[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\
---------------------------------------------------------------------------
    \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\
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    \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\
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    \22\Sec. 816(a).
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    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\
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    \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.
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    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.
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    \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\
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    \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.
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    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.
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    \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).
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    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.
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    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.
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    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.
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    \110\Sec. 265(a) and Treas. Reg. sec. 1.265-1(a).
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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.
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    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).
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    \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.
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    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.
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    \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.
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    \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\
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    \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.
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    \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.
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    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).
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    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\
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    \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.
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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.
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    \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).
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    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).
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    \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\
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    \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).
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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.

                                  
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