    [United States Statutes at Large, Volume 124, 111th Congress, 2nd Session]
    [From the U.S. Government Publishing Office, www.gpo.gov]

    Public Law 111-152
    111th Congress

    An Act

    To provide for reconciliation pursuant to Title II of the concurrent
    resolution on the budget for fiscal year 2010 (S. Con. Res.
    13). <>

    Be it enacted by the Senate and House of Representatives of the
    United States of America in Congress assembled, <>
    SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short <> Title.--This Act may be cited
    as the ``Health Care and Education Reconciliation Act of 2010''.

    (b) Table of Contents.--The table of contents of this Act is as
    follows:

    Sec. 1. Short title; table of contents.

    TITLE I--COVERAGE, MEDICARE, MEDICAID, AND REVENUES

    Subtitle A--Coverage

    Sec. 1001. Tax credits.
    Sec. 1002. Individual responsibility.
    Sec. 1003. Employer responsibility.
    Sec. 1004. Income definitions.
    Sec. 1005. Implementation funding.

    Subtitle B--Medicare

    Sec. 1101. Closing the medicare prescription drug ``donut hole''.
    Sec. 1102. Medicare Advantage payments.
    Sec. 1103. Savings from limits on MA plan administrative costs.
    Sec. 1104. Disproportionate share hospital (DSH) payments.
    Sec. 1105. Market basket updates.
    Sec. 1106. Physician ownership-referral.
    Sec. 1107. Payment for imaging services.
    Sec. 1108. PE GPCI adjustment for 2010.
    Sec. 1109. Payment for qualifying hospitals.

    Subtitle C--Medicaid

    Sec. 1201. Federal funding for States.
    Sec. 1202. Payments to primary care physicians.
    Sec. 1203. Disproportionate share hospital payments.
    Sec. 1204. Funding for the territories.
    Sec. 1205. Delay in Community First Choice option.
    Sec. 1206. Drug rebates for new formulations of existing drugs.

    Subtitle D--Reducing Fraud, Waste, and Abuse

    Sec. 1301. Community mental health centers.
    Sec. 1302. Medicare prepayment medical review limitations.
    Sec. 1303. Funding to fight fraud, waste, and abuse.
    Sec. 1304. 90-day period of enhanced oversight for initial claims of DME
    suppliers.

    Subtitle E--Provisions Relating to Revenue

    Sec. 1401. High-cost plan excise tax.
    Sec. 1402. Unearned income Medicare contribution.
    Sec. 1403. Delay of limitation on health flexible spending arrangements
    under cafeteria plans.

    [[Page 1030]]

    Sec. 1404. Brand name pharmaceuticals.
    Sec. 1405. Excise tax on medical device manufacturers.
    Sec. 1406. Health insurance providers.
    Sec. 1407. Delay of elimination of deduction for expenses allocable to
    medicare part D subsidy.
    Sec. 1408. Elimination of unintended application of cellulosic biofuel
    producer credit.
    Sec. 1409. Codification of economic substance doctrine and penalties.
    Sec. 1410. Time for payment of corporate estimated taxes.

    Subtitle F--Other Provisions

    Sec. 1501. Community college and career training grant program.

    TITLE II--EDUCATION AND HEALTH

    Subtitle A--Education

    Sec. 2001. Short title; references.

    Part I--Investing in Students and Families

    Sec. 2101. Federal Pell Grants.
    Sec. 2102. College access challenge grant program.
    Sec. 2103. Investment in historically black colleges and universities
    and minority-serving institutions.

    Part II--Student Loan Reform

    Sec. 2201. Termination of Federal Family Education Loan appropriations.
    Sec. 2202. Termination of Federal loan insurance program.
    Sec. 2203. Termination of applicable interest rates.
    Sec. 2204. Termination of Federal payments to reduce student interest
    costs.
    Sec. 2205. Termination of FFEL PLUS Loans.
    Sec. 2206. Federal Consolidation Loans.
    Sec. 2207. Termination of Unsubsidized Stafford Loans for middle-income
    borrowers.
    Sec. 2208. Termination of special allowances.
    Sec. 2209. Origination of Direct Loans at institutions outside the
    United States.
    Sec. 2210. Conforming amendments.
    Sec. 2211. Terms and conditions of loans.
    Sec. 2212. Contracts; mandatory funds.
    Sec. 2213. Income-based repayment.

    Subtitle B--Health

    Sec. 2301. Insurance reforms.
    Sec. 2302. Drugs purchased by covered entities.
    Sec. 2303. Community health centers.

    TITLE I--COVERAGE, MEDICARE, MEDICAID, AND REVENUES

    Subtitle A--Coverage

    SEC. 1001. TAX CREDITS.

    (a) Premium Tax Credits.--Section 36B of the Internal Revenue Code
    of 1986, as added by section 1401 of the Patient Protection and
    Affordable Care Act and amended by section 10105 of such <> Act, is amended--
    (1) in subsection (b)(3)(A)--
    (A) in clause (i), by striking ``with respect to any
    taxpayer'' and all that follows up to the end period and
    inserting: ``for any taxable year shall be the
    percentage such that the applicable percentage for any
    taxpayer whose household income is within an income tier
    specified in the following table shall increase, on a
    sliding scale in a linear manner, from the initial
    premium percentage to

    [[Page 1031]]

    the final premium percentage specified in such table for
    such income tier:

    ``In the case of household
    income (expressed as a
    percent of poverty line)     The initial premium    The final premium
    within the following income     percentage is--       percentage is--
    tier:

    Up to 133%                    2.0%                  2.0%
    133% up to 150%               3.0%                  4.0%
    150% up to 200%               4.0%                  6.3%
    200% up to 250%               6.3%                  8.05%
    250% up to 300%               8.05%                 9.5%
    300% up to 400%               9.5%                  9.5%''; and

    (B) by striking clauses (ii) and (iii), and
    inserting the following:
    ``(ii) Indexing.--
    ``(I) In general.--Subject to
    subclause (II), in the case of taxable
    years beginning in any calendar year
    after 2014, the initial and final
    applicable percentages under clause (i)
    (as in effect for the preceding calendar
    year after application of this clause)
    shall be adjusted to reflect the excess
    of the rate of premium growth for the
    preceding calendar year over the rate of
    income growth for the preceding calendar
    year.
    ``(II) Additional adjustment.--
    Except as provided in subclause (III),
    in the case of any calendar year after
    2018, the percentages described in
    subclause (I) shall, in addition to the
    adjustment under subclause (I), be
    adjusted to reflect the excess (if any)
    of the rate of premium growth estimated
    under subclause (I) for the preceding
    calendar year over the rate of growth in
    the consumer price index for the
    preceding calendar year.
    ``(III) Failsafe.--
    Subclause <> (II)
    shall apply for any calendar year only
    if the aggregate amount of premium tax
    credits under this section and cost-
    sharing reductions under section 1402 of
    the Patient Protection and Affordable
    Care Act for the preceding calendar year
    exceeds an amount equal to 0.504 percent
    of the gross domestic product for the
    preceding calendar year.''; and
    (2) in subsection (c)(2)(C)--
    (A) by striking ``9.8 percent'' in clauses (i)(II)
    and (iv) and inserting ``9.5 percent''; and
    (B) by striking ``(b)(3)(A)(iii)'' in clause (iv)
    and inserting ``(b)(3)(A)(ii)''.

    (b) Cost Sharing.--Section 1402(c) of the Patient Protection and
    Affordable Care <> Act is amended--
    (1) in paragraph (1)(B)(i)--
    (A) in subclause (I), by striking ``90'' and
    inserting ``94'';
    (B) in subclause (II)--
    (i) by striking ``80'' and inserting ``87'';
    and
    (ii) by striking ``and''; and

    [[Page 1032]]

    (C) by striking subclause (III) and inserting the
    following:
    ``(III) 73 percent in the case of an
    eligible insured whose household income
    is more than 200 percent but not more
    than 250 percent of the poverty line for
    a family of the size involved; and
    ``(IV) 70 percent in the case of an
    eligible insured whose household income
    is more than 250 percent but not more
    than 400 percent of the poverty line for
    a family of the size involved.''; and
    (2) in paragraph (2)--
    (A) in subparagraph (A)--
    (i) by striking ``90'' and inserting ``94'';
    and
    (ii) by striking ``and'';
    (B) in subparagraph (B)--
    (i) by striking ``80'' and inserting ``87'';
    and
    (ii) by striking the period and inserting ``;
    and''; and
    (C) by inserting after subparagraph (B) the
    following new subparagraph:
    ``(C) in the case of an eligible insured whose
    household income is more than 200 percent but not more
    than 250 percent of the poverty line for a family of the
    size involved, increase the plan's share of the total
    allowed costs of benefits provided under the plan to 73
    percent of such costs.''.
    SEC. 1002. INDIVIDUAL RESPONSIBILITY.

    (a) Amounts.--Section 5000A(c) of the Internal Revenue Code of 1986,
    as added by section 1501(b) of the Patient Protection and Affordable
    Care Act and amended by section 10106 of <> such Act, is amended--
    (1) in paragraph (2)(B)--
    (A) in the matter preceding clause (i), by--
    (i) inserting ``the excess of'' before ``the
    taxpayer's household income''; and
    (ii) inserting ``for the taxable year over the
    amount of gross income specified in section
    6012(a)(1) with respect to the taxpayer'' before
    ``for the taxable year'';
    (B) in clause (i), by striking ``0.5'' and inserting
    ``1.0'';
    (C) in clause (ii), by striking ``1.0'' and
    inserting ``2.0''; and
    (D) in clause (iii), by striking ``2.0'' and
    inserting ``2.5''; and
    (2) in paragraph (3)--
    (A) in subparagraph (A), by striking ``$750'' and
    inserting ``$695'';
    (B) in subparagraph (B), by striking ``$495'' and
    inserting ``$325''; and
    (C) in subparagraph (D)--
    (i) in the matter preceding clause (i), by
    striking ``$750'' and inserting ``$695''; and
    (ii) in clause (i), by striking ``$750'' and
    inserting ``$695''.

    (b) Threshold.--Section 5000A of such Code, as so added and amended,
    is amended--
    (1) by striking subsection (c)(4)(D); and
    (2) in subsection (e)(2)--

    [[Page 1033]]

    (A) by striking ``under 100 percent of poverty
    line'' and inserting ``below filing threshold''; and
    (B) by striking all that follows ``less than'' and
    inserting ``the amount of gross income specified in
    section 6012(a)(1) with respect to the taxpayer.''.
    SEC. 1003. EMPLOYER RESPONSIBILITY.

    (a) Payment Calculation.--Subparagraph (D) of subsection (d)(2) of
    section 4980H of the Internal Revenue Code of 1986, as added by section
    1513 of the Patient Protection and Affordable Care Act and amended by
    section 10106 of such Act, <> is amended to
    read as follows:
    ``(D) Application of employer size to assessable
    penalties.--
    ``(i) In general.--The number of individuals
    employed by an applicable large employer as full-
    time employees during any month shall be reduced
    by 30 solely for purposes of calculating--
    ``(I) the assessable payment under
    subsection (a), or
    ``(II) the overall limitation under
    subsection (b)(2).
    ``(ii) Aggregation.--In the case of persons
    treated as 1 employer under subparagraph (C)(i),
    only 1 reduction under subclause (I) or (II) shall
    be allowed with respect to such persons and such
    reduction shall be allocated among such persons
    ratably on the basis of the number of full-time
    employees employed by each such person.''.

    (b) Applicable Payment Amount.--Section 4980H of such Code, as so
    added and amended, is amended--
    (1) in the flush text following subsection (c)(1)(B), by
    striking ``400 percent of the applicable payment amount'' and
    inserting ``an amount equal to \1/12\ of $3,000'';
    (2) in subsection (d)(1), by striking ``$750'' and inserting
    ``$2,000''; and
    (3) in subsection (d)(5)(A), in the matter preceding clause
    (i), by striking ``subsection (b)(2) and (d)(1)'' and inserting
    ``subsection (b) and paragraph (1)''.

    (c) Counting Part-time Workers in Setting the Threshold for Employer
    Responsibility.--Section 4980H(d)(2) of such Code, as so added and
    amended and as amended by subsection (a), is amended by adding at the
    end the following new subparagraph:
    ``(E) Full-time equivalents treated as full-time
    employees.--Solely for purposes of determining whether
    an employer is an applicable large employer under this
    paragraph, an employer shall, in addition to the number
    of full-time employees for any month otherwise
    determined, include for such month a number of full-time
    employees determined by dividing the aggregate number of
    hours of service of employees who are not full-time
    employees for the month by 120.''.

    (d) Eliminating Waiting Period Assessment.--Section 4980H of such
    Code, as so added and amended and as amended by the preceding
    subsections, is amended by striking subsection (b) and redesignating
    subsections (c), (d), and (e) as subsections (b), (c), and (d),
    respectively.

    [[Page 1034]]

    SEC. 1004. INCOME DEFINITIONS.

    (a) Modified Adjusted Gross Income.--
    (1) In general.--The following provisions of the Internal
    Revenue Code of 1986 are each amended by striking ``modified
    gross'' each place it appears and inserting ``modified adjusted
    gross'':
    (A) Clauses (i) and (ii) of section 36B(d)(2)(A), as
    added by section 1401 of the Patient Protection and
    Affordable Care Act. <>
    (B) Section 6103(l)(21)(A)(iv), as added by section
    1414 of such Act. <>
    (C) Clauses (i) and (ii) of section 5000A(c)(4), as
    added by section 1501(b) <> of such
    Act.
    (2) Definition.--
    (A) Section 36B(d)(2)(B) of such Code, as so added,
    is amended to read as follows:
    ``(B) Modified adjusted gross income.--The term
    `modified adjusted gross income' means adjusted gross
    income increased by--
    ``(i) any amount excluded from gross income
    under section 911, and
    ``(ii) any amount of interest received or
    accrued by the taxpayer during the taxable year
    which is exempt from tax.''.
    (B) Section 5000A(c)(4)(C) of such Code, as so
    added, is amended to read as follows:
    ``(C) Modified adjusted gross income.--The term
    `modified adjusted gross income' means adjusted gross
    income increased by--
    ``(i) any amount excluded from gross income
    under section 911, and
    ``(ii) any amount of interest received or
    accrued by the taxpayer during the taxable year
    which is exempt from tax.''.

    (b) Modified Adjusted Gross Income Definition.--
    (1) Medicaid.--Section 1902 of the Social Security Act (42
    U.S.C. 1396a) is amended by striking ``modified gross income''
    each place it appears in the text and headings of the following
    provisions and inserting ``modified adjusted gross income'':
    (A) Paragraph (14) of subsection (e), as added by
    section 2002(a) of the Patient Protection and Affordable
    Care Act.
    (B) Subsection (gg)(4)(A), as added by section
    2001(b) of such Act.
    (2) Chip.--
    (A) State plan requirements.--Section
    2102(b)(1)(B)(v) of the Social Security Act (42 U.S.C.
    1397bb(b)(1)(B)(v)), as added by section 2101(d)(1) of
    the Patient Protection and Affordable Care Act, is
    amended by striking ``modified gross income'' and
    inserting ``modified adjusted gross income''.
    (B) Plan administration.--Section 2107(e)(1)(E) of
    the Social Security Act (42 U.S.C. 1397gg(e)(1)(E)), as
    added by section 2101(d)(2) of the Patient Protection
    and Affordable Care Act, is amended by striking
    ``modified gross income'' and inserting ``modified
    adjusted gross income''.

    [[Page 1035]]

    (c) No Excess Payments.--Section 36B(f) of the Internal Revenue Code
    of 1986, as added by section 1401(a) of the Patient Protection and
    Affordable Care Act, <> is amended by adding at the
    end the following new paragraph:
    ``(3) Information requirement.--Each Exchange (or any person
    carrying out 1 or more responsibilities of an Exchange under
    section 1311(f)(3) or 1321(c) of the Patient Protection and
    Affordable Care Act) shall provide the following information to
    the Secretary and to the taxpayer with respect to any health
    plan provided through the Exchange:
    ``(A) The level of coverage described in section
    1302(d) of the Patient Protection and Affordable Care
    Act and the period such coverage was in effect.
    ``(B) The total premium for the coverage without
    regard to the credit under this section or cost-sharing
    reductions under section 1402 of such Act.
    ``(C) The aggregate amount of any advance payment of
    such credit or reductions under section 1412 of such
    Act.
    ``(D) The name, address, and TIN of the primary
    insured and the name and TIN of each other individual
    obtaining coverage under the policy.
    ``(E) Any information provided to the Exchange,
    including any change of circumstances, necessary to
    determine eligibility for, and the amount of, such
    credit.
    ``(F) Information necessary to determine whether a
    taxpayer has received excess advance payments.''.

    (d) Adult Dependents.--
    (1) Exclusion of amounts expended for medical care.--The
    first sentence of section 105(b) of the Internal Revenue Code of
    1986 <> (relating to amounts expended for
    medical care) is amended--
    (A) by striking ``and his dependents'' and inserting
    ``his dependents''; and
    (B) by inserting before the period the following:
    ``, and any child (as defined in section 152(f)(1)) of
    the taxpayer who as of the end of the taxable year has
    not attained age 27''.
    (2) Self-employed health insurance deduction.--Section
    162(l)(1) of such Code <> is amended to read
    as follows:
    ``(1) Allowance of deduction.--In the case of a taxpayer who
    is an employee within the meaning of section 401(c)(1), there
    shall be allowed as a deduction under this section an amount
    equal to the amount paid during the taxable year for insurance
    which constitutes medical care for--
    ``(A) the taxpayer,
    ``(B) the taxpayer's spouse,
    ``(C) the taxpayer's dependents, and
    ``(D) any child (as defined in section 152(f)(1)) of
    the taxpayer who as of the end of the taxable year has
    not attained age 27.''.
    (3) Coverage under self-employed deduction.--Section
    162(l)(2)(B) of such Code is amended by inserting ``, or any
    dependent, or individual described in subparagraph (D) of
    paragraph (1) with respect to,'' after ``spouse of''.
    (4) Sick and accident benefits provided to members of a
    voluntary employees' beneficiary association and

    [[Page 1036]]

    their dependents.--Section 501(c)(9) of such Code <> is amended by adding at the end the following new
    sentence: ``For purposes of providing for the payment of sick
    and accident benefits to members of such an association and
    their dependents, the term `dependent' shall include any
    individual who is a child (as defined in section 152(f)(1)) of a
    member who as of the end of the calendar year has not attained
    age 27.''.
    (5) Medical and other benefits for retired employees.--
    Section 401(h) of such Code <> is amended by
    adding at the end the following: ``For purposes of this
    subsection, the term `dependent' shall include any individual
    who is a child (as defined in section 152(f)(1)) of a retired
    employee who as of the end of the calendar year has not attained
    age 27.''.

    (e) Five Percent Income Disregard for Certain Individuals.--Section
    1902(e)(14) of the Social Security Act (42 U.S.C. 1396a(e)(14)), as
    amended by subsection (b)(1), is further amended--
    (1) in subparagraph (B), by striking ``No type'' and
    inserting ``Subject to subparagraph (I), no type''; and
    (2) by adding at the end the following new subparagraph:
    ``(I) Treatment of portion of modified adjusted
    gross income.--For purposes of determining the income
    eligibility of an individual for medical assistance
    whose eligibility is determined based on the application
    of modified adjusted gross income under subparagraph
    (A), the State shall--
    ``(i) determine <> the
    dollar equivalent of the difference between the
    upper income limit on eligibility for such an
    individual (expressed as a percentage of the
    poverty line) and such upper income limit
    increased by 5 percentage points; and
    ``(ii) notwithstanding the requirement in
    subparagraph (A) with respect to use of modified
    adjusted gross income, utilize as the applicable
    income of such individual, in determining such
    income eligibility, an amount equal to the
    modified adjusted gross income applicable to such
    individual reduced by such dollar equivalent
    amount.''.
    SEC. 1005. <> IMPLEMENTATION FUNDING.

    (a) In General.--There is hereby established a Health Insurance
    Reform Implementation Fund (referred to in this section as the ``Fund'')
    within the Department of Health and Human Services to carry out the
    Patient Protection and Affordable Care Act and this Act (and the
    amendments made by such Acts).
    (b) Funding.--There is appropriated to the Fund, out of any funds in
    the Treasury not otherwise appropriated, $1,000,000,000 for Federal
    administrative expenses to carry out such Act (and the amendments made
    by such Acts).

    Subtitle B--Medicare

    SEC. 1101. CLOSING THE MEDICARE PRESCRIPTION DRUG ``DONUT HOLE''.

    (a) Coverage Gap Rebate for 2010.--

    [[Page 1037]]

    (1) In general.--Section 1860D-42 of the Social Security Act
    (42 U.S.C. 1395w-152) is amended by adding at the end the
    following new subsection:

    ``(c) Coverage <> Gap Rebate for 2010.--
    ``(1) In general.--In <> the case of an
    individual described in subparagraphs (A) through (D) of section
    1860D-14A(g)(1) who as of the last day of a calendar quarter in
    2010 has incurred costs for covered part D drugs so that the
    individual has exceeded the initial coverage limit under section
    1860D-2(b)(3) for 2010, the Secretary shall provide for payment
    from the Medicare Prescription Drug Account of $250 to the
    individual by not later than the 15th day of the third month
    following the end of such quarter.
    ``(2) Limitation.--The Secretary shall provide only 1
    payment under this subsection with respect to any individual.''.
    (2) Repeal of provision.--Section 3315 of the Patient
    Protection and Affordable Care Act (including the amendments
    made by such section) <> is repealed, and
    any provision of law amended or repealed by such sections is
    hereby restored or revived as if such section had not been
    enacted into law.

    (b) Closing the Donut Hole.--Part D of title XVIII of the Social
    Security Act (42 U.S.C. 1395w-101 et seq.), as amended by section 3301
    of the Patient Protection and Affordable Care Act, is further amended--
    (1) in section <> 1860D-43--
    (A) in subsection (b), by striking ``July 1, 2010''
    and inserting ``January 1, 2011''; and
    (B) in subsection (c)(2), by striking ``July 1,
    2010, and ending on December 31, 2010,'' and inserting
    ``January 1, 2011, and December 31, 2011,'';
    (2) in section <> 1860D-14A--
    (A) in subsection (a)--
    (i) by striking ``July 1, 2010'' and inserting
    ``January 1, 2011''; and
    (ii) by striking ``April 1, 2010'' and
    inserting ``180 days after the date of the
    enactment of this section'';
    (B) in subsection (b)(1)(C)--
    (i) in the heading, by striking ``2010 and'';
    (ii) by striking ``July 1, 2010'' and
    inserting ``January 1, 2011''; and
    (iii) by striking ``May 1, 2010'' and
    inserting ``not later than 30 days after the date
    of the establishment of a model agreement under
    subsection (a)'';
    (C) in subsection (c)--
    (i) in paragraph (1)(A)(iii), by striking
    ``July 1, 2010, and ending on December 31, 2011''
    and inserting ``January 1, 2011, and ending on
    December 31, 2011''; and
    (ii) in paragraph (2), by striking ``2010''
    and inserting ``2011'';
    (D) in subsection (d)(2)(B), by striking ``July 1,
    2010, and ending on December 31, 2010'' and inserting
    ``January 1, 2011, and ending on December 31, 2011'';
    and
    (E) in subsection (g)(1)--
    (i) in the matter before subparagraph (A), by
    striking ``an applicable drug'' and inserting ``a
    covered part D drug'';

    [[Page 1038]]

    (ii) by adding ``and'' at the end of
    subparagraph (C);
    (iii) by striking subparagraph (D); and
    (iv) by redesignating subparagraph (E) as
    subparagraph (D); and
    (3) in section <> 1860D-2(b)--
    (A) in paragraph (2)(A), by striking ``The
    coverage'' and inserting ``Subject to subparagraphs (C)
    and (D), the coverage'';
    (B) in paragraph (2)(B), by striking ``subparagraph
    (A)(ii)'' and inserting ``subparagraphs (A)(ii), (C),
    and (D)'';
    (C) by adding at the end of paragraph (2) the
    following new subparagraphs:
    ``(C) Coverage for generic drugs in coverage gap.--
    ``(i) In general.--Except as provided in
    paragraph (4), the coverage for an applicable
    beneficiary (as defined in section 1860D-
    14A(g)(1)) has coinsurance (for costs above the
    initial coverage limit under paragraph (3) and
    below the out-of-pocket threshold) for covered
    part D drugs that are not applicable drugs under
    section 1860D-14A(g)(2) that is--
    ``(I) equal to the generic-gap
    coinsurance percentage (specified in
    clause (ii)) for the year; or
    ``(II) actuarially equivalent (using
    processes and methods established under
    section 1860D-11(c)) to an average
    expected payment of such percentage of
    such costs for covered part D drugs that
    are not applicable drugs under section
    1860D-14A(g)(2).
    ``(ii) Generic-gap coinsurance percentage.--
    The generic-gap coinsurance percentage specified
    in this clause for--
    ``(I) 2011 is 93 percent;
    ``(II) 2012 and each succeeding year
    before 2020 is the generic-gap
    coinsurance percentage under this clause
    for the previous year decreased by 7
    percentage points; and
    ``(III) 2020 and each subsequent
    year is 25 percent.
    ``(D) Coverage for applicable drugs in coverage
    gap.--
    ``(i) In general.--Except as provided in
    paragraph (4), the coverage for an applicable
    beneficiary (as defined in section 1860D-
    14A(g)(1)) has coinsurance (for costs above the
    initial coverage limit under paragraph (3) and
    below the out-of-pocket threshold) for the
    negotiated price (as defined in section 1860D-
    14A(g)(6)) of covered part D drugs that are
    applicable drugs under section 1860D-14A(g)(2)
    that is--
    ``(I) equal to the difference
    between the applicable gap percentage
    (specified in clause (ii) for the year)
    and the discount percentage specified in
    section 1860D-14A(g)(4)(A) for such
    applicable drugs; or

    [[Page 1039]]

    ``(II) actuarially equivalent (using
    processes and methods established under
    section 1860D-11(c)) to an average
    expected payment of such percentage of
    such costs, for covered part D drugs
    that are applicable drugs under section
    1860D-14A(g)(2).
    ``(ii) Applicable gap percentage.--The
    applicable gap percentage specified in this clause
    for--
    ``(I) 2013 and 2014 is 97.5 percent;
    ``(II) 2015 and 2016 is 95 percent;
    ``(III) 2017 is 90 percent;
    ``(IV) 2018 is 85 percent;
    ``(V) 2019 is 80 percent; and
    ``(VI) 2020 and each subsequent year
    is 75 percent.'';
    (D) in paragraph (3)(A), as restored under
    subsection (a)(2), by striking ``paragraph (4)'' and
    inserting ``paragraphs (2)(C), (2)(D), and (4)''; and
    (E) in paragraph (4)(E), by inserting before the
    period at the end the following: ``, except that
    incurred costs shall not include the portion of the
    negotiated price that represents the reduction in
    coinsurance resulting from the application of paragraph
    (2)(D)''; and
    (4) in section 1860D-22(a)(2)(A), <> by inserting before the period at the end the following:
    ``, not taking into account the value of any discount or
    coverage provided during the gap in prescription drug coverage
    that occurs between the initial coverage limit under section
    1860D-2(b)(3) during the year and the out-of-pocket threshold
    specified in section 1860D-2(b)(4)(B)''.

    (c) Conforming Amendment to AMP Under Medicaid.--Section
    1927(k)(1)(B)(i) of the Social Security Act (42 U.S.C. 1396r-
    8(k)(1)(B)(i)), as amended by section 2503(a)(2)(B) of the Patient
    Protection and Affordable Care Act, is amended--
    (1) by striking ``and'' at the end of subclause (III);
    (2) by striking the period at the end of subclause (IV); and
    (3) by adding at the end the following new subclause:
    ``(V) discounts provided by
    manufacturers under section 1860D-
    14A.''.

    (d) Reducing Growth Rate of Out-of-pocket Cost Threshold.--Section
    1860D-2(b) of the Social Security Act (42 U.S.C. 1395w-102(b)) is
    amended--
    (1) in paragraph (4)(B)(i)--
    (A) in subclause (I), by striking ``or'' at the end;
    (B) by redesignating subclause (II) as subclause
    (VI); and
    (C) by inserting after subclause (I) the following
    new subclauses:
    ``(II) for each of years 2007
    through 2013, is equal to the amount
    specified in this subparagraph for the
    previous year, increased by the annual
    percentage increase described in
    paragraph (6) for the year involved;
    ``(III) for 2014 and 2015, is equal
    to the amount specified in this
    subparagraph for the previous year,
    increased by the annual percentage
    increase

    [[Page 1040]]

    described in paragraph (6) for the year
    involved, minus 0.25 percentage point;
    ``(IV) for each of years 2016
    through 2019, is equal to the amount
    specified in this subparagraph for the
    previous year, increased by the lesser
    of--
    ``(aa) the annual percentage
    increase described in paragraph
    (7) for the year involved, plus
    2 percentage points; or
    ``(bb) the annual percentage
    increase described in paragraph
    (6) for the year;
    ``(V) for 2020, is equal to the
    amount that would have been applied
    under this subparagraph for 2020 if the
    amendments made by section 1101(d)(1) of
    the Health Care and Education
    Reconciliation Act of 2010 had not been
    enacted; or''; and
    (2) by adding at the end the following new paragraph:
    ``(7) Additional annual percentage increase.--The annual
    percentage increase specified in this paragraph for a year is
    equal to the annual percentage increase in the consumer price
    index for all urban consumers (United States city average) for
    the 12-month period ending in July of the previous year.''.
    SEC. 1102. MEDICARE ADVANTAGE PAYMENTS.

    (a) Repeal.--Effective <> as if included in the enactment of the Patient
    Protection and Affordable Care Act, sections 3201 and 3203 of such Act
    (and the amendments made by such sections) are repealed.

    (b) Phase-in of Modified Benchmarks.--Section 1853 of the Social
    Security Act (42 U.S.C. 1395w-23) is amended--
    (1) in subsection (j)(1)(A), by striking ``(or, beginning
    with 2007, \1/12\ of the applicable amount determined under
    subsection (k)(1)) for the area for the year'' and inserting
    ``for the area for the year (or, for 2007, 2008, 2009, and 2010,
    \1/12\ of the applicable amount determined under subsection
    (k)(1) for the area for the year; for 2011, \1/12\ of the
    applicable amount determined under subsection (k)(1) for the
    area for 2010; and, beginning with 2012, \1/12\ of the blended
    benchmark amount determined under subsection (n)(1) for the area
    for the year)''; and
    (2) by adding at the end the following new subsection:

    ``(n) Determination of Blended Benchmark Amount.--
    ``(1) In general.--For <> purposes of
    subsection (j), subject to paragraphs (3), (4), and (5), the
    term `blended benchmark amount' means for an area--
    ``(A) for 2012 the sum of--
    ``(i) \1/2\ of the applicable amount for the
    area and year; and
    ``(ii) \1/2\ of the amount specified in
    paragraph (2)(A) for the area and year; and
    ``(B) for a subsequent year the amount specified in
    paragraph (2)(A) for the area and year.
    ``(2) Specified amount.--
    ``(A) In general.--The amount specified in this
    subparagraph for an area and year is the product of--
    ``(i) the base payment amount specified in
    subparagraph (E) for the area and year adjusted to
    take into

    [[Page 1041]]

    account the phase-out in the indirect costs of
    medical education from capitation rates described
    in subsection (k)(4); and
    ``(ii) the applicable percentage for the area
    for the year specified under subparagraph (B).
    ``(B) Applicable percentage.--Subject to
    subparagraph (D), the applicable percentage specified in
    this subparagraph for an area for a year in the case of
    an area that is ranked--
    ``(i) in the highest quartile under
    subparagraph (C) for the previous year is 95
    percent;
    ``(ii) in the second highest quartile under
    such subparagraph for the previous year is 100
    percent;
    ``(iii) in the third highest quartile under
    such subparagraph for the previous year is 107.5
    percent; or
    ``(iv) in the lowest quartile under such
    subparagraph for the previous year is 115 percent.
    ``(C) Periodic ranking.--For purposes of this
    paragraph in the case of an area located--
    ``(i) in 1 of the 50 States or the District of
    Columbia, the Secretary shall rank such area in
    each year specified under subsection (c)(1)(D)(ii)
    based upon the level of the amount specified in
    subparagraph (A)(i) for such areas; or
    ``(ii) in a territory, the Secretary shall
    rank such areas in each such year based upon the
    level of the amount specified in subparagraph
    (A)(i) for such area relative to quartile rankings
    computed under clause (i).
    ``(D) 1-year transition for changes in applicable
    percentage.--If, for a year after 2012, there is a
    change in the quartile in which an area is ranked
    compared to the previous year, the applicable percentage
    for the area in the year shall be the average of--
    ``(i) the applicable percentage for the area
    for the previous year; and
    ``(ii) the applicable percentage that would
    otherwise apply for the area for the year.
    ``(E) Base payment amount.--Subject to subparagraph
    (F), the base payment amount specified in this
    subparagraph--
    ``(i) for 2012 is the amount specified in
    subsection (c)(1)(D) for the area for the year; or
    ``(ii) for a subsequent year that--
    ``(I) is not specified under
    subsection (c)(1)(D)(ii), is the base
    amount specified in this subparagraph
    for the area for the previous year,
    increased by the national per capita MA
    growth percentage, described in
    subsection (c)(6) for that succeeding
    year, but not taking into account any
    adjustment under subparagraph (C) of
    such subsection for a year before 2004;
    and
    ``(II) is specified under subsection
    (c)(1)(D)(ii), is the amount specified
    in subsection (c)(1)(D) for the area for
    the year.

    [[Page 1042]]

    ``(F) Application of indirect medical education
    phase-out.--The base payment amount specified in
    subparagraph (E) for a year shall be adjusted in the
    same manner under paragraph (4) of subsection (k) as the
    applicable amount is adjusted under such subsection.
    ``(3) Alternative phase-ins.--
    ``(A) 4-year phase-in for certain areas.--If the
    difference between the applicable amount (as defined in
    subsection (k)) for an area for 2010 and the projected
    2010 benchmark amount (as defined in subparagraph (C))
    for the area is at least $30 but less than $50, the
    blended benchmark amount for the area is--
    ``(i) for 2012 the sum of--
    ``(I) \3/4\ of the applicable amount
    for the area and year; and
    ``(II) \1/4\ of the amount specified
    in paragraph (2)(A) for the area and
    year;
    ``(ii) for 2013 the sum of--
    ``(I) \1/2\ of the applicable amount
    for the area and year; and
    ``(II) \1/2\ of the amount specified
    in paragraph (2)(A) for the area and
    year;
    ``(iii) for 2014 the sum of--
    ``(I) \1/4\ of the applicable amount
    for the area and year; and
    ``(II) \3/4\ of the amount specified
    in paragraph (2)(A) for the area and
    year; and
    ``(iv) for a subsequent year the amount
    specified in paragraph (2)(A) for the area and
    year.
    ``(B) 6-year phase-in for certain areas.--If the
    difference between the applicable amount (as defined in
    subsection (k)) for an area for 2010 and the projected
    2010 benchmark amount (as defined in subparagraph (C))
    for the area is at least $50, the blended benchmark
    amount for the area is--
    ``(i) for 2012 the sum of--
    ``(I) \5/6\ of the applicable amount
    for the area and year; and
    ``(II) \1/6\ of the amount specified
    in paragraph (2)(A) for the area and
    year;
    ``(ii) for 2013 the sum of--
    ``(I) \2/3\ of the applicable amount
    for the area and year; and
    ``(II) \1/3\ of the amount specified
    in paragraph (2)(A) for the area and
    year;
    ``(iii) for 2014 the sum of--
    ``(I) \1/2\ of the applicable amount
    for the area and year; and
    ``(II) \1/2\ of the amount specified
    in paragraph (2)(A) for the area and
    year;
    ``(iv) for 2015 the sum of--
    ``(I) \1/3\ of the applicable amount
    for the area and year; and
    ``(II) \2/3\ of the amount specified
    in paragraph (2)(A) for the area and
    year; and
    ``(v) for 2016 the sum of--

    [[Page 1043]]

    ``(I) \1/6\ of the applicable amount
    for the area and year; and
    ``(II) \5/6\ of the amount specified
    in paragraph (2)(A) for the area and
    year; and
    ``(vi) for a subsequent year the amount
    specified in paragraph (2)(A) for the area and
    year.
    ``(C) Projected 2010 benchmark amount.--The
    projected 2010 benchmark amount described in this
    subparagraph for an area is equal to the sum of--
    ``(i) \1/2\ of the applicable amount (as
    defined in subsection (k)) for the area for 2010;
    and
    ``(ii) \1/2\ of the amount specified in
    paragraph (2)(A) for the area for 2010 but
    determined as if there were substituted for the
    applicable percentage specified in clause (ii) of
    such paragraph the sum of--
    ``(I) the applicable percent that
    would be specified under subparagraph
    (B) of paragraph (2) (determined without
    regard to subparagraph (D) of such
    paragraph) for the area for 2010 if any
    reference in such paragraph to `the
    previous year' were deemed a reference
    to 2010; and
    ``(II) the applicable percentage
    increase that would apply to a
    qualifying plan in the area under
    subsection (o) as if any reference in
    such subsection to 2012 were deemed a
    reference to 2010 and as if the
    determination of a qualifying county
    under paragraph (3)(B) of such
    subsection were made for 2010.
    ``(4) Cap on benchmark amount.--In no case shall the blended
    benchmark amount for an area for a year (determined taking into
    account subsection (o)) be greater than the applicable amount
    that would (but for the application of this subsection) be
    determined under subsection (k)(1) for the area for the year.
    ``(5) Non-application to pace plans.--This subsection shall
    not apply to payments to a PACE program under section 1894.''.

    (c) Applicable Percentage Quality Increases.--Section 1853 of such
    Act (42 U.S.C. 1395w-23), as amended by subsection (b), is amended--
    (1) in subsection (j), by inserting ``subject to subsection
    (o),'' after ``For purposes of this part,'';
    (2) in subsection (n)(2)(B), as added by subsection (b), by
    inserting ``, subject to subsection (o)'' after ``as follows'';
    and
    (3) by adding at the end the following new subsection:

    ``(o) Applicable Percentage Quality Increases.--
    ``(1) In general.--Subject <> to the
    succeeding paragraphs, in the case of a qualifying plan with
    respect to a year beginning with 2012, the applicable percentage
    under subsection (n)(2)(B) shall be increased on a plan or
    contract level, as determined by the Secretary--
    ``(A) for 2012, by 1.5 percentage points;
    ``(B) for 2013, by 3.0 percentage points; and
    ``(C) for 2014 or a subsequent year, by 5.0
    percentage points.

    [[Page 1044]]

    ``(2) Increase for qualifying plans in qualifying
    counties.--The increase applied under paragraph (1) for a
    qualifying plan located in a qualifying county for a year shall
    be doubled.
    ``(3) Qualifying plans and qualifying county defined;
    application of increases to low enrollment and new plans.--For
    purposes of this subsection:
    ``(A) Qualifying plan.--
    ``(i) In general.--The term `qualifying plan'
    means, for a year and subject to paragraph (4), a
    plan that had a quality rating under paragraph (4)
    of 4 stars or higher based on the most recent data
    available for such year.
    ``(ii) Application of increases to low
    enrollment plans.--
    ``(I) 2012.--
    For <> 2012, the
    term `qualifying plan' includes an MA
    plan that the Secretary determines is
    not able to have a quality rating under
    paragraph (4) because of low enrollment.
    ``(II) 2013 and subsequent years.--
    For 2013 and subsequent years, for
    purposes of determining whether an MA
    plan with low enrollment (as defined by
    the Secretary) is included as a
    qualifying plan, the Secretary shall
    establish a method to apply to MA plans
    with low enrollment (as defined by the
    Secretary) the computation of quality
    rating and the rating system under
    paragraph (4).
    ``(iii) Application of increases to new
    plans.--
    ``(I) In general.--A new MA plan
    that meets criteria specified by the
    Secretary shall be treated as a
    qualifying plan, except that in applying
    paragraph (1), the applicable percentage
    under subsection (n)(2)(B) shall be
    increased--
    ``(aa) for 2012, by 1.5
    percentage points;
    ``(bb) for 2013, by 2.5
    percentage points; and
    ``(cc) for 2014 or a
    subsequent year, by 3.5
    percentage points.
    ``(II) New ma plan defined.--The
    term `new MA plan' means, with respect
    to a year, a plan offered by an
    organization or sponsor that has not had
    a contract as a Medicare Advantage
    organization in the preceding 3-year
    period.
    ``(B) Qualifying county.--The term `qualifying
    county' means, for a year, a county--
    ``(i) that has an MA capitation rate that, in
    2004, was based on the amount specified in
    subsection (c)(1)(B) for a Metropolitan
    Statistical Area with a population of more than
    250,000;
    ``(ii) for which, as of December 2009, of the
    Medicare Advantage eligible individuals residing
    in the county at least 25 percent of such
    individuals were enrolled in Medicare Advantage
    plans; and
    ``(iii) that has per capita fee-for-service
    spending that is lower than the national monthly
    per capita cost for expenditures for individuals
    enrolled under

    [[Page 1045]]

    the original medicare fee-for-service program for
    the year.
    ``(4) Quality determinations for application of increase.--
    ``(A) Quality determination.--The quality rating for
    a plan shall be determined according to a 5-star rating
    system (based on the data collected under section
    1852(e)).
    ``(B) Plans that failed to report.--An MA plan which
    does not report data that enables the Secretary to rate
    the plan for purposes of this paragraph shall be counted
    as having a rating of fewer than 3.5 stars.
    ``(5) Exception for pace plans.--This subsection shall not
    apply to payments to a PACE program under section 1894.''.
    (4) Determination of medicare part d low-income benchmark
    premium.--Section 1860D-14(b)(2)(B)(iii) of the Social Security
    Act (42 U.S.C. 1395w-114(b)(2)(B)(iii)) as amended by section
    3302 of the Patient Protection and Affordable Care Act, is
    amended by striking ``, determined without regard to any
    reduction in such premium as a result of any beneficiary rebate
    under section 1854(b)(1)(C) or bonus payment under section
    1853(n)'' and inserting the following: ``and determined before
    the application of the monthly rebate computed under section
    1854(b)(1)(C)(i) for that plan and year involved and, in the
    case of a qualifying plan, before the application of the
    increase under section 1853(o) for that plan and year
    involved''.

    (d) Beneficiary Rebates.--Section 1854(b)(1)(C) of such Act (42
    U.S.C. 1395w-24(b)(1)(C)), as amended by section 3202(b) of the Patient
    Protection and Affordable Care Act, is further amended--
    (1) in clause (i), by inserting ``(or the applicable rebate
    percentage specified in clause (iii) in the case of plan years
    beginning on or after January 1, 2012)'' after ``75 percent'';
    and
    (2) by striking clause (iii), by redesignating clauses (iv)
    and (v) as clauses (vii) and (viii), respectively, and by
    inserting after clause (ii) the following new clauses:
    ``(iii) Applicable rebate percentage.--The
    applicable rebate percentage specified in this
    clause for a plan for a year, based on the system
    under section 1853(o)(4)(A), is the sum of--
    ``(I) the product of the old phase-
    in proportion for the year under clause
    (iv) and 75 percent; and
    ``(II) the product of the new phase-
    in proportion for the year under clause
    (iv) and the final applicable rebate
    percentage under clause (v).
    ``(iv) Old and new phase-in proportions.--For
    purposes of clause (iv)--
    ``(I) for 2012, the old phase-in
    proportion is \2/3\ and the new phase-in
    proportion is \1/3\;
    ``(II) for 2013, the old phase-in
    proportion is \1/3\ and the new phase-in
    proportion is \2/3\; and
    ``(III) for 2014 and any subsequent
    year, the old phase-in proportion is 0
    and the new phase-in proportion is 1.

    [[Page 1046]]

    ``(v) Final applicable rebate percentage.--
    Subject to clause (vi), the final applicable
    rebate percentage under this clause is--
    ``(I) in the case of a plan with a
    quality rating under such system of at
    least 4.5 stars, 70 percent;
    ``(II) in the case of a plan with a
    quality rating under such system of at
    least 3.5 stars and less than 4.5 stars,
    65 percent; and
    ``(III) in the case of a plan with a
    quality rating under such system of less
    than 3.5 stars, 50 percent.
    ``(vi) Treatment of low enrollment and new
    plans.--For purposes of clause (v)--
    ``(I) for 2012, in the case of a
    plan described in subclause (I) of
    subsection (o)(3)(A)(ii), the plan shall
    be treated as having a rating of 4.5
    stars; and
    ``(II) for 2012 or a subsequent
    year, in the case of a new MA plan (as
    defined under subclause (III) of
    subsection (o)(3)(A)(iii)) that is
    treated as a qualifying plan pursuant to
    subclause (I) of such subsection, the
    plan shall be treated as having a rating
    of 3.5 stars.''.

    (e) Coding Intensity Adjustment.--Section 1853(a)(1)(C)(ii) of such
    Act (42 U.S.C. 1395w-23(a)(1)(C)(ii)) is amended--
    (1) in the heading, by striking ``during phaseout of budget
    neutrality factor'' and inserting ``of coding adjustment'';
    (2) in the matter before subclause (I), by striking
    ``through 2010'' and inserting ``and each subsequent year''; and
    (3) in subclause (II)--
    (A) in the first sentence, by inserting ``annually''
    before ``conduct an analysis'';
    (B) in the second sentence--
    (i) by inserting ``on a timely basis'' after
    ``are incorporated''; and
    (ii) by striking ``only for 2008, 2009, and
    2010'' and inserting ``for 2008 and subsequent
    years'';
    (C) in the third sentence, by inserting ``and
    updated as appropriate'' before the period at the end;
    and
    (D) by adding at the end the following new
    subclauses:
    ``(III) In calculating each year's
    adjustment, the adjustment factor shall
    be for 2014, not less than the
    adjustment factor applied for 2010, plus
    1.3 percentage points; for each of years
    2015 through 2018, not less than the
    adjustment factor applied for the
    previous year, plus 0.25 percentage
    point; and for 2019 and each subsequent
    year, not less than 5.7 percent.
    ``(IV) <> Such
    adjustment shall be applied to risk
    scores until the Secretary implements
    risk adjustment using Medicare Advantage
    diagnostic, cost, and use data.''.

    (f) Repeal of Comparative Cost Adjustment Program.--Section 1860C-1
    of the Social Security Act (42 U.S.C. 1395w-29), as added by section
    241(a) of the Medicare Prescription Drug,

    [[Page 1047]]

    Improvement, and Modernization Act of 2003 (Public Law 108-173), is
    repealed.
    SEC. 1103. SAVINGS FROM LIMITS ON MA PLAN ADMINISTRATIVE COSTS.

    Section 1857(e) of the Social Security Act (42 U.S.C. 1395w-27(e))
    is amended by adding at the end the following new paragraph:
    ``(4) Requirement <> for minimum
    medical loss ratio.--If the
    Secretary <> determines for a contract
    year (beginning with 2014) that an MA plan has failed to have a
    medical loss ratio of at least .85--
    ``(A) the <> MA plan shall remit to
    the Secretary an amount equal to the product of--
    ``(i) the total revenue of the MA plan under
    this part for the contract year; and
    ``(ii) the difference between .85 and the
    medical loss ratio;
    ``(B) for 3 consecutive contract years, the
    Secretary shall not permit the enrollment of new
    enrollees under the plan for coverage during the second
    succeeding contract year; and
    ``(C) the Secretary shall terminate the plan
    contract if the plan fails to have such a medical loss
    ratio for 5 consecutive contract years.''.
    SEC. 1104. DISPROPORTIONATE SHARE HOSPITAL (DSH) PAYMENTS.

    Section 1886(r) of the Social Security Act (42 U.S.C. 1395ww(r)), as
    added by section 3133 of the Patient Protection and Affordable Care Act
    and as amended by section 10316 of such Act, is amended--
    (1) in paragraph (1), by striking ``2015'' and inserting
    ``2014''; and
    (2) in paragraph (2)--
    (A) in the matter preceding subparagraph (A), by
    striking ``2015'' and inserting ``2014'';
    (B) in subparagraph (B)(i)--
    (i) in the heading, by inserting ``2014,''
    after ``years'';
    (ii) in the matter preceding subclause (I), by
    inserting ``2014,'' after ``each of fiscal
    years'';
    (iii) in subclause (I), by striking ``on such
    Act'' and inserting ``on the Health Care and
    Education Reconciliation Act of 2010''; and
    (iv) in the matter following subclause (II),
    by striking ``minus 1.5 percentage points'' and
    inserting ``minus 0.1 percentage points for fiscal
    year 2014 and minus 0.2 percentage points for each
    of fiscal years 2015, 2016, and 2017''; and
    (C) in subparagraph (B)(ii), in the matter following
    subclause (II), by striking ``and, for each of 2018 and
    2019, minus 1.5 percentage points'' and inserting
    ``minus 0.2 percentage points for each of fiscal years
    2018 and 2019''.
    SEC. 1105. MARKET BASKET UPDATES.

    (a) IPPS.--Section 1886(b)(3)(B) of the Social Security Act (42
    U.S.C. 1395ww(b)(3)(B)), as amended by sections 3401(a)(4) and 10319(a)
    of the Patient Protection and Affordable Care Act, is amended--

    [[Page 1048]]

    (1) in clause (xii)--
    (A) by placing the subclause (II) (inserted by
    section 10319(a)(3) of the Patient Protection and
    Affordable Care Act) immediately after subclause (I)
    and, in such subclause (II), by striking ``and'' at the
    end; and
    (B) by striking subclause (III) and inserting the
    following:
    ``(III) for fiscal year 2014, by 0.3 percentage point;
    ``(IV) for each of fiscal years 2015 and 2016, by 0.2
    percentage point; and
    ``(V) for each of fiscal years 2017, 2018, and 2019, by 0.75
    percentage point.''; and
    (2) by striking clause (xiii).

    (b) Long-term Care Hospitals.--Section 1886(m)(4) of the Social
    Security Act (42 U.S.C. 1395ww(m)(4)), as added by section 3401(c) of
    the Patient Protection and Affordable Care Act and amended by section
    10319(b) of such Act, is amended--
    (1) in subparagraph (A)--
    (A) in clause (iii), by striking ``and'' at the end;
    and
    (B) by striking clause (iv) and inserting the
    following:
    ``(iv) for rate year 2014, 0.3 percentage
    point;
    ``(v) for each of rate years 2015 and 2016,
    0.2 percentage point; and
    ``(vi) for each of rate years 2017, 2018, and
    2019, 0.75 percentage point.'';
    (2) by striking subparagraph (B); and
    (3) by striking ``(4) Other adjustment.--'' and all that
    follows through ``For purposes'' and inserting ``(4) Other
    adjustment.--For purposes'' (and redesignating clauses (i)
    through (vi) as subparagraphs (A) through (F), respectively,
    with appropriate indentation).

    (c) Inpatient Rehabilitation Facilities.--Section 1886(j)(3)(D) of
    the Social Security Act (42 U.S.C. 1395ww(j)(3)(D)), as added by section
    3401(d)(2) of the Patient Protection and Affordable Care Act and amended
    by section 10319(c) of such Act, is amended--
    (1) in clause (i)--
    (A) by placing the subclause (II) (inserted by
    section 10319(c)(3) of the Patient Protection and
    Affordable Care Act) immediately after subclause (I)
    and, in such subclause (II), by striking ``and'' at the
    end; and
    (B) by striking subclause (III) and inserting the
    following:
    ``(III) for fiscal year 2014, 0.3
    percentage point;
    ``(IV) for each of fiscal years 2015
    and 2016, 0.2 percentage point; and
    ``(V) for each of fiscal years 2017,
    2018, and 2019, 0.75 percentage
    point.'';
    (2) by striking clause (ii); and
    (3) by striking ``(D) Other adjustment.--'' and all that
    follows through ``For purposes'' and inserting ``(D) Other
    adjustment.--For purposes'' (and redesignating subclauses (I)
    through (V) as clauses (i) through (v), respectively, with
    appropriate indentation).

    (d) Psychiatric Hospitals.--Section 1886(s)(3) of the Social
    Security Act, as added by section 3401(f) of the Patient Protection

    [[Page 1049]]

    and Affordable Care Act and amended by section 10319(e) of such
    Act, <>  is amended--
    (1) in subparagraph (A)--
    (A) by placing the clause (ii) (inserted by section
    10319(e)(3) of the Patient Protection and Affordable
    Care Act) immediately after clause (i) and, in such
    clause (ii), by striking ``and'' at the end; and
    (B) by striking clause (iii) and inserting the
    following:
    ``(iii) for the rate year beginning in 2014,
    0.3 percentage point;
    ``(iv) for each of the rate years beginning in
    2015 and 2016, 0.2 percentage point; and
    ``(v) for each of the rate years beginning in
    2017, 2018, and 2019, 0.75 percentage point.'';
    (2) by striking subparagraph (B); and
    (3) by striking ``(3) Other adjustment.--'' and all that
    follows through ``For purposes'' and inserting ``(3) Other
    adjustment.--For purposes'' (and redesignating clauses (i)
    through (v) as subparagraphs (A) through (E), respectively, with
    appropriate indentation).

    (e) Outpatient Hospitals.--Section 1833(t)(3)(G) of the Social
    Security Act (42 U.S.C. 1395l(t)(3)(G)), as added by section 3401(i)(2)
    of the Patient Protection and Affordable Care Act and amended by section
    10319(g) of such Act, is amended--
    (1) in clause (i)--
    (A) by placing the subclause (II) (inserted by
    section 10319(g)(3) of the Patient Protection and
    Affordable Care Act) immediately after subclause (I)
    and, in such subclause (II), by striking ``and'' at the
    end; and
    (B) by striking subclause (III) and inserting the
    following:
    ``(III) for 2014, 0.3 percentage
    point;
    ``(IV) for each of 2015 and 2016,
    0.2 percentage point; and
    ``(V) for each of 2017, 2018, and
    2019, 0.75 percentage point.'';
    (2) by striking clause (ii); and
    (3) by striking ``(G) Other adjustment.--'' and all that
    follows through ``For purposes'' and inserting ``(G) Other
    adjustment.--For purposes'' (and redesignating subclauses (I)
    through (V) as clauses (i) through (v), respectively, with
    appropriate indentation).
    SEC. 1106. PHYSICIAN OWNERSHIP-REFERRAL.

    Section 1877(i) of the Social Security Act (42 U.S.C. 1395nn(i)), as
    added by section 6001(a)(3) of the Patient Protection and Affordable
    Care Act and as amended by section 10601(a) of such Act, is amended--
    (1) in paragraph (1)(A)(i), by striking ``August 1, 2010''
    and inserting ``December 31, 2010''; and
    (2) in paragraph (3)--
    (A) in subparagraph (A)(i), by striking ``an
    applicable hospital (as defined in subparagraph (E))''
    and inserting ``a hospital that is an applicable
    hospital (as defined in subparagraph (E)) or is a high
    Medicaid facility described in subparagraph (F)'';

    [[Page 1050]]

    (B) in subparagraph (C)(iii), by inserting after
    ``date of enactment of this subsection'' the following:
    ``(or, in the case of a hospital that did not have a
    provider agreement in effect as of such date but does
    have such an agreement in effect on December 31, 2010,
    the effective date of such provider agreement)'';
    (C) by redesignating subparagraphs (F) through (H)
    as subparagraphs (G) through (I), respectively; and
    (D) by inserting after subparagraph (E) the
    following new subparagraph:
    ``(F) High medicaid facility described.--A high
    Medicaid facility described in this subparagraph is a
    hospital that--
    ``(i) is not the sole hospital in a county;
    ``(ii) with respect to each of the 3 most
    recent years for which data are available, has an
    annual percent of total inpatient admissions that
    represent inpatient admissions under title XIX
    that is estimated to be greater than such percent
    with respect to such admissions for any other
    hospital located in the county in which the
    hospital is located; and
    ``(iii) meets the conditions described in
    subparagraph (E)(iii).''.
    SEC. 1107. PAYMENT FOR IMAGING SERVICES.

    Section 1848 of the Social Security Act (42 U.S.C. 1395w-4), as
    amended by section 3135(a) of the Patient Protection and Affordable Care
    Act, is amended--
    (1) in subsection (b)(4)--
    (A) in subparagraph (B), by striking ``this
    paragraph'' and inserting ``subparagraph (A)''; and
    (B) by amending subparagraph (C) to read as follows:
    ``(C) Adjustment in imaging utilization rate.--With
    respect to fee schedules established for 2011 and
    subsequent years, in the methodology for determining
    practice expense relative value units for expensive
    diagnostic imaging equipment under the final rule
    published by the Secretary in the Federal Register on
    November 25, 2009 (42 CFR 410 et al.), the Secretary
    shall use a 75 percent assumption instead of the
    utilization rates otherwise established in such final
    rule.''; and
    (2) in subsection (c)(2)(B)(v), by striking subclauses
    (III), (IV), and (V) and inserting the following new subclause:
    ``(III) Change in utilization rate
    for certain imaging
    services. <> --
    Effective for fee schedules established
    beginning with 2011, reduced
    expenditures attributable to the change
    in the utilization rate applicable to
    2011, as described in subsection
    (b)(4)(C).''.
    SEC. 1108. <> PE GPCI ADJUSTMENT FOR
    2010.

    <> Effective as if included in the enactment
    of the Patient Protection and Affordable Care Act, section
    1848(e)(1)(H)(i) of the Social Security Act (42 U.S.C. 1395w-
    4(e)(1)(H)(i)), as added by section 3102(b)(2) of the Patient Protection
    and Affordable Care Act, is amended by striking ``\3/4\'' and inserting
    ``\1/2\''.

    [[Page 1051]]

    SEC. 1109. <> PAYMENT FOR QUALIFYING
    HOSPITALS.

    (a) In General.--From the amount available under subsection (b), the
    Secretary of Health and Human Services shall provide for a payment to
    qualifying hospitals (as defined in subsection (d)) for fiscal years
    2011 and 2012 of the amount determined under subsection (c).
    (b) Amounts Available.--There shall be available from the Federal
    Hospital Insurance Trust Fund $400,000,000 for payments under this
    section for fiscal years 2011 and 2012.
    (c) Payment Amount.--The amount of payment under this section for a
    qualifying hospital shall be determined, in a manner consistent with the
    amount available under subsection (b), in proportion to the portion of
    the amount of the aggregate payments under section 1886(d) of the Social
    Security Act to the hospital for fiscal year 2009 bears to the sum of
    all such payments to all qualifying hospitals for such fiscal year.
    (d) Qualifying Hospital Defined.--In this section, the term
    ``qualifying hospital'' means a subsection (d) hospital (as defined for
    purposes of section 1886(d) of the Social Security Act) that is located
    in a county that ranks, based upon its ranking in age, sex, and race
    adjusted spending for benefits under parts A and B under title XVIII of
    such Act per enrollee, within the lowest quartile of such counties in
    the United States.

    Subtitle C--Medicaid

    SEC. 1201. FEDERAL FUNDING FOR STATES.

    Section 1905 of the Social Security Act (42 U.S.C. 1396d), as
    amended by sections 2001(a)(3) and 10201(c) of the Patient Protection
    and Affordable Care Act, is amended--
    (1) in subsection (y)--
    (A) by redesignating subclause (II) of paragraph
    (1)(B)(ii) as paragraph (5) of subsection (z) and
    realigning the left margins accordingly; and
    (B) by striking paragraph (1) and inserting the
    following:
    ``(1) Amount of increase.--Notwithstanding subsection (b),
    the Federal medical assistance percentage for a State that is
    one of the 50 States or the District of Columbia, with respect
    to amounts expended by such State for medical assistance for
    newly eligible individuals described in subclause (VIII) of
    section 1902(a)(10)(A)(i), shall be equal to--
    ``(A) 100 percent for calendar quarters in 2014,
    2015, and 2016;
    ``(B) 95 percent for calendar quarters in 2017;
    ``(C) 94 percent for calendar quarters in 2018;
    ``(D) 93 percent for calendar quarters in 2019; and
    ``(E) 90 percent for calendar quarters in 2020 and
    each year thereafter.''; and
    (2) in subsection (z)--
    (A) in paragraph (1), by striking ``September 30,
    2019'' and inserting ``December 31, 2015'' and by
    striking ``subsection (y)(1)(B)(ii)(II)'' and inserting
    ``paragraph (3)'';
    (B) by striking paragraphs (2) through (4) and
    inserting the following:

    [[Page 1052]]

    ``(2)(A) For calendar quarters in 2014 and each year
    thereafter, the Federal medical assistance percentage otherwise
    determined under subsection (b) for an expansion State described
    in paragraph (3) with respect to medical assistance for
    individuals described in section 1902(a)(10)(A)(i)(VIII) who are
    nonpregnant childless adults with respect to whom the State may
    require enrollment in benchmark coverage under section 1937
    shall be equal to the percent specified in subparagraph (B)(i)
    for such year.
    ``(B)(i) The percent specified in this subparagraph for a
    State for a year is equal to the Federal medical assistance
    percentage (as defined in the first sentence of subsection (b))
    for the State increased by a number of percentage points equal
    to the transition percentage (specified in clause (ii) for the
    year) of the number of percentage points by which--
    ``(I) such Federal medical assistance percentage for
    the State, is less than
    ``(II) the percent specified in subsection (y)(1)
    for the year.
    ``(ii) The transition percentage specified in this clause
    for--
    ``(I) 2014 is 50 percent;
    ``(II) 2015 is 60 percent;
    ``(III) 2016 is 70 percent;
    ``(IV) 2017 is 80 percent;
    ``(V) 2018 is 90 percent; and
    ``(VI) 2019 and each subsequent year is 100
    percent.''; and
    (C) by redesignating paragraph (5) (as added by
    paragraph (1)(A) of this section) as paragraph (3),
    realigning the left margins to align with paragraph (2),
    and striking the heading and all that follows through
    ``a State is'' and inserting ``A State is''.
    SEC. 1202. PAYMENTS TO PRIMARY CARE PHYSICIANS.

    (a) In General.--
    (1) Fee-for-service payments.--Section 1902 of the Social
    Security Act (42 U.S.C. 1396a), as amended by section 2303(a)(2)
    of the Patient Protection and Affordable Care Act, is amended--
    (A) in subsection (a)(13)--
    (i) by striking ``and'' at the end of
    subparagraph (A);
    (ii) by adding ``and'' at the end of
    subparagraph (B); and
    (iii) by adding at the end the following new
    subparagraph:
    ``(C) payment for primary care services (as defined
    in subsection (jj)) furnished in 2013 and 2014 by a
    physician with a primary specialty designation of family
    medicine, general internal medicine, or pediatric
    medicine at a rate not less than 100 percent of the
    payment rate that applies to such services and physician
    under part B of title XVIII (or, if greater, the payment
    rate that would be applicable under such part if the
    conversion factor under section 1848(d) for the year
    involved were the conversion factor under such section
    for 2009);''; and
    (B) by adding at the end the following new
    subsection:

    [[Page 1053]]

    ``(jj) Primary Care Services Defined.--For purposes of subsection
    (a)(13)(C), the term `primary care services' means--
    ``(1) evaluation and management services that are procedure
    codes (for services covered under title XVIII) for services in
    the category designated Evaluation and Management in the
    Healthcare Common Procedure Coding System (established by the
    Secretary under section 1848(c)(5) as of December 31, 2009, and
    as subsequently modified); and
    ``(2) services related to immunization administration for
    vaccines and toxoids for which CPT codes 90465, 90466, 90467,
    90468, 90471, 90472, 90473, or 90474 (as subsequently modified)
    apply under such System.''.
    (2) Under medicaid managed care plans.--Section 1932(f) of
    such Act (42 U.S.C. 1396u-2(f)) is amended--
    (A) in the heading, by adding at the end the
    following: ``; Adequacy of Payment for Primary Care
    Services''; and
    (B) by inserting before the period at the end the
    following: ``and, in the case of primary care services
    described in section 1902(a)(13)(C), consistent with the
    minimum payment rates specified in such section
    (regardless of the manner in which such payments are
    made, including in the form of capitation or partial
    capitation)''.

    (b) Increase in Payment Using Increased FMAP.--Section 1905 of the
    Social Security Act, as amended by section 1004(b) of this Act and
    section 10201(c)(6) of the Patient Protection and Affordable Care Act,
    is amended by adding at the end the following new subsection:
    ``(dd) Increased FMAP for Additional Expenditures for Primary Care
    Services.--Notwithstanding subsection (b), with respect to the portion
    of the amounts expended for medical assistance for services described in
    section 1902(a)(13)(C) furnished on or after January 1, 2013, and before
    January 1, 2015, that is attributable to the amount by which the minimum
    payment rate required under such section (or, by application, section
    1932(f)) exceeds the payment rate applicable to such services under the
    State plan as of July 1, 2009, the Federal medical assistance percentage
    for a State that is one of the 50 States or the District of Columbia
    shall be equal to 100 percent. The preceding sentence does not prohibit
    the payment of Federal financial participation based on the Federal
    medical assistance percentage for amounts in excess of those specified
    in such sentence.''.
    SEC. 1203. DISPROPORTIONATE SHARE HOSPITAL PAYMENTS.

    (a) In General.--Section 1923(f) of the Social Security Act (42
    U.S.C. 1396r-4(f)), as amended by sections 2551(a)(4) and 10201(e)(1) of
    the Patient Protection and Affordable Care Act, is amended--
    (1) in paragraph (6)(B)(iii), in the matter preceding
    subclause (I), by striking ``or paragraph (7)''; and
    (2) by striking paragraph (7) and inserting the following:
    ``(7) Medicaid dsh reductions.--
    ``(A) Reductions.--
    ``(i) In general.--For each of fiscal years
    2014 through 2020 the Secretary shall effect the
    following reductions:

    [[Page 1054]]

    ``(I) Reduction in dsh allotments.--
    The Secretary shall reduce DSH
    allotments to States in the amount
    specified under the DSH health reform
    methodology under subparagraph (B) for
    the State for the fiscal year.
    ``(II) Reductions in payments.--The
    Secretary shall reduce payments to
    States under section 1903(a) for each
    calendar quarter in the fiscal year, in
    the manner specified in clause (iii), in
    an amount equal to \1/4\ of the DSH
    allotment reduction under subclause (I)
    for the State for the fiscal year.
    ``(ii) Aggregate reductions.--The aggregate
    reductions in DSH allotments for all States under
    clause (i)(I) shall be equal to--
    ``(I) $500,000,000 for fiscal year
    2014;
    ``(II) $600,000,000 for fiscal year
    2015;
    ``(III) $600,000,000 for fiscal year
    2016;
    ``(IV) $1,800,000,000 for fiscal
    year 2017;
    ``(V) $5,000,000,000 for fiscal year
    2018;
    ``(VI) $5,600,000,000 for fiscal
    year 2019; and
    ``(VII) $4,000,000,000 for fiscal
    year 2020.
    The Secretary shall distribute such aggregate
    reductions among States in accordance with
    subparagraph (B).
    ``(iii) Manner of payment reduction.--The
    amount of the payment reduction under clause
    (i)(II) for a State for a quarter shall be deemed
    an overpayment to the State under this title to be
    disallowed against the State's regular quarterly
    draw for all spending under section 1903(d)(2).
    Such a disallowance is not subject to a
    reconsideration under subsections (d) and (e) of
    section 1116.
    ``(iv) Definition.--In this paragraph, the
    term `State' means the 50 States and the District
    of Columbia.
    ``(B) DSH health reform methodology.--The Secretary
    shall carry out subparagraph (A) through use of a DSH
    Health Reform methodology that meets the following
    requirements:
    ``(i) The methodology imposes the largest
    percentage reductions on the States that--
    ``(I) have the lowest percentages of
    uninsured individuals (determined on the
    basis of data from the Bureau of the
    Census, audited hospital cost reports,
    and other information likely to yield
    accurate data) during the most recent
    year for which such data are available;
    or
    ``(II) do not target their DSH
    payments on--
    ``(aa) hospitals with high
    volumes of Medicaid inpatients
    (as defined in subsection
    (b)(1)(A)); and
    ``(bb) hospitals that have
    high levels of uncompensated
    care (excluding bad debt).
    ``(ii) The methodology imposes a smaller
    percentage reduction on low DSH States described
    in paragraph (5)(B).

    [[Page 1055]]

    ``(iii) The methodology takes into account the
    extent to which the DSH allotment for a State was
    included in the budget neutrality calculation for
    a coverage expansion approved under section 1115
    as of July 31, 2009.''.

    (b) Extension of DSH Allotment.--Section 1923(f)(6)(A) of the Social
    Security Act (42 U.S.C. 1396r-4(f)(6)(A)) is amended by adding at the
    end the following:
    ``(v) Allotment for 2d, 3rd, and 4th quarters
    of fiscal year 2012 and for fiscal year 2013.--
    Notwithstanding the table set forth in paragraph
    (2):
    ``(I) 2d, 3rd, and 4th quarters of
    fiscal year 2012.--In the case of a
    State that has a DSH allotment of $0 for
    the 2d, 3rd, and 4th quarters of fiscal
    year 2012, the DSH allotment shall be
    $47,200,000 for such quarters.
    ``(II) Fiscal year 2013.--In the
    case of a State that has a DSH allotment
    of $0 for fiscal year 2013, the DSH
    allotment shall be $53,100,000 for such
    fiscal year.''.
    SEC. 1204. FUNDING FOR THE TERRITORIES.

    (a) In General.--Part III of subtitle D of title I of the Patient
    Protection and Affordable Care Act, as amended by section 10104(m) of
    such Act, is amended by inserting after section 1322 the following
    section:
    ``SEC. 1323. <> FUNDING FOR THE TERRITORIES.

    ``(a) In General.--A territory that--
    ``(1) elects consistent with subsection (b) to establish an
    Exchange in accordance with part II of this subtitle and
    establishes such an Exchange in accordance with such part shall
    be treated as a State for purposes of such part and shall be
    entitled to payment from the amount allocated to the territory
    under subsection (c); or
    ``(2) does not make such election shall be entitled to an
    increase in the dollar limitation applicable to the territory
    under subsections (f) and (g) of section 1108 of the Social
    Security Act (42 U.S.C. 1308) for such period in such amount for
    such territory and such increase shall not be taken into account
    in computing any other amount under such subsections.

    ``(b) Terms and Conditions.--An election under subsection (a)(1)
    shall--
    ``(1) <> not be effective unless the
    election is consistent with section 1321 and is received not
    later than October 1, 2013; and
    ``(2) <> be contingent upon entering into
    an agreement between the territory and the Secretary that
    requires that--
    ``(A) funds provided under the agreement shall be
    used only to provide premium and cost-sharing assistance
    to residents of the territory obtaining health insurance
    coverage through the Exchange; and
    ``(B) the premium and cost-sharing assistance
    provided under such agreement shall be structured in
    such a manner so as to prevent any gap in assistance for
    individuals between the income level at which medical
    assistance is available through the territory's Medicaid
    plan under title XIX of the Social Security Act and the
    income level at

    [[Page 1056]]

    which premium and cost-sharing assistance is available
    under the agreement.

    ``(c) Appropriation and Allocation.--
    ``(1) <> Appropriation.--Out of any
    funds in the Treasury not otherwise appropriated, there is
    appropriated for purposes of payment pursuant to subsection (a)
    $1,000,000,000, to be available during the period beginning with
    2014 and ending with 2019.
    ``(2) Allocation.--The Secretary shall allocate the amount
    appropriated under paragraph (1) among the territories for
    purposes of carrying out this section as follows:
    ``(A) For Puerto Rico, $925,000,000.
    ``(B) For another territory, the portion of
    $75,000,000 specified by the Secretary.''.

    (b) Medicaid Funding.--
    (1) Increase in funding caps.--Section 1108(g) of the Social
    Security Act (42 U.S.C. 1308(g)), as amended by section 2005(a)
    of the Patient Protection and Affordable Care Act, is amended--
    (A) in paragraph (2), by inserting ``and section
    1323(a)(2) of the Patient Protection and Affordable Care
    Act'' after ``subject to''; and
    (B) by striking paragraph (5) and inserting the
    following:
    ``(5) Additional increase.-- <> The
    Secretary shall increase the amounts otherwise determined under
    this subsection for Puerto Rico, the Virgin Islands, Guam, the
    Northern Mariana Islands, and American Samoa (after the
    application of subsection (f) and the preceding paragraphs of
    this subsection) for the period beginning July 1, 2011, and
    ending on September 30, 2019, by such amounts that the total
    additional payments under title XIX to such territories equals
    $6,300,000,000 for such period. The Secretary shall increase
    such amounts in proportion to the amounts applicable to such
    territories under this subsection and subsection (f) on the date
    of enactment of this paragraph.''.
    (2) Disregard of payments; increased fmap.--Section 2005 of
    the Patient Protection and Affordable Care Act <> is amended--
    (A) <> by repealing subsection
    (b) (and the amendments made by that subsection) and
    section 1108(g)(4) of the Social Security Act shall be
    applied as if such amendments had never been enacted;
    and
    (B) in subsection (c)(2), by striking ``January''
    and inserting ``July''.
    SEC. 1205. DELAY IN COMMUNITY FIRST CHOICE OPTION.

    Section 1915(k)(1) of the Social Security Act (42 U.S.C. 1396n(k)),
    as added by section 2401 of the Patient Protection and Affordable Care
    Act, is amended by striking ``October 1, 2010'' and inserting ``October
    1, 2011''.
    SEC. 1206. DRUG REBATES FOR NEW FORMULATIONS OF EXISTING DRUGS.

    (a) Treatment of New Formulations.--Subparagraph (C) of section
    1927(c)(2) of the Social Security Act (42 U.S.C. 1396r-8(c)(2)), as
    added by section 2501(d) of the Patient Protection and Affordable Care
    Act, is amended to read as follows:

    [[Page 1057]]

    ``(C) Treatment of new formulations.--In the case of
    a drug that is a line extension of a single source drug
    or an innovator multiple source drug that is an oral
    solid dosage form, the rebate obligation with respect to
    such drug under this section shall be the amount
    computed under this section for such new drug or, if
    greater, the product of--
    ``(i) the average manufacturer price of the
    line extension of a single source drug or an
    innovator multiple source drug that is an oral
    solid dosage form;
    ``(ii) the highest additional rebate
    (calculated as a percentage of average
    manufacturer price) under this section for any
    strength of the original single source drug or
    innovator multiple source drug; and
    ``(iii) the total number of units of each
    dosage form and strength of the line extension
    product paid for under the State plan in the
    rebate period (as reported by the State).
    <> In this subparagraph, the term
    `line extension' means, with respect to a drug, a new
    formulation of the drug, such as an extended release
    formulation.''.

    (b) <> Effective Date.--The amendment
    made by subsection (a) shall take effect as if included in the enactment
    of the Patient Protection and Affordable Care Act.

    Subtitle D--Reducing Fraud, Waste, and Abuse

    SEC. 1301. COMMUNITY MENTAL HEALTH CENTERS.

    (a) In General.--Section 1861(ff)(3)(B) of the Social Security Act
    (42 U.S.C. 1395x(ff)(3)(B)) is amended--
    (1) in clause (ii), by striking ``and'' at the end;
    (2) by redesignating clause (iii) as clause (iv); and
    (3) by inserting after clause (ii) the following:
    ``(iii) provides at least 40 percent of its services to
    individuals who are not eligible for benefits under this title;
    and''.

    (b) Restriction.--Section 1861(ff)(3)(A) of such Act (42 U.S.C.
    1395x(ff)(3)(A)) is amended by inserting ``other than in an individual's
    home or in an inpatient or residential setting'' before the period.
    (c) <> Effective Date.--The
    amendments made by this section shall apply to items and services
    furnished on or after the first day of the first calendar quarter that
    begins at least 12 months after the date of the enactment of this Act.
    SEC. 1302. MEDICARE PREPAYMENT MEDICAL REVIEW LIMITATIONS.

    Section 1874A(h) of the Social Security Act <> (42 U.S.C. 1395w-3a(h)) is repealed.
    SEC. 1303. FUNDING TO FIGHT FRAUD, WASTE, AND ABUSE.

    (a) Funding to Fight Fraud, Waste, and Abuse.--
    (1) In general.--Section 1817(k) of the Social Security Act
    42 U.S.C. 1395i(k)), as amended by section 6402(i) of the
    Patient Protection and Affordable Care Act, is further amended--
    (A) by adding at the end the following new
    paragraph:

    [[Page 1058]]

    ``(8) Additional funding.--
    ``(A) In general.--In addition to the funds
    otherwise appropriated to the Account from the Trust
    Fund under paragraphs (3)(C) and (4)(A) and for purposes
    described in paragraphs (3)(C) and (4)(A), there are
    hereby appropriated to such Account from such Trust Fund
    the following additional amounts:
    ``(i) For fiscal year 2011, $95,000,000.
    ``(ii) For fiscal year 2012, $55,000,000.
    ``(iii) For each of fiscal years 2013 and
    2014, $30,000,000.
    ``(iv) For each of fiscal years 2015 and 2016,
    $20,000,000.
    ``(B) Allocation.--The funds appropriated under this
    paragraph shall be allocated in the same proportion as
    the total funding appropriated with respect to
    paragraphs (3)(A) and (4)(A) was allocated with respect
    to fiscal year 2010, and shall be available without
    further appropriation until expended.''; and
    (B) in paragraph (4)(A), by inserting ``for
    activities described in paragraph (3)(C) and'' after
    ``necessary''.

    (b) Medicaid Integrity Program.--Section 1936(e)(1) of such Act (42
    U.S.C. 1396-u6(e)(1)) <> is amended--
    (1) in subparagraph (B), by striking at the end ``and'';
    (2) in subparagraph (C)--
    (A) by striking ``for each fiscal year thereafter''
    and inserting ``for each of fiscal years 2009 and
    2010''; and
    (B) by striking the period and inserting ``; and'';
    and
    (3) by adding at the end the following new subparagraph:
    ``(D) for each fiscal year after fiscal year 2010,
    the amount appropriated under this paragraph for the
    previous fiscal year, increased by the percentage
    increase in the consumer price index for all urban
    consumers (all items; United States city average) over
    the previous year.''.
    SEC. 1304. 90-DAY PERIOD OF ENHANCED OVERSIGHT FOR INITIAL CLAIMS
    OF DME SUPPLIERS.

    Section 1866(j), as amended by section 6401 of the Patient
    Protection and Affordable Care Act, <> is further
    amended--
    (1) by redesignating paragraphs (4) through (7) as
    paragraphs (5) through (8), respectively; and
    (2) by inserting after paragraph (3) the following new
    paragraph:
    ``(4) 90-day period of enhanced oversight for initial claims
    of dme suppliers. <> --For periods
    beginning after January 1, 2011, if the Secretary determines
    that there is a significant risk of fraudulent activity among
    suppliers of durable medical equipment, in the case of a
    supplier of durable medical equipment who is within a category
    or geographic area under title XVIII identified pursuant to such
    determination and who is initially enrolling under such title,
    the Secretary shall, notwithstanding sections 1816(c), 1842(c),
    and 1869(a)(2), withhold payment under such title with respect
    to durable medical equipment furnished by such supplier during
    the 90-day period beginning on the date of the first submission
    of a claim under such title for durable medical equipment
    furnished by such supplier.''.

    [[Page 1059]]

    Subtitle E--Provisions Relating to Revenue

    SEC. 1401. HIGH-COST PLAN EXCISE TAX.

    (a) In General.--Section 4980I of the Internal Revenue Code of 1986,
    as added by section 9001 of the Patient Protection and Affordable Care
    Act and amended by section 10901 of such Act, is <>  amended--
    (1) in subsection (b)(3)(B)--
    (A) by striking ``The annual'' and inserting the
    following:
    ``(i) In general.--Except as provided in
    clause (ii), the annual''; and
    (B) by adding at the end the following new clause:
    ``(ii) Multiemployer plan coverage.--Any
    coverage provided under a multiemployer plan (as
    defined in section 414(f)) shall be treated as
    coverage other than self-only coverage.'';
    (2) in subsection (b)(3)(C)--
    (A) by striking ``Except as provided in subparagraph
    (D)--'';
    (B) in clause (i)--
    (i) by striking ``2013'' each place it appears
    in the heading and the text and inserting
    ``2018'';
    (ii) by striking ``$8,500'' in subclause (I)
    and inserting ``$10,200 multiplied by the health
    cost adjustment percentage (determined by only
    taking into account self-only coverage)''; and
    (iii) by striking ``$23,000'' in subclause
    (II) and inserting ``$27,500 multiplied by the
    health cost adjustment percentage (determined by
    only taking into account coverage other than self-
    only coverage)'';
    (C) by redesignating clauses (ii) and (iii) as
    clauses (iv) and (v), respectively, and by inserting
    after clause (i) the following new clauses:
    ``(ii) Health cost adjustment percentage.--For
    purposes of clause (i), the health cost adjustment
    percentage is equal to 100 percent plus the excess
    (if any) of--
    ``(I) the percentage by which the
    per employee cost for providing coverage
    under the Blue Cross/Blue Shield
    standard benefit option under the
    Federal Employees Health Benefits Plan
    for plan year 2018 (determined by using
    the benefit package for such coverage in
    2010) exceeds such cost for plan year
    2010, over
    ``(II) 55 percent.
    ``(iii) Age and gender adjustment.--
    ``(I) In general.--The amount
    determined under subclause (I) or (II)
    of clause (i), whichever is applicable,
    for any taxable period shall be
    increased by the amount determined under
    subclause (II).
    ``(II) Amount determined.--The
    amount determined under this subclause
    is an amount equal to the excess (if
    any) of--

    [[Page 1060]]

    ``(aa) the premium cost of
    the Blue Cross/Blue Shield
    standard benefit option under
    the Federal Employees Health
    Benefits Plan for the type of
    coverage provided such
    individual in such taxable
    period if priced for the age and
    gender characteristics of all
    employees of the individual's
    employer, over
    ``(bb) that premium cost for
    the provision of such coverage
    under such option in such
    taxable period if priced for the
    age and gender characteristics
    of the national workforce.''.
    (D) in clause (iv), as redesignated by subparagraph
    (C)--
    (i) by inserting ``covered by the plan'' after
    ``whose employees''; and
    (ii) by striking subclauses (I) and (II) and
    inserting the following:
    ``(I) the dollar amount in clause
    (i)(I) shall be increased by $1,650, and
    ``(II) the dollar amount in clause
    (i)(II) shall be increased by $3,450,'',
    and
    (E) in clause (v), as redesignated by subparagraph
    (C)--
    (i) by striking ``2013'' and inserting
    ``2018'';
    (ii) by striking ``clauses (i) and (ii)'' and
    inserting ``clauses (i) (after the application of
    clause (ii)) and (iv)''; and
    (iii) by inserting ``in the case of
    determinations for calendar years beginning before
    2020'' after ``1 percentage point'' in subclause
    (II) thereof;
    (3) by striking subparagraph (D) of subsection (b)(3);
    (4) in subsection (d)(1)(B), by redesignating clause (ii) as
    clause (iii) and by inserting after clause (i) the following new
    clause:
    ``(ii) any coverage under a separate policy,
    certificate, or contract of insurance which
    provides benefits substantially all of which are
    for treatment of the mouth (including any organ or
    structure within the mouth) or for treatment of
    the eye, or''; and
    (5) in subsection (d), by adding at the end the following
    new paragraph:
    ``(3) Employee.--The term `employee' includes any former
    employee, surviving spouse, or other primary insured
    individual.''.

    (b) Effective Dates.--
    (1) Section 9001(c) of the Patient Protection and Affordable
    Care Act <> is amended by striking ``2012''
    and inserting ``2017''.
    (2) Section 10901(c) of the Patient Protection and
    Affordable Care Act is <> amended by
    striking ``2012'' and inserting ``2017''.
    SEC. 1402. UNEARNED INCOME MEDICARE CONTRIBUTION.

    (a) Investment Income.--
    (1) In general.--Subtitle A of the Internal Revenue Code of
    1986 is amended by inserting after chapter 2 the following new
    chapter:

    [[Page 1061]]

    ``CHAPTER 2A--UNEARNED INCOME MEDICARE CONTRIBUTION

    ``Sec. 1411. Imposition of tax.

    ``SEC. 1411. <> IMPOSITION OF
    TAX.

    ``(a) In General.--Except as provided in subsection (e)--
    ``(1) Application to individuals.--In the case of an
    individual, there is hereby imposed (in addition to any other
    tax imposed by this subtitle) for each taxable year a tax equal
    to 3.8 percent of the lesser of--
    ``(A) net investment income for such taxable year,
    or
    ``(B) the excess (if any) of--
    ``(i) the modified adjusted gross income for
    such taxable year, over
    ``(ii) the threshold amount.
    ``(2) Application to estates and trusts.--In the case of an
    estate or trust, there is hereby imposed (in addition to any
    other tax imposed by this subtitle) for each taxable year a tax
    of 3.8 percent of the lesser of--
    ``(A) the undistributed net investment income for
    such taxable year, or
    ``(B) the excess (if any) of--
    ``(i) the adjusted gross income (as defined in
    section 67(e)) for such taxable year, over
    ``(ii) the dollar amount at which the highest
    tax bracket in section 1(e) begins for such
    taxable year.

    ``(b) Threshold Amount.--For purposes of this chapter, the term
    `threshold amount' means--
    ``(1) in the case of a taxpayer making a joint return under
    section 6013 or a surviving spouse (as defined in section 2(a)),
    $250,000,
    ``(2) in the case of a married taxpayer (as defined in
    section 7703) filing a separate return, \1/2\ of the dollar
    amount determined under paragraph (1), and
    ``(3) in any other case, $200,000.

    ``(c) Net Investment Income.--For purposes of this chapter--
    ``(1) In general.--The term `net investment income' means
    the excess (if any) of--
    ``(A) the sum of--
    ``(i) gross income from interest, dividends,
    annuities, royalties, and rents, other than such
    income which is derived in the ordinary course of
    a trade or business not described in paragraph
    (2),
    ``(ii) other gross income derived from a trade
    or business described in paragraph (2), and
    ``(iii) net gain (to the extent taken into
    account in computing taxable income) attributable
    to the disposition of property other than property
    held in a trade or business not described in
    paragraph (2), over
    ``(B) the deductions allowed by this subtitle which
    are properly allocable to such gross income or net gain.
    ``(2) Trades and businesses to which tax applies.--A trade
    or business is described in this paragraph if such trade or
    business is--
    ``(A) a passive activity (within the meaning of
    section 469) with respect to the taxpayer, or

    [[Page 1062]]

    ``(B) a trade or business of trading in financial
    instruments or commodities (as defined in section
    475(e)(2)).
    ``(3) Income on investment of working capital subject to
    tax.-- <> A rule similar to the rule of
    section 469(e)(1)(B) shall apply for purposes of this
    subsection.
    ``(4) Exception for certain active interests in partnerships
    and s corporations.--In the case of a disposition of an interest
    in a partnership or S corporation--
    ``(A) gain from such disposition shall be taken into
    account under clause (iii) of paragraph (1)(A) only to
    the extent of the net gain which would be so taken into
    account by the transferor if all property of the
    partnership or S corporation were sold for fair market
    value immediately before the disposition of such
    interest, and
    ``(B) <> a rule similar to the
    rule of subparagraph (A) shall apply to a loss from such
    disposition.
    ``(5) Exception for distributions from qualified plans.--The
    term `net investment income' shall not include any distribution
    from a plan or arrangement described in section 401(a), 403(a),
    403(b), 408, 408A, or 457(b).
    ``(6) Special rule.--Net investment income shall not include
    any item taken into account in determining self-employment
    income for such taxable year on which a tax is imposed by
    section 1401(b).

    ``(d) Modified Adjusted Gross Income.--For purposes of this chapter,
    the term `modified adjusted gross income' means adjusted gross income
    increased by the excess of--
    ``(1) the amount excluded from gross income under section
    911(a)(1), over
    ``(2) the amount of any deductions (taken into account in
    computing adjusted gross income) or exclusions disallowed under
    section 911(d)(6) with respect to the amounts described in
    paragraph (1).

    ``(e) Nonapplication of Section.--This section shall not apply to--
    ``(1) a nonresident alien, or
    ``(2) a trust all of the unexpired interests in which are
    devoted to one or more of the purposes described in section
    170(c)(2)(B).''.
    (2) Estimated taxes.--Section 6654 of the Internal Revenue
    Code of 1986 <> is amended--
    (A) in subsection (a), by striking ``and the tax
    under chapter 2'' and inserting ``the tax under chapter
    2, and the tax under chapter 2A''; and
    (B) in subsection (f)--
    (i) by striking ``minus'' at the end of
    paragraph (2) and inserting ``plus''; and
    (ii) by redesignating paragraph (3) as
    paragraph (4) and inserting after paragraph (2)
    the following new paragraph:
    ``(3) the taxes imposed by chapter 2A, minus''.
    (3) Clerical amendment.--The table of chapters for subtitle
    A of chapter 1 of the Internal Revenue Code of 1986 is amended
    by inserting after the item relating to chapter 2 the following
    new item:

    [[Page 1063]]

    ``Chapter 2A--Unearned Income Medicare Contribution''.

    (4) <> Effective dates.--The
    amendments made by this subsection shall apply to taxable years
    beginning after December 31, 2012.

    (b) Earned Income.--
    (1) Threshold.--
    (A) FICA.--Paragraph (2) of section 3101(b) of the
    Internal Revenue Code of 1986, as added by section 9015
    of the Patient Protection and Affordable Care Act and
    amended by section 10906 of such Act, <> is amended by striking ``and'' at the end of
    subparagraph (A), by redesignating subparagraph (B) as
    subparagraph (C), and by inserting after subparagraph
    (A) the following new subparagraph:
    ``(B) in the case of a married taxpayer (as defined
    in section 7703) filing a separate return, \1/2\ of the
    dollar amount determined under subparagraph (A), and''.
    (B) SECA.--Section 1401(b)(2) of the Internal
    Revenue Code of 1986, as added by section 9015 of the
    Patient Protection and Affordable Care Act and amended
    by section 10906 of such Act, <> is
    amended--
    (i) in subparagraph (A), by striking ``and''
    at the end of clause (i), by redesignating clause
    (ii) as clause (iii), and by inserting after
    clause (i) the following new clause:
    ``(ii) in the case of a married taxpayer (as
    defined in section 7703) filing a separate return,
    \1/2\ of the dollar amount determined under clause
    (i), and''; and
    (ii) in subparagraph (B), by striking ``under
    clauses (i) and (ii)'' and inserting ``under
    clause (i), (ii), or (iii) (whichever is
    applicable)''.
    (2) Estimated taxes.--Section 6654 of the Internal Revenue
    Code of 1986 <> is amended by redesignating
    subsection (m) as subsection (n) and by inserting after
    subsection (l) the following new subsection:

    ``(m) Special Rule for Medicare Tax.--For purposes of this section,
    the tax imposed under section 3101(b)(2) (to the extent not withheld)
    shall be treated as a tax imposed under chapter 2.''.
    (3) <> Effective
    date.--The amendments made by this subsection shall apply with
    respect to remuneration received, and taxable years beginning
    after, December 31, 2012.
    SEC. 1403. DELAY OF LIMITATION ON HEALTH FLEXIBLE SPENDING
    ARRANGEMENTS UNDER CAFETERIA PLANS.

    (a) In General.--Section 10902(b) of the Patient Protection and
    Affordable Care Act <> is amended by striking
    ``December 31, 2010'' and inserting ``December 31, 2012''.

    (b) Inflation Adjustment.--Paragraph (2) of section 125(i) of the
    Internal Revenue Code of 1986, as added by section 9005 of the Patient
    Protection and Affordable Care Act and amended by section 10902 of such
    Act, <> is amended--
    (1) in the matter preceding subparagraph (A), by striking
    ``December 31, 2011'' and inserting ``December 31, 2013''; and
    (2) in subparagraph (B), by striking ``2010'' and inserting
    ``2012''.

    [[Page 1064]]

    SEC. 1404. BRAND NAME PHARMACEUTICALS.

    (a) In General.--Section 9008 of the Patient Protection and
    Affordable Care <> Act is amended--
    (1) in subsection (a)(1), by striking ``2009'' and inserting
    ``2010'';
    (2) in subsection (b)--
    (A) by striking ``$2,300,000,000'' in paragraph (1)
    and inserting ``the applicable amount''; and
    (B) by adding at the end the following new
    paragraph:
    ``(4) Applicable amount.--For purposes of paragraph (1), the
    applicable amount shall be determined in accordance with the
    following table:

    ``Calendar year                          Applicable amount
    2011.................................  $2,500,000,000
    2012.................................  $2,800,000,000
    2013.................................  $2,800,000,000
    2014.................................  $3,000,000,000
    2015.................................  $3,000,000,000
    2016.................................  $3,000,000,000
    2017.................................  $4,000,000,000
    2018.................................  $4,100,000,000
    2019 and thereafter..................  $2,800,000,000.'';

    (3) in subsection (d), by adding at the end the following
    new paragraph:
    ``(3) Joint and several liability.--If more than one person
    is liable for payment of the fee under subsection (a) with
    respect to a single covered entity by reason of the application
    of paragraph (2), all such persons shall be jointly and
    severally liable for payment of such fee.''; and
    (4) by striking subsection (j) and inserting the following
    new subsection:

    ``(j) Effective Date.--This section shall apply to calendar years
    beginning after December 31, 2010.''.
    (b) <> Effective Date.--The amendments
    made by this section shall take effect as if included in section 9008 of
    the Patient Protection and Affordable Care Act.
    SEC. 1405. EXCISE TAX ON MEDICAL DEVICE MANUFACTURERS.

    (a) In General.--Chapter 32 of the Internal Revenue Code of 1986 is
    amended--
    (1) by inserting after subchapter D the following new
    subchapter:

    ``Subchapter E--Medical Devices

    ``Sec. 4191. <> Medical devices.

    ``SEC. 4191. MEDICAL DEVICES.

    ``(a) In General.--There is hereby imposed on the sale of any
    taxable medical device by the manufacturer, producer, or importer a tax
    equal to 2.3 percent of the price for which so sold.
    ``(b) Taxable Medical Device.--For purposes of this section--
    ``(1) In general.-- <> The term `taxable
    medical device' means any device (as defined in section 201(h)
    of the Federal Food, Drug, and Cosmetic Act) intended for
    humans.
    ``(2) Exemptions.--Such term shall not include--

    [[Page 1065]]

    ``(A) eyeglasses,
    ``(B) contact lenses,
    ``(C) hearing aids, and
    ``(D) any other medical device determined by the
    Secretary to be of a type which is generally purchased
    by the general public at retail for individual use.'',
    and
    (2) by inserting after the item relating to subchapter D in
    the table of subchapters for such chapter the following new
    item:

    ``subchapter e. medical devices''.

    (b) Certain Exemptions Not to Apply.--
    (1) Section 4221(a) of the Internal Revenue Code of 1986
    is <> amended by adding at the end the
    following new sentence: ``In the case of the tax imposed by
    section 4191, paragraphs (3), (4), (5), and (6) shall not
    apply.''.
    (2) Section 6416(b)(2) of such Code <> is amended by adding at the end the following: ``In the
    case of the tax imposed by section 4191, subparagraphs (B), (C),
    (D), and (E) shall not apply.''.

    (c) <> Effective Date.--The amendments made
    by this section shall apply to sales after December 31, 2012.

    (d) Repeal of Section 9009 of the Patient Protection and Affordable
    Care Act.-- <> Section 9009 of the Patient
    Protection and Affordable Care Act, as amended by section 10904 of such
    Act, <> is repealed effective as of the date
    of enactment of that Act.
    SEC. 1406. HEALTH INSURANCE PROVIDERS.

    (a) In General.--Section 9010 of the Patient Protection and
    Affordable Care Act, as amended by section 10905 of such Act,
    is <> amended--
    (1) in subsection (a)(1), by striking ``2010'' and inserting
    ``2013'';
    (2) in subsection (b)(2)--
    (A) by striking ``For purposes of paragraph (1), the
    net premiums'' and inserting ``For purposes of paragraph
    (1)--
    ``(A) In general.--The net premiums''; and
    (B) by adding at the end the following subparagraph:
    ``(B) Partial exclusion for certain exempt
    activities.--After the application of subparagraph (A),
    only 50 percent of the remaining net premiums written
    with respect to health insurance for any United States
    health risk that are attributable to the activities
    (other than activities of an unrelated trade or business
    as defined in section 513 of the Internal Revenue Code
    of 1986) of any covered entity qualifying under
    paragraph (3), (4), (26), or (29) of section 501(c) of
    such Code and exempt from tax under section 501(a) of
    such Code shall be taken into account.'';
    (3) in subsection (c)--
    (A) by inserting ``during the calendar year in which
    the fee under this section is due'' in paragraph (1)
    after ``risk'';
    (B) in paragraph (2), by striking subparagraphs (C),
    (D), and (E) and inserting the following new
    subparagraphs:
    ``(C) any entity--

    [[Page 1066]]

    ``(i) which is incorporated as a nonprofit
    corporation under a State law,
    ``(ii) no part of the net earnings of which
    inures to the benefit of any private shareholder
    or individual, no substantial part of the
    activities of which is carrying on propaganda, or
    otherwise attempting, to influence legislation
    (except as otherwise provided in section 501(h) of
    the Internal Revenue Code of 1986), and which does
    not participate in, or intervene in (including the
    publishing or distributing of statements), any
    political campaign on behalf of (or in opposition
    to) any candidate for public office, and
    ``(iii) more than 80 percent of the gross
    revenues of which is received from government
    programs that target low-income, elderly, or
    disabled populations under titles XVIII, XIX, and
    XXI of the Social Security Act, and
    ``(D) any entity which is described in section
    501(c)(9) of such Code and which is established by an
    entity (other than by an employer or employers) for
    purposes of providing health care benefits.'';
    (C) in paragraph (3)(A), by striking ``subparagraph
    (C)(i)(I), (D)(i)(I), or (E)(i)'' and inserting
    ``subparagraph (C) or (D)''; and
    (D) by adding at the end the following new
    paragraph:
    ``(4) Joint and several liability.--If more than one person
    is liable for payment of the fee under subsection (a) with
    respect to a single covered entity by reason of the application
    of paragraph (3), all such persons shall be jointly and
    severally liable for payment of such fee.'';
    (4) by striking subsection (e) and inserting the following:

    ``(e) Applicable Amount.--For purposes of subsection (b)(1)--
    ``(1) Years before 2019.-- <> In the
    case of calendar years beginning before 2019, the applicable
    amount shall be determined in accordance with the following
    table:

    ``Calendar year                          Applicable amount
    2014.................................  $8,000,000,000
    2015.................................  $11,300,000,000
    2016.................................  $11,300,000,000
    2017.................................  $13,900,000,000
    2018.................................  $14,300,000,000.

    ``(2) Years after 2018.--In the case of any calendar year
    beginning after 2018, the applicable amount shall be the
    applicable amount for the preceding calendar year increased by
    the rate of premium growth (within the meaning of section
    36B(b)(3)(A)(ii) of the Internal Revenue Code of 1986) for such
    preceding calendar year.'';
    (5) in subsection (g), by adding at the end the following
    new paragraphs:
    ``(3) Accuracy-related penalty.--
    ``(A) In general.--In the case of any understatement
    of a covered entity's net premiums written with respect
    to health insurance for any United States health risk
    for any calendar year, there shall be paid by the
    covered entity making such understatement, an amount
    equal to the excess of--

    [[Page 1067]]

    ``(i) the amount of the covered entity's fee
    under this section for the calendar year the
    Secretary determines should have been paid in the
    absence of any such understatement, over
    ``(ii) the amount of such fee the Secretary
    determined based on such understatement.
    ``(B) Understatement.--For purposes of this
    paragraph, an understatement of a covered entity's net
    premiums written with respect to health insurance for
    any United States health risk for any calendar year is
    the difference between the amount of such net premiums
    written as reported on the return filed by the covered
    entity under paragraph (1) and the amount of such net
    premiums written that should have been reported on such
    return.
    ``(C) Treatment of penalty.--The penalty imposed
    under subparagraph (A) shall be subject to the
    provisions of subtitle F of the Internal Revenue Code of
    1986 that apply to assessable penalties imposed under
    chapter 68 of such Code.
    ``(4) Treatment of information.--Section 6103 of the
    Internal Revenue Code of 1986 shall not apply to any information
    reported under this subsection.''; and
    (6) by striking subsection (j) and inserting the following
    new subsection:

    ``(j) Effective Date.--This section shall apply to calendar years
    beginning after December 31, 2013.''.
    (b) <> Effective Date.--The amendments
    made by this section shall take effect as if included in section 9010 of
    the Patient Protection and Affordable Care Act.
    SEC. 1407. DELAY OF ELIMINATION OF DEDUCTION FOR EXPENSES
    ALLOCABLE TO MEDICARE PART D SUBSIDY.

    Section 9012(b) of the Patient Protection and Affordable Care
    Act <> is amended by striking ``2010'' and
    inserting ``2012''.
    SEC. 1408. ELIMINATION OF UNINTENDED APPLICATION OF CELLULOSIC
    BIOFUEL PRODUCER CREDIT.

    (a) In General.--Section 40(b)(6)(E) of the Internal Revenue Code of
    1986 <> is amended by adding at the end the following
    new clause:
    ``(iii) Exclusion of unprocessed fuels.--The
    term `cellulosic biofuel' shall not include any
    fuel if--
    ``(I) more than 4 percent of such
    fuel (determined by weight) is any
    combination of water and sediment, or
    ``(II) the ash content of such fuel
    is more than 1 percent (determined by
    weight).''.

    (b) <> Effective Date.--The amendment made by
    this section shall apply to fuels sold or used on or after January 1,
    2010.
    SEC. 1409. CODIFICATION OF ECONOMIC SUBSTANCE DOCTRINE AND
    PENALTIES.

    (a) In General.-- <> Section 7701 of the
    Internal Revenue Code of 1986 is amended by redesignating subsection (o)
    as subsection (p) and by inserting after subsection (n) the following
    new subsection:

    ``(o) Clarification of Economic Substance Doctrine.--

    [[Page 1068]]

    ``(1) Application of doctrine.--In the case of any
    transaction to which the economic substance doctrine is
    relevant, such transaction shall be treated as having economic
    substance only if--
    ``(A) the transaction changes in a meaningful way
    (apart from Federal income tax effects) the taxpayer's
    economic position, and
    ``(B) the taxpayer has a substantial purpose (apart
    from Federal income tax effects) for entering into such
    transaction.
    ``(2) Special rule where taxpayer relies on profit
    potential.--
    ``(A) In general.--The potential for profit of a
    transaction shall be taken into account in determining
    whether the requirements of subparagraphs (A) and (B) of
    paragraph (1) are met with respect to the transaction
    only if the present value of the reasonably expected
    pre-tax profit from the transaction is substantial in
    relation to the present value of the expected net tax
    benefits that would be allowed if the transaction were
    respected.
    ``(B) Treatment of fees and foreign taxes.--Fees and
    other transaction expenses shall be taken into account
    as expenses in determining pre-tax profit under
    subparagraph (A). <> The Secretary
    shall issue regulations requiring foreign taxes to be
    treated as expenses in determining pre-tax profit in
    appropriate cases.
    ``(3) State and local tax benefits.--For purposes of
    paragraph (1), any State or local income tax effect which is
    related to a Federal income tax effect shall be treated in the
    same manner as a Federal income tax effect.
    ``(4) Financial accounting benefits.--For purposes of
    paragraph (1)(B), achieving a financial accounting benefit shall
    not be taken into account as a purpose for entering into a
    transaction if the origin of such financial accounting benefit
    is a reduction of Federal income tax.
    ``(5) Definitions and special rules.--For purposes of this
    subsection--
    ``(A) Economic substance doctrine.--The term
    `economic substance doctrine' means the common law
    doctrine under which tax benefits under subtitle A with
    respect to a transaction are not allowable if the
    transaction does not have economic substance or lacks a
    business purpose.
    ``(B) Exception for personal transactions of
    individuals.-- <> In the case of
    an individual, paragraph (1) shall apply only to
    transactions entered into in connection with a trade or
    business or an activity engaged in for the production of
    income.
    ``(C) Determination of application of doctrine not
    affected.--The determination of whether the economic
    substance doctrine is relevant to a transaction shall be
    made in the same manner as if this subsection had never
    been enacted.
    ``(D) Transaction.--The term `transaction' includes
    a series of transactions.''.

    (b) Penalty for Underpayments Attributable to Transactions Lacking
    Economic Substance.--

    [[Page 1069]]

    (1) In general.--Subsection (b) of section 6662 <> is amended by inserting after paragraph (5) the
    following new paragraph:
    ``(6) Any disallowance of claimed tax benefits by reason of
    a transaction lacking economic substance (within the meaning of
    section 7701(o)) or failing to meet the requirements of any
    similar rule of law.''.
    (2) Increased penalty for nondisclosed transactions.--
    Section 6662 is amended by adding at the end the following new
    subsection:

    ``(i) Increase in Penalty in Case of Nondisclosed Noneconomic
    Substance Transactions.--
    ``(1) In general.-- <> In the case of
    any portion of an underpayment which is attributable to one or
    more nondisclosed noneconomic substance transactions, subsection
    (a) shall be applied with respect to such portion by
    substituting `40 percent' for `20 percent'.
    ``(2) Nondisclosed noneconomic substance transactions.--
    <> For purposes of this subsection, the term
    `nondisclosed noneconomic substance transaction' means any
    portion of a transaction described in subsection (b)(6) with
    respect to which the relevant facts affecting the tax treatment
    are not adequately disclosed in the return nor in a statement
    attached to the return.
    ``(3) Special rule for amended returns.--In no event shall
    any amendment or supplement to a return of tax be taken into
    account for purposes of this subsection if the amendment or
    supplement is filed after the earlier of the date the taxpayer
    is first contacted by the Secretary regarding the examination of
    the return or such other date as is specified by the
    Secretary.''.
    (3) Conforming amendment.--Subparagraph (B) of section
    6662A(e)(2) <> is amended--
    (A) by striking ``section 6662(h)'' and inserting
    ``subsections (h) or (i) of section 6662''; and
    (B) by striking ``gross valuation misstatement
    penalty'' in the heading and inserting ``certain
    increased underpayment penalties''.

    (c) Reasonable Cause Exception Not Applicable to Noneconomic
    Substance Transactions.--
    (1) Reasonable cause exception for underpayments.--
    Subsection (c) of section 6664 <> is
    amended--
    (A) by redesignating paragraphs (2) and (3) as
    paragraphs (3) and (4), respectively;
    (B) by striking ``paragraph (2)'' in paragraph
    (4)(A), as so redesignated, and inserting ``paragraph
    (3)''; and
    (C) by inserting after paragraph (1) the following
    new paragraph:
    ``(2) Exception.--Paragraph (1) shall not apply to any
    portion of an underpayment which is attributable to one or more
    transactions described in section 6662(b)(6).''.
    (2) Reasonable cause exception for reportable transaction
    understatements.--Subsection (d) of section 6664 is amended--
    (A) by redesignating paragraphs (2) and (3) as
    paragraphs (3) and (4), respectively;
    (B) by striking ``paragraph (2)(C)'' in paragraph
    (4), as so redesignated, and inserting ``paragraph
    (3)(C)''; and

    [[Page 1070]]

    (C) by inserting after paragraph (1) the following
    new paragraph:
    ``(2) Exception.--Paragraph (1) shall not apply to any
    portion of a reportable transaction understatement which is
    attributable to one or more transactions described in section
    6662(b)(6).''.

    (d) Application of Penalty for Erroneous Claim for Refund or Credit
    to Noneconomic Substance Transactions.--Section 6676 <> is amended by redesignating subsection (c) as subsection (d) and
    inserting after subsection (b) the following new subsection:

    ``(c) Noneconomic Substance Transactions Treated as Lacking
    Reasonable Basis.--For purposes of this section, any excessive amount
    which is attributable to any transaction described in section 6662(b)(6)
    shall not be treated as having a reasonable basis.''.
    (e) <> Effective Date.--
    (1) In general.--Except as otherwise provided in this
    subsection, the amendments made by this section shall apply to
    transactions entered into after the date of the enactment of
    this Act.
    (2) Underpayments.--The amendments made by subsections (b)
    and (c)(1) shall apply to underpayments attributable to
    transactions entered into after the date of the enactment of
    this Act.
    (3) Understatements.--The amendments made by subsection
    (c)(2) shall apply to understatements attributable to
    transactions entered into after the date of the enactment of
    this Act.
    (4) Refunds and credits.--The amendment made by subsection
    (d) shall apply to refunds and credits attributable to
    transactions entered into after the date of the enactment of
    this Act.
    SEC. 1410. <> TIME FOR PAYMENT OF
    CORPORATE ESTIMATED TAXES.

    The percentage under paragraph (1) of section 202(b) of the
    Corporate Estimated Tax Shift Act of 2009 in effect on the date of the
    enactment of this Act is increased by 15.75 percentage points.

    Subtitle F--Other Provisions

    SEC. 1501. COMMUNITY COLLEGE AND CAREER TRAINING GRANT PROGRAM.

    Section 279(b) of the Trade Act of 1974 (19 U.S.C. 2372a(b)) is
    amended by striking ``Supplement'' and all that follows through
    ``Funds'' and inserting ``There are'' and by striking ``pursuant'' and
    all that follows and inserting ``$500,000,000 for each of fiscal years
    2011, 2012, 2013, and 2014 to carry out this subchapter, except that the
    limitations contained in section 278(a)(2) shall not apply to such funds
    and each State shall receive not less than 0.5 percent of the amount
    appropriated pursuant to this subsection for each such fiscal year.''.

    [[Page 1071]]

    TITLE II--EDUCATION AND HEALTH

    Subtitle A-- <> Education
    SEC. 2001. SHORT TITLE; REFERENCES.

    (a) <> Short Title.--This subtitle may be
    cited as the ``SAFRA Act''.

    (b) References.--Except as otherwise expressly provided, whenever in
    this subtitle an amendment or repeal is expressed in terms of an
    amendment to, or repeal of, a section or other provision, the reference
    shall be considered to be made to a section or other provision of the
    Higher Education Act of 1965 (20 U.S.C. 1001 et seq.).

    PART I--INVESTING IN STUDENTS AND FAMILIES

    SEC. 2101. FEDERAL PELL GRANTS.

    (a) Amount of Grants.--Section 401(b) (20 U.S.C. 1070a(b)) is
    amended--
    (1) by amending paragraph (2)(A) to read as follows:
    ``(A) The amount of the Federal Pell Grant for a
    student eligible under this part shall be--
    ``(i) the maximum Federal Pell Grant, as
    specified in the last enacted appropriation Act
    applicable to that award year, plus
    ``(ii) the amount of the increase calculated
    under paragraph (8)(B) for that year, less
    ``(iii) an amount equal to the amount
    determined to be the expected family contribution
    with respect to that student for that year.''; and
    (2) in paragraph (8)--
    (A) in subparagraph (A)--
    (i) in the matter preceding clause (i), by
    striking ``, to carry out subparagraph (B) of this
    paragraph''; and
    (ii) by striking clauses (iii) through (x) and
    inserting the following:
    ``(iii) to carry out subparagraph (B) of this
    paragraph, such sums as may be necessary for
    fiscal year 2010 and each subsequent fiscal year
    to provide the amount of increase of the maximum
    Federal Pell Grant required by clauses (ii) and
    (iii) of subparagraph (B); and
    ``(iv) to carry out this section,
    $13,500,000,000 for fiscal year 2011.'';
    (B) in subparagraph (B)--
    (i) in the matter preceding clause (i), by
    striking ``subparagraph (A)'' and inserting
    ``clauses (i) through (iii) of subparagraph (A)'';
    (ii) in clause (ii), by striking ``and 2011-
    2012'' and inserting ``, 2011-2012, and 2012-
    2013''; and
    (iii) by striking clause (iii) and inserting
    the following:

    [[Page 1072]]

    ``(iii) the amount determined under
    subparagraph (C) for each succeeding award
    year.''; and
    (C) by striking subparagraph (C) and inserting the
    following:
    ``(C) Adjustment amounts.--
    ``(i) Award year 2013-2014.--For award year
    2013-2014, the amount determined under this
    subparagraph for purposes of subparagraph (B)(iii)
    shall be equal to--
    ``(I) $5,550 or the total maximum
    Federal Pell Grant for the preceding
    award year (as determined under clause
    (v)(II)), whichever is greater,
    increased by a percentage equal to the
    annual adjustment percentage for award
    year 2013-2014, reduced by
    ``(II) $4,860 or the maximum Federal
    Pell Grant for which a student was
    eligible for the preceding award year,
    as specified in the last enacted
    appropriation Act applicable to that
    year, whichever is greater; and
    ``(III) rounded to the nearest $5.
    ``(ii) Award years 2014-2015 through 2017-
    2018.--For each of the award years 2014-2015
    through 2017-2018, the amount determined under
    this subparagraph for purposes of subparagraph
    (B)(iii) shall be equal to--
    ``(I) the total maximum Federal Pell
    Grant for the preceding award year (as
    determined under clause (v)(II)),
    increased by a percentage equal to the
    annual adjustment percentage for the
    award year for which the amount under
    this subparagraph is being determined,
    reduced by
    ``(II) $4,860 or the maximum Federal
    Pell Grant for which a student was
    eligible for the preceding award year,
    as specified in the last enacted
    appropriation Act applicable to that
    year, whichever is greater; and
    ``(III) rounded to the nearest $5.
    ``(iii) Subsequent award years.--For award
    year 2018-2019 and each subsequent award year, the
    amount determined under this subparagraph for
    purposes of subparagraph (B)(iii) shall be equal
    to the amount determined under clause (ii) for
    award year 2017-2018.
    ``(iv) Definitions.--For purposes of this
    subparagraph--
    ``(I) the term `annual adjustment
    percentage' as applied to an award year,
    is equal to the estimated percentage
    change in the Consumer Price Index (as
    determined by the Secretary, using the
    definition in section 478(f)) for the
    most recent calendar year ending prior
    to the beginning of that award year; and
    ``(II) the term `total maximum
    Federal Pell Grant' as applied to a
    preceding award year, is equal to the
    sum of--

    [[Page 1073]]

    ``(aa) the maximum Federal
    Pell Grant for which a student
    is eligible during an award
    year, as specified in the last
    enacted appropriation Act
    applicable to that preceding
    award year; and
    ``(bb) the amount of the
    increase in the maximum Federal
    Pell Grant required by this
    paragraph for that preceding
    award year.''.

    (b) Conforming Amendments.--Title IV (20 U.S.C. 1070 et seq.) is
    further amended--
    (1) in section 401(b) (20 U.S.C. 1070a(b))--
    (A) in paragraph (4)--
    (i) by striking ``maximum basic grant level
    specified in the appropriate appropriation Act''
    and inserting ``maximum amount of a Federal Pell
    Grant award determined under paragraph (2)(A)'';
    and
    (ii) by striking ``such level'' each place it
    appears and inserting ``such Federal Pell Grant
    amount'' in each such place; and
    (B) in paragraph (6), by striking ``the grant level
    specified in the appropriate Appropriation Act for this
    subpart for such year'' and inserting ``the maximum
    amount of a Federal Pell Grant award determined under
    paragraph (2)(A), for which a student is eligible during
    such award year'';
    (2) in section 402D(d)(1) (20 U.S.C. 1070a-14(d)(1)), by
    striking ``exceed the maximum'' and all that follows through
    ``Grant, for'' and inserting ``exceed the Federal Pell Grant
    amount, determined under section 401(b)(2)(A), for which a
    student is eligible, or be less than the minimum Federal Pell
    Grant amount described in section 401(b)(4), for'';
    (3) in section 435(a)(5)(A)(i)(I) (20 U.S.C.
    1085(a)(5)(A)(i)(I)), by striking ``one-half the maximum Federal
    Pell Grant award for which a student would be eligible'' and
    inserting ``one-half the Federal Pell Grant amount, determined
    under section 401(b)(2)(A), for which a student would be
    eligible'';
    (4) in section 483(e)(3)(A)(ii) (20 U.S.C.
    1090(e)(3)(A)(ii)), by striking ``based on the maximum Federal
    Pell Grant award at the time of application'' and inserting
    ``based on the Federal Pell Grant amount, determined under
    section 401(b)(2)(A), for which a student is eligible at the
    time of application'';
    (5) in section 485E(b)(1)(A) (20 U.S.C. 1092f(b)(1)(A)), by
    striking ``of such students' potential eligibility for a maximum
    Federal Pell Grant under subpart 1 of part A'' and inserting
    ``of such students' potential eligibility for the Federal Pell
    Grant amount, determined under section 401(b)(2)(A), for which
    the student would be eligible''; and
    (6) in section 894(f)(2)(C)(ii)(I) (20 U.S.C.
    1161y(f)(2)(C)(ii)(I)), by striking ``the maximum Federal Pell
    Grant for each award year'' and inserting ``the Federal Pell
    Grant amount, determined under section 401(b)(2)(A), for which a
    student may be eligible for each award year''.

    (c) <> Effective Date.--The amendments
    made by subsections (a) and (b) shall take effect on July 1, 2010.
    SEC. 2102. COLLEGE ACCESS CHALLENGE GRANT PROGRAM.

    Section 781 (20 U.S.C. 1141) is amended--

    [[Page 1074]]

    (1) in the first sentence of subsection (a), by striking
    ``$66,000,000'' and all that follows through the period and
    inserting ``$150,000,000 for each of the fiscal years 2010
    through 2014. The authority to award grants under this section
    shall expire at the end of fiscal year 2014.''; and
    (2) in subsection (c)(2), by striking ``0.5 percent'' and
    inserting ``1.0 percent''.
    SEC. 2103. INVESTMENT IN HISTORICALLY BLACK COLLEGES AND
    UNIVERSITIES AND MINORITY-SERVING
    INSTITUTIONS.

    Section 371(b)(1)(A) (20 U.S.C. 1067q(b)(1)(A)) is amended by
    striking ``and 2009.'' and all that follows and inserting ``through
    2019. <> The authority to award grants under
    this section shall expire at the end of fiscal year 2019.''.

    PART II--STUDENT LOAN REFORM

    SEC. 2201. TERMINATION OF FEDERAL FAMILY EDUCATION LOAN
    APPROPRIATIONS.

    Section 421 (20 U.S.C. 1071) is amended--
    (1) in subsection (b), in the first sentence of the matter
    following paragraph (6), by inserting ``, except that no sums
    may be expended after June 30, 2010, with respect to loans under
    this part for which the first disbursement is after such date''
    after ``expended''; and
    (2) by adding at the end the following new subsection:

    ``(d) Termination of Authority to Make or Insure New Loans.--
    Notwithstanding paragraphs (1) through (6) of subsection (b) or any
    other provision of law--
    ``(1) no new loans (including consolidation loans) may be
    made or insured under this part after June 30, 2010; and
    ``(2) no funds are authorized to be appropriated, or may be
    expended, under this Act or any other Act to make or insure
    loans under this part (including consolidation loans) for which
    the first disbursement is after June 30, 2010,

    except as expressly authorized by an Act of Congress enacted after the
    date of enactment of the SAFRA Act.''.
    SEC. 2202. TERMINATION OF FEDERAL LOAN INSURANCE PROGRAM.

    Section 424(a) (20 U.S.C. 1074(a)) is amended by striking
    ``September 30, 1976,'' and all that follows and inserting ``September
    30, 1976, for each of the succeeding fiscal years ending prior to
    October 1, 2009, and for the period from October 1, 2009, to June 30,
    2010, for loans first disbursed on or before June 30, 2010.''.
    SEC. 2203. TERMINATION OF APPLICABLE INTEREST RATES.

    Section 427A(l) (20 U.S.C. 1077a(l)) is amended--
    (1) in the subsection heading, by inserting ``and Before
    July 1, 2010'' after ``2006'';
    (2) in paragraph (1), by inserting ``and before July 1,
    2010,'' after ``July 1, 2006,'';
    (3) in paragraph (2), by inserting ``and before July 1,
    2010,'' after ``July 1, 2006,'';
    (4) in paragraph (3), by inserting ``and that was disbursed
    before July 1, 2010,'' after ``July 1, 2006,''; and
    (5) in paragraph (4)--
    (A) in the matter preceding subparagraph (A), by
    striking ``July 1, 2012'' and inserting ``July 1,
    2010''; and

    [[Page 1075]]

    (B) by repealing subparagraphs (D) and (E).
    SEC. 2204. TERMINATION OF FEDERAL PAYMENTS TO REDUCE STUDENT
    INTEREST COSTS.

    (a) Higher Education Act of 1965.--Section 428 (20 U.S.C. 1078) is
    amended--
    (1) in subsection (a)--
    (A) in paragraph (1), in the matter preceding
    subparagraph (A), by inserting ``for which the first
    disbursement is made before July 1, 2010, and'' after
    ``eligible institution''; and
    (B) in paragraph (5), by striking ``September 30,
    2014,'' and all that follows through the period and
    inserting ``June 30, 2010.'';
    (2) in subsection (b)(1)--
    (A) in subparagraph (G)(ii), by inserting ``and
    before July 1, 2010,'' after ``July 1, 2006,''; and
    (B) in subparagraph (H)(ii), by inserting ``and that
    are first disbursed before July 1, 2010,'' after ``July
    1, 2006,'';
    (3) in subsection (f)(1)(A)(ii)--
    (A) by striking ``during fiscal years beginning'';
    and
    (B) by inserting ``and first disbursed before July
    1, 2010,'' after ``October 1, 2003,''; and
    (4) in subsection (j)(1), by inserting ``, before July 1,
    2010,'' after ``section 435(d)(1)(D) of this Act shall''.

    (b) College Cost Reduction and Access Act.--Section 303 of the
    College Cost Reduction and Access Act (Public Law 110-84) <> is repealed.
    SEC. 2205. TERMINATION OF FFEL PLUS LOANS.

    Section 428B(a)(1) (20 U.S.C. 1078-2(a)(1)) is amended by striking
    ``A graduate'' and inserting ``Prior to July 1, 2010, a graduate''.
    SEC. 2206. FEDERAL CONSOLIDATION LOANS.

    (a) In General.--Section 428C (20 U.S.C. 1078-3) is amended--
    (1) in subsection (a)(4)(A), by inserting ``, and first
    disbursed before July 1, 2010'' after ``under this part'';
    (2) in subsection (b)--
    (A) in paragraph (1)(E), by inserting before the
    semicolon ``, and before July 1, 2010''; and
    (B) in paragraph (5), by striking ``In the event
    that'' and inserting ``If, before July 1, 2010,'';
    (3) in subsection (c)(1)--
    (A) in subparagraph (A)(ii), by inserting ``and that
    is disbursed before July 1, 2010,'' after ``2006,''; and
    (B) in subparagraph (C), by inserting ``and
    disbursed before July 1, 2010,'' after ``1994,''; and
    (4) in subsection (e), by striking ``September 30, 2014.''
    and inserting ``June 30, 2010. No loan may be made under this
    section for which the disbursement is on or after July 1,
    2010.''.

    (b) Temporary Loan Consolidation Authority.--Part D of title IV (20
    U.S.C. 1087a et seq.) is amended by inserting after section 459A (20
    U.S.C. 1087i) the following:

    [[Page 1076]]

    ``SEC. 459B. <> TEMPORARY LOAN
    CONSOLIDATION AUTHORITY.

    ``(a) Temporary Loan Consolidation Authority.--
    ``(1) In general.--A borrower who has 1 or more loans in 2
    or more of the categories described in paragraph (2), and who
    has not yet entered repayment on 1 or more of those loans in any
    of the categories, may consolidate all of the loans of the
    borrower that are described in paragraph (2) into a Federal
    Direct Consolidation Loan during the period described in
    paragraph (3).
    ``(2) Categories of loans that may be consolidated.--The
    categories of loans that may be consolidated under paragraph (1)
    are--
    ``(A) loans made under this part;
    ``(B) loans purchased by the Secretary pursuant to
    section 459A; and
    ``(C) loans made under part B that are held by an
    eligible lender, as such term is defined in section
    435(d).
    ``(3) Time period in which loans may be consolidated.--The
    Secretary may make a Federal Direct Consolidation Loan under
    this section to a borrower whose application for such Federal
    Direct Consolidation Loan is received on or after July 1, 2010,
    and before July 1, 2011.

    ``(b) Terms of Loans.--A Federal Direct Consolidation Loan made
    under this section shall have the same terms and conditions as a Federal
    Direct Consolidation Loan made under section 455(g), except that--
    ``(1) <> in determining the applicable
    rate of interest on the Federal Direct Consolidation Loan made
    under this section (other than on a Federal Direct Consolidation
    Loan described in paragraph (2)), section 427A(l)(3) shall be
    applied without rounding the weighted average of the interest
    rate on the loans consolidated to the nearest higher one-eighth
    of 1 percent as described in subparagraph (A) of section
    427A(l)(3); and
    ``(2) if a Federal Direct Consolidation Loan made under this
    section that repays a loan which is subject to an interest rate
    determined under section 427A(g)(2), (j)(2), or (k)(2), then the
    interest rate for such Federal Direct Consolidation Loan shall
    be calculated--
    ``(A) by using the applicable rate of interest
    described in section 427A(g)(2), (j)(2), or (k)(2),
    respectively; and
    ``(B) in accordance with section 427A(l)(3).''.
    SEC. 2207. TERMINATION OF UNSUBSIDIZED STAFFORD LOANS FOR MIDDLE-
    INCOME BORROWERS.

    Section 428H (20 U.S.C. 1078-8) is amended--
    (1) in subsection (a), by inserting ``that are first
    disbursed before July 1, 2010,'' after ``under this part'';
    (2) in subsection (b)--
    (A) by striking ``Any student'' and inserting
    ``Prior to July 1, 2010, any student''; and
    (B) by inserting ``for which the first disbursement
    is made before such date'' after ``unsubsidized Federal
    Stafford Loan''; and
    (3) in subsection (h), by inserting ``and that are first
    disbursed before July 1, 2010,'' after ``July 1, 2006,''.

    [[Page 1077]]

    SEC. 2208. TERMINATION OF SPECIAL ALLOWANCES.

    Section 438 (20 U.S.C. 1087-1) is amended--
    (1) in subsection (b)(2)(I)--
    (A) in the subclause heading, by inserting ``, and
    before july 1, 2010'' after ``2000'';
    (B) in clause (i), by inserting ``and before July 1,
    2010,'' after ``2000,'';
    (C) in clause (ii)(II), by inserting ``and before
    July 1, 2010,'' after ``2006,'';
    (D) in clause (iii), by inserting ``and before July
    1, 2010,'' after ``2000,'';
    (E) in clause (iv), by inserting ``and that is
    disbursed before July 1, 2010,'' after ``2000,'';
    (F) in clause (v)(I), by inserting ``and before July
    1, 2010,'' after ``2006,''; and
    (G) in clause (vi)--
    (i) in the clause heading, by inserting ``,
    and before july 1, 2010'' after ``2007''; and
    (ii) in the matter preceding subclause (I), by
    inserting ``and before July 1, 2010,'' after
    ``2007,'';
    (2) in subsection (c)--
    (A) in paragraph (2)(B)--
    (i) in clause (iii), by inserting ``and''
    after the semicolon;
    (ii) in clause (iv), by striking ``; and'' and
    inserting a period; and
    (iii) by striking clause (v); and
    (B) in paragraph (6), by inserting ``and first
    disbursed before July 1, 2010,'' after ``1992,''; and
    (3) in subsection (d)(2)(B), by inserting ``, and before
    July 1, 2010'' after ``2007''.
    SEC. 2209. ORIGINATION OF DIRECT LOANS AT INSTITUTIONS OUTSIDE THE
    UNITED STATES.

    (a) Loans for Students Attending Institutions Outside the United
    States.--Section 452 (20 U.S.C. 1087b) is amended by adding at the end
    the following:
    ``(d) Institutions Outside the United States.--Loan funds for
    students (and parents of students) attending institutions outside the
    United States shall be disbursed through a financial institution located
    or operating in the United States and designated by the Secretary to
    serve as the agent of such institutions with respect to the receipt of
    the disbursements of such loan funds and the transfer of such funds to
    such institutions. To be eligible to receive funds under this part, an
    institution outside the United States shall make arrangements with the
    agent designated by the Secretary under this subsection to receive funds
    under this part.''.
    (b) Conforming Amendments.--
    (1) Amendments.--Section 102 (20 U.S.C. 1002), as amended by
    section 102 of the Higher Education Opportunity Act (Public Law
    110-315) and section 101 of Public Law 111-39, is amended--
    (A) by striking ``part B'' each place the term
    appears and inserting ``part D'';
    (B) in subsection (a)(1)(C), by inserting ``,
    consistent with the requirements of section 452(d)''
    before the period at the end; and

    [[Page 1078]]

    (C) in subsection (a)(2)(A)--
    (i) in the second sentence of the matter
    preceding clause (i), by striking ``made, insured,
    or guaranteed'' and inserting ``made''; and
    (ii) in clause (iii)--
    (I) in subclause (III), by striking
    ``only Federal Stafford'' and all that
    follows through ``section 428B'' and
    inserting ``only Federal Direct Stafford
    Loans under section 455(a)(2)(A),
    Federal Direct Unsubsidized Stafford
    Loans under section 455(a)(2)(D), or
    Federal Direct PLUS Loans under section
    455(a)(2)(B)''; and
    (II) in subclause (V), by striking
    ``a Federal Stafford'' and all that
    follows through ``section 428B'' and
    inserting ``a Federal Direct Stafford
    Loan under section 455(a)(2)(A), a
    Federal Direct Unsubsidized Stafford
    Loan under section 455(a)(2)(D), or a
    Federal Direct PLUS Loan under section
    455(a)(2)(B)''.
    (2) <> Effective date.--The
    amendments made by subparagraph (C) of paragraph (1) shall be
    effective on July 1, 2010, as if enacted as part of section
    102(a)(1) of the Higher Education Opportunity Act (Public Law
    110-315) and subject to section 102(e) of such Act as amended by
    section 101(a)(2) of Public Law 111-39 (20 U.S.C. 1002 note).
    SEC. 2210. CONFORMING AMENDMENTS.

    (a) Amendments.--Section 454 (20 U.S.C. 1087d) is amended--
    (1) in subsection (a)--
    (A) by striking paragraph (4); and
    (B) by redesignating paragraphs (5) through (7) as
    paragraphs (4) through (6), respectively; and
    (2) in subsection (b)(2), by striking ``(5), (6), and (7)''
    and inserting ``(5), and (6)''.

    (b) <> Effective Date.--The amendments
    made by subsection (a) shall take effect on July 1, 2010.
    SEC. 2211. TERMS AND CONDITIONS OF LOANS.

    (a) In General.--Section 455 (20 U.S.C. 1087e) is amended--
    (1) in subsection (a)(1), by inserting ``, and first
    disbursed on June 30, 2010,'' before ``under sections 428''; and
    (2) in subsection (g)--
    (A) by inserting ``, including any loan made under
    part B and first disbursed before July 1, 2010'' after
    ``section 428C(a)(4)''; and
    (B) by striking the third sentence.

    (b) <> Effective Date.--The amendment made by
    subsection (a)(1) shall apply with respect to loans first disbursed
    under part D of title IV of the Higher Education Act of 1965 (20 U.S.C.
    1087a et seq.) on or after July 1, 2010.
    SEC. 2212. CONTRACTS; MANDATORY FUNDS.

    (a) Contracts.--Section 456 (20 U.S.C. 1087f) is amended--
    (1) in subsection (a)--
    (A) by inserting after paragraph (3) the following
    new paragraph:
    ``(4) Servicing by eligible not-for-profit servicers.--
    ``(A) Servicing contracts.--

    [[Page 1079]]

    ``(i) In general.--The Secretary shall
    contract with each eligible not-for-profit
    servicer to service loans originated under this
    part, if the servicer--
    ``(I) meets the standards for
    servicing Federal assets that apply to
    contracts awarded pursuant to paragraph
    (1); and
    ``(II) has the capacity to service
    the applicable loan volume allocation
    described in subparagraph (B).
    ``(ii) Competitive market rate determination
    for first 100,000 borrower accounts.--The
    Secretary shall establish a separate pricing tier
    for each of the first 100,000 borrower loan
    accounts at a competitive market rate.
    ``(iii) Ineligibility.--An eligible not-for-
    profit servicer shall no longer be eligible for a
    contract under this paragraph after July 1, 2014,
    if--
    ``(I) the servicer has not been
    awarded such a contract before that
    date; or
    ``(II) the servicer's contract was
    terminated, and the servicer had not
    reapplied for, and been awarded, a
    contract under this paragraph.
    ``(B) Allocations.--
    ``(i) In general.--The Secretary shall (except
    as provided in clause (ii)) allocate to an
    eligible not-for-profit servicer, subject to the
    contract of such servicer described in
    subparagraph (A), the servicing rights for the
    loan accounts of 100,000 borrowers (including
    borrowers who borrowed loans in a prior year that
    were serviced by the servicer).
    ``(ii) Servicer allocation.--The Secretary may
    reallocate, increase, reduce, or terminate an
    eligible not-for-profit servicer's allocation of
    servicing rights under clause (i) based on the
    performance of such servicer, on the same terms as
    loan allocations provided by contracts awarded
    pursuant to paragraph (1).''; and
    (2) by adding at the end the following:

    ``(c) Definition of Eligible Not-for-profit Servicer.--In this
    section:
    ``(1) In general.--The term `eligible not-for-profit
    servicer' means an entity--
    ``(A) that is not owned or controlled in whole or in
    part by--
    ``(i) a for-profit entity; or
    ``(ii) a nonprofit entity having its principal
    place of business in another State; and
    ``(B) that--
    ``(i) as of July 1, 2009--
    ``(I) meets the definition of an
    eligible not-for-profit holder under
    section 435(p), except that such term
    does not include eligible lenders
    described in paragraph (1)(D) of such
    section; and
    ``(II) was performing, or had
    entered into a contract with a third
    party servicer (as such term is defined
    in section 481(c)) who was performing,
    student loan servicing functions for
    loans made under part B of this title;

    [[Page 1080]]

    ``(ii) notwithstanding clause (i), as of July
    1, 2009--
    ``(I) is the sole beneficial owner
    of a loan for which the special
    allowance rate is calculated under
    section 438(b)(2)(I)(vi)(II) because the
    loan is held by an eligible lender
    trustee that is an eligible not-for-
    profit holder as defined under section
    435(p)(1)(D); and
    ``(II) was performing, or had
    entered into a contract with a third
    party servicer (as such term is defined
    in section 481(c)) who was performing,
    student loan servicing functions for
    loans made under part B of this title;
    or
    ``(iii) is an affiliated entity of an eligible
    not-for-profit servicer described in clause (i) or
    (ii) that--
    ``(I) directly employs, or will
    directly employ (on or before the date
    the entity begins servicing loans under
    a contract awarded by the Secretary
    pursuant to subsection (a)(3)(A)), the
    majority of individuals who perform
    borrower-specific student loan servicing
    functions; and
    ``(II) as of July 1, 2009, was
    performing, or had entered into a
    contract with a third party servicer (as
    such term is defined in section 481(c))
    who was performing, student loan
    servicing functions for loans made under
    part B of this title.
    ``(2) Affiliated entity.--For the purposes of paragraph (1),
    the term `affiliated entity'--
    ``(A) means an entity contracted to perform services
    for an eligible not-for-profit servicer that--
    ``(i) is a nonprofit entity or is wholly owned
    by a nonprofit entity; and
    ``(ii) is not owned or controlled, in whole or
    in part, by--
    ``(I) a for-profit entity; or
    ``(II) an entity having its
    principal place of business in another
    State; and
    ``(B) may include an affiliated entity that is
    established by an eligible not-for-profit servicer after
    the date of enactment of the SAFRA Act, if such
    affiliated entity is otherwise described in paragraph
    (1)(B)(iii)(I) and subparagraph (A) of this
    paragraph.''.

    (b) Mandatory Funds.--
    (1) Amendments.--Section 458(a) (20 U.S.C. 1087h(a)) is
    amended--
    (A) by redesignating paragraph (5) as paragraph (8);
    (B) by redesignating paragraphs (2) through (4) as
    paragraphs (3) through (5), respectively;
    (C) by inserting after paragraph (1) the following
    new paragraph:
    ``(2) Mandatory funds for eligible not-for-profit
    servicers.--For fiscal years 2010 through 2019, there shall be
    available to the Secretary, in addition to any other amounts
    appropriated to carry out this paragraph and out of any money in
    the Treasury not otherwise appropriated, funds to be obligated
    for administrative costs of servicing contracts with eligible
    not-for-profit servicers as described in section 456.''; and

    [[Page 1081]]

    (D) by inserting after paragraph (5), as
    redesignated by subparagraph (B) of this paragraph, the
    following:
    ``(6) Technical assistance to institutions of higher
    education.--
    ``(A) Provision of assistance.--The Secretary shall
    provide institutions of higher education participating,
    or seeking to participate, in the loan programs under
    this part with technical assistance in establishing and
    administering such programs.
    ``(B) Funds.--There are authorized to be
    appropriated, and there are appropriated, to carry out
    this paragraph (in addition to any other amounts
    appropriated to carry out this paragraph and out of any
    money in the Treasury not otherwise appropriated),
    $50,000,000 for fiscal year 2010.
    ``(C) Definition.--In this paragraph, the term
    `assistance' means the provision of technical support,
    training, materials, technical assistance, and financial
    assistance.
    ``(7) Additional payments.--
    ``(A) Provision of assistance.--The Secretary shall
    provide payments to loan servicers for retaining jobs at
    locations in the United States where such servicers were
    operating under part B on January 1, 2010.
    ``(B) Funds.--There are authorized to be
    appropriated, and there are appropriated, to carry out
    this paragraph (in addition to any other amounts
    appropriated to carry out this paragraph and out of any
    money in the Treasury not otherwise appropriated),
    $25,000,000 for each of the fiscal years 2010 and
    2011.''.
    (2) Conforming amendment.--Section 458 (20 U.S.C. 1087h) is
    further amended by striking ``subsection (a)(3)'' in subsection
    (b) and inserting ``subsection (a)(4)''.
    SEC. 2213. INCOME-BASED REPAYMENT.

    Section 493C (20 U.S.C. 1098e) is amended by adding at the end the
    following new subsection:
    ``(e) Special Terms for New Borrowers on and After July 1, 2014.--
    <> With respect to any loan made to a new
    borrower on or after July 1, 2014--
    ``(1) subsection (a)(3)(B) shall be applied by substituting
    `10 percent' for `15 percent'; and
    ``(2) subsection (b)(7)(B) shall be applied by substituting
    `20 years' for `25 years'.''.

    Subtitle B--Health

    SEC. 2301. INSURANCE REFORMS.

    (a) Extending Certain Insurance Reforms to Grandfathered Plans.--
    Section 1251(a) of the Patient Protection and Affordable Care Act, as
    added by section 10103(d) of such Act, is <> amended by adding at the end the following:
    ``(4) Application of certain provisions.--
    ``(A) In general.--The following provisions of the
    Public Health Service Act (as added by this title) shall

    [[Page 1082]]

    apply to grandfathered health plans for plan years
    beginning with the first plan year to which such
    provisions would otherwise apply:
    ``(i) Section 2708 (relating to excessive
    waiting periods).
    ``(ii) Those provisions of section 2711
    relating to lifetime limits.
    ``(iii) Section 2712 (relating to
    rescissions).
    ``(iv) Section 2714 (relating to extension of
    dependent coverage).
    ``(B) Provisions applicable only to group health
    plans.--
    ``(i) Provisions described.--Those provisions
    of section 2711 relating to annual limits and the
    provisions of section 2704 (relating to pre-
    existing condition exclusions) of the Public
    Health Service Act (as added by this subtitle)
    shall apply to grandfathered health plans that are
    group health plans for plan years beginning with
    the first plan year to which such provisions
    otherwise apply.
    ``(ii) Adult child coverage.--For plan years
    beginning before January 1, 2014, the provisions
    of section 2714 of the Public Health Service Act
    (as added by this subtitle) shall apply in the
    case of an adult child with respect to a
    grandfathered health plan that is a group health
    plan only if such adult child is not eligible to
    enroll in an eligible employer-sponsored health
    plan (as defined in section 5000A(f)(2) of the
    Internal Revenue Code of 1986) other than such
    grandfathered health plan.''.

    (b) Clarification Regarding Dependent Coverage.--Section 2714(a) of
    the Public Health Service Act, as added by section 1001(5) of the
    Patient Protection and Affordable Care Act, <> is
    amended by striking ``(who is not married)''.
    SEC. 2302. DRUGS PURCHASED BY COVERED ENTITIES.

    Section 340B of the Public Health Service Act (42 U.S.C. 256b), as
    amended by sections 7101 and 7102 of the Patient Protection and
    Affordable Care Act, is amended--
    (1) in subsection (a)--
    (A) in paragraphs (1), (2), (5), (7), and (9), by
    striking the terms ``covered drug'' and ``covered
    drugs'' each place either term appears and inserting
    ``covered outpatient drug'' or ``covered outpatient
    drugs'', respectively;
    (B) in paragraph (4)(L)--
    (i) in clause (i), by striking ``and'' at the
    end;
    (ii) in clause (ii), by striking the period
    and inserting ``; and''; and
    (iii) by inserting after clause (ii), the
    following:
    ``(iii) does not obtain covered outpatient
    drugs through a group purchasing organization or
    other group purchasing arrangement.''; and
    (C) in paragraph (5)--
    (i) by striking subparagraph (C);
    (ii) by redesignating subparagraphs (D) and
    (E) as subparagraphs (C) and (D), respectively;
    and

    [[Page 1083]]

    (iii) in subparagraph (D), as so redesignated,
    by striking ``subparagraph (D)'' and inserting
    ``subparagraph (C)'';
    (2) by striking subsection (c);
    (3) in subsection (d)--
    (A) by striking ``covered drugs'' each place it
    appears and inserting ``covered outpatient drugs'';
    (B) by striking ``(a)(5)(D)'' each place it appears
    and inserting ``(a)(5)(C)''; and
    (C) by striking ``(a)(5)(E)'' each place it appears
    and inserting ``(a)(5)(D)''; and
    (4) by inserting after subsection (d) the following:

    ``(e) Exclusion of Orphan Drugs for Certain Covered Entities.--For
    covered entities described in subparagraph (M), (N), or (O) of
    subsection (a)(4), the term `covered outpatient drug' shall not include
    a drug designated by the Secretary under section 526 of the Federal
    Food, Drug, and Cosmetic Act for a rare disease or condition.''.
    SEC. 2303. COMMUNITY HEALTH CENTERS.

    Section 10503(b)(1) of the Patient Protection and Affordable Care
    Act is <> amended--
    (1) in subparagraph (A), by striking ``700,000,000'' and
    inserting ``1,000,000,000'';
    (2) in subparagraph (B), by striking ``800,000,000'' and
    inserting ``1,200,000,000'';
    (3) in subparagraph (C), by striking ``1,000,000,000'' and
    inserting ``1,500,000,000'';
    (4) in subparagraph (D), by striking ``1,600,000,000'' and
    inserting ``2,200,000,000''; and
    (5) in subparagraph (E), by striking ``2,900,000,000'' and
    inserting ``3,600,000,000''.

    Approved March 30, 2010.

    LEGISLATIVE HISTORY--H.R. 4872:
    ---------------------------------------------------------------------------

    HOUSE REPORTS: No. 111-443 (Comm. on the Budget).
    CONGRESSIONAL RECORD, Vol. 156 (2010):
    Mar. 21, considered and passed House.
    Mar. 23, 24, considered in Senate.
    Mar. 25, considered and passed Senate, amended. House
    concurred in Senate amendments.
    DAILY COMPILATION OF PRESIDENTIAL DOCUMENTS (2010):
    Mar. 30, Presidential remarks.