Text: H.R.2015 — 105th Congress (1997-1998)All Information (Except Text)

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Public Law No: 105-33 (08/05/1997)

 
[105th Congress Public Law 33]
[From the U.S. Government Printing Office]


<DOC>
[DOCID: f:publ33.105]


[[Page 111 STAT. 251]]

  

  

*Public Law 105-33
105th Congress

                                 An Act


 
To provide for reconciliation pursuant to subsections (b)(1) and (c) of 
 section 105 of the concurrent resolution on the budget for fiscal year 
              1998. <<NOTE: Aug. 5, 1997 -  [H.R. 2015]>> 

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled, <<NOTE: Balanced Budget 
Act of 1997.>> 

SECTION 1. SHORT TITLE.

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

SEC. 2. TABLE OF TITLES.

    This Act is organized into titles as follows:

Title I--Food Stamp Provisions
Title II--Housing and Related Provisions
Title III--Communications and Spectrum Allocation Provisions
Title IV--Medicare, Medicaid, and Children's Health Provisions
Title V--Welfare and Related Provisions
Title VI--Education and Related Provisions
Title VII--Civil Service Retirement and Related Provisions
Title VIII--Veterans and Related Provisions
Title IX--Asset Sales, User Fees, and Miscellaneous Provisions
Title X--Budget Enforcement and Process Provisions
Title XI--District of Columbia Revitalization

                     TITLE I--FOOD STAMP PROVISIONS

SEC. 1001. EXEMPTION.

    Section 6(o) of the Food Stamp Act of 1977 (7 U.S.C. 2015(o)) is 
amended--
            (1) in paragraph (2)(D), by striking ``or (5)'' and 
        inserting ``(5), or (6)'';
            (2) by redesignating paragraph (6) as paragraph (7); and
            (3) by inserting after paragraph (5) the following:
            ``(6) 15-percent exemption.--
                    ``(A) Definitions.--In this paragraph:
                          ``(i) Caseload.--The term `caseload' means the 
                      average monthly number of individuals receiving 
                      food stamps during the 12-month period ending the 
                      preceding June 30.
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    *Note: This is a hand enrollment pursuant to Public Law 105-
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                          ``(ii) Covered individual.--The term `covered 
                      individual' means a food stamp recipient, or an 
                      individual denied eligibility for food stamp 
                      benefits solely due to paragraph (2), who--
                                    ``(I) is not eligible for an 
                                exception under paragraph (3);
                                    ``(II) does not reside in an area 
                                covered by a waiver granted under 
                                paragraph (4);

[[Page 111 STAT. 252]]

                                    ``(III) is not complying with 
                                subparagraph (A), (B), or (C) of 
                                paragraph (2);
                                    ``(IV) is not receiving food stamp 
                                benefits during the 3 months of 
                                eligibility provided under paragraph 
                                (2); and
                                    ``(V) is not receiving food stamp 
                                benefits under paragraph (5).
                    ``(B) General rule.--Subject to subparagraphs (C) 
                through (G), a State agency may provide an exemption 
                from the requirements of paragraph (2) for covered 
                individuals.
                    ``(C) Fiscal year 1998.--Subject to subparagraphs 
                (E) and (G), for fiscal year 1998, a State agency may 
                provide a number of exemptions such that the average 
                monthly number of the exemptions in effect during the 
                fiscal year does not exceed 15 percent of the number of 
                covered individuals in the State in fiscal year 1998, as 
                estimated by the Secretary, based on the survey 
                conducted to carry out section 16(c) for fiscal year 
                1996 and such other factors as the Secretary considers 
                appropriate due to the timing and limitations of the 
                survey.
                    ``(D) Subsequent fiscal years.--Subject to 
                subparagraphs (E) through (G), for fiscal year 1999 and 
                each subsequent fiscal year, a State agency may provide 
                a number of exemptions such that the average monthly 
                number of the exemptions in effect during the fiscal 
                year does not exceed 15 percent of the number of covered 
                individuals in the State, as estimated by the Secretary 
                under subparagraph (C), adjusted by the Secretary to 
                reflect changes in the State's caseload and the 
                Secretary's estimate of changes in the proportion of 
                food stamp recipients covered by waivers granted under 
                paragraph (4).
                    ``(E) Caseload adjustments.--The Secretary shall 
                adjust the number of individuals estimated for a State 
                under subparagraph (C) or (D) during a fiscal year if 
                the number of food stamp recipients in the State varies 
                from the State's caseload by more than 10 percent, as 
                determined by the Secretary.
                    ``(F) Exemption adjustments.--During fiscal year 
                1999 and each subsequent fiscal year, the Secretary 
                shall increase or decrease the number of individuals who 
                may be granted an exemption by a State agency under this 
                paragraph to the extent that the average monthly number 
                of exemptions in effect in the State for the preceding 
                fiscal year under this paragraph is lesser or greater 
                than the average monthly number of exemptions estimated 
                for the State agency for such preceding fiscal year 
                under this paragraph.
                    ``(G) Reporting requirement.--A State agency shall 
                submit such reports to the Secretary as the Secretary 
                determines are necessary to ensure compliance with this 
                paragraph.''.

SEC. 1002. ADDITIONAL FUNDING FOR EMPLOYMENT AND TRAINING.

    (a) In General.--Section 16(h) of the Food Stamp Act of 1977 (7 
U.S.C. 2025(h)) is amended by striking paragraph (1) and inserting the 
following:

[[Page 111 STAT. 253]]

            ``(1) In general.--
                    ``(A) Amounts.--To carry out employment and training 
                programs, the Secretary shall reserve for allocation to 
                State agencies, to remain available until expended, from 
                funds made available for each fiscal year under section 
                18(a)(1) the amount of--
                          ``(i) for fiscal year 1996, $75,000,000;
                          ``(ii) for fiscal year 1997, $79,000,000;
                          ``(iii) for fiscal year 1998--
                                    ``(I) $81,000,000; and
                                    ``(II) an additional amount of 
                                $131,000,000;
                          ``(iv) for fiscal year 1999--
                                    ``(I) $84,000,000; and
                                    ``(II) an additional amount of 
                                $131,000,000;
                          ``(v) for fiscal year 2000--
                                    ``(I) $86,000,000; and
                                    ``(II) an additional amount of 
                                $131,000,000;
                          ``(vi) for fiscal year 2001--
                                    ``(I) $88,000,000; and
                                    ``(II) an additional amount of 
                                $131,000,000; and
                          ``(vii) for fiscal year 2002--
                                    ``(I) $90,000,000; and
                                    ``(II) an additional amount of 
                                $75,000,000.
                    ``(B) Allocation.--
                          ``(i) Allocation formula.--The Secretary shall 
                      allocate the amounts reserved under subparagraph 
                      (A) among the State agencies using a reasonable 
                      formula, as determined and adjusted by the 
                      Secretary each fiscal year, to reflect--
                                    ``(I) changes in each State's 
                                caseload (as defined in section 
                                6(o)(6)(A));
                                    ``(II) for fiscal year 1998, the 
                                portion of food stamp recipients who 
                                reside in each State who are not 
                                eligible for an exception under section 
                                6(o)(3); and
                                    ``(III) for each of fiscal years 
                                1999 through 2002, the portion of food 
                                stamp recipients who reside in each 
                                State who are not eligible for an 
                                exception under section 6(o)(3) and 
                                who--
                                            ``(aa) do not reside in an 
                                        area subject to a waiver granted 
                                        by the Secretary under section 
                                        6(o)(4); or
                                            ``(bb) do reside in an area 
                                        subject to a waiver granted by 
                                        the Secretary under section 
                                        6(o)(4), if the State agency 
                                        provides employment and training 
                                        services in the area to food 
                                        stamp recipients who are not 
                                        eligible for an exception under 
                                        section 6(o)(3).
                          ``(ii) Estimated factors.--The Secretary shall 
                      estimate the portion of food stamp recipients who 
                      reside in each State who are not eligible for an 
                      exception under section 6(o)(3) based on the 
                      survey conducted to carry out subsection (c) for 
                      fiscal year 1996 and such other factors as the 
                      Secretary considers appropriate due to the timing 
                      and limitations of the survey.

[[Page 111 STAT. 254]]

                          ``(iii) Reporting requirement.--A State agency 
                      shall submit such reports to the Secretary as the 
                      Secretary determines are necessary to ensure 
                      compliance with this paragraph.
                    ``(C) Reallocation.--If a State agency will not 
                expend all of the funds allocated to the State agency 
                for a fiscal year under subparagraph (B), the Secretary 
                shall reallocate the unexpended funds to other States 
                (during the fiscal year or the subsequent fiscal year) 
                as the Secretary considers appropriate and equitable.
                    ``(D) Minimum allocation.--Notwithstanding 
                subparagraph (B), the Secretary shall ensure that each 
                State agency operating an employment and training 
                program shall receive not less than $50,000 for each 
                fiscal year.
                    ``(E) Use of funds.--Of the amount of funds a State 
                agency receives under subparagraphs (A) through (D) for 
                a fiscal year, not less than 80 percent of the funds 
                shall be used by the State agency during the fiscal year 
                to serve food stamp recipients who--
                          ``(i) are not eligible for an exception under 
                      section 6(o)(3); and
                          ``(ii) are placed in and comply with a program 
                      described in subparagraph (B) or (C) of section 
                      6(o)(2).
                    ``(F) Maintenance of effort.--To receive an 
                allocation of an additional amount made available under 
                subclause (II) of each of clauses (iii) through (vii) of 
                subparagraph (A), a State agency shall maintain the 
                expenditures of the State agency for employment and 
                training programs and workfare programs for any fiscal 
                year under paragraph (2), and administrative expenses 
                described in section 20(g)(1), at a level that is not 
                less than the level of the expenditures by the State 
                agency to carry out the programs and such expenses for 
                fiscal year 1996.
                    ``(G) Component costs.--The Secretary shall monitor 
                State agencies' expenditure of funds for employment and 
                training programs provided under this paragraph, 
                including the costs of individual components of State 
                agencies' programs. The Secretary may determine the 
                reimbursable costs of employment and training 
                components, and, if the Secretary makes such a 
                determination, the Secretary shall determine that the 
                amounts spent or planned to be spent on the components 
                reflect the reasonable cost of efficiently and 
                economically providing components appropriate to 
                recipient employment and training needs, taking into 
                account, as the Secretary deems appropriate, prior 
                expenditures on the components, the variability of costs 
                among State agencies' components, the characteristics of 
                the recipients to be served, and such other factors as 
                the Secretary considers necessary.''.

    (b) Report <<NOTE: 7 USC 2025 note.>> to Congress.--Not later than 
30 months after the date of enactment of this Act, the Secretary of 
Agriculture shall submit to the Committee on Agriculture of the House of 
Representatives and the Committee on Agriculture, Nutrition, and 
Forestry of the Senate a report regarding whether the amounts made 
available under section 16(h)(1)(A) of the Food Stamp Act of 1977 (as a 
result of the amendment made by subsection (a))

[[Page 111 STAT. 255]]

have been used by State agencies to increase the number of work slots 
for recipients subject to section 6(o) of the Food Stamp Act of 1977 (7 
U.S.C. 2015(o)) in employment and training programs and workfare in the 
most efficient and effective manner practicable.

SEC. 1003. DENIAL OF FOOD STAMPS FOR PRISONERS.

    (a) State Plans.--
            (1) In General.--Section 11(e) of the Food Stamp Act of 1977 
        (7 U.S.C. 2020(e)) is amended by striking paragraph (20) and 
        inserting the following:
            ``(20) that the State agency shall establish a system and 
        take action on a periodic basis--
                    ``(A) to verify and otherwise ensure that an 
                individual does not receive coupons in more than 1 
                jurisdiction within the State; and
                    ``(B) to verify and otherwise ensure that an 
                individual who is placed under detention in a Federal, 
                State, or local penal, correctional, or other detention 
                facility for more than 30 days shall not be eligible to 
                participate in the food stamp program as a member of any 
                household, except that--
                          ``(i) the Secretary may determine that 
                      extraordinary circumstances make it impracticable 
                      for the State agency to obtain information 
                      necessary to discontinue inclusion of the 
                      individual; and
                          ``(ii) a State agency that obtains information 
                      collected under section 1611(e)(1)(I)(i)(I) of the 
                      Social Security Act (42 U.S.C. 
                      1382(e)(1)(I)(i)(I)) pursuant to section 
                      1611(e)(1)(I)(ii)(II) of that Act (42 U.S.C. 
                      1382(e)(1)(I)(ii)(II)), or under another program 
                      determined by the Secretary to be comparable to 
                      the program carried out under that section, shall 
                      be considered in compliance with this 
                      subparagraph.''.
            (2) Limits on disclosure and use of information.--Section 
        11(e)(8)(E) of the Food Stamp Act of 1977 (7 U.S.C. 
        2020(e)(8)(E)) is amended by striking ``paragraph (16)'' and 
        inserting ``paragraph (16) or (20)(B)''.
            (3) Effective <<NOTE: 7 USC 2020 note.>> Date.--
                    (A) In general.--Except as provided in subparagraph 
                (B), the amendments made by this subsection shall take 
                effect on the date that is 1 year after the date of 
                enactment of this Act.
                    (B) Extension.--The Secretary of Agriculture may 
                grant a State an extension of time to comply with the 
                amendments made by this subsection, not to exceed beyond 
                the date that is 2 years after the date of enactment of 
                this Act, if the chief executive officer of the State 
                submits a request for the extension to the Secretary--
                          (i) stating the reasons why the State is not 
                      able to comply with the amendments made by this 
                      subsection by the date that is 1 year after the 
                      date of enactment of this Act;
                          (ii) providing evidence that the State is 
                      making a good faith effort to comply with the 
                      amendments made by this subsection as soon as 
                      practicable; and
                          (iii) detailing a plan to bring the State into 
                      compliance with the amendments made by this 
                      subsection

[[Page 111 STAT. 256]]

                      as soon as practicable but not later than the date 
                      of the requested extension.

    (b) Information Sharing.--Section 11 of the Food Stamp Act of 1977 
(7 U.S.C. 2020) is amended by adding at the end the following:
    ``(q) Denial of Food Stamps for Prisoners.--The Secretary shall 
assist States, to the maximum extent practicable, in implementing a 
system to conduct computer matches or other systems to prevent prisoners 
described in section 11(e)(20)(B) from participating in the food stamp 
program as a member of any household.''.

SEC. 1004. NUTRITION EDUCATION.

    Section 11(f) of the Food Stamp Act of 1977 (7 U.S.C. 2020(f)) is 
amended--
            (1) by striking ``(f) To encourage'' and inserting the 
        following:

    ``(f) Nutrition Education.--
            ``(1) In general.--To encourage''; and
            (2) by adding at the end the following:
            ``(2) Grants.--
                    ``(A) In general.--The Secretary shall make 
                available not more than $600,000 for each of fiscal 
                years 1998 through 2001 to pay the Federal share of 
                grants made to eligible private nonprofit organizations 
                and State agencies to carry out subparagraph (B).
                    ``(B) Eligibility.--A private nonprofit organization 
                or State agency shall be eligible to receive a grant 
                under subparagraph (A) if the organization or agency 
                agrees--
                          ``(i) to use the funds to direct a 
                      collaborative effort to coordinate and integrate 
                      nutrition education into health, nutrition, social 
                      service, and food distribution programs for food 
                      stamp participants and other low-income 
                      households; and
                          ``(ii) to design the collaborative effort to 
                      reach large numbers of food stamp participants and 
                      other low-income households through a network of 
                      organizations, including schools, child care 
                      centers, farmers' markets, health clinics, and 
                      outpatient education services.
                    ``(C) Preference.--In deciding between 2 or more 
                private nonprofit organizations or State agencies that 
                are eligible to receive a grant under subparagraph (B), 
                the Secretary shall give a preference to an organization 
                or agency that conducted a collaborative effort 
                described in subparagraph (B) and received funding for 
                the collaborative effort from the Secretary before the 
                date of enactment of this paragraph.
                    ``(D) Federal share.--
                          ``(i) In general.--Subject to subparagraph 
                      (E), the Federal share of a grant under this 
                      paragraph shall be 50 percent.
                          ``(ii) No in-kind contributions.--The non-
                      Federal share of a grant under this paragraph 
                      shall be in cash.
                          ``(iii) Private funds.--The non-Federal share 
                      of a grant under this paragraph may include 
                      amounts from private nongovernmental sources.

[[Page 111 STAT. 257]]

                    ``(E) Limit on individual grant.--The Federal share 
                of a grant under subparagraph (A) may not exceed 
                $200,000 for a fiscal year.''.

SEC. 1005. <<NOTE: 7 USC 2015 note.>> REGULATIONS; EFFECTIVE DATE.

    (a) Regulations.--Not later than 1 year after the date of enactment 
of this Act, the Secretary of Agriculture shall promulgate such 
regulations as are necessary to implement the amendments made by this 
title.
    (b) Effective Date.--The amendments made by sections 1001 and 1002 
take effect on October 1, 1997, without regard to whether regulations 
have been promulgated to implement the amendments made by such sections.

                TITLE II--HOUSING AND RELATED PROVISIONS

SEC. 2001. TABLE OF CONTENTS.

    The table of contents for this title is as follows:

                TITLE II--HOUSING AND RELATED PROVISIONS

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

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

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

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

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

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

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

[[Page 111 STAT. 258]]

      TITLE III--COMMUNICATIONS AND SPECTRUM ALLOCATION PROVISIONS

SEC. 3001. DEFINITIONS.

    (a) Common <<NOTE: 47 USC 153 note.>> Terminology.--Except as 
otherwise provided in this title, the terms used in this title have the 
meanings provided in section 3 of the Communications Act of 1934 (47 
U.S.C. 153), as amended by this section.

    (b) Additional Definitions.--Section 3 of the Communications Act of 
1934 (47 U.S.C. 153) is amended--
            (1) by redesignating paragraphs (49) through (51) as 
        paragraphs (50) through (52), respectively; and
            (2) by inserting after paragraph (48) the following new 
        paragraph:
            ``(49) Television service.--
                    ``(A) Analog television service.--The term `analog 
                television service' means television service provided 
                pursuant to the transmission standards prescribed by the 
                Commission in section 73.682(a) of its regulations (47 
                C.F.R. 73.682(a)).
                    ``(B) Digital television service.--The term `digital 
                television service' means television service provided 
                pursuant to the transmission standards prescribed by the 
                Commission in section 73.682(d) of its regulations (47 
                C.F.R. 73.682(d)).''.

SEC. 3002. SPECTRUM AUCTIONS.

    (a) Extension and Expansion of Auction Authority.--
            (1) In general.--Section 309(j) of the Communications Act of 
        1934 (47 U.S.C. 309(j)) is amended--
                    (A) by striking paragraphs (1) and (2) and inserting 
                in lieu thereof the following:
            ``(1) General authority.--If, consistent with the 
        obligations described in paragraph (6)(E), mutually exclusive 
        applications are accepted for any initial license or 
        construction permit, then, except as provided in paragraph (2), 
        the Commission shall grant the license or permit to a qualified 
        applicant through a system of competitive bidding that meets the 
        requirements of this subsection.
            ``(2) Exemptions.--The competitive bidding authority granted 
        by this subsection shall not apply to licenses or construction 
        permits issued by the Commission--
                    ``(A) for public safety radio services, including 
                private internal radio services used by State and local 
                governments and non-government entities and including 
                emergency road services provided by not-for-profit 
                organizations, that--
                          ``(i) are used to protect the safety of life, 
                      health, or property; and
                          ``(ii) are not made commercially available to 
                      the public;
                    ``(B) for initial licenses or construction permits 
                for digital television service given to existing 
                terrestrial broadcast licensees to replace their analog 
                television service licenses; or
                    ``(C) for stations described in section 397(6) of 
                this Act.'';

[[Page 111 STAT. 259]]

                    (B) in paragraph (3)--
                          (i) by inserting after the second sentence the 
                      following new sentence: ``The Commission shall, 
                      directly or by contract, provide for the design 
                      and conduct (for purposes of testing) of 
                      competitive bidding using a contingent 
                      combinatorial bidding system that permits 
                      prospective bidders to bid on combinations or 
                      groups of licenses in a single bid and to enter 
                      multiple alternative bids within a single bidding 
                      round.'';
                          (ii) by striking ``and'' at the end of 
                      subparagraph (C);
                          (iii) by striking the period at the end of 
                      subparagraph (D) and inserting ``; and''; and
                          (iv) by adding at the end the following new 
                      subparagraph:
                    ``(E) ensure that, in the scheduling of any 
                competitive bidding under this subsection, an adequate 
                period is allowed--
                          ``(i) before issuance of bidding rules, to 
                      permit notice and comment on proposed auction 
                      procedures; and
                          ``(ii) after issuance of bidding rules, to 
                      ensure that interested parties have a sufficient 
                      time to develop business plans, assess market 
                      conditions, and evaluate the availability of 
                      equipment for the relevant services.'';
                    (C) in paragraph (4)--
                          (i) by striking ``and'' at the end of 
                      subparagraph (D);
                          (ii) by striking the period at the end of 
                      subparagraph (E) and inserting ``; and''; and
                          (iii) by adding at the end the following new 
                      subparagraph:
                    ``(F) prescribe methods by which a reasonable 
                reserve price will be required, or a minimum bid will be 
                established, to obtain any license or permit being 
                assigned pursuant to the competitive bidding, unless the 
                Commission determines that such a reserve price or 
                minimum bid is not in the public interest.'';
                    (D) in paragraph (8)(B)--
                          (i) by striking the third sentence; and
                          (ii) by adding at the end the following new 
                      sentence: ``No sums may be retained under this 
                      subparagraph during any fiscal year beginning 
                      after September 30, 1998, if the annual report of 
                      the Commission under section 4(k) for the second 
                      preceding fiscal year fails to include in the 
                      itemized statement required by paragraph (3) of 
                      such section a statement of each expenditure made 
                      for purposes of conducting competitive bidding 
                      under this subsection during such second preceding 
                      fiscal year.'';
                    (E) in paragraph (11), by striking ``1998'' and 
                inserting ``2007''; and
                    (F) in paragraph (13)(F), by striking ``September 
                30, 1998'' and inserting ``the date of enactment of the 
                Balanced Budget Act of 1997''.

[[Page 111 STAT. 260]]

            (2) Termination of Lottery Authority.--Section 309(i) of the 
        Communications Act of 1934 (47 U.S.C. 309(i)) is amended--
                    (A) by striking paragraph (1) and inserting the 
                following:
            ``(1) General authority.--Except as provided in paragraph 
        (5), if there is more than one application for any initial 
        license or construction permit, then the Commission shall have 
        the authority to grant such license or permit to a qualified 
        applicant through the use of a system of random selection.''; 
        and
                    (B) by adding at the end the following new 
                paragraph:
            ``(5) Termination of authority.--(A) Except as provided in 
        subparagraph (B), the Commission shall not issue any license or 
        permit using a system of random selection under this subsection 
        after July 1, 1997.
            ``(B) Subparagraph (A) of this paragraph shall not apply 
        with respect to licenses or permits for stations described in 
        section 397(6) of this Act.''.
            (3) Resolution of pending comparative licensing cases.--
        Section 309 of the Communications Act of 1934 (47 U.S.C. 309) is 
        further amended by adding at the end the following new 
        subsection:

    ``(l) Applicability of Competitive Bidding to Pending Comparative 
Licensing Cases.--With respect to competing applications for initial 
licenses or construction permits for commercial radio or television 
stations that were filed with the Commission before July 1, 1997, the 
Commission shall--
            ``(1) have the authority to conduct a competitive bidding 
        proceeding pursuant to subsection (j) to assign such license or 
        permit;
            ``(2) treat the persons filing such applications as the only 
        persons eligible to be qualified bidders for purposes of such 
        proceeding; and
            ``(3) waive any provisions of its regulations necessary to 
        permit such persons to enter an agreement to procure the removal 
        of a conflict between their applications during the 180-day 
        period beginning on the date of enactment of the Balanced Budget 
        Act of 1997.''.
            (4) Conforming amendment.--Section 6002 of the Omnibus 
        Budget Reconciliation Act of 1993 <<NOTE: 47 USC 309 note.>> is 
        amended by striking subsection (e).
            (5) Effective <<NOTE: 47 USC 309 note.>> Date.--Except as 
        otherwise provided therein, the amendments made by this 
        subsection are effective on July 1, 1997.

    (b) Accelerated <<NOTE: 47 USC 925 note.>> Availability for Auction 
of 1,710-1,755 Megahertz from Initial Reallocation Report.--The band of 
frequencies located at 1,710-1,755 megahertz identified in the initial 
reallocation report under section 113(a) of the National 
Telecommunications and Information Administration Act (47 U.S.C. 923(a)) 
shall, notwithstanding the timetable recommended under section 113(e) of 
such Act and section 115(b)(1) of such Act, be available in accordance 
with this subsection for assignment for commercial use. The Commission 
shall assign licenses for such use by competitive bidding commenced 
after January 1, 2001, pursuant to section 309(j) of the Communications 
Act of 1934 (47 U.S.C. 309(j)).

[[Page 111 STAT. 261]]

    (c) Commission <<NOTE: 47 USC 925 note.>> Obligation To Make 
Additional Spectrum Available by Auction.--
            (1) In general.--The Commission shall complete all actions 
        necessary to permit the assignment by September 30, 2002, by 
        competitive bidding pursuant to section 309(j) of the 
        Communications Act of 1934 (47 U.S.C. 309(j)), of licenses for 
        the use of bands of frequencies that--
                    (A) in the aggregate span not less than 55 
                megahertz;
                    (B) are located below 3 gigahertz;
                    (C) have not, as of the date of enactment of this 
                Act--
                          (i) been designated by Commission regulation 
                      for assignment pursuant to such section;
                          (ii) been identified by the Secretary of 
                      Commerce pursuant to section 113 of the National 
                      Telecommunications and Information Administration 
                      Organization Act (47 U.S.C. 923);
                          (iii) been allocated for Federal Government 
                      use pursuant to section 305 of the Communications 
                      Act of 1934 (47 U.S.C. 305);
                          (iv) been designated for reallocation under 
                      section 337 of the Communications Act of 1934 (as 
                      added by this Act); or
                          (v) been allocated or authorized for 
                      unlicensed use pursuant to part 15 of the 
                      Commission's regulations (47 C.F.R. Part 15), if 
                      the operation of services licensed pursuant to 
                      competitive bidding would interfere with operation 
                      of end-user products permitted under such 
                      regulations;
                    (D) include frequencies at 2,110-2,150 megahertz; 
                and
                    (E) include 15 megahertz from within the bands of 
                frequencies at 1,990-2,110 megahertz.
            (2) Criteria for Reassignment.--In making available bands of 
        frequencies for competitive bidding pursuant to paragraph (1), 
        the Commission shall--
                    (A) seek to promote the most efficient use of the 
                electromagnetic spectrum;
                    (B) consider the cost of relocating existing uses to 
                other bands of frequencies or other means of 
                communication;
                    (C) consider the needs of existing public safety 
                radio services (as such services are described in 
                section 309(j)(2)(A) of the Communications Act of 1934, 
                as amended by this Act);
                    (D) comply with the requirements of international 
                agreements concerning spectrum allocations; and
                    (E) coordinate with the Secretary of Commerce when 
                there is any impact on Federal Government spectrum use.
            (3) Use of bands at 2,110-2,150 megahertz.--The Commission 
        shall reallocate spectrum located at 2,110-2,150 megahertz for 
        assignment by competitive bidding unless the Commission 
        determines that auction of other spectrum (A) better serves the 
        public interest, convenience, and necessity, and (B) can 
        reasonably be expected to produce greater receipts. If the 
        Commission makes such a determination, then the Commission 
        shall, within 2 years after the date of enactment of this Act,

[[Page 111 STAT. 262]]

        identify an alternative 40 megahertz, and report to the Congress 
        an identification of such alternative 40 megahertz for 
        assignment by competitive bidding.
            (4) Use of 15 megahertz from bands at 1,990-2,110 
        megahertz.--The Commission shall reallocate 15 megahertz from 
        spectrum located at 1,990-2,110 megahertz for assignment by 
        competitive bidding unless the President determines such 
        spectrum cannot be reallocated due to the need to protect 
        incumbent Federal systems from interference, and that allocation 
        of other spectrum (A) better serves the public interest, 
        convenience, and necessity, and (B) can reasonably be expected 
        to produce comparable receipts. If the President makes such a 
        determination, then the President shall, within 2 years after 
        the date of enactment of this Act, identify alternative bands of 
        frequencies totalling 15 megahertz, and report to the Congress 
        an identification of such alternative bands for assignment by 
        competitive bidding.
            (5) Notification to the Secretary of Commerce.--The 
        Commission shall attempt to accommodate incumbent licensees 
        displaced under this section by relocating them to other 
        frequencies available for allocation by the Commission. The 
        Commission shall notify the Secretary of Commerce whenever the 
        Commission is not able to provide for the effective relocation 
        of an incumbent licensee to a band of frequencies available to 
        the Commission for assignment. The notification shall include--
                    (A) specific information on the incumbent licensee;
                    (B) the bands the Commission considered for 
                relocation of the licensee;
                    (C) the reasons the licensee cannot be accommodated 
                in such bands; and
                    (D) the bands of frequencies identified by the 
                Commission that are--
                          (i) suitable for the relocation of such 
                      licensee; and
                          (ii) allocated for Federal Government use, but 
                      that could be reallocated pursuant to part B of 
                      the National Telecommunications and Information 
                      Administration Organization Act (as amended by 
                      this Act).

    (d) Identification and Reallocation of Frequencies.--
            (1) In general.--Section 113 of the National 
        Telecommunications and Information Administration Organization 
        Act (47 U.S.C. 923) is amended by adding at the end thereof the 
        following:

    ``(f) Additional Reallocation Report.--If the Secretary receives a 
notice from the Commission pursuant to section 3002(c)(5) of the 
Balanced Budget Act of 1997, the Secretary shall prepare and submit to 
the President, the Commission, and the Congress a report recommending 
for reallocation for use other than by Federal Government stations under 
section 305 of the 1934 Act (47 U.S.C. 305), bands of frequencies that 
are suitable for the licensees identified in the Commission's notice. 
The Commission shall, not later than one year after receipt of such 
report, prepare, submit to the President and the Congress, and 
implement, a plan for the immediate allocation and assignment of such 
frequencies under the 1934 Act to incumbent licensees described in the 
Commission's notice.
    ``(g) Relocation of Federal Government Stations.--

[[Page 111 STAT. 263]]

            ``(1) In general.--In order to expedite the commercial use 
        of the electromagnetic spectrum and notwithstanding section 
        3302(b) of title 31, United States Code, any Federal entity 
        which operates a Federal Government station may accept from any 
        person payment of the expenses of relocating the Federal 
        entity's operations from one or more frequencies to another 
        frequency or frequencies, including the costs of any 
        modification, replacement, or reissuance of equipment, 
        facilities, operating manuals, or regulations incurred by that 
        entity. Such payments may be in advance of relocation and may be 
        in cash or in kind. Any such payment in cash shall be deposited 
        in the account of such Federal entity in the Treasury of the 
        United States or in a separate account authorized by law. Funds 
        deposited according to this paragraph shall be available, 
        without appropriation or fiscal year limitation, only for such 
        expenses of the Federal entity for which such funds were 
        deposited under this paragraph.
            ``(2) Process for relocation.--Any person seeking to 
        relocate a Federal Government station that has been assigned a 
        frequency within a band that has been allocated for mixed 
        Federal and non-Federal use, or that has been scheduled for 
        reallocation to non-Federal use, may submit a petition for such 
        relocation to NTIA. The NTIA shall limit or terminate the 
        Federal Government station's operating license within 6 months 
        after receiving the petition if the following requirements are 
        met:
                    ``(A) the person seeking relocation of the Federal 
                Government station has guaranteed to pay all relocation 
                costs incurred by the Federal entity, including all 
                engineering, equipment, site acquisition and 
                construction, and regulatory fee costs;
                    ``(B) all activities necessary for implementing the 
                relocation have been completed, including construction 
                of replacement facilities (if necessary and appropriate) 
                and identifying and obtaining new frequencies for use by 
                the relocated Federal Government station (where such 
                station is not relocating to spectrum reserved 
                exclusively for Federal use);
                    ``(C) any necessary replacement facilities, 
                equipment modifications, or other changes have been 
                implemented and tested to ensure that the Federal 
                Government station is able to successfully accomplish 
                its purposes; and
                    ``(D) NTIA has determined that the proposed use of 
                the spectrum frequency band to which the Federal entity 
                will relocate its operations is--
                          ``(i) consistent with obligations undertaken 
                      by the United States in international agreements 
                      and with United States national security and 
                      public safety interests; and
                          ``(ii) suitable for the technical 
                      characteristics of the band and consistent with 
                      other uses of the band.
                In exercising its authority under clause (i) of this 
                subparagraph, NTIA shall consult with the Secretary of 
                Defense, the Secretary of State, or other appropriate 
                officers of the Federal Government.
            ``(3) Right to reclaim.--If within one year after the 
        relocation the Federal entity demonstrates to the Commission 
        that

[[Page 111 STAT. 264]]

        the new facilities or spectrum are not comparable to the 
        facilities or spectrum from which the Federal Government station 
        was relocated, the person who filed the petition under paragraph 
        (2) for such relocation shall take reasonable steps to remedy 
        any defects or pay the Federal entity for the expenses incurred 
        in returning the Federal Government station to the spectrum from 
        which such station was relocated.

    ``(h) Federal Action To Expedite Spectrum Transfer.--Any Federal 
Government station which operates on electromagnetic spectrum that has 
been identified in any reallocation report under this section shall, to 
the maximum extent practicable through the use of the authority granted 
under subsection (g) and any other applicable provision of law, take 
action to relocate its spectrum use to other frequencies that are 
reserved for Federal use or to consolidate its spectrum use with other 
Federal Government stations in a manner that maximizes the spectrum 
available for non-Federal use.
    ``(i) Definition.--For purposes of this section, the term `Federal 
entity' means any department, agency, or other instrumentality of the 
Federal Government that utilizes a Government station license obtained 
under section 305 of the 1934 Act (47 U.S.C. 305).''.
            (2) Section 114(a) of such Act (47 U.S.C. 924(a)) is 
        amended--
                    (A) in paragraph (1), by striking ``(a) or (d)(1)'' 
                and inserting ``(a), (d)(1), or (f)''; and
                    (B) in paragraph (2), by striking ``either'' and 
                inserting ``any''.

    (e) Identification and Reallocation of Auctionable Frequencies.--
            (1) Second report required.--Section 113(a) of the National 
        Telecommunications and Information Administration Organization 
        Act (47 U.S.C. 923(a)) is amended by inserting ``and within 6 
        months after the date of enactment of the Balanced Budget Act of 
        1997'' after ``Act of 1993''.
            (2) In general.--Section 113(b) of such Act (47 U.S.C. 
        923(b)) is amended--
                    (A) by striking the caption of paragraph (1) and 
                inserting ``Initial reallocation report.--'';
                    (B) by inserting ``in the initial report required by 
                subsection (a)'' after ``recommend for reallocation'' in 
                paragraph (1);
                    (C) by inserting ``or (3)'' after ``paragraph (1)'' 
                each place it appears in paragraph (2); and
                    (D) by adding at the end thereof the following:
            ``(3) Second reallocation report.--In accordance with the 
        provisions of this section, the Secretary shall recommend for 
        reallocation in the second report required by subsection (a), 
        for use other than by Federal Government stations under section 
        305 of the 1934 Act (47 U.S.C. 305), a band or bands of 
        frequencies that--
                    ``(A) in the aggregate span not less than 20 
                megahertz;
                    ``(B) are located below 3 gigahertz; and
                    ``(C) meet the criteria specified in paragraphs (1) 
                through (5) of subsection (a).''.

[[Page 111 STAT. 265]]

            (3) Conforming amendment.--Section 113(d) of such Act (47 
        U.S.C. 923(d)) is amended by striking ``final report'' and 
        inserting ``initial report''.
            (4) Allocation and assignment.--Section 115 of such Act (47 
        U.S.C. 925) is amended--
                    (A) by striking ``the report required by section 
                113(a)'' in subsection (b) and inserting ``the initial 
                reallocation report required by section 113(a)''; and
                    (B) by adding at the end thereof the following:

    ``(c) Allocation and Assignment of Frequencies Identified in the 
Second Reallocation Report.--
            ``(1) Plan and implementation.--With respect to the 
        frequencies made available for reallocation pursuant to section 
        113(b)(3), the Commission shall, not later than one year after 
        receipt of the second reallocation report required by section 
        113(a), prepare, submit to the President and the Congress, and 
        implement, a plan for the immediate allocation and assignment 
        under the 1934 Act of all such frequencies in accordance with 
        section 309(j) of such Act.
            ``(2) Contents.--The plan prepared by the Commission under 
        paragraph (1) shall consist of a schedule of allocation and 
        assignment of those frequencies in accordance with section 
        309(j) of the 1934 Act in time for the assignment of those 
        licenses or permits by September 30, 2002.''.

SEC. 3003. AUCTION OF RECAPTURED BROADCAST TELEVISION SPECTRUM.

    Section 309(j) of the Communications Act of 1934 (47 U.S.C. 309(j)) 
is amended by adding at the end the following new paragraph:
            ``(14) Auction of recaptured broadcast television 
        spectrum.--
                    ``(A) Limitations on terms of terrestrial television 
                broadcast licenses.--A television broadcast license that 
                authorizes analog television service may not be renewed 
                to authorize such service for a period that extends 
                beyond December 31, 2006.
                    ``(B) Extension.--The Commission shall extend the 
                date described in subparagraph (A) for any station that 
                requests such extension in any television market if the 
                Commission finds that--
                          ``(i) one or more of the stations in such 
                      market that are licensed to or affiliated with one 
                      of the four largest national television networks 
                      are not broadcasting a digital television service 
                      signal, and the Commission finds that each such 
                      station has exercised due diligence and satisfies 
                      the conditions for an extension of the 
                      Commission's applicable construction deadlines for 
                      digital television service in that market;
                          ``(ii) digital-to-analog converter technology 
                      is not generally available in such market; or
                          ``(iii) in any market in which an extension is 
                      not available under clause (i) or (ii), 15 percent 
                      or more of the television households in such 
                      market--
                                    ``(I) do not subscribe to a 
                                multichannel video programming 
                                distributor (as defined in section

[[Page 111 STAT. 266]]

                                602) that carries one of the digital 
                                television service programming channels 
                                of each of the television stations 
                                broadcasting such a channel in such 
                                market; and
                                    ``(II) do not have either--
                                            ``(a) at least one 
                                        television receiver capable of 
                                        receiving the digital television 
                                        service signals of the 
                                        television stations licensed in 
                                        such market; or
                                            ``(b) at least one 
                                        television receiver of analog 
                                        television service signals 
                                        equipped with digital-to-analog 
                                        converter technology capable of 
                                        receiving the digital television 
                                        service signals of the 
                                        television stations licensed in 
                                        such market.
                    ``(C) Spectrum reversion and resale.--
                          ``(i) The Commission shall--
                                    ``(I) ensure that, as licenses for 
                                analog television service expire 
                                pursuant to subparagraph (A) or (B), 
                                each licensee shall cease using 
                                electromagnetic spectrum assigned to 
                                such service according to the 
                                Commission's direction; and
                                    ``(II) reclaim and organize the 
                                electromagnetic spectrum in a manner 
                                consistent with the objectives described 
                                in paragraph (3) of this subsection.
                          ``(ii) Licensees for new services occupying 
                      spectrum reclaimed pursuant to clause (i) shall be 
                      assigned in accordance with this 
                      subsection. <<NOTE: Reports.>> The Commission 
                      shall complete the assignment of such licenses, 
                      and report to the Congress the total revenues from 
                      such competitive bidding, by September 30, 2002.
                    ``(D) Certain limitations on qualified bidders 
                prohibited.--In prescribing any regulations relating to 
                the qualification of bidders for spectrum reclaimed 
                pursuant to subparagraph (C)(i), the Commission, for any 
                license that may be used for any digital television 
                service where the grade A contour of the station is 
                projected to encompass the entirety of a city with a 
                population in excess of 400,000 (as determined using the 
                1990 decennial census), shall not--
                          ``(i) preclude any party from being a 
                      qualified bidder for such spectrum on the basis 
                      of--
                                    ``(I) the Commission's duopoly rule 
                                (47 C.F.R. 73.3555(b)); or
                                    ``(II) the Commission's newspaper 
                                cross-ownership rule (47 C.F.R. 
                                73.3555(d)); or
                          ``(ii) apply either such rule to preclude such 
                      a party that is a winning bidder in a competitive 
                      bidding for such spectrum from using such spectrum 
                      for digital television service.''.

SEC. 3004. ALLOCATION AND ASSIGNMENT OF NEW PUBLIC SAFETY SERVICES 
            LICENSES AND COMMERCIAL LICENSES.

    Title III of the Communications Act of 1934 is amended by inserting 
after section 336 (47 U.S.C. 336) the following new section:

[[Page 111 STAT. 267]]

``SEC. 337. <<NOTE: 47 USC 337.>> ALLOCATION AND ASSIGNMENT OF NEW 
            PUBLIC SAFETY SERVICES LICENSES AND COMMERCIAL LICENSES.

    ``(a) In General.--Not later than January 1, 1998, the Commission 
shall allocate the electromagnetic spectrum between 746 megahertz and 
806 megahertz, inclusive, as follows:
            ``(1) 24 megahertz of that spectrum for public safety 
        services according to the terms and conditions established by 
        the Commission, in consultation with the Secretary of Commerce 
        and the Attorney General; and
            ``(2) 36 megahertz of that spectrum for commercial use to be 
        assigned by competitive bidding pursuant to section 309(j).

    ``(b) Assignment.--The Commission shall--
            ``(1) commence assignment of the licenses for public safety 
        services created pursuant to subsection (a) no later than 
        September 30, 1998; and
            ``(2) commence competitive bidding for the commercial 
        licenses created pursuant to subsection (a) after January 1, 
        2001.

    ``(c) Licensing of Unused Frequencies for Public Safety Services.--
            ``(1) Use of unused channels for public safety services.--
        Upon application by an entity seeking to provide public safety 
        services, the Commission shall waive any requirement of this Act 
        or its regulations implementing this Act (other than its 
        regulations regarding harmful interference) to the extent 
        necessary to permit the use of unassigned frequencies for the 
        provision of public safety services by such entity. An 
        application shall be granted under this subsection if the 
        Commission finds that--
                    ``(A) no other spectrum allocated to public safety 
                services is immediately available to satisfy the 
                requested public safety service use;
                    ``(B) the requested use is technically feasible 
                without causing harmful interference to other spectrum 
                users entitled to protection from such interference 
                under the Commission's regulations;
                    ``(C) the use of the unassigned frequency for the 
                provision of public safety services is consistent with 
                other allocations for the provision of such services in 
                the geographic area for which the application is made;
                    ``(D) the unassigned frequency was allocated for its 
                present use not less than 2 years prior to the date on 
                which the application is granted; and
                    ``(E) granting such application is consistent with 
                the public interest.
            ``(2) Applicability.--Paragraph (1) shall apply to any 
        application to provide public safety services that is pending or 
        filed on or after the date of enactment of the Balanced Budget 
        Act of 1997.

    ``(d) Conditions on Licenses.--In establishing service rules with 
respect to licenses granted pursuant to this section, the Commission--
            ``(1) shall establish interference limits at the boundaries 
        of the spectrum block and service area;
            ``(2) shall establish any additional technical restrictions 
        necessary to protect full-service analog television service and

[[Page 111 STAT. 268]]

        digital television service during a transition to digital 
        television service;
            ``(3) may permit public safety services licensees and 
        commercial licensees--
                    ``(A) to aggregate multiple licenses to create 
                larger spectrum blocks and service areas; and
                    ``(B) to disaggregate or partition licenses to 
                create smaller spectrum blocks or service areas; and
            ``(4) shall establish rules insuring that public safety 
        services licensees using spectrum reallocated pursuant to 
        subsection (a)(1) shall not be subject to harmful interference 
        from television broadcast licensees.

    ``(e) Removal and Relocation of Incumbent Broadcast Licensees.--
            ``(1) Channels 60 to 69.--Any person who holds a television 
        broadcast license to operate between 746 and 806 megahertz may 
        not operate at that frequency after the date on which the 
        digital television service transition period terminates, as 
        determined by the Commission.
            ``(2) Incumbent qualifying low-power stations.--After making 
        any allocation or assignment under this section, the Commission 
        shall seek to assure, consistent with the Commission's plan for 
        allotments for digital television service, that each qualifying 
        low-power television station is assigned a frequency below 746 
        megahertz to permit the continued operation of such station.

    ``(f) Definitions.--For purposes of this section:
            ``(1) Public safety services.--The term `public safety 
        services' means services--
                    ``(A) the sole or principal purpose of which is to 
                protect the safety of life, health, or property;
                    ``(B) that are provided--
                          ``(i) by State or local government entities; 
                      or
                          ``(ii) by nongovernmental organizations that 
                      are authorized by a governmental entity whose 
                      primary mission is the provision of such services; 
                      and
                    ``(C) that are not made commercially available to 
                the public by the provider.
            ``(2) Qualifying low-power television stations.--A station 
        is a qualifying low-power television station if, during the 90 
        days preceding the date of enactment of the Balanced Budget Act 
        of 1997--
                    ``(A) such station broadcast a minimum of 18 hours 
                per day;
                    ``(B) such station broadcast an average of at least 
                3 hours per week of programming that was produced within 
                the market area served by such station; and
                    ``(C) such station was in compliance with the 
                requirements applicable to low-power television 
                stations.''.

SEC. 3005. FLEXIBLE USE OF ELECTROMAGNETIC SPECTRUM.

    Section 303 of the Communications Act of 1934 (47 U.S.C. 303) is 
amended by adding at the end thereof the following:
    ``(y) Have authority to allocate electromagnetic spectrum so as to 
provide flexibility of use, if--
            ``(1) such use is consistent with international agreements 
        to which the United States is a party; and

[[Page 111 STAT. 269]]

            ``(2) the Commission finds, after notice and an opportunity 
        for public comment, that--
                    ``(A) such an allocation would be in the public 
                interest;
                    ``(B) such use would not deter investment in 
                communications services and systems, or technology 
                development; and
                    ``(C) such use would not result in harmful 
                interference among users.''.

SEC. 3006. <<NOTE: 47 USC 254 note.>> UNIVERSAL SERVICE FUND PAYMENT 
            SCHEDULE.

    (a) Appropriations to the Universal Service Fund.--
            (1) Appropriation.--There is hereby appropriated to the 
        Commission $3,000,000,000 in fiscal year 2001, which shall be 
        disbursed on October 1, 2000, to the Administrator of the 
        Federal universal service support programs established pursuant 
        to section 254 of the Communications Act of 1934 (47 U.S.C. 
        254), and which may be expended by the Administrator in support 
        of such programs as provided pursuant to the rules implementing 
        that section.
            (2) Return to treasury.--The Administrator shall transfer 
        $3,000,000,000 from the funds collected for such support 
        programs to the General Fund of the Treasury on October 1, 2001.

    (b) Fee Adjustments.--The Commission shall direct the Administrator 
to adjust payments by telecommunications carriers and other providers of 
interstate telecommunications so that the $3,000,000,000 of the total 
payments by such carriers or providers to the Administrator for fiscal 
year 2001 shall be deferred until October 1, 2001.
    (c) Preservation of Authority.--Nothing in this section shall affect 
the Administrator's authority to determine the amounts that should be 
expended for universal service support programs pursuant to section 254 
of the Communications Act of 1934 and the rules implementing that 
section.
    (d) Definition.--For purposes of this section, the term 
``Administrator'' means the Administrator designated by the Federal 
Communications Commission to administer Federal universal service 
support programs pursuant to section 254 of the Communications Act of 
1934.

SEC. 3007. <<NOTE: 47 USC 309 note.>> DEADLINE FOR COLLECTION

    The Commission shall conduct the competitive bidding required under 
this title or the amendments made by this title in a manner that ensures 
that all proceeds of such bidding are deposited in accordance with 
section 309(j)(8) of the Communications Act of 1934 not later than 
September 30, 2002.

SEC. 3008. <<NOTE: 47 USC 309 note.>> ADMINISTRATIVE PROCEDURES FOR 
            SPECTRUM AUCTIONS.

    Notwithstanding section 309(b) of the Communications Act of 1934 (47 
U.S.C. 309(b)), no application for an instrument of authorization for 
frequencies assigned under this title (or amendments made by this title) 
shall be granted by the Commission earlier than 7 days following 
issuance of public notice by the Commission of the acceptance for filing 
of such application or of any substantial amendment thereto. 
Notwithstanding section 309(d)(1) of such Act (47 U.S.C. 309(d)(1)), the 
Commission may specify a period (no less than 5 days following issuance 
of such

[[Page 111 STAT. 270]]

public notice) for the filing of petitions to deny any application for 
an instrument of authorization for such frequencies.

     TITLE IV--MEDICARE, MEDICAID, AND CHILDREN'S HEALTH PROVISIONS

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

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

Sec. 4000. Amendments to Social Security Act and references to OBRA; 
           table of contents of title.

                   Subtitle A--Medicare+Choice Program

                   Chapter 1--Medicare+Choice Program

                  subchapter a--medicare+choice program

Sec. 4001. Establishment of Medicare+Choice program.

                    ``Part C--Medicare+Choice Program

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

Sec. 4006. Medicare+Choice MSA.

                        Chapter 2--Demonstrations

 subchapter a--medicare+choice competitive pricing demonstration project

Sec. 4011. Medicare prepaid competitive pricing demonstration project.
Sec. 4012. Administration through the Office of Competition; advisory 
           committee.
Sec. 4013. Project design based on FEHBP competitive bidding model.
          subchapter b--social health maintenance organizations

Sec. 4014. Social health maintenance organizations (SHMOs).
  subchapter c--medicare subvention demonstration project for military 
                                retirees

Sec. 4015. Medicare subvention demonstration project for military 
           retirees.
                      subchapter d--other projects

Sec. 4016. Medicare coordinated care demonstration project.

[[Page 111 STAT. 271]]

Sec. 4017. Orderly transition of municipal health service demonstration 
           projects.
Sec. 4018. Medicare enrollment demonstration project.
Sec. 4019. Extension of certain medicare community nursing organization 
           demonstration projects.

                         Chapter 3--Commissions

Sec. 4021. National Bipartisan Commission on the Future of Medicare.
Sec. 4022. Medicare Payment Advisory Commission.

                     Chapter 4--Medigap Protections

Sec. 4031. Medigap protections.
Sec. 4032. Addition of high deductible medigap policies.

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

Sec. 4041. Tax treatment of hospitals which participate in provider-
           sponsored organizations.

                   Subtitle B--Prevention Initiatives

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

                      Subtitle C--Rural Initiatives

Sec. 4201. Medicare rural hospital flexibility program.
Sec. 4202. Prohibiting denial of request by rural referral centers for 
           reclassification on basis of comparability of wages.
Sec. 4203. Hospital geographic reclassification permitted for purposes 
           of disproportionate share payment adjustments.
Sec. 4204. Medicare-dependent, small rural hospital payment extension.
Sec. 4205. Rural health clinic services.
Sec. 4206. Medicare reimbursement for telehealth services.
Sec. 4207. Informatics, telemedicine, and education demonstration 
           project.

    Subtitle D--Anti-Fraud and Abuse Provisions and Improvements in 
                      Protecting Program Integrity

          Chapter 1--Revisions To Sanctions for Fraud and Abuse

Sec. 4301. Permanent exclusion for those convicted of 3 health care 
           related crimes.
Sec. 4302. Authority to refuse to enter into medicare agreements with 
           individuals or entities convicted of felonies.
Sec. 4303. Exclusion of entity controlled by family member of a 
           sanctioned individual.
Sec. 4304. Imposition of civil money penalties.

         Chapter 2--Improvements In Protecting Program Integrity

Sec. 4311. Improving information to medicare beneficiaries.
Sec. 4312. Disclosure of information and surety bonds.
Sec. 4313. Provision of certain identification numbers.
Sec. 4314. Advisory opinions regarding certain physician self-referral 
           provisions.
Sec. 4315. Replacement of reasonable charge methodology by fee 
           schedules.
Sec. 4316. Application of inherent reasonableness to all part B services 
           other than physicians' services.
Sec. 4317. Requirement to furnish diagnostic information.
Sec. 4318. Report by GAO on operation of fraud and abuse control 
           program.
Sec. 4319. Competitive bidding demonstration projects.
Sec. 4320. Prohibiting unnecessary and wasteful medicare payments for 
           certain items.
Sec. 4321. Nondiscrimination in post-hospital referral to home health 
           agencies and other entities.

             Chapter 3--Clarifications And Technical Changes

Sec. 4331. Other fraud and abuse related provisions.

             Subtitle E--Provisions Relating to Part A Only

                   Chapter 1--Payment of PPS Hospitals

Sec. 4401. PPS hospital payment update.

[[Page 111 STAT. 272]]

Sec. 4402. Maintaining savings from temporary reduction in capital 
           payments for PPS hospitals.
Sec. 4403. Disproportionate share.
Sec. 4404. Medicare capital asset sales price equal to book value.
Sec. 4405. Elimination of IME and DSH payments attributable to outlier 
           payments.
Sec. 4406. Increase base payment rate to Puerto Rico hospitals.
Sec. 4407. Certain hospital discharges to post acute care.
Sec. 4408. Reclassification of certain counties as large urban areas 
           under medicare program.
Sec. 4409. Geographic reclassification for certain disproportionately 
           large hospitals.
Sec. 4410. Floor on area wage index.

               Chapter 2--Payment of PPS-Exempt Hospitals

                subchapter a--general payment provisions

Sec. 4411. Payment update.
Sec. 4412. Reductions to capital payments for certain PPS-exempt 
           hospitals and units.
Sec. 4413. Rebasing.
Sec. 4414. Cap on TEFRA limits.
Sec. 4415. Bonus and relief payments.
Sec. 4416. Change in payment and target amount for new providers.
Sec. 4417. Treatment of certain long-term care hospitals.
Sec. 4418. Treatment of certain cancer hospitals.
Sec. 4419. Elimination of exemptions for certain hospitals.
    subchapter b--prospective payment system for pps-exempt hospitals

Sec. 4421. Prospective payment for inpatient rehabilitation hospital 
           services.
Sec. 4422. Development of proposal on payments for long-term care 
           hospitals.

            Chapter 3--Payment for Skilled Nursing Facilities

Sec. 4431. Extension of cost limits.
Sec. 4432. Prospective payment for skilled nursing facility services.

            Chapter 4--Provisions Related to Hospice Services

Sec. 4441. Payments for hospice services.
Sec. 4442. Payment for home hospice care based on location where care is 
           furnished.
Sec. 4443. Hospice care benefits periods.
Sec. 4444. Other items and services included in hospice care.
Sec. 4445. Contracting with independent physicians or physician groups 
           for hospice care services permitted.
Sec. 4446. Waiver of certain staffing requirements for hospice care 
           programs in nonurbanized areas.
Sec. 4447. Limitation on liability of beneficiaries for certain hospice 
           coverage denials.
Sec. 4448. Extending the period for physician certification of an 
           individual's terminal illness.
Sec. 4449. Effective date.

                   Chapter 5--Other Payment Provisions

Sec. 4451. Reductions in payments for enrollee bad debt.
Sec. 4452. Permanent extension of hemophilia pass-through payment.
Sec. 4453. Reduction in part A medicare premium for certain public 
           retirees.
Sec. 4454. Coverage of services in religious nonmedical health care 
           institutions under the medicare and medicaid programs.

             Subtitle F--Provisions Relating to Part B Only

               Chapter 1--Services of Health Professionals

                   subchapter a--physicians' services

Sec. 4501. Establishment of single conversion factor for 1998.
Sec. 4502. Establishing update to conversion factor to match spending 
           under sustainable growth rate.
Sec. 4503. Replacement of volume performance standard with sustainable 
           growth rate.
Sec. 4504. Payment rules for anesthesia services.
Sec. 4505. Implementation of resource-based methodologies.
Sec. 4506. Dissemination of information on high per discharge relative 
           values for in-hospital physicians' services.
Sec. 4507. Use of private contracts by medicare beneficiaries.

[[Page 111 STAT. 273]]

              subchapter b--other health care professionals

Sec. 4511. Increased medicare reimbursement for nurse practitioners and 
           clinical nurse specialists.
Sec. 4512. Increased medicare reimbursement for physician assistants.
Sec. 4513. No x-ray required for chiropractic services.

     Chapter 2--Payment For Hospital Outpatient Department Services

Sec. 4521. Elimination of formula-driven overpayments (FDO) for certain 
           outpatient hospital services.
Sec. 4522. Extension of reductions in payments for costs of hospital 
           outpatient services.
Sec. 4523. Prospective payment system for hospital outpatient department 
           services.

                      Chapter 3--Ambulance Services

Sec. 4531. Payments for ambulance services.
Sec. 4532. Demonstration of coverage of ambulance services under 
           medicare through contracts with units of local government.

  Chapter 4--Prospective Payment for Outpatient Rehabilitation Services

Sec. 4541. Prospective payment for outpatient rehabilitation services.

                   Chapter 5--Other Payment Provisions

Sec. 4551. Payments for durable medical equipment.
Sec. 4552. Oxygen and oxygen equipment.
Sec. 4553. Reduction in updates to payment amounts for clinical 
           diagnostic laboratory tests; study on laboratory tests.
Sec. 4554. Improvements in administration of laboratory tests benefit.
Sec. 4555. Updates for ambulatory surgical services.
Sec. 4556. Reimbursement for drugs and biologicals.
Sec. 4557. Coverage of oral anti-nausea drugs under chemotherapeutic 
           regimen.
Sec. 4558. Renal dialysis-related services.
Sec. 4559. Temporary coverage restoration for portable electrocardiogram 
           transportation.

            Chapter 6--Part B Premium and Related Provisions

          subchapter a--determination of part b premium amount

Sec. 4571. Part B premium.
        subchapter b--other provisions related to part b premium

Sec. 4581. Protections under the medicare program for disabled workers 
           who lose benefits under a group health plan.
Sec. 4582. Governmental entities eligible to elect to pay part B 
           premiums for eligible individuals.

            Subtitle G--Provisions Relating to Parts A and B

              Chapter 1--Home Health Services and Benefits

             subchapter a--payments for home health services

Sec. 4601. Recapturing savings resulting from temporary freeze on 
           payment increases for home health services.
Sec. 4602. Interim payments for home health services.
Sec. 4603. Prospective payment for home health services.
Sec. 4604. Payment based on location where home health service is 
           furnished.
                   subchapter b--home health benefits

Sec. 4611. Modification of part A home health benefit for individuals 
           enrolled under part B.
Sec. 4612. Clarification of part-time or intermittent nursing care.
Sec. 4613. Study on definition of homebound.
Sec. 4614. Normative standards for home health claims denials.
Sec. 4615. No home health benefits based solely on drawing blood.
Sec. 4616. Reports to Congress regarding home health cost containment.

                  Chapter 2--Graduate Medical Education

                subchapter a--indirect medical education

Sec. 4621. Indirect graduate medical education payments.
Sec. 4622. Payment to hospitals of indirect medical education costs for 
           Medicare+Choice enrollees.

[[Page 111 STAT. 274]]

             subchapter b--direct graduate medical education

Sec. 4623. Limitation on number of residents and rolling average FTE 
           count.
Sec. 4624. Payments to hospitals for direct costs of graduate medical 
           education of Medicare+Choice enrollees.
Sec. 4625. Permitting payment to nonhospital providers.
Sec. 4626. Incentive payments under plans for voluntary reduction in 
           number of residents.
Sec. 4627. Medicare special reimbursement rule for primary care combined 
           residency programs.
Sec. 4628. Demonstration project on use of consortia.
Sec. 4629. Recommendations on long-term policies regarding teaching 
           hospitals and graduate medical education.
Sec. 4630. Study of hospital overhead and supervisory physician 
           components of direct medical education costs.

       Chapter 3--Provisions Relating to Medicare Secondary Payer

Sec. 4631. Permanent extension and revision of certain secondary payer 
           provisions.
Sec. 4632. Clarification of time and filing limitations.
Sec. 4633. Permitting recovery against third party administrators.

                       Chapter 4--Other Provisions

Sec. 4641. Placement of advance directive in medical record.
Sec. 4642. Increased certification period for certain organ procurement 
           organizations.
Sec. 4643. Office of the Chief Actuary in the Health Care Financing 
           Administration.
Sec. 4644. Conforming amendments to comply with congressional review of 
           agency rulemaking.

                          Subtitle H--Medicaid

                         Chapter 1--Managed Care

Sec. 4701. State option of using managed care; change in terminology.
Sec. 4702. Primary care case management services as State option without 
           need for waiver.
Sec. 4703. Elimination of 75:25 restriction on risk contracts.
Sec. 4704. Increased beneficiary protections.
Sec. 4705. Quality assurance standards.
Sec. 4706. Solvency standards.
Sec. 4707. Protections against fraud and abuse.
Sec. 4708. Improved administration.
Sec. 4709. 6-month guaranteed eligibility for all individuals enrolled 
           in managed care.
Sec. 4710. Effective dates.

             Chapter 2--Flexibility In Payment of Providers

Sec. 4711. Flexibility in payment methods for hospital, nursing 
           facility, ICF/MR, and home health services.
Sec. 4712. Payment for center and clinic services.
Sec. 4713. Elimination of obstetrical and pediatric payment rate 
           requirements.
Sec. 4714. Medicaid payment rates for certain medicare cost-sharing.
Sec. 4715. Treatment of veterans' pensions under medicaid.

                  Chapter 3--Federal Payments to States

Sec. 4721. Reforming disproportionate share payments under State 
           medicaid programs.
Sec. 4722. Treatment of State taxes imposed on certain hospitals.
Sec. 4723. Additional funding for State emergency health services 
           furnished to undocumented aliens.
Sec. 4724. Elimination of waste, fraud, and abuse.
Sec. 4725. Increased FMAPs.
Sec. 4726. Increase in payment limitation for territories.

                         Chapter 4--Eligibility

Sec. 4731. State option of continuous eligibility for 12 months; 
           clarification of State option to cover children.
Sec. 4732. Payment of part B premiums.
Sec. 4733. State option to permit workers with disabilities to buy into 
           medicaid.
Sec. 4734. Penalty for fraudulent eligibility.
Sec. 4735. Treatment of certain settlement payments.

[[Page 111 STAT. 275]]

                           Chapter 5--Benefits

Sec. 4741. Elimination of requirement to pay for private insurance.
Sec. 4742. Physician qualification requirements.
Sec. 4743. Elimination of requirement of prior institutionalization with 
           respect to habilitation services furnished under a waiver for 
           home or community-based services.
Sec. 4744. Study and report on EPSDT benefit.

               Chapter 6--Administration and Miscellaneous

Sec. 4751. Elimination of duplicative inspection of care requirements 
           for ICFS/MR and mental hospitals.
Sec. 4752. Alternative sanctions for noncompliant ICFS/MR.
Sec. 4753. Modification of MMIS requirements.
Sec. 4754. Facilitating imposition of State alternative remedies on 
           noncompliant nursing facilities.
Sec. 4755. Removal of name from nurse aide registry.
Sec. 4756. Medically accepted indication.
Sec. 4757. Continuation of State-wide section 1115 medicaid waivers.
Sec. 4758. Extension of moratorium.
Sec. 4759. Extension of effective date for State law amendment.

    Subtitle I--Programs of All-Inclusive Care for the Elderly (PACE)

Sec. 4801. Coverage of PACE under the medicare program.
Sec. 4802. Establishment of PACE program as medicaid State option.
Sec. 4803. Effective date; transition.
Sec. 4804. Study and reports.

          Subtitle J--State Children's Health Insurance Program

          Chapter 1--State Children's Health Insurance Program

Sec. 4901. Establishment of program.

         ``TITLE XXI--STATE CHILDREN'S HEALTH INSURANCE PROGRAM

        ``Sec. 2101. Purpose; State child health plans.
        ``Sec. 2102. General contents of State child health plan; 
                            eligibility; outreach.
        ``Sec. 2103. Coverage requirements for children's health 
                            insurance.
        ``Sec. 2104. Allotments.
        ``Sec. 2105. Payments to States.
        ``Sec. 2106. Process for submission, approval, and amendment of 
                            State child health plans.
        ``Sec. 2107. Strategic objectives and performance goals; plan 
                            administration.
        ``Sec. 2108. Annual reports; evaluations.
        ``Sec. 2109. Miscellaneous provisions.
        ``Sec. 2110. Definitions.

         Chapter 2--Expanded Coverage of Children Under Medicaid

Sec. 4911. Optional use of State child health assistance funds for 
           enhanced medicaid match for expanded medicaid eligibility.
Sec. 4912. Medicaid presumptive eligibility for low-income children.
Sec. 4913. Continuation of medicaid eligibility for disabled children 
           who lose SSI benefits.

                   Chapter 3--Diabetes Grant Programs

Sec. 4921. Special diabetes programs for children with Type I diabetes.
Sec. 4922. Special diabetes programs for Indians.
Sec. 4923. Report on diabetes grant programs.

                   Subtitle A--Medicare+Choice Program

                   CHAPTER 1--MEDICARE+CHOICE PROGRAM

                  Subchapter A--Medicare+Choice Program

SEC. 4001. ESTABLISHMENT OF MEDICARE+CHOICE PROGRAM.

    Title XVIII is amended by redesignating part C as part D and by 
inserting after part B the following new part:

[[Page 111 STAT. 276]]

                    ``Part C--Medicare+Choice Program

                 ``eligibility, election, and enrollment

    ``Sec. 1851. <<NOTE: 42 USC 1395w-21.>> (a) Choice of Medicare 
Benefits Through Medicare+Choice Plans.--
            ``(1) In general.--Subject to the provisions of this 
        section, each Medicare+Choice eligible individual (as defined in 
        paragraph (3)) is entitled to elect to receive benefits under 
        this title--
                    ``(A) through the original medicare fee-for-service 
                program under parts A and B, or
                    ``(B) through enrollment in a Medicare+Choice plan 
                under this part.
            ``(2) Types of medicare+choice plans that may be 
        available.--A Medicare+Choice plan may be any of the following 
        types of plans of health insurance:
                    ``(A) Coordinated care plans.--Coordinated care 
                plans which provide health care services, including but 
                not limited to health maintenance organization plans 
                (with or without point of service options), plans 
                offered by provider-sponsored organizations (as defined 
                in section 1855(d)), and preferred provider organization 
                plans.
                    ``(B) Combination of msa plan and contributions to 
                medicare+choice msa.--An MSA plan, as defined in section 
                1859(b)(3), and a contribution into a Medicare+Choice 
                medical savings account (MSA).
                    ``(C) Private fee-for-service plans.--A 
                Medicare+Choice private fee-for-service plan, as defined 
                in section 1859(b)(2).
            ``(3) Medicare+choice eligible individual.--
                    ``(A) In general.--In this title, subject to 
                subparagraph (B), the term `Medicare+Choice eligible 
                individual' means an individual who is entitled to 
                benefits under part A and enrolled under part B.
                    ``(B) Special rule for end-stage renal disease.--
                Such term shall not include an individual medically 
                determined to have end-stage renal disease, except that 
                an individual who develops end-stage renal disease while 
                enrolled in a Medicare+Choice plan may continue to be 
                enrolled in that plan.

    ``(b) Special Rules.--
            ``(1) Residence requirement.--
                    ``(A) In general.--Except as the Secretary may 
                otherwise provide, an individual is eligible to elect a 
                Medicare+Choice plan offered by a Medicare+Choice 
                organization only if the plan serves the geographic area 
                in which the individual resides.
                    ``(B) Continuation of enrollment permitted.--
                Pursuant to rules specified by the Secretary, the 
                Secretary shall provide that a plan may offer to all 
                individuals residing in a geographic area the option to 
                continue enrollment in the plan, notwithstanding that 
                the individual no longer resides in the service area of 
                the plan, so long as the plan provides that individuals 
                exercising this option have, as part of the basic 
                benefits described in section 1852(a)(1)(A), reasonable 
                access within that geographic

[[Page 111 STAT. 277]]

                area to the full range of basic benefits, subject to 
                reasonable cost sharing liability in obtaining such 
                benefits.
            ``(2) Special rule for certain individuals covered under 
        fehbp or eligible for veterans or military health benefits, 
        veterans.--
                    ``(A) FEHBP.--An individual who is enrolled in a 
                health benefit plan under chapter 89 of title 5, United 
                States Code, is not eligible to enroll in an MSA plan 
                until such time as the Director of the Office of 
                Management and Budget certifies to the Secretary that 
                the Office of Personnel Management has adopted policies 
                which will ensure that the enrollment of such 
                individuals in such plans will not result in increased 
                expenditures for the Federal Government for health 
                benefit plans under such chapter.
                    ``(B) VA and dod.--The Secretary may apply rules 
                similar to the rules described in subparagraph (A) in 
                the case of individuals who are eligible for health care 
                benefits under chapter 55 of title 10, United States 
                Code, or under chapter 17 of title 38 of such Code.
            ``(3) Limitation on eligibility of qualified medicare 
        beneficiaries and other medicaid beneficiaries to enroll in an 
        msa plan.--An individual who is a qualified medicare beneficiary 
        (as defined in section 1905(p)(1)), a qualified disabled and 
        working individual (described in section 1905(s)), an individual 
        described in section 1902(a)(10)(E)(iii), or otherwise entitled 
        to medicare cost-sharing under a State plan under title XIX is 
        not eligible to enroll in an MSA plan.
            ``(4) Coverage under msa plans on a demonstration basis.--
                    ``(A) In general.--An individual is not eligible to 
                enroll in an MSA plan under this part--
                          ``(i) on or after January 1, 2003, unless the 
                      enrollment is the continuation of such an 
                      enrollment in effect as of such date; or
                          ``(ii) as of any date if the number of such 
                      individuals so enrolled as of such date has 
                      reached 390,000.
                Under rules established by the Secretary, an individual 
                is not eligible to enroll (or continue enrollment) in an 
                MSA plan for a year unless the individual provides 
                assurances satisfactory to the Secretary that the 
                individual will reside in the United States for at least 
                183 days during the year.
                    ``(B) Evaluation.--The Secretary shall regularly 
                evaluate the impact of permitting enrollment in MSA 
                plans under this part on selection (including adverse 
                selection), use of preventive care, access to care, and 
                the financial status of the Trust Funds under this 
                title.
                    ``(C) Reports.--The Secretary shall submit to 
                Congress periodic reports on the numbers of individuals 
                enrolled in such plans and on the evaluation being 
                conducted under subparagraph (B). The Secretary shall 
                submit such a report, by not later than March 1, 2002, 
                on whether the time limitation under subparagraph (A)(i) 
                should be extended or removed and whether to change the 
                numerical limitation under subparagraph (A)(ii).

    ``(c) Process for Exercising Choice.--

[[Page 111 STAT. 278]]

            ``(1) In general.--The Secretary shall establish a process 
        through which elections described in subsection (a) are made and 
        changed, including the form and manner in which such elections 
        are made and changed. Such elections shall be made or changed 
        only during coverage election periods specified under subsection 
        (e) and shall become effective as provided in subsection (f).
            ``(2) Coordination through medicare+choice organizations.--
                    ``(A) Enrollment.--Such process shall permit an 
                individual who wishes to elect a Medicare+Choice plan 
                offered by a Medicare+Choice organization to make such 
                election through the filing of an appropriate election 
                form with the organization.
                    ``(B) Disenrollment.--Such process shall permit an 
                individual, who has elected a Medicare+Choice plan 
                offered by a Medicare+Choice organization and who wishes 
                to terminate such election, to terminate such election 
                through the filing of an appropriate election form with 
                the organization.
            ``(3) Default.--
                    ``(A) Initial election.--
                          ``(i) In general.--Subject to clause (ii), an 
                      individual who fails to make an election during an 
                      initial election period under subsection (e)(1) is 
                      deemed to have chosen the original medicare fee-
                      for-service program option.
                          ``(ii) Seamless continuation of coverage.--The 
                      Secretary may establish procedures under which an 
                      individual who is enrolled in a health plan (other 
                      than Medicare+Choice plan) offered by a 
                      Medicare+Choice organization at the time of the 
                      initial election period and who fails to elect to 
                      receive coverage other than through the 
                      organization is deemed to have elected the 
                      Medicare+Choice plan offered by the organization 
                      (or, if the organization offers more than one such 
                      plan, such plan or plans as the Secretary 
                      identifies under such procedures).
                    ``(B) Continuing periods.--An individual who has 
                made (or is deemed to have made) an election under this 
                section is considered to have continued to make such 
                election until such time as--
                          ``(i) the individual changes the election 
                      under this section, or
                          ``(ii) the Medicare+Choice plan with respect 
                      to which such election is in effect is 
                      discontinued or, subject to subsection (b)(1)(B), 
                      no longer serves the area in which the individual 
                      resides.

    ``(d) Providing Information To Promote Informed Choice.--
            ``(1) In general.--The Secretary shall provide for 
        activities under this subsection to broadly disseminate 
        information to medicare beneficiaries (and prospective medicare 
        beneficiaries) on the coverage options provided under this 
        section in order to promote an active, informed selection among 
        such options.
            ``(2) Provision of notice.--
                    ``(A) Open season notification.--At least 15 days 
                before the beginning of each annual, coordinated 
                election

[[Page 111 STAT. 279]]

                period (as defined in subsection (e)(3)(B)), the 
                Secretary shall mail to each Medicare+Choice eligible 
                individual residing in an area the following:
                          ``(i) General information.--The general 
                      information described in paragraph (3).
                          ``(ii) List of plans and comparison of plan 
                      options.--A list identifying the Medicare+Choice 
                      plans that are (or will be) available to residents 
                      of the area and information described in paragraph 
                      (4) concerning such plans. Such information shall 
                      be presented in a comparative form.
                          ``(iii) Additional information.--Any other 
                      information that the Secretary determines will 
                      assist the individual in making the election under 
                      this section.
                The mailing of such information shall be coordinated, to 
                the extent practicable, with the mailing of any annual 
                notice under section 1804.
                    ``(B) Notification to newly eligible medicare+choice 
                eligible individuals.--To the extent practicable, the 
                Secretary shall, not later than 30 days before the 
                beginning of the initial Medicare+Choice enrollment 
                period for an individual described in subsection (e)(1), 
                mail to the individual the information described in 
                subparagraph (A).
                    ``(C) Form.--The information disseminated under this 
                paragraph shall be written and formatted using language 
                that is easily understandable by medicare beneficiaries.
                    ``(D) Periodic updating.--The information described 
                in subparagraph (A) shall be updated on at least an 
                annual basis to reflect changes in the availability of 
                Medicare+Choice plans and the benefits and 
                Medicare+Choice monthly basic and supplemental 
                beneficiary premiums for such plans.
            ``(3) General information.--General information under this 
        paragraph, with respect to coverage under this part during a 
        year, shall include the following:
                    ``(A) Benefits under original medicare fee-for-
                service program option.--A general description of the 
                benefits covered under the original medicare fee-for-
                service program under parts A and B, including--
                          ``(i) covered items and services,
                          ``(ii) beneficiary cost sharing, such as 
                      deductibles, coinsurance, and copayment amounts, 
                      and
                          ``(iii) any beneficiary liability for balance 
                      billing.
                    ``(B) Election procedures.--Information and 
                instructions on how to exercise election options under 
                this section.
                    ``(C) Rights.--A general description of procedural 
                rights (including grievance and appeals procedures) of 
                beneficiaries under the original medicare fee-for-
                service program and the Medicare+Choice program and the 
                right to be protected against discrimination based on 
                health status-related factors under section 1852(b).
                    ``(D) Information on medigap and medicare select.--A 
                general description of the benefits, enrollment rights, 
                and other requirements applicable to medicare 
                supplemental policies under section 1882 and provisions

[[Page 111 STAT. 280]]

                relating to medicare select policies described in 
                section 1882(t).
                    ``(E) Potential for contract termination.--The fact 
                that a Medicare+Choice organization may terminate its 
                contract, refuse to renew its contract, or reduce the 
                service area included in its contract, under this part, 
                and the effect of such a termination, nonrenewal, or 
                service area reduction may have on individuals enrolled 
                with the Medicare+Choice plan under this part.
            ``(4) Information comparing plan options.--Information under 
        this paragraph, with respect to a Medicare+Choice plan for a 
        year, shall include the following:
                    ``(A) Benefits.--The benefits covered under the 
                plan, including the following:
                          ``(i) Covered items and services beyond those 
                      provided under the original medicare fee-for-
                      service program.
                          ``(ii) Any beneficiary cost sharing.
                          ``(iii) Any maximum limitations on out-of-
                      pocket expenses.
                          ``(iv) In the case of an MSA plan, differences 
                      in cost sharing, premiums, and balance billing 
                      under such a plan compared to under other 
                      Medicare+Choice plans.
                          ``(v) In the case of a Medicare+Choice private 
                      fee-for-service plan, differences in cost sharing, 
                      premiums, and balance billing under such a plan 
                      compared to under other Medicare+Choice plans.
                          ``(vi) The extent to which an enrollee may 
                      obtain benefits through out-of-network health care 
                      providers.
                          ``(vii) The extent to which an enrollee may 
                      select among in-network providers and the types of 
                      providers participating in the plan's network.
                          ``(viii) The organization's coverage of 
                      emergency and urgently needed care.
                    ``(B) Premiums.--The Medicare+Choice monthly basic 
                beneficiary premium and Medicare+Choice monthly 
                supplemental beneficiary premium, if any, for the plan 
                or, in the case of an MSA plan, the Medicare+Choice 
                monthly MSA premium.
                    ``(C) Service area.--The service area of the plan.
                    ``(D) Quality and performance.--To the extent 
                available, plan quality and performance indicators for 
                the benefits under the plan (and how they compare to 
                such indicators under the original medicare fee-for-
                service program under parts A and B in the area 
                involved), including--
                          ``(i) disenrollment rates for medicare 
                      enrollees electing to receive benefits through the 
                      plan for the previous 2 years (excluding 
                      disenrollment due to death or moving outside the 
                      plan's service area),
                          ``(ii) information on medicare enrollee 
                      satisfaction,
                          ``(iii) information on health outcomes, and
                          ``(iv) the recent record regarding compliance 
                      of the plan with requirements of this part (as 
                      determined by the Secretary).
                    ``(E) Supplemental benefits.--Whether the 
                organization offering the plan includes mandatory 
                supplemental

[[Page 111 STAT. 281]]

                benefits in its base benefit package or offers optional 
                supplemental benefits and the terms and conditions 
                (including premiums) for such coverage.
            ``(5) Maintaining a toll-free number and internet site.--The 
        Secretary shall maintain a toll-free number for inquiries 
        regarding Medicare+Choice options and the operation of this part 
        in all areas in which Medicare+Choice plans are offered and an 
        Internet site through which individuals may electronically 
        obtain information on such options and Medicare+Choice plans.
            ``(6) Use of non-federal entities.--The Secretary may enter 
        into contracts with non-Federal entities to carry out activities 
        under this subsection.
            ``(7) Provision of information.--A Medicare+Choice 
        organization shall provide the Secretary with such information 
        on the organization and each Medicare+Choice plan it offers as 
        may be required for the preparation of the information referred 
        to in paragraph (2)(A).

    ``(e) Coverage Election Periods.--
            ``(1) Initial choice upon eligibility to make election if 
        medicare+choice plans available to individual.--If, at the time 
        an individual first becomes entitled to benefits under part A 
        and enrolled under part B, there is one or more Medicare+Choice 
        plans offered in the area in which the individual resides, the 
        individual shall make the election under this section during a 
        period specified by the Secretary such that if the individual 
        elects a Medicare+Choice plan during the period, coverage under 
        the plan becomes effective as of the first date on which the 
        individual may receive such coverage.
            ``(2) Open enrollment and disenrollment opportunities.--
        Subject to paragraph (5)--
                    ``(A) Continuous open enrollment and disenrollment 
                through 2001.--At any time during 1998, 1999, 2000, and 
                2001, a Medicare+Choice eligible individual may change 
                the election under subsection (a)(1).
                    ``(B) Continuous open enrollment and disenrollment 
                for first 6 months during 2002.--
                          ``(i) In general.--Subject to clause (ii), at 
                      any time during the first 6 months of 2002, or, if 
                      the individual first becomes a Medicare+Choice 
                      eligible individual during 2002, during the first 
                      6 months during 2002 in which the individual is a 
                      Medicare+Choice eligible individual, a 
                      Medicare+Choice eligible individual may change the 
                      election under subsection (a)(1).
                          ``(ii) Limitation of one change.--An 
                      individual may exercise the right under clause (i) 
                      only once. The limitation under this clause shall 
                      not apply to changes in elections effected during 
                      an annual, coordinated election period under 
                      paragraph (3) or during a special enrollment 
                      period under the first sentence of paragraph (4).
                    ``(C) Continuous open enrollment and disenrollment 
                for first 3 months in subsequent years.--
                          ``(i) In general.--Subject to clause (ii), at 
                      any time during the first 3 months of a year after 
                      2002, or, if the individual first becomes a 
                      Medicare+Choice

[[Page 111 STAT. 282]]

                      eligible individual during a year after 2002, 
                      during the first 3 months of such year in which 
                      the individual is a Medicare+Choice eligible 
                      individual, a Medicare+Choice eligible individual 
                      may change the election under subsection (a)(1).
                          ``(ii) Limitation of one change during open 
                      enrollment period each year.--An individual may 
                      exercise the right under clause (i) only once 
                      during the applicable 3-month period described in 
                      such clause in each year. The limitation under 
                      this clause shall not apply to changes in 
                      elections effected during an annual, coordinated 
                      election period under paragraph (3) or during a 
                      special enrollment period under paragraph (4).
            ``(3) Annual, coordinated election period.--
                    ``(A) In general.--Subject to paragraph (5), each 
                individual who is eligible to make an election under 
                this section may change such election during an annual, 
                coordinated election period.
                    ``(B) Annual, coordinated election period.--For 
                purposes of this section, the term `annual, coordinated 
                election period' means, with respect to a calendar year 
                (beginning with 2000), the month of November before such 
                year.
                    ``(C) Medicare+choice health information fairs.--In 
                the month of November of each year (beginning with 
                1999), in conjunction with the annual coordinated 
                election period defined in subparagraph (B), the 
                Secretary shall provide for a nationally coordinated 
                educational and publicity campaign to inform 
                Medicare+Choice eligible individuals about 
                Medicare+Choice plans and the election process provided 
                under this section.
                    ``(D) Special information campaign in 1998.--During 
                November 1998 the Secretary shall provide for an 
                educational and publicity campaign to inform 
                Medicare+Choice eligible individuals about the 
                availability of Medicare+Choice plans, and eligible 
                organizations with risk-sharing contracts under section 
                1876, offered in different areas and the election 
                process provided under this section.
            ``(4) Special election periods.--Effective as of January 1, 
        2002, an individual may discontinue an election of a 
        Medicare+Choice plan offered by a Medicare+Choice organization 
        other than during an annual, coordinated election period and 
        make a new election under this section if--
                    ``(A) the organization's or plan's certification 
                under this part has been terminated or the organization 
                has terminated or otherwise discontinued providing the 
                plan in the area in which the individual resides;
                    ``(B) the individual is no longer eligible to elect 
                the plan because of a change in the individual's place 
                of residence or other change in circumstances (specified 
                by the Secretary, but not including termination of the 
                individual's enrollment on the basis described in clause 
                (i) or (ii) of subsection (g)(3)(B));
                    ``(C) the individual demonstrates (in accordance 
                with guidelines established by the Secretary) that--

[[Page 111 STAT. 283]]

                          ``(i) the organization offering the plan 
                      substantially violated a material provision of the 
                      organization's contract under this part in 
                      relation to the individual (including the failure 
                      to provide an enrollee on a timely basis medically 
                      necessary care for which benefits are available 
                      under the plan or the failure to provide such 
                      covered care in accordance with applicable quality 
                      standards); or
                          ``(ii) the organization (or an agent or other 
                      entity acting on the organization's behalf) 
                      materially misrepresented the plan's provisions in 
                      marketing the plan to the individual; or
                    ``(D) the individual meets such other exceptional 
                conditions as the Secretary may provide.
        Effective as of January 1, 2002, an individual who, upon first 
        becoming eligible for benefits under part A at age 65, enrolls 
        in a Medicare+Choice plan under this part, the individual may 
        discontinue the election of such plan, and elect coverage under 
        the original fee-for-service plan, at any time during the 12-
        month period beginning on the effective date of such enrollment.
            ``(5) Special rules for msa plans.--Notwithstanding the 
        preceding provisions of this subsection, an individual--
                    ``(A) may elect an MSA plan only during--
                          ``(i) an initial open enrollment period 
                      described in paragraph (1),
                          ``(ii) an annual, coordinated election period 
                      described in paragraph (3)(B), or
                          ``(iii) the month of November 1998;
                    ``(B) subject to subparagraph (C), may not 
                discontinue an election of an MSA plan except during the 
                periods described in clause (ii) or (iii) of 
                subparagraph (A) and under the first sentence of 
                paragraph (4); and
                    ``(C) who elects an MSA plan during an annual, 
                coordinated election period, and who never previously 
                had elected such a plan, may revoke such election, in a 
                manner determined by the Secretary, by not later than 
                December 15 following the date of the election.
            ``(6) Open enrollment periods.--Subject to paragraph (5), a 
        Medicare+Choice organization--
                    ``(A) shall accept elections or changes to elections 
                during the initial enrollment periods described in 
                paragraph (1), during the month of November 1998 and 
                each subsequent year (as provided in paragraph (3)), and 
                during special election periods described in the first 
                sentence of paragraph (4); and
                    ``(B) may accept other changes to elections at such 
                other times as the organization provides.

    ``(f) Effectiveness of Elections and Changes of Elections.--
            ``(1) During initial coverage election period.--An election 
        of coverage made during the initial coverage election period 
        under subsection (e)(1)(A) shall take effect upon the date the 
        individual becomes entitled to benefits under part A and 
        enrolled under part B, except as the Secretary may provide 
        (consistent with section 1838) in order to prevent retroactive 
        coverage.

[[Page 111 STAT. 284]]

            ``(2) During continuous open enrollment periods.--An 
        election or change of coverage made under subsection (e)(2) 
        shall take effect with the first day of the first calendar month 
        following the date on which the election is made.
            ``(3) Annual, coordinated election period.--An election or 
        change of coverage made during an annual, coordinated election 
        period (as defined in subsection (e)(3)(B)) in a year shall take 
        effect as of the first day of the following year.
            ``(4) Other periods.--An election or change of coverage made 
        during any other period under subsection (e)(4) shall take 
        effect in such manner as the Secretary provides in a manner 
        consistent (to the extent practicable) with protecting 
        continuity of health benefit coverage.

    ``(g) Guaranteed Issue and Renewal.--
            ``(1) In general.--Except as provided in this subsection, a 
        Medicare+Choice organization shall provide that at any time 
        during which elections are accepted under this section with 
        respect to a Medicare+Choice plan offered by the organization, 
        the organization will accept without restrictions individuals 
        who are eligible to make such election.
            ``(2) Priority.--If the Secretary determines that a 
        Medicare+Choice organization, in relation to a Medicare+Choice 
        plan it offers, has a capacity limit and the number of 
        Medicare+Choice eligible individuals who elect the plan under 
        this section exceeds the capacity limit, the organization may 
        limit the election of individuals of the plan under this section 
        but only if priority in election is provided--
                    ``(A) first to such individuals as have elected the 
                plan at the time of the determination, and
                    ``(B) then to other such individuals in such a 
                manner that does not discriminate, on a basis described 
                in section 1852(b), among the individuals (who seek to 
                elect the plan).
        The preceding sentence shall not apply if it would result in the 
        enrollment of enrollees substantially nonrepresentative, as 
        determined in accordance with regulations of the Secretary, of 
        the medicare population in the service area of the plan.
            ``(3) Limitation on termination of election.--
                    ``(A) In general.--Subject to subparagraph (B), a 
                Medicare+Choice organization may not for any reason 
                terminate the election of any individual under this 
                section for a Medicare+Choice plan it offers.
                    ``(B) Basis for termination of election.--A 
                Medicare+Choice organization may terminate an 
                individual's election under this section with respect to 
                a Medicare+Choice plan it offers if--
                          ``(i) any Medicare+Choice monthly basic and 
                      supplemental beneficiary premiums required with 
                      respect to such plan are not paid on a timely 
                      basis (consistent with standards under section 
                      1856 that provide for a grace period for late 
                      payment of such premiums),
                          ``(ii) the individual has engaged in 
                      disruptive behavior (as specified in such 
                      standards), or
                          ``(iii) the plan is terminated with respect to 
                      all individuals under this part in the area in 
                      which the individual resides.
                    ``(C) Consequence of termination.--

[[Page 111 STAT. 285]]

                          ``(i) Terminations for cause.--Any individual 
                      whose election is terminated under clause (i) or 
                      (ii) of subparagraph (B) is deemed to have elected 
                      the original medicare fee-for-service program 
                      option described in subsection (a)(1)(A).
                          ``(ii) Termination based on plan termination 
                      or service area reduction.--Any individual whose 
                      election is terminated under subparagraph (B)(iii) 
                      shall have a special election period under 
                      subsection (e)(4)(A) in which to change coverage 
                      to coverage under another Medicare+Choice plan. 
                      Such an individual who fails to make an election 
                      during such period is deemed to have chosen to 
                      change coverage to the original medicare fee-for-
                      service program option described in subsection 
                      (a)(1)(A).
                    ``(D) Organization obligation with respect to 
                election forms.--Pursuant to a contract under section 
                1857, each Medicare+Choice organization receiving an 
                election form under subsection (c)(2) shall transmit to 
                the Secretary (at such time and in such manner as the 
                Secretary may specify) a copy of such form or such other 
                information respecting the election as the Secretary may 
                specify.

    ``(h) Approval of Marketing Material and Application Forms.--
            ``(1) Submission.--No marketing material or application form 
        may be distributed by a Medicare+Choice organization to (or for 
        the use of) Medicare+Choice eligible individuals unless--
                    ``(A) at least 45 days before the date of 
                distribution the organization has submitted the material 
                or form to the Secretary for review, and
                    ``(B) the Secretary has not disapproved the 
                distribution of such material or form.
            ``(2) Review.--The standards established under section 1856 
        shall include guidelines for the review of any material or form 
        submitted and under such guidelines the Secretary shall 
        disapprove (or later require the correction of) such material or 
        form if the material or form is materially inaccurate or 
        misleading or otherwise makes a material misrepresentation.
            ``(3) Deemed approval (1-stop shopping).--In the case of 
        material or form that is submitted under paragraph (1)(A) to the 
        Secretary or a regional office of the Department of Health and 
        Human Services and the Secretary or the office has not 
        disapproved the distribution of marketing material or form under 
        paragraph (1)(B) with respect to a Medicare+Choice plan in an 
        area, the Secretary is deemed not to have disapproved such 
        distribution in all other areas covered by the plan and 
        organization except with regard to that portion of such material 
        or form that is specific only to an area involved.
            ``(4) Prohibition of certain marketing practices.--Each 
        Medicare+Choice organization shall conform to fair marketing 
        standards, in relation to Medicare+Choice plans offered under 
        this part, included in the standards established under section 
        1856. Such standards--

[[Page 111 STAT. 286]]

                    ``(A) shall not permit a Medicare+Choice 
                organization to provide for cash or other monetary 
                rebates as an inducement for enrollment or otherwise, 
                and
                    ``(B) may include a prohibition against a 
                Medicare+Choice organization (or agent of such an 
                organization) completing any portion of any election 
                form used to carry out elections under this section on 
                behalf of any individual.

    ``(i) Effect of Election of Medicare+Choice Plan Option.--
            ``(1) Payments to organizations.--Subject to sections 
        1852(a)(5), 1853(g), 1853(h), 1886(d)(11), and 1886(h)(3)(D), 
        payments under a contract with a Medicare+Choice organization 
        under section 1853(a) with respect to an individual electing a 
        Medicare+Choice plan offered by the organization shall be 
        instead of the amounts which (in the absence of the contract) 
        would otherwise be payable under parts A and B for items and 
        services furnished to the individual.
            ``(2) Only organization entitled to payment.--Subject to 
        sections 1853(e), 1853(g), 1853(h), 1857(f)(2), and 1886(d)(11), 
        and 1886(h)(3)(D), only the Medicare+Choice organization shall 
        be entitled to receive payments from the Secretary under this 
        title for services furnished to the individual.

                 ``benefits and beneficiary protections

    ``Sec. 1852. <<NOTE: 42 USC 1395w-22.>> (a) Basic Benefits.--
            ``(1) In general.--Except as provided in section 1859(b)(3) 
        for MSA plans, each Medicare+Choice plan shall provide to 
        members enrolled under this part, through providers and other 
        persons that meet the applicable requirements of this title and 
        part A of title XI--
                    ``(A) those items and services (other than hospice 
                care) for which benefits are available under parts A and 
                B to individuals residing in the area served by the 
                plan, and
                    ``(B) additional benefits required under section 
                1854(f)(1)(A).
            ``(2) Satisfaction of requirement.--
                    ``(A) In general.--A Medicare+Choice plan (other 
                than an MSA plan) offered by a Medicare+Choice 
                organization satisfies paragraph (1)(A), with respect to 
                benefits for items and services furnished other than 
                through a provider or other person that has a contract 
                with the organization offering the plan, if the plan 
                provides payment in an amount so that--
                          ``(i) the sum of such payment amount and any 
                      cost sharing provided for under the plan, is equal 
                      to at least
                          ``(ii) the total dollar amount of payment for 
                      such items and services as would otherwise be 
                      authorized under parts A and B (including any 
                      balance billing permitted under such parts).
                    ``(B) Reference to related provisions.--For 
                provision relating to--
                          ``(i) limitations on balance billing against 
                      Medicare+Choice organizations for non-contract 
                      providers, see sections 1852(k) and 1866(a)(1)(O), 
                      and
                          ``(ii) limiting actuarial value of enrollee 
                      liability for covered benefits, see section 
                      1854(e).

[[Page 111 STAT. 287]]

            ``(3) Supplemental benefits.--
                    ``(A) Benefits included subject to secretary's 
                approval.--Each Medicare+Choice organization may provide 
                to individuals enrolled under this part, other than 
                under an MSA plan, (without affording those individuals 
                an option to decline the coverage) supplemental health 
                care benefits that the Secretary may approve. The 
                Secretary shall approve any such supplemental benefits 
                unless the Secretary determines that including such 
                supplemental benefits would substantially discourage 
                enrollment by Medicare+Choice eligible individuals with 
                the organization.
                    ``(B) At enrollees' option.--
                          ``(i) In general.--Subject to clause (ii), a 
                      Medicare+Choice organization may provide to 
                      individuals enrolled under this part supplemental 
                      health care benefits that the individuals may 
                      elect, at their option, to have covered.
                          ``(ii) Special rule for msa plans.--A 
                      Medicare+Choice organization may not provide, 
                      under an MSA plan, supplemental health care 
                      benefits that cover the deductible described in 
                      section 1859(b)(2)(B). In applying the previous 
                      sentence, health benefits described in section 
                      1882(u)(2)(B) shall not be treated as covering 
                      such deductible.
                    ``(C) Application to Medicare+Choice private fee-
                for-service plans.--Nothing in this paragraph shall be 
                construed as preventing a Medicare+Choice private fee-
                for-service plan from offering supplemental benefits 
                that include payment for some or all of the balance 
                billing amounts permitted consistent with section 
                1852(k) and coverage of additional services that the 
                plan finds to be medically necessary.
            ``(4) Organization as secondary payer.--Notwithstanding any 
        other provision of law, a Medicare+Choice organization may (in 
        the case of the provision of items and services to an individual 
        under a Medicare+Choice plan under circumstances in which 
        payment under this title is made secondary pursuant to section 
        1862(b)(2)) charge or authorize the provider of such services to 
        charge, in accordance with the charges allowed under a law, 
        plan, or policy described in such section--
                    ``(A) the insurance carrier, employer, or other 
                entity which under such law, plan, or policy is to pay 
                for the provision of such services, or
                    ``(B) such individual to the extent that the 
                individual has been paid under such law, plan, or policy 
                for such services.
            ``(5) National coverage determinations.--If there is a 
        national coverage determination made in the period beginning on 
        the date of an announcement under section 1853(b) and ending on 
        the date of the next announcement under such section and the 
        Secretary projects that the determination will result in a 
        significant change in the costs to a Medicare+Choice 
        organization of providing the benefits that are the subject of 
        such national coverage determination and that such change in 
        costs was not incorporated in the determination of the annual 
        Medicare+Choice capitation rate under section 1853 included

[[Page 111 STAT. 288]]

        in the announcement made at the beginning of such period, then, 
        unless otherwise required by law--
                    ``(A) such determination shall not apply to 
                contracts under this part until the first contract year 
                that begins after the end of such period, and
                    ``(B) if such coverage determination provides for 
                coverage of additional benefits or coverage under 
                additional circumstances, section 1851(i)(1) shall not 
                apply to payment for such additional benefits or 
                benefits provided under such additional circumstances 
                until the first contract year that begins after the end 
                of such period.

    ``(b) Antidiscrimination.--
            ``(1) Beneficiaries.--
                    ``(A) In general.--A Medicare+Choice organization 
                may not deny, limit, or condition the coverage or 
                provision of benefits under this part, for individuals 
                permitted to be enrolled with the organization under 
                this part, based on any health status-related factor 
                described in section 2702(a)(1) of the Public Health 
                Service Act.
                    ``(B) Construction.--Subparagraph (A) shall not be 
                construed as requiring a Medicare+Choice organization to 
                enroll individuals who are determined to have end-stage 
                renal disease, except as provided under section 
                1851(a)(3)(B).
            ``(2) Providers.--A Medicare+Choice organization shall not 
        discriminate with respect to participation, reimbursement, or 
        indemnification as to any provider who is acting within the 
        scope of the provider's license or certification under 
        applicable State law, solely on the basis of such license or 
        certification. This paragraph shall not be construed to prohibit 
        a plan from including providers only to the extent necessary to 
        meet the needs of the plan's enrollees or from establishing any 
        measure designed to maintain quality and control costs 
        consistent with the responsibilities of the plan.

    ``(c) Disclosure Requirements.--
            ``(1) Detailed description of plan provisions.--A 
        Medicare+Choice organization shall disclose, in clear, accurate, 
        and standardized form to each enrollee with a Medicare+Choice 
        plan offered by the organization under this part at the time of 
        enrollment and at least annually thereafter, the following 
        information regarding such plan:
                    ``(A) Service area.--The plan's service area.
                    ``(B) Benefits.--Benefits offered under the plan, 
                including information described in section 1851(d)(3)(A) 
                and exclusions from coverage and, if it is an MSA plan, 
                a comparison of benefits under such a plan with benefits 
                under other Medicare+Choice plans.
                    ``(C) Access.--The number, mix, and distribution of 
                plan providers, out-of-network coverage (if any) 
                provided by the plan, and any point-of-service option 
                (including the supplemental premium for such option).
                    ``(D) Out-of-area coverage.--Out-of-area coverage 
                provided by the plan.
                    ``(E) Emergency coverage.--Coverage of emergency 
                services, including--
                          ``(i) the appropriate use of emergency 
                      services, including use of the 911 telephone 
                      system or its local

[[Page 111 STAT. 289]]

                      equivalent in emergency situations and an 
                      explanation of what constitutes an emergency 
                      situation;
                          ``(ii) the process and procedures of the plan 
                      for obtaining emergency services; and
                          ``(iii) the locations of (I) emergency 
                      departments, and (II) other settings, in which 
                      plan physicians and hospitals provide emergency 
                      services and post-stabilization care.
                    ``(F) Supplemental benefits.--Supplemental benefits 
                available from the organization offering the plan, 
                including--
                          ``(i) whether the supplemental benefits are 
                      optional,
                          ``(ii) the supplemental benefits covered, and
                          ``(iii) the Medicare+Choice monthly 
                      supplemental beneficiary premium for the 
                      supplemental benefits.
                    ``(G) Prior authorization rules.--Rules regarding 
                prior authorization or other review requirements that 
                could result in nonpayment.
                    ``(H) Plan grievance and appeals procedures.--All 
                plan appeal or grievance rights and procedures.
                    ``(I) Quality assurance program.--A description of 
                the organization's quality assurance program under 
                subsection (e).
            ``(2) Disclosure upon request.--Upon request of a 
        Medicare+Choice eligible individual, a Medicare+Choice 
        organization must provide the following information to such 
        individual:
                    ``(A) The general coverage information and general 
                comparative plan information made available under 
                clauses (i) and (ii) of section 1851(d)(2)(A).
                    ``(B) Information on procedures used by the 
                organization to control utilization of services and 
                expenditures.
                    ``(C) Information on the number of grievances, 
                redeterminations, and appeals and on the disposition in 
                the aggregate of such matters.
                    ``(D) An overall summary description as to the 
                method of compensation of participating physicians.

    ``(d) Access to Services.--
            ``(1) In general.--A Medicare+Choice organization offering a 
        Medicare+Choice plan may select the providers from whom the 
        benefits under the plan are provided so long as--
                    ``(A) the organization makes such benefits available 
                and accessible to each individual electing the plan 
                within the plan service area with reasonable promptness 
                and in a manner which assures continuity in the 
                provision of benefits;
                    ``(B) when medically necessary the organization 
                makes such benefits available and accessible 24 hours a 
                day and 7 days a week;
                    ``(C) the plan provides for reimbursement with 
                respect to services which are covered under 
                subparagraphs (A) and (B) and which are provided to such 
                an individual other than through the organization, if--
                          ``(i) the services were not emergency services 
                      (as defined in paragraph (3)), but (I) the 
                      services were medically necessary and immediately 
                      required because

[[Page 111 STAT. 290]]

                      of an unforeseen illness, injury, or condition, 
                      and (II) it was not reasonable given the 
                      circumstances to obtain the services through the 
                      organization,
                          ``(ii) the services were renal dialysis 
                      services and were provided other than through the 
                      organization because the individual was 
                      temporarily out of the plan's service area, or
                          ``(iii) the services are maintenance care or 
                      post-stabilization care covered under the 
                      guidelines established under paragraph (2);
                    ``(D) the organization provides access to 
                appropriate providers, including credentialed 
                specialists, for medically necessary treatment and 
                services; and
                    ``(E) coverage is provided for emergency services 
                (as defined in paragraph (3)) without regard to prior 
                authorization or the emergency care provider's 
                contractual relationship with the organization.
            ``(2) Guidelines respecting coordination of post-
        stabilization care.--A Medicare+Choice plan shall comply with 
        such guidelines as the Secretary may prescribe relating to 
        promoting efficient and timely coordination of appropriate 
        maintenance and post-stabilization care of an enrollee after the 
        enrollee has been determined to be stable under section 1867.
            ``(3) Definition of emergency services.--In this 
        subsection--
                    ``(A) In general.--The term `emergency services' 
                means, with respect to an individual enrolled with an 
                organization, covered inpatient and outpatient services 
                that--
                          ``(i) are furnished by a provider that is 
                      qualified to furnish such services under this 
                      title, and
                          ``(ii) are needed to evaluate or stabilize an 
                      emergency medical condition (as defined in 
                      subparagraph (B)).
                    ``(B) Emergency medical condition based on prudent 
                layperson.--The term `emergency medical condition' means 
                a medical condition manifesting itself by acute symptoms 
                of sufficient severity (including severe pain) such that 
                a prudent layperson, who possesses an average knowledge 
                of health and medicine, could reasonably expect the 
                absence of immediate medical attention to result in--
                          ``(i) placing the health of the individual 
                      (or, with respect to a pregnant woman, the health 
                      of the woman or her unborn child) in serious 
                      jeopardy,
                          ``(ii) serious impairment to bodily functions, 
                      or
                          ``(iii) serious dysfunction of any bodily 
                      organ or part.
                    ``(4) Assuring access to services in medicare+choice 
                private fee-for-service plans.--In addition to any other 
                requirements under this part, in the case of a 
                Medicare+Choice private fee-for-service plan, the 
                organization offering the plan must demonstrate to the 
                Secretary that the organization has sufficient number 
                and range of health care professionals and providers 
                willing

[[Page 111 STAT. 291]]

                to provide services under the terms of the plan. The 
                Secretary shall find that an organization has met such 
                requirement with respect to any category of health care 
                professional or provider if, with respect to that 
                category of provider--
                          ``(A) the plan has established payment rates 
                      for covered services furnished by that category of 
                      provider that are not less than the payment rates 
                      provided for under part A, part B, or both, for 
                      such services, or
                          ``(B) the plan has contracts or agreements 
                      with a sufficient number and range of providers 
                      within such category to provide covered services 
                      under the terms of the plan,
                or a combination of both. The previous sentence shall 
                not be construed as restricting the persons from whom 
                enrollees under such a plan may obtain covered benefits.

    ``(e) Quality Assurance Program.--
            ``(1) In general.--Each Medicare+Choice organization must 
        have arrangements, consistent with any regulation, for an 
        ongoing quality assurance program for health care services it 
        provides to individuals enrolled with Medicare+Choice plans of 
        the organization.
            ``(2) Elements of program.--
                    ``(A) In general.--The quality assurance program of 
                an organization with respect to a Medicare+Choice plan 
                (other than a Medicare+Choice private fee-for-service 
                plan or a non-network MSA plan) it offers shall--
                          ``(i) stress health outcomes and provide for 
                      the collection, analysis, and reporting of data 
                      (in accordance with a quality measurement system 
                      that the Secretary recognizes) that will permit 
                      measurement of outcomes and other indices of the 
                      quality of Medicare+Choice plans and 
                      organizations;
                          ``(ii) monitor and evaluate high volume and 
                      high risk services and the care of acute and 
                      chronic conditions;
                          ``(iii) evaluate the continuity and 
                      coordination of care that enrollees receive;
                          ``(iv) be evaluated on an ongoing basis as to 
                      its effectiveness;
                          ``(v) include measures of consumer 
                      satisfaction;
                          ``(vi) provide the Secretary with such access 
                      to information collected as may be appropriate to 
                      monitor and ensure the quality of care provided 
                      under this part;
                          ``(vii) provide review by physicians and other 
                      health care professionals of the process followed 
                      in the provision of such health care services;
                          ``(viii) provide for the establishment of 
                      written protocols for utilization review, based on 
                      current standards of medical practice;
                          ``(ix) have mechanisms to detect both 
                      underutilization and overutilization of services;
                          ``(x) after identifying areas for improvement, 
                      establish or alter practice parameters;

[[Page 111 STAT. 292]]

                          ``(xi) take action to improve quality and 
                      assesses the effectiveness of such action through 
                      systematic followup; and
                          ``(xii) make available information on quality 
                      and outcomes measures to facilitate beneficiary 
                      comparison and choice of health coverage options 
                      (in such form and on such quality and outcomes 
                      measures as the Secretary determines to be 
                      appropriate).
                    ``(B) Elements of program for organizations offering 
                medicare+choice private fee-for-service plans and non-
                network msa plans.--The quality assurance program of an 
                organization with respect to a Medicare+Choice private 
                fee-for-service plan or a non-network MSA plan it offers 
                shall--
                          ``(i) meet the requirements of clauses (i) 
                      through (vi) of subparagraph (A);
                          ``(ii) insofar as it provides for the 
                      establishment of written protocols for utilization 
                      review, base such protocols on current standards 
                      of medical practice; and
                          ``(iii) have mechanisms to evaluate 
                      utilization of services and inform providers and 
                      enrollees of the results of such evaluation.
                    ``(C) Definition of non-network msa plan.--In this 
                subsection, the term `non-network MSA plan' means an MSA 
                plan offered by a Medicare+Choice organization that does 
                not provide benefits required to be provided by this 
                part, in whole or in part, through a defined set of 
                providers under contract, or under another arrangement, 
                with the organization.
            ``(3) External review.--
                    ``(A) In general.--Each Medicare+Choice organization 
                shall, for each Medicare+Choice plan it operates, have 
                an agreement with an independent quality review and 
                improvement organization approved by the Secretary to 
                perform functions of the type described in sections 
                1154(a)(4)(B) and 1154(a)(14) with respect to services 
                furnished by Medicare+Choice plans for which payment is 
                made under this title. The previous sentence shall not 
                apply to a Medicare+Choice private fee-for-service plan 
                or a non-network MSA plan that does not employ 
                utilization review.
                    ``(B) Nonduplication of accreditation.--Except in 
                the case of the review of quality complaints, and 
                consistent with subparagraph (C), the Secretary shall 
                ensure that the external review activities conducted 
                under subparagraph (A) are not duplicative of review 
                activities conducted as part of the accreditation 
                process.
                    ``(C) Waiver authority.--The Secretary may waive the 
                requirement described in subparagraph (A) in the case of 
                an organization if the Secretary determines that the 
                organization has consistently maintained an excellent 
                record of quality assurance and compliance with other 
                requirements under this part.
            ``(4) Treatment of accreditation.--The Secretary shall 
        provide that a Medicare+Choice organization is deemed to meet 
        requirements of paragraphs (1) and (2) of this subsection and 
        subsection (h) (relating to confidentiality and accuracy of

[[Page 111 STAT. 293]]

        enrollee records) if the organization is accredited (and 
        periodically reaccredited) by a private organization under a 
        process that the Secretary has determined assures that the 
        organization, as a condition of accreditation, applies and 
        enforces standards with respect to the requirements involved 
        that are no less stringent than the standards established under 
        section 1856 to carry out the respective requirements.

    ``(f) Grievance Mechanism.--Each Medicare+Choice organization must 
provide meaningful procedures for hearing and resolving grievances 
between the organization (including any entity or individual through 
which the organization provides health care services) and enrollees with 
Medicare+Choice plans of the organization under this part.
    ``(g) Coverage Determinations, Reconsiderations, and Appeals.--
            ``(1) Determinations by organization.--
                    ``(A) In general.--A Medicare+Choice organization 
                shall have a procedure for making determinations 
                regarding whether an individual enrolled with the plan 
                of the organization under this part is entitled to 
                receive a health service under this section and the 
                amount (if any) that the individual is required to pay 
                with respect to such service. Subject to paragraph (3), 
                such procedures shall provide for such determination to 
                be made on a timely basis.
                    ``(B) Explanation of determination.--Such a 
                determination that denies coverage, in whole in part, 
                shall be in writing and shall include a statement in 
                understandable language of the reasons for the denial 
                and a description of the reconsideration and appeals 
                processes.
            ``(2) Reconsiderations.--
                    ``(A) In general.--The organization shall provide 
                for reconsideration of a determination described in 
                paragraph (1)(B) upon request by the enrollee involved. 
                The reconsideration shall be within a time period 
                specified by the Secretary, but shall be made, subject 
                to paragraph (3), not later than 60 days after the date 
                of the receipt of the request for reconsideration.
                    ``(B) Physician decision on certain 
                reconsiderations.--A reconsideration relating to a 
                determination to deny coverage based on a lack of 
                medical necessity shall be made only by a physician with 
                appropriate expertise in the field of medicine which 
                necessitates treatment who is other than a physician 
                involved in the initial determination.
            ``(3) Expedited determinations and reconsiderations.--
                    ``(A) Receipt of requests.--
                          ``(i) Enrollee requests.--An enrollee in a 
                      Medicare+Choice plan may request, either in 
                      writing or orally, an expedited determination 
                      under paragraph (1) or an expedited 
                      reconsideration under paragraph (2) by the 
                      Medicare+Choice organization.
                          ``(ii) Physician requests.--A physician, 
                      regardless whether the physician is affiliated 
                      with the organization or not, may request, either 
                      in writing or orally, such an expedited 
                      determination or reconsideration.
                    ``(B) Organization procedures.--

[[Page 111 STAT. 294]]

                          ``(i) In general.--The Medicare+Choice 
                      organization shall maintain procedures for 
                      expediting organization determinations and 
                      reconsiderations when, upon request of an 
                      enrollee, the organization determines that the 
                      application of the normal time frame for making a 
                      determination (or a reconsideration involving a 
                      determination) could seriously jeopardize the life 
                      or health of the enrollee or the enrollee's 
                      ability to regain maximum function.
                          ``(ii) Expedition required for physician 
                      requests.--In the case of a request for an 
                      expedited determination or reconsideration made 
                      under subparagraph (A)(ii), the organization shall 
                      expedite the determination or reconsideration if 
                      the request indicates that the application of the 
                      normal time frame for making a determination (or a 
                      reconsideration involving a determination) could 
                      seriously jeopardize the life or health of the 
                      enrollee or the enrollee's ability to regain 
                      maximum function
                          ``(iii) Timely response.--In cases described 
                      in clauses (i) and (ii), the organization shall 
                      notify the enrollee (and the physician involved, 
                      as appropriate) of the determination or 
                      reconsideration under time limitations established 
                      by the Secretary, but not later than 72 hours of 
                      the time of receipt of the request for the 
                      determination or reconsideration (or receipt of 
                      the information necessary to make the 
                      determination or reconsideration), or such longer 
                      period as the Secretary may permit in specified 
                      cases.
            ``(4) Independent <<NOTE: Contracts.>> review of certain 
        coverage denials.--The Secretary shall contract with an 
        independent, outside entity to review and resolve in a timely 
        manner reconsiderations that affirm denial of coverage, in whole 
        or in part.
            ``(5) Appeals.--An enrollee with a Medicare+Choice plan of a 
        Medicare+Choice organization under this part who is dissatisfied 
        by reason of the enrollee's failure to receive any health 
        service to which the enrollee believes the enrollee is entitled 
        and at no greater charge than the enrollee believes the enrollee 
        is required to pay is entitled, if the amount in controversy is 
        $100 or more, to a hearing before the Secretary to the same 
        extent as is provided in section 205(b), and in any such hearing 
        the Secretary shall make the organization a party. If the amount 
        in controversy is $1,000 or more, the individual or organization 
        shall, upon notifying the other party, be entitled to judicial 
        review of the Secretary's final decision as provided in section 
        205(g), and both the individual and the organization shall be 
        entitled to be parties to that judicial review. In applying 
        subsections (b) and (g) of section 205 as provided in this 
        paragraph, and in applying section 205(l) thereto, any reference 
        therein to the Commissioner of Social Security or the Social 
        Security Administration shall be considered a reference to the 
        Secretary or the Department of Health and Human Services, 
        respectively.

    ``(h) Confidentiality and Accuracy of Enrollee Records.--Insofar as 
a Medicare+Choice organization maintains medical

[[Page 111 STAT. 295]]

records or other health information regarding enrollees under this part, 
the Medicare+Choice organization shall establish procedures--
            ``(1) to safeguard the privacy of any individually 
        identifiable enrollee information;
            ``(2) to maintain such records and information in a manner 
        that is accurate and timely, and
            ``(3) to assure timely access of enrollees to such records 
        and information.

    ``(i) Information on Advance Directives.--Each Medicare+Choice 
organization shall meet the requirement of section 1866(f) (relating to 
maintaining written policies and procedures respecting advance 
directives).
    ``(j) Rules Regarding Provider Participation.--
            ``(1) Procedures.--Insofar as a Medicare+Choice organization 
        offers benefits under a Medicare+Choice plan through agreements 
        with physicians, the organization shall establish reasonable 
        procedures relating to the participation (under an agreement 
        between a physician and the organization) of physicians under 
        such a plan. Such procedures shall include--
                    ``(A) providing notice of the rules regarding 
                participation,
                    ``(B) providing written notice of participation 
                decisions that are adverse to physicians, and
                    ``(C) providing a process within the organization 
                for appealing such adverse decisions, including the 
                presentation of information and views of the physician 
                regarding such decision.
            ``(2) Consultation in medical policies.--A Medicare+Choice 
        organization shall consult with physicians who have entered into 
        participation agreements with the organization regarding the 
        organization's medical policy, quality, and medical management 
        procedures.
            ``(3) Prohibiting interference with provider advice to 
        enrollees.--
                    ``(A) In general.--Subject to subparagraphs (B) and 
                (C), a Medicare+Choice organization (in relation to an 
                individual enrolled under a Medicare+Choice plan offered 
                by the organization under this part) shall not prohibit 
                or otherwise restrict a covered health care professional 
                (as defined in subparagraph (D)) from advising such an 
                individual who is a patient of the professional about 
                the health status of the individual or medical care or 
                treatment for the individual's condition or disease, 
                regardless of whether benefits for such care or 
                treatment are provided under the plan, if the 
                professional is acting within the lawful scope of 
                practice.
                    ``(B) Conscience protection.--Subparagraph (A) shall 
                not be construed as requiring a Medicare+Choice plan to 
                provide, reimburse for, or provide coverage of a 
                counseling or referral service if the Medicare+Choice 
                organization offering the plan--
                          ``(i) objects to the provision of such service 
                      on moral or religious grounds; and
                          ``(ii) in the manner and through the written 
                      instrumentalities such Medicare+Choice 
                      organization deems appropriate, makes available 
                      information on its policies regarding such service 
                      to prospective enrollees

[[Page 111 STAT. 296]]

                      before or during enrollment and to enrollees 
                      within 90 days after the date that the 
                      organization or plan adopts a change in policy 
                      regarding such a counseling or referral service.
                    ``(C) Construction.--Nothing in subparagraph (B) 
                shall be construed to affect disclosure requirements 
                under State law or under the Employee Retirement Income 
                Security Act of 1974.
                    ``(D) Health care professional defined.--For 
                purposes of this paragraph, the term `health care 
                professional' means a physician (as defined in section 
                1861(r)) or other health care professional if coverage 
                for the professional's services is provided under the 
                Medicare+Choice plan for the services of the 
                professional. Such term includes a podiatrist, 
                optometrist, chiropractor, psychologist, dentist, 
                physician assistant, physical or occupational therapist 
                and therapy assistant, speech-language pathologist, 
                audiologist, registered or licensed practical nurse 
                (including nurse practitioner, clinical nurse 
                specialist, certified registered nurse anesthetist, and 
                certified nurse-midwife), licensed certified social 
                worker, registered respiratory therapist, and certified 
                respiratory therapy technician.
            ``(4) Limitations on physician incentive plans.--
                    ``(A) In general.--No Medicare+Choice organization 
                may operate any physician incentive plan (as defined in 
                subparagraph (B)) unless the following requirements are 
                met:
                          ``(i) No specific payment is made directly or 
                      indirectly under the plan to a physician or 
                      physician group as an inducement to reduce or 
                      limit medically necessary services provided with 
                      respect to a specific individual enrolled with the 
                      organization.
                          ``(ii) If the plan places a physician or 
                      physician group at substantial financial risk (as 
                      determined by the Secretary) for services not 
                      provided by the physician or physician group, the 
                      organization--
                                    ``(I) provides stop-loss protection 
                                for the physician or group that is 
                                adequate and appropriate, based on 
                                standards developed by the Secretary 
                                that take into account the number of 
                                physicians placed at such substantial 
                                financial risk in the group or under the 
                                plan and the number of individuals 
                                enrolled with the organization who 
                                receive services from the physician or 
                                group, and
                                    ``(II) conducts periodic surveys of 
                                both individuals enrolled and 
                                individuals previously enrolled with the 
                                organization to determine the degree of 
                                access of such individuals to services 
                                provided by the organization and 
                                satisfaction with the quality of such 
                                services.
                          ``(iii) The organization provides the 
                      Secretary with descriptive information regarding 
                      the plan, sufficient to permit the Secretary to 
                      determine whether the plan is in compliance with 
                      the requirements of this subparagraph.
                    ``(B) Physician incentive plan defined.--In this 
                paragraph, the term `physician incentive plan' means any

[[Page 111 STAT. 297]]

                compensation arrangement between a Medicare+Choice 
                organization and a physician or physician group that may 
                directly or indirectly have the effect of reducing or 
                limiting services provided with respect to individuals 
                enrolled with the organization under this part.
            ``(5) Limitation on provider indemnification.--A 
        Medicare+Choice organization may not provide (directly or 
        indirectly) for a health care professional, provider of 
        services, or other entity providing health care services (or 
        group of such professionals, providers, or entities) to 
        indemnify the organization against any liability resulting from 
        a civil action brought for any damage caused to an enrollee with 
        a Medicare+Choice plan of the organization under this part by 
        the organization's denial of medically necessary care.
            ``(6) Special rules for medicare+choice private fee-for-
        service plans.--For purposes of applying this part (including 
        subsection (k)(1)) and section 1866(a)(1)(O), a hospital (or 
        other provider of services), a physician or other health care 
        professional, or other entity furnishing health care services is 
        treated as having an agreement or contract in effect with a 
        Medicare+Choice organization (with respect to an individual 
        enrolled in a Medicare+Choice private fee-for-service plan it 
        offers), if--
                    ``(A) the provider, professional, or other entity 
                furnishes services that are covered under the plan to 
                such an enrollee; and
                    ``(B) before providing such services, the provider, 
                professional, or other entity --
                          ``(i) has been informed of the individual's 
                      enrollment under the plan, and
                          ``(ii) either--
                                    ``(I) has been informed of the terms 
                                and conditions of payment for such 
                                services under the plan, or
                                    ``(II) is given a reasonable 
                                opportunity to obtain information 
                                concerning such terms and conditions,
                      in a manner reasonably designed to effect informed 
                      agreement by a provider.
        The previous sentence shall only apply in the absence of an 
        explicit agreement between such a provider, professional, or 
        other entity and the Medicare+Choice organization.

    ``(k) Treatment of Services Furnished by Certain Providers.--
            ``(1) In general.--Except as provided in paragraph (2), a 
        physician or other entity (other than a provider of services) 
        that does not have a contract establishing payment amounts for 
        services furnished to an individual enrolled under this part 
        with a Medicare+Choice organization described in section 
        1851(a)(2)(A) shall accept as payment in full for covered 
        services under this title that are furnished to such an 
        individual the amounts that the physician or other entity could 
        collect if the individual were not so enrolled. Any penalty or 
        other provision of law that applies to such a payment with 
        respect to an individual entitled to benefits under this title 
        (but not enrolled with a Medicare+Choice organization under this 
        part) also applies with respect to an individual so enrolled.

[[Page 111 STAT. 298]]

            ``(2) Application to medicare+choice private fee-for-service 
        plans.--
                    ``(A) Balance billing limits under medicare+choice 
                private fee-for-service plans in case of contract 
                providers.--
                          ``(i) In general.--In the case of an 
                      individual enrolled in a Medicare+Choice private 
                      fee-for-service plan under this part, a physician, 
                      provider of services, or other entity that has a 
                      contract (including through the operation of 
                      subsection (j)(6)) establishing a payment rate for 
                      services furnished to the enrollee shall accept as 
                      payment in full for covered services under this 
                      title that are furnished to such an individual an 
                      amount not to exceed (including any deductibles, 
                      coinsurance, copayments, or balance billing 
                      otherwise permitted under the plan) an amount 
                      equal to 115 percent of such payment rate.
                          ``(ii) Procedures to enforce limits.--The 
                      Medicare+Choice organization that offers such a 
                      plan shall establish procedures, similar to the 
                      procedures described in section 1848(g)(1)(A), in 
                      order to carry out the previous sentence.
                          ``(iii) Assuring enforcement.--If the 
                      Medicare+Choice organization fails to establish 
                      and enforce procedures required under clause (ii), 
                      the organization is subject to intermediate 
                      sanctions under section 1857(g).
                    ``(B) Enrollee liability for noncontract 
                providers.--For provision--
                          ``(i) establishing minimum payment rate in the 
                      case of noncontract providers under a 
                      Medicare+Choice private fee-for-service plan, see 
                      section 1852(a)(2); or
                          ``(ii) limiting enrollee liability in the case 
                      of covered services furnished by such providers, 
                      see paragraph (1) and section 1866(a)(1)(O).
                    ``(C) Information on beneficiary liability.--
                          ``(i) In general.--Each Medicare+Choice 
                      organization that offers a Medicare+Choice private 
                      fee-for-service plan shall provide that enrollees 
                      under the plan who are furnished services for 
                      which payment is sought under the plan are 
                      provided an appropriate explanation of benefits 
                      (consistent with that provided under parts A and B 
                      and, if applicable, under medicare supplemental 
                      policies) that includes a clear statement of the 
                      amount of the enrollee's liability (including any 
                      liability for balance billing consistent with this 
                      subsection) with respect to payments for such 
                      services.
                          ``(ii) Advance notice before receipt of 
                      inpatient hospital services and certain other 
                      services.--In addition, such organization shall, 
                      in its terms and conditions of payments to 
                      hospitals for inpatient hospital services and for 
                      other services identified by the Secretary for 
                      which the amount of the balancing billing under 
                      subparagraph (A) could be substantial, require the 
                      hospital to provide to the enrollee, before 
                      furnishing such services and if the

[[Page 111 STAT. 299]]

                      hospital imposes balance billing under 
                      subparagraph (A)--
                                    ``(I) notice of the fact that 
                                balance billing is permitted under such 
                                subparagraph for such services, and
                                    ``(II) a good faith estimate of the 
                                likely amount of such balance billing 
                                (if any), with respect to such services, 
                                based upon the presenting condition of 
                                the enrollee.

               ``payments to medicare+choice organizations

    ``Sec. 1853. (a) Payments <<NOTE: 42 USC 1395w-23.>> to 
Organizations.--
            ``(1) Monthly payments.--
                    ``(A) In general.--Under a contract under section 
                1857 and subject to subsections (e) and (f) and section 
                1859(e)(4), the Secretary shall make monthly payments 
                under this section in advance to each Medicare+Choice 
                organization, with respect to coverage of an individual 
                under this part in a Medicare+Choice payment area for a 
                month, in an amount equal to \1/12\ of the annual 
                Medicare+Choice capitation rate (as calculated under 
                subsection (c)) with respect to that individual for that 
                area, adjusted for such risk factors as age, disability 
                status, gender, institutional status, and such other 
                factors as the Secretary determines to be appropriate, 
                so as to ensure actuarial equivalence. The Secretary may 
                add to, modify, or substitute for such factors, if such 
                changes will improve the determination of actuarial 
                equivalence.
                    ``(B) Special rule for end-stage renal disease.--The 
                Secretary shall establish separate rates of payment to a 
                Medicare+Choice organization with respect to classes of 
                individuals determined to have end-stage renal disease 
                and enrolled in a Medicare+Choice plan of the 
                organization. Such rates of payment shall be actuarially 
                equivalent to rates paid to other enrollees in the 
                Medicare+Choice payment area (or such other area as 
                specified by the Secretary). In accordance with 
                regulations, the Secretary shall provide for the 
                application of the seventh sentence of section 
                1881(b)(7) to payments under this section covering the 
                provision of renal dialysis treatment in the same manner 
                as such sentence applies to composite rate payments 
                described in such sentence.
            ``(2) Adjustment to reflect number of enrollees.--
                    ``(A) In general.--The amount of payment under this 
                subsection may be retroactively adjusted to take into 
                account any difference between the actual number of 
                individuals enrolled with an organization under this 
                part and the number of such individuals estimated to be 
                so enrolled in determining the amount of the advance 
                payment.
                    ``(B) Special rule for certain enrollees.--
                          ``(i) In general.--Subject to clause (ii), the 
                      Secretary may make retroactive adjustments under 
                      subparagraph (A) to take into account individuals 
                      enrolled during the period beginning on the date 
                      on which the individual enrolls with a 
                      Medicare+Choice organization under a plan 
                      operated, sponsored, or

[[Page 111 STAT. 300]]

                      contributed to by the individual's employer or 
                      former employer (or the employer or former 
                      employer of the individual's spouse) and ending on 
                      the date on which the individual is enrolled in 
                      the organization under this part, except that for 
                      purposes of making such retroactive adjustments 
                      under this subparagraph, such period may not 
                      exceed 90 days.
                          ``(ii) Exception.--No adjustment may be made 
                      under clause (i) with respect to any individual 
                      who does not certify that the organization 
                      provided the individual with the disclosure 
                      statement described in section 1852(c) at the time 
                      the individual enrolled with the organization.
            ``(3) Establishment of risk adjustment factors.--
                    ``(A) Report.--The Secretary shall develop, and 
                submit to Congress by not later than March 1, 1999, a 
                report on the method of risk adjustment of payment rates 
                under this section, to be implemented under subparagraph 
                (C), that accounts for variations in per capita costs 
                based on health status. Such report shall include an 
                evaluation of such method by an outside, independent 
                actuary of the actuarial soundness of the proposal.
                    ``(B) Data collection.--In order to carry out this 
                paragraph, the Secretary shall require Medicare+Choice 
                organizations (and eligible organizations with risk-
                sharing contracts under section 1876) to submit data 
                regarding inpatient hospital services for periods 
                beginning on or after July 1, 1997, and data regarding 
                other services and other information as the Secretary 
                deems necessary for periods beginning on or after July 
                1, 1998. The Secretary may not require an organization 
                to submit such data before January 1, 1998.
                    ``(C) Initial implementation.--The Secretary shall 
                first provide for implementation of a risk adjustment 
                methodology that accounts for variations in per capita 
                costs based on health status and other demographic 
                factors for payments by no later than January 1, 2000.
                    ``(D) Uniform application to all types of plans.--
                Subject to section 1859(e)(4), the methodology shall be 
                applied uniformly without regard to the type of plan.

    ``(b) Annual Announcement of Payment Rates.--
            ``(1) Annual announcement.--The Secretary shall annually 
        determine, and shall announce (in a manner intended to provide 
        notice to interested parties) not later than March 1 before the 
        calendar year concerned--
                    ``(A) the annual Medicare+Choice capitation rate for 
                each Medicare+Choice payment area for the year, and
                    ``(B) the risk and other factors to be used in 
                adjusting such rates under subsection (a)(1)(A) for 
                payments for months in that year.
            ``(2) Advance notice of methodological changes.--At least 45 
        days before making the announcement under paragraph (1) for a 
        year, the Secretary shall provide for notice to Medicare+Choice 
        organizations of proposed changes to be made in the methodology 
        from the methodology and assumptions used in the previous 
        announcement and shall provide

[[Page 111 STAT. 301]]

        such organizations an opportunity to comment on such proposed 
        changes.
            ``(3) Explanation of assumptions.--In each announcement made 
        under paragraph (1), the Secretary shall include an explanation 
        of the assumptions and changes in methodology used in the 
        announcement in sufficient detail so that Medicare+Choice 
        organizations can compute monthly adjusted Medicare+Choice 
        capitation rates for individuals in each Medicare+Choice payment 
        area which is in whole or in part within the service area of 
        such an organization.

    ``(c) Calculation of Annual Medicare+Choice Capitation Rates.--
            ``(1) In general.--For purposes of this part, subject to 
        paragraphs (6)(C) and (7), each annual Medicare+Choice 
        capitation rate, for a Medicare+Choice payment area for a 
        contract year consisting of a calendar year, is equal to the 
        largest of the amounts specified in the following subparagraph 
        (A), (B), or (C):
                    ``(A) Blended capitation rate.--The sum of--
                          ``(i) the area-specific percentage (as 
                      specified under paragraph (2) for the year) of the 
                      annual area-specific Medicare+Choice capitation 
                      rate for the Medicare+Choice payment area, as 
                      determined under paragraph (3) for the year, and
                          ``(ii) the national percentage (as specified 
                      under paragraph (2) for the year) of the input-
                      price-adjusted annual national Medicare+Choice 
                      capitation rate, as determined under paragraph (4) 
                      for the year,
                multiplied by the budget neutrality adjustment factor 
                determined under paragraph (5).
                    ``(B) Minimum amount.--12 multiplied by the 
                following amount:
                          ``(i) For 1998, $367 (but not to exceed, in 
                      the case of an area outside the 50 States and the 
                      District of Columbia, 150 percent of the annual 
                      per capita rate of payment for 1997 determined 
                      under section 1876(a)(1)(C) for the area).
                          ``(ii) For a succeeding year, the minimum 
                      amount specified in this clause (or clause (i)) 
                      for the preceding year increased by the national 
                      per capita Medicare+Choice growth percentage, 
                      described in paragraph (6)(A) for that succeeding 
                      year.
                    ``(C) Minimum percentage increase.--
                          ``(i) For 1998, 102 percent of the annual per 
                      capita rate of payment for 1997 determined under 
                      section 1876(a)(1)(C) for the Medicare+Choice 
                      payment area.
                          ``(ii) For a subsequent year, 102 percent of 
                      the annual Medicare+Choice capitation rate under 
                      this paragraph for the area for the previous year.
            ``(2) Area-specific and national percentages.--For purposes 
        of paragraph (1)(A)--
                    ``(A) for 1998, the `area-specific percentage' is 90 
                percent and the `national percentage' is 10 percent,
                    ``(B) for 1999, the `area-specific percentage' is 82 
                percent and the `national percentage' is 18 percent,
                    ``(C) for 2000, the `area-specific percentage' is 74 
                percent and the `national percentage' is 26 percent,

[[Page 111 STAT. 302]]

                    ``(D) for 2001, the `area-specific percentage' is 66 
                percent and the `national percentage' is 34 percent,
                    ``(E) for 2002, the `area-specific percentage' is 58 
                percent and the `national percentage' is 42 percent, and
                    ``(F) for a year after 2002, the `area-specific 
                percentage' is 50 percent and the `national percentage' 
                is 50 percent.
            ``(3) Annual area-specific medicare+choice capitation 
        rate.--
                    ``(A) In general.--For purposes of paragraph (1)(A), 
                subject to subparagraph (B), the annual area-specific 
                Medicare+Choice capitation rate for a Medicare+Choice 
                payment area--
                          ``(i) for 1998 is, subject to subparagraph 
                      (D), the annual per capita rate of payment for 
                      1997 determined under section 1876(a)(1)(C) for 
                      the area, increased by the national per capita 
                      Medicare+Choice growth percentage for 1998 
                      (described in paragraph (6)(A)); or
                          ``(ii) for a subsequent year is the annual 
                      area-specific Medicare+Choice capitation rate for 
                      the previous year determined under this paragraph 
                      for the area, increased by the national per capita 
                      Medicare+Choice growth percentage for such 
                      subsequent year.
                    ``(B) Removal of medical education from calculation 
                of adjusted average per capita cost.--
                          ``(i) In general.--In determining the area-
                      specific Medicare+Choice capitation rate under 
                      subparagraph (A) for a year (beginning with 1998), 
                      the annual per capita rate of payment for 1997 
                      determined under section 1876(a)(1)(C) shall be 
                      adjusted to exclude from the rate the applicable 
                      percent (specified in clause (ii)) of the payment 
                      adjustments described in subparagraph (C).
                          ``(ii) Applicable percent.--For purposes of 
                      clause (i), the applicable percent for--
                                    ``(I) 1998 is 20 percent,
                                    ``(II) 1999 is 40 percent,
                                    ``(III) 2000 is 60 percent,
                                    ``(IV) 2001 is 80 percent, and
                                    ``(V) a succeeding year is 100 
                                percent.
                    ``(C) Payment adjustment.--
                          ``(i) In general.--Subject to clause (ii), the 
                      payment adjustments described in this subparagraph 
                      are payment adjustments which the Secretary 
                      estimates were payable during 1997--
                                    ``(I) for the indirect costs of 
                                medical education under section 
                                1886(d)(5)(B), and
                                    ``(II) for direct graduate medical 
                                education costs under section 1886(h).
                          ``(ii) Treatment of payments covered under 
                      state hospital reimbursement system.--To the 
                      extent that the Secretary estimates that an annual 
                      per capita rate of payment for 1997 described in 
                      clause (i) reflects payments to hospitals 
                      reimbursed under section 1814(b)(3), the Secretary 
                      shall estimate a payment adjustment that is 
                      comparable to the payment

[[Page 111 STAT. 303]]

                      adjustment that would have been made under clause 
                      (i) if the hospitals had not been reimbursed under 
                      such section.
                    ``(D) Treatment of areas with highly variable 
                payment rates.--In the case of a Medicare+Choice payment 
                area for which the annual per capita rate of payment 
                determined under section 1876(a)(1)(C) for 1997 varies 
                by more than 20 percent from such rate for 1996, for 
                purposes of this subsection the Secretary may substitute 
                for such rate for 1997 a rate that is more 
                representative of the costs of the enrollees in the 
                area.
            ``(4) Input-price-adjusted annual national medicare+choice 
        capitation rate.--
                    ``(A) In general.--For purposes of paragraph (1)(A), 
                the input-price-adjusted annual national Medicare+Choice 
                capitation rate for a Medicare+Choice payment area for a 
                year is equal to the sum, for all the types of medicare 
                services (as classified by the Secretary), of the 
                product (for each such type of service) of--
                          ``(i) the national standardized annual 
                      Medicare+Choice capitation rate (determined under 
                      subparagraph (B)) for the year,
                          ``(ii) the proportion of such rate for the 
                      year which is attributable to such type of 
                      services, and
                          ``(iii) an index that reflects (for that year 
                      and that type of services) the relative input 
                      price of such services in the area compared to the 
                      national average input price of such services.
                In applying clause (iii), the Secretary may, subject to 
                subparagraph (C), apply those indices under this title 
                that are used in applying (or updating) national payment 
                rates for specific areas and localities.
                    ``(B) National standardized annual medicare+choice 
                capitation rate.--In subparagraph (A)(i), the `national 
                standardized annual Medicare+Choice capitation rate' for 
                a year is equal to--
                          ``(i) the sum (for all Medicare+Choice payment 
                      areas) of the product of--
                                    ``(I) the annual area-specific 
                                Medicare+Choice capitation rate for that 
                                year for the area under paragraph (3), 
                                and
                                    ``(II) the average number of 
                                medicare beneficiaries residing in that 
                                area in the year, multiplied by the 
                                average of the risk factor weights used 
                                to adjust payments under subsection 
                                (a)(1)(A) for such beneficiaries in such 
                                area; divided by
                          ``(ii) the sum of the products described in 
                      clause (i)(II) for all areas for that year.
                    ``(C) Special rules for 1998.--In applying this 
                paragraph for 1998--
                          ``(i) medicare services shall be divided into 
                      2 types of services: part A services and part B 
                      services;
                          ``(ii) the proportions described in 
                      subparagraph (A)(ii)--
                                    ``(I) for part A services shall be 
                                the ratio (expressed as a percentage) of 
                                the national average annual per capita 
                                rate of payment for part A for

[[Page 111 STAT. 304]]

                                1997 to the total national average 
                                annual per capita rate of payment for 
                                parts A and B for 1997, and
                                    ``(II) for part B services shall be 
                                100 percent minus the ratio described in 
                                subclause (I);
                          ``(iii) for part A services, 70 percent of 
                      payments attributable to such services shall be 
                      adjusted by the index used under section 
                      1886(d)(3)(E) to adjust payment rates for relative 
                      hospital wage levels for hospitals located in the 
                      payment area involved;
                          ``(iv) for part B services--
                                    ``(I) 66 percent of payments 
                                attributable to such services shall be 
                                adjusted by the index of the geographic 
                                area factors under section 1848(e) used 
                                to adjust payment rates for physicians' 
                                services furnished in the payment area, 
                                and
                                    ``(II) of the remaining 34 percent 
                                of the amount of such payments, 40 
                                percent shall be adjusted by the index 
                                described in clause (iii); and
                          ``(v) the index values shall be computed based 
                      only on the beneficiary population who are 65 
                      years of age or older and who are not determined 
                      to have end stage renal disease.
                The Secretary may continue to apply the rules described 
                in this subparagraph (or similar rules) for 1999.
            ``(5) Payment adjustment budget neutrality factor.--For 
        purposes of paragraph (1)(A), for each year, the Secretary shall 
        determine a budget neutrality adjustment factor so that the 
        aggregate of the payments under this part shall equal the 
        aggregate payments that would have been made under this part if 
        payment were based entirely on area-specific capitation rates.
            ``(6) National per capita medicare+choice growth percentage 
        defined.--
                    ``(A) In general.--In this part, the `national per 
                capita Medicare+Choice growth percentage' for a year is 
                the percentage determined by the Secretary, by March 1st 
                before the beginning of the year involved, to reflect 
                the Secretary's estimate of the projected per capita 
                rate of growth in expenditures under this title for an 
                individual entitled to benefits under part A and 
                enrolled under part B, reduced by the number of 
                percentage points specified in subparagraph (B) for the 
                year. Separate determinations may be made for aged 
                enrollees, disabled enrollees, and enrollees with end-
                stage renal disease.
                    ``(B) Adjustment.--The number of percentage points 
                specified in this subparagraph is--
                          ``(i) for 1998, 0.8 percentage points,
                          ``(ii) for 1999, 0.5 percentage points,
                          ``(iii) for 2000, 0.5 percentage points,
                          ``(iv) for 2001, 0.5 percentage points,
                          ``(v) for 2002, 0.5 percentage points, and
                          ``(vi) for a year after 2002, 0 percentage 
                      points.
                    ``(C) Adjustment for over or under projection of 
                national per capita medicare+choice growth percentage.--
                Beginning with rates calculated for 1999, before 
                computing rates for a year as described in paragraph 
                (1),

[[Page 111 STAT. 305]]

                the Secretary shall adjust all area-specific and 
                national Medicare+Choice capitation rates (and beginning 
                in 2000, the minimum amount) for the previous year for 
                the differences between the projections of the national 
                per capita Medicare+Choice growth percentage for that 
                year and previous years and the current estimate of such 
                percentage for such years.
            ``(7) Adjustment for national coverage determinations.--If 
        the Secretary makes a determination with respect to coverage 
        under this title that the Secretary projects will result in a 
        significant increase in the costs to Medicare+Choice of 
        providing benefits under contracts under this part (for periods 
        after any period described in section 1852(a)(5)), the Secretary 
        shall adjust appropriately the payments to such organizations 
        under this part.

    ``(d) Medicare+Choice Payment Area Defined.--
            ``(1) In general.--In this part, except as provided in 
        paragraph (3), the term `Medicare+Choice payment area' means a 
        county, or equivalent area specified by the Secretary.
            ``(2) Rule for esrd beneficiaries.--In the case of 
        individuals who are determined to have end stage renal disease, 
        the Medicare+Choice payment area shall be a State or such other 
        payment area as the Secretary specifies.
            ``(3) Geographic adjustment.--
                    ``(A) In general.--Upon written request of the chief 
                executive officer of a State for a contract year 
                (beginning after 1998) made by not later than February 1 
                of the previous year, the Secretary shall make a 
                geographic adjustment to a Medicare+Choice payment area 
                in the State otherwise determined under paragraph (1)--
                          ``(i) to a single statewide Medicare+Choice 
                      payment area,
                          ``(ii) to the metropolitan based system 
                      described in subparagraph (C), or
                          ``(iii) to consolidating into a single 
                      Medicare+Choice payment area noncontiguous 
                      counties (or equivalent areas described in 
                      paragraph (1)) within a State.
                Such adjustment shall be effective for payments for 
                months beginning with January of the year following the 
                year in which the request is received.
                    ``(B) Budget neutrality adjustment.--In the case of 
                a State requesting an adjustment under this paragraph, 
                the Secretary shall initially (and annually thereafter) 
                adjust the payment rates otherwise established under 
                this section for Medicare+Choice payment areas in the 
                State in a manner so that the aggregate of the payments 
                under this section in the State shall not exceed the 
                aggregate payments that would have been made under this 
                section for Medicare+Choice payment areas in the State 
                in the absence of the adjustment under this paragraph.
                    ``(C) Metropolitan based system.--The metropolitan 
                based system described in this subparagraph is one in 
                which--
                          ``(i) all the portions of each metropolitan 
                      statistical area in the State or in the case of a 
                      consolidated metropolitan statistical area, all of 
                      the portions of each primary metropolitan 
                      statistical area within the

[[Page 111 STAT. 306]]

                      consolidated area within the State, are treated as 
                      a single Medicare+Choice payment area, and
                          ``(ii) all areas in the State that do not fall 
                      within a metropolitan statistical area are treated 
                      as a single Medicare+Choice payment area.
                    ``(D) Areas.--In subparagraph (C), the terms 
                `metropolitan statistical area', `consolidated 
                metropolitan statistical area', and `primary 
                metropolitan statistical area' mean any area designated 
                as such by the Secretary of Commerce.

    ``(e) Special Rules for Individuals Electing MSA Plans.--
            ``(1) In general.--If the amount of the Medicare+Choice 
        monthly MSA premium (as defined in section 1854(b)(2)(C)) for an 
        MSA plan for a year is less than \1/12\ of the annual 
        Medicare+Choice capitation rate applied under this section for 
        the area and year involved, the Secretary shall deposit an 
        amount equal to 100 percent of such difference in a 
        Medicare+Choice MSA established (and, if applicable, designated) 
        by the individual under paragraph (2).
            ``(2) Establishment and designation of medicare+choice 
        medical savings account as requirement for payment of 
        contribution.--In the case of an individual who has elected 
        coverage under an MSA plan, no payment shall be made under 
        paragraph (1) on behalf of an individual for a month unless the 
        individual--
                    ``(A) has established before the beginning of the 
                month (or by such other deadline as the Secretary may 
                specify) a Medicare+Choice MSA (as defined in section 
                138(b)(2) of the Internal Revenue Code of 1986), and
                    ``(B) if the individual has established more than 
                one such Medicare+Choice MSA, has designated one of such 
                accounts as the individual's Medicare+Choice MSA for 
                purposes of this part.
        Under rules under this section, such an individual may change 
        the designation of such account under subparagraph (B) for 
        purposes of this part.
            ``(3) Lump-sum deposit of medical savings account 
        contribution.--In the case of an individual electing an MSA plan 
        effective beginning with a month in a year, the amount of the 
        contribution to the Medicare+Choice MSA on behalf of the 
        individual for that month and all successive months in the year 
        shall be deposited during that first month. In the case of a 
        termination of such an election as of a month before the end of 
        a year, the Secretary shall provide for a procedure for the 
        recovery of deposits attributable to the remaining months in the 
        year.

    ``(f) Payments From Trust Fund.--The payment to a Medicare+Choice 
organization under this section for individuals enrolled under this part 
with the organization and payments to a Medicare+Choice MSA under 
subsection (e)(1) shall be made from the Federal Hospital Insurance 
Trust Fund and the Federal Supplementary Medical Insurance Trust Fund in 
such proportion as the Secretary determines reflects the relative weight 
that benefits under part A and under part B represents of the actuarial 
value of the total benefits under this title. Monthly payments otherwise 
payable under this section for October 2000 shall be paid on the first 
business day of such month. Monthly payments otherwise payable under 
this section for October 2001 shall be paid on the

[[Page 111 STAT. 307]]

last business day of September 2001. Monthly payments otherwise payable 
under this section for October 2006 shall be paid on the first business 
day of October 2006.
    ``(g) Special Rule for Certain Inpatient Hospital Stays.--In the 
case of an individual who is receiving inpatient hospital services from 
a subsection (d) hospital (as defined in section 1886(d)(1)(B)) as of 
the effective date of the individual's--
            ``(1) election under this part of a Medicare+Choice plan 
        offered by a Medicare+Choice organization--
                    ``(A) payment for such services until the date of 
                the individual's discharge shall be made under this 
                title through the Medicare+Choice plan or the original 
                medicare fee-for-service program option described in 
                section 1851(a)(1)(A) (as the case may be) elected 
                before the election with such organization,
                    ``(B) the elected organization shall not be 
                financially responsible for payment for such services 
                until the date after the date of the individual's 
                discharge, and
                    ``(C) the organization shall nonetheless be paid the 
                full amount otherwise payable to the organization under 
                this part; or
            ``(2) termination of election with respect to a 
        Medicare+Choice organization under this part--
                    ``(A) the organization shall be financially 
                responsible for payment for such services after such 
                date and until the date of the individual's discharge,
                    ``(B) payment for such services during the stay 
                shall not be made under section 1886(d) or by any 
                succeeding Medicare+Choice organization, and
                    ``(C) the terminated organization shall not receive 
                any payment with respect to the individual under this 
                part during the period the individual is not enrolled.

    ``(h) Special Rule for Hospice Care.--
            ``(1) Information.--A contract under this part shall require 
        the Medicare+Choice organization to inform each individual 
        enrolled under this part with a Medicare+Choice plan offered by 
        the organization about the availability of hospice care if--
                    ``(A) a hospice program participating under this 
                title is located within the organization's service area; 
                or
                    ``(B) it is common practice to refer patients to 
                hospice programs outside such service area.
            ``(2) Payment.--If an individual who is enrolled with a 
        Medicare+Choice organization under this part makes an election 
        under section 1812(d)(1) to receive hospice care from a 
        particular hospice program--
                    ``(A) payment for the hospice care furnished to the 
                individual shall be made to the hospice program elected 
                by the individual by the Secretary;
                    ``(B) payment for other services for which the 
                individual is eligible notwithstanding the individual's 
                election of hospice care under section 1812(d)(1), 
                including services not related to the individual's 
                terminal illness, shall be made by the Secretary to the 
                Medicare+Choice organization or the provider or supplier 
                of the service instead of payments calculated under 
                subsection (a); and
                    ``(C) the Secretary shall continue to make monthly 
                payments to the Medicare+Choice organization in an

[[Page 111 STAT. 308]]

                amount equal to the value of the additional benefits 
                required under section 1854(f)(1)(A).

                               ``premiums

    ``Sec. 1854. (a) Submission <<NOTE: 42 USC 1395w-24.>> of Proposed 
Premiums and Related Information.--
            (1) In general.--Not later than May 1 of each year, each 
        Medicare+Choice organization shall submit to the Secretary, in a 
        form and manner specified by the Secretary and for each 
        Medicare+Choice plan for the service area in which it intends to 
        be offered in the following year--
                    ``(A) the information described in paragraph (2), 
                (3), or (4) for the type of plan involved; and
                    ``(B) the enrollment capacity (if any) in relation 
                to the plan and area.
            ``(2) Information required for coordinated care plans.--For 
        a Medicare+Choice plan described in section 1851(a)(2)(A), the 
        information described in this paragraph is as follows:
                    ``(A) Basic (and additional) benefits.--For benefits 
                described in 1852(a)(1)(A)--
                          ``(i) the adjusted community rate (as defined 
                      in subsection (f)(3));
                          ``(ii) the Medicare+Choice monthly basic 
                      beneficiary premium (as defined in subsection 
                      (b)(2)(A));
                          ``(iii) a description of deductibles, 
                      coinsurance, and copayments applicable under the 
                      plan and the actuarial value of such deductibles, 
                      coinsurance, and copayments, described in 
                      subsection (e)(1)(A); and
                          ``(iv) if required under subsection (f)(1), a 
                      description of the additional benefits to be 
                      provided pursuant to such subsection and the value 
                      determined for such proposed benefits under such 
                      subsection.
                    ``(B) Supplemental benefits.--For benefits described 
                in 1852(a)(3)--
                          ``(i) the adjusted community rate (as defined 
                      in subsection (f)(3));
                          ``(ii) the Medicare+Choice monthly 
                      supplemental beneficiary premium (as defined in 
                      subsection (b)(2)(B)); and
                          ``(iii) a description of deductibles, 
                      coinsurance, and copayments applicable under the 
                      plan and the actuarial value of such deductibles, 
                      coinsurance, and copayments, described in 
                      subsection (e)(2).
            ``(3) Requirements for msa plans.--For an MSA plan 
        described, the information described in this paragraph is as 
        follows:
                    ``(A) Basic (and additional) benefits.--For benefits 
                described in 1852(a)(1)(A), the amount of the 
                Medicare+Choice monthly MSA premium.
                    ``(B) Supplemental benefits.--For benefits described 
                in 1852(a)(3), the amount of the Medicare+Choice monthly 
                supplementary beneficiary premium.
            ``(4) Requirements for private fee-for-service plans.--For a 
        Medicare+Choice plan described in section 1851(a)(2)(C) for 
        benefits described in 1852(a)(1)(A), the information described 
        in this paragraph is as follows:

[[Page 111 STAT. 309]]

                    ``(A) Basic (and additional) benefits.--For benefits 
                described in 1852(a)(1)(A)--
                          ``(i) the adjusted community rate (as defined 
                      in subsection (f)(3));
                          ``(ii) the amount of the Medicare+Choice 
                      monthly basic beneficiary premium;
                          ``(iii) a description of the deductibles, 
                      coinsurance, and copayments applicable under the 
                      plan, and the actuarial value of such deductibles, 
                      coinsurance, and copayments, as described in 
                      subsection (e)(4)(A); and
                          ``(iv) if required under subsection (f)(1), a 
                      description of the additional benefits to be 
                      provided pursuant to such subsection and the value 
                      determined for such proposed benefits under such 
                      subsection.
                    ``(B) Supplemental benefits.--For benefits described 
                in 1852(a)(3), the amount of the Medicare+Choice monthly 
                supplemental beneficiary premium (as defined in 
                subsection (b)(2)(B)).
            ``(5) Review.--
                    ``(A) In general.--Subject to subparagraph (B), the 
                Secretary shall review the adjusted community rates, the 
                amounts of the basic and supplemental premiums, and 
                values filed under this subsection and shall approve or 
                disapprove such rates, amounts, and value so submitted.
                    ``(B) Exception.--The Secretary shall not review, 
                approve, or disapprove the amounts submitted under 
                paragraph (3) or subparagraphs (A)(ii) and (B) of 
                paragraph (4).

    ``(b) Monthly Premium Charged.--
            ``(1) In general.--
                    ``(A) Rule for other than msa plans.--The monthly 
                amount of the premium charged to an individual enrolled 
                in a Medicare+Choice plan (other than an MSA plan) 
                offered by a Medicare+Choice organization shall be equal 
                to the sum of the Medicare+Choice monthly basic 
                beneficiary premium and the Medicare+Choice monthly 
                supplementary beneficiary premium (if any).
                    ``(B) MSA plans.--The monthly amount of the premium 
                charged to an individual enrolled in an MSA plan offered 
                by a Medicare+Choice organization shall be equal to the 
                Medicare+Choice monthly supplemental beneficiary premium 
                (if any).
            ``(2) Premium terminology defined.--For purposes of this 
        part:
                    ``(A) The Medicare+Choice monthly basic beneficiary 
                premium.--The term `Medicare+Choice monthly basic 
                beneficiary premium' means, with respect to a 
                Medicare+Choice plan, the amount authorized to be 
                charged under subsection (e)(1) for the plan, or, in the 
                case of a Medicare+Choice private fee-for-service plan, 
                the amount filed under subsection (a)(4)(A)(ii).
                    ``(B) Medicare+Choice monthly supplemental 
                beneficiary premium.--The term `Medicare+Choice monthly 
                supplemental beneficiary premium' means, with respect to 
                a Medicare+Choice plan, the amount authorized to be 
                charged under subsection (e)(2) for the plan or, in the 
                case of a MSA plan or Medicare+Choice private fee-for-

[[Page 111 STAT. 310]]

                service plan, the amount filed under paragraph (3)(B) or 
                (4)(B) of subsection (a).
                    ``(C) Medicare+Choice monthly MSA premium.--The term 
                `Medicare+Choice monthly MSA premium' means, with 
                respect to a Medicare+Choice plan, the amount of such 
                premium filed under subsection (a)(3)(A) for the plan.

    ``(c) Uniform Premium.--The Medicare+Choice monthly basic and 
supplemental beneficiary premium, the Medicare+Choice monthly MSA 
premium charged under subsection (b) of a Medicare+Choice organization 
under this part may not vary among individuals enrolled in the plan.
    ``(d) Terms and Conditions of Imposing Premiums.--Each 
Medicare+Choice organization shall permit the payment of Medicare+Choice 
monthly basic and supplemental beneficiary premiums on a monthly basis, 
may terminate election of individuals for a Medicare+Choice plan for 
failure to make premium payments only in accordance with section 
1851(g)(3)(B)(i), and may not provide for cash or other monetary rebates 
as an inducement for enrollment or otherwise.
    ``(e) Limitation on Enrollee Liability.--
            ``(1) For basic and additional benefits.--In no event may--
                    ``(A) the Medicare+Choice monthly basic beneficiary 
                premium (multiplied by 12) and the actuarial value of 
                the deductibles, coinsurance, and copayments applicable 
                on average to individuals enrolled under this part with 
                a Medicare+Choice plan described in section 
                1851(a)(2)(A) of an organization with respect to 
                required benefits described in section 1852(a)(1)(A) and 
                additional benefits (if any) required under subsection 
                (f)(1)(A) for a year, exceed
                    ``(B) the actuarial value of the deductibles, 
                coinsurance, and copayments that would be applicable on 
                average to individuals entitled to benefits under part A 
                and enrolled under part B if they were not members of a 
                Medicare+Choice organization for the year.
            ``(2) For supplemental benefits.--If the Medicare+Choice 
        organization provides to its members enrolled under this part in 
        a Medicare+Choice plan described in section 1851(a)(2)(A) with 
        respect to supplemental benefits described in section 
        1852(a)(3), the sum of the Medicare+Choice monthly supplemental 
        beneficiary premium (multiplied by 12) charged and the actuarial 
        value of its deductibles, coinsurance, and copayments charged 
        with respect to such benefits may not exceed the adjusted 
        community rate for such benefits (as defined in subsection 
        (f)(3)).
            ``(3) Determination on other basis.--If the Secretary 
        determines that adequate data are not available to determine the 
        actuarial value under paragraph (1)(A) or (2), the Secretary may 
        determine such amount with respect to all individuals in same 
        geographic area, the State, or in the United States, eligible to 
        enroll in the Medicare+Choice plan involved under this part or 
        on the basis of other appropriate data.
            ``(4) Special rule for private fee-for-service plans.--With 
        respect to a Medicare+Choice private fee-for-service plan (other 
        than a plan that is an MSA plan), in no event may--

[[Page 111 STAT. 311]]

                    ``(A) the actuarial value of the deductibles, 
                coinsurance, and copayments applicable on average to 
                individuals enrolled under this part with such a plan of 
                an organization with respect to required benefits 
                described in section 1852(a)(1), exceed
                    ``(B) the actuarial value of the deductibles, 
                coinsurance, and copayments that would be applicable on 
                average to individuals entitled to benefits under part A 
                and enrolled under part B if they were not members of a 
                Medicare+Choice organization for the year.

    ``(f) Requirement for Additional Benefits.--
            ``(1) Requirement.--
                    ``(A) In general.--Each Medicare+Choice organization 
                (in relation to a Medicare+Choice plan, other than an 
                MSA plan, it offers) shall provide that if there is an 
                excess amount (as defined in subparagraph (B)) for the 
                plan for a contract year, subject to the succeeding 
                provisions of this subsection, the organization shall 
                provide to individuals such additional benefits (as the 
                organization may specify) in a value which the Secretary 
                determines is at least equal to the adjusted excess 
                amount (as defined in subparagraph (C)).
                    ``(B) Excess amount.--For purposes of this 
                paragraph, the `excess amount', for an organization for 
                a plan, is the amount (if any) by which--
                          ``(i) the average of the capitation payments 
                      made to the organization under section 1853 for 
                      the plan at the beginning of contract year, 
                      exceeds
                          ``(ii) the actuarial value of the required 
                      benefits described in section 1852(a)(1)(A) under 
                      the plan for individuals under this part, as 
                      determined based upon an adjusted community rate 
                      described in paragraph (3) (as reduced for the 
                      actuarial value of the coinsurance, copayments, 
                      and deductibles under parts A and B).
                    ``(C) Adjusted excess amount.--For purposes of this 
                paragraph, the `adjusted excess amount', for an 
                organization for a plan, is the excess amount reduced to 
                reflect any amount withheld and reserved for the 
                organization for the year under paragraph (2).
                    ``(D) Uniform application.--This paragraph shall be 
                applied uniformly for all enrollees for a plan.
                    ``(E) Construction.--Nothing in this subsection 
                shall be construed as preventing a Medicare+Choice 
                organization from providing supplemental benefits 
                (described in section 1852(a)(3)) that are in addition 
                to the health care benefits otherwise required to be 
                provided under this paragraph and from imposing a 
                premium for such supplemental benefits.
            ``(2) Stabilization fund.--A Medicare+Choice organization 
        may provide that a part of the value of an excess amount 
        described in paragraph (1) be withheld and reserved in the 
        Federal Hospital Insurance Trust Fund and in the Federal 
        Supplementary Medical Insurance Trust Fund (in such proportions 
        as the Secretary determines to be appropriate) by the Secretary 
        for subsequent annual contract periods, to the extent required 
        to stabilize and prevent undue fluctuations in the

[[Page 111 STAT. 312]]

        additional benefits offered in those subsequent periods by the 
        organization in accordance with such paragraph. Any of such 
        value of the amount reserved which is not provided as additional 
        benefits described in paragraph (1)(A) to individuals electing 
        the Medicare+Choice plan of the organization in accordance with 
        such paragraph prior to the end of such periods, shall revert 
        for the use of such trust funds.
            ``(3) Adjusted community rate.--For purposes of this 
        subsection, subject to paragraph (4), the term `adjusted 
        community rate' for a service or services means, at the election 
        of a Medicare+Choice organization, either--
                    ``(A) the rate of payment for that service or 
                services which the Secretary annually determines would 
                apply to an individual electing a Medicare+Choice plan 
                under this part if the rate of payment were determined 
                under a `community rating system' (as defined in section 
                1302(8) of the Public Health Service Act, other than 
                subparagraph (C)), or
                    ``(B) such portion of the weighted aggregate 
                premium, which the Secretary annually estimates would 
                apply to such an individual, as the Secretary annually 
                estimates is attributable to that service or services,
        but adjusted for differences between the utilization 
        characteristics of the individuals electing coverage under this 
        part and the utilization characteristics of the other enrollees 
        with the plan (or, if the Secretary finds that adequate data are 
        not available to adjust for those differences, the differences 
        between the utilization characteristics of individuals selecting 
        other Medicare+Choice coverage, or Medicare+Choice eligible 
        individuals in the area, in the State, or in the United States, 
        eligible to elect Medicare+Choice coverage under this part and 
        the utilization characteristics of the rest of the population in 
        the area, in the State, or in the United States, respectively).
            ``(4) Determination based on insufficient data.--For 
        purposes of this subsection, if the Secretary finds that there 
        is insufficient enrollment experience to determine an average of 
        the capitation payments to be made under this part at the 
        beginning of a contract period or to determine (in the case of a 
        newly operated provider-sponsored organization or other new 
        organization) the adjusted community rate for the organization, 
        the Secretary may determine such an average based on the 
        enrollment experience of other contracts entered into under this 
        part and may determine such a rate using data in the general 
        commercial marketplace.

    ``(g) Prohibition of State Imposition of Premium Taxes.--No State 
may impose a premium tax or similar tax with respect to payments to 
Medicare+Choice organizations under section 1853.

    ``organizational and financial requirements for medicare+choice 
             organizations; provider-sponsored organizations

    ``Sec. 1855. (a) Organized <<NOTE: 42 USC 1395w-25.>> and Licensed 
Under State Law.--
            ``(1) In general.--Subject to paragraphs (2) and (3), a 
        Medicare+Choice organization shall be organized and licensed 
        under State law as a risk-bearing entity eligible to offer 
        health insurance or health benefits coverage in each State in 
        which it offers a Medicare+Choice plan.

[[Page 111 STAT. 313]]

            ``(2) Special exception for provider-sponsored 
        organizations.--
                    ``(A) In general.--In the case of a provider-
                sponsored organization that seeks to offer a 
                Medicare+Choice plan in a State, the Secretary shall 
                waive the requirement of paragraph (1) that the 
                organization be licensed in that State if--
                          ``(i) the organization files an application 
                      for such waiver with the Secretary by not later 
                      than November 1, 2002, and
                          ``(ii) the Secretary determines, based on the 
                      application and other evidence presented to the 
                      Secretary, that any of the grounds for approval of 
                      the application described in subparagraph (B), 
                      (C), or (D) has been met.
                    ``(B) Failure to act on licensure application on a 
                timely basis.--The ground for approval of such a waiver 
                application described in this subparagraph is that the 
                State has failed to complete action on a licensing 
                application of the organization within 90 days of the 
                date of the State's receipt of a substantially complete 
                application. No period before the date of the enactment 
                of this section shall be included in determining such 
                90-day period.
                    ``(C) Denial of application based on discriminatory 
                treatment.--The ground for approval of such a waiver 
                application described in this subparagraph is that the 
                State has denied such a licensing application and--
                          ``(i) the standards or review process imposed 
                      by the State as a condition of approval of the 
                      license imposes any material requirements, 
                      procedures, or standards (other than solvency 
                      requirements) to such organizations that are not 
                      generally applicable to other entities engaged in 
                      a substantially similar business, or
                          ``(ii) the State requires the organization, as 
                      a condition of licensure, to offer any product or 
                      plan other than a Medicare+Choice plan.
                    ``(D) Denial of application based on application of 
                solvency requirements.--With respect to waiver 
                applications filed on or after the date of publication 
                of solvency standards under section 1856(a), the ground 
                for approval of such a waiver application described in 
                this subparagraph is that the State has denied such a 
                licensing application based (in whole or in part) on the 
                organization's failure to meet applicable solvency 
                requirements and--
                          ``(i) such requirements are not the same as 
                      the solvency standards established under section 
                      1856(a); or
                          ``(ii) the State has imposed as a condition of 
                      approval of the license documentation or 
                      information requirements relating to solvency or 
                      other material requirements, procedures, or 
                      standards relating to solvency that are different 
                      from the requirements, procedures, and standards 
                      applied by the Secretary under subsection (d)(2).
                For purposes of this paragraph, the term `solvency 
                requirements' means requirements relating to solvency 
                and other

[[Page 111 STAT. 314]]

                matters covered under the standards established under 
                section 1856(a).
                    ``(E) Treatment of waiver.--In the case of a waiver 
                granted under this paragraph for a provider-sponsored 
                organization with respect to a State--
                          ``(i) Limitation to state.--The waiver shall 
                      be effective only with respect to that State and 
                      does not apply to any other State.
                          ``(ii) Limitation to 36-month period.--The 
                      waiver shall be effective only for a 36-month 
                      period and may not be renewed.
                          ``(iii) Conditioned on compliance with 
                      consumer protection and quality standards.--The 
                      continuation of the waiver is conditioned upon the 
                      organization's compliance with the requirements 
                      described in subparagraph (G).
                          ``(iv) Preemption of state law.--Any 
                      provisions of law of that State which relate to 
                      the licensing of the organization and which 
                      prohibit the organization from providing coverage 
                      pursuant to a contract under this part shall be 
                      superseded.
                    ``(F) Prompt action on application.--The Secretary 
                shall grant or deny such a waiver application within 60 
                days after the date the Secretary determines that a 
                substantially complete waiver application has been 
                filed. Nothing in this section shall be construed as 
                preventing an organization which has had such a waiver 
                application denied from submitting a subsequent waiver 
                application.
                    ``(G) Application and enforcement of state consumer 
                protection and quality standards.--
                          ``(i) In general.--A waiver granted under this 
                      paragraph to an organization with respect to 
                      licensing under State law is conditioned upon the 
                      organization's compliance with all consumer 
                      protection and quality standards insofar as such 
                      standards--
                                    ``(I) would apply in the State to 
                                the organization if it were licensed 
                                under State law;
                                    ``(II) are generally applicable to 
                                other Medicare+Choice organizations and 
                                plans in the State; and
                                    ``(III) are consistent with the 
                                standards established under this part.
                      Such standards shall not include any standard 
                      preempted under section 1856(b)(3)(B).
                          ``(ii) Incorporation into contract.--In the 
                      case of such a waiver granted to an organization 
                      with respect to a State, the Secretary shall 
                      incorporate the requirement that the organization 
                      (and Medicare+Choice plans it offers) comply with 
                      standards under clause (i) as part of the contract 
                      between the Secretary and the organization under 
                      section 1857.
                          ``(iii) Enforcement.--In the case of such a 
                      waiver granted to an organization with respect to 
                      a State, the Secretary may enter into an agreement 
                      with the State under which the State agrees to 
                      provide for monitoring and enforcement activities 
                      with respect to compliance of such an organization 
                      and its

[[Page 111 STAT. 315]]

                      Medicare+Choice plans with such standards. Such 
                      monitoring and enforcement shall be conducted by 
                      the State in the same manner as the State enforces 
                      such standards with respect to other 
                      Medicare+Choice organizations and plans, without 
                      discrimination based on the type of organization 
                      to which the standards apply. Such an agreement 
                      shall specify or establish mechanisms by which 
                      compliance activities are undertaken, while not 
                      lengthening the time required to review and 
                      process applications for waivers under this 
                      paragraph.
                    ``(H) Report.--By not later than December 31, 2001, 
                the Secretary shall submit to the Committee on Ways and 
                Means and the Committee on Commerce of the House of 
                Representatives and the Committee on Finance of the 
                Senate a report regarding whether the waiver process 
                under this paragraph should be continued after December 
                31, 2002. In making such recommendation, the Secretary 
                shall consider, among other factors, the impact of such 
                process on beneficiaries and on the long-term solvency 
                of the program under this title.
            ``(3) Licensure does not substitute for or constitute 
        certification.--The fact that an organization is licensed in 
        accordance with paragraph (1) does not deem the organization to 
        meet other requirements imposed under this part.

    ``(b) Assumption of Full Financial Risk.--The Medicare+Choice 
organization shall assume full financial risk on a prospective basis for 
the provision of the health care services for which benefits are 
required to be provided under section 1852(a)(1), except that the 
organization--
            ``(1) may obtain insurance or make other arrangements for 
        the cost of providing to any enrolled member such services the 
        aggregate value of which exceeds such aggregate level as the 
        Secretary specifies from time to time,
            ``(2) may obtain insurance or make other arrangements for 
        the cost of such services provided to its enrolled members other 
        than through the organization because medical necessity required 
        their provision before they could be secured through the 
        organization,
            ``(3) may obtain insurance or make other arrangements for 
        not more than 90 percent of the amount by which its costs for 
        any of its fiscal years exceed 115 percent of its income for 
        such fiscal year, and
            ``(4) may make arrangements with physicians or other health 
        care professionals, health care institutions, or any combination 
        of such individuals or institutions to assume all or part of the 
        financial risk on a prospective basis for the provision of basic 
        health services by the physicians or other health professionals 
        or through the institutions.

    ``(c) Certification of Provision Against Risk of Insolvency for 
Unlicensed PSOs.--
            ``(1) In general.--Each Medicare+Choice organization that is 
        a provider-sponsored organization, that is not licensed by a 
        State under subsection (a), and for which a waiver application 
        has been approved under subsection (a)(2), shall meet standards 
        established under section 1856(a) relating to the financial 
        solvency and capital adequacy of the organization.

[[Page 111 STAT. 316]]

            ``(2) Certification process for solvency standards for 
        psos.--The Secretary shall establish a process for the receipt 
        and approval of applications of a provider-sponsored 
        organization described in paragraph (1) for certification (and 
        periodic recertification) of the organization as meeting such 
        solvency standards. Under such process, the Secretary shall act 
        upon such a certification application not later than 60 days 
        after the date the application has been received.

    ``(d) Provider-Sponsored Organization Defined.--
            ``(1) In general.--In this part, the term `provider-
        sponsored organization' means a public or private entity--
                    ``(A) that is established or organized, and 
                operated, by a health care provider, or group of 
                affiliated health care providers,
                    ``(B) that provides a substantial proportion (as 
                defined by the Secretary in accordance with paragraph 
                (2)) of the health care items and services under the 
                contract under this part directly through the provider 
                or affiliated group of providers, and
                    ``(C) with respect to which the affiliated providers 
                share, directly or indirectly, substantial financial 
                risk with respect to the provision of such items and 
                services and have at least a majority financial interest 
                in the entity.
            ``(2) Substantial proportion.--In defining what is a 
        `substantial proportion' for purposes of paragraph (1)(B), the 
        Secretary--
                    ``(A) shall take into account the need for such an 
                organization to assume responsibility for providing--
                          ``(i) significantly more than the majority of 
                      the items and services under the contract under 
                      this section through its own affiliated providers; 
                      and
                          ``(ii) most of the remainder of the items and 
                      services under the contract through providers with 
                      which the organization has an agreement to provide 
                      such items and services,
                in order to assure financial stability and to address 
                the practical considerations involved in integrating the 
                delivery of a wide range of service providers;
                    ``(B) shall take into account the need for such an 
                organization to provide a limited proportion of the 
                items and services under the contract through providers 
                that are neither affiliated with nor have an agreement 
                with the organization; and
                    ``(C) may allow for variation in the definition of 
                substantial proportion among such organizations based on 
                relevant differences among the organizations, such as 
                their location in an urban or rural area.
            ``(3) Affiliation.--For purposes of this subsection, a 
        provider is `affiliated' with another provider if, through 
        contract, ownership, or otherwise--
                    ``(A) one provider, directly or indirectly, 
                controls, is controlled by, or is under common control 
                with the other,
                    ``(B) both providers are part of a controlled group 
                of corporations under section 1563 of the Internal 
                Revenue Code of 1986,

[[Page 111 STAT. 317]]

                    ``(C) each provider is a participant in a lawful 
                combination under which each provider shares substantial 
                financial risk in connection with the organization's 
                operations, or
                    ``(D) both providers are part of an affiliated 
                service group under section 414 of such Code.
            ``(4) Control.--For purposes of paragraph (3), control is 
        presumed to exist if one party, directly or indirectly, owns, 
        controls, or holds the power to vote, or proxies for, not less 
        than 51 percent of the voting rights or governance rights of 
        another.
            ``(5) Health care provider defined.--In this subsection, the 
        term `health care provider' means--
                    ``(A) any individual who is engaged in the delivery 
                of health care services in a State and who is required 
                by State law or regulation to be licensed or certified 
                by the State to engage in the delivery of such services 
                in the State, and
                    ``(B) any entity that is engaged in the delivery of 
                health care services in a State and that, if it is 
                required by State law or regulation to be licensed or 
                certified by the State to engage in the delivery of such 
                services in the State, is so licensed.
            ``(6) Regulations.--The Secretary shall issue regulations to 
        carry out this subsection.

                      ``establishment of standards

    ``Sec. 1856. (a) Establishment <<NOTE: 42 USC 1395w-26.>> of 
Solvency Standards for Provider-Sponsored Organizations.--
            ``(1) Establishment.--
                    ``(A) In general.--The Secretary shall establish, on 
                an expedited basis and using a negotiated rulemaking 
                process under subchapter III of chapter 5 of title 5, 
                United States Code, standards described in section 
                1855(c)(1) (relating to the financial solvency and 
                capital adequacy of the organization) that entities must 
                meet to qualify as provider-sponsored organizations 
                under this part.
                    ``(B) Factors to consider for solvency standards.--
                In establishing solvency standards under subparagraph 
                (A) for provider-sponsored organizations, the Secretary 
                shall consult with interested parties and shall take 
                into account--
                          ``(i) the delivery system assets of such an 
                      organization and ability of such an organization 
                      to provide services directly to enrollees through 
                      affiliated providers,
                          ``(ii) alternative means of protecting against 
                      insolvency, including reinsurance, unrestricted 
                      surplus, letters of credit, guarantees, 
                      organizational insurance coverage, partnerships 
                      with other licensed entities, and valuation 
                      attributable to the ability of such an 
                      organization to meet its service obligations 
                      through direct delivery of care, and
                          ``(iii) any standards developed by the 
                      National Association of Insurance Commissioners 
                      specifically for risk-based health care delivery 
                      organizations.
                    ``(C) Enrollee protection against insolvency.--Such 
                standards shall include provisions to prevent enrollees

[[Page 111 STAT. 318]]

                from being held liable to any person or entity for the 
                Medicare+Choice organization's debts in the event of the 
                organization's insolvency.
            ``(2) Publication of notice.--In carrying out the rulemaking 
        process under this subsection, the Secretary, after consultation 
        with the National Association of Insurance Commissioners, the 
        American Academy of Actuaries, organizations representative of 
        medicare beneficiaries, and other interested parties, shall 
        publish the notice provided for under section 564(a) of title 5, 
        United States Code, by not later than 45 days after the date of 
        the enactment of this section.
            ``(3) Target date for publication of rule.--As part of the 
        notice under paragraph (2), and for purposes of this subsection, 
        the `target date for publication' (referred to in section 
        564(a)(5) of such title) shall be April 1, 1998.
            ``(4) Abbreviated period for submission of comments.--In 
        applying section 564(c) of such title under this subsection, `15 
        days' shall be substituted for `30 days'.
            ``(5) Appointment of negotiated rulemaking committee and 
        facilitator.--The Secretary shall provide for--
                    ``(A) the appointment of a negotiated rulemaking 
                committee under section 565(a) of such title by not 
                later than 30 days after the end of the comment period 
                provided for under section 564(c) of such title (as 
                shortened under paragraph (4)), and
                    ``(B) the nomination of a facilitator under section 
                566(c) of such title by not later than 10 days after the 
                date of appointment of the committee.
            ``(6) Preliminary committee report.--The negotiated 
        rulemaking committee appointed under paragraph (5) shall report 
        to the Secretary, by not later than January 1, 1998, regarding 
        the committee's progress on achieving a consensus with regard to 
        the rulemaking proceeding and whether such consensus is likely 
        to occur before 1 month before the target date for publication 
        of the rule. If the committee reports that the committee has 
        failed to make significant progress towards such consensus or is 
        unlikely to reach such consensus by the target date, the 
        Secretary may terminate such process and provide for the 
        publication of a rule under this subsection through such other 
        methods as the Secretary may provide.
            ``(7) Final committee report.--If the committee is not 
        terminated under paragraph (6), the rulemaking committee shall 
        submit a report containing a proposed rule by not later than 1 
        month before the target date of publication.
            ``(8) Interim, <<NOTE: Federal Register, 
        publication.>> final effect.--The Secretary shall publish a rule 
        under this subsection in the Federal Register by not later than 
        the target date of publication. Such rule shall be effective and 
        final immediately on an interim basis, but is subject to change 
        and revision after public notice and opportunity for a period 
        (of not less than 60 days) for public comment. In connection 
        with such rule, the Secretary shall specify the process for the 
        timely review and approval of applications of entities to be 
        certified as provider-sponsored organizations pursuant to such 
        rules and consistent with this subsection.
            ``(9) Publication of rule after public comment.--The 
        Secretary shall provide for consideration of such comments

[[Page 111 STAT. 319]]

        and republication of such rule by not later than 1 year after 
        the target date of publication.

    ``(b) Establishment of Other Standards.--
            ``(1) In general.--The Secretary shall establish by 
        regulation other standards (not described in subsection (a)) for 
        Medicare+Choice organizations and plans consistent with, and to 
        carry out, this part. <<NOTE: Publication.>> The Secretary shall 
        publish such regulations by June 1, 1998. In order to carry out 
        this requirement in a timely manner, the Secretary may 
        promulgate regulations that take effect on an interim basis, 
        after notice and pending opportunity for public comment.
            ``(2) Use of current standards.--Consistent with the 
        requirements of this part, standards established under this 
        subsection shall be based on standards established under section 
        1876 to carry out analogous provisions of such section.
            ``(3) Relation to state laws.--
                    ``(A) In general.--The standards established under 
                this subsection shall supersede any State law or 
                regulation (including standards described in 
                subparagraph (B)) with respect to Medicare+Choice plans 
                which are offered by Medicare+Choice organizations under 
                this part to the extent such law or regulation is 
                inconsistent with such standards.
                    ``(B) Standards specifically superseded.--State 
                standards relating to the following are superseded under 
                this paragraph:
                          ``(i) Benefit requirements.
                          ``(ii) Requirements relating to inclusion or 
                      treatment of providers.
                          ``(iii) Coverage determinations (including 
                      related appeals and grievance processes).

             ``contracts with medicare+choice organizations

    ``Sec. 1857. (a) In <<NOTE: 42 USC 1395w-27.>> General.--The 
Secretary shall not permit the election under section 1851 of a 
Medicare+Choice plan offered by a Medicare+Choice organization under 
this part, and no payment shall be made under section 1853 to an 
organization, unless the Secretary has entered into a contract under 
this section with the organization with respect to the offering of such 
plan. Such a contract with an organization may cover more than 1 
Medicare+Choice plan. Such contract shall provide that the organization 
agrees to comply with the applicable requirements and standards of this 
part and the terms and conditions of payment as provided for in this 
part.

    ``(b) Minimum Enrollment Requirements.--
            ``(1) In general.--Subject to paragraph (2), the Secretary 
        may not enter into a contract under this section with a 
        Medicare+Choice organization unless the organization has--
                    ``(A) at least 5,000 individuals (or 1,500 
                individuals in the case of an organization that is a 
                provider-sponsored organization) who are receiving 
                health benefits through the organization, or
                    ``(B) at least 1,500 individuals (or 500 individuals 
                in the case of an organization that is a provider-
                sponsored organization) who are receiving health 
                benefits through the organization if the organization 
                primarily serves individuals residing outside of 
                urbanized areas.

[[Page 111 STAT. 320]]

            ``(2) Application to msa plans.--In applying paragraph (1) 
        in the case of a Medicare+Choice organization that is offering 
        an MSA plan, paragraph (1) shall be applied by substituting 
        covered lives for individuals.
            ``(3) Allowing transition.--The Secretary may waive the 
        requirement of paragraph (1) during the first 3 contract years 
        with respect to an organization.

    ``(c) Contract Period and Effectiveness.--
            ``(1) Period.--Each contract under this section shall be for 
        a term of at least 1 year, as determined by the Secretary, and 
        may be made automatically renewable from term to term in the 
        absence of notice by either party of intention to terminate at 
        the end of the current term.
            ``(2) Termination authority.--In accordance with procedures 
        established under subsection (h), the Secretary may at any time 
        terminate any such contract if the Secretary determines that the 
        organization--
                    ``(A) has failed substantially to carry out the 
                contract;
                    ``(B) is carrying out the contract in a manner 
                inconsistent with the efficient and effective 
                administration of this part; or
                    ``(C) no longer substantially meets the applicable 
                conditions of this part.
            ``(3) Effective date of contracts.--The effective date of 
        any contract executed pursuant to this section shall be 
        specified in the contract, except that in no case shall a 
        contract under this section which provides for coverage under an 
        MSA plan be effective before January 1999 with respect to such 
        coverage.
            ``(4) Previous terminations.--The Secretary may not enter 
        into a contract with a Medicare+Choice organization if a 
        previous contract with that organization under this section was 
        terminated at the request of the organization within the 
        preceding 5-year period, except in circumstances which warrant 
        special consideration, as determined by the Secretary.
            ``(5) Contracting authority.--The authority vested in the 
        Secretary by this part may be performed without regard to such 
        provisions of law or regulations relating to the making, 
        performance, amendment, or modification of contracts of the 
        United States as the Secretary may determine to be inconsistent 
        with the furtherance of the purpose of this title.

    ``(d) Protections Against Fraud and Beneficiary Protections.--
            ``(1) Periodic auditing.--The Secretary shall provide for 
        the annual auditing of the financial records (including data 
        relating to medicare utilization, costs, and computation of the 
        adjusted community rate) of at least one-third of the 
        Medicare+Choice organizations offering Medicare+Choice plans 
        under this part. The Comptroller General shall monitor auditing 
        activities conducted under this subsection.
            ``(2) Inspection and audit.--Each contract under this 
        section shall provide that the Secretary, or any person or 
        organization designated by the Secretary--
                    ``(A) shall have the right to inspect or otherwise 
                evaluate (i) the quality, appropriateness, and 
                timeliness of services performed under the contract, and 
                (ii) the facilities

[[Page 111 STAT. 321]]

                of the organization when there is reasonable evidence of 
                some need for such inspection, and
                    ``(B) shall have the right to audit and inspect any 
                books and records of the Medicare+Choice organization 
                that pertain (i) to the ability of the organization to 
                bear the risk of potential financial losses, or (ii) to 
                services performed or determinations of amounts payable 
                under the contract.
            ``(3) Enrollee notice at time of termination.--Each contract 
        under this section shall require the organization to provide 
        (and pay for) written notice in advance of the contract's 
        termination, as well as a description of alternatives for 
        obtaining benefits under this title, to each individual enrolled 
        with the organization under this part.
            ``(4) <<NOTE: Reports.>> Disclosure.--
                    ``(A) In general.--Each Medicare+Choice organization 
                shall, in accordance with regulations of the Secretary, 
                report to the Secretary financial information which 
                shall include the following:
                          ``(i) Such information as the Secretary may 
                      require demonstrating that the organization has a 
                      fiscally sound operation.
                          ``(ii) A copy of the report, if any, filed 
                      with the Health Care Financing Administration 
                      containing the information required to be reported 
                      under section 1124 by disclosing entities.
                          ``(iii) A description of transactions, as 
                      specified by the Secretary, between the 
                      organization and a party in interest. Such 
                      transactions shall include--
                                    ``(I) any sale or exchange, or 
                                leasing of any property between the 
                                organization and a party in interest;
                                    ``(II) any furnishing for 
                                consideration of goods, services 
                                (including management services), or 
                                facilities between the organization and 
                                a party in interest, but not including 
                                salaries paid to employees for services 
                                provided in the normal course of their 
                                employment and health services provided 
                                to members by hospitals and other 
                                providers and by staff, medical group 
                                (or groups), individual practice 
                                association (or associations), or any 
                                combination thereof; and
                                    ``(III) any lending of money or 
                                other extension of credit between an 
                                organization and a party in interest.
                The Secretary may require that information reported 
                respecting an organization which controls, is controlled 
                by, or is under common control with, another entity be 
                in the form of a consolidated financial statement for 
                the organization and such entity.
                    ``(B) Party in interest defined.--For the purposes 
                of this paragraph, the term `party in interest' means--
                          ``(i) any director, officer, partner, or 
                      employee responsible for management or 
                      administration of a Medicare+Choice organization, 
                      any person who is directly or indirectly the 
                      beneficial owner of more than 5 percent of the 
                      equity of the organization, any person

[[Page 111 STAT. 322]]

                      who is the beneficial owner of a mortgage, deed of 
                      trust, note, or other interest secured by, and 
                      valuing more than 5 percent of the organization, 
                      and, in the case of a Medicare+Choice organization 
                      organized as a nonprofit corporation, an 
                      incorporator or member of such corporation under 
                      applicable State corporation law;
                          ``(ii) any entity in which a person described 
                      in clause (i)--
                                    ``(I) is an officer or director;
                                    ``(II) is a partner (if such entity 
                                is organized as a partnership);
                                    ``(III) has directly or indirectly a 
                                beneficial interest of more than 5 
                                percent of the equity; or
                                    ``(IV) has a mortgage, deed of 
                                trust, note, or other interest valuing 
                                more than 5 percent of the assets of 
                                such entity;
                          ``(iii) any person directly or indirectly 
                      controlling, controlled by, or under common 
                      control with an organization; and
                          ``(iv) any spouse, child, or parent of an 
                      individual described in clause (i).
                    ``(C) Access to information.--Each Medicare+Choice 
                organization shall make the information reported 
                pursuant to subparagraph (A) available to its enrollees 
                upon reasonable request.
            ``(5) Loan information.--The contract shall require the 
        organization to notify the Secretary of loans and other special 
        financial arrangements which are made between the organization 
        and subcontractors, affiliates, and related parties.

    ``(e) Additional Contract Terms.--
            ``(1) In general.--The contract shall contain such other 
        terms and conditions not inconsistent with this part (including 
        requiring the organization to provide the Secretary with such 
        information) as the Secretary may find necessary and 
        appropriate.
            ``(2) Cost-sharing in enrollment-related costs.--
                    ``(A) In general.--A Medicare+Choice organization 
                shall pay the fee established by the Secretary under 
                subparagraph (B).
                    ``(B) Authorization.--The Secretary is authorized to 
                charge a fee to each Medicare+Choice organization with a 
                contract under this part that is equal to the 
                organization's pro rata share (as determined by the 
                Secretary) of the aggregate amount of fees which the 
                Secretary is directed to collect in a fiscal year. Any 
                amounts collected are authorized to be appropriated only 
                for the purpose of carrying out section 1851 (relating 
                to enrollment and dissemination of information) and 
                section 4360 of the Omnibus Budget Reconciliation Act of 
                1990 (relating to the health insurance counseling and 
                assistance program).
                    ``(C) Contingency.--For any fiscal year, the fees 
                authorized under subparagraph (B) are contingent upon 
                enactment in an appropriations act of a provision 
                specifying the aggregate amount of fees the Secretary is 
                directed to collect in a fiscal year. Fees collected 
                during any fiscal

[[Page 111 STAT. 323]]

                year under this paragraph shall be deposited and 
                credited as offsetting collections.
                    ``(D) Limitation.--In any fiscal year the fees 
                collected by the Secretary under subparagraph (B) shall 
                not exceed the lesser of--
                          ``(i) the estimated costs to be incurred by 
                      the Secretary in the fiscal year in carrying out 
                      the activities described in section 1851 and 
                      section 4360 of the Omnibus Budget Reconciliation 
                      Act of 1990; or
                          ``(ii)(I) $200,000,000 in fiscal year 1998;
                          ``(II) $150,000,000 in fiscal year 1999; and
                          ``(III) $100,000,000 in fiscal year 2000 and 
                      each subsequent fiscal year.

    ``(f) Prompt Payment by Medicare+Choice Organization.--
            ``(1) Requirement.--A contract under this part shall require 
        a Medicare+Choice organization to provide prompt payment 
        (consistent with the provisions of sections 1816(c)(2) and 
        1842(c)(2)) of claims submitted for services and supplies 
        furnished to enrollees pursuant to the contract, if the services 
        or supplies are not furnished under a contract between the 
        organization and the provider or supplier (or in the case of a 
        Medicare+Choice private fee-for-service plan, if a claim is 
        submitted to such organization by an enrollee).
            ``(2) Secretary's option to bypass noncomplying 
        organization.--In the case of a Medicare+Choice eligible 
        organization which the Secretary determines, after notice and 
        opportunity for a hearing, has failed to make payments of 
        amounts in compliance with paragraph (1), the Secretary may 
        provide for direct payment of the amounts owed to providers and 
        suppliers (or, in the case of a Medicare+Choice private fee-for-
        service plan, amounts owed to the enrollees) for covered 
        services and supplies furnished to individuals enrolled under 
        this part under the contract. If the Secretary provides for the 
        direct payments, the Secretary shall provide for an appropriate 
        reduction in the amount of payments otherwise made to the 
        organization under this part to reflect the amount of the 
        Secretary's payments (and the Secretary's costs in making the 
        payments).

    ``(g) Intermediate Sanctions.--
            ``(1) In general.--If the Secretary determines that a 
        Medicare+Choice organization with a contract under this 
        section--
                    ``(A) fails substantially to provide medically 
                necessary items and services that are required (under 
                law or under the contract) to be provided to an 
                individual covered under the contract, if the failure 
                has adversely affected (or has substantial likelihood of 
                adversely affecting) the individual;
                    ``(B) imposes premiums on individuals enrolled under 
                this part in excess of the amount of the Medicare+Choice 
                monthly basic and supplemental beneficiary premiums 
                permitted under section 1854;
                    ``(C) acts to expel or to refuse to re-enroll an 
                individual in violation of the provisions of this part;
                    ``(D) engages in any practice that would reasonably 
                be expected to have the effect of denying or 
                discouraging enrollment (except as permitted by this 
                part) by eligible individuals with the organization 
                whose medical condition

[[Page 111 STAT. 324]]

                or history indicates a need for substantial future 
                medical services;
                    ``(E) misrepresents or falsifies information that is 
                furnished--
                          ``(i) to the Secretary under this part, or
                          ``(ii) to an individual or to any other entity 
                      under this part;
                    ``(F) fails to comply with the applicable 
                requirements of section 1852(j)(3) or 1852(k)(2)(A)(ii); 
                or
                    ``(G) employs or contracts with any individual or 
                entity that is excluded from participation under this 
                title under section 1128 or 1128A for the provision of 
                health care, utilization review, medical social work, or 
                administrative services or employs or contracts with any 
                entity for the provision (directly or indirectly) 
                through such an excluded individual or entity of such 
                services;
        the Secretary may provide, in addition to any other remedies 
        authorized by law, for any of the remedies described in 
        paragraph (2).
            ``(2) Remedies.--The remedies described in this paragraph 
        are--
                    ``(A) civil money penalties of not more than $25,000 
                for each determination under paragraph (1) or, with 
                respect to a determination under subparagraph (D) or 
                (E)(i) of such paragraph, of not more than $100,000 for 
                each such determination, plus, with respect to a 
                determination under paragraph (1)(B), double the excess 
                amount charged in violation of such paragraph (and the 
                excess amount charged shall be deducted from the penalty 
                and returned to the individual concerned), and plus, 
                with respect to a determination under paragraph (1)(D), 
                $15,000 for each individual not enrolled as a result of 
                the practice involved,
                    ``(B) suspension of enrollment of individuals under 
                this part after the date the Secretary notifies the 
                organization of a determination under paragraph (1) and 
                until the Secretary is satisfied that the basis for such 
                determination has been corrected and is not likely to 
                recur, or
                    ``(C) suspension of payment to the organization 
                under this part for individuals enrolled after the date 
                the Secretary notifies the organization of a 
                determination under paragraph (1) and until the 
                Secretary is satisfied that the basis for such 
                determination has been corrected and is not likely to 
                recur.
            ``(3) Other intermediate sanctions.--In the case of a 
        Medicare+Choice organization for which the Secretary makes a 
        determination under subsection (c)(2) the basis of which is not 
        described in paragraph (1), the Secretary may apply the 
        following intermediate sanctions:
                    ``(A) Civil money penalties of not more than $25,000 
                for each determination under subsection (c)(2) if the 
                deficiency that is the basis of the determination has 
                directly adversely affected (or has the substantial 
                likelihood of adversely affecting) an individual covered 
                under the organization's contract.
                    ``(B) Civil money penalties of not more than $10,000 
                for each week beginning after the initiation of civil 
                money

[[Page 111 STAT. 325]]

                penalty procedures by the Secretary during which the 
                deficiency that is the basis of a determination under 
                subsection (c)(2) exists.
                    ``(C) Suspension of enrollment of individuals under 
                this part after the date the Secretary notifies the 
                organization of a determination under subsection (c)(2) 
                and until the Secretary is satisfied that the deficiency 
                that is the basis for the determination has been 
                corrected and is not likely to recur.
            ``(4) Civil <<NOTE: Applicability.>> money penalties.--The 
        provisions of section 1128A (other than subsections (a) and (b)) 
        shall apply to a civil money penalty under paragraph (2) or (3) 
        in the same manner as they apply to a civil money penalty or 
        proceeding under section 1128A(a).

    ``(h) Procedures for Termination.--
            ``(1) In general.--The Secretary may terminate a contract 
        with a Medicare+Choice organization under this section in 
        accordance with formal investigation and compliance procedures 
        established by the Secretary under which--
                    ``(A) the Secretary provides the organization with 
                the reasonable opportunity to develop and implement a 
                corrective action plan to correct the deficiencies that 
                were the basis of the Secretary's determination under 
                subsection (c)(2); and
                    ``(B) the Secretary provides the organization with 
                reasonable notice and opportunity for hearing (including 
                the right to appeal an initial decision) before 
                terminating the contract.
            ``(2) Exception for imminent and serious risk to health.--
        Paragraph (1) shall not apply if the Secretary determines that a 
        delay in termination, resulting from compliance with the 
        procedures specified in such paragraph prior to termination, 
        would pose an imminent and serious risk to the health of 
        individuals enrolled under this part with the organization.

                 ``definitions; miscellaneous provisions

    ``Sec. 1859. (a) Definitions <<NOTE: 42 USC 1395w-28.>> Relating to 
Medicare+Choice Organizations.--In this part--
            ``(1) Medicare+choice organization.--The term 
        `Medicare+Choice organization' means a public or private entity 
        that is certified under section 1856 as meeting the requirements 
        and standards of this part for such an organization.
            ``(2) Provider-sponsored organization.--The term `provider-
        sponsored organization' is defined in section 1855(d)(1).

    ``(b) Definitions Relating to Medicare+Choice Plans.--
            ``(1) Medicare+choice plan.--The term `Medicare+Choice plan' 
        means health benefits coverage offered under a policy, contract, 
        or plan by a Medicare+Choice organization pursuant to and in 
        accordance with a contract under section 1857.
            ``(2) Medicare+Choice private fee-for-service plan.--The 
        term `Medicare+Choice private fee-for-service plan' means a 
        Medicare+Choice plan that--
                    ``(A) reimburses hospitals, physicians, and other 
                providers at a rate determined by the plan on a fee-for-
                service basis without placing the provider at financial 
                risk;
                    ``(B) does not vary such rates for such a provider 
                based on utilization relating to such provider; and

[[Page 111 STAT. 326]]

                    ``(C) does not restrict the selection of providers 
                among those who are lawfully authorized to provide the 
                covered services and agree to accept the terms and 
                conditions of payment established by the plan.
            ``(3) MSA plan.--
                    ``(A) In general.--The term `MSA plan' means a 
                Medicare+Choice plan that--
                          ``(i) provides reimbursement for at least the 
                      items and services described in section 1852(a)(1) 
                      in a year but only after the enrollee incurs 
                      countable expenses (as specified under the plan) 
                      equal to the amount of an annual deductible 
                      (described in subparagraph (B));
                          ``(ii) counts as such expenses (for purposes 
                      of such deductible) at least all amounts that 
                      would have been payable under parts A and B, and 
                      that would have been payable by the enrollee as 
                      deductibles, coinsurance, or copayments, if the 
                      enrollee had elected to receive benefits through 
                      the provisions of such parts; and
                          ``(iii) provides, after such deductible is met 
                      for a year and for all subsequent expenses for 
                      items and services referred to in clause (i) in 
                      the year, for a level of reimbursement that is not 
                      less than--
                                    ``(I) 100 percent of such expenses, 
                                or
                                    ``(II) 100 percent of the amounts 
                                that would have been paid (without 
                                regard to any deductibles or 
                                coinsurance) under parts A and B with 
                                respect to such expenses,
                      whichever is less.
                    ``(B) Deductible.--The amount of annual deductible 
                under an MSA plan--
                          ``(i) for contract year 1999 shall be not more 
                      than $6,000; and
                          ``(ii) for a subsequent contract year shall be 
                      not more than the maximum amount of such 
                      deductible for the previous contract year under 
                      this subparagraph increased by the national per 
                      capita Medicare+Choice growth percentage under 
                      section 1853(c)(6) for the year.
                If the amount of the deductible under clause (ii) is not 
                a multiple of $50, the amount shall be rounded to the 
                nearest multiple of $50.

    ``(c) Other References to Other Terms.--
            ``(1) Medicare+choice eligible individual.--The term 
        `Medicare+Choice eligible individual' is defined in section 
        1851(a)(3).
            ``(2) Medicare+choice payment area.--The term 
        `Medicare+Choice payment area' is defined in section 1853(d).
            ``(3) National per capita medicare+choice growth 
        percentage.--The `national per capita Medicare+Choice growth 
        percentage' is defined in section 1853(c)(6).
            ``(4) Medicare+choice monthly basic beneficiary premium; 
        medicare+choice monthly supplemental beneficiary premium.--The 
        terms `Medicare+Choice monthly basic beneficiary premium' and 
        `Medicare+Choice monthly supplemental beneficiary premium' are 
        defined in section 1854(a)(2).

[[Page 111 STAT. 327]]

    ``(d) Coordinated Acute and Long-Term Care Benefits Under a 
Medicare+Choice Plan.--Nothing in this part shall be construed as 
preventing a State from coordinating benefits under a medicaid plan 
under title XIX with those provided under a Medicare+Choice plan in a 
manner that assures continuity of a full-range of acute care and long-
term care services to poor elderly or disabled individuals eligible for 
benefits under this title and under such plan.
    ``(e) Restriction on Enrollment for Certain Medicare+Choice Plans.--
            ``(1) In general.--In the case of a Medicare+Choice 
        religious fraternal benefit society plan described in paragraph 
        (2), notwithstanding any other provision of this part to the 
        contrary and in accordance with regulations of the Secretary, 
        the society offering the plan may restrict the enrollment of 
        individuals under this part to individuals who are members of 
        the church, convention, or group described in paragraph (3)(B) 
        with which the society is affiliated.
            ``(2) Medicare+choice religious fraternal benefit society 
        plan described.--For purposes of this subsection, a 
        Medicare+Choice religious fraternal benefit society plan 
        described in this paragraph is a Medicare+Choice plan described 
        in section 1851(a)(2)(A) that--
                    ``(A) is offered by a religious fraternal benefit 
                society described in paragraph (3) only to members of 
                the church, convention, or group described in paragraph 
                (3)(B); and
                    ``(B) permits all such members to enroll under the 
                plan without regard to health status-related factors.
        Nothing in this subsection shall be construed as waiving any 
        plan requirements relating to financial solvency.
            ``(3) Religious fraternal benefit society defined.--For 
        purposes of paragraph (2)(A), a `religious fraternal benefit 
        society' described in this section is an organization that--
                    ``(A) is described in section 501(c)(8) of the 
                Internal Revenue Code of 1986 and is exempt from 
                taxation under section 501(a) of such Act;
                    ``(B) is affiliated with, carries out the tenets of, 
                and shares a religious bond with, a church or convention 
                or association of churches or an affiliated group of 
                churches;
                    ``(C) offers, in addition to a Medicare+Choice 
                religious fraternal benefit society plan, health 
                coverage to individuals not entitled to benefits under 
                this title who are members of such church, convention, 
                or group; and
                    ``(D) does not impose any limitation on membership 
                in the society based on any health status-related 
                factor.
            ``(4) Payment adjustment.--Under regulations of the 
        Secretary, in the case of individuals enrolled under this part 
        under a Medicare+Choice religious fraternal benefit society plan 
        described in paragraph (2), the Secretary shall provide for such 
        adjustment to the payment amounts otherwise established under 
        section 1854 as may be appropriate to assure an appropriate 
        payment level, taking into account the actuarial characteristics 
        and experience of such individuals.''.

[[Page 111 STAT. 328]]

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

    (a) Authorizing Transitional Waiver of 50:50 Rule.--Section 1876(f) 
(42 U.S.C. 1395mm(f)) is amended--
            (1) in paragraph (1)--
                    (A) by striking ``Each'' and inserting ``For 
                contract periods beginning before January 1, 1999, 
                each''; and
                    (B) by striking ``or under a State plan approved 
                under title XIX'';
            (2) in paragraph (2), by striking ``The Secretary'' and 
        inserting ``Subject to paragraph (4), the Secretary'', and
            (3) by adding at the end the following:

    ``(4) Effective <<NOTE: Effective date.>> for contract periods 
beginning after December 31, 1996, the Secretary may waive or modify the 
requirement imposed by paragraph (1) to the extent the Secretary finds 
that it is in the public interest.''.

    (b) Transition.--
            (1) Risk-sharing contracts.--Section 1876 (42 U.S.C. 1395mm) 
        is amended by adding at the end the following new subsections:

    ``(k)(1) Except as provided in paragraph (2)--
            ``(A) on or after the date standards for Medicare+Choice 
        organizations and plans are first established under section 
        1856(b)(1), the Secretary shall not enter into any risk-sharing 
        contract under this section with an eligible organization; and
            ``(B) for any contract year beginning on or after January 1, 
        1999, the Secretary shall not renew any such contract.

    ``(2) An individual who is enrolled in part B only and is enrolled 
in an eligible organization with a risk-sharing contract under this 
section on December 31, 1998, may continue enrollment in such 
organization in accordance with regulations described in section 
1856(b)(1).
    ``(3) Notwithstanding subsection (a), the Secretary shall provide 
that payment amounts under risk-sharing contracts under this section for 
months in a year (beginning with January 1998) shall be computed--
            ``(A) with respect to individuals entitled to benefits under 
        both parts A and B, by substituting payment rates under section 
        1853(a) for the payment rates otherwise established under 
        section 1876(a), and
            ``(B) with respect to individuals only entitled to benefits 
        under part B, by substituting an appropriate proportion of such 
        rates (reflecting the relative proportion of payments under this 
        title attributable to such part) for the payment rates otherwise 
        established under subsection (a).

    ``(4) <<NOTE: Applicability.>> The following requirements shall 
apply to eligible organizations with risk-sharing contracts under this 
section in the same manner as they apply to Medicare+Choice 
organizations under part C:
            ``(A) Data collection requirements under section 
        1853(a)(3)(B).
            ``(B) Restrictions on imposition of premium taxes under 
        section 1854(g) in relating to payments to such organizations 
        under this section.
            ``(C) The requirement to accept enrollment of new enrollees 
        during November 1998 under section 1851(e)(6).
            ``(D) Payments under section 1857(e)(2).''.

[[Page 111 STAT. 329]]

            (2) Reasonable cost contracts.--
                    (A) Phase out of contracts.--Section 1876(h) (42 
                U.S.C. 1395mm(h)) is amended by adding at the end the 
                following:

    ``(5)(A) After the date of the enactment of this paragraph, the 
Secretary may not enter into a reasonable cost reimbursement contract 
under this subsection (if the contract is not in effect as of such 
date), except for a contract with an eligible organization which, 
immediately previous to entering into such contract, had an agreement in 
effect under section 1833(a)(1)(A).
    ``(B) The Secretary may not extend or renew a reasonable cost 
reimbursement contract under this subsection for any period beyond 
December 31, 2002.''.
                    (B) Report <<NOTE: 42 USC 1395mm note.>> on 
                impact.--By not later than January 1, 2001, the 
                Secretary of Health and Human Services shall submit to 
                Congress a report that analyzes the potential impact of 
                termination of reasonable cost reimbursement contracts, 
                pursuant to the amendment made by subparagraph (A), on 
                medicare beneficiaries enrolled under such contracts and 
                on the medicare program. The report shall include such 
                recommendations regarding any extension or transition 
                with respect to such contracts as the Secretary deems 
                appropriate.

    (c) Enrollment <<NOTE: 42 USC 1395w-21 note.>> Transition Rule.--An 
individual who is enrolled on December 31, 1998, with an eligible 
organization under section 1876 of the Social Security Act (42 U.S.C. 
1395mm) shall be considered to be enrolled with that organization on 
January 1, 1999, under part C of title XVIII of such Act if that 
organization has a contract under that part for providing services on 
January 1, 1999 (unless the individual has disenrolled effective on that 
date).

    (d) Advance Directives.--Section 1866(f) (42 U.S.C. 1395cc(f)) is 
amended--
            (1) in paragraph (1)--
                    (A) by inserting ``1855(i),'' after ``1833(s),'', 
                and
                    (B) by inserting ``, Medicare+Choice organization,'' 
                after ``provider of services''; and
            (2) in paragraph (2)(E), by inserting ``or a Medicare+Choice 
        organization'' after ``section 1833(a)(1)(A)''.

    (e) Extension of Provider Requirement.--Section 1866(a)(1)(O) (42 
U.S.C. 1395cc(a)(1)(O)) is amended--
            (1) by striking ``in the case of hospitals and skilled 
        nursing facilities,'';
            (2) by striking ``inpatient hospital and extended care'';
            (3) by inserting ``with a Medicare+Choice organization under 
        part C or'' after ``any individual enrolled'';
            (4) by striking ``(in the case of hospitals) or limits (in 
        the case of skilled nursing facilities)''; and
            (5) by inserting ``(less any payments under sections 
        1886(d)(11) and 1886(h)(3)(D))'' after ``under this title''.

    (f) Additional Conforming Changes.--
            (1) Conforming <<NOTE: 42 USC note prec. 1395x.>> references 
        to previous part C.--Any reference in law (in effect before the 
        date of the enactment of this Act) to part C of title XVIII of 
        the Social Security Act is deemed a reference to part D of such 
        title (as in effect after such date).

[[Page 111 STAT. 330]]

            (2) Secretarial <<NOTE: 42 USC 1395w-21 note.>> submission 
        of legislative proposal.--Not later than 6 months after the date 
        of the enactment of this Act, the Secretary of Health and Human 
        Services shall submit to the appropriate committees of Congress 
        a legislative proposal providing for such technical and 
        conforming amendments in the law as are required by the 
        provisions of this chapter.

    (g) Immediate <<NOTE: 42 USC 1395w-27 note.>> Effective Date for 
Certain Requirements for Demonstrations.--Section 1857(e)(2) of the 
Social Security Act (requiring contribution to certain costs related to 
the enrollment process comparative materials) applies to demonstrations 
with respect to which enrollment is effected or coordinated under 
section 1851 of such Act.

    (h) Transition <<NOTE: 42 USC 1395mm note.>> Rule for PSO 
Enrollment.--In applying subsection (g)(1) of section 1876 of the Social 
Security Act (42 U.S.C. 1395mm) to a risk-sharing contract entered into 
with an eligible organization that is a provider-sponsored organization 
(as defined in section 1855(d)(1) of such Act, as inserted by section 
5001) for a contract year beginning on or after January 1, 1998, there 
shall be substituted for the minimum number of enrollees provided under 
such section the minimum number of enrollees permitted under section 
1857(b)(1) of such Act (as so inserted).

    (i) Publication <<NOTE: 42 USC 1395w-23 note.>> of New Capitation 
Rates.--Not later than 4 weeks after the date of the enactment of this 
Act, the Secretary of Health and Human Services shall announce the 
annual Medicare+Choice capitation rates for 1998 under section 1853(b) 
of the Social Security Act.

    (j) Elimination of Health Care Prepayment Plan Option for Entities 
Eligible to Participate As Managed Care Organization.--
            (1) Elimination of option.--
                    (A) In general.--Section 1833(a)(1)(A) (42 U.S.C. 
                1395l(a)(1)(A)) is amended by inserting ``(and either is 
                sponsored by a union or employer, or does not provide, 
                or arrange for the provision of, any inpatient hospital 
                services)'' after ``prepayment basis''.
                    (B) Effective <<NOTE: 42 USC 1395l note.>> date.--
                The amendment made by subparagraph (A) applies to new 
                contracts entered into after the date of enactment of 
                this Act and, with respect to contracts in effect as of 
                such date, shall apply to payment for services furnished 
                after December 31, 1998.
            (2) Medigap <<NOTE: Effective date.>> conforming 
        amendment.--Effective January 1, 1999, section 1882(g)(1) (42 
        U.S.C. 1395ss(g)(1)) is amended by striking ``, during the 
        period beginning on the date specified in subsection (p)(1)(C) 
        and ending on December 31, 1995,''.

SEC. 4003. CONFORMING CHANGES IN MEDIGAP PROGRAM.

    (a) Conforming Amendments to Medicare+Choice Changes.--
            (1) In general.--Section 1882(d)(3)(A)(i) (42 U.S.C. 
        1395ss(d)(3)(A)(i)) is amended--
                    (A) in the matter before subclause (I), by inserting 
                ``(including an individual electing a Medicare+Choice 
                plan under section 1851)'' after ``of this title''; and
                    (B) in subclause (II)--
                          (i) by inserting ``in the case of an 
                      individual not electing a Medicare+Choice plan'' 
                      after ``(II)'', and

[[Page 111 STAT. 331]]

                          (ii) by inserting before the comma at the end 
                      the following: ``or in the case of an individual 
                      electing a Medicare+Choice plan, a medicare 
                      supplemental policy with knowledge that the policy 
                      duplicates health benefits to which the individual 
                      is otherwise entitled under the Medicare+Choice 
                      plan or under another medicare supplemental 
                      policy''.
            (2) Conforming amendments.--Section 1882(d)(3)(B)(i)(I) (42 
        U.S.C. 1395ss(d)(3)(B)(i)(I)) is amended by inserting 
        ``(including any Medicare+Choice plan)'' after ``health 
        insurance policies''.
            (3) Medicare+choice plans not treated as medicare 
        supplementary policies.--Section 1882(g)(1) (42 U.S.C. 
        1395ss(g)(1)) is amended by inserting ``or a Medicare+Choice 
        plan or'' after ``does not include''.

    (b) Additional Rules Relating to Individuals Enrolled in MSA Plans 
and Private Fee-for-Service Plans.--Section 1882 (42 U.S.C. 1395ss) is 
further amended by adding at the end the following new subsection:
    ``(u)(1) It is unlawful for a person to sell or issue a policy 
described in paragraph (2) to an individual with knowledge that the 
individual has in effect under section 1851 an election of an MSA plan 
or a Medicare+Choice private fee-for-service plan.
    ``(2)(A) A policy described in this subparagraph is a health 
insurance policy (other than a policy described in subparagraph (B)) 
that provides for coverage of expenses that are otherwise required to be 
counted toward meeting the annual deductible amount provided under the 
MSA plan.
    ``(B) A policy described in this subparagraph is any of the 
following:
            ``(i) A policy that provides coverage (whether through 
        insurance or otherwise) for accidents, disability, dental care, 
        vision care, or long-term care.
            ``(ii) A policy of insurance to which substantially all of 
        the coverage relates to--
                    ``(I) liabilities incurred under workers' 
                compensation laws,
                    ``(II) tort liabilities,
                    ``(III) liabilities relating to ownership or use of 
                property, or
                    ``(IV) such other similar liabilities as the 
                Secretary may specify by regulations.
            ``(iii) A policy of insurance that provides coverage for a 
        specified disease or illness.
            ``(iv) A policy of insurance that pays a fixed amount per 
        day (or other period) of hospitalization.''.

Subchapter B--Special Rules for Medicare+Choice Medical Savings Accounts

SEC. 4006. MEDICARE+CHOICE MSA.

    (a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to amounts specifically excluded 
from gross income) is amended by redesignating section 138 as section 
139 <<NOTE: 26 USC 138, 139.>> and by inserting after section 137 the 
following new section:

[[Page 111 STAT. 332]]

``SEC. 138. <<NOTE: 26 USC 138.>> MEDICARE+CHOICE MSA.

    ``(a) Exclusion.--Gross income shall not include any payment to the 
Medicare+Choice MSA of an individual by the Secretary of Health and 
Human Services under part C of title XVIII of the Social Security Act.
    ``(b) Medicare+Choice MSA.--For purposes of this section, the term 
`Medicare+Choice MSA' means a medical savings account (as defined in 
section 220(d))--
            ``(1) which is designated as a Medicare+Choice MSA,
            ``(2) with respect to which no contribution may be made 
        other than--
                    ``(A) a contribution made by the Secretary of Health 
                and Human Services pursuant to part C of title XVIII of 
                the Social Security Act, or
                    ``(B) a trustee-to-trustee transfer described in 
                subsection (c)(4),
            ``(3) the governing instrument of which provides that 
        trustee-to-trustee transfers described in subsection (c)(4) may 
        be made to and from such account, and
            ``(4) which is established in connection with an MSA plan 
        described in section 1859(b)(3) of the Social Security Act.

    ``(c) Special Rules for Distributions.--
            ``(1) Distributions for qualified medical expenses.--In 
        applying section 220 to a Medicare+Choice MSA--
                    ``(A) qualified medical expenses shall not include 
                amounts paid for medical care for any individual other 
                than the account holder, and
                    ``(B) section 220(d)(2)(C) shall not apply.
            ``(2) Penalty for distributions from medicare+choice msa not 
        used for qualified medical expenses if minimum balance not 
        maintained.--
                    ``(A) In general.--The tax imposed by this chapter 
                for any taxable year in which there is a payment or 
                distribution from a Medicare+Choice MSA which is not 
                used exclusively to pay the qualified medical expenses 
                of the account holder shall be increased by 50 percent 
                of the excess (if any) of--
                          ``(i) the amount of such payment or 
                      distribution, over
                          ``(ii) the excess (if any) of--
                                    ``(I) the fair market value of the 
                                assets in such MSA as of the close of 
                                the calendar year preceding the calendar 
                                year in which the taxable year begins, 
                                over
                                    ``(II) an amount equal to 60 percent 
                                of the deductible under the 
                                Medicare+Choice MSA plan covering the 
                                account holder as of January 1 of the 
                                calendar year in which the taxable year 
                                begins.
                Section 220(f)(4) shall not apply to any payment or 
                distribution from a Medicare+Choice MSA.
                    ``(B) Exceptions.--Subparagraph (A) shall not apply 
                if the payment or distribution is made on or after the 
                date the account holder--
                          ``(i) becomes disabled within the meaning of 
                      section 72(m)(7), or
                          ``(ii) dies.

[[Page 111 STAT. 333]]

                    ``(C) Special rules.--For purposes of subparagraph 
                (A)--
                          ``(i) all Medicare+Choice MSAs of the account 
                      holder shall be treated as 1 account,
                          ``(ii) all payments and distributions not used 
                      exclusively to pay the qualified medical expenses 
                      of the account holder during any taxable year 
                      shall be treated as 1 distribution, and
                          ``(iii) any distribution of property shall be 
                      taken into account at its fair market value on the 
                      date of the distribution.
            ``(3) Withdrawal of erroneous contributions.--Section 
        220(f)(2) and paragraph (2) of this subsection shall not apply 
        to any payment or distribution from a Medicare+Choice MSA to the 
        Secretary of Health and Human Services of an erroneous 
        contribution to such MSA and of the net income attributable to 
        such contribution.
            ``(4) Trustee-to-trustee transfers.--Section 220(f)(2) and 
        paragraph (2) of this subsection shall not apply to any trustee-
        to-trustee transfer from a Medicare+Choice MSA of an account 
        holder to another Medicare+Choice MSA of such account holder.

    ``(d) Special <<NOTE: Applicability.>> Rules for Treatment of 
Account After Death of Account Holder.--In applying section 220(f)(8)(A) 
to an account which was a Medicare+Choice MSA of a decedent, the rules 
of section 220(f) shall apply in lieu of the rules of subsection (c) of 
this section with respect to the spouse as the account holder of such 
Medicare+Choice MSA.

    ``(e) Reports.--In the case of a Medicare+Choice MSA, the report 
under section 220(h)--
            ``(1) shall include the fair market value of the assets in 
        such Medicare+Choice MSA as of the close of each calendar year, 
        and
            ``(2) shall be furnished to the account holder--
                    ``(A) not later than January 31 of the calendar year 
                following the calendar year to which such reports 
                relate, and
                    ``(B) in such manner as the Secretary prescribes in 
                such regulations.

    ``(f) Coordination With Limitation on Number of Taxpayers Having 
Medical Savings Accounts.--Subsection (i) of section 220 shall not apply 
to an individual with respect to a Medicare+Choice MSA, and 
Medicare+Choice MSA's shall not be taken into account in determining 
whether the numerical limitations under section 220(j) are exceeded.''.
    (b) Technical Amendments.--
            (1) The last sentence of section 4973(d) of such 
        Code <<NOTE: 26 USC 4973.>> is amended by inserting ``or section 
        138(c)(3)'' after ``section 220(f)(3)''.
            (2) Subsection (b) of section 220 of such Code <<NOTE: 26 
        USC 220.>> is amended by adding at the end the following new 
        paragraph:
            ``(7) Medicare eligible individuals.--The limitation under 
        this subsection for any month with respect to an individual 
        shall be zero for the first month such individual is entitled to 
        benefits under title XVIII of the Social Security Act and for 
        each month thereafter.''.

[[Page 111 STAT. 334]]

            (3) The table of sections for part III of subchapter B of 
        chapter 1 of such Code is amended by striking the last item and 
        inserting the following:

``Sec. 138. Medicare+Choice MSA.
``Sec. 139. Cross references to other Acts.''.

    (c) Effective <<NOTE: 26 USC 138 note.>> Date.--The amendments made 
by this section shall apply to taxable years beginning after December 
31, 1998.

                        CHAPTER 2--DEMONSTRATIONS

     Subchapter <<NOTE: 42 USC 1395w-23 note.>> A--Medicare+Choice 
Competitive Pricing Demonstration Project

SEC. 4011. MEDICARE PREPAID COMPETITIVE PRICING DEMONSTRATION PROJECT.

    (a) Establishment of Project.--The Secretary of Health and Human 
Services (in this subchapter referred to as the ``Secretary'') shall 
establish a demonstration project (in this subchapter referred to as the 
``project'') under which payments to Medicare+Choice organizations in 
medicare payment areas in which the project is being conducted are 
determined in accordance with a competitive pricing methodology 
established under this subchapter.
    (b) Designation of 7 Medicare Payment Areas Covered by Project.--
            (1) In general.--The Secretary shall designate, in 
        accordance with the recommendations of the Competitive Pricing 
        Advisory Committee under paragraphs (2) and (3), medicare 
        payment areas as areas in which the project under this 
        subchapter will be conducted. In this section, the term 
        ``Competitive Pricing Advisory Committee'' means the Competitive 
        Pricing Advisory Committee established under section 4012(a).
            (2) Initial designation of 4 areas.--
                    (A) In general.--The Competitive Pricing Advisory 
                Committee shall recommend to the Secretary, consistent 
                with subparagraph (B), the designation of 4 specific 
                areas as medicare payment areas to be included in the 
                project. Such recommendations shall be made in a manner 
                so as to ensure that payments under the project in 2 
                such areas will begin on January 1, 1999, and in 2 such 
                areas will begin on January 1, 2000.
                    (B) Location <<NOTE: Urban and rural areas.>> of 
                designation.--Of the 4 areas recommended under 
                subparagraph (A), 3 shall be in urban areas and 1 shall 
                be in a rural area.
            (3) Designation of additional 3 areas.--Not later than 
        December 31, 2001, the Competitive Pricing Advisory Committee 
        may recommend to the Secretary the designation of up to 3 
        additional, specific medicare payment areas to be included in 
        the project.

    (c) Project Implementation.--
            (1) In general.--Subject to paragraph (2), the Secretary 
        shall for each medicare payment area designated under subsection 
        (b)--
                    (A) in accordance with the recommendations of the 
                Competitive Pricing Advisory Committee--
                          (i) establish the benefit design among plans 
                      offered in such area, and

[[Page 111 STAT. 335]]

                          (ii) structure the method for selecting plans 
                      offered in such area; and
                    (B) in consultation with such Committee--
                          (i) establish methods for setting the price to 
                      be paid to plans, including, if the Secretaries 
                      determines appropriate, the rewarding and 
                      penalizing of Medicare+Choice plans in the area on 
                      the basis of the attainment of, or failure to 
                      attain, applicable quality standards, and
                          (ii) provide for the collection of plan 
                      information (including information concerning 
                      quality and access to care), the dissemination of 
                      information, and the methods of evaluating the 
                      results of the project.
            (2) Consultation.--The Secretary shall take into account the 
        recommendations of the area advisory committee established in 
        section 4012(b), in implementing a project design for any area, 
        except that no modifications may be made in the project design 
        without consultation with the Competitive Pricing Advisory 
        Committee. In no case may the Secretary change the designation 
        of an area based on recommendations of any area advisory 
        committee.

    (d) Monitoring and Report.--
            (1) Monitoring impact.--Taking into consideration the 
        recommendations of the Competitive Pricing Advisory Committee 
        and the area advisory committees, the Secretary shall closely 
        monitor and measure the impact of the project in the different 
        areas on the price and quality of, and access to, medicare 
        covered services, choice of health plans, changes in enrollment, 
        and other relevant factors.
            (2) Report.--Not later than December 31, 2002, the Secretary 
        shall submit to Congress a report on the progress under the 
        project under this subchapter, including a comparison of the 
        matters monitored under paragraph (1) among the different 
        designated areas. The report may include any legislative 
        recommendations for extending the project to the entire medicare 
        population.

    (e) Waiver Authority.--The Secretary of Health and Human Services 
may waive such requirements of title XVIII of the Social Security Act 
(as amended by this Act) as may be necessary for the purposes of 
carrying out the project.
    (f) Relationship to Other Authority.--Except pursuant to this 
subchapter, the Secretary of Health and Human Services may not conduct 
or continue any medicare demonstration project relating to payment of 
health maintenance organizations, Medicare+Choice organizations, or 
similar prepaid managed care entities on the basis of a competitive 
bidding process or pricing system described in subsection (a).
    (g) No Additional Costs to Medicare Program.--The aggregate payments 
to Medicare+Choice organizations under the project for any designated 
area for a fiscal year may not exceed the aggregate payments to such 
organizations that would have been made under title XVIII of the Social 
Security Act (42 U.S.C. 1395 et seq.), as amended by section 4001, if 
the project had not been conducted.
    (h) Definitions.--Any term used in this subchapter which is also 
used in part C of title XVIII of the Social Security Act,

[[Page 111 STAT. 336]]

as amended by section 4001, shall have the same meaning as when used in 
such part.

SEC. 4012. ADVISORY COMMITTEES.

    (a) Competitive Pricing Advisory Committee.--
            (1) In general.--Before implementing the project under this 
        subchapter, the Secretary shall appoint the Competitive Pricing 
        Advisory Committee, including independent actuaries, individuals 
        with expertise in competitive health plan pricing, and an 
        employee of the Office of Personnel Management with expertise in 
        the administration of the Federal Employees Health Benefit 
        Program, to make recommendations to the Secretary concerning the 
        designation of areas for inclusion in the project and 
        appropriate research design for implementing the project.
            (2) Initial recommendations.--The Competitive Pricing 
        Advisory Committee initially shall submit recommendations 
        regarding the area selection, benefit design among plans 
        offered, structuring choice among health plans offered, methods 
        for setting the price to be paid to plans, collection of plan 
        information (including information concerning quality and access 
        to care), information dissemination, and methods of evaluating 
        the results of the project.
            (3) Quality recommendation.--The Competitive Pricing 
        Advisory Committee shall study and make recommendations 
        regarding the feasibility of providing financial incentives and 
        penalties to plans operating under the project that meet, or 
        fail to meet, applicable quality standards.
            (4) Advice during implementation.--Upon implementation of 
        the project, the Competitive Pricing Advisory Committee shall 
        continue to advise the Secretary on the application of the 
        design in different areas and changes in the project based on 
        experience with its operations.
            (5) Sunset.--The Competitive Pricing Advisory Committee 
        shall terminate on December 31, 2004.

    (b) Appointment of Area Advisory Committee.--Upon the designation of 
an area for inclusion in the project, the Secretary shall appoint an 
area advisory committee, composed of representatives of health plans, 
providers, and medicare beneficiaries in the area, to advise the 
Secretary concerning how the project will be implemented in the area. 
Such advice may include advice concerning the marketing and pricing of 
plans in the area and other salient factors. The duration of such a 
committee for an area shall be for the duration of the operation of the 
project in the area.
    (c) Special application.--Notwithstanding section 9(c) of the 
Federal Advisory Committee Act (5 U.S.C. App.), the Competitive Pricing 
Advisory Commission and any area advisory committee (described in 
subsection (b)) may meet as soon as the members of the commission or 
committee, respectively, are appointed.

          Subchapter B--Social Health Maintenance Organizations

SEC. 4014. SOCIAL HEALTH MAINTENANCE ORGANIZATIONS (SHMOS).

    (a) Extension of Demonstration Project Authorities.--Section 4018(b) 
of the Omnibus Budget Reconciliation Act of <<NOTE: 101 Stat. 1330-
65.>> 1987 is amended--

[[Page 111 STAT. 337]]

            (1) in paragraph (1), by striking ``1997'' and inserting 
        ``2000'', and
            (2) in paragraph (4), by striking ``1998'' and inserting 
        ``2001''.

    (b) Expansion of Cap.--Section 13567(c) of the Omnibus Budget 
Reconciliation Act of <<NOTE: 107 Stat. 608.>> 1993 is amended by 
striking ``12,000'' and inserting ``36,000''.

    (c) Report <<NOTE: 42 USC 1395w-21 note.>> on Integration and 
Transition.--
            (1) In general.--The Secretary of Health and Human Services 
        shall submit to Congress, by not later than January 1, 1999, a 
        plan for the integration of health plans offered by social 
        health maintenance organizations (including SHMO I and SHMO II 
        sites developed under section 2355 of the Deficit Reduction Act 
        of 1984 and under the amendment made by section 4207(b)(3)(B)(i) 
        of OBRA-1990, respectively) and similar plans as an option under 
        the Medicare+Choice program under part C of title XVIII of the 
        Social Security Act.
            (2) Provision for transition.--Such plan shall include a 
        transition for social health maintenance organizations operating 
        under demonstration project authority under such section.
            (3) Payment policy.--The report shall also include 
        recommendations on appropriate payment levels for plans offered 
        by such organizations, including an analysis of the application 
        of risk adjustment factors appropriate to the population served 
        by such organizations.

  Subchapter C--Medicare Subvention Demonstration Project for Military 
                                Retirees

SEC. 4015. MEDICARE SUBVENTION DEMONSTRATION PROJECT FOR MILITARY 
            RETIREES.

    (a) In General.--Title XVIII (42 U.S.C. 1395 et seq.) (as amended by 
sections 4603 and 4801) is amended by adding at the end the following:

     ``medicare subvention demonstration project for <<NOTE: 42 usc 
1395ggg.>> military retirees

    ``Sec. 1896. (a) Definitions.--In this section:
            ``(1) Administering secretaries.--The term `administering 
        Secretaries' means the Secretary and the Secretary of Defense 
        acting jointly.
            ``(2) Demonstration project; project.--The terms 
        `demonstration project' and `project' mean the demonstration 
        project carried out under this section.
            ``(3) Designated provider.--The term `designated provider' 
        has the meaning given that term in section 721(5) of the 
        National Defense Authorization Act For Fiscal Year 1997 (Public 
        Law 104-201; 110 Stat. 2593; 10 U.S.C. 1073 note).
            ``(4) Medicare-eligible military retiree or dependent.--The 
        term `medicare-eligible military retiree or dependent' means an 
        individual described in section 1074(b) or 1076(b) of title 10, 
        United States Code, who--
                    ``(A) would be eligible for health benefits under 
                section 1086 of such title by reason of subsection 
                (c)(1) of such section 1086 but for the operation of 
                subsection (d) of such section 1086;

[[Page 111 STAT. 338]]

                    ``(B)(i) is entitled to benefits under part A of 
                this title; and
                    ``(ii) if the individual was entitled to such 
                benefits before July 1, 1997, received health care items 
                or services from a health care facility of the uniformed 
                services before that date, but after becoming entitled 
                to benefits under part A of this title;
                    ``(C) is enrolled for benefits under part B of this 
                title; and
                    ``(D) has attained age 65.
            ``(5) Medicare health care services.--The term `medicare 
        health care services' means items or services covered under part 
        A or B of this title.
            ``(6) Military treatment facility.--The term `military 
        treatment facility' means a facility referred to in section 
        1074(a) of title 10, United States Code.
            ``(7) TRICARE.--The term `TRICARE' has the same meaning as 
        the term `TRICARE program' under section 711 of the National 
        Defense Authorization Act for Fiscal Year 1996 (10 U.S.C. 1073 
        note).
            ``(8) Trust funds.--The term `trust funds' means the Federal 
        Hospital Insurance Trust Fund established in section 1817 and 
        the Federal Supplementary Medical Insurance Trust Fund 
        established in section 1841.

    ``(b) Demonstration Project.--
            ``(1) In general.--
                    ``(A) Establishment.--The administering Secretaries 
                are authorized to establish a demonstration project 
                (under an agreement entered into by the administering 
                Secretaries) under which the Secretary shall reimburse 
                the Secretary of Defense, from the trust funds, for 
                medicare health care services furnished to certain 
                medicare-eligible military retirees or dependents in a 
                military treatment facility or by a designated provider.
                    ``(B) Agreement.--The agreement entered into under 
                subparagraph (A) shall include at a minimum--
                          ``(i) a description of the benefits to be 
                      provided to the participants of the demonstration 
                      project established under this section;
                          ``(ii) a description of the eligibility rules 
                      for participation in the demonstration project, 
                      including any cost sharing requirements;
                          ``(iii) a description of how the demonstration 
                      project will satisfy the requirements under this 
                      title;
                          ``(iv) a description of the sites selected 
                      under paragraph (2);
                          ``(v) a description of how reimbursement 
                      requirements under subsection (i) and maintenance 
                      of effort requirements under subsection (j) will 
                      be implemented in the demonstration project;
                          ``(vi) a statement that the Secretary shall 
                      have access to all data of the Department of 
                      Defense that the Secretary determines is necessary 
                      to conduct independent estimates and audits of the 
                      maintenance of effort requirement, the annual 
                      reconciliation, and related matters required under 
                      the demonstration project;

[[Page 111 STAT. 339]]

                          ``(vii) a description of any requirement that 
                      the Secretary waives pursuant to subsection (d); 
                      and
                          ``(viii) a certification, provided after 
                      review by the administering Secretaries, that any 
                      entity that is receiving payments by reason of the 
                      demonstration project has sufficient--
                                    ``(I) resources and expertise to 
                                provide, consistent with payments under 
                                subsection (i), the full range of 
                                benefits required to be provided to 
                                beneficiaries under the project; and
                                    ``(II) information and billing 
                                systems in place to ensure the accurate 
                                and timely submission of claims for 
                                benefits and to ensure that providers of 
                                services, physicians, and other health 
                                care professionals are reimbursed by the 
                                entity in a timely and accurate manner.
            ``(2) Number of sites.--The project established under this 
        section shall be conducted in no more than 6 sites, designated 
        jointly by the administering Secretaries after review of all 
        TRICARE regions.
            ``(3) Restriction.--No new military treatment facilities 
        will be built or expanded with funds from the demonstration 
        project.
            ``(4) Duration.--The administering Secretaries shall conduct 
        the demonstration project during the 3-year period beginning on 
        January 1, 1998.
            ``(5) Report.--At least 60 days prior to the commencement of 
        the demonstration project, the administering Secretaries shall 
        submit a copy of the agreement entered into under paragraph (1) 
        to the committees of jurisdiction under this title.

    ``(c) Crediting of Payments.--A payment received by the Secretary of 
Defense under the demonstration project shall be credited to the 
applicable Department of Defense medical appropriation (and within that 
appropriation). Any such payment received during a fiscal year for 
services provided during a prior fiscal year may be obligated by the 
Secretary of Defense during the fiscal year during which the payment is 
received.
    ``(d) Waiver of Certain Medicare Requirements.--
            ``(1) Authority.--
                    ``(A) In general.--Except as provided under 
                subparagraph (B), the demonstration project shall meet 
                all requirements of Medicare+Choice plans under part C 
                of this title and regulations pertaining thereto, and 
                other requirements for receiving medicare payments, 
                except that the prohibition of payments to Federal 
                providers of services under sections 1814(c) and 
                1835(d), and paragraphs (2) and (3) of section 1862(a) 
                shall not apply.
                    ``(B) Waiver.--Except as provided in paragraph (2), 
                the Secretary is authorized to waive any requirement 
                described under subparagraph (A), or approve equivalent 
                or alternative ways of meeting such a requirement, but 
                only if such waiver or approval--
                          ``(i) reflects the unique status of the 
                      Department of Defense as an agency of the Federal 
                      Government; and
                          ``(ii) is necessary to carry out the 
                      demonstration project.

[[Page 111 STAT. 340]]

            ``(2) Beneficiary protections and other matters.--The 
        demonstration project shall comply with the requirements of part 
        C of this title that relate to beneficiary protections and other 
        matters, including such requirements relating to the following 
        areas:
                    ``(A) Enrollment and disenrollment.
                    ``(B) Nondiscrimination.
                    ``(C) Information provided to beneficiaries.
                    ``(D) Cost-sharing limitations.
                    ``(E) Appeal and grievance procedures.
                    ``(F) Provider participation.
                    ``(G) Access to services.
                    ``(H) Quality assurance and external review.
                    ``(I) Advance directives.
                    ``(J) Other areas of beneficiary protections that 
                the Secretary determines are applicable to such project.

    ``(e) Inspector General.--Nothing in the agreement entered into 
under subsection (b) shall limit the Inspector General of the Department 
of Health and Human Services from investigating any matters regarding 
the expenditure of funds under this title for the demonstration project, 
including compliance with the provisions of this title and all other 
relevant laws.
    ``(f) Voluntary Participation.--Participation of medicare-eligible 
military retirees or dependents in the demonstration project shall be 
voluntary.
    ``(g) TRICARE Health Care Plans.--
            ``(1) Modification of tricare contracts.--In carrying out 
        the demonstration project, the Secretary of Defense is 
        authorized to amend existing TRICARE contracts (including 
        contracts with designated providers) in order to provide the 
        medicare health care services to the medicare-eligible military 
        retirees and dependents enrolled in the demonstration project 
        consistent with part C of this title.
            ``(2) Health care benefits.--The administering Secretaries 
        shall prescribe the minimum health care benefits to be provided 
        under such a plan to medicare-eligible military retirees or 
        dependents enrolled in the plan. Those benefits shall include at 
        least all medicare health care services covered under this 
        title.

    ``(h) Additional Plans.--Notwithstanding any provisions of title 10, 
United States Code, the administering Secretaries may agree to include 
in the demonstration project any of the Medicare+Choice plans described 
in section 1851(a)(2)(A), and such agreement may include an agreement 
between the Secretary of Defense and the Medicare+Choice organization 
offering such plan to provide medicare health care services to medicare-
eligible military retirees or dependents and for such Secretary to 
receive payments from such organization for the provision of such 
services.
    ``(i) Payments Based on Regular Medicare Payment Rates.--
            ``(1) In general.--Subject to the succeeding provisions of 
        this subsection, the Secretary shall reimburse the Secretary of 
        Defense for services provided under the demonstration project at 
        a rate equal to 95 percent of the amount paid to a 
        Medicare+Choice organization under part C of this title with 
        respect to such an enrollee. <<NOTE: Regulations.>> In cases in 
        which a payment amount may not otherwise be readily computed, 
        the Secretary shall

[[Page 111 STAT. 341]]

        establish rules for computing equivalent or comparable payment 
        amounts.
            ``(2) Exclusion of certain amounts.--In computing the amount 
        of payment under paragraph (1), the following shall be excluded:
                    ``(A) Special payments.--Any amount attributable to 
                an adjustment under subparagraphs (B) and (F) of section 
                1886(d)(5) and subsection (h) of such section.
                    ``(B) Percentage of capital payments.--An amount 
                determined by the administering Secretaries for amounts 
                attributable to payments for capital-related costs under 
                subsection (g) of such section.
            ``(3) Periodic payments from medicare trust funds.--Payments 
        under this subsection shall be made--
                    ``(A) on a periodic basis consistent with the 
                periodicity of payments under this title; and
                    ``(B) in appropriate part, as determined by the 
                Secretary, from the trust funds.
            ``(4) Cap on amount.--The aggregate amount to be reimbursed 
        under this subsection pursuant to the agreement entered into 
        between the administering Secretaries under subsection (b) shall 
        not exceed a total of--
                    ``(A) $50,000,000 for calendar year 1998;
                    ``(B) $60,000,000 for calendar year 1999; and
                    ``(C) $65,000,000 for calendar year 2000.

    ``(j) Maintenance of Effort.--
            ``(1) Monitoring effect of demonstration program on costs to 
        medicare program.--
                    ``(A) In general.--The administering Secretaries, in 
                consultation with the Comptroller General, shall closely 
                monitor the expenditures made under the medicare program 
                for medicare-eligible military retirees or dependents 
                during the period of the demonstration project compared 
                to the expenditures that would have been made for such 
                medicare-eligible military retirees or dependents during 
                that period if the demonstration project had not been 
                conducted. The agreement entered into by the 
                administering Secretaries under subsection (b) shall 
                require any participating military treatment facility to 
                maintain the level of effort for space available care to 
                medicare-eligible military retirees or dependents.
                    ``(B) Annual report by the comptroller general.--Not 
                later than December 31 of each year during which the 
                demonstration project is conducted, the Comptroller 
                General shall submit to the administering Secretaries 
                and the appropriate committees of Congress a report on 
                the extent, if any, to which the costs of the Secretary 
                under the medicare program under this title increased 
                during the preceding fiscal year as a result of the 
                demonstration project.
            ``(2) Required response in case of increase in costs.--
                    ``(A) In general.--If the administering Secretaries 
                find, based on paragraph (1), that the expenditures 
                under the medicare program under this title increased 
                (or are expected to increase) during a fiscal year 
                because of the demonstration project, the administering 
                Secretaries shall take such steps as may be needed--

[[Page 111 STAT. 342]]

                          ``(i) to recoup for the medicare program the 
                      amount of such increase in expenditures; and
                          ``(ii) to prevent any such increase in the 
                      future.
                    ``(B) Steps.--Such steps--
                          ``(i) under subparagraph (A)(i) shall include 
                      payment of the amount of such increased 
                      expenditures by the Secretary of Defense from the 
                      current medical care appropriation of the 
                      Department of Defense to the trust funds; and
                          ``(ii) under subparagraph (A)(ii) shall 
                      include suspending or terminating the 
                      demonstration project (in whole or in part) or 
                      lowering the amount of payment under subsection 
                      (i)(1).

    ``(k) Evaluation and Reports.--
            ``(1) Independent evaluation.--The Comptroller General of 
        the United States shall conduct an evaluation of the 
        demonstration project, and shall submit annual reports on the 
        demonstration project to the administering Secretaries and to 
        the committees of jurisdiction in the Congress. The first report 
        shall be submitted not later than 12 months after the date on 
        which the demonstration project begins operation, and the final 
        report not later than 3\1/2\ years after that date. The 
        evaluation and reports shall include an assessment, based on the 
        agreement entered into under subsection (b), of the following:
                    ``(A) Any savings or costs to the medicare program 
                under this title resulting from the demonstration 
                project.
                    ``(B) The cost to the Department of Defense of 
                providing care to medicare-eligible military retirees 
                and dependents under the demonstration project.
                    ``(C) A description of the effects of the 
                demonstration project on military treatment facility 
                readiness and training and the probable effects of the 
                project on overall Department of Defense medical 
                readiness and training.
                    ``(D) Any impact of the demonstration project on 
                access to care for active duty military personnel and 
                their dependents.
                    ``(E) An analysis of how the demonstration project 
                affects the overall accessibility of the uniformed 
                services treatment system and the amount of space 
                available for point-of-service care, and a description 
                of the unintended effects (if any) upon the normal 
                treatment priority system.
                    ``(F) Compliance by the Department of Defense with 
                the requirements under this title.
                    ``(G) The number of medicare-eligible military 
                retirees and dependents opting to participate in the 
                demonstration project instead of receiving health 
                benefits through another health insurance plan 
                (including benefits under this title).
                    ``(H) A list of the health insurance plans and 
                programs that were the primary payers for medicare-
                eligible military retirees and dependents during the 
                year prior to their participation in the demonstration 
                project and the distribution of their previous 
                enrollment in such plans and programs.
                    ``(I) Any impact of the demonstration project on 
                private health care providers and beneficiaries under 
                this title that are not enrolled in the demonstration 
                project.

[[Page 111 STAT. 343]]

                    ``(J) An assessment of the access to care and 
                quality of care for medicare-eligible military retirees 
                and dependents under the demonstration project.
                    ``(K) An analysis of whether, and in what manner, 
                easier access to the uniformed services treatment system 
                affects the number of medicare-eligible military 
                retirees and dependents receiving medicare health care 
                services.
                    ``(L) Any impact of the demonstration project on the 
                access to care for medicare-eligible military retirees 
                and dependents who did not enroll in the demonstration 
                project and for other individuals entitled to benefits 
                under this title.
                    ``(M) A description of the difficulties (if any) 
                experienced by the Department of Defense in managing the 
                demonstration project and TRICARE contracts.
                    ``(N) Any additional elements specified in the 
                agreement entered into under subsection (b).
                    ``(O) Any additional elements that the Comptroller 
                General of the United States determines is appropriate 
                to assess regarding the demonstration project.
            ``(2) Report on extension and expansion of demonstration 
        project.--Not later than 6 months after the date of the 
        submission of the final report by the Comptroller General of the 
        United States under paragraph (1), the administering Secretaries 
        shall submit to Congress a report containing their 
        recommendation as to--
                    ``(A) whether there is a cost to the health care 
                program under this title in conducting the demonstration 
                project, and whether the demonstration project could be 
                expanded without there being a cost to such health care 
                program or to the Federal Government;
                    ``(B) whether to extend the demonstration project or 
                make the project permanent; and
                    ``(C) whether the terms and conditions of the 
                project should be continued (or modified) if the project 
                is extended or expanded.''.

    (b) Implementation <<NOTE: 42 USC 1395ggg note.>> Plan for Veterans 
Subvention.--Not later than 12 months after the start of the 
demonstration project, the Secretary of Health and Human Services and 
the Secretary of Veterans Affairs shall jointly submit to Congress a 
detailed implementation plan for a subvention demonstration project 
(that follows the model of the demonstration project conducted under 
section 1896 of the Social Security Act (as added by subsection (a)) to 
begin in 1999 for veterans (as defined in section 101 of title 38, 
United States Code) that are eligible for benefits under title XVIII of 
the Social Security Act.

                      Subchapter D--Other Projects

SEC. 4016. <<NOTE: 42 USC 1395b-1 note.>> MEDICARE COORDINATED CARE 
            DEMONSTRATION PROJECT.

    (a) Demonstration Projects.--
            (1) In general.--The Secretary of Health and Human Services 
        (in this section referred to as the ``Secretary'') shall conduct 
        demonstration projects for the purpose of evaluating methods, 
        such as case management and other models of coordinated care, 
        that--

[[Page 111 STAT. 344]]

                    (A) improve the quality of items and services 
                provided to target individuals; and
                    (B) reduce expenditures under the medicare program 
                under title XVIII of the Social Security Act (42 U.S.C. 
                1395 et seq.) for items and services provided to target 
                individuals.
            (2) Target individual defined.--In this section, the term 
        ``target individual'' means an individual that has a chronic 
        illness, as defined and identified by the Secretary, and is 
        enrolled under the fee-for-service program under parts A and B 
        of title XVIII of the Social Security Act (42 U.S.C. 1395c et 
        seq.; 1395j et seq.).

    (b) Program Design.--
            (1) Initial design.--The Secretary shall evaluate best 
        practices in the private sector of methods of coordinated care 
        for a period of 1 year and design the demonstration project 
        based on such evaluation.
            (2) Number <<NOTE: Urban and rural areas. District of 
        Columbia.>> and project areas.--Not later than 2 years after the 
        date of enactment of this Act, the Secretary shall implement at 
        least 9 demonstration projects, including--
                    (A) 5 projects in urban areas;
                    (B) 3 projects in rural areas; and
                    (C) 1 project within the District of Columbia which 
                is operated by a nonprofit academic medical center that 
                maintains a National Cancer Institute certified 
                comprehensive cancer center.
            (3) Expansion of projects; implementation of demonstration 
        project results.--
                    (A) Expansion of projects.--If the initial report 
                under subsection (c) contains an evaluation that 
                demonstration projects--
                          (i) reduce expenditures under the medicare 
                      program; or
                          (ii) do not increase expenditures under the 
                      medicare program and increase the quality of 
                      health care services provided to target 
                      individuals and satisfaction of beneficiaries and 
                      health care providers;
                the Secretary shall continue the existing demonstration 
                projects and may expand the number of demonstration 
                projects.
                    (B) Implementation of demonstration project 
                results.--If a report under subsection (c) contains an 
                evaluation as described in subparagraph (A), the 
                Secretary may issue regulations to implement, on a 
                permanent basis, the components of the demonstration 
                project that are beneficial to the medicare program.

    (c) Report to Congress.--
            (1) In general.--Not later than 2 years after the Secretary 
        implements the initial demonstration projects under this 
        section, and biannually thereafter, the Secretary shall submit 
        to Congress a report regarding the demonstration projects 
        conducted under this section.
            (2) Contents of report.--The report in paragraph (1) shall 
        include the following:
                    (A) A description of the demonstration projects 
                conducted under this section.
                    (B) An evaluation of--

[[Page 111 STAT. 345]]

                          (i) the cost-effectiveness of the 
                      demonstration projects;
                          (ii) the quality of the health care services 
                      provided to target individuals under the 
                      demonstration projects; and
                          (iii) beneficiary and health care provider 
                      satisfaction under the demonstration project.
                    (C) Any other information regarding the 
                demonstration projects conducted under this section that 
                the Secretary determines to be appropriate.

    (d) Waiver Authority.--The Secretary shall waive compliance with the 
requirements of title XVIII of the Social Security Act (42 U.S.C. 1395 
et seq.) to such extent and for such period as the Secretary determines 
is necessary to conduct demonstration projects.
    (e) Funding.--
            (1) Demonstration projects.--
                    (A) In general.--
                          (i) State projects.--Except as provided in 
                      clause (ii), the Secretary shall provide for the 
                      transfer from the Federal Hospital Insurance Trust 
                      Fund and the Federal Supplementary Insurance Trust 
                      Fund under title XVIII of the Social Security Act 
                      (42 U.S.C. 1395i, 1395t), in such proportions as 
                      the Secretary determines to be appropriate, of 
                      such funds as are necessary for the costs of 
                      carrying out the demonstration projects under this 
                      section.
                          (ii) Cancer hospital.--In the case of the 
                      project described in subsection (b)(2)(C), amounts 
                      shall be available only as provided in any Federal 
                      law making appropriations for the District of 
                      Columbia.
                    (B) Limitation.--In conducting the demonstration 
                project under this section, the Secretary shall ensure 
                that the aggregate payments made by the Secretary do not 
                exceed the amount which the Secretary would have paid if 
                the demonstration projects under this section were not 
                implemented.
            (2) Evaluation and report.--There are authorized to be 
        appropriated such sums as are necessary for the purpose of 
        developing and submitting the report to Congress under 
        subsection (c).

SEC. 4017. ORDERLY TRANSITION OF MUNICIPAL HEALTH SERVICE DEMONSTRATION 
            PROJECTS.

    Section 9215 of the Consolidated Omnibus Budget Reconciliation Act 
of 1985, as amended by section 6135 of OBRA-1989 and section 13557 of 
OBRA-1993, <<NOTE: 42 USC 1395b-1 note.>> is further amended--
            (1) by inserting ``(a)'' before ``The Secretary'', and
            (2) by adding at the end the following: ``Subject to 
        subsection (c), the Secretary may further extend such 
        demonstration projects through December 31, 2000, but only with 
        respect to individuals who received at least one service during 
        the period beginning on January 1, 1996, and ending on the date 
        of the enactment of the Balanced Budget Act of 1997.

    ``(b) The Secretary shall work with each such demonstration project 
to develop a plan, to be submitted to the Committee on Ways and Means 
and the Committee on Commerce of the House

[[Page 111 STAT. 346]]

of Representatives and the Committee on Finance of the Senate by March 
31, 1998, for the orderly transition of demonstration projects and the 
project participants to a non-demonstration project health care delivery 
system, such as through integration with a private or public health 
plan, including a medicaid managed care or Medicare+Choice plan.
    ``(c) A demonstration project under subsection (a) which does not 
develop and submit a transition plan under subsection (b) by March 31, 
1998, or, if later, 6 months after the date of the enactment of the 
Balanced Budget Act of 1997, shall be discontinued as of December 31, 
1998. The Secretary shall provide appropriate technical assistance to 
assist in the transition so that disruption of medical services to 
project participants may <<NOTE: 42 USC 1395w-21 note.>> be 
minimized.''.

SEC. 4018. MEDICARE ENROLLMENT DEMONSTRATION PROJECT.

    (a) Demonstration Project.--
            (1) Establishment.--The Secretary shall implement a 
        demonstration project (in this section referred to as the 
        ``project'') for the purpose of evaluating the use of a third-
        party contractor to conduct the Medicare+Choice plan enrollment 
        and disenrollment functions, as described in part C of title 
        XVIII of the Social Security Act (as added by section 4001 of 
        this Act), in an area.
            (2) Consultation.--Before implementing the project under 
        this section, the Secretary shall consult with affected parties 
        on--
                    (A) the design of the project;
                    (B) the selection criteria for the third-party 
                contractor; and
                    (C) the establishment of performance standards, as 
                described in paragraph (3).
            (3) Performance standards.--
                    (A) In general.--The Secretary shall establish 
                performance standards for the accuracy and timeliness of 
                the Medicare+Choice plan enrollment and disenrollment 
                functions performed by the third-party contractor.
                    (B) Noncompliance.--In the event that the third-
                party contractor is not in substantial compliance with 
                the performance standards established under subparagraph 
                (A), such enrollment and disenrollment functions shall 
                be performed by the Medicare+Choice plan until the 
                Secretary appoints a new third-party contractor.

    (b) Report to Congress.--The Secretary shall periodically report to 
Congress on the progress of the project conducted pursuant to this 
section.
    (c) Waiver Authority.--The Secretary shall waive compliance with the 
requirements of part C of title XVIII of the Social Security Act (as 
amended by section 4001 of this Act) to such extent and for such period 
as the Secretary determines is necessary to conduct the project.
    (d) Duration.--A demonstration project under this section shall be 
conducted for a 3-year period.
    (e) Separate From Other Demonstration Projects.--A project 
implemented by the Secretary under this section shall not be conducted 
in conjunction with any other demonstration project.

[[Page 111 STAT. 347]]

SEC. 4019. <<NOTE: 42 USC 1395mm note.>> EXTENSION OF CERTAIN MEDICARE 
            COMMUNITY NURSING ORGANIZATION DEMONSTRATION PROJECTS.

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

                         CHAPTER 3--COMMISSIONS

SEC. 4021. <<NOTE: 42 USC 1395b note.>> NATIONAL BIPARTISAN COMMISSION 
            ON THE FUTURE OF MEDICARE.

    (a) Establishment.--There is established a commission to be known as 
the National Bipartisan Commission on the Future of Medicare (in this 
section referred to as the ``Commission'').
    (b) Duties of the Commission.--The Commission shall--
            (1) review and analyze the long-term financial condition of 
        the medicare program under title XVIII of the Social Security 
        Act (42 U.S.C. 1395 et seq.);
            (2) identify problems that threaten the financial integrity 
        of the Federal Hospital Insurance Trust Fund and the Federal 
        Supplementary Medical Insurance Trust Fund established under 
        that title (42 U.S.C. 1395i, 1395t), including--
                    (A) the financial impact on the medicare program of 
                the significant increase in the number of medicare 
                eligible individuals which will occur beginning 
                approximately during 2010 and lasting for approximately 
                25 years, and
                    (B) the extent to which current medicare update 
                indexes do not accurately reflect inflation;
            (3) analyze potential solutions to the problems identified 
        under paragraph (2) that will ensure both the financial 
        integrity of the medicare program and the provision of 
        appropriate benefits under such program, including methods used 
        by other nations to respond to comparable demographic patterns 
        in eligibility for health care benefits for elderly and disabled 
        individuals and trends in employment-related health care for 
        retirees;
            (4) make recommendations to restore the solvency of the 
        Federal Hospital Insurance Trust Fund and the financial 
        integrity of the Federal Supplementary Medical Insurance Trust 
        Fund;
            (5) make recommendations for establishing the appropriate 
        financial structure of the medicare program as a whole;
            (6) make recommendations for establishing the appropriate 
        balance of benefits covered and beneficiary contributions to the 
        medicare program;
            (7) make recommendations for the time periods during which 
        the recommendations described in paragraphs (4), (5), and (6) 
        should be implemented;
            (8) make recommendations regarding the financing of graduate 
        medical education (GME), including consideration of alternative 
        broad-based sources of funding for such education and funding 
        for institutions not currently eligible for such GME support 
        that conduct approved graduate medical residency programs, such 
        as children's hospitals;
            (9) make recommendations on modifying age-based eligibility 
        to correspond to changes in age-based eligibility under

[[Page 111 STAT. 348]]

        the OASDI program and on the feasibility of allowing individuals 
        between the age of 62 and the medicare eligibility age to buy 
        into the medicare program;
            (10) make recommendations on the impact of chronic disease 
        and disability trends on future costs and quality of services 
        under the current benefit, financing, and delivery system 
        structure of the medicare program;
            (11) make recommendations regarding a comprehensive approach 
        to preserve the program; and
            (12) review and analyze such other matters as the Commission 
        deems appropriate.

    (c) Membership.--
            (1) Number and appointment.--The Commission shall be 
        composed of 17 members, of whom--
                    (A) <<NOTE: President.>> four shall be appointed by 
                the President;
                    (B) six shall be appointed by the Majority Leader of 
                the Senate, in consultation with the Minority Leader of 
                the Senate, of whom not more than 4 shall be of the same 
                political party;
                    (C) six shall be appointed by the Speaker of the 
                House of Representatives, in consultation with the 
                Minority Leader of the House of Representatives, of whom 
                not more than 4 shall be of the same political party; 
                and
                    (D) one, who shall serve as Chairman of the 
                Commission, appointed jointly by the President, Majority 
                Leader of the Senate, and the Speaker of the House of 
                Representatives.
            (2) Deadline for appointment.--Members of the Commission 
        shall be appointed by not later than December 1, 1997.
            (3) Terms of appointment.--The term of any appointment under 
        paragraph (1) to the Commission shall be for the life of the 
        Commission.
            (4) Meetings.--The Commission shall meet at the call of its 
        Chairman or a majority of its members.
            (5) Quorum.--A quorum shall consist of 8 members of the 
        Commission, except that 4 members may conduct a hearing under 
        subsection (e).
            (6) Vacancies.--A vacancy on the Commission shall be filled 
        in the same manner in which the original appointment was made 
        not later than 30 days after the Commission is given notice of 
        the vacancy and shall not affect the power of the remaining 
        members to execute the duties of the Commission.
            (7) Compensation.--Members of the Commission shall receive 
        no additional pay, allowances, or benefits by reason of their 
        service on the Commission.
            (8) Expenses.--Each member of the Commission shall receive 
        travel expenses and per diem in lieu of subsistence in 
        accordance with sections 5702 and 5703 of title 5, United States 
        Code.

    (d) Staff and Support Services.--
            (1) Executive director.--
                    (A) Appointment.--The Chairman shall appoint an 
                executive director of the Commission.
                    (B) Compensation.--The executive director shall be 
                paid the rate of basic pay for level V of the Executive 
                Schedule.

[[Page 111 STAT. 349]]

            (2) Staff.--With the approval of the Commission, the 
        executive director may appoint such personnel as the executive 
        director considers appropriate.
            (3) Applicability of civil service laws.--The staff of the 
        Commission shall be appointed without regard to the provisions 
        of title 5, United States Code, governing appointments in the 
        competitive service, and shall be paid without regard to the 
        provisions of chapter 51 and subchapter III of chapter 53 of 
        such title (relating to classification and General Schedule pay 
        rates).
            (4) Experts and consultants.--With the approval of the 
        Commission, the executive director may procure temporary and 
        intermittent services under section 3109(b) of title 5, United 
        States Code.
            (5) Physical facilities.--The Administrator of the General 
        Services Administration shall locate suitable office space for 
        the operation of the Commission. The facilities shall serve as 
        the headquarters of the Commission and shall include all 
        necessary equipment and incidentals required for the proper 
        functioning of the Commission.

    (e) Powers of Commission.--
            (1) Hearings and other activities.--For the purpose of 
        carrying out its duties, the Commission may hold such hearings 
        and undertake such other activities as the Commission determines 
        to be necessary to carry out its duties.
            (2) Studies by gao.--Upon the request of the Commission, the 
        Comptroller General shall conduct such studies or investigations 
        as the Commission determines to be necessary to carry out its 
        duties.
            (3) Cost estimates by congressional budget office and office 
        of the chief actuary of hcfa.--
                    (A) The Director of the Congressional Budget Office 
                or the Chief Actuary of the Health Care Financing 
                Administration, or both, shall provide to the 
                Commission, upon the request of the Commission, such 
                cost estimates as the Commission determines to be 
                necessary to carry out its duties.
                    (B) The Commission shall reimburse the Director of 
                the Congressional Budget Office for expenses relating to 
                the employment in the office of the Director of such 
                additional staff as may be necessary for the Director to 
                comply with requests by the Commission under 
                subparagraph (A).
            (4) Detail of federal employees.--Upon the request of the 
        Commission, the head of any Federal agency is authorized to 
        detail, without reimbursement, any of the personnel of such 
        agency to the Commission to assist the Commission in carrying 
        out its duties. Any such detail shall not interrupt or otherwise 
        affect the civil service status or privileges of the Federal 
        employee.
            (5) Technical assistance.--Upon the request of the 
        Commission, the head of a Federal agency shall provide such 
        technical assistance to the Commission as the Commission 
        determines to be necessary to carry out its duties.
            (6) Use of mails.--The Commission may use the United States 
        mails in the same manner and under the same conditions as 
        Federal agencies and shall, for purposes of the frank, be

[[Page 111 STAT. 350]]

        considered a commission of Congress as described in section 3215 
        of title 39, United States Code.
            (7) Obtaining information.--The Commission may secure 
        directly from any Federal agency information necessary to enable 
        it to carry out its duties, if the information may be disclosed 
        under section 552 of title 5, United States Code. Upon request 
        of the Chairman of the Commission, the head of such agency shall 
        furnish such information to the Commission.
            (8) Administrative support services.--Upon the request of 
        the Commission, the Administrator of General Services shall 
        provide to the Commission on a reimbursable basis such 
        administrative support services as the Commission may request.
            (9) Printing.--For purposes of costs relating to printing 
        and binding, including the cost of personnel detailed from the 
        Government Printing Office, the Commission shall be deemed to be 
        a committee of the Congress.

    (f) Report.--Not later than March 1, 1999, the Commission shall 
submit a report to the President and Congress which shall contain a 
detailed statement of only those recommendations, findings, and 
conclusions of the Commission that receive the approval of at least 11 
members of the Commission.
    (g) Termination.--The Commission shall terminate 30 days after the 
date of submission of the report required in subsection (f).
    (h) Authorization of Appropriations.--There are authorized to be 
appropriated $1,500,000 to carry out this section. 60 percent of such 
appropriation shall be payable from the Federal Hospital Insurance Trust 
Fund, and 40 percent of such appropriation shall be payable from the 
Federal Supplementary Medical Insurance Trust Fund under title XVIII of 
the Social Security Act (42 U.S.C. 1395i, 1395t).

SEC. 4022. MEDICARE PAYMENT ADVISORY COMMISSION.

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

``medicare payment advisory <<NOTE: 42 usc 1395b-6.>> commission

    ``Sec. 1805. (a) Establishment.--There is hereby established the 
Medicare Payment Advisory Commission (in this section referred to as the 
`Commission').
    ``(b) Duties.--
            ``(1) Review of payment policies and annual reports.--The 
        Commission shall--
                    ``(A) review payment policies under this title, 
                including the topics described in paragraph (2);
                    ``(B) make recommendations to Congress concerning 
                such payment policies;
                    ``(C) by not later than March 1 of each year 
                (beginning with 1998), submit a report to Congress 
                containing the results of such reviews and its 
                recommendations concerning such policies; and
                    ``(D) by not later than June 1 of each year 
                (beginning with 1998), submit a report to Congress 
                containing an examination of issues affecting the 
                medicare program,

[[Page 111 STAT. 351]]

                including the implications of changes in health care 
                delivery in the United States and in the market for 
                health care services on the medicare program.
            ``(2) Specific topics to be reviewed.--
                    ``(A) Medicare+choice program.--Specifically, the 
                Commission shall review, with respect to the 
                Medicare+Choice program under part C, the following:
                          ``(i) The methodology for making payment to 
                      plans under such program, including the making of 
                      differential payments and the distribution of 
                      differential updates among different payment 
                      areas.
                          ``(ii) The mechanisms used to adjust payments 
                      for risk and the need to adjust such mechanisms to 
                      take into account health status of beneficiaries.
                          ``(iii) The implications of risk selection 
                      both among Medicare+Choice organizations and 
                      between the Medicare+Choice option and the 
                      original medicare fee-for-service option.
                          ``(iv) The development and implementation of 
                      mechanisms to assure the quality of care for those 
                      enrolled with Medicare+Choice organizations.
                          ``(v) The impact of the Medicare+Choice 
                      program on access to care for medicare 
                      beneficiaries.
                          ``(vi) Other major issues in implementation 
                      and further development of the Medicare+Choice 
                      program.
                    ``(B) Original medicare fee-for-service system.--
                Specifically, the Commission shall review payment 
                policies under parts A and B, including--
                          ``(i) the factors affecting expenditures for 
                      services in different sectors, including the 
                      process for updating hospital, skilled nursing 
                      facility, physician, and other fees,
                          ``(ii) payment methodologies, and
                          ``(iii) their relationship to access and 
                      quality of care for medicare beneficiaries.
                    ``(C) Interaction of medicare payment policies with 
                health care delivery generally.--Specifically, the 
                Commission shall review the effect of payment policies 
                under this title on the delivery of health care services 
                other than under this title and assess the implications 
                of changes in health care delivery in the United States 
                and in the general market for health care services on 
                the medicare program.
            ``(3) Comments on certain secretarial reports.--If the 
        Secretary submits to Congress (or a committee of Congress) a 
        report that is required by law and that relates to payment 
        policies under this title, the Secretary shall transmit a copy 
        of the report to the Commission. The Commission shall review the 
        report and, not later than 6 months after the date of submittal 
        of the Secretary's report to Congress, shall submit to the 
        appropriate committees of Congress written comments on such 
        report. Such comments may include such recommendations as the 
        Commission deems appropriate.
            ``(4) Agenda and additional reviews.--The Commission shall 
        consult periodically with the chairmen and ranking minority 
        members of the appropriate committees of Congress regarding the 
        Commission's agenda and progress towards achieving

[[Page 111 STAT. 352]]

        the agenda. The Commission may conduct additional reviews, and 
        submit additional reports to the appropriate committees of 
        Congress, from time to time on such topics relating to the 
        program under this title as may be requested by such chairmen 
        and members and as the Commission deems appropriate.
            ``(5) Availability of reports.--The Commission shall 
        transmit to the Secretary a copy of each report submitted under 
        this subsection and shall make such reports available to the 
        public.
            ``(6) Appropriate committees of congress.--For purposes of 
        this section, the term `appropriate committees of Congress' 
        means the Committees on Ways and Means and Commerce of the House 
        of Representatives and the Committee on Finance of the Senate.

    ``(c) Membership.--
            ``(1) Number and appointment.--The Commission shall be 
        composed of 15 members appointed by the Comptroller General.
            ``(2) Qualifications.--
                    ``(A) In general.--The membership of the Commission 
                shall include individuals with national recognition for 
                their expertise in health finance and economics, 
                actuarial science, health facility management, health 
                plans and integrated delivery systems, reimbursement of 
                health facilities, allopathic and osteopathic 
                physicians, and other providers of health services, and 
                other related fields, who provide a mix of different 
                professionals, broad geographic representation, and a 
                balance between urban and rural representatives.
                    ``(B) Inclusion.--The membership of the Commission 
                shall include (but not be limited to) physicians and 
                other health professionals, employers, third-party 
                payers, individuals skilled in the conduct and 
                interpretation of biomedical, health services, and 
                health economics research and expertise in outcomes and 
                effectiveness research and technology assessment. Such 
                membership shall also include representatives of 
                consumers and the elderly.
                    ``(C) Majority nonproviders.--Individuals who are 
                directly involved in the provision, or management of the 
                delivery, of items and services covered under this title 
                shall not constitute a majority of the membership of the 
                Commission.
                    ``(D) Ethical disclosure.--The Comptroller General 
                shall establish a system for public disclosure by 
                members of the Commission of financial and other 
                potential conflicts of interest relating to such 
                members.
            ``(3) Terms.--
                    ``(A) In general.--The terms of members of the 
                Commission shall be for 3 years except that the 
                Comptroller General shall designate staggered terms for 
                the members first appointed.
                    ``(B) Vacancies.--Any member appointed to fill a 
                vacancy occurring before the expiration of the term for 
                which the member's predecessor was appointed shall be 
                appointed only for the remainder of that term. A member 
                may serve after the expiration of that member's term 
                until a successor has taken office. A vacancy in the 
                Commission

[[Page 111 STAT. 353]]

                shall be filled in the manner in which the original 
                appointment was made.
            ``(4) Compensation.--While serving on the business of the 
        Commission (including traveltime), a member of the Commission 
        shall be entitled to compensation at the per diem equivalent of 
        the rate provided for level IV of the Executive Schedule under 
        section 5315 of title 5, United States Code; and while so 
        serving away from home and the member's regular place of 
        business, a member may be allowed travel expenses, as authorized 
        by the Chairman of the Commission. Physicians serving as 
        personnel of the Commission may be provided a physician 
        comparability allowance by the Commission in the same manner as 
        Government physicians may be provided such an allowance by an 
        agency under section 5948 of title 5, United States Code, and 
        for such purpose subsection (i) of such section shall apply to 
        the Commission in the same manner as it applies to the Tennessee 
        Valley Authority. For purposes of pay (other than pay of members 
        of the Commission) and employment benefits, rights, and 
        privileges, all personnel of the Commission shall be treated as 
        if they were employees of the United States Senate.
            ``(5) Chairman; vice chairman.--The Comptroller General 
        shall designate a member of the Commission, at the time of 
        appointment of the member as Chairman and a member as Vice 
        Chairman for that term of appointment, except that in the case 
        of vacancy of the Chairmanship or Vice Chairmanship, the 
        Comptroller General may designate another member for the 
        remainder of that member's term.
            ``(6) Meetings.--The Commission shall meet at the call of 
        the Chairman.

    ``(d) Director and Staff; Experts and Consultants.--Subject to such 
review as the Comptroller General deems necessary to assure the 
efficient administration of the Commission, the Commission may--
            ``(1) employ and fix the compensation of an Executive 
        Director (subject to the approval of the Comptroller General) 
        and such other personnel as may be necessary to carry out its 
        duties (without regard to the provisions of title 5, United 
        States Code, governing appointments in the competitive service);
            ``(2) seek such assistance and support as may be required in 
        the performance of its duties from appropriate Federal 
        departments and agencies;
            ``(3) enter into contracts or make other arrangements, as 
        may be necessary for the conduct of the work of the Commission 
        (without regard to section 3709 of the Revised Statutes (41 
        U.S.C. 5));
            ``(4) make advance, progress, and other payments which 
        relate to the work of the Commission;
            ``(5) provide transportation and subsistence for persons 
        serving without compensation; and
            ``(6) prescribe such rules and regulations as it deems 
        necessary with respect to the internal organization and 
        operation of the Commission.

    ``(e) Powers.--
            ``(1) Obtaining official data.--The Commission may secure 
        directly from any department or agency of the United States 
        information necessary to enable it to carry out this

[[Page 111 STAT. 354]]

        section. Upon request of the Chairman, the head of that 
        department or agency shall furnish that information to the 
        Commission on an agreed upon schedule.
            ``(2) Data collection.--In order to carry out its functions, 
        the Commission shall--
                    ``(A) utilize existing information, both published 
                and unpublished, where possible, collected and assessed 
                either by its own staff or under other arrangements made 
                in accordance with this section,
                    ``(B) carry out, or award grants or contracts for, 
                original research and experimentation, where existing 
                information is inadequate, and
                    ``(C) adopt procedures allowing any interested party 
                to submit information for the Commission's use in making 
                reports and recommendations.
            ``(3) Access of gao to information.--The Comptroller General 
        shall have unrestricted access to all deliberations, records, 
        and nonproprietary data of the Commission, immediately upon 
        request.
            ``(4) Periodic audit.--The Commission shall be subject to 
        periodic audit by the Comptroller General.

    ``(f) Authorization of Appropriations.--
            ``(1) Request for appropriations.--The Commission shall 
        submit requests for appropriations in the same manner as the 
        Comptroller General submits requests for appropriations, but 
        amounts appropriated for the Commission shall be separate from 
        amounts appropriated for the Comptroller General.
            ``(2) Authorization.--There are authorized to be 
        appropriated such sums as may be necessary to carry out the 
        provisions of this section. Sixty percent of such appropriation 
        shall be payable from the Federal Hospital Insurance Trust Fund, 
        and 40 percent of such appropriation shall be payable from the 
        Federal Supplementary Medical Insurance Trust Fund.''.

    (b) Abolition of ProPAC and PPRC.--
            (1) ProPAC.--
                    (A) In general.--Section 1886(e) (42 U.S.C. 
                1395ww(e)) is amended--
                          (i) by striking paragraphs (2) and (6); and
                          (ii) in paragraph (3), by striking ``(A) The 
                      Commission'' and all that follows through ``(B)''.
                    (B) Conforming amendment.--Section 1862 (42 U.S.C. 
                1395y) is amended by striking ``Prospective Payment 
                Assessment Commission'' each place it appears in 
                subsection (a)(1)(D) and subsection (i) and inserting 
                ``Medicare Payment Advisory Commission''.
            (2) PPRC.--
                    (A) In general.--Title XVIII is amended by striking 
                section 1845 (42 U.S.C. 1395w-1).
                    (B) Elimination of certain reports.--Section 1848 
                (42 U.S.C. 1395w-4) is amended--
                          (i) by striking subparagraph (F) of subsection 
                      (d)(2),
                          (ii) by striking subparagraph (B) of 
                      subsection (f)(1), and
                          (iii) in subsection (f)(3), by striking 
                      ``Physician Payment Review Commission,''.

[[Page 111 STAT. 355]]

                    (C) Conforming amendments.--Section 1848 (42 U.S.C. 
                1395w-4) is amended by striking ``Physician Payment 
                Review Commission'' and inserting ``Medicare Payment 
                Advisory Commission'' each place it appears in 
                subsections (c)(2)(B)(iii), (g)(6)(C), and (g)(7)(C).

<<NOTE: 42 USC 1395b-6 note.>>     (c) Effective Date; Transition.--
            (1) In general.--The Comptroller General shall first provide 
        for appointment of members to the Medicare Payment Advisory 
        Commission (in this subsection referred to as ``MedPAC'') by not 
        later than September 30, 1997.
            (2) Transition.--As quickly as possible after the date a 
        majority of members of MedPAC are first appointed, the 
        Comptroller General, in consultation with the Prospective 
        Payment Assessment Commission (in this subsection referred to as 
        ``ProPAC'') and the Physician Payment Review Commission (in this 
        subsection referred to as ``PPRC''), shall provide for the 
        termination of the ProPAC and the PPRC. As of the date of 
        termination of the respective Commissions, the amendments made 
        by paragraphs (1) and (2), respectively, of subsection (b) 
        become effective. The Comptroller General, to the extent 
        feasible, shall provide for the transfer to the MedPAC of assets 
        and staff of the ProPAC and the PPRC, without any loss of 
        benefits or seniority by virtue of such transfers. Fund balances 
        available to the ProPAC or the PPRC for any period shall be 
        available to the MedPAC for such period for like purposes.
            (3) Continuing responsibility for reports.--The MedPAC shall 
        be responsible for the preparation and submission of reports 
        required by law to be submitted (and which have not been 
        submitted by the date of establishment of the MedPAC) by the 
        ProPAC and the PPRC, and, for this purpose, any reference in law 
        to either such Commission is deemed, after the appointment of 
        the MedPAC, to refer to the MedPAC.

                     CHAPTER 4--MEDIGAP PROTECTIONS

SEC. 4031. MEDIGAP PROTECTIONS.

    (a) Guaranteeing Issue Without Preexisting Conditions for 
Continuously Covered Individuals.--Section 1882(s) (42 U.S.C. 1395ss(s)) 
is amended--
            (1) in paragraph (3), by striking ``paragraphs (1) and (2)'' 
        and inserting ``this subsection'',
            (2) by redesignating paragraph (3) as paragraph (4), and
            (3) by inserting after paragraph (2) the following new 
        paragraph:

    ``(3)(A) The issuer of a medicare supplemental policy--
            ``(i) may not deny or condition the issuance or 
        effectiveness of a medicare supplemental policy described in 
        subparagraph (C) that is offered and is available for issuance 
        to new enrollees by such issuer;
            ``(ii) may not discriminate in the pricing of such policy, 
        because of health status, claims experience, receipt of health 
        care, or medical condition; and
            ``(iii) may not impose an exclusion of benefits based on a 
        pre-existing condition under such policy,

in the case of an individual described in subparagraph (B) who seeks to 
enroll under the policy not later than 63 days after the

[[Page 111 STAT. 356]]

date of the termination of enrollment described in such subparagraph and 
who submits evidence of the date of termination or disenrollment along 
with the application for such medicare supplemental policy.
    ``(B) An individual described in this subparagraph is an individual 
described in any of the following clauses:
            ``(i) The individual is enrolled under an employee welfare 
        benefit plan that provides health benefits that supplement the 
        benefits under this title and the plan terminates or ceases to 
        provide all such supplemental health benefits to the individual.
            ``(ii) The individual is enrolled with a Medicare+Choice 
        organization under a Medicare+Choice plan under part C, and 
        there are circumstances permitting discontinuance of the 
        individual's election of the plan under the first sentence of 
        section 1851(e)(4).
            ``(iii) The individual is enrolled with an eligible 
        organization under a contract under section 1876, a similar 
        organization operating under demonstration project authority, 
        effective for periods before April 1, 1999, with an organization 
        under an agreement under section 1833(a)(1)(A), or with an 
        organization under a policy described in subsection (t), and 
        such enrollment ceases under the same circumstances that would 
        permit discontinuance of an individual's election of coverage 
        under the first sentence of section 1851(e)(4) and, in the case 
        of a policy described in subsection (t), there is no provision 
        under applicable State law for the continuation or conversion of 
        coverage under such policy.
            ``(iv) The individual is enrolled under a medicare 
        supplemental policy under this section and such enrollment 
        ceases because--
                    ``(I) of the bankruptcy or insolvency of the issuer 
                or because of other involuntary termination of coverage 
                or enrollment under such policy and there is no 
                provision under applicable State law for the 
                continuation or conversion of such coverage;
                    ``(II) the issuer of the policy substantially 
                violated a material provision of the policy; or
                    ``(III) the issuer (or an agent or other entity 
                acting on the issuer's behalf) materially misrepresented 
                the policy's provisions in marketing the policy to the 
                individual.
            ``(v) The individual--
                    ``(I) was enrolled under a medicare supplemental 
                policy under this section,
                    ``(II) subsequently terminates such enrollment and 
                enrolls, for the first time, with any Medicare+Choice 
                organization under a Medicare+Choice plan under part C, 
                any eligible organization under a contract under section 
                1876, any similar organization operating under 
                demonstration project authority, or any policy described 
                in subsection (t), and
                    ``(III) the subsequent enrollment under subclause 
                (II) is terminated by the enrollee during any period 
                within the first 12 months of such enrollment (during 
                which the enrollee is permitted to terminate such 
                subsequent enrollment under section 1851(e)).

[[Page 111 STAT. 357]]

            ``(vi) The individual, upon first becoming eligible for 
        benefits under part A at age 65, enrolls in a Medicare+Choice 
        plan under part C, and disenrolls from such plan by not later 
        than 12 months after the effective date of such enrollment.

    ``(C)(i) Subject to clauses (ii) and (iii), a medicare supplemental 
policy described in this subparagraph is a medicare supplemental policy 
which has a benefit package classified as `A', `B', `C', or `F' under 
the standards established under subsection (p)(2).
    ``(ii) Only for purposes of an individual described in subparagraph 
(B)(v), a medicare supplemental policy described in this subparagraph is 
the same medicare supplemental policy referred to in such subparagraph 
in which the individual was most recently previously enrolled, if 
available from the same issuer, or, if not so available, a policy 
described in clause (i).
    ``(iii) Only for purposes of an individual described in subparagraph 
(B)(vi), a medicare supplemental policy described in this subparagraph 
shall include any medicare supplemental policy.
    ``(iv) For purposes of applying this paragraph in the case of a 
State that provides for offering of benefit packages other than under 
the classification referred to in clause (i), the references to benefit 
packages in such clause are deemed references to comparable benefit 
packages offered in such State.
    ``(D) At the time of an event described in subparagraph (B) because 
of which an individual ceases enrollment or loses coverage or benefits 
under a contract or agreement, policy, or plan, the organization that 
offers the contract or agreement, the insurer offering the policy, or 
the administrator of the plan, respectively, shall notify the individual 
of the rights of the individual under this paragraph, and obligations of 
issuers of medicare supplemental policies, under subparagraph (A).''.
    (b) Limitation on Imposition of Preexisting Condition Exclusion 
During Initial Open Enrollment Period.--Section 1882(s)(2) (42 U.S.C. 
1395ss(s)(2)) is amended--
            (1) in subparagraph (B), by striking ``subparagraph (C)'' 
        and inserting ``subparagraphs (C) and (D)'', and
            (2) by adding at the end the following new subparagraph:

    ``(D) In the case of a policy issued during the 6-month period 
described in subparagraph (A) to an individual who is 65 years of age or 
older as of the date of issuance and who as of the date of the 
application for enrollment has a continuous period of creditable 
coverage (as defined in 2701(c) of the Public Health Service Act) of--
            ``(i) at least 6 months, the policy may not exclude benefits 
        based on a pre-existing condition; or
            ``(ii) less than 6 months, if the policy excludes benefits 
        based on a preexisting condition, the policy shall reduce the 
        period of any preexisting condition exclusion by the aggregate 
        of the periods of creditable coverage (if any, as so defined) 
        applicable to the individual as of the enrollment date.

The Secretary shall specify the manner of the reduction under clause 
(ii), based upon the rules used by the Secretary in carrying out section 
2701(a)(3) of such Act.''.
    (c) Conforming Amendment.--Section 1882(d)(3)(A)(vi)(III) (42 U.S.C. 
1395ss(d)(2)(A)(vi)(III)) is amended by inserting ``, a policy described 
in clause (v),'' after ``Medicare supplemental policy''.
<<NOTE: 42 USC 1395ss note.>>     (d) Effective Dates.--

[[Page 111 STAT. 358]]

            (1) Guaranteed issue.--The amendment made by subsection (a) 
        shall take effect on July 1, 1998.
            (2) Limit on preexisting condition exclusions.--The 
        amendment made by subsection (b) shall apply to policies issued 
        on or after July 1, 1998.
            (3) Conforming amendment.--The amendment made by subsection 
        (c) shall be effective as if included in the enactment of the 
        Health Insurance Portability and Accountability Act of 1996.

<<NOTE: 42 USC 1395ss note.>>     (e) Transition Provisions.--
            (1) In general.--If the Secretary of Health and Human 
        Services identifies a State as requiring a change to its 
        statutes or regulations to conform its regulatory program to the 
        changes made by this section, the State regulatory program shall 
        not be considered to be out of compliance with the requirements 
        of section 1882 of the Social Security Act due solely to failure 
        to make such change until the date specified in paragraph (4).
        <<NOTE: Regulations.>>     (2) NAIC standards.--If, within 9 
        months after the date of the enactment of this Act, the National 
        Association of Insurance Commissioners (in this subsection 
        referred to as the ``NAIC'') modifies its NAIC Model Regulation 
        relating to section 1882 of the Social Security Act (referred to 
        in such section as the 1991 NAIC Model Regulation, as modified 
        pursuant to section 171(m)(2) of the Social Security Act 
        Amendments of 1994 (Public Law 103-432) and as modified pursuant 
        to section 1882(d)(3)(A)(vi)(IV) of the Social Security Act, as 
        added by section 271(a) of the Health Insurance Portability and 
        Accountability Act of 1996 (Public Law 104-191) to conform to 
        the amendments made by this section, such revised regulation 
        incorporating the modifications shall be considered to be the 
        applicable NAIC model regulation (including the revised NAIC 
        model regulation and the 1991 NAIC Model Regulation) for the 
        purposes of such section.
            (3) Secretary standards.--If the NAIC does not make the 
        modifications described in paragraph (2) within the period 
        specified in such paragraph, the Secretary of Health and Human 
        Services shall make the modifications described in such 
        paragraph and such revised regulation incorporating the 
        modifications shall be considered to be the appropriate 
        Regulation for the purposes of such section.
            (4) Date specified.--
                    (A) In general.--Subject to subparagraph (B), the 
                date specified in this paragraph for a State is the 
                earlier of--
                          (i) the date the State changes its statutes or 
                      regulations to conform its regulatory program to 
                      the changes made by this section, or
                          (ii) 1 year after the date the NAIC or the 
                      Secretary first makes the modifications under 
                      paragraph (2) or (3), respectively.
                    (B) Additional legislative action required.--In the 
                case of a State which the Secretary identifies as--
                          (i) requiring State legislation (other than 
                      legislation appropriating funds) to conform its 
                      regulatory program to the changes made in this 
                      section, but

[[Page 111 STAT. 359]]

                          (ii) having a legislature which is not 
                      scheduled to meet in 1999 in a legislative session 
                      in which such legislation may be considered,
                the date specified in this paragraph is the first day of 
                the first calendar quarter beginning after the close of 
                the first legislative session of the State legislature 
                that begins on or after July 1, 1999. For purposes of 
                the previous sentence, in the case of a State that has a 
                2-year legislative session, each year of such session 
                shall be deemed to be a separate regular session of the 
                State legislature.

<<NOTE: 42 USC 1395ss note.>>     (f) Conforming Benefits to Changes in 
Terminology for Hospital Outpatient Department Cost Sharing.--For 
purposes of apply section 1882 of the Social Security Act (42 U.S.C. 
1395ss) and regulations referred to in subsection (e), copayment amounts 
provided under section 1833(t)(5) of such Act with respect to hospital 
outpatient department services shall be treated under medicare 
supplemental policies in the same manner as coinsurance with respect to 
such services.

SEC. 4032. ADDITION OF HIGH DEDUCTIBLE MEDIGAP POLICIES.

    (a) In General.--Section 1882(p) (42 U.S.C. 1395ss(p)) is amended--
            (1) in paragraph (2)(C), by inserting ``plus the 2 plans 
        described in paragraph (11)(A)'' after ``exceed 10''; and
            (2) by adding at the end the following:

    ``(11)(A) For purposes of paragraph (2), the benefit packages 
described in this subparagraph are as follows:
            ``(i) The benefit package classified as `F' under the 
        standards established by such paragraph, except that it has a 
        high deductible feature.
            ``(ii) The benefit package classified as `J' under the 
        standards established by such paragraph, except that it has a 
        high deductible feature.

    ``(B) For purposes of subparagraph (A), a high deductible feature is 
one which--
            ``(i) requires the beneficiary of the policy to pay annual 
        out-of-pocket expenses (other than premiums) in the amount 
        specified in subparagraph (C) before the policy begins payment 
        of benefits, and
            ``(ii) covers 100 percent of covered out-of-pocket expenses 
        once such deductible has been satisfied in a year.

    ``(C) The amount specified in this subparagraph--
            ``(i) for 1998 and 1999 is $1,500, and
            ``(ii) for a subsequent year, is the amount specified in 
        this subparagraph for the previous year increased by the 
        percentage increase in the Consumer Price Index for all urban 
        consumers (all items; U.S. city average) for the 12-month period 
        ending with August of the preceding year.

If any amount determined under clause (ii) is not a multiple of $10, it 
shall be rounded to the nearest multiple of $10.''.
<<NOTE: 42 USC 1395ss note.>>     (b) Effective Date.--
            (1) In general.--The amendments made by subsection (a) shall 
        take effect the date of the enactment of this Act.
            (2) Transition.--The provisions of section 4031(e) shall 
        apply with respect to this section in the same manner as they 
        apply to section 4031.

[[Page 111 STAT. 360]]

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

SEC. 4041. TAX TREATMENT OF HOSPITALS WHICH PARTICIPATE IN PROVIDER-
            SPONSORED ORGANIZATIONS.

    (a) In General.--Section 501 of the Internal Revenue Code of 
1986 <<NOTE: 26 USC 501.>> (relating to exemption from tax on 
corporations, certain trusts, etc.) is amended by redesignating 
subsection (o) as subsection (p) and by inserting after subsection (n) 
the following new subsection:

    ``(o) Treatment of Hospitals Participating in Provider-Sponsored 
Organizations.--An organization shall not fail to be treated as 
organized and operated exclusively for a charitable purpose for purposes 
of subsection (c)(3) solely because a hospital which is owned and 
operated by such organization participates in a provider-sponsored 
organization (as defined in section 1853(e) of the Social Security Act), 
whether or not the provider-sponsored organization is exempt from tax. 
For purposes of subsection (c)(3), any person with a material financial 
interest in such a provider-sponsored organization shall be treated as a 
private shareholder or individual with respect to the hospital.''
<<NOTE: 26 USC 501 note.>>     (b) Effective Date.--The amendment made 
by subsection (a) shall take effect on the date of the enactment of this 
Act.

                   Subtitle B--Prevention Initiatives

SEC. 4101. SCREENING MAMMOGRAPHY.

    (a) Providing Annual Screening Mammography for Women Over Age 39.--
Section 1834(c)(2)(A) (42 U.S.C. 1395m(c)(2)(A)) is amended--
            (1) in clause (iii), to read as follows:
                          ``(iii) In the case of a woman over 39 years 
                      of age, payment may not be made under this part 
                      for screening mammography performed within 11 
                      months following the month in which a previous 
                      screening mammography was performed.''; and
            (2) by striking clauses (iv) and (v).

    (b) Waiver of Deductible.--The first sentence of section 1833(b) (42 
U.S.C. 1395l(b)) is amended--
            (1) by striking ``and'' before ``(4)'', and
            (2) by inserting before the period at the end the following: 
        ``, and (5) such deductible shall not apply with respect to 
        screening mammography (as described in section 1861(jj))''.

    (c) Conforming Amendment.--Section 1834(c)(1)(C) (42 U.S.C. 
1395m(c)(1)(C)) is amended by striking ``, subject to the deductible 
established under section 1833(b),''.
<<NOTE: 42 USC 1395l note.>>     (d) Effective Date.--The amendments 
made by this section shall apply to items and services furnished on or 
after January 1, 1998.

SEC. 4102. SCREENING PAP SMEAR AND PELVIC EXAMS.

    (a) Coverage of Pelvic Exam; Increasing Frequency of Coverage of Pap 
Smear.--Section 1861(nn) (42 U.S.C. 1395x(nn)) is amended--
            (1) in the heading, by striking ``Smear'' and inserting 
        ``Smear; Screening Pelvic Exam'';

[[Page 111 STAT. 361]]

            (2) by inserting ``or vaginal'' after ``cervical'' each 
        place it appears;
            (3) by striking ``(nn)'' and inserting ``(nn)(1)'';
            (4) by striking ``3 years'' and all that follows and 
        inserting ``3 years, or during the preceding year in the case of 
        a woman described in paragraph (3).''; and
            (5) by adding at the end the following new paragraphs:

    ``(2) The term `screening pelvic exam' means a pelvic examination 
provided to a woman if the woman involved has not had such an 
examination during the preceding 3 years, or during the preceding year 
in the case of a woman described in paragraph (3), and includes a 
clinical breast examination.
    ``(3) A woman described in this paragraph is a woman who--
            ``(A) is of childbearing age and has had a test described in 
        this subsection during any of the preceding 3 years that 
        indicated the presence of cervical or vaginal cancer or other 
        abnormality; or
            ``(B) is at high risk of developing cervical or vaginal 
        cancer (as determined pursuant to factors identified by the 
        Secretary).''.

    (b) Waiver of Deductible.--The first sentence of section 1833(b) (42 
U.S.C. 1395l(b)), as amended by section 4101(b), is amended--
            (1) by striking ``and'' before ``(5)'', and
            (2) by inserting before the period at the end the following: 
        ``, and (6) such deductible shall not apply with respect to 
        screening pap smear and screening pelvic exam (as described in 
        section 1861(nn))''.

    (c) Conforming Amendments.--Sections 1861(s)(14) and 1862(a)(1)(F) 
(42 U.S.C. 1395x(s)(14), 1395y(a)(1)(F)) are each amended by inserting 
``and screening pelvic exam'' after ``screening pap smear''.
    (d) Payment Under Physician Fee Schedule.--Section 1848(j)(3) (42 
U.S.C. 1395w-4(j)(3)) is amended by striking ``and (4)'' and inserting 
``(4) and (14) (with respect to services described in section 
1861(nn)(2))''.
<<NOTE: 42 USC 1395l note.>>     (e) Effective Date.--The amendments 
made by this section shall apply to items and services furnished on or 
after January 1, 1998.

SEC. 4103. PROSTATE CANCER SCREENING TESTS.

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

                    ``Prostate Cancer Screening Tests

    ``(oo)(1) The term `prostate cancer screening test' means a test 
that consists of any (or all) of the procedures described in paragraph 
(2) provided for the purpose of early detection of prostate cancer to a 
man over 50 years of age who has not had such a test during the 
preceding year.

[[Page 111 STAT. 362]]

    ``(2) The procedures described in this paragraph are as follows:
            ``(A) A digital rectal examination.
            ``(B) A prostate-specific antigen blood test.
            ``(C) For years beginning after 2002, such other procedures 
        as the Secretary finds appropriate for the purpose of early 
        detection of prostate cancer, taking into account changes in 
        technology and standards of medical practice, availability, 
        effectiveness, costs, and such other factors as the Secretary 
        considers appropriate.''.

    (b) Payment for Prostate-specific Antigen Blood Test Under Clinical 
Diagnostic Laboratory Test Fee Schedules.--Section 1833(h)(1)(A) (42 
U.S.C. 1395l(h)(1)(A)) is amended by inserting after ``laboratory 
tests'' the following: ``(including prostate cancer screening tests 
under section 1861(oo) consisting of prostate-specific antigen blood 
tests)''.
    (c) Conforming Amendment.--Section 1862(a) (42 U.S.C. 1395y(a)) is 
amended--
            (1) in paragraph (1)--
                    (A) in subparagraph (E), by striking ``and'' at the 
                end,
                    (B) in subparagraph (F), by striking the semicolon 
                at the end and inserting ``, and'', and
                    (C) by adding at the end the following new 
                subparagraph:
            ``(G) in the case of prostate cancer screening tests (as 
        defined in section 1861(oo)), which are performed more 
        frequently than is covered under such section;''; and
            (2) in paragraph (7), by striking ``paragraph (1)(B) or 
        under paragraph (1)(F)'' and inserting ``subparagraphs (B), (F), 
        or (G) of paragraph (1)''.

    (d) Payment Under Physician Fee Schedule.--Section 1848(j)(3) (42 
U.S.C. 1395w-4(j)(3)), as amended by section 4102, is amended by 
inserting ``, (2)(P) (with respect to services described in 
subparagraphs (A) and (C) of section 1861(oo)(2),'' after ``(2)(G)''
<<NOTE: 42 USC 1395l note.>>     (e) Effective Date.--The amendments 
made by this section shall apply to items and services furnished on or 
after January 1, 2000.

SEC. 4104. COVERAGE OF COLORECTAL SCREENING.

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

                   ``Colorectal Cancer Screening Tests

    ``(pp)(1) The term `colorectal cancer screening test' means any of 
the following procedures furnished to an individual for the purpose of 
early detection of colorectal cancer:
            ``(A) Screening fecal-occult blood test.

[[Page 111 STAT. 363]]

            ``(B) Screening flexible sigmoidoscopy.
            ``(C) In the case of an individual at high risk for 
        colorectal cancer, screening colonoscopy.
            ``(D) Such other tests or procedures, and modifications to 
        tests and procedures under this subsection, with such frequency 
        and payment limits, as the Secretary determines appropriate, in 
        consultation with appropriate organizations.

    ``(2) In paragraph (1)(C), an `individual at high risk for 
colorectal cancer' is an individual who, because of family history, 
prior experience of cancer or precursor neoplastic polyps, a history of 
chronic digestive disease condition (including inflammatory bowel 
disease, Crohn's Disease, or ulcerative colitis), the presence of any 
appropriate recognized gene markers for colorectal cancer, or other 
predisposing factors, faces a high risk for colorectal cancer.''.
        <<NOTE: Federal Register, publication. 42 USC 1395x note.>>     
        (2) Deadline for publication of determination on coverage of 
        screening barium enema.--Not later than the earlier of the date 
        that is January 1, 1998, or 90 days after the date of the 
        enactment of this Act, the Secretary of Health and Human 
        Services shall publish notice in the Federal Register with 
        respect to the determination under paragraph (1)(D) of section 
        1861(pp) of the Social Security Act (42 U.S.C. 1395x(pp)), as 
        added by paragraph (1), on the coverage of a screening barium 
        enema as a colorectal cancer screening test under such section.

    (b) Frequency Limits and Payment.--
            (1) In general.--Section 1834 (42 U.S.C. 1395m) is amended 
        by inserting after subsection (c) the following new subsection:

    ``(d) Frequency Limits and Payment for Colorectal Cancer Screening 
Tests.--
            ``(1) Screening fecal-occult blood tests.--
                    ``(A) Payment amount.--The payment amount for 
                colorectal cancer screening tests consisting of 
                screening fecal-occult blood tests is equal to the 
                payment amount established for diagnostic fecal-occult 
                blood tests under section 1833(h).
                    ``(B) Frequency limit.--No payment may be made under 
                this part for a colorectal cancer screening test 
                consisting of a screening fecal-occult blood test--
                          ``(i) if the individual is under 50 years of 
                      age; or
                          ``(ii) if the test is performed within the 11 
                      months after a previous screening fecal-occult 
                      blood test.
            ``(2) Screening flexible sigmoidoscopies.--
                    ``(A) Fee schedule.--With respect to colorectal 
                cancer screening tests consisting of screening flexible 
                sigmoidoscopies, payment under section 1848 shall be 
                consistent with payment under such section for similar 
                or related services.
                    ``(B) Payment limit.--In the case of screening 
                flexible sigmoidoscopy services, payment under this part 
                shall not exceed such amount as the Secretary specifies, 
                based upon the rates recognized for diagnostic flexible 
                sigmoidoscopy services.
                    ``(C) Facility payment limit.--
                          ``(i) In general.--Notwithstanding subsections 
                      (i)(2)(A) and (t) of section 1833, in the case of 
                      screening

[[Page 111 STAT. 364]]

                      flexible sigmoidoscopy services furnished on or 
                      after January 1, 1999, that--
                                    ``(I) in accordance with 
                                regulations, may be performed in an 
                                ambulatory surgical center and for which 
                                the Secretary permits ambulatory 
                                surgical center payments under this 
                                part, and
                                    ``(II) are performed in an 
                                ambulatory surgical center or hospital 
                                outpatient department,
                      payment under this part shall be based on the 
                      lesser of the amount under the fee schedule that 
                      would apply to such services if they were 
                      performed in a hospital outpatient department in 
                      an area or the amount under the fee schedule that 
                      would apply to such services if they were 
                      performed in an ambulatory surgical center in the 
                      same area.
                          ``(ii) Limitation on deductible and 
                      coinsurance.--Notwithstanding any other provision 
                      of this title, in the case of a beneficiary who 
                      receives the services described in clause (i)--
                                    ``(I) in computing the amount of any 
                                applicable deductible or copayment, the 
                                computation of such deductible or 
                                coinsurance shall be based upon the fee 
                                schedule under which payment is made for 
                                the services, and
                                    ``(II) the amount of such 
                                coinsurance is equal to 25 percent of 
                                the payment amount under the fee 
                                schedule described in subclause (I).
                    ``(D) Special rule for detected lesions.--If during 
                the course of such screening flexible sigmoidoscopy, a 
                lesion or growth is detected which results in a biopsy 
                or removal of the lesion or growth, payment under this 
                part shall not be made for the screening flexible 
                sigmoidoscopy but shall be made for the procedure 
                classified as a flexible sigmoidoscopy with such biopsy 
                or removal.
                    ``(E) Frequency limit.--No payment may be made under 
                this part for a colorectal cancer screening test 
                consisting of a screening flexible sigmoidoscopy--
                          ``(i) if the individual is under 50 years of 
                      age; or
                          ``(ii) if the procedure is performed within 
                      the 47 months after a previous screening flexible 
                      sigmoidoscopy.
            ``(3) Screening colonoscopy for individuals at high risk for 
        colorectal cancer.--
                    ``(A) Fee schedule.--With respect to colorectal 
                cancer screening test consisting of a screening 
                colonoscopy for individuals at high risk for colorectal 
                cancer (as defined in section 1861(pp)(2)), payment 
                under section 1848 shall be consistent with payment 
                amounts under such section for similar or related 
                services.
                    ``(B) Payment limit.--In the case of screening 
                colonoscopy services, payment under this part shall not 
                exceed such amount as the Secretary specifies, based 
                upon the rates recognized for diagnostic colonoscopy 
                services.
                    ``(C) Facility payment limit.--
                          ``(i) In general.--Notwithstanding subsections 
                      (i)(2)(A) and (t) of section 1833, in the case of 
                      screening

[[Page 111 STAT. 365]]

                      colonoscopy services furnished on or after January 
                      1, 1999, that are performed in an ambulatory 
                      surgical center or a hospital outpatient 
                      department, payment under this part shall be based 
                      on the lesser of the amount under the fee schedule 
                      that would apply to such services if they were 
                      performed in a hospital outpatient department in 
                      an area or the amount under the fee schedule that 
                      would apply to such services if they were 
                      performed in an ambulatory surgical center in the 
                      same area.
                          ``(ii) Limitation on deductible and 
                      coinsurance.--Notwithstanding any other provision 
                      of this title, in the case of a beneficiary who 
                      receives the services described in clause (i)--
                                    ``(I) in computing the amount of any 
                                applicable deductible or coinsurance, 
                                the computation of such deductible or 
                                coinsurance shall be based upon the fee 
                                schedule under which payment is made for 
                                the services, and
                                    ``(II) the amount of such 
                                coinsurance is equal to 25 percent of 
                                the payment amount under the fee 
                                schedule described in subclause (I).
                    ``(D) Special rule for detected lesions.--If during 
                the course of such screening colonoscopy, a lesion or 
                growth is detected which results in a biopsy or removal 
                of the lesion or growth, payment under this part shall 
                not be made for the screening colonoscopy but shall be 
                made for the procedure classified as a colonoscopy with 
                such biopsy or removal.
                    ``(E) Frequency limit.--No payment may be made under 
                this part for a colorectal cancer screening test 
                consisting of a screening colonoscopy for individuals at 
                high risk for colorectal cancer if the procedure is 
                performed within the 23 months after a previous 
                screening colonoscopy.''.

    (c) Conforming Amendments.--(1) Paragraphs (1)(D) and (2)(D) of 
section 1833(a) (42 U.S.C. 1395l(a)) are each amended by inserting ``or 
section 1834(d)(1)'' after ``subsection (h)(1)''.
    (2) Section 1833(h)(1)(A) (42 U.S.C. 1395l(h)(1)(A)) is amended by 
striking ``The Secretary'' and inserting ``Subject to section 
1834(d)(1), the Secretary''.
    (3) Section 1862(a) (42 U.S.C. 1395y(a)), as amended by section 
4103(c), is amended--
            (A) in paragraph (1)--
                    (i) in subparagraph (F), by striking ``and'' at the 
                end,
                    (ii) in subparagraph (G), by striking the semicolon 
                at the end and inserting ``, and'', and
                    (iii) by adding at the end the following new 
                subparagraph:
            ``(H) in the case of colorectal cancer screening tests, 
        which are performed more frequently than is covered under 
        section 1834(d);''; and
            (B) in paragraph (7), by striking ``or (G)'' and inserting 
        ``(G), or (H)''.

    (d) Payment Under Physician Fee Schedule.--Section 1848(j)(3) (42 
U.S.C. 1395w-4(j)(3)), as amended by sections 4102 and 4103, is amended 
by inserting ``(2)(R) (with respect to services

[[Page 111 STAT. 366]]

described in subparagraphs (B) , (C), and (D) of section 1861(pp)(1)),'' 
before ``(3)''.
<<NOTE: 42 USC 1395l note.>>     (e) Effective Date.--The amendments 
made by this section shall apply to items and services furnished on or 
after January 1, 1998.

SEC. 4105. DIABETES SELF-MANAGEMENT BENEFITS.

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

         ``Diabetes Outpatient Self-Management Training Services

    ``(qq)(1) The term `diabetes outpatient self-management training 
services' means educational and training services furnished (at such 
times as the Secretary determines appropriate) to an individual with 
diabetes by a certified provider (as described in paragraph (2)(A)) in 
an outpatient setting by an individual or entity who meets the quality 
standards described in paragraph (2)(B), but only if the physician who 
is managing the individual's diabetic condition certifies that such 
services are needed under a comprehensive plan of care related to the 
individual's diabetic condition to ensure therapy compliance or to 
provide the individual with necessary skills and knowledge (including 
skills related to the self-administration of injectable drugs) to 
participate in the management of the individual's condition.
    ``(2) In paragraph (1)--
            ``(A) a `certified provider' is a physician, or other 
        individual or entity designated by the Secretary, that, in 
        addition to providing diabetes outpatient self-management 
        training services, provides other items or services for which 
        payment may be made under this title; and
            ``(B) a physician, or such other individual or entity, meets 
        the quality standards described in this paragraph if the 
        physician, or individual or entity, meets quality standards 
        established by the Secretary, except that the physician or other 
        individual or entity shall be deemed to have met such standards 
        if the physician or other individual or entity meets applicable 
        standards originally established by the National Diabetes 
        Advisory Board and subsequently revised by organizations who 
        participated in the establishment of standards by such Board, or 
        is recognized by an organization that represents individuals 
        (including individuals under this title) with diabetes as 
        meeting standards for furnishing the services.''.
            (2) Payment Under Physician Fee Schedule.--Section 
        1848(j)(3) (42 U.S.C. 1395w-4(j)(3)) as amended in sections

[[Page 111 STAT. 367]]

        4102, 4103, and 4104, is amended by inserting ``(2)(S),'' before 
        ``(3),''.
            (3) Consultation <<NOTE: 42 USC 1395w-4 note.>>  with 
        organizations in establishing payment amounts for services 
        provided by physicians.--In establishing payment amounts under 
        section 1848 of the Social Security Act for physicians' services 
        consisting of diabetes outpatient self-management training 
        services, the Secretary of Health and Human Services shall 
        consult with appropriate organizations, including such 
        organizations representing individuals or medicare beneficiaries 
        with diabetes.

    (b) Blood-testing Strips for Individuals With Diabetes.--
            (1) Including strips and monitors as durable medical 
        equipment.--The first sentence of section 1861(n) (42 U.S.C. 
        1395x(n)) is amended by inserting before the semicolon the 
        following: ``, and includes blood-testing strips and blood 
        glucose monitors for individuals with diabetes without regard to 
        whether the individual has Type I or Type II diabetes or to the 
        individual's use of insulin (as determined under standards 
        established by the Secretary in consultation with the 
        appropriate organizations)''.
            (2) 10 percent reduction in payments for testing strips.--
        Section 1834(a)(2)(B)(iv) (42 U.S.C. 1395m(a)(2)(B)(iv)) is 
        amended by adding before the period the following: ``(reduced by 
        10 percent, in the case of a blood glucose testing strip 
        furnished after 1997 for an individual with diabetes)''.

<<NOTE: 42 USC 1395x note.>>     (c) Establishment of Outcome Measures 
for Beneficiaries With Diabetes.--
            (1) In general.--The Secretary of Health and Human Services, 
        in consultation with appropriate organizations, shall establish 
        outcome measures, including glysolated hemoglobin (past 90-day 
        average blood sugar levels), for purposes of evaluating the 
        improvement of the health status of medicare beneficiaries with 
        diabetes mellitus.
            (2) Recommendations for modifications to screening 
        benefits.--Taking into account information on the health status 
        of medicare beneficiaries with diabetes mellitus as measured 
        under the outcome measures established under paragraph (1), the 
        Secretary shall from time to time submit recommendations to 
        Congress regarding modifications to the coverage of services for 
        such beneficiaries under the medicare program.

<<NOTE: 42 USC 1395m note.>>     (d) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to items and 
        services furnished on or after July 1, 1998.
            (2) Testing strips.--The amendment made by subsection (b)(2) 
        shall apply with respect to blood glucose testing strips 
        furnished on or after January 1, 1998.

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

    (a) In General.--Section 1861 (42 U.S.C. 1395x), as amended by 
sections 4103(a), 4104(a), and 4105(a), is amended--
            (1) in subsection (s)--
                    (A) in paragraph (12)(C), by striking ``and'' at the 
                end,
                    (B) by striking the period at the end of paragraph 
                (14) and inserting ``; and'',

[[Page 111 STAT. 368]]

                    (C) by redesignating paragraphs (15) and (16) as 
                paragraphs (16) and (17), respectively, and
                    (D) by inserting after paragraph (14) the following 
                new paragraph:
            ``(15) bone mass measurement (as defined in subsection 
        (rr)).''; and
            (2) by inserting after subsection (qq) the following new 
        subsection:

                         ``Bone Mass Measurement

    ``(rr)(1) The term `bone mass measurement' means a radiologic or 
radioisotopic procedure or other procedure approved by the Food and Drug 
Administration performed on a qualified individual (as defined in 
paragraph (2)) for the purpose of identifying bone mass or detecting 
bone loss or determining bone quality, and includes a physician's 
interpretation of the results of the procedure.
<<NOTE: Regulations.>>     ``(2) For purposes of this subsection, the 
term `qualified individual' means an individual who is (in accordance 
with regulations prescribed by the Secretary)--
            ``(A) an estrogen-deficient woman at clinical risk for 
        osteoporosis;
            ``(B) an individual with vertebral abnormalities;
            ``(C) an individual receiving long-term glucocorticoid 
        steroid therapy;
            ``(D) an individual with primary hyperparathyroidism; or
            ``(E) an individual being monitored to assess the response 
        to or efficacy of an approved osteoporosis drug therapy.

    ``(3) The Secretary shall establish such standards regarding the 
frequency with which a qualified individual shall be eligible to be 
provided benefits for bone mass measurement under this title.''.
    (b) Payment under Physician Fee Schedule.--Section 1848(j)(3) (42 
U.S.C. 1395w-4(j)(3)), as amended by sections 4102, 4103, 4104 and 4105, 
is amended--
            (1) by striking ``(4) and (14)'' and inserting ``(4), (14)'' 
        and
            (2) by inserting ``and (15)'' after ``1861(nn)(2))''.

    (c) Conforming Amendments.--Sections 1864(a), 1902(a)(9)(C), and 
1915(a)(1)(B)(ii)(I) (42 U.S.C. 1395aa(a), 1396a(a)(9)(C), and 
1396n(a)(1)(B)(ii)(I)) are amended by striking ``paragraphs (15) and 
(16)'' each place it appears and inserting ``paragraphs (16) and (17)''.
<<NOTE: 42 USC 1395x note.>>     (d) Effective Date.--The amendments 
made by this section shall apply to bone mass measurements performed on 
or after July 1, 1998.

<<NOTE: 42 USC 1395x note.>> SEC. 4107. VACCINES OUTREACH EXPANSION.

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

[[Page 111 STAT. 369]]

Of the amount so authorized to be appropriated in each fiscal year, 60 
percent of the amount so appropriated shall be payable from the Federal 
Hospital Insurance Trust Fund, and 40 percent shall be payable from the 
Federal Supplementary Medical Insurance Trust Fund.

<<NOTE: 42 USC 1395x note.>> SEC. 4108. STUDY ON PREVENTIVE AND ENHANCED 
            BENEFITS.

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

                      Subtitle C--Rural Initiatives

SEC. 4201. MEDICARE RURAL HOSPITAL FLEXIBILITY PROGRAM.

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

              ``medicare rural hospital flexibility program

    ``Sec. 1820. (a) Establishment.--Any State that submits an 
application in accordance with subsection (b) may establish a medicare 
rural hospital flexibility program described in subsection (c).
    ``(b) Application.--A State may establish a medicare rural hospital 
flexibility program described in subsection (c) if the State submits to 
the Secretary at such time and in such form as the Secretary may require 
an application containing--
            ``(1) assurances that the State--
                    ``(A) has developed, or is in the process of 
                developing, a State rural health care plan that--

[[Page 111 STAT. 370]]

                          ``(i) provides for the creation of 1 or more 
                      rural health networks (as defined in subsection 
                      (d)) in the State;
                          ``(ii) promotes regionalization of rural 
                      health services in the State; and
                          ``(iii) improves access to hospital and other 
                      health services for rural residents of the State; 
                      and
                    ``(B) has developed the rural health care plan 
                described in subparagraph (A) in consultation with the 
                hospital association of the State, rural hospitals 
                located in the State, and the State Office of Rural 
                Health (or, in the case of a State in the process of 
                developing such plan, that assures the Secretary that 
                the State will consult with its State hospital 
                association, rural hospitals located in the State, and 
                the State Office of Rural Health in developing such 
                plan);
            ``(2) assurances that the State has designated (consistent 
        with the rural health care plan described in paragraph (1)(A)), 
        or is in the process of so designating, rural nonprofit or 
        public hospitals or facilities located in the State as critical 
        access hospitals; and
            ``(3) such other information and assurances as the Secretary 
        may require.

    ``(c) Medicare Rural Hospital Flexibility Program Described.--
            ``(1) In general.--A State that has submitted an application 
        in accordance with subsection (b), may establish a medicare 
        rural hospital flexibility program that provides that--
                    ``(A) the State shall develop at least 1 rural 
                health network (as defined in subsection (d)) in the 
                State; and
                    ``(B) at least 1 facility in the State shall be 
                designated as a critical access hospital in accordance 
                with paragraph (2).
            ``(2) State designation of facilities.--
                    ``(A) In general.--A State may designate 1 or more 
                facilities as a critical access hospital in accordance 
                with subparagraph (B).
                    ``(B) Criteria for designation as critical access 
                hospital.--A State may designate a facility as a 
                critical access hospital if the facility--
                          ``(i) is a nonprofit or public hospital and is 
                      located in a county (or equivalent unit of local 
                      government) in a rural area (as defined in section 
                      1886(d)(2)(D)) that--
                                    ``(I) is located more than a 35-mile 
                                drive (or, in the case of mountainous 
                                terrain or in areas with only secondary 
                                roads available, a 15-mile drive) from a 
                                hospital, or another facility described 
                                in this subsection; or
                                    ``(II) is certified by the State as 
                                being a necessary provider of health 
                                care services to residents in the area;
                          ``(ii) makes available 24-hour emergency care 
                      services that a State determines are necessary for 
                      ensuring access to emergency care services in each 
                      area served by a critical access hospital;

[[Page 111 STAT. 371]]

                          ``(iii) provides not more than 15 (or, in the 
                      case of a facility under an agreement described in 
                      subsection (f), 25) acute care inpatient beds 
                      (meeting such standards as the Secretary may 
                      establish) for providing inpatient care for a 
                      period not to exceed 96 hours (unless a longer 
                      period is required because transfer to a hospital 
                      is precluded because of inclement weather or other 
                      emergency conditions), except that a peer review 
                      organization or equivalent entity may, on request, 
                      waive the 96-hour restriction on a case-by-case 
                      basis;
                          ``(iv) meets such staffing requirements as 
                      would apply under section 1861(e) to a hospital 
                      located in a rural area, except that--
                                    ``(I) the facility need not meet 
                                hospital standards relating to the 
                                number of hours during a day, or days 
                                during a week, in which the facility 
                                must be open and fully staffed, except 
                                insofar as the facility is required to 
                                make available emergency care services 
                                as determined under clause (ii) and must 
                                have nursing services available on a 24-
                                hour basis, but need not otherwise staff 
                                the facility except when an inpatient is 
                                present;
                                    ``(II) the facility may provide any 
                                services otherwise required to be 
                                provided by a full-time, on site 
                                dietitian, pharmacist, laboratory 
                                technician, medical technologist, and 
                                radiological technologist on a part-
                                time, off site basis under arrangements 
                                as defined in section 1861(w)(1); and
                                    ``(III) the inpatient care described 
                                in clause (iii) may be provided by a 
                                physician assistant, nurse practitioner, 
                                or clinical nurse specialist subject to 
                                the oversight of a physician who need 
                                not be present in the facility; and
                          ``(v) meets the requirements of section 
                      1861(aa)(2)(I).

    ``(d) Definition of Rural Health Network.--
            ``(1) In general.--In this section, the term `rural health 
        network' means, with respect to a State, an organization 
        consisting of--
                    ``(A) at least 1 facility that the State has 
                designated or plans to designate as a critical access 
                hospital; and
                    ``(B) at least 1 hospital that furnishes acute care 
                services.
            ``(2) Agreements.--
                    ``(A) In general.--Each critical access hospital 
                that is a member of a rural health network shall have an 
                agreement with respect to each item described in 
                subparagraph (B) with at least 1 hospital that is a 
                member of the network.
                    ``(B) Items described.--The items described in this 
                subparagraph are the following:
                          ``(i) Patient referral and transfer.
                          ``(ii) The development and use of 
                      communications systems including (where 
                      feasible)--
                                    ``(I) telemetry systems; and

[[Page 111 STAT. 372]]

                                    ``(II) systems for electronic 
                                sharing of patient data.
                          ``(iii) The provision of emergency and non-
                      emergency transportation among the facility and 
                      the hospital.
                    ``(C) Credentialing and quality assurance.--Each 
                critical access hospital that is a member of a rural 
                health network shall have an agreement with respect to 
                credentialing and quality assurance with at least--
                          ``(i) 1 hospital that is a member of the 
                      network;
                          ``(ii) 1 peer review organization or 
                      equivalent entity; or
                          ``(iii) 1 other appropriate and qualified 
                      entity identified in the State rural health care 
                      plan.

    ``(e) Certification by the Secretary.--The Secretary shall certify a 
facility as a critical access hospital if the facility--
            ``(1) is located in a State that has established a medicare 
        rural hospital flexibility program in accordance with subsection 
        (c);
            ``(2) is designated as a critical access hospital by the 
        State in which it is located; and
            ``(3) meets such other criteria as the Secretary may 
        require.

    ``(f) Permitting Maintenance of Swing Beds.--Nothing in this section 
shall be construed to prohibit a State from designating or the Secretary 
from certifying a facility as a critical access hospital solely because, 
at the time the facility applies to the State for designation as a 
critical access hospital, there is in effect an agreement between the 
facility and the Secretary under section 1883 under which the facility's 
inpatient hospital facilities are used for the provision of extended 
care services, so long as the total number of beds that may be used at 
any time for the furnishing of either such services or acute care 
inpatient services does not exceed 25 beds and the number of beds used 
at any time for acute care inpatient services does not exceed 15 beds. 
For purposes of the previous sentence, any bed of a unit of the facility 
that is licensed as a distinct-part skilled nursing facility at the time 
the facility applies to the State for designation as a critical access 
hospital shall not be counted.
    ``(g) Grants.--
            ``(1) Medicare rural hospital flexibility program.--The 
        Secretary may award grants to States that have submitted 
        applications in accordance with subsection (b) for--
                    ``(A) engaging in activities relating to planning 
                and implementing a rural health care plan;
                    ``(B) engaging in activities relating to planning 
                and implementing rural health networks; and
                    ``(C) designating facilities as critical access 
                hospitals.
            ``(2) Rural emergency medical services.--
                    ``(A) In general.--The Secretary may award grants to 
                States that have submitted applications in accordance 
                with subparagraph (B) for the establishment or expansion 
                of a program for the provision of rural emergency 
                medical services.
                    ``(B) Application.--An application is in accordance 
                with this subparagraph if the State submits to the 
                Secretary at such time and in such form as the Secretary 
                may require an application containing the assurances

[[Page 111 STAT. 373]]

                described in subparagraphs (A)(ii), (A)(iii), and (B) of 
                subsection (b)(1) and paragraph (3) of that subsection.

    ``(h) Grandfathering of Certain Facilities.--
            ``(1) In general.--Any medical assistance facility operating 
        in Montana and any rural primary care hospital designated by the 
        Secretary under this section prior to the date of the enactment 
        of the Balanced Budget Act of 1997 shall be deemed to have been 
        certified by the Secretary under subsection (e) as a critical 
        access hospital if such facility or hospital is otherwise 
        eligible to be designated by the State as a critical access 
        hospital under subsection (c).
            ``(2) Continuation of medical assistance facility and rural 
        primary care hospital terms.--Notwithstanding any other 
        provision of this title, with respect to any medical assistance 
        facility or rural primary care hospital described in paragraph 
        (1), any reference in this title to a `critical access hospital' 
        shall be deemed to be a reference to a `medical assistance 
        facility' or `rural primary care hospital'.

    ``(i) Waiver of Conflicting Part A Provisions.--The Secretary is 
authorized to waive such provisions of this part and part D as are 
necessary to conduct the program established under this section.
    ``(j) Authorization of Appropriations.--There are authorized to be 
appropriated from the Federal Hospital Insurance Trust Fund for making 
grants to all States under subsection (g), $25,000,000 in each of the 
fiscal years 1998 through 2002.''.
    (b) Report on Alternative to 96-Hour Rule.--Not later than June 1, 
1998, the Secretary of Health and Human Services shall submit to 
Congress a report on the feasibility of, and administrative requirements 
necessary to establish an alternative for certain medical diagnoses (as 
determined by the Secretary) to the 96-hour limitation for inpatient 
care in critical access hospitals required by section 1820(c)(2)(B)(iii) 
of the Social Security Act (42 U.S.C. 1395i-4(c)(2)(B)(iii)), as added 
by subsection (a) of this section.
    (c) Conforming Amendments Relating to Rural Primary Care Hospitals 
and Critical Access Hospitals.--
            (1) In general.--Title XI of the Social Security Act (42 
        U.S.C. 1301 et seq.) and title XVIII of that Act (42 U.S.C. 1395 
        et seq.) are each amended by striking ``rural primary care'' 
        each place it appears and inserting ``critical access''.
            (2) Definitions.--Section 1861(mm) of the Social Security 
        Act (42 U.S.C. 1395x(mm)) is amended to read as follows:

      ``critical access hospital; critical access hospital services

    ``(mm)(1) The term `critical access hospital' means a facility 
certified by the Secretary as a critical access hospital under section 
1820(e).
    ``(2) The term `inpatient critical access hospital services' means 
items and services, furnished to an inpatient of a critical access 
hospital by such facility, that would be inpatient hospital services if 
furnished to an inpatient of a hospital by a hospital.
    ``(3) The term `outpatient critical access hospital services' means 
medical and other health services furnished by a critical access 
hospital on an outpatient basis.''.
            (3) Part a payment.--Section 1814 of the Social Security Act 
        (42 U.S.C. 1395f) is amended--

[[Page 111 STAT. 374]]

                    (A) in subsection (a)(8), by striking ``72'' and 
                inserting ``96''; and
                    (B) by amending subsection (l) to read as follows:

        ``Payment for Inpatient Critical Access Hospital Services

    ``(l) The amount of payment under this part for inpatient critical 
access hospital services is the reasonable costs of the critical access 
hospital in providing such services.''.
            (4) Payment continued to designated eachs.--Section 
        1886(d)(5)(D) of the Social Security Act (42 U.S.C. 
        1395ww(d)(5)(D)) is amended--
                    (A) in clause (iii)(III), by inserting ``as in 
                effect on September 30, 1997'' before the period at the 
                end; and
                    (B) in clause (v)--
                          (i) by inserting ``as in effect on September 
                      30, 1997'' after ``1820(i)(1)''; and
                          (ii) by striking ``1820(g)'' and inserting 
                      ``1820(d)''.
            (5) Part b payment.--Section 1834(g) of the Social Security 
        Act (42 U.S.C. 1395m(g)) is amended to read as follows:

    ``(g) Payment for Outpatient Critical Access Hospital Services.--The 
amount of payment under this part for outpatient critical access 
hospital services is the reasonable costs of the critical access 
hospital in providing such services.''.
        <<NOTE: 42 USC 1395i-4 note.>>     (6) Transition for MAF.--
                    (A) In general.--The Secretary of Health and Human 
                Services shall provide for an appropriate transition for 
                a facility that, as of the date of the enactment of this 
                Act, operated as a limited service rural hospital under 
                a demonstration described in section 4008(i)(1) of the 
                Omnibus Budget Reconciliation Act of 1990 (42 U.S.C. 
                1395b-1 note) from such demonstration to the program 
                established under subsection (a). At the conclusion of 
                the transition period described in subparagraph (B), the 
                Secretary shall end such demonstration.
                    (B) Transition period described.--
                          (i) Initial period.--Subject to clause (ii), 
                      the transition period described in this 
                      subparagraph is the period beginning on the date 
                      of the enactment of this Act and ending on October 
                      1, 1998.
                          (ii) Extension.--If the Secretary determines 
                      that the transition is not complete as of October 
                      1, 1998, the Secretary shall provide for an 
                      appropriate extension of the transition period.

<<NOTE: 42 USC 1395f note.>>     (d) Effective Date.--The amendments 
made by this section shall apply to services furnished on or after 
October 1, 1997.

SEC. 4202. PROHIBITING DENIAL OF REQUEST BY RURAL REFERRAL CENTERS FOR 
            RECLASSIFICATION ON BASIS OF COMPARABILITY OF WAGES.

    (a) In General.--Section 1886(d)(10)(D) (42 U.S.C. 1395ww(d)(10)(D)) 
is amended--
            (1) by redesignating clause (iii) as clause (iv); and
            (2) by inserting after clause (ii) the following new clause:

    ``(iii) Under the guidelines published by the Secretary under clause 
(i), in the case of a hospital which has ever been classified by the 
Secretary as a rural referral center under paragraph (5)(C), the Board 
may not reject the application of the hospital under

[[Page 111 STAT. 375]]

this paragraph on the basis of any comparison between the average hourly 
wage of the hospital and the average hourly wage of hospitals in the 
area in which it is located.''.
<<NOTE: 42 USC 1395ww note.>>     (b) Continuing Treatment of Previously 
Designated Centers.--
            (1) In general.--Any hospital classified as a rural referral 
        center by the Secretary of Health and Human Services under 
        section 1886(d)(5)(C) of the Social Security Act for fiscal year 
        1991 shall be classified as such a rural referral center for 
        fiscal year 1998 and each subsequent fiscal year.
            (2) Budget neutrality.--The provisions of section 
        1886(d)(8)(D) of the Social Security Act shall apply to 
        reclassifications made pursuant to paragraph (1) in the same 
        manner as such provisions apply to a reclassification under 
        section 1886(d)(10) of such Act.

<<NOTE: 42 USC 1395ww note.>> SEC. 4203. HOSPITAL GEOGRAPHIC 
            RECLASSIFICATION PERMITTED FOR PURPOSES OF DISPROPORTIONATE 
            SHARE PAYMENT ADJUSTMENTS.

    (a) In General.--For the period described in subsection (c), the 
Medicare Geographic Classification Review Board shall consider the 
application under section 1886(d)(10)(C)(i) of the Social Security Act 
(42 U.S.C. 1395ww(d)(10)(C)(i)) of a hospital described in 1886(d)(1)(B) 
of such Act (42 U.S.C. 1395ww(d)(1)(B)) to change the hospital's 
geographic classification for purposes of determining for a fiscal year 
eligibility for and amount of additional payment amounts under section 
1886(d)(5)(F) of such Act (42 U.S.C. 1395ww(d)(5)(F)).
    (b) Applicable Guidelines.--The Medicare Geographic Classification 
Review Board shall apply the guidelines established for reclassification 
under subclause (I) of section 1886(d)(10)(C)(i) of such Act to 
reclassification by reason of subsection (a) until the Secretary of 
Health and Human Services promulgates separate guidelines for such 
reclassification.
    (c) Period Described.--The period described in this subsection is 
the period beginning on the date of the enactment of this Act and ending 
30 months after such date.

SEC. 4204. MEDICARE-DEPENDENT, SMALL RURAL HOSPITAL PAYMENT EXTENSION.

    (a) Special Treatment Extended.--
            (1) Payment methodology.--Section 1886(d)(5)(G) (42 U.S.C. 
        1395ww(d)(5)(G)) is amended--
                    (A) in clause (i), by striking ``October 1, 1994,'' 
                and inserting ``October 1, 1994, or beginning on or 
                after October 1, 1997, and before October 1, 2001,''; 
                and
                    (B) in clause (ii)(II), by striking ``October 1, 
                1994,'' and inserting ``October 1, 1994, or beginning on 
                or after October 1, 1997, and before October 1, 2001,''.
            (2) Extension of target amount.--Section 1886(b)(3)(D) (42 
        U.S.C. 1395ww(b)(3)(D)) is amended--
                    (A) in the matter preceding clause (i), by striking 
                ``September 30, 1994,'' and inserting ``September 30, 
                1994, and for cost reporting periods beginning on or 
                after October 1, 1997, and before October 1, 2001,'';
                    (B) in clause (ii), by striking ``and'' at the end;
                    (C) in clause (iii), by striking the period at the 
                end and inserting ``, and''; and

[[Page 111 STAT. 376]]

                    (D) by adding after clause (iii) the following new 
                clause:
            ``(iv) with respect to discharges occurring during fiscal 
        year 1998 through fiscal year 2000, the target amount for the 
        preceding year increased by the applicable percentage increase 
        under subparagraph (B)(iv).''.
        <<NOTE: 42 USC 1395ww note.>>     (3) Permitting hospitals to 
        decline reclassification.--Section 13501(e)(2) of OBRA-93 (42 
        U.S.C. 1395ww note) is amended by striking ``or fiscal year 
        1994'' and inserting ``, fiscal year 1994, fiscal year 1998, 
        fiscal year 1999, or fiscal year 2000''.

<<NOTE: 42 USC 1395ww note.>>     (b) Effective Date.--The amendments 
made by subsection (a) shall apply with respect to discharges occurring 
on or after October 1, 1997.

SEC. 4205. RURAL HEALTH CLINIC SERVICES.

    (a) Per-Visit Payment Limits for Provider-Based Clinics.--
            (1) Extension of limit.--
                    (A) In general.--The matter in section 1833(f) (42 
                U.S.C. 1395l(f)) preceding paragraph (1) is amended by 
                striking ``independent rural health clinics'' and 
                inserting ``rural health clinics (other than such 
                clinics in rural hospitals with less than 50 beds)''.
                <<NOTE: 42 USC 1395l note.>>     (B) Effective date.--
                The amendment made by subparagraph (A) applies to 
                services furnished on or after January 1, 1998.
            (2) Technical clarification.--Section 1833(f)(1) (42 U.S.C. 
        1395l(f)(1)) is amended by inserting ``per visit'' after 
        ``$46''.

    (b) Assurance of Quality Services.--
            (1) In general.--Subparagraph (I) of the first sentence of 
        section 1861(aa)(2) (42 U.S.C. 1395x(aa)(2)) is amended to read 
        as follows:
                    ``(I) has a quality assessment and performance 
                improvement program, and appropriate procedures for 
                review of utilization of clinic services, as the 
                Secretary may specify,''.
        <<NOTE: 42 USC 1395x note.>>     (2) Effective date.--The 
        amendment made by paragraph (1) shall take effect on January 1, 
        1998.

    (c) Waiver of Certain Staffing Requirements Limited to Clinics in 
Program.--
            (1) In general.--Section 1861(aa)(7)(B) (42 U.S.C. 
        1395x(aa)(7)(B)) is amended by inserting before the period ``, 
        or if the facility has not yet been determined to meet the 
        requirements (including subparagraph (J) of the first sentence 
        of paragraph (2)) of a rural health clinic''.
        <<NOTE: 42 USC 1395x note.>>     (2) Effective date.--The 
        amendment made by paragraph (1) applies to waiver requests made 
        on or after January 1, 1998.

    (d) Refinement of Shortage Area Requirements.--
            (1) Designation reviewed triennially.--Section 1861(aa)(2) 
        (42 U.S.C. 1395x(aa)(2)) is amended in the second sentence, in 
        the matter in clause (i) preceding subclause (I)--
                    (A) by striking ``and that is designated'' and 
                inserting ``and that, within the previous 3-year period, 
                has been designated''; and
                    (B) by striking ``or that is designated'' and 
                inserting ``or designated''.

[[Page 111 STAT. 377]]

            (2) Area must have shortage of health care practitioners.--
        Section 1861(aa)(2) (42 U.S.C. 1395x(aa)(2)), as amended by 
        paragraph (1), is further amended in the second sentence, in the 
        matter in clause (i) preceding subclause (I)--
                    (A) by striking the comma after ``personal health 
                services''; and
                    (B) by inserting ``and in which there are 
                insufficient numbers of needed health care practitioners 
                (as determined by the Secretary),'' after ``Bureau of 
                the Census)''.
            (3) Previously qualifying clinics grandfathered only to 
        prevent shortage.--
                    (A) In General.--Section 1861(aa)(2) of the Social 
                Security Act (42 U.S.C. 1395x(aa)(2)) is amended in the 
                third sentence by inserting before the period ``if it is 
                determined, in accordance with criteria established by 
                the Secretary in regulations, to be essential to the 
                delivery of primary care services that would otherwise 
                be unavailable in the geographic area served by the 
                clinic''.
                    (B) Payment for certain physician assistant 
                services.--Section 1842(b)(6)(C) (42 U.S.C. 
                1395u(b)(6)(C)) is amended to read as follows: ``(C) in 
                the case of services described in clause (i) of section 
                1861(s)(2)(K), payment shall be made to either (i) the 
                employer of the physician assistant involved, or (ii) 
                with respect to a physician assistant who was the owner 
                of a rural health clinic (as described in section 
                1861(aa)(2)) for a continuous period beginning prior to 
                the date of the enactment of the Balanced Budget Act of 
                1997 and ending on the date that the Secretary 
                determines such rural health clinic no longer meets the 
                requirements of section 1861(aa)(2), for such services 
                provided before January 1, 2003, payment may be made 
                directly to the physician assistant; and''.
        <<NOTE: 42 USC 1395x note.>>     (4) Effective dates; 
        implementing regulations.--
                    (A) In general.--Except as otherwise provided, the 
                amendments made by the preceding paragraphs take effect 
                on the date of the enactment of this Act.
                    (B) Current rural health clinics.--The amendments 
                made by the preceding paragraphs take effect, with 
                respect to entities that are rural health clinics under 
                title XVIII of the Social Security Act (42 U.S.C. 1395 
                et seq.) on the date of enactment of this Act, on the 
                date of the enactment of this Act.
                    (C) Grandfathered clinics.--
                          (i) In general.--The amendment made by 
                      paragraph (3)(A) shall take effect on the 
                      effective date of regulations issued by the 
                      Secretary under clause (ii).
                          (ii) Regulations.--The Secretary shall issue 
                      final regulations implementing paragraph (3)(A) 
                      that shall take effect no later than January 1, 
                      1999.

<<NOTE: 42 USC 1395l note.>> SEC. 4206. MEDICARE REIMBURSEMENT FOR 
            TELEHEALTH SERVICES.

    (a) In General.--Not later than January 1, 1999, the Secretary of 
Health and Human Services shall make payments from the Federal 
Supplementary Medical Insurance Trust Fund under part B of title XVIII 
of the Social Security Act (42 U.S.C. 1395j et seq.) in accordance with 
the methodology described in subsection

[[Page 111 STAT. 378]]

(b) for professional consultation via telecommunications systems with a 
physician (as defined in section 1861(r) of such Act (42 U.S.C. 
1395x(r)) or a practitioner (described in section 1842(b)(18)(C) of such 
Act (42 U.S.C. 1395u(b)(18)(C)) furnishing a service for which payment 
may be made under such part to a beneficiary under the medicare program 
residing in a county in a rural area (as defined in section 
1886(d)(2)(D) of such Act (42 U.S.C. 1395ww(d)(2)(D))) that is 
designated as a health professional shortage area under section 
332(a)(1)(A) of the Public Health Service Act (42 U.S.C. 254e(a)(1)(A)), 
notwithstanding that the individual physician or practitioner providing 
the professional consultation is not at the same location as the 
physician or practitioner furnishing the service to that beneficiary.
    (b) Methodology for Determining Amount of Payments.--Taking into 
account the findings of the report required under section 192 of the 
Health Insurance Portability and Accountability Act of 1996 (Public Law 
104-191; 110 Stat. 1988), the findings of the report required under 
paragraph (c), and any other findings related to the clinical efficacy 
and cost-effectiveness of telehealth applications, the Secretary shall 
establish a methodology for determining the amount of payments made 
under subsection (a) within the following parameters:
            (1) The payment shall shared between the referring physician 
        or practitioner and the consulting physician or practitioner. 
        The amount of such payment shall not be greater than the current 
        fee schedule of the consulting physician or practitioner for the 
        health care services provided.
            (2) The payment shall not include any reimbursement for any 
        telephone line charges or any facility fees, and a beneficiary 
        may not be billed for any such charges or fees.
            (3) The payment shall be made subject to the coinsurance and 
        deductible requirements under subsections (a)(1) and (b) of 
        section 1833 of the Social Security Act (42 U.S.C. 1395l).
            (4) The payment differential of section 1848(a)(3) of such 
        Act (42 U.S.C. 1395w-4(a)(3)) shall apply to services furnished 
        by non-participating physicians. The provisions of section 
        1848(g) of such Act (42 U.S.C. 1395w-4(g)) and section 
        1842(b)(18) of such Act (42 U.S.C. 1395u(b)(18)) shall apply. 
        Payment for such service shall be increased annually by the 
        update factor for physicians' services determined under section 
        1848(d) of such Act (42 U.S.C. 1395w-4(d)).

    (c) Supplemental Report.--Not later than January 1, 1999, the 
Secretary shall submit a report to Congress which shall contain a 
detailed analysis of--
            (1) how telemedicine and telehealth systems are expanding 
        access to health care services;
            (2) the clinical efficacy and cost-effectiveness of 
        telemedicine and telehealth applications;
            (3) the quality of telemedicine and telehealth services 
        delivered; and
            (4) the reasonable cost of telecommunications charges 
        incurred in practicing telemedicine and telehealth in rural, 
        frontier, and underserved areas.

    (d) Expansion of Telehealth Services for Certain Medicare 
Beneficiaries.--
            (1) In general.--Not later than January 1, 1999, the 
        Secretary shall submit a report to Congress that examines the

[[Page 111 STAT. 379]]

        possibility of making payments from the Federal Supplementary 
        Medical Insurance Trust Fund under part B of title XVIII of the 
        Social Security Act (42 U.S.C. 1395j et seq.) for professional 
        consultation via telecommunications systems with such a 
        physician or practitioner furnishing a service for which payment 
        may be made under such part to a beneficiary described in 
        paragraph (2), notwithstanding that the individual physician or 
        practitioner providing the professional consultation is not at 
        the same location as the physician or practitioner furnishing 
        the service to that beneficiary.
            (2) Beneficiary described.--A beneficiary described in this 
        paragraph is a beneficiary under the medicare program under 
        title XVIII of the Social Security Act (42 U.S.C. 1395 et seq.) 
        who does not reside in a rural area (as so defined) that is 
        designated as a health professional shortage area under section 
        332(a)(1)(A) of the Public Health Service Act (42 U.S.C. 
        254e(a)(1)(A)), who is homebound or nursing homebound, and for 
        whom being transferred for health care services imposes a 
        serious hardship.
            (3) Report.--The report described in paragraph (1) shall 
        contain a detailed statement of the potential costs and savings 
        to the medicare program of making the payments described in that 
        paragraph using various reimbursement schemes.

<<NOTE: 42 USC 1395b-1 note.>> SEC. 4207. INFORMATICS, TELEMEDICINE, AND 
            EDUCATION DEMONSTRATION PROJECT.

    (a) Purpose and Authorization.--
            (1) In general.--Not later than 9 months after the date of 
        enactment of this section, the Secretary of Health and Human 
        Services shall provide for a demonstration project described in 
        paragraph (2).
            (2) Description of project.--
                    (A) In general.--The demonstration project described 
                in this paragraph is a single demonstration project to 
                use eligible health care provider telemedicine networks 
                to apply high-capacity computing and advanced networks 
                to improve primary care (and prevent health care 
                complications) to medicare beneficiaries with diabetes 
                mellitus who are residents of medically underserved 
                rural areas or residents of medically underserved inner-
                city areas.
                    (B) Medically underserved defined.--As used in this 
                paragraph, the term ``medically underserved'' has the 
                meaning given such term in section 330(b)(3) of the 
                Public Health Service Act (42 U.S.C. 254b(b)(3)).
            (3) Waiver.--The Secretary shall waive such provisions of 
        title XVIII of the Social Security Act as may be necessary to 
        provide for payment for services under the project in accordance 
        with subsection (d).
            (4) Duration of project.--The project shall be conducted 
        over a 4-year period.

    (b) Objectives of Project.--The objectives of the project include 
the following:
            (1) Improving patient access to and compliance with 
        appropriate care guidelines for individuals with diabetes 
        mellitus through direct telecommunications link with information 
        networks in order to improve patient quality-of-life and reduce 
        overall health care costs.

[[Page 111 STAT. 380]]

            (2) Developing a curriculum to train health professionals 
        (particularly primary care health professionals) in the use of 
        medical informatics and telecommunications.
            (3) Demonstrating the application of advanced technologies, 
        such as video-conferencing from a patient's home, remote 
        monitoring of a patient's medical condition, interventional 
        informatics, and applying individualized, automated care 
        guidelines, to assist primary care providers in assisting 
        patients with diabetes in a home setting.
            (4) Application of medical informatics to residents with 
        limited English language skills.
            (5) Developing standards in the application of telemedicine 
        and medical informatics.
            (6) Developing a model for the cost-effective delivery of 
        primary and related care both in a managed care environment and 
        in a fee-for-service environment.

    (c) Eligible Health Care Provider Telemedicine Network Defined.--For 
purposes of this section, the term ``eligible health care provider 
telemedicine network'' means a consortium that includes at least one 
tertiary care hospital (but no more than 2 such hospitals), at least one 
medical school, no more than 4 facilities in rural or urban areas, and 
at least one regional telecommunications provider and that meets the 
following requirements:
            (1) The consortium is located in an area with a high 
        concentration of medical schools and tertiary care facilities in 
        the United States and has appropriate arrangements (within or 
        outside the consortium) with such schools and facilities, 
        universities, and telecommunications providers, in order to 
        conduct the project.
            (2) The consortium submits to the Secretary an application 
        at such time, in such manner, and containing such information as 
        the Secretary may require, including a description of the use to 
        which the consortium would apply any amounts received under the 
        project and the source and amount of non-Federal funds used in 
        the project.
            (3) The consortium guarantees that it will be responsible 
        for payment for all costs of the project that are not paid under 
        this section and that the maximum amount of payment that may be 
        made to the consortium under this section shall not exceed the 
        amount specified in subsection (d)(3).

    (d) Coverage as Medicare Part B Services.--
            (1) In general.--Subject to the succeeding provisions of 
        this subsection, services related to the treatment or management 
        of (including prevention of complications from) diabetes for 
        medicare beneficiaries furnished under the project shall be 
        considered to be services covered under part B of title XVIII of 
        the Social Security Act.
            (2) Payments.--
                    (A) In general.--Subject to paragraph (3), payment 
                for such services shall be made at a rate of 50 percent 
                of the costs that are reasonable and related to the 
                provision of such services. In computing such costs, the 
                Secretary shall include costs described in subparagraph 
                (B), but may not include costs described in subparagraph 
                (C).

[[Page 111 STAT. 381]]

                    (B) Costs that may be included.--The costs described 
                in this subparagraph are the permissible costs (as 
                recognized by the Secretary) for the following:
                          (i) The acquisition of telemedicine equipment 
                      for use in patients' homes (but only in the case 
                      of patients located in medically underserved 
                      areas).
                          (ii) Curriculum development and training of 
                      health professionals in medical informatics and 
                      telemedicine.
                          (iii) Payment of telecommunications costs 
                      (including salaries and maintenance of equipment), 
                      including costs of telecommunications between 
                      patients' homes and the eligible network and 
                      between the network and other entities under the 
                      arrangements described in subsection (c)(1).
                          (iv) Payments to practitioners and providers 
                      under the medicare programs.
                    (C) Costs not included.--The costs described in this 
                subparagraph are costs for any of the following:
                          (i) The purchase or installation of 
                      transmission equipment (other than such equipment 
                      used by health professionals to deliver medical 
                      informatics services under the project).
                          (ii) The establishment or operation of a 
                      telecommunications common carrier network.
                          (iii) Construction (except for minor 
                      renovations related to the installation of 
                      reimbursable equipment) or the acquisition or 
                      building of real property.
            (3) Limitation.--The total amount of the payments that may 
        be made under this section shall not exceed $30,000,000 for the 
        period of the project (described in subsection (a)(4)).
            (4) Limitation on cost-sharing.--The project may not impose 
        cost sharing on a medicare beneficiary for the receipt of 
        services under the project in excess of 20 percent of the costs 
        that are reasonable and related to the provision of such 
        services.

    (e) Reports.--The Secretary shall submit to the Committee on Ways 
and Means and the Committee Commerce of the House of Representatives and 
the Committee on Finance of the Senate interim reports on the project 
and a final report on the project within 6 months after the conclusion 
of the project. The final report shall include an evaluation of the 
impact of the use of telemedicine and medical informatics on improving 
access of medicare beneficiaries to health care services, on reducing 
the costs of such services, and on improving the quality of life of such 
beneficiaries.
    (f) Definitions.--For purposes of this section:
            (1) Interventional informatics.--The term ``interventional 
        informatics'' means using information technology and virtual 
        reality technology to intervene in patient care.
            (2) Medical informatics.--The term ``medical informatics'' 
        means the storage, retrieval, and use of biomedical and related 
        information for problem solving and decision-making through 
        computing and communications technologies.
            (3) Project.--The term ``project'' means the demonstration 
        project under this section.

[[Page 111 STAT. 382]]

    Subtitle D--Anti-Fraud and Abuse Provisions and Improvements in 
                      Protecting Program Integrity

          CHAPTER 1--REVISIONS TO SANCTIONS FOR FRAUD AND ABUSE

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

    Section 1128(c)(3) (42 U.S.C. 1320a-7(c)(3)) is amended--
            (1) in subparagraph (A), by inserting ``or in the case 
        described in subparagraph (G)'' after ``subsection (b)(12)'';
            (2) in subparagraphs (B) and (D), by striking ``In the 
        case'' and inserting ``Subject to subparagraph (G), in the 
        case''; and
            (3) by adding at the end the following new subparagraph:

    ``(G) In the case of an exclusion of an individual under subsection 
(a) based on a conviction occurring on or after the date of the 
enactment of this subparagraph, if the individual has (before, on, or 
after such date) been convicted--
            ``(i) on one previous occasion of one or more offenses for 
        which an exclusion may be effected under such subsection, the 
        period of the exclusion shall be not less than 10 years, or
            ``(ii) on 2 or more previous occasions of one or more 
        offenses for which an exclusion may be effected under such 
        subsection, the period of the exclusion shall be permanent.''.

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

    (a) Medicare Part A.--Section 1866(b)(2) (42 U.S.C. 1395cc(b)(2)) is 
amended--
            (1) in subparagraph (B), by striking ``or'' at the end;
            (2) in subparagraph (C), by striking the period at the end 
        and inserting ``, or''; and
            (3) by adding at the end the following new subparagraph:
                    ``(D) has ascertained that the provider has been 
                convicted of a felony under Federal or State law for an 
                offense which the Secretary determines is detrimental to 
                the best interests of the program or program 
                beneficiaries.''.

    (b) Medicare Part B.--Section 1842(h) (42 U.S.C. 1395u(h)) is 
amended by adding at the end the following new paragraph:
    ``(8) The Secretary may refuse to enter into an agreement with a 
physician or supplier under this subsection, or may terminate or refuse 
to renew such agreement, in the event that such physician or supplier 
has been convicted of a felony under Federal or State law for an offense 
which the Secretary determines is detrimental to the best interests of 
the program or program beneficiaries.''.
<<NOTE: 42 USC 1395u note.>>     (c) Effective Date.--The amendments 
made by this section shall take effect on the date of the enactment of 
this Act and apply to the entry and renewal of contracts on or after 
such date.

SEC. 4303. EXCLUSION OF ENTITY CONTROLLED BY FAMILY MEMBER OF A 
            SANCTIONED INDIVIDUAL.

    (a) In General.--Section 1128 (42 U.S.C. 1320a-7) is amended--

[[Page 111 STAT. 383]]

            (1) in subsection (b)(8)(A)--
                    (A) in clause (i), by striking ``or'' at the end;
                    (B) in clause (ii), by striking the dash at the end 
                and inserting ``; or''; and
                    (C) by inserting after clause (ii) the following:
                    ``(iii) who was described in clause (i) but is no 
                longer so described because of a transfer of ownership 
                or control interest, in anticipation of (or following) a 
                conviction, assessment, or exclusion described in 
                subparagraph (B) against the person, to an immediate 
                family member (as defined in subsection (j)(1)) or a 
                member of the household of the person (as defined in 
                subsection (j)(2)) who continues to maintain an interest 
                described in such clause--''; and
            (2) by adding at the end the following new subsection:

    ``(j) Definition of Immediate Family Member and Member of 
Household.--For purposes of subsection (b)(8)(A)(iii):
            ``(1) The term `immediate family member' means, with respect 
        to a person--
                    ``(A) the husband or wife of the person;
                    ``(B) the natural or adoptive parent, child, or 
                sibling of the person;
                    ``(C) the stepparent, stepchild, stepbrother, or 
                stepsister of the person;
                    ``(D) the father-, mother-, daughter-, son-, 
                brother-, or sister-in-law of the person;
                    ``(E) the grandparent or grandchild of the person; 
                and
                    ``(F) the spouse of a grandparent or grandchild of 
                the person.
            ``(2) The term `member of the household' means, with respect 
        to any person, any individual sharing a common abode as part of 
        a single family unit with the person, including domestic 
        employees and others who live together as a family unit, but not 
        including a roomer or boarder.''.

<<NOTE: 42 USC 1320a-7 note.>>     (b) Effective Date.--The amendments 
made by this section shall take effect on the date that is 45 days after 
the date of the enactment of this Act.

SEC. 4304. IMPOSITION OF CIVIL MONEY PENALTIES.

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

    (b) Civil Money Penalties for Kickbacks.--
            (1) Permitting secretary to impose civil money penalty.--
        Section 1128A(a) (42 U.S.C. 1320a-7a(a)), as amended by 
        subsection (a), is amended--
                    (A) in paragraph (5), by striking ``or'' at the end;
                    (B) in paragraph (6), by adding ``or'' at the end; 
                and

[[Page 111 STAT. 384]]

                    (C) by adding after paragraph (6) the following new 
                paragraph:
            ``(7) commits an act described in paragraph (1) or (2) of 
        section 1128B(b);''.
            (2) Description of civil money penalty applicable.--Section 
        1128A(a) (42 U.S.C. 1320a-7a(a)), as amended by paragraph (1), 
        is amended in the matter following paragraph (7)--
                    (A) by striking ``occurs).'' and inserting ``occurs; 
                or in cases under paragraph (7), $50,000 for each such 
                act).''; and
                    (B) by inserting after ``of such claim'' the 
                following: ``(or, in cases under paragraph (7), damages 
                of not more than 3 times the total amount of 
                remuneration offered, paid, solicited, or received, 
                without regard to whether a portion of such remuneration 
                was offered, paid, solicited, or received for a lawful 
                purpose)''.

<<NOTE: 42 USC 1320a-7a note.>>     (c) Effective Dates.--
            (1) Contracts with excluded persons.--The amendments made by 
        subsection (a) shall apply to arrangements and contracts entered 
        into after the date of the enactment of this Act.
            (2) Kickbacks.--The amendments made by subsection (b) shall 
        apply to acts committed after the date of the enactment of this 
        Act.

         CHAPTER 2--IMPROVEMENTS IN PROTECTING PROGRAM INTEGRITY

SEC. 4311. IMPROVING INFORMATION TO MEDICARE BENEFICIARIES.

    (a) Inclusion of Information Regarding Medicare Waste, Fraud, and 
Abuse in Annual Notice.--
            (1) In General.--Section 1804 (42 U.S.C. 1395b-2) is amended 
        by adding at the end the following new subsection:

    ``(c) The notice provided under subsection (a) shall include--
            ``(1) a statement which indicates that because errors do 
        occur and because medicare fraud, waste, and abuse is a 
        significant problem, beneficiaries should carefully check any 
        explanation of benefits or itemized statement furnished pursuant 
        to section 1806 for accuracy and report any errors or 
        questionable charges by calling the toll-free phone number 
        described in paragraph (4);
            ``(2) a statement of the beneficiary's right to request an 
        itemized statement for medicare items and services (as provided 
        in section 1806(b));
            ``(3) a description of the program to collect information on 
        medicare fraud and abuse established under section 203(b) of the 
        Health Insurance Portability and Accountability Act of 1996; and
            ``(4) a toll-free telephone number maintained by the 
        Inspector General in the Department of Health and Human Services 
        for the receipt of complaints and information about waste, 
        fraud, and abuse in the provision or billing of services under 
        this title.''.
        <<NOTE: 42 USC 1395b-2 note.>>     (2) Effective date.--The 
        amendment made by this subsection shall apply to notices 
        provided on or after January 1, 1998.

[[Page 111 STAT. 385]]

    (b) Clarification of Requirement To Provide Explanation of Medicare 
Benefits.--
            (1) In general.--Title XVIII is amended by inserting after 
        section 1805 (as added by section 4022) the following new 
        section:

                   ``explanation of medicare benefits

<<NOTE: 42 USC 1395b-7.>>     ``Sec. 1806. (a) In General.--The 
Secretary shall furnish to each individual for whom payment has been 
made under this title (or would be made without regard to any 
deductible) a statement which--
            ``(1) lists the item or service for which payment has been 
        made and the amount of such payment for each item or service; 
        and
            ``(2) includes a notice of the individual's right to request 
        an itemized statement (as provided in subsection (b)).

    ``(b) Request for Itemized Statement for Medicare Items and 
Services.--
            ``(1) In general.--An individual may submit a written 
        request to any physician, provider, supplier, or any other 
        person (including an organization, agency, or other entity) for 
        an itemized statement for any item or service provided to such 
        individual by such person with respect to which payment has been 
        made under this title.
            ``(2) 30-day period to furnish statement.--
                    ``(A) In general.--Not later than 30 days after the 
                date on which a request under paragraph (1) has been 
                made, a person described in such paragraph shall furnish 
                an itemized statement describing each item or service 
                provided to the individual requesting the itemized 
                statement.
                    ``(B) Penalty.--Whoever knowingly fails to furnish 
                an itemized statement in accordance with subparagraph 
                (A) shall be subject to a civil money penalty of not 
                more than $100 for each such failure. Such penalty shall 
                be imposed and collected in the same manner as civil 
                money penalties under subsection (a) of section 1128A 
                are imposed and collected under that section.
            ``(3) Review of itemized statement.--
                    ``(A) In general.--Not later than 90 days after the 
                receipt of an itemized statement furnished under 
                paragraph (1), an individual may submit a written 
                request for a review of the itemized statement to the 
                Secretary.
                    ``(B) Specific allegations.--A request for a review 
                of the itemized statement shall identify--
                          ``(i) specific items or services that the 
                      individual believes were not provided as claimed, 
                      or
                          ``(ii) any other billing irregularity 
                      (including duplicate billing).
            ``(4) Findings of secretary.--The Secretary shall, with 
        respect to each written request submitted under paragraph (3), 
        determine whether the itemized statement identifies specific 
        items or services that were not provided as claimed or any other 
        billing irregularity (including duplicate billing) that has 
        resulted in unnecessary payments under this title.
            ``(5) Recovery of amounts.--The Secretary shall take all 
        appropriate measures to recover amounts unnecessarily paid

[[Page 111 STAT. 386]]

        under this title with respect to a statement described in 
        paragraph (4).''.
            (2) Conforming amendment.--Subsection (a) of section 203 of 
        the Health Insurance Portability and Accountability Act of 
        1996 <<NOTE: 42 USC 1395b-5.>>  is repealed.
        <<NOTE: 42 USC 1395b-7 note.>>     (3) Effective dates.--
                    (A) Statement by secretary.--Paragraph (1) of 
                section 1806(a) of the Social Security Act, as added by 
                paragraph (1), and the repeal made by paragraph (2) 
                shall take effect on the date of the enactment of this 
                Act.
                    (B) Itemized statement.--Paragraph (2) of section 
                1806(a) and section 1806(b) of the Social Security Act, 
                as so added, shall take effect not later than January 1, 
                1999.

SEC. 4312. DISCLOSURE OF INFORMATION AND SURETY BONDS.

    (a) Disclosure of Information and Surety Bond Requirement for 
Suppliers of Durable Medical Equipment.--Section 1834(a) (42 U.S.C. 
1395m(a)) is amended by inserting after paragraph (15) the following new 
paragraph:
            ``(16) Disclosure of information and surety bond.--The 
        Secretary shall not provide for the issuance (or renewal) of a 
        provider number for a supplier of durable medical equipment, for 
        purposes of payment under this part for durable medical 
        equipment furnished by the supplier, unless the supplier 
        provides the Secretary on a continuing basis--
                    ``(A) with--
                          ``(i) full and complete information as to the 
                      identity of each person with an ownership or 
                      control interest (as defined in section 
                      1124(a)(3)) in the supplier or in any 
                      subcontractor (as defined by the Secretary in 
                      regulations) in which the supplier directly or 
                      indirectly has a 5 percent or more ownership 
                      interest; and
                          ``(ii) to the extent determined to be feasible 
                      under regulations of the Secretary, the name of 
                      any disclosing entity (as defined in section 
                      1124(a)(2)) with respect to which a person with 
                      such an ownership or control interest in the 
                      supplier is a person with such an ownership or 
                      control interest in the disclosing entity; and
                    ``(B) with a surety bond in a form specified by the 
                Secretary and in an amount that is not less than 
                $50,000.
        The Secretary may waive the requirement of a bond under 
        subparagraph (B) in the case of a supplier that provides a 
        comparable surety bond under State law.''.

    (b) Surety Bond Requirement for Home Health Agencies.--
            (1) In general.--Section 1861(o) (42 U.S.C. 1395x(o)) is 
        amended--
                    (A) in paragraph (6), by striking ``and'' at the 
                end;
                    (B) by redesignating paragraph (7) as paragraph (8);
                    (C) by inserting after paragraph (6) the following 
                new paragraph:
            ``(7) provides the Secretary on a continuing basis with a 
        surety bond in a form specified by the Secretary and in an 
        amount that is not less than $50,000; and''; and

[[Page 111 STAT. 387]]

                    (D) by adding at the end the following: ``The 
                Secretary may waive the requirement of a surety bond 
                under paragraph (7) in the case of an agency or 
                organization that provides a comparable surety bond 
                under State law.''.
            (2) Conforming amendments.--Section 1861(v)(1)(H) (42 U.S.C. 
        1395x(v)(1)(H)) is amended--
                    (A) in clause (i), by striking ``the financial 
                security requirement described in subsection (o)(7)'' 
                and inserting ``the surety bond requirement described in 
                subsection (o)(7) and the financial security requirement 
                described in subsection (o)(8)''; and
                    (B) in clause (ii), by striking ``the financial 
                security requirement described in subsection (o)(7) 
                applies'' and inserting ``the surety bond requirement 
                described in subsection (o)(7) and the financial 
                security requirement described in subsection (o)(8) 
                apply''.
            (3) Reference to current disclosure requirement.--For 
        additional provisions requiring home health agencies to disclose 
        information on ownership and control interests, see section 1124 
        of the Social Security Act (42 U.S.C. 1320a-3).

    (c) Authorizing Application of Disclosure and Surety Bond 
Requirements to Other Health Care Providers.--Section 1834(a)(16) (42 
U.S.C. 1395m(a)(16)), as added by subsection (a), is amended by adding 
at the end the following: ``The Secretary, at the Secretary's 
discretion, may impose the requirements of the first sentence with 
respect to some or all providers of items or services under part A or 
some or all suppliers or other persons (other than physicians or other 
practitioners, as defined in section 1842(b)(18)(C)) who furnish items 
or services under this part.''.
    (d) Application to Comprehensive Outpatient Rehabilitation 
Facilities (CORFs).--Section 1861(cc)(2) (42 U.S.C. 1395x(cc)(2)) is 
amended--
            (1) in subparagraph (H), by striking ``and'' at the end;
            (2) by redesignating subparagraph (I) as subparagraph (J);
            (3) by inserting after subparagraph (H) the following new 
        subparagraph:
            ``(I) provides the Secretary on a continuing basis with a 
        surety bond in a form specified by the Secretary and in an 
        amount that is not less than $50,000; and''; and
            (4) by adding at the end the following flush sentence:

``The Secretary may waive the requirement of a surety bond under 
subparagraph (I) in the case of a facility that provides a comparable 
surety bond under State law.''.
    (e) Application to Rehabilitation Agencies.--Section 1861(p) (42 
U.S.C. 1395x(p)) is amended--
            (1) in paragraph (4)(A)(v), by inserting after ``as the 
        Secretary may find necessary,'' the following: ``and provides 
        the Secretary on a continuing basis with a surety bond in a form 
        specified by the Secretary and in an amount that is not less 
        than $50,000,'', and
            (2) by adding at the end the following: ``The Secretary may 
        waive the requirement of a surety bond under paragraph (4)(A)(v) 
        in the case of a clinic or agency that provides a comparable 
        surety bond under State law.''.

    (f) Effective Dates.--
        <<NOTE: 42 USC 1395m note.>>     (1) Suppliers of durable 
        medical equipment.--The amendment made by subsection (a) shall 
        apply to suppliers

[[Page 111 STAT. 388]]

        of durable medical equipment with respect to such equipment 
        furnished on or after January 1, 1998.
        <<NOTE: 42 USC 1395x note.>>     (2) Home health agencies.--The 
        amendments made by subsection (b) shall apply to home health 
        agencies with respect to services furnished on or after January 
        1, 1998. The Secretary of Health and Human Services shall modify 
        participation agreements under section 1866(a)(1) of the Social 
        Security Act (42 U.S.C. 1395cc(a)(1)) with respect to home 
        health agencies to provide for implementation of such amendments 
        on a timely basis.
        <<NOTE: 42 USC 1395m note.>>     (3) Other amendments.--The 
        amendments made by subsections (c) through (e) shall take effect 
        on the date of the enactment of this Act and may be applied with 
        respect to items and services furnished on or after January 1, 
        1998.

SEC. 4313. PROVISION OF CERTAIN IDENTIFICATION NUMBERS.

    (a) Requirements To Disclose Employer Identification Numbers (EINS) 
and Social Security Account Numbers (SSNs).--Section 1124(a)(1) (42 
U.S.C. 1320a-3(a)(1)) is amended by inserting before the period at the 
end the following: ``and supply the Secretary with the both the employer 
identification number (assigned pursuant to section 6109 of the Internal 
Revenue Code of 1986) and social security account number (assigned under 
section 205(c)(2)(B)) of the disclosing entity, each person with an 
ownership or control interest (as defined in subsection (a)(3)), and any 
subcontractor in which the entity directly or indirectly has a 5 percent 
or more ownership interest.
    (b) Other Medicare Providers.--Section 1124A (42 U.S.C. 1320a-3a) is 
amended--
            (1) in subsection (a)--
                    (A) in paragraph (1), by striking ``and'' at the 
                end;
                    (B) in paragraph (2), by striking the period at the 
                end and inserting ``; and''; and
                    (C) by adding at the end the following new 
                paragraph:
            ``(3) including the employer identification number (assigned 
        pursuant to section 6109 of the Internal Revenue Code of 1986) 
        and social security account number (assigned under section 
        205(c)(2)(B)) of the disclosing part B provider and any person, 
        managing employee, or other entity identified or described under 
        paragraph (1) or (2).''; and
            (2) in subsection (c)(1), by inserting ``(or, for purposes 
        of subsection (a)(3), any entity receiving payment)'' after ``on 
        an assignment-related basis''.

    (c) Verification by Social Security Administration (SSA).--Section 
1124A (42 U.S.C. 1320a-3a), as amended by subsection (b), is amended--
            (1) by redesignating subsection (c) as subsection (d); and
            (2) by inserting after subsection (b) the following new 
        subsection:

    ``(c) Verification.--
            ``(1) Transmittal by hhs.--The Secretary shall transmit--
                    ``(A) to the Commissioner of Social Security 
                information concerning each social security account 
                number (assigned under section 205(c)(2)(B)), and
                    ``(B) to the Secretary of the Treasury information 
                concerning each employer identification number (assigned

[[Page 111 STAT. 389]]

                pursuant to section 6109 of the Internal Revenue Code of 
                1986),
        supplied to the Secretary pursuant to subsection (a)(3) or 
        section 1124(c) to the extent necessary for verification of such 
        information in accordance with paragraph (2).
            ``(2) Verification.--The Commissioner of Social Security and 
        the Secretary of the Treasury shall verify the accuracy of, or 
        correct, the information supplied by the Secretary to such 
        official pursuant to paragraph (1), and shall report such 
        verifications or corrections to the Secretary.
            ``(3) Fees for verification.--The Secretary shall reimburse 
        the Commissioner and Secretary of the Treasury, at a rate 
        negotiated between the Secretary and such official, for the 
        costs incurred by such official in performing the verification 
        and correction services described in this subsection.''.

<<NOTE: 42 USC 1320a-3 note.>>     (d) Report.--Before the amendments 
made by this section may become effective, the Secretary of Health and 
Human Services shall submit to Congress a report on steps the Secretary 
has taken to assure the confidentiality of social security account 
numbers that will be provided to the Secretary under such amendments.

<<NOTE: 42 USC 1320a-3 note.>>     (e) Effective Dates.--
            (1) Disclosure requirements.--The amendment made by 
        subsection (a) shall apply to the application of conditions of 
        participation, and entering into and renewal of contracts and 
        agreements, occurring more than 90 days after the date of 
        submission of the report under subsection (d).
            (2) Other providers.--The amendments made by subsection (b) 
        shall apply to payment for items and services furnished more 
        than 90 days after the date of submission of such report.

SEC. 4314. ADVISORY OPINIONS REGARDING CERTAIN PHYSICIAN SELF-REFERRAL 
            PROVISIONS.

    Section 1877(g) (42 U.S.C. 1395nn(g)) is amended by adding at the 
end the following new paragraph:
            ``(6) Advisory opinions.--
                    ``(A) In general.--The Secretary shall issue written 
                advisory opinions concerning whether a referral relating 
                to designated health services (other than clinical 
                laboratory services) is prohibited under this section. 
                Each advisory opinion issued by the Secretary shall be 
                binding as to the Secretary and the party or parties 
                requesting the opinion.
                    ``(B) Application of certain rules.--The Secretary 
                shall, to the extent practicable, apply the rules under 
                subsections (b)(3) and (b)(4) and take into account the 
                regulations promulgated under subsection (b)(5) of 
                section 1128D in the issuance of advisory opinions under 
                this paragraph.
                    ``(C) Regulations.--In order to implement this 
                paragraph in a timely manner, the Secretary may 
                promulgate regulations that take effect on an interim 
                basis, after notice and pending opportunity for public 
                comment.
                    ``(D) Applicability.--This paragraph shall apply to 
                requests for advisory opinions made after the date which 
                is 90 days after the date of the enactment of this 
                paragraph and before the close of the period described 
                in section 1128D(b)(6).''.

[[Page 111 STAT. 390]]

SEC. 4315. REPLACEMENT OF REASONABLE CHARGE METHODOLOGY BY FEE 
            SCHEDULES.

    (a) Application of Fee Schedule.--Section 1842 (42 U.S.C. 1395u) is 
amended by adding at the end the following new subsection:
    ``(s)(1) The Secretary may implement a statewide or other areawide 
fee schedule to be used for payment of any item or service described in 
paragraph (2) which is paid on a reasonable charge basis. Any fee 
schedule established under this paragraph for such item or service shall 
be updated each year by the percentage increase in the consumer price 
index for all urban consumers (United States city average) for the 12-
month period ending with June of the preceding year, except that in no 
event shall a fee schedule for an item described in paragraph (2)(D) be 
updated before 2003.
    ``(2) The items and services described in this paragraph are as 
follows:
            ``(A) Medical supplies.
            ``(B) Home dialysis supplies and equipment (as defined in 
        section 1881(b)(8)).
            ``(C) Therapeutic shoes.
            ``(D) Parenteral and enteral nutrients, equipment, and 
        supplies.
            ``(E) Electromyogram devices
            ``(F) Salivation devices.
            ``(G) Blood products.
            ``(H) Transfusion medicine.''.

    (b) Conforming Amendment.--Section 1833(a)(1) (42 U.S.C. 
1395l(a)(1)) is amended--
                    (A) by striking ``and (P)'' and inserting ``(P)''; 
                and
                    (B) by striking the semicolon at the end and 
                inserting the following: ``, and (Q) with respect to 
                items or services for which fee schedules are 
                established pursuant to section 1842(s), the amounts 
                paid shall be 80 percent of the lesser of the actual 
                charge or the fee schedule established in such 
                section;''.

<<NOTE: 42 USC 1395l note.>>     (c) Effective Dates.--The amendments 
made by this section to the extent such amendments substitute fee 
schedules for reasonable charges, shall apply to particular services as 
of the date specified by the Secretary of Health and Human Services.

<<NOTE: 42 USC 1395u note.>>     (d) Initial Budget Neutrality.--The 
Secretary, in developing a fee schedule for particular services (under 
the amendments made by this section), shall set amounts for the first 
year period to which the fee schedule applies at a level so that the 
total payments under title XVIII of the Social Security Act (42 U.S.C. 
1395 et seq.) for those services for that year period shall be 
approximately equal to the estimated total payments if such fee schedule 
had not been implemented.

SEC. 4316. APPLICATION OF INHERENT REASONABLENESS TO ALL PART B SERVICES 
            OTHER THAN PHYSICIANS' SERVICES.

    (a) In General.--Paragraphs (8) and (9) of section 1842(b) (42 
U.S.C. 1395u(b)) are amended to read as follows:
<<NOTE: Regulations.>>     ``(8)(A)(i) The Secretary shall by 
regulation--
            ``(I) describe the factors to be used in determining the 
        cases (of particular items or services) in which the application 
        of this part (other than to physicians' services paid under

[[Page 111 STAT. 391]]

        section 1848) results in the determination of an amount that, 
        because of its being grossly excessive or grossly deficient, is 
        not inherently reasonable, and
            ``(II) provide in those cases for the factors to be 
        considered in determining an amount that is realistic and 
        equitable.

    ``(ii) Notwithstanding the determination made in clause (i), the 
Secretary may not apply factors that would increase or decrease the 
payment under this part during any year for any particular item or 
service by more than 15 percent from such payment during the preceding 
year except as provided in subparagraph (B).
    ``(B) The Secretary may make a determination under this subparagraph 
that would result in an increase or decrease under subparagraph (A) of 
more than 15 percent of the payment amount for a year, but only if--
            ``(i) the Secretary's determination takes into account the 
        factors described in subparagraph (C) and any additional factors 
        the Secretary determines appropriate,
            ``(ii) the Secretary's determination takes into account the 
        potential impacts described in subparagraph (D), and
            ``(iii) the Secretary complies with the procedural 
        requirements of paragraph (9).

    ``(C) The factors described in this subparagraph are as follows:
            ``(i) The programs established under this title and title 
        XIX are the sole or primary sources of payment for an item or 
        service.
            ``(ii) The payment amount does not reflect changing 
        technology, increased facility with that technology, or 
        reductions in acquisition or production costs.
            ``(iii) The payment amount for an item or service under this 
        part is substantially higher or lower than the payment made for 
        the item or service by other purchasers.

    ``(D) The potential impacts of a determination under subparagraph 
(B) on quality, access, and beneficiary liability, including the likely 
effects on assignment rates and participation rates.
    ``(9)(A) The Secretary shall consult with representatives of 
suppliers or other individuals who furnish an item or service before 
making a determination under paragraph (8)(B) with regard to that item 
or service.
<<NOTE: Federal Register, publication.>>     ``(B) The Secretary shall 
publish notice of a proposed determination under paragraph (8)(B) in the 
Federal Register--
            ``(i) specifying the payment amount proposed to be 
        established with respect to an item or service,
            ``(ii) explaining the factors and data that the Secretary 
        took into account in determining the payment amount so 
        specified, and
            ``(iii) explaining the potential impacts described in 
        paragraph (8)(D).

    ``(C) After publication of the notice required by subparagraph (B), 
the Secretary shall allow not less than 60 days for public comment on 
the proposed determination.
<<NOTE: Federal Register, publication.>>     ``(D)(i) Taking into 
consideration the comments made by the public, the Secretary shall 
publish in the Federal Register a final determination under paragraph 
(8)(B) with respect to the payment amount to be established with respect 
to the item or service.

    ``(ii) A final determination published pursuant to clause (i) shall 
explain the factors and data that the Secretary took into consideration 
in making the final determination.''.

[[Page 111 STAT. 392]]

    (b) Conforming Amendment.--Section 1834(a)(10)(B) (42 U.S.C. 
1395m(a)(10)(B)) is amended--
            (1) by striking ``For covered items furnished on or after 
        January 1, 1991, the'' and inserting ``The'';
            (2) by striking ``(other than subparagraph (D))''; and
            (3) by striking all that follows ``payments under this 
        subsection'' and inserting a period.

<<NOTE: 42 USC 1395m note.>>     (c) Effective Date.--The amendments 
made by this section shall take effect on the date of the enactment of 
this Act.

SEC. 4317. REQUIREMENT TO FURNISH DIAGNOSTIC INFORMATION.

    (a) Inclusion of Non-Physician Practitioners in Requirement To 
Provide Diagnostic Codes for Physician Services.--Paragraphs (1) and (2) 
of section 1842(p) (42 U.S.C. 1395u(p)) are each amended by inserting 
``or practitioner specified in subsection (b)(18)(C)'' after ``by a 
physician''.
    (b) Requirement To Provide Diagnostic Information When Ordering 
Certain Items or Services Furnished by Another Entity.--Section 1842(p) 
(42 U.S.C. 1395u(p)), is amended by adding at the end the following new 
paragraph:
    ``(4) In the case of an item or service defined in paragraph (3), 
(6), (8), or (9) of subsection 1861(s) ordered by a physician or a 
practitioner specified in subsection (b)(18)(C), but furnished by 
another entity, if the Secretary (or fiscal agent of the Secretary) 
requires the entity furnishing the item or service to provide diagnostic 
or other medical information in order for payment to be made to the 
entity, the physician or practitioner shall provide that information to 
the entity at the time that the item or service is ordered by the 
physician or practitioner.''.
<<NOTE: 42 USC 1395u note.>>     (c) Effective Date.--The amendments 
made by this section shall apply to items and services furnished on or 
after January 1, 1998.

SEC. 4318. REPORT BY GAO ON OPERATION OF FRAUD AND ABUSE CONTROL 
            PROGRAM.

    Section 1817(k)(6) (42 U.S.C. 1395i(k)(6)) is amended by inserting 
``June 1, 1998, and'' after ``Not later than''.

SEC. 4319. COMPETITIVE BIDDING DEMONSTRATION PROJECTS.

    (a) General Rule.--Part B of title XVIII (42 U.S.C. 1395j et seq.) 
is amended by inserting after section 1846 the following new section:

<<NOTE: 42 USC 1395w-3.>> ``SEC. 1847. DEMONSTRATION PROJECTS FOR 
            COMPETITIVE ACQUISITION OF ITEMS AND SERVICES.

    ``(a) Establishment of Demonstration Project Bidding Areas.--
            ``(1) In general.--The Secretary shall implement not more 
        than 5 demonstration projects under which competitive 
        acquisition areas are established for contract award purposes 
        for the furnishing under this part of the items and services 
        described in subsection (d).
            ``(2) Project requirements.--Each demonstration project 
        under paragraph (1)--
                    ``(A) shall include such group of items and services 
                as the Secretary may prescribe,
                    ``(B) shall be conducted in not more than 3 
                competitive acquisition areas, and

[[Page 111 STAT. 393]]

                    ``(C) shall be operated over a 3-year period.
            ``(3) Criteria for establishment of competitive acquisition 
        areas.--Each competitive acquisition area established under a 
        demonstration project implemented under paragraph (1)--
                    ``(A) shall be, or shall be within, a metropolitan 
                statistical area (as defined by the Secretary of 
                Commerce), and
                    ``(B) shall be chosen based on the availability and 
                accessibility of entities able to furnish items and 
                services, and the probable savings to be realized by the 
                use of competitive bidding in the furnishing of items 
                and services in such area.

    ``(b) Awarding of Contracts in Areas.--
            ``(1) In general.--The Secretary shall conduct a competition 
        among individuals and entities supplying items and services 
        described in subsection (c) for each competitive acquisition 
        area established under a demonstration project implemented under 
        subsection (a).
            ``(2) Conditions for awarding contract.--The Secretary may 
        not award a contract to any entity under the competition 
        conducted pursuant to paragraph (1) to furnish an item or 
        service unless the Secretary finds that the entity meets quality 
        standards specified by the Secretary that the total amounts to 
        be paid under the contract are expected to be less than the 
        total amounts that would otherwise be paid.
            ``(3) Contents of contract.--A contract entered into with an 
        entity under the competition conducted pursuant to paragraph (1) 
        is subject to terms and conditions that the Secretary may 
        specify.
            ``(4) Limit on number of contractors.--The Secretary may 
        limit the number of contractors in a competitive acquisition 
        area to the number needed to meet projected demand for items and 
        services covered under the contracts.

    ``(c) Expansion of Projects.--
            ``(1) Evaluations.--The Secretary shall evaluate the impact 
        of the implementation of the demonstration projects on medicare 
        program payments, access, diversity of product selection, and 
        quality. The Secretary shall make annual reports to the 
        Committees on Ways and Means and Commerce of the House of 
        Representatives and the Committee on Finance of the Senate on 
        the results of the evaluation described in the preceding 
        sentence and a final report not later than 6 months after the 
        termination date specified in subsection (e).
            ``(2) Expansion.--If the Secretary determines from the 
        evaluations under paragraph (1) that there is clear evidence 
        that any demonstration project--
                    ``(A) results in a decrease in Federal expenditures 
                under this title, and
                    ``(B) does not reduce program access, diversity of 
                product selection, and quality under this title,
        the Secretary may expand the project to additional competitive 
        acquisition areas.

    ``(d) Services described.--The items and services to which this 
section applies are all items and services covered under this part 
(except for physicians' services as defined in section 1861(s)(1)) that 
the Secretary may specify. At least one demonstration project shall 
include oxygen and oxygen equipment.

[[Page 111 STAT. 394]]

    ``(e) Termination.--Notwithstanding any other provision of this 
section, all projects under this section shall terminate not later than 
December 31, 2002.''.
    (b) Items and Services To Be Furnished Only Through Competitive 
Acquisition.--Section 1862(a) (42 U.S.C. 1395y(a)) is amended--
            (1) by striking ``or'' at the end of paragraph (15),
            (2) by striking the period at the end of paragraph (16) and 
        inserting ``; or'', and
            (3) by inserting after paragraph (16) the following new 
        paragraph:
            ``(17) where the expenses are for an item or service 
        furnished in a competitive acquisition area (as established by 
        the Secretary under section 1847(a)) by an entity other than an 
        entity with which the Secretary has entered into a contract 
        under section 1847(b) for the furnishing of such an item or 
        service in that area, unless the Secretary finds that the 
        expenses were incurred in a case of urgent need, or in other 
        circumstances specified by the Secretary.''.

<<NOTE: 42 USC 1395w-3 note.>>     (c) Study by GAO.--The Comptroller of 
the United States shall study the effectiveness of the establishment of 
competitive acquisition areas under section 1847(a) of the Social 
Security Act, as added by this section.

SEC. 4320. PROHIBITING UNNECESSARY AND WASTEFUL MEDICARE PAYMENTS FOR 
            CERTAIN ITEMS.

    Section 1861(v) (42 U.S.C. 1395x(v)) is amended by adding at the end 
the following new paragraph:
            ``(8) Items unrelated to patient care.--Reasonable costs do 
        not include costs for the following--
                    ``(i) entertainment, including tickets to sporting 
                and other entertainment events;
                    ``(ii) gifts or donations;
                    ``(iii) personal use of motor vehicles;
                    ``(iv) costs for fines and penalties resulting from 
                violations of Federal, State, or local laws; and
                    ``(v) education expenses for spouses or other 
                dependents of providers of services, their employees or 
                contractors.''.

SEC. 4321. NONDISCRIMINATION IN POST-HOSPITAL REFERRAL TO HOME HEALTH 
            AGENCIES AND OTHER ENTITIES.

    (a) Notification of Availability of Home Health Agencies and Other 
Entities As Part of Discharge Planning Process.--Section 1861(ee)(2) (42 
U.S.C. 1395x(ee)(2)) is amended--
            (1) in subparagraph (D), by inserting before the period the 
        following: ``, including the availability of home health 
        services through individuals and entities that participate in 
        the program under this title and that serve the area in which 
        the patient resides and that request to be listed by the 
        hospital as available''; and
            (2) by adding at the end the following new subparagraph:
            ``(H) Consistent with section 1802, the discharge plan 
        shall--
                    ``(i) not specify or otherwise limit the qualified 
                provider which may provide post-hospital home health 
                services, and
                    ``(ii) identify (in a form and manner specified by 
                the Secretary) any entity to whom the individual is 
                referred in which the hospital has a disclosable 
                financial interest

[[Page 111 STAT. 395]]

                (as specified by the Secretary consistent with section 
                1866(a)(1)(S)) or which has such an interest in the 
                hospital.''.

    (b) Maintenance and Disclosure of Information on Post-Hospital Home 
Health Agencies and Other Entities.--Section 1866(a)(1) (42 U.S.C. 
1395cc(a)(1)) is amended--
            (1) by striking ``and'' at the end of subparagraph (Q),
            (2) by striking the period at the end of subparagraph (R), 
        and
            (3) by adding at the end the following new subparagraph:
            ``(S) in the case of a hospital that has a financial 
        interest (as specified by the Secretary in regulations) in an 
        entity to which individuals are referred as described in section 
        1861(ee)(2)(H)(ii), or in which such an entity has such a 
        financial interest, or in which another entity has such a 
        financial interest (directly or indirectly) with such hospital 
        and such an entity, to maintain and disclose to the Secretary 
        (in a form and manner specified by the Secretary) information 
        on--
                    ``(i) the nature of such financial interest,
                    ``(ii) the number of individuals who were discharged 
                from the hospital and who were identified as requiring 
                home health services, and
                    ``(iii) the percentage of such individuals who 
                received such services from such provider (or another 
                such provider).''.

    (c) Disclosure of Information to the Public.--Title XI is amended by 
inserting after section 1145 the following new section:

<<NOTE: 42 usc 1320b-16.>> ``public disclosure of certain information on 
hospital financial interest and referral patterns

    ``Sec. 1146. The Secretary shall make available to the public, in a 
form and manner specified by the Secretary, information disclosed to the 
Secretary pursuant to section 1866(a)(1)(S).''.
<<NOTE: 42 USC 1395x note.>>     (d) Effective Dates.--
            (1) The amendments made by subsection (a) shall apply to 
        discharges occurring on or after the date which is 90 days after 
        the date of the enactment of this Act.
        <<NOTE: Regulations. 42 USC 1320b-16 note.>>     (2) The 
        Secretary of Health and Human Services shall issue regulations 
        by not later than the date which is 1 year after the date of the 
        enactment of this Act to carry out the amendments made by 
        subsections (b) and (c) and such amendments shall take effect as 
        of such date (on or after the issuance of such regulations) as 
        the Secretary specifies in such regulations.

             CHAPTER 3--CLARIFICATIONS AND TECHNICAL CHANGES

SEC. 4331. OTHER FRAUD AND ABUSE RELATED PROVISIONS.

    (a) Reference Correction.--(1) Section 1128D(b)(2)(D) (42 U.S.C. 
1320a-7d(b)(2)(D)), as added by section 205 of the Health Insurance 
Portability and Accountability Act of 1996, is amended by striking 
``1128B(b)'' and inserting ``1128A(b)''.
    (2) Section 1128E(g)(3)(C) (42 U.S.C. 1320a-7e(g)(3)(C)) is amended 
by striking ``Veterans' Administration'' and inserting ``Department of 
Veterans Affairs''.

[[Page 111 STAT. 396]]

    (b) Language in Definition of Conviction.--Section 1128E(g)(5) (42 
U.S.C. 1320a-7e(g)(5)), as inserted by section 221(a) of the Health 
Insurance Portability and Accountability Act of 1996, is amended by 
striking ``paragraph (4)'' and inserting ``paragraphs (1) through (4)''.
    (c) Implementation of Exclusions.--Section 1128 (42 U.S.C. 1320a-7) 
is amended--
            (1) in subsection (a), by striking ``any program under title 
        XVIII and shall direct that the following individuals and 
        entities be excluded from participation in any State health care 
        program (as defined in subsection (h))'' and inserting ``any 
        Federal health care program (as defined in section 1128B(f))''; 
        and
            (2) in subsection (b), by striking ``any program under title 
        XVIII and may direct that the following individuals and entities 
        be excluded from participation in any State health care 
        program'' and inserting ``any Federal health care program (as 
        defined in section 1128B(f))''.

    (d) Sanctions for Failure to Report.--Section 1128E(b) (42 U.S.C. 
1320a-7e(b)), as inserted by section 221(a) of the Health Insurance 
Portability and Accountability Act of 1996, is amended by adding at the 
end the following:
            ``(6) Sanctions for failure to report.--
                    ``(A) Health plans.--Any health plan that fails to 
                report information on an adverse action required to be 
                reported under this subsection shall be subject to a 
                civil money penalty of not more than $25,000 for each 
                such adverse action not reported. Such penalty shall be 
                imposed and collected in the same manner as civil money 
                penalties under subsection (a) of section 1128A are 
                imposed and collected under that section.
                <<NOTE: Publication.>>     ``(B) Governmental 
                agencies.--The Secretary shall provide for a publication 
                of a public report that identifies those Government 
                agencies that have failed to report information on 
                adverse actions as required to be reported under this 
                subsection.''.

    (e) Clarification of Treatment of Certain Waivers and Payments of 
Premiums.--Section 1128A(i)(6) (42 U.S.C. 1320a-7a(i)(6)) is amended--
            (1) in subparagraph (A)(iii)--
                    (A) in subclause (I), by adding ``or'' at the end;
                    (B) in subclause (II), by striking ``or'' at the 
                end; and
                    (C) by striking subclause (III);
            (2) by redesignating subparagraphs (B) and (C) as 
        subparagraphs (C) and (D); and
            (3) by inserting after subparagraph (A) the following:
                    ``(B) any permissible waiver as specified in section 
                1128B(b)(3) or in regulations issued by the 
                Secretary;''.

<<NOTE: 42 USC 1320a-7e note.>>     (f) Effective Dates.--
            (1) In general.--Except as provided in this subsection, the 
        amendments made by this section shall be effective as if 
        included in the enactment of the Health Insurance Portability 
        and Accountability Act of 1996.
            (2) Federal health program.--The amendments made by 
        subsection (c) shall take effect on the date of the enactment of 
        this Act.

[[Page 111 STAT. 397]]

            (3) Sanction for failure to report.--The amendment made by 
        subsection (d) shall apply to failures occurring on or after the 
        date of the enactment of this Act.

             Subtitle E--Provisions Relating to Part A Only

                   CHAPTER 1--PAYMENT OF PPS HOSPITALS

SEC. 4401. PPS HOSPITAL PAYMENT UPDATE.

    (a) In General.--Section 1886(b)(3)(B)(i) (42 U.S.C. 
1395ww(b)(3)(B)(i)) is amended--
            (1) by striking ``and'' at the end of subclause (XII), and
            (2) by striking subclause (XIII) and inserting the 
        following:
            ``(XIII) for fiscal year 1998, 0 percent,
            ``(XIV) for fiscal year 1999, the market basket percentage 
        increase minus 1.9 percentage points for hospitals in all areas,
            ``(XV) for fiscal year 2000, the market basket percentage 
        increase minus 1.8 percentage points for hospitals in all areas,
            ``(XVI) for each of fiscal years 2001 and 2002, the market 
        basket percentage increase minus 1.1 percentage point for 
        hospitals in all areas, and
            ``(XVII) for fiscal year 2003 and each subsequent fiscal 
        year, the market basket percentage increase for hospitals in all 
        areas.''.

<<NOTE: 42 USC 1395ww note.>>     (b) Temporary Relief for Certain Non-
Teaching, Non-DSH Hospitals.--
            (1) In general.--In the case of a hospital described in 
        paragraph (2) for its cost reporting period--
                    (A) beginning in fiscal year 1998 the amount of 
                payment made to the hospital under section 1886(d) of 
                the Social Security Act for discharges occurring during 
                such fiscal year only shall be increased as though the 
                applicable percentage increase (otherwise applicable to 
                discharges occurring during fiscal year 1998 under 
                section 1886(b)(3)(B)(i)(XIII) of the Social Security 
                Act (42 U.S.C. 1395ww(b)(3)(B)(i)(XIII))) had been 
                increased by 0.5 percentage points; and
                    (B) beginning in fiscal year 1999 the amount of 
                payment made to the hospital under section 1886(d) of 
                the Social Security Act for discharges occurring during 
                such fiscal year only shall be increased as though the 
                applicable percentage increase (otherwise applicable to 
                discharges occurring during fiscal year 1999 under 
                section 1886(b)(3)(B)(i)(XIII) of the Social Security 
                Act (42 U.S.C. 1395ww(b)(3)(B)(i)(XIII))) had been 
                increased by 0.3 percentage points.
        Subparagraph (A) shall not apply in computing the increase under 
        subparagraph (B) and neither subparagraph shall affect payment 
        for discharges for any hospital occurring during a fiscal year 
        after fiscal year 1999. Payment increases under this subsection 
        for discharges occurring during a fiscal year are subject to 
        settlement after the close of the fiscal year.
            (2) Hospitals covered.--A hospital described in this 
        paragraph for a cost reporting period is a hospital--
                    (A) that is described in paragraph (3) for such 
                period;

[[Page 111 STAT. 398]]

                    (B) that is located in a State in which the amount 
                of the aggregate payments under section 1886(d) of such 
                Act for hospitals located in the State and described in 
                paragraph (3) for their cost reporting periods beginning 
                during fiscal year 1995 is less than the aggregate 
                allowable operating costs of inpatient hospital services 
                (as defined in section 1886(a)(4) of such Act) for all 
                such hospitals in such State with respect to such cost 
                reporting periods; and
                    (C) with respect to which the payments under section 
                1886(d) of such Act (42 U.S.C. 1395ww(d)) for discharges 
                occurring in the cost reporting period involved, as 
                estimated by the Secretary, is less than the allowable 
                operating costs of inpatient hospital services (as 
                defined in section 1886(a)(4) of such Act (42 U.S.C. 
                1395ww(a)(4)) for such hospital for such period, as 
                estimated by the Secretary.
            (3) Non-teaching, non-DSH hospitals described.--A hospital 
        described in this paragraph for a cost reporting period is a 
        subsection (d) hospital (as defined in section 1886(d)(1)(B) of 
        such Act (42 U.S.C. 1395ww(d)(1)(B))) that--
                    (A) is not receiving any additional payment amount 
                described in section 1886(d)(5)(F) of such Act (42 
                U.S.C. 1395ww(d)(5)(F)) for discharges occurring during 
                the period;
                    (B) is not receiving any additional payment under 
                section 1886(d)(5)(B) of such Act (42 U.S.C. 
                1395ww(d)(5)(B)) or a payment under section 1886(h) of 
                such Act (42 U.S.C. 1395ww(h)) for discharges occurring 
                during the period; and
                    (C) does not qualify for payment under section 
                1886(d)(5)(G) of such Act (42 U.S.C. 1395ww(d)(5)(G)) 
                for the period.

SEC. 4402. MAINTAINING SAVINGS FROM TEMPORARY REDUCTION IN CAPITAL 
            PAYMENTS FOR PPS HOSPITALS.

    Section 1886(g)(1)(A) (42 U.S.C. 1395ww(g)(1)(A)) is amended by 
adding at the end the following: ``In addition to the reduction 
described in the preceding sentence, for discharges occurring on or 
after October 1, 1997, the Secretary shall apply the budget neutrality 
adjustment factor used to determine the Federal capital payment rate in 
effect on September 30, 1995 (as described in section 412.352 of title 
42 of the Code of Federal Regulations), to (i) the unadjusted standard 
Federal capital payment rate (as described in section 412.308(c) of that 
title, as in effect on September 30, 1997), and (ii) the unadjusted 
hospital-specific rate (as described in section 412.328(e)(1) of that 
title, as in effect on September 30, 1997), and, for discharges 
occurring on or after October 1, 1997, and before September 30, 2002, 
reduce the rates described in clauses (i) and (ii) by 2.1 percent.''.

SEC. 4403. DISPROPORTIONATE SHARE.

    (a) In General.--Section 1886(d)(5)(F) (42 U.S.C. 1395ww(d)(5)(F)) 
is amended--
            (1) in clause (i) by inserting ``and before October 1, 
        1997'' after ``May 1, 1986'';
            (2) in clause (ii), by striking ``The amount'' and inserting 
        ``Subject to clause (ix), the amount''; and
            (3) by adding at the end the following new clause:

    ``(ix) In the case of discharges occurring--

[[Page 111 STAT. 399]]

            ``(I) during fiscal year 1998, the additional payment amount 
        otherwise determined under clause (ii) shall be reduced by 1 
        percent;
            ``(II) during fiscal year 1999, such additional payment 
        amount shall be reduced by 2 percent;
            ``(III) during fiscal year 2000, such additional payment 
        amount shall be reduced by 3 percent;
            ``(IV) during fiscal year 2001, such additional payment 
        amount shall be reduced by 4 percent;
            ``(V) during fiscal year 2002, such additional payment 
        amount shall be reduced by 5 percent; and
            ``(VI) during fiscal year 2003 and each subsequent fiscal 
        year, such additional payment amount shall be reduced by 0 
        percent.''.

<<NOTE: 42 USC 1395ww note.>>     (b) Report on New Payment Formula.--
            (1) Report.--Not later than 1 year after the date of the 
        enactment of this Act, the Secretary of Health and Human 
        Services shall submit to the Committee on Ways and Means of the 
        House of Representatives and the Committee on Finance of the 
        Senate a report that contains a formula for determining 
        additional payment amounts to hospitals under section 
        1886(d)(5)(F) of the Social Security Act (42 U.S.C. 
        1395ww(d)(5)(F)).
            (2) Factors in Determination of Formula.--In determining 
        such formula the Secretary shall--
                    (A) establish a single threshold for costs incurred 
                by hospitals in serving low-income patients, and
                    (B) consider the costs described in paragraph (3).
            (3) The costs described in this paragraph are as follows:
                    (A) The costs incurred by the hospital during a 
                period (as determined by the Secretary) of furnishing 
                hospital services to individuals who are entitled to 
                benefits under part A of title XVIII of the Social 
                Security Act and who receive supplemental security 
                income benefits under title XVI of such Act (excluding 
                any supplementation of those benefits by a State under 
                section 1616 of such Act (42 U.S.C. 1382e)).
                    (B) The costs incurred by the hospital during a 
                period (as so determined) of furnishing hospital 
                services to individuals who receive medical assistance 
                under the State plan under title XIX of such Act and are 
                not entitled to benefits under part A of title XVIII of 
                such Act (including individuals enrolled in a managed 
                care organization (as defined in section 1903(m)(1)(A) 
                of such Act (42 U.S.C. 1396b(m)(1)(A)) or any other 
                managed care plan under such title and individuals who 
                receive medical assistance under such title pursuant to 
                a waiver approved by the Secretary under section 1115 of 
                such Act (42 U.S.C. 1315)).

<<NOTE: 42 USC 1395ww note.>>     (c) Data Collection.--In developing 
the formula described in subsection (b), the Secretary of Health and 
Human Services may require any subsection (d) hospital (as defined in 
section 1886(d)(1)(B) of the Social Security Act (42 U.S.C. 
1395ww(d)(1)(B))) receiving additional payments by reason of section 
1886(d)(5)(F) of such Act (42 U.S.C. 1395ww(d)(5)(F)) to submit to the 
Secretary any information that the Secretary determines is necessary to 
develop such formula.

[[Page 111 STAT. 400]]

SEC. 4404. MEDICARE CAPITAL ASSET SALES PRICE EQUAL TO BOOK VALUE.

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

<<NOTE: 42 USC 1395x note.>>     (b) Effective Date.--The amendments 
made by subsection (a) apply to changes of ownership that occur after 
the third month beginning after the date of enactment of this section.

SEC. 4405. ELIMINATION OF IME AND DSH PAYMENTS ATTRIBUTABLE TO OUTLIER 
            PAYMENTS.

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

SEC. 4406. INCREASE BASE PAYMENT RATE TO PUERTO RICO HOSPITALS.

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

[[Page 111 STAT. 401]]

SEC. 4407. CERTAIN HOSPITAL DISCHARGES TO POST ACUTE CARE.

    Section 1886(d)(5) (42 U.S.C. 1395ww(d)(5)) is amended--
            (1) in subparagraph (I)(ii) by inserting ``not taking in 
        account the effect of subparagraph (J),'' after ``in a fiscal 
        year, ''; and
            (2) by adding at the end the following new subparagraph:

    ``(J)(i) The Secretary shall treat the term `transfer case' (as 
defined in subparagraph (I)(ii)) as including the case of a qualified 
discharge (as defined in clause (ii)), which is classified within a 
diagnosis-related group described in clause (iii), and which occurs on 
or after October 1, 1998. In the case of a qualified discharge for which 
a substantial portion of the costs of care are incurred in the early 
days of the inpatient stay (as defined by the Secretary), in no case may 
the payment amount otherwise provided under this subsection exceed an 
amount equal to the sum of--
            ``(I) 50 percent of the amount of payment under this 
        subsection for transfer cases (as established under subparagraph 
        (I)(i)), and
            ``(II) 50 percent of the amount of payment which would have 
        been made under this subsection with respect to the qualified 
        discharge if no transfer were involved.

    ``(ii) For purposes of clause (i), subject to clause (iii), the term 
`qualified discharge' means a discharge classified with a diagnosis-
related group (described in clause (iii)) of an individual from a 
subsection (d) hospital, if upon such discharge the individual--
            ``(I) is admitted as an inpatient to a hospital or hospital 
        unit that is not a subsection (d) hospital for the provision of 
        inpatient hospital services;
            ``(II) is admitted to a skilled nursing facility;
            ``(III) is provided home health services from a home health 
        agency, if such services relate to the condition or diagnosis 
        for which such individual received inpatient hospital services 
        from the subsection (d) hospital, and if such services are 
        provided within an appropriate period (as determined by the 
        Secretary); or
            ``(IV) for discharges occurring on or after October 1, 2000, 
        the individual receives post discharge services described in 
        clause (iv)(I).

    ``(iii) Subject to clause (iv), a diagnosis-related group described 
in this clause is--
            ``(I) 1 of 10 diagnosis-related groups selected by the 
        Secretary based upon a high volume of discharges classified 
        within such groups and a disproportionate use of post discharge 
        services described in clause (ii); and
            ``(II) a diagnosis-related group specified by the Secretary 
        under clause (iv)(II).

    ``(iv) The Secretary shall include in the proposed rule published 
under subsection (e)(5)(A) for fiscal year 2001, a description of the 
effect of this subparagraph. The Secretary may include in the proposed 
rule (and in the final rule published under paragraph (6)) for fiscal 
year 2001 or a subsequent fiscal year, a description of--
            ``(I) post-discharge services not described in subclauses 
        (I), (II), and (III) of clause (ii), the receipt of which 
        results in a qualified discharge; and
            ``(II) diagnosis-related groups described in clause (iii)(I) 
        in addition to the 10 selected under such clause.''.

[[Page 111 STAT. 402]]

SEC. 4408. RECLASSIFICATION OF CERTAIN COUNTIES AS LARGE URBAN AREAS 
            UNDER MEDICARE PROGRAM.

    (a) In General.--For purposes of section 1886(d) of the Social 
Security Act (42 U.S.C. 1395ww(d)), the large urban area of Charlotte-
Gastonia-Rock Hill-North Carolina-South Carolina may be deemed to 
include Stanly County, North Carolina.
    (b) Effective Date.--This section shall apply with respect to 
discharges occurring on or after October 1, 1997.

<<NOTE: 42 USC 1395ww note.>> SEC. 4409. GEOGRAPHIC RECLASSIFICATION FOR 
            CERTAIN DISPROPORTIONATELY LARGE HOSPITALS.

<<NOTE: Publication.>>     (a) New Guidelines for Reclassification.--
Notwithstanding the guidelines published under section 
1886(d)(10)(D)(i)(I) of the Social Security Act (42 U.S.C. 
1395ww(d)(10)(D)(i)(I)), the Secretary of Health and Human Services 
shall publish and use alternative guidelines under which a hospital 
described in subsection (b) qualifies for geographic reclassification 
under such section for a fiscal year beginning with fiscal year 1998.

    (b) Hospitals Covered.--A hospital described in this subsection is a 
hospital that demonstrates that--
            (1) the average hourly wage paid by the hospital is not less 
        than 108 percent of the average hourly wage paid by all other 
        hospitals located in the Metropolitan Statistical Area (or the 
        New England County Metropolitan Area) in which the hospital is 
        located;
            (2) not less than 40 percent of the adjusted uninflated 
        wages paid by all hospitals located in such Area is attributable 
        to wages paid by the hospital; and
            (3) the hospital submitted an application requesting 
        reclassification for purposes of wage index under section 
        1886(d)(10)(C) of such Act (42 U.S.C. 1395ww(d)(10)(C)) in each 
        of fiscal years 1992 through 1997 and that such request was 
        approved for each of such fiscal years.

<<NOTE: 42 USC 1395ww note.>> SEC. 4410. FLOOR ON AREA WAGE INDEX.

    (a) In General.--For purposes of section 1886(d)(3)(E) of the Social 
Security Act (42 U.S.C. 1395ww(d)(3)(E)) for discharges occurring on or 
after October 1, 1997, the area wage index applicable under such section 
to any hospital which is not located in a rural area (as defined in 
section 1886(d)(2)(D) of such Act (42 U.S.C. 1395ww(d)(2)(D)) may not be 
less than the area wage index applicable under such section to hospitals 
located in rural areas in the State in which the hospital is located.
    (b) Implementation.--The Secretary of Health and Human Services 
shall adjust the area wage index referred to in subsection (a) for 
hospitals not described in such subsection in a manner which assures 
that the aggregate payments made under section 1886(d) of the Social 
Security Act (42 U.S.C. 1395ww(d)) in a fiscal year for the operating 
costs of inpatient hospital services are not greater or less than those 
which would have been made in the year if this section did not apply.
    (c) Exclusion of Certain Wages.--In the case of a hospital that is 
owned by a municipality and that was reclassified as an urban hospital 
under section 1886(d)(10) of the Social Security Act for fiscal year 
1996, in calculating the hospital's average hourly wage for purposes of 
geographic reclassification under such section for fiscal year 1998, the 
Secretary of Health and Human Services

[[Page 111 STAT. 403]]

shall exclude the general service wages and hours of personnel 
associated with a skilled nursing facility that is owned by the hospital 
of the same municipality and that is physically separated from the 
hospital to the extent that such wages and hours of such personnel are 
not shared with the hospital and are separately documented. A hospital 
that applied for and was denied reclassification as an urban hospital 
for fiscal year 1998, but that would have received reclassification had 
the exclusion required by this section been applied to it, shall be 
reclassified as an urban hospital for fiscal year 1998.

               CHAPTER 2--PAYMENT OF PPS-EXEMPT HOSPITALS

                Subchapter A--General Payment Provisions

SEC. 4411. PAYMENT UPDATE.

    (a) In General.--Section 1886(b)(3)(B) (42 U.S.C. 1395ww(b)(3)(B)) 
is amended--
            (1) in clause (ii)--
                    (A) by striking ``and'' at the end of subclause (V),
                    (B) by redesignating subclause (VI) as subclause 
                (VIII); and
                    (C) by inserting after subclause (V), the following 
                subclauses:
            ``(VI) for fiscal year 1998, is 0 percent;
            ``(VII) for fiscal years 1999 through 2002, is the 
        applicable update factor specified under clause (vi) for the 
        fiscal year; and''; and
            (2) by adding at the end the following new clause:

    ``(vi) For purposes of clause (ii)(VII) for a fiscal year, if a 
hospital's allowable operating costs of inpatient hospital services 
recognized under this title for the most recent cost reporting period 
for which information is available--
            ``(I) is equal to, or exceeds, 110 percent of the hospital's 
        target amount (as determined under subparagraph (A)) for such 
        cost reporting period, the applicable update factor specified 
        under this clause is the market basket percentage;
            ``(II) exceeds 100 percent, but is less than 110 percent, of 
        such target amount for the hospital, the applicable update 
        factor specified under this clause is 0 percent or, if greater, 
        the market basket percentage minus 0.25 percentage points for 
        each percentage point by which such allowable operating costs 
        (expressed as a percentage of such target amount) is less than 
        110 percent of such target amount;
            ``(III) is equal to, or less than 100 percent, but exceeds 
        \2/3\ of such target amount for the hospital, the applicable 
        update factor specified under this clause is 0 percent or, if 
        greater, the market basket percentage minus 2.5 percentage 
        points; or
            ``(IV) does not exceed \2/3\ of such target amount for the 
        hospital, the applicable update factor specified under this 
        clause is 0 percent.''.

    (b) No Effect of Payment Reduction on Exceptions and Adjustments.--
Section 1886(b)(4)(A)(ii) (42 U.S.C. 1395ww(b)(4)(A)(ii)) is amended by 
adding at the end the following new sentence: ``In making such 
reductions, the Secretary shall treat the applicable update factor 
described in paragraph (3)(B)(vi)

[[Page 111 STAT. 404]]

for a fiscal year as being equal to the market basket percentage for 
that year.''.

SEC. 4412. REDUCTIONS TO CAPITAL PAYMENTS FOR CERTAIN PPS-EXEMPT 
            HOSPITALS AND UNITS.

    Section 1886(g) (42 U.S.C. 1395ww(g)) is amended by adding at the 
end the following new paragraph:
    ``(4) In determining the amount of the payments that are 
attributable to portions of cost reporting periods occurring during 
fiscal years 1998 through 2002 and that may be made under this title 
with respect to capital-related costs of inpatient hospital services of 
a hospital which is described in clause (i), (ii), or (iv) of subsection 
(d)(1)(B) or a unit described in the matter after clause (v) of such 
subsection, the Secretary shall reduce the amounts of such payments 
otherwise determined under this title by 15 percent.''.

SEC. 4413. REBASING.

    (a) Option of Rebasing for Hospitals In Operation Before 1990.--
Section 1886(b)(3)(42 U.S.C. 1395ww(b)(3)) is amended--
            (1) in subparagraph (A) by striking ``subparagraphs (C), 
        (D), and (E)'' and inserting ``subparagraph (C) and succeeding 
        subparagraphs'', and
            (2) by adding at the end the following new subparagraph:

    ``(F)(i) In the case of a hospital (or unit described in the matter 
following clause (v) of subsection (d)(1)(B)) that received payment 
under this subsection for inpatient hospital services furnished during 
cost reporting periods beginning before October 1, 1990, that is within 
a class of hospital described in clause (iii), and that elects (in a 
form and manner determined by the Secretary) this subparagraph to apply 
to the hospital, the target amount for the hospital's 12-month cost 
reporting period beginning during fiscal year 1998 is equal to the 
average described in clause (ii).
    ``(ii) The average described in this clause for a hospital or unit 
shall be determined by the Secretary as follows:
            ``(I) The Secretary shall determine the allowable operating 
        costs for inpatient hospital services for the hospital or unit 
        for each of the 5 cost reporting periods for which the Secretary 
        has the most recent settled cost reports as of the date of the 
        enactment of this subparagraph.
            ``(II) The Secretary shall increase the amount determined 
        under subclause (I) for each cost reporting period by the 
        applicable percentage increase under subparagraph (B)(ii) for 
        each subsequent cost reporting period up to the cost reporting 
        period described in clause (i).
            ``(III) The Secretary shall identify among such 5 cost 
        reporting periods the cost reporting periods for which the 
        amount determined under subclause (II) is the highest, and the 
        lowest.
            ``(IV) The Secretary shall compute the averages of the 
        amounts determined under subclause (II) for the 3 cost reporting 
        periods not identified under subclause (III).

    ``(iii) For purposes of this subparagraph, each of the following 
shall be treated as a separate class of hospital:
            ``(I) Hospitals described in clause (i) of subsection 
        (d)(1)(B) and psychiatric units described in the matter 
        following clause (v) of such subsection.
            ``(II) Hospitals described in clause (ii) of such subsection 
        and rehabilitation units described in the matter following 
        clause (v) of such subsection.

[[Page 111 STAT. 405]]

            ``(III) Hospitals described in clause (iii) of such 
        subsection.
            ``(IV) Hospitals described in clause (iv) of such 
        subsection.
            ``(V) Hospitals described in clause (v) of such 
        subsection.''.

    (b) Certain Long-Term Care Hospitals.--Section 1886(b)(3) (42 U.S.C. 
1395ww(b)(3)), as amended by subsection (a), is amended by adding at the 
end the following new subparagraph:
    ``(G)(i) In the case of a qualified long-term care hospital (as 
defined in clause (ii)) that elects (in a form and manner determined by 
the Secretary) this subparagraph to apply to the hospital, the target 
amount for the hospital's 12-month cost reporting period beginning 
during fiscal year 1998 is equal to the allowable operating costs of 
inpatient hospital services (as defined in subsection (a)(4)) recognized 
under this title for the hospital for the 12-month cost reporting period 
beginning during fiscal year 1996, increased by the applicable 
percentage increase for the cost reporting period beginning during 
fiscal year 1997.
    ``(ii) In clause (i), a `qualified long-term care hospital' means, 
with respect to a cost reporting period, a hospital described in clause 
(iv) of subsection (d)(1)(B) during each of the 2 cost reporting periods 
for which the Secretary has the most recent settled cost reports as of 
the date of the enactment of this subparagraph for each of which--
            ``(I) the hospital's allowable operating costs of inpatient 
        hospital services recognized under this title exceeded 115 
        percent of the hospital's target amount, and
            ``(II) the hospital would have a disproportionate patient 
        percentage of at least 70 percent (as determined by the 
        Secretary under subsection (d)(5)(F)(vi)) if the hospital were a 
        subsection (d) hospital.''.

SEC. 4414. CAP ON TEFRA LIMITS.

    Section 1886(b)(3) (42 U.S.C. 1395ww(b)(3)), as amended by section 
4413, is amended by adding at the end the following new subparagraph:
    ``(H)(i) In the case of a hospital or unit that is within a class of 
hospital described in clause (iv), the Secretary shall estimate the 75th 
percentile of the target amounts for such hospitals within such class 
for cost reporting periods ending during fiscal year 1996.
    ``(ii) The Secretary shall update the amount determined under clause 
(i), for each cost reporting period after the cost reporting period 
described in such clause and up to the first cost reporting period 
beginning on or after October 1, 1997, by a factor equal to the market 
basket percentage increase.
    ``(iii) For cost reporting periods beginning during each of fiscal 
years 1999 through 2002, the Secretary shall update such amount by a 
factor equal to the market basket percentage increase.
    ``(iv) For purposes of this subparagraph, each of the following 
shall be treated as a separate class of hospital:
            ``(I) Hospitals described in clause (i) of subsection 
        (d)(1)(B) and psychiatric units described in the matter 
        following clause (v) of such subsection.
            ``(II) Hospitals described in clause (ii) of such subsection 
        and rehabilitation units described in the matter following 
        clause (v) of such subsection.
            ``(III) Hospitals described in clause (iv) of such 
        subsection.''.

[[Page 111 STAT. 406]]

SEC. 4415. BONUS AND RELIEF PAYMENTS.

    (a) Change in Bonus Payment.--Section 1886(b)(1) (42 U.S.C. 
1395ww(b)(1)) is amended in subparagraph (A) by striking all that 
follows ``plus--'' and inserting the following:
                    ``(i) 15 percent of the amount by which the target 
                amount exceeds the amount of the operating costs, or
                    ``(ii) 2 percent of the target amount,
        whichever is less;''.

    (b) Continuous Improvement Bonus Payments.--Section 1886(b) (42 
U.S.C. 1395ww(b)) is amended--
            (1) in paragraph (1), by inserting ``plus the amount, if 
        any, provided under paragraph (2)'' before ``except that in no 
        case''; and
            (2) by inserting after paragraph (1), the following new 
        paragraph:

    ``(2)(A) In addition to the payment computed under paragraph (1), in 
the case of an eligible hospital (described in subparagraph (B)) for a 
cost reporting period beginning on or after October 1, 1997, the amount 
of payment on a per discharge basis under paragraph (1) shall be 
increased by the lesser of--
            ``(i) 50 percent of the amount by which the operating costs 
        are less than the expected costs (as defined in subparagraph 
        (D)) for the period; or
            ``(ii) 1 percent of the target amount for the period.

    ``(B) For purposes of this paragraph, an `eligible hospital' means 
with respect to a cost reporting period, a hospital--
            ``(i) that has received payments under this subsection for 
        at least 3 full cost reporting periods before that cost 
        reporting period, and
            ``(ii) whose operating costs for the period are less than 
        the least of its target amount, its trended costs (as defined in 
        subparagraph (C)), or its expected costs (as defined in 
        subparagraph (D)) for the period.

    ``(C) For purposes of subparagraph (B)(ii), the term `trended costs' 
means for a hospital cost reporting period ending in a fiscal year--
            ``(i) in the case of a hospital for which its cost reporting 
        period ending in fiscal year 1996 was its third or subsequent 
        full cost reporting period for which it receives payments under 
        this subsection, the lesser of the operating costs or target 
        amount for that hospital for its cost reporting period ending in 
        fiscal year 1996, or
            ``(ii) in the case of any other hospital, the operating 
        costs for that hospital for its third full cost reporting period 
        for which it receives payments under this subsection,

increased (in a compounded manner) for each succeeding fiscal year 
(through the fiscal year involved) by the market basket percentage 
increase for the fiscal year.
    ``(D) For purposes of this paragraph, the term `expected costs', 
with respect to the cost reporting period ending in a fiscal year, means 
the lesser of the operating costs of inpatient hospital services or 
target amount per discharge for the previous cost reporting period 
updated by the market basket percentage increase (as defined in 
paragraph (3)(B)(iii)) for the fiscal year.''.
    (c) Change in Relief Payments.--Section 1886(b)(1) (42 U.S.C. 
1395ww(b)(1)), as amended in subsections (a) and (b), is further 
amended--

[[Page 111 STAT. 407]]

            (1) by redesignating subparagraph (B) as subparagraph (C)
            (2) in subparagraph (C), as so redesignated--
                    (A) by striking ``greater than the target amount'' 
                and inserting ``greater than 110 percent of the target 
                amount'', and
                    (B) by striking ``exceed the target amount'' and 
                inserting ``exceed 110 percent of the target amount'', 
                and
            (3) by inserting after subparagraph (A), the following new 
        subparagraph:
            ``(B) are greater than the target amount but do not exceed 
        110 percent of the target amount, the amount of the payment with 
        respect to those operating costs payable under part A on a per 
        discharge basis shall equal the target amount; or''.

<<NOTE: 42 USC 1395ww note.>>     (d) Report.--Not later than October 1, 
1999, the Secretary of Health and Human Services shall submit to the 
Committee on Ways and Means of the House of Representatives and the 
Committee on Finance of the Senate a report that describes the effect of 
the amendments to section 1886(b)(1) of the Social Security Act (42 
U.S.C. 1395ww(b)(1)), made under this section, on psychiatric hospitals 
(as defined in section 1886(d)(1)(B)(i) of such Act (42 U.S.C. 
1395ww(d)(1)(B)(i)) that have approved medical residency training 
programs under title XVIII of such Act (42 U.S.C. 1395 et seq.)).

<<NOTE: 42 USC 1395ww note.>>     (e) Effective Date.--The amendments 
made by subsections (a) and (c) shall apply with respect to cost 
reporting periods beginning on or after October 1, 1997.

SEC. 4416. CHANGE IN PAYMENT AND TARGET AMOUNT FOR NEW PROVIDERS.

    Section 1886(b) (42 U.S.C. 1395ww(b)) is amended--
            (1) by adding at the end the following new paragraph:

    ``(7)(A) Notwithstanding paragraph (1), in the case of a hospital or 
unit that is within a class of hospital described in subparagraph (B) 
which first receives payments under this section on or after October 1, 
1997--
            ``(i) for each of the first 2 cost reporting periods for 
        which the hospital has a settled cost report, the amount of the 
        payment with respect to operating costs described in paragraph 
        (1) under part A on a per discharge or per admission basis (as 
        the case may be) is equal to the lesser of--
                    ``(I) the amount of operating costs for such 
                respective period, or
                    ``(II) 110 percent of the national median of the 
                target amount for hospitals in the same class as the 
                hospital for cost reporting periods ending during fiscal 
                year 1996, updated by the hospital market basket 
                increase percentage to the fiscal year in which the 
                hospital first received payments under this section, as 
                adjusted under subparagraph (C); and
            ``(ii) for purposes of computing the target amount for the 
        subsequent cost reporting period, the target amount for the 
        preceding cost reporting period is equal to the amount 
        determined under clause (i) for such preceding period.

    ``(B) For purposes of this paragraph, each of the following shall be 
treated as a separate class of hospital:

[[Page 111 STAT. 408]]

            ``(i) Hospitals described in clause (i) of subsection 
        (d)(1)(B) and psychiatric units described in the matter 
        following clause (v) of such subsection.
            ``(ii) Hospitals described in clause (ii) of such subsection 
        and rehabilitation units described in the matter following 
        clause (v) of such subsection.
            ``(iii) Hospitals described in clause (iv) of such 
        subsection.

    ``(C) In applying subparagraph (A)(i)(II) in the case of a hospital 
or unit, the Secretary shall provide for an appropriate adjustment to 
the labor-related portion of the amount determined under such 
subparagraph to take into account differences between average wage-
related costs in the area of the hospital and the national average of 
such costs within the same class of hospital.''; and
            (2) in paragraph (3)(A), as amended in sections 4413 and 
        4414, by inserting ``and in paragraph (7)(A)(ii),'' before ``for 
        purposes of''.

SEC. 4417. TREATMENT OF CERTAIN LONG-TERM CARE HOSPITALS.

    (a) In General.--(1) Section 1886(d)(1)(B) (42 U.S.C. 
1395ww(d)(1)(B)) is amended by adding at the end the following new 
sentence: ``A hospital that was classified by the Secretary on or before 
September 30, 1995, as a hospital described in clause (iv) shall 
continue to be so classified notwithstanding that it is located in the 
same building as, or on the same campus as, another hospital.''.
<<NOTE: 42 USC 1395ww note.>>     (2) Effective date.--The amendment 
made by paragraph (1) shall apply to discharges occurring on or after 
October 1, 1995.

    (b) Certain Long-Term Care Hospitals That Treat Cancer Patients.--
(1) Section 1886(d)(1)(B)(iv) (42 U.S.C. 1395ww(d)(1)(B)(iv)) is 
amended--
            (A) by inserting ``(I)'' after ``(iv)''; and
            (B) by adding at the end the following:
            ``(II) a hospital that first received payment under this 
        subsection in 1986 which has an average inpatient length of stay 
        (as determined by the Secretary) of greater than 20 days and 
        that has 80 percent or more of its annual medicare inpatient 
        discharges with a principal diagnosis that reflects a finding of 
        neoplastic disease in the 12-month cost reporting period ending 
        in fiscal year 1997, or''.

<<NOTE: 42 USC 1395ww note.>>     (2) Effective date.--The amendment 
made by paragraph (1) shall apply to cost reporting periods beginning on 
or after the date of the enactment of this Act.

SEC. 4418. TREATMENT OF CERTAIN CANCER HOSPITALS.

    (a) In General.--Section 1886(d)(1) (42 U.S.C. 1395ww(d)(1)) is 
amended--
            (1) in subparagraph (B)(v)--
                    (A) by inserting ``(I)'' after ``(v)'';
                    (B) by striking the semicolon at the end and 
                inserting ``, or''; and
                    (C) by adding at the end the following:
            ``(II) a hospital that was recognized as a comprehensive 
        cancer center or clinical cancer research center by the National 
        Cancer Institute of the National Institutes of Health as of 
        April 20, 1983, that is located in a State which, as of December 
        19, 1989, was not operating a demonstration project under 
        section 1814(b), that applied and was denied, on or before 
        December 31, 1990, for classification as a hospital involved

[[Page 111 STAT. 409]]

        extensively in treatment for or research on cancer under this 
        clause (as in effect on the day before the date of the enactment 
        of this subclause), that as of the date of the enactment of this 
        subclause, is licensed for less than 50 acute care beds, and 
        that demonstrates for the 4-year period ending on December 31, 
        1996, that at least 50 percent of its total discharges have a 
        principal finding of neoplastic disease, as defined in 
        subparagraph (E);'' and
            (2) by adding at the end the following:

    ``(E) For purposes of subparagraph (B)(v)(II) only, the term 
`principal finding of neoplastic disease' means the condition 
established after study to be chiefly responsible for occasioning the 
admission of a patient to a hospital, except that only discharges with 
ICD-9-CM principal diagnosis codes of 140 through 239, V58.0, V58.1, 
V66.1, V66.2, or 990 will be considered to reflect such a principal 
diagnosis.''.
<<NOTE: 42 USC 1395ww note.>>     (b) Payment.--
            (1) Application to cost reporting periods.--Any 
        classification by reason of section 1886(d)(1)(B)(v)(II) of the 
        Social Security Act (42 U.S.C. 1395ww(d)(1)(B)(v)(II)) (as added 
        by subsection (a)) shall apply to all cost reporting periods 
        beginning on or after January 1, 1991.
            (2) Base year.--Notwithstanding the provisions of section 
        1886(b)(3)(E) of such Act (42 U.S.C. 1395ww(b)(3)(E)) or other 
        provisions to the contrary, the base cost reporting period for 
        purposes of determining the target amount for any hospital 
        classified by reason of section 1886(d)(1)(B)(v)(II) of such Act 
        shall be either--
                    (A) the hospital's cost reporting period beginning 
                during fiscal year 1990, or
                    (B) pursuant to an election under 1886(b)(3)(G) of 
                such Act (42 U.S.C. 1395ww(b)(3)(G)), as added in 
                section 4413(b), the period provided for under such 
                section.
            (3) Deadline for payments.--Any payments owed to a hospital 
        by reason of this subsection shall be made expeditiously, but in 
        no event later than 1 year after the date of the enactment of 
        this Act.

SEC. 4419. ELIMINATION OF EXEMPTIONS FOR CERTAIN HOSPITALS.

    (a) Reduction of Exemptions.--
            (1) In general.--Section 1886(b)(4)(A)(i) (42 U.S.C. 
        1395ww(b)(4)(A)(i)) is amended in the first sentence by striking 
        ``The Secretary shall provide for an exemption from, or an 
        exception and adjustment to, '' and inserting ``The Secretary 
        shall provide for an exception and adjustment to (and in the 
        case of a hospital or unit described in subsection 
        (d)(1)(B)(iii), may provide an exemption from)''.
        <<NOTE: 42 USC 1395ww note.>>     (2) Effective date.--The 
        amendment made by paragraph (1) shall apply to hospitals or 
        units that first qualify as a hospital or unit described in 
        section 1886(d)(1)(B) (42 U.S.C. 1395ww(d)(1)(B)) for cost 
        reporting periods beginning on or after October 1, 1997.

<<NOTE: Federal Register, publication. 42 USC 1395ww note.>>     (b) 
Report on Exceptions.--The Secretary of Health and Human Services shall 
publish annually in the Federal Register a report describing the total 
amount of payments made to hospitals by reason of section 1886(b)(4) of 
the Social Security Act (42 U.S.C.

[[Page 111 STAT. 410]]

1395ww(b)(4)), as amended by subsection (a), ending during the previous 
fiscal year.

    Subchapter B--Prospective Payment System for PPS-Exempt Hospitals

SEC. 4421. PROSPECTIVE PAYMENT FOR INPATIENT REHABILITATION HOSPITAL 
            SERVICES.

    (a) In General.--Section 1886 (42 U.S.C. 1395ww) is amended by 
adding at the end the following new subsection:
    ``(j) Prospective Payment for Inpatient Rehabilitation Services.--
            ``(1) Payment during transition period.--
                    ``(A) In general.--Notwithstanding section 1814(b), 
                but subject to the provisions of section 1813, the 
                amount of the payment with respect to the operating and 
                capital costs of inpatient hospital services of a 
                rehabilitation hospital or a rehabilitation unit (in 
                this subsection referred to as a `rehabilitation 
                facility'), in a cost reporting period beginning on or 
                after October 1, 2000, and before October 1, 2002, is 
                equal to the sum of--
                          ``(i) the TEFRA percentage (as defined in 
                      subparagraph (C)) of the amount that would have 
                      been paid under part A with respect to such costs 
                      if this subsection did not apply, and
                          ``(ii) the prospective payment percentage (as 
                      defined in subparagraph (C)) of the product of (I) 
                      the per unit payment rate established under this 
                      subsection for the fiscal year in which the 
                      payment unit of service occurs, and (II) the 
                      number of such payment units occurring in the cost 
                      reporting period.
                    ``(B) Fully implemented system.--Notwithstanding 
                section 1814(b), but subject to the provisions of 
                section 1813, the amount of the payment with respect to 
                the operating and capital costs of inpatient hospital 
                services of a rehabilitation facility for a payment unit 
                in a cost reporting period beginning on or after October 
                1, 2002, is equal to the per unit payment rate 
                established under this subsection for the fiscal year in 
                which the payment unit of service occurs.
                    ``(C) TEFRA and prospective payment percentages 
                specified.--For purposes of subparagraph (A), for a cost 
                reporting period beginning--
                          ``(i) on or after October 1, 2000, and before 
                      October 1, 2001, the `TEFRA percentage' is 66\2/3\ 
                      percent and the `prospective payment percentage' 
                      is 33\1/3\ percent; and
                          ``(ii) on or after October 1, 2001, and before 
                      October 1, 2002, the `TEFRA percentage' is 33\1/3\ 
                      percent and the `prospective payment percentage' 
                      is 66\2/3\ percent.
                    ``(D) Payment unit.--For purposes of this 
                subsection, the term `payment unit' means a discharge, 
                day of inpatient hospital services, or other unit of 
                payment defined by the Secretary.
            ``(2) Patient case mix groups.--
                    ``(A) Establishment.--The Secretary shall 
                establish--

[[Page 111 STAT. 411]]

                          ``(i) classes of patients of rehabilitation 
                      facilities (each in this subsection referred to as 
                      a `case mix group'), based on such factors as the 
                      Secretary deems appropriate, which may include 
                      impairment, age, related prior hospitalization, 
                      comorbidities, and functional capability of the 
                      patient; and
                          ``(ii) a method of classifying specific 
                      patients in rehabilitation facilities within these 
                      groups.
                    ``(B) Weighting factors.--For each case mix group 
                the Secretary shall assign an appropriate weighting 
                which reflects the relative facility resources used with 
                respect to patients classified within that group 
                compared to patients classified within other groups.
                    ``(C) Adjustments for case mix.--
                          ``(i) In general.--The Secretary shall from 
                      time to time adjust the classifications and 
                      weighting factors established under this paragraph 
                      as appropriate to reflect changes in treatment 
                      patterns, technology, case mix, number of payment 
                      units for which payment is made under this title, 
                      and other factors which may affect the relative 
                      use of resources. Such adjustments shall be made 
                      in a manner so that changes in aggregate payments 
                      under the classification system are a result of 
                      real changes and are not a result of changes in 
                      coding that are unrelated to real changes in case 
                      mix.
                          ``(ii) Adjustment.--Insofar as the Secretary 
                      determines that such adjustments for a previous 
                      fiscal year (or estimates that such adjustments 
                      for a future fiscal year) did (or are likely to) 
                      result in a change in aggregate payments under the 
                      classification system during the fiscal year that 
                      are a result of changes in the coding or 
                      classification of patients that do not reflect 
                      real changes in case mix, the Secretary shall 
                      adjust the per payment unit payment rate for 
                      subsequent years so as to eliminate the effect of 
                      such coding or classification changes.
                    ``(D) Data collection.--The Secretary is authorized 
                to require rehabilitation facilities that provide 
                inpatient hospital services to submit such data as the 
                Secretary deems necessary to establish and administer 
                the prospective payment system under this subsection.
            ``(3) Payment rate.--
                    ``(A) In general.--The Secretary shall determine a 
                prospective payment rate for each payment unit for which 
                such rehabilitation facility is entitled to receive 
                payment under this title. Subject to subparagraph (B), 
                such rate for payment units occurring during a fiscal 
                year shall be based on the average payment per payment 
                unit under this title for inpatient operating and 
                capital costs of rehabilitation facilities using the 
                most recent data available (as estimated by the 
                Secretary as of the date of establishment of the system) 
                adjusted--
                          ``(i) by updating such per-payment-unit amount 
                      to the fiscal year involved by the weighted 
                      average of the applicable percentage increases 
                      provided under subsection (b)(3)(B)(ii) (for cost 
                      reporting periods beginning during the fiscal 
                      year) covering the period from

[[Page 111 STAT. 412]]

                      the midpoint of the period for such data through 
                      the midpoint of fiscal year 2000 and by an 
                      increase factor (described in subparagraph (C)) 
                      specified by the Secretary for subsequent fiscal 
                      years up to the fiscal year involved;
                          ``(ii) by reducing such rates by a factor 
                      equal to the proportion of payments under this 
                      subsection (as estimated by the Secretary) based 
                      on prospective payment amounts which are 
                      additional payments described in paragraph (4) 
                      (relating to outlier and related payments);
                          ``(iii) for variations among rehabilitation 
                      facilities by area under paragraph (6);
                          ``(iv) by the weighting factors established 
                      under paragraph (2)(B); and
                          ``(v) by such other factors as the Secretary 
                      determines are necessary to properly reflect 
                      variations in necessary costs of treatment among 
                      rehabilitation facilities.
                    ``(B) Budget neutral rates.--The Secretary shall 
                establish the prospective payment amounts under this 
                subsection for payment units during fiscal years 2001 
                and 2002 at levels such that, in the Secretary's 
                estimation, the amount of total payments under this 
                subsection for such fiscal years (including any payment 
                adjustments pursuant to paragraphs (4) and (6)) shall be 
                equal to 98 percent of the amount of payments that would 
                have been made under this title during the fiscal years 
                for operating and capital costs of rehabilitation 
                facilities had this subsection not been enacted. In 
                establishing such payment amounts, the Secretary shall 
                consider the effects of the prospective payment system 
                established under this subsection on the total number of 
                payment units from rehabilitation facilities and other 
                factors described in subparagraph (A).
                    ``(C) Increase factor.--For purposes of this 
                subsection for payment units in each fiscal year 
                (beginning with fiscal year 2001), the Secretary shall 
                establish an increase factor. Such factor shall be based 
                on an appropriate percentage increase in a market basket 
                of goods and services comprising services for which 
                payment is made under this subsection, which may be the 
                market basket percentage increase described in 
                subsection (b)(3)(B)(iii).
            ``(4) Outlier and special payments.--
                    ``(A) Outliers.--
                          ``(i) In general.--The Secretary may provide 
                      for an additional payment to a rehabilitation 
                      facility for patients in a case mix group, based 
                      upon the patient being classified as an outlier 
                      based on an unusual length of stay, costs, or 
                      other factors specified by the Secretary.
                          ``(ii) Payment based on marginal cost of 
                      care.--The amount of such additional payment under 
                      clause (i) shall be determined by the Secretary 
                      and shall approximate the marginal cost of care 
                      beyond the cutoff point applicable under clause 
                      (i).

[[Page 111 STAT. 413]]

                          ``(iii) Total payments.--The total amount of 
                      the additional payments made under this 
                      subparagraph for payment units in a fiscal year 
                      may not exceed 5 percent of the total payments 
                      projected or estimated to be made based on 
                      prospective payment rates for payment units in 
                      that year.
                    ``(B) Adjustment.--The Secretary may provide for 
                such adjustments to the payment amounts under this 
                subsection as the Secretary deems appropriate to take 
                into account the unique circumstances of rehabilitation 
                facilities located in Alaska and Hawaii.
        <<NOTE: Federal Register, publication.>>     ``(5) 
        Publication.--The Secretary shall provide for publication in the 
        Federal Register, on or before August 1 before each fiscal year 
        (beginning with fiscal year 2001), of the classification and 
        weighting factors for case mix groups under paragraph (2) for 
        such fiscal year and a description of the methodology and data 
        used in computing the prospective payment rates under this 
        subsection for that fiscal year.
            ``(6) Area wage adjustment.--The Secretary shall adjust the 
        proportion (as estimated by the Secretary from time to time) of 
        rehabilitation facilities' costs which are attributable to wages 
        and wage-related costs, of the prospective payment rates 
        computed under paragraph (3) for area differences in wage levels 
        by a factor (established by the Secretary) reflecting the 
        relative hospital wage level in the geographic area of the 
        rehabilitation facility compared to the national average wage 
        level for such facilities. Not later than October 1, 2001 (and 
        at least every 36 months thereafter), the Secretary shall update 
        the factor under the preceding sentence on the basis of 
        information available to the Secretary (and updated as 
        appropriate) of the wages and wage-related costs incurred in 
        furnishing rehabilitation services. Any adjustments or updates 
        made under this paragraph for a fiscal year shall be made in a 
        manner that assures that the aggregated payments under this 
        subsection in the fiscal year are not greater or less than those 
        that would have been made in the year without such adjustment.
            ``(7) Limitation on review.--There shall be no 
        administrative or judicial review under section 1869, 1878, or 
        otherwise of the establishment of--
                    ``(A) case mix groups, of the methodology for the 
                classification of patients within such groups, and of 
                the appropriate weighting factors thereof under 
                paragraph (2),
                    ``(B) the prospective payment rates under paragraph 
                (3),
                    ``(C) outlier and special payments under paragraph 
                (4), and
                    ``(D) area wage adjustments under paragraph (6).''.

    (b) Conforming Amendments.--Section 1886(b) (42 U.S.C. 1395ww(b)) is 
amended--
            (1) in paragraph (1), by inserting ``and other than a 
        rehabilitation facility described in subsection (j)(1)'' after 
        ``subsection (d)(1)(B)'', and
            (2) in paragraph (3)(B)(i), by inserting ``and subsection 
        (j)'' after ``For purposes of subsection (d)''.

<<NOTE: 42 USC 1395 note.>>     (c) Effective Date.--The amendments made 
by this section shall apply to cost reporting periods beginning on or 
after October

[[Page 111 STAT. 414]]

1, 2000, except that the Secretary of Health and Human Services may 
require the submission of data under section 1886(j)(2)(D) of the Social 
Security Act (as added by subsection (a)) on and after the date of the 
enactment of this section.

<<NOTE: 42 USC 1395ww note.>> SEC. 4422. DEVELOPMENT OF PROPOSAL ON 
            PAYMENTS FOR LONG-TERM CARE HOSPITALS.

    (a) In General.--
            (1) Legislative proposal.--The Secretary of Health and Human 
        Services shall develop a legislative proposal for establishing a 
        case-mix adjusted prospective payment system for payment of 
        long-term care hospitals described in section 1886(d)(1)(B)(iv) 
        of the Social Security Act (42 U.S.C. 1395ww(d)(1)(B)(iv)) under 
        the medicare program. Such system shall include an adequate 
        patient classification system that reflects the differences in 
        patient resource use and costs among such hospitals.
            (2) Collection of data and evaluation.--In developing the 
        legislative proposal described in paragraph (1), the Secretary--
                    (A) may require such long-term care hospitals to 
                submit such information to the Secretary as the 
                Secretary may require to develop the proposal; and
                    (B) shall consider several payment methodologies, 
                including the feasibility of expanding the current 
                diagnosis-related groups and prospective payment system 
                established under section 1886(d) of the Social Security 
                Act to apply to payments under the medicare program to 
                long-term care hospitals.

    (b) Report.--Not later than October 1, 1999, the Secretary shall 
submit to the appropriate committees of Congress a report that includes 
the legislative proposal developed under subsection (a)(1).

            CHAPTER 3--PAYMENT FOR SKILLED NURSING FACILITIES

SEC. 4431. EXTENSION OF COST LIMITS.

    The last sentence of section 1888(a) (42 U.S.C. 1395yy(a)) is 
amended by striking ``subsection'' the last place it appears and all 
that follows and inserting ``subsection, except that the limits 
effective for cost reporting periods beginning on or after October 1, 
1997, shall be based on the limits effective for cost reporting periods 
beginning on or after October 1, 1996.''.

SEC. 4432. PROSPECTIVE PAYMENT FOR SKILLED NURSING FACILITY SERVICES.

    (a) In General.--Section 1888 (42 U.S.C. 1395yy) is amended by 
adding at the end the following new subsection:
    ``(e) Prospective Payment.--
            ``(1) Payment provision.--Notwithstanding any other 
        provision of this title, subject to paragraph (7), the amount of 
        the payment for all costs (as defined in paragraph (2)(B)) of 
        covered skilled nursing facility services (as defined in 
        paragraph (2)(A)) for each day of such services furnished--
                    ``(A) in a cost reporting period during the 
                transition period (as defined in paragraph (2)(E)), is 
                equal to the sum of--

[[Page 111 STAT. 415]]

                          ``(i) the non-Federal percentage of the 
                      facility-specific per diem rate (computed under 
                      paragraph (3)), and
                          ``(ii) the Federal percentage of the adjusted 
                      Federal per diem rate (determined under paragraph 
                      (4)) applicable to the facility; and
                    ``(B) after the transition period is equal to the 
                adjusted Federal per diem rate applicable to the 
                facility.
            ``(2) Definitions.--For purposes of this subsection:
                    ``(A) Covered skilled nursing facility services.--
                          ``(i) In general.--The term `covered skilled 
                      nursing facility services'--
                                    ``(I) means post-hospital extended 
                                care services as defined in section 
                                1861(i) for which benefits are provided 
                                under part A; and
                                    ``(II) includes all items and 
                                services (other than services described 
                                in clause (ii)) for which payment may be 
                                made under part B and which are 
                                furnished to an individual who is a 
                                resident of a skilled nursing facility 
                                during the period in which the 
                                individual is provided covered post-
                                hospital extended care services.
                          ``(ii) Services excluded.--Services described 
                      in this clause are physicians' services, services 
                      described by clauses (i) through (iii) of section 
                      1861(s)(2)(K), certified nurse-midwife services, 
                      qualified psychologist services, services of a 
                      certified registered nurse anesthetist, items and 
                      services described in subparagraphs (F) and (O) of 
                      section 1861(s)(2), and, only with respect to 
                      services furnished during 1998, the transportation 
                      costs of electrocardiogram equipment for 
                      electrocardiogram test services (HCPCS Code 
                      R0076). Services described in this clause do not 
                      include any physical, occupational, or speech-
                      language therapy services regardless of whether or 
                      not the services are furnished by, or under the 
                      supervision of, a physician or other health care 
                      professional.
                    ``(B) All costs.--The term `all costs' means routine 
                service costs, ancillary costs, and capital-related 
                costs of covered skilled nursing facility services, but 
                does not include costs associated with approved 
                educational activities.
                    ``(C) Non-federal percentage; federal percentage.--
                For--
                          ``(i) the first cost reporting period (as 
                      defined in subparagraph (D)) of a facility, the 
                      `non-Federal percentage' is 75 percent and the 
                      `Federal percentage' is 25 percent;
                          ``(ii) the next cost reporting period of such 
                      facility, the `non-Federal percentage' is 50 
                      percent and the `Federal percentage' is 50 
                      percent; and
                          ``(iii) the subsequent cost reporting period 
                      of such facility, the `non-Federal percentage' is 
                      25 percent and the `Federal percentage' is 75 
                      percent.

[[Page 111 STAT. 416]]

                    ``(D) First cost reporting period.--The term `first 
                cost reporting period' means, with respect to a skilled 
                nursing facility, the first cost reporting period of the 
                facility beginning on or after July 1, 1998.
                    ``(E) Transition period.--
                          ``(i) In general.--The term `transition 
                      period' means, with respect to a skilled nursing 
                      facility, the 3 cost reporting periods of the 
                      facility beginning with the first cost reporting 
                      period.
                          ``(ii) Treatment of new skilled nursing 
                      facilities.--In the case of a skilled nursing 
                      facility that first received payment for services 
                      under this title on or after October 1, 1995, 
                      payment for such services shall be made under this 
                      subsection as if all services were furnished after 
                      the transition period.
            ``(3) Determination of facility specific per diem rates.--
        The Secretary shall determine a facility-specific per diem rate 
        for each skilled nursing facility not described in paragraph 
        (2)(E)(ii) for a cost reporting period as follows:
                    ``(A) Determining base payments.--The Secretary 
                shall determine, on a per diem basis, the total of--
                          ``(i) the allowable costs of extended care 
                      services for the facility for cost reporting 
                      periods beginning in fiscal year 1995, including 
                      costs associated with facilities described in 
                      subsection (d), with appropriate adjustments (as 
                      determined by the Secretary) to non-settled cost 
                      reports, and
                          ``(ii) an estimate of the amounts that would 
                      be payable under part B (disregarding any 
                      applicable deductibles, coinsurance, and 
                      copayments) for covered skilled nursing facility 
                      services described in paragraph (2)(A)(i)(II) 
                      furnished during such period to an individual who 
                      is a resident of the facility, regardless of 
                      whether or not the payment was made to the 
                      facility or to another entity.
                In making appropriate adjustments under clause (i), the 
                Secretary shall take into account exceptions and shall 
                take into account exemptions but, with respect to 
                exemptions, only to the extent that routine costs do not 
                exceed 150 percent of the routine cost limits otherwise 
                applicable but for the exemption.
                    ``(B) Update to first cost reporting period.--
                          ``(i) In general.--Subject to clause (ii), the 
                      Secretary shall update the amount determined under 
                      subparagraph (A), for each cost reporting period 
                      after the cost reporting period described in 
                      subparagraph (A)(i) and up to the first cost 
                      reporting period by a factor equal to the skilled 
                      nursing facility market basket percentage increase 
                      minus 1 percentage point.
                          ``(ii) Certain demonstration projects.--In the 
                      case of a facility participating in the Nursing 
                      Home Case-Mix and Quality Demonstration (RUGS-
                      III), there shall be substituted for the amount 
                      described in clause (i) the RUGS-III rate received 
                      by the facility for 1997.

[[Page 111 STAT. 417]]

                    ``(C) Updating to applicable cost reporting 
                period.--The Secretary shall update the amount 
                determined under subparagraph (B) for each cost 
                reporting period beginning with the first cost reporting 
                period and up to and including the cost reporting period 
                involved by a factor equal to the facility-specific 
                update factor.
                    ``(D) Facility-specific update factor.--For purposes 
                of this paragraph, the `facility-specific update factor' 
                for cost reporting periods beginning during--
                          ``(i) during each of fiscal years 1998 and 
                      1999, is equal to the skilled nursing facility 
                      market basket percentage increase for such fiscal 
                      year minus 1 percentage point, and
                          ``(ii) during each subsequent fiscal year is 
                      equal to the skilled nursing facility market 
                      basket percentage increase for such fiscal year.
            ``(4) Federal per diem rate.--
                    ``(A) Determination of historical per diem for 
                facilities.--For each skilled nursing facility that 
                received payments for post-hospital extended care 
                services during a cost reporting period beginning in 
                fiscal year 1995 and that was subject to (and not 
                exempted from) the per diem limits referred to in 
                paragraph (1) or (2) of subsection (a) (and facilities 
                described in subsection (d)), the Secretary shall 
                estimate, on a per diem basis for such cost reporting 
                period, the total of--
                          ``(i) the allowable costs of extended care 
                      services (excluding exceptions payments) for the 
                      facility for cost reporting periods beginning in 
                      1995 with appropriate adjustments (as determined 
                      by the Secretary) to non-settled cost reports, and
                          ``(ii) an estimate of the amounts that would 
                      be payable under part B (disregarding any 
                      applicable deductibles, coinsurance, and 
                      copayments) for covered skilled nursing facility 
                      services described in paragraph (2)(A)(i)(II) 
                      furnished during such period to an individual who 
                      is a resident of the facility, regardless of 
                      whether or not the payment was made to the 
                      facility or to another entity.
                    ``(B) Update to first fiscal year.--The Secretary 
                shall update the amount determined under subparagraph 
                (A), for each cost reporting period after the cost 
                reporting period described in subparagraph (A)(i) and up 
                to the first cost reporting period by a factor equal to 
                the skilled nursing facility market basket percentage 
                increase reduced (on an annualized basis) by 1 
                percentage point.
                    ``(C) Computation of standardized per diem rate.--
                The Secretary shall standardize the amount updated under 
                subparagraph (B) for each facility by--
                          ``(i) adjusting for variations among 
                      facilities by area in the average facility wage 
                      level per diem, and
                          ``(ii) adjusting for variations in case mix 
                      per diem among facilities.
                    ``(D) Computation of weighted average per diem 
                rates.--
                          ``(i) All facilities.--The Secretary shall 
                      compute a weighted average per diem rate for all 
                      facilities by

[[Page 111 STAT. 418]]

                      computing an average of the standardized amounts 
                      computed under subparagraph (C), weighted for each 
                      facility by the number of days of extended care 
                      services furnished during the cost reporting 
                      period referred to in subparagraph (A).
                          ``(ii) Freestanding facilities.--The Secretary 
                      shall compute a weighted average per diem rate for 
                      freestanding facilities by computing an average of 
                      the standardized amounts computed under 
                      subparagraph (C) only for such facilities , 
                      weighted for each facility by the number of days 
                      of extended care services furnished during the 
                      cost reporting period referred to in subparagraph 
                      (A).
                          ``(iii) Separate computation.--The Secretary 
                      may compute and apply such averages separately for 
                      facilities located in urban and rural areas (as 
                      defined in section 1886(d)(2)(D)).
                    ``(E) Updating.--
                          ``(i) Initial period.--For the initial period 
                      beginning on July 1, 1998, and ending on September 
                      30, 1999, the Secretary shall compute for skilled 
                      nursing facilities an unadjusted federal per diem 
                      rate equal to the average of the weighted average 
                      per diem rates computed under clauses (i) and (ii) 
                      of subparagraph (D), increased by skilled nursing 
                      facility market basket percentage change for such 
                      period minus 1 percentage point.
                          ``(ii) Subsequent fiscal years.--The Secretary 
                      shall compute an unadjusted federal per diem rate 
                      equal to the federal per diem rate computed under 
                      this subparagraph--
                                    ``(I) for fiscal year 2000, the rate 
                                computed for the initial period 
                                described in clause (i), increased by 
                                the skilled nursing facility market 
                                basket percentage change for the initial 
                                period minus 1 percentage point;
                                    ``(II) for each of fiscal years 2001 
                                and 2002, the rate computed for the 
                                previous fiscal year increased by the 
                                skilled nursing facility market basket 
                                percentage change for the fiscal year 
                                involved minus 1 percentage point; and
                                    ``(III) for each subsequent fiscal 
                                year, the rate computed for the previous 
                                fiscal year increased by the skilled 
                                nursing facility market basket 
                                percentage change for the fiscal year 
                                involved.
                    ``(F) Adjustment for case mix creep.--Insofar as the 
                Secretary determines that the adjustments under 
                subparagraph (G)(i) for a previous fiscal year (or 
                estimates that such adjustments for a future fiscal 
                year) did (or are likely to) result in a change in 
                aggregate payments under this subsection during the 
                fiscal year that are a result of changes in the coding 
                or classification of residents that do not reflect real 
                changes in case mix, the Secretary may adjust unadjusted 
                Federal per diem rates for subsequent fiscal years so as 
                to eliminate the effect of such coding or classification 
                changes.

[[Page 111 STAT. 419]]

                    ``(G) Determination of federal rate.--The Secretary 
                shall compute for each skilled nursing facility for each 
                fiscal year (beginning with the initial period described 
                in subparagraph (E)(i)) an adjusted Federal per diem 
                rate equal to the unadjusted Federal per diem rate 
                determined under subparagraph (E), as adjusted under 
                subparagraph (F), and as further adjusted as follows:
                          ``(i) Adjustment for case mix.--The Secretary 
                      shall provide for an appropriate adjustment to 
                      account for case mix. Such adjustment shall be 
                      based on a resident classification system, 
                      established by the Secretary, that accounts for 
                      the relative resource utilization of different 
                      patient types. The case mix adjustment shall be 
                      based on resident assessment data and other data 
                      that the Secretary considers appropriate.
                          ``(ii) Adjustment for geographic variations in 
                      labor costs.--The Secretary shall adjust the 
                      portion of such per diem rate attributable to 
                      wages and wage-related costs for the area in which 
                      the facility is located compared to the national 
                      average of such costs using an appropriate wage 
                      index as determined by the Secretary. Such 
                      adjustment shall be done in a manner that does not 
                      result in aggregate payments under this subsection 
                      that are greater or less than those that would 
                      otherwise be made if such adjustment had not been 
                      made.
                <<NOTE: Federal Register, publication.>>     ``(H) 
                Publication of information on per diem rates.--The 
                Secretary shall provide for publication in the Federal 
                Register, before May 1, 1998 (with respect to fiscal 
                period described in subparagraph (E)(i)) and before the 
                August 1 preceding each succeeding fiscal year (with 
                respect to that succeeding fiscal year), of--
                          ``(i) the unadjusted Federal per diem rates to 
                      be applied to days of covered skilled nursing 
                      facility services furnished during the fiscal 
                      year,
                          ``(ii) the case mix classification system to 
                      be applied under subparagraph (G)(i) with respect 
                      to such services during the fiscal year, and
                          ``(iii) the factors to be applied in making 
                      the area wage adjustment under subparagraph 
                      (G)(ii) with respect to such services.
            ``(5) Skilled nursing facility market basket index and 
        percentage.--For purposes of this subsection:
                    ``(A) Skilled nursing facility market basket 
                index.--The Secretary shall establish a skilled nursing 
                facility market basket index that reflects changes over 
                time in the prices of an appropriate mix of goods and 
                services included in covered skilled nursing facility 
                services.
                    ``(B) Skilled nursing facility market basket 
                percentage.--The term `skilled nursing facility market 
                basket percentage' means, for a fiscal year or other 
                annual period and as calculated by the Secretary, the 
                percentage change in the skilled nursing facility market 
                basket index (established under subparagraph (A)) from 
                the midpoint of the prior fiscal year (or period) to the 
                midpoint of the fiscal year (or other period) involved.

[[Page 111 STAT. 420]]

            ``(6) Submission of resident assessment data.--A skilled 
        nursing facility, or a facility described in paragraph (7)(B), 
        shall provide the Secretary, in a manner and within the 
        timeframes prescribed by the Secretary, the resident assessment 
        data necessary to develop and implement the rates under this 
        subsection. For purposes of meeting such requirement, a skilled 
        nursing facility, or a facility described in paragraph (7), may 
        submit the resident assessment data required under section 
        1819(b)(3), using the standard instrument designated by the 
        State under section 1819(e)(5).
            ``(7) Transition for medicare swing bed hospitals.--
                    ``(A) In general.--The Secretary shall determine an 
                appropriate manner in which to apply this subsection to 
                the facilities described in subparagraph (B), taking 
                into account the purposes of this subsection, and shall 
                provide that at the end of the transition period (as 
                defined in paragraph (2)(E)) such facilities shall be 
                paid only under this subsection. Payment shall not be 
                made under this subsection to such facilities for cost 
                reporting periods beginning before such date (not 
                earlier than July 1, 1999) as the Secretary specifies.
                    ``(B) Facilities described.--The facilities 
                described in this subparagraph are facilities that have 
                in effect an agreement described in section 1883, for 
                which payment is made for the furnishing of extended 
                care services on a reasonable cost basis under section 
                1814(l) (as in effect on and after such date).
            ``(8) Limitation on review.--There shall be no 
        administrative or judicial review under section 1869, 1878, or 
        otherwise of--
                    ``(A) the establishment of Federal per diem rates 
                under paragraph (4), including the computation of the 
                standardized per diem rates under paragraph (4)(C), 
                adjustments and corrections for case mix under 
                paragraphs (4)(F) and (4)(G)(i), and adjustments for 
                variations in labor-related costs under paragraph 
                (4)(G)(ii);
                    ``(B) the establishment of facility specific rates 
                before January 1, 1999, (except any determination of 
                costs paid under part A of this title); and
                    ``(C) the establishment of transitional amounts 
                under paragraph (7).''.

    (b) Consolidated Billing.--
            (1) For snf services.--Section 1862(a) (42 U.S.C. 1395y(a)), 
        as amended by 4319(b), is amended--
                    (A) by striking ``or'' at the end of paragraph (16),
                    (B) by striking the period at the end of paragraph 
                (17) and inserting ``; or'', and
                    (C) by inserting after paragraph (17) the following 
                new paragraph:
            ``(18) which are covered skilled nursing facility services 
        described in section 1888(e)(2)(A)(i) and which are furnished to 
        an individual who is a resident of a skilled nursing facility or 
        of a part of a facility that includes a skilled nursing facility 
        (as determined under regulations), by an entity other than the 
        skilled nursing facility, unless the services are furnished 
        under arrangements (as defined in section 1861(w)(1)) with the 
        entity made by the skilled nursing facility.''.

[[Page 111 STAT. 421]]

            (2) Requiring payment for all part b items and services to 
        be made to facility.--The first sentence of section 1842(b)(6) 
        (42 U.S.C. 1395u(b)(6)) is amended--
                    (A) by striking ``and (D)'' and inserting ``(D)''; 
                and
                    (B) by striking the period at the end and inserting 
                the following: ``, and (E) in the case of an item or 
                service (other than services described in section 
                1888(e)(2)(A)(ii)) furnished to an individual who (at 
                the time the item or service is furnished) is a resident 
                of a skilled nursing facility or of a part of a facility 
                that includes a skilled nursing facility (as determined 
                under regulations), payment shall be made to the 
                facility (without regard to whether or not the item or 
                service was furnished by the facility, by others under 
                arrangement with them made by the facility, under any 
                other contracting or consulting arrangement, or 
                otherwise).''.
            (3) Payment rules.--Section 1888(e) (42 U.S.C. 1395yy(e)), 
        as added by subsection (a), is amended by adding at the end the 
        following:
            ``(9) Payment for certain services.--In the case of an item 
        or service furnished to a resident of a skilled nursing facility 
        or a part of a facility that includes a skilled nursing facility 
        (as determined under regulations) for which payment would (but 
        for this paragraph) be made under part B in an amount determined 
        in accordance with section 1833(a)(2)(B), the amount of the 
        payment under such part shall be the amount provided under the 
        fee schedule for such item or service.
            ``(10) Required coding.--No payment may be made under part B 
        for items and services (other than services described in 
        paragraph (2)(A)(ii)) furnished to an individual who is a 
        resident of a skilled nursing facility or of a part of a 
        facility that includes a skilled nursing facility (as determined 
        under regulations), unless the claim for such payment includes a 
        code (or codes) under a uniform coding system specified by the 
        Secretary that identifies the items or services furnished.''.
            (4) Facility provider number required on claims submitted by 
        physicians.--Section 1842 (42 U.S.C. 1395u) is amended by adding 
        at the end the following new section:

    ``(t) Each request for payment, or bill submitted, for an item or 
service furnished by a physician to an individual who is a resident of a 
skilled nursing facility or of a part of a facility that includes a 
skilled nursing facility (as determined under regulations), for which 
payment may be made under this part shall include the facility's 
medicare provider number.''.
            (5) Conforming amendments.--
                    (A) Section 1819(b)(3)(C)(i) (42 U.S.C. 1395i-
                3(b)(3)(C)(i)) is amended by striking ``Such'' and 
                inserting ``Subject to the timeframes prescribed by the 
                Secretary under section 1888(e)(6), such''.
                    (B) Section 1832(a)(1) (42 U.S.C. 1395k(a)(1)) is 
                amended by striking ``(2);'' and inserting ``(2) and 
                section 1842(b)(6)(E);''.
                    (C) Section 1833(a)(2)(B) (42 U.S.C. 1395l(a)(2)(B)) 
                is amended by inserting ``or section 1888(e)(9)'' after 
                ``section 1886''.
                    (D) Section 1861(h) (42 U.S.C 1395x(h)) is amended--

[[Page 111 STAT. 422]]

                          (i) in the opening paragraph, by striking 
                      ``paragraphs (3) and (6)'' and inserting 
                      ``paragraphs (3), (6), and (7)'', and
                          (ii) in paragraph (7), after ``skilled nursing 
                      facilities'', by inserting ``, or by others under 
                      arrangements with them made by the facility''.
                    (E) Section 1861(v)(7)(D) (42 U.S.C. 1395x(v)(7)(D)) 
                is amended by inserting ``subsections (a) through (c) 
                of'' before ``section 1888.''.
                    (F) Section 1866(a)(1)(H) (42 U.S.C. 
                1395cc(a)(1)(H)) is amended--
                          (i) by redesignating clauses (i) and (ii) as 
                      subclauses (I) and (II) respectively,
                          (ii) by inserting ``(i)'' after ``(H)'', and
                          (iii) by adding after clause (i), as so 
                      redesignated, the following new clause:
            ``(ii) in the case of skilled nursing facilities which 
        provide covered skilled nursing facility services--
                    ``(I) that are furnished to an individual who is a 
                resident of the skilled nursing facility, and
                    ``(II) for which the individual is entitled to have 
                payment made under this title,
        to have items and services (other than services described in 
        section 1888(e)(2)(A)(ii)) furnished by the skilled nursing 
        facility or otherwise under arrangements (as defined in section 
        1861(w)(1)) made by the skilled nursing facility,''.
                    (G) Section 1883(a)(2)(B)(ii)(II) (42 U.S.C. 
                1395tt(a)(2)(B)(ii)(II)) is amended by inserting 
                ``subsections (a) through (d) of'' before ``section 
                1888''.
                    (H) Section 1888(d)(1) (42 U.S.C. 1395yy(d)(1)) is 
                amended by striking ``Any skilled nursing facility'' and 
                inserting ``Subject to subsection (e), any skilled 
                nursing facility''.

<<NOTE: 42 USC 1395yy note.>>     (c) Medical Review Process.--In order 
to ensure that medicare beneficiaries are furnished appropriate services 
in skilled nursing facilities, the Secretary of Health and Human 
Services shall establish and implement a thorough medical review process 
to examine the effects of the amendments made by this section on the 
quality of covered skilled nursing facility services furnished to 
medicare beneficiaries. In developing such a medical review process, the 
Secretary shall place a particular emphasis on the quality of non-
routine covered services and physicians' services for which payment is 
made under title XVIII of the Social Security Act.

<<NOTE: 42 USC 1395i-3 note.>>     (d) Effective Date.--The amendments 
made by this section are effective for cost reporting periods beginning 
on or after July 1, 1998; except that the amendments made by subsection 
(b) shall apply to items and services furnished on or after July 1, 
1998.

            CHAPTER 4--PROVISIONS RELATED TO HOSPICE SERVICES

SEC. 4441. PAYMENTS FOR HOSPICE SERVICES.

    (a) Payment Update.--Section 1814(i)(1)(C)(ii) (42 U.S.C. 
1395f(i)(1)(C)(ii)) is amended--
            (1) in subclause (V), by striking ``and'' at the end;
            (2) by redesignating subclause (VI) as subclause (VII); and

[[Page 111 STAT. 423]]

            (3) by inserting after subclause (V) the following new 
        subclause:
            ``(VI) for each of fiscal years 1998 through 2002, the 
        market basket percentage increase for the fiscal year involved 
        minus 1.0 percentage points; and''.

    (b) Collection of Data.--Section 1814(i) (42 U.S.C. 1395f(i)) is 
amended by adding at the end the following new paragraph:
    ``(3) Hospice programs providing hospice care for which payment is 
made under this subsection shall submit to the Secretary such data with 
respect to the costs for providing such care for each fiscal year, 
beginning with fiscal year 1999, as the Secretary determines 
necessary.''.

SEC. 4442. PAYMENT FOR HOME HOSPICE CARE BASED ON LOCATION WHERE CARE IS 
            FURNISHED.

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

SEC. 4443. HOSPICE CARE BENEFITS PERIODS.

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

SEC. 4444. OTHER ITEMS AND SERVICES INCLUDED IN HOSPICE CARE.

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

<<NOTE: 42 USC 1395x note.>>     (b) Effective Date.--The amendment made 
by subsection (a) shall apply with respect to items or services 
furnished on or after April 1, 1998.

[[Page 111 STAT. 424]]

SEC. 4445. CONTRACTING WITH INDEPENDENT PHYSICIANS OR PHYSICIAN GROUPS 
            FOR HOSPICE CARE SERVICES PERMITTED.

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

SEC. 4446. WAIVER OF CERTAIN STAFFING REQUIREMENTS FOR HOSPICE CARE 
            PROGRAMS IN NONURBANIZED AREAS.

    Section 1861(dd)(5) (42 U.S.C. 1395x(dd)(5)) is amended--
            (1) in subparagraph (B), by inserting ``or (C)'' after 
        ``subparagraph (A)'' each place it appears; and
            (2) by adding at the end the following:

    ``(C) The Secretary may waive the requirements of paragraph 
(2)(A)(i) and (2)(A)(ii) for an agency or organization with respect to 
the services described in paragraph (1)(B) and, with respect to dietary 
counseling, paragraph (1)(H), if such agency or organization--
            ``(i) is located in an area which is not an urbanized area 
        (as defined by the Bureau of Census), and
            ``(ii) demonstrates to the satisfaction of the Secretary 
        that the agency or organization has been unable, despite 
        diligent efforts, to recruit appropriate personnel.''.

SEC. 4447. LIMITATION ON LIABILITY OF BENEFICIARIES FOR CERTAIN HOSPICE 
            COVERAGE DENIALS.

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

SEC. 4448. EXTENDING THE PERIOD FOR PHYSICIAN CERTIFICATION OF AN 
            INDIVIDUAL'S TERMINAL ILLNESS.

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

<<NOTE: 42 USC 1395d note.>> SEC. 4449. EFFECTIVE DATE.

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

[[Page 111 STAT. 425]]

                   CHAPTER 5--OTHER PAYMENT PROVISIONS

SEC. 4451. REDUCTIONS IN PAYMENTS FOR ENROLLEE BAD DEBT.

    Section 1861(v)(1) (42 U.S.C. 1395x(v)(1)) is amended by adding at 
the end the following new subparagraph:
    ``(T) In determining such reasonable costs for hospitals, no 
reduction in copayments under section 1833(t)(5)(B) shall be treated as 
a bad debt and the amount of bad debts otherwise treated as allowable 
costs which are attributable to the deductibles and coinsurance amounts 
under this title shall be reduced--
            ``(i) for cost reporting periods beginning during fiscal 
        year 1998, by 25 percent of such amount otherwise allowable,
            ``(ii) for cost reporting periods beginning during fiscal 
        year 1999, by 40 percent of such amount otherwise allowable, and
            ``(iii) for cost reporting periods beginning during a 
        subsequent fiscal year, by 45 percent of such amount otherwise 
        allowable.''.

SEC. 4452. PERMANENT EXTENSION OF HEMOPHILIA PASS-THROUGH PAYMENT.

    Section 6011(d) of OBRA-1989 (as amended by section 13505 of OBRA-
1993) is <<NOTE: 42 USC 1395ww note.>>  amended by striking ``and shall 
expire September 30, 1994.'' and inserting ``and on or before September 
30, 1994, and on or after October 1, 1997.''.

SEC. 4453. REDUCTION IN PART A MEDICARE PREMIUM FOR CERTAIN PUBLIC 
            RETIREES.

    (a) In General.--Section 1818(d) (42 U.S.C. 1395i-2(d)) is amended--
            (1) in paragraph (2), by striking ``paragraph (4)'' and 
        inserting ``paragraphs (4) and (5)''; and
            (2) by adding at the end the following new paragraph:

    ``(5)(A) The amount of the monthly premium shall be zero in the case 
of an individual who is a person described in subparagraph (B) for a 
month, if--
            ``(i) the individual's premium under this section for the 
        month is not (and will not be) paid for, in whole or in part, by 
        a State (under title XIX or otherwise), a political subdivision 
        of a State, or an agency or instrumentality of one or more 
        States or political subdivisions thereof; and
            ``(ii) in each of 84 months before such month, the 
        individual was enrolled in this part under this section and the 
        payment of the individual's premium under this section for the 
        month was not paid for, in whole or in part, by a State (under 
        title XIX or otherwise), a political subdivision of a State, or 
        an agency or instrumentality of one or more States or political 
        subdivisions thereof.

    ``(B) A person described in this subparagraph for a month is a 
person who establishes to the satisfaction of the Secretary that, as of 
the last day of the previous month--
            ``(i)(I) the person was receiving cash benefits under a 
        qualified State or local government retirement system (as 
        defined in subparagraph (C)) on the basis of the person's 
        employment in one or more positions covered under any such 
        system, and (II) the person would have at least 40 quarters of 
        coverage under title II if remuneration for medicare qualified 
        government employment (as defined in paragraph (1) of section 
        210(p),

[[Page 111 STAT. 426]]

        but determined without regard to paragraph (3) of such section) 
        paid to such person were treated as wages paid to such person 
        and credited for purposes of determining quarters of coverage 
        under section 213;
            ``(ii)(I) the person was married (and had been married for 
        the previous 1-year period) to an individual who is described in 
        clause (i), or (II) the person met the requirement of clause 
        (i)(II) and was married (and had been married for the previous 
        1-year period) to an individual described in clause (i)(I);
            ``(iii) the person had been married to an individual for a 
        period of at least 1 year (at the time of such individual's 
        death) if (I) the individual was described in clause (i) at the 
        time of the individual's death, or (II) the person met the 
        requirement of clause (i)(II) and the individual was described 
        in clause (i)(I) at the time of the individual's death; or
            ``(iv) the person is divorced from an individual and had 
        been married to the individual for a period of at least 10 years 
        (at the time of the divorce) if (I) the individual was described 
        in clause (i) at the time of the divorce, or (II) the person met 
        the requirement of clause (i)(II) and the individual was 
        described in clause (i)(I) at the time of the divorce.

    ``(C) For purposes of subparagraph (B)(i)(I), the term `qualified 
State or local government retirement system' means a retirement system 
that--
            ``(i) is established or maintained by a State or political 
        subdivision thereof, or an agency or instrumentality of one or 
        more States or political subdivisions thereof;
            ``(ii) covers positions of some or all employees of such a 
        State, subdivision, agency, or instrumentality; and
            ``(iii) does not adjust cash retirement benefits based on 
        eligibility for a reduction in premium under this paragraph.''.

<<NOTE: 42 USC 1395i-2 note.>>     (b) Effective Date.--The amendments 
made by subsection (a) shall apply to premiums for months beginning with 
January 1998, and months before such month may be taken into account for 
purposes of meeting the requirement of section 1818(d)(5)(B)(iii) of the 
Social Security Act, as added by subsection (a).

SEC. 4454. COVERAGE OF SERVICES IN RELIGIOUS NONMEDICAL HEALTH CARE 
            INSTITUTIONS UNDER THE MEDICARE AND MEDICAID PROGRAMS.

    (a) Medicare Coverage.--
            (1) In general.--Section 1861 (42 U.S.C. 1395x) (as amended 
        by sections 4103 and 4106) is amended--
                    (A) in the sixth sentence of subsection (e)--
                          (i) by striking ``includes'' and all that 
                      follows up to ``but only'' and inserting 
                      ``includes a religious nonmedical health care 
                      institution (as defined in subsection (ss)(1)),'', 
                      and
                          (ii) by inserting ``consistent with section 
                      1821'' before the period;
                    (B) in subsection (y)--
                          (i) by amending the heading to read as 
                      follows:

   ``Extended Care in Religious Nonmedical Health Care Institutions'',

                          (ii) in paragraph (1), by striking 
                      ``includes'' and all that follows up to ``but 
                      only'' and inserting ``includes

[[Page 111 STAT. 427]]

                      a religious nonmedical health care institution (as 
                      defined in subsection (ss)(1)),'', and
                          (iii) by inserting ``consistent with section 
                      1821'' before the period; and
                    (C) by adding at the end the following:

             ``Religious Nonmedical Health Care Institution

    ``(ss)(1) The term `religious nonmedical health care institution' 
means an institution that--
                    ``(A) is described in subsection (c)(3) of section 
                501 of the Internal Revenue Code of 1986 and is exempt 
                from taxes under subsection (a) of such section;
                    ``(B) is lawfully operated under all applicable 
                Federal, State, and local laws and regulations;
                    ``(C) provides only nonmedical nursing items and 
                services exclusively to patients who choose to rely 
                solely upon a religious method of healing and for whom 
                the acceptance of medical health services would be 
                inconsistent with their religious beliefs;
                    ``(D) provides such nonmedical items and services 
                exclusively through nonmedical nursing personnel who are 
                experienced in caring for the physical needs of such 
                patients;
                    ``(E) provides such nonmedical items and services to 
                inpatients on a 24-hour basis;
                    ``(F) on the basis of its religious beliefs, does 
                not provide through its personnel or otherwise medical 
                items and services (including any medical screening, 
                examination, diagnosis, prognosis, treatment, or the 
                administration of drugs) for its patients;
                    ``(G)(i) is not owed by, under common ownership 
                with, or has an ownership interest in, a provider of 
                medical treatment of services;
                    ``(ii) is not affiliated with--
                          ``(I) a provider of medical treatment or 
                      services, or
                          ``(II) an individual who has an ownership 
                      interest in a provider of medical treatment or 
                      services;
                    ``(H) has in effect a utilization review plan 
                which--
                          ``(i) provides for the review of admissions to 
                      the institution, of the duration of stays therein, 
                      of cases of continuous extended duration, and of 
                      the items and services furnished by the 
                      institution,
                          ``(ii) requires that such reviews be made by 
                      an appropriate committee of the institution that 
                      includes the individuals responsible for overall 
                      administration and for supervision of nursing 
                      personnel at the institution,
                          ``(iii) provides that records be maintained of 
                      the meetings, decisions, and actions of such 
                      committee, and
                          ``(iv) meets such other requirements as the 
                      Secretary finds necessary to establish an 
                      effective utilization review plan;
                    ``(I) provides the Secretary with such information 
                as the Secretary may require to implement section 1821,

[[Page 111 STAT. 428]]

                including information relating to quality of care and 
                coverage determinations; and
                    ``(J) meets such other requirements as the Secretary 
                finds necessary in the interest of the health and safety 
                of individuals who are furnished services in the 
                institution.

    ``(2) To the extent that the Secretary finds that the accreditation 
of an institution by a State, regional, or national agency or 
association provides reasonable assurances that any or all of the 
requirements of paragraph (1) are met or exceeded, the Secretary may 
treat such institution as meeting the condition or conditions with 
respect to which the Secretary made such finding.
    ``(3)(A)(i) In administering this subsection and section 1821, the 
Secretary shall not require any patient of a religious nonmedical health 
care institution to undergo medical screening, examination, diagnosis, 
prognosis, or treatment or to accept any other medical health care 
service, if such patient (or legal representative of the patient) 
objects thereto on religious grounds.
    ``(ii) Clause (i) shall not be construed as preventing the Secretary 
from requiring under section 1821(a)(2) the provision of sufficient 
information regarding an individual's condition as a condition for 
receipt of benefits under part A for services provided in such an 
institution.
    ``(B)(i) In administering this subsection and section 1821, the 
Secretary shall not subject a religious nonmedical health care 
institution or its personnel to any medical supervision, regulation, or 
control, insofar as such supervision, regulation, or control would be 
contrary to the religious beliefs observed by the institution or such 
personnel.
    ``(ii) Clause (i) shall not be construed as preventing the Secretary 
from reviewing items and services billed by the institution to the 
extent the Secretary determines such review to be necessary to determine 
whether such items and services were not covered under part A, are 
excessive, or are fraudulent.
    ``(4)(A) For purposes of paragraph (1)(G)(i), an ownership interest 
of less than 5 percent shall not be taken into account.
    ``(B) For purposes of paragraph (1)(G)(ii), none of the following 
shall be considered to create an affiliation:
            ``(i) An individual serving as an uncompensated director, 
        trustee, officer, or other member of the governing body of a 
        religious nonmedical health care institution.
            ``(ii) An individual who is a director, trustee, officer, 
        employee, or staff member of a religious nonmedical health care 
        institution having a family relationship with an individual who 
        is affiliated with (or has an ownership interest in) a provider 
        of medical treatment or services.
            ``(iii) An individual or entity furnishing goods or services 
        as a vendor to both providers of medical treatment or services 
        and religious nonmedical health care institutions.''.
            (2) Conditions of coverage.--Part A of title XVIII is 
        amended by adding at the end the following new section:

    <<NOTE: 42 usc 1395i-5.>> ``conditions for coverage of religious 
nonmedical health care institutional services

    ``Sec. 1821. (a) In General.--Subject to subsections (c) and (d), 
payment under this part may be made for inpatient hospital services or 
post-hospital extended care services furnished an individual in a 
religious nonmedical health care institution only if--

[[Page 111 STAT. 429]]

            ``(1) the individual has an election in effect for such 
        benefits under subsection (b); and
            ``(2) the individual has a condition such that the 
        individual would qualify for benefits under this part for 
        inpatient hospital services or extended care services, 
        respectively, if the individual were an inpatient or resident in 
        a hospital or skilled nursing facility that was not such an 
        institution.

    ``(b) Election.--
            ``(1) In general.--An individual may make an election under 
        this subsection in a form and manner specified by the Secretary 
        consistent with this subsection. Unless otherwise provided, such 
        an election shall take effect immediately upon its execution. 
        Such an election, once made, shall continue in effect until 
        revoked.
            ``(2) Form.--The election form under this subsection shall 
        include the following:
                    ``(A) A written statement, signed by the individual 
                (or such individual's legal representative), that--
                          ``(i) the individual is conscientiously 
                      opposed to acceptance of nonexcepted medical 
                      treatment; and
                          ``(ii) the individual's acceptance of 
                      nonexcepted medical treatment would be 
                      inconsistent with the individual's sincere 
                      religious beliefs.
                    ``(B) A statement that the receipt of nonexcepted 
                medical services shall constitute a revocation of the 
                election and may limit further receipt of services 
                described in subsection (a).
            ``(3) Revocation.--An election under this subsection by an 
        individual may be revoked by voluntarily notifying the Secretary 
        in writing of such revocation and shall be deemed to be revoked 
        if the individual receives nonexcepted medical treatment for 
        which reimbursement is made under this title.
            ``(4) Limitation on subsequent elections.--Once an 
        individual's election under this subsection has been made and 
        revoked twice--
                    ``(A) the next election may not become effective 
                until the date that is 1 year after the date of most 
                recent previous revocation, and
                    ``(B) any succeeding election may not become 
                effective until the date that is 5 years after the date 
                of the most recent previous revocation.
            ``(5) Excepted medical treatment.--For purposes of this 
        subsection:
                    ``(A) Excepted medical treatment.--The term 
                `excepted medical treatment' means medical care or 
                treatment (including medical and other health 
                services)--
                          ``(i) received involuntarily, or
                          ``(ii) required under Federal or State law or 
                      law of a political subdivision of a State.
                    ``(B) Nonexcepted medical treatment.--The term 
                `nonexcepted medical treatment' means medical care or 
                treatment (including medical and other health services) 
                other than excepted medical treatment.

    ``(c) Monitoring and Safeguard Against Excessive Expenditures.--
            ``(1) Estimate of expenditures.--Before the beginning of 
        each fiscal year (beginning with fiscal year 2000), the 
        Secretary

[[Page 111 STAT. 430]]

        shall estimate the level of expenditures under this part for 
        services described in subsection (a) for that fiscal year.
            ``(2) Adjustment in payments.--
                    ``(A) Proportional adjustment.--If the Secretary 
                determines that the level estimated under paragraph (1) 
                for a fiscal year will exceed the trigger level (as 
                defined in subparagraph (C)) for that fiscal year, the 
                Secretary shall, subject to subparagraph (B), provide 
                for such a proportional reduction in payment amounts 
                under this part for services described in subsection (a) 
                for the fiscal year involved as will assure that such 
                level (taking into account any adjustment under 
                subparagraph (B)) does not exceed the trigger level for 
                that fiscal year.
                    ``(B) Alternative adjustments.--The Secretary may, 
                instead of making some or all of the reduction described 
                in subparagraph (A), impose such other conditions or 
                limitations with respect to the coverage of covered 
                services (including limitations on new elections of 
                coverage and new facilities) as may be appropriate to 
                reduce the level of expenditures described in paragraph 
                (1) to the trigger level.
                    ``(C) Trigger level.--For purposes of this 
                subsection--
                          ``(i) In general.--Subject to adjustment under 
                      paragraph (3)(B), the `trigger level' for a year 
                      is the unadjusted trigger level described in 
                      clause (ii).
                          ``(ii) Unadjusted trigger level.--The 
                      `unadjusted trigger level' for--
                                    ``(I) fiscal year 1998, is 
                                $20,000,000, or
                                    ``(II) a succeeding fiscal year is 
                                the amount specified under this clause 
                                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) for the 12-month period ending 
                                with July preceding the beginning of the 
                                fiscal year.
                    ``(D) Prohibition of administrative and judicial 
                review.--There shall be no administrative or judicial 
                review under section 1869, 1878, or otherwise of the 
                estimation of expenditures under subparagraph (A) or the 
                application of reduction amounts under subparagraph (B).
                    ``(E) Effect on billing.--Notwithstanding any other 
                provision of this title, in the case of a reduction in 
                payment provided under this subsection for services of a 
                religious nonmedical health care institution provided to 
                an individual, the amount that the institution is 
                otherwise permitted to charge the individual for such 
                services is increased by the amount of such reduction.
            ``(3) Monitoring expenditure level.--
                    ``(A) In general.--The Secretary shall monitor the 
                expenditure level described in paragraph (2)(A) for each 
                fiscal year (beginning with fiscal year 1999).
                    ``(B) Adjustment in trigger level.--
                          ``(i) In general.--If the Secretary determines 
                      that such level for a fiscal year exceeded, or was 
                      less than, the trigger level for that fiscal year, 
                      then, subject to clause (ii), the trigger level 
                      for the succeeding fiscal

[[Page 111 STAT. 431]]

                      year shall be reduced, or increased, respectively, 
                      by the amount of such excess or deficit.
                          ``(ii) Limitation on carryforward.--In no case 
                      may the increase effected under clause (i) for a 
                      fiscal year exceed $50,000,000.

    ``(d) Sunset.--If the Secretary determines that the level of 
expenditures described in subsection (c)(1) for 3 consecutive fiscal 
years (with the first such year being not earlier than fiscal year 2002) 
exceeds the trigger level for such expenditures for such years (as 
determined under subsection (c)(2)), benefits shall be paid under this 
part for services described in subsection (a) and furnished on or after 
the first January 1 that occurs after such 3 consecutive years only with 
respect to an individual who has an election in effect under subsection 
(b) as of such January 1 and only during the duration of such election.
    ``(e) Annual Report.--At the beginning of each fiscal year 
(beginning with fiscal year 1999), the Secretary shall submit to the 
Committee on Ways and Means of the House of Representatives and the 
Committee on Finance of the Senate an annual report on coverage and 
expenditures for services described in subsection (a) under this part 
and under State plans under title XIX. Such report shall include--
            ``(1) level of expenditures described in subsection (c)(1) 
        for the previous fiscal year and estimated for the fiscal year 
        involved;
            ``(2) trends in such level; and
            ``(3) facts and circumstances of any significant change in 
        such level from the level in previous fiscal years.''.

    (b) Medicaid.--
            (1) The third sentence of section 1902(a) (42 U.S.C. 
        1396a(a)) is amended by striking all that follows ``shall not 
        apply'' and inserting ``to a religious nonmedical health care 
        institution (as defined in section 1861(ss)(1)).''.
            (2) Section 1908(e)(1) (42 U.S.C. 1396g-1(e)(1)) is amended 
        by striking all that follows ``does not include'' and inserting 
        ``a religious nonmedical health care institution (as defined in 
        section 1861(ss)(1)).''.

    (c) Conforming Amendments.--
            (1) Section 1122(h) (42 U.S.C. 1320a-1(h)) is amended by 
        striking all that follows ``shall not apply to'' and inserting 
        ``a religious nonmedical health care institution (as defined in 
        section 1861(ss)(1)).''.
            (2) Section 1162 (42 U.S.C. 1320c-11) is amended--
                    (A) by amending the heading to read as follows:

  ``exemptions for religious nonmedical health care institutions''; and

                    (B) by striking all that follows ``shall not apply 
                with respect to a'' and inserting ``religious nonmedical 
                health care institution (as defined in section 
                1861(ss)(1)).''.

<<NOTE: 42 USC 1395i-5 note.>>     (d) Effective Date.--The amendments 
made by this section shall take effect on the date of the enactment of 
this Act and shall apply to items and services furnished on or after 
such date. By not later than July 1, 1998, 
the <<NOTE: Regulations.>> Secretary of Health and Human Services shall 
first issue regulations to carry out such amendments. Such regulations 
may be issued so they are effective on an interim

[[Page 111 STAT. 432]]

basis pending notice and opportunity for public comment. For periods 
before the effective date of such regulations, such regulations shall 
recognize elections entered into in good faith in order to comply with 
the requirements of section 1821(b) of the Social Security Act.

             Subtitle F--Provisions Relating to Part B Only

               CHAPTER 1--SERVICES OF HEALTH PROFESSIONALS

                   Subchapter A--Physicians' Services

SEC. 4501. ESTABLISHMENT OF SINGLE CONVERSION FACTOR FOR 1998.

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

    (b) Conforming Amendments.--Section 1848 (42 U.S.C. 1395w-4) is 
amended--
            (1) by striking ``(or factors)'' each place it appears in 
        subsection (d)(1)(A) and (d)(1)(D)(ii) (as redesignated by 
        subsection (a)(1)),
            (2) in subsection (d)(1)(A), by striking ``or updates'',
            (3) in subsection (d)(1)(D) (as redesignated by subsection 
        (a)(1)), by striking ``(or updates)'' each place it appears, and
            (4) in subsection (j)(1), by striking ``The term'' and 
        inserting ``For services furnished before January 1, 1998, the 
        term''.

SEC. 4502. ESTABLISHING UPDATE TO CONVERSION FACTOR TO MATCH SPENDING 
            UNDER SUSTAINABLE GROWTH RATE.

    (a) Update.--
            (1) In general.--Section 1848(d)(3) (42 U.S.C. 1395w-
        4(d)(3)) is amended to read as follows:
            ``(3) Update.--
                    ``(A) In general.--Unless otherwise provided by law, 
                subject to subparagraph (D) and the budget-neutrality 
                factor determined by the Secretary under subsection 
                (c)(2)(B)(ii), the update to the single conversion 
                factor established in paragraph (1)(C) for a year 
                beginning with 1999 is equal to the product of--
                          ``(i) 1 plus the Secretary's estimate of the 
                      percentage increase in the MEI (as defined in 
                      section 1842(i)(3)) for the year (divided by 100), 
                      and
                          ``(ii) 1 plus the Secretary's estimate of the 
                      update adjustment factor for the year (divided by 
                      100),
                minus 1 and multiplied by 100.

[[Page 111 STAT. 433]]

                    ``(B) Update adjustment factor.--For purposes of 
                subparagraph (A)(ii), the `update adjustment factor' for 
                a year is equal (as estimated by the Secretary) to--
                          ``(i) the difference between (I) the sum of 
                      the allowed expenditures for physicians' services 
                      (as determined under subparagraph (C)) for the 
                      period beginning April 1, 1997, and ending on 
                      March 31 of the year involved, and (II) the amount 
                      of actual expenditures for physicians' services 
                      furnished during the period beginning April 1, 
                      1997, and ending on March 31 of the preceding 
                      year; divided by
                          ``(ii) the actual expenditures for physicians' 
                      services for the 12-month period ending on March 
                      31 of the preceding year, increased by the 
                      sustainable growth rate under subsection (f) for 
                      the fiscal year which begins during such 12-month 
                      period.
                    ``(C) Determination of allowed expenditures.--For 
                purposes of this paragraph, the allowed expenditures for 
                physicians' services for the 12-month period ending with 
                March 31 of--
                          ``(i) 1997 is equal to the actual expenditures 
                      for physicians' services furnished during such 12-
                      month period, as estimated by the Secretary; or
                          ``(ii) a subsequent year is equal to the 
                      allowed expenditures for physicians' services for 
                      the previous year, increased by the sustainable 
                      growth rate under subsection (f) for the fiscal 
                      year which begins during such 12-month period.
                    ``(D) Restriction on variation from medicare 
                economic index.--Notwithstanding the amount of the 
                update adjustment factor determined under subparagraph 
                (B) for a year, the update in the conversion factor 
                under this paragraph for the year may not be--
                          ``(i) greater than 100 times the following 
                      amount: (1.03 + (MEI percentage/100)) -1; or
                          ``(ii) less than 100 times the following 
                      amount: (0.93 + (MEI percentage/100)) -1,
                where `MEI percentage' means the Secretary's estimate of 
                the percentage increase in the MEI (as defined in 
                section 1842(i)(3)) for the year involved.''.
        <<NOTE: 42 USC 1395w-4 note.>>     (2) Effective date.--The 
        amendment made by this subsection shall apply to the update for 
        years beginning with 1999.

    (b) Elimination of Report.--Section 1848(d) (42 U.S.C. 1395w-4(d)) 
is amended by striking paragraph (2).

SEC. 4503. REPLACEMENT OF VOLUME PERFORMANCE STANDARD WITH SUSTAINABLE 
            GROWTH RATE.

    (a) In General.--Section 1848(f) (42 U.S.C. 1395w-4(f)) is amended 
by striking paragraphs (2) through (5) and inserting the following:
            ``(2) Specification of growth rate.--The sustainable growth 
        rate for all physicians' services for a fiscal year (beginning 
        with fiscal year 1998) shall be equal to the product of--
                    ``(A) 1 plus the Secretary's estimate of the 
                weighted average percentage increase (divided by 100) in 
                the fees for all physicians' services in the fiscal year 
                involved,

[[Page 111 STAT. 434]]

                    ``(B) 1 plus the Secretary's estimate of the 
                percentage change (divided by 100) in the average number 
                of individuals enrolled under this part (other than 
                Medicare+Choice plan enrollees) from the previous fiscal 
                year to the fiscal year involved,
                    ``(C) 1 plus the Secretary's estimate of the 
                projected percentage growth in real gross domestic 
                product per capita (divided by 100) from the previous 
                fiscal year to the fiscal year involved, and
                    ``(D) 1 plus the Secretary's estimate of the 
                percentage change (divided by 100) in expenditures for 
                all physicians' services in the fiscal year (compared 
                with the previous fiscal year) which will result from 
                changes in law and regulations, determined without 
                taking into account estimated changes in expenditures 
                resulting from the update adjustment factor determined 
                under subsection (d)(3)(B),
        minus 1 and multiplied by 100.
            ``(3) Definitions.--In this subsection:
                    ``(A) Services included in physicians' services.--
                The term `physicians' services' includes other items and 
                services (such as clinical diagnostic laboratory tests 
                and radiology services), specified by the Secretary, 
                that are commonly performed or furnished by a physician 
                or in a physician's office, but does not include 
                services furnished to a Medicare+Choice plan enrollee.
                    ``(B) Medicare+choice plan enrollee.--The term 
                `Medicare+Choice plan enrollee' means, with respect to a 
                fiscal year, an individual enrolled under this part who 
                has elected to receive benefits under this title for the 
                fiscal year through a Medicare+Choice plan offered under 
                part C, and also includes an individual who is receiving 
                benefits under this part through enrollment with an 
                eligible organization with a risk-sharing contract under 
                section 1876.''.

    (b) Conforming Amendment.--So much of section 1848(f) (42 U.S.C. 
1395w-4(f)) as precedes paragraph (2) is amended to read as follows:
    ``(f) Sustainable Growth Rate.--
        <<NOTE: Federal Register, publication.>>     ``(1) 
        Publication.--The Secretary shall cause to have published in the 
        Federal Register the sustainable growth rate for each fiscal 
        year beginning with fiscal year 1998. Such publication shall 
        occur by not later than August 1 before each fiscal year, except 
        that such rate for fiscal year 1998 shall be published not later 
        than November 1, 1997.''.

SEC. 4504. PAYMENT RULES FOR ANESTHESIA SERVICES.

    (a) In General.--Section 1848(d)(1) (42 U.S.C. 1395w-4(d)(1)), as 
amended by section 4501(a), is amended--
            (1) in subparagraph (C), by striking ``The single'' and 
        inserting ``Except as provided in subparagraph (D), the 
        single'';
            (2) by redesignating subparagraph (D) as subparagraph (E); 
        and
            (3) by inserting after subparagraph (C) the following new 
        subparagraph:
                    ``(D) Special rules for anesthesia services.--The 
                separate conversion factor for anesthesia services for a 
                year shall be equal to 46 percent of the single 
                conversion

[[Page 111 STAT. 435]]

                factor established for other physicians' services, 
                except as adjusted for changes in work, practice 
                expense, or malpractice relative value units.''.

<<NOTE: 42 USC 1395w-4 note.>>     (b) Effective Date.--The amendments 
made by subsection (a) shall apply to services furnished on or after 
January 1, 1998.

SEC. 4505. IMPLEMENTATION OF RESOURCE-BASED METHODOLOGIES.

    (a) 1-Year Delay in Implementation.--Section 1848(c) (42 U.S.C. 
1395w-4(c)) is amended--
            (1) in paragraph (2)(C)(ii), in the matter before subclause 
        (I) and after subclause (II), by striking ``1998'' and inserting 
        ``1999'' each place it appears; and
            (2) in paragraph (3)(C)(ii), by striking ``1998'' and 
        inserting ``1999''.

    (b) Phased-in Implementation.--
            (1) In general.--Section 1848(c)(2)(C)(ii) (42 U.S.C. 1395w-
        4(c)(2)(C)(ii)) is further amended--
                    (A) by striking the comma at the end of clause (ii) 
                and inserting a period and the following:
                      ``For 1999, such number of units shall be 
                      determined based 75 percent on such product and 
                      based 25 percent on the relative practice expense 
                      resources involved in furnishing the service. For 
                      2000, such number of units shall be determined 
                      based 50 percent on such product and based 50 
                      percent on such relative practice expense 
                      resources. For 2001, such number of units shall be 
                      determined based 25 percent on such product and 
                      based 75 percent on such relative practice expense 
                      resources. For a subsequent year, such number of 
                      units shall be determined based entirely on such 
                      relative practice expense resources.''.
            (2) Conforming amendment.--Section 1848(c)(3)(C)(ii) (42 
        U.S.C. 1395w-4(c)(3)(C)(ii)), as amended by subsection (a)(2), 
        is amended by striking ``1999'' and inserting ``2002''.

    (c) Review by Comptroller General.--The Comptroller General of the 
United States shall review and evaluate the proposed rule on resource-
based methodology for practice expenses issued by the Secretary of 
Health and Human Services. The Comptroller General shall, within 6 
months of the date of the enactment of this Act, report to the 
Committees on Commerce and Ways and Means of the House of 
Representatives and the Committee on Finance of the Senate the results 
of its evaluation, including an analysis of--
            (1) the adequacy of the data used in preparing the rule,
            (2) categories of allowable costs,
            (3) methods for allocating direct and indirect expenses,
            (4) the potential impact of the rule on beneficiary access 
        to services, and
            (5) any other matters related to the appropriateness of 
        resource-based methodology for practice expenses.

The Comptroller General shall consult with representatives of 
physicians' organizations with respect to matters of both data and 
methodology.
<<NOTE: 42 USC 1395w-4 note.>>     (d) Requirements for Developing New 
Resource-Based Practice Expense Relative Value Units.--
            (1) Development.--For purposes of section 1848(c)(2)(C)(ii) 
        of the Social Security Act, the Secretary of Health and Human

[[Page 111 STAT. 436]]

        Services shall develop new resource-based relative value units. 
        In developing such units the Secretary shall--
                    (A) utilize, to the maximum extent practicable, 
                generally accepted cost accounting principles which (i) 
                recognize all staff, equipment, supplies, and expenses, 
                not just those which can be tied to specific procedures, 
                and (ii) use actual data on equipment utilization and 
                other key assumptions;
                    (B) consult with organizations representing 
                physicians regarding methodology and data to be used; 
                and
                    (C) develop a refinement process to be used during 
                each of the 4 years of the transition period.
            (2) Report.--The Secretary shall transmit a report by March 
        1, 1998, on the development of resource-based relative value 
        units under paragraph (1) to the Committee on Ways and Means and 
        the Committee on Commerce of the House of Representatives and 
        the Committee on Finance of the Senate. The report shall include 
        a presentation of data to be used in developing the value units 
        and an explanation of the methodology.
        <<NOTE: Publication.>>     (3) Notice of proposed rulemaking.--
        The Secretary shall publish a notice of proposed rulemaking with 
        the new resource-based relative value units on or before May 1, 
        1998, and shall allow for a 90-day public comment period.
            (4) Items included.--The new proposed rule shall consider 
        the following:
                    (A) Impact projections which compare new proposed 
                payment amounts on data on actual physician practice 
                expenses.
                    (B) Impact projections for hospital-based and other 
                specialties, geographic payment localities, and urban 
                versus rural localities.

    (e) Adjustments to Relative Value Units for 1998.--Section 
1848(c)(2) (42 U.S.C. 1395w-4(c)(2)) is amended by adding at the end the 
following new subparagraph:
                    ``(G) Adjustments in relative value units for 
                1998.--
                          ``(i) In general.--The Secretary shall--
                                    ``(I) subject to clauses (iv) and 
                                (v), reduce the practice expense 
                                relative value units applied to any 
                                services described in clause (ii) 
                                furnished in 1998 to a number equal to 
                                110 percent of the number of work 
                                relative value units, and
                                    ``(II) increase the practice expense 
                                relative value units for office visit 
                                procedure codes during 1998 by a uniform 
                                percentage which the Secretary estimates 
                                will result in an aggregate increase in 
                                payments for such services equal to the 
                                aggregate decrease in payments by reason 
                                of subclause (I).
                          ``(ii) Services covered.--For purposes of 
                      clause (i), the services described in this clause 
                      are physicians' services that are not described in 
                      clause (iii) and for which--
                                    ``(I) there are work relative value 
                                units, and

[[Page 111 STAT. 437]]

                                    ``(II) the number of practice 
                                expense relative value units (determined 
                                for 1998) exceeds 110 percent of the 
                                number of work relative value units 
                                (determined for such year).
                          ``(iii) Excluded services.--For purposes of 
                      clause (ii), the services described in this clause 
                      are services which the Secretary determines at 
                      least 75 percent of which are provided under this 
                      title in an office setting.
                          ``(iv) Limitation on aggregate reallocation.--
                      If the application of clause (i)(I) would result 
                      in an aggregate amount of reductions under such 
                      clause in excess of $390,000,000, such clause 
                      shall be applied by substituting for 110 percent 
                      such greater percentage as the Secretary estimates 
                      will result in the aggregate amount of such 
                      reductions equaling $390,000,000.
                          ``(v) No reduction for certain services.--
                      Practice expense relative value units for a 
                      procedure performed in an office or in a setting 
                      out of an office shall not be reduced under clause 
                      (i) if the in-office or out-of-office practice 
                      expense relative value, respectively, for the 
                      procedure would increase under the proposed rule 
                      on resource-based practice expenses issued by the 
                      Secretary on June 18, 1997 (62 Federal Register 
                      33158 et seq.).''.

    (f) Application of Resource-Based Methodology to Malpractice 
Relative Value Units.--
            (1) In general.--Section 1848(c)(2)(C)(iii) (42 U.S.C. 
        1395w-4(c)(2)(C)(iii)) is amended--
                    (A) in paragraph (2)(C)(iii)--
                          (i) by inserting ``for the service for years 
                      before 2000'' before ``equal'', and
                          (ii) by striking the period at the end and 
                      inserting a comma and by adding at the end the 
                      following flush matter:
                      ``and for years beginning with 2000 based on the 
                      malpractice expense resources involved in 
                      furnishing the service.''; and
                    (B) in paragraph (3)(C)(iii), by striking ``The 
                malpractice'' and inserting ``For years before 1999, the 
                malpractice''.
        <<NOTE: 42 USC 1395w-4 note.>>     (2) Application of certain 
        budget neutrality provisions.--In implementing the amendment 
        made by paragraph (1)(A)(ii), the provisions of clauses (ii)(II) 
        and (iii) of section 1848(c)(2)(B) of the Social Security Act 
        (42 U.S.C. 1395w-4(c)(2)(B)) shall apply in the same manner as 
        they apply to adjustments under clause (ii)(I) of such section.

<<NOTE: 42 USC 1395ww note.>> SEC. 4506. DISSEMINATION OF INFORMATION ON 
            HIGH PER DISCHARGE RELATIVE VALUES FOR IN-HOSPITAL 
            PHYSICIANS' SERVICES.

    (a) Determination and Notice Concerning Hospital-Specific Per 
Discharge Relative Values.--
            (1) In general.--For 1999 and 2001 the Secretary of Health 
        and Human Services shall determine for each hospital--
                    (A) the hospital-specific per discharge relative 
                value under subsection (b); and

[[Page 111 STAT. 438]]

                    (B) whether the hospital-specific relative value is 
                projected to be excessive (as determined based on such 
                value represented as a percentage of the median of 
                hospital-specific per discharge relative values 
                determined under subsection (b)).
            (2) Notice to subset of medical staffs; evaluation of 
        responses.--The Secretary shall notify the medical executive 
        committee of a subset of the hospitals identified under 
        paragraph (1)(B) as having an excessive hospital-specific 
        relative value, of the determinations made with respect to the 
        medical staff under paragraph (1). The Secretary shall evaluate 
        the responses of the hospitals so notified with the responses of 
        other hospitals so identified that were not so notified.

    (b) Determination of Hospital-Specific Per Discharge Relative 
Values.--
            (1) In general.--For purposes of this section, the hospital-
        specific per discharge relative value for the medical staff of a 
        hospital (other than a teaching hospital) for a year shall be 
        equal to the average per discharge relative value (as determined 
        under section 1848(c)(2) of the Social Security Act (42 U.S.C. 
        1395w-4(c)(2)) for physicians' services furnished to inpatients 
        of the hospital by the hospital's medical staff (excluding 
        interns and residents) during the second year preceding that 
        calendar year, adjusted for variations in case-mix among 
        hospitals and disproportionate share status and teaching status 
        among hospitals (as determined by the Secretary under paragraph 
        (3)).
            (2) Special rule for teaching hospitals.--The hospital-
        specific relative value projected for a teaching hospital in a 
        year shall be equal to the sum of--
                    (A) the average per discharge relative value (as 
                determined under section 1848(c)(2) of such Act) for 
                physicians' services furnished to inpatients of the 
                hospital by the hospital's medical staff (excluding 
                interns and residents) during the second year preceding 
                that calendar year, and
                    (B) the equivalent per discharge relative value (as 
                determined under such section) for physicians' services 
                furnished to inpatients of the hospital by interns and 
                residents of the hospital during the second year 
                preceding that calendar year, adjusted for variations in 
                case-mix among hospitals, and in disproportionate share 
                status and teaching status among hospitals (as 
                determined by the Secretary under paragraph (3)).
        The Secretary shall determine the equivalent relative value unit 
        per discharge for interns and residents based on the best 
        available data and may make such adjustment in the aggregate.
            (3) Adjustment for teaching and disproportionate share 
        hospitals.--The Secretary shall adjust the allowable per 
        discharge relative values otherwise determined under this 
        subsection to take into account the needs of teaching hospitals 
        and hospitals receiving additional payments under subparagraphs 
        (F) and (G) of section 1886(d)(5) of the Social Security Act (42 
        U.S.C. 1395ww(d)(5)). The adjustment for teaching status or 
        disproportionate share shall not be less than zero.

    (c) Definitions.--For purposes of this section:

[[Page 111 STAT. 439]]

            (1) Hospital.--The term ``hospital'' means a subsection (d) 
        hospital as defined in section 1886(d) of the Social Security 
        Act (42 U.S.C. 1395ww(d)) .
            (2) Medical staff.--An individual furnishing a physician's 
        service is considered to be on the medical staff of a hospital--
                    (A) if (in accordance with requirements for 
                hospitals established by the Joint Commission on 
                Accreditation of Health Organizations)--
                          (i) the individual is subject to bylaws, 
                      rules, and regulations established by the hospital 
                      to provide a framework for the self-governance of 
                      medical staff activities,
                          (ii) subject to the bylaws, rules, and 
                      regulations, the individual has clinical 
                      privileges granted by the hospital's governing 
                      body, and
                          (iii) under the clinical privileges, the 
                      individual may provide physicians' services 
                      independently within the scope of the individual's 
                      clinical privileges, or
                    (B) if the physician provides at least one service 
                to an individual entitled to benefits under this title 
                in that hospital.
            (3) Physicians' services.--The term ``physicians' services'' 
        means the services described in section 1848(j)(3) of the Social 
        Security Act (42 U.S.C. 1395w-4(j)(3)).
            (4) Rural area; urban area.--The terms ``rural area'' and 
        ``urban area'' have the meaning given those terms under section 
        1886(d)(2)(D) of such Act (42 U.S.C. 1395ww(d)(2)(D)).
            (5) Secretary.--The term ``Secretary'' means the Secretary 
        of Health and Human Services.
            (6) Teaching hospital.--The term ``teaching hospital'' means 
        a hospital which has a teaching program approved as specified in 
        section 1861(b)(6) of the Social Security Act (42 U.S.C. 
        1395x(b)(6)).

SEC. 4507. USE OF PRIVATE CONTRACTS BY MEDICARE BENEFICIARIES.

    (a) Items or Services Provided Through Private Contracts.--
            (1) In general.--Section 1802 (42 U.S.C. 1395a) is amended 
        by adding at the end the following new subsection:

    ``(b) Use of Private Contracts by Medicare Beneficiaries.--
            ``(1) In general.--Subject to the provisions of this 
        subsection, nothing in this title shall prohibit a physician or 
        practitioner from entering into a private contract with a 
        medicare beneficiary for any item or service--
                    ``(A) for which no claim for payment is to be 
                submitted under this title, and
                    ``(B) for which the physician or practitioner 
                receives--
                          ``(i) no reimbursement under this title 
                      directly or on a capitated basis, and
                          ``(ii) receives no amount for such item or 
                      service from an organization which receives 
                      reimbursement for such item or service under this 
                      title directly or on a capitated basis.
            ``(2) Beneficiary protections.--
                    ``(A) In general.--Paragraph (1) shall not apply to 
                any contract unless--

[[Page 111 STAT. 440]]

                          ``(i) the contract is in writing and is signed 
                      by the medicare beneficiary before any item or 
                      service is provided pursuant to the contract;
                          ``(ii) the contract contains the items 
                      described in subparagraph (B); and
                          ``(iii) the contract is not entered into at a 
                      time when the medicare beneficiary is facing an 
                      emergency or urgent health care situation.
                    ``(B) Items required to be included in contract.--
                Any contract to provide items and services to which 
                paragraph (1) applies shall clearly indicate to the 
                medicare beneficiary that by signing such contract the 
                beneficiary--
                          ``(i) agrees not to submit a claim (or to 
                      request that the physician or practitioner submit 
                      a claim) under this title for such items or 
                      services even if such items or services are 
                      otherwise covered by this title;
                          ``(ii) agrees to be responsible, whether 
                      through insurance or otherwise, for payment of 
                      such items or services and understands that no 
                      reimbursement will be provided under this title 
                      for such items or services;
                          ``(iii) acknowledges that no limits under this 
                      title (including the limits under section 1848(g)) 
                      apply to amounts that may be charged for such 
                      items or services;
                          ``(iv) acknowledges that Medigap plans under 
                      section 1882 do not, and other supplemental 
                      insurance plans may elect not to, make payments 
                      for such items and services because payment is not 
                      made under this title; and
                          ``(v) acknowledges that the medicare 
                      beneficiary has the right to have such items or 
                      services provided by other physicians or 
                      practitioners for whom payment would be made under 
                      this title.
                Such contract shall also clearly indicate whether the 
                physician or practitioner is excluded from participation 
                under the medicare program under section 1128.
            ``(3) Physician or practitioner requirements.--
                    ``(A) In general.--Paragraph (1) shall not apply to 
                any contract entered into by a physician or practitioner 
                unless an affidavit described in subparagraph (B) is in 
                effect during the period any item or service is to be 
                provided pursuant to the contract.
                    ``(B) Affidavit.--An affidavit is described in this 
                subparagraph if--
                          ``(i) the affidavit identifies the physician 
                      or practitioner and is in writing and is signed by 
                      the physician or practitioner;
                          ``(ii) the affidavit provides that the 
                      physician or practitioner will not submit any 
                      claim under this title for any item or service 
                      provided to any medicare beneficiary (and will not 
                      receive any reimbursement or amount described in 
                      paragraph (1)(B) for any such item or service) 
                      during the 2-year period beginning on the date the 
                      affidavit is signed; and
                          ``(iii) a copy of the affidavit is filed with 
                      the Secretary no later than 10 days after the 
                      first contract to which such affidavit applies is 
                      entered into.

[[Page 111 STAT. 441]]

                    ``(C) Enforcement.--If a physician or practitioner 
                signing an affidavit under subparagraph (B) knowingly 
                and willfully submits a claim under this title for any 
                item or service provided during the 2-year period 
                described in subparagraph (B)(ii) (or receives any 
                reimbursement or amount described in paragraph (1)(B) 
                for any such item or service) with respect to such 
                affidavit--
                          ``(i) this subsection shall not apply with 
                      respect to any items and services provided by the 
                      physician or practitioner pursuant to any contract 
                      on and after the date of such submission and 
                      before the end of such period; and
                          ``(ii) no payment shall be made under this 
                      title for any item or service furnished by the 
                      physician or practitioner during the period 
                      described in clause (i) (and no reimbursement or 
                      payment of any amount described in paragraph 
                      (1)(B) shall be made for any such item or 
                      service).
            ``(4) Limitation on actual charge and claim submission 
        requirement not applicable.--Section 1848(g) shall not apply 
        with respect to any item or service provided to a medicare 
        beneficiary under a contract described in paragraph (1).
            ``(5) Definitions.--In this subsection:
                    ``(A) Medicare beneficiary.--The term `medicare 
                beneficiary' means an individual who is entitled to 
                benefits under part A or enrolled under part B.
                    ``(B) Physician.--The term `physician' has the 
                meaning given such term by section 1861(r)(1).
                    ``(C) Practitioner.--The term `practitioner' has the 
                meaning given such term by section 1842(b)(18)(C).''
            (2) Conforming amendments.--
                    (A) Section 1802 (42 U.S.C. 1395a) is amended by 
                striking ``Any'' and inserting ``(a) Basic Freedom of 
                Choice.--Any''.
                    (B) Section 1862(a) (42 U.S.C. 1395y(a)), as amended 
                by sections 4319(b) and 4432, is amended by striking 
                ``or'' at the end of paragraph (17), by striking the 
                period at the end of paragraph (18) and inserting ``; 
                or'', and by adding after paragraph (18) the following 
                new paragraph:
            ``(19) which are for items or services which are furnished 
        pursuant to a private contract described in section 1802(b).''.

<<NOTE: 42 USC 1395a note.>>     (b) Report.--Not later than October 1, 
2001, the Secretary of Health and Human Services shall submit a report 
to Congress on the effect on the program under this title of private 
contracts entered into under the amendment made by subsection (a). Such 
report shall include--
            (1) analyses regarding--
                    (A) the fiscal impact of such contracts on total 
                Federal expenditures under title XVIII of the Social 
                Security Act and on out-of-pocket expenditures by 
                medicare beneficiaries for health services under such 
                title; and
                    (B) the quality of the health services provided 
                under such contracts; and
            (2) recommendations as to whether medicare beneficiaries 
        should continue to be able to enter private contracts under 
        section 1802(b) of such Act (as added by subsection (a)) and

[[Page 111 STAT. 442]]

        if so, what legislative changes, if any should be made to 
        improve such contracts.

<<NOTE: 42 USC 1395a note.>>     (c) Effective Date.--The amendment made 
by subsection (a) shall apply with respect to contracts entered into on 
and after January 1, 1998.

              Subchapter B--Other Health Care Professionals

SEC. 4511. INCREASED MEDICARE REIMBURSEMENT FOR NURSE PRACTITIONERS AND 
            CLINICAL NURSE SPECIALISTS.

    (a) Removal of Restrictions on Settings.--
            (1) In general.--Clause (ii) of section 1861(s)(2)(K) (42 
        U.S.C. 1395x(s)(2)(K)) is amended to read as follows:
            ``(ii) services which would be physicians' services if 
        furnished by a physician (as defined in subsection (r)(1)) and 
        which are performed by a nurse practitioner or clinical nurse 
        specialist (as defined in subsection (aa)(5)) working in 
        collaboration (as defined in subsection (aa)(6)) with a 
        physician (as defined in subsection (r)(1)) which the nurse 
        practitioner or clinical nurse specialist is legally authorized 
        to perform by the State in which the services are performed, and 
        such services and supplies furnished as an incident to such 
        services as would be covered under subparagraph (A) if furnished 
        incident to a physician's professional service, but only if no 
        facility or other provider charges or is paid any amounts with 
        respect to the furnishing of such services;''.
            (2) Conforming amendments.--(A) Section 1861(s)(2)(K) (42 
        U.S.C. 1395x(s)(2)(K)) is further amended--
                    (i) in clause (i), by inserting ``and such services 
                and supplies furnished as incident to such services as 
                would be covered under subparagraph (A) if furnished 
                incident to a physician's professional service; and'' 
                after ``are performed,''; and
                    (ii) by striking clauses (iii) and (iv).
            (B) Section 1861(b)(4) (42 U.S.C. 1395x(b)(4)) is amended by 
        striking ``clauses (i) or (iii) of subsection (s)(2)(K)'' and 
        inserting ``subsection (s)(2)(K)''.
            (C) Section 1862(a)(14) (42 U.S.C. 1395y(a)(14)) is amended 
        by striking ``section 1861(s)(2)(K)(i) or 1861(s)(2)(K)(iii)'' 
        and inserting ``section 1861(s)(2)(K)''.
            (D) Section 1866(a)(1)(H) (42 U.S.C. 1395cc(a)(1)(H)) is 
        amended by striking ``section 1861(s)(2)(K)(i) or 
        1861(s)(2)(K)(iii)'' and inserting ``section 1861(s)(2)(K)''.
            (E) Section 1888(e)(2)(A)(ii) (42 U.S.C. 
        1395yy(e)(2)(A)(ii)), as added by section 4432(a) (relating to 
        prospective payment system for rehabilitation hospitals), is 
        amended by striking ``through (iii)'' and inserting ``and 
        (ii)''.

    (b) Increased Payment.--
            (1) Fee schedule amount.--Subparagraph (O) of section 
        1833(a)(1) (42 U.S.C. 1395l(a)(1)) is amended to read as 
        follows: ``(O) with respect to services described in section 
        1861(s)(2)(K)(ii) (relating to nurse practitioner or clinical 
        nurse specialist services), the amounts paid shall be equal to 
        80 percent of (i) the lesser of the actual charge or 85 percent 
        of the fee schedule amount provided under section 1848, or (ii) 
        in the case of services as an assistant at surgery, the lesser 
        of the actual charge or 85 percent of the amount that

[[Page 111 STAT. 443]]

        would otherwise be recognized if performed by a physician who is 
        serving as an assistant at surgery; and''.
            (2) Conforming amendments.--Section 1833(r) (42 U.S.C. 
        1395l(r)) is amended--
                    (A) in paragraph (1), by striking ``section 
                1861(s)(2)(K)(iii) (relating to nurse practitioner or 
                clinical nurse specialist services provided in a rural 
                area)'' and inserting ``section 1861(s)(2)(K)(ii) 
                (relating to nurse practitioner or clinical nurse 
                specialist services)'';
                    (B) by striking paragraph (2);
                    (C) in paragraph (3), by striking ``section 
                1861(s)(2)(K)(iii)'' and inserting ``section 
                1861(s)(2)(K)(ii)''; and
                    (D) by redesignating paragraph (3) as paragraph (2).

    (c) Direct Payment for Nurse Practitioners and Clinical Nurse 
Specialists.--Section 1832(a)(2)(B)(iv) (42 U.S.C. 1395k(a)(2)(B)(iv)) 
is amended by striking ``provided in a rural area (as defined in section 
1886(d)(2)(D))'' and inserting ``but only if no facility or other 
provider charges or is paid any amounts with respect to the furnishing 
of such services''.
    (d) Definition of Clinical Nurse Specialist Clarified.--Section 
1861(aa)(5) (42 U.S.C. 1395x(aa)(5)) is amended--
            (1) by inserting ``(A)'' after ``(5)'';
            (2) by striking ``The term `physician assistant' '' and all 
        that follows through ``who performs'' and inserting ``The term 
        `physician assistant' and the term `nurse practitioner' mean, 
        for purposes of this title, a physician assistant or nurse 
        practitioner who performs''; and
            (3) by adding at the end the following new subparagraph:

    ``(B) The term `clinical nurse specialist' means, for purposes of 
this title, an individual who--
            ``(i) is a registered nurse and is licensed to practice 
        nursing in the State in which the clinical nurse specialist 
        services are performed; and
            ``(ii) holds a master's degree in a defined clinical area of 
        nursing from an accredited educational institution.''.

<<NOTE: 42 USC 1395k note.>>     (e) Effective Date.--The amendments 
made by this section shall apply with respect to services furnished and 
supplies provided on and after January 1, 1998.

SEC. 4512. INCREASED MEDICARE REIMBURSEMENT FOR PHYSICIAN ASSISTANTS.

    (a) Removal of Restriction on Settings.--Section 1861(s)(2)(K)(i) 
(42 U.S.C. 1395x(s)(2)(K)(i)), as amended by section 4511, is amended--
            (1) by striking ``(I) in a hospital'' and all that follows 
        through ``shortage area,'', and
            (2) by adding at the end the following: ``but only if no 
        facility or other provider charges or is paid any amounts with 
        respect to the furnishing of such services,''.

    (b) Increased Payment.--
            (1) Fee schedule amount.--Section 1833(a)(1)(O) (42 U.S.C. 
        1395l(a)(1)(O)), as amended by section 4511, is further 
        amended--
                    (A) by striking ``section 1861(s)(2)(K)(ii)'' and 
                inserting ``1861(s)(2)(K)'', and

[[Page 111 STAT. 444]]

                    (B) by striking ``nurse practitioner or clinical 
                nurse specialist services'' and inserting ``services 
                furnished by physician assistants, nurse practitioners, 
                or clinic nurse specialists''.
            (2) Conforming amendment.--Paragraph (12) of section 1842(b) 
        (42 U.S.C. 1395u(b)) is repealed.

    (c) Removal of Restriction on Employment Relationship.--Section 
1842(b)(6) (42 U.S.C. 1395u(b)(6)), as amended by section 4205, is 
amended by adding at the end the following new sentence: ``For purposes 
of subparagraph (C) of the first sentence of this paragraph, an 
employment relationship may include any independent contractor 
arrangement, and employer status shall be determined in accordance with 
the law of the State in which the services described in such clause are 
performed.''.
<<NOTE: 42 USC 1395l note.>>     (d) Effective Date.--The amendments 
made by this section shall apply with respect to services furnished and 
supplies provided on and after January 1, 1998.

SEC. 4513. NO X-RAY REQUIRED FOR CHIROPRACTIC SERVICES.

    (a) In General.--Section 1861(r)(5) (42 U.S.C. 1395x(r)(5)) is 
amended by striking ``demonstrated by X-ray to exist''.
<<NOTE: 42 USC 1395x note.>>     (b) Effective Date.--The amendment made 
by subsection (a) applies to services furnished on or after January 1, 
2000.

<<NOTE: 42 USC 1395x note.>>     (c) Utilization Guidelines.--The 
Secretary of Health and Human Services shall develop and implement 
utilization guidelines relating to the coverage of chiropractic services 
under part B of title XVIII of the Social Security Act in cases in which 
a subluxation has not been demonstrated by X-ray to exist.

     CHAPTER 2--PAYMENT FOR HOSPITAL OUTPATIENT DEPARTMENT SERVICES

SEC. 4521. ELIMINATION OF FORMULA-DRIVEN OVERPAYMENTS (FDO) FOR CERTAIN 
            OUTPATIENT HOSPITAL SERVICES.

    (a) Elimination of FDO for Ambulatory Surgical Center Procedures.--
Section 1833(i)(3)(B)(i)(II) (42 U.S.C. 1395l(i)(3)(B)(i)(II)) is 
amended--
            (1) by striking ``of 80 percent''; and
            (2) by striking the period at the end and inserting the 
        following: ``, less the amount a provider may charge as 
        described in clause (ii) of section 1866(a)(2)(A).''.

    (b) Elimination of FDO for Radiology Services and Diagnostic 
Procedures.--Section 1833(n)(1)(B)(i) (42 U.S.C. 1395l(n)(1)(B)(i)) is 
amended--
            (1) by striking ``of 80 percent'', and
            (2) by inserting before the period at the end the following: 
        ``, less the amount a provider may charge as described in clause 
        (ii) of section 1866(a)(2)(A)''.

<<NOTE: 42 USC 1395l note.>>     (c) Effective Date.--The amendments 
made by this section shall apply to services furnished during portions 
of cost reporting periods occurring on or after October 1, 1997.

SEC. 4522. EXTENSION OF REDUCTIONS IN PAYMENTS FOR COSTS OF HOSPITAL 
            OUTPATIENT SERVICES.

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

[[Page 111 STAT. 445]]

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

SEC. 4523. PROSPECTIVE PAYMENT SYSTEM FOR HOSPITAL OUTPATIENT DEPARTMENT 
            SERVICES.

    (a) In General.--Section 1833 (42 U.S.C. 1395l) is amended by adding 
at the end the following:
    ``(t) Prospective Payment System for Hospital Outpatient Department 
Services.--
            ``(1) Amount of payment.--
                    ``(A) In general.--With respect to covered OPD 
                services (as defined in subparagraph (B)) furnished 
                during a year beginning with 1999, the amount of payment 
                under this part shall be determined under a prospective 
                payment system established by the Secretary in 
                accordance with this subsection.
                    ``(B) Definition of covered opd services.--For 
                purposes of this subsection, the term `covered OPD 
                services'--
                          ``(i) means hospital outpatient services 
                      designated by the Secretary;
                          ``(ii) subject to clause (iii), includes 
                      inpatient hospital services designated by the 
                      Secretary that are covered under this part and 
                      furnished to a hospital inpatient who (I) is 
                      entitled to benefits under part A but has 
                      exhausted benefits for inpatient hospital services 
                      during a spell of illness, or (II) is not so 
                      entitled; but
                          ``(iii) does not include any therapy services 
                      described in subsection (a)(8) or ambulance 
                      services, for which payment is made under a fee 
                      schedule described in section 1834(k) or section 
                      1834(l).
            ``(2) System requirements.--Under the payment system--
                    ``(A) the Secretary shall develop a classification 
                system for covered OPD services;
                    ``(B) the Secretary may establish groups of covered 
                OPD services, within the classification system described 
                in subparagraph (A), so that services classified within 
                each group are comparable clinically and with respect to 
                the use of resources;
                    ``(C) the Secretary shall, using data on claims from 
                1996 and using data from the most recent available cost 
                reports, establish relative payment weights for covered 
                OPD services (and any groups of such services described 
                in subparagraph (B)) based on median hospital costs and 
                shall determine projections of the frequency of 
                utilization of each such service (or group of services) 
                in 1999;
                    ``(D) the Secretary shall determine a wage 
                adjustment factor to adjust the portion of payment and 
                coinsurance attributable to labor-related costs for 
                relative differences in labor and labor-related costs 
                across geographic regions in a budget neutral manner;
                    ``(E) the Secretary shall establish other 
                adjustments, in a budget neutral manner, as determined 
                to be necessary to ensure equitable payments, such as 
                outlier adjustments or adjustments for certain classes 
                of hospitals; and

[[Page 111 STAT. 446]]

                    ``(F) the Secretary shall develop a method for 
                controlling unnecessary increases in the volume of 
                covered OPD services.
            ``(3) Calculation of base amounts.--
                    ``(A) Aggregate amounts that would be payable if 
                deductibles were disregarded.--The Secretary shall 
                estimate the sum of--
                          ``(i) the total amounts that would be payable 
                      from the Trust Fund under this part for covered 
                      OPD services in 1999, determined without regard to 
                      this subsection, as though the deductible under 
                      section 1833(b) did not apply, and
                          ``(ii) the total amounts of copayments 
                      estimated to be paid under this subsection by 
                      beneficiaries to hospitals for covered OPD 
                      services in 1999, as though the deductible under 
                      section 1833(b) did not apply.
                    ``(B) Unadjusted copayment amount.--
                          ``(i) In general.--For purposes of this 
                      subsection, subject to clause (ii), the 
                      `unadjusted copayment amount' applicable to a 
                      covered OPD service (or group of such services) is 
                      20 percent of the national median of the charges 
                      for the service (or services within the group) 
                      furnished during 1996, updated to 1999 using the 
                      Secretary's estimate of charge growth during the 
                      period.
                          ``(ii) Adjusted to be 20 percent when fully 
                      phased in.--If the pre-deductible payment 
                      percentage for a covered OPD service (or group of 
                      such services) furnished in a year would be equal 
                      to or exceed 80 percent, then the unadjusted 
                      copayment amount shall be 20 percent of amount 
                      determined under subparagraph (D).
                          ``(iii) Rules for new services.--The Secretary 
                      shall establish rules for establishment of an 
                      unadjusted copayment amount for a covered OPD 
                      service not furnished during 1996, based upon its 
                      classification within a group of such services.
                    ``(C) Calculation of conversion factors.--
                          ``(i) For 1999.--
                                    ``(I) In general.--The Secretary 
                                shall establish a 1999 conversion factor 
                                for determining the medicare OPD fee 
                                schedule amounts for each covered OPD 
                                service (or group of such services) 
                                furnished in 1999. Such conversion 
                                factor shall be established on the basis 
                                of the weights and frequencies described 
                                in paragraph (2)(C) and in such a manner 
                                that the sum for all services and groups 
                                of the products (described in subclause 
                                (II) for each such service or group) 
                                equals the total projected amount 
                                described in subparagraph (A).
                                    ``(II) Product described.--The 
                                Secretary shall determine for each 
                                service or group the product of the 
                                medicare OPD fee schedule amounts 
                                (taking into account appropriate 
                                adjustments described in paragraphs 
                                (2)(D) and (2)(E)) and the estimated 
                                frequencies for such service or group.

[[Page 111 STAT. 447]]

                          ``(ii) Subsequent years.--Subject to paragraph 
                      (8)(B), the Secretary shall establish a conversion 
                      factor for covered OPD services furnished in 
                      subsequent years in an amount equal to the 
                      conversion factor established under this 
                      subparagraph and applicable to such services 
                      furnished in the previous year increased by the 
                      OPD fee schedule increase factor specified under 
                      clause (iii) for the year involved.
                          ``(iii) OPD fee schedule increase factor.--For 
                      purposes of this subparagraph, the `OPD fee 
                      schedule increase factor' for services furnished 
                      in a year is equal to the market basket percentage 
                      increase applicable under section 
                      1886(b)(3)(B)(iii) to hospital discharges 
                      occurring during the fiscal year ending in such 
                      year, reduced by 1 percentage point for such 
                      factor for services furnished in each of 2000, 
                      2001, and 2002. In applying the previous sentence 
                      for years beginning with 2000, the Secretary may 
                      substitute for the market basket percentage 
                      increase an annual percentage increase that is 
                      computed and applied with respect to covered OPD 
                      services furnished in a year in the same manner as 
                      the market basket percentage increase is 
                      determined and applied to inpatient hospital 
                      services for discharges occurring in a fiscal 
                      year.
                    ``(D) Calculation of medicare opd fee schedule 
                amounts.--The Secretary shall compute a medicare OPD fee 
                schedule amount for each covered OPD service (or group 
                of such services) furnished in a year, in an amount 
                equal to the product of--
                          ``(i) the conversion factor computed under 
                      subparagraph (C) for the year, and
                          ``(ii) the relative payment weight (determined 
                      under paragraph (2)(C)) for the service or group.
                    ``(E) Pre-deductible payment percentage.--The pre-
                deductible payment percentage for a covered OPD service 
                (or group of such services) furnished in a year is equal 
                to the ratio of--
                          ``(i) the medicare OPD fee schedule amount 
                      established under subparagraph (D) for the year, 
                      minus the unadjusted copayment amount determined 
                      under subparagraph (B) for the service or group, 
                      to
                          ``(ii) the medicare OPD fee schedule amount 
                      determined under subparagraph (D) for the year for 
                      such service or group.
            ``(4) Medicare payment amount.--The amount of payment made 
        from the Trust Fund under this part for a covered OPD service 
        (and such services classified within a group) furnished in a 
        year is determined as follows:
                    ``(A) Fee schedule adjustments.--The medicare OPD 
                fee schedule amount (computed under paragraph (3)(D)) 
                for the service or group and year is adjusted for 
                relative differences in the cost of labor and other 
                factors determined by the Secretary, as computed under 
                paragraphs (2)(D) and (2)(E).
                    ``(B) Subtract applicable deductible.--Reduce the 
                adjusted amount determined under subparagraph (A) by

[[Page 111 STAT. 448]]

                the amount of the deductible under section 1833(b), to 
                the extent applicable.
                    ``(C) Apply payment proportion to remainder.--The 
                amount of payment is the amount so determined under 
                subparagraph (B) multiplied by the pre-deductible 
                payment percentage (as determined under paragraph 
                (3)(E)) for the service or group and year involved.
            ``(5) Copayment amount.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the copayment amount under this 
                subsection is the amount by which the amount described 
                in paragraph (4)(B) exceeds the amount of payment 
                determined under paragraph (4)(C).
                    ``(B) Election to offer reduced copayment amount.--
                The <<NOTE: Procedures.>>  Secretary shall establish a 
                procedure under which a hospital, before the beginning 
                of a year (beginning with 1999), may elect to reduce the 
                copayment amount otherwise established under 
                subparagraph (A) for some or all covered OPD services to 
                an amount that is not less than 20 percent of the 
                medicare OPD fee schedule amount (computed under 
                paragraph (3)(D)) for the service involved. Under such 
                procedures, such reduced copayment amount may not be 
                further reduced or increased during the year involved 
                and the hospital may disseminate information on the 
                reduction of copayment amount effected under this 
                subparagraph.
                    ``(C) No impact on deductibles.--Nothing in this 
                paragraph shall be construed as affecting a hospital's 
                authority to waive the charging of a deductible under 
                section 1833(b).
            ``(6) Periodic review and adjustments components of 
        prospective payment system.--
                    ``(A) Periodic review.--The Secretary may 
                periodically review and revise the groups, the relative 
                payment weights, and the wage and other adjustments 
                described in paragraph (2) to take into account changes 
                in medical practice, changes in technology, the addition 
                of new services, new cost data, and other relevant 
                information and factors.
                    ``(B) Budget neutrality adjustment.--If the 
                Secretary makes adjustments under subparagraph (A), then 
                the adjustments for a year may not cause the estimated 
                amount of expenditures under this part for the year to 
                increase or decrease from the estimated amount of 
                expenditures under this part that would have been made 
                if the adjustments had not been made.
                    ``(C) Update factor.--If the Secretary determines 
                under methodologies described in paragraph (2)(F) that 
                the volume of services paid for under this subsection 
                increased beyond amounts established through those 
                methodologies, the Secretary may appropriately adjust 
                the update to the conversion factor otherwise applicable 
                in a subsequent year.
            ``(7) Special rule for ambulance services.--The Secretary 
        shall pay for hospital outpatient services that are ambulance 
        services on the basis described in the matter in subsection 
        (a)(1) preceding subparagraph (A), or, if applicable, the fee 
        schedule established under section 1834(l).

[[Page 111 STAT. 449]]

            ``(8) Special rules for certain hospitals.--In the case of 
        hospitals described in section 1886(d)(1)(B)(v)--
                    ``(A) the system under this subsection shall not 
                apply to covered OPD services furnished before January 
                1, 2000; and
                    ``(B) the Secretary may establish a separate 
                conversion factor for such services in a manner that 
                specifically takes into account the unique costs 
                incurred by such hospitals by virtue of their patient 
                population and service intensity.
            ``(9) Limitation on review.--There shall be no 
        administrative or judicial review under section 1869, 1878, or 
        otherwise of--
                    ``(A) the development of the classification system 
                under paragraph (2), including the establishment of 
                groups and relative payment weights for covered OPD 
                services, of wage adjustment factors, other adjustments, 
                and methods described in paragraph (2)(F);
                    ``(B) the calculation of base amounts under 
                paragraph (3);
                    ``(C) periodic adjustments made under paragraph (6); 
                and
                    ``(D) the establishment of a separate conversion 
                factor under paragraph (8)(B).''.

    (b) Coinsurance.--Section 1866(a)(2)(A)(ii) (42 U.S.C. 
1395cc(a)(2)(A)(ii)) is amended by adding at the end the following: ``In 
the case of items and services for which payment is made under part B 
under the prospective payment system established under section 1833(t), 
clause (ii) of the first sentence shall be applied by substituting for 
20 percent of the reasonable charge, the applicable copayment amount 
established under section 1833(t)(5).''.
    (c) Treatment of Reduction in Copayment Amount.--Section 1128A(i)(6) 
(42 U.S.C. 1320a-7a(i)(6)) is amended--
            (1) by striking ``or'' at the end of subparagraph (B),
            (2) by striking the period at the end of subparagraph (C) 
        and inserting ``; or'', and
            (3) by adding at the end the following new subparagraph:
                    ``(D) a reduction in the copayment amount for 
                covered OPD services under section 1833(t)(5)(B).''.

    (d) Conforming Amendments.--
            (1) Approved asc procedures performed in hospital outpatient 
        departments.--
                    (A)(i) Section 1833(i)(3)(A) (42 U.S.C. 
                1395l(i)(3)(A)) is amended--
                          (I) by inserting ``before January 1, 1999,'' 
                      after ``furnished'', and
                          (II) by striking ``in a cost reporting 
                      period''.
                <<NOTE: Applicability. 42 USC 1395l note.>>     (ii) The 
                amendment made by clause (i) shall apply to services 
                furnished on or after January 1, 1999.
                    (B) Section 1833(a)(4) (42 U.S.C. 1395l(a)(4)) is 
                amended by inserting ``or subsection (t)'' before the 
                semicolon.
            (2) Radiology and other diagnostic procedures.--
                    (A) Section 1833(n)(1)(A) (42 U.S.C. 1395l(n)(1)(A)) 
                is amended by inserting ``and before January 1, 1999,'' 
                after ``October 1, 1988,'' and after ``October 1, 
                1989,''.

[[Page 111 STAT. 450]]

                    (B) Section 1833(a)(2)(E) (42 U.S.C. 1395l(a)(2)(E)) 
                is amended by inserting ``or, for services or procedures 
                performed on or after January 1, 1999, subsection (t)'' 
                before the semicolon.
            (3) Other hospital outpatient services.--Section 
        1833(a)(2)(B) (42 U.S.C. 1395l(a)(2)(B)) is amended--
                    (A) in clause (i), by inserting ``furnished before 
                January 1, 1999,'' after ``(i)'',
                    (B) in clause (ii), by inserting ``before January 1, 
                1999,'' after ``furnished'',
                    (C) by redesignating clause (iii) as clause (iv), 
                and
                    (D) by inserting after clause (ii), the following 
                new clause:
                          ``(iii) if such services are furnished on or 
                      after January 1, 1999, the amount determined under 
                      subsection (t), or''.

                      CHAPTER 3--AMBULANCE SERVICES

SEC. 4531. PAYMENTS FOR AMBULANCE SERVICES.

    (a) Interim Reductions.--
            (1) Payments determined on reasonable cost basis.--Section 
        1861(v)(1) (42 U.S.C. 1395x(v)(1)), as amended by section 4451, 
        is amended by adding at the end the following new subparagraph:
                    ``(U) In determining the reasonable cost of 
                ambulance services (as described in subsection (s)(7)) 
                provided during fiscal year 1998, during fiscal year 
                1999, and during so much of fiscal year 2000 as precedes 
                January 1, 2000, the Secretary shall not recognize the 
                costs per trip in excess of costs recognized as 
                reasonable for ambulance services provided on a per trip 
                basis during the previous fiscal year (after application 
                of this subparagraph), increased by the percentage 
                increase in the consumer price index for all urban 
                consumers (U.S. city average) as estimated by the 
                Secretary for the 12-month period ending with the 
                midpoint of the fiscal year involved reduced by 1.0 
                percentage point. For ambulance services provided after 
                June 30, 1998, the Secretary may provide that claims for 
                such services must include a code (or codes) under a 
                uniform coding system specified by the Secretary that 
                identifies the services furnished.''.
            (2) Payments determined on reasonable charge basis.--Section 
        1842(b) (42 U.S.C. 1395u(b)) is amended by adding at the end the 
        following new paragraph:

    ``(19) For purposes of section 1833(a)(1), the reasonable charge for 
ambulance services (as described in section 1861(s)(7)) provided during 
calendar year 1998 and calendar year 1999 may not exceed the reasonable 
charge for such services provided during the previous calendar year 
(after application of this paragraph), increased by the percentage 
increase in the consumer price index for all urban consumers (U.S. city 
average) as estimated by the Secretary for the 12-month period ending 
with the midpoint of the year involved reduced by 1.0 percentage 
point.''.
    (b) Establishment of Prospective Fee Schedule.--

[[Page 111 STAT. 451]]

            (1) Payment in accordance with fee schedule.--Section 
        1833(a)(1) (42 U.S.C. 1395l(a)(1)), as amended by section 
        4315(b), is amended--
                    (A) by striking ``and (Q)'' and inserting ``(Q)''; 
                and
                    (B) by striking the semicolon at the end and 
                inserting the following: ``, and (R) with respect to 
                ambulance service, the amounts paid shall be 80 percent 
                of the lesser of the actual charge for the services or 
                the amount determined by a fee schedule established by 
                the Secretary under section 1834(l);''.
            (2) Establishment of schedule.--Section 1834 (42 U.S.C. 
        1395m), as amended by section 4541, is amended by adding at the 
        end the following new subsection:

    ``(l) Establishment of Fee Schedule for Ambulance Services.--
            ``(1) In general.--The Secretary shall establish a fee 
        schedule for payment for ambulance services whether provided 
        directly by a supplier or provider or under arrangement with a 
        provider under this part through a negotiated rulemaking process 
        described in title 5, United States Code, and in accordance with 
        the requirements of this subsection.
            ``(2) Considerations.--In establishing such fee schedule, 
        the Secretary shall--
                    ``(A) establish mechanisms to control increases in 
                expenditures for ambulance services under this part;
                    ``(B) establish definitions for ambulance services 
                which link payments to the type of services provided;
                    ``(C) consider appropriate regional and operational 
                differences;
                    ``(D) consider adjustments to payment rates to 
                account for inflation and other relevant factors; and
                    ``(E) phase in the application of the payment rates 
                under the fee schedule in an efficient and fair manner.
            ``(3) Savings.--In establishing such fee schedule, the 
        Secretary shall--
                    ``(A) ensure that the aggregate amount of payments 
                made for ambulance services under this part during 2000 
                does not exceed the aggregate amount of payments which 
                would have been made for such services under this part 
                during such year if the amendments made by section 
                4531(a) of the Balanced Budget Act of 1997 continued in 
                effect, except that in making such determination the 
                Secretary shall assume an update in such payments for 
                2002 equal to percentage increase in the consumer price 
                index for all urban consumers (U.S. city average) for 
                the 12-month period ending with June of the previous 
                year reduced in the case of 2001 and 2002 by 1.0 
                percentage points; and
                    ``(B) set the payment amounts provided under the fee 
                schedule for services furnished in 2001 and each 
                subsequent year at amounts equal to the payment amounts 
                under the fee schedule for services furnished during the 
                previous year, increased by the percentage increase in 
                the consumer price index for all urban consumers (U.S. 
                city average) for the 12-month period ending with June 
                of the previous year reduced in the case of 2001 and 
                2002 by 1.0 percentage points.

[[Page 111 STAT. 452]]

            ``(4) Consultation.--In establishing the fee schedule for 
        ambulance services under this subsection, the Secretary shall 
        consult with various national organizations representing 
        individuals and entities who furnish and regulate ambulance 
        services and share with such organizations relevant data in 
        establishing such schedule.
            ``(5) Limitation on review.--There shall be no 
        administrative or judicial review under section 1869 or 
        otherwise of the amounts established under the fee schedule for 
        ambulance services under this subsection, including matters 
        described in paragraph (2).
        <<NOTE: Applicability.>>     ``(6) Restraint on billing.--The 
        provisions of subparagraphs (A) and (B) of section 1842(b)(18) 
        shall apply to ambulance services for which payment is made 
        under this subsection in the same manner as they apply to 
        services provided by a practitioner described in section 
        1842(b)(18)(C).
            ``(7) Coding system.--The Secretary may require the claim 
        for any services for which the amount of payment is determined 
        under this subsection to include a code (or codes) under a 
        uniform coding system specified by the Secretary that identifies 
        the services furnished.''.
        <<NOTE: 42 USC 1395l note.>>     (3) Effective date.--The 
        amendments made by this subsection shall apply to services 
        furnished on or after January 1, 2000.

<<NOTE: 42 USC 1395x note.>>     (c) Authorizing Payment for Paramedic 
Intercept Service Providers in Rural Communities.--In promulgating 
regulations to carry out section 1861(s)(7) of the Social Security Act 
(42 U.S.C. 1395x(s)(7)) with respect to the coverage of ambulance 
service, the Secretary of Health and Human Services may include coverage 
of advanced life support services (in this subsection referred to as 
``ALS intercept services'') provided by a paramedic intercept service 
provider in a rural area if the following conditions are met:
            (1) The ALS intercept services are provided under a contract 
        with one or more volunteer ambulance services and are medically 
        necessary based on the health condition of the individual being 
        transported.
            (2) The volunteer ambulance service involved--
                    (A) is certified as qualified to provide ambulance 
                service for purposes of such section,
                    (B) provides only basic life support services at the 
                time of the intercept, and
                    (C) is prohibited by State law from billing for any 
                services.
            (3) The entity supplying the ALS intercept services--
                    (A) is certified as qualified to provide such 
                services under the medicare program under title XVIII of 
                the Social Security Act, and
                    (B) bills all recipients who receive ALS intercept 
                services from the entity, regardless of whether or not 
                such recipients are medicare beneficiaries.

[[Page 111 STAT. 453]]

SEC. 4532. DEMONSTRATION <<NOTE: 42 USC 1395m note.>>  OF COVERAGE OF 
            AMBULANCE SERVICES UNDER MEDICARE THROUGH CONTRACTS WITH 
            UNITS OF LOCAL GOVERNMENT.

    (a) Demonstration Project Contracts with Local Governments.--The 
Secretary of Health and Human Services shall establish up to 3 
demonstration projects under which, at the request of a unit of local 
government, the Secretary enters into a contract with the unit of local 
government under which--
            (1) the unit of local government furnishes (or arranges for 
        the furnishing of) ambulance services for which payment may be 
        made under part B of title XVIII of the Social Security Act for 
        individuals residing in the unit of local government who are 
        enrolled under such part, except that the unit of local 
        government may not enter into the contract unless the contract 
        covers at least 80 percent of the individuals residing in the 
        unit of local government who are enrolled under such part but 
        not in a Medicare+Choice plan;
            (2) any individual or entity furnishing ambulance services 
        under the contract meets the requirements otherwise applicable 
        to individuals and entities furnishing such services under such 
        part; and
            (3) for each month during which the contract is in effect, 
        the Secretary makes a capitated payment to the unit of local 
        government in accordance with subsection (b).

The projects may extend over a period of not to exceed 3 years each.
    (b) Amount of Payment.--
            (1) In general.--The amount of the monthly payment made for 
        months occurring during a calendar year to a unit of local 
        government under a demonstration project contract under 
        subsection (a) shall be equal to the product of--
                    (A) the Secretary's estimate of the number of 
                individuals covered under the contract for the month; 
                and
                    (B) \1/12\ of the capitated payment rate for the 
                year established under paragraph (2).
            (2) Capitated payment rate defined.--In this subsection, the 
        ``capitated payment rate'' applicable to a contract under this 
        subsection for a calendar year is equal to 95 percent of--
                    (A) for the first calendar year for which the 
                contract is in effect, the average annual per capita 
                payment made under part B of title XVIII of the Social 
                Security Act with respect to ambulance services 
                furnished to such individuals during the 3 most recent 
                calendar years for which data on the amount of such 
                payment is available; and
                    (B) for a subsequent year, the amount provided under 
                this paragraph for the previous year increased by the 
                percentage increase in the consumer price index for all 
                urban consumers (U.S. city average) for the 12-month 
                period ending with June of the previous year.

    (c) Other Terms of Contract.--The Secretary and the unit of local 
government may include in a contract under this section such other terms 
as the parties consider appropriate, including--
            (1) covering individuals residing in additional units of 
        local government (under arrangements entered into between such 
        units and the unit of local government involved);

[[Page 111 STAT. 454]]

            (2) permitting the unit of local government to transport 
        individuals to non-hospital providers if such providers are able 
        to furnish quality services at a lower cost than hospital 
        providers; or
            (3) implementing such other innovations as the unit of local 
        government may propose to improve the quality of ambulance 
        services and control the costs of such services.

    (d) Contract Payments in Lieu of Other Benefits.--Payments under a 
contract to a unit of local government under this section shall be 
instead of the amounts which (in the absence of the contract) would 
otherwise be payable under part B of title XVIII of the Social Security 
Act for the services covered under the contract which are furnished to 
individuals who reside in the unit of local government.
    (e) Report on Effects of Capitated Contracts.--
            (1) Study.--The Secretary shall evaluate the demonstration 
        projects conducted under this section. Such evaluation shall 
        include an analysis of the quality and cost-effectiveness of 
        ambulance services furnished under the projects.
            (2) Report.--Not later than January 1, 2000, the Secretary 
        shall submit a report to Congress on the study conducted under 
        paragraph (1), and shall include in the report such 
        recommendations as the Secretary considers appropriate, 
        including recommendations regarding modifications to the 
        methodology used to determine the amount of payments made under 
        such contracts and extending or expanding such projects.

  CHAPTER 4--PROSPECTIVE PAYMENT FOR OUTPATIENT REHABILITATION SERVICES

SEC. 4541. PROSPECTIVE PAYMENT FOR OUTPATIENT REHABILITATION SERVICES.

    (a) Payment Based on Fee Schedule.--
            (1) Special payment rules.--Section 1833(a) (42 U.S.C. 
        1395l(a)) is amended--
                    (A) in paragraph (2) in the matter before 
                subparagraph (A), by inserting ``(C),'' before ``(D)'';
                    (B) in paragraph (3), by striking ``subparagraphs 
                (D) and (E) of section 1832(a)(2)'' and inserting 
                ``section 1832(a)(2)(D)'';
                    (C) in paragraph (6), by striking ``and'' at the 
                end;
                    (D) in paragraph (7), by striking the period at the 
                end and inserting a semicolon; and
                    (E) by adding at the end the following new 
                paragraphs:
            ``(8) in the case of--
                    ``(A) outpatient physical therapy services (which 
                includes outpatient speech-language pathology services) 
                and outpatient occupational therapy services furnished--
                          ``(i) by a rehabilitation agency, public 
                      health agency, clinic, comprehensive outpatient 
                      rehabilitation facility, or skilled nursing 
                      facility,
                          ``(ii) by a home health agency to an 
                      individual who is not homebound, or
                          ``(iii) by another entity under an arrangement 
                      with an entity described in clause (i) or (ii); 
                      and

[[Page 111 STAT. 455]]

                    ``(B) outpatient physical therapy services (which 
                includes outpatient speech-language pathology services) 
                and outpatient occupational therapy services furnished--
                          ``(i) by a hospital to an outpatient or to a 
                      hospital inpatient who is entitled to benefits 
                      under part A but has exhausted benefits for 
                      inpatient hospital services during a spell of 
                      illness or is not so entitled to benefits under 
                      part A, or
                          ``(ii) by another entity under an arrangement 
                      with a hospital described in clause (i),
        the amounts described in section 1834(k); and
            ``(9) in the case of services described in section 
        1832(a)(2)(E) that are not described in paragraph (8), the 
        amounts described in section 1834(k).''.
            (2) Payment rates.--Section 1834 (42 U.S.C. 1395m) is 
        amended by adding at the end the following new subsection:

    ``(k) Payment for Outpatient Therapy Services and Comprehensive 
Outpatient Rehabilitation Services.--
            ``(1) In general.--With respect to services described in 
        section 1833(a)(8) or 1833(a)(9) for which payment is determined 
        under this subsection, the payment basis shall be--
                    ``(A) for services furnished during 1998, the amount 
                determined under paragraph (2); or
                    ``(B) for services furnished during a subsequent 
                year, 80 percent of the lesser of--
                          ``(i) the actual charge for the services, or
                          ``(ii) the applicable fee schedule amount (as 
                      defined in paragraph (3)) for the services.
            ``(2) Payment in 1998 based upon adjusted reasonable 
        costs.--The amount under this paragraph for services is the 
        lesser of--
                    ``(A) the charges imposed for the services, or
                    ``(B) the adjusted reasonable costs (as defined in 
                paragraph (4)) for the services,
        less 20 percent of the amount of the charges imposed for such 
        services.
            ``(3) Applicable fee schedule amount.--In this subsection, 
        the term `applicable fee schedule amount' means, with respect to 
        services furnished in a year, the amount determined under the 
        fee schedule established under section 1848 for such services 
        furnished during the year or, if there is no such fee schedule 
        established for such services, the amount determined under the 
        fee schedule established for such comparable services as the 
        Secretary specifies.
            ``(4) Adjusted reasonable costs.--In paragraph (2), the term 
        `adjusted reasonable costs' means, with respect to any services, 
        reasonable costs determined for such services, reduced by 10 
        percent. The 10-percent reduction shall not apply to services 
        described in section 1833(a)(8)(B) (relating to services 
        provided by hospitals).
            ``(5) Uniform coding.--For claims for services submitted on 
        or after April 1, 1998, for which the amount of payment is 
        determined under this subsection, the claim shall include a code 
        (or codes) under a uniform coding system specified by the 
        Secretary that identifies the services furnished.
            ``(6) Restraint <<NOTE: Applicability.>>  on billing.--The 
        provisions of subparagraphs (A) and (B) of section 1842(b)(18) 
        shall apply to therapy

[[Page 111 STAT. 456]]

        services for which payment is made under this subsection in the 
        same manner as they apply to services provided by a practitioner 
        described in section 1842(b)(18)(C).''.
            (3) Conforming change in billing.--Section 1866(a)(2)(A)(ii) 
        (42 U.S.C. 1395cc(a)(2)(A)(ii)) is amended by adding at the end 
        the following: ``In the case of services described in section 
        1833(a)(8) or section 1833(a)(9) for which payment is made under 
        part B under section 1834(k), clause (ii) of the first sentence 
        shall be applied by substituting for 20 percent of the 
        reasonable charge for such services 20 percent of the lesser of 
        the actual charge or the applicable fee schedule amount (as 
        defined in such section) for such services.''.

    (b) Application of Standards to Outpatient Occupational and Physical 
Therapy Services Provided As an Incident to a Physician's Professional 
Services.--Section 1862(a), as amended by sections 4319(b), 4432(b), and 
4507(a)(2)(B), (42 U.S.C. 1395y(a)) is amended--
            (1) by striking ``or'' at the end of paragraph (18);
            (2) by striking the period at the end of paragraph (19) and 
        inserting ``; or''; and
            (3) by inserting after paragraph (19) the following:
            ``(20) in the case of outpatient occupational therapy 
        services or outpatient physical therapy services furnished as an 
        incident to a physician's professional services (as described in 
        section 1861(s)(2)(A)), that do not meet the standards and 
        conditions (other than any licensing requirement specified by 
        the Secretary) under the second sentence of section 1861(p) (or 
        under such sentence through the operation of section 1861(g)) as 
        such standards and conditions would apply to such therapy 
        services if furnished by a therapist.''.

    (c) Applying Financial Limitation to All Rehabilitation Services.--
Section 1833(g) (42 U.S.C. 1395l(g)) is amended--
            (1) in the first sentence, by striking ``services described 
        in the second sentence of section 1861(p)'' and inserting 
        ``physical therapy services of the type described in section 
        1861(p), but not described in section 1833(a)(8)(B), and 
        physical therapy services of such type which are furnished by a 
        physician or as incident to physicians' services'', and
            (2) in the second sentence, by striking ``outpatient 
        occupational therapy services which are described in the second 
        sentence of section 1861(p) through the operation of section 
        1861(g)'' and inserting ``occupational therapy services (of the 
        type that are described in section 1861(p) (but not described in 
        section 1833(a)(8)(B)) through the operation of section 1861(g) 
        and of such type which are furnished by a physician or as 
        incident to physicians' services)''.

    (d) Indexing Limitation.--
            (1) In general.--Section 1833(g) (42 U.S.C. 1395l(g)), as 
        amended by subsection (c), is further amended--
                    (A) by striking ``$900'' each place it appears and 
                inserting ``the amount specified in paragraph (2) for 
                the year'',
                    (B) by inserting ``(1)'' after ``(g)'',
                    (C) by designating the last sentence as a paragraph 
                (3), and
                    (D) by inserting before paragraph (3), as so 
                designated, the following:

    ``(2) The amount specified in this paragraph--

[[Page 111 STAT. 457]]

            ``(A) for 1999, 2000, and 2001, is $1,500, and
            ``(B) for a subsequent year is the amount specified in this 
        paragraph for the preceding year increased by the percentage 
        increase in the MEI (as defined in section 1842(i)(3)) for such 
        subsequent year;

except that if an increase under subparagraph (B) for a year is not a 
multiple of $10, it shall be rounded to the nearest multiple of $10.''.
            (2) <<NOTE: 42 USC 1395l note.>>  Report.--By not later than 
        January 1, 2001, the Secretary of Health and Human Services 
        shall submit to Congress a report that includes recommendations 
        on the establishment of a revised coverage policy of outpatient 
        physical therapy services and outpatient occupational therapy 
        services under the Social Security Act based on classification 
        of individuals by diagnostic category and prior use of services, 
        in both inpatient and outpatient settings, in place of the 
        uniform dollar limitations specified in section 1833(g) of such 
        Act, as amended by paragraph (1). The recommendations shall 
        include how such a system of durational limits by diagnostic 
        category might be implemented in a budget-neutral manner.

    (e) Effective <<NOTE: 42 USC 1395l note.>>  Dates.--
            (1) The amendments made by subsections (a)(1), (a)(2), and 
        (b) apply to services furnished on or after January 1, 1998, 
        including portions of cost reporting periods occurring on or 
        after such date, except that section 1834(k) of the Social 
        Security Act (as added by subsection (a)(2)) shall not apply to 
        services described in section 1833(a)(8)(B) of such Act (as 
        added by subsection (a)(1)) that are furnished during 1998.
            (2) The amendments made by subsections (a)(3) and (c) apply 
        to services furnished on or after January 1, 1999.
            (3) The amendments made by subsection (d)(1) apply to 
        expenses incurred on or after January 1, 1999.

                   CHAPTER 5--OTHER PAYMENT PROVISIONS

SEC. 4551. PAYMENTS FOR DURABLE MEDICAL EQUIPMENT.

    (a) Reduction in Payment Amounts for Items of Durable Medical 
Equipment.--
            (1) Freeze in update for covered items.--Section 1834(a)(14) 
        (42 U.S.C. 1395m(a)(14)) is amended--
                    (A) in subparagraph (A), by striking ``and'' at the 
                end;
                    (B) in subparagraph (B)--
                          (i) by striking ``a subsequent year'' and 
                      inserting ``1993, 1994, 1995, 1996, and 1997'', 
                      and
                          (ii) by striking the period at the end and 
                      inserting a semicolon; and
                    (C) by adding at the end the following new 
                subparagraphs:
                    ``(C) for each of the years 1998 through 2002, 0 
                percentage points; and
                    ``(D) for a subsequent year, the percentage increase 
                in the consumer price index for all urban consumers 
                (U.S. urban average) for the 12-month period ending with 
                June of the previous year.''.
            (2) Update for orthotics and prosthetics.--Section 
        1834(h)(4)(A) (42 U.S.C. 1395m(h)(4)(A)) is amended--

[[Page 111 STAT. 458]]

                    (A) in clause (iii), by striking ``, and'' at the 
                end and inserting a semicolon;
                    (B) in clause (iv), by striking ``a subsequent 
                year'' and inserting ``1996 and 1997''; and
                    (C) by adding at the end the following new clauses:
                          ``(v) for each of the years 1998 through 2002, 
                      1 percent, and
                          ``(vi) for a subsequent year, the percentage 
                      increase in the consumer price index for all urban 
                      consumers (United States city average) for the 12-
                      month period ending with June of the previous 
                      year;''.

    (b) Payment <<NOTE: 42 USC 1395m note.>>  Freeze for Parenteral and 
Enteral Nutrients, Supplies, and Equipment.--In determining the amount 
of payment under part B of title XVIII of the Social Security Act with 
respect to parenteral and enteral nutrients, supplies, and equipment 
during each of the years 1998 through 2002, the charges determined to be 
reasonable with respect to such nutrients, supplies, and equipment may 
not exceed the charges determined to be reasonable with respect to such 
nutrients, supplies, and equipment during 1995.

    (c) Upgraded Durable Medical Equipment.--
            (1) In general.--Section 1834(a) (42 U.S.C. 1395m(a)), as 
        amended by section 4312(a), is amended by inserting after 
        paragraph (16) the following new paragraph:
            ``(17) Certain upgraded items.--
                    ``(A) Individual's right to choose upgraded item.--
                Notwithstanding any other provision of this title, the 
                Secretary may issue regulations under which an 
                individual may purchase or rent from a supplier an item 
                of upgraded durable medical equipment for which payment 
                would be made under this subsection if the item were a 
                standard item.
                    ``(B) Payments to supplier.--In the case of the 
                purchase or rental of an upgraded item under 
                subparagraph (A)--
                          ``(i) the supplier shall receive payment under 
                      this subsection with respect to such item as if 
                      such item were a standard item; and
                          ``(ii) the individual purchasing or renting 
                      the item shall pay the supplier an amount equal to 
                      the difference between the supplier's charge and 
                      the amount under clause (i).
                In no event may the supplier's charge for an upgraded 
                item exceed the applicable fee schedule amount (if any) 
                for such item.
                    ``(C) Consumer protection safeguards.--Any 
                regulations under subparagraph (A) shall provide for 
                consumer protection standards with respect to the 
                furnishing of upgraded equipment under subparagraph (A). 
                Such regulations shall provide for--
                          ``(i) determination of fair market prices with 
                      respect to an upgraded item;
                          ``(ii) full disclosure of the availability and 
                      price of standard items and proof of receipt of 
                      such disclosure information by the beneficiary 
                      before the furnishing of the upgraded item;

[[Page 111 STAT. 459]]

                          ``(iii) conditions of participation for 
                      suppliers in the billing arrangement;
                          ``(iv) sanctions of suppliers who are 
                      determined to engage in coercive or abusive 
                      practices, including exclusion; and
                          ``(v) such other safeguards as the Secretary 
                      determines are necessary.''.
            (2) Effective date.--The <<NOTE: 42 USC 1395 note.>>  
        amendment made by paragraph (1) shall apply to purchases or 
        rentals after the effective date of any regulations issued 
        pursuant to such amendment.

SEC. 4552. OXYGEN AND OXYGEN EQUIPMENT.

    (a) In General.--Section 1834(a)(9)(B) (42 U.S.C. 1395m(a)(9)(B)) is 
amended--
            (1) in clause (iii), by striking ``and'' at the end;
            (2) in clause (iv)--
                    (A) by striking ``each subsequent year'' and 
                inserting ``1995, 1996, and 1997'', and
                    (B) by striking the period at the end and inserting 
                a semicolon; and
            (3) by adding at the end the following new clauses:
                          ``(v) for 1998, 75 percent of the amount 
                      determined under this subparagraph for 1997; and
                          ``(vi) for 1999 and each subsequent year, 70 
                      percent of the amount determined under this 
                      subparagraph for 1997.''.

    (b) Establishment of Classes for Payment.--Section 1848(a)(9) (42 
U.S.C. 1395m(a)(9)) is amended by adding at the end the following new 
subparagraph:
                    ``(D) Authority to create classes.--
                          ``(i) In general.--Subject to clause (ii), the 
                      Secretary may establish separate classes for any 
                      item of oxygen and oxygen equipment and separate 
                      national limited monthly payment rates for each of 
                      such classes.
                          ``(ii) Budget neutrality.--The Secretary may 
                      take actions under clause (i) only to the extent 
                      such actions do not result in expenditures for any 
                      year to be more or less than the expenditures 
                      which would have been made if such actions had not 
                      been taken.''.

    (c) Standards.--The <<NOTE: 42 USC 1395m note.>>  Secretary shall as 
soon as practicable establish service standards for persons seeking 
payment under part B of title XVIII of the Social Security Act for the 
providing of oxygen and oxygen equipment to beneficiaries within their 
homes.

    (d) Access to <<NOTE: 42 USC 1395m note.>>  Home Oxygen Equipment.--
            (1) Study.--The <<NOTE: Reports.>>  Comptroller General of 
        the United States shall study issues relating to access to home 
        oxygen equipment and shall, within 18 months after the date of 
        the enactment of this Act, report to the Committees on Commerce 
        and Ways and Means of the House of Representatives and the 
        Committee on Finance of the Senate the results of the study, 
        including recommendations (if any) for legislation.
            (2) Peer review evaluation.--The Secretary of Health and 
        Human Services shall arrange for peer review organizations 
        established under section 1154 of the Social Security Act to 
        evaluate access to, and quality of, home oxygen equipment.

    (e) Effective <<NOTE: 42 USC 1395m note.>>  Date.--

[[Page 111 STAT. 460]]

            (1) Oxygen.--The amendments made by subsection (a) shall 
        apply to items furnished on and after January 1, 1998.
            (2) Other provisions.--The amendments made by this section 
        other than subsection (a) shall take effect on the date of the 
        enactment of this Act.

SEC. 4553. REDUCTION IN UPDATES TO PAYMENT AMOUNTS FOR CLINICAL 
            DIAGNOSTIC LABORATORY TESTS; STUDY ON LABORATORY TESTS.

    (a) Change in Update.--Section 1833(h)(2)(A)(ii)(IV) (42 U.S.C. 
1395l(h)(2)(A)(ii)(IV)) is amended by inserting ``and 1998 through 
2002'' after ``1995''.
    (b) Lowering Cap on Payment Amounts.--Section 1833(h)(4)(B) (42 
U.S.C. 1395l(h)(4)(B)) is amended--
            (1) in clause (vi), by striking ``and'' at the end;
            (2) in clause (vii)--
                    (A) by inserting ``and before January 1, 1998,'' 
                after ``1995,'', and
                    (B) by striking the period at the end and inserting 
                ``, and''; and
            (3) by adding at the end the following new clause:
            ``(viii) after December 31, 1997, is equal to 74 percent of 
        such median.''.

    (c) Study <<NOTE: 42 USC 1395l note.>>  and Report on Clinical 
Laboratory Tests.--
            (1) In general.--The Secretary shall request the Institute 
        of Medicine of the National Academy of Sciences to conduct a 
        study of payments under part B of title XVIII of the Social 
        Security Act for clinical laboratory tests. The study shall 
        include a review of the adequacy of the current methodology and 
        recommendations regarding alternative payment systems. The study 
        shall also analyze and discuss the relationship between such 
        payment systems and access to high quality laboratory tests for 
        medicare beneficiaries, including availability and access to new 
        testing methodologies.
            (2) Report to congress.--The Secretary shall, not later than 
        2 years after the date of enactment of this section, report to 
        the Committees on Ways and Means and Commerce of the House of 
        Representatives and the Committee on Finance of the Senate the 
        results of the study described in paragraph (1), including any 
        recommendations for legislation.

SEC. 4554. IMPROVEMENTS <<NOTE: 42 USC 1395u note.>>  IN ADMINISTRATION 
            OF LABORATORY TESTS BENEFIT.

    (a) Selection of Regional Carriers.--
            (1) In general.--The Secretary of Health and Human Services 
        (in this section referred to as the ``Secretary'') shall--
                    (A) divide the United States into no more than 5 
                regions, and
                    (B) designate a single carrier for each such region,
        for the purpose of payment of claims under part B of title XVIII 
        of the Social Security Act with respect to clinical diagnostic 
        laboratory tests furnished on or after such date (not later than 
        July 1, 1999) as the Secretary specifies.
            (2) Designation.--In designating such carriers, the 
        Secretary shall consider, among other criteria--
                    (A) a carrier's timeliness, quality, and experience 
                in claims processing, and

[[Page 111 STAT. 461]]

                    (B) a carrier's capacity to conduct electronic data 
                interchange with laboratories and data matches with 
                other carriers.
            (3) Single data resource.--The Secretary shall select one of 
        the designated carriers to serve as a central statistical 
        resource for all claims information relating to such clinical 
        diagnostic laboratory tests handled by all the designated 
        carriers under such part.
            (4) Allocation of claims.--The allocation of claims for 
        clinical diagnostic laboratory tests to particular designated 
        carriers shall be based on whether a carrier serves the 
        geographic area where the laboratory specimen was collected or 
        other method specified by the Secretary.
            (5) Secretarial exclusion.--Paragraph (1) shall not apply 
        with respect to clinical diagnostic laboratory tests furnished 
        by physician office laboratories if the Secretary determines 
        that such offices would be unduly burdened by the application of 
        billing responsibilities with respect to more than one carrier.

    (b) Adoption of National Policies for Clinical Laboratory Tests 
Benefit.--
            (1) In general.--Not later than January 1, 1999, the 
        Secretary shall first adopt, consistent with paragraph (2), 
        national coverage and administrative policies for clinical 
        diagnostic laboratory tests under part B of title XVIII of the 
        Social Security Act, using a negotiated rulemaking process under 
        subchapter III of chapter 5 of title 5, United States Code.
            (2) Considerations in design of national policies.--The 
        policies under paragraph (1) shall be designed to promote 
        program integrity and national uniformity and simplify 
        administrative requirements with respect to clinical diagnostic 
        laboratory tests payable under such part in connection with the 
        following:
                    (A) Beneficiary information required to be submitted 
                with each claim or order for laboratory tests.
                    (B) The medical conditions for which a laboratory 
                test is reasonable and necessary (within the meaning of 
                section 1862(a)(1)(A) of the Social Security Act).
                    (C) The appropriate use of procedure codes in 
                billing for a laboratory test, including the unbundling 
                of laboratory services.
                    (D) The medical documentation that is required by a 
                medicare contractor at the time a claim is submitted for 
                a laboratory test in accordance with section 1833(e) of 
                the Social Security Act.
                    (E) Recordkeeping requirements in addition to any 
                information required to be submitted with a claim, 
                including physicians' obligations regarding such 
                requirements.
                    (F) Procedures for filing claims and for providing 
                remittances by electronic media.
                    (G) Limitation on frequency of coverage for the same 
                tests performed on the same individual.
            (3) Changes in laboratory policies pending adoption of 
        national policy.--During the period that begins on the date of 
        the enactment of this Act and ends on the date the Secretary 
        first implements national policies pursuant to regulations 
        promulgated under this subsection, a carrier under such

[[Page 111 STAT. 462]]

        part may implement changes relating to requirements for the 
        submission of a claim for clinical diagnostic laboratory tests.
            (4) Use of interim policies.--After the date the Secretary 
        first implements such national policies, the Secretary shall 
        permit any carrier to develop and implement interim policies of 
        the type described in paragraph (1), in accordance with 
        guidelines established by the Secretary, in cases in which a 
        uniform national policy has not been established under this 
        subsection and there is a demonstrated need for a policy to 
        respond to aberrant utilization or provision of unnecessary 
        tests. Except as the Secretary specifically permits, no policy 
        shall be implemented under this paragraph for a period of longer 
        than 2 years.
            (5) Interim national policies.--After the date the Secretary 
        first designates regional carriers under subsection (a), the 
        Secretary shall establish a process under which designated 
        carriers can collectively develop and implement interim national 
        policies of the type described in paragraph (1). No such policy 
        shall be implemented under this paragraph for a period of longer 
        than 2 years.
            (6) Biennial review process.--Not less often than once every 
        2 years, the Secretary shall solicit and review comments 
        regarding changes in the national policies established under 
        this subsection. As part of such biennial review process, the 
        Secretary shall specifically review and consider whether to 
        incorporate or supersede interim policies developed under 
        paragraph (4) or (5). Based upon such review, the Secretary may 
        provide for appropriate changes in the national policies 
        previously adopted under this subsection.
            (7) Requirement and notice.--The Secretary shall ensure that 
        any policies adopted under paragraph (3), (4), or (5) shall 
        apply to all laboratory claims payable under part B of title 
        XVIII of the Social Security Act, and shall provide for advance 
        notice to interested parties and a 45-day period in which such 
        parties may submit comments on the proposed change.

    (c) Inclusion of Laboratory Representative on Carrier Advisory 
Committees.--The Secretary shall direct that any advisory committee 
established by a carrier to advise such carrier with respect to coverage 
and administrative policies under part B of title XVIII of the Social 
Security Act shall include an individual to represent the independent 
clinical laboratories and such other laboratories as the Secretary deems 
appropriate. The Secretary shall consider recommendations from national 
and local organizations that represent independent clinical laboratories 
in such selection.

SEC. 4555. UPDATES FOR AMBULATORY SURGICAL SERVICES.

    Section 1833(i)(2)(C) (42 U.S.C. 1395l(i)(2)(C)) is amended by 
inserting at the end the following new sentence: ``In each of the fiscal 
years 1998 through 2002, the increase under this subparagraph shall be 
reduced (but not below zero) by 2.0 percentage points.''.

SEC. 4556. REIMBURSEMENT FOR DRUGS AND BIOLOGICALS.

    (a) In General.--Section 1842 (42 U.S.C. 1395u) is amended by 
inserting after subsection (n) the following new subsection:
    ``(o)(1) If a physician's, supplier's, or any other person's bill or 
request for payment for services includes a charge for a drug

[[Page 111 STAT. 463]]

or biological for which payment may be made under this part and the drug 
or biological is not paid on a cost or prospective payment basis as 
otherwise provided in this part, the amount payable for the drug or 
biological is equal to 95 percent of the average wholesale price.
    ``(2) If payment for a drug or biological is made to a licensed 
pharmacy approved to dispense drugs or biologicals under this part, the 
Secretary may pay a dispensing fee (less the applicable deductible and 
coinsurance amounts) to the pharmacy.''.
    (b) Conforming Amendment.--Section 1833(a)(1) (42 U.S.C. 
1395l(a)(1)), as amended by sections 4315(b) and 4531(b)(1), is 
amended--
            (1) by striking ``and (R)'' and inserting ``(R)''; and
            (2) by striking the semicolon at the end and inserting the 
        following: ``, and (S) with respect to drugs and biologicals not 
        paid on a cost or prospective payment basis as otherwise 
        provided in this part (other than items and services described 
        in subparagraph (B)), the amounts paid shall be 80 percent of 
        the lesser of the actual charge or the payment amount 
        established in section 1842(o);''.

    (c) Study <<NOTE: 42 USC 1395u note.>>  and report.--The Secretary 
of Health and Human Services shall study the effect on the average 
wholesale price of drugs and biologicals of the amendments made by 
subsection (a) and shall report to the Committees on Ways and Means and 
Commerce of the House of Representatives and the Committee on Finance of 
the Senate the result of such study not later than July 1, 1999.

    (d) Effective <<NOTE: 42 USC 1395l note.>>  Date.--The amendments 
made by subsections (a) and (b) shall apply to drugs and biologicals 
furnished on or after January 1, 1998.

SEC. 4557. COVERAGE OF ORAL ANTI-NAUSEA DRUGS UNDER CHEMOTHERAPEUTIC 
            REGIMEN.

    (a) In General.--Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)), as 
amended by sections 4104 and 4105, is amended--
            (1) by striking ``and'' at the end of subparagraph (R); and
            (2) by inserting after subparagraph (S) the following new 
        subparagraph:
            ``(T) an oral drug (which is approved by the Federal Food 
        and Drug Administration) prescribed for use as an acute anti-
        emetic used as part of an anticancer chemotherapeutic regimen if 
        the drug is administered by a physician (or as prescribed by a 
        physician)--
                    ``(i) for use immediately before, at, or within 48 
                hours after the time of the administration of the 
                anticancer chemotherapeutic agent; and
                    ``(ii) as a full replacement for the anti-emetic 
                therapy which would otherwise be administered 
                intravenously.''.

    (b) Effective <<NOTE: 42 USC 1395x note.>>  Date.--The amendments 
made by subsection (a) shall apply to items and services furnished on or 
after January 1, 1998.

SEC. 4558. RENAL <<NOTE: 42 USC 1395rr note.>>  DIALYSIS-RELATED 
            SERVICES.

    (a) Auditing of Cost Reports.--Beginning with cost reports for 1996, 
the Secretary shall audit cost reports of each renal dialysis provider 
at least once every 3 years.
    (b) Implementation of Quality Standards.--The Secretary of Health 
and Human Services shall develop, by not later than

[[Page 111 STAT. 464]]

January 1, 1999, and implement, by not later than January 1, 2000, a 
method to measure and report quality of renal dialysis services provided 
under the medicare program under title XVIII of the Social Security Act.

SEC. 4559. TEMPORARY COVERAGE RESTORATION FOR PORTABLE ELECTROCARDIOGRAM 
            TRANSPORTATION.

    (a) In General.--Effective <<NOTE: Effective date.>>  only for 
electrocardiogram tests furnished during 1998, the Secretary of Health 
and Human Services shall restore separate payment, under part B of title 
XVIII of the Social Security Act, for the transportation of 
electrocardiogram equipment (HCPCS code R0076) based upon payment 
methods in effect for such service as of December 31, 1996.

    (b) Determination.--By not later than July 1, 1998, the Secretary of 
Health and Human Services shall make a recommendation to the Committees 
on Commerce and Ways and Means of the House of Representatives and the 
Committee on Finance of the Senate as to whether coverage of portable 
electrocardiogram transportation should be provided under part B of 
title XVIII of the Social Security Act. In making such recommendation, 
the Secretary shall take into account the study of coverage of portable 
electrocardiogram transportation conducted by the Comptroller General of 
the United States and other relevant information, including information 
submitted by interested parties.

            CHAPTER 6--PART B PREMIUM AND RELATED PROVISIONS

          Subchapter A--Determination of Part B Premium Amount

SEC. 4571. PART B PREMIUM.

    (a) In General.--Section 1839(a)(3) (42 U.S.C. 1395r(a)(3)) is 
amended by striking the first 3 sentences and inserting the following: 
``The Secretary, <<NOTE: Regulations.>>  during September of each year, 
shall determine and promulgate a monthly premium rate for the succeeding 
calendar year that is equal to 50 percent of the monthly actuarial rate 
for enrollees age 65 and over, determined according to paragraph (1), 
for that succeeding calendar year.''.

    (b) Conforming and Technical Amendments.--
            (1) Section 1839.--Section 1839 (42 U.S.C. 1395r) is 
        amended--
                    (A) in subsection (a)(2), by striking ``(b) and 
                (e)'' and inserting ``(b), (c), and (f)'';
                    (B) in the last sentence of subsection (a)(3)--
                          (i) by inserting ``rate'' after ``premium'', 
                      and
                          (ii) by striking ``and the derivation of the 
                      dollar amounts specified in this paragraph'';
                    (C) in the first sentence of subsection (b), by 
                striking ``or (e)'';
                    (D) by striking subsection (e); and
                    (E) by redesignating subsection (g) as subsection 
                (e) and inserting that subsection after subsection (d).
            (2) Section 1844.--Subparagraphs (A)(i) and (B)(i) of 
        section 1844(a)(1) (42 U.S.C. 1395w(a)(1)) are each amended by 
        striking ``or 1839(e), as the case may be''.

[[Page 111 STAT. 465]]

        Subchapter B--Other Provisions Related to Part B Premium

SEC. 4581. PROTECTIONS UNDER THE MEDICARE PROGRAM FOR DISABLED WORKERS 
            WHO LOSE BENEFITS UNDER A GROUP HEALTH PLAN.

    (a) No Premium Penalty for Late Enrollment.--The first sentence of 
section 1839(b) (42 U.S.C. 1395r(b)) is amended by inserting ``and not 
pursuant to a special enrollment period under section 1837(i)(4)'' after 
``section 1837)''.
    (b) Special Medicare Enrollment Period.--
            (1) In general.--Section 1837(i) (42 U.S.C. 1395p(i)) is 
        amended by adding at the end the following new paragraph:

    ``(4)(A) In the case of an individual who is entitled to benefits 
under part A pursuant to section 226(b) and--
            ``(i) who at the time the individual first satisfies 
        paragraph (1) of section 1836--
                    ``(I) is enrolled in a group health plan described 
                in section 1862(b)(1)(A)(v) by reason of the 
                individual's current or former employment or by reason 
                of the current or former employment status of a member 
                of the individual's family, and
                    ``(II) has elected not to enroll (or to be deemed 
                enrolled) under this section during the individual's 
                initial enrollment period; and
            ``(ii) whose continuous enrollment under such group health 
        plan is involuntarily terminated at a time when the enrollment 
        under the plan is not by reason of the individual's current 
        employment or by reason of the current employment of a member of 
        the individual's family,

there shall be a special enrollment period described in subparagraph 
(B).
    ``(B) The special enrollment period referred to in subparagraph (A) 
is the 6-month period beginning on the first day of the month which 
includes the date of the enrollment termination described in 
subparagraph (A)(ii).''.
            (2) Coverage period.--Section 1838(e) (42 U.S.C. 1395q(e)) 
        is amended--
                    (A) by inserting ``or 1837(i)(4)(B)'' after 
                ``1837(i)(3)'' the first place it appears, and
                    (B) by inserting ``or specified in section 
                1837(i)(4)(A)(i)'' after ``1837(i)(3)'' the second place 
                it appears.

    (c) Effective Date.--The <<NOTE: 42 USC 1395p note.>>  amendments 
made by this section shall apply to involuntary terminations of coverage 
under a group health plan occurring on or after the date of the 
enactment of this Act.

SEC. 4582. GOVERNMENTAL ENTITIES ELIGIBLE TO ELECT TO PAY PART B 
            PREMIUMS FOR ELIGIBLE INDIVIDUALS.

    Section 1839(e)(1) (as amended by section 4571(b)) is amended--
            (1) by inserting ``(or any appropriate State or local 
        governmental entity specified by the Secretary)'' after 
        ``State'' the first place it appears, and
            (2) by inserting ``(or such entity)'' after ``State'' the 
        second and third place it appears.

[[Page 111 STAT. 466]]

            Subtitle G--Provisions Relating to Parts A and B

              CHAPTER 1--HOME HEALTH SERVICES AND BENEFITS

             Subchapter A--Payments For Home Health Services

SEC. 4601. RECAPTURING SAVINGS RESULTING FROM TEMPORARY FREEZE ON 
            PAYMENT INCREASES FOR HOME HEALTH SERVICES.

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

SEC. 4602. INTERIM PAYMENTS FOR HOME HEALTH SERVICES.

    (a) Reductions in Cost Limits.--Section 1861(v)(1)(L)(i) (42 U.S.C. 
1395x(v)(1)(L)(i)) is amended--
            (1) by moving the indentation of subclauses (I) through 
        (III) 2-ems to the left;
            (2) in subclause (I), by inserting ``of the mean of the 
        labor-related and nonlabor per visit costs for freestanding home 
        health agencies'' before the comma at the end;
            (3) in subclause (II), by striking ``, or'' and inserting 
        ``of such mean,'';
            (4) in subclause (III)--
                    (A) by inserting ``and before October 1, 1997,'' 
                after ``July 1, 1987,'', and
                    (B) by striking the comma at the end and inserting 
                ``of such mean, or''; and
            (5) by striking the matter following subclause (III) and 
        inserting the following:
            ``(IV) October 1, 1997, 105 percent of the median of the 
        labor-related and nonlabor per visit costs for freestanding home 
        health agencies.''.

    (b) Delay in Updates.--Section 1861(v)(1)(L)(iii) (42 U.S.C. 
1395x(v)(1)(L)(iii)) is amended by inserting ``, or on or after July 1, 
1997, and before October 1, 1997'' after ``July 1, 1996''.
    (c) Additions to Cost Limits.--Section 1861(v)(1)(L) (42 U.S.C. 
1395x(v)(1)(L)) (as amended by section 4601(a)) is amended by adding at 
the end the following new clauses:
    ``(v) For services furnished by home health agencies for cost 
reporting periods beginning on or after October 1, 1997, the Secretary 
shall provide for an interim system of limits. Payment shall not exceed 
the costs determined under the preceding provisions of this subparagraph 
or, if lower, the product of--

[[Page 111 STAT. 467]]

            ``(I) an agency-specific per beneficiary annual limitation 
        calculated based 75 percent on 98 percent of the reasonable 
        costs (including nonroutine medical supplies) for the agency's 
        12-month cost reporting period ending during fiscal year 1994, 
        and based 25 percent on 98 percent of the standardized regional 
        average of such costs for the agency's census division, as 
        applied to such agency, for cost reporting periods ending during 
        fiscal year 1994, such costs updated by the home health market 
        basket index; and
            ``(II) the agency's unduplicated census count of patients 
        (entitled to benefits under this title) for the cost reporting 
        period subject to the limitation.

    ``(vi) For <<NOTE: Applicability.>>  services furnished by home 
health agencies for cost reporting periods beginning on or after October 
1, 1997, the following rules apply:
            ``(I) For new providers and those providers without a 12-
        month cost reporting period ending in fiscal year 1994, the per 
        beneficiary limitation shall be equal to the median of these 
        limits (or the Secretary's best estimates thereof) applied to 
        other home health agencies as determined by the Secretary. A 
        home health agency that has altered its corporate structure or 
        name shall not be considered a new provider for this purpose.
            ``(II) For beneficiaries who use services furnished by more 
        than one home health agency, the per beneficiary limitations 
        shall be prorated among the agencies.

    ``(vii)(I) Not later than January 1, 1998, the Secretary shall 
establish per visit limits applicable for fiscal year 1998, and not 
later than April 1, 1998, the Secretary shall establish per beneficiary 
limits under clause (v)(I) for fiscal year 1998.
    ``(II) Not later than August 1 of each year (beginning in 1998) the 
Secretary shall establish the limits applicable under this subparagraph 
for services furnished during the fiscal year beginning October 1 of the 
year.''.
    (d) Development <<NOTE: 42 USC 1395fff note.>>  of Case Mix 
System.--The Secretary of Health and Human Services shall expand 
research on a prospective payment system for home health agencies under 
the medicare program that ties prospective payments to a unit of 
service, including an intensive effort to develop a reliable case mix 
adjuster that explains a significant amount of the variances in costs.

    (e) Submission <<NOTE: Effective date. 42 USC 1395fff note.>>  of 
Data for Case Mix System.--Effective for cost reporting periods 
beginning on or after October 1, 1997, the Secretary of Health and Human 
Services may require all home health agencies to submit additional 
information that the Secretary considers necessary for the development 
of a reliable case mix system.

SEC. 4603. PROSPECTIVE PAYMENT FOR HOME HEALTH SERVICES.

    (a) In General.--Title XVIII (42 U.S.C. 1395 et seq.) (as amended by 
section 4801) is amended by adding at the end the following:

    ``prospective <<NOTE: 42 usc 1395fff.>>  payment for home health 
services

    ``Sec. 1895. (a) In General.--Notwithstanding section 1861(v), the 
Secretary shall provide, for cost reporting periods beginning on or 
after October 1, 1999, for payments for home health services in 
accordance with a prospective payment system established by the 
Secretary under this section.

[[Page 111 STAT. 468]]

    ``(b) System of Prospective Payment for Home Health Services.--
            ``(1) In general.--The Secretary shall establish under this 
        subsection a prospective payment system for payment for all 
        costs of home health services. Under the system under this 
        subsection all services covered and paid on a reasonable cost 
        basis under the medicare home health benefit as of the date of 
        the enactment of the this section, including medical supplies, 
        shall be paid for on the basis of a prospective payment amount 
        determined under this subsection and applicable to the services 
        involved. In implementing the system, the Secretary may provide 
        for a transition (of not longer than 4 years) during which a 
        portion of such payment is based on agency-specific costs, but 
        only if such transition does not result in aggregate payments 
        under this title that exceed the aggregate payments that would 
        be made if such a transition did not occur.
            ``(2) Unit of payment.--In defining a prospective payment 
        amount under the system under this subsection, the Secretary 
        shall consider an appropriate unit of service and the number, 
        type, and duration of visits provided within that unit, 
        potential changes in the mix of services provided within that 
        unit and their cost, and a general system design that provides 
        for continued access to quality services.
            ``(3) Payment basis.--
                    ``(A) Initial basis.--
                          ``(i) In general.--Under such system the 
                      Secretary shall provide for computation of a 
                      standard prospective payment amount (or amounts). 
                      Such amount (or amounts) shall initially be based 
                      on the most current audited cost report data 
                      available to the Secretary and shall be computed 
                      in a manner so that the total amounts payable 
                      under the system for fiscal year 2000 shall be 
                      equal to the total amount that would have been 
                      made if the system had not been in effect but if 
                      the reduction in limits described in clause (ii) 
                      had been in effect. Such amount shall be 
                      standardized in a manner that eliminates the 
                      effect of variations in relative case mix and wage 
                      levels among different home health agencies in a 
                      budget neutral manner consistent with the case mix 
                      and wage level adjustments provided under 
                      paragraph (4)(A). Under the system, the Secretary 
                      may recognize regional differences or differences 
                      based upon whether or not the services or agency 
                      are in an urbanized area.
                          ``(ii) Reduction.--The reduction described in 
                      this clause is a reduction by 15 percent in the 
                      cost limits and per beneficiary limits described 
                      in section 1861(v)(1)(L), as those limits are in 
                      effect on September 30, 1999.
                    ``(B) Annual update.--
                          ``(i) In general.--The standard prospective 
                      payment amount (or amounts) shall be adjusted for 
                      each fiscal year (beginning with fiscal year 2001) 
                      in a prospective manner specified by the Secretary 
                      by the home health market basket percentage 
                      increase applicable to the fiscal year involved.

[[Page 111 STAT. 469]]

                          ``(ii) Home health market basket percentage 
                      increase.--For purposes of this subsection, the 
                      term `home health market basket percentage 
                      increase' means, with respect to a fiscal year, a 
                      percentage (estimated by the Secretary before the 
                      beginning of the fiscal year) determined and 
                      applied with respect to the mix of goods and 
                      services included in home health services in the 
                      same manner as the market basket percentage 
                      increase under section 1886(b)(3)(B)(iii) is 
                      determined and applied to the mix of goods and 
                      services comprising inpatient hospital services 
                      for the fiscal year.
                    ``(C) Adjustment for outliers.--The Secretary shall 
                reduce the standard prospective payment amount (or 
                amounts) under this paragraph applicable to home health 
                services furnished during a period by such proportion as 
                will result in an aggregate reduction in payments for 
                the period equal to the aggregate increase in payments 
                resulting from the application of paragraph (5) 
                (relating to outliers).
            ``(4) Payment computation.--
                    ``(A) In general.--The payment amount for a unit of 
                home health services shall be the applicable standard 
                prospective payment amount adjusted as follows:
                          ``(i) Case mix adjustment.--The amount shall 
                      be adjusted by an appropriate case mix adjustment 
                      factor (established under subparagraph (B)).
                          ``(ii) Area wage adjustment.--The portion of 
                      such amount that the Secretary estimates to be 
                      attributable to wages and wage-related costs shall 
                      be adjusted for geographic differences in such 
                      costs by an area wage adjustment factor 
                      (established under subparagraph (C)) for the area 
                      in which the services are furnished or such other 
                      area as the Secretary may specify.
                    ``(B) Establishment of case mix adjustment 
                factors.--The Secretary shall establish appropriate case 
                mix adjustment factors for home health services in a 
                manner that explains a significant amount of the 
                variation in cost among different units of services.
                    ``(C) Establishment of area wage adjustment 
                factors.--The Secretary shall establish area wage 
                adjustment factors that reflect the relative level of 
                wages and wage-related costs applicable to the 
                furnishing of home health services in a geographic area 
                compared to the national average applicable level. Such 
                factors may be the factors used by the Secretary for 
                purposes of section 1886(d)(3)(E).
            ``(5) Outliers.--The Secretary may provide for an addition 
        or adjustment to the payment amount otherwise made in the case 
        of outliers because of unusual variations in the type or amount 
        of medically necessary care. The total amount of the additional 
        payments or payment adjustments made under this paragraph with 
        respect to a fiscal year may not exceed 5 percent of the total 
        payments projected or estimated to be made based on the 
        prospective payment system under this subsection in that year.
            ``(6) Proration of prospective payment amounts.--If a 
        beneficiary elects to transfer to, or receive services from,

[[Page 111 STAT. 470]]

        another home health agency within the period covered by the 
        prospective payment amount, the payment shall be prorated 
        between the home health agencies involved.

    ``(c) Requirements for Payment Information.--With respect to home 
health services furnished on or after October 1, 1998, no claim for such 
a service may be paid under this title unless--
            ``(1) the claim has the unique identifier (provided under 
        section 1842(r)) for the physician who prescribed the services 
        or made the certification described in section 1814(a)(2) or 
        1835(a)(2)(A); and
            ``(2) in the case of a service visit described in paragraph 
        (1), (2), (3), or (4) of section 1861(m), the claim contains a 
        code (or codes) specified by the Secretary that identifies the 
        length of time of the service visit, as measured in 15 minute 
        increments.

    ``(d) Limitation on Review.--There shall be no administrative or 
judicial review under section 1869, 1878, or otherwise of--
            ``(1) the establishment of a transition period under 
        subsection (b)(1);
            ``(2) the definition and application of payment units under 
        subsection (b)(2);
            ``(3) the computation of initial standard prospective 
        payment amounts under subsection (b)(3)(A) (including the 
        reduction described in clause (ii) of such subsection);
            ``(4) the establishment of the adjustment for outliers under 
        subsection (b)(3)(C);
            ``(5) the establishment of case mix and area wage 
        adjustments under subsection (b)(4); and
            ``(6) the establishment of any adjustments for outliers 
        under subsection (b)(5).''.

    (b) Elimination of Periodic Interim Payments for Home Health 
Agencies.--Section 1815(e)(2) (42 U.S.C. 1395g(e)(2)) is amended--
            (1) by inserting ``and'' at the end of subparagraph (C),
            (2) by striking subparagraph (D), and
            (3) by redesignating subparagraph (E) as subparagraph (D).

    (c) Conforming Amendments.--
            (1) Payments under part a.--Section 1814(b) (42 U.S.C. 
        1395f(b)) is amended in the matter preceding paragraph (1) by 
        striking ``and 1886'' and inserting ``1886, and 1895''.
            (2) Treatment of items and services paid under part b.--
                    (A) Payments under part b.--Section 1833(a)(2) (42 
                U.S.C. 1395l(a)(2)) is amended--
                          (i) by amending subparagraph (A) to read as 
                      follows:
                    ``(A) with respect to home health services (other 
                than a covered osteoporosis drug) (as defined in section 
                1861(kk)), the amount determined under the prospective 
                payment system under section 1895;'';
                          (ii) by striking ``and'' at the end of 
                      subparagraph (E);
                          (iii) by adding ``and'' at the end of 
                      subparagraph (F); and
                          (iv) by adding at the end the following new 
                      subparagraph:

[[Page 111 STAT. 471]]

                    ``(G) with respect to items and services described 
                in section 1861(s)(10)(A), the lesser of--
                          ``(i) the reasonable cost of such services, as 
                      determined under section 1861(v), or
                          ``(ii) the customary charges with respect to 
                      such services,
                or, if such services are furnished by a public provider 
                of services, or by another provider which demonstrates 
                to the satisfaction of the Secretary that a significant 
                portion of its patients are low-income (and requests 
                that payment be made under this provision), free of 
                charge or at nominal charges to the public, the amount 
                determined in accordance with section 1814(b)(2);''.
                    (B) Requiring payment for all items and services to 
                be made to agency.--
                          (i) In general.--The first sentence of section 
                      1842(b)(6) (42 U.S.C. 1395u(b)(6)) (as amended by 
                      section 4432(b)(2)) is amended--
                                    (I) by striking ``and (E)'' and 
                                inserting ``(E)''; and
                                    (II) by striking the period at the 
                                end and inserting the following: ``, and 
                                (F) in the case of home health services 
                                furnished to an individual who (at the 
                                time the item or service is furnished) 
                                is under a plan of care of a home health 
                                agency, payment shall be made to the 
                                agency (without regard to whether or not 
                                the item or service was furnished by the 
                                agency, by others under arrangement with 
                                them made by the agency, or when any 
                                other contracting or consulting 
                                arrangement, or otherwise).''.
                          (ii) Conforming amendment.--Section 1832(a)(1) 
                      (42 U.S.C. 1395k(a)(1)) (as amended by section 
                      4432(b)(5)(B)) is amended by striking ``section 
                      1842(b)(6)(E);'' and inserting ``subparagraphs (E) 
                      and (F) of section 1842(b)(6);''.
                    (C) Exclusions from coverage.--Section 1862(a) (42 
                U.S.C. 1395y(a)) (as amended by sections 4319(b), 
                4432(b), 4507(a)(2)(B) and 4541(b)) is amended--
                          (i) by striking ``or'' at the end of paragraph 
                      (19);
                          (ii) by striking the period at the end of 
                      paragraph (20) and inserting ``; or''; and
                          (iii) by inserting after paragraph (20) the 
                      following:
            ``(21) where such expenses are for home health services 
        furnished to an individual who is under a plan of care of the 
        home health agency if the claim for payment for such services is 
        not submitted by the agency.''.

    (d) Effective Date.--Except <<NOTE: 42 USC 1395fff note.>>  as 
otherwise provided, the amendments made by this section shall apply to 
cost reporting periods beginning on or after October 1, 1999.

    (e) Contingency.--If the <<NOTE: 42 USC 1395fff note.>>  Secretary 
of Health and Human Services for any reason does not establish and 
implement the prospective payment system for home health services 
described in section 1895(b) of the Social Security Act (as added by 
subsection (a)) for cost reporting periods described in subsection (d), 
for such cost reporting periods the Secretary shall provide for a 
reduction by 15 percent in the cost limits and per beneficiary limits 
described

[[Page 111 STAT. 472]]

in section 1861(v)(1)(L) of such Act, as those limits would otherwise be 
in effect on September 30, 1999.

SEC. 4604. PAYMENT BASED ON LOCATION WHERE HOME HEALTH SERVICE IS 
            FURNISHED.

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

                   Subchapter B--Home Health Benefits

SEC. 4611. MODIFICATION OF PART A HOME HEALTH BENEFIT FOR INDIVIDUALS 
            ENROLLED UNDER PART B.

    (a) In General.--Section 1812 (42 U.S.C. 1395d) is amended--
            (1) in subsection (a)(3), by striking ``home health 
        services'' and inserting ``for individuals not enrolled in part 
        B, home health services, and for individuals so enrolled, post-
        institutional home health services furnished during a home 
        health spell of illness for up to 100 visits during such spell 
        of illness''; and
            (2) in subsection (b), by adding after and below paragraph 
        (3) the following:

``Payment under this part for post-institutional home health services 
furnished an individual during a home health spell of illness may not be 
made for such services beginning after such services have been furnished 
for a total of 100 visits such spell.''.
    (b) Post-Institutional Home Health Services Defined.--Section 1861 
(42 U.S.C. 1395x), as amended by sections 4103(a), 4104(a), 4105(a), 
4106(a), and 4454, is amended by adding at the end the following:

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

    ``(tt)(1) The term `post-institutional home health services' means 
home health services furnished to an individual--
            ``(A) after discharge from a hospital or rural primary care 
        hospital in which the individual was an inpatient for not less 
        than 3 consecutive days before such discharge if such home 
        health services were initiated within 14 days after the date of 
        such discharge; or
            ``(B) after discharge from a skilled nursing facility in 
        which the individual was provided post-hospital extended care 
        services if such home health services were initiated within 14 
        days after the date of such discharge.

    ``(2) The term `home health spell of illness' with respect to any 
individual means a period of consecutive days--
            ``(A) beginning with the first day (not included in a 
        previous home health spell of illness) (i) on which such 
        individual is

[[Page 111 STAT. 473]]

        furnished post-institutional home health services, and (ii) 
        which occurs in a month for which the individual is entitled to 
        benefits under part A, and
            ``(B) ending with the close of the first period of 60 
        consecutive days thereafter on each of which the individual is 
        neither an inpatient of a hospital or rural primary care 
        hospital nor an inpatient of a facility described in section 
        1819(a)(1) or subsection (y)(1) nor provided home health 
        services.''.

    (c) Maintaining Appeal Rights for Home Health Services.--Section 
1869(b)(2)(B) (42 U.S.C. 1395ff(b)(2)(B)) is amended by inserting ``(or 
$100 in the case of home health services)'' after ``$500''.
    (d) Maintaining Seamless Administration Through Fiscal 
Intermediaries.--Section 1842(b)(2) (42 U.S.C. 1395u(b)(2)) is amended 
by adding at the end the following:
    ``(E) With respect to the payment of claims for home health services 
under this part that, but for the amendments made by section 4611 of the 
Balanced Budget Act of 1997, would be payable under part A instead of 
under this part, the Secretary shall continue administration of such 
claims through fiscal intermediaries under section 1816.''.
    (e) <<NOTE: 42 USC 1395d note.>>  Transition.--
            (1) In general.--Notwithstanding any provision of title 
        XVIII of the Social Security Act, the Secretary of Health and 
        Human Services shall establish a transition for the aggregate 
        amount of expenditures that are transferred from part A, to part 
        B, of title XVIII of the Social Security Act, as a result of the 
        amendments made by this section, during each of the years during 
        the period beginning with 1998 and ending with 2002 according to 
        this subsection. Under the transition for each such year, the 
        Secretary shall effect such transfer, between the trust funds 
        under such parts, as will result in only the proportion 
        (specified in paragraph (2)) of such aggregate expenditures for 
        the year being transferred from such part A to such part B.
            (2) Proportion specified.--The proportion specified in this 
        paragraph for--
                    (A) 1998 is \1/6\,
                    (B) 1999 is \1/3\,
                    (C) 2000 is \1/2\,
                    (D) 2001 is \2/3\, and
                    (E) 2002 is \5/6\.
            (3) Application in establishing monthly premiums for 1998 
        through 2003.--
                    (A) In general.--For purposes only of computing the 
                monthly premium under section 1839 of the Social 
                Security Act (42 U.S.C. 1395r), the monthly actuarial 
                rate for enrollees age 65 and over shall be computed as 
                though any reference in paragraph (1) of this subsection 
                to 2002 were a reference to 2003 and as if the following 
                proportions were substituted for the proportions 
                specified in paragraph (2):
                          (i) For 1998, \1/7\.
                          (ii) For 1999, \2/7\.
                          (iii) For 2000, \3/7\.
                          (iv) For 2001, \4/7\.
                          (v) For 2002, \5/7\.

[[Page 111 STAT. 474]]

                          (vi) For 2003, \6/7\.
                    (B) No impact on government contribution.--
                Subparagraph (A) does not apply in determining the 
                amount of the Government contribution under section 1844 
                of the Social Security Act (42 U.S.C. 1395w).

    (f) Effective <<NOTE: 42 USC 1395d note.>>  Date.--The amendments 
made by this section apply to services furnished on or after January 1, 
1998. For purpose of applying such amendments, any home health spell of 
illness that began, but not did not end, before such date shall be 
considered to have begun as of such date.

SEC. 4612. CLARIFICATION OF PART-TIME OR INTERMITTENT NURSING CARE.

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

SEC. 4613. STUDY <<NOTE: 42 USC 1395x note.>>  ON DEFINITION OF 
            HOMEBOUND.

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

SEC. 4614. NORMATIVE STANDARDS FOR HOME HEALTH CLAIMS DENIALS.

    (a) In General.--Section 1862(a)(1) (42 U.S.C. 1395y(a)(1)) (as 
amended by section 4104(c)) is amended--
            (1) by striking ``and'' at the end of subparagraph (G),
            (2) by striking the semicolon at the end of subparagraph (H) 
        and inserting ``, and'', and
            (3) by inserting after subparagraph (H) the following new 
        subparagraph:
            ``(I) the frequency and duration of home health services 
        which are in excess of normative guidelines that the Secretary 
        shall establish by regulation;''.

    (b) Notification.--The <<NOTE: 42 USC 1395y note.>>  Secretary of 
Health and Human Services may establish a process for notifying a 
physician in cases

[[Page 111 STAT. 475]]

in which the number of home health visits, furnished under title XVIII 
of the Social Security Act pursuant to a prescription or certification 
of the physician, significantly exceeds such threshold (or thresholds) 
as the Secretary specifies. The Secretary may adjust such threshold to 
reflect demonstrated differences in the need for home health services 
among different beneficiaries.

    (c) Effective Date.--The <<NOTE: 42 USC 1395y note.>>  amendments 
made by this section apply to services furnished on or after October 1, 
1997.

SEC. 4615. NO HOME HEALTH BENEFITS BASED SOLELY ON DRAWING BLOOD.

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

SEC. 4616. REPORTS <<NOTE: 42 USC 1395y note.>>  TO CONGRESS REGARDING 
            HOME HEALTH COST CONTAINMENT.

    (a) Estimate.--Not later than October 1, 1997, the Secretary of 
Health and Human Services shall submit to the Committees on Commerce and 
Ways and Means of the House of Representatives and the Committee on 
Finance of the Senate a report that includes an estimate of the outlays 
that will be made under parts A and B of title XVIII of the Social 
Security Act for the provision of home health services during each of 
fiscal years 1998 through 2002.
    (b) Annual Report.--Not later than the end of each of years 1999 
through 2002, the Secretary shall submit to such Committees a report 
that compares the actual outlays under such parts for such services 
during the fiscal year ending in the year, to the outlays estimated 
under subsection (a) for such fiscal year. If the Secretary finds that 
such actual outlays were greater than such estimated outlays for the 
fiscal year, the Secretary shall include in the report recommendations 
regarding beneficiary copayments for home health services provided under 
the medicare program or such other methods as will reduce the growth in 
outlays for home health services under the medicare program.

                  CHAPTER 2--GRADUATE MEDICAL EDUCATION

                Subchapter A--Indirect Medical Education

SEC. 4621. INDIRECT GRADUATE MEDICAL EDUCATION PAYMENTS.

    (a) Multiyear Transition Regarding Percentages.--
            (1) In general.--Section 1886(d)(5)(B)(ii) (42 U.S.C. 
        1395ww(d)(5)(B)(ii)) is amended to read as follows:
                    ``(ii) For purposes of clause (i)(II), the indirect 
                teaching adjustment factor is equal to c <dbl-dagger> 
                (((1+r) to the nth power) - 1), where `r' is the ratio 
                of the hospital's full-time equivalent interns and 
                residents to beds and `n' equals .405. For discharges 
                occurring--
                          ``(I) on or after October 1, 1988, and before 
                      October 1, 1997, `c' is equal to 1.89;
                          ``(II) during fiscal year 1998, `c' is equal 
                      to 1.72;
                          ``(III) during fiscal year 1999, `c' is equal 
                      to 1.6;

[[Page 111 STAT. 476]]

                          ``(IV) during fiscal year 2000, `c' is equal 
                      to 1.47; and
                          ``(V) on or after October 1, 2000, `c' is 
                      equal to 1.35.''.
            (2) Conforming amendment relating to determination of 
        standardized amount.--Section 1886(d)(2)(C)(i) (42 U.S.C. 
        1395ww(d)(2)(C)(i)) is amended by adding at the end the 
        following: ``except that the Secretary shall not take into 
        account any reduction in the amount of additional payments under 
        paragraph (5)(B)(ii) resulting from the amendment made by 
        section 4621(a)(1) of the Balanced Budget Act of 1997,''.

    (b) Limitation on Number of Residents for Certain Fiscal Years.--
            (1) In general.--Section 1886(d)(5)(B) (42 U.S.C. 
        1395ww(d)(5)(B)) is amended by adding after clause (iv) the 
        following:
                    ``(v) In determining the adjustment with respect to 
                a hospital for discharges occurring on or after October 
                1, 1997, the total number of full-time equivalent 
                interns and residents in the fields of allopathic and 
                osteopathic medicine in either a hospital or nonhospital 
                setting may not exceed the number of such full-time 
                equivalent interns and residents in the hospital with 
                respect to the hospital's most recent cost reporting 
                period ending on or before December 31, 1996.
                    ``(vi) For purposes of clause (ii)--
                          ``(I) `r' may not exceed the ratio of the 
                      number of interns and residents, subject to the 
                      limit under clause (v), with respect to the 
                      hospital for its most recent cost reporting period 
                      to the hospital's available beds (as defined by 
                      the Secretary) during that cost reporting period, 
                      and
                          ``(II) for the hospital's cost reporting 
                      periods beginning on or after October 1, 1997, 
                      subject to the limits described in clauses (iv) 
                      and (v), the total number of full-time equivalent 
                      residents for payment purposes shall equal the 
                      average of the actual full-time equivalent 
                      resident count for the cost reporting period and 
                      the preceding two cost reporting periods.
                In the case of the first cost reporting period beginning 
                on or after October 1, 1997, subclause (II) shall be 
                applied by using the average for such period and the 
                preceding cost reporting period.
            ``(vii) If any cost reporting period beginning on or after 
        October 1, 1997, is not equal to twelve months, the Secretary 
        shall make appropriate modifications to ensure that the average 
        full-time equivalent residency count pursuant to subclause (II) 
        of clause (vi) is based on the equivalent of full twelve-month 
        cost reporting periods.
            ``(viii) Rules <<NOTE: Applicability.>>  similar to the 
        rules of subsection (h)(4)(H) shall apply for purposes of 
        clauses (v) and (vi).''.
            (2) Payment for interns and residents providing off-site 
        services.--Section 1886(d)(5)(B)(iv) (42 U.S.C. 
        1395ww(d)(5)(B)(iv)) is amended to read as follows:
            ``(iv) Effective <<NOTE: Effective date.>>  for discharges 
        occurring on or after October 1, 1997, all the time spent by an 
        intern or resident in patient care activities under an approved 
        medical residency training

[[Page 111 STAT. 477]]

        program at an entity in a nonhospital setting shall be counted 
        towards the determination of full-time equivalency if the 
        hospital incurs all, or substantially all, of the costs for the 
        training program in that setting.''.

SEC. 4622. PAYMENT TO HOSPITALS OF INDIRECT MEDICAL EDUCATION COSTS FOR 
            MEDICARE+CHOICE ENROLLEES.

    Section 1886(d) (42 U.S.C. 1395ww(d)) is amended by adding at the 
end the following:
            ``(11) Additional payments for managed care enrollees.--
                    ``(A) In general.--For portions of cost reporting 
                periods occurring on or after January 1, 1998, the 
                Secretary shall provide for an additional payment amount 
                for each applicable discharge of any subsection (d) 
                hospital that has an approved medical residency training 
                program.
                    ``(B) Applicable discharge.--For purposes of this 
                paragraph, the term `applicable discharge' means the 
                discharge of any individual who is enrolled under a 
                risk-sharing contract with an eligible organization 
                under section 1876 and who is entitled to benefits under 
                part A or any individual who is enrolled with a 
                Medicare+Choice organization under part C.
                    ``(C) Determination of amount.--The amount of the 
                payment under this paragraph with respect to any 
                applicable discharge shall be equal to the applicable 
                percentage (as defined in subsection (h)(3)(D)(ii)) of 
                the estimated average per discharge amount that would 
                otherwise have been paid under paragraph (5)(B) if the 
                individuals had not been enrolled as described in 
                subparagraph (B).
                    ``(D) Special rule for hospitals under reimbursement 
                system.--The Secretary shall establish rules for the 
                application of this paragraph to a hospital reimbursed 
                under a reimbursement system authorized under section 
                1814(b)(3) in the same manner as it would apply to the 
                hospital if it were not reimbursed under such 
                section.''.

             Subchapter B--Direct Graduate Medical Education

SEC. 4623. LIMITATION ON NUMBER OF RESIDENTS AND ROLLING AVERAGE FTE 
            COUNT.

    Section 1886(h)(4) (42 U.S.C. 1395ww(h)(4)) is amended by adding 
after subparagraph (E) the following:
                    ``(F) Limitation on number of residents in 
                allopathic and osteopathic medicine.--Such rules shall 
                provide that for purposes of a cost reporting period 
                beginning on or after October 1, 1997, the total number 
                of full-time equivalent residents before application of 
                weighting factors (as determined under this paragraph) 
                with respect to a hospital's approved medical residency 
                training program in the fields of allopathic medicine 
                and osteopathic medicine may not exceed the number of 
                such full-time equivalent residents for the hospital's 
                most recent cost reporting period ending on or before 
                December 31, 1996.

[[Page 111 STAT. 478]]

                    ``(G) Counting interns and residents for fy 1998 and 
                subsequent years.--
                          ``(i) In general.--For cost reporting periods 
                      beginning during fiscal years beginning on or 
                      after October 1, 1997, subject to the limit 
                      described in subparagraph (F), the total number of 
                      full-time equivalent residents for determining a 
                      hospital's graduate medical education payment 
                      shall equal the average of the actual full-time 
                      equivalent resident counts for the cost reporting 
                      period and the preceding two cost reporting 
                      periods.
                          ``(ii) Adjustment for short periods.--If any 
                      cost reporting period beginning on or after 
                      October 1, 1997, is not equal to twelve months, 
                      the Secretary shall make appropriate modifications 
                      to ensure that the average full-time equivalent 
                      resident counts pursuant to clause (i) are based 
                      on the equivalent of full twelve-month cost 
                      reporting periods.
                          ``(iii) Transition rule for 1998.--In the case 
                      of a hospital's first cost reporting period 
                      beginning on or after October 1, 1997, clause (i) 
                      shall be applied by using the average for such 
                      period and the preceding cost reporting period.
                    ``(H) Special rules for application of subparagraphs 
                (f) and (g).--
                          ``(i) New facilities.--The Secretary shall, 
                      consistent with the principles of subparagraphs 
                      (F) and (G), prescribe rules for the application 
                      of such subparagraphs in the case of medical 
                      residency training programs established on or 
                      after January 1, 1995. In promulgating such rules 
                      for purposes of subparagraph (F), the Secretary 
                      shall give special consideration to facilities 
                      that meet the needs of underserved rural areas.
                          ``(ii) Aggregation.--The Secretary may 
                      prescribe rules which allow institutions which are 
                      members of the same affiliated group (as defined 
                      by the Secretary) to elect to apply the limitation 
                      of subparagraph (F) on an aggregate basis.
                          ``(iii) Data collection.--The Secretary may 
                      require any entity that operates a medical 
                      residency training program and to which 
                      subparagraphs (F) and (G) apply to submit to the 
                      Secretary such additional information as the 
                      Secretary considers necessary to carry out such 
                      subparagraphs.''.

SEC. 4624. PAYMENTS TO HOSPITALS FOR DIRECT COSTS OF GRADUATE MEDICAL 
            EDUCATION OF MEDICARE+CHOICE ENROLLEES.

    Section 1886(h)(3) (42 U.S.C. 1395ww(h)(3)) is amended by adding 
after subparagraph (C) the following:
                    ``(D) Payment for managed care enrollees.--
                          ``(i) In general.--For portions of cost 
                      reporting periods occurring on or after January 1, 
                      1998, the Secretary shall provide for an 
                      additional payment amount under this subsection 
                      for services furnished to individuals who are 
                      enrolled under a risk-sharing contract with an 
                      eligible organization under section

[[Page 111 STAT. 479]]

                      1876 and who are entitled to part A or with a 
                      Medicare+Choice organization under part C. The 
                      amount of such a payment shall equal the 
                      applicable percentage of the product of--
                                    ``(I) the aggregate approved amount 
                                (as defined in subparagraph (B)) for 
                                that period; and
                                    ``(II) the fraction of the total 
                                number of inpatient-bed days (as 
                                established by the Secretary) during the 
                                period which are attributable to such 
                                enrolled individuals.
                          ``(ii) Applicable percentage.--For purposes of 
                      clause (i), the applicable percentage is--
                                    ``(I) 20 percent in 1998,
                                    ``(II) 40 percent in 1999,
                                    ``(III) 60 percent in 2000, and
                                    ``(IV) 80 percent in 2001, and
                                    ``(V) 100 percent in 2002 and 
                                subsequent years.
                          ``(iii) Special rule for hospitals under 
                      reimbursement system.--The Secretary shall 
                      establish rules for the application of this 
                      subparagraph to a hospital reimbursed under a 
                      reimbursement system authorized under section 
                      1814(b)(3) in the same manner as it would apply to 
                      the hospital if it were not reimbursed under such 
                      section.''.

SEC. 4625. PERMITTING PAYMENT TO NONHOSPITAL PROVIDERS.

    (a) In General.--Section 1886 (42 U.S.C. 1395ww), as amended by 
section 4421(a), is amended by adding at the end the following:
    ``(k) Payment to Nonhospital Providers.--
            ``(1) In general.--For cost reporting periods beginning on 
        or after October 1, 1997, the Secretary may establish rules for 
        payment to qualified nonhospital providers for their direct 
        costs of medical education, if those costs are incurred in the 
        operation of an approved medical residency training program 
        described in subsection (h). Such rules shall specify the 
        amounts, form, and manner in which such payments will be made 
        and the portion of such payments that will be made from each of 
        the trust funds under this title.
            ``(2) Qualified nonhospital providers.--For purposes of this 
        subsection, the term `qualified nonhospital providers' means--
                    ``(A) a Federally qualified health center, as 
                defined in section 1861(aa)(4);
                    ``(B) a rural health clinic, as defined in section 
                1861(aa)(2);
                    ``(C) Medicare+Choice organizations; and
                    ``(D) such other providers (other than hospitals) as 
                the Secretary determines to be appropriate.''.

    (b) Prohibition on Double Payments.--Section 1886(h)(3)(B) (42 
U.S.C. 1395ww(h)(3)(B)) is amended by adding at the end the following:
        ``The Secretary shall reduce the aggregate approved amount to 
        the extent payment is made under subsection (k) for residents 
        included in the hospital's count of full-time equivalent 
        residents.''.

[[Page 111 STAT. 480]]

SEC. 4626. INCENTIVE PAYMENTS UNDER PLANS FOR VOLUNTARY REDUCTION IN 
            NUMBER OF RESIDENTS.

    (a) In General.--Section 1886(h) (42 U.S.C. 1395ww(h)) is amended by 
adding at the end the following new paragraph:
            ``(6) Incentive payment under plans for voluntary reduction 
        in number of residents.--
                    ``(A) In general.--In the case of a voluntary 
                residency reduction plan for which an application is 
                approved under subparagraph (B), subject to subparagraph 
                (F), each hospital which is part of the qualifying 
                entity submitting the plan shall be paid an applicable 
                hold harmless percentage (as specified in subparagraph 
                (E)) of the sum of--
                          ``(i) the amount (if any) by which--
                                    ``(I) the amount of payment which 
                                would have been made under this 
                                subsection if there had been a 5-percent 
                                reduction in the number of full-time 
                                equivalent residents in the approved 
                                medical education training programs of 
                                the hospital as of June 30, 1997, 
                                exceeds
                                    ``(II) the amount of payment which 
                                is made under this subsection, taking 
                                into account the reduction in such 
                                number effected under the reduction 
                                plan; and
                          ``(ii) the amount of the reduction in payment 
                      under subsection (d)(5)(B) for the hospital that 
                      is attributable to the reduction in number of 
                      residents effected under the plan below 95 percent 
                      of the number of full-time equivalent residents in 
                      such programs of the hospital as of June 30, 1997.
                The determination of the amounts under clauses (i) and 
                (ii) for any year shall be made on the basis of the 
                provisions of this title in effect on the application 
                deadline date for the first calendar year to which the 
                reduction plan applies.
                    ``(B) Approval of plan applications.--The Secretary 
                may not approve the application of an qualifying entity 
                unless--
                          ``(i) the application is submitted in a form 
                      and manner specified by the Secretary and by not 
                      later than November 1, 1999,
                          ``(ii) the application provides for the 
                      operation of a plan for the reduction in the 
                      number of full-time equivalent residents in the 
                      approved medical residency training programs of 
                      the entity consistent with the requirements of 
                      subparagraph (D);
                          ``(iii) the entity elects in the application 
                      the period of residency training years (not 
                      greater than 5) over which the reduction will 
                      occur;
                          ``(iv) the entity will not reduce the 
                      proportion of its residents in primary care (to 
                      the total number of residents) below such 
                      proportion as in effect as of the applicable time 
                      described in subparagraph (D)(v); and
                          ``(v) the Secretary determines that the 
                      application and the entity and such plan meet such 
                      other requirements as the Secretary specifies in 
                      regulations.
                    ``(C) Qualifying entity.--For purposes of this 
                paragraph, any of the following may be a qualifying 
                entity:

[[Page 111 STAT. 481]]

                          ``(i) Individual hospitals operating one or 
                      more approved medical residency training programs.
                          ``(ii) Two or more hospitals that operate such 
                      programs and apply for treatment under this 
                      paragraph as a single qualifying entity.
                          ``(iii) A qualifying consortium (as described 
                      in section 4628 of the Balanced Budget Act of 
                      1997).
                    ``(D) Residency reduction requirements.--
                          ``(i) Individual hospital applicants.--In the 
                      case of a qualifying entity described in 
                      subparagraph (C)(i), the number of full-time 
                      equivalent residents in all the approved medical 
                      residency training programs operated by or through 
                      the entity shall be reduced as follows:
                                    ``(I) If the base number of 
                                residents exceeds 750 residents, by a 
                                number equal to at least 20 percent of 
                                such base number.
                                    ``(II) Subject to subclause (IV), if 
                                the base number of residents exceeds 600 
                                but is less than 750 residents, by 150 
                                residents.
                                    ``(III) Subject to subclause (IV), 
                                if the base number of residents does not 
                                exceed 600 residents, by a number equal 
                                to at least 25 percent of such base 
                                number.
                                    ``(IV) In the case of a qualifying 
                                entity which is described in clause (v) 
                                and which elects treatment under this 
                                subclause, by a number equal to at least 
                                20 percent of the base number.
                          ``(ii) Joint applicants.--In the case of a 
                      qualifying entity described in subparagraph 
                      (C)(ii), the number of full-time equivalent 
                      residents in the aggregate for all the approved 
                      medical residency training programs operated by or 
                      through the entity shall be reduced as follows:
                                    ``(I) Subject to subclause (II), by 
                                a number equal to at least 25 percent of 
                                the base number.
                                    ``(II) In the case of such a 
                                qualifying entity which is described in 
                                clause (v) and which elects treatment 
                                under this subclause, by a number equal 
                                to at least 20 percent of the base 
                                number.
                          ``(iii) Consortia.--In the case of a 
                      qualifying entity described in subparagraph 
                      (C)(iii), the number of full-time equivalent 
                      residents in the aggregate for all the approved 
                      medical residency training programs operated by or 
                      through the entity shall be reduced by a number 
                      equal to at least 20 percent of the base number.
                          ``(iv) Manner of reduction.--The reductions 
                      specified under the preceding provisions of this 
                      subparagraph for a qualifying entity shall be 
                      below the base number of residents for that entity 
                      and shall be fully effective not later than the 
                      5th residency training year in which the 
                      application under subparagraph (B) is effective.
                          ``(v) Entities providing assurance of increase 
                      in primary care residents.--An entity is described 
                      in this clause if--

[[Page 111 STAT. 482]]

                                    ``(I) the base number of residents 
                                for the entity is less than 750 or the 
                                entity is described in subparagraph 
                                (C)(ii); and
                                    ``(II) the entity represents in its 
                                application under subparagraph (B) that 
                                it will increase the number of full-time 
                                equivalent residents in primary care by 
                                at least 20 percent (from such number 
                                included in the base number of 
                                residents) by not later than the 5th 
                                residency training year in which the 
                                application under subparagraph (B) is 
                                effective.
                      If a qualifying entity fails to comply with the 
                      representation described in subclause (II) by the 
                      end of such 5th residency training year, the 
                      entity shall be subject to repayment of all 
                      amounts paid under this paragraph, in accordance 
                      with procedures established to carry out 
                      subparagraph (F).
                          ``(vi) Base number of residents defined.--For 
                      purposes of this paragraph, the term `base number 
                      of residents' means, with respect to a qualifying 
                      entity (or its participating hospitals) operating 
                      approved medical residency training programs, the 
                      number of full-time equivalent residents in such 
                      programs (before application of weighting factors) 
                      of the entity as of the most recent residency 
                      training year ending before June 30, 1997, or, if 
                      less, for any subsequent residency training year 
                      that ends before the date the entity makes 
                      application under this paragraph.
                    ``(E) Applicable hold harmless percentage.--For 
                purposes of subparagraph (A), the `applicable hold 
                harmless percentage' for the--
                          ``(i) first and second residency training 
                      years in which the reduction plan is in effect, 
                      100 percent,
                          ``(ii) third such year, 75 percent,
                          ``(iii) fourth such year, 50 percent, and
                          ``(iv) fifth such year, 25 percent.
                    ``(F) Penalty for noncompliance.--
                          ``(i) In general.--No payment may be made 
                      under this paragraph to a hospital for a residency 
                      training year if the hospital has failed to reduce 
                      the number of full-time equivalent residents (in 
                      the manner required under subparagraph (D)) to the 
                      number agreed to by the Secretary and the 
                      qualifying entity in approving the application 
                      under this paragraph with respect to such year.
                          ``(ii) Increase in number of residents in 
                      subsequent years.--If payments are made under this 
                      paragraph to a hospital, and if the hospital 
                      increases the number of full-time equivalent 
                      residents above the number of such residents 
                      permitted under the reduction plan as of the 
                      completion of the plan, then, as specified by the 
                      Secretary, the entity is liable for repayment to 
                      the Secretary of the total amounts paid under this 
                      paragraph to the entity.

[[Page 111 STAT. 483]]

                    ``(G) Treatment <<NOTE: Rules.>>  of rotating 
                residents.--In applying this paragraph, the Secretary 
                shall establish rules regarding the counting of 
                residents who are assigned to institutions the medical 
                residency training programs in which are not covered 
                under approved applications under this paragraph.''.

    (b) Relation <<NOTE: 42 USC 1395ww note.>>  to Demonstration 
Projects and Authority.--
            (1) Section 1886(h)(6) of the Social Security Act, added by 
        subsection (a), other than subparagraph (F)(ii) thereof, shall 
        not apply to any residency training program with respect to 
        which a demonstration project described in paragraph (3) has 
        been approved by the Health Care Financing Administration as of 
        May 27, 1997.
            (2) Effective <<NOTE: Effective date.>>  May 27, 1997, the 
        Secretary of Health and Human Services is not authorized to 
        approve any demonstration project described in paragraph (3) for 
        any residency training year beginning before July 1, 2006.
            (3) A demonstration project described in this paragraph is a 
        project that primarily provides for additional payments under 
        title XVIII of the Social Security Act in connection with a 
        reduction in the number of residents in a medical residency 
        training program.

    (c) Interim, Final Regulations.--In order to carry out the amendment 
made by subsection (a) in a timely manner, the Secretary of Health and 
Human Services may first promulgate regulations, that take effect on an 
interim basis, after notice and pending opportunity for public comment, 
by not later than 6 months after the date of the enactment of this Act.

SEC. 4627. MEDICARE SPECIAL REIMBURSEMENT RULE FOR PRIMARY CARE COMBINED 
            RESIDENCY PROGRAMS.

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

    (b) Effective <<NOTE: 42 USC 1395ww note.>>  Date.--The amendments 
made by subsection (a) apply to combined medical residency training 
programs in effect for residency years beginning on or after July 1, 
1997.

[[Page 111 STAT. 484]]

SEC. 4628. DEMONSTRATION <<NOTE: 42 USC 1395ww note.>>  PROJECT ON USE 
            OF CONSORTIA.

    (a) In General.--The Secretary of Health and Human Services (in this 
section referred to as the ``Secretary'') shall establish a 
demonstration project under which, instead of making payments to 
teaching hospitals pursuant to section 1886(h) of the Social Security 
Act, the Secretary shall make payments under this section to each 
consortium that meets the requirements of subsection (b) and that 
applies to be included under the project.
    (b) Qualifying Consortia.--For purposes of subsection (a), a 
consortium meets the requirements of this subsection if the consortium 
is in compliance with the following:
            (1) The consortium consists of a teaching hospital with one 
        or more approved medical residency training programs and one or 
        more of the following entities:
                    (A) A school of allopathic medicine or osteopathic 
                medicine.
                    (B) Another teaching hospital, which may be a 
                children's hospital.
                    (C) A Federally qualified health center.
                    (D) A medical group practice.
                    (E) A managed care entity.
                    (F) An entity furnishing outpatient services.
                    (G) Such other entity as the Secretary determines to 
                be appropriate.
            (2) The members of the consortium have agreed to participate 
        in the programs of graduate medical education that are operated 
        by the entities in the consortium.
            (3) With respect to the receipt by the consortium of 
        payments made pursuant to this section, the members of the 
        consortium have agreed on a method for allocating the payments 
        among the members.
            (4) The consortium meets such additional requirements as the 
        Secretary may establish.

    (c) Amount and Source of Payment.--The total of payments to a 
qualifying consortium for a fiscal year pursuant to subsection (a) shall 
not exceed the amount that would have been paid under section 1886 (h) 
or (k) of the Social Security Act for the teaching hospital (or 
hospitals) in the consortium. Such payments shall be made in such 
proportion from each of the trust funds established under title XVIII of 
such Act as the Secretary specifies.

SEC. 4629. RECOMMENDATIONS <<NOTE: 42 USC 1395ww note.>>  ON LONG-TERM 
            POLICIES REGARDING TEACHING HOSPITALS AND GRADUATE MEDICAL 
            EDUCATION.

    (a) In General.--The Medicare Payment Advisory Commission 
(established under section 1805 of the Social Security Act and in this 
section referred to as the ``Commission'') shall examine and develop 
recommendations on whether and to what extent medicare payment policies 
and other Federal policies regarding teaching hospitals and graduate 
medical education should be changed. Such recommendations shall include 
recommendations regarding each of the following:
            (1) Possible methodologies for making payments for graduate 
        medical education and the selection of entities to receive such 
        payments. Matters considered under this paragraph shall 
        include--

[[Page 111 STAT. 485]]

                    (A) issues regarding children's hospitals and 
                approved medical residency training programs in 
                pediatrics, and
                    (B) whether and to what extent payments are being 
                made (or should be made) for training in the nursing and 
                other allied health professions.
            (2) Federal policies regarding international medical 
        graduates.
            (3) The dependence of schools of medicine on service-
        generated income.
            (4) Whether and to what extent the needs of the United 
        States regarding the supply of physicians, in the aggregate and 
        in different specialties, will change during the 10-year period 
        beginning on October 1, 1997, and whether and to what extent any 
        such changes will have significant financial effects on teaching 
        hospitals.
            (5) Methods for promoting an appropriate number, mix, and 
        geographical distribution of health professionals.

    (b) Consultation.--In conducting the study under subsection (a), the 
Commission shall consult with the Council on Graduate Medical Education 
and individuals with expertise in the area of graduate medical 
education, including--
            (1) deans from allopathic and osteopathic schools of 
        medicine;
            (2) chief executive officers (or equivalent administrative 
        heads) from academic health centers, integrated health care 
        systems, approved medical residency training programs, and 
        teaching hospitals that sponsor approved medical residency 
        training programs;
            (3) chairs of departments or divisions from allopathic and 
        osteopathic schools of medicine, schools of dentistry, and 
        approved medical residency training programs in oral surgery;
            (4) individuals with leadership experience from 
        representative fields of non-physician health professionals;
            (5) individuals with substantial experience in the study of 
        issues regarding the composition of the health care workforce of 
        the United States; and
            (6) individuals with expertise in health care payment 
        policies.

    (c) Report.--Not later than 2 years after the date of the enactment 
of this Act, the Commission shall submit to the Congress a report 
providing its recommendations under this section and the reasons and 
justifications for such recommendations.

SEC. 4630. STUDY <<NOTE: 42 USC 1395ww note.>>  OF HOSPITAL OVERHEAD AND 
            SUPERVISORY PHYSICIAN COMPONENTS OF DIRECT MEDICAL EDUCATION 
            COSTS.

    (a) In General.--The Secretary of Health and Human Services shall 
conduct a study with respect to--
            (1) variations among hospitals in the hospital overhead and 
        supervisory physician components of their direct medical 
        education costs taken into a