[Senate Report 106-199]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 345
106th Congress                                                   Report
                                 SENATE
 1st Session                                                    106-199

======================================================================



 
          MEDICARE, MEDICAID AND S-CHIP ADJUSTMENT ACT OF 1999

                                _______
                                

                October 26, 1999.--Ordered to be printed

                                _______
                                

    Mr. Roth, from the Committee on Finance, submitted the following

                              R E P O R T

                         [To accompany S. 1788]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Finance, to which was referred the bill
(S. 1788) to amend titles XVIII, XIX, and XXI of the Social 
Security Act to make corrections and refinements in the 
Medicare, Medicaid, and S-CHIP programs, as revised and added 
by the Balanced Budget Act of 1997, having considered the same, 
reports favorably thereon as amended by the Committee, and 
recommends that the bill do pass.

                                CONTENTS

                                                                   Page
 I. Summary and Background............................................4
        A. Summary...............................................     4
        B. Background and Reasons for Legislation................     4
        C. Legislative History...................................     5
II. Explanation of the Bill...........................................5
        A. Short Title...........................................     5
        B. Title I--Provisions Relating to Part A Only...........     5
            1. Subtitle A--Skilled Nursing Facility Services.....     5
                a. Sec. 101. Increase in payment for certain high 
                    cost patients................................     5
                b. Sec. 102. Provision for part B add-ons for 
                    facilities participating in the NHCMQ 
                    demonstration project........................     6
                c. Sec. 103. Exemption of facilities from 3-year 
                    transition period under the prospective 
                    payment system for skilled nursing facility 
                    services.....................................     7
                d. Sec. 104. Study and report regarding State 
                    licensure and certification standards and 
                    respiratory therapy competency examinations..     8
                e. Sec. 105. Study and report on alternative 
                    payment methods for skilled nursing 
                    facilities specializing in care of high cost, 
                    chronically ill beneficiaries................     8
            2. Subtitle B--Hospice Services......................     9
                a. Sec. 121. Payment for hospice care............     9
                b. Sec. 122. Study and report to Congress 
                    regarding modification of the payment rates 
                    for hospice care.............................     9
            3. Subtitle C--Other Provisions......................    10
                a. Sec. 141. Study and report regarding 
                    prospective payment system for psychiatric 
                    hospitals....................................    10
                b. Sec. 142. Revision of prospective payment 
                    system for inpatient rehabilitation services.    10
                c. Sec. 143. Exception to CMI qualifier for one 
                    year.........................................    11
                d. Sec. 144. Reclassification of certain counties 
                    for purposes of reimbursement under the 
                    Medicare program.............................    11
                e. Sec. 145. Wage index correction...............    12
                f. Sec. 146. Consideration of an application by a 
                    certain entity for medicare certification as 
                    an application by a new provider.............    12
                g. Sec. 147. Study on report on county-wide 
                    geographic reclassification..................    13
        C. Title II--Provisions Relating to Part B Only..........    13
            1. Subtitle A--Hospital Outpatient Department 
                Services.........................................    13
                a. Sec. 201. Multiyear transition to prospective 
                    payment system for hospital outpatient 
                    department services..........................    13
                b. Sec. 202. Study and report to Congress 
                    regarding the inclusion of rural and cancer 
                    hospitals in prospective payment system for 
                    hospital outpatient department services......    14
                c. Sec. 203. Outlier adjustment and transitional 
                    pass-through for certain medical devices, 
                    drugs, and biologicals.......................    15
            2. Subtitle B--Physicians' Services..................    18
                a. Sec. 221. Technical amendment to update 
                    adjustment factor and physician sustainable 
                    growth rate..................................    18
        D. Title III--Provisions Relating to Parts A and B.......    20
            1. Subtitle A--Home Health Services..................    20
                a. Sec. 301. Delay in the 15 percent reduction in 
                    payments under the PPS for home health 
                    services.....................................    20
                b. Sec. 302. Increase in per visit limit.........    21
                c. Sec. 303. Increase in per beneficiary limits..    22
                d. Sec. 304. Elimination of 15-minute billing 
                    requirement..................................    22
                e. Sec. 305. Refinement of home health agency 
                    consolidated billing.........................    23
                f. Sec. 306. Study and report to Congress 
                    regarding the exemption of rural agencies and 
                    populations from inclusion in the home health 
                    prospective payment system...................    23
                g. Sec. 307. Extension of periodic interim 
                    payments for home health agencies............    23
            2. Subtitle B--Graduate Medical Education............    24
                a. Sec. 321. Revision of multiyear reduction of 
                    indirect graduate medical education payments.    24
                b. Sec. 322. GME payments for certain interns and 
                    residents....................................    25
        E. Title IV--Rural Initiatives...........................
                a. Sec. 401. Sole community hospitals and 
                    medicare dependent hospitals.................    26
                b. Sec. 402. Revision of criteria for designation 
                    as a critical access hospital................    26
                c. Sec. 403. Medicare waivers for providers in 
                    rural areas..................................    27
                d. Sec. 404. 2-year extension of medicare 
                    dependent hospital (MDH) program.............    28
                e. Sec. 405. Assisting rural graduate medical 
                    education residency programs.................    28
        F. Title V--Provisions Relating to Part C 
            (Medicare+Choice Program)............................    29
            1. Subtitle A--Provisions to accommodate and protect 
                medicare beneficiaries...........................    29
                a. Sec. 501. Permitting enrollment in alternative 
                    Medicare+Choice plans and Medigap coverage in 
                    case of involuntary termination of 
                    Medicare+Choice enrollment...................    29
                b. Sec. 502. Change in effective date of 
                    elections and changes of elections of 
                    Medicare+Choice plans........................    30
                c. Sec. 503. Extension of reasonable cost 
                    contracts....................................    30
                d. Sec. 504. Revision of notice by hospitals 
                    regarding coverage of inpatient hospital 
                    services.....................................    31
                e. Sec. 505. Extended disenrollment window for 
                    certain involuntarily terminated enrollees...    31
            2. Subtitle B--Provisions to facilitate 
                implementation of the Medicare+Choice program....    32
                a. Sec. 521. Moderation of Medicare+Choice risk 
                    adjustment implementation....................    32
                b. Sec. 522. Delay in deadline for submission of 
                    adjusted community rates under 
                    Medicare+Choice program and related 
                    modifications................................    33
                c. Sec. 523. User fee for Medicare+Choice 
                    organizations based on number of enrolled 
                    beneficiaries................................    34
                d. Sec. 524. Change in time period for exclusion 
                    of Medicare+Choice organizations that have 
                    had a contract terminated....................    35
                e. Sec. 525. Flexibility to tailor benefits under 
                    Medicare+Choice plans........................    35
                f. Sec. 526. Inapplicability of QISMC to 
                    preferred provider organizations.............    36
                g. Sec. 527. Timing of Medicare+Choice health 
                    information fairs............................    37
                h. Sec. 528. Rules regarding physician referrals 
                    for Medicare+Choice program..................    37
                i. Sec. 529. Clarification regarding the ability 
                    of a religious fraternal benefit society to 
                    operate a Medicare+Choice private fee-for-
                    service plan.................................    38
            3. Subtitle C--Provisions regarding special medicare 
                populations......................................    38
                a. Sec. 541. Extension of social health 
                    maintenance organization demonstration 
                    project authority............................    38
                b. Sec. 542. Inapplicability of OASIS to PACE....    39
                c. Sec. 543. Medigap protections for PACE program 
                    enrollees....................................    39
                d. Sec. 544. Continuation of the frail elderly 
                    demonstration project........................    40
            4. Subtitle D--Studies and reports to assist in 
                making future improvements in the medicare 
                program..........................................    41
                a. Sec. 561. GAO studies, audits, and reports....    41
                b. Sec. 562. Medicare payment advisory commission 
                    studies and reports..........................    42
                c. Sec. 563. Computation and report on medicare 
                    original fee-for-service expenditures on a 
                    county-by-county basis.......................    43
                d. Sec. 564. Study and report on the effects 
                    costs, and feasibility of requiring medicare 
                    original fee-for-service entities and 
                    Medicare+Choice coordinated care plans to 
                    comply with uniform quality standards and 
                    related reporting requirements...............    44
                e. Sec. 565. Study and report to Congress 
                    regarding data submission used to establish 
                    risk adjustment methodology under the 
                    Medicare+Choice program......................    44
        G. Title VI--Other Provisions............................    45
            1. Sec. 601. 2-year moratorium on therapy caps.......    45
            2. Sec. 602. Increase in payment amount for renal 
                dialysis services furnished under the medicare 
                program..........................................    45
            3. Sec. 603. Increase in payment amount for pap smear 
                laboratory tests.................................    46
            4. Sec. 604. Limitation in reduction of payments to 
                disproportionate share hospitals.................    46
            5. Sec. 605. Clarification of the inherent 
                reasonableness (IR) authority....................    47
            6. Sec. 606. Technical amendments relating to BBA 
                provisions.......................................    48
            7. Sec. 607. Exclusion from PAYGO scorecard..........    51
        H. Title VII--Provisions Relating to Medicaid and CHIP...    52
            1. Sec. 701. Medicaid-related BBA technicals.........    52
            2. Sec. 702. Increase in disproportionate share 
                hospital allotment for certain States and the 
                District of Columbia.............................    54
            3. Sec. 703. Making medicaid DSH transition rule 
                permanent........................................    54
            4. Sec. 704. Increased allotments for territories 
                under the State children's health insurance 
                program..........................................    55
            5. Sec. 705. Removal of fiscal year limitation on 
                certain transitional administrative costs 
                assistance.......................................    55
            6. Sec. 706. Stabilizing the SCHIP allotment formula.    56
            7. Sec. 707. Improved data collection and evaluations 
                of the SCHIP program.............................    57
            8. Sec. 708. Grants to States for items and services 
                provided by Federally-qualified health centers 
                and rural health clinics.........................    61
            9. Sec. 709. Additional technical corrections........    62
III.Budget Effects of the Bill.......................................62

        A. Consultation with the Congressional Budget Office.....    63
IV. Vote of the Committee............................................72
 V. Regulatory Impact and Other Matters..............................72
        A. Regulatory Impact.....................................    72
        B. Unfunded Mandates Statement...........................    72
        C. Complexity Analysis...................................    73
VI. Changes Made in Existing Law, as Reported........................73

                       I. SUMMARY AND BACKGROUND


                               A. Summary

    The Medicare, Medicaid, and S-CHIP Adjustment Act of 1999, 
as reported by the Committee on Finance, provides for a series 
of short-term provider payment policy adjustments under the 
Medicare program and provides for a series of technical 
adjustments to The Medicaid program and the State Children's 
Health Insurance Program (S-CHIP).

               B. Background and Reasons for Legislation

    The principal goal of the legislation is to address short-
term and demonstrable problems in access to health care 
services by Medicare beneficiaries arising from significant 
provider payment policy changes made in the Balanced Budget Act 
of 1997. Issues arose in both the traditional fee-for-service 
program and in the Medicare+Choice program, which offers 
private health plan options to program beneficiaries. There was 
growing evidence that certain caps and other payment 
limitations and reforms adopted in BBA 97 needed to be adjusted 
to forestall the development of access problems for the 39 
million beneficiaries covered by the Medicare program.
    In addition, certain issues arose under Medicaid and S-CHIP 
of a more technical nature that the Committee felt should be 
addressed. These included stabilization of the S-CHIP 
allocation formula, adjustments to rules affecting 
disproportionate share hospital payments and a variety of data 
collection and coordination improvements. The Committee also 
sought to address a variety of continuing, systemic problems in 
rural health care delivery and services through both Medicare 
and Medicaid provisions.

                         C. Legislative History

    The Finance Committee conducted over 10 hearings from 
March, 1999 to July, 1999 on various Medicare and Medicaid 
topics, several of which touched on changes wrought in the 
programs by BBA 97. More specifically, on March 17, 1999 the 
Committee examined Medicare+Choice payment issues and a June 
10, 1999 the Committee conducted a hearing that focused 
exclusively on issues under the fee-for-service program. 
Altogether, over 70 witnesses provided testimony this year in 
the Committee over needed changes in the Medicare and Medicaid 
programs, both short and long-term.
    On October 21, 1999 the Finance Committee reported 
favorably by voice vote, the Medicare, Medicaid, and S-CHIP 
Adjustment Act of 1999.

                      II. EXPLANATION OF THE BILL


                       A. Section 1. Short Title

    The short title is the ``Medicare, Medicaid, and S-CHIP 
Adjustment Act of 1999''.

             B. Title I--Provisions Relating to Part A Only


            1. Subtitle A--Skilled Nursing Facility Services


   A. Section 101. Increase in payment for certain high cost patients

Current law

    The BBA 97 required that a prospective payment system by 
implemented for skilled nursing facility care starting in July 
1998. The prospective payment system outlined in the BBA 
reflects the Resource Utilization Group (RUG) design HCFA 
developed over several years and tested on a demonstration 
project basis. The RUG system requires skilled nursing 
facilities (SNFs) to categorize their Medicare patients 
according to 44 hierarchical groups based on the kinds and 
intensities of care and services they need. For example, 
patients needing mostly physical therapy or speech therapy of 
different intensities use different kinds and amounts of 
resources from patients needing such services as skilled 
nursing care, intravenous feeding or medications, extensive 
laboratory testing, or use of a respirator, and such patients 
would be assigned to different groups. The SNF prospective 
payment system provides facilities a fixed amount per day per 
patient (a ``per diem'' payment), with the amount of the 
payment determined by the RUG into which the patient is 
classified. This RUG classification system serves as the case-
mix adjustment that is used to relate program payment to 
individual patient characteristics and resource use.
    The BBA 97 instructs the Secretary how to (a) compute 
average per diem payment rates using Medicare-provided SNF 
costs in 1995 as the base year; (b) adjust the average rates 
for facility case-mix and geographic differences; and update 
the per diem rates for years after 1995. This methodology aims 
at setting the prospective payment system per diem amounts to 
reflect overall Medicare payments for SNF care under the 
retrospect reimbursement payment system used prior to the 
prospective payment system in order to achieve budget 
neutrality for the new payment system when it is first 
implemented. the law specifies limited updates to payment under 
the RUG system in future years.

Explanation of provision

    The bill would add 25% to the federal per diem payments for 
beneficiaries in the Extensive Services and Special Care RUGs 
(categories SE3, SE2, SE1, SSC, SSB, SSA as listed in HCFA's 
July 30, 1999 Federal Register) for the period April 1, 2000 to 
October 1, 2001. It would also add specified dollar amounts to 
RUG payments for five rehabilitation therapy RUGS (RMC, RUC, 
RMB, RHC, and RVC). These additional amounts would be paid from 
April 1, 2000 to October 1, 2001. It is the Committee's 
intention that the program's implementation begin on this date 
and that on this date each payment shall increase by the 
required amount so that the facilities will receive the 
additional payment authorized on April 1, 2000.
    The Committee does not intend to limit the Secretary's 
ability to refine the current RUG rates, schedules to take 
effect October 1, 2000. Rather, the Committee anticipates that 
the Secretary would apply these add-on payments to comparable 
RUG categories under the refined system.

Reason for change

    In a report prepared for the Health Care Financing 
Administration (HCFA), an independent review of the RUGs 
classifications demonstrated that the payment rates for the 
Extensive Services and Special Care RUGs did not6 meet the 
anticipated costs for the medically complex patients that fall 
within these categories. Data also has demonstrated the 
appropriateness of specific add-ons to the five rehab 
categories. The additional payments provide targeted relief in 
the interim, as the Secretary refines allocations among the 
RUGs in preparation for publication of the final rule.

Effective date

    April 1, 2000.

      B. SECTION 102. PROVISION FOR PART B ADD-ONS FOR FACILITIES 
            PARTICIPATING IN THE NCHMQ DEMONSTRATION PROJECT

Current law

    A demonstration project, the Nursing Home Case Mix and 
Quality (NHCMQ) demonstration, preceded implementation of the 
SNF prospective payment system. Nursing facilities 
participating in that project are not currently receiving the 
cost of Medicare Part B services to SNF patients accounted for 
under the facility-specific component of the prospective 
payment system as are other SNFs, although their federal per 
diem amounts are higher than those for other SNFs because they 
are based on allowable costs in 1997 rather than 1995.

Explanation of provision

    The bill would include the cost of Part B services, and 
specified updates, in the facility-specific component of 
Medicare payments to SNFs that participated in the Nursing Home 
Case Mix and Quality demonstration project.

Reason for change

    HCPA has interpreted inadvertent placement of the Part B 
provisions in the BBA to mean that Congressional intent was to 
prohibit these facilities from adding appropriate reimbursement 
for Part B services to facility-specific rates for participants 
in the RUG III Demonstration Project. The provision would allow 
these facilities to receive payments for Part B services 
provided since enactment of the BBA.

Effective date

    As if included in the BBA.

 C. SECTION 103. EXEMPTION OF FACILITIES FROM 3-YEAR TRANSITION PERIOD 
   UNDER THE PROSPECTIVE PAYMENT SYSTEM FOR SKILLED NURSING FACILITY 
                                SERVICES

Current law

    The BBA 97 requires that the SNF prospective payment system 
be phased in over 3 years starting July 1, 1998 (for the first 
date thereafter on which a SNF started a new annual cost 
reporting period). During this phase-in-period, part of the per 
diem payment to each SNF is based on the facility's historical 
costs (the ``facility specific'' component of the prospective 
payment system), and part is based on the new federal per diem 
prospective payment. During the 3-year phase-in period, a SNF 
receives per diem rates that are a ``blend'' of 75% the 
facility-specific rate and 25% of the federal per diem rate. 
The proportion of the facility-specific rate to the federal per 
diem rate shifts annually by 25 percentage points until the 
federal rate equals the full payment.

Explanation of provision

    Effective upon enactment, the bill would allow SNFs to 
elect to be paid according to the transition formula or 
exclusively under the federal per diem rate if the full federal 
per diem amount would be more advantageous.

Reason for change

    By allowing facilities to choose the federal rate instead 
of the blended rate, the provision seeks to more adequately 
reimburse facilities whose Medicare population may have 
increased in volume or case mix since the 1995 base year.

Effective date

    Upon enactment.

    D. SECTION 104. STUDY AND REPORT REGARDING STATE LICENSURE AND 
CERTIFICATION STANDARDS AND RESPIRATORY THERAPY COMPETENCY EXAMINATIONS

Current law

    No provision.

Explanation of provision

    The Secretary would be required to report on variations in 
state licensure and certification standards for health 
providers, including nurses and allied health professionals, 
providing respiratory therapy in skilled nursing facilities. 
The report would focus on whether the Medicare program should 
require competency examinations or certification for 
respiratory care. The Secretary should submit this report to 
Congress within one year of enactment of the act.

Reason for change

    There is some evidence suggesting that the quality of 
respiratory care provided to Medicare beneficiaries in skilled 
nursing facilities is varied and, in some cases, inadequate. 
The purpose of this study is to examine whether the Medicare 
program should require competency exams or certification for 
those providing respiratory care.

Effective date

    Upon enactment.

  E. Section 105. Study and Report on alternative Payment methods for 
     skilled Nursing Facilities Specializing in care of High cost, 
                     Chronically ill beneficiaries

Current law

    No provision.

Explanation of provision

    This provision would require the Secretary to study and 
issue a report to Congress on alternative payment methods for 
skilled nursing facilities that specialize in providing care to 
extremely high cost, chronically ill populations.

Reason for change

    A broad-based prospective payment system might be 
inappropriate for a facility that exclusively specializes in 
caring for AIDS patients, for example. This study is intended 
to address payment issues for such facilities.

Effective date

    The Secretary would submit the report within one year from 
the date of enactment.

                    2. Subtitle B--Hospice Services


                A. Section 121. Payment for Hospice Care

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; hospices receive one of these rates for 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 payments are updated annually by the hospital 
market basket.
    The BBA 97 reduced the hospice payment update to market 
basket minus 1 percentage point for each of FY 1998 through FY 
2002. It required the Secretary of HHS to collect data from 
hospices on the costs of care they provide for each fiscal year 
beginning with FY 1999.

Explanation of provision

    The bill would change the hospice payment rate to market 
basket minus .5 percentage point through FY 2002.

Reason for change

    Due to the rising costs of pharmaceuticals and 
technological advances in pain management, there was evidence 
of a need to provide relief to the payment reduction included 
in the market basket update.

Effective date

    Retroactive to October 1, 1999.

B. Section 122. Study and Report to Congress Regarding modification of 
                   the payment rates for hospice care

Current law

    No provision.

Explanation of provision

    The bill requires the Comptroller General of the United 
States to conduct a study on the feasibility and advisability 
of updating the hospice rates and the cap amounts, including an 
evaluation of whether the cost factors used to determine the 
rates and amounts should be modified, eliminated, or 
supplemented with additional cost factors. A report on that 
study would be required to be submitted to Congress within 1 
year of enactment, and would also include any recommendations 
for legislation the Comptroller General determines appropriate 
based on the study.

Reason for change

    Because of the unique role of the hospice benefit within 
the Medicare program, and the changing needs of the Medicare 
population, a thorough review of the current hospice benefit 
structure and payment method is warranted.

Effective date

    Upon enactment.

                  Subtitle C--Other Part A Provisions


 a. section 141. Study and report regarding prospective payment system 
                       for psychiatric hospitals

Current law

    No provision.

Explanation of provision

    The Secretary must report to Congress within two years of 
enactment of this act on the development of a prospective 
payment system for psychiatric hospitals. Special attention 
should be given to the unique circumstances affecting mental 
health facilities in rural areas.

Reason for change

    Medicare payment systems have moved from cost-based 
reimbursement to prospective payment. Psychiatric hospitals are 
currently exempt from the PPS for inpatient hospital services. 
This study would examine the feasibility and advisability of 
adopting a PPS for these hospitals.

Effective date

    Upon enactment.

 b. section 142. revision of prospective payment system for inpatient 
                        rehabilitation services

Current law

    BBA 97 requires the Secretary to establish a case-mix 
adjusted prospective payment system (PPS) for rehabilitation 
hospitals and distinct part units, effective beginning in FY 
2001. PPS rates are to be phased-in between October 1, 2000 and 
October 1, 2002 with an increasing percentage of the hospitals' 
payment based on the PPS amount. For FY 2001 and FY 2002, the 
Secretary is required to establish prospective payment amounts 
that are budget neutral so that total payments for 
rehabilitation hospitals equal 98% of the amount that would 
have been paid if the PPS system had not been enacted. PPS will 
be fully implemented by October 1, 2002.

Explanation of provision

    The mark makes two changes to the rehabilitation 
prospective payment system (PPS) section of the BBA. First, 
consistent with HCFA's implementation decision, it prescribes 
the payment unit for this system to be a discharge. Payment 
classifications under this system will be based on function, 
taking into consideration factors such as impairment, age, 
comorbidities and functional capability of the patient and 
other such factors the Secretary deemds appropriate to improve 
the functional status of the beneficiary.
    The Secretary is required to report on the impacts of the 
prospective payment system within two years of implementation.

Reason for change

    In its March, 1999 Report to Congress, the Medicare Payment 
Advisory Commission (MedPAC) endorsed a per discharge approach 
to the pending prospective payment system for rehabilitation 
hospitals. MedPAC also recommended that the system should be 
based on the Functional Independence Measure-Functional Related 
Groups (FIM-FRG) classification system.
    The Committee believes that mandating a per-discharge 
system based on FIM-FRGs would not affect the Secretary's 
authority to implement a transfer or short stay outlier policy. 
Rather, the Committee expects that these policies are 
consistent with a FIM-FRG system. Moreover, the Committee 
intends that the Secretary retain her authority to utilize the 
MDS-PAC and other efforts to gather information about patients 
and care across post-acute care settings.

Effective date

    Upon enactment.

        c. section 143. exception to cmi qualifier for one year

Current law

    No provision.

Explanation of provision

    The provision excepts Northwest Regional Mississippi 
Regional Medical Center from the case mix index (CMI) for one 
year.

Reason for change

    Although Northwest Mississippi Regional Medical Center 
recently completed new capital renovations to the facility, in 
1998 two key physician positions were vacant and the facilities 
were not utilized. Since that time, the hospital's mix has 
remained above requirements for rural referral center status 
designation. However,the hospital is in jeopardy of losing the 
status due to the reduced case mix level in 1998.

Effectve date

    The provisions are effective October 1, 1999.

 d. section 144. reclassification of certain counties for purposes of 
                reimbursement under the medicare program

Current law

    No provision.

Explanation of provision

    Specifies that, for the purpose of Medicare PPS payments to 
inpatient hospitals, the large urban area of Charlotte-
Gastonia-Rock Hill, North Carolina-South Carolina may be deemed 
to include Iredell County, North Carolina, and the large urban 
area of New York, New York may be deemed to include Orange 
County, New York.

Reason for change

    Iredell County is still classified as ``rural'' for the 
purposes of Medicare reimbursement, even though Iredell County 
is almost completely surrounded by three ``urban'' Metropolitan 
Statistical Areas. Orange County hospitals compete directly for 
personnel with neighboring counties that are reimbursed on the 
higher New York City wage index. More specifically, these 
hospitals receive a reimbursement that is 26% less than 
neighboring counties solely based on the MSA to which it is 
classified.

Effective date

    Effective for discharges occurring on or after October 1, 
1999.

                 e. section 145. wage index correction

Current law

    No provision.

Explanation of provision

    The provision directs the Secretary to recalculate the 
Hattiesburg, Mississippi Metropolitan Statistical Area (MSA) 
wage index for FY 2000 using Wesley Medical Center's FY 1996 
wage and hour data and to issue a wage index correction.

Reason for change

    Due to the Health Care Financing Administration's error in 
not including Wesley Medical Center's FY 1996 wage and hour 
data to the FY 2000 Hattiesburg, Mississippi MSA wage index, 
Forrest General Hospital is facing severe and unexpected losses 
in Medicare payments this year. The hospital was unable to 
achieve an administrative correction in time to be included in 
HCFA's PPS final rule, published August 1, 1999. This provision 
grants the Secretary authority to make this change prior to 
publication of the PPS rule next year.

Effective date

    October 1, 1999.

f. section 146. consideration of an application by a certain entity for 
       medicare certification as an application by a new provider

Current law

    No provision.

Explanation of provision

    The Secretary would consider an application (or 
reapplication) for certification of a long-term care facility 
under the Medicare program that is, or was, submitted after 
January 1, 1994, by a subsidiary of a not-for-profit, 
municipally-owned, and Medicare-certified hospital, where such 
facility has had a change of management from the previous owner 
prior to acquisition by such subsidiary, as an application by a 
prospective provider.

Reason for change

    To correct unintended consequences stemming from a change 
in ownership.

Effective date

    Upon enactment.

       g. section 147. study on report on county-wide geographic 
                            reclassification

Current law

    No provision.

Explanation of provision

    The bill requires the Secretary, with input from the 
Geographic Reclassification Review Board, to study whether PPS 
rates are an adequate proxy for costs and whether the standard 
for countywide geographic reclassification needs to be updated 
or revised. A report on this issue shall be submitted to 
Congress one year after enactment.

Reason for change

    The Committee is concerned that the standard for countywide 
geographic reclassification might need to be updated or revised 
and that the proxy factors used in these reclassification 
determinations might not adequately reflect appropriate costs 
of certain counties.

Effective date

    Report to Congress is due one year after enactment.

            C. Title II--Provisions Relating to Part B only


          Subtitle A--Hospital Outpatient Department Services


a. section 201. multiyear transition to prospective payment system for 
                hospital outpatient department services

Current law

    The BBA 97 directed the Secretary of HHS to implement a 
prospective payment system for hospital outpatient departments 
in 1999. In proposed rules issued on September 8, 1998, HCFA 
delayed implementation of the new system until after the start 
of 2000 in order to ensure that ``year 2000'' data processing 
problems were fully resolved before the new system was 
implemented. The agency currently estimates that the hospital 
outpatient prospective payment system will be implemented in 
July 2000.
    The BBA required that the outpatient prospective payment 
system be designed so that the estimated sum of Medicare 
payments to hospital outpatient departments would equal the 
aggregate amount Medicare would have paid hospitals in 1999 
under old law, prior to the prospective payment system. This 
requirement makes the new prospective payment system budget-
neutral with regard to the cost to the government for 
outpatient hospital care for Medicare beneficiaries. HCFA 
computer simulation analysis of the new system showed the 
effects to be uneven among hospitals, with some hospitals 
losing more than others compared with their old law Medicare 
payments.

Explanation of provision

    The bill would authorize Medicare payments to hospitals for 
outpatient services in amounts such that the ratio of Medicare 
payments plus beneficiary copayments (computed with the 
corrected formula-driven overpayment under the new BBA 97) to 
the hospitals' costs would be no less than 90%, 85%, and 80% of 
the ratio of the hospital's 1996 payments to costs in the 
first, second, and third years (transition years) of the new 
system, respectively. The bill directs the Secretary to make 
interim payments to hospitals during the transition years, if 
necessary, and subsequently to make retroactive adjustments. 
The bill would waive the budget neutrality requirements of the 
BBA with respect to Medicare payments in the transition years.
    The bill also exempts certain rural hospitals and cancer 
hospitals from the hospital outpatient prospective payment 
systems. The Committee notes that nothing in this section shall 
be construed as affecting the scheduled reduction in 
beneficiary coinsurance, as set forth in the BBA.

Reason for change

    Certain classes of hospitals are expected to lose a 
substantial share of their Medicare outpatient revenues under 
the proposed PPS. Low-volume rural hospitals and cancer 
hospitals, for example, are expected to lose 17.4% and 32.4% of 
their Medicare outpatient revenue, respectively. Teaching 
hospitals also are expected to lose 11% of their Medicare 
revenue.
    By establishing a transition policy under the hospital 
outpatient department prospective payment system, the bill 
provides protection for all hospitals for the first three years 
of the new system.

Effective date

    Upon enactment.

b. section 202. study and report to congress regarding the inclusion of 
 rural and cancer hospitals in prospective payment system for hospital 
                     outpatient department services

Current law

    No provision.

Explanation of provision

    The bill would require the Medicare Payment Advisory 
Commission to prepare a report for Congress within 2 years of 
enactment regarding the feasibility and advisability of 
including cancer hospitals and rural hospitals in the 
outpatient prospective payment system. The bill also requires 
the Secretary to comment on the findings and conclusions of the 
Commission within sixty days.

Reason for change

    Although the bill protects cancer and rural hospitals from 
the impact of the hospital outpatient prospective payment 
system on a permanent basis, this provision requires the MedPAC 
to consider whether this protection is warranted over time and 
should be maintained. The bill also requires the Secretary to 
comment on this report.
    Further, although the Committee intended to protect SCH and 
MDH providers from the severe reductions in Medicare revenue 
predicted to result from the proposed prospective payment 
system for outpatient departments, the Committeeremains 
concerned that some small, low-volume hospitals not included in these 
classifications may face financial difficulty under the new system. 
Accordingly, the Committee directs MedPAC to also consider the impact 
of the proposed outpatient PPS on hospitals with less than 50 beds and 
less than 5,000 Medicare outpatient procedures per year.

Effective date

    Upon enactment.

   c. section 203. transition provisions for drugs, biologicals and 
   devices in the prospective payment system for hospital outpatient 
                              departments

Current law

    The BBA 97 directed the Secretary of HHS to implement a 
prospective payment system for hospital outpatient departments 
in 1999. In proposed rules issued on September 8, 1998, HCFA 
delayed implementation of the new system until after the start 
of 2000. The agency currently estimates that the hospital 
outpatient prospective payment system will be implemented in 
July 2000.
    Although the Balanced Budget Act (BBA) gave the Secretary 
the discretion to make additional payments, in a budget neutral 
manner, for outlier cases, the Secretary elected not to 
exercise this authority in developing the proposed payment 
policy.
    As permitted under the statute, HCFA elected to implement a 
payment system based on groups of services rather than 
individual services. Although services grouped together were 
required to be clinically comparable and comparable with 
respect to resource use, the variability in costs of services 
grouped together varies widely for many of the payment groups.

Explanation of provision

    The bill would require HCFA to establish an outlier policy 
for extremely high cost cases. Specifically, the Secretary is 
permitted to set an outlier pool based on up to 2.5 percent of 
total payments for the first three years under the new payment 
system, and up to 3 percent of total payments in subsequent 
years. Services under the outpatient PPS would be eligible for 
an outlier payment if the cost of providing the service 
exceeded a threshold set by the Secretary. The amount of the 
outlier payment would be set by the Secretary to approximate 
the marginal cost of the service in excess of the threshold.
    The hospital outpatient PPS outlier policy is modeled after 
the inpatient PPS outlier policy. With regard to the inpatient 
PPS outlier policy, the Committee directs HCFA to comply with 
section 1886(d)(5)(A) of the Social Security Act for all prior 
fiscal years with respect to cost reports which have been 
appealed or are subject to reopening. Section 1886(D)(5)(A) 
requires the Secretary to pay hospitals under Medicare an 
additional amount for their costlier, sicklier patients and 
directs that actual outlier payments are to be between 5 and 6 
percent of total projected DRG payments for each fiscal year. 
HCFA paid outliers at less than the statutorily mandated 5% 
minimum for eight fiscal years and paid outliers at more than 
the 6% maximum for two years, with the underpayments totaling 
substantially more than the overpayments. The Committee is 
concerned that HCFA has failed to implement Congress' intent 
that not less than 5 percent but not more than 6 percent of 
total DRG payments in fact be paid as outlier payments.
    The bill also provides for transitional payments to cover 
the add-on costs of certain services involving the use of 
medical devices, drugs and biologicals. For three years after 
implementation of the outpatient PPS, orphan drugs, drugs and 
biological used in cancer therapy, medical devices, drugs and 
biologicals which were not paid as hospital outpatient services 
in 1996 base year are eligible for these payments. It is the 
intent of the Committee that biophosphonates should be included 
in those cancer therapies covered under this provision. The 
transitional payments are made for a period of at least two 
years but not more than three years.
    Prior to applying any limitations to the additional 
payment, the amount of the add-on must equal the amount for the 
new technology less the average cost included in the outpatient 
payment schedule for the existing technology. Specifically, for 
new drugs and biologicals, the amount of the additional payment 
is the amount by which 95 percent of the Average Wholesale 
Price (AWP) exceeds the portion of the applicable OPD fee 
schedule amount that the Secretary determines is associated 
with the drug or biological. For new medical devices, the add-
on payment is that amount by which the hospital's charges for 
the device, adjusted to cost, exceed the OPD fee schedule 
amount associated with the device. New technology is defined in 
the bill to include devices, drugs, and biologicals for which 
Medicare payment was not being made as of December 31, 1996. 
The Committee also expects that the Secretary would also take 
the measures necessary to ensure that drugs, devices, and 
technology, including implantable radiological devices, that 
were paid as outpatient services in 1996 but for which 
sufficient costs and utilization data are not available will 
also be adequately paid under the new payment system.
    In addition, the Committee understands that the Secretary 
is committed to creating separate payment categories for blood, 
blood products, and plasma-based and recombinant therapies. The 
Committee applauds these efforts but continues to be concerned 
that inadequate payment for these products and therapies could 
represent a barrier to patient access. Accordingly, the 
Committee expects the Secretary to carefully analyze potential 
patient access issues and create sufficient payment categories 
to adequately differentiate these products. Further, in 
classifying drugs and biologicals into payment categories, the 
Committee expects that consideration will be given to products 
that are therapeutically equivalent.
    The total amount of additional payments in a year should 
not exceed a prescribed percentage of total projected payments 
under the outpatient prospective payment system. The percentage 
is established at 2.5 percent for the first three years after 
implementation of the new outpatient payment system and up to 
2.0 percent in subsequent years.
    The bill also seeks to limit variation in costs among 
services included in a group. The most costly item or service 
in a group could not have a mean or mediancost that was more 
than twice the mean or median cost of the least costly item or service 
in the group. The Secretary would be given the flexibility to base the 
relative payment weights on either mean or median cost of the items and 
services in a group. The Secretary would be required to review the OPD 
payment groups and amounts annually and to update them as necessary.
    Importantly, these provisions would not alter the rules for 
determining the beneficiary coinsurance. In addition, all of 
the changes in this bill would be implemented in a budget 
neutral manner.
    The Committee is supportive of the bipartisan effort to 
establish a five-year demonstration project to provide coverage 
of routine patient costs for Medicare beneficiaries who are 
enrolled in an approved cancer clinical trail. A majority of 
the members of the Senate Committee on Finance have cosponsored 
S. 784, the ``Cancer Clinical Trials Coverage Act,'' sponsored 
by Senators John D. Rockefeller and Connie Mack. The 
demonstration project would provide coverage for items and 
services that would otherwise be covered under the Medicare 
program, are provided in connection with an approved clinical 
trail program. The demonstration program would not provide 
coverage for the provision of the investigational drug or 
device unless authorized by the Secretary of Health and Human 
Services or any item or service supplied without charge by the 
sponsor of the approved cancer clinical trail. The Committee 
believes this proposed demonstration project has great 
potential to improve the quality of life for Medicare 
beneficiaries with cancer as well as to advance our scientific 
knowledge of the treatment of cancer. The Committee believes 
this demonstration project is an important item to include in 
future legislation to modernize and strengthen the Medicare 
program.
    With regard to Ambulatory Surgical Centers (ASCs), the 
Committee is concerned with HCFA's use of 1994 survey data. The 
Committee urges the secretary to update the survey data before 
implementation of the ASC prospective payment system, scheduled 
for July, 2000.

Reason for change

    The provisions ensure that beneficiaries have access to the 
newest and most effective medical technology, drugs and 
biologics. This section expands the APCs so that they are 
clinically and economically more appropriate. Currently, 
expensive procedures are being inappropriately ``grouped'' with 
low-cost procedures, thus causing their Medicare reimbursement 
levels to be extremely low. As a result, the most innovative 
services may not be offered to Medicare beneficiaries because 
it would not be financially feasible for hospitals (or 
manufacturers) to offer such products and services.
    The legislation also creates an outlier payment for 
hospitals so they can offer the newest technology to patients 
without taking a financial loss. In addition, there is an 
exemption from the prospective payment system (PPS) for certain 
medical devices, drugs and biologics so that both hospitals and 
suppliers are not losing money when providing the newest 
technology, orphan drugs, and cancer drugs to patients.

Effective date

    Upon enactment.

                  2. Subtitle B. Physician's Services


  a. section 221. technical amendment to update adjustment factor and 
                   physician sustainable growth rate

Current law

    The conversion factor is a dollar figure that converts 
geographically adjusted relative values into a dollar payment 
amount. This amount is updated each year according to a formula 
established in law. Beginning in 1999, the update percentage 
equals the Medicare Economic Index (MEI) subject to an 
adjustment to match target spending for physicians services 
under the sustainable growth rate (SGR) system. In no case can 
the adjustment be more than three percentage points above or 
seven percentage points below the MEI.
    Four factors make up the SGR: changes in spending due to 
fee increases, fee-for-service enrollment, gross domestic 
product (GDP) growth per capita, and laws and regulations. Data 
from various measurement periods are used for the SGR 
calculation. Time lags between these measurement periods can 
lead to oscillation in conversion factor updates.
    Prior to the enactment of BBA 97, the Secretary was 
required to make a conversion factor update recommendation to 
the Congress by April 15 of each year. The Physician Payment 
Review Commission (one of MedPAC's predecessor Commissions) was 
required to comment on the Secretary's recommendation and make 
its own recommendation by May 15. BBA 97 eliminated these 
requirements.

Explanation of provision

    Subsection (a) implements technical changes to limit 
oscillations in the annual update to the conversion factor used 
to determine physician payment rates beginning in calendar year 
2000. This is accomplished in three ways. First, the provision 
requires that future update adjustment factors be calculated 
using data measured on a calendar year basis. This will ensure 
that the time periods used for variables used in the update 
adjustment formula conform to the calendar system used for 
updating payments. In addition, the provision modifies the 
formula for determining the update adjustment factor by adding 
a new component to the formula to measure past year variances 
from allowed spending growth. This measure is to be used in 
conjunction with the existing formula component that measures 
cumulative spending variances from the sustainable physician 
payment baseline established in 1997. Finally, the impact of 
these measures on the update formula are mitigated by the 
addition of dampening multipliers. Both formula changes are 
designed to lessen oscillations in the annual update adjustment 
factor and thereby make annual adjustments in the conversion 
factor less severe.
    The subsection includes language requiring the Secretary to 
develop CY 1999 allowed expenditure targets based on current 
law so that a budget-neutral transition to the revised system 
can begin in CY 2000. The subsection also clarifies that the 
Secretary is to publish annual updates to the conversion factor 
on November 1st, while adding a new requirement that an early 
estimate of such conversion factor be made available by March 
1st of each year. The committee believes that this directive 
can be accomplished by posting the information electronically, 
for example on the HCFA internet website. In addition, MedPAC 
is instructed to review this early estimate and comment on it 
in its annual report to Congress. The subsection also includes 
conforming technical amendments.
    Subsection (b) includes related changes to the existing 
sustainable growth rate provision in Section 1848(f). These 
provisions clarify that staring in CY 2000 the sustainable 
growth rate is also to be determined on a calendar year basis. 
The date for publishing applicable rates is moved to November 
1st, and the Secretary is required to begin using the best 
available data to revise prior estimations of the sustainable 
growth rate for up to two years after such an estimate is first 
published. This new authority is phased in on a prospective 
basis to ensure budget neutrality.
    The Secretary, acting through the Administrator of the 
Agency for Health Care Policy and Research, would conduct a 
study on the utilization of physicians services under the fee-
for-service program by Medicare beneficiaries. The study would 
include an analysis of: (1) the various methods for accurately 
estimating the economic impact on physician expenditures of 
improvements in medical capabilities, advancements in 
scientific technology, demographic changes, and geographic 
changes in where beneficiaries receive benefits; (2) the rate 
of usage of physicians services by age groups; and (3) other 
factors that may be reliable predictors of utilization. The 
Secretary would submit the report within 3 years of enactment. 
MedPAC would be required to report to Congress on such report 
within 180 days of receipt.

Reason for change

    The bill corrects what HCFA actuaries have determined to be 
unstable aspects of the SGR system that will cause payments to 
fluctuate widely from year to year. A second problem that has 
been identified is that once the SGR target is set for a year, 
it cannot be changed, even to correct for estimation errors and 
even if better data became available. The bill would address 
these shortcomings of the new system.
    The Committee is concerned that the Health Care Financing 
Administration has not yet made substantive progress on the 
annual refinement of practice expenses required by the Balanced 
Budget Act. In particular, HCFA has not yet initiated a process 
of gathering additional data on expenses incurred by 
specialities under-represented in the AMA data used to 
determine practice expenses by specialty. Further, a HCFA 
proposal to delete from practice expense allocations the costs 
of physician staff who assist in hospitals appear to violate 
the directive of the BBA that practice expense reimbursement 
recognize all costs incurred. The Committee concurs with the 
recommendation of MedPAC that HCFA should gather additional 
information on the use of physician staff in hospitals and make 
policy decisions only after examining all relevant information.

Effective date

    Upon enactment.

           D. Title III--Provisions Relating to Parts A and B


                  1. Subtitle A--Home Health Services


a. section 301. delay in the 15 percent reduction in payments under the 
                      pps for home health service

Current law

    BBA 97 required the Secretary to implement a prospective 
payment system for Medicare home health care cost reporting 
periods beginning on or after October 1, 1999, and required 
that the new system be designed to reduce the initial aggregate 
cost of Medicare home health care by 15%. The BBA allows a 
transition period for implementation of the new system of not 
longer than 4 years.
    The BBA put in place an ``interim payment system'' for home 
health care to replace temporarily the prior retrospective 
system that reimbursed home health agencies for the lesser of 
their reasonable costs or a limited amount per visit, applied 
in the aggregate. (The limit was 112% of the national average 
cost, which was calculated separately for each type of service 
such as nursing or therapy.) The interim payment system applies 
a new methodology, based on the least of agency costs, per 
visit limits, or agency average costs per beneficiary in fiscal 
year 1994 (with certain updates), to determine aggregate 
payments to home health agencies. The interim system is to 
remain in effect until implementation of the prospective 
payment system. The BBA provides that if the new prospective 
payment system were not ready for implementation on October 1, 
1999, the cost limits and per beneficiary limits then in effect 
under the interim system would be reduced by 15%.
    The Omnibus Consolidated and Emergency Supplemental 
Appropriations Act for Fiscal Year 1999 (P.L. 105-277) moved 
implementation of the home health care prospective payment 
system to October 1, 2000, and moved the 15% reduction in cost 
limits and per beneficiary limits to coincide with 
implementation of the prospective payment system on October 1, 
2000. Should the prospective payment system not be implemented 
on October 1, 2000, payment limits to home health agencies will 
be reduced by 15%, and when the prospective payment system is 
subsequently implemented it will be budget neutral compared to 
the interim payment levels with the 15% reduction.

Explanation of provision

    This provision would repeal the scheduled 15% reduction in 
per beneficiary and per visit limits and would require that the 
15% reduction be implemented simultaneously with the new 
prospective payment system.
    The bill also would require the home health prospective 
payment system to be structured so that total Medicare payments 
for home health services would be reduced by 15% compared with 
the pre-prospective payment system year over a 3 year phase-in 
period. In fiscal year 2001 the prospective payment system 
payments would be 5% less than the prior year, which would be 
the base year; in the second year, costs would be 10% less than 
the base year; and in the third year costs would be 15% less 
than the base year.

Reason for change

    Implementing the schedule reduction in home health payments 
simultaneously with the new prospective payment system is 
necessary to ease the administrative burden on agencies. The 
bill ensures that any reduction in payments would not occur 
under the interim payment system but would be delayed until PPS 
is implemented.
    Additionally, the bill would moderate the impact of the 
scheduled 15% reduction in payments under the prospective 
payment system for home health services by requiring that the 
reduction be phased-in over three years. This provision ensures 
that home health patients, particularly high cost patients, 
will continue to receive access to quality home health care 
services.

Effective date

    Upon enactment.

              b. section 302. increase in per visit limit

Current law

    The Omnibus Consolidated and Emergency Supplemental 
Appropriations Act for fiscal year 1999 (P.L. 105-277) 
increased the limits on per-visit payments to home health 
agencies beyond those specified in BBA 97. BBA 97 limited per 
visit payments to 105% of the national median payment, and P.L. 
105-277 increased it to 106% of the national median. HCFA 
estimates that about one-fifth of agencies are subject to the 
per visit limit because it is less than the per beneficiary 
limit that would apply to them.

Explanation of provision

    The bill would increase the per visit limit to 112% of the 
national median.

Reason for change

    The per visit limits are particularly problematic for home 
health providers in rural areas because of the travel distances 
required for providers to see patients. These providers are 
reportedly more likely to exceed the payment caps than 
providers in urban areas. This bill would assist rural home 
health agencies and low-cost agencies that have been 
disadvantaged under the interim payment system by increasing 
the per visit limit for patient cost reimbursement.

Effective date

    October 1, 1999.

    c. section 303. Increase per beneficiary limits for home health 
                                agencies

Current law

    Under the interim payment system that BBA implemented 
temporarily until the home health prospective payment system is 
implemented, home health agencies receive payments from 
Medicare that are the least of three amounts: (1) the agency's 
reasonable costs; (2) aggregate payments determined under 
limits per visit set at 105% of the national median cost per 
visit (the bill would increase it to 112%); or (3) aggregate 
payments under a formula based on average payments per 
beneficiary. About one-fifth of agencies receive payments under 
the per visit limit and the remainder receive payments under 
the per beneficiary formula. The per beneficiary aggregate 
limit does not restrict the amount a home health agency can 
spend on any individual, it is simply a technique for arriving 
at an aggregate budget amount for an agency's Medicare 
patients. For long-standing home health agencies, the per 
beneficiary limit is derived from the average payment the 
agency received for Medicare beneficiaries in fiscal year 1994 
(with certain updates and adjustments); for newer agencies the 
per beneficiary limit is the median of the limits applied to 
other agencies. The average annual per beneficiary limit is 
approximately $3,800 but ranges up and down by about $1,200.
    The prospective payment system is scheduled to replace the 
interim system in October 2000.

Explanation of provision

    The bill would add 1.0% to the amount of an agency's per 
beneficiary limit.

Reason for change

    Since 1994, many agencies have undergone changes in their 
caseload and in the characteristics of the Medicare 
beneficiaries they serve. A small increase in the per 
beneficiary limit would provide some relief during the 
remainder of the interim payment system.

Effective date

    Upon enactment.

      d. section 304. elimination of 15-minute billing requirement

Current law

    The BBA 97 requires home health agencies to keep track of 
and report their activities during a home visit in 15-minute 
increments.

Explanation of provision

    The bill would repeal the requirement that home health 
agencies report their activities during a home visit in 15-
minute intervals.

Reason for change

    The 15-minute reporting requirement was established to 
collect data in the event that a coding system based on the 
amount of time a home health provider spent with a beneficiary 
was developed. However, with the establishment and pending 
implementation of the proposed prospective payment system, 
there is no longer a need for the collection of this data.

Effective date

    Upon enactment.

 e. section 305. refinement of home health agency consolidated billing

Current law

    The BBA 97 requires that Medicare payments for items such 
as durable medical equipment, oxygen and oxygen supplies by 
Medicare beneficiaries who are under a home health plan of care 
be billed to Medicare by the home health agency and be paid by 
Medicare to the home health agency rather than to the provider 
or the supplier of the item or equipment. The home health 
agency would be responsible for paying the supplier.

Explanation of provision

    The bill would exclude durable medical equipment, including 
oxygen and oxygen supplies, from the consolidated billing 
requirement.

Reason for change

    Many home health agencies may not be ready to administer 
the additional administrative burden of billing the Medicare 
program on behalf of durable medical equipment suppliers. The 
provision maintains the billing responsibility for home medical 
equipment with the suppliers of that equipment.

Effective date

    Upon enactment.

f. section 306. study and report to congress regarding the exemption of 
   rural agencies and populations from inclusion in the home health 
                       prospective payment system

Current law

    No provision.

Explanation of provision

    The bill would require that the Medicare Payment Advisory 
Commission report to Congress within 2 years of enactment of 
the act on the feasibility and advisability of including rural 
populations and rural home health agencies in the prospective 
payment system.

Reason for change

    Concern has been cited that BBA changes in home health care 
services, and that the establishment of a prospective payment 
system, will create undue hardships on rural home health 
providers. This provision seeks to determine the effects of the 
prospective payment system on those providers and advise 
Congress on whether these providers or populations should be 
exempt from the home health prospective payment system.

Effective date

    Upon enactment.

    g. section 307. extend periodic interim payments to home health 
                                agencies

Current law

    BBA 97 required that the periodic interim payment system 
for home health care agencies sunset on October 1, 1999.

Explanation of provision

    The bill would continue the periodic interim Medicare 
payments to home health agencies through the first year of the 
prospective payment system.

Reason for change

    This provision allows for a supporting transfer by home 
health providers from the interim payment system to the PPS.

Effective date

    Upon enactment.

               2. Subtitle B--Graduate Medical Education


a. section 321. revision of multi-year reductions of indirect graduate 
                       medical education payments

Current law

    Prior to BBA, the IME adjustment increased medicare's 
hospital payments by approximately 7.7% for each 10% increase 
in a hospital's ratio of interns and residents to beds. The BBA 
provided for a reduction in the IME adjustment from the 7.7% to 
7.0% in fiscal year 1998; to 6.5% in fiscal year 1999; to 6.0% 
in fiscal year 2000; and to 5.5% in fiscal year 2001 and 
subsequent years.

Explanation of provision

    The bill freezes the reduction in the IME adjustment factor 
to 6.5% in fiscal year 2000 through fiscal year 2003. Beginning 
in fiscal year 2004, the IME adjustment factor becomes 5.5%.

Reason for change

    The cumulative impact of several BBA provisions has 
produced an unintended financial burden on teaching hospitals. 
Payments to these hospitals have been reduced by cuts in 
payments for the indirect costs associated with medical 
education (IME payments), cuts in payments to 
``disproportionate share hospitals'' that serve a larger share 
of low-income patients, and the reduction in payment updates to 
hospitals as a whole. This provision would restore a portion of 
the funding reductions that teaching hospitals have 
experienced.
    The Committee recognizes the contributions of independent 
children's hospitals and academic medical centers in training 
this country's pediatricians and pediatric specialists and for 
their contributions to pediatric medical research. These 
institutions train nearly 30 percent of pediatric specialists 
and play a vital role in delivering health care in the 
communities in which they are located. These institutions, 
despite their contributions to medicine and society, receive 
very little Federal Graduate Medical Education (GME) financial 
support, because they have very few Medicare patients. The 
Committee believes the lack of Federal GME support should be 
addressed. Although the narrow scope of the Medicare, Medicaid, 
and S-CHIP Adjustment Act does not afford the opportunity, the 
Committee is committed to holding hearings and taking action to 
address this problem in the coming year and urges the earliest 
possible consideration of this issue in Congress. The Committee 
intends to move forward to assure that contributions from 
freestanding pediatric hospitals are equitably recognized and 
supported.
    Further, the Committee is encouraged by HCFA's efforts to 
begin making GME payments to institutions involved in the 
training of cliental psychologists. The committee urges the 
Agency to implement this change as soon as possible.

Effective date

    October 1, 1999.

    b. section 322. graduate medical education resident limitation 
                               exception

Current law

    The Balanced Budget Act of 1997 (BBA) established a cap on 
the total number of residents reimbursed under Medicare at the 
level for the cost reporting ending on or before December 31, 
1996.

Explanation of provision

    The Committee's provision would make an exception to 
limitation on the number of residents who participated in 
graduate medical education at a facility of the Department of 
Veterans Affairs, was subsequently transferred on or after 
January 1, 1997, and before July 31, 1998, to a hospital, and 
was transferred because the approved medical residency program 
in which the resident or intern participated would lose 
accreditation by the Accreditation Council on Graduate Medical 
Education if such program continued to train residents at the 
Department of Veterans Affairs facility.
    If the Secretary of HHS determines that a hospital 
operating an approved medical residency program is owed 
payments because of this provision, the Secretary shall make 
such payments within 60 days of enactment.

Reason for change

    The provision is intended to provide relief to a certain 
hospital in North Dakota, which took on a limited number of 
residents from a Veteran's Affairs facility that was to lose 
accreditation by the Accreditation Council on Graduate Medical 
Education, after the resident limitations were applied in the 
BBA.

Effective date

    As if included in the Balanced Budget Act of 1997.

                     E. Title IV--Rural Initiatives


    A. Section 401. sole community hospitals and medicare dependent 
                               hospitals

Current law

    Medicare pays most acute care hospitals under a prospective 
payment system (PPS) where a fixed predetermined amount is paid 
according to the patient's diagnosis. Payments to PPS hospitals 
are updated annually using an update factorwhich is determined 
in part by the projected increase in the hospital market basket index 
(MBI). BBA 97 included a 0% update for fiscal year 1998, the MBI minus 
1.9 percentage points for fiscal year 1999; the MBI minus 1.8 
percentage points for fiscal year 2000, the MBI minus 1.1 percentage 
points for fiscal year 2001 and fiscal year 2002; and for fiscal year 
2003 and each subsequent year, the MBI percentage increase.

Explanation of provision

    This provision would provide selected rural hospitals, that 
is, sole community hospitals and Medicare dependent hospitals, 
the MBI in fiscal year 2000 and in each subsequent year.

Reason for change

    Rural hospitals are among the providers most affected by 
the changes brought forth in the BBA. This provision recognizes 
the particular needs of rural health care delivery and 
addresses those needs by providing additional funding for 
inpatient, acute care services.

Effective date

    Effective October 1, 1999.

  B. Section 402. Revision of Criteria for designation as a Critical 
                            Access Hospital

Current law

    BBA 1997 established the criteria for a small, rural, 
limited service hospital to be designated as a critical access 
hospital (CAH). These hospitals are required to be a rural 
nonprofit or public hospital either located more than 35 miles 
away (or given geographic constraints, 15 miles away) from 
another hospital and certified by the State as a necessary 
provider. The CAHs provide 24-hour emergency services, have up 
to 15 acute care inpatient beds (or up to 25 beds of CAH if 
also a swing bed provider) and have hospitals stays of no more 
than 96 hours except under certain circumstances. For instance, 
a longer inpatient stay is permitted if inclement weather or 
other emergency circumstances prevent the transfer of a patient 
to another hospital; alternatively, a peer review organization 
or comparable entity may waive the 96-hour restriction on a 
case-by-case basis.

Explanation of provision

    This provision would change the 96-hour restriction on 
individual inpatient hospital stays to a requirement that the 
average inpatient stay of patients not exceed 96 hours.

Reason for change

    This change would provide increased flexibility and choice 
for rural health care delivery settings. The provision also 
eliminates increased administrative burdens on these 
facilities.

Effective date

    Effective October 1, 1999.

     C. Section 403. Medicare Waivers for Providers in Rural Areas

Current law

    Medicare's payments to acute hospitals vary depending upon 
the geographic location of the hospital. Specifically, 
hospitals are paid using an average standardized amount. Two 
standardized amounts are calculated: one for hospitals located 
in large urban areas and one for hospitals located in other 
areas--both smaller urban and rural counties. Large urban areas 
are statutorily defined to be a metropolitan statistical area 
(MSAs) as defined by the Office of Management and Budget or 
within a similar area as defined by the Secretary that has a 
population of more than 1 million as measured by the most 
recently available Bureau of Census data. Urban areas are 
defined to be MSAs and rural areas are areas outside of MSAs.

Explanation of provision

    This provision would permit a hospital that is considered 
to be in an urban or large urban area, for the purposes of PPS 
reimbursement using the existing definition, to be treated as a 
hospital in a rural area if classified as such by either of two 
alternative definitions. The Secretary is directed to set up a 
waiver process within 180 days of enactment of this legislation 
whereby hospitals currently treated as urban or large urban 
would be treated as rural if located in a rural area within a 
metropolitan county as defined by the most recent update of the 
Goldsmith Modification or as determined by the census tract 
definition adopted by the Office of Rural Health Policy.

Reason for change

    Because MSAs are based on county boundaries, some cover 
large geographic areas that include rural areas. For purposes 
of Medicare reimbursements and policies, this provision would 
allow hospitals and providers to be considered rural even if 
they are located in MSAs, if they meet certain other 
definitions of rural. The provision would allow these providers 
to participate in programs aimed at expanding access in rural 
areas.

Effective date

    Upon enactment.

         D. Section 404. Extending Medicare Dependent Hospitals

Current law

    BBA 1997 extended the Medicare Dependent Hospital Program 
for cost reporting periods beginning on or after October 1, 
1997 and before October 1, 2001, applicable with respect to 
discharges occurring on or after October 1, 1997.

Explanation of provision

    The change would extend the Medicare Dependent Hospital 
Program for discharges occurring after October 1, 1997 and 
before October 1, 2003.

Reason for change

    These hospitals are vital to ensuring access to care for 
Medicare beneficiaries in rural areas. Extending Medicare 
Dependent Hospitals is important to the communities served by 
these providers.
    The Committee also wishes to express its intent to expand 
telemedicine services to all Medicare-covered services and all 
rural areas. The Health Care Financing Administration and the 
Department of Health and Human Services are directed to work 
together to produce timely analyses and cost estimates of 
proposals to meet the aforementioned objectives. It is also 
essential to sustain key projects where the federal government 
has made a substantial investment in infrastructure but has yet 
to authorize any substantial Medicare payments for the use of 
this equipment.

Effective date

    As if included in the Balanced Budget Act of 1997.

 e. section 405. assisting rural graduate medical education residency 
                                programs

Current law

    In general, BBA 1997 limited the number of residents that 
Medicare will count for reimbursement of graduate medical 
education to the total recognized by the hospital in their cost 
reporting period ending on or before December 31, 1996.

Explanation of provision

    This provision would expand the number of residents 
reimbursed by Medicare to those appointed by the hospitals' 
approved medical residency training programs for cost reporting 
periods ending on or before December 31, 1996; would allow 
hospitals that sponsor only one residency program to increase 
their resident count by one per year, up to a maximum of three; 
would allow hospitals to count residents associated with new 
training programs established on or after January 1, 1995 and 
before September 30, 1999; would instruct the Secretary to give 
special consideration to facilities that meet the needs of 
underserved rural areas including those facilities that are not 
located in the area but have established separately accredited 
rural training tracks.

Reason for change

    Language in the BBA unintentionally excluded certain 
residents affiliated with approved residency programs from the 
count in determining the resident caps. This provision will 
allow hospitals to adjust their count to include residents 
appointed by the hospital in 1996 but not currently counted. In 
addition, it will boost rural residency programs by allowing 
them to exceed current resident limits.

Effective date

    As if included in the Balanced Budget Act of 1997.

               F. Title V--Provisions Relating to Part C


     1. Subtitle A--Provisions to Accommodate and Protect Medicare 
                             Beneficiaries


 a. section 501. permitting enrollment in alternative medicare+choice 
   plans and medigap coverage in case of involuntary termination of 
                          medicare enrollment

Current law

    Some HMOs have announced their intention not to renew their 
Medicare+Choice contracts or to reduce the service area covered 
by the contracts. These decisions become effective for the next 
contract period which begins on January 1, 2000. Most 
beneficiaries enrolled in these Medicare+Choice plans will be 
able to enroll in another Medicare+Choice plan in their area. 
Generally this would occur during the November 1999 open 
enrollment period; coverage under the new plan would begin 
January 1, 2000. These beneficiaries could also return to 
``original Medicare.'' Beneficiaries in counties with no 
available managed care plans will be automatically moved to 
``original Medicare.''
    Effective January 1, 2002, beneficiaries will only be able 
to discontinue their enrollment with a Medicare+Choice plan 
during the annual coordinated election period, except under 
certain specified conditions.
    Persons returing to original Medicare have certain rights 
with regard to purchase of Medigap plans. Medigap refers to 
individually purchased insurance policies which supplement 
Medicare's benefits. Beneficiaries select a policy from one of 
10 standardized plans; these are known as Plan A through Plan 
J.
    Individuals who are enrolled with an HMO at the time its 
contract terminates are guaranteed issue of any Medigap Plan A, 
B, C, or F that is sold to new enrollees by Medigap issuers in 
the state. This right must be exercised within 63 days of 
termination of prior HMO coverage. Since prior coverage is 
terminated at the end of the calendar year, the 63-day period 
begins January 1, 2000.

Explanation of provision

    The bill would modify the conditions under which an 
individual would be entitled to a special election period to 
include situations where the individual is notified of an 
impending termination of certification of the plan or an 
impending termination or discontinuation of the plan.
    The bill would modify the Medigap 63-day guaranteed issue 
provision. At the individual's discretion, the 63-day 
guaranteed issue period could begin on the date the individual 
is notified by the plan of either impending termination or 
discontinuance of the plan in the area where the individual 
resides.

Reason for change

    To ease the transition for beneficiaries whose 
Medicare+Choice plan leaves the program.

Effective date

    Upon enactment.

         b. section 502. change in effective date of elections

Current law

    Under Medicare+Choice, changes of election of coverage 
during continuous open enrollment periods take effect on the 
first day of the first calendar month following the date on 
which the election is made.

Explanation of provision

    The bill would require that the election must occur by the 
tenth of the month in order to be effective the following 
month.

Reason for change

    This provision would allow plans time to process the 
beneficiary's enrollment information and ensure a smooth 
transition in coverage.

Effective date

    Upon enactment.

         c. section 503. extension of reasonable cost contracts

Current law

    Prior to enactment of BBA 97, beneficiaries were able to 
enroll in risk-based health maintenance organizations (HMOs). 
They could also enroll in organizations with cost contracts. 
These entities were required to meet essentially the same 
conditions of participation as risk contractors. Under a cost 
contract, Medicare pays the actual cost the entity incurs in 
furnishing covered services.
    BBA 97 replaced the risk program with Medicare+Choice. It 
also specified that no new cost contracts could be initiated 
and most cost-based contracts could not be renewed beyond 
December 31, 2002.

Explanation of provision

    The bill would extend cost contracts through December 31, 
2004. However, after December 31, 2003, cost contractors could 
not enroll any persons who had not been enrolled in the plan on 
that date.

Reason for change

    There are a small number of pre-BBA ``cost contracts'' that 
are scheduled to expire in 2002. This provision would allow 
these plans another two years of operation. This provision 
would allow both the beneficiaries and the plans additional 
time to transition to the Medicare+Choice program.

Effective date

    Upon enactment

 d. section 504. revision of notice by hospitals regarding coverage of 
                      inpatient hospital services

Current law

    Hospitals are required to provide patients, on or about the 
time of admission, a written statement. This statement must 
contain information on the individual's rights to benefits; the 
circumstances under which an individual would, and would not, 
be liable for charges for continued stays in a hospital; the 
individual's right to appeal benefit denials; and the 
individual's liability if the denial is upheld on appeal.

Explanation of provision

    The provision specifies that the notice must be provided 
within 16-24 hours prior to discharge. It would also modify the 
notice requirements. The notice would be required to include a 
specific mention that appeals for continued stays are made to 
the peer review organization. The notice would also be 
required, in the case of a Medicare+Choice enrollee, to contain 
additional information, as determined by the Secretary, 
regarding appeal rights.

Reason for change

    This provision would have the traditional fee-for-service 
program operate under the same rules as the Medicare+Choice 
program in informing beneficiaries of their rights to appeal 
when being discharged from the hospital, creating a ``level 
playing field'' between the traditional program and the 
Medicare+Choice plans. This would also ensure that all 
beneficiaries are informed of their appeal rights. HCFA is more 
than willing to implement this change, but requires statutory 
authority to proceed.

Effective date

    Upon enactment.

   e. section 505. extended medicare+choice disenrollment window for 
               certain involuntarily terminated enrollees

Current law

    The law guarantees issuance of specified Medigap policies 
(without an exclusion based on a pre-existing condition) for 
certain persons. Guaranteed issue protections extend to certain 
persons who elect to try out one of the options available under 
the Medicare+Choice program. An individual is guaranteed 
issuance of the Medigap policy in which he or she was 
previously enrolled if the individual terminated enrollment in 
a Medigap policy, enrolled in a Medicare+Choice organization, 
and then terminated such enrollment within 12 months. the 
guarantee only applies if the individual was never previously 
enrolled in a Medicare+Choice plan.
    One group of persons is guaranteed issuance of any Medigap 
policy. These are persons who, when they first become entitled 
to Medicare at age 65, enroll in a Medicare+Choice plan and 
disenroll from the plan within 12 months.

Explanation of provision

    The bill would extend the period when re-enrollment was 
allowed for these persons if their enrollment in a 
Medicare+Choice plan was involuntarily terminated either 
because the plan's certification is terminated or the 
organization no longer provides the plan in the individual's 
service area. The 12-month period would begin when the 
individual re-enrolled in a Medicare+Choice organization or 
plan.

Reason for change

    The purpose of the provision is to ease the transition for 
beneficiaries who lose their Medicare+Choice plan. To provide 
these beneficiaries with the option of returning to the 
traditional fee-for-service program and securing Medigap 
coverage.

Effective date

    Upon enactment.

     2. Subtitle B--Provisions To Facilitate Implementation of the 
                        Medicare+Choice Program


     a. section 521. moderation of medicare+choice risk adjustment 
                             implementation

Present law

    Currently HCFA plans to implement the risk adjustment of 
Medicare+Choice plan payments by 2004. This was done 
administratively by HCFA, so any changes to the phase-in 
formula will be necessary only if the Administration is 
unwilling to make the suggested changes administratively.

Explanation of provision

    Under the proposal, risk adjustment would be fully phased 
in 2006, rather than 2004. The table below details the current 
phase-in formula, as well as the proposed change.

    PROPOSED MODIFICATIONS TO THE RISK ADJUSTMENT OF MEDICARE+CHOICE
                                PAYMENTS
------------------------------------------------------------------------
                                Current
                                  HCFA       Proposed      Type of risk
            Year                proposal   modification      adjuster
                               (percent)     (percent)
------------------------------------------------------------------------
2000........................           10            10  inpatient only
2001........................           30            10  inpatient only
2002........................           55            20  inpatient only
2003........................           80            30  inpatient only
2004........................          100            55  inpatient and
                                                          outpatient \1\
2005........................          100            80  inpatient and
                                                          outpatient \2\
2006........................          100           100  inpatient and
                                                          outpatient \3\
------------------------------------------------------------------------
\1\ The proposal would also phase-in the introduction of the new risk
  adjustment method that includes both inpatient and outpatient data. In
  2004, the first year outpatient data would be used, the payment would
  be a mix where 67 percent of the risk-adjusted portion would be based
  on the old method (inpatient data only) and 33 percent would be based
  on the new method (inpatient and outpatient data).
\2\ In 2005, 33 percent of the risk-adjusted portion would be based on
  the old method and 67 percent based on the new method.
\3\ By 2006, the new risk adjustment method that uses both inpatient and
  outpatient data would compromise 100 percent of the payment.

    In 2004, the Committee anticipates that HCFA will be 
prepared to implement a risk adjustment system based on data 
from both inpatient and ambulatory settings. The Committee 
intends to ease the transition to a risk adjustment method 
based on ambulatory data by phasing in the new method and 
phasing out the old method (based only on inpatient data). This 
process will take place between 2004 and 2006.

Reason for change

    In the last two years, plans have found the Medicare 
program to be an increasingly volatile business environment. 
Plans are concerned that the current implementation schedule 
will result in further volatility and cuts in their payments, 
which could lead to further plan withdrawals. By slowing the 
implementation of risk adjustment, plans will see smaller cuts 
and less volatility. In addition, in 2004 the risk adjuster 
will be changed to include both impatient and outpatient data, 
while this should be an improvement, it will add to the 
uncertainty and volatility of plan payments. By slowing the 
phase-in, only 55% of plan payments will be risk adjusted in 
2004, rather than 100% as under the HCFA plan.

Effective date

    Upon enactment.

  B. Section 522. Delay in Deadline Submission of Adjusted Community 
     Rates Under Medicare+Choice Program and Related Modifications

Current law

    BBA 97 required Medicare+Choice plans to submit adjusted 
community rate (ACR) proposals by May 1 of the year prior to 
the actual contract year. Medicare+Choice organizations are 
required to submit ACR proposals to show that the benefit 
packages they plan to market neither exceed cost sharing for 
traditional Medicare plans or unfairly charge enrollees for 
additional benefits.
    Under the law in effect prior to BBA 97, risk plans had a 
November 15 deadline for submission of their ACRs. The earlier 
deadline means that Medicare+Choice organizations must now 
project future payments and costs six months further out. The 
earlier deadline was selected, in part, to ensure HCFA had the 
time both to review and approve submissions and to include 
information on all plan choices in the information sent to 
beneficiaries before the annual open enrollment season.

Explanation of provision

    The bill would delay the deadline for the ACR submission to 
July 1. It would also require that any organization that wished 
to terminate its contract at the end of the contract year must 
inform the Secretary of such fact by not later than July 1.
    The bill would also modify the requirement that the 
Secretary make available to beneficiaries, during the annual 
open enrollment period, comparative information on all plan 
choices. The requirement would apply to the extent such 
information was available at the time of the preparation of the 
material for mailing.

Reason for change

    Administratively the May 1 deadline has proven to be 
unreasonable. HCFA has allowed plans until July 1, but needs 
statutory authority to be able to continue the practice.
    The second part of the provision allows the Secretary 
flexibility to provide beneficiaries with whatever information 
is available in a timely manner.

Effective date

    Upon enactment.

C. Section 523. User Fee for Medicare+Choice Organizations Based on the 
                    Number of Enrolled Beneficiaries

Current law

    The law requires the Secretary to collect a user fee from 
each Medicare+Choice organization for use in carrying out: (1) 
The enrollment activities and distribution of related 
information for Medicare+Choice; and (2) the health insurance 
and counseling and assistance program. The user fee is equal to 
the organization's pro rata share of the aggregate amount of 
fees collected from Medicare+Choice organizations. Collection 
of fees is contingent upon enactment of appropriations. All 
beneficiary education activities are financed by the 
Medicare+Choice user fees, although only 15 percent of all 
beneficiaries are enrolled in Medicare+Choice plans.

Explanation of provision

    The bill specifies that the aggregate amount of fees 
collected would be based on the number of beneficiaries in 
Medicare+Choice plans compared to the total number of Medicare 
beneficiaries. The limit on the total amount available in a 
fiscal year to the Secretary to carry out the functions would 
be $100 million. No further appropriation would be required.

Reason for change

    The information campaign is key to ensuring that 
beneficiaries have proper information to make prudent choices 
between plan options, including the traditional fee-for-service 
plan. Currently the Medicare+Choice plans pay the full cost of 
supplying information to beneficiaries concerning their 
Medicare benefits, including enrollment and plan options, 
although the Medicare+Choice plans comprise only about 15 
percent of Medicare enrollees. Allowing HCFA the ability to use 
the Part A trust fund to finance these essential beneficiary 
information activities ensures the program will be able to meet 
its obligation in this key area.

Effective date

    October 1, 1999.

d. section 524. change in time period for exclusion of medicare+choice 
           organizations that have had a contract terminated

Current law

    The law specifies that the Secretary cannot enter into a 
Medicare+Choice contract with a Medicare+Choice organization, 
if within the preceding five years, that organization had a 
Medicare+Choice contract which it did not renew. An exception 
may be made for special circumstances that warrant special 
consideration, as determined by the Secretary.
    HCFA has indicated that it will apply the prohibition only 
in cases where the entire contract is nonrenewed. Thus, the ban 
would not apply if an organization dropped a single country 
from a service areas while retaining the rest of the service 
ares. It would also not apply if a managed care organization 
nonrenewed one plan under a contract but retained other plans 
in that contract.

Explanation of provision

    The bill would provide that the exclusion period would be 
reduced from five years to two years.

Reason for change

    The logic behind the original lengthy exclusion is to keep 
plans from dropping in and out of the program. In practice this 
has not been a problem. In addition, other similar programs, 
such as the Federal Employees Health Benefits Program (FEHBP), 
has no such exclusion.

Effective date

    Contract years beginning January 1, 1999.

 e. section 525. flexibility to tailor benefits under medicare+choice 
                                 plans

Current law

    In general, M+C managed care plans 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 plans may require members to accept additional 
benefits, and pay extra for them in some cases. The amount a 
plan may charge for additional benefits is based on a 
comparison between the plan's adjusted community rate (ACR, 
essentially the estimated market price) for the Medicare 
package and the average of the M+C payments rate. A plan must 
offer ``additional even from Medicare.
    If the difference between the average M+C payment rate and 
the adjusted ACR is insufficient to cover the cost of 
additional benefits, the plan may charge a supplemental premium 
for the benefits. Under current law, the monthly basic and 
supplemental premiums, benefits covered, and cost sharing may 
not vary among individuals enrolled in the plan.

Explanation of provision

    The bill would allow plans to vary premiums, benefits, and 
cost sharing across individuals enrolled in the plan so long as 
these were uniform within an entire segment in a service area. 
A segment would comprise one or more counties within the plan's 
service area.

Reason for change

    Before the BBA, plans could offer different benefits in 
difference counties, paralleling the different payment rates 
found in different counties. More benefits could be offered in 
counties with higher payments rates. The BBA would require 
uniform benefits across all counties a plan services a 
particular market. In the interim, HCFA has allowed plans to 
``segment'' their markets into groups of counties. This 
provision would allow that interim practice to continue.
    The Committee is concerned about allegations that Medicare 
beneficiaries enrolled in the Medicare+Choice program are being 
denied access to chiropractic services, provided by a doctor of 
chiropractic. It was the clear intent of Congress, and 
especially this Committee, that beneficiaries enrolled in the 
Medicare+Choice program have access to the same covered medical 
services available to all beneficiaries under Part B.
    Therefore, the Committee would like to clarify its intent 
that pursuant to the 1997 Balanced Budget Act, individuals 
enrolled in a Medicare+Choice plan under Medicare part C have 
access to covered chiropractic services, i.e., treatment by 
means of manual manipulation of the spine to correct a 
subluxation, as are available to beneficiaries under Medicare 
Part B.

Effective date

    The provision would apply to contract years beginning on or 
after January 1, 2000.

    f. section 526. in applicability of qismc to preferred provider 
                             organizations

Current law

    In implementing the statutory requirement that 
Medicare+Choice plans have ongoing quality assurance programs, 
the Secretary has required that participating plans meet 
Quality Improvement System for Managed Care (QISMC) standards 
and guidelines.

Explanation of provision

    The bill would exempt Medicare+Choice preferred provider 
organizations from the requirements of QISMC. If the Secretary 
establishes requirements similar to QISMC's for fee-for-service 
providers participating under Part A and B of Medicare, then 
preferred provider organizations would be required to comply 
with them.

Reason for change

    Preferred Provider Organizations (PPO) in many ways operate 
more like a fee-for-service plan than a health maintenance 
organization. Standards developed for HMOs appear to have 
discouraged the entry of PPO plans into the Medicare-Choice 
system, because these standards are incompatible with the 
financing and delivery model of PPOs. This change would hold 
PPO plans to the same standards as the fee-for-service program, 
rather than those used for HMOs.

Effective date

    The provision would apply to contract years beginning on or 
after January 1, 2000.

   g. section 527. timing of Medicare+Choice health information fairs

Current law

    Current law establishes an annual coordinated election 
period in November of each year for individuals to elect or 
change their election of a Medicare+Choice plan. The law also 
provides for a nationally coordinated information and publicity 
campaign, to be held in the month of November, to inform 
beneficiaries concerning their Medicare+Choice options.

Explanation of provision

    The provisions would permit HCFA to conduct the information 
campaign earlier in the fall season. This would give HCFA 
flexibility with regard to the timing of health information 
fair activities.

Reason for change

    To allow beneficiaries access to information about plans 
choices as early as possible.

Effective date

    Upon enactment.

h. section 528. rules regarding physician referrals for Medicare+Choice 
                                program

Current law

    The law establishes a ban on certain financial arrangements 
between a referring physician and an entity. Specifically, if a 
physician (or immediate family member) has an ownership or 
investment interest in or a compensation arrangement with an 
entity, the physician is prohibited from making a referral to 
the entity for services for which Medicare would otherwise pay. 
Current law provides an exception to both the ownership and 
compensation arrangement prohibitions for services provided by 
an organization with a contract under section 1876.

Explanation of provision

    The provision would extend this exception to 
Medicare+Choice coordinated care plans.

Reason for change

    To ensure that Medicare+Choice plans are excepted from 
self-referral laws for practices that are considered routine or 
characteristic of managed care providers.

Effective date

    Upon enactment.

  i. section 529. clarification regarding the ability of a religious 
  fraternal benefit organization to operate a Medicare+Choice private 
                          fee-for-service plan

Current law

    Current law permits religious fraternal benefit societies 
that offer Medicare+Choice plans to restrict enrollment in such 
plans to their members. Currently, this allowable restriction 
applies only to coordinated care plans.

Explanation of provision

    The provision would extend the authority to private-fee-
for-service plans.

Reason for change

    To correct a drafting error made during BBA97, which put 
religious fraternal benefit societies, such as the Mennonite 
Mutual Aid, into the category designed for HMOs, rather than 
into the category for fee-for-service plans.

Effective date

    Contract years beginning on or after enactment.

    3. Subtitle C--Provisions Regarding Special Medicare Populations


  a. section 541. extension of social health maintenance organization 
                    demonstration project authority

Current law

    The Deficit Reduction Act of 1984 required the Secretary of 
HHS 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 the Omnibus Budget Reconciliation Act of 1990.
    The BBA 97 extended waivers for social health maintenance 
organizations through December 31, 2000, and expanded the 
number of persons who can be served per site from 12,000 to 
36,000.

Explanation of provision

    The bill would extend the waivers for first and second 
generation social health maintenance organizations (SHMO) one 
year after their respective reports are issued by the Secretary 
of HHS.

Reason for change

    The Secretary has not issued a report on the effectiveness 
of these demonstrations. This provision would ensure that the 
demonstrations not expire before the Secretary's report is 
issued and that there is ample time to act after the results of 
the report are known.

Effective date

    Upon enactment.

            b. section 542. inapplicability of oasis to pace

Current law

    BBA 97 authorized HCFA to undertake research and data 
collection to develop a case mix adjustment system for the home 
health prospective payment system. HCFA has used that authority 
to require home health agencies to administer and report 
information from a data collection instrument known as the 
Outcome and Assessment Information Set (OASIS), which had been 
under design and pilot testing for several years. OASIS will 
permit HCFA to obtain information on which to base the design 
and case mix adjustment of the home health care prospective 
payment system. It is a questionnaire required to be 
administered by a home health worker to home health 
beneficiaries at the start of a spell of care and occasionally 
thereafter.
    PACE is a managed-care approach to integration of acute 
care and long-term care services for the frail elderly. 
Enrollment is limited to individuals whose impairments are 
severe enough that they meet state nursing home admission 
requirements, but the objective is to maintain the individuals 
in their homes and in the community. PACE originally operated 
in a limited number of sites as a demonstration project and the 
BBA 97 made it a permanent component of Medicare, allowing up 
to 40 sites to be approved in 1998 and 20 more to be added 
annually thereafter.

Explanation of provision

    The bill would prohibit the Secretary from applying the 
data collection and reporting requirements of OASIS to home 
health services provided by PACE directly, or through a 
contract with a home health care agency.

Reason for change

    OASIS is designed to collect data from home health 
agencies. While PACE plans do provide home health services, 
they receive capitated payments based on the Medicare+Choice 
plan payment formula. The collection of OASIS data under these 
circumstances is unwarranted.

Effective date

    Upon enactment.

     c. section 543. Medigap protections for pace program enrollees

Current law

    The law guarantees issuance of specified Medigap policies 
(without an exclusion based on a pre-existing condition) for 
certain persons. Guaranteed issued protections extend to 
certain persons who elect to try one of the options available 
under the Medicare+Choice program. An individual is guaranteed 
issuance of the Medigap policy in which he or she was 
previously enrolled if the individual terminated enrollment in 
a Medigap policy, enrolled in a Medicare+Choice organization, 
and then terminated such enrollment within 12 months. The 
guarantee only applies if the individual was never previously 
enrolled in a Medicare+Choice plan.
    One group of persons is guaranteed issuance of any Medigap 
policy. These are persons who, when they first become entitled 
to Medicare at age 65, enroll in a Medicare+Choice plan and 
disenroll from the plan within 12 months.

Explanation of provision

    The bill would extend the re-enrollment protections 
provided beneficiaries whose Medicare+Choice plan withdraws 
from their county to beneficiaries whose PACE plan withdraws 
from their county. These protections would include reenrollment 
in their previous Medigap plan and the restarting of their 12-
month trial period.

Reason for change

    The purpose of the provision is to ease the transition for 
beneficiaries who lose their PACE option. To provide these 
beneficiaries with the option of returning to the traditional 
fee-for-service program and secure Medigap coverage.

Effective date

    Terminations or discontinuances on or after date of 
enactment.

d. section 544. continuation of the frail elderly demonstration project

Current law

    The EverCare demonstration project allows frail elderly 
beneficiaries in Medicare+Choice plans access to additional, 
specialized benefits and services. These demonstrations are due 
to expire at the end of 2000.

Explanation of provision

    This provision would extend the EverCare demonstration two 
additional years until 12/31/02. I would also exempt the 
EverCare demonstration project from the new risk adjustment 
methodology for one year. In addition, the demonstration 
project could employ an open enrollment policy.
    Importantly the Committee does not intend for these 
provisions to apply to non-demonstration EverCare sits the 
operate based on a subcontract arrangement with a 
Medicare+Choice plan.

Reason for change

    The EverCare programs' focus on the frail elderly makes it 
especially vulnerable to certain aspects of the new risk 
adjustment methodology. MedPAC has issued a report detailing 
the need for certain technical adjustments to by made to the 
proposed risk adjustment methodology. This two-year extension 
would allow HCFA and MedPAC additional time to develop a more 
effective risk adjuster for the frail elderly. In addition, the 
open enrollment feature would allow beneficiaries easier access 
to needed services.

Effective date

    Upon enactment.

     4. Subtitle D--Studies and Reports To Assist in Making Future 
                  Improvement in the Medicare Program


            a. section 561. GAO Studies, Audits and Reports

Current law

    The Secretary is required to provide information to 
Medicare beneficiaries on the Medicare+Choice program.

Explanation of provision

    The bill would require GAO to conduct a study on Medigap 
policies. The report would include a study of: (1) the level of 
coverage provided by each type of Medigap policy; (2) the 
current enrollment levels in each type of policy; (3) the 
availability of each type of policy to persons over age 65\1/
2\; (4) the number of states that offer each type of policy; 
and (5) the average out-of-pocket costs (including premiums) 
per beneficiary under each type of policy.
    The bill also would require the General Accounting Office 
(GAO), beginning in 2000, to conduct an annual audit of the 
Secretary's expenditures for providing information on 
Medicare+Choice to beneficiaries. By March 31 of 2000, 2003, 
2006, and 2009, the GAO would submit the results of the 
preceding your's audit to Congress. The report would also 
include an evaluation of the effectiveness of the means used to 
provide the information.

Reason for change

    Millions of Medicare beneficiaries rely on supplemental 
Medigap plans to provide additional coverage beyond what they 
receive from the Medicare fee-for-service plan. Information on 
the availability, adequacy and expense of such coverage is 
essential for a complete understand of the coverage protections 
available to the Medicare population.
    In the past, questions have been raised about the adequacy 
and effectiveness of the information HHS provides beneficiaries 
on their coverage options under both Medicare+Choice and the 
traditional fee-for-service plans. This provision asks GAO to 
audit this activity and report on the effectiveness of the 
program every 3 years. This information is provided to the 
Congress to help improve the information process.

Effective date

    GAO would report its Medigap findings to Congress by July 
1, 2001.
    GAO would submit the results of the preceding year's audit 
by March 31 of 2001, 2004, 2007, and 2010.

   b. section 562. medicare payment advisory commission studies and 
                                reports

Current law

    The Medicare Payment Advisory Commission (MedPAC) is 
required to review Medicare payment policies and prepare annual 
reports to congress on the results of the reviews.

Explanation of provision

    The bill would require MedPAC to conduct a study that 
evaluates the methodology used by the Secretary in developing 
risk adjustment factors for Medicare+Choice capitation rates. 
Specific issues would include: The ability of risk adjustment 
to explain variations in plans' average per capita costs. The 
year-to-year stability of risk adjustment factors, especially 
for plans with smaller enrollments. Risk adjustment factors for 
beneficiaries entering and exiting Medicare+Choice plans. A 
report on the study, together with any recommendations, would 
be due to the Congress by December 1, 2000.
    The bill would also require MedPAC to conduct a study on 
the development of a payment methodology under the 
Medicare+Choice program for frail elderly beneficiaries 
enrolled in a specialized program for the frail elderly. Such 
payment methodology would account for: (1) the prevalence, mix 
and severity of chronic conditions among such beneficiaries; 
(2) include medical diagnostic factors from all conditions 
among such other factors that may be necessary to achieve 
appropriate payments for plans serving such beneficiaries.

Reason for change

    The introduction or risk adjustment in the Medicare+Choice 
program will result in significant changes in the way plans are 
paid by Medicare. MedPAC is asked to examine and evaluate the 
relative effects of the new system under a wide variety of 
circumstances. MedPAC is asked to provide the Congress with 
analysis necessary to judge the effectiveness of the new 
payment methodology.
    MedPAC is also asked to analyze and report on the 
appropriate modifications that may be necessary to ensure that 
risk adjustment methodologies will prove effective when dealing 
with the frail elderly. The frail elderly present a 
particularly complex problem for risk adjustment, as earlier 
MedPAC analysis brought to light. If there are modifications 
needed to ensure the frail elderly are properly served in the 
Medicare+Choice program, the Congress needs to be informed as 
soon as possible.

Effective dates

    A report on the risk adjustment study, together with any 
recommendations, would be due to the Congress by December 1, 
2000.
    The report on an appropriate risk adjustment methodology 
for the frail elderly would be due to Congress within one year 
of enactment, together with any legislative recommendations 
determined appropriate by MedPAC.

  c. section 563. computation and report on medicare original fee-for-
            service expenditure on an county-by-county basis

Current law

    The Secretary is required to announce M+C payment rates for 
each payment area, and risk and other factors to be used in 
adjusting payments, not later than March 1 before the calendar 
year concerned. At least 45 days before making the announcement 
for a year, the Secretary must provide for notice to M+C 
organizations of proposed changes to be made in the methodology 
and assumptions used in the previous announcement. The 
Secretary must also provide sufficient detail so that M+C 
organizations can compute monthly adjusted M+C capitation rates 
for individuals in each M+C payment area.
    The Secretary is not required to publish original fee-for-
service expenditures on a county-by-county basis. These data 
comprise adjusted average per-capita cost (AAPCC) data. AAPCCs 
formed the basis of payments to managed care plans prior to 
enactment of BBA 97, and represented the costs of providing 
Medicare benefits to beneficiaries under the original fee-for-
service program under parts A and B in each county nationwide. 
Because M+C payments are not longer directly tied to a payment 
areas's fee-for-service costs, APCCs have not been published.

Explanation of provision

    The Secretary of Health and Human Services would be 
required to compute expenditures under the original fee-for-
service program underparts A and B of the Medicare program on a 
county-by-county basis, and submit a report to Congress on the 
computation. This report would include any recommendations for 
legislation that the Secretary determines to be appropriate as 
a result of the computation.

Reason for change

    It is essential to the proper legislative oversight of the 
Medicare program to have accurate data on the variations in 
Medicare spending across the country. These date are necessary 
to judge the cost-effectiveness of Medicare+Choice plans and 
ensure that their payment rates reflect an appropriate amount 
for the markets they operate within. The data are equally 
essential to understand variations in fee-for-services spending 
in different markets across the country.

Effective date

    The Secretary must submit a report to Congress not later 
than January 1, 2000, and annually thereafter.

d. section 564. study and report on the effects costs, and feasibility 
      of requiring medicare original fee-for-service entities and 
 medicare+choice coordinated care plans to comply with uniform quality 
              standards and related reporting requirements

Current law

    Medicare+Choice coordination are required to comply with 
certain quality standards and related reporting requirements.

Explanation of provision

    The bill would require the Secretary to conduct a study on 
the effects, costs, and feasibility of requiring fee-for-
service providers and entities to comply with quality standards 
and related reporting requirements which are comparable to 
those required for Medicare+Choice plans. The study would also 
include an examination the effects, costs, and feasibility of 
developing specific quality standards for different types of 
Medicare+Choice coordinated care plans.

Reasons for change

    As quality has become more of an issue in the Medicare 
program, the primary emphasis has been on the HMOs. This study 
would provide analysis to help look beyond HMOs, to both the 
traditional fee-for-service program, as well as other types of 
plans that became possible as a result of the BBA, (e.g., 
preferred provider organizations, or point-of-service plans).

Effective date

    A report on the study, together with any legislative 
recommendations, would be due to Congress by March 1, 2000.

e. section 565. study and report to congress regarding data submission 
used to establish risk adjustment methodology under the medicare+choice 
                                program

Current law

    No provision.

Explanation of provision

    The Secretary of Health and Human Services would conduct a 
study on reducing the amount of data that are required to be 
submitted by M+C organizations in order for the Secretary to 
establish a risk adjustment methodology. The Secretary would 
submit a report to Congress on the study, together with any 
recommendations for legislation that the Secretary determines 
to be appropriate as a result of the study.

Reason for change

    As risk adjustment becomes a more powerful influence in 
plan payments, it is necessary to ensure that the data needed 
to build the risk adjusters is collected in the most efficient, 
least burdensome manner. It is also important that these 
adjusters be as accurate as possible to avoid over payment or 
under payment of plans. Given the amount of controversy 
surrounding the use of risk adjusters, it is important that the 
process be open and understood.

Effective date

    The Secretary would submit the report by January 1, 2000.

                 G. Title VI. Other Medicare Provisions


     1. section 601. moratorium on therapy services payment limits

Current law

    BBA 97 established annual payment limits for all outpatient 
therapy services provided by non-hospital providers. The limits 
apply to services provided by independent therapists as well as 
to those provided by comprehensive outpatient rehabilitation 
facilities (CORFs) and other rehabilitation agencies. The 
limits do not apply to outpatient services provided by 
hospitals.
    There are two per beneficiary limits. The first is a $1,500 
per beneficiary annual cap for all outpatient physical therapy 
services and speech language pathology services. The second is 
a $1,500 per beneficiary annual cap for all outpatient 
occupational therapy services. Beginning in 2002, the amount 
will increase by the Medicare Economic Index (MEI), rounded to 
the nearest multiple of $10.
    The Secretary is required to report to Congress by January 
1, 2001, on recommendations for establishing a revised payment 
policy based on classification of individuals by diagnostic 
coverage groups.

Explanation of provision

    The bill would place a 2-year moratorium on implementing 
the caps. It would also require the Secretary to report to the 
Congress on utilization of therapy services and an alternative 
payment methodology.

Reason for change

    The current $1,500 cap is an arbitrary amount. Moreover, 
the cap does not allow flexibility for the needs of a 
particular beneficiary. This proposal is intended to provide 
targeted relief until the Secretary reports on a more 
appropriate long-term policy with regard to outpatient therapy 
services.

Effective date

    January 1, 2000.

2. section 602. increase in payment amount for renal dialysis services 
                  furnished under the medicare program

Current law

    Dialysis facilities providing care to beneficiaries with 
end-stage renal disease (ESRD) receive a fixed prospective 
payment amount for each dialysis treatment. This composite rate 
also includes payment for tests, services, drugs and supplies 
routinely required for dialysis treatment. The base composite 
rate for hospital-based providers is $126 and for free-standing 
facilities, it is $122. P.L. 101-508 required that the 
composite payment rate to dialysis facilities be increased by 
$1 above therate that was in effect as of September 30, 1990. 
The composite rate has not been changed since then.

Explanation of provision

    The bill would set the composite rate for services 
furnished after October 1, 2000, at 102.0% of the rate for 
services furnished on December 31, 1999.

Reason for change

    The prospective payment, or composite rate, paid to 
dialysis facilities for each dialysis treatment they provide to 
Medicare beneficiaries has remained essentially unchanged since 
1983. MedPAC reports that costs have risen in relation to the 
composite rate in recent years and has recommended that the 
rate be increased.

Effective date

    Services furnished on or after October 1, 2000.

                       3. section 603. pap smears

Current law

    Medicare pays for Pap smears under the clinical laboratory 
fee schedule. Prior to January 1, 1999, a separate payment 
could be made under the physician fee schedule for the 
interpretation of an abnormal pap smear furnished to a hospital 
inpatient by a physician. Beginning after January 1, 1999, a 
separate payment may be made for a physician's interpretation 
for a pap smear to any patient (i.e., hospital or non-hospital) 
as long as (1) the laboratory's screening personnel suspect an 
abnormality; and (2) the physician reviews and interprets the 
pap smear.

Explanation of provision

    The bill directs the Secretary to establish a minimum 
payment amount of $14.60 for pap smear laboratory tests, 
including all cervical cancer screening technologies approved 
by the FDA, for a period of two years. During that time, the 
Committee expects to receive a report, mandated through the 
BBA, to establish a more appropriate long-term payment policy 
for clinical lab services.

Reason for change

    Through the BBA, Congress emphasized the importance of 
preventive benefits, including pap smears, for Medicare 
beneficiaries. Yet, the current $7.15 reimbursement rate for 
pap smears is far below the national median cost of $14.60.

Effective date

    January 1, 2000.

            4. section 604. disproportionate share hospitals

Current law

    Medicare makes additional payments to hospitals that serve 
a disproportionate share of low income Medicare and Medicaid 
patients. BBA 97 reduced the disproportionate share hospital 
(DSH) payment formula by 1% in FY 1998; 2% in FY 1999; 3% in FY 
2000; 4% in FY 2001; 5% in FY 2002 and 0% in FY 2003 and in 
each subsequent year.

Explanation of provision

    The bill freezes the reduction in the DSH payment formula 
at 3% in FY 2001.

Reason for change

    The Committee believes that the cumulative impact of 
several BBA provisions has produced an unintended financial 
burden on DSH hospitals. Payments to these hospitals have been 
reduced by cuts in payments to DSH, cuts in payments for the 
indirect costs associated with medical education (IME 
payments), and the reduction in payment updates to hospitals as 
a whole. This provision would restore a portion of the funding 
reductions that DSH hospitals have experienced.
    The Committee notes that in the final rule for FY 2000 
changes to the hospital inpatient prospective payment system 
that were published in the Federal Register on July 30, 1999, 
the Secretary decided not to adopt refinements to the special 
exceptions process for capital payments. The Committee expects 
that appropriate changes in payment policy will be made in the 
fiscal year 2001 rule-making process to more adequately address 
problems arising from the transition to capital prospective 
payment for large capital projects of 450 beds or more begun 
during the transition by establishing a minimum payment floor 
equal to that provided to ``old capital'' without offsetting 
reductions; a graduated disproportionate share requirement; 
and, for public hospital projects, an extended placed-in-
service date.

Effective date

    Effective for payments made in FY 2000.

   5. section 605. clarification of the inherent reasonableness (IR) 
                               authority

Current law

    The BBA 97 provided the Secretary of HHS with enhanced 
authority to adjust Medicare Part B payment levels when those 
payments are not found to be ``inherently reasonable.'' HCFA 
has proposed through its durable medical equipment regional 
carriers (DMERCs), applying the new inherent reasonableness 
authority to a variety of medical equipment items. HCFA 
promulgated its new IR authority via an interim final rule 
rather than a proposed rule with traditional notice and comment 
period.

Explanation of provision

    The bill would require the Secretary to suspend use of the 
inherent reasonableness authority. This suspension would be in 
place until 3 months following the release of a report by the 
GAO on the impact of the Secretary's use of the inherent 
reasonableness authority to date.

Reasons for change

    Several concerns have been raised regarding HCFA's use of 
the IR authority. Specifically, it is possible that use of the 
IR authority may have a negative impact on patients. 
Additionally, GAO is conducting an examination of the statute 
and regulation to determine whether HCFA is appropriately using 
its enhanced IR authority.

Effective

    Upon enactment.

    6. Section 606. Technical amendments relating to BBA Provisions

A. Medicare Rural Hospital Flexibility Program

Current law

    BBA 1997 established the criteria for a small, rural, 
limited service hospital to be designated as a critical access 
hospital (CAH). The facility is designated as a critical access 
hospital if the facility is a nonprofit or public hospital and 
is located in a county that is either located more than 35 
miles away (or given geographic constraints, 15 miles away) 
from another hospital or is certified by the State as a 
necessary provider.

Explanation of provision

    This change would clarify a drafting ambiguity and ensure 
an interpretation where the hospital, and not the rural area 
itself, must be a certain distance from other hospitals or 
certified as a necessary provider of health services.

Reason for change

    The provision has been identified as a drafting ambiguity 
that requires legislative clarification.

Effective date

    Effective as if included in the Balanced Budget Act of 
1997.

B. Rural health clinic services

Current law

    BBA 1997 applied a per-visit payment limit for rural health 
clinic services (other than those provided in clinics in rural 
hospitals with less than 50 beds) furnished on or after January 
1, 1998.

Explanation of provision

    This provision would change the effective date of the per-
visit payment limit to cost reporting periods beginning on or 
after January 1, 1998.

Reason for change

    The provision has been identified as a drafting ambiguity 
that requires legislative clarification.

Effective date

    As if included in the Balanced Budget Act of 1997.

C. PPS hospital payment update for temporary relief hospitals

Current law

    BBA 1997 provided a temporary special payment in FY 1998 
and FY 1999 for certain hospitals. Qualifying hospitals 
received a .5% additional increase to the FY 1998 hospital 
market basket index and were supposed to have a .3% additional 
increase to the FY 1999 market basket index. However the 
existing language establishing the way these qualifying 
hospitals should be treated in FY 1999 refers to the FY 1998 
hospital market basket update.

Explanation of provision

    This legislation would correct the reference.

Reason for change

    The description of how hospitals should be treated in FY99 
currently refers to the hospital market basket (MB) update in 
1998. The proposal corrects the reference.

Effective date

    As if included in the Balanced Budget Act of 1997.

D. Maintaining savings from temporary reduction in capital payments for 
        PPS hospitals

Current law

    BBA 97 required the Secretary to rebase the acute 
hospital's capital payment rates by the actual rates in effect 
in FY 1995, so that aggregate capital payments will equal 90% 
of what payments would have been under reasonable cost 
payments, withan additional reduction of 2.1%. This capital 
payment method applies to discharges occurring on or after October 1, 
1997 and before September 30, 2002.

Explanation of provision

    This provision would extend the effective date of the 
existing capital payment method to discharges occurring before 
October 1, 2002.

Reason for change

    As written, the provision expires the second to last day of 
FY02, as opposed to the last day of FY02, which creates an 
unintended gap in expected payment savings.

Effective date

    As if included in the Balanced Budget Act of 1997.

E. To allow sufficient time for facility-specific rates to be 
        established for Skilled Nursing Facilities (SNFs) for which the 
        PPS does not begin until after January 1, 1999

Current law

    The BBA 97 requires that the SNF prospective payment system 
be phased in over 3 years starting July 1, 1998, or the first 
date thereafter on which a SNF started a new annual cost 
reporting period. During this phase-in period, part of the per 
diem payment to each SNF is based on the facility's historical 
costs (the ``facility specific'' component of the prospective 
payment system), and part is based on the new federal per diem 
prospective payment. In the first year of the 3-years phase-in 
period starting on or after July 1, 1998, a SNF receives per 
diem rates that are a ``blend'' of 75% of the facility-specific 
rate and 25% of the federal per diem rate; in the second year 
the blend is 50% facility specific and 50% federal; in the 
third year the blend is 25% facility specific and 25% federal; 
in the fourth year the federal per diem rate is the full rate.
    The current law requires that administrative and judicial 
review of facility specific rates not be permitted for SNFs 
with cost reporting periods starting before January 1, 1999.

Explanation of provision

    Some SNFs began the first cost reporting period to which 
the transition period and facility specific rates were 
applicable on or after January 1, 1999. Under current law, 
these facilities would be able to appeal their facility 
specific rate under the transition period. The provision would 
clarify that administrative and judicial review of facility 
specific rates under the prospective payment system transition 
period plan would not be permitted for all SNFs, including 
those starting their first transition cost reporting period on 
or after January 1, 1999.

Reason for change

    The amendment applies to facility-specific SNF rates 
established as of January 1, 1999. However, the effective date 
for the SNF PPS is set for cost reports beginning on or after 
July 1, 1998. Thus, the facility-specific rates may not have 
been established for facilities for which PPS does not begin 
until after January 1, 1999. This amendment would allow 
sufficient time so that the provision would apply to all 
facility-specific rates.

Effective date

    Effective as if included in the Balanced Budget Act of 
1997.

F. Transfer of criminal fines recovered in a Federal health care 
        offense

Current law

    HIPPA established that criminal fines recovered in cases 
involving a federal health care offense (as defined by 18 
U.S.C. 982(a)(6)(B)) shall be transferred to the Hospital 
Insurance Trust Fund. There is no 18 U.S.C. 982(a)(6)(B). 18 
U.S.C. 982(a)(6) states: the court in imposing sentence on a 
person convicted of a Federal health care offense, shall order 
the person to forfeit property, real or personal, that 
constitutes or is derived directly or indirectly, from gross 
proceeds traceable to the commission of the offense.

Explanation of provision

    The provision would change the reference to criminal fines 
recovered in cases involving a federal health care offense as 
defined by 18 U.S.C. 24(a).

Reason for change

    A technical error has been identified in HIPA that wrongly 
cites a definition for Federal health care offense. The 
amendment would fix the technical error and ensure that 
criminal fines recovered in cases involving a Federal health 
care offense are properly transferred to the Federal Hospital 
Insurance (HI) Trust Fund.

Effective date

    Effective as if included in the HIPPA.

G. Medicare Payments to newly established PPS exempt providers

Current law

    BBA 1997 authorized the Secretary to establish payment 
limits to new PPS exempt providers that are based on the target 
amounts of established providers. PPS exempt providers 
established after October 1, 1997 are subject to a limit equal 
to 110 percent of the wage and inflation adjusted, median 
target amount of established facilities in each provider class 
in FY 1996.

Explanation of provision

    This provision would make the Secretary's authority to 
estimate these limits explicit.

Reason for change

    The amendment would conform the TEFRA target cap provision 
in section 4414 and the provision for new providers at section 
4416. The amendment is a technical adjustment that clarifies 
that the Secretary has authority to calculate the median of the 
target amounts for hospitals within certain classes based upon 
an estimate.

Effective date

    Effective as if included in the Balanced Budget Act of 
1997.

             7. section 607. exclusion from PAYGO scorecard

Current law

    The Budget Enforcement Act requires the Office of 
Management & Budget to implement automatic across-the-board 
cuts (known as ``sequestration'') in non-exempt direct spending 
programs to offset any ``net deficit increase caused by all 
direct spending and receipts legislation enacted before October 
1, 2002.''

Explanation of provision

    This provision clarifies that for purposes of section 252 
of the Budget Enforcement Act, this bill shall not be 
considered to cause any ``net deficit increase.''

Reason for change

    This provision will prevent the bill from triggering a 
budget sequester.

Effective date

    Upon enactment.

         H. Title VII--Provisions Relating to Medicaid and Chip


            1. section 701. medicaid-related bba technicals

A. Cross Reference Corrections

Current law

    No provision.

Explanation of provision

    The Committee's provision makes technical corrections to 
cross-references in Title XIX.

Reason for change

    The Health Care Financing Administration has identified 
errors in cross references drafted in the Balanced Budget Act 
of 1997.

Effective date

    Upon enactment.

B. Elimination of duplicative requirements for external quality review 
        of Medicaid managed care organizations

Current law

    Medicaid managed care organizations are required to obtain 
annual independent, external reviews using either a utilization 
and quality control peer review organization, a PRO defined 
under section 1152, or a private accreditation body. The 
results must be made available to the State and upon request to 
the Secretary, the Inspector General of HHS and the Comptroller 
General. This requirement is contained in two different 
sections of Medicaid law.

Explanation of provision

    The Committee's provision deletes the external review 
requirements of Section 1902(a)(C) and would require the 
Secretary of HHS to certify to Congress that the external 
review requirement in Section 1932(c)(2) is fully implemented.

Reason for change

    The Health Care Financing Administration has identified 
redundancies in current law.

Effective date

    Effective when the Secretary of Health and Human Services 
certifies to Congress that it is fully implementing section 
1932(c)(2) of the Social Security Act.

C. Making enhanced match under CHIP Program inapplicable to Medicaid 
        DSH payments

Current law

    Medicaid authorizes states to make special disproportionate 
share (DSH) payments to certain hospitals treating large 
numbers of low-income and Medicaid patients. States have a 
great deal of flexibility in determining the formula used to 
calculate the payments paid to individual hospitals within 
minimum and maximum federal criteria. Those payments are 
matched by the federal government at the federal medical 
assistance percentage (FMAP), the same percentage that the federal 
government matches most other Medicaid payments for benefits. On the 
other hand, Medicaid payments for children who are eligible for 
benefits on the basis of being a targeted low-income child under Title 
XXI are matched at an enhanced federal matching percentage which is 
considerably higher than the basic Medicaid FMAP.

Explanation of provision

    The Committee's provision clarifies that Medical DSH 
payments are matched at the FMAP and not at the enhanced 
federal matching percentage authorized under Title XXI.

Reason for change

    The Health Care Financing Administration requested 
clarification to ensure that draw down of state DSH allotments 
is not altered unintentionally as a result of the creation of 
the CHIP program.

Effective date

    Effective on October 1, 1999 and applies to expenditures 
made on or after such date.

D. Making deferment of the effective date for outpatient drug 
        agreements optional for States

Current law

    Medicaid law requires that rebate agreements between the 
Secretary (or, if authorized by the Secretary, with the States) 
and drug manufacturers that were not in effect before March 1, 
1991 become effective the first day of the calendar quarter 
that begins more than 60 days after the date the agreement is 
entered into.

Explanation of provision

    The Committee's provision allows rebate agreements entered 
into after the date of enactment of this act to become 
effective on the date on which the agreement is entered into, 
or at State option, any date before or after the date on which 
the agreement is entered into.

Reason for change

    The Health Care Financing Administration and the states 
believe that flexibility related to effective dates will 
increase the efficiency of program administration.

Effective date

    Upon enactment.

 2. section 702. increase in disproportionate share hospital allotment 
            for certain states and the district of Columbia

Current law

    The federal share of Medicaid disproportionate share 
hospital (DSH) payments is capped at amounts specified for each 
state.

Explanation of provision

    The Committee's provision increases the ceiling on the 
federal share of Medicaid disproportionate share payments for 
the District of Columbia, from $23 million to $32 million for 
each of fiscal years 2000 through 2002; for Minnesota, from $16 
million to $33 million for each of fiscal years 1999 through 
2002; for New Mexico, from $5 million to $9 million for each of 
fiscal years 1998 through 2002; for Wyoming, from 0 to $.1 
million for each of fiscal years 1999 through 2002.

Reason for change

    The Balanced Budget Act (BBA) of 1997 increased the 
Medicaid matching rate for the District of Columbia, but the 
DSH table written into Title XIX elsewhere in BBA reflected the 
previous, lower match rate. This change recalculates DC's 
allotment based on the new rate. Minnesota, New Mexico, and 
Wyoming all misreported their DSH spending during the time 
periods used as the base in calculating the DSH allotments set 
forth in BBA. These errors, verified by HCFA, have been 
corrected through the appropriations process in previous years; 
this provision would make the correction permanent.

Effective date

    Retroactive to October 1, 1999.

     3. section 703. making medicaid dsh transition rule permanent

Current law

    For the period July 1, 1997 through July 1, 1999, hospital-
specific disproportionate share hospital (DSH) payments for the 
State of California may be as high as 175% of the cost of care 
provided to Medicaid recipients and individuals who have no 
health insurance or other third-party coverage for services 
during the year (net of non-disproportionate share Medicaid 
payments and other payments by uninsured individuals).

Explanation of provision

    The Committee's provision would remove the July 1, 1999 end 
date for increased hospital-specific disproportionate share 
payments for the State of California, extending the transition 
period indefinitely.

Reason for change

    The State has petitioned for continuation of the transition 
rule to ensure the stability and viability of California's 
negotiated consensus on the allocation of its DSH allotment. 
The provision in no way impacts the state's overall DSH 
spending--it only relates to internal distribution of funds 
among hospitals. The California hospitals strongly support this 
provision.

Effective date

    Effective as if included in the Balanced Budget Act of 
1997.

 4. section 704. increased allotments for territories under the state 
                  children's health insurance program

Current law

    Of the total amount available for allotment for the CHIP 
program, commonwealths and territories are allotted .25%, to be 
divided among them based on specified percentages. In addition, 
for fiscal year 1999, commonwealths and territories were 
allotted $32 million. This ``additional allotment'' amount was 
also divided among them based on the same specified percentages 
as the basic allotment.

Explanation of provision

    The provision requires an additional allotment to be 
available for the commonwealths and territories of $34.2 
million for each of fiscal years 2000 and 2001, $25.2 million 
for each of fiscal years 2002 through 2004, $32.4 million for 
each of fiscal years 2005 and 2006, and $40 million for fiscal 
year 2007.

Reason for change

    The provision permanently corrects an under-representation 
of the population of the territories reflected in the original 
formula set forth in the Balanced Budget Act of 1997, rather 
than relying on the appropriations process to make the 
correction as was done in fiscal year 1999.

Effective date

    Upon enactment.

     5. section 705. removal of fiscal year limitation on certain 
              transitional administrative costs assistance

Current law

    The Personal Welfare and Responsibility Act of 1996 
replaced the Aid to Families with Dependent Children (AFDC) 
program and established the Temporary Assistance for Needy 
Families (TANF) program. Under the old program, people who 
qualified for AFDC were automatically eligible for Medicaid. 
Welfare reform de-linked Medicaid and TANF eligibility. 
Further, it provided states with a great deal more flexibility 
in designing welfare benefits and eligibility rules. Concerned 
that state Medicaid programs would face large new 
administrative costs for conducting Medicaid eligibility 
determinations that would otherwise not have occurred, Congress 
established a fund of $500 million to assist with the 
transitional costs of the new dual eligibility activities. The 
funds are available at an increased federal matching rates for 
states that can demonstrate to the satisfaction of the 
Secretary that such additional administrative costs were 
attributable to welfare reform. The increased matching funds 
are available for the period beginning with fiscal year 1997 
and ending with fiscal year 2000 and must relate to costs 
incurred during the first 12 quarters following the welfare 
reform effective date.

Explanation of provision

    The Committee's provision would extend the availability of 
the transitional increased federal matching funds beyond fiscal 
year 2000 and allow costs for which the increased matching 
funds are claimed to relate to costs incurred for the calendar 
quarters beyond the first 12 following the effective date of 
welfare reform.

Reason for change

    The Health Care Financing Administration is conducting 
state-by-state reviews to ensure that Medicaid and welfare 
eligibility systems are properly aligned. Extension of the 
period of access to the transition fund would make assistance 
available to correct any problems that are identified by the 
HCFA site visits.

Effective date

    The provision is effective as if included in the enactment 
of Section 114 of the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996.

        6. section 706. stabilization of chip allotment formula

Current law

    States and the District of Columbia are allotted funds for 
the CHIP program using a distribution formula based on the 
product of the number of low-income uncovered children and a 
``state cost factor''. For fiscal years 1998 through 2000, low 
income uncovered children are equal to the 3-year average of 
uninsured children in families with income below 200% of the 
federal poverty level estimated for the fiscal year using the 
three most recent supplements to the March Current Population 
Survey. For fiscal year 2001, low-income uncovered children 
become 75% of the 3-year average of uninsured children in 
families with income below 200% of poverty plus 25% of the 
number of low-income children in the state. For years 
thereafter, low-income uncovered children would be equal to 50% 
of the 3-year average of uninsured, low-income children plus 
50% of the low-income children in the state. The state cost 
factor for a fiscal year would be equal to the sum of .85 
multiplied by the ratio of the annual average wages per 
employee in the state for such year to the national average 
wages per employee for such year and .15. The annual average 
wage per employee for each year would be calculated using the 
wages of employees in the health services industry 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.
    CHIP further provided that allotments for states and the 
District of Columbia are subject to a floor of $2 million and 
should the calculation of the distribution formula result in an 
amount for any state (or the District) that is below $2 
million, the allotment amount for that state (or the District) 
would be raised to $2 million and allotments for all other 
states be lowered accordingly.

Explanation of provision

    Acceleration of blended rate. The Committee's provision 
would accelerate the transition to the blended rate formula by 
one year. For 2000, lower-income uncovered children would be 
calculated as the sum of 75% of the number of low-income 
uninsured children plus 25% of the number of low-income 
children. For years thereafter, low-income uncovered children 
would be calculated as 50% of low-income uninsured plus 50% of 
the number of low-income.
    Floors and Ceilings in State Allotments. For any single 
state, the Committee's provision would provide that the 
percentage of total federal allotment for any fiscal year 
cannot decrease by more than 10 percent from the previous 
year's allotment, nor may any state experience more than a 30 
percent cumulative decline. In addition, no state may 
experience a cumulative increase of more than 45 percent over 
its fiscal year 1999 allotment. In order to keep within the 
overall S-CHIP allotment amount, a reconciliation process will 
limit the annual growth of those states experiencing the 
highest annual increases.
    Modification of Data Set Used to Determine Number of 
Children. The Committee's provision would change the data set 
to be used to estimate the number of low income uncovered 
children for a fiscal year from the three most recent March 
supplements of the CPS to the three most recent March 
supplements that were available before the calendar year in 
which the relevant fiscal year begins.

Reason for change

    The formula established by the Balanced Budget Act of 1997 
results in allotment fluctuations of as much as 40 percent from 
one year to the next because of data instability. To avoid 
those fluctuations, last year Congress froze allotments at the 
fiscal year 1998 level. The provisions in this package build 
greater stability into the formula set forth in BBA, without 
making fundamental changes to the formula itself. These 
technical stability adjustments were developed with the input 
of HCFA, GAO, and CBO.

Effective date

    The amendments made by this section apply to allotments for 
fiscal year 2000 and each fiscal year thereafter.

    7. section 707. chip data and evaluation improvement act of 1999

A. Funding for reliable annual State-by-State estimates on the number 
        of children who do not have health insurance coverage

Current law

    No provision.

Explanation of provision

    The Committee provision requires that the Secretary of 
Commerce make appropriate adjustments to the annual Current 
Population Survey (CPS) conducted by the Bureau of the Census 
to produce statistically reliable annual State-level data on 
the number of low-income children without health insurance. 
Data should be stratified by family income, age, and race or 
ethnicity. Appropriate adjustments to the CPS may include 
expanding sample size and/or sampling units within States, and 
appropriate verification methods. For these purposes, the 
Committee's provision requires that $10 million be appropriated 
for FY-2000 and for each year thereafter.
    These changes to the CPS will improve critical data for 
evaluation purposes. They will also affect State-specific 
counts of number of low-income children and the number of such 
children who have no health insurance coverage that feed into 
the formula in existing law that determines annual State-
specific allotments from Federal CHIP appropriations.

Reason for change

    Current state-by-state estimates of uninsured, low-income 
children rely on data sets too small to produce reliable 
results. Increasing the sample size will yield more accurate 
data.

Effective date

    Upon enactment.

B. Funding for children's health care access and utilization State-by-
        State data

Current law

    No provision.

Explanation of provision

    The Committee provision requires the Secretary of Health 
and Human Services, acting through the National Center for 
Health Statistics (NCHS), to collect data on children's health 
insurance through the State and Local Area Integrated Telephone 
Survey (SLAITS) for the 50 States and the District of Columbia. 
The data collected must provide reliable, annual State-by-State 
information on health care access and utilization by low-income 
children. Data must also allow for stratification by family 
income, age, and race or ethnicity. The Secretary must obtain 
input from appropriate sources, including States, in designing 
the survey and its content. For these purposes, the Committee's 
provision requires that $9 million be appropriate for FY-2000 and for 
each year thereafter.
    Finally, at State request, the Secretary must also collect 
additional SLAITS data to assist with individual state CHIP 
evaluations, for which the States must reimburse NCHS for such 
services.

Reason for change

    This provision will improve state-by-state data collection 
on health care access and utilization, which will be useful in 
evaluations of the state children's health insurance program.

Effective date

    Upon enactment.

C. Federal evaluation of State children's health insurance programs

Current law

    The Secretary is required to submit to Congress by December 
31, 2001, a report based on the annual evaluations submitted by 
States, with conclusions and recommendations, as appropriate.

Explanation of provision

    The Committee provision adds a new Federal evaluation to 
current law. The Secretary of Health and Human Services, 
directly or through contracts or interagency agreements, would 
be required to conduct an independent evaluation of 10 States 
with approved CHIP plans. The selected States must represent 
diverse approaches to providing child health assistance, a mix 
of geographic areas (including rural and urban areas), and a 
significant portion of uninsured children. The Federal 
evaluation will include, but not be limited to: (1) a survey of 
the target population, (2) an assessment of effective and 
ineffective outreach and enrollment practices for both CHIP and 
Medicaid, (3) an analysis of Medicaid eligibility rules and 
procedures that are a barrier to enrollment in Medicaid, and 
how coordination between Medicaid and CHIP has affected 
enrollment under both programs, (4) an assessment of the 
effects of cost-sharing policies on enrollment, utilization and 
retention, and (5) an analysis of disenrollment patterns and 
factors influencing this process. The Secretary must submit the 
results of the Federal evaluation to Congress no later than 
December 31, 2001. For these purposes, the Committee's 
provision requires that $10 million be appropriated for FY-
2000. This appropriation shall remain available without fiscal 
year limitation.

Reason for change

    Under current law, there is no federal evaluation of the 
CHIP program as a whole, only a compilation of state-by-state 
reports. This provision would establish a broader evaluation to 
study trends and patterns and elicit information about areas of 
possible improvement.

Effective date

    Upon enactment.

D. Inspector general audit and GAO report on enrollees eligible for 
        Medicaid

Current law

    No provision.

Explanation of provision

    The Committee provision requires that the Inspector General 
of the Department of Health and Human Services conduct an audit 
to determine how many Medicaid-eligible children are 
incorrectly enrolled in CHIP among a sample of States that 
provide child health assistance through separate programs only 
(not via a Medicaid expansion). This audit will also assess 
progress in reducing the number of uninsured children relative 
to the goals stated in approved CHIP plans. The first such 
audit will be conducted in FY-2000, and will be repeated every 
third fiscal year thereafter. In addition, this provision 
requires GAO to monitor these audits and report their results 
to Congress within six months of audit completion (i.e., by 
March 1 of the fiscal year following each audit).

Reason for change

    There have been anecdotal reports of Medicaid eligible 
children enrolling in CHIP inappropriately. This research will 
determine whether there is in fact a problem with inappropriate 
program assignment. In addition, the provision also will 
require ongoing assessment of whether the CHIP program is on 
track to meet its coverage goals.

Effective date

    Upon enactment.

E. Coordination of data collection with data requirements under the 
        maternal and child health services block grant

Current law

    Under current law, States are required to submit annual 
reports detailing their activities under the Maternal and Child 
Health (MCH) Services Block Grant. These reports must include, 
among other items, information (by racial and ethnic group) 
on:(1) the number of deliveries to pregnant women who were provided 
prenatal, delivery or postpartum care under the block grant or who were 
entitled to benefits with respect to such deliveries under Medicaid, 
and (2) the number of infants under one year of age who were provided 
services under the block grant or were entitled to benefits under 
Medicaid.

Explanation of provision

    The Committee provision would add to the existing reporting 
requirement under the MCH Block Grant authority inclusion of 
information (by racial and ethnic group) on the number of 
deliveries to pregnant women entitled to benefits under CHIP, 
and the number of infants under age one year entitled to CHIP 
benefits.

Reason for change

    The provision will improve coordination between the MCH and 
CHIP programs.

Effective date

    Upon enactment.

F. Coordination of data surveys and reports

Current law

    No provision.

Explanation of provision

    The Committee provision requires that the Secretary of 
Health and Human Services, through the Assistant Secretary of 
Planning and Evaluation, establish a clearinghouse for the 
consolidation and coordination of all Federal data bases and 
reports regarding children's health.

Reason for change

    The provision will facilitate greater ease of access to 
data regarding children's health.

Effective date

    Upon enactment.

 8. Section 708. Grants for Federally-Qualified Health Center Services 
      and Rural Health Clinic Services Under the Medicaid Program

Current law

    Under current law, states are required to pay full costs to 
federally qualified health centers and rural health clinics for 
services provided to Medicaid beneficiaries through fiscal year 
1999. The Balanced Budget Act of 1997 sets forth a phase-out of 
payment based on reasonable costs for federally qualified 
health centers and rural health clinics. Beginning October 1, 
1999, states have the option to phase down this cost-based 
reimbursement standard, beginning with 95 percent of reasonable 
costs in fiscal year 2000, 90 percent for services furnished 
during fiscal year 2001, 85 percent for services provided in 
fiscal year 2002, and 70 percent for services furnished during 
fiscal year 2003. Cost-based reimbursement is repealed 
beginning in fiscal year 2004.

Explanation of provision

    The bill would create a new transitional grant program 
outside title XIX to provide an incentive for states not to 
phase-down the cost-based reimbursement standard as permitted 
by the Balanced Budget Act. The grants would be available only 
to those states that do not adopt the phase-down. The grants, 
funded at $25 million a year for each of fiscal years 2001, 
2002, and 2003, will be allotted among the eligible states 
based on a formula tied to uninsured individuals with a small 
state minimum. States would be permitted to retain 15 percent 
of their grants funds for administrative costs associated with 
state interactions with health clinics. The rest of an eligible 
state's grant funds would be distributed by the states to their 
federally qualified health centers and rural health clinics, to 
be used for the same types of services that would be reimbursed 
by Medicaid if the patient receiving the services were Medicaid 
eligible. The General Accounting Office will evaluate the 
impact on clinics of the phase-down of the cost-based 
reimbursement system.

Reason for change

    The provision is intended to encourage the maintenance of 
pre-Balanced Budget Act of 1997 reimbursement levels and make 
additional funds available to clinics for use in providing 
services to uninsured individuals.
    It is the Committee's intent that the new grant program 
will contribute toward our shared goal of preserving the 
viability of community health centers and rural health clinics 
as important components of the health care safety net. Both the 
centers and clinics have a patient mix unlike that of other 
providers--with 35 percent of their patients on Medicaid--and 
as a result, are move vulnerable to Medicaid revenue losses 
than other providers. In the case of the health centers, which 
are statutorily mandated and funded by Congress to care for 
growing numbers of uninsured, more than 40-percent of their 11 
million patients have no health insurance. If states do not 
respond to the new grant program, many health centers and 
clinics could find that their ability to care for low-income 
people in their communities will be compromised. The Committee 
intends to monitor this situation closely and, if evidence 
shows that the centers and clinics and the populations they 
serve are impacted negatively by state reimbursement policy 
decisions, the Committee will consider other legislative 
interventions.

Effect date

    Upon enactment.

            9. section 709. additional technical corrections

Current law

    No provision.

Explanation of provision

    The provision would make technical corrections to Title 
XIX.

Reason for change

    Legislative counsel recommends that typographical errors in 
the statute be corrected.

Effective date

    Upon enactment.

                    III. BUDGET EFFECTS OF THE BILL

    In compliance with paragraph 11(a) of rule XXVI of the 
Standing Rules of the Senate, and in accordance with section 
403 of the Budget Act, the Committee advises that the 
Congressional Budget Office submitted the following statement 
on the Medicare, Medicaid, and S-CHIP Adjustment Act of 1999, 
as amended by the Committee.

                                     U.S. Congress,
                               Congressional Budget Office,
                                   Washingon, DC, October 26, 1999.
Hon. William V. Roth, Jr. Chairman, Committee on Finance,
Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for the Medicare and 
Medicaid Balanced Budget Correction and Refinement Act of 1999.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Tom Bradley.
            Sincerely,
                                          Dan L. Crippen, Director.
    Enclosure.

               congressional budget office cost estimate

Summary

    The Medicare, Medicaid, and S-CHIP Adjustment Act of 1999 
would modify Medicare's payment rates for many services, 
including those furnished by skilled nursing facilities, home 
health agencies, hospitals, physicians, hospices, physical and 
speech therapists, occupational therapists, and managed care 
plans. The bill also would make changes to both Medicaid and 
the State Children's Health Insurance Program (S-CHIP). Those 
changes would include revised allotments to states and 
territories of funds distributed through S-CHIP and the 
Medicaid disproportionate share (DSH) program, and a new 
program of grants to states for services provided by federally 
qualified health centers and rural health clinics. In addition, 
the bill includes technical provisions that would have no 
effect on federal spending.
    CBO estimates that the bill would increase federal direct 
spending by $1.1 billion in fiscal year 2000, by $11.9 billion 
over the 2000-2004 period, and by a total of $15.7 billion over 
the 2000-2009 period. Although the bill would increase direct 
spending, section 607 of the bill specifies that any net 
deficit increase resulting from enactment shall not be counted 
for purposes of enforcing the pay-as-you-go procedures 
established by the Balanced Budget and Emergency Deficit 
Control Act.
    The bill contains no intergovernmental mandates as defined 
in the Unfunded Mandates Reform Act (UMRA). CBO estimates that 
provisions of the bill affecting Medicaid would result in 
additional federal and state spending for health programs. The 
bill contains several private-sector mandates on insurers that 
provide medigap coverage. CBO estimates that the cost of those 
mandates would not exceed the threshold specified in UMRA ($100 
million in 1996, annually adjusted for inflation).

Estimated cost to the Federal Government

    The estimated budgetary impact of this bill is shown in the 
following table. The costs of this legislation fall within 
budget functions 550 (health) and 570 (Medicare).

----------------------------------------------------------------------------------------------------------------
                                                                       Outlays, by fiscal year, in billions of
                                                                                      dollars--
                                                                    --------------------------------------------
                                                                       2000     2001     2002     2003     2004
----------------------------------------------------------------------------------------------------------------
                                           CHANGES IN DIRECT SPENDING
Medicare:
    Skilled Nursing Facility Provisions............................      0.3      1.3      0.5    (\2\)        0
    Hospital Outpatient Department Provisions......................      0.1      0.3      0.3      0.3      0.2
    Physician Update...............................................        0      0.3      0.1     -0.1     -0.3
    Home Health Provisions.........................................      0.1      1.8     -0.4      0.1        0
    Graduate Medical Education Provisions..........................      0.2      0.5      0.6      0.6      0.1
    Rural Provisions...............................................    (\2\)      0.1      0.1      0.1      0.1
    Managed Care Provisions........................................    (\2\)      0.2      0.3      0.5      0.6
    Other Provisions...............................................      0.2      0.4      0.2      0.1      0.1
    Interaction of Fee-for-Service Provisions and Medicare+Choice          0      0.7      0.5      0.3    (\2\)
     Payment Rates \1\.............................................
                                                                    --------------------------------------------
      Subtotal, Gross Medicare Outlays.............................      1.0      5.6      2.2      1.9      0.9
    Part B Premium Receipts........................................        0     -0.3     -0.3     -0.1    (\2\)
                                                                    --------------------------------------------
      Subtotal, Net Medicare Outlays...............................      1.0      5.3      2.0      1.8      0.9
    Medicaid, S-CHIP, and other mandatory health programs..........      0.1      0.2      0.2      0.1      0.1
                                                                    --------------------------------------------
      Total Changes................................................      1.1      5.6      2.2      2.0      1.0
----------------------------------------------------------------------------------------------------------------
\1\ The effect of changes in per-enrollee spending in the fee-for-service sector on payment rates for enrollees
  in Medicare+Choice plans.
\2\ Costs or savings of less than $50 million.

 Notes: S-CHIP is the State Children's Health Insurance Program. Components may not sum to totals because of
  rounding.

Basis of estimate

            Medicare
    Compared with spending projected under current law, the 
bill would increase Medicare outlays by $1.0 billion in fiscal 
year 2000 and by $11.0 billion over the 2000-2004 period. The 
following sections discuss changes in gross outlays directly 
attributable to provisions of the bill. In addition, the 
estimate includes two interactions: the effect of changes in 
per-enrollee spending in the fee-for-service sector on payment 
rates for enrollees in Medicare+Choice plans, and the effect of 
changes in Medicare Part B outlays on receipts from Part B 
premiums.
    Payment rates for Medicare+Choice plans are based on 
spending in the fee-for-service sector, so provisions of the 
bill that increase fee-for-service spending would lead to 
higher payments to Medicare+Choice plans, beginning in 2001. No 
interaction with Medicare+Choice payments would occur in 2000 
because the rates for 2000 have already been published and will 
not be adjusted unless services covered by the Medicare program 
change; the bill would not change covered services. CBO 
estimates the increase in spending attributable to the 
interaction between fee-for-service spending and 
Medicare+Choice payment rates would total $1.6 billion during 
the 2000-2004 period.
    Part B premiums for 2000 have already been announced, and 
would not be changed by this bill. In subsequent years, 
however, about 25 percent of new part B outlays would be 
covered by premium payments by beneficiaries. CBO estimates 
that those premium payments would total $0.6 billion from 2000 through 
2004.
    Skilled Nursing Facilities. The bill would amend three 
policies enacted in the Balanced Budget Act of 1997 (BBA) 
regarding payment to skilled nursing facilities (SNFs). First, 
it would increase the federal rates paid for cases assigned to 
the extensive and special care categories by 25 percent and the 
federal rates paid for cases assigned to certain rehabilitation 
categories by a specified dollar amount. Those new rates would 
apply to services provided from April 1, 2000, through 
September 30, 2001. Second, it would enable SNFs that 
participated in the Nursing Home Case Mix and Quality 
Demonstration to receive an additional payment for Part B 
services in the facility-specific component of their payment 
rates. That policy would apply retroactively to services 
furnished since the enactment of BBA. Third, for cost-reporting 
periods beginning after enactment, it would allow SNFs to elect 
to be paid exclusively under the federal rate, rather than a 
blend of federal and facility-specific rates. CBO estimates 
that those three provisions would increase Medicare 
expenditures by $0.3 billion in 2000 and by $2.1 billion over 
the 2000-2004 period.
    Hospital Outpatient Department Service. The BBA established 
a prospective payment system (PPS) to replace cost-based 
reimbursement for most outpatient hospital services. The 
Secretary of Health and Human Services plans to implement the 
PPS in July 2000. Some hospitals will experience gains under 
the PPS--Medicare payments will exceed the cost of providing 
outpatient services--while other hospitals will experience 
losses. The bill would limit each hospital's loss during the 
first three years of the PPS, authorize the reclassification of 
certain urban hospitals as rural, exempt cancer hospitals and 
certain rural hospitals from the PPS, and establish outlier 
adjustment payments for high-cost cases and transitional 
payments for certain drugs, biologicals, and medical devices 
under the PPS. CBO estimates that those provisions would 
increase Medicare expenditures by $0.1 billion in 2000 and by 
$1.2 billion over the 2000-2004 period.
    Physician Update. The BBA established payment formulas that 
tie the growth of per-enrollee expenditures for physician 
services to the growth of gross domestic product. Those 
formulas generate annual rate changes that oscillate widely 
around a smooth trend. CBO projects stable growth rates, 
however, because the timing of those oscillations is impossible 
to predict.
    The bill would modify those payment formulas to reduce the 
oscillations around the smooth trend. CBO estimates the bill 
would not change spending in 2000 and would not change 
cumulative spending during the 2000-2004 period. Compared to 
current law, however, payments to physicians would be higher in 
2001 and 2002 and lower in 2003 and 2004.
    Home Health. The bill would amend several policies enacted 
in BBA regarding payment to home health agencies. It would 
eliminate the contingency reduction and gradually implement the 
15-percent cut mandated in BBA by phasing in the reduction for 
implementing the PPS for home health services at a rate of 5 
percent in the first year, 10 percent in the second year, and 
the full 15 percent in the third year. It would temporarily 
increase the per-visit limit to 112 percent of the median cost 
per visit for services furnished after October 1, 1999, and it 
would temporarily increase the per-beneficiary limits by 1 
percent for services provided in cost-reporting periods 
beginning in 2000. Those increases in the per-visit and per-
beneficiary limits would not be reflected in the payment rates 
set when the PPS is implemented. The bill would also postpone 
the elimination of periodic interim payments until the year 
after the PPS is implemented. Those policies would increase 
Medicare expenditures by $0.1 billion in 2000 and by $1.5 
billion over the 2000-2004 period.
    Graduate Medical Education. Medicare's PPS for hospital 
inpatient services adjusts payments for the higher patient care 
costs associated with medical education. The bill would freeze 
through 2003 the 1999 adjustment of 6.5 percent for every 0.1 
change in the ratio of residents to beds. The adjustment would 
then revert to the current-law adjustment of 5.5 percent. CBO 
estimates that this provision would increase outlays by $0.2 
billion in 2000 and by $1.8 billion over the 2000-2004 period.
    The bill also would allow exemptions from per-hospital caps 
on residency positions enacted by the BBA. One exemption would 
allow a hospital to increase its cap to absorb residents in a 
training program that had lost accreditation. Other provisions 
would allow certain hospitals to add three residency positions, 
as well as making other minor adjustments to the limits. Those 
provisions would increase spending by less than $50 million a 
year, with a cumulative increase in spending of $0.1 billion 
during the 2000-2004 period.
    Rural Provisions. Payment rates in the prospective payment 
system for inpatient services furnished by acute care hospitals 
are updated annually by a market basket index (MBI) intended to 
reflect the prices of hospitals' input factors. The BBA 
mandated reductions from the MBI for payment updates in fiscal 
years 1998 through 2002. The bill would give hospitals 
classified as sole community hospitals and as Medicare-
dependent small rural hospitals the full market basket increase 
in their prospective payment rates in fiscal years 2000 through 
2002. CBO estimates that granting those hospitals the full MBI 
update would increase spending by $0.3 billion during the 2000-
2004 period.
    The BBA created a new classification of limited-service 
hospitals, called Critical Access Hospitals (CAHs), which are 
exempted from the PPS. Those hospitals are limited to providing 
inpatient hospital stays no longer than 96 hours (with case-by-
case exceptions). The bill would allow longer inpatient stays 
in CAHs, provided that stays average 96 hours. CBO assumes that 
provision would make it more attractive for hospitals that meet 
the size and geographic eligibility requirements to obtain 
certification as a CAH, and would increase Medicare outlays by 
exempting more inpatient stays from the PPS. CBO estimates that 
this provision would increase Medicare outlays by less than $50 
million in 2000 and by $0.1 billion over the 2000-2004 period.
    The bill would extend for two years the Medicare-dependent 
small rural hospital program (which will expire at the end of 
2000), and require the Secretary to create a waiver process to 
permit certain hospitals located in urban areas to be 
reclassified to obtain higher payment rates available to rural 
hospitals. We estimate that those provisions would increase spending by 
$0.1 billion during 2000 through 2004.
    Managed Care. The bill would slow the implementation of 
adjustment of Medicare+Choice payment rates to more accurately 
reflect differences in cost per enrollee that are associated 
with health status. CBO estimates that this provision would not 
change spending in 2000, but would increase Medicare spending 
by $1.6 billion over the 2000-2004 period.
    Other provisions would allow beneficiaries more time to 
enroll in Medicare+Choice or Medigap plans when plans withdraw 
from markets, allow cost contracts with health maintenance 
organizations to be renewed until December 31, 2004, make the 
administration of the Medicare+Choice program more flexible, 
and ease certain requirements that limit how potential 
providers design and market managed care products to offer to 
Medicare beneficiaries. In addition, the bill would modify and 
extend a number of demonstration projects. We estimate that 
those provisions would increase Medicare spending by $0.1 
billion during 2000 through 2004.
    Other Medicare Provisions. The bill includes numerous other 
modifications of Medicare law that are either technical in 
nature--that is, they have no effect on federal spending--or 
would result in relatively small changes in Medicare spending. 
The additional provisions that would affect Medicare spending 
are discussed below. In total, CBO estimates that these other 
provisions would increase Medicare outlays by about $1 billion 
over the 2000-2004 period.
    Hospice Update. Effective for services furnished on or 
after October 1, 1999, the bill would increase the annual 
increase in payment rates for hospice services from MBI minus 1 
percentage point to MBI minus one-half of a percentage point in 
2000 through 2002. CBO estimates that would increase Medicare 
expenditures by less than $50 million in 2000 and by $0.2 
billion over the 2000-2004 period.
    Payments for Hospital Inpatient Services. The bill contains 
several provisions that would affect payments to hospitals for 
inpatient care, but would increase spending by less than $50 
million during the 2000-2004 period. One provision would limit 
the reduction in disproportionate share payment rates to 3 
percent in 2001, instead of the 4 percent reduction enacted in 
the BBA. Other provisions would codify the Administration's 
announced implementation of the PPS for inpatient care provided 
by rehabilitation hospitals, mandate that certain hospitals be 
reclassified as rural or urban for payment purposes, and 
require the Secretary to recalculate the area wage index for a 
Metropolitan Statistical Area using more recent data.
    Outpatient Therapy Services. The BBA established annual 
limits on per-beneficiary payments for outpatient therapy 
services provided by independent therapists, comprehensive 
outpatient rehabilitation facilities (CORFs), SNFs and other 
nonhospital providers. The limits are a $1,500 combined annual 
cap on physical therapy and speech language pathology services, 
and a $1,500 annual cap on occupational therapy services. The 
bill would impose a two-year moratorium on the caps beginning 
in January 2000. We estimate that this provision would increase 
Medicare expenditures by $0.2 billion in 2000 and by $0.6 
billion over the 2000-2004 period.
    Renal Dialysis. The bill would increase Medicare's 
composite rate for renal dialysis by 2 percent beginning in 
October 2000. That provision would have no budgetary effect in 
2000 and would increase Medicare expenditures by $0.3 billion 
over the 2000-2004 period.
    Pap Smears. The bill would increase Medicare's payment rate 
for the clinical laboratory component of pap smear tests from 
January 2000 through December 2001. That provision would 
increase Medicare expenditures by less than $50 million over 
the 2000-2004 period.
    Inherent Reasonableness Authority. The BBA granted the 
Secretary the authority to adjust Medicare Part B payment rates 
when they are not ``inherently reasonable.'' The bill would 
suspend the Secretary's authority to use the inherent 
reasonableness provision until three months after the release 
of a report by the Comptroller General on the impact of the 
inherent reasonableness provision. That provision would 
increase Medicare expenditures by less than $50 million over 
the 2000-2004 period.
            Medicaid and S-CHIP
    The bill would increase federal Medicaid spending by $91 
million in 2000 and $441 million over the 2000-2004 period. 
Federal S-CHIP spending would increase by $49 million in 2000 
and $248 million over the 2000-2004 period. In addition, the 
bill would create a new mandatory program that would provide 
grants to states to give to federally qualified health centers 
(FQHCs) and rural health clinics (RHCs). CB0 estimates that 
this new program would cost $75 million over the 2000-2004 
period.
    The bill contains numerous revisions to Medicaid and S-CHIP 
law that would result in no estimated impact on federal 
spending. The provisions that would affect federal spending are 
discussed below.
    Welfare-related transitional assistance for administrative 
costs. Under current law, states can receive an enhanced match 
rate for certain administrative expenses related to enrollment 
of low-income families receiving assistance under the Temporary 
Assistance for Needy Families (TANF) program who are no longer 
automatically eligible for Medicaid because of welfare reform. 
Under current law, total federal spending under the enhanced 
match rate is limited to $500 million nationally and ends at 
the end of fiscal year 2000. in addition, the enhanced match 
rate applies only to spending in the first 12 quarters after 
each state began its TANF program. The bill would allow the 
enhanced match rate to continue after fiscal year 2000 and 
would eliminate the 12-quarters restriction.
    CBO estimates that spending under the enhanced match will 
be $263 million through fiscal year 2000 under current law. 
Eliminating the restrictions on the availability of the 
enhanced match rate would increase federal spending by $60 million in 
2000 and $220 million over the 2000-2004 period.
    Increased DSH allotment for certain states and the District 
of Columbia. The federal share of Medicaid DSH payments for 
each state is capped at specified levels in current law through 
2002. Individual state allotments are increased by inflation 
starting in fiscal year 2003. The bill would increase 
allotments for several states and the District of Columbia in 
fiscal years 2000, 2001, and 2002. The District of Columbia's 
allotment would increase from $23 million to $32 million, 
Minnesota's allotment would increase from $16 million to $33 
million, New Mexico's allotment would increase from $5 million 
to $9 million, and Wyoming's allotment would increase from 0 to 
$0.1 million.
    CBO assumes that those states would be able to spend the 
full amount of their allotment increases, and therefore 
estimates that federal spending would increase by $30 million a 
year through 2002. Because allotments after 2002 are increased 
by inflation using 2002 as a base year, federal spending would 
increase in 2003 and thereafter. We estimate that this 
provision would cost $152 million over the 2000-2004 period.
    Optional deferment of the effective date for outpatient 
drug agreements. Under current law, when new manufacturers of 
outpatient prescription drugs enter into agreements under the 
Medicaid drug rebate program the agreement is not effective 
until the first day of the calendar quarter that begins more 
than 60 days after the date the agreement is entered into. 
Under the bill, states would have the option to consider the 
agreement effective on any date between the time the agreement 
is entered into and the date it would become effective under 
current law.
    CBO estimates that this provision would have a negligible 
cost--less than $500,000 over the 2000-2004 period. Very few 
new manufacturers enter into rebate agreements with the 
Medicaid program each year. In most cases the agreements are 
entered into well before a drug manufactured by a new 
manufacturer is available for distribution on the market. In 
addition, states often require time after becoming aware of a 
new drug to update their systems to cover the drug and to 
notify pharmacies of the change. Nonetheless, it is possible 
that this change in law could result in very small additional 
costs to the federal government.
    Medicaid interactions with Medicare Part B premium. Because 
Medicaid covers the cost of the Medicare Part B premium for 
individuals dually eligible for Medicaid and Medicare and for 
other low-income Medicare beneficiaries not poor enough to 
qualify for full Medicaid benefits, a change in the Medicare 
Part B premium affects federal Medicaid spending. CBO estimates 
that by increasing the amount of the Part B premium, the bill 
would increase federal Medicaid costs by about $50 million over 
the 2000-2004 period.
    Increased allotments for Puerto Rico and the territories. 
Under current S-CHIP law, the territories are allotted 0.25 
percent of the total amount made available to all states and 
territories each year. In the 1999 appropriations act (Public 
Law 105-277), the Congress provided an extra $32 million to the 
territories. The bill would provide the territories with an 
additional $34.2 million in 2000 and 2001, $25.2 million each 
year for 2002 through 2004, $32.4 million in each of 2005 and 
2006, and $40 million for 2007. CBO assumes that the full 
amount of the allotment would be spent in each year under the 
bill, resulting in increased federal spending of about $150 
million in the 2000-2004 period.
    Improved data collection and evaluations of the S-CHIP 
program. The bill would appropriate funds for three different 
research activities related to the S-CHIP program. First, $10 
million a year would be available for the Bureau of the Census 
to make adjustments to the Current Population survey to produce 
more reliable state-level data on the number of low-income 
children who do not have health insurance coverage. Second, $9 
million a year would be available for the National Center for 
Health Statistics to collect data on children's health 
insurance through the State and Local Area Integrated Telephone 
Survey. Third, $10 million would be available beginning in 2000 
for federal evaluation of S-CHIP programs in 10 state. CBO 
estimates that these provisions would cost $15 million in 2000 
and $104 million over the 2000-2004 period.
    In addition, the bill would instruct the Inspector General 
of the Department of Health and Human Service (HHS) to audit a 
sample of states every three years to determine the number of 
S-CHIP enrollees who are eligible for Medicaid and assess state 
progress in reducing the number of low-income children without 
health insurance coverage. The bill also would instruct the 
Secretary of HHS to establish a clearinghouse for the 
consolidation and coordination of all federal databases and 
reports regarding children's health. These two provisions would 
increase the authorizations of appropriations for HHS, but CBO 
has not yet estimated those amounts.
    Grants to states for items and services provided by FQHCs 
and RHCs. The bill would create a mandatory grant program under 
which certain states would receive a share of $25 million a 
year for fiscal years 2001, 2002, and 2003 for distribution to 
FQHCs and RHCs. The FQHCs and RHCs could only use grant funds 
for providing Medicaid services to individuals not eligible for 
Medicaid. A state is not eligible to receive grant funds if it 
has reduced Medicaid reimbursement to FQHCs and RHCs under a 
state option established in the Balanced Budget Act of 1997. 
Under that option, states may phase-out cost-based 
reimbursement, a policy under which states pay facilities 100 
percent of costs, beginning in fiscal year 2000. States that 
have already begun to implement the option may be eligible for 
the grant funds if they revert to paying facilities 100 percent 
of costs in fiscal year 2001.
    CBO expects that states would spend the total amount of the 
grant funds by 2004, resulting in $75 million in increased 
direct spending over the 2000-2004 period. Most of the funds 
would be spent by states that would not otherwise have reduced 
reimbursement to FQHCs and RHCs under the Medicaid option. 
However, some states that would otherwise have reduced payments 
to FQHCs and RHCs would not reduce reimbursement under the bill 
in order to access grant funds during the period in which those 
funds are available. After the funds cease to be available, 
some of those states would opt to reduce reimbursement. As a 
result of the provision, CBO estimates that Medicaid outlays 
would be $1 million higher in fiscal year 2000 and $19 million higher 
over the 2000-2004 period.

Pay-as-you-go considerations

    The Balanced Budget and Emergency Deficit Control Act sets 
up pay-as-you-go procedures for legislation affecting direct 
spending or receipts. The net changes in outlays that would be 
subject to pay-as-you-go procedures are shown in the following 
table. For the purposes of enforcing pay-as-you-go procedures, 
only the effects in the budget year and the succeeding four 
years are counted.

----------------------------------------------------------------------------------------------------------------
                                                     By fiscal year, in millions of dollars--
                                 -------------------------------------------------------------------------------
                                   2000    2001    2002    2003    2004    2005    2006    2007    2008    2009
----------------------------------------------------------------------------------------------------------------
Changes in outlays..............   1,100   5,600   2,200   2,000   1,000     900     700     700     700     700
Changes in receipts.............                                  Not applicable
----------------------------------------------------------------------------------------------------------------

    Section 607 of the bill specifies that any net deficit 
increase resulting from enactment shall not be counted for 
purposes of enforcing the pay-as-you-go procedures.

Estimated impact on State, local, and tribal governments

    The bill contains no intergovernmental mandates as defined 
in the UMRA. CBO estimates that provisions of the bill 
affecting Medicaid would result in additional federal and state 
spending for health programs.
    By eliminating restrictions on the enhanced match for 
administrative costs under the TANF program, the bill would 
increase funds to states by $220 million over the 2000-2004 
period. These funds would be available to states without any 
changes to their projected spending over that time.
    Medicaid spending for DSH in each state is capped under 
current law through 2002, and any spending over those caps is 
paid for with state funds alone. Increasing these federal 
allotments for the District of Columbia, Minnesota, New Mexico, 
and Wyoming would result in additional funds to those states 
totaling $152 million over the 2000-2004 period. In order to 
receive the additional federal funds, CBO estimates that states 
would spend $75 million of their own Medicaid funds over that 
period. Similarly, increased allotments for Puerto Rico and the 
territories under the S-CHIP program would make an additional 
$150 million available to states in the form of federal 
matching funds over the 2000-2004 period. In order to receive 
the additional federal funds, Puerto Rico and the territories 
would spend about $80 million in their own funds over that 
period.
    Just as federal expenditures for Medicaid would increase 
from changes to the Medicare Part B premium, state expenditures 
for Medicaid would also increase. CBO estimates that those 
state costs would total about $40 million over the 2000-2004 
period.
    Finally, states would receive $75 million in additional 
grants for items and services provided by federally qualified 
health centers and rural health clinics. States that have 
reduced reimbursement rates to FQHCs and RHCs would not be 
eligible for the grants. Consequently, the implementation of 
this program would be an incentive to maintain full 
reimbursement rates, which would result in additional Medicaid 
costs. CBO estimates that the state portion of those costs 
would total about $15 million over the 2000-2004 period.

Estimated impact on the private sector

    The bill would impose several new mandates on insures who 
provide medigap coverage. Under current law, Medicare 
beneficiaries who lose supplemental coverage because of the 
termination or discontinuation of the employer-sponsored 
supplemental plan or the Medicare+Choice plan in which they are 
enrolled are entitled to purchase medigap coverage on favorable 
terms, if they apply within 63 days of the termination of 
enrollment. Under those circumstances, medigap insurers may not 
refuse to sell them a supplemental policy; charge them higher 
premiums based on their health status, claims experience, 
receipt of health care, or medical condition; or impose 
exclusion based on preexisting conditions.
    The bill would allow beneficiaries to obtain medigap 
converge under the same favorable terms if the applied within 
63 days of being notified of the pending termination or 
discontinuation of their plan, effectively giving them two 
windows of opportunity to apply. It would also give protections 
to Medicare+Choice enrollees whose plan terminated and who 
subsequently chose to enroll in another Medicare+Choice plan. 
They would be able to obtain medigap coverage under the same 
terms if they disenrolled from the second plan within 12 
months. Finally, the bill would grant enrollees in the Program 
of All-Inclusive Care for the Elderly the same medigap 
protections as Medicare+Choice enrollees.
    Those provisions would enable more Medicare beneficiaries 
to obtain medigap coverage on a community-rated basis. Because 
of the restrictions on the premiums that they could charge, 
medigap insurers might incur costs that they could not 
immediately recover from premiums. However, the additional 
number of beneficiaries that the provisions would affect is 
likely to be small, so the costs imposed on insurers would be 
below the threshold specified in UMRA ($100 million in 1996, 
adjusted annually for inflation).
    Estimate Prepared by: Federal costs: Charles Betley, 
Michael Birnbaum, Julia Christensen, Jeanne De Sa, Cyndi 
Dudzinski, and Dorothy Rosenbaum; Impact on State, local, and 
tribal governments: Leo Lex; Impact on the private sector: 
Linda Bilheimer.
    Estimate Approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis

                       IV. VOTE OF THE COMMITTEE

    In compliance with section 133 of the Legislative 
Reorganization Act of 1946, the Committee states that the 
Medicare, Medicaid, and S-CHIP Adjustment Act of 1999 was 
ordered reported favorably by voice vote.

                 V. REGULATORY IMPACT AND OTHER MATTERS


                          A. Regulatory Impact

    In compliance with paragraph 11(b) of Rule XXVI of the 
Standing Rules of the Senate, the Committee states that the 
legislation will not significantly regulate any individuals or 
businesses relative to current law, will not impact on the 
personal privacy of individuals, and will result in no 
significant additional paperwork.
    Titles I-VI. The regulatory impact of these titles will be 
limited largely to the need for the Health Care Financing 
Administration to develop program instructions and/or 
regulations to implement the provider and health plan payment 
policy changes in the legislation.
    Title VII. The regulatory impact of these titles will be 
limited largely to the need for the Health Care Financing 
Administration to develop program instruction and/or 
regulations to implement the Medicaid and S-CHIP technical 
provisions.
    There are no revenue offsets included in this legislation.

                     B. Unfunded Mandates Statement

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (P.L. 104-4). The 
Committee has reviewed the provisions of the bill as reported 
and has determined that no provisions in the bill contain 
private sector mandates.

                         C. Complexity Analysis

    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998 (the ``IRS Reform Act'') requires the 
Joint Committee on Taxation (in consultation with the Internal 
Revenue Service and the Department of Treasury) to provide a 
tax complexity analysis. Under the authority of the Joint 
Committee on Taxation, its staff has determined that the 
requisite tax complexity analysis is not required because the 
bill contains no provisions that amend the code.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    In the opinion of the Committee, it is necessary, in order 
to expedite the business of the Senate, to dispense with the 
requirements of paragraph 12 of rule XXVI of the Standing Rules 
of the Senate, relating to the showing of changes in existing 
law made by the bill reported by the Committee.

                                  
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