection, the ``unadjusted copayment 
                        amount'' applicable to a covered OPD 
                        service (or group of such services) is 
                        20 percent of national median of the 
                        charges for the service (or services 
                        within the group) furnished during 
                        1996, updated to 1999 using the 
                        Secretary's estimate of charge growth 
                        during the period.
                          (ii) Adjusted to be 20 percent when 
                        fully phased in.--If the pre-deductible 
                        payment percentage for a covered OPD 
                        service (or group of such services) 
                        furnished in a year would be equal to 
                        or exceed 80 percent, then the 
                        unadjusted copayment amount shall be 25 
                        percent of amount determined under 
                        subparagraph (D)(i).
                          (iii) Rules for new services.--The 
                        Secretary shall establish rules for 
                        establishment of an unadjusted 
                        copayment amount for a covered OPD 
                        service not furnished during 1997, 
                        based upon its classification within a 
                        group of such services.
                  (C) Calculation of conversion factors.--
                          (i) For 1999.--
                          (I) In general.--The Secretary shall 
                        establish a 1999 conversion factor for 
                        determining the medicare pre-deductible 
                        OPD fee payment amounts for each 
                        covered OPD service (or group of such 
                        services) furnished in 1999. Such 
                        conversion factor shall be established 
                        on the basis of the weights and 
                        frequencies described in paragraph 
                        (2)(C) and in a manner such that the 
                        sum for all services and groups of the 
                        products (described in subclause (II) 
                        for each such service or group) equals 
                        the total projected amount described in 
                        subparagraph (A).
                          (II) Product described.--The product 
                        described in this subclause, for a 
                        service or group, is the productof the 
medicare pre-deductible OPD fee payment amounts (taking into account 
appropriate adjustments described in paragraphs (2)(D) and (2)(E)) and 
the frequencies, for each service or group.
                          (ii) Subsequent years.--Subject to 
                        paragraph (8)(B), the Secretary shall 
                        establish a conversion factor for 
                        covered OPD services furnished in 
                        subsequent years in an amount equal to 
                        the conversion factor established under 
                        this subparagraph and applicable to 
                        such services furnished in the previous 
                        year increased by the OPD payment 
                        increase factor specified under clause 
                        (iii) for the year involved.
                          (iii) OPD payment increase factor.--
                        For purposes of this subparagraph, the 
                        ``OPD payment increase factor'' for 
                        services furnished in a year is equal 
                        to the sum of--
                          (I) market basket percentage increase 
                        (applicable under section 
                        1886(b)(3)(B)(iii) to hospital 
                        discharges occurring during the fiscal 
                        year ending in such year, and
                          (II) in the case of a covered OPD 
                        service (or group of such services) 
                        furnished in a year in which the pre-
                        deductible payment percentage would not 
                        exceed 80 percent, 3.5 percentage 
                        points, but in no case greater than 
                        such number of percentage points as 
                        will result in the pre-deductible 
                        payment percentage exceeding 80 
                        percent.
                  In applying the previous sentence for years 
                beginning with 2000, the Secretary may 
                substitute for the market basket percentage 
                increase under subclause (I) an annual 
                percentage increase that is computed and 
                applied with respect to covered OPD services 
                furnished in a year in the same manner as the 
                market basket percentage increase is determined 
                and applied to inpatient hospital services for 
                discharges occurring in a fiscal year.
                  (D) Pre-deductible payment percentage.--The 
                pre-deductible payment percentage for a covered 
                OPD service (or group of such services) 
                furnished in a year is equal to the ratio of--
                          (i) the conversion factor established 
                        under subparagraph (C) for the year, 
                        multiplied by the weighting factor 
                        established under paragraph (2)(C) for 
                        the service (or group), to
                          (ii) the sum of the amount determined 
                        under clause (i) and the unadjusted 
                        copayment amount determined under 
                        subparagraph (B) for such service or 
                        group.
                  (E) Calculation of medicare opd fee schedule 
                amounts.--The Secretary shall compute a 
                medicare OPD fee schedule amount for each 
                covered OPD service (or group of such services) 
                furnished in a year, in an amount equal to the 
                product of--
                          (i) the conversion factor computed 
                        under subparagraph (C) for the year, 
                        and
                          (ii) the relative payment weight 
                        (determined under paragraph (2)(C)) for 
                        the service or group.
          (4) Medicare payment amount.--The amount of payment 
        made from the Trust Fund under this part for a covered 
        OPD service (and such services classified within a 
        group) furnished in a year is determined as follows:
                  (A) Fee schedule and copayment amount.--Add 
                (i) the medicare OPD fee schedule amount 
                (computed under paragraph (3)(E)) for the 
                service or group and year, and (ii) the 
                unadjusted copayment amount (determined under 
                paragraph (3)(B)) for the service or group.
                  (B) Subtract applicable deductible.--Reduce 
                the sum determined under subparagraph (A) by 
                the amount of the deductible under section 
                1833(b), to the extent applicable.
                  (C) Apply payment proportion to remainder.--
                Multiply the amount so determined under 
                subparagraph (B) by the pre-deductible payment 
                percentage (as determined under paragraph 
                (3)(D)) for the service or group and year 
                involved.
                  (D) Labor-related adjustment.--The amount of 
                payment is the product determined under 
                subparagraph (C) with the labor-related portion 
                of such product adjusted for relative 
                differences in the cost of labor and other 
                factors determined by the Secretary, as 
                computed under paragraph (2)(D).
          (5) Copayment amount.--
                  (A) In general.--Except as provided in 
                subparagraph (B), the copayment amount under 
                this subsection is determined as follows:
                          (i) Unadjusted copayment.--Compute 
                        the amount by which the amount 
                        described in paragraph (4)(B) exceeds 
                        the amount of payment determined under 
                        paragraph (4)(C).
                          (ii) Labor adjustment.--The copayment 
                        amount is the difference determined 
                        under clause (i) with the labor-related 
                        portion of such difference adjusted for 
                        relative differences in the cost of 
                        labor and other factors determined by 
                        the Secretary, as computed under 
                        paragraphs (2)(D). The adjustment under 
                        this clause shall be made in a manner 
                        that does not result in any change in 
                        the aggregate copayments made in any 
                        year if the adjustment had not been 
                        made.
                  (B) Election to offer reduced copayment 
                amount.--The Secretary shall establish a 
                procedure under which a hospital, before the 
                beginning of a year (beginning with 1999), may 
                elect to reduce the copayment amount otherwise 
                established under subparagraph (A) for some or 
                all covered OPD services to an amount that is 
                not less than 25 percent of the medicare OPD 
                fee schedule amount (computed under paragraph 
                (3)(E)) for the service involved, adjusted for 
                relative differences in the cost of labor and 
                otherfactors determined by the Secretary, as 
computed under subparagraphs (D) and (E) of paragraph (2). Under such 
procedures, such reduced copayment amount may not be further reduced or 
increased during the year involved and the hospital may disseminate 
information on the reduction of copayment amount effected under this 
subparagraph.
                  (C) No impact on deductibles.--Nothing in 
                this paragraph shall be construed as affecting 
                a hospital's authority to waive the charging of 
                a deductible under section 1833(b).
          (6) Periodic review and adjustments components of 
        prospective payment system.--
                  (A) Periodic review.--The Secretary may 
                periodically review and revise the groups, the 
                relative payment weights, and the wage and 
                other adjustments described in paragraph (2) to 
                take into account changes in medical practice, 
                changes in technology, the addition of new 
                services, new cost data, and other relevant 
                information and factors.
                  (B) Budget neutrality adjustment.--If the 
                Secretary makes adjustments under subparagraph 
                (A), then the adjustments for a year may not 
                cause the estimated amount of expenditures 
                under this part for the year to increase or 
                decrease from the estimated amount of 
                expenditures under this part that would have 
                been made if the adjustments had not been made.
                  (C) Update factor.--If the Secretary 
                determines under methodologies described in 
                subparagraph (2)(F) that the volume of services 
                paid for under this subsection increased beyond 
                amounts established through those 
                methodologies, the Secretary may appropriately 
                adjust the update to the conversion factor 
                otherwise applicable in a subsequent year.
          (7) Special rule for ambulance services.--The 
        Secretary shall pay for hospital outpatient services 
        that are ambulance services on the basis described in 
        the matter in subsection (a)(1) preceding subparagraph 
        (A).
          (8) Special rules for certain hospitals.--In the case 
        of hospitals described in section 1886(d)(1)(B)(v)--
                  (A) the system under this subsection shall 
                not apply to covered OPD services furnished 
                before January 1, 2000; and
                  (B) the Secretary may establish a separate 
                conversion factor for such services in a manner 
                that specifically takes into account the unique 
                costs incurred by such hospitals by virtue of 
                their patient population and service intensity.
          (9) Limitation on review.--There shall be no 
        administrative or judicial review under section 1878 or 
        otherwise of--
                  (A) the development of the classification 
                system under paragraph (2), including the 
                establishment of groups and relative payment 
                weights for covered OPD services, of wage 
                adjustment factors, other adjustments, and 
                methods described in paragraph (2)(F);
                  (B) the calculation of base amounts under 
                paragraph (3);
                  (C) periodic adjustments made under paragraph 
                (6); and
                  (D) the establishment of a separate 
                conversion factor under paragraph (8)(B).

        special payment rules for particular items and services

  Sec. 1834. (a) Payment for Durable Medical Equipment.--
          (1) * * *
          (2) Payment for inexpensive and other routinely 
        purchased durable medical equipment.--
                  (A) * * *
                  (B) Payment amount.--For purposes of 
                subparagraph (A), the amount specified in this 
                subparagraph, with respect to the purchase or 
                rental of an item furnished in a carrier 
                service area--
                          (i) * * *
          * * * * * * *
                          (iv) in 1993 and each subsequent year 
                        is the national limited payment amount 
                        for the item or device computed under 
                        subparagraph (C)(ii) for that year 
                        (reduced by 10 percent, in the case of 
                        a blood glucose testing strip furnished 
                        after 1997 for an individual with 
                        diabetes).
          * * * * * * *
          (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) in 1989 and in 1990, is 100 
                        percent of the local average monthly 
                        payment rate computed under 
                        subparagraph (A)(ii) for the item;
                          (ii) in 1991, is the sum of (I) 67 
                        percent of the local average monthly 
                        payment rate computed under 
                        subparagraph (A)(ii)(II) for the item 
                        for 1991, and (II) 33 percent of the 
                        national limited monthly payment rate 
                        computed under subparagraph (B)(i) for 
                        the item for 1991;
                          (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 paymentrate 
computed under subparagraph (B)(ii) for the item for 1992; [and]
                          (iv) in [a subsequent year] 1993, 
                        1994, 1995, 1996, and 1997, is the 
                        national limited monthly payment rate 
                        computed under subparagraph (B) for the 
                        item for that year[.];
                          (v) in each of the years 1998 through 
                        2002, 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, 1995, 
                1996, and 1997, 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 1998 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.
          * * * * * * *
          (16) Conditions for issuance of provider number.--The 
        Secretary shall not provide for the issuance (or 
        renewal) of a provider number for a supplier of durable 
        medical equipment, for purposes of payment under this 
        part for durable medical equipment furnished by the 
        supplier, unless the supplier provides the Secretary on 
        a continuing basis with--
                  (A)(i) full and complete information as to 
                the identity of each person with an ownership 
                or control interest (as defined in section 
                1124(a)(3)) in the supplier or in any 
                subcontractor (as defined by the Secretary in 
                regulations) in which the supplier directly or 
                indirectly has a 5 percent or more ownership 
                interest, and
                  (ii) to the extent determined to be feasible 
                under regulations of the Secretary, the name of 
                any disclosing entity (as defined in section 
                1124(a)(2)) with respect to which a person with 
                such an ownership or control interest in the 
                supplier is a person with such an ownership or 
                control interest in the disclosing entity; and
                  (B) a surety bond in a form specified by the 
                Secretary and in an amount that is not less 
                than $50,000.
        The Secretary may waive the requirement of a bond under 
        subparagraph (B) in the case of a supplier that 
        provides a comparable surety bond under State law.
          * * * * * * *
  (c) Payments and Standards for Screening Mammography.--
          (1) In general.--Notwithstanding any other provision 
        of this part, with respect to expenses incurred for 
        screening mammography (as defined in section 
        1861(jj))--
                  (A) * * *
          * * * * * * *
                  (C) the amount of the payment under this part 
                shall[, subject to the deductible established 
                under section 1833(b),] be equal to 80 percent 
                of the least of--
                          (i) the actual charge for the 
                        screening,
                          (ii) the fee schedule established 
                        under subsection (b) or the fee 
                        schedule established under section 
                        1848, whichever is applicable, with 
                        respect to both the professional and 
                        technical components of the screening 
                        mammography, or
                          (iii) the limit established under 
                        paragraph (3) for the screening 
                        mammography.
          (2) Frequency covered.--
                  (A) In general.--Subject to revision by the 
                Secretary under subparagraph (B)--
                          (i) No payment may be made under this 
                        part for screening mammography 
                        performed on a woman under 35 years of 
                        age.
                          (ii) Payment may be made under this 
                        part for only 1 screening mammography 
                        performed on a woman over 34 years of 
                        age, but under 40 years of age.
                          [(iii) In the case of a woman over 39 
                        years of age, but under 50 years of 
                        age, who--
                                  [(I) is at a high risk of 
                                developing breast cancer (as 
                                determined pursuant to factors 
                                identified by the Secretary), 
                                payment may not be made under 
                                this part for a screening 
                                mammography performed within 
                                the 11 months following the 
                                month in which a previous 
                                screening mammography was 
                                performed, or
                                  [(II) is not at a high risk 
                                of developing breast cancer, 
                                payment may not be made under 
                                this part for a screening 
                                mammography performed within 
                                the 23 months following the 
                                month in which a previous 
                                screening mammography was 
                                performed.
                          [(iv) In the case of a woman over 49 
                        years of age, but under 65 years of 
                        age, payment may not be made under this 
                        part for screening mammography 
                        performed within 11 months following 
                        the month in which a previous screening 
                        mammography was performed.
                          [(v) In the case of a woman over 64 
                        years of age, payment may not be made 
                        for screening mammography performed 
                        within 23 months following the month in 
                        which a previous screening mammography 
                        was performed.]
                          (iii) In the case of a woman over 39 
                        years of age, payment may not be made 
                        under this part for screening 
                        mammography performed within 11 months 
                        following the month in which a previous 
                        screening mammography was performed.
          * * * * * * *
  (d) Frequency and Payment Limits for Colorectal Cancer 
Screening Tests.--
          (1) Screening fecal-occult blood tests.--
                  (A) Payment limit.--In establishing fee 
                schedules under section 1833(h) with respect to 
                colorectal cancer screening tests consisting of 
                screening fecal-occult blood tests, except as 
                provided by the Secretary under paragraph 
                (4)(A), the payment amount established for 
                tests performed--
                          (i) in 1998 shall not exceed $5; and
                          (ii) in a subsequent year, shall not 
                        exceed the limit on the payment amount 
                        established under this subsection for 
                        such tests for the preceding year, 
                        adjusted by the applicable adjustment 
                        under section 1833(h) for tests 
                        performed in such year.
                  (B) Frequency limit.--Subject to revision by 
                the Secretary under paragraph (4)(B), no 
                payment may be made under this part for 
                colorectal cancer screening test consisting of 
                a screening fecal-occult blood test--
                          (i) if the individual is under 50 
                        years of age; or
                          (ii) if the test is performed within 
                        the 11 months after a previous 
                        screening fecal-occult blood test.
          (2) Screening flexible sigmoidoscopies.--
                  (A) Fee schedule.--The Secretary shall 
                establish a payment amount under section 1848 
                with respect to colorectal cancer screening 
                tests consisting of screening flexible 
                sigmoidoscopies that is consistent with payment 
                amounts under such section for similar or 
                related services, except that such payment 
                amount shall be established without regard to 
                subsection (a)(2)(A) of such section.
                  (B) Payment limit.--In the case of screening 
                flexible sigmoidoscopy services--
                          (i) the payment amount may not exceed 
                        such amount as the Secretary specifies, 
                        based upon the rates recognized under 
                        this part for diagnostic flexible 
                        sigmoidoscopy services; and
                          (ii) that, in accordance with 
                        regulations, may be performed in an 
                        ambulatory surgical center and for 
                        which the Secretary permits ambulatory 
                        surgical center payments under this 
                        part and that are performed in an 
                        ambulatory surgical center or hospital 
                        outpatient department, the payment 
                        amount under this part may not exceed 
                        the lesser of (I) the payment rate that 
                        would apply to such services if they 
                        were performed in a hospital outpatient 
                        department, or (II) the payment 
ratethat would apply to such services if they were performed in an 
ambulatory surgical center.
                  (C) Special rule for detected lesions.--If 
                during the course of such screening flexible 
                sigmoidoscopy, a lesion or growth is detected 
                which results in a biopsy or removal of the 
                lesion or growth, payment under this part shall 
                not be made for the screening flexible 
                sigmoidoscopy but shall be made for the 
                procedure classified as a flexible 
                sigmoidoscopy with such biopsy or removal.
                  (D) Frequency limit.--Subject to revision by 
                the Secretary under paragraph (4)(B), no 
                payment may be made under this part for a 
                colorectal cancer screening test consisting of 
                a screening flexible sigmoidoscopy--
                          (i) if the individual is under 50 
                        years of age; or
                          (ii) if the procedure is performed 
                        within the 47 months after a previous 
                        screening flexible sigmoidoscopy.
          (3) Screening colonoscopy for individuals at high 
        risk for colorectal cancer.--
                  (A) Fee schedule.--The Secretary shall 
                establish a payment amount under section 1848 
                with respect to colorectal cancer screening 
                test consisting of a screening colonoscopy for 
                individuals at high risk for colorectal cancer 
                (as defined in section 1861(pp)(2)) that is 
                consistent with payment amounts under such 
                section for similar or related services, except 
                that such payment amount shall be established 
                without regard to subsection (a)(2)(A) of such 
                section.
                  (B) Payment limit.--In the case of screening 
                colonoscopy services--
                          (i) the payment amount may not exceed 
                        such amount as the Secretary specifies, 
                        based upon the rates recognized under 
                        this part for diagnostic colonoscopy 
                        services; and
                          (ii) that are performed in an 
                        ambulatory surgical center or hospital 
                        outpatient department, the payment 
                        amount under this part may not exceed 
                        the lesser of (I) the payment rate that 
                        would apply to such services if they 
                        were performed in a hospital outpatient 
                        department, or (II) the payment rate 
                        that would apply to such services if 
                        they were performed in an ambulatory 
                        surgical center.
                  (C) Special rule for detected lesions.--If 
                during the course of such screening 
                colonoscopy, a lesion or growth is detected 
                which results in a biopsy or removal of the 
                lesion or growth, payment under this part shall 
                not be made for the screening colonoscopy but 
                shall be made for the procedure classified as a 
                colonoscopy with such biopsy or removal.
                  (D) Frequency limit.--Subject to revision by 
                the Secretary under paragraph (4)(B), no 
                payment may be made under this part for a 
                colorectal cancer screening test consisting of 
                a screening colonoscopy for individuals at high 
                risk for colorectal cancer if the procedure is 
                performed within the 23 months after a previous 
                screening colonoscopy.
          (4) Reductions in payment limit and revision of 
        frequency.--
                  (A) Reductions in payment limit for screening 
                fecal-occult blood tests.--The Secretary shall 
                review from time to time the appropriateness of 
                the amount of the payment limit established for 
                screening fecal-occult blood tests under 
                paragraph (1)(A). The Secretary may, with 
                respect to tests performed in a year after 
                2000, reduce the amount of such limit as it 
                applies nationally or in any area to the amount 
                that the Secretary estimates is required to 
                assure that such tests of an appropriate 
                quality are readily and conveniently available 
                during the year.
                  (B) Revision of frequency.--
                          (i) Review.--The Secretary shall 
                        review periodically the appropriate 
                        frequency for performing colorectal 
                        cancer screening tests based on age and 
                        such other factors as the Secretary 
                        believes to be pertinent.
                          (ii) Revision of frequency.--The 
                        Secretary, taking into consideration 
                        the review made under clause (i), may 
                        revise from time to time the frequency 
                        with which such tests may be paid for 
                        under this subsection, but no such 
                        revision shall apply to tests performed 
                        before January 1, 2001.
          (5) Limiting charges of nonparticipating 
        physicians.--
                  (A) In general.--In the case of a colorectal 
                cancer screening test consisting of a screening 
                flexible sigmoidoscopy or a screening 
                colonoscopy provided to an individual at high 
                risk for colorectal cancer for which payment 
                may be made under this part, if a 
                nonparticipating physician provides the 
                procedure to an individual enrolled under this 
                part, the physician may not charge the 
                individual more than the limiting charge (as 
                defined in section 1848(g)(2)).
                  (B) Enforcement.--If a physician or supplier 
                knowing and willfully imposes a charge in 
                violation of subparagraph (A), the Secretary 
                may apply sanctions against such physician or 
                supplier in accordance with section 1842(j)(2).
          * * * * * * *
  [(g) Payment for Outpatient Rural Primary 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) Cost-based facility fee plus 
                professional charges.--
                          [(i) Facility fee.--With respect to 
                        facility services, not including any 
                        services for which payment may be made 
                        under clause (ii), there shall be paid 
                        amounts equal to the amounts described 
                        in section 1833(a)(2)(B) (describing 
                        amounts paid for hospital outpatient 
                        services).
                          [(ii) Reasonable charges for 
                        professional services.--In electing 
                        treatment under this subparagraph, 
                        payment for professional medical 
                        services otherwise included within 
                        outpatient rural primary care hospital 
                        services shall be made under such other 
                        provisions of this part as would apply 
                        to payment for such services if they 
                        were not included in outpatient rural 
                        primary care hospital services.
                  [(B) All-inclusive rate.--With respect to 
                both facility services and professional medical 
                services, there shall be paid amounts equal to 
                the costs which are reasonable and related to 
                the cost of furnishing such services or which 
                are based on such other tests of reasonableness 
                as the Secretary may prescribe in regulations, 
                less than the amount the hospital may charge as 
                described in clause (i) of section 
                1866(a)(2)(A), but in no case may the payment 
                for such services (other than for items and 
                services described in section 1861(s)(10)(A)) 
                exceed 80 percent of such costs.
The amount of payment shall be determined under either method 
without regard to the amount of the customary or other charge.
          [(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.]
  (g) Payment for Outpatient Rural Primary Care Hospital 
Services.--The amount of payment under this part for outpatient 
rural primary care hospital services is the reasonable costs of 
the rural primary care hospital in providing such services.
  (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 [a subsequent year] 1996 and 
                        1997, 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;
                          (v) for each of the years 1998 
                        through 2002, 1 percent, and
                          (vi) 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;
          * * * * * * *
  (k) Payment for Outpatient Therapy Services and Comprehensive 
Outpatient Rehabilitation Facility Services.--
          (1) In general.--With respect to outpatient physical 
        therapy services (which includes outpatient speech-
        language pathology services) and outpatient 
        occupational therapy services and with respect to 
        comprehensive outpatient rehabilitation facility 
        services for which payment is determined under this 
        subsection, the payment basis shall be--
                  (A) for services furnished during 1998, the 
                amount determined under paragraph (2); or
                  (B) for services furnished during a 
                subsequent year, 80 percent of the lesser of--
                          (i) the actual charge for the 
                        services, or
                          (ii) the applicable fee schedule 
                        amount (as defined in paragraph (3)) 
                        for the services.
          (2) Payment in 1998 based upon adjusted reasonable 
        costs.--The amount under this paragraph for services is 
        the lesser of--
                  (A) the charges imposed for the services, or
                  (B) the adjusted reasonable costs (as defined 
                in paragraph (4)) for the services,
        less 20 percent of the amount of the charges imposed 
        for such services.
          (3) Applicable fee schedule amount.--In this 
        paragraph, the term ``applicable fee schedule amount'' 
        means, with respect to services furnished in a year, 
        the fee schedule amount established under section 
        1848(b) for such services furnished during the year or, 
        if there is no such fee schedule amount established for 
        such services, for such comparable services as the 
        Secretary specifies.
          (4) Adjusted reasonable costs.--In paragraph (2), the 
        term ``adjusted reasonable costs'' means reasonable 
        costs determined reduced by--
                  (A) 5.8 percent of the reasonable costs for 
                operating costs, and
                  (B) 10 percent of the reasonable costs for 
                capital costs.
          (5) Uniform coding.--For claims for services 
        submitted on or after April 1, 1998, for which the 
        amount of payment is determined under this subsection, 
        the claim shall include a code (or codes) under a 
        uniform coding system specified by the Secretary that 
        identifies the services furnished.
          (6) Restraint on billing.--The provisions of 
        subparagraphs (A) and (B) of section 1842(b)(18) shall 
        apply to therapy services for which payment is made 
        under this subsection in the same manner as they apply 
        to services provided by a practitioner described in 
        section 1842(b)(18)(C).
  (l) Establishment of Fee Schedule for Ambulance Services.--
          (1) In general.--The Secretary shall establish a fee 
        schedule for payment for ambulance services under this 
        part through a negotiated rulemaking process described 
        in title 5, United States Code, and in accordance with 
        the requirements of this subsection.
          (2) Considerations.--In establishing such fee 
        schedule the Secretary shall--
                  (A) establish mechanisms to control increases 
                in expenditures for ambulance services under 
                this part;
                  (B) establish definitions for ambulance 
                services which link payments to the type of 
                services provided;
                  (C) consider appropriate regional and 
                operational differences;
                  (D) consider adjustments to payment rates to 
                account for inflation and other relevant 
                factors; and
                  (E) phase in the application of the payment 
                rates under the fee schedule in an efficient 
                and fair manner.
          (3) Savings.--In establishing such fee schedule the 
        Secretary shall--
                  (A) ensure that the aggregate amount of 
                payments made for ambulance services under this 
                part during 2000 does not exceed the aggregate 
                amount of payments which would have been made 
                for such services under this part during such 
                year if the amendments made by section 10431 of 
                the Balanced Budget Act of 1997 had not been 
                made; and
                  (B) set the payment amounts provided under 
                the fee schedule for services furnished in 2001 
                and each subsequent year at amounts equal to 
                the payment amounts under the fee schedule for 
                service furnished during the previous year, 
                increased by the percentage increase in the 
                consumer price index for all urban consumers 
                (U.S. city average) for the 12-month period 
                ending with June of the previous year.
          (4) Consultation.--In establishing the fee schedule 
        for ambulance services under this subsection, the 
        Secretary shall consult with various national 
        organizations representing individuals and entities who 
        furnish and regulate ambulance services and share with 
        such organizations relevant data in establishing such 
        schedule.
          (5) Limitation on review.--There shall be no 
        administrative or judicial review under section 1869 or 
        otherwise of the amounts established under the fee 
        schedule for ambulance services under this subsection, 
        including matters described in paragraph (2).
          (6) Restraint on billing.--The provisions of 
        subparagraphs (A) and (B) of section 1842(b)(18) shall 
        apply to ambulance services for which payment is made 
        under this subsection in the same manner as they apply 
        to services provided by a practitioner described in 
        section 1842(b)(18)(C).
  (m) Special Rules for Payment for Oral Anti-Nausea Drugs.--
          (1) Limitation on per dose payment basis.--Subject to 
        paragraph (2), the per dose payment basis under this 
        part fororal anti-nausea drugs (as defined in paragraph 
(3)) administered during a year shall not exceed 90 percent of the 
average per dose payment basis for the equivalent intravenous anti-
emetics administered during the year, as computed based on payment 
basis applied during 1996.
          (2) Aggregate limit.--The Secretary shall make such 
        adjustment in the coverage of, or payment basis for, 
        oral anti-nausea drugs so that coverage of such drugs 
        under this part does not result in any increase in 
        aggregate payments per capita under this part above the 
        levels of such payments per capita that would otherwise 
        have been made if there were no coverage for such drugs 
        under this part.
          (3) Oral anti-nausea drugs defined.--For purposes of 
        this subsection, the term ``oral anti-nausea drugs'' 
        means drugs for which coverage is provided under this 
        part pursuant to section 1861(s)(2)(P).

        procedure for payment of claims of providers of services

  Sec. 1835. (a) Except as provided in subsections (b), (c), 
and (e), payment for services described in section 1832(a)(2) 
furnished an individual may be made only to providers of 
services which are eligible therefor under section 1866(a), and 
only if--
          (1) written request, signed by such individual, 
        except in cases in which the Secretary finds it 
        impracticable for the individual to do so, is filed for 
        such payment in such form, in such manner and by such 
        person or persons as the Secretary may by regulation 
        prescribe, no later than the close of the period of 3 
        calendar years following the year in which such 
        services are furnished (deeming any services furnished 
        in the last 3 calendar months of any calendar year to 
        have been furnished in the succeeding calendar year) 
        except that, where the Secretary deems that efficient 
        administration so requires, such period may be reduced 
        to not less than 1 calendar year; and
          (2) a physician certifies (and recertifies, where 
        such services are furnished over a period of time, in 
        such cases, with such frequency, and accompanied by 
        such supporting material, appropriate to the case 
        involved, as may be provided by regulations) that--
                  (A) in the case of home health services (i) 
                such services are or were required because the 
                individual is or was confined to his home 
                (except when receiving items and services 
                referred to in section 1861(m)(7)) and needs or 
                needed skilled nursing care (other than solely 
                venipuncture for the purpose of obtaining a 
                blood sample) on an intermittent basis or 
                physical or speech therapy or, in the case of 
                an individual who has been furnished home 
                health services based on such a need and who no 
                longer has such a need for such care or 
                therapy, continues or continued to need 
                occupational therapy, (ii) a plan for 
                furnishing such services to such individual has 
                been established and is periodically reviewed 
                by a physician, and (iii) such services are or 
                were furnished while the individual is or was 
                under the care of a physician;
          * * * * * * *
          * * * * * * *

                           enrollment periods

  Sec. 1837. (a) * * *
          * * * * * * *
  (i)(1) In the case of an individual who--
          (A) * * *
          * * * * * * *
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) * * *
          * * * * * * *
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) * * *
  (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 theindividual) 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)(1) * * *
  (2) The monthly premium of each individual enrolled under 
this part for each month after December 1983 shall, except as 
provided in subsections [(b) and (e)] (b), (c), and (f), be the 
amount determined under paragraph (3).
  (3) [The Secretary shall, during September of 1983 and of 
each year thereafter, determine and promulgate the monthly 
premium applicable for individuals enrolled under this part for 
the succeeding calendar year. The monthly premium shall (except 
as otherwise provided in subsection (e)) be equal to the 
smaller of--
          [(A) the monthly actuarial rate for enrollees age 65 
        and over, determined according to paragraph (1) of this 
        subsection, for that calendar year, or
          [(B) the monthly premium rate most recently 
        promulgated by the Secretary under this paragraph, 
        increased by a percentage determined as follows: The 
        Secretary shall ascertain the primary insurance amount 
        computed under section 215(a)(1), based upon average 
        indexed monthly earnings of $900, that applied to 
        individuals who became eligible for and entitled to 
        old-age insurance benefits on November 1 of the year 
        before the year of the promulgation. He shall increase 
        the monthly premium rate by the same percentage by 
        which that primary insurance amount is increased when, 
        by reason of the law in effect at the time the 
        promulgation is made, it is so computed to apply to 
        those individuals for the following November 1.] The 
        Secretary, during September of each year, shall 
        determine and promulgate a monthly premium rate for the 
        succeeding calendar year. That monthly premium rate 
        shall be equal to 50 percent of the monthly actuarial 
        rate for enrollees age 65 and over, determined 
        according to paragraph (1), for that succeeding 
        calendar year.
Whenever the Secretary promulgates the dollar amount which 
shall be applicable as the monthly premium rate for any period, 
he shall, at the time such promulgation is announced, issue a 
public statement setting forth the actuarial assumptions and 
bases employed by him in arriving at the amount of an adequate 
actuarial rate for enrollees age 65 and older as provided in 
paragraph (1) [and the derivation of the dollar amounts 
specified in this paragraph].
  (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 December 1995 and prior to January 
1999 shall be an amount equal to 50 percent of the monthly 
actuarial rate for enrollees age 65 and over, as determined 
under subsection (a)(1) and applicable to such month.
  [(B) Notwithstanding the provisions of subsection (a), the 
monthly premium for each individual enrolled under this part 
for each month in--
          [(i) 1991 shall be $29.90,
          [(ii) 1992 shall be $31.80,
          [(iii) 1993 shall be $36.60,
          [(iv) 1994 shall be $41.10, and
          [(v) 1995 shall be $46.10.
  [(2) Any increases in premium amounts taking effect prior to 
January 1998 by reason of paragraph (1) shall be taken into 
account for purposes of determining increases thereafter under 
subsection (a)(3).]
          * * * * * * *
  [(g)] (e)(1) Upon the request of a State, the Secretary may 
enter into an agreement with the State under which the State 
agrees to pay on a quarterly or other periodic basis to the 
Secretary (to be deposited in the Treasury to the credit of the 
Federal Supplementary Medical Insurance Trust Fund) an amount 
equal to the amount of the part B late enrollment premium 
increases with respect to the premiums for eligible individuals 
(as defined in paragraph (3)(A)).
          * * * * * * *

             use of carriers for administration of benefits

  Sec. 1842. (a) * * *
  (b)(1) * * *
  (2)(A) * * *
          * * * * * * *
  (E) With respect to the payment of claims for home health 
services under this part that, but for the amendments made by 
section 10531 of the Balanced Budget Act of 1997, would be 
payable under part A instead of under this part, the Secretary 
shall continue administration of such claims through fiscal 
intermediaries under section 1816.
  (3) Each such contract shall provide that the carrier--
          (A) * * *
          * * * * * * *
          (I) will submit annual reports to the Secretary 
        describing the steps taken to recover payments made 
        under this part for items or services for which payment 
        has been or could be made under a primary plan (as 
        defined in section 1862(b)(2)(A)); [and]
          (J) will reimburse the Secretary for any amounts paid 
        by the carrier for an item or service under this part 
        which is furnished, directed, or prescribed by an 
        individual or entity during any period for which the 
        individual or entity is excluded pursuant to section 
        1128, 1128A, or 1156, from participation in the program 
        under this title, if the amounts are paid after the 
        Secretary notifies the carrier of the exclusion, and
          * * * * * * *
  (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)] clause (i) 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 60days; and (iv) the claim form 
submitted to the carrier for such services includes the second 
physicians 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. 
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[.], 
(E) in the case of an item or service (other than services described in 
section 1888(e)(2)(A)(ii)) furnished to an individual who (at the time 
the item or service is furnished) is a resident of a skilled nursing 
facility, payment shall be made to the facility (without regard to 
whether or not the item or service was furnished by the facility, by 
others under arrangement with them made by the facility, under any 
other contracting or consulting arrangement, or otherwise), and (F) in 
the case of home health services furnished to an individual who (at the 
time the item or service is furnished) is under a plan of care of a 
home health agency, payment shall be made to the agency (without regard 
to whether or not the item or service was furnished by the agency, by 
others under arrangement with them made by the agency, or when any 
other contracting or consulting arrangement, or otherwise). For 
purposes of clause (C) of the first sentence of this paragraph, an 
employment relationship may include any independent contractor 
arrangement, and employer status shall be determined in accordance with 
the law of the State in which the services described in such clause are 
performed.
          * * * * * * *
  [(12)(A) With respect to services described in clauses (i), 
(ii), or (iv) of section 1861(s)(2)(K) (relating to a physician 
assistants and nurse practitioners)--
          [(i) payment under this part may only be made on an 
        assignment-related basis; and
          [(ii) the prevailing charges determined under 
        paragraph (3) shall not exceed--
                  [(I) in the case of services performed as an 
                assistant at surgery, 65 percent of the amount 
                that would otherwise be recognized if performed 
                by a physician who is serving as an assistant 
                at surgery, or
                  [(II) in other cases, the applicable 
                percentage (as defined in subparagraph (B)) of 
                the prevailing charge rate determined for such 
                services (or, for services furnished on or 
                after January 1, 1992, the fee schedule amount 
                specified in section 1848) performed by 
                physicians who are not specialists.
  [(B) In subparagraph (A)(ii)(II), the term ``applicable 
percentage means--
          [(i) 75 percent in the case of services performed 
        (other than as an assistant at surgery) in a hospital, 
        and
          [(ii) 85 percent in the case of other services.]
  (12) With respect to services described in section 
1861(s)(2)(K)(i)--
          (A) payment under this part may only be made on an 
        assignment-related basis; and
          (B) the amounts paid under this part shall be equal 
        to 80 percent of (i) the lesser of the actual charge or 
        85 percent of the fee schedule amount provided under 
        section 1848 for the same service provided by a 
        physician who is not a specialist; or (ii) in the case 
        of services as an assistant at surgery, the lesser of 
        the actual charge or 85 percent of the amount that 
        would otherwise be recognized if performed by a 
        physician who is serving as an assistant at surgery.
          * * * * * * *
  (19) For purposes of section 1833(a)(1), the reasonable 
charge for ambulance services (as described in section 
1861(s)(7)) provided during a fiscal year (beginning with 
fiscal year 1998 and ending with fiscal year 2002) may not 
exceed the reasonable charge for such services provided during 
the previous fiscal year, increased by the percentage increase 
in the consumer price index for all urban consumers (U.S. city 
average) as estimated by the Secretary for the 12-month period 
ending with the midpoint of the year involved reduced (in the 
case of each of fiscal years 1998 and 1999) by 1 percentage 
point.
          * * * * * * *
  (h)(1) * * *
          * * * * * * *
  (7) The Secretary shall provide that each explanation of 
benefits provided under this part for services furnished in the 
United States, in conjunction with the payment of claims under 
section 1833(a)(1) (made other than on an assignment-related 
basis), shall include--
          (A) * * *
          * * * * * * *
          (C)(i) an offer of assistance to such an individual 
        in obtaining the names of participating physicians of 
        appropriate specialty and (ii) an offer to provide a 
        free copy of the appropriate participating physician 
        directory, [and]
          (D) in the case of services for which the billed 
        amount exceeds the limiting charge imposed under 
        section 1848(g), information regarding such applicable 
        limiting charge (including information concerning the 
        right to a refund under section 1848(g)(1)(A)(iv))[.], 
        and
          (E) a toll-free telephone number maintained by the 
        Inspector General in the Department of Health and Human 
        Services for the receipt of complaints and information 
        about waste, fraud, and abuse in the provision or 
        billing of services under this title.
          * * * * * * *
  (o) If a physician's, supplier's, or any other person's bill 
or request for payment for services includes a charge for a 
drug or biological for which payment may be made under this 
part and the drug or biological is not paid on a cost or 
prospective payment basis as otherwise provided in this part, 
the amount payable for the drug or biological is equal to 
exceed 95 percent of the average wholesale price.
          * * * * * * *
  (s) The Secretary may refuse to enter into an agreement with 
a physician or supplier under subsection (h) or may terminate 
or refuse to renew such agreement, in the event that such 
physician or supplier has been convicted of a felony under 
Federal or State law for an offense which the Secretary 
determines is inconsistent with the best interests of program 
beneficiaries.
          * * * * * * *

   appropriations to cover government contributions and contingency 
                                reserve

  Sec. 1844. (a) There are authorized to be appropriated from 
time to time, out of any moneys in the Treasury not otherwise 
appropriated, to the Federal Supplementary Medical Insurance 
Trust Fund--
          (1)(A) a Government contribution equal to the 
        aggregate premiums payable for a month for enrollees 
        age 65 and over under this part and deposited in the 
        Trust Fund, multiplied by the ratio of--
                  (i) twice the dollar amount of the 
                actuarially adequate rate per enrollee age 65 
                and over as determined under section 1839(a)(1) 
                for such month minus the dollar amount of the 
                premium per enrollee for such month, as 
                determined under section 1839(a)(3) [or 
                1839(e), as the case may be], to
                  (ii) the dollar amount of the premium per 
                enrollee for such month, plus
          (B) a Government contribution equal to the aggregate 
        premiums payable for a month for enrollees under age 65 
        under this part and deposited in the Trust Fund, 
        multiplied by the ratio of--
                  (i) twice the dollar amount of the 
                actuarially adequate rate per enrollee under 
                age 65 as determined under section 1839(a)(4) 
                for such month minus the dollar amount of the 
                premium per enrollee for such month, as 
                determined under section 1839(a)(3) [or 
                1839(e), as the case may be], to
          * * * * * * *

                  [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 shallconsider 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) Payment Based on Fee Schedule.--
          (1) * * *
          (2) Transition to full fee schedule.--
                  (A) Limiting reductions and increases to 15 
                percent in 1992.--
                          (i) Limit on increase.--In the case 
                        of a service (other than a colorectal 
                        cancer screening test consisting of a 
                        screening colonoscopy provided to an 
                        individual at high risk for colorectal 
                        cancer or a screening flexible 
                        sigmoidoscopy) in a fee schedule area 
                        (as defined in subsection (j)(2)) for 
                        which the adjusted historical payment 
                        basis (as defined in subparagraph (D)) 
                        is less than 85 percent of the fee 
                        schedule amount for services furnished 
                        in 1992, there shall be substituted for 
                        the fee schedule amount an amount equal 
                        to the adjusted historical payment 
                        basis plus 15 percent of the fee 
                        schedule amount otherwise established 
                        (without regard to this paragraph).
                          (ii) Limit in reduction.--In the case 
                        of a service (other than a colorectal 
                        cancer screening test consisting of a 
                        screening colonoscopy provided to an 
                        individual at high risk for colorectal 
                        cancer or a screening flexible 
                        sigmoidoscopy) in a fee schedule area 
                        for which the adjusted historical 
                        payment basis exceeds 115 percent of 
                        the fee schedule amount for services 
                        furnished in 1992, there shall be 
                        substituted for the fee schedule amount 
                        an amount equal to the adjusted 
                        historical payment basis minus 15 
                        percent of the fee schedule amount 
                        otherwise established (without regard 
                        to this paragraph).
          * * * * * * *
  (c) Determination of Relative Values for Physicians' 
Services.--
          (1) * * *
          (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 Advisory Commission and 
                        organizations representing physicians.
                  (C) Computation of relative value units for 
                components.--For purposes of this section for 
                each physicians' service--
                          (i) * * *
                          (ii) Practice expense relative value 
                        units.--The Secretary shall determine a 
                        number of practice expense relative 
                        value units for the service for years 
                        before [1998] 1999 equal to the product 
                        of--
                                  (I) the base allowed charges 
                                (as defined in subparagraph 
                                (D)) for the service, and
                                  (II) the practice expense 
                                percentage for the service (as 
                                determined under paragraph 
                                (3)(C)(ii)),
                        and for years beginning with [1998] 
                        1999 based, to the extent provided 
                        under subparagraph (G), on the relative 
                        practice expense resources involved in 
                        furnishing the service.
          * * * * * * *
                (G) Transitional rule for resource-based 
                practice expense units.--In applying 
                subparagraph (C)(ii) for 1999, 2000, 2001, and 
                subsequent year, the number of units under such 
                subparagraph shall be based 75 percent, 50 
                percent, 25 percent, and 0 percent, 
                respectively, on the practice expense relative 
                value units in effect in 1998 (or the 
                Secretay's imputation of such units for new or 
                revised codes) and the remainder on the 
                relative value expense resources involved in 
                furnishing the service.
          (3) Component percentages.--For purposes of paragraph 
        (2), the Secretary shall determine a work percentage, a 
        practice expense percentage, and a malpractice 
        percentage for each physician's service as follows:
                  (A) * * *
          * * * * * * *
                  (C) Determination of component percentages.--
                          (i) * * *
                          (ii) Practice expense percentage.--
                        For years before [1998] 2002, the 
                        practice expense percentage for a 
                        service (or class of services) is equal 
                        to the sum (for all physician 
                        specialties) of--
                                  (I) the average percentage 
                                division for the practice 
                                expense component for each 
                                physician specialty (determined 
                                under subparagraph (B)), 
                                multiplied by
                                  (II) the proportion 
                                (determined under subparagraph 
                                (A)) of such service (or 
                                services) performed by 
                                physicians in that specialty.
          * * * * * * *
  (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 rules for 1998.--Except as 
                provided in subparagraph (D), the single 
                conversion factor for 1998 under this 
                subsection shall be the conversion factor for 
                primary care services for 1997, increased by 
                the Secretarys estimate of the weighted average 
                of the three separate updates that would 
                otherwise occur were it not for the enactment 
                of chapter 1 of subtitle G of title X of the 
                Medicare Amendments Act of 1997.
          (D) Special rules for anesthesia services.--The 
        separate conversion factor for anesthesia services for 
        a year shall be equal to 46 percent of the single 
        conversion factor established for other physicians' 
        services, except as a adjusted for changes in work, 
        practice expense, or malpractice relative value units.
                  [(C)] (E) 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
                          [(v) 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.--Unless otherwise provided by 
                law, subject to subparagraph (D) and the 
                budget-neutrality factor determined by the 
                Secretary under subsection (c)(2)(B)(ii), the 
                update to the single conversion factor 
                established in paragraph (1)(C) for a year 
                beginning with 1999 is equal to the product 
                of--
                          (i) 1 plus the Secretary's estimate 
                        of the percentage increase in the MEI 
                        (as defined in section 1842(i)(3)) for 
                        the year (divided by 100), and
                          (ii) 1 plus the Secretary's estimate 
                        of the update adjustment factor for the 
                        year (divided by 100),
                minus 1 and multiplied by 100.
                  (B) Update adjustment factor.--For purposes 
                of subparagraph (A)(ii), the ``update 
                adjustment factor'' for a year is equal to the 
                quotient (as estimated by the Secretary) of--
                          (i) the difference between (I) the 
                        sum of the allowed expenditures for 
                        physicians' services (as determined 
                        under subparagraph (C)) during the 
                        period beginning July 1, 1997, and 
                        ending on June 30 of the year involved, 
                        and (II) the sum of the amount of 
                        actual expenditures for physicians' 
                        services furnished during the period 
                        beginning July 1, 1997, and ending on 
                        June 30 of the preceding year; divided 
                        by
                          (ii) the actual expenditures for 
                        physicians' services for the 12-month 
                        period ending on June 30 of the 
                        preceding year, increased by the 
                        sustainable growth rate under 
                        subsection (f) for the fiscal year 
                        which begins during such 12-month 
                        period.
                  (C) Determination of allowed expenditures.--
                For purposes of this paragraph, the allowed 
                expenditures for physicians' services for the 
                12-month period ending with June 30 of--
                          (i) 1997 is equal to the actual 
                        expenditures for physicians' services 
                        furnished during such 12-month period, 
                        as estimated by the Secretary; or
                          (ii) a subsequent year is equal to 
                        the allowed expenditures for 
                        physicians' services for the previous 
                        year, increased by the sustainable 
                        growth rate under subsection (f) for 
                        the fiscal year which begins during 
                        such 12-month period.
                  (D) Restriction on variation from medicare 
                economic index.--Notwithstanding the amount of 
                the update adjustment factor determined under 
                subparagraph (B) fora year, the update in the 
conversion factor under this paragraph for the year may not be--
                          (i) greater than 100 times the 
                        following amount: (1.03 + (MEI 
                        percentage/100))-1; or
                          (ii) less than 100 times the 
                        following amount: (0.93 + (MEI 
                        percentage/100)) -1,
                where ``MEI percentage means the Secretary's 
                estimate of the percentage increase in the MEI 
                (as defined in section 1842(i)(3)) for the year 
                involved.
          * * * * * * *
  (f) Medicare [Volume Performance Standard Rates of Increase] 
Sustainable Growth Rate.--
          (1) Process for establishing medicare [volume 
        performance standard rates of increase] sustainable 
        growth rate.--
                  [(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] sustainable growth rate.--
                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.] with 1999), the 
                sustainable growth rate 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] January 
                1, 1999, the sustainable growth rate for fiscal 
                year 1999.
          * * * * * * *
          [(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), theperformance 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 physicians' 
                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.]
          (2) Specification of growth rate.--The sustainable 
        growth rate for all physicians' services for a fiscal 
        year (beginning with fiscal year 1998) shall be equal 
        to the product of--
                  (A) 1 plus the Secretary's estimate of the 
                weighted average percentage increase (divided 
                by 100) in the fees for all physicians' 
                services in the fiscal year involved,
                  (B) 1 plus the Secretary's estimate of the 
                percentage change (divided by 100) in the 
                average number of individuals enrolled under 
                this part (other than MedicarePlus plan 
                enrollees) from the previous fiscal year to the 
                fiscal year involved,
                  (C) 1 plus the Secretary's estimate of the 
                projected percentage growth in real gross 
                domestic product per capita (divided by 100) 
                from the previous fiscal year to the fiscal 
                year involved, and
                  (D) 1 plus the Secretary's estimate of the 
                percentage change (divided by 100) in 
                expenditures for all physicians' services in 
                the fiscal year (compared with the previous 
                fiscal year) which will result from changes in 
                law and regulations, determined without taking 
                into account estimated changes in expenditures 
                due to changes in the volume and intensity of 
                physicians' services resulting from changes in 
                the update to the conversion factor under 
                subsection (d)(3), minus 1 and multiplied by 
                100.
          (3) Definitions.--In this subsection:
                  (A) Services included in physicians' 
                services.--The term ``physicians' services 
                includes other items and services (such as 
                clinical diagnostic laboratory tests and 
                radiology services), specified by the 
                Secretary, that are commonly performed or 
                furnished by a physician or in a physicians' 
                office, but does not include services furnished 
                to a MedicarePlus plan enrollee.
                  (B) MedicarePlus plan enrollee.--The term 
                ``MedicarePlus plan enrollee'' means, with 
                respect to a fiscal year, an individual 
                enrolled under this part who has elected to 
                receive benefits under this title for the 
                fiscal year through a MedicarePlus plan offered 
                under part C, and also includes an individual 
                who is receiving benefits under this part 
                through enrollment with an eligible 
                organization with a risk-sharing contract under 
                section 1876.
  (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 Advisory 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 Advisory Commission shall 
                comment on the Secretarys 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),
          * * * * * * *
  (j) Definitions.--In this section:
          (1) Category.--The term ``category'' means, with 
        respect to physicians' services, surgical services (as 
        defined by the Secretary [and including anesthesia 
        services]), primary care services (as defined in 
        section 1842(i)(4)), and all other physicians' 
        services. The Secretary shall define surgical services 
        and publish such definitions in the Federal Register no 
        later than May 1, 1990, after consultation with 
        organizations representing physicians (including 
        anesthesia services).
          * * * * * * *
          (3) Physicians' services.--The term ``physicians' 
        services'' includes items and services described in 
        paragraphs (1),(2)(A), (2)(D), (2)(G), (2)(P) (with 
        respect to services described in subparagraphs (A) and 
        (C) of section 1861(oo), (2)(S), (3), [and (4)], (4), 
        (14) (with respect to services described in section 
        1861(nn)(2)) and (15) of section 1861(s) (other than 
        clinical diagnostic laboratory tests and, except for 
        purposes of subsections (a)(3), (g), and (h) such other 
        items and services as the Secretary may specify).
          * * * * * * *

                      Part C--MedicarePlus Program


                 eligibility, election, and enrollment


  Sec. 1851. (a) Choice of Medicare Benefits Through 
MedicarePlus Plans.--
          (1) In general.--Subject to the provisions of this 
        section, each MedicarePlus eligible individual (as 
        defined in paragraph (3)) is entitled to elect to 
        receive benefits under this title--
                  (A) through the medicare fee-for-service 
                program under parts A and B, or
                  (B) through enrollment in a MedicarePlus plan 
                under this part.
          (2) Types of medicareplus plans that may be 
        available.--A MedicarePlus plan may be any of the 
        following types of plans of health insurance:
                  (A) Coordinated care plans.--Coordinated care 
                plans which provide health care services, 
                including health maintenance organization plans 
                and preferred provider organization plans.
                  (B) Plans offered by provider-sponsored 
                organization.--A MedicarePlus plan offered by a 
                provider-sponsored organization, as defined in 
                section 1855(e).
                  (C) Combination of msa plan and contributions 
                to medicareplus msa.--An MSA plan, as defined 
                in section 1859(b)(2), and a contribution into 
                a MedicarePlus medical savings account (MSA).
          (3) MedicarePlus eligible individual.--
                  (A) In general.--In this title, subject to 
                subparagraph (B), the term ``MedicarePlus 
                eligible individual'' means an individual who 
                is entitled to benefits under part A and 
                enrolled under part B.
                  (B) Special rule for end-stage renal 
                disease.--Such term shall not include an 
                individual medically determined to have end-
                stage renal disease, except that an individual 
                who develops end-stage renal disease while 
                enrolled in a MedicarePlus plan may continue to 
                be enrolled in that plan.
  (b) Special Rules.--
          (1) Residence requirement.--
                  (A) In general.--Except as the Secretary may 
                otherwise provide, an individual is eligible to 
                elect a MedicarePlus plan offered by a 
                MedicarePlus organization only if the 
                organization serves the geographic area in 
                which the individual resides.
                  (B) Continuation of enrollment permitted.--
                Pursuant to rules specified by the Secretary, 
                the Secretary shall provide that an individual 
                may continue enrollment in a plan, 
                notwithstanding that the individual no longer 
                resides in the service area of the plan, so 
                long as the plan provides benefits for 
                enrollees located in the area in which the 
                individual resides.
          (2) Special rule for certain individuals covered 
        under fehbp or eligible for veterans or military health 
        benefits, veterans .--
                  (A) FEHBP.--An individual who is enrolled in 
                a health benefit plan under chapter 89 of title 
                5, United States Code, is not eligible to 
                enroll in an MSA plan until such time as the 
                Director of the Office of Management and Budget 
                certifies to the Secretary that the Office of 
                Personnel Management has adopted policies which 
                will ensure that the enrollment of such 
                individuals in such plans will not result in 
                increased expenditures for the Federal 
                Government for health benefit plans under such 
                chapter.
                  (B) VA and dod.--The Secretary may apply 
                rules similar to the rules described in 
                subparagraph (A) in the case of individuals who 
                are eligible for health care benefits under 
                chapter 55 of title 10, United States Code, or 
                under chapter 17 of title 38 of such Code.
          (3) Limitation on eligibility of qualified medicare 
        beneficiaries and other medicaid beneficiaries to 
        enroll in an MSA plan.--An individual who is a 
        qualified medicare beneficiary (as defined in section 
        1905(p)(1)), a qualified disabled and working 
        individual (described in section 1905(s)), an 
        individual described in section 1902(a)(10)(E)(iii), or 
        otherwise entitled to medicare cost-sharing under a 
        State plan under title XIX is not eligible to enroll in 
        an MSA plan.
          (4) Coverage under msa plans on a demonstration 
        basis.--
                  (A) In general.--An individual is not 
                eligible to enroll in an MSA plan under this 
                part--
                          (i) on or after January 1, 2003, 
                        unless the enrollment is the 
                        continuation of such an enrollment in 
                        effect as of such date; or
                          (ii) as of any date if the number of 
                        such individuals so enrolled as of such 
                        date has reached 500,000. Under rules 
                        established by the Secretary, an 
                        individual is not eligible to enroll 
                        (or continue enrollment) in an MSA plan 
                        for a year unless the individual 
                        provides assurances satisfactory to the 
                        Secretary that the individual will 
                        reside in the United States for at 
                        least 183 days during the year.
                  (B) Evaluation.--The Secretary shall 
                regularly evaluate the impact of permitting 
                enrollment in MSA plans under this part on 
                selection (including adverse selection), use of 
                preventive care, access to care, and the 
                financial status of the Trust Funds under this 
                title.
                  (C) Reports.--The Secretary shall submit to 
                Congress periodic reports on the numbers of 
                individuals enrolled in such plans and on the 
                evaluation being conducted under subparagraph 
                (B). The Secretary shall submit such a report, 
                by not later than March 1, 2002, on whether the 
                time limitation under subparagraph (A)(i) 
                should be extended or removed and whether to 
                change the numerical limitation under 
                subparagraph (A)(ii).
  (c) Process for Exercising Choice.--
          (1) In general.--The Secretary shall establish a 
        process through which elections described in subsection 
        (a) are made and changed, including the form and manner 
        in which such elections are made and changed. Such 
        elections shall be made or changed only during coverage 
        election periods specified under subsection (e) and 
        shall become effective as provided in subsection (f).
          (2) Coordination through medicareplus 
        organizations.--
                  (A) Enrollment.--Such process shall permit an 
                individual who wishes to elect a MedicarePlus 
                plan 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 
                plan 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.
          (3) Default.--
                  (A) Initial election.--
                          (i) In general.--Subject to clause 
                        (ii), an individual who fails to make 
                        an election during an initial election 
                        period under subsection (e)(1) is 
                        deemed to have chosen the medicare fee-
                        for-service program option.
                          (ii) Seamless continuation of 
                        coverage.--The Secretary may establish 
                        procedures under which an individual 
                        who is enrolled in a health plan (other 
                        than MedicarePlus plan) offered by a 
                        MedicarePlus organization at the time 
                        of the initial election period and who 
                        fails to elect to receive coverage 
                        other than through the organization is 
                        deemed to have elected the MedicarePlus 
                        plan offered by the organization (or, 
                        if the organization offers more than 
                        one such plan, such plan or plans as 
                        the Secretary identifies under such 
                        procedures).
                  (B) Continuing periods.--An individual who 
                has made (or is deemed to have made) an 
                election under this section is considered to 
                have continued to make such election until such 
                time as--
                          (i) the individual changes the 
                        election under this section, or
                          (ii) a MedicarePlus plan is 
                        discontinued, if the individual had 
                        elected such plan at the time of the 
                        discontinuation.
  (d) Providing Information To Promote Informed Choice.--
          (1) In general.--The Secretary shall provide for 
        activities under this subsection to broadly disseminate 
        information to medicare beneficiaries (and prospective 
        medicare beneficiaries) on the coverage options 
        provided under this section in order to promote an 
        active, informed selection among such options.
          (2) Provision of notice.--
                  (A) Open season notification.--At least 30 
                days before the beginning of each annual, 
                coordinated election period (as defined in 
                subsection (e)(3)(B)), the Secretary shall mail 
                to each MedicarePlus eligible individual 
                residing in an area the following:
                          (i) General information.--The general 
                        information described in paragraph (3).
                          (ii) List of plans and comparison of 
                        plan options.--A list identifying the 
                        MedicarePlus plans that are (or will 
                        be) available to residents of the area 
                        and information described in paragraph 
                        (4) concerning such plans. Such 
                        information shall be presented in a 
                        comparative form.
                          (iii) MedicarePlus monthly capitation 
                        rate.--The amount of the monthly 
                        MedicarePlus capitation rate for the 
                        area.
                          (iv) Additional information.--Any 
                        other information that the Secretary 
                        determines will assist the individual 
                        in making the election under this 
                        section.
                The mailing of such information shall be 
                coordinated with the mailing of any annual 
                notice under section 1804.
                  (B) Notification to newly medicareplus 
                eligible individuals.--To the extent 
                practicable, the Secretary shall, not later 
                than 2 months before the beginning of the 
                initial MedicarePlus enrollment period for an 
                individual described in subsection (e)(1)(A), 
                mail to the individual the information 
                described in subparagraph (A).
                  (C) Form.--The information disseminated under 
                this paragraph shall be written and formatted 
                using language that is easily understandable by 
                medicare beneficiaries.
                  (D) Periodic updating.--The information 
                described in subparagraph (A) shall be updated 
                on at least an annual basis to reflect changes 
                in the availability of MedicarePlus plans and 
                the benefits and monthly premiums (and net 
                monthly premiums) for such plans.
          (3) General information.--General information under 
        this paragraph, with respect to coverage under this 
        part during a year, shall include the following:
                  (A) Benefits under fee-for-service program 
                option.--A general description of the benefits 
                covered (and not covered) under the medicare 
                fee-for-service program under parts A and B, 
                including--
                          (i) covered items and services,
                          (ii) beneficiary cost sharing, such 
                        as deductibles, coinsurance, and 
                        copayment amounts, and
                          (iii) any beneficiary liability for 
                        balance billing.
                  (B) Part b premium.--The part B premium rates 
                that will be charged for part B coverage.
                  (C) Election procedures.--Information and 
                instructions on how to exercise election 
                options under this section.
                  (D) Rights.--The general description of 
                procedural rights (including grievance and 
                appeals procedures) of beneficiaries under the 
                medicare fee-for-service program and the 
                MedicarePlus program and right to be protected 
                against discrimination based on health status-
                related factors under section 1852(b).
                  (E) Information on medigap and medicare 
                select.--A general description of the benefits, 
                enrollment rights, and other requirements 
                applicable to medicare supplemental policies 
                under section 1882 and provisions relating to 
                medicare select policies described in section 
                1882(t).
                  (F) Potential for contract termination.--The 
                fact that a MedicarePlus organization may 
                terminate or refuse to renew its contract under 
                this part and the effect the termination or 
                nonrenewal of its contract may have on 
                individuals enrolled with the MedicarePlus plan 
                under this part.
          (4) Information comparing plan options.--Information 
        under this paragraph, with respect to a MedicarePlus 
        plan for a year, shall include the following:
                  (A) Benefits.--The benefits covered (and not 
                covered) under the plan, including--
                          (i) covered items and services beyond 
                        those provided under the medicare fee-
                        for-service program,
                          (ii) any beneficiary cost sharing,
                          (iii) any maximum limitations on out-
                        of-pocket expenses, and
                          (iv) in the case of an MSA plan, 
                        differences in cost sharing under such 
                        a plan compared to under other 
                        MedicarePlus plans.
                  (B) Premiums.--The monthly premium (and net 
                monthly premium), if any, for the plan.
                  (C) Service area.--The service area of the 
                plan.
                  (D) Quality and performance.--To the extent 
                available, plan quality and performance 
                indicators for the benefits under the plan (and 
                how they compare to such indicators under the 
                medicare fee-for-service program under parts A 
                and B in the area involved), including--
                          (i) disenrollment rates for medicare 
                        enrollees electing to receive benefits 
                        through the plan for the previous 2 
                        years (excluding disenrollment due to 
                        death or moving outside the plans 
                        service area),
                          (ii) information on medicare enrollee 
                        satisfaction,
                          (iii) information on health outcomes, 
                        and
                          (iv) the recent record regarding 
                        compliance of the plan with 
                        requirements of this part (as 
                        determined by the Secretary).
                  (E) Supplemental coverage options.--Whether 
                the organization offering the plan offers 
                optional supplemental coverage and the terms 
                and conditions (including premiums) for such 
                coverage.
          (5) Maintaining a toll-free number and internet 
        site.--The Secretary shall maintain a toll-free number 
        for inquiries regarding MedicarePlus options and the 
        operation of this part in all areas in which 
        MedicarePlus plans are offered and an Internet site 
        through which individuals may electronically obtain 
        information on such options and MedicarePlus plans.
          (6) Use of nonfederal entities.--The Secretary may 
        enter into contracts with non-Federal entities to carry 
        out activities under this subsection.
          (7) Provision of information.--A MedicarePlus 
        organization shall provide the Secretary with such 
        information on the organization and each MedicarePlus 
        plan it offers as may be required for the preparation 
        of the information referred to in paragraph (2)(A).
  (e) Coverage Election Periods.--
          (1) Initial choice upon eligibility to make election 
        if medicareplus plans available to individual.--If, at 
        the time an individual first becomes entitled to 
        benefits under part A and enrolled under part B, there 
        is one or more MedicarePlus plans offered in the area 
        in which the individual resides, 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 such time. Such period shall be specified 
        in a manner so that, in the case of an individual who 
        elects a MedicarePlus plan during the period, coverage 
        under the plan becomes effective as of the first date 
        on which the individual may receive such coverage.
          (2) Open enrollment and disenrollment 
        opportunities.--Subject to paragraph (5)--
                  (A) Continuous open enrollment and 
                disenrollment through 2000.--At any time during 
                1998, 1999, and 2000, a MedicarePlus eligible 
                individual may change the election under 
                subsection (a)(1).
                  (B) Continuous open enrollment and 
                disenrollment for first 6 months during 2001.--
                          (i) In general.--Subject to clause 
                        (ii), at any time during the first 6 
                        months of 2001, or, if the individual 
                        first becomes a MedicarePlus eligible 
                        individual during 2001, during the 
                        first 6 months during 2001 in which the 
                        individual is a MedicarePlus eligible 
                        individual, a MedicarePlus eligible 
                        individual may change the election 
                        under subsection (a)(1).
                          (ii) Limitation of one change per 
                        year.--An individual may exercise the 
                        right under clause (i) only once during 
                        2001. The limitation under this clause 
                        shall not apply to changes in elections 
                        effected during an annual, coordinated 
                        election period under paragraph (3) or 
                        during a special enrollment period 
                        under paragraph (4).
                  (C) Continuous open enrollment and 
                disenrollment for first 3 months in subsequent 
                years.--
                          (i) In general.--Subject to clause 
                        (ii), at any time during the first 3 
                        months of a year after 2001, or, if the 
                        individual first becomes a MedicarePlus 
                        eligible individual during a year after 
                        2001, during the first 3 months of such 
                        year in which the individual is a 
                        MedicarePlus eligible individual, a 
                        MedicarePlus eligible individual may 
                        change the election under subsection 
                        (a)(1).
                          (ii) Limitation of one change per 
                        year.--An individual may exercise the 
                        right under clause (i) only once a 
                        year. The limitation under this clause 
                        shall not apply to changes in elections 
                        effected during an annual, coordinated 
                        election period under paragraph (3) or 
                        during a special enrollment period 
                        under paragraph (4).
          (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 an annual, coordinated election 
                period.
                  (B) Annual, coordinated election period.--For 
                purposes of this section, the term ``annual, 
                coordinated election period'' means, with 
                respect to a calendar year (beginning with 
                2001), the month of October before such year.
                  (C) MedicarePlus health fairs.--In the month 
                of October of each year (beginning with 1998), 
                the Secretary shall provide for a nationally 
                coordinated educational and publicity campaign 
                to inform MedicarePlus eligible individuals 
                about MedicarePlus plans and the election 
                process provided under this section.
          (4) Special election periods.--Effective as of 
        January 1, 2001, an individual may discontinue an 
        election of a MedicarePlus plan 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 plan's 
                certification under this part has been 
                terminated or the organization has terminated 
                or otherwise discontinued providing the plan;
                  (B) the individual is no longer eligible to 
                elect the plan because of a change in the 
                individuals place of residence or other change 
                in circumstances (specified by the Secretary, 
                but not including termination of the 
                individual's enrollment on the basis described 
                in clause (i) or (ii) subsection (g)(3)(B));
                  (C) the individual demonstrates (in 
                accordance with guidelines established by the 
                Secretary) that--
                          (i) the organization offering the 
                        plan substantially violated a material 
                        provision of the organization's 
                        contract under this part in relation to 
                        the individual (including the failure 
                        to provide an enrollee on a timely 
                        basis medically necessary care for 
                        which benefits areavailable under the 
plan or the failure to provide such covered care in accordance with 
applicable quality standards); or
                          (ii) the organization (or an agent or 
                        other entity acting on the 
                        organizations behalf) materially 
                        misrepresented the plans provisions in 
                        marketing the plan to the individual; 
                        or
                  (D) the individual meets such other 
                exceptional conditions as the Secretary may 
                provide.
          (5) Special rules for msa plans.--Notwithstanding the 
        preceding provisions of this subsection, an 
        individual--
                  (A) may elect an MSA plan only during--
                          (i) an initial open enrollment period 
                        described in paragraph (1),
                          (ii) an annual, coordinated election 
                        period described in paragraph (3)(B), 
                        or
                          (iii) the months of October 1998 and 
                        October 1999; and
                  (B) may not discontinue an election of an MSA 
                plan except during the periods described in 
                clause (ii) or (iii) of subparagraph (A) and 
                under paragraph (4).
  (f) Effectiveness of Elections and Changes of Elections.--
          (1) During initial coverage election period.--An 
        election of coverage made during the initial coverage 
        election period under subsection (e)(1) shall take 
        effect upon the date the individual becomes entitled to 
        benefits under part A and enrolled under part B, except 
        as the Secretary may provide (consistent with section 
        1838) in order to prevent retroactive coverage.
          (2) During continuous open enrollment periods.--An 
        election or change of coverage made under subsection 
        (e)(2) shall take effect with the first day of the 
        first calendar month following the date on which the 
        election is made.
          (3) Annual, coordinated election period.--An election 
        or change of coverage made during an annual, 
        coordinated election period (as defined in subsection 
        (e)(3)(B)) in a year shall take effect as of the first 
        day of the following year.
          (4) Other periods.--An election or change of coverage 
        made during any other period under subsection (e)(4) 
        shall take effect in such manner as the Secretary 
        provides in a manner consistent (to the extent 
        practicable) with protecting continuity of health 
        benefit coverage.
  (g) Guaranteed Issue and Renewal.--
          (1) In general.--Except as provided in this 
        subsection, a MedicarePlus organization shall provide 
        that at any time during which elections are accepted 
        under this section with respect to a MedicarePlus plan 
        offered by the organization, the organization will 
        accept without restrictions individuals who are 
        eligible to make such election.
          (2) Priority.--If the Secretary determines that a 
        MedicarePlus organization, in relation to a 
        MedicarePlus plan it offers, has a capacity limit and 
        the number of MedicarePlus eligible individuals who 
        elect the plan under this section exceeds the capacity 
        limit, the organization may limit the election of 
        individuals of the plan under this section but only if 
        priority in election is provided--
                  (A) first to such individuals as have elected 
                the plan at the time of the determination, and
                  (B) then to other such individuals in such a 
                manner that does not discriminate, on a basis 
                described in section 1852(b), among the 
                individuals (who seek to elect the plan).
        The preceding sentence shall not apply if it would 
        result in the enrollment of enrollees substantially 
        nonrepresentative, as determined in accordance with 
        regulations of the Secretary, of the medicare 
        population in the service area of the plan.
          (3) Limitation on termination of election.--
                  (A) In general.--Subject to subparagraph (B), 
                a MedicarePlus organization may not for any 
                reason terminate the election of any individual 
                under this section for a MedicarePlus plan it 
                offers.
                  (B) Basis for termination of election.--A 
                MedicarePlus organization may terminate an 
                individuals election under this section with 
                respect to a MedicarePlus plan it offers if--
                          (i) any net monthly premiums required 
                        with respect to such plan are not paid 
                        on a timely basis (consistent with 
                        standards under section 1856 that 
                        provide for a grace period for late 
                        payment of net monthly premiums),
                          (ii) the individual has engaged in 
                        disruptive behavior (as specified in 
                        such standards), or
                          (iii) the plan is terminated with 
                        respect to all individuals under this 
                        part in the area in which the 
                        individual resides.
                  (C) Consequence of termination.--
                          (i) Terminations for cause.--Any 
                        individual whose election is terminated 
                        under clause (i) or (ii) of 
                        subparagraph (B) is deemed to have 
                        elected the medicare fee-for-service 
                        program option described in subsection 
                        (a)(1)(A).
                          (ii) Termination based on plan 
                        termination or service area 
                        reduction.--Any individual whose 
                        election is terminated under 
                        subparagraph (B)(iii) shall have a 
                        special election period under 
                        subsection (e)(4)(A) in which to change 
                        coverage to coverage under another 
                        MedicarePlus plan. Such an individual 
                        who fails to make an election during 
                        such period is deemed to have chosen to 
                        change coverage to the medicare fee-
                        for-service program option described in 
                        subsection (a)(1)(A).
                  (C) Organization obligation with respect to 
                election forms.--Pursuant to a contract under 
                section 1857, each MedicarePlus organization 
                receiving an election form under subsection 
                (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.
  (h) Approval of Marketing Material and Application Forms.--
          (1) Submission.--No marketing material may be 
        distributed by a MedicarePlus organization to (or for 
        the use of) MedicarePlus eligible individuals 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 or form.
          (2) Review.--The standards established under section 
        1856 shall include guidelines for the review of all 
        such material or form submitted and under such 
        guidelines the Secretary shall disapprove (or later 
        require the correction of) such material or form if the 
        material is materially inaccurate or misleading or 
        otherwise makes a material misrepresentation.
          (3) Deemed approval (1-stop shopping).--In the case 
        of material or form that is submitted under paragraph 
        (1)(A) to the Secretary or a regional office of the 
        Department of Health and Human Services and the 
        Secretary or the office has not disapproved the 
        distribution of marketing materials or form under 
        paragraph (1)(B) with respect to a MedicarePlus plan in 
        an area, the Secretary is deemed not to have 
        disapproved such distribution in all other areas 
        covered by the plan and organization except to the 
        extent that such material or form is specific only to 
        an area involved.
          (4) Prohibition of certain marketing practices.--Each 
        MedicarePlus organization shall conform to fair 
        marketing standards, in relation to MedicarePlus plans 
        offered under this part, included in the standards 
        established under section 1856. Such standards shall 
        include a prohibition against a MedicarePlus 
        organization (or agent of such an organization) 
        completing any portion of any election form used to 
        carry out elections under this section on behalf of any 
        individual.
  (i) Effect of Election of MedicarePlus Plan Option.--Subject 
to sections 1852(a)(5), 1857(f)(2), and 1857(g)--
          (1) payments under a contract with a MedicarePlus 
        organization under section 1853(a) with respect to an 
        individual electing a MedicarePlus plan offered by the 
        organization shall be instead of the amounts which (in 
        the absence of the contract) would otherwise be payable 
        under parts A and B for items and services furnished to 
        the individual, and
          (2) subject to subsections (e) and (f) of section 
        1853, only the MedicarePlus organization shall be 
        entitled to receive payments from the Secretary under 
        this title for services furnished to the individual.


                  benefits and beneficiary protections


  Sec. 1852. (a) Basic Benefits.--
          (1) In general.--Except as provided in section 
        1859(b)(2) for MSA plans, each MedicarePlus plan shall 
        provide to members enrolled under this part, through 
        providers and other persons that meet the applicable 
        requirements of this title and part A of title XI--
                  (A) those items and services for which 
                benefits are available under parts A and B to 
                individuals residing in the area served by the 
                plan, and
                  (B) additional benefits required under 
                section 1854(f)(1)(A).
          (2) Satisfaction of requirement.--A MedicarePlus plan 
        (other than an MSA plan) offered by a MedicarePlus 
        organization satisfies paragraph (1)(A), with respect 
        to benefits for items and services furnished other than 
        through a provider that has a contract with the 
        organization offering the plan, if the plan provides 
        (in addition to any cost sharing provided for under the 
        plan) for at least the total dollar amount of payment 
        for such items and services as would otherwise be 
        authorized under parts A and B (including any balance 
        billing permitted under such parts).
          (3) Supplemental benefits.--
                  (A) Benefits included subject to secretary's 
                approval.--Each MedicarePlus organization may 
                provide to individuals enrolled under this 
                part, other than under an MSA plan, (without 
                affording those individuals an option to 
                decline the coverage) supplemental health care 
                benefits that the Secretary may approve. The 
                Secretary shall approve any such supplemental 
                benefits unless the Secretary determines that 
                including such supplemental benefits would 
                substantially discourage enrollment by 
                MedicarePlus eligible individuals with the 
                organization.
                  (B) At enrollees' option.--A MedicarePlus 
                organization may provide to individuals 
                enrolled under this part, other than under an 
                MSA plan, supplemental health care benefits 
                that the individuals may elect, at their 
                option, to have covered.
          (4) 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 a MedicarePlus plan under 
        circumstances in which payment under this title is made 
        secondary pursuant to section 1862(b)(2)) charge or 
        authorize the provider of such services to charge, in 
        accordance with the charges allowed under such a law, 
        plan, 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.
          (5) National coverage determinations.--If there is a 
        national coverage determination made in the period 
        beginning on the date of an announcement under section 
        1853(b) and ending on the date of the next announcement 
        under such section and the Secretary projects that the 
        determination will result in a significant change in 
        the costs to a MedicarePlus organization of providing 
        the benefits that are the subject of such national 
        coverage determination and that such change in costs 
        was not incorporated in the determination of the annual 
        MedicarePluscapitation rate under section 1853 included 
in the announcement made at the beginning of such period--
                  (A) such determination shall not apply to 
                contracts under this part until the first 
                contract year that begins after the end of such 
                period, and
                  (B) if such coverage determination provides 
                for coverage of additional benefits or coverage 
                under additional circumstances, section 1851(i) 
                shall not apply to payment for such additional 
                benefits or benefits provided under such 
                additional circumstances until the first 
                contract year that begins after the end of such 
                period,
        unless otherwise required by law.
  (b) Antidiscrimination.--
          (1) In general.--A MedicarePlus organization may not 
        deny, limit, or condition the coverage or provision of 
        benefits under this part, for individuals permitted to 
        be enrolled with the organization under this part, 
        based on any health status-related factor described in 
        section 2702(a)(1) of the Public Health Service Act.
          (2) Construction.--Paragraph (1) shall not be 
        construed as requiring a MedicarePlus organization to 
        enroll individuals who are determined to have end-stage 
        renal disease, except as provided under section 
        1851(a)(3)(B).
  (c) Detailed Description of Plan Provisions.--A MedicarePlus 
organization shall disclose, in clear, accurate, and 
standardized form to each enrollee with a MedicarePlus plan 
offered by the organization under this part at the time of 
enrollment and at least annually thereafter, the following 
information regarding such plan:
          (1) Service area.--The plans service area.
          (2) Benefits.--Benefits offered (and not offered) 
        under the plan offered, including information described 
        in section 1851(d)(3)(A) and exclusions from coverage 
        and, if it is an MSA plan, a comparison of benefits 
        under such a plan with benefits under other 
        MedicarePlus plans.
          (3) Access.--The number, mix, and distribution of 
        plan providers.
          (4) Out-of-area coverage.--Out-of-area coverage 
        provided by the plan.
          (5) Emergency coverage.--Coverage of emergency 
        services and urgently needed care, including--
                  (A) the appropriate use of emergency 
                services, including use of the 911 telephone 
                system or its local equivalent in emergency 
                situations and an explanation of what 
                constitutes an emergency situation;
                  (B) the process and procedures of the plan 
                for obtaining emergency services; and
                  (C) the locations of (i) emergency 
                departments, and (ii) other settings, in which 
                plan physicians and hospitals provide emergency 
                services and post-stabilization care..
          (6) Supplemental benefits.--Supplemental benefits 
        available from the organization offering the plan, 
        including--
                  (A) whether the supplemental benefits are 
                optional,
                  (B) the supplemental benefits covered, and
                  (C) the premium price for the supplemental 
                benefits.
          (7) Prior authorization rules.--Rules regarding prior 
        authorization or other review requirements that could 
        result in nonpayment.
          (8) Plan grievance and appeals procedures.--Any 
        appeal or grievance rights and procedures.
          (9) Quality assurance program.--A description of the 
        organizations quality assurance program under 
        subsection (e).
  (d) Access to Services.--
          (1) In general.--A MedicarePlus organization offering 
        a MedicarePlus plan may select the providers from whom 
        the benefits under the plan are provided so long as--
                  (A) the organization makes such benefits 
                available and accessible to each individual 
                electing the plan within the plan service area 
                with reasonable promptness and in a manner 
                which assures continuity in the provision of 
                benefits;
                  (B) when medically necessary the organization 
                makes such benefits available and accessible 24 
                hours a day and 7 days a week;
                  (C) the plan provides for reimbursement with 
                respect to services which are covered under 
                subparagraphs (A) and (B) and which are 
                provided to such an individual other than 
                through the organization, if--
                          (i) the services were medically 
                        necessary and immediately required 
                        because of an unforeseen illness, 
                        injury, or condition, and it was not 
                        reasonable given the circumstances to 
                        obtain the services through the 
                        organization,
                          (ii) the services were renal dialysis 
                        services and were provided other than 
                        through the organization because the 
                        individual was temporarily out of the 
                        plans service area, or
                          (iii) the services are maintenance 
                        care or post-stabilization care covered 
                        under the guidelines established under 
                        paragraph (2);
                  (D) the organization provides access to 
                appropriate providers, including credentialed 
                specialists, for medically necessary treatment 
                and services; and
                  (E) coverage is provided for emergency 
                services (as defined in paragraph (3)) without 
                regard to prior authorization or the emergency 
                care providers contractual relationship with 
                the organization.
          (2) Guidelines respecting coordination of post-
        stabilization care.--A MedicarePlus plan shall comply 
        with such guidelines as the Secretary may prescribe 
        relating to promoting efficient and timely coordination 
        of appropriate maintenance and post-stabilization care 
        of an enrollee after the enrollee has been determined 
        to be stable under section 1867.
          (3) Definition of emergency services.--In this 
        subsection--
                  (A) In general.--The term ``emergency 
                services'' means, with respect to an individual 
                enrolled with an organization, covered 
                inpatient and outpatient services that--
                          (i) are furnished by a provider that 
                        is qualified to furnish such services 
                        under this title, and
                          (ii) are needed to evaluate or 
                        stabilize an emergency medical 
                        condition (as defined in subparagraph 
                        (B)).
                  (B) Emergency medical condition based on 
                prudent layperson.--The term ``emergency 
                medical condition'' means a medical condition 
                manifesting itself by acute symptoms of 
                sufficient severity such that a prudent 
                layperson, who possesses an average knowledge 
                of health and medicine, could reasonably expect 
                the absence of immediate medical attention to 
                result in--
                          (i) placing the health of the 
                        individual (or, with respect to a 
                        pregnant woman, the health of the woman 
                        or her unborn child) in serious 
                        jeopardy,
                          (ii) serious impairment to bodily 
                        functions, or
                          (iii) serious dysfunction of any 
                        bodily organ or part.
  (e) Quality Assurance Program.--
          (1) In general.--Each MedicarePlus organization must 
        have arrangements, consistent with any regulation, for 
        an ongoing quality assurance program for health care 
        services it provides to individuals enrolled with 
        MedicarePlus plans of the organization.
          (2) Elements of program.--The quality assurance 
        program shall--
                  (A) stress health outcomes and provide for 
                the collection, analysis, and reporting of data 
                (in accordance with a quality measurement 
                system that the Secretary recognizes) that will 
                permit measurement of outcomes and other 
                indices of the quality of MedicarePlus plans 
                and organizations;
                  (B) provide for the establishment of written 
                protocols for utilization review, based on 
                current standards of medical practice;
                  (C) provide review by physicians and other 
                health care professionals of the process 
                followed in the provision of such health care 
                services;
                  (D) monitor and evaluate high volume and high 
                risk services and the care of acute and chronic 
                conditions;
                  (E) evaluate the continuity and coordination 
                of care that enrollees receive;
                  (F) have mechanisms to detect both 
                underutilization and overutilization of 
                services;
                  (G) after identifying areas for improvement, 
                establish or alter practice parameters;
                  (H) take action to improve quality and 
                assesses the effectiveness of such action 
                through systematic followup;
                  (I) make available information on quality and 
                outcomes measures to facilitate beneficiary 
                comparison and choice of health coverage 
                options (in such form and on such quality and 
                outcomes measures as the Secretary determines 
                to be appropriate);
                  (J) be evaluated on an ongoing basis as to 
                its effectiveness;
                  (K) include measures of consumer 
                satisfaction; and
                  (L) provide the Secretary with such access to 
                information collected as may be appropriate to 
                monitor and ensure the quality of care provided 
                under this part.
          (3) External review.--Each MedicarePlus organization 
        shall, for each MedicarePlus plan it operates, have an 
        agreement with an independent quality review and 
        improvement organization approved by the Secretary to 
        perform functions of the type described in sections 
        1154(a)(4)(B) and 1154(a)(14) with respect to services 
        furnished by MedicarePlus plans for which payment is 
        made under this title.
          (4) Treatment of accreditation.--The Secretary shall 
        provide that a MedicarePlus organization is deemed to 
        meet requirements of paragraphs (1) through (3) of this 
        subsection and subsection (h) (relating to 
        confidentiality and accuracy of enrollee records) if 
        the organization is accredited (and periodically 
        reaccredited) by a private organization under a process 
        that the Secretary has determined assures that the 
        organization, as a condition of accreditation, applies 
        and enforces standards with respect to the requirements 
        involved that are no less stringent than the standards 
        established under section 1856 to carry out the 
        respective requirements.
  (f) 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) Reconsiderations.--
                  (A) In general.--Subject to subsection 
                (g)(4), a reconsideration of a determination of 
                an organization denying coverage shall be made 
                within 30 days of the date of receipt of 
                medical information, but not later than 60 days 
                after the date of the determination.
                  (B) Physician decision on certain. 
                Reconsiderations.--A reconsideration relating 
                to a determination to deny coverage based on a 
                lack of medical necessity shall be made only by 
                a physician other than a physician involved in 
                the initial determination.
    (g) Grievances and Appeals.--
          (1) Grievance mechanism.--Each 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 with MedicarePlus plans of the 
        organization under this part.
          (2) Appeals.--An enrollee with a MedicarePlus plan of 
        a MedicarePlus organization under this part who is 
        dissatisfied by reason of the enrollees 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 Secretarys 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 paragraph, and in 
        applying section 205(l) thereto, any reference therein 
        to the Commissioner of Social Security or the Social 
        Security Administration shall be considered a reference 
        to the Secretary or the Department of Health and Human 
        Services, respectively.
          (3) Independent review of certain coverage denials.--
        The Secretary shall contract with an independent, 
        outside entity to review and resolve reconsiderations 
        that affirm denial of coverage.
          (4) Expedited determination and reconsideration.--
                  (A) Receipt of requests.--An enrollee in a 
                MedicarePlus plan may request, either in 
                writing or orally, an expedited determination 
                or reconsideration by the MedicarePlus 
                organization regarding a matter described in 
                paragraph (2). The organization shall also 
                permit the acceptance of such requests by 
                physicians.
                  (B) Organization procedures.--
                          (i) In general.--The MedicarePlus 
                        organization shall maintain procedures 
                        for expediting organization 
                        determinations and reconsiderations 
                        when, upon request of an enrollee, the 
                        organization determines that the 
                        application of normal time frames for 
                        making a determination (or a 
                        reconsideration involving a 
                        determination) could seriously 
                        jeopardize the life or health of the 
                        enrollee or the enrollees ability to 
                        regain maximum function.
                          (ii) Timely response.--In an urgent 
                        case described in clause (i), the 
                        organization shall notify the enrollee 
                        (and the physician involved, as 
                        appropriate) of the determination (or 
                        determination on the reconsideration) 
                        as expeditiously as the enrollees 
                        health condition requires, but not 
                        later than 72 hours (or 24 hours in the 
                        case of a reconsideration) of the time 
                        of receipt of the request for the 
                        determination or reconsideration (or 
                        receipt of the information necessary to 
                        make the determination or 
                        reconsideration), or such longer period 
                        as the Secretary may permit in 
                        specified cases.
  (h) Confidentiality and Accuracy of Enrollee Records.--Each 
MedicarePlus organization shall establish procedures--
          (1) to safeguard the privacy of individually 
        identifiable enrollee information,
          (2) to maintain accurate and timely medical records 
        and other health information for enrollees, and
          (3) to assure timely access of enrollees to their 
        medical information.
  (i) Information on Advance Directives.--Each MedicarePlus 
organization shall meet the requirement of section 1866(f) 
(relating to maintaining written policies and procedures 
respecting advance directives).
  (j) Rules Regarding Physician Participation.--
          (1) Procedures.--Each MedicarePlus organization shall 
        establish reasonable procedures relating to the 
        participation (under an agreement between a physician 
        and the organization) of physicians under MedicarePlus 
        plans 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 such 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 organizations medical 
        policy, quality, and medical management procedures.
          (3) Prohibiting interference with provider advice to 
        enrollees.--
                  (A) In general.--Subject to subparagraphs (B) 
                and (C), a MedicarePlus organization (in 
                relation to an individual enrolled under a 
                MedicarePlus plan offered by the organization 
                under this part) shall not prohibit or 
                otherwise restrict a covered health care 
                professional (as defined in subparagraph (D)) 
                from advising such an individual who is a 
                patient of the professional about the health 
                status of the individual or medical care or 
                treatment for the individual's condition or 
                disease, regardless of whether benefits for 
                such care or treatment are provided under the 
                plan, if the professional is acting within the 
                lawful scope of practice.
                  (B) Conscience protection.--Subparagraph (A) 
                shall not be construed as requiring a 
                MedicarePlus plan to provide, reimburse for, or 
                provide coverage of a counseling or referral 
                service if the MedicarePlus organization 
                offering the plan--
                          (i) objects to the provision of such 
                        service on moral or religious grounds; 
                        and
                          (ii) in the manner and through the 
                        written instrumentalities such 
                        MedicarePlus organization deems 
                        appropriate, makes available 
                        information on its policies regarding 
                        such service to prospective enrollees 
                        before or during enrollment and to 
                        enrollees within 90 days after the date 
                        that the organization or plan adopts a 
                        change in policy regarding such a 
                        counseling or referral service.
                  (C) Construction.--Nothing in subparagraph 
                (B) shall be construed to affect disclosure 
                requirements under State law or under the 
                Employee Retirement Income Security Act of 
                1974.
                  (D) Health care professional defined.--For 
                purposes of this paragraph, the term ``health 
                care professional'' means a physician (as 
                defined in section 1861(r)) or other health 
                care professional if coverage for the 
                professional's services is provided under the 
                MedicarePlus plan for the services of the 
                professional. Such term includes a podiatrist, 
                optometrist, chiropractor, psychologist, 
                dentist, physician assistant, physical or 
                occupational therapist and therapy assistant, 
                speech-language pathologist, audiologist, 
                registered or licensed practical nurse 
                (including nurse practitioner, clinical nurse 
                specialist, certified registered nurse 
                anesthetist, and certified nurse-midwife), 
                licensed certified social worker, registered 
                respiratory therapist, and certified 
                respiratory therapy technician.
          (4) Limitations on physician incentive plans.--
                  (A) In general.--No MedicarePlus organization 
                may operate any physician incentive plan (as 
                defined in subparagraph (B)) unless the 
                following requirements are met:
                          (i) No specific payment is made 
                        directly or indirectly under the plan 
                        to a physician or physician group as an 
                        inducement to reduce or limit medically 
                        necessary services provided with 
                        respect to a specific individual 
                        enrolled with the organization.
                          (ii) If the plan places a physician 
                        or physician group at substantial 
                        financial risk (as determined by the 
                        Secretary) for services not provided by 
                        the physician or physician group, the 
                        organization--
                                  (I) provides stop-loss 
                                protection for the physician or 
                                group that is adequate and 
                                appropriate, based on standards 
                                developed by the Secretary that 
                                take into account the number of 
                                physicians placed at such 
                                substantial financial risk in 
                                the group or under the plan and 
                                the number of individuals 
                                enrolled with the organization 
                                who receive services from the 
                                physician or group, and
                                  (II) conducts periodic 
                                surveys of both individuals 
                                enrolled and individuals 
                                previously enrolled with the 
                                organization to determine the 
                                degree of access of such 
                                individuals to services 
                                provided by the organization 
                                and satisfaction with the 
                                quality of such services.
                          (iii) The organization provides the 
                        Secretary with descriptive information 
                        regarding the plan, sufficient to 
                        permit the Secretary to determine 
                        whether the plan is in compliance with 
                        the requirements of this subparagraph.
                  (B) Physician incentive plan defined.--In 
                this paragraph, the term ``physician incentive 
                plan'' means any compensation arrangement 
                between a 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.
          (5) Limitation on provider indemnification.--A 
        MedicarePlus organization may not provide (directly or 
        indirectly) for a provider (or group of providers) to 
        indemnify the organization against any liability 
        resulting from a civil actionbrought for any damage 
caused to an enrollee with a MedicarePlus plan of the organization 
under this part by the organizations denial of medically necessary 
care.
  (k) Treatment of Services Furnished by Certain Providers.--A 
physician or other entity (other than a provider of services) 
that does not have a contract establishing payment amounts for 
services furnished to an individual enrolled under this part 
with a MedicarePlus organizations (other than under an MSA 
plan) shall accept as payment in full for covered services 
under this title that are furnished to such an individual the 
amounts that the physician or other entity could collect if the 
individual were not so enrolled. Any penalty or other provision 
of law that applies to such a payment with respect to an 
individual entitled to benefits under this title (but not 
enrolled with a MedicarePlus organization under this part) also 
applies with respect to an individual so enrolled.
  (l) Disclosure of Use of DSH and Teaching Hospitals.--Each 
MedicarePlus organization shall provide the Secretary with 
information on--
          (1) the extent to which the organization provides 
        inpatient and outpatient hospital benefits under this 
        part--
                  (A) through the use of hospitals that are 
                eligible for additional payments under section 
                1886(d)(5)(F)(i) (relating to so-called DSH 
                hospitals), or
                  (B) through the use of teaching hospitals 
                that receive payments under section 1886(h); 
                and
          (2) the extent to which differences between payment 
        rates to different hospitals reflect the 
        disproportionate share percentage of low-income 
        patients and the presence of medical residency training 
        programs in those hospitals.


                 payments to medicareplus organizations


  Sec. 1853. (a) Payments to Organizations.--
          (1) Monthly payments.--
                  (A) In general.--Under a contract under 
                section 1857 and subject to subsections (e) and 
                (f), the Secretary shall make monthly payments 
                under this section in advance to each 
                MedicarePlus organization, with respect to 
                coverage of an individual under this part in a 
                MedicarePlus payment area for a month, in an 
                amount equal to \1/12\ of the annual 
                MedicarePlus capitation rate (as calculated 
                under subsection (c)) with respect to that 
                individual for that area, adjusted for such 
                risk factors as age, disability status, gender, 
                institutional status, and such other factors as 
                the Secretary determines to be appropriate, so 
                as to ensure actuarial equivalence. The 
                Secretary may add to, modify, or substitute for 
                such factors, if such changes will improve the 
                determination of actuarial equivalence.
                  (B) Special rule for end-stage renal 
                disease.--The Secretary shall establish 
                separate rates of payment to a MedicarePlus 
                organization with respect to classes of 
                individuals determined to have end-stage renal 
                disease and enrolled in a MedicarePlus plan of 
                the organization. Such rates of payment shall 
                be actuarially equivalent to rates paid to 
                other enrollees in the MedicarePlus payment 
                area (or such other area as specified by the 
                Secretary). In accordance with regulations, the 
                Secretary shall provide for the application of 
                the seventh sentence of section 1881(b)(7) to 
                payments under this section covering the 
                provision of renal dialysis treatment in the 
                same manner as such sentence applies to 
                composite rate payments described in such 
                sentence.
          (2) Adjustment to reflect number of enrollees.--
                  (A) In general.--The amount of payment under 
                this subsection may be retroactively adjusted 
                to take into account any difference between the 
                actual number of individuals enrolled with an 
                organization under this part and the number of 
                such individuals estimated to be so enrolled in 
                determining the amount of the advance payment.
                  (B) Special rule for certain enrollees.--
                          (i) In general.--Subject to clause 
                        (ii), the Secretary may make 
                        retroactive adjustments under 
                        subparagraph (A) to take into account 
                        individuals enrolled during the period 
                        beginning on the date on which the 
                        individual enrolls with a MedicarePlus 
                        organization under a plan operated, 
                        sponsored, or contributed to by the 
                        individual's employer or former 
                        employer (or the employer or former 
                        employer of the individual's spouse) 
                        and ending on the date on which the 
                        individual is enrolled in the 
                        organization under this part, except 
                        that for purposes of making such 
                        retroactive adjustments under this 
                        subparagraph, such period may not 
                        exceed 90 days.
                          (ii) Exception.--No adjustment may be 
                        made under clause (i) with respect to 
                        any individual who does not certify 
                        that the organization provided the 
                        individual with the information 
                        required to be disclosed under section 
                        1852(c) at the time the individual 
                        enrolled with the organization.
          (3) Establishment of risk adjustment factors.--
                  (A) Report.--The Secretary shall develop, and 
                submit to Congress by not later than October 1, 
                1999, a report on a method of risk adjustment 
                of payment rates under this section that 
                accounts for variations in per capita costs 
                based on health status. Such report shall 
                include an evaluation of such method by an 
                outside, independent actuary of the actuarial 
                soundness of the proposal.
                  (B) Data collection.--In order to carry out 
                this paragraph, the Secretary shall require 
                MedicarePlus organizations (and eligible 
                organizations with risk-sharing contracts under 
                section 1876) to submit, for periods beginning 
                on or after January 1, 1998, data regarding 
                inpatient hospital services and other services 
                and other information the Secretary deems 
                necessary.
                  (C) Initial implementation.--The Secretary 
                shall first provide for implementation of a 
                risk adjustment methodology that accounts for 
                variations in per capita costs based on health 
                status and other demographic factors for 
                payments by no later than January 1, 2000.
  (b) Annual Announcement of Payment Rates.--
          (1) Annual announcement.--The Secretary shall 
        annually determine, and shall announce (in a manner 
        intended to provide notice to interested parties) not 
        later than August 1 before the calendar year 
        concerned--
                  (A) the annual MedicarePlus capitation rate 
                for each MedicarePlus payment area for the 
                year, and
                  (B) the risk and other factors to be used in 
                adjusting such rates under subsection (a)(1)(A) 
                for payments for months in that year.
          (2) Advance notice of methodological changes.--At 
        least 45 days before making the announcement under 
        paragraph (1) for a year, the Secretary shall provide 
        for notice to MedicarePlus organizations of proposed 
        changes to be made in the methodology from the 
        methodology and assumptions used in the previous 
        announcement and shall provide such organizations an 
        opportunity to comment on such proposed changes.
          (3) Explanation of assumptions.--In each announcement 
        made under paragraph (1), the Secretary shall include 
        an explanation of the assumptions and changes in 
        methodology used in the announcement in sufficient 
        detail so that MedicarePlus organizations can compute 
        monthly adjusted MedicarePlus capitation rates for 
        individuals in each MedicarePlus payment area which is 
        in whole or in part within the service area of such an 
        organization.
  (c) Calculation of Annual MedicarePlus Capitation Rates.--
          (1) In General.--For purposes of this part, each 
        annual MedicarePlus capitation rate, for a MedicarePlus 
        payment area for a contract year consisting of a 
        calendar year, is equal to the largest of the amounts 
        specified in the following subparagraphs (A), (B), or 
        (C):
                  (A) Blended capitation rate.--The sum of--
                          (i) area-specific percentage for the 
                        year (as specified under paragraph (2) 
                        for the year) of the annual area-
                        specific MedicarePlus capitation rate 
                        for the year for the MedicarePlus 
                        payment area, as determined under 
                        paragraph (3), and
                          (ii) national percentage (as 
                        specified under paragraph (2) for the 
                        year) of the input-price-adjusted 
                        annual national MedicarePlus capitation 
                        rate for the year, as determined under 
                        paragraph (4),
                multiplied by the payment adjustment factors 
                described in subparagraphs (A) and (B) of 
                paragraph (5).
                  (B) Minimum amount.--12 multiplied by the 
                following amount:
                          (i) For 1998, $350 (but not to 
                        exceed, in the case of an area outside 
                        the 50 States and the District of 
                        Columbia, 150 percent of the annual per 
                        capita rate of payment for 1997 
                        determined under section 1876(a)(1)(C) 
                        for the area).
                          (ii) For a succeeding year, the 
                        minimum amount specified in this clause 
                        (or clause (i)) for the preceding year 
                        increased by the national per capita 
                        MedicarePlus growth percentage, 
                        specified under paragraph (6) for that 
                        succeeding year.
                  (C) Minimum percentage increase.--
                          (i) For 1998, 102 percent of the 
                        annual per capita rate of payment for 
                        1997 determined under section 
                        1876(a)(1)(C) for the MedicarePlus 
                        payment area.
                          (ii) For a subsequent year, 102 
                        percent of the annual MedicarePlus 
                        capitation rate under this paragraph 
                        for the area for the previous year.
          (2) Area-specific and national percentages.--For 
        purposes of paragraph (1)(A)--
                  (A) for 1998, the ``area-specific 
                percentage'' is 90 percent and the ``national 
                percentage'' is 10 percent,
                  (B) for 1999, the ``area-specific 
                percentage'' is 80 percent and the ``national 
                percentage'' is 20 percent,
                  (C) for 2000, the ``area-specific 
                percentage'' is 70 percent and the ``national 
                percentage'' is 30 percent,
                  (D) for 2001, the ``area-specific 
                percentage'' is 60 percent and the ``national 
                percentage'' is 40 percent, and
                  (E) for a year after 2001, the ``area-
                specific percentage'' is 50 percent and the 
                ``national percentage'' is 50 percent.
          (3) Annual area-specific medicareplus capitation 
        rate.--For purposes of paragraph (1)(A), the annual 
        area-specific MedicarePlus capitation rate for a 
        MedicarePlus payment area--
                  (A) for 1998 is the annual per capita rate of 
                payment for 1997 determined under section 
                1876(a)(1)(C) for the area, increased by the 
                national per capita MedicarePlus growth 
                percentage for 1998 (as defined in paragraph 
                (6)); or
                  (B) for a subsequent year is the annual area-
                specific MedicarePlus capitation rate for the 
                previous year determined under this paragraph 
                for the area, increased by the national per 
                capita MedicarePlus growth percentage for such 
                subsequent year.
          (4) Input-price-adjusted annual national medicareplus 
        capitation rate.--
                  (A) In general.--For purposes of paragraph 
                (1)(A), the input-price-adjusted annual 
                national MedicarePlus capitation rate for a 
                MedicarePlus payment area for a year is equal 
                to the sum, for all the types of medicare 
                services (as classified by the Secretary), of 
                the product (for each such type of service) 
                of--
                          (i) the national standardized annual 
                        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 areused in 
applying (or updating) national payment rates for specific areas and 
localities.
                  (B) National standardized annual medicareplus 
                capitation rate.--In subparagraph (A)(i), the 
                ``national standardized annual MedicarePlus 
                capitation rate'' for a year is equal to--
                          (i) the sum (for all MedicarePlus 
                        payment areas) of the product of--
                                  (I) the annual area-specific 
                                MedicarePlus capitation rate 
                                for that year for the area 
                                under paragraph (3), and
                                  (II) the average number of 
                                medicare beneficiaries residing 
                                in that area in the year, 
                                multiplied by the average of 
                                the risk factor weights used to 
                                adjust payments under 
                                subsection (a)(1)(A) for such 
                                beneficiaries in such area; 
                                divided by
                          (ii) the sum of the products 
                        described in clause (i)(II) for all 
                        areas for that year.
                  (C) Special rules for 1998.--In applying this 
                paragraph for 1998--
                          (i) medicare services shall be 
                        divided into 2 types of services: part 
                        A services and part B services;
                          (ii) the proportions described in 
                        subparagraph (A)(ii)--
                                  (I) for part A services shall 
                                be the ratio (expressed as a 
                                percentage) of the national 
                                average annual per capita rate 
                                of payment for part A for 1997 
                                to the total national average 
                                annual per capita rate of 
                                payment for parts A and B for 
                                1997, and
                                  (II) for part B services 
                                shall be 100 percent minus the 
                                ratio described in subclause 
                                (I);
                          (iii) for part A services, 70 percent 
                        of payments attributable to such 
                        services shall be adjusted by the index 
                        used under section 1886(d)(3)(E) to 
                        adjust payment rates for relative 
                        hospital wage levels for hospitals 
                        located in the payment area involved;
                          (iv) for part B services--
                                  (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, 40 percent shall be 
                                adjusted by the index described 
                                in clause (iii); and
                          (v) the index values shall be 
                        computed based only on the beneficiary 
                        population who are 65 years of age or 
                        older and who are not determined to 
                        have end stage renal disease.
                The Secretary may continue to apply the rules 
                described in this subparagraph (or similar 
                rules) for 1999.
          (5) Payment adjustment budget neutrality factors.--
        For purposes of paragraph (1)(A)--
                  (A) Blended rate payment adjustment factor.--
                For each year, the Secretary shall compute a 
                blended rate payment adjustment factor such 
                that, not taking into account subparagraphs (B) 
                and (C) of paragraph (1) and the application of 
                the payment adjustment factor described in 
                subparagraph (B), the aggregate of the payments 
                that would be made under this part is equal to 
                the aggregate payments that would have been 
                made under this part (not taking into account 
                such subparagraphs and such other adjustment 
                factor) if the area-specific percentage under 
                paragraph (1) for the year had been 100 percent 
                and the national percentage had been 0 percent.
                  (B) Floor-and-minimum-update payment 
                adjustment factor.--For each year, the 
                Secretary shall compute a floor-and-minimum-
                update payment adjustment factor so that, 
                taking into account the application of the 
                blended rate payment adjustment factor under 
                subparagraph (A) and subparagraphs (B) and (C) 
                of paragraph (1) and the application of the 
                adjustment factor under this subparagraph, the 
                aggregate of the payments under this part shall 
                not exceed the aggregate payments that would 
                have been made under this part if subparagraphs 
                (B) and (C) of paragraph (1) did not apply and 
                if the floor-and-minimum-update payment 
                adjustment factor under this subparagraph was 
                1.
          (6) National per capita medicareplus growth 
        percentage defined.--
                  (A) In general.--In this part, the ``national 
                per capita MedicarePlus growth percentage for a 
                year is the percentage determined by the 
                Secretary, by April 30th before the beginning 
                of the year involved, to reflect the Secretarys 
                estimate of the projected per capita rate of 
                growth in expenditures under this title for an 
                individual entitled to benefits under part A 
                and enrolled under part B, reduced by the 
                number of percentage points specified in 
                subparagraph (B) for the year. Separate 
                determinations may be made for aged enrollees, 
                disabled enrollees, and enrollees with end-
                stage renal disease. Such percentage shall 
                include an adjustment for over or under 
                projection in the growth percentage for 
                previous years.
                  (B) Adjustment.--The number of percentage 
                points specified in this subparagraph is--
                          (i) for 1998, 0.5 percentage points,
                          (ii) for 1999, 0.5 percentage points,
                          (iii) for 2000, 0.5 percentage 
                        points,
                          (iv) for 2001, 0.5 percentage points,
                          (v) for 2002, 0.5 percentage points, 
                        and
                          (vi) for a year after 2002, 0 
                        percentage points.
  (d) MedicarePlus Payment Area Defined.--
          (1) In general.--In this part, except as provided in 
        paragraph (3), the term ``MedicarePlus payment area'' 
        means a county, or equivalent area specified by the 
        Secretary.
          (2) Rule for esrd beneficiaries.--In the case of 
        individuals who are determined to have end stage renal 
        disease, theMedicarePlus payment area shall be a State 
or such other payment area as the Secretary specifies.
          (3) Geographic adjustment.--
                  (A) In general.--Upon written request of the 
                chief executive officer of a State for a 
                contract year (beginning after 1998) made at 
                least 7 months before the beginning of the 
                year, the Secretary shall make a geographic 
                adjustment to a MedicarePlus payment area in 
                the State otherwise determined under paragraph 
                (1)--
                          (i) to a single statewide 
                        MedicarePlus payment area,
                          (ii) to the metropolitan based system 
                        described in subparagraph (C), or
                          (iii) to consolidating into a single 
                        MedicarePlus payment area noncontiguous 
                        counties (or equivalent areas described 
                        in paragraph (1)) within a State.
                Such adjustment shall be effective for payments 
                for months beginning with January of the year 
                following the year in which the request is 
                received.
                  (B) Budget neutrality adjustment.--In the 
                case of a State requesting an adjustment under 
                this paragraph, the Secretary shall adjust the 
                payment rates otherwise established under this 
                section for MedicarePlus payment areas in the 
                State in a manner so that the aggregate of the 
                payments under this section in the State shall 
                not exceed the aggregate payments that would 
                have been made under this section for 
                MedicarePlus payment areas in the State in the 
                absence of the adjustment under this paragraph.
                  (C) Metropolitan based system.--The 
                metropolitan based system described in this 
                subparagraph is one in which--
                          (i) all the portions of each 
                        metropolitan statistical area in the 
                        State or in the case of a consolidated 
                        metropolitan statistical area, all of 
                        the portions of each primary 
                        metropolitan statistical area within 
                        the consolidated area within the State, 
                        are treated as a single MedicarePlus 
                        payment area, and
                          (ii) all areas in the State that do 
                        not fall within a metropolitan 
                        statistical area are treated as a 
                        single MedicarePlus payment area.
                  (D) Areas.--In subparagraph (C), the terms 
                ``metropolitan statistical area, ``consolidated 
                metropolitan statistical area, and ``primary 
                metropolitan statistical area mean any area 
                designated as such by the Secretary of 
                Commerce.
  (e) Special Rules for Individuals Electing MSA Plans.--
          (1) In general.--If the amount of the monthly premium 
        for an MSA plan for a MedicarePlus payment area for a 
        year is less than \1/12\ of the annual MedicarePlus 
        capitation rate applied under this section for the area 
        and year involved, the Secretary shall deposit an 
        amount equal to 100 percent of such difference in a 
        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 an MSA plan, no payment shall be 
        made under paragraph (1) on behalf of an individual for 
        a month unless the individual--
                  (A) has established before the beginning of 
                the month (or by such other deadline as the 
                Secretary may specify) a MedicarePlus MSA (as 
                defined in section 138(b)(2) of the Internal 
                Revenue Code of 1986), and
                  (B) if the individual has established more 
                than one such MedicarePlus MSA, has designated 
                one of such accounts as the individuals 
                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 an 
        MSA plan 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.
  (f) 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 (e)(1) shall be made from the Federal 
Hospital Insurance Trust Fund and the Federal Supplementary 
Medical Insurance Trust Fund in such proportion as the 
Secretary determines reflects the relative weight that benefits 
under part A and under part B represents of the actuarial value 
of the total benefits under this title. Monthly payments 
otherwise payable under this section for October 2001 shall be 
paid on the last business day of September 2001.
  (g) Special Rule for Certain Inpatient Hospital Stays.--In 
the case of an individual who is receiving inpatient hospital 
services from a subsection (d) hospital (as defined in section 
1886(d)(1)(B)) as of the effective date of the individuals--
          (1) election under this part of a MedicarePlus plan 
        offered by a MedicarePlus organization--
                  (A) payment for such services until the date 
                of the individuals discharge shall be made 
                under this title through the MedicarePlus plan 
                or the medicare fee-for-service program option 
                described in section 1851(a)(1)(A) (as the case 
                may be) elected before the election with such 
                organization,
                  (B) the elected organization shall not be 
                financially responsible for payment for such 
                services until the date after the date of the 
                individuals 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 individuals 
                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.


                                premiums


  Sec. 1854. (a) Submission and Charging of Premiums.--
          (1) In general.--Subject to paragraph (3), 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 premium for 
                coverage for services under section 1852(a) 
                under each MedicarePlus plan it offers under 
                this part in each MedicarePlus payment area (as 
                defined in section 1853(d)) in which the plan 
                is being offered; and
                  (B) the enrollment capacity in relation to 
                the plan in each such area.
          (2) Terminology.--In this part--
                  (A) the term ``monthly premium means, with 
                respect to a MedicarePlus plan offered by a 
                MedicarePlus organization, the monthly premium 
                filed under paragraph (1), not taking into 
                account the amount of any payment made toward 
                the premium under section 1853; and
                  (B) the term ``net monthly premium means, 
                with respect to such a plan and an individual 
                enrolled with the plan, the premium (as defined 
                in subparagraph (A)) for the plan reduced by 
                the amount of payment made toward such premium 
                under section 1853.
  (b) Monthly Premium Charged.--The monthly amount of the 
premium charged by a MedicarePlus organization for a 
MedicarePlus plan offered in a MedicarePlus payment area to an 
individual under this part shall be equal to the net monthly 
premium plus any monthly premium charged in accordance with 
subsection (e)(2) for supplemental benefits.
  (c) Uniform Premium.--The monthly premium and monthly amount 
charged under subsection (b) of a MedicarePlus organization 
under this part may not vary among individuals who reside in 
the same MedicarePlus payment area.
  (d) Terms and Conditions of Imposing Premiums.--Each 
MedicarePlus organization shall permit the payment of net 
monthly premiums on a monthly basis and may terminate election 
of individuals for a MedicarePlus plan for failure to make 
premium payments only in accordance with section 
1851(g)(3)(B)(i). A MedicarePlus organization is not authorized 
to provide for cash or other monetary rebates as an inducement 
for enrollment or otherwise.
  (e) Limitation on Enrollee Cost-Sharing.--
          (1) For basic and additional benefits.--Except as 
        provided in paragraph (2), in no event may--
                  (A) the net monthly premium (multiplied by 
                12) and the actuarial value of the deductibles, 
                coinsurance, and copayments applicable on 
                average to individuals enrolled under this part 
                with a MedicarePlus plan of an organization 
                with respect to required benefits described in 
                section 1852(a)(1) and additional benefits (if 
                any) required under subsection (f)(1) for a 
                year, exceed
                  (B) the actuarial value of the deductibles, 
                coinsurance, and copayments that would be 
                applicable on average to individuals entitled 
                to benefits under part A and enrolled under 
                part B if they were not members of a 
                MedicarePlus organization for the year.
          (2) For supplemental benefits.--If the MedicarePlus 
        organization provides to its members enrolled under 
        this part supplemental benefits describe din section 
        1852(a)(3), the sum of the monthly premium rate 
        (multiplied by 12) charged for such supplemental 
        benefits and the actuarial value of its deductibles, 
        coinsurance, and copayments charged with respect to 
        such benefits may not exceed the adjusted community 
        rate for such benefits (as defined in subsection 
        (f)(4)).
          (3) Exception for msa plans.--Paragraphs (1) and (2) 
        do not apply to an MSA plan.
          (4) Determination on other basis.--If the Secretary 
        determines that adequate data are not available to 
        determine the actuarial value under paragraph (1)(A) or 
        (2), the Secretary may determine such amount with 
        respect to all individuals in the MedicarePlus payment 
        area, the State, or in the United States, eligible to 
        enroll in the MedicarePlus plan involved under this 
        part or on the basis of other appropriate data.
  (f) Requirement for Additional Benefits.--
          (1) Requirement.--
                  (A) In general.--Each MedicarePlus 
                organization (in relation to a MedicarePlus 
                plan it offers) shall provide that if there is 
                an excess amount (as defined in subparagraph 
                (B)) for the plan for a contract year, subject 
                to the succeeding provisions of this 
                subsection, the organization shall provide to 
                individuals such additional benefits (as the 
                organization may specify) in a value which is 
                at least equal to the adjusted excess amount 
                (as defined in subparagraph (C)).
                  (B) Excess amount.--For purposes of this 
                paragraph, the ``excess amount, for an 
                organization for a plan, is the amount (if any) 
                by which--
                          (i) the average of the capitation 
                        payments made to the organization under 
                        section 1853 for the plan at the 
                        beginning of contract year, exceeds
                          (ii) the actuarial value of the 
                        required benefits described in section 
                        1852(a)(1) under the plan for 
                        individuals under this part, as 
                        determined based upon an adjusted 
                        community rate described in paragraph 
                        (5) (as reduced for the actuarial value 
                        of the coinsurance and deductibles 
                        under parts A and B).
                  (C) Adjusted excess amount.--For purposes of 
                this paragraph, the ``adjusted excess amount, 
                for an organization for a plan, is the excess 
                amount reduced to reflect any amount withheld 
                and reserved for the organization for the year 
                under paragraph (3).
                  (D) No application to msa plans.--
                Subparagraph (A) shall not apply to an MSA 
                plan.
                  (E) Uniform application.--This paragraph 
                shall be applied uniformly for all enrollees 
                for a plan in a MedicarePlus payment 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) Stabilization fund.--A MedicarePlus organization 
        may provide that a part of the value of an excess 
        amount described in paragraph (1) be withheld and 
        reserved in the Federal Hospital Insurance Trust Fund 
        and in the Federal Supplementary Medical Insurance 
        Trust Fund (in such proportions as the Secretary 
        determines to be appropriate) by the Secretary for 
        subsequent annual contract periods, to the extent 
        required to stabilize and prevent undue fluctuations in 
        the additional benefits offered in those subsequent 
        periods by the organization in accordance with such 
        paragraph. Any of such value of the amount reserved 
        which is not provided as additional benefits described 
        in paragraph (1)(A) to individuals electing the 
        MedicarePlus plan of the organization in accordance 
        with such paragraph prior to the end of such periods, 
        shall revert for the use of such trust funds.
          (3) Determination based on insufficient data.--For 
        purposes of this subsection, if the Secretary finds 
        that there is insufficient enrollment experience 
        (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.
          (4) Adjusted community rate.--
                  (A) In general.--For purposes of this 
                subsection, subject to subparagraph (B), the 
                term ``adjusted community rate for a service or 
                services means, at the election of a 
                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 plan 
                        under this part if the rate of payment 
                        were determined under a ``community 
                        rating system (as defined in section 
                        1302(8) of the Public Health Service 
                        Act, other than subparagraph (C)), or
                          (ii) such portion of the weighted 
                        aggregate premium, which the Secretary 
                        annually estimates would apply to such 
                        an individual, as the Secretary 
                        annually estimates is attributable to 
                        that service or services,
                but adjusted for differences between the 
                utilization characteristics of the individuals 
                electing coverage under this part and the 
                utilization characteristics of the other 
                enrollees with the plan (or, if the Secretary 
                finds that adequate data are not available to 
                adjust for those differences, the differences 
                between the utilization characteristics of 
                individuals selecting other MedicarePlus 
                coverage, or MedicarePlus eligible 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 plan of the 
                organization may be computed (in a manner 
                specified by the Secretary) using data in the 
                general commercial marketplace or (during a 
                transition period) based on the costs incurred 
                by the organization in providing such a plan.
  (g) Periodic Auditing.--The Secretary shall provide for the 
annual auditing of the financial records (including data 
relating to medicare utilization, costs, and computation of the 
adjusted community rate) of at least one-third of the 
MedicarePlus organizations offering MedicarePlus plans under 
this part. The Comptroller General shall monitoring auditing 
activities conducted under this subsection.
  (h) Prohibition of State Imposition of Premium Taxes.--No 
State may impose a premium tax or similar tax with respect to 
premiums on MedicarePlus plans or the offering of such plans.


      organizational and financial requirements for medicareplus 
            organizations; provider-sponsored organizations


  Sec. 1855. (a) Organized and Licensed Under State Law.--
          (1) In general.--Subject to paragraphs (2) and (3), a 
        MedicarePlus organization shall be organized and 
        licensed under State law as a risk-bearing entity 
        eligible to offer health insurance or health benefits 
        coverage in each State in which it offers a 
        MedicarePlus plan.
          (2) Special exception for provider-sponsored 
        organizations.--
                  (A) In general.--In the case of a provider-
                sponsored organization that seeks to offer a 
                MedicarePlus plan in a State, the Secretary 
                shall waive the requirement of paragraph (1) 
                that the organization be licensed in that State 
                if--
                          (i) the organization files an 
                        application for such waiver with the 
                        Secretary, and
                          (ii) the Secretary determines, based 
                        on the application and other evidence 
                        presented to the Secretary, thatany of 
the grounds for approval of the application described in subparagraph 
(B), (C), or (D) has been met.
                    (B) Failure to act on licensure application 
                on a timely basis.--A ground for approval of 
                such a waiver application is that the State has 
                failed to complete action on a licensing 
                application of the organization within 90 days 
                of the date of the States receipt of the 
                completed application. No period before the 
                date of the enactment of this section shall be 
                included in determining such 90-day period.
                    (C) Denial of application based on 
                discriminatory treatment.--A ground for 
                approval of such a waiver application is that 
                the State has denied such a licensing 
                application and--
                            (i) the State has imposed 
                        documentation or information 
                        requirements not related to solvency 
                        requirements that are not generally 
                        applicable to other entities engaged in 
                        substantially similar business, or
                            (ii) the standards or review 
                        process imposed by the State as a 
                        condition of approval of the license 
                        imposes any material requirements, 
                        procedures, or standards (other than 
                        requirements and standards relating to 
                        solvency) to such organizations that 
                        are not generally applicable to other 
                        entities engaged in substantially 
                        similar business.
                    (D) Denial of application based on 
                application of solvency requirements.--A ground 
                for approval of such a waiver application is 
                that the State has denied such a licensing 
                application based (in whole or in part) on the 
                organizations failure to meet applicable 
                solvency requirements and--
                            (i) such requirements are not the 
                        same as the solvency standards 
                        established under section 1856(a); or
                            (ii) the State has imposed as a 
                        condition of approval of the license 
                        any documentation or information 
                        requirements relating to solvency or 
                        other material requirements, 
                        procedures, or standards relating to 
                        solvency that are different from the 
                        requirements, procedures, and standards 
                        applied by the Secretary under 
                        subsection (d)(2).
                For purposes of this subparagraph, the term 
                ``solvency requirements means requirements 
                relating to solvency and other matters covered 
                under the standards established under section 
                1856(a).
                    (E) Treatment of waiver.--In the case of a 
                waiver granted under this paragraph for a 
                provider-sponsored organization--
                            (i) the waiver shall be effective 
                        for a 36-month period, except it may be 
                        renewed based on a subsequent 
                        application filed during the last 6 
                        months of such period, and
                            (ii) any provisions of State law 
                        which relate to the licensing of the 
                        organization and which prohibit the 
                        organization from providing coverage 
                        pursuant to a contract under this part 
                        shall be superseded.
                Nothing in this subparagraph shall be construed 
                as limiting the number of times such a waiver 
                may be renewed.
                    (F) Prompt action on application.--The 
                Secretary shall grant or deny such a waiver 
                application within 60 days after the date the 
                Secretary determines that a substantially 
                complete application has been filed. Nothing in 
                this section shall be construed as preventing 
                an organization which has had such a waiver 
                application denied from submitting a subsequent 
                waiver application. ``
            (3) Exception if required to offer more than 
        medicareplus plans.--Paragraph (1) shall not apply to a 
        MedicarePlus organization in a State if the State 
        requires the organization, as a condition of licensure, 
        to offer any product or plan other than a MedicarePlus 
        plan.
            (4) Licensure does not substitute for or constitute 
        certification.--The fact that an organization is 
        licensed in accordance with paragraph (1) does not deem 
        the organization to meet other requirements imposed 
        under this part.
    (b) Prepaid Payment.--A MedicarePlus organization shall be 
compensated (except for premiums, deductibles, coinsurance, and 
copayments) for the provision of health care services to 
enrolled members under the contract under this part by a 
payment which is paid on a periodic basis without regard to the 
date the health care services are provided and which is fixed 
without regard to the frequency, extent, or kind of health care 
service actually provided to a member.
    (c) Assumption of Full Financial Risk.--The MedicarePlus 
organization shall assume full financial risk on a prospective 
basis for the provision of the health care services (except, at 
the election of the organization, hospice care) for which 
benefits are required to be provided under section 1852(a)(1), 
except that the organization--
            (1) may obtain insurance or make other arrangements 
        for the cost of providing to any enrolled member such 
        services the aggregate value of which 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.
    (d) Certification of Provision Against Risk of Insolvency 
for Unlicensed PSOs.--
            (1) In general.--Each MedicarePlus organization 
        that is a provider-sponsored organization, that is not 
        licensed by a State under subsection (a), and for which 
        a waiver application hasbeen approved under subsection 
(a)(2), shall meet standards established under section 1856(a) relating 
to the financial solvency and capital adequacy of the organization.
          (2) Certification process for solvency standards for 
        psos.--The Secretary shall establish a process for the 
        receipt and approval of applications of a provider-
        sponsored organization described in paragraph (1) for 
        certification (and periodic recertification) of the 
        organization as meeting such solvency standards. Under 
        such process, the Secretary shall act upon such an 
        application not later than 60 days after the date the 
        application has been received.
  (e) Provider-Sponsored Organization Defined.--
          (1) In general.--In this part, the term ``provider-
        sponsored organization'' means a public or private 
        entity--
                  (A) that is established or organized by a 
                health care provider, or group of affiliated 
                health care providers,
                  (B) that provides a substantial proportion 
                (as defined by the Secretary in accordance with 
                paragraph (2)) of the health care items and 
                services under the contract under this part 
                directly through the provider or affiliated 
                group of providers, and
                  (C) with respect to which those affiliated 
                providers that share, directly or indirectly, 
                substantial financial risk with respect to the 
                provision of such items and services have at 
                least a majority financial interest in the 
                entity.
          (2) Substantial proportion.--In defining what is a 
        ``substantial proportion'' for purposes of paragraph 
        (1)(B), the Secretary--
                  (A) shall take into account (i) the need for 
                such an organization to assume responsibility 
                for a substantial proportion of services in 
                order to assure financial stability and (ii) 
                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) both providers are part of a controlled 
                group of corporations under section 1563 of the 
                Internal Revenue Code of 1986, or
                  (C) both providers are part of an affiliated 
                service group under section 414 of such Code.
          (4) Control.--For purposes of paragraph (3), control 
        is presumed to exist if one party, directly or 
        indirectly, owns, controls, or holds the power to vote, 
        or proxies for, not less than 51 percent of the voting 
        rights or governance rights of another.
          (5) Health care provider defined.--In this 
        subsection, the term ``health care provider'' means--
                  (A) any individual who is engaged in the 
                delivery of health care services in a State and 
                who is required by State law or regulation to 
                be licensed or certified by the State to engage 
                in the delivery of such services in the State, 
                and
                  (B) any entity that is engaged in the 
                delivery of health care services in a State and 
                that, if it is required by State law or 
                regulation to be licensed or certified by the 
                State to engage in the delivery of such 
                services in the State, is so licensed.
          (6) Regulations.--The Secretary shall issue 
        regulations to carry out this subsection.


                       establishment of standards


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


               contracts with medicareplus organizations


  Sec. 1857. (a) In General.--The Secretary shall not permit 
the election under section 1851 of a MedicarePlus plan offered 
by a MedicarePlus organization under this part, and no payment 
shall be made under section 1853 to an organization, unless the 
Secretary has entered into a contract under this section with 
the organization with respect to the offering of such plan. 
Such a contract with an organization may cover more than one 
MedicarePlus plan. Such contract shall provide that the 
organization agrees to comply with the applicable requirements 
and standards of this part and the terms and conditions of 
payment as provided for in this part.
  (b) Minimum Enrollment Requirements.--
          (1) In general.--Subject to paragraphs (2) and (3), 
        the Secretary may not enter into a contract under this 
        section with a MedicarePlus organization 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 msa plan.--Paragraph (1) shall not 
        apply with respect to a contract that relates only to 
        an MSA plan.
          (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, andmay 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 
        if the Secretary determines that the organization--
                  (A) has failed substantially to carry out the 
                contract;
                  (B) is carrying out the contract in a manner 
                inconsistent with the efficient and effective 
                administration of this part; or
                  (C) no longer substantially meets the 
                applicable conditions of this part.
          (3) Effective date of contracts.--The effective date 
        of any contract executed pursuant to this section shall 
        be specified in the contract, except that in no case 
        shall a contract under this section which provides for 
        coverage under an MSA plan be effective before January 
        1999 with respect to such coverage.
          (4) Previous terminations.--The Secretary may not 
        enter into a contract with a 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 contracts 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.--
          (1) In general.--The contract shall contain such 
        other terms and conditions not inconsistent with this 
        part (including requiring the organization to provide 
        the Secretary with such information) as the Secretary 
        may find necessary and appropriate.
          (2) Cost-sharing in enrollment-related costs.--The 
        contract with a MedicarePlus organization shall require 
        the payment to the Secretary for the organizations pro 
        rata share (as determined by the Secretary) of the 
        estimated costs to be incurred by the Secretary in 
        carrying out section 1851 (relating to enrollment and 
        dissemination of information). Such payments are 
        appropriated to defray the costs described in the 
        preceding sentence, to remain available until expended.
      (f) Prompt Payment by MedicarePlus Organization.--
          (1) Requirement.--A contract under this part shall 
        require a MedicarePlus organization to provide prompt 
        payment (consistent with the provisions of sections 
        1816(c)(2) and 1842(c)(2)) of claims submitted for 
        services and supplies furnished to individuals pursuant 
        to the contract, if the services or supplies are not 
        furnished under a contract between the organization and 
        the provider or supplier.
          (2) Secretarys option to bypass noncomplying 
        organization.--In the case of a MedicarePlus eligible 
        organization which the Secretary determines, after 
        notice and opportunity for a hearing, has failed to 
        make payments of amounts in compliance with paragraph 
        (1), the Secretary may provide for direct payment of 
        the amounts owed to providers and suppliers for covered 
        services and supplies furnished to individuals enrolled 
        under this part under the contract. If the Secretary 
        provides for the direct payments, the Secretary shall 
        provide for an appropriate reduction in the amount of 
        payments otherwise made to the organization under this 
        part to reflect the amount of the Secretarys payments 
        (and the Secretarys costs in making the payments).
      (g) 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 net monthly premiums on 
                individuals enrolled under this part in excess 
                of the net monthly premiums permitted;
                  (C) acts to expel or to refuse to re-enroll 
                an individual in violation of the provisions of 
                this part;
                  (D) engages in any practice that would 
                reasonably be expected to have the effect of 
                denying or discouraging enrollment (except as 
                permitted by this part) by eligible individuals 
                with the organization whose medical condition 
                or history indicates a need for substantial 
                future medical services;
                  (E) misrepresents or falsifies information 
                that is furnished--
                          (i) to the Secretary under this part, 
                        or
                          (ii) to an individual or to any other 
                        entity under this part;
                  (F) fails to comply with the requirements of 
                section 1852(j)(3); or
                  (G) employs or contracts with any individual 
                or entity that is excluded from participation 
                under this title under section 1128 or 1128A 
                for the provision of health care, utilization 
                review, medical social work, or administrative 
                services or employs or contracts with any 
                entity for the provision (directly or 
                indirectly) through such an excluded individual 
                or entity of such services;
        the Secretary may provide, in addition to any other 
        remedies authorized by law, for any of the remedies 
        described in paragraph (2).
          (2) Remedies.--The remedies described in this 
        paragraph are--
                  (A) civil money penalties of not more than 
                $25,000 for each determination under paragraph 
                (1) or, with respect to a determination under 
                subparagraph (D) or (E)(i) of such paragraph, 
                of not more than $100,000 for each such 
                determination, plus, with respect to a 
                determination under paragraph (1)(B), double 
                the excess amount charged in violation of such 
                paragraph (and the excess amount charged shall 
                be deducted from the penalty and returned to 
                the individual concerned), and plus, with 
                respect to a determination under paragraph 
                (1)(D), $15,000 for each individual not 
                enrolled as a result of the practice involved,
                  (B) suspension of enrollment of individuals 
                under this part after the date the Secretary 
                notifies the organization of a determination 
                under paragraph (1) and until the Secretary is 
                satisfied that the basis for such determination 
                has been corrected and is not likely to recur, 
                or
                  (C) suspension of payment to the organization 
                under this part for individuals enrolled after 
                the date the Secretary notifies the 
                organization of a determination underparagraph 
(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 organizations contract.
                  (B) Civil money penalties of not more than 
                $10,000 for each week beginning after the 
                initiation of procedures by the Secretary under 
                subsection (g) during which the deficiency that 
                is the basis of a determination under 
                subsection (c)(2) exists.
                  (C) Suspension of enrollment of individuals 
                under this part after the date the Secretary 
                notifies the organization of a determination 
                under subsection (c)(2) and until the Secretary 
                is satisfied that the deficiency that is the 
                basis for the determination has been corrected 
                and is not likely to recur.
  (h) Procedures for Termination.--
          (1) In general.--The Secretary may terminate a 
        contract with a MedicarePlus organization under this 
        section in accordance with formal investigation and 
        compliance procedures established by the Secretary 
        under which--
                  (A) the Secretary provides the organization 
                with the reasonable opportunity to develop and 
                implement a corrective action plan to correct 
                the deficiencies that were the basis of the 
                Secretary's determination under subsection 
                (c)(2);
                  (B) the Secretary provides the organization 
                with reasonable notice and opportunity for 
                hearing (including the right to appeal an 
                initial decision) before terminating the 
                contract.
          (2) Civil money penalties.--The provisions of section 
        1128A (other than subsections (a) and (b)) shall apply 
        to a civil money penalty under subsection (f) or under 
        paragraph (2) or (3) of subsection (g) in the same 
        manner as they apply to a civil money penalty or 
        proceeding under section 1128A(a).
          (3) Exception for imminent and serious risk to 
        health.--Paragraph (1) shall not apply if the Secretary 
        determines that a delay in termination, resulting from 
        compliance with the procedures specified in such 
        paragraph prior to termination, would pose an imminent 
        and serious risk to the health of individuals enrolled 
        under this part with the organization.


                 definitions; miscellaneous provisions


  Sec. 1859. (a) Definitions Relating to MedicarePlus 
Organizations.--In this part--
          (1) MedicarePlus organization.--The term 
        ``MedicarePlus organization'' means a public or private 
        entity that is certified under section 1856 as meeting 
        the requirements and standards of this part for such an 
        organization.
          (2) Provider-sponsored organization.--The term 
        ``provider-sponsored organization'' is defined in 
        section 1855(e)(1).
  (b) Definitions Relating to MedicarePlus Plans.--
          (1) MedicarePlus plan.--The term ``MedicarePlus 
        plan'' means health benefits coverage offered under a 
        policy, contract, or plan by a MedicarePlus 
        organization pursuant to and in accordance with a 
        contract under section 1857.
          (2) MSA plan.--
                  (A) In general.--The term ``MSA plan'' means 
                a MedicarePlus plan that--
                          (i) provides reimbursement for at 
                        least the items and services described 
                        in section 1852(a)(1) in a year but 
                        only after the enrollee incurs 
                        countable expenses (as specified under 
                        the plan) equal to the amount of an 
                        annual deductible (described in 
                        subparagraph (B));
                          (ii) counts as such expenses (for 
                        purposes of such deductible) at least 
                        all amounts that would have been 
                        payable under parts A and B and that 
                        would have been payable by the enrollee 
                        as deductibles, coinsurance, or 
                        copayments, if the enrollee had elected 
                        to receive benefits through the 
                        provisions of such parts; and
                          (iii) provides, after such deductible 
                        is met for a year and for all 
                        subsequent expenses for items and 
                        services referred to in clause (i) in 
                        the year, for a level of reimbursement 
                        that is not less than--
                                  (I) 100 percent of such 
                                expenses, or
                                  (II) 100 percent of the 
                                amounts that would have been 
                                paid (without regard to any 
                                deductibles or coinsurance) 
                                under parts A and B with 
                                respect to such expenses,
                        whichever is less.
                  (B) Deductible.--The amount of annual 
                deductible under an MSA plan--
                          (i) for contract year 1999 shall be 
                        not more than $6,000; and
                          (ii) for a subsequent contract year 
                        shall be not more than the maximum 
                        amount of such deductible for the 
                        previous contract year under this 
                        subparagraph increased by the national 
                        per capita MedicarePlus growth 
                        percentage under section 1853(c)(6) for 
                        the year.
                If the amount of the deductible under clause 
                (ii) is not a multiple of $50, the amount shall 
                be rounded to the nearest multiple of $50.
  (c) Other References to Other Terms.--
          (1) MedicarePlus eligible individual.--The term 
        ``MedicarePlus eligible individual'' is defined in 
        section 1851(a)(3).
          (2) MedicarePlus payment area.--The term 
        ``MedicarePlus payment area'' is defined in section 
        1853(d).
          (3) National per capita medicareplus growth 
        percentage.--The ``national per capita MedicarePlus 
        growth percentage'' is defined in section 1853(c)(6).
          (4) Monthly premium; net monthly premium.--The terms 
        ``monthly premium and ``net monthly premium'' are 
        defined in section 1854(a)(2).
  (d) Coordinated Acute and Long-term Care Benefits Under a 
MedicarePlus Plan.--Nothing in this part shall be construed as 
preventing a State from coordinating benefits under a medicaid 
plan under title XIX with those provided under a MedicarePlus 
plan in a manner that assures continuity of a full-range of 
acute care and long-term care services to poor elderly or 
disabled individuals eligible for benefits under this title and 
under such plan.
  (e) Restriction on Enrollment for Certain MedicarePlus 
Plans.--
          (1) In general.--In the case of a MedicarePlus 
        religious fraternal benefit society plan described in 
        paragraph (2), notwithstanding any other provision of 
        this part to the contrary and in accordance with 
        regulations of the Secretary, the society offering the 
        plan may restrict the enrollment of individuals under 
        this part to individuals who are members of the church, 
        convention, or group described in paragraph (3)(B) with 
        which the society is affiliated.
          (2) Medicareplus religious fraternal benefit society 
        plan described.--For purposes of this subsection, a 
        MedicarePlus religious fraternal benefit society plan 
        described in this paragraph is a MedicarePlus plan 
        described in section 1851(a)(2)(A) that--
                  (A) is offered by a religious fraternal 
                benefit society described in paragraph (3) only 
                to members of the church, convention, or group 
                described in paragraph (3)(B); and
                  (B) permits all such members to enroll under 
                the plan without regard to health status-
                related factors.
        Nothing in this subsection shall be construed as 
        waiving any plan requirements relating to financial 
        solvency. In developing solvency standards under 
        section 1856, the Secretary shall take into account 
        open contract and assessment features characteristic of 
        fraternal insurance certificates.
          (3) Religious fraternal benefit society defined.--For 
        purposes of paragraph (2)(A), a ``religious fraternal 
        benefit society described in this section is an 
        organization that--
                  (A) is exempt from Federal income taxation 
                under section 501(c)(8) of the Internal Revenue 
                Code of 1986;
                  (B) is affiliated with, carries out the 
                tenets of, and shares a religious bond with, a 
                church or convention or association of churches 
                or an affiliated group of churches;
                  (C) offers, in addition to a MedicarePlus 
                religious fraternal benefit society plan, 
                health coverage to individuals not entitled to 
                benefits under this title who are members of 
                such church, convention, or group; and
                  (D) does not impose any limitation on 
                membership in the society based on any health 
                status-related factor.
          (4) Payment adjustment.--Under regulations of the 
        Secretary, in the case of individuals enrolled under 
        this part under a MedicarePlus religious fraternal 
        benefit society plan described in paragraph (2), the 
        Secretary shall provide for such adjustment to the 
        payment amounts otherwise established under section 
        1854 as may be appropriate to assure an appropriate 
        payment level, taking into account the actuarial 
        characteristics and experience of such individuals.

                  Part [C] D--Miscellaneous Provisions

              definitions of services, institutions, etc.

  Sec. 1861. For purposes of this title--

                            Spell of Illness

  (a) * * *
          * * * * * * *

                      Inpatient Hospital Services

  (b) The term ``inpatient hospital services'' means the 
following items and services furnished to an inpatient of a 
hospital and (except as provided in paragraph (3)) by the 
hospital--
          (1) * * *
          * * * * * * *
excluding, however--
          (4) medical or surgical services provided by a 
        physician, resident, or intern, services described by 
        [clauses (i) or (iii) of subsection (s)(2)(K)] 
        subsection (s)(2)(K), certified nurse-midwife services, 
        qualified psychologist services, and services of a 
        certified registered nurse anesthetist; and
          * * * * * * *

                         Extended Care Services

  (h) The term ``extended care services'' means the following 
items and services furnished to an inpatient of a skilled 
nursing facility and (except as provided in [paragraphs (3) and 
(6)] paragraphs (3), (6), and (7)) by such skilled nursing 
facility--
          (1) * * *
          * * * * * * *
          (7) such other services necessary to the health of 
        the patients as are generally provided by skilled 
        nursing facilities, or by others under arrangements 
        with them made by the facility;
excluding, however, any item or service if it would not be 
included under subsection (b) if furnished to an inpatient of a 
hospital.
          * * * * * * *

                          Home Health Services

  (m) The term ``home health services'' means the following 
items and services furnished to an individual, who is under the 
care of a physician, by a home health agency or by others under 
arrangements with them made by such agency, under a plan (for 
furnishing such items and services to such individual) 
established and periodically reviewed by a physician, which 
items and services are, except as provided in paragraph (7), 
provided on a visiting basis in a place of residence used as 
such individual's home--
          (1) * * *
          * * * * * * *
excluding, however, any item or service if it would not be 
included under subsection (b) if furnished to an inpatient of a 
hospital. For purposes of paragraphs (1) and (4), the term 
``part-time or intermittent services'' means skilled nursing 
and home health aide services furnished any number of days per 
week as long as they are furnished (combined) less than 8 hours 
each day and 28 or fewer hours each week (or, subject to review 
on a case-by-case basis as to the need for care, less than 8 
hours each day and 35 or fewer hours per week). For purposes of 
sections 1814(a)(2)(C) and 1835(a)(2)(A), ``intermittent'' 
means skilled nursing care that is either provided or needed on 
fewer than 7 days each week, or less than 8 hours of each day 
of skilled nursing and home health aide services combined for 
periods of 21 days or less (with extensions in exceptional 
circumstances when the need for additional care is finite and 
predictable).

                       Durable Medical Equipment

  (n) The term ``durable medical equipment'' includes iron 
lungs, oxygen tents, hospital beds, and wheelchairs (which may 
include a power-operated vehicle that may be appropriately used 
as a wheelchair, but only where the use of such a vehicle is 
determined to be necessary on the basis of the individuals 
medical and physical condition and the vehicle meets such 
safety requirements as the Secretary may prescribe) used in the 
patients home (including an institution used as his home other 
than an institution that meets the requirements of subsection 
(e)(1) of this section or section 1819(a)(1)), whether 
furnished on a rental basis or purchased, and includes blood-
testing strips and blood glucose monitors for individuals with 
diabetes without regard to whether the individual has Type I or 
Type II diabetes or to the individuals use of insulin (as 
determined under standards established by the Secretary in 
consultation with the appropriate organizations); except that 
such term does not include such equipment furnished by a 
supplier who has used, for the demonstration and use of 
specific equipment, an individual who has not met such minimum 
training standards as the Secretary may establish with respect 
to the demonstration and use of such specific equipment. With 
respect to a seat-lift chair, such term includes only the seat-
lift mechanism and does not include the chair.

                           Home Health Agency

  (o) The term ``home health agency'' means a public agency or 
private organization, or a subdivision of such an agency or 
organization, which--
          (1) * * *
          * * * * * * *
          (7) meets such additional requirements (including 
        conditions relating to bonding or establishing of 
        escrow accounts as the Secretary finds necessary for 
        the financial security of the program and including 
        providing the Secretary on a continuing basis with a 
        surety bond in a form specified by the Secretary and in 
        an amount that is not less than $50,000) as the 
        Secretary finds necessary for the effective and 
        efficient operation of the program;
except that for purposes of part A such term shall not include 
any agency or organization which is primarily for the care and 
treatment of mental diseases. The Secretary may waive the 
requirement of a bond under paragraph (7) in the case of an 
agency or organization that provides a comparable surely bond 
under State law.

                  Outpatient Physical Therapy Services

  (p) The term ``outpatient physical therapy services'' means 
physical therapy services furnished by a provider of services, 
a clinic, rehabilitation agency, or a public health agency, or 
by others under an arrangement with, and under the supervision 
of, such provider, clinic, rehabilitation agency, or public 
health agency to an individual as an outpatient--
          (1) * * *
          * * * * * * *
          (4) any such service--
                  (A) if furnished by a clinic or 
                rehabilitation agency, or by others under 
                arrangements with such clinic or agency, unless 
                such clinic or rehabilitation agency--
                          (i) * * *
          * * * * * * *
                          (v) meets such other conditions 
                        relating to the health and safety of 
                        individuals who are furnished services 
                        by such clinic or agency on an 
                        outpatient basis, as the Secretary may 
                        find necessary, and provides the 
                        Secretary, to the extent required by 
                        the Secretary, on a continuing basis 
                        with a surety bond in a form specified 
                        by the Secretary and in an amount that 
                        is not less than $50,000, or
        The term ``outpatient physical therapy services'' also 
        includes physical therapy services furnished an 
        individual by a physical therapist (in his office or in 
        such individual's home) who meets licensing and other 
        standards prescribed by the Secretary in regulations, 
        otherwise than under an arrangement with and under the 
        supervision of a provider of services, clinic, 
        rehabilitation agency, or public health agency, if the 
        furnishing of such services meets such conditions 
        relating to health and safety as the Secretary may find 
        necessary. In addition, such terms includes physical 
        therapy services which meet the requirements of the 
        first sentence of this subsection except that they are 
        furnished to an individual as an inpatient of a 
        hospital or extended care facility. The term 
        ``outpatient physical therapy services'' also includes 
        speech-language pathology services furnished by a 
        provider of services, a clinic, rehabilitation agency, 
        or by a public health agency, or by others under an 
        arrangement with, and under the supervision of, such 
        provider, clinic, rehabilitation agency, or public 
        health agency to an individual as an outpatient, 
        subject to the conditions prescribed in this 
        subsection. Nothing in this subsection shall be 
        construed as requiring with respect to outpatients who 
        are not entitled to benefits under this title, a 
        physical therapist to provide outpatient physical 
        therapy services only to outpatients are under the care 
        of a physician or pursuant to a plan of care 
        established by a physician. Secretary may waive the 
        requirement of a bond under paragraph (4)(A)(v) in the 
        case of a clinic or agency that provides a comparable 
        surety bond under State law.
          * * * * * * *

                               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. 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) * * *
          * * * * * * *
          (K)(i) services which would be physicians' services 
        if furnished by a physician (as defined in subsection 
        (r)(1)) and which are performed by a physician 
        assistant (as defined in subsection (aa)(5)) under the 
        supervision of a physician (as so defined) [(I) in a 
        hospital, skilled nursing facility, or nursing facility 
        (as defined in section 1919(a)), (II) as an assistant 
        at surgery, or (III) in a rural area (as defined in 
        section 1886(d)(2)(D)) that is designated, under 
        section 332(a)(1)(A) of the Public Health Service Act, 
        as a health professional shortage area,] and which the 
        physician assistant is legally authorized to perform by 
        the State in which the services are performed, and such 
        services and supplies furnished as incident to such 
        services as would be covered under subparagraph (A) if 
        furnished as an incident to a physicians professional 
        service, but only if no facility or other provider 
        charges or is paid any amounts with respect to the 
        furnishing of such services,
          [(ii) services which would be physicians' services if 
        furnished by a physician (as defined in subsection 
        (r)(1)) and which are performed by a nurse practitioner 
        (as defined in subsection (aa)(5)) working in 
        collaboration (as defined in subsection (aa)(6)) with a 
        physician (as defined in subsection (r)(1)) in a 
        skilled nursing facility or nursing facility (as 
        defined in section 1919(a)) which the nurse 
        practitioner is legally authorized to perform by the 
        State in which the services are performed,
          [(iii) services which would be physicians' services, 
        if furnished by a physician (as defined in subsection 
        (r)(1)) and which are performed by a nurse practitioner 
        or clinical nurse specialist (as defined in subsection 
        (aa)(5)) working in collaboration (as defined in 
        subsection (aa)(6)) with a physician (as defined in 
        subsection (r)(1)) in a rural area (as defined in 
        section 1886(d)(2)(D)) which the nurse practitioner or 
        clinical nurse specialist is authorized to perform by 
        the State in which the services are performed, and such 
        services and supplies furnished as an incident to such 
        services as would be covered under subparagraph (A) if 
        furnished as an incident to a physicians professional 
        service, and
          [(iv) such services and supplies furnished as an 
        incident to services described in clause (i) or (ii) as 
        would be covered under subparagraph (A) if furnished as 
        an incident to a physicians' professional service;]
          (ii) services which would be physicians' services if 
        furnished by a physician (as defined in subsection 
        (r)(1)) and which are performed by a nurse practitioner 
        or clinical nurse specialist (as defined in subsection 
        (aa)(5)) working in collaboration (as defined in 
        subsection (aa)(6)) with a physician (as defined in 
        subsection (r)(1)) which the nurse practitioner or 
        clinical nurse specialist is legally authorized to 
        perform by the State in which the services are 
        performed, and such services and supplies furnished as 
        an incident to such services as would be covered under 
        subparagraph (A) if furnished incident to a physician's 
        professional service, but only if no facility or other 
        provider charges or is paid any amounts with respect to 
        the furnishing of such services;
          (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]
          (P) prostate cancer screening tests (as defined in 
        subsection (oo));
          (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;
          (R) colorectal cancer screening tests (as defined in 
        subsection (pp));
          (S) diabetes outpatient self-management training 
        services (as defined in subsection (qq)); and
          (T) an oral drug (which is approved by the Federal 
        Food and Drug Administration) prescribed for use as an 
        acute anti-emetic used as part of an anticancer 
        chemotherapeutic regimen if the drug is administered by 
        a physician (or under the supervision of a physician)--
                  (i) for use immediately before, immediately 
                after, or at the time of the administration of 
                the anticancer chemotherapeutic agent; and
                  (ii) as a full replacement for the anti-
                emetic therapy which would otherwise be 
                administered intravenously.
          * * * * * * *
          (12) subject to section 4072(e) of the Omnibus Budget 
        Reconciliation Act of 1987, extra-depth shoes with 
        inserts or custom molded shoes with inserts for an 
        individual with diabetes, if--
                  (A) * * *
          * * * * * * *
                  (C) the shoes are fitted and furnished by a 
                podiatrist or other qualified individual (such 
                as a pedorthist or orthotist, as established by 
                the Secretary) who is not the physician 
                described in subparagraph (A) (unless the 
                Secretary finds that the physician is the only 
                such qualified individual in the area); [and]
          (13) screening mammography (as defined in subsection 
        (jj));
          (14) screening pap smear[.] and screening pelvic 
        exam; and
No diagnostic tests performed in any laboratory, including a 
laboratory that is part of a rural health clinic, or a hospital 
(which, for purposes of this sentence, means an institution 
considered a hospital for purposes of section 1814(d)) shall be 
included within paragraph (3) unless such laboratory--
          (15) bone mass measurement (as defined in subsection 
        (rr)).
          [(15)] (16) if situated in any State in which State 
        or applicable local law provides for licensing of 
        establishments of this nature, (A) is licensed pursuant 
        to such law, or (B) is approved, by the agency of such 
        State or locality responsible for licensing 
        establishments of this nature, as meeting the standards 
        established for such licensing; and
          [(16)] (17)(A) meets the certification requirements 
        under section 353 of the Public Health Service Act; and
          (B) meets such other conditions relating to the 
        health and safety of individuals with respect to whom 
        such tests are performed as the Secretary may find 
        necessary.
There shall be excluded from the diagnostic services specified 
in paragraph (2)(C) any item or service (except services 
referred to in paragraph (1)) which would not be included under 
subsection (b) if it were furnished to an inpatient of a 
hospital. None of the items and services referred to in the 
preceding paragraphs (other than paragraphs (1) and (2)(A)) of 
this subsection which are furnished to a patient of an 
institution which meets the definition of a hospital for 
purposes of section 1814(d) shall be included unless such other 
conditions are met as the Secretary may find necessary relating 
to health and safety of individuals with respect to whom such 
items and services are furnished.
          * * * * * * *

                            Reasonable Cost

  (v)(1)(A) * * *
          * * * * * * *
  (H) In determining such reasonable cost with respect to home 
health agencies, the Secretary may not include--
          (i) any costs incurred in connection with bonding or 
        establishing an escrow account by any such agency as a 
        result of [the financial security requirement] the 
        financial security and surety bond requirements 
        described in subsection (o)(7);
          (ii) in the case of home health agencies to which 
        [the financial security requirement described in 
        subsection (o)(7) applies] the financial security and 
        surety bond requirements described in subsection (o)(7) 
        apply, any costs attributed to interest charged such an 
        agency in connection with amounts borrowed by the 
        agency to repay overpayments made under this title to 
        the agency, except that such costs may be included in 
        reasonable cost if the Secretary determines that the 
        agency was acting in good faith in borrowing the 
        amounts;
          * * * * * * *
  (L)(i) The Secretary, in determining the amount of the 
payments that may be made under this title with respect to 
services furnished by home health agencies, may not recognize 
as reasonable (in the efficient delivery of such services) 
costs for the provision of such services by an agency to the 
extent these costs exceed (on the aggregate for the agency) for 
cost reporting periods beginning on or after--
          (I) July 1, 1985, and before July 1, 1986, 120 
        percent of the mean of the labor-related and nonlabor 
        per visit costs for freestanding home health agencies,
          (II) July 1, 1986, and before July 1, 1987, 115 
        percent[, or] of such mean,
          (III) July 1, 1987, and before October 1, 1997, 112 
        percent[,] of such mean, or
[of the mean of the labor-related and nonlabor per visit costs 
for free standing home health agencies.]
          (IV) October 1, 1997, 105 percent of the median of 
        the labor-related and nonlabor per visit costs for 
        freestanding home health agencies.
          * * * * * * *
  (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,or on or after July 1, 1997, 
and before October 1, 1997), 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] service is furnished 
(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).
  (iv) In establishing limits under this subparagraph for cost 
reporting periods beginning after September 30, 1997, the 
Secretary shall not take into account any changes in the home 
health market basket, as determined by the Secretary, with 
respect to cost reporting periods which began on or after July 
1, 1994, and before July 1, 1996.
  (v) For services furnished by home health agencies for cost 
reporting periods beginning on or after October 1, 1997, the 
Secretary shall provide for an interim system of limits. 
Payment shall not exceed the costs determined under the 
preceding provisions of this subparagraph or, if lower, the 
product of--
          (I) an agency-specific per beneficiary annual 
        limitation calculated based 75 percent on the 
        reasonable costs (including nonroutine medical 
        supplies) for the agency's 12-month cost reporting 
        period ending during 1994, and based 25 percent on the 
        standardized regional average of such costs for the 
        agency's region, as applied to such agency, for cost 
        reporting periods ending during 1994, such costs 
        updated by the home health market basket index; and
          (II) the agency's unduplicated census count of 
        patients (entitled to benefits under this title) for 
        the cost reporting period subject to the limitation.
  (vi) For services furnished by home health agencies for cost 
reporting periods beginning on or after October 1, 1997, the 
following rules apply:
          (I) For new providers and those providers without a 
        12-month cost reporting period ending in calendar year 
        1994, the per beneficiary limitation shall be equal to 
        the median of these limits (or the Secretary's best 
        estimates thereof) applied to other home health 
        agencies as determined by the Secretary. A home health 
        agency that has altered its corporate structure or name 
        shall not be considered a new provider for this 
        purpose.
          (II) For beneficiaries who use services furnished by 
        more than one home health agency, the per beneficiary 
        limitations shall be prorated among the agencies.
          * * * * * * *
  (O)(i) In establishing an appropriate allowance for 
depreciation and for interest on capital indebtedness [and (if 
applicable) a return on equity capital] with respect to an 
asset of a [hospital or skilled nursing facility] provider of 
services which has undergone a change of ownership, such 
regulations shall provide, except as provided in clause [(iv)] 
(iii), that the valuation of the asset after such change of 
ownership shall be [the lesser of the allowable acquisition 
cost of such asset to the owner of record as of the date of the 
enactment of this subparagraph (or, in the case of an asset not 
in existence as of such date, the first owner of record of the 
asset after such date), or the acquisition cost of such asset 
to the new owner.] the historical cost of the asset, as 
recognized under this title, less depreciation allowed, to the 
owner of record as of the date of enactment of the Balanced 
Budget Act of 1997 (or, in the case of an asset not in 
existence as of that date, the first owner of record of the 
asset after that date).
  [(ii) Such regulations shall provide for recapture of 
depreciation in the same manner as provided under the 
regulations in effect on June 1, 1984.]
  [(iii)] (ii) Such regulations shall not recognize, as 
reasonable in the provision of health care services, costs 
(including legal fees, accounting and administrative costs, 
travel costs, and the costs of feasibility studies) 
attributable to the negotiation or settlement of the sale or 
purchase of any capital asset (by acquisition or merger) for 
which any payment has previously been made under this title.
  [(iv)] (iii) In the case of the transfer of a hospital from 
ownership by a State to ownership by a nonprofit corporation 
without monetary consideration, the basis for capital 
allowances to the new owner shall be the book value of the 
hospital to the State at the time of the transfer.
          * * * * * * *
  (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 1999 
and during fiscal year 2000 before January 1, 2000.
  (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 1999 and during 
fiscal year 2000 before January 1, 2000.
          * * * * * * *
  (T) In determining such reasonable costs for hospitals, the 
amount of bad debts otherwise treated as allowable costs which 
are attributable to the deductibles and coinsurance amounts 
under this title shall be reduced--
          (i) for cost reporting periods beginning during 
        fiscal year 1998, by 25 percent, of such amount 
        otherwise allowable,
          (ii) for cost reporting periods beginning during 
        fiscal year 1999, by 40 percent of such amount 
        otherwise allowable, and
          (iii) for cost reporting periods beginning during a 
        subsequent fiscal year, by 50 percent of such amount 
        otherwise allowable.
  (U) In determining the reasonable cost of ambulance services 
(as described in section (s)(7)) provided during a fiscal year 
(beginning with fiscal year 1998 and ending with fiscal year 
2002), the Secretary shall not recognize any costs in excess of 
costs recognized as reasonable for ambulance services provided 
during the previous fiscal year after application of this 
subparagraph, increased by the percentage increase in the 
consumer price index for all urban consumers (U.S. city 
average) as estimated by the Secretary for the 12-month period 
ending with the midpoint of the fiscal year involved reduced 
(in the case of each of fiscal years 1998 and 1999) by 1 
percentage point.
          * * * * * * *

  Rural Health Clinic Services and Federally Qualified Health Center 
                                Services

  (aa)(1) * * *
  (2) The term ``rural health clinic'' means a facility which--
          (A) * * *
          * * * * * * *
          [(I) has appropriate procedures for review of 
        utilization of clinic services to the extent that the 
        Secretary determines to be necessary and feasible;]
          (I) has a quality assessment and performance 
        improvement program, and appropriate procedures for 
        review of utilization of clinic services, as the 
        Secretary may specify,
          * * * * * * *
For the purposes of this title, such term includes only a 
facility which (i) is located in an area that is not an 
urbanized area (as defined by the Bureau of the Census) and in 
which there are insufficient numbers of needed health care 
practitioners (as determined by the Secretary), [and that is 
designated] and that, within the previous three-year period, 
has been designated by the chief executive officer of the State 
and certified by the Secretary as an area with a shortage of 
personal health services[, or that is designated] or designated 
by the Secretary either (I) as an area with a shortage of 
personal health services under section 330(b)(3) or 1302(7) of 
the Public Health Service Act, (II) as a health professional 
shortage area described in section 332(a)(1)(A) of that Act 
because of its shortage of primary medical care manpower, (III) 
as a high impact area described in section 329(a)(5) of that 
Act, of (IV) as an area which includes a population group which 
the Secretary determines has a health manpower shortage under 
section 332(a)(1)(B) of that Act, (ii) has filed an agreement 
with the Secretary by which it agrees not to charge any 
individual or other person for items or services for which such 
individual is entitled to have payment made under this title, 
except for the amount of any deductible or coinsurance amount 
imposed with respect to such items or services (not in excess 
of the amount customarily charged for such items and services 
by such clinic), pursuant to subsections (a) and (b) of section 
1833, (iii) employs a physician assistant or nurse 
practitioner, and (iv) is not a rehabilitation agency or a 
facility which is primarily for the care and treatment of 
mental diseases. A facility that is in operation and qualifies 
as a rural health clinic under this title or title XIX and that 
subsequently fails to satisfy the requirement of clause (i) 
shall be considered, for purposes of this title and title XIX, 
as still satisfying the requirement of such clause if it is 
determined, in accordance with criteria established by the 
Secretary in regulations, to be essential to the delivery of 
primary care services that would otherwise be unavailable in 
the geographic area served by the clinic. If a State agency has 
determined under section 1864(a) that a facility is a rural 
health clinic and the facility has applied to the Secretary for 
approval as such a clinic, the Secretary shall notify the 
facility of the Secretary's approval or disapproval not later 
than 60 days after the date of the State agency determination 
or the application (whichever is later).
          * * * * * * *
  (5) [The term ``physician assistant, the term ``nurse 
practitioner, and the term ``clinical nurse specialist mean, 
for purposes of this title, a physician assistant, nurse 
practitioner, or clinical nurse specialist who performs](A) The 
term `physician assistant and the term `nurse practitioner 
mean, for purposes of this title, a physician assistant or 
nurse practitioner who performs such services as such 
individual is legally authorized to perform (in the State in 
which the individual performs such services) in accordance with 
State law (or the State regulatory mechanism provided by State 
law), and who meets such training, education, and experience 
requirements (or any combination thereof) as the Secretary may 
prescribe in regulations.
  (B) The term ``clinical nurse specialist means, for purposes 
of this title, an individual who--
          (i) is a registered nurse and is licensed to practice 
        nursing in the State in which the clinical nurse 
        specialist services are performed; and
          (ii) holds a masters degree in a defined clinical 
        area of nursing from an accredited educational 
        institution.
          * * * * * * *
  (7)(A) * * *
  (B) The Secretary may not grant such a waiver under 
subparagraph (A) to a facility if the request for the waiver is 
made less than 6 months after the date of the expiration of any 
previous such waiver for the facility, or if the facility has 
not yet been determined to meet the requirements (including 
subparagraph (J) of the first sentence of paragraph (2)) of a 
rural health clinic.
          * * * * * * *

       Comprehensive Outpatient Rehabilitation Facility Services

  (cc)(1) * * *
  (2) The term ``comprehensive outpatient rehabilitation 
facility means a facility which--
          (A) * * *
          * * * * * * *
          (I) meets such other conditions of participation as 
        the Secretary may find necessary in the interest of the 
        health and safety of individuals who are furnished 
        services by such facility, including conditions 
        concerning qualifications of personnel in these 
        facilities and providing the Secretary on a continuing 
        basis with a surety bond in a form specified by the 
        Secretary and in an amount that is not less than 
        $50,000.
          The Secretary may waive the requirement of a bond 
        under subparagraph (I) in the case of a facility that 
        provides a comparable surety bond under State law.
          * * * * * * *

                     Hospice Care; Hospice Program

  (dd)(1) The term ``hospice care means the following items and 
services provided to a terminally ill individual by, or by 
others under arrangements made by, a hospice program under a 
written plan (for providing such care to such individual) 
established and periodically reviewed by the individuals 
attending physician and by the medical director (and by the 
interdisciplinary group described in paragraph (2)(B)) of the 
program--
          (A) * * *
          * * * * * * *
          (G) short-term inpatient care (including both respite 
        care and procedures necessary for pain control and 
        acute and chronic symptom management) in an inpatient 
        facility meeting such conditions as the Secretary 
        determines to be appropriate to provide such care, but 
        such respite care may be provided only on an 
        intermittent, nonroutine, and occasional basis and may 
        not be provided consecutively over longer than five 
        days, [and]
          (H) counseling (including dietary counseling) with 
        respect to care of the terminally ill individual and 
        adjustment to his death[.], and
          (I) any other item or service which is specified in 
        the plan and for which payment may otherwise be made 
        under this title.
The care and services described in subparagraphs (A) and (D) 
may be provided on a 24-hour, continuous basis only during 
periods of crisis (meeting criteria established by the 
Secretary) and only as necessary to maintain the terminally ill 
individual at home.
  (2) The term ``hospice program means a public agency or 
private organization (or a subdivision thereof) which--
          (A)(i) is primarily engaged in providing the care and 
        services described in paragraph (1) and makes such 
        services available (as needed) on a 24-hour basis and 
        which also provides bereavement counseling for the 
        immediate family of terminally ill individuals,
          (ii) provides for such care and services in 
        individuals' homes, on an outpatient basis, and on a 
        short-term inpatient basis, directly or under 
        arrangements made by the agency or organization, except 
        that--
                  (I) the agency or organization must routinely 
                provide directly substantially all of each of 
                the services described in subparagraphs (A), 
                (C), [(F),] and (H) of paragraph (1), except as 
                otherwise provided in paragraph (5), and
          * * * * * * *
          (B) has an interdisciplinary group of personnel 
        which--
                  (i) includes at least--
                          (I) one physician (as defined in 
                        subsection (r)(1)),
                          (II) one registered professional 
                        nurse, and
                          (III) one social worker,
        employed by or, in the case of a physician described in 
        subclause (I), under contract with the agency or 
        organization, and also includes at least one pastoral 
        or other counselor,
          * * * * * * *
  (5)(A) * * *
  (B) Any waiver, which is in such form and containing such 
information as the Secretary may require and which is requested 
by an agency or organization under subparagraph (A) or (C), 
shall be deemed to be granted unless such request is denied by 
the Secretary within 60 days after the date such request is 
received by the Secretary. The granting of a waiver under 
subparagraph (A) or (C) shall not preclude the granting of any 
subsequent waiver request should such a waiver again become 
necessary.
  (C) The Secretary may waive the requirements of paragraph 
(2)(A)(i) and (2)(A)(ii) for an agency or organization with 
respect to the services described in paragraph (1)(B) and, with 
respect to dietary counseling, paragraph (1)(H), if such agency 
or organization--
          (i) is located in an area which is not an urbanized 
        area (as defined by the Bureau of Census), and
          (ii) demonstrates to the satisfaction of the 
        Secretary that the agency or organization has been 
        unable, despite diligent efforts, to recruit 
        appropriate personnel.
          * * * * * * *

   Rural Primary Care Hospital; Rural Primary Care Hospital Services

  (mm)(1) The term ``rural primary care hospital means a 
facility designated by the Secretary as a rural primary care 
hospital under section [1820(i)(2).] 1820(c), and includes a 
facility designated by the Secretary under section 1820(i)(2) 
as in effect on September 30, 1997.
          * * * * * * *

           Screening Pap [Smear] Smear; Screening Pelvic Exam

  (nn)(1) The term ``screening pap smear means a diagnostic 
laboratory test consisting of a routine exfoliative cytology 
test (Papanicolaou test) provided to a woman for the purpose of 
early detection of cervical cancer and includes a physicians 
interpretation of the results of the test, if the individual 
involved has not had such a test during the preceding [3 years 
(or such shorter period as the Secretary may specify in the 
case of a woman who is at high risk of developing cervical 
cancer (as determined pursuant to factors identified by the 
Secretary)).] 3 years, or during the preceding year in the case 
of a woman described in paragraph (3).
  (2) The term ``screening pelvic exam means an pelvic 
examination provided to a woman if the woman involved has not 
had such an examination during the preceding 3 years, or during 
the preceding year in the case of a woman described in 
paragraph (3), and includes a clinical breast examination.
  (3) A woman described in this paragraph is a woman who--
          (A) is of childbearing age and has not had a test 
        described in this subsection during each of the 
        preceding 3 years that did not indicate the presence of 
        cervical cancer; or
          (B) is at high risk of developing cervical cancer (as 
        determined pursuant to factors identified by the 
        Secretary).
          * * * * * * *

                    Prostate Cancer Screening Tests

  (oo)(1) The term ``prostate cancer screening test means a 
test that consists of any (or all) of the procedures described 
in paragraph (2) provided for the purpose of early detection of 
prostate cancer to a man over 50 years of age who has not had 
such a test during the preceding year.
  (2) The procedures described in this paragraph are as 
follows:
          (A) A digital rectal examination.
          (B) A prostate-specific antigen blood test.
          (C) For years beginning after 2001, such other 
        procedures as the Secretary finds appropriate for the 
        purpose of early detection of prostate cancer, taking 
        into account changes in technology and standards of 
        medical practice, availability, effectiveness, costs, 
        and such other factors as the Secretary considers 
        appropriate.

                   Colorectal Cancer Screening Tests

  (pp)(1) The term ``colorectal cancer screening test means any 
of the following procedures furnished to an individual for the 
purpose of early detection of colorectal cancer:
          (A) Screening fecal-occult blood test.
          (B) Screening flexible sigmoidoscopy.
          (C) In the case of an individual at high risk for 
        colorectal cancer, screening colonoscopy.
          (D) Screening barium enema, if found by the Secretary 
        to be an appropriate alternative to screening flexible 
        sigmoidoscopy under subparagraph (B) or screening 
        colonoscopy under subparagraph (C).
          (E) For years beginning after 2002, such other 
        procedures as the Secretary finds appropriate for the 
        purpose of early detection of colorectal cancer, taking 
        into account changes in technology and standards of 
        medical practice, availability, effectiveness, costs, 
        and such other factors as the Secretary considers 
        appropriate.
  (2) In paragraph (1)(C), an ``individual at high risk for 
colorectal cancer is an individual who, because of family 
history, prior experience of cancer or precursor neoplastic 
polyps, a history of chronic digestive disease condition 
(including inflammatory bowel disease, Crohns Disease, or 
ulcerative colitis), the presence of any appropriate recognized 
gene markers for colorectal cancer, or other predisposing 
factors, faces a high risk for colorectal cancer.

         Diabetes Outpatient Self-Management Training Services

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

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

  (rr)(1) The term ``post-institutional home health services'' 
means home health services furnished to an individual--
          (A) after discharge from a hospital or rural primary 
        care hospital in which the individual was an inpatient 
        for not less than 3 consecutive days before such 
        discharge if such home health services were initiated 
        within 14 days after the date of such discharge; or
          (B) after discharge from a skilled nursing facility 
        in which the individual was provided post-hospital 
        extended care services if such home health services 
        were initiated within 14 days after the date of such 
        discharge.
  (2) The term ``home health spell of illness'' with respect to 
any individual means a period of consecutive days--
          (A) beginning with the first day (not included in a 
        previous home health spell of illness) (i) on which 
        such individual is furnished post-institutional home 
        health services, and (B) which occurs in a month for 
        which the individual is entitled to benefits under part 
        A, and
          (B) ending with the close of the first period of 60 
        consecutive days thereafter on each of which the 
        individual is neither an inpatient of a hospital or 
        rural primary care hospital nor an inpatient of a 
        facility described in section 1819(a)(1) or subsection 
        (y)(1) nor provided home health services.

                         Bone Mass Measurement

  (ss)(1) The term ``bone mass measurement'' means a radiologic 
or radioisotopic procedure or other procedure approved by the 
Food and Drug Administration performed on a qualified 
individual (as defined in paragraph (2)) for the purpose of 
identifying bone mass or detecting bone loss of determining 
bone quality, and includes a physician's interpretation of the 
results of the procedure.
  (2) For purposes of this subsection, the term ``qualified 
individual'' means an individual who is (in accordance with 
regulations prescribed by the Secretary)--
        (A)  an estrogen-deficient woman at clinical risk for 
        osteoporosis:
        (B)  an individual with vertebral abnormalities;
        (C)  an individual receiving long-term glucocorticoid 
        steroid therapy;
        (D)  an individual with primary hyperparathyroidism; or
        (E)  an individual being monitored to assess the 
        response to or efficacy of an approved osteoporosis 
        drug therapy.
  (3) The Secretary shall establish such standards regarding 
the frequency with which a qualified individual shall be 
eligible to be provided benefits for bone mass measurement 
under this title.

        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 Advisory 
        Commission or the Secretary, which are not reasonable 
        and necessary to carry out the purposes of section 
        1886(e)(6),
          (E) in the case of research conducted pursuant to 
        section 1142, which is not reasonable and necessary to 
        carry out the purposes of that section, [and]
          (F) in the case of screening mammography, which is 
        performed more frequently than is covered under section 
        1834(c)(2) or which is not conducted by a facility 
        described in section 1834(c)(1)(B), and, in the case of 
        screening pap smear and screening pelvic exam, which is 
        performed more frequently than is provided under 
        section 1861(nn)[;],
          (G) in the case of prostate cancer screening tests 
        (as defined in section 1861(oo)), which are performed 
        more frequently than is covered under such section,
          (H) in the case of colorectal cancer screening tests, 
        which are performed more frequently than is covered 
        under section 1834(d); and
          (I) the frequency and duration of home health 
        services which are in excess of normative guidelines 
        that the Secretary shall establish by regulation;
          * * * * * * *
          (7) where such expenses are for routine physical 
        checkups, eyeglasses (other than eyewear described in 
        section 1861(s)(8)) or eye examinations for the purpose 
        of prescribing, fitting, or changing eyeglasses, 
        procedures performed (during the course of any eye 
        examination) to determine the refractive state of the 
        eyes, hearing aids or examinations therefor, or 
        immunizations (except as otherwise allowed under 
        section 1861(s)(10) and [paragraph (1)(B) or under 
        paragraph (1)(F)] subparagraphs (B), (F), (G), or (H) 
        of paragraph (1));
          * * * * * * *
          (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)] 
        section 1861(s)(2)(K), certified nurse-midwife 
        services, qualified psychologist services, and services 
        of a certified registered nurse anesthetist, and which 
        are furnished toan 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; ``
          (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, or
          (B) which are for services of an assistant at surgery 
        to which section 1848(i)(2)(B) applies; [or]
          (16) in the case in which funds may not be used for 
        such items and services under the Assisted Suicide 
        Funding Restriction Act of 1997[.];
          (17) which are covered skilled nursing facility 
        services described in section 1888(e)(2)(A)(i)(II) and 
        which are furnished to an individual who is a resident 
        of a skilled nursing facility by an entity other than 
        the skilled nursing facility, unless the services are 
        furnished under arrangements (as defined in section 
        1861(w)(1)) with the entity made by the skilled nursing 
        facility;
          (18) in the case of outpatient occupational therapy 
        services or outpatient physical therapy services 
        furnished as an incident to a physicians professional 
        services (as described in section 1861(s)(2)(A)), that 
        do not meet the standards and conditions under the 
        second sentence of section 1861(g) or 1861(p) as such 
        standards and conditions would apply to such therapy 
        services if furnished by a therapist; or
          (19) 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.
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)] 
                        (iii)) may not take into account that 
                        an individual (or a member of the 
                        individuals family) who is covered 
                        under the plan by virtue of the 
                        individuals current employment status 
                        with an employer is entitled to 
                        benefits under this title under section 
                        226(b).
                          (ii) Exception for individuals with 
                        end stage renal disease.--Subparagraph 
                        (C) shall apply instead of clause (i) 
                        to an item or service furnished in a 
                        month to an individual if for the month 
                        the individual is, or (without regard 
                        to entitlement under section 226) would 
                        upon application be, entitled to 
                        benefits under section 226A.
                          [(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] 30-
                        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] 
                30-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.]
          * * * * * * *
                  (F) Limitation on beneficiary liability.--An 
                individual who is entitled to benefits under 
                this title and is furnished an item or service 
                for which such benefits are incorrectly paid is 
                not liable for repayment of such benefits under 
                this paragraph unless payment of such benefits 
                was made to the individual.
          (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 tosuch 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.
          * * * * * * *
  (e)(1) * * *
  [(2) Where an individual eligible for benefits under this 
title submits a claim for payment for items or services 
furnished by an individual or entity excluded from 
participation in the programs under this title, pursuant to 
section 1128, 1128A, 1156, 1160 (as in effect on September 2, 
1982), 1842(j)(2), 1862(d) (as in effect on the date of the 
enactment of the Medicare and Medicaid Patient and Program 
Protection Act of 1987), or l866, and such beneficiary did not 
know or have reason to know that such individual or entity was 
so excluded, then, to the extent permitted by this title, and 
notwithstanding such exclusion, payment shall be made for such 
items or services. In each such case the Secretary shall notify 
the beneficiary of the exclusion of the individual or entity 
furnishing the items or services. Payment shall not be made for 
items or services furnished by an excluded individual or entity 
to a beneficiary after a reasonable time (as determined by the 
Secretary in regulations) after the Secretary has notified the 
beneficiary of the exclusion of that individual or entity.]
  (2) No individual or entity may bill (or collect any amount 
from) any individual for any item or service for which payment 
is denied under paragraph (1). No person is liable for payment 
of any amounts billed for such an item or service in violation 
of the previous sentence.
          * * * * * * *
  (i) In order to supplement the activities of the [Prospective 
Payment Assessment Commission] Medicare Payment Advisory 
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) * * *
          * * * * * * *

USE OF STATE AGENCIES TO DETERMINE COMPLIANCE BY PROVIDERS OF SERVICES 
                    WITH CONDITIONS OF PARTICIPATION

    Sec. 1864. (a) The Secretary shall make an agreement with 
any State which is able and willing to do so under which the 
services of the State health agency or other appropriate State 
agency (or the appropriate local agencies) will be utilized by 
him for the purpose of determining whether an institution 
therein is a hospital or skilled nursing facility, or whether 
an agency therein is a home health agency, or whether an agency 
is a hospice program or whether a facility therein is a rural 
health clinic as defined in section 1861(aa)(2), a rural 
primary care hospital, as defined in section 1861(mm)(1), or a 
comprehensive outpatient rehabilitation facility as defined in 
section 1861(cc)(2), or whether a laboratory meets the 
requirements of paragraphs [(15) and 16)] (16) and (17) of 
section 1861(s) or whether a clinic, rehabilitation agency or 
public health agency meets the requirements of subparagraph (A) 
or (B), as the case may be, of section 1861(p)(4), or whether 
an ambulatory surgical center meets the standards specified 
under section 1832(a)(2)(F)(i). To the extent that the 
Secretary finds it appropriate, an institution or agency which 
such a State (or local) agency certifies is a hospital, skilled 
nursing facility, rural health clinic, comprehensive outpatient 
rehabilitation facility, home health agency, or hospice program 
(as those terms are defined in section 1861) may be treated as 
such by the Secretary. Any State agency which has such an 
agreement may (subject to approval of the Secretary) furnish to 
a skilled nursing facility, after proper request by such 
facility, such specialized consultative services (which such 
agency is able and willing to furnish in a manner satisfactory 
to the Secretary) as such facility may need to meet one or more 
of the conditions specified in section 1819(a). Any such 
services furnished by a State agency shall be deemed to have 
been furnished pursuant to such agreement. Within 90 days 
following the completion of each survey of any health care 
facility, ambulatory surgical center, rural health clinic, 
comprehensive outpatient rehabilitation facility, laboratory, 
clinic, agency, or organization by the appropriate State or 
local agency described in the first sentence of this 
subsection, the Secretary shall make public in readily 
available form and place, and require (in the case of skilled 
nursing facilities) the posting in a place readily accessible 
to patients (and patients' representatives), the pertinent 
findings of each such survey relating to the compliance of each 
such health care facility, ambulatory surgical center, rural 
health clinic, comprehensive outpatient rehabilitation 
facility, laboratory, clinic, agency, or organization with (1) 
the statutory conditions of participation imposed under this 
title and (2)the major additional conditions which the 
Secretary finds necessary in the interest of health and safety of 
individuals who are furnished care or services by any such health care 
facility, ambulatory surgical center, rural health clinic, 
comprehensive outpatient rehabilitation facility, laboratory, clinic, 
agency, or organization. Any agreement under this subsection shall 
provide for the appropriate State or local agency to maintain a toll-
free hotline (1) to collect, maintain, and continually update 
information on home health agencies located in the State or locality 
that are certified to participate in the program established under this 
title (which information shall include in the most recent deficiencies 
found with respect to patient care in the most recent certification 
survey conducted by a State agency or accreditation survey conducted by 
a private accreditation agency under section 1865 with respect to the 
home health agency, when that survey was completed, whether corrective 
actions have been taken or are planned, and the sanctions, if any, 
imposed under this title with respect to the agency) and (2) to receive 
complaints (and answer questions) with respect to home health agencies 
in the State or locality. Any such agreement shall provide for such 
State or local agency to maintain a unit for investigating such 
complaints that possesses enforcement authority and has access to 
survey and certification reports, information gather by any private 
accreditation agency utilized by the Secretary under section 1865, and 
consumer medical records (but only with the consent of the consumer or 
his or her legal representative).

                 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) * * *
          * * * * * * *
          (H)(i) in the case of hospitals which provide 
        services for which payment may be made under this title 
        and in the case of rural primary care hospitals which 
        provide rural primary care hospital services, to have 
        all items and services (other than physicians services 
        as defined in regulations for purposes of section 
        1862(a)(14), and other than services described by 
        [section 1861(s)(2)(K)(i) or 1861(s)(2)(K)(iii)] 
        section 1861(s)(2)(K), certified nurse-midwife 
        services, qualified psychologist services, and services 
        of a certified registered nurse anesthetist) [(i)] (I) 
        that are furnished to an individual who is a patient of 
        the hospital, and [(ii)] (II) for which the individual 
        is entitled to have payment made under this title, 
        furnished by the hospital or otherwise under 
        arrangements (as defined in section 1861(w)(1)) made by 
        the hospital,
          (ii) in the case of skilled nursing facilities which 
        provide covered skilled nursing facility services--
                  (I) that are furnished to an individual who 
                is a resident of the skilled nursing facility, 
                and
                  (II) for which the individual is entitled to 
                have payment made under this title,
        furnished by the skilled nursing facility or otherwise 
        under arrangements (as defined in section 1861(w)(1)) 
        made by the skilled nursing facility,
          * * * * * * *
          (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 a MedicarePlus organization 
        under part C 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;
          * * * * * * *
In the case of a hospital which has an agreement in effect with 
an organization described in subparagraph (F), which 
organizations contract with the Secretary under part B of title 
XI is terminated on or after October 1, 1984, the hospital 
shall not be determined to be out of compliance with the 
requirement of such subparagraph during the six month period 
beginning on the date of the termination of that contract.
  (2)(A) A provider of services may charge such individual or 
other person (i) the amount of any deduction or coinsurance 
amount imposed pursuant to section 1813(a)(1), (a)(3), or 
(a)(4), section 1833(b), or section 1861(y)(3) with respect to 
such items and services (not in excess of the amount 
customarily charged for such items and services by such 
provider), and (ii) an amount equal to 20 per centum of the 
reasonable charges for such items and services (not in excess 
of 20 per centum of the amount customarily charged for such 
items and services by such provider) for which payment is made 
under part B or which are durable medical equipment furnished 
as home health services (but in the case of items and services 
furnished to individuals with end-stage renal disease, an 
amount equal to 20 percent of the estimated amounts for such 
items and services calculated on the basis established by the 
Secretary). In the case of items and services described in 
section 1833(c), clause (ii) of the preceding sentence shall be 
applied by substituting for 20 percent the proportion which is 
appropriate under such section. A provider of services may not 
impose a charge under clause (ii) of the first sentence of this 
subparagraph with respect to items and services described in 
section 1861(s)(10)(A) and with respect to clinical diagnostic 
laboratory tests for which payment is made under part B. 
Notwithstanding the first sentence of this subparagraph, a home 
health agency may charge such an individual or person, with 
respect to covered items subject to paymentunder section 
1834(a), the amount of any deduction imposed under section 1833(b) and 
20 percent of the payment basis described in section 1834(a)(1)(B). In 
the case of items and services for which payment is made under part B 
under the prospective payment system established under section 1833(t), 
clause (ii) of the first sentence shall be applied by substituting for 
20 percent of the reasonable charge, the applicable copayment amount 
established under section 1833(t)(5).
          * * * * * * *
  (b)(1)
  (2) The Secretary may refuse to enter into an agreement under 
this section or, upon such reasonable notice to the provider 
and the public as may be specified in regulations, may refuse 
to renew or may terminate such an agreement after the 
Secretary--
          (A) * * *
          (B) has determined that the provider fails 
        substantially to meet the applicable provisions of 
        section 1861, [or]
          (C) has excluded the provider from participation in a 
        program under this title pursuant to section 1128 or 
        section 1128A[.], or
          (D) has ascertained that the provider has been 
        convicted of a felony under Federal or State law for an 
        offense which the Secretary determines is inconsistent 
        with the best interests of program beneficiaries.
          * * * * * * *
  (f)(1) For purposes of subsection (a)(1)(Q) and sections 
1819(c)(2)(E), 1833(s), 1855(i), 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) * * *
          * * * * * * *
  (2) The written information described in paragraph (1)(A) 
shall be provided to an adult individual--
          (A) * * *
          * * * * * * *
          (E) in the case of an eligible organization (as 
        defined in section 1876(b)) or an organization provided 
        payments under section 1833(a)(1)(A) or a MedicarePlus 
        organization, at the time of enrollment of the 
        individual with the organization.
          * * * * * * *

                        determinations; appeals

  Sec. 1869. (a) * * *
          (b)(1) * * *
  (2) Notwithstanding paragraph (1)(C) and(1)(D), in the case 
of a claim arising--
          (A) under part A, a hearing shall not be available to 
        an individual under paragrph(1)(C) and (1)(D) if he 
        amount in controversy is less than $100 and judicial 
        review shall not be available to the individual under 
        that paragraph if the amount in cntroversery is less 
        than $1,000; or--
          (B) under part B, a hearing shall not be availableto 
        an individual under paragaph (1)(C) and (1)(D) if the 
        amunt in conroversy isless than $500 or ($100 in the 
        case of home health services) and judicial review shall 
        not be available to the individual under that paragraph 
        if the aggregate amount in controversy is less than 
        $1,000.
          * * * * * * *

 payments to health maintenance organizations and competitive medical 
                                 plans

  Sec. 1876. (a) * * *
          * * * * * * *
  (f)(1) * * *
  (2) [The Secretary] Subject to paragraph (4), the Secretary 
may modify or waive the requirement imposed by paragraph (1) 
only--
          (A) * * *
          * * * * * * *
  (4) Effective for contract periods beginning after December 
31, 1996, the Secretary may waive or modify the requirement 
imposed by paragraph (1) to the extent the Secretary finds that 
it is in the public interest.
          * * * * * * *
  (k)(1) Except as provided in paragraph (3), the Secretary 
shall not enter into, renew, or continue any risk-sharing 
contract under this section with an eligible organization for 
any contract year beginning on or after--
          (A) the date standards for MedicarePlus organizations 
        and plans are first established under section 1856 with 
        respect to MedicarePlus organizations that are insurers 
        or health maintenance organizations, or
          (B) in the case of such an organization with such a 
        contract in effect as of the date such standards were 
        first established, 1 year after such date.
  (2) The Secretary shall not enter into, renew, or continue 
any risk-sharing contract under this section with an eligible 
organization for any contract year beginning on or after 
January 1, 2000.
  (3) An individual who is enrolled in part B only and is 
enrolled in an eligible organization with a risk-sharing 
contract under this section on December 31, 1998, may continue 
enrollment in such organization in accordance with regulations 
issued by not later then July 1, 1998.
  (4) Notwithstanding subsection (a), the Secretary shall 
provide that payment amounts under risk-sharing contracts under 
this section for months in a year (beginning with January 1998) 
shall be computed--
          (A) with respect to individuals entitled to benefits 
        under both parts A and B, by substituting payment rates 
        under section 1853(a) for the payment rates otherwise 
        established under subsection 1876(a), and
          (B) with respect to individuals only entitled to 
        benefits under part B, by substituting an appropriate 
        proportion of such rates (reflecting the relative 
        proportion of payments under this title attributable to 
        such part) for the payment rates otherwise established 
        under subsection (a).
For purposes of carrying out this paragraph for payments for 
months in 1998, the Secretary shall compute, announce, and 
apply the payment rates under section 1853(a) (notwithstanding 
any deadlines specified in such section) in as timely a manner 
as possible and may (to the extent necessary) provide for 
retroactive adjustment in payments made under this section not 
in accordance with such rates.

               LIMITATION ON CERTAIN PHYSICIAN REFERRALS

  Sec. 1877. (a) * * *
          * * * * * * *
  (g) Sanctions.--
          (1) * * *
          * * * * * * *
          (6) Advisory opinions.--
                  (A) In general.--The Secretary shall issue 
                written advisory opinions concerning whether a 
                referral relating to designated health services 
                (other than clinical laboratory services) is 
                prohibited under this section.
                  (B) 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.
                  (C) Application of certain procedures.--The 
                Secretary shall, to the extent practicable, 
                apply the regulations promulgated under section 
                1128D(b)(5) to the issuance of advisory 
                opinions under this paragraph.
                  (D) Applicability.--This paragraph shall 
                apply to requests for advisory opinions made 
                during the period described in section 
                1128D(b)(6).
          * * * * * * *

   limitation on liability of beneficiary where medicare claims are 
                               disallowed

  Sec. 1879.(a) * * *
          * * * * * * *
  (g) The coverage denial described in this subsection [is,] 
is--
          (1) with respect to the provision of home health 
        services to an individual, a failure to meet the 
        requirements of section 1814(a)(2)(C) or section 
        1835(a)(2)(A) in that the individual--
                  [(1)] (A) is or was not confined to his home, 
                or
                  [(2)] (B) does or did not need skilled 
                nursing care on an intermittent basis[.]; and
          (2) with respect to the provision of hospice care to 
        an individual, a determination that the individual is 
        not terminally ill.
          * * * * * * *

    certification of medicare supplemental health insurance policies

  Sec. 1882. (a) * * *
          * * * * * * *
  (d)(1) * * *
          * * * * * * *
  (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 (including an individual electing a 
MedicarePlus plan under section 1851)--
          (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) in the case of an individual not electing a 
        MedicarePlus plan a medicare supplemental policy with 
        knowledge that the individual is entitled to benefits 
        under another medicare supplemental policy or in the 
        case of an individual electing a MedicarePlus plan, a 
        medicare supplemental policy with knowledge that the 
        policy duplicates health benefits to which the 
        individual is otherwise entitled under the MedicarePlus 
        plan or 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.
  (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 
        individuals knowledge, what health insurance policies 
        (including any MedicarePlus plan) 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
          * * * * * * *
  (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 or a MedicarePlus plan or 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 
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.
          * * * * * * *
  (s)(1) * * *
  (2)(A) * * *
  (B) Subject to [subparagraph (C)] subparagraphs (C) and (D), 
subparagraph (A) shall not be construed as preventing the 
exclusion of benefits under a policy, during its first 6 
months, based on a pre-existing condition for which the 
policyholder received treatment or was otherwise diagnosed 
during the 6 months before the policy became effective.
          * * * * * * *
  (D) In the case of a policy issued during the 6-month period 
described in subparagraph (A) to an individual who is 65 years 
of age or older as of the date of issuance and who as of the 
date of the application for enrollment has a continuous period 
of creditable coverage (as defined in 2701(c) of the Public 
Health Service Act) of--
          (i) at least 6 months, the policy may not exclude 
        benefits based on a pre-existing condition; or
          (ii) of less than 6 months, if the policy excludes 
        benefits based on a preexisting condition, the policy 
        shall reduce the period of any preexisting condition 
        exclusion by the aggregate of the periods of creditable 
        coverage (if any, as so defined) applicable to the 
        individual as of the enrollment date.
The Secretary shall specify the manner of the reduction under 
clause (ii), based upon the rules used by the Secretary in 
carrying out section 2701(a)(3) of such Act.
  (3)(A) The issuer of a medicare supplemental policy--
          (i) may not deny or condition the issuance or 
        effectiveness of a medicare supplemental policy 
        described in subparagraph (C) that is offered and is 
        available for issuance to new enrollees by such issuer;
          (ii) may not discriminate in the pricing of the 
        policy, because of health status, claims experience, 
        receipt of health care, or medical condition; and
          (iii) may not impose an exclusion of benefits based 
        on a pre-existing condition under such policy,
in the case of an individual described in subparagraph (B) who 
seeks to enroll under the policy not later than 63 days after 
the dateof the termination of enrollment described in such 
subparagraph and who submits evidence of the date of termination or 
disenrollment along with the application for such medicare supplemental 
policy.
  (B) An individual described in this subparagraph is an 
individual described in any of the following clauses:
          (i) The individual is enrolled under an employee 
        welfare benefit plan that provides health benefits that 
        supplement the benefits under this title and the plan 
        terminates or ceases to provide any such supplemental 
        health benefits to the individual.
          (ii) The individual is enrolled with a MedicarePlus 
        organization under a MedicarePlus plan under part C, 
        and there are circumstances permitting discontinuance 
        of the individual's election of the plan under section 
        1851(c)(4).
          (iii) The individual is enrolled with an eligible 
        organization under a contract under section 1876, a 
        similar organization operating under demonstration 
        project authority, with an organization under an 
        agreement under section 1833(a)(1)(A), or with an 
        organization under a policy described in subsection 
        (t), and such enrollment ceases under the same 
        circumstances that would permit discontinuance of an 
        individual's election of coverage under section 
        1851(c)(4) and, in the case of a policy described in 
        subsection (t) there is no provision under applicable 
        State law for the continuation of coverage under such 
        policy.
          (iv) The individual is enrolled under a medicare 
        supplemental policy under this section and such 
        enrollment ceases because--
                  (I) of the bankruptcy or insolvency of the 
                issuer or because of other involuntary 
                termination of coverage or enrollment under 
                such policy and there is no provision under 
                applicable State law for the continuation of 
                such coverage;
                  (II) the issuer of the policy substantially 
                violated a material provision of the policy; or
                  (III) the issuer (or an agent or other entity 
                acting on the issuer's behalf) misrepresented 
                the policy's provisions in marketing the policy 
                to the individual.
          (v) The individual--
                  (I) was enrolled under a medicare 
                supplemental policy under this section,
                  (II) subsequently terminates such enrollment 
                and enrolls, for the first time, with any 
                MedicarePlus organization under a MedicarePlus 
                plan under part C, any eligible organization 
                under a contract under section 1876, any 
                similar organization operating under 
                demonstration project authority, any 
                organization under an agreement under section 
                1833(a)(1)(A), or any policy described in 
                subsection (t), and
                  (III) the subsequent enrollment under 
                subclause (II) is terminated by the enrollee 
                during the first 6 months (or 3 months for 
                terminations occurring on or after January 1, 
                2003) of such enrollment.
  (C)(i) Subject to clauses (ii) and (iii), a medicare 
supplemental policy described in this subparagraph has a 
benefit package classified as ``A``, ``B'', ``C'', or ``F'' 
under the standards established under subsection (p)(2).
          (ii) Only for purposes of an individual described in 
        subparagraph (b)(v), a medicare supplemental policy 
        described in this subparagraph also includes (if 
        available from the same issuer) the same medicare 
        supplemental policy referred to in such subparagraph in 
        which the individual was most recently previously 
        enrolled.
          (iii) For purposes of applying this paragraph in the 
        case of a State that provides for offering of benefit 
        packages other than under the classification referred 
        to in clause (i), the references to benefit packages in 
        such clause are deemed references to comparable benefit 
        packages offered in such State.
  (D) At the time of an event described in subparagraph (B) 
because of which an individual ceases enrollment or loses 
coverage or benefits under a contract or agreement, policy, or 
plan, the organization that offers the contract or agreement, 
the insurer offering the policy, or the administrator of the 
plan, respectively, shall notify the individual of the rights 
of the individual, and obligations of issuers of medicare 
supplemental policies, under subparagraph (A).
  [(3)] (4) Any issuer of a medicare supplemental policy that 
fails to meet the requirements of [paragraphs (1) and (2)] this 
subsection is subject to a civil money penalty of not to exceed 
$5,000 for each such failure. 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).
          * * * * * * *
  (u)(1) It is unlawful for a person to sell or issue a policy 
described in paragraph (2) to an individual with knowledge that 
the individual has in effect under section 1851 an election of 
an MSA plan.
  (2) A policy described in this subparagraph is a health 
insurance policy that provides for coverage of expenses that 
are otherwise required to be counted toward meeting the annual 
deductible amount provided under the MSA plan.
          * * * * * * *

              hospital providers of extended care services

  Sec. 1883. (a)(1) Any hospital or rural primary care hospital 
(other than a hospital which has in effect a waiver under 
subparagraph (A) of the last sentence of section 1861(e)) which 
has an agreement under section 1866 may (subject to subsection 
(b)) enter into an agreement with the Secretary under which its 
inpatient hospital facilities may be used for the furnishing of 
services of the type which, if furnished by a skilled nursing 
facility, would constitute extended care services.
          * * * * * * *

          payment to hospitals for inpatient hospital services

  Sec. 1886. (a) * * *
  (b)(1) Notwithstanding section 1814(b) but subject to the 
provisions of section 1813, if the operating costs of inpatient 
hospitalservices (as defined in subsection (a)(4)) of a 
hospital (other than a subsection (d) hospital, as defined in 
subsection (d)(1)(B) and other than a rehabilitation facility described 
in subsection (j)(1)) for a cost reporting period subject to this 
paragraph--
          (A) are less than or equal to the target amount (as 
        defined in paragraph (3)) for that hospital for that 
        period, the amount of the payment with respect to such 
        operating costs payable under part A on a per discharge 
        or per admission basis (as the case may be) shall be 
        equal to the amount of such operating costs, plus--
                  [(i) 50 percent of the amount by which the 
                target amount exceeds the amount of the 
                operating costs, or
                  [(ii) 5 percent of the target amount,
        whichever is less; or]
                  (i) 10 percent of the amount by which the 
                target amount exceeds the amount of the 
                operating costs, or
                  (ii) 1 percent of the operating costs,
        whichever is less;
          (B) are greater than the target amount but do not 
        exceed 110 percent of the target amount, the amount of 
        the payment with respect to those operating costs 
        payable under part A on a per discharge basis shall 
        equal the target amount; or
          [(B)] (C) are [greater than the target amount] 
        greater than 110 percent of the target amount, the 
        amount of the payment with respect to such operating 
        costs payable under part A on a per discharge or per 
        admission basis (as the case may be) shall be equal to 
        (i) the target amount, plus (ii) in the case of cost 
        reporting periods beginning on or after October 1, 
        1991, an additional amount equal to 50 percent of the 
        amount by which the operating costs [exceed the target 
        amount] exceed 110 percent of the target amount (except 
        that such additional amount may not exceed [10] 20 
        percent of the target amount) after any exceptions or 
        adjustments are made to such target amount for the cost 
        reporting period;
except that in no case may the amount payable under this title 
(other than on the basis of a DRG prospective payment rate 
determined under subsection (d)) with respect to operating 
costs of inpatient hospital services exceed the maximum amount 
payable with respect to such costs pursuant to subsection (a).
  (2)(A) Notwithstanding paragraph (1), in the case of a 
hospital or unit that is within a class of hospital described 
in subparagraph (B) which first receives payments under this 
section on or after October 1, 1997--
          (i) for each of the first 2 full or partial cost 
        reporting periods, the amount of the payment with 
        respect to operating costs described in paragraph (1) 
        under part A on a per discharge or per admission basis 
        (as the case may be) is equal to the lesser of--
                  (I) the amount of operating costs for such 
                respective period, or
                  (II) 150 percent of the national median of 
                the operating costs for hospitals in the same 
                class as the hospital for cost reporting 
                periods beginning during the same fiscal year, 
                as adjusted under subparagraph (C); and
          (ii) for purposes of computing the target amount for 
        the subsequent cost reporting period, the target amount 
        for the preceding cost reporting period is equal to the 
        amount determined under clause (i) for such preceding 
        period.
  (B) For purposes of this paragraph, each of the following 
shall be treated as a separate class of hospital:
          (i) Hospitals described in clause (i) of subsection 
        (d)(1)(B) and psychiatric units described in the matter 
        following clause (v) of such subsection.
          (ii) Hospitals described in clause (ii) of such 
        subsection and rehabilitation units described in the 
        matter following clause (v) of such subsection.
          (iii) A class of hospitals described in subsection 
        (d)(1)(B)(iv) that the Secretary shall establish based 
        upon a measure of case mix that takes into account 
        acuity.measure of case mix that takes into account 
        acuity.
          (iv) Hospitals described in subsection (d)(1)(B)(iv) 
        that are not within the class described in clause 
        (iii).
  (C) In applying subparagraph (A)(i)(II) in the case of a 
hospital or unit, the Secretary shall provide for an 
appropriate adjustment to the labor-related portion of the 
amount determined under such subparagraph to take into account 
differences between average wage-related costs in the area of 
the hospital and the national average of such costs within the 
same class of hospital.
  (3)(A) Except as provided in [subparagraphs (C), (D), and 
(E)] subparagraph (C) and succeeding subparagraphs and in 
paragraph (2)(A)(ii), 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) and subsection (j) for 
discharges occurring during a fiscal year, the ``applicable 
percentage increase shall be--
           (I) * * *
          * * * * * * *
          (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.]
          (XIII) for fiscal year 1998, 0 percent,
          (XIV) for each of the fiscal years 1999 through 2002, 
        the market basket percentage increase minus 1.0 
        percentage point for hospitals in all areas, and
          (XV) 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), the 
``applicable percentage increase'' for 12-month cost reporting 
periods beginning during--
          (I) * * *
          * * * * * * *
          (V) fiscal years 1994 through 1997, 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 
        hospitals update adjustment percentage (as defined in 
        clause (v)(I)) is at least 10 percent, the market 
        basket percentage increase, [and]
          (VI) for fiscal year 1998, is 0 percent;
          (VII) for fiscal years 1999 through 2002, is the 
        applicable update factor specified under clause (vi) 
        for the fiscal year; and
          [(VI)] (VIII) subsequent fiscal years is the market 
        basket percentage increase.
  (vi) For purposes of clause (ii)(VII) for a fiscal year, if a 
hospitals allowable operating costs of inpatient hospital 
services recognized under this title for the most recent cost 
reporting period for which information is available--
          (I) is equal to, or exceeds, 110 percent of the 
        hospitals target amount (as determined under 
        subparagraph (A)) for such cost reporting period, the 
        applicable update factor specified under this clause is 
        the market basket percentage;
          (II) exceeds 100 percent, but is less than 110 
        percent, of such target amount for the hospital, the 
        applicable update factor specified under this clause is 
        0 percent or, if greater, the market basket percentage 
        minus 0.25 percentage points for each percentage point 
        by which such allowable operating costs (expressed as a 
        percentage of such target amount) is less than 110 
        percent of such target amount;
          (III) is equal to, or less than 100 percent, but 
        exceeds \2/3\ of such target amount for the hospital, 
        the applicable update factor specified under this 
        clause is 0 percent or, if greater, the market basket 
        percentage minus 2.5 percentage points; or
          (IV) does not exceed \2/3\ of such target amount for 
        the hospital, the applicable update factor specified 
        under this clause is 0 percent.
          * * * * * * *
  (D) For cost reporting periods ending on or before [September 
30, 1994,] September 30, 1994, and for cost reporting periods 
beginning on or after October 1, 1997, and before October 1, 
2001, in the case of a hospital that is a medicare-dependent, 
small rural hospital (as defined in subsection (d)(5)(G)), the 
term ``target amount means--
          (i) * * *
          (ii) with respect to a later cost reporting period 
        beginning before fiscal year 1994, the target amount 
        for the preceding 12-month cost reporting period, 
        increased by the applicable percentage increase under 
        subparagraph (B)(iv) for discharges occurring in the 
        fiscal year in which that later cost reporting period 
        begins, [and]
          (iii) with respect to discharges occurring in fiscal 
        year 1994, the target amount for the cost reporting 
        period beginning in fiscal year 1993 increased by the 
        applicable percentage increase under subparagraph 
        (B)(iv)[.], and
          (iv) with respect to discharges occurring during 
        fiscal year 1998 through fiscal year 2000, the target 
        amount for the preceding year increased by the 
        applicable percentage increase under subparagraph 
        (B)(iv).
There shall be substituted for the base cost reporting period 
described in clause (i) a hospitals cost reporting period (if 
any) beginning during fiscal year 1987 if such substitution 
results in an increase in the target amount for the hospital.
          * * * * * * *
  (F)(i) In the case of a hospital or unit that is within a 
class of hospital described in clause (ii), for cost reporting 
periods beginning on or after October 1, 1997, and before 
October 1, 2002, such target amount may not be greater than the 
90th percentile of the target amounts for such hospitals within 
such class for cost reporting periods beginning during that 
fiscal year.
  (ii) For purposes of this subparagraph, each of the following 
shall be treated as a separate class of hospital:
          (I) Hospitals described in clause (i) of subsection 
        (d)(1)(B) and psychiatric units described in the matter 
        following clause (v) of such subsection.
          (II) Hospitals described in clause (ii) of such 
        subsection and rehabilitation units described in the 
        matter following clause (v) of such subsection.
          (III) Hospitals described in clause (iv) of such 
        subsection.
  (G)(i) In the case of a hospital (or unit described in the 
matter following clause (v) of subsection (d)(1)(B)) that 
received payment under this subsection for inpatient hospital 
services furnished before January 1, 1990, that is within a 
class of hospital described in clause (iii), and that elects 
(in a form and manner determined by the Secretary) this 
subparagraph to apply to the hospital, the target amount for 
the hospitals 12-month cost reporting period beginning during 
fiscal year 1998 is equal to the average described in clause 
(ii).
  (ii) The average described in this clause for a hospital or 
unit shall be determined by the Secretary as follows:
          (I) The Secretary shall determine the allowable 
        operating costs for inpatient hospital services for the 
        hospital or unit for each of the 5 cost reporting 
        periods for which the Secretary has the most recent 
        settled cost reports as of the date of the enactment of 
        this subparagraph.
          (II) The Secretary shall increase the amount 
        determined under subclause (I) for each cost reporting 
        period by the applicable percentage increase under 
        subparagraph (B)(ii) for each subsequent cost reporting 
        period up to the cost reporting period described in 
        clause (i).
          (III) The Secretary shall identify among such 5 cost 
        reporting periods the cost reporting periods for which 
        the amount determined under subclause (II) is the 
        highest, and the lowest.
          (IV) The Secretary shall compute the averages of the 
        amounts determined under subclause (II) for the 3 cost 
        reporting periods not identified under subclause (III).
  (iii) For purposes of this subparagraph, each of the 
following shall be treated as a separate class of hospital:
          (I) Hospitals described in clause (i) of subsection 
        (d)(1)(B) and psychiatric units described in the matter 
        following clause (v) of such subsection.
          (II) Hospitals described in clause (ii) of such 
        subsection and rehabilitation units described in the 
        matter following clause (v) of such subsection.
          (III) Hospitals described in clause (iii) of such 
        subsection.
          (IV) Hospitals described in clause (iv) of such 
        subsection.
          (V) Hospitals described in clause (v) of such 
        subsection.
  (H)(i) In the case of a qualified long-term care hospital (as 
defined in clause (ii)) that elects (in a form and manner 
determined by the Secretary) this subparagraph to apply to the 
hospital, the target amount for the hospitals 12-month cost 
reporting period beginning during fiscal year 1998 is equal to 
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 1996, increased by the applicable 
percentage increase for the cost reporting period beginning 
during fiscal year 1997.
  (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 each of 
the 2 cost reporting periods for which the Secretary has the 
most recent settled cost reports as of the date of the 
enactment of this subparagraph for each of which--
          (I) the hospitals allowable operating costs of 
        inpatient hospital services recognized under this title 
        exceeded 115 percent of the hospitals target amount, 
        and
          (II) the hospital would have a disproportionate 
        patient percentage of at least 70 percent (as 
        determined by the Secretary under subsection 
        (d)(5)(F)(vi)) if the hospital were a subsection (d) 
        hospital.
  (4)(A)(i) The Secretary shall provide for an [exemption from, 
or an exception and adjustment to,] an exception and adjustment 
to the method under this subsection for determining the amount 
of payment to a hospital where events beyond the hospitals 
control or extraordinary circumstances, including changes in 
the case mix of such hospital, create a distortion in the 
increase in costs for a cost reporting period (including any 
distortion in the costs for the base period against which such 
increase is measured). The Secretary may provide for such other 
exemptions from, and exceptions and adjustments to, such method 
as the Secretary deems appropriate, including the assignment of 
a new base period which is more representative, as determined 
by the Secretary, of the reasonable and necessary cost of 
inpatient services and including those which he deems necessary 
to take into account a decrease in the inpatient hospital 
services that a hospital provides and that are customarily 
provided directly by similar hospitals which results in a 
significant distortion in the operating costs of inpatient 
hospital services. The Secretary shall announce a decision on 
any request for an exemption, exception, or adjustment under 
this paragraph not later than 180 days after receiving a 
completed application from the intermediary for such exemption, 
exception, or adjustment, and shall include in such decision a 
detailed explanation of the grounds on which such request was 
approved or denied.
  (ii) The payment reductions under paragraph (3)(B)(ii)(V) 
shall not be considered by the Secretary in making adjustments 
pursuant to clause (i). In making such reductions, the 
Secretary shall treat the applicable update factor described in 
paragraph (3)(B)(vi) for a fiscal year as being equal to the 
market basket percentage for that year.
          * * * * * * *
  (d)(1)(A) * * *
  (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) a psychiatric hospital (as defined in section 
        1861(f)),
          (ii) a rehabilitation hospital (as defined by the 
        Secretary),
          (iii) a hospital whose inpatients are predominantly 
        individuals under 18 years of age,
          (iv) a hospital which has an average inpatient length 
        of stay (as determined by the Secretary) of greater 
        than 25 days, or a hospital that first received payment 
        under this subsection in 1986 which has an average 
        inpatient length of stay (as determined by the 
        Secretary) of greater than 20 days and that has 80 
        percent or more of its annual total inpatient 
        discharges with a principal diagnosis that reflects a 
        finding of neoplastic disease, or
          (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). A hospital that was classified by the Secretary on 
or before September 30, 1995, as a hospital described in clause 
(iv) shall continue to be so classified notwithstanding that it 
is located in the same building as, or on the same campus as, 
another hospital.
  (2) The Secretary shall determine a national adjusted DRG 
prospective payment rate, for each inpatient hospital discharge 
in fiscal year 1984 involving inpatient hospital services of a 
subsection (d) hospital in the United States, and shall 
determine a regional adjusted DRG prospective payment rate for 
such discharges in each region, for which payment may be made 
under part A of this title. Each such rate shall be determined 
for hospitals located in urban or rural areas within the United 
States or within each such region, respectively, as follows:
          (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), except that the Secretary 
                shall not take into account any reductions in 
                the amount of additional payments under 
                paragraph (5)(B)(ii) resulting from the 
                amendments made by section 10506(a) of the 
                Balanced Budget Act of 1997,
          * * * * * * *
  (5)(A)(i) * * *
  (ii) For cases which are not included in clause (i), a 
subsection (d) hospital may request additional payments in any 
case where charges, adjusted to cost, exceed a fixed multiple 
of the applicable DRG prospective payment rate, or exceed such 
other fixed dollar amount, whichever is greater, or for 
discharges in fiscal years beginning on or after October 1, 
1994, [exceed the applicable DRG prospective payment rate] 
exceed the sum of the applicable DRG prospective payment rate 
plus any amounts payable under paragraphs (d)(5)(B) and 
(d)(5)(F) plus a fixed dollar amount determined by the 
Secretary.
  (B) 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, for cases qualifying for additional 
        payment under subparagraph (A)(i), 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, is equal to 1.89  
        (((1+r) to the nth power) -1), where ``r'' is the ratio 
        of the hospitals full-time equivalent interns and 
        residents to beds and ``n'' equals .405.]
          (ii) For purposes of clause (i)(II), the indirect 
        teaching adjustment factor for discharges occurring--
                  (I) on or after October 1, 1988 and before 
                October 1, 1997, is equal to 1.89  
                (((1+r) to the nth power) -1),
                  (II) during fiscal year 1998, is equal to 
                1.62  (((1+r) to the nth power) -1), 
                and
                  (III) during or after fiscal year 1999, is 
                equal to 1.35  (((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 0.405, subject to clause (vi).
          * * * * * * *
          (v) In determining the adjustment with respect to a 
        hospital for discharges occurring on or after October 
        1, 1997, the total number of interns and residents in 
        either a hospital or non-hospital setting may not 
        exceed the number of interns and residents in the 
        hospital with respect to the hospital's cost reporting 
        period beginning on or before December 31, 1996.
          (vi) For purposes of clause (ii)--
                  (I) ``r'' may not exceed the ratio of the 
                number of interns and residents as determined 
                under clause (v) with respect to the hospital 
                for its most recent cost reporting period, to 
                the hospital's available beds (as defined by 
                the Secretary) during that cost reporting 
                period,
                  (II) for the hospital's first cost reporting 
                period beginning on or after October 1, 1997, 
                subject to the limits described in clauses (iv) 
                and (v), the total number of full-time 
                equivalent residents for payment purposes shall 
                equal the average of the actual full-time 
                equivalent resident count for the hospital's 
                most recent cost reporting period and the 
                preceding cost reporting period, and
                  (III) for the cost reporting period beginning 
                on or after October 1, 1998, and each 
                subsequent cost reporting period, subject to 
                the limits described in clauses (iv) and (v), 
                the total number of full-time equivalent 
                residents for payment purposes shall equal the 
                average of the actual full-time equivalent 
                resident count for the cost reporting period 
                and the preceding two cost reporting periods.
          (vii) If the hospital's fiscal year 1998 or later 
        cost reporting period is not equal to twelve months, 
        the Secretary shall make appropriate modifications to 
        ensure that the average full-time equivalent residency 
        count pursuant to subclauses (II) and (III) of clause 
        (vi) is based on the equivalent of full twelve month 
        cost reporting periods.
          (viii) The Secretary may establish rules, consistent 
        with the policies in clauses (v) through (vii) and in 
        subsection (h)(6)(A)(ii), with respect to the 
        application of clauses (v) through (vii) in the case of 
        medical residency training programs established on or 
        after January 1, 1997.
          * * * * * * *
  (D)(i) * * *
          * * * * * * *
  (iii) For purposes of this title, the term ``sole community 
hospital means any hospital--
          (I) * * *
          * * * * * * *
          (III) that is located in a rural area and designated 
        by the Secretary as an essential access community 
        hospital under section 1820(i)(1) as in effect on 
        September 30, 1997.
  (v) If the Secretary determines that, in the case of a 
hospital located in a rural area and designated by the 
Secretary as an essential access community hospital under 
section 1820(i)(1) as in effect on September 30, 1997, the 
hospital has incurred increases in reasonable costs during a 
cost reporting period as a result ofbecoming a member of a 
rural health network (as defined in section 1820(g) as in effect on 
September 30, 1997) in the State in which it is located, and in 
incurring such increases, the hospital will increase its costs for 
subsequent cost reporting periods, the Secretary shall increase the 
hospitals target amount under subsection (b)(3)(C) to account for such 
incurred increases.
          * * * * * * *
  (F)(i) * * *
  (ii) 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, for cases 
qualifying for additional payment under subparagraph (A)(i), 
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. For discharges 
occurring on or after October 1, 1997, the sum described in 
subclause (I) shall be determined as if the applicable 
percentage increase described in subsection (b)(3)(B)(i) for 
discharges for fiscal years 1998 and 1999 were zero percent.
          * * * * * * *
  (G)(i) For any cost reporting period beginning on or after 
April 1, 1990, and before [October 1, 1994,] October 1, 1994, 
or beginning on or after October 1, 1997, and before October 1, 
2001, in the case of a subsection (d) hospital which is a 
medicare-dependent, small rural hospital, payment under 
paragraph (1)(A) shall be equal to the sum of the amount 
determined under clause (ii) and the amount determined under 
paragraph (1)(A)(iii).
  (ii) The amount determined under this clause is--
          (I) * * *
          (II) for discharges occurring during any subsequent 
        cost reporting period (or portion thereof) and before 
        [October 1, 1994,] October 1, 1994, or beginning on or 
        after October 1, 1997, and before October 1, 2001, 50 
        percent of the amount by which the hospitals target 
        amount for the cost reporting period (as defined in 
        subsection (b)(3)(D)) exceeds the amount determined 
        under paragraph (1)(A)(iii).
  (I)(i) * * *
          * * * * * * *
  (iii) In carrying out this subparagraph, the Secretary shall 
treat the term ``transfer case as including the case of an 
individual who, upon discharge from a subsection (d) hospital--
          (I) is admitted as an inpatient to a hospital or 
        hospital unit that is not a subsection (d) hospital for 
        the receipt of inpatient hospital services;
          (II) is admitted to a skilled nursing facility or 
        facility described in section 1861(y)(1) for the 
        receipt of extended care services; or
          (III) receives home health services from a home 
        health agency, if such services directly relate to the 
        condition or diagnosis for which such individual 
        received inpatient hospital services from the 
        subsection (d) hospital, and if such services are 
        provided within an appropriate period as determined by 
        the Secretary in regulations promulgated not later than 
        April 1, 1998.
          * * * * * * *
  (9)(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 
of a subsection (d) Puerto Rico hospital for inpatient hospital 
discharges [in a fiscal year beginning on or after October 1, 
1987,] is equal to the sum of--
          (i) [75 percent] for discharges beginning on or after 
        October 1, 1997, 50 percent (and for discharges between 
        October 1, 1987, and September 30, 1997, 75 percent) of 
        the Puerto Rico adjusted DRG prospective payment rate 
        (determined under subparagraph (B) or (C)) for such 
        discharges, and
          (ii) [25 percent] for discharges beginning in a 
        fiscal year beginning on or after October 1, 1997, 50 
        percent (and for discharges between October 1, 1997 and 
        September 30, 1997, 25 percent) of the discharge-
        weighted average of--
                  (I) the national adjusted DRG prospective 
                payment rate (determined under paragraph 
                (3)(D)) for hospitals located in a large urban 
                area,
                  (II) such rate for hospitals located in other 
                urban areas, and
                  (III) such rate for hospitals located in a 
                rural area, for such discharges, adjusted in 
                the manner provided in paragraph (3)(E) for 
                different area wage levels. As used in this 
                section, the term ``subsection (d) Puerto Rico 
                hospital'' means a hospital that is located in 
                Puerto Rico and that would be a subsection (d) 
                hospital (as defined in paragraph (1)(B)) if it 
                were located in one of the fifty States.
          * * * * * * *
  (10)(A) * * *
          * * * * * * *
  (C)(i) The Board shall consider the application of any 
subsection (d) hospital requesting that the Secretary change 
the hospitals geographic classification for purposes of 
determining for a fiscal year--
          (I) the hospitals average standardized amount under 
        paragraph (2)(D), [or]
          (II) the factor used to adjust the DRG prospective 
        payment rate for area differences in hospital wage 
        levels that applies to such hospital under paragraph 
        (3)(E)[.], or
          (III) eligibility for and amount of additional 
        payment amounts under paragraph (5)(F).
  (D)(i) * * *
          * * * * * * *
  (iii) Under the guidelines published by the Secretary under 
clause (i), in the case of a hospital which has ever been 
classified by the Secretary as a rural referral center under 
paragraph (5)(C), the Board may not reject the application of 
the hospital under this paragraph on the basis of any 
comparison between the average hourly wage of the hospital and 
the averagehourly 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) * * *
  [(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 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 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 on or after October 1, 1997, 
the Secretary shall apply the budget neutrality adjustment 
factor used to determine the Federal capital payment rate in 
effect on September 30, 1995 (asdescribed in section 412.352 of 
title 42 of the Code of Federal Regulations), to (i) the unadjusted 
standard Federal capital payment rate (as described in section 
412.308(c) of that title, as in effect on September 30, 1997), and (ii) 
the unadjusted hospital-specific rate (as described in section 
412.328(e)(1) of that title, as in effect on September 30, 1997).
  (B) 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
          * * * * * * *
  (C) The exceptions under the system provided by the Secretary 
under subparagraph (B)(iii) shall include the provision of 
exception payments under the special exceptions process 
provided under section 412.348(g) of title 42, Code of Federal 
Regulations (as in effect on September 1, 1995), except that 
the Secretary shall revise such process, effective for 
discharges occurring after September 30, 1997, as follows:
          (i) 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 (or such lower 
        percentage, but no lower than 75 percent, as the 
        Secretary may provide to comply with subparagraph (E)).
          (iii) A hospital shall be considered to meet the 
        requirement that it complete the project involved no 
        later than the end of the hospitals last cost reporting 
        period beginning before October 1, 2002, if--
                  (I) the hospital has obtained a certificate 
                of need for the project approved by the State 
                or a local planning authority by September 1, 
                1995, and
                  (II) by September 1, 1995, the hospital has 
                expended on the project at least $750,000 or 10 
                percent of the estimated cost of the project.
          (iv) Offsetting amounts, as described in section 
        412.348(g)(8)(ii) of title 42, Code of Federal 
        Regulations, shall apply except that subparagraph (B) 
        of such section shall be revised to require that the 
        additional payment that would otherwise be payable for 
        the cost reporting period shall be reduced by the 
        amount (if any) by which the hospital's current year 
        medicare capital payments (excluding, if applicable, 75 
        percent of the hospital's capital-related 
        disproportionate share payments) exceeds its medicare 
        capital costs for such year.
  (D) The Secretary may reduce the percent specified under 
subparagraph (C)(ii) (but not below 75 percent) and shall 
reduce the Federal capital rate for a fiscal year by such 
percentage as the Secretary determines to be necessary to 
ensure that the application of subparagraph (C) does not result 
in an increase in the total amount that would have been paid 
under this subsection in the fiscal year if such subparagraph 
did not apply.
  (E) The Secretary shall provide for publication in the 
Federal Register each year (beginning with 1999) a description 
of the distributional impact of the application of subparagraph 
(C) on hospitals which receive and do not receive, an exception 
payment under such subparagraph.
  [(C)] (F) 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) In determining the amount of the payments that are 
attributable to portions of cost reporting periods occurring 
during fiscal years 1998 through 2002 and that may be made 
under this title with respect to capital-related costs of 
inpatient hospital services of a hospital which is described in 
clause (i), (ii), or (iv) of subsection (d)(1)(B) or a unit 
described in the matter after clause (v) of such subsection, 
the Secretary shall reduce the amounts of such payments 
otherwise determined under this title by 10 percent.
  (h) Payments for Direct Graduate Medical Education Costs.--
          (1) * * *
          * * * * * * *
          (3) Hospital payment amount per resident.--
                  (A) * * *
                  (B) Aggregate approved amount.--As used in 
                subparagraph (A) subject to subparagraph (D), 
                the term ``aggregate approved amount'' means, 
                for a hospital cost reporting period, the 
                product of--
                          (i) the hospital's approved FTE 
                        resident amount (determined under 
                        paragraph (2)) for that period, and
                          (ii) the weighted average number of 
                        full-time-equivalent residents (as 
                        determined under paragraph (4)) in the 
                        hospitals approved medical residency 
                        training programs in that period.
                The Secretary shall reduce the aggregate 
                approved amount to the extent payment is made 
                under subsection (k) for residents included in 
                the hospital's count of full-time equivalent 
                residents and, in the case of residents not 
                included in any such count, the Secretary shall 
                provide for such a reduction in aggregate 
                approved amounts under this subsection as will 
                assure that the application of subsection (k) 
                does not result in any increase in expenditures 
                under this title in excess of those that would 
                have occurred if subsection (k) were not 
                applicable.
          * * * * * * *
                  (D) Phased-in limitation on hospital overhead 
                and supervisory physician component.--
                          (i) In general.--In the case of a 
                        hospital for which the overhead GME 
                        amount (as defined in clause(ii)) for 
the base period exceeds an amount equal to the 75th percentile of the 
overhead GME amounts in such period for all hospitals (weighted to 
reflect the full-time equivalent resident counts for all approved 
medical residency training programs), subject to clause (iv), the 
hospital's approved FTE resident amount (for periods beginning on or 
after October 1, 1997) shall be reduced from the amount otherwise 
applicable (as previously reduced under this subparagraph) by an 
overhead reduction amount. The overhead reduction amount is equal to 
the lesser of--
                                  (I) 20 percent of the 
                                reference reduction amount 
                                (described in clause (iii)) for 
                                the period, or
                                  (II) 15 percent of the 
                                hospital's overhead GME amount 
                                for the period (as otherwise 
                                determined before the reduction 
                                provided under this 
                                subparagraph for the period 
                                involved).
                          (ii) Overhead gme amount.--For 
                        purposes of this subparagraph, the term 
                        ``overhead GME amount'' means, for a 
                        hospital for a period, the product of--
                                  (I) the percentage of the 
                                hospital's approved FTE 
                                resident amount for the base 
                                period that is not attributable 
                                to resident salaries and fringe 
                                benefits, and
                                  (II) the hospital's approved 
                                FTE resident amount for the 
                                period involved.
                          (iii) Reference reduction amount.--
                                  (I) In general.--The 
                                reference reduction amount 
                                described in this clause for a 
                                hospital for a cost reporting 
                                period is the base difference 
                                (described in subclause (II)) 
                                updated, in a compounded manner 
                                for each period from the base 
                                period to the period involved, 
                                by the update applied for such 
                                period to the hospital's 
                                approved FTE resident amount.
                                  (II) Base difference.--The 
                                base difference described in 
                                this subclause for a hospital 
                                is the amount by which the 
                                hospital's overhead GME amount 
                                in the base period exceeded the 
                                75th percentile of such amounts 
                                (as described in clause (i)).
                          (iv) Maximum reduction to 75th 
                        percentile.--In no case shall the 
                        reduction under this subparagraph 
                        effected for a hospital for a period 
                        (below the amount that would otherwise 
                        apply for the period if this 
                        subparagraph did not apply for any 
                        period) exceed the reference reduction 
                        amount for the hospital for the period.
                          (v) Base period.--For purposes of 
                        this subparagraph, the term ``base 
                        period'' means the cost reporting 
                        period beginning in fiscal year 1984 or 
                        the period used to establish the 
                        hospital's approved FTE resident amount 
                        for hospitals that did not have 
                        approved residency training programs in 
                        fiscal year 1984.
                          (vi) Rules for hospitals initiating 
                        residency training programs.--The 
                        Secretary shall establish rules for the 
                        application of this subparagraph in the 
                        case of a hospital that initiates 
                        medical residency training programs 
                        during or after the base period.
          (4) Determination of full-time-equivalent 
        residents.--
                  (A) * * *
          * * * * * * *
                  (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, 1997, the 
                total number of full-time equivalent residents 
                before application of weighting factors (as 
                determined under this paragraph) with respect 
                to a hospital's approved medical residency 
                training program may not exceed the number of 
                full-time equivalent residents with respect to 
                the hospital's most recent cost reporting 
                period ending on or before December 31, 1996. 
                The Secretary may establish rules, consistent 
                with the policies in the previous sentence and 
                paragraph (6), with respect to the application 
                of the previous sentence in the case of medical 
                residency training programs established on or 
                after January 1, 1997.
                  (G) Counting interns and residents for fy 
                1998 and subsequent years.--
                          (i) FY 1998.--For the hospital's 
                        first cost reporting period beginning 
                        during fiscal year 1998, subject to the 
                        limit described in subparagraph (F), 
                        the total number of full-time 
                        equivalent residents, for determining 
                        the hospital's graduate medical 
                        education payment, shall equal the 
                        average of the full-time equivalent 
                        resident counts for the cost reporting 
                        period and the preceding cost reporting 
                        period.
                          (ii) Subsequent years.--For each 
                        subsequent cost reporting period, 
                        subject to the limit described in 
                        subparagraph (F), the total number of 
                        full-time equivalent residents, for 
                        determining the hospital's graduate 
                        medical education payment, shall equal 
                        the average of the actual full-time 
                        equivalent resident counts for the cost 
                        reporting period and preceding two cost 
                        reporting periods.
                          (iii) Adjustment for short periods.--
                        If a hospital's cost reporting period 
                        beginning on or after October 1, 1997, 
                        is not equal to twelve months, the 
                        Secretary shall make appropriate 
                        modifications to ensure that the 
                        average full-time equivalent resident 
                        counts pursuant to clause (ii) are 
                        based on the equivalent of full 12-
                        month cost reporting periods.
          (5) Definitions and special rules.--As used in this 
        subsection:
                  (A) * * *
          * * * * * * *
                  (G) Period of board eligibility.--
                          (i) General rule.--Subject to clauses 
                        (ii) [and (iii)], (iii), and (iv), the 
                        term ``period of board eligibility'' 
                        means, for a resident, the minimum 
                        number of years of formal training 
                        necessary to satisfy the requirements 
                        for initial board eligibility in the 
                        particular specialty for which the 
                        resident is training.
          * * * * * * *
                          (iv) Special rule for certain 
                        combined residency programs.--(I) In 
                        the case of a resident enrolled in a 
                        combined medical residency training 
                        program in which all of the individual 
                        programs (that are combined) are for 
                        training a primary care resident (as 
                        defined in subparagraph (H)), the 
                        period of board eligibility shall be 
                        the minimum number of years of formal 
                        training required to satisfy the 
                        requirements for initial board 
                        eligibility in the longest of the 
                        individual programs plus one additional 
                        year.
                          (II) A resident enrolled in a 
                        combined medical residency training 
                        program that includes an obstetrics and 
                        gynecology program shall qualify for 
                        the period of board eligibility under 
                        subclause (I) if the other programs 
                        such resident combines with such 
                        obstetrics and gynecology program are 
                        for training a primary care resident.
          (6) Incentive payment under plans for voluntary 
        reduction in number of residents.--
                  (A) In general.--In the case of a voluntary 
                residency reduction plan for which an 
                application is approved under subparagraph (B), 
                the qualifying entity submitting the plan shall 
                be paid an applicable hold harmless percentage 
                (as specified in subparagraph (E)) of the sum 
                of--
                          (i) the amount (if any) by which--
                                  (I) the amount of payment 
                                which would have been made 
                                under this subsection if there 
                                had been a 5 percent reduction 
                                in the number of full-time 
                                equivalent residents in the 
                                approved medical education 
                                training programs of the 
                                qualifying entity as of June 
                                30, 1997, exceeds
                                  (II) the amount of payment 
                                which is made under this 
                                subsection, taking into account 
                                the reduction in such number 
                                effected under the reduction 
                                plan; and
                          (ii) the amount of the reduction in 
                        payment under 1886(d)(5)(B) (for 
                        hospitals participating in the 
                        qualifying entity) that is attributable 
                        to the reduction in number of residents 
                        effected under the plan below 95 
                        percent of the number of full-time 
                        equivalent residents in such programs 
                        of such entity as of June 30, 1997.
                  (B) Approval of plan applications.--The 
                Secretary may not approve the application of an 
                qualifying entity unless--
                          (i) the application is submitted in a 
                        form and manner specified by the 
                        Secretary and by not later than March 
                        1, 2000,
                          (ii) the application provides for the 
                        operation of a plan for the reduction 
                        in the number of full-timeequivalent 
residents in the approved medical residency training programs of the 
entity consistent with the requirements of subparagraph (D);
                          (iii) the entity elects in the 
                        application whether such reduction will 
                        occur over--
                                  (I) a period of not longer 
                                than 5 residency training 
                                years, or
                                  (II) a period of 6 residency 
                                training years,
                        except that a qualifying entity 
                        described in subparagraph (C)(i)(III) 
                        may not make the election described in 
                        subclause (II); and
                          (iv) the Secretary determines that 
                        the application and the entity and such 
                        plan meet such other requirements as 
                        the Secretary specifies in regulations.
                  (C) Qualifying entity.--
                          (i) In general.--For purposes of this 
                        paragraph, any of the following may be 
                        a qualifying entity:
                                  (I) Individual hospitals 
                                operating one or more approved 
                                medical residency training 
                                programs.
                                  (II) Subject to clause (ii), 
                                two or more hospitals that 
                                operate such programs and apply 
                                for treatment under this 
                                paragraph as a single 
                                qualifying entity.
                                  (III) Subject to clause 
                                (iii), a qualifying consortium 
                                (as described in section 10735 
                                of the Balanced Budget Act of 
                                1997).
                          (ii) Additional requirement for joint 
                        programs.--In the case of an 
                        application by a qualifying entity 
                        described in clause (i)(II), the 
                        Secretary may not approve the 
                        application unless the application 
                        represents that the qualifying entity 
                        either--
                                  (I) in the case of an entity 
                                that meets the requirements of 
                                clause (v) of subparagraph (E) 
                                will not reduce the number of 
                                full-time equivalent residents 
                                in primary care during the 
                                period of the plan, or
                                  (II) in the case of another 
                                entity will not reduce the 
                                proportion of its residents in 
                                primary care (to the total 
                                number of residents) below such 
                                proportion as in effect as of 
                                the applicable time described 
                                in subparagraph (D)(vi).
                          (iii) Additional requirement for 
                        consortia.--In the case of an 
                        application by a qualifying entity 
                        described in clause (i)(III), the 
                        Secretary may not approve the 
                        application unless the application 
                        represents that the qualifying entity 
                        will not reduce the proportion of its 
                        residents in primary care (to the total 
                        number of residents) below such 
                        proportion as in effect as of the 
                        applicable time described in 
                        subparagraph (D)(vi).
                  (D) Residency reduction requirements.--
                          (i) Individual hospital applicants.--
                        In the case of a qualifying entity 
                        described in subparagraph (A)(i)(I), 
                        the number of full-time equivalent 
                        residents in all the approved medical 
                        residency training programs operated by 
                        or through the entity shall be reduced 
                        as follows:
                                  (I) If base number of 
                                residents exceeds 750 
                                residents, by a number equal to 
                                at least 20 percent of such 
                                base number.
                                  (II) Subject to subclause 
                                (IV), if base number of 
                                residents exceeds 500, but is 
                                less than 750, residents, by 
                                150 residents.
                                  (III) Subject to subclause 
                                (IV), if base number of 
                                residents does not exceed 500 
                                residents, by a number equal to 
                                at least 25 percent of such 
                                base number.
                                  (IV) In the case of a 
                                qualifying entity which is 
                                described in clause (v) and 
                                which elects treatment under 
                                this subclause, by a number 
                                equal to at least 20 percent of 
                                such base number.
                          (ii) Joint applicants.--In the case 
                        of a qualifying entity described in 
                        subparagraph (C)(i)(II), the number of 
                        full-time equivalent residents in all 
                        the approved medical residency training 
                        programs operated by or through the 
                        entity shall be reduced as follows:
                                  (I) Subject to subclause 
                                (II), by a number equal to at 
                                least 25 percent of such base 
                                number.
                                  (II) In the case of a 
                                qualifying entity which is 
                                described in clause (v) and 
                                which elects treatment under 
                                this subclause, by a number 
                                equal to at least 20 percent of 
                                such base number.
                          (iii) Consortia.--In the case of a 
                        qualifying entity described in 
                        subparagraph (A)(i)(III), the number of 
                        full-time equivalent residents in all 
                        the approved medical residency training 
                        programs operated by or through the 
                        entity shall be reduced by a number 
                        equal to at least 20 percent of such 
                        base number.
                          (iv) Manner of reduction.--The 
                        reductions specified under the 
                        preceding provisions of this 
                        subparagraph for a qualifying entity 
                        shall be below the base number of 
                        residents for that entity and shall be 
                        fully effective not later than--
                                  (I) the 5th residency 
                                training year in which the 
                                application under subparagraph 
                                (B) is effective, in the case 
                                of an entity making the 
                                election described in 
                                subparagraph (B)(iii)(I), or
                                  (II) the 6th such residency 
                                training year, in the case of 
                                an entity making the election 
                                described in subparagraph 
                                (B)(iii)(II).
                          (v) Entities providing assurance of 
                        maintenance of primary care 
                        residents.--An entity is described in 
                        this clause if--
                                  (I) the base number of 
                                residents for the entity is 
                                less than 750;
                                  (II) the number of full-time 
                                equivalent residents in primary 
                                care included in the base 
                                number of residents for the 
                                entity is at least 10 percent 
                                of such base number; and
                                  (III) the entity represents 
                                in its application under 
                                subparagraph (B) that there 
                                will be no reduction under the 
                                plan in the number of full-time 
                                equivalent residents in primary 
                                care.
                        If a qualifying entity fails to comply 
                        with the representation described in 
                        subclause (III), the entity shall be 
                        subject to repayment of all amounts 
                        paid under this paragraph, in 
                        accordance with procedures established 
                        to carry out subparagraph (F).
                          (vi) Base number of residents 
                        defined.--For purposes of this 
                        paragraph, the term ``base number of 
                        residents'' means, with respect to a 
                        qualifying entity operating approved 
                        medical residency training programs, 
                        the number of full-time equivalent 
                        residents in such programs (before 
                        application of weighting factors) of 
                        the entity as of the most recent cost 
                        reporting period ending before June 30, 
                        1997, or, if less, for any subsequent 
                        cost reporting period that ends before 
                        the date the entity makes application 
                        under this paragraph.
                  (E) Applicable hold harmless percentage.--
                          (i) In general.--For purposes of 
                        subparagraph (A), the ``applicable hold 
                        harmless percentage'' is the 
                        percentages specified in clause (ii) or 
                        clause (iii), as elected by the 
                        qualifying entity in the application 
                        submitted under subparagraph (B).
                          (ii) 5-year reduction plan.--In the 
                        case of an entity making the election 
                        described in subparagraph (B)(iii)(I), 
                        the percentages specified in this 
                        clause are, for the--
                                  (I) first and second 
                                residency training years in 
                                which the reduction plan is in 
                                effect, 100 percent,
                                  (II) third such year, 75 
                                percent,
                                  (III) fourth such year, 50 
                                percent, and
                                  (IV) fifth such year, 25 
                                percent.
                          (iii) 6-year reduction plan.--In the 
                        case of an entity making the election 
                        described in subparagraph (B)(iii)(II), 
                        the percentages specified in this 
                        clause are, for the--
                                  (I) first residency training 
                                year in which the reduction 
                                plan is in effect, 100 percent,
                                  (II) second such year, 95 
                                percent,
                                  (III) third such year, 85 
                                percent,
                                  (IV) fourth such year, 70 
                                percent,
                                  (V) fifth such year, 50 
                                percent, and
                                  (VI) sixth such year, 25 
                                percent.
                  (F) Penalty for increase in number of 
                residents in subsequent years.--If payments are 
                made under this paragraph to a qualifying 
                entity, if the entity (or any hospital 
                operating as part of the entity) increases the 
                number of full-time equivalent residents above 
                the number of such residents permitted under 
                the reduction plan as of the completion of the 
                plan, then, as specified by the Secretary, the 
                entity is liable for repayment to the Secretary 
                of the total amounts paid under this paragraph 
                to the entity.
                  (G) Treatment of rotating residents.--In 
                applying this paragraph, the Secretary shall 
                establish rules regarding the counting of 
                residents who are assigned to institutions the 
                medical residency training programs in which 
                are not covered under approved applications 
                under this paragraph.
          * * * * * * *
  (j) Prospective Payment for Inpatient Rehabilitation 
Services.--
          (1) Payment during transition period.--
                  (A) In general.--Notwithstanding section 
                1814(b), but subject to the provisions of 
                section 1813, the amount of the payment with 
                respect to the operating and capital costs of 
                inpatient hospital services of a rehabilitation 
                hospital or a rehabilitation unit (in this 
                subsection referred to as a ``rehabilitation 
                facility), in a cost reporting period beginning 
                on or after October 1, 2000, and before October 
                1, 2003, is equal to the sum of--
                          (i) the TEFRA percentage (as defined 
                        in subparagraph (C)) of the amount that 
                        would have been paid under part A with 
                        respect to such costs if this 
                        subsection did not apply, and
                          (ii) the prospective payment 
                        percentage (as defined in subparagraph 
                        (C)) of the product of (I) the per unit 
                        payment rate established under this 
                        subsection for the fiscal year in which 
                        the payment unit of service occurs, and 
                        (II) the number of such payment units 
                        occurring in the cost reporting period.
                  (B) Fully implemented system.--
                Notwithstanding section 1814(b), but subject to 
                the provisions of section 1813, the amount of 
                the payment with respect to the operating and 
                capital costs of inpatient hospital services of 
                a rehabilitation facility for a payment unit in 
                a cost reporting period beginning on or after 
                October 1, 2003, is equal to the per unit 
                payment rate established under this subsection 
                for the fiscal year in which the payment unit 
                of service occurs.
                  (C) TEFRA and prospective payment percentages 
                specified.--For purposes of subparagraph (A), 
                for a cost reporting period beginning--
                          (i) on or after October 1, 2000, and 
                        before October 1, 2001, the ``TEFRA 
                        percentage'' is 75 percent and the 
                        ``prospective payment percentage'' is 
                        25 percent;
                          (ii) on or after October 1, 2001, and 
                        before October 1, 2002, the ``TEFRA 
                        percentage'' is 50 percent and the 
                        ``prospective payment percentage'' is 
                        50 percent; and
                          (iii) on or after October 1, 2002, 
                        and before October 1, 2003, the ``TEFRA 
                        percentage'' is 25 percent and the 
                        ``prospective payment percentage'' is 
                        75 percent.
                  (D) Payment unit.--For purposes of this 
                subsection, the term ``payment unit'' means a 
                discharge, day of inpatient hospital services, 
                or other unit of payment defined by the 
                Secretary.
          (2) Patient case mix groups.--
                  (A) Establishment.--The Secretary shall 
                establish--
                          (i) classes of patients of 
                        rehabilitation facilities (each in this 
                        subsection referred to as a ``case mix 
                        group'', based on such factors as the 
                        Secretary deems appropriate, which may 
                        include impairment, age, related prior 
                        hospitalization, comorbidities, and 
                        functional capability of the patient; 
                        and
                          (ii) a method of classifying specific 
                        patients in rehabilitation facilities 
                        within these groups.
                  (B) Weighting factors.--For each case mix 
                group the Secretary shall assign an appropriate 
                weighting which reflects the relative facility 
                resources used with respect to patients 
                classified within that group compared to 
                patients classified within other groups.
                  (C) Adjustments for case mix.--
                          (i) In general.--The Secretary shall 
                        from time to time adjust the 
                        classifications and weighting factors 
                        established under this paragraph as 
                        appropriate to reflect changes in 
                        treatment patterns, technology, case 
                        mix, number of payment units for which 
                        payment is made under this title, and 
                        other factors which may affect the 
                        relative use of resources. Such 
                        adjustments shall be made in a manner 
                        so that changes in aggregate payments 
                        under the classification system are a 
                        result of real changes and are not a 
                        result of changes in coding that are 
                        unrelated to real changes in case mix.
                          (ii) Adjustment.--Insofar as the 
                        Secretary determines that such 
                        adjustments for a previous fiscal year 
                        (or estimates that such adjustments for 
                        a future fiscal year) did (or are 
                        likely to) result in a change in 
                        aggregate payments under the 
                        classification system during the fiscal 
                        year that are a result of changes in 
                        the coding or classification of 
                        patients that do not reflect real 
                        changes in case mix, the Secretary 
                        shall adjust the per payment unit 
                        payment rate for subsequent years so as 
                        to discount the effect of such coding 
                        or classification changes.
                  (D) Data collection.--The Secretary is 
                authorized to require rehabilitation facilities 
                that provide inpatient hospital services to 
                submit such data as the Secretary deems 
                necessary to establish and administer the 
                prospective payment system under this 
                subsection.
          (3) Payment rate.--
                  (A) In general.--The Secretary shall 
                determine a prospective payment rate for each 
                payment unit for which such rehabilitation 
                facility is entitled to receive payment under 
                this title. Subject to subparagraph (B), such 
                rate for payment units occurring during a 
                fiscal year shall be based on the average 
                payment per payment unit under this title for 
                inpatient operating and capital costs of 
                rehabilitation facilities using the most recent 
                data available (as estimated by the Secretary 
                as of the date of establishment of the system) 
                adjusted--
                          (i) by updating such per-payment-unit 
                        amount to the fiscal year involved by 
                        the weighted average of the applicable 
                        percentage increases provided under 
                        subsection (b)(3)(B)(ii) (for cost 
                        reporting periods beginning during the 
                        fiscal year) covering the period from 
                        the midpoint of the period for such 
                        data through the midpoint of fiscal 
                        year 2000 and by an increase factor 
                        (described in subparagraph (C)) 
                        specified by the Secretary for 
                        subsequent fiscal years up to the 
                        fiscal year involved;
                          (ii) by reducing such rates by a 
                        factor equal to the proportion of 
                        payments under this subsection (as 
                        estimated by the Secretary) based on 
                        prospective payment amounts which are 
                        additional payments described in 
                        paragraph (4) (relating to outlier and 
                        related payments) or paragraph (7);
                          (iii) for variations among 
                        rehabilitation facilities by area under 
                        paragraph (6);
                          (iv) by the weighting factors 
                        established under paragraph (2)(B); and
                          (v) by such other factors as the 
                        Secretary determines are necessary to 
                        properly reflect variations in 
                        necessary costs of treatment among 
                        rehabilitation facilities.
                  (B) Budget neutral rates.--The Secretary 
                shall establish the prospective payment amounts 
                under this subsection for payment units during 
                fiscal years 2001 through 2004 at levels such 
                that, in the Secretary's estimation, the amount 
                of total payments under this subsection for 
                such fiscal years (including any payment 
                adjustments pursuant to paragraphs (4), (6), 
                and (7)) shall be equal to 99 percent of the 
                amount of payments that would have been made 
                under this title during the fiscal years for 
                operating and capital costs of rehabilitation 
                facilities had this subsection not been 
                enacted. In establishing such payment amounts, 
                the Secretary shall consider the effects of the 
                prospective payment system established under 
                this subsection on the total number of payment 
                units from rehabilitation facilities and other 
                factors described in subparagraph (A).
                  (C) Increase factor.--For purposes of this 
                subsection for payment units in each fiscal 
                year (beginning with fiscal year 2001), the 
                Secretary shall establish an increase factor. 
                Such factor shall be based on an appropriate 
                percentage increase in a market basket of goods 
                and services comprising services for which 
                payment is made under this subsection, which 
                may be the market basket percentage increase 
                described in subsection (b)(3)(B)(iii).
          (4) Outlier and special payments.--
                  (A) Outliers.--
                          (i) In general.--The Secretary may 
                        provide for an additional payment to a 
                        rehabilitation facility for patients in 
                        a case mix group, based upon the 
                        patient being classified as an outlier 
                        based on an unusual length of stay, 
                        costs, or other factors specified by 
                        the Secretary.
                          (ii) Payment based on marginal cost 
                        of care.--The amount of such additional 
                        payment under clause (i) shall be 
                        determined by the Secretary and shall 
                        approximate the marginal cost of care 
                        beyond the cutoff point applicable 
                        under clause (i).
                          (iii) Total payments.--The total 
                        amount of the additional payments made 
                        under this subparagraph for payment 
                        units in a fiscal year may not exceed 5 
                        percent of the total payments projected 
                        or estimated to be made based on 
                        prospective payment rates for payment 
                        units in that year.
                  (B) Adjustment.--The Secretary may provide 
                for such adjustments to the payment amounts 
                under this subsection as the Secretary deems 
                appropriate to take into account the unique 
                circumstances of rehabilitation facilities 
                located in Alaska and Hawaii.
          (5) Publication.--The Secretary shall provide for 
        publication in the Federal Register, on or before 
        September 1 before each fiscal year (beginning with 
        fiscal year 2001, of the classification and weighting 
        factors for case mix groups under paragraph (2) for 
        such fiscal year and a description of the methodology 
        and data used in computing the prospective payment 
        rates under this subsection for that fiscal year.
          (6) Area wage adjustment.--The Secretary shall adjust 
        the proportion (as estimated by the Secretary from time 
        to time) of rehabilitation facilities' costs which are 
        attributable to wages and wage-related costs, of the 
        prospective payment rates computed under paragraph (3) 
        for area differences in wage levels by a factor 
        (established by the Secretary) reflecting the relative 
        hospital wage level in the geographic area of the 
        rehabilitation facility compared to the national 
        average wage level for such facilities. Not later than 
        October 1, 2001 (and at least every 36 months 
        thereafter), the Secretary shall update the factor 
        under the preceding sentence on the basis of a survey 
        conducted by the Secretary (and updated as appropriate) 
        of the wages and wage-related costs incurred in 
        furnishing rehabilitation services. Any adjustments or 
        updates made under this paragraph for a fiscal year 
        shall be made in a manner that assures that the 
        aggregated payments under this subsection in the fiscal 
        year are not greater or less than those that would have 
        been made in the year without such adjustment.
          (7) Additional adjustments.--The Secretary may 
        provide by regulation for--
                  (A) an additional payment to take into 
                account indirect costs of medical education and 
                the special circumstances of hospitals that 
                serve a significantly disproportionate number 
                of low-income patients in a manner similar to 
                that provided under subparagraphs (B) and (F), 
                respectively, of subsection (d)(5); and
                  (B) such other exceptions and adjustments to 
                payment amounts under this subsection in a 
                manner similar to that provided under 
                subsection (d)(5)(I) in relation to payments 
                under subsection (d).
          (8) Limitation on review.--There shall be no 
        administrative or judicial review under section 1878 or 
        otherwise of--
                  (A) the establishment of case mix groups, of 
                the methodology for the classification of 
                patients within such groups, and of the 
                appropriate weighting factors thereof under 
                paragraph (2),
                  (B) the establishment of the prospective 
                payment rates under paragraph (3),
                  (C) the establishment of outlier and special 
                payments under paragraph (4),
                  (D) the establishment of area wage 
                adjustments under paragraph (6), and
                  (E) the establishment of additional 
                adjustments under paragraph (7).
  (k) Payment to Non-Hospital Providers.--
          (1) Report.--The Secretary shall submit to Congress, 
        not later than 18 months after the date of the 
        enactment of this subsection, a proposal for payment to 
        qualified non-hospital providers for their direct costs 
        of medical education, if those costs are incurred in 
        the operation of an approved medical residency training 
        program described in subsection (h). Such proposal 
        shall specify the amounts, form, and manner in which 
        such payments will be made and the portion of such 
        payments that will be made from each of the trust funds 
        under this title.
          (2) Effectiveness.--Except as otherwise provided in 
        law, the Secretary may implement such proposal for 
        residency years beginning not earlier than 6 months 
        after the date of submittal of the report under 
        paragraph (1).
          (3) Qualified non-hospital providers.--For purposes 
        of this subsection, the term ``qualified non-hospital 
        provider'' means--
                  (A) a Federally qualified health center, as 
                defined in section 1861(aa)(4);
                  (B) a rural health clinic, as defined in 
                section 1861(aa)(2);
                  (C) MedicarePlus organizations; and
                  (D) such other providers (other than 
                hospitals) as the Secretary determines to be 
                appropriate.
          * * * * * * *

    payment to skilled nursing facilities for routine service costs

  Sec. 1888. (a) * * *
          * * * * * * *
  (e) Prospective Payment.--
          (1) Payment provision.--Notwithstanding any other 
        provision of this title, subject to paragraph (7), the 
        amount of the payment for all costs (as defined in 
        paragraph (2)(B)) of covered skilled nursing facility 
        services (as defined in paragraph (2)(A)) for each day 
        of such services furnished--
                  (A) in a cost reporting period during the 
                transition period (as defined in paragraph 
                (2)(E)), is equal to the sum of--
                          (i) the non-Federal percentage of the 
                        facility-specific per diem rate 
                        (computed under paragraph (3)), and
                          (ii) the Federal percentage of the 
                        adjusted Federal per diem rate 
                        (determined under paragraph (4)) 
                        applicable to the facility; and
                  (B) after the transition period is equal to 
                the Federal per diem rate applicable to the 
                facility.
          (2) Definitions.--For purposes of this subsection:
                  (A) Covered skilled nursing facility 
                services.--
                          (i) In general.--The term ``covered 
                        skilled nursing facility services--
                                  (I) means post-hospital 
                                extended care services as 
                                defined in section 1861(i) for 
                                which benefits are provided 
                                under part A; and
                                  (II) includes all items and 
                                services (other than services 
                                described in clause (ii)) for 
                                which payment may be made under 
                                part B and which are furnished 
                                to an individual who is a 
                                resident of a skilled nursing 
                                facility during the period in 
                                which the individual is 
                                provided covered post-hospital 
                                extended care services.
                          (ii) Services excluded.--Services 
                        described in this clause are 
                        physicians' services, services 
                        described by clauses (i) through (ii) 
                        of section 1861(s)(2)(K), certified 
                        nurse-midwife services, qualified 
                        psychologist services, services of a 
                        certified registered nurse anesthetist, 
                        items and services described in 
                        subparagraphs in (F) and (O) of section 
                        1861(s)(2), and, only with respect to 
                        services furnished during 1998, the 
                        transportation costs of 
                        electrocardiogram equipment for 
                        electrocardiogram tests services (HCPCS 
                        Code R0076). Services described in this 
                        clause do not include any physical, 
                        occupational, or speech-language 
                        therapy services regardless of whether 
                        or not the services are furnished by, 
                        or under the supervision of, a 
                        physician or other health care 
                        professional.
                  (B) All costs.--The term ``all costs'' means 
                routine service costs, ancillary costs, and 
                capital-related costs of covered skilled 
                nursing facility services, but does not include 
                costs associated with approved educational 
                activities.
                  (C) Non-federal percentage; federal 
                percentage--For--
                          (i) the first cost reporting period 
                        (as defined in subparagraph (D)) of a 
                        facility, the ``non-Federal 
                        percentage'' is 75 percent and the 
                        ``Federal percentage'' is 25 percent;
                          (ii) the next cost reporting period 
                        of such facility, the ``non-Federal 
                        percentage'' is 50 percent and the 
                        ``Federal percentage'' is 50 percent; 
                        and
                          (iii) the subsequent cost reporting 
                        period of such facility, the ``non-
                        Federal percentage'' is 25 percent and 
                        the ``Federal percentage'' is 75 
                        percent.
                  (D) First cost reporting period.--The term 
                ``first cost reporting period'' means, with 
                respect to a skilled nursing facility, the 
                first cost reporting period of the facility 
                beginning on or after July 1, 1998.
                  (E) Transition period.--
                          (i) In general.--The term 
                        ``transition period'' means, with 
                        respect to a skilled nursing facility, 
                        the 3 cost reporting periods of the 
                        facility beginning with the first cost 
                        reporting period.
                          (ii) Treatment of new skilled nursing 
                        facilities.--In the case of a skilled 
                        nursing facility that does not have a 
                        settled cost report for a cost 
                        reporting period before July 1, 1998, 
                        payment for such services shall be made 
                        under this subsection as if all 
                        services were furnished after the 
                        transition period.
          (3) Determination of facility specific per diem 
        rates.--The Secretary shall determine a facility-
        specific per diem rate for each skilled nursing 
        facility for a cost reporting period as follows:
                  (A) Determining base payments.--The Secretary 
                shall determine, on a per diem basis, the total 
                of--
                          (i) the allowable costs of extended 
                        care services for the facility for cost 
                        reporting periods beginning in 1995 
                        with appropriate adjustments (as 
                        determined by the Secretary) to non-
                        settled cost reports, and
                          (ii) an estimate of the amounts that 
                        would be payable under part B 
                        (disregarding any applicable 
                        deductibles, coinsurance and 
                        copayments) for covered skilled nursing 
                        facility services described in 
                        paragraph (2)(A)(i)(II) furnished 
                        during such period to an individual who 
                        is a resident of the facility, 
                        regardless of whether or not the 
                        payment was made to the facility or to 
                        another entity.
                  (B) Update to cost reporting period before 
                first cost reporting period.--The Secretary 
                shall update the amount determined under 
                subparagraph (A), for each cost reporting 
                period after the cost reporting period 
                described in subparagraph (A)(i) and up to the 
                cost reporting period immediately preceding the 
                first cost reporting period, by the skilled 
                nursing facility historical trend factor.
                  (C) Updating to applicable cost reporting 
                period.--The Secretary shall further update 
                such amount for each cost reporting period 
                beginning with the first cost reporting period 
                and up to and including the cost reporting 
                period involved by a factor equal to the 
                skilled nursing facility market basket 
                percentage increase.
          (4) Federal per diem rate.--
                  (A) Determination of historical per diem for 
                freestanding facilities.--For each freestanding 
                skilled nursing facility that received payments 
                for post-hospital extended care services during 
                a cost reporting period beginning in fiscal 
                year 1995 and that was subject to (and not 
                exempted from) the per diem limits referred to 
                in paragraph (1) or (2) of subsection (a) (and 
                facilities described insubsection (d), if 
appropriate), the Secretary shall estimate, on a per diem basis for 
such cost reporting period, the total of--
                          (i) the allowable costs of extended 
                        care services for the facility for cost 
                        reporting periods beginning in 1995 
                        with appropriate adjustments (as 
                        determined by the Secretary) to non-
                        settled cost reports, and
                          (ii) an estimate of the amounts that 
                        would be payable under part B 
                        (disregarding any applicable 
                        deductibles, coinsurance and 
                        copayments) for covered skilled nursing 
                        facility services described in 
                        paragraph (2)(A)(i)(II) furnished 
                        during such period to an individual who 
                        is a resident of the facility, 
                        regardless of whether or not the 
                        payment was made to the facility or to 
                        another entity.
                  (B) Update to fiscal year 1998.--The 
                Secretary shall update the amount determined 
                under subparagraph (A), for each cost reporting 
                period after the cost reporting period 
                described in subparagraph (A)(i) and up to the 
                cost reporting period immediately preceding the 
                first cost reporting period, by the skilled 
                nursing facility historical trend factor for 
                such period.
                  (C) Computation of standardized per diem 
                rate.--The Secretary shall standardize the 
                amount updated under subparagraph (B) for each 
                facility by--
                          (i) adjusting for variations among 
                        facility by area in the average 
                        facility wage level per diem, and
                          (ii) adjusting for variations in case 
                        mix per diem among facilities.
                  (D) Computation of weighted average per diem 
                rate.--The Secretary shall compute a weighted 
                average per diem rate by computing an average 
                of the standardized amounts computed under 
                subparagraph (C), weighted for each facility by 
                number of days of extended care services 
                furnished during the cost reporting period 
                referred to in subparagraph (A). The Secretary 
                may compute and apply such average separately 
                for facilities located in urban and rural areas 
                (as defined in section 1886(d)(2)(D)).
                  (E) Updating.--
                          (i) Fiscal year 1998.--For fiscal 
                        year 1998, the Secretary shall compute 
                        for each skilled nursing facility an 
                        unadjusted Federal per diem rate equal 
                        to the weighted average per diem rate 
                        computed under subparagraph (D) and 
                        applicable to the facility increased by 
                        skilled nursing facility market basket 
                        percentage change for the fiscal year 
                        involved.
                          (ii) Subsequent fiscal years.--For 
                        each subsequent fiscal year the 
                        Secretary shall compute for each 
                        skilled nursing facility an unadjusted 
                        Federal per diem rate equal to the 
                        Federal per diem rate computed under 
                        this subparagraph for the previous 
                        fiscal year and applicable to the 
                        facility increased by the skilled 
                        nursing facility market basket 
                        percentage change for the fiscal year 
                        involved.
                  (F) Adjustment for case mix creep.--Insofar 
                as the Secretary determines that such 
                adjustments under subparagraph (G)(i) for a 
                previous fiscal year (or estimates that such 
                adjustments for a future fiscal year) did (or 
                are likely to) result in a change in aggregate 
                payments under this subsection during the 
                fiscal year that are a result of changes in the 
                coding or classification of residents that do 
                not reflect real changes in case mix, the 
                Secretary may adjust unadjusted Federal per 
                diem rates for subsequent years so as to 
                discount the effect of such coding or 
                classification changes.
                  (G) Application to specific facilities.--The 
                Secretary shall compute for each skilled 
                nursing facility for each fiscal year 
                (beginning with fiscal year 1998) an adjusted 
                Federal per diem rate equal to the unadjusted 
                Federal per diem rate determined under 
                subparagraph (E)) adjusted as follows:
                          (i) Adjustment for case mix.--The 
                        Secretary shall provide for an 
                        appropriate adjustment to account for 
                        case mix. Such adjustment shall be 
                        based on a resident classification 
                        system, established by the Secretary, 
                        that accounts for the relative resource 
                        utilization of different patient types. 
                        The case mix adjustment shall be based 
                        on resident assessment data and other 
                        data that the Secretary considers 
                        appropriate.
                          (ii) Adjustment for geographic 
                        variations in labor costs.--The 
                        Secretary shall adjust the portion of 
                        such per diem rate attributable to 
                        wages and wage-related costs for the 
                        area in which the facility is located 
                        compared to the national average of 
                        such costs using an appropriate wage 
                        index as determined by the Secretary. 
                        Such adjustment shall be done in a 
                        manner that does not result in 
                        aggregate payments under this 
                        subsection that are greater or less 
                        than those that would otherwise be made 
                        if such adjustment had not been made.
                  (H) Publication of information on per diem 
                rates.--The Secretary shall provide for 
                publication in the Federal Register, before the 
                July 1 preceding each fiscal year (beginning 
                with fiscal year 1999), of--
                          (i) the unadjusted Federal per diem 
                        rates to be applied to days of covered 
                        skilled nursing facility services 
                        furnished during the fiscal year,
                          (ii) the case mix classification 
                        system to be applied under subparagraph 
                        (G)(i) with respect to such services 
                        during the fiscal year, and
                          (iii) the factors to be applied in 
                        making the area wage adjustment under 
                        subparagraph (G)(ii) with respect to 
                        such services.
          (5) Skilled nursing facility market basket index, 
        percentage, and historical trend factor.--For purposes 
        of this subsection:
                  (A) Skilled nursing facility market basket 
                index.--The Secretary shall establish a skilled 
                nursing facility market basket index that 
                reflects changes over time in the prices of an 
                appropriate mix of goods and services included 
                in covered skilled nursing facility services.
                  (B) Skilled nursing facility market basket 
                percentage.--The term ``skilled nursing 
                facility market basket percentage'' means, for 
                a fiscal year or other annual period and as 
                calculated by the Secretary, the percentage 
                change in the skilled nursing facility market 
                basket index (established under subparagraph 
                (A)) from the midpoint of the prior fiscal year 
                (or period) to the midpoint of the fiscal year 
                (or other period) involved.
                  (C) Skilled nursing facility historical trend 
                factor.--The term ``skilled nursing facility 
                historical trend factor'' means, for a fiscal 
                year or other annual period and as calculated 
                by the Secretary, the percentage change in the 
                skilled nursing facility routine cost index 
                (used in applying per diem routine cost limits 
                under subsection (a)) from the midpoint of the 
                prior fiscal year (or period) to the midpoint 
                of the fiscal year (or other period) involved, 
                reduced (on an annualized basis) by 1 
                percentage point.
          (6) Submission of resident assessment data.--A 
        skilled nursing facility shall provide the Secretary, 
        in a manner and within the timeframes prescribed by the 
        Secretary, the resident assessment data necessary to 
        develop and implement the rates under this subsection. 
        For purposes of meeting such requirement, a skilled 
        nursing facility may submit resident assessment data 
        required under section 1819(b)(3), using the standard 
        instrument designated by the State under section 
        1819(e)(5).
          (7) Transition for medicare low volume skilled 
        nursing facilities and swing bed hospitals.--
                  (A) In general.--The Secretary shall 
                determine an appropriate manner in which to 
                apply this subsection to the facilities 
                described in subparagraph (B), taking into 
                account the purposes of this subsection, and 
                shall provide that at the end of the transition 
                period (as defined in paragraph (2)(E)) such 
                facilities shall be paid only under this 
                subsection. Payment shall not be made under 
                this subsection to such facilities for cost 
                reporting periods beginning before such date 
                (not earlier than July 1, 1999) as the 
                Secretary specifies.
                  (B) Facilities described.--The facilities 
                described in this subparagraph are--
                          (i) skilled nursing facilities for 
                        which payment is made for routine 
                        service costs during a cost reporting 
                        period, ending prior to the date of the 
                        implementation of this paragraph, on 
                        the basis of prospective payments under 
                        section 1888(d), or
                          (ii) facilities that have in effect 
                        an agreement described in section 1883, 
                        for which payment is made for the 
                        furnishing of extended care services on 
                        a reasonable cost basis under section 
                        1814(l) (as in effect on and after such 
                        date).
          (8) Limitation on review.--There shall be no 
        administrative or judicial review under section 1869, 
        1878 or otherwise of--
                  (A) the establishment of facility specific 
                per diem rates under paragraph (3);
                  (B) the establishment of Federal per diem 
                rates under paragraph (4), including the 
                computation of the standardized per diem rates 
                under paragraph (4)(C), adjustments and 
                corrections for case mix under paragraphs 
                (4)(F) and (4)(G)(i), and adjustments for 
                variations in labor-related costs under 
                paragraph (4)(G)(ii); and
                  (C) the establishment of transitional amounts 
                under paragraph (7).
          (9) Payment for certain services.--In the case of an 
        item or service furnished by a skilled nursing facility 
        (or by others under arrangement with them made by a 
        skilled nursing facility or under any other contracting 
        or consulting arrangement or otherwise) for which 
        payment would otherwise (but for this paragraph) be 
        made under part B in an amount determined in accordance 
        with section 1833(a)(2)(B), the amount of the payment 
        under such part shall be based on such existing or 
        other fee schedules as the Secretary establishes.
          (10) Required coding.--No payment may be made under 
        part B for items and services (other than services 
        described in paragraph (2)(A)(ii)) furnished to an 
        individual who is a resident of a skilled nursing 
        facility unless the claim for such payment includes a 
        code (or codes) under a uniform coding system specified 
        by the Secretary that identifies the items or services 
        delivered.


                         centers of excellence


  Sec. 1889. (a) In General.--The Secretary shall use a 
competitive process to contract with specific hospitals or 
other entities for furnishing services related to surgical 
procedures, and for furnishing services (unrelated to surgical 
procedures) to hospital inpatients that the Secretary 
determines to be appropriate. The services may include any 
services covered under this title that the Secretary determines 
to be appropriate, including post-hospital services.
  (b) Quality Standards.--Only entities that meet quality 
standards established by the Secretary shall be eligible to 
contract under this section. Contracting entities shall 
implement a quality improvement plan approved by the Secretary.
  (c) Payment.--Payment under this section shall be made on the 
basis of negotiated all-inclusive rates. The amount of payment 
made by the Secretary to an entity under this title for 
services covered under a contract shall be less than the 
aggregate amount of the payments that the Secretary would have 
otherwise made for the services.
  (d) Contract Period.--A contract period shall be 3 years 
(subject to renewal), so long as the entity continues to meet 
quality and other contractual standards.
  (e) Incentives for Use of Centers.--Entities under a contract 
under this section may furnish additional services (at no cost 
to an individual entitled to benefits under this title) or 
waive cost-sharing, subject to the approval of the Secretary.
  (f) Limit on Number of Centers.--The Secretary shall limit 
the number of centers in a geographic area to the number needed 
to meet projected demand for contracted services.

   conditions of participation for home health agencies; home health 
                               quality ``

  Sec. 1891. (a) * * *
          * * * * * * *
  (g) Payment on Basis of Location of Service.--A home health 
agency shall submit claims for payment for home health services 
under this title only on the basis of the geographic location 
at which the service is furnished, as determined by the 
Secretary.
          * * * * * * *


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


  Sec. 1894. (a) Receipt of Benefits Through Enrollment in PACE 
Program; Definitions for PACE Program Related Terms.--
          (1) Benefits through enrollment in a pace program.--
        In accordance with this section, in the case of an 
        individual who is entitled to benefits under part A or 
        enrolled under part B and who is a PACE program 
        eligible individual (as defined in paragraph (5)) with 
        respect to a PACE program offered by a PACE provider 
        under a PACE program agreement--
                  (A) the individual may enroll in the program 
                under this section; and
                  (B) so long as the individual is so enrolled 
                and in accordance with regulations--
                          (i) the individual shall receive 
                        benefits under this title solely 
                        through such program, and
                          (ii) the PACE provider is entitled to 
                        payment under and in accordance with 
                        this section and such agreement for 
                        provision of such benefits.
          (2) PACE program defined.--For purposes of this 
        section and section 1932, the term ``PACE program means 
        a program of all-inclusive care for the elderly that 
        meets the following requirements:
                  (A) Operation.--The entity operating the 
                program is a PACE provider (as defined in 
                paragraph (3)).
                  (B) Comprehensive benefits.--The program 
                provides comprehensive health care services to 
                PACE program eligible individuals in accordance 
                with the PACE program agreement and regulations 
                under this section.
                  (C) Transition.--In the case of an individual 
                who is enrolled under the program under this 
                section and whose enrollment ceases for any 
                reason (including the individual no longer 
                qualifies as a PACE program eligible 
                individual, the termination of a PACE program 
                agreement, or otherwise), the program provides 
                assistance to the individual in obtaining 
                necessary transitional care through appropriate 
                referrals and making the individuals medical 
                records available to new providers.
          (3) PACE provider defined.--
                  (A) In general.--For purposes of this 
                section, the term ``PACE provider means an 
                entity that--
                          (i) subject to subparagraph (B), is 
                        (or is a distinct part of) a public 
                        entity or a private, nonprofit entity 
                        organized for charitable purposes under 
                        section 501(c)(3) of the Internal 
                        Revenue Code of 1986, and
                          (ii) has entered into a PACE program 
                        agreement with respect to its operation 
                        of a PACE program.
                  (B) Treatment of private, for-profit 
                providers.--Clause (i) of subparagraph (A) 
                shall not apply--
                          (i) to entities subject to a 
                        demonstration project waiver under 
                        subsection (h); and
                          (ii) after the date the report under 
                        section 10014(b) of the Medicare 
                        Amendments Act of 1997 is submitted, 
                        unless the Secretary determines that 
                        any of the findings described in 
                        subparagraph (A), (B), (C) or (D) of 
                        paragraph (2) of such section are true.
          (4) PACE program agreement defined.--For purposes of 
        this section, the term ``PACE program agreement means, 
        with respect to a PACE provider, an agreement, 
        consistent with this section, section 1932 (if 
        applicable), and regulations promulgated to carry out 
        such sections, between the PACE provider and the 
        Secretary, or an agreement between the PACE provider 
        and a State administering agency for the operation of a 
        PACE program by the provider under such sections.
          (5) PACE program eligible individual defined.--For 
        purposes of this section, the term ``PACE program 
        eligible individual means, with respect to a PACE 
        program, an individual who--
                  (A) is 55 years of age or older;
                  (B) subject to subsection (c)(4), is 
                determined under subsection (c) to require the 
                level of care required under the State medicaid 
                plan for coverage of nursing facility services;
                  (C) resides in the service area of the PACE 
                program; and
                  (D) meets such other eligibility conditions 
                as may be imposed under the PACE program 
                agreement for the program under subsection 
                (e)(2)(A)(ii).
          (6) PACE protocol.--For purposes of this section, the 
        term ``PACE protocol means the Protocol for the Program 
        of All-inclusive Care for the Elderly (PACE), as 
        published by On Lok, Inc., as of April 14, 1995.
          (7) PACE demonstration waiver program defined.--For 
        purposes of this section, the term ``PACE demonstration 
        waiver program means a demonstration program under 
        either of the following sections (as in effect before 
        the date of their repeal):
                  (A) Section 603(c) of the Social Security 
                Amendments of 1983 (Public Law 98-21), as 
                extended by section 9220 of the Consolidated 
                Omnibus Budget Reconciliation Act of 1985 
                (Public Law 99-272).
                  (B) Section 9412(b) of the Omnibus Budget 
                Reconciliation Act of 1986 (Public Law 99-509).
          (8) State administering agency defined.--For purposes 
        of this section, the term ``State administering agency 
        means, with respect to the operation of a PACE program 
        in a State, the agency of that State (which may be the 
        single agency responsible for administration of the 
        State plan under title XIX in the State) responsible 
        for administering PACE program agreements under this 
        section and section 1932 in the State.
          (9) Trial period defined.--
                  (A) In general.--For purposes of this 
                section, the term ``trial period'' means, with 
                respect to a PACE program operated by a PACE 
                provider under a PACE program agreement, the 
                first 3 contract years under such agreement 
                with respect to such program.
                  (B) Treatment of entities previously 
                operating pace demonstration waiver programs.--
                Each contract year (including a year occurring 
                before the effective date of this section) 
                during which an entity has operated a PACE 
                demonstration waiver program shall be counted 
                under subparagraph (A) as a contract year 
                during which the entity operated a PACE program 
                as a PACE provider under a PACE program 
                agreement.
          (10) Regulations.--For purposes of this section, the 
        term ``regulations'' refers to interim final or final 
        regulations promulgated under subsection (f) to carry 
        out this section and section 1932.
  (b) Scope of Benefits; Beneficiary Safeguards.--
          (1) In general.--Under a PACE program agreement, a 
        PACE provider shall--
                  (A) provide to PACE program eligible 
                individuals, regardless of source of payment 
                and directly or under contracts with other 
                entities, at a minimum--
                          (i) all items and services covered 
                        under this title (for individuals 
                        enrolled under this section) and all 
                        items and services covered under title 
                        XIX, but without any limitation or 
                        condition as to amount, duration, or 
                        scope and without application of 
                        deductibles, copayments, coinsurance, 
                        or other cost-sharing that would 
                        otherwise apply under this title or 
                        such title, respectively; and
                          (ii) all additional items and 
                        services specified in regulations, 
                        based upon those required under the 
                        PACE protocol;
                  (B) provide such enrollees access to 
                necessary covered items and services 24 hours 
                per day, every day of the year;
                  (C) provide services to such enrollees 
                through a comprehensive, multidisciplinary 
                health and social services delivery system 
                which integrates acute and long-term care 
                services pursuant to regulations; and
                  (D) specify the covered items and services 
                that will not be provided directly by the 
                entity, and to arrange for delivery of those 
                items and services through contracts meeting 
                the requirements of regulations.
          (2) Quality assurance; patient safeguards.--The PACE 
        program agreement shall require the PACE provider to 
        have in effect at a minimum--
                  (A) a written plan of quality assurance and 
                improvement, and procedures implementing such 
                plan, in accordance with regulations, and
                  (B) written safeguards of the rights of 
                enrolled participants (including a patient bill 
                of rights and procedures for grievances and 
                appeals) in accordance with regulations and 
                with other requirements of this title and 
                Federal and State law designed for the 
                protection of patients.
  (c) Eligibility Determinations.--
          (1) In general.--The determination of whether an 
        individual is a PACE program eligible individual--
                  (A) shall be made under and in accordance 
                with the PACE program agreement, and
                  (B) who is entitled to medical assistance 
                under title XIX, shall be made (or who is not 
                so entitled, may be made) by the State 
                administering agency.
          (2) Condition.--An individual is not a PACE program 
        eligible individual (with respect to payment under this 
        section) unless the individuals health status has been 
        determined, in accordance with regulations, to be 
        comparable to the health status of individuals who have 
        participated in the PACE demonstration waiver programs. 
        Such determination shall be based upon information on 
        health status and related indicators (such as medical 
        diagnoses and measures of activities of daily living, 
        instrumental activities of daily living, and cognitive 
        impairment) that are part of a uniform minimum data set 
        collected by PACE providers on potential eligible 
        individuals.
          (3) Annual eligibility recertifications.--
                  (A) In general.--Subject to subparagraph (B), 
                the determination described in subsection 
                (a)(5)(B) for an individual shall be 
                reevaluated at least once a year.
                  (B) Exception.--The requirement of annual 
                reevaluation under subparagraph (A) may be 
                waived during a period in accordance with 
                regulations in those cases where the State 
                administering agency determines that there is 
                no reasonable expectation of improvement or 
                significant change in an individual's condition 
                during the period because of the advanced age, 
                severity of the advanced age, severity of 
                chronic condition, or degree of impairment of 
                functional capacity of the individual involved.
          (4) Continuation of eligibility.--An individual who 
        is a PACE program eligible individual may be deemed to 
        continue to be such an individual notwithstanding a 
        determination that the individual no longer meets the 
        requirement of subsection (a)(5)(B) if, in accordance 
        with regulations, in the absence of continued coverage 
        under a PACE program the individual reasonably would be 
        expected to meet such requirement within the succeeding 
        6-month period.
          (5) Enrollment; disenrollment.--The enrollment and 
        disenrollment of PACE program eligible individuals in a 
        PACE program shall be pursuant to regulations and the 
        PACE program agreement and shall permit enrollees to 
        voluntarily disenroll without cause at any time.
  (d) Payments to PACE Providers on a Capitated Basis.--
          (1) In general.--In the case of a PACE provider with 
        a PACE program agreement under this section, except as 
        provided in this subsection or by regulations, the 
        Secretary shall make prospective monthly payments of a 
        capitation amount for each PACE program eligible 
        individual enrolled under the agreement under this 
        section in the same manner and from the same sources as 
        payments are made to a MedicarePlus organization under 
        section 1854 (or, for periods beginning before January 
        1, 1999, to an eligible organization under a risk-
        sharing contract under section 1876). Such payments 
        shall be subject to adjustment in the manner described 
        in section 1854(a)(2) or section 1876(a)(1)(E), as the 
        case may be.
          (2) Capitation amount.--The capitation amount to be 
        applied under this subsection for a provider for a 
        contract year shall be an amount specified in the PACE 
        program agreement for the year. Such amount shall be 
        based upon payment rates established for purposes of 
        payment under section 1854 (or, for periods before 
        January 1, 1999, for purposes of risk-sharing contracts 
        under section 1876) and shall be adjusted to take into 
        account the comparative frailty of PACE enrollees and 
        such other factors as the Secretary determines to be 
        appropriate. Such amount under such an agreement shall 
        be computed in a manner so that the total payment level 
        for all PACE program eligible individuals enrolled 
        under a program is less than the projected payment 
        under this title for a comparable population not 
        enrolled under a PACE program. ``
  (e) PACE Program Agreement.--
          (1) Requirement.--
                  (A) In general.--The Secretary, in close 
                cooperation with the State administering 
                agency, shall establish procedures for entering 
                into, extending, and terminating PACE program 
                agreements for the operation of PACE programs 
                by entities that meet the requirements for a 
                PACE provider under this section, section 1932, 
                and regulations.
                  (B) Numerical limitation.--
                          (i) In general.--The Secretary shall 
                        not permit the number of PACE providers 
                        with which agreements are in effect 
                        under this section or under section 
                        9412(b) of the Omnibus Budget 
                        Reconciliation Act of 1986 to exceed--
                                  (I) 40 as of the date of the 
                                enactment of this section, or
                                  (II) as of each succeeding 
                                anniversary of such date, the 
                                numerical limitation under this 
                                subparagraph for the preceding 
                                year plus 20.
                        Subclause (II) shall apply without 
                        regard to the actual number of 
                        agreements in effect as of a previous 
                        anniversary date.
                          (ii) Treatment of certain private, 
                        for-profit providers.--The numerical 
                        limitation in clause (i) shall not 
                        apply to a PACE provider that--
                                  (I) is operating under a 
                                demonstration project waiver 
                                under subsection (h), or
                                  (II) was operating under such 
                                a waiver and subsequently 
                                qualifies for PACE provider 
                                status pursuant to subsection 
                                (a)(3)(B)(ii).
          (2) Service area and eligibility.--
                  (A) In general.--A PACE program agreement for 
                a PACE program--
                          (i) shall designate the service area 
                        of the program;
                          (ii) may provide additional 
                        requirements for individuals to qualify 
                        as PACE program eligible individuals 
                        with respect to the program;
                          (iii) shall be effective for a 
                        contract year, but may be extended for 
                        additional contract years in the 
                        absence of a notice by a party to 
                        terminate and is subject to termination 
                        by the Secretary and the State 
                        administering agency at any time for 
                        cause (as provided under the 
                        agreement);
                          (iv) shall require a PACE provider to 
                        meet all applicable State and local 
                        laws and requirements; and
                          (v) shall have such additional terms 
                        and conditions as the parties may agree 
                        to consistent with this section and 
                        regulations.
                  (B) Service area overlap.--In designating a 
                service area under a PACE program agreement 
                under subparagraph (A)(i), the Secretary (in 
                consultation with the State administering 
                agency) may exclude from designation an area 
                that is already covered under another PACE 
                program agreement, in order to avoid 
                unnecessary duplication of services and avoid 
                impairing the financial and service viability 
                of an existing program.
          (3) Data collection.--
                  (A) In general.--Under a PACE program 
                agreement, the PACE provider shall--
                          (i) collect data,
                          (ii) maintain, and afford the 
                        Secretary and the State administering 
                        agency access to, the records relating 
                        to the program, including pertinent 
                        financial, medical, and personnel 
                        records, and
                          (iii) make to the Secretary and the 
                        State administering agency reports that 
                        the Secretary finds (in consultation 
                        with State administering agencies) 
                        necessary to monitor the operation, 
                        cost, and effectiveness of the PACE 
                        program under this title and title XIX.
                  (B) Requirements during trial period.--During 
                the first three years of operation of a PACE 
                program (either under this section or under a 
                PACE demonstration waiver program), the PACE 
                provider shall provide such additional data as 
                the Secretary specifies in regulations in order 
                to perform the oversight required under 
                paragraph (4)(A).
          (4) Oversight.--
                  (A) Annual, close oversight during trial 
                period.--During the trial period (as defined in 
                subsection (a)(9)) with respect to a PACE 
                program operated by a PACE provider, the 
                Secretary (in cooperation with the State 
                administering agency) shall conduct a 
                comprehensive annual review of the operation of 
                the PACE program by the provider in order to 
                assure compliance with the requirements of this 
                section and regulations. Such a review shall 
                include--
                          (i) an on-site visit to the program 
                        site;
                          (ii) comprehensive assessment of a 
                        provider's fiscal soundness;
                          (iii) comprehensive assessment of the 
                        provider's capacity to provide all PACE 
                        services to all enrolled participants;
                          (iv) detailed analysis of the 
                        entity's substantial compliance with 
                        all significant requirements of this 
                        section and regulations; and
                          (v) any other elements the Secretary 
                        or State agency considers necessary or 
                        appropriate.
                  (B) Continuing oversight.--After the trial 
                period, the Secretary (in cooperation with the 
                State administering agency) shall continue to 
                conduct such review of the operation of PACE 
                providers and PACE programs as may be 
                appropriate, taking into account the 
                performance level of a provider and compliance 
                of a provider with all significant requirements 
                of this section and regulations.
                  (C) Disclosure.--The results of reviews under 
                this paragraph shall be reported promptly to 
                the PACE provider, along with any 
                recommendations for changes to the providers 
                program, and shall be made available to the 
                public upon request.
          (5) Termination of pace provider agreements.--
                  (A) In general.--Under regulations--
                          (i) the Secretary or a State 
                        administering agency may terminate a 
                        PACE program agreement for cause, and
                          (ii) a PACE provider may terminate 
                        such an agreement after appropriate 
                        notice to the Secretary, the State 
                        agency, and enrollees.
                  (B) Causes for termination.--In accordance 
                with regulations establishing procedures for 
                termination of PACE program agreements, the 
                Secretary or a State administering agency may 
                terminate a PACE program agreement with a PACE 
                provider for, among other reasons, the fact 
                that--
                          (i) the Secretary or State 
                        administering agency determines that--
                                  (I) there are significant 
                                deficiencies in the quality of 
                                care provided to enrolled 
                                participants; or
                                  (II) the provider has failed 
                                to comply substantially with 
                                conditions for a program or 
                                provider under this section or 
                                section 1932; and
                          (ii) the entity has failed to develop 
                        and successfully initiate, within 30 
                        days of the date of the receipt of 
                        written notice of such a determination, 
                        and continue implementation of a plan 
                        to correct the deficiencies.
                  (C) Termination and transition procedures.--
                An entity whose PACE provider agreement is 
                terminated under this paragraph shall implement 
                the transition procedures required under 
                subsection (a)(2)(C).
          (6) Secretary's oversight; enforcement authority.--
                  (A) In general.--Under regulations, if the 
                Secretary determines (after consultation with 
                the State administering agency) that a PACE 
                provider is failing substantially to comply 
                with the requirements of this section and 
                regulations, the Secretary (and the State 
                administering agency) may take any or all of 
                the following actions:
                          (i) Condition the continuation of the 
                        PACE program agreement upon timely 
                        execution of a corrective action plan.
                          (ii) Withhold some or all further 
                        payments under the PACE program 
                        agreement under this section or section 
                        1932 with respect to PACE program 
                        services furnished by such provider 
                        until the deficiencies have been 
                        corrected.
                          (iii) Terminate such agreement.
                  (B) Application of intermediate sanctions.--
                Under regulations, the Secretary may provide 
                for the application against a PACE provider of 
                remedies described in section 1857(f)(2) (or, 
                for periods before January 1, 1999, section 
                1876(i)(6)(B)) or 1903(m)(5)(B) in the case of 
                violations by the provider of the type 
                described in section 1857(f)(1) (or 
                1876(i)(6)(A) for such periods) or 
                1903(m)(5)(A), respectively (in relation to 
                agreements, enrollees, and requirements under 
                this section or section 1932, respectively).
          (7) Procedures for termination or imposition of 
        sanctions.--Under regulations, the provisions of 
        section 1857(g) (or for periods before January 1, 1999, 
        section 1876(i)(9)) shall apply to termination and 
        sanctions respecting a PACE program agreement and PACE 
        provider under this subsection in the same manner as 
        they apply to a termination and sanctions with respect 
        to a contract and a MedicarePlus organization under 
        part C (or for such periods an eligible organization 
        under section 1876).
          (8) Timely consideration of applications for pace 
        program provider status.--In considering an application 
        for PACE provider program status, the application shall 
        be deemed approved unless the Secretary, within 90 days 
        after the date of the submission of the application to 
        the Secretary, either denies such request in writing or 
        informs the applicant in writing with respect to any 
        additional information that is needed in order to make 
        a final determination with respect to the application. 
        After the date the Secretary receives such additional 
        information, the application shall be deemed approved 
        unless the Secretary, within 90 days of such date, 
        denies such request.
  (f) Regulations.--
          (1) In general.--The Secretary shall issue interim 
        final or final regulations to carry out this section 
        and section 1932.
          (2) Use of pace protocol.--
                  (A) In general.--In issuing such regulations, 
                the Secretary shall, to the extent consistent 
                with the provisions of this section, 
                incorporate the requirements applied to PACE 
                demonstration waiver programs under the PACE 
                protocol.
                  (B) Flexibility.--The Secretary (in close 
                consultation with State administering agencies) 
                may modify or waive such provisions of the PACE 
                protocol in order to provide for reasonable 
                flexibility in adapting the PACE service 
                delivery model to the needs of particular 
                organizations (such as those in rural areas or 
                those that may determine it appropriate to use 
                non-staff physicians accordingly to State 
                licensing law requirements) under this section 
                and section 1932 where such flexibility is not 
                inconsistent with and would not impair the 
                essential elements, objectives, and 
                requirements of the this section, including--
                          (i) the focus on frail elderly 
                        qualifying individuals who require the 
                        level of care provided in a nursing 
                        facility;
                          (ii) the delivery of comprehensive, 
                        integrated acute and long-term care 
                        services;
                          (iii) the interdisciplinary team 
                        approach to care management and service 
                        delivery;
                          (iv) capitated, integrated financing 
                        that allows the provider to pool 
                        payments received from public and 
                        private programs and individuals; and
                          (v) the assumption by the provider 
                        over time of full financial risk.
          (3) Application of certain additional beneficiary and 
        program protections.--
                  (A) In general.--In issuing such regulations 
                and subject to subparagraph (B), the Secretary 
                may apply with respect to PACE programs, 
                providers, and agreements such requirements of 
                part C (or, for periods before January 1, 1999, 
                section 1876) and section 1903(m) relating to 
                protection of beneficiaries and program 
                integrity as would apply to MedicarePlus 
                organizations under part C (or for such periods 
                eligible organizations under risk-sharing 
                contracts under section 1876) and to health 
                maintenance organizations under prepaid 
                capitation agreements under section 1903(m).
                  (B) Considerations.--In issuing such 
                regulations, the Secretary shall--
                          (i) take into account the differences 
                        between populations served and benefits 
                        provided under this section and under 
                        part C (or, for periods before January 
                        1, 1999, section 1876) and section 
                        1903(m);
                          (ii) not include any requirement that 
                        conflicts with carrying out PACE 
                        programs under this section; and
                          (iii) not include any requirement 
                        restricting the proportion of enrollees 
                        who are eligible for benefits under 
                        this title or title XIX.
  (g) Waivers of Requirements.--With respect to carrying out a 
PACE program under this section, the following requirements of 
this title (and regulations relating to such requirements) are 
waived and shall not apply:
          (1) Section 1812, insofar as it limits coverage of 
        institutional services.
          (2) Sections 1813, 1814, 1833, and 1886, insofar as 
        such sections relate to rules for payment for benefits.
          (3) Sections 1814(a)(2)(B), 1814(a)(2)(C), and 
        1835(a)(2)(A), insofar as they limit coverage of 
        extended care services or home health services.
          (4) Section 1861(i), insofar as it imposes a 3-day 
        prior hospitalization requirement for coverage of 
        extended care services.
          (5) Sections 1862(a)(1) and 1862(a)(9), insofar as 
        they may prevent payment for PACE program services to 
        individuals enrolled under PACE programs.
  (h) Demonstration Project for For-Profit Entities.--
          (1) In general.--In order to demonstrate the 
        operation of a PACE program by a private, for-profit 
        entity, the Secretary (in close consultation with State 
        administering agencies) shall grant waivers from the 
        requirement under subsection (a)(3) that a PACE 
        provider may not be a for-profit, private entity.
          (2) Similar terms and conditions.--
                  (A) In general.--Except as provided under 
                subparagraph (B), and paragraph (1), the terms 
                and conditions for operation of a PACE program 
                by a provider under this subsection shall be 
                the same as those for PACE providers that are 
                nonprofit, private organizations.
                  (B) Numerical limitation.--The number of 
                programs for which waivers are granted under 
                this subsection shall not exceed 10. Programs 
                with waivers granted under this subsection 
                shall not be counted against the numerical 
                limitation specified in subsection (e)(1)(B).
  (i) Construction.--Nothing in this section or section 1932 
shall be construed as preventing a PACE provider from entering 
into contracts with other governmental or nongovernmental 
payers for the care of PACE program eligible individuals who 
are not eligible for benefits under part A, or enrolled under 
part B, or eligible for medical assistance under title XIX.


              prospective payment for home health services


  Sec. 1895. (a) In General.--Notwithstanding section 1861(v), 
the Secretary shall provide, for cost reporting periods 
beginning on or after October 1, 1999, for payments for home 
health services in accordance with a prospective payment system 
established by the Secretary under this section.
  (b) System of Prospective Payment for Home Health Services.--
          (1) In general.--The Secretary shall establish under 
        this subsection a prospective payment system for 
        payment for all costs of home health services. Under 
        the system under this subsection all services covered 
        and paid on a reasonable cost basis under the medicare 
        home health benefit as of the date of the enactment of 
        the this section, including medical supplies, shall be 
        paid for on the basis of a prospective payment amount 
        determined under this subsection and applicable to the 
        services involved. In implementing the system, the 
        Secretary may provide for a transition (of not longer 
        than 4 years) during which a portion of such payment is 
        based on agency-specific costs, but only if such 
        transition does not result in aggregate payments under 
        this title that exceed the aggregate payments that 
        would be made if such a transition did not occur.
          (2) Unit of payment.--In defining a prospective 
        payment amount under the system under this subsection, 
        the Secretary shall consider an appropriate unit of 
        service and the number, type, and duration of visits 
        provided within that unit, potential changes in the mix 
        of services provided within that unit and their cost, 
        and a general system design that provides for continued 
        access to quality services.
          (3) Payment basis.--
                  (A) Initial basis.--
                          (i) In general.--Under such system 
                        the Secretary shall provide for 
                        computation of a standard prospective 
                        payment amount (or amounts). Such 
                        amount (or amounts) shall initially be 
                        based on the most current audited cost 
                        report data available to the Secretary 
                        and shall be computed in a manner so 
                        that the total amounts payable under 
                        the system for fiscal year 2000 shall 
                        be equal to the total amount that would 
                        have been made if the system had not 
                        been in effect but if the reduction in 
                        limits described in clause (ii) had 
                        been in effect. Such amount shall be 
                        standardized in a manner that 
                        eliminates the effect of variations in 
                        relative case mix and wage levels among 
                        different home health agencies in a 
                        budget neutral manner consistent with 
                        the case mix and wage level adjustments 
                        provided under paragraph (4)(A). Under 
                        the system, the Secretary may recognize 
                        regional differences or differences 
                        based upon whether or not the services 
                        or agency are in an urbanized area.
                          (ii) Reduction.--The reduction 
                        described in this clause is a reduction 
                        by 15 percent in the cost limits and 
                        per beneficiary limits described in 
                        section 1861(v)(1)(L), as those limits 
                        are in effect on September 30, 1999.
                  (B) Annual update.--
                          (i) In general.--The standard 
                        prospective payment amount (or amounts) 
                        shall be adjusted for each fiscal year 
                        (beginning with fiscal year 2001) in a 
                        prospective manner specified by the 
                        Secretary by the home health market 
                        basket percentage increase applicable 
                        to the fiscal year involved.
                          (ii) Home health market basket 
                        percentage increase.--For purposes of 
                        this subsection, the term ``home health 
                        market basket percentage 
increase''means, with respect to a fiscal year, a percentage (estimated 
by the Secretary before the beginning of the fiscal year) determined 
and applied with respect to the mix of goods and services included in 
home health services in the same manner as the market basket percentage 
increase under section 1886(b)(3)(B)(iii) is determined and applied to 
the mix of goods and services comprising inpatient hospital services 
for the fiscal year.
                  (C) Adjustment for outliers.--The Secretary 
                shall reduce the standard prospective payment 
                amount (or amounts) under this paragraph 
                applicable to home health services furnished 
                during a period by such proportion as will 
                result in an aggregate reduction in payments 
                for the period equal to the aggregate increase 
                in payments resulting from the application of 
                paragraph (5) (relating to outliers).
          (4) Payment computation.--
                  (A) In general.--The payment amount for a 
                unit of home health services shall be the 
                applicable standard prospective payment amount 
                adjusted as follows:
                          (i) Case mix adjustment.--The amount 
                        shall be adjusted by an appropriate 
                        case mix adjustment factor (established 
                        under subparagraph (B)).
                          (ii) Area wage adjustment.--The 
                        portion of such amount that the 
                        Secretary estimates to be attributable 
                        to wages and wage-related costs shall 
                        be adjusted for geographic differences 
                        in such costs by an area wage 
                        adjustment factor (established under 
                        subparagraph (C)) for the area in which 
                        the services are furnished or such 
                        other area as the Secretary may 
                        specify.
                  (B) Establishment of case mix adjustment 
                factors.--The Secretary shall establish 
                appropriate case mix adjustment factors for 
                home health services in a manner that explains 
                a significant amount of the variation in cost 
                among different units of services.
                  (C) Establishment of area wage adjustment 
                factors.--The Secretary shall establish area 
                wage adjustment factors that reflect the 
                relative level of wages and wage-related costs 
                applicable to the furnishing of home health 
                services in a geographic area compared to the 
                national average applicable level. Such factors 
                may be the factors used by the Secretary for 
                purposes of section 1886(d)(3)(E).
          (5) Outliers.--The Secretary may provide for an 
        addition or adjustment to the payment amount otherwise 
        made in the case of outliers because of unusual 
        variations in the type or amount of medically necessary 
        care. The total amount of the additional payments or 
        payment adjustments made under this paragraph with 
        respect to a fiscal year may not exceed 5 percent of 
        the total payments projected or estimated to be made 
        based on the prospective payment system under this 
        subsection in that year.
          (6) Proration of prospective payment amounts.--If a 
        beneficiary elects to transfer to, or receive services 
        from, another home health agency within the period 
        covered by the prospective payment amount, the payment 
        shall be prorated between the home health agencies 
        involved.
  (c) Requirements for Payment Information.--With respect to 
home health services furnished on or after October 1, 1998, no 
claim for such a service may be paid under this title unless--
          (1) the claim has the unique identifier (provided 
        under section 1842(r)) for the physician who prescribed 
        the services or made the certification described in 
        section 1814(a)(2) or 1835(a)(2)(A); and
          (2) in the case of a service visit described in 
        paragraph (1), (2), (3), or (4) of section 1861(m), the 
        claim has information (coded in an appropriate manner) 
        on the length of time of the service visit, as measured 
        in 15 minute increments.
  (d) Limitation on Review.--There shall be no administrative 
or judicial review under section 1869 or otherwise of--
          (1) the establishment of a transition period under 
        subsection (b)(1);
          (2) the definition and application of payment units 
        under subsection (b)(2);
          (3) the computation of initial standard prospective 
        payment amounts under subsection (b)(3)(A) (including 
        the reduction described in clause (ii) of such 
        subsection);
          (4) the establishment of the adjustment for outliers 
        under subsection (b)(3)(C);
          (5) the establishment of case mix and area wage 
        adjustments under subsection (b)(4);
          (6) the establishment of any adjustments for outliers 
        under subsection (b)(5); and
          (7) the amounts or types of exceptions or adjustments 
        under subsection (b)(7).

      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)  * * *
          * * * * * * *
          (9) provide--
                  (A) * * *
          * * * * * * *
                  (C) that any laboratory services paid for 
                under such plan must be provided by a 
                laboratory which meets the appolicable 
                requirements of section 1861(e)(9) or 
                paragraphs [(15) and (16)] (16) and (17) of 
                seciton 1861(s), or, in the case of a 
                laboratory which is in a rural health clinic, 
                of section 1861(aa)(2)(G);
          * * * * * * *
  (j) Notwithstanding any other requirement of this title, the 
Secretary may waive or modify any requirement of this title 
withrespect to the medical assistance program in American Samoa 
and the Northern Mariana Islands, other than a waiver of the Federal 
medical assistance percentage, the limitation in section 1108(c), or 
the requirement that payment may be made for medical assistance only 
with respect to amounts expended by American Samoa or the Northern 
Mariana Islands for care and services described in paragraphs (1) 
through [(25)] (26) of section 1905(a).
          * * * * * * *

                           payment to states

  Sec. 1903. (a) * * *
          * * * * * * *
  (f)(1) * * *
          * * * * * * *
  (4) The limitations on payment imposed by the preceding 
provisions of this subsection shall not apply with respect to 
any amount expended by a State as medical assistance for any 
individual described in section 1902(a)(10)(A)(i)(III), 
1902(a)(10)(A)(i)(IV), 1902(a)(10)(A)(i)(V), 
1902(a)(10)(A)(i)(VI), 1902(a)(10)(A)(i)(VII), 
1902(a)(10)(A)(ii)(IX), 1902(a)(10)(A)(ii)(X), or 1905(p)(1) or 
for any individual--
          (A) * * *
          * * * * * * *
          (C) with respect to whom there is being paid, or who 
        is eligible, or would be eligible if he were not in a 
        medical institution, to have paid with respect to him, 
        a State supplementary payment and is eligible for 
        medical assistance equal in amount, duration, and scope 
        to the medical assistance made available to individuals 
        described in section 1902(a)(10)(A), or who is a PACE 
        program eligible individual enrolled in a PACE program 
        under section 1932, but only if the income of such 
        individual (as determined under section 1612, but 
        without regard to subsection (b) thereof) does not 
        exceed 300 percent of the supplemental security income 
        benefit rate established by section 1611(b)(1),
at the time of the provision of the medical assistance giving 
rise to such expenditure.
          * * * * * * *

                              definitions

  Sec. 1905. For purposes of this title--
  (a) The term ``medical assistance means payment of part or 
all of the cost of the following care and services (if provided 
in or after the third month before the month in which the 
recipient makes application for assistance or, in the case of 
medicare cost-sharing with respect to a qualified medicare 
beneficiary described in subsection (p)(1), if provided after 
the month in which the individual becomes such a beneficiary) 
for individuals, and, with respect to physicians' or dentists' 
services, at the option of the State, to individuals (other 
than individuals with respect to whom there is being paid, or 
who are eligible, or would be eligible if they were not in a 
medical institution, to have paid with respect to them a State 
supplementary payment and are eligible for medical assistance 
equal in amount, duration, and scope to the medical assistance 
made available to individuals described in section 
1902(a)(10)(A)) not receiving aid or assistance under any plan 
of the State approved under title I, X, XIV, or XVI, or part A 
of title IV, and with respect to whom supplemental security 
income benefits are not being paid under title XVI, who are--
          (i) under the age of 21, or, at the option of the 
        State, under the age of 20, 19, or 18 as the State may 
        choose,
          (ii) relatives specified in section 406(b)(1) with 
        whom a child is living if such child is (or would, if 
        needy, be) a dependent child under part A of title IV,
          (iii) 65 years of age or older,
          (iv) blind, with respect to States eligible to 
        participate in the State plan program established under 
        title XVI,
          (v) 18 years of age or older and permanently and 
        totally disabled, with respect to States eligible to 
        participate in the State plan program established under 
        title XVI,
          (vi) persons essential (as described in the second 
        sentence of this subsection) to individuals receiving 
        aid or assistance under State plans approved under 
        title I, X, XIV, or XVI,
          (vii) blind or disabled as defined in section 1614, 
        with respect to States not eligible to participate in 
        the State plan program established under title XVI,
          (viii) pregnant women,
          (ix) individuals provided extended benefits under 
        section 1925,
          (x) individuals described in section 1902(u)(1), or
          (xi) individuals described in section 1902(z)(1),
but whose income and resources are insufficient to meet all of 
such cost--
          (1) * * *
          * * * * * * *
          (24) personal care services furnished to an 
        individual who is not an inpatient or resident of a 
        hospital, nursing facility, intermediate care facility 
        for the mentally retarded, or institution for mental 
        disease that are (A) authorized for the individual by a 
        physician in accordance with a plan of treatment or (at 
        the option of the State) otherwise authorized for the 
        individual in accordance with a service plan approved 
        by the State, (B) provided by an individual who is 
        qualified to provide such services and who is not a 
        member of the individuals family, and (C) furnished in 
        a home or other location; [and]
          (25) services furnished under a PACE program under 
        section 1932 to PACE program eligible individuals 
        enrolled under the program under such section; and
          [(25)] (26) any other medical care, and any other 
        type of remedial care recognized under State law, 
        specified by the Secretary.
except as otherwise provided in paragraph (16), such term does 
not include--
          (A) any such payments with respect to care or 
        services for any individual who is an inmate of a 
        public institution (except as a patient in a medical 
        institution); or
          (B) any such payments with respect to care or 
        services for any individual who has not attained 65 
        years of age and who is a patient in an institution for 
        mental diseases.
For purposes of clause (vi) of the preceding sentence, a person 
shall be considered essential to another individual if such 
person is the spouse of and is living with such individual, the 
needs of such person are taken into account in determining the 
amount of aid or assistance furnished to such individual (under 
a State plan approved under title I, X, XIV, or XVI), and such 
person is determined, under such a State plan, to be essential 
to the well-being of such individual. The payment described in 
the first sentence may include expenditures for medicare cost-
sharing and for premiums under part B of title XVIII for 
individuals who are eligible for medical assistance under the 
plan and (A) are receiving aid or assistance under any plan of 
the State approved under title I, X, XIV, or XVI, or part A of 
title IV, or with respect to whom supplemental security income 
benefits are being paid under title XVI, or (B) with respect to 
whom there is being paid a State supplementary payment and are 
eligible for medical assistance equal in amount, duration, and 
scope to the medical assistance made available to individuals 
described in section 1902(a)(10)(A), and, except in the case of 
individuals 65 years of age or older and disabled individuals 
entitled to health insurance benefits under title XVIII who are 
not enrolled under part B of title XVIII, other insurance 
premiums for medical or any other type of remedial care or the 
cost thereof. No service (including counseling) shall be 
excluded from the definition of ``medical assistance solely 
because it is provided as a treatment service for alcoholism or 
drug dependency.
          * * * * * * *

      provisions respecting inapplicability and waiver of certain 
                       requirements of this title

    Sec. 1915. (a) A State shall not be deemed to be out of 
compliance with the requirements of paragraphs (1), (10), or 
(23) of section 1902(a) solely by reason of the fact that the 
State (or any political subdivision thereof)--
          (1) has entered into--
                  (A) * * *
                  (B) arrangements through a competitive 
                bidding process or otherwise for the purchase 
                of laboratory services referred to in section 
                1905(a)(3) or medical devices if the Secretary 
                has found that--
                          (i) * * *
                          (ii) any such laboratory services 
                        will be provided only through 
                        laboratories--
                                  (I) which meet the applicable 
                                requirements of section 
                                1861(e)(9) or paragraphs [(15) 
                                and (16)] (16) and (17) of 
                                section 1861(s), and such 
                                additional requirements as the 
                                Secretary may require, and
          * * * * * * *

treatment of income and resources for certain institutionalized spouses

  Sec. 1924. (a) Special Treatment for Institutionalized 
Spouses.--
          (1) * * *
          * * * * * * *
          (5) Application to individuals receiving services 
        [from organizations receiving certain waivers] under 
        pace programs.--This section applies to individuals 
        receiving institutional or noninstitutional services 
        [from any organization receiving a frail elderly 
        demonstration project waiver under section 9412(b) of 
        the Omnibus Budget Reconciliation Act of 1986 or a 
        waiver under section 603(c) of the Social Security 
        Amendments of 1983.] under a PACE demonstration waiver 
        program (as defined in subsection (a)(7) of section 
        1894) or under a PACE program under section 1932.
          * * * * * * *

SEC. 1932. PROGRAM OF ALL-INCLUSIVE CARE FOR THE ELDERLY (PACE).

  (a) Option.--
          (1) In general.--A State may elect to provide medical 
        assistance under this section with respect to PACE 
        program services to PACE program eligible individuals 
        who are eligible for medical assistance under the State 
        plan and who are enrolled in a PACE program under a 
        PACE program agreement. Such individuals need not be 
        eligible for benefits under part A, or enrolled under 
        part B, of title XVIII to be eligible to enroll under 
        this section.
          (2) Benefits through enrollment in pace program.--In 
        the case of an individual enrolled with a PACE program 
        pursuant to such an election--
                  (A) the individual shall receive benefits 
                under the plan solely through such program, and
                  (B) the PACE provider shall receive payment 
                in accordance with the PACE program agreement 
                for provision of such benefits.
          (3) Application of definitions.--The definitions of 
        terms under section 1894(a) shall apply under this 
        section in the same manner as they apply under section 
        1894.
  (b) Application of Medicare Terms and Conditions.--Except as 
provided in this section, the terms and conditions for the 
operation and participation of PACE program eligible 
individuals in PACE programs offered by PACE providers under 
PACE program agreements under section 1894 shall apply for 
purposes of this section.
  (c) Adjustment in Payment Amounts.--In the case of 
individuals enrolled in a PACE program under this section, the 
amount of payment under this section shall not be the amount 
calculatedunder section 1894(d), but shall be an amount, 
specified under the PACE agreement, which is less than the amount that 
would otherwise have been made under the State plan if the individuals 
were not so enrolled. The payment under this section shall be in 
addition to any payment made under section 1894 for individuals who are 
enrolled in a PACE program under such section.
  (d) Waivers of Requirements.--With respect to carrying out a 
PACE program under this section, the following requirements of 
this title (and regulations relating to such requirements) 
shall not apply:
          (1) Section 1902(a)(1), relating to any requirement 
        that PACE programs or PACE program services be provided 
        in all areas of a State.
          (2) Section 1902(a)(10), insofar as such section 
        relates to comparability of services among different 
        population groups.
          (3) Sections 1902(a)(23) and 1915(b)(4), relating to 
        freedom of choice of providers under a PACE program.
          (4) Section 1903(m)(2)(A), insofar as it restricts a 
        PACE provider from receiving prepaid capitation 
        payments.
  (e) Post-Eligibility Treatment of Income.--A State may 
provide for post-eligibility treatment of income for 
individuals enrolled in PACE programs under this section in the 
same manner as a State treats post-eligibility income for 
individuals receiving services under a waiver under section 
1915(c).

         references to laws directly affecting medicaid program

  Sec. [1932.] 1933. (a) Authority or Requirements to Cover 
Additional Individuals.--For provisions of law which make 
additional individuals eligible for medical assistance under 
this title, see the following:
          (1) * * *
          * * * * * * *
                              ----------                              


                     INTERNAL REVENUE CODE OF 1986

                        Subtitle A--Income Taxes

          * * * * * * *

                  CHAPTER 1--NORMAL TAXES AND SURTAXES

          * * * * * * *

        PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

        Sec. 101. Certain death benefits.
     * * * * * * *
        [Sec. 138. Cross references to other Acts.]
        Sec. 138. MedicarePlus MSA.
        Sec. 139. Cross references to other Acts.
          * * * * * * *

SEC. 138. MEDICAREPLUS MSA.

  (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 part C of title XVIII of the 
Social Security Act.
  (b) MedicarePlus MSA.--For purposes of this section, the term 
``MedicarePlus MSA'' means a medical savings account (as 
defined in section 220(d))--
          (1) which is designated as a MedicarePlus MSA,
          (2) with respect to which no contribution may be made 
        other than--
                  (A) a contribution made by the Secretary of 
                Health and Human Services pursuant to part C of 
                title XVIII of the Social Security Act, or
                  (B) a trustee-to-trustee transfer described 
                in subsection (c)(4),
          (3) the governing instrument of which provides that 
        trustee-to-trustee transfers described in subsection 
        (c)(4) may be made to and from such account, and
          (4) which is established in connection with an MSA 
        plan described in section 1859(b)(2) of the Social 
        Security Act.
  (c) Special Rules for Distributions.--
          (1) Distributions for qualified medical expenses.--In 
        applying section 220 to a MedicarePlus MSA--
                  (A) qualified medical expenses shall not 
                include amounts paid for medical care for any 
                individual other than the account holder, and
                  (B) section 220(d)(2)(C) shall not apply.
          (2) Penalty for distributions from medicareplus msa 
        not used for qualified medical expenses if minimum 
        balance not maintained.--
                  (A) In general.--The tax imposed by this 
                chapter for any taxable year in which there is 
                a payment or distribution from a 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 such MSA as of 
                                the close of the calendar year 
                                preceding the calendar year in 
                                which the taxable year begins, 
                                over
                                  (II) an amount equal to 60 
                                percent of the deductible under 
                                the MedicarePlus MSA plan 
                                covering the account holder as 
                                of January 1 of the calendar 
                                year in which the taxable year 
                                begins.
                Section 220(f)(2) shall not apply to any 
                payment or distribution from a MedicarePlus 
                MSA.
                  (B) Exceptions.--Subparagraph (A) shall not 
                apply if the payment or distribution is made on 
                or after the date the account holder--
                          (i) becomes disabled within the 
                        meaning of section 72(m)(7), or
                          (ii) dies.
                  (C) Special rules.--For purposes of 
                subparagraph (A)--
                          (i) all MedicarePlus MSAs of the 
                        account holder shall be treated as 1 
                        account,
                          (ii) all payments and distributions 
                        not used exclusively to pay the 
                        qualified medical expenses of the 
                        account holder during any taxable year 
                        shall be treated as 1 distribution, and
                          (iii) any distribution of property 
                        shall be taken into account at its fair 
                        market value on the date of the 
                        distribution.
          (3) Withdrawal of erroneous contributions.--Section 
        220(f)(2) and paragraph (2) of this subsection shall 
        not apply to any payment or distribution from a 
        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.--Section 220(f)(2) 
        and paragraph (2) of this subsection 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. ``
  (d) Special Rules for Treatment of Account After Death of 
Account Holder.--In applying section 220(f)(8)(A) to an account 
which was a MedicarePlus MSA of a decedent, the rules of 
section 220(f) shall apply in lieu of the rules of subsection 
(c) of this section with respect to the spouse as the account 
holder of such MedicarePlus MSA.
  (e) Reports.--In the case of a MedicarePlus MSA, the report 
under section 220(h)--
          (1) shall include the fair market value of the assets 
        in such MedicarePlus MSA as of the close of each 
        calendar year, and
          (2) shall be furnished to the account holder--
                  (A) not later than January 31 of the calendar 
                year following the calendar year to which such 
                reports relate, and
                  (B) in such manner as the Secretary 
                prescribes in such regulations.
  (f) Coordination With Limitation on Number of Taxpayers 
Having Medical Savings Accounts.--Subsection (i) of section 220 
shall not apply to an individual with respect to a MedicarePlus 
MSA, and MedicarePlus MSAs shall not be taken into account in 
determining whether the numerical limitations under section 
220(j) are exceeded.

SEC. [138.] 139. CROSS REFERENCES TO OTHER ACTS.

          (a) * * *
          * * * * * * *

        PART VII--ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS

          * * * * * * *

SEC. 220. MEDICAL SAVINGS ACCOUNTS.

  (a) * * *
  (b) Limitations.--
          (1) * * *
          * * * * * * *
          (7) Medicare eligible individuals.--The limitation 
        under this subsection for any month with respect to an 
        individual shall be zero for the first month such 
        individual is entitled to benefits under title XVIII of 
        the Social Security Act and for each month thereafter.
          * * * * * * *

                   Subchapter F--Exempt Organizations

          * * * * * * *

                          PART I--GENERAL RULE

          * * * * * * *

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

  (a) * * *
          * * * * * * *
  (o) Treatment of Hospitals Participating in Provider-
Sponsored Organizations.--An organization shall not fail to be 
treated as organized and operated exclusively for a charitable 
purpose for purposes of subsection (c)(3) solely because a 
hospital which is owned and operated by such organization 
participates in a provider-sponsored organization (as defined 
in section 1853(e) of the Social Security Act), whether or not 
the provider-sponsored organization is exempt from tax. For 
purposes of subsection (c)(3), any person with a material 
financial interest in such a provider-sponsored organization 
shall be treated as a private shareholder or individual with 
respect to the hospital.
  [(o)] (p) 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 D--Miscellaneous Excise Taxes

          * * * * * * *

              CHAPTER 43--QUALIFIED PENSIONS, ETC., PLANS

          * * * * * * *

SEC. 4973. TAX ON EXCESS CONTRIBUTIONS TO INDIVIDUAL RETIREMENT 
                    ACCOUNTS, MEDICAL SAVINGS ACCOUNTS, CERTAIN SECTION 
                    403(B) CONTRACTS, AND CERTAIN INDIVIDUAL RETIREMENT 
                    ANNUITIES.

  (a) * * *
          * * * * * * *
  (d) Excess Contributions to Medical Savings Accounts.--For 
purposes of this section, in the case of medical savings 
accounts (within the meaning of section 220(d)), the term 
``excess contributions means the sum of--
          (1) * * *
          * * * * * * *
For purposes of this subsection, any contribution which is 
distributed out of the medical savings account in a 
distribution to which section 220(f)(3) or section 138(c)(3) 
applies shall be treated as an amount not contributed.

                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, 1998, 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).]
          * * * * * * *
                              ----------                              


     SECTION 9412 OF THE OMNIBUS BUDGET RECONCILIATION ACT OF 1986

SEC. 9412. WAIVER AUTHORITY FOR CHRONICALLY MENTALLY ILL AND FRAIL 
                    ELDERLY.

  (a) * * *
  [(b) Frail Elderly Demonstration Project Waivers.--
          [(1) The Secretary of Health and Human Services shall 
        grant waivers of certain requirements of titles XVIII 
        and XIX of the Social Security Act to not more than 10 
        public or nonprofit private community-based 
        organizations to enable such organizations to provide 
        comprehensive health care services on a capitated basis 
        to frail elderly patients at risk of 
        institutionalization.
          [(2)(A) Except as provided in subparagraph (B), the 
        terms and conditions of a waiver granted pursuant to 
        this subsection shall be substantially the same as the 
        terms and conditions of the On Lok waiver (referred to 
        in section 603(c) of the Social Security Amendments of 
        1983 and extended by section 9220 of the Consolidated 
        Omnibus Budget Reconciliation Act of 1985), including 
        permitting the organization to assume progressively 
        (over the initial 3-year period of the waiver) the full 
        financial risk.
          [(B) In order to receive a waiver under this 
        subsection, an organization must participate in an 
        organized initiative to replicate the findings of the 
        On Lok long-term care demonstration project (described 
        in section 603(c)(1) of the Social Security Amendments 
        of 1983).
          [(C) Subject to subparagraph (B), any waiver granted 
        pursuant to this subsection shall be for an initial 
        period of 3 years. The Secretary may extend such waiver 
        beyond such initial period for so long as the Secretary 
        finds that the organization complies with the terms and 
        conditions described in subparagraphs (A) and (B).]
                              ----------                              


         SECTION 603 OF THE SOCIAL SECURITY AMENDMENTS OF 1983

            REPORTS, EXPERIMENTS, AND DEMONSTRATION PROJECTS

  Sec. 603. (a) * * *
          * * * * * * *
  [(c) The Secretary shall approve, with appropriate terms and 
conditions as defined by the Secretary, within 30 days after 
the date of enactment of this Act--
          [(1) the risk-sharing application of On Lok Senior 
        Health Services (according to terms and conditions as 
        specified by the Secretary), dated July 2, 1982, for 
        waivers, pursuant to section222 of the Social Security 
Amendments of 1972 and section 402(a) of the Social Security Amendments 
of 1967, of certain requirements of title XVIII of the Social Security 
Act over a period of 36 months in order to carry out a long-term care 
demonstration project, and
          [(2) the application of the Department of Health 
        Services, State of California, dated November 1, 1982, 
        pursuant to section 1115 of the Social Security Act, 
        for the waiver of certain requirements of title XIX of 
        such Act over a period of 36 months in order to carry 
        out a demonstration project for capitated reimbursement 
        for comprehensive long-term care services involving On 
        Lok Senior Health Services.]
          * * * * * * *
                              ----------                              


       THE CONSOLIDATED OMNIBUS BUDGET RECONCILIATION ACT OF 1985

          * * * * * * *

  TITLE IX--MEDICARE, MEDICAID, AND MATERNAL AND CHILD HEALTH PROGRAMS

          * * * * * * *

        PART 2--Provisions Relating to Parts A and B of Medicare

          * * * * * * *

                      Subpart B--Other Provisions

          * * * * * * *

SEC. 9215. EXTENSION OF CERTAIN MEDICARE MUNICIPAL HEALTH SERVICES 
                    DEMONSTRATION PROJECTS.

  (a) The Secretary of Health and Human Services shall extend 
through December 31, 1997, approval of four municipal health 
services demonstration projects (located in Baltimore, 
Cincinnati, Milwaukee, and San Jose) authorized under section 
402(a) of the Social Security Amendments of 1967. The Secretary 
shall submit a report to Congress on the waiver program with 
respect to the quality of health care, beneficiary costs, costs 
to the medicaid program and other payers, access to care, 
outcomes, beneficiary satisfaction, utilization differences 
among the different populations served by the projects, and 
such other factors as may be appropriate. Subject to subsection 
(c), the Secretary may further extend such demonstration 
projects through December 31, 2000, but only with respect to 
individuals are enrolled with such projects before January 1, 
1998.
  (b) The Secretary shall work with each such demonstration 
project to develop a plan, to be submitted to the Committee on 
Ways and Means of the House of Representatives and the 
Committee on Finance of the Senate by March 31, 1998, for the 
orderly transition of demonstration projects and the project 
enrollees to a non-demonstration project health care delivery 
system, such as through integration with private or public 
health plan, including a medicaid managed care or MedicarePlus 
plan.
  (c) A demonstration project under subsection (a) which does 
not develop and submit a transition plan under subsection (b) 
by March 31, 1998, or, if later, 6 months after the date of the 
enactment of this Act, shall be discontinued as of December 31, 
1998. The Secretary shall provide appropriate technical 
assistance to assist in the transition so that disruption of 
medical services to project enrollees may be minimized.
          * * * * * * *

[SEC. 9220. EXTENSION OF ON LOK WAIVER.

  [(a) Continued Approval.--
          [(1) Medicare waivers.--Notwithstanding any 
        limitations contained in section 222 of the Social 
        Security Amendments of 1972 and section 402(a) of the 
        Social Security Amendments of 1967, the Secretary of 
        Health and Human Services shall continue approval of 
        the risk-sharing application (described in section 
        603(c)(1) of Public Law 98-21) for waivers of certain 
        requirements of title XVIII of the Social Security Act 
        after the end of the period described in that section.
          [(2) Medicaid waivers.--Notwithstanding any 
        limitations contained in section 1115 of the Social 
        Security Act, the Secretary shall approve any 
        application of the Department of Health Services, State 
        of California, for a waiver of requirements of title 
        XIX of such Act in order to continue carrying out the 
        demonstration project referred to in section 603(c)(2) 
        of Public Law 98-21 after the end of the period 
        described in that section.
  [(b) Terms, Conditions, and Period of Approval.--The 
Secretary's approval of an application (or renewal of an 
application) under this section--
          [(1) shall be on the same terms and conditions as 
        applied with respect to the corresponding application 
        under section 603(c) of Public Law 98-21 as of July 1, 
        1985, except that requirements relating to collection 
        and evaluation of information for demonstration 
        purposes (and not for operational purposes) shall not 
        apply; and
          [(2) shall remain in effect until such time as the 
        Secretary finds that the applicant no longer complies 
        with the terms and conditions described in paragraph 
        (1).]
          * * * * * * *
                              ----------                              


     SECTION 4018 OF THE OMNIBUS BUDGET RECONCILIATION ACT OF 1987

SEC. 4018. SPECIAL RULES.

  (a) * * *
  (b) Extension of Waivers for Social Health Maintenance 
Organizations.--
          (1) The Secretary of Health and Human Services shall 
        extend without interruption, through December 31, 
        [1997] 2000, the approval of waivers granted under 
        subsection (a) of section 2355 of the Deficit Reduction 
        Act of 1984 for the demonstration project described in 
        subsection (b) of that section, subject to the terms 
        and conditions (other than duration of the project) 
        established under that section (as amended by paragraph 
        (2) of this subsection).
          (2) * * *
          * * * * * * *
          (4) The Secretary of Health and Human Services shall 
        submit a second interim report to the Congress on the 
        project referred to in paragraph (1) not later than 
        March 31, 1993, and shall submit a final report on the 
        demonstration projects conducted under section 2355 of 
        the Deficit Reduction Act of 1984 not later than March 
        31, [1998] 2001.
          * * * * * * *
                              ----------                              


             THE OMNIBUS BUDGET RECONCILIATION ACT OF 1993

          * * * * * * *

  TITLE XIII--REVENUE, HEALTH CARE, HUMAN RESOURCES, INCOME SECURITY, 
   CUSTOMS AND TRADE, FOOD STAMP PROGRAM, AND TIMBER SALE PROVISIONS

          * * * * * * *

 CHAPTER 2--HEALTH CARE, HUMAN RESOURCES, INCOME SECURITY, AND CUSTOMS 
                          AND TRADE PROVISIONS

                         Subchapter A--Medicare

          * * * * * * *

                 PART I--PROVISIONS RELATING TO PART A

SEC. 13501. PAYMENTS FOR PPS HOSPITALS.

  (a) * * *
          * * * * * * *
  (e) Extension for Medicare-Dependent, Small Rural 
Hospitals.--
          (1) * * *
          (2) Permitting hospitals to decline 
        reclassification.--If any hospital fails to qualify as 
        a medicare-dependent, small rural hospital under 
        section 1886(d)(5)(G)(i) of the Social Security Act as 
        a result of a decision by the Medicare Geographic 
        Classification Review Board under section 1886(d)(10) 
        of such Act to reclassify the hospital as being located 
        in an urban area for fiscal year 1993 [or fiscal year 
        1994] , fiscal year 1994, fiscal year 1998, fiscal year 
        1999, or fiscal year 2000, the Secretary of Health and 
        Human Services shall--
                  (A) * * *
          * * * * * * *

             PART III--PROVISIONS RELATING TO PARTS A AND B

          * * * * * * *
SEC. 13567. EXTENSION OF SOCIAL HEALTH MAINTENANCE 
            ORGANIZATION DEMONSTRATIONS.
  (a) * * *
          * * * * * * *
  (c) Expansion of Number of Members Per Site.--The Secretary 
of Health and Human Services may not impose a limit of less 
than [12,000] 36,000 on the number of individuals that may 
participate in a project conducted under section 2355 of the 
Deficit Reduction Act of 1984.
          * * * * * * *

     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].

                MISCELLANEOUS HOUSE REPORT REQUIREMENTS

                  Congressional Budget Office Estimate

    Section 403 of the Congressional Budget Act and clause 
2(l)(3)(B) of rule XI require reports to include a timely 
submitted cost estimate by the Congressional Budget Office 
(CBO). CBO provided separate estimates of the legislation 
submitted by each of the authorizing committees which are 
included under the appropriate titles.

                   Constitutional Authority Statement

    Clause 2(l)(4) of rule XI, as amended by section 13 of 
H.Res. 5, requires each committee report on a bill or joint 
resolution of a public character to include a statement citing 
the specific powers granted to the Congress by the Constitution 
to enact the proposed law. The Committee on the Budget states 
that its action in reporting this bill is derived from Article 
I of the Constitution, Section 5 (``Each House may determine 
the Rules of its Proceedings'') and Section 8 (``The Congress 
shall have the power to make all Laws which shall be necessary 
and proper * * *'').

                  Budget Committee Oversight Findings

    Clause 2(l)(3)(A) of rule XI requires each committee report 
to contain oversight findings and recommendations required 
pursuant to clause (2)(b)(1) of rule X. The Committee on the 
Budget has examined its activities over the past year and has 
determined that there are no specific oversight findings on the 
text of the reported bill.

 Oversight Findings and Recommendations of the Committee on Government 
                          Reform and Oversight

    Clause 2(l)(3)(D) of rule XI requires each committee report 
to contain a summary of oversight findings and recommendations 
made by the Government Reform and Oversight Committee pursuant 
to clause 4(c)(2) of rule X, whenever such findings have been 
timely submitted. The Committee on the Budget has received no 
such findings or recommendations from the Committee on 
Government Reform and Oversight on the text of the reported 
bill.

                            Committee Votes

    Clause 2(l)(2)(B) of rule XI requires each committee report 
to accompany any bill or resolution of a public character, 
ordered to include the total number of votes cast for and 
against on each rollcall vote on a motion to report and any 
amendment offered to the measure or matter, together with the 
names of those voting for and against.
    On June 20, 1997, the committee met in open session, a 
quorum being present. The committee ordered reported the text 
of the Balanced Budget Act of 1997 pursuant to the 
reconciliation instructions contained in the conference report 
on H.Con.Res. 84, the Concurrent Resolution on the Budget for 
Fiscal Year 1998.
    The following votes were taken by the committee:
    1. Mr. Hobson moved that the committee order reported with 
a favorable recommendation the text of the Balanced Budget Act 
of 1997, pursuant to clause 1 of rule XX and authorize the 
chairman to offer a motion to go to conference. The motion was 
agreed to by a rollcall vote of 25 ayes, 5 noes, with 2 voting 
present.

----------------------------------------------------------------------------------------------------------------
                                 Aye-       No-    Present-----                      Aye-       No-     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Kasich, Chairman-........     X---   ........  ............  Mr. Spratt,            X-   ........  .........
                                                                  Ranking-.                                     
Mr. Hobson--.................        X   ........        ----    Mr. McDermott---  ........        X   .........
Mr. Shays--..................        X   ........  ............  Mr. Mollohan---.  ........  ........  .........
Mr. Herger--.................        X   ........        ----    Mr. Costello---.  ........        X   .........
Mr. Bunning..................  ........  ........      ------    Mrs. Mink.......      ---         X   .........
Mr. Smith of Texas...........  ........  ........       -----    Mr. Pomeroy.....  ........  ........       --- 
Mr. Miller--.................        X   ........        ----    Ms. Woolsey.....      ---         X   .........
Mr. Franks--.................        X   ........        ----    Ms. Roybal-       ........  ........       --- 
                                                                  Allard.                                       
Mr. Smith of Michigan-.......        X   ........        ----    Ms. Rivers......      ---         X   .........
Mr. Inglis--.................        X   ........        ----    Mr. Doggett.....  ........  ........       --- 
Ms. Molinari--...............        X   ........        ----    Mr. Thompson....  ........  ........       --- 
Mr. Nussle--.................        X   ........        ----    Mr. Cardin......  ........     ----          X 
Mr. Hoekstra--...............        X   ........        ----    Mr. Minge--.....        X   ........         - 
Mr. Shadegg--................        X   ........        ----    Mr. Baesler.....  ........  ........       --- 
Mr. Radanovich--.............        X   ........        ----    Mr. Bentsen.....  ........     ----          X 
Mr. Bass--...................        X   ........        ----    Mr. Davis--.....        X   ........         - 
Mr. Neumann--................        X   ........        ----    Mr. Sherman.....  ........  ........       --- 
Mr. Parker--.................        X   ........        ----    Mr. Weygand.....  ........  ........       --- 
Mr. Ehrlich--................        X   ........        ----    Mrs. Clayton....  ........  ........       --- 
Mr. Gutknecht--..............        X   ........       -----                                                   
Mr. Hilleary.................        X   ........       -----                                                   
Ms. Granger..................        X   ........       -----                                                   
Mr. Sununu...................        X   ........       -----                                                   
Mr. Pitts....................        X   ........  ............                                                 
----------------------------------------------------------------------------------------------------------------

    ----2. Mrs. Mink moved that the Committee on the Budget 
directs its Chairman to request, on behalf of the committee, 
that the rule for the floor consideration of the first 
(spending) reconciliation bill include an amendment to that 
bill:
          (1) in title V, striking paragraphs (2) and (3) of 
        subsection (f) of section 407 of the Social Security 
        Act, as proposed to be added by section 5002; and 
        striking subsection (k) of the Social Security Act, as 
        proposed to be added by section 5004 (a); and
          (2) in title IX, striking section 
        403(a)(5)(K)(i)(III) of the Social Security Act, as 
        proposed to be added by section 9001(a), and striking 
        section 9004.
    The motion failed by a rollcall vote of 11 ayes and 22 
noes.

----------------------------------------------------------------------------------------------------------------
                                 Aye-       No-    Present-----                      Aye-       No-     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Kasich, Chairman--.......      ---         X   ............  Mr. Spratt,             X   ........         - 
                                                                  Ranking-.                                     
Mr. Hobson...................      ---         X          ---    Mr. McDermott...        X   ........       --- 
Mr. Shays--..................        -        X-           --    Mr. Mollohan....  ........  ........       --- 
Mr. Herger---................  ........        X          ---    Mr. Costello--..        X   ........         - 
Mr. Bunning------............  ........  ........  ............  Mrs. Mink--.....        X   ........         - 
Mr. Smith of Texas...........  ........  ........       -----    Mr. Pomeroy.....  ........  ........       --- 
Mr. Miller---................  ........        X          ---    Ms. Woolsey--...        X   ........         - 
Mr. Franks...................      ---         X   ............  Ms. Roybal-       ........  ........  .........
                                                                  Allard---.                                    
Mr. Smith of Michigan--......  ........        X          ---    Ms. Rivers--....        X   ........         - 
Mr. Inglis---................  ........        X          ---    Mr. Doggett--...        X   ........         - 
Ms. Molinari---..............  ........        X          ---    Mr. Thompson---.  ........  ........  .........
Mr. Nussle---................  ........        X          ---    Mr. Cardin--....        X   ........         - 
Mr. Hoekstra---..............  ........        X          ---    Mr. Minge--.....        X   ........         - 
Mr. Shadegg---...............  ........        X          ---    Mr. Baesler.....  ........  ........       --- 
Mr. Radanovich---............  ........        X          ---    Mr. Bentsen--...        X   ........         - 
Mr. Bass---..................  ........        X          ---    Mr. Davis--.....        X   ........         - 
Mr. Neumann---...............  ........        X          ---    Mr. Sherman.....  ........  ........       --- 
Mr. Parker---................  ........        X          ---    Mr. Weygand.....  ........  ........       --- 
Mr. Ehrlich---...............  ........        X          ---    Mrs. Clayton....  ........  ........       --- 
Mr. Gutknecht---.............  ........        X         ----                                                   
Mr. Hilleary---..............  ........        X         ----                                                   
Ms. Granger---...............  ........        X         ----                                                   
Mr. Sununu---................  ........        X         ----                                                   
Mr. Pitts----................  ........        X   ............                                                 
----------------------------------------------------------------------------------------------------------------

    3. Mr. McDermott moved that the Committee on the Budget 
direct its Chairman to request, on behalf of the committee, 
that the rule for floor consideration of the first (spending) 
reconciliation bill include an amendment to that bill ensuring 
that the $16 billion for children's health is used to provide 
health insurance coverage for children and not used as an 
unspecified revenue-sharing grant by the states. The motion 
failed by a rollcall vote of 11 ayes and 22 noes.

----------------------------------------------------------------------------------------------------------------
                                 Aye-       No-    Present-----                      Aye-       No-     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Kasich, Chairman--.......  ........        X          ---    Mr. Spratt,             X   ........         - 
                                                                  Ranking-.                                     
Mr. Hobson---................  ........        X          ---    Mr. McDermott--.        X   ........         - 
Mr. Shays---.................  ........        X          ---    Mr. Mollohan....  ........  ........       --- 
Mr. Herger---................  ........        X          ---    Mr. Costello--..        X   ........         - 
Mr. Bunning..................  ........  ........      ------    Mrs. Mink--.....        X   ........         - 
Mr. Smith of Texas...........  ........  ........       -----    Mr. Pomeroy.....  ........  ........       --- 
Mr. Miller---................  ........        X          ---    Ms. Woolsey--...        X   ........         - 
Mr. Franks---................  ........     X---   ............  Ms. Roybal-       ........  ........       --- 
                                                                  Allard.                                       
Mr. Smith of Michigan--......  ........        X          ---    Ms. Rivers--....        X   ........         - 
Mr. Inglis---................  ........        X          ---    Mr. Doggett--...        X   ........         - 
Ms. Molinari---..............  ........        X          ---                                                   
Mr. Thompson.................  ........  ........         ---                                                   
Mr. Nussle---................  ........     X---   ............  Mr. Cardin--....        X   ........         - 
Mr. Hoekstra---..............  ........        X          ---    Mr. Minge--.....        X   ........         - 
Mr. Shadegg---...............  ........        X          ---    Mr. Baesler.....  ........  ........       --- 
Mr. Radanovich---............  ........        X          ---    Mr. Bentsen--...        X   ........         - 
Mr. Bass---..................  ........        X          ---    Mr. Davis--.....        X   ........         - 
Mr. Neumann---...............  ........        X          ---    Mr. Sherman.....  ........  ........       --- 
Mr. Parker---................  ........        X          ---    Mr. Weygand.....  ........  ........       --- 
Mr. Ehrlich---...............  ........        X          ---    Mrs. Clayton....  ........  ........       --- 
Mr. Gutknecht---.............  ........        X         ----                                                   
Mr. Hilleary---..............  ........        X         ----                                                   
Ms. Granger---...............  ........        X         ----                                                   
Mr. Sununu---................  ........        X         ----                                                   
Mr. Pitts----................  ........        X   ............                                                 
----------------------------------------------------------------------------------------------------------------

    4. Ms. Woolsey moved that the Committee on the Budget 
direct its Chairman to request, on behalf of the committee, 
that the rule for floor consideration of the first (spending) 
reconciliation bill include an amendment to that bill striking 
Subtitle D of Title V (entitled ``Expansion of Portability and 
Health Insurance Coverage''), relating to multiple employer 
welfare associations (MEWAs). The motion failed by a rollcall 
vote of 11 ayes and 22 noes.

----------------------------------------------------------------------------------------------------------------
                                 Aye-       No-    Present-----                      Aye-       No-     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Kasich, Chairman--.......  ........        X          ---    Mr. Spratt,             X   ........         - 
                                                                  Ranking-.                                     
Mr. Hobson---................  ........     X---   ............  Mr. McDermott--.        X   ........         - 
Mr. Shays---.................  ........        X          ---    Mr. Mollohan....  ........  ........       --- 
Mr. Herger---................  ........        X          ---    Mr. Costello--..        X   ........         - 
Mr. Bunning..................  ........  ........      ------    Mrs. Mink--.....        X   ........         - 
Mr. Smith of Texas...........  ........  ........       -----    Mr. Pomeroy.....  ........  ........       --- 
Mr. Miller---................  ........     X---   ............  Ms. Woolsey--...        X   ........         - 
Mr. Franks---................  ........        X          ---    Ms. Roybal-       ........  ........       --- 
                                                                  Allard.                                       
Mr. Smith of Michigan--......  ........        X          ---    Ms. Rivers--....        X   ........         - 
Mr. Inglis---................  ........        X          ---    Mr. Doggett--...        X   ........         - 
Ms. Molinari---..............  ........        X          ---    Mr. Thompson....  ........  ........  .........
Mr. Nussle---................  ........        X          ---    Mr. Cardin--....        X   ........         - 
Mr. Hoekstra---..............  ........        X          ---    Mr. Minge--.....        X   ........         - 
Mr. Shadegg---...............  ........     X---   ............  Mr. Baesler.....  ........  ........       --- 
Mr. Radanovich---............  ........        X          ---    Mr. Bentsen--...        X   ........         - 
Mr. Bass---..................  ........        X          ---    Mr. Davis--.....        X   ........         - 
Mr. Neumann---...............  ........        X          ---    Mr. Sherman.....  ........  ........       --- 
Mr. Parker---................  ........        X          ---    Mr. Weygand.....  ........  ........       --- 
Mr. Ehrlich---...............  ........        X          ---    Mrs. Clayton....  ........  ........       --- 
Mr. Gutknecht---.............  ........        X         ----                                                   
Mr. Hilleary---..............  ........        X         ----                                                   
Ms. Granger---...............  ........        X         ----                                                   
Mr. Sununu---................  ........        X         ----                                                   
Mr. Pitts----................  ........        X   ............                                                 
----------------------------------------------------------------------------------------------------------------

    5. Mr. Doggett moved that the Committee on the Budget 
direct its Chairman to request, on behalf of the committee, 
that the rule for floor consideration of the first (spending) 
reconciliation bill include an amendment to that bill striking 
all provisions of the reconciliation bills reported to the 
House Budget Committee by the House Ways and Means and House 
Commerce Committees concerning medical liability reform, which 
provisions should be considered separately since they are 
unrelated to reform of Medicare. The motion failed by a 
rollcall vote of 11 ayes and 21 noes.

----------------------------------------------------------------------------------------------------------------
                                 Aye-       No-    Present-----                      Aye-       No-     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Kasich, Chairman--.......  ........     X---   ............  Mr. Spratt,             X   ........         - 
                                                                  Ranking-.                                     
Mr. Hobson...................  ........  ........      ------    Mr. McDermott--.        X   ........         - 
Mr. Shays---.................  ........        X          ---    Mr. Mollohan....  ........  ........       --- 
Mr. Herger---................  ........        X          ---    Mr. Costello--..        X   ........         - 
Mr. Bunning..................  ........  ........      ------    Mrs. Mink--.....        X   ........         - 
Mr. Smith of Texas...........  ........  ........       -----    Mr. Pomeroy.....  ........  ........       --- 
Mr. Miller---................  ........        X          ---    Ms. Woolsey--...        X   ........         - 
Mr. Franks---................  ........        X          ---    Ms. Roybal-       ........  ........       --- 
                                                                  Allard.                                       
Mr. Smith of Michigan--......  ........        X          ---    Ms. Rivers--....        X   ........         - 
Mr. Inglis---................  ........        X          ---    Mr. Doggett--...        X   ........         - 
Ms. Molinari---..............  ........        X          ---    Mr. Thompson....  ........  ........       --- 
Mr. Nussle---................  ........     X---   ............  Mr. Cardin--....        X   ........         - 
Mr. Hoekstra---..............  ........        X          ---    Mr. Minge--.....        X   ........         - 
Mr. Shadegg---...............  ........        X          ---    Mr. Baesler---..  ........  ........  .........
Mr. Radanovich---............  ........        X          ---    Mr. Bentsen--...        X   ........         - 
Mr. Bass---..................  ........        X          ---    Mr. Davis--.....        X   ........         - 
Mr. Neumann---...............  ........        X          ---    Mr. Sherman.....  ........  ........       --- 
Mr. Parker---................  ........        X          ---    Mr. Weygand.....  ........  ........       --- 
Mr. Ehrlich---...............  ........        X          ---    Mrs. Clayton....  ........  ........       --- 
Mr. Gutknecht---.............  ........        X         ----                                                   
Mr. Hilleary---..............  ........        X         ----                                                   
Ms. Granger---...............  ........    X----   ............                                                 
Mr. Sununu---................  ........        X         ----                                                   
Mr. Pitts----................  ........        X   ............                                                 
----------------------------------------------------------------------------------------------------------------

    6. Ms. Rivers moved that the Committee on the Budget direct 
its Chairman to request, on behalf of the committee, that the 
rule for the floor consideration of the first (spending) 
reconciliation bill include an amendment to that bill 
eliminating medical savings accounts as an option under 
MedicarePlus. The motion failed by a rollcall vote of 11 ayes 
and 22 noes.

----------------------------------------------------------------------------------------------------------------
                                    Aye       No      Present                         Aye       No      Present 
----------------------------------------------------------------------------------------------------------------
Mr. Kasich, Chairman...........  ........        X   .........  Mr. Spratt,              X   ........  .........
                                                                 Ranking.                                       
Mr. Hobson.....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Shays......................  ........        X   .........  Mr. Mollohan.....  ........  ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Costello.....        X   ........  .........
Mr. Bunning....................  ........  ........  .........  Mrs. Mink........        X   ........  .........
Mr. Smith of Texas.............  ........  ........  .........  Mr. Pomeroy......  ........  ........  .........
Mr. Miller-....................  ........        X   .........  Ms. Woolsey......        X   ........  .........
Mr. Franks-....................  ........        X   .........  Ms. Roybal-Allard  ........  ........  .........
Mr. Smith of Michigan..........  ........        X   .........  Ms. Rivers.......        X   ........  .........
Mr. Inglis.....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Ms. Molinari...................  ........        X   .........  Mr. Thompson.....  ........  ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Hoekstra...................  ........        X   .........  Mr. Minge........        X   ........  .........
Mr. Shadegg-...................  ........        X   .........  Mr. Baesler......  ........  ........  .........
Mr. Radanovich.................  ........        X   .........  Mr. Bentsen......        X   ........  .........
Mr. Bass.......................  ........        X   .........  Mr. Davis........        X   ........  .........
Mr. Neumann-...................  ........        X   .........  Mr. Sherman......  ........  ........  .........
Mr. Parker.....................  ........        X   .........  Mr. Weygand......  ........  ........  .........
Mr. Ehrlich....................  ........        X   .........  Mrs. Clayton.....  ........  ........  .........
Mr. Gutknecht..................  ........        X   .........  .................  ........  ........  .........
Mr. Hilleary...................  ........        X   .........  .................  ........  ........  .........
Ms. Granger-...................  ........        X   .........  .................  ........  ........  .........
Mr. Sununu.....................  ........        X   .........  .................  ........  ........  .........
Mr. Pitts......................  ........        X   .........  .................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

    7. Mr. Cardin moved, on behalf of Mr. Weygand, that the 
Committee on the Budget direct its Chairman to request, on 
behalf of the committee, that the rule for the floor 
consideration of the first (spending) reconciliation bill 
include an amendment to that bill providing $1.5 billion to 
protect Medicare recipients against the cost of Medicare 
premiums, as provided in the budget agreement. The motion was 
withdrawn.
    8. Mr. Minge moved that the Committee on the Budget direct 
its Chairman to request, on behalf of the committee, that the 
rule for the floor consideration of the first (spending) 
reconciliation bill permit a floor amendment offered by Mr. 
Minge, or his designee, regarding balanced budget enforcement 
procedures which apply to spending and revenues. The motion 
failed by voice vote.
    9. Mr. Bentsen moved that the Committee on the Budget 
direct its Chairman to request, on behalf of the committee, 
that the rule for the floor consideration of the first 
(spending) reconciliation bill include an amendment to that 
bill that achieves savings in Medicaid disproportionate share 
hospital payments by taking an equal reduction from each 
state's 1995 DSH spending, up to a limit equal to 12 percent of 
its total Medicaid spending. In other words, the percentage 
reduction is to the amount up to 12 percent. The motion was 
withdrawn.
    10. Mr. Franks moved that when the Chairman appears before 
the Rules Committee that he request that DSH payment reductions 
not be excessively burdensome to those states with DSH costs 
greater than 12% of total Medicaid spending. The motion passed 
by a rollcall vote of 21 ayes and 11 noes.

----------------------------------------------------------------------------------------------------------------
                                    Aye       No      Present                         Aye       No      Present 
----------------------------------------------------------------------------------------------------------------
Mr. Kasich, Chairman...........        X   ........  .........  Mr. Spratt,              X   ........  .........
                                                                 Ranking.                                       
Mr. Hobson.....................        X   ........  .........  Mr. McDermott....        X   ........  .........
Mr. Shays......................        X   ........  .........  Mr. Mollohan.....  ........  ........  .........
Mr. Herger.....................        X   ........  .........  Mr. Costello.....        X   ........  .........
Mr. Bunning....................  ........  ........  .........  Mrs. Mink........        X   ........  .........
Mr. Smith of Texas.............  ........  ........  .........  Mr. Pomeroy......  ........  ........  .........
Mr. Miller.....................  ........        X   .........  Ms. Woolsey......  ........        X   .........
Mr. Franks.....................        X   ........  .........  Ms. Roybal-Allard  ........  ........  .........
Mr. Smith of Michigan..........        X   ........  .........  Ms. Rivers.......  ........        X   .........
Mr. Inglis.....................        X   ........  .........  Mr. Doggett......  ........  ........  .........
Ms. Molinari...................  ........        X   .........  Mr. Thompson.....  ........  ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Hoekstra...................  ........        X   .........  Mr. Minge........  ........        X   .........
Mr. Shadegg....................  ........        X   .........  Mr. Baesler......  ........  ........  .........
Mr. Radanovich.................        X   ........  .........  Mr. Bentsen......        X   ........  .........
Mr. Bass.......................        X   ........  .........  Mr. Davis........  ........        X   .........
Mr. Neumann....................        X   ........  .........  Mr. Sherman......  ........  ........  .........
Mr. Parker.....................        X   ........  .........  Mr. Weygand......  ........  ........  .........
Mr. Ehrlich....................        X   ........  .........  Mrs. Clayton.....  ........  ........  .........
Mr. Gutknecht..................  ........        X   .........  .................  ........  ........  .........
Mr. Hilleary...................        X   ........  .........  .................  ........  ........  .........
Ms. Granger....................        X   ........  .........  .................  ........  ........  .........
Mr. Sununu.....................        X   ........  .........  .................  ........  ........  .........
Mr. Pitts......................  ........        X   .........  .................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

    11. Mr. McDermott moved that the Committee on the Budget 
direct its Chairman to request, on behalf of the committee, 
that the rule for the floor consideration of the first 
(spending) reconciliation bill include an amendment to that 
bill restoring the solvency of the Medicare Part A Trust Fund 
for at least ten years by immediately reallocating all of the 
home health costs from Part A to Part B. The motion was 
withdrawn.
    12. Mrs. Mink moved, on behalf of Ms. Roybal-Allard, that 
the Committee on the Budget direct its Chairman request, on 
behalf of the committee, that the rule for floor consideration 
of the first (spending) reconciliation bill include an 
amendment to that bill that adds appropriate language to 
section 9302 of Subtitle D of Title IX restoring Supplemental 
Security Income (SSI) and Medicaid benefits to legal immigrants 
who arrived in the United States on or before August 22, 1996, 
and become disabled after entry. The motion failed by a 
rollcall vote of 10 ayes and 20 noes.

----------------------------------------------------------------------------------------------------------------
                                    Aye       No      Present                         Aye       No      Present 
----------------------------------------------------------------------------------------------------------------
Mr. Kasich, Chairman...........  ........        X   .........  Mr. Spratt,              X   ........  .........
                                                                 Ranking.                                       
Mr. Hobson.....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Shays......................  ........        X   .........  Mr. Mollohan.....  ........  ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Costello.....        X   ........  .........
Mr. Bunning....................  ........  ........  .........  Mrs. Mink........        X   ........  .........
Mr. Smith of Texas.............  ........  ........  .........  Mr. Pomeroy-.....  ........  ........        -- 
Mr. Miller-....................  ........        X          -   Ms. Woolsey--....        X   ........         - 
Mr. Franks.....................  ........        X   .........  Ms. Roybal-Allard  ........  ........       --- 
Mr. Smith of Michigan..........  ........        X   .........  Ms. Rivers.......        X   ........         - 
Mr. Inglis.....................  ........  ........  .........  Mr. Doggett......  ........  ........       --- 
Ms. Molinari...................  ........        X          -   Mr. Thompson.....  ........  ........       --- 
Mr. Nussle-....................  ........        X          -   Mr. Cardin.......        X   ........         - 
Mr. Hoekstra...................  ........        X          -   Mr. Minge........        X   ........         - 
Mr. Shadegg....................  ........        X   .........  Mr. Baesler......  ........  ........       --- 
Mr. Radanovich.................  ........        X   .........  Mr. Bentsen......        X   ........  .........
Mr. Bass.......................  ........        X   .........  Mr. Davis........        X   ........         - 
Mr. Neumann....................  ........        X   .........  Mr. Sherman......  ........  ........       --- 
Mr. Parker.....................  ........        X   .........  Mr. Weygand......  ........  ........       --- 
Mr. Ehrlich....................  ........  ........  .........  Mrs. Clayton.....  ........  ........       --- 
Mr. Gutknecht..................  ........        X       ----                                                   
Mr. Hilleary...................  ........        X       ----                                                   
Ms. Granger....................  ........        X       ----                                                   
Mr. Sununu.....................  ........        X       ----                                                   
Mr. Pitts......................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

                        Changes in Existing Law

    Clause 3 of rule XIII provides that reports include the 
text of statutes that are proposed to be repealed and a 
comparative print of that part of the bill proposed to be 
amended whenever the bill repeals or amends any statute. The 
required matter is included in the report language for each 
title of the legislative recommendations submitted by the 
appropriate authorization committees and reported to the House 
by the Committee on the Budget.

                       Unfunded Mandate Statement

    Section 423 of the Congressional Budget and Impoundment 
Control Act of 1974 requires a statement of whether the 
provisions of the reported bill include unfunded mandates. The 
committee received a letter regarding unfunded mandates from 
the Director of the Congressional Budget Office. [See the 
Congressional Budget Office Cost Estimate under the appropriate 
title.]

     Views of the Members of Committees Submitting Reconciliation 
                            Recommendations

    The views following are from members of committees that 
have submitted reconciliation recommendations pursuant to H. 
Con. Res. 84. Although not technically required under rule XI, 
these views include those submitted by the authorizing 
committees that submitted the reconciliation recommendations 
that comprise the text of the bill.
                     ADDITIONAL VIEWS--AGRICULTURE

    The 1997 Budget reconciliation process affords the Congress 
and the nation enormous opportunities. For the first time in a 
generation, we stand to realize a balanced Federal budget. The 
process also gives us the opportunity to fulfill the Bipartisan 
budget agreement as it relates to the unfinished work for 
reform of the welfare process. We support these goals and will 
continue to work to ensure that they are achieved.
    The 1997 budget reconciliation also gave the House 
Agriculture Committee the opportunity to remedy some severe 
problems which threaten important programs in nutrition, 
agriculture, and rural economic development while closing a 
loophole in the 1996 welfare reform law which threatens to 
cause a dramatic increase in the costs of administering the 
Food Stamp Program.
    The 1996 welfare reform law placed a cap on State's 
administrative expenditures from the block grant provided under 
the Temporary Aid for Needy Families program. This created an 
incentive for States to assign administrative costs to the Food 
Stamp program which previously would have been assigned to 
their administration of cash welfare payments. No one in 
Congress intended this cost reallocation but CBO projects that 
the result will be a dramatic increase in, the baseline for 
payments to States for Food Stamp Program administrative 
expenses. During consideration of the food stamp provisions of 
the budget reconciliation bill, the House Agriculture Committee 
rejected our amendment to prevent states from shifting 
administrative expenses that have historically been funded 
through the Aid to Families with Dependent Children (AFDC) to 
the Food Stamp Program. In so doing, we have lost a rare 
opportunity to prospectively address an incentive for States to 
reallocate costs in the light of past reforms, and at the same 
time to address real and immediate problems.
    In 1996, total reimbursements to States for administering 
the Food Stamp Program amounted to $1.825 billion. Because of 
changes made to the program in the last Congress, there were 
reductions in the number of beneficiaries, requirements imposed 
on the States were simplified. States assured the Congress that 
they would need fewer resources to administer the welfare 
programs. The President's FY 1998 budget request for food stamp 
state administrative expenses is $1.811 billion. Because of the 
incentive created by the welfare reform process, however, total 
reimbursements to states for Food Stamp Program administrative 
costs in 1998 are estimated by CBO to grow to $2.372 billion.
    So now we have a situation where the food stamp rolls have 
been reduced the program has been made less costly to 
administer, the Administration expects state administrative 
expenses to remain steady, and yet reimbursements to the States 
are projected by CBO to INCREASE by $547 million in FY 1998.
    Our amendment would have effectively required States to 
continue allocating administrative expenses in the same manner 
as they did prior to the enactment of welfare reform, by 
establishing a cap on food stamp administrative expenses that 
would increase to reflect inflation and growth in caseload.
    If the States do not intend to shift administrative costs 
from the Temporary Assistance for Needy Families (TANF) Program 
to food stamps, our amendment would not have had any effect on 
the funding received by States. Our amendment would reduce a 
State's funds only to the extent that it takes advantage of an 
opportunity to attribute costs to the Food Stamp Program--costs 
which were actually incurred as part of its administration of 
TANF.
    Some said this was an unfunded mandate; and technically it 
is. But consider this: Under the welfare reform law enacted 
last year, cash welfare payments which had previously been a 
Federal entitlement were converted to block grants to States. 
In addition, each State is to be given a maximum reimbursement 
for administering the block grants of 15% of the block grant 
amount. However, the welfare reform law created a strong 
unintended incentive.
    States have an incentive to assign costs to the Food Stamp 
Program which previously would have been assigned to their 
administration of cash welfare payments. In fact, the welfare 
reform law, with its 15% cap on administrative expenses in the 
block grant, provides the incentive for this cost shifting. No 
one in Congress intended this but CB has evaluated the 
incentive and, as a result, has increased the baseline for 
payments to States for Food Stamp Program administrative 
expenses significantly. In other words, Congress inadvertently 
gave States the right to manipulate the Food Stamp Program. And 
once the States have such a right--even one as absurd as this--
any action to correct the situation is deemed to be a Federal 
intergovernmental mandate.
    The Unfunded Mandates Reform Act added to our rules 
important provisions which properly require that Congress take 
into account the full impact its actions have on State and 
local governments. Although the Act technically applies to this 
amendment, the Mandates Act was never intended to allow States 
free access to the Federal Treasury. Our amendment would have 
kept the States whole by ensuring that they would be fully paid 
their Federal share required under the law for administration 
of the Food Stamp Program, but it would not allow them to use 
the Food Stamp Expense Reimbursement Account as a ``slush 
fund.''
    The Congressional Budget Office has provided unofficial, 
preliminary estimates for the provisions of this amendment. The 
net effect is a reduction of $32 million in budget authority 
and $73 million in outlays in fiscal year 1998 and a reduction 
of $183 million in budget authority and $277 million in outlays 
over the fiscal year 1998 to 2002 period.
    By eliminating the incentive to shift costs that we 
identified, our amendment would have achieved significant 
savings that would permit us to solve a number of pressing 
problems facing needy families and rural America without 
compromising our common goal of achieving a balanced Federal 
budget.
    Specifically, our amendment included the following 
provisions: TEFAP--An additional $30 million FY 1998 and $50 
million in each of fiscal years 1999-2002 for The Emergency 
Food Assistance Program.
    Fund for rural America.--The proposal also takes advantage 
of a unique opportunity to provide crucial funds needed for 
rural economic development and for agricultural research by 
increasing amounts available for the Fund for Rural America 
which is established by the FAIR Act.
    The amendment provides an additional $60 million in 1999 
and $70 million in each of fiscal years 2000 through 2002.
    Welfare reform research.--The last Congress enacted major 
changes to the welfare system. Our amendment would have 
provided $10 million in each of fiscal years 1998 through 2002 
for research to ensure that progress is assessed.
    Federal crop insurance.--Reimbursement of crop insurance 
delivery expenses incurred by approved crop insurance companies 
would continue to be paid from the Federal Crop Insurance 
Corporation Fund as it has in each of fiscal years 1995 through 
1997 (instead of through annual appropriations) through FY 
2002.
    Barley Payments Under Production Flexibility Contracts.--
The proposal fixes an inequity included in the farm bill by 
adding $30 million in fiscal year 1998 to FAIR Act Production 
Flexibility Contract payments for eligible barley producers.
    Suspension of required reduction in crop bases, quotas and 
allotments under CRP.--The proposal includes a technical change 
to the CRP statute to put producers of quota crops on the same 
footing as producers of other crops in regard to requirements 
imposed under the program. An out-of-date provision requires 
that the acreage base, quota, or allotment of each 
participating farm be reduced by the proportion that CRP 
acreage makes of the farm's total crop acreage. Since acreage 
bases no longer exist, the provision puts producers of quota 
and allotment crops at a relative disadvantage. The proposal 
suspends the effectiveness of this out-of-date reduction 
requirement with respect to any CRP contract entered into on or 
after June 1, 1997.
    Cotton marketing loans.--The amendment contains changes in 
the so-called ``Step 3'' which have been proposed on a unified 
basis by the cotton industry. The provision eliminates the 
prohibition on using marketing certificates when prices have 
risen to levels sufficient to open the cotton import quota. It 
would also increase the ceiling price under which the marketing 
certificates could be issued.
    Dairy indemnity program.--The proposal fully funds the 
Dairy Indemnity Program.
    We regret that our amendment was defeated in the 
Agriculture Committee. We do feel that the priorities 
incorporated in our amendment need to be addressed and we will 
continue to look forward to opportunities to see them realized.

                                   Charles W. Stenholm.
                                   Tim Holden.
                                   Marion Berry.
                                   Leonard L. Boswell.
                                   Sam Farr.
                            Additional Views

                     Congress of the United States,
                                  House of Representatives,
                                     Washington, DC, June 12, 1997.
    I deeply regret that I cannot be here today to vote on the 
House Agriculture Committee provisions in the FY98 budget 
reconciliation agreement. I appreciate the fact that the budget 
agreement provides an exemption for certain individuals from 
the food stamp time limits due to hardship, and increases by 
$1.5 billion the amount that can be spent on employment and 
training programs. I am concerned, however, that while the 
decisions the committee makes today may strengthen the food 
safety net, we could also allow needy recipients to fall 
through the cracks.
    I represent a district whose economic base is dependent on 
agriculture and tourism, two industries that are not notable 
for high-paying salaries. Unfortunately, the unemployment rate 
for Monterey, Santa Cruz and San Benito Counties is more than 
double the national unemployment rate. So, I am constantly 
reminded of the need to increase the number of work slots for 
childless 18-50 year olds in my district, principally migrant 
workers who have not been able to find a labor intensive job in 
the fields picking strawberries or harvesting lettuce. It is 
important to note that almost half of these food stamp 
beneficiaries are women.
    We must also be clear in our intent--our reconciliation 
instructions must ensure that this new funding supplements 
state funding for employment and training services to food 
stamp recipients, and not allow the states to reduce their 
fiscal commitment to worker training. If our welfare reform 
restructuring is to be effective, it must be based on a 
partnership with the states and localities, and the federal 
funding for employment and training for food stamp 
beneficiaries should be matched by the state.
    Finally, on the issue of privatizing the certification of 
food stamp applicants, I think this proposal puts us on a 
slippery slope. Shifting the critical functions for determining 
eligibility and allotment of nutrition assistance cannot be 
left to private sector employees whose job performance may be 
driven by cost performance and not in trying to determine the 
very real nutritional needs of their clients. Contracting out 
these vital jobs may only result in an undermining of the 
nutritional safety net for these truly in need and I would 
oppose such a provision.
                                                          Sam Farr.
          MINORITY, ADDITIONAL, AND DISSENTING VIEWS--COMMERCE

   MINORITY VIEWS WITH REGARD TO PROCEDURES ON RECONCILIATION OF THE 
                       HONORABLE JOHN D. DINGELL

    The Budget Resolution for Fiscal Year 1998 provided just 
one week for the Commerce Committee to report reconciliation 
legislation that will determine how more than $3.6 trillion of 
the American taxpayer's money is spent over the next five 
years. The Committee worked diligently during that period and 
completed its action late on Thursday, June 12. The minority 
was informed that all Minority Views would be required to be 
submitted by close of business on Friday, June 13, when the 
House was in recess.
    Obviously such a timetable creates problems in both the 
drafting of legislation, but also in the drafting of the report 
and Minority Views. It was virtually impossible to circulate 
any Minority Views for Members' signatures on Friday, a day 
that the House was in recess.
    The Minority Views contained in this report are currently 
being circulated to Members. I urge my colleagues on the Budget 
Committee to include the names of all who subsequently sign 
these views, along with any additional views submitted by 
Members prior to the filing of the report by the Budget 
Committee on this legislation.
                                                   John D. Dingell.
      MINORITY VIEWS ON TITLE III, SUBTITLE C--SALE OF DOE ASSETS

    The provision directing the Department of Energy to sell 
uranium is fatally flawed because it fails to include the sort 
of fundamental protections the Committee historically has 
included in legislation requiring the sale of federal assets. 
As a result, the legislation could force DOE to sell stocks of 
surplus uranium at pennies on the dollar, depriving the 
taxpayer of a reasonable return on the value of this material.
    Current law authorizes the Department to sell surplus 
uranium at fair market prices upon a finding that doing so will 
not adversely affect the market. However, under this authority 
DOE retains discretion to time sales so as to maximize 
proceeds. Thus, under current law, the Department would not be 
compelled to conduct a uranium fire sale in a depressed market.
    The Committee Print denies DOE this common sense, necessary 
discretion. It requires DOE to sell specific amounts of uranium 
on a set schedule, at whatever the ``fair market'' price is at 
the specified time. While requiring fair market value is an 
element of a sound asset disposition program, it is not 
sufficient in and of itself. The Dingell-Pallone-Strickland 
amendment addressed this deficiency through a failsafe 
provision which would permit deferral of the sale if the 
Secretary and the Director of O.M.B. jointly determine that the 
sale would not achieve a price that reflects the full value of 
the uranium, or is not in the best interests of the United 
States. This is the same protection included in the 1996 
Defense Authorization bill provision directing DOE to sell the 
Elk Hills Naval Petroleum Reserve. Similarly, the statute 
requiring privatization of the United States Enrichment 
Corporation provides a ``failsafe'' for unanticipated market 
conditions in the form of a final Presidential approval of the 
sale.
    One other deficiency in the majority's approach warrants 
comment. The Committee has not held hearings or built any type 
of record in support of a policy to make mandatory DOE's 
existing discretionary statutory authority to sell uranium. 
Nonetheless, the majority report is replete with references to 
what the Committee ``expects'' with respect to implementation 
of this provision, what market conditions ``are not expected'', 
and what the Department ``has indicated'' it ``projects'' may 
occur in the future. There is no Committee record in support of 
these conclusions, or with respect to other conclusions the 
majority draws concerning the Elk Hills sale. In the absence of 
any Committee activity or record on these matters, such 
statements are unfounded, inappropriate, and inconsistent with 
the goal of a balanced budget.

                                   John D. Dingell.
                                   Edolphus Towns.
                                   Diana DeGette.
                                   Bobby Rush.
                                   Rick Boucher.
                                   Thomas J. Manton.
                                   Tom Sawyer.
                                   Anna G. Eshoo.
                                   Elizabeth Furse.
                                   Frank Pallone, Jr.
                                   Sherrod Brown.
                                   Pete Deutsch.
                                   Ron Klink.
                                   Ed Markey.
                                   Bart Gordon.
                                   Henry A. Waxman.
                                   Ted Strickland.
                                   Karen McCarthy.
                                   Bart Stupak.
        MINORITY VIEWS ON TITLE III, SUBTITLE D--COMMUNICATIONS

    The majority has perpetrated a ruse on the American people. 
At a hearing on spectrum auctions earlier this year Chairman 
Tom Bliley stated, ``The annual budget cycle has begun once 
again and this means that quick-fix proposals involving the 
sale of spectrum emerge like snake oil salesmen at a local 
carnival.''
    Unfortunately, the Chairman was all too prescient. The 
Budget Resolution included reconciliation instructions to our 
committee to report legislation requiring spectrum auctions to 
raise $26.3 billion in revenues. There was not the slightest 
basis for such an estimate. At the hearing on spectrum auctions 
no testimony supported such a market for spectrum. Even worse, 
in order for the committee to seek auction revenues that can be 
``scored,'' the committee passed legislation which will 
actually reduce revenues flowing to the nation's taxpayers.
    The rules of budget scoring have forced the Majority to 
write a bill that unnecessarily requires massive amounts of 
spectrum to be auctioned during the budget ``window'' of 1998-
2002. Unfortunately, in order to achieve value for frequencies, 
there must be appropriate technologies available and ready to 
utilize the frequencies. The development and availability of 
emerging technologies is, however, not dictated by budget 
windows.
    The recent Congressionally mandated auction of certain 
frequencies for wireless communications systems should give the 
Congress pause. That auction was estimated by CBO to achieve 
$1.8 billion in revenue, but the winning bids totaled just $13 
million, or less than one percent of the estimate. One winning 
bidder bought the rights to market in 4 states with a 
population of 15 million for just 4 dollars. The reason for 
this spectacular failure was clear. First, the Commission 
failed to indicate more precisely the type of services the 
auctioned frequencies were to be for and this led to great 
uncertainty on the part of manufacturers as to what equipment 
to order. Second, the budget-drive timetable for holding the 
WCS auction did not allow potential bidders sufficient time to 
assess the markets, develop business plans, and find partners 
or financial backing. Third, the Commission was forced to 
auction specific frequencies and lacked the discretion to 
exercise its expertise to tailor the frequencies to be put out 
for bid to further serve the public interest. Finally, there 
was also a saturation of competitors and frequencies available 
in the marketplace.
    It might have been easy for Members of our committee to 
ignore these facts, and report the proposals contained in the 
budget resolution, despite our doubts. However, many of us 
believed that we had a responsibility to inform our colleagues 
that a portion of the balanced budget agreement was built on 
assumptions that could not be met. Other parts of the budget, 
whether they are spending increases or tax cuts, are real. In 
the case of spectrum auctions, the dollars to pay for them are 
as ephemeral as the airwaves themselves.
    We now turn to the individual proposals in the spectrum 
auction legislation that are of particular concern.
Requirement to sell 120 megahertz of spectrum
    The bill requires the Commission to identify 120 MHz of 
additional spectrum to auction over the next five years. The 
proposal raises several fundamental problems. First, as the 
failed auction described above proved, it is unwise for 
Congress to specify the frequencies to be auctioned years from 
now. That is a decision best left to the Commission. Second, 
the timing of auctions must be dictated by the marketplace. 
Unless there are new and valuable uses for the frequencies, the 
auctions will fail. Specifying a mandatory date for the sales 
will likely result in irrevocable losses to the taxpayer.
    Third, the assumption that valuable frequencies are 
available was challenged in a letter to the committee from 
Commission Chairman Reed Hundt. He wrote on June 9, 1997, ``Our 
engineers, in an extended effort, have been unable to identify 
that amount [100 MHz] of spectrum below 3 Gigahertz which could 
be auctioned for significantly more valuable uses.'' If the 
agency with expertise cannot find the spectrum, we do not 
understand the basis for the Budget Committee's assumption. 
Even CBO has now backed off of its estimates of the value of 
the 120 MHz. In response to questions from Ranking Member John 
D. Dingell, CBO Director June E. O'Neill wrote in a letter 
dated June 5, 1997, ``Based on information from the FCC and the 
National Technology and Information Administration, however, we 
are concerned that it may be very difficult to identify 120 
megahertz (MHz) of spectrum under 3 gigahertz (GHz) that could 
be reallocated and auctioned, as proposed by the President. . . 
. Subsequently, we received draft language prepared by the 
Administration for the spectrum proposals in the President's 
budget. We have not prepared an estimate for that draft 
language, but we have concluded that the portion of the 
language dealing with directed reallocation of 120 MHz is not 
specific enough to warrant the $9.7 billion in estimated 
receipts that we attributed to the President's budget.''
    Fourth, the mandatory reallocation of certain Federal 
frequencies without any testimony concerning the uses and the 
ability to reallocate the frequency raises further concerns. 
For example, it appears that some of the frequencies contained 
in section 3301(b)(1)(E) may be important for use by the FAA in 
airline safety.
Auction of analog spectrum
    The legislation would establish a statutory date for the 
return of the analog broadcast spectrum of December 31, 2006. 
The date would be extended indefinitely, if in a given year 
more than 5% of households are not capable of receiving digital 
signals. The auction of the anticipated returned spectrum would 
begin in 2001.
    This portion of the legislation creates the most serious 
problems. We do not oppose the auction of the returned analog 
spectrum. However, the procedures in this legislation virtually 
guarantee that the taxpayer will be shortchanged. There is no 
logic to requiring the auction of thereturned spectrum in the 
year 2001, more than 5 years in advance of the availability of the 
spectrum for use. The only justification for this arbitrary date is to 
meet a budget ``window'' of five years.
    The Majority has chosen to establish a statutory date for 
the return of the spectrum, rather than leaving regulatory 
flexibility to the Commission, which has established a similar 
``target'' date, which could be adjusted, as circumstances 
dictate. Recognizing the problem in setting a statutory date, 
the Majority included a statutory rule for delaying the return 
of the spectrum indefinitely, if five percent of households are 
incapable of receiving digital signals. This exception would 
likely result in the spectrum never being returned. It is 
almost certain to spark virtually no interest by bidders in 
2001 for spectrum which may never be returned.

Sale and labeling of analog sets

    During the consideration of the legislation, two amendments 
were offered relating to the sale of television sets. Ranking 
Member Edward J. Markey offered an amendment that would have 
prohibited the sale of sets that were incapable of receiving 
digital transmissions three years before the anticipated change 
to digital broadcasting. Rep. Elizabeth Furse subsequently 
offered an amendment to require that the Commission at least 
establish labeling requirements for new televisions that were 
unable to receive digital transmissions to inform purchasers 
that the set would not be capable of receiving transmissions 
without the addition of a converter when broadcasters converted 
to digital transmissions.
    The bill approved by the Majority includes for the first 
time a statutory requirement that the analog spectrum be 
returned by December 31, 2006. This deadline may be extended, 
if 5% of households are not capable of receiving digital 
transmissions. It is only fair to the consumer that the 
consequences of this law be disclosed when they purchase a set 
that is not capable of receiving the digital signal mandated by 
this law. Otherwise, dealers could sell sets that could be 
obsolete in just months or a few years after they are sold.
    The situation in no way resembles that of a technology 
becoming obsolete through market forces, such as eight-track 
tapes, as alleged by some opponents of these amendments. Analog 
televisions, in the absence of a converter, will become 
obsolete due to the government mandate contained in this law 
requiring the return of the analog spectrum, not due to market 
forces. If the Majority desires to establish a date upon which 
analog televisions should become obsolete, they should at least 
be willing to disclose their decision to buyers of television 
sets. Apparently, if consumers buy a television that soon 
becomes obsolete, the Majority intends, in Mission Impossible 
style, to ``disavow any knowledge of its actions'' on this 
legislation.
    There is another budgetary consequence to the decision not 
to adopt these amendments. If manufacturers continue to sell 
sets not capable of receiving digital transmissions, and also 
fail even to inform purchasers of the potential obsolescence of 
the equipment, the likelihood that more than 95% of households 
will be digitally-capable is reduced. Under the bill, the 
spectrum would not be returned under such conditions, and 
bidders at an auction occurring in 2001 will be less likely to 
bid anything for such spectrum.

Spectrum penalty

    One of the more questionable instructions, based upon the 
Bipartisan Budget Agreement, and incorporated into the Budget 
Resolution, was entitled ``Spectrum Penalty.'' The Budget 
Agreement stated, ``As authorized by current law, a penalty fee 
would be levied against those entities who received 'free' 
spectrum for advanced, advertiser-based television services, 
but failed to utilize it fully.'' According to the Budget 
Agreement, this provision would be scored at $2 billion. The 
Budget Agreement also stated with respect to spectrum auctions, 
``Estimates for 1998-2002 were developed by the Congressional 
Budget Office.''
    Both the Majority and Minority were skeptical about how a 
provision already in current law could be scored by CBO as part 
of reconciliation. In response to questions by Ranking Member 
John D. Dingell concerning this provision, CBO Director June E. 
O'Neill on June 5, 1997 wrote concerning this ``Spectrum 
Penalty,'' ``CBO has not seen any legislative language 
regarding a spectrum penalty, and therefore we cannot comment 
on what the spectrum penalty would be and how much it would 
raise. In order to result in savings, it would have to mandate 
fees that would not be assessed under current law.''
    It therefore appears that the attribution of the Budget 
Agreement and Budget Resolution of $2 billion in scorable 
savings for fees authorized under current law to estimates by 
CBO was erroneous. There is no provision for such a Spectrum 
Penalty in the bill.

Tauzin amendment on target

    During the consideration of the legislation, Subcommittee 
Chairman W.J. ``Billy'' Tauzin offered an amendment that would 
require the Commission to establish methodologies to carry out 
the auctions required under each section to achieve 
approximately 50% of the original CBO estimates for each 
category of auction. If the Commission failed to convince 
itself that such targets were achievable the auctions could be 
canceled. The amendment also gave the Commission the authority 
to establish minimum bids.
    We agree that the Commission should have the authority to 
establish minimum bids and to cancel auctions if they are not 
in the public interest or will not achieve estimated revenue 
targets. The minority offered amendments on these matters that 
were defeated by the Majority. Our amendments, however, did not 
accept the arbitrary dates for auctions contained in the 
Majority bill. The target approach in the Tauzin amendment, 
while providing some flexibility to cancel auctions if they 
cannot achieve the unrealistic budget estimates, appears 
designed more to ``pretend'' that revenue estimates can be met 
than to provide true flexibility to the Commission.

Duopoly and joint-ownership rules

    The Majority has also decided to use the Reconciliation 
legislation as an opportunity to reopen the bipartisan 
Telecommunications Act passed in the last Congress. 
Specifically, the legislation was amended to repeal the 
Commission's duopoly and cross-ownership rules with respect to 
the purchase of the returned analog spectrum for digital uses, 
an approach rejected in the conference on the 
Telecommunications legislation last year. Not only do we 
disagree with the merits of such an approach, but this decision 
is based upon no hearings or other testimony that the repeal of 
these rules is in the public interest. The committee has 
received no testimony in this Congress on the impact of this 
provision on various broadcasters, including minority 
broadcasters, nor was there testimony on the impact on the 
viewing public.

Summary

    We preach the virtues of thinking and planning for the 
future, yet the forced sale of spectrum contained in this bill 
sets just the opposite example. We are squandering a scarce and 
valuable public resource by providing more spectrum for those 
services that are here and now, at the expense of emerging 
technologies that will be in higher demand and, not 
incidentally, more valuable to the public purse in the future.
    During the consideration of this legislation the Minority 
sought to provide the Commission with the necessary flexibility 
to protect the taxpayers and auction the spectrum in the public 
interest. Our amendments would have achieved the maximum 
benefit for taxpayers and users of the spectrum, both in the 
short term and long term. Spectrum auctions must be based upon 
sound communications policy and should not be mandated to fill 
budget holes. The success of auctions based upon the 1993 
reconciliation provisions, and the failure of the most recent 
auction on wireless communications, are proof that market 
conditions, and not government mandates establish the amount of 
revenues that can be achieved. Neither our proposals nor those 
of the Majority will provide $26.3 billion. Our proposals, 
however, would have provided a better opportunity to maximize 
the spectrum's value. We strongly encourage the Budget 
Committee to review its assumptions concerning spec- 
trum auctions, as the legislative process continues. Otherwise, 
a balanced budget will be as real as the phantom revenues from 
spectrum auctions.
                                   John D. Dingell.
                                   Ed Markey.
                                   Diana DeGette.
                                   Bobby Rush.
                                   Rick Boucher.
                                   Thomas J. Manton.
                                   Gene Green.
                                   Tom Sawyer.
                                   Anna G. Eshoo.
                                   Elizabeth Furse.
                                   Frank Pallone, Jr.
                                   Sherrod Brown.
                                   Pete Deutsch.
                                   Ron Klink.
                                   Henry A. Waxman.
                                   Edolphus Towns.
                                   Karen McCarthy.
                                   Bart Stupak.
      DISSENTING VIEWS ON TITLE 3, SUBTITLE D--TELECOMMUNICATIONS 
                             RECONCILIATION

    It is with regret that I was not able to vote with the rest 
of my colleagues to support the telecommunications portion of 
the budget reconciliation bill that passed out of the Commerce 
Committee earlier this week. However, I could not support a 
bill that contained such unrealistic savings goals. It is not 
rational to believe that additional spectrum auctions will net 
$26.3 billion when the last spectrum auctions created a $2.886 
billion shortfall.

                                                        Joe Barton.
           MINORITY VIEWS ON TITLE III, SUBTITLE E--MEDICAID

    We applaud the majority for rejecting the ill-conceived 
notion of a block grant for Medicaid. Since Medicaid is 
America's second largest health care program, covering almost 
as many Americans as Medicare, it would have been irresponsible 
for Congress to support a program that had virtually no 
protections for the 36.8 million poor senior citizens, disabled 
people, women, and children that rely on Medicaid for their 
health and long term care services. We believe that the 
Republicans have once again learned that the approach of the 
last Congress--putting America's children, the elderly and 
disabled at risk--was the wrong way to go.
    This year's Medicaid proposal maintains a number of the 
existing protections of current law for these important and 
vulnerable beneficiaries including: an appropriate benefits 
package for the 70 million children who need early preventive 
care, diagnosis and treatment. This is a sound investment 
because it saves on more expensive longer term adult care and 
treatment later; protections for the 6 million disabled 
individuals and approximately 7.4 million low-income women who 
are eligible for Medicaid; and protections for the elderly 
against impoverishment in their last years of life when they 
need nursing home care and cannot afford it themselves.
    In addition, as the Republican proposal moved through the 
committee process several bi-partisan amendments adopted 
improved on the initial proposal: women will have direct access 
to their ob/gyn as their primary care provider; women and 
children will be guaranteed important quality standards for 
managed care plans; children who suffer from cerebral palsy, 
cystic fibrosis, cancer and a range of other debilitating 
diseases will have access to the specialized pediatric services 
they vitally need; and the public will have important fraud and 
abuse provisions for managed care plans in the areas of 
marketing and contract negotiations.
    The minority is very disappointed, however, that the 
Republicans failed to live up to the budget agreement.
    First, the budget agreement included an understanding that 
$1.5 billion would pay for premiums for low-income Medicare 
beneficiaries. This protection was vital to securing the over-
all agreement that the costs of maintaining the Part B premium 
at 25% of program costs and the costs of switching home health 
to part B of Medicare would be phased into the premium payment. 
Because of these two provisions the part B premium for Seniors 
will increase by as much as $23.00 a month from 1997 to 2002. 
When this increase is added to the other increases incorporated 
into the budget agreement, the average elderly woman with an 
income less than $12,000 a year will see her Part B premium 
rise from $43.80 a month in 1997 to $66.70 a month in 2002. 
This extra cost of approximately $800 a year represents a 
substantial sum for those with incomes less than 150 percent of 
the poverty line. The committee included the savings from 
increasing the Part B premium, but did not include the agreed 
upon protections for low-income Seniors. Instead of providing 
$1.5 billion in protection, it provides only $600 million. To 
add insult to injury, the bill actually spends an additional 
$2.2 billion in Medicare funds on MSAs, which will hardly help 
low-income Seniors. Most MSAs include deductibles of up to 
$6,000, approximately half the annual income of a senior at 150 
percent of poverty. The majority failed abjectly in this 
matter. The minority attempted several times in subcommittee 
and full committee to circumscribe this through amendments, and 
we intend to see that the terms of the agreement are honored as 
this legislation proceeds.
    Second, the majority took direct action to refuse to 
provide health care services for disabled children eligible for 
SSI who were covered under terms of the agreement. At a time 
when the majority was attempting to proclaim that they were 
providing additional coverage to millions of uninsured 
children, they were at the same time taking away health 
insurance coverage from 20,000 disabled children. This is 
beyond our comprehension, and causes us to wonder whether the 
majority's idea is to provide insurance to the healthy but not 
the sick.
    Finally, the majority repealed the so-called ``Boren 
amendment,'' which provides payment protections for hospitals 
and nursing homes. The Boren amendment simply says that 
Governors must pay hospitals and nursing homes a ``reasonable 
and adequate'' payment to ensure the adequate provision of 
services. This provision is crucial to ensuring that we do not 
have a returnto the disgraceful conditions that existed before 
our 1987 nursing home reforms when we found frail elderly and disabled 
individuals warehoused and abused in chronically substandard 
facilities. The Democratic minority worked successfully in subcommittee 
to restore this vital provision only to see it replaced by the 
Republicans in full committee with a meaningless public process.
    For these reasons, the Medicaid provisions of budget 
reconciliation ultimately falls short in several key areas and 
fail to honor the terms of the budget agreement.

                                   John D. Dingell.
                                   Sherrod Brown.
                                   Diana DeGette.
                                   Bobby Rush.
                                   Rick Boucher.
                                   Thomas J. Manton.
                                   Gene Green.
                                   Tom Sawyer.
                                   Anna G. Eshoo.
                                   Elizabeth Furse.
                                   Frank Pallone, Jr.
                                   Pete Deutsch.
                                   Ron Klink.
                                   Ed Markey.
                                   Bart Gordon.
                                   Henry A. Waxman.
                                   Edolphus Towns.
                                   Ted Strickland.
                                   Karen McCarthy.
                                   Bart Stupak.
       ADDITIONAL VIEWS: GREENWOOD WAXMAN TITLE III(E) AND TITLE

    In both the Medicare Plus and the Medicaid provisions of 
the bill, the Committee has adopted language ensuring that 
managed care organizations cannot limit the scope of the 
information and advice that physicians may give to patients.
    This provision is, however, limited by a construction 
clause contained within it. In that clause, it is made clear 
that the provision is not to be interpreted to require a health 
maintenance organization to ``provide, reimburse for, or 
provide coverage of'' any counseling or referral service if the 
HMO has moral or religious grounds for doing so and if the HMO 
gives its enrollees and prospective enrollees advance notice of 
its unwillingness to provide such counseling and referral.
    In our view, the intention of the Committee in adopting 
this language was to make clear that health plans that are 
religiously controlled do not have to disregard their religious 
or moral beliefs in order to participate in Medicare Plus or 
Medicaid. Further, we believe there is no rationale for 
extending the reach of this provision to include HMOs that are 
public, non-profit secular, or for-profit secular 
organizations. We believe the committee does not intend to 
allow such organizations to assert such religious or moral 
objections in order to side step what is required of them by 
the statute, regulations or contract.
                                   James Greenwood.
                                   Henry A. Waxman.
                         TITLE III--SUBTITLE E

   ADDITIONAL VIEWS ON DISPROPORTIONATE SHARE HOSPITAL (DSH) FORMULA

    The undersigned members of the Commerce Committee strongly 
protest the Committee-approved formula on disproportionate 
share hospital (DSH) payments.
    We are compelled to do so because the formula contained in 
the Committee bill--intended to produce $15.7 billion in 
savings over five years--will lead to punitive cuts in those 
states defined as ``high-DSH'' states; that is, states that 
send 12% or more of medical assistance payments on DSH.
    There is no one approach that we would favor or that we 
would deem fair. Low-DSH states have a legitimate point when 
arguing against taking the same percentage cuts as high-DSH 
states. However, the approach we favored at the Committee mark-
up has the merit of recognizing that some high-DSH states are 
particularly dependent on DSH funding and they should not bear 
the entire impact of these cuts.
    The argument that the burden of DSH cuts squarely on the 
backs of high DSH states cannot be denied. The formula passed 
by the Committee will start with modest cuts of two and five 
percent respectively in 1998 and 1999. Beginning in 2000, 
however, high-DSH states will receive 20 percent less than they 
received in 1997; in 2001, 30 percent less; and in 2002, 40 
percent less. Low-DSH states, on the other hand, will face cuts 
at only half the yearly rate of high-DSH states.
    In addition to higher yearly percentage cuts, high-DSH 
states are further burdened by the way the Committee has 
defined high-DSH states. The Clinton Administration originally 
proposed a formula using FY 1995 DSH payments to states as the 
basis for determining the starting point of reductions. During 
the development of the Committee bill, a change was made to the 
proposed formula that established FY 1997 as the starting point 
from which to classify high-DSH states. This change served to 
reduce the number of states that were classified as high-DSH 
and concentrated a higher level of reductions in fewer states. 
We believe that this change unfairly penalizes our states and 
confers advantages to other states. To address this inequity, 
we offered an amendment to change the DSH formula.
    Our alternative, sponsored by Rep. Gene Green, was nearly 
identical to the Administration's proposal, the only change 
being a slight increase in the yearly percentage cuts. This 
change was made to achieve the same budget savings as the 
Committee version. The amendment exempted (as did the 
Committee-approved version) those states whose DSH spending was 
below 1 percent of medical assistance payments as of FY 1995. 
Then, for the years beginning in 1999 and ending in 2002, it 
applied annual cuts of 10, 20, 25, and 35 percent respectively.
    Notably, our amendment would apply those percentage cuts on 
a state's first 12 percent of DSH spending, the percentage 
spending level distinguishing high and low-DSH states. The 
Committee's version on the other hand, contains deeper cuts on 
the whole amount of DSH spending. This is a double blow to 
high-DSH states and demonstrates the one-sided nature of the 
Committee formula.
    In summary, we do not regard the provision passed by the 
Commerce Committee as a sound way to manage the DSH program and 
we will continue to work to see that it is changed.

                                   Gene Green.
                                   Dan Schaefer.
                                   Diana DeGette.
                                   Joe Barton.
                                   Frank Pallone, Jr.
                                   Karen McCarthy.
                            ADDITIONAL VIEWS

                     Congress of the United States,
                                  House of Representatives,

               title iv--committee on commerce--medicare

    The Medicare program is one of the cornerstones of the 
public safety net that our Seniors and disabled citizens rely 
upon for critical health care services. During the development 
of the balanced budget agreement, Congress had the opportunity 
to address the fundamental structural problems associated with 
Medicare that have helped create the short and long-term 
solvency problems of the program. The budget agreement has been 
criticized on many fronts, but one of my primary concerns is 
that it fails to address the underlying structural problems of 
our major entitlement programs, opting instead for a short-term 
fix.
    In the Commerce committee Medicare restructuring 
legislation, a commission was authorized to make specific 
recommendations to Congress on the financial impact to the 
program of the generation of Americans which will begin 
eligibility around 2010. I was pleased to see that the language 
establishing this commission was structured along similar lines 
to legislation I introduced, H.R. 75, the Medicare Commission 
Act of 1997.
    Authorizing commissions, expert panels, and other entities 
to study and make recommendations has helped to guide past 
Congresses on difficult issues in the past. The most successful 
examples are the Base Closure Commission and the Social 
Security Commission of the early 1980s, from which a specific 
set of recommendations were developed and acted upon by 
Congress.
    Congressional action must also occur on the recommendations 
of the Medicare Solvency Commission when it makes the report 
called for in this legislation during 1999. The future of the 
Medicare program requires us to address these problems in a 
timely manner, before the demographics of the Baby Boomer 
generation retirement are upon us. We should not require the 
emergence of a national crisis to spur Congress to action, and 
we should act to address the long-term solvency of the Medicare 
program in a deliberate manner as soon as practicable.

                     title iii subtitle e--medicaid

    Furthermore, my support for the repeal of the Boren 
amendment reflects the need to provide the states maximum 
flexibility in the administration of the Medicaid program. In 
addition to being consistent with the support of the President, 
the severe reductions in the Disproportionate Share programs 
necessitate additional flexibility for states.
                                                    Karen McCarthy.

  MINORITY VIEWS ON TITLE III, SUBTITLE F--STATE CHILD HEALTH COVERAGE

    The Commerce Committee has taken important steps toward 
helping needy children get access to health care.
    We are pleased to see that the Committee adopted, on voice 
vote, Rep. DeGette's proposal on presumptive eligibility for 
children. This is a valuable component of outreach for 
children. Allowing selected sites and providers to determine 
children to be presumptively eligible for Medicaid for one 
month, until their application can be completed and reviewed, 
is an important step to reaching the 3 million children who are 
currently eligible for Medicaid but are not enrolled. 
Presumptive eligibility cuts through some of the difficulties 
parents face in obtaining health insurance for their children 
through Medicaid.
    We were also pleased to see the Committee adopt Rep. 
Strickland's amendment on exempting special needs children from 
mandatory enrollment in managed care. While the exemption is 
included in the Medicaid title, it protects all children with 
special needs. This exemption is particularly important because 
managed care systems have not been tested for their ability to 
serve those with chronic and disabling conditions.
    However, while we have bipartisan agreement on those two 
items, we have a number of concerns with the approach taken to 
target the 5 million low-income children who are currently 
uninsured. We would have preferred to see another approach. In 
fact, the Democrats offered two alternatives.
    We were particularly disappointed that the Republicans did 
not adhere to the budget agreement that specifically said that 
$16 billion for children's health must be spent on programs 
that provide health insurance coverage for low-income children. 
Under the Committee proposal as it now stands, States are not 
required to provide health insurance coverage for children. 
They could choose to do this, but there is no requirement in 
clear violation of the agreement between the Republican 
leadership and the Administration.
    On this matter, we are particularly concerned with a large 
loophole that says that children's health money can be spent on 
``direct provision of services.'' Our experience with the 
disproportionate share hospital program (DSH) tells us that 
sometimes the funds that Congress turns over to the states do 
not always reach the intended beneficiaries. Congress did not 
intend for DSH moneys to fund state psychiatric hospitals, or 
roads, or prisons, but in some states that is exactly what 
happened. With the direct provision of services clause in the 
current bill, States could use all of their block grant money 
to buy drugs for sick children, or pay for psychiatric care in 
a state mental hospital, or pay for residential substance abuse 
treatment services for children in the juvenile justice system. 
These individuals who are receiving services through these 
programs and institutions are certainly worthy of federal 
support. But, we already have a number of federal programs that 
purchase direct services for children in this manner.
    In fact, the block grant proposal, coupled with the large 
disproportionate share hospital cuts, provides incentives for 
states not to use their money to cover children but to invest 
it in particular services. The states could target this 
children's health money directly to the facilities that will be 
losing DSH money through the cuts in the budget package.
    The Commerce Committee Minority believes that there are 
options available to make sure that we are getting what we are 
intending to pay for: health insurance coverage for children. 
We believe that we put forth two solid proposals that would 
direct the funds for this purpose expressly: the Dingell-Brown 
proposal, and the Democratic Caucus proposal offered by Mr. 
Pallone.
    The Dingell-Brown Child Health Insurance Provides Security 
Act, H.R. 1491, builds on the Medicaid program to expand health 
insurance coverage to children up to 150% of poverty. Three 
important points about this proposal should be kept in mind as 
the package moves towards conference.
    First, the Dingell-Brown bill builds on an existing program 
that insures 22 million children and has succeeded at getting 
children access to medically necessary services. The beauty of 
this approach is in its simplicity. There is no need to create 
another complicated program layer with eligibility standards 
and benefits that differ from the current Medicaid program. 
This can only create confusion for states and beneficiaries 
alike, and could reduce access to care and services for 
children.
    More importantly however, are the second two points; the 
Dingell-Brown approach targets children who most need help, and 
the Dingell-Brown approach would provide children with a 
comprehensive package of medically necessary benefits. The 
Dingell-Brown bill would reach children in families at or below 
150% of poverty more than 75% of whom do not have private 
health insurance coverage.
    Also, the Medicaid program provides a comprehensive package 
of medically necessary services for children, something the 
Committee-posed bill does not offer. Given that the money we 
have to spend is limited, to best reach our goal of covering 5 
million currently uninsured children, the $16 billion must be 
targeted to the children who have the greatest need--those in 
families at or below 150% of poverty. We also believe that it 
is important to provide these children with true health 
insurance coverage, not ``direct provision of services.''
    The Pallone approach contains a number of components that 
could help provide health insurance to children. First, it 
builds on the Medicaid program and adds the `Medikids' grant 
program, similar to the Hatch-Kennedy proposal requiring states 
provide to benefits for children comparable to the Medicaid 
benefits package. This approach requires maintenance of effort, 
but gives states the flexibility: grant money could purchase 
private insurance, for example, but not the direct provision of 
services. This approach also contains private insurance reforms 
advocated by Rep. Furse which would make kids-only health 
insurance policies more accessible, especially for children in 
families with parents who were between jobs.
    Either of these approaches would be preferable to the 
Committee bill.
    Another issue of special concern is the majority's proposal 
to allow states to cap the number of children they enroll 
through the Medicaid program. All children who fall within a 
given eligibility category should be allowed to receive 
benefits. Limiting the entitlement for Medicaid, even if it is 
only for a small population, is a dangerous precedent. The 
Commerce Minority would like to see this corrected.
    A final issue in the area of children's health concerns is 
that money designated to restoring Medicaid eligibility for 
disabled children losing SSI because the new, stricter 
definition of childhood eligibility was not included in the 
package. The proposal was removed in favor of a block grant for 
certain, selected states to help with the unreimbursed cost of 
emergency services for immigrants. In a bill that was designed 
to increase health insurance coverage for up to 5 million 
children, we are taking away health insurance for 20,000 poor 
or near-poor disabled children.
    We look forward to continuing to work in a bipartisan 
manner on the remaining outstanding issues that we have 
highlighted here.

                                   John D. Dingell.
                                   Sherrod Brown.
                                   Diana DeGette.
                                   Bobby Rush.
                                   Rick Boucher.
                                   Thomas J. Manton.
                                   Gene Green.
                                   Tom Sawyer.
                                   Anna G. Eshoo.
                                   Elizabeth Furse.
                                   Frank Pallone, Jr.
                                   Pete Deutsch.
                                   Ron Klink.
                                   Ed Markey.
                                   Bart Gordon.
                                   Henry A. Waxman.
                                   Edolphus Towns.
                                   Ted Strickland.
                                   Karen McCarthy.
                                   Bart Stupak.
                  MINORITY VIEWS ON TITLE IV--MEDICARE

    If the Medicare provisions of this budget reconciliation 
could be considered in isolation, a number of positive 
statements could be made about them.
    For example, the provisions expand Medicare health care 
choices by allowing beneficiaries to enroll in a variety of 
managed health care plans, and also provide significant 
consumer protections within most of these plans. We applaud our 
Republican colleagues for recognizing the wisdom of carefully 
defining the terms of managed care for senior citizens who 
choose to receive their health care this way. The success of 
managed care in the Medicare market ultimately hinges on 
whether seniors are well served by the system: whether they 
have quality care, access to appropriate providers, bona fide 
appeals and grievance mechanisms, and honest marketing. Another 
protection, expanded by a Democratic amendment, allowing 
seniors to move into the managed care market without the 
penalty of losing forever their right to purchase a Medigap 
policy. In short, the majority wisely turned its back to the 
last Congress' approach of leaving America's seniors to the 
mercy of the health insurance marketplace.
    The Committee's Medicare proposal also properly 
acknowledges the need to make both short-term payment changes 
and longer term policy modifications to address escalating 
Medicare costs and the solvency of the Medicare Trust Funds. 
The provisions attempt to provide judicious balance among 
payment reductions affecting various providers and to allow the 
establishment of new payment methodologies that provide for 
greater control and accountability. In addition, a number of 
important fraud and abuse protections, as proposed by the 
President, are contained in the legislation. Additional 
components of the President's proposal should be included, and 
we will pursue that goal as the bill moves forward.
    However, the legislation continues penny- and pound-
foolish: namely, including Medical Savings Accounts in the 
MedicarePlus program. Although the proposal is structured as a 
demonstration project, we continue to question the wisdom of 
spending over $2 billion to toss Medicare beneficiaries into 
totally uncharted waters, as an experiment. We already are 
testing MSAs in the younger, healthier general population 
through a demonstration program established under the 
Kassebaum-Kennedy legislation. That project is due to end, and 
to be evaluated, in 4 years. Why not wait until that evaluation 
concludes to begin an expansion of the experiment to Medicare 
beneficiaries?
    Many differences of opinion on MSAs were expressed during 
Subcommittee and Committee deliberations. We argued that MSAs 
would appeal to and thus enroll younger, healthier Medicare 
beneficiaries--those who cost the Medicare program less--
leaving older, less healthy people in ``traditional'' Medicare 
and increasing Medicare costs. This is one of the reasons that 
the Congressional Budget Office believes MSAs will cost, not 
save money. But the truth is, nobody knows about risk selection 
in MSAs. Thus, nobody can predict with any accuracy that MSAs 
will not have an enormous and adverse affect on Medicare costs 
over the long term. The Kassebaum-Kennedy demonstration will be 
the first opportunity to answer that question. We believe it 
would be prudent to wait for the results of that program. 
Alternatively, and at a minimum, we believe that any MSA 
demonstration program in Medicare must be much more limited 
than 500,000 lives. We attempted to circumscribe this through 
amendments, and intend to pursue a reduction in scope, or the 
elimination of the MSAs, as the legislation proceeds.
    Our additional point: medical malpractice reforms--
regardless of their substantive merits or lack thereof--do not 
belong in this legislation. Congressional decisions about 
federal malpractice liability standards that would pre-empt 
state laws and prerogatives deserve to be made in the light of 
separate deliberations. Committee hearings have not been held 
on this matter. We have not had an opportunity to mark up 
legislation. We have not had an opportunity for Members to 
debate their differing perspectives on this issue. We intend to 
continue our objection to including malpractice provisions in 
budget reconciliation.
    In summary, we cannot isolate the Medicare provisions of 
budget reconciliation and look at their positive features 
separately. Indeed, we must look at the changes in this 
critically important program in the total context of a budget 
agreement that places America's senior citizens in the last car 
of a train and pulled by an engine of ``balancing'' the federal 
budget loaded with tax cuts for the wealthy. Many agree that 
Medicare spending needs to be curtailed, and the program needs 
to be changed--for its long-term good. And many would agree 
that savings of $115 billion improves upon the Republican 
proposal of the last Congress. However, reasonable senior 
citizens, and reasonable Democrats, continue to puzzle over a 
scheme that cuts Medicare while at the same time providing tax 
breaks for businesses and for higher-income individuals.
    We are told that tax cuts will help the ``middle class''--
those whose incomes are $100,000 per year, or more. Since the 
majority of Medicare beneficiaries have incomes one-quarter of 
that amount--less than $25,000 per year--we are understandably 
skeptical of the trade-offs. Furthermore, the budget agreement 
between the President and the Republican leadership--for all of 
its flaws--included a ``fail-safe'' for the lowest income 
Medicare beneficiaries. It specifically included a commitment 
to spend $1.5 billion on helping these seniors pay their 
Medicare Part B premiums. The bills reported by this Committee 
do not honor that commitment. That failure colors all of what 
otherwise might be viewed as positive aspects of the Medicare 
portions of this package.

                                   John D. Dingell.
                                   Sherrod Brown.
                                   Diana DeGette.
                                   Bobby Rush.
                                   Rick Boucher.
                                   Thomas J. Manton.
                                   Gene Green.
                                   Tom Sawyer.
                                   Anna G. Eshoo.
                                   Elizabeth Furse.
                                   Frank Pallone, Jr.
                                   Pete Deutsch.
                                   Ron Klink.
                                   Ed Markey.
                                   Bart Gordon.
                                   Henry A. Waxman.
                                   Edolphus Towns.
                                   Ted Strickland.
                                   Karen McCarthy.
                                   Bart Stupak.
     MINORITY VIEWS ON WELFARE AND HIGHER EDUCATION RECONCILIATION 
                            RECOMMENDATIONS

                   i. changes made to welfare reform

    The Reconciliation recommendations that have been reported 
by the Committee are a pernicious attack on the poor.
    The Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996 (herein referred to as the ``Act'' 
or the ``new welfare law'') increased emphasis on the need to 
move welfare recipients from welfare to work. Under the Act, 
the Aid to Families with Dependent Children (AFDC) program was 
replaced with the Temporary Assistance for Needy Families 
(TANF) program. The law also established specific work 
requirements that States and tribal governments must meet to 
qualify for the full Federal share of funds supporting the TANF 
program.
    The new welfare law requires 25 percent of all TANF 
families (excluding families in which there are no adults) and 
75 percent of two-parent TANF families to have an adult engaged 
in work activities in FY 1997. States may exempt single parents 
of children under the age of one from the work requirement. The 
required participation rates increase each year, culminating at 
50 percent for all families with an adult and 90 percent for 
two-parent families in FY 2002.
    In order to be counted toward the work participation rate, 
a single parent is required to be engaged in a work activity 
for an average of 20 hours a week per month in FY 1997, for an 
average of 25 hours a week per month in FY 1999, and for an 
average of 30 hours a week per month in FY 2000. An adult in a 
two-parent family is required to be engaged in work activity 
for an average of 35 hours a week per month.
    Work activity is defined in the Act to include (1) 
unsubsidized employment; (2) subsidized private sector 
employment; (3) subsidized public sector employment; (4) work 
experience (including work associated with the refurbishing of 
publicly-assisted housing) if sufficient private sector 
employment is not available; (5) on-the-job training; (6) job 
search and job readiness assistance; (7) community service 
programs; (8) vocational education training (not to exceed 12 
months with respect to any individual); (9) job skills training 
directly related to employment; (10) education directly related 
to employment, in the case of a recipient who has not received 
a high school diploma or a certificate of high school 
equivalency; (11) satisfactory attendance at secondary school 
or in a course of study leading to a certificate of general 
equivalence, in the case of a recipient who has not completed 
secondary school or received such a certificate; and (12) the 
provision of child care services to an individual who is 
participating in a community service program.''
    Under the new welfare law, not more than 20 percent of 
individuals in all families receiving TANF assistance may be 
determined to be engaged in work in the State for a month by 
reason of participating in vocational education or, in the case 
of a single parent teenager, maintaining satisfactory school 
attendance.
    Further, the public sector must provide ``workfare jobs'' 
when the private sector does not meet the demand for labor. But 
what must those ``workfare jobs'' be like? Under the 
Reconciliation recommendations adopted by the Committee, they 
could be like indentured servitude. Perhaps we will return to 
the days of the company town, where workers did not receive 
cash wages, but were ``compensated'' by their bosses with food, 
clothing, and shelter.
    Under the Committee's Reconciliation recommendations, a 
public agency or nonprofit employer will not be required to pay 
workfare workers any cash wages at all. In some States, 
workfare workers could be required to work in excess of 40 
hours a week and would still not be entitled to cash wages.
    The Committee's Reconciliation recommendations provide that 
a State may not require a recipient to be assigned to on-the-
job training, and to a work experience or community service 
position with a public agency or nonprofit organization for 
more than the value of includible benefits provided by the 
State divided by the minimum wage. Includible benefits include 
TANF benefits, food stamps, and at the option of the State, 
child care assistance, Medicaid, and housing benefits. For a 
family of two, the value of TANF benefits and food stamps, 
alone, exceeds the value of twenty hours of work at the minimum 
wage in 42 of 50 States. For a family of three, the value of 
TANF benefits and food stamps exceeds the value of twenty hours 
of work at the minimum wage in every State except one. For a 
family of four, the value of TANF and food stamps exceeds the 
value of twenty hours of work at the minimum wage in every 
State and, in fourteen States, exceeds the value of forty hours 
of work at the minimum wage. If the value of child care 
assistance, Medicaid, and housing benefits are included in the 
calculation of includible benefits, virtually no recipient 
employed by a public or nonprofit employer will be entitled to 
cash for that work.
    The Committee recommendations further provide a recipient 
will be determined to be sufficiently employed if the recipient 
is employed for a number of hours that isnot less than the sum 
of the dollar value of the TANF and food stamp benefits provided by the 
recipient divided by the minimum wage. In fourteen States, a recipient 
in a family of four may be required to work excessive overtime and 
would still not be entitled to any cash wages for that work. Finally, 
no remedy is provided for a recipient where the recipient is required 
to work a greater number of hours than permissible under the Fair Labor 
Standards Act (FLSA), because the recipients are ``not considered 
employees.''
    Beyond effectively repealing minimum wage overtime, 
overtime, child labor, and other FLSA protections for 
recipients working for public or nonprofit employers, these 
recipients will be denied the rights and protections afforded 
by labor and employment-based civil rights laws to all other 
workers. The Committee's recommendations provide:
          A recipient of assistance under a State program 
        funded under this part who is engaged in work 
        experience or community service with a public agency or 
        nonprofit organization shall not be considered an 
        employee of the public agency or the nonprofit 
        organization. (Proposed section 470(K) of the Social 
        Security Act, emphasis added)
By specifically relegating these workers to ``non-employee'' 
status, this proposal also denies them protections of the 
Family and Medical Leave Act, the Equal Pay Act, Title VII of 
the Civil Rights Act, the National Labor Relations Act, the Age 
Discrimination in Employment Act, and all other laws designed 
to protect working people from unsafe workplaces, racial and 
sexual harassment, and unfair wages. It is patently unfair to 
say to these workfare workers that their employers may require 
them to work in a workplace environment where they are less 
protected than the workers working next to them who enjoy 
employee status.
    The Republican Reconciliation recommendations provide weak 
health and safety protections to workfare workers. The proposal 
provides that health and safety ``standards'' established under 
Federal and State law will be applicable to the working 
conditions of workfare workers. However, the Republicans have 
failed to provide any means by which workfare workers may 
meaningfully invoke the protections afforded by those 
standards. The skeletal grievance procedure established in the 
proposal--which are the exclusive remedial procedures extended 
to these workers--are no match for OSHA's grievance procedures 
and remedies. The most important provision of OSHA, the 
``General Duty Clause'', requiring that employers ensure that 
the workplace is free from recognized hazards likely to cause 
death or serious injury, may not be applicable to workfare 
workers. A workfare worker may have no right to request an 
inspection of the workplace and may be subject to employer 
retaliation for engaging in safety-related activities. While a 
workfare worker may be able to invoke the grievance procedures 
where the workfare worker believes a specific health and safety 
standard has been violated, the exclusive grievance procedure 
under this proposal may take up to 180 days to complete. For 
the workfare worker who is faced with an imminent hazard, the 
grievance procedure has the effect of prolonging the 
recipient's jeopardy. This proposal pays lip service to the 
issue of worker health and safety while jeopardizing the health 
and safety of that worker. It also would eliminate the 
deterrent effect of OSHA by not applying OSHA's civil and 
penalties imposed on employers guilty of health and safety 
violations.
    The cavalier disregard shown for the health and safety of 
workfare workers is repeated with regard to the civil rights of 
workfare workers. The new welfare law extends certain non-
employment based civil rights protections to workfare workers 
(Title VI of the Civil Rights Act of 1964, Section 504 of the 
Rehabilitation Act of 1973, the Age Discrimination Act of 1975, 
and the Americans with Disabilities Act of 1990). The Majority 
has included coverage for sex discrimination in its 
recommendations, however, the discrimination provision provides 
only a minimalist grievance procedure as the exclusive remedy 
for gender discrimination. As Representative Robert E. Andrews 
(D-NJ) pointed out during the markup, the grievance process 
contemplated by the Republicans will be established by the 
public agency, the employer of the workfare worker. In effect, 
that agency will be charged with establishing a process for 
judging the allegations of unpaid welfare recipients against 
the supervisors and employees of the agency. Nowhere in the 
grievance procedures the Republicans have put forward is there 
a requirement that the grievance hearing officer be an 
impartial arbiter. Rather, the grievance hearing officer is 
likely to also be an employee of the public agency. There are 
no protections in the grievance procedures the Republicans are 
proposing to ensure that the grievance process itself is fair 
and impartial, and not a kangaroo court.
    In what appears to be either a Freudian slip or a 
particularly cruel hoax, the Republican proposal provides that 
the workfare worker is entitled to, ``where applicable, 
reinstatement of the employee, payment of lost wages and 
benefits, and reestablishment of other relevant terms, 
conditions, and privileges of employment.'' By definition, 
those workfare workers who work for public or nonprofit 
employers are not employees and, therefore, are not entitled to 
reinstatement, may not be entitled topayment of lost wages and 
benefits, and are not entitled to the reestablishment of other relevant 
terms, conditions, and privileges of employment. In sum, there is no 
coherent remedy for sexual harassment against a workfare worker under 
the Republican proposal. What have poor women done to deserve such 
second-class treatment?
    In addition to the full panoply of civil rights 
protections, workfare workers who are ``employees'' must be 
protected under the Age Discrimination in Employment Act, Title 
VII of the Civil Rights Act, the Equal Pay Act, and other 
employment based civil rights laws such as the Equal Pay Act. 
Further, the scope of protection under the employment-based 
civil rights laws is generally broader than that provided by 
Federal financial assistance civil rights laws. Title VI also 
applies to religious discrimination. Insofar as workfare 
workers may be employed by nonprofit employers without 
receiving Title VII protection, the absence of any protection 
against religious discrimination is another glaring omission.
    There are additional examples of the second-class treatment 
of workfare workers. If denied employee-status, workfare cannot 
receive the civil rights protections under Executive Order 
11246, Section 503 of the Rehabilitation Act, and the 
affirmative action provisions of the Vietnam Era Veterans' 
Readjustment Assistance Act. Vietnam veterans who have the 
misfortune of landing on welfare forfeit the obligation the 
Federal Government has to try assist those who risked their 
lives in the service of their country.
    The patchwork of remedies the Republican proposal concocts 
provides far less for workfare workers than the damages and 
relief those recipients would receive if they were not 
arbitrarily denied status. The Federal civil rights financial 
assistance laws (Title VI, the Age Discrimination Act, and 
Section 504) and the non-employee provisions of the Americans 
with Disabilities Act offer injunctive relief and back pay, but 
generally do not provide for punitive damages as are available 
under Title VII and the employment provisions of the Americans 
with Disabilities Act. Since a workfare worker may be likely to 
be required to work for no pay at all, limiting remedies to 
back pay, as the Republican proposal does, may be a wholly 
meaningless exercise.
    Even if the recipient can obtain a back pay award, it is 
very unlikely that the award will make the recipient whole for 
the damage the recipient has suffered. A workfare worker who 
has been discriminated against on the basis of sex, may have 
lost his or her job as a consequence of that discrimination. As 
a result of losing that job, the workfare worker is liable to 
have lost all benefits as well. Even paying the worker 
retroactively for the benefits he or she should have received 
is not likely to begin to compensate for the damage that 
worker's family suffered as a result of losing their safety 
net.
    Further, Federal financial assistance laws are enforced 
primarily through termination of financial assistance. In this 
case, termination of financial assistance may mean nothing more 
than the loss of benefits for the workfare worker. What 
incentive does that provide for the workfare worker to seek 
enforce his or her rights?
    During Committee markup, the Majority opposed our efforts 
to reverse these unconscionable limits on worker and civil 
rights protections. If it is true that a workfare worker's 
labor is not even worth the minimum wage, a supposition with 
which we strongly disagree, then it is pointless to place that 
recipient in a work program, because the value of the 
recipient's labor will never be sufficient to enable the 
recipient to obtain a job that would eliminate the need for 
assistance. Instead, that recipient should be in some form of 
education or skill enhancement program, in which case the 
recipient would not meet the definition of ``employee'' under 
the labor laws. And, yet in another bizarre irony, at the same 
time that the Republicans are contending that the labor of 
workfare workers is not worth the minimum wage, they propose to 
restrict the number of workfare workers who may be placed in 
vocational education programs. Whereas, the new welfare law 
provided that not more than 20 percent of individuals in all 
families receiving TANF assistance may be determined to be 
engaged in work in the State for a month by reason of 
participating in vocational education, the Republicans proposed 
that those participating in vocational education may not exceed 
20 percent of those workfare workers who are engaged in work. 
Apparently, in the Republican view, workfare workers are not 
worthy of training either.
    We do not regard poverty as a sin, nor do we see the 
misfortune of living on welfare as a crime. Those who can work 
should work, and our nation has an obligation to make sure they 
have jobs at livable wages and under safe conditions. And, 
where a workfare worker meets the test applicable to all other 
individuals for determining whether that individual is an 
employee, the workfare worker must and should be entitled to 
the all of the rights and protections afforded any other 
similarly situated worker.
    Last year, with strong public support, the Congress, 
overrode the objections of the House Republican Leadership and 
enacted an increase in the minimum wage. Now,even before that 
law has been fully implemented, the Republicans are seeking to 
effectively repeal the minimum wage and all other workplace protections 
for workfare workers. There is no justification for carving out one 
group of workers and denying them the protection afforded all other 
workers. This is not just a matter of fairness and equity for workfare 
workers, though it is certainly that. The treatment of workfare 
workers, however, has inevitable consequences for other workers as 
well. For instance, New York City operates the largest workfare program 
in the country. In 1991, the City employed 7,000 workers who earned 
wages that kept themselves and their families off of welfare to keep 
its parks clean. Now, the City only employees 4,600 workers for the 
same purpose. Seven thousand and seven hundred additional workfare 
workers are also employed or the same purpose. The workfare workers 
work for the city in return only or their welfare grants and carfare. 
Where once 7000 workers were able to earn wages keeping the city's 
parks clean, now 7,700 workers cannot.
    There are parts of the Committee's reconciliation proposal 
that were developed on a bipartisan basis and that we strongly 
support. The reconciliation proposals includes a $3 billion 
welfare-to-work program substantially similar to that requested 
by President Clinton. We commend our Republican colleagues for 
their efforts in developing this program and for ensuring that 
funding is directed to local communities where it will do the 
most good. We also commend our Republican colleagues for 
working with us to ensure that this proposal includes strong 
displacement protections for current employees. However, as 
strongly as we support these provisions, we cannot support 
legislation that denies basic labor and discrimination 
protections to as many as 500,000 to 1 million citizens.
    Throughout the long and fractious debate on welfare reform, 
many Republicans have talked about how welfare recipients need 
to be put to work, that work is dignity. What dignity is 
afforded to workfare workers when they are denied the 
protections that are afforded all other workers? Where is the 
dignity in being denied a wag for your work? Where is the 
dignity in being discriminated against on the basis of your 
race, sex, or religion? Workfare workers, no less than any 
other citizen, deserve a fair wage; they deserve a safe 
workplace; they deserve to be protected from unfair 
discrimination. They deserve respect and dignity.
    Four specific amendments were offered by Democrats to 
address the egregious inequities in the Republican proposal. 
Our Ranking Member, Representative William L. Clay (D-MO), and 
other offered an amendment providing that those participating 
in work experience, on-the-job training, community service, or 
on the provision of child care--in addition to those in 
unsubsidized employment, subsidized private sector employment, 
subsidized public sector employment as provided in the 
Republican propsoal--would be entitled to the same compensation 
at the same rates applicable to other similar employees or 
trainees of the employer. In addition, the amendment sought to 
strike provisions of the Republican proposal that exclude 
workfare workers from the definition of employee and that 
permit States to court child care, housing assistance, and 
Medicaid against the wages owed a workfare worker. The effect 
of the Clay amendment would have been to ensure that, to the 
extent that a workfare worker meets the same test of employee 
status applicable to any other individual, the workfare worker 
will receive the same protection in law. The amendment was 
defeated on a party-line vote.
    Representative Lynn C. Woolsey (D-CA) and other offered an 
amendment to protect the civil rights of workfare worker. The 
amendment provided that no workfare worker shall be 
discriminated against on the basis of race, color, religion, 
sex, national origin, age, political affiliation or belief, or 
status as a disabled individual. In addition, the amendment 
extended the protection of Title IX of the Education Amendments 
of 1972 and, to ensure coverage under the employment-based 
civil rights laws, struck the ``non-employee'' language. 
Finally, to ensure that there were not conflicting remedies and 
that workfare workers would have the full protection of the 
employment-based civil rights laws, the amendment deleted those 
provisions of the exclusive grievance procedures in the 
Republican proposal related to discrimination. That amendment 
was also defeated on a party-line vote.
    Representative Time Roemer (D-IN), along with Ranking 
Member Clay, offered an amendment that retained the welfare to 
work provisions and the anti-displacement provisions of the 
Republican proposal, but incorporated the changes contained in 
the Clay and Woolsey amendments. In addition, the amendment 
struck that provision of the Republican proposal limiting the 
number of workfare workers who may receive vocational education 
and still be counted for meeting work requirements. That 
amendment was defeated on a party-line vote.
    Finally, Representative Patsy T. Mink (D-HI) offered an 
amendment that provided that work performed by a workfare 
worker would be counted as if the workfare worker had received 
wages equal to the minimum wage for each hour worked for 
purposes of calculating the Earned Income Tax Credit (EITC). 
The amendment was ruled ``non-germane'' on grounds that we 
found unpersuasive. And,nothwithstanding that procedural 
ruling, the Majority should have permitted debate on the merits of the 
Mink amendment.

              II. Changes made to the Higher Education Act

Reducing student fees

    We are disappointed that the majority voted against the 
amendment offered by Representative Andrews to cut student loan 
origination fees in half. The proposal would save students $1 
billion over five years. The fee reduction would have provided 
students money when they need it the most, while they are still 
in school. For the typical student, it would have paid for a 
new textbook, school supplies, or a month's worth of utility 
bills. The loan origination fees were imposed on students in 
the 1980's as a temporary revenue measure--they were never 
intended to be permanent.
    Students are currently required to pay a 4% loan 
origination fee that is deducted off the top of loan proceeds 
they receive (technically under the FFEL program the loan 
origination fee is 3% and there is a 1% guaranty agency 
insurance fee). The amendment defeated by the majority would 
have reduced the origination fee from 4% to 2% on the Direct 
Loan side, and on the FFEL side reduced the origination fee 
from 3% to 2% and repealed the 1% guaranty agency insurance 
fee. These reductions applied to loans that go to students who 
have the greatest financial need.
    To pay for reduction in loan origination fees, the Andrews' 
amendment reduced the amount the federal government reimburses 
lenders on defaulted loans form 98% to 95%. Also, the amendment 
would have reduced the amount guaranty agencies may collect on 
defaulted loans form 27% to 18.5%. The two offsets save 
approximately $1.080 billion from 1997-2002.
    Reducing the percentage a lender can be reimbursed for 
defaulted loans not only produces saving for the federal 
government, but encourages lenders to work with borrowers to 
prevent them from defaulting on their loans. The offset is 
include dint he Administration's budget and was included by the 
Republicans in the 1995 budget reconciliation bill vetoed by 
President Clinton.
    The reduction in the amount a guaranty agency may retain on 
defaulted loans from 27% to 18.5% was designed to reflect the 
real cost of default loan collections. The Department of 
Education pays an average of 18.5% to vendors on loans it 
collects for defaulted borrowers. The size of this collection 
``bonus'' for guaranty agencies has been criticized by the GAO. 
In a report prepare din 1993 it concluded the following: 
``[With such a high feel] guaranty agencies have more financial 
incentive to expend resources collecting on defaulted loans 
than working with borrowers to prevent defaults because they 
can earn additional revenue from default collections but not 
from performing due diligence procedures.''

New entitlements for guaranty agencies

    We find it appalling that at the same time the majority 
voted to deny students a cut in student fees, it created two 
new entitlements for guaranty agencies to receive 
administrative payments. The Committee mark entitles guaranty 
agencies to receive a mandatory cost allowance under section 
458 of the Higher Education Act at a rate of .85% of new loan 
volume. Currently, the Higher Education Act authorizes the 
Secretary of Education to establish the cost allowance 
administratively (although the Labor/HHS appropriation's bill 
for the last two years has required payment at the .85% rate).
    In June 10, 1997, letter to the Committee's Chairman 
William F. Goodling and Ranking Minority Member William L. 
Clay, OMB Director Franklin D. Raines wrote in opposition to 
the new entitlement for guaranty agencies:
          The Administration opposes the provision regarding 
        administrative cost allowances (ACAs) to guaranty 
        agencies in the Federal Family Education Loan Program 
        (FFELP) . . . [It] represents a new entitlement to 
        these agencies not included in the budget agreement. 
        Moreover, any allowance to these agencies should bear 
        some relationship to the cost these agencies incur and 
        not be based on an arbitrary formula.
We regret that the majority has put special interest ahead of 
the public interest.
    We also opposed an amendment that was offered by 
Representative Howard P. McKeon (R-CA). The amendment 
establishes a statutory right for guaranty agencies to retain 
18.5% of payments made to it on defaulted loans that are 
subsequently consolidated. Currently, the Department pays up to 
18.5%, but is considering reducing the amount the agencies may 
retain to reflect the actual cost of collection. Other than 
fixed costs, most accounts collected through a subsequent loan 
consolidation require little work by the guaranty agency and 
does not merit a high level of compensation.
    An earlier version of the McKeon amendment would have 
allowed guaranty agencies who had improperly retained 27% of 
consolidated defaulted loans--to the tune of tens of millions 
of dollars--to keep these funds retroactively to 1992. However, 
those guaranty agencies who played by the rules and complied 
with the law could only retain 18.5%. We vigorously opposed 
this change. Marshall S. Smith, Acting DeputySecretary of the 
Department of Education, also expressed the Department of Education's 
opposition to the proposal:
          The Department strongly opposes the proposed 
        amendment under which guaranty agencies would be 
        allowed to retain 27 percent of collection resulting 
        from consolidations of defaulted loans made between the 
        passage of the Higher Education Amendments of 1992 and 
        July 1, 1997. We also oppose provisions in the 
        amendment that would set agency retention on 
        consolidations from defaults made after July 1, 1997, 
        at 18.5%.
          This proposal exemplifies the major structural flaw 
        of the FFEL program: payments to the program 
        participants are decided arbitrarily through the 
        political process rather than by the competitive forces 
        of the marketplace. For the last few years. agencies 
        have been allowed to retain their actual collection 
        costs on consolidations form default, up to 18.5%. The 
        proposal would require the Department to repay 
        retroactively agencies 27 percent on these loans. We 
        estimate that these payments would total $110 million 
        in FY 1997. Based on actual reported collection cost of 
        guaranty agencies, this level is clearly excessive 
        [June 11, 1997 letter to Committee Chairman Goodling 
        and Ranking Minority Member Clay].
    The McKeon amendment accepted by the Committee does not 
retroactively grant guaranty agencies authority to retain more 
than 18.5% consolidated defaulted loans. The CBO score on the 
amendment does not include any retroactive change in amount 
guaranty agencies may retain. The CBO scoring of the amendment, 
dated June 11, 1997, states that ``all provisions are assumed 
to be effective upon enactment and only apply to future 
collections except where specifically specified.''
    During the Committee mark-up, Representative McKeon 
criticized a Department of Education regulation scheduled to 
take effect July 1, 1997, that only permits guaranty agencies 
to retain up to 18.5% on consolidated defaulted loans:
          Representative McKeon said, ``On July 1 of this year, 
        a new regulation recently put forth by the Department 
        will go into effect. It changes the amount that the 
        guarantors can retain when they collect a defaulted 
        loan through consolidation from 27 percent to 18\1/2\ 
        percent of collection since the consolidation option 
        became available in 1992 . . . However, I don't believe 
        the Department should be allowed to change the 
        retention rate through regulation and then go back and 
        retroactively tell guarantors that they now owe the 
        government, everything they collected since July 23rd, 
        1992, which is about 18\1/2\ percent which was being 
        established by regulation in 1997.''
    In fact, guaranty agencies were never eligible to retain 
27% on consolidated defaulted loans. Those who had retained the 
27% would be in violation of Section 428c(6)(A) of the Higher 
Education Act, which only allows an agency to retain 27% of 
defaulted payments ``made by the borrower.'' This clearly 
excludes third party payments made to the agency when a 
defaulted loan is consolidated. On November 15, 1995, the 
Department of Education wrote a letter to the guaranty agencies 
stating that the agencies may retain 18.5%. In no way can the 
Department of Education's rule be a surprise to guaranty 
agencies, nor does the rule apply a retention rule 
retroactively.
                                   William L. Clay.
                                   George Miller.
                                   Dale E. Kildee.
                                   Matthew G. Martinez.
                                   Major R. Owens.
                                   Donald M. Payne.
                                   Patsy T. Mink.
                                   Robert E. Andrews.
                                   Tim Roemer.
                                   Robert C. Scott.
                                   Lynn Woolsey.
                                   Carlos Romero-Barcelo.
                                   Chaka Fattah.
                                   Ruben Hinojosa.
                                   Carolyn McCarthy.
                                   John F. Tierney.
                                   Ron Kind.
                                   Loretta Sanchez.
                                   Harold E. Ford, Jr.
                                   Dennis J. Kucinich.
                 Executive Office of the President,
                           Office of Management and Budget,
                                     Washington, DC, June 10, 1997.
Hon. William Clay,
Ranking Member, Committee on Education and the Workforce, House of 
        Representatives, Washington, DC.
    Dear Representative Clay: As you know, the Administration 
and the bipartisan Congressional leadership recently reached 
agreement on a historic plan to balance the budget by 2002 
while investing in the future. The plan is good for America, 
its people, and its future, and we are committed to working 
with Congress to see it enacted.
    Your Committee will shortly take up important components of 
that agreement, addressing welfare to work, student loans and 
the Smith-Hughes Act. We appreciate your efforts to include 
many provisions consistent with the agreement, which represent 
valuable policy advances.
    Welfare to Work--We are pleased that the Committee is 
considering provisions that meet many of the Administration's 
priorities for the program. Specifically, we are pleased that 
the Committee provides funds for jobs where they are needed 
most to help long-term recipients in high unemployment-high 
poverty areas; directs funds to local communities with large 
numbers of poor people; provides for local administration by 
chief local elected officials working with private industry 
councils; gives communities appropriate flexibility to use the 
funds to create successful job placement and job creation 
programs; and includes the non-displacement provisions of H.R. 
1385, the House-passed job training reform bill.
    Student Loans--We are pleased the Committee draft includes 
$1.763 billion in outlay savings, including $1 billion in 
Federal reserves recalled from guaranty agencies, $160 million 
from eliminating a fee paid to institutions in the Direct 
Student Loan program, and $603 million in reduced Federal 
student loan administrative costs. All these savings are being 
achieved without increasing costs or reducing benefits to 
students and their families. We appreciate that the Committee 
has accepted the Administration proposal for an enforcement 
provision to ensure that the $1 billion in reserves is 
recovered by FY 2002. We understand that there are still 
details to work out on the amounts to be received from each 
agency. We will continue to work with the Committee on a 
satisfactory process.
    The Administration has the following serious concerns with 
other aspects of the Committee's proposal:
    Welfare-to-Work Grants to Cities--The challenge of welfare 
reform--moving welfare recipients into work--will be greatest 
in our Nation's large urban centers. The Administration 
strongly believes that a substantial amount of all welfare-to-
work funds should be managed by cities and other local areas. 
The welfare-to-work structure crafted by the Ways and Means 
Committee accomplishes this goal through its division of funds 
between formula (50 percent) and competitive (50 percent) 
grants; its formula grant sub-State allocation factors and 
method of administration; and its reservation of 65 percent of 
competitive grants for cities. The Education and Workforce 
Committee would reduce the competitive funding share from 50 
percent to 5 percent, thus severely restricting the amount for 
which cities can apply directly. The Administration strongly 
prefers the Ways and Means proposal.
    Welfare-to-Work Performance Fund--The Committee's proposal 
does not include a performance fund. It is essential that 
welfare to work funds generate greater levels of placement in 
unsubsidized jobs than States will achieve with TANF and other 
funds. We hope the Committee will be willing to consider a 
mechanism to provide needed incentives and rewards for placing 
more of the hardest-to-serve in lasting, unsubsidized jobs that 
promote self-sufficiency. We stand ready to provide assistance 
in this effort.
    Minimum Wage and Workfare--The Administration strongly 
opposes the Committee's proposal on the minimum wage and 
welfare work requirements. The proposal is not part of the 
budget agreement and, had it been raised during negotiations, 
we would have strongly opposed it.
    These minimum wage and welfare work requirements proposals 
would undermine the fundamental goals of welfare reform. The 
Administration believes strongly that everyone who can work 
must work, and everyone who works should earn at least the 
minimum wage--whether they are coming off welfare or not. These 
proposals do not meet this test. In addition, under the 
proposal working welfare recipients will be deprived of the 
protection of laws addressing employment discrimination, child 
labor, overtime, and family and medical leave.
    TANF and Vocational Education--The Administration is 
concerned with the Committee's proposal on vocational education 
in TANF. The agreement did not address making changes in the 
TANF work requirements regarding vocational education and 
educational services for teen parents.
    Student Loans New Entitlement--The Administration opposes 
the provision regarding administrative cost allowances (ACAs) 
to guaranty agencies in the Federal Family Education Loan 
Program (FEFELP). The provision would mandate ACAs to be paid 
at a rate of 0.85% of new loan volume from mandatory funding 
authorized under Section 458 of the Higher Education Act of 
1965 (HEA), up to a cap of $170 million in FY 1998 and 1999 and 
$150 million in FY 2000-2002. It would represent a new 
entitlement to these agencies not included in the budget 
agreement. Moreover, any allowance to these agencies should 
bear some relationship to the costs these agencies incur and 
not be based on an arbitrary formula. This is an issue for the 
upcoming HEA reauthorization.
    The Committee draft includes a provision that would reduce 
funds in Section 458 now available to the Secretary to 
administer the FFEL Program. The Administration strongly 
opposes this language, enactment of which would prevent the 
Secretary from effectively administering the FFEL Program.
    Smith-Hughes--We understand that the Chairman's mark would 
repeal the Smith-Hughes Act of 1917, consistent with the budget 
agreement. However, there may be an effort made to eliminate 
this repeal. In light of the $1.2 billion annual appropriation 
under the Carl D. Perkins Vocational and Applied Technology 
Education Act, there is no justification for mandatory spending 
of $7 million per year under Smith-Hughes. We urge the 
Committee to include a provision that is consistent with the 
budget agreement and achieves the required $29 million in 
savings.
    MEWAs and Association Health Plans--We share the goal of 
expanding health insurance coverage for employees and their 
families. However, as discussed at greater length in a separate 
letter on the freestanding bill, we cannot support the 
inclusion in reconciliation of a proposal that would allow 
business members of multiple employer welfare associations 
(MEWAs) to form ``association health plans,'' as provided for 
in H.R. 1515, the Expansion of Portability and Health Insurance 
Coverage Act of 1997. The Administration opposed these 
provisions when they were considered last year, and we believe 
it would be unfortunate and unwise to introduce this level of 
controversy into the budget reconciliation process. We believe 
that the bill as currently drafted has inadequate consumer 
protections and has the potential to result in premium 
increases for small businesses and employees who may bear the 
burden of adverse selection.
    We believe that a great deal more work is needed before the 
provision is ready for consideration. Because we share a number 
of common goals, including a desire to promote small group 
purchasing in the small employer marketplace, we look forward 
to achieving mutually held objectives outside of the budget 
reconciliation process.
    The budget agreement reflects compromise on many important 
and controversial issues, and challenges the leaders on both 
sides of the aisle to achieve consensus under difficult 
circumstances. We must do so on a bipartisan basis.
    I look forward to working with you to implement the 
historic budget agreement.
            Sincerely,
                                      Franklin D. Raines, Director.
                                ------                                

             United States Department of Education,
                         Office of Postsecondary Education,
                                     Washington, DC, November 1995.
    Subject: Guaranty agency retention of payoff amounts of 
defaulted loans consolidated under the Federal Consolidation 
Loan Program.
Reference: Sections 428(c)(2)(D) and 428(c)(6) of the HEA, and Dear 
        Guaranty Agency Director Letter of March 29, 1994.

    Dear Colleague: Section 428C of the Higher Education Act 
(``HEA'') was amended by the Higher Education Amendments of 
1992 (Pub. L. 102-325) to permit a borrower to consolidate the 
amount of a defaulted Federal Family Education Loan into a 
Federal Consolidation Loan. This letter reaffirms the 
Department's previously announced interpretation of the HEA 
relating to the application of Sec. Sec. 428(c)(2)(D) and 
428(c)(6) of the HEA to payoff amounts received by guaranty 
agencies on defaulted loans that are being consolidated under 
this provision.
    Section 428(c)(2)(D) of the HEA provides for the Secretary 
to receive an equitable share of any borrower payments received 
by the guaranty agency on a defaulted loan on which the 
Secretary has previously paid a reinsurance claim to a guaranty 
agency. Under Sec. 428(c)(6) of the HEA, a guaranty agency is 
authorized to retain an amount of the borrower's payment equal 
to the sum of the complement of the reinsurance percentage in 
effect when the Secretary paid the agency's reinsurance claim 
plus 27 percent of the payment amount for administrative costs 
related to collection and default prevention.
    However, the payoff amount received by a guaranty agency 
for a defaulted loan included in a Federal Consolidation Loan 
is not a payment ``made by the borrower,'' as that term is used 
in Sec. 428(c)(6) of the HEA. The HEA does not specifically 
authorize guaranty agencies to retain any part of the payoff 
amount on defaulted loans that are consolidated. Instead, 
consolidation of the defaulted loan involves a new loan made by 
another party (the consolidating lender) that is not a party to 
the borrower's legal obligation to the guaranty agency as 
holder of the defaulted loan. In most cases, the guaranty 
agency's collection efforts had little or nothing to do with 
the borrower's receipt of the Federal Consolidation Loan.
    Consolidation loan payoff amounts are similar to amounts 
received as a result of a tax refund offset by the Internal 
Revenue Service. The Department has never viewed a payment from 
a tax refund offset as resulting from the guaranty agency's 
collection efforts, and a guaranty agency has never been 
permitted to retain a share of a payment received through that 
process.
    On March 29, 1994, the Department issued a letter to 
guaranty agencies that provided guidance about the inclusion of 
collection costs related to an agency's servicing of defaulted 
loans that are rehabilitated or become eligible for loan 
consolidation. This guidance, which has been incorporated into 
34 CFR 682.401, permits a guaranty agency to charge a defaulter 
up to 18.5 percent of the outstanding principal and accrued 
interest as collection costs on the defaulted loan at the time 
the agency certifies the payoff amount on the loan to the 
consolidating lender. In providing for this assessment of 
collection costs, the Department believes it has balanced the 
statutory requirement that a defaulter pay the costs related to 
collection of a defaulted loan with the need to allow the 
borrower to eliminate the default through loan consolidation.
    While the HEA does not authorize guaranty agencies to 
retain a share of consolidation loan payoff amounts, the 
Department believes that the agencies' retention of 18.5 
percent of a consolidation loan payoff amount that includes 
collection costs is consistent with other provisions of the 
HEA. In particular, Sec. 428F of the HEA allows an agency to 
retain 18.5 percent of the principal amount of a defaulted loan 
which is rehabilitated. This provision reflects the fact that 
agencies may have some fixed costs related to third party 
collection contracts that need to be paid. This same 
consideration applies to defaulted loans which are repaid by a 
consolidation loan. Therefore, the Secretary decided to permit 
guaranty agencies to include up to 18.5 percent in the 
certified consolidation loan payoff amount to pay for the costs 
related to the loan that is being consolidated.

             Payoff Amounts Received Before March 29, 1994

    The Department is aware that some guaranty agencies may 
have retained collection costs in excess of 18.5 percent on 
loan consolidation payoff amounts received on defaulted loans 
before the Department clarified the law on this issue in early 
1994. Therefore, we have decided to allow a guaranty agency to 
retain 18.5 percent of any payoff amount received prior to 
March 29, 1994, even if it was not included in the agency's 
calculated payoff amount certified to the consolidating lender. 
However, any amount retained by the agency in excess of 18.5 
percent of the payoff amount must be remitted to the 
Department. We expect that, since March 29, 1994, all agencies 
have been in compliance with our directives.
    To remit these excess amounts a guaranty agency may 
request, in writing, that the Department offset excess amounts 
from the monthly Statement of Account generated by the Guaranty 
Agency Monthly Claims and Collections Report, ED Form 1189, or 
the agency can remit the excess amount by check. When remitting 
these excess amounts by check, the agency should provide the 
following information: (1) Number of accounts; (2) total 
outstanding principal and accrued interest at time of payoff; 
(3) original amount retained; and (4) the refund amount due ED 
(the difference between the original amount retained and up to 
18.5 percent of the payoff amount).
    To properly report Federal Consolidation Loan payoff 
amounts in the future, the Department has provided a suggested 
format (Attachment A).
    All transactions will be shown on the agency's monthly 
Statement of Account as Department Directed Transactions 
(DDT's). All correspondence should be addressed to: U.S. 
Department of Education, Guaranty Agency Reporting, P.O. Box 
23457, L'Enfant Plaza Station, Washington, DC 20026.
    We trust that this letter clarifies the Department's 
position on this issue. Please contact Ms. Sandra Simmons of 
the Loans Financial Management Division, FFELP, if you have any 
questions related to the reporting instructions provided in 
this letter. Other questions should be directed to Ms. Pamela 
Moran, Chief of the Loans Branch, Policy Development Division, 
or to Ms. Patricia Newcombe, Chief of the FFEL Policy Section, 
Policy Development Division.
            Sincerely,
                                Elizabeth M. Hicks,
                             Deputy Assistant Secretary for
                                      Student Financial Assistance.

Attachment

             United States Department of Education,
                         Office of Postsecondary Education,
Washington, DC, March 29, 1994.
    Dear Guaranty Agency Director: This letter provides policy 
guidance on an important default reduction measure implemented 
as a result of the 1992 Amendments to the HEA.

Guaranty Agencies' Inclusion of Collection Costs in Rehabilitated Loans 
and Eligible Defaulted Loans Paid Off Through Loan Consolidation Under 
                                  428C

    Section 484A(b) of the Higher Education Act (HEA) requires 
a guaranty agency to assess a borrower who has defaulted on a 
Title IV student loan reasonable collection costs. For purposes 
of the Federal Family Education Loan (FFEL) Program, 34 CFR 
Sec. 682.410(b)(2), published on December 18, 1992, provided 
parameters for what constituted ``reasonable'' collection costs 
that would be charged to the borrower on loans for which the 
agency had paid a default claim. The discussion of this 
regulation in the preamble of the final rule stated that the 
collection cost amount to be charged would be a percentage of 
the principal and interest outstanding on the loan, that it 
could be calculated annually, and that it would be a flat rate 
assessed against all borrowers with defaulted loans held by the 
agency. 57 Fed Reg 60290, 60311, 60312 (Dec. 18, 1992) 
Implementation of the requirements of section 682.410(b)(2) of 
the regulations has resulted in the assessment of significant 
amounts of collection costs, sometimes as high as 43 percent of 
the outstanding principal and interest on the defaulted loan.
    The Higher Education Amendments of 1992 amended the HEA to 
add expanded opportunities to allow defaulted borrowers to 
satisfactorily resolve their default status. Specifically, 
section 428F(a)(1)(A) of the HEA requires all guaranty agencies 
to enter into an agreement with the Secretary to 
``rehabilitate'' a borrower's defaulted loan through the sale 
of the loan, if practicable, to an eligible lender following 
the borrower's payment of 12 consecutive reasonable and 
affordable monthly payments to the agency. Section 428C(a)(4) 
of the HEA also now provides that a defaulted loan would be 
eligible for consolidation after the borrower pays a series of 
consecutive reasonable and affordable monthly payments to the 
agency on the defaulted loan. These sections of the statute did 
not, however, provide specific guidance on the treatment of 
collection costs previously assessed the borrower on the 
defaulted loan.
    Shortly after the guaranty agencies began implementation of 
these provisions of the HEA, the Department of Education (the 
Department) received several inquiries as to whether, absent 
specific guidance in the law, outstanding collection costs 
assessed a borrower on a defaulted loan could be included in 
the amount of the loan for which the agency arranged the loan 
rehabilitation purchase or certified as the pay-off amount for 
consolidation after the borrower has successfully paid the 
required series of consecutive monthly payments. The 
Department, in order to effect what it believes was 
Congressional intent to provide defaulted borrowers with a 
``fresh start,'' provided policy guidance that authorized 
guaranty agencies to include all outstanding collection costs 
on the defaulted loan in the rehabilitated loan amount to be 
purchased and the Consolidation loan pay-off amount. In many 
cases, the collection costs have increased significantly the 
amount of the new rehabilitated or consolidated loan.
    After the Department issued this policy guidance, several 
program participants requested that the Department reconsider 
its guidance. The program participants expressed concern that 
including a large amount of collection costs in the borrower's 
new loan debt would be a disincentive to a borrower attempting 
to resolve the default status on a loan through rehabilitation 
and consolidation and would increase the likelihood that the 
borrower would default on the new increased loan debt.
    After further consideration, the Department has decided 
that, strict application of the requirements of Sec. 484(b) of 
the HEA would frustrate the intent of the changes to the 
rehabilitation and consolidation programs. In addition, we have 
concluded that the amount of the collection costs currently 
assessed borrowers as reasonable under 34 CFR 682.410(b)(2) is 
not reasonable when the borrower has shown the initiative to 
address the default through one of these two programs. 
Therefore, the Department has decided to modify its earlier 
policy guidance to restrict the amount of collection costs that 
will be considered ``reasonable'' under these circumstances to 
be an amount that does not exceed 18.5 percent of the 
outstanding amount of principal and accrued interest on the 
loan at the time the agency arranges the lender purchase to 
rehabilitate the loan or certifies the pay-off amount to the 
consolidating lender. This percentage is consistent with the 
percentage a guaranty agency is allowed to retain under the 
loan rehabilitation program at the time of lender purchase.
    I trust this information clarifies the Department's 
position in this area. Please contact us if you have further 
questions.
            Sincerely yours,
                                   Robert W. Evans,
               Director, Division of Policy Development and
                            Member, Direct Student Loan Task Force.

            George Conant's 6/11/97 7 pm Proposed Amendment

   PROPOSED CHANGES TO THE STUDENT LOAN PROGRAMS ESTIMATED RELATIVE TO THE CBO POST-POLICY MARCH 1997 BASELINE  
  [Estimates Reflect an Assumed Enactment Date Prior to October 1, 1997 with all the Provisions Effective Upon  
                                       Enactment Unless Otherwise Noted.]                                       
----------------------------------------------------------------------------------------------------------------
                                     Preliminary staff estimates, by fiscal year, in                            
                                                   millions of dollars                   1997-2002    1998-2002 
                                 ------------------------------------------------------    Total        Total   
                                    1997     1998     1999     2000     2001     2002                           
----------------------------------------------------------------------------------------------------------------
  Stipulate that the guaranty agency retention allowance on defaulted loans which are consolidated is 18.5%     
rather than current regulatory language which stipulates as amount up to 18.5%. The provision would also clarify
that the regulations which are effective July 1, 1997 apply only to new consolidated defaulted loans. In        
addition, the proposal is also effective for guaranty agencies who have withheld 18.5% since the enactment date 
of the Higher Education Act Amendments of 1992. All provisions are assumed to be effective upon enactment and   
only apply to future collections except where specifically specified.                                           
BA..............................        *        *        *        *        *        *            *            *
O...............................        *        *        *        *        *        *            *            *
----------------------------------------------------------------------------------------------------------------
* Insignificant costs.                                                                                          
                                                                                                                
Notes:                                                                                                          
1. Each proposed program change listed is estimated separately from the CBO Post-Policy Baseline. The provisions
  are not additive due to programmatic interactions.                                                            
2. For most years of the life of loans disbursed between 1997 and 2002, the CBO projection for the 10-Year      
  Treasury Bond Rate is 5.5 percent. This rate used to calculate the variable interest rates and to discount the
  cash flows.                                                                                                   

SEPARATE MINORITY VIEWS CONCERNING H.R. 1515 AND ITS INCLUSION IN THE 
        COMMITTEE'S RECONCILIATION RECOMMENDATIONS
    We agree that the Congress needs to craft legislation that 
would help make health care accessible and available to the 
millions of working parents in this country who live each day 
under a cloud of health care anxiety, hoping that their 
children or their spouses will not get seriously ill. However, 
H.R. 1515, the Expansion of Portability and Health Care 
Coverage Act of 1997 (``EPHIC'') or ``Fawell proposal'') is not 
the appropriate vehicle by which we achieve this goal. Instead, 
this approach represents a very risky gamble with health 
insurance, and it poses a very real threat to State efforts to 
protect consumers and make health insurance more accessible and 
affordable, Furthermore, we object to the manner in which H.R. 
1515 was rushed before the committee. The inclusion of H.R. 
1515 in Budget Reconciliation is a breach in protocol and 
procedure.
    We recall that H.R. 995 (the ERISA Targeted Health 
Insurance Reform Act of 1995) was excluded from the final 
version of the Kennedy-Kassebaum bill. Despite what the 
Republicans will say in defense of their decision to move this 
new measure without any previous markup, there was no 
justification for their haste. There has only been a brief 
subcommittee hearing on H.R. 1515 thus far this year.
    This proposal is complex and controversial. Given the 
sweeping impact of the bill on the small group coverage 
infrastructure, this measure should have been subjected to 
complete scrutiny, including full hearings and a subcommittee 
markup. As the Administration noted in its June 10, 1997, 
letter to this Committee ``The complexity of the issues raised 
by H.R. 1515, and the potential harm that could occur in the 
insurance market under this bill, suggests that a great deal 
more work is needed before proceeding further.''
    While on its face, H.R. 1515 appears to be different from 
H.R. 995, it is actually quite similar. It suffers from many of 
the fundamental ills that afflicted its predecessor.
    The EPHIC bill is ostensibly intended to allow small 
employers to save money by purchasing health insurance through 
association-sponsored health plans. This legislation would 
federalize the regulation and oversight of Association Health 
Plans (AHPs), which otherwise would be covered under ERISA as 
multiple employer welfare arrangements. It may create conflicts 
with HIPAA's newly provisions guaranteeing renewability of 
health insurance coverage through bona fide associations. This 
bill has several problems, which taken together, would 
undermine protections now available to workers and plans under 
state insurance regulation.
    As a result of this new classification of these 
arrangements, most State laws establishing benefit requirements 
would not apply to AHPs. Health insurance issuers and AHPs 
would have sole discretion in selecting specific items and 
services, and excluding others from coverage. Moreover, AHPs 
could offer limited benefit plans, scaling down their coverage 
of higher cost benefits and avoiding coverage of expensive 
services, such as certain obstetrical care and well-child care.
    Additionally, participants in these plans would be 
shortchanged on State insurance protections. AHPs would be 
exempted from provider-mandate laws requiring that certain 
specialists be included in plans. AHPs' self-insured plans 
would be exempted from State quality standards, solvency 
standards, and other consumer protections such as benefit 
design laws limiting out-of-pocket expenditures or lifetime 
benefits. The Minority offered several amendments to correct 
this deficiency designed to maintain States' efforts to protect 
plan participants, as they proceed with their health reform 
initiatives. The amendments by Representatives Kildee and 
Tierney would have ensured that the bill does not supersede 
State consumer protection laws or medical services required 
under State law. There is no justification for the Federal law 
to overturn State regulations that require such health benefits 
as well-baby care, vaccinations, and regular eye and ear exam.
    Because of the Federal preemption of these plans, the 
solvency requirements under H.R. 1515 are less rigorous than 
those required by the States. Although the bill specifies 
reserve standards for self-funded options, reserves are not a 
substitute for capital requirements. State insurance regulation 
has evolved beyond minimal fixed capital requirements to risk-
based capital requirements that set capital standards based on 
the level of risk assumed by the plan. The reserve standards in 
the bill are inadequate because certain types of reserves are 
not included and may be important in various circumstances. 
These additional reserves include contract reserves. Also, it 
is unclear whether incurred, but unreported, reserves are a 
part of the incurred benefit liability reserves requirements.
    Moreover, the bill waives actual reserve requirements if 
the AHP uses alternative means of compliance, such as letters 
of credit or assessments of participating employers, that are 
approved by the Secretary. These alternatives are not cash or 
cash equivalent options and they may not be appropriate, 
especially if participating employers are not financially 
stable. The lack of solvency safeguards has 
alarmingramifications. Self-insured AHPs have a history of fraud and 
abuse. Employees and their families enrolled in federally-regulated 
AHPs will not be protected by State guaranty funds in the event of 
insolvency.
    Further, the Fawell proposal has no provisions comparable 
to state guaranty funds to address the aftermath of AHP 
insolvencies. By default, the Federal government may be called 
upon to bail out defunct AHPs, as it had to bail out bankrupt 
savings and loan associations in the 1980s. At the markup, the 
Majority incorporated into their proposal a watered-down 
version of an amendment offered by Rep. Payne (D-NJ) to 
establish a guaranty fund to ensure that all claims are paid in 
the event of plan failure. However, because the fund would not 
be triggered until after the plan becomes insolvent, this 
provision offers too little, too late. Do we really want a 
repeat of the S&L debacle?
    Many States finance high-risk pool shortfalls through an 
assessment on insured health benefits. Some States have 
required group insurers to contribute to individual insurer 
operations where guaranteed availability of individual coverage 
has been required. The ERISA-preemption blocks the ability of 
the State to extend such assessments to self-insured AHPs and 
undo these hard-fought State achievements by allowing lower 
risk small employers to remove themselves from the small group 
rating pool, as self-insured AHPs are not required to be open 
to employers who are not members of the sponsoring association.
    These AHP plans could ``cherry pick'' within the AHP by 
varying rates among their employers on the basis of claims 
experience (so long as rates are not varied ``significantly'') 
or by targeting benefits packages to appeal to healthier 
groups. As a result, the small group risk pool will be 
fragmented because AHPs would only accept healthy members. 
Therefore, employers with an unhealthy history would be left in 
remaining State insurance pools, leading to ever-increasing 
premiums in the State-regulated small group market.
    While the bill's authors allegedly seek to clarify state 
and Federal regulatory authority over AHPs, the provisions 
establish convoluted, illogical conditions under which various 
AHPs are to be subject to State or Federal regulation. The goal 
of clarifying AHP regulation is far form realized.
    We are very concerned about the ambiguous provisions in the 
bill defining what individuals or groups may band together to 
form AHPs. New categories of federally-regulated single 
employer plans and church plans could seek certification as 
AHPs, creating additional opportunities for risk selection and 
exemption from State consumer protections.
    Representative George Miller (D-CA) offered an amendment 
that ensured that AHPs take responsibility for harm caused by 
abusive cost containment activities. We believe the Chairman 
was capricious and arbitrary in ruling Representative Miller's 
amendment out of order. At the request of the Minority, the 
Parliamentarian had ruled that the amendment indeed was in 
order.
    The determination by the Chairman that the amendment 
offered by Representative Miller was nongermane. According to 
the markup transcript, the Chairman stated:
          The amendment's purpose of adding damages to ERISA 
        differs substantially from the purpose of the 
        substitute which is to expand the types of entities 
        eligible to benefit from ERISA. Further, the subject 
        matter of the amendment damage in ERISA differs from 
        the subject matter of the substitute, the applicability 
        of ERISA: An amendment with its purpose or subject 
        matter different from the provision which it amends is 
        not germane. This amendment's purpose and subject 
        matter differ from the substitute.
    Had the amendment sought to impose a new remedy generally 
applicable under ERISA, that is, had Mr. Miller's amendment 
made damages applicable to all ERISA plans, the amendment would 
have been nongermane. The amendment did not. It simply provided 
for remedies applicable to the new forms of health plans, the 
AHPs, created by H.R. 1515. Furthermore, section 5 of H.R. 1515 
establishes enforcement provisions relating to AHPs. The effect 
of Representative Miller's amendment is to simply make explicit 
one particular enforcement remedy in cases where an AHP 
withholds necessary medical treatment. The contention that the 
amendment is nongermane because it imposes a different remedy 
than those in H.R. 1515 or current law is wholly ludicrous. As 
Representative Miller pointed out at the time:
          If the point of order is germaneness, originally was 
        scope, clearly this is within the scope and clearly is 
        germane. The fact that you say our bill doesn't have 
        this, this is right, it doesn't, that is why we are 
        offering this. If the only amendment that can be 
        allowed is what is already in the bill, there would 
        never be any amendments. So that is not a rule against 
        germaneness. Saying this introduces something into the 
        bill is a not a rule against gernaneness. The question 
        is does the amendment speak to the subject matter.
    Again, Representative Miller's amendment had been cleared 
with the Parliamentarian's office, and we had been advised that 
the amendment was germane. We understand that the Republican 
staff were informed of that ruling as well. Nevertheless, 
Chairman Gooding arbitrarily and capriciously denied due 
consideration of a germane amendment. We strenuously object and 
expect the chairman to uphold the rules of the House and 
protect for the right of Members to offer pertinent amendments 
to pending legislation.
    In conclusion, H.R. 1515 purports to expand access to 
reliable, affordable health care for employees of small 
businesses. It sponsors will claim that H.R. 1515 is a solution 
to the problem of children without insurance. The plight of 
these children is well-documented. Ten million children in this 
country are without health coverage. Each day, some 3,300 
additional children lose coverage although nearly two-thirds of 
these children come form working families. Yet, this bill 
actually threatens State-based efforts to expand access for 
these families, and it undermines critical protections in the 
health safety net designed to safeguard and ensure coverage.
    We can do better than this. We must. Ten million children 
and their families are counting on us.

                                   William L. Clay.
                                   Dale E. Kildee.
                                   Major R. Owens.
                                   Patsy T. Mink.
                                   Tim Roemer.
                                   Lynn Woolsey.
                                   Chaka Fattah.
                                   Carolyn McCarthy.
                                   Ron Kind.
                                   Harold E. Ford, Jr.
                                   George Miller.
                                   Matthew G. Martinez.
                                   Donald M. Payne.
                                   Robert E. Andrews.
                                   Robert C. Scott.
                                   Carlos Romero-Barcelo.
                                   Ruben Hinojosa.
                                   John F. Tierney.
                                   Loretta Sanchez.
                                   Dennis J. Kucinich.





                DISSENTING VIEW BY CONGRESSMAN RON PAUL

    Congress should reject the proposed budget reconciliation 
provision authorizing the expenditure of an additional $3 
billion in taxpayer dollars on ``Welfare to Work'' programs 
because it is part of the phony ``budget deal'' and because the 
federal government has no constitutional authority to spend 
taxpayer dollars on welfare-to-work programs.

                 I. Problems With the Budget Agreement

    Congress is once again engaging in the tired ritual of the 
five-year balanced budget plan. Repeatedly over the past 25 
years there have been lofty proclamations that the budget would 
be balanced in five years because of government forecasts of 
continued growth. Each five year plan was announced with great 
fanfare and happy feelings of bipartisanship, yet, each plan 
fails to balance the budget because the economic forecasting 
upon which they were based never reflect actual economic 
circumstances.

            a. the budget deal is based on faulty economics

    The federal government cannot predict exactly how the 
economy, (the aggregate spending and saving habits of every 
individual in the nation) will behave over the course of the 
next five years. Because the economic situation in the future 
will be based upon the actions of individuals acting on their 
subjective preferences, these preferences are impossible to 
predict. The failure of every socialist government, whether 
totalitarian or democratic, to fulfill its leaders' promises of 
unlimited economic prosperity demonstrates the futility of 
government planning based upon the economic forecasts of 
government officials.
    It is, however, only a matter of time before the burden of 
taxes, spending, debt, and inflation catapult America's economy 
into yet another recession. When the optimistic projections of 
growth prove to be based more in hope than reality, the budget 
figures will be ``revised'' and a future Congress will once 
again confront the questions of balancing the budget.

     b. the budget deal continues unconstitutional federal programs

    Even if the budget being considered by this Congress were 
guaranteed to balance the budget within five years, it should 
still be rejected because it fails to eliminate even one 
unconstitutional function of the federal government. Despite 
proclamations that ``the era of Big Government is over,'' this 
budget actually increases taxpayer spending for many 
unconstitutional programs. The main problem with government 
policy today is not that the government cannot balance its 
books, but that the federal government is performing too many 
functions for which it lacks any constitutional authority.

        II. Specific Objections to the Welfare-to-Work Proposal

    The reconciliation package, with its authorization of an 
additional three billion dollars for a welfare-to-work program, 
is a perfect example of how the budget proposal fails to 
address the basic question of how the welfare state exceeds the 
constitutional limitations on the power of the federal 
government. Under the tenth amendment to the United States 
Constitution, the federal government has no authority to take 
money from the people of Texas to spend on welfare programs for 
the people of New York. Welfare and job training programs are 
strictly the province of the individual states.
    The reconciliation proposal not only unconstitutionally 
spends federal taxpayer funds on welfare programs, it dictates 
to the states how they must run their welfare-to-work programs. 
For example, states are required to spend one dollar of their 
own money for every three dollars of federal money they 
receive, and they must distribute the funds according to a pre-
determined federal formula.
    Short of defunding all welfare programs and transferring 
responsibility for those programs back to the states and the 
people, Congress should provide maximum flexibility to the 
states to manage these programs as state officials see fit. For 
example, the amendment offered and later withdrawn by Mr. 
Johnson to allow state governments to use nongovernmental 
personnel in the determination of eligibility under the 
Medicaid, Food Stamp, and special supplemental nutrition 
programs for Women, Infants, and Children, is a step toward 
restoring federalism in welfare policy. It is not for 
Washington to determine the strengths and weaknesses of such a 
plan, these decisions are solely the responsibility of the 
states.
    In the name of transferring citizens from welfare to work, 
this bill provides millions of taxpayer dollars to move 
businesses onto the welfare rolls. Under this proposal, state 
governments may hand over taxpayer dollars to businesses for 
private sector job ``creation,'' employment, wage subsidies, 
on-the-job training, contacts with job placement companies, and 
job vouchers. By providing payments to private businesses who 
place and hire welfare recipients, Congress is creating a 
dangerous and powerful new constituency for welfare programs 
and, in effect, making it more difficult for future Congresses 
to reduce welfare expenditures.
    The welfare-to-work proposal also creates powerful 
disincentives for businesses to give welfare recipients a 
chance at a new life through an entry-level job. If this 
proposal becomes law, welfare recipients in entry-level jobs 
will be entitled to receive the minimum wage and be covered by 
certain health and safety regulations. Because mandating wages 
and benefits increases the costs to businesses of hiring new 
workers, any wage, safety, or health regulations discourage the 
hiring of new employees. This is especially true in the case of 
marginal employees who lack well-developed job skills. This 
bill restricts welfare recipients' ability to find gainful 
employment; the very population this bill is allegedly targeted 
to benefit!
    It is time to return to the most effective job creation 
machine in history--the free market. Any alternative 
necessarily results in suboptimal employment. Government is 
institutionally incapable of creating bonafide jobs. Private 
citizens acting freely are more than capable of caring for the 
needs of the less fortunate if the federal government stops 
appropriating so many of their resources for wasteful, 
bureaucratic, federal programs.

                            III. Conclusion

    The proposal to spend three billion in additional taxpayer 
dollars should be rejected by Congress for several reasons. 
First, it is part of a phony balanced budget plan whose 
projections rest on two dubious notions. 1. Government can 
predict the economic future of the country 2. The burden of 
taxes and spending placed on the economy by government will not 
cause America to experience an economic downturn.
    Secondly, this proposal continues the federal government's 
unconstitutional micro-managing of state welfare programs. This 
bill extends corporate welfare in the form of subsidies to 
businesses which hire current welfare recipients thus creating 
a new client group for the welfare state.
    The only way to permanently balance the budget and end 
welfare as we know it is to cease all federal expenditures for 
redistributionist programs not authorized under the United 
States Constitution. Therefore, all members of the House of 
Representatives sincerely committed to limited government must 
oppose this proposal and instead work to defund all 
unconstitutional programs and return the authority for welfare 
programs to those best able to manage them.

                                                          Ron Paul.

                                
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