    [Senate Report 111-89]
    [From the U.S. Government Publishing Office]

    111th Congress                                                   Report
                                     SENATE
     1st Session                                                     111-89
    _______________________________________________________________________

                                                           Calendar No. 184

                          AMERICA'S HEALTHY FUTURE ACT
                                    OF 2009

                                   ----------

                                  R E P O R T

                             [To accompany S. 1796]

                                       on

        PROVIDING AFFORDABLE, QUALITY HEALTH CARE FOR ALL AMERICANS AND
      REDUCING THE GROWTH IN HEALTH CARE SPENDING, AND FOR OTHER PURPOSES

                                 together with

                         ADDITIONAL AND MINORITY VIEWS

                                   ----------

                              COMMITTEE ON FINANCE
                              UNITED STATES SENATE

                    October 19, 2009.--Ordered to be printed
                      AMERICA'S HEALTHY FUTURE ACT OF 2009

    111th Congress
     1st Session                     SENATE                          Report
                                                                     111-89
    _______________________________________________________________________

                                                           Calendar No. 184

                          AMERICA'S HEALTHY FUTURE ACT

                                    OF 2009

                                   __________

                                  R E P O R T

                             [To accompany S. 1796]

                                       on

        PROVIDING AFFORDABLE, QUALITY HEALTH CARE FOR ALL AMERICANS AND
      REDUCING THE GROWTH IN HEALTH CARE SPENDING, AND FOR OTHER PURPOSES

                                 together with

                         ADDITIONAL AND MINORITY VIEWS

                                   __________

                              COMMITTEE ON FINANCE

                              UNITED STATES SENATE

                    October 19, 2009.--Ordered to be printed
                                C O N T E N T S

                                  ----------
                                                                       Page
      I. Background and Need for Legislation..............................1
     II. Explanation of the Bill..........................................9
    TITLE I--HEALTH CARE COVERAGE....................................     9
        Subtitle A--Insurance Market Reforms.........................     9
            Sec. 1001. Insurance Market Reforms in the Individual and
              Small Group Markets....................................     9
                Sec. 2200. Ensuring Essential and Affordable Health
                  Benefits Coverage for All Americans................     9
                Sec. 2201. General Requirements and Definitions......    10
                Sec. 2202. Prohibition on Preexisting Condition
                  Exclusions.........................................    12
                Sec. 2203. Guaranteed Issue and Renewal for Insured
                  Plans..............................................    12
                Sec. 2204. Premium Rating Rules......................    12
                Sec. 2205. Use of Uniform Outline of Coverage
                  Documents..........................................    13
                Sec. 2211. Rating Areas; Pooling of Risks; Phase In
                  of Rating Rules in Small Group Markets.............    14
                Sec. 2212. Risk Adjustment...........................    14
                Sec. 2213. Establishment of Transitional Reinsurance
                  Program for Individual Markets in Each State.......    14
                Sec. 2214. Establishment of Risk Corridors for Plans
                  in Individual and Small Group Markets..............    15
                Sec. 2215. Temporary High Risk Pools for Individuals
                  with Preexisting Conditions........................    16
                Sec. 2216. Reinsurance for Retirees Covered by
                  Employer-Based Plans etc...........................    17
                Sec. 2221. Grandfathered Health Benefit Plans........    17
                Sec. 2225. Continued State Enforcement of Insurance
                  Regulations........................................    18
                Sec. 2226. Waiver of Health Insurance Reform
                  Requirements.......................................    19
                Sec. 2227. Provisions Relating to Offering of Plans
                  in More Than One State.............................    20
                Sec. 2228. State Flexibility to Establish Basic
                  Health Plans for Low-Income Individuals not
                  Eligible for Medicaid..............................    21
                Sec. 2230. Other Definitions and Rules...............    23
        Subtitle B--Exchanges and Consumer Assistance................    24
            Sec. 1101. Establishment of Qualified Health Benefits
              Plans Exchanges........................................    24
                Sec. 2231. Rights and Responsibilities Regarding
                  Choice of Coverage Through Exchange................    24
                Sec. 2232. Qualified Individuals and Small Employers:
                  Access Limited to Citizens and Lawful Residents....    25
                Sec. 2235. Establishment of Exchanges by States......    26
                Sec. 2236. Functions Performed by Secretary, States,
                  and Exchanges......................................    26
                Sec. 2237. Duties of the Secretary to Facilitate
                  Exchanges..........................................    27
                Sec. 2238. Procedures for Determining Eligibility for
                  Exchange Participation, Premium Credits, and Cost-
                  Sharing Subsidies..................................    27
                Sec. 2239. Streamlining of Procedures for Enrollment
                  through an Exchange and State Medicaid and CHIP
                  Programs...........................................    28
            Sec. 1102. Encouraging Meaningful Use of Electronic
              Health Records.........................................    29
        Subtitle C--Making Coverage Affordable.......................    29
            PART I--ESSENTIAL BENEFITS COVERAGE......................    29
            Sec. 1201. Provisions To Ensure Coverage to Essential
              Benefits...............................................    29
                Sec. 2241. Requirements for Qualified Health Benefits
                  Plan...............................................    30
                Sec. 2242. Essential Benefits Package Defined........    30
                Sec. 2243. Levels of Coverage........................    32
                Sec. 2244. Application of Certain Rules to Plans in
                  Group Markets......................................    33
                Sec. 2245. Special Rules Relating to Coverage of
                  Abortion Services..................................    33
            Sec. 1202. Application of State and Federal Laws
              Regarding Abortion.....................................    34
            Sec. 1203. Application of Emergency Services Laws........    35
            PART II--LOW INCOME AND SMALL BUSINESS CREDITS AND
              SUBSIDIES..............................................    35
            Sec. 1205. Premium Tax Credits and Cost-sharing Subsidies    35
            Sec. 1206. Cost-sharing Subsidies and Advance Payments of
              Premium Credits and Cost-Sharing Subsidies.............    40
                Sec. 2246. Premium Credits for Low-Income Individuals    42
                Sec. 2247. Cost-sharing Subsidies for Low-Income
                  Individuals Enrolling in Qualified Health Benefit
                  Plans..............................................    42
                Sec. 2248. Advance Determination and Payment of
                  Premium Credits and Cost-sharing Subsides..........    43
            Sec. 1207. Disclosures to Carry Out Eligibility
              Requirements for Certain Programs......................    44
            Sec. 1208. Premium Credits and Subsidy Refunds and
              Payments Disregarded for Federal and Federally-Assisted
              Programs...............................................    46
            Sec. 1209. Fail-safe Mechanism To Prevent Increase in
              Federal Budget Deficit.................................    46
            Sec. 1221. Small Business Tax Credit.....................    47
        Subtitle D--Shared Responsibility............................    50
            PART I--INDIVIDUAL RESPONSIBILITY........................    50
            Sec. 1301. Penalty on Individuals Without Essential
              Health Benefits Coverage...............................    50
            Sec. 1302. Reporting of Health Insurance Coverage........    53
            PART II--EMPLOYER RESPONSIBILITY.........................    54
            Sec. 1306. Employer-Provided Health Insurance Coverage...    54
        Subtitle E--Federal Program for Health Care Cooperatives.....    57
            Sec. 1401. Establishment of Federal Program for Health
              Care Cooperatives......................................    57
                Sec. 2251. Federal Program To Assist Establishment
                  and Operation of Nonprofit, Member-Run Health
                  Insurance Issuers..................................    59
        Subtitle F--Transparency and Accountability..................    62
            Sec. 1501. Provisions Ensuring Transparency and
              Accountability.........................................    62
                Sec. 2229. Requirements Relating to Transparency and
                  Accountability.....................................    62
            Sec. 1502. Reporting on Utilization of Premium Dollars
              and Standard Hospital Charges..........................    62
            Sec. 1503. Development and Utilization of Uniform Outline
              of Coverage Documents..................................    62
            Sec. 1504. Development of Standard Definitions, Personal
              Scenarios, and Annual Personalized Statements..........    64
        Subtitle G--Role of Public Programs..........................    64
            PART I--MEDICAID COVERAGE FOR THE LOWEST INCOME
              POPULATIONS............................................    64
            Sec. 1601. Eligibility Standards and Methodologies.......    64
            Sec. 1602. Income Eligibility for Nonelderly Determined
              Using Modified Gross Income............................    71
            Sec. 1603. Requirement to Offer Premium Assistance for
              Employer-Sponsored Insurance...........................    72
            Sec. 1604. Treatment of the Territories..................    73
            Sec. 1605. Medicaid Improvement Fund Rescission..........    73
            PART II--CHILDREN'S HEALTH INSURANCE PROGRAM.............    74
            Sec. 1611. Additional Federal Financial Participation for
              CHIP...................................................    74
            Sec. 1612. Technical Corrections.........................    75
            PART III--ENROLLMENT SIMPLIFICATION......................    76
            Sec. 1621. Enrollment Simplification and Coordination
              with State Health Insurance Exchanges..................    76
            Sec. 1622. Permitting Hospitals to Make Presumptive
              Eligibility Determinations for All Medicaid Eligible
              Populations............................................    78
            Sec. 1623. Promoting Transparency in the Development,
              Implementation, and Evaluation of Medicaid and CHIP
              Waivers and Section 1937 State Plan Amendments.........    79
            Sec. 1624. Standards and Best Practices to Improve
              Enrollment of Vulnerable and Underserved Populations...    81
            PART IV--MEDICAID SERVICES...............................    82
            Sec. 1631. Coverage of Free-standing Birth Centers.......    82
            Sec. 1632. Concurrent Care for Children..................    82
            Sec. 1633. Funding to Expand State Aging and Disability
              Resource Centers.......................................    83
            Sec. 1634. Community First Choice Option.................    83
            Sec. 1635. Protection for Recipients of Home and
              Community-Based Services Against Spousal Impoverishment    85
            Sec. 1636. Incentives for States to Offer Home and
              Community-Based Services as a Long-Term Care
              Alternative to Nursing Homes...........................    86
            Sec. 1636A. Removal of Barriers to Providing Home and
              Community-Based Services...............................    87
            Sec. 1637. Money Follows the Persons Rebalancing
              Demonstration..........................................    88
            Sec. 1638. Clarification of Definition of Medical
              Assistance.............................................    89
            Sec. 1639. State Eligibility Option for Family Planning
              Services...............................................    89
            Sec. 1640. Grants for School-Based Health Centers........    90
            Sec. 1641. Therapeutic Foster Care.......................    90
            Sec. 1642. Sense of the Senate Regarding Long-Term Care..    91
            PART V--MEDICAID PRESCRIPTION DRUG COVERAGE..............    91
            Sec. 1651. Prescription Drug Rebates.....................    91
            Sec. 1652. Elimination of Exclusion of Coverage of
              Certain Drugs..........................................    93
            Sec. 1653. Providing Adequate Pharmacy Reimbursement.....    94
            Sec. 1654. Study of Barriers to Appropriate Utilization
              of Generic Medicine in Medicaid........................    95
            PART VI--MEDICAID DISPROPORTIONATE SHARE PAYMENTS........    96
            Sec. 1655. Disproportionate Share Hospital Payments......    96
            PART VII--DUAL ELIGIBLES.................................    97
            Sec. 1661. 5-Year Period for Demonstration Projects......    97
            Sec. 1662. Providing Federal Coverage and Payment
              Coordination for Low-Income Medicare Beneficiaries.....    97
            PART VIII--MEDICAID QUALITY..............................    99
            Sec. 1671. Adult Health Quality Measures.................    99
            Sec. 1672. Payment Adjustment for Health Care-Acquired
              Conditions.............................................   100
            Sec. 1673. Demonstration Project to Evaluate Integrated
              Care Around a Hospitalization..........................   101
            Sec. 1674. Medicaid Global Payment System Demonstration
              Project................................................   102
            Sec. 1675. Pediatric Accountable Care Organization
              Demonstration Project..................................   102
            Sec. 1676. Medicaid Emergency Psychiatric Demonstration
              Project................................................   103
            PART IX--MEDICAID AND CHIP PAYMENT AND ACCESS COMMISSION.   104
            Sec. 1681. MACPAC Assessment of Policies Affecting All
              Medicaid Beneficiaries.................................   104
            PART X--AMERICAN INDIANS AND ALASKA NATIVES..............   105
            Sec. 1691. Special Rules Relating to Indians.............   105
            Sec. 1692. Elimination of Sunset for Reimbursement for
              All Medicare Part B Services Furnished by Certain
              Indian Hospitals and Clinics...........................   106
        Subtitle H--Addressing Health Disparities....................   107
            Sec. 1701. Standardized Collection of Data...............   107
            Sec. 1702. Required Collection of Data...................   108
            Sec. 1703. Data Sharing and Protection...................   109
            Sec. 1704. Inclusion of Information about the Importance
              of Having a Health Care Power of Attorney in Transition
              Planning for Children Aging out of Foster Care and
              Independent Living Programs............................   109
        Subtitle I--Maternal and Child Health Services...............   111
            Sec. 1801. Maternal, Infant, and Early Childhood Home
              Visiting Programs......................................   111
            Sec. 1802. Support, Education, and Research for
              Postpartum Depression..................................   113
            Sec. 1803. Personal Responsibility Education for
              Adulthood Training.....................................   114
            Sec. 1804. Restoration of Funding for Abstinence
              Education..............................................   115
        Subtitle J--Programs of Health Promotion and Disease
          Prevention.................................................   116
            Sec. 1901. Programs of Health Promotion and Disease
              Prevention.............................................   116
        Subtitle K--Elder Justice Act................................   119
            Sec. 1911. Short Title...................................   121
            Sec. 1912. Definitions...................................   121
            Sec. 1913. Elder Justice.................................   122
        Subtitle L--Provisions of General Application................   135
            Sec. 1921. Protecting Americans and Ensuring Taxpayer
              Funds in Government Health Care Plans Do Not Support or
              Fund Physician-Assisted Suicide; Prohibition Against
              Discrimination on Assisted Suicide.....................   135
            Sec. 1922. Protection of Access to Quality Health Care
              Through the Department of Veterans Affairs and the
              Department of Defense..................................   136
            Sec. 1923. Continued Application of Antitrust Law........   136
    TITLE II--PROMOTING DISEASE PREVENTION AND WELLNESS..............   137
        Subtitle A--Medicare.........................................   137
            Sec. 2001. Coverage of Annual Wellness Visit Providing a
              Personalized Prevention Plan...........................   137
            Sec. 2002. Removal of Barriers to Preventive Services....   138
            Sec. 2003. Evidence-Based Coverage of Preventive Services   140
            Sec. 2004. GAO Study and Report on Medicare Beneficiary
              Access to Vaccines.....................................   140
            Sec. 2005. Incentives for Healthy Lifestyles.............   140
        Subtitle B--Medicaid.........................................   141
            Sec. 2101. Improving Access to Preventive Services for
              Eligible Adults........................................   141
            Sec. 2102. Coverage of Comprehensive Tobacco Cessation
              Services for Pregnant Women............................   142
            Sec. 2103. Incentives for Healthy Lifestyles.............   143
            Sec. 2104. State Option to Provide Health Homes for
              Enrollees with Chronic Conditions......................   145
            Sec. 2105. Funding for Childhood Obesity Demonstration
              Project................................................   146
            Sec. 2106. Public Awareness of Preventive and Obesity-
              related Services.......................................   147
    TITLE III--IMPROVING THE QUALITY AND EFFICIENCY OF HEALTH CARE...   147
        Subtitle A--Transforming the Health Care Delivery System.....   147
            PART I--LINKING PAYMENT TO QUALITY OUTCOMES UNDER THE
              MEDICARE PROGRAM.......................................   147
            Sec. 3001. Hospital Value-Based Purchasing Program.......   147
            Sec. 3002. Improvements to the Physician Quality
              Reporting System.......................................   152
            Sec. 3003. Improvements to the Physician Feedback Program   153
            Sec. 3004. Quality Reporting for Long-term Care
              Hospitals, Inpatient Rehabilitation Hospitals, and
              Hospice Programs.......................................   154
            Sec. 3005. Quality Reporting for PPS-exempt Cancer
              Hospitals..............................................   156
            Sec. 3006. Plans for a Value-Based Purchasing Program for
              Skilled Nursing Facilities and Home Health Agencies....   156
            Sec. 3007. Value-based Payment Modifier Under the
              Physician Fee Schedule.................................   157
            Sec. 3008. Payment Adjustment for Conditions Acquired in
              Hospitals..............................................   158
            PART II--STRENGTHENING THE QUALITY INFRASTRUCTURE........   159
            Sec. 3011. National Strategy.............................   159
            Sec. 3012. Interagency Working Group on Health Care
              Quality................................................   161
            Sec. 3013. Quality Measure Development...................   161
            Sec. 3014. Quality Measure Endorsement...................   163
            PART III--ENCOURAGING DEVELOPMENT OF NEW PATIENT CARE
              MODELS.................................................   165
            Sec. 3021. Establishment of Center for Medicare and
              Medicaid Innovation within CMS.........................   165
            Sec. 3022. Medicare Shared Savings Program...............   168
            Sec. 3023. National Pilot Program on Payment Bundling....   170
            Sec. 3024. Independence at Home Pilot Program............   174
            Sec. 3025. Hospital Readmissions Reduction Program.......   177
            Sec. 3026. Community-Based Care Transitions Program......   179
            Sec. 3027. Extension of Gainsharing Demonstration........   180
            PART IV--STRENGTHENING PRIMARY CARE AND OTHER WORKFORCE
              IMPROVEMENTS...........................................   181
            Sec. 3031. Expanding Access to Primary Care Services and
              General Surgery Services...............................   181
            Sec. 3031A. Medicare Federally Qualified Health Center
              Improvements...........................................   182
            Sec. 3032. Distribution of Additional Residency Positions   183
            Sec. 3033. Counting Resident Time in Outpatient Settings
              and Allowing Flexibility for Jointly Operated Residency
              Training Programs......................................   186
            Sec. 3034. Rules for Counting Resident Time for Didactic
              and Scholarly Activities and Other Activities..........   187
            Sec. 3035. Preservation of Resident Cap Positions from
              Closed and Acquired Hospitals..........................   188
            Sec. 3036. Workforce Advisory Committee..................   189
            Sec. 3037. Demonstration Projects To Address Health
              Professions Workforce Needs; Extension of Family-to-
              Family Health Information Centers......................   190
            Sec. 3038. Increasing Teaching Capacity..................   192
            Sec. 3039. Graduate Nurse Education Demonstration Program   195
            PART V--HEALTH INFORMATION TECHNOLOGY....................   197
            Sec. 3041. Free Clinics and Certified EHR Technology.....   197
        Subtitle B--Improving Medicare for Patients and Providers....   198
            PART I--ENSURING BENEFICIARY ACCESS TO PHYSICIAN CARE AND
              OTHER SERVICES.........................................   198
            Sec. 3101. Increase in the Physician Payment Update......   198
            Sec. 3102. Extension of the Work Geographic Index Floor
              and Revisions to the Practice Expense Geographic
              Adjustment Under the Medicare Physician Fee Schedule...   198
            Sec. 3103. Extension of Exceptions Process for Medicare
              Therapy Caps...........................................   200
            Sec. 3104. Extension of Payment for Technical Component
              of Certain Physician Pathology Services................   200
            Sec. 3105. Extension of Ambulance Add-Ons................   200
            Sec. 3106. Extension of Certain Payment Rules for Long-
              term Care Hospital Services and of Moratorium on the
              Establishment of Certain Hospitals and Facilities......   201
            Sec. 3107. Extension of Physician Fee Schedule Mental
              Health Add-on..........................................   202
            Sec. 3108. Permitting Physician Assistants To Order Post-
              Hospital Extended Care Services and to Provide for
              Recognition of Attending Physician Assistants as
              Attending Physicians To Serve Hospice Patients.........   202
            Sec. 3109. Recognition of Certified Diabetes Educators as
              Certified Providers for Purposes of Medicare Diabetes
              Outpatient Self-Management Training Services...........   203
            Sec. 3110. Exemption of Certain Pharmacies from
              Accreditation Requirements.............................   204
            Sec. 3111. Part B Special Enrollment Period for Disabled
              TRICARE Beneficiaries..................................   205
            Sec. 3112. Payment for Bone Density Tests................   206
            Sec. 3113. Revision to the Medicare Improvement Fund.....   207
            Sec. 3114. Treatment of Certain Complex Diagnostic
              Laboratory Tests.......................................   207
            Sec. 3115. Improved Access for Certified-Midwife Services   208
            Sec. 3116. Working Group on Access to Emergency Medical
              Care...................................................   209
            PART II--RURAL PROTECTIONS...............................   210
            Sec. 3121. Extension of Outpatient Hold Harmless
              Provision..............................................   210
            Sec. 3122. Extension of Medicare Reasonable Costs
              Payments for Certain Clinical Diagnostic Laboratory
              Tests Furnished to Hospital Patients in Certain Rural
              Areas..................................................   210
            Sec. 3123. Extension of the Rural Community Hospital
              Demonstration Program..................................   211
            Sec. 3124. Extension of the Medicare-Dependent Hospital
              (MDH) Program..........................................   211
            Sec. 3125. Temporary Improvements to the Medicare
              Inpatient Hospital Payment Adjustment for Low-Volume
              Hospitals..............................................   211
            Sec. 3126. Improvements to the Demonstration Project on
              Community Health Integration Models in Certain Rural
              Counties...............................................   212
            Sec. 3127. MedPAC Study on Adequacy of Medicare Payments
              for Health Care Providers Serving in Rural Areas.......   213
            Sec. 3128. Technical Correction Related to Critical
              Access Hospital Services...............................   213
            Sec. 3129. Extension of and Revisions to Medicare Rural
              Hospital Flexibility Program...........................   214
            PART III--IMPROVING PAYMENT ACCURACY.....................   214
            Sec. 3131. Payment Adjustments for Home Health Care......   214
            Sec. 3132. Hospice Reform................................   217
            Sec. 3133. Improvement to Medicare Disproportionate Share
              Hospital (DSH) Payments................................   219
            Sec. 3134. Misvalued Codes Under the Physician Fee
              Schedule...............................................   220
            Sec. 3135. Modification of Equipment Utilization Factor
              for Advanced Imaging Services..........................   221
            Sec. 3136. Revision of Payment for Power-Driven
              Wheelchairs............................................   222
            Sec. 3137. Hospital Wage Index Improvement...............   223
            Sec. 3138. Treatment of Certain Cancer Hospitals.........   225
            Sec. 3139. Payment for Biosimilar Biological Products....   225
            Sec. 3140. Public Meeting and Report on Payment Systems
              for New Clinical Laboratory Diagnostic Tests...........   226
            Sec. 3141. Medicare Hospice Concurrent Care Demonstration
              Program................................................   226
            Sec. 3142. Application of Budget Neutrality on a National
              Basis in the Calculation of the Medicare Hospital Wage
              Index Floor for Each All-Urban and Rural State.........   227
            Sec. 3143. HHS Study on Urban Medicare-Dependent
              Hospitals..............................................   228
        Subtitle C--Provisions Relating to Part C....................   228
            Sec. 3201. Medicare Advantage Payment....................   228
            Sec. 3202. Benefit Protection and Simplification.........   235
            Sec. 3203. Application of Coding Intensity Adjustment
              During MA Payment Transition...........................   237
            Sec. 3204. Simplification of Annual Beneficiary Election
              Periods................................................   237
            Sec. 3205. Extension for Specialized MA Plans for Special
              Needs Individuals......................................   238
            Sec. 3206. Extension of Reasonable Cost Contracts........   240
            Sec. 3207. Technical Correction to MA Private Fee-For-
              Service Plans..........................................   240
            Sec. 3208. Making Senior Housing Facility Demonstration
              Permanent..............................................   241
            Sec. 3209. Development of New Standards for Certain
              Medigap Plans..........................................   242
        Subtitle D--Medicare Part D Improvements for Prescription
          Drug Plans and MA-PD Plans.................................   242
            Sec. 3301. Medicare Prescription Drug Discount Program
              for Brand-Name Drugs...................................   242
            Sec. 3302. Improvement in Determination of Medicare Part
              D Low-income Benchmark Premium.........................   245
            Sec. 3303. Voluntary de minimus Policy for Subsidy
              Eligible Individuals Under Prescription Drug Plans and
              MA-PD Plans............................................   246
            Sec. 3304. Special Rule for Widows and Widowers Regarding
              Eligibility for Low-Income Assistance..................   246
            Sec. 3305. Improved Information for Subsidy Eligible
              Individuals reassigned to Prescription Drug Plans and
              MA-PD Plans............................................   248
            Sec. 3306. Funding Outreach and Assistance for Low-Income
              Programs...............................................   248
            Sec. 3307. Improving Formulary Requirements for
              Prescription Drug Plans and MA-PD Plans with Respect to
              Certain Categories or Classes of Drugs.................   249
            Sec. 3308. Reducing Part D Premium Subsidy for High-
              Income Beneficiaries...................................   250
            Sec. 3309. Simplification of Plan Information............   253
            Sec. 3310. Limitation on Removal or Change of Coverage of
              Covered Part D Drugs Under a Formulary Under a
              Prescription Drug Plan or an MA-PD Plan................   253
            Sec. 3311. Elimination of Cost Sharing for Certain Dual
              Eligible Individuals...................................   255
            Sec. 3312. Reducing Wasteful Dispensing of Outpatient
              Prescription Drugs in Long-term Care Facilities Under
              Prescription Drug Plans and MA-PD Plans................   255
            Sec. 3313. Improved Medicare Prescription Drug Plan and
              MA-PD Plan Complaint System............................   256
            Sec. 3314. Uniform Exceptions and Appeals Process for
              Prescription Drug Plans and MA-PD Plans................   257
            Sec. 3315. Office of the Inspector General Studies and
              Reports................................................   258
            Sec. 3316. HHS Study and Annual Reports on Coverage for
              Dual Eligibles.........................................   259
            Sec. 3317. Including Costs Incurred by AIDS Drug
              Assistance Programs and Indian Health Service in
              Providing Prescription Drugs Toward the Annual Out-of-
              Pocket Threshold Under Part D..........................   260
        Subtitle E--Ensuring Medicare Sustainability.................   260
            Sec. 3401. Revision of Certain Market Basket Updates and
              Incorporation of Productivity Improvements into Market
              Basket Updates that Do Not Already Incorporate Such
              Improvements...........................................   260
            Sec. 3402. Temporary Adjustment to the Calculation of
              Part B Premiums........................................   264
            Sec. 3403. Medicare Commission...........................   264
            Sec. 3404. Ensuring Medicare Savings are Kept in the
              Medicare Program.......................................   270
        Subtitle F--Patient-Centered Outcomes Research...............   270
            Sec. 3501. Patient-Centered Outcomes Research............   270
            Sec. 3502. Coordination with Federal Coordinating Council
              for Comparative Effectiveness Research.................   280
            Sec. 3503. GAO Report on National Coverage Determinations
              Process................................................   281
        Subtitle G--Administrative Simplification....................   281
            Sec. 3601. Administrative Simplification.................   281
        Subtitle H--Sense of the Senate Regarding Medical Malpractice   285
            Sec. 3701. Sense of the Senate Regarding Medical
              Malpractice............................................   285
    TITLE IV--TRANSPARENCY AND PROGRAM INTEGRITY.....................   286
        Subtitle A--Limitation on Medicare Exception to the
          Prohibition on Certain Physician Referrals for Hospitals...   286
            Sec. 4001. Limitation on Medicare Exception to the
              Prohibition on Certain Physician Referrals for
              Hospitals..............................................   286
        Subtitle B--Physician Ownership and Other Transparency.......   288
            Sec. 4101. Transparency Reports and Reporting of
              Physician Ownership or Investment Interests............   288
            Sec. 4102. Disclosure Requirements for In-office
              Ancillary Services Exception to the Prohibition on
              Physician Self-referral for Certain Imaging Services...   290
            Sec. 4103. Prescription Drug Sample Transparency.........   290
            Sec. 4104. Pharmacy Benefit Managers Transparency
              Requirements...........................................   291
        Subtitle C--Nursing Home Transparency and Improvement........   292
            PART I--IMPROVING TRANSPARENCY OF INFORMATION............   292
            Sec. 4201. Required Disclosure of Ownership and
              Additional Disclosable Parties Information.............   292
            Sec. 4202. Accountability Requirements for Skilled
              Nursing Facilities and Nursing Facilities..............   294
            Sec. 4203. Nursing Home Compare Medicare Website.........   295
            Sec. 4204. Reporting of Expenditures.....................   296
            Sec. 4205. Standardized Complaint Form...................   297
            Sec. 4206. Ensuring Staffing Accountability..............   297
            Sec. 4207. GAO Study and Report on Five-Star Quality
              Rating System..........................................   298
            PART II--TARGETING ENFORCEMENT...........................   298
            Sec. 4211. Civil Monetary Penalties......................   298
            Sec. 4212. National Independent Monitor Pilot Program....   299
            Sec. 4213. Notification of Facility Closure..............   300
            Sec. 4214. National Demonstration Projects on Culture
              Change and Use of Information Technology in Nursing
              Homes..................................................   301
            PART III--IMPROVING STAFF TRAINING.......................   301
            Sec. 4221. Dementia and Abuse Prevention Training........   301
        Subtitle D--Nationwide Program for National and State
          Background Checks on Direct Patient Access Employees of
          Long-Term Care Facilities and Providers....................   302
            Sec. 4301. Nationwide Program for National and State
              Background Checks on Direct Patient Access Employees of
              Long-Term Care Facilities and Providers................   302
    TITLE V--FRAUD, WASTE, AND ABUSE.................................   303
        Subtitle A--Medicare, Medicaid, and CHIP Provisions..........   303
            Sec. 5001. Provider Screening and Other Enrollment
              Requirements Under Medicare and Medicaid...............   303
            Sec. 5002. Enhanced Medicare and Medicaid Program
              Integrity Provisions...................................   305
            Sec. 5003. Elimination of Duplication Between the
              Healthcare Integrity and Protection Data Bank and the
              National Practitioner Data Bank........................   310
            Sec. 5004. Maximum Period of Submission of Medicare
              Claims Reduced to not More Than 12 Months..............   311
            Sec. 5005. Physicians who Order Items and Services
              Required to be Medicare Enrolled Physicians or Eligible
              Professionals..........................................   312
            Sec. 5006. Requirement for Physicians to Provide
              Documentation on Referrals to Programs at High Risk of
              Waste and Abuse........................................   312
            Sec. 5007. Face-to-Face Encounter with Patient Required
              Before Physicians May Certify Eligibility for Home
              Health Services or Durable Medical Equipment Under
              Medicare...............................................   312
            Sec. 5008. Enhanced Penalties............................   313
            Sec. 5009. Medicare Self-Referral Disclosure Protocol....   314
            Sec. 5010. Adjustments to the Medicare Durable Medical
              Equipment, Prosthetics, Orthotics, and Supplies
              Competitive Acquisition Program........................   316
            Sec. 5011. Expansion of the Recovery Audit Contractor
              (RAC) Program..........................................   316
        Subtitle B--Additional Medicaid Provisions...................   318
            Sec. 5101. Termination of Provider Participation Under
              Medicaid if Terminated Under Medicare or Other State
              Plan...................................................   318
            Sec. 5102. Medicaid Exclusion from Participation Relating
              to Certain Ownership, Control, and Management
              Affiliations...........................................   318
            Sec. 5103. Billing Agents, Clearinghouses, or Other
              Alternate Payees Required to Register Under Medicaid...   319
            Sec. 5104. Requirement To Report Expanded Set of Data
              Elements Under MMIS to Detect Fraud and Abuse..........   319
            Sec. 5105. Prohibition on Payments to Institutions or
              Entities Located Outside of the United States..........   320
            Sec. 5106. Overpayments..................................   320
            Sec. 5107. Mandatory State Use of National Correct Coding
              Initiative.............................................   320
            Sec. 5108. General Effective Date........................   321
    TITLE VI--REVENUE PROVISIONS.....................................   321
            Sec. 6001. Excise Tax on High Cost Insurance.............   321
            Sec. 6002. Employer Health Insurance Reporting...........   328
            Sec. 6003. Modify the Definition of Qualified Medical
              Expenses...............................................   329
            Sec. 6004. Increase in Additional Tax on Distributions
              from HSAs not Used for Medical Expenses................   331
            Sec. 6005. Limitation on Health Flexible Spending
              Arrangements Under Cafeteria Plans.....................   332
            Sec. 6006. Require Information Reporting on Payments to
              Corporations...........................................   334
            Sec. 6007. Requirements for Section 501(c)(3) Hospitals..   336
            Sec. 6008. Imposition of Annual Fee on Branded
              Prescription Pharmaceutical Manufacturers and Importers   340
            Sec. 6009. Imposition of Annual Fee on Medical Device
              Manufacturers and Importers............................   343
            Sec. 6010. Imposition of Annual Fee on Health Insurance
              Providers..............................................   345
            Sec. 6011. Study and Report of Effect on Veterans Health
              Care...................................................   348
            Sec. 6012. Elimination of Deduction for Expenses
              Allocable to Medicare Part D Subsidy...................   349
            Sec. 6013. Modify the Itemized Deduction for Medical
              Expenses...............................................   350
            Sec. 6014. Limitation on Deduction for Remuneration Paid
              by Health Insurance Providers..........................   351
            Sec. 6021. Provide Income Exclusion for Indian Tribe
              Health Benefits........................................   356
            Sec. 6022. Establishment of SIMPLE Cafeteria Plans for
              Small Businesses.......................................   358
            Sec. 6023. Investment Credit for Qualifying Therapeutic
              Discovery Project......................................   361
    III.  Budget Effects of the Bill....................................364
     IV.  Votes of the Committee........................................410
      V.  Changes in Existing Law.......................................430
     VI.  Additional Views..............................................431
    VII.  Minority Views................................................448

                                                           Calendar No. 184
    111th Congress                                                   Report
                                     SENATE
     1st Session                                                     111-89

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

                      AMERICA'S HEALTHY FUTURE ACT OF 2009

                                    _______

                    October 19, 2009.--Ordered to be printed

                                    _______

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

                                  R E P O R T

                                 together with

                         ADDITIONAL AND MINORITY VIEWS

                             [To accompany S. 1796]

          [Including cost estimate of the Congressional Budget Office]

        The Committee on Finance, having considered an original
    bill, S. 1796, to provide affordable, quality health care for
    all Americans and reduce the growth in health care spending,
    and for other purposes, reports favorably thereon and
    recommends that the bill do pass.

                     I. BACKGROUND AND NEED FOR LEGISLATION

        The U.S. health system is in crisis. In 2008, over 46
    million Americans were uninsured and millions more have lost
    their health coverage as a result of the recent economic
    downturn. Another 25 million people are underinsured, with
    coverage that is insufficient to protect against the cost of a
    major illness. The rising cost of health care outpaces wages by
    a factor of five to one, placing an ever greater strain on
    family, business, and government budgets.
        Improving the health system is one of the most important
    challenges we face as a nation, and the inability to achieve
    comprehensive health reform will undermine any efforts to
    secure a full and lasting economic recovery. Health reform is
    an essential part of restoring America's overall economy and
    maintaining our global competitiveness.
        Health care reform is also necessary to protect the
    finances of working families. Between 2000 and 2009, average
    family premiums for employer-sponsored health coverage
    increased by 93 percent--increasing from $6,772 to $13,073--
    while wages increased by only 19 percent in the same period.
    Rising health care costs and mounting medical debt account for
    half of all filed bankruptcies--affecting two million people a
    year.
        Countless studies have shown that those without health
    coverage generally experience worse health outcomes and poorer
    health compared to those who are insured. The uninsured are
    less likely to receive preventive care or even care for
    traumatic injuries, heart attacks, and chronic diseases. As a
    result, 23 percent forgo necessary care every year due to cost,
    while 22,000 uninsured adults die prematurely each year as a
    result of lacking access to care.
        A majority of the uninsured has low or moderate incomes--
    with two-thirds in families with an annual income less than
    twice the Federal poverty level (FPL). Eight in ten of the
    uninsured are in working families in which workers are either
    not offered coverage by their employer or they do not qualify
    for employer-offered coverage.
        Hospitals and clinics provide an estimated $56 billion
    annually in uncompensated care to people without health
    insurance, and those with health coverage pay the bill through
    higher health care costs and increased premiums. This so-called
    ``hidden health tax'' cost the average family over $1,000 in
    high premiums last year. An estimated ten percent of health
    care premiums in California are attributable to cost shifting
    due to the uninsured.
        Rising health costs have taken a toll on U.S. businesses as
    well. An estimated 159 million Americans receive health
    benefits through an employer, with the average cost of this
    coverage reaching $4,824 for single coverage and $13,375 for
    family coverage in 2009. Over the last decade, employer-
    sponsored coverage has increased by 131 percent, forcing
    employers--particularly small employers--to make difficult
    choices among painful options to offset increasing health
    costs. These choices include raising workers' premiums,
    limiting raises or reducing bonus pay, eliminating family
    health benefits, or providing less-than-comprehensive health
    coverage.
        Federal and state governments have also struggled with
    health care costs. The Congressional Budget Office has noted
    that rising health care costs represent the ``single most
    important factor influencing the Federal Government's long-term
    fiscal balance.'' The U.S. spends more than 16 percent of our
    gross domestic product (GDP) on health care--a much greater
    share than other industrialized nations with high-quality
    systems and coverage for everyone. By 2017, health care
    expenditures are expected to consume nearly 20 percent of the
    GDP, or $4.3 trillion annually. Spending for Medicare and
    Medicaid, due to many of the same factors found in the private
    sector, is projected to increase by 114 percent in ten years.
    Over the same period, the GDP will grow by just 64 percent.
        Despite high levels of spending on health care, a recent
    study by the Institute of Medicine concludes that the current
    health system is not making progress toward improving quality
    or containing costs for patients or providers. Research
    documenting poor quality of care received by patients in the
    U.S. is shocking. A 2003 RAND Corporation study found that
    adults received recommended care for many illnesses only 55
    percent of the time. Needed care for diabetes was delivered
    only 45 percent of the time and for pneumonia 39 percent of the
    time. Patients with breast cancer fared better, but still did
    not receive recommended care one-quarter of the time.
        Compared to other industrialized countries, our quality of
    care does not reflect the level of our investment. The U.S.
    ranks last out of 19 industrialized countries in unnecessary
    deaths and 29th out of 37 countries for infant mortality--tied
    with Slovakia and Poland, and below Cuba and Hungary. Our rate
    of infant mortality is double that of France and Germany.
        In short, Americans are not getting their money's worth
    when patients receive services of little or no value--such as
    hospitalizations that could have been prevented with
    appropriate outpatient treatment, duplicate tests, or
    ineffective tests and treatments. Yet the current system does
    little to steer providers toward the right choices. Even though
    more care does not necessarily mean better care, Medicare and
    most other insurers continue to pay for more visits, tests,
    imaging services, and procedures, regardless of whether the
    treatment is effective or necessary, and pay even more when
    treatment results in subsequent injury or illness.
        Providers are not consistently encouraged to coordinate
    patients' care or to supply preventive and primary care
    services, even though such actions can improve quality of care
    and reduce costs. Rewarding providers that furnish better
    quality care, coordinate care, and use resources more
    judiciously could reduce costs and, most importantly, better
    meet the health care needs of millions more American patients.
        Each of the key challenges facing our health care system--
    lack of access to care, the cost of care, and the need for
    better-quality care--must be addressed together in a
    comprehensive approach. Covering millions of uninsured through
    a broken health system is fiscally unsustainable. Attempting to
    address the inefficiencies plaguing our system and the perverse
    incentives in the delivery system without covering the
    uninsured will not alleviate the burden of uncompensated care
    and cost shifting. The time for incremental improvements has
    passed; health care reform must be comprehensive in scope.
        It is in this context that the Finance Committee developed
    the legislative proposal that would become the ``America's
    Healthy Future Act.'' The legislation approved by the Finance
    Committee addresses the challenges facing our health care
    system by expanding health coverage to 29 million Americans,
    improving quality of care and transforming the health care
    delivery system, and reducing Federal health spending and the
    Federal deficit over the ten year budget window and in the long
    run.
        As a general principle, the bill allows those who like
    their health insurance to keep what they have today. For the
    millions of Americans who don't have employer-sponsored
    coverage, cannot afford to purchase coverage on their own, or
    who are denied coverage by health insurance companies due to a
    pre-existing condition, the Chairman's Mark reforms the
    individual and small-group markets, making health coverage
    affordable and accessible. These market reforms would require
    insurance companies to issue coverage to all individuals
    regardless of health status, prohibit insurers from limiting
    coverage based on pre-existing conditions and allow only
    limited variation in premium rates.
        The Mark would make purchasing health insurance coverage
    easier and more understandable by creating state-based web
    portals, or ``exchanges'' that would direct consumers to all
    available health plan options. The exchanges would offer
    standardized health insurance enrollment applications, a
    standard format companies would use to present their insurance
    plans, and standardized marketing materials. Small businesses
    would have access to state-based Small Business Health Options
    Program (SHOP) exchanges. These exchanges--like the individual
    market exchanges--would be web portals that make comparing and
    purchasing health care coverage easier for small businesses.
        The Mark standardizes benefits to force insurance companies
    to compete on price and quality and not their ability to select
    the healthiest individuals and ensures that every policy
    offered in the individual and small group market provides
    meaningful coverage for essential services. Those age 25 or
    under will also have access to an affordable young invincible
    plan that would provide catastrophic coverage and first dollar
    coverage for prevention. Plans would not be allowed to set
    lifetime or annual coverage limits.
        The Chairman's Mark would standardize Medicaid eligibility
    for all parents, children, pregnant women and childless adults
    with incomes at or below $30,000 a year for a family of four
    ($14,400 for an individual), beginning in 2014. Individuals
    between 100 percent of FPL and 133 percent of FPL would be
    given the choice of enrolling in either Medicaid or in a
    private health insurance plan offered through a health
    insurance exchange. The federal government would provide
    significant additional funding to states to cover the cost of
    providing services to newly eligible Medicaid beneficiaries.
        To ensure that health coverage is affordable, the Mark
    would provide an advanceable, refundable tax credit for low and
    middle-income individuals (between 100-400 percent of FPL) to
    help offset the cost of private health insurance premiums.
    Undocumented immigrants are prohibited from benefiting from the
    credit. A cost-sharing subsidy would be provided to limit the
    amount of out-of-pocket costs that individuals and families
    between 100-200 percent of FPL have to pay. The cost-sharing
    subsidy would be designed to buyout any difference in cost
    sharing between the insurance purchased and a higher actuarial
    value plan.
        A tax credit would also be available to small businesses.
    In 2011 and 2012, eligible employers can receive a small
    business credit for up to 35 percent of their contribution.
    Once the exchanges are up and running in 2013, qualified small
    employers purchasing insurance through the exchange can receive
    a tax credit for two years that covers up to 50 percent of the
    employer's contribution. Small businesses with 10 or fewer
    employees and with average taxable wages of $20,000 or less
    will be able to claim the full credit amount. The credit phases
    out for businesses with more than 10 employees and average
    taxable wages over $20,000, with a complete phase-out at 25
    employees or average taxable wages of $40,000. Non-profit
    organizations with 25 or fewer employees would also be eligible
    to receive tax credits if they meet the same requirements.
    These organizations would be eligible for a 25 percent credit
    from 2011-2013 and a 35 percent credit in 2013 and thereafter.
        The Mark creates authority for the formation of the
    Consumer Owned and Oriented Plans (CO-OPs). These plans can
    operate at the state, regional or national level to serve as
    non-profit, member-run health plans to compete in the reformed
    non-group and small group markets. These plans will offer
    consumer-focused alternatives to existing insurance plans. Six
    billion dollars in federal seed money would be provided for
    start-up costs and to meet state solvency requirements.
        To ensure the insurance market reforms function properly,
    the Mark would create a personal responsibility requirement for
    health care coverage, with exceptions provided for religious
    conscience (as defined in Medicare) and undocumented
    individuals. Those who fail to meet the requirement are subject
    to a penalty. Appropriate exemptions are made from the penalty.
        The Chairman's Mark does not require employers to offer
    health insurance. However, effective July 1, 2013, all
    employers with more than 50 employees who do not offer coverage
    would be required to reimburse the government for each full-
    time employee (defined as those working 30 or more hours a
    week) receiving a health care affordability tax credit in the
    exchange equal to the average national exchange credit and
    subsidy up to a cap of $400 per total number of employees
    (whether they are receiving a tax credit and subsidy or not). A
    Medicaid-eligible individual can always choose to leave the
    employer's coverage and enroll in Medicaid. In this
    circumstance, the employer is not required to pay a fee.
        In addition to provisions that expand health care coverage,
    the Chairman's Mark would make critical investments in policies
    to promote healthy living and help prevent costly chronic
    conditions like diabetes, cancer, heart disease and obesity.
    Preventive screenings enable doctors to detect diseases
    earlier, when treatment is most effective, thereby averting
    more serious, costly health problems later.
        The Mark would provide Medicare beneficiaries with a free
    visit to their primary care provider every year to create and
    update a personalized prevention plan designed to address
    health risks and chronic health problems and to develop a
    schedule for regular recommended preventive screenings. It
    would eliminate out-of-pocket costs for recommended preventive
    services for Medicare beneficiaries and provide incentives for
    states to cover recommended services and immunizations in
    Medicaid. And finally, the Mark establishes an initiative to
    reward Medicare and Medicaid participants for healthier
    choices. Funding will be available to provide participants with
    incentives for completing evidence-based, healthy lifestyle
    programs and improving their health status. Programs will focus
    on lowering certain risk factors linked to chronic disease such
    as blood pressure, cholesterol and obesity.
        The legislation makes significant steps to reform the
    health care delivery system. Medicare currently reimburses
    health care providers on the basis of the volume of care they
    provide--regardless of whether the treatment contributes to
    helping a patient recover. The Chairman's Mark includes various
    proposals to move the Medicare fee-for-service system towards
    paying for quality and value. These proposals include hospital
    value-based purchasing--and value-based purchasing for other
    Medicare providers including physicians, home health agencies,
    nursing homes, long-term care hospitals, inpatient
    rehabilitation facilities, PPS-exempt cancer hospitals and
    hospice providers.
        To encourage greater collaboration among health care
    providers, the Chairman's Mark would allow high-quality
    providers that coordinate care across a range of health care
    settings to share in the savings they achieve for the Medicare
    program. It would create an Innovation Center at the Centers
    for Medicare & Medicaid Services (CMS) that would have
    authority to test new patient-centered payment models designed
    to encourage evidence-based, coordinated care for Medicare,
    Medicaid, and CHIP. Payment reforms that are shown to improve
    quality and reduce costs could be expanded throughout the
    Medicare program. It would also implement a national pilot
    program on payment bundling and start to pay hospitals less for
    avoidable hospital readmissions.
        Efforts to reduce costs and improve quality in the health
    care delivery system will require an investment in the health
    care infrastructure necessary to support coordinated quality
    care and create a more effective, efficient delivery system.
    The legislation would provide additional resources to
    strengthen the quality measure development processes for
    purposes of improving quality, informing patients and
    purchasers, and updating payments under federal health
    programs. The Mark would also invest in research on what
    treatments work best for which patients and ensure that
    information is available and accessible to patients and
    doctors, such as through the establishment of an independent
    institute to research the effectiveness of different health
    care treatments and strategies. These provisions are carefully
    crafted so that patients would never be denied treatment based
    on age, disability status or other related factors as a result
    of the research findings.
        To promote primary care and maintain adequate access to
    health care providers, the Chairman's Mark would provide
    primary care practitioners and targeted general surgeons with a
    Medicare payment bonus of ten percent for five years. It would
    strengthen the health care workforce by increasing graduate
    medical education (GME) training positions through a slot re-
    distribution program for currently unused training slots, with
    priority given to increasing training in primary care and
    general surgery. The provision would also encourage additional
    training in outpatient settings, including teaching health
    centers, and ensure communities retain vital training slots if
    a hospital closes.
        The Mark also improves the accuracy of Medicare payments to
    providers by reducing overpayments to providers. It would
    cancel a scheduled 21.5 percent reduction to physician payments
    in 2010 and replace the impending cut with a positive update.
    The legislation would improve the value of Medicare Advantage
    by reforming payments so that the program appropriately pays
    insurers for their costs and promotes plans that offer high
    quality, efficient health care for seniors. To preserve
    beneficiary access to certain services they now receive, the
    legislation would grandfather MA plans in areas where plans
    currently bid at or below 75 percent of traditional fee-for-
    service Medicare to deliver benefits, so plans will continue to
    offer the plans they currently offer and pay what they
    currently pay to deliver benefits for existing beneficiaries.
        For rural providers, the Mark includes important provisions
    to ensure rural health care facilities and providers have the
    resources they need to continue delivering quality care in
    their communities. Specifically, the Mark would extend and
    improve many rural access protections.
        Sharply rising costs throughout the health system threaten
    Medicare's sustainability in the long term. If costs are not
    constrained, the Medicare program will be insolvent by 2017. To
    ensure the fiscal solvency and sustainability of the Medicare
    program, the Chairman's Mark would create a new independent
    Medicare Commission tasked with presenting Congress with
    comprehensive proposals to reduce excess cost growth and
    improve quality of care for Medicare beneficiaries. In years
    when Medicare costs are projected to be unsustainable, the
    Commission's proposals will take effect unless Congress passes
    an alternative measure that achieves the same level of savings.
    Congress would be allowed to consider an alternative provision
    on a fast-track basis. The Commission would be prohibited from
    making proposals that ration care, raise taxes or Part B
    premiums, or change Medicare benefit, eligibility, or cost-
    sharing standards. The Mark would also reduce annual market
    basket updates for hospitals, home health providers, nursing
    homes, hospice providers, long-term care hospitals and
    inpatient rehabilitation facilities, including adjustments to
    reflect expected gains in productivity. Payment updates for
    Part B providers would be reduced by an estimate of increased
    productivity, and income-related premiums would be adopted in
    Part D.
        To improve the transparency of insurance products so that
    individuals know what they are purchasing, the services which
    are covered and the associated out-of-pocket costs, the Mark
    would create standards so that individuals receive an outline
    of coverage presented in a uniform format. The Mark would also
    require insurance companies to publish the share of their
    premium revenue that is used for administrative expenses and
    would impose new requirements on insurers to meet standards for
    the electronic exchange of payment and other health care
    information with hospitals, doctors and other providers.
        Reducing fraud, waste, and abuse in Medicare, Medicaid and
    CHIP will reduce costs and improve quality throughout the
    system. The Medicare improper payment rate for 2008 was 3.6
    percent of payments, or $10.4 billion and the National Health
    Care Anti-Fraud Association estimates that fraud amounts to at
    least three percent of total health care spending, or more than
    $60 billion per year. The Chairman's Mark includes several
    significant provisions to combat fraud, waste and abuse in our
    health care system.
        The America's Healthy Future Act is fully offset and would
    reduce the deficit and reduce Federal health spending over the
    long run. In addition to the Medicare Commission, the other
    policy that contributes to this goal is the high cost insurance
    excise tax. Beginning in 2013, this provision would levy a non-
    deductible excise tax on insurance companies and plan
    administrators for any health insurance plan that is above the
    threshold of $8,000 for singles and $21,000 for family plans.
    The threshold would be higher for workers with high risk jobs
    or for retirees aged 55 and up. The tax would apply to self-
    insured plans and plans sold in the group market, but not to
    plans sold in the individual market. A transition rule would
    increase the threshold for the 17 highest cost states for the
    first three years.
        Other revenue measures include a limit on the amount of
    contributions to health Flexible Spending Accounts (FSAs)
    beginning in 2011, a provision to conform the definition of
    qualified medical expenses for Health Savings Accounts (HSAs),
    health FSAs, and HRAs to the definition used for the itemized
    deduction, an increased penalty for use of HSA funds for non-
    qualified medical expenses, and an increase in the threshold
    for claiming the itemized deduction for medical expenses.
        The legislation also includes an annual flat fee of $2.3
    billion on the pharmaceutical manufacturing sector, an annual
    flat fee of $4 billion on the medical device manufacturing
    sector, and an annual flat fee of $6.7 billion on the health
    insurance sector. Each of these non-deductible fees would be
    allocated across the respective industry according to market
    share. The device fee would not apply to companies with sales
    of medical devices in the U.S. of $5 million or less and would
    not apply to sales of Class I products or Class II products
    that retail for less than $100 under the FDA product
    classification system.
        Taken together, this legislation achieves the goals of
    expanding health care coverage to the uninsured, reducing
    health care costs and improving the quality of care by
    transforming the health care delivery system. This
    comprehensive legislation represents a significant milestone in
    our nation's pursuit of quality, affordable health care for all
    Americans.

                    LEGISLATIVE HISTORY AND COMMITTEE ACTION

        The Finance Committee has spent two years working on health
    reform, learning about the problem and identifying solutions.
    In the past two years, the committee held 20 hearings on health
    care reform. Last June the committee hosted a day-long health
    care summit at the Library of Congress featuring Federal
    Reserve Chairman Ben Bernanke and Dr. J. Craig Venter, genomic
    research pioneer, as keynote speakers.
        Leading up to the markup, the committee held three
    roundtable discussions reflecting the three major areas of
    reform--access, cost and quality. In connection with each
    roundtable--the committee hosted experts from around the
    country with many different perspectives. Finance Committee
    members asked many questions of these experts and delved into
    the issues. Along with each roundtable, the committee put out a
    detailed policy options paper and held three closed-door walk-
    through sessions to discuss those options.
        In sum, the hearings, summit, roundtables and walk-through
    sessions demonstrated an open and exhaustive consideration of
    this health care proposal.
        In moving forward with the markup, the Finance Committee
    distributed the Chairman's Mark and posted it on the committee
    website on September 16, a full week prior to the start of the
    markups. Members submitted 564 amendments to the Chairman's
    Mark, all of which were posted on the website--a measure in the
    name of transparency that has never been taken by the committee
    before.
        The markup of America's Healthy Future Act lasted for eight
    days. These days were long days, often running past 10:00 p.m.
    On the last day of considering amendments, the committee worked
    past 2:00 a.m. All in all, it has been more than 22 years since
    the Finance Committee met for eight days on a single bill.
        During those eight days, the committee considered 135
    amendments and conducted 79 roll call votes, adopting 41
    amendments. A final amendment was adopted prior to the vote on
    October 13, 2009 to report the bill. And the final vote to
    report the bill was 14-9.
        The legislation resulting from the committee's effort is a
    balanced, sensible plan that takes the best ideas from both
    sides of the aisle. It achieves President Obama's vision to
    improve America's health care system, and it is a plan designed
    to get the 60 votes it needs to pass. The Congressional Budget
    Office confirms that the legislation will reduce the deficit by
    $81 billion in the first 10 years, and that the legislation
    will reduce the deficit further in the next 10 years. Coverage
    is expanded to 29 million Americans, increasing the rate of
    insurance to 94 percent at a cost of $829 billion.

                          II. EXPLANATION OF THE BILL

                         Title I--Health Care Coverage

                      Subtitle A--Insurance Market Reforms

     SEC. 1001. INSURANCE MARKET REFORMS IN THE INDIVIDUAL AND SMALL GROUP
                                    MARKETS

        The Committee Bill would amend the Social Security Act (42
    U.S.C. 301 et seq.) by adding a new Title XXII at the end:

                   ``Title XXII--Health Insurance Coverage''

     SEC. 2200. ENSURING ESSENTIAL AND AFFORDABLE HEALTH BENEFITS COVERAGE
                               FOR ALL AMERICANS

    Present Law

        No provision.

    Committee Bill

        The purpose of Title I would be to ensure that all
    Americans have access to affordable and essential health
    benefits coverage (1) by requiring that all new health benefits
    plans offered to individuals and employers in the individual
    and small group market are qualified health benefit plans
    (QHBPs) that meet the insurance rating reforms and essential
    health benefits coverage requirements under this bill, (2) by
    establishing State exchanges to provide greater access to and
    information about QHBPs, (3) by making health benefits coverage
    more affordable with premium credits and cost-sharing
    subsidies, and (4) by establishing the CO-OP program to
    encourage the establishment of nonprofit health care
    cooperatives.

                           PART A--INSURANCE REFORMS

     ``Subpart 1--Requirements in the Individual and Small Group Markets''

                SEC. 2201. GENERAL REQUIREMENTS AND DEFINITIONS

    Present Law

        Certain commonly used terms in health insurance are defined
    in statute. For example, ``group health plan'' is defined in
    Sec 5000(b) of the Internal Revenue Code, as a ``plan
    (including a self-insured plan) of, or contributed to by, an
    employer (including a self-employed person) or employee
    organization to provide health care (directly or otherwise) to
    the employees, former employees, the employer, others
    associated or formerly associated with the employer in a
    business relationship, or their families''.

    Committee Bill

        The provisions would codify some new definitions in health
    insurance. Each state would require that each health benefits
    plan (other than grandfathered plans) offered in the individual
    or small group market within the State would be a ``qualified
    health benefits plan'' (QHBP). A QHBP would be defined as a
    plan that has a certification issued or recognized by the State
    that it meets the requirements relating to insurance market
    reforms and meets health insurance affordability requirements.
    Additionally, the offeror of the plan would be licensed by the
    State and comply with other requirements established by the
    Secretary or the State.
        The term ``health benefits plan'' would include health
    insurance coverage and group health plans. Except as specified
    in the bill, a health benefits plan would not include a plan
    that is not subject to certain state law requirements (self-
    funded plans and multiple employer welfare arrangements--
    MEWAs).
        The term ``health benefits offeror'' would mean the issuer
    offering coverage and for a group health plan, the plan sponsor
    or employer.
        The term ``group market'' refers to a group health plan
    maintained by an employer. ``Individual market'' refers to the
    market other than in connection with a group health plan.

    Present Law

        Pertaining to Sec. 2202-2206: The private health insurance
    market consists of three segments: large group market, small
    group market, and the individual (nongroup) market. A variety
    of Federal and state laws and regulations apply to these
    markets; sometimes the requirements are distinct for each
    market segment and other times they overlap. Regulation of the
    private health insurance market is primarily done at the state
    level. State regulatory authority is broad in scope and
    includes requirements related to the issuance and renewal of
    coverage, benefits, rating, consumer protections, and other
    issues. Federal regulation of the private market is more narrow
    in scope and applicable mostly to employer-sponsored health
    insurance (i.e., through the Employee Retirement Income
    Security Act of 1974 (ERISA)).
        The Federal Health Insurance Portability and Accountability
    Act of 1996 (HIPAA, P.L. 104-191), which amended ERISA,
    established Federal rules regarding coverage for pre-existing
    health conditions, guaranteed issue and availability, and
    guaranteed renewability in the individual and small group
    markets for certain persons eligible for HIPAA protections.
    HIPAA limits the duration that coverage for pre-existing health
    conditions may be excluded for ``HIPAA eligible'' individuals
    with group coverage. Group plans may impose pre-existing
    condition exclusions for no longer than 12 months (18 months in
    the case of a late enrollee), and must decrease that exclusion
    period by the number of months an enrollee had prior
    ``creditable coverage.'' HIPAA also prohibits individual
    issuers from excluding coverage for pre-existing health
    conditions for HIPAA eligibles. All States require health
    issuers to reduce the period of time when coverage for pre-
    existing health conditions may be excluded, in compliance with
    HIPAA. As of January 2009 in the small group market, 21 states
    had pre-existing condition exclusion rules that provided
    consumer protection above the Federal standard. And as of
    December 2008 in the individual market, 42 states reduce the
    period of time when coverage for pre-existing health conditions
    may be excluded for non-HIPAA eligible enrollees.
        HIPAA requires that coverage sold to firms with 2-50
    employees must be sold on a guaranteed issue basis. That is,
    the issuer must accept every small employer that applies for
    coverage. Guaranteed issue does not affect (and is not affected
    by) rating or benefits. HIPAA also guarantees renewal of both
    small and large group coverage at the option of the plan
    sponsor (e.g., employer), with some exceptions. HIPAA
    guarantees that each issuer in the individual market make at
    least two policies available to all ``HIPAA eligible''
    individuals, and renewal of individual coverage is at the
    option of such individuals, with some exceptions. In addition,
    a number of states have enacted guaranteed issue rules. All
    states require issuers to offer policies to firms with 2-50
    workers on a guaranteed issue basis. As of January 2009, 13
    states also require small group issuers to offer policies on a
    guaranteed issue basis to self-employed ``groups of one.'' As
    of January 2009 in the individual market, 14 states require
    issuers to offer some or all of their individual insurance
    products on a guaranteed issue basis.
        There are no Federal rating rules applicable to the private
    health insurance market. Most States currently impose rating
    rules on insurance carriers in the small group market, the
    individual market, or both. Existing state rating rules
    restrict an insurer's ability to price insurance policies
    according to the risk of the person or group seeking coverage,
    and vary from state to state. Such restrictions may specify the
    case characteristics (or risk factors) that may or may not be
    considered when setting a premium, such as gender. The spectrum
    of existing state rating limitations ranges from pure community
    rating, to adjusted (or modified) community rating, to rate
    bands, to no restrictions. Pure community rating means that
    premiums cannot vary based on any characteristic, including
    health. Adjusted community rating means that premiums cannot
    vary based on health, but may vary based on other key risk
    factors, such as age.
        Rate bands allow premium variation based on health, but
    such variation is limited according to a range specified by the
    state. Rate bands are typically expressed as a percentage above
    and below the index (i.e., the rate that would be charged to a
    standard population if the plan is prohibited from rating based
    on health factors ). For example, if a state establishes a rate
    band of +/-25 percent, then insurance carriers can vary
    premiums, based on health factors, up to 25 percent above and
    25 percent below the index. Both adjusted community rating and
    rate bands allow premium variation based on any other permitted
    case characteristic, such as gender. For each characteristic,
    the state typically specifies the amount of allowable
    variation, as a ratio. For example, a 5:1 ratio for age would
    allow insurers to charge an individual no more than five times
    the premium charged to any other individual, based on age
    differences. As of January 2009, two states have pure community
    rating rules, ten have adjusted community rating rules, and 35
    have rate bands in the small group market. As of January 2009
    in the individual market, one state has pure community rating,
    seven have adjusted community rating rules, and eleven have
    rating bands. The remaining states have no limitations on
    rating set in law in the individual market.

    Committee Bill

           SEC. 2202. PROHIBITION ON PREEXISTING CONDITION EXCLUSIONS

        QHBPs would be prohibited from excluding coverage for
    preexisting conditions, or otherwise imposing limits or
    conditions on coverage based on any health status-related
    factors. Such factors would include health status, medical
    condition (including both physical and mental illnesses),
    claims experience, receipt of health care, medical history,
    genetic information, evidence of insurability (including
    conditions arising out of acts of domestic violence), and
    disability.

           SEC. 2203. GUARANTEED ISSUE AND RENEWAL FOR INSURED PLANS

        QHBPs would be required to offer coverage in the individual
    and small group markets on a guaranteed issue and guaranteed
    renewal basis. If a plan has a capacity limit, as determined
    under regulations promulgated by the Secretary, the plan would
    be allowed to limit enrollment to that limit as long as the
    plan selects enrollees on the basis of order in which
    individuals applied for enrollment. With respect to the
    guaranteed renewal provision, this provision would require (1)
    any rescissions of coverage to be treated in the same manner as
    non-renewals of coverage, and (2) the premium at the time of
    renewal be determined using the same categories of rate
    adjustment factors used at the time the policy was first
    issued.

                        SEC. 2204. PREMIUM RATING RULES

        Health benefit plans offered in a rating area would be
    allowed to vary premiums only according to specified ratios for
    the following risk factors:
               Family enrollment:
                       Individual, 1:1
                       Adult with child, 1.8:1
                       Two adults, 2:1
                       Family, 3:1
               Age, 4:1
               Tobacco Use, 1.5:1
        The Secretary would establish age bands to implement the
    provision relating to premium variation based on age. Health
    benefit plans would be prohibited from rating based on health
    status related factors, gender, class of business, claims
    experience, or any other factor not specified above.

            SEC. 2205. USE OF UNIFORM OUTLINE OF COVERAGE DOCUMENTS

        Health benefits plans would be required to provide an
    outline of the plan's coverage that meets the standards of
    uniformity adopted by the Secretary under Sec. 1002 to (1) an
    applicant at the time of application, (2) an enrollee at the
    time of enrollment, and (3) a policyholder at the time the
    policy is issued.

             ``Subpart 2--Reforms Relating to Allocation of Risks''

    Present Law

        Pertaining to Sec. 2211-2215: There are no Federally-
    established rating areas in the private health insurance
    market. However, some states have enacted rating rules in the
    individual and small group markets that include geography as a
    characteristic on which premiums may vary. In these cases, the
    state has established rating areas. Typically, states use
    counties or zip codes to define those areas.
        Pooling refers to the industry practice of pooling the
    insurance risk of individuals or groups in order to determine
    premiums. In the individual market premiums are typically based
    on the risk of the applicant, such as an individual or family.
    In the small group market, premiums are typically based on the
    collective risk of the small group. Some states have imposed
    requirements on health insurance issuers that limit the
    issuers' ability to base premiums on the risk of individuals or
    small groups applying for coverage--see Present Law description
    under Sec. 2202.
        Medicare Advantage (MA) is an alternative way for Medicare
    beneficiaries to receive covered benefits. Under MA, private
    health plans are paid a per-person amount to provide all
    Medicare-covered benefits (except hospice) to beneficiaries who
    enroll in their plan. Payments to MA plans are risk adjusted to
    control for variations in the cost of providing health care
    among Medicare beneficiaries. For example, if sicker and older
    patients all sign up for one plan, risk adjustment is designed
    to compensate the plan for their above average health expenses.
    Medicare Advantage payments are currently risk adjusted for the
    health history of the enrollee, as well as for demographic
    variables such as age, gender, working status, Medicaid
    coverage, institutionalized status, and whether the beneficiary
    originally qualified for Medicare on the basis of disability.
        The Medicare Prescription Drug, Improvement, and
    Modernization Act of 2003 (MMA, P.L. 108-173) established an
    outpatient voluntary prescription drug benefit under a new
    Medicare Part D, effective January 1, 2006. MMA established
    risk corridors to limit plans' overall risks or profits under
    the new program. Under risk corridors, Medicare limits a plan's
    potential losses, or gains, by financing some of the higher
    than expected costs, or recouping excessive profits. Risk
    corridors are defined as specified percentages above and below
    a target amount and are set separately for each plan. The
    target amount is based on the total risk-adjusted subsidy
    payments paid to the plan plus beneficiary premiums, reduced by
    the administrative expenses assumed in the bid. The target
    amount is then compared to the plan's actual allowable costs.
    If actual costs exceed the target amount, Medicare reimburses
    plans for a portion of their losses, and if costs are lower
    than the target, the sponsor may owe money to the Center for
    Medicare and Medicaid Services (CMS).

    Committee Bill

    SEC. 2211. RATING AREAS; POOLING OF RISKS; PHASE IN OF RATING RULES IN
                              SMALL GROUP MARKETS

        Each state would be required to establish one or more
    rating areas within the state for purposes of applying the
    requirements of Title I. The Secretary would review the rating
    areas to ensure the adequacy of such areas in carrying out the
    Title I requirements. The Secretary would be allowed to
    establish rating areas for those states whose rating areas are
    determined to be inadequate.
        Individual health insurance issuers offering an insured
    QHBP in an area covered by an exchange would be required to
    consider all enrollees in the plan as members of a single risk
    pool, including individuals who do not purchase such a plan
    through an exchange. Likewise, small group issuers offering a
    QHBP in an area covered by an exchange would be required to
    consider all enrollees in the plan as members of a single risk
    pool, including individuals who do not purchase such a plan
    through an exchange. States would have the option to merge the
    individual and small group markets for purposes of applying the
    pooling requirements. Upon approval by the Secretary, states
    would be allowed to phase in the application of the insurance
    reforms under Subpart 1 to the small group market over a
    consecutive period of plan years (not greater than 5).

                           SEC. 2212. RISK ADJUSTMENT

        Each state would be required to adopt a risk-adjustment
    model, established by the Secretary, to apply risk adjustment
    to QHBPs (whether or not purchased through an exchange) and
    grandfathered plans in the individual and small group markets.
    The Secretary would establish one or more risk adjustment
    models that take into account differences in the risk
    characteristics of individuals and employer enrolled under
    different plans to minimize the impact of adverse selection of
    enrollees in those plans. States have the option to establish
    their own risk adjustment model if the state establishes a
    model, to the satisfaction of the Secretary, that (1) would
    produce substantially similar results to the model(s)
    established by the Secretary and (2) would not increase Federal
    costs.
        The Secretary would be required to pre-qualify entities
    capable of conducting risk-adjustment and the states would have
    the option to pick among those entities. The entities pre-
    qualified by the Secretary cannot be a plan offeror, or an
    entity owned or operated by a plan offeror.

       SEC. 2213. ESTABLISHMENT OF TRANSITIONAL REINSURANCE PROGRAM FOR
                        INDIVIDUAL MARKETS IN EACH STATE

        No later than July 1, 2013, each state would be required to
    establish a reinsurance program based on model regulation
    developed by the National Association of Insurance
    Commissioners (NAIC). Offerors of health benefit plans that are
    offered in the individual market would be required to
    contribute to a temporary reinsurance program for individual
    policies that is administered by a non-profit reinsurance
    entity. Such contributions would begin July 1, 2013 and
    continue for a 36-month period.
        In development of the model regulation, the NAIC would be
    required to include these components: the method by which
    individuals would be identified as high risk for purposes of
    the reinsurance program, the formula for determining the
    amounts to be paid to offerors of plans that insure high risk
    individuals, the method for determining the amount each plan
    offeror would be required to contribute under the reinsurance
    program. The aggregate contribution amounts for all states,
    without regard to administrative expenses, would be equal to
    the following amounts for each 12-month plan year beginning on
    July 1 of the following years: $10 billion in 2013, $6 billion
    in 2014, and $4 billion in 2015. Plan offeror contributions to
    the reinsurance program established under this section are in
    addition to contribution amounts required under Sec. 2216. The
    contribution amounts allocated and used in any of the three-
    years may vary based on the reinsurance needs of a particular
    year or to reflect experience in the prior year. In the event
    that all funds are not expended in the three year period, the
    reinsurer may continue to make payments under a state
    reinsurance program in the individual market for a 24-month
    period beginning on July 1, 2016, but no new contributions
    would be collected beyond June 20, 2016.
        The non-profit reinsurance entity would coordinate the
    funding and operation of the reinsurance program. A state may
    have more than one reinsurer to carry out the reinsurance
    program in the state, and two or more states may enter into
    agreements to allow a reinsurer to operate the reinsurance
    program in those states. Reinsurance entities under this
    section are tax exempt for Federal tax purposes. The state
    would be required to eliminate or modify a state high risk pool
    to the extent necessary to carry out the reinsurance program
    established under this section.

    SEC. 2214. ESTABLISHMENT OF RISK CORRIDORS FOR PLANS IN INDIVIDUAL AND
                              SMALL GROUP MARKETS

        The Secretary would establish and administer risk corridors
    for plan years during a 36-month period beginning on July 1,
    2013, under which QHBPs in the individual and small group
    markets would be allowed to participate in a payment adjustment
    system modeled after the program applied to regional
    Participating Provider Organizations in Medicare, Part D.
        For the purpose of this provision, ``allowable costs''
    means the total amount of costs that the plan incurred in
    providing benefits covered by the plan reduced by the portion
    of such costs attributable to administrative expenses. The term
    ``target amount'' means an amount equal to the total annual
    premium amounts (including any premium subsidies) collected,
    reduced by the amount of administrative expenses. If the
    allowable costs for the plan for the year are greater than 103
    percent, but not greater than 108 percent, of the target amount
    for the plan and year, the Secretary would make a payment to
    the plan equal to 50 percent of the difference between the
    allowable costs and 103 percent of the target amount. If the
    allowable costs for the plan for the year are greater than 108
    percent of the target amount for the plan and year, the
    Secretary would make a payment to the plan equal to the sum of
    2.5 percent of the target amount and 80 percent of the
    difference between the allowable costs and 108 percent of the
    target amount. If the allowable costs for the plan for the year
    are less than 97 percent, but greater than or equal to 92
    percent, of the target amount for the plan and year, the
    Secretary would receive a payment from the plan equal to 50
    percent of the difference between 97 percent of the target
    amount and the allowable costs. If the allowable costs for the
    plan for the year are less than 92 percent of the target amount
    for the plan and year, the Secretary would receive a payment
    from the plan equal to the sum of 2.5 percent of the target
    amount; and 80 percent of the difference between 92 percent of
    such target amount and such allowable costs. If the allowable
    costs for the plan for the year are at least 97 percent, but do
    not exceed 103 percent, of the target amount for the plan and
    year, there would be no payment adjustment for the plan and
    year.

     SEC. 2215. TEMPORARY HIGH RISK POOLS FOR INDIVIDUALS WITH PREEXISTING
                                   CONDITIONS

        No later than one year after enactment, the Secretary would
    establish one or more temporary high risk pools to provide all
    eligible individuals access to coverage that does not impose
    any coverage exclusions for preexisting health conditions. The
    Secretary could carry out this section directly or through
    agreements or contracts with states or others as appropriate.
        The high risk pool(s) established under this section would
    provide coverage for the essential benefits package specified
    under Sec. 2242, and would provide the bronze level of coverage
    specified under Sec. 2243. The premiums charged under the high
    risk pool would be equal to the standard premium rate for a
    plan providing coverage for the essential benefits package and
    the bronze level of coverage. The Secretary could vary premiums
    in the same manner that a QHBP may vary premiums under Sec.
    2204.
        There would be appropriated out of the Treasury $5 billion
    to finance the claims and administrative expenses of the high
    risk pool(s) in excess of the premiums collected from
    enrollees. If in any fiscal year there is a shortage of
    aggregate amounts for payments of pool expenses, the Secretary
    would make adjustments to eliminate the shortage.
        Coverage under a high risk pool would end as of the end of
    June 30, 2013, with exceptions. The Secretary could extend high
    risk pool coverage if the Secretary determines that such
    extension is necessary to avoid a lapse in coverage resulting
    from the transition of enrollees from the high risk pool into
    QHBPs offered through an exchange. Eligible individuals for
    high risk pool participation include individuals who: (1) have
    been denied coverage due to a preexisting health condition, (2)
    have been uninsured for a continuous period of at least six
    months, (3) are not eligible for essential health benefits
    coverage (as defined in Sec. 5000(A)(d)), and are citizens or
    nationals of the U.S., legal permanent residents, or lawfully
    present aliens.

      SEC. 2216. REINSURANCE FOR RETIREES COVERED BY EMPLOYER-BASED PLANS

    Present Law

        No provision.

    Committee Bill

        No later than 90 days after enactment, the Secretary would
    establish a temporary reinsurance program to provide
    reimbursement to assist participating employment-based plans
    with the cost of providing health benefits to eligible retirees
    who are 55 and older (and not eligible for Medicare) and their
    dependents, including eligible and surviving spouses. Health
    benefits would be required to include medical, surgical,
    hospital, prescription drug, and other benefits determined by
    the Secretary. An employment-based plan would submit an
    application to the Secretary, as required. A participating
    employment-based program would submit claims for reimbursement
    to the Secretary, documenting the actual cost of items and
    services for each claim. Each claim would be based on the
    actual amount expended by the participant. The participating
    employment-based plan would take into account any negotiated
    price concessions, such as discounts, subsides, and rebates.
    The cost of deductibles and cost-sharing would be included in
    the cost of the claim, along with the amounts paid by the plan.
    For any valid claim, the Secretary would reimburse the plan for
    80 percent of the portion of costs above $15,000 and below
    $90,000. This amount would be adjusted annually based on the
    percent increase in the medical care component of the Consumer
    Price Index, rounded to the nearest multiple of $1,000. Amounts
    paid to a participating employment-based plan would be used to
    lower cost directly to participants and beneficiaries in the
    form of premiums, co-payments, deductible, co-insurance, or
    other out-of-pocket costs, but would not be used to reduce the
    costs of an employer maintaining the employment-based plan. The
    Secretary would establish an appeals process for denied claims,
    procedures to protect against fraud, waste, and abuse, and
    would conduct annual audits of claims date.
        The Secretary of the Treasury would establish a separate
    account within the Treasury of the United States for deposit of
    $5 billion to the Secretary of HHS which is collected through
    the reinsurance program established in Sec. 2213 of this bill.
    Amounts in the account would be appropriated for use by the
    Secretary to carry out reinsurance for retirees. The Secretary
    would have the authority to stop taking applications or take
    other steps to reduce expenditures to ensure that expenditures
    did not exceed available funds.

       ``Subpart 3--Preservation of Right to Maintain Existing Coverage''

                 SEC. 2221. GRANDFATHERED HEALTH BENEFIT PLANS

    Present Law

        No provision.

    Committee Bill

        Plans could continue to offer coverage in a grandfathered
    policy in both the individual and group market. Enrollment
    would be limited to those who were currently enrolled, their
    dependents, or in the case of an employer, to new employees and
    their dependents. Beginning July 1, 2013, Federal rating rules
    would be phased in for grandfathered policies in the small
    group market, over a period of up to five years, as determined
    by the state with the approval from the Secretary.
        Health insurance coverage in the individual market (in
    effect before enactment) that is actuarially equivalent to a
    catastrophic plan for young individuals (as defined in Sec.
    2243(c) of the bill), would be treated as grandfathered plans.

                    ``Subpart 4--Continued Role of States''

    Present Law

        Pertaining to Sec. 2225-2227: Regulation of the private
    health insurance market is primarily done at the state level.
    State regulatory authority is broad in scope and includes
    requirements related to licensing, solvency, the issuance and
    renewal of coverage, benefits, rating, consumer protections,
    and other issues. Such rules vary from state to state. An
    insurance carrier must be licensed in each state in which it
    operates, and comply with the applicable laws and regulations
    of each state.

    Committee Bill

        SEC. 2225. CONTINUED STATE ENFORCEMENT OF INSURANCE REGULATIONS

        No later than 12 months after enactment, the NAIC would
    develop a Model Regulation to implement the requirements for
    plans offered in the individual and small group markets within
    a state. The Secretary would promulgate regulations to
    implement the Model Regulation developed by the NAIC. If the
    NAIC does not establish the Model Regulation within the 12
    months after enactment, the Secretary would establish Federal
    standards implementing the applicable requirements. States
    would have until July 1, 2013 to adopt and have in effect the
    Model Regulation or Federal standards established by the
    Secretary, or a state law or regulation that implements the
    applicable requirements.
        If a state fails to adopt or substantially enforce the
    Model Regulation, Federal standards, or state laws or
    regulations, the Secretary would be required to enforce those
    provisions related to the issuance, sale, renewal, and offering
    of health benefits plans until the state adopts and enforces
    such provisions. The Secretary would have enforcement authority
    under Sec. 2722(b) of the Public Health Services Act to impose
    civil money penalties on plans that fail to meet such
    provisions. The Model Regulation, Federal standards, or state
    laws and regulations implemented by a state must include a
    requirement that adopted standards (including existing
    standards under state law that offer more protection to
    consumers than standards set forth in this title) are applied
    uniformly to all offerors of health benefits plans in the
    individual or small group market.
        By no later than July 1, 2013, a state would be required to
    establish and have in operation one or more exchanges,
    including Small Business Health Options Program (SHOP)
    exchanges, that meet the requirements regarding the offer of
    QHBPs. If states do not establish these exchanges within 2
    years of enactment (or if the Secretary determines the
    exchanges will not be operational by July 1, 2013), the
    Secretary would be required to contract with a nongovernmental
    entity to establish the exchanges within the state. States
    would be required to establish interim exchanges for use by
    state residents as soon as practicable in the period from
    January 1, 2010 to June 30, 2013. If these interim exchanges
    are not operational within a reasonable period after enactment,
    the Secretary would be required to contract with a
    nongovernmental entity to establish state exchanges during this
    interim period.
        This title would not replace state laws that establish,
    implement, or continue any standards or requirements relating
    to health benefits plans that offer more protection to
    consumers than the protection offered by standards or
    requirements included in this title. These standards or
    requirements would refer to consumer protections (e.g. claims
    grievance procedures, external review of claims determinations,
    oversight of insurance agent practices, and others); premium
    rating reviews; solvency and reserve requirements related to
    health insurance issuers' licensures; and the assessment of
    sate-based premium taxes on health insurance issuers. The
    provisions in this title would not affect ERISA provisions with
    respect to group health plans.
        States could institute programs to provide that offerors of
    qualified health benefit plans, small employers, and exchanges
    offering plans in the state's individual and small group market
    could automatically enroll individuals and employees in (or
    continue enrollment of individuals in) QHBPs. Automatic
    enrollment programs would be required to allow individuals or
    employees to opt out of any coverage in which they were
    automatically enrolled.
        Each state would require offerors of QHBPs through an
    exchange to provide for a claims review process, to notify
    enrollees in clear language and in the enrollees' primary
    language of available internal and external appeals processes,
    and to allow enrollees to review their files, present evidence,
    and maintain their insurance coverage during the appeals
    process. States would be required to provide for an external
    review process that includes consumer protections set forth in
    the NAIC's Uniform External Review Model Act, and ensure that
    enrollees can seek judicial review through Federal or state
    procedures.

           SEC. 2226. WAIVER OF HEALTH INSURANCE REFORM REQUIREMENTS

    Present Law

        No provision.

    Committee Bill

        A state could apply for a waiver of any and all
    requirements of Title I and the IRC for plan years beginning on
    or after July 1, 2015. The waiver application would have to (1)
    be filed at a time and manner specified by the Secretary, and
    (2) provide required information, including a comprehensive
    description of the State legislation or program for
    implementing a plan meeting the waiver requirements, and a 10-
    year budget plan that is budget neutral for the Federal
    Government.
        In order for the Secretary to grant a request for a waiver,
    the Secretary would have to determine that (1) the State plan
    would provide coverage at least as comprehensive as that
    required under a QHBP offered through exchanges, (2) the State
    plan received input from its citizens, and (3) the State plan
    would not increase the Federal deficit and would lower the
    growth in health spending, improving delivery system
    performance, providing affordable choices of all citizens,
    expanding protection against excessive out-of-pocket spending,
    and providing coverage to the same number of uninsured as this
    title.
        The Secretary would determine the scope of the waiver,
    including which Federal laws and requirements would not apply
    to the state. This determination would be made within 180 days
    of receiving a waiver application from the state. The Secretary
    would notify the state if the waiver is granted, or would
    notify the state and the appropriate committees of Congress the
    reasons that the waiver was not granted.

     SEC. 2227. PROVISIONS RELATING TO OFFERING OF PLANS IN MORE THAN ONE
                                     STATE

    Present Law

        No provision.

    Committee Bill

        ``Health care choice compacts'' would allow for the offer
    of one or more QHBPs in the individual market across state
    lines. By July 1, 2013, the National Association of Insurance
    Commissioners (NAIC) would develop model rules for these
    compacts. The compacts would exist between two or more states,
    but the QHBP would only be subject to the laws and regulations
    of the state in which the plan was written or issued. However,
    the offeror of the QHBP would be subject to laws and
    regulations concerning provisions on market conduct, unfair
    trade practices, network adequacy, and consumer protections in
    all states that offered the plan. The offeror of the compact
    would also be licensed in each state in which it offered the
    plan, and would notify purchasers that the policy might not be
    subject to all the laws and regulations of the purchaser's
    state. States must enact a law authorizing the compacts. These
    compacts would not begin before January 1, 2015.
        An offeror of a QHBP in the individual or small group
    market could sell the plan in more than one state, including
    all states, and not be subject to any state laws mandating
    benefit coverage. However, a state may pass a law opting out of
    this type of policy. For all participating states, the offeror
    would be required to (1) have a uniform benefits package for
    each state; (2) be licensed in each state and meet State
    standards and requirements as detailed in Sec. 2225 (relating
    to consumer protections, premium rating reviews, and solvency
    and reserve requirement, and state-based premium taxes); (3)
    meet all the requirements with respect to QHBPs, including
    offering a silver and gold level plan in each state; and (4)
    determine each state's premiums on the basis of the rating
    rules in that state for the rating areas in which the plan is
    offered. The NAIC would develop model rules for offering QHBPs
    on a national basis by 2012, including implementing benefit
    categories that take into account benefits offered in a
    majority of States, and harmonization between State authorities
    of insurance regulation. Each participating state would be
    required to include the NAIC Model rules for the offering of
    QHBPs on a national basis in the Model Regulation, Federal
    standard, or State law and regulation that it adopts and has
    its effect under Sec. 2225(a)(2).

     SEC. 2228. STATE FLEXIBILITY TO ESTABLISH BASIC HEALTH PLANS FOR LOW-
                  INCOME INDIVIDUALS NOT ELIGIBLE FOR MEDICAID

    Present Law

        There is no existing Federal law providing direct on-going
    program financing to the States for health insurance coverage
    of low-income individuals not eligible for Medicaid either
    under standard criteria or via waivers. The Committee Bill is
    modeled after the Washington State Basic Health (BH) Plan
    program administered and financed by the Washington State
    Health Care Authority (HCA). BH started as a pilot program
    established by the Washington State ``Health Care Access Act of
    1987''. In 1993, Washington State made the program permanent as
    part of the Health Services Act. Current eligibility
    requirements include the following: (1) Must be a Washington
    State resident; (2) May not be eligible for free or purchased
    Medicare; (3) May not be institutionalized at the time of
    enrollment; (4) May not be attending school full time in the
    United States on a student visa; and (5) Must be within the
    income guidelines (gross monthly income of $1,733.41 for an
    individual and $3,533.50 for a family of four).

    Committee Bill

        The Committee Bill would require the Secretary to establish
    a program where a state or a regional compact of states would
    establish 1 or more qualified basic health plans to provide at
    least an essential benefits package to eligible individuals
    rather than offering coverage to them through an exchange
    established under part B. States would enroll income-eligible
    persons in their Basic Health Plan that meets the competitive
    procurement requirements and the requirements to provide
    premium and cost-sharing subsidies to eligible individuals. The
    Committee Bill would require that the Secretary certify that
    the state's qualified basic health plan has premiums and cost-
    sharing for any plan year that does not exceed the estimated
    average cost for a QHBP within the state and offered through
    the exchanges, and that the benefits provided under the
    qualified basic health plan covers the items and services
    required under an essential benefits package in the exchange.
        The Committee Bill would define a qualified basic health
    plan in this program as a plan established and maintained by
    the state under which only eligible individuals enroll. The
    Committee Bill would further define the plan as providing at
    least an essential benefits package as required for the
    exchange, and it would require at least a medical loss ratio of
    85 percent. The Committee Bill would also require meeting the
    competitive procurement requirements and the requirements to
    provide premium and cost-sharing subsidies to eligible
    individuals.
        The Committee Bill would require states to establish a
    competitive process to enter into contracts with coverage
    providers under the plan. Contract negotiations would include
    payment rates, premiums, cost-sharing, and extra benefits.
    States would be encouraged to include innovative features in
    their health plan contracting, including, but not limited to
    care coordination and care management (emphasizing chronic
    conditions), incentives for use of preventive services, and
    establishment of patient/doctor relationships that maximize
    patient involvement in health care decision-making, including
    awareness of the incentives and disincentives in using the
    health care plan. States would be required to consider and make
    suitable allowance for differences in health care needs of
    enrollees and differences in local availability of health care
    provider resources. The competitive process would also require
    consideration of contracting with managed care systems or with
    systems that offer as many of the attributes of managed care as
    feasible in the local health care market. The Committee Bill
    would also include consideration in the competitive process of
    establishment of specific performance measures and standards
    for coverage of providers that focus on quality of care and
    improved outcomes, in addition to requiring providers to report
    measures and standards. The Committee Bill would require making
    performance and quality information available to enrollees in a
    useful form.
        Under the Committee Bill, states would be instructed to
    seek participation by multiple health plans to allow enrollees
    a choice between two or more plans, whenever possible. The
    Committee Bill would also allow states entering into health
    care choice compacts to form multi-state risk pools for the
    purposes of negotiating with health care systems. The Committee
    Bill would encourage state administrators to find ways to
    integrate their negotiations with any Medicaid or other state
    administered health care programs to maximize efficiency and
    improve the continuity of care between all state administered
    health programs. State administrators would seek to contract
    with managed care systems, or with systems that offer as many
    of the attributes of managed care as are feasible in the local
    health care market. State administrators, in conjunction with
    HHS, would establish specific performance measures and
    standards for participating health care systems that focus on
    quality of care and improved health outcomes. Participating
    health care systems would report to the state on the measures.
    Their performance and quality information would be made
    available to the Secretary of HHS and to the Basic Health Plan
    enrollees to help enrollees choose the best health care system.
        Under the Committee Bill, if the Secretary determines that
    a state meets the requirements of the program, then the
    Secretary would provide funds to participating states in order
    to provide affordable health care coverage through private
    health care systems under contract. A state's Basic Health Plan
    funding level would be based on the Secretary's estimates of 85
    percent of the value of individual tax credits and cost sharing
    subsidies that would otherwise have been made for a QHBP based
    on enrollment in that state. This amount would be calculated on
    a per enrollee basis. Funds distributed to the states would be
    provided to independent trusts and would be used by the states
    only to reduce the premiums and cost sharing for eligible
    enrolled individuals.
        Under the Committee Bill an eligible individual is defined
    by the following (1) must be a resident of the State who is not
    eligible to enroll in the State's Medicaid program for benefits
    that, at a minimum, are consistent with the essential benefits
    package in section 2242; (2) must have a household income
    between 133 percent and 200 percent of the Federal Poverty
    Level (FPL) for the size of the family involved; (3) is not
    eligible for an employer-sponsored plan that is not affordable
    coverage; and (4) has not attained the age of 65 as of the
    beginning of the plan year. The Committee Bill would also
    include in the definition of the term, individuals who are
    eligible for enrollment by reason of their relationship to the
    individual meeting the eligibility criteria. The Committee Bill
    would stipulate that an eligible individual would not be able
    to use the exchange.
        The Committee Bill would require the Secretary to conduct a
    review of each state program on an annual basis to ensure
    compliance with the requirements of the program. Specifically
    the Committee Bill would require the Secretary to ensure state
    programs meet (1) eligibility verification requirements; (2)
    the requirements for use of Federal funds received by the
    program; and (3) the quality and performance standards.
        The Committee Bill would stipulate that a state may provide
    that a participating provider in a qualified basic health plan
    may include a licensed health maintenance organization, a
    licensed health insurer, or a network of health care providers.
    The Committee Bill would also stipulate that any term used in
    this section and section 36B of the Internal Revenue Code of
    1986 would have the meaning established by the latter.

                   ``Subpart 5--Other Definitions and Rules''

                     SEC. 2230. OTHER DEFINITIONS AND RULES

    Present Law

        No provision.

    Committee Bill

        In connection with a group health plan, the term ``large
    employer'' would mean an employer who employed an average of at
    least 101 employees on business days during the preceding
    calendar year and who employs at least 1 employee on the first
    day of the plan year.
        In connection with a group health plan, the term ``small
    employer'' would mean an employer who employed an average of at
    least 1 but not more than 100 employees on business days during
    the preceding calendar year and who employs at least 1 employee
    on the first day of the plan year. Employers who initially meet
    the definition of small employer may continue to be treated as
    such, even if they later employ more than 100 employees.
        For plan years beginning before January 1, 2015, states
    have the option to change the definition of large employer to
    those with at least 51 employees, and limit small employers to
    those with 1 to 50 employees.
        Employers treated as a single employer under the IRC would
    also be treated as a single employer for purposes of
    determining whether an employer was small or large. For
    employers not in existence throughout the preceding calendar
    year, the determination of whether the employer is considered
    small or large would be based on reasonable expectations of the
    average number of employees during business days in the current
    year.

                 Subtitle B--Exchanges and Consumer Assistance

     SEC. 1101. ESTABLISHMENT OF QUALIFIED HEALTH BENEFITS PLANS EXCHANGES

                    PART B--EXCHANGE AND CONSUMER ASSISTANCE

        ``Subpart 1--Individuals and Small Employers Offered Affordable
                                   Choices''

    Present Law

        Pertaining to Sec. 2231-Sec. 2239: No specific provision
    exists in Federal law today regarding a health insurance
    exchange. At the state level, however, Massachusetts
    established a connector authority, which is described below for
    illustrative purposes.
        In 2006, in tandem with substantial private health
    insurance market reforms, Massachusetts created the
    Commonwealth Health Insurance Connector Authority, governed by
    a Board of Directors, to serve as an intermediary that assists
    individuals in acquiring health insurance. In this role, the
    Health Connector manages two programs. The first is
    Commonwealth Care, which offers a government-subsidized plan at
    three benefit levels from a handful of health insurers to
    individuals up to 300 percent of the FPL who are not otherwise
    eligible for traditional Medicaid or other coverage (e.g., job-
    based coverage). The second is Commonwealth Choice, which
    offers an unsubsidized selection of four benefit tiers (gold,
    silver, bronze, and young adult) from six insurers to
    individuals and small groups.
        Under state law, the Board of Directors, with its 11 board
    members, has numerous responsibilities, including the
    following: determining eligibility for and administering
    subsidies through the Commonwealth Care program, awarding a
    seal of approval to qualified health plans offered through the
    Connector's Commonwealth Choice program, developing regulations
    defining what constitutes ``creditable coverage,'' constructing
    an affordability schedule to determine if residents have access
    to ``affordable'' coverage and may therefore be subject to tax
    penalties if they are uninsured, and developing a system for
    processing appeals related to eligibility decisions for the
    Commonwealth Care program and the individual mandate.

    Committee Bill

      SEC. 2231. RIGHTS AND RESPONSIBILITIES REGARDING CHOICE OF COVERAGE
                                THROUGH EXCHANGE

        Qualified individuals could choose to enroll or not to
    enroll in a QHBP offered through an exchange in the State in
    which they reside. Each qualified small employer could choose
    to offer its employees an exchange-offered QHBP that covers the
    small group market for the state in which the employee resides.
    Each employee of a small employer could choose to enroll or not
    to enroll in such a plan. A qualified small employer may limit
    the QHBP or levels of coverage that employees may enroll in
    through an exchange. A qualified small employer that offers
    coverage under a self-insured plan may not offer plans through
    an exchange.
        Members of Congress and Congressional employees would be
    treated as qualified individuals with the right to enroll in a
    QHBP in the individual market offered through an exchange. Any
    employer contribution on behalf of the Member or employee could
    be paid only to the offeror of a QHBP in which the Member or
    employee enrolled. The contribution on behalf of Member or
    employee would be actuarially adjusted for age and paid
    directly to an exchange. A Congressional employee would be one
    whose pay is disbursed by the Secretary of the Senate or the
    Clerk of the House of Representatives.
        All plan offerors of a QHPB would be required to offer the
    plan through the exchange and may offer the plan outside of the
    exchange. An offeror of a QHBP in the individual or small group
    market within a State must offer at least one silver level and
    one gold level QHBP, and may offer 1 or more bronze and
    platinum level plans, as well as a catastrophic plan. Each
    exchange that offers plan in the individual or small group
    market must offer all QHBPs in the state that are licensed by
    the State.
        Each exchange within a State would be required to allow an
    offeror that only provides oral health benefits to offer the
    plan through the exchange (either separately or in conjunction
    with a QHBP). The plan would be treated as a QHBP.
        The Secretary would establish procedures requiring states
    to allow agents or brokers to enroll individuals in any QHBP in
    the individual or small group market as soon as the plan is
    offered through an exchange in the State and to assist
    individuals in applying for premium credits and cost-sharing
    subsidies for plans sold through an exchange.

    SEC. 2232. QUALIFIED INDIVIDUALS AND SMALL EMPLOYERS: ACCESS LIMITED TO
                         CITIZENS AND LAWFUL RESIDENTS

        The term ``qualified individual'' would mean an individual
    seeking to enroll in an exchange-offered QHBP in the individual
    market who resides in the State that established the exchange.
    This would not include an individual who is incarcerated, other
    than those pending the disposition of charges.
        The term ``qualified small employer'' would mean an
    employer that elects to make all full-time employees eligible
    for 1 or more QHBPs offered through an exchange that offers
    QHBPs in the small group market.
        If, for the entire plan year, an individual was not
    reasonably expected to be a citizen or national of the U.S, not
    lawfully admitted to the U.S. for permanent residence, or not
    lawfully present in the U.S. he or she would not be considered
    to be a qualified individual and could not enroll in an
    exchange-offered QHBP in the individual market. The individual
    could not enroll as an employee of (or as an individual bearing
    a relationship to an employee) a qualfied small employer in an
    exchange-offered QHBP in the small group market.

                   ``Subpart 2--Establishment of Exchanges''

                SEC. 2235. ESTABLISHMENT OF EXCHANGES BY STATES

        No later than July 1, 2013, each state would be required to
    establish (1) an exchange to facilitate the enrollment of
    qualified individuals in QHBPs offered in the individual
    market, and (2) a Small Business Health Options Program (``SHOP
    exchange'') to assist qualified small employers in facilitating
    the enrollment of their employees into QHBPs offered in either
    the individual or small group market. States could establish
    one exchange to serve both individuals and small businesses, so
    long as the exchange has separate resources to assist
    individuals and employers. An exchange or SHOP exchange could
    operate in more than one state if each state agrees to
    operation of the exchange in that state, and the Secretary
    approves.
        A state could authorize an exchange to contract with an
    eligible entity to carry out one or more exchange
    responsibilities. An eligible entity would (1) be incorporated
    under and subject to state law, (2) have demonstrated
    experience administering health insurance benefits in the
    individual and small group markets, and (3) not be a health
    insurance issuer or treated under Sec. 52 of the IRC as a
    member of the same controlled group of corporations of such an
    issuer. A state could authorize an exchange to enter into an
    agreement with the state Medicaid agency for the purposes of
    establishing individual eligibility for the exchange, and for
    the premium credit under Sec. 36B of the Internal Revenue Code
    of 1986 and the cost-sharing subsidy established under Sec.
    2247, if such an agreement complies with requirements
    promulgated by the Secretary. Each state would provide for the
    establishment of rate schedules for broker commissions paid by
    the plans through an exchange. Beginning in 2017, each state
    could allow QHBP offerors in the large group market to offer
    plans through an exchange.
        Each state, as soon as practicable after enactment, would
    establish an interim exchange through which enrollment in
    eligible health insurance coverage is offered beginning Jan. 1,
    2010 through June 30, 2013. Eligible coverage would include any
    coverage that meets the requirements specified under Sec. 2244
    (regarding cost-sharing and spending limits) which is offered
    by a state-licensed insurance carrier in the individual or
    small group market. Eligible coverage would not include limited
    benefit plans, as determined under regulations promulgated by
    the Secretary. The Secretary would provide technical assistance
    to each state in establishing exchanges.

       SEC. 2236. FUNCTIONS PERFORMED BY SECRETARY, STATES, AND EXCHANGES

        The Secretary of HHS would enter into an agreement with
    each state outlining exchange-related functions that would be
    performed by the Secretary, the state, or the exchange. Such an
    agreement would provide for the state to establish
    certification procedures for QHBPs to participate in an
    exchange. Such an agreement would address the conduct for the
    following outreach and eligibility activities: establishment of
    an outreach plan, establishment and maintenance of call
    centers, development of a template for an Internet portal,
    establishment of a rating system to rate QHBPs, and
    determination of individuals and employers as qualified (or
    disqualified) to participate in an exchange. Such an agreement
    would provide for the establishment and implementation of an
    enrollment process, which would address enrollment through a
    variety of media and venues, establishment of open and special
    enrollment periods, establishment of a uniform enrollment form
    and standardized marketing requirements, development of a
    standardized format for presenting health benefit options in
    the exchange, and dissemination of information regarding
    eligibility requirements for Medicaid and the Children's Health
    Insurance Program (CHIP). Such an agreement would provide for
    the establishment and use of a tool to determine cost of
    coverage after application of any premium or cost-sharing
    credit, and implementation of the responsibilities specified
    under Sec. 2248 regarding advance determinations and payments
    of such credits. Such an agreement would establish procedures
    for granting annual certification attesting that an individual
    is exempt from the individual mandate because there is no
    affordable QHBP available, and for transferring to the Treasury
    Secretary a list of such individuals.

           SEC. 2237. DUTIES OF THE SECRETARY TO FACILITATE EXCHANGES

        The Secretary of HHS and the Treasury Secretary would carry
    out the responsibilities specified under Sec. 2248, regarding
    advance determinations and payments of premium and cost-sharing
    credits that are delegated specifically to such authorities.
    The Secretary would designate an office with the U.S.
    Department of Health and Human Services to provide technical
    assistance to states to facilitate the participation of
    qualified small businesses in SHOP exchanges. The Secretary
    would pay each state an amount estimated by the Secretary for
    the unreimbursed start-up costs for any exchange or SHOP
    exchange. No payments could be made for any operations costs of
    an exchange.

        SEC. 2238. PROCEDURES FOR DETERMINING ELIGIBILITY FOR EXCHANGE
           PARTICIPATION, PREMIUM CREDITS, AND COST-SHARING SUBSIDIES

        The Secretary of HHS would establish procedures for
    determining whether or not individuals who want to enroll in an
    exchange-offered QHBP or to claim a premium credit or cost-
    sharing subsidy, meet the requirements regarding citizenship or
    immigration status. Additionally, for those individuals
    claiming a credit or subsidy, the Secretary would determine
    whether the individual meets applicable insurance and coverage
    requirements and if so, the amount of the credit or subsidy.
    The Secretary of HHS also would establish procedures for
    determining (1) if an individual's coverage under an employer-
    sponsored plan is considered unaffordable, and (2) whether or
    not to grant an annual certification to the individual that
    would provide an exemption from the individual mandate
    requirements because there is no affordable QHBP available.
        In applying for enrollment in a QHBP offered through an
    exchange, the applicant would be required to provide
    individually identifiable information, including name, address,
    date of birth, and citizenship or immigration status. In the
    case of an individual claiming a premium credit or cost-sharing
    subsidy, the individual would be required to submit to the
    exchange income and family size information and information
    regarding changes in marital or family status or income.
    Personal information provided to the exchange would be
    submitted to the Secretary of HHS. In turn, the Secretary would
    submit applicable information to the Social Security
    Commissioner, Homeland Security Secretary, and Treasury
    Secretary for verification purposes. The Secretary of HHS would
    be notified of the results following verification, and would
    notify the exchange of such results. The provision specifies
    actions to be undertaken if inconsistencies are found. The
    Secretary of HHS, in consultation with the Treasury Secretary,
    Homeland Security Secretary, and Social Security Commissioner,
    would establish procedures for appealing determinations
    resulting from the verification process, and redetermining
    eligibility on a periodic basis. The personal information
    submitted for verification would be used only to the extent
    necessary for verification purposes and not disclosed to anyone
    not identified in this provision. Any individual who submits
    false information due to negligence or disregard of any rules
    would be subject to a civil penalty of not more than $25,000.
    Any individual who intentionally provides false information
    would be guilty of a felony and, upon conviction, fined not
    more than $250,000, imprisoned for not more than 5 years, or
    both. Any person who intentionally uses the personal
    information in violation of this provision would be guilty of a
    felony and, upon conviction, fined not more than $5,000,
    imprisoned for not more than 5 years, or both.

        SEC. 2239. STREAMLINING OF PROCEDURES FOR ENROLLMENT THROUGH AN
                 EXCHANGE AND STATE MEDICAID AND CHIP PROGRAMS

        The Secretary would establish a process for allowing state
    residents to apply for and participate in applicable state
    health subsidy programs. In establishing this process, the
    Secretary would (1) develop a single, streamlined application
    form for all applicable state health subsidy programs that may
    be filed through a variety of means, and (2) provide a notice
    of eligibility to applicants without any need for additional
    information or paperwork, unless specifically required by law.
        The Secretary would develop for each state a secure
    electronic interface that the applicable state health subsidy
    program may use for eligibility determination, verification,
    and updating of information. The Secretary, in consultation
    with the Treasury Secretary, Homeland Security Secretary,
    Social Security Commissioner, and any applicable state
    authorities, would require the use of the interface for
    purposes of determining eligibility for, and amount of, premium
    credits and cost-sharing subsidies. The Secretary could enter
    into agreements regarding the exchange of data through the
    interface.
        An exchange could contract with an entity or state Medicaid
    agency for carrying out its activities under this title.
    Nothing in this section would change any requirement that
    eligibility for participation in a state's Medicaid program be
    determined by a public agency.
        Applicable state health subsidy programs would include
    QHBPs offered through an exchange, including premium credits
    and cost-sharing subsidies, state Medicaid programs, state
    children's health insurance programs, and a state program
    establishing qualified basic health plans as specified under
    Sec. 2228.

       SEC. 1102. ENCOURAGING MEANINGFUL USE OF ELECTRONIC HEALTH RECORDS

    Present Law

        Congress enacted the Health Information Technology for
    Economic and Clinical Health (HITECH) Act as part of the
    American Recovery and Reinvestment Act of 2009 (P.L. 111-5) to
    promote the widespread adoption of interoperable electronic
    health records (EHRs). Among its provisions, the HITECH Act
    authorized bonus payments for eligible professionals and
    hospitals participating in Medicare and Medicaid as an
    incentive for them to become meaningful users of certified EHR
    systems. The HITECH Act defines meaningful use to include using
    certified EHR technology for the purpose of exchanging clinical
    information to improve the coordination and quality of care,
    and using such technology to report clinical quality measures.
    Beginning in 2011, Medicare incentives will be paid to eligible
    professionals and hospitals that are meaningful EHR users.
    These incentive payments will be phased out over time and,
    beginning in 2015, replaced with financial penalties for
    providers that have not become meaningful EHR users. In
    addition to the Medicare incentives, the HITECH Act authorized
    a 100 percent Federal match for payments to qualifying Medicaid
    providers for the adoption and meaningful use of certified EHR
    technology. Medicaid incentive payments will be available for a
    period of up to six years.

    Committee Bill

        The Committee Bill would require the HHS Secretary to
    conduct a study on methods that can be used by QHBPs offered
    through an exchange to encourage meaningful use of EHRs by
    providers. Such methods include incentive payments and
    promotion of low-cost EHR software, including systems available
    through the Veterans Administration. Within 24 months of
    enactment, the Secretary would be required to submit to
    Congress a report containing the results of the study, together
    with recommendations on the feasibility and effectiveness of
    such payment incentives. The Secretary would be required to
    disseminate the report to exchanges no later than 12 months
    after submitting the report to Congress.

                     Subtitle C--Making Coverage Affordable

                      PART I--ESSENTIAL BENEFITS COVERAGE

         SEC. 1201. PROVISIONS TO ENSURE COVERAGE TO ESSENTIAL BENEFITS

        Title XXII of the Social Security Act is amended by adding
    the following.

                       PART C--MAKING COVERAGE AFFORDABLE

                   ``Subpart 1--Essential Benefits Coverage''

           SEC. 2241. REQUIREMENTS FOR QUALIFIED HEALTH BENEFITS PLAN

    Present Law

        No provision.

    Committee Bill

        A health benefits plan would be a QHBP only if the plan
    provides an essential benefits package (Sec. 2242); the plan
    provides coverage at the bronze, silver, gold, or platinum
    level (Sec. 2243); and the plan's offeror charges the same
    premium whether the plan is purchased through an exchange, the
    offeror, or an agent.

                 SEC. 2242. ESSENTIAL BENEFITS PACKAGE DEFINED

    Present Law

        Federal law does not define an essential benefit package
    for the private health insurance market. States have the
    primary responsibility of regulating the business of insurance
    and may define state benefit mandates. However, Federal law
    requires that private health insurance include certain benefits
    and protections, for services covered by a plan. HIPAA and
    subsequent amendments require, for example, that group health
    plans and insurers who cover maternity care also cover minimum
    hospital stays for the maternity care, provide parity in annual
    and lifetime limits for any offered mental health benefits, and
    offer reconstructive breast surgery if the plan covers
    mastectomies.

    Committee Bill

        As described below, an essential benefits package would be
    required to (1) provide payment for a specified set of
    services; (2) limit-cost sharing; (3) meet requirements for
    specific items and services; and (4) not impose any annual or
    lifetime limits.
        Provide payment for a specified set of services: all plans
    would be required to provide the following set of services:
               Hospitalization;
               Outpatient hospital and outpatient clinic
            services, including emergency department services;
               Professional services of physicians and
            other health professionals;
               Medical and surgical care;
               Services, equipment, and supplies incident
            to physician and health professional care in
            appropriate settings;
               Prescription drugs;
               Rehabilitative and habilitative services;
               Mental health and substance use disorder
            services, including behavioral health treatment;
               Preventive services, as specified;
               Maternity benefits; and
               Well baby and well child care and oral
            health, vision, and hearing services, equipment, and
            supplies for children under 21.
        Limit cost-sharing: The essential benefits package would be
    subject to cost-sharing requirements, with no cost-sharing
    allowed for required preventive items and services.
        For plan years beginning in 2013, cost-sharing under an
    essential benefits package could not exceed the dollar amounts
    for the sum of the annual deductible and out-of-pocket limits
    in effect for an HSA for self-only and family coverage, as
    appropriate. For plan years beginning in 2014, these cost
    sharing dollar amounts would increase by the premium adjustment
    percentage (PAP). The PAP is defined as the percentage (if any)
    by which the average per capita premium for health insurance
    coverage in the U.S. for the preceding calendar year exceeds
    the 2012 average value. These averages would be estimated by
    the Secretary by October 1st of the relevant preceding year.
    The cost-sharing dollar amount for individual coverage would be
    the cost-sharing amount for 2013 increased by the PAP, while
    the cost sharing dollar amount for family coverage would be
    twice that amount, rounded down to the nearest $50.
        Deductibles for the essential benefits package would be
    limited. In the small group market, the deductible could not
    exceed $2,000 for an individual plan, and $4,000 for any other
    plan. These amounts could be increased by the amount of any
    mandatory employer contributions to a health benefits
    arrangement. The deductible limitations would be applied so as
    not to affect the actuarial value of any QHBP, including
    bronze-level plans. Catastrophic plans would be exempt from
    these limitations.
        Cost-sharing under an essential benefits package would be
    the same for the treatment of conditions within each of the
    following four categories (1) hospitalization; (2) outpatient
    hospital and outpatient clinic services, including emergency
    department services; (3) professional services of physicians
    and other health professionals; and (4) services, equipment,
    and supplies incident to physician and health professional care
    in appropriate settings.
        Value-based plans would be exempt from certain
    requirements; they could charge cost-sharing for preventive
    services and they could charge different cost-sharing within
    the four categories specified directly above. A value-based
    design is defined as a methodology that would reduce or
    eliminate cost-sharing for the clinically beneficial preventive
    screenings, lifestyle interventions, medications,
    immunizations, diagnostic tests and other procedures and
    treatments to reflect their high value and effectiveness.
        Meet requirements for specific items and services:
    Essential benefits packages would be subject to certain rules.
               At least meet the class and category of drug
            coverage requirements specified in Medicare Part D;
               At least meet the minimum standards required
            by Federal or State law for coverage of mental health
            and substance use disorder services;
               Any plan that varies premiums based on
            tobacco use must also provide coverage for
            comprehensive tobacco cessation programs including
            counseling and pharmacotherapy;
               Include coverage of day surgery and related
            anesthesia, diagnostic images and screening, and
            radiation or chemotherapy;
               If a health benefits plan offered stand-
            alone dental benefits through an exchange, another
            health benefits plan offered through the exchange would
            not fail to be treated as a QHBP solely because it did
            not cover the same dental benefits; and
               For emergency care, the plan would be
            required to provide coverage without prior
            authorization and without limitation on coverage if the
            provider does not have a contractual relationship with
            the plan. Cost-sharing for out-of-network emergency
            services could not exceed cost-sharing for in-network
            emergency services.
        Beginning July 1, 2012, the Secretary of HHS would be
    required to define and update the categories of covered
    treatments, items and services within benefit classes no less
    than annually. The Secretary could not define a package that is
    more extensive than a typical employer plan as certified by the
    Centers for Medicare and Medicaid Services, Office of the
    Actuary. Some flexibility in plan design would be allowed as
    long as it did not encourage adverse selection. The Secretary
    would be required to update or modify these definitions to
    account for changes in medical evidence or scientific
    advancement or to address any gaps in access or changes in the
    evidence base.
        Each state would be required to ensure that at least one
    plan offered in the exchange is at least actuarially equivalent
    to the standard Blue Cross Blue Shield plan offered to Federal
    employees.
        If any item or service covered by a QHPB is provided by a
    Federally-qualified Health Center to an enrollee, the plan
    offeror would pay the center at least the amount that would
    have been paid to the center under Medicaid.

                         SEC. 2243. LEVELS OF COVERAGE

    Present Law

        Generally, Federal law has certain requirements regarding
    actuarially equivalent benefit options only in the context of
    private plan offerings through Federal health insurance
    programs (e.g., Medicare Parts C and D, the State Children's
    Health Insurance Program). There is no Federal law regarding
    actuarially equivalent benefit options in group and individual
    private health insurance. However, states may have such
    standards.
        For example, Massachusetts defines a standard gold benefit
    package for private health insurance available in its
    Connector. According to the state's 2006 guidance to health
    insurers, a plan with a different design could be qualified as
    gold if it had an actuarial value within five percent of the
    standard gold's value. The state permits two other benefit
    packages available to all individuals in the Connector:
    Insurers were instructed that as silver benefit packages were
    to be 80 percent of gold (plus or minus 7.5 percent), and
    bronze packages were to be 60 percent of gold (plus or minus
    two percent). However, these amounts were not set in statute
    and have changed somewhat over time. An additional option is
    available to young adults in Massachusetts; plans may exclude
    prescription drugs and/or limit annual plan benefit payments.

    Committee Bill

        A health benefits plan would be required to provide a
    bronze, silver, gold or platinum benefit package. The bronze
    benefit package would provide benefits that are actuarially
    equivalent to 65 percent of the essential benefits package. The
    silver, gold, and platinum would provide benefits that are the
    actuarially equivalent to 70 percent, 80 percent, and 90
    percent of the essential benefits package, respectively.
        A separate catastrophic plan would be available for those
    who are younger than 26 before the beginning of the plan year,
    as well as those who have a certification in effect that they
    are exempt from the individual responsibility requirement
    because there is no affordable QHBP available to them in the
    exchange. The catastrophic plan would have the same deductible
    as required by a Health Savings Account (HSA)-eligible high
    deductible health plan, with no cost-sharing for required
    preventive services.
        Plans could be offered only to children; the same QHBP
    offered at any level of coverage could also be offered with
    enrollment limited to those under the age of 21.
        State insurance commissioners could allow de minimus
    variation around the benefit target valuations to account for
    differences in actuarial estimates.

       SEC. 2244. APPLICATION OF CERTAIN RULES TO PLANS IN GROUP MARKETS

        Health insurance plans offered in the large or small group
    market in a state could not impose unreasonable annual or
    lifetime limits (within the meaning of section 223 of the
    Internal Revenue Code (IRC)). This provision would not apply to
    grandfathered plans.
        For plan years beginning after June 30, 2013, in the case
    of a health benefits plan offered in the large group market,
    the state would require the plan to meet the requirements
    relating to annual limits on cost-sharing, including not
    allowing cost-sharing for required preventive items and
    services.
        Each state would require any employer with more than 200
    employees that offers enrollment in one or more health benefit
    plans to automatically enroll new full-time employees in one of
    those plans and to continue the enrollment of current employees
    in a plan. Auto-enrollment programs would be required to
    include adequate notice and an opportunity for an employee to
    opt out.

       SEC. 2245. SPECIAL RULES RELATING TO COVERAGE OF ABORTION SERVICES

    Present Law

        Currently, Federal funds may be used to pay for abortions
    only if a pregnancy is the result of an act of rape or incest,
    or where a woman suffers from a physical disorder, physical
    injury, or physical illness that would place the woman in
    danger of death unless an abortion is performed. Many private
    insurance plans, however, include coverage for abortion beyond
    these limited categories
        In addition, Federal conscience protection laws prohibit
    recipients of certain Federal funds from discriminating against
    certain medical personnel and health care entities for engaging
    in, or refusing to engage in, specified activities related to
    abortion.

    Committee Bill

        Under the bill, a health benefits plan would not be
    required to provide coverage for abortions. The offeror of a
    health benefits plan would determine whether or not the plan
    provides coverage of abortion as part of its essential benefits
    package for the plan year.
        The Secretary would ensure that in any exchange, at least
    one qualified health benefits plan does not provide coverage of
    abortions beyond those for which the expenditure of Federal
    funds appropriated for the Department of Health and Human
    Services is permitted (herein called ``the Hyde limitations'').
    A QHBP would be treated as not providing coverage of abortions
    beyond the Hyde limitations if it does not provide coverage for
    any abortions. The Secretary would also ensure that in any
    exchange, at least one QHBP provides coverage for abortions
    beyond the Hyde limitations. If a state has one exchange
    covering both the individual and small group markets, the
    Secretary would be required to provide the aforementioned
    assurances with respect to each market.
        The offeror of a QHBP that provides coverage of abortions
    beyond the Hyde limitations may could not use any amount
    attributable to a premium assistance credit or any cost-sharing
    subsidy to pay for such services. In addition, the offeror
    would be required to segregate all premium assistance credits
    and cost-sharing subsidies from an amount equal to the
    actuarial value of providing abortions beyond the Hyde
    limitations for all enrollees, as estimated by the Secretary.
    The Secretary would be required to estimate, on an average
    actuarial basis, the basic per enrollee, per month cost of
    including coverage of abortions beyond the Hyde limitations. In
    making such estimate, the Secretary could take into account the
    impact of including such coverage on overall costs, but could
    not consider any cost reduction estimated to result from
    providing such abortions, such as prenatal care. The Secretary
    would be required to estimate the costs as if coverage were
    included for the entire covered population, but the costs could
    not be estimated at less than $1 per enrollee, per month.
        Qualified health benefits plans could not discriminate
    against any individual health care provider or health care
    facility because of its willingness or unwillingness to
    provide, pay for, provide coverage of, or refer for abortions.

      SEC. 1202. APPLICATION OF STATE AND FEDERAL LAWS REGARDING ABORTION

    Present Law

        The performance of and payment for abortions is regulated
    by both state and Federal laws. State law, for example,
    sometimes prescribes parental notification requirements,
    mandatory waiting periods and other procedural requirements
    before an abortion may be performed. Under Federal law, certain
    kinds of Federal funds may not be used to pay for abortions and
    certain recipients of Federal funds may not discriminate
    against specified health care entities that perform or refuse
    to perform, pay for, provide referrals for, or provide training
    for abortions.

    Committee Bill

        This provision would ensure that state laws regarding the
    prohibition or requirement of coverage or funding for
    abortions, and state laws involving abortion-related procedural
    requirements are not preempted. The provision similarly
    provides that Federal conscience protection and abortion-
    related antidiscrimination laws would not be affected by the
    bill. The rights and obligations of employees and employers
    under Title VII of the Civil Rights Act of 1964 would also not
    be affected by the bill.

               SEC. 1203. APPLICATION OF EMERGENCY SERVICES LAWS

    Present Law

        As a condition of Medicare participation, the Emergency
    Medical Treatment and Active Labor Act (EMTALA) requires
    hospitals with emergency departments to provide an initial
    screening examination and any necessary treatment to stabilize
    any emergency medical conditions discovered. Care must be
    provided to anyone who comes to the hospital and requests
    emergency medical services regardless of whether an individual
    is insured, has the ability to pay for services, is lawfully
    present within the United States, or any other characteristic.
        In addition to this Federal requirement, some states impose
    similar obligations on hospitals and other health care
    providers. For example, California requires all health care
    facilities to provide emergency medical services and care to
    any person if the facility has appropriate facilities and
    qualified personnel.

    Committee Bill

        This provision would prohibit any construction of the Act
    that would relieve health care providers of their obligations
    to provide emergency services as required by state or Federal
    law, including EMTALA.

          PART II--LOW INCOME AND SMALL BUSINESS CREDITS AND SUBSIDIES

                ``Subpart A--Low-Income Credits and Subsidies''

           SEC. 1205. PREMIUM TAX CREDITS AND COST-SHARING SUBSIDIES

    Present Law

        Currently there is no tax credit that is generally
    available to low or middle income individuals or families for
    the purchase of health insurance. Some individuals may be
    eligible for health coverage through State Medicaid programs
    which consider income, assets, and family circumstances.
    However, these Medicaid programs are not in the Code.

    Health Coverage Tax Credit

        Certain individuals are eligible for the health coverage
    tax credit (HCTC). The HCTC is a refundable tax credit equal to
    80 percent of the cost of qualified health coverage paid by an
    eligible individual. In general, eligible individuals are
    individuals who receive a trade adjustment allowance (and
    individuals who would be eligible to receive such an allowance
    but for the fact that they have not exhausted their regular
    unemployment benefits), individuals eligible for the
    alternative trade adjustment assistance program, and
    individuals over age 55 who receive pension benefits from the
    Pension Benefit Guaranty Corporation. The HCTC is available for
    ``qualified health insurance,'' which includes certain
    employer-based insurance, certain State-based insurance, and in
    some cases, insurance purchased in the individual market.
        The credit is available on an advance basis through a
    program established and administered by the Treasury
    Department. The credit generally is delivered as follows: the
    eligible individual sends his or her portion of the premium to
    the Treasury, and the Treasury then pays the full premium (the
    individual's portion and the amount of the refundable tax
    credit) to the insurer. Alternatively, an eligible individual
    is also permitted to pay the entire premium during the year and
    claim the credit on his or her income tax return.
        Individuals entitled to Medicare and certain other
    governmental health programs, covered under certain employer-
    subsidized health plans, or with certain other specified health
    coverage are not eligible for the credit.

    COBRA Continuation Coverage Premium Reduction

        The Consolidated Omnibus Reconciliation Act of 1985 (COBRA,
    P.L. No. 99-272) requires that a group health plan must offer
    continuation coverage to qualified beneficiaries in the case of
    a qualifying event (such as a loss of employment). A plan may
    require payment of a premium for any period of continuation
    coverage. The amount of such premium generally may not exceed
    102 percent of the ``applicable premium'' for such period and
    the premium must be payable, at the election of the payor, in
    monthly installments.
        Section 3001 of the American Recovery and Reinvestment Act
    of 2009 (ARRA, P.L. No. 111-5) provides that, for a period not
    exceeding nine months, an assistance eligible individual is
    treated as having paid any premium required for COBRA
    continuation coverage under a group health plan if the
    individual pays 35 percent of the premium. Thus, if the
    assistance eligible individual pays 35 percent of the premium,
    the group health plan must treat the individual as having paid
    the full premium required for COBRA continuation coverage, and
    the individual is entitled to a subsidy for 65 percent of the
    premium. An assistance eligible individual generally is any
    qualified beneficiary who elects COBRA continuation coverage
    and the qualifying event with respect to the covered employee
    for that qualified beneficiary is a loss of group health plan
    coverage on account of an involuntary termination of the
    covered employee's employment (for other than gross
    misconduct). In addition, the qualifying event must occur
    during the period beginning September 1, 2008, and ending
    December 31, 2009.
        The COBRA continuation coverage subsidy also applies to
    temporary continuation coverage elected under the Federal
    Employees Health Benefits Program and to continuation health
    coverage under State programs that provide coverage comparable
    to continuation coverage. The subsidy is generally delivered by
    requiring employers to pay the subsidized portion of the
    premium for assistance eligible individuals. The employer then
    treats the payment of the subsidized portion as a payment of
    employment taxes and offsets its employment tax liability by
    the amount of the subsidy. To the extent that the aggregate
    amount of the subsidy for all assistance eligible individuals
    for which the employer is entitled to a credit for a quarter
    exceeds the employer's employment tax liability for the
    quarter, the employer can request a tax refund or can claim the
    credit against future employment tax liability.
        There is an income limit on the entitlement to the COBRA
    continuation coverage subsidy. Taxpayers with modified adjusted
    gross income exceeding $145,000 (or $290,000 for joint filers),
    must repay any subsidy received by them, their spouse, or their
    dependent, during the taxable year. For taxpayers with modified
    adjusted gross incomes between $125,000 and $145,000 (or
    $250,000 and $290,000 for joint filers), the amount of the
    subsidy that must be repaid is reduced proportionately. The
    subsidy is also conditioned on the individual not being
    eligible for certain other health coverage. To the extent that
    an eligible individual receives a subsidy during a taxable year
    to which the individual was not entitled due to income or being
    eligible for other health coverage, the subsidy overpayment is
    repaid on the individual's income tax return as additional tax.
    However, in contrast to the HCTC, the subsidy for COBRA
    continuation coverage may only be claimed through the employer
    and cannot be claimed at the end of the year on an individual
    tax return.

    Committee Bill

    Premium Tax Credit

        The Committee Bill provides a refundable tax credit for
    eligible individuals and families who purchase health insurance
    through the state exchanges. The premium tax credit, which is
    refundable and payable in advance directly to the insurer,
    subsidizes the purchase of certain health insurance plans
    through the state exchanges. The premium tax credit is
    available for individuals (single or joint filers) with
    modified gross incomes (MGI) up to 400 percent of the Federal
    poverty level (FPL). MGI is defined as an individual's (or
    couple's) total income without regard to sections 911
    (regarding the exclusion from gross income for citizen or
    residents living abroad), 931 (regarding the exclusion for
    residents of specified possessions), and 933 (regarding the
    exclusion for residents of Puerto Rico), plus any tax-exempt
    interest received during the tax year, plus the MGI of
    dependents listed on the return. Thus, certain deductions from
    gross income that are allowed in determining adjusted gross
    income but not total income, such as the deduction for
    contributions to an individual retirement arrangement, are
    disregarded. In order to be eligible for the premium tax credit
    taxpayers who are married (within the meaning of Code section
    7703) must file a joint return. Individuals who are listed as
    dependants on a return are ineligible for the premium tax
    credit.
        Under the Committee Bill, an eligible individual enrolls in
    a plan offered through a state exchange and reports his or her
    MGI to the exchange. States are permitted to enter into
    contracts with State Medicaid agencies to make eligibility
    determinations for the credit. Based on the information
    provided to the state exchange, the individual receives a
    premium tax credit based on income according to the schedule
    outlined below, and the Treasury pays the premium tax credit
    amount directly to the insurance plan in which the individual
    is enrolled. The individual then pays to the plan in which he
    or she is enrolled the dollar difference between the premium
    tax credit amount and the total premium charged for the
    plan.\1\ Individuals who fail to pay all or part of the
    remaining premium amount are given a mandatory three-month
    grace period prior to an involuntary termination of their
    participation in the plan. For employed individuals who
    purchase health insurance through a state exchange, the premium
    payments are made through payroll deductions. Initial
    eligibility for the premium tax credit is based on the
    individual's MGI for the tax year ending two years prior to the
    enrollment period. Individuals (or couples) who experience a
    change in marital status or other household circumstance,
    experience a decrease in income of more than 20 percent, or
    receive unemployment insurance, may update eligibility
    information or request a redetermination of their tax credit
    eligibility.
    ---------------------------------------------------------------------------
        \1\Although the credit is generally payable in advance directly to
    the insurer, individuals may elect to purchase health insurance out-of-
    pocket and apply to the IRS for the credit at the end of the taxable
    year.
    ---------------------------------------------------------------------------
        For purposes of the premium tax credit, state exchange
    participants must provide information from their tax return
    from two years prior during the open enrollment period for
    coverage during the next calendar year. The IRS is authorized
    to disclose to HHS limited tax return information to verify a
    taxpayer's MGI based on the most recent return information
    available to establish eligibility for the premium tax credit.
    Existing privacy and safeguard requirements apply. As described
    above, individuals who do not qualify for the premium tax
    credit on the basis of their prior year income may apply for
    the premium tax credit based on specified changes in
    circumstances. For individuals and families who did not file a
    tax return in the prior tax year, the Secretary of HHS will
    establish alternative income documentation that may be provided
    to determine income eligibility for the premium tax credit.
        In all cases, eligibility is reconciled annually on the
    individual's Federal income tax return, subject to a ``safe
    harbor.'' For filers whose current income is less than 300
    percent of FPL--and who received a premium tax credit in excess
    of the level for which they qualified--the ``safe harbor''
    limits the amount that the taxpayer has to repay to $250 for
    single filers and $400 for joint filers (and for those filing
    as the head of household). For filers whose current income
    exceeds 300 percent of FPL, however, there is no a safe harbor
    and they must repay any premium tax credit received. Filers who
    overpaid will receive the balance of their credit as a refund
    from the IRS.
        Beginning in 2013, premium tax credits are available on a
    sliding scale basis for individuals and families between 134-
    300 percent of FPL to help offset the cost of private health
    insurance premiums. Beginning in 2014, the credits are also
    available to individuals and families between 100-133 percent
    of FPL. However, individuals subject to a five-year waiting
    period under Medicaid or CHIP are eligible for the premium tax
    credit beginning in 2013. The credits are based on the
    percentage of income the cost of premiums represents, rising
    from two percent of income for those at 100 percent of FPL to
    12 percent of income for those at 300 percent of FPL.
    Individuals between 300-400 percent of FPL are eligible for a
    premium tax credit based on capping an individual's share of
    the premium at a flat 12 percent of income. The percentages of
    income are indexed to the excess of premium growth over income
    growth beginning in 2014 (in order to hold the share of
    premiums that enrollees at a given poverty level pay the same
    over time). For purposes of calculating household size, illegal
    immigrants are not included in FPL. The premium tax credit
    amount is tied to the cost of the second lowest-cost silver
    plan in the area where the individual resides (by age according
    to standard age factors defined by the Secretary of Health and
    Human Services), and is available for any plan purchased
    through the Exchange.
        A credit-eligible individual enrolled in any exchange
    offered plan pays the lesser of the applicable percentage of
    income or the plan premium. If an individual purchases the
    second lowest cost silver plan in the area where he or she
    resides, or any less expensive silver or bronze plan, the
    individual must only pay the applicable percentage of income
    (e.g., 12 percent for an individual at 300 percent of FPL). If,
    however, an individual enrolls in a plan that is more expensive
    than the second lowest cost silver plan the individual is
    responsible for the applicable percentage of income plus the
    difference in premium between the second lowest cost silver
    plan and the premium of the chosen plan.

    Employer Offer of Health Insurance Coverage

        As a general matter, if an employee is offered employer-
    provided health insurance coverage, the individual is
    ineligible for the premium tax credit for health insurance
    purchased through a state exchange.
        If an employee is offered unaffordable coverage by his or
    her employer or the coverage offered to the employee (and his
    or her dependent) has an actuarial value of less than 65
    percent, or the however, the employee can be eligible for the
    premium tax credit, but only if the employee declines to enroll
    in the coverage and purchases coverage through the exchange
    instead. Unaffordable is defined as coverage with a premium
    required to be paid by the employee that is ten percent or more
    of the employee's income, based on the type of coverage
    applicable (e.g., individual or family coverage). This income
    limit is indexed to the per capita growth in premiums for the
    insured market as determined by the Secretary of HHS. If the
    employee seeks to receive a credit on the basis that an
    employer offered plan is unaffordable, the employee must seek
    an affordability waiver from the state exchange and provide
    information as to family income and the premium of the lowest
    cost employer option offered to them. The state exchange then
    provides the waiver to the employee.
        For purposes of determining if coverage is unaffordable,
    required salary reduction contributions are treated as payments
    required to be made by the employee. However, if an employee is
    reimbursed by the employer for any portion of the premium for
    health insurance coverage purchased through the exchange,
    including any reimbursement through salary reduction
    contributions under a cafeteria plan, the coverage is employer-
    provided and the employee is not eligible for premium tax
    credits. Thus, an individual is not permitted to purchase
    coverage through the exchange, apply for the premium tax
    credit, and pay for the individual's portion of the premium
    using salary reduction contributions under the cafeteria plan
    of the individual's employer.
        No later than five years after the date of the enactment of
    the provision, the Secretary of the Treasury, in consultation
    with the Secretary of HHS, must conduct a study of whether the
    percentage of household income used for purposes of determining
    whether coverage is affordable is the appropriate level for
    determining whether coverage is affordable for an employee and
    whether such level can be lowered without significantly
    increasing the costs to the Federal Government and reducing
    employer-provided health coverage. The Secretary of the
    Treasury reports the results of such study to the appropriate
    committees of Congress, including any recommendations for
    legislative changes.

    Eligibility Verification

        In order to prevent undocumented aliens from obtaining the
    premium tax credits, the provision requires that an
    individual's personal data be verified under the procedures
    established by Section 2238 of the Social Security Act.

    Information Used to Determine Tax Credit Eligibility

        All personal information used to determine eligibility for
    the tax credit submitted to a state exchange shall be protected
    by restrictions on use and disclosure in Section 2238 of the
    Social Security Act and Section 6103 of the Internal Revenue
    Code.

    Cost-Sharing Subsidy

        A cost-sharing subsidy is provided to buyout any difference
    in cost sharing between the insurance purchased and the
    actuarial values specified below. For individuals between 100-
    150 percent of FPL, the subsidy brings the value of the plan to
    90 percent actuarial value. For those between 150-200 percent
    of FPL, the subsidy brings the value of the plan to 80 percent
    actuarial value. For individuals above 200 percent of FPL, no
    subsidy for cost sharing is provided. The amount received by an
    insurer in a cost-sharing subsidy on behalf of an individual,
    as well as any spending by the individual out-of-pocket, counts
    towards the out-of-pocket limit. As with the premium tax
    credit, the IRS is authorized to disclose to HHS limited tax
    return information to verify a taxpayer's MGI based on the most
    recent return information available.

    Effective Date

        The provision is effective July 1, 2013.

       SEC. 1206. COST-SHARING SUBSIDIES AND ADVANCE PAYMENTS OF PREMIUM
                       CREDITS AND COST-SHARING SUBSIDIES

    Present Law

        Currently there is no tax credit that is generally
    available to low or middle income individuals or families for
    the purchase of health insurance. Some individuals may be
    eligible for health coverage through state Medicaid programs
    which consider income, assets, and family circumstances.
    However, these Medicaid programs are not in the tax code.
        Certain individuals are eligible for the health coverage
    tax credit (HCTC). The HCTC is a refundable tax credit equal to
    80 percent of the cost of qualified health coverage paid by an
    eligible individual. In general, eligible individuals are
    individuals who receive a trade adjustment allowance (and
    individuals who would be eligible to receive such an allowance
    but for the fact that they have not exhausted their regular
    unemployment benefits), individuals eligible for the
    alternative trade adjustment assistance program, and
    individuals over age 55 who receive pension benefits from the
    Pension Benefit Guaranty Corporation. The credit is available
    for ``qualified health insurance,'' which includes certain
    employer-based insurance, certain State-based insurance, and in
    some cases, insurance purchased in the individual market.
    Individuals entitled to Medicare and certain other governmental
    health programs, covered under certain employer-subsidized
    health plans, or with certain other specified health coverage
    are not eligible for the credit.
        The credit is available on an advance basis through a
    program established and administered by the Treasury
    Department. The credit generally is delivered as follows: the
    eligible individual sends his or her portion of the premium to
    the Treasury, and the Treasury then pays the full premium (the
    individual's portion and the amount of the refundable tax
    credit) to the insurer. Alternatively, an eligible individual
    is also permitted to pay the entire premium during the year and
    claim the credit on his or her income tax return.
        The Consolidated Omnibus Reconciliation Act of 1985 (COBRA,
    P.L. 99-272) requires that a group health plan must offer
    continuation coverage to qualified beneficiaries in the case of
    a qualifying event (such as a loss of employment). A plan may
    require payment of a premium for any period of continuation
    coverage. The amount of such premium generally may not exceed
    102 percent of the ``applicable premium'' for such period and
    the premium must be payable, at the election of the payor, in
    monthly installments.
        Section 3001 of the American Recovery and Reinvestment Act
    of 2009 (ARRA, P.L. 111-5) provides that, for a period not
    exceeding nine months, an assistance eligible individual is
    treated as having paid any premium required for COBRA
    continuation coverage under a group health plan if the
    individual pays 35 percent of the premium. Thus, if the
    assistance eligible individual pays 35 percent of the premium,
    the group health plan must treat the individual as having paid
    the full premium required for COBRA continuation coverage, and
    the individual is entitled to a subsidy for 65 percent of the
    premium. An assistance eligible individual generally is any
    qualified beneficiary who elects COBRA continuation coverage
    and the qualifying event with respect to the covered employee
    for that qualified beneficiary is a loss of group health plan
    coverage on account of an involuntary termination of the
    covered employee's employment (for other than gross
    misconduct). In addition, the qualifying event must occur
    during the period beginning September 1, 2008, and ending
    December 31, 2009.
        The low income tax credit also applies to Temporary
    Continuation Coverage elected under the Federal Employees
    Health Benefits Program (FEHBP) and to continuation health
    coverage under State programs that provide coverage comparable
    to continuation coverage. The subsidy is generally delivered by
    requiring employers to pay the subsidized portion of the
    premium for assistance eligible individuals. The employer then
    treats the payment of the subsidized portion as a payment of
    employment taxes and offsets its employment tax liability by
    the amount of the low-income tax credit. To the extent that the
    aggregate amount of the subsidy for all assistance eligible
    individuals for which the employer is entitled to a credit for
    a quarter exceeds the employer's employment tax liability for
    the quarter, the employer can request a tax refund or can claim
    the credit against future employment tax liability.
        There is an income limit on entitlement to the low-income
    tax credit. Taxpayers with modified adjusted gross income
    exceeding $145,000 (or $290,000 for joint filers), must repay
    any subsidy received by them, their spouse, or their dependents
    during the taxable year. For taxpayers with modified adjusted
    gross incomes between $125,000 and $145,000 (or $250,000 and
    $290,000 for joint filers), the amount of the subsidy that must
    be repaid is reduced proportionately. The subsidy is also
    conditioned on the individual not being eligible for certain
    other health coverage. To the extent that an eligible
    individual receives a subsidy during a taxable year to which
    the individual was not entitled due to income or being eligible
    for other health coverage, the subsidy overpayment is repaid on
    the individual's income tax return as additional tax. However,
    in contrast to the HCTC, the subsidy for COBRA continuation
    coverage may only be claimed through the employer and cannot be
    claimed at the end of the year on an individual tax return.

    Committee Bill

        Adds to the Social Security Act as amended by the bill.

           ``Subpart 2--Premium Credits and Cost-Sharing Subsidies''

                           SEC. 2246. PREMIUM CREDITS

        The Committee Bill would provide premium assistance in the
    form of a refundable tax credit for individuals with incomes
    less than 400 percent of the FPL as calculated by Sec. 1205 of
    the bill.

        SEC. 2247. COST-SHARING SUBSIDIES FOR INDIVIDUALS ENROLLING IN
                         QUALIFIED HEALTH BENEFIT PLANS

        The Committee Bill would define an eligible insured as an
    individual not more that 400 percent of the FPL (for the family
    size involved) enrolled in a QHBP at the bronze or silver level
    of coverage in an exchange. The Secretary would notify the plan
    that the individual is eligible and the plan would reduce the
    cost-sharing by reducing the out-of-pocket limit under the bill
    by the following amounts by income category (for the family
    size involved):
               \2/3\ for household income greater than 100
            percent and less than 200 percent of the FPL,
               \1/2\ for household income greater than 200
            percent and less than 300 percent of the FPL,
               \1/3\ for household income greater than 300
            percent and less than 400 percent of the FPL.
        The Committee Bill would instruct the Secretary to
    establish procedures whereby the plan would provide additional
    reductions in cost-sharing. The reductions would be consistent
    with the plan's share of total allowable costs being 90 percent
    for an eligible individual whose household income is between
    100 percent and 150 percent of the FPL for the family size
    involved and 80 percent for an eligible individual whose
    household income is between 150 percent and 200 percent of the
    FPL for the family size involved. The proposal is part of the
    fail-safe mechanism to prevent an increase in Federal budget
    deficit under Sec. 1209 and would reduce the reduction in cost-
    sharing by the percentage specified by that section of the
    proposal.
        The plan would notify the Secretary of cost-sharing
    reductions and the Secretary would make periodic and timely
    payments to the plan equal to the value of the reductions in
    cost-sharing. The Committee Bill authorizes the Secretary to
    establish a capitated payment system with appropriate risk
    adjustments.
        The Committee Bill would implement special rules for
    Indians (as defined by the Indian Health Care Improvement Act)
    and undocumented aliens. For Indians whose household income is
    not more than 300 percent FPL (for the family size involved)
    and is enrolled in a QHBP through an exchange, then the
    individual would be treated as an eligible and the plan would
    eliminate any cost-sharing. The Committee Bill would also
    mandate that if that Indian were to be furnished an item or
    service directly by the Indian Health Service, an Indian Tribe,
    Tribal Organization, Urban Indian Organization, or through
    referral under contract health services, no cost-sharing under
    the plan would be imposed for that item or service, and the
    plan would not reduce the payment to the entity. The Secretary
    would pay the QHBP the amount necessary to reflect the
    actuarial value of this proposal.
        For undocumented aliens the Committee Bill would prohibit
    cost-sharing reductions and the individual would not be taken
    into account in determining the family size involved, but the
    individual's modified gross income would be taken into account
    in determining household income. The Committee Bill would treat
    an individual as an undocumented alien unless the information
    required is provided.
        The Committee Bill would define any term used in this
    section that is also used by section 36B of the Internal
    Revenue Code of 1986 as having the same meaning as defined by
    the latter. The Committee Bill would also deny subsidies to
    dependents, with respect to whom a deduction under 151 of the
    Internal Revenue Code is allowable to another taxpayer for a
    taxable year beginning in the calendar year in which the
    individual's taxable year begins. Further, the Committee Bill
    would not permit a subsidy for any month that is not treated as
    a coverage month.

      SEC. 2248. ADVANCE DETERMINATION AND PAYMENT OF PREMIUM CREDITS AND
                             COST-SHARING SUBSIDIES

        The Committee Bill would instruct the Secretary, in
    consultation with the Secretary of the Treasury, to establish a
    program whereupon at the request of an exchange, advance
    determinations are made for determining income eligibility of
    individuals enrolling in a QHBP through the exchange for
    premium credits and cost-sharing subsidies. The Committee Bill
    would require the Secretary to notify the exchange and the
    Secretary of the Treasury of the advance determinations, and
    the Secretary of the Treasury would make advance payments of
    the credit or subsidy to the QHBPs.
        The Committee Bill would require the Secretary to provide,
    under the program, that advanced determination during the
    annual open enrollment period be applicable to the individual
    or another enrollment period that may be specified by the
    Secretary. The Committee Bill would require that the advance
    determination be made on the basis of the individual's
    household income for the second taxable year preceding the
    taxable year in which enrollment through the enrollment period
    first takes effect.
        The Committee Bill also would require the Secretary to
    provide procedures for making advanced determinations in cases
    where information included with an application form
    demonstrates substantial changes in income, changes in family
    size, a change in filing status, the filing of an application
    for unemployment benefits, or other significant changes
    affecting eligibility including (1) allowing an individual
    claiming a decrease of 20 percent of more in income, or filing
    an application of unemployment benefits, to have eligibility
    for the credit determined on the basis of household income for
    a later period or on the basis of the individual's estimate of
    such income for the taxable year; and (2) the determination of
    household income in cases where the taxpayer was not required
    to file a return of tax imposed by this chapter for the second
    preceding taxable year.
        The Committee Bill would require the Secretary to notify
    the Secretary of the Treasury and the exchange through which
    the individual is enrolling of the advanced determinations
    made. The Committee Bill would require the Secretary of the
    Treasury to make the advance payment for a premium credit to
    the QHBP on a monthly basis or such other periodic basis as the
    Secretary may provide. The Committee Bill would require the
    QHBP that would be receiving advanced payments to reduce the
    premium charged for any period by the amount of the advanced
    payment received for the period. The QHBP would also be
    required to notify the Secretary of Health and Human Services
    of the reduction, notify the Secretary of any cases of
    nonpayment of premiums by the insured, and allow a three-month
    grace period for nonpayment of premiums before discontinuing
    coverage.
        The Committee Bill stipulates that no advance payment would
    be made unless there has been a verification of the
    individual's citizenship or nationality or lawful presence in
    the United States.

       SEC. 1207. DISCLOSURES TO CARRY OUT ELIGIBILITY REQUIREMENTS FOR
                                CERTAIN PROGRAMS

    Present Law

        Section 6103 provides that returns and return information
    are confidential and may not be disclosed by the Internal
    Revenue Service (``IRS''), other Federal employees, State
    employees, and certain others having access to such information
    except as provided in the Internal Revenue Code. Section 6103
    contains a number of exceptions to the general rule of
    nondisclosure that authorize disclosure in specifically
    identified circumstances. For example, section 6103 provides
    for the disclosure of certain return information for purposes
    of establishing the appropriate amount of any Medicare Part B
    premium subsidy adjustment.
        Section 6103(p)(4) requires, as a condition of receiving
    returns and return information, that Federal and State agencies
    (and certain other recipients) provide safeguards as prescribed
    by the Secretary of the Treasury by regulation to be necessary
    or appropriate to protect the confidentiality of returns or
    return information. Unauthorized disclosure of a return or
    return information is a felony punishable by a fine not
    exceeding $5,000 or imprisonment of not more than five years,
    or both, together with the costs of prosecution.\2\ The
    unauthorized inspection of a return or return information is
    punishable by a fine not exceeding $1,000 or imprisonment of
    not more than one year, or both, together with the costs of
    prosecution.\3\ An action for civil damages also may be brought
    for unauthorized disclosure or inspection.\4\
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        \2\Sec. 7213.
        \3\Sec. 7213A.
        \4\Sec. 7431.
    ---------------------------------------------------------------------------

    Committee Bill

        Under the Committee Bill, individuals will submit income
    and family size information to the state exchanges as part of
    an application process in order to claim the cost-sharing
    subsidy and the tax credit on an advance basis.\5\ The
    Department of Health and Human Services (HHS) serves as the
    centralized verification agency for information submitted by
    individuals to the state exchanges with respect to the subsidy
    and the tax credit to the extent provided on an advance basis.
    The bill permits the IRS to substantiate the accuracy of income
    and family size information that has been provided to HHS for
    eligibility determination.
    ---------------------------------------------------------------------------
        \5\Under the bill, the state exchanges are permitted to contract
    with its state Medicaid agencies to perform certain exchange functions.
    ---------------------------------------------------------------------------
        Specifically, upon written request of the Secretary of HHS,
    the IRS is permitted to disclose the following return
    information of any taxpayer applying to a state exchange whose
    income and family size is relevant in determining the amount of
    the tax credit or cost-sharing subsidy or eligibility for
    participation in the specified State health subsidy programs
    (i.e., a State Medicaid program under title XIX of the Social
    Security Act, a State's children's health insurance program
    under title XXI of such Act, or a basic health program under
    section 2228 of such Act): (1) taxpayer identity; (2) the
    filing status of such taxpayer; (3) the modified gross income
    (as defined in new sec. 36B of the Code) of such taxpayer and
    of any other individual for whom a dependency deduction is
    allowed with respect to such taxpayer; (4) such other
    information as is prescribed by Treasury regulation as might
    indicate whether such taxpayer is eligible for the credit or
    subsidy (and the amount thereof); and (5) the taxable year with
    respect to which the preceding information relates, or if
    applicable, the fact that such information is not available.
    HHS is permitted to disclose to officers, employees and
    contractors of the state exchanges, or of the State agency
    administering the programs referenced above whether there is a
    discrepancy between the information submitted and IRS records.
        The disclosed return information may be used only for the
    purposes of, and only to the extent necessary in establishing
    eligibility for participation in the exchange, and verifying
    the appropriate amount of the tax credit, and cost-sharing
    subsidy, or eligibility for the specified State health subsidy
    programs.
        Recipients of the confidential return information are
    subject to the safeguard protections and civil and criminal
    penalties for unauthorized disclosure and inspection. The IRS
    is required to make an accounting for all disclosures.

    Effective Date

        The Committee Bill is effective on the date of enactment.

    SEC. 1208. PREMIUM CREDITS AND SUBSIDY REFUNDS AND PAYMENTS DISREGARDED
                  FOR FEDERAL AND FEDERALLY-ASSISTED PROGRAMS

    Present Law

        Currently there is no tax credit that is generally
    available to low or middle income individuals or families for
    the purchase of health insurance.

    Committee Bill

        Any premium tax credits and cost-sharing subsidies provided
    to an individual under the Committee Bill are disregarded for
    purposes of determining that individual's eligibility for
    benefits or assistance, or the amount or extent of benefits and
    assistance, under any Federal program or under any State or
    local program financed in whole or in part with Federal funds.
    Specifically, any amount of premium tax credit provided to an
    individual is not counted as income, and cannot be taken into
    account as resources for the month of receipt and the following
    two months. Any cost sharing subsidy provided on the
    individual's behalf is treated as made to the health plan in
    which the individual is enrolled.

     SEC. 1209. FAIL-SAFE MECHANISM TO PREVENT INCREASE IN FEDERAL BUDGET
                                    DEFICIT

    Present Law

        No provision.

    Committee Bill

    Failsafe

        Beginning in 2012, the President must certify annually in
    the President's Budget whether or not the provisions in this
    bill will increase the budget deficit in the coming fiscal
    year. In the event the President determines that the provisions
    in this bill will increase the deficit, he or she would be
    required to include with the certification, the percentage by
    which the exchange credits and subsidies in this bill need to
    be reduced, such that the aggregate amount of such reductions
    is equal to the amount of the deficit increase. The President
    must then instruct the Secretary of Health and Human Services
    and the Secretary of the Treasury to make such reductions in
    these credits and subsidies.

    Effective Date

        The provision is effective for the President's Budget
    submitted in 2012.

                   ``Subpart B--Credit for Small Employers''

                      SEC. 1221. SMALL BUSINESS TAX CREDIT

    Present Law

        The Code does not provide a tax credit for employers that
    provide health coverage for their employees. The cost to an
    employer of providing health coverage for its employees is
    generally deductible as an ordinary and necessary business
    expense for employee compensation.\6\ In addition, the value of
    employer-provided health insurance is not subject to employer
    paid Federal Insurance Contributions Act (FICA) tax.
    ---------------------------------------------------------------------------
        \6\Sec. 162. However see special rules in sections 419 and 419A for
    the deductibility of contributions to welfare benefit plans with
    respect to medical benefits for employees and their dependents.
    ---------------------------------------------------------------------------
        The Code generally provides that employees are not taxed on
    the value of employer-provided health coverage under an
    accident or health plan. That is, these benefits are excluded
    from gross income. In addition, medical care provided under an
    accident or health plan for employees, their spouses, and their
    dependents is excluded from gross income. Active employees
    participating in a cafeteria plan may be able to pay their
    share of premiums on a pre-tax basis through salary
    reduction.\7\ Such salary reduction contributions are treated
    as employer contributions and thus also are excluded from gross
    income.
    ---------------------------------------------------------------------------
        \7\Sec. 125.
    ---------------------------------------------------------------------------

    Committee Bill

    Small business employers eligible for the credit

        Under the Committee Bill, a tax credit is provided for a
    qualified small employer for contributions to purchase health
    insurance for its employees. A qualified small business
    employer for this purpose generally is an employer with no more
    than 25 full-time equivalent employees (FTEs) employed during
    the employer's taxable year, and whose employees have annual
    full-time equivalent wages that average no more than $40,000.
    However, the full amount of the credit is available only to an
    employer with ten or fewer FTEs and whose employees have
    average annual fulltime equivalent wages from the employer of
    less than $20,000. These wage limits are indexed to CPI-U for
    years beginning in 2014. Under the provision, an employer's
    FTEs are calculated by dividing the total hours worked by all
    employees during the employer's tax year by 2080. For this
    purpose, the maximum amount of hours that are counted for any
    single employee are 2080. Wages are defined the same as for
    purposes of FICA and the average wage is determined by dividing
    the total wages paid by the small employer by the number of
    FTEs. Hours worked and wages earned by seasonal workers are
    exempt from these calculations for purposes of determining
    eligibility for the small business tax credit. A seasonal
    worker is defined as an individual who performs labor or
    services on a seasonal basis where, ordinarily, the employment
    pertains to or is the kind exclusively performed at certain
    seasons or periods of the year and which, by nature, may not be
    continuous or carried on throughout the year.
        The credit is only available to offset actual tax liability
    and is claimed on the employer's tax return. The credit is not
    payable in advance to the taxpayer or refundable. Thus, the
    employer must pay the employees' premiums during the year and
    claim the credit at the end of the year on its income tax
    return. The credit is a general business credit, and can be
    carried back for one year and carried forward for 20 years. The
    credit is available for tax liability under the alternative
    minimum tax.

    Years the credit is available

                Phase I
        Under the provision, the credit is initially available for
    a maximum of two taxable years for any qualified small business
    employer offering health insurance. Health insurance coverage
    for Phase I is health insurance coverage within the meaning of
    Code section 9832 which is generally health insurance coverage
    purchased from an insurance company licensed under State law.
    This initial phase of the credit is available for tax years
    2011 and 2012.
                Phase II
        For taxable years beginning in 2013, the credit is only
    available for a small business employer that purchases health
    insurance coverage for its employees through the State exchange
    but only with respect to premiums for coverage after June 30,
    2013. If a State has not yet adopted the reformed rating rules,
    qualifying small business employers in the State are not
    eligible to receive the credit. The credit is available for the
    first two years that a qualified small employer purchases
    health insurance coverage for its employees through the State
    exchange.

    Calculation of credit amount

                Phase I
        The credit is equal to the applicable percentage of the
    small business employer's contribution to the health insurance
    premium for each covered employee. Only non-elective
    contributions by the employer are taken into account in
    calculating the credit. Therefore, any amount contributed
    pursuant to a salary reduction arrangement under a cafeteria
    plan within the meaning of section 125 is not treated as an
    employer contribution for purposes of this credit. The credit
    is equal to the dollar amount of the employer's contribution
    multiplied by an applicable percentage. The first step in
    determining the applicable percentage is to calculate the
    employer's contribution as a percentage of the lesser of (1)
    the total premium for an employee's coverage or (2) a small
    business bench mark premium. This tax credit is only available
    if this percentage is at least 50. If the employer contribution
    percentage is at least 50, the applicable tax credit percentage
    is 35.
        The bench mark premium is the average total premium cost in
    the small group market for employer sponsored coverage in the
    employer's State. The premium and the benchmark premium vary
    based on the type of coverage being provided to the employee
    (i.e., single, adult with child, family or two adults).
                Phase II
        The credit is equal to the applicable percentage of the
    small business employer's contribution to the health insurance
    premium for each covered employee. Only non-elective
    contributions by the employer are taken into account in
    calculating the credit. Therefore, any amount contributed
    pursuant to a salary reduction arrangement under a cafeteria
    plan within the meaning of section 125 is not treated as an
    employer contribution for purposes of this credit. The credit
    is equal to the dollar amount of the employer's contribution
    multiplied by an applicable percentage. The first step in
    determining the applicable percentage is to calculate the
    employer's contribution as a percentage of the lesser of (1)
    the total premium for an employee's coverage or (2) a small
    business bench mark premium. This tax credit is only available
    if this percentage is at least 50. If the employer contribution
    percentage is at least 50, the applicable tax credit percentage
    is 50. The bench mark premium is the average total premium cost
    in the small group market for employer sponsored coverage in
    the employer's State. The premium and the benchmark premium
    vary based on the type of coverage being provided to the
    employee (i.e., single, adult with child, family or two
    adults).

    Special rules

        For both the Phase I and Phase II credits, the employer is
    entitled to a deduction under section 162 equal to the amount
    of the employer contribution minus the dollar amount of the
    credit. For example, if a qualified small employer pays 100
    percent of the cost of its employees' health insurance coverage
    and the tax credit under this provision is 50 percent of that
    cost, the employer is able to claim a section 162 deduction for
    the other 50 percent of the premium cost.
        The credit is phased out for employers with more than ten
    FTEs but not more than 25 FTEs by six percent of the base
    credit percentage for each employee above ten. Simultaneously,
    the credit phases out for an employer for whom the average
    wages per employee is between $20,000 and $40,000 at a rate of
    five percent for each $1,000 increase of average wages above
    $20,000.
        The employer is determined by applying the employer
    aggregations rules in section 414(b), (c), and (m). In
    addition, the definition of employee includes a leased employee
    within the meaning of section 414(n).\8\
    ---------------------------------------------------------------------------
        \8\Section 414(b) provides that, for specified employee benefit
    purposes, all employees of all corporations which are members of a
    controlled group of corporations are treated as employed by a single
    employer. There is a similar rule in section 414(c) under which all
    employees of trades or businesses (whether or not incorporated) which
    are under common are treated under regulations as employed by a single
    employer, and, in section 414(m), under which employees of an
    affiliated service group (as defined in that section) are treated as
    employed by a single employer. Section 414(n) provides that leased
    employees, as defined in that section, are treated as employees of the
    service recipient for specified purposes. Section 414(o) authorizes the
    Treasury to issue regulations to prevent avoidance of the certain
    requirement under section 414(m) and 414(n).
    ---------------------------------------------------------------------------
        Organizations exempt from tax under section 501(a) by
    reason of being described in section 501(c)(3) (i.e.,
    charitable organizations) that otherwise qualify for the small
    business tax credit are eligible to receive the credit.
    However, for tax-exempt organizations, the applicable
    percentage for the credit during Phase I is limited to 25 and
    the applicable percentage for the credit during Phase II is
    limited to 35. The small business tax credit is otherwise
    calculated in the same manner for tax-exempt organizations that
    are qualified small employers as the tax credit is calculated
    for all other qualified small employers. Charitable
    organizations are eligible to apply the tax credit against the
    organization's liability as an employer for payroll taxes for
    the taxable year to the extent of: (1) the amount of income tax
    withheld from its employees under section 3401(a), (2) the
    amount of hospital insurance tax withheld from its employees
    under section 3101(b), (3) and the amount of the hospital tax
    imposed on the organization under section 3111(b). However, the
    charitable organization is not eligible for a credit in excess
    of the amount of these payroll taxes.
        Self-employed individuals, including partners and sole
    proprietors, two percent share-holders of an S Corporation, and
    five percent owners of a C Corporation are not treated as
    employees for purposes of this credit. There is also a special
    rule to prevent sole proprietorships from receiving the credit
    for the owner and their family members. Thus, no credit is
    available for contribution to the purchase of health insurance
    for these individuals and the individual is not taken into
    account in determining the number of employees or average full-
    time equivalent wages.

    Effective Date

        The Committee Bill is effective for taxable years beginning
    after December 31, 2010.

                       Subtitle D--Shared Responsibility

                       PART I--INDIVIDUAL RESPONSIBILITY

      SEC. 1301. PENALTY ON INDIVIDUALS WITHOUT ESSENTIAL HEALTH BENEFITS
                                    COVERAGE

    Present Law

        Federal law does not require individuals to have health
    insurance. Only the Commonwealth of Massachusetts, through its
    statewide program, requires that individuals have health
    insurance (although this policy has been considered in other
    states, such as California, Maryland, Maine, and Washington).
    All adult residents of Massachusetts are required to have
    health insurance that meets ``minimum creditable coverage''
    standards if it is deemed ``affordable'' at their income level
    under a schedule set by the board of the Commonwealth Health
    Insurance Connector Authority (``Connector''). Individuals
    report their insurance status on State income tax forms.
    Individuals can file hardship exemptions from the mandate;
    persons for whom there are no affordable insurance options
    available are not subject to the requirement for insurance
    coverage.
        For taxable year 2007, an individual without insurance and
    who was not exempt from the requirement did not qualify under
    Massachusetts law for a State income tax personal exemption.
        For taxable years beginning on or after January 1, 2008, a
    penalty is levied for each month an individual is without
    insurance. The penalty consists of an amount up to 50 percent
    of the lowest premium available to the individual through the
    Connector. The penalty is reported and paid by the individual
    with the individual's Massachusetts State income tax return at
    the same time and in the same manner as State income taxes.
    Failure to pay the penalty results in the same interest and
    penalties as apply to unpaid income tax.

    Committee Bill

    Personal responsibility requirement

        Beginning July 1, 2013, all U.S. citizens and legal
    residents are required to maintain health insurance coverage.
    Coverage may be acquired through the individual market, a
    public program such as Medicare, Medicaid, the Children's
    Health Insurance Program, Veteran's Health Care Program,
    TRICARE, or through an employer (or as a dependent of a covered
    employee). If coverage is acquired through an employer in the
    small group market, it must meet or exceed the requirements of
    a bronze plan in the exchange. If the employer is in the large
    group market, the plan must provide first dollar coverage for
    prevention-related services,\9\ have no unreasonable annual or
    lifetime limits on coverage, and have a maximum out-of-pocket
    limit that is less than that provided by the standards
    established under the HSA Present Law limit in order to meet
    minimum creditable coverage. Exemptions from the requirement to
    have health coverage are allowed for religious objections that
    are consistent with those allowed under Medicare, and for
    undocumented aliens. An individual enrolled in a grandfathered
    plan, or individuals of any age enrolled in ``young
    invincibles'' policies in an exchange are deemed to have met
    the responsibility requirement.
    ---------------------------------------------------------------------------
        \9\Except in cases where value-based insurance design is used.
    ---------------------------------------------------------------------------
        In order to ensure compliance, individuals are required to
    report on their Federal income tax return the months for which
    they maintain the required minimum health coverage for
    themselves and all dependents under age 18. In addition,
    insurers (including employers who self-insure), must report
    information on health insurance coverage to both the covered
    individual and to the IRS. Insurers will be required to
    identify the primary insured individual and any other
    individuals covered by the policy, as well as the dates during
    which the individual maintained coverage during the tax year.
    Insurers may be required to include other relevant information
    as determined by the Secretary. A similar reporting requirement
    applies to employers with respect to individuals enrolled in
    public health insurance plans or group health plans if the
    reporting is not provided by the insurer (e.g. in the case of
    self-insured plans).

    Open enrollment in the individual market

        The initial open-enrollment period for eligible individuals
    in the individual and small-group market (excluding
    grandfathered plans) lasts from March 1, 2013 through May 31,
    2013, and during the same period in subsequent years. Special
    enrollment periods are allowed for qualifying events,
    consistent with those included in the Public Health Service
    Act, such as when an individual becomes a dependent through
    marriage or birth, or when an individual loses other health
    insurance coverage. There may be additional special enrollment
    periods allowed, consistent with those allowed under Medicare
    Part D (for example, special enrollment periods may be allowed
    for exceptional circumstances as determined by the Secretary of
    Health and Human Services). During each annual open enrollment
    period individuals may change plans or remain in their current
    plan.

    Penalty

        Individuals who fail to maintain essential health benefits
    coverage are subject to a penalty of $750 per adult in the
    household, with a maximum of two adults per household. This per
    adult penalty is phased in as follows: $0 for 2013; $200 for
    2014; $400 for 2015; $600 in 2016, $750 in 2017 and indexed to
    CPI-U beginning in 2018 and thereafter.
        The penalty applies to any period during which the
    individual is not covered by a health insurance plan with the
    minimum required benefit but is prorated for partial years of
    noncompliance. No penalty is assessed for individuals not
    maintaining health insurance for a period less than or equal to
    three months in the tax year. However, penalties are assessed
    for those not insured for more than three months during the tax
    year.
        The penalty is assessed through the Code and accounted for
    as an additional amount of Federal tax owed. However, it is not
    subject to the enforcement provisions of subtitle F of the tax
    code.\10\ Instead, in cases in which payment is not forthcoming
    following the initial notice and demand for payment, collection
    is limited to withholding of Federal payments otherwise due to
    the uninsured individual. The use of liens and seizures
    otherwise authorized for collection of taxes does not apply to
    the collection of this penalty. Non-compliance with the
    personal responsibility requirement to have health coverage is
    not subject to criminal or civil penalties under the Code and
    interest does not accrue for failure to pay such assessments in
    a timely manner.
    ---------------------------------------------------------------------------
        \10\IRS authority to assess and collect taxes is generally provided
    in subtitle F ``Procedure and Administration'' in the Code. That
    subtitle establishes the rules governing both how taxpayers are
    required to report information to the IRS and pay their taxes as well
    as their rights. It also establishes the duties and authority of the
    IRS to enforce the Code, including civil and criminal penalties.
    ---------------------------------------------------------------------------
        Exemptions from the penalty are allowed for individuals
    where the full premium of the lowest cost option available to
    them (net of subsidies and employer contribution, if any)
    exceeds eight percent of their AGI in 2013. This income limit
    is indexed to the excess of premium growth over income growth
    beginning in 2014. Exemptions from the penalty are also allowed
    for individuals below 100 percent of the Federal Poverty Level,
    individuals with sincerely held beliefs who participate in
    health arrangements provided by established religious
    organizations (e.g., those participating in Health Sharing
    Ministries), individuals experiencing hardship situations (as
    determined by the Secretary of HHS) and individuals who are
    Indians as defined in section 4 of the Indian Health Care
    Improvement Act. Determinations of an individuals' exemption,
    do not take into account income from individuals not subject to
    the requirement.
        The Government Accountability Office must undertake a study
    of the affordability of coverage, including the impact of the
    provision of small business and individual tax credits in
    maintaining and expanding coverage, the availability of
    affordable plans, and the ability of Americans to meet the
    personal responsibility requirement. Such report shall be made
    to the Congressional committees of jurisdiction no later than
    February 1, 2014. The committees must report legislation no
    later than April 1, 2014 to examine the implementation and
    assessment of the provision and to bring such legislation to
    the floor in each chamber within 15 days of reporting by such
    committees. In the Senate, this legislation is subject to 30
    hours of debate. Once passed by both chambers, the conference
    report is limited to ten hours of debate in the Senate.

    Automatic enrollment

        Employers with 200 or more employees must automatically
    enroll employees into health insurance plans offered by the
    employer. Employees may decline employer coverage, however, if
    they are able to demonstrate that they have coverage from
    another source (e.g., through a public program such as
    Medicare, Medicaid or the Children's Health Insurance Program
    or as a dependent in a spouse or other family member's health
    benefits).
        Additionally, States have the option to establish a process
    for auto-enrollment of individuals and families into policies
    offered in the individual and small group markets. State
    programs for auto enrollment must be approved by the Secretary
    of HHS.

    Effective Date

        The Committee Bill is effective for taxable years beginning
    after December 31, 2012.

               SEC. 1302. REPORTING OF HEALTH INSURANCE COVERAGE

    Present Law

        No provision.

    Committee Bill

        Under the Committee Bill, insurers (including employers who
    self-insure and therefore act as insurers) that provide
    essential health benefits coverage to an individual coverage
    must report certain health insurance coverage information to
    both the covered individual and to the Internal Revenue
    Service. In the case of coverage provided by a governmental
    unit or any agency or instrumentality of a governmental unit,
    the reporting requirement applies to the person or employee who
    enters into the agreement to provide coverage (or their
    designee).
        The information required to be reported includes the name,
    address and taxpayer identification number of the primary
    insured and each other individual obtaining coverage under the
    policy, the dates during which the individual was covered under
    the policy during the calendar year, the amount of any premium
    tax credit or cost-sharing subsidy received by the individual
    with respect to such coverage, and such other information as
    the Secretary may require.
        To the extent the coverage is provided through the group
    health plan of the individual's employer, the insurer is also
    required to report the name, address and employer
    identification number of the employer, the portion of the
    premium, if any, required to be paid by the employer, and any
    information the Secretary may require to administer the new tax
    credit for qualified small employers.
        The insurer is required to report the above information,
    along with the name, address and contact information of the
    reporting insurer, to the covered individual on or before
    January 31 of the year following the calendar year for which
    the information is required to be reported to the Internal
    Revenue Service.

    Effective Date

        The Committee Bill is effective for calendar years
    beginning after 2012.

                        PART II--EMPLOYER RESPONSIBILITY

             SEC. 1306. EMPLOYER-PROVIDED HEALTH INSURANCE COVERAGE

    Present Law

        Currently, there is no Federal requirement that employers
    offer health insurance coverage to employees or their families.
    However, as with other compensation, the cost of employer-
    provided health coverage is a deductible business expense under
    section 162 of the Code.\11\ In addition, employer-provided
    health insurance coverage is generally not included in an
    employee's gross income.\12\
    ---------------------------------------------------------------------------
        \11\Sec. 162. However see special rules in sections 419 and 419A
    for the deductibility of contributions to welfare benefit plans with
    respect to medical benefits for employees and their dependents.
        \12\Sec. 106.
    ---------------------------------------------------------------------------
        Employees participating in a cafeteria plan may be able to
    pay the portion of premiums for health insurance coverage not
    otherwise paid for by their employers on a pre-tax basis
    through salary reduction.\13\ Such salary reduction
    contributions are treated as employer contributions for
    purposes of the Code, and are thus excluded from gross income.
    ---------------------------------------------------------------------------
        \13\Sec. 125.
    ---------------------------------------------------------------------------
        One way that employers can offer employer-provided health
    insurance coverage for purposes of the tax exclusion is to
    offer to reimburse employees for the premiums for health
    insurance purchased by employees in the individual health
    insurance market. The payment or reimbursement of employees'
    substantiated individual health insurance premiums is
    excludible from employees' gross income.\14\ This reimbursement
    for individual health insurance premiums can also be paid for
    through salary reduction under a cafeteria plan.\15\ However,
    this offer to reimburse individual health insurance premiums
    constitutes a group health plan.
    ---------------------------------------------------------------------------
        \14\Rev. Rul. 61-146 (1961-2 CB 25).
        \15\Proposed Treas. Reg. sec. 1.125-1(m).
    ---------------------------------------------------------------------------
        The Employee Retirement Income Security Act of 1974
    (ERISA)\16\ preempts State law relating to certain employee
    benefit plans, including employer-sponsored health plans. While
    ERISA specifically provides that its preemption rule does not
    exempt or relieve any person from any State law which regulates
    insurance, ERISA also provides that an employee benefit plan is
    not deemed to be engaged in the business of insurance for
    purposes of any State law regulating insurance companies or
    insurance contracts. As a result of this ERISA preemption,
    self-insured employer-sponsored health plans need not provide
    benefits that are mandated under State insurance law.
    ---------------------------------------------------------------------------
        \16\P.L. 93-406.
    ---------------------------------------------------------------------------
        While ERISA does not require an employer to offer health
    benefits, it does require compliance if an employer chooses to
    offer health benefits, such as compliance with plan fiduciary
    standards, reporting and disclosure requirements, and
    procedures for appealing denied benefit claims. There are other
    Federal requirements for health plans which include, for
    example, rules for health care continuation coverage.\17\ The
    Code imposes an excise tax on group health plans that fail to
    meet these other requirements.\18\ The excise tax generally is
    equal to $100 per day per failure during the period of
    noncompliance and is imposed on the employer sponsoring the
    plan.
    ---------------------------------------------------------------------------
        \17\These rules were added to ERISA and the Code by the
    Consolidated Omnibus Budget Reconciliation Act of 1985 (``COBRA'')
    (Pub. L. No. 99-272).
        \18\Sec. 4980B.
    ---------------------------------------------------------------------------
        Under Medicaid, States may establish ``premium assistance''
    programs, which pay a Medicaid beneficiary's share of premiums
    for employer-sponsored health coverage. Besides being available
    to the beneficiary through his or her employer, the coverage
    must be comprehensive and cost-effective for the State. An
    individual's enrollment in an employer plan is considered cost-
    effective if paying the premiums, deductibles, coinsurance and
    other cost-sharing obligations of the employer plan is less
    expensive than the State's expected cost of directly providing
    Medicaid-covered services. States are also required to provide
    coverage for those Medicaid-covered services that are not
    included in the private plans. A 2007 analysis showed that 12
    States had Medicaid premium assistance programs as authorized
    under Present Law.

    Committee Bill

    Penalty for employees receiving premium credits

        Any employer with more than 50 employees that does not
    offer coverage for all its full-time employees, does not
    provide coverage that is affordable, or does not provide
    coverage with an actuarial value of at least 65 percent, is
    required to pay a penalty. The penalty is an excise tax that is
    imposed for each employee who receives a premium tax credit for
    health insurance purchased through a state exchange. The number
    of employees is determined based on the number of full-time
    employees during the most recent year using the definition of
    employee that applies for purposes of determining if an
    employer is eligible for the small employer exception from
    COBRA continuation coverage.\19\
    ---------------------------------------------------------------------------
        \19\Treas. Reg. 54.4980B-3, Q&A 2.
    ---------------------------------------------------------------------------
        For each full-time employee (defined as working 30 hours or
    more each week) receiving a premium tax credit through a state
    exchange, the employer is required to pay a flat dollar amount
    set by the Secretary of HHS and published in a schedule each
    year. The flat dollar amount is equal to the national average
    tax credit. These payments are not linked to an individual
    employee, but are contributed to a general fund. The penalty
    for each employer is capped at an amount equal to $400
    multiplied by the total number of employees of the employer
    (regardless of how many are receiving the premium tax credit).
    This amount is indexed to premium growth in the state exchanges
    beginning in 2014.
        Thus, the employer must pay the lesser of the flat dollar
    amount multiplied by the number of full-time employees
    receiving a tax credit or an excise tax of $400 per employee
    paid on its total number of full-time employees. For example,
    Employer A, who does not offer health coverage, has 100
    employees, 30 of whom receive a tax credit for enrolling in a
    state exchange offered plan. If the flat dollar amount set by
    the Secretary of HHS for that year is $3,000, Employer A should
    owe $90,000. Since the maximum amount an employer must pay per
    year is limited to $400 multiplied by the total number of
    employees (for Employer A, 100), however, Employer A must pay
    only $40,000 (the lesser of the $40,000 maximum and the $90,000
    calculated tax).
        The excise taxes imposed under this provision are payable
    on an annual, monthly or other periodic basis as the Secretary
    of Treasury may prescribe. The excise taxes imposed under this
    provision for employees receiving premium tax credits are not
    deductible under section 162 as a business expense.

    Employer offer of health insurance coverage

        Under the Committee Bill, as under Present Law, an employer
    is not required to offer health insurance coverage. If an
    employee is offered health insurance coverage by his or her
    employer and chooses to enroll in the coverage, the employer-
    provided portion of the coverage is excluded from gross income.
    The tax treatment is the same whether the employer offers
    coverage outside of a state exchange or the employer offers a
    coverage option through a state exchange.
                Definition of coverage
        As a general matter, if an employee is offered affordable
    employer-provided health insurance coverage, the individual is
    ineligible for a premium tax credit for health insurance
    purchased through a state exchange.
                Unaffordable coverage
        If an employee is offered unaffordable coverage by their
    employer or coverage with an actuarial value of less than 65
    percent, however, the employee can be eligible for the premium
    tax credit, but only if the employee declines to enroll in the
    coverage and purchases coverage through the exchange instead.
    Unaffordable is defined as coverage with a premium required to
    be paid by the employee that is more than 10 percent of the
    employee's household MGI (as defined for purposes of the
    premium tax credits provided under the bill). This percentage
    of the employee's income is indexed to the per capita growth in
    premiums for the insured market as determined by the Secretary
    of HHS. The employee must seek an affordability waiver from the
    state exchange and provide information as to family income and
    the premium of the lowest cost employer option offered to them.
    The state exchange then provides the waiver to the employee.
    The employer penalty applies for any employee(s) receiving an
    affordability waiver.
        For purposes of determining if coverage is unaffordable,
    required salary reduction contributions are treated as payments
    required to be made by the employee. However, if an employee is
    reimbursed by the employer for any portion of the premium for
    health insurance coverage purchased through the exchange,
    including any reimbursement through salary reduction
    contributions under a cafeteria plan, the coverage is employer-
    provided and the employee is not eligible for premium tax
    credits. Thus, an individual is not permitted to purchase
    coverage through the exchange, apply for the premium tax
    credit, and pay for the individual's portion of the premium
    using salary reduction contributions under the cafeteria plan
    of the individual's employer.
        Within five years of implementation, the Secretary of HHS
    must conduct a study to determine if the definition of
    affordable could be lowered without significantly increasing
    costs or decreasing employer coverage.
                Effect of Medicaid enrollment
        A Medicaid-eligible individual can always choose to leave
    the employer's coverage and enroll in Medicaid, and an employer
    is not required to pay an excise tax for any employees enrolled
    in Medicaid.

    Report on the effect of the excise taxes

        The Secretary of Labor is required to review and report to
    Congress the effect of the excise taxes and assessments on
    workers' wages. In order to conduct the statistical analysis
    necessary to conduct this review, the secretary of Labor must
    use the Bureau of Labor Statistics' National Compensation
    Survey. The National Compensation Survey provides comprehensive
    measures of wages and employment costs. Earnings data is
    available for metropolitan and rural areas, broad geographic
    regions and on a national basis.\20\
    ---------------------------------------------------------------------------
        \20\The Department of Labor currently administers several programs
    where they have an obligation to determine that an activity will not
    adversely affect American workers' salaries or working conditions. For
    example, the Department's Employment Training Administration performs
    that function under the foreign labor certification program.
    ---------------------------------------------------------------------------

    Effective Date

        The effective date for this provision is July 1, 2013.

            Subtitle E--Federal Program for Health Care Cooperatives

          SEC. 1401. ESTABLISHMENT OF FEDERAL PROGRAM FOR HEALTH CARE
                                  COOPERATIVES

              PART D--FEDERAL PROGRAM FOR HEALTH CARE COOPERATIVES

    Present Law

        There is no Present Law facilitating the creation of non-
    profit, member-run health insurance companies. Furthermore,
    there is no Present Law authorizing the Secretary to provide
    grants or loans to existing non-profit, member-run health
    insurance companies. The Committee Bill builds, in part, on
    existing non-profit tax law which is summarized below.
        Health insurance may be provided by different types of
    insurance companies including mutual, stock ownership, life,
    and property and casualty. Present law provides special rules
    for determining the taxable income of insurance companies. Both
    mutual insurance companies (e.g. collective owned by its
    members) and stock insurance companies are subject to Federal
    income tax under these rules. Separate sets of rules apply to
    life insurance companies and to property and casualty insurance
    companies. Insurance companies are subject to Federal income
    tax at regular corporate income tax rates.
        An insurance company that provides health insurance is
    subject to Federal income tax as either a life insurance
    company or as a property insurance company, depending on its
    mix of lines of business and on the resulting portion of its
    reserves that are treated as life insurance reserves. For
    Federal income tax purposes, an insurance company is treated as
    a life insurance company if the sum of its (1) life insurance
    reserves and (2) unearned premiums and unpaid losses on non-
    cancellable life, accident or health contracts not included in
    life insurance reserves, comprises more than 50 percent of its
    total reserves.
        The IRC generally provides for exemption from Federal
    income tax for certain organizations. These organizations
    include, among other, those that engage in insurance activities
    including: (1) certain fraternal beneficiary societies, orders,
    or associations operating under the lodge system or for the
    exclusive benefit of their members, that provide for the
    payment of life, sick, accident, or other benefits to the
    members or their dependents; (2) certain voluntary employees'
    beneficiary societies that provide for the payment of life,
    sick, accident, or other benefits to the members of the
    association or their dependents or designated beneficiaries;
    (3) certain benevolent life insurance associations of a purely
    local character; (4) certain small, non-life insurance
    companies with annual gross receipts of no more than $600,000
    ($150,000 in the case of a mutual insurance company); (5)
    certain membership organizations established to provide health
    insurance to certain high-risk individuals; (6) certain
    organizations established to provide workers' compensation
    insurance.
        Certain health maintenance organizations (HMOs) have been
    held to qualify for tax exemption as charitable organizations.
    Specifically, the Tax Court held that a staff model HMO
    qualified as a charitable organization. A staff model HMO
    generally employs its own physicians and staff and serves its
    subscribers at its own facilities. The court concluded that the
    HMO satisfied the community benefit standard, as its membership
    was open to almost all members of the community. Although
    membership was limited to persons who had the money to pay the
    fixed premiums, the court held that this was not disqualifying
    because the HMO had a subsidized premium program for persons of
    lesser means to be funded through donations and Medicare and
    Medicaid payments. The HMO also operated an emergency room open
    to all persons regardless of income. Generally speaking, the
    Courts have held that a healthcare provider must make its
    services available to all in the community plus provide
    additional community or public benefits. The benefit must
    either further the function of government-funded institutions
    or provide a service that would not likely be provided within
    the community but for the subsidy. Further, the additional
    public benefit conferred must be sufficient to give rise to a
    strong inference that the public benefit is the primary purpose
    for which the organization operates.
        Tax law also provides that an organization may not be
    exempt from tax unless no substantial part of its activities
    consists of providing commercial-type insurance. For this
    purpose, commercial-type insurance excludes, among other
    things: (1) insurance provided at substantially below cost to a
    class of charitable recipients and (2) incidental health
    insurance provided by an HMO of a kind customarily provided by
    such organizations. At enactment of this law in 1986, the
    following reasons for the provision were stated: (1) concern
    that exempt charitable and social welfare organizations that
    engaged in insurance activities are engaged in an activity
    whose nature and scope is so inherently commercial that tax
    exempt status is inappropriate; (2) belief that the tax-exempt
    status of organizations engaged in insurance activities
    provides an unfair competitive advantage to these
    organizations; and (3) the availability of tax-exempt status
    provides incentive for some large insurance entities to compete
    directly with commercial insurance companies.

    Committee Bill

              PART D--FEDERAL PROGRAM FOR HEALTH CARE COOPERATIVES

      SEC. 2251. FEDERAL PROGRAM TO ASSIST ESTABLISHMENT AND OPERATION OF
                 NONPROFIT, MEMBER-RUN HEALTH INSURANCE ISSUERS

        The Committee Bill authorizes $6 billion in funding for,
    and instructs the Secretary, to establish the Consumer Operated
    and Oriented Plan (CO-OP) program to foster the creation of
    non-profit, member-run health insurance companies that offer
    qualified health benefits that serve eligible individuals in
    one or more states. CO-OP grantees would compete in the
    reformed individual and small group insurance markets on a
    level regulatory playing field. Federal funds would be
    distributed as loans for start-up costs and grants for meeting
    solvency requirements.
        Under the Committee Bill, no later than January 1, 2010,
    the Secretary would make the grant and loan awards. The
    Secretary would make grant and loan awards after taking into
    account the recommendations of the advisory board chaired by
    the Secretary or a designate. The Secretary would make grant
    and loan awards giving priority to applicants that will offer
    qualified health benefits on a statewide basis, that use an
    integrated care model, and have significant private support.
    The Secretary would ensure that there is sufficient funding to
    establish at least one qualified non-profit health insurance
    issuer in each state and the District of Columbia. If no health
    insurance issuer applies within a state, the Secretary may use
    funds for the program to award grants to encourage the
    establishment of qualified issuers within the state or the
    expansion of an issuer from another state to the state with no
    applicants.
        The Committee Bill would require that those receiving loans
    or grants under the CO-OP program enter into an agreement with
    the Secretary requiring the recipient of CO-OP funds to meet
    and continue to meet any requirement to be treated as a
    qualified nonprofit health insurance issuer, and any
    requirements to receive the loan or grant. The Committee Bill
    would also require that the agreement prohibit the use of loan
    or grant funds for carrying on propaganda, attempting to
    influence legislation, or marketing. The Committee Bill further
    stipulates that if the Secretary determined that a grantee
    failed to meet the aforementioned requirements, and failed to
    implement appropriate corrective action within a reasonable
    period of time after being made aware of such failure, then the
    grantee would repay the Secretary 110 percent of the aggregate
    amount of the loans and grants received plus interest. The
    Secretary would then notify the Secretary of the Treasury of
    any failure that results in the termination of the issuer's tax
    exempt status under the Committee Bill.
        The Committee Bill would require the Secretary to award
    loans and grants under the CO-OP program no later than January
    1, 2012. The Committee Bill would further require that the
    Secretary make such awards after receiving recommendations from
    an advisory board consisting of 15 members appointed by the
    Comptroller General of the United States meeting the same
    qualifications for appointment to the Medicare Payment Advisory
    Commission. Board members would be required to be appointed
    within three months of enactment of the Committee Bill and
    would be required to satisfy ethics and conflict of interest
    standards protecting against insurance industry involvement and
    interference. Board members would also generally be subject to
    the requirements of the Federal Advisory Committee Act. Board
    members would not be compensated in any way except for travel
    expenses, including a per diem.
        The Committee Bill would define a qualified nonprofit
    health insurance issuer as an organization meeting the
    following requirements:
              (1) It must be organized as a non-profit, member
            corporation under State law;
              (2) It must not be an existing organization that
            provides insurance as of July 16, 2009, and must not be
            an affiliate or successor of any such organization;
              (3) Substantially all of its activities must consist
            of the issuance of qualified health benefit plans in
            the individual and small group markets in each state in
            which it is licensed to issue such plans;
              (4) It must not be sponsored by a state, county, or
            local government, or any government instrumentality;
              (5) Its governing documents incorporate ethics and
            conflict of interest standards protecting against
            insurance industry involvement and interference;
              (6) Governance of the organization must be subject to
            a majority vote of its members;
              (7) It must operate with a strong consumer focus,
            including timeliness, responsiveness, and
            accountability to members in accordance with
            regulations to be promulgated by the Secretary of HHS;
              (8) It must be in compliance with all the other
            requirements that other qualified health benefits plans
            must meet in any state, including solvency and
            licensure requirements, rules on payments to providers,
            rules on network adequacy, rates and form filing rules,
            and any applicable state premium assessments.
            Additionally, the organization would be required to
            coordinate with state insurance reforms described in
            Sec. 2225(a)(2)(A); and
              (9) Any profits made would be required to be used to
            lower premiums, improve benefits, or other programs
            intended to improve the quality of health care
            delivered to members.
        The Committee Bill would permit organizations participating
    in the CO-OP program to enter into collective purchasing
    arrangements for services and items that increase
    administrative and other cost efficiencies, especially to
    facilitate start-up of the entities, including claims
    administration, general administrative services, health
    information technology, and actuarial services. The Committee
    Bill would permit establishment of a purchasing council to
    execute these collective purchasing agreements. The council
    would be explicitly prohibited from setting payment rates for
    health care facilities and providers. There would not be any
    representatives of Federal, state, or local government or any
    employee or affiliate of an existing private insurer on the
    council. The council would be subject to existing anti-trust
    statutes.
        The Committee Bill would prohibit the Secretary of HHS from
    participation in any negotiations between qualified health
    insurance issuers or a private purchasing council and any
    health care facilities, providers or drug manufacturer. The
    Secretary would also be prohibited from establishing or
    maintaining a price structure or interfering in any way with
    the competitive nature of providing health benefits through the
    program.
        Under the Committee Bill, an organization receiving a grant
    or loan under the CO-OP program qualifies for exemption from
    Federal income tax only with respect to periods for which the
    organization is in compliance with the requirements of the CO-
    OP program and with the terms of any CO-OP grant or loan
    agreement to which such organization is a party. CO-OP
    organizations would also be subject to organizational and
    operational requirements applicable to certain non-profits
    under tax law, including the prohibitions on net earnings
    benefiting any private shareholder or individual, on
    substantial involvement in political activities, and on
    lobbying activities.
        CO-OP grantees would be required to file an application for
    exempt status with the Internal Revenue Service and would be
    subject to annual information reporting requirements under the
    Committee Bill. In addition, CO-OP grantees would be required
    to disclose on their annual information return the amount of
    reserves required by each state in which it operates
    (``solvency requirement'') and the amount of reserves on hand.
        Under the Committee Bill, the Comptroller General of the
    United States would be instructed to have the U.S. Government
    Accountability Office (GAO) conduct an ongoing study of
    competition and market concentration in the health insurance
    market after implementation of the reforms made by this
    proposal. The study would include an analysis of new health
    insurance companies in the market and any recommendations for
    administrative or legislative changes deemed necessary or
    appropriate to increase competition in the health insurance
    market. The GAO would report their findings no later than
    December 31 of each even-numbered year beginning with 2014.

                  Subtitle F--Transparency and Accountability

         SEC. 1501. PROVISIONS ENSURING TRANSPARENCY AND ACCOUNTABILITY

      SEC. 2229. REQUIREMENTS RELATING TO TRANSPARENCY AND ACCOUNTABILITY

    Present Law

        No provision.

    Committee Bill

        States would be required to establish an ombudsmen program
    to address complaints related to health benefits plans issued
    within the state. The program would (1) require each offeror of
    a health benefits plans within a state to provide an internal
    claims appeals process, (2) authorize an individual covered by
    a plan to have access to the services of an ombudsman if the
    internal appeal lasts more than three months or involves a
    life-threatening issue, or (3) to resolve problems with
    obtaining premium credits or cost-sharing subsidies.
        Each state would establish a competitive program to provide
    grants to eligible entities to develop, support, and evaluate
    consumer assistance programs related to navigating options for,
    and selecting appropriate, health plan coverage. The grant
    application process would be fair and open and attempt to
    ensure regional and geographic equity. Grantee organizations
    may include Small Business Development Centers (SBDCs) as well
    as commercial fishing organizations, ranching and farming
    organizations, and other organizations capable of conducting
    community based health care outreach and enrollment assistance
    for hard to reach and rural workers. Organizations would be
    required to collect and report data to the Secretary on
    problems and inquiries. There would be $30 million appropriated
    for fiscal year 2014 to carry out these activities and such
    sums as necessary in future years.

      SEC. 1502. REPORTING ON UTILIZATION OF PREMIUM DOLLARS AND STANDARD
                                HOSPITAL CHARGES

    Present Law

        No provision.

    Committee Bill

        For plan years beginning after December 31, 2009, as
    prescribed by the Secretary of HHS, each offeror of a health
    benefits plan would report to the Secretary the percent of the
    premiums collected that are used to pay for items other than
    medical care. Beginning each calendar year after 2009, each
    hospital operating within the U.S. would establish (and update)
    a list of its standard charges of items and services it
    provides, including each diagnosis-related group included under
    Medicare.

     SEC. 1503. DEVELOPMENT AND UTILIZATION OF UNIFORM OUTLINE OF COVERAGE
                                   DOCUMENTS

    Present Law

        No provision.

    Committee Bill

        This provision mandates the development and utilization of
    uniform outline of coverage documents. The Secretary of HHS
    would request the National Association of Insurance
    Commissioners (NAIC) to develop and submit to the Secretary,
    not later than 12 months after the date of enactment of this
    Act, standards for use by health insurance issuers in compiling
    and providing to enrollees an outline of coverage that
    accurately describes the coverage under the applicable health
    insurance plan. In developing such standards, the NAIC shall
    consult with a working group composed of representatives of
    consumer advocacy organizations, issuers of health insurance
    plans, and other qualified individuals.
        The standards shall ensure that the outline of coverage is
    presented in a uniform format of no more than four pages, with
    print of at least 12-point font, and written in language that
    is understandable to the average health plan enrollee. The
    standards shall also ensure that the outline of coverage
    includes uniform definitions of standard insurance terms as
    well as a description of the coverage, including dollar amounts
    for the following benefits: daily hospital room and board,
    miscellaneous hospital services, surgical services, anesthesia
    services, physician services, prevention and wellness services,
    prescription drugs, and other benefits as identified by the
    NAIC.
        The standards should also ensure that the outline of
    coverage includes the exceptions, reductions and limitations on
    coverage; the cost-sharing provisions, including deductible,
    coinsurance and co-payment obligations; the renewability and
    continuation of coverage provisions; a statement that the
    outline is a summary of the policy or certificate and that the
    coverage document itself should be consulted to determine the
    governing contractual provisions and; a contact number for the
    consumer to call with additional questions as well as a web
    link where a copy of the actual individual coverage policy or
    group certificate of coverage can be reviewed and obtained. For
    individual policies issued prior to January 1, 2000, the health
    insurance issuer will be deemed compliant with the web link
    requirement if the issuer makes a copy of the actual policy
    available upon request.
        If the NAIC submits the standards to the Secretary of HHS
    within 12 months of enactment, the Secretary has up to 60 days
    after the submission to promulgate regulations to apply such
    standards to entities described below. If the NAIC fails to
    submit to the Secretary the standards within the 12-month
    period, the Secretary shall, not later than 90 days after the
    expiration of such 12-month period, promulgate regulations
    providing for the application of Federal standards for outlines
    of coverage to entities.
        Not later than 24 months after enactment of legislation,
    each entity described below shall deliver an outline of
    coverage pursuant to the standards promulgated by the Secretary
    to an applicant at the time of application; an enrollee at the
    time of enrollment; or a policyholder or certificate holder at
    the time of issuance of the policy or delivery of the
    certificate.
        An entity may provide this information in paper or
    electronic form. An entity includes a health insurance issuer
    (including a group health plan) offering health insurance
    coverage within the U.S., a carrier for the Federal Employees
    Health Benefits Program, the Secretary of HHS with regard to
    specified Federal health insurance program. The standards would
    preempt any related state standards that require an outline of
    coverage. An entity that willfully fails to provide the
    information required under this section shall be subject to a
    fine of not more than $1,000 for each such failure. Such
    failure with respect to each enrollee shall constitute a
    separate offense for purposes of this subsection.

    SEC. 1504. DEVELOPMENT OF STANDARD DEFINITIONS, PERSONAL SCENARIOS, AND
                         ANNUAL PERSONALIZED STATEMENTS

    Present Law

        No provision.

    Committee Bill

        The Secretary of HHS would be required to do the following:
         Develop standard definitions for health insurance
    terms including premium, deductible, co-insurance, co-payment,
    out-of-pocket limit, preferred provider, non-preferred
    provider, out-of-network co-payments, UCR (usual, customary and
    reasonable) fees, excluded services, grievance and appeals, and
    such other terms as the Secretary determines.
         Develop standard definitions for medical terms
    including hospitalization, hospital outpatient care, emergency
    room care, physician services, prescription drug coverage,
    durable medical equipment, home health care, skilled nursing
    care, rehabilitation services, hospice services, emergency
    medical transportation, and such other terms as the Secretary
    determines.
         Develop scenarios which include information
    regarding on estimated out-of-pocket cost-sharing and
    significant exclusions or benefit limits for such scenarios.
         Develop standards for an annual personalized
    statement that summarizes an individual's (including any
    covered dependents) use of health care services and claims paid
    in the previous year.

                      Subtitle G--Role of Public Programs

          PART I--MEDICAID COVERAGE FOR THE LOWEST INCOME POPULATIONS

               SEC. 1601. ELIGIBILITY STANDARDS AND METHODOLOGIES

    Present Law

        Eligibility Standards and Methodologies. Medicaid is a
    means-tested entitlement program operated by states within
    broad Federal guidelines. Eligibility for Medicaid is
    determined not only based on financial requirements, but also
    on categorical requirements--that is, to be eligible for
    Medicaid, one must be a member of a covered group, such as
    children, pregnant women, families with dependent children, the
    elderly, or the disabled. ``Childless adults'' (non-elderly
    adults who are not disabled, pregnant, and/or parents of
    dependent children) on the other hand, are generally not
    eligible for Medicaid, regardless of their income.
        Medicaid's income eligibility requirements place limits on
    the maximum amount of assets and income individuals may
    possess. Additional guidelines specify how states should
    calculate these amounts. The specific asset and income
    limitations that apply to each eligibility group are set
    through a combination of Federal parameters and state
    definitions. Consequently, these standards vary across states,
    and different standards apply to different population groups
    within states. For some Medicaid eligibility groups, states are
    required to disregard certain amounts and/or types of income
    and expenses. State application of income counting rules expand
    eligibility to higher-income individuals.
        Of the approximately 50 different eligibility ``pathways''
    into Medicaid, some are mandatory while others may be covered
    at state option. Examples of mandatory groups include pregnant
    women and children under age six with family income below 133
    percent of the Federal poverty level (FPL), children ages six
    through 18 up to 100 percent of FPL, and certain individuals
    with disabilities or over age 64 who qualify for cash
    assistance under the Supplemental Security Income (SSI)
    program. Examples of optional groups include pregnant women and
    infants with family income exceeding 133 percent FPL up to 185
    percent FPL, and ``medically needy'' individuals who meet
    categorical requirements with income up to 133 percent of the
    maximum payment amount applicable under states' former Aid to
    Families with Dependent Children (AFDC) programs based on
    family size.
        Parents are eligible for Medicaid if they would have been
    eligible for the former AFDC program as of July 1, 1996. The
    upper-income threshold for AFDC eligibility in 1996 ranged
    across states from 11 percent to 68 percent of FPL, although
    states have the flexibility to raise eligibility to higher
    levels (in some states, parents are eligible for Medicaid up to
    200 percent of FPL) through a state plan amendment.
        Under Present Law, states are permitted to make presumptive
    eligibility determinations to enroll children, pregnant women,
    and certain women with breast or cervical cancer, for a limited
    period of time before full Medicaid applications are filed and
    processed. Medicaid enrollment for such individuals is based on
    a preliminary determination by Medicaid providers of likely
    Medicaid eligibility.
        Medicaid Benefits. Medicaid benefits are identified in
    Federal statute and regulations and include a wide range of
    medical care and services. Some benefits are specific items,
    such as eyeglasses and prosthetic devices. Other benefits are
    defined in terms of specific types of providers (e.g.,
    physicians, hospitals). Still other benefits define specific
    types of services (e.g., family planning services and supplies,
    pregnancy-related services) that may be delivered by any
    qualified medical provider that participates in Medicaid.
    Finally, additional benefits include premium payments for
    coverage provided through managed care arrangements and
    Medicare premium and cost-sharing support for individuals
    dually eligible for both Medicare and Medicaid.
        Some Medicaid benefits are mandatory, meaning they must be
    made available by states to the majority of Medicaid
    populations (i.e., those classified as ``categorically
    needy''). Other benefits may be covered at state option.
    Examples of standard, mandatory benefits include inpatient
    hospital services, physician services, services provided by
    Federally qualified health centers, and nursing facility
    services for individuals ages 21 and over. Examples of
    standard, optional benefits include prescription drugs (covered
    by all states), services furnished by other licensed
    practitioners (e.g., optometrists, podiatrists, psychologists),
    nursing facility services for individuals under age 21, and
    physical therapy. States define the specific features of each
    mandatory and optional service within broad Federal guidelines.
        Most Medicaid children under age 21 are entitled to early
    and periodic screening, diagnostic and treatment (EPSDT)
    services. Under EPSDT, children must receive well-child visits,
    immunizations, laboratory tests, vision services, dental
    services, and hearing services at regular intervals. In
    addition, medical care that is necessary to correct or
    ameliorate identified defects, physical and mental illness, and
    other conditions must be provided. As an alternative to
    providing all of the mandatory and selected optional benefits
    under traditional Medicaid, states have the option to enroll
    certain state-specified groups in benchmark and benchmark-
    equivalent benefit plans as permitted under section 1937 of the
    Social Security Act. These benefit plans are nearly identical
    to those offered through the Children's Health Insurance
    Program (CHIP). The benchmark options include: (1) the Blue
    Cross/Blue Shield preferred provider plan under the Federal
    Employees Health Benefits Program (FEHBP), (2) a plan offered
    to state employees, (3) the largest commercial health
    maintenance organization in the state, and (4) Secretary-
    approved coverage appropriate for the targeted population.
        Benchmark-equivalent coverage must have the same actuarial
    value as one of the benchmark plans identified above. Such
    coverage includes the following basic services: (1) inpatient
    and outpatient hospital services, (2) physician services, (3)
    lab and x-ray services, (4) well-child care including
    immunizations, and (5) other appropriate preventive care as
    designated by the Secretary. Such plans must also include at
    least 75 percent of the actuarial value of coverage under the
    benchmark plan for: (1) prescribed drugs, (2) mental health
    services, (3) vision care, and (4) hearing services. Medicaid
    beneficiaries enrolled in benchmark and benchmark-equivalent
    plans must also have access to services provided by rural
    health clinics and Federally-qualified health centers.
        Medicaid Cost-Sharing Rules. Under traditional Medicaid,
    states are allowed to require certain beneficiaries to share in
    the cost of Medicaid services, although there are limits on (1)
    the amounts that states can impose, (2) the beneficiary groups
    that can be required to pay, and (3) the services for which
    cost-sharing can be charged. The rules for service-based cost-
    sharing (e.g., copayments paid to a provider at the time of
    service delivery) are different from those for participation-
    related cost-sharing (e.g., premiums paid by beneficiaries
    typically on a monthly basis independent of any services
    rendered). States may seek approval under the section 1115
    waiver authority to modify certain Medicaid cost-sharing
    requirements.
        As an alternative to traditional Medicaid, the Deficit
    Reduction Act of 2005 (DRA; P.L. 109-171) provides states with
    a new option for premiums and service-related cost-sharing that
    vary by family income (i.e., <100 percent of FPL, 100 percent
    of FPL-150 percent of FPL, and >150 percent of FPL). Under this
    option, states may apply premiums and cost-sharing to selected
    groups, through Medicaid state plan amendments rather than
    through waiver authority, subject to specific restrictions
    (e.g., the total aggregate amount of all cost-sharing
    regardless of family income cannot exceed 5 percent of monthly
    or quarterly family income).
        Under this DRA option, certain groups (e.g., some children,
    pregnant women, and individuals with special needs) are exempt
    from paying premiums. Also, certain groups and services (e.g.,
    preventive care for children, emergency care, and family
    planning services) are exempt from the service-related cost-
    sharing provisions. Nominal cost-sharing amounts in regulations
    are indexed by medical inflation over time. Special rules apply
    to cost-sharing for non-preferred prescription drugs, and for
    emergency room copayments for non-emergency care. Under certain
    circumstances, DRA also allows states to condition continuing
    Medicaid eligibility on the payment of premiums, and allows
    providers to deny care for failure to pay service-related cost-
    sharing.
        Medicaid Program Payments. Medicaid is financed by the
    Federal government and the states. The Federal share for most
    Medicaid expenses for benefits is determined by the Federal
    medical assistance percentage (FMAP). FMAP is based on a
    formula that provides higher reimbursement to states with lower
    per capita income relative to the national average (and vice
    versa). FMAPs have a statutory minimum of 50 percent and
    maximum of 83 percent, although some Medicaid services receive
    a higher Federal match rate. FY2009 FMAPs ranged from a high of
    75.8 percent in Mississippi to a low of 50.0 percent in 13
    other states.
        States' expenditures to administer their Medicaid programs
    are generally matched by Federal funding at a 50 percent
    matching rate. Federal matching rates for administrative
    expenditures are the same for all states, although some
    activities are matched at higher rates. Within broad Federal
    guidelines, states generally control Medicaid spending levels
    by tailoring eligibility, benefits, cost-sharing and premiums
    paid by beneficiaries, provider reimbursement rates, and other
    program components to achieve their budget and policy goals. To
    receive payment for the Federal share of Medicaid expenditures,
    states submit quarterly expenditure reports to the Centers for
    Medicare & Medicaid Services (CMS).

    Committee Bill

        New Mandatory Eligibility Group. The Committee Bill would
    create a new mandatory Medicaid eligibility category for all
    non-elderly, non-pregnant individuals (e.g., childless adults
    and certain parents) who are otherwise ineligible for Medicaid.
    For such individuals, the Committee Bill would establish 133
    percent of FPL (based on modified gross income as described
    below) as the new mandatory minimum Medicaid income eligibility
    level beginning on January 1, 2014.
        Beginning on January 1, 2011 states would be able to
    provide Medicaid coverage through a state plan amendment to
    non-elderly, non-pregnant individuals based on income, so long
    as the state does not extend coverage to individuals with
    higher incomes before those with lower incomes.
        States that opt to make medical assistance available to
    pregnant woman or children during a period of presumptive
    eligibility would also be permitted to provide for a period of
    presumptive eligibility for medical assistance (not to exceed
    60 days) for the new mandatory Medicaid eligibility category of
    all non-elderly, non-pregnant individuals.
        In the case of non-elderly, non-pregnant individuals who
    are parents, caretaker relatives or non-custodial parents of a
    child under 19 years of age (or such higher age as the state
    may have elected) who is Medicaid eligible, such parent may not
    enroll in Medicaid unless their child is enrolled in the state
    plan, a waiver, or in other health coverage.
        The Committee Bill would also change the mandatory Medicaid
    upper income eligibility standard for children ages 6 to 19
    from 100 percent FPL to 133 percent FPL (as applies to children
    under age 6).
        New Optional Eligibility Group. Beginning on January 1,
    2014, the proposal would create a new optional Medicaid
    eligibility category for all non-elderly, non-pregnant
    individuals (e.g., childless adults and certain parents) who
    are otherwise ineligible for Medicaid. For such individuals,
    family income would exceed 133 percent of FPL (based on
    modified gross income as described below) but would not be
    permitted to exceed the highest income eligibility level
    established under the State plan or under a waiver of the plan
    as of the date of enactment.
        States would be permitted to phase in Medicaid coverage
    through a state plan amendment to these new optional non-
    elderly, non-pregnant individuals based on income, so long as
    the state does not extend coverage to individuals with higher
    incomes before those with lower incomes.
        States that opt to make medical assistance available to
    pregnant woman or children during a period of presumptive
    eligibility would also be permitted to provide for a period of
    presumptive eligibility for medical assistance (not to exceed
    60 days) for the new optional Medicaid eligibility category of
    all non-elderly, non-pregnant individuals.
        In the case of optional non-elderly, non-pregnant
    individuals who are parents, caretaker relatives, or
    noncustodial parents of a child under 19 years of age (or such
    higher age as the state may have elected) who is Medicaid
    eligible, such parent may not enroll in Medicaid unless their
    child is enrolled in the state plan, a waiver, or in other
    health coverage.
        Maintenance of Medicaid Income Eligibility. The Committee
    Bill also includes a Medicaid maintenance of effort (MOE) for
    eligibility for all beneficiaries. States would not be eligible
    for Medicaid payments for calendar quarters during the period
    that begins on the date of enactment of the Committee Bill and
    ends on the date which the Secretary determines that an
    exchange (established by the state under section 2235 of this
    bill) is fully operational, if eligibility standards,
    methodologies, or procedures under its Medicaid plan or waiver)
    are more restrictive than the eligibility standards,
    methodologies, or procedures, under such plan or waiver that
    are in effect as of the date of enactment . Compliance with the
    requirement to measure income using modified gross income, as
    defined below, would not violate the MOE requirement. The MOE
    requirement would continue through December 31, 2013 for adults
    whose modified gross income (defined below) is at or below 133
    percent of poverty, and through September 30, 2019 for any
    child who is under age 19 (or such higher age as the State may
    have elected).
        Between January 1, 2011 and January 1, 2014, a state would
    be exempt from the MOE requirement for optional, non-pregnant,
    non-disabled, adult populations whose family income is above
    133 percent of FPL if the state certifies to the Secretary that
    the state is currently experiencing a budget deficit or
    projects to have a budget deficit in the following state fiscal
    year. The state may make such certification on or after
    December 1, 2010. Upon submission of a satisfactory
    certification, the MOE requirement will not apply for the
    remainder of the three-year period described above.
        Medicaid Benefits. Newly-eligible, non-elderly, non-
    pregnant individuals would receive benchmark or benchmark-
    equivalent coverage consistent with the requirements of section
    1937 of the Social Security Act, as amended by this bill. The
    newly eligible beneficiaries who meet the definition of
    currently exempted populations under section 1937, e.g., blind
    or disabled persons, hospice patients, etc. would continue to
    be exempted.
        The Committee Bill would also make changes to Medicaid
    benchmark and benchmark-equivalent packages that would apply to
    all eligible populations. Such packages would be required to
    provide at least essential benefits (as described in section
    2242 of the Committee Bill and as defined and specified
    annually by the Secretary of HHS). For Medicaid benchmark-
    equivalent plans, prescription drugs and mental health services
    would be added to the list of services that must be covered at
    actuarial equivalence.
        Benchmark benefit package or benchmark-equivalent coverage
    would be required to ensure that the financial requirements and
    treatment limitations applicable to such benefits comply with
    the mental health services parity requirements of section
    2705(a) of the Public Health Services Act in the same manner as
    such requirements apply to a group health plan. Coverage that
    provides EPSDT services would be deemed as meeting the mental
    health services parity requirement.
        The Committee Bill would allow non-elderly, non-pregnant
    individuals whose income is above 100 percent of FPL but below
    133 percent of FPL to choose between Medicaid coverage or
    coverage purchased through a state exchange.
        Medicaid Program Payments. Under the Committee Bill, states
    would continue to receive Federal financial assistance as
    determined by FMAP. However, beginning on January 1, 2014
    additional Federal financial assistance would be provided to
    states in order to defray the costs of covering ``newly-
    eligible'' individuals (defined below). Those states that, as
    of the date of enactment, offer minimal or no coverage of the
    ``newly-eligible'' population or that offer coverage only to
    parents or only to non-pregnant childless adults (called
    ``Other States'') would receive more assistance initially than
    those states that cover at least some non-elderly, non-pregnant
    individuals ( ``Expansion States''--defined below). For 2014 to
    2018, the additional assistance would be provided through a
    percentage point increase in FMAP, according to the following
    schedule:

    ------------------------------------------------------------------------
                                       Expansion states      Other states
       For any fiscal year quarter     (percentage point   (percentage point
     occurring in the calendar year:     increase is):       increase is):
    ------------------------------------------------------------------------
    2014............................                27.3                37.3
    2015............................                28.3                36.3
    2016............................                29.3                35.3
    2017............................                30.3                34.3
    2018............................                31.3                33.3
    ------------------------------------------------------------------------

        For the purpose of the above table, ``Expansion States''
    are those with health benefits coverage for parents and non-
    pregnant childless adults whose family income is at least 100
    percent of FPL. Such health benefit coverage may not be
    dependent on access to employer coverage or employment. While
    coverage may be less comprehensive than Medicaid, the proposal
    would require such coverage to be more than: (1) premium
    assistance, (2) hospital-only benefits, (3) a high deductible
    health plan (as defined in section 223(c)(2) of the Internal
    Revenue Code of 1986) purchased through a health savings
    account (HSA) (as defined under section 223(d) of the Internal
    Revenue Code), or (4) alternative benefits under a
    demonstration program authorized under section 1938 (health
    opportunity accounts).
        Between January 1, 2014 and December 31, 2018, costs
    associated with services provided to ``newly eligible''
    (defined below) individuals would be fully financed by the
    Federal government for ``high need'' states. ``High-need''
    states would be defined as one of the 50 States or the District
    of Columbia that (1) has total Medicaid enrollment (under the
    state plan or under any waiver of the plan) that is below the
    national average for Medicaid enrollment as a percentage of
    state population on the date of enactment of this Act, and (2)
    had a seasonally-adjusted unemployment rate that was at least
    12 percent, as determined by the Bureau of Labor Statistics of
    the Department of Labor for August 2009.
        Beginning January 1, 2019, and for succeeding fiscal years,
    amounts expended for medical assistance on ``newly eligible''
    individuals with family income less than 133 percent of FPL,
    the FMAP would be increased by 32.3 percentage points.
        Finally, except for the temporary help for ``high-needs''
    states, FMAP rates for amounts expended for medical assistance
    on ``newly eligible'' individuals (including percentage point
    increases) would not be permitted to exceed 95 percent in any
    year.
        ``Newly eligible'' individuals would be defined as non-
    elderly, non-pregnant individuals with family income below 133
    percent of FPL who are: (1) not under the age of 19 (or such
    higher age as the state may have elected under section
    1902(l)(1)(D)); and (2) not eligible under the state plan (or a
    waiver) for full Medicaid benefits or Medicaid benchmark or
    benchmark-equivalent coverage, or who are eligible but not
    enrolled due to a capped waiver (or those individuals who are
    on a waiting list) for such benefits as of the date of
    enactment.
        For the period that begins on October 1, 2013 and ends on
    September 30, 2019, the FMAP rate for applicable states or the
    District of Columbia with respect to amounts expended for
    medical assistance for individuals who are ``not newly''
    eligible (as defined above) would be increased by 0.15
    percentage point and in the case of the territories, would be
    increased by 0.075 percentage points. The increase in the FMAP
    rate would not be permitted to apply with respect to:
               Disproportionate Share Hospital Payments;
               Payments under title IV of the Social
            Security Act;
               Payments under title XXI of the Social
            Security Act (the Children's Health Insurance Program);
            and
               Payments under title XIX of the Social
            Security Act that are based on the CHIP enhanced FMAP
            rate.
        New Reporting Requirements. The Committee Bill would
    require states to report changes in Medicaid enrollment
    beginning in January 2015, and every year thereafter. States
    would be required to report the total number of newly enrolled
    individuals in the State plan or under a waiver for the fiscal
    year ending on September 30th of the preceding calendar year
    disaggregated by: (1) children, (2) parents, (3) non-pregnant,
    childless adults, (4) disabled individuals, (5) elderly
    individuals, and (6) such other categories or sub-categories of
    individuals eligible for Medicaid as the Secretary may require.
    States would also be required to report on the outreach and
    enrollment processes they used to achieve such enrollment. The
    Secretary would be required to submit a report to the
    appropriate committees of Congress beginning in April 2015, and
    every year thereafter, on total new enrollment in Medicaid, on
    a national and state-by-state basis. Such report would be
    required to include any recommendations to Congress for
    improving Medicaid enrollment.

    SEC. 1602. INCOME ELIGIBILITY FOR NONELDERLY DETERMINED USING MODIFIED
                                  GROSS INCOME

    Present Law

        Eligibility for Medicaid is determined not only based on
    categorical requirements, but also financial requirements.
    Medicaid's income eligibility requirements place limits on the
    maximum amount of assets and income individuals may possess.
    Additional guidelines specify how states should calculate these
    amounts. The specific asset and income limitations that apply
    to each eligibility group are set through a combination of
    Federal parameters and state definitions. Consequently, these
    standards vary across states, and different standards apply to
    different groups within states. For some Medicaid eligibility
    groups, states are required to disregard certain amounts and/or
    types of income and sometimes expenses. State application of
    income counting rules expanded eligibility to higher-income
    individuals.

    Committee Bill

        Effective July 1, 2013, income disregards (including type
    of expense, block of income, or other income disregards), and
    asset or resource tests would no longer apply when calculating
    the income eligibility. Instead, the income eligibility for an
    individual or a family would be measured based on modified
    gross income (MGI) as determined for eligibility to receive a
    tax credit in the state exchanges, described in section 1205 of
    the Committee Bill.
        MGI would also be used to determine income for any other
    purpose applicable under the state plan, such as determining
    cost-sharing amounts that states may impose on an individual or
    a family. Existing Medicaid income counting rules would
    continue to apply for determining eligibility for certain
    exempted groups including (1) individuals that are eligible for
    Medicaid through another program (e.g., foster care children,
    or individuals receiving Supplemental Security Income (SSI)),
    (2) the elderly or Social Security Disability Insurance (SSDI)
    program beneficiaries, (3) the medically needy, (4) enrollees
    in a Medicare Savings Program (e.g., Qualified Medicare
    Beneficiaries, or QMBs), and (5) CHIP optional targeted low-
    income children). In addition, MGI would not affect eligibility
    determinations through Express Lane or for Medicare
    prescription drug low-income subsidies or Medicaid long-term
    care services. Any individual enrolled in Medicaid (under the
    state plan or a waiver) on July 1, 2013, who would be
    determined ineligible for medical assistance under the
    application of the new MGI income counting rule would remain
    Medicaid eligible (and subject to the same premiums and cost-
    sharing as applied to the individual on that date) until the
    later of March 31, 2014, or their next Medicaid eligibility
    redetermination date. Finally, the Secretary would not be
    permitted to waive compliance with the requirements of this
    provision, except to the extent necessary to permit a state to
    coordinate eligibility requirements for dual eligible
    individuals.

        SEC. 1603. REQUIREMENT TO OFFER PREMIUM ASSISTANCE FOR EMPLOYER-
                              SPONSORED INSURANCE

    Present Law

        Under current Federal law, states can offer premium
    assistance to Medicaid-eligible individuals who have access to
    employer-sponsored insurance (ESI), rather than enrolling them
    in traditional Medicaid, if it is determined to be cost-
    effective and the benefits are comprehensive. A Medicaid
    beneficiary's enrollment in an employer health plan is
    considered cost-effective if paying the applicable premiums,
    deductible, coinsurance and other cost-sharing obligations of
    the employer plan is less expensive than the state's expected
    cost of providing Medicaid-covered services directly. To meet
    the comprehensiveness test under Medicaid, states are required
    to provide Medicaid covered services that are not included in
    private plans.
        The recent CHIP Reauthorization Act (CHIPRA, P.L. 111-3)
    created a new state plan option for providing premium
    assistance for Medicaid and CHIP-eligible children and/or
    parents of Medicaid/CHIP children. For families that have
    access to ESI coverage that meets certain requirements--
    including that the employer pays at least 40 percent of the
    total premium--states can offer premium assistance through a
    state plan amendment. States choosing to do so are required to
    provide ``wrap-around'' benefit coverage for employer plans
    that do not meet CHIP benefit standards. If the CHIP cost of
    covering the entire family in the employer-sponsored plan is
    less than regular CHIP coverage for the eligible individual(s)
    alone, then the premium assistance subsidy may be used to pay
    the entire family's share of the premium.

    Committee Bill

        Effective July 1, 2013, the Committee Bill would require
    states to offer premium assistance and wrap-around benefits to
    all Medicaid beneficiaries who are offered ESI if it is cost-
    effective to do so, based on Present Law requirements.

                    SEC. 1604. TREATMENT OF THE TERRITORIES

    Present Law

        Five territories (American Samoa, Guam, the Northern
    Mariana Islands, Puerto Rico, and the U.S. Virgin Islands)
    operate Medicaid programs under rules that differ from those
    applicable to the 50 states and the District of Columbia
    (hereafter referred to as the states). The territories are not
    required to cover the same eligibility groups, and they use
    different financial standards (income and asset tests) in
    determining eligibility. For example, states must cover certain
    mandatory groups such as pregnant women, children, and
    qualified Medicare beneficiaries, but for the territories these
    groups are optional.
        In the states, Medicaid is an individual entitlement. In
    addition, there are no limits on Federal payments for Medicaid
    provided that the state contributes its share of the matching
    funds. In contrast, Medicaid programs in the territories are
    subject to annual Federal spending caps. All five territories
    typically exhaust their caps prior to the end of the fiscal
    year. Once the cap is reached, the territories assume the full
    costs of Medicaid services or, in some instances, may suspend
    services or cease payments to providers until the next fiscal
    year.
        The Federal share for most Medicaid service costs is
    determined by the Federal medical assistance percentage (FMAP),
    which is based on a formula that provides higher reimbursement
    to states with lower per capita incomes relative to the
    national average (and vice versa). FMAPs have a statutory
    minimum of 50 percent and maximum of 83 percent. The FMAP for
    territories is set at 50 percent.

    Committee Bill

        The Committee Bill would increase spending caps for the
    territories by 30 percent and the applicable FMAP by five
    percentage points--to 55 percent--beginning on January 1, 2011
    and for each fiscal year thereafter.
        Beginning with fiscal year 2014, payments made to the
    territories with respect to amounts expended for medical
    assistance for newly eligible individuals (i.e., certain non-
    elderly, non-pregnant individuals) would not count towards the
    applicable Medicaid spending caps in the territories.

                SEC. 1605. MEDICAID IMPROVEMENT FUND RESCISSION

    Present Law

        Under section 7002 of the Supplemental Appropriations Act,
    2008 (War Supplemental, P.L. 110-252), Congress required the
    Secretary of Health and Human Services to establish the
    Medicaid Improvement Fund (MIF). The MIF would be available for
    the Centers for Medicare & Medicaid Services (CMS) to use to
    improve the management of the Medicaid program, including
    oversight of contracts and contractors and evaluation of
    demonstration projects. Payments made for these activities were
    intended to be in addition to payments that would otherwise be
    made for such activities. MIF was to have $100 million
    available in FY2014, and $150 million in FYs 2015-2018.

    Committee Bill

        The Committee Bill would rescind funds available in the MIF
    for fiscal years 2014 through 2018 (which total $700 million).

                  PART II--CHILDREN'S HEALTH INSURANCE PROGRAM

         SEC. 1611. ADDITIONAL FEDERAL FINANCIAL PARTICIPATION FOR CHIP

    Present Law

        The Children's Health Insurance Program (CHIP) builds on
    Medicaid by providing health care coverage to low-income,
    uninsured children in families with income above Medicaid
    income standards. States may also extend CHIP to pregnant women
    when certain conditions are met. In designing their CHIP
    programs, states may choose to expand Medicaid, create a
    standalone program, or use a combined approach. As with
    Medicaid, states have the flexibility under CHIP to disregard
    amounts or types of income and expenses, effectively expanding
    eligibility to higher-income individuals. Federal
    appropriations are currently provided through FY2013.
        Like Medicaid, CHIP is a Federal-state program. For each
    dollar of state spending, the Federal government makes a
    matching payment drawn from CHIP allotments. A state's share of
    program spending for Medicaid is equal to 100 percent minus
    FMAP (described above). But for CHIP, the Federal share is
    higher--the enhanced FMAP for CHIP lowers the state's share of
    CHIP expenditures by 30 percent compared to the regular
    Medicaid FMAP.
        Federal law permits states to impose premiums and service-
    related cost-sharing for some enrollees and some benefits under
    CHIP. States that cover CHIP-eligible children through their
    Medicaid programs must follow the nominal premium and cost-
    sharing rules applicable to Medicaid. Under these rules, the
    majority of such children are exempt. In general, premiums are
    prohibited except for children enrolled in Medicaid expansion
    programs with incomes above 150 percent of the Federal poverty
    level (FPL). Service-related cost-sharing for children enrolled
    in Medicaid expansion programs may vary by income level.
    Aggregate cost-sharing for all individuals is capped at five
    percent of family income.
        Different cost-sharing limits apply in states that provide
    CHIP coverage through stand alone (non-Medicaid) programs. For
    example, nominal premiums specified in Medicaid statute apply
    to children in families with income at or below 150 percent of
    FPL in standalone programs. Service-related cost-sharing is
    limited to the nominal amounts in Medicaid for the subgroup
    with income below 100 percent of FPL and slightly higher
    amounts are permitted for the subgroup with income between 100
    and 150 percent of FPL. For children in families with income
    over 150 percent of FPL, cost-sharing can be applied in any
    amount, provided that cost-sharing for higher-income children
    is not less than cost-sharing for lower-income children and
    that it does not exceed the out-of-pocket limit of five percent
    of family income.
        Preventive services are exempt from all cost-sharing for
    all CHIP families regardless of income.
        States are permitted to use alternative premiums and
    service-related cost-sharing established in the Deficit
    Reduction Act of 2005 (DRA, P.L. 109-171) that allow higher
    premiums and cost-sharing for certain Medicaid beneficiaries.
    Children under 18 who are covered under mandatory eligibility
    groups (the lowest income categories) are exempt from the DRA
    premium and cost-sharing provisions.

    Committee Bill

        The Committee Bill would maintain the current CHIP
    structure, although the bill does not provide CHIP
    appropriations for FY2014 or after.
        Upon enactment, states would be required to maintain income
    eligibility levels for CHIP through September 30, 2019.
    Specifically, with the exception of waiting lists for enrolling
    children in CHIP, states could not implement eligibility
    standards, methodologies, or procedures that were more
    restrictive than those in place on the date of enactment.
    However, states could expand their current income eligibility
    levels--that is, state could enact less restrictive standards,
    methodologies or procedures.
        From FY2014 to FY2019, states would receive a 23 percentage
    point increase in the CHIP match rate, subject to a cap of 100
    percent. States would also receive an increase of 0.15
    percentage points in their Medicaid match rate to offset the
    additional state costs due to the Medicaid maintenance of
    effort provision related to children.
        CHIP-eligible children who cannot enroll in CHIP due to
    Federal allotment caps would be eligible for tax credits in the
    state exchange.
        The Medicaid and CHIP enrollment bonuses included in the
    Children's Health Insurance Program Reauthorization Act of 2009
    (CHIPRA, P.L. 111-3) would not apply beyond the current
    reauthorization period; bonus payments would not be available
    in FY2014 or after.
        CHIP eligibility would be based on existing income
    eligibility rules, including the use of income disregards. In
    addition, the CHIP benefit package and cost-sharing rules would
    continue as under Present Law.
        The new section regarding Medicaid programs' coordination
    with state health insurance exchanges (described below in
    section 16231) would also apply to CHIP programs.

                        SEC. 1612. TECHNICAL CORRECTIONS

    Present Law

        The Children's Health Insurance Program Reauthorization Act
    of 2009 (CHIPRA, P.L. 111-3) was signed into law on February 4,
    2009, to extend and improve CHIP Federal and for other
    purposes. The American Recovery and Reinvestment Act of 2009
    (ARRA, P.L. 111-5) was signed into law on February 17, 2009, to
    make supplemental appropriations for job preservation and
    creation, infrastructure investment, energy efficiency and
    science, assistance to the unemployed, and state and local
    fiscal stabilization, for fiscal year ending September 30,
    2009, and for other purposes.

    Committee Bill

        The Committee Bill would make corrections to selected
    provisions in CHIPRA and ARRA, including for example, (1) would
    make an adjustment to the FY2009 and FY2010 CHIP allotments to
    account for changes in projected spending for certain
    previously approve expansion programs, (2) would change a
    reference to legal immigrants in CHIP statute, (3) would delete
    a reference to CHIP funds set aside for coverage of certain
    Medicaid non-pregnant childless adult waivers when those funds
    are not expended by September 30, 2011, (4) would make
    adjustments to the CPS to improve estimates used to identify
    high performing states (those with the lowest percentage of
    uninsured, low-income children) for CHIP purposes, (5) would
    stipulate that the alternative premiums and cost-sharing
    provision in Medicaid would not supersede or prevent the
    application of premium and cost-sharing protections for Indians
    under Medicaid and CHIP as established in P.L. 111-5, and (6)
    other technical changes.

                      PART III--ENROLLMENT SIMPLIFICATION

       SEC. 1621. ENROLLMENT WEBSITE THAT COORDINATES WITH STATE HEALTH
                              INSURANCE EXCHANGES

    Present Law

        No provision.

    Committee Bill

        As a condition of the Medicaid state plan for receipt of
    any Federal financial assistance for calendar quarters after
    January 1, 2013, states would be required to ensure that the
    following requirements are met:
        (1) States would be required to establish procedures for:
               enrolling individuals who are identified by
            a state exchange as being eligible for Medicaid or the
            Children's Health Insurance Program (CHIP), without any
            further determination by the state;
               ensuring that individuals who apply for
            Medicaid and/or CHIP but are determined ineligible for
            either program are able to apply for and be enrolled in
            coverage through a state exchange and, if applicable,
            obtain premium credits for state exchange coverage and
            receive information regarding any other assistance or
            subsidies available through the state exchange;
               ensuring that the state Medicaid agency, the
            state CHIP agency, and the state exchange utilize a
            secure electronic interface sufficient to allow for a
            determination of an individual's eligibility for their
            programs; and
               ensuring that coverage provided to Medicaid-
            eligible individuals who are also enrolled in a state
            exchange plan is coordinated.
        (2) The state Medicaid agency and the state CHIP agency may
    enter into an agreement with the state exchange under which
    each agency may determine whether a state resident is eligible
    for premium credits for state exchange coverage, so long as the
    agreement meets requirements that the Secretary of the Treasury
    may prescribe to reduce administrative costs and the likelihood
    of eligibility errors and disruptions in coverage.
        (3) The state Medicaid agency and the state CHIP agency
    would be required to participate in and comply with the
    requirements for the system established under section 2239
    (relating to streamlined procedures for enrollment through a
    state exchange, Medicaid and CHIP--e.g., a single application
    form usable for all the programs).
        (4) The Committee Bill would require states to establish a
    website to allow Medicaid and CHIP eligible individuals to
    enroll or reenroll in Medicaid and CHIP, and consent to
    enrollment or reenrollment through an electronic signature. In
    addition, the website would be linked to all websites
    established by any state exchange so that individuals who are
    identified by a state exchange as Medicaid or CHIP eligible are
    able to enroll in Medicaid or CHIP online without having to
    submit an additional or separate application. The website would
    also allow individuals who apply for Medicaid but are
    determined ineligible to apply for and be enrolled in coverage
    through an Exchange. If applicable, such individuals could
    obtain premium credits for Exchange coverage without having to
    submit an additional or separate application. The website would
    also provide information regarding any other assistance or
    subsidies available through the Exchange.
        The Committee Bill would also require the website to allow
    the state to assess an individual for purposes of providing
    home and community-based services under the state plan or under
    a waiver for individuals who would be Medicaid eligible if they
    were in a medical institution, and with respect to whom there
    has been a determination that, but for the provision of home
    and community-based services under a waiver, they would require
    the level of care provided in a hospital, nursing facility, or
    intermediate care facility for the mentally retarded.
        The website would also be required to allow individuals who
    are eligible for Medicaid and who are also eligible to receive
    premium credits for Exchange coverage to compare the benefits,
    premiums, and cost-sharing available to the individual under
    Exchange plans. In the case of a child, the website would allow
    for the comparison of the coverage that would be provided to
    the child through Medicaid with coverage that would be provided
    to the child through enrollment in family coverage under
    Exchange coverage including any supplemental coverage provided
    by the state under Medicaid. The website would be required to
    be functional no later than January 1, 2013.
        States would be required to ensure that a non-pregnant,
    non-elderly adult whose family income exceeds 100 percent but
    does not exceed 133 percent of poverty who is Medicaid eligible
    and who is also eligible to receive premium credits for state
    exchange coverage is offered an option to elect to enroll
    themselves (or their family if applicable) in a state exchange
    plan instead of Medicaid. In the case of an adult, such
    individual would waive services under Medicaid (including
    Medicaid assistance for premiums and cost-sharing). Such
    individual must receive information comparing the benefits and
    cost-sharing that would be available under Medicaid for the
    adult (or, if applicable, the adult's family), with the
    benefits and cost-sharing that would be available under state
    exchange plans. Such individuals that elect to enroll
    themselves and/or their families in a state exchange plan would
    also be provided with assistance in selecting and enrolling in
    a state exchange plan.
        While parents electing state exchange coverage over
    Medicaid coverage would waive their rights to Medicaid covered
    services and applicable cost-sharing requirements, states would
    be required to ensure that all children of parents who choose
    state exchange coverage would continue to receive the Medicaid
    benefits to which they are entitled, including early and
    periodic screening, diagnostic, and testing (EPSDT), and
    Medicaid assistance sufficient to cover the costs of premiums
    and cost-sharing that exceed the allowable amounts for children
    under Medicaid.
        Beginning in 2014, states would be required to make an
    annual payment to the Secretary for Medicaid-eligible
    individuals who elect coverage through the state exchange. The
    amount would be the total calculated monthly for each
    applicable population as follows:
               the number of individuals eligible for full-
            benefit Medicaid who are enroll in a state exchange
            plan, multiplied by
               the average Medicaid cost multiplied by
               the state share of Medicaid expenditures.
        In calculating the average Medicaid cost for children, only
    ``essential benefits'' (described in section 1201) would be
    included.

        SEC. 1622. PERMITTING HOSPITALS TO MAKE PRESUMPTIVE ELIGIBILITY
              DETERMINATIONS FOR ALL MEDICAID ELIGIBLE POPULATIONS

    Present Law

        Presumptive eligibility is a Medicaid option that allows
    states to enroll certain individuals (e.g., children, pregnant
    women, and certain women with breast and cervical cancer) into
    Medicaid for a limited period of time before full Medicaid
    applications are filed and processed, based on a preliminary
    determination by a Medicaid provider of likely Medicaid
    eligibility. Presumptive eligibility begins on the date a
    qualified Medicaid provider determines that the applicant
    appears to meet eligibility criteria and ends on the earlier of
    (1) the date on which a formal determination is made regarding
    the individual's application for Medicaid, or (2) in the case
    of an individual who fails to apply for Medicaid following the
    presumptive eligibility determination, the last day of the
    month following the month in which presumptive eligibility
    begins. During periods of presumptive eligibility, children and
    certain women with breast and cervical cancer have access to
    the full Medicaid benefit package offered by states, while
    pregnant women have access to ambulatory prenatal care.

    Committee Bill

        The Committee Bill would permit all hospitals that
    participate in Medicaid under state plans to make presumptive
    eligibility determinations for all Medicaid eligible
    populations. The time period of presumptive eligibility would
    be consistent with Present Law. In implementing this provision,
    states would not be required to cover other presumptive
    eligibility options in Present Law. The provision would be
    effective on January 1, 2014 without regard to whether or not
    final regulations to carry out this amendment have been
    promulgated by such date. However, if the Secretary determined
    that state legislation (other than for appropriations) was
    needed in order for the state Medicaid plan to meet the
    additional requirements of this section, a state plan would not
    be regarded as non-compliant until a specified time after the
    close of the state's first legislative session following
    enactment.

     SEC. 1623. PROMOTING TRANSPARENCY IN THE DEVELOPMENT, IMPLEMENTATION,
    AND EVALUATION OF MEDICAID AND CHIP WAIVERS AND SECTION 1937 STATE PLAN
                                   AMENDMENTS

    Present Law

        Section 1115 of the Social Security Act authorizes the
    Secretary to waive certain statutory requirements for
    conducting research and demonstration projects that further the
    goals of titles XIX (Medicaid) and XXI (CHIP). States submit
    proposals outlining the terms and conditions of the
    demonstration program to the Centers for Medicare & Medicaid
    Services (CMS) for approval prior to implementation.
        In 1994, CMS issued program guidance that impacts the
    waiver approval process and includes the procedures states are
    expected to follow for public involvement in the development of
    a demonstration project. States were required to provide CMS a
    written description of their process for public involvement at
    the time their proposal was submitted.
        Public involvement requirements for the waiver approval
    process continued through the early 2000s. In a letter to state
    Medicaid directors issued May 3, 2002, CMS listed examples of
    ways a state may meet requirements for public involvement
    (e.g., public forums, legislative hearings, a website with
    information and a link for public comment).
        States are required to submit a state plan describing the
    nature and scope of a state's Medicaid program to the Secretary
    of HHS for approval. The state plan must provide assurances
    that the program conforms to the requirements of Medicaid and
    to any other official program issuances (e.g., rules,
    regulations, program guidance, etc.). After approval of the
    original state plan by the Secretary, any subsequent changes
    (e.g., those required by new Federal or state statutes, rules,
    regulations, policy interpretations, guidance, court decisions,
    changes in the state's operation of the Medicaid program, etc.)
    must be submitted by the state to CMS in the form of a state
    plan amendment (SPA) so that the Secretary may determine
    whether the Medicaid state plan continues to meet Federal
    requirements. Federal regulations dictate the SPA approval
    process including requirements for gubernatorial review, CMS
    regional office review, disapproval of a SPA, and judicial
    review (i.e., after a state's failure to conform to Federal
    requirements). Federal law dictates time frames associated with
    the SPA review process, and requirements that the CMS
    Administrator must meet when notifying a state that CMS intends
    to withhold Federal matching payments for portions of the state
    plan that are out of compliance.

    Committee Bill

        The Committee Bill would impose statutory requirements
    regarding transparency in the development, implementation, and
    evaluation of Medicaid and CHIP section 1115 demonstration
    programs that impact eligibility, enrollment, benefits, cost-
    sharing, or financing. States would be required to: (1) provide
    notice of the state's intent to develop and/or renew a section
    1115 waiver and convene at least one meeting of the state's
    medical care advisory board to discuss the impacts of the
    proposed changes; (2) publish for written comment a notice of
    the proposal that provides information on how the public can
    submit comments to the state and includes state projections and
    assumptions regarding the likely impact of the waiver; (3) post
    the waiver proposal on the State's Medicaid or CHIP website;
    and (4) convene open meetings over the course of the
    development of the proposal to discuss proposed changes. States
    would also be required to include information regarding the
    actions taken to meet the above-listed public notice
    requirements as a part of their waiver submission to CMS.
        The Committee Bill would also impose additional
    transparency-related statutory requirements on the Secretary of
    HHS. The Secretary would be required to: (1) publish a Federal
    Register notice identifying monthly waiver submissions,
    approvals, denials, and information regarding methods by which
    comments on the waiver will be received from the public; (2)
    publish a copy of the proposed waiver to the CMS website; and
    (3) allow for, respond to, and make available public comments
    received about the proposal after it has been posted to the CMS
    website. Once approved, the Secretary would have to post waiver
    terms and conditions and related waiver approval documents,
    quarterly state-reported data and three-year evaluations to the
    CMS website. The Secretary would also be required to publish a
    Federal Register notice identifying monthly waiver approvals,
    denials, and returns to the state without action. In addition,
    the Secretary would be required to follow requirements
    associated with an independent evaluation of the demonstration
    project.
        $4.5 million would be appropriated for fiscal year 2010 and
    each fiscal year thereafter for the purpose of carrying out
    independent evaluations of section 1115 demonstration waivers.
    Among the evaluation criteria, the Secretary would be required
    to assess the use of services by beneficiaries, the extent to
    which special populations are able to access needed health care
    services, the amount of out-of-pocket costs for health care
    services incurred by beneficiaries, administrative costs
    incurred under the waiver, etc.
        The Committee Bill would add transparency-related statutory
    requirements associated with the SPA approval process for
    proposals that limit benefits. States would have to: (1)
    provide notice of the state's intent to develop a SPA and
    convene at least one meeting of the state's medical advisory
    board to discuss the impacts of the changes requested in the
    proposed SPA; (2) publish a notice of the proposal that
    provides information on how the public can submit comments to
    the state and includes state projections and assumptions
    regarding the likely impact of the SPA; (3) post the SPA
    proposal on the state's Medicaid or CHIP website; and (4)
    convene at least one open meeting to discuss the proposed SPA.
    States would also be required to include information regarding
    the actions taken to meet the above-listed public notice
    requirements as a part of their SPA submission to CMS.
        The Committee Bill would also impose additional
    transparency-related statutory requirements on the Secretary of
    HHS. The Secretary would be required to: (1) publish a Federal
    Register notice identifying monthly SPA submissions and
    information regarding methods by which comments on each SPA
    will be received from the public; (2) publish a copy of the
    proposed SPA to the CMS website; and (3) publish a Federal
    Register notice identifying monthly SPA approvals, denials, and
    returns to the state without action.

       SEC. 1624. STANDARDS AND BEST PRACTICES TO IMPROVE ENROLLMENT OF
                     VULNERABLE AND UNDERSERVED POPULATIONS

    Present Law

        CHIPRA (P.L. 111-3) included provisions to facilitate
    access and enrollment in Medicaid and CHIP. Among the
    provisions related to outreach and enrollment, CHIPRA
    appropriated $100 million in outreach and enrollment grants
    above and beyond the regular CHIP allotments for fiscal years
    2009 through 2013. Ten percent of the outreach and enrollment
    grants will be directed to a national enrollment campaign, and
    10 percent will be targeted to outreach for American Indian and
    Alaska Native children. The remaining 80 percent will be
    distributed among state and local governments and to community-
    based organizations for purposes of conducting outreach
    campaigns with a particular focus on rural areas and
    underserved populations. Grant funds will also be targeted at
    proposals that address cultural and linguistic barriers to
    enrollment. Also as a part of the outreach-related provisions,
    CHIPRA requires State plans to describe the procedures used to
    reduce the administrative barriers to the enrollment of
    children and pregnant women in Medicaid and CHIP, and to ensure
    that such procedures are revised as often as the State
    determines is appropriate to reduce newly identified barriers
    to enrollment.

    Committee Bill

        The Committee Bill would require the Secretary of HHS, not
    later than April 1, 2011, to issue guidance to states regarding
    standards and best practices to help improve enrollment of
    vulnerable and underserved populations eligible for Medicaid
    and CHIP, including children, unaccompanied homeless youth,
    children and youth with special health care needs, pregnant
    women, racial and ethnic minorities, rural populations, victims
    of abuse or trauma, individuals with mental health or
    substance-related disorders, and individuals with HIV/AIDS.
        The guidance would (1) detail information on effective ways
    to inform vulnerable populations about coverage available under
    Medicaid and CHIP; (2) identify ways to assist vulnerable
    populations to enroll in the programs; (3) identify ways that
    application and enrollment barriers can be eliminated for such
    populations; and (4) address specific methods for outreach and
    enrollment, including out-stationing of eligibility workers,
    the Express Lane eligibility option, residency requirements,
    documentation of income and assets, presumptive eligibility,
    continuous eligibility, and automatic renewal. The Secretary
    would work with appropriate stakeholders, including
    representatives of states and children's groups, to ensure that
    the guidance is developed and implemented effectively.
        Finally, not later than two years after the enactment of
    this Act and annually thereafter, the Secretary would review
    and report to Congress on the progress made by states in
    implementing the standards and best practices indentified in
    the guidance and increasing the enrollment of vulnerable
    populations under Medicaid and CHIP.

                           PART IV--MEDICAID SERVICES

               SEC. 1631. COVERAGE OF FREE-STANDING BIRTH CENTERS

    Present Law

        Some Medicaid benefits are mandatory, but others are
    optional. Examples of optional benefits that are offered by
    many states include prescription drugs and skilled nursing
    facility services for individuals under age 21.
        While there is statutory authority under Medicaid to pay
    for services rendered by nurse midwives, there is no explicit
    statutory authority to provide for direct payments to free-
    standing birthing centers for facility services.

    Committee Bill

        The Committee Bill would make coverage of services provided
    by free-standing birthing centers a mandatory benefit under
    Medicaid. Free-standing birth center services would be defined
    as services furnished to an individual at a health facility
    that is not a hospital, and where childbirth is planned to
    occur away from the pregnant woman's residence, and is licensed
    or otherwise authorized by the state to provide prenatal labor
    and delivery services covered under the plan. In addition,
    states would be required to separate payments to providers
    administering prenatal labor and delivery or postpartum care in
    a free-standing birth center, such as nurse midwives and other
    providers of services such as birth attendants recognized under
    state law, as deemed appropriate by the Secretary.
        This provision would be effective on the date of enactment
    of this Act and would apply to services furnished on or after
    such date.

                    SEC. 1632. CONCURRENT CARE FOR CHILDREN

    Present Law

        Currently, states have the option to offer hospice services
    under Medicaid. In states that offer hospice services, Medicaid
    beneficiaries who elect to receive such services must waive the
    right to all other services related to the individual's
    diagnosis of a terminal illness or condition, including
    treatment.

    Committee Bill

        The provision would allow payment for services provided to
    children, as defined by the state, who are eligible for
    Medicaid and have voluntarily elected to receive hospice
    services, without foregoing coverage of and payment for other
    services that are related to the treatment of the child's
    condition for which a diagnosis of terminal illness has been
    made.

       SEC. 1633. FUNDING TO EXPAND STATE AGING AND DISABILITY RESOURCE
                                    CENTERS

    Present Law

        Title II, Sect. 202 of the Older Americans Act (OAA)
    establishes various functions of the Administration on Aging
    (AoA) and Assistant Secretary for Aging. Subsection
    (a)(20)(B)(iii) establishes responsibilities for a National
    Center on Senior Benefits Outreach and Enrollment, including
    efforts for Aging and Disability Resource Centers (ADRCs), and
    other public and private State and community-based
    organizations, such as faith-based organizations and
    coalitions, to serve as benefits enrollment centers for Federal
    and state programs. Subsection (b)(8) requires the Assistant
    Secretary to implement ADRCs in all states.

    Committee Bill

        The Committee Bill would appropriate to the Secretary of
    HHS, $10 million for each of FYs 2010 through 2014 to carry out
    ADRC initiatives.

                    SEC. 1634. COMMUNITY FIRST CHOICE OPTION

    Present Law

        A personal care attendant is a person who cares for an
    individual with a significant disability by providing
    assistance with activities of daily living (ADLs) and
    instrumental activities of daily living (IADLs). ADLs include
    eating, bathing and showering, toileting, dressing, walking
    across a small room, and transferring (getting in or out of a
    bed or chair). IADLs include preparing meals, managing money,
    shopping for groceries or personal items, performing housework,
    using a telephone, doing laundry, getting around outside the
    home, and taking medications.
        Optional Personal Care State Plan Benefit. Under current
    Medicaid law, states have the option to cover personal care
    services under their Medicaid state plan for Medicaid
    beneficiaries who need assistance with ADLs and IADLs. The
    Medicaid statute defines personal care as services furnished to
    an individual at home or in another location (excluding
    institutional settings) that are either authorized by a
    physician, or at state option, under a plan of care. In
    addition to providing care in a beneficiary's place of
    residence, states may also cover attendant care services to
    assist beneficiaries at work and in participating in community
    activities. Further, all relatives, except ``legally
    responsible relatives'' (i.e., spouses and parents of minor
    children) can be paid under Medicare for providing personal
    care services to beneficiaries.
        Optional Self-Directed Personal Care State Plan Benefit.
    States also have the option to cover self-directed personal
    care under their Medicaid state plan. Services that states can
    cover are similar to those that may be covered under the
    optional personal care state plan benefit, yet under this
    benefit, beneficiaries are encouraged to take on more
    responsibility for hiring and firing personal care workers and
    establishing worker schedules and job responsibilities.
        Optional Home and Community-Based Services State Plan
    Benefit. This Medicaid option allows states to cover one or
    more home and community-based services, including personal
    care, for certain individuals with long term services and
    supports needs. States are not required to make services
    available on a statewide basis. This benefit is limited to
    individuals whose incomes do not exceed 150 percent FPL and who
    meet a state-determined level of need criteria. If states cover
    this option, the needs-based criteria must be less stringent
    than that used for institutional care eligibility. Services are
    limited to homemaker/home health aide, personal care, adult day
    health, habilitation, respite care, day treatment or other
    partial hospitalization services, psycho-social rehabilitation
    services, and clinic services for individuals with chronic
    mental illness. States may limit the number of individuals
    served.
        Personal Care Under Medicaid Waivers. Under waiver
    authority in section 1915(c) of the Social Security Act, states
    may offer home and community-based services, including personal
    care services, as well as a broad range of other services, to
    selected persons who would otherwise require the level of care
    offered in Medicaid-covered institutions. States that choose to
    offer Medicaid services under section 1115 waivers may also
    include personal care services as part of a benefit plan.

    Committee Bill

        Beginning January 1, 2014, the Committee Bill would
    establish an optional Medicaid benefit under which states could
    offer community-based attendant services and supports to
    Medicaid beneficiaries with disabilities who would otherwise
    require the level of care offered in a hospital, nursing
    facility, or intermediate care facility for the mentally
    retarded.
        These services and supports would include assistance with
    ADLs, IADLs, and health-related tasks through hands-on
    assistance, supervision, or cueing, under a person-centered
    services and supports plan based on an assessment of functional
    need and agreed to in writing by the individual (or his/her
    representative). Services would also include: the acquisition,
    maintenance and enhancement of skills necessary for the
    individual to accomplish ADLs, IADLs, and health-related tasks;
    back-up systems or mechanisms (such as the use of beepers or
    other electronic devices); and training on how to select,
    manage, and dismiss attendants. Services and supports may
    include expenditures for transition costs such as rent and
    utility deposits, bedding, basic kitchen supplies, among
    others, and expenditures relating to a need identified in an
    individual's person-centered plan that would increase
    independence or substitute for human assistance. Excluded
    services and supports would be room and board costs, special
    education and related services provided under the Individuals
    with Disabilities Education Act and vocational rehabilitation
    services, certain assistive technology devices and services,
    medical supplies and equipment, or home modifications.
        Services would be provided in a home or community setting
    and under an agency-provider model, in which entities would
    contract for the provision of services and supports, or under
    another model, such as the provision of vouchers and direct
    cash payments. Services and supports would be selected,
    managed, and dismissed by the individual (or, when appropriate,
    his or her representative); controlled, to the maximum extent
    possible, by the individual; and provided by a qualified
    individual (as defined by the Secretary), including family
    members. States that choose the Community First Choice Option
    would be eligible for an enhanced Federal match rate of an
    additional six percentage points for reimbursable expenses in
    the program. The option would sunset after five years.
        To obtain approval from the Secretary to offer this
    benefit, states would be required to: (1) develop and implement
    the benefit in collaboration with a Development and
    Implementation Council established by the state that would
    include a majority of members with disabilities, elderly
    individuals, and their representatives; (2) provide community-
    based attendant services and supports to individuals on a
    state-wide basis and in the most integrated setting appropriate
    to the individual's needs; (3) maintain or exceed the level of
    state Medicaid expenditures for individuals with disabilities
    or elderly individuals attributable to the preceding fiscal
    year, or otherwise to individuals with disabilities or elderly
    individuals attributable to the proceeding year; (4) establish
    and maintain a comprehensive, continuous quality assurance
    system with respect to the community-based attendant services
    and supports that would incorporate feedback from consumers and
    their representatives, monitor the health and well-being of
    each individual, collect information for the purpose of
    approving the state plan amendment and facilitate Federal
    oversight, among others.
        A state would be required to ensure that services and
    supports would be provided in accordance with requirements of
    the Fair Labor Standards Act of 1938, and applicable Federal
    and state laws regarding Federal and state income and payroll
    taxes, the provision of unemployment and workers compensation
    insurance; maintenance of general liability insurance, and
    occupational health and safety.
        The Secretary would be required to conduct an evaluation of
    the community-based attendant services and supports. No later
    than December 31, 2017, the interim findings of this evaluation
    would be required to be submitted to Congress, and the final
    report must be submitted by December 31, 2019.

       SEC. 1635. PROTECTION FOR RECIPIENTS OF HOME AND COMMUNITY-BASED
                    SERVICES AGAINST SPOUSAL IMPOVERISHMENT

    Present Law

        Medicaid law includes spousal impoverishment provisions
    intended to prevent the impoverishment of a spouse whose
    husband or wife seeks Medicaid coverage for long term services
    and supports. The law requires that spousal impoverishment
    rules for eligibility and post-eligibility treatment of income
    be applied to non-institutionalized spouses (i.e., community
    spouses) of persons residing in a medical institution or
    nursing facility for at least 30 consecutive days.
        Although Medicaid law grants states the option to apply
    spousal impoverishment rules to the counting of income and
    assets for a couple during the eligibility determination for
    persons applying to section 1915(c) and (d) waivers, it does
    not allow states to apply these rules to the eligibility
    determination for 1915(e) waivers. In addition, Medicaid law
    prohibits the application of spousal impoverishment rules for
    the post-eligibility treatment of income for purposes of
    1915(c), (d), and (e) waivers for those who qualify for
    Medicaid through a state's medically needy eligibility pathway.
    The Secretary of HHS may grant authority for states to apply
    spousal impoverishment rules for eligibility and post-
    eligibility determination of income under section 1115 waivers
    which are sometimes used to offer HCBS instead of section
    1915(c) waivers.

    Committee Bill

        The Committee Bill would amend Medicaid law to require
    states to apply spousal impoverishment rules to applicants who
    would receive HCBS under sections 1915(c), (d), (i), and (k)
    (as added by section 1634 of the Committee Bill) and under
    section 1115 of the Social Security Act. States would also be
    required to apply spousal impoverishment rules to people who
    would receive HCBS and apply for Medicaid through the medically
    needy, 209(b) spend-down, and other eligibility pathways. This
    provision would apply for a five-year period beginning on
    January 1, 2014.

      SEC. 1636. INCENTIVES FOR STATES TO OFFER HOME AND COMMUNITY-BASED
           SERVICES AS A LONG-TERM CARE ALTERNATIVE TO NURSING HOMES

    Present Law

        Under Medicaid, states make available a broad range of
    institutional and home and community-based services (HCBS) to
    certain Medicaid enrollees. States are required to offer some
    but not all of these services. For those services that are
    offered, states may define them differently, using criteria
    that place limits on the amount, duration, and scope of the
    benefits. States may also restrict benefits to individuals who
    demonstrate medical necessity for the benefit. Under Medicaid,
    institutional services are generally defined as care provided
    in nursing facilities, intermediate care facilities for people
    with mental retardation (ICFs/MR), inpatient hospital services
    and nursing facility services for persons aged 65 and older in
    institutions for mental diseases. HSCBS is generally defined as
    long-term services and supports offered under Medicaid's home
    health state plan benefit, personal care state plan benefit,
    case management or targeted case management benefit,
    respiratory care benefit for persons who are ventilator-
    dependent, PACE (All-Inclusive Care for the Elderly),
    transportation benefit, HCBS state plan option, and Medicaid
    HCBS 1915(c) and (d) waivers.
        Medicaid is an open-ended Federal state matching program.
    The Federal government's share of most Medicaid service costs
    is determined by the Federal medical assistance percentage
    (FMAP), which varies by state and is determined by a formula
    set in statute. For Medicaid administrative costs, the Federal
    share does not vary by state, and is generally 50 percent.

    Committee Bill

        States that spend less than 50 percent of their total
    FY2009 Medicaid spending on non-institutionally-based long-term
    services and supports and that meet certain other conditions
    would receive an FMAP rate increase for the purpose of
    providing new or expanded offerings of such services (including
    expansion through offering such services to increased numbers
    of enrollees). Among these states, those that spend less than
    25 percent of their total Medicaid long-term care expenditures
    for fiscal year 2009 on HCBS would set their target for such
    spending at 25 percent for these services, to be achieved by
    October 1, 2015. Such states would receive a five percentage
    point increase in their FMAP. Other participating states would
    set their target percentage for home and community-based
    services as a percentage of their Medicaid long term services
    and supports spending at 50 percent, to be achieved by October
    1, 2015. These states would receive a two percentage point
    increase.
        To participate in the state balancing incentive payment
    program, qualifying states would be required to submit an
    application to the Secretary of HHS for approval. In addition
    to other requirements, the state would have to provide a
    description of the new and expanded non-institutionally-based
    long-term services and supports financed under the state
    balancing incentive payment program, and a description of the
    eligibility requirements to access such services. States would
    also be required to submit projected increases in service
    utilization and state expenditures related to the expansion of
    such services.
        Among the conditions that would be required for qualifying
    states to access the higher Federal matching funds under this
    provision is that states would have to maintain their
    eligibility standards, methodologies, or procedures for
    determining eligibility for such services at levels that are no
    more restrictive than those in place on December 31, 2010.
    States would also be required to agree to use the additional
    Federal funds paid to the state for the purposes of providing
    new or expanded offerings of non-institutionally-based long-
    term services and supports.
        States would also be required to implement several
    structural changes to their Medicaid programs no later than six
    months after the state submits its application, including: (1)
    the implementation of a ``no wrong door policy'' whereby
    beneficiaries would be able to access all long-term services
    and supports through a coordinated network, agency, or other
    statewide system; (2) the development of conflict-free case
    management services to assist beneficiaries with the transition
    between institutional and non-institutional services the
    development of a service plan; and (3) the development of core
    standardized assessment instruments to determine eligibility
    for non-institutionally-based long-term services and supports.
        Additional data would be collected that would track person-
    level service use, quality (across a core set of measures as
    defined by the Secretary of HHS), and outcomes to measure
    beneficiary and family caregiver experience and satisfaction
    with services and other outcomes. No more than $3 billion in
    Federal matching funds would be available to balancing
    incentive states for the five-year period between October 1,
    2011 and September 30, 2016.

     SEC. 1636A. REMOVAL OF BARRIERS TO PROVIDING HOME AND COMMUNITY-BASED
                                    SERVICES

    Present Law

        Under Medicaid, states make available a broad range of
    institutional and home and community-based services (HCBS) to
    certain Medicaid enrollees. States are required to offer some
    but not all of these services. For those services that are
    offered, states may define them differently, using criteria
    that place limits on the amount, duration, and scope of the
    benefits. States may also restrict benefits to individuals who
    demonstrate medical necessity for the benefit. Under Medicaid,
    institutional services are generally defined as care provided
    in nursing facilities, intermediate care facilities for people
    with mental retardation (ICFs/MR), inpatient hospital services
    and nursing facility services for persons aged 65 and older in
    institutions for mental diseases. HSCBS is generally defined as
    long-term services and supports offered under Medicaid's home
    health state plan benefit, personal care state plan benefit,
    case management or targeted case management benefit,
    respiratory care benefit for persons who are ventilator-
    dependent, PACE (All-Inclusive Care for the Elderly),
    transportation benefit, HCBS state plan option, and Medicaid
    HCBS 1915(c) and (d) waivers.

    Committee Bill

        The Committee Bill would apply specific measures to remove
    barriers to providing HCBS. These measures include: state-level
    oversight and assessment of HCBS resources, coordination of
    HCBS across all providers, and procedures for patients to file
    complaints. States would also have the option to provide more
    types of HCBS through a state plan amendment to individuals
    with higher levels of need rather than through a waiver, and
    states could extend full Medicaid benefits to individuals
    receiving HCBS under a state plan amendment. States would not
    have to comply with requirements for statewideness and would be
    able to phase-in services and eligibility as they become
    available, targeting the services to specific populations.

         SEC. 1637. MONEY FOLLOWS THE PERSONS REBALANCING DEMONSTRATION

    Present Law

        Section 6071 of the Deficit Reduction Act of 2005 (DRA;
    P.L. 109-171) established the Money Follows the Person (MFP)
    Rebalancing Demonstration. The program authorizes the Secretary
    of HHS to award competitive grants with the following
    objectives: (1) increase the use of HCBS, rather than
    institutional, long-term care services and supports; (2)
    eliminate barriers that prevent or restrict the flexible use of
    Medicaid funds to enable Medicaid-eligible individuals to
    receive support for appropriate and necessary long-term care
    services in the settings of their choice; (3) increase the
    ability of the Medicaid program to assure continued provision
    of HCBS to eligible individuals who choose to transition from
    an institutional to a community setting; and (4) ensure that
    procedures are in place to provide quality assurance for
    eligible individuals receiving Medicaid HCBS and to provide for
    continuous quality improvement in such services.
        For individuals to participate in the MFP demonstration
    project, they must: (1) reside in, and have been residing in
    for not less than six months and not more than two years, an
    inpatient facility; (2) receive Medicaid benefits for inpatient
    services furnished by such inpatient facility; and (3) with
    respect to whom a determination has been made that, but for the
    provision of HCBS, the individual would continue to require the
    level of care provided in an inpatient facility, among other
    requirements.
        The DRA also required the Secretary to provide for research
    on, and to conduct a national evaluation of, the demonstration
    project and to make a final report to the President and
    Congress no later than September 30, 2011.

    Committee Bill

        The Committee Bill would extend the MFP Rebalancing
    Demonstration through September 30, 2016 and would extend the
    deadline for the submission of the final evaluation report to
    September 30, 2016.
        The Committee Bill would also change the eligibility rules
    for individuals to participate in the demonstration project by
    requiring that individuals reside in an inpatient facility for
    not less than 90 consecutive days. The provision would also
    exclude Medicare-covered short-term rehabilitative services
    from the counting of the 90-day period.
        The provision would take effect 30 days after this
    enactment.

          SEC. 1638. CLARIFICATION OF DEFINITION OF MEDICAL ASSISTANCE

    Present Law

        The term ``medical assistance'' means payment of part or
    all of the cost of care and services identified in Federal
    statute. This term is repeated throughout title XIX of the
    Social Security Act.

    Committee Bill

        The Committee Bill would clarify that ``medical
    assistance'' encompasses both payment for services provided and
    the services themselves.

        SEC. 1639. STATE ELIGIBILITY OPTION FOR FAMILY PLANNING SERVICES

    Present Law

        Family planning services and supplies are a mandatory
    Medicaid benefit for individuals classified as categorically
    needy and must be available to individuals of childbearing age
    who are eligible under the state Medicaid plan and who desire
    such services and supplies. States are permitted to provide
    family planning services under Medicaid for populations who are
    not otherwise eligible for traditional Medicaid (e.g., non-
    pregnant, non-disabled childless adults) after a special waiver
    has been filed and approved by the Secretary of HHS.

    Committee Bill

        The Committee Bill would add a new optional categorically-
    needy eligibility group to Medicaid. This new group would be
    comprised of (1) non-pregnant individuals with income up to the
    highest level applicable to pregnant women covered under the
    Medicaid or CHIP state plan, and (2) at state option,
    individuals eligible under the standards and processes of
    existing section 1115 waivers that provide family planning
    services and supplies. Benefits would be limited to family
    planning services and supplies (as per section 1905(a)(4)(C) of
    the Social Security Act) but would also include related medical
    diagnosis and treatment services.
        The Committee Bill would also allow states to make a
    presumptive eligibility determination for individuals eligible
    for such services through the new optional eligibility group.
    That is, states may enroll such individuals for a limited
    period of time before completed Medicaid applications are filed
    and processed, based on a preliminary determination by Medicaid
    providers of likely Medicaid eligibility. Such individuals must
    then formally apply for coverage within a certain timeframe to
    continue receiving this benefit.
        This provision would be effective upon enactment.

               SEC. 1640. GRANTS FOR SCHOOL-BASED HEALTH CENTERS

    Present Law

        The Children's Health Insurance Program Reauthorization Act
    of 2009 (P.L. 111-3,CHIPRA) defines ``school-based health
    centers'' to include a health care clinic that: (1) is located
    in or near a school facility of a school district or board of
    an Indian tribe or tribal organization (I/T/U); (2) is
    organized through school, community, and health provider
    relationships; (3) is administered by a sponsoring facility
    (e.g., hospital, public health department, community health
    center, nonprofit health care agency, school or school system,
    or a program administered by the Indian Health Service or
    Bureau of Indian Affairs, or operated by an I/T/U; (4) provides
    primary health services through health professionals to
    children in accordance with state and local law, including laws
    relating to licensure and certification; and (5) satisfies such
    other requirements as a state may establish for the operation
    of such a clinic.

    Committee Bill

        The proposal would establish a grant program to support the
    operation of school-based health centers (as defined in
    CHIPRA). The Committee Bill would appropriate $100 million for
    such program. The use of any such funds for any service that is
    not authorized or allowed by state or local law would be
    prohibited. The Secretary would be authorized to establish
    criteria and application procedures for the awarding of grants
    in this program. The Secretary would be directed to give
    preference in awarding grants to school-based health centers
    serving a large population of children eligible for Medicaid or
    CHIP.

                       SEC. 1641. THERAPEUTIC FOSTER CARE

    Present Law

        In general, therapeutic foster care (TFC) temporarily
    places troubled youth (individuals with serious emotional and
    behavioral issues) with specially trained foster families.
    Although TFC programs vary, children/adolescents are generally
    placed for six to seven months in a structured environment
    where they are rewarded for positive social behavior and
    penalized for disruptive and aggressive behavior. TFC also
    separates repeat juvenile offenders from delinquent peers and
    provides close home and school supervision.
        TFC is not specifically addressed in Medicaid law, although
    it sometimes is considered a service under the rehabilitative
    services benefit, where states have the option to cover
    rehabilitative services, including medical or remedial services
    to reduce physical or mental disability and restoration of best
    possible functional level.

    Committee Bill

        The Committee Bill would clarify that states would have the
    option under Medicaid to cover TFC for Medicaid eligible
    children in out-of-home placements. The provision also defines
    TFC as a foster care program that provides certain services to
    parents and children including: (1) structured daily activities
    that develop, improve, monitor, and reinforce age-appropriate
    social, communication, and behavioral skills; (2) crisis
    intervention and crisis support services; (3) medication
    monitoring; (4) counseling; and (5) case management services.
    In addition, TFC would encompass specialized training for
    foster parents and consultation with foster parents on the
    management of children with mental illnesses and related health
    and developmental problems.

        SEC. 1642. SENSE OF THE SENATE REGARDING LONG-TERM SERVICES AND
                                    SUPPORTS

    Present Law

        No provision.

    Committee Bill

        The Committee Bill would express the Sense of the Senate
    that during the 111th session of Congress, Congress should
    address long-term services and supports in a comprehensive way
    that guarantees elderly and disabled individuals the care they
    need. The provision would further express the Sense of the
    Senate that long term services and supports should be made
    available in the community as well as in institutions.

                  PART V--MEDICAID PRESCRIPTION DRUG COVERAGE

                      SEC. 1651. PRESCRIPTION DRUG REBATES

    Present Law

        Drug manufacturers must enter into rebate agreements with
    the Secretary in order to sell their products to state Medicaid
    programs. The rebate agreements require drug manufacturers to
    provide Medicaid programs with rebates for drugs dispensed to
    Medicaid beneficiaries, although selected drug purchases are
    exempted from the Medicaid rebate agreements. Drug purchases
    excluded from Medicaid's rebate agreements include drugs
    dispensed by Medicaid managed care organizations (when
    prescription drugs are included in the capitation agreement),
    inpatient drugs, and drugs dispensed in physicians' or
    dentists' offices. Some states exclude drug benefits from their
    Medicaid MCO contracts. In these cases, Medicaid managed care
    beneficiaries receive their prescribed drugs through Medicaid's
    fee-for-service (FFS) delivery system, and states may claim
    manufacturer rebates for these purchases.
        States use a variety of service delivery mechanisms to
    provide medical and related services to Medicaid beneficiaries.
    Service delivery mechanisms range from full-risk capitation
    agreements with managed care organizations (MCOs) to FFS. Under
    full-risk capitation agreements, MCOs are paid a fixed amount
    for all the care Medicaid beneficiaries will need, including
    prescription drugs. Services provided to about 64 percent of
    Medicaid beneficiaries are paid for on a partially capitated
    basis, while approximately 38 percent of Medicaid
    beneficiaries, primarily children and non-disabled adults,
    receive services under full risk-based capitation contracts.
        Under Medicaid rebate agreements, drug makers must report
    to the Centers for Medicare & Medicaid Services (CMS) the
    following two prices for each outpatient drug covered by
    Medicaid: (1) the average manufacturer price (AMP), which is
    the average price that manufacturers receive for sales to the
    retail class of trade; and (2) the lowest transaction price, or
    ``best price,'' that manufacturers receive from sales to
    private buyers of the drug. AMP and best price serve as
    reference points for determining manufacturers' rebate
    obligations.
        For the purpose of determining rebates, Medicaid
    distinguishes between two types of drugs: (1) single source
    drugs (generally those still under patent) and innovator
    multiple source drugs (drugs originally marketed under a patent
    or original new drug application but for which generic
    alternatives now exist); and (2) non-innovator, multiple source
    drugs. Rebates for the first category of drugs--drugs still
    under patent or those once covered by patents--have two
    components: a basic rebate and an additional rebate. Medicaid's
    basic rebate is determined by the larger of either a comparison
    of a drug's quarterly AMP to the best price for the same
    period, or a flat percentage (15.1 percent) of the drug's
    quarterly AMP. Drug manufacturers owe an additional rebate when
    their unit prices for individual products increase faster than
    inflation.
        A manufacturer's total per drug rebate amount is determined
    by adding together the basic and the additional rebates, and
    there is no limit on total rebate liability. Currently,
    modifications to existing drugs--new dosages or formulations--
    are generally considered new products for purposes of reporting
    AMPs to CMS. As a result, drug makers sometimes can avoid
    incurring additional rebate obligations by making slight
    alterations to existing products, sometimes called line-
    extensions, while significantly increasing the price on these
    products. The line extension formulations of these products
    receive a new, higher base period AMP. With a higher base
    period AMP, drug manufacturers would likely owe less of an
    additional Medicaid rebate.
        Section 340B of the Public Health Service Act (PHSA),
    requires pharmaceutical drug manufacturers that participate in
    the Medicaid drug rebate program, to enter into a
    pharmaceutical pricing agreement (PPA). Under these PPAs,
    manufacturers agree to provide discounts on covered outpatient
    drugs purchased by public health facilities, called covered
    entities. Covered entities include hospitals owned or operated
    by state or local government that serve higher percentages of
    Medicaid beneficiaries and other publicly funded health clinics
    and programs. Covered entities are forbidden to divert drugs
    purchased under the 340B program to other organizations and are
    prohibited from obtaining multiple discounts, including
    participation in group purchasing arrangements.

    Committee Bill

        Beginning with drugs dispensed on January 1, 2010, the flat
    rebate percentage used to calculate Medicaid's basic rebate for
    single source and innovator multiple source outpatient
    prescription drugs would increase from 15.1 percent to 23.1
    percent, except that clotting factors and outpatient drugs
    approved by the Food and Drug Administration exclusively for
    pediatric indications would increase to 17.1 percent. Also on
    January 1, 2010, the basic rebate percentage for multi-source,
    non-innovator drugs would increase from 11 percent to 13
    percent.
        This provision also would require drug manufacturers to pay
    rebates for drugs dispensed to Medicaid beneficiaries who
    receive care from a Medicaid MCO (as defined in Medicaid law)
    similar to the way rebates are required under Present Law for
    FFS beneficiaries. Drug manufacturers would be required to pay
    the MCO rebates directly to states, as they do under FFS.
    Capitation rates paid to Medicaid MCOs under this provision
    would be required to be based on the MCOs actual cost
    experience (including the drug rebate) and would be subject to
    Medicaid law covering actuarially sound rates. This provision
    would not prohibit MCOs from negotiating with drug
    manufacturers and wholesalers for rebates above Medicaid's
    statutory rebates.
        Any formularies established by Medicaid MCOs subject to
    this provision may be based on the selection of these drugs by
    a formulary committee as long as drugs excluded from the
    formulary are available through prior authorization. Covered
    outpatient drugs would be excluded from the requirements in
    this provision when the drugs were dispensed by a health
    maintenance organization or Medicaid MCO that received
    discounts under section 340B of the PHSA.
        The additional rebate for new formulations of existing
    single source or innovator multiple source drugs would be the
    greater of the basic rebate for the new product or the product
    of: (1) the total number of units of each dosage form and
    strength of the new formulation paid for by the state, (2) the
    AMP of the new formation the drug, and (3) the highest
    additional rebate (calculated as a percentage AMP) for any
    strength of the original single source or innovator multiple
    source drug. New formulations of orphan drugs would be
    exempted, regardless of whether the market exclusivity period
    has expired, so the additional rebate obligation for orphan
    drugs would be calculated on the new product's baseline AMP as
    it is under Present Law.
        In addition, this proposal would limit the total rebate
    liability on each dosage form and strength an individual single
    source or innovator multiple source drug to no more than 100
    percent of AMP for that drug. Other features of the drug rebate
    program, such Medicaid's best price provision, would remain
    unchanged.

        SEC. 1652. ELIMINATION OF EXCLUSION OF COVERAGE OF CERTAIN DRUGS

    Present Law

        Medicaid law excludes 11 drug classes, including
    barbiturates, benzodiazepines, and smoking cessation products.
    States have the option to cover these drugs, and most states
    cover barbiturates, benzodiazepines, and smoking cessation
    drugs. States receive Federal financial participation (FFP)
    when they cover these drugs. Coverage of prescription drugs for
    full benefit dual eligibles (individuals who are eligible for
    both Medicare and Medicaid) was transferred from state Medicaid
    programs to Medicare when Part D was implemented in January
    2006.
        Barbiturates and benzodiazepines were excluded from Part D.
    However, under the Medicare Improvements for Patients and
    Providers Act of 2008 (MIPPA, P.L. 110-271), Medicare
    prescription drug plans and Medicare Advantage plans will be
    required to include benzodiazepines in their formularies for
    prescriptions dispensed beginning January 1, 2013. Barbiturates
    also will be required to be included in Medicare formularies
    for the indications of epilepsy, cancer, or chronic mental
    health disorder.

    Committee Bill

        Beginning with drugs dispensed on January 1, 2014, the
    Committee Bill would remove smoking cessation drugs,
    barbiturates, and benzodiazepines from Medicaid's excluded drug
    list.

              SEC. 1653. PROVIDING ADEQUATE PHARMACY REIMBURSEMENT

    Present Law

        Medicaid requires the Secretary to establish upper limits
    on the Federal share of payments for prescription drug
    acquisition costs. These limits are intended to encourage
    substitution of lower-cost generic equivalents for more costly
    brand-name drugs. When applied to multiple source drugs, those
    limits are referred to as Federal upper payment limits (FULs).
    FULs apply to aggregate state expenditures for each drug. CMS
    calculates FULs and periodically publishes these prices. Under
    the Deficit Reduction Act of 2005 (DRA, P.L. 109-171), new FULs
    issued after January 2007 were to equal 250 percent of the
    average manufacturer price (AMP) of the least costly
    therapeutic equivalent (excluding prompt pay discounts). AMP is
    defined in statute to be the average price paid to the
    manufacturer by wholesalers for drugs distributed to the retail
    pharmacy class of trade. Manufacturers are required to report
    AMP to CMS. Present Law allows the Secretary to contract for a
    survey of retail prices that represent a nationwide average of
    consumer prices for drugs, net of all discounts and rebates.
        National pharmacy associations legally challenged a
    proposed rule CMS issued in 2007 on implementation of the DRA
    provision covering AMP pricing. The court issued an injunction
    on December 19, 2007 which prohibited CMS from setting FULs for
    Medicaid covered generic drugs based on AMP, and from
    disclosing AMP data except within HHS or to the Department of
    Justice (DOJ). The injunction is still in effect.
        The Medicare Improvements for Patients and Providers Act of
    2008 (MIPPA, P.L. 110-275) imposed a moratorium on the use of
    AMPs to set FULs until October 1, 2009 so that Congress could
    determine whether to amend the statutory definition of AMP. In
    the interim, FULs are set based on the pre-DRA methodology. The
    FUL is set at 150 percent of the lowest published price (i.e.,
    wholesale acquisition cost, average wholesale price or direct
    price) for each dosage and strength of generic drug products.

    Committee Bill

        The proposal would require the Secretary to calculate the
    FUL as no less than 175 percent of the weighted average
    (determined on the basis of utilization) of the most recently
    reported monthly AMPs for pharmaceutically and therapeutically
    equivalent multiple source drugs available nationally through
    commercial pharmacies. The Secretary would be required to
    implement a smoothing process for average manufacturer prices,
    which would be similar to the process used in determining the
    average sales price for drugs and biologics under the Medicare
    program.
        This provision would clarify the definition of AMP to
    include sales by (1) wholesalers for drugs distributed to
    retail community pharmacies and (2) retail community pharmacies
    that purchase drugs directly from manufacturers. In addition,
    AMP would exclude customary prompt pay discounts extended to
    wholesalers and service fees paid by manufacturers to
    wholesalers or retail pharmacies. Further, AMP would exclude
    reimbursement by manufacturers for recalled, damaged, expired,
    or otherwise unsalable returned goods reimbursement.
        Moreover, AMP would exclude payments received from and
    rebates or discounts provided to pharmacy benefit managers,
    MCOs, health maintenance organizations, insurers, hospitals,
    clinics, mail order pharmacies, long-term care providers,
    manufacturers, or any other entity that does not conduct
    business as a wholesaler or retail community pharmacy. This
    provision would further clarify that the following manufacturer
    price concessions would be included in the AMP of covered
    outpatient drugs: any other discounts, rebates, payments, or
    other financial transactions that are received by, paid by, or
    passed through to retail community pharmacies.
        The provision also would expand the disclosure requirement
    to include monthly weighted average AMPs and retail survey
    prices. The survey of retail prescription drugs prices would be
    modified to apply to retail community pharmacies.
        The provisions in this subsection would take effect on the
    first day of the first calendar year quarter after enactment of
    the Committee Bill, regardless of whether final regulations to
    implement these provisions have been promulgated.

      SEC. 1654. STUDY OF BARRIERS TO APPROPRIATE UTILIZATION OF GENERIC
                              MEDICINE IN MEDICAID

    Present Law

        No provision.

    Committee Bill

        The Government Accountability Office (GAO) would be
    required to conduct a study of state laws that have a negative
    impact on generic drug utilization in Federal health care
    programs. GAO's study would consider at least the impact of
    following restrictions: limits on pharmacists' ability to
    provide a generic drug substitute for a prescribed name brand
    drug and carve-outs of certain drug classes from generic
    substitution as well as any other relevant restrictions. GAO
    would be required to submit its report to Congress by April 1,
    2012.

               PART VI--MEDICAID DISPROPORTIONATE SHARE PAYMENTS

              SEC. 1655. DISPROPORTIONATE SHARE HOSPITAL PAYMENTS

    Present Law

        States pay disproportionate share (DSH) adjustments to
    hospitals serving a disproportionate share of low-income
    individuals and Medicaid beneficiaries.
        Special rules apply to ``low DSH states,'' comprised of
    states in which total DSH payments for FY2000 were less than
    three percent of the state's total Medicaid spending on
    benefits. DSH allotments for such states were raised for FY2004
    through FY2008 to an amount that is 16 percent above the prior
    year's amount. For FY2009 forward, the allotment for low DSH
    states for each year will be equal to the prior year amount
    increased by the change in the CPI-U, as for all other states.
    States cannot obtain Federal matching payments for DSH that
    exceed the state's DSH allotment.
        As a condition of receiving Federal Medicaid payments
    beginning FY2004, states are required to submit to the
    Secretary of HHS a detailed annual report and an independent
    certified audit on their DSH payments to hospitals.
        States have flexibility in establishing the designation of
    DSH hospitals, but must include all hospitals meeting either of
    two minimum criteria: (1) a Medicaid inpatient utilization rate
    in excess of one standard deviation above the mean rate for the
    state, or (2) a low-income patient utilization rate of 25
    percent. States may not include hospitals with a Medicaid
    utilization rate below one percent.
        States also have flexibility in calculating DSH payment
    amounts to hospitals, but must pay DSH hospitals at least: (1)
    an amount calculated using the Medicare DSH payment
    methodology, or (2) an amount calculated using a payment
    methodology that increases each hospital's adjustment as the
    hospital's Medicaid inpatient utilization rate exceeds the
    statewide average. DSH hospital payments cannot exceed a
    hospital-specific cap, set at 100 percent of the costs of
    providing inpatient and outpatient services to Medicaid and
    uninsured patients, less payments received from Medicaid and
    uninsured patients for public hospitals.
        Five states and the District of Columbia have used at least
    a portion of their DSH allotment to expand Medicaid eligibility
    through a section 1115 waiver.

    Committee Bill

        State DSH allotments would remain intact as under Present
    Law until a state trigger is tripped. The trigger would be
    tripped the first fiscal year after FY2012 for which a state's
    uninsured rate, as measured by the Census Bureau's American
    Community Survey, decreases by at least 50 percent, compared to
    an initial uninsured rate for FY2009. Once the trigger is
    tripped, low DSH state allotments would be decreased by 25
    percent. DSH allotments for other states would be decreased by
    50 percent.
        Each year thereafter, if the state's rate of uninsurance
    decreases further, the state's DSH allotment would be further
    reduced by a percentage equal to the product of the percentage
    reduction in uninsurance and 35 percent. For low DSH states,
    the percentage reduction would be multiplied by 17.5 percent.
    These percentage reductions would not be applied to any portion
    of a state's DSH allotment approved by the Secretary to cover
    costs of providing Medicaid or other health coverage under a
    waiver in effect on July 2009. For FY2013 forward, in no case
    would a state's DSH allotment be less than 35 percent of the
    state's allotment in FY2012, increased by the percentage change
    in the CPI-U for each previous year occurring before the fiscal
    year.

                            PART VII--DUAL ELIGIBLES

             SEC. 1661. FIVE-YEAR PERIOD FOR DEMONSTRATION PROJECTS

    Present Law

        Some elderly individuals qualify for health insurance under
    both Medicare and Medicaid. Based on a report published in
    February 2009, it was estimated that 7.9 million individuals
    were dually eligible (duals) for both Medicare and Medicaid in
    2005. These dual eligible individuals qualify for Medicare Part
    A and/or Parts B and D and, because they are elderly and have
    limited income and assets, also are eligible for Medicaid.
        Under Medicaid, states may apply to the Secretary to waive
    some Medicaid requirements, to use Medicaid funds to target
    otherwise ineligible populations, or to use innovative methods
    for delivering or paying for Medicaid services. Section 1115 of
    the Social Security Act allows for the waiver of any provision
    of Medicaid law for demonstrations likely to assist in
    promoting the objectives of the program. Demonstration waivers
    have traditionally been granted for research purposes, like
    testing a program improvement (such as a new reimbursement
    methodology), and run for a limited period. Some demonstration
    waivers have been approved under both Medicare and Medicaid
    authorities. These Medicare and Medicaid demonstrations have
    mostly been statewide initiatives that have coordinated service
    delivery, benefit packages, and reimbursement for dual
    eligibles.
        The Office of Management and Budget (OMB) reviews all
    section 1115 waivers and, since 1982, has required waivers to
    be budget neutral (there are no statutory requirements for
    determining budget neutrality). Section 1115 waivers do not
    have a set duration, but larger demonstrations might be
    extended to accommodate more startup time and more thorough
    evaluation.

    Committee Bill

        The Committee Bill would clarify that Medicaid waivers for
    coordinating care for dual eligibles could be authorized for as
    long as five years.

    SEC. 1662. PROVIDING FEDERAL COVERAGE AND PAYMENT COORDINATION FOR LOW-
                         INCOME MEDICARE BENEFICIARIES

    Present Law

        No provision.

    Committee Bill

        The Committee Bill would require the Secretary to establish
    by March 1, 2010 a Federal Coordinated Health Care Office
    (CHCO) within CMS. The CHCO director would report directly to
    the Administrator of CMS. The purpose of the CHCO would be to
    bring together officials of the Medicare and Medicaid programs
    at CMS to (1) more effectively integrate benefits under the
    Medicare and Medicaid programs, and (2) improve the
    coordination between the Federal and state governments for
    individuals eligible for benefits under both Medicare and
    Medicaid (dual eligibles) to ensure that dual eligibles have
    full access to the items and services to which they are
    entitled. The CHCO would have the following goals:
         Providing dual eligible individuals full access to
    the benefits to which such individuals are entitled under the
    Medicare and Medicaid programs.
         Simplifying the processes for dual eligible
    individuals to access the items and services they are entitled
    to under the Medicare and Medicaid programs.
         Improving the quality of health care and long-term
    services for dual eligible individuals.
         Increasing beneficiary understanding of and
    satisfaction with coverage under the Medicare and Medicaid
    programs.
         Eliminating regulatory conflicts between rules
    under the Medicare and Medicaid programs.
         Improving care continuity and ensuring safe and
    effective care transitions.
         Eliminating cost-shifting between the Medicare and
    Medicaid programs and among related health care providers.
         Improving the quality of performance of providers
    of services and suppliers under the Medicare and Medicaid
    programs.
        The Committee Bill would establish the following specific
    responsibilities for the CHCO:
         Providing states, specialized Medicare Advantage
    plans for special needs individuals (special needs plans, as
    defined in section 1859(b)(6) of the Social Security Act),
    physicians, and other relevant entities or individuals with the
    education and tools necessary for developing programs that
    align Medicare and Medicaid benefits and programs for dual
    eligible individuals.
         Supporting state efforts to coordinate and align
    acute care and long-term care services for dual eligible
    individuals with other items and services furnished under the
    Medicare program.
         Providing support to states and CMS for
    coordination of contracting and oversight for the integration
    of the Medicare and Medicaid programs that support the goals
    described above.
        The Committee Bill would require the Secretary to submit an
    annual report to Congress under the annual budget transmittal.
    The annual report would contain recommendations for legislation
    that would improve care coordination and benefits for dual
    eligible individuals.

                          PART VIII--MEDICAID QUALITY

                    SEC. 1671. ADULT HEALTH QUALITY MEASURES

    Present Law

        The Children's Health Insurance Program Reauthorization Act
    (CHIPRA, P.L. 111-3) included several provisions designed to
    improve the quality of care provided to children under Medicaid
    and the Children's Health Insurance Program (CHIP). The law
    directs the Secretary of HHS to develop child health quality
    measures, a standardized format for reporting information, and
    procedures to encourage states to voluntarily report on the
    quality of pediatric care in these two programs. Examples of
    these initiatives include: (1) grants and contracts to develop,
    test, update and disseminate evidence-based measures, (2)
    demonstrations to evaluate promising ideas for improving the
    quality of children's health care under Medicaid and CHIP, (3)
    a demonstration to develop a comprehensive and systematic model
    for reducing childhood obesity, and (4) a program to encourage
    the creation and dissemination of a model electronic health
    record format for children enrolled in these two programs. The
    Federal share of the costs associated with developing or
    modifying existing state data systems to store and report child
    health measures is based on the matching rate applicable to
    benefits (FMAP) rather than one of the typically lower matching
    rates applied to different types of administrative expenses.
        CHIPRA also improved the availability of public information
    regarding enrollment of children in Medicaid and CHIP. Several
    reporting requirements are added to states' annual CHIP
    reports, including, for example, data on eligibility criteria,
    access to primary and specialty care, and data on premium
    assistance for employer-sponsored coverage. CHIPRA also
    required the Secretary to improve the timeliness of the
    enrollment and eligibility data for Medicaid and CHIP children
    contained in the Medicaid Statistical Information System (MSIS)
    based on annual state reported enrollment and claims data and
    maintained by CMS.

    Committee Bill

        Similar to the quality provisions enacted in CHIPRA, the
    Committee Bill would direct the Secretary of HHS, in
    consultation with the states, to identify and publish a
    recommended set of health care quality measures specific to
    adults who are eligible for Medicaid, as well as disseminate
    best practices among states for measuring and reporting on the
    quality of care for Medicaid adults. The Committee Bill would
    establish the Medicaid Quality Measurement Program which would
    expand upon existing quality measures, identify gaps in current
    quality measurement, establish priorities for the development
    and advancement of quality measures and consult with relevant
    stakeholders. The Secretary would regularly report to Congress
    the progress made in identifying quality measures and
    implementing them in each state's Medicaid program. States
    would receive grant funding to support the development and
    reporting of quality measures. For each year from FY2010
    through FY2014, $60 million would be appropriated for this
    effort, and would remain available until expended.

       SEC. 1672. PAYMENT ADJUSTMENT FOR HEALTH CARE-ACQUIRED CONDITIONS

    Present Law

        Subject to Federal rules, states generally establish their
    own payment policies, rates, and reimbursement methodologies
    for Medicaid providers, including inpatient facilities such as
    hospitals, nursing facilities, and intermediate care facilities
    for the mentally retarded. Federal regulations require that
    Medicaid provider rates be sufficient to enlist enough
    providers so that covered services are available at least to
    the extent that comparable care and services are available to
    the general population within that geographic area.
        In Medicare, hospitals are reimbursed under a prospective
    payment system (PPS), where each admission is classified into a
    Medicare severity adjusted diagnosis-related group (MS-DRG)
    based on the patient's diagnosis and procedures performed. Each
    MS-DRG has a predetermined reimbursement amount. In general, a
    hospital is paid the same amount for an MS-DRG regardless of
    how long patients stay in the hospital or what is required to
    treat the patient. In some situations under Medicare's PPS,
    patients with certain complicating conditions could be
    reclassified into different MS-DRGs where the hospital would
    receive a higher payment.
        To avoid additional hospital payments for complications
    that were acquired during patients' admissions, the Deficit
    Reduction Act of 2005 (DRA, P.L. 109-171) required the
    Secretary to initiate a hospital acquired condition (HAC)
    program for Medicare. In creating the HAC program, the
    Secretary was to select conditions that: (1) were high cost,
    high volume, or both; (2) were identified as complicating
    conditions or major complicating conditions; and (3) were
    reasonably preventable through the application of evidenced-
    based guidelines. Starting October 1, 2007, CMS required
    hospitals to report whether Medicare patients had certain
    conditions when they were admitted. Beginning October 1, 2008,
    if the HAC conditions identified by the Secretary were coded as
    present at admission, the conditions would not be considered to
    be acquired during the patient's hospital stay, and the case
    could not receive additional MS-DRG payment. In addition to the
    HAC policy, in January 2009, CMS issued three national coverage
    determinations that precluded Medicare from paying any amount
    for certain serious preventable medical care errors.
        For Medicaid, CMS issued guidance to States in July 2008 to
    help states appropriately align Medicaid inpatient hospital
    payment policies with Medicare's HAC payment policies. In the
    guidance, CMS indicated that for patients eligible for both
    Medicare and Medicaid (dual eligibles), hospitals that were
    denied payment under Medicare might attempt to bill Medicaid
    for HACs as the secondary payer. CMS instructed state Medicaid
    agencies to deny payment when dual eligible beneficiaries
    acquired HACs during a hospitalization. CMS also encouraged
    Medicaid agencies to implement policies to deny payment when
    other Medicaid beneficiaries acquired HACs during a
    hospitalization. CMS directed states to several Medicaid
    authorities to deny payment appropriately for HACs, but unlike
    Medicare, DRA did not specifically apply the HAC initiative to
    Medicaid. Several states have developed and implemented
    policies to prohibit Medicaid payments for conditions acquired
    during the course of care.

    Committee Bill

        Under the Committee Bill, the Secretary would be required
    to issue regulations to be effective July 1, 2011, that would
    prohibit Federal payments to states for Medicaid services
    related to health care-acquired conditions. These regulations
    would be required to ensure that the prohibition on payment for
    health care-acquired conditions would not affect the care or
    services provided to Medicaid beneficiaries. The Secretary
    would define health care-acquired conditions, consistent with
    Medicare's definition of hospital acquired conditions, but
    would not be limited to conditions acquired in hospitals. In
    implementing the requirements in this subsection, the Secretary
    may elect to apply to state Medicaid plans (or waivers) the
    regulations used by the Medicare program for prohibiting
    payments for health care-acquired conditions. The Secretary
    also would be required to identify current state practices that
    prohibit payments for certain health care-acquired conditions.

     SEC. 1673. DEMONSTRATION PROJECT TO EVALUATE INTEGRATED CARE AROUND A
                                HOSPITALIZATION

    Present Law

        No provision.

    Committee Bill

        The Secretary would be required to establish a
    demonstration project under Medicaid to evaluate the use of
    bundled payments to hospitals and physicians for integrated
    care delivered to a Medicaid beneficiary during a
    hospitalization. The project would take place in up to eight
    states, as determined by the Secretary and based on
    consideration of the potential to lower costs under Medicaid
    while improving care for beneficiaries. Under the project,
    selected states could target particular categories of
    beneficiaries (subject to certain conditions), those with
    certain diagnoses, or those in particular geographic regions.
    The project would be required to focus on those conditions in
    which opportunity exists for service providers and suppliers to
    improve the quality of care furnished to Medicaid beneficiaries
    while reducing total expenditures under the state's Medicaid
    program.
        Participating states would be required to specify the one
    or more episodes of care the state proposes to address, the
    services to be included in the bundled payments, among others.
    The Secretary may modify the episodes of care and services to
    be included in the bundled payment and vary such factors among
    the different participating states. The Secretary would also be
    required to ensure that payments are adjusted for severity of
    illness and other characteristics, among others requirements.
    Medicaid beneficiaries would not be liable for any additional
    cost-sharing than if care had not been subject to payment under
    the demonstration project.
        Hospitals participating in the project would be required to
    have, or to establish, robust discharge planning programs to
    ensure that beneficiaries are appropriately placed in, or have
    access to, post-acute care. Beneficiaries could not be provided
    fewer items and services under the project than they would have
    been provided. The Secretary would be given the authority to
    waive statutory requirements to accomplish the goals of this
    demonstration, to ensure beneficiary access to acute and post-
    acute care, and to maintain quality of care. Each participating
    state would be required to provide the Secretary with relevant
    data necessary to monitor outcomes, costs, and quality, and to
    evaluate the rationales for the selection of the episodes of
    care and services specified by the state.
        No later than one year after the conclusion of the
    demonstration project, the Secretary would be required to
    submit a report to Congress on the project's results.

        SEC. 1674. MEDICAID GLOBAL PAYMENT SYSTEM DEMONSTRATION PROJECT

    Present Law

        No provision.

    Committee Bill

        The Secretary, in coordination with the CMS Innovation
    Center (established under section 3021 of the Committee Bill),
    would be required to establish and evaluate the Medicaid Global
    Payment System Demonstration Project, which would create an
    alternative payment methodology for safety net hospital
    systems. Participating states would be required to adjust the
    payments made to an eligible safety net hospital system or
    network from a fee-for-service payment structure to a global,
    capitated payment model. The Secretary would select no more
    than five states to participate in the demonstration project,
    which would operate during fiscal years 2010 to 2012. The
    Innovation Center would be required to test and evaluate the
    demonstration project to examine any changes in health care
    quality outcomes and spending by the eligible safety net
    hospital systems or networks. The Committee Bill would exempt
    the demonstration project from budget-neutrality requirements
    (demonstration projects cannot result in a higher level of
    Federal spending than otherwise would have been the case under
    the state Medicaid program if the demonstration project were
    not implemented) during the initial testing period by the
    Innovation Center. The Secretary would be required to submit a
    report, not later than one year after the date of completion of
    the demonstration project, to Congress that presents the
    findings of the Innovation's Center evaluation and testing,
    together with recommendations for such legislative and
    administrative action as the Secretary determines appropriate.

       SEC. 1675. PEDIATRIC ACCOUNTABLE CARE ORGANIZATION DEMONSTRATION
                                    PROJECT

    Present Law

        No provision.

    Committee Bill

        The Committee Bill would establish a demonstration project,
    which would authorize participating states to allow pediatric
    medical providers who meet certain criteria to be recognized as
    accountable care organizations (ACOs) for the purposes of
    receiving incentive payments, in the same manner as an ACO
    would be recognized and provided with incentive payments under
    Medicare as per section 3022 of the Committee Bill.
        In consultation with states and pediatric providers, the
    Secretary would be required to develop performance guidelines
    to ensure that the quality of care delivered to individuals by
    the ACOs would be at least as high as it would have been absent
    the demonstration project. Participating States, in
    consultation with the Secretary, would be required to establish
    an annual minimum level of savings in expenditures for items
    and services covered under Medicaid and CHIP that would need to
    be achieved by an ACO in order for the ACO to receive an
    incentive payment. ACOs that meet the performance guidelines
    established by the Secretary and achieve savings greater than
    the annual minimal savings level established by the state would
    receive an incentive payment for such year equal to a portion
    (as determined appropriate by the Secretary) of the amount of
    such excess savings. The Secretary would have the authority to
    establish an annual cap on incentive payments for an ACO.

        SEC. 1676. MEDICAID EMERGENCY PSYCHIATRIC DEMONSTRATION PROJECT

    Present Law

        Medicaid does not reimburse for treatment provided to
    patients receiving care in institutions for mental disease
    (IMD), except to those patients under age 21 receiving
    inpatient psychiatric care and individuals age 65 and over.
    IMDs are defined under Medicaid statute as hospitals, nursing
    facilities, or other institutions of more than 16 beds that are
    primarily engaged in providing diagnosis and treatment of
    persons with mental diseases, including medical attention,
    nursing care and related services.
        Federal law requires that hospital-based IMDs which have
    emergency departments provide a medical screening examination
    to individuals for whom an examination or treatment for a
    medical condition is requested. In such cases, the hospital-
    based IMD must provide for an appropriate medical screening
    examination to determine whether or not a medical emergency
    exists. If a medical emergency exists, then the hospital-based
    IMD must provide, within the staff and facilities available at
    the hospital, for further medical examination and treatment as
    may be required to stabilize the medical condition, or to
    transfer the individual to another medical facility, subject to
    certain limitations.

    Committee Bill

        The Secretary of HHS would be required to establish a
    three-year Medicaid demonstration project for up to eight
    states in which eligible states would be required to reimburse
    certain IMDs that are not publicly owned or operated for
    services provided to Medicaid eligibles between the ages of 21
    and 65 who are in need of medical assistance to stabilize a
    psychiatric emergency medical condition.
        The Secretary would be required to establish a mechanism
    for in-stay review to determine whether or not the patient has
    been stabilized. This mechanism would commence before the third
    day of the inpatient stay. The term ``stabilized'' would mean
    that the psychiatric emergency medical condition no longer
    exists with respect to the individual and that the individual
    is no longer dangerous to his or her self or others.
        Eligible states would be selected by the Secretary based on
    geographic diversity and would manage the provision of these
    benefits under the project through utilization review,
    authorization or management practices, or the application of
    medical necessity and appropriateness criteria applicable to
    behavioral health.
        $75 million would be appropriated for fiscal year 2010.
    Such funds would remain available for obligation through
    December 31, 2012.
        To implement this demonstration, the Secretary would be
    required to waive requirements pertaining to limitations on
    payments for serving individuals under age 65 in IMDs,
    statewideness, and comparability.
        The Secretary would be required to submit annual reports to
    Congress on the progress of the demonstration project, as well
    as a final report that includes an evaluation of the
    demonstration's impact on the functioning of the health and
    mental health service system and on Medicaid enrollees.

            PART IX--MEDICAID AND CHIP PAYMENT AND ACCESS COMMISSION

        SEC. 1681. MACPAC ASSESSMENT OF POLICIES AFFECTING ALL MEDICAID
                                 BENEFICIARIES

    Present Law

        The Children's Health Insurance Program Reauthorization Act
    (CHIPRA, P.L. 111-3) established a new Federal commission
    called the Medicaid and CHIP Payment and Access Commission, or
    MACPAC. This commission will review program policies under both
    Medicaid and CHIP affecting children's access to benefits,
    including: (1) payment policies, such as the process for
    updating fees for different types of providers, payment
    methodologies, and the impact of these factors on access and
    quality of care; (2) the interaction of Medicaid and CHIP
    payment policies with health care delivery generally; and (3)
    other policies, including those relating to transportation and
    language barriers.
        Beginning in 2010, by March 1 of each year, the commission
    will submit a report to Congress containing the results of
    these reviews and MACPAC's recommendations regarding these
    policies. Also beginning in 2010, by June 1 of each year, the
    commission will submit another report to Congress containing an
    examination of issues affecting Medicaid and CHIP, including
    the implications of changes in health care delivery in the U.S.
    and in the market for health care services.
        MACPAC must also create an early warning system to identify
    provider shortage areas or other problems that threaten access
    to care or the health care status of Medicaid and CHIP
    beneficiaries.

    Committee Bill

        The Committee Bill would clarify the topics to be reviewed
    by MACPAC including Federal Medicaid and CHIP regulations,
    additional reports of state-specific data, as well as other
    changes. The provision would also authorize $11 million for
    MACPAC for FY2010. Of this total, $9 million would come from
    the Treasury out of any funds not otherwise appropriated, and
    $2 million would come from CHIP funds, and would remain
    available until expended.
        The Committee Bill also expands MACPAC's mission to include
    assessment of adult services in Medicaid, including for dual
    eligbles, and more detailed reporting requirements for states
    and Congress. This assessment would be done in consultation
    with the Medicare Payment Advisory Commission (MedPAC), and
    with respect to recommendations regarding dual eligibles, in
    consultation with the Federal Coordinated Health Care Office
    (established in section 1662 of the Committee Bill).
        In addition, in 2012 and thereafter, to the extent
    feasible, MedPAC shall report aggregate Medicaid and commercial
    trends in spending, utilization, and financial performance for
    providers where, on an aggregate national basis, a significant
    portion of revenue and/or services is associated with Medicaid.
    Where appropriate, this review shall be done in consultation
    with the Medicaid and CHIP Payment and Access Commission
    (MACPAC).

                  PART X--AMERICAN INDIANS AND ALASKA NATIVES

                  SEC. 1691. SPECIAL RULES RELATING TO INDIANS

    Present Law

        No provision for cost sharing in a state exchange. By
    regulation (42 CFR 136.61), the Indian Health Service (IHS) is
    payer of last resort for contract health services. Section 206
    of the Indian Health Care Improvement Act (IHCIA, P.L. 94-437)
    specifies that the Indian Health Service (IHS), and an Indian
    Tribe or a tribal organization (I/T/U) has the right to recover
    reimbursements from third parties for the provision of health
    services. These specified Indian entities can recover costs of
    health services in cases where the individuals would have been
    reimbursed or paid the costs of services if services had been
    provided by a non-governmental provider. Section 206 also
    specifies that these specified Indian entities have the right
    to recover reimbursements from state worker's compensation and
    state no-fault automobile insurance programs and prohibits the
    Federal government's right of recovery in instances where
    health services provided were covered under a self-insurance
    plan that was funded by an I/T/U.
        Sections 1395qq and 1396j of IHCIA permit IHS and I/T/Us to
    receive reimbursements from Medicare and Medicaid and section
    2105(c)(6)(B) of the Social Security Act permitted these
    entities to receive reimbursements from CHIP.
        The Children's Health Insurance Program Reauthorization Act
    of 2009 (CHIPRA, P.L. 111-3) created a state option to
    facilitate Medicaid enrollment. Under CHIPRA, states can rely
    on a finding from specified ``Express Lane'' agencies (e.g.,
    those that administer programs such as Temporary Assistance for
    Needy Families, Medicaid, CHIP, and Food Stamps) to determine
    whether a child under age 19 (or an age specified by the state
    not to exceed 21 years of age) has met one or more of the
    eligibility requirements necessary to determine an individual's
    initial eligibility, eligibility redetermination, or renewal of
    eligibility for medical assistance under Medicaid or CHIP. With
    family consent, states will have the option to institute
    automatic enrollment through an Express Lane eligibility
    determination. Under Present Law, Indian entities including IHS
    and I/T/Us are not eligible ``Express Lane'' agencies.
        Section 1139 of the Social Security Act, as amended by
    CHIPRA, encourages states to take steps to enroll Indians
    residing in or near reservations in Medicaid and CHIP. These
    steps may include outstationing eligibility workers; entering
    into agreements with Indian entities to provide outreach;
    education regarding eligibility, benefits, and enrollment; and
    translation services. The Secretary must facilitate cooperation
    between states and Indian entities in providing benefits to
    Indians under Medicaid and CHIP. This section defined Indians
    in terms of section 4 of the Indian Health Care Improvement
    Act. Under this definition, an Indian is a person who is a
    member of a Federally recognized tribe, band, nation, or other
    organized group or community, including any Alaska Native
    village or group, or regional or village corporation, as
    defined in or established pursuant to the Alaska Native Claims
    Settlement Act (P.L. 92-203).

    Committee Bill

        The Committee Bill would prohibit cost-sharing for Indians
    enrolled in a qualified health benefit plan in the individual
    market through a state exchange. The provision would also
    specify that nothing in the Committee Bill or the amendments
    made by the Committee Bill would affect the right of IHS and I/
    T/Us to recover reimbursements from a third-party in accordance
    with section 206 of IHCIA.
        The Committee Bill would add IHS and I/T/Us to the list of
    agencies that could serve as an ``Express Lane'' agency able to
    determine Medicaid and CHIP eligibility.

      SEC. 1692. ELIMINATION OF SUNSET FOR REIMBURSEMENT FOR ALL MEDICARE
       PART B SERVICES FURNISHED BY CERTAIN INDIAN HOSPITALS AND CLINICS

    Present Law

        Medicare covers specified Part B services provided by, or
    at the direction of, a hospital or ambulatory care clinic
    (whether provider-based or free-standing) that is operated by
    IHS or an I/T/U. These services include physician services,
    health practitioners (physician assistants, nurse anesthetists,
    certified nurse-midwives, clinical social workers, clinical
    psychologists, and registered dietitians or nutrition
    professionals) and outpatient physical therapy services
    provided by physical or occupational therapists. Section 630 of
    the Medicare Prescription Drug, Improvement, and Modernization
    Act of 2003 (MMA, P.L. 108-173) instituted a five-year
    expansion of the items and services covered under Medicare Part
    B when furnished in, or at the direction of, IHS or I/T/U
    hospitals or ambulatory care clinics, applying to items and
    services on or after January 1, 2005. The current five-year
    reimbursement extension will expire on January 1, 2010.

    Committee Bill

        The Committee Bill would remove the sunset and allow IHS,
    IT, and TO services to continue to be reimbursed by Medicare
    Part B indefinitely beginning January 1, 2010.

                   Subtitle H--Addressing Health Disparities

                   SEC. 1701. STANDARDIZED COLLECTION OF DATA

    Present Law

        The Office of Management and Budget (OMB) Directive 15
    outlines standards for the collection of race and ethnicity
    data on Federally-sponsored surveys, administrative forms, and
    other records. OMB Directive 15 does not mandate collection of
    such data. Generally, Federal agencies and Federally-sponsored
    entities must use the Directive 15 categories when collecting
    race and ethnicity data. The requirements may be waived if an
    organization can demonstrate that it is unreasonable to use the
    categories in a particular situation, or if it can be shown
    that race and ethnicity data are not critical to the
    administration of the program seeking this information. OMB
    standards do not apply to state and municipal public health
    departments or to Medicaid. While the standards do apply to the
    Children's Health Insurance Program (CHIP), they are not
    binding on states that opt to use CHIP funding to finance a
    Medicaid expansion or that employ a combined approach.
        Data on race and ethnicity can be collected by asking
    either one or two questions. When data on race and ethnicity
    are collected in two questions, Directive 15 requires using a
    minimum of five racial categories (White, Black or African
    American, American Indian or Alaska Native, Asian, Native
    Hawaiian or Other Pacific Islander) and two ethnic categories
    (``Hispanic or Latino'' or ``not Hispanic or Latino'') and the
    ethnicity question must be asked first. Alternately, if data
    are collected by one question, a minimum of six categories must
    be used, including the five listed above, as well as ``Hispanic
    or Latino.'' Data collection instruments may include additional
    categories such as Mexican-American, Chicano, Puerto Rican,
    Cuban, or Filipino, as long as these categories can be
    aggregated to the standard categories. When individuals are
    asked to self-identify (OMB's preferred method), Directive 15
    also requires that respondents be given the opportunity to
    report multiple races in response to a single question.
    Including ``multiracial'' as an option is not acceptable.
    Finally, persons who identify as Alaska Native should also be
    asked for their tribal affiliation.
        While OMB Directive 15 does not address data on primary
    language, CMS mandates that this information be reported for
    Medicaid beneficiaries. CMS does not require the collection of
    primary language data for CHIP enrollees, their parents, or
    legal guardians. Present Law does not require the collection of
    data on access to care for disabled individuals for any Federal
    health care program or other Federally-sponsored entities.

    Committee Bill

        The Committee Bill would require the Secretary, in
    consultation with the Director of the Office of Personnel
    Management, the Secretary of Defense, the Secretary of Veterans
    Affairs, and the head of other appropriate Federal agencies, to
    establish procedures to ensure that, beginning on January 1,
    2011, all data collected on race, ethnicity, sex, and primary
    language under Federal and state health care programs complies
    with: (1) OMB Directive 15; (2) OMB guidance for Federal
    agencies that collect or use aggregate data on race; and (3)
    OMB guidance for Federal agencies for the allocation of
    multiple race responses for use in civil rights monitoring and
    enforcement.
        The Committee Bill would also require the Secretary, in
    consultation with the above-mentioned agencies, to establish
    procedures, by January 1, 2012, for the CMS Administrator to
    collect data under Federal and state health care programs to
    assess access to care and treatment for individuals with
    disabilities. The section would require such procedures to
    include surveying health care providers to identify: (1) the
    locations where people with disabilities receive primary care,
    acute (including intensive) care, and long-term care; (2) the
    number of providers with accessible facilities and equipment;
    and (3) the number of employees of health care providers
    trained in disability awareness and in caring for patients with
    disabilities.
        This section would apply to any Federal health care
    program, funded directly, in whole or in part, by the Federal
    Government.

                     SEC. 1702. REQUIRED COLLECTION OF DATA

    Present Law

        OMB Directive 15 does not require the collection of data on
    race and ethnicity. Many Federal data collection efforts
    include items measuring race and ethnicity; however, surveys
    often have an insufficient sample size to ensure reliable
    estimates with appropriate statistical precision for
    subpopulations. Sample size also influences the type of
    statistical analysis that can be conducted, for example,
    multivariate analysis to examine reasons for disparities. Some
    surveys use oversampling to increase the precision of
    subpopulation estimates. Other times, data from multiple years
    are combined to produce stable and precise estimates for
    subpopulations.
        The Medicare Improvements for Patients and Providers Act of
    2008 (MIPAA, P.L. 110-275) instructed the Secretary to evaluate
    approaches for collecting disparities data on Medicare
    beneficiaries, and to provide a report to Congress, including
    recommendations for reporting nationally recognized quality
    measures, such as Healthcare Effectiveness Data and Information
    Set (HEDIS) measures, on the basis of race, ethnicity, and
    gender. MIPAA further instructed the Secretary to implement the
    approaches identified in the initial report and, subsequently,
    report back to Congress with recommendations for improving the
    identification of health care disparities among Medicare
    beneficiaries based on an analysis of those efforts.

    Committee Bill

        The Committee Bill would require that Federally-funded
    population surveys collect sufficient data relating to racial,
    ethnic, sex, primary language, and disability subgroups to
    generate statistically reliable estimates in studies comparing
    health disparities among populations. It would ensure that any
    quality reporting requirements under a Federal health care
    program include requirements for the collection of data on
    individuals receiving health care items or services under these
    programs by race, ethnicity, sex, primary language, and type of
    disability. The Committee Bill would also extend the MIPAA
    provisions regarding the collection of health disparities data
    on the Medicare population to Medicaid and CHIP.
        The Committee Bill would require that the Secretary submit
    two reports to Congress. The first, to be submitted not later
    than 18 months after the date of enactment, will include
    approaches for identifying, collecting and evaluating data on
    health care disparities on the basis of race, ethnicity, sex,
    primary language and types of disability for programs under
    Medicaid and CHIP. The report would also include
    recommendations on the most effective strategies for reporting
    HEDIS and other quality measures, as appropriate, on such
    bases. The Committee Bill would also require the Secretary to
    implement the approaches from the evaluation within 24 months
    after the date of enactment.
        The second, to be submitted not later than four years after
    the date of enactment, and four years thereafter, will include
    recommendations for improving identification of health
    disparities for Medicaid and CHIP beneficiaries.

                   SECTION 1703. DATA SHARING AND PROTECTION

    Present Law

        There is no Present Law that requires the Secretary of HHS
    to share health disparities measures, data, and analyses with
    other HHS agencies.

    Committee Bill

        The Committee Bill would require the Secretary of HHS in
    consultation with other appropriate Federal agencies to
    establish procedures for sharing data and relevant analyses on
    race, ethnicity, gender, primary language, and type of
    disability collected under a Federal health care or insurance
    program with other Federal and state agencies, as well as
    agencies within HHS.
        The Committee Bill would also require the Secretary to
    ensure all appropriate privacy and security safeguards are
    followed for the collection, analysis, and sharing of these
    data.

     SEC. 1704. INCLUSION OF INFORMATION ABOUT THE IMPORTANCE OF HAVING A
    HEALTH CARE POWER OF ATTORNEY IN TRANSITION PLANNING FOR CHILDREN AGING
               OUT OF FOSTER CARE AND INDEPENDENT LIVING PROGRAMS

    Present Law

        Transition Planning. A State is required to have in place a
    case review system for each child in foster care to, among
    other things, periodically review the child's status in foster
    care and to develop and carry out a permanency plan for the
    child. As part of the case review system for older children in
    care, a child's caseworker, and as appropriate, other
    representative(s) of the child, are to assist and support him
    or her in developing a transition plan that is to be
    implemented 90 days prior to the time when the child will age
    out of foster care. The plan is to be personalized by the child
    and as detailed as the child may elect. It must include
    specific options on housing, health insurance, education, local
    opportunities for mentors and continuing support services, and
    workforce supports and employment services.
        Independent Living Education. Under the John H. Chafee
    Foster Care Independence Program (CFCIP), States may apply for
    funds to carry out independent living programs for older
    children in foster care and children who have aged out of
    foster care. As part of their application, States must meet
    certain certifications regarding how their programs will be
    carried out.
        Health Oversight and Coordination Plan. Under Title IV-B of
    the Social Security Act, a State is required to maintain a plan
    for child welfare services. As part of the plan, states must
    develop a coordinated strategy and oversight plan to ensure
    access to health care, including mental health services and
    dental care, for all children in foster care. This coordinated
    strategy and oversight plan must be a collaborative effort
    between the state child welfare agency and the state agency
    that administers Medicaid, in consultation with pediatric and
    other health care experts, as well as experts in, or recipients
    of, child welfare services. The strategy and plan must outline:
    (1) a schedule for initial and follow-up health screens; (2)
    how the health needs identified by those screens will be
    monitored and treated; (3) how medical information for children
    in care will be updated and appropriately shared; (4) steps to
    ensure continuity of health care services; (5) oversight of
    prescription medicines; and (6) how the State actively consults
    with and involves medical and non-medical professionals in
    assessing the health and well-being of children in foster care
    and determining their appropriate medical treatment.

    Committee Bill

        The Committee Bill maintains all of the Present Law
    provisions for transition planning but adds that the transition
    plan must also address health care treatment decisions.
    Specifically, it stipulates that the plan is to include
    information about the importance of designating another
    individual to make health care treatment decisions on behalf of
    the child if the child becomes unable to participate in these
    decisions and he or she does not have, or does not want, a
    relative who would otherwise be authorized, under state law, to
    make such decisions. In addition, the plan must provide the
    child with the option to execute a health care power of
    attorney, health care proxy, or other similar document
    recognized under state law.
        The Committee Bill adds a certification that States are to
    ensure that an adolescent participating in the CFCIP is
    provided with education about the importance of designating
    another individual to make health care treatment decisions on
    his or her behalf if the adolescent becomes unable to
    participate in these decisions and the adolescent does not
    have, or does not want, a relative who would otherwise be
    authorized, under state law, to make such decisions. The
    certification must also ensure that the adolescent is educated
    about whether a health care power of attorney, health care
    proxy, or other similar document is recognized under State law,
    and how to execute such a document if the adolescent wants to
    do so.
        The Committee Bill adds a requirement that the health care
    strategy and plan must also outline steps to ensure that the
    components of the transition plan (for children aging out of
    foster care) that address health care needs, are met. These
    components include options for health insurance; information
    about a health care power of attorney, health care proxy, or
    other similar document recognized by State law; and the option
    for the child to execute such a document.
        This Committee Bill would be effective on October 1, 2010.

                 Subtitle I--Maternal and Child Health Services

    SEC. 1801. MATERNAL, INFANT, AND EARLY CHILDHOOD HOME VISITING PROGRAMS

    Present Law

        Title V of the SSA authorizes the Maternal and Child Health
    (MCH) block grant program. The MCH block grant, which is
    administered by the Health Resources and Services
    Administration (HRSA), allocates funding to States based on a
    statutory formula. States use the Title V funds to design and
    implement a wide range of maternal and child health programs.
    The MCH block grant program seeks to: (1) reduce infant
    mortality; (2) increase the number of children appropriately
    immunized against disease; (3) increase the number of children
    in low-income families who receive health assessments and
    follow-up care; (4) provide comprehensive prenatal care to low-
    income and at-risk pregnant women; (5) provide preventive and
    child-care services, and rehabilitative services to disabled
    children; and (6) develop comprehensive, family-centered,
    community-based, culturally-competent, coordinated systems of
    care for children with special health care needs.
        States must submit annual reports on Title V-funded
    activities and demonstrate progress made towards standardized
    MCH status indicators (e.g., live birth rate, low birth weight,
    maternal death rates, and poverty levels) in order to
    facilitate comparison between states. The Secretary compiles
    the data submitted by the states in an annual report to
    Congress. States are required to audit and report on the use of
    their funds at least once every two years.

    Committee Bill

        The Committee Bill would add a new Section 511 in Title V
    of the Social Security Act, Early Childhood Home Visitation
    Programs. The new provision would require States, as a
    condition of receiving the MCH block grant funds for FY2011, to
    conduct a needs assessment to identify communities that are at
    risk for poor maternal and child health and have few quality
    home visitation programs. The needs assessment would identify
    communities that have a concentration of risk factors for
    premature birth, low-birth weight infants, infant mortality,
    poor maternal and child health, poverty, crime, domestic
    violence, high drop-out rates, substance abuse, unemployment,
    and child maltreatment. The needs assessment, which would be
    separate from but coordinated with the assessments currently
    required under Title V and the Head Start Act, would also
    review the state's capacity to provide appropriate services to
    those communities. State would be required to submit the
    results of their needs assessment and their proposed activities
    to the Secretary.
        In addition, the Committee Bill would establish a new state
    grant program for early childhood home visitation. Grantees of
    this new program would be required to establish appropriate
    process and three and five year outcome benchmarks to measure
    improvements in maternal and child health, childhood injury
    prevention, school readiness, juvenile delinquency, family
    economic factors and the coordination of community resources.
    Grantees who do not demonstrate improvement in at least four
    specified areas at the end of the third year of funding would
    receive expert technical assistance.
        The program model(s) chosen to deliver services would
    conform to a clear consistent home visitation model that has
    been in existence for at least three years and is research-
    based, grounded in relevant empirically-based knowledge, linked
    to program determined outcomes, associated with a national
    organization or institution of higher education that has
    comprehensive home visitation standards that ensure high
    quality service delivery and continuous program quality
    improvement, and sustained positive outcomes. The programs can
    be evaluated using well-designed and rigorous randomized
    controlled research designs and the evaluation results have
    been published in a peer-reviewed journal, or the programs have
    been evaluated using well-designed and rigorous quasi-
    experimental research designs. In addition, the grantees would
    be permitted to use 25 percent of the award to fund a promising
    new program model(s) that would be rigorously evaluated.
        Grantees would have to use evidence-based practices to meet
    the process and outcome benchmarks, employ well-trained staff
    and specialists as appropriate, maintain high-quality
    supervision, possess strong organizational capacity and
    linkages in the community, monitor the fidelity of the program
    to ensure that services are delivered in accordance with the
    model, and use research-based models. There would be a priority
    to provide services to families who are determined to be at-
    risk by the needs assessment, and other indicators including
    low-income, young maternal age, and involvement with child
    welfare.
        In order to apply for the grant, eligible entities would
    need to submit a description of the target population, and
    service delivery model, demonstrate consistency with findings
    of the needs assessments, procedures and the benchmarks to be
    used. Grantees would be required to meet maintenance of effort
    standards based on previous spending by using new funds to
    supplement not supplant.
        The provision would require the Secretary to conduct
    evaluations of the state assessments and home visitation
    programs by grant, contract or interagency agreement, including
    a report to Congress by December 31, 2015. It would also
    require intra-agency collaboration among Federal agencies
    including the Administration for Children and Families, the
    Centers for Disease Control and Prevention, National Institute
    of Child Health and Human Development, and the Office of
    Juvenile Justice and Delinquency Prevention, the Institute of
    Education Sciences of the Department of Education.
        The provision would appropriate $1.5 billion between FY2010
    and FY2014 for home visitation programs: $100 million for
    FY2010; $250 million in $250; $350 million for FY2012; $400
    million for FY2013; and $400 million for FY2014. Three percent
    would be used to provide home visitation services to Indian
    families, with eligible entities of Indian tribe, tribal
    organization, and urban Indian organization. At the beginning
    of FY2012, the Secretary may determine which other non-profit
    entities have the capacity to carry out the program and are
    eligible for unexpended amounts to serve a state that did not
    get a grant.

     SEC. 1802. SUPPORT, EDUCATION, AND RESEARCH FOR POSTPARTUM DEPRESSION

    Present Law

        No comparable provision exists in Present Law. However,
    PHSA Sec. 508 authorizes the Secretary to provide residential
    substance abuse treatment for pregnant and postpartum women.

    Committee Bill

        The Committee Bill would promote efforts to expand and
    intensify activities to address postpartum conditions as
    follows. It would define the term postpartum condition to mean
    ``postpartum depression or postpartum psychosis,'' and
    encourage the Secretary to continue specified types of
    research, including epidemiology, clinical research, and public
    education, to expand the understanding of the causes and
    treatments for postpartum conditions.
        The Committee Bill states that it is the sense of Congress
    that the Director of the National Institute of Mental Health
    (NIMH) may conduct a nationally representative longitudinal
    study (during the period FY2010-FY2019) on the relative mental
    health consequences for women of resolving a pregnancy,
    intended and unintended, in various ways. Those ways include
    carrying the pregnancy to term and parenting the child,
    miscarriage, and having an abortion. Subject to the completion
    of such a study, beginning within five years of enactment and
    periodically thereafter for the duration of the study, the NIMH
    Director may submit to Congress reports on the study's
    findings.
        Additionally, the Committee Bill would add to the end of
    Title V of the SSA a new Sec. 512, Services to Individuals with
    a Postpartum Condition and their Families. This provision would
    authorize the Secretary to award grants, in addition to any
    other funds that would be provided to states under this title,
    to eligible entities to establish, operate and coordinate
    effective and cost-efficient systems for the delivery of
    essential services to individuals with postpartum conditions
    and their families. The provision would specify that grant
    funds be used to carry out certain activities such as providing
    education, delivering outpatient and home-based services,
    enhancing inpatient care management, and improving health care
    and social services. It would authorize the Secretary to
    integrate with other grant programs that the Secretary carries
    out, including the health centers program under Sec. 330 of the
    PHSA.
        Grantees would have to agree to the following requirements:
    (1) no more than five percent of the grant funds may be used
    for administrative functions; (2) grant funds may not supplant
    other existing funds; (3) the grantee must abide by any
    limitations that the Secretary places on payment for services;
    (4) grant funds may not used for services that can be paid for
    by certain other payers; (5) the grantee must post conspicuous
    notices about applicable Federal policies on charges; and (6)
    the grantee must submit a report for each grant period on how
    funds were used. The Secretary would be authorized to provide
    technical assistance to help grantees meet these requirements.
        The following provisions in Title V would apply to the
    grant program: (1) Sec. 504(b)(6), relating to prohibition of
    payments to certain excluded individuals and entities; (2) Sec.
    504(c), relating to the use of funds for purchase of technical
    assistance; (3) Sec. 504(d), relating to a limitation on
    administrative expenditures; (4) Sec. 506, relating to reports
    and audits; (5) Sec. 507, relating to penalties and false
    statements; (6) Sec. 508, relating to non-discrimination; and
    (7) Sec. 509(a), relating to grant administration. Entities
    eligible for a grant would include public or nonprofit private
    entities, state or local government public-private
    partnerships, recipients of a Healthy Start grant, public or
    nonprofit private hospitals, community-based organizations,
    hospices, ambulatory care facilities, community health centers,
    migrant health centers, public housing, primary care centers,
    or homeless health centers. The provision would authorize the
    appropriation of $3 million for FY2010, and such sums as may be
    necessary for FY2011 and FY2012 to carry out the grant program.
    The Secretary would be required to study the benefits of
    screening for postpartum conditions and, within two years of
    enactment, submit a report to Congress. Finally, the Secretary
    would be prohibited from using funds under this section to
    duplicate any other HHS activities or programs.

      SEC. 1803. PERSONAL RESPONSIBILITY EDUCATION FOR ADULTHOOD TRAINING

    Present Law

        No provision.

    Committee Bill

        The new provision would amend Title V of the Social
    Security Act to directly appropriate funding for a new program,
    the Personal Responsibility Education for Adulthood Training.
    Programs must be evidence-based, medically accurate. It would
    be a state formula grant program for FY2010 through FY2014 to
    provide personal responsibility education on topics for
    adulthood preparation including healthy relationships,
    adolescent development, financial literacy, parent-child
    communication, educational and career success, financial self-
    sufficiency, health life skills for decision making, pregnancy
    prevention, including abstinence and contraception, and
    awareness of sexually transmitted infection, including HIV/
    AIDS.
        Under the funding allocation formula, each state would
    receive an amount based on the size of its youth population as
    a percentage of the national population. However, each state
    would receive a minimum allotment of at least $250,000 for each
    fiscal year.
        In order to receive the grant, states would have to submit
    an application containing information on recent teen pregnancy
    rates and teen birth rates, state-established goals for
    reduction in teen pregnancy, the state's plan for using the
    funds to reduce pregnancies among certain at-risk youth, and
    other information that the Secretary may require. States would
    be allowed to expend allotted funds through the end of the
    second succeeding fiscal year. States that do not accept the
    grant in FY2010 and FY2011 would not be eligible to apply for
    the funds allotted for the period FY2010 through FY2014. The
    Secretary would be required to use unexpended funds resulting
    from states not submitting an application, or states not
    expending their allocation, to award three-year grants to local
    organizations, including faith-based organizations or
    consortia, in each of FY2012, FY2013 and FY2014, for use as
    required in states that do not apply for the allocations. The
    provision would require maintenance of effort by the state or
    organization receiving these allotments at the FY2009 level.
        The Secretary would be required to reserve certain portions
    of the funds appropriated to carry out this provision for
    certain specified purposes. The Secretary would be required to
    reserve $10 million (out of the $75 million appropriation) to
    award grants to implement innovative teen pregnancy prevention
    strategies and target certain high-risk youth, as specified.
    Grantees would be required to agree to participate in a
    rigorous evaluation of their grant activities. The proposal
    would also require the Secretary to reserve five percent of the
    remainder of the appropriated funds to award grants to Indian
    tribes and tribal organizations. In addition, the Secretary
    would be required to reserve ten percent of the remainder of
    the funds: (1) to establish a teen pregnancy prevention
    resource center; (2) to conduct research, training and
    technical assistance on allotted and grantee programs; and (3)
    to evaluate the activities funded by allotments and grants.
        The Committee Bill would require the Secretary to create a
    national teen pregnancy prevention resource center. The purpose
    of the resource center would be to provide information and
    technical assistance for states, Indian tribes, local
    communities and other organizations that are seeking to reduce
    teen pregnancy rates. The resource center would carry out
    certain specified activities such as synthesizing and
    disseminating effective and promising practices to prevent teen
    pregnancy. The resource center would be required to collaborate
    with other entities with relevant expertise, as specified.
        The Committee Bill would appropriate $75 million for each
    of FY2010 through FY2014 to carry out this section. Amounts
    appropriated under this subsection would remain available until
    expended.

           SEC. 1804. RESTORATION OF FUNDING FOR ABSTINENCE EDUCATION

    Present Law

        Section 510 of the Social Security Act, the Title V
    Abstinence Education Block Grant to states was authorized under
    P.L. 104-193 (the 1996 welfare reform law). The law provided
    $50 million per year for five years (FY1998-FY2003) in Federal
    funds specifically for the abstinence education program. The
    Title V Abstinence Education program is considered a mandatory
    program and is funded by mandatory spending. It is a formula
    grant program. State funding is based on the proportion of low-
    income children in the state compared to the national total.
    Although the program has not been reauthorized, the last
    extension, contained in P.L. 110-275, continued funding for the
    abstinence-only block grant through June 30, 2009. Funds must
    be requested by states when they solicit Title V Maternal and
    Child Health (MCH) block grant funds and must be used
    exclusively for teaching abstinence. To receive Federal funds,
    a state must match every $4 in Federal funds with $3 in state
    funds.

    Committee Bill

        The Committee Bill would amend Sec. 510 of the SSA, by
    appropriating $50 million for each of FY2010 through FY2014.
    For FY2010, the date the appropriation is made would be the
    date of enactment of America's Healthy Future Act of 2009.

        Subtitle J--Programs of Health Promotion and Disease Prevention

         SEC. 1901. PROGRAMS OF HEALTH PROMOTION AND DISEASE PREVENTION

    Present Law

        The Health Insurance Portability and Accountability Act of
    1996 (HIPAA, P.L. 104-191) amended the Employee Retirement
    Income Security Act (ERISA), the Public Health Service Act
    (PHSA), and the Internal Revenue Code (IRC) to improve
    portability and continuity of health coverage. Title I of HIPAA
    created certain nondiscrimination requirements, which provide,
    among other things, that a group health plan and a health
    insurance issuer offering group health coverage may not require
    an individual to pay a higher premium or contribution than
    another ``similarly situated'' participant, based on certain
    health-related factors such as claims experience, receipt of
    health care, medical history, genetic information, evidence of
    insurability, or disability. However, HIPAA clarifies that this
    requirement ``do[es] not prevent a group health plan and a
    health insurance issuer from establishing premium discounts or
    rebates or modifying otherwise applicable copayments or
    deductibles in return for adherence to programs of health
    promotion and disease prevention (i.e., wellness programs).''
        HIPAA regulations provide standards under which a group
    health plan or a health insurance issuer may offer rewards such
    as premium discounts or rebates premiums, waivers of all or
    part of a cost-sharing mechanism under the plan (such as
    deductibles, co-payments or coinsurance), the absence of a
    surcharge, or the value of a benefit which would otherwise not
    be provided under the plan, in exchange for adherence to
    wellness programs.
        The HIPAA wellness program regulations divide wellness
    programs into two categories. In the first category are
    programs in which rewards are based solely on program
    participation. Examples in the existing regulation include
    reimbursing enrollees for the cost of gym membership, waiving
    copayments for parental care, and reimbursing enrollees for the
    cost of smoking cessation programs, regardless of whether they
    successfully quit smoking. Programs in this category are
    automatically permissible.
        Programs in the second category are those in which rewards
    are based on the attainment of certain health standards--for
    example, achieving a targeted cholesterol level, maintaining a
    certain body mass index, quitting smoking, or losing a
    specified amount of weight. Under current regulations, health
    plans can offer such financial incentives only if five criteria
    are met--one of these being that the reward cannot exceed 20
    percent of the cost of the employee's coverage (i.e., the
    employee's premium plus the employer's contribution). The
    regulations also provide that the reward under the program must
    be available to all similarly situated individuals. As part of
    this requirement, a reasonable alternative standard (or waiver
    of the otherwise applicable standard) for obtaining the reward
    must be available for any individual for whom it is
    ``unreasonably difficult'' due to a medical condition to
    satisfy the otherwise applicable standard or it is ``medically
    inadvisable'' to attempt to satisfy the otherwise applicable
    standard.
        The Federal Employees Health Benefits Act (P.L. 86-382),
    establishes a program under which Office of Personnel
    Management (OPM) has the authority to contract with insurance
    carriers to provide health insurance to Federal employees,
    retirees, and their families. The Act sets out various
    additional requirements required for the plans that are
    offered.

    Committee Bill

        The Committee Bill would codify and enhance provisions of
    the HIPAA wellness program regulations, which allow rewards to
    be provided to employees for participation in or for meeting
    certain health standards related to a wellness program.
        Consistent with current regulation, the proposal indicates
    that wellness programs that do not require an individual to
    satisfy a standard related to a health factor as a condition
    for obtaining a reward, or do not offer a reward, are not in
    violation of the HIPAA non-discrimination requirements
    (assuming that participation in the programs is made available
    to all similarly situated individuals). Wellness programs that
    meet this requirement include the following programs:
         A program that reimburses all or part of the cost
    for memberships in a fitness center.
         A diagnostic testing program that provides a
    reward for participation and does not base any part of the
    reward on outcomes.
         A program that encourages preventive care by
    waiving co-payments or deductibles under a group health plan
    for the costs of, for example, prenatal care or well-baby
    visits.
         A program that reimburses employees for the cost
    of smoking cessation programs without regard to whether the
    employee quits smoking.
         A program that provides a reward to employees for
    attending a monthly education seminar.
        The Committee Bill would also allow group health plans and
    health insurance issuers offering coverage in group markets to
    provide rewards, including insurance premium discounts or
    rebates, based on an individual's or an employee's
    participation in wellness programs in which the condition for
    obtaining a reward is based on an individual satisfying a
    standard that is related to a health factor. Under these types
    of wellness programs, additional requirements would have to be
    met. For example, the proposal would cap the reward at 30
    percent of the cost of the employee-only coverage under the
    plan, and would allow the Secretaries of Health and Human
    Services, Department of Labor, and Department of the Treasury
    the discretion to increase the reward up to 50 percent of the
    cost of coverage for adherence to or participation in a
    reasonably designed program of health promotion and disease
    prevention. For purposes of this paragraph, the cost of
    coverage is determined based on the combined amount of
    employers and employee contributions for the benefit package
    under which the employee is (or the employee and any dependents
    are) receiving coverage. In addition, the reward must be
    available to all ``similarly situated'' individuals. As part of
    this requirement, a reasonable alternative standard (or waiver
    of the otherwise applicable standard) for obtaining the reward
    must be available for any individual for whom it is
    ``unreasonably difficult'' due to a medical condition to
    satisfy the otherwise applicable standard or it is ``medically
    inadvisable'' to attempt to satisfy the otherwise applicable
    standard. The wellness program may require verification of
    these circumstances, including a statement from an individual's
    physician.
        In addition, programs which provide rewards based on the
    attainment of certain health standards would need to meet the
    following criteria:
         Be reasonably designed to promote health or
    prevent disease. A program complies with the preceding sentence
    if the program has a reasonable chance of improving the health
    of, or preventing disease in, participating individuals and it
    is not overly burdensome, is not a subterfuge for
    discrimination based on a health status factor, and is not
    highly suspect in the method chosen to promote health or
    prevent disease. The plan or issuer shall evaluate the
    program's reasonableness at least once per year.
         Provide individuals eligible for the program the
    opportunity to qualify for the reward under the program at
    least once a year.
         Plan materials describing the terms of the
    wellness program must disclose the availability of the
    reasonable alternative standard for similarly situated
    individuals, or the possibility that the standard will be
    waived.
        The Committee Bill would apply the above described
    provisions to carriers providing Federal Employees Health
    Benefit Plans. This section would be effective on the date of
    enactment of the proposal, and would apply to contracts that
    take effect with respect to calendar years beginning more than
    one year after that date.
        The proposal would require the Secretaries of Health and
    Human Services and the Treasury to establish a ten-state pilot
    program in 2014. States that choose to participate in the pilot
    program would be allowed to apply the above described
    provisions to programs of health promotion offered in the
    individual market in a manner that is similar to the manner in
    which such provisions apply to group health plans and health
    insurance issuers offering coverage in group markets. States
    participating in the pilot program would be required to ensure
    that consumer protections are met in programs of health
    promotion in the individual market, including verification that
    premium discounts do not create undue burdens or lead to cost
    shifting. In 2017, the demonstration program may be expanded to
    include other states, pending evidence of the program's
    effectiveness as determined by the Secretary of Health and
    Human Services in consultation with the Secretary of Treasury.
    Nothing in this section would preempt any state law (related to
    programs of health promotion offered by a health insurance
    issuer in the individual market) that was established or
    adopted by state law on or after the date of enactment of this
    section.
        Furthermore, this provision would require the Secretary of
    Health and Human Services, in consultation with the Secretary
    of Treasury, and the Secretary of Labor, to submit to the
    appropriate committees of Congress a report examining the
    effectiveness of wellness and disease prevention programs in
    promoting health and preventing disease, the impact of a
    wellness program on a participant's access to care and the
    affordability of coverage, and the impact of premium-based and
    cost-sharing incentives on employee behavior and their role of
    such programs and from state and Federal agencies in changing
    behavior. In developing the report, the Secretaries will gather
    relevant information from employers who provide employees with
    access to wellness programs to gather the above-described
    information. The report will be due no later than three years
    after the date of enactment of the proposal.

                         Subtitle K--Elder Justice Act

        The following are the findings of Congress:
        1. The proportion of the United States population age 60 or
    older will drastically increase in the next 30 years as more
    than 76,000,000 baby boomers approach retirement and old age.
        2. Each year, anywhere between 500,000 and 5,000,000 elders
    in the United States are abused, neglected, or exploited.
        3. Elder abuse, neglect, and exploitation have no
    boundaries, and cross all racial, social class, gender, and
    geographic lines.
        4. Victims of elder abuse, neglect, and exploitation are
    not only subject to injury from mistreatment and neglect, they
    are also 3.1 times more likely than elders who were not victims
    of elder abuse, neglect, and exploitation to die at an earlier
    age than expected.
        5. There is a general dearth of data as to the nature and
    scope of elder abuse, neglect and exploitation. In recognition
    of the need to improve data collection efforts with respect to
    elder abuse, neglect, and exploitation, Congress required the
    Secretary to conduct a study by the end of 2008 on establishing
    a uniform national database on elder abuse under section 405 of
    title IV of Division C of the Tax Relief and Health Care Act of
    2006 (Public Law 109-432).
        6. Despite the dearth of data in the field, experts agree
    that most cases of elder abuse, neglect, and exploitation are
    never reported and that abuse, neglect, and exploitation
    shorten a victim's life, often triggering a downward spiral of
    an otherwise productive, self-sufficient elder's life. Programs
    addressing other difficult issues such as domestic violence and
    child abuse and neglect have demonstrated the need for a
    multifaceted law, combining public health, social service and
    law enforcement approaches.
        7. For over 20 years, Congress has been presented with
    facts and testimony calling for a coordinated Federal effort to
    combat elder abuse, neglect, and exploitation.
        8. The Federal government has been slow to respond to the
    needs of victims of elder abuse, neglect, and exploitation or
    to undertake prevention efforts.
        9. No Federal law has been enacted that adequately and
    comprehensively addresses the issues of elder abuse, neglect,
    and exploitation and there are very limited resources available
    to those in the field that directly deal with the issues.
        10. Differences in State laws and practices in the areas of
    elder abuse, neglect, and exploitation lead to significant
    disparities in prevention, protective, and social services,
    treatment systems, and law enforcement, and lead to other
    inequities.
        11. The Federal government has played an important role in
    promoting research, training, public safety, and data
    collection, and the identification, development, and
    dissemination of promising health care, social and protective
    services, and law enforcement practices, relating to child
    abuse and neglect, domestic violence, and violence against
    women. The Federal government should promote similar efforts
    and protections relating to elder abuse, neglect, and
    exploitation.
        12. The Federal government should provide leadership and
    assist States and communities in efforts to protect elders in
    the United States by--
              A. promoting coordinated planning among all levels of
            government;
              B. generating and sharing knowledge relevant to
            protecting elders;
              C. providing leadership to combat the abuse, neglect,
            and exploitation of the Nation's elders; and
              D. providing resources to States and communities to
            promote elder justice.
        13. The problem of elder abuse, neglect, and exploitation
    requires a comprehensive approach that--
              A. integrates the work of health, legal, and social
            services agencies and organizations;
              B. emphasizes the need for prevention, reporting,
            investigation, assessment, treatment, and prosecution
            of elder abuse, neglect, and exploitation at all levels
            of government;
              C. ensures that sufficient numbers of properly
            trained personnel with specialized knowledge are in
            place to treat, assess, and provide services related to
            elder abuse, neglect, and exploitation and carry out
            the elder protection duties;
              D. is sensitive to ethnic and cultural diversity;
              E. recognizes the role of mental health, disability,
            dementia, substance abuse, medication mismanagement,
            and family dysfunction problems in increasing and
            exacerbating elder abuse, neglect, and exploitation;
            and
              F. balances elders' right to self-determination with
            society's responsibility to protect elders.
        14. The human, social, and economic cost of elder abuse,
    neglect, and exploitation is high and includes unnecessary
    expenditures of funds from many public programs.
        15. The failure to coordinate activities relating to, and
    comprehensively prevent and treat, elder abuse, neglect, and
    exploitation threatens the future and well-being of millions of
    elders in the United States.
        16. All elements of society in the United States have a
    shared responsibility in responding to a national problem of
    elder abuse, neglect, and exploitation.
        The following are the purposes of the Elder Justice Act:
        1. To enhance the social security of the Nation by ensuring
    adequate public-private infrastructure and resolving to
    prevent, detect, treat, understand, intervene in, and where
    appropriate, aid in the prosecution of, elder abuse, neglect,
    and exploitation.
        2. To bring a comprehensive approach to preventing and
    combating elder abuse, neglect, and exploitation, a long
    invisible problem that afflicts the most vulnerable among the
    aging population of the United States.
        3. To raise the issue of elder abuse, neglect, and
    exploitation to national attention, and to create the
    infrastructure at the Federal, State and local levels to ensure
    that individuals and organizations on the front lines, who are
    fighting elder abuse, neglect, and exploitation with scarce
    resource and fragmented systems, have the resources and
    information needed to carry out their fight.
        4. To bring a comprehensive multidisciplinary approach to
    elder justice.
        5. To set in motion research and data collection to fill
    gaps in knowledge about elder abuse, neglect, and exploitation.
        6. To supplement the activities of service providers and
    programs, to enhance training, and to leverage scarce resources
    efficiently, in order to ensure that elder justice receives the
    attention it deserves as the Nation's population ages.
        7. To recognize and address the role of mental health,
    disability, dementia, substance abuse, medication
    mismanagement, and family dysfunction problems in increasing
    and exacerbating elder abuse, neglect and exploitation.
        8. To create short- and long-term strategic plans for the
    development and coordination of elder justice research,
    programs, studies, training, and other efforts nationwide.
        9. To promote collaborative efforts and diminish overlap
    and gaps in efforts in developing the important field of elder
    justice.
        10. To honor and respect the right of all individuals with
    diminished capacity to decision making autonomy, self-
    determination, and dignity of choice.
        11. To respect the wishes of individuals with diminished
    capacity and their family members in providing supportive
    services and care plans intended to protect elders from abuse,
    neglect (including self-neglect), and exploitation.

                             SEC. 1911. SHORT TITLE

    Present Law

        No provision.

    Committee Bill

        The Committee Bill sets forth the title as the Elder
    Justice Act of 2009.

                             SEC. 1912. DEFINITIONS

    Present Law

        No provision.

    Committee Bill

        The Committee Bill would adopt the meaning of any term that
    is defined in Section 2011 of the Social Security Act, as the
    meaning set forth by such section of the Committee Bill.

                            SEC. 1913. ELDER JUSTICE

                                 Elder Justice

    Present Law

        No provision.

    Committee Bill

        The Committee Bill would amend the Social Security Act
    (SSA) by inserting ``Elder Justice'' to an amended Title XX,
    that would be entitled ``Block Grants to States for Social
    Services and Elder Justice.'' The provision would insert a new
    ``Subtitle 1--Block Grants to States for Social Services''
    before Section 2001 of the SSA and add a new ``Subtitle 2--
    Elder Justice.''

    Definitions

    Present Law

        Under Present Law ``abuse,'' ``caregiver,'' ``elder
    justice,'' ``exploitation,'' ``fiduciary,'' ``long-term care,''
    ``long-term care facility,'' ``neglect,'' ``nursing facility,''
    and ``self-neglect'' are defined in the Older Americans Act
    (OAA), and ``sexually violent offense'' is defined in the
    Violent Crime Control and Enforcement Act.

    Committee Bill

        The Committee Bill also defines the following terms: abuse,
    adult protective services, caregiver, direct care, elder, elder
    justice, eligible entity, exploitation, fiduciary, grant,
    guardianship, Indian tribe, law enforcement, long-term care,
    loss of capacity for self-care, long-term care facility,
    neglect, nursing facility, self-neglect, serious bodily injury,
    criminal sexual abuse, social, state legal assistance
    developer, and State Long-Term Care Ombudsman.

    General Provisions

    Present Law

        Section 264 of the Health Insurance Portability and
    Accountability Act of 1996 (HIPAA, P.L. 104-191) governs the
    protection of individual health privacy.

    Committee Bill

        The Committee Bill would require the Secretary to ensure
    the protection of individual health privacy consistent with the
    regulations promulgated under section 264(c) of HIPAA and
    applicable state and local privacy regulations. It would
    prohibit the proposed subtitle from being construed to
    interfere with or abridge an elder's right to practice his or
    her religion through reliance on prayer alone for healing when
    this choice is: (1) expressed, either orally or in writing, (2)
    set forth in a living will, health care proxy, or other advance
    directive documents, or (3) may be deduced from an elder's life
    history.

     PART I--NATIONAL COORDINATION OF ELDER JUSTICE ACTIVITIES AND RESEARCH

     ``Subpart A--Elder Justice Coordinating Council and Advisory Board on
                    Elder Abuse, Neglect, and Exploitation''

                       Elder Justice Coordinating Council

    Present Law

        No provision.

    Committee Bill

        The provision would establish an Elder Justice Coordinating
    Council in the Office of the Secretary composed of the
    following members: the Secretary who will chair the Council and
    the Attorney General. Membership would also include the head of
    each Federal department or agency, identified by the Chair, as
    having administrative responsibility or administering programs
    related to elder abuse, neglect or exploitation. The Council
    would be required to make recommendations to the Secretary
    regarding coordination of activities of HHS, the Department of
    Justice (DoJ), and other relevant Federal, state, local, and
    private agencies and entities, relating to prevention of elder
    abuse, neglect, and exploitation and other crimes against
    elders. The Council would be required to submit a report to the
    appropriate committees of Congress within two years of
    enactment and every two years thereafter that describes its
    activities and challenges; and makes recommendations for
    legislation, model laws, and other actions deemed appropriate.
    The provision also sets forth requirements for powers of the
    Council, membership, meeting requirements, travel expenses, and
    detail of Federal government employees to the Council. Section
    14 of the Federal Advisory Committee Act would not apply to the
    Council.

            Advisory Board on Elder Abuse, Neglects and Exploitation

    Present Law

        No provision.

    Committee Bill

        The Committee Bill would establish the Advisory Board on
    Elder Abuse, Neglect, and Exploitation to create a short- and
    long-term multidisciplinary plan for development of the field
    of elder justice and make recommendations to the Elder Justice
    Coordinating Council. The Board would be composed of 27 members
    from the general public appointed by the Secretary to serve for
    staggered three-year terms, and must have experience and
    expertise in prevention of elder abuse, neglect, and
    exploitation. The Secretary would be required to publish a
    notice in the Federal Register soliciting nominations for
    Advisory Board membership. The Advisory Board would be required
    to develop collaborative approaches to improving the quality of
    long-term services and supports and to establish
    multidisciplinary panels to address these subjects by examining
    relevant research and identifying best practices. Within 18
    months of enactment, and annually thereafter, the Board would
    be required to prepare and submit to the Elder Justice
    Coordinating Council and the appropriate committees of Congress
    a report containing information on Federal, state, and local
    public and private elder justice activities. The report would
    also contain recommendations on programs, research, services,
    practice, enforcement, and coordination among entities that
    carry out elder justice and other related activities;
    modifications needed in Federal and state laws, research,
    training, and national data collection; and on a
    multidisciplinary strategic plan to guide the field of elder
    justice. The provision sets forth requirements relating to
    powers of the Board, vacancies, expired terms, election of
    officers, travel expenses, and detail of government employees
    to the Board. Section 14 of the Federal Advisory Committee Act
    would not apply to the Council.

    Research Protections

    Present Law

        Subpart A of Part 46 of title VL, Code of Federal
    Regulations, known as the Common Rule, that governs most
    Federally-funded human subjects research, currently defines the
    term ``legally authorized representative'' as ``an individual
    or judicial or other body authorized under applicable law to
    consent on behalf of a prospective subject to the subject's
    participation in the procedure(s) involved in the research.''
    No guidelines are currently in place to assist researchers who
    work in the areas of elder abuse, neglect, and exploitation,
    with issues relating to human subjects research.

    Committee Bill

        The Committee Bill would define ``legally authorized
    representative,'' for purposes of research under this subpart,
    to mean, unless otherwise provided by law, the individual, or
    judicial or other body authorized under the applicable law to
    consent to medical treatment on behalf of another person. It
    would also require the Secretary to promulgate guidelines to
    assist researchers working in the areas of elder abuse,
    neglect, and exploitation, with issues relating to human
    subjects protections.

    Authorization of Appropriations

    Present Law

        No provision.

    Committee Bill

        To carry out the functions under this subpart, the
    Committee Bill would authorize to be appropriated $6.5 million
    for FY2010, and $7.0 million for each of FYs 2011-2013.

       ``Subpart B--Elder Abuse, Neglect, Exploitation Forensic Centers''

      Establishment and Support of Elder Abuse, Neglect, and Exploitation
                                Forensic Centers

    Present Law

        No provision.

    Committee Bill

        The Committee Bill would require the Secretary, in
    consultation with the Attorney General, to award grants to
    eligible entities to establish and operate both stationary and
    mobile forensic centers and to develop forensic expertise
    pertaining to elder abuse, neglect, and exploitation. With
    respect to the stationary forensic centers, the Committee Bill
    would require the Secretary to make four grants to higher
    education institutions with demonstrated expertise in forensics
    or commitment to preventing or treating elder abuse, neglect,
    or exploitation; and, with respect to mobile forensic centers,
    the Committee Bill would require the Secretary to make six
    grants to appropriate entities. Funding would be authorized for
    the centers to: (1) develop forensic markers that would
    determine whether abuse or neglect occurred and whether a crime
    was committed, and determine methodologies for how and when
    intervention should occur; (2) develop forensic expertise with
    respect to elder abuse, neglect, and exploitation in order to
    provide relevant evaluation, intervention, support and
    advocacy, case review and tracking; and (3) in coordination
    with the Attorney General, use data made available by grant
    recipients under this section to develop the capacity of
    geriatric health care professionals and law enforcement to
    collect forensic evidence, including forensic evidence relating
    to a potential determination of elder abuse, neglect, or
    exploitation. The provision would authorize to be appropriated
    $4 million in FY2010, $6 million in FY2011, and $8 million for
    each of FYs 2012 and 2013 to carry out these activities.

                   PART II--PROGRAMS TO PROMOTE ELDER JUSTICE

                         Enhancement of Long-Term Care

    Present Law

        The Omnibus Budget and Reconciliation Act of 1987 (OBRA
    1987, P.L. 100-203) established Federal minimum statutory
    requirements that nursing homes must meet in order to receive
    payments for providing health care services to Medicare and
    Medicaid beneficiaries. These provisions apply to skilled
    nursing facilities (SNF) participating in Medicare and nursing
    facilities (NF) participating in Medicaid. Often these
    provisions are identical. OBRA 1987 also established
    requirements pertaining to the survey and certification process
    for determining whether providers meet the requirements for
    participation, and it included penalties the Secretary and
    states may impose against noncompliant providers. The Secretary
    has promulgated regulations and issued accompanying guidance on
    the implementation of the statute. For the purposes of
    determining compliance with these requirements, the Secretary
    contracts with State survey, licensing, and certification
    agencies, often referred to as ``state survey agencies,'' who
    then assume oversight of those providers participating in
    Medicare only and those dually participating in Medicare and
    Medicaid. The state assumes responsibility for oversight of
    those providers participating only in the Medicaid program.
        Medicare and Medicaid law require nursing facilities to
    meet certain Federal statutory requirements for the training
    and competency levels of certified nurse aides (CNAs) working
    in facilities that participate in these programs. Present Law
    and Federal regulation 42 CFR 483.75(e)(2) state that a
    facility may not use a nurse aide for more than four months, on
    a full-time basis, unless the nurse aide has completed a Nurse
    Aide Training and Competency Evaluation Program (NATCEP)
    approved by the state, or completed a competency evaluation
    exam that meets Federal standards. Federal regulation 42 CFR
    483.152 specifies that a state-approved nurse aide training
    program must consist of a minimum of 75 hours of training,
    which includes at least 16 hours of supervised practical or
    clinical training. Some states have chosen to require
    additional hours of classroom and clinical training. Under
    Federal regulation 42 CFR 483.75, facilities must also complete
    a performance review of each CNA at least every 12 months and
    provide a minimum of 12 hours of in-service training per year
    based on the outcome of these reviews.
        Existing health professions education and training programs
    authorized under Title VII of the Public Health Service Act
    (PHSA) provide funding to medical schools and other facilities
    to promote community-based and rural practice, primary care,
    and opportunities for minorities and disadvantaged students.
    Title VIII of the PHSA authorizes a comparable set of programs
    to promote nursing education and training. Appropriations
    authority for most Title VII and VIII programs has expired,
    though many of them continue to receive funding. However, Title
    VII and VIII PHSA education and training programs are not
    specifically directed toward individuals seeking employment as
    direct care providers in long-term care facilities.

    Committee Bill

        The Committee Bill would require the Secretary to carry out
    activities that provide incentives for individuals to train
    for, seek, and maintain employment providing direct care in
    long-term care facilities. Specifically, the Secretary would be
    required to coordinate activities with the Secretary of Labor
    to provide incentives for individuals to train for and seek
    employment as direct care providers in long-term care
    facilities. The Secretary would be required to award grants to
    long-term care facilities to conduct programs that offer direct
    care employees continuing training and varying levels of
    certification. Grants would also be used to provide for or make
    arrangements with employers to pay bonuses, or other increased
    compensation or benefits, to employees who obtain
    certification. To receive grant funds, long-term care
    facilities would submit applications directly to the Secretary.
        The Secretary would also be required to award grants to
    long-term care facilities for training and technical assistance
    to eligible employees regarding management practices using
    methods that are demonstrated to promote retention such as
    those specified. Long-term care facilities would submit
    applications to the Secretary to qualify for grant funds. The
    Secretary would be required to develop accountability measures
    to ensure that funded activities under this subsection benefit
    eligible employees and increase the stability of the long-term
    care workforce.
        The Secretary would be authorized to make grants to long-
    term care facilities (the ``Informatics Systems Grant
    Program'') for specified activities that would assist such
    entities in offsetting the costs related to purchasing,
    leasing, developing, and implementing standardized clinical
    health care informatics systems designed to improve patient
    safety and reduce adverse events and health care complications
    resulting from medication errors. Long-term care facilities
    would submit applications to the Secretary to qualify for grant
    funds. The Secretary would be required to develop
    accountability measures to ensure that funded activities under
    this subsection help improve patient safety and reduce adverse
    events and health care complications resulting from medication
    errors.
        Within one year of enactment of the Committee Bill, the
    Secretary would be required to ensure that the department
    includes, as part of the information provided for comparison of
    nursing facilities on the Federal government's Nursing Home
    Compare website for Medicare beneficiaries, specified
    information related to the number of adjudicated instances of
    criminal violations by a nursing facility or crimes committed
    by an employee of a nursing facility. Within one year of
    enactment of the Committee Bill, the Secretary would be
    required to ensure that the Department, as part of the
    information provided for comparison of nursing facilities on
    the Federal government's Nursing Home Compare website, develops
    and includes a consumer rights information page, as specified.
        The Secretary would be required to develop and adopt
    uniform and open electronic standards for the submission of
    clinical data by long-term care facilities to the Secretary.
    Such standards shall include messaging and nomenclature
    standards. The standards developed and adopted must be
    compatible with standards established under part C of Title XI,
    standards established under subsections (b)(2)(B)(i) and (e)(4)
    of section 1860D-4 of the Social Security Act (SSA), and with
    general health information technology standards. Within ten
    years after the date of the Committee Bill's enactment, the
    Secretary would be required to have procedures in place to
    accept the optional electronic submission of clinical data by
    long-term care facilities.
        The Secretary would be required to promulgate regulations
    to carry out: (1) the inclusion of certain crimes on the
    Nursing Home Compare website; (2) consumer rights information
    page on Nursing Home Compare website; and (3) standards
    involving clinical data by long-term care facilities. Such
    regulations would require a state, as a condition of the
    receipt of funds under Part B, to conduct such data collection
    and reporting as the Secretary determines necessary. The
    provision would authorize to be appropriated $20 million for
    FY2010, $17.5 million for FY2011, and $15 million for each of
    FYs 2012 and 2013 to carry out these activities.

              Adult Protective Service Functions and Grant Program

    Present Law

        No provision exists in Present Law for state formula grants
    that are solely and specifically targeted at providing adult
    protective services and carrying out projects to employ workers
    having caseloads of elders alone. Provisions related to some
    functions of adult protective services are found in Title XX of
    SSA, the Social Services Block Grant program (SSBG),
    administered by the Administration on Children and Families
    (ACF), and in the Older Americans Act (OAA), administered by
    the Administration on Aging (AoA), both in HHS, as follows.
        Title XX of SSA permanently authorizes SSBG as a ``capped''
    entitlement to states to carry out a wide range of social
    services on behalf of various groups. The statute sets out a
    number of goals for the use of these funds, including the goal
    of ``preventing or remedying neglect, abuse, or exploitation of
    children and adults unable to protect their own interests. . .
    .'' Funds are generally administered by state social services
    or human services agencies (for this purpose, sometimes
    referred to as adult protective services offices), and/or state
    agencies on aging. No match is required for Title XX funds, and
    Federal law does not specify a sub-state allocation formula. In
    other words, states have complete discretion for the
    distribution of funds within their borders.
        Title II of OAA authorizes the HHS Assistant Secretary for
    Aging to designate within AoA a person with responsibility for
    elder abuse prevention and services to develop objectives,
    priorities, policy, and a long-term plan for facilitating the
    development, implementation, and improvement of a coordinated,
    multidisciplinary elder justice system; providing Federal
    leadership to support state efforts in carrying out elder
    justice programs; establishing Federal guidelines and
    disseminating best practices for data collection and reporting
    by states; working with states, the DoJ, and other Federal
    entities to disseminate data relating to elder abuse, neglect,
    and exploitation; conducting research related to elder abuse,
    neglect, and exploitation; and promoting collaborative efforts
    and reducing duplicative efforts in the development and
    carrying out of elder justice programs at the Federal, state
    and local levels, among other things. It is also the Assistant
    Secretary's duty, acting through the person with responsibility
    for elder abuse prevention and services, to assist states and
    other eligible entities under Title VII to develop strategic
    plans to better coordinate elder justice activities, research,
    and training (see below).
        Title II of the OAA also requires the Assistant Secretary
    to establish a National Center on Elder Abuse, administered by
    the AoA. The Center is required to, among other things,
    compile, publish and disseminate research and training
    materials on prevention of elder abuse, neglect, and
    exploitation; maintain a clearinghouse on programs showing
    promise in preventing elder abuse, neglect, and exploitation;
    conduct research and demonstration projects that identify
    causes and prevention, and treatment; and provide technical
    assistance to state agencies and other organizations in
    planning and improving prevention programs.
        Title III of the OAA authorizes, but does not require,
    state agencies on aging to conduct various activities related
    to prevention of elder abuse, neglect and exploitation. No
    Federal funds are separately appropriated for this purpose
    under Title III, and states decide how much of their Title III
    allotments are to be used for prevention activities. In many
    states, state agencies on aging administer funds for adult
    protective services funded under Title XX of the SSA (described
    above).
        Title VII of the OAA authorizes a program of grants to
    states to carry out activities related to prevention of elder
    abuse, neglect, and exploitation. Funds are administered by
    state agencies on aging. Title VII, Subtitle B, Native American
    Organization and Elder Justice Provisions of the OAA, also
    authorizes a state grant program to promote comprehensive elder
    justice systems. The Assistant Secretary is authorized to award
    competitive grants to states for elder justice systems which
    are to provide for convenient public access to the range of
    available elder justice information, programs and services;
    coordinate the efforts of public health, social service and law
    enforcement authorities to identify and diminish duplication
    and gaps in the system; and provide a uniform method for
    standardization, collection, management, analysis and reporting
    data on elder justice issues.
        No provision in Present Law specifically authorizes a
    dedicated amount of funds for state adult protective service
    demonstration programs. However, the OAA authorizes a related
    demonstration program, but no specific authorization is
    specified by law. Section 413 of the OAA, Older Individuals'
    Protection from Violence Projects, requires the Assistant
    Secretary to award funds to states, area agencies on aging,
    nonprofit organizations, or tribal organizations to carry out a
    wide range of projects related to protection of older persons
    from violence. Funds are to be used to: support local
    communities to coordinate activities regarding intervention in
    and prevention of abuse, neglect, and exploitation; develop
    outreach to assist victims; expand access to family violence
    and sexual assault programs as well as mental health services,
    safety planning, and other services; and promote research on
    legal organization and training impediments to providing
    services through shelters and other programs.

    Committee Bill

        The Committee Bill would require the Secretary to ensure
    that HHS: (1) provides authorized funding to state and local
    adult protective services offices that investigate reports of
    elder abuse, neglect, and exploitation of elders; (2) collects
    and disseminates related data in coordination with the
    Department of Justice; (3) develops and disseminates
    information on best practices regarding, and provides training
    on, carrying out adult protective services; (4) conducts
    research related to the provision of adult protective services;
    and (5) provides technical assistance to states and other
    entities that provide or fund the provision of adult protective
    services. To carry out these functions, the provision would
    authorize to be appropriated $3 million for FY2010, and $4
    million for each of FYs 2011-2013.
        The Committee Bill would also provide for grants to improve
    Adult Protective Services. Specifically, the Secretary would be
    required to award annual grants to enhance adult protective
    service programs provided by states and local governments.
    Distribution of funds to states would be based on a formula
    that takes into account the number of elders (people age 60 or
    older) residing in a state relative to the total U.S.
    population of elders. States would receive no less than 0.75
    percent of the grant program's annual appropriation. The
    District of Columbia, Puerto Rico, the U.S. Virgin Islands,
    Guam, and American Samoa would receive no less than 0.1 percent
    of the annual appropriation. In order to comply with these
    minimum amount requirements, the Secretary would be required to
    make pro rata reductions in amounts to be allotted.
        Funds would be authorized to be used only by states and
    local governments to provide adult protective services. States
    receiving funds would be required to provide these funds to the
    agency or unit of state government having legal responsibility
    for providing adult protective services in the state. Each
    state would be required to use these funds to supplement and
    not supplant other Federal, state, and local public funds
    expended to provide adult protective services. Each state would
    be required to submit a report to the Secretary on the number
    of elders served by the grants, as specified. The provision
    would authorize to be appropriated $100 million for each of FYs
    2010-2013.
        The provision would require the Secretary to establish
    grants to states for adult protective service demonstration
    programs. Funds may be used by state and local units of
    government to conduct demonstration programs that test:
    training modules developed for the purpose of detecting or
    preventing elder abuse; methods to detect or prevent financial
    exploitation and elder abuse; whether training on elder abuse
    forensics enhances the detection of abuse by employees of state
    or local government; and other related matters. States would be
    required to submit applications to the Secretary. Each state
    receiving funds would be required to submit a report on the
    demonstration to the Secretary, as specified. The provision
    would authorize to be appropriated $25 million for each of FYs
    2010-2013 to carry out these activities.

              Long-Term Care Ombudsman Program Grants and Training

    Present Law

        Title VII of the OAA authorizes allotments for vulnerable
    elder rights protection activities, including the State Long-
    Term Care Ombudsman programs administered by AoA. The purpose
    of the programs are to investigate and resolve complaints made
    by, or on behalf of, older persons who are residents of long-
    term care facilities. There are 53 state Long-Term Care
    Ombudsman programs operating in all 50 States, the District of
    Columbia, Guam, and Puerto Rico, and 569 local programs as of
    2007.
        Title II of the OAA requires the Assistant Secretary for
    Aging to establish the National Long-Term Care Ombudsman
    Resource Center under the Director of the Long-Term Care
    Ombudsman program. The Center is required to, through grants
    and contracts, conduct research, provide training, technical
    assistance and information to support the activities of state
    and local long-term care ombudsmen. The Center also assists
    state long-term care ombudsmen in the implementation of the
    State Long-term Care Ombudsman program.

    Committee Bill

        The Committee Bill would require the Secretary to award
    grants to eligible entities with relevant expertise and
    experience in abuse and neglect in long-term care facilities or
    long-term care ombudsman programs to: (1) improve the capacity
    of state long-term care ombudsman programs to respond to and
    resolve abuse and neglect complaints; (2) conduct pilot
    programs with state or local long-term care ombudsman offices;
    and (3) provide support for such state Long-Term Care Ombudsman
    Programs and such pilot programs. The Committee Bill would
    authorize to be appropriated $5 million for FY 2010, $7.5
    million for FY 2011, and $10 million for FYs 2012 and 2013. The
    Committee Bill would also require the Secretary to establish
    programs to provide and improve ombudsman training with respect
    to elder abuse, neglect, and exploitation for national
    organizations and State Long-Term Care Ombudsman programs. The
    Committee Bill would authorize to be appropriated $10 million
    for each of FYs 2010-2013.

     Provision of Information Regarding, and Evaluation of, Elder Justice
                                    Programs

    Present Law

        No provision.

    Committee Bill

        To be eligible to receive a grant under Part B--Programs to
    Promote Elder Justice, the Committee Bill would require an
    applicant to (1) agree to provide the required information to
    eligible entities conducting an evaluation of the activities
    funded through the grant; and (2) in the case of an applicant
    for a grant under the ``Informatics Systems Grant Program,'' as
    established in the Committee Bill, to provide the Secretary
    with such information as may be required by the Secretary. The
    provision would require the Secretary to reserve a portion of
    the funds appropriated in each program under Part B (no less
    than two percent) to be used to provide assistance to eligible
    entities to conduct validated evaluations of the effectiveness
    of the activities funded under that program. To be eligible to
    receive these funds, an eligible entity must submit an
    application to the Secretary following the timing requirement
    prescribed by the Secretary including a proposal for the
    evaluation. Entities would be required to submit to the
    Secretary and appropriate congressional committees a report
    containing the results of the evaluation together with any
    recommendations deemed appropriate. The report would be due by
    the date specified by the Secretary. These evaluation
    activities would not apply to the Informatics Systems Grant
    Program, instead the Secretary would be required to conduct an
    evaluation of the activities funded under these grants.

                                     Report

    Present Law

        Section 402 of the Social Security Act (SSA) regarding
    eligible states and state plan requirements for Temporary
    Assistance to Needy Families (TANF) does not require State
    agency assistance with the employment of welfare recipients or
    recipients of TANF in long-term care facilities or other
    occupations related to elder care.
        Title XI, Part A of the SSA provides for general provisions
    related to various administrative functions established under
    the Act. Section 1128A of the SSA specifies conditions for
    imposing civil monetary penalties, the process for determining
    the amount or scope of a penalty, assessment, or exclusion, and
    the process for appeal.
        No present law exists concerning a National Training
    Institute for surveyors or grants to state survey agencies.
        No present law exists concerning Federal requirements for
    mandatory reporting of elder abuse. Most states mandate certain
    individuals who assume the care for older adults, including
    health care providers, to report known or suspected cases of
    elder abuse. However, state laws vary as to who is a mandated
    reporter and who is encouraged to report incidents of elder/
    adult abuse. State law also varies as to whether there are
    statutory consequences for failure of mandated reporters to
    report abuse and with regard to specifying a time frame within
    which reporters are required to report suspicion of abuse.
        If a long-term care facility that receives Federal funds
    through participation in Medicare and/or Medicaid closes,
    current Federal laws and regulations provide some guidance on
    the parties that need to be notified and the process for
    relocating residents. If a facility wants to terminate its
    status as a Medicare provider (for example, due to facility
    closure), the facility must notify both the CMS and the public
    no later than 15 days in advance of the proposed termination
    date. If a facility wants to terminate its status as a Medicaid
    provider, Federal regulations do not specify a timeframe for
    notifying Federal or state agencies; however, the facility is
    required to notify Medicaid residents at least 30 days before
    transferring or discharging them. Facility closure is one
    circumstance in which a resident would need to be transferred.
        The state Medicaid agency has the primary responsibility
    for relocating Medicaid patients and for ensuring their safe
    and orderly transfer from a facility that no longer
    participates in Medicaid to a participating facility that meets
    acceptable standards. CMS has provided guidance to States
    concerning relocating patients. Each State is expected to have
    a plan that describes the relocation of patients. Additionally,
    the notice to residents is to include information as to how to
    contact the state Long-Term Care Ombudsman established by the
    OAA.
        Medicare and Medicaid law require states to establish and
    maintain a nurse aide registry of all individuals who have
    satisfactorily completed a state approved nurse aide training
    and competency evaluation program, or a nurse aide competency
    evaluation program. No present law exists concerning a nurse
    aide registry study.

    Committee Bill

        The Committee Bill would set forth reporting requirements
    and add an option for a state's TANF plan to assist individuals
    seeking employment in long-term care facilities. Not later than
    October 1, 2013, the Secretary would be required to submit a
    report to the Elder Justice Coordinating Council and
    appropriate congressional committees, compiling, summarizing,
    and analyzing state reports submitted under the Adult
    Protective Services grant programs and recommendations for
    legislative or administrative action. The provision would also
    amend Section 402(a)(1)(B) of the SSA to add an option for a
    state's TANF plan to indicate whether the state intends to
    assist individuals who train for, seek, and maintain employment
    providing direct care in a long-term care facility or in other
    occupations related to elder care. States that add this option
    would be required to provide an overview of such assistance.
    The amendment would take effect on January 1, 2010.
        The provision would also require the Secretary to enter
    into a contract to establish and operate the National Training
    Institute for Federal and state surveyors to carry out
    specified activities that provide and improve the training of
    surveyors investigating allegations of abuse, neglect, and
    misappropriation of property in programs and long-term care
    facilities that receive payments under Medicare and/or
    Medicaid. The Committee Bill would authorize to be appropriated
    $12 million for each of FYs 2010-2013 to carry out these
    activities.
        The Secretary would be required to award grants to state
    survey agencies that perform surveys of Medicaid and/or
    Medicare participating facilities to design and implement
    complaint investigation systems, as specified. The Committee
    Bill would authorize $5 million for each of FYs 2010-2013 to
    carry out these activities.
        The Committee Bill would amend Part A of Title XI of the
    SSA by adding the following new Section 1150A related to
    ``Reporting to Law Enforcement of Crimes Occurring in Federally
    Funded Long-Term Care Facilities.'' It would require the
    reporting of crimes occurring in Federally funded long-term
    care facilities that receive at least $10,000 during the
    preceding year. The owner or operator of these facilities would
    be required to annually notify each individual who is an owner,
    operator, employee, manager, agent, or contractor of a long-
    term care facility that they are required to report any
    reasonable suspicion of a crime against any person who is a
    resident of or receiving care from the facility. These
    individuals are referred to in this section as ``covered
    individuals.'' Suspected crimes must be reported to the
    Secretary and one or more law enforcement entities for the
    political subdivision in which the facility is located.
        If the events that cause the suspicion of a crime result in
    serious bodily injury, the covered individual must report the
    suspicion immediately, but not later than two hours after
    forming the suspicion. If the events that cause the suspicion
    do not result in serious bodily injury, the individual must
    report the suspicion not later than 24 hours after forming the
    suspicion. If a covered individual does not report suspicion of
    a crime within the timeframe described above, the individual
    will be subject to a civil money penalty of up to $200,000, or
    the Secretary would be required to classify the individual as
    an ``excluded individual'' (i.e., any employer of the
    individual is unable to receive Federal funds) for a period of
    not more than three years.
        If a covered individual does not report his/her suspicion
    of a crime within the timeframe described above and this
    violation exacerbates the harm to the victim, or results in
    harm to another person, the individual will be subject to a
    civil money penalty of up to $300,000, and the Secretary shall
    classify the individual as an ``excluded individual'' (i.e.,
    any employer of the individual is unable to receive Federal
    funds) for a period of not more than three years. If an
    individual is classified as an ``excluded individual,'' any
    entity that employs that individual will not be eligible to
    receive Federal funds. The Secretary would be authorized to
    take into account the financial burden on providers with
    underserved population, as defined, in determining any penalty
    to be imposed under this section.
        A long-term care facility may not retaliate against an
    employee for making a report, causing a report to be made, or
    for taking steps to make a report. Retaliation includes
    discharge, demotion, suspension, threats, harassment, denial of
    a promotion or other employment-related benefit, or any other
    manner of discrimination against an employee in the terms and
    conditions of employment because of lawful acts done by the
    employee. Long-term care facilities may also not retaliate
    against a nurse by filing a complaint or report with the
    appropriate State professional disciplinary agency because of
    lawful acts done by the nurse. If a long-term care facility
    does retaliate, it would be subject to a civil money penalty of
    up to $200,000, or the Secretary may exclude it from
    participation in any Federal health care program for a period
    of two years. Each long-term care facility must post
    conspicuously, in an appropriate location, a sign specifying
    the rights of employees under this section, as described.
        The Committee Bill would also amend Part A of Title XI of
    the SSA to add a new section ``Ensuring Safety of Residents
    when Federally Funded Long-Term Care Facilities Close.'' The
    new Section 1150B would require the owner or operator of a
    long-term care facility (that receives at least $10,000 in
    Federal funds during the previous year) to submit to the
    Secretary and the appropriate State regulatory agency written
    notification of an impending closure within 60 days prior to
    the closure. In the notice, the owner or operator must include
    a plan for transfer and adequate relocation of residents, as
    specified. Within ten days after the facility closes, the owner
    or operator of the facility must submit to the Secretary, and
    the appropriate state agency, information on where the
    residents were transferred to and when. In the case of a long-
    term care facility for which the Secretary has issued a
    termination notice for the facility to close by no later than
    15 days after issuance of such notice, the Secretary would be
    required to establish requirements for the notification,
    transfer, and adequate relocation of residents within an
    appropriate timeframe.
        Anyone who owns a skilled nursing facility that fails to
    comply with the notification of closure and reporting
    requirements would be subject to a civil monetary penalty of up
    to $1 million, exclusion from participation in the programs
    under the SSA, and any other applicable civil monetary
    penalties and assessments. A civil monetary penalty or
    assessment will be imposed in the same manner as a civil
    monetary penalty, assessment or exclusion under Section 1128A
    of the SSA (other than subsection (a) and (b) and the second
    sentence of subsection (f)).
        The Secretary, in consultation with appropriate government
    agencies and private sector organizations, would be required to
    conduct a study on establishing a national nurse aide registry
    that includes an evaluation, as specified. In conducting the
    study and preparing the report the Secretary would be required
    to take into consideration the findings and conclusion of
    relevant reports and resources, as specified. Not later than 18
    months after the date of enactment of the Committee Bill, the
    Secretary would be required to submit a report to the Elder
    Justice Coordinating Council and appropriate congressional
    committees containing the findings and recommendations of the
    study. The Committee Bill would require funding not to exceed
    $500,000 for this study. It would also require the appropriate
    congressional committees to take appropriate action based on
    the recommendations contained in the report. The Committee Bill
    would authorize to be appropriated such sums as may be
    necessary to carry these activities.

                 Subtitle L--Provisions of General Application

        SEC. 1921. PROTECTING AMERICANS AND ENSURING TAXPAYER FUNDS IN
    GOVERNMENT HEALTH CARE PLANS DO NOT SUPPORT OR FUND PHYSICIAN-ASSISTED
        SUICIDE; PROHIBITION AGAINST DISCRIMINATION ON ASSISTED SUICIDE

    Present Law

        Section 3 of the Assisted Suicide Funding Restriction Act
    of 1997 (P.L. 105-12) prohibits funds appropriated by Congress
    to be used to (1) provide any health care item or service
    furnished for the purpose of causing, or assisting in causing,
    the death of any individual, such as by assisted suicide,
    euthanasia, or mercy killing; (2) pay for such an item or
    service, including payment of expenses relating to such an item
    or service; or (3) pay for health benefit coverage that
    includes any coverage of such an item or service or of any
    related expenses. Nothing in the Act is construed to apply to
    or to affect any limitation related to (1) the withholding or
    withdrawing of medical treatment or medical care; (2) the
    withholding or withdrawing of nutrition or hydration; (3)
    abortion; or (4) the use of an item, good, benefit, or service
    furnished for the purpose of alleviating pain or discomfort,
    even if such use may increase the risk of death, so long as it
    is not also furnished for the purpose of causing, or assisting
    in causing, death. These funding restrictions apply to the
    following programs: Medicare, Medicaid, Title XX Social
    Services Block Grant, Maternal and Child Health Block Grant,
    Public Health Service Act, Indian Health Care Improvement Act,
    Federal Employees Health Benefits Program, Military Health Care
    System (including Tricare and CHAMPUS), Veterans Medical Care,
    health services for Peace Corps volunteers, and medical
    services for Federal prisoners.
        With respect to health care items or services, Section 3 of
    the Act also prohibits an item or service furnished for the
    purpose of causing, or assisting in causing, the death of any
    individual, such as by assisted suicide, euthanasia, or mercy
    killing from being furnished by or in a health care facility
    owned or operated by the Federal government, or by any
    physician or other individual employed by the Federal
    government. This applies to facilities and personnel of the
    Military Health Care System, Veterans Medical Care, and the
    Public Health Service.

    Committee Bill

        The provision would prohibit the Federal government, and
    any State or local government or health care provider that
    receives Federal financial assistance under this Committee Bill
    (or under an amendment made by this Committee Bill) or any
    health plan created under this Committee Bill (or under an
    amendment made by this Committee Bill) from (1) paying for or
    reimbursing any health care entity to provide for any health
    care item or service furnished for the purpose of causing, or
    for the purpose of assisting in causing, the death of any
    individual, such as by assisted suicide, euthanasia, or mercy
    killing and (2) subjecting an individual or institutional
    health care entity to discrimination on the basis that the
    entity does not provide any health care item or service
    furnished for the purpose of causing, or assisting in causing,
    the death of any individuals, such as by assisted suicide,
    euthanasia, or mercy killing. The HHS Office of Civil Rights
    would be designated to receive complaints of discrimination on
    this basis.
        Nothing in the above would be construed to apply or to
    affect any limitation relating to (1) the withholding or
    withdrawing of medical treatment or medical care; (2) the
    withholding or withdrawing of nutrition or hydration; (3)
    abortion; or (4) the use of an item, good, benefit, or service
    furnished for the purpose of alleviating pain or discomfort,
    even if such use may increase the risk of death, so long as it
    is not also furnished for the purpose of causing, or assisting
    in causing, death.

      SEC. 1922. PROTECTION OF ACCESS TO QUALITY HEALTH CARE THROUGH THE
          DEPARTMENT OF VETERANS AFFAIRS AND THE DEPARTMENT OF DEFENSE

    Present Law

        No comparable provision. In general, eligibility for health
    care services provided by the Department of Veterans Affairs
    (VA) is based primarily on veteran's status, disability
    resulting from military service, and income. Veterans generally
    must enroll in the VA health care system to receive inpatient
    and outpatient medical care. VA provides this care through its
    network of medical centers, nursing homes, and community-based
    outpatient clinics (CBOCs). Under certain circumstances, VA
    also pays for care provided to veterans by independent
    providers and practitioners on a fee basis. Eligible dependents
    of veterans receive inpatient and outpatient care in the
    private sector under the Civilian Health and Medical Program of
    the Department of Veterans Affairs (CHAMPVA).
        The Department of Defense (DOD) health care system and its
    health plan known as ``TRICARE,'' offers benefits to active
    duty personnel and other beneficiaries, including dependents of
    active duty personnel, military retirees, and dependents of
    retirees. TRICARE has four main benefit plans including a
    health maintenance organization option (TRICARE Prime), a
    preferred provider option (TRICARE Extra), a fee-for-service
    option (TRICARE Standard), and a Medicare wrap-around option
    (TRICARE for Life) for Medicare-eligible retirees. Options
    available to beneficiaries vary by the beneficiary's duty
    status and location. The DOD health system provides health care
    services through either its own medical treatment facilities,
    as space is available, or, through private health care
    providers.

    Committee Bill

        The Committee Bill stipulates that nothing in the bill
    shall prohibit or penalize veterans, eligible military health
    care beneficiaries, or their eligible family members from
    receiving timely access to quality health care from a VA or DOD
    medical treatment facility or a contracted health care provider
    (TRICARE or TRICARE for Life).

               SEC. 1923. CONTINUED APPLICATION OF ANTITRUST LAW

    Present Law

        Current policy is that absent the provision of a specific
    antitrust exemption, one is generally not implied. Thus, the
    antitrust laws are generally assumed to apply to any market
    participant's behavior.

    Committee Bill

        The section makes clear that no provision in the Act
    ``shall be construed to modify, impair, or supersede the
    operation of any of the antitrust laws.'' ``Antitrust laws''
    are defined as those laws set out in subsection (a) of the
    first section of the Clayton Act (15 U.S.C. Sec. 12(a), i.e.,
    the Sherman Act (15 U.S.C. Sec. Sec. 1-7, the Wilson Tariff Act
    (15 U.S.C. Sec. Sec. 8-11), and the Clayton Act itself (15
    U.S.C. Sec. Sec. 12-27)); and also includes section 5 of the
    Federal Trade Commission Act (15 U.S.C. Sec. 45) to the extent
    that it applies to ``unfair methods of competition.''

              Title II--Promoting Disease Prevention and Wellness

                              Subtitle A--Medicare

     SEC. 2001. COVERAGE OF ANNUAL WELLNESS VISIT PROVIDING A PERSONALIZED
                                PREVENTION PLAN

    Present Law

        In addition to a number of specific preventive services
    enumerated in law, Medicare covers a one-time initial
    preventive physical examination (IPPE), with no deductible. The
    IPPE is reimbursable only if provided within one year of
    Medicare Part B enrollment. Medicare does not otherwise cover
    periodic routine health examinations.
        The United States Preventive Services Task Force (USPSTF),
    administered by the Health and Human Services Agency for
    Healthcare Research and Quality (AHRQ), is an independent panel
    of private-sector experts in primary care and prevention that
    assesses scientific evidence of the effectiveness of clinical
    preventive services, including screening, counseling, and
    preventive medications. It provides evidence-based
    recommendations for the use of preventive services, which may
    vary depending on age, gender, and risk factors for disease,
    among other considerations. Services are given a rating of A,
    B, C, D or I. Services rated A or B are recommended. For
    services rated C, USPSTF makes no recommendation for or against
    their routine use. For services rated D, USPSTF recommends
    against routinely providing the service to asymptomatic
    patients, based on evidence that the service is not beneficial
    and may be harmful. Finally, services rated I are deemed to
    have insufficient evidence to recommend for or against their
    routine use.

    Committee Bill

        Beginning in 2011, Medicare would cover an annual wellness
    visit and personalized prevention plan services. Such services
    would include a comprehensive health risk assessment, to be
    completed prior to or as part of a visit with a health
    professional. Health professionals authorized to conduct such a
    visit would be physicians, physician assistants, nurse
    practitioners, clinical nurse specialists, certified registered
    nurse anesthetists, certified nurse-midwives, clinical social
    workers, clinical psychologists, other medical professionals
    (including health educators, registered dietitians, or
    nutrition professionals), or a team of medical professionals,
    as determined appropriate by the Secretary, under the
    supervision of a physician.
        The personalized prevention plan would take into account
    the findings of the health risk assessment and include the
    following required elements: review and update of medical and
    family history; a five- to ten-year screening schedule and
    referral for services recommended by USPSTF; a list of
    identified risk factors and conditions and a strategy to
    address them; a list of all medications currently prescribed
    and all providers regularly involved in the patient's care;
    health advice and referral to education and preventive
    counseling or community-based interventions to address
    modifiable risk factors such as weight, physical activity,
    smoking, and nutrition; measurement of height, weight, body
    mass index (or waist circumference, if appropriate), and blood
    pressure; and other elements determined appropriate by the
    Secretary. Optional elements could include review or referral
    for testing and treatment of possible chronic conditions, a
    cognitive impairment assessment, and administration of or
    referral for appropriate Medicare-covered immunizations and
    screening tests, among others.
        Within one year of enactment, the Secretary would be
    required to publish guidelines for health risk assessments and
    a health risk assessment model. Guidelines would identify
    chronic diseases, modifiable risk factors, and urgent health
    needs. The assessment could be provided through an interactive
    telephonic or web-based program, during an encounter with a
    health professional, or through other means established by the
    Secretary. The Secretary would be required to set standards for
    the electronic tools that could be used to deliver the
    assessment, take steps to make beneficiaries and providers
    aware of the need to conduct such assessment prior to or in
    conjunction with receipt of the personalized prevention plan
    service; and encourage the use of appropriate health
    information technology in carrying out these activities.
        All enrolled beneficiaries would be eligible for the
    wellness visit once every year. No co-payment or deductible
    would apply. The Secretary would be required to issue guidance
    regarding the frequency at which specific elements of the plan
    must be furnished. During the first year of Part B enrollment,
    beneficiaries could receive either the IPPE or the personalized
    prevention plan service, but not both. All required and
    optional plan elements must be covered for the first
    personalized prevention plan visit.
        The amendments made by this section would apply to services
    furnished on or after January 1, 2011.

             SEC. 2002. REMOVAL OF BARRIERS TO PREVENTIVE SERVICES

    Present Law

        In general, Medicare authorizes the Secretary to cover
    services for the diagnosis and treatment of illness, while
    coverage of preventive services has generally required
    legislation. Section 1861 of the Social Security Act requires
    coverage of a number of specified preventive services under
    Medicare Part B, but there is no definition of preventive
    services in the law that refers to them collectively. The
    Social Security Act outlines specific coverage criteria for
    many preventive services, including factors such as the types
    of screenings covered and the age or risk profiles to which a
    service applies. Also, in section 101 of the Medicare
    Improvements for Patients and Providers Act of 2008 (MIPPA,
    P.L. 110-275), Congress provided administrative authority for
    the Secretary to add coverage of additional preventive
    services, if, among other things, such a service is recommended
    with a grade of A or B by the USPSTF. Under Present Law,
    beneficiaries would not be required to make a co-payment for
    any additional preventive service covered under this new
    authority, but the deductible would apply.
        Section 1833(a) of the Social Security Act establishes
    coinsurance for the beneficiary, generally requiring Medicare
    to cover 80 percent of the costs of covered services under Part
    B, with specified exceptions. Section 1833(b) establishes an
    annual deductible for which the beneficiary is responsible.
    These sections have been amended over the years to waive
    coinsurance and/or the deductible for many, but not all,
    covered preventive services.

    Committee Bill

        The Committee Bill would amend section 1861 of the Social
    Security Act to define preventive services covered by Medicare
    to mean a specified list of currently covered services,
    excluding an electrocardiogram, and including colorectal cancer
    screening services regardless of the code applied. The list
    would also include the IPPE, and the personalized prevention
    plan services that would be covered pursuant to section 2001 of
    the Committee Bill. This provision would also clarify the
    definition of additional preventive services that could be
    added pursuant to the Secretary's authority. Coverage would
    continue to be subject to all criteria that apply to each
    listed preventive service under Present Law.
        The Committee Bill would amend section 1833(a) of the
    Social Security Act to waive beneficiary coinsurance
    requirements for most preventive services, requiring Medicare
    to cover 100 percent of the costs. Services for which no
    coinsurance would be required are the IPPE, personalized
    prevention plan services, any additional preventive service
    covered under the Secretary's administrative authority, and any
    currently covered preventive service (including medical
    nutrition therapy and excluding electrocardiograms) if it is
    recommended with a grade of A or B by the USPSTF. The
    subsection would make conforming amendments to clarify that the
    above waivers of coinsurance would apply when such services
    were furnished by hospital outpatient departments.
        The Committee Bill would generally waive the application of
    the deductible for the same types of preventive services for
    which coinsurance would be waived. The deductible waiver would
    apply to colorectal cancer screening services even if, as noted
    above, diagnostic or treatment services were furnished in
    connection with the screening. This provision would not,
    however, waive the application of the deductible to any
    additional preventive service covered under the Secretary's
    administrative authority.
        The amendments made by this section would apply to services
    furnished on or after January 1, 2011.

           SEC. 2003. EVIDENCE-BASED COVERAGE OF PREVENTIVE SERVICES

    Present Law

        Although the Secretary has the authority to add additional
    preventive services if, among other things, the USPSTF
    recommends such services, the Secretary is not authorized to
    modify any statutory criteria for the coverage of currently
    authorized preventive services. Such criteria do not always
    comport with current USPSTF recommendations regarding the use
    of these services.

    Committee Bill

        The Committee Bill would authorize the Secretary to modify
    the coverage of any currently covered preventive service
    (including services included in the IPPE, but not the IPPE
    itself), to the extent that the modification is consistent with
    USPSTF recommendations. The Committee Bill would also prohibit
    payment for any currently covered preventive service rated D by
    the USPSTF. The enhanced authority and the prohibition would
    not apply to services furnished for the purposes of diagnosis
    or treatment. The Committee Bill would appropriate $15 million
    from the Treasury to the Centers for Medicare & Medicaid
    Services (CMS) for FY2010, to remain available until expended,
    for a provider and beneficiary outreach program regarding
    covered preventive services. The Secretary would be authorized
    to use up to $1 million of these funds to study and report to
    Congress certain aspects of preventive services coverage under
    Medicare.
        The Committee Bill would also appropriate $2 million for a
    Government Accountability Office (GAO) study of the utilization
    of and payment for Medicare covered preventive services, the
    use of health information technology in coordinating such
    services, and whether there are barriers to the utilization of
    such services.

       SEC. 2004. GAO STUDY AND REPORT ON MEDICARE BENEFICIARY ACCESS TO
                                    VACCINES

    Present Law

        Medicare coverage and administration of vaccines is
    established in statute. Section 1861(s) of the Social Security
    Act provides Medicare Part B coverage and administration of
    three vaccines: influenza, pneumococcal, and for individuals at
    increased risk, hepatitis B. The Medicare Modernization Act of
    2003 (MMA, P.L. 108-173) provided coverage and administration
    of any other vaccine that is approved by the Food and Drug
    Administration under Part D (when prescribed by a physician).

    Committee Bill

        The Committee Bill would require a GAO study and report to
    Congress on coverage of vaccines under Medicare Part D and the
    impact on access to those vaccines. The Committee Bill would
    appropriate from the Treasury $1 million for FY2010 for this
    study.

                  SEC. 2005. INCENTIVES FOR HEALTHY LIFESTYLES

    Present Law

        No provision.

    Committee Bill

        The Committee Bill would require the Secretary to conduct a
    Medicare demonstration project to test programs that provide
    incentives to reduce the risk of avoidable health problems
    associated with lifestyle choices, including smoking, exercise,
    and diet. Prior to establishing the initiative, the Secretary
    would review evidence concerning healthy lifestyle programs and
    provide incentives to individuals for participating in such
    programs. The Secretary would be required to select not more
    than 10 project sites, according to specific criteria; to
    conduct the project for an initial period of three years,
    beginning not later than July 1, 2010; and to continue for an
    additional two years any program or program component that is
    determined to be effective. The project would include evidence-
    based approaches for tobacco cessation; management of weight,
    cholesterol, and blood pressure; diabetes prevention or
    management; falls prevention; and other effective approaches as
    determined by the Secretary.
        Each participating site would be required to monitor
    participation, validate changes in health risks and outcomes,
    and establish standards and health status targets among
    participating beneficiaries. The Secretary would be required to
    submit an interim report to Congress by January 1, 2014, that
    includes a preliminary evaluation of the project (including an
    independent evaluation of any impact on utilization of health
    services and costs to the Medicare program) and any programs or
    parts of the project that are determined to be effective that
    will be authorized to continue for another two years. The
    Secretary would be required to submit a final report on the
    program to Congress by January 1, 2016, including any
    recommendations for legislative and administrative action.
        Any incentives provided to a participating Medicare
    beneficiary could not be taken into account in determining the
    beneficiary's eligibility for, or amount of benefits under, any
    Federal program.
        To carry out this program, the Committee Bill would
    appropriate from the Treasury to CMS $15 million for each of
    six fiscal years 2010 through 2015. Funds would remain
    available until expended. Of these amounts, $5 million would be
    available for the required evaluations.

                              Subtitle B--Medicaid

     SEC. 2101. IMPROVING ACCESS TO PREVENTIVE SERVICES FOR ELIGIBLE ADULTS

    Present Law

        The United States Preventive Services Task Force (USPSTF),
    administered by the Health and Human Services Agency for
    Healthcare Research and Quality (AHRQ), is an independent panel
    of private-sector experts in primary care and prevention that
    assesses scientific evidence of the effectiveness of clinical
    preventive services, including screening, counseling, and
    preventive medications. It provides evidence-based
    recommendations for the use of preventive services, which may
    vary depending on age, gender, and risk factors for disease,
    among other considerations. Services are given a rating of A,
    B, C, D or I. Services rated A or B are recommended. For
    services rated C, USPSTF makes no recommendation for or against
    their routine use. For services rated D, USPSTF recommends
    against routinely providing the service to asymptomatic
    patients, based on evidence that the service is not beneficial
    and may be harmful. Finally, services rated I are deemed to
    have insufficient evidence to recommend for or against their
    routine use.
        Under Medicaid, states are required to cover a package of
    well-child and preventive service benefits for the majority of
    eligible children under the age of 21, called the early and
    periodic screening, diagnostic, and treatment (EPSDT) services.
    For eligible beneficiaries including adults, states are
    required to cover family planning services and supplies, and
    certain pregnancy-associated services, including prenatal,
    delivery and postpartum care. Otherwise, state coverage of
    screening and preventive services for eligible adults is
    optional.
        With some exceptions, premiums and enrollment fees are
    generally prohibited under traditional Medicaid. When premiums
    and enrollment fees are applicable, nominal amounts for such
    charges range from roughly $1 to $19 per month, depending on
    family income. States are also allowed to establish nominal
    service-related cost-sharing requirements, which generally
    range from $0.50 to $3, depending on the cost of the service
    provided.
        The Deficit Reduction Act of 2005 (DRA, P.L. 109-171) gave
    states an option to apply higher premium and cost-sharing
    obligations to certain Medicaid beneficiaries. As with
    traditional Medicaid, specific groups (e.g., some children,
    pregnant women, and individuals with special needs) are exempt
    from the DRA premium provisions. Likewise, specific services
    and groups (e.g., some children, pregnant women for pregnancy-
    related services, individuals receiving hospice care, and
    residents of certain institutions) are exempt from service-
    related cost-sharing under both traditional Medicaid and the
    DRA.

    Committee Bill

        The current state option to provide other diagnostic,
    screening, preventive, and rehabilitation services would be
    expanded to include: (1) any clinical preventive service
    assigned a grade of A or B by the USPSTF and (2) with respect
    to adults, immunizations recommended by the Advisory Committee
    on Immunization Practices (ACIP) and their administration.
    States that elect to cover these additional services and
    vaccines, and also prohibit cost-sharing for such services and
    vaccines, would receive an increased Federal medical assistance
    percentage (FMAP) of one percentage point for these services,
    and for counseling and pharmacotherapy for cessation of tobacco
    use by pregnant women (described below). The effective date for
    this provision would be January 1, 2013.

      SEC. 2102. COVERAGE OF COMPREHENSIVE TOBACCO CESSATION SERVICES FOR
                                 PREGNANT WOMEN

    Present Law

        Under the optional Medicaid prescription drug benefit,
    states are permitted to exclude coverage of 11 drug classes,
    including barbiturates, benzodiazepine, and smoking cessation
    products. Medicaid programs may cover tobacco cessation
    counseling services for pregnant women.
        With some exceptions, premiums and enrollment fees are
    generally prohibited under traditional Medicaid. When premiums
    and enrollment fees are applicable, nominal amounts for such
    charges range from roughly $1 to $19 per month, depending on
    family income. States are also allowed to establish nominal
    service-related cost-sharing requirements, which generally
    range from $0.50 to $3, depending on the cost of the service
    provided.
        The Deficit Reduction Act of 2005 (DRA, P.L. 109-171) gave
    states an option to apply higher premium and cost-sharing
    obligations to certain Medicaid beneficiaries. As with
    traditional Medicaid, specific groups (e.g., some children,
    pregnant women, and individuals with special needs) are exempt
    from the DRA premium provisions. Likewise, specific services
    and groups (e.g., some children, pregnant women for pregnancy-
    related services, individuals receiving hospice care, and
    residents of certain institutions) are exempt from service-
    related cost-sharing under both traditional Medicaid and the
    DRA.

    Committee Bill

        States would be required to provide Medicaid coverage for
    counseling and pharmacotherapy to pregnant women for cessation
    of tobacco use. Such services would include diagnostic, therapy
    and counseling services, and pharmacotherapy (including the
    coverage of prescription and nonprescription tobacco cessation
    agents approved by the Food and Drug Administration) for
    cessation of tobacco use by pregnant women. These services
    would be limited to those recommended for pregnant women in
    ``Treating Tobacco Use and Dependence'' (published by the
    Public Health Service in May 2008, or any subsequent
    modification of such Guideline), and other services that the
    Secretary recognizes to be effective for cessation of tobacco
    use by pregnant women. These services would exclude coverage
    for drugs or biologics that are not otherwise covered under
    Medicaid.
        With respect to the prescription drug benefit under
    Medicaid, states would continue to be allowed to exclude
    coverage of agents used to promote smoking cessation, except in
    the case of pregnant women, in accordance with this provision
    as described above.
        Finally, the Committee Bill would prohibit cost-sharing
    under traditional Medicaid for counseling and pharmacotherapy
    provided to pregnant women for cessation of tobacco use, as
    well as for covered outpatient prescription and non-
    prescription drugs used by pregnant women to promote tobacco
    cessation. With respect to the DRA cost-sharing option, the
    provision would also prohibit cost-sharing for counseling and
    pharmacotherapy provided to pregnant women for cessation of
    tobacco use.
        These provisions would take effect on October 1, 2010.

                  SEC. 2103. INCENTIVES FOR HEALTHY LIFESTYLES

    Present Law

        No provision.

    Committee Bill

        The Secretary of HHS would award grants to states to
    provide incentives for Medicaid beneficiaries to participate in
    programs providing incentives for healthy lifestyles. These
    programs must be comprehensive and uniquely suited to address
    the needs of Medicaid-eligible beneficiaries and must have
    demonstrated success in helping individuals lower or control
    cholesterol and/or blood pressure, lose weight, quit smoking
    and/or manage or prevent diabetes, and may address co-
    morbidities, such as depression, associated with these
    conditions. The purpose of this initiative is to test
    approaches that may encourage behavior modification and
    determine scalable solutions.
        The Committee Bill authorizes $100 million in funding for
    these grants during a five-year period. The Secretary shall
    award grants beginning on January 1, 2011 or when the Secretary
    develops program criteria, whichever comes first. These
    criteria will be developed using relevant evidence-based
    research including the Guide to Community Preventive Services,
    the Guide to Clinical Preventive Services, and the National
    Registry of Evidence-Based Programs and Practices. State
    initiatives shall last at least 3 years and must be carried out
    during the five-year authorization period.
        In order to carry out this initiative the Secretary may
    waive Medicaid requirements related to statewideness and
    comparability.
        The Secretary would set targets for measuring health status
    improvements. After the Secretary develops criteria and
    institutes an outreach and education campaign to make states
    aware of the grants, states could design a proposal and apply
    for such funds to provide incentives to Medicaid enrollees who
    successfully complete healthy lifestyle programs. States are
    permitted to collaborate with community-based programs, non-
    profit organizations, providers, and faith-based groups, among
    others. The state is required to establish a system to monitor
    beneficiary participation and validate health outcomes,
    establish standards and health status targets for participants,
    evaluate the effectiveness of the program and provide the
    Secretary with these evaluations, report to the Secretary on
    processes that have been developed and lessons learned, and
    report on preventive services as part of reporting on quality
    measures of Medicaid managed care programs. A state awarded a
    grant shall submit semi-annual reports including information on
    the specific use of the funds, an assessment of program
    implementation, an assessment of quality improvements, and an
    estimate of the cost savings resulting from such program.
        The Committee Bill provides for an independent assessment
    of the initiatives as well. An initial report shall be
    submitted to Congress by the Secretary no later than January 1,
    2014. This initial report shall include an interim evaluation
    based on information provided by the states and a
    recommendation regarding whether funding for expanding or
    extending the initiatives should continue beyond January 1,
    2016. A final report would be submitted not later than July 1,
    2016 that would include the independent assessment together
    with recommendations for appropriate legislative and
    administrative actions.
        Any incentives received by a beneficiary shall not be taken
    into account for the purpose of determining eligibility for, or
    the amount of benefits under, any program funded with Federal
    funds.

      SEC. 2104. STATE OPTION TO PROVIDE HEALTH HOMES FOR ENROLLEES WITH
                               CHRONIC CONDITIONS

    Present Law

        No provision.

    Committee Bill

        Beginning January 1, 2011, the Committee Bill would
    establish a new Medicaid state plan option under which Medicaid
    enrollees with: (1) at least two chronic conditions or (2) one
    chronic condition and at risk of having a second chronic
    condition (including a serious and persistent mental health
    condition), could designate a provider as a health home.
    Qualifying health home providers, including providers that work
    in teams of health care professionals, would provide:
    comprehensive, timely, and high-quality care management; care
    coordination and health promotion; transitional care, including
    appropriate follow-up from inpatient to other settings; patient
    and family support; referral to community and social support
    services, if relevant; and use of health information technology
    to link services, as feasible and appropriate.
        Health home providers would include physicians, clinical
    practice or clinical group practices, rural clinics, community
    health centers, community mental health centers, home health
    agencies, or other entities or providers (including
    pediatricians and obstetricians) approved by the Secretary.
    They would be required to meet certain standards established by
    the Secretary and to demonstrate that they have the systems and
    infrastructure in place to provide health home services. Teams
    of health care professionals would include physicians and other
    professionals, such as a nurse care coordinator, nutritionist,
    social worker, behavioral health professional, or any
    professional deemed appropriate by the state. Such teams could
    be free-standing, virtual, or based at a hospital, community
    health clinic, clinical practice, clinical group practice, or
    academic health center, as deemed appropriate by the state and
    approved by the Secretary.
        States would be required to make Medicaid payments to each
    provider, or to the team of health home professionals, for the
    health home services it provides to each eligible participant.
    The state would be required to specify the methodology it would
    use to pay health home providers in its state plan amendment.
    Such methodologies would be required to result in sufficient
    payments to enlist enough providers in a geographic area, and
    be consistent with efficiency, economy, and quality of care,
    among other requirements. Methodologies could also be tiered to
    reflect the severity or number of each individual's chronic
    conditions, and the specific capabilities of the provider or
    team. Methodologies would not be limited to a per-member per-
    month payment.
        States would be reimbursed by the Federal government at an
    enhanced FMAP rate of 90 percent for these payments for the
    first eight fiscal quarters that the state plan amendments
    would be in effect. In addition, the Secretary would award
    planning grants to states, the total of which could not exceed
    $25 million, to develop state plan amendments for health home
    services. States must also contribute its state's share for
    each fiscal year for which the grant is awarded.
        States would be required to mandate Medicaid-participating
    hospitals to establish procedures for referring any eligible
    individual with chronic conditions who seeks or needs treatment
    in a hospital emergency department to designated providers. As
    appropriate, states would also be required to consult and
    coordinate with the Substance Abuse and Mental Health Services
    Administration in addressing the prevention and treatment of
    mental illness and substance abuse among eligible individuals
    with chronic conditions.
        The state plan amendment would include methodology for
    tracking avoidable hospital readmissions and calculating
    savings that result from improved chronic care coordination and
    management. It would also include a proposal for the use of
    health information technology in providing these Medicaid-
    covered health home services and in improving service delivery
    and coordination across the care continuum.
        Designated providers would be required to report to the
    state on all applicable measures, in accordance with
    requirements specified by the Secretary, to determine the
    quality of such services. When appropriate and feasible, a
    designated provider would be required to use health information
    technology to provide the state with such information.
        The Secretary would be allowed to establish higher levels
    of eligibility in regards to the number or severity of chronic
    or mental health conditions. Chronic conditions would include,
    a mental health condition, substance abuse, asthma, diabetes,
    heart disease, and being overweight, as evidenced by a body
    mass index (BMI) over 25.
        No later than January 1, 2013, the Secretary would be
    required to enter into a contract with an independent entity or
    organization to conduct an evaluation and assessment of the
    states that have elected the option to provide coordinated care
    through a health home for Medicaid beneficiaries with chronic
    conditions to determine its effect on reducing hospital
    readmissions, emergency room visits, and admissions to skilled
    nursing facilities. The Secretary would be required to report
    to Congress on this evaluation and assessment no later than
    January 1, 2017.
        No later than January 1, 2014, the Secretary would be
    required to survey states and report to Congress on the nature,
    extent, and use of this option, particularly as it pertains to
    hospital admission rates, chronic disease management, and
    coordination of care for individuals with chronic conditions,
    among others. States would be required to report to the
    Secretary, as necessary, on processes that have been developed
    and lessons learned.

         SEC. 2105. FUNDING FOR CHILDHOOD OBESITY DEMONSTRATION PROJECT

    Present Law

        The Children's Health Insurance Program Reauthorization Act
    of 2009 (CHIPRA, P.L. 111-3) included several provisions
    designed to improve the quality of care under Medicaid and
    CHIP. Among other quality initiatives this law directed the
    Secretary to initiate a demonstration project to develop a
    comprehensive and systematic model for reducing childhood
    obesity. Twenty-five million dollars was authorized to be
    appropriated over fiscal years 2009 through 2013.

    Committee Bill

        The Committee Bill authorizes and appropriates $25 million
    for the childhood obesity demonstration project and adjusts the
    demonstration time period to fiscal years 2010 through 2014.

     SEC. 2106. PUBLIC AWARENESS OF PREVENTIVE AND OBESITY-RELATED SERVICES

    Present Law

        No provision.

    Committee Bill

        This Committee Bill would require the Secretary to provide
    guidance and relevant information to states and health care
    providers regarding preventive and obesity-related services
    that are available to Medicaid enrollees, including obesity
    screening and counseling for children and adults. Each state
    would be required to design a public awareness campaign to
    educate Medicaid enrollees regarding availability and coverage
    of such services. The Secretary would be required to report to
    Congress on these efforts, beginning on January 1, 2011, and
    every three years thereafter, through January 1, 2017.

         Title III--Improving the Quality and Efficiency of Health Care

            Subtitle A--Transforming the Health Care Delivery System

     PART I--LINKING PAYMENT TO QUALITY OUTCOMES UNDER THE MEDICARE SYSTEM

               SEC. 3001. HOSPITAL VALUE-BASED PURCHASING PROGRAM

    Present Law

        As required by the Medicare Prescription Drug, Improvement
    and Modernization Act (MMA, P.L. 108-173), since FY2005, acute
    care hospitals that submit required quality data have received
    higher payments than those hospitals that do not submit such
    information under Medicare's Reporting Hospital Quality Data
    for Annual Payment Update (RHQDAPU) program (often referred to
    as the hospital pay-for-reporting program or P4R program). As
    subsequently modified by Section 5001(a) of the Deficit
    Reduction Act of 2005 (DRA, P.L. 109-171), beginning in FY2007,
    hospitals were required to submit data for an expanded set of
    quality measures to participate in the RHQDAPU program, and
    nonparticipating hospitals received a reduction of 2.0
    percentage points in their Medicare annual update for that
    fiscal year.
        The Secretary has the authority to expand the set of
    measures that are included in the RHQDAPU program.
    Specifically, the Secretary can add other measures that reflect
    consensus among affected parties and, to the extent feasible
    and practicable, can include measures set forth by one or more
    national consensus building entities. The Secretary may replace
    any measures or indicators in appropriate cases, such as where
    all hospitals are effectively in compliance or the measures or
    indicators have been subsequently shown not to represent the
    best clinical practice.
        Currently, there are 44 quality measures collected in the
    RHAQDPU program that impact the FY2010 payment update. In some
    cases, the Centers for Medicare and Medicaid Services (CMS)
    gathers quality information by abstracting claims data. In
    these instances, hospitals are not required to report data on
    these specific measures since the information is collected
    directly by CMS. Today, the RHAQDPU program collects quality
    data on the following conditions: acute myocardial infarction
    (AMI); heart failure; pneumonia; and surgical care improvement.
    The program also collects information on 30-day mortality rates
    for AMI, heart failure and pneumonia patients; readmission
    rates for heart failure, AMI, and pneumonia; a nursing
    sensitive measure; several Agency for Health Care Research and
    Quality (AHRQ) Patient Safety and Inpatient Quality Indicators;
    a indicator for participation in the cardiac surgery data base;
    and patients' experience of care through the Hospital Consumer
    Assessment of Healthcare Providers and Systems (HCAHPS) survey.
        Procedures for making reported quality data available to
    the public must be established and hospitals must be granted
    the opportunity to review quality data prior to such
    information being made public. The required quality measures of
    process, structure, outcome, patients' perspectives on care,
    efficiency, and costs of care that relate to services furnished
    in inpatient settings in hospitals must be reported on the
    Internet website of CMS. Currently, individual hospital
    performance on specific quality measures and on certain
    conditions is available on Hospital Compare available on the
    CMS website.
        DRA also required the Secretary to formulate and report on
    a plan to implement a value-based purchasing program for
    payments under the Medicare program for acute care hospitals
    (also referred to as IPPS or subsection (d) hospitals)
    beginning with FY2009. On November 17, 2007, CMS responded to
    this mandate by releasing the report, ``Report to Congress:
    Plan to Implement a Medicare Hospital Value-Based Purchasing
    Program.'' This report recommends expanding the RQHDAPU program
    in order to financially reward hospitals differentially for
    performance, rather than for simply reporting quality data.
    Public reporting of performance would be a key component, as
    well.
        As of 2008, nearly 95 percent of the acute care hospitals
    successfully participated in the RHAQDPU program, which means
    that the majority of the hospitals paid under Medicare's
    inpatient prospective payment system (IPPS) complied with the
    quality data reporting requirements and were not subject to
    payment penalties that would have occurred in the case of not
    meeting the reporting requirements.

    Committee Bill

        Starting for discharges on October 1, 2012, the Secretary
    would establish a hospital value-based purchasing (VBP) program
    in Medicare to provide incentive payments to acute care
    hospitals (referred to as subsection (d) hospitals) that meet
    established performance standards for the performance period in
    a fiscal year. The first year of the program would be a data
    collection/performance baseline year. Beginning in FY2013,
    hospital payments would be adjusted based on performance under
    the VBP program. Certain hospitals would be excluded from the
    VBP program, including those that fail to report quality
    measures under the RHQDAPU program; those that have been cited
    by the Secretary for deficiencies that posed immediate jeopardy
    to the health or safety of patients during the performance
    period; and hospitals for which a minimum number of patients
    with conditions related to the quality measures or a minimum
    number of quality measures do not apply. The Secretary would
    conduct an independent analysis to determine the standard to
    determine these minimum numbers.
        The Secretary would select measures for the hospital VBP
    program from those used in the RHQDAPU program. In FY2013, the
    measures would cover at least the following five conditions:
    heart attack (AMI); heart failure; pneumonia; surgeries (as
    measured by the Surgical Care Improvement Project); patient
    perception of care; and healthcare-associated infections (as
    measured by the prevention metrics and targets established by
    the HHS Action Plan to Prevent Healthcare-Associated Infections
    or any successor plan issued by the Department of Health and
    Human Services plan). For VBP payments for discharges occurring
    during FY2014 and subsequently, the Secretary would ensure that
    measures would include efficiency measures. Such measures would
    include Medicare spending per beneficiary adjusted by factors
    including age, sex, race, severity of illness and other
    appropriate factors.
        The Secretary would not select a measure for the VBP
    program for a performance period in a fiscal year unless it has
    been included the RQHDAPU program and included on the Hospital
    Compare Internet website for at least 1 year prior to the
    beginning of the performance period. The measures would not
    apply to a hospital if it does not furnish services appropriate
    to the measure. The Secretary would have the same authority to
    replace a measure if it is found that all hospitals are
    effectively in compliance with the measure or if the measure no
    longer represents a best practice as in the RQHDAPU program.
        The Secretary would establish performance standards with
    respect to the VBP measures for a performance period for a
    fiscal year. These standards would include levels of
    achievement and improvement. The performance standards would be
    announced at least 60 days prior to the performance period for
    which they would apply. The following factors would be
    considered when establishing the standards: practical
    experience with the measures, historical performance standards,
    improvement rates, and the opportunity for continued
    improvement. The established performance period would begin and
    end prior to the beginning of the fiscal year.
        The Secretary would develop a methodology for assessing the
    total performance of each hospital based on the standards for
    the selected measures for the period. Using this methodology,
    the Secretary would provide for an assessment or hospital
    performance score for each hospital for the relevant period.
        The Secretary would ensure that the resulting distribution
    of value-based incentive payments among hospitals with
    different levels of performance scores was appropriate;
    hospitals with the highest scores would receive the largest VBP
    payments. The methodology would provide that the hospital
    performance score is determined using the higher of its
    achievement or improvement score for each measure. This
    methodology would include the assignment of weights for
    appropriate categories of measures. There would not be a
    minimum performance standard in determining the performance
    score for any hospital. A hospital's performance score would
    reflect the measures that apply to the hospital.
        Hospitals that meet or exceed the established standards for
    a performance period would receive an increased base operating
    DRG payment for each discharge in the fiscal year. The increase
    would be the VBP payment amount which a percentage of the base
    operating DRG payment, as specified by the Secretary for a
    hospital. In establishing this percentage, the Secretary would
    ensure that the percentage increase is related to the
    hospital's performance score and the total amount of VBP
    payments to hospitals in a fiscal year equals the total amount
    available for such payments. This total amount would equal the
    amount of the reduction in acute care hospital payments.
        Starting in FY2013, the Secretary would reduce the base
    operating DRG payment for a hospital for each discharge in a
    fiscal year by an applicable percentage. These reductions would
    apply to all hospitals regardless of whether or not the
    hospital would receive a VBP payment for that year. The
    applicable percentage would be 1.0 percent in FY2013; 1.25
    percent in FY2014; 1.5 percent in FY2015; 1.75 percent in
    FY2016; and 2.0 percent in FY2017 and in subsequent years. The
    base operating DRG payment would be the IPPS payment amount
    that would otherwise be paid for a discharge reduced by any
    payment attributable to outlier status, indirect medical
    education adjustments, disproportionate share hospital
    adjustments, or low volume hospital adjustments. Special
    payments to Medicare dependent hospitals and sole community
    hospitals would be exempt as well.
        The Secretary would inform each hospital of the adjustments
    to the discharge payments no later than 60 days prior to the
    start of each fiscal year. Payment adjustments or reductions
    under the hospital VBP program would only apply to a relevant
    fiscal year and would not be taken into account in calculating
    payments in future fiscal years.
        Individual hospital performance on each specific quality
    measure, on each condition or procedure, and on total
    performance would all be publicly reported. The Secretary would
    ensure that a hospital has the opportunity to review and
    correct the information prior to it being publicly reported.
    The information would be posted on the Hospital Compare
    Internet website in an easily understandable format. Aggregate
    information on VBP payments would be periodically published
    including the number of hospitals receiving incentive payments
    (as well as the range and total amount of the VBP payments) and
    the number of hospitals receiving less than the maximum VBP
    incentive payments (as well as the range and total amount of
    the VBP payments).
        A process would be established that allows hospitals to
    appeal their performance assessment and score; these appeals
    would be resolved in a timely manner. There would be no
    judicial or administrative review of the following items: (1)
    the methodology used to determine the amount and determination
    of the VBP payments; (2) the determination of the amount of
    available VBP payments; (3) the establishment of the hospital
    performance standards; (4) the quality measures that are
    selected for inclusion in RHQDAPU or the VBP program; (5) the
    methodology that is used to calculate hospital performance
    scores and the calculation of those scores; and (6) the
    methodology for validating hospital performance.
        The Secretary would consult with small rural and urban
    hospitals on the application of the VBP program to such
    hospitals. The selection of measures, the development of the
    methodology for calculating performance scores and the
    development of the methodology for calculating VBP payments
    would be established through the promulgation of regulation.
        The RHAQDPU program would be modified. The Secretary would
    be able to require hospitals to submit data on measures that
    are not used for the determination of VBP payments. Also,
    effective for FY2013 payments, the Secretary would be required
    to provide for appropriate risk adjustment for quality measures
    for outcomes of care.
        The requirement that the Secretary add measures that
    reflect consensus among affected parties and include, to the
    extent possible, measures that are set forth by one or more
    consensus building entities would terminate in FY2012.
    Effective for FY2013 payments, each specified measure would be
    endorsed by qualified consensus-based entities or, if not,
    established under the process established in Sec. 3014. The
    Secretary would, with input from consensus organizations and
    other stakeholders, take steps to ensure that RHAQDPU measures
    are coordinated and aligned with measures applicable to
    physicians and other providers of services and supplies.
        In addition, the requirement that the Secretary establish
    procedures for submitting data under RHAQDPU would be changed
    to indicate that the information regarding submitted measures
    would be available publicly. The Secretary would develop
    standard Internet website reports after seeking input from
    stakeholders. The Hospital Compare Internet website would be
    modified to make information more readily available. The
    Secretary would establish an appropriate process to validate
    RHAQDPU measures including the auditing a sufficient number of
    randomly selected hospitals that have an opportunity to appeal
    the validation of their measures.
        The Government Accountability Office (GAO) would conduct a
    study of the VBP program including an analysis of the impact of
    the program on the quality of care provided to Medicare
    beneficiaries, Medicare program expenditures, the quality
    performance among safety net hospitals, and small rural and
    small urban hospitals. GAO would submit an interim report
    including recommendations regarding necessary legislative and
    administrative action by October 1, 2015. A final report to
    Congress would be due by July 1, 2017.
        The Secretary would conduct a study of the VBP program
    including an analysis of necessary program improvements to
    address unintended consequences. The report to Congress,
    including recommendations regarding necessary legislative and
    administrative action, would be due by January 1, 2016. Such
    study shall also evaluate whether the VBP program resulted in
    lower Medicare spending or other financial savings to hospitals
    and the appropriateness of the Medicare program sharing in the
    savings generated through this program.
        In addition, no later than 2 years from enactment, the
    Secretary would establish three-year VBP demonstration projects
    in critical access hospitals (CAHs) and in hospitals excluded
    from VBP because of an insufficient number of qualifying cases.
    These demonstration programs would include an appropriate
    number of participants to ensure representation of the spectrum
    of CAHs and small hospitals. The Secretary would waive Medicare
    and Medicaid program requirements as necessary. The Secretary
    would be required to submit a report to Congress, including
    recommendations on the permanent establishment of VBP programs
    for these providers as well as necessary legislative and
    administrative action, no later than 18 months after completion
    of the projects.

       SEC. 3002. IMPROVEMENTS TO THE PHYSICIAN QUALITY REPORTING SYSTEM

    Present Law

        TRHCA required the establishment of a physician quality
    reporting system that would include an incentive payment, based
    on a percentage of the allowed Medicare charges for all such
    covered professional services, to eligible professionals who
    satisfactorily report data on quality measures. CMS named this
    program the Physician Quality Reporting Initiative (PQRI).
    MIPPA made this program permanent and extended the bonuses
    through 2010; the incentive payment was increased from 1.5
    percent of total allowable charges under the physician fee
    schedule in 2007 and 2008 to two percent in 2009 and 2010.
        Providers that successfully report for services provided in
    calendar year 2009 will receive an incentive payment of two
    percent of total allowable charges for the physician fee
    schedule. Providers may choose claims-based reporting or
    registry-based reporting. For claims-based reporting, providers
    seeking incentive payments for the entire calendar year may
    meet the requirement by reporting on one measures group for a
    sample of 30 consecutive Medicare Part B fee-for-service
    patients (FFS), or report for one measures group for 80 percent
    of applicable Medicare Part B FFS. For providers seeking to
    report for the six-month period beginning July 1, 2009, similar
    criteria apply for those that report through CMS approved
    registries.

    Committee Bill

        The Committee Bill would extend PQRI incentive payments
    beyond 2010. Eligible professionals who successfully report in
    2010 would receive a 1 percent bonus in 2011, and eligible
    professionals who successfully report in 2011 would receive a
    0.5 percent bonus in 2011. Eligible professionals who failed to
    participate successfully in the program would face a 1.5
    percent payment penalty in 2013, based on their 2012 reporting
    period. The incentive payments and adjustments in payment would
    be based on the allowed charges for all covered services
    furnished by the eligible professional, based on the applicable
    percent of the fee schedule amount. For 2013, the applicable
    percent would be calculated as 98.5 percent of their total
    allowed charges. For 2014 and in subsequent years, the
    penalties for non-reporting would be two percent, calculated as
    98 percent of the provider's total allowed Medicare charges.
    The penalty would be assessed on an annual basis and would not
    be cumulative.
        The Committee Bill would establish a new PQRI option in
    addition to the options within the current program detailed
    above. Beginning with the 2011 reporting period, CMS would be
    required to make PQRI incentive payments available for two
    successive years to eligible professionals who voluntarily
    complete the following on a biennial (every two years) basis:
    (1) participate in a qualified American Board of Medical
    Specialties certification, known as Maintenance of
    Certification (MOC), or equivalent programs, and (2) complete a
    qualified MOC practice assessment. A qualified MOC practice
    assessment would include an initial assessment of a
    participant's practice, designed to demonstrate the physician's
    use of evidence-based medicine, and would seek to improve
    quality of care through follow-up assessments. The methods,
    measures, and data used for the MOC would be submitted by the
    Boards to CMS in accordance with requirements established by
    the Secretary in consultation with the Boards. As part of this
    consultation, the Secretary would ensure that methods, measures
    and data to be submitted allow for innovation and
    appropriateness by specialty.
        The Committee Bill would require CMS to develop a plan to
    integrate the PQRI program with the standards for meaningful
    use of certified electronic health records as created in the
    American Recovery and Reinvestment Act of 2009. The bill would
    require CMS to make two additional enhancements to the program.
    First, CMS would be required to provide timely feedback to
    eligible professionals on their performance with respect to
    satisfactorily submitting data on quality measures. Second, CMS
    would be required to establish an appeals process for providers
    who participate in the PQRI program but do not qualify for
    incentive payments during their performance period.

           SEC. 3003. IMPROVEMENTS TO THE PHYSICIAN FEEDBACK PROGRAM

    Present Law

        Both MedPAC and GAO have recently recommended providing
    information to physicians on their resource use. MedPAC asserts
    that physicians would be able to assess their practice styles,
    evaluate whether they tend to use more resources than their
    peers or what evidence-based research (if available)
    recommends, and revise practice styles as appropriate. MedPAC
    notes that in certain instances, the private sector use of
    feedback has led to a small downward trend in resource use. The
    GAO noted that certain public and private health care
    purchasers routinely evaluate physicians in their networks
    using measures of efficiency and other factors and that the
    purchasers it studied linked their evaluation results to a
    range of incentives to encourage efficiency.
        MIPPA established a physician feedback program with the
    intent to improve efficiency and to control costs. Under the
    Physician Feedback Program, the Secretary will use Medicare
    claims data to provide confidential reports to physicians that
    measure the resources involved in furnishing care to Medicare
    beneficiaries. The resources to be considered in this program
    may be measured on an episode basis, on a per capita basis, or
    on both an episode and a per capita basis. The GAO will conduct
    a study of the Physician Feedback Program, including the
    implementation of the program, and will submit a report to
    Congress by March 1, 2011 containing the results of the study,
    together with recommendations for such legislation and
    administrative action as the Comptroller General determines
    appropriate.

    Committee Bill

        The Committee Bill would require the Secretary, beginning
    in 2012, to provide reports to physicians that compare their
    resource use with that of other physicians or groups of
    physicians caring for patients with similar conditions.
    Resource use would be measured based on the items and services
    furnished or ordered by physicians or groups of physicians.
    Feedback reports would be based on an episode-grouper
    methodology established by the Secretary that would combine
    separate but clinically-related services into an episode of
    care for which the physician is accountable. The episode-
    grouper would be required to be developed by January 1, 2012.
    The Secretary would be required to make the methodology
    available to the public, and the Secretary would be required to
    seek endorsement of the episode-grouper by the entity with a
    contract with the Secretary under section 1890(a) of the Social
    Security Act.
        In preparing feedback reports, the Secretary would be
    required to make appropriate data adjustments, including
    adjustments to (1) account for differences in the demographic
    characteristics and health status of individuals, so as not to
    penalize those physicians who tend to serve less healthy
    individuals who may require more intensive interventions; and
    (2) eliminate the effect of geographic adjustments in payment
    rates.
        The Secretary would have the authority to exclude certain
    information regarding an item or service from feedback reports
    if the Secretary determines that there is insufficient
    information relating to such item or service to provide a valid
    assessment of utilization. The Secretary would be required to
    provide for education and outreach activities to physicians on
    the operation of, and methodologies used, under the Feedback
    Program. The Secretary would coordinate the physician feedback
    program with other relevant value-based purchasing reforms
    under the Medicare program.
        Beginning in 2014, payment would be reduced by 5 percent if
    an aggregation of the physician's resource use is at or above
    the 90th percentile of national utilization. After five years,
    the Secretary would have the authority to convert the 90th
    percentile threshold for payment reductions to a standard
    measure of utilization, such as deviations from the national
    mean.

     SEC. 3004. QUALITY REPORTING FOR LONG-TERM CARE HOSPITALS, INPATIENT
                 REHABILITATION HOSPITALS AND HOSPICE PROGRAMS

    Present Law

        Under Present Law, inpatient rehabilitation facilities
    (IRFs), long term care hospitals (LTCHs) and hospices are not
    required to report quality data to CMS. However, Medicare does
    require an IRF to submit a clinician's comprehensive assessment
    of each Medicare patient upon admission and again at discharge.
    These documented assessments must be based on the direct
    observation of and communication with the patient and
    information may be supplemented with information from other
    sources, including family members or other clinicians. The
    IRF's patient assessment instrument (PAI) form, the Uniform
    Data Set for Medical Rehabilitation (UDSMR), encompasses about
    55 questions used to ascertain a patient's functional
    independence including motor skills and cognitive capacities
    and to establish a patient's co-morbidities. A patient's
    assessments (from both admission and discharge) are transmitted
    to CMS electronically in one submission. Failure to meet the
    IRF-PAI transmission deadlines results in a 25 percent
    reduction in Medicare's payment in all but extraordinary
    circumstances. No comparable patient reporting requirements
    have been established for LTCHs and hospices.
        Medicare pays for inpatient care provided by IRFs and LTCHs
    using different prospective payment systems (PPS). Each PPS is
    updated annually using a market basket (MB) index which
    measures the estimated change in the price of goods and
    services purchased by the provider to produce a unit of output.
    Medicare payments to hospices are predetermined fixed amounts
    for each case, according to the general type of care provided
    to a beneficiary on a daily basis. Payments for hospice care
    are based on one of four prospectively determined units of
    payment, which correspond to four different levels of care
    (i.e., routine home care, continuous home care, inpatient
    respite care, and general inpatient care) for each day a
    beneficiary is under the care of the hospice. Hospice payments
    are updated annually based on the hospital MB index.

    Committee Bill

        The Secretary would be directed to establish quality
    reporting programs for LTCHs, IRFs, and hospices.
        Starting in rate year 2014, LTCHs would be required to
    submit data on specified quality measures. The required
    measures would be selected from those that have been endorsed
    by qualified consensus-based entities or, if not, established
    under the process established in Sec. 3014 of this legislation.
    No later than October 1, 2012, the required measures for rate
    year 2014 would be published. The Secretary would establish
    procedures for making this data publicly available. These
    procedures would ensure that LTCHs have the opportunity to
    review their data prior to it being made available. Quality
    measures would be reported on the Internet website of CMS.
    LTCHs that did not submit the required quality measures would
    have reduction in their annual update of two percentage points.
    Any reduction would not affect payments in subsequent rate
    years.
        Starting in FY2014, IRFs would be required to submit data
    on specified quality measures. The required measures would be
    selected from those that have been endorsed by qualified
    consensus-based entities or, if not, established under the
    process established in Sec. 3014 of this legislation. No later
    than October 1, 2012, the required measures for FY2014 would be
    published. The Secretary would establish procedures for making
    this data publicly available. These procedures would ensure
    that IRFs have the opportunity to review their data prior to it
    being made available. Quality measures would be reported on the
    Internet website of CMS. IRFs that did not submit the required
    quality measures would have reduction in their annual update of
    2 percentage points. Any reduction would not affect payments in
    subsequent rate years.
        Starting in FY2014, hospices would be required to submit
    data on specified quality measures. The required measures would
    be selected from those that have been endorsed by qualified
    consensus-based entities or, if not, established under the
    process established in Sec. 3014 of this legislation. No later
    than October 1, 2012, the required measures for FY2014 would be
    published. The Secretary would establish procedures for making
    this data publicly available. These procedures would ensure
    that hospices have the opportunity to review their data prior
    to it being made available. Quality measures would be reported
    on the Internet website of CMS. IRFs that did not submit the
    required quality measures would have reduction in their annual
    update of 2 percentage points. Any reduction would not affect
    payments in subsequent rate years.

          SEC. 3005. QUALITY REPORTING FOR PPS-EXEMPT CANCER HOSPITALS

    Present Law

        Eleven cancer hospitals are exempt from the Medicare
    inpatient prospective payment system (IPPS) used to pay
    inpatient hospital services provided by acute care hospitals.
    As part of these exemptions, these facilities are paid on a
    reasonable cost basis for providing inpatient services, subject
    to certain payment limitations and incentives. These hospitals
    are also held harmless under the outpatient prospective payment
    system (OPPS) and will not receive less from Medicare under
    this payment system than under the prior outpatient payment
    system. Under OPPS, Medicare pays for outpatient services using
    ambulatory payment classification (APC) groups. Currently,
    there are no quality reporting requirements for these
    hospitals.

    Committee Bill

        The Secretary would be directed to establish quality
    reporting programs for IPPS-exempt cancer hospitals starting
    FY2014. The required measures would be selected from those that
    have been be endorsed by qualified consensus-based entities or,
    if not, established under the process established in Sec. 3014
    of this legislation. No later than October 1, 2012, the
    required measures for FY2014 would be published. The Secretary
    would establish procedures for making this data publicly
    available. These procedures would ensure that cancer hospitals
    have the opportunity to review their data prior to it being
    made available. Quality measures would be reported on the
    Internet website of CMS.

       SEC. 3006. PLANS FOR A VALUE-BASED PURCHASING PROGRAM FOR SKILLED
                  NURSING FACILITIES AND HOME HEALTH AGENCIES

    Present Law

        As required by Section 5201(c) of the Deficit Reduction Act
    of 2005 (DRA, P.L. 109-171), beginning in 2007, home health
    agencies (HHAs) were required to submit data for a set of
    quality measures. HHAs that did not submit these data received
    a reduction of 2.0 percent in their Medicare annual update for
    that year. As a Medicare condition of participation, skilled
    nursing facilities (SNFs) are required to submit data on
    quality to the Secretary.
        Currently, individual HHA and SNF performance data on
    specific quality measures and on certain conditions are
    available on Home Health Compare and Nursing Home Compare,
    which are available on the CMS website.
        Medicare payment demonstrations have been or are to be
    implemented that will test value-based purchasing for HHAs and
    SNFs.
        Section 5201(d) of the DRA also required the Medicare
    Payment Advisory Commission (MedPAC) to submit a report to
    Congress on considerations for implementing a value-based
    payment system for Medicare home health services. MedPAC
    submitted this report to Congress in June 2007.

    Committee Bill

        The Secretary would be required to develop a plan to
    implement a Medicare value-based purchasing program for HHAs
    and SNFs and submit a report to Congress on these plans by
    FY2011 and FY2012, respectively.
        In developing the plan for HHAs and SNFs, the Secretary
    would be required to consider the following for each: (1) the
    development, selection, and modification process of measures,
    to the extent feasible and practicable, of all dimensions of
    quality and efficiency; (2) the reporting, collection, and
    validation of quality data; (3) a structure of proposed value-
    based payment adjustments, including the determination of
    thresholds or improvements in quality that would substantiate a
    payment adjustment, the size of such payments, and the sources
    of funding for value-based incentive payments; (4) methods for
    publicly disclosing performance information on SNFs; and (5)
    and any other issues determined appropriate by the Secretary.
    In developing each plan, the Secretary would be required to
    consult with relevant affected parties; and take into
    consideration experience with demonstrations that are relevant
    to value-based purchasing in each setting.

        SEC. 3007. VALUE-BASED PAYMENT MODIFIER UNDER THE PHYSICIAN FEE
                                    SCHEDULE

    Present Law

        Medicare payments for services of physicians and certain
    non-physician practitioners are made on the basis of a fee
    schedule system, which assigns a reimbursement to each of over
    7,500 service codes, also known as the Healthcare Common
    Procedure Coding System (HCPCS). The reimbursement system
    assigns relative value units (RVUs) according to a resource-
    based relative value scale to each service that reflects
    physician work (i.e., time, skill, and intensity it takes to
    provide the service), practice expenses, and malpractice costs.

    Committee Bill

        The Committee Bill would create a new ``value-based payment
    modifier'' that would provide for differential payment to a
    physician or a group of physicians under the Medicare fee
    schedule based upon the relative quality of care compared to
    the relative cost of the care furnished by a physician or group
    of physicians to Medicare beneficiaries. The value-based
    payment modifier would be separate from the geographic
    adjustment factors.
        The quality of care would be evaluated based on a composite
    of measures of the quality of care furnished as established by
    the Secretary, as follows. The Secretary would establish
    appropriate measures of the quality of care furnished by a
    physician or group of physicians to Medicare enrollees, such as
    measures that reflect health outcomes. The measures would be
    risk adjusted as determined appropriate by the Secretary. The
    Secretary would seek endorsement of the quality measures by the
    consensus-based entity (such as the National Quality Forum)
    with a contract with the Secretary under section 1890(a) of the
    Social Security Act.
        In constructing the value-based payment modifier, the
    Secretary would evaluate a composite of appropriate measures of
    costs that eliminate the effect of geographic adjustments in
    payment rates, and take into account risk factors such as the
    demographic characteristics and health status of Medicare
    beneficiaries and other factors determined appropriate by the
    Secretary.
        Not later than January 1, 2012, the Secretary would publish
    the following: (1) the measures of quality of care and costs
    mentioned above; (2) the dates for implementation of the
    payment modifier; and (3) the initial performance period. The
    Secretary would begin implementing the value-based payment
    modifier through the rule-making process during 2013 for the
    Medicare fee schedule. The initial performance period would
    begin during 2014. During the initial performance period, the
    Secretary would provide information to physicians and groups of
    physicians about the quality of the care compared to the cost
    of the care furnished by the physician or group of physicians
    to Medicare beneficiaries.
        The Secretary would apply the value-based payment modifier
    for items and services furnished (1) beginning on January 1,
    2015, with respect to specific physicians and groups of
    physicians the Secretary determines appropriate; and (2)
    beginning not later than January 1, 2017, with respect to all
    physicians and groups of physicians.
        The value-based payment modifier would be implemented in a
    budget neutral manner. The Secretary would apply the value-
    based payment modifier in a manner that would promote systems-
    based care, and take into account the special circumstances of
    physicians or groups of physicians in rural areas and other
    underserved communities, as appropriate.
        The initial application of the value-based payment modifier
    would apply to ``physicians'' as defined under Present Law (SSA
    section 1861(r)) during the period beginning on January 1,
    2015, and ending on December 31, 2016. On or after January 1,
    2017, the Secretary could apply the value-based payment
    modifier to eligible professionals (as defined in subsection
    (k)(3)(B)), as the Secretary determines appropriate.

       SEC. 3008. PAYMENT ADJUSTMENT FOR CONDITIONS ACQUIRED IN HOSPITALS

    Present Law

        Medicare pays for inpatient services provided by acute care
    hospitals under section 1886(d) of the Social Security Act
    using the inpatient prospective payment system (IPPS), where
    each patient is classified into a Medicare severity adjusted
    diagnosis-related group (MS-DRG) based on diagnoses and
    procedures performed. Generally, except for outlier cases, a
    hospital receives a predetermined amount for a given MS-DRG
    regardless of the services provided to a patient. In some
    instances, Medicare patients may be assigned to a different MS-
    DRG with a higher payment rate based on secondary diagnoses.
    Inpatient services provided by acute care hospitals in Maryland
    are paid under a state-specific Medicare payment system under
    section 1814(b)(3) of the Social Security Act.
        As established by the Deficit Reduction Act of 2005 (DRA,
    P.L. 109-171), hospitals will not receive additional Medicare
    payment for complications that were acquired during a patient's
    hospital stay. By statute, these hospital acquired conditions
    (HACs) are: (1) high cost, high volume, or both; (2) identified
    though a secondary diagnosis that will result in the assignment
    to a different, higher paid MS-DRG; and (3) reasonably
    preventable through the application of evidence-based
    guidelines. Starting October 1, 2007 (FY2008), CMS required
    hospitals to report whether certain conditions (secondary
    diagnoses) for Medicare patients were present at admission.
    Starting October 1, 2008, IPPS hospitals do not receive
    additional payment for secondary diagnoses resulting from HACs
    for certain select conditions.

    Committee Bill

        Starting for discharges during FY2015, acute care hospitals
    (including those in Maryland paid under their state specific
    Medicare system) in the top quartile of national, risk-adjusted
    HAC rates for an applicable period in a fiscal year would
    receive 99 percent of their otherwise applicable Medicare
    payments for inpatient hospital services in a given year. ANHAC
    would be defined as a condition that an individual acquires
    during a hospital stay, as determined by the Secretary.
        Prior to FY2015, the hospitals would receive confidential
    reports with respect to their HAC conditions. The information
    would be made publicly available on the Hospital Compare
    Internet website after the hospital has the opportunity to
    review and correct the data.
        There would be no administrative or judicial review of the
    HAC ranking criteria, the specification of HACs, the
    specification of an applicable period, the provision of reports
    to hospitals, or the information made publicly available.

               PART II--STRENGTHENING THE QUALITY INFRASTRUCTURE

                          SEC. 3011. NATIONAL STRATEGY

    Present Law

        There are no provisions in Present Law requiring the
    Secretary to develop a national quality strategy, strategic
    plan, or improvement priorities. However, MIPPA requires the
    Secretary to identify and have in effect a contract with a
    consensus-based entity, such as the National Quality Forum
    (NQF), to perform the following duties: (1) synthesize evidence
    and convene stakeholders to make recommendations, with respect
    to activities conducted under this Act, on an integrated
    national strategy and priorities for health care performance
    measurement in all applicable settings; (2) provide for the
    endorsement of standardized health care performance measures;
    (3) establish and implement a process to ensure that endorsed
    measures are updated or retired based on new evidence; (4)
    promote the development of electronic health records that
    facilitate the collection of performance measurement data; and
    (5) report annually to Congress. The NQF has been awarded this
    contract and recently released its first report, Improving
    Healthcare Performance: Setting Priorities and Enhancing
    Measurement Capacity, in fulfillment of this statutory
    requirement.

    Committee Bill

        Generally, this section would direct the Secretary to
    establish a national quality improvement strategy, to include
    both the development of national priorities for quality
    improvement and a comprehensive strategic plan to achieve these
    priorities. The Secretary would be required to ensure that the
    national priorities for quality improvement would achieve
    certain aims (e.g., reducing health disparities) and the
    strategic plan would include provisions for addressing a number
    of issues, including coordination among agencies within the
    Department of Health and Human Services.
        This section would direct the Secretary to establish a
    national quality improvement strategy, including the
    development of national priorities for improvement, to improve
    the delivery of health care services, patient health outcomes,
    and population health through a transparent and collaborative
    process.
        In developing these priorities, the Secretary would ensure
    that they will: (1) have the greatest potential for improving
    health outcomes, efficiency, and patient-centeredness of health
    care; (2) identify areas in the delivery of health care
    services that have the potential for rapid improvement in the
    quality and efficiency of patient care; (3) address gaps in
    quality, efficiency, and health outcomes measures and data
    aggregation techniques; (4) improve Federal payment policy to
    emphasize quality and efficiency; (5) enhance the use of health
    care data to improve quality, efficiency, transparency, and
    outcomes; (6) address the health care provided to patients with
    high-cost chronic diseases; (7) improve strategies and best
    practices to improve patient safety and reduce medical errors,
    preventable admissions and readmissions, and health care-
    associated infections; (8) reduce health disparities across
    health disparity populations and geographic areas; and (9)
    address other areas as determined appropriate by the Secretary.
    In addition, in identifying these priorities, the Secretary
    would be required to consider both the recommendations
    submitted by qualified consensus-based entities, as required
    under Sec. 3014 of this Act and the recommendations of the
    Interagency Coordinating Working Group on Health Care Quality
    established under Sec. 3012 of this Act.
        The national strategy would also include a comprehensive
    strategic plan to achieve the priorities described above. At a
    minimum, the strategic plan would include provisions for
    addressing coordination among agencies within HHS; agency-
    specific strategic plans and annual benchmarks to achieve the
    priorities; a process for regular reporting by the agencies to
    the Secretary on the implementation of the strategic plan;
    strategies to align incentives among public and private payers
    with regard to quality and patient safety efforts; and
    incorporating quality improvement and measurement in the
    strategic plan for health information technology (required by
    ARRA).
        The Secretary would update the national strategy not less
    than triennially and the first report would be due to Congress
    not later than December 31, 2010. Any update would include a
    review of short- and long-term goals as well as an analysis of
    progress in meeting these goals. In addition, the Secretary
    would create an Internet website to make public information
    regarding the national priorities for health care quality
    improvement; the agency-specific strategic plans for health
    care quality; and other information the Secretary may determine
    to be appropriate.

          SEC. 3012. INTERAGENCY WORKING GROUP ON HEALTH CARE QUALITY

    Present Law

        No provision.

    Committee Bill

        This section would require the President to convene a
    working group consisting of senior level representatives of
    relevant Federal departments and agencies\21\ with the goals of
    achieving (1) collaboration, cooperation and consultation
    between Federal departments and agencies with respect to
    developing and disseminating strategies, goals, models, and
    timetables that are consistent with the national priorities for
    improvement; and (2) avoidance of duplication of quality
    improvement efforts and resources. The Working Group would be
    chaired by the Secretary, and members of the Working Group
    would serve as Vice Chair on a rotating basis. Not later than a
    date determined appropriate by the Secretary, and annually
    thereafter, the Working Group would submit a report to the
    relevant Committees of Congress, and make publicly available, a
    report on the progress and recommendations of the Working
    Group.
    ---------------------------------------------------------------------------
        \21\Relevant Federal departments and agencies shall include: The
    Centers for Medicare and Medicaid Services (CMS), National Institutes
    of Health (NIH), Centers for Disease Control and Prevention; Food and
    Drug Administration (FDA), The Health Resources and Services
    Administration (HRSA), The Agency for Healthcare Research and Quality
    (AHRQ), and the Administration on Children and Families within The
    Department of Health and Human Services (HHS); The Department of Labor;
    The Department of Defense; The Department of Veterans Affairs; The
    Veterans Health Administration; The Department of Commerce; The Office
    of Personnel Management; The Office of Management and Budget; The U.S.
    Coast Guard; The Federal Bureau of Prisons; The National Highway
    Transportation and Safety Administration; and The Federal Trade
    Commission.
    ---------------------------------------------------------------------------

                     SEC. 3013. QUALITY MEASURE DEVELOPMENT

    Present Law

        The Agency for Healthcare Research and Quality (AHRQ) has
    significant authorities with respect to the development of
    quality measures. Specifically, the Agency's mission, among
    other things, is to promote healthcare quality improvement by
    conducting and supporting research that develops and presents
    scientific evidence regarding all aspects of health care,
    including methods for measuring quality and strategies for
    improving quality. AHRQ also is required to provide support for
    public and private efforts to improve healthcare quality,
    including the ongoing development, testing, and dissemination
    of quality measures. To comply with this last requirement, the
    Agency has established the National Quality Measures
    Clearinghouse, an online resource that compiles and catalogues
    quality measures. AHRQ also develops annual reports to Congress
    on trends in healthcare quality and in healthcare disparities.
    Finally, AHRQ is required to coordinate all research,
    evaluations, and demonstrations related to health services
    research, quality measurement and quality improvement
    activities undertaken and supported by the Federal Government.

    Committee Bill

        Generally, this section would facilitate quality measure
    development by requiring the Secretary to identify and measure
    gaps, and award grants to entities to develop measures in these
    gap areas. Measures developed by entities receiving such
    grants, contracts or agreements would have to meet certain
    requirements (e.g., be free of charge to users, be publicly
    available), and the Secretary would prioritize the development
    of measures with specific characteristics (e.g., measures that
    allow the assessment of coordination of health care across
    episodes of care).
        This section would require the Secretary to identify, not
    less than triennially, gaps where no quality measures exist, or
    where current quality measures must be improved, updated or
    expanded consistent with the national strategy and priorities.
    A qualified consensus-based entity that receives a grant or
    contract under Sec. 3014 would be required to submit a report,
    not less than annually, to the Secretary describing areas where
    gaps in quality measures exist and areas in which evidence is
    insufficient to support endorsement of quality measures in the
    priority areas identified by the Secretary in the national
    strategy. In identifying measure gaps, the Secretary would take
    into consideration the gaps identified by the consensus-based
    entity.
        The Secretary would award grants, contracts or
    intergovernmental agreements to eligible entities for purposes
    of developing, updating, or expanding quality measures in
    identified gap areas. In awarding these grants, contracts or
    agreements, the Secretary would give priority to the
    development of measures that allow the assessment of health
    outcomes and functional status of patients; the coordination of
    health care across episodes of care and care transitions; the
    meaningful use of health information technology; safety,
    effectiveness, patient-centeredness, appropriateness, and
    timeliness of care; efficiency of care; equity of health
    services across health disparity populations and geographic
    areas; patient experience and satisfaction; and other areas
    determined appropriate by the Secretary.
        Entities eligible for a grant or contract under this
    section would have to demonstrate expertise and capacity in the
    development and evaluation of quality measures; have procedures
    in place to take into account the view of payers or providers
    whose performance will be assessed by the measures and the
    views of other parties who will use the measures, such as
    consumers and health care purchasers; have transparent policies
    regarding governance and conflicts of interest; and collaborate
    with a qualified consensus-based entity and the Secretary, so
    that measures developed by the eligible entity will meet the
    requirements to be considered for endorsement by such qualified
    consensus-based entity.
        An entity that receives a grant under this section would
    use such funding to develop quality measures that meet the
    following requirements: build on measures required to be
    reported pursuant to Title XVIII of the Social Security Act;
    can be collected, using health information technologies, to the
    extent practicable; are free of charge to users of such
    measures; and are publicly available on an Internet website.
    The Secretary may use amounts available under this section to
    update and test, where applicable, quality measures endorsed by
    a qualified consensus-based entity or adopted by the Secretary.
        The section would authorize to be appropriated $75 million
    for each of the fiscal years 2010 through 2014 to carry out
    this section.

                     SEC. 3014. QUALITY MEASURE ENDORSEMENT

    Present Law

        MIPPA requires the Secretary to identify and have in effect
    a contract with a consensus-based entity, such as the National
    Quality Forum (NQF), to perform the following duties: (1)
    synthesize evidence and convene stakeholders to make
    recommendations, with respect to activities conducted under
    this Act, on an integrated national strategy and priorities for
    health care performance measurement in all applicable settings;
    (2) provide for the endorsement of standardized health care
    performance measures; (3) establish and implement a process to
    ensure that endorsed measures are updated or retired based on
    new evidence; (4) promote the development of electronic health
    records that facilitate the collection of performance
    measurement data; and (5) report annually to Congress. The NQF
    has been awarded this contract and recently released its first
    report, Improving Healthcare Performance: Setting Priorities
    and Enhancing Measurement Capacity, in fulfillment of this
    statutory requirement.

    Committee Bill

        Generally, this section would allow for the provision of a
    grant or contract to a qualified consensus-based entity to
    carry out a number of duties, including identifying gaps in
    endorsed quality measures, updating endorsed measures, and
    making recommendations to the Secretary for national priorities
    for performance improvement. This entity would also provide
    guidance on the selection of measures for use in public
    reporting or Federal health programs. The Secretary would be
    required to establish a pre-rulemaking process to obtain input
    on the selection of measures and to review and disseminate
    quality measures, among other things.
        This section would allow a qualified consensus-based entity
    to receive a grant or contract to (1) make recommendations to
    the Secretary for national priorities for performance
    improvement; (2) identify gaps in endorsed quality measures;
    (3) identify and endorse quality measures; (4) update endorsed
    quality measures at least every three years; (5) make endorsed
    measures publicly available and have a plan for dissemination
    of such endorsed measures; and (6) transmit endorsed quality
    measures to the Secretary. This entity would provide a report
    to the Secretary outlining where gaps exist, and regarding
    areas in which evidence is insufficient to support endorsement
    of quality measures in priority areas identified by the
    Secretary under Sec. 3011. In addition, this entity would
    evaluate evidence and convene multi-stakeholder groups to make
    recommendations to the Secretary for national priorities for
    improvement. In convening multi-stakeholder groups, the entity
    would provide for an open and transparent process, and would
    ensure that the selection of members of these groups provide
    for public nominations for, and the opportunity for public
    comment on, such selection.
        The entity would also convene multi-stakeholder groups to
    provide guidance on the selection of individual or composite
    measures for use in reporting performance information to the
    public or for use in Federal health programs. These measures
    would be selected from those endorsed by the entity and those
    that have not been considered for endorsement by the entity,
    but are used, or proposed to be used, by the Secretary in
    Federal health programs.
        The Secretary would be required to establish a pre-
    rulemaking process to obtain input from the consensus-based
    entity and multi-stakeholder group on the selection of quality
    measures. Under this process, by not later than December 1st of
    each year, starting in 2010, the Secretary shall make public a
    list of measures being considered for selection with respect to
    quality reporting and payment systems under Title XVIII of the
    Social Security Act. Not later than February 1st of each year,
    beginning with 2011, the entity must transmit to the Secretary
    the guidance of the multi-stakeholder groups. In convening the
    multi-stakeholder groups, the entity would provide for an open
    and transparent process, and would ensure that the selection of
    members of these groups provide for public nominations for, and
    the opportunity for public comment on, such selection.
        With respect to endorsed quality measures, the Secretary
    could make a determination to use such measures only after
    taking into account the guidance of the multi-stakeholder
    groups as provided through the pre-rulemaking process. With
    respect to non-endorsed measures, the Secretary could use a
    measure that has not been endorsed, provided that the Secretary
    transmits the measure to the entity for consideration for
    endorsement and for the multi-stakeholder consultation process;
    publishes the rationale for the use of the measure in the
    Federal Register; and phases out use of the measures upon a
    decision of the entity not to endorse the measure, contingent
    on the availability of an adequate alternative endorsed measure
    (as determined by the Secretary). If an adequate alternative is
    not available, the Secretary would support the development of
    such an alternative endorsed measure.
        Not less than once every three years, the Secretary would
    review quality measures used by the Secretary to determine
    whether to maintain use of such measures or to phase them out.
    In conducting this review, the Secretary would seek to avoid
    duplication of measures and take into consideration both
    current innovative strategies for quality improvement and
    measures endorsed by a quality consensus-based entity since the
    previous review.
        The Secretary would also set forth a process to disseminate
    measures used by the Secretary and incorporate such measures,
    where applicable, in workforce programs, training curricula,
    payment programs, and any other means of dissemination deemed
    appropriate by the Secretary. The Secretary would establish a
    process to disseminate such quality measures to the Working
    Group established in Sec. 3012 of this Act. The Secretary would
    be allowed to contract with one or more entities to carry out
    this dissemination process. These entities must be non-profit;
    have at least five years experience in developing and
    implementing quality improvement strategies; have operated
    programs on a statewide or multi-state basis to improve patient
    safety and quality of health care delivered in hospitals,
    including at minimum, in hospital intensive care units,
    hospital associated infections, hospital peri-operative patient
    safety and hospital emergency rooms; and have worked with a
    variety of health care providers in implementing these
    initiatives.
        In addition, the Secretary would provide technical
    assistance to providers of services and suppliers required to
    report on measures under Title XVIII of the Social Security
    Act. In providing such assistance, the Secretary would
    prioritize rural and urban providers of services and suppliers
    with limited infrastructure to implement quality improvement
    activities and providers of services and suppliers with poor
    performance scores and with disparities in care among subgroups
    or patients.
        For purposes of carrying out this section, the Secretary
    would provide for the transfer of $50 million for each of the
    fiscal years 2010 through 2014 from the Federal Hospital
    Insurance Trust Fund and the Federal Supplementary Medical
    Insurance Trust Fund (in such proportion as the Secretary
    determines appropriate), to the CMS Program Management Account.

          PART III--ENCOURAGING DEVELOPMENT OF NEW PATIENT CARE MODELS

    SEC. 3021. ESTABLISHMENT OF CENTER FOR MEDICARE AND MEDICAID INNOVATION
                                   WITHIN CMS

    Present Law

        Under the Social Security Act, the Secretary of HHS has
    broad authority to develop research and demonstration projects
    to test new approaches to paying providers, delivering health
    care services, or providing benefits to Medicare beneficiaries.
    Specifically, demonstrations designed to test changes in
    provider payment are required to increase the efficiency and
    economy of health care services without adversely affecting
    quality. Currently, CMS is conducting approximately 30 Medicare
    demonstrations. Some of the key themes addressed in these
    demonstrations include care coordination, pay for performance,
    Health Information Technology, and quality improvement.
    Although demonstrations may be initiated by both the agency and
    Congress, the number of congressionally mandated demonstrations
    has increased in recent years.
        Section 646 of the MMA mandated CMS to conduct a five-year
    demonstration program to test ways to improve health outcomes
    while increasing efficiency. This demonstration, called the
    Medicare Health Care Quality Demonstration (Section 1866C of
    the Social Security Act), aims to improve patient safety,
    enhance quality, and reduce variation in medical practice that
    may result in higher cost. One of the major goals of this
    demonstration is to determine whether Medicare can improve
    outcomes while simultaneously achieving cost savings.
    Improvements in care coordination are one strategy that CMS
    anticipates providers will attempt as they strive to improve
    quality while simultaneously reducing costs. Two demonstration
    projects under this demonstration are scheduled to begin in
    2009, with two others to begin soon thereafter.

    Committee Bill

        This Committee Bill would require the Secretary, no later
    than January 1, 2011, to establish a Medicare and Medicaid
    Innovation Center within CMS. The Innovation Center (hereafter
    called the ``Center'') would test innovative payment and
    service delivery models to reduce program expenditures under
    Medicare, Medicaid, and CHIP while preserving or enhancing the
    quality of care furnished to individuals under such titles. In
    selecting such models, the Secretary shall give preference to
    models that also improve the coordination, quality, and
    efficiency of health care services furnished to such
    individuals. The Center may also give preference to the testing
    of models that would improve the coordination, quality, and
    efficiency of health care services for individuals who are
    dually-eligible for Medicare and Medicaid. In carrying out this
    section, the Secretary would consult with individuals and
    stakeholders, as specified.
        This section sets forth requirements for both the testing
    of these models (PHASE I) and the expansion of these models
    (PHASE II). The section would require the Secretary to select
    models to be tested where the Secretary determines that there
    is evidence that the model addresses a defined population for
    which there are deficits in care leading to poor clinical
    outcomes or potentially avoidable expenditures. The models
    selected may include, but not be limited to, those with any of
    sixteen specified characteristics, including, for example,
    those that promote broad payment and practice reform in primary
    care, contract directly with groups of providers of services
    and suppliers to promote innovative care delivery models,
    promote care coordination between providers of services and
    suppliers that transition health care providers away from fee-
    for-service based reimbursement and toward salary-based
    payment, and utilize medication therapy management services,
    among others.
        Additionally, this section would require the Center, when
    selecting models for testing, to consider the following seven
    factors: (1) whether the model includes a regular process for
    monitoring and updating patient care plans in a manner that is
    consistent with the needs and preferences of Medicare
    beneficiaries; (2) whether the model places the Medicare
    beneficiary at the center of the care team; (3) whether the
    model provides for in-person contact with Medicare
    beneficiaries; (4) whether the model utilizes technology, such
    as electronic health records and patient-based remote
    monitoring systems, to coordinate care over time and across
    settings; (5) whether the model provides for the maintenance of
    a close relationship between care coordinators, primary care
    practitioners, specialist physicians, and other providers of
    services and suppliers; (6) whether the model relies on a team-
    based approach to interventions, such as comprehensive care
    assessments, care planning, and self-management coaching; and
    (7) whether, under the model, providers of services and
    suppliers are able to share information with other providers of
    services and suppliers on a real time basis.
        The Secretary would conduct an evaluation of each model
    tested, including an analysis of (i) the quality of care
    furnished under the model, including the measurement of
    patient-level outcomes; and (ii) the changes in spending under
    the applicable titles by reason of the model.
        Under this section, the Secretary could not require, as a
    condition for testing a model, that the design of the model
    ensure that the model is budget neutral initially with respect
    to expenditures under Titles XVIII and XIX of the Social
    Security Act. The Secretary would terminate or modify the
    design and implementation of a model unless the Secretary
    determines that the model is expected to (1) improve the
    quality of patient care without increasing spending; (2) reduce
    spending under such Titles without reducing the quality of
    care; or (3) improve quality and reduce spending.
        With respect to the expansion of models, this section would
    allow the Secretary to expand the duration and the scope of a
    model that is being tested under this section or a
    demonstration project, to the extent determined appropriate by
    the Secretary, if the Secretary determines that such expansion
    would reduce spending under this title without reducing the
    quality of patient care. In determining whether to expand the
    scope or duration of a model or demonstration project, the
    Secretary would consider the results of the evaluation
    conducted under this section.
        The Center would be headed by a director who would report
    directly to the Administrator of CMS. In addition, for the
    purposes of carrying out the provisions of this section, this
    section would allow the Secretary to waive such requirements of
    Title XI (General Provisions, Peer Review, and Administrative
    Simplification) and Title XVIII (Medicare), and Section
    1902(a)(1), Section 1902(a)(13) and Section 1903(m)(2)(A)(iii)
    of the Social Security Act which require state Medicaid plans
    to be in effect statewide, provide for a public process for
    determining payment rates for hospital services, nursing
    facility services and services of intermediate care facilities
    for the mentally retarded, and which provide for payments for
    Medicaid managed care plans, as the Secretary determines
    appropriate solely for purposes of carrying out this section.
        The Secretary would provide for the transfer, from the
    Federal Hospital Insurance Trust Fund and the Federal
    Supplementary Medical Insurance Trust Fund, of $10 billion for
    the activities initiated under this section for the period of
    fiscal years 2011 through 2019. Funding would remain until
    expended. Out of the amounts transferred, not less than $25
    million would be made available each fiscal year to design,
    implement, and evaluate models.
        The Center would be allowed to carry out activities under
    this section with respect to CHIP (Title XXI) in the same
    manner as provided under this section with respect to Medicare
    and Medicaid (Titles XVIII and XIX) of the Social Security Act.
    In addition, there would be no administrative or judicial
    review (under Section 1869 and 1878 of the Social Security Act)
    of the following: (1) the selection of models to be tested; (2)
    the selection of organizations, sites, or participants to test
    those models selected; (3) the termination of a model or site
    at which a model is tested; and (4) the determination of models
    to be expanded.
        Beginning in 2012, and not less than once every other year
    thereafter, the Secretary would be required to submit to
    Congress a report on activities under this section. Each such
    report shall describe: (1) the models tested by the Center,
    including the number of individuals participating in such
    models and payments made under the applicable titles for
    services on behalf of such individuals, (2) any models chosen
    for expansion, and (3) the results from evaluations under this
    section. In addition, each such report shall provide such
    recommendations as the Secretary determines are appropriate for
    legislative action to facilitate the development and expansion
    of successful payment models.
        Finally, this section would strike ``five-year'' each place
    it appears in subsections (b) and (f) of Section 1866C of the
    Social Security Act, thus removing this time limit from the
    Health Care Quality Demonstration Program.

                   SEC. 3022. MEDICARE SHARED SAVINGS PROGRAM

    Present Law

        There are no existing laws that directly address the
    ability of organizations or systems of integrated providers to
    share in the efficiency gains resulting from the joint
    responsibility and care of Medicare beneficiaries. However,
    while some providers who deliver care in a vertically
    integrated managed care environment under Medicare are able to
    achieve these efficiency gains (e.g., a staff-model managed
    care organization), other providers face obstacles to this type
    of practice and related potential sharing (e.g., fee-for-
    service providers who practice across a range of separate legal
    entities).
        Experts define groups of providers (e.g. combinations of
    one or more hospitals, physician groups including primary care
    physicians and possibly specialists, and other health care
    providers) that are jointly responsible, through shared bonuses
    or penalties, for the quality and cost of health care services
    for a population of beneficiaries as accountable care
    organizations (ACOs). MedPAC has been among the proponents that
    have encouraged this type of gain sharing through accountable
    care organizations.
        Medicare has some practical experience with ACO-like
    organizations. The Medicare Physician Group Practice (PGP)
    Demonstration, mandated by BIPA, created pay-for-performance
    incentives for physician groups (being paid fee-for-service) to
    coordinate the overall care delivered to Medicare patients. The
    physician groups were rewarded for improving the quality and
    cost efficiency of health care services through increased
    coordination of Part A and Part B services, investment in care
    management programs, process redesign, and improved patient
    health outcomes, especially for beneficiaries with chronic
    illness, multiple co-morbidities and those near the end of
    life. CMS selected ten physician groups on a competitive basis
    to participate in the demonstration, favoring multi-specialty
    physician groups with well-developed clinical and management
    information systems. The ten physician groups represented 5,000
    physicians and 224,000 Medicare fee-for-service beneficiaries.
    Groups that were able to meet quality-of-care benchmarks and
    reduce their total expected Medicare spending by more than two
    percent were allowed to share in the savings they generate to
    the Medicare program.
        Results from the PGP demo suggest that the concept shows
    promise. Preliminary results from the demonstration and reports
    from participants suggest that the program has achieved its
    goals of better coordination of care for the chronically ill,
    careful attention to hospital discharge processes, expanded
    role for non-physician providers, and investments in
    information technology. In the most recent year of the PGP
    demo, all participants demonstrated improvements in quality and
    achieved below average growth in costs. In addition, four were
    awarded with incentive payments for reducing costs below the
    two percent threshold. Accountable care organizations would go
    beyond the PGP model, which is based on physician groups, to
    include additional providers.

    Committee Bill

        The Committee Bill would allow groups of providers who
    voluntarily meet certain statutory criteria, including quality
    measurements, to be recognized as ACOs and be eligible to share
    in the cost-savings they achieve for the Medicare program.
    Beginning on Jan. 1, 2012, eligible ACOs would have the
    opportunity to qualify for an incentive bonus.
        Eligible ACOs would be defined as groups of providers and
    suppliers who have an established mechanism for joint decision
    making. The following groups of providers and suppliers would
    be eligible for participation: practitioners in group practice
    arrangements; networks of practices; partnerships or joint-
    venture arrangements between hospitals and practitioners;
    hospitals employing practitioners; and such other groups of
    providers of services and suppliers as the Secretary determines
    appropriate. Practitioners would be defined as physicians,
    regardless of specialty, nurse practitioners, physician
    assistants, and clinical nurse specialists.
        To qualify as an ACO, an organization would have to meet at
    least the following criteria: (1) agree to become accountable
    for the overall care of their Medicare fee-for-service
    beneficiaries; (2) agree to a minimum three-year participation;
    (3) have a formal legal structure that would allow the
    organization to receive and distribute bonuses to participating
    providers; (4) include the primary care physicians for at least
    5,000 Medicare fee-for-service beneficiaries; (5) provide CMS
    with information regarding practitioners participating in the
    ACO as the Secretary deems appropriate; (6) have in place a
    leadership and management structure, including with regard to
    clinical and administrative systems; (7) define processes to
    promote evidence-based medicine, report on quality and costs
    measures, and coordinate care such as through the use of
    telehealth, remote patient monitoring, and other such enabling
    technologies; and (8) demonstrate to the Secretary that it
    meets patient-centeredness criteria determined by the
    Secretary, such as use of patient and caregiver assessments or
    the use of individualized care plans.
        To earn the incentive payment, the organization would have
    to meet certain quality thresholds. In determining the quality
    of care furnished by an ACO, the Secretary would be required to
    use measures such as: (1) clinical processes and outcomes; (2)
    patient perspectives on care; and (3) utilization (such as
    rates of ambulatory-sensitive admissions and readmissions).
    ACOs would be required to submit data on measures the Secretary
    determines necessary to evaluate the quality of care furnished
    by the ACO. The Secretary would be required to establish
    performance standards for measures of the quality of care
    furnished by ACOs. The Secretary would be required to seek to
    improve the quality of care furnished by ACOs over time by
    specifying higher standards for purposes of assessing quality
    of care.
        The Secretary would be authorized to incorporate reporting
    requirements and incentive payments and penalties related to
    the physician quality reporting initiative (PQRI), electronic
    prescribing, electronic health records, and other similar
    initiatives into the reporting requirements for ACOs.
        CMS would assign Medicare fee-for-service beneficiaries to
    ACOs based on their use of Medicare items and services in
    preceding periods. The achievement thresholds and rewards for
    the ACO would be as follows. The spending baseline would be
    determined by using the most recent three years of total per
    beneficiary spending for Medicare parts A and B for those
    beneficiaries assigned to the ACO. The benchmark would be set
    by the baseline amount that is adjusted for beneficiary
    characteristics and updated by the projected absolute amount of
    growth in national per capita expenditures for parts A and B
    services under the Medicare fee-for-service program. Benchmarks
    would be re-set at the end of the three-year period.
        ACOs with three-year average Medicare expenditures that are
    determined by CMS to be below their benchmark for the
    corresponding period would be eligible for shared savings at a
    rate determined appropriate by the Secretary. The Secretary
    would be required to set a minimum threshold of savings that
    would need to be achieved by an ACO before savings would be
    shared. The Secretary would have the authority to adjust the
    savings thresholds to account for the varying sizes of
    participating ACOs. If the Secretary determines that an ACO has
    taken steps to avoid at-risk patients in order to reduce the
    likelihood of increasing costs, the Secretary would be
    authorized to impose an appropriate sanction, including
    terminating agreements with participating ACOs.

             SEC. 3023. NATIONAL PILOT PROGRAM ON PAYMENT BUNDLING

    Present Law

        Medicare pays for most acute care hospital stays and post-
    acute care services, including inpatient rehabilitation and
    long term care hospital stays, skilled nursing facility (SNF)
    stays, and home health care visits, under prospective payment
    systems (PPSs) established for each type of provider. Under
    each PPS, a predetermined rate is paid for each unit of
    service, such as a hospital discharge, or a payment
    classification group. Payment classification groups are based
    on an estimate of the relative resources needed to care for a
    patient with a specific diagnosis and set of care needs. (The
    patient classification system used by hospitals, for example,
    is referred to as Medicare Severity diagnosis related groups or
    MS-DRGs).
        Generally, PPS payments include a national standardized
    amount adjusted by a wage index that is associated with the
    area where the provider is located or, for some hospitals,
    where it has been reclassified. Medicare law provides for
    annual updates of the program payments to reflect inflation and
    other factors. In some cases, these updates are linked to the
    consumer price index for all urban consumers (CPI-U) or to a
    provider-specific market basket (MB) index which measures the
    change in the price of goods and services purchased by the
    provider to produce a unit of output.
        As Medicare beneficiaries with complex health conditions
    and multiple co-morbidities move between hospital stays and a
    range of post-acute care providers, Medicare makes separate
    payments to each provider for covered services. The Medicare
    Payment Advisory Commission (MedPAC), among others, has
    suggested that Medicare test new incentives and payment models
    to encourage providers to better coordinate across patients'
    episodes of care and to evaluate the full spectrum of care a
    patient may receive during these episodes. Specifically, in its
    June 2008 report, MedPAC recommended that a bundled payment
    system for an episode of care be explored in a pilot program.
    Under this voluntary program, a single provider entity would
    receive a bundled payment intended to cover the costs of the
    full range of care needed over the hospitalization episode,
    including 30 days post-discharge.

    Committee Bill

        The Secretary would be required to develop, test and
    evaluate alternative payment methodologies through a national,
    voluntary pilot program that is designed to provide incentives
    for providers to coordinate patient care across the continuum
    and to be jointly accountable for the entire episode of care,
    starting in 2013. If evaluations find that the pilot program
    achieves goals of improving patient outcomes, reducing costs
    and improving efficiency, then the Secretary would be required
    to submit an implementation plan to Congress on expanding the
    pilot program to an extent to be determined by the Secretary.
        Prior to the start of the pilot program, the Secretary
    would be required to determine which patient assessment
    instrument (such as the Continuity Assessment Record and
    Evaluation, or CARE tool) should be used to evaluate a
    patient's clinical condition for the purposes of determining
    the most clinically-appropriate site for post-acute care. The
    Secretary would be required to work with the Agency for
    Healthcare Research and Quality (AHRQ) and the qualified
    consensus-based entity as defined in MIPPA to develop episode
    of care quality measures and post-acute quality measures in
    compliance with the quality measurement and endorsement
    procedures laid out in Quality Infrastructure section of this
    legislation. Finally, the Secretary would be required to
    determine which Medicare statutory provisions and related
    regulations would be appropriate to waive in order to conduct
    the pilot program.
        The duration of the pilot project would be for five years.
    However, the Secretary would be able to extend the pilot
    program for participating providers, if the Secretary
    determines that an extension of the pilot program would result
    in either (1) an improvement in the quality of patient care
    without an increase in expenditures under this title, or (2) a
    reduction in expenditures under this title without a reduction
    in the quality of patient care. The length of the extension
    would be determined by the Secretary.
        The Secretary would select eight conditions to be included
    in the pilot program by considering the following factors: (1)
    a mix of chronic and acute conditions; (2) a mix of surgical
    and medical conditions; (3) conditions for which there is
    evidence of opportunity for providers to improve quality of
    care while reducing total expenditures; (3) conditions with
    significant variation in readmissions and post acute care
    spending; (4) conditions with high-volume or high post acute
    care spending; and (5) conditions that are deemed most amenable
    to bundling across spectrum of care given current practice
    patterns. To be an applicable beneficiary under this pilot
    program, individuals must be entitled to, or enrolled in part A
    and enrolled in part B, but not enrolled in part C, and be
    admitted to a hospital for an applicable condition.
        The pilot program may cover the following services: acute
    care inpatient services; physician services delivered inside
    and outside of the acute care hospital setting; outpatient
    hospital services, including emergency department visits;
    services associated with acute care hospital readmissions; PAC
    services including home health, skilled nursing, inpatient
    rehabilitation, long term care hospital; and other services
    that the Secretary determines appropriate.
        The episode of care established in the pilot program would
    start three days prior to a qualifying admission to the
    hospital and span the length of the hospital stay and 30 days
    following the patient discharge, unless the Secretary
    determines another timeframe is more appropriate for purposes
    of the pilot. The Secretary would develop policies to ensure
    the traditional fee-for-service program provides payment for
    PAC services in the appropriate setting for those patients who
    require continued PAC services after the 30th day following the
    discharge.
        With respect to payments for the participating providers in
    the pilot program, the Secretary could test alternative payment
    methodologies, which could include bundled payments or
    arrangements in which providers continue to receive
    reimbursement under current payment systems, but are held
    jointly accountable for the quality and cost of care provided
    to Medicare patients. Payments would be adjusted for patient
    severity of illness and other patient characteristics,
    including having a major diagnosis of substance abuse or mental
    illness, resources needed to provide care as well as
    adjustments for differences in hospital average hourly wages,
    physician work, practice expense, malpractice expense, and
    geographic adjustment factors. The pilot program's payment
    methodology would also take into account the provision of
    services such as care coordination, medication reconciliation,
    discharge planning and transitional care services and other
    patient-centered activities as defined appropriate by the
    Secretary.
        The pilot program's bundled payment would be made to a
    Medicare provider or other entity comprised of multiple
    providers to cover the costs of acute care inpatient and
    outpatient hospital services, physician services and post-acute
    care. The comprehensive bundled payment would include the costs
    of any rehospitalizations that occur during the covered period.
    The bundled payment for each of the eight selected conditions
    would be based on the average hospital, physician, and post-
    acute care payments made over the episode of care for patient.
        Any Medicare provider, including hospitals, physician
    groups, or post-acute entities interested in assuming
    responsibility for the bundled payment would be able to apply
    to participate in the pilot program. Any entity assuming
    responsibility for the bundled Medicare payment would be
    required to have an arrangement with an acute hospital for
    initiation of bundled services. All services provided under the
    bundle would be required to be provided or directed by
    Medicare-participating providers. Eligible entities would
    receive the bundled payment for each patient served, regardless
    of whether patient receives certain levels of physician or post
    acute care.
        In those instances a condition selected for the pilot
    program is also subject to Medicare's readmissions policy,
    hospitals participating in the pilot would be exempt from
    readmissions penalty for that condition. The bundled payment to
    a pilot participant would cover any preventable readmissions
    within the covered period. In the case where a patient with a
    selected condition is readmitted for a preventable readmission
    at a different hospital than the initial hospitalization, the
    Secretary would reimburse the subsequent hospital its base
    operating and capital MS-DRG payment amounts that would
    otherwise be made if this policy did not apply. The Secretary
    would then adjust the bundled payment to recoup these same
    amounts.
        The Secretary would be directed to establish quality
    measures related to care provided across all providers
    participating in the pilot. These quality measures would be
    risk-adjusted and would include: episode of care measures;
    measures of improved functional status; rates of readmission;
    rates of preventable readmissions as defined in the
    readmissions policy; rates of return to the community; rates of
    admission to the ER after hospitalization (as distinctly
    separate from readmission rates); efficiency measures; measures
    of patient-centeredness of care; patient perception of care
    measures; measures to monitor and detect the under provision of
    necessary care; and other measures deemed appropriate by the
    Secretary.
        The Secretary would be given the authority to delete,
    revise, and add quality measures as deemed appropriate related
    to the care being provided to patients within the pilot
    program. All providers who participate in pilot would be
    required to report to the Secretary on quality measures during
    each year of the program. At the discretion of the Secretary,
    to the extent practicable, these measures would be required to
    be reported through a qualified electronic health record in a
    manner prescribed by the Secretary.
        The Secretary would be required to conduct an independent
    evaluation of the pilot program and submit an interim report to
    Congress no later than two years after date of implementation
    of the pilot program and a final report no later than three
    years after date of the implementation. The evaluation would
    include an examination of the extent of performance improvement
    related to quality measures, health outcomes, access to care
    and financial outcomes.
        If the Secretary finds that the pilot program results in
    either improvements in the quality of patient care without an
    increase in Medicare expenditures or a reduction in Medicare
    expenditures without a reduction in the quality of patient
    care, then the Secretary would be required to submit an
    implementation plan to Congress not later than January 1, 2016
    with recommendations regarding expansion of the pilot program
    by not later than January 1, 2018, to an extent determined
    appropriate by the Secretary.
        The Secretary would also consult with representatives of
    small and rural hospitals, including critical access hospitals
    (CAHs), to determine appropriate and effective methods for
    hospitals to participate in the pilot program or in a similar
    pilot program. The Secretary would consider innovative methods
    of implementing bundling in these hospitals, including the
    challenges associated with the small volume of services
    provided to Medicare beneficiaries by these facilities. Not
    later than two years after the date of enactment of this Act,
    the Secretary would submit to Congress a report on the results
    of this consultation including recommendations with the respect
    to the appropriate application of bundling to small and rural
    hospitals, including CAHs.

                 SEC. 3024. INDEPENDENCE AT HOME PILOT PROGRAM

    Present Law

        The Department of Veterans Affairs has been implementing a
    Home Based Primary Care (HBPC) program since 1972. HBPC
    provides comprehensive, interdisciplinary primary care in the
    homes of veterans with complex medical, social, and behavioral
    conditions for whom routine clinic-based care is not effective.
    HBPC targets frail, chronically ill veterans who require
    interdisciplinary health care teams, continuity, coordination
    of care, and the integration of diverse services to cover their
    complex medical, social, rehabilitative, and behavioral care
    needs. These veterans need comprehensive, longitudinal home
    care services as they age to maximize function, minimize
    institutionalization, and maintain quality of life. HBPC
    currently operates at over 130 locations in 48 states and
    Puerto Rico, and has shown substantial reductions in hospital
    days, nursing home days, and total costs of care.

    Committee Bill

        The Committee Bill would require the Secretary to conduct a
    Medicare pilot program, beginning no later than January 1,
    2012, to test a payment incentive and service delivery model
    that utilizes physician and nurse practitioner directed home-
    based primary care teams designed to reduce expenditures and
    improve health outcomes in the provision of items and services
    to certain chronically ill Medicare beneficiaries. The pilot
    would be required to test whether such a model, which is
    accountable for providing comprehensive, coordinated,
    continuous, and accessible care to high-need populations at
    home and coordinating health care across all treatment
    settings, would result in the following goals of reducing
    preventable hospitalizations; preventing hospital readmissions;
    reducing emergency room visits; improving health outcomes
    commensurate with the beneficiaries' stage of chronic illness;
    improving the efficiency of care, such as by reducing
    duplicative diagnostic and laboratory tests; reducing the cost
    of Medicare health care services covered under this proposed
    legislation; and achieving beneficiary and family caregiver
    satisfaction.
        The Secretary would enter into agreements with qualifying
    independence at home medical practices, legal entities
    comprised of an individual physician or nurse practitioner or
    group of physicians and nurse practitioners that provide care
    as part of a team that includes physicians, nurses, physician
    assistants, pharmacists, and other health and social services
    staff, as appropriate. These practice staff would have
    experience providing home-based primary care services to
    applicable beneficiaries. The practice would be organized in
    part for the purpose of providing the services of a physician,
    who has the medical training or experience to fulfill the
    physician's role in the practice; would have documented
    experience in providing home-based primary care services to
    high-cost chronically ill beneficiaries; would have the
    capacity to provide services to at least 200 applicable
    beneficiaries; and would use electronic health information
    systems, remote monitoring, and mobile diagnostic technology.
        Practice staff would make in-home visits, and be available
    24 hours per day, seven days per week to implement care plans
    tailored to the individual beneficiary's chronic conditions and
    designed to reduce expenditures and improve health outcomes in
    the provision of items and services to applicable
    beneficiaries. The practice would be required to report on
    quality measures and other data, as specified by the Secretary.
    The Secretary would be required to develop quality performance
    standards for practices participating in the pilot program. A
    home-based primary care team could be led by a nurse
    practitioner or physician assistant, if such providers have the
    medical training or experience to fulfill these roles in the
    practice, comply with the requirements of this provision, and
    act consistently with State law.
        The provision would not prohibit practices from including
    participating provider or practitioners that are affiliated
    with the medical practice under an arrangement structured so
    that such provider or practitioner would participate in the
    pilot program and share in any of its savings. A participating
    practitioner is defined as a physician assistant, nurse
    practitioner, clinical nurse specialist, certified registered
    nurse anesthetist, certified nurse-midwife, clinical social
    worker, clinical psychologist, or registered dietitian or
    nutrition professional.
        The Secretary would establish a methodology for sharing
    savings with independence at home medical practices. Target
    spending levels for each practice would account for normal
    variation in expenditures for items and services covered under
    parts A and B for each participating independence at home
    medical practice based upon the size of the practice,
    characteristics of the enrolled individuals, and other factors
    the Secretary would determine to be appropriate. The Secretary
    would annually designate the total amount of savings achieved
    for beneficiaries enrolled in independence at home practices.
        The Secretary would be required to establish how savings
    beyond the first five percent are to be apportioned among
    practices, taking into account the number of beneficiaries
    served by each practice, the characteristics of the individuals
    enrolled in each practice, the practices' performance on
    quality performance measures, and other factors as the
    Secretary determines appropriate. The Secretary must limit
    payments for shared savings to each practice so that aggregate
    expenditures for applicable beneficiaries would not exceed the
    amount that the Secretary estimates, less five percent, would
    be expended for such services for such beneficiaries enrolled
    in an independence at home medical practice if the pilot
    program had not been implemented.
        An applicable beneficiary would be defined as an individual
    who the independence at home practice has determined:
        (A) is entitled to, or enrolled for, benefits under part A
    and enrolled for benefits under Part B;
        (B) is not enrolled in a Medicare Advantage plan C, a
    Program for All-Inclusive Care for the Elderly program, or an
    accountable care organization under section 1899 or any other
    shared savings program under Medicare;
        (C) has two or more chronic illnesses, such as congestive
    heart failure, diabetes, dementias designated by the Secretary,
    chronic obstructive pulmonary disease, ischemic heart disease,
    stroke, Alzheimer's Disease and neurodegenerative diseases, and
    other diseases and conditions designated by the Secretary which
    result in high costs under this title;
        (D) within the past 12 months has had a nonelective
    hospital admission and received acute or subacute
    rehabilitation services or skilled home care services;
        (E) has two or more functional dependencies requiring the
    assistance of another person (e.g., bathing, dressing,
    toileting, walking, or feeding); and
        (F) fulfills other criteria as the Secretary determines
    appropriate.
        The Secretary would be required to determine a method to
    ensure that beneficiaries' have agreed to participate in an
    independence at home practice and that their agreement to
    participate is voluntary. Physicians or nurse practitioners
    must not take any elements of this proposed legislation as
    encouraging them to limit applicable beneficiary access to
    services covered under this title. Beneficiaries who do agree
    to participate do not relinquish access to any Medicare
    benefits as a condition of receiving services from a practice.
        Agreements with practices under the program could cover a
    3-year period. No independence at home practice participating
    in the accountable care organization pilot program or the
    medical home pilot program would be eligible to participate in
    this pilot program.
        The Secretary would be required to give preference, in
    selecting practices, to medical practices in high costs areas
    of the country, that have experience in furnishing health care
    services to applicable beneficiaries in the home, and that use
    electronic medical records, health information technology, and
    individualized plans of care. The Secretary could waive certain
    provisions in the Social Security Act to implement this pilot
    program.
        The Secretary would be required to enter into agreements
    with as many qualified independence at home practices as
    practicable to test the independence at home medical practice
    model to achieve cost reductions and improve health outcomes
    for applicable beneficiaries. When selecting qualified
    practices, the Secretary is required to limit to 10,000 the
    number of applicable beneficiaries allowed to participate in
    the pilot program.
        The Secretary must evaluate each independence at home
    medical practice under the pilot program to assess whether the
    practice reduced preventable hospitalizations and hospital
    readmissions, reduced emergency room visits, improved health
    outcomes, improved the efficiency of care, reduced the costs of
    health care services, and achieved beneficiary and family
    caregiver satisfaction.
        The Secretary must also conduct an independent evaluation
    of the pilot program and submit to Congress an interim and a
    final report. These reports would be required to include an
    analysis of best practices under the pilot program and the
    impact of the pilot program on coordination of care,
    expenditures under this title, access to services, and the
    quality of health care services provided to applicable
    beneficiaries, in addition to other areas as determined by the
    Secretary.
        Subject to the evaluation of the pilot program contained in
    the interim and final reports to Congress, the Secretary may
    enter into additional agreements with practices to further test
    and refine models with respect to qualifying practices. If, and
    to the extent that, the practice models are beneficial to this
    pilot program and the Chief Actuary of the CMS certifies that
    the model would result in estimated spending that would be less
    than without the expansion, then the Secretary may issue
    regulations to implement, on a permanent basis, the
    independence at home practice model. In so doing, the
    Secretary, would take into account the evaluation of each
    independence at home practice and the evaluation of the pilot
    program contained in the interim and final reports.
        For purposes of administering and carrying out the pilot
    program (other than for payments for items and services
    furnished under Medicare, shared savings and monthly fees, or
    other related payments such as interim payments), the provision
    would appropriate to the Secretary for CMS Program Management
    Account $5 million (from out of either general revenues or out
    of part A or B of the Medicare Trust Fund) for each of fiscal
    years 2010 through 2015. Amounts appropriated for a fiscal year
    would be available until expended.

               SEC. 3025. HOSPITAL READMISSIONS REDUCTION PROGRAM

    Present Law

        Medicare pays for inpatient care provided by acute care
    hospitals using a prospectively determined payment for each
    discharge under section 1886(d) of the Social Security Act.
    Payment also depends on the relative resource use associated
    with a patient classification group, referred to as the
    Medicare Severity diagnosis related groups (MS-DRGs), to which
    the patient is assigned. Under Medicare's inpatient prospective
    payment system (IPPS), each MS-DRG is paid based on an estimate
    of the average resources needed to care for a patient with a
    specific diagnosis and set of care needs.
        The Medicare program currently has payment policies in
    place related to how the Medicare program must reimburse
    hospitals in cases where Medicare beneficiaries are transferred
    between two hospitals through the course of their acute care
    episodes. Under the current transfer payment policy, the
    sending acute care hospital (the hospital that transfers the
    patient to another acute care hospital) is paid on a per diem
    basis at a level that can be no greater than the otherwise
    applicable full MS-DRG payment amount if the transfer meets
    certain conditions. The final discharging acute care hospital
    (the hospital that receives the patient) receives the full MS-
    DRG payment amount. Payment changes resulting from such
    transfers are implemented via Medicare's claims processing
    systems.
        The Balanced Budget Act of 1997 (BBA, P.L. 105-33) directed
    the Secretary to apply the acute care transfer policy to a
    broader set of circumstances. Specifically, BBA directed the
    Secretary to select ten MS-DRGs with high volumes of discharges
    to post-acute care or disproportionate use of post-acute
    services and pay these cases as transfers beginning in FY1999.
    Post-acute care includes long-term care hospitals, inpatient
    rehabilitation facilities or distinct part units, psychiatric
    hospitals or units, skilled nursing facilities, and clinically
    related home health care provided within three days after the
    date of discharge. After FY2000, the Secretary was authorized
    to expand this post acute care (PAC) transfer policy to
    additional MS-DRGs.
        According to the Medicare Payment Advisory Commission's
    (MedPAC's) June 2007 Report to Congress, analysis of 2005
    Medicare data showed that 6.2 percent of hospitalizations of
    Medicare beneficiaries resulted in readmission within 7 days
    and 17.6 percent of hospitalizations resulted in readmission
    within 30 days. The 17.6 percent of hospital readmission
    accounts for $15 billion in Medicare spending. These
    readmission rates reflect the total number of readmissions,
    including those that may not have been related to the initial
    diagnosis and may not have been preventable. MedPAC, the
    Centers for Medicare and Medicaid Services (CMS), and others
    have expressed concern that providers do not have financial
    incentives to reduce potentially preventable readmissions. In
    addition, MedPAC, in its June 2008 report, recommended that
    Medicare's payments to hospitals with relatively high
    readmission rates for select conditions be reduced.

    Committee Bill

        Starting for discharges on October 1, 2012, the Secretary
    would establish a hospital readmissions reduction program for
    subsection (d) hospitals for certain potentially preventable
    Medicare inpatient hospital readmissions covering eight
    conditions with high volume or high rate (or both). Starting in
    FY2016 and in subsequent years, the list of conditions could be
    expanded, taking into account whether the condition has a high
    volume or high rate (or both) of potentially preventable
    inpatient readmissions or results in high Medicare spending.
        Before the beginning of the fiscal year, the national
    average readmission rate related to each condition would be
    calculated. The rate would be the weighted average of all MS-
    DRGs related to the condition, risk-adjusted for patient
    severity and other appropriate patient characteristics. A
    hospital-specific readmission rate related to each condition
    would also be calculated with the same risk and other
    adjustments.
        A readmission would be an individual who is discharged from
    a subsection (d) (or an acute care) hospital and admitted to
    the same or another hospital or critical access hospital within
    30 days from the date of such discharge. A readmission would
    not include a planned readmission; a readmission related to
    major or metastatic malignancies, burn care or trauma care; a
    readmission of a patient where the original admission had
    discharge status of ``left against medical advice''; and a
    transfer from another hospital.
        For each fiscal year, all acute care hospitals would be
    ranked based on the national average and hospital-specific
    readmission rate for each selected condition for a specific
    period as determined by the Secretary. The quartile of
    hospitals with the highest readmission rates for each condition
    would be identified. Starting for discharges on October 1,
    2013, if an individual is readmitted and the prior discharge is
    related to a condition selected for that fiscal year, the
    Medicare payment for the prior discharge would be reduced by an
    applicable percentage. The payment adjustment for a discharge
    in a fiscal year would only apply to an acute care hospital in
    the highest readmission quartile for the condition for the
    fiscal year. Any payment reductions would only apply for the
    fiscal year involved and would not be taken into account in
    subsequent fiscal years. The applicable percentage reduction
    would be 20 percent for a readmission that occurs within 7 days
    of the prior discharge and would be 10 percent for a
    readmission that occurs within 15 days of the prior discharge.
        Information on the readmission rates for each acute care
    hospital would be made publicly available after the hospital
    has the opportunity to review and submit corrections to the
    information. The information would be posted on the Hospital
    Compare website in an easily understandable format.
        There would be no administrative or judicial review of the
    determination of the payment amount for the prior discharge;
    the methodology for selecting conditions, determining ranks,
    and making payment adjustments; the readmission reports
    provided to acute care hospitals; or the publicly available
    hospital readmission information.

              SEC. 3026. COMMUNITY-BASED CARE TRANSITIONS PROGRAM

    Present Law

        No provision.

    Committee Bill

        Beginning in 2011, the Committee Bill would establish a
    five-year Community Care Transitions Program under Medicare.
    Under this program, the Secretary would fund eligible hospitals
    and community-based organizations to provide transition
    services to certain Medicare beneficiaries at risk of re-
    hospitalization or a substandard transition into post-
    hospitalization care. High-risk Medicare beneficiaries would
    include those beneficiaries who have attained a minimum
    hierarchical condition category score (specified by the
    Secretary) based on a diagnosis of multiple chronic conditions,
    including one of the following conditions: cognitive
    impairment, depression, a history of multiple hospital
    readmissions, and any other chronic disease or risk factor as
    determined by the Secretary.
        Eligible hospitals would be those identified by the
    Secretary as having high readmission rates, such as above the
    75th percentile for selected conditions. The Secretary would
    give priority for participation in the Community-Based Care
    Transitions Program to eligible community-based organizations
    and hospitals (that partner with community-based organizations)
    that provide services to medically underserved populations,
    small communities and rural areas. Applications by community-
    based organizations and hospitals to participate in this
    program would be required to propose at least one care
    transition intervention (this intervention could not include
    the discharge planning activities already required of Medicare-
    participating hospitals under Medicare's Conditions of
    Participation). Examples of such interventions could include:
              1. Initiating care transition services for targeted
            high-risk beneficiaries no later than 24 hours prior to
            the beneficiary being discharged from the participating
            hospital;
              2. Arranging timely post-discharge follow-up to
            educate patients and, as appropriate, the primary
            caregiver, about responding to health symptoms that may
            indicate additional health problems or a deteriorating
            condition;
              3. Assisting patients and caregivers in ensuring
            productive and timely interactions with post-acute and
            outpatient providers;
              4. Assessing and actively engaging with a beneficiary
            and caregiver through the provision of self-management
            support and relevant information that is specific to
            the beneficiary's conditions; and
              5. Conducting comprehensive medication review and
            management, including self-management support, if
            appropriate.
        A total of $500 million would be transferred by the
    Secretary from the Federal Hospital Insurance Trust Fund and
    the Federal Supplementary Medical Insurance Trust Fund for this
    program and would be required to remain available until
    expended. The Secretary would have the authority to continue or
    expand the scope and duration of the program if the Secretary
    determined that expansion would improve quality of care and the
    CMS Office of the Actuary certifies that expansion would reduce
    projected Medicare spending.

               SEC. 3027. EXTENSION OF GAINSHARING DEMONSTRATION

    Present Law

        Section 5007 of the Deficit Reduction Act of 2005 (DRA,
    P.L. 109-171) authorizes a gainsharing demonstration to
    evaluate arrangements between hospitals and physicians designed
    to improve the quality and the efficiency of care provided to
    beneficiaries. In the absence of this DRA authority,
    gainsharing arrangements are restricted by the Civil Monetary
    Penalty law. CMS is currently operating two projects, each
    consisting of one hospital in New York and West Virginia.
    Although authorized to begin on January 1, 2007, the project
    began on October 1, 2008 and will end as mandated on December
    31, 2009. The Secretary was required to submit a report on
    quality improvement and achieved savings as a result of the
    demonstration no later than December 1, 2008. The final report
    on these issues was due on May 1, 2010. The project was
    appropriated $6 million in FY2006 to be available for
    expenditure through FY2010.

    Committee Bill

        The authority to conduct the gainsharing demonstration
    project in operation as of October 1, 2008 would be extended
    until September 30, 2011. The due date of the quality
    improvement and achieved savings report would be extended from
    December 1, 2008, to March 31, 2011. The final report would be
    due March 31, 2013, instead of May 1, 2010. An additional $1.6
    million would be appropriated in FY2010. All appropriations
    would be available for expenditure through FY2014 or until
    expended.

      PART IV--STRENGTHENING PRIMARY CARE AND OTHER WORKFORCE INVESTMENTS

       SEC. 3031. EXPANDING ACCESS TO PRIMARY CARE SERVICES AND GENERAL
                                SURGERY SERVICES

    Present Law

        Medicare uses a fee schedule to reimburse physicians for
    the services they provide. In certain circumstances, physicians
    receive an additional payment to encourage targeted activities.
    These bonuses, typically a percentage increase above the
    Medicare fee schedule amounts, can be awarded for a number of
    activities including demonstrating quality achievements,
    participating in electronic prescribing, or practicing in
    underserved areas.
        Section 1833(m) of the Social Security Act provides bonus
    payments for physicians who furnish medical care services in
    geographic areas that are designated by the Health Resources
    and Services Administration (HRSA) as primary medical care
    health professional shortage areas (HPSAs) under section
    332(a)(1)(A) of the Public Health Service (PHS) Act. In
    addition, for claims with dates of service on or after July 1,
    2004, psychiatrists furnishing services in mental health HPSAs
    are also eligible to receive bonus payments.
        The bonus payment equals ten percent of what would
    otherwise be paid under the fee schedule. HPSAs may be
    designated as having a shortage of primary medical care, dental
    or mental health providers. They may be urban or rural areas,
    population groups or medical or other public facilities.

    Committee Bill

        The Committee Bill would establish a new 10 percent bonus
    on select evaluation & management codes under the Medicare fee
    schedule for five years, beginning January 1, 2011. The groups
    of codes to which this bonus would apply would be office
    visits, home visits, nursing facility visits, and domiciliary,
    rest home (e.g., boarding home), or custodial care services.
        The bonus would be available to primary care practitioners
    who: (1) have a specialty designation of family medicine,
    internal medicine, geriatric medicine, or pediatric medicine or
    are nurse practitioners, clinical nurse specialists or
    physician assistants; and (2) furnish 60 percent of their
    services in the select primary care service codes. The
    following healthcare common procedure coding system (HCPCS)
    services, identified as of January 1, 2009, would be considered
    primary care services: (i) 99201 through 99215 (office visits);
    (ii) 99304 through 99340 (nursing facility care, domiciliary,
    rest, or home visits and custodial care); and (iii) 99341
    through 99350 (home visits and services). The Secretary could
    subsequently modify this list. The bonus payments under this
    subsection and under the physician quality reporting program
    would each be determined independently.
        In addition, general surgeons (physicians who have
    designated general surgery as their primary specialty code in
    their application for the submission of Medicare claims) who
    provide care in a HPSA would also be eligible for a ten percent
    bonus on major procedure codes for five years, beginning
    January 1, 2011. Half (50 percent) of the cost of the bonuses
    would be offset through an across-the-board reduction to all
    other codes (by modifying the conversion factor for all codes),
    except for physicians who primarily provide services in a HPSA
    zip code.

      SEC. 3031A. MEDICARE FEDERALLY QUALIFIED HEALTH CENTER IMPROVEMENTS

    Present Law

        A Federally qualified health center (FQHC) is a type of
    provider defined by the Medicare and Medicaid statutes. FQHCs
    include all organizations receiving grants under section 330 of
    the Public Health Service Act (PHSA), clinics that have been
    certified as meeting such requirements (called FQHC Look-
    Alikes) or outpatient facilities that are operated by tribal
    organization or urban Indian organizations.
        FQHC services are defined by Medicare statute as rural
    health clinic services (such as physician services, those
    provided by physician assistants, nurse practitioners, nurse
    midwives, visiting nurses, clinical psychologist or social
    workers and related services and supplies), diabetes outpatient
    self-management training services, medical nutrition therapy
    services and preventive primary health services required under
    section 330 of the PHSA. The preventive services as defined by
    the PHSA include prenatal and perinatal services; appropriate
    cancer screening; well-child services; immunizations against
    vaccine-preventable diseases; screenings for elevated blood
    lead levels, communicable diseases, and cholesterol; pediatric
    eye, ear, and dental screenings to determine the need for
    vision and hearing correction and dental care; voluntary family
    planning services; preventive dental services.
        FQHCs receive cost-based reimbursement from Medicare,
    subject to a per-visit payment limit and certain productivity
    standards. Medicare pays FQHCs on an interim basis for covered
    services furnished to beneficiaries using an all-inclusive rate
    for each visit (except for certain vaccines which are paid on a
    cost basis). Generally, the FQHC's final payment rate is
    calculated by dividing the FQHC's total allowable cost for such
    services by the total visits which is subject to the maximum
    per-visit payment limit. The payment limits are increased each
    year by the Medicare Economic Index (MEI) and are different for
    urban and rural FQHCs. The upper payment limit per visit for
    urban FQHCs is $119.29 starting January 1, 2009, through
    December 31, 2009 and per visit limit for rural FQHCs is
    $102.58 effective January 1, 2009.
        As established by the Medicare Prescription Drug,
    Improvement and Modernization Act of 2003 (MMA, P.L. 108-173)
    the Centers for Medicare & Medicaid Services (CMS) provides
    supplemental payments to FQHCs that contract with Medicare
    Advantage (MA) organizations to cover the difference, if any,
    between the payment received by the FQHC for treating MA
    enrollees and the payment to which the FQHC would be entitled
    to receive under the cost-based all-inclusive payment rate. An
    FQHC is only eligible to receive this supplemental payment when
    FQHC services are provided during a face-to-face encounter
    between an MA enrollee and one or more of the following FQHC
    covered core practitioners: physicians, nurse practitioners,
    physician assistants, certified nurse midwives, clinical
    psychologists, or clinical social workers. The supplemental
    payment is made directly to each qualified FQHC by the Medicare
    contractor.

    Committee Bill

        Effective for services starting on January 1, 2011, the
    Committee Bill would expand the statutory definition of FQHC
    services to include the Medicare definition of preventive
    services at 1861(ddd)(3) that would be established in Sec. 2002
    of this legislation. These services would include screening and
    preventive services (other than electrocardiograms), an initial
    preventive physical examination, and personalized prevention
    plan services.
        The Committee Bill would also change Medicare's payments to
    FQHCs. For services starting January 1, 2012, during the fiscal
    year that ends in 2012), an FQHC would be paid a rate based on
    the average of its reasonable costs of providing services
    during 2010 and 2011, subject to appropriate tests of
    reasonableness, but not per visit payment limits or
    productivity screens. These payments, except for certain
    vaccine services, would not exceed 80 percent of the costs.
    Services furnished during the FQHC's fiscal year during 2013
    (and succeeding years) would be paid on an amount calculated on
    a per visit basis (without application of productivity screens
    or per visit limits) increased by the MEI applicable to primary
    care services. The update amount for an FQHC's fiscal year
    during 2014 (and succeeding years) would be the percentage
    increase in a market basket index of FQHC costs as developed by
    the Secretary and established during the rule making process.
    FQHC payments would be adjusted to account for any increase or
    decrease in the scope of services, including a change in the
    type, intensity, duration, or amount of services furnished by
    the center during the fiscal year less any applicable copayment
    amounts. Other than certain vaccine services, Medicare's
    payment for FQHC services would not exceed 80 percent of the
    established payment amount (without regard to coinsurance
    amounts which are established at 20 percent charges.) Payment
    rules would be established for entities that first qualify as
    FQHCs in fiscal years after 2011. Medicare's supplemental
    payments to FQHC services provided to a beneficiary enrolled in
    a MA plan would continue at 100 percent of the established FQHC
    payment amount.

           SEC. 3032. DISTRIBUTION OF ADDITIONAL RESIDENCY POSITIONS

    Present Law

        Medicare pays for the costs of graduate medical education
    (GME) in teaching hospitals through an indirect medical
    education (IME) adjustment within its inpatient prospective
    payment system (IPPS) and direct graduate medical education
    (DGME) payments made outside of the IPPS. With certain
    exceptions, the Balanced Budget Act of 1997 (BBA, P.L. 105-33)
    limited the number of allopathic and osteopathic residents that
    Medicare would reimburse a teaching hospital at the level
    reported in its cost report ending on or before December 31,
    1996. The limit does not include dental or podiatry residents.
        The Medicare Prescription Drug, Improvement and
    Modernization Act of 2003 (MMA, P.L. 108-173) authorized the
    redistribution of up to 75 percent of each teaching hospital's
    unused resident positions to hospitals seeking to increase
    their medical residency training programs. Any adjustments made
    to teaching hospitals' resident limits would be permanent.
    Rural teaching hospitals with less than 250 beds were exempt
    from the redistribution of any of their unfilled positions.
    Under the redistribution program, teaching hospitals were
    allowed to request up to an additional 25 full time equivalent
    (FTE) positions for DGME and IME payments. Hospitals were
    required to demonstrate the likelihood that the redistributed
    positions would be filled within three cost reporting periods
    beginning July 1, 2005. MMA required that the unused slots be
    redistributed according to specific priorities: rural
    hospitals, urban hospitals located in areas with a population
    of one million or less, specialty training programs that are
    the only specialty program in a state, and all other hospitals.
    The redistribution was effective for portions of cost reporting
    periods starting July 1, 2005. The redistributed resident slots
    have different IME and DGME payment formulas from those used to
    reimburse hospitals' previous residents.

    Committee Bill

        The Secretary would reduce the otherwise applicable
    resident limit for a teaching hospital that has residency
    positions that are unused. Unused positions would be
    established when a hospital's reference residence level is less
    than its otherwise applicable resident limit. The reduction
    would be effective for portions of cost reporting periods
    occurring on or after July 1, 2011 and would equal 65 percent
    of the difference between a hospital's reference level and its
    limit. Rural teaching hospitals with less than 250 beds would
    be exempt from the redistribution of any of their unfilled
    positions. Hospitals who had an approved voluntary reduction
    plan under Section 1886(h)(6) would also be exempt from the
    redistribution policy if they demonstrate that they have a
    specified plan in place for filling the unused residency
    positions within two years of enactment of this legislation.
        A hospital's reference residence level would be established
    as determined appropriate by the Secretary.
        The Secretary would be required to increase the otherwise
    applicable resident limit for each qualifying hospital that
    submits a timely application by such number determined by the
    Secretary. The aggregate number of increases in resident limits
    would be equal to the estimated aggregate reduction in resident
    limits. A hospital that receives an increase in its otherwise
    applicable resident limit would be required to ensure during a
    five year period beginning on the date of the increase that (1)
    the number of FTE primary care residents as determined by the
    Secretary is not less than the average number of FTE primary
    care residents during the three most recent cost reporting
    periods ending prior to the date of enactment; and (2) that not
    less than 75 percent of the positions attributable to such an
    increase are in a primary care or general surgery residency as
    determined by the Secretary.
        The Secretary would determine whether a hospital has met
    the requirements during the five year period in an appropriate
    manner and time, including at the end of the period.
        A hospital that does not meet these requirements would have
    its otherwise applicable resident limit reduced by the amount
    of the increase authorized under this provision. Those
    positions would be subsequently distributed according to the
    priorities established in this provision.
        When determining the increase in a hospital's otherwise
    applicable resident limit, the Secretary would take into
    account: (1) the demonstrated likelihood that a hospital would
    fill the positions within the first three cost reporting
    periods beginning on or after July 1, 2011; (2) whether a
    hospital would take part in an innovative delivery model that
    promotes quality and care coordination; and (3) whether a
    hospital would have an accredited rural training track
    residency program.
        The Secretary would distribute the increase in the
    otherwise applicable resident limit based on the following
    factors: (1) to hospitals located in states with resident-to-
    population ratios in the lowest quartile; (2) to hospitals
    located in a state that is among the top ten states in terms of
    the ratio of the total population living in a health
    professional shortage area (HPSA) determined by the Department
    of Health and Human Services as of the date of enactment
    compared to total population of the state based on the most
    recent state population projections by the Census Bureau; and
    (3) to hospitals located in rural areas.
        From the pool of available slots, 70 percent of such slots
    would be reserved and distributed to hospitals in states
    meeting the first criteria, (those with low resident-to-
    population ratios). The remaining 30 percent of slots would be
    reserved and distributed to those hospitals in states meeting
    the second and third criteria (to hospitals in the ten states
    with highest proportion of population living in health
    professional shortage areas and hospitals located in rural
    states). Any resident positions that are not allocated within
    one year from the date of enactment from a given category may
    be distributed to hospitals in the other category in accordance
    with the above considerations and priorities.
        Hospitals would not receive more than 75 additional FTE
    residency positions under this provision. The increase in
    resident positions would be distributed no later than three
    years after the date of enactment.
        The per resident amounts (PRAs) for the resident positions
    distributed under this provision would equal the hospitals'
    PRAs for primary and non-primary care positions for the
    purposes of calculating direct graduate medical payments. The
    indirect medical education adjustment for these resident
    positions distributed under this provision would be reimbursed
    at the full IME adjustment factor.

     SEC. 3033. COUNTING RESIDENT TIME IN OUTPATIENT SETTINGS AND ALLOWING
          FLEXIBILITY FOR JOINTLY OPERATED RESIDENCY TRAINING PROGRAMS

    Present Law

        Medicare currently reimburses the direct costs of graduate
    medical education (DGME) for approved residency training
    programs in a non-hospital setting where the residents'
    activities relating to patient care are performed as long as
    the hospital incurs all, or substantially all, of the costs for
    the training program in that setting. Through regulation, CMS
    has defined all, or substantially all costs, as 90 percent of
    resident stipends and fringe benefits and costs associated with
    a supervising physician. However, as presently administered, a
    hospital that jointly operates a residency program with another
    hospital cannot include the time spent by residents working at
    a non-hospital site if it incurs, all or substantially all of
    the costs, for only a portion of the residents in that program
    at the non-hospital site.

    Committee Bill

        Effective for cost reporting periods beginning on or after
    July 1, 2010, all time spent by a resident would count toward
    Medicare's DGME payment, without regard to the setting where
    the activities are performed, if the hospital continues, or in
    the case of a jointly operated residency program, the involved
    entities continue to incur the costs of the stipends and the
    fringe benefits of the resident during the time the resident
    spends in the setting.
        Effective for discharges on or after July 1, 2010, all the
    time spent by a resident in patient care activities in a non-
    hospital setting would be counted towards Medicare's IME
    payment if the hospital continues, or in the case of a jointly
    operating residency training program, the entities continue to
    incur the costs of the stipends and fringe benefits of the
    resident during the time spent in that setting.
        An eligible training site would be an ambulatory or non-
    hospital training site. A jointly operated residency training
    program means an approved medical residency training program
    that is jointly operated by one or more hospitals or by one or
    more eligible training sites under a written agreement which
    specifies a method for an equitable distribution of time spent
    by the resident in activities relating to patient care.
        Each hospital or eligible training site participating in
    the operation of a jointly operated residency training program
    would submit the written agreement to the Secretary. In the
    case of a jointly operated residency training program, the
    direct graduate medical education and the indirect medical
    education payments would not exceed the aggregate payments that
    would have been made to the hospitals and the eligible training
    sites if the training program had been independently operated.
        The provisions would not be implemented in a manner that
    would require reopening of any settled hospital cost reports
    where there is not a jurisdictionally proper appeal pending on
    IME and DGME payments as of the date of enactment.

    SEC. 3034. RULES FOR COUNTING RESIDENT TIME FOR DIDACTIC AND SCHOLARLY
                        ACTIVITIES AND OTHER ACTIVITIES

    Present Law

        Medicare pays teaching hospitals the costs of approved
    medical residency training programs through two mechanisms: an
    indirect medical education (IME) adjustment within the
    inpatient prospective payment system (IPPS) and direct graduate
    medical education (DGME) payments made outside of the IPPS.
    Certain non-patient care activities that are part of an
    approved training program are not allowable for DGME or IME
    payment purposes. With respect to training that occurs in
    hospital settings, Medicare would not include the time that
    residents spend in non-patient care activities, including
    didactic activities, when calculating IME payments; these
    activities would be included when calculating DGME payments in
    hospital settings. With respect to training that occurs in non-
    hospital settings, Medicare would not count the time that
    residents spend in non-patient care activities, including
    didactic activities, when calculating DGME or IME payments.

    Committee Bill

        When calculating DGME payments, Medicare would count the
    time that residents in approved training programs spend in
    certain non-patient care activities in a non-hospital setting
    that is primarily engaged in furnishing patient care. The term
    ``non-hospital setting that is primarily engaged in furnishing
    patient care'' would be a non-hospital setting in which the
    primary activity is the care and treatment of patients as
    defined by the Secretary. Reimbursable non-patient care
    activities would include didactic conferences and seminars, but
    would not include research that is not associated with the
    treatment or diagnosis of a particular patient. In addition,
    Medicare would count all the vacation, sick leave and other
    approved leave spent by resident in an approved training
    program as long as the leave time does not extend the program's
    duration.
        When calculating IME payments, Medicare would adopt the
    same rules about counting residents' leave time. Medicare would
    also include all the time spent by residents in approved
    training programs on certain non-patient care activities
    (including didactic conferences and seminars, but not in
    certain research activities that are not associated with the
    treatment or diagnosis of a particular patient) if the hospital
    is an IPPS hospital, a hospital paid under the IPPS for Puerto
    Rico, is a hospital paid under a state specific hospital
    reimbursement system, or is a provider-based hospital
    outpatient department.
        These provisions would be effective as of dates determined
    appropriate by the Secretary, but would not be applied in a
    manner that would require reopening of any settled hospital
    cost reports where there is not a jurisdictionally proper
    appeal pending on IME and DGME payments as of the date of
    enactment.

       SEC. 3035. PRESERVATION OF RESIDENT CAP POSITIONS FROM CLOSED AND
                               ACQUIRED HOSPITALS

    Present Law

        The Centers for Medicare and Medicaid Services (CMS) has
    established certain regulations governing Medicare's provider
    enrollment requirements that determine under which
    circumstances providers can bill the Medicare program including
    those involved in change of ownership transactions. Very
    generally, in order to acquire a teaching hospital's resident
    cap under a change of ownership transaction, the acquiring
    entity must retain the original provider number. However, the
    acquiring entity would also assume all liabilities associated
    with that provider number.
        Starting August 29, 2005 (the day after Hurricane Katrina),
    hospitals were permitted to form emergency affiliation
    agreements if located in Federally declared disaster areas
    starting the first day of a Section 1135 emergency period.
    Under 42 Code of Federal Regulations (CFR) 413.79, a home
    hospital located in such an area that experiences at least a 20
    percent decline in inpatient occupancy can temporarily transfer
    its resident cap to a host hospital.

    Committee Bill

        The Secretary would promulgate regulations to establish a
    process where the residency allotments in a hospital with an
    approved medical residency program that closes on or after the
    enactment date for Balanced Budget Act of 1997 (BBA, P.L. 105-
    33) could be used to increase the otherwise applicable
    residency limit for other hospitals.
        The increase in residency positions would be distributed in
    the following priority order. First priority would be given to
    hospitals located in the same or contiguous core-based
    statistical area as the hospital that closed; second priority
    would be given to hospitals located in the same State as the
    hospital that closed; third priority would be given to
    hospitals located in the same region of the country as the
    hospital that closed; and fourth priority, to be used only if
    the residents are not distributed under the other priorities,
    would be the priorities established for the distribution of
    additional residency positions established previously in this
    legislation. Preference would be given within each category to
    hospitals that are members of the same affiliated group. The
    residency positions would be distributed to those hospitals
    that demonstrate a likelihood of filling the position within
    three years. The aggregate increase in hospitals' applicable
    resident limits would equal the number of resident positions in
    applicable approved medical programs that closed.
        A special rule for acquired hospitals would be established.
    Specifically, when a hospital is acquired through any mechanism
    by another entity with approval of a bankruptcy court during a
    period determined by the Secretary, but not less than within
    three years, the applicable resident limit of the acquired
    hospital would be the limit of the acquired hospital as of the
    date immediately before the acquisition. The acquiring entity
    would be required to continue operation of the hospital that
    was acquired and to furnish services, medical residency
    programs, and the volume of patients similar to those of the
    hospital that was acquired during such period. This provision
    would apply only to instances where the acquiring entity waives
    the right to establish a resident limit as a new teaching
    program.
        The provisions would not be implemented in a manner that
    would require reopening of any settled hospital cost report
    where there is not a jurisdictionally proper appeal pending on
    Medicare's IME and DGME payments as of the date of enactment.
        The Secretary would give consideration to the effects of
    these provisions on the temporary adjustment to a hospital's
    FTE resident cap established under 42 CFR 413.79 as in effect
    on the date of enactment in order to assure that there is no
    duplication of FTE slots. These provisions would have no affect
    on resident reference limit for the replacement hospital for
    the former Martin Luther King Jr. Hospital.

                    SEC. 3036. WORKFORCE ADVISORY COMMITTEE

    Present Law

        No provision.

    Committee Bill

        The provisions would require the Secretary of HHS to
    establish a Workforce Advisory Committee (the ``Committee'')
    comprised of members appointed by the Secretary among specified
    groups. No later than a date determined appropriate by the
    Secretary, the Committee would be required to develop and
    submit to Congress and the heads of relevant Federal agencies a
    national workforce strategy to recruit, train, and retain a
    health care workforce that meets the current and projected
    health care needs of the United States. The Committee would be
    required to consult with the heads of relevant Federal
    agencies, as specified, and with State and local entities in
    developing such national workforce strategy.
        The Committee would be required to conduct a study on the
    U.S. health care workforce. Such study shall include an
    analysis of, at minimum: the current and projected health care
    workforce supply; the current and projected demand for health
    professionals; the capacity of education and training for the
    health care workforce; the implications of current and proposed
    Federal laws and regulations affecting the health care
    workforce; and the health care workforce needs of specific
    populations, including minorities, rural and urban populations
    and medically underserved populations.
        On a biannual basis, the Committee would be required to
    submit to Congress and the heads of relevant Federal agencies a
    report containing results from this study with recommendations
    for legislation and administrative action, as determined
    appropriate.
        The Committee would also be required to conduct studies on
    specific high-priority topics, as described, and submit to
    Congress and the heads of relevant Federal agencies a report
    containing the results of each study with recommendations for
    such legislation and administrative action, as determined
    appropriate. The Committee would be required to make the
    biannual report and each study of high-priority topics
    available to the public.

        SEC. 3037. DEMONSTRATION PROJECTS TO ADDRESS HEALTH PROFESSIONS
       WORKFORCE NEEDS; EXTENSION OF FAMILY-TO-FAMILY HEALTH INFORMATION
                                    CENTERS

    Present Law

        Existing health professions education and training programs
    authorized under Title VII of the PHSA provide funding to
    medical schools and other facilities to promote community-based
    and rural practice, primary care, and opportunities for
    minorities and disadvantaged students. Title VIII of the PHSA
    authorizes a comparable set of programs to promote nursing
    education and training. Appropriations authority for most Title
    VII and VIII programs has expired, though many of them continue
    to receive funding.
        There are no Federal requirements related to training
    personal or home care aides. The Medicare program does not
    cover personal care attendant services. States may choose to
    offer personal care services through their Medicaid state plan
    and/or Medicaid waiver programs. For states that offer
    Medicaid-funded personal care services, the State Medicaid
    Manual requires them to develop provider qualifications for
    personal care aides. The manual does not list specific
    qualifications, but rather offers examples of areas where
    states may establish requirements including: criminal
    background checks or screens for attendants before they are
    employed; training for attendants; use of case managers to
    monitor the competency of personal care providers; and/or
    establishment of minimum requirements related to age, health
    status, and/or education.
        Section 501(c)(1)(A)(iii) of the SSA authorizes sums to be
    appropriated for the purpose of enabling the Secretary (through
    grants, contracts, or otherwise) to provide for special
    projects of regional and national significance for the
    development and support of family-to-family health information
    centers. Specifically, there is appropriated to the Secretary,
    out of any money in the Treasury not otherwise appropriated: $3
    million for FY2007; $4 million for FY2008; and $5 million for
    FY2009.

    Committee Bill

        The Committee Bill establishes demonstration grants to
    address needs in the health professions workforce. It would
    establish a demonstration grant program through competitive
    grants to provide aid and supportive services to low-income
    individuals with the opportunity to obtain education and
    training for occupations in the health care field that pay well
    and are expected to experience labor shortages or be in high
    demand. These grants would be made by the Secretary of Health
    and Human Services, in consultation with the Secretary of
    Labor, to states, Indian tribes, tribal organizations,
    institutions of higher education, local workforce investment
    boards under the Workforce Investment Act, or community-based
    organizations. At least three grants must be awarded to an
    Indian tribe, Tribal organization, or Tribal College or
    University. Grantees must consult with the state agency
    administering the Temporary Assistance for Needy Families
    (TANF) block grant, and, if the grantee is not a local
    workforce investment board, consult with local and state
    workforce investment boards. The demonstration grant is to
    serve low-income persons, including recipients of assistance
    under state Temporary Assistance for Needy Families (TANF)
    programs. The demonstration program shall provide eligible
    individuals, if appropriate, with financial aid; child care,
    case management; and supportive services. Financial aid,
    services, or incentives received from the demonstration program
    shall not be considered income, and shall be disregarded in
    determining eligibility for TANF, Medicaid, the Supplemental
    Nutrition Assistance Program (SNAP), Low Income Home Energy
    Assistance Program, and any program administered by the
    Department of Housing and Urban Development. Grantees must
    submit interim reports and a final report to the Secretary of
    HHS on their activities, which will assess the project's
    effectiveness in improving outcomes for participants and
    address health professions workforce needs in the project
    areas. The Secretary of HHS must evaluate the demonstration
    project. The evaluation will identify successful activities for
    creating and sustaining a health professions workforce that has
    accessible entry meets, meets high standards for education,
    training, certification and professional development; and
    provides increased wages, health care coverage, and other
    benefits for the workers. The Secretary of HHS shall submit
    interim and final reports on the demonstration to Congress.
        The Committee Bill also establishes a demonstration program
    to competitively award grants to up to six states for three
    years to develop core training competencies and certification
    programs for personal and home care aides. In selecting states
    to participate, the Secretary will establish criteria to ensure
    geographic and demographic diversity. In addition, a state must
    offer medical assistance for personal care services under its
    Medicaid state plan, not reduce the number of hours of training
    from pre-demonstration levels or below levels required by state
    or Federal law; and recruit a minimum number of health and long
    term care providers to participate in the project.
    Participating states must demonstrate that their existing
    training standards are different from other states and
    different from the competencies described in the demonstration.
        The demonstration will determine the efficacy of developing
    core training competencies in the following areas: the role of
    the personal or home care aid; consumer rights, ethics, and
    confidentiality; communication, cultural, and linguistic
    competence and sensitivity, problem solving, behavior
    management, and relationship skills; personal care skills;
    health care support; nutritional support; infection control;
    safety and emergency training; training specific to an
    individual consumer's needs; and self-care. The project will
    also evaluate the methods used to implement these competencies
    including: length of training; appropriate student to trainer
    ratio; time spent in the classroom compared to on-site; trainer
    qualifications; content for hands-on training and written
    certification exam; and continuing education requirements. The
    Secretary of Health and Human Services will develop an
    experimental or control group testing protocol, in consultation
    with an independent evaluation contactor, to evaluate the
    impact of core training competencies on: job satisfaction;
    mastery of job skills; beneficiary and family satisfaction with
    services; and on existing training infrastructure and resources
    of the States. The evaluation must also address whether a
    minimum number of hours of initial training should be required
    for personal or home care aides. The Secretary will make an
    interim report to Congress within two years after enactment and
    a final report within a year of completion of the demonstration
    project.
        The Committee Bill appropriates $85 million per year for
    five years (FY2010-FY2014) for these demonstrations, with no
    more than $5 million per year for three years (FY2010-FY2012)
    allowed for the personal and home care aid demonstration.

            Extension of Family-to-Family Health Information Centers

    Present Law

        The Deficit Reduction Act of 2005 (DRA, P.L. 109-171)
    provided dedicated funding for the development and support of
    family-to-family health information centers. The centers assist
    families of children with disabilities or special health care
    needs make informed choices about health care to promote good
    treatment decisions, cost effectiveness, and improved health
    outcomes for such children; provide information regarding the
    health care needs of children with disabilities or special
    health care needs; identify successful health delivery models
    for such children; develop models of collaboration between
    families of such children and health professionals; provide
    training and guidance with regard to the care of such children;
    and conduct outreach activities to families of such children,
    health care providers, schools, and other appropriate entities
    and individuals. Family-to-family health information centers
    are staffed by members of families with expertise in Federal,
    State and private health systems and health professionals. In
    Fiscal Year 2009, family-to-family health information centers
    are funded at $5 million. No funds are appropriated for years
    after FY2009.

    Committee Bill

        The Chairman's Mark would extend funding for family-to-
    family health information centers at $5 million per year for
    FY2010 through FY2012.

                    SEC. 3038. INCREASING TEACHING CAPACITY

    Present Law

        Under Section 747 of the Public Health Service Act (PHSA),
    the Secretary may, among other things, make grants to or enter
    into contracts with hospitals, medical and osteopathic schools,
    and other nonprofit entities for health professions training
    programs in family medicine, general internal medicine, or
    general pediatrics, and comparable programs in dentistry. When
    making awards under this section the Secretary is required to
    give preference to programs that would establish or expand
    training programs and to entities that collaborate with
    departments of primary care. It also specifies that for
    programs that propose to train residents, the Secretary is
    required to give priority to programs that have a high or
    recently improved record of training graduates who remain in
    primary care practice and who have a record of training
    individuals from disadvantaged backgrounds. Authority for
    appropriations for these grants or contracts expired at the end
    of FY2002.
        Sections 751 and 752 of the PHSA authorizes the Area Health
    Education Centers (AHEC) program that may fund community-based
    residency training. The AHEC program provides grant funding to
    schools of medicine and schools of osteopathic medicine, and
    consortia of such schools, or the parent institutions of such
    schools for the planning, development and operation of the AHEC
    program. AHECs aim to improve the supply, diversity, quality
    and distribution of health personnel. Among other activities,
    AHEC funds may be used to support community-based primary care
    residency programs, but are currently not connected to Medicare
    GME payments. The appropriations authority for the AHEC program
    expired at the end of FY2002.
        Sections 331, 338A, 338B, and 338I of the PHSA authorize
    the National Health Service Corps (NHSC), administered by the
    Health Resources and Services Administration. The NHSC provides
    scholarship and loan repayment programs for medical school
    students, nurse practitioners, nurse midwives, physician
    assistants, dental school students, and allied health
    professionals who enter primary care in health professional
    shortage areas (HPSAs). NHSC clinicians may fulfill their
    service commitments in health centers, rural health clinics,
    public or nonprofit medical facilities, Federal or state
    correctional facilities, or within other community-based
    systems of care. Section 338D specifies the conditions by which
    NHSC clinicians can obtain a waiver from their NHSC commitment
    in order to fulfill their service obligation in a private
    practice located in HPSA.
        With respect to the Medicare law, the costs of approved
    residency training programs in teaching hospitals are
    recognized under two payment mechanisms: an indirect medical
    education (IME) adjustment within the inpatient prospective
    payment system (IPPS) and direct graduate medical education
    (DGME) payments made outside of the IPPS. With certain
    exceptions, the Balanced Budget Act of 1997 (BBA; P.L. 105-33)
    limited the number of allopathic and osteopathic residents that
    Medicare will reimburse at the level reported by the hospital
    in its most recent cost report ending on or before December 31,
    1996. Rural teaching hospitals, hospitals that established new
    training programs before August 5, 1997, and urban teaching
    hospitals that operate certain rural residency training
    programs are partially exempt from the cap. Other restrictions
    apply to hospitals with new programs established after that
    date.
        BBA permitted the Secretary to make Medicare payments
    directly to ``qualified nonhospital providers'' who incur
    direct teaching costs in the operation of an approved medical
    residency training program. Prior to this, only hospitals could
    receive Medicare teaching payments for residents training in
    nonhospital sites. BBA stated that the definition of a
    qualified nonhospital provider must include Federally Qualified
    Health Centers (FQHCs), Rural Health Centers (RHCs), Medicare
    Advantage organizations and ``other such entities as the
    Secretary deems to be appropriate.'' Any qualified nonhospital
    provider would only receive direct graduate medical education
    payment and not indirect medical education payments.
        The Health Care Financing Administration (HCFA), now CMS,
    promulgated a final rule in 1998 that designated FQHCs, RHCs,
    and Medicare+Choice organizations as ``qualified nonhospital
    providers'' that are eligible to receive direct teaching
    payments. These payments became effective for portions of cost
    reporting periods occurring on or after January 1, 1999. The
    payments are made only if the nonhospital provider incurs ``all
    or substantially all'' of the costs of the training program in
    the nonhospital setting. The definition of ``all or
    substantially all'' is the same as used for determining when a
    hospital is eligible for payment.

    Committee Bill

        The provision would amend the Public Health Service Act
    (PHSA) to insert a new section.

              SEC. 749. TEACHING HEALTH CENTERS DEVELOPMENT GRANTS

        The new section would authorize the Secretary to establish
    a grant program to award funds to teaching health centers to
    establish newly accredited or expanded primary care residency
    training programs. The provision would require that grants be
    awarded for not more than 2 years with the maximum award of
    $500,000. Grantees would be required to use funds for: costs
    associated with curriculum development; recruitment, training
    and retention of residents and faculty; accreditation (by
    either the Accreditation Council for Graduate Medical Education
    or the American Osteopathic Association); and faculty salaries
    during the development phase. Funds for technical assistance
    provided by an eligible entity would be required to be used for
    materials development; staff salaries; travel; and
    administrative costs.
        Entities would be required to submit an application to the
    Secretary in such time, in such manner, and containing such
    information as the Secretary may require. The Secretary would
    be required to give priority to funding training programs at
    FQHCs, RHCs, Indian health centers, and to newly established
    residency programs, integrated rural training programs, rural
    training tracks, and to residencies with a mission to train
    physicians for rural and underserved practice. The Secretary
    would be required to give further preference to applications
    that document an existing affiliation agreement with an AHEC as
    defined in PHSA Sec. 751 and 799B.
        The provision would define ``eligible entity'' to mean an
    organization capable of providing technical assistance
    including an AHEC as defined in PHSA Sec. 751 and 799B; and
    ``primary care residency program'' to mean an approved medical
    residency program under SSA Sec. 1886(h)(5)(A) in the fields of
    family medicine, general pediatrics, general internal medicine,
    or obstetrics and gynecology.
        It would also define ``teaching health center'' to mean a
    facility that is a community-based, ambulatory patient care
    center; and is establishing or expanding a primary care
    residency program as defined by SSA Sec. 1886(h)(5)(A) in a
    high-need specialty as determined by the Secretary. The
    definition also includes FQHCs, community health centers,
    health care for the homeless centers, RHCs, migrant health
    centers, Native American health centers operated by the Indian
    Health Service, an Indian tribe or tribal organization, and
    other not-for-profit community-based clinical entities.
        There would be authorized to be appropriated $25 million
    for FY2010, $50 million for FY2011 and FY2012, and such sums as
    may be necessary for each fiscal year thereafter. No more than
    $5 million annually may be used for technical assistance
    program grants.
        The provision would also amend PHSA Sec. 338C(a) to allow
    up to 50 percent of the time spent teaching to count as full-
    time service for the purpose of fulfilling the contractual NHSC
    service obligation for scholarship or loan repayment. This
    provision would not apply to individuals who are fulfilling
    their NHSC service requirement through work in private
    practice.
        The Medicare statute would also be modified to permit
    payments to qualified teaching health centers for direct and
    other indirect expenses associated with operating approved
    graduate medical residency training programs. Such programs are
    operated by a qualified teaching health center that meets
    criteria for accreditation as established by the Accreditation
    Council for Graduate Medical Education or the American
    Osteopathic Association.
        The Secretary would determine the basis of payment and
    funding calculations for both the direct and indirect payments
    and would promulgate regulations under existing rulemaking
    requirements to establish this program. These payments would be
    in addition to any indirect or direct graduate medical
    education payments made to teaching hospitals and would not
    count against the limitation on the number of total full-time-
    equivalent residents paid for by Medicare in teaching
    hospitals. A total of $230 million would be transferred from
    the Medicare Part A Hospital Insurance trust fund for purposes
    of the program and would be available until expended from
    FY2011 to FY2015.
        Both ``approved graduate medical residency training
    programs'' and ``direct medical education costs'' would be
    defined according to the Medicare statute. A primary care
    residency program would be an approved medical residency
    program in family medicine, internal medicine, pediatrics,
    medicine-pediatrics, obstetrics and gynecology, psychiatry and
    geriatrics. A qualified teaching health center would be an
    entity that is a community based, ambulatory patient care
    center and operates a primary care residency program. These
    would include Federally qualified health centers, community
    mental health centers, a community health center, health care
    for the homeless centers, rural health centers, migrant health
    centers, health centers operated by the Indian Health Service,
    Indian tribes and tribal organizations, or urban Indian
    organizations, and Title X clinics.

           SEC. 3039. GRADUATE NURSE EDUCATION DEMONSTRATION PROGRAM

    Present Law

        Title VIII of the Public Health Service Act (PHSA) contains
    several provisions on nursing workforce development, including
    programs to support graduate nurse education and training.
    Section 811 of the PHSA authorizes the Secretary to provide
    Advanced Education Nursing Grants to qualified entities to fund
    projects that support the enhancement of advanced nursing and
    practice, and traineeships for individuals in advanced nursing
    programs. Section 831 authorizes the Secretary to provide Nurse
    Education, Practice, and Retention Grants to qualified entities
    to expand nursing education, practice and retention.
        Section 801 of the PHSA defines a school of nursing to mean
    a collegiate, associate degree, or diploma school of nursing.
    The section defines ``accredited'' to mean a program, hospital,
    school, college or university or unit thereof, accredited by a
    recognized body or bodies, or by a State agency, approved for
    such purpose by the Secretary of Education that is included on
    the list that the Secretary is required to publish of such
    accrediting bodies.
        Medicare will pay hospitals for the costs associated with
    provider-operated nursing or allied health education programs
    on a pass-through basis. To be eligible for these payments, the
    training program must be recognized by a nationally approved
    body or state licensing organization. Also, the provider must
    directly incur the training costs, directly control the program
    curriculum; control the administration of the program; employ
    the teaching staff; and provide and control both the necessary
    classroom instruction and clinical training. In some
    circumstances, hospitals that do not directly operate a health
    training program may receive payments for the net costs of
    training they incur if they received payment for these services
    in 1989 and if other requirements are met. Net costs are
    determined by deducting tuition, student fees, and state and
    local grants from a provider's total education costs. In 2001,
    MedPAC reported that Medicare spends about $300 million for the
    costs associated with training nurses and allied health
    professionals.

    Committee Bill

        Fifty million dollars would be appropriated from the
    Hospital Insurance Trust Fund each fiscal year from 2012
    through 2015 for the establishment of a graduate nurse
    education demonstration program in Medicare. These funds would
    be available until spent. The Secretary would assure that only
    those appropriated funds are used for the conduct of this
    demonstration.
        Starting January 1, 2012, the Secretary would establish a
    demonstration program to increase the supply of highly skilled
    advanced practice nurses. Participating hospitals would receive
    reasonable costs reimbursement from Medicare for the
    educational costs (including faculty salaries, any student
    stipends, clinical instruction costs, and other direct and
    indirect costs) of a hospital and affiliated schools
    attributable to the training of advanced practice nurses. Costs
    would be limited to those associated with an increase in the
    enrollment and the number of advanced practice nurse graduates
    in each education or training program over the comparable
    average number from 2006 to 2010.
        The demonstration program would provide these nurses with
    the necessary skills to provide primary and preventive care,
    transitional care, chronic care management, and other
    appropriate nursing services through affiliation with one or
    more accredited nursing schools and in partnership with two or
    more non-hospital community-based patient care settings where
    at least half of all clinical training occurs. The Secretary
    would be able to waive the requirement for affiliation with
    accredited nursing schools for clinical training of advanced
    practice registered nurses in rural and medically underserved
    areas.
        No payment would be made to a hospital unless the hospital
    has in effect an enforceable legal agreement with the schools
    of nursing and non-hospital settings. These hospitals would
    also be required to make timely, complete payments to such a
    school or setting (through the school when the setting is
    arranged through the school).
        For purposes of the demonstration program, the term
    `advanced practice nurse' would include a clinical nurse
    specialist, nurse practitioner, certified registered nurse
    anesthetist, and certified nurse midwife.

                     PART V--HEALTH INFORMATION TECHNOLOGY

        SEC. 3041. CLARIFICATION REGARDING INCLUSION OF FREE CLINICS AS
     PROVIDERS ELIGIBLE FOR INCENTIVES FOR ADOPTION AND MEANINGFUL USE OF
                            CERTIFIED EHR TECHNOLOGY

    Present Law

        The HITECH Act authorized bonus payments for eligible
    professionals and hospitals participating in Medicare and
    Medicaid as an incentive to become meaningful users of
    certified EHR systems: see Present Law description for Sec.
    1102. For the Medicare incentives, an eligible professional
    means a physician, as defined under SSA Section 1861(r). For
    the Medicaid incentives, an eligible professional is defined as
    (1) a non-hospital physician, dentist, certified nurse mid-wife
    or nurse practitioner with at least a 30 percent Medicaid
    patient volume (pediatricians must have at least a 20 percent
    Medicaid patient volume); (2) physician assistants that meet
    certain specified requirements; and (3) Federally qualified
    health centers and rural health clinics with at least a 30
    percent patient volume made up of needy individuals, as
    defined.
        Free clinics are safety-net health care organizations,
    staffed by volunteers, that provide a range of medical, dental,
    pharmacy, and/or behavioral health services to economically
    disadvantaged individuals who are predominately uninsured.
    Facilities that otherwise meet the above definition, but charge
    a nominal fee to patients, may still be considered free clinics
    provided essential services are delivered regardless of the
    patient's ability to pay. Free clinics are 501(c)(3) tax-exempt
    organizations. They do not bill Medicare, Medicaid, or private
    payers for the health care services they provide.

    Committee Bill

        The Committee Bill would amend the definition of a
    professional that is eligible to receive Medicare EHR
    incentives (and subject to Medicare penalties for failure to
    become a meaningful EHR user) by clarifying that nothing in the
    provision would prevent a physician furnishing items and
    services in a free clinic (as defined above) from being
    considered so eligible.
        The Committee Bill would further amend the definition of a
    professional eligible to receive Medicaid EHR incentives, by
    clarifying that nothing in the provision would prevent a
    physician, dentist, certified nurse mid-wife, nurse
    practitioner, or physician assistant furnishing items and
    services in a free clinic (as defined above) from being
    considered so eligible.

           Subtitle B--Improving Medicare for Patients and Providers

        PART I--ENSURING BENEFICIARY ACCESS TO PHYSICIAN CARE AND OTHER
                                    SERVICES

              SEC. 3101. INCREASE IN THE PHYSICIAN PAYMENT UPDATE

    Present Law

        Medicare payments for services of physicians and certain
    non-physician practitioners are made on the basis of a fee
    schedule. The fee schedule assigns relative values to services
    that reflect physician work (i.e., time, skill, and intensity
    it takes to provide the service), practice expenses, and
    malpractice costs. The relative values are adjusted for
    geographic variation in costs. The adjusted relative values are
    then converted into a dollar payment amounts by a conversion
    factor. The law specifies a formula, commonly referred to as
    the sustainable growth rate formula (SGR), for calculating the
    annual update to the conversion factors and the resultant fees.
    Section 101 of the Medicare, Medicaid, and SCHIP Extension Act
    of 2007 (MMSEA, P.L. 110-173) increased the update to the
    conversion factor for Medicare physician payment by 0.5 percent
    compared with 2007 rates for the first six months of 2008. The
    Medicare Improvements for Patients and Providers Act of 2008
    (MIPPA, P.L. 110-275) extended the 0.5 percent increase in the
    physician fee schedule that was set to expire on June 30, 2008,
    through the end of 2008 and set the update to the conversion
    factor to 1.1 percent for 2009. The conversion factor for 2010
    and subsequent years will be computed as if this modification
    had never applied, so unless further legislation is passed, the
    update formula will require a 21 percent reduction in physician
    fees beginning January 1, 2010 and by additional amounts
    annually for at least several years thereafter.

    Committee Bill

        The Committee Bill would set the annual update to the
    conversion factor used in the determination of the Medicare fee
    schedule at a 0.5 percent increase in 2010. The conversion
    factor for 2011 and subsequent years would be computed as if
    the increase in 2010 had never applied.

     SEC. 3102. EXTENSION OF THE WORK GEOGRAPHIC INDEX FLOOR AND REVISIONS
       TO THE PRACTICE EXPENSE GEOGRAPHIC ADJUSTMENT UNDER THE MEDICARE
                             PHYSICIAN FEE SCHEDULE

    Present Law

        The Medicare fee schedule is adjusted geographically for
    three factors to reflect differences in the cost of resources
    needed to produce physician services: physician work, practice
    expense, and medical malpractice insurance. The geographic
    adjustments are indices that reflect how each area compares to
    the national average in a ``market basket'' of goods. A
    geographic practice cost index (GPCI) with a value of 1.00
    represents an average across all areas. A series of laws sets a
    temporary floor value of 1.00 on the physician work index
    beginning January 2004; most recently, Section 134 of the MIPPA
    extended the application of this floor when calculating
    Medicare physician reimbursement through December 2009. The
    other geographic indices (for practice expense and medical
    malpractice) were not modified by these acts.

    Committee Bill

        The Committee Bill would extend the 1.00 floor for the
    geographic index for physician work for an additional three
    years through December 31, 2012.
        The Committee Bill would also direct the Secretary to
    adjust the practice expense geographic practice cost index (PE
    GPCI) for 2010 and in subsequent years. For 2010, the PE GPCI
    would reflect \3/4\ of the difference between the relative
    costs of employee wages and rents in each of the different fee
    schedule areas and the national averages. For 2011, the
    adjustment would reflect \1/2\ of the difference between the
    relative costs of employee wages and rents in each of the
    different fee schedule areas and the national averages (i.e., a
    blend of \1/2\ local and \1/2\ national). The Committee Bill
    includes a hold harmless provision that would protect any areas
    adversely affected by the adjustment in 2010 or 2011.
        The Secretary would analyze current methods of establishing
    practice expense geographic adjustments under the Medicare
    physician fee schedule and evaluate data that fairly and
    reliably establishes distinctions in the costs of operating a
    medical practice in the different Medicare payment localities.
    This analysis would include an evaluation of the following: (1)
    the feasibility of using actual data or reliable survey data
    developed by recognized medical organizations, such as the
    American Medical Association, on the costs of operating a
    medical practice, including office rents and non-physician
    staff wages, in the different Medicare payment localities; (2)
    the office expense portion of the PE GPCI, including the extent
    to which types of office expenses are determined in local
    markets instead of national markets; and (3) the weights
    assigned to each of the categories within the practice expense
    GPCI.
        For 2012 and in subsequent years, the Secretary would make
    appropriate adjustments to the PE GPCI no later than January 1,
    2012 to ensure accurate geographic adjustments across payment
    areas. These adjustments would include the following: (1)
    basing the office rents component and its weight on office
    expenses that vary among fee schedule areas; and (2)
    considering a representative range of professional and non-
    professional personnel employed in a medical office based on
    the use of the American Community Survey data or other reliable
    data for wage adjustments. The adjustments made in 2012 and for
    subsequent years would be made without regard to the
    adjustments made in 2010 and 2011 and would be made in a budget
    neutral manner.
        If the Secretary does not complete the required analysis as
    described above and does not make appropriate adjustments in
    the Medicare Physician Fee Schedule rule for 2012 or for a
    subsequent year, the 2011 payment rule (including the hold
    harmless) would remain in effect.

      SEC. 3103. EXTENSION OF EXCEPTIONS PROCESS FOR MEDICARE THERAPY CAPS

    Present Law

        Present Law places two annual per beneficiary payment
    limits for all outpatient therapy services provided by non-
    hospital providers. For 2009, the annual limit on the allowed
    amount for outpatient physical therapy and speech-language
    pathology combined is $1,840, and there is a separate limit for
    occupational therapy of $1,840. The Secretary was required to
    implement an exceptions process for 2006, 2007, and the first
    half of 2008 for cases in which the provision of additional
    therapy services was determined to be medically necessary.
    Section 141 of the MIPPA extended the exceptions process for
    therapy caps through December 31, 2009.

    Committee Bill

        The Committee Bill would extend the exceptions process for
    therapy caps for 2 years, through December 31, 2011.

    SEC. 3104. EXTENSION OF PAYMENT FOR THE TECHNICAL COMPONENT OF CERTAIN
                          PHYSICIAN PATHOLOGY SERVICES

    Present Law

        In 1999, the Health Care Financing Administration, (now the
    Centers for Medicare and Medicaid Services or CMS), proposed
    terminating an exception to a payment rule that had permitted
    laboratories to receive direct payment from Medicare when
    providing technical pathology services that had been outsourced
    by certain hospitals. The Medicare, Medicaid, and SCHIP
    Benefits Improvement and Protection Act of 2000 (BIPA, P.L.
    106-554) extended this exception for 2 years until January 1,
    2003. The Medicare Prescription Drug, Improvement and
    Modernization Act (MMA, P.L. 108-173) extended the exception
    for 2005 and 2006 to permit independent laboratories to receive
    direct payments for the technical component for certain
    inpatient pathology services. The Medicare Improvements for
    Patients and Providers Act of 2008 (MIPPA, P.L. 110-275)
    extended the provision until January 1, 2010.

    Committee Bill

        The Committee Bill would extend the direct payments
    provision until January 1, 2012.

                   SEC. 3105. EXTENSION OF AMBULANCE ADD-ONS

    Present Law

        The Medicare Prescription Drug, Improvement and
    Modernization Act (MMA, P.L. 108-173) established bonus
    payments for ground ambulance services furnished on or after
    July 1, 2004 and before January 1, 2010 that originate in a
    qualified rural area. The qualified rural areas are those with
    the lowest population densities that collectively represent a
    total of 25 percent of the population.
        The Medicare Improvements for Patients and Providers Act of
    2008 (MIPPA, P.L. 110-275) provided that the Medicare rate for
    ground ambulance services otherwise established for the year
    would be increased an additional three percent for rural
    ambulance services and two percent for other areas for the
    period July 1, 2008 through December 31, 2009. Areas designated
    as rural on December 31, 2006 are treated as rural for purposes
    of payments for air ambulance services during this period as
    well.

    Committee Bill

        The Committee Bill would extend the bonus payments and the
    increased ground ambulance payments until January 1, 2012. The
    provision to pay certain urban air ambulance services as rural
    would be extended until January 1, 2012 as well.

       SEC. 3106. EXTENSION OF CERTAIN PAYMENT RULES FOR LONG-TERM CARE
      HOSPITAL SERVICES AND OF MORATORIUM ON THE ESTABLISHMENT OF CERTAIN
                            HOSPITALS AND FACILITIES

    Present Law

        Long-term care hospitals (LTCHs) are designed to provide
    extended medical and rehabilitative care for patients who are
    clinically complex and have multiple acute or chronic
    conditions. LTCHs that are distinct part units of other
    hospitals are not explicitly permitted by the Medicare statute.
    Over time, however, the LTCH industry has evolved to include
    co-located hospitals-within-hospitals (HwHs) or satellite
    facilities in addition to traditional freestanding facilities.
    CMS has implemented additional organizational requirements on
    these LTCHs, in an attempt to ensure that these are separate
    entities. Certain LTCHs (grandfathered HwHs) have been exempted
    from the requirements. Starting October 1, 2004, CMS
    established limits on the number of discharged Medicare
    patients that an HwHs and satellite LTCHs (except grandfathered
    LTCHs) can admit and be paid as independent LTCHs; after that
    threshold has been reached, generally, the LTCH will receive a
    substantially lower payment for subsequent patient admissions
    who have been discharged from the host hospital. Starting July
    1, 2007, CMS extended this payment policy to other types of
    LTCHs, including grandfathered entities. Among other LTCH
    changes, the Medicare, Medicaid and SCHIP Extension Act of 2007
    (MMSEA, P.L. 110-173), as modified by the American Recovery and
    Reinvestment Act of 2009 (ARRA, P.L. 111-5), provided for a
    three year moratorium on the application of this payment policy
    for certain LTCHs starting December 29, 2007.
        Effective for the first cost reporting period beginning on
    or after October 1, 2002, LTCHs are paid according to a
    prospective payment system (PPS), subject to a five year
    transition period. Under this PPS, Medicare pays a LTCH a
    predetermined amount per discharge, depending upon the
    patient's assignment into one of the Medicare-severity long
    term diagnosis related groups (MS-LTC-DRGs). The LTCH patient
    classification system, MS-LTC-DRGs, is based on Medicare
    severity diagnosis related groups (MS-DRGs) used in the
    inpatient prospective payment system (IPPS) to pay acute care
    hospitals. By statute, total payments under LTCH-PPS must be
    equal to the amount that would have been paid if the PPS had
    not been implemented in the initial year of implementation. CMS
    proposed to review LTCH payments and make a one-time
    prospective adjustment to the LTCH PPS to correct for any
    errors in the original budget neutrality calculations. MMSEA
    established a three year moratorium on that one-time budget
    neutrality adjustment starting December 29, 2007 (the enactment
    date of MMSEA).
        The LTCH-PPS includes certain case level adjustments for
    short stay and interrupted stay cases. CMS adopted a very
    short-stay outlier payment policy starting July 1, 2007 to
    reduce payments for patients who have lengths of stay that are
    less than or equal to one standard deviation from the geometric
    average length of stay (ALOS) of the same MS-DRG under the
    IPPS. This very short stay outlier policy is subject to the
    three year moratorium established by MMSEA.
        Finally, MMSEA, as modified by ARRA, also established a
    three year moratorium on the establishment of new LTCHS,
    including HwHs and satellite facilities, and on the increase of
    hospital beds in existing LTCHs.

    Committee Bill

        The provisions would extend the three year moratorium
    established by MMSEA for certain LTCH payment rules concerning
    HwHs and satellite facilities, the very short stay outlier
    policy, and the budget neutrality adjustment for two years
    until December 29, 2012. The existing three year moratorium on
    the establishment of new LTCHs and on the increase in hospital
    beds in LTCHs would be extended for two years as well.

      SEC. 3107. EXTENSION OF PHYSICIAN FEE SCHEDULE MENTAL HEALTH ADD-ON

    Present Law

        The Medicare Improvements for Patients and Providers Act of
    2008 (MIPPA, P.L. 110-275) increased payments for certain
    Medicare mental health services by five percent.

    Committee Bill

        The Committee Bill would extend the add-on payment
    provision through December 31, 2011.

       SEC. 3108. PERMITTING PHYSICIAN ASSISTANTS TO ORDER POST-HOSPITAL
      EXTENDED CARE SERVICES AND TO PROVIDE FOR RECOGNITION OF ATTENDING
     PHYSICIAN ASSISTANTS AS ATTENDING PHYSICIANS TO SERVE HOSPICE PATIENTS

    (a) Ordering Post-Hospital Extended Care Services

    Present Law

        In a skilled nursing facility (SNF), Medicare law allows
    physicians, as well as nurse practitioners and clinical nurse
    specialists who do not have a direct or indirect employment
    relationship with a SNF, but who are working in collaboration
    with a physician, to certify the need for post-hospital
    extended care services for purposes of Medicare payment.
    Section 20.2.1 of Chapter 8 of the Medicare Benefit Policy
    Manual defines post-hospital extended care services as services
    provided as an extension of care for a condition for which the
    individual received inpatient hospital services. Extended care
    services are considered ``post-hospital'' if they are initiated
    within 30 days after discharge from a hospital stay that
    included at least three consecutive days of medically necessary
    inpatient hospital care.

    Committee Bill

        The Committee Bill would allow a physician assistant who
    does not have a direct or indirect employment relationship with
    a SNF, but who is working in collaboration with a physician, to
    certify the need for post-hospital extended care services for
    Medicare payment purposes.
        This provision would apply to items and services furnished
    on or after January 1, 2011.

    (b) Recognition of Attending Physician Assistants as Attending
            Physicians to Serve Hospice Patients

    Present Law

        Under the Medicare program, hospice services may only be
    provided to terminally ill individuals under a written plan of
    care established and periodically reviewed by the individual's
    attending physician and the medical director (and by the
    interdisciplinary group of the hospice program). For purposes
    of a hospice written plan of care, Medicare defines an
    attending physician as a physician or nurse practitioner who
    may be employed by a hospice program and who the individual
    identifies as having the most significant role in the
    determination and delivery of medical care to the individual at
    the time the individual makes an election to receive hospice
    care.
        For an individual to be eligible for Medicare-covered
    hospice services, the individual's attending physician (not
    including a nurse practitioner) and the medical director (or
    physician member of the interdisciplinary group of the hospice
    program) must each certify in writing that the individual is
    terminally ill at the beginning of the first 90-day period of
    hospice.

    Committee Bill

        For purposes of a hospice written plan of care, the
    Committee Bill would include a physician assistant in the
    definition of an attending physician. The provision would
    continue to exclude physician assistants from the authority to
    certify an individual as terminally ill.

      SEC. 3109. RECOGNITION OF CERTIFIED DIABETES EDUCATORS AS CERTIFIED
    PROVIDERS FOR PURPOSES OF MEDICARE DIABETES OUTPATIENT SELF-MANAGEMENT
                               TRAINING SERVICES

    Present Law

        Medicare covers diabetes self-management training (DMST),
    under certain conditions, to help a beneficiary learn how to
    successfully manage their diabetes. When Congress passed the
    DMST benefit in 1997, it did not include Certified Diabetes
    Educators (CDEs) as providers. At the time the DSMT benefit
    took effect, most CDEs worked in hospital outpatient clinics
    where diabetes education and care was generally covered by
    Medicare.
        Many hospital DSMT programs have now closed, thus limiting
    access to DSMT programs. Because CDEs in private practice are
    not recognized under Medicare as providers of DSMT, many
    beneficiaries are unable to receive self management training
    outside the hospital setting to help treat and control their
    diabetes.

    Committee Bill

        The Committee Bill would define CDEs, set certain
    qualifying conditions for CDE certification, and recognize CDEs
    as Medicare providers of DSMT services. CDEs would still
    provide DSMT following a physician referral, but they would be
    able to work in appropriate, non-hospital locations and bill
    Medicare for these services as appropriate.
        The proposed change would take effect on January 1, 2011.

         SEC. 3110. EXEMPTION OF CERTAIN PHARMACIES FROM ACCREDITATION
                                  REQUIREMENTS

    Present Law

        MMA required the Secretary to establish and implement
    quality standards for suppliers of durable medical equipment,
    prosthetics and supplies (DMEPOS) under Part B of Medicare.
    MIPPA requires DMEPOS suppliers to prove their compliance with
    the quality standards by being accredited by October 1, 2009.
    MIPPA, however, exempted eligible professionals from having to
    comply with the accreditation requirement unless the standards
    and accreditation requirements being applied were specifically
    designed to be applied to those professionals. The statutes
    defines the following as eligible professionals: physicians,
    physical or occupational therapists, qualified speech-language
    pathologists, qualified audiologists, physician assistants,
    nurse practitioners, clinical nurse specialists, certified
    registered nurse anesthetists, certified nurse-midwives,
    clinical social workers, clinical psychologists, or registered
    dietitians or nutrition professionals. The Secretary was given
    authority to exempt additional professionals from the
    accreditation requirements. Pharmacists and pharmacies were not
    listed as exempt from the accreditation requirements.

    Committee Bill

        Effective January 1, 2010, the Committee Bill would make
    certain pharmacies eligible for an exemption from the
    accreditation requirements. A pharmacy would be exempt from the
    accreditation requirements under the following circumstances:
    (1) the pharmacy submits an attestation that its total Medicare
    DMEPOS billings are, and continue to be, less than a rolling
    three year average of five percent of total pharmacy sales; (2)
    the pharmacy submits an attestation that it is enrolled as a
    provider of durable medical equipment, prosthetics, orthotics,
    and supplies under the Medicare program for at least 5 years
    and has had no adverse determination against it for the last
    five years due to fraud; and (3) the pharmacy is willing to
    submit documentation to the Secretary (based on a random sample
    of pharmacies) that would allow the Secretary to verify the
    information in (1) and (2). The documentation submitted for (3)
    would be required to consist of an accountant certification or
    filing of tax returns by the pharmacy.
        The provision would also allow the Secretary to determine
    accreditation standards that are more appropriate for
    pharmacies. The Secretary would have the authority to implement
    this amendment by program instruction or otherwise.

     SECTION 3111. MEDICARE PART B SPECIAL ENROLLMENT PERIOD FOR DISABLED
                             TRICARE BENEFICIARIES

    Present Law

        TRICARE is the health care plan under the Department of
    Defense (DoD) that covers members of the uniformed services,
    their families and survivors. TRICARE coverage was extended to
    Medicare-eligible military retirees, their Medicare-eligible
    spouses and dependent children and Medicare-eligible widow/
    widowers by the Floyd D. Spence National Defense Authorization
    Act of 2001 (P.L. 106-398). This law authorized a program known
    as TRICARE For Life (TFL) which acts as a secondary payer to
    Medicare and provides supplemental coverage to TRICARE-eligible
    beneficiaries who are entitled to Medicare Part A based on age,
    disability or end stage renal disease (ESRD). In order to
    participate in TFL, these TRICARE-eligible beneficiaries must
    enroll in and pay premiums for Medicare Part B.
        Under Present Law (10 U.S.C. 1086(d)), TRICARE-eligible
    beneficiaries who are entitled to Medicare Part A based on age,
    disability or ESRD, but decline Part B, lose eligibility for
    TRICARE benefits. Veterans' advocacy groups have reported that
    many beneficiaries are not aware that their TRICARE coverage is
    dependent upon Part B enrollment. Individuals who choose not to
    initially enroll in Medicare Part B upon becoming eligible may
    elect to do so later during a January 1 through March 31 annual
    enrollment period. However, Medicare Part B coverage is
    effective July 1 of the year during which enrollment occurs and
    the Medicare Part B late enrollment penalty, (ten percent for
    each 12 month period in which the individual could have been
    enrolled but did not) would apply. In addition to the late-
    enrollment penalty, late-enrollers are liable for all medical
    expenses incurred during the period they are not enrolled in
    Part B.
        Medicare Prescription Drug, Improvement, and Modernization
    Act of 2003 (MMA, P.L. 108-173) provided enrollment incentives
    to TRICARE beneficiaries who were entitled to Medicare Part A,
    but were not enrolled in Medicare Part B during their initial
    eligibility period. Further, the law directed the Secretary to
    provide a Part B special enrollment period for TRICARE
    beneficiaries who had not enrolled in Part B as of the date of
    MMA's enactment--December 8, 2003. The law mandated that this
    special enrollment period begin as soon as possible after MMA's
    enactment and end on December 31, 2004. In addition the MMA
    waived premium surcharges for TRICARE beneficiaries who
    enrolled in Medicare Part B from 2001 through 2004.

    Committee Bill

        The Committee Bill creates a twelve-month special
    enrollment period (SEP) for military retirees, their spouses
    (including widows/widowers) and dependent children, who are
    otherwise eligible for TRICARE and entitled to Medicare Part A
    based on disability or ESRD, but who have declined Part B. This
    twelve-month special enrollment period (SEP) would be available
    to an individual once in their lifetime and begin on the day
    after the last day of the initial enrollment period. If the
    individual was notified of retroactive Medicare Part A and Part
    B entitlement, the twelve-month period would begin with the
    month in which the individual was notified of Medicare Part B
    entitlement. For this population, the Part B coverage period
    would begin on the first day of the month in which the
    individual enrolls during the SEP. The individual would also
    have the option of choosing Part B coverage retroactive to the
    first month after the initial enrollment period. The late
    enrollment penalty would not apply to individuals who enroll
    during the SEP. The Secretary of Defense would be required to
    identify and notify individuals of their eligibility for the
    SEP; the Secretary of Health and Human Services and the
    Commissioner for Social Security would support these efforts.
    The provision would become effective on the date of enactment.

                   SEC. 3112. PAYMENT FOR BONE DENSITY TESTS

    Present Law

        Dual energy X-ray absorptiometry (DXA) machines are used to
    measure bone mass to identify individuals who may have or are
    at risk of having osteoporosis. For those individuals who are
    eligible, Medicare will pay for a bone density study once every
    two years, or more frequently if the procedure is determined to
    be medically necessary.
        Medicare reimburses for imaging procedures, including DXA,
    differently based on where the test is performed. Medicare
    reimbursement for bone density procedures is comprised of a
    professional component, the amount paid for the physician's
    interpretation of the results of the scan, and a technical
    component, the amount paid for all other services including
    technician and equipment costs. Procedures performed in an
    Independent Diagnostic Testing Facility (IDTF) or a physician
    office are reimbursed under the Medicare Physician Fee
    schedule. In a hospital outpatient department (HOPPS), the
    technical component is reimbursed under an Ambulatory Payment
    Classification under Medicare's hospital outpatient department
    prospective payment system.
        Under the physician fee schedule, relative values are
    assigned to services. These relative values reflect physician
    work (based on time, skill, and intensity involved), practice
    expenses (including the cost of nurses and other staff), and
    malpractice expenses. The relative values are adjusted for
    geographic variations in the costs of practicing medicine.
    These geographically adjusted relative values are converted
    into a dollar payment amount by a conversion factor.
        As reported by CMS and MedPAC, spending for imaging
    services reimbursed under the Medicare physician fee schedule
    grew rapidly between 2003 and 2005. The Deficit Reduction Act
    of 2005 (DRA; P.L. 109-171) capped reimbursement of the
    technical component for x-ray and imaging services at the
    lesser rate of the hospital outpatient rate or the physician
    fee schedule. Specifically, designated imaging services with a
    Medicare physician fee schedule technical payment (prior to
    geographic adjustment) that exceeds the comparable hospital
    outpatient prospective payment system (HOPPS) technical payment
    (prior to geographic adjustment), are capped at the 2007 HOPPS
    payment amount. (The professional component is not affected by
    the DRA provision.) Bone density procedures are subject to the
    DRA provisions.
        Payments for imaging services have also been affected by
    revisions to payments for practice expense in the 2007
    physician fee schedule rule. CMS implemented a new methodology
    for determining resource-based practice expense payments for
    all services that has led to reductions in the professional
    component reimbursement. The new formula is being phased in
    over four years from 2007 to 2010.
        It is estimated that reimbursement rates for DXA services
    have been reduced by more than half since 2006.

    Committee Bill

        This Committee Bill would change the payment amounts for
    CPT codes 76075 and 76077 (relating to dual energy x-ray
    absorptiometry (DXA)), and any successor to such codes
    furnished during 2010 and 2011. The payments would be set at 70
    percent of the 2006 reimbursement rates for these services.
        The Committee Bill would also direct the Secretary to
    arrange with the Institute of Medicine of the National
    Academies to study and report to the Secretary and Congress on
    the ramifications of Medicare reimbursement reductions for DXA
    on beneficiary access to bone mass measurement benefits.

              SEC. 3113. REVISION TO THE MEDICARE IMPROVEMENT FUND

    Present Law

        Section 188 of MIPPA established the Medicare Improvement
    Fund (MIF), available to the Secretary to make improvements
    under the original fee-for-service program under Parts A and B
    for Medicare beneficiaries. Under Present Law, $22.29 billion
    are available for services provided in years 2014 through 2017.

    Committee Bill

        The Committee Bill would eliminate the funding in the MIF.

      SEC. 3114. TREATMENT OF CERTAIN COMPLEX DIAGNOSTIC LABORATORY TESTS

    Present Law

        In general, clinical laboratory services are billed to
    Medicare on the date when the specimen is collected, not
    necessarily on the date when the service is ordered or
    performed. A test ordered on a specimen collected from a
    patient during an inpatient stay or outpatient visit would be
    considered for billing purposes as being provided by the
    hospital. The hospital would bear financial responsibility for
    the test, even if the test is performed after the patient has
    left the hospital. The laboratory services are bundled as part
    of the hospital's Medicare payment and the laboratory would
    receive payment from the hospital rather than directly from
    Medicare.

    Committee Bill

        The Committee Bill would allow laboratories to bill the
    Medicare program separately for certain complex diagnostic
    tests during a two-year period beginning July 1, 2011. If a
    laboratory were to perform a covered complex diagnostic
    laboratory test (see below) on a specimen collected from an
    individual while a patient of a hospital and if such test were
    performed after such period, the specimen would be considered
    as if it had been collected directly by the laboratory and the
    laboratory would be able to bill for direct payment.
        The term ``covered complex diagnostic laboratory test''
    would mean a diagnostic laboratory test that (a) is an analysis
    of gene or protein expression, topographic genotyping, or a
    cancer chemotherapy sensitivity assay, (b) is described in the
    section that defines diagnostic laboratory and other diagnostic
    tests under current Medicare statute (section 1861(s)(3) of the
    Social Security Act (42 U.S.C. 1395x(s)(3)), (c) is performed
    only by the laboratory offering the test, and (d) is not
    furnished by the hospital where the specimen was collected to a
    patient of such hospital, directly or under arrangements with
    the hospital.
        This modification would apply to tests furnished on or
    after July 1, 2011, and before the earlier of (a) July 1, 2013
    and (b) the date that the CMS Chief Actuary submits the
    spending report described below to the Committee on Ways and
    Means and the Committee on Energy and Commerce of the House of
    Representatives and the Committee on Finance of the Senate and
    to the Secretary of Health and Human Services.
        The CMS Chief Actuary would monitor Medicare expenditures
    as a result of the modifications of this section during the
    two-year period beginning on July 1, 2011. If the Chief Actuary
    were to determine that, during the two-year period, either of
    the following conditions have been met, the Chief Actuary would
    submit a report to the Committee on Ways and Means and the
    Committee on Energy and Commerce of the House of
    Representatives and the Committee on Finance of the Senate and
    to the Secretary of Health and Human Services that includes a
    statement regarding this determination.
        The conditions that would trigger the CMS Chief Actuary's
    report would be the following: (i) Medicare expenditures during
    the two-year period as a result of the provisions of this
    subsection were to reach $100 million; or (ii) Medicare
    payments to laboratories during the two-year period as a result
    of these provisions were to reach $100 million.

           SEC. 3115. IMPROVED ACCESS FOR CERTIFIED-MIDWIFE SERVICES

    Present Law

        Sec. 1833 of the SSA provides for payments from the
    Medicare Part B Trust Fund for services received by covered
    individuals. With respect to certified nurse-midwife services,
    the amount required to be paid is 80 percent of the lesser of
    either (1) the actual charge for the services, or (2) the
    amount determined by a fee schedule established by the
    Secretary. The fee schedule is not allowed to exceed 65 percent
    of the prevailing charge that would be allowed for same
    services performed by a physician.

    Committee Bill

        The Committee Bill would amend Sec. 1833(a)(1)(K) by adding
    that for services provided after January 1, 2011, the fee
    schedule for certified-midwife services would not be allowed to
    exceed 100 percent of the fee schedule amount provided under
    Sec. 1848 for the same service performed by a physician.

          SEC. 3116. WORKING GROUP ON ACCESS TO EMERGENCY MEDICAL CARE

    Present Law

        Title XXVIII, Subtitle B of the Public Health Service Act
    established the Office of the Assistant Secretary for
    Preparedness and Response (ASPR). The Office advises the HHS
    Secretary on matters related to bioterrorism and other public
    health emergencies, and coordinates medical incident response
    assets and activities, among other functions. The Emergency
    Care Coordination Center, located within ASPR, was established
    in January 2009.
        The Emergency Medical Treatment and Labor Act (EMTALA,
    Section 1867 of the SSA) requires hospital emergency
    departments to examine and treat any individual who comes to
    the hospital with an emergency medical condition, and any woman
    who is in labor. EMTALA further requires hospitals to offer
    treatment, within their capacity and with the individual's
    consent, to stabilize the emergency condition, or transfer the
    individual to another medical facility, subject to certain
    restrictions. EMTALA does not preempt state or local laws
    unless they directly conflict with its specific requirements.
    In addition, the Act prohibits discrimination and delay in
    examining or treating emergency patients, and provides
    protections to whistleblowers who report violations of its
    provisions.

    Committee Bill

        The Committee Bill would require the Secretary, within 60
    days of enactment, to establish a Working Group on Access to
    Emergency Medical Care. Membership of the Working Group would
    include at least two individuals from each of the following:
    (1) representatives of emergency medical personnel; (2)
    appropriate elected or appointed officials; (3) health care
    consumer advocates; and (4) representatives of emergency care
    hospitals and health systems. Working Group members would be
    required to serve without compensation. HHS would be required
    to provide administrative support, technical assistance and the
    use of facilities for the Working Group.
        Duties of the Working Group would include identifying and
    examining: (1) barriers causing delays in timely inpatient
    admission of certain patients who present at emergency
    departments; (2) factors in the health care delivery,
    financing, and legal systems that impede or prevent the
    effective delivery of emergency department services, as
    required under EMTALA; and (3) best practices to improve
    patient flow within hospitals. The Working Group would be
    required to develop recommendations for admission, boarding and
    diversion standards. It would also be required to develop
    guidelines, measures and incentives to ensure proper
    implementation, monitoring and enforcement of the standards.
        The Working Group would be required to submit a report to
    Congress and the Secretary containing their recommendations for
    admission, boarding, and diversion standards for hospital
    emergency departments, including guidelines and incentives for
    enforcing those standards, as well as recommendations for
    legislative and administrative actions regarding (1) Federal
    programs, policies and financing needed to assure the
    availability of emergency services, and (2) coordination of
    Federal, state and local programs for disaster response and
    emergencies. The Working Group would terminate upon submission
    of their report.

                           PART II--RURAL PROTECTIONS

           SEC. 3121. EXTENSION OF OUTPATIENT HOLD HARMLESS PROVISION

    Present Law

        Small rural hospitals (with no more than 100 beds) that are
    not sole community hospitals (SCHs) can receive additional
    Medicare payments if their outpatient payments under the
    prospective payment system are less than under the prior
    hospital outpatient department (HOPD) reimbursement system. For
    calendar year (CY) 2006, these hospitals received 95 percent of
    the difference between payments under the prospective payment
    system and those that would have been made under the prior
    reimbursement system. The hospitals receive 90 percent of the
    difference in CY2007 and 85 percent of the difference in CY2008
    and CY2009. Sole community hospitals with not more than 100
    beds receive 85 percent of the payment difference for covered
    HOPD services furnished on or after January 1, 2009, and before
    January 1, 2010.

    Committee Bill

        The provision would establish that small rural hospitals
    would receive 85 percent of the payment difference in CY2010
    and CY2011. SCHs with not more than 100 beds would receive 85
    percent of the payment difference in CY2010 and CY2011. The
    100-bed limitation for SCHs would be removed so that all SCHs
    would receive 85 percent of the payment difference in CY2010
    and CY2011.

    SEC. 3122. EXTENSION OF MEDICARE REASONABLE COSTS PAYMENTS FOR CERTAIN
    CLINICAL DIAGNOSTIC LABORATORY TESTS FURNISHED TO HOSPITAL PATIENTS IN
                              CERTAIN RURAL AREAS

    Present Law

        Generally, hospitals that provide clinical diagnostic
    laboratory services under Part B are reimbursed using a fee
    schedule. Hospitals with under 50 beds in qualified rural areas
    (certain rural areas with low population densities) receive 100
    percent of reasonable cost reimbursement for the clinical
    diagnostic laboratories covered under Part B that are provided
    as outpatient hospital services. Reasonable cost reimbursement
    for laboratory services provided by these hospitals ended July
    1, 2008.

    Committee Bill

        Reasonable cost reimbursement for clinical diagnostic
    laboratory service for qualifying rural hospitals with under 50
    beds would be reinstated from July 1, 2010 and extended for two
    years, ending July 1, 2012.

      SEC. 3123. EXTENSION OF THE RURAL COMMUNITY HOSPITAL DEMONSTRATION
                                    PROGRAM

    Present Law

        As required by Medicare Prescription Drug, Improvement and
    Modernization Act of 2003 (MMA, P.L. 108-173), the Centers for
    Medicare and Medicaid Services (CMS) is conducting a five-year
    Rural Community Hospital Demonstration Program to test the
    feasibility and advisability of reasonable cost reimbursement
    for small rural hospitals (those with fewer than 51 beds) in
    low population density areas. No more than 15 hospitals can
    participate in the demonstration. Currently, there are ten
    hospitals participating in the program.

    Committee Bill

        This provision would extend the demonstration program for
    an additional two years, expand the maximum number of
    participating hospitals to 30 for that period, and expand the
    eligible sites to rural areas in all states until January 1,
    2012. The Secretary would provide for the continued
    participation for those hospitals that are in the demonstration
    at the end of the initial five-year period during the two year
    extension unless the hospital elects to discontinue such
    participation.

        SEC. 3124. EXTENSION OF THE MEDICARE-DEPENDENT HOSPITAL PROGRAM

    Present Law

        Medicare-dependent hospitals (MDHs) are small rural
    hospitals with a high proportion of patients who are Medicare
    beneficiaries. Specifically, the hospitals have at least 60
    percent of acute inpatient days or discharges attributable to
    Medicare in FY1987 or in two of the three most recently audited
    cost reporting periods. As specified in regulation, they cannot
    be a sole community hospital and must have 100 or fewer beds.
    MDHs receive special treatment, including higher payments,
    under Medicare's inpatient prospective payment system. The
    sunset date for the MDH classification has been periodically
    extended by legislation. As established by the Deficit
    Reduction Act of 2005 (DRA, P.L. 109-171), the MDH
    classification would expire September 30, 2011.

    Committee Bill

        The MDH classification would be extended two years, until
    September 30, 2013.

     SEC. 3125. TEMPORARY IMPROVEMENTS TO THE MEDICARE INPATIENT HOSPITAL
                  PAYMENT ADJUSTMENT FOR LOW-VOLUME HOSPITALS

    Present Law

        Under Medicare's inpatient prospective payment system
    (IPPS), certain low-volume hospitals receive a payment
    adjustment to account for their higher costs per discharge. A
    low-volume hospital is defined as an acute care hospital that
    is located more than 25 road miles from another comparable
    hospital and that has less than 800 total discharges during the
    fiscal year. Under Present Law, the Secretary is required to
    determine an appropriate percentage increase for these low-
    volume hospitals based on the empirical relationship between
    the standardized cost-per-case for such hospitals and their
    total discharges to account for the additional incremental
    costs (if any) that are associated with such number of
    discharges. The low-volume adjustment is limited to no more
    than 25 percent. Accordingly, under regulations, qualifying
    hospitals (those located more than 25 road miles from another
    comparable hospital) with less than 200 total discharges
    receive a 25 percent payment increase for every Medicare
    discharge.

    Committee Bill

        A temporary adjustment that would increase payment in
    FY2011 and FY2012 for certain low-volume hospitals would be
    created. A low-volume hospital could be located more than 15
    road miles from another comparable hospital and have 1,500
    discharges of individuals entitled to or enrolled for Medicare
    Part A benefits. The Secretary would determine the applicable
    percentage increase using a continuous linear sliding scale
    ranging from 25 percent for low-volume hospitals with 200 or
    fewer discharges of individuals with Medicare Part A benefits
    to no adjustment for hospitals with greater than 1,500
    discharges of individuals with Medicare Part A benefits.

       SEC. 3126. IMPROVEMENTS TO THE DEMONSTRATION PROJECT ON COMMUNITY
              HEALTH INTEGRATION MODELS IN CERTAIN RURAL COUNTIES

    Present Law

        Section 123 of the Medicare Improvements for Patients and
    Providers Act of 2008 (MIPPA, P.L. 110-275), authorized a
    demonstration project to allow eligible entities to develop and
    test new models for the delivery of health care services in
    eligible counties for the purpose of improving access to, and
    better integrating delivery of, acute care, extended care, and
    other essential health care services to Medicare beneficiaries.
        Those eligible to participate in the demonstration project
    are limited to a Rural Hospital Flexibility Program grantee
    under section 1820(g) of the Social Security Act that are
    located in States with at least 65 percent of its counties with
    six or fewer residents per square mile. Based on these
    criteria, the Secretary is instructed to select up to four
    states to participate in the demonstration program, and within
    those states, up to six counties. For a county to be eligible
    to participate, it must have 6 or fewer residents per square
    mile and contain a critical access hospital (CAH) that
    furnished one or more specified services (home health, hospice,
    or rural health clinic) and had a daily inpatient census of
    five or less as of date of enactment; skilled nursing facility
    services must be available in the eligible county.
        The 3-year demonstration project is to begin on October 1,
    2009 and be done in a budget neutral manner.

    Committee Bill

        The limit of six eligible counties that may participate in
    the demonstration project within the qualifying states would be
    eliminated. Rural health clinic services would no longer be a
    required CAH service for entities participating in the
    demonstration program. Rural health clinic services would be
    removed from the definition of other essential services and
    replaced with physician services.

      SEC. 3127. MEDPAC STUDY ON ADEQUACY OF MEDICARE PAYMENTS FOR HEALTH
                     CARE PROVIDERS SERVING IN RURAL AREAS

    Present Law

        No provision.

    Committee Bill

        The Medicare Payment Advisory Commission (MedPAC) would be
    required to review payment adequacy for rural health care
    providers and suppliers serving the Medicare program and
    provide a report to Congress by January 1, 2011. MedPAC would
    analyze rural payment adjustments; beneficiaries' access to
    care in rural communities; adequacy of Medicare payments to
    rural providers and suppliers; and quality of care in rural
    areas. MedPAC would submit a report to Congress including
    recommendations no later than January 1, 2011.

      SEC. 3128. TECHNICAL CORRECTION RELATED TO CRITICAL ACCESS HOSPITAL
                                    SERVICES

    Present Law

        Critical Access Hospitals (CAHs) are limited-service rural
    facilities that are located more than 35 miles from another
    hospital (15 miles in certain circumstances) or designated by
    the state as a necessary provider of health care; offer 24-hour
    emergency care; have no more than 25 acute care inpatient beds
    and have a 96-hour average length of stay. Generally, a rural
    hospital designated as a CAH receives 101 percent reasonable,
    cost based reimbursement for inpatient and outpatient care
    rendered to Medicare beneficiaries. A CAH may elect an all-
    inclusive outpatient payment which is equal to 101 percent of
    reasonable costs for facility services plus 115 percent of the
    Medicare physician fee schedule payment for professional
    services when the physician or practitioner has reassigned his
    or her billing rights to the CAH. As part of its FY2010
    rulemaking process, starting October 1, 2009, CMS will lower
    the facility component of the all-inclusive, elective payment
    method to 100 percent of the CAH's reasonable costs; the
    payment for professional services will remain at 115 percent of
    the fee schedule amount.
        Medicare will pay for ambulance services provided by a CAH
    or by an entity owned and operated by a CAH at 100 percent of
    reasonable costs, but only if CAH or the entity is the only
    supplier or provider of ambulance services with a 35-mile drive
    of the CAH or the entity.

    Committee Bill

        Medicare would pay the facility component of the all-
    inclusive elective CAH payment for outpatient services at 101
    percent of reasonable costs. Medicare would pay for qualifying
    ambulance services provided by a CAH or by an entity owned and
    operated by a CAH at 101 percent of reasonable cost. These
    provisions would take effect as if they were included in the
    Medicare Prescription Drug, Improvement, and Modernization Act
    of 2003 (MMA, P.L. 108-173).

       SEC. 3129. EXTENSION OF AND REVISIONS TO MEDICARE RURAL HOSPITAL
                              FLEXIBILITY PROGRAM

    Present Law

        The Balanced Budget Act of 1997 (BBA, P.L. 105-33)
    established the Medicare Rural Hospital Flexibility Program,
    which created the critical access hospital (CAH) designation
    under Medicare and authorized a grant program (FLEX grants)
    that is administered by the Health Resources and Services
    Administration (HRSA). Under this program, FLEX grants may be
    awarded to States to develop and implement rural health care
    plans and rural health networks, to designate critical access
    hospitals, to upgrade data systems and to improve the provision
    of rural emergency medical services.
        The Medicare Rural Hospital Flexibility Program also
    authorized up to $50,000 for the Small Rural Hospital
    Improvement (SHIP) Grant Program. This program provides funding
    to small rural hospitals to provide assistance with any or all
    of the following: (1) to pay for costs related to the
    implementation of Medicare's prospective payment systems; (2)
    to comply with provisions of the Health Insurance Portability
    and Accountability Act; and (3) to reduce medical errors and
    support quality improvement. To be eligible for these grants, a
    hospital must have less than 50 beds and be located in a rural
    area and may include critical access hospitals (CAHs).
        As established by the Medicare Improvements for Patients
    and Providers Act of 2008 (MIPPA, P.L. 110-275), the Secretary
    may also award grants to States to increase the delivery of
    mental health services or other health services deemed
    necessary to meet the needs of veterans and other residents of
    rural areas, including rural census tracks. There are certain
    limitations imposed on the use of grant funds for
    administrative expenses, both at the state and Federal level.
    The FLEX grant program is authorized at $55 million for each
    fiscal year from 2009 and 2010 and the new rural mental health
    and other services grants would be authorized at $55 million
    for each of fiscal years 2009 and 2010.

    Committee Bill

        The FLEX grant program would be extended two years until
    2012 authorized at such sums as may be necessary in each year
    to be available until expended. Starting January 1, 2010, SHIP
    funding may also be used to assist small rural hospitals in
    participating in the delivery system reforms included in this
    legislation, such as value-based purchasing programs,
    accountable care organizations, bundling and other programs
    deemed appropriate by the Secretary.

                      PART III--IMPROVING PAYMENT ACCURACY

              SEC. 3131. PAYMENT ADJUSTMENTS FOR HOME HEALTH CARE

    Present Law

        Home health agencies (HHAs) are paid under a prospective
    payment system (PPS) that provides payments based on 60-day
    episodes of care for beneficiaries, subject to several
    adjustments. The home health (HH) base payment amount is
    increased annually by an update factor that is determined, in
    part, by the projected increase in the HH market basket (MB)
    index (a measure of changes in the costs of goods and services
    purchased by HHAs to provide HH services). HHAs that submit
    quality data to the Secretary receive a full MB increase, while
    HHAs that do not submit quality data receive a reduced update
    equivalent to the MB minus two percentage points. For CY2010,
    the HH MB update is 2.2 percent. The base payment amount is
    adjusted for differences in the care needs of patients (case
    mix) using ``HH resource groups'' (HHRGs) and outlier
    adjustments (to account for extraordinarily costly patients),
    among other adjustments. Presently, there is no difference
    between urban and rural base payment amounts.
        In CY2008, refinements to the Medicare HH PPS included,
    among other changes, a reduction in the payment rate for four
    years (to continue through CY2011) to adjust for increases in
    case mix that are related to changes in coding instead of
    increased patient severity of illness. The proposed CMS rule
    for CY2010 would continue with the 2.75 reduction to the HH PPS
    rates for CY2010. Among other things, the proposed rule would
    also implement a cap on outlier payments to be no more than 2.5
    percent of total HH PPS payments.
        In its March 2009 Report to Congress: Medicare Payment
    Policy, MedPAC reported that most HHAs continued to be paid
    above costs. Accounting for the payment refinements in CY2008
    and the MB update under Present Law, MedPAC estimates that HHAs
    would have margins of 12.2 percent in CY2009. In this report,
    MedPAC recommends that the CY2010 HH payment update be
    eliminated in CY2010. MedPAC also recommends that the planned
    coding reductions for CY2011 be advanced to CY2010 and HH
    payments be rebased in CY2011 to more closely reflect the cost
    of visits and other services delivered in the average HH
    episode.

    Committee Bill

        Updating Home Health Payments Through Rebasing. Starting in
    CY2013, the Secretary would be directed to rebase payments by a
    percentage considered appropriate by the Secretary to, among
    other things, reflect the number, mix and level of intensity of
    HH services in an episode, and the average cost of providing
    care. In doing so, the Secretary would be required to consider
    the differences between HH agencies in regards to hospital-
    based and freestanding providers; for-profit and non-profit
    providers; and resource costs between urban and rural
    providers. In addition, the Secretary would be directed to
    phase in the new reimbursement system according to the
    following schedule: in CY2013, 25 percent of current payment
    rates would be rebased and 75 percent would be based on amounts
    calculated under the prior payment system; in CY2014, 50
    percent would be rebased and 50 percent would be based on the
    prior payment system; in CY2015, 75 percent would be rebased
    and 25 percent would be based on the prior payment system; and
    in CY2016, 100 percent of the payments would be rebased.
        As part of the rebasing proposal, the Secretary would be
    directed to ensure adjustments in home health spending as a
    result of this policy will be no greater than 3.5 percent per
    year during the four-year transition relative to home health
    payment levels at the date of enactment of this legislation.
        MedPAC would be directed to report to Congress on the
    implementation of the new system, with particular emphasis on
    how rebasing changes impact: access to care for beneficiaries,
    quality outcomes, supply of HH providers; and any differential
    financial impacts on rural, urban, non-profit and for-profit
    providers. No later than January 1, 2015, MedPAC would be
    required to submit to Congress a report on this study, together
    with recommendations for legislative and administrative action.
        Provider-Specific Cap on Home Health Outlier Payments.
    Starting in CY2011, the Secretary would be directed to
    establish a provider-specific annual cap of ten percent of
    revenues that a HH agency may be reimbursed in a given year
    from outlier payments. The Secretary would continue to withhold
    5 percent from episode payments for the outlier pool, with
    payouts capped at 2.5 percent.
        Reinstatement of Rural Home Health Payment Adjustment. For
    visits ending on or after January 1, 2010 and before January 1,
    2016, the Secretary would be directed to provide for a three
    percent add-on payment for HH providers serving rural areas.
        Study Regarding the Development of Home Health Payment
    Reforms To Ensure Access to Care and Quality Services:
        1. The Secretary shall conduct a study to evaluate the
    costs and quality of care among efficient home health providers
    relative to their peers in providing ongoing access to care and
    in treating beneficiaries with varying severity levels of
    illness and develop recommendations on ways to reform home
    health payments and case mix adjustments based on this
    analysis.
        2. In conducting the study, the Secretary shall consider
    whether certain factors should be used to measure patient
    severity of illness and access to care. Factors to consider in
    this analysis may include, but are not limited to, population
    density and relative patient access to care; variations in
    service costs for providing care to Medicare-Medicaid dual
    eligible beneficiaries; presence of severe and/or chronic
    diseases as evidenced by multiple, discontinuous home health
    episodes; poverty status as evidenced by the receipt of a
    Supplemental Security Income; absence of caregivers; language
    barriers; atypical transportation costs; and security costs.
        3. The study may include recommendations on:
              a. Methods to revise the home health payment system
            to more accurately account for the costs related to
            patient severity of illness or to improving beneficiary
            access to care, including payment adjustments for
            services that may be under or over-valued; necessary
            changes to reflect the resource use relative to
            providing home health care to low-income beneficiaries
            or beneficiaries living in medically underserved areas;
            ways the outlier payment may be improved to more
            accurately reflect the cost of treating beneficiaries
            with high severity levels of illness; the role of
            quality of care incentives and penalties in driving
            provider and patient behavior; and improvements in the
            application of a wage index;
              b. An assessment of the validity and reliability of
            responses on the OASIS instrument with particular
            emphasis on questions that relate to higher PPS payment
            and higher outcome scores under ``Home Care Compare'';
              c. Additional research or payment modifications that
            may be necessary to set home health rates based on
            costs of high-quality and efficient home health
            providers or to improve beneficiary access to care; and
              d. Other areas deemed appropriate by the Secretary.
        4. In conducting the study, the Secretary shall seek input
    from stakeholders representing home health providers and
    beneficiaries. The Secretary shall also seek input from the
    Medicare Payment Advisory Commission, the HHS Inspector General
    and the Government Accountability Office in its development and
    design of the study.
        5. The Secretary shall issue a report on its findings and
    recommendations to the Congress by no later than March 1, 2011.
    The report shall include a timetable for the potential
    implementation of the recommendations and a statement as to
    which recommendations require a change in statute and those
    that can be implemented under the regulatory authority of the
    Secretary.
        6. In addition, no later than January 1, 2012, based on the
    findings of this report and if the Secretary deems appropriate,
    the Secretary shall establish a temporary Medicare payment
    adjustment targeted toward ensuring access to care for
    beneficiaries with high severity of illness or to improve
    access to care for low-income or underserved beneficiaries.
    This temporary Medicare add-on payment may be no greater than
    three percent of the base PPS payment amount for any covered
    home health service furnished to an eligible beneficiary based
    on the findings of this report. Payments made under this
    section shall not exceed $500 million in total from 2011-2019.

                           SEC. 3132. HOSPICE REFORM

    Present Law

        Medicare covers hospice care for terminally ill
    beneficiaries instead of most other Medicare services related
    to the curative treatment of their illness. Using an
    interdisciplinary team, Medicare's hospice benefit provides
    care that specializes in the relief of the pain and symptoms
    associated with a terminal illness and the provision of
    supportive and counseling services to patients and their
    families during the final stages of a patient's illness and
    death. For a person to be considered terminally ill and
    eligible for Medicare's hospice benefit, the beneficiary's
    attending physician and the medical director of the hospice (or
    physician member of the hospice team) must certify that the
    individual has a life expectancy of six months or less.
    Beneficiaries electing hospice are covered for two 90-day
    periods, followed by an unlimited number of 60-day periods. The
    medical director or physician member of the hospice team must
    recertify at the beginning of each period that the beneficiary
    is terminally ill. Services must be provided under a written
    plan of care established and periodically reviewed by the
    individual's attending physician and the medical director of
    the hospice.
        Medicare payments to hospices are predetermined fixed
    amounts for each case, according to the general type of care
    provided to a beneficiary on a daily basis. Such payments are
    intended to pay for the costs of care for a hospice
    beneficiary, on average. Payments for hospice care are based on
    one of four prospectively determined units of payment, which
    correspond to four different levels of care (i.e., routine home
    care, continuous home care, inpatient respite care, and general
    inpatient care) for each day a beneficiary is under the care of
    the hospice. Payment would thus vary by the length of the
    patient's period in the hospice program as well as by the
    characteristics of the services (intensity and site) furnished
    to the beneficiary. Hospices bill separately for additional
    physician services not covered under the payment categories
    described above.
        The hospice cost report data collected by CMS contain
    provider-reported cost and statistical data for free-standing
    hospice providers. The data set is normally updated quarterly
    and is available on the last day of the month following the
    quarter's end.

    Committee Bill

        The Secretary would be required to collect additional data
    and information to revise payments for hospice care after
    consulting with hospice providers and the Medicare Payment
    Advisory Commission. Collection of the additional data and
    information would be required to begin by January 1, 2011. The
    Secretary would be required to collect the additional data and
    information on: (1) charges and payments, (2) the number of
    days of hospice care attributable to Medicare beneficiaries,
    (3) with respect to each type of hospice service, the number of
    days, cost, and payment of hospice care attributable to the
    type of service; charitable contributions and other revenue of
    the hospice program, the number of hospice visits, the type of
    practitioner providing visits, and the length of the visit and
    other information regarding the visit.
        No later than October 1, 2013, the Secretary would be
    required to, by regulation, implement revisions to the
    methodology for determining payment rates for routine home care
    and other services included in hospice. Such revisions could be
    based on an analysis of data and information described above.
    Such adjustments could reflect changes in resource intensity in
    providing such care and services during the course of the
    entire episode of hospice care.
        Payment revisions would be required to be budget neutral in
    that they would result in the same estimated amount of
    aggregate Medicare expenditures for hospice care furnished in
    the fiscal year in which such revisions in payment would be
    implemented as would have been under Medicare for such care if
    such revisions had not been implemented.
        The Secretary would be required to implement changes to the
    payment methodology for hospice care as appropriate based on
    the additional data and information collected. These changes
    may include per diem payments to hospices that reflect changes
    in resource intensity in providing hospice services during the
    course of the entire episode or additional payments (end-of-
    episode payment) reflecting resource intensity of services
    provided at the end of episode if the patient is not
    transferred to another hospice or revokes election of the
    hospice benefit. These changes would be implemented in FY2014
    through rulemaking and would be budget neutral.
        The Secretary would impose certain requirements on hospice
    providers as follows: (1) that a hospice physician or advanced
    practice nurse have a face-to-face encounter with the
    individual to determine continued eligibility prior to the
    180th day recertification and each subsequent recertification,
    and attest that such visits took place; and (2) that all stays
    in excess of 180 days be medically reviewed by CMS or its
    contractors for hospices for which stays exceeding 180 days
    make up a certain level of their total cases, as determined
    appropriate by the Secretary.

      SEC. 3133. IMPROVEMENT TO MEDICARE DISPROPORTIONATE SHARE HOSPITAL
                                 (DSH) PAYMENTS

    Present Law

        The Medicare disproportionate share hospital (DSH)
    adjustment was included in the inpatient prospective payment
    system (IPPS) in 1986 on the premise that low-income patients
    are more costly to treat and those acute care hospitals
    (referred to as subsection (d) hospitals) serving a large
    number of such patients would be likely to have higher costs
    for their Medicare patients than would otherwise similar
    institutions. Over time, as the formulas for Medicare's DSH
    adjustment have been changed, the justification for the higher
    payments has evolved and the adjustment is viewed as a way to
    insure access to hospital care.
        Medicare's DSH payments are distributed through a hospital-
    specific percentage increase to its prospective payment rate.
    In most instances, the size of a hospital's DSH adjustment
    would depend upon the number of patient days provided to low-
    income Medicare patients or Medicaid patients. However, small
    urban hospitals and many rural hospitals have their DSH
    adjustment capped at 12 percent.
        In its March 2007 Report to Congress, MedPAC found that
    about three-quarters of the Medicare DSH payments (accounting
    for about $5.5 billion in FY2004) was not empirically justified
    in terms of higher patient care costs. Also, Medicare's DSH
    payments were poorly targeted to hospitals' shares of
    uncompensated care.

    Committee Bill

        Starting in FY2015 and for subsequent fiscal years, the
    Secretary would make DSH payments equal to 25 percent of what
    otherwise would be made, a payment that represents the
    empirically justified amount as determined by MedPAC in its
    March 2007 Report to Congress.
        In addition to this amount, the Secretary would pay to such
    acute care hospitals an additional amount using a formula that
    is the product of three factors: the difference in hospitals'
    DSH payments after reducing DSH payments to empirically
    justified levels as compared to Present Law; the difference in
    the percentage change in the uninsured under-65 population from
    2012; and the percentage of uncompensated care provided by a
    hospital (relative to all acute care hospitals).
        The measure to establish the percentage change in the
    uninsured under-65 population would be one minus the difference
    of percent of individuals under 65 who are uninsured in 2012
    minus those who are uninsured in the most recent period for
    which data is available (divided by 100). For FY2015 through
    FY2017, the data would be estimated by the Secretary based on
    the most recent estimates from the Director of the
    Congressional Budget Office. Starting in FY2018 and in
    subsequent years, the data would be estimated by the Secretary
    based on data from the Census Bureau or other appropriate
    sources as certified by the Chief Actuary of the Centers for
    Medicare and Medicaid Services.
        The factor related to uncompensated care shall be based on
    the amount of uncompensated care provided by a hospital as a
    percentage of the aggregate amount of uncompensated care for
    all such hospitals. The Secretary will be directed to use
    appropriate data on uncompensated care, or alternative data if
    it serves as a better proxy for the costs of treating the
    uninsured.
        There would be no administrative or judicial review of any
    estimate that is used in determining any of the three factors;
    any period of time for that formula; or any alternative DSH
    percentage.

          SEC. 3134. MISVALUED CODES UNDER THE PHYSICIAN FEE SCHEDULE

    Present Law

        The Medicare physician fee schedule is based on assigning
    relative weights to each of the approximately 7,500 physician
    service codes used to bill Medicare. The relative value for a
    service compares the relative work involved in performing one
    service with the work involved in providing other physicians'
    services. The scale used to compare the value of one service
    with another is known as a resource-based relative value scale
    (RBRVS).
        The Center for Medicare and Medicaid Services (CMS), which
    is responsible for maintaining and updating the fee schedule,
    continually modifies and refines the methodology for estimating
    relative value units (RVUs). CMS relies on advice and
    recommendations from the American Medical Association/Specialty
    Society Relative Value Scale Update Committee (RUC) in its
    assessments. In general, as currently implemented, increases in
    RVUs for a service or number of services lowers the resultant
    fees for other physician services. One consequence has been
    that the payments for evaluation and management codes, whose
    RVUs typically are not increased over time, have fallen
    relative to other codes whose RVUs have increased and as a
    consequence of new technologies that have been introduced into
    coverage with relatively high RVUs. CMS is required to review
    the RVUs no less than every five years.
        In determining adjustments to the relative value units
    (RVUs) used as the basis for calculating Medicare physician
    reimbursement under the fee schedule, the Secretary has
    authority to adjust the number of RVUs for any service code to
    take into account changes in medical practice, coding changes,
    new data on relative value components, or the addition of new
    procedures. The Secretary is required to publish an explanation
    of the basis for such adjustments.
        These adjustments are subject to a budget neutrality
    condition. With the exception of certain expenditures that are
    exempt by statute, the adjustments may not cause the amount of
    expenditures made under the Medicare physician fee schedule to
    differ from year to year by more than $20,000,000 from the
    expenditures that would have been incurred without such an
    adjustment.

    Committee Bill

        The Committee Bill would require the Secretary to
    periodically identify physician services as being potentially
    misvalued, and make appropriate adjustments to the relative
    values of such services under the Medicare physician fee
    schedule. For purposes of identifying potentially misvalued
    services, the Secretary shall examine codes for which there has
    been the fastest growth; codes that have experienced
    substantial changes in practice expenses; codes for new
    technologies or services after the relative values are
    initially established for such codes; multiple codes that are
    frequently billed in conjunction with furnishing a single
    service; codes with low relative values, particularly those
    that are often billed multiple times for a single treatment;
    codes which have not been subject to review since the
    implementation of the RBRVS; and such other codes determined to
    be appropriate by the Secretary. Adjustments to misvalued
    procedures would be subject to budget neutrality requirements.

     SEC. 3135. MODIFICATION OF EQUIPMENT UTILIZATION FACTOR FOR ADVANCED
                                IMAGING SERVICES

    Present Law

        Under the Medicare fee schedule, some services have
    separate payments for the technical component and the
    professional component. For example, imaging procedures
    generally have two parts: the actual taking of the image (the
    technical component), and the interpretation of the image (the
    professional component). Medicare pays for each of these
    components separately when the technical component is furnished
    by one provider and the professional component by another. When
    both components are furnished by one provider, Medicare makes a
    single global payment that is equal to the sum of the payment
    for each of the components.
        CMS's method for calculating the Medicare fee schedule
    reimbursement rate for advanced imaging services assumes that
    imaging machines are operated 25 hours per week, or 50 percent
    of the time that practices are open for business. Setting the
    equipment use factor at a lower--rather than at a higher--rate
    has led to higher payment for these services. Citing evidence
    showing that the utilization rate is 90 percent, rather than
    the 50 percent previously assumed, MedPAC is urging CMS to use
    the higher utilization rate in the calculation of fee schedule
    payments for advanced imaging services.
        According to MedPAC and the Government Accountability
    Office (GAO), there are opportunities to improve the efficiency
    of the Medicare fee schedule. In 2005, MedPAC recommended
    reducing certain fees to account for efficiencies and savings
    from the technical preparation and supplies achieved when
    multiple imaging services are furnished sequentially on
    contiguous body parts during the same visit. Starting January
    1, 2006, physicians receive the full technical component fee
    for the highest paid imaging service in a visit, but technical
    component fees for additional imaging services are reduced by
    25 percent.

    Committee Bill

        The Committee Bill would increase the utilization rate
    assumption for calculating the payment for advanced imaging
    equipment from 50 percent to 65 percent for 2010 through 2013.
    The rate would be further increased to 75 percent beginning in
    2014.
        In addition, the Committee Bill would increase the
    technical component payment reduction for sequential imaging
    services on contiguous body parts during the same visit from 25
    percent to 50 percent.
        The Comptroller General would conduct a study on the
    estimated impact of the adjustment in practice expense to
    reflect higher presumed utilization under the amendments made
    by this subsection on the following: (1) Medicare beneficiary
    access to advanced diagnostic imaging services (as defined in
    section 1834(e)(1)(B) of the Social Security Act (42 U.S.C.
    1395m(e)(1)(B)), including such access in rural areas; (2)
    utilization of advanced diagnostic imaging services (as so
    defined); and (3) the estimated savings to the Medicare program
    under title XVIII of the Social Security Act (42 U.S.C. 1395 et
    seq.) during the period of 2010 through 2019 as a result of
    such adjustment.
        The Comptroller General would report to Congress by January
    1, 2013, on the results of the study, together with
    recommendations for such legislation and administrative action
    as the Comptroller General determines appropriate.

          SEC. 3136. REVISION OF PAYMENT FOR POWER-DRIVEN WHEELCHAIRS

    Present Law

        Wheelchairs, including power-driven wheelchairs, are
    covered by Medicare under the capped-rental category of the
    durable medical equipment (DME) benefit. Medicare pays for
    power-driven wheelchairs in one of two ways: either Medicare
    will pay the supplier a monthly rental amount during the
    beneficiary's period of medical need (though payments are not
    to exceed 13 continuous months), or the payment is made on a
    lump-sum basis at the time the supplier furnishes the chair if
    the beneficiary chooses the lump-sum payment option. If the
    reasonable lifetime of a power-driven wheelchair is reached, or
    the wheelchair is lost or irreparably damaged, Medicare will
    pay for a replacement. The beneficiary may elect to have the
    replacement purchased through either monthly rental payments
    not to exceed 13 months, or a lump-sum payment.
        Rental payments for wheelchairs are statutorily determined
    as ten percent of the purchase price of the chair for each of
    the first three months of rental and 7.5 percent of the
    purchase price for each of the remaining ten months of the
    rental period.
        Medicare pays for most DME on the basis of a fee schedule.
    However, the Medicare Prescription Drug Improvement and
    Modernization Act of 2003 (MMA, 108-173) required the Secretary
    to establish a competitive acquisition program for specified
    durable medical equipment; the competitive acquisition program
    would replace the Medicare fee schedule payments. The program
    is to be phased-in, starting in nine of the largest
    metropolitan statistical areas (MSAs) in 2009; expanding to 80
    of the largest MSAs in 2011 and remaining areas after 2011.

    Committee Bill

        Starting January 1, 2011, the Committee Bill would limit
    the option to purchase a power-driven wheelchair with a lump-
    sum payment only to complex, rehabilitative power wheelchairs.
    The lump-sum payment option would be eliminated for all other
    wheelchairs. The provision would also eliminate the lump-sum
    purchase option for replacing a wheelchair for all chairs
    except complex, rehabilitative power wheelchairs. This
    provision would not apply to competitive acquisition areas
    prior to January 1, 2011.
        Also starting January 1, 2011, the Committee Bill would
    change the calculation of the rental payment for power-driven
    wheel chairs. The rental payment for power-driven wheelchairs
    would be 15 percent of the purchase price for each of the first
    three months (instead of ten percent), and six percent of the
    purchase price for each of the remaining ten months of the
    rental period (instead of 7.5 percent).

                   SEC. 3137. HOSPITAL WAGE INDEX IMPROVEMENT

    Present Law

        A hospital wage index is used to adjust the standardized
    amount to account for the local wage variation or cost of labor
    in the hospital's area. Medicare defines hospital labor market
    areas using definitions of statistical areas established by the
    Office of Management and Budget (OMB). The wage index is
    intended to measure the average wage level for hospital workers
    in each urban area (a modified core based statistical area or
    CBSA) or rural area (comprised of counties that have not been
    assigned to any CBSA) relative to the national average wage
    level. Some states where every county is included in an urban
    area have no rural wage index. There is a statutory requirement
    that the wage index for any urban area in a state cannot be
    less than the rural wage index of that state (often referred to
    as the rural floor).
        Hospitals submit data on their hours, wages, and labor-
    related costs annually in their Medicare cost report. There is
    a four-year lag in the data used to calculate the wage index;
    the FY2008 wage index was calculated using data submitted by
    hospitals for cost reporting periods beginning in FY2004.
    Generally, CMS calculates an area's average hourly wage (AHW)
    using the data on compensation and hours submitted by every
    hospital in the area. Starting in FY2005, CMS has adjusted this
    data to account for the relative skill mix of the hospitals in
    the area. This occupationally mix adjusted average hourly wage
    is then divided by the same measure calculated using data from
    all hospitals in the nation to establish the area's adjusted
    wage index.
        The Tax Relief and Health Care Act of 2006 (TRHCA, P.L.
    109-432) required that MedPAC submit a report to Congress on
    wage index revisions, including recommendations on alternatives
    by June 30, 2007. The Secretary was directed to consider
    MedPAC's recommendations and include in the fiscal year 2009
    inpatient prospective payment proposed rule one or more
    proposals to revise the wage index. TRHCA also requires that
    CMS consider specific issues of Congressional concern such as
    eliminating exceptions, minimizing variation in the wage index
    across county borders and using the hospital wage index in
    different settings. MedPAC issued its mandated report by June
    2007. CMS did consider the report's recommendations in its
    FY2009 rulemaking process and has hired an independent
    consulting firm to further evaluate the impact of making the
    recommended changes.
        Unlike other providers, acute care hospitals may apply to
    the Medicare Geographic Classification Review Board (MGCRB) for
    a change in classification from a rural area to an urban area,
    or reassignment from one urban area to another urban area. If
    reclassification is granted, the new wage index will be used to
    calculate the hospital's Medicare payment for inpatient and
    outpatient services. Other services offered by the hospital
    such as rehabilitation services in a distinct part unit will be
    paid using the wage index from the hospital's original area.
        Generally, for an individual hospital to qualify for
    reclassification, it must demonstrate a close proximity to the
    area where the hospital seeks to be reclassified. After
    establishing appropriate proximity, a hospital may qualify for
    the wage index of another area if it proves that its incurred
    costs are comparable to those of hospitals in that area. To use
    an area's wage index, a hospital must demonstrate that its own
    AHW is within a certain percentage of the AHW of the area to
    which it seeks redesignation. Until recently, in order to
    reclassify to a different area, a rural hospital had to
    demonstrate that its AHW is equal to at least 82 percent of the
    area's AHW; an urban hospital's AHW had to be 84 percent of the
    area's AHW. Starting in FY2010, the reclassification threshold
    has been raised two percentage points to 84 percent for rural
    hospitals and 86 percent for urban hospitals. MGCRB hospital
    reclassifications are established on a budget neutral basis so
    aggregate inpatient payments will not increase as a result of
    reclassified hospitals' higher payments.
        Section 508 of the Medicare Prescription Drug, Improvement
    and Modernization Act of 2003 (MMA, P.L. 108-173) provided $900
    million for a one-time, three year geographic reclassification
    of certain hospital who were otherwise unable to qualify for
    administrative reclassification to areas with higher wage index
    values. These reclassifications were extended from March 31,
    2006 to September 30, 2007 by the Tax Relief and Health Care
    Act of 2006 (TRHCA, P.L. 109-432). The Medicare, Medicaid and
    SCHIP Extension Act (MMSEA, P.L. 110-173) extended the
    reclassifications to September 30, 2008. The Medicare
    Improvements for Patients and Providers Act of 2008 (MIPPA,
    P.L. 110-275) extended the reclassifications until September
    30, 2009. These extensions were exempt from any budget
    neutrality requirements.

    Committee Bill

        The Section 508 reclassifications would be extended until
    September 30, 2011. The Secretary would be required to use the
    wage index data that was promulgated by the Secretary in the
    Federal Register on August 27, 2009 (74 Fed. Reg. 43754), and
    any subsequent corrections, for purposes of the extension.
        By December 31, 2011, the Secretary would be required to
    provide a plan to Congress on how to comprehensively reform the
    Medicare wage index system. This plan would be required to take
    into account the goals set forth in the MedPAC June 2007 report
    including establishing a new hospital compensation index system
    that: (1) uses Bureau of Labor Statistics data, or other data
    or methodologies, to calculate relative wages for each
    geographic area involved; (2) minimizes wage index adjustments
    between and within CBSA and statewide rural areas; (3) includes
    methods to minimize the volatility of wage index adjustments
    that result from implementation of policy, while maintaining
    budget neutrality in applying such adjustments; (4) takes into
    account the effect that implementation of the proposal would
    have on health care providers and on each region of the
    country; (5) addresses issues related to occupational mix, such
    as staffing practices and ratios, and any evidence on the
    effect on quality of care or patient safety as a result of
    implementation of policy in this section; and (6) provides for
    a transition period. The Secretary would be required to consult
    with relevant affected parties in developing the plan.
        The Secretary would also be required to restore the
    reclassifications thresholds used in determine hospital
    reclassifications to the percentages used for FY2009 MGCRB
    decisions, starting FY2011. This change would be in effect
    until the first fiscal year one year after the Secretary
    submits the plan to reform the Medicare wage index system as
    referenced above. This provision would be implemented in a
    budget neutral fashion.

                SEC. 3138. TREATMENT OF CERTAIN CANCER HOSPITALS

    Present Law

        Eleven cancer hospitals are exempt from the inpatient
    prospective payment system (IPPS) used to pay inpatient
    hospital services provided by acute care hospitals. As part of
    this exemption, these facilities are paid on a reasonable cost
    basis, subject to certain payment limitations and incentives.
    These hospitals are also held harmless under the outpatient
    prospective payment system (OPPS) and will not receive less
    from Medicare under this payment system than under the prior
    outpatient payment system. Under OPPS, Medicare pays for
    outpatient services using ambulatory payment classification
    (APC) groups.

    Committee Bill

        The Secretary would be required to conduct a study to
    determine if the outpatient costs incurred by IPPS-exempt
    cancer hospitals with respect to Medicare's APCs exceed those
    costs incurred by other hospitals reimbursed under OPPS. If the
    costs in the IPPS-exempt cancer hospitals are excessive, the
    Secretary would be required to provide for an appropriate
    adjustment under Section 1833(t) of the Social Security Act for
    services furnished starting January 1, 2011.

             SEC. 3139. PAYMENT FOR BIOSIMILAR BIOLOGICAL PRODUCTS

    Present Law

        A biologic is a preparation, such as a therapeutic product
    or a vaccine, that is made from living organisms. The
    legislative proposal assumes the enactment of legislation that
    would expand the regulatory activities of FDA by opening a
    pathway for the approval of biosimilars, also referred to as
    follow-on biologics. The new regulatory pathway would be
    analogous to the FDA's existing authority for approving generic
    chemical drugs under the Drug Price Competition and Patent Term
    Restoration Act of 1984 (P.L. 98-417). Often referred to as the
    Hatch-Waxman Act, this law allows the generic company to
    establish that its drug product is chemically the same as the
    already approved innovator drug, and thereby its application
    for FDA approval relies on FDA's previous finding of safety and
    effectiveness for the approved drug.
        Medicare Part B pays for a limited number of drugs for
    beneficiaries in several different ways, depending on the
    setting in which the drug is administered, the type of drug,
    and the patient's eligibility for Medicare. Part B covers
    certain drugs administered to patients in physician offices and
    hospital outpatient departments, or those administered through
    durable medical equipment (DME) and billed by pharmacy
    suppliers. In certain limited instances, Part B will pay for
    drugs billed as supplies and self-administered by the patient.
        CMS assigns a Healthcare Common Procedure Coding System
    (HCPCS) code to each drug. Medicare payments for Part B drugs
    are based on average sales price (ASP) for each HCPCS code. CMS
    uses the same HCPCS code for all drug products listed as
    therapeutically equivalent in FDA's Orange Book. Therefore, a
    brand-name drug and any generic versions of the same drug would
    have the same HCPCS code and the prices would be averaged
    together for ASP determinations.

    Committee Bill

        The Committee Bill would allow a Part B biosimilar product
    approved by the Food and Drug Administration and assigned a
    separate billing code to be reimbursed at the ASP of the
    biosimilar plus six percent of the ASP of the reference
    product. A biosimilar biological product would mean a product
    approved under an abbreviated application for a license of a
    biological product that relies in part on data or information
    in an application for another biological product licensed under
    the Public Health Service Act. The term reference biological
    product means the licensed biological product that is referred
    to in the application for the biosimilar product.

        SEC. 3140. PUBLIC MEETING AND REPORT ON PAYMENT SYSTEMS FOR NEW
                      CLINICAL LABORATORY DIAGNOSTIC TESTS

    Present Law

        No Present Law.

    Committee Bill

        The Committee Bill would require the Secretary to convene a
    public meeting on mechanisms of payment for new clinical
    laboratory diagnostic tests under the Medicare program. The
    public meeting would include a discussion of how to reform
    Medicare payment mechanisms for such tests. The Secretary would
    submit a report to Congress containing a summary of the public
    meeting, together with recommendations for such legislation and
    administrative action that the Secretary would determine to be
    appropriate.

       SEC. 3141. MEDICARE HOSPICE CONCURRENT CARE DEMONSTRATION PROGRAM

    Present Law

        No provision.

    Committee Bill

        The Committee Bill would require the Secretary to conduct a
    three-year demonstration program that would allow patients who
    are eligible for hospice care to also receive all other
    Medicare covered services during the same period of time. The
    Secretary would establish 26 sites across the country in both
    urban and rural areas to examine improvement in patient care,
    quality of life, and cost-effectiveness that results from the
    demonstration project. An independent evaluation of this
    delivery model would be conducted with reports submitted to the
    Secretary and Congress. This demonstration would be required to
    be budget neutral relative to such funds that would otherwise
    be paid to hospice programs in a given year.

    SEC. 3142. APPLICATION OF BUDGET NEUTRALITY ON A NATIONAL BASIS IN THE
      CALCULATION OF THE MEDICARE HOSPITAL WAGE INDEX FLOOR FOR EACH ALL-
                             URBAN AND RURAL STATE

    Present Law

        A hospital wage index is used to adjust the standardized
    amount to account for the local wage variation or cost of labor
    in a hospital's area. The wage index is intended to measure the
    average wage level for hospital workers in each urban area (a
    modified core based statistical area or CBSA) or rural area
    (comprised of counties that have not been assigned to any CBSA)
    relative to the national average wage level as established by
    Section 4410 of the Balanced Budget Act of 1997 (BBA, P.L. 105-
    33), the wage index for any urban area in a state cannot be
    less than the rural wage index of that state (often referred to
    as the rural floor). In some states, every county is included
    in an urban area; as a result, there is no rural wage index for
    that state and no rural floor. Beginning in FY2006, the Centers
    for Medicare and Medicaid Services (CMS) established an
    ``imputed'' rural floor for states that did not have any acute
    care hospitals in rural areas.
        The effect of the rural floor (that is, raising the wage
    index for urban areas in a state to that state's rural wage
    index) is required to be implemented on a budget neutral basis.
    BBA established that the budget neutrality requirement for the
    rural floor be achieved by adjusting the wage index of all
    other hospitals not affected by the rural floor. Until FY2009,
    CMS funded the budget neutrality requirement associated with
    the impact of the rural and imputed rural floor though a
    nationwide adjustment. Starting in FY2009, CMS began a
    transition to fund the budget neutrality requirement through a
    state-specific adjustment; the statewide adjustment would be
    fully implemented in FY2011. States with no hospitals receiving
    the rural floor wage index would not experience reduced
    payments; those hospitals within each state with urban areas
    paid at the higher rural wage index would fund the higher
    payments for the affected hospitals.

    Committee Bill

        The Committee Bill would require application of budget
    neutrality requirement associated with the effect of the
    imputed rural and rural floor on a national, rather than state-
    specific adjustment (through a uniform, national adjustment to
    the area wage index).

           SEC. 3143. HHS STUDY ON URBAN MEDICARE-DEPENDENT HOSPITALS

    Present Law

        Medicare dependent hospitals (MDHs) are small rural
    hospitals with a high proportion of patients who are Medicare
    beneficiaries. Specifically, the hospitals in rural areas have
    at least 60 percent of acute inpatient days or discharges
    attributable to Medicare in FY1987 or in two of the three most
    recently audited cost reporting periods. As specified in
    regulation, they cannot be a sole community hospital (SCH) and
    must have 100 or fewer beds. MDHs receive special treatment,
    including higher payments, under Medicare's inpatient
    prospective payment system (IPPS).
        IPPS includes certain payment adjustments, such as the
    indirect medical education (IME) adjustment for teaching
    hospitals, to compensate hospitals for higher average costs
    which might not be in their control. The disproportionate share
    hospital (DSH) adjustment increases payments for hospitals that
    serve a relatively high proportion of low-income Medicare and
    Medicaid patients. Certain hospitals, such as rural referral
    centers, SCHs, and MDHs, receive special treatment under IPPS.
    Other small, limited service critical access hospitals (CAHs)
    are exempt from IPPS and paid 101 percent of their reasonable
    costs.

    Committee Bill

        The Secretary would conduct a study on the need for
    additional Medicare payments for urban Medicare-dependent
    hospitals paid under IPPS which receive no additional payments
    through either an IME or a DSH adjustment or who are not
    classified as an RRC, SCH, or MDH. CAHs would be excluded as
    well. For the purposes of the study, urban Medicare-dependent
    hospitals would be defined as those hospitals with more than 60
    percent of their inpatient days or discharges paid by Medicare.
    The study will examine the Medicare inpatient margins of these
    hospitals compared to other IPPS hospitals that receive one or
    more of the additional payments or adjustments and would
    consider the applicability to these urban hospitals of the
    existing payment adjustment for Medicare-dependent rural
    hospitals. The Secretary would submit a report including
    recommendations for legislative and administrative actions to
    Congress no later than nine months from the date of enactment.

                   Subtitle C--Provisions Relating to Part C

                     SEC. 3201. MEDICARE ADVANTAGE PAYMENT

    Present Law

        Under the Medicare Advantage (MA) program, beneficiaries
    have the option to receive Medicare benefits through private
    health insurance plans. MA plans are paid a monthly per-capita
    amount to provide all Medicare-covered benefits (except
    hospice) to beneficiaries who enroll in their plan.
        Section 1853 of the Social Security Act requires the
    Secretary each year to calculate monthly benchmark amounts for
    MA plans for each county of the country (and the territories).
    These benchmark amounts are administered prices--that is, they
    are set by statutory formula and used to determine how MA plans
    are paid under Medicare. Present Law also requires MA plans to
    submit bids to the Secretary on an annual basis that represent
    their average monthly revenue requirements for providing
    Medicare-covered benefits per enrollee for the following year.
    The monthly bid amounts reflect plans' estimated costs of
    delivering Medicare benefits per enrollee, as well as their
    administrative costs, such as profits and expenses for sales,
    marketing, and care management activities. MA plans also submit
    separate monthly bids for benefits that they offer under Part
    D.
        MA benchmarks are calculated differently for local plans
    and regional plans. The local benchmark is based solely on
    statutory county-level rates. The regional benchmark consists
    of two components: statutory county-level rates and a weighted
    average of regional plan bids. The latter component introduces
    an element of price competition among regional plans by basing
    a portion of the benchmark amount on bids submitted by the
    plans.
        Medicare payments to MA plans are determined by comparing
    their bids to the benchmark rates. If an MA plan bid is equal
    to or above the benchmark, its payment is the benchmark, and it
    must charge an enrollee premium equal to the difference between
    its bid and the benchmark. If an MA plan bid is below the
    benchmark, its payment is its bid. MA plans that bid below the
    MA benchmarks are also paid a ``rebate'' amount in addition to
    their bid. Specifically, MA plans that bid below the benchmarks
    are paid 75 percent of the difference between their bids and
    the benchmarks. Thus, the Medicare payment to MA plans that bid
    below the statutory benchmark is equal to each plan's bid plus
    75 percent of the difference between each bid and the benchmark
    rate.
        The ``rebate'' paid to MA plans must be used to provide
    benefits that are not covered by Medicare. These extra benefits
    can take the form of lower Medicare cost sharing under Parts A,
    B or D, reduced or eliminated monthly Part B premium, or added
    benefits and services beyond those covered by statute. Rebate
    payments to MA plans vary widely across the country. Areas with
    high statutory benchmark rates--mainly areas with the highest
    levels of per capita Medicare spending--tend to have the
    highest rebates paid to MA plans. Consequently, MA plans in
    high cost areas can offer significantly more extra benefits
    than MA plans in areas with average or low per capita Medicare
    costs. Under Present Law, the average rebate amount is about
    $100 per month, or $1,200 per year. Rebate payments enable MA
    plans to compete on extra benefits rather than on the price or
    quality of care they offer.
        In general, the MA benchmarks in each local area (county)
    are updated annually by the national per capita growth rate in
    Medicare expenditures, otherwise known as the national MA per
    capita growth percentage. In certain years (known as rebasing
    years), MA benchmarks are reset as the greater of the prior
    years' rate updated by the national MA per capita growth
    percentage or 100 percent of local fee-for-service (FFS) costs,
    with adjustments.
        Determination of a plan's service area differs for local
    and regional MA plans. Local plans choose the counties they
    wish to serve. Regional plans must agree to serve an entire
    region defined by the Secretary, and may choose to serve more
    than one region. MA regions are made up of states or groups of
    states. If a local plan eliminates a service area, the plan may
    allow all or some of the former enrollees from the affected
    area to continue their enrollment if the enrollees agree to see
    providers designated by the plan and there are no other plans
    available in the area.
        Current payments to MA plans (bids plus rebate payments)
    are risk adjusted. The Centers for Medicare and Medicaid
    Services (CMS) uses characteristics, such as age, sex,
    disability status and prior health history to estimate the
    relative risk of each beneficiary enrolled in a plan. MA plans
    are paid their bids plus rebate payments adjusted by their
    enrollees' risk scores. If MA plans enroll beneficiaries with
    higher costs, their payments are adjusted upward to account for
    the costs of covering sicker enrollees. If MA plans enroll
    beneficiaries with lower costs, their payments are adjusted
    downward to account for the lower cost of covering healthier
    enrollees.
        Other than risk adjusting payments, the statute does not
    contain explicit financial incentives for MA plans to manage or
    coordinate care for high cost, chronically ill beneficiaries.
        Section 1854 of the Social Security Act gives the Secretary
    broad authority to set guidelines and review the actuarial
    soundness of the monthly bid amounts submitted by MA plans. The
    statute requires that the Secretary only accept bid amounts or
    proportions that reasonably reflect the revenue requirements of
    benefits provided under the plan. Present Law also allows the
    Secretary to negotiate with plans regarding the bid amounts and
    supplemental benefits, which is similar to the authority
    provided to the Director of the Office of Personnel Management
    with respect to the Federal Employee Health Benefits Program
    (FEHBP). There is one exception: the Secretary is not allowed
    to review the actuarial bases of the bid amounts or use
    negotiation authority with respect to private fee-for-service
    plans.
        The Medicare Prescription Drug, Improvement and
    Modernization Act (MMA, P.L 108-173) required all MA
    organizations to have a quality improvement program. As part of
    this program, plans must collect, analyze, and report data that
    measure health outcomes and other indicators of performance.
    The quality measures reported by MA plans are summarized by CMS
    into a composite quality score for each plan. MA plan quality
    scores are published annually by CMS. MA plans are also
    required to annually assess the impact and effectiveness of
    their quality improvement programs and take timely action to
    correct any systemic problems that come to their attention.

    Committee Bill

        The Committee Bill would base the calculation of MA
    benchmarks on actual plan costs as reflected in plan bids
    rather than statutorily set rates. Using plan bids to set MA
    benchmarks would encourage plans to compete more directly on
    the basis of price and quality rather than on the level of
    extra benefits offered to enrollees. It also provides cost
    savings to Medicare because in nearly all areas of the country
    plan bids are lower than the current benchmark rates.
        MA Benchmarks and Rebates. Beginning in 2011, the Committee
    Bill would transition MA benchmarks to reflect plan bids. In
    2011, the national MA per capita growth percentage would be
    reduced by three percentage points. Starting in 2012, local MA
    benchmarks would be blended with plan bids. Specifically, local
    MA benchmarks would be based on 33 percent of the enrollment
    weighted average of plan bids for each payment area and 67
    percent of the Present Law MA benchmarks. In 2013, a greater
    share of the benchmark rates would reflect actual plan bids.
    Specifically, 67 percent of the benchmark rates would be based
    on the enrollment weighted average of plan bids for each
    payment area, while the remaining 33 percent would be based on
    the Present Law MA benchmarks. The Secretary would use
    enrollment figures from the most recent month from which data
    is available. In addition, the coding intensity adjustment of
    MA plan risk scores would be extended during the transition
    from statutory benchmarks to competitively bid benchmark rates
    from 2011 through 2013.
        In 2014, the local MA benchmarks would be based on the
    actual plan bids from the prior year. That is, the 2014 MA
    benchmarks would be equal to 100 percent of the enrollment
    weighted average of the 2013 plan bids increased by the
    national MA growth percentage for 2014. Beginning in 2015, the
    MA local benchmarks would be determined by the enrollment
    weighted average of all MA bids in each payment area. In the
    case of a payment area where only a single plan is offered, the
    weight would be equal to one. In the case of a payment area
    where no MA plans were offered in a prior year and multiple
    plans bid in the following year, the Secretary would use a
    simple average to calculate the MA benchmark in that area. An
    upper bound would be established in each area so that local
    benchmarks could not exceed the levels that would have existed
    under Present Law. Bids from all local MA plans (except
    regional plans, PACE plans and 1876 cost plans) would be used
    to set the MA benchmarks.
        Regional plan benchmarks would continue to be calculated as
    a weighted blend of the regional bids and local MA benchmarks.
    However, the statutory portion would be based on the new MA
    benchmarks instead of statutory rates.
        In 2011, 2012, and 2013, local and regional MA plans would
    still receive 75 percent of the difference between their bids
    and the benchmark rates as a rebate payment. Beginning in 2014,
    MA plans that bid below the new benchmark rates would receive a
    rebate amount equal to 100 percent of the difference between
    their bids and the new benchmarks (rather than 75 percent of
    the difference as under Present Law). Just as required under
    Present Law, local and regional MA plans that bid equal to or
    above the new benchmark rates would be paid the benchmark
    amount and must charge an enrollee premium equal to the
    difference between their bids and the benchmarks.
        The Committee Bill would also risk adjust bid and rebate
    payments to plans as under Present Law. Also, MA plans would be
    required to use 100 percent of any rebate amount to provide
    additional benefits to their enrollees. Plans would still be
    allowed to offer supplemental benefits for which they would
    charge beneficiaries an added premium, as under Present Law.
        Bidding Rules. The Committee Bill would require bid
    information submitted by MA plans to be certified by a member
    of the American Academy of Actuaries (MAAA) beginning with plan
    year 2012. The Secretary would continue to use current
    statutory authority to review and negotiate plan bids and set
    guidelines with respect to the actuarial standards that bids
    must meet. The Secretary, acting through the Chief Actuary,
    would be required to establish bidding rules that plans would
    follow in order to protect the integrity and fairness of the
    bidding process when the bids are used to set benchmarks
    amounts in payment areas. The Secretary would be required to
    deny bids that do not meet the actuarial standards and
    guidelines or abide by the rules established with respect to
    the competitive bid process. The Chief Actuary would report
    plan actuaries who were found to repeatedly not comply with
    bidding rules and standards to the Actuarial Standards Board
    for Counseling and Discipline. In addition, the Secretary would
    have authority to refuse to accept additional bids from MA
    organizations that had submitted bids with consistent
    misrepresentations.
        Payment Areas. The Committee Bill would require the
    Secretary to establish new MA payment areas for urban areas for
    plan years beginning in 2012. In urban areas, payment areas
    would be based on the definition of ``Core-Based Statistical
    Areas'' as determined by the Office of Management and Budget.
    The Secretary would be required to divide CBSAs that cover more
    than one state. Beginning in 2015, the Secretary would be
    allowed to adjust CBSA payment areas to reflect patterns of
    actual health care use. The Secretary would be required to base
    the adjustments on recent analyses of patterns of care. In
    2012, payments areas for rural or non-urban areas would be
    counties, as under Present Law. Beginning in 2015, the
    Secretary would be allowed to combine one or more rural
    counties in a state into a single service area. The Committee
    Bill would require that new payment areas established by the
    Secretary in rural areas also reflect recent research on actual
    patterns of care.
        The Committee Bill would provide additional authority to
    the Secretary to make limited exceptions to payment area
    requirements for plans that have historical agreements with
    other plans that preclude the offering of benefits throughout
    an entire payment area or that have historical limitations in
    their structural capacity to offer benefits throughout an
    entire payment area as a result of their delivery model.
        Under the Committee Bill, bidding and service areas would
    be the same as payment areas beginning in 2012. MA plans would
    be allowed to choose which payment areas they would like to
    serve, but they must bid and serve the entire payment area, and
    would no longer be allowed to apply different premiums to
    different segments of their service area.
        Bonus Payments. The Committee Bill would establish two new
    bonus payments for local and regional MA plans. When added
    together, the two bonus payments would equal a maximum of six
    percent of the national adjusted average per capita Medicare
    cost for the year on a per member per month basis. These bonus
    payments would be available to MA plans, beginning in 2014,
    regardless of plan type or service area (except not for
    enrollees under the grandfather policy as described below).
    Unlike rebate payments, bonus payments would be available to
    plans that meet certain performance criteria and would not
    depend on benchmark rates.
        The Committee Bill would create a new bonus payment for
    care coordination and management activities that are conducted
    by MA plans. Up to two percent of the national adjusted average
    per capita Medicare cost for the year would be available to MA
    plans that demonstrate to the Secretary that they conduct
    activities in four of eight areas. A plan would be eligible to
    earn \1/2\ percent for each of the following separate areas in
    which they conduct activities:
        1. Care management programs that target individuals with
    one or more chronic conditions, identify gaps in care, and
    facilitate improved care by using additional resources like
    nurses, nurse practitioners, and physician assistants.
        2. Programs that focus on patient education and self-
    management of health conditions, including interventions that
    help manage chronic conditions, reduce declines in health
    status and foster patient/provider collaboration.
        3. Transitional care interventions that focus on care
    provided around a hospital inpatient episode, including
    programs that target post-discharge patient care in order to
    reduce unnecessary health complications and re-admissions.
        4. Patient safety programs, including provisions for
    hospital-based patient safety programs in their contracts with
    hospitals.
        5. Financial policies that promote systematic coordination
    of care by primary care physicians across the full spectrum of
    specialties and sites of care, such as medical homes,
    capitation arrangements or pay-for-performance programs.
        6. Medication therapy management programs that are more
    extensive than those required under Present Law.
        7. Health information technology programs, including
    electronic health records, clinical decision support and other
    tools to facilitate data collection and ensure patient-
    centered, appropriate care.
        8. Programs that address, identify, and ameliorate health
    care disparities among principal at-risk subpopulations.
        The Secretary would be authorized to add care management
    and coordination programs as appropriate. MA plans would be
    allowed to implement care managements and coordination programs
    in ways that are appropriate for urban and rural areas.
        The Committee Bill would create a second bonus for prior
    year achievement or improvement in plan quality performance.
    Performance would be measured based on a ranking system that
    measures clinical quality and enrollee satisfaction at the
    contract or plan level as feasible. MA plans would be eligible
    to receive two percent of the national adjusted average per
    capita Medicare cost for the year if they achieve a three-star
    rating on a five-star ranking system or four percent if they
    achieve between four-and five-stars on a five-star ranking
    system. Plans that do not achieve at least a three-star rating
    would be eligible for a one percent quality bonus if their
    ratings improve over a prior year. If the Secretary does not
    use a five-star ranking system to measure quality under the MA
    program, bonus payments would continue to be available to plans
    at levels that reflect similar levels of achievement and
    improvement as the five-star ranking system. In making quality
    bonus payments to plans, the Secretary would use quality
    ratings from the preceding year. Plans that failed to report
    data used to determine the quality ratings would be counted as
    having the lowest performance and improvement ratings.
        The Committee Bill would make accommodations for the
    quality bonus for new and low-enrollment plans for limited time
    frames. New MA plans would be eligible for a two percent bonus
    for the first three years of operation. In the fourth year of
    operation, new plans would be evaluated in the same manner as
    other plans with comparable enrollment.
        For plans with low enrollment, the Secretary would use the
    regional or local mean for any quality measure that precludes a
    plan with insufficient data from being evaluated for quality
    performance using a five-star ranking system. The Secretary
    would have authority to create alternative mechanisms of
    measuring quality for purposes of the quality bonus for plans
    with persistently low enrollment.
        The performance bonuses--both care coordination and quality
    bonus payments--would be risk adjusted to reflect the
    demographics and actual health status of each enrollee in the
    same manner as rebate payments are risk adjusted under the
    Committee Bill and Present Law. MA plans would be required to
    use 100 percent of the performance bonus payment amounts to
    cover the costs of additional benefits offered to their
    enrollees as specified in Section 3202 below. Plans would still
    be allowed to offer supplemental benefits for which they charge
    beneficiaries an added premium, as under Present Law.
        Grandfather Policy. MA plans would be allowed to
    grandfather the extra benefits for their current enrollees
    (defined as those who are enrolled in MA plans on the date of
    enactment of the Committee Bill) in certain areas of the
    country where average plan bids are not greater than 75 percent
    of local per capita fee-for-service costs. Plans would be able
    to grandfather enrollees beginning in 2012. The amount of extra
    benefits in 2012 would be the amount that was available though
    the plan in 2011; the amount would be reduced by 5 percent each
    year beginning 2013.
        Plans that choose to retain or ``grandfather'' their
    current enrollees would also be required to submit bids under
    competitive bidding in those areas. The bids for covered
    Medicare benefits under competitive bidding would be used as
    the base payment to plans for grandfathered enrollees in 2012
    and 2013. In 2014, the base payment to plans for grandfathered
    enrollees would be the new competitive benchmark amounts
    applicable to the grandfathered area. Plans would be paid
    additional amounts for extra benefits: in 2012 and 2013, non-
    grandfathered enrollees would receive their plans' rebate,
    whereas enrollees under the grandfather would receive the
    grandfathered amount; in 2014, non-grandfathered enrollees
    would receive their plans' performance bonus and rebate
    payments under competitive bidding, whereas enrollees under the
    grandfather would receive only the grandfathered amount.
    Performance bonus and rebate payments would not be available to
    enrollees in grandfathered plans. The base payment and extra
    benefits for grandfathered enrollees would be risk adjusted in
    the same manner as for non-grandfathered enrollees. Upon
    approval by the Secretary, the bid payments (e.g., base
    payment) for enrollees in grandfathered plans may be adjusted
    up to \1/2\ percent per year to reflect differences in
    utilization of care for Medicare covered services by
    grandfathered enrollees that are not reflected in the
    competitive bid and that could result from the larger amount of
    extra benefits under the grandfather policy. MA plans would
    submit information to substantiate the need for the adjustment.
        Transitional Benefits. Beginning in 2012, the Secretary
    would be required to provide for transitional extra benefits to
    beneficiaries who enroll in Medicare Advantage plans and would
    experience a significant reduction in extra benefits under
    competitive bidding. The Secretary would provide for
    transitional benefits in certain areas: (1) the two largest
    metropolitan areas of the country if extra benefits in those
    areas are greater than $100 per member per month, and (2)
    counties where the MA benchmark amount in 2011 is equal to the
    legacy urban floor amount, the Medicare Advantage enrollment
    penetration is greater than 30 percent, and the MA plans bid
    below local per capita fee-for-service costs. The Secretary
    could also provide transitional benefits in counties contiguous
    to these areas. In addition, the Secretary would be required to
    review plan bids to ensure transitional benefits made available
    are passed on to beneficiaries. The total amount available for
    transitional benefits would be $5 billion through 2019.
        PACE Plans. The Committee Bill would exempt PACE plans
    authorized under Section 1894 of the Social Security Act from
    provisions of Section 3201, except the provision that would
    reduce the national MA per capita growth percentage by three
    percentage points in 2011.
        CMS Actuary Certification. The Committee Bill would strike
    the MA provisions of the Committee Bill related to competitive
    benchmarks and performance bonus payments if the Chief Actuary
    of CMS certifies that beneficiaries participating in MA on the
    date of enactment would lose Medicare-covered benefits when the
    provisions of the Committee Bill are implemented. The Chief
    Actuary of CMS would be required to make this certification
    three months after the enactment of this legislation.

                SEC. 3202. BENEFIT PROTECTION AND SIMPLIFICATION

    Present Law

        Under the Medicare Advantage (MA) program, the cost sharing
    (i.e., coinsurance, copayments, and deductibles) that an
    enrollee must pay for covered health benefits is determined on
    a plan-by-plan basis. Cost sharing for any service offered by
    an MA plan may be greater than or less than cost sharing for
    the same service under the traditional Medicare program.
    However, the total value of cost sharing required by an MA plan
    is constrained by the estimated actuarial value of total cost
    sharing under original Medicare.
        Payments to MA plans are based on the relation between the
    bid and the benchmark, as explained above. If a plan's bid is
    below the benchmark, the plan is paid its bid plus 75 percent
    of the difference in the form of a rebate. The rebate must be
    used to provide additional benefits to enrollees. MA plans have
    broad authority to determine how they use their rebates to
    cover the costs of additional benefits. They can reduce
    Medicare cost sharing expenses under Parts A, B or D. They can
    also reduce a beneficiary's monthly Part B premium or
    prescription drug premium. They may also use rebates to pay for
    benefits that are not covered by traditional Medicare. MA plans
    also have full discretion to determine how to apportion their
    rebates among these additional benefits. For this reason, the
    type and composition of additional benefits that are paid for
    by rebates varies widely among plans.
        Regardless of whether a plan bids above or below the
    benchmark, a plan may choose to provide benefits not covered
    under original Medicare and charge a supplemental premium.

    Committee Bill

        The Committee Bill would include several protections for
    beneficiaries with respect to the cost sharing amounts charged
    by MA plans. The Committee Bill would also make additional
    benefits that are offered by MA plans and paid for by rebates
    and bonus payments more consistent across plans.
        Beginning in 2011, The Committee Bill would prohibit MA
    plans from charging cost sharing that exceeds the cost sharing
    under the original Medicare program for certain services for
    which beneficiaries need the highest level of predictability
    and transparency, such as chemotherapy treatment, renal
    dialysis and skilled nursing care. The Secretary would be given
    authority to identify additional services for which this
    provision would apply. MA plans would be allowed to charge non-
    discriminatory levels of cost sharing for Medicare-covered
    services where there is no cost sharing under the original fee-
    for-service program.
        The Committee Bill would also modify how plans can use
    their rebates and bonuses for additional benefits beginning
    with 2012. MA plans would have to apply the full amount of
    rebates and bonuses to cover the cost of additional benefits in
    the following priority order:
        First, plans would use the most significant share to
    meaningfully reduce Part A, B, and D cost sharing relative to
    the traditional FFS program. Cost sharing would include
    copayments, co-insurance, deductibles, as well as out-of-pocket
    caps on total beneficiary spending. The Secretary could provide
    guidance on what constitutes meaningful cost sharing
    reductions, but could not set the amounts for each plan. The
    Committee Bill would remove authority of MA plans to reduce or
    eliminate the Part B premium as an additional benefit. In
    addition, any out-of-pocket spending limits that plans offer
    would be required to apply to all Part A and B benefits. In
    other words, MA plans would not be able to exclude certain
    services, like chemotherapy drugs, from out-of-pocket spending
    limits.
        Second, plans would use the next largest share to add
    preventive and wellness benefits, such as preventive care
    visits, smoking cessation programs, and free flu shots.
        Third, plans would be able to use the remainder to add non-
    covered benefits, such as eye examinations and dental coverage.
        In addition, the Committee Bill would simplify information
    about additional benefits that are offered by MA plans.
    Beginning in 2011, the Secretary would categorize MA plans in
    each payment area into two or more distinct categories
    according to the share that rebates, bonuses and supplemental
    premiums are of each plan's bid. Any marketing materials used
    must reflect the plan's category. For example, the Secretary
    could decide to create three categories of plans: Bronze,
    Silver and Gold. The intent is to help beneficiaries compare
    and distinguish the additional benefits that MA plans offer
    above original fee-for-service Medicare.

    SEC. 3203. APPLICATION OF CODING INTENSITY ADJUSTMENT DURING MA PAYMENT
                                   TRANSITION

    Present Law

        Payments to Medicare Advantage plans are risk adjusted to
    reflect the actual health status of the beneficiaries that
    enroll in them, as required by the Balanced Budget Act of 1997
    (P.L. 105-33). The Deficit Reduction Act (DRA) of 2005 (P.L.
    109-171) included a provision to phase-out a budget neutrality
    adjustment that the Centers for Medicare and Medicaid Services
    (CMS) used in implementing risk adjusted payments to private
    plans. Also included in the DRA was a provision that requires
    the Secretary to adjust risk scores for differences in coding
    patterns between Medicare Advantage plans and the original fee-
    for-service program. The Secretary is required to make the
    coding intensity adjustment through 2010.

    Committee Bill

        The Committee Bill would extend the coding intensity
    adjustment during the transition from statutorily defined
    benchmarks to competitively bid benchmarks from 2011 through
    2013. It would also allow the Secretary to incorporate the
    adjustment into risk scores under competitive bidding, if
    appropriate, beginning in 2014.

        SEC. 3204. SIMPLIFICATION OF ANNUAL BENEFICIARY ELECTION PERIODS

    Present Law

        According to the Medicare Prescription Drug, Improvement,
    and Modernization Act of 2003 (MMA, P.L. 108-173), Medicare
    beneficiaries may enroll in or change their enrollment in
    Medicare Advantage (MA) and Part D plans from November 15 to
    December 31 each year in the annual coordinated election
    period. These changes become effective on January 1 of the next
    year. During a continuous enrollment and disenrollment period
    in the first three months of the new benefit year beneficiaries
    can enroll in an MA plan, and individuals enrolled in an MA
    plan can either switch to a different MA plan or return to
    original Medicare. However, during the three-month period,
    beneficiaries cannot change their drug coverage elections.
        In a December 2008 report, the Government Accountability
    Office (GAO) found that about 15 percent of beneficiaries who
    chose to switch plans in the Part D annual coordinated election
    period for the 2008 benefit year were not fully enrolled in
    their new plan by January 1, primarily because of the volume of
    applications submitted late in the period. GAO recommended that
    Congress consider authorizing the Secretary of HHS to amend the
    current coordinated election period to include a sufficient
    processing interval to fully enroll beneficiaries prior to the
    effective date of their new coverage.

    Committee Bill

        The Committee Bill would shift the annual enrollment period
    dates for Medicare Advantage and Part D to October 15 to
    December 7. The change would be effective beginning in 2011.
    Also, beginning in 2011, the continuous enrollment and
    disenrollment period for MA and MA-PD plans that occurs between
    January 1 and March 31 each year would be eliminated. The
    Committee Bill would institute a limited disenrollment period
    from January 1 through February 15 in order for beneficiaries
    who enroll in Medicare Advantage or prescription drug plans
    during the annual enrollment period to disenroll during that
    period. These changes are intended to simplify the time frames
    under which beneficiaries would need to make enrollment
    decisions.

        SEC. 3205. EXTENSION FOR SPECIALIZED MA PLANS FOR SPECIAL NEED
                                  INDIVIDUALS

    Present Law

        Under the Medicare Modernization Act of 2003 (MMA, P.L.
    108-173), Congress created a new type of Medicare Advantage
    coordinated care plan for individuals with special needs.
    Special needs plans (SNPs) are allowed to target enrollment to
    one or more types of individuals identified by Congress as: (1)
    institutionalized; (2) dually eligible for Medicare and
    Medicaid; and/or (3) individuals with severe or disabling
    chronic conditions.
        Congress has since passed additional legislation affecting
    SNPs. The original SNP authority established by MMA was to
    expire on December 31, 2008. Passage of the Medicare, Medicaid,
    and SCHIP Extension Act of 2007 (MMSEA, P.L. 110-173)
    authorized the SNP program through December 31, 2009, but also
    established a moratorium on the creation of SNPs after January
    1, 2008. More recently, the Medicare Improvements for Patients
    and Providers Act of 2008 (MIPPA, P.L. 110-275), lifted the
    moratorium and authorized the SNP program through December 31,
    2010. In addition to legislative changes affecting SNPs, CMS
    has issued regulatory guidance for the legislative changes.
    Most recently, the Centers for Medicare and Medicaid Services
    (CMS) issued a Final Rule in the January 12, 2009 Federal
    Register.
        The number of SNPs has increased dramatically since 2004,
    the first year of operation. In 2004, CMS approved 11 SNPs, but
    by January 2008, CMS had approved 787 SNPs, including 442 dual-
    eligible SNPs, 256 chronic care SNPs, and 89 institutional
    SNPs. In September 2008, there were 1.2 million beneficiaries
    in SNPs.
        Under MIPPA, the SNP program was authorized through
    December 31, 2010. MIPPA also required that new SNP enrollment
    be limited to individuals that meet the criteria for which the
    SNP is designated: dual-eligible, chronic care, and
    institutional care. Further, MIPPA required that dual-eligible
    SNPs contract with state Medicaid agencies to provide medical
    assistance services in order to serve new areas. Such contracts
    with states may include long-term care services. However, there
    is no requirement for state Medicaid agencies to contract with
    SNPs in order for SNPs to serve new areas.
        MIPPA also modified the definition of a chronic care SNP to
    focus on beneficiaries who are at the greatest risk for
    hospitalizations and who may have the greatest need for care
    coordination. In addition, MIPPA required that all SNPs have
    models of care that are appropriate to their populations and
    include personalized care plans for each beneficiary that they
    enroll.
        MIPPA further required SNPs to collect, analyze, and report
    data related to their model of care. These data are required to
    be reported for each plan sponsored by an organization. CMS
    provided additional guidance in an interim final rule that
    requires data that demonstrates compliance with 10 quality
    indicators. CMS coordinated with the National Committee on
    Quality Assurance to develop quality measures for SNPs.
    However, there is no statutory requirement that SNP participate
    in the NCQA quality measurement requirement or be approved by
    NCQA.
        Present Law covering SNPs does not address requirements for
    the transition to other appropriate MA plans or FFS Medicare if
    beneficiaries fail to meet the target definition for the types
    of SNP plans in which they are enrolled. Further, the Secretary
    does not have the authority to adjust payment levels for dual-
    eligible SNP plans. Under the Program for All-inclusive Care
    for the Elderly (PACE) program authority, CMS may provide for
    frailty adjustments for PACE organizations that treat a greater
    number of frail enrollees.
        There is no requirement for the Secretary to assess how
    well the risk adjustment model functions with respect to plans,
    like SNPs, with high enrollment of chronically ill and severely
    disabled beneficiaries or to make changes to address any
    deficiencies.

    Committee Bill

        The Committee Bill would extend the authority for MA SNPs
    to target their enrollment to certain populations through
    December 31, 2013. In addition, the MIPPA requirement for SNPs
    to restrict enrollment to individuals who are within the
    classes of special needs individuals would be made permanent
    and apply to all enrollees in SNPs. The Committee Bill would
    authorize the Secretary to transition beneficiaries enrolled in
    SNPs to other MA plans or original Medicare if the
    beneficiaries do not meet the definitions established for such
    plans. The Secretary also would be permitted to make time-
    limited exceptions to the transition for dual-eligible
    beneficiaries who may have temporarily lost their Medicaid
    status in order to give them time to reapply for Medicaid
    benefits.
        The Committee Bill would create a new payment adjustment
    for fully integrated dual-eligible SNPs beginning in 2011.
    Specifically, it would give the Secretary authority to provide
    a frailty adjustment for fully integrated dual-eligible SNPs
    that have similar average levels of frail beneficiaries as PACE
    plans, as defined by the Secretary. The Secretary would only be
    able to adjust payments to dual-eligible SNPs that fully
    integrate benefits covered under Titles 18 and 19 of the Social
    Security Act. In order to qualify, dual-eligible SNPs would
    need to integrate Medicare and Medicaid benefits as well as
    payments through an MA contract with the Secretary and a
    contract with the state Medicaid agency that includes the
    provision of long-term care.
        The Committee Bill would extend, until December 31, 2012, a
    provision in MIPPA that granted SNPs that serve dual-eligible
    beneficiaries temporary authority to continue to operate even
    though they have not established contracts with state Medicaid
    programs. By 2013, all dual-eligible SNPs would need to have
    contracts with states in order to operate as SNPs in any area
    of the country.
        Beginning in 2012, the Secretary would require that SNPs be
    approved by the National Committee for Quality Assurance (NCQA)
    in order to serve targeted populations. Also beginning in 2011,
    the Secretary would use a risk score for new enrollees in
    chronic care SNPs that reflects the known underlying risk
    profile and chronic health status of similar individuals. The
    new risk score would be applied in lieu of the default risk
    score for new enrollees of non-SNP MA plans.
        For 2011 and periodically thereafter, the Secretary would
    be required to evaluate and revise the methodology used to risk
    adjust MA plan payments in order to as accurately as possible
    account for higher medical and care coordination costs
    associated with frailty, individuals with multiple, co-morbid
    chronic conditions, enrollees with a mental illness diagnosis
    and also to account for costs that may be associated with
    higher concentrations of beneficiaries with these conditions.
        The Secretary would be required to publish a description of
    its evaluations and any modifications with the announcement of
    final payment rates.

               SEC. 3206. EXTENSION OF REASONABLE COST CONTRACTS

    Present Law

        Reasonable cost plans are Medicare Advantage (MA) plans
    that are reimbursed by Medicare for the actual cost of
    providing services to enrollees. Cost plans were created in the
    Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982. The
    Balanced Budget Act of 1997 included a provision to phase out
    the reasonable cost contracts, however, the phase-out has been
    delayed over the years through Congressional action. These
    plans are allowed to operate indefinitely, unless two other
    plans of the same type (i.e., either two local or two regional
    plans) offered by different organizations operate for the
    entire year in the cost contract's service area. After January
    1, 2010, the Secretary may not extend or renew a reasonable
    cost contract for a service area if: (a) during the entire
    previous year there were either two or more MA regional plans
    or two or more MA local plans in the service area offered by
    different MA organizations; and (b) these regional or local
    plans meet minimum enrollment requirements.

    Committee Bill

        The Committee Bill would extend for three years--from
    January 1, 2010, to January 1, 2013--the length of time
    reasonable cost plans may continue operating regardless of any
    other MA plans serving the area.

      SEC. 3207. TECHNICAL CORRECTION TO MA PRIVATE FEE-FOR-SERVICE PLANS

    Present Law

        Present Law allows different types of private plans to
    participate in the MA program, including coordinated care plans
    (CCPs, such as health maintenance organizations (HMOs) and
    preferred provider organizations (PPOs)), and private fee-for-
    service plans (PFFS). CCPs are required to meet medical access
    requirements by forming networks of contracted providers.
    Private fee-for-service plans (PFFS) can meet access
    requirements either by establishing payment rates for providers
    that are not less than rates paid under original Medicare or by
    developing contracts and agreements with a sufficient number
    and range of providers within a category to provide covered
    services under the terms of the plan. Beginning in 2011, the
    Medicare Improvements for Patients and Providers Act of 2008
    (MIPPA, P.L. 110-275) requires PFFS plans sponsored by
    employers or unions to establish contracted networks of
    providers to meet access requirements. PFFS plans that are not
    sponsored by employers are required to establish contracted
    networks of providers in areas defined as areas having at least
    two plans with networks (such as HMOs or PPOs). In areas
    without at least two network-based plans, PFFS plans retain the
    ability to establish access requirements through establishing
    payment rates that are not less than those under original
    Medicare. The Secretary has the authority to waive or modify
    requirements that hinder the design of, the offering of, or the
    enrollment in employer or union sponsored MA plans. The CMS
    Medicare Managed Care Manual for Employer/Union Sponsored Group
    Health Plans specifies the circumstances under which the
    Secretary would exercise authority to waive some service-area
    network requirements for employer-sponsored coordinated care
    plans.

    Committee Bill

        The Committee Bill would clarify that, in defining areas in
    which PFFS plans (not sponsored by employers) must establish
    contracted networks of providers, a network area would be
    defined as an area served by two or more MA organizations. The
    Committee Bill would also allow the Secretary to grant
    employer-direct PFFS plans (as defined under 1857(i)(2)) a
    waiver from the network requirements in a manner similar to the
    Secretary's authority to waive or modify other MA requirements
    for employer-contracted coordinated care plans as specified in
    a 2008 service area extension waiver policy, as modified in an
    April 11, 2008 CMS memo entitled ``2009 Employer Group Waiver-
    Modification of the 2008 Service Area Extension Waiver Granted
    to Certain MA Local Coordinated Care Plans.'' Only employer-
    direct PFFS plans that had enrollment as of October 1, 2009
    would be eligible for the waiver.

       SEC. 3208. MAKING SENIOR HOUSING AUTHORITY DEMONSTRATION PERMANENT

    Present Law

        Erickson Advantage is a Medicare Advantage demonstration
    project administered by Evercare and available exclusively to
    Erickson Retirement Community residents. In general, Medicare
    Advantage plans are required to serve an area no smaller than a
    county, which prevents plans from targeting smaller areas of
    healthier, low-cost enrollees. The Erickson Advantage plan
    received a waiver of this requirement to be able to restrict
    enrollment to community residents.

    Committee Bill

        Effective January 1, 2010, the Committee Bill would allow
    Medicare Advantage plans that meet specific criteria to limit
    their service areas to a senior housing facility within a
    geographic area. MA plans would be eligible if they serve
    beneficiaries who reside in a continuing care retirement
    community, have a sufficient number of on-site primary care
    providers as determined by the Secretary, supply transportation
    benefits to other providers, and were in existence under a
    demonstration for at least one year by December 31, 2009.

       SEC. 3209. DEVELOPMENT OF NEW STANDARDS FOR CERTAIN MEDIGAP PLANS

    Present Law

        Many Medicare beneficiaries have individually purchased
    health insurance policies, commonly referred to as ``Medigap''
    policies. Beneficiaries with Medigap insurance typically have
    coverage for Medicare's deductibles and coinsurance; they may
    also have coverage for some items and services not covered by
    Medicare. Individuals generally select from one of a set of
    standardized plans (Plan ``A'' through Plan ``L'', though not
    all plans are offered in all states). The law incorporates by
    reference, as part of the statutory requirements, certain
    minimum standards established by the National Association of
    Insurance Commissioners (NAIC) and provides for modification
    where appropriate to reflect program changes. Policy issuers
    are required to offer at least policies with benefit packages
    ``A'', and if they are to offer others, they must offer at
    least ``C'' or ``F''.
        Beginning in 2010, two new packages may be offered--Plan
    ``M'' and Plan ``N.'' Plan ``M'' includes 50 percent coverage
    of the Part A deductible, and no coverage of the Part B
    deductible. Plan ``N'' includes 100 percent coverage of the
    Part A deductible but no coverage for the Part B deductible. In
    addition, coverage for the Part B coinsurance is limited to up
    to $20 for an office visit and up to $50 for an emergency room
    visit.

    Committee Bill

        The Committee Bill would request that NAIC create new model
    plans for C and F that include nominal cost sharing to
    encourage the use of appropriate Part B physician services. The
    nominal cost sharing must be based on evidence, either
    published or from integrated delivery systems, of how cost
    sharing affects utilization of appropriate physician care. The
    revisions would be required to be consistent with rules
    applicable to changes in NAIC Model Regulations. The new models
    C and F would be available in 2015.

                    Subtitle D--Medicare Part D Improvements

     SEC. 3301. MEDICARE PRESCRIPTION DRUG DISCOUNT PROGRAM FOR BRAND-NAME
                                     DRUGS

    Present Law

        The Medicare Prescription Drug, Improvement, and
    Modernization Act of 2003 (MMA, P.L. 108-173) included a
    defined standard benefit structure under the Part D
    prescription drug benefit. In 2009, the standard benefit
    includes a $295 deductible and 25 percent coinsurance until the
    enrollee reaches the initial coverage limit ($2,700 in total
    covered drug spending). After the initial coverage limit, there
    is a gap in coverage, or ``doughnut hole,'' in which the
    beneficiary is responsible for 100 percent of drug costs.
    Beneficiaries must spend $3,454.75 out-of-pocket before they
    reach the catastrophic benefit. Once they reach catastrophic
    coverage, they are responsible for five percent of drug costs.
    The plan pays 15 percent and the Medicare program pays 80
    percent for the remainder of the benefit year.
        Present Law allows Part D plan sponsors to offer benefit
    packages that differ from the standard benefit, as long as they
    are actuarially equivalent. Most plans offer actuarially
    equivalent benefit packages in lieu of the standard benefit
    design. Present Law also allows plans to offer ``enhanced''
    benefit packages that provide more generous coverage
    (typically, enhanced benefit packages have higher premiums).
    Most enhanced packages have a reduced or $0 deductible and/or
    reduced cost-sharing in the initial coverage period. However,
    fewer plans choose to offer benefits during the coverage gap.
    Most plans that offer gap coverage only provide benefits for
    generic drugs and not brand-name drugs, and many times the
    coverage is limited to a subset of the generic drugs listed on
    plan formularies. Thus, if a beneficiary wants to purchase a
    plan that has both generic and brand-name coverage in the gap,
    they are not able to do so because insurers do not offer plans
    with those types of benefits. Insurers do not offer broad gap
    coverage because it is voluntary and tends to attract sicker,
    more expensive beneficiaries with higher drug spending that
    would require them to set higher premiums overall.

    Committee Bill

        The Committee Bill would establish a discount program for
    beneficiaries who enroll in Part D and have drug spending that
    falls into the coverage gap. The Committee Bill would provide
    for manufacturer discounts on brand-name drugs that are covered
    under Part D and are on plan formularies (or treated as being
    on plan formularies through exceptions and appeals processes).
    The discount would be available during the entire coverage
    gap--that is, at the point when total prescription costs of a
    beneficiary exceed the initial coverage limit ($2,700 in 2009)
    and until it reaches the catastrophic coverage limit ($6,153 in
    2009) each year. Once the prescription costs of a beneficiary
    exceed the catastrophic limit, the discount would end and the
    catastrophic portion of the drug benefit would apply as under
    Present Law. The discount program would apply to Medicare
    beneficiaries who enroll in Part D, do not qualify for the low-
    income subsidy, are not enrolled in an employee-sponsored
    retiree drug plan, and do not have annual income that exceeds
    the Part B income thresholds as determined under Present Law
    ($85,000 for singles and $170,000 for couples in 2009). For
    beneficiaries with supplemental benefits that provide some
    savings during the doughnut hole, the discount would be applied
    to the costs remaining after the supplemental benefits have
    been applied.
        Specifically, beginning July 1, 2010, eligible
    beneficiaries would automatically receive a 50 percent discount
    off the negotiated price for brand-name prescription drugs that
    are covered under Part D and covered by their plan's formulary
    or are treated as being on plan formularies through exceptions
    and appeals processes. For purposes of the discount, the
    negotiated price would be the same as defined in 42 CFR
    423.100, which is the price that plans pay to pharmacies minus
    the amount of price concessions (i.e., rebates and discounts)
    that plans pass on to beneficiaries. Dispensing fees would be
    excluded from the negotiated price and the discount. That means
    beneficiaries who receive the discount would continue to pay
    pharmacy dispensing fees as under Present Law. The discount
    would be made at the point of sale and apply to sole-source and
    multiple-source brand-name drugs. Payment of the discount by
    manufacturers would be made to pharmacies no later than 14 days
    after the date of dispensing a discounted drug.
        The Committee Bill stipulates that drugs sold and marketed
    in the U.S. by a manufacturer would not be covered under Part D
    unless the manufacturer agrees to participate in the discount
    program described above. Manufacturers would be required to
    sign an agreement with the Secretary of Health and Human
    Services (HHS) in order to participate in the program and have
    their drugs covered under Part D. These conditions of coverage
    would not apply if the Secretary has made a determination that
    the availability of the drug would be essential to the health
    of beneficiaries or if the Secretary has determined that there
    are extenuating circumstances in the period between July 1,
    2010 and September 30, 2010.
        For an agreement with a manufacturer to be in effect by
    July 2010, the manufacturer would need to enter into an
    agreement with the Secretary by March 1, 2010. Initial
    agreements would be for 18 months (until December 31, 2011) and
    automatically renewed unless terminated by the Secretary or the
    manufacturer. The agreement would require manufacturers to
    discount drug prices at the pharmacy or through a mail order
    service at the point of sale. The Secretary would be allowed to
    provide for manufacturer discount after the point-of-sale for a
    temporary period (July 1, 2010 through December 31, 2011) until
    the necessary data systems are in place to implement the
    discount at the point-of-sale. Manufacturers would be required
    to collect and have available appropriate data as determined by
    the Secretary to ensure that they can demonstrate compliance
    with the discount program.
        The Secretary would be authorized to terminate an agreement
    within 30 days notice for violation of the requirements of the
    agreements or for other good cause. The Secretary would be
    required to provide, upon request, a hearing concerning such a
    termination, but such hearing would not delay the effective
    date of the termination. Manufacturers would be allowed to
    terminate an agreement for any reason. Such termination would
    not be effective until the end of the benefit year if
    terminated before January 30 and at the end of the following
    benefit year if terminated after January 30. Manufacturers
    could reenter the program for a benefit year if they reenter an
    agreement by January 30 of the preceding year.
        The Committee Bill would also allow 100 percent of the
    negotiated price of discounted drugs (excluding dispensing
    fees) to count toward the annual out-of-pocket threshold that
    is used to define the coverage gap each year. This threshold is
    generally referred to as ``true out-of-pocket'' spending. In
    other words, the full negotiated price of discounted drugs
    would count as incurred costs of beneficiaries for purposes of
    Section 1860D-(2)(b)(4)(B) of the Social Security Act. The
    Committee Bill includes this provision so that the size of the
    coverage gap would not widen and beneficiaries with high
    prescription drug costs would not be held back from reaching
    the catastrophic benefit as a result of the discount program.
        The Committee Bill would require the Secretary to contract
    with a third-party entity (or entities) to administer the drug
    discount program and would establish performance requirements
    and data standards for the third-party contractor(s). At a
    minimum, the third party would (1) receive and transmit
    information between plans, manufacturers and the Secretary and
    (2) receive and distribute, or facilitate the distribution of,
    the funds from manufacturers in order to effect the discount to
    beneficiaries at the point of sale. Manufacturers would be
    required to contract with the same third party under terms
    specified by the Secretary in order to carry out their
    requirements under the discount program. The Secretary would
    not be authorized to receive or distribute funds from
    manufacturers under the discount program, except for the period
    between July 1, 2010, and December 31, 2010, if the Secretary
    determines it necessary to implement the discount program
    during that initial period of time.
        The Committee Bill would also require manufacturers who
    participate in the Part D drug discount program to be audited
    for compliance. Manufacturers that do not comply with the
    discount would be subject to fines assessed and collected by
    the Secretary. Fines would be commensurate with the amount
    manufacturers would pay if they had adhered to the discount
    program, along with an additional penalty equal to 25 percent
    of the discount amount. The Committee Bill would also allow for
    a reasonable notice and dispute resolution mechanism before
    penalties could be assessed. The Secretary would be authorized
    to prohibit a manufacturer's drugs from being covered under
    Medicare Part D for repeated non-compliance.

    SEC. 3302. IMPROVEMENT IN DETERMINATION OF PART D LOW-INCOME BENCHMARK
                                    PREMIUM

    Present Law

        The Medicare Prescription Drug, Improvement, and
    Modernization Act of 2003 (MMA, P.L. 108-173) created an
    outpatient prescription drug benefit in Medicare. Medicare
    beneficiaries who have limited income and resources may qualify
    for financial assistance to help pay for their prescription
    drug costs under the benefit. Those who qualify for the low-
    income subsidy (LIS) receive ``extra help'' paying for their
    monthly premiums, yearly deductibles, co-payments, and costs in
    the coverage gap. For example, the Federal government pays up
    to 100 percent of the Part D premiums for LIS beneficiaries who
    enroll in LIS-eligible plans.
        A plan qualifies as an LIS-eligible plan if it offers
    standard coverage (or an equivalent) with a premium equal to or
    lower than a benchmark amount calculated for each region. The
    regional low-income benchmark amount, determined annually, is
    the weighted average of premiums in each of the 34 prescription
    drug plan (PDP) regions for standard prescription drug
    coverage, or the actuarial value of standard prescription drug
    coverage for plans that offer supplemental, or enhanced,
    coverage options. For Medicare Advantage prescription drug
    plans (MA-PD), the portion of the premium attributable to
    standard prescription drug benefits is used.
        Under the Medicare Advantage (MA) program, private health
    plans bid to offer Medicare coverage to beneficiaries. The
    Secretary bases payment for an MA plan on the relationship
    between its bid and a statutorily defined benchmark. The MA
    benchmark represents the maximum amount the Federal government
    would pay a plan for providing Medicare benefits. If a plan's
    bid is less than the benchmark, its payment equals its bid plus
    a rebate of 75 percent of the difference between the benchmark
    and the bid. The rebate must be used to provide additional
    benefits to enrollees, reduce Medicare cost-sharing, or reduce
    a beneficiary's monthly Part B or Part D premiums.
        MA plans offering prescription drug coverage must submit a
    separate bid for the Part D portion of the benefit. Payment for
    the portion of the premium attributable to standard
    prescription drug benefits is calculated in the same way as it
    is for stand-alone PDPs; however the MA plan may choose to
    apply some of its MA rebate payments to lower the Part D
    premium. If an MA plan uses rebate payments to reduce its Part
    D premium, the reduced premium amount, not the actual amount
    attributable to standard drug coverage, is factored into the
    regional low-income benchmark. This has the effect of lowering
    the LIS benchmark and therefore reducing the number of plans
    that can serve LIS beneficiaries at fully subsidized or $0
    premium.

    Committee Bill

        The Committee Bill would require the Secretary to exclude
    Medicare Advantage rebates and performance bonus payments from
    the MA-PDP premium amount when calculating the regional LIS
    benchmark amounts. This provision would take effect in 2011. It
    would have the effect of increasing the number of plans that
    can serve LIS beneficiaries at fully subsidized or $0 premiums.

    SEC. 3303. VOLUNTARY DE MINIMUS POLICY FOR SUBSIDY ELIGIBLE INDIVIDUALS
                 UNDER PRESCRIPTION DRUG PLANS AND MA-PD PLANS

    Present Law

        No provision.

    Committee Bill

        The Committee Bill would authorize a policy, beginning in
    2011, through which plans that bid a nominal amount above the
    regional low-income subsidy (LIS) benchmark amount can choose
    to absorb the cost of the small difference between their bid
    and the LIS benchmark in order to qualify as a LIS-eligible
    plan. The Secretary would be given discretion to auto-enroll
    LIS beneficiaries into these plans in order to maintain
    adequate LIS plan choices. The de minimus threshold amount
    would be established by the Secretary. This provision would
    help maintain plans that wish to serve LIS beneficiaries at
    fully subsidized or $0 premiums.

     SEC. 3304. SPECIAL RULE FOR WIDOWS AND WIDOWERS REGARDING ELIGIBILITY
                           FOR LOW-INCOME ASSISTANCE

    Present Law

        To qualify for financial assistance under the Part D low-
    income subsidy (LIS) program, Medicare beneficiaries must have
    resources no greater than the income and resource limits
    established by the Medicare Prescription Drug, Improvement, and
    Modernization Act of 2003 (MMA, P.L. 108-173). Individuals may
    qualify for the full subsidy in two ways: (1) if they are
    eligible for Medicaid or one of the Medicare Savings Programs
    (Qualified Medicare Beneficiary (QMB), Specified Low-Income
    Medicare Beneficiary (SLMB), or Qualifying Individual (QI)), or
    are recipients of Supplemental Security Income (SSI) benefits,
    they are deemed automatically eligible; or (2) if they apply
    for the benefit through their State Medicaid agency or through
    the Social Security Administration (SSA) and are determined to
    have an annual income below 135 percent of the Federal poverty
    level (FPL) and have resources below a certain limit (in 2009,
    $8,100 for an individual or $12,910 if married). Beneficiaries
    may qualify for a partial subsidy if they apply and are
    determined to have an annual income below 150 percent of FPL
    and their resources do not exceed a certain limit (in 2009,
    $12,510 for individuals or $25,010 if married). When
    determining whether a beneficiary qualifies for the low-income
    subsidy, $1,500 in resources per person is excluded from
    consideration if the beneficiary indicates that he/she expects
    to use resources for burial expenses.
        If beneficiaries experience changes in their personal or
    financial circumstances during the year, they may be
    responsible for different levels of cost sharing or may no
    longer qualify for the low-income subsidy for the next plan
    year. Each year, the Secretary conducts a redeeming process to
    determine whether those who automatically qualified for the
    full subsidy in a given year continue to meet the criteria for
    eligibility in the following year. For those who have qualified
    for the full or partial subsidy through the application
    process, the agency that made the determination decision (SSA
    or an individual state) is responsible for monitoring a
    recipient's eligibility. For example, for cases in which
    eligibility has been established through an application with
    SSA, a report of a subsidy-changing event, such as marriage,
    divorce, or death of a spouse, will trigger a redetermination
    of subsidy eligibility during the calendar year. This can
    result in changes to the individual's deductible, premium and
    cost sharing subsidy, or even termination of his or her LIS
    eligibility status. In the case of the death of a spouse, it is
    possible that the surviving spouse, as the sole owner of the
    previously combined resources, may exceed the resource limit
    for an individual and may no longer qualify for the LIS
    program.

    Committee Bill

        The Committee Bill would require that, beginning in 2011,
    the surviving spouse of an LIS-eligible couple undergo a
    redetermination of his or her eligibility status no earlier
    than one year from the next redetermination that would have
    occurred after the death of a spouse. Subsequently, the LIS
    widow/widower would be determined or redetermined, as
    appropriate, for the LIS program on the same basis as other
    LIS-eligible beneficiaries.

       SEC. 3305. IMPROVED INFORMATION FOR SUBSIDY ELIGIBLE INDIVIDUALS
             REASSIGNED TO PRESCRIPTION DRUG PLANS AND MA-PD PLANS

    Present Law

        According to the Medicare Prescription Drug, Improvement,
    and Modernization Act of 2003 (MMA, P.L. 108-173), low-income
    subsidy (LIS) beneficiaries who are enrolled in plans with
    premiums below the low-income regional benchmark amount receive
    assistance with premiums and cost sharing. LIS beneficiaries
    who are enrolled in LIS-eligible plans whose plan bids exceed
    the regional benchmark amount for the next benefit year are
    randomly reassigned by the Secretary of HHS to new plans whose
    bids are at or below the regional benchmark amount in order to
    ensure that these beneficiaries continue to receive a subsidy
    of plan premiums. It is possible that the new plan's
    exceptions, appeals and grievance mechanisms could differ from
    the old plan, and some covered drug(s) a beneficiary is
    currently taking would not be covered by the new plan.

    Committee Bill

        In the case of an LIS beneficiary who has been reassigned
    to another LIS plan, the Committee Bill would require the
    Secretary, beginning in 2011, to transmit, within 30 days of
    the reassignment, information to the beneficiary about
    formulary differences between the former plan and the new plan
    with respect to the beneficiary's drug regimen, as well as a
    description of the beneficiary's rights to request a coverage
    determination, exception or reconsideration, or resolve a
    grievance.

       SEC. 3306. FUNDING OUTREACH AND ASSISTANCE FOR LOW-INCOME PROGRAMS

    Present Law

        The Medicare Improvements for Patients and Providers Act of
    2008 (MIPPA, P.L. 110-275) provided $25 million for fiscal
    years 2008 and 2009 for beneficiary outreach and education
    activities related to low-income programs related to Medicare
    through State Health Insurance Programs (SHIPs), Area Agencies
    on Aging (AOAs), Aging and Disability Resource Centers (ADRCs),
    and the Administration on Aging.
        SHIPs are state-based programs that provide Medicare
    beneficiaries with local, personalized assistance with Medicare
    benefits and other health insurance programs. MIPPA provided
    $7.5 million for grants to the states for SHIPs. Two-thirds is
    allocated based on the share of persons in each state with
    incomes below 150 percent of poverty and who have not enrolled
    in the Part D low-income subsidy program. One-third is
    allocated among states based on the share of Part D eligible
    beneficiaries residing in rural areas.
        MIPPA also required the Secretary of HHS to provide $7.5
    million to the Administration on Aging to make grants to Area
    Agencies on Aging. Additionally, MIPPA provided $5 million to
    the Administration on Aging to make grants to Aging and
    Disability Resource Centers under the Aging and Disability
    Resource Center grant program. Finally, MIPPA provided $5
    million to the Administration on Aging to make a grant or enter
    into a contract with an entity to, among other things, maintain
    and update web-based decision support tools and integrated
    systems designed to inform older individuals about the full
    range of benefits for which the individuals may be eligible
    under Federal and state programs, and to develop and maintain
    an information clearinghouse on best practices and the most
    cost effective methods for finding such individuals.

    Committee Bill

        The Committee Bill would extend MIPPA Section 119 and
    provide $45 million for outreach and education activities
    related to Medicare low-income assistance programs, including
    the Part D low-income subsidy (LIS) program and the Medicare
    Savings Program (MSP). Funds would be allocated in the
    following manner: $15 million to State Health Insurance
    Programs, $15 million to the Administration on Aging for Area
    Agencies on Aging, $10 million to Aging Disability Resource
    Centers and $5 million for the contract for the National Center
    for Benefits Outreach and Enrollment. Funds would be available
    for obligation through 2012. The Secretary would have authority
    to enlist the support of these entities to conduct outreach
    activities aimed at preventing disease and promoting wellness
    as an additional use of these funds.

    SEC. 3307. IMPROVING FORMULARY REQUIREMENTS FOR PRESCRIPTION DRUG PLANS
     AND MA-PD PLANS WITH RESPECT TO CERTAIN CATEGORIES OR CLASSES OF DRUGS

    Present Law

        The Medicare Prescription Drug, Improvement, and
    Modernization Act of 2003 (MMA, P.L. 108-173) requires Part D
    plans to operate formularies that cover drugs within each
    therapeutic category and class of covered Part D drugs,
    although not necessarily all drugs within such categories and
    classes. The Secretary of HHS published a regulation (42 CFR
    Section 423.120) that requires Part D plans to have at least
    two drugs within each therapeutic category and class.
        However, a higher standard of coverage has been established
    for six specific classes. Through sub-regulatory guidance, the
    Secretary protected access to certain classes of drugs by
    requiring Part D plans to cover all, or substantially all, of
    the drugs in the following six drug classes: immunosuppressant,
    antidepressant, antipsychotic, anticonvulsant, antiretroviral,
    and anti-neoplastic.
        Section 176 of the Medicare Improvements for Patients and
    Providers Act of 2008 (MIPPA, P.L. 110-275) codified that,
    beginning in plan year 2010, the Secretary would identify the
    classes and categories of drugs that should be protected, or
    covered entirely by Part D plans, to ensure that beneficiaries
    have access to certain therapies and to a wide variety of
    therapy options for certain conditions. MIPPA included several
    clinical criteria that the Secretary would have to use in order
    to identify protected classes of drug. MIPPA also added a
    requirement that the Secretary promulgate regulations to
    identify the protected classes and make any subsequent changes
    to the classes through regulation.

    Committee Bill

        The Committee Bill would remove the criteria, specified in
    Section 176 of MIPPA, that would have been used by the
    Secretary to identify protected classes of drugs. The Committee
    Bill would give the Secretary authority to identify classes of
    clinical concern as defined by the Secretary. Part D plan
    sponsors would be required to include all drugs in these
    classes in their formularies; the Secretary would be allowed to
    establish exceptions if promulgated through a final rule. The
    Committee Bill would codify the current six classes of clinical
    concern as they are currently specified through sub-regulatory
    guidance until the Secretary issues a final rule regarding
    classes of clinical concern to be protected on plan
    formularies. The provision would be effective beginning with
    plan year 2011.

          SEC. 3308. REDUCING PART D PREMIUM SUBSIDY FOR HIGH-INCOME
                                 BENEFICIARIES

    Present Law

        According to the Medicare Prescription Drug, Improvement,
    and Modernization Act of 2003, (MMA, P.L. 108-173), Part D
    beneficiary premiums account for 25.5 percent of expected total
    Part D premium costs for standard coverage. Medicare pays the
    remaining 74.5 percent of Part D costs. The Medicare portion of
    average Part D costs is determined annually and paid directly
    to plans on a monthly basis for each beneficiary they enroll.
    However, beneficiaries pay different monthly premiums depending
    on the plan they select and whether or not they are entitled to
    low-income premium subsidies. If a beneficiary chooses a plan
    with lower than average premiums, then their share of their
    plan's premium will be lower than the 25.5 percent set
    nationally. Beneficiary premiums under Part D are not subject
    to income thresholds or means testing.
        Beginning in 2007, as required by the MMA, high-income
    beneficiaries are required to pay higher premiums for Part B
    benefits. Beneficiaries with modified adjusted gross incomes
    that exceed a threshold amount are charged additional premiums
    based on a sliding scale that ranges from 35 percent to 80
    percent of the value of Part B. In 2009, threshold levels
    started at $85,000 for an individual tax return and $170,000
    for a joint return (based on 2007 returns). The threshold
    amounts are specified in law, and are adjusted annually for
    inflation using the Consumer Price Index. The income thresholds
    are tied to specific premium shares. In 2008, approximately
    five percent of Part B enrollees paid the higher premiums.
        Section 6103 provides that returns and return information
    are confidential and may not be disclosed by the Internal
    Revenue Service (``IRS''), other Federal employees, State
    employees, and certain others having access to such information
    except as provided in the Internal Revenue Code. Section 6103
    contains a number of exceptions to the general rule of
    nondisclosure that authorize disclosure in specifically
    identified circumstances. For example, section 6103 provides
    for the disclosure of certain return information for purposes
    of establishing the appropriate amount of any Medicare Part B
    premium subsidy adjustment.
        Specifically, upon written request from the Commissioner of
    Social Security, the IRS may disclose the following limited
    return information of a taxpayer whose premium, according to
    the records of the Secretary, may be subject to adjustment
    under section 1839(i) of the Social Security Act (relating to
    Medicare Part B): taxpayer identity information with respect to
    such taxpayer; the filing status of the taxpayer; the adjusted
    gross income of such taxpayer; the amounts excluded from such
    taxpayer's gross income under sections 135 and 911 to the
    extent such information is available; the interest received or
    accrued during the taxable year which is exempt from the tax
    imposed by chapter 1 to the extent such information is
    available; the amounts excluded from such taxpayer's gross
    income by sections 931 and 933 to the extent such information
    is available; such other information relating to the liability
    of the taxpayer as is prescribed by the Secretary by regulation
    as might indicate that the amount of the premium of the
    taxpayer may be subject to an adjustment and the amount of such
    adjustment; and the taxable year with respect to which the
    preceding information relates.
        This return information may be used by officers, employees,
    and contractors of the Social Security Administration only for
    the purposes of, and to the extent necessary in, establishing
    the appropriate amount of any Medicare Part B premium subsidy
    adjustment.
        Section 6103(p)(4) requires, as a condition of receiving
    returns and return information, that Federal and State agencies
    (and certain other recipients) provide safeguards as prescribed
    by the Secretary of the Treasury by regulation to be necessary
    or appropriate to protect the confidentiality of returns or
    return information. Unauthorized disclosure of a return or
    return information is a felony punishable by a fine not
    exceeding $5,000 or imprisonment of not more than five years,
    or both, together with the costs of prosecution. The
    unauthorized inspection of a return or return information is
    punishable by a fine not exceeding $1,000 or imprisonment of
    not more than one year, or both, together with the costs of
    prosecution. An action for civil damages also may be brought
    for unauthorized disclosure or inspection.

    Committee Bill

        The Committee Bill would increase, beginning in 2011, the
    Medicare base premium amount for beneficiaries whose modified
    adjusted gross income (MAGI) exceeds the thresholds used under
    Part B ($85,000 for an individual and $170,000 per couple in
    2009). This provision would be implemented in a manner that is
    similar to the current income-related reductions in Part B
    premium subsidies. Instead of setting the base beneficiary
    premium at 25.5 percent of total Part D premiums, the Committee
    Bill would increase the base premium by a monthly amount
    calculated from the percentages used to decrease the Part B
    premium subsidy under Present Law. For individual MAGIs in
    2007, the income-related share of total Part B costs were as
    follows: 35 percent for incomes between $80,000 and $100,000,
    50 percent for incomes between $100,000 and $150,000, 65
    percent for incomes between $150,000 and $200,000, and 80
    percent for income greater than $200,000. Income thresholds for
    couples filing jointly are twice these dollar amounts. These
    income thresholds are per 2007 tax returns and have been
    inflated by the Consumer Price Index (CPI) for 2008 and 2009.
    Increases in base premium amounts would be deducted from
    beneficiaries' Social Security income in a manner similar to
    deductions for Part B premium increases.
        The Committee Bill would also inflate the income thresholds
    by the CPI, except for the period between 2010 and 2019 when
    the income thresholds would not be updated. Under the Committee
    Bill, upon written request from the Commissioner of Social
    Security, the IRS may disclose the following limited return
    information of a taxpayer whose Medicare Part D premium
    subsidy, according to the records of the Secretary, may be
    subject to adjustment under the provisions of the Committee
    Bill: taxpayer identity information with respect to such
    taxpayer; the filing status of the taxpayer; the adjusted gross
    income of such taxpayer; the amounts excluded from such
    taxpayer's gross income under sections 135 and 911 to the
    extent such information is available; the interest received or
    accrued during the taxable year which is exempt from the tax
    imposed by chapter one to the extent such information is
    available; the amounts excluded from such taxpayer's gross
    income by sections 931 and 933 to the extent such information
    is available; other information relating to the liability of
    the taxpayer as is prescribed by the Secretary by regulation as
    might indicate that the amount of the Part D premium of the
    taxpayer may be subject to an adjustment and the amount of such
    adjustment; and the taxable year with respect to which the
    preceding information relates.
        This return information may be used by officers, employees,
    and contractors of the Social Security Administration only for
    the purposes of, and to the extent necessary in, establishing
    the appropriate amount of any Medicare Part D premium subsidy
    adjustment.
        For purposes of both the Medicare Part B premium subsidy
    adjustment and the Medicare Part D premium subsidy adjustment,
    the Committee Bill provides that the Social Security
    Administration may redisclose only taxpayer identity and the
    amount of premium subsidy adjustment to officers and employees
    and contractors of the Centers for Medicare and Medicaid
    Services, and officers and employees of the Office of Personnel
    Management and the Railroad Retirement Board. This redisclosure
    is permitted only to the extent necessary for the collection of
    the premium subsidy amount from the taxpayers under the
    jurisdiction of the respective agencies.
        The Committee Bill further provides that the Social
    Security Administration may redisclose the return information
    received under this provision to officers and employees of the
    Department of Health and Human Services to the extent necessary
    to resolve administrative appeals of the Part B and Part D
    subsidy adjustments and to officers and employees of the
    Department of Justice to the extent necessary for use in
    judicial proceedings related to establishing and collecting the
    appropriate amount of any Medicare Part B or Medicare Part D
    premium subsidy adjustments.

                 SEC. 3309. SIMPLIFICATION OF PLAN INFORMATION

    Present Law

        According to the Medicare Prescription Drug, Improvement,
    and Modernization Act of 2003, (MMA, P.L. 108-173), Part D
    plans can design two general types of benefit packages:
    standard (or actuarially equivalent alternatives) and
    supplemental. The supplemental, or enhanced, benefit must be of
    higher actuarial value than the standard benefit. Enhanced
    plans may offer lower or $0 deductible, reduced cost sharing,
    an increased initial coverage limit, coverage of some drugs
    excluded from Part D and/or some coverage of drugs during the
    coverage gap. Plans must also offer a standard option in a
    region in order to offer enhanced benefit options.
        Beneficiaries and persons assisting them can use the
    ``Medicare Prescription Drug Plan Finder'' on the Medicare.gov
    website to find and compare Part D plans in their area. The
    plan finder provides information on monthly premium and annual
    deductible amounts, whether there is coverage in the gap and
    estimated annual costs to the beneficiary. However, the plan
    finder does not indicate whether the benefits offered by a
    particular plan are standard, a standard alternative or
    enhanced. Additionally, marketing and enrollment materials
    provided by the plans may or may not include this information.

    Committee Bill

        The Committee Bill would require the Secretary to
    establish, beginning with the 2011 plan year, two or more
    categories of prescription drug plans offered by Part D
    sponsors based on ranges of the actuarial values of the
    prescription drug benefits provided under the plans. The
    Secretary would also be required to develop standardized
    nomenclature, definitions, and language to describe and present
    the benefit categories on the Part D plan finder and in other
    relevant beneficiary communications. For example, the Secretary
    could establish three categories of benefit levels--Bronze,
    Silver, and Gold. Plans would be required to indicate the
    benefit category of each plan in the name of the product and
    relevant marketing materials. The Secretary would also be
    required to ensure that there are meaningful differences
    between the benefit categories.

    SEC. 3310. LIMITATION ON REMOVAL OR CHANGE OF COVERAGE OF COVERED PART
     D DRUGS UNDER A FORMULARY UNDER A PRESCRIPTION DRUG PLAN OR AN MA-PD
                                      PLAN

    Present Law

        The Medicare Prescription Drug, Improvement, and
    Modernization Act of 2003, (MMA, P.L. 108-173) permits Part D
    plans to manage drug utilization and costs through formularies,
    or lists of drugs that a plan chooses to cover and the terms
    under which they are covered. The formulary must be developed
    by a Pharmacy and Therapeutics Committee, in which the majority
    of members are physicians and/or practicing pharmacists. A
    plan's formulary must include at least two drugs in each
    category or class used to treat the same medical condition.
    Drug plans are also allowed to apply various utilization
    management (UM) restrictions to drugs on their formularies.
    These restrictions may include assignment of drugs to tiers
    that correspond to different levels of cost sharing; prior
    authorization, in which the beneficiary must obtain a plan's
    approval before it will cover a particular drug; and step
    therapy, in which a beneficiary must first try a generic or
    less expensive drug; and quantity limits.
        Under Present Law, Part D plans may not change the
    therapeutic categories and classes in a formulary other than at
    the beginning of each plan year, except the Secretary may take
    into account new therapeutic uses and newly approved covered
    drugs. The law further stipulates that any removal of a covered
    drug from a formulary and any change in the preferred or tiered
    cost sharing status of such a drug shall take effect only after
    appropriate notice is made available to the Secretary, affected
    enrollees, physicians, pharmacies, and pharmacists.
        The Secretary of HHS published regulations (42 CFR Section
    423.120) that also require that, except under certain
    circumstances, for example when a covered drug has been deemed
    unsafe by the Food and Drug Administration (FDA) or removed
    from the market by its manufacturer, a Part D sponsor may not
    remove a covered drug from a plan formulary or make any change
    in the preferred or tiered cost sharing status of a covered
    drug on a plan's formulary between the beginning of the open
    enrollment period and 60 days after the beginning of the
    contract year associated with that open enrollment period.
    After March 1 of a given plan year, Part D sponsors may make
    maintenance changes to their formularies, such as replacing
    brand name drugs with new generic drugs or modifying
    formularies as a result of new information on drug safety or
    effectiveness. Part D sponsors can also currently make non-
    maintenance changes if they are approved by the Secretary.
        According to guidance from the Secretary, if Part D
    sponsors remove drugs from their formularies, move covered
    drugs to a less preferred tier status, or add utilization
    management requirements, these changes must be approved in
    advance. Sponsors may make such changes only if enrollees
    currently taking the affected drug are exempt from the
    formulary change for the remainder of the contract year.
        Regulation also allows Part D sponsors to expand
    formularies by adding drugs, reducing copayments or coinsurance
    by placing a drug on a lower cost sharing tier, or removing
    utilization management requirements at any time during the
    year.

    Committee Bill

        The Committee Bill would not allow Part D sponsors,
    beginning in 2011, to remove a covered drug from a plan
    formulary, apply a cost or utilization management tool that
    imposes a restriction or limitation on the coverage of such a
    drug (such as through the application of a preferred status,
    usage restriction, step therapy, prior authorization, or
    quantity limitation), or increase the cost sharing of such a
    drug (such as through the placement of a drug on a tier that
    would result in higher cost sharing for a beneficiary) other
    than the date on which Part D sponsors may begin marketing
    their plans with respect to the immediately succeeding plan
    year.
        This provision would allow for exceptions if the change is
    in regard to a brand-name drug for which a generic drug was
    approved during the plan year, if the change is in regard to a
    safety issue determined by the plan's Pharmacy and Therapeutic
    Committee or by the FDA, or if the Secretary establishes a
    specific exemption through the promulgation of regulations
    relating to plan formularies. During the annual open enrollment
    period, Part D sponsors would be required to provide each
    enrollee a notice of any change in the formulary or other
    restrictions or limitations on coverage of a drug for the
    upcoming plan year. This notice would apply to the 2010 annual
    coordinated election period. Only the exception for FDA safety
    would apply to a drug in a protected category or class as
    determined under Section 3307.

       SEC. 3311. ELIMINATION OF COST-SHARING FOR CERTAIN DUAL-ELIGIBLE
                                  INDIVIDUALS

    Present Law

        Cost-sharing subsidies for low-income subsidy (LIS)
    enrollees are linked to standard Part D prescription drug
    coverage. Full-subsidy eligibles have no deductible, nominal
    cost-sharing during the initial coverage limit and coverage
    gap, and no cost-sharing over the catastrophic threshold. Other
    full-benefit dual-eligible individuals with incomes up to 100
    percent of the Federal poverty limit (FPL) have cost-sharing
    for all costs up to the catastrophic threshold of $1.10 in 2009
    for a generic drug prescription or preferred multiple source
    drug prescription and $3.20 in 2009 for any other drug
    prescription. Full-subsidy-eligible individuals with incomes
    over 100 percent of FPL have cost-sharing for all costs up to
    the catastrophic threshold, of $2.40 in 2009 for a generic drug
    or preferred multiple source drug and $6.00 in 2009 for any
    other drug. Full-benefit dual eligibles who are residents of
    medical institutions or nursing facilities have no cost-sharing
    during any of the Part D coverage limits.

    Committee Bill

        Under the Committee Bill, cost-sharing would not apply to
    persons who were full-benefit dual eligibles and for whom a
    determination was made that but for the provision of home and
    community-based care, the individual would require the level of
    care provided in an institutional setting. Such home and
    community-based care would be that provided under Section 1915
    or 1932 of the Social Security Act or under a waiver under
    Section 1115 of the Act. The provision would be effective on a
    date specified by the Secretary, but not earlier than January
    1, 2012.

      SEC. 3312. REDUCING WASTEFUL DISPENSING OF OUTPATIENT PRESCRIPTION
     DRUGS IN LONG-TERM CARE FACILITIES UNDER PRESCRIPTION DRUG PLANS AND
                                  MA-PD PLANS

    Present Law

        Part D plans are required to offer a contract to any
    pharmacy willing to participate in its long-term care (LTC)
    pharmacy network so long as the pharmacy is capable of meeting
    certain minimum performance and service criteria and any other
    standard terms and conditions established by the plan for its
    network pharmacies. Each LTC facility selects at least one
    eligible LTC pharmacy to provide Medicare drug benefits to its
    residents. Plan formularies must be structured so that they
    meet the needs of long-term care residents and provide coverage
    for all medically necessary medications at all levels of care.
        Currently, the Part D program uses plan sponsors and
    pharmacy benefit managers (PBMs) to direct network pharmacies
    to dispense drugs in accordance with the State Board of
    pharmacy requirements and to conduct cost-effective drug
    utilization management. Both physician prescribing patterns and
    PBM payment practices result in most prescriptions being
    dispensed in 30- or 90-day quantities. In the situation where
    the full amount dispensed is not utilized by the patient due to
    death, discharge, adverse reactions, medication substitution,
    or other reason for discontinuation, the remaining unused
    medication become waste. Also, the unused medication could
    become an environmental hazard or diverted to illegal use.

    Committee Bill

        The Committee Bill would authorize the Secretary to
    establish dispensing technologies, such as weekly, daily or
    automated dose dispensing, that Part D plans would employ to
    reduce the quantity dispensed per fill when dispensing
    medications to beneficiaries who reside in long-term care
    facilities in order to reduce waste associated with 30-day
    fills. This provision would apply to plan years starting
    January 1, 2012.

      SEC. 3313. IMPROVED MEDICARE PRESCRIPTION DRUG PLAN AND MA-PD PLAN
                                COMPLAINT SYSTEM

    Present Law

        Under Medicare Part D and Medicare Advantage (MA),
    beneficiary complaints are processed and tracked in a variety
    of ways. Under Medicare Part D, Medicare beneficiaries who
    experience problems with their Part D plan may complain using
    one or both of two different processes. A beneficiary can file
    a complaint directly with CMS, which will generally forward it
    to the appropriate plan sponsor for resolution; or, a
    beneficiary can file a complaint directly with the plan sponsor
    (known as a grievance). An MA organization also must have
    procedures for hearing and resolving grievances between the
    organization and enrollees. MA organizations are required to
    provide written information to enrollees about these processes.
        Part D and MA related complaints are tracked and resolved
    through CMS's centralized complaints system, while grievances
    are tracked and resolved by each plan sponsor using its own
    system. CMS maintains a central repository of Medicare Part C
    and Part D-related complaints received by its Regional Offices,
    Central Office, or through 1-800-MEDICARE. Complaints are
    assigned to various categories and subcategories, including but
    not limited to enrollment, disenrollment, benefits, access,
    pricing, co-insurance, marketing, fraud, waste, abuse, and
    customer service.
        Section 1808(c) of the Social Security Act requires the
    Secretary of Health and Human Services to appoint a Medicare
    Beneficiary Ombudsman who is to receive complaints, grievances,
    and requests for information from Medicare beneficiaries with
    respect to any aspect of the Medicare Program.

    Committee Bill

        This Committee Bill would require the Secretary to develop
    and maintain a plan complaint system to handle complaints
    regarding Medicare Advantage (MA) and Part D plans or their
    sponsors. Such complaints may include complaints from MA or
    Part D eligible beneficiaries related to marketing, enrollment,
    covered drugs, premiums and cost-sharing, plan customer
    service, grievances and appeals, and participating providers. A
    plan complaint would be defined as a complaint that is received
    (including by telephone, letter, email, or any other means) by
    the Secretary (including by a regional office, the Medicare
    Beneficiary Ombudsman, a sub-contractor, a carrier, a fiscal
    intermediary, and a Medicare Administrative Contractor).
        The Secretary would be required to develop a model
    electronic complaint form to be used for reporting complaints
    under the system that would be displayed on the Medicare.gov
    and Medicare Beneficiary Ombudsman websites.
        The Medicare Ombudsman would conduct an annual report of
    the plan complaint system that would include an analysis of the
    numbers and types of complaints reported under the system;
    geographic variations in the complaints; the timeliness of
    agency or plan responses to such complaints; and the resolution
    of the complaints.

    SEC. 3314. UNIFORM EXCEPTIONS AND APPEALS PROCESS FOR PRESCRIPTION DRUG
                             PLANS AND MA-PD PLANS

    Present Law

        Part D sponsors and Medicare Advantage organizations are
    required to have procedures in place for making timely coverage
    determinations and for handling appeals of coverage
    determinations. Under Part D, beneficiaries can use the
    coverage determination and appeals process to challenge a
    utilization management restriction on a drug on the sponsor's
    formulary or to request coverage for a Part D drug that is not
    on the sponsor's formulary (i.e. to allow exceptions).
    Similarly, MA beneficiaries can use the appeal process to
    request coverage of an item or service that the plan denied.
        Section 1852(g) of the Social Security Act outlines general
    requirements regarding Medicare Advantage exceptions and
    appeals processes. The Part D program adapted many of the
    existing rules for appeals that apply to Medicare Advantage
    program. The coverage and determination and appeals processes
    may vary among MA and Part D plans as long as these general
    requirements are met.

    Committee Bill

        This Committee Bill would require prescription drug plan
    sponsors or MA organizations offering MA-PD plans to use a
    single, uniform exceptions and appeals process with respect to
    the determination of prescription drug coverage for an enrollee
    under the plan and to provide instant access to this process
    through a toll-free telephone number and an Internet website.
    To the extent possible, Part D plan sponsors would be required
    to use the same form to carry out this process. This provision
    would apply to exceptions and appeals made on or after January
    1, 2012.

         SEC. 3315. OFFICE OF THE INSPECTOR GENERAL STUDIES AND REPORTS

    Present Law

        Special enrollment rules apply to individuals eligible for
    the Part D low-income subsidy. Generally, there is a two-step
    process for low-income persons to gain Part D coverage. First,
    a determination must be made that they qualify for the
    assistance; second, they must enroll, or be enrolled, in a
    specific Part D plan. According to Section 1860D-14 of the
    Social Security Act, full-benefit dual-eligible individuals who
    have not elected a Part D plan are to be auto-enrolled into one
    by CMS. If there is more than one plan available that has a
    monthly beneficiary premium that does not exceed the premium
    assistance amount under the low-income subsidy, the beneficiary
    is to be enrolled on a random basis among all such plans in the
    PDP region.
        In a 2006 report, the Office of Inspector General of the
    Department of Health and Human Services (OIG) examined the
    extent to which Medicare prescription drug plan formularies
    include drugs commonly used by dual eligibles and found that
    inclusion of these drugs in Part D plan formularies varied.
    Because of this variation, some dual eligibles could find that
    they have been auto-enrolled in a plan that may not best meet
    their needs. For this reason, beneficiaries are able to change
    enrollment at any time, with the new coverage effective the
    following month.
        When the Medicare prescription drug program was created, it
    was expected that drug plan sponsors would negotiate with drug
    manufacturers to obtain price concessions on drugs covered
    under Part D, and thus reduce total costs to the government and
    to beneficiaries. Some studies have suggested that Part D plans
    are not obtaining rebates equivalent to those required by
    statute under Medicaid, and therefore that the prices paid by
    Medicaid for prescription drugs are lower than the prices for
    the same drugs under Part D. Information on price concessions
    obtained by the private part D plans is considered proprietary;
    therefore it is difficult to make comparisons of the prices
    paid under Part D to those paid by other third party payers.

    Committee Bill

        The Committee Bill would require the OIG to report annually
    on the extent to which formularies used by prescription drug
    plans and MA-PD plans under Part D include drugs commonly used
    by full-benefit dual eligible individuals. The first report
    would be due to Congress not later than July 1st of each year,
    beginning with 2011.
        The OIG would also be required to conduct a study comparing
    covered prescription drug prices paid under the Medicare Part D
    program to those negotiated by state Medicaid plans for the top
    200 drugs determined by both volume and expenditures. The
    prices should include all rebates and discounts the Medicaid
    and Part D plans receive. As part of this study, the OIG would
    assess the financial impact of any price discrepancies on the
    Federal government and on beneficiaries, and provide
    recommendations for legislation and administrative action as
    appropriate. In conducting the study, the OIG would be given
    the authority to collect all necessary information related to
    pricing necessary to produce comparisons of the Medicare and
    Medicaid drug benefits. The report would not disclose
    information that is deemed proprietary or likely to negatively
    impact a Medicaid program or Part D plans ability to negotiate
    drug prices. The report would be submitted to Congress no later
    than October 1, 2011.

     SEC. 3316. HHS STUDY AND ANNUAL REPORTS ON COVERAGE FOR DUAL ELIGIBLES

    Present Law

        Certain groups of Medicare beneficiaries automatically
    qualify (and are deemed eligible) for the full low-income
    subsidy under Part D. Dual eligibles who qualify for Medicaid
    based on their income and assets are automatically deemed
    eligible for Medicare prescription drug low-income subsidies.
    Additionally, those who receive premium and/or cost-sharing
    assistance from Medicaid through the Medicare savings program,
    plus those eligible for SSI cash assistance, are automatically
    deemed eligible for low-income subsidies and need not apply for
    them. CMS deems individuals automatically eligible for LIS
    effective as of the first day of the month that the individual
    attains the qualifying status (e.g., becomes eligible for
    Medicaid, MSP, or SSI). The end date is, at a minimum, through
    the end of the calendar year within which the individual
    becomes eligible.
        For individuals who are newly full-benefit dual eligibles,
    Medicaid prescription drug coverage ceases as soon as the
    individual is eligible for part D, regardless of whether the
    individual is enrolled in a Part D plan. This creates the risk
    of coverage gaps for these individuals. To prevent coverage
    gaps between the end of Medicaid prescription drug coverage and
    the start of Medicare prescription drug coverage, CMS
    regulation specifies that auto-enrollment is effective the
    month in which the person becomes a full-benefit dual eligible.
    Because Medicaid eligibility is often retroactive, CMS randomly
    auto-enrolls new full-benefit dual eligibles into Part D plans
    retroactive to the start of their full dual status. If a
    beneficiary is already enrolled in a Part D plan, the Part D
    sponsor must take steps to ensure that the beneficiary has been
    reimbursed for any premiums or cost-sharing the member had paid
    that should have been covered by the subsidy.

    Committee Bill

        The Committee Bill would require the Secretary of Health
    and Human Services to monitor and track how many full-benefit
    dual eligibles enroll in a plan under Part D and receive
    retroactive drug coverage under the plan, the number of months
    of retroactive coverage provided, and the amount of
    reimbursements paid to individuals for costs incurred during
    the retroactive period. In conducting the study, the Secretary
    would be required to use drug utilization data reported by Part
    D plans. The Secretary would be required to submit a report to
    Congress on this study not later than January 1 of each year,
    beginning with 2012 and provide recommendations for legislation
    and administrative action as appropriate.
        The Secretary would also be required to report annually on
    total annual expenditures for dual eligibles made under titles
    XVIII and XIX together with analyses of health outcomes for
    these beneficiaries and the extent to which they are able to
    access their benefits under both titles. These reports would be
    submitted to Congress not later than January 1 of each year,
    beginning with 2013.

     SEC. 3317. INCLUDING COSTS INCURRED BY AIDS DRUG ASSISTANCE PROGRAMS
     AND INDIAN HEALTH SERVICE IN PROVIDING PRESCRIPTION DRUGS TOWARD THE
                  ANNUAL OUT-OF-POCKET THRESHOLD UNDER PART D

    Present Law

        Under the standard Medicare Part D benefit, beneficiaries
    must incur a certain level of out-of-pocket costs ($4,350 in
    2009) before catastrophic protection begins. These include
    costs that are incurred for the deductible, cost-sharing, or
    benefits not paid in the coverage gap. Costs are counted as
    incurred, and thus treated as true out-of-pocket (TrOOP) costs
    only if they are paid by the individual (or by another family
    member on behalf of the individual), paid on behalf of a low-
    income individual under the subsidy provisions, or paid under a
    State Pharmaceutical Assistance Program. Incurred costs do not
    include amounts for which no benefits are provided--for
    example, because a drug is excluded under a particular plan's
    formulary. Additional payments that do not count toward TrOOP
    include Part D premiums and coverage by other insurance,
    including group health plans, workers' compensation, Part D
    plans' supplemental or enhanced benefits, or other third
    parties.

    Committee Bill

        The Committee Bill would allow costs paid by the Indian
    Health Service, Indian tribe or tribal organization or an urban
    Indian organization (as defined in Section 4 of the Indian
    Health Care Improvement Act) to count toward the out-of-pocket
    threshold. Costs paid under an AIDS Drug Assistance Program
    under Part B of Title XXVI of the Public Health Service Act
    would also count toward the out-of-pocket threshold. The
    provision would apply to costs incurred on or after January 1,
    2011.

                  Subtitle E--Ensuring Medicare Sustainability

    SEC. 3401. REVISION OF CERTAIN MARKET BASKET UPDATES AND INCORPORATION
      OF PRODUCTIVITY IMPROVEMENTS INTO MARKET BASKET UPDATES THAT DO NOT
                     ALREADY INCORPORATE SUCH IMPROVEMENTS

    Present Law

        Currently, most fee-for-service Medicare providers receive
    predetermined payment amounts established under different,
    unique prospective payment systems. Each year, the base payment
    amounts in the different Medicare payment systems are increased
    by an update factor to reflect the increase in the unit costs
    associated with providing health care services. Generally,
    Medicare's annual updates are linked to either: (1) projected
    changes in specific market basket (MB) indices which are
    designed to measure the change in the price of goods and
    services (such as labor and equipment) that are purchased by
    the provider and intended to reflect the effect of inflation on
    providers' costs per service; or (2) the Consumer Price Index
    for All Urban Consumers (CPI-U).
        Each year, these updates are implemented assuming that the
    quantity, quality, and mix of inputs remain constant over time.
    According to the Congressional Budget Office, market basket
    updates overstate actual costs to providers because they do not
    assume increases in provider productivity that could reduce the
    actual cost of providing services (such as through new
    technology, fewer inputs, etc). Annual updates to the Medicare
    physician fee schedule are determined by a separate method that
    already incorporates adjustments for gains in physician
    productivity.
        The Medicare Payment Advisory Commission (MedPAC) makes
    payment update recommendations for the different payment
    systems each year in its March report to Congress. In making
    these recommendations, MedPAC assesses adequacy of payments for
    efficient providers in the current year; how providers' costs
    may change in the upcoming year; beneficiaries' access to care;
    changes in the capacity and supply of providers; changes in the
    volume of services; changes in the quality of care; providers'
    access to capital; and Medicare payment rates relative to
    providers' costs in the given year. Based on this analysis, in
    its March 2009 Report to Congress: Medicare Payment Policy,
    MedPAC recommended that a number of health care providers
    receive reduced or eliminated Medicare market basket updates in
    FY2010.

    Committee Bill

        Generally, the provision would provide for updates based on
    the MB or CPI minus full productivity estimates for all Parts A
    and B providers and suppliers who are subject to an MB or CPI
    update, except for annual inflationary adjustments to Graduate
    Medical Education payments. The productivity adjustment would
    equal the percentage change in the ten-year moving average of
    annual economy-wide private nonfarm business multi-factor
    productivity as projected by the Secretary for the relevant
    fiscal year or period.
        Specifically, this change would implement a full
    productivity adjustment for inpatient and outpatient hospital
    services, inpatient psychiatric facilities, inpatient
    rehabilitation facilities, long term care hospital services and
    nursing homes beginning in FY2012. It would implement a full
    productivity adjustment for hospice providers beginning in
    FY2013. In addition, it would implement a full productivity
    adjustment for home health providers beginning in FY2015. For
    providers paid through the clinical laboratory test fee
    schedule, the Committee Bill would replace the scheduled 0.5
    percent payment reduction for calendar years 2011 through 2013
    with a full productivity adjustment for calendar year (CY) 2011
    and subsequent years. The clinical laboratory productivity
    adjustment could not reduce the fee schedule update below zero.
    All other productivity adjustments for other Part B providers
    would begin in CY2011.
        The update factors for Medicare providers and suppliers
    would be subject to the productivity adjustment and other
    adjustments as follows:
        Inpatient acute care hospitals. The MB update for inpatient
    acute hospitals services would be reduced 0.25 percentage
    points in FY2010 and FY2011. This change would not apply to
    discharges occurring before January 1, 2010. Beginning in
    FY2012, the full productivity adjustment would be applied. In
    addition, from FY2012 through FY2019, the MB update would be
    reduced 0.2 percentage points. However, for each of the fiscal
    years from FY2014 through FY2019, the reduction to the MB would
    be contingent upon the level of the non-elderly insured
    population relative to the projection of non-elderly insured
    population at time of enactment. Specifically, if the previous
    year's total percent of the non-elderly insured population is
    more than five percentage points below the projections at the
    date of enactment, the additional 0.2 percentage point MB
    reduction for the given year would be eliminated.
        Skilled nursing facilities. The SNF MB update would be
    subject to the productivity adjustment beginning in FY2012.
        Long-term care hospitals. The MB update for long-term care
    hospitals would be reduced 0.25 percentage points in rate year
    2010 and rate year 2011. This change would not apply to
    discharges occurring before January 1, 2010. Beginning in rate
    year 2012, the full productivity adjustment would be applied.
    In addition, from rate year 2012 through rate year 2019, the MB
    update would be reduced 0.2 percentage points. However, for
    each of the rate years from 2014 through 2019, the reduction to
    the MB would be contingent upon the level of the non-elderly
    insured population relative to the projection of non-elderly
    insured population at time of enactment. Specifically, if the
    previous year's total percent of the non-elderly insured
    population is more than five percentage points below the
    projections at the date of enactment, the additional 0.2
    percentage point MB reduction for the given year would be
    eliminated.
        Inpatient rehabilitation facilities. The MB update for
    inpatient rehabilitation facilities would be reduced 0.25
    percentage points in FY2010 and FY2011. This change would not
    apply to discharges occurring before January 1, 2010. Beginning
    in FY2012, the full productivity adjustment would be applied.
    In addition, from FY2012 through FY2019, the MB update would be
    reduced 0.2 percentage points. However, for each of the fiscal
    years from FY2014 through FY2019, the reduction to the MB would
    be contingent upon the level of the non-elderly insured
    population relative to the projection of non-elderly insured
    population at time of enactment. Specifically, if the previous
    year's total percent of the non-elderly insured population is
    more than five percentage points below the projections at the
    date of enactment, the additional 0.2 percentage point MB
    reduction for the given year would be eliminated.
        Home health agencies. The MB update for home health
    services would be reduced by 1.0 percentage point in 2011 and
    2012. Beginning in CY2015, the full productivity adjustment
    would be applied.
        Inpatient psychiatric facilities. The MB update for
    inpatient psychiatric facilities would be reduced 0.25
    percentage points in rate year 2010 and rate year 2011. This
    change would not apply to discharges occurring before January
    1, 2010. Beginning in rate year 2012, the full productivity
    adjustment would be applied. In addition, from rate year 2012
    through rate year 2019, the MB update would be reduced 0.2
    percentage points. However, for each of the rate years from
    2014 through 2019, the reduction to the MB would be contingent
    upon the level of the non-elderly insured population relative
    to the projection of non-elderly insured population at time of
    enactment. Specifically, if the previous year's total percent
    of the non-elderly insured population is more than five
    percentage points below the projections at the date of
    enactment, the additional 0.2 percentage point MB reduction for
    the given year would be eliminated.
        Hospice care. The hospice MB update would be subject to the
    productivity adjustment beginning in FY2013. In addition, from
    FY2013 through FY2019, the MB update would be reduced 0.5
    percentage points. However, for each of the fiscal years from
    FY2014 through FY2019, the reduction to the MB would be
    contingent upon the level of the non-elderly insured population
    relative to the projection of non-elderly insured population at
    time of enactment. Specifically, if the previous year's total
    percent of the non-elderly insured population is more than five
    percentage points below the projections at the date of
    enactment, the additional 0.5 percentage point MB reduction for
    the given year would be eliminated.
        Dialysis. The ESRD MB would no longer be subject to a one
    percentage point reduction beginning in 2012, but would be
    subject to the productivity factor adjustments starting in
    2012.
        Outpatient hospitals. The MB update for hospital outpatient
    services would be reduced 0.25 percentage points in 2010 and
    2011. This change would not apply to discharges occurring
    before January 1, 2010. Beginning in 2012, the full
    productivity adjustment would be applied. In addition, from
    2012 through 2019, the MB update would be reduced 0.2
    percentage points. However, for each of the fiscal years from
    FY2014 through FY2019, the reduction to the MB would be
    contingent upon the level of the non-elderly insured population
    relative to the projection of non-elderly insured population at
    time of enactment. Specifically, if the previous year's total
    percent of the non-elderly insured population is more than five
    percentage points below the projections at the date of
    enactment, the additional 0.2 percentage point MB reduction for
    the given year would be eliminated.
        Ambulance services. The productive adjustment factor would
    be applied to the CPI-U used to increase the ambulance fee
    schedule starting in CY2011.
        Ambulatory surgical services. The productive adjustment
    factor would be applied to the CPI-U used to update payments
    for ambulatory surgical services starting in CY2011.
        Laboratory services. The existing 0.5 percentage point
    reduction to the CPI-U update to the fee schedule in CY2009 and
    CY2010 would be retained. The productivity adjustment factor
    would be applied to the CPI-U starting in CY2011, but the
    application of the adjustment could not reduce the increase to
    less than zero. A 1.75 percentage point additional reduction to
    the update in CY2011 through CY2014 would be established; for
    CY2015, such reduction would be 1.95 percentage points.
        Certain durable medical equipment. The productivity
    adjustment factor would be applied to the CPI-U used to
    increase the fee schedules for certain durable medical
    equipment (DME) beginning in CY2011. Under Present Law, certain
    DME are to receive a payment increase of CPI-U plus 2
    percentage points in CY2014. The provision would eliminate the
    two percentage point increase.
        Prosthetic devices, orthotics, and prosthetics. The
    productivity adjustment factor would be applied to the CPI-U
    update for the applicable fee schedule for this DME category
    starting in CY2011.
        Other items. The productivity adjustment factor would be
    applied to the CPI-U update for this DME category starting in
    CY2011.

     SEC. 3402. TEMPORARY ADJUSTMENT TO THE CALCULATION OF PART B PREMIUMS

    Present Law

        Medicare beneficiaries have out-of-pocket cost-sharing
    requirements that differ according to the services they
    receive. Physician and outpatient services provided under Part
    B are financed through a combination of beneficiary premiums,
    deductibles, and Federal general revenues. In general, Part B
    beneficiary premiums equal 25 percent of estimated program
    costs for the aged, with Federal general revenues accounting
    for the remaining 75 percent. Beginning in 2007, higher-income
    enrollees pay a higher percentage of Part B costs--35 percent,
    50 percent, 65 percent, or 80 percent, depending on the
    enrollees' modified adjusted gross income. In 2009, the income
    thresholds for those premium shares are $85,000, $107,000,
    $160,000, and $213,000, respectively. (For married couples, the
    corresponding income thresholds are twice those values.) The
    income thresholds rise each year with changes in the consumer
    price index.

    Committee Bill

        The Committee Bill would freeze the current income
    thresholds for the period of 2011 through 2019.

                         SEC. 3403. MEDICARE COMMISSION

    Present Law

        No provision.

    Committee Bill

        The Committee Bill would establish an independent Medicare
    commission titled the ``Medicare Commission.'' Specifically,
    the Commission would be required to develop and submit
    proposals to Congress aimed at extending the solvency of
    Medicare, lowering Medicare cost-growth, improving health
    outcomes for beneficiaries, promoting quality and efficiency,
    and expanding access to evidence-based care. A proposal would
    consist of a package of recommendations.
        Requirements for Proposals. When developing its annual
    proposal for Congress, the Commission would be required to meet
    the following conditions: (1) reduce Medicare spending by
    targeted amounts (in certain years), (2) as appropriate, reduce
    spending under Medicare Parts C and D (such as premium
    subsidies and performance bonuses to Medicare Advantage and
    Prescription Drug Plans), and (3) include recommendations for
    any administrative funding necessary to implement the
    Commission's recommendations. The Commission would be
    prohibited from making recommendations that would ration care,
    raise revenues, increase beneficiary premiums under Sections
    1818, 1818A, or 1839, or modify Medicare benefits, eligibility,
    or cost-sharing requirements. The Commission would also be
    prohibited from developing proposals impacting providers
    scheduled to receive a reduction in their payment update in
    excess of a reduction due to productivity in a year prior to
    December 31, 2019, in which the Commission's proposals would
    take effect.
        The Commission would also be required, to the extent
    feasible, to: (1) make recommendations that target reductions
    to sources of excess cost growth; (2) prioritize
    recommendations that extend Medicare solvency; (3) include only
    those recommendations that improve the health care delivery
    system, including the promotion of integrated care, care
    coordination, prevention and wellness and quality improvement
    and protect beneficiary access to care, including in rural and
    frontier areas; (4) consider the effects of changes in provider
    and supplier payments on beneficiaries; (5) consider the
    effects of proposals on any provider who has, or is projected
    to have, negative profit margins or payment updates; and (6)
    consider the unique needs of individuals dually eligible for
    Medicare and Medicaid.
        Beginning January 1, 2014, the Commission would have the
    authority to submit to Congress advisory reports that include
    supplemental, non-binding recommendations regarding
    improvements to payment systems for providers who are otherwise
    not subject to the scope of the Commission's proposals. The
    provision would apply for reports prior to year 2020.
        The Commission would be required to consult regularly with
    the Medicaid and CHIP Payment and Access Commission in carrying
    out its functions.
        Establishment of Savings Targets. Beginning with the 2013
    report of the Medicare Trustees, the provision would require
    the CMS Office of the Actuary (OACT) to determine whether the
    projected Medicare per-capita growth rate for the second
    succeeding year exceeds the average of the projected percentage
    increase in the Consumer Price Index (CPI) and the Consumer
    Price Index for medical care (CPI-M). The Medicare per-capita
    growth rate would be calculated as a five-year average of
    Medicare spending (Parts A, B, and D) per unduplicated
    enrollee, ending with the projection for the year in which the
    Commission's proposals would apply. This projection would be
    made without regard to the physician fee schedule update. The
    projection would also be required to take into account any
    delivery system reforms or payment changes either enacted or
    published in final rules and any recommendations made by the
    Commission to provide the Secretary with additional
    administrative funding to implement the proposal.
        Prior to 2018, if the projected Medicare per-capita growth
    rate exceeds the average of CPI and CPI-M, the Commission would
    be required to submit a proposal to Congress by January 1, 2014
    that would include recommendations for reducing the Medicare
    per-capita growth rate by 0.5 percentage points for 2015, 1.0
    percentage points for 2016, 1.25 percentage points for 2017,
    and 1.5 percentage points for 2018 and subsequent years. After
    2019, the Commission would be required to submit proposals to
    Congress if the projected Medicare per-capita growth rate
    exceeds the projected increase in the growth rate of real GDP
    per capita for the year plus 1.0 percentage point. The
    provision would also require that the Commission's proposals
    are certified by OACT to not increase spending within the
    following ten-year budget window.
        Submission of Proposals. The Commission would be required
    to submit its proposals to Congress by January 1. The
    Commission would be required to submit a draft of its proposal
    to MedPAC by September 1 of the preceding year. Once the
    proposal is submitted to Congress, MedPAC would be required to
    review and present its analysis of the Commission's proposal no
    later than February 1. The Commission would also be required to
    submit a copy of the draft proposal to the Secretary by
    September 1st for the Secretary's review and comment by
    February 1st. If the Commission fails to submit a proposal by
    the January 1st deadline, the Secretary would be required to
    submit a proposal to Congress meeting the same requirements by
    no later than January 5, 2014.
        Each proposal submitted to Congress would be required to
    include an explanation of each recommendation contained in the
    proposal and the reason for its inclusion. Each proposal would
    also be required to include an actuarial opinion by the OACT
    certifying that the proposal meets the applicable requirements.
        Congressional Consideration. This section establishes
    expedited, or ``fast track,'' parliamentary procedures
    governing consideration of legislation containing proposals by
    the Medicare Commission or Secretary. Not later than April 1 of
    any year in which a proposal is submitted to Congress under
    Section 3403, the appropriate committees of Congress must
    report legislation either implementing the proposal or
    satisfying the fiscal and policy requirements described above.
    If an appropriate committee has not reported such legislation
    by April 1, then, (1) the committee will be automatically
    discharged from further consideration of the legislation, and
    (2) any Member in either chamber may introduce legislation
    implementing the proposal, which, when introduced, will be
    placed directly on that chamber's calendar.
        Not less than 15 calendar days after the date on which a
    committee has been, or could have been, discharged from
    consideration of such legislation, or after the day on which
    such legislation is introduced, the Speaker of the House and
    the Majority Leader of the Senate, or their designees, shall
    make privileged motions that their respective chamber proceed
    to consider the legislation. Should they fail to make this
    motion, at any time after the conclusion of the 15-day period,
    any Member may move to proceed to consider the legislation in
    their respective chamber. In either case, the motion to proceed
    is non-debatable, and may not be amended, postponed, or
    displaced.
        All points of order against the legislation and its
    consideration, except points of order to strike matter
    ``extraneous to Medicare'' from the bill or points of order
    under the Congressional Budget Act of 1974 (Titles I-IX of P.L.
    93-344, 2 U.S.C. 601-688), are waived. If the motion to proceed
    is adopted, the Senate or House will immediately proceed to
    consider the legislation under its normal rules and procedures
    until it is disposed of. In the Senate, consideration of the
    legislation is governed by a time cap on consideration of not
    to exceed 30 hours equally divided, with a privileged motion in
    order to further limit debate.
        The parliamentary procedures established by this section
    include provisions to facilitate the exchange of legislation
    between the House and Senate. If, before voting upon its own
    legislation, one chamber receives legislation passed by the
    other chamber, that engrossed legislation will automatically
    become the one which the receiving chamber acts upon. The
    expedited procedures established by this section further
    require any conference committee appointed to reconcile
    differences in the two chambers' version of the legislation to
    file a conference report not later than 15 days after the
    appointment of conferees. Debate in each chamber on a
    conference agreement is limited to 10 hours, after which a
    final vote on the conference report will occur.
        Implementation of Proposals. The Secretary shall, with
    certain exceptions as described below, implement the
    recommendations contained in the proposal submitted by the
    Commission or the Secretary to Congress on August 15 of the
    year in which the proposal is submitted.
        In the case of recommendations that change Medicare payment
    rates for an item or service in which payment rate changes are
    on a fiscal year basis (or a cost reporting period basis that
    relates to a fiscal year), on a calendar year basis (or a cost
    reporting period basis that relates to a calendar year), or on
    a rate year basis (or a cost reporting period that relates to a
    rate year), such recommendation shall apply to items and
    services furnished on the first day of the first fiscal,
    calendar or rate year (as the case may be) that begins after
    such August 15.
        In the case of a recommendation relating to payments to
    plans under parts C and D, such recommendations shall apply to
    plan years beginning on the first day of the first calendar
    year that begins after such August 15. In the case of any other
    recommendation, such recommendation shall be addressed within
    the regular regulatory process timeframe and shall apply as
    soon as practicable. The Secretary may use interim final
    rulemaking to implement such recommendations.
        Joint Resolution Required To Discontinue Automatic
    Implementation of Recommendations After 2019. This section
    establishes expedited, or ``fast track,'' parliamentary
    procedures governing consideration of a joint resolution
    approving the discontinuation of the process for consideration
    and automatic implementation of the proposals of the Medicare
    Commission after 2019. These procedures specify the text of
    such a joint resolution and the time period in which it must be
    introduced (not later than February 1, 2017) in order to
    qualify for ``fast track'' consideration. The expedited
    procedures used for consideration of such a joint resolution
    are those which already exist in statute and are used to
    disapprove regulations under the Congressional Review Act (5
    U.S.C. 802). Under these procedures, a joint resolution, when
    introduced, is referred to the committee of jurisdiction in
    each chamber.
        In the Senate, if the committee to which such a joint
    resolution is referred has not reported it or an identical
    joint resolution by the end of the 20th day of continuous
    session occurring after the date the joint resolution is
    introduced, the committee may be discharged from further
    consideration of the measure upon a petition supported in
    writing by 30 Senators. If discharged, the joint resolution is
    placed on the calendar.
        When a Senate committee has reported the joint resolution
    or been discharged as described above, a motion to proceed to
    the consideration of the legislation will be in order at any
    time. This motion to proceed is in order even if a previous
    motion to the same effect has been defeated. The motion to
    proceed is non-debatable, and may not be amended, postponed or
    displaced, and all points of order against the joint resolution
    and its consideration are waived.
        If the motion to proceed is adopted, the Senate will
    immediately consider the joint resolution under a consideration
    cap of not more than 10 hours equally divided, with a non-
    debatable motion to further limit debate in order. The joint
    resolution may not be amended, postponed or displaced. At the
    conclusion of debate, after a single quorum call, if requested,
    the Senate will vote on final passage of the joint resolution.
    There are no expedited procedures governing House floor
    consideration of a joint resolution.
        The parliamentary procedures established by this section
    also include provisions to facilitate the exchange of
    legislation between the House and Senate. If, before voting
    upon its own joint resolution, one chamber receives a
    resolution passed by the other chamber, that engrossed
    legislation will automatically become the one which the
    receiving chamber acts upon.
        Membership and Structure. The Commission would be composed
    of 15 members, appointed by the President with the advice and
    consent of the Senate. Members of the Commission would serve
    six-year, staggered terms and would continue to serve until
    replaced. The Senate Majority Leader, the Speaker of the House,
    the Senate Minority Leader, and the House Minority Leader would
    each present three recommendations for appointees to the
    President. The President, with the advice and consent of the
    Senate, would also be required to appoint a Chair for the
    Commission. The Commission would elect a Vice Chairman. Members
    could only be removed by the President for neglect of duty or
    malfeasance in office. In addition to the 15 members of the
    commission, the Secretary of Health and Human Services (HHS),
    the Administrator of the Center for Medicare and Medicaid
    Services (CMS), and the Administrator of the Health Resources
    and Services Administration (HRSA) would serve as ex-officio,
    non-voting members of the Commission. Qualifications for
    membership would be similar to the qualifications required for
    members of the Medicare Payment Advisory Commission (MedPAC).
    Individuals involved in the delivery or management of health
    care services could not constitute a majority of the
    Commission. In addition to these qualifications, the President
    would be required to establish a system for publicly disclosing
    any financial or other conflicts of interests relating to
    members. Individuals that engage in any other business,
    vocation, or employment could not serve as appointed members of
    the Commission. Members would be considered officers in the
    executive branch for purposes of applying Title I of the Ethics
    in Government Act of 1978. After serving on the Commission,
    former members would be barred from lobbying the Commission and
    other relevant executive branch departments and agencies and
    relevant congressional committees for one year.
        The Chair would be responsible for exercising all of the
    Commission's executive and administrative functions, including
    those related to the appointment and supervision of employees
    and the use of funds. All requests for discretionary
    appropriations to fund the Commission's activities must be
    approved by a majority vote.
        Funding. The Commission's funding level would be set at
    $15,000,000 per year, indexed to inflation. Sixty percent of
    the appropriation would come from the Part A Medicare Trust
    Fund and 40 percent from the Part B Trust Fund.
        Powers. The Commission would have the authority to conduct
    the following activities under this provision: (1) hold
    hearings, take testimony, and receive evidence, (2) advise the
    Secretary on priorities for health services research,
    particularly as they pertain to payment reforms under Medicare,
    (3) secure from any Federal department or agency information
    necessary to carry out its functions, (4) use the United State
    mail service, (5) accept, use, and dispose of gifts or
    donations of services, and (6) maintain a principal office and
    field offices as it determines necessary.
        Personnel. Each member would be compensated at a rate equal
    to the annual rate of basic pay for Level III of the executive
    schedule. The Chairman would be compensated at a rate equal to
    the daily equivalent of the annual rate of pay for Level II of
    the Executive Schedule. The members would be allowed travel
    expenses, including per diem in lieu of subsistence at rates
    authorized for employees of agencies under subchapter I of
    chapter 57 of title 5 of the U.S.C.
        Staff. The Chairperson would have the authority to appoint
    and terminate an executive director and other personnel as
    necessary to enable the Commission to perform its duties. The
    executive director would be subject to confirmation by the
    Commission. The Chairperson would have the authority to fix the
    compensation of the Executive Director and other personnel
    without regard to Chapter 51 and subchapter III of Chapter 53
    of Title 5 of the U.S.C., relating to the classification of
    positions and General Schedule pay rates, except that the rate
    of pay for the Executive Director and other personnel may not
    exceed the rate payable for level V of the Executive Schedule.
        Councils. The provision would establish a consumer advisory
    council to advise the Commission on the impact of payment
    policies on consumers. The Council would be composed of 10
    consumer representatives appointed by the Comptroller General
    of the United States, each from among the 10 regions
    established by the Secretary. The membership would be required
    to represent the interests of the consumers and particular
    communities. The Council would be required to meet at least 2
    times per year and meetings would be open to the public. FACA
    would apply to the Council, with the exception of section 14.
        GAO Study. The provision would require the GAO to conduct a
    study on changes in payment policies, methodologies, rates, and
    coverage policies under Medicare. Specifically, the study would
    provide an assessment of the effect of the Commission's
    proposal on Medicare beneficiary's access to providers,
    affordability of premiums and cost-sharing, the potential
    impact of changes on other government or private sector
    purchasers of care, and the quality of care provided. The
    report would be due by July 1, 2015.

     SEC. 3404. ENSURING MEDICARE SAVINGS ARE KEPT IN THE MEDICARE PROGRAM

    Present Law

        No provision.

    Committee Bill

        This provision would prevent reductions in Medicare outlays
    resulting from this Act from being used to offset any outlays
    under any other program or activity of the Federal government.

                 Subtitle F--Patient-Centered Outcomes Research

                 SEC. 3501. PATIENT-CENTERED OUTCOMES RESEARCH

    Present Law

        The need for credible information about which clinical
    strategies work best, under what circumstances and for whom has
    been widely recognized by clinicians, patients, researchers and
    policy makers. Commonly referred to as comparative
    effectiveness research (CER), the Institute of Medicine (IOM)
    defines this type of research as the ``the generation and
    synthesis of evidence that compares the benefits and harms of
    alternative methods to prevent, diagnose, treat, monitor a
    clinical condition and improve delivery of care'' with the aim
    of tailoring decisions to the needs of individual patients. CBO
    has referred to CER as ``a comparison of the impact of
    different options that are available for treating a given
    medical condition for a particular set of patients.'' MedPAC
    has referred to ``comparative-effectiveness'' as ``analysis
    [that] compares the clinical effectiveness of a service (drugs,
    devices, diagnostic and surgical procedures, diagnostic tests,
    and medical services) with its alternatives.'' The phrase
    ``patient-centered outcomes research'' has also been used as an
    alternate term.
        Most recently, comparative effectiveness research has been
    addressed in present law by the Medicare Modernization Act of
    2003 (MMA, P.L. 108-173) and the American Recovery and
    Reinvestment Act of 2009 (ARRA, P.L. 111-5). Section 1013 of
    the MMA authorizes the Agency for Healthcare Research and
    Quality (AHRQ) to conduct and support research on outcomes,
    comparative clinical effectiveness, and appropriateness of
    pharmaceuticals, devices, and health care services. The section
    also prohibits the Center for Medicare and Medicaid Services
    (CMS) from using the data to withhold coverage of a
    prescription drug. The ARRA provided $1.1 billion in funds to
    support the development and dissemination of CER. ARRA also
    asked the Institute of Medicine to recommend national
    priorities for the research to be addressed by ARRA funds.

    Committee Bill

        Patient-Centered Outcomes Research Institute (the
    ``Institute''). The Committee Bill would authorize the
    establishment of a private, non-profit corporation that would
    be known as the ``Patient-Centered Outcomes Research
    Institute.'' The purpose of the Institute would be to assist
    patients, clinicians, purchasers, and policy makers in making
    informed health decisions by advancing the quality and
    relevance of clinical evidence through research and evidence
    synthesis. The research would focus on the manner in which
    diseases, disorders, and other health conditions can
    effectively and appropriately be prevented, diagnosed, treated,
    monitored, and managed, and would consider variations in
    patient subpopulations. Research conducted would compare the
    clinical effectiveness, risk and benefits of two or more
    medical treatments, services or items. The Committee Bill would
    define treatment, services and items as: health care
    interventions, protocols for treatment, care management and
    delivery, procedures, medical devices, diagnostics tools,
    pharmaceuticals (including drugs and biological), and any
    strategies or items used in the treatment, management, and
    diagnosis of, or prevention of illness or injury, in patients.
    The Institute would also disseminate their research findings.
    The Institute would be subject to the provisions specified
    below and, to the extent consistent with the Committee Bill, to
    the District of Columbia Non-Profit Corporation Act.
        The Committee Bill would establish the duties of the
    Institute, which would be tax exempt for Federal tax purposes.
    The duties of the Institute would be to (1) identify research
    priorities and establish a research agenda, (2) carry out the
    research project agenda, (3) study and report on the
    feasibility of conducting research in-house, (4) collect
    appropriate data from CMS, (5) appoint advisory panels, (6)
    support patient and consumer representatives, (7) establish a
    methodology committee, (8) provide for a peer-review process
    for primary research, (9) disseminate research findings, (10)
    adopt priorities, standards, processes, and protocols, (11)
    coordinate research and resources and build capacity for
    research, and (12) submit annual reports to the Congress, the
    President, and the public.
        Administration of the Institute. The Committee Bill would
    establish a Board of Governors for the Institute. The Board
    would be responsible for carrying out the duties of the
    Institute. The Board specifically would be prohibited from
    delegating the following duties to staff: approving and
    monitoring disbursements from the Patient-Centered Outcomes
    Research Trust Fund (PCORTF); identifying research priorities;
    and adopting priorities, methodological standards, peer review
    processes, dissemination protocols.
        The Institute's Board would have 15 members appointed by
    the Comptroller General of the United States within six months
    after enactment and would include three members representing
    each of the following groups: patients and health care
    consumers; physicians, including surgeons; private payers
    (including at least one health insurance plan and one self-
    insuring employer); pharmaceutical, device, and diagnostic
    manufacturers; and others (including one member representing
    each of non-profit health services research organization,
    quality improvement and decision support organizations, and
    independent health services researchers.)
        The Board would have collective scientific expertise in
    clinical health sciences research, including epidemiology,
    decision sciences, health economics, and statistics. The
    Institute's Board members would be appointed for six years,
    except for the first appointments, of whom six would be
    appointed for six years, six for four years, and six for two
    years. Individuals would be prohibited from serving more than
    two Board terms. Members whose term expires would serve until a
    successor takes office or the end of the calendar year,
    whichever is earlier; vacancies would not affect the
    functioning of the Board. The Comptroller General would
    designate a Chairperson and Vice-Chairperson from among the
    Board members to serve a three-year term.
        Board members would be entitled to compensation at the per
    diem equivalent of the level IV Executive Schedule rate and
    allowed travel, subsistence, and other necessary expense
    compensation. The Board would employ and set the compensation
    for an executive director and other personnel as necessary. It
    would be allowed to seek assistance from personnel of
    appropriate departments and agencies of the Federal government,
    make arrangements and payments necessary for the performance of
    the Institute's duties, and prescribe such rules and bylaws as
    it deems necessary.
        The Board would hold hearings and meetings at the call of
    the Chairperson or a majority of the members. Meetings not
    solely concerning matters of personnel would be advertised at
    least seven days in advance and open to the public. A majority
    of the Board members would constitute a quorum, but a lesser
    number of members could meet and hold hearings.
        The Board would adopt certain positions and activities by
    majority vote; these would include the Institute's priorities,
    the research project agenda, methodological standards, peer
    review process(es), and the dissemination protocols and
    strategies. The Institute would be required to refer any of the
    above back to staff or to the methodology committee, where
    appropriate, for further review in the case where adoption is
    not granted.
        Research of the Institute. The Committee Bill would charge
    the Institute with identifying national priorities for
    comparative clinical effectiveness research and establishing a
    research project agenda. The Institute would consider the need
    for a systematic review of existing research before providing
    for the conduct of new research. In setting priorities, the
    Institute would consider the following: disease incidence and
    prevalence in the U.S.; evidence gaps, in terms of clinical
    outcomes; practice variations; the potential for new evidence
    to improve health and quality of care; expenditures associated
    with a health care treatment strategy or health condition;
    patient needs, outcomes, and preferences, including quality of
    life; and relevance to assisting patients and clinicians in
    making informed health decisions.
        The Institute would be required to use the following
    methods to provide for the conduct of research and synthesis of
    evidence: (1) systematic reviews and assessments of existing
    evidence; (2) primary research, such as randomized clinical
    trials, molecularly informed trials, and observational studies;
    and (3) any other methodologies recommended by the methodology
    committee and adopted by the Board. The research and evidence
    synthesis would only be conducted in accordance with the
    methodological standards adopted by the Board.
        The Institute would be allowed to request and obtain data
    from Federal, state, and private entities, including data from
    clinical databases and registries, if the request is granted by
    the entity. The use of such data would be in accordance with
    requirements of the data-granting entity with respect to the
    release, use, confidentiality and privacy of the data. The
    Secretary of HHS would make relevant CMS data available to the
    Institute with appropriate safeguards for privacy and
    confidentiality.
        The Committee Bill would require the Institute to establish
    a process for peer-review of primary research, under which
    evidence would be reviewed to assess scientific integrity and
    adherence to the methodological standards adopted by the
    Institute. The Institute would make public a list of names of
    individuals contributing to any peer-review process during the
    preceding year or years and include the list in the Institute's
    annual reports.
        Any peer-review process would be designed in a manner so as
    to avoid bias and conflicts of interest on the part of the
    reviewers; the reviews would be conducted by experts in the
    scientific field relevant to the research under review. The
    Institute would be allowed to utilize existing peer-review
    processes already utilized by entities with which the Institute
    contracts. This would include the option to utilize the peer-
    review process of appropriate medical journals, if these review
    processes met the Institute's own requirements for a peer-
    review process.
        The Institute would coordinate its own activities and
    resources with that of other public and private agencies to
    ensure the most efficient use of the Institute's resources and
    that research is not unnecessarily duplicated. The Institute
    would also be permitted to build capacity for comparative
    clinical effectiveness research and related efforts through
    activities such as supporting the Cochrane Collaboration and
    other organizations that develop and maintain a data network to
    collect, link, and analyze data on outcomes and effectiveness
    from multiple sources, including electronic health records.
    Such payments would be allowed up to 20 percent of the Patient-
    Centered Outcomes Research Trust Fund (PCORTF) amounts for a
    year.
        The Institute would be required to review and update
    evidence periodically to take into account new research,
    evolving evidence, advances in medical technology and changes
    in the standard of care as they become available, as
    appropriate. In addition, the Institute would assess the
    feasibility of conducting research in-house and to report to
    Congress on the results of such assessment within five years of
    the date of enactment.
        Addressing Subpopulations. The Institute would design
    research to take into account potential differences in outcomes
    among different subpopulations, such as racial and ethnic
    minorities, women, age, and groups of individuals with
    different comorbidities, genetic and molecular sub-types, or
    quality of life preferences. Members of such subpopulations
    would be included in the research as feasible and appropriate.
        When appropriate, the Institute would design research that
    takes into account different characteristics of treatment
    modalities that could affect research outcomes.
        Institute Contracts. The Committee Bill would allow the
    Institute to enter into contracts with Federal agencies as well
    as with appropriate private sector research or study-conducting
    entities for the management and conduct of research in
    accordance with the research agenda. To contract with Federal
    agencies, such as the Agency for Healthcare Research and
    Quality (AHRQ), the contracts would have to be authorized under
    the agencies' governing statutes. Private contractors would be
    required to have experience in conducting comparative clinical
    effectiveness research. Both public and private entities would
    be required to have demonstrated experience and capacity to
    achieve the goals of comparative effectiveness research.
        Each entity under contract with the Institute would be
    required to (1) abide by the same transparency and conflicts of
    interest requirements that apply to the Institute with respect
    to the management or conduct of research; (2) comply with the
    methodological standards adopted by the Board; (3) take into
    consideration public comments, provided for and transmitted by
    the Institute, on individual study designs before the
    finalization of such designs, and submit responses to such
    comments to the Institute which the Institute would publish
    with the comments and the finalized study design before the
    conduct of research; (4) consult with the rare disease advisory
    panel for the relevant study as appropriate; and (5) allow for
    a researcher(s) under contract to publish their findings so
    long as any research published is consistent with products
    disseminated by the Institute. Research entities under contract
    that do not meet the publishing requirements set by the
    Institute would not be allowed to enter into another contract
    with the Institute for a period of not less than five years.
        Studies conducted by the Institute would be allowed to
    cover cost sharing of research participants to the extent
    necessary to preserve the validity of the study results, such
    as in the case that a study needs to be blinded.
        Advisory Panels. The Committee Bill would require the
    Institute, as appropriate, to appoint expert advisory panels to
    assist in identifying research priorities and establishing the
    research project agenda. These panels would advise the
    Institute to ensure that information produced from such
    research is clinically relevant to decisions made by clinicians
    and patients at the point of care.
        In addition, the Institute would appoint expert advisory
    panels to assist in carrying out the research project agenda
    with respect to primary research (such as clinical trials).
    Such panels would, upon request, advise on the research
    question, design, or protocol of the study and be available as
    a resource for technical questions that may arise during the
    conduct of the research.
        In the event of a comparative clinical effectiveness study
    on a rare disease, the Institute would appoint a separate
    expert advisory panel for purposes of assisting in the design
    of research studies for rare diseases and for determining the
    relative value and feasibility of conducting such research on a
    particular rare disease.
        The Committee Bill would require such panels to include
    representatives of practicing and research clinicians,
    patients, and experts in scientific and health services
    research, health services delivery, and evidence-based medicine
    who have experience in the relevant topic. The Institute would
    be permitted to include on the panel a representative of each
    manufacturer of each medical technology that is included under
    the relevant topic, project, or category for which the panel is
    established.
        The Committee Bill would also direct the Institute to
    provide support and resources to help patient and consumer
    representatives who serve on the Board and expert advisory
    panels to effectively participate in technical discussions
    regarding complex research topics. This would include initial
    and continuing education as well as the potential for regular
    and ongoing interactions between patients and consumer
    representatives. The Institute would also provide a per diem
    and other appropriate compensation to the patient and consumer
    representatives for their time.
        Methodology Committee. The Committee Bill would establish a
    standing methodology committee to serve the Institute. The
    committee would have responsibility for developing and
    improving the science and methods of comparative effectiveness
    research. It would consist of no more than 17 members appointed
    by the Comptroller General. Members of the methodology
    committee would be experts in their scientific field, such as
    health services, clinical, and comparative effectiveness
    research, biostatistics, genomics, and research methodology.
    Stakeholders with such expertise could be appointed to the
    methodology committee.
        Within two years of enactment (with periodic updates), the
    methodology committee would determine a process to establish
    and maintain detailed methodological standards for comparative
    clinical effectiveness studies. The standards would provide
    criteria for study designs that balance generalizability,
    timeliness and other factors. Within this time period, the
    committee would also provide a translation table that links
    comparative effectiveness research methods with specific types
    of research questions.
        The methodology committee would also establish and maintain
    standards regarding clinical outcomes measures, risk-
    adjustment, and other aspects of research and assessment; these
    standards would be scientifically based and include methods by
    which new information, data, or advances in technology may be
    considered and incorporated into ongoing research. The process
    for developing these standards would include input and allow
    for public comment from all relevant experts, stakeholders, and
    decision-makers. The standards would also include methods by
    which patient subpopulations could be accounted for and
    evaluated.
        Where appropriate, the methodology committee would build on
    existing work on methodological and reporting standards. In
    developing and updating such standards, the Institute would
    consult or contract with one or more of the following entities:
    the Institute of Medicine (IOM), the AHRQ, the National
    Institutes of Health (NIH), and academic, non-profit, or other
    private entities with relevant expertise.
        The methodology committee would also be required to
    contract with the IOM within three years after the methodology
    committee members are appointed to examine the following: (1)
    methods by which aspects of health care delivery systems, such
    as benefit design, could be assessed and compared for
    effectiveness, risks, benefits, advantages, and disadvantages
    in a scientifically valid and standardized way; and (2) methods
    by which efficiency and value could be assessed in a
    scientifically valid and standardized way.
        The methodology committee would submit reports to the Board
    concerning the committee's activities and would include
    recommendations for the Institute to adopt methodological and
    reporting standards and for other actions the committee
    determines necessary to comply with such standards, with the
    exception of the two three-year studies mentioned above.
        Dissemination of Information. The Committee Bill would
    require the Institute to disseminate the findings of research
    to clinicians, patients, and the public in a comprehensible
    manner and form so that they are useful to patients and
    providers in making health care decisions. The dissemination of
    the research would (1) discuss conclusions and considerations
    specific to certain subpopulations, comorbidities, or risk
    factors, as appropriate, and (2) include considerations such as
    limitations of the research and discussions about what further
    research might be needed, as appropriate.
        The Institute would be prohibited from disseminating
    research findings from a study or assessment that would include
    practice guidelines, coverage recommendations, or policy
    recommendations. Further, in any dissemination, the inclusion
    of data that would violate the privacy of research participants
    or violate any confidentiality agreements made with respect to
    use of the data would be prohibited.
        In order to ensure effective communication for the purpose
    of informing higher quality, more effective and timelier
    medical decisions, the Institute would develop protocols and
    strategies for the dissemination of the research findings. The
    Institute would be required to consult with stakeholders in
    determining the types of dissemination that would be most
    useful to the stakeholders and would be allowed to utilize
    multiple formats for conveying findings to different audiences.
        Oversight. The Committee Bill would require the Institute
    to submit an annual report to Congress, the President, and the
    public. The report would contain (1) a description of the
    activities conducted during the previous year, including the
    use of funds, research projects completed and underway, and a
    summary of the findings of such projects; (2) the research
    agenda and budget of the coming year; (3) a description of
    research priorities, dissemination protocols, and
    methodological standards adopted by the Institute; (4) a list
    of names of individuals participating in any peer-review
    process during a preceding year or years; (5) a description of
    the Institute's coordination with other private and public
    entities and capacity-building activities for the year; and (6)
    any other relevant information such as membership and conflicts
    of interest of Board members, Institute staff, advisory panels,
    and methodology committees and any bylaws adopted by the Board
    during the previous year.
        The Committee Bill would establish financial and
    governmental oversight of the Institute. The Institute would be
    required to undergo annual financial audits conducted by a
    private entity. The Comptroller General would also review the
    results of the audit and submit a report to Congress annually.
        The Comptroller General would have several additional
    oversight responsibilities with respect to the Institute. The
    Comptroller General would (1) review the processes established
    by the Institute, including those regarding the identification
    of research priorities and the conduct of research, in order to
    determine whether such research is objective and credible,
    produced in a manner consistent with the requirements of this
    section and developed in a transparent process; (2) review the
    overall effectiveness of the Institute and its activities,
    including the utilization of the research findings by health
    care decision makers and any effect on innovation; (3) submit a
    report to Congress at least every five years on the above
    reviews, along with recommendations for any such legislative
    and administrative action as the Comptroller determines
    appropriate; (4) assess the adequacy and use of funding for the
    Institute under the PCORTF, including a determination of
    whether, based on utilization of the Institute's findings by
    public and private payers, funding from private-sector
    contributions, the Medicare Trust Funds, and general revenues
    are appropriate and should be continued or adjusted. The
    Comptroller would submit a report to Congress, together with
    any recommendations, on the adequacy of funding assessment not
    later than eight years after the date of enactment.
        Institute Transparency and Access. The Committee Bill would
    direct the Institute to establish procedures to ensure
    transparency, credibility, and access through public comment
    periods, forums, public availability of information, and
    protocols for conflicts of interest.
        The Institute would provide for public comment periods of
    not less than 45 and not more than 60 days at the following
    times: prior to the adoption of national priorities, research
    project agendas, methodological standards, peer-review
    processes, and dissemination protocols and strategies; prior to
    the finalization of individual study designs; and after the
    release of draft findings from systematic reviews and
    assessments of existing research and evidence. The Institute
    would transmit any public comments received in relation to
    draft study designs to the entity conducting the research. The
    Institute would support additional forums to increase public
    awareness and obtain and incorporate public input and feedback
    on the identification of research priorities, including
    research topics, and the establishment of the research agenda,
    research findings, and any other duties, activities, or
    processes the Institute determines appropriate.
        The Institute would make the following information publicly
    available (disclosed through the official public Internet site
    and any other forums the Institute deems appropriate): (1) the
    process and methods for the conduct of research, including the
    identity of the entity conducting research, any links the
    entity has to industry (including links that are not directly
    tied to particular research being conducted under contract with
    the Institute); draft study designs, including research
    questions and the finalized study design together with
    associated public comments and responses to such comments,
    research protocols, including clinical measures taken; methods
    of research and analysis used; research results; key decisions
    made by the Institute, panels or committees of the Institute;
    the identity of investigators conducting such research and any
    potential conflicts of interest; and progress reports the
    Institute deems appropriate; (2) notice of each of the public
    comments periods established by the Institute along with any
    deadlines for public comments for such periods; (3) public
    comments submitted during each of the public comment periods;
    (4) bylaws, processes, and proceedings of the Institute, as
    feasible and appropriate; and (5) any report, research
    findings, and appropriate related information within 90 days
    after the receipt of such article by the Institute.
        Conflicts of Interest. The Committee Bill would direct the
    Comptroller General to consider and disclose any conflicts of
    interest of potential Board appointees. Board members would be
    required to recuse themselves when conflicts of interest arise
    from participation in Board activities and when such interest
    is directly related to and could affect or be affected by the
    member's participation. The Committee Bill would require the
    Institute to take into consideration any conflicts of interest
    of potential appointees, participants, and staff in appointing
    members to advisory panels and the methodology committee, in
    selecting individuals to contribute to any peer-review process,
    and in employing executive staff. Any such conflicts of
    interest would be described in the annual report; in the case
    of peer-reviewers, such descriptions would not allow peer-
    reviewers to be associated with a particular study.
        The Institute, its Board or staff, would be prohibited from
    accepting gifts, bequeaths, or donations of services or
    property. Further, the Institute would be prohibited from
    establishing a corporation or generating revenues from
    activities other than as provided for under the Committee Bill.
        Use of Institute Findings. The Committee Bill would
    establish several limitations around the use of the Institute's
    comparative effectiveness research findings. First, the
    Institute would not mandate coverage, reimbursement, or other
    policies for any public or private payer. None of the reports
    or research findings would be construed as mandates,
    guidelines, or policy recommendations. (The Secretary would not
    be prevented from covering the routine costs of clinical care
    for Medicare beneficiaries participating in research provided
    for by the Institute for whom such costs would normally be
    covered under Medicare.)
        Second, the Secretary of HHS would be prohibited from
    denying coverage based solely on a study conducted by the
    Institute. The Secretary would be required to use an iterative
    and transparent process when using research from the Institute
    in making coverage determinations. The process would allow
    stakeholders and other individuals to provide informed and
    relevant information with respect to the determination, to
    review draft proposals of the determination and to submit
    public comments with respect to draft proposals. The Secretary
    would be required to consider other relevant evidence and
    studies, in addition to research findings from the Institute,
    as well as any evidence and research that demonstrates or
    suggests a benefit of coverage with respect to subpopulations,
    even if the research from the Institute demonstrates or
    suggests that, on average with respect to the general
    population, the benefits of coverage do not exceed the harm.
    The Committee Bill would not supersede or modify the statutory
    basis of the reasonable and necessary standard that is used to
    make coverage decisions under Present Law.
        Third, the Secretary would be prohibited from using the
    Institute's research in determining coverage, or creating
    reimbursement or incentive programs, for a treatment in ways
    that treat extending the life of an elderly, disabled, or
    terminally ill patient of lower value than extending the life
    of a person who is younger, non-disabled, or not terminally
    ill. The Secretary would also be prohibited from using the
    Institute's research in determining coverage, or creating
    reimbursement or incentive programs, for a treatment in a
    manner that precludes, or with intent to discourage, an
    individual from choosing a health care treatment based on how
    the individual values the tradeoff between extending the length
    of their life and the risk of disability.
        These limitations would not be construed to limit the
    application of differential copayments based on factors such as
    cost or type of service. Further, the limitations shall not be
    construed to prevent the Secretary from using comparative
    effectiveness evidence in determining coverage, reimbursement
    or incentive programs based upon comparing the difference in
    the effectiveness of alternative treatments in extending a
    patient's life due to the patient's age, disability, or
    terminal illness. Nothing in the Committee Bill would be
    construed to limit comparative effectiveness research or any
    other research, evaluation, or dissemination of information
    concerning the likelihood that a treatment will result in
    disability.
        Finally, the Committee Bill would prohibit the Institute
    from developing or employing a dollars per quality adjusted
    life year (or similar measure that discounts the value of a
    life because of a person's disability) as a threshold to
    establish what health care is cost-effective or recommended;
    and the Secretary shall not use such measure (or similar
    measure) as a threshold to determine coverage, reimbursement,
    or incentives programs.
        Patient-Centered Outcomes Research Trust Fund. The
    Committee Bill would create a new trust fund, called the
    Patient-Centered Outcomes Research Trust Fund (the `PCORTF') in
    the U.S. Treasury to fund the Institute and its activities.
    Monies would be directed to this fund from the general fund of
    the Treasury as well as the Medicare Trust Funds, as described
    below. The Secretary of Health and Humans Services would be the
    trustee of the PCORTF.
        The following amounts would be transferred to the PCORTF
    from the general funds in the Treasury: $10 million in FY2010,
    $50 million in FY2011, $150 million in FY2012, and $150 million
    for each of FY2013 through FY2019. In addition, the Secretary
    would transfer amounts from the Medicare Federal Hospital
    Insurance and the Federal Supplemental Medical Trust Funds to
    the PCORTF in proportion to total Medicare expenditures that
    come from each Fund for a given year. In FY2013, the amount
    would be equivalent to $1 multiplied by the average number of
    individuals entitled to benefits under Part A or enrolled under
    Part B of Medicare during the year. In FY2014 through FY2019,
    the amounts would be equivalent to $2, increased by annual
    medical inflation after FY2014 multiplied by the average number
    of such individuals for the given year.
        Additionally, The Committee Bill would transfer $10 million
    from funds appropriated to the Secretary under title VIII of
    Division A of the American Recovery and Reinvestment Act of
    2009 (ARRA) would be transferred to the PCORTF.
        In addition to the amounts transferred from the Treasury
    and from funds made available by ARRA, the PCORTF would also be
    financed from fees on insured and self-insured health plans.
    The Committee Bill would create a new Subchapter B of Chapter
    34 of the Internal Revenue Code with new sections 4375-4377.
        The Committee Bill would impose a fee of $1 in FY2013 and
    $2 (updated by the rate of medical inflation in FY2014 and in
    subsequent years) in FY2014 through FY2019, on each health
    insurance policy in the United States multiplied by the number
    of lives covered under that policy. Insurance policies that
    primarily provide non-health benefits would be exempt. This fee
    would sunset after FY2019.
        The Committee Bill would impose a fee of $1 in FY2013 and
    $2 (updated by the rate of medical inflation in FY2014 and in
    subsequent years) in FY2014 through FY2019, on each self-
    insured health plan multiplied by the number of lives covered
    under that plan. Applicable self-insured health plans in the
    United States would be defined as plans providing accident or
    health coverage provided other than through an insurance policy
    and maintained by a plan sponsor for the benefit of members,
    employees or former employees, or maintained by a multiple
    employer welfare arrangement of the Employee Retirement Income
    Security Act of 1974 (ERISA, P.L. 93-406), or a rural electric
    or telephone cooperative. Plan sponsors would be defined as
    employers, employer organizations, or groups or associations
    maintaining a plan; or the entity maintaining a plan for two or
    more employers, joint employer-employee groups, or employee
    organizations, welfare arrangements, or voluntary employee's
    beneficiary associations (VEBAs) maintaining such plans. This
    fee would sunset after FY2019.
        The amounts in the Patient-Centered Outcomes Research Trust
    Fund would be available to the Institute to carry out its
    duties without further appropriation. However, no amounts could
    be appropriated or transferred to the PCORTF if any amounts
    expended from the PCORTF were to be used for a purpose that is
    not permitted.

         SEC. 3502. COORDINATION WITH FEDERAL COORDINATING COUNCIL FOR
                       COMPARATIVE EFFECTIVENESS RESEARCH

    Present Law

        Section 804 of Division A of the American Recovery and
    Reinvestment Act of 2009 (42 U.S.C. 299b-8) established the
    Federal Coordinating Council (FCC) for Comparative
    Effectiveness Research, an interagency advisory group that is
    required to help coordinate and support the comparative
    effectiveness research and to report to the President and
    Congress annually. The Federal Coordinating Council for
    Comparative Effectiveness Research is composed of up to 15
    senior officials (including physicians and others with clinical
    expertise) from Federal agencies with health-related programs.
    ARRA included language stating that (1) the Council may not
    mandate coverage, reimbursement, or other policies for public
    and private payers of health care, and (2) Council reports and
    recommendations may not be construed as mandates or clinical
    guidelines for payment, coverage, or treatment. On March 19,
    2009, HHS announced the members of the Council.

    Committee Bill

        The FCC would be given additional responsibilities with
    respect to the new Patient-Centered Outcomes Research
    Institute. The FCC would be required to ``provide support'' to
    the Institute. The FCC's annual report would be modified to
    include (a) an inventory of its activities with respect to
    comparative effectiveness research conducted by relevant
    Federal departments and agencies; and (b) recommendations
    concerning better coordination of comparative effectiveness
    research by such departments and agencies. The FCC would
    coordinate with the Institute in carrying out its duties under
    this section.

        SEC. 3503. GAO REPORT ON NATIONAL COVERAGE DETERMINATION PROCESS

    Present Law

        No provision.

    Committee Bill

        The Committee Bill would require the Comptroller General to
    submit a report to Congress within 18 months after the date of
    enactment on the process for making national coverage
    determinations under the Medicare program. The report would
    include a determination of whether the Secretary of HHS has
    complied with applicable law and regulations, including
    requirements for consultation with outside experts, providing
    appropriate public notice and comment opportunities, and making
    appropriate information and data available to the public and to
    non-voting members of advisory committees.

                   Subtitle G--Administrative Simplification

                    SEC. 3601. ADMINISTRATIVE SIMPLIFICATION

    Present Law

        To promote the growth of electronic record keeping and
    claims processing in the nation's health care system, the
    Health Insurance Portability and Accountability Act of 1996
    (HIPAA) Administrative Simplification provisions (SSA Sections
    1171-1179) instructed the HHS Secretary to adopt standards for
    the electronic transmission of routine administrative and
    financial health care transactions between health care
    providers and health plans, including data elements and code
    sets for those transactions. The nine HIPAA-specified
    transactions are: (1) health claims or equivalent encounter
    information, (2) health care payment and remittance advice, (3)
    health claim status inquiry and response, (4) enrollment and
    disenrollment in a health plan, (5) eligibility inquiry and
    response, (6) health plan premium payments, (7) referral
    certification and authorization, (8) first report of injury,
    and (9) health claims attachments. HIPAA also directed the
    Secretary to adopt a standard for transferring standard data
    elements among health plans for the coordination of benefits
    and the sequential processing of claims for individuals who
    have more than one health plan. The Secretary was to rely on
    the recommendations of the National Committee on Vital and
    Health Statistics (NCVHS) and consult with other Federal and
    state agencies and private organizations. A final rule, which
    adopted already widely used standards for seven of the
    specified transactions and the coordination of benefits, as
    well as code sets to be used in those transactions, was
    published in 2000. The transactions standards included: several
    Accredited Standards Committee X12 (ASC X12) standards for
    health care transactions, and the National Council for
    Prescription Drug Programs (NCPDP) standard for pharmacy drug
    claim transactions.
        The health care payment and remittance advice transaction
    is a communication from a health plan to a provider that
    includes an explanation of the claim and payment for that
    claim. The HIPAA standard for this transaction (i.e., ASC X12
    835) can accommodate an electronic funds transfer (EFT), in
    which payment is electronically deposited into a designated
    bank account. EFT is common in the health care sector--health
    plan contracts often require it--but there is no EFT mandate in
    Federal law for Medicare, Medicaid, or private health
    insurance. However, HHS regulation is gradually requiring
    providers in Medicare to receive payments via EFT.
        HIPAA does not mandate that providers conduct the
    transactions electronically, though health plans increasingly
    require it. However, providers that elect to submit one or more
    of the HIPAA transactions electronically must comply with the
    standard for those transactions. Generally, HIPAA requires
    providers and plans to come into compliance within two years of
    the standards taking effect. In 2001, Congress enacted the
    Administrative Simplification Compliance Act (P.L. 107-105),
    which provided for a one-year compliance extension for the
    standards adopted in 2000. The Act also mandated that Medicare
    claims be submitted electronically in the HIPAA standard
    format, with the exception of those from small providers and in
    other limited circumstances.
        HIPAA directed the Secretary to review and, not more
    frequently than once a year, modify the Administrative
    Simplification standards. Again, the Secretary was to rely on
    the recommendations of the NCVHS and consult with other Federal
    and state agencies and private organizations. Any modification
    must be completed in a manner that minimizes disruption and the
    cost of compliance. On January 16, 2009, CMS published a final
    rule adopting updated versions of the HIPAA electronic
    transactions standards to replace the versions currently in
    use. The compliance deadline for the updated standards is
    January 1, 2012.
        To date, the Secretary has not issued electronic standards
    for two HIPAA transactions: health claims attachment and first
    report of injury. In September 2005, the Secretary published a
    proposed standard for electronic transmission of health claims
    attachments. A claims attachment transaction is used to request
    and supply additional data necessary to adjudicate a claim and
    typically includes specific clinical information that a health
    plan needs in order to decide whether a service should be
    covered. The claims attachment standard has yet to be
    finalized. The Secretary has not proposed an electronic
    standard for first report of injury.
        HIPAA also instructed the Secretary to adopt unique
    identifiers for health care providers, health plans, employers,
    and individuals for use in standard transactions. Unique
    identifiers for providers and employers have been adopted,
    while the health plan identifier is still under review.
    Congress has blocked the development of a unique individual
    identifier through language added to the annual Labor-HHS
    appropriations bill.
        Even though standards have been adopted for seven of the
    nine HIPAA transactions, there is still significant variability
    in how these transaction standards are implemented by health
    plans and clearinghouses. The standards adopted to date do not
    include sufficient business guidelines about how to
    operationalize them, which allows health plans and
    clearinghouses to differ in some of the ways they implement
    them. The variability in operating rules around the current
    standards makes it challenging, costly, and inefficient for
    providers to conduct electronic transactions. This is one of
    the reasons providers in the United States do not use
    electronic transactions for some of the most basic transactions
    related to health care. The Version 5010 and D.0 standards that
    will be effective in 2012 will address some but not all of the
    issues surrounding this variability with respect to the
    implementation of the HIPAA transactions.
        This would establish a timeline for accelerating the
    development, adoption and implementation of a single set of
    consensus-based operating rules for each HIPAA transaction for
    which there is an existing standard, with the goal of creating
    as much uniformity in the implementation and use of the
    transactions standards as possible. Operating rules are defined
    as the necessary business rules and guidelines for the
    electronic exchange of information that are not defined by the
    electronic standards themselves. Also, the Committee Bill would
    add EFT for the payment of health claims as a HIPAA
    transaction. The Committee Bill would require the HHS Secretary
    to adopt a transaction standard for EFT no later than January
    1, 2012, to take effect by January 1, 2014.
        In adopting the operating rules, the HHS Secretary would
    rely on recommendations for such rules developed by a qualified
    non-profit entity, as selected by the Secretary. The non-profit
    entity would be one that: (1) focuses on administrative
    simplification; (2) demonstrates an established multi-
    stakeholder, consensus-based process for developing operating
    rules; (3) is guided by a public set of principles; (4)
    coordinates with the health information technology (HIT) Policy
    Committee and HIT Standards Committee, and complements the
    efforts of the National Healthcare Coordinator; (5)
    incorporates HIPAA standards; (6) supports nondiscrimination
    and conflict of interest policies; and (7) allows for public
    reviews and updates.
        The NCVHS would be required to review the operating rules
    developed by the non-profit entity and determine whether the
    rules were consistent with the HIPAA standards and with
    electronic standards adopted for HIT and whether they
    represented a consensus view from the health care industry.
    NCVHS would then submit a recommendation to the Secretary on
    whether to adopt the operating rules. If so recommended, the
    Secretary would be required to adopt the operating rules
    through an interim final rule and provide for a 60-day period
    of public comment on the rule following its publication.
        The Committee Bill would require the HHS Secretary to adopt
    operating rules for eligibility for a health plan and health
    claim status transactions no later than July 1, 2011, to take
    effect by January 1, 2013. Such rules may allow for the use of
    a machine readable identification card. Operating rules for
    health care payment and remittance advice and EFT would have to
    be adopted no later than July 1, 2012, and take effect by
    January 1, 2014. The Secretary would have to adopt operating
    rules for the remaining completed HIPAA transactions, including
    health claims or equivalent encounter information, enrollment
    and disenrollment in a health plan, health plan premium
    payments, and referral certification and authorization, no
    later than July 1, 2014, to take effect by January 1, 2016.
        The Committee Bill would also require the HHS Secretary, no
    later than January 1, 2014, to establish a review committee to
    periodically evaluate the existing HIPAA standards and
    operating rules and make recommendations for updating and
    improving such standards and rules. The Secretary could
    designate the NCVHS as the review committee, or choose any
    other appropriate committee within HHS. The review committee
    would: (1) no later than April 1, 2014, and not less than
    biennially thereafter, conduct hearings to evaluate existing
    standards and operating rules; and (2) no later than July 1,
    2014, and not less than biennially thereafter, provide
    recommendations to the Secretary for updating and improving
    such standards and operating rules. The committee would be
    required to consider Federal HIT standards and only recommend a
    single set of operating rules per transaction standard. The
    Secretary would have to adopt the review committee's
    recommendations by issuing an interim final rule within 90 days
    of receipt of the committee's report, and provide for a 60-day
    comment period on the rule following its publication. The
    updated standards and operating rules would take effect 25
    months after the close of the public comment period and the
    same certification and documentation requirements would apply.
        The Committee Bill would require health plans, by December
    31, 2013, to file a certification statement with the HHS
    Secretary that their data and information systems comply with
    the most current published standards, including the operating
    rules, for the following transactions: eligibility for a health
    plan, health claim status, health care payment and remittance
    advice and EFT. By December 31, 2015, health plans would be
    required to certify to the Secretary that their data and
    information systems comply with the most current published
    standards and operating rules for the remaining completed HIPAA
    transactions, including health claims or equivalent encounter
    information, enrollment and disenrollment in a health plan,
    health plan premium payments, and referral certification and
    authorization. To be certified, health plans would have to
    demonstrate that they conduct these electronic transactions in
    a manner that fully complies with the regulations and provide
    documentation showing that they had completed end-to-end
    testing for these transactions with their partners (e.g.,
    hospitals and physicians). Health plans would also need to
    comply with these certification and compliance requirements for
    any entities that provide services through a contract with the
    health plan. The Secretary would be permitted to designate an
    outside entity to verify that health plans have met the
    certification requirements and would have to conduct periodic
    audits of plans (as well as the contracted entities mentioned
    above) to ensure that they maintain compliance with the
    standards and operating rules.
        The proposal would require the HHS Secretary, no later than
    April 1, 2014, and annually thereafter, to assess a penalty fee
    against health plans that fail to meet the certification
    requirements. For each day a plan was not in compliance, the
    Secretary would assess a fee of $1 per person covered by the
    plan for which its data systems for major medical policies are
    not in compliance. The fee amount would be increased annually
    by the projected percentage increase in total national health
    care expenditures, as determined by the Secretary. A health
    plan that knowingly misrepresented its compliance status would
    be subject to a penalty fee that is double the amount otherwise
    imposed. The fee would not exceed a maximum of $20 per covered
    life for which the plan's data systems for major medical
    policies are not in compliance, except for misrepresentation
    where the maximum penalty could reach $40 per covered life.
    Data on covered lives would be derived from plans' most recent
    corporate filings with the Securities and Exchange Commission.
        The HHS Secretary would be required to establish a process
    with a reasonable notice and dispute resolution mechanism
    before penalties could be assessed by the Secretary of the
    Treasury (prior to August 1 of that year). Under the Committee
    Bill, the Secretary of the Treasury, acting through the
    Financial Management Service (FMS), would be responsible for
    the collection of penalty fees. Beginning May 1, 2014, and
    annually thereafter, the HHS Secretary would send to the
    Treasury Secretary a list of health plans that were assessed a
    penalty and the amount of the fee. By August 1, 2014, and
    annually thereafter, the Treasury Secretary would provide each
    of those health plans with notice of the amount assessed and
    the payment due date (November 1 of that year). Unpaid penalty
    fees would be increased by an interest payment determined in a
    manner similar to underpayment of income taxes and would be
    considered debts owed to Federal agencies, which may offset and
    reduce the amount of tax refunds otherwise payable to a health
    plan. Any fees charged for FMS collection activities would be
    passed on to the health plans on a pro-rata basis and added to
    the penalty fees.
        In addition to the above provisions, the Committee Bill
    would require that as of January 1, 2014, no Medicare payment
    would be made for benefits delivered under Part A or Part B
    other than by EFT or an electronic remittance in a form
    specified in the HIPAA payment/remittance advice (i.e., ASC X12
    835) standard. It would also require the HHS Secretary, by July
    1, 2013, to report to Congress on the extent to which the
    Medicare and Medicaid programs and the providers that serve
    beneficiaries under those programs transact electronically in
    accordance with the HIPAA standards.
        Finally, the Committee Bill would require the HHS Secretary
    to issue a rule to establish a unique health plan identifier,
    based on NCVHS input. The Secretary would be permitted to issue
    an interim final rule, which would take effect no later than
    October 1, 2012.

         Subtitle H--Sense of the Senate Regarding Medical Malpractice

          SEC. 3701. SENSE OF THE SENATE REGARDING MEDICAL MALPRACTICE

    Present Law

        States have the primary authority to define the process for
    granting and renewing a medical license, and regulating medical
    practice. By extension, states determine the administrative and
    legal processes applicable to claims of medical malpractice.
    There is a lack of uniformity across states regarding
    licensure, medical practice regulation, and legal remedies for
    malpractice cases.

    Committee Bill

        This provision would express the sense of the Senate that
    (1) health reform presents an opportunity to address issues
    related to medical malpractice and medical liability insurance,
    (2) states should be encouraged to develop and test
    alternatives to the current malpractice tort system, and (3)
    Congress should consider establishing a state demonstration
    program to evaluate alternatives to the existing malpractice
    tort system with respect to resolution of malpractice claims.

                  Title IV--Transparency and Program Integrity

      Subtitle A--Limitation on Medicare Exception to the Prohibition on
                   Certain Physician Referrals for Hospitals

       SEC. 4001. LIMITATION ON MEDICARE EXCEPTION TO THE PROHIBITION ON
                   CERTAIN PHYSICIAN REFERRALS FOR HOSPITALS

    Present Law

        Physicians are generally prohibited from referring Medicare
    patients for certain services to facilities in which they (or
    their immediate family members) have financial interests.
    However, among other exceptions, physicians are not prohibited
    from referring patients to whole hospitals in which they have
    ownership or investment interests. Providers that furnish
    substantially all of their designated health services to
    individuals residing in rural areas are exempt as well.

    Committee Bill

        Beginning no later than 18 months after the date of
    enactment, only hospitals meeting certain requirements would be
    exempt from the prohibition on self-referral. Hospitals that
    have physician ownership and a provider agreement in operation
    on November 1, 2009, and that met other specified requirements
    would be exempt from this self-referral ban. These requirements
    include a limitation on the expansion of the facilities'
    service capacity and would address conflict of interest, bona
    fide investments, and patient safety issues. In addition, the
    hospital could not have converted from an ambulatory surgical
    center to a hospital after the date of enactment.
        Specifically, to address conflicts of interest, an exempt
    hospital would (1) submit an annual report containing the
    identity of each physician owner and any other owners or
    investors as well as information on the nature and extent of
    all ownership interests in the hospital; (2) have procedures in
    place to require that any referring physician owner or investor
    disclose to each patient (by a time that permits the patient to
    make a meaningful decision regarding the receipt of care) their
    ownership interest in the hospital and, if applicable, any such
    ownership interest of the referring or treating physician; (3)
    not condition ownership, either directly or indirectly, on the
    physician owners or investors making or influencing referrals
    to the hospital; and (4) disclose the fact that the hospital is
    owned in whole or in part by physicians on any public website
    for the hospital and in public advertising for the hospital.
    Information from the annual report would be published and
    updated annually on the Internet website of the Centers for
    Medicare & Medicaid Services (CMS).
        Exempt hospitals would ensure bona fide investments and
    proportional returns by meeting the following requirements: (1)
    physician owners or investors could not own more than the
    percentage of the value of physician ownership determined on
    the date of enactment, or the investment interest in an entity
    whose assets include the hospital; (2) any ownership or
    investment interest offered to a physician could not be offered
    on more favorable terms than those offered to an individual who
    is not a physician owner or investor; (3) the hospital (or any
    owner or investor in the hospital) could not directly or
    indirectly provide loans or financing for physician investments
    in the hospital; (4) the hospital (or any owner or investor in
    the hospital) could not directly or indirectly guarantee a
    loan, make a payment toward a loan, or otherwise subsidize a
    loan to any individual physician owner or group of physician
    owners that is related to acquiring ownership interest in the
    hospital; (5) investment returns must be distributed to
    investors in the hospital in an amount that is directly
    proportional to the ownership or investment interest of the
    hospital investor; (6) physician owners and investors could not
    receive, directly or indirectly, any guaranteed receipt of or
    exclusive right to purchase other business interests related to
    the hospital, including the purchase or lease of any property
    under the control of other investors in the hospital or located
    near the premises of the hospital; and (7) the hospital does
    not offer a physician owner the opportunity to purchase or
    lease any property under hospital control or under the control
    of other owners or investors in the hospital on more favorable
    terms than individuals who are not physician owners or
    investors.
        To ensure patient safety, exempt hospitals would be
    required to disclose to all patients prior to admission in the
    instance it does not have any physician available on the
    premises to provide services during all hours in which the
    hospital is providing services. Following such a disclosure,
    the hospital would receive a signed acknowledgement from the
    patient that no physician will be present. Also the hospital
    would be required to have the capacity to provide assessment
    and initial treatment for patients and procedures for the
    referral and transfer of patients to hospitals with the
    capability to treat the needs of the patient involved.
        Exempt hospitals would not be permitted to increase the
    number of operating rooms, procedure rooms or beds for which
    the hospital is licensed after the date of enactment without
    going through a process established by the Secretary. A
    procedure room includes a room in which catheterizations,
    angiographies, angiograms, and endoscopies are performed, but
    would not include emergency rooms or departments.
        A process would be established to allow certain exempt
    hospitals to expand. To implement such a process, the Secretary
    would collect physician ownership and investment information
    for each hospital. Hospitals eligible for expansion would
    include: (1) a hospital that is located in a county where the
    population increased during the most recent five year period at
    a rate that is at least 150 percent of the State's population
    increase, as estimated by the Bureau of Census; (2) a hospital
    whose Medicaid inpatient admission percentage is equal to or
    greater than the average percentage for all hospitals located
    in the county; (3) a hospital that does not discriminate
    against beneficiaries of Federal health care programs and does
    not permit physicians practicing at the hospital to
    discriminate against such beneficiaries; (4) a hospital that is
    located in a state with a state average bed capacity less than
    the national average; and (5) a hospital that has an average
    bed occupancy rate that is greater than the state average bed
    occupancy rate. This capacity increase would be limited to
    facilities on the main campus of the hospital and could not
    exceed 200 percent of the number of operating rooms, procedure
    rooms and beds for which the hospital is licensed at the time
    of enactment. The process for expansion would allow the
    opportunity for community input and should permit an applicable
    hospital to apply for the expansion exception up to once every
    two years. The Secretary would publish final decisions on an
    expansion in the Federal Register no later than 60 days after
    receiving a complete application. The Secretary would implement
    this process on May 1, 2011, and would promulgate regulations
    to carry out this process no later than April 1, 2011. There
    would be no administrative or judicial review of this process.
        The Secretary would be required to establish policies and
    procedures to ensure compliance with these requirements,
    beginning on their effective date. The enforcement efforts
    would be able to include unannounced site reviews of hospitals.
    These audits would begin no later than August 1, 2011. Nothing
    in this section would prevent the Secretary from revoking the
    hospital's provider agreement if not otherwise in compliance
    with Medicare hospital regulations.

             Subtitle B--Physician Ownership and Other Transparency

    SEC. 4101. TRANSPARENCY REPORTS AND REPORTING OF PHYSICIAN OWNERSHIP OR
                              INVESTMENT INTERESTS

    Present Law

        No provision.

    Committee Bill

        The Committee Bill would amend title XI of the Social
    Security Act to provide for transparency in the relationship
    between physicians of certain hospitals and applicable
    manufacturers with respect to payments and other transfers of
    value and physician ownership or investment interests in
    manufacturers. It calls for annual transparency reports,
    penalties for noncompliance, procedures for the submission of
    information and public availability of this information.
        The Committee Bill would require any manufacturer of a
    covered drug, device, biological, or medical supply that makes
    a payment or another transfer of value to a physician, a
    physician medical practice, a physician group practice, or a
    hospital with an approved medical residency training program to
    report annually, in electronic form, specified information on
    such transactions to the Secretary of HHS. The report would
    include the transfer recipient's name, business address, amount
    of the payment, date of the payment, a description of the form
    of the payment, a description of the nature of the payment, if
    the payment is related to marketing, education, or research
    specific to a covered drug, device, biological or medical
    supply the name of that product, and any other category of
    information that the Secretary determines appropriate. If the
    recipient requests a transfer of payment to another entity or
    individual at the request of the recipient the manufacturer
    should disclose that information. Delayed reporting
    requirements would apply for payments made pursuant to a
    product development agreement or clinical trial. Some
    information would be excluded from these reporting
    requirements, including payments or transfers of $10 or less,
    unless the aggregate annual payments or transfers to a
    recipient exceeds $100, in which case all payments or transfers
    must be reported; samples intended for patient use; patient
    educational materials; loan of a covered device for a short-
    term time period, discounts and rebates, payments made to a
    physician for the provision of health care to employees;
    payments to a physician who is also a licensed, non-medical
    professional if the payment is solely related to non-medical
    services; payments to a physician solely for services related
    to a civil or criminal action or an administrative proceeding;
    and in-kind items used for charity care. This reporting
    requirement would begin on March 31, 2012 and continue on the
    90th day of each subsequent calendar year.
        The Committee Bill also requires any such manufacturer, or
    related group purchasing organization to report annually to the
    Secretary, in electronic form, certain information regarding
    any ownership or investment interest (other than in a publicly
    traded security and mutual fund) held by a physician (or an
    immediate family member) in the manufacturer or group
    purchasing organization during the preceding year.
        Manufacturers or group purchasing organizations would be
    subject to a civil monetary penalty (CMP) of not less than
    $1,000 but not more than $10,000 for each payment or transfer
    not reported. The total amount of the penalties for any annual
    submission shall not exceed $150,000. Any manufacturer or group
    purchasing organization that knowingly fails to submit
    information would be subject to a CMP of not less than $10,000
    but not more than $100,000 for each payment or transfer not
    reported. The total amount of the penalties for this failure to
    report category of submissions shall not exceed $1,000,000
    annually.
        The Committee Bill would require the Secretary to establish
    procedures no later than October 1, 2010 to ensure public
    availability of this information. Beginning September 30, 2012
    and on June 30 of subsequent years, submitted information
    should be available on an Internet website that meets
    formatting, search, and usability requirements. In addition to
    the transfer information, the website should include
    information on enforcement actions during the preceding year,
    background information on industry-physician relationships, a
    separate listing for payments related to clinical research, and
    other information that the Secretary deems appropriate. The
    Secretary should also allow recipients an opportunity to submit
    corrections to their information. This reporting procedure
    should be established after consulting the HHS OIG, affected
    industry, consumers and other parties in order to ensure that
    the information is presented in an appropriate context. The
    Secretary would be required to submit an annual report to
    Congress and the states beginning April 1, 2012.
        Effective January 1, 2011, the Committee Bill would preempt
    any state (or political subdivision of a state) law or
    regulation that requires manufacturers to disclose the type of
    information required under this provision regarding payments or
    transfers to covered recipients. The proposal would not preempt
    any state (or political subdivision of a state) law or
    regulation that requires the disclosure or reporting of (1) any
    information not required under this provision; (2) the types of
    information excluded from reporting requirements under this
    provision, with the exception of the $10 de minimis/$100
    aggregate reporting requirement; (3) information by any person
    or entity other than an applicable manufacturer or covered
    recipient described above; and (4) information reported to a
    Federal, state, or local government for public health purposes.
        The Secretary would be required to consult with the HHS OIG
    on the implementation of this section.

      SEC. 4102. DISCLOSURE REQUIREMENTS FOR IN-OFFICE ANCILLARY SERVICES
      EXCEPTION TO THE PROHIBITION ON PHYSICIAN SELF-REFERRAL FOR CERTAIN
                                IMAGING SERVICES

    Present Law

        Section 1877(b)(2) of the Social Security Act states that
    if a physician (or an immediate family member of a physician)
    has a financial relationship with an entity, the physician may
    not make a referral to the entity for the furnishing of
    designated health services (DHS) for which payment may be made
    under Medicare or Medicaid, and the entity may not present (or
    cause to be presented) a claim to the Federal health care
    program or bill to any individual or entity for DHS furnished
    pursuant to a prohibited referral. One of the many exceptions
    to this prohibition is for in-office ancillary services. This
    exception permits the furnishing of certain designated health
    services that are ancillary to the referring physician's
    medical services and where certain supervision, location, and
    billing requirements are met.

    Committee Bill

        The in-office ancillary exception would include a
    requirement that with respect to magnetic resonance imaging,
    computed tomography, positron emission tomography, and any
    other designated health services as determined by the
    Secretary, the referring physician must inform the individual
    in writing at the time of the referral that the individual may
    obtain the services from a person other than the referring
    physician, a physician who is a member of the same group
    practice as the referring physician, or an individual who is
    directly supervised by the physician or by another physician in
    the group practice. The individual must be provided with a
    written list of suppliers who furnish these services in the
    area in which the individual resides. This new requirement
    would apply to services furnished after January 1, 2010.

                SEC. 4103. PRESCRIPTION DRUG SAMPLE TRANSPARENCY

    Present Law

        Section 503 of the Prescription Drug Marketing Act of 1987
    (PDMA, P.L. 100-293), regulates the distribution of drug
    samples by a drug manufacturer or distributor. Under the
    Committee Bill, drug manufacturers or distributors may
    distribute drug samples by mail or common carrier to
    practitioners licensed to prescribe such drugs or, at the
    request of a licensed practitioner, to pharmacies of hospitals
    or other health care entities, only in response to a written
    request for drug samples, and under a system which requires the
    recipient of the drug sample to execute a written receipt for
    the drug sample upon delivery and the return of the receipt to
    the manufacturer or distributor of record. A written request
    for a sample must contain: (1) the name, address, professional
    designation, and signature of the practitioner making the
    request; (2) the identity of the drug sample requested and the
    quantity requested; (3) the name of the manufacturer of the
    drug sample requested; and (4) the date of the request. A drug
    manufacturer or distributor may distribute drug samples by
    means other than mail or a common carrier meets these
    requirements and carries out specified additional activities.
    Drug manufacturers and distributors must also comply with
    certain recordkeeping requirements, including, for a period of
    three years, a record of distributions of drug samples which
    identifies the drugs distributed and the recipients of the
    distributions.

    Committee Bill

        The Committee Bill would require drug manufacturers and
    authorized distributors of an applicable drug to annually
    submit to the Secretary of HHS the identity and quantity of
    drug samples requested and the identity and quantity of drug
    samples distributed under section 503, aggregated by the name,
    address, professional designation, and signature of the
    practitioner making the request for the sample (or an
    individual acting on the practitioner's behalf), as well as any
    other category of information that the Secretary determines is
    appropriate. An applicable drug is defined to include drugs
    that are available by prescription and for which payment is
    available under Medicare or Medicaid state plan (or a waiver of
    such plan).

         SEC. 4104. PHARMACY BENEFIT MANAGERS TRANSPARENCY REQUIREMENTS

    Present Law

        No provision.

    Committee Bill

        The Committee Bill would require Pharmacy Benefit Managers
    (PBMs) that manage prescription drug coverage under a contract
    with a Part D drug plan or a qualified health benefits plan
    offered through an exchange established by a state under title
    XXII of the Social Security Act to share information with the
    Secretary, the plans the PBMs contract with through Medicare
    Part D, or the exchanges in a manner, form and timeframe
    specified by the Secretary. Plans would only be given access to
    information on their own PBM contracts. This information would
    be considered confidential except as the Secretary determines
    necessary to carry out this provision or the Part D program, to
    permit the Government Accountability Office (GAO) or the
    Congressional Budget Office (CBO) to review the information, or
    for states to carry out title XXII.
        The PBM would be required to confidentially disclose
    information on: (1) the percent of all prescriptions that are
    provided through retail pharmacies compared to mail order
    pharmacies, and the generic dispensing and substitution rates
    for each type of pharmacy (which includes independent
    pharmacies, chain pharmacies, supermarket pharmacies, or mass
    merchandiser pharmacies that are licensed as a pharmacy by the
    state and that dispense medication to the general public) that
    is paid by the PBM under contract; (2) the aggregate amount and
    types of rebates, discounts and price concessions that the PBM
    negotiates on behalf of the plan and the aggregate amount of
    these that are passed through to the plan sponsor and the total
    number of prescriptions; and (3) the aggregate amount of the
    difference between the amount the plan pays the PBM and the
    amount that the PBM pays retail and mail order pharmacies and
    the total number of prescriptions. There are not mandates that
    these rebates are passed through, only that they be reported to
    plans.

             Subtitle C--Nursing Home Transparency and Improvement

                 PART I--IMPROVING TRANSPARENCY OF INFORMATION

    SEC. 4201. REQUIRED DISCLOSURE OF OWNERSHIP AND ADDITIONAL DISCLOSABLE
                              PARTIES INFORMATION

    Present Law

        In general, Medicare and Medicaid require that skilled
    nursing facilities (SNF) and nursing facilities (NF) be
    administered in a manner that maintains residents' well being.
    To ensure residents' safety, SNF and NF are required to report
    the following changes: ownership or controlling interest; the
    individuals who are officers, directors, agents or managing
    employees; the corporation, association or other company
    responsible for facility management; or when changes in the SNF
    or NF administrator are provided to state licensing agencies.
    Administrators must meet standards established by the
    Secretary. SNF and NF also are required to disclose ownership
    and other information as a condition of participation,
    certification, or re-certification.
        A person is considered to have an ownership or controlling
    interest, directly or indirectly, when they (1) own five
    percent or more of an entity, or they hold a whole or part of
    any mortgage, deed of trust, note, or other obligation secured
    by the entity (nursing facility) or any property or assets that
    equal five percent of the total property; (2) are an officer or
    director of the entity, if the entity is organized as a
    corporation; or (3) are a partner in the entity if it is
    organized as a partnership. To the extent feasible under
    regulations, nursing facility entities also are required to
    report other ownership and control interests for any people
    named as owners or having a control interest in the entity.

    Committee Bill

        Upon enactment of the Committee Bill and until final
    regulations are promulgated by the Secretary covering public
    disclosure, SNFs and NF would be required to make available
    upon request by the Secretary, the HHS OIG, the state where
    facilities are located, and the State LTC Ombudsman,
    information on ownership (including direct and indirect
    ownership) and additional disclosable parties as well as
    information describing the governing body and organizational
    structure of the facility. SNF and NF would be required to make
    disclosure information available to the public as soon as final
    regulations were issued, which the Secretary would be required
    to promulgate within two years of enactment of the Committee
    Bill.
        Information to be disclosed would include the identity of
    and information on each member of the governing body of the
    facility (name, title, period of service); each person or
    entity who is an officer, director, member, partner, trustee,
    or managing employee of the facility (name, title, period of
    service); and each person or entity who is an additional
    disclosable party of the facility. The reporting of each
    additional disclosable party's organizational structure also
    would be required as well as a description of the relationship
    of those additional disclosable parties to the facility and
    each other.
        SNF and NF would be required to the extent that the
    required disclosable party information is submitted to the IRS
    as part of Form 990, to the Securities and Exchange Commission,
    or to the Secretary, to use that information for reporting.
        Ownership and control interests would include direct or
    indirect interests, including interests in intermediate
    entities. Intermediate interests would include the owner of a
    whole or part interest in any mortgage, deed of trust, note or
    other obligation secured, in whole or in part, by the entity or
    any property or assets of the entity if those interests exceed
    five percent of the total property or assets of the entity.
        Within two years after enactment, the Secretary would be
    required to promulgate final regulations that required SNF and
    NF to report the ownership, governing board, and organizational
    structure information in a standardized format. These final
    regulations would ensure that SNF and NF certify as a condition
    of participation and payment under Medicare and Medicaid that
    ownership and affiliated party information is accurate and
    current. The Secretary would be required to make the
    regulations final 90 days after publication in the Federal
    Register. The Secretary would also be required to provide
    guidance and technical assistance to states on how to adopt the
    standardized format.
        Additional disclosable parties would be defined as any
    person or entity which (1) exercises operational, managerial or
    financial control over the facility or part thereof, or
    provides policies or procedures for any of the operations of
    the facility, or provides financial or cash management services
    to the facility; (2) leases or sublease real property to the
    facility, or owns a whole or part interest equal to or
    exceeding five percent of the total value of such real
    property; (3) provides management or administrative services,
    management or clinical consulting services, or accounting or
    financial services to the facility.
        Organizational structure would be defined as officers,
    directors and shareholders who have an ownership interest equal
    to or greater than five percent in the case of corporations.
    For a limited liability company, organizational structure would
    be defined as members and managers; for a general partnership,
    the partners; for a limited partnership, general partners and
    any limited partners who have an ownership interest equal to
    ten percent or greater in the limited partnership; for a trust,
    the trustees; for an individual, contact information; and for
    any other person or entity, such information as the Secretary
    determines appropriate.
        The Secretary, within one year of promulgating final
    regulations requiring reporting by facilities, would be
    required to make information about ownership and additional
    disclosable parties available to the public.

     SEC. 4202. ACCOUNTABILITY REQUIREMENTS FOR SKILLED NURSING FACILITIES
                             AND NURSING FACILITIES

    Present Law

        No provision.

    Committee Bill

        The Committee Bill would require organizations operating
    SNFs and NF (operating organizations) to develop and implement
    compliance and ethics programs within three years of enactment
    of the Committee Bill. The compliance and ethics programs would
    need to be effective in preventing and detecting criminal,
    civil, and administrative violations and in promoting quality
    of care.
        Within two years of enactment of the Committee Bill, the
    Secretary, working with the HHS OIG, would be required to issue
    regulations, for effective ethics and compliance programs,
    which may include model compliance programs. The Secretary may
    vary program requirements on the elements and formality of the
    program based on the size of the organization, with larger
    organizations having more formal programs and written policies
    that define standards and procedures.
        The Secretary would evaluate the compliance and ethics
    program regulations and submit a report to Congress within
    three years after these regulations are final. The Secretary's
    evaluation would determine if the compliance and ethics program
    evaluation led to changes in deficiency citations, quality
    performance, or changes in other patient care quality metrics.
    The Secretary's report to Congress would include
    recommendations to improve the compliance and ethics program.
        Requirements for operating organizations' compliance and
    ethics programs would need to be reasonably designed,
    implemented, and enforced to be effective in preventing and
    detecting civil, criminal, and administrative violations as
    well as promoting quality of care. Operating organizations'
    compliance and ethics programs would need to include at least
    the following required components:
               standards and procedures to guide employees
            and other agents that would reduce criminal, civil, and
            administrative violations as defined under this
            Committee Bill;
               identification of individuals with
            sufficient authority to be responsible for compliance
            with the standards and procedures established by the
            organization;
               demonstration of diligence in ensuring that
            individuals who are at risk for engaging in criminal,
            civil, or administrative violations are not delegated
            responsibility for implementing or monitoring an
            organization's compliance and ethics program;
               effective communication of standards and
            procedures to employees (and other agents), such as
            through training programs or explanatory publications
            that practically illustrate what is required;
               procedures to detect criminal, civil, and
            administrative violations; the use of monitoring and
            auditing procedures; and reporting systems that enable
            employees and agents to report violations without fear
            of retribution;
               appropriate disciplinary mechanisms that are
            consistently followed to enforce the compliance and
            ethics program standards and evidence that, where
            appropriate, disciplinary measures were used on
            individuals for failing to detect offenses;
               appropriate responses to violations and
            offenses and mechanisms to prevent future similar
            offenses, including modification of operating
            organization's compliance and ethics programs; and
               processes to periodically reassess
            compliance and ethics programs to identify changes
            necessary to ensure the program remains effective as
            the organization and facilities change.
        Before December 31, 2011, the Secretary would be required
    to promulgate regulations establishing a quality assurance and
    performance improvement (QAPI) plan for SNF and NF. In
    addition, the Secretary would be required to provide technical
    assistance to facilities on development of ``best practices''
    in order to meet QAPI standards. Within one year of the
    Secretary issuing final QAPI regulations, facilities would be
    required to submit a plan to the Secretary for how facilities
    will meet the QAPI standards and implement best practices.
    These plans would include how the facility will coordinate the
    implementation of the plan with other Medicare and Medicaid
    quality assessment and assurance activities.

                SEC. 4203. NURSING HOME COMPARE MEDICARE WEBSITE

    Present Law

        No provision.

    Committee Bill

        The Committee Bill would require the Secretary to include
    additional information on the Medicare Nursing Home Compare
    website that is prominent, easily accessible, searchable, and
    readily understandable to long-term services and supports
    (LTSS) consumers. This additional information would include:
    (1) information required to be reported to the Secretary; (2)
    information on the ``Special Focus Facility program'' including
    the names and locations of those facilities that were newly
    enrolled in the program, are enrolled in the program and have
    failed to significantly improve, enrolled in the program and
    have significantly improved, have gradated from the program and
    have closed voluntarily or no longer participate in Medicare or
    Medicaid; (3) staffing data for each facility (including
    resident census data and data on the hours of care provided per
    resident per day, which would include staff turnover and
    tenure) in formats that are easily understood by LTSS consumers
    (including an explanation of the data); (4) links to state
    internet websites regarding state survey and certification
    programs, and links to Form 2567 (or successor forms)
    inspection reports, links to facility plans of correction or
    responses to such reports and information to guide consumers in
    how to interpret and understand these reports; (5) a
    standardized complaint form (see section 4205 below) including
    explanatory material on how to use the complaint forms, and how
    to file a complaint with the state survey and certification
    program and the State LTSS Ombudsman program; (6) a summary of
    information on the number, type, severity and outcome of
    substantiated complaints; and (7) the number of adjudicated
    instances of criminal violations by a facility or the employees
    of a facility that were committed inside the facility.
        The Secretary would be required to add the additional
    information to the Nursing Home Compare website within one year
    of enactment of this Committee Bill, except where the data
    would not yet be available.
        Also within one year of enactment of this law, the
    Secretary would be required to develop and include on the
    Nursing Home Compare website a consumer rights information page
    that contains links to information along with descriptions on
    the following:
               documentation that is available to the
            public on nursing homes;
               general information and tips on choosing a
            nursing home that meets the needs of the individual;
               general information on consumer rights with
            respect to NF;
               information on the nursing facility survey
            process (on a national and state-specific basis); and
               on a state-specific basis, information on
            the services available through the State LTSS
            Ombudsman.
        The Secretary would be required to review the accuracy,
    clarity of the presentation, timeliness, and comprehensiveness
    of information currently reported on the Nursing Home Compare
    website as of the day before enactment of the Committee Bill.
    Within one year after implementation of the Committee Bill, the
    Secretary would be required to modify or revamp the site in
    accordance with comments received from the review. In
    conducting the review, the Secretary would be required to
    consult with State LTSS Ombudsman programs, consumer advocacy
    groups, provider stakeholder groups, and other representatives
    of programs or groups as the Secretary determines appropriate.
        Within one year after enactment of the Committee Bill,
    states would be required to submit survey information to the
    Secretary no later than they send such information to the
    facility, and the Secretary would be required to update the
    Nursing Home Compare website as expeditiously as practicable.
        Within one year after enactment of this law, facilities
    would be required to have available on request by any
    individual reports on surveys, certifications, and complaint
    investigations made on the facility for the preceding three
    years. Facilities also would be required to post notice of the
    availability of such reports in areas of the facility that are
    prominent and accessible to the public. The Secretary would be
    required to issue guidance to states on establishing electronic
    links to Form 2567 reports, to facility plan of correction
    reports or other responses to 2567 reports, and posting of
    complaint investigation reports.

                      SEC. 4204. REPORTING OF EXPENDITURES

    Present Law

        No provision.

    Committee Bill

        Within two years of enactment of the Committee Bill, SNFs
    would be required to separately report wage and benefit
    expenditures for direct care staff on facility cost reports.
    The reporting of expenditures on wages and benefits for direct
    care staff would be required to be broken out into categories
    including registered nurses, licensed professional nurses,
    certified nurse assistants, and other medical and therapy
    staff. Within in one year of enactment of the Committee Bill,
    the Secretary would be required to consult with private sector
    accountants experienced with Medicare cost reports to assist in
    redesigning cost reports to meet the requirements for reporting
    expenditures for direct care workers wages and benefits.
        Within 30 months of enactment of the Committee Bill, the
    Secretary, in consultation with Medicare Payment Advisory
    Commission, the Medicaid and CHIP Payment and Access
    Commission, HHS OIG, and other experts identified by the
    Secretary, would be required to categorize SNF's newly
    collected annual expenditure data for each facility, regardless
    of payment source, into these functional accounts on an annual
    basis: (1) spending on direct care services, including nursing,
    therapy, and medical services; (2) spending on indirect care,
    including housekeeping and dietary services; (3) capital
    assets, including building and land costs; and (4)
    administrative services costs.
        The Secretary would be required to establish procedures to
    make the direct care staff wage and benefit expenditure data
    readily available to interested parties upon request, subject
    to requirements established by the Secretary.

                     SEC. 4205. STANDARDIZED COMPLAINT FORM

    Present Law

        No provision.

    Committee Bill

        Under the Committee Bill, within one year of enactment of
    the Committee Bill, the Secretary would be required to develop
    a standardized form for SNF and NF residents and their
    representatives to use in filing complaints to state survey and
    certification agencies and State LTSS Ombudsman Programs.
    States would need to make the new standardized complaint form
    available on request to SNF or NF residents; and people acting
    on behalf of SNF or nursing facility residents.
        States also would be required to establish a complaint
    resolution process that ensures that legal representatives of
    SNF residents and NF (or other parties responsible for SNF or
    NF residents) would not be denied access to residents or
    otherwise retaliated against by SNFs or NF for filing quality
    of care or other complaints against the facility. States'
    complaint resolution procedures would need to include (1)
    accurate tracking of complaints including notification to the
    complainant that a claim was filed; (2) procedures to determine
    complaint severity and to investigate complaints; and (3)
    deadlines in which to respond to complaints and for notifying
    complainants of investigation outcomes.

                  SEC. 4206. ENSURING STAFFING ACCOUNTABILITY

    Present Law

        No provision.

    Committee Bill

        Within two years after enactment of the Committee Bill, SNF
    and NF would be required to electronically submit direct care
    staffing information, including agency and contract staff, to
    the Secretary. In developing specifications and direct care
    staffing data requirements, the Secretary would consult with
    State LTSS Ombudsman programs, consumer advocacy groups,
    provider stakeholder groups, employees and their
    representatives, and other parties deemed appropriate by the
    Secretary. The direct care staffing specifications would be
    based on payroll and other verifiable data provided by SNFs and
    NF to the Secretary in a uniform format.
        The reporting requirements would include (1) the category
    of work an employee performs such as whether the employee is an
    registered nurse, licensed practical nurse, licensed vocational
    nurse, certified nurse assistant, therapist, or other medical
    personnel; (2) resident census data and information on resident
    case mix; (3) a regular reporting schedule; and (4) information
    on employee turnover and tenure, and the hours of care provided
    per resident per day. The Secretary may first require staffing
    data be submitted on selected categories of certified
    employees, such as nursing staff, before reporting on other
    categories. Reporting on contract staff would be separate from
    information on employees.

       SEC. 4207. GAO STUDY AND REPORT ON FIVE-STAR QUALITY RATING SYSTEM

    Present Law

        No provision.

    Committee Bill

        Under the Committee Bill, the Government Accountability
    Office (GAO) would be required to conduct a study on CMS' Five-
    Star Quality Rating System for nursing homes which would
    include analysis of (1) how the Five-Star System is being
    implemented, (2) problems associated with implementation, and
    (3) how the Five-Star system could be improved. Within two
    years of enactment of the Committee Bill, GAO would be required
    to submit a report to Congress on the results of its analysis
    of CMS' Five-Star Rating System. The report would include GAO's
    recommendations for legislative and administrative action.

                         PART II--TARGETING ENFORCEMENT

                      SEC. 4211. CIVIL MONETARY PENALTIES

    Present Law

        Under Medicaid, states have authority to impose monetary
    penalties, deny payments, appoint temporary management to bring
    facilities into compliance, and close facilities if NF fail to
    meet state plan requirements or have deficiencies that
    jeopardize residents' health or safety. State expenses for
    enforcement may be funded under the proper and efficient state
    plan administration provision of Medicaid. States also have
    authority to establish reward programs for NF that deliver the
    highest quality care to medical assistance patients and fund
    these incentive rewards programs under Medicaid's proper and
    efficient administration provisions.

    Committee Bill

        Within one year of enactment of the Committee Bill and
    subject to limitations where reductions are prohibited, if SNFs
    or NF self-report and promptly correct deficiencies within ten
    calendar days after imposition of a penalty, the Secretary
    would be authorized to reduce the imposed civil monetary
    penalties (CMPs) by up to 50 percent. Facilities cited for a
    repeat deficiency that had been self-reported during the
    preceding year where the Secretary had reduced the CMP would
    not eligible for a reduction under this provision. In addition,
    the Secretary would be prohibited from reducing CMPs where a
    deficiency was found to result in a pattern of harm or
    widespread harm that immediately jeopardizes the health or
    safety of facility residents; or where a deficiency resulted in
    the death of a resident.
        This provision also would require the Secretary to issue
    regulations that provide facilities with the opportunity to
    participate in an independent informal dispute resolution
    process.

             SEC. 4212. NATIONAL INDEPENDENT MONITOR PILOT PROGRAM

    Present Law

        No provision.

    Committee Bill

        The Committee Bill would require the Secretary to develop,
    test, and implement a two-year pilot for an independent monitor
    program. The independent monitor program would oversee large
    interstate and intrastate SNF and NF chains.
        The Secretary would select SNF and NF chains to participate
    in the independent monitor program from among those chains that
    apply and submit information as determined by the Secretary.
    The Secretary would be required implement the pilot program
    under this section within one year after enactment.
        The Secretary would evaluate chains to participate in the
    independent monitor pilot program based on criteria identified
    by the Secretary including where evidence exists that one or
    more facilities within the chain experienced serious safety and
    quality of care problems. Other criteria the Secretary may use
    to select chains to participate in the independent monitor
    program would include evaluation of chains with one or more
    facilities participating in the ``Special Focus Facility''
    program (or a successor), or chains with one or more facilities
    with a record of repeated serious safety and quality of care
    deficiencies.
        Independent monitors that enter into contracts with the
    Secretary to participate in this program would (1) conduct
    periodic reviews and prepare root-cause quality and deficiency
    analyses of chains to assess if chains are in compliance with
    state and Federal laws and regulations; (2) undertake sustained
    oversight of chains, (public or private) efforts to involve the
    owners of, and any additional disclosable parties, the chain in
    complying with state and Federal laws and regulations; (3)
    analyze the management structure, expenditure distribution, and
    nurse staffing levels of chains' individual facilities compared
    to resident census, staff turnover rates, and tenure; (4)
    report findings and recommendations based on reviews, analyzes,
    and oversight the chains, individual facilities of the chain,
    the Secretary and states; and (5) publish the results of these
    reviews, analyses, and oversight.
        Chains that receive a report containing findings and
    recommendations from the independent monitor would be required
    to submit a report to the independent monitor within ten days
    of receipt of the independent monitors report. The report
    submitted by the chain would (1) outline corrective actions
    that will be taken to implement the recommendations of the
    independent monitor or (2) indicate that the chain would not
    implement the independent monitor's recommendations. The
    independent monitor would have ten days after receiving the
    corrective action report from the chain to issue its final
    recommendations and submit a report to the chain and facilities
    of the chain, the Secretary, and the state or states, as
    appropriate. Chains would be responsible for a portion of the
    costs associated with appointment of independent monitors.
        Within 180 days after completion of the independent monitor
    pilot program, the HHS OIG would be required to complete and
    submit an evaluation of the independent monitor program. The
    HHS OIG's evaluation would contain recommendations as to (1)
    the feasibility of making the independent monitor program
    permanent; (2) the identification of appropriate procedures and
    mechanisms to implement the independent monitor program
    permanently; and (3) required legislation and administrative
    actions as determined appropriate by the HHS OIG.

                  SEC. 4213. NOTIFICATION OF FACILITY CLOSURE

    Present Law

        Medicare and Medicaid law identifies patients' rights and
    SNF and NF requirements in ensuring residents are aware of
    their rights. Residents have specific discharge and transfer
    rights, which include advance notification in cases where
    facilities close.

    Committee Bill

        Within one year after the enactment of the Committee Bill,
    administrators of SNF and NF would be required to provide
    written notification to the Secretary, the state, the State LTC
    Ombudsman, as well as residents and their representatives (or
    other responsible parties) of an impending nursing facility
    closure. Facilities would be required in the notice to issue a
    plan for the transfer and relocation of residents. This
    notification would be required to be made at least 60 days
    before the SNF or NF closure. In cases where the Secretary
    terminates a facility's participation in Medicare or Medicaid,
    the notification would be required before the date the
    Secretary establishes for the facility termination. The
    administrator also would be required to not admit any new
    residents after the date the facility closure notice is issued.
    Any administrator of a facility that fails to comply with these
    requirements would be subject to a civil monetary penalty of up
    to $1,000,000 and any other applicable penalties prescribed by
    law, and may be subject to exclusion from participation in
    Federal health programs.
        The resident transfer plan must include assurances that
    residents will be transferred to the most appropriate facility
    or other settings in terms of quality, services, and location,
    taking into consideration the needs and best interests of each
    resident. States would be required to ensure that before a
    facility closes that all residents have been successfully
    relocated to another facility or an alternative home- and
    community-based setting. The Secretary would be authorized to
    continue making payments during the period beginning with the
    notification of intent to close and ending on the date when a
    resident is successfully transferred.

    SEC. 4214. NATIONAL DEMONSTRATION PROJECTS ON CULTURE CHANGE AND USE OF
                    INFORMATION TECHNOLOGY IN NURSING HOMES

    Present Law

        No provision.

    Committee Bill

        This Committee Bill would require the Secretary to conduct
    the following two demonstration projects for SNF and NF: (1)
    projects for the development of best practices for facilities
    involved in culture change; and (2) projects for the
    development of best practices in facilities for the use of
    information technology to improve resident care. The Secretary
    would be required to submit a report to Congress after
    completion of the demonstration projects that evaluates the
    projects and makes recommendations for legislation and
    administrative actions. The demonstration projects cannot
    exceed three years.
        Each demonstration project would be required to consider
    the special needs of NF and SNF residents with cognitive
    impairments, including dementia.

                       PART III--IMPROVING STAFF TRAINING

               SEC. 4221. DEMENTIA AND ABUSE PREVENTION TRAINING

    Present Law

        Medicare and Medicaid law have provisions that govern
    training for nurse aides for both SNF and NF. These laws
    require the Secretary to establish requirements for nurse aide
    training and competency evaluation programs as well as
    parameters for states to use in monitoring these programs.

    Committee Bill

        Within one year of enactment of the Committee Bill, the
    Secretary would be required to revise initial nurse aide
    training, competency, and evaluation program requirements to
    include dementia management training and patient abuse
    prevention. If determined to be appropriate, the Secretary also
    may include dementia management training and patient abuse
    prevention in ongoing nurse aide training, competency, and
    evaluation program requirements.

    Subtitle D--Nationwide Program for National and State Background Checks
      on Direct Patient Access Employees of Long-Term Care Facilities and
                                   Providers

    SEC. 4301. NATIONWIDE PROGRAM FOR NATIONAL AND STATE BACKGROUND CHECKS
      ON DIRECT PATIENT ACCESS EMPLOYEES OF LONG-TERM CARE FACILITIES AND
                                   PROVIDERS

    Present Law

        Section 307 of the Medicare Prescription Drug, Improvement,
    and Modernization Act (MMA) of 2003 (P.L. 108-173) established
    the framework for a program to evaluate national and state
    background checks on prospective employees who have direct
    access to patients of long-term services and supports (LTSS)
    facilities or providers. A pilot program was administered by
    CMS, in consultation with the Department of Justice (DoJ). The
    pilot program operated from January 2005 through September 2007
    in seven States (Alaska, Idaho, Illinois, Michigan, Nevada, New
    Mexico, and Wisconsin) selected by CMS.

    Committee Bill

        The Committee Bill would require the Secretary to establish
    a nationwide program for national and state background checks
    on direct patient access employees of certain (LTSS) facilities
    or providers and provide Federal matching funds to states to
    conduct these activities. Except for certain modifications
    described below, the Secretary would be required to carry out
    the nationwide program under similar terms and conditions as
    the Background Check Pilot program (``pilot program'') under
    Section 307 of the MMA, as specified. Under the nationwide
    program, the Secretary would be required to enter into
    agreements with newly participating states, as specified, and
    certain previously participating states, as specified.
        According to the procedures established under the pilot
    program, certain LTSS providers would be required to obtain
    State and national criminal history background checks on their
    prospective employees through such means as the Secretary
    determines appropriate, efficient, and effective. To conduct
    these checks, states would utilize a search of state-based
    abuse and neglect registries and specified state and Federal
    databases and records. States would be required to describe and
    test methods that reduce duplicative fingerprinting, including
    the development of a ``rap back'' capability, such that if an
    employee is convicted of a crime following the initial
    background check and the employee's fingerprints match the
    prints on file, the state will immediately inform the employer
    of such conviction. States would also require that background
    checks conducted under the program remain valid for a period of
    time specified by the Secretary.
        States that enter into an agreement with the Secretary
    would be responsible for monitoring compliance with the
    requirements of the nationwide program and have specified
    procedures in place, including procedures to: (1) conduct
    screening and criminal history background checks; (2) monitor
    compliance by LTSS facilities and providers; (3) provide for a
    provisional period of employment of a direct patient access
    employee, as specified; (4) provide procedures for an
    independent process by which a provisional employee or an
    employee may appeal or dispute the accuracy of the information
    obtained in a background check, as specified; (5) provide for
    the designation of a single state agency with specified
    responsibilities; (6) determine which individuals are direct
    patient access employees; (7) as appropriate, specify offenses,
    including convictions for violent crimes; and (8) describe and
    test methods that reduce duplicative fingerprinting, as
    specified.
        States would be required to guarantee (directly or through
    donations from public or private entities) a designated amount
    of non-Federal contributions to the program. The Federal
    government would provide a match equal to three times the
    amount a State guarantees; except that Federal funds would not
    exceed $3 million for newly participating States and $1.5
    million for previously participating States.
        The HHS OIG would be required to conduct an evaluation of
    the nationwide program, as specified, and submit a report to
    Congress no later than 180 days after completion of the
    national program. The Secretary of the Treasury would be
    required to transfer to HHS an amount specified by the HHS
    Secretary as necessary (not to exceed $160 million) to carry
    out the nationwide program for fiscal years 2010 through 2012.
    Such amounts would be required to remain available until
    expended. To provide for conducting the evaluation, the HHS
    Secretary would be authorized to reserve no more than $3
    million of the amount transferred.

                        Title V--Fraud, Waste, and Abuse

              Subtitle A--Medicare, Medicaid, and CHIP Provisions

     SEC. 5001. PROVIDER SCREENING AND OTHER ENROLLMENT REQUIREMENTS UNDER
                             MEDICARE AND MEDICAID

    Present Law

        Medicare statute requires the Secretary to establish a
    process for enrolling providers and suppliers in the Medicare
    program. As part of the enrollment process, the Centers for
    Medicare & Medicaid Services (CMS) collects information
    necessary to uniquely identify the provider (i.e., proof of
    business name, social security number, or tax ID number),
    including documentation necessary to verify licensure or
    eligibility to furnish Medicare covered items or services. CMS
    reserves the right to perform on-site inspections of a provider
    or supplier to verify compliance with enrollment requirements.
    If these requirements are not met, CMS may revoke Medicare
    billing privileges. Although it is not a statutory requirement,
    it is CMS policy that providers and suppliers resubmit and
    recertify the accuracy of their enrollment information every
    five years.
        Medicaid statute delegates the administration of the
    Medicaid program to the states. There is considerable variation
    in how states administer their provider enrollment processes.
    State Medicaid agencies determine whether a provider or
    supplier is eligible to participate in the Medicaid program
    through written agreements with providers and suppliers. The
    agreements require that providers and suppliers maintain
    specific records, disclose certain ownership information, and
    grant access to Federal and state auditors to books and
    records. States establish policies for provider and supplier
    re-enrollment, although Federal rules must be met for certain
    providers, such as nursing facilities and intermediate care
    facilities for the mentally retarded (ICF/MRs), which must have
    passed survey and certification inspection (at least every 15
    months) before they can be re-enrolled as Medicaid providers or
    suppliers.
        States are required to create a state plan for their
    Medicaid and CHIP programs that are subject to approval by CMS.
    These documents describe all aspects of each state's Medicaid
    and CHIP programs, including administrative activities,
    eligibility, enrollment, covered benefits, provider
    credentialing, provider reimbursement, quality assurance,
    beneficiary cost sharing, and many more program elements. In
    creating their Medicaid and CHIP plans, states must conform to
    Federal rules and guidance. Whenever states make changes to
    their Medicaid or CHIP programs, they must update their state
    plans by submitting a state plan amendment (SPA). SPAs also are
    subject to review and approval by CMS. As part of the Medicaid
    or CHIP plan, states establish participation requirements and
    reimbursement rules for different providers and suppliers that
    deliver services to Medicaid and CHIP beneficiaries.
        Since 1998, the Health and Human Services Office of
    Inspector General (HHS OIG) has been issuing a series of
    compliance guidance documents for providers participating in
    Federal health care programs to assist in preventing fraud,
    waste, and abuse. These documents encourage health care
    providers to adopt compliance programs and internal control
    measures to monitor their adherence to applicable rules,
    regulations, and requirements. The adoption of these programs
    is not mandatory. There is no Present Law explicitly directing
    health care providers to adopt compliance programs.

    Committee Bill

        The Committee Bill would require that the Secretary, in
    consultation with the HHS OIG, establish procedures for
    screening providers and suppliers participating in the
    Medicare, Medicaid, and CHIP programs. Such procedures must be
    established within six months from enactment. Screening
    requirements for new providers and suppliers would be effective
    within one year and within two years for current providers and
    suppliers. The Committee Bill requires that all providers be
    screened within three years from the date of enactment.
        The Secretary would be required to determine the level of
    screening according to the risk of fraud, waste, and abuse with
    respect to each category of providers or suppliers. At a
    minimum, all providers and suppliers would be subject to
    licensure checks. The Secretary would have the authority to
    impose additional screening measures based on risk, including
    fingerprinting, criminal background checks, multi-state data
    base inquiries, and random or unannounced site visits. The
    Secretary would also be required to establish procedures for a
    provisional period of between 30 days and one year during which
    new providers and suppliers would be subject to enhanced
    oversight, such as prepayment review and payment caps. The
    Secretary would have the authority to impose a moratorium on
    enrolling providers within a category of providers and
    suppliers if the Secretary determines that a moratorium is
    necessary to combat fraud, waste, and abuse. Moratoria would
    not be subject to judicial review. In Medicaid, states could
    receive exceptions to some of these requirements if they
    determined that compliance might reduce beneficiaries' access
    to Medicaid services.
        An application fee would be imposed on providers and
    suppliers to cover the costs of screening. The amount of the
    fee would be $350 in 2010, and for 2011 and beyond, the amount
    would be the fee for the preceding year adjusted by the
    percentage change in the Consumer Price Index (CPI). Current
    providers would be offered a discounted screening fee of $250
    if they pay it within 12 months of enactment. A hardship
    exception to the fee would be permitted. The Secretary would be
    required to use all of the fees collected to cover the costs of
    screening.
        In addition, within 90 days of enactment of this law, CMS
    would be required to establish a process for making available
    to each state Medicaid and CHIP agency the name, national
    provider identifier, and other identifying information for
    providers or suppliers who were terminated from the Medicare
    program. CMS would be required to make the information on
    terminated providers available within 30 days of the providers'
    or suppliers' termination.
        The Committee Bill would also impose new disclosure
    requirements on providers and suppliers enrolling or re-
    enrolling in Medicare, Medicaid, or CHIP. Applicants would be
    required to disclose current or previous affiliations with any
    provider or supplier that has uncollected debt, has had their
    payments suspended, has been excluded from participating in a
    Federal health care program, or has had their billing
    privileges revoked. The Secretary would be authorized to deny
    enrollment in these programs if these affiliations pose an
    undue risk to a program. Providers would be allowed to appeal
    the denial. To satisfy any past-due obligations, the Secretary
    would have the authority to adjust future payments to these
    providers.
        By a date determined by the Secretary, certain providers
    and suppliers would be required to establish a compliance
    program. The requirements for the compliance program would be
    developed by the Secretary and the HHS OIG. In Medicaid, states
    would require providers and suppliers to establish a compliance
    program for services provided under a Medicaid plan or waiver.
    The Secretary would be required to consider the extent to which
    compliance programs have been adopted by providers when
    creating a timeline for implementation.
        States would also be required to comply with the national
    system for reporting to the Secretary criminal and civil
    convictions, sanctions, negative licensure actions, and other
    adverse provider actions. These enhanced state compliance
    programs also would require that enrolling or ordering
    physicians and referring providers submit NPIs on claims under
    a Medicaid state plan or waiver. States could impose other
    compliance requirements on providers and suppliers.

     SEC. 5002. ENHANCED MEDICARE AND MEDICAID PROGRAM INTEGRITY PROVISIONS

    Present Law

        Integrated Data Repository. Currently, claims and payment
    data for Medicare and Medicaid are housed in multiple
    databases. CMS is in the process of consolidating information
    stored in these databases into an Integrated Data Repository
    (IDR).
        Access to Data. The Inspector General Act of 1978 (P.L. 95-
    452) and its amendments of 1988 (P.L. 100-504) granted
    inspectors general (IGs) substantial independence and powers to
    carry out their mandate to combat fraud, waste, and abuse. In
    carrying out their functions, IGs have broad authority,
    including subpoena power, to access all records and information
    of an agency.
        Overpayments. In accordance with CMS instructions,
    overpayments must be repaid to CMS within 30 days of receiving
    a demand letter. If the debt is not paid in full after 30 days,
    interest would be assessed and CMS reserves the right to
    collect the overpayment by adjusting future payments. Providers
    have the option to request an extended repayment plan to pay
    off the debt.
        National Provider Identifier. Health care providers often
    have many different provider numbers, one for billing each
    private insurance plan or public health care program. The
    administrative simplification provisions of Health Insurance
    Portability and Accountability Act (HIPAA, P.L. 104-191)
    required the adoption and use of a standard unique identifier
    for health care providers or National Provider Identifier
    (NPI). CMS issued its final rule implementing the NPI in
    January 2004. All health care providers who are considered
    covered entities under HIPAA were required to obtain and submit
    claims using an NPI as of May 2007. To receive an NPI,
    providers must submit an application to CMS. CMS requires an
    NPI as a condition of enrollment.
        Medicaid Management Information System. States are required
    to operate automated claims processing systems, or the Medicaid
    Management Information System (MMIS), to administer their state
    plans. The Secretary must approve states' MMISs and require
    them to meet a number of requirements including compatibility
    with Medicare claims processing and information systems, and
    consistency with uniform coding systems for claims processing
    and data interchange. Among other requirements, MMISs also must
    be capable of providing timely and accurate data, meet other
    specifications as required by the Secretary, and provide for
    electronic transmission of claims data as well as be consistent
    with Medicaid Statistical Information Systems data formats.
        Permissive Exclusions. HHS OIG has the authority to exclude
    health care providers from participation in Federal health care
    programs. Exclusions from Federal health programs are mandatory
    under certain circumstances and permissive in others (i.e., HHS
    OIG has discretion in whether to exclude an entity or
    individual). HHS OIG has permissive authority to exclude an
    entity or an individual from a Federal health program under
    numerous circumstances, including: conviction of certain
    misdemeanors relating to fraud, theft, embezzlement, breach of
    fiduciary duty or other financial misconduct, and revocation or
    suspension of a health care practitioner's license for reasons
    bearing on the individual's or entity's professional
    competence, professional performance, or financial integrity.
        Civil Monetary Penalties. Section 1128A(a) of the Social
    Security Act authorizes the imposition of civil monetary
    penalties (CMPs) and assessments on a person, including an
    organization, agency, or other entity, who engages in various
    types of improper conduct with respect to Federal health care
    programs, including the imposition of penalties against a
    person who knowingly presents or causes to be presented false
    or fraudulent claims. This section generally provides for CMPs
    of up to $10,000 for each item or service claimed, $15,000 or
    $50,000 under other circumstances, and an assessment of up to
    three times the amount claimed.
        Testimonial Subpoena Authority. The testimonial subpoena
    authority grants the authority to issue subpoenas and require
    the attendance and testimony of witnesses and the production of
    any other evidence that relates to matters under investigation
    or in question.
        Surety Bonds. To be eligible to receive a provider number
    from CMS and bill Medicare, durable medical equipment (DME)
    suppliers are required to provide the Secretary with a surety
    bond in the amount of $50,000 or greater. A surety bond issued
    by a state would satisfy this requirement. The Secretary has
    the authority to impose these requirements on other Medicare
    Part A and B providers and suppliers, except physicians. Home
    health agencies are required to provide the Secretary with a
    surety bond equal to ten percent of the aggregate Medicare and
    Medicaid payments made to the agency for that year or $50,000,
    whichever is smaller. A surety bond for a home health agency is
    effective for four years, with limited exceptions.
        Payment Suspensions. CMS and its contractors have the
    authority to withhold payment in whole or in part if there is
    reliable evidence of an overpayment or fraud. CMS regulations
    stipulate the procedures CMS and its contractors must follow
    when deciding to suspend payment.
        Health Care Fraud and Abuse Control Account. Medicare
    program integrity and anti-fraud activities are funded through
    the Health Care Fraud and Abuse Control (HCFAC) program. HCFAC
    was established by HIPAA, which sought to increase and
    stabilize Federal funding for health care anti-fraud
    activities. HIPAA appropriated funds to HHS, the HHS OIG, the
    Department of Justice (DOJ), and the Federal Bureau of
    Investigation (FBI) for activities undertaken for fiscal years
    1997 through 2003. For each fiscal year after 2003, the amount
    was capped at the 2003 level. In December 2006, Congress passed
    the Tax Relief and Health Care Act of 2006 (P.L. 109-432) which
    extended the mandatory annual appropriation for HCFAC to 2010.
    For fiscal years 2007 through 2010, the mandatory annual
    appropriation is the limit for the preceding year plus the
    percentage increase in the Consumer Price Index for urban
    consumers (CPI-U). For each fiscal year beyond 2010, the
    mandatory annual appropriation was capped at the FY2010 level.
        Every year, HHS and the DOJ are required to release a joint
    annual report to Congress on HCFAC results and accomplishments.
    These reports include numbers and examples of enforcement
    actions, program accomplishments, and amounts deposited into
    the Health Insurance Trust Fund resulting from health care
    fraud enforcement activities. Congress did not require that HHS
    and DOJ include expenditures or results for the Medicare
    Integrity Program in these reports.
        Medicare and Medicaid Integrity Programs. Under the
    Medicare Integrity Program (Medicare MIP), CMS contracts with
    private entities to conduct a variety of activities designed to
    protect Medicare from fraud, waste, and abuse. Activities
    include auditing providers, identifying and recovering improper
    payments, educating providers about fraudulent activities, and
    instituting a Medicare-Medicaid data matching program.
    Established by the Deficit Reduction Act of 2005 (DRA, P.L.
    109-171), the Medicaid Integrity Program (Medicaid MIP) is
    modeled after Medicare's MIP program. Medicaid MIP provides HHS
    with dedicated resources to promote Medicaid integrity; to
    contract with entities to reduce fraud, waste, and abuse; and
    to add 100 full-time equivalent Medicaid MIP staff. Annual
    Medicaid MIP reports to Congress on program accomplishments and
    use of funds are required. In addition, the Secretary is
    required to develop comprehensive five-year plans for Medicaid
    MIP.

    Committee Bill

        Integrated Data Repository. The Committee Bill would
    require CMS to include in the IDR claims and payment data from
    the following programs: Medicare (Parts A, B, C, and D),
    Medicaid, CHIP, health-related programs administered by the
    Departments of Veterans Affairs (VA) and Defense (DOD), the
    Social Security Administration, and the Indian Health Service
    (IHS). Integrating Medicare and Medicaid data would be a top
    priority. Data from the remaining Federal health programs would
    be integrated as appropriate.
        Access to Data. The Secretary would be required to enter
    into data-sharing agreements with the Commissioner of Social
    Security, the Secretaries of the VA and DOD, and the Director
    of the IHS to help identity fraud, waste, and abuse. The
    Committee Bill would grant the HHS OIG and DOJ access to the
    IDR for the purposes of conducting law enforcement and
    oversight activities consistent with applicable privacy,
    security, and disclosure laws, including HIPAA and title V of
    the United States Code (USC). For the purpose of protecting
    program integrity, the provision would also grant the HHS OIG
    authority to obtain information from certain individuals or
    entities, such as providers or suppliers that either directly
    or indirectly provide medical items and services under a
    Federal health care program. This includes access to any
    documentation necessary to support a claim under Medicare,
    Medicaid, or CHIP (i.e., medical records). The provision would
    require the Social Security Commissioner, upon request by the
    Secretary or the HHS IG, to enter into an agreement for the
    purpose of matching data between SSA and HHS. Agreements would
    be required to include safeguards to assure confidentiality.
        Individuals who knowingly participate in fraud would be
    subject to administrative penalties imposed by the Secretary.
        Overpayments. The Committee Bill would require that
    overpayments be reported and returned within 60 days from the
    date the overpayment was identified or by the date a
    corresponding cost report was due, whichever is later.
        National Provider Identifier. The Committee Bill would
    require the Secretary to issue a regulation mandating that all
    Medicare, Medicaid, and CHIP providers include their NPI on
    enrollment applications.
        Medicaid Management Information System. The Secretary would
    have authority to withhold the Federal matching payment to
    states for medical assistance expenditures when the state does
    not report enrollee encounter data (as defined by the
    Secretary) in a timely manner (as determined by the Secretary)
    to the state's MMIS.
        Permissive Exclusions. The Committee Bill would subject
    providers and suppliers to exclusion for providing false
    information on any application to enroll or participate in a
    Federal health care program. In addition to providers and
    suppliers, the provision would apply to Medicaid managed care
    organizations, Medicare Advantage (MA) organizations and MA
    plans, Prescription Drug Plan (PDP) sponsors and plans, and
    providers and suppliers that participate in these Medicare or
    Medicaid plans.
        Civil Monetary Penalties. The Committee Bill would add
    specific actions that would be subject to CMPs. Specifically,
    excluded individuals who order or prescribe an item or service,
    make false statements on applications or contracts to
    participate in a Federal health care program, or who know of an
    overpayment and do not return the overpayment would be subject
    to CMPs of $50,000 for each violation. In addition to providers
    and suppliers, the provision would apply to Medicaid managed
    care organizations, Medicare Advantage (MA) organizations and
    plans, Prescription Drug Plan (PDP) sponsors and plans, and
    providers and suppliers that participate in these Medicare or
    Medicaid plans. In addition, such a person may be subject to an
    assessment of not more than three times the amount claimed as
    the result of the false statement, omission, or
    misrepresentation.
        Testimonial Subpoena Authority. Sections 205(d) and (e) of
    the Social Security Act would apply with respect to the
    Secretary's program exclusion authority. The Secretary would be
    able to issue subpoenas and require the attendance and
    testimony of witnesses and the production of any other evidence
    that relates to matters under investigation or in question by
    the Secretary. The Secretary would also have the ability to
    delegate this authority to the HHS OIG and the Administrator of
    CMS for the purposes of a program exclusion investigation.
    Certain requirements regarding the serving of subpoenas and
    compensation for subpoenaed witnesses may apply. This section
    would also provide for judicial enforcement of subpoenas,
    including in cases where a person refuses to obey a properly
    served subpoena. The Committee Bill would apply to
    investigations beginning on or after January 1, 2010.
        Surety Bonds. The Committee Bill would require that the
    Secretary take into account the volume of billing for a DME
    supplier and home health agency when determining the size of
    the surety bond. The Secretary would have the authority to
    impose this requirement on other providers and suppliers
    considered to be at risk by the Secretary. The Committee Bill
    would retain the Secretary's authority to waive the requirement
    for providers that receive a comparable surety bond under state
    law.
        Payment Suspensions. The Secretary would have the authority
    to suspend payments to a provider or supplier pending a fraud
    investigation, except when there is not good cause.
        Health Care Fraud and Abuse Control Account. HCFAC funding
    would be increased by $10 million each year for fiscal years
    2011 through 2020. The provision would also permanently apply
    the CPI-U adjustment to HCFAC and MIP funding. Funds would be
    allocated in the same manner as in Present Law and would be
    available until expended.
        Medicare and Medicaid Integrity Programs. The Committee
    Bill would require Medicare and Medicaid Integrity Program
    contractors to provide the Secretary and the HHS OIG with
    performance statistics, including the number and amount of
    overpayments recovered, the number of fraud referrals, and the
    return on investment for such activities. The Secretary would
    also be required to conduct evaluations of eligible entities
    not less than every three years. No later than six months after
    the end of the fiscal year, the Secretary would be required to
    submit a report to Congress describing the use and
    effectiveness of MIP funds.

    SEC. 5003. ELIMINATION OF DUPLICATION BETWEEN THE HEALTHCARE INTEGRITY
        AND PROTECTION DATA BANK AND THE NATIONAL PRACTITIONER DATA BANK

    Present Law

        The Social Security Act requires the Secretary to develop
    and maintain a national health care fraud and abuse data
    collection program for the reporting of adverse actions taken
    against health care providers or suppliers. The statute
    requires the following types of health care related adverse
    actions be reported to the Healthcare Integrity and Protection
    Data Bank (HIPDB): civil judgments, Federal or state criminal
    convictions, actions taken by Federal or state licensing
    agencies, and provider exclusions from Medicare and Medicaid.
    Only final adverse actions are reportable to the HIPDB.
    Administrative fines, citations, corrective action plans, and
    other personnel actions are not reportable except under certain
    circumstances. Settlements, in which a finding of liability has
    not been established, are also not reportable. Federal and
    state government agencies as well as health plans are required
    to report to the HIPDB. Health plans that fail to report are
    subject to a civil monetary penalty of $25,000. The Secretary
    is required to publish a report identifying government agencies
    that fail to report to the HIPDB. HIPDB cannot duplicate the
    reporting requirements established for the National
    Practitioner Data Bank (NPDB).
        Title IV of the Health Care Quality Improvement Act of 1986
    (HCQIA, P.L. 99-660), as amended, established the NPDB. The
    NPDB collects and releases data related to the professional
    competence of physicians, dentists, and certain health care
    practitioners. The types of information included in the NPDB
    are medical malpractice payments, certain adverse licensure
    actions, adverse privilege actions, adverse professional
    society actions, and exclusions from Medicare and Medicaid. The
    statute defines the entities eligible to report and query the
    databank. Malpractice payers that fail to report are subject to
    a civil monetary penalty.
        Section 1921 of the Social Security Act expanded the scope
    of reporting requirements for the NPDB to encompass additional
    adverse licensure actions and actions taken by state licensing
    and certification agencies, peer review organizations, and
    private accreditation organizations. Section 1921 also required
    that actions taken against all health care practitioners be
    included in the databank. States are required to have a system
    for reporting adverse actions to the NPDB. A final rule
    implementing section 1921 has not yet been promulgated.

    Committee Bill

        The Committee Bill would require the Secretary to maintain
    a national health care fraud and abuse data collection program
    for reporting certain adverse actions taken against health care
    providers, suppliers, and practitioners, and submit information
    on the actions to the NPDB. Certain agencies and officials as
    well as health care providers that were subject to such adverse
    actions would have access to this information, at a reasonable
    fee established by the Secretary. During implementation, the
    Secretary would be required to take into account the adverse
    event reporting requirements established under Part B of the
    Health Care Quality Improvement Act of 1986 and those mandated
    for states under section 1921 of the Social Security Act.
        The Committee Bill would modify the information reporting
    requirements for states under Section 1921 and add a
    requirement that states have a system for reporting information
    with respect to any final adverse action taken against a health
    care provider, supplier, or practitioner. States would also be
    required to provide the Secretary with access to documents held
    by a state licensing or certification agency or state law or
    fraud enforcement agency. Individuals and entities would be
    protected from any liability with respect to the reporting of
    this type of information.
        Upon enactment, this provision would require the Secretary
    to establish a process to terminate the HIPDB and ensure that
    the information that was formerly collected in the HIPDB is
    transferred to the NPDB. The transition would be funded from
    the fees collected to access the database and from additional
    amounts as necessary from the annual HCFAC appropriation
    available to the Secretary and the HHS OIG. The Department of
    Veterans Affairs (VA) would be exempted from these charges for
    one year.

     SEC. 5004. MAXIMUM PERIOD OF SUBMISSION OF MEDICARE CLAIMS REDUCED TO
                            NOT MORE THAN 12 MONTHS

    Present Law

        Medicare statute requires that payments only be made if a
    written request for payment is filed within three calendar
    years after the year in which the services were provided. The
    Secretary is authorized to reduce this period to no less than
    one year if it deems it necessary for the efficient
    administration of the program. As established by CMS
    regulations, the time limit on submitting a claim for payment
    is the close of the calendar year after the year in which the
    services were furnished.

    Committee Bill

        Beginning January 2010, the maximum period for submission
    of Medicare claims would be reduced to not more than 12 months.

       SEC. 5005. PHYSICIANS WHO ORDER ITEMS AND SERVICES REQUIRED TO BE
             MEDICARE ENROLLED PHYSICIANS OR ELIGIBLE PROFESSIONALS

    Present Law

        Medicare statute defines ``eligible professionals'' as
    physicians, certain types of practitioners (i.e., physician
    assistants, nurse practitioners, clinical social workers, and
    others), physical or occupational therapists, qualified speech
    language pathologists, or qualified audiologists.

    Committee Bill

        Beginning January 1, 2010, the Committee Bill would require
    durable medical equipment or home health services to be ordered
    by a Medicare eligible professional or physician enrolled in
    the Medicare program. The Secretary would have the authority to
    extend these requirements to other Medicare items and services,
    including covered Part D drugs, to reduce fraud, waste, and
    abuse.

       SEC. 5006. REQUIREMENT FOR PHYSICIANS TO PROVIDE DOCUMENTATION ON
             REFERRALS TO PROGRAMS AT HIGH RISK OF WASTE AND ABUSE

    Present Law

        HHS OIG has permissive authority to exclude an entity or an
    individual from a Federal health care program under numerous
    circumstances, including failing to supply documentation
    related to payment for items and services.

    Committee Bill

        Beginning January 1, 2010, the Secretary would have the
    authority to disenroll, for no more than one year, a Medicare
    enrolled physician or supplier that fails to maintain and
    provide access to written orders or requests for payment for
    DME, certification for home health services, or referrals for
    other items and services. The provision would also extend the
    HHS OIG's permissive exclusion authority to include individuals
    or entities that order, refer, or certify the need for health
    care services that fail to provide adequate documentation to
    verify payment.

        SEC. 5007. FACE-TO-FACE ENCOUNTER WITH PATIENT REQUIRED BEFORE
    PHYSICIANS MAY CERTIFY ELIGIBILITY FOR HOME HEALTH SERVICES OR DURABLE
                        MEDICAL EQUIPMENT UNDER MEDICARE

    Present Law

        Home health services are covered under Medicare Parts A and
    B. In order to receive payment from Medicare, physicians are
    required to certify and re-certify that specified services
    (i.e., inpatient psychiatric services, post-hospital extended
    care services, and home health services) meet certain
    conditions. In the case of home health services, physicians are
    required to certify that such services were required because
    the individual was confined to his home and needed skilled
    nursing care or physical, speech, or occupational therapy; a
    plan for furnishing services to the individual has been
    established; and such services were provided under the care of
    a physician.
        In the case of DME, the Secretary is authorized to require
    that payment be made for specified covered items and services
    only if a physician has submitted to the supplier a written
    order for the item.

    Committee Bill

        The Committee Bill would require that, after January 1,
    2010, physicians have a face-to-face encounter (including
    through telehealth) with the individual prior to issuing a
    certification for home health services or DME as a condition
    for payment under Medicare Parts A and B. The Committee Bill
    would also apply to physicians making home health and DME
    certifications in Medicaid and CHIP. Physicians must document
    that they had the face-to-face encounter with the individual
    during the six-month period preceding the certification, or
    other reasonable timeframe as determined by the Secretary. The
    Secretary would be authorized to apply the face-to-face
    encounter requirement to other Medicare items and services
    based upon a finding that doing so would reduce the risk of
    fraud, waste, and abuse.

                         SEC. 5008. ENHANCED PENALTIES

    Present Law

        Section 1128A(a) of the Social Security Act authorizes the
    imposition of civil monetary penalties (CMPs) and assessments
    on a person, including an organization, agency, or other
    entity, who engages in various types of improper conduct with
    respect to Federal health care programs. This includes the
    imposition of penalties against a person who knowingly presents
    or causes to be presented false or fraudulent claims. This
    section generally provides for CMPs of up to $10,000 for each
    item or service claimed, $15,000 or $50,000 under other
    circumstances, and an assessment of up to three times the
    amount claimed.
        Medicare Advantage (MA) plans enter into contracts with the
    Secretary to participate in the Medicare program. The Secretary
    has the authority to impose sanctions and CMPs on MA plans that
    violate the terms of the contract. Among the violations for
    which CMPs are authorized are failing to provide medically
    necessary care, imposing excess beneficiary premiums, expelling
    or refusing to re-enroll beneficiaries, discouraging or denying
    enrollment among eligible individuals expected to require
    future medical services, misrepresenting or falsifying
    information, failing to comply with balance billing
    requirements, interfering with a provider's advice to
    beneficiaries, and contracting with providers excluded from the
    Medicare program. For violations related to discouraging or
    denying enrollment or misrepresenting information provided to
    the Secretary, the Secretary can impose a maximum penalty of
    $100,000. For all other violations, the maximum penalty is
    $25,000. The Secretary has the authority to impose additional
    penalties for imposing excess beneficiary premiums and engaging
    in activities that discourage enrollment.

    Committee Bill

        The Committee Bill would add a new clause to the CMP
    statute: persons who fail to grant timely access, upon
    reasonable request to the HHS OIG, for the purpose of audits,
    investigations, evaluations, or other statutory functions of
    the HHS OIG, would be subject to CMPs of $15,000 for each day
    of failure. The provision would also modify the contractual
    requirements for MA plans to allow the Secretary to conduct
    timely audits and inspections of MA plans.
        The Committee Bill would provide that persons who knowingly
    make, use, or cause to be made or used any false statement or
    record material to a false or fraudulent claim submitted for
    payment to a Federal health care program would be subject to a
    civil monetary penalty of $50,000 for each violation. This
    amendment would apply to violations committed on or after
    January 1, 2010.
        The Committee Bill would increase the number of violations
    that could be subject to the imposition of sanctions and CMPs
    by the Secretary. Beginning on the date this bill is enacted,
    plans that: (1) enroll individuals in an MA or Part D plan
    without their consent (except Part D dual eligibles), (2)
    transfer an individual from one plan to another for the purpose
    of earning a commission, (3) fail to comply with marketing
    requirements and CMS guidance, or (4) employ or contract with
    an individual or entity that commits a violation, would be
    subject to sanctions imposed by the Secretary. Sanctions would
    apply to any employee or agent of an MA or Part D plan, or any
    provider or supplier who contracts with an MA or Part D plan.
        The Committee Bill would enhance penalties for MA and Part
    D plans that misrepresent or falsify information to include an
    assessment of up to three times the amount claimed by a plan or
    plan sponsor based on the misrepresentation or falsified
    information. The provision would apply to violations committed
    on or after January 1, 2010.

             SEC. 5009. MEDICARE SELF-REFERRAL DISCLOSURE PROTOCOL

    Present Law

        The Federal prohibition on physician self-referrals
    (section 1877 of the Social Security Act) generally provides
    that if a physician (or an immediate family member of a
    physician) has a financial relationship with an entity, the
    physician may not make a referral to the entity for the
    furnishing of designated health services (DHS) for which
    payment may be made under Medicare or Medicaid. Also, the
    entity may not present (or cause to be presented) a claim to
    the Federal health care program or bill to any individual,
    third-party payer, or other entity for DHS furnished pursuant
    to a prohibited referral.
        Under section 1128B of the Social Security Act, commonly
    referred to as the anti-kickback statute, it is a felony for a
    person to knowingly and willfully offer, pay, solicit, or
    receive anything of value (i.e., remuneration), directly or
    indirectly, overtly or covertly, in cash or in kind, in return
    for a referral or to induce generation of business reimbursable
    under a Federal health care program.
        Violations of these statutes may be subject to various
    penalties. Persons found guilty of violating the anti-kickback
    statute may be subject to a fine of up to $25,000, imprisonment
    of up to five years, and exclusion from participation in
    Federal health care programs for up to one year. Violators of
    the physician self-referral law may be subject to sanctions
    including a denial of payment for relevant services, CMPs, and
    exclusion from participation in the Medicare and Medicaid
    programs. In addition, the physician self-referral law requires
    a person who collects any amount that was billed in violation
    of the Social Security Act to refund the amount to the
    individual billed in a timely manner.
        In 1998, the HHS OIG issued a self-disclosure protocol
    (SDP), which included a process by which a health care provider
    could voluntarily self-disclose evidence of potential fraud, in
    an effort to avoid the costs or disruptions that may be
    associated with an investigation or litigation. On March 24,
    2009, HHS OIG issued an ``Open Letter to Health Care
    Providers'' that makes refinements to the SDP. In the Open
    Letter, HHS OIG announced that it would no longer accept
    disclosure of a matter that involves only liability under the
    physician self-referral law in ``the absence of a colorable
    anti-kickback statute violation.'' Further, for anti-kickback-
    related submissions accepted into the SDP following the date of
    the letter, HHS OIG requires a minimum $50,000 settlement
    amount to resolve the matter.

    Committee Bill

        Within six months of enactment, the Secretary, in
    cooperation with the HHS OIG, would be required to establish a
    self-referral disclosure protocol (SRDP) to enable health care
    providers and suppliers to disclose actual or potential
    violations of the physician self-referral law. The SRDP would
    be required to include direction to health care providers and
    suppliers on: (1) a specific person, official, or office to
    which such disclosures would be made and (2) instruction on the
    implication of the SRDP on corporate integrity agreements and
    corporate compliance agreements.
        In addition, the Secretary would be required to post
    information on CMS' website to inform stakeholders of how to
    disclose actual or potential SRDP violations. The Secretary
    would be authorized to reduce the amount for self-referral
    violations to an amount less than the amount specified in the
    self-referral statute and regulations. In establishing
    violation amounts, the Secretary could consider: (1) the nature
    and extent of the improper illegal practice, (2) the timeliness
    of the self-disclosure, (3) the cooperation in providing
    additional information on the disclosure, and (4) other factors
    the Secretary considers appropriate.
        Within 18 months of establishment of the SRDP, the
    Secretary would be required to submit to Congress a report on
    the implementation of the self-referral disclosure protocol
    under this provision. The Secretary's report would be required
    to include: (1) the number of health care providers and
    suppliers making disclosures, (2) the amounts collected, (3)
    the types of violations reported, and (4) other information
    that may be necessary to evaluate the impact of this section.

       SEC. 5010. ADJUSTMENTS TO THE MEDICARE DURABLE MEDICAL EQUIPMENT,
      PROSTHETICS, ORTHOTICS, AND SUPPLIES COMPETITIVE ACQUISITION PROGRAM

    Present Law

        Medicare Part B covers a wide variety of durable medical
    equipment, prosthetics, orthotics, and other medical supplies
    (DMEPOS) if they are medically necessary and are prescribed by
    a physician.
        Medicare pays for most durable medical equipment (DME) on
    the basis of a fee schedule. The Medicare Prescription Drug
    Improvement and Modernization Act of 2003 (MMA, P.L. 108-173)
    required the Secretary to establish a competitive acquisition
    program for specified durable medical equipment; the single
    payment amount derived from the competitive acquisition program
    would replace the Medicare fee schedule payments. The Medicare
    Improvements for Patients and Providers Act of 2008 (MIPPA,
    P.L. 110-271) delayed the phase-in and made changes to the
    program. The program is to be phased-in, starting in nine of
    the largest metropolitan statistical areas (MSAs) in 2009
    (round one), expanding to an additional 70 of the largest MSAs
    in 2011 (round two), and remaining areas after 2011.
        Starting in 2011, the Secretary has the authority to use
    information on payments determined in competitive acquisition
    areas to adjust payments for items and services in non-
    competitive acquisition areas. Before 2015, the following three
    types of areas are exempt from the competitive acquisition
    program: (a) rural areas; (b) metropolitan statistical areas
    (MSA) not selected under round one or round two with a
    population of less than 250,000; and (c) areas with a low
    population density within an MSA that is otherwise selected to
    be part of the competitive acquisition program.

    Committee Bill

        The Committee Bill would require the Secretary to expand
    the number of areas to be included in Round Two of the program
    from 79 of the largest MSAs to 100 of the largest MSAs by
    including the next 21 largest MSAs by population. The provision
    would also require that the Secretary extend the competitive
    acquisition program, or apply competitively-bid rates, to the
    remaining areas by 2016. All other provisions in Present Law
    would remain in place, such as the Secretary's discretion to
    exempt rural areas and areas with low population density within
    an MSA.

      SEC. 5011. EXPANSION OF THE RECOVERY AUDIT CONTRACTOR (RAC) PROGRAM

    Present Law

        Recovery Audit Contractors (RACs) are private organizations
    that contract with the CMS to identify and collect improper
    payments made in Medicare's fee-for-service (FFS) program. In
    the Medicare Prescription Drug, Improvement, and Modernization
    Act of 2003 (MMA, P.L. 108-173), Congress required the
    Secretary to conduct a three-year demonstration of RACs.
    However, the Tax Relief and Health Care Act of 2006 (TRHCA,
    P.L. 109-432) made the RAC program permanent and mandated its
    expansion nationwide by January 1, 2010. The RAC program
    expansion still applied only to Medicare Parts A and B. CMS
    began the national rollout of the permanent RAC program in 19
    states in March 2009.

    Committee Bill

        By December 31, 2010, states would be required to establish
    contracts, consistent with state law, and similar to the
    contracts the Secretary has established for the Medicare RAC
    program, with one or more RACs. These state RAC contracts would
    be established to identify underpayments and overpayments and
    to recoup overpayments made for services provided under state
    Medicaid plans as well as state plan waivers.
        The state Medicaid RAC program would be subject to
    exceptions and requirements the Secretary may establish for the
    state RAC program or for individual states. States would be
    required to provide the Secretary with the following assurances
    for their RAC programs:
              (1) RACs would be paid only from recovered amounts;
              (2) the contracts would be contingent on collecting
            overpayments;
              (3) payments may be made in such amounts as the state
            may specify for identifying underpayments;
              (4) the state has a process for appealing adverse RAC
            determinations;
              (5) the state's RAC program follows requirements
            established by the Secretary;
              (6) amounts expended by the state would be considered
            administrative expenditures (as necessary for the
            proper and efficient administration of the state plan
            or waiver);
              (7) recovered amounts would be subject to a state's
            quarterly expenditure estimates and the funding of the
            state's share; and
              (8) the state will coordinate the efforts of RACs
            with other program integrity contractors performing
            audits of entities receiving payments for any Medicaid
            services, including coordination with Federal and state
            law enforcement (the Department of Justice, the Federal
            Bureau of Investigation, the HHS OIG, and the state
            Medicaid fraud control unit.
        The Secretary, acting through CMS, would be required to
    coordinate with states on the RAC program expansion to
    Medicaid, particularly to ensure that each state enters into a
    contract with a RAC prior to December 31, 2010. The Secretary
    would be required to promulgate regulations to implement the
    RAC program expansion to Medicaid, including conditions for
    Federal financial participation.
        In addition, the Secretary would be required to submit an
    annual report to Congress. The Secretary's report would assess
    the effectiveness of the RAC program expansion to Medicaid and
    Medicare Parts C and D and also would include recommendations
    for expanding or improving the program.

                   Subtitle B--Additional Medicaid Provisions

      SEC. 5101. TERMINATION OF PROVIDER PARTICIPATION UNDER MEDICAID IF
                 TERMINATED UNDER MEDICARE OR OTHER STATE PLAN

    Present Law

        Subject to certain exceptions, the Secretary is required to
    exclude from Medicare or Medicaid program participation
    providers that: (1) have been convicted of a criminal offense
    related to the delivery of an item or service under Medicare or
    under any state health care program; (2) have been convicted,
    under Federal or state law, of a criminal offense relating to
    neglect or abuse of patients in connection with the delivery of
    a health care item or service; (3) have been convicted of a
    felony conviction related to health care fraud, theft,
    embezzlement, breach of fiduciary responsibility, or other
    financial misconduct; or (4) have been convicted of a felony
    relating to the unlawful manufacture, distribution,
    prescription, or dispensing of a controlled substance.
        The Secretary also may exclude from Medicare or Medicaid
    participation providers or individuals involved in acts
    specifically prohibited, such as program-related convictions,
    license revocation, failure to supply information, and default
    on loan or scholarship obligations. CMS must promptly notify
    HHS OIG of the receipt of any application for participation
    that identifies any principal of a provider that has engaged in
    prohibited activities.

    Committee Bill

        Under the Committee Bill, states would be required to
    terminate individuals or entities from their Medicaid programs
    if the individuals or entities were terminated from Medicare or
    another state's Medicaid program (subject to exclusion
    exceptions allowed under the Social Security Act).

     SEC. 5102. MEDICAID EXCLUSION FROM PARTICIPATION RELATING TO CERTAIN
                OWNERSHIP, CONTROL, AND MANAGEMENT AFFILIATIONS

    Present Law

        Subject to Federal rules and guidance, states are required
    to create a state plan for their Medicaid programs that is
    subject to approval by CMS. State plans describe all aspects of
    the state's Medicaid program, including participation
    requirements and reimbursement rules for different providers
    and suppliers that deliver services to Medicaid beneficiaries.
    Medicaid law requires states to exclude individuals or entities
    from Medicaid participation when a state is directed to do so
    by the Secretary and to deny payment for any item or service
    furnished by the individual or entity. States are required to
    exclude these individuals and deny payment for a period
    specified by the Secretary.

    Committee Bill

        Under the Committee Bill, Medicaid agencies would be
    required to exclude individuals or entities from participating
    in Medicaid for a specified period of time if the entity or
    individual owns, controls, or manages an entity that: (1) has
    failed to repay overpayments during the period as determined by
    the Secretary; (2) is suspended, excluded, or terminated from
    participation in any Medicaid program; or (3) is affiliated
    with an individual or entity that has been suspended, excluded,
    or terminated from Medicaid participation.

     SEC. 5103. BILLING AGENTS, CLEARINGHOUSES, OR OTHER ALTERNATE PAYEES
                      REQUIRED TO REGISTER UNDER MEDICAID

    Present Law

        As a condition of participation, certification, or
    recertification in Medicaid, the Secretary requires disclosing
    entities to supply upon request, either to the Secretary or the
    state Medicaid agency, information on the identity of each
    person with ownership or control interests in the entity or
    subcontractor that is equal to five percent or more of such
    entity. Disclosing entities include providers of service,
    independent clinical laboratories, renal disease facilities,
    managed care organizations or health maintenance organizations,
    entities (other than individual practitioners or groups of
    practitioners) that furnish or arrange for services, carriers
    or other agencies, or organizations that act as fiscal
    intermediaries or agents for service providers. Federal rules
    applicable to Medicaid state plans also require states to
    exclude individuals or entities from Medicaid participation
    when a state is directed to do so by the Secretary and to deny
    payment for any item or service furnished by the individual or
    entity. States are required to exclude these individuals and
    deny payment for a period as specified by the Secretary.

    Committee Bill

        Under the Committee Bill, any agents, clearinghouses, or
    other alternate payees that submit claims on behalf of health
    care providers would be required to register with the state and
    the Secretary in a form and manner specified by the Secretary.

     SEC. 5104. REQUIREMENT TO REPORT EXPANDED SET OF DATA ELEMENTS UNDER
                         MMIS TO DETECT FRAUD AND ABUSE

    Present Law

        States are required to operate automated claims processing
    systems, or the Medicaid Management Information System (MMIS),
    to administer their state plans. The Secretary must approve
    states' MMISs to ensure that they meet a number of requirements
    including compatibility with Medicare claims processing and
    information systems and consistency with uniform coding systems
    for claims processing and data interchange. Among other
    requirements, MMISs also must be capable of providing timely
    and accurate data, provide for electronic transmission of
    claims data and be consistent with Medicaid Statistical
    Information Systems data formats, and meet other specifications
    as required by the Secretary.

    Committee Bill

        Beginning January 1, 2010, states would be required to
    submit from the automated data system data elements as
    determined necessary by the Secretary for program integrity,
    program oversight, and administration. The Secretary also would
    determine how frequently these data would need to be submitted.
    In addition, Medicaid managed care entities would be required
    to submit data elements as determined necessary by the
    Secretary for program integrity, program oversight, and
    administration. Medicaid managed care organizations would need
    to submit these data for contract years beginning January 1,
    2010 at a frequency to be determined by the Secretary.

    SEC. 5105. PROHIBITION ON PAYMENTS TO INSTITUTIONS OR ENTITIES LOCATED
                          OUTSIDE OF THE UNITED STATES

    Present Law

        No provision.

    Committee Bill

        Under the Committee Bill, states would be prohibited from
    making any payments for items or services provided under a
    Medicaid state plan or waiver to any financial institution or
    entity located outside of the United States.

                            SEC. 5106. OVERPAYMENTS

    Present Law

        Under Present Law, when states discover that overpayments
    have been made to individuals or other entities, they have 60
    days to recover or attempt to recover the overpayment before an
    adjustment is made to their Federal matching payment.
    Adjustments in Federal payments are made at the end of the 60
    days, whether or not recovery is made. When states are unable
    to recover overpayments because the debts were discharged in
    bankruptcy or were otherwise uncollectable, Federal matching
    payments would not be adjusted or would be readjusted in cases
    where the 60 day recovery deadline had passed.

    Committee Bill

        The Committee Bill would extend the period for states to
    repay overpayments to one year when a final determination of
    the amount of the overpayment has not been determined due to an
    ongoing judicial or administrative process. When overpayments
    due to fraud are pending, state repayments of the Federal
    portion would not be due until 30 days after the date of the
    final judgment. This amendment would take effect on the date of
    enactment and apply to overpayments discovered after that date.

      SEC. 5107. MANDATORY STATE USE OF NATIONAL CORRECT CODING INITIATIVE

    Present Law

        In 1996, to help ensure correct payment for reimbursement
    claims, Centers for Medicare & Medicaid Services implemented a
    national correct coding initiative (NCCI). Under NCCI, CMS'
    contractors use automated pre-payment edits to review Medicare
    claims submitted by Part B providers. Medicare contractors use
    software to scan claims and apply NCCI edits designed to detect
    anomalies that indicate a claim has incorrect information. For
    example, NCCI edits can detect claims with duplicate services
    delivered to the same beneficiary on the same date of service.
    In addition, by comparing medical billing codes, NCCI software
    can identify when medical procedures were billed erroneously as
    service bundles (when individual services are grouped together,
    but cheaper comprehensive codes are available to describe the
    same services) or in other cases when services should have been
    billed individually, but were grouped as bundled services.
    Medicaid does not require the use of NCCI prepayment edits.

    Committee Bill

        Beginning October 1, 2010 states would be required to
    incorporate into their Medicaid Management Information Systems
    methodologies compatible with Medicare's NCCI that promoted
    correct coding and controlled improper coding. By September 1,
    2010, the Secretary would be required to: (1) identify NCCI
    methodologies (or methodologies of any successor initiative)
    that are compatible with claims filed for Medicaid payment; and
    (2) identify methodologies that would be applicable to
    Medicaid, but for which no Medicare NCCI methodologies have
    been established. The Secretary also would be required to
    notify states of the NCCI methodologies that were identified
    and how states should incorporate those methodologies into
    their Medicaid claims processing systems. The Secretary would
    be required to submit a report to Congress that includes the
    notice to states about the NCCI methodologies and analysis that
    supports the identification of NCCI methodologies to be applied
    to Medicaid claims by March 1, 2011.

                       SEC. 5108. GENERAL EFFECTIVE DATE

    Present Law

        No provision.

    Committee Bill

        States would be required to have implemented fraud, waste,
    and abuse programs required under the America's Healthy Future
    Act of 2009 before January 1, 2011, regardless of whether final
    regulations to implement these provisions were promulgated.

                          Title VI--Revenue Provisions

                   SEC. 6001. TAXATION OF INSURANCE COMPANIES

    Present Law

        Present Law provides special rules for determining the
    taxable income of insurance companies (subchapter L of the
    Code). Separate sets of rules apply to life insurance companies
    and to property and casualty insurance companies. Insurance
    companies generally are subject to Federal income tax at
    regular corporate income tax rates.
        An insurance company that provides health insurance is
    subject to Federal income tax as either a life insurance
    company or as a property insurance company, depending on its
    mix of lines of business and on the resulting portion of its
    reserves that are treated as life insurance reserves. For
    Federal income tax purposes, an insurance company is treated as
    a life insurance company if the sum of its (1) life insurance
    reserves and (2) unearned premiums and unpaid losses on
    noncancellable life, accident or health contracts not included
    in life insurance reserves, comprise more than 50 percent of
    its total reserves.\22\
    ---------------------------------------------------------------------------
        \22\Sec. 816(a).
    ---------------------------------------------------------------------------
        Some insurance providers may be exempt from Federal income
    tax under section 501(a) if specific requirements are
    satisfied. Section 501(c)(8), for example, describes certain
    fraternal beneficiary societies, orders, or associations
    operating under the lodge system or for the exclusive benefit
    of their members that provide for the payment of life, sick,
    accident, or other benefits to the members or their dependents.
    Section 501(c)(9) describes certain voluntary employees'
    beneficiary associations that provide for the payment of life,
    sick, accident, or other benefits to the members of the
    association or their dependents or designated beneficiaries.
    Section 501(c)(12)(A) describes certain benevolent life
    insurance associations of a purely local character. Section
    501(c)(15) describes certain small non-life insurance companies
    with annual gross receipts of no more than $600,000 ($150,000
    in the case of a mutual insurance company). Section 501(c)(26)
    describes certain membership organizations established to
    provide health insurance to certain high-risk individuals.
    Section 501(c)(27) describes certain organizations established
    to provide workmen's compensation insurance. A health
    maintenance organization that is tax-exempt under section
    501(c)(3) or (4) is not treated as providing prohibited\23\
    commercial-type insurance, in the case of incidental health
    insurance provided by the health maintenance organization that
    is of a kind customarily provided by such organizations.
    ---------------------------------------------------------------------------
        \23\Sec. 501(m).
    ---------------------------------------------------------------------------
        Treatment of employer-sponsored health coverage. As with
    other compensation, the cost of employer-provided health
    coverage is a deductible business expense under section
    162.\24\ Employer-provided health insurance coverage is
    generally not included in an employee's gross income.
    ---------------------------------------------------------------------------
        \24\Sec. 162. However see special rules in section 419 and 419A for
    the deductibility of contributions to welfare benefit plans with
    respect to medical benefits for employees and their dependents.
    ---------------------------------------------------------------------------
        In addition, employees participating in a cafeteria plan
    may be able to pay the portion of premiums for health insurance
    coverage not otherwise paid for by their employers on a pre-tax
    basis through salary reduction.\25\ Such salary reduction
    contributions are treated as employer contributions for Federal
    income purposes, and are thus excluded from gross income.
    ---------------------------------------------------------------------------
        \25\Sec. 125.
    ---------------------------------------------------------------------------
        Employers may agree to reimburse medical expenses of their
    employees (and their spouses and dependents), not covered by a
    health insurance plan, through flexible spending arrangements
    which allow reimbursement not in excess of a specified dollar
    amount (either elected by an employee under a cafeteria plan or
    otherwise specified by the employer). Reimbursements under
    these arrangements are also excludible from gross income as
    employer-provided health coverage.
        A flexible spending arrangement for medical expenses under
    a cafeteria plan (``Health FSA'') is an unfunded arrangement
    under which employees are given the option to reduce their
    current cash compensation and instead have the amount made
    available for use in reimbursing the employee for his or her
    medical expenses.\26\ Health FSAs that are funded on a salary
    reduction basis are subject to the requirements for cafeteria
    plans, including a requirement that amounts remaining under a
    Health FSA at the end of a plan year must be forfeited by the
    employee (referred to as the ``use-it-or-lose-it rule'').\27\
    ---------------------------------------------------------------------------
        \26\Sec. 125. Prop. Treas. Reg. sec. 1.125-5 provides rules for
    Health FSAs. There is a similar type of flexible spending arrangement
    for dependent care expenses.
        \27\Sec. 125(d)(2). A cafeteria plan is permitted to allow a grace
    period not to exceed two and one-half months immediately following the
    end of the plan year during which unused amounts may be used. Notice
    2005-42, 2005-1 C.B. 1204.
    ---------------------------------------------------------------------------
        Alternatively, the employer may specify a dollar amount
    that is available for medical expense reimbursement. These
    arrangements are commonly called Health Reimbursement
    Arrangements (``HRAs''). Some of the rules applicable to HRAs
    and Health FSAs are similar (e.g., the amounts in the
    arrangements can only be used to reimburse medical expenses and
    not for other purposes), but the rules are not identical. In
    particular, HRAs cannot be funded on a salary reduction basis
    and the use-it-or-lose-it rule does not apply. Thus, amounts
    remaining at the end of the year may be carried forward to be
    used to reimburse medical expenses in following years.\28\
    ---------------------------------------------------------------------------
        \28\Guidance with respect to HRAs, including the interaction of
    FSAs and HRAs in the case of an individual covered under both, is
    provided in Notice 2002-45, 2002-2 C.B. 93.
    ---------------------------------------------------------------------------
        Present Law provides that individuals with a high
    deductible health plan (and generally no other health plan) may
    establish and make tax-deductible contributions to a health
    savings account (``HSA''). An HSA is subject to a condition
    that the individual is covered under a high deductible health
    plan (purchased either through the individual market or through
    an employer). Subject to certain limitations,\29\ contributions
    made to an HSA by an employer, including contributions made
    through a cafeteria plan through salary reduction, are excluded
    from income (and from wages for payroll tax purposes).
    Contributions made by individuals are deductible for income tax
    purposes, regardless of whether the individuals itemize.
    ---------------------------------------------------------------------------
        \29\For 2009, the maximum aggregate annual contribution that can be
    made to an HSA is $3,000 in the case of self-only coverage and $5,950
    in the case of family coverage ($3,050 and $6,150 for 2010). The annual
    contribution limits are increased for individuals who have attained age
    55 by the end of the taxable year (referred to as ``catch-up
    contributions''). In the case of policyholders and covered spouses who
    are age 55 or older, the HSA annual contribution limit is greater than
    the otherwise applicable limit by $1,000 in 2009 and thereafter.
    Contributions, including catch-up contributions, cannot be made once an
    individual is enrolled in Medicare.
    ---------------------------------------------------------------------------
        The Employee Retirement Income Security Act of 1974
    (``ERISA'')\30\ preempts State law relating to certain employee
    benefit plans, including employer-sponsored health plans. While
    ERISA specifically provides that its preemption rule does not
    exempt or relieve any person from any State law which regulates
    insurance, ERISA also provides that an employee benefit plan is
    not deemed to be engaged in the business of insurance for
    purposes of any State law regulating insurance companies or
    insurance contracts. As a result of this ERISA preemption,
    self-insured employer-sponsored health plans need not provide
    benefits that are mandated under State insurance law.
    ---------------------------------------------------------------------------
        \30\Pub. L. No. 93-406.
    ---------------------------------------------------------------------------
        While ERISA does not require an employer to offer health
    benefits, it does require compliance if an employer chooses to
    offer health benefits, such as compliance with plan fiduciary
    standards, reporting and disclosure requirements, and
    procedures for appealing denied benefit claims. ERISA was
    amended (as well as the Public Health Service Act and the
    Internal Revenue Code) in the Consolidated Omnibus Budget
    Reconciliation Act of 1985 (``COBRA'')\31\ and the Health
    Insurance Portability and Accountability Act of 1996
    (``HIPAA''),\32\ adding other Federal requirements for health
    plans, including rules for health care continuation coverage,
    limitations on exclusions from coverage based on preexisting
    conditions, and a few benefit requirements such as minimum
    hospital stay requirements for mothers following the birth of a
    child.
    ---------------------------------------------------------------------------
        \31\Pub. L. No. 99-272.
        \32\Pub. L. No. 104-191.
    ---------------------------------------------------------------------------
        COBRA requires that a group health plan offer continuation
    coverage to qualified beneficiaries in the case of a qualifying
    event (such as a loss of employment).\33\ A plan may require
    payment of a premium for any period of continuation coverage.
    The amount of such premium generally may not exceed 102 percent
    of the ``applicable premium'' for such period and the premium
    must be payable, at the election of the payor, in monthly
    installments. The applicable premium for any period of
    continuation coverage means the cost to the plan for such
    period of coverage for similarly situated non-COBRA
    beneficiaries with respect to whom a qualifying event has not
    occurred, and is determined without regard to whether the cost
    is paid by the employer or employee. There are special rules
    for determining the applicable premium in the case of self-
    insured plans. Under the special rules for self-insured plans,
    the applicable premium generally is equal to a reasonable
    estimate of the cost of providing coverage for similarly
    situated beneficiaries which is determined on an actuarial
    basis and takes into account such other factors as the
    Secretary of Treasury may prescribe in regulations.
    ---------------------------------------------------------------------------
        \33\A group health plan is defined as a plan (including a self-
    insured plan) of, or contributed to by, an employer (including a self-
    employed person) or employee organization to provide health care
    (directly or otherwise) to the employees, former employees, the
    employer, others associated or formerly associated with the employer in
    a business relationship, or their families. The COBRA requirements are
    enforced through the Code, ERISA, and the Public Health Service Act
    (``PHSA'').
    ---------------------------------------------------------------------------
        Present Law imposes an excise tax on group health plans
    that fail to meet HIPAA and COBRA requirements.\34\ The excise
    tax generally is equal to $100 per day per failure during the
    period of noncompliance and is imposed on the employer
    sponsoring the plan.
    ---------------------------------------------------------------------------
        \34\Secs. 4980B and 4980D.
    ---------------------------------------------------------------------------
        Deduction for health insurance costs of self-employed
    individuals. Under Present Law, self-employed individuals may
    deduct the cost of health insurance for themselves and their
    spouses and dependents.\35\ The deduction is not available for
    any month in which the self-employed individual is eligible to
    participate in an employer-subsidized health plan. Moreover,
    the deduction may not exceed the individual's earned income
    from self-employment. The deduction applies only to the cost of
    insurance (i.e., it does not apply to out-of-pocket expenses
    that are not reimbursed by insurance). The deduction does not
    apply for self-employment tax purposes. For purposes of the
    deduction, a more than two percent shareholder-employee of an S
    corporation is treated the same as a self-employed individual.
    Thus, the exclusion for employer provided health care coverage
    does not apply to such individuals, but they are entitled to
    the deduction for health insurance costs as if they were self-
    employed.
    ---------------------------------------------------------------------------
        \35\Sec. 162(l).
    ---------------------------------------------------------------------------
        Deductibility of excise taxes. In general, excise taxes may
    be deductible under section 162 of the Code if such taxes are
    paid or incurred in carrying on a trade or business, and are
    not within the scope of the disallowance of deductions for
    certain taxes enumerated in section 275 of the Code.

    Committee Bill

        The Committee Bill imposes an excise tax on insurers if the
    aggregate value of employer-sponsored health insurance coverage
    for an employee exceeds a threshold amount. The tax is equal to
    40 percent of the aggregate value that exceeds a threshold
    amount. For 2013, the threshold amount is $8,000 for individual
    coverage and $21,000 for family coverage. The threshold amounts
    are indexed to the Consumer Price Index for Urban Consumers
    (``CPI-U'') as determined by the Department of Labor beginning
    in 2014, plus one percentage point. The excise tax is imposed
    pro rata on the issuers of the insurance. In the case of a
    self-insured group health plan, a Health FSA or an HRA, the
    excise tax is paid by the entity that administers benefits
    under the plan or arrangement (``plan administrator''). Where
    the employer acts as plan administrator to a self-insured group
    health plan, a Health FSA or an HRA, the excise tax is paid by
    the employer. Where an employer contributes to an HSA, the
    employer is responsible for payment of the excise tax, as the
    insurer.
        Employer-sponsored health insurance coverage is health
    coverage offered by an employer to an employee without regard
    to whether the employer provides the coverage (and thus the
    coverage is excludable from the employee's gross income) or the
    employee pays for the coverage with after-tax dollars.
    Employer-sponsored health insurance coverage includes both
    fully-insured and self-insured health coverage excludable from
    the employee's gross income, including, in the self-insured
    context, on-site medical clinics that offer more than a de
    minimus amount of medical care to employees and executive
    physical programs. In the case of a self-employed individual,
    employer-sponsored health insurance coverage is coverage for
    any portion of which the self-employed individual claims a
    deduction under section 162(l).
        In determining the amount by which the value of employer-
    sponsored health insurance coverage exceeds the threshold
    amount, the aggregate value of all employer-sponsored health
    insurance coverage is taken into account, including coverage in
    the form of reimbursements under a Health FSA or an HRA,
    contributions to an HSA, and coverage for dental, vision, and
    other supplementary health insurance coverage. The value of
    employer-sponsored coverage for disability benefits or long
    term care under an accident or health plan is not taken into
    account in the determination of whether the value of health
    coverage exceeds the threshold amount. The value of employer-
    sponsored health insurance coverage does not include the value
    of fixed indemnity health coverage that is purchased
    exclusively by the employee with after-tax dollars; however, it
    includes the value of such coverage if any portion of the
    coverage is employer-provided. Fixed indemnity health coverage
    pays fixed dollar amounts based on the occurrence of qualifying
    events, including but not limited to the diagnosis of a
    specific disease, an accidental injury or a hospitalization,
    provided that the coverage is not coordinated with other health
    coverage.

    Calculation and proration of excise tax and reporting requirements

        Amount of Applicable Premium. Under the provision, the
    aggregate value of all employer-sponsored health insurance
    coverage, including dental, vision, and other supplementary
    health insurance coverage is generally calculated in the same
    manner as the applicable premiums for the taxable year for the
    employee determined under the rules for COBRA continuation
    coverage, but without regard to the excise tax. If the plan
    provides for the same COBRA continuation coverage premium for
    both individual coverage and family coverage, the plan is
    required to calculate separate individual and family premiums
    for this purpose. In determining the coverage value for
    retirees, employers may elect to treat pre-65 retirees together
    with post-65 retirees.
        Value of Coverage in the Form of Health FSA Reimbursements.
    In the case of a Health FSA from which reimbursements are
    limited to the amount of the salary reduction, the value of
    employer-sponsored health insurance coverage is equal to the
    dollar amount of the aggregate salary reduction contributions
    for the year. To the extent that the Health FSA provides for
    reimbursement in excess of the amount of the employee's salary
    reduction, the value of the coverage generally is determined in
    the same manner as the applicable premium for COBRA
    continuation coverage. If the plan provides for the same COBRA
    continuation coverage premium for both individual coverage and
    family coverage, the plan is required to calculate separate
    individual and family premiums for this purpose.
        Amount Subject to the Excise Tax and Reporting Requirement.
    The amount subject to the excise tax on high cost employer-
    sponsored health insurance coverage for each employee is the
    sum of the aggregate premiums for health insurance coverage,
    the amount of any salary reduction contributions to a Health
    FSA for the taxable year, and the dollar amount of employer
    contributions to an HSA, minus the dollar amount of the
    threshold. The aggregate premiums for health insurance coverage
    include all employer-sponsored health insurance coverage
    including coverage for major medical, dental, vision and other
    supplementary health insurance coverage. The applicable premium
    for health coverage provided through an HRA is also included in
    this aggregate amount.
        Under a separate rule (described below), an employer is
    required to disclose the aggregate premiums for health
    insurance coverage for each employee on his or her annual Form
    W-2.
        Under the Committee Bill, the excise tax is allocated pro
    rata among the insurers, with each insurer responsible for
    payment of the excise tax on an amount equal to the amount
    subject to the total excise tax multiplied by a fraction, the
    numerator of which is the amount of employer-sponsored health
    insurance coverage provided by that insurer to the employee and
    the denominator of which is the aggregate value of all
    employer-sponsored health insurance coverage provided to the
    employee. In the case of a self-insured group health plan, a
    Health FSA or an HRA, the excise tax is allocated to the plan
    administrator. If an employer contributes to an HSA, the
    employer is responsible for payment of the excise tax, as the
    insurer. The employer is responsible for calculating the amount
    subject to the excise tax allocable to each insurer and plan
    administrator and for reporting these amounts to each insurer,
    plan administrator and the Secretary, in such form and at such
    time as the Secretary may prescribe. Each insurer and plan
    administrator is then responsible for calculating, reporting
    and paying the excise tax to the IRS on such forms and at such
    time as the Secretary may prescribe.
        For example, if in 2013 an employee elects family coverage
    under a fully-insured health care policy covering major medical
    and dental with a value of $28,000, the amount subject to the
    excise tax is $7,000 ($28,000 less the threshold of $21,000).
    The employer reports $7,000 as taxable to the insurer, which
    calculates and remits the excise tax to the IRS.
        Alternatively, if in 2013 an employee elects family
    coverage under a fully-insured major medical policy with a
    value of $23,000 and a separate fully-insured dental policy
    with a value of $2,000 and contributes $3,000 to a Health FSA,
    the employee has an aggregate health insurance coverage value
    of $28,000. The amount subject to the excise tax is $7,000
    ($28,000 less the threshold of $21,000). The employer reports
    $5,750 ($7,000  $23,000/$28,000) as taxable to the
    major medical insurer and $500 ($7,000  $2,000/
    $28,000) as taxable to the dental insurer, each of which then
    calculates and remits the excise tax to the IRS. If the
    employer uses a third-party administrator for the Health FSA,
    the employer reports $750 ($7,000  $3,000/$28,000) to
    the administrator and the administrator calculates and remits
    the excise tax to the IRS. If the employer is acting as the
    plan administrator of the Health FSA, the employer is
    responsible for calculating and remitting the excise tax on the
    $750 to the IRS.
        Penalty for underreporting liability for tax to insurers.
    If the employer reports to insurers, plan administrators and
    the IRS a lower amount of insurance cost subject to the excise
    tax than required, the employer is subject to a penalty equal
    to the sum of any additional excise tax that each such insurer
    and administrator would have owed if the employer had reported
    correctly and interest attributable to that additional excise
    tax as determined under Code section 6621 from the date that
    the tax was otherwise due to the date paid by the employer.
    This may occur, for example, if the employer undervalues the
    aggregate premium and thereby lowers the amount subject to the
    excise tax for all insurers and plan administrators (including
    the employer, when acting as plan administrator of a self-
    insured plan). This penalty may be waived if the employer can
    show that the failure is due to reasonable cause and not to
    willful neglect. The penalty is in addition to the amount of
    excise tax owed, which may not be waived.
        Transition relief and other rules. Under a transition rule
    for health insurance plans maintained in the 17 States with the
    highest average cost for employer-sponsored coverage under
    health plans based on aggregate premiums for the year ended
    December 31, 2012, as determined by the Secretary, the
    threshold amount is initially increased by 20 percent. The
    Secretary is required to determine the 17 highest cost States
    based on the most recent available data as of August 31, 2012.
    The initial 20 percent increase is reduced by half each year
    thereafter (i.e., to 10 percent for the first taxable year
    beginning after December 31, 2013 and to five percent for the
    first taxable year beginning after December 31, 2014) until the
    additional premium amount is eliminated entirely for taxable
    years beginning after December 31, 2015. The transition rule
    applies on an individual basis with respect to coverage of a
    specific individual based on the individual's residence on the
    first day of a coverage period beginning during the transition
    period. In addition, this rule applies prior to any additional
    transition relief to which an individual is entitled on account
    of his or her status as a retiree over age 55 or as a
    participant in a plan that covers employees in a high risk
    profession.
        For retired individuals over the age of 55, the threshold
    amount is increased by $1,850 for individual coverage and
    $5,000 for family coverage. The additional amounts are also
    indexed to the CPI-U plus one percentage point.
        For plans that cover employees engaged in high risk
    professions, the threshold amount is increased by $1,850 for
    individual coverage and $5,000 for family coverage. The
    additional amounts are indexed to the CPI-U plus one percentage
    point. For purposes of this rule, employees considered to be
    engaged in a high risk profession are law enforcement officers,
    firefighters, members of a rescue squad or ambulance crew, and
    individuals engaged in the construction, mining, agriculture
    (but not food processing), forestry or fishing industries.
    Individuals engaged in the construction industry include
    individuals employed by electrical and telecommunications
    companies to repair and install electrical and
    telecommunications lines.
        Under this provision, an individual's threshold cannot be
    increased by more than $1,850 for individual coverage or $5,000
    for family coverage (indexed as described above), even if the
    individual would qualify for an increased threshold both on
    account of his or her status as a retiree over age 55 and as a
    participant in a plan that covers employees in a high risk
    profession.
        Under the provision, the amount of the excise tax imposed
    is not deductible for Federal income tax purposes.

    Effective Date

        The provision is effective for taxable years beginning
    after December 31, 2012.

                 SEC. 6002. EMPLOYER HEALTH INSURANCE REPORTING

    Present Law

        In many cases, an employer pays for all or a portion of its
    employees' health insurance coverage as an employee benefit.
    This benefit often includes premiums for major medical, dental,
    and other supplementary health insurance coverage. Under
    present law, the value of employer-provided health coverage is
    not required to be reported to the IRS or any other Federal
    agency. The value of the employer contribution to health
    coverage is excludible from an employee's income.\36\
    ---------------------------------------------------------------------------
        \36\Sec. 106.
    ---------------------------------------------------------------------------
        Under Present Law, every employer is required to furnish
    each employee and the Federal government with a statement of
    compensation information, including wages, paid by the employer
    to the employee, and the taxes withheld from such wages during
    the calendar year. The statement, made on the Form W-2, must be
    provided to each employee by January 31 of the succeeding year.
    There is no requirement that the employer report the total
    value of employer-sponsored health insurance coverage on the
    Form W-2,\37\ although some employers voluntarily report the
    amount of salary reduction under a cafeteria plan resulting in
    tax-free employee benefits in box 14.
    ---------------------------------------------------------------------------
        \37\Any portion of employer sponsored coverage that is paid for by
    the employee with after- tax contributions is included as wages on the
    W-2 Form.
    ---------------------------------------------------------------------------

    Committee Bill

        Under the Committee Bill, an employer is required to
    disclose on each employee's annual Form W-2 the value of the
    employee's health insurance coverage sponsored by the employer.
    If an employee enrolls in employer-sponsored health insurance
    coverage under multiple plans, the employer must disclose the
    aggregate value of all such health coverage (excluding the
    value of a health flexible spending arrangement). For example,
    if an employee enrolls in employer-sponsored health insurance
    coverage under a major medical plan, a dental plan, and a
    vision plan, the employer is required to report the total value
    of the combination of all of these health related insurance
    policies. For this purpose, employers generally use the same
    value for all similarly situated employees receiving the same
    category of coverage (such as single or family health insurance
    coverage).
        To determine the value of employer-sponsored health
    insurance coverage, the employer calculates the applicable
    premiums for the taxable year for the employee under the rules
    for COBRA continuation coverage under section 4980B(f)(4) (and
    accompanying Treasury regulations), including the special rule
    for self-insured plans. The value that the employer is required
    to report is the portion of the aggregate premium. If the plan
    provides for the same COBRA continuation coverage premium for
    both individual coverage and family coverage, the plan would be
    required to calculate separate individual and family premiums
    for this purpose.

    Effective Date

        The provision is effective for taxable years beginning
    after December 31, 2009.

         SEC. 6003. MODIFY THE DEFINITION OF QUALIFIED MEDICAL EXPENSES

    Present Law

        Individual deduction for medical expenses. Expenses for
    medical care, not compensated for by insurance or otherwise,
    are deductible by an individual under the rules relating to
    itemized deductions to the extent the expenses exceed 7.5
    percent of AGI.\38\ Medical care generally is defined broadly
    as amounts paid for diagnoses, cure, mitigation, treatment or
    prevention of disease, or for the purpose of affecting any
    structure of the body.\39\ However, any amount paid during a
    taxable year for medicine or drugs is explicitly deductible as
    a medical expense only if the medicine or drug is a prescribed
    drug or is insulin.\40\ Thus, any amount paid for medicine
    available without a prescription (``over-the-counter
    medicine'') is not deductible as a medical expense, including
    any medicine recommended by a physician.\41\
    ---------------------------------------------------------------------------
        \38\Sec. 213(a).
        \39\Sec. 213(d). There are certain limitations on the general
    definition including a rule that cosmetic surgery or similar procedures
    are generally not medical care.
        \40\Sec. 213(b).
        \41\Rev. Rul. 2003-58, 2003-1 CB 959.
    ---------------------------------------------------------------------------
        Exclusion for employer-provided health care. The Code
    generally provides that the value of employer-provided health
    coverage under an accident or health plan is excluded from
    gross income.\42\ In addition, any reimbursements under an
    accident or health plan for medical care expenses for
    employees, their spouses, and their dependents generally are
    excluded from gross income.\43\ An employer may agree to
    reimburse expenses for medical care of its employees (and their
    spouses and dependents), not covered by a health insurance
    plan, through a flexible spending arrangement (``FSA'') which
    allows reimbursement not in excess of a specified dollar
    amount. Such dollar amount is either elected by an employee
    under a cafeteria plan (``Health FSA'') or otherwise specified
    by the employer under an arrangement called a health
    reimbursement arrangement (``HRA''). Reimbursements under these
    arrangements are also excludible from gross income as employer-
    provided health coverage. The general definition of medical
    care without the explicit limitation on medicine applies for
    purposes of the exclusion for employer-provided health coverage
    and medical care.\44\ Thus, under an HRA or under a Health FSA,
    amounts paid for over-the-counter medicine are treated as
    medical expenses, and reimbursements for such amounts are
    excludible from gross income.
    ---------------------------------------------------------------------------
        \42\Sec. 106.
        \43\Sec. 105(b).
        \44\Sec. 105(b) provides that reimbursements for medical care
    within the meaning of section 213(d) pursuant to employer-provided
    health coverage are excludible from gross income. The definition of
    medical care in section 213(d) does not include the prescription drug
    limitation in section 213(b).
    ---------------------------------------------------------------------------
        Medical savings arrangements. Present law provides that
    individuals with a high deductible health plan (and generally
    no other health plan) purchased either through the individual
    market or through an employer may establish and make tax-
    deductible contributions to a health savings account
    (``HSA'').\45\ Subject to certain limitations,\46\
    contributions made to an HSA by an employer, including
    contributions made through a cafeteria plan through salary
    reduction, are excluded from income (and from wages for payroll
    tax purposes). Contributions made by individuals are deductible
    for income tax purposes, regardless of whether the individuals
    itemize. Distributions from an HSA that are used for qualified
    medical expenses are excludible from gross income.\47\ The
    general definition of medical care without the explicit
    limitation on medicine also applies for purposes of this
    exclusion.\48\ Similar rules apply for another type of medical
    savings arrangement called an Archer MSA.\49\ Thus, a
    distribution from a HSA or an Archer MSA used to purchase over-
    the-counter medicine also is excludible as an amount used for
    qualified medical expenses.
    ---------------------------------------------------------------------------
        \45\Sec. 223.
        \46\For 2009, the maximum aggregate annual contribution that can be
    made to an HSA is $3,000 in the case of self-only coverage and $5,950
    in the case of family coverage ($3,050 and $6,150 for 2010). The annual
    contribution limits are increased for individuals who have attained age
    55 by the end of the taxable year (referred to as ``catch-up
    contributions''). In the case of policyholders and covered spouses who
    are age 55 or older, the HSA annual contribution limit is greater than
    the otherwise applicable limit by $1,000 in 2009 and thereafter.
    Contributions, including catch-up contributions, cannot be made once an
    individual is enrolled in Medicare.
        \47\Sec. 223(f).
        \48\Sec. 223(d)(2).
        \49\Sec. 220.
    ---------------------------------------------------------------------------

    Committee Bill

        Under the Committee Bill, with respect to medicines, the
    definition of medical expense for purposes of employer-provided
    health coverage (including HRAs and Health FSAs), HSAs, and
    Archer MSAs, generally is conformed to the definition for
    purposes of the itemized deduction for medical expenses.
    However, this change does not apply to over-the-counter
    medicine that is prescribed for a patient by a physician. Thus,
    under the provision, the cost of over-the-counter medicines
    (other than physician prescribed) may not be reimbursed through
    a Health FSA or HRA. In addition, the cost of over-the-counter
    medicines (other than doctor prescribed) may not be reimbursed
    on a tax-free basis through a HSA or Archer MSA.

    Effective Date

        The Committee Bill is effective for taxable years beginning
    after December 31, 2009.

     SEC. 6004. INCREASE IN ADDITIONAL TAX ON DISTRIBUTIONS FROM HSAS NOT
                           USED FOR MEDICAL EXPENSES

    Present Law

        Present law provides that individuals with a high
    deductible health plan (and generally no other health plan) may
    establish and make tax-deductible contributions to a health
    savings account (``HSA'').\50\ An HSA is a tax-exempt account
    held by a trustee or custodian for the benefit of the
    individual. An HSA is subject to a condition that the
    individual is covered under a high deductible health plan
    (purchased either through the individual market or through an
    employer). The decision to create and fund an HSA is made on an
    individual-by-individual basis and does not require any action
    on the part of the employer.
    ---------------------------------------------------------------------------
        \50\An individual with other coverage in addition to a high
    deductible health plan is still eligible for an HSA if such other
    coverage is ``permitted insurance'' or ``permitted coverage.''
    Permitted insurance is: (1) insurance if substantially all of the
    coverage provided under such insurance relates to (a) liabilities
    incurred under worker's compensation law, (b) tort liabilities, (c)
    liabilities relating to ownership or use of property (e.g., auto
    insurance), or (d) such other similar liabilities as the Secretary may
    prescribe by regulations; (2) insurance for a specified disease or
    illness; and (3) insurance that provides a fixed payment for
    hospitalization. Permitted coverage is coverage (whether provided
    through insurance or otherwise) for accidents, disability, dental care,
    vision care, or long-term care. With respect to coverage for years
    beginning after December 31, 2006, certain coverage under a Health
    Flexible Spending Account is disregarded in determining eligibility for
    an HSA.
    ---------------------------------------------------------------------------
        Subject to certain limitations, contributions made to an
    HSA by an employer, including contributions made through a
    cafeteria plan through salary reduction, are excluded from
    income (and from wages for payroll tax purposes). Contributions
    made by individuals are deductible for income tax purposes,
    regardless of whether the individuals itemize. Income from
    investments made in HSAs is not taxable and the overall income
    is not taxable upon disbursement for medical expenses.
        For 2009, the maximum aggregate annual contribution that
    can be made to an HSA is $3,000 in the case of self-only
    coverage and $5,950 in the case of family coverage ($3,050 and
    $6,150 for 2010). The annual contribution limits are increased
    for individuals who have attained age 55 by the end of the
    taxable year (referred to as ``catch-up contributions''). In
    the case of policyholders and covered spouses who are age 55 or
    older, the HSA annual contribution limit is greater than the
    otherwise applicable limit by $1,000 in 2009 and thereafter.
    Contributions, including catch-up contributions, cannot be made
    once an individual is enrolled in Medicare.
        A high deductible health plan is a health plan that has an
    annual deductible that is at least $1,150 for self-only
    coverage or $2,300 for family coverage for 2009 (increasing to
    $1,200 and $2,400 for 2010) and that limits the sum of the
    annual deductible and other payments that the individual must
    make in respect of covered benefits to no more than $5,800 in
    the case of self-only coverage and $11,600 in the case of
    family coverage for 2009 (increasing to $5,950 and $11,900 for
    2010).
        Distributions from an HSA that are used for qualified
    medical expenses are excludible from gross income.
    Distributions from an HSA that are not used for qualified
    medical expenses are includible in gross income. An additional
    10 percent tax is added for all HSA disbursements not made for
    qualified medical expenses. The additional 10-percent tax does
    not apply, however, if the distribution is made after death,
    disability, or attainment of age of Medicare eligibility
    (currently, age 65). Unlike reimbursements from a flexible
    spending arrangement or health reimbursement arrangement,
    distributions from an HSA are not required to be substantiated
    by the employer or a third party for the distributions to be
    excludible from income.
        Like IRAs, the individual owns his or her HSA, and thus the
    individual is required to maintain books and records with
    respect to the expense and claim the exclusion for a
    distribution from the HSA on their tax return. The
    determination of whether the distribution is for a qualified
    medical expense is subject to individual self-reporting and IRS
    enforcement.

    Committee Bill

        The additional tax on distributions from an HSA that are
    not used for qualified medical expenses is increased to 20
    percent of the disbursed amount.

    Effective Date

        The change is effective for disbursements made during tax
    years starting after December 31, 2010.

     SEC. 6005. LIMITATION ON HEALTH FLEXIBLE SPENDING ARRANGEMENTS UNDER
                                CAFETERIA PLANS

    Present Law

        Exclusion from income for employer-provided health
    coverage. The Code generally provides that the value of
    employer-provided health coverage under an accident or health
    plan is excludible from gross income.\51\ In addition, any
    reimbursements under an accident or health plan for medical
    care expenses for employees, their spouses, and their
    dependents generally are excluded from gross income.\52\ The
    exclusion applies both to health coverage in the case in which
    an employer absorbs the cost of employees' medical expenses not
    covered by insurance (i.e., a self-insured plan) as well as in
    the case in which the employer purchases health insurance
    coverage for its employees. There is no limit on the amount of
    employer-provided health coverage that is excludable. A similar
    rule excludes employer-provided health insurance coverage from
    the employees' wages for payroll tax purposes.\53\
    ---------------------------------------------------------------------------
        \51\Sec. 106. Health coverage provided to active members of the
    uniformed services, military retirees, and their dependents are
    excludable under section 134. That section provides an exclusion for
    ``qualified military benefits,'' defined as benefits received by reason
    of status or service as a member of the uniformed services and which
    were excludable from gross income on September 9, 1986, under any
    provision of law, regulation, or administrative practice then in
    effect.
        \52\Sec. 105(b).
        \53\Secs. 3121(a)(2), and 3306(a)(2). See also section 3231(e)(1)
    for a similar rule with respect to compensation for purposes of
    Railroad Retirement Tax.
    ---------------------------------------------------------------------------
        Employers may also provide health coverage in the form of
    an agreement to reimburse medical expenses of their employees
    (and their spouses and dependents), not reimbursed by a health
    insurance plan, through flexible spending arrangements which
    allow reimbursement for medical care not in excess of a
    specified dollar amount (either elected by an employee under a
    cafeteria plan or otherwise specified by the employer). Health
    coverage provided in the form of one of these arrangements is
    also excludible from gross income as employer-provided health
    coverage under an accident or health plan.\54\
    ---------------------------------------------------------------------------
        \54\Sec. 106.
    ---------------------------------------------------------------------------
        Flexible spending arrangement under a cafeteria plan. A
    flexible spending arrangement for medical expenses under a
    cafeteria plan (``Health FSA'') is an unfunded arrangement
    under which employees are given the option to reduce their
    current cash compensation and instead have the amount of the
    salary reduction made available for use in reimbursing the
    employee for his or her medical expenses.\55\ Health FSAs are
    subject to the general requirements for cafeteria plans,
    including a requirement that amounts remaining under a Health
    FSA at the end of a plan year must be forfeited by the employee
    (referred to as the ``use-it-or-lose-it rule'').\56\ A Health
    FSA is permitted to allow a grace period not to exceed two and
    one-half months immediately following the end of the plan year
    during which unused amounts may be used.\57\ A Health FSA can
    also include employer flex-credits which are non-elective
    employer contributions that the employer makes for every
    employee eligible to participate in the employer's cafeteria
    plan, to be used only for one or more tax excludible qualified
    benefits (but not as cash or a taxable benefit).\58\
    ---------------------------------------------------------------------------
        \55\Sec. 125 and proposed Treas. Reg. sec. 1.125-5.
        \56\Sec. 125(d)(2) and proposed Treas. Reg. sec. 1.125-5(c).
        \57\Notice 2005-42, 2005-1 C.B. 1204 and proposed Treas. Reg. sec.
    1.125-1(e).
        \58\Proposed Treas. Reg. sec. 1-125-5(b).
    ---------------------------------------------------------------------------
        A flexible spending arrangement including a Health FSA
    (under a cafeteria plan) is generally distinguishable from
    other employer-provided health coverage by the relationship
    between the value of the coverage for a year and the maximum
    amount of reimbursement reasonably available during the same
    period. A flexible spending arrangement for health coverage
    generally is defined as a benefit program which provides
    employees with coverage under which specific incurred medical
    care expenses may be reimbursed (subject to reimbursement
    maximums and other conditions) and the maximum amount of
    reimbursement reasonably available is less than 500 percent of
    the value of such coverage.\59\
    ---------------------------------------------------------------------------
        \59\Sec. 106(c)(2) and proposed Treas. Reg. sec. 1.125-5(a).
    ---------------------------------------------------------------------------
        Health reimbursement arrangement. Rather than offering a
    Health FSA through a cafeteria plan, an employer may specify a
    dollar amount that is available for medical expense
    reimbursement. These arrangements are commonly called Health
    Reimbursement Arrangements (``HRAs''). Some of the rules
    applicable to HRAs and Health FSAs are similar (e.g., the
    amounts in the arrangements can only be used to reimburse
    medical expenses and not for other purposes), but the rules are
    not identical. In particular, HRAs cannot be funded on a salary
    reduction basis and the use-it-or-lose-it rule does not apply.
    Thus, amounts remaining at the end of the year may be carried
    forward to be used to reimburse medical expenses in following
    years.\60\
    ---------------------------------------------------------------------------
        \60\Guidance with respect to HRAs, including the interaction of
    FSAs and HRAs in the case of an individual covered under both, is
    provided in Notice 2002-45, 2002-2 C.B. 93.
    ---------------------------------------------------------------------------

    Committee Bill

        Under the Committee Bill, salary reductions by an employee
    for a taxable year for purposes of coverage under a Health FSA
    under a cafeteria plan are limited to $2,500.\61\ Thus, when an
    employee is given the option to reduce his or her current cash
    compensation and instead have the amount of the salary
    reduction be made available for use in reimbursing the employee
    for his or her medical expenses, the amount of the reduction in
    cash compensation is limited to $2,500 for a taxable year. The
    provision does not limit the exclusion for health coverage
    offered through an HRA.
    ---------------------------------------------------------------------------
        \61\The provision does not change the present law treatment as
    described in proposed Treas. Reg. sec. 1.125-5 for dependent care
    flexible spending arrangements or adoption assistance flexible spending
    arrangements.
    ---------------------------------------------------------------------------

    Effective Date

        The Committee Bill is effective for taxable year beginning
    after December 31, 2010.

      SEC. 6006. REQUIRE INFORMATION REPORTING ON PAYMENTS TO CORPORATIONS

    Present Law

        Present law imposes a variety of information reporting
    requirements on participants in certain transactions.\62\ These
    requirements are intended to assist taxpayers in preparing
    their income tax returns and to help the IRS determine whether
    such returns are correct and complete.
    ---------------------------------------------------------------------------
        \62\Secs. 6031 through 6060.
    ---------------------------------------------------------------------------
        The primary provision governing information reporting by
    payors requires an information return by every person engaged
    in a trade or business who makes payments aggregating $600 or
    more in any taxable year to a single payee in the course of
    that payor's trade or business.\63\ Payments subject to
    reporting include fixed or determinable income or compensation,
    but do not include payments for goods or certain enumerated
    types of payments that are subject to other specific reporting
    requirements.\64\ The payor is required to provide the
    recipient of the payment with an annual statement showing the
    aggregate payments made and contact information for the
    payor.\65\ The regulations generally except from reporting,
    payments to corporations, exempt organizations, governmental
    entities, international organizations, or retirement plans.\66\
    However, the following types of payments to corporations must
    be reported: Medical and healthcare payments;\67\ fish
    purchases for cash;\68\ attorney's fees;\69\ gross proceeds
    paid to an attorney;\70\ substitute payments in lieu of
    dividends or tax-exempt interest;\71\ and payments by a Federal
    executive agency for services.\72\
    ---------------------------------------------------------------------------
        \63\Sec. 6041(a). The information return is generally submitted
    electronically as a Form-1099 or Form-1096, although certain payments
    to beneficiaries or employees may require use of Forms W-3 or W-2,
    respectively. Treas. Reg. sec. 1.6041-1(a)(2).
        \64\Sec. 6041(a) requires reporting as to ``other fixed or
    determinable gains, profits, and income (other than payments to which
    section 6042(a)(1), 6044(a)(1), 6047(c), 6049(a) or 6050N(a) applies
    and other than payments with respect to which a statement is required
    under authority of section 6042(a), 6044(a)(2) or 6045)[.]'' These
    excepted payments include most interest, royalties, and dividends.
        \65\Sec. 6041(d).
        \66\Treas. Reg. sec. 1.6041-3(p). Certain for-profit health
    provider corporations are not covered by this general exception,
    including those organizations providing billing services for such
    companies.
        \67\Sec. 6050T.
        \68\Sec. 6050R.
        \69\Sec. 6045(f)(1) and (2); Treas. Reg. secs. 1.6041-1(d)(2) and
    1.6045-5(d)(5).
        \70\Ibid.
        \71\Sec. 6045(d).
        \72\Sec. 6041(d)(3).
    ---------------------------------------------------------------------------
        Failure to comply with the information reporting
    requirements results in penalties, which may include a penalty
    for failure to file the information return,\73\ and a penalty
    for failure to furnish payee statements\74\ or failure to
    comply with other various reporting requirements.\75\
    ---------------------------------------------------------------------------
        \73\Sec. 6721. The penalty for the failure to file an information
    return generally is $50 for each return for which such failure occurs.
    The total penalty imposed on a person for all failures during a
    calendar year cannot exceed $250,000. Additionally, special rules apply
    to reduce the per-failure and maximum penalty where the failure is
    corrected within a specified period.
        \74\Sec. 6722. The penalty for failure to provide a correct payee
    statement is $50 for each statement with respect to which such failure
    occurs, with the total penalty for a calendar year not to exceed
    $100,000. Special rules apply that increase the per-statement and total
    penalties where there is intentional disregard of the requirement to
    furnish a payee statement.
        \75\Sec. 6723. The penalty for failure to timely comply with a
    specified information reporting requirement is $50 per failure, not to
    exceed $100,000 for a calendar year.
    ---------------------------------------------------------------------------
        Detailed rules are provided for the reporting of various
    types of investment income, including interest, dividends, and
    gross proceeds from brokered transactions (such as a sale of
    stock).\76\ In general, the requirement to file Form 1099
    applies with respect to amounts paid to U.S. persons and is
    linked to the backup withholding rules of section 3406. Thus, a
    payor of interest, dividends or gross proceeds generally must
    request that a U.S. payee (other than certain exempt
    recipients) furnish a Form W-9 providing that person's name and
    taxpayer identification number.\77\ That information is then
    used to complete the Form 1099.
    ---------------------------------------------------------------------------
        \76\Secs. 6042 (dividends), 6045 (broker reporting) and 6049
    (interest) and the Treasury regulations thereunder.
        \77\See Treas. Reg. sec. 31.3406(h)-3.
    ---------------------------------------------------------------------------

    Committee Bill

        Under the Committee Bill, a business is required to file an
    information return for all payments aggregating $600 or more in
    a calendar year to a single payee (other than a payee that is a
    tax-exempt corporation), notwithstanding any regulation
    promulgated prior to the date of enactment. The payments to be
    reported include gross proceeds paid in consideration for
    property or services.

    Effective Date

        The Committee Bill is effective for payments made after
    December 31, 2011.

            SEC. 6007. REQUIREMENTS FOR SECTION 501(C)(3) HOSPITALS

    Present Law

        Tax exemption. Charitable organizations, i.e.,
    organizations described in section 501(c)(3), generally are
    exempt from Federal income tax, are eligible to receive tax
    deductible contributions,\78\ have access to tax-exempt
    financing through State and local governments (described in
    more detail below),\79\ and generally are exempt from State and
    local taxes. A charitable organization must operate primarily
    in pursuit of one or more tax-exempt purposes constituting the
    basis of its tax exemption.\80\ The Code specifies such
    purposes as religious, charitable, scientific, educational,
    literary, testing for public safety, to foster international
    amateur sports competition, or for the prevention of cruelty to
    children or animals. In general, an organization is organized
    and operated for charitable purposes if it provides relief for
    the poor and distressed or the underprivileged.\81\
    ---------------------------------------------------------------------------
        \78\Sec. 170.
        \79\Sec. 145.
        \80\Treas. Reg. sec. 1.501(c)(3)-1(c)(1).
        \81\Treas. Reg. sec. 1.501(c)(3)-1(d)(2).
    ---------------------------------------------------------------------------
        The Code does not provide a per se exemption for hospitals.
    Rather, a hospital qualifies for exemption if it is organized
    and operated for a charitable purpose and otherwise meets the
    requirements of section 501(c)(3).\82\ The promotion of health
    has been recognized by the IRS as a charitable purpose that is
    beneficial to the community as a whole.\83\ It includes not
    only the establishment or maintenance of charitable hospitals,
    but clinics, homes for the aged, and other providers of health
    care.
    ---------------------------------------------------------------------------
        \82\Although nonprofit hospitals generally are recognized as tax-
    exempt by virtue of being ``charitable'' organizations, some might
    qualify for exemption as educational or scientific organizations
    because they are organized and operated primarily for medical education
    and research purposes.
        \83\Rev. Rul. 69-545, 1969-2 C.B. 117; see also Restatement
    (Second) of Trusts secs. 368, 372 (1959); see Bruce R. Hopkins, The Law
    of Tax-Exempt Organizations, sec. 6.3 (8th ed. 2003) (discussing
    various forms of health-care providers that may qualify for exemption
    under section 501(c)(3)).
    ---------------------------------------------------------------------------
        Since 1969, the IRS has applied a ``community benefit''
    standard for determining whether a hospital is charitable.\84\
    According to Revenue Ruling 69-545, community benefit can
    include, for example: maintaining an emergency room open to all
    persons regardless of ability to pay; having an independent
    board of trustees composed of representatives of the community;
    operating with an open medical staff policy, with privileges
    available to all qualifying physicians; providing charity care;
    and utilizing surplus funds to improve the quality of patient
    care, expand facilities, and advance medical training,
    education and research. Beginning in 2009, hospitals generally
    are required to submit information on community benefit on
    their annual information returns filed with the IRS.\85\
    Present law does not include sanctions short of revocation of
    tax-exempt status for hospitals that fail to satisfy the
    community benefit standard.
    ---------------------------------------------------------------------------
        \84\Rev. Rul. 69-545, 1969-2 C.B. 117. From 1956 until 1969, the
    IRS applied a ``financial ability'' standard, requiring that a
    charitable hospital be ``operated to the extent of its financial
    ability for those not able to pay for the services rendered and not
    exclusively for those who are able and expected to pay.'' Rev. Rul. 56-
    185, 1956-1 C.B. 202.
        \85\IRS Form 990, Schedule H.
    ---------------------------------------------------------------------------
        Although section 501(c)(3) hospitals generally are exempt
    from Federal tax on their net income, such organizations are
    subject to the unrelated business income tax on income derived
    from a trade or business regularly carried on by the
    organization that is not substantially related to the
    performance of the organization's tax-exempt functions.\86\ In
    general, interest, rents, royalties, and annuities are excluded
    from the unrelated business income of tax-exempt
    organizations.\87\
    ---------------------------------------------------------------------------
        \86\Secs. 511-514.
        \87\Sec. 512(b).
    ---------------------------------------------------------------------------
        Charitable contributions. In general, a deduction is
    permitted for charitable contributions, including charitable
    contributions to tax-exempt hospitals, subject to certain
    limitations that depend on the type of taxpayer, the property
    contributed, and the donee organization. The amount of
    deduction generally equals the fair market value of the
    contributed property on the date of the contribution.
    Charitable deductions are provided for income, estate, and gift
    tax purposes.\88\
    ---------------------------------------------------------------------------
        \88\Secs. 170, 2055, and 2522, respectively.
    ---------------------------------------------------------------------------
        Tax-exempt financing. In addition to issuing tax-exempt
    bonds for government operations and services, State and local
    governments may issue tax-exempt bonds to finance the
    activities of charitable organizations described in section
    501(c)(3). Because interest income on tax-exempt bonds is
    excluded from gross income, investors generally are willing to
    accept a lower pre-tax rate of return on such bonds than they
    might otherwise accept on a taxable investment. This, in turn,
    lowers the cost of capital for the users of such financing.
    Both capital expenditures and limited working capital
    expenditures of charitable organizations described in section
    501(c)(3) of the Code generally may be financed with tax-exempt
    bonds. Private, nonprofit hospitals frequently are the
    beneficiaries of this type of financing.
        Bonds issued by State and local governments may be
    classified as either governmental bonds or private activity
    bonds. Governmental bonds are bonds the proceeds of which are
    primarily used to finance governmental functions or which are
    repaid with governmental funds. Private activity bonds are
    bonds in which the State or local government serves as a
    conduit providing financing to nongovernmental persons (e.g.,
    private businesses or individuals). For these purposes, the
    term ``nongovernmental person'' generally includes the Federal
    government and all other individuals and entities other than
    States or local governments, including section 501(c)(3)
    organizations. The exclusion from income for interest on State
    and local bonds does not apply to private activity bonds,
    unless the bonds are issued for certain permitted purposes
    (``qualified private activity bonds'') and other Code
    requirements are met.
        Reporting and disclosure requirements. Exempt organizations
    are required to file an annual information return, stating
    specifically the items of gross income, receipts,
    disbursements, and such other information as the Secretary may
    prescribe.\89\ Section 501(c)(3) organizations that are
    classified as public charities must file Form 990 (Return of
    Organization Exempt From Income Tax),\90\ including Schedule A,
    which requests information specific to section 501(c)(3)
    organizations. Additionally, an organization that operates at
    least one facility that is, or is required to be, licensed,
    registered, or similarly recognized by a state hospital must
    complete Schedule H (Form 990), which requests information
    regarding charity care, community benefits, bad debt expense,
    and certain management company and joint venture arrangements
    of a hospital.
    ---------------------------------------------------------------------------
        \89\Sec. 6033(a). An organization that has not received a
    determination of its tax-exempt status, but that claims tax-exempt
    status under section 501(a), is subject to the same annual reporting
    requirements and exceptions as organizations that have received a tax-
    exemption determination.
        \90\Social welfare organizations, labor organizations, agricultural
    organizations, horticultural organizations, and business leagues are
    subject to the generally applicable Form 990, Form 990-EZ, and Form
    990-T annual filing requirements.
    ---------------------------------------------------------------------------
        An organization described in section 501(c) or (d)
    generally is also required to make available for public
    inspection for a period of three years a copy of its annual
    information return (Form 990) and exemption application
    materials.\91\ This requirement is satisfied if the
    organization has made the annual return and exemption
    application widely available (e.g., by posting such information
    on its website).\92\
    ---------------------------------------------------------------------------
        \91\Sec. 6104(d).
        \92\Sec. 6104(d)(4); Treas. Reg. sec. 301.6104(d)-2(b).
    ---------------------------------------------------------------------------

    Committee Bill

                Additional requirements for section 501(c)(3) hospitals\93\
        In general. The Committee Bill establishes new requirements
    applicable to section 501(c)(3) hospitals. The new requirements
    are in addition to, and not in lieu of, the requirements
    otherwise applicable to an organization described in section
    501(c)(3). The requirements generally apply to any section
    501(c)(3) organization that operates at least one hospital
    facility. For purposes of the provision, a hospital facility
    generally includes: (1) any facility that is, or is required to
    be, licensed, registered, or similarly recognized by a State as
    a hospital; and (2) any other facility or organization the
    Secretary of the Treasury (the ``Secretary''), in consultation
    with the Secretary of Health and Human Services and after
    public comment, determines has the provision of hospital care
    as its principal purpose. An organization subject to the
    provision is required to comply with the following requirements
    with respect to each hospital facility operated by such
    organization.
    ---------------------------------------------------------------------------
        \93\No inference is intended regarding whether an organization
    satisfies the present law community benefit standard.
    ---------------------------------------------------------------------------
        Community health needs assessment. Each hospital facility
    is required to conduct a community health needs assessment at
    least once every three taxable years and adopt an
    implementation strategy to meet the community needs identified
    through such assessment. The assessment may be based on current
    information collected by a public health agency or non-profit
    organizations and may be conducted together with one or more
    other organizations, including related organizations. The
    assessment process must take into account input from persons
    who represent the broad interests of the community served by
    the hospital, including those with special knowledge or
    expertise of public health issues. The hospital must disclose
    in its annual information report to the IRS (i.e., Form 990 and
    related schedules) how it is addressing the needs identified in
    the assessment and, if all identified needs are not addressed,
    the reasons why (e.g., lack of financial or human resources).
    Each hospital facility is required to make the assessment
    widely available. Failure to complete a community health needs
    assessment in any applicable three-year period results in a
    penalty on the organization of up to $50,000. For example, if a
    facility does not complete a community health needs assessment
    in taxable years one, two or three, it is subject to the
    penalty in year three. If it then fails to complete a community
    health needs assessment in year four, it is subject to another
    penalty in year four (for failing to satisfy the requirement
    during the three-year period beginning with taxable year two
    and ending with taxable year four). An organization that fails
    to disclose how it is meeting needs identified in the
    assessment is subject to existing incomplete return
    penalties.\94\
    ---------------------------------------------------------------------------
        \94\Sec. 6652.
    ---------------------------------------------------------------------------
        Financial assistance policy. Each hospital facility is
    required to adopt, implement, and widely publicize a written
    financial assistance policy. Each hospital facility is required
    to adopt and implement a policy to provide emergency medical
    treatment to individuals. The policy must prevent
    discrimination in the provision of emergency medical treatment,
    including denial of service, against those eligible for
    financial assistance under the facility's financial assistance
    policy or those eligible for government assistance. The
    financial assistance policy must indicate the eligibility
    criteria for financial assistance and whether such assistance
    includes free or discounted care. For those eligible for
    discounted care, the policy must indicate the basis for
    calculating the amounts that will be billed to such patients.
    The policy must also indicate how to apply for such assistance.
    If a hospital does not have a separate billing and collections
    policy, the financial assistance policy must also indicate what
    actions the hospital may take in the event of non-response or
    non-payment, including collections action and reporting to
    credit rating agencies.
        Limitation on charges. Each hospital facility is permitted
    to bill patients who qualify for financial assistance no more
    than the amount generally billed to insured patients. A
    hospital facility may not use gross charges (i.e.,
    ``chargemaster'' rates), when billing individuals who qualify
    for financial assistance. It is intended that amounts billed to
    those who qualify for financial assistance may be based on
    either the best, or an average of the three best, negotiated
    commercial rates, or Medicare rates.
        Collection processes. Under the provision, a hospital
    facility (or its affiliates) generally is required to follow
    current Medicare law and regulations regarding collection of
    debts, but may not undertake certain extraordinary collection
    actions (even if otherwise permitted by law) against a patient
    without first making reasonable efforts to inform the patient
    about the hospital's financial assistance policy and to
    determine whether the patient is eligible for assistance under
    such policy. Such extraordinary collection actions include
    lawsuits, liens on residences, arrests, body attachments, or
    other similar collection processes. The Secretary is directed
    to issue guidance concerning what attempts to determine
    eligibility for financial assistance constitute reasonable
    attempts. It is intended that for this purpose, ``reasonable
    attempts'' includes notification by the hospital of its
    financial assistance policy upon admission and in written and
    oral communications with the patient regarding the patient's
    bill, including invoices and telephone calls, before collection
    action or reporting to credit rating agencies is initiated.
        Reporting and Disclosure Requirements. The Committee Bill
    includes new reporting and disclosure requirements. Under the
    provision, the IRS is required to review information about a
    hospital's community benefit activities (currently reported on
    Form 990, Schedule H) at least once every three years. Such
    review is intended to be similar to review of companies
    registered with the Securities and Exchange Commission.\95\ The
    provision also requires each organization to which the
    provision applies to file with its annual information return
    (i.e., Form 990) a copy of its audited financial statements
    (or, in the case of an organization the financial statements of
    which are included in a consolidated financial statement with
    other organizations, such consolidated financial statements).
    ---------------------------------------------------------------------------
        \95\See http://www.sec.gov/divisions/corpfin/cffilingreview.htm for
    SEC procedures.
    ---------------------------------------------------------------------------
        The Committee Bill requires the Secretary, in consultation
    with the Secretary of Health and Human Services, to report
    annually to Congress the levels of charity care, bad debt
    expenses, unreimbursed costs of means-tested government
    programs, and unreimbursed costs of non-means tested government
    programs incurred by private tax-exempt, taxable, and
    governmental hospitals as well as the cost of community benefit
    activities incurred by private tax-exempt hospitals. In
    addition, the Secretary, in consultation with the Secretary of
    Health and Human Services, must conduct a study of the trends
    in these amounts with the results of the study provided to
    Congress five years from date of enactment.

    Effective Date

        The Committee Bill generally is effective for taxable years
    beginning after the date of enactment. The community health
    needs assessment requirement is effective for taxable years
    beginning after the date which is two years after the date of
    enactment.\96\
    ---------------------------------------------------------------------------
        \96\For example, assume the date of enactment is December 1, 2009.
    A calendar year taxpayer would test whether it meets the community
    health needs assessment requirement in the taxable year ending December
    31, 2012. To avoid the penalty, the taxpayer must have satisfied the
    community health needs assessment requirements in 2010, 2011, or 2012.
    ---------------------------------------------------------------------------

          SEC. 6008. IMPOSITION OF ANNUAL FEE ON BRANDED PRESCRIPTION
                   PHARMACEUTICAL MANUFACTURERS AND IMPORTERS

    Present Law

        There are two Medicare trust funds under present law, the
    Hospital Insurance (``HI'') fund and the Supplementary Medical
    Insurance (``SMI'') fund.\97\ The HI trust fund is primarily
    funded through payroll tax on covered earnings. Employers and
    employees each pay 1.45 percent of wages, while self-employed
    workers pay 2.9 percent of a portion of their net earnings from
    self-employment. Other HI trust fund revenue sources include a
    portion of the Federal income taxes paid on Social Security
    benefits, and interest paid on the U.S. Treasury securities
    held in the HI trust fund. For the SMI trust fund, transfers
    from the general fund of the Treasury represent the largest
    source of revenue, but additional revenues include monthly
    premiums paid by beneficiaries, and interest paid on the U.S.
    Treasury securities held in the SMI trust fund.
    ---------------------------------------------------------------------------
        \97\See 2009 Annual Report of the Boards of Trustees of the Federal
    Hospital Insurance and Federal Supplementary Medical Insurance Trust
    Funds, available at http://www.cms.hhs.gov/ReportsTrustFunds/downloads/
    tr2009.pdf.
    ---------------------------------------------------------------------------
        IRS authority to assess and collect taxes is generally
    provided in subtitle F of the Code (secs. 6001-7874), relating
    to procedure and administration. That subtitle establishes the
    rules governing both how taxpayers are required to report
    information to the IRS and to pay their taxes, as well as their
    rights. It also establishes the duties and authority of the IRS
    to enforce the Federal tax law, and sets forth rules relating
    to judicial proceedings involving Federal tax.
        Present law does not impose a fee creditable to the
    Medicare trust funds on companies that manufacture or import
    prescription drugs for sale in the United States.

    Committee Bill

        The Committee Bill imposes a fee each calendar year on each
    covered entity engaged in the business of manufacturing or
    importing branded prescription drugs for sale in the United
    States. The fee is due each calendar year on a date to be
    determined by the Secretary, but in no event later than
    September 30th. Fees collected are credited to the Medicare SMI
    trust fund. The aggregate fee under the provision is $2.3
    billion payable annually beginning in 2010. Under the
    provision, the aggregate fee is apportioned among the covered
    entities each year based on each entity's relative market share
    of branded prescription drug sales taken into account during
    the preceding calendar year.
        A covered entity is defined under the provision as any
    manufacturer or importer with gross receipts from branded
    prescription drug sales. For purposes of the provision, covered
    entity includes all persons treated as a single employer under
    subsection (a) or (b) of section 52 or subsection (m) or (o) of
    section 414. The otherwise applicable exclusion of foreign
    corporations under those rules is disregarded for these
    purposes.
        Under the Committee Bill, branded prescription drug sales
    means sales of branded prescription drugs to any specified
    government program or pursuant to coverage under any such
    program, but does not include sales of orphan drugs.\98\ A
    branded prescription drug is any prescription drug for which an
    application was submitted under section 505(b) of the Federal
    Food, Drug, and Cosmetic Act, or any biological product the
    license for which was submitted under section 351(a) of the
    Public Health Service Act. A prescription drug is any drug
    subject to section 503(b) of the Federal Food, Drug, and
    Cosmetic Act.
    ---------------------------------------------------------------------------
        \98\Orphan drugs include any drug or biological product with
    respect to which a credit was allowed for any taxable year under
    section 45C. Sales of any drug or biological product which qualified
    under section 45C will not be excluded after the date on which such
    drug or biological product is approved by the Food and Drug
    Administration for marketing for any indication other than the
    treatment of the rare disease or conditions with respect to which the
    section 45C credit was allowed.
    ---------------------------------------------------------------------------
        Under the Committee Bill, specified government program
    means the Medicare Part D program, the Medicare Part B program,
    the Medicaid program, any program under which branded
    prescription drugs are procured by the Department of Veterans
    Affairs, any program under which branded prescription drugs are
    procured by the Department of Defense, or the TRICARE retail
    pharmacy program. The provision requires the Secretary of
    Health and Human Services, the Secretary of Veterans Affairs,
    and the Secretary of Defense to report to the Secretary of the
    Treasury the total branded prescription drug sales for each
    covered entity with respect to each specified government
    program under such Secretary's jurisdiction.
        The Committee Bill authorizes the Secretary of the Treasury
    to prescribe the timing and the manner for reporting such
    sales. Additionally the provision prescribes a methodology to
    be used by the Secretary of Health and Human Services to
    compute such amounts for the Medicare Part D, Medicare Part B
    programs, and Medicaid programs, by the Secretary of Veterans
    Affairs for its programs, and by the Secretary of Defense for
    TRICARE and other programs.
        Under the Committee Bill, a covered entity's individual
    assessment for each calendar year is the total fee multiplied
    by the ratio of (1) the covered entity's branded prescription
    drug sales taken into account during the preceding calendar
    year to (2) the aggregate branded prescription drug sales of
    all covered entities taken into account during such preceding
    calendar year.
        Sales taken into account for this purpose includes zero
    percent of a covered entity's branded prescription drug sales
    for the preceding calendar year up to $5 million; ten percent
    of a covered entity's branded prescription drug sales for the
    preceding calendar year over $5 million and up to $125 million;
    40 percent of a covered entity's branded prescription drug
    sales for the preceding calendar year over $125 million and up
    to $225 million; 75 percent of a covered entity's branded
    prescription drug sales for the preceding calendar year over
    $225 million and up to $400 million; and 100 percent of a
    covered entity's branded prescription drug sales for the
    preceding calendar year over $400 million.
        The following is an example of how the relative market
    share would be determined if the market included only three
    entities with branded prescription drug sales, Company A with
    branded prescription drug sales of $1 million, Company B with
    branded prescription drug sales of $100 million, and Company C
    with branded prescription drug sales of $899 million, for a
    combined market of $1 billion.

    ----------------------------------------------------------------------------------------------------------------
                                              Applicable branded                              Covered entity's sales
                                           prescription drug sales         Percentage           taken into account
                                                  (millions)                                        (millions)
    ----------------------------------------------------------------------------------------------------------------
    Company A: Total Branded Prescription
     Drug Sales $1m:
        Up to $5m........................                        1                        0                        0
                                          --------------------------------------------------------------------------
            Total Sales..................                        1  .......................                        0
    Company B: Total Branded Prescription
     Drug Sales $100m:
        Up to $5m........................                        5                        0                        0
        >$5m up to $125m.................                       95                       10                       10
                                          --------------------------------------------------------------------------
            Total Sales..................                      100  .......................                       10
    Company C: Total Branded Prescription
     Drug Sales $899m:
        Up to $5m........................                        5                        0                        0
        >$5m up to $125m.................                      120                       10                       12
        >$125m up to $225m...............                      100                       40                       40
        >$225m up to $400m...............                      175                       75                      131
        >$400m...........................                      499                      100                      499
                                          --------------------------------------------------------------------------
            Total Sales..................                      899  .......................                      682
                                          --------------------------------------------------------------------------
    Total Market.........................                    1,000  .......................                      692
    ----------------------------------------------------------------------------------------------------------------

    ------------------------------------------------------------------------
                                                      Relative market share
                     Covered entity                    of sales taken into
                                                        account (percent)
    ------------------------------------------------------------------------
    Company A......................................                      0.0
    Company B......................................                      1.4
    Company C......................................                     98.6
    ------------------------------------------------------------------------

        For purposes of procedure and administration under the
    rules of subtitle F of the Code, any fee assessed under this
    provision is treated as an excise tax with respect to which
    only civil actions for refund under subtitle F apply. The
    Secretary of the Treasury may readjust covered entities' shares
    of the fee for any calendar year for which the statute of
    limitations remains open.
        The fees are treated as nondeductible taxes under section
    275 of the Code for U.S. income tax purposes.

    Effective Date

        The Committee Bill is effective for calendar years
    beginning after 2009. The fee is allocated based on the market
    share of branded prescription drug sales for calendar years
    beginning after December 31, 2008.

    SEC. 6009. IMPOSITION OF ANNUAL FEE ON MEDICAL DEVICE MANUFACTURERS AND
                                   IMPORTERS

    Present Law

        IRS authority to assess and collect taxes is generally
    provided in subtitle F of the Code (secs. 6001-7874), relating
    to procedure and administration. That subtitle establishes the
    rules governing both how taxpayers are required to report
    information to the IRS and to pay their taxes, as well as their
    rights. It also establishes the duties and authority of the IRS
    to enforce the Federal tax law, and sets forth rules relating
    to judicial proceedings involving Federal tax.
        Present law does not impose an annual sector fee on
    companies that manufacture or import medical devices for sale
    in the United States.

    Committee Bill

        The Committee Bill imposes a fee each calendar year on each
    covered entity engaged in the business of manufacturing or
    importing medical devices offered for sale in the United
    States. The aggregate fee under the provision is $4 billion
    payable annually beginning in 2010. The fee is due each
    calendar year on a date to be determined by the Secretary, but
    in no event later than September 30th. Under the provision, the
    aggregate fee would be apportioned among the covered entities
    each year based on each entity's relative share of gross
    receipts from medical device sales taken into account for the
    prior year.
        A covered entity is defined under the provision as any
    manufacturer or importer with gross receipts from medical
    device sales. For purposes of the provision, covered entity
    includes all persons treated as a single employer under
    subsection (a) or (b) of section 52 or subsection (m) or (o) of
    section 414. The otherwise applicable exclusion of foreign
    corporations under those rules is disregarded for these
    purposes.
        Under the Committee Bill, medical device sales means sales
    for use in the United States of any medical device, other than
    the sales of a medical device that has been classified in class
    II under section 513 of the Federal Food, Drug, and Cosmetic
    Act and is primarily sold to consumers at retail for not more
    than $100 per unit, or has been classified in class I under
    such section. A medical device is any device as defined in
    section 201(h) of the Federal Food, Drug, and Cosmetic Act
    intended for humans.\99\ The Secretary has authority under this
    provision to publish guidance necessary to carry out the
    purposes of this provision. It is expected that the Secretary
    will provide guidance as to class II items primarily sold to
    consumers at retail for not more than $100 per unit, such as a
    list of class II items excluded under this provision. The
    provision is intended to exclude low cost items (such as
    pregnancy tests, contact lenses, and blood pressure monitors)
    that are normally sold directly to consumers through retail
    outlets. The Committee intends that a unit is an entire item as
    typically sold (for example a box of 30 disposable contact
    lenses), and does not refer to an item's component parts.
    Additionally the Secretary may publish guidance for the
    treatment of gross receipts from the sale of medical devices by
    a covered entity directly to another covered entity for use as
    a material in the manufacture or production of, or as a
    component part of a medical device for subsequent sale in order
    to eliminate double inclusion of the gross receipts from such
    sales.
    ---------------------------------------------------------------------------
        \99\A product labeled, promoted or used in a manner that meets the
    definition in section 201(h) of the Federal Food, Drug, and Cosmetic
    Act. For these purposes, a device is ``an instrument, apparatus,
    implement, machine, contrivance, implant, in vitro reagent, or other
    similar or related article, including any component, part, or
    accessory, which is (1) recognized in the official National Formulary,
    or the United States Pharmacopeia, or any supplement to them, (2)
    intended for use in the diagnosis of disease or other conditions, or in
    the cure, mitigation, treatment, or prevention of disease, in man or
    other animals, or (3) intended to affect the structure or any function
    of the body of man or other animals, and which does not achieve its
    primary intended purposes through chemical action within or on the body
    of man or other animals and which is not dependent upon being
    metabolized for the achievement of its primary intended purposes.''
    ---------------------------------------------------------------------------
        Under the Committee Bill, each covered entity is required
    to file an annual report of its gross receipts from medical
    device sales for the preceding calendar year. Under the
    provision, a covered entity's individual assessment for each
    calendar year is the total fee multiplied by the ratio of (1)
    the covered entity's gross receipts from medical device sales
    taken into account during the preceding calendar year to (2)
    the aggregate gross receipts from medical device sales of all
    covered entities taken into account during such preceding
    calendar year.
        Sales taken into account for this purpose includes zero
    percent of a covered entity's gross receipts from medical
    device sales for the preceding calendar year up to $5 million;
    50 percent of a covered entity's gross receipts from medical
    device sales for the preceding calendar year over $5 million
    and up to $25 million; and 100 percent of a covered entity's
    gross receipts from medical device sales for the preceding
    calendar year over $25 million.
        The following is an example of how the relative market
    share would be determined if the medical device market included
    three covered entities, Company A with gross receipts from
    covered medical device sales of $1 million, Company B with
    gross receipts from covered medical device sales of $20 million
    and Company C with gross receipts from covered medical device
    sales of $979 million for a combined market of $1 billion.

    ----------------------------------------------------------------------------------------------------------------
                                                                                              Covered entity's sales
                                               Applicable gross            Percentage           taken into account
                                             receipts (millions)                                    (millions)
    ----------------------------------------------------------------------------------------------------------------
    Company A: Total Gross Receipts $1m:
        Up to $5m........................                        1                        0                        0
                                          --------------------------------------------------------------------------
            Total Sales..................                        1  .......................                        0
    Company B: Total Gross Receipts $20m:
        Up to $5m........................                        5                        0                        0
        >$5m up to $25m..................                       15                       50                        8
                                          --------------------------------------------------------------------------
            Total Sales..................                       20  .......................                        8
    Company C: Total Gross Receipts
     $979m:
        Up to $5m........................                        5                        0                        0
        >$5m up to $25m..................                       20                       50                       10
        >$25m............................                      954                      100                      954
                                          --------------------------------------------------------------------------
            Total Sales..................                      979  .......................                      964
                                          --------------------------------------------------------------------------
    Total Market.........................                    1,000  .......................                      972
    ----------------------------------------------------------------------------------------------------------------

    ------------------------------------------------------------------------
                                                      Relative market share
                     Covered entity                    of sales taken into
                                                        account (percent)
    ------------------------------------------------------------------------
    Company A......................................                      0.0
    Company B......................................                      0.8
    Company C......................................                     99.2
    ------------------------------------------------------------------------

        For purposes of procedure and administration under the
    rules of subtitle F of the Code, any fee assessed under this
    provision is treated as an excise tax with respect to which
    only civil actions for refund under subtitle F apply. The
    Secretary may readjust covered entities' shares of the fee for
    any calendar year for which the statute of limitations remains
    open.
        The fees are treated as nondeductible taxes under section
    275 of the Code for U.S. income tax purposes.

    Effective Date

        The Committee Bill is effective for calendar years
    beginning after 2009. The fee is allocated based on the market
    share of gross receipts from medical device sales for calendar
    years beginning after December 31, 2008.

       SEC. 6010. IMPOSITION OF ANNUAL FEE ON HEALTH INSURANCE PROVIDERS

    Present Law

        Present law provides special rules for determining the
    taxable income of insurance companies (subchapter L of the
    Code). Separate sets of rules apply to life insurance companies
    and to property and casualty insurance companies. Insurance
    companies are subject to Federal income tax at regular
    corporate income tax rates.
        An insurance company that provides health insurance is
    subject to Federal income tax as either a life insurance
    company or as a property insurance company, depending on its
    mix of lines of business and on the resulting portion of its
    reserves that are treated as life insurance reserves. For
    Federal income tax purposes, an insurance company is treated as
    a life insurance company if the sum of its (1) life insurance
    reserves and (2) unearned premiums and unpaid losses on
    noncancellable life, accident or health contracts not included
    in life insurance reserves, comprise more than 50 percent of
    its total reserves.\100\
    ---------------------------------------------------------------------------
        \100\Sec. 816(a).
    ---------------------------------------------------------------------------
        Some insurance providers may be exempt from Federal income
    tax under section 501(a) if specific requirements are
    satisfied. Section 501(c)(8), for example, describes certain
    fraternal beneficiary societies, orders, or associations
    operating under the lodge system or for the exclusive benefit
    of their members that provide for the payment of life, sick,
    accident, or other benefits to the members or their dependents.
    Section 501(c)(9) describes certain voluntary employees'
    beneficiary associations that provide for the payment of life,
    sick, accident, or other benefits to the members of the
    association or their dependents or designated beneficiaries.
    Section 501(c)(12)(A) describes certain benevolent life
    insurance associations of a purely local character. Section
    501(c)(15) describes certain small non-life insurance companies
    with annual gross receipts of no more than $600,000 ($150,000
    in the case of a mutual insurance company). Section 501(c)(26)
    describes certain membership organizations established to
    provide health insurance to certain high-risk individuals.
    Section 501(c)(27) describes certain organizations established
    to provide workmen's compensation insurance.
        An excise tax applies to premiums paid to foreign insurers
    and reinsurers covering U.S. risks.\101\ The excise tax is
    imposed on a gross basis at the rate of one percent on
    reinsurance and life insurance premiums, and at the rate of
    four percent on property and casualty insurance premiums. The
    excise tax does not apply to premiums that are effectively
    connected with the conduct of a U.S. trade or business or that
    are exempted from the excise tax under an applicable income tax
    treaty. The excise tax paid by one party cannot be credited if,
    for example, the risk is reinsured with a second party in a
    transaction that is also subject to the excise tax.
    ---------------------------------------------------------------------------
        \101\Secs. 4371-4374.
    ---------------------------------------------------------------------------
        IRS authority to assess and collect taxes is generally
    provided in subtitle F of the Code (secs. 6001-7874), relating
    to procedure and administration. That subtitle establishes the
    rules governing both how taxpayers are required to report
    information to the IRS and to pay their taxes, as well as their
    rights. It also establishes the duties and authority of the IRS
    to enforce the Federal tax law, and sets forth rules relating
    to judicial proceedings involving Federal tax.

    Committee Bill

        Under the Committee Bill, an annual fee applies to any
    covered entity engaged in the business of providing health
    insurance with respect to United States health risks. The fee
    applies for calendar years beginning after 2009. The aggregate
    annual fee for all covered entities is $6.7 billion. Under the
    Committee Bill, the aggregate fee is apportioned among the
    providers based on a ratio designed to reflect relative market
    share of U.S. health business.
        The annual payment date for a calendar year is determined
    by the Secretary of the Treasury, but in no event may be later
    than September 30 of that year.
        For each covered entity, the fee for a calendar year is an
    amount that bears the same ratio to $6.7 billion as (1) the
    covered entity's net premiums written during the preceding
    calendar year with respect to health insurance for any United
    States health risk, bears to (2) the aggregate net written
    premiums of all covered entities during such preceding calendar
    year with respect to such health insurance.
        The Committee requires the Secretary of the Treasury to
    calculate the amount of each covered entity's fee for the
    calendar year, determining the covered entity's net written
    premiums with respect to health insurance for any United States
    health risk on the basis of reports submitted by the covered
    entity and through the use of any other source of information
    available to the Treasury Department. It is intended that the
    Treasury Department be able to rely on published aggregate
    annual statement data to the extent necessary, and may use
    annual statement data and filed annual statements that are
    publicly available to verify or supplement the reports
    submitted by covered entities. Net written premiums is intended
    to mean premiums written, including reinsurance premiums
    written, reduced by reinsurance ceded, and reduced by ceding
    commissions. Net written premiums do not include amounts
    arising under arrangements that are not treated as insurance
    (i.e., in the absence of sufficient risk shifting and risk
    distribution for the arrangement to constitute insurance).\102\
    ---------------------------------------------------------------------------
        \102\See Helvering v. Le Gierse, 312 U.S. 531 (1941).
    ---------------------------------------------------------------------------
        For this purpose, a covered entity is an entity that
    provides health insurance with respect to United States health
    risks. Thus for example, an insurance company subject to tax
    under part I or II of subchapter L, an organization exempt from
    tax under section 501(a), or a foreign insurer, that provides
    health insurance with respect to United States health risks, is
    a covered entity under the provision. Similarly, an insurer
    that provides health insurance with respect to United States
    health risks under Medicare Advantage, Medicare Part D, or
    Medicaid is a covered entity. A covered entity does not,
    however, include an employer to the extent that the employer
    self-insures the health risks of its employees, nor does it
    include any governmental entity. For example, a manufacturer
    that enters into a self-insurance arrangement with respect to
    the health risks of its employees is not treated as a covered
    entity. As a further example, an insurer that sells health
    insurance and that also enters into a self-insurance
    arrangement with respect to the health risks of its own
    employees is treated as a covered entity with respect to its
    health insurance business, but is not treated as a covered
    entity to the extent of the self-insurance of its own
    employees' health risks.
        For purposes of the provision, all persons treated as a
    single employer under section 52(a) or (b) or section 414(m) or
    (o) are treated as a single covered entity (or as a single
    employer, for purposes of the rule relating to employers that
    self-insure the health risks of employees), and otherwise
    applicable exclusion of foreign corporations under those rules
    is disregarded.
        A United States heath risk means the health risk of an
    individual who is a U.S. citizen, is a U.S. resident within the
    meaning of section 7701(b)(1)(A) (whether or not located in the
    United States), or is located in the United States, with
    respect to the period that the individual is located there. In
    general, it is intended that risks in the following lines of
    business reported on the annual statement as prescribed by the
    National Association of Insurance Commissioners and as filed
    with the insurance commissioners of the States in which
    insurers are licensed to do business constitute health risks
    for this purpose: comprehensive (hospital and medical),
    Medicare supplemental, dental, vision, Federal Employees Health
    Benefit plan, title XVIII Medicare, title XIX Medicaid, and
    other health. However, it is intended that the risk of coverage
    of long term care does not constitute a health risk for
    purposes of the provision.
        For purposes of procedure and administration under the
    rules of Subtitle F of the Code, the fee under this provision
    is treated as an excise tax with respect to which only civil
    actions for refund under Subtitle F apply. The Secretary of the
    Treasury may redetermine covered entities' shares of the fee
    for any calendar year for which the statute of limitations
    remains open.
        For purposes of section 275 of the Code, relating to the
    nondeductibility of specified taxes, the fee is considered to
    be a nondeductible tax described in section 275(a)(6).
        A reporting rule applies under the Committee Bill. A
    covered entity is required to report to the Secretary of the
    Treasury the amount of its net premiums written during any
    calendar year with respect to health insurance for any United
    States health risk.
        The Committee Bill provides authority for the Secretary of
    the Treasury to publish guidance necessary to carry out the
    purposes of the Committee Bill.

    Effective Date

        The annual fee is required to be paid in each calendar year
    beginning after 2009. The provision applies to net premiums
    written after December 31, 2008, with respect to health
    insurance for any United States health risk.

         SEC. 6011. STUDY AND REPORT OF EFFECT ON VETERANS HEALTH CARE

    Present Law

        No provision.

    Committee Bill

        The Committee Bill requires the Secretary of Veterans
    Affairs to conduct a study on the effect (if any) of the fees
    assessed on manufacturers and importers of branded prescription
    drugs, manufacturers and importers of medical devices, and
    health insurance providers on (1) the cost of medical care
    provided to veterans and (2) veterans' access to branded
    prescription drugs and medical devices.
        The Secretary of Veterans Affairs will report the results
    of the study to the Committee on Ways and Means of the House of
    Representatives and to the Committee on Finance of the Senate
    no later than December 31, 2012.

    Effective Date

        The Committee Bill is effective on the date of enactment.

    SEC. 6012. ELIMINATION OF DEDUCTION FOR EXPENSES ALLOCABLE TO MEDICARE
                                 PART D SUBSIDY

    Present Law

        In general. Sponsors\103\ of qualified retiree prescription
    drug plans are eligible for subsidy payments from the Secretary
    of Health and Human Services (``HHS'') with respect to a
    portion of each qualified covered retiree's gross covered
    prescription drug costs (``qualified retiree prescription drug
    plan subsidy'').\104\ A qualified retiree prescription drug
    plan is employment-based retiree health coverage\105\ that has
    an actuarial value at least as great as the Medicare Part D
    standard plan for the risk pool and that meets certain other
    disclosure and recordkeeping requirements.\106\ These qualified
    retiree prescription drug plan subsidies are excludable from
    the plan sponsor's gross income for the purposes of regular
    income tax and alternative minimum tax (including the
    adjustment for adjusted current earnings).\107\
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        \103\The identity of the plan sponsor is determined in accordance
    with section 16(B) of ERISA, except that for cases where a plan is
    maintained jointly by one employer and an employee organization, and
    the employer is the primary source of financing, the employer is the
    plan sponsor.
        \104\Sec. 1860D-22 of the Social Security Act (``SSA''), 42 U.S.C.
    Sec. 1395w-132.
        \105\Employment-based retiree health coverage is health insurance
    coverage or other coverage of health care costs (whether provided by
    voluntary insurance coverage or pursuant to statutory or contractual
    obligation) for Medicare Part D eligible individuals (their spouses and
    dependents) under group health plans based on their status as retired
    participants in such plans. For purposes of the subsidy, group health
    plans generally include employee welfare benefit plans (as defined in
    section 607(1) of ERISA) that provide medical care (as defined in
    section 213(d)), Federal and State governmental plans, collectively
    bargained plans, and church plans.
        \106\In addition to meeting the actuarial value standard, the plan
    sponsor must also maintain and provide the Secretary of HHS access to
    records that meet the Secretary of HHS's requirements for purposes of
    audits and other oversight activities necessary to ensure the adequacy
    of prescription drug coverage and the accuracy of payments made to
    eligible individuals under the plan. In addition, the plan sponsor must
    disclose to the Secretary of HHS whether the plan meets the actuarial
    equivalence requirement and if it does not, must disclose to retirees
    the limitations of their ability to enroll in Medicare Part D and that
    non-creditable coverage enrollment is subject to penalties such as fees
    for late enrollment. 42 U.S.C. 1395w-132(a)(2).
        \107\Sec. 139A.
    ---------------------------------------------------------------------------
        Subsidy amounts. For each qualifying covered retiree
    enrolled for a coverage year in a qualified retiree
    prescription drug plan, the qualified retiree prescription drug
    plan subsidy is equal to 28 percent of the portion of the
    allowable retiree costs paid by the plan sponsor on behalf of
    the retiree that exceed the cost threshold but do not exceed
    the cost limit. A ``qualifying covered retiree'' is an
    individual who is eligible for Medicare but not enrolled in
    either a Medicare Part D prescription drug plan (``PDP'') or a
    Medicare Advantage-Prescription Drug (``MA-PD'') plan, but who
    is covered under a qualified retiree prescription drug plan.
    Generally allowable retiree costs are, with respect to
    prescription drug costs under a qualified retiree prescription
    drug plan, the part of the actual costs paid by the plan
    sponsor on behalf of a qualifying covered retiree under the
    plan.\108\ Both the threshold and limit are indexed to the
    percentage increase in Medicare per capita prescription drug
    costs; the cost threshold was $250 in 2006 ($295 in 2009) and
    the cost limit was $5,000 in 2006 ($6,000 in 2009).\109\
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        \108\For purposes of calculating allowable retiree costs, actual
    costs paid are net of discounts, chargebacks, and average percentage
    rebates, and exclude administrative costs.
        \109\Patricia M. Davis, ``Medicare Part D Prescription Drug
    Benefit,'' Congressional Research Service. June 1, 2009. The cost
    threshold is indexed in the same manner as the Medicare Part D annual
    deductible, while the cost limit is indexed in the same manner as the
    Medicare Part D annual out-of-pocket threshold.
    ---------------------------------------------------------------------------
        Expenses relating to tax exempt income. In general, no
    deduction is allowed under any provision of the Code for any
    expense or amount which would otherwise be allowable as a
    deduction if such expense or amount is allocable to a class or
    classes of exempt income.\110\ Thus, expenses or amount paid or
    incurred with respect to the subsidies excluded from income
    under section 139A would generally not be deductible. However,
    a provision under section 139A specifies that the exclusion of
    the qualified retiree prescription drug plan subsidy from
    income is not taken into account in determining whether any
    deduction is allowable with respect to covered retiree
    prescription drug expenses that are taken into account in
    determining the subsidy payment. Therefore, under present law,
    a taxpayer may claim a business deduction for covered retiree
    prescription drug expenses incurred notwithstanding that the
    taxpayer excludes from income qualified retiree prescription
    drug plan subsidies allocable to such expenses.
    ---------------------------------------------------------------------------
        \110\Sec. 265(a) and Treas. Reg. sec. 1.265-1(a).
    ---------------------------------------------------------------------------

    Committee Bill

        The Committee Bill eliminates the rule that the exclusion
    for subsidy payments is not taken into account for purposes of
    determining whether a deduction is allowable with respect to
    retiree prescription drug expenses. Thus, under the provision,
    the amount otherwise allowable as a deduction for retiree
    prescription drug expenses is reduced by the amount of the
    excludable subsidy payments received.

    Effective Date

        The Committee Bill is effective for taxable years beginning
    after December 31, 2010.

         SEC. 6013. MODIFY THE ITEMIZED DEDUCTION FOR MEDICAL EXPENSES

    Present Law

        Regular income tax. For regular income tax purposes,
    individuals are allowed an itemized deduction for unreimbursed
    medical expenses, but only to the extent that such expenses
    exceed 7.5 percent of adjusted gross income (``AGI'').\111\
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        \111\Sec. 213.
    ---------------------------------------------------------------------------
        This deduction is available both to insured and uninsured
    individuals; thus, for example, an individual with employer-
    provided health insurance (or certain other forms of tax-
    subsidized health benefits) may also claim the itemized
    deduction for the individual's medical expenses not covered by
    that insurance if the 7.5 percent AGI threshold is met. The
    medical deduction encompasses health insurance premiums to the
    extent they have not been excluded from taxable income through
    the employer exclusion or self-insured deduction or have
    otherwise not been reimbursed.
        Alternative minimum tax. For purposes of the alternative
    minimum tax (``AMT''), medical expenses are deductible only to
    the extent that they exceed 10 percent of AGI.

    Committee Bill

        The Committee Bill increases the threshold for the
    deduction from 7.5 percent of AGI to ten percent of AGI for
    regular income tax purposes. However if either the taxpayer or
    the taxpayer's spouse is age 65 or older, the increased
    threshold does not apply and the threshold remains at 7.5
    percent of AGI. The provision does not change the AMT treatment
    of the itemized deduction for medical expenses.

    Effective Date

        The Committee Bill is effective for taxable years beginning
    after December 31, 2012. The continuation of the current
    threshold of 7.5 percent of AGI that applies if the taxpayer or
    the taxpayer's spouse is age 65 or older applies to taxable
    years beginning after December 31, 2012 and ending before
    January 1, 2017.

      SEC. 6014. LIMITATION ON DEDUCTION FOR REMUNERATION PAID BY HEALTH
                              INSURANCE PROVIDERS

    Present Law

        An employer generally may deduct reasonable compensation
    for personal services as an ordinary and necessary business
    expense. Section 162(m) provides explicit limitations on the
    deductibility of compensation expenses in the case of corporate
    employers.

    Section 162(m)

        In general. The otherwise allowable deduction for
    compensation paid or accrued with respect to a covered employee
    of a publicly held corporation\112\ is limited to no more than
    $1 million per year.\113\ The deduction limitation applies when
    the deduction would otherwise be taken. Thus, for example, in
    the case of compensation resulting from a transfer of property
    in connection with the performance of services, such
    compensation is taken into account in applying the deduction
    limitation for the year for which the compensation is
    deductible under section 83 (i.e., generally the year in which
    the employee's right to the property is no longer subject to a
    substantial risk of forfeiture).
    ---------------------------------------------------------------------------
        \112\A corporation is treated as publicly held if it has a class of
    common equity securities that is required to be registered under
    section 12 of the Securities Exchange Act of 1934.
        \113\Sec. 162(m). This deduction limitation applies for purposes of
    the regular income tax and the alternative minimum tax.
    ---------------------------------------------------------------------------
        Covered employees. Section 162(m) defines a covered
    employee as (1) the chief executive officer of the corporation
    (or an individual acting in such capacity) as of the close of
    the taxable year and (2) the four most highly compensated
    officers for the taxable year (other than the chief executive
    officer). Treasury regulations under section 162(m) provide
    that whether an employee is the chief executive officer or
    among the four most highly compensated officers should be
    determined pursuant to the executive compensation disclosure
    rules promulgated under the Securities Exchange Act of 1934
    (``Exchange Act'').
        In 2006, the Securities and Exchange Commission amended
    certain rules relating to executive compensation, including
    which executive officers' compensation must be disclosed under
    the Exchange Act. Under the new rules, such officers consist of
    (1) the principal executive officer (or an individual acting in
    such capacity), (2) the principal financial officer (or an
    individual acting in such capacity), and (3) the three most
    highly compensated executive officers, other than the principal
    executive officer or financial officer. In response to the
    Securities and Exchange Commission's new disclosure rules, the
    Internal Revenue Service issued updated guidance on identifying
    which employees are covered by section 162(m).\114\
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        \114\Notice 2007-49, 2007-25 I.R.B. 1429.
    ---------------------------------------------------------------------------
        Remuneration subject to the limit. Unless specifically
    excluded, the deduction limitation applies to all remuneration
    for services, including cash and the cash value of all
    remuneration (including benefits) paid in a medium other than
    cash. If an individual is a covered employee for a taxable
    year, the deduction limitation applies to all compensation not
    explicitly excluded from the deduction limitation, regardless
    of whether the compensation is for services as a covered
    employee and regardless of when the compensation was earned.
    The $1 million cap is reduced by excess parachute payments (as
    defined in sec. 280G, discussed below) that are not deductible
    by the corporation.
        Certain types of compensation are not subject to the
    deduction limit and are not taken into account in determining
    whether other compensation exceeds $1 million. The following
    types of compensation are not taken into account: (1)
    remuneration payable on a commission basis; (2) remuneration
    payable solely on account of the attainment of one or more
    performance goals if certain outside director and shareholder
    approval requirements are met (``performance-based
    compensation''); (3) payments to a tax-qualified retirement
    plan (including salary reduction contributions); (4) amounts
    that are excludable from the executive's gross income (such as
    employer-provided health benefits and miscellaneous fringe
    benefits\115\); and (5) any remuneration payable under a
    written binding contract which was in effect on February 17,
    1993.
    ---------------------------------------------------------------------------
        \115\Sec. 132.
    ---------------------------------------------------------------------------
        Remuneration does not include compensation for which a
    deduction is allowable after a covered employee ceases to be a
    covered employee. Thus, the deduction limitation often does not
    apply to deferred compensation that is otherwise subject to the
    deduction limitation (e.g., is not performance-based
    compensation) because the payment of compensation is deferred
    until after termination of employment.

       Executive Compensation of Employers Participating in the Troubled
                             Assets Relief Program

        In general. Under section 162(m)(5), the deduction limit is
    reduced to $500,000 in the case of otherwise deductible
    compensation of a covered executive for any applicable taxable
    year of an applicable employer.
        An applicable employer means any employer from which one or
    more troubled assets are acquired under the ``troubled assets
    relief program'' (``TARP'') established by the Emergency
    Stabilization Act of 2008\116\ (``EESA'') if the aggregate
    amount of the assets so acquired for all taxable years
    (including assets acquired through a direct purchase by the
    Treasury Department, within the meaning of section 113(c) of
    Title I of EESA) exceeds $300,000,000. However, such term does
    not include any employer from which troubled assets are
    acquired by the Treasury Department solely through direct
    purchases (within the meaning of section 113(c) of Title I of
    EESA). For example, if a firm sells $250,000,000 in assets
    through an auction system managed by the Treasury Department,
    and $100,000,000 to the Treasury Department in direct
    purchases, then the firm is an applicable employer. Conversely,
    if all $350,000,000 in sales take the form of direct purchases,
    then the firm would not be an applicable employer.
    ---------------------------------------------------------------------------
        \116\Pub. L. No. 110-343.
    ---------------------------------------------------------------------------
        Unlike section 162(m), an applicable employer under this
    provision is not limited to publicly held corporations (or even
    limited to corporations). For example, an applicable employer
    could be a partnership if the partnership is an employer from
    which a troubled asset is acquired. The aggregation rules of
    Code section 414(b) and (c) apply in determining whether an
    employer is an applicable employer. However, these rules are
    applied disregarding the rules for brother-sister controlled
    groups and combined groups in sections 1563(a)(2) and (3).
    Thus, this aggregation rule only applies to parent-subsidiary
    controlled groups. A similar controlled group rule applies for
    trades and businesses under common control.
        The result of this aggregation rule is that all
    corporations in the same controlled group are treated as a
    single employer for purposes of identifying the covered
    executives of that employer and all compensation from all
    members of the controlled group are taken into account for
    purposes of applying the $500,000 deduction limit. Further, all
    sales of assets under the TARP from all members of the
    controlled group are considered in determining whether such
    sales exceed $300,000,000.
        An applicable taxable year with respect to an applicable
    employer means the first taxable year which includes any
    portion of the period during which the authorities for the TARP
    established under EESA are in effect (the ``authorities
    period'') if the aggregate amount of troubled assets acquired
    from the employer under that authority during the taxable year
    (when added to the aggregate amount so acquired for all
    preceding taxable years) exceeds $300,000,000, and includes any
    subsequent taxable year which includes any portion of the
    authorities period.
        A special rule applies in the case of compensation that
    relates to services that a covered executive performs during an
    applicable taxable year but that is not deductible until a
    later year (``deferred deduction executive remuneration''),
    such as nonqualified deferred compensation. Under the special
    rule, the unused portion (if any) of the $500,000 limit for the
    applicable tax year is carried forward until the year in which
    the compensation is otherwise deductible, and the remaining
    unused limit is then applied to the compensation.
        For example, assume a covered executive is paid $400,000 in
    cash salary by an applicable employer in 2008 (assuming 2008 is
    an applicable taxable year) and the covered executive earns
    $100,000 in nonqualified deferred compensation (along with the
    right to future earnings credits) payable in 2020. Assume
    further that the $100,000 has grown to $300,000 in 2020. The
    full $400,000 in cash salary is deductible under the $500,000
    limit in 2008. In 2020, the applicable employer's deduction
    with respect to the $300,000 will be limited to $100,000 (the
    lesser of the $300,000 in deductible compensation before
    considering the special limitation, and $500,000 less $400,000,
    which represents the unused portion of the $500,000 limit from
    2008).
        Deferred deduction executive remuneration that is properly
    deductible in an applicable taxable year (before application of
    the limitation under the provision) but is attributable to
    services performed in a prior applicable taxable year is
    subject to the special rule described above and is not double-
    counted. For example, assume the same facts as above, except
    that the nonqualified deferred compensation is deferred until
    2009 and that 2009 is an applicable taxable year. The
    employer's deduction for the nonqualified deferred compensation
    for 2009 would be limited to $100,000 (as in the example
    above). The limit that would apply under the provision for
    executive remuneration that is in a form other than deferred
    deduction executive remuneration and that is otherwise
    deductible for 2009 is $500,000. For example, if the covered
    executive is paid $500,000 in cash compensation for 2009, all
    $500,000 of that cash compensation would be deductible in 2009
    under the provision.
        Covered executive. The term covered executive means any
    individual who is the chief executive officer or the chief
    financial officer of an applicable employer, or an individual
    acting in that capacity, at any time during a portion of the
    taxable year that includes the authorities period. It also
    includes any employee who is one of the three highest
    compensated officers of the applicable employer for the
    applicable taxable year (other than the chief executive officer
    or the chief financial officer and only taking into account
    employees employed during any portion of the taxable year that
    includes the authorities period).\117\
    ---------------------------------------------------------------------------
        \117\The determination of the three highest compensated officers is
    made on the basis of the shareholder disclosure rules for compensation
    under the Exchange Act, except to the extent that the shareholder
    disclosure rules are inconsistent with the provision. Such shareholder
    disclosure rules are applied without regard to whether those rules
    actually apply to the employer under the Exchange Act. If an employee
    is a covered executive with respect to an applicable employer for any
    applicable taxable year, the employee will be treated as a covered
    executive for all subsequent applicable taxable years (and will be
    treated as a covered executive for purposes of any subsequent taxable
    year for purposes of the special rule for deferred deduction executive
    remuneration).
    ---------------------------------------------------------------------------
        Executive remuneration. The provision generally
    incorporates the present law definition of applicable employee
    remuneration. However, the present law exceptions for
    remuneration payable on commission and performance-based
    compensation do not apply for purposes of the $500,000 limit.
    In addition, the $500,000 limit only applies to executive
    remuneration which is attributable to services performed by a
    covered executive during an applicable taxable year. For
    example, assume the same facts as in the example above, except
    that the covered executive also receives in 2008 a payment of
    $300,000 in nonqualified deferred compensation that was
    attributable to services performed in 2006. Such payment is not
    treated as executive remuneration for purposes of the $500,000
    limit.
        Taxation of insurance companies. Present law provides
    special rules for determining the taxable income of insurance
    companies (subchapter L of the Code). Separate sets of rules
    apply to life insurance companies and to property and casualty
    insurance companies. Insurance companies are subject to Federal
    income tax at regular corporate income tax rates. An insurance
    company generally may deduct compensation paid in the course of
    its trade or business.

    Committee Bill

        Under the Committee Bill, no deduction is allowed for
    remuneration which is attributable to services performed by an
    applicable individual for a covered health insurance provider
    during an applicable taxable year to the extent that such
    remuneration exceeds $500,000. As under section 162(m)(5) for
    remuneration from TARP participants, the exceptions for
    performance based remuneration, commissions, or remuneration
    under existing binding contracts do not apply. This $500,000
    deduction limitation applies without regard to whether such
    remuneration is paid during the taxable year or a subsequent
    taxable year. In applying this rule, rules similar to those in
    section 162(m)(5)(A)(ii) apply. Thus in the case of
    remuneration that relates to services that an applicable
    individual performs during a taxable year but that is not
    deductible until a later year, such as nonqualified deferred
    compensation, the unused portion (if any) of the $500,000 limit
    for the year is carried forward until the year in which the
    compensation is otherwise deductible, and the remaining unused
    limit is then applied to the compensation.
        In determining whether the remuneration of an applicable
    individual for a year exceeds $500,000, all remuneration from
    all members of any controlled group of corporations (within the
    meaning of section 414(b)), other businesses under common
    control (within the meaning of section 414(c)), or affiliated
    service group (within the meaning of sections 414(m) and (o))
    are aggregated.
        Covered health insurance provider and applicable taxable
    year. An insurance provider is a covered health insurance
    provider if at least 25 percent of the insurance provider's
    gross premium income from health business is derived from
    health insurance plans that meet the minimum creditable
    coverage requirements in the bill (``covered health insurance
    provider''). A taxable year is an applicable taxable year for
    an insurance provider if an insurance provider is a covered
    insurance provider for any portion of the taxable year.
    Employers with self-insured plans are excluded from the
    definition of covered health insurance provider.
        Applicable individual. Applicable individuals include all
    officers, employees, directors, and other workers or service
    providers (such as consultants) performing services for or on
    behalf of a covered health insurance provider. Thus, in
    contrast to the general rules under section 162(m) and the
    special rules executive compensation of employers participating
    in the TARP program, the limitation on the deductibility of
    remuneration from a covered health insurance provided is not
    limited to a small group of officers and covered executives but
    generally applies to remuneration of all employees and service
    providers. If an individual is an applicable individual with
    respect to a covered health insurance provider for any taxable
    year, the individual is treated as an applicable individual for
    all subsequent taxable years (and is treated as an applicable
    individual for purposes of any subsequent taxable year for
    purposes of the special rule for deferred remuneration).

    Effective Date

        The Committee Bill is effective for remuneration paid in
    taxable years beginning after 2012 with respect to services
    performed after 2009.

      SEC. 6021. PROVIDE INCOME EXCLUSION FOR INDIAN TRIBE HEALTH BENEFITS

    Present Law

        Present law generally provides that gross income includes
    all income from whatever source derived.\118\ Exclusions from
    income are provided, however, for certain health care benefits.
    ---------------------------------------------------------------------------
        \118\Sec. 61.
    ---------------------------------------------------------------------------
        Exclusion from income for employer-provided health
    coverage. Employees generally may exclude from gross income the
    value of employer-provided health coverage under an accident or
    health plan.\119\ In addition, any reimbursements under an
    accident or health plan for medical care expenses for
    employees, their spouses, and their dependents generally are
    excluded from gross income.\120\ As with cash or other
    compensation, the amount paid by employers for employer-
    provided health coverage is a deductible business expense.
    Unlike other forms of compensation, however, if an employer
    contributes to a plan providing health coverage for employees,
    their spouses and dependents, the value of the coverage and all
    medical care benefits (including reimbursements) under the plan
    are excludable from the employees' income for income tax
    purposes.\121\ The exclusion applies both to health coverage in
    the case in which an employer absorbs the cost of employees'
    medical expenses not covered by insurance (i.e., a self-insured
    plan) as well as in the case in which the employer purchases
    health insurance coverage for its employees. There is no limit
    on the amount of employer-provided health coverage that is
    excludable.
    ---------------------------------------------------------------------------
        \119\Sec. 106.
        \120\Sec. 105(b).
        \121\Secs. 104, 105, 106, and 125. A similar rule excludes
    employer-provided health insurance coverage and reimbursements for
    medical expenses from the employees' wages for payroll tax purposes
    under sections 3121(a)(2) and 3306(a)(2). Health coverage provided to
    active members of the uniformed services, military retirees, and their
    dependents are excludable under section 134. That section provides an
    exclusion for ``qualified military benefits,'' defined as benefits
    received by reason of status or service as a member of the uniformed
    services and which were excludable from gross income on September 9,
    1986, under any provision of law, regulation, or administrative
    practice then in effect.
    ---------------------------------------------------------------------------
        In addition, employees participating in a cafeteria plan
    may be able to pay the portion of premiums for health insurance
    coverage not otherwise paid for by their employers on a pre-tax
    basis through salary reduction.\122\ Such salary reduction
    contributions are treated as employer contributions and thus
    also are excluded from gross income.
    ---------------------------------------------------------------------------
        \122\Sec. 125.
    ---------------------------------------------------------------------------
        Employers may agree to reimburse medical expenses of their
    employees (and their spouses and dependents), not covered by a
    health insurance plan, through flexible spending arrangements
    which allow reimbursement not in excess of a specified dollar
    amount (either elected by an employee under a cafeteria plan or
    otherwise specified by the employer). Reimbursements under
    these arrangements are also excludible from gross income as
    employer-provided health coverage.
        The general welfare exclusion. Under the general welfare
    exclusion doctrine, certain payments made to individuals have
    been excluded from gross income. The exclusion has been
    interpreted to cover payments by governmental units under
    legislatively provided social benefit programs for the
    promotion of the general welfare.\123\
    ---------------------------------------------------------------------------
        \123\See, e.g., Rev. Rul. 78-170, 1978-1 C.B. 24 (government
    payments to assist low-income persons with utility costs are not
    income); Rev. Rul. 76-395, 1976-2 C.B. 16, 17 (government grants to
    assist low-income city inhabitants to refurbish homes are not income);
    Rev. Rul. 76-144, 1976-1 C.B. 17 (government grants to persons eligible
    for relief under the Disaster Relief Act of 1974 are not income); Rev.
    Rul. 74-153, 1974-1 C.B. 20 (government payments to assist adoptive
    parents with support and maintenance of adoptive children are not
    income); Rev. Rul. 74-205, 1974-1 C.B. 20 (replacement housing payments
    received by individuals under the Housing and Urban Development Act of
    1968 are not includible in gross income); Gen. Couns. Mem. 34506 (May
    26, 1971) (Federal mortgage assistance payments excluded from income
    under general welfare exception); Rev. Rul. 57-102, 1957-1 C.B. 26
    (government benefits paid to blind persons are not income). The courts
    have also acknowledged the existence of this doctrine. See, e.g.,
    Bailey v. Commissioner, 88 T.C. 1293, 1299-1301 (1987) (new building
    facade paid for by urban renewal agency on taxpayer's property under
    facade grant program not considered payments under general welfare
    doctrine because awarded without regard to any need of the recipients);
    Graff v. Commissioner, 74 TC 743, 753-754 (1980) (court acknowledged
    that rental subsidies under Housing Act were excludable under general
    welfare doctrine but found that payments at issue made by HUD on
    taxpayer landlord's behalf were taxable income to him), affd. per
    curiam 673 F.2d 784 (5th Cir. 1982).
    ---------------------------------------------------------------------------
        The general welfare exclusion generally applies if the
    payments: (1) are made from a governmental fund, (2) are for
    the promotion of general welfare (on the basis of the need of
    the recipient), and (3) do not represent compensation for
    services.\124\ A representative of the IRS has recently stated
    that the general welfare exclusion does not apply to persons
    with significant income or assets, and that any such extension
    would represent a departure from well-established
    administrative practice.\125\ A representative of the IRS
    further stated that application of the general welfare
    exclusion to a tribal government providing coverage or benefits
    to tribal members is dependent upon the structure and
    administration of the particular program.\126\
    ---------------------------------------------------------------------------
        \124\See Rev. Rul. 98-19, 1998-1 C.B. 840 (excluding relocation
    payments made by local governments to those whose homes were damaged by
    floods). Recent guidance as to whether the need of the recipient (taken
    into account under the second requirement of the general welfare
    exclusion) must be based solely on financial means or whether the need
    can be based on a variety of other considerations including health,
    educational background, or employment status, has been mixed. Chief
    Couns. Adv. 200021036 (May 25, 2000) (excluding state adoption
    assistant payments made to individuals adopting special needs children
    without regard to financial means of parents; the children were
    considered to be the recipients); Priv. Ltr. Rul. 200632005 (April 13,
    2006) (excluding payments made by Tribe to members based on multiple
    factors of need pursuant to housing assistance program); Chief Couns.
    Adv. 200648027 (July 25, 2006) (excluding subsidy payments based on
    financial need of recipient made by state to certain participants in
    state health insurance program to reduce cost of health insurance
    premiums).
        \125\Testimony of Sarah H. Ingram, Commissioner, Tax Exempt and
    Government Entities, Internal Revenue Service, before the Senate
    Committee on Indian Affairs, Oversight Hearing to Examine the Federal
    Tax Treatment of Health Care Benefits Provided by Tribal Governments to
    Their Citizens, September 17, 2009.
        \126\Ibid.
    ---------------------------------------------------------------------------

    Committee Bill

        The Committee Bill establishes an exclusion from gross
    income the value of specified Indian tribe health benefits. The
    exclusion applies to the value of: (1) health services or
    benefits provided or purchased by the Indian Health Service
    (``IHS''), either directly or indirectly, through a grant to or
    a contract or compact with an Indian tribe or tribal
    organization or through programs of third parties funded by the
    IHS;\127\ (2) medical care services (in the form of provided or
    purchased medical care services, accident or health insurance
    or an arrangement having the same effect, or amounts paid
    directly or indirectly, to reimburse the member for expenses
    incurred for medical care) provided by an Indian tribe or
    tribal organization to a member of an Indian tribe, including
    the member's spouse or dependents;\128\ (3) accident or health
    plan coverage (or an arrangement having the same effect)
    provided by an Indian tribe or tribal organization for medical
    care to a member of an Indian tribe and the member's spouse or
    dependents; and (4) any other medical care provided by an
    Indian tribe that supplements, replaces, or substitutes for the
    programs and services provided by the Federal government to
    Indian tribes or Indians.
    ---------------------------------------------------------------------------
        \127\The term ``Indian tribe'' means any Indian tribe, band,
    nation, pueblo, or other organized group or community, including any
    Alaska Native village, or regional or village corporation, as defined
    by, or established pursuant to, the Alaska Native Claims Settlement Act
    (43 U.S.C. 1601 et seq.), which is recognized as eligible for the
    special programs and services provided by the United States to Indians
    because of their status as Indians. The term ``tribal organization''
    has the same meaning in section 4(l) of the Indian Self-Determination
    and Education Assistance Act (25 U.S.C. 450b(1)).
        \128\The terms ``accident or health insurance'' and ``accident or
    health plan'' have the same meaning in sections 104 and 106. The term
    ``medical care'' is the same as the definition under section 213. For
    purposes of the provision, dependents are determined under section 152,
    but without regard to subsections (b)(1), (b)(2), and (d)(1)(B).
    Section 152(b)(1) generally provides that if an individual is a
    dependent of another taxpayer during a taxable year such individual is
    treated as having no dependents for such taxable year. Section
    152(b)(2) provides that a married individual filing a joint return with
    his or her spouse is not treated as a dependent of a taxpayer. Section
    152(d)(1)(B) provides that a ``qualifying relative'' (i.e., a relative
    that qualifies as a dependent) does not include a person whose gross
    income for the calendar year in which the taxable year begins equals or
    exceeds the exempt amount (as defined under section 151).
    ---------------------------------------------------------------------------
        Under the Committee Bill, no inference is intended as to
    the tax treatment of health benefits or coverage prior to the
    effective date. Additionally, no inference is intended with
    respect to the tax treatment of other benefits provided by
    Indian tribes not covered by the provision.

    Effective Date

        The Committee Bill is effective for health benefits and
    coverage provided after the date of enactment.

    SEC. 6022. ESTABLISHMENT OF SIMPLE CAFETERIA PLANS FOR SMALL BUSINESSES

    Present Law

        Definition of a cafeteria plan. If an employee receives a
    qualified benefit (as defined below) based on the employee's
    election between the qualified benefit and a taxable benefit
    under a cafeteria plan, the qualified benefit generally is not
    includable in gross income.\129\ However, if a plan offering an
    employee an election between taxable benefits (including cash)
    and nontaxable qualified benefits does not meet the
    requirements for being a cafeteria plan, the election between
    taxable and nontaxable benefits results in gross income to the
    employee, regardless of what benefit is elected and when the
    election is made.\130\ A cafeteria plan is a separate written
    plan under which all participants are employees, and
    participants are permitted to choose among at least one
    permitted taxable benefit (for example, current cash
    compensation) and at least one qualified benefit. Finally, a
    cafeteria plan must not provide for deferral of compensation,
    except as specifically permitted in sections 125(d)(2)(B), (C),
    or (D).
    ---------------------------------------------------------------------------
        \129\Sec. 125(a).
        \130\Proposed Treas. Reg. sec. 1.125-1(b).
    ---------------------------------------------------------------------------
        Qualified benefits. Qualified benefits under a cafeteria
    plan are generally employer-provided benefits that are not
    includable in gross income under an express provision of the
    Code. Examples of qualified benefits include employer-provided
    health insurance coverage, group term life insurance coverage
    not in excess of $50,000, and benefits under a dependent care
    assistance program. In order to be excludable, any qualified
    benefit elected under a cafeteria plan must independently
    satisfy any requirements under the Code section that provides
    the exclusion. However, some employer-provided benefits that
    are not includable in gross income under an express provision
    of the Code are explicitly not allowed in a cafeteria plan.
    These benefits are generally referred to as nonqualified
    benefits. Examples of nonqualified benefits include
    scholarships;\131\ employer-provided meals and lodging;\132\
    educational assistance;\133\ and fringe benefits.\134\ A plan
    offering any nonqualified benefit is not a cafeteria plan.\135\
    ---------------------------------------------------------------------------
        \131\Sec. 117.
        \132\Sec. 119.
        \133\Sec. 127.
        \134\Sec. 132.
        \135\Proposed Treas. Reg. sec. 1.125-1(q). Long-term care services,
    contributions to Archer Medical Savings Accounts, group term life
    insurance for an employee's spouse, child or dependent, and elective
    deferrals to section 403(b) plans are also nonqualified benefits.
    ---------------------------------------------------------------------------
        Flex-credits under a cafeteria plan. Employer ``flex-
    credits'' are non-elective employer contributions that an
    employer makes available for every employee eligible to
    participate in the cafeteria plan, to be used at the employee's
    election only for one or more qualified benefits (but not as
    cash or other taxable benefits).
        Employer contributions through salary reduction. Employees
    electing a qualified benefit through salary reduction are
    electing to forego salary and instead to receive a benefit that
    is excludible from gross income because it is provided by
    employer contributions. Section 125 provides that the employee
    is treated as receiving the qualified benefit from the employer
    in lieu of the taxable benefit. For example, active employees
    participating in a cafeteria plan may be able to pay their
    share of premiums for employer-provided health insurance on a
    pre-tax basis through salary reduction.\136\
    ---------------------------------------------------------------------------
        \136\Sec. 125.
    ---------------------------------------------------------------------------
        Nondiscrimination requirements. Cafeteria plans and certain
    qualified benefits (including group term life insurance, self-
    insured medical reimbursement plans, and dependent care
    assistance programs) are subject to nondiscrimination
    requirements to prevent discrimination in favor of highly
    compensated individuals generally as to eligibility for
    benefits and as to actual contributions and benefits provided.
    There are also rules to prevent the provision of
    disproportionate benefits to key employees (within the meaning
    of section 416(i)) through a cafeteria plan.\137\ Although the
    basic purpose of each of the nondiscrimination rules is the
    same, the specific rules for satisfying the relevant
    nondiscrimination requirements, including the definition of
    highly compensated individual,\138\ vary for cafeteria plans
    generally and for each qualified benefit. An employer
    maintaining a cafeteria plan in which any highly compensated
    individual participates must make sure that both the cafeteria
    plan and each qualified benefit satisfies the relevant
    nondiscrimination requirements, as a failure to satisfy the
    nondiscrimination rules generally results in a loss of the tax
    exclusion by the highly compensated individuals.
    ---------------------------------------------------------------------------
        \137\A key employee generally is an employee who, at any time
    during the year is (1) a five-percent owner of the employer, or (2) a
    one-percent owner with compensation of more than $150,000 (not indexed
    for inflation), or (3) an officer with compensation more than $160,000
    (for 2009). A special rule limits the number of officers treated as key
    employees. If the employer is a corporation, a five-percent owner is a
    person who owns more than five percent of the outstanding stock or
    stock possessing more than five percent of the total combined voting
    power of all stock. If the employer is not a corporation, a five-
    percent owner is a person who owns more than five percent of the
    capital or profits interest. A one-percent owner is determined by
    substituting one percent for five percent in the preceding definitions.
    For purposes of determining employee ownership in the employer, certain
    attribution rules apply.
        \138\For cafeteria plan purposes, a ``highly compensated
    individual'' is (1) an officer, (2) a five-percent shareholder, (3) an
    individual who is highly compensated, or (4) the spouse or dependent of
    any of the preceding categories. A ``highly compensated participant''
    is a participant who falls in any of those categories. ``Highly
    compensated'' is not defined for this purpose. Under section 105(h), a
    self-insured health plan must not discriminate in favor of a ``highly
    compensated individual,'' defined as (1) one of the five highest paid
    officers, (2) a 10-percent shareholder, or (3) an individual among the
    highest paid 25 percent of all employees. Under section 129 for a
    dependent care assistance program, eligibility for benefits, and the
    benefits and contributions provided, generally must not discriminate in
    favor of highly compensated employees within the meaning of section
    414(q).
    ---------------------------------------------------------------------------

    Committee Bill

        Under the Committee Bill, an eligible small employer is
    provided with a safe harbor from the nondiscrimination
    requirements for cafeteria plans as well as from the
    nondiscrimination requirements for specified qualified benefits
    offered under a cafeteria plan, including group term life
    insurance, coverage under a self-insured group health plan, and
    benefits under a dependent care assistance program. Under the
    safe harbor, a cafeteria plan and the specified qualified
    benefits will be treated as meeting the nondiscrimination rules
    if the cafeteria plan satisfies minimum eligibility and
    participation requirements and minimum contribution
    requirements.
        Eligibility requirement. The eligibility requirement is met
    only if all employees (other than excludable employees) are
    eligible to participate, and each employee eligible to
    participate is able to elect any benefit available under the
    plan (subject to the terms and conditions applicable to all
    participants). However, a cafeteria plan will not fail to
    satisfy this eligibility requirement merely because the plan
    excludes employees who (1) have not attained the age of 21 (or
    a younger age provided in the plan) before the close of a plan
    year, (2) have fewer than 1,000 hours of service for the
    preceding plan year, (3) have less than one year of service
    with the employer as of any day during the plan year, (4) are
    covered under an agreement that the Secretary of Labor finds to
    be a collective bargaining agreement if there is evidence that
    the benefits covered under the cafeteria plan were the subject
    of good faith bargaining between employee representatives and
    the employer, or (5) are described in section 410(b)(3)(C)
    (relating to nonresident aliens working outside the United
    States).
        Minimum contribution requirement. The minimum contribution
    requirement is met if (1) the employer provides flex credits
    available for use during the plan year equal to at least two
    percent of each eligible employee's compensation for the plan
    year, or (2) the value of employer-paid benefits is at least
    six percent of each eligible employee's compensation for the
    plan year or, if less, twice the amount of the salary reduction
    amount for the year of each eligible employee who is not a
    highly compensated employee (within the meaning of section
    414(q))\139\ or is not a key employee (within the meaning of
    section 416(i)) and who participates in the plan.
    ---------------------------------------------------------------------------
        \139\Section 414(q) generally defines a highly compensated employee
    as an employee (1) who was a five-percent owner during the year or the
    preceding year, or (2) who had compensation of $110,000 (for 2009) or
    more for the preceding year. An employer may elect to limit the
    employees treated as highly compensated employees based upon their
    compensation in the preceding year to the highest paid 20 percent of
    employees in the preceding year. Five-percent owner is defined by
    cross-reference to the definition of key employee in section 416(i).
    ---------------------------------------------------------------------------
        An employer is permitted to provide flex credits under the
    cafeteria plan in addition to the minimum required matching or
    nonelective contributions. However, the contribution
    requirement is not satisfied if the matching contributions with
    respect to salary reduction contributions for any highly
    compensated or key employee are made at a greater rate than the
    matching contributions for any employee who is not a highly
    compensated or key employee.
        Eligible employer. An eligible small employer under the
    Committee Report is, with respect to any year, an employer who
    employed an average of 100 or fewer employees on business days
    during either of the two preceding years. For purposes of the
    provision, a year may only be taken into account if the
    employer was in existence throughout the year. If an employer
    was not in existence throughout the preceding year, the
    determination is based on the average number of employees that
    it is reasonably expected such employer will employ on business
    days in the current year. If an employer was an eligible
    employer for any year and maintained a simple cafeteria plan
    for its employees for such year, then, for each subsequent year
    during which the employer continues, without interruption, to
    maintain the cafeteria plan, the employer is deemed to be an
    eligible small employer until the employer employs an average
    of 200 or more employees on business days during any year
    preceding any such subsequent year.
        The determination of whether an employer is an eligible
    small employer is determined by applying the controlled group
    rules of sections 52(a) and (b) under which all members of the
    controlled group are treated as a single employer. In addition,
    the definition of employee includes leased employees within the
    meaning of sections 414(n) and (o).\140\
    ---------------------------------------------------------------------------
        \140\Section 52(b) provides that, for specified purposes, all
    employees of all corporations which are members of a controlled group
    of corporations are treated as employed by a single employer. However,
    section 52(b) provides certain modifications to the control group rules
    including substituting 50 percent ownership for 80 percent ownership as
    the measure of control. There is a similar rule in section 52(c) under
    which all employees of trades or businesses (whether or not
    incorporated) which are under common control are treated under
    regulations as employed by a single employer. Section 414(n) provides
    rules for specified purposes when leased employees are treated as
    employed by the service recipient and section 414(o) authorizes the
    Treasury to issue regulations to prevent avoidance of the requirements
    of section 414(n).
    ---------------------------------------------------------------------------

    Effective Date

        The Committee Report is effective for taxable years
    beginning after December 31, 2010.

       SEC. 6023. INVESTMENT CREDIT FOR QUALIFYING THERAPEUTIC DISCOVERY
                                    PROJECTS

    Present Law

        Present law provides for a research credit equal to 20
    percent (14 percent in the case of the alternative simplified
    credit) of the amount by which the taxpayer's qualified
    research expenses for a taxable year exceed its base amount for
    that year.\141\ Thus, the research credit is generally
    available with respect to incremental increases in qualified
    research.
    ---------------------------------------------------------------------------
        \141\Sec. 41.
    ---------------------------------------------------------------------------
        A 20 percent research tax credit is also available with
    respect to the excess of (1) 100 percent of corporate cash
    expenses (including grants or contributions) paid for basic
    research conducted by universities (and certain nonprofit
    scientific research organizations) over (2) the sum of (a) the
    greater of two minimum basic research floors plus (b) an amount
    reflecting any decrease in nonresearch giving to universities
    by the corporation as compared to such giving during a fixed-
    base period, as adjusted for inflation. This separate credit
    computation is commonly referred to as the ``university basic
    research credit.''\142\
    ---------------------------------------------------------------------------
        \142\Sec. 41(e).
    ---------------------------------------------------------------------------
        Finally, a research credit is available for a taxpayer's
    expenditures on research undertaken by an energy research
    consortium. This separate credit computation is commonly
    referred to as the ``energy research credit.'' Unlike the other
    research credits, the energy research credit applies to all
    qualified expenditures, not just those in excess of a base
    amount.
        The research credit, including the university basic
    research credit and the energy research credit, expires for
    amounts paid or incurred after December 31, 2009.\143\
    ---------------------------------------------------------------------------
        \143\Sec. 41(h).
    ---------------------------------------------------------------------------
        Qualified research expenses eligible for the research tax
    credit consist of: (1) in-house expenses of the taxpayer for
    wages and supplies attributable to qualified research; (2)
    certain time-sharing costs for computer use in qualified
    research; and (3) 65 percent of amounts paid or incurred by the
    taxpayer to certain other persons for qualified research
    conducted on the taxpayer's behalf (so-called contract research
    expenses).\144\ Notwithstanding the limitation for contract
    research expenses, qualified research expenses include 100
    percent of amounts paid or incurred by the taxpayer to an
    eligible small business, university, or Federal laboratory for
    qualified energy research.
    ---------------------------------------------------------------------------
        \144\Under a special rule, 75 percent of amounts paid to a research
    consortium for qualified research are treated as qualified research
    expenses eligible for the research credit (rather than 65 percent under
    the general rule of section 41(b)(3) governing contract research
    expenses) if (1) such research consortium is a tax-exempt organization
    that is described in section 501(c)(3) (other than a private
    foundation) or section 501(c)(6) and is organized and operated
    primarily to conduct scientific research, and (2) such qualified
    research is conducted by the consortium on behalf of the taxpayer and
    one or more persons not related to the taxpayer. Sec. 41(b)(3)(C).
    ---------------------------------------------------------------------------
        Present law also provides a 50 percent credit\145\ for
    expenses related to human clinical testing of drugs for the
    treatment of certain rare diseases and conditions, generally
    those that afflict less than 200,000 persons in the United
    States. Qualifying expenses are those paid or incurred by the
    taxpayer after the date on which the drug is designated as a
    potential treatment for a rare disease or disorder by the Food
    and Drug Administration (``FDA'') in accordance with section
    526 of the Federal Food, Drug, and Cosmetic Act.
    ---------------------------------------------------------------------------
        \145\Sec. 45C.
    ---------------------------------------------------------------------------
        Present law does not provide a credit specifically designed
    to encourage investment in new therapies relating to diseases.

    Committee Bill

        In general. The Committee Bill establishes a 50 percent
    investment tax credit for qualified investments in qualifying
    therapeutic discovery projects. The provision allocates $1
    billion during the 2-year period 2009 through 2010 for the
    program. The Secretary, in consultation with the Secretary of
    Health and Human Services, will award certifications for
    qualified investments. The credit is available only to
    companies having 250 or fewer employees.\146\
    ---------------------------------------------------------------------------
        \146\The number of employees is determined taking into account all
    businesses of the taxpayer at the time it submits an application, and
    is determined taking into account the rules for determining a single
    employer under section 52(a) or (b) or section 414(m) or (o).
    ---------------------------------------------------------------------------
        A ``qualifying therapeutic discovery project'' is a project
    which is designed to develop a product, process, or therapy to
    diagnose, treat, or prevent diseases and afflictions by--(1)
    conducting pre-clinical activities, clinical trials, clinical
    studies, and research protocols, or (2) by developing
    technology or products designed to diagnose diseases and
    conditions, including molecular and companion drugs and
    diagnostics, or to further the delivery or administration of
    therapeutics.
        The qualified investment for any taxable year is the
    aggregate amount of the costs paid or incurred in such taxable
    year for expenses necessary for and directly related to the
    conduct of a qualifying therapeutic discovery project. The
    qualified investment for any taxable year with respect to any
    qualifying therapeutic discovery project does not include any
    cost for--(1) remuneration for an employee described in section
    162(m)(3), (2) interest expense, (3) facility maintenance
    expenses, (4) a service cost identified under Treas. Reg. Sec.
    1.263A-1(e)(4), or (5) any other expenditure as determined by
    the Secretary as appropriate to carry out the purposes of the
    provision. For example, the Secretary may exclude other similar
    expenditures not directly related to the qualifying therapeutic
    discovery project.\147\
    ---------------------------------------------------------------------------
        \147\As appropriate to carry out the purposes of this provision, it
    is intended that the Secretary exclude expenditures related to
    activities similar to those described in section 41(d)(4).
    ---------------------------------------------------------------------------
        Companies must apply to the Secretary to obtain
    certification for qualifying investments.\148\ The Secretary,
    in determining qualifying projects, will consider only those
    projects that show reasonable potential to--(1) result in new
    therapies to treat areas of unmet medical need or to prevent,
    detect, or treat chronic or acute disease and conditions, (2)
    reduce long-term health care costs in the United States, or (3)
    significantly advance the goal of curing cancer within a 30-
    year period. Additionally, the Secretary will take into
    consideration which projects would have the greatest potential
    to--(1) create and sustain (directly or indirectly) high
    quality, high paying jobs in the United States, and (2) advance
    the United States' competitiveness in the fields of life,
    biological, and medical sciences.
    ---------------------------------------------------------------------------
        \148\The Secretary must take action to approve or deny an
    application within 30 days of the submission of such application.
    ---------------------------------------------------------------------------
        Qualified therapeutic discovery project expenditures do not
    qualify for the research credit, orphan drug credit, or bonus
    depreciation.\149\ If a credit is allowed for an expenditure
    related to property subject to depreciation, the basis of the
    property is reduced by the amount of the credit. Additionally,
    expenditures taken into account in determining the credit are
    nondeductible to the extent of the credit claimed that is
    attributable to such expenditures.
    ---------------------------------------------------------------------------
        \149\Any expenses for the taxable year that are qualified research
    expenses under section 41(b) are taken into account in determining base
    period research expenses for purposes of computing the research credit
    under section 41 for subsequent taxable years.
    ---------------------------------------------------------------------------
        Election to receive loans in lieu of tax credit. Taxpayers
    may elect to receive credits that have been allocated to them
    in the form of Treasury loans equal to 50 percent of the
    qualifying investment. The Secretary is required to prescribe
    rules governing the administration of the loan program.\150\
    ---------------------------------------------------------------------------
        \150\It is intended that any guidance issued by the Secretary will
    provide for the issuance of 20-year senior notes with an interest rate
    equal to the long-term applicable Federal rate. The interest on the
    loans will be deductible by the borrower.
    ---------------------------------------------------------------------------

    Effective Date

        The Committee Bill applies to expenditures paid or incurred
    after December 31, 2008, in taxable years beginning after
    December 31, 2008

                        III. BUDGET EFFECTS OF THE BILL

                   Information Relating to Unfunded Mandates

        This information is provided in accordance with section 423
    of the Unfunded Mandates Act of 1995 (P.L. 104-4).
        The Committee has determined that the bill contains ten
    private sector mandates: (i) 40 percent excise tax on health
    coverage in excess of $8,000/$21,000 indexed for inflation by
    CPI-U plus 1 percent and increased thresholds for over age 55
    retirees or certain high-risk professions; (ii) Conform the
    definition of medical expenses for health flexible spending
    arrangements to the definition of the itemized deduction for
    medical expenses; (iii) Increase the penalty for nonqualified
    health savings account distributions to 20 percent; (iv) Limit
    health flexible spending arrangements in cafeteria plans to
    $2,500; (v) Corporate information reporting; (vi) Impose annual
    fee on manufacturers and importers of branded drugs; (vii)
    Impose annual fee on manufacturers and importers of certain
    medical devices; (viii) Impose annual fee on health insurance
    providers; (ix) Eliminate deduction for fee expenses allocable
    to Medicare Part D subsidy; and (x) Raise 7.5 percent AGI floor
    on medical expenses deduction to 10 percent.
        The Committee has determined that the bill contains no
    intergovernmental mandate.

                            Tax Complexity Analysis

        Section 4022(b) of the Internal Revenue Service Reform and
    Restructuring Act of 1998 (the ``IRS Reform Act'') requires the
    staff of the Joint Committee on Taxation (in consultation with
    the Internal Revenue Service and the Treasury Department) to
    provide a tax complexity analysis. The complexity analysis is
    required for all legislation reported by the Senate Committee
    on Finance, the House Committee on Ways and Means, or any
    committee of conference if the legislation includes a provision
    that directly or indirectly amends the Internal Revenue Code
    and has widespread applicability to individuals or small
    businesses. For each such provision identified by the staff of
    the Joint Committee on Taxation a summary description of the
    provision is provided along with an estimate of the number and
    type of affected taxpayers, and a discussion regarding the
    relevant complexity and administrative issues.
        Following the analysis of the staff of the Joint Committee
    on Taxation are the comments of the IRS and Treasury regarding
    each of the provisions included in the complexity analysis.

    1. Modify the definition of qualified medical expenses

        Summary description of the provision. The Committee Bill
    generally changes the definition of ``medical expense'' for
    purposes of employer-provided health coverage such that the
    cost of over-the-counter medicines (other than doctor
    prescribed) may no longer be reimbursed through a health
    flexible spending arrangement (``Health FSA'') or a health
    reimbursement arrangement (``HRA''). In addition, the cost of
    over-the-counter medicines (other than doctor prescribed) may
    no longer be reimbursed on a tax-free basis through a health
    savings account (``HSA'') or Archer MSA.
        Number of affected taxpayers. It is estimated that the
    Committee Bill will affect more than ten percent of individual
    tax returns.
        Discussion. Many taxpayers currently use account balances
    in Health FSAs, HRAs, HSAs, and Archer MSAs to purchase over-
    the-counter medicine such as ibuprofen, acetaminophen, cold
    medicine, and suntan lotion with pre-tax dollars. Some
    taxpayers make these purchases at the end of the year, or the
    end of the grace period, to avoid forfeiting amounts in Health
    FSAs.
        Taxpayers will no longer be able to use these amounts in
    these accounts for this purpose (except to the extent the over-
    the-counter medication is doctor prescribed). As a result, less
    money will be allocated to these accounts and more money will
    be allocated to taxable wages. This change will also increase
    the amount of compensation subject to payroll taxes.
        It is anticipated that the IRS will be required to revise
    the instructions to several forms and to revise several
    publications to reflect the changes to present law made by the
    provision. In addition, guidance will need to be issued
    withdrawing at least one Revenue Ruling and guidance may need
    to be issued on substantiation rules for reimbursement
    arrangements.

    2. Require information reporting on payments to corporations

        Summary description of provision. Under the Committee Bill,
    information reporting is expanded in two ways. First, taxpayers
    are required to file an information return for all payments
    aggregating $600 or more in a calendar year to any single payee
    (except a tax-exempt corporation), notwithstanding any
    regulation promulgated prior to the date of enactment. Second,
    the payments to be reported include gross proceeds paid in
    consideration for property or services.
        Number of affected taxpayers. It is estimated that the
    Committee Bill will affect more than ten percent of individual
    or small business tax returns.
        Discussion. According to the GAO, only eight percent of
    approximately 50 million small businesses with less than $10
    million in assets filed miscellaneous information return Form
    1099-MISC.\151\ If greater reporting from small businesses were
    available, the Committee believes that the IRS could more
    readily identify areas of underreported income of the payees.
    In general, the more payments to which information reporting
    and/or withholding applies, the greater the improvement in
    compliance.\152\ Thus, requiring information reporting for all
    payments aggregating $600 or more in a calendar year to a
    corporation could enhance taxpayer compliance and IRS
    enforcement efforts.
    ---------------------------------------------------------------------------
        \151\Government Accountability Office, IRS Could Do More to Promote
    Compliance by Third Parties with Miscellaneous Income Reporting
    Requirements, GAO-09-238 (January 2009).
        \152\See e.g., ``Tax Year 2001 Individual Income Tax Underreporting
    Gap,''  at 2,
    finding that information reporting is the primary differentiator in
    compliance rates. See also, Joseph Bankman, ``Eight Truths About
    Collecting Taxes from the Cash Economy,'' 117 Tax Notes 506, 511
    (2007).
    ---------------------------------------------------------------------------
        The compliance benefits from the provision may be limited
    due to inconsistencies with the manner in which many
    corporations compute taxable income. For example, many
    corporations compute taxes on a fiscal year basis, whereas the
    provision requires calendar year reporting for payments to
    corporations. To the extent a corporate taxpayer computes
    income on a fiscal year basis, calendar year information
    reporting may not accurately reflect income received during the
    corporation's taxable year. Similarly, a significant number of
    corporations report income on an accrual basis, rather than a
    cash basis. For accrual basis taxpayers, the year in which the
    taxpayer receives a payment may not correspond to the year in
    which the taxpayer must include such payment in income.
        Imposing additional information reporting requirements also
    will impose additional costs on businesses that should be
    weighed against the potential compliance benefits. The
    additional reporting requirements will increase the
    administrative burden on payers subject to the provision. The
    extent of this additional burden may depend on the extent to
    which taxpayers subject to the provision have procedures and
    systems in place to meet present-law information reporting
    requirements that can be adapted to comply with the provision.
    The widespread use of computer technology to process and store
    business information should minimize the burden associated with
    generating and transmitting the information necessary to comply
    with the provision, regardless of the extent to which the
    taxpayer is currently subject to information reporting.\153\
    Moreover, because payments to corporations are generally
    excepted from information reporting requirements under present
    law, payers are already required to determine whether a payee
    is a corporate or non-corporate taxpayer. To the extent the
    provision reduces the instances in which payers must determine
    the payee's status or the portion of the payment that
    represents income, the provision may simplify present-law
    reporting requirements.
    ---------------------------------------------------------------------------
        \153\See e.g., Government Accountability Office, Costs and Uses of
    Third-Party Information Returns, November 2007, GAO-08-266, available
    at , wherein the GAO, based on
    its case studies, found the compliance costs associated with filing
    information returns to be ``relatively low.''
    ---------------------------------------------------------------------------
        The extent of the burdens imposed on small businesses may
    be ameliorated if the IRS issues expeditious guidance designed
    to identify and avoid double reporting of payments (for
    example, payments reportable under rules applicable to merchant
    credit cards) and to revise forms and instructions to avoid
    confusion about what payments are excepted from reporting.

    3. Employer health insurance reporting

        Summary description of the provision. Under the Committee
    Bill, an employer is required to disclose on each employee's
    annual Form W-2 the value of the employee's health insurance
    coverage sponsored by the employer. If an employee enrolls in
    employer-sponsored health insurance coverage under multiple
    plans, the employer must disclose the aggregate value of all
    such health coverage (excluding the value of a health flexible
    spending arrangement).
        The employer calculates the value of employer-sponsored
    health insurance coverage using the rules for determining the
    employer-provided portion of the applicable premiums for COBRA
    continuation coverage, including the special rule for self-
    insured plans. If the plan provides for the same COBRA
    continuation coverage premium for both individual coverage and
    family coverage, the plan would be required to calculate
    separate individual and family premiums for this purpose.
        Number of affected taxpayers. It is estimated that the
    Committee Bill will affect more than ten percent of individual
    and small business tax returns.
        Discussion. The Committee Bill creates an additional
    reporting requirement for employers who sponsor health
    insurance for employees. The reporting requirement obliges the
    provision of the value of each employee's employer-sponsored
    health insurance to both the insured individual and the IRS. It
    is anticipated that small businesses will have to perform
    additional analysis to comply with the new reporting
    requirement, including calculating the separate values of
    individual and family premiums. It is also anticipated that the
    IRS will have to amend the existing Form W-2 to capture the
    value of employer-sponsored health insurance, and to revise the
    instructions to the Form W-2 to reflect the change. Computer
    programming changes will be required to accommodate the amended
    Form W-2 that will be filed with the IRS by employers.

    4. Modify definition of income qualifying for exchange subsidies

        Summary description of the provision. The Committee Bill
    provides a refundable credit for eligible individuals and
    families who purchase health insurance through the state
    exchanges. The credit is payable in advance directly to the
    insurer, although individuals may elect to purchase health
    insurance out-of-pocket and apply to the Internal Revenue
    Service for a tax credit at the end of the taxable year, in
    which case the credit is payable to the individual.
        The credit is available for individuals with modified gross
    incomes (``MGI'') up to 300 percent of the Federal poverty
    level (``FPL''). MGI is defined as an individual's (or
    couple's) total income without regard to exclusions from gross
    income under sections 911 (regarding citizen or residents
    living abroad), 931 (regarding residents of specified
    possessions), and 933 (regarding residents of Puerto Rico),
    plus any tax-exempt interest received during the tax year, plus
    the MGI of dependents listed on the return. In addition,
    certain deductions from gross income that are allowed in
    determining adjusted gross income, such as the deduction for
    contributions to an individual retirement arrangement, are
    disregarded.
        In all cases, income eligibility will be reconciled
    annually on the individual's Federal income tax return and
    individuals will be required to repay any excess tax credit
    received, subject to a ``safe harbor'' for filers whose current
    income is less than 300 percent of FPL. For these taxpayers,
    the ``safe harbor'' limits the amount of any excess tax credit
    received to $250 for single filers and $400 for joint filers
    and for those filing as a head of household.
        The tax credits are available on a sliding scale basis from
    two to twelve percent of income beginning on July 1, 2013 for
    individuals and families between 134-300 percent of FLP and for
    individuals subject to a five-year waiting period under
    Medicaid or the Children's Health Insurance Program. These
    individuals are therefore eligible for a tax credit with
    respect to health insurance purchased during the final six
    months of 2013. Beginning in 2014, the credits are also
    available to individuals and families between 100-133 percent
    of FPL.
        Number of affected taxpayers. It is estimated that the
    Committee Bill will affect more than ten percent of individual
    tax returns.
        Discussion. To determine whether they are eligible for the
    credit, taxpayers will have to first ascertain what their MGI
    is. The calculation of MGI introduces some complexity for
    taxpayers. Taxpayers will have to calculate their MGI by adding
    certain items to income that ordinarily would be excluded and
    foregoing certain deductions that would ordinarily be allowed.
    In addition to their own information, taxpayers must obtain the
    income information of dependents listed on the return for
    purposes of calculating MGI. For determining both eligibility
    of the credit and whether the taxpayer is within the safe
    harbor with regard to excess tax credit received, taxpayers
    will need to ascertain whether their MGI is less than 300
    percent of FPL, another item not found on the return and
    possibly not one with which taxpayers are familiar.
        It is anticipated that the IRS will have to amend existing
    forms and develop new forms to accommodate the refundable tax
    credit. The IRS will have to develop new procedures for
    compiling information relating to taxpayers' eligibility for
    the credit, including computing individual and household MGI.
    Although the credit is generally payable in advance directly to
    the insurer, the IRS will have to develop, and taxpayers will
    have to familiarize themselves with, procedures allowing
    individuals who elect to purchase health insurance out-of-
    pocket to apply to the IRS for the credit at the end of the
    taxable year. The IRS also will have to administer the end-of-
    year reconciliation of income eligibility on individual's
    Federal income tax returns and the repayment of the credit
    amount by individuals who received any excess tax credit
    subject to the ``safe harbor'' for filers whose current income
    is less than 300 percent of FPL.
        The IRS will be required to provide information verifying
    the eligibility of individuals for the refundable tax credit.
    As a result, the IRS will have to develop new procedures and
    reprogram its computers to facilitate this information sharing,
    and expend resources for proper oversight to ensure the
    security of the private taxpayer information disclosed.
        The IRS will be required to prescribe regulations to carry
    out the provision, including regulations which provide for (1)
    the coordination of the credit with the program for advance
    payment of the credit under section 2248 of the Social Security
    Act, (2) requirements for information required to be included
    on a return of tax with respect to the MGI of individuals other
    than the taxpayer, and (3) procedures for situations when the
    filing status of the taxpayer for a taxable year is different
    from such status used for determining the advance payment of
    the credit.

    5. Employer responsibility

        Summary description of the provision. Under the Committee
    Bill, as under Present Law, an employer is not required to
    offer health insurance coverage. However, any employer with
    more than 50 employees that does not offer coverage for all its
    full-time employees, does not provide coverage that is
    affordable, or does not provide coverage with an actuarial
    value of at least 65 percent, is required to pay a penalty. The
    penalty is an excise tax that is imposed for each employee who
    receives a premium tax credit for health insurance purchased
    through a state exchange. The number of employees is determined
    based on the number of full-time employees during the most
    recent year using the definition of employee that applies for
    purposes of determining if an employer is eligible for the
    small employer exception from COBRA continuation coverage.
    Coverage is not affordable if the premium required to be paid
    by the employee (including any required salary reduction
    contributions) is more than 10 percent or more of the
    employee's household MGI. This income limit is indexed to the
    per capita growth in premiums for the insured market as
    determined by the Secretary of Health and Human Services.
        The penalty paid by an employer would be equal to the
    lesser of (1) a flat dollar amount multiplied by the number of
    full-time employees (defined as working 30 hours or more each
    week) enrolled in a state exchange and receiving a tax credit
    or (2) an amount equal to $400 multiplied by the number of
    full-time employees (regardless of how many employees receive
    the state exchange credit). The flat dollar amount is equal to
    the national average tax credit, as set by the Secretary of
    Health and Human Services and published in a schedule each
    year.
        The penalties assessed under this provision are not
    deductible under section 162 as a business expense.
        Number of affected taxpayers. It is estimated that the
    Committee Bill will affect more than 10 percent of business tax
    returns.
        Discussion. Any employer with more than 50 employees will
    only be liable for a penalty if one or more full-time employees
    receives a tax credit for health insurance purchased through a
    state exchange. Therefore, the IRS must determine whether any
    employer with more than 50 employees has any employee that has
    received a low income tax credit and must then inform the
    employer of the resultant liability. While some employers will
    realize they are liable for the penalty, other employers may be
    liable without being aware of the liability because they both
    offer health insurance coverage and make a substantial
    contribution toward the coverage. Employees offered health
    insurance by an employer may be eligible for tax credits if the
    employer insurance exceeds ten percent of the total household
    income of the employee. The IRS must match an employee
    receiving a tax credit to any employer for which the employee
    works more than 30 hours per week. This will result in an
    increase in filings and collections for the IRS. In addition,
    because employers offering health insurance may be liable for
    the tax due to the incomes of some employees' households,
    appeals are expected as well.

                              COMPLEXITY ANALYSIS

    1. Employer health insurance reporting

        The Committee Bill requires an employer to disclose the
    value of the benefit provided by the employer for each
    employee's health insurance coverage on the employee's annual
    Form W-2. To the extent that an employee receives health
    insurance coverage under multiple employer-provided plans, the
    employer would disclose the aggregate value of all such health
    coverage (excluding the value of a health flexible spending
    arrangement).
        The employer calculates the value of employer-provided
    health insurance coverage using the rules for determining the
    employer-provided portion of the applicable premiums for COBRA
    continuation coverage, including the special rule for self-
    insured plans. If the plan provides for the same COBRA
    continuation coverage premium for both individual coverage and
    family coverage, the plan would be required to calculate
    separate individual and family premiums for this purpose.

    IRS and Treasury Comments

         For calendar years beginning after 2009, Forms W-
    2, W-2C, W-3, W-3C, W-2AS, W-2GU, W-2VI, and W-3SS would need
    to be revised by adding a new box, changing an existing box,
    and/or revising codes to report the value of the health
    insurance coverage provided by the employer to the employee.
         IRS would need to make computer programming
    changes to its existing tax systems to accept this additional
    data.

    2. Modify the definition of qualified medical expenses

        The proposal generally changes the definition of ``medical
    expense'' for purposes of employer-provided health coverage
    such that the cost of over-the-counter medicines (other than
    doctor prescribed) may no longer be reimbursed through a health
    flexible spending arrangement or a health reimbursement
    arrangement. In addition, the cost of over-the counter
    medicines (other than doctor prescribed) may no longer be
    reimbursed on a tax-free basis through a health savings account
    or Archer MSA.

    IRS and Treasury Comments

         Guidance would need to be issued on employer-
    provided reimbursements for over the counter medicine,
    including withdrawing Rev. Rul. 2003-102, and additional
    guidance may need to be issued on substantiation rules for
    reimbursement arrangements, including FSA debit cards.
         For tax years beginning after 2009, the
    instructions for Forms 8853 and 8889 and Publications 969 and
    15-B would be revised to reflect the change in the law.
         These changes will not require programming.
         The same records as under Present Law would need
    to be maintained (but fewer items would be eligible for
    reimbursement).
         Issues may arise between IRS and taxpayers
    regarding the scope of the provision.

    3. Information reporting for payments to corporations

        Under the proposal, information reporting is expanded in
    two ways. First, taxpayers engaged in a trade or business are
    required to file an information return for all payments
    (including all purchases of property and services) aggregating
    $600 or more in a calendar year to any single payee (except a
    tax-exempt corporation), notwithstanding any regulation
    promulgated prior to the date of enactment. Second, the payment
    to be reported includes gross proceeds paid in consideration
    for property or services.

    IRS and Treasury Comments

         Guidance would be required to prevent double
    reporting of payments (i.e., coordinating this provision with
    merchant credit card reporting, three percent withholding on
    certain government payments to contractors).
         For calendar years beginning after 2011, the
    general instructions for Forms 1099, 1098, 3921, 3922, 5498,
    and W-2G and the instructions for certain other information
    returns and publications would need to be revised to reflect
    the elimination of the exception for payments to corporations
    and the exception for payments other than for services.
         IRS would need to modify existing tax systems to
    reflect this provision.

    4. Definition of income qualifying for exchange subsidies

        The proposal provides a refundable tax credit for eligible
    individuals and families who purchase health insurance through
    the state exchanges. The credit is payable in advance directly
    to the insurer.
        The tax credit is available for individuals (single or
    joint filers) with modified gross incomes (``MGI'') up to 300
    percent of the Federal poverty level (``FPL''). MGI is defined
    as an individual's (or couple's) total income without regard to
    sections 911 (regarding the exclusion from gross income for
    citizens or residents living abroad), 931 (regarding the
    exclusion for residents of specified possessions), and 933
    (regarding the exclusion for residents of Puerto Rico), plus
    any tax-exempt interest received during the tax year, plus the
    MGI of dependents listed on the return. In addition, certain
    deductions from gross income that are allowed in determining
    adjusted gross income, such as the deduction for contributions
    to an individual retirement arrangement, are disregarded.
        In all cases, income eligibility will be reconciled
    annually on the individual's Federal income tax return and
    individuals will be required to repay any excess tax credit
    received, subject to a ``safe harbor'' for filers whose current
    income is less than 300 percent of FPL. For those taxpayers,
    the ``safe harbor'' limits the amount of any excess tax credit
    received to $250 for single filers and $400 for joint filers
    (and for those filing as a head of household).
        The tax credits are available on a sliding scale basis from
    two to twelve percent of income beginning on July 1, 2013 for
    individuals and families between 134-300 percent of FLP and for
    individuals subject to a five-year waiting period under
    Medicaid or the Children's Health Insurance Program. These
    individuals are therefore eligible for a tax credit with
    respect to health insurance purchased during the final six
    months of 2013. Beginning in 2014, the credits are also
    available to individuals and families between 100-133 percent
    of FPL.

    IRS and Treasury Comments

         For tax years that include July 1, 2013, a new
    form would need to be developed to reconcile the premium
    credits paid by Treasury or through the taxpayer's employer to
    the taxpayer's insurance plan and the amount of credit to which
    the taxpayer is entitled for the year.
         Recapture of any credit paid in excess of the
    amount to which the taxpayer is entitled would be accomplished
    through Form 1040, 1040A, or 1040EZ, subject to the caps
    included in the Chairman's Mark. An additional line or write-in
    entry would be added on these forms to report the recaptured
    credit.
         Any credit paid that is less than the amount to
    which the taxpayer is entitled would be allowed as a refundable
    credit on Form 1040, 1040A, or 1040EZ. An additional line or
    box would be added on these forms to report the refundable
    credit.
         The Modified Gross Income (``MGI'') definition in
    the Chairman's Mark is novel in that it includes the income of
    dependents included on the tax return. While a number of
    families have consistent dependent relationships, as reported
    on their tax returns, it is common for other dependent
    relationships to change year to year. For example, it is not
    uncommon for divorced parents to alternate years claiming
    children as dependents. Guidance may need to be issued to
    address the application of the MGI definition.
         The IRS would also anticipate questions from
    taxpayers as to whether it would now be required that
    dependents be listed on the tax return (which is not currently
    a requirement).
         The Chairman's Mark includes the concept of
    regional variations in the amount of the premium credit
    (insofar as the amount of an individual's premium credit is
    tied to the local benchmark premium). The IRS would need to
    develop forms and instructions to ensure that taxpayers are
    reconciling against the proper credit amount based on the
    premium in their geographic location.
         The IRS would need to work with the Department of
    Health & Human services to develop procedures for taxpayers who
    move between regions within a given tax year, if the amount of
    the premium subsidy varies across those regions.
         The IRS would need to work with the Department of
    Health & Human Services (HHS) to develop procedures for
    accepting alternative income documentation where individuals
    and families have not filed a tax return in the previous year.
         If the new legislation requires any individuals
    who are currently non-filers to file a tax return for the
    purposes of reconciliation, the IRS would need to develop or
    amend forms and instructions, answer questions, and partner
    with other relevant agencies to reach out to those individuals
    and inform them of the filing requirement.
         Issues could arise between the IRS and taxpayers
    relating to the reconciliation of the credit, including which
    dependents' income should count toward premium credit
    eligibility, how regional movements may affect the size of the
    credit, and other administrative provisions that affect the
    calculation of the credit.
         IRS would need to develop a number of new systems,
    build new interfaces with exchanges and insurance providers,
    and modify existing tax systems to reflect this provision.

    5. Employer responsibility

        Under the proposal, as under Present Law, an employer is
    not required to offer health insurance coverage. However, any
    employer with more than 50 employees that does not offer health
    insurance coverage or that offers health coverage that is not
    affordable for all its full-time employees is required to pay a
    fee to the Internal Revenue Service for each employee who
    receives a premium tax credit for health insurance purchased
    through a state exchange. Coverage is not affordable if the
    premium required to be paid by the employee (including any
    required salary reduction contributions) is ten percent or more
    of the employee's income. This income limit is indexed to the
    per capita growth in premiums for the insured market as
    determined by the Secretary of Health and Human Services.
        The fee paid by an employer would be equal to the lesser of
    (1) a flat dollar amount multiplied by the number of full-time
    employees (defined as working 30 hours or more each week)
    enrolled in a state exchange and receiving a tax credit or (2)
    an amount equal to $400 multiplied by the number of full-time
    employees (regardless of how many employees receive the state
    exchange credit). The flat dollar amount is equal to the
    national average tax credit, as set by the Secretary of Health
    and Human Services and published in a schedule each year.
        The fees assessed under this provision are not deductible
    under section 162 as a business expense.

    IRS and Treasury Comments

         For tax years that include July 1, 2013, a new
    form would need to be developed for employers to report and pay
    the fee for employees who receive a tax credit through a state
    exchange.
         IRS would need to advise businesses on how to
    record and report how many employees are receiving subsidized
    health care through the exchange (presumably this would be
    determined via payroll deductions or through the presence of an
    affordability waiver).
         The Chairman's Mark does not make entirely clear
    what information may be available to the employer showing which
    employees are receiving the subsidy. Should it be left to the
    employer's due diligence, the IRS would expect to issue
    guidance clarifying what constitutes sufficient due diligence.
         IRS would need to issue implementing guidance to
    make clear which employees are covered, whether employers are
    subject to the fees, and the amount of the fee.
         IRS would need to develop new systems and modify
    existing systems to reflect this provision.

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

        In the opinion of the Committee, in order to expedite the
    business of the Senate, it is necessary 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 as reported by the Committee).

                              VI. ADDITIONAL VIEWS

        Mr. Chairman, with the Committee's passage of America's
    Healthy Future Act, we are on a path toward fixing many of the
    problems plaguing our health care system today. While this bill
    is a start toward comprehensive health care reform, I have
    several remaining areas of significant concern, some of which I
    have highlighted here. Additionally, I have joined Senators
    Stabenow, Kerry, Menendez, and Schumer to express additional
    views regarding affordability and the high-cost insurance
    excise tax.

                         Public Health Insurance Option

        The Committee mark does not include a public health
    insurance option or any viable alternative to actively compete
    with private health insurance companies and lower health care
    costs for consumers. One of the major disappointments of the
    Committee mark is the lack of leverage over private health
    insurance industry prices. Families and employers have said
    repeatedly that their biggest complaint with their health
    insurance is the price of it. According to the Kaiser Family
    Foundation, in the last decade, premiums have increased four
    times faster than inflation (109 percent versus 26.5 percent).
    When wages rise 19 percent from 2000 to 2007, as they did in
    West Virginia, and premiums simultaneously rise at four times
    that rate, there is an undeniable strain on family budgets. The
    Committee mark spends nearly one-half trillion dollars in
    federal premium subsidies to supplement high private health
    insurance costs, rather than to bring those high costs down for
    consumers.
        A public health insurance option can force insurers to do
    better by their customers and to once again compete for
    business by providing a reliable benchmark for cost and
    quality. The difference between a public plan and private
    insurance is that consumers choosing the public option would
    pay less in administrative overhead than under private plans,
    which could lower costs by as much as 20 percent, according to
    the Urban Institute. The availability of a public option with
    the authority to set reasonable provider rates will limit
    premium growth and create real cost savings for employers and
    families, while also curbing the growth of federal premium
    subsidies. (For instance, Medicare's costs rose an average of
    4.4 percent between 1997-2007, while private insurance grew by
    7.7 percent per capita in the same period.) In turn, employers
    would be able to turn those savings into increased wages for
    their workers, boosting federal and state tax revenues.
        If an average family premium is $13,375, a family wishing
    to enroll in the public health insurance option could save
    $1,338-$2,676. This is a few mortgage payments, a few car
    payments--real money for families. Knowing that premiums will
    continue to rise faster than the federal premium subsidies
    provided under this bill, I remain extremely concerned that
    individuals and families would not have the option of
    purchasing a stable, quality product at an affordable price.
        At its maximum within the budget window, the Congressional
    Budget Office (CBO) estimates only 27 million people will
    receive insurance through the exchanges (by 2019). In the four
    Congressional reform bills that include a public option, CBO
    estimated only one-third of the people in the exchange would
    choose it. So, reasonably, only 8-9 million people would enroll
    in the public option, if one was included in the Finance
    Committee bill: approximately 3 percent of the insured
    population.
        Arguments against a public option on the grounds of cost-
    shifting are unsubstantiated. Such cost-shifting arguments have
    been debunked by the national authority on Medicare payment--
    the Medicare Payment Advisory Commission (MedPAC). MedPAC
    argues that ``high profits from non-Medicare sources permit
    hospitals to spend more.'' Hospitals with the greatest
    resources are less aggressive about containing costs and
    therefore have the highest Medicare ``losses'' (the difference
    between Medicare rates and a hospital's average costs). MedPAC
    explained this cycle in its March 2009 report to Congress.
    MedPAC reported, ``While insurers appear to be unable or
    unwilling to ``push back'' and restrain payments to providers,
    they have been able to pass costs on to the purchasers of
    insurance and maintain their profit margins.'' The real issue
    is not whether private plans pay doctors and hospitals more
    than government programs, but what is a fair rate based on the
    actual cost of providing quality care. MedPAC concluded,
    ``Increasing Medicare payments is not a long-term solution to
    the problem of rising private insurance premiums and rising
    health care costs. In the end, affordable health care will
    require incentives for health care providers to reduce their
    rates of cost growth and volume growth.''
        Additionally, CBO has indicated that many hospitals
    negotiate higher payments with private insurers as a form of
    price discrimination to maximize profits. They demand higher
    reimbursements from health insurers because they can, not
    because they are shifting costs. Hospitals have had a greater
    ability to do this as mergers have given them greater leverage
    over private insurance companies. A public option would not
    have these profit-maximizing incentives.
        I will continue to work with the Members of the Finance
    Committee and other Members to provide consumers with the
    choice of a strong public health insurance option.

                         Title I--Health Care Coverage

                      Subtitle A--Insurance Market Reforms

        The Committee mark makes significant changes to private
    health insurance coverage in the individual and small group
    markets that will improve the adequacy and dependability of
    coverage for millions of Americans. These reforms include new
    federal rating rules to limit variation in the cost of
    coverage, guaranteed issue, guaranteed renewability, no pre-
    existing condition exclusions, no lifetime or annual limits on
    coverage, and no rescissions. I remain concerned, however, that
    these new insurance market reforms do not apply to insurance
    products in every single market in order to guarantee that all
    consumers are offered comparable health insurance stability and
    protection. Additionally, federal oversight and enforcement of
    these new insurance market reforms is critical to making sure
    insurers actually comply with the new rules.
        Self-Insured Market. Approximately half of the insured
    population in the United States (between 46 and 55 percent)
    obtains health insurance coverage through large, self-insured
    employers. These plans are not regulated by state insurance
    commissioners, and are instead regulated by the United States
    Department of Labor. The Employee Retirement Income Security
    Act (ERISA) of 1974 exempts self-insured health plans from
    state regulation and state external review processes, which has
    resulted in the self-insured market being less regulated and
    less accountable than fully-insured products in the private
    marketplace today. Yet, under America's Healthy Future Act,
    self-insured plans are not subject to the same level of
    consumer protections that would apply to health insurance
    products in the individual and small group markets. The
    Committee mark only includes two new reforms of self-insured
    plans--they must provide coverage that is at least equal to 65
    percent of the actuarial value of the Blue Cross Blue Shield
    standard plan offered through the Federal Employees Health
    Benefits Plan (FEHBP), and they must provide first dollar
    coverage for preventive health benefits. While these are
    important steps, they are not enough to provide the vast
    majority of Americans with adequate consumer protections and
    insurance security. Throughout this important debate, I have
    asserted that the insurance market reforms that are applied to
    the individual and small group markets should also apply to
    self-insured plans.
        Pre-Existing Conditions. The Committee mark eliminates pre-
    existing condition exclusions in the individual and small group
    markets. However, these provisions are not phased-in until July
    1, 2013. In the years prior to 2013, the mark would allow
    individuals who are denied coverage based on a pre-existing
    condition to enroll in a high-risk pool. The prohibition on
    pre-existing condition exclusions is phased-in for large group
    plans over five years beginning in 2017, and the prohibition
    does not apply to the self-insured market. I remain concerned
    that the prohibition on pre-existing condition exclusions in
    the individual, small group, and large group markets does not
    start immediately on January 1, 2010. I also remain concerned
    that the prohibition on pre-existing condition exclusions does
    not apply to the self-insured market. I plan to continue
    working with Chairman Baucus on an expedited timeframe for the
    elimination of pre-existing condition exclusions, including the
    immediate elimination of pre-existing condition exclusions for
    children in all markets.
        Annual and Lifetime Limits. Beginning in 2010, the
    Committee mark prohibits insurers from offering plans with
    annual or lifetime limits in the exchange. Beginning in 2013,
    these limits would apply to all new individual and small group
    policies (phased in over five years). The bill also prohibits
    large-employer plans (including self-insured plans) from
    implementing ``unreasonable'' annual or lifetime limits,
    although the term ``unreasonable'' is undefined.
        I remain concerned that the mark does not implement a
    complete prohibition on annual and lifetime limits for large
    employer plans, including those in the self-insured market. I
    also remain concerned that the word ``unreasonable'' is not
    defined, as it relates to the limits on annual and lifetime
    caps. I intend to continue working with Chairman Baucus to
    improve the protections in the mark regarding annual and
    lifetime limits on coverage to make certain there is equal and
    sufficient protections for individuals and their families no
    matter what market they access health insurance coverage.
        Minimum Medical Loss Ratio. The Committee mark includes
    premium subsidies for individuals above 133 percent of poverty
    to purchase health insurance coverage in the state exchanges.
    According to CBO, these federal subsidies will cost $461
    billion over the ten-year budget window. Additionally,
    estimates suggest that it will cost approximately $20 billion
    more than current law to give Medicaid-eligible populations
    between 100-133 percent of poverty premium subsidies to enroll
    in private insurance coverage in state exchanges. The Committee
    mark also directs the Secretary of Health and Human Services
    (HHS) to require private health insurers to report their
    medical loss ratios.
        While reporting of medical loss ratios is an important
    first step, I remain concerned that the Committee mark does not
    require private health insurance companies, particularly those
    offering federally subsidized coverage through the state
    exchanges, to spend the majority of the nearly one-half
    trillion dollars in federal premium subsidies on actual medical
    care. Without a minimum medical loss ratio to hold insurance
    companies accountable there is no limit on the amount of
    taxpayer resources that private health insurance companies can
    spend on executive compensation, shareholder profits,
    marketing, and other activities that do not add value for the
    consumer. As I asserted during the Committee debate, I believe
    that private health insurers should spend no less than 85
    percent of premium dollars on actual medical care, and I look
    forward to ongoing discussions with Chairman Baucus on how to
    include a minimum medical loss ratio requirement in this
    legislation.

                  Subtitle B--Exchange and Consumer Assistance

        State Exchanges. Under the Committee mark, states would be
    required to establish an exchange for the individual market and
    a Small Business Health Options Program (SHOP) exchange for the
    small group market, with technical assistance from the
    Secretary, in 2010. After states adopt Federal rating rules and
    the exchange is functional for at least three years, states
    could permit other entities to operate an exchange (i.e.
    multiple competing exchanges)--but only if it met specified
    requirements, and subject to approval by the Secretary. States
    could, through interstate compacts, form regional exchanges,
    subject to approval by the Secretary. I remain concerned about
    multiple state exchanges and believe that one national
    exchange, implemented and regulated by the HHS Secretary, would
    minimize insurance enrollment churning, lower administrative
    costs, and improve the value of benefits and coverage while
    lowering premiums by creating a larger risk pool.

                     Subtitle C--Making Coverage Affordable

        Minimum Credible Coverage for Children. I commend Chairman
    Baucus and the Members of this Committee for supporting the
    continuation of the Children Health Insurance Program (CHIP)
    for vulnerable children. Medicaid and CHIP are proven programs
    that work well for children, and we should continue to build
    upon what works. In addition to protections for children
    enrolled in Medicaid and CHIP, there should also be adequate
    protections for children enrolled in private health insurance
    coverage through state exchanges. I remain concerned that cost-
    sharing is not limited for children in the exchanges, and I
    believe it should follow the cost-sharing protections provided
    for children enrolled in CHIP. I also worry that this mark does
    not do enough to cover preventive health services, with minimal
    cost-sharing, for pregnant women, infants, children, and
    adolescents. Additionally, I remain concerned that federal
    subsidies for private coverage in the exchanges will
    incentivize inefficient provider payments instead of payments
    to health care providers that incentivize case management, care
    coordination, use of medical home, child health measures, and
    culturally and linguistically appropriate care. At a minimum, I
    believe the standard for minimum creditable coverage for
    children should include the Health Resources and Services
    Administration consensus guidelines for children as well as
    maternity and newborn care, mental health services,
    rehabilitative and habilitative services and devices, and
    pediatric services including oral, dental and vision care.

                       Subtitle D--Shared Responsibility

        Employer Mandate. The Committee mark includes a free-rider
    provision as an alternative to a true employer mandate. It
    would penalize employers with more than 50 employees that do
    not offer coverage, but employ individuals eligible for premium
    subsidies. This policy results in a net increase in employer-
    based coverage of about one million individuals, according to
    CBO.
        I remain concerned that this provision provides a
    disincentive for employers to hire or maintain employment for
    low-wage workers. It would be particularly burdensome for
    states, like West Virginia, with a higher percentage of low-
    wage workers. Additionally, I have concerns about the fact that
    the trend in the last few years of the budget window indicates
    growing reductions in employer-based coverage of two to three
    million every year between 2016 and 2019. In contrast to the
    policy included in the Finance mark, the Health, Education,
    Labor, and Pensions (HELP) Committee health reform bill, the
    Affordable Health Choices Act, has a true employer mandate, and
    increases employer-based coverage by 14 million people over the
    ten-year budget window. I look forward to continuing to work
    with Chairman Baucus and other Members of the Committee to
    implement a true employer mandate that creates a fairer system
    of employer shared responsibility.

                Subtitle E--Creation of Health Care Cooperatives

        Consumer Operated and Oriented Plan (CO-OP). The Committee
    mark authorizes $6 billion in funding for the Consumer Operated
    and Oriented Plan (CO-OP) program. In its preliminary score of
    the Committee mark, CBO states that ``the proposed co-ops had
    very little effect on the estimates of total enrollment in the
    exchanges or federal costs because, as they are described in
    the specifications, they seem unlikely to establish a
    significant market presence in many areas of the country or to
    noticeably affect federal subsidy payments.'' As a result, CBO
    estimates that of the $6 billion in federal funds that would be
    made available in co-op start-up funding, only about $3 billion
    would be spent over the ten-year budget window. As I have
    asserted throughout this debate, health insurance cooperatives
    are not a substitute for a strong public health insurance
    option. Additionally, I remain seriously concerned about the
    viability of consumer health cooperatives in the health
    insurance marketplace at all.
        There has been no significant research into consumer co-ops
    as a model for the broad expansion of health insurance. What we
    do know, however, is that this model was tried in the early
    part of the 20th century and largely failed. There is a lack of
    consistent data about the total number of consumer health
    insurance cooperatives in existence today, although most
    estimates indicate that only between four and seven exist, and
    there have been no analyses of the impact of existing health
    insurance cooperatives on consumers. All of the consumer health
    insurance cooperatives identified by the U.S. Department of
    Agriculture and the National Cooperative Business Association
    operate and function just like private health insurance
    companies. There have been no analyses of the regulatory
    structure for existing health insurance cooperatives. Consumer
    health insurance cooperatives are currently regulated by the
    states, and there have been no studies conducted to evaluate
    the consumer experience with them. Health insurance
    cooperatives simply have not been proven to meet the policy
    goals of cost-containment, transparency, and innovation that a
    strong public health insurance option guarantees.

                  Subtitle F--Transparency and Accountability

        Federal Regulation of Insurance. The Committee mark creates
    an entirely new construct for the sale and purchase of private
    health insurance that is more affordable and comprehensive than
    most coverage options for consumers available in the individual
    and small group markets today. Additionally, the mark applies
    new consumer protections in these reformed markets that
    prohibit insurers from using common practices that delay or
    deny necessary care. I commend the Chairman for these critical
    provisions. However, the Committee mark does not include any
    new federal resources or infrastructure to regulate private
    health insurance companies and make certain they are actually
    abiding by the new insurance market rules. Without a new,
    robust federal regulatory role, I remain extremely concerned
    that private health insurance companies will continue their
    long-standing practice of exploiting loopholes in the law and
    skimming on coverage for beneficiaries to increase profits. I
    look forward to working with Chairman Baucus to address these
    concerns.

                      Subtitle G--Role of Public Programs

          Part I--Medicaid Coverage for the Lowest Income Populations

        Medicaid Expansion. The Chairman should be commended for
    expanding Medicaid to 133 percent of the federal poverty level.
    Medicaid is a program that works. This expansion is long
    overdue and will go a long way to help vulnerable populations
    historically ineligible for Medicaid. However, as I have stated
    several times during the debate in Committee, I am extremely
    concerned about the structure of this expansion.
        First, as part of the Medicaid expansion, all newly-
    eligible, non-pregnant adults would receive a benchmark benefit
    package consistent with section 1937 of the Social Security
    Act, which was passed as part of the Deficit Reduction Act of
    2005 (DRA, P.L. 109-171). The Deficit Reduction Act was enacted
    with the stated purpose of reducing Medicaid spending. Many of
    the policy changes in the DRA shift costs to Medicaid
    beneficiaries and have the effect of limiting health care
    coverage and access to services. Specifically, the DRA allows
    states to offer more limited benefits for some groups and to
    offer different benefits to different groups of enrollees. It
    also allows states to impose cost-sharing in the form of
    premiums and co-pays on individuals and families who are
    economically impoverished. For families who are struggling
    financially, even seemingly small amounts of cost-sharing raise
    significant barriers to pursuing needed health care services.
    While the DRA gave states the option of implementing so-called
    ``flexible'' benefit packages, the language included in the
    Committee mark makes DRA benefit reductions mandatory for
    newly-eligible populations, which effectively undermines the
    Medicaid entitlement.
        Second, effective July 1, 2013, the Committee mark would
    require states to offer premium assistance and wrap-around
    benefits to Medicaid beneficiaries who are offered employer-
    sponsored insurance (ESI) if it is cost-effective to do so,
    consistent with current law requirements. Creating mandatory
    state Medicaid premium assistance puts beneficiaries, including
    children, at risk of losing benefits and creates an unnecessary
    burden on states that already have the option to provide
    premium assistance under Section 1906 of the Social Security
    Act. Historically, premium assistance programs have not been
    very successful; they often increase state and federal
    expenditures instead of decreasing them. The 2009 CHIP
    reauthorization law recognized the limitations of premium
    assistance and made changes that have not yet had a chance to
    be implemented. I believe Congress should wait for the results
    of the GAO study on premium assistance expected in January 2010
    before making any changes to current law with regard to premium
    assistance.
        Third, beginning in 2014, non-elderly, non-pregnant adults
    between 100 percent ($22,050 for a family of four) and 133
    percent of poverty ($29,327 for a family of four) would be able
    to ``choose'' between Medicaid and coverage through their state
    exchange. This provision is estimated to cost $20 billion over
    the budget window, largely because private insurance is much
    more costly--approximately 25 percent more costly--than
    Medicaid, which is more efficient and provides better coverage.
    This $20 billion is in addition to the $461 billion that we are
    giving private insurers in federal tax subsidies.
        I remain concerned that the Medicaid overpayments to
    private insurers that would be allowable under this bill are
    similar to the Medicare Advantage overpayments. States can
    already contract with private insurers, in a cost-effective
    manner, to enroll Medicaid-eligible populations in private
    managed care plans. These existing Medicaid managed care plans
    have to meet beneficiary protections required under the
    Balanced Budget Act of 1997, which would not be required of
    private plans operating in the exchange. Additionally, I am
    very concerned that private-fee-for-service plans--the most
    inefficient and expensive private plans in the market--would be
    able to enroll vulnerable Medicaid populations. Private
    insurers have a long history of inadequately serving
    vulnerable, low-income populations. I am very concerned that
    the Committee mark overlooks the substantial deficiencies in
    the private health insurance system--and puts vulnerable
    populations at risk of losing critical Medicaid benefits and
    cost-sharing protections in the state exchanges. There are no
    provisions in this mark that would prohibit states from
    creating barriers to Medicaid enrollment so that Medicaid
    beneficiaries are forced to ``choose'' inadequate and more
    expensive private coverage in the exchange.
        I look forward to working with Chairman Baucus to address
    each of these concerns.

                           Part IV--Medicaid Services

        Curative and Palliative Care for Children in Medicaid. The
    Committee mark includes an important provision that makes
    concurrent care--both curative and palliative--available to
    children under Medicaid with terminal, hospice-eligible
    prognoses. This provides the palliative care these children
    need without forcing their parents to make the impossible
    choice of foregoing curative measures in order to qualify for
    hospice. I look forward to working with the Chairman to also
    provide concurrent care to children enrolled in CHIP.
        Community First Choice Option. The Chairman should be
    commended for including the Community First Option in the
    Committee mark. This critical provision will create a state
    plan option to provide community-based attendant supports and
    services to individuals with disabilities who are Medicaid-
    eligible and require an institutional level of care. This is a
    significant step in the right direction, but more needs to be
    done to improve long-term care supports and services. I look
    forward to working with Chairman Baucus and other Members of
    the Committee to provide the infrastructure necessary for a
    comprehensive long-term care system.

                            Part VII--Dual Eligibles

        Federal Coordinated Health Care Office. The Chairman should
    be commended for establishing the Federal Coordinated Health
    Care Office (CHCO) within the Centers for Medicare and Medicaid
    Services (CMS). The CHCO would substantially improve care
    coordination for individuals dually eligible for both Medicare
    and Medicaid and is a long overdue improvement to our health
    care system.

                           ADDITIONAL COVERAGE VIEWS

        Number of People Covered. The Chairman should be commended
    for providing health insurance coverage to 29 million
    previously uninsured Americans. I remain concerned, however,
    that 16 million men, women, and children will remain uninsured
    under the Committee mark. Universal coverage has always been
    the goal of health reform. We should spend the resources
    necessary to insure every person.
        Advance Care Planning. The Committee mark is silent on
    advance care planning. As I have asserted throughout this
    debate, a critical component of a modernized health system is
    the ability to address the health care needs of patients across
    the life-span--especially at the end of life. Death is a
    serious, personal, and complicated part of the life cycle, and
    care at the end of life is eventually relevant to everyone.
    Americans deserve end-of-life care that is effective in
    providing information about diagnosis and prognosis,
    integrating appropriate support services, fulfilling individual
    wishes, and avoiding unnecessary disputes.
        Most people want to discuss advanced directives when they
    are healthy and they want their families involved in the
    process. However, the vast majority of Americans have not
    completed an advance directive expressing their final wishes.
    In 2007, RAND conducted a comprehensive review of academic
    literature relating to end-of-life decision-making. This review
    found that only 18 to 30 percent of Americans have completed
    some type of advance directive expressing their end-of-life
    care wishes. Perhaps most alarmingly, between 65 and 76 percent
    of physicians whose patients had an advance directive were
    unaware of its existence. In its present form, end-of-life
    planning and care for most Americans is perplexing, disjointed,
    and lacking an active dialogue. In its 1997 report entitled
    Approaching Death: Improving Care at the End of Life, the
    Institute of Medicine found several barriers to effective
    advance planning and end-of-life care that still persist today.
    I am extremely concerned that the Committee mark does nothing
    to inform consumers of their treatment options at the end of
    life or help them document their individual wishes for care.
        Need for a Comprehensive Approach to Long-Term Care Policy.
    There is no question that we need a long-term care system in
    this country--one that provides adequate and affordable long-
    term care coverage for all Americans. The Pepper Commission
    called for this in 1990, but little if any progress has been
    made since that time. Medicaid has become the long-term care
    payer of last resort, with recipients having to spend down
    their income and assets to the point of impoverishment in order
    to qualify. As the baby boomers continue to age, it is
    imperative that we have the same sense urgency and commitment
    regarding long-term care as we have regarding acute and primary
    care reform.

              Title II--Promoting Disease Prevention and Wellness

                         Subtitle C--Workplace Wellness

        Incentives for Participation in Voluntary Wellness
    Programs. The Committee mark would codify the existing HIPPA
    non-discrimination regulation relating to workplace wellness
    programs. This rule allows employers or issuing plans to
    provide ``rewards'' for employees' participation in a wellness
    program or for meeting certain health status targets associated
    with that program. Employers, under the regulation, can provide
    a reward (or penalty for those who do not participate or do not
    meet certain health status targets) to participants of up to 20
    percent of the total cost of the plan. Additionally, the
    Secretaries of HHS, Labor and Treasury may raise the threshold
    to 30 percent of the total cost of the plan. I am very
    concerned that these provisions are discriminatory and have not
    been shown to be effective. In addition to posing problems for
    people with less-than-perfect health, the premium
    ``incentives'' would unfairly penalize people who have other
    barriers to participation in such programs, like working
    mothers or people who work two or more jobs. This provision
    means that some employees will now have to pay more than their
    fellow employees for the same benefits. It also means that
    people who do not participate in such wellness programs will be
    subsidizing the premiums of those who do participate. There is
    evidence that some employees who do not get the discounts will
    opt-out of coverage altogether; some of the savings attributed
    to the wellness program in fact come from people with health
    problems dropping employer-sponsored health insurance. I do not
    believe these provisions should remain in the final bill.

         Title III--Improving the Quality and Efficiency of Health Care

            Subtitle A--Transforming the Health Care Delivery System

      Part IV--Strengthening Primary Care and Other Workforce Improvements

        Primary Care/General Surgery Bonus. The Chairman should be
    commended for including geriatricians among providers eligible
    for primary care bonuses. Geriatricians are vital to quality
    care for the elderly, including those receiving institutional
    or home and community-based services. Such measures also
    provide incentives for more medical students to pursue careers
    in geriatrics.
        Redistribution of Unused GME slots to Increase Access to
    Primary Care and Generalist Physicians. The Chairman should be
    commended for including geriatricians in the definition of
    primary care for the purpose of determining graduate medical
    education (GME) slots. Such efforts are important because our
    nation is behind in developing the workforce necessary for
    current and projected demographic shifts. According to the
    American Geriatrics Society, in 2008 there were 7,590 certified
    geriatricians in the nation. The Alliance for Aging Research
    projects a need for 36,000 geriatricians by 2030. This
    provision will help to close the growing workforce gap.

           Subtitle B--Improving Medicare for Patients and Providers

        Benefits for Seniors. The Committee mark includes important
    improvements to Medicare that will have a positive impact on
    seniors. Wellness benefits are enhanced, with an annual
    wellness visit where a beneficiary's health behaviors are
    assessed and discussed with his or her physician. Out-of-pocket
    costs are eliminated from preventative health screenings, so
    that any barriers to getting these screening on a regular and
    timely basis are removed. Half of the Medicare prescription
    ``doughnut hole'' is closed for beneficiaries, reducing out-of-
    pocket drug costs for many. In addition to the improvements in
    Medicare benefits for seniors, the mark also includes delivery
    system reforms that will ultimately benefit seniors and
    individuals with disabilities.
        The mark makes progress, but more is needed to improve
    Medicare for seniors and those with disabilities. I will
    continue to work with Chairman Baucus and other members of this
    Committee to make such improvements.

                     Subtitle D--Improving Payment Accuracy

        Hospice Payment Reforms. The Chairman should be commended
    for including reform of the Medicare hospice payment
    methodology consistent with MedPAC recommendations. This
    methodology will pay hospices in a way that better accounts for
    the trajectory of care expenditures, and thus pay more
    accurately across different diagnoses. The Chairman should also
    be commended for including hospice data reporting, which will
    be extremely useful in quality assurance and oversight. I
    remain concerned, however, that the Medicare Commission as
    drafted in the Committee mark would exempt hospices from the
    payment reforms recommended by the Medicare Commission. I will
    continue to work with Chairman Baucus to correct this
    provision.

                  Subtitle E--Ensuring Medicare Sustainability

        Medicare Commission. The Committee mark would establish a
    Medicare Commission, charged with providing annual
    recommendations for Congress regarding changes to Medicare
    payment policies. Congress would have six months to act upon
    these policies, and potentially change them, before they would
    automatically go into effect. In the event that Medicare
    spending exceeds certain growth targets, the Commission would
    be required to offer policies that reduce Medicare spending by
    set amounts. In years where there is no estimated excess cost
    growth in Medicare spending, the Commission has no power to
    implement changes to the Medicare program. In the mark, the
    Commission is prohibited from reducing reimbursement for
    hospitals, hospices, and potentially other providers. CBO also
    assumes that the Commission will not reduce reimbursement for
    physicians or suppliers of durable medical equipment offered
    through competitive bidding.
        I remain concerned that the Medicare Commission policy, as
    drafted, is flawed and will not achieve success in improving
    Medicare over the long-term. First, based on CBO's assumptions,
    the providers protected from the Commission's recommendations
    constitute half, if not more, of total Medicare spending. By
    including a carve-out of any kind to protect a subset of
    providers, I am concerned that Commission is fundamentally
    unsound because it is barred from looking at Medicare from a
    comprehensive perspective. The original intent of the MedPAC
    Reform Act (S. 1380), the policy upon which the Medicare
    Commission is based, was to protect Medicare's solvency by
    taking the special interests out of the process of determining
    Medicare coverage and provider reimbursement policy. The
    Commission is meant to be a responsible, independent entity
    charged with implementing reasonable, evidence-based Medicare
    policies that serve to protect access to necessary medical care
    for our nation's seniors and disabled. However, the language to
    protect certain providers weaves special interests into the
    very fabric of the Commission. Furthermore, I am particularly
    concerned about CBO's assumption that limiting the Commission's
    options for exploring greater efficiencies in Medicare means
    that the Commission is likely to decrease premium subsidies for
    Medicare beneficiaries enrolled in the prescription drug
    program. I look forward to working with Chairman Baucus to
    restore the integrity of this Commission by eliminating carve-
    outs for all providers and preserving beneficiary cost-sharing
    protections.
        I also remain concerned that the trigger for the Commission
    to issue recommendations is tied to excess cost growth in the
    Medicare program as it relates to growth in the gross domestic
    product, instead of being tied to the solvency of the Medicare
    program. The original intent of the MedPAC Reform Act was to
    create an independent commission to drive Medicare quality
    improvement and increase the efficiency of the program, so that
    it continues to exist for seniors and individuals with
    disabilities ten, twenty, and fifty years down the line. It was
    never meant to cut costs just for the sake of cutting costs. I
    look forward to working with Chairman Baucus to restructure
    this policy going forward to make certain the delicate balance
    of sustaining the program is not found on the back of our most
    vulnerable seniors and disabled.
        Finally, I remain concerned that six months for
    Congressional review and amendment of the recommendations
    included in the mark is too great an opportunity for these same
    special interests to water-down, or eliminate altogether, the
    policies put forth by the Commission. I will continue to work
    with Chairman Baucus to create a more effective timeframe
    within which Congress can consider the Commission's
    recommendations.

                        ADDITIONAL DELIVERY SYSTEM VIEWS

        Palliative Care. I remain concerned that more was not done
    in the Committee mark to improve the delivery of palliative
    care. More palliative care specialists are needed, including
    palliative medicine physicians. Additionally, general and
    continuing medical school education must be strengthened so
    that providers are more knowledgeable about palliative and end-
    of-life care, and better prepared to counsel patients regarding
    advance care planning. I look forward to working with Chairman
    Baucus to address the workforce needs in this area.
        Health Information Technology. The American Recovery and
    Reinvestment Act (ARRA) rightly made substantial new
    investments in health information technology (HIT). ARRA
    included about $17.5 billion in Medicare and Medicaid
    incentives over multiple years to providers that achieve
    meaningful use of electronic health records (EHRs), and $2
    billion in grants and loans to states for activities necessary
    for sharing data across providers, including the building of a
    Health Information Exchange infrastructure.
        The Committee mark appropriately recognizes the importance
    of using HIT in optimal care delivery models. Furthermore, the
    mark wisely includes HIT training as a part of health care
    workforce development. The mark also recognizes the importance
    of including free clinics--crucial to the health care safety
    net--in EHR funding.
        While progress has been made in this mark, I remain
    concerned about the persisting barriers to affordable HIT and
    EHRs for all providers, including small rural providers with
    very limited financial resources. The availability of open
    source solutions, in addition to the current market for more
    expensive proprietary solutions, is an area where I will
    continue to work with Chairman Baucus to improve. This includes
    the expansion of open source governmental software programs,
    already developed at taxpayers' expense, such as the Veterans
    Health Administration's VistA software and the Indian Health
    Service's Resource and Patient Management System. Such
    additional options would help health care catch up to other
    industries in realizing the potential of information
    technology.

                            Title VI--Revenue Items

        Budget Failsafe Provision. The President outlined from the
    beginning of this process that this health reform bill must be
    deficit-neutral. This Committee has had to make difficult
    decisions in order to make sure this standard was met, and I
    commend the Chairman for having produced the most fiscally
    responsible bill of any of the committees, one that even
    decreases the deficit. However, I remain very concerned about
    one particular provision in the Committee mark aimed at
    reducing the deficit. The Committee mark includes a provision
    that requires the Director of the Office of Management and
    Budget to annually certify that none of the provisions of the
    legislation will increase the budget deficit in the coming
    year. In the event that the legislation is projected to
    increase the federal deficit in the coming year, then premium
    subsidies for families and individuals who cannot otherwise
    afford coverage would have to be reduced to make up for the
    anticipated increase in the deficit. CBO assumes that the
    amended Finance mark would increase the deficit in fiscal years
    2015 through 2018. Consequently, under CBO and the Joint
    Committee on Taxation's estimates, this provision would require
    a reduction in premium subsidies averaging about 15 percent for
    fiscal years 2015 through 2018.
        This so-called ``failsafe'' provision has the potential to
    undermine critical affordability of health insurance. The
    failsafe provision would automatically decrease premium
    subsidies for low- and middle-income families who would be
    relying on them to purchase insurance. I am also concerned that
    the annual nature of the review realistically means that it
    will make subsidized coverage unstable for consumers because
    the subsidies will fluctuate based on the budget. I look
    forward to working with Chairman Baucus to guarantee that this
    bill offers reliable and consistent subsidies, while finding
    other ways to reduce the deficit.

                                                John D. Rockefeller IV.

    ADDITIONAL VIEWS OF SENATORS KERRY, ROCKEFELLER, SCHUMER, STABENOW, AND
                                    MENENDEZ

        The America's Healthy Future Act of 2009 includes a
    provision which provides an excise tax on high cost insurance.
    We agree with the view of many economists that there needs to
    be restraint on health care spending. The high cost insurance
    excise tax will help bend the cost curve, but it needs to
    strike the right balance so that in future years it will not
    affect the health care plans of hard working American families.
        A 40 percent excise tax is imposed on amounts above a
    threshold of $8,000 for individual plans and $21,000 for family
    plans. During the course of Finance consideration, changes were
    made to the provision.
        We commend Chairman Baucus for supporting changes to the
    provision. The changes substantially improve the distribution
    of the proposal. The threshold for the excise tax will be
    indexed to the Consumer Price Index plus one percentage point.
    In addition, the threshold is increased for retirees over age
    55 and for plans covering high risk professionals by $1,850 for
    individual plans and $5,000 for family plans.
        However, we remain concerned the thresholds are too low and
    will impact plans that are not overly generous and that in 2019
    far too many plans will be impacted by the excise tax. We plan
    to continue to work with Chairman Baucus on this issue to
    ensure that provision bends the cost curve, but not at the
    expense of middle-income Americans.

                                       John F. Kerry.
                                       John D. Rockefeller IV.
                                       Charles E. Schumer.
                                       Debbie Stabenow.
                                       Robert Menendez.

       ADDITIONAL VIEWS ON AFFORDABILITY SUBMITTED BY SENATORS STABENOW,
                   ROCKEFELLER, MENENDEZ, KERRY, AND SCHUMER

        We commend Chairman Baucus for supporting changes to the
    America's Healthy Future Act of 2009 to make health insurance
    more affordable. Most importantly, bringing down the sliding
    scale for subsidies down to 2% through 12% for working middle-
    class families is a step in the right direction.
        We, however, remain concerned about the overall
    affordability of health insurance, which is critical because
    the Mark will require people to purchase insurance. Throughout
    this important debate, we have asserted that a health plan must
    be affordable to ensure maximum participation and coverage. As
    the health care debate moves forward, we must do more to
    improve the premium subsidies, address cost-sharing, and
    strengthen the actuarial values of plans offered in the
    exchange. Since 2000, premiums have increased nearly 5 times
    greater than families' paychecks. Such increases are
    unsustainable for families. The plans offered through the
    exchange must remain in reach of the average middle-class
    family.
        It is important to understand what a family goes through
    when paying their monthly bills. In ``Too Great a Burden:
    Americans Face Rising Health Care Costs,'' Families USA looked
    at the annual costs for a typical family with a household
    income of $60,000. After taxes, their income shrank to about
    $49,000. Housing and utilities might take up a third of their
    income, and food and personal care might take up a fifth. For
    most, there is little income left to spend on health care. The
    premiums offered through health reform must fit into a family
    budget and be affordable.
        The Congressional Budget Office estimates that, for those
    individuals and families who purchase health care coverage in
    2016, the changes included in the Chairman's Mark will reduce
    the financial burden of coverage (including both premiums and
    out-of-pocket costs) by about one percent, as a percent of
    income. While families below 133 percent of poverty are
    protected against unaffordable health care costs, families
    between 133 and 450 percent of poverty still face substantial
    total health care spending. Although their premiums may be
    affordable as defined by the Mark, total out of pocket costs,
    including premiums, co-payments, and other costs are estimated
    to consume upwards of ten to almost twenty percent of a
    family's annual income.
        We plan to continue working with Chairman Baucus on
    affordability so that middle-class Americans do not have to
    choose between health insurance and other family needs.

                   ADDITIONAL VIEWS OF SENATOR MARIA CANTWELL

        This bill lays the foundation for the comprehensive reform
    America can no longer wait to achieve. The bill contains many
    provisions that will help decrease the cost of health care for
    all Americans. These provisions must be maintained or expanded
    as the bill moves to the Floor.
        The bill begins the critical process of reforming
    Medicaid's long-term care coverage, providing seniors with the
    opportunity to receive care in their homes, rather than being
    forced into institutional nursing homes. Currently, most state
    Medicaid programs force seniors and the disabled into nursing
    homes at a cost to America of $100 billion a year. Better and
    cheaper alternatives can be made available. Offering long-term
    care in home and community based settings provides patients
    with an improved quality of life at a savings of nearly 70
    percent; this bill includes the necessary incentives for states
    to transition into a well-balanced system of nursing home and
    home and community based long-term care.
        We also create transparency in the pharmacy benefit manager
    industry that will help drive down the price of brand name
    drugs by almost ten percent, according to a study by the Human
    Resource Policy Association.
        In this bill we lay out a clear plan for transitioning
    Medicare providers away from the current fee-for-service
    system, which reimburses based only on volume with no regard to
    the value providers offer their patients. By including a value
    modifier in the physician payment formula, we could help to
    save $50 billion or more each year in wasted Medicare expenses
    that burden seniors and drain Medicare's trust fund.
        The basic health plan provides another critical way to
    reduce costs. By allowing states to negotiate on behalf of
    those Americans who require the largest federal subsidy--people
    from 133 to 200 percent of poverty--we can make coverage more
    affordable without increasing the total cost of subsidies.
    Washington State has seen a 35 to 40 percent cost savings
    through this type of Basic Health Plan when compared to
    comparable benefit packages in the private market. This model
    provides a clear way to offer low-income Americans high-
    quality, affordable health coverage.
        All of these reforms will help to drive down costs, but it
    still does not do enough to drive down health care costs. We
    must continue working to bend the cost curve down to a level
    that more closely matches the two to three percent general
    inflation rate; today's nearly eight percent annual inflation
    in the health care industry is unacceptable and unsustainable.
    Until we actually get these reforms enacted, such uncontrolled
    costs will wreak havoc on American lives.
        Insurance companies have a right to make a profit, but a
    119 percent increase to premiums and a 428 percent increase in
    profits are unacceptable when it means more and more small
    businesses can no longer compete while providing health care
    for their employees, and when it means 14,000 Americans are
    losing their health coverage each day.
        We must do more to reverse this trend, including adding a
    public option and building on the Basic Health Plan to increase
    competition in the health care markets. We must also work to
    close the anti-trust loop-hole that allows insurance companies
    to fix prices and manipulate markets.
        The excise tax on high-cost insurance plans is too harsh on
    middle-income workers. We must make sure we do not place any
    added burden on workers who have, over the years, negotiated
    away salary increases in order to get or keep better health
    benefits. Health care reform should help prevent workers from
    facing this tradeoff in the future. We must be able to reassure
    the 85 percent of Americans who currently have health coverage
    that we are focused on making health reform improve their
    financial situation, not make it worse. I am worried the excise
    tax will not help us achieve this critical goal.
        The health insurance exchanges will do a great deal to help
    consumers, but they may also be confusing for many Americans.
    Tools such as user-friendly websites will play a critical role
    in helping people access coverage through the exchange.
    However, many of those who will need this access the most may
    not have experience sorting through complex information online.
    New technological advancements, such as virtual agents, can
    help answer questions and walk people through registration
    processes. We should encourage states to make use of virtual
    agents that offer interactive self-help and intelligent self-
    service capabilities, providing feedback using voice, text, and
    page navigation. This technology can help Americans choose the
    coverage that fits them best.
        The hard work and compromise we have put in so far has
    established a framework for the reforms our health care system
    needs. As the legislative process moves forward we must be sure
    to build on this framework to further drive down health care
    costs and improve quality, until we have a system that is
    stable and affordable for all Americans.

                              VII. MINORITY VIEWS

                                    ------

      MINORITY VIEWS SUBMITTED BY SENATORS GRASSLEY, HATCH, KYL, BUNNING,
                    CRAPO, ROBERTS, ENSIGN, ENZI AND CORNYN

        While Republicans agree that changes are needed in our
    health care system, we believe that America's Healthy Future
    Act of 2009 (AHFA) takes the system in the wrong direction.
    Unfortunately, the proposals set forth in the AHFA will, if
    enacted, burden taxpayers with increased taxes to pay for
    unprecedented government spending. In addition, the changes in
    the AHFA would make the largest expansion of Medicaid since its
    creation in 1965. All of these changes would be paid for by
    Medicare cuts combined with increased premiums on Medicare
    prescription drug coverage and Medicare Advantage that will
    devastate access for the nation's Medicare beneficiaries. In
    addition, this bill will significantly expand the government's
    role in health care by adding 32 million to government
    subsidized health care, and neither the Committee
    deliberations, nor the Chairman's Mark or Modification have
    provided clear guidance on the cost of increased government
    administration. The AHFA also hides its true cost by delaying
    implementation of the new coverage subsidies until July of 2013
    by delaying the expansion of Medicaid until 2014. In fact, the
    true fully-implemented ten-year cost of the AHFA totals at
    least $1.8 trillion.
        The challenges facing our health care system affect one-
    sixth of the economy and touch the lives of every single
    American. These challenges deserve bipartisan solutions. We
    have too many people who cannot find affordable insurance
    because costs are growing too quickly and insurers deny
    coverage because of pre-existing illnesses. The quality of
    medical care varies from world-class to inefficient and
    wasteful because the system pays based on the quantity of care
    provided instead of rewarding quality.
        Unfortunately, throughout the Finance Committee process,
    Republican efforts to bring effective solutions to these and
    other problems were defeated. And in addition to offering
    alternative ideas, Republican efforts to shield seniors and
    non-elderly consumers from higher prices and reduced benefits
    also failed.
        It is important for the public to be aware that proposals
    in the AHFA will actually result in drastic cost increases for
    consumers. At a time when consumers are struggling to keep up
    with health care costs, this bill will just make the problem
    worse.
        New health insurance benefit mandates, based on federally
    determined actuarial values, will increase premiums for many
    consumers by as much as 44 percent. In some states this
    increase, coupled with other regulatory reforms, could raise
    premiums will by as much as 73 percent for people purchasing
    coverage in the individual market. Seniors will also see the
    cost of prescription drug plan premiums go up and Medicare
    Advantage benefits reduced. In addition to the $117 billion in
    direct cuts to Medicare Advantage, the AHFA gives the newly-
    created Medicare Commission the specific authority to make
    further cuts to Medicare Advantage and reduce funding for the
    Medicare Part D program. These cuts will increase premiums and
    cut benefits to pay for a brand new national health care
    program. If people were hoping to pay less for health care
    after health reform is enacted, this bill is going in the wrong
    direction.
        Republican efforts to include medical malpractice reforms
    were also rebuffed. These amendments would have provided
    incentives through Medicaid for states to enact medical
    malpractice reforms. Despite the fact that the committee has
    often required states to enact certain legislation or meet
    other requirements as a condition of funding within the
    committee's jurisdiction, these amendments were ruled out of
    order. The AHFA should include medical malpractice reform to
    reduce abusive lawsuits that drive up costs and limit access to
    physicians. Health care reform should be working to create an
    environment where doctors don't have to engage in defensive
    medicine just to keep their practices open.
        The AHFA also has almost half a trillion dollars in
    Medicare cuts. Payment cuts of this magnitude will threaten
    access to health care for seniors and the disabled. The
    Balanced Budget Act of 1997 (BBA) cut Medicare by over $385
    billion and threatened the ability of hospitals, nursing homes
    and home health agencies to keep their doors open. As a result,
    Congress was forced to undo many of these Medicare payment cuts
    by passing bills in 1999 and 2000 to return over 20 percent to
    providers.
        The BBA experience provides two important lessons. The
    first lesson is that these Medicare cuts will be devastating to
    the program. The second lesson is that in the end, Medicare
    cuts will not actually be allowed to go into effect. Congress
    will have to intervene and prevent these cuts as soon as they
    begin inflicting the damage to health care access that they
    will cause. That means that the Medicare cuts this bill relies
    on to be fully offset are a mirage.
        Another important area of concern is the impact the AHFA
    has on Medicaid and the Children's Health Insurance Program
    (CHIP). Medicaid and CHIP play an important role in the U.S.
    health care system by providing health care coverage to low
    income children. According to data from the Centers for
    Medicare and Medicaid Services, the number of children ``ever
    enrolled'' in public health coverage programs in 2008 was 29.8
    million in Medicaid and 7.9 million children in CHIP, for a
    combined total of 37.7 million children.
        The Medicaid and CHIP programs aspire to provide coverage
    to low income children but are hampered by extremely low
    provider payment rates. A 2009 study in the journal Health
    Affairs\1\ found Medicaid payment rates nationally to be 72
    percent of Medicare rates with five states (California,
    District of Columbia, New Jersey, New York, and Rhode Island)
    reimbursing at less than 60 percent of Medicare rates. Low
    reimbursement rates are cited as a primary cause of why
    Medicaid patients have difficulty finding doctors to treat
    them. A 2002 MedPAC report stated that 40 percent of physicians
    restricted access for Medicaid patients and in a 2009 survey of
    15 major metropolitan markets found the Medicaid provider
    participation rate for five medical specialties to be 55.4
    percent.\2\
    ---------------------------------------------------------------------------
        \1\Trends in Medicaid Physician Fees, 2003-200. Stephen Zuckerman,
    Aimee F. Williams and Karen E. Stockley. Health Affairs, 28, no. 3
    (2009): w510-w519. (Published online 28 April 2009).
        \2\2009 Survey of Physician Appointment Wait Times. Merritt Hawkins
    & Associates. Irving, Texas.
    ---------------------------------------------------------------------------
        Expanding the Medicaid program to cover as many as 14
    million people without making significant reforms to improve
    the program seems imprudent. Throughout 2009, the Finance
    Committee considered numerous provisions to improve the
    Medicaid program. Ultimately, the AHFA fails to address the
    many challenges that currently face the Medicaid program.
        During the Coverage Roundtable and Walkthrough, the
    Committee considered a provision to increase reimbursement to
    providers. Higher reimbursement rates could have provided an
    incentive for greater provider participation in Medicaid, and
    therefore greater access for recipients to providers. That
    provision was not included in the AHFA.
        During the Coverage Roundtable and Walkthrough, the
    Committee considered a provision to require all states to
    provide Medicaid recipients with 12 months' continuous
    eligibility for Medicaid. This provision would have prevented a
    significant problem faced by Medicaid recipients who have gaps
    in their health insurance coverage as their income cycles above
    Medicaid eligibility levels. This provision was not included in
    the AHFA.
        Millions of children benefit from the Early, Periodic,
    Screening, Diagnosis, and Treatment (EPSDT) provision in the
    Medicaid statute. This benefit provides long term habilitation
    and rehabilitation for children with chronic and serious
    mental, physical and developmental disabilities. It provides a
    class of benefit (e.g., personal care, case management, private
    nursing) more extensive than levels of coverage found in a
    typical private insurance plan. In 2005, a provision was
    included in the Deficit Reduction Act (DRA) that allowed states
    to put Medicaid recipients in private-style coverage on the
    condition that children received supplemental coverage
    consisting of EPSDT benefits. Current law requires that benefit
    be available for children up to age 6 and with family incomes
    of up to 133 percent of poverty and for children ages 6 to 19
    with family incomes of up to 100 percent of poverty. The AHFA
    provided that all children up to age 19 with family incomes up
    to 250 percent of poverty would receive the EPSDT benefit
    through supplemental coverage. The provision to provide
    additional supplemental benefits to children similar to the
    provision in the DRA was struck from the AHFA through the
    Rockefeller Amendment #C21.
        The Rockefeller Amendment #C21 to the AHFA is a
    particularly ill-conceived provision for providing coverage to
    children. The amendment requires states to maintain their
    current CHIP eligibility levels from 2014 through 2019.
    However, while the amendment states that the CHIP program be
    reauthorized by September 30, 2013, if the program is not
    reauthorized, states will not have adequate funding from 2014
    through 2019 to maintain coverage levels. The Congressional
    Budget Office assumes that states will reduce the size of their
    CHIP populations by nearly 60 percent from 2014 through 2019,
    and the amendment also does not provide states with any
    specific tools or guidance as to how they should reduce their
    coverage levels over the six-year period. The Rockefeller
    Amendment #C21 could reduce benefits available to children, and
    force states to remove children from the CHIP program. These
    issues must be addressed before it may be considered to become
    law.
        In addition, the AHFA does not fully consider the impact of
    significant Medicaid expansion on the budgets of states. The
    Congressional Budget Office projects states will face increased
    spending of $33 billion due to the coverage provisions in the
    AHFA. As most states operate under a balanced budget
    requirement, any increase in state spending will require states
    to find offsets through either increased taxes or reduced
    spending on other programs. Further, by increasing the federal
    share of Medicaid reimbursement to states for adults and higher
    income children, the AHFA creates an incentive for states to
    focus their resources away from lower income children if not an
    outright disincentive.
        Finally on Medicaid, given the emphasis placed on providing
    greater choices in AHFA, Republican Members of the Senate
    Finance Committee also believe that Medicaid beneficiaries
    should have the choice to elect coverage under Medicaid or
    receive tax subsidies to purchase private coverage in the new
    exchanges. The Medicaid program has serious and systemic
    problems that restrict patients' ability to see doctors and
    often lead to worse health care outcomes. The sole fact that
    Medicaid costs less than other forms of insurance is not a
    sufficient reason to deny low income Americans the right to
    choose the health care program that best meets their needs.
        Republican members of the Senate Finance Committee also
    have concerns over the financing measures included in the AHFA.
    One of our primary concerns with the AHFA is that it calls for
    over $400 billion in new taxes. The Congressional Budget Office
    (CBO) and the Joint Committee on Taxation (JCT) each testified
    that these new taxes will be borne by all taxpayers, including
    families with incomes below $250,000 per year (and individuals
    with incomes below $200,000 per year). These tax increases
    include a new excise tax on high-cost health insurance plans,
    fees on health insurance providers, medical device
    manufacturers, and manufacturers of prescription drugs, a
    limitation on pre-tax contributions to a flexible spending
    arrangement (FSA) under a cafeteria plan, the elimination of
    tax-free reimbursements for over-the-counter medicines, and a
    proposal to raise the 7.5 percent adjusted gross income (AGI)
    threshold for the itemized deduction for medical expenses to 10
    percent.
        Under the AHFA, so-called fees will be imposed on health
    insurance providers, medical device manufacturers, and
    manufacturers of brand name prescription drugs. JCT has
    characterized these so-called fees as excise taxes. CBO and JCT
    testified that these excise taxes will be passed through to
    health care consumers. The result will be higher health
    insurance premiums for policyholders and higher prices for
    health care-related products. The Chairman has argued that once
    the health insurance reforms in the AHFA are in place, premiums
    will decrease. CBO, however, has not confirmed this argument as
    fact. Instead, CBO testified--and explained in a September 22,
    2009 letter to the Chairman--that health insurance premiums
    will be lower for some Americans, while health insurance
    premiums for other Americans will be higher. Under the AHFA,
    the excise taxes imposed on health insurance providers, medical
    device manufacturers, and prescription drug manufacturers
    become effective January 1, 2010. The majority of the health
    insurance reforms set forth in the AHFA, on the other hand, do
    not go into effect until January 1, 2013 (in some cases, July
    1, 2013). As a result, for three years (in some cases, three
    years and six months), the effect of these fees will be higher
    premiums, according to CBO and JCT. We believe that these
    arbitrary excise taxes on individual segments of the health
    care industry will increase costs for each and every American
    and are contrary to efforts to truly reform our nation's health
    care system.
        The AHFA also limits the amount of salary reduction
    contributions an employee may elect for any taxable year for
    purposes of coverage under a FSA to $2,500. Under current law,
    such FSA salary reduction contributions may be made on a pre-
    tax basis. Thus, the new limitation will impose a higher tax
    burden on those employees that elect to make FSA salary
    reduction contributions in excess of the limit. The majority of
    employees that currently make FSA salary reduction
    contributions in excess of $2,500 do so to pay for catastrophic
    medical expenses. Also, statistics show that the average income
    of an employee electing to make FSA salary reduction
    contributions is $55,000 per year. As a result, this tax
    increase imposed by the AHFA will fall most heavily on middle-
    income employees with serious medical conditions.
        Another proposal in the AHFA will adversely affect middle-
    income individuals who do not purchase health insurance through
    an employer, but instead, purchase insurance on their own.
    Specifically, the proposal to restrict the eligibility criteria
    for the itemized medical expense deduction--by increasing the
    7.5 percent AGI threshold to 10 percent--will increase taxes on
    taxpayers with income between $50,000 and $75,000 and taxpayers
    65 or older. While an amendment to exempt taxpayers 65 or older
    from the new 10 percent AGI threshold was approved, the
    exemption is only effective from 2013 to 2016. As a result, in
    2017, roughly 50 percent of those taxpayers who would be
    affected by the proposal will be 65 or older. The Chairman
    justifies the change by arguing that health insurance purchased
    in the newly created ``exchanges'' will have out-of-pocket
    maximums. The Chairman contends that the new out-of-pocket
    limits will eliminate--if not mitigate--the need for taxpayers
    to claim the itemized medical expense deduction. However, the
    Chairman overlooks the fact that many medical expenses that are
    deductible will not be covered by exchange insurance. Moreover,
    individuals between 210 percent and 400 percent of the Federal
    Poverty Level (FPL), who will be required to pay the premiums
    for exchange insurance out of their own pocket, will lose a
    portion of the itemized medical expense deduction that they may
    currently claim. This is a clear-cut example of how taxes will
    increase for Americans earning less than $250,000 per year.
        Another concern is that the new employer penalties in this
    bill are a tax on workers and take-home pay. The Congressional
    Budget Office has repeatedly said that the increased costs of
    providing new benefits or paying the new employer penalties
    will simply be shifted to workers in the form of lower wages.
    Employers may also respond by cutting jobs (particularly for
    low-income workers), outsourcing more jobs, or relying more on
    part-time workers.
        With regard to abortion, it remains our strong view that
    the AHFA does not sufficiently address concerns regarding the
    prohibition of federal taxpayers' dollars being used to
    subsidize coverage of elective abortions. The AHFA departs from
    the principles embodied in the laws that govern current federal
    health programs, which prohibit both direct funding of abortion
    (with narrow exceptions) and subsidies to plans that cover
    abortion. For example, all of the private plans that
    participate in the Federal Employees Health Benefits Program
    (FEHBP) currently are prohibited by law from covering abortion,
    because they are federally subsidized. Likewise, the Hyde
    Amendment that currently covers the Medicaid program prohibits
    both direct federal funding of abortion and funding of plans
    that cover abortion, and this prohibition covers even state
    matching funds. The language contained in the AHFA would
    sharply depart from the principles of the Hyde Amendment.
    Therefore, we believe that the AHFA as reported by the Finance
    Committee must be further modified to codify the Hyde language
    so that federal dollars are prohibited from being used to pay
    for abortions, or benefits packages covering abortion, except
    in cases of rape, incest or when the life of the mother is
    endangered. This would bring the legislation into compliance
    with all other major federal health programs on this issue,
    including the Children's Health Insurance Program and Federal
    Employees Health Benefits Program.
        In addition, broad regulatory authorities included in the
    AHFA could result in federal mandates that require abortion
    coverage or abortion access. We believe that the AHFA does not
    adequately ensure against such regulatory abortion mandates,
    and that further language is necessary to prevent such mandates
    and to protect existing state laws. Furthermore, the AHFA is
    unprecedented in its call for each region in the Exchange to
    include a health plan covering elective abortions--that is, a
    plan that violates the federal government's policy in its own
    programs.
        In addition, we believe the protection of the conscience
    rights of health care providers, entities and plans is
    essential in any health reform bill. The AHFA does not
    adequately protect the conscience rights of health care
    providers, entities and plans. The conscience protections
    afforded in the Hyde/Weldon conscience clause (included in the
    annual appropriations legislation that has funded the
    Department of Health and Human Services since 2004) should be
    codified in the AHFA. The Hyde/Weldon conscience clause
    language prohibits federal agencies and state and local
    entities that receive federal dollars from forcing health care
    providers to provide, pay for or refer for abortions. It is
    vitally important to have specific legislative language in the
    AHFA that reflects both the Hyde provision that prohibits
    federal dollars from being used to fund elective abortion
    coverage, and the Hyde/Weldon language to protect health care
    providers' conscience rights instead of relying on a general
    reference to a provision that is included in annual
    appropriations language.
        It is also unclear whether or not the AHFA preempts
    constitutional state abortion laws. We believe clarification on
    this point is critically important. We look forward to working
    with the Chairman and others in resolving these four important
    issues so it is absolutely clear that federal funds are not
    used to pay for elective abortions or plans that cover elective
    abortion; that the AHFA does not provide any basis for
    mandating access to elective abortion services and does not
    preempt state laws regulating abortions; and that conscience
    protections are ensured for health care providers.
        Finally, the AHFA significantly expands the federal
    government's role in health care. While the Chairman has stated
    that he does not intend to grow the government, the Committee
    has no idea how many more Federal employees, particularly
    employees of the Internal Revenue Service (IRS), will be needed
    to administer and enforce the provisions set forth in the AHFA.
    Specifically, the AHFA tasks the IRS with administering several
    new and very controversial provisions, including the individual
    mandate, the employer ``free-rider'' penalty, the premium tax
    credit for low-income individuals, the small business tax
    credit, and the AHFA requires the IRS to work with the new
    ``exchanges'' or a new Federal entity to verify income
    information. The costs to implement these provisions are not
    included in any CBO or JCT estimates. We are concerned that the
    additional resources needed could significantly increase the
    unprecedented government spending already called for by the
    Chairman.
        We appreciate the hard work of the Chairman and the
    Committee staff on the AHFA, and thank the Chairman for the
    opportunity to offer amendments in the normal course, and in
    the regular order, of the Committee process.
        In order to avoid a damaging outcome to the nation's
    economy and the health care system that will be difficult to
    reverse, we urge the Chairman and members of the Senate to
    consider the concerns outlined above prior to, or
    contemporaneous with, full Senate consideration of the AHFA, or
    any related legislation.

                                       Charles E. Grassley.
                                       Orrin G. Hatch.
                                       Jon Kyl.
                                       Jim Bunning.
                                       Mike Crapo.
                                       Pat Roberts.
                                       John Ensign.
                                       Michael B. Enzi.
                                       John Cornyn.

                    ADDITIONAL VIEWS BY SENATOR JIM BUNNING

        The Minority Views filed by most Republicans, including
    myself, point out that this bill hides the true cost of health
    care reform by delaying implementation of many of the
    provisions until 2013 and 2014, and that the fully-implemented,
    10-year cost of this bill is actually at least $1.8 trillion.
        However, there are two other areas that this bill does not
    address that could significantly increase the cost of health
    care over the next 10 years that are not being adequately
    accounted for.
        The first one is the bill's failure to permanently address
    Medicare's flawed and broken formula for reimbursing physicians
    and certain non-physician practitioners. For the past eight
    years, doctors have faced decreases in their reimbursement
    rates for seeing Medicare patients.
        In fact, in 2002 doctors actually received at 5.4% cut in
    their reimbursement rates when they saw Medicare patients. The
    reductions doctors face have become quite large and truly
    unsustainable for many practices to absorb. For example in
    2008, doctors faced a 10% cut in their reimbursement rates. In
    2009, doctors would have received a 15% cut. For 2010, the
    doctors are facing a 21% cut.
        However, each year since 2002, Congress has stepped in to
    override the reimbursement reduction, by either freezing the
    reimbursement level or giving physicians a slight increase in
    their reimbursement rates, such as a 0.5% increase or a 1.5%
    increase.
        The way Congress has dealt with this flawed formula over
    the years is unfair to providers. Without knowing how much they
    are going to be paid, it is hard for doctors to plan their
    budgets and determine how many Medicare patients they can see.
        The Chairman's mark overrides the 21% payment cut for just
    2010 with a 0.5% increase. The cost is $10.9 billion.
        While a one-year fix that is paid for is better than
    nothing, I suppose, the Chairman's mark misses the real
    opportunity to deal with this broken formula once and for all.
    This bill is supposed to provide comprehensive health care
    reform, yet it leaves this flawed formula is place.
        It makes no sense, is short-sighted, and is unfair to
    doctors.
        Not permanently fixing this formula also hides the true
    cost of health care reform. It is estimated that a permanent
    fix for the flawed formula is between $285 billion and $344
    billion under current law.
        However, this cost isn't included in the Chairman's cost
    estimate for the bill. I believe this cost will likely be added
    onto the bill at some point, but it isn't clear if it will be
    paid for. That means this bill will likely cost another $300
    billion, which is not reflected in the cost estimate.
        My second area of concern deals with illegal immigrants and
    whether or not they will be covered under this bill.
        The Chairman's mark tries to prevent them from being
    covered under the new law. However, I am concerned that some
    recent court rulings and legal precedent may require us to
    eventually cover all illegal immigrants, especially if a public
    option is included in the final version of the bill.
        While I disagree with that idea, I am concerned that when
    Congress creates such a large new entitlement program,
    particularly with a public plan, that eventually activist
    courts will require that illegal immigrants be covered, which
    will dramatically increase the costs of this health care reform
    bill.
        The Congressional Budget Office estimates that under the
    Chairman's mark, 25 million people in this country will be
    uninsured in 2019, with one-third of these individuals being
    illegal aliens. That's eight million more people who would be
    covered under the bill.
        If we are forced by the courts to cover these individuals,
    prices will increase significantly.
        We aren't being honest with the American taxpayers about
    how much we are spending or how much our future costs will be,
    particularly if we eventually provide a permanent fix for the
    doctor's payment formula and if we are forced to cover illegal
    aliens under health care reform.
        We need to be upfront about the costs and we need to live
    within our means. That will mean making some hard decisions,
    but it is the responsible thing to do.