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106th Congress                                            Rept. 106-436
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     Part 1

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



 
            MEDICARE BALANCED BUDGET REFINEMENT ACT OF 1999
                                _______
                                

                November 2, 1999.--Ordered to be printed

                                _______
                                

    Mr. Archer, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                             together with

                            ADDITIONAL VIEWS

                        [To accompany H.R. 3075]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Ways and Means, to whom was referred the 
bill (H.R. 3075) To amend title XVIII of the Social Security 
Act to make corrections and refinements in the Medicare Program 
as revised by the Balanced Budget Act of 1997, having 
considered the same, report favorably thereon with an amendment 
and recommend that the bill as amended do pass.

                                CONTENTS

                                                                   Page
  I. Introduction....................................................32
        A. Purpose and Summary...................................    32
        B. Background and Need for Legislation...................    33
        C. Legislative History...................................    36
 II. Explanation of Provisions.......................................38
III. Votes of the Committee..........................................84
 IV. Budget Effects of the Bill......................................86
        A. Committee Estimate of Budgetary Effects...............    86
        B. Statement Regarding New Budget Authority and Tax 
            Expenditures.........................................    86
        C. Cost Estimate Prepared by the Congressional Budget 
            Office...............................................    86
  V. Other Matters to be Discussed under the Rules of the House......94
        A. Committee Oversight Findings and Recommendations......    94
        B. Summary of Findings and Recommendations of the 
            Government Reform Committee..........................    95
        C. Constitutional Authority Statement....................    95
 VI. Changes in Existing Law Made by the bill as Respond.............95
VII. Additional Views...............................................150

    The amendment is as follows:
    Strike out all after the enacting clause and insert in lieu 
thereof the following:

SECTION 1. SHORT TITLE; AMENDMENTS TO SOCIAL SECURITY ACT; REFERENCES 
                    TO BBA; TABLE OF CONTENTS.

  (a) Short Title.--This Act may be cited as the ``Medicare Balanced 
Budget Refinement Act of 1999''.
  (b) 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.
  (c) References to Balanced Budget Act of 1997.--In this Act, the term 
``BBA'' means the Balanced Budget Act of 1997 (Public Law 105-33).
  (d) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; amendments to Social Security Act; references to 
BBA; table of contents.

                 TITLE I--PROVISIONS RELATING TO PART A

                       Subtitle A--PPS Hospitals

Sec. 101. One-year delay in transition for indirect medical education 
(IME) percentage adjustment.
Sec. 102. Decrease in reductions for disproportionate share hospitals; 
data collection requirements.

                    Subtitle B--PPS Exempt Hospitals

Sec. 111. Wage adjustment of percentile cap for PPS-exempt hospitals.
Sec. 112. Enhanced payments for long-term care and psychiatric 
hospitals until development of prospective payment systems for those 
hospitals.
Sec. 113. Per discharge prospective payment system for long-term care 
hospitals.
Sec. 114. Per diem prospective payment system for psychiatric 
hospitals.
Sec. 115. Refinement of prospective payment system for inpatient 
rehabilitation services.

 Subtitle C--Adjustments to PPS Payments for Skilled Nursing Facilities

Sec. 121. Temporary increase in payment for certain high cost patients.
Sec. 122. Market basket increase.
Sec. 123. Authorizing facilities to elect immediate transition to 
Federal rate.
Sec. 124. Part A pass-through payment for certain ambulance services, 
prostheses, and chemotherapy drugs.
Sec. 125. Provision for part B add-ons for facilities participating in 
the NHCMQ demonstration project.
Sec. 126. Special consideration for facilities serving specialized 
patient populations.
Sec. 127. MedPAC study on special payment for facilities located in 
Hawaii and Alaska.

                           Subtitle D--Other

Sec. 131. Part A BBA technical corrections.

                TITLE II--PROVISIONS RELATING TO PART B

          Subtitle A--Adjustments to Physician Payment Updates

Sec. 201. Modification of update adjustment factor provisions to reduce 
update oscillations and require estimate revisions.

                Subtitle B--Hospital Outpatient Services

Sec. 211. Outlier adjustment and transitional pass-through for certain 
medical devices, drugs, and biologicals.
Sec. 212. Establishing a transitional corridor for application of OPD 
PPS.
Sec. 213. Delay in application of prospective payment system to cancer 
center hospitals.
Sec. 214. Limitation on outpatient hospital copayment for a procedure 
to the hospital deductible amount.

                           Subtitle C--Other

Sec. 221. Application of separate caps to physical and speech therapy 
services.
Sec. 222. Transitional outlier payments for therapy services for 
certain high acuity patients.
Sec. 223. Update in renal dialysis composite rate.
Sec. 224. Temporary update in durable medical equipment and oxygen 
rates.
Sec. 225. Requirement for new proposed rulemaking for implementation of 
inherent reasonableness policy.
Sec. 226. Increase in reimbursement for pap smears.
Sec. 227. Refinement of ambulance services demonstration project.
Sec. 228. Additional provisions.

            TITLE III--PROVISIONS RELATING TO PARTS A AND B

                    Subtitle A--Home Health Services

Sec. 301. Adjustment to reflect administrative costs not included in 
the interim payment system.
Sec. 302. Delay in application of 15 percent reduction in payment rates 
for home health services until 1 year after implementation of 
prospective payment system.
Sec. 303. Clarification of surety bond requirements.
Sec. 304. Technical amendment clarifying applicable market basket 
increase for PPS.

             Subtitle B--Direct Graduate Medical Education

Sec. 311. Use of national average payment methodology in computing 
direct graduate medical education (DGME) payments.

                           Subtitle C--Other

Sec. 321. GAO study on geographic reclassification.
Sec. 322. MedPAC study on medicare payment for non-physician health 
professional clinical training in hospitals.

                  TITLE IV--RURAL PROVIDER PROVISIONS

Sec. 401. Permitting reclassification of certain urban hospitals as 
rural hospitals.
Sec. 402. Update of standards applied for geographic reclassification 
for certain hospitals.
Sec. 403. Improvements in the critical access hospital (CAH) program.
Sec. 404. 5-year extension of medicare dependent hospital (MDH) 
program.
Sec. 405. Rebasing for certain sole community hospitals.
Sec. 406. Increased flexibility in providing graduate physician 
training in rural areas.
Sec. 407. Elimination of certain restrictions with respect to hospital 
swing bed program.
Sec. 408. Grant program for rural hospital transition to prospective 
payment.
Sec. 409. MedPAC study of rural providers.
Sec. 410. Expansion of access to paramedic intercept services in rural 
areas.

    TITLE V--PROVISIONS RELATING TO PART C (MEDICARE+CHOICE PROGRAM)

                      Subtitle A--Medicare+Choice

Sec. 501. Phase-in of new risk adjustment methodology.
Sec. 502. Encouraging offering of Medicare+Choice plans in areas 
without plans.
Sec. 503. Modification of 5-year re-entry rule for contract 
terminations.
Sec. 504. Continued computation and publication of AAPCC data.
Sec. 505. Changes in Medicare+Choice enrollment rules.
Sec. 506. Allowing variation in premium waivers within a service area 
if Medicare+Choice payment rates vary within the area.
Sec. 507. Delay in deadline for submission of adjusted community rates 
and related information.
Sec. 508. 2 year extension of medicare cost contracts.
Sec. 509. Medicare+Choice nursing and allied health professional 
education and earmark.
Sec. 510. Miscellaneous changes and studies.
Sec. 511. MedPAC report on medicare MSA (medical savings account) 
plans.
Sec. 512. Clarification of nonapplicability of certain provisions of 
discharge planning process to Medicare+Choice plans.

            Subtitle B--Managed Care Demonstration Projects

Sec. 521. Extension of social health maintenance organization 
demonstration (SHMO) project authority.
Sec. 522. Extension of medicare community nursing organization 
demonstration project.
Sec. 523. Medicare+Choice competitive bidding demonstration project.

                 TITLE I--PROVISIONS RELATING TO PART A

                       Subtitle A--PPS Hospitals

SEC. 101. ONE-YEAR DELAY IN TRANSITION FOR INDIRECT MEDICAL EDUCATION 
                    (IME) PERCENTAGE ADJUSTMENT.

  (a) In General.--Section 1886(d)(5)(B)(ii) (42 U.S.C. 
1395ww(d)(5)(B)(ii)), as amended by section 4621(a)(1) of BBA, is 
amended--
          (1) in subclause (IV), by inserting ``and 2001'' after 
        ``2000''; and
          (2) by striking ``2000'' in subclause (V) and inserting 
        ``2001''.
  (b) Conforming Amendment Relating to Determination of Standardized 
Amount.--Section 1886(d)(2)(C)(i) (42 U.S.C. 1395ww(d)(2)(C)(i)), as 
amended by section 4621(a)(2) of BBA, is amended by inserting ``or any 
additional payments under such paragraph resulting from the amendment 
made by section 101(a) of Medicare Balanced Budget Refinement Act of 
1999'' after ``Balanced Budget Act of 1997''.

SEC. 102. DECREASE IN REDUCTIONS FOR DISPROPORTIONATE SHARE HOSPITALS; 
                    DATA COLLECTION REQUIREMENTS.

  (a) In General.--Section 1886(d)(5)(F)(ix) (42 U.S.C. 
1395ww(d)(5)(F)(ix)), as added by section 4403(a) of BBA, is amended--
          (1) in subclause (III), by striking ``during fiscal year 
        2000'' and inserting ``during each of fiscal years 2000 and 
        2001'';
          (2) by striking subclause (IV);
          (3) by redesignating subclauses (V) and (VI) and subclauses 
        (IV) and (V), respectively; and
          (4) in subclause (IV), as so redesignated, by striking 
        ``reduced by 5 percent'' and inserting ``reduced by 4 
        percent''.
  (b) Data Collection.--
          (1) In general.--The Secretary of Health and Human Services 
        shall 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)) to submit to the Secretary, in the cost 
        reports submitted to the Secretary by such hospital for 
        discharges occurring during a fiscal year, data on the costs 
        incurred by the hospital for providing inpatient and outpatient 
        hospital services for which the hospital is not compensated, 
        including bad debt and charity care.
          (2) Effective date.--The Secretary shall require the 
        submission of the data described in paragraph (1) in cost 
        reports for cost reporting periods beginning on or after the 
        date of the enactment of this Act.

                    Subtitle B--PPS Exempt Hospitals

SEC. 111. WAGE ADJUSTMENT OF PERCENTILE CAP FOR PPS-EXEMPT HOSPITALS.

  (a) In General.--Section 1886(b)(3)(H) (42 U.S.C. 1395ww(b)(3)(H)), 
as amended by section 4414 of BBA, is amended--
          (1) in clause (i), by inserting ``, as adjusted under clause 
        (iii)'' before the period,
          (2) in clause (ii), by striking ``clause (i)'' and ``such 
        clause'' and inserting ``subclause (I)'' and ``such subclause'' 
        respectively,
          (3) by striking ``(H)(i)'' and inserting ``(ii)(I)'',
          (4) by redesignating clauses (ii) and (iii) as subclauses 
        (II) and (III),
          (5) by inserting after clause (ii), as so redesignated, the 
        following new clause:
  ``(iii) In applying clause (ii)(I) 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
          (6) by inserting before clause (ii), as so redesignated, the 
        following new clause:
  ``(H)(i) In the case of a hospital or unit that is within a class of 
hospital described in clause (iv), for a cost reporting period 
beginning during fiscal years 1998 through 2002, the target amount for 
such a hospital or unit may not exceed the amount as updated up to or 
for such cost reporting period under clause (ii).''.
  (b) Effective Date.--The amendments made by subsection (a) apply to 
cost reporting periods beginning on or after October 1, 1999.

SEC. 112. ENHANCED PAYMENTS FOR LONG-TERM CARE AND PSYCHIATRIC 
                    HOSPITALS UNTIL DEVELOPMENT OF PROSPECTIVE PAYMENT 
                    SYSTEMS FOR THOSE HOSPITALS.

  Section 1886(b)(2) (42 U.S.C. 1395ww(b)(2)), as added by section 
4415(b) of BBA, is amended--
          (1) in subparagraph (A), by striking ``In addition to'' and 
        inserting ``Except as provided in subparagraph (E), in addition 
        to''; and
          (2) by adding at the end the following new subparagraph:
  ``(E)(i) In the case of an eligible hospital that is a hospital or 
unit that is within a class of hospital described in clause (ii) with a 
12-month cost reporting period beginning before the enactment of this 
subparagraph, in determining the amount of the increase under 
subparagraph (A), the Secretary shall substitute for the percentage of 
the target amount applicable under subparagraph (A)(ii)--
          ``(I) for a cost reporting period beginning on or after 
        October 1, 2000, and before September 30, 2001, 1.5 percent; 
        and
          ``(II) for a cost reporting period beginning on or after 
        October 1, 2001, and before September 30, 2002, 2 percent.
          ``(ii) For purposes of clause (i), 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 (iv) of such 
                subsection.''.

SEC. 113. PER DISCHARGE PROSPECTIVE PAYMENT SYSTEM FOR LONG-TERM CARE 
                    HOSPITALS.

  (a) Development of System.--
          (1) In general.--The Secretary of Health and Human Services 
        shall develop a per discharge prospective payment system for 
        payment for inpatient hospital services 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 is based on diagnosis-related groups 
        (DRGs) and that reflects the differences in patient resource 
        use and costs, and shall maintain budget neutrality.
          (2) Collection of data and evaluation.--In developing the 
        system described in paragraph (1), the Secretary may require 
        such long-term care hospitals to submit such information to the 
        Secretary as the Secretary may require to develop the system.
  (b) Report.--Not later than October 1, 2001, the Secretary shall 
submit to the appropriate committees of Congress a report that includes 
a description of the system developed under subsection (a)(1).
  (c) Implementation of Prospective Payment System.--Notwithstanding 
section 1886(b)(3) of the Social Security Act (42 U.S.C. 1395ww(b)(3)), 
the Secretary shall provide, for cost reporting periods beginning on or 
after October 1, 2002, for payments for inpatient hospital services 
furnished by long-term care hospitals under title XVIII of the Social 
Security Act (42 U.S.C. 1395 et seq.) in accordance with the system 
described in subsection (a).

SEC. 114. PER DIEM PROSPECTIVE PAYMENT SYSTEM FOR PSYCHIATRIC 
                    HOSPITALS.

  (a) Development of System.--
          (1) In general.--The Secretary of Health and Human Services 
        shall develop a per diem prospective payment system for payment 
        for inpatient hospital services of psychiatric hospitals and 
        units (as defined in paragraph (3)) 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 and shall maintain budget 
        neutrality.
          (2) Collection of data and evaluation.--In developing the 
        system described in paragraph (1), the Secretary may require 
        such psychiatric hospitals and units to submit such information 
        to the Secretary as the Secretary may require to develop the 
        system.
          (3) Definition.--In this section, the term ``psychiatric 
        hospitals and units'' means a psychiatric hospital described in 
        clause (i) of section 1886(d)(1)(B) of the Social Security Act 
        (42 U.S.C. 1395ww(d)(1)(B)) and psychiatric units described in 
        the matter following clause (v) of such section.
  (b) Report.--Not later than October 1, 2001, the Secretary shall 
submit to the appropriate committees of Congress a report that includes 
a description of the system developed under subsection (a)(1).
  (c) Implementation of Prospective Payment System.--Notwithstanding 
section 1886(b)(3) of the Social Security Act (42 U.S.C. 1395ww(b)(3)), 
the Secretary shall provide, for cost reporting periods beginning on or 
after October 1, 2002, for payments for inpatient hospital services 
furnished by psychiatric hospitals and units under title XVIII of the 
Social Security Act (42 U.S.C. 1395 et seq.) in accordance with the 
prospective payment system established by the Secretary under this 
section.

SEC. 115. REFINEMENT OF PROSPECTIVE PAYMENT SYSTEM FOR INPATIENT 
                    REHABILITATION SERVICES.

  (a) Election to Apply Full Prospective Payment Rate Without Phase-
In.--
          (1) In general.--Paragraph (1) of section 1886(j) (42 U.S.C. 
        1395ww(j)), as added by section 4421(a) of BBA, is amended--
                  (A) in subparagraph (C), by inserting ``subject to 
                subparagraph (E),'' after ``subparagraph (A),''; and
                  (B) by adding at the end the following new 
                subparagraph:
                  ``(E) Election to apply full prospective payment 
                system.--A rehabilitation facility may elect for either 
                or both cost reporting periods described in 
                subparagraph (C) to have the TEFRA percentage and 
                prospective payment percentage set at 0 percent and 100 
                percent, respectively, for the facility.''.
          (2) Budget neutrality in application.--Paragraph (3)(B) of 
        such section is amended by inserting ``and taking into account 
        the election permitted under paragraph (1)(E)'' after ``in the 
        Secretary's estimation''.
          (3) Transitional adjustment and implementation.--In order to 
        implement the amendments made by this subsection on a budget 
        neutral basis--
                  (A) the Secretary of Health and Human Services shall 
                decrease the prospective payment rate otherwise 
                established for fiscal year 2001 by 10 percent, and 
                shall adjust such rate for subsequent years to reflect 
                the extent to which such 10 percent payment adjustment 
                was inappropriate, as determined by the Secretary based 
                upon an analysis that takes into account utilization 
                and payments made during fiscal year 2001; and
                  (B) the Secretary shall provide for the computation 
                of such rate in an iterative manner to take into 
                account the effect of permitting an election under 
                section 1886(j)(1)(E) of the Social Security Act, under 
                the amendment made by paragraph (1).
  (b) Use of Discharge as Payment Unit.--
          (1) In general.--Paragraph (1)(D) of such section is amended 
        by striking ``, day of inpatient hospital services, or other 
        unit of payment defined by the Secretary''.
          (2) Conforming amendment to classification.--Paragraph (2)(A) 
        of such section is amended by amending clause (i) of to read as 
        follows:
                          ``(i) classes of patient discharges of 
                        rehabilitation facilities (each in this 
                        subsection referred to as a `case mix group'), 
                        based on impairment, age, comorbidities, and 
                        functional capability of the patient and such 
                        other factors as the Secretary deems 
                        appropriate to improve the explanatory power of 
                        functional independence measure-function 
                        related groups; and''.
          (3) Construction relating to transfer authority.--Paragraph 
        (1) of such section, as amended by subsection (a)(1), is 
        further amended by adding at the end the following new 
        subparagraph:
                  ``(F) Construction relating transfer authority.--
                Nothing in this subsection shall be construed as 
                preventing the Secretary from providing for an 
                adjustment to payments to take into account the early 
                transfer of a patient from a rehabilitation facility to 
                another site of care.''.
  (c) Study on Impact of Implementation of Prospective Payment 
System.--
          (1) Study.--The Secretary of Health and Human Services shall 
        conduct a study of the impact on utilization and beneficiary 
        access to services of the implementation of the medicare 
        prospective payment system for inpatient hospital services or 
        rehabilitation facilities under section 1886(j) of the Social 
        Security Act (as added by section 4421(a) of BBA).
          (2) Report.--Not later than 3 years after the date such 
        system is first implemented, the Secretary shall submit to 
        Congress a report on such study.
  (d) Effective Date.--The amendments made by subsections (a) and (b) 
are effective as if included in the enactment of section 4421(a) of 
BBA.

 Subtitle C--Adjustments to PPS Payments for Skilled Nursing Facilities

SEC. 121. TEMPORARY INCREASE IN PAYMENT FOR CERTAIN HIGH COST PATIENTS.

  (a) Adjustment for Medically Complex Patients Until Establishment of 
Refined Case-Mix Adjustment.--For purposes of computing payments for 
covered skilled nursing facility payments under paragraph (1) of 
section 1888(e) of the Social Security Act (42 U.S.C. 1395yy(e)), as 
added by section 4432(a) of BBA, for such services furnished on or 
after April 1, 2000, and before October 1, 2000, the Secretary of 
Health and Human Services shall increase by 10 percent the adjusted 
Federal per diem rate otherwise determined under paragraph (4) of such 
section (but for this section) for covered skilled nursing facility 
services for RUG-III groups described in subsection (b) furnished to an 
individual entitled to benefits under part A of title XVIII of such Act 
during the period in which such individual is classified in such a RUG-
III category.
  (b) Groups Described.--The RUG-III groups for which the adjustment 
described in subsection (a) applies are SE3, SE2, SE1, SSC, SSB, SSA, 
CC2, CC1, CB2, CB1, CA2, and CA1, as specified in Tables 3 and 4 of the 
final rule published in the Federal Register by the Health Care 
Financing Administration on July 30, 1999 (64 FR 41684).

SEC. 122. MARKET BASKET INCREASE.

  Section 1888(e)(4)(E)(ii) (42 U.S.C. 1395yy(e)(4)(E)(ii)) is 
amended--
          (1) by redesignating subclause (III) as subclause (IV); and
          (2) by striking subclause (II) and inserting after subclause 
        (I) the following:
                                  ``(II) for fiscal year 2001, the rate 
                                computed for fiscal year 2000 
                                (determined without regard to section 
                                121 of the Medicare Balanced Budget 
                                Refinement Act of 1999) increased by 
                                the skilled nursing facility market 
                                basket percentage change for the fiscal 
                                year involved plus 0.8 percentage 
                                point;
                                  ``(III) for fiscal year 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''.

SEC. 123. AUTHORIZING FACILITIES TO ELECT IMMEDIATE TRANSITION TO 
                    FEDERAL RATE.

  (a) In General.--Section 1888(e) (42 U.S.C. 1395yy(e)), as added by 
section 4432(a) of BBA, is amended--
          (1) in paragraph (1), in the matter preceding subparagraph 
        (A), by striking ``paragraph (7)'' and inserting ``paragraphs 
        (7) and (11)''; and
          (2) by adding at the end the following new paragraph:
          ``(11) Permitting facilities to waive 3-year transition.--
        Notwithstanding paragraph (1)(A), a facility may elect to have 
        the amount of the payment for all costs of covered skilled 
        nursing facility services for each day of such services 
        furnished in cost reporting periods beginning after the date of 
        such election determined pursuant to subparagraph (B) of 
        paragraph (1).''.
  (b) Effective Date.--The amendments made by subsection (a) shall 
apply to elections made more than 60 days after the date of enactment 
of this Act.

SEC. 124. PART A PASS-THROUGH PAYMENT FOR CERTAIN AMBULANCE SERVICES, 
                    PROSTHESES, AND CHEMOTHERAPY DRUGS.

  (a) In General.--Section 1888(e) (42 U.S.C. 1395yy(e)), as added by 
section 4432(a) of BBA, is amended--
          (1) in paragraph (2)(A)(i)(II), by striking ``services 
        described in clause (ii)'' and inserting ``items and services 
        described in clauses (ii) and (iii)'';
          (2) by adding at the end of paragraph (2)(A) the following 
        new clause:
                          ``(iii) Exclusion of certain additional 
                        items.--Items described in this clause are the 
                        following:
                                  ``(I) Ambulance services furnished to 
                                an individual in conjunction with renal 
                                dialysis services described in section 
                                1861(s)(2)(F).
                                  ``(II) Chemotherapy items (identified 
                                as of July 1, 1999, by HCPCS codes 
                                J9000-J9020; J9040-J9151; J9170-J9185; 
                                J9200-J9201; J9206-J9208; J9211; J9230-
                                J9245; and J9265-J9600 (and as 
                                subsequently modified by the 
                                Secretary)).
                                  ``(III) Chemotherapy administration 
                                services (identified as of July 1, 
                                1999, by HCPCS codes 36260-36262; 
                                36489; 36530-36535; 36640; 36823; and 
                                96405-96542 (and as subsequently 
                                modified by the Secretary)).
                                  ``(IV) Radioisotope services 
                                (identified as of July 1, 1999, by 
                                HCPCS codes 79030-79440 (and as 
                                subsequently modified by the 
                                Secretary)).
                                  ``(V) Customized prosthetic devices 
                                (commonly known as artificial limbs or 
                                components or artifical limbs) under 
                                the following HCPCS codes (as of July 
                                1, 1999 (and as subsequently modified 
                                by the Secretary)) if delivered to an 
                                inpatient for use during the stay in 
                                the extended care facility and intended 
                                to be used by the patient after 
                                discharge from the facility: L5050-
                                L5340; L5500-L5610; L5613-L5986; L5988; 
                                L6050-L6370; L6400-L6880; L6920-L7274; 
                                and L7362-7366.''; and
          (3) by adding at the end of paragraph (9) the following: ``In 
        the case of an item or service described in clause (iii) of 
        paragraph (2)(A) that would be payable under part A but for the 
        exclusion of such item or service under such clause, payment 
        shall be made for the item or service, in an amount otherwise 
        determined under part B of this title for such item or service, 
        from the Federal Hospital Insurance Trust Fund under section 
        1817 (rather than from the Federal Supplementary Medical 
        Insurance Trust Fund under section 1841).''.
  (b) Conforming for Budget Neutrality for Fiscal Year 2001.--Section 
1888(e)(4)(G) (42 U.S.C. 1395yy(e)(4)(G)) is amended by adding at the 
end the following new clause:
                          ``(iii) Adjustment for exclusion of certain 
                        additional items.--The Secretary shall provide 
                        for an appropriate proportional reduction in 
                        payments so that beginning with fiscal year 
                        2001, the aggregate amount of such reductions 
                        is equal to the aggregate increase in payments 
                        attributable to the exclusion effected under 
                        clause (iii) of paragraph (2)(A).''.
  (c) Effective Date.--The amendments made by subsection (a) shall 
apply to payments made for items furnished on or after April 1, 2000.

SEC. 125. PROVISION FOR PART B ADD-ONS FOR FACILITIES PARTICIPATING IN 
                    THE NHCMQ DEMONSTRATION PROJECT.

  (a) In General.--Section 1888(e)(3) (42 U.S.C. 1395yy(e)(3)), as 
added by section 4432(a) of BBA, is amended--
          (1) in subparagraph (A)--
                  (A) in clause (i), by inserting ``or, in the case of 
                a facility participating in the Nursing Home Case-Mix 
                and Quality Demonstration (RUGS-III), the RUGS-III rate 
                received by the facility during the cost reporting 
                period beginning in 1997'' after ``to nonsettled cost 
                reports''; and
                  (B) in clause (ii), by striking ``furnished during 
                such period'' and inserting ``furnished during the 
                applicable cost reporting period described in clause 
                (i)''.
          (2) in subparagraph (B), to read as follows:
                  ``(B) Update to first cost reporting period.--The 
                Secretary shall update the amount determined under 
                subparagraph (A), for each cost reporting period after 
                the applicable 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 (except that for the cost reporting 
                period beginning in fiscal year 2001, the factor shall 
                be equal to such market basket percentage plus 0.8 
                percentage point).''.
  (b) Effective Date.--The amendments made by subsection (a) shall be 
effective as if included in the enactment of section 4432(a) of BBA.

SEC. 126. SPECIAL CONSIDERATION FOR FACILITIES SERVING SPECIALIZED 
                    PATIENT POPULATIONS.

  (a) In General.--Section 1888(e) (42 U.S.C. 1395yy(e)), as amended by 
section 123(a)(1), is further amended--
          (1) in paragraph (1), by striking ``subject to paragraphs (7) 
        and (11)'' and inserting ``subject to paragraphs (7), (11), and 
        (12)''; and
          (2) by adding at the end the following new paragraph:
          ``(12) Payment rule for certain facilities.--
                  ``(A) In general.--In the case of a qualified acute 
                skilled nursing facility described in subparagraph (B), 
                the per diem amount of payment shall be determined by 
                applying the non-Federal percentage and Federal 
                percentage specified in paragraph (2)(C)(ii).
                  ``(B) Facility described.--For purposes of 
                subparagraph (A), a qualified acute skilled nursing 
                facility is a facility that--
                          ``(i) was certified by the Secretary as a 
                        skilled nursing facility eligible to furnish 
                        services under this title before July 1, 1992;
                          ``(ii) is a hospital-based facility; and
                          ``(iii) for the cost reporting period 
                        beginning in fiscal year 1998, the facility had 
                        more than 60 percent of total patient days 
                        comprised of patients who are described in 
                        subparagraph (C).
                  ``(C) Description of patients.--For purposes of 
                subparagraph (B), a patient described in this 
                subparagraph is an individual who--
                          ``(i) is entitled to benefits under part A; 
                        and
                          ``(ii) is immuno-compromised secondary to an 
                        infectious disease, with specific diagnoses as 
                        specified by the Secretary.''.
  (b) Effective Date.--The amendments made by subsection (a) shall 
apply for the period beginning on the date on which after the date of 
the enactment of this Act the first cost reporting period of the 
facility begins and ending on September 30, 2001, and applies to 
skilled nursing facilities furnishing covered skilled nursing facility 
services on the date of the enactment of this Act for which payment is 
made under title XVIII of the Social Security Act.
  (c) Report to Congress.--By not later than one year after the date of 
the enactment of this Act, the Secretary of Health and Human Services 
shall assess the resource use of patients of skilled nursing facilities 
furnishing services under the medicare program who are immuno-
compromised secondary to an infectious disease, with specific diagnoses 
as specified by the Secretary (under paragraph (12)(C), as added by 
subsection (a), of section 1888(e) of the Social Security Act (42 
U.S.C. 1395yy(e))) to determine whether any permanent adjustments are 
needed to the RUGs to take into account the resource uses and costs of 
these patients.

SEC. 127. MEDPAC STUDY ON SPECIAL PAYMENT FOR FACILITIES LOCATED IN 
                    HAWAII AND ALASKA.

  (a) In General.--The Medicare Payment Advisory Commission shall 
conduct a study on skilled nursing facilities furnishing covered 
skilled nursing facility services (as defined in section 1888(e)(2)(A) 
of the Social Security Act (42 U.S.C. 1395yy(e)(2)(A)) to determine the 
need for an additional payment amount under section 1888(e)(4)(G) of 
such Act (42 U.S.C. 1395yy(e)(4)(G)) to take into account the unique 
circumstances of skilled nursing facilities located in Alaska and 
Hawaii.
  (b) Report.--By not later than 18 months after the date of the 
enactment of this Act, the Medicare Payment Advisory Commission shall 
submit a report to Congress on the study conducted under subsection 
(a).

                           Subtitle D--Other

SEC. 131. PART A BBA TECHNICAL CORRECTIONS.

  (a) Section 4201.--Section 1820(c)(2)(B)(i) (42 U.S.C. 1395i-
4(c)(2)(B)(i)), as amended by section 4201(a) of BBA, is amended by 
striking ``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'' and inserting ``that is located in a county (or equivalent unit 
of local government) in a rural area (as defined in section 
1886(d)(2)(D)), and that''.
  (b) Section 4204.--(1) Section 1886(d)(5)(G) (42 U.S.C. 
1395ww(d)(5)(G)), as amended by section 4204(a)(1) of BBA, is amended--
          (A) in clause (i), by striking ``or beginning on or after 
        October 1, 1997, and before October 1, 2001,'' and inserting 
        ``or discharges on or after October 1, 1997, and before October 
        1, 2001,''; and
          (B) in clause (ii)(II), by striking ``or beginning on or 
        after October 1, 1997, and before October 1, 2001,'' and 
        inserting ``or discharges on or after October 1, 1997, and 
        before October 1, 2001,''.
  (2) Section 1886(b)(3)(D) (42 U.S.C. 1395ww(b)(3)(D)), as amended by 
section 4204(a)(2) of BBA, is amended in the matter preceding clause 
(i) by striking ``and for cost reporting periods beginning on or after 
October 1, 1997, and before October 1, 2001,'' and inserting ``and for 
discharges beginning on or after October 1, 1997, and before October 1, 
2001,''.
  (c) Section 4205.--Section 4205(a)(1)(B) of BBA (42 U.S.C. 1395l 
note) is amended by striking ``services furnished'' and inserting 
``cost reporting periods beginning''.
  (d) Section 4319.--Section 1847(b)(2) (42 U.S.C. 1395w-3(b)(2)), as 
added by section 4319 of BBA, is amended by inserting ``and'' after 
``specified by the Secretary''.
  (e) Section 4401.--Section 4401(b)(1)(B) of BBA (42 U.S.C. 1395ww 
note) is amended by striking ``section 1886(b)(3)(B)(i)(XIII) of the 
Social Security Act (42 U.S.C. 1395ww(b)(3)(B)(i)(XIII)))'' and 
inserting ``section 1886(b)(3)(B)(i)(XIV) of the Social Security Act 
(42 U.S.C. 1395ww(b)(3)(B)(i)(XIV)))''.
  (f) Section 4402.--The last sentence of section 1886(g)(1)(A) (42 
U.S.C. 1395ww(g)(1)(A)), as added by section 4402 of BBA, is amended by 
striking ``September 30, 2002,'' and inserting ``October 1, 2002,''.
  (g) Section 4419.--The first sentence of section 1886(b)(4)(A)(i) (42 
U.S.C. 1395ww(b)(4)(A)(i)), as amended by section 4419(a)(1) of BBA, by 
striking ``or unit''.
  (h) Section 4442.--Section 4442(b) of BBA (42 U.S.C. 1395f note) is 
amended by striking ``applies to cost reporting periods beginning'' and 
inserting ``applies to items and services furnished''.
  (i) Effective Date.--The amendments made by this section shall take 
effect as if included in the enactment of BBA.

                TITLE II--PROVISIONS RELATING TO PART B

          Subtitle A--Adjustments to Physician Payment Updates

SEC. 201. MODIFICATION OF UPDATE ADJUSTMENT FACTOR PROVISIONS TO REDUCE 
                    UPDATE OSCILLATIONS AND REQUIRE ESTIMATE REVISIONS.

  (a) Update Adjustment Factor.--
          (1) In general.--Section 1848(d) (42 U.S.C. 1395w-4(d)) is 
        amended--
                  (A) in paragraph (3)--
                          (i) in the heading, by inserting ``for 1999 
                        and 2000'' after ``Update'';
                          (ii) in subparagraph (A), by striking ``a 
                        year beginning with 1999'' and inserting ``1999 
                        and 2000''; and
                          (iii) in subparagraph (C), by inserting ``and 
                        paragraph (4)'' after ``For purposes of this 
                        paragraph''; and
                  (B) by adding at the end the following new paragraph:
          ``(4) Update for years beginning with 2001.--
                  ``(A) In general.--Unless otherwise provided by law, 
                subject to the budget-neutrality factor determined by 
                the Secretary under subsection (c)(2)(B)(ii) and 
                subject to adjustment under subparagraph (F), the 
                update to the single conversion factor established in 
                paragraph (1)(C) for a year beginning with 2001 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 under subparagraph (B) 
                        for the year.
                  ``(B) Update adjustment factor.--For purposes of 
                subparagraph (A)(ii), subject to subparagraph (D), the 
                `update adjustment factor' for a year is equal (as 
                estimated by the Secretary) to the sum of the 
                following:
                          ``(i) Prior year adjustment component.--An 
                        amount determined by--
                                  ``(I) computing the difference (which 
                                may be positive or negative) between 
                                the amount of the allowed expenditures 
                                for physicians' services for the prior 
                                year (as determined under subparagraph 
                                (C)) and the amount of the actual 
                                expenditures for such services for that 
                                year;
                                  ``(II) dividing that difference by 
                                the amount of the actual expenditures 
                                for such services for that year; and
                                  ``(III) multiplying that quotient by 
                                0.75.
                          ``(ii) Cumulative adjustment component.--An 
                        amount determined by--
                                  ``(I) computing the difference (which 
                                may be positive or negative) between 
                                the amount of the allowed expenditures 
                                for physicians' services (as determined 
                                under subparagraph (C)) from April 1, 
                                1996, through the end of the prior year 
                                and the amount of the actual 
                                expenditures for such services during 
                                that period;
                                  ``(II) dividing that difference by 
                                actual expenditures for such services 
                                for the prior year as increased by the 
                                sustainable growth rate under 
                                subsection (f) for the year for which 
                                the update adjustment factor is to be 
                                determined; and
                                  ``(III) multiplying that quotient by 
                                0.33.
                  ``(C) Determination of allowed expenditures.--For 
                purposes of this paragraph:
                          ``(i) Period up to april 1, 1999.--The 
                        allowed expenditures for physicians' services 
                        for a period before April 1, 1999, shall be the 
                        amount of the allowed expenditures for such 
                        period as determined under paragraph (3)(C).
                          ``(ii) Transition to calendar year allowed 
                        expenditures.--Subject to subparagraph (E), the 
                        allowed expenditures for--
                                  ``(I) the 9-month period beginning 
                                April 1, 1999, shall be the Secretary's 
                                estimate of the amount of the allowed 
                                expenditures that would be permitted 
                                under paragraph (3)(C) for such period; 
                                and
                                  ``(II) the year of 1999, shall be the 
                                Secretary's estimate of the amount of 
                                the allowed expenditures that would be 
                                permitted under paragraph (3)(C) for 
                                such year.
                          ``(iii) Years beginning with 2000.--The 
                        allowed expenditures for a year (beginning with 
                        2000) is equal to the allowed expenditures for 
                        physicians' services for the previous year, 
                        increased by the sustainable growth rate under 
                        subsection (f) for the year involved.
                  ``(D) Restriction on update adjustment factor.--The 
                update adjustment factor determined under subparagraph 
                (B) for a year may not be less than -0.07 or greater 
                than 0.03.
                  ``(E) Recalculation of allowed expenditures for 
                updates beginning with 2001.--For purposes of 
                determining the update adjustment factor for a year 
                beginning with 2001, the Secretary shall recompute the 
                allowed expenditures for previous periods beginning on 
                or after April 1, 1999, consistent with subsection 
                (f)(3).
                  ``(F) Transitional adjustment designed to provide for 
                budget neutrality.--Under this subparagraph the 
                Secretary shall provide for an adjustment to the update 
                under subparagraph (A)--
                          ``(i) for each of 2001, 2002, 2003, and 2004, 
                        of -0.2 percent; and
                          ``(ii) for 2005 of +0.8 percent.''.
          (2) Publication change.--
                  (A) In general.--Section 1848(d)(1)(E) (42 U.S.C. 
                1395w-4(d)(1)(E)) is amended to read as follows:
                  ``(E) Publication and dissemination of information.--
                The Secretary shall--
                          ``(i) cause to have published in the Federal 
                        Register not later than November 1 of each year 
                        (beginning with 2000) the conversion factor 
                        which will apply to physicians' services for 
                        the succeeding year, the update determined 
                        under paragraph (4) for such succeeding year, 
                        and the allowed expenditures under such 
                        paragraph for such succeeding year; and
                          ``(ii) make available to the Medicare Payment 
                        Advisory Commission and the public by March 1 
                        of each year (beginning with 2000) an estimate 
                        of the conversion factor which will apply to 
                        physicians' services for the succeeding year 
                        and data used in making such estimate.''.
                  (B) MedPAC review of conversion factor estimates.--
                Section 1805(b)(1)(D) (42 U.S.C. 1395b-6(b)(1)(D)) is 
                amended by inserting ``and including a review of the 
                estimate of the conversion factor submitted under 
                section 1848(d)(1)(E)(ii)'' before the period at the 
                end.
                  (C) 1-Time publication of information on 
                transition.--The Secretary of Health and Human Services 
                shall cause to have published in the Federal Register, 
                not later than 90 days after the date of the enactment 
                of this section, the Secretary's determination, based 
                upon the best available data, of--
                          (i) the allowed expenditures under subclauses 
                        (I) and (II) of section 1848(d)(4)(C)(ii) of 
                        the Social Security Act, as added by subsection 
                        (a)(1)(B), for the 9-month period beginning on 
                        April 1, 1999, and for 1999;
                          (ii) the estimated actual expenditures 
                        described in section 1848(d) of such Act for 
                        1999; and
                          (iii) the sustainable growth rate under 
                        section 1848(f) of such Act (42 U.S.C. 1395w-
                        4(f)) for 2000.
          (3) Conforming amendments.--
                  (A) Section 1848 (42 U.S.C. 1395w-4) is amended--
                          (i) in subsection (d)(1)(A), by inserting 
                        ``(for years before 2001) and, for years 
                        beginning with 2001, multiplied by the update 
                        (established under paragraph (4)) for the year 
                        involved'' after ``for the year involved''; and
                          (ii) in subsection (f)(2)(D), by inserting 
                        ``or (d)(4)(B), as the case may be'' after 
                        ``(d)(3)(B)''.
                  (B) Section 1833(l)(4)(A)(i)(VII) (42 U.S.C. 
                1395l(l)(4)(A)(i)(VII)) is amended by striking 
                ``1848(d)(3)'' and inserting ``1848(d)''.
  (b) Sustainable Growth Rates.--Section 1848(f) (42 U.S.C. 1395w-4(f)) 
is amended--
          (1) by amending paragraph (1) to read as follows:
          ``(1) Publication.--The Secretary shall cause to have 
        published in the Federal Register not later than--
                  ``(A) November 1, 2000, the sustainable growth rate 
                for 2000 and 2001; and
                  ``(B) November 1 of each succeeding year the 
                sustainable growth rate for such succeeding year and 
                each of the preceding 2 years.'';
          (2) in paragraph (2)--
                  (A) in the matter before subparagraph (A), by 
                striking ``fiscal year 1998)'' and inserting ``fiscal 
                year 1998 and ending with fiscal year 2000) and a year 
                beginning with 2000''; and
                  (B) in subparagraphs (A) through (D), by striking 
                ``fiscal year'' and inserting ``applicable period'' 
                each place it appears;
          (3) in paragraph (3), by adding at the end the following new 
        subparagraph:
                  ``(C) Applicable period.--The term `applicable 
                period' means--
                          ``(i) a fiscal year, in the case of fiscal 
                        year 1998, fiscal year 1999, and fiscal year 
                        2000; or
                          ``(ii) a calendar year with respect to a year 
                        beginning with 2000;
                as the case may be.'';
          (4) by redesignating paragraph (3) as paragraph (4); and
          (5) by inserting after paragraph (2) the following new 
        paragraph:
          ``(3) Data to be used.--For purposes of determining the 
        update adjustment factor under subsection (d)(4)(B) for a year 
        beginning with 2001, the sustainable growth rates taken into 
        consideration in the determination under paragraph (2) shall be 
        determined as follows:
                  ``(A) For 2001.--For purposes of such calculations 
                for 2001, the sustainable growth rates for fiscal year 
                2000 and the years 2000 and 2001 shall be determined on 
                the basis of the best data available to the Secretary 
                as of September 1, 2000.
                  ``(B) For 2002.--For purposes of such calculations 
                for 2002, the sustainable growth rates for fiscal year 
                2000 and for years 2000, 2001, and 2002 shall be 
                determined on the basis of the best data available to 
                the Secretary as of September 1, 2001.
                  ``(C) For 2003 and succeeding years.--For purposes of 
                such calculations for a year after 2002--
                          ``(i) the sustainable growth rates for that 
                        year and the preceding 2 years shall be 
                        determined on the basis of the best data 
                        available to the Secretary as of September 1 of 
                        the year preceding the year for which the 
                        calculation is made; and
                          ``(ii) the sustainable growth rate for any 
                        year before a year described in clause (i) 
                        shall be the rate as most recently determined 
                        for that year under this subsection.
        Nothing in this paragraph shall be construed as affecting the 
        sustainable growth rates established for fiscal year 1998 or 
        fiscal year 1999.''.
  (c) Effective Date.--The amendments made by this section shall be 
effective in determining the conversion factor under section 1848(d) of 
the Social Security Act (42 U.S.C. 1395w-4(d)) for years beginning with 
2001 and shall not apply to or affect any update (or any update 
adjustment factor) for any year before 2001.

                Subtitle B--Hospital Outpatient Services

SEC. 211. OUTLIER ADJUSTMENT AND TRANSITIONAL PASS-THROUGH FOR CERTAIN 
                    MEDICAL DEVICES, DRUGS, AND BIOLOGICALS.

  (a) Outlier Adjustment.--Section 1833(t) (42 U.S.C. 1395l(t)), as 
added by section 4523(a) of BBA, is amended--
          (1) by redesignating paragraphs (5) through (9) as paragraphs 
        (7) through (11), respectively; and
          (2) by inserting after paragraph (4) the following new 
        paragraph:
          ``(5) Outlier adjustment.--
                  ``(A) In general.--The Secretary shall provide for an 
                additional payment for each covered OPD service (or 
                group of services) for which a hospital's charges, 
                adjusted to cost, exceed--
                          ``(i) a fixed multiple of the sum of--
                                  ``(I) the applicable Medicare OPD fee 
                                schedule amount determined under 
                                paragraph (3)(D), as adjusted under 
                                paragraph (4)(A) (other than for 
                                adjustments under this paragraph or 
                                paragraph (6)); and
                                  ``(II) any transitional pass-through 
                                payment under paragraph (6); and
                          ``(ii) at the option of the Secretary, such 
                        fixed dollar amount as the Secretary may 
                        establish.
                  ``(B) Amount of adjustment.--The amount of the 
                additional payment under subparagraph (A) shall be 
                determined by the Secretary and shall approximate the 
                marginal cost of care beyond the applicable cutoff 
                point under such subparagraph.
                  ``(C) Limit on aggregate outlier adjustments.--
                          ``(i) In general.--The total of the 
                        additional payments made under this paragraph 
                        for covered OPD services furnished in a year 
                        (as projected or estimated by the Secretary 
                        before the beginning of the year) may not 
                        exceed the applicable percentage (specified in 
                        clause (ii)) of the total program payments 
                        projected or estimated to be made under this 
                        subsection for all covered OPD services 
                        furnished in that year. If this paragraph is 
                        first applied to less than a full year, the 
                        previous sentence shall apply only to the 
                        portion of such year.
                          ``(ii) Applicable percentage.--For purposes 
                        of clause (i), the term `applicable percentage' 
                        means a percentage specified by the Secretary 
                        up to (but not to exceed)--
                                  ``(I) for a year (or portion of a 
                                year) before 2004, 2.5 percent; and
                                  ``(II) for 2004 and thereafter, 3.0 
                                percent.''.
  (b) Transitional Pass-Through for Additional Costs of Innovative 
Medical Devices, Drugs, and Biologicals.--Such section is further 
amended by inserting after paragraph (5) the following new paragraph:
          ``(6) Transitional pass-through for additional costs of 
        innovative medical devices, drugs, and biologicals.--
                  ``(A) In general.--The Secretary shall provide for an 
                additional payment under this paragraph for any of the 
                following that are provided as part of a covered OPD 
                service (or group of services):
                          ``(i) Current orphan drugs.--A drug or 
                        biological that is used for a rare disease or 
                        condition with respect to which the drug or 
                        biological has been designated as an orphan 
                        drug under section 526 of the Federal Food, 
                        Drug and Cosmetic Act if payment for the drug 
                        or biological as an outpatient hospital service 
                        under this part was being made on the first 
                        date that the system under this subsection is 
                        implemented.
                          ``(ii) Current cancer therapy drugs and 
                        biologicals.--A drug or biological that is used 
                        in cancer therapy if payment for the drug or 
                        biological as an outpatient hospital service 
                        under this part was being made on such first 
                        date.
                          ``(iii) New medical devices, drugs, and 
                        biologicals.--A medical device, drug, or 
                        biological not described in clause (i) or (ii) 
                        if--
                                  ``(I) payment for the device, drug, 
                                or biological as an outpatient hospital 
                                service under this part was not being 
                                made as of December 31, 1996; and
                                  ``(II) the cost of the device, drug, 
                                or biological is not insignificant in 
                                relation to the OPD fee schedule amount 
                                (as calculated under paragraph (3)(D)) 
                                payable for the service (or group of 
                                services) involved.
                  ``(B) Limited period of payment.--The payment under 
                this paragraph with respect to a medical device, drug, 
                or biological shall only apply during a period of at 
                least 2 years, but not more than 3 years, that begins--
                          ``(i) on the first date this subsection is 
                        implemented in the case of a drug or biological 
                        described in clause (i) or (ii) of subparagraph 
                        (A) and in the case of a device, drug, or 
                        biological described in subparagraph (A)(iii) 
                        for which payment under this part is made as an 
                        outpatient hospital service before such first 
                        date; or
                          ``(ii) in the case of a device, drug, or 
                        biological described in subparagraph (A)(iii) 
                        not described in clause (i), on the first date 
                        on which payment is made under this part for 
                        the device, drug, or biological as an 
                        outpatient hospital service.
                  ``(C) Amount of additional payment.--Subject to 
                subparagraph (D)(iii), the amount of the payment under 
                this paragraph with respect to a device, drug, or 
                biological provided as part of a covered OPD service 
                is--
                          ``(i) in the case of a drug or biological, 
                        the amount by which the amount determined under 
                        section 1842(o) for the drug or biological 
                        exceeds the portion of the otherwise applicable 
                        medicare OPD fee schedule that the Secretary 
                        determines is associated with the drug or 
                        biological; or
                          ``(ii) in the case of a medical device, the 
                        amount by which the hospital's charges for the 
                        device, adjusted to cost, exceeds the portion 
                        of the otherwise applicable medicare OPD fee 
                        schedule that the Secretary determines is 
                        associated with the device.
                  ``(D) Limit on aggregate annual adjustment.--
                          ``(i) In general.--The total of the 
                        additional payments made under this paragraph 
                        for covered OPD services furnished in a year 
                        (as projected or estimated by the Secretary 
                        before the beginning of the year) may not 
                        exceed the applicable percentage (specified in 
                        clause (ii)) of the total program payments 
                        projected or estimated to be made under this 
                        subsection for all covered OPD services 
                        furnished in that year. If this paragraph is 
                        first applied to less than a full year, the 
                        previous sentence shall apply only to the 
                        portion of such year.
                          ``(ii) Applicable percentage.--For purposes 
                        of clause (i), the term `applicable percentage' 
                        means--
                                  ``(I) for a year (or portion of a 
                                year) before 2004, 2.5 percent; and
                                  ``(II) for 2004 and thereafter, a 
                                percentage specified by the Secretary 
                                up to (but not to exceed) 2.0 percent.
                          ``(iii) Uniform prospective reduction if 
                        aggregate limit projected to be exceeded.--If 
                        the Secretary projects or estimates before the 
                        beginning of a year that the amount of the 
                        additional payments under this paragraph for 
                        the year (or portion thereof) as determined 
                        under clause (i) without regard to this clause) 
                        will exceed the limit established under such 
                        clause, the Secretary shall reduce pro rata the 
                        amount of each of the additional payments under 
                        this paragraph for that year (or portion 
                        thereof) in order to ensure that the aggregate 
                        additional payments under this paragraph (as so 
                        projected or estimated) do not exceed such 
                        limit.''.
  (c) Application of New Adjustments on a Budget Neutral Basis.--
Section 1833(t)(2)(E) (42 U.S.C. 1395l(t)(2)(E)) is amended by striking 
``other adjustments, in a budget neutral manner, as determined to be 
necessary to ensure equitable payments, such a outlier adjustments or'' 
and inserting ``, in a budget neutral manner, outlier adjustments under 
paragraph (5) and transitional pass-through payments under paragraph 
(6) and other adjustments as determined to be necessary to ensure 
equitable payments, such as''.
  (d) Limitation on Judicial Review for New Adjustments.--Section 
1833(t)(11), as redesignated by subsection (a)(1), is amended--
          (1) by striking ``and'' at the end of subparagraph (C);
          (2) by striking the period at the end of subparagraph (D) and 
        inserting ``; and''; and
          (3) by adding at the end the following:
                  ``(E) the determination of the fixed multiple, or a 
                fixed dollar cutoff amount, the marginal cost of care, 
                or applicable percentage under paragraph (5) or the 
                determination of insignificance of cost, the duration 
                of the additional payments (consistent with paragraph 
                (6)(B)), the portion of the Medicare OPD fee schedule 
                amount associated with particular devices, drugs, or 
                biologicals, and the application of any pro rata 
                reduction under paragraph (6).''.
  (e) Inclusion of Medical Devices under System.--Section 1833(t) (42 
U.S.C. 1395l(t)) is amended--
          (1) in paragraph (1)(B)(ii), by striking ``clause (iii)'' and 
        inserting ``clause (iv)'' and by striking ``but'';
          (2) by redesignating clause (iii) of paragraph (1)(B) as 
        clause (iv) and inserting after clause (ii) of such paragraph 
        the following new clause:
                          ``(iii) includes medical devices (such as 
                        implantable medical devices); but''; and
          (3) in paragraph (2)(B), by inserting after ``resources'' the 
        following: ``and so that a device is classified to the group 
        that includes the service to which the device relates''.
  (f) Authorizing Payment Weights Based on Mean Hospital Costs.--
Section 1833(t)(2)(C) (42 U.S.C. 1395l(t)(2)(C)) is amended by 
inserting ``(or, at the election of the Secretary, mean)'' after 
``median''.
  (g) Limiting Variation of Costs of Services Classified With a 
Group.--Section 1833(t)(2) (42 U.S.C. 1395l(t)(2)) is amended by adding 
at the end the following new flush sentence:
        ``For purposes of subparagraph (B), items and services within a 
        group shall not be treated as `comparable with respect to the 
        use of resources' if the highest median cost (or mean cost, if 
        elected by the Secretary under subparagraph (C)) for an item or 
        service within the group is more than 2 times greater than the 
        lowest median cost (or mean cost, if so elected) for an item or 
        service within the group; except that the Secretary may make 
        exceptions in unusual cases, such as low volume items and 
        services.''.
  (h) Annual Review of OPD PPS Components.--
          (1) In general.--Section 1833(t)(8)(A) (42 U.S.C. 
        1395l(t)(8)(A)) as redesignated by subsection (a), is amended 
        by striking ``may periodically review'' and inserting ``shall 
        review not less often than annually''.
          (2) Effective date.--The amendment made by paragraph (1) 
        applies beginning with 2002.
  (i) No Impact on Copayment.--Section 1833(t)(7) (42 U.S.C. 
1395l(t)(7)), as redesignated by subsection (a), is amended by adding 
at the end the following new subparagraph:
                  ``(D) Computation ignoring outlier and pass-through 
                adjustments.--The copayment amount shall be computed 
                under subparagraph (A) as if the adjustments under 
                paragraphs (5) and (6) (and any adjustment made under 
                paragraph (2)(E) in relation to such adjustments) had 
                not occurred.''.
  (j) Technical Correction in Reference Relating to Hospital-Based 
Ambulance Services.--Section 1833(t)(9) (42 U.S.C. 1395l(t)(9)), as 
redesignated by subsection (a), is amended by striking ``the matter in 
subsection (a)(1) preceding subparagraph (A)'' and inserting ``section 
1861(v)(1)(U)''.
  (k) Effective Date.--Except as provided in this section, the 
amendments made by this section shall be effective as if included in 
the enactment of BBA.
  (l) Study of Delivery of Intravenous Immune Globulin (IVIG) Outside 
Hospitals and Physicians' Offices.--
          (1) Study.--The Secretary of Health and Human Services shall 
        conduct a study of the extent to which intravenous immune 
        globulin (IVIG) could be delivered and reimbursed under the 
        medicare program outside of a hospital or physician's office. 
        In conducting the study, the Secretary shall--
                  (A) consider the sites of service that other payors, 
                including Medicare+Choice plans, use for these drugs 
                and biologicals;
                  (B) determine whether covering the delivery of these 
                drugs and biologicals in a medicare patient's home 
                raises any additional safety and health concerns for 
                the patient;
                  (C) determine whether covering the delivery of these 
                drugs and biologicals in a patient's home can reduce 
                overall spending under the medicare program; and
                  (D) determine whether changing the site of setting 
                for these services would affect beneficiary access to 
                care.
          (2) Report.--The Secretary shall submit a report on such 
        study to the Committees on Way and Means and Commerce of the 
        House of Representatives and the Committee on Finance of the 
        Senate within 1 year after the date of the enactment of this 
        Act. The Secretary shall include in the report recommendations 
        regarding on the appropriate manner and settings under which 
        the medicare program should pay for these drugs and biologicals 
        delivered outside of a hospital or physician's office.

SEC. 212. ESTABLISHING A TRANSITIONAL CORRIDOR FOR APPLICATION OF OPD 
                    PPS.

  (a) In General.--Section 1833(t) (42 U.S.C. 1395l(t)), as amended by 
section 211(a), is further amended--
          (1) in paragraph (4), in the matter before subparagraph (A), 
        by inserting ``, subject to paragraph (7),'' after ``is 
        determined''; and
  (2) by redesignating paragraphs (7) through (11) as paragraphs (8) 
through (12), respectively; and
          (3) by inserting after paragraph (6), as inserted by section 
        211(b), the following new paragraph:
          ``(7) Transitional adjustment to limit decline in payment.--
                  ``(A) Before 2002.--For covered OPD services 
                furnished before January 1, 2002, for which the PPS 
                amount (as defined in subparagraph (D)(i)) is--
                          ``(i) at least 90 percent, but less than 100 
                        percent, of the pre-BBA amount (as defined in 
                        subparagraph (D)(ii)), the amount of payment 
                        under this subsection shall be increased by 80 
                        percent of the amount of such difference;
                          ``(ii) at least 80 percent, but less than 90 
                        percent, of the pre-BBA amount, the amount of 
                        payment under this subsection shall be 
                        increased by the amount by which (I) the 
                        product of 0.71 and the pre-BBA amount, exceeds 
                        (II) the product of 0.70 and the PPS amount;
                          ``(iii) at least 70 percent, but less than 80 
                        percent, of the pre-BBA amount, the amount of 
                        payment under this subsection shall be 
                        increased by the amount by which (I) the 
                        product of 0.63 and the pre-BBA amount, exceeds 
                        (II) the product of 0.60 and the PPS amount;
                          ``(iv) less than 70 percent of the pre-BBA 
                        amount, the amount of payment under this 
                        subsection shall be increased by 21 percent of 
                        the pre-BBA amount.
                  ``(B) 2002.--For covered OPD services furnished 
                during 2002, for which the PPS amount is--
                          ``(i) at least 90 percent, but less than 100 
                        percent, of the pre-BBA amount, the amount of 
                        payment under this subsection shall be 
                        increased by 70 percent of the amount of such 
                        difference;
                          ``(ii) at least 80 percent, but less than 90 
                        percent, of the pre-BBA amount, the amount of 
                        payment under this subsection shall be 
                        increased by the amount by which (I) the 
                        product of 0.61 and the pre-BBA amount, exceeds 
                        (II) the product of 0.60 and the PPS amount;
                          ``(iii) less than 80 percent of the pre-BBA 
                        amount, the amount of payment under this 
                        subsection shall be increased by 13 percent of 
                        the pre-BBA amount.
                  ``(C) 2003.--For covered OPD services furnished 
                during 2003, for which the PPS amount is--
                          ``(i) at least 90 percent, but less than 100 
                        percent, of the pre-BBA amount, the amount of 
                        payment under this subsection shall be 
                        increased by 60 percent of the amount of such 
                        difference; or
                          ``(ii) less than 90 percent of the pre-BBA 
                        amount, the amount of payment under this 
                        subsection shall be increased by 6 percent of 
                        the pre-BBA amount.
                  ``(D) Definitions.--For purposes of this 
                subparagraph:
                          ``(i) PPS amount.--The term `PPS amount' 
                        means, with respect to a covered OPD service, 
                        the amount of payment under this title for such 
                        service (determined without regard to this 
                        paragraph).
                          ``(ii) Pre-bba amount.--The term `pre-BBA 
                        amount' means, with respect to a covered OPD 
                        service, the amount that would have been paid 
                        under this title for such service if this 
                        subsection did not apply.
                  ``(E) Construction.--Nothing in this paragraph shall 
                be construed to affect the copayment amount under 
                paragraph (8).''.
  (b) Effective Date.--The amendments made by subsection (a) shall be 
effective as if included in the enactment of BBA.
  (c) Report on Rural Hospitals.--Not later than July 1, 2002, the 
Secretary of Health and Human Services shall submit to Congress a 
report and recommendations on whether the prospective payment system 
for covered outpatient services furnished under title XVIII of the 
Social Security Act should apply to the following providers of services 
furnishing outpatient items and services for which payment is made 
under such title:
          (1) Medicare-dependent, small rural hospitals (as defined in 
        section 1886(d)(5)(G)(iv) of such Act (42 U.S.C. 
        1395ww(d)(5)(G)(iv))).
          (2) Sole community hospitals (as defined in section 
        1886(d)(5)(D)(iii) of such Act (42 U.S.C. 
        1395ww(d)(5)(D)(iii)).
          (3) Rural health clinics (as defined in section 1861(aa)(2) 
        of such Act (42 U.S.C. 1395x(aa)(2)).
          (4) Rural referral centers (as so classified under section 
        1886(d)(5)(C) of such Act (42 U.S.C. 1395ww(d)(5)(C)).
          (5) Any other rural hospital that the Secretary determines 
        appropriate.

SEC. 213. DELAY IN APPLICATION OF PROSPECTIVE PAYMENT SYSTEM TO CANCER 
                    CENTER HOSPITALS.

  Section 1833(t)(11)(A) (42 U.S.C. 1395l(t)(11)(A)), as redesignated 
by section 212(a), is amended by striking ``January 1, 2000'' and 
inserting ``the first day of the first year that begins 2 years after 
the date the prospective payment system under this section is first 
implemented''.

SEC. 214. LIMITATION ON OUTPATIENT HOSPITAL COPAYMENT FOR A PROCEDURE 
                    TO THE HOSPITAL DEDUCTIBLE AMOUNT.

  (a) In General.--Section 1833(t)(8) (42 U.S.C. 1395l(t)(8)) as 
redesignated by section 212(a), is amended--
          (1) in subparagraph (A), by striking ``subparagraph (B)'' and 
        inserting ``subparagraphs (B) and (C)'';
          (2) by redesignating subparagraphs (C) and (D) as 
        subparagraphs (D) and (E), respectively; and
          (3) by inserting after subparagraph (B) the following new 
        subparagraph:
                  ``(C) Limiting copayment amount to inpatient hospital 
                deductible amount.--In no case shall the copayment 
                amount for a procedure performed in a year exceed the 
                amount of the inpatient hospital deductible established 
                under section 1813(b) for that year.''.
  (b) Increase in Payment to Reflect Reduction in Copayment.--Section 
1833(t)(4)(C) (42 U.S.C. 1395l(t)(4)(C)) is amended by inserting ``, 
plus the amount of any reduction in the copayment amount attributable 
to paragraph (5)(C)'' before the period at the end.
  (c) Effective Date.--The amendments made by this section apply as if 
included in the enactment of BBA and shall only apply to procedures 
performed for which payment is made on the basis of the prospective 
payment system under section 1833(t) of the Social Security Act.

                           Subtitle C--Other

SEC. 221. APPLICATION OF SEPARATE CAPS TO PHYSICAL AND SPEECH THERAPY 
                    SERVICES.

  (a) In General.--Section 1833(g) (42 U.S.C. 1395l(g)) is amended--
          (1) in paragraph (1)--
                  (A) by inserting ``(A)'' after ``(g)(1)''; and
                  (B) by adding at the end the following new 
                subparagraph:
  ``(B) Subparagraph (A) shall be applied separately for speech-
language pathology services described in the fourth sentence of section 
1861(p) and for other outpatient physical therapy services.''; and
          (2) by adding at the end the following new paragraph:
  ``(4) The limitations of this subsection apply to the services 
involved on a per beneficiary, per facility (or provider) basis.''.
  (b) Effective Date.--The amendments made by subsection (a) apply to 
services furnished on or after January 1, 2000.

SEC. 222. TRANSITIONAL OUTLIER PAYMENTS FOR THERAPY SERVICES FOR 
                    CERTAIN HIGH ACUITY PATIENTS.

  Section 1833(g) (42 U.S.C. 1395l(g)), as amended by section 221, is 
further amended by adding at the end the following new paragraph:
  ``(5)(A) The Secretary shall establish a process under which a 
facility or provider that is providing therapy services to which the 
limitation of this subsection applies to a beneficiary may apply to the 
Secretary for an increase in such limitation under this paragraph for 
services furnished in 2000 or in 2001.
  ``(B) Such process shall take into account the clinical diagnosis and 
shall provide that the aggregate amount of additional payments 
resulting from the application of this paragraph--
          ``(i) during fiscal year 2000 may not exceed $40,000,000;
          ``(ii) during fiscal year 2001 may not exceed $60,000,000; 
        and
          ``(iii) during fiscal year 2002 may not exceed 
        $20,000,000.''.

SEC. 223. UPDATE IN RENAL DIALYSIS COMPOSITE RATE.

  (a) In General.--Section 1881(b)(7) (42 U.S.C. 1395rr(b)(7)) is 
amended by adding at the end the following new flush sentence:
``The Secretary shall increase the amount of each composite rate 
payment for dialysis services furnished on or after January 1, 2000, 
and on or before December 31, 2000, by 1.2 percent above such composite 
rate payment amounts for such services furnished on December 31, 1999, 
and for such services furnished on or after January 1, 2001, by 1.2 
percent above such composite rate payment amounts for such services 
furnished on December 31, 2000.''.
  (b) Conforming Amendment.--
          (1) In general.--Section 9335(a) of the Omnibus Budget 
        Reconciliation Act of 1986 (42 U.S.C. 1395rr note) is amended 
        by striking paragraph (1).
          (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect on January 1, 2000.
  (c) Study on Payment Level for Home Hemodialysis.--The Medicare 
Payment Advisory Commission shall conduct a study on the 
appropriateness of the differential in payment under the medicare 
program for hemodialysis services furnished in a facility and such 
services furnished in a home. Not later than 1 year after the date of 
the enactment of this Act, the Commission shall submit to Congress a 
report on such study and shall include recommendations regarding 
changes in medicare payment policy in response to the study.

SEC. 224. TEMPORARY UPDATE IN DURABLE MEDICAL EQUIPMENT AND OXYGEN 
                    RATES.

  (a) Durable Medical Equipment and Oxygen.--Section 1834(a)(14) (42 
U.S.C. 1395m(a)(14)), as amended by section 4551(a)(1) of BBA, is 
amended --
          (1) by redesignating subparagraph (D) as subparagraph (E); 
        and
          (2) by striking subparagraph (C) and inserting the following:
                  ``(C) for each of the years 1998 through 2000, 0 
                percentage points;
                  ``(D) for each of the years 2001 and 2002, 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 minus 2 
                percentage points; and''.
  (b) Conforming Amendments.--Section 1834(a)(9)(B) (42 U.S.C. 
1395m(a)(9)(B)), as amended by section 4552(a) of BBA, is amended--
          (1) by striking ``and'' at the end of clause (v);
          (2) in clause (vi), by striking ``and each subsequent year'' 
        and inserting ``and 2000'' and by striking the period at the 
        end and inserting ``; and''; and
          (3) by adding at the end the following new clause:
                          ``(vii) for 2001 and each subsequent year, 
                        the amount determined under this subparagraph 
                        for the preceding year increased by the covered 
                        item update for such subsequent year.''.

SEC. 225. REQUIREMENT FOR NEW PROPOSED RULEMAKING FOR IMPLEMENTATION OF 
                    INHERENT REASONABLENESS POLICY.

  The Secretary of Health and Human Services shall not exercise 
inherent reasonableness authority provided under section 1842(b)(8) of 
the Social Security Act (42 U.S.C. 1395u(b)(8)) before such time as--
          (1) the Secretary has published in the Federal Register a new 
        notice of proposed rulemaking to implement subparagraph (A) of 
        such section;
          (2) has provided for a period of not less than 60 days for 
        public comment on such proposed rule; and
          (3) the Secretary has published in the Federal Register a 
        final rule which takes into account comments received during 
        such period.

SEC. 226. INCREASE IN REIMBURSEMENT FOR PAP SMEARS.

  (a) Pap Smear Payment Increase.--Section 1833(h) (42 U.S.C. 1395l(h)) 
is amended by adding at the end the following new paragraph:
  ``(7) Notwithstanding paragraphs (1) and (4), the Secretary shall 
establish a minimum payment amount under this subsection for all areas 
for a diagnostic or screening pap smear laboratory test (including all 
cervical cancer screening technologies that have been approved by the 
Food and Drug Administration) of not less than $14.60.''.
  (b) Sense of Congress.--It is the sense of the Congress that--
          (1) the Health Care Financing Administration has been slow to 
        incorporate or provide incentives for providers to use new 
        screening diagnostic health care technologies in the area of 
        cervical cancer;
          (2) some new technologies have been developed which optimize 
        the effectiveness of pap smear screening; and
          (3) the Health Care Financing Administration should institute 
        an appropriate increase in the payment rate for new cervical 
        cancer screening technologies that have been approved by the 
        Food and Drug Administration as significantly more effective 
        than a conventional pap smear.
  (c) Effective Date.--The amendments made by subsection (a) apply to 
services items and furnished on or after January 1, 2000.

SEC. 227. REFINEMENT OF AMBULANCE SERVICES DEMONSTRATION PROJECT.

  Effective as if included in the enactment of BBA, section 4532 of BBA 
is amended--
          (1) in subsection (a), by adding at the end the following: 
        ``The Secretary shall publish by not later than July 1, 2000, a 
        request for proposals for such projects.''; and
          (2) by amending paragraph (2) of subsection (b) to read as 
        follows:
          ``(2) Capitated payment rate defined.--In this subsection, 
        the `capitated payment rate' means, with respect to a 
        demonstration project--
                  ``(A) in its first year, a rate established for the 
                project by the Secretary, using the most current 
                available data, in a manner that ensures that aggregate 
                payments under the project will not exceed the 
                aggregate payment that would have been made for 
                ambulance services under part B of title XVIII of the 
                Social Security Act in the local area of government's 
                jurisdiction; and
                  ``(B) in a subsequent year, the capitated payment 
                rate established for the previous year increased by an 
                appropriate inflation adjustment factor.''.

SEC. 228. ADDITIONAL PROVISIONS.

  (a) MedPAC Study on Postsurgical Recovery Care Center Services.--
          (1) In general.--The Medicare Payment Advisory Commission 
        shall conduct a study on the cost-effectiveness and efficacy of 
        covering under the medicare program services of a post-surgical 
        recovery care center (that provides an intermediate level of 
        recovery care following surgery). In conducting such study, the 
        Commission shall consider data on these centers gathered in 
        demonstration projects.
          (2) Report.--Not later than 1 year after the date of the 
        enactment of this Act, the Commission shall submit to Congress 
        a report on such study and shall include in the report 
        recommendations on the feasibility, costs, and savings of 
        covering such services under the medicare program.

            TITLE III--PROVISIONS RELATING TO PARTS A AND B

                    Subtitle A--Home Health Services

SEC. 301. ADJUSTMENT TO REFLECT ADMINISTRATIVE COSTS NOT INCLUDED IN 
                    THE INTERIM PAYMENT SYSTEM.

  (a) In General.--In the case of a home health agency that furnishes 
home health services to a medicare beneficiary, for each such 
beneficiary to whom the agency furnished such services during the 
agency's cost reporting period beginning in fiscal year 2000, the 
Secretary of Health Services shall pay the agency, in addition to any 
amount of payment made under subsection (v)(1)(L) of such section for 
the beneficiary and only for such cost reporting period, an aggregate 
amount of $10 to defray costs incurred by the agency attributable to 
data collection and reporting requirements under the Outcome and 
Assessment Information Set (OASIS) required by reason of section 
4602(e) of the Balanced Budget Act of 1997 (42 U.S.C. 1395fff note).
  (b) Payment Schedule.--
          (1) Midyear payment.--By not later than April 1 2000, the 
        Secretary shall pay to a home health agency an amount that the 
        Secretary estimates to be 50 percent of the aggregate amount 
        payable to the agency by reason of this section.
          (2) Upon settled cost report.--The Secretary shall pay the 
        balance of amounts payable to an agency under this section on 
        the date that the cost report submitted by the agency for the 
        cost reporting period beginning in fiscal year 2000 is settled.
  (c) Payment from Trust Funds.--Payments under this section shall be 
made, in appropriate part as specified by the Secretary, from the 
Federal Hospital Insurance Trust Fund and from the Federal 
Supplementary Medical Insurance Trust Fund.
  (d) Definitions.--In this section:
          (1) Home health agency.--The term ``home health agency'' has 
        the meaning given that term under section 1861(o) of the Social 
        Security Act (42 U.S.C. 1395x(o)).
          (2) Home health services.--The term ``home health services'' 
        has the meaning given that term under section 1861(m) of such 
        Act (42 U.S.C. 1395x(m)).
          (3) Medicare beneficiary.--The term ``medicare beneficiary'' 
        means a beneficiary described in section 1861(v)(1)(L)(vi)(II) 
        of the Social Security Act (42 U.S.C. 1395x(v)(1)(L)(vi)(II)).

SEC. 302. DELAY IN APPLICATION OF 15 PERCENT REDUCTION IN PAYMENT RATES 
                    FOR HOME HEALTH SERVICES UNTIL 1 YEAR AFTER 
                    IMPLEMENTATION OF PROSPECTIVE PAYMENT SYSTEM.

  (a) Contingency Reduction.--Section 4603(e) of the Balanced Budget 
Act of 1997 (42 U.S.C. 1395fff note) (as amended by section 5101(c)(3) 
of the Tax and Trade Relief Extension Act of 1998 (contained in 
division J of Public Law 105-277)) is amended by striking ``September 
30, 2000'' and inserting ``on the date that is 12 months after the date 
the Secretary implements such system''.
  (b) Prospective Payment System.--Section 1895(b)(3)(A)(i) (42 U.S.C. 
1395fff(b)(3)(A)(i)) (as amended by section 5101 of the Tax and Trade 
Relief Extension Act of 1998 (contained in division J of Public Law 
105-277)) is amended to read as follows:
                          ``(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--
                                  ``(I) for the 12-month period 
                                beginning on the date the Secretary 
                                implements the system, shall be equal 
                                to the total amount that would have 
                                been made if the system had not been in 
                                effect; and
                                  ``(II) for periods beginning after 
                                the period described in subclause (I), 
                                shall be equal to the total amount that 
                                would have been made for fiscal year 
                                2001 if the system had not been in 
                                effect but if the reduction in limits 
                                described in clause (ii) had been in 
                                effect, and updated under subparagraph 
                                (B).
                        Each 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.''.
  (c) Report.--
          (1) In general.--The Secretary of Health and Human Services 
        shall submit to Congress a report analyzing the need for the 15 
        percent reduction under section 1895(b)(3)(A)(ii) of the Social 
        Security Act (42 U.S.C. 1395fff(b)(3)(A)(ii)), or for any 
        reduction, in the computation of the base payment amounts under 
        the prospective payment system for home health services under 
        section 1895 of such Act (42 U.S.C. 1395w-29).
          (2) Deadline.--The Secretary shall submit to Congress the 
        report described in paragraph (1) by not later than the date 
        that is six months after the date the Secretary implements the 
        prospective payment system for home health services under such 
        section 1895.

SEC. 303. CLARIFICATION OF SURETY BOND REQUIREMENTS.

  (a) Home Health Agencies.--Section 1861(o)(7) (42 U.S.C. 1395x(o)(7)) 
is amended to read as follows:
          ``(7) provides the Secretary with a surety bond--
                  ``(A) effective for a period of 4 years (as specified 
                by the Secretary) or in the case of a change in the 
                ownership or control of the agency (as determined by 
                the Secretary) during or after such 4-year period, an 
                additional period of time that the Secretary determines 
                appropriate, such additional period not to exceed 4 
                years from the date of such change in ownership or 
                control;
                  ``(B) in a form specified by the Secretary; and
                  ``(C) for a year in the period described in 
                subparagraph (A) in an amount that is equal to the 
                lesser of $50,000 or 10 percent of the aggregate amount 
                of payments to the agency under this title and title 
                XIX for that year, as estimated by the Secretary; 
                and''.
  (b) Coordination of Surety Bonds.--Part A of title XI is amended by 
adding at the end the following new section:
     ``coordination of medicare and medicaid surety bond provisions
  ``Sec. 1148. In the case of a home health agency that is subject to a 
surety bond under title XVIII and title XIX, the surety bond provided 
to satisfy the requirement under one such title shall satisfy the 
requirement under the other such title so long as the bond applies to 
guarantee return of overpayments under both such titles.''.
  (c) Effective Date.--The amendments made by this section take effect 
on the date of the enactment of this Act and in applying section 
1861(o)(7) of the Social Security Act, as amended by subsection (a), 
the Secretary of Health and Human Services may take into account the 
previous period for which a home health agency had a surety bond in 
effect under such section before such date.

SEC. 304. TECHNICAL AMENDMENT CLARIFYING APPLICABLE MARKET BASKET 
                    INCREASE FOR PPS.

  Section 1895(b)(3)(B)(ii)(I) (42 U.S.C. 1395fff(b)(3)(B)(ii)(I)), as 
added by section 4603 of BBA (as amended by section 5101(d)(2) of the 
Tax and Trade Relief Extension Act of 1998 (contained in division J of 
Public Law 105-277)) is amended by striking ``fiscal year 2002 or 
2003'' and inserting ``each of fiscal years 2002 and 2003''.

             Subtitle B--Direct Graduate Medical Education

SEC. 311. USE OF NATIONAL AVERAGE PAYMENT METHODOLOGY IN COMPUTING 
                    DIRECT GRADUATE MEDICAL EDUCATION (DGME) PAYMENTS.

  Section 1886(h) (42 U.S.C. 1395ww(h)) is amended--
          (1) by amending clause (i) of paragraph (3)(B) to read as 
        follows:
                          ``(i)(I) for a cost reporting period 
                        beginning before October 1, 2000, the 
                        hospital's approved FTE resident amount 
                        (determined under paragraph (2)) for that 
                        period;
                          ``(II) for a cost reporting period beginning 
                        on or after October 1, 2000, and before October 
                        1, 2004, the national average per resident 
                        amount determined under paragraph (7) or, if 
                        greater, the sum of the hospital-specific 
                        percentage (as defined in subparagraph (E)) of 
                        the hospital's approved FTE resident amount 
                        (determined under paragraph (2)) for the period 
                        and the national percentage (as defined in such 
                        subparagraph) of the national average per 
                        resident amount determined under paragraph (7); 
                        and
                          ``(III) for a cost reporting period beginning 
                        on or after October 1, 2004, the national 
                        average per resident amount determined under 
                        paragraph (7); and'';
          (2) in paragraph (3), by adding at the end the following new 
        subparagraph:
                  ``(E) Transition to national average per resident 
                payment system.--For purposes of subparagraph 
                (B)(i)(II), for the cost reporting period of a hospital 
                beginning--
                          ``(i) during fiscal year 2001, the hospital-
                        specific percentage is 80 percent and the 
                        national percentage is 20 percent;
                          ``(ii) during fiscal year 2002, the hospital-
                        specific percentage is 60 percent and the 
                        national percentage is 40 percent;
                          ``(iii) during fiscal year 2003, the 
                        hospital-specific percentage is 40 percent and 
                        the national percentage is 60 percent; and
                          ``(iv) during fiscal year 2004, the hospital-
                        specific percentage is 20 percent and the 
                        national percentage is 80 percent.''; and
          (3) by adding at the end the following new paragraph:
          ``(7) National average per resident amount.--The national 
        average per resident amount for a hospital for a cost reporting 
        period beginning in a fiscal year is an amount determined as 
        follows:
                  ``(A) Determination of hospital single per resident 
                amount.--The Secretary shall compute for each hospital 
                operating an approved graduate medical education 
                program a single per resident amount equal to the 
                average (weighted by number of full-time equivalent 
                residents) of the primary care per resident amount and 
                the non-primary care per resident amount computed under 
                paragraph (2) for cost reporting periods ending during 
                fiscal year 1997.
                  ``(B) Determination of wage and non-wage-related 
                proportion of the single per resident amount.--The 
                Secretary shall estimate the average proportion of the 
                single per resident amounts computed under subparagraph 
                (A) that is attributable to wages and wage-related 
                costs.
                  ``(C) Standardizing per resident amounts.--The 
                Secretary shall establish a standardized per resident 
                amount for each such hospital--
                          ``(i) by dividing the single per resident 
                        amount computed under subparagraph (A) into a 
                        wage-related portion and a non-wage-related 
                        portion by applying the proportion determined 
                        under subparagraph (B);
                          ``(ii) by dividing the wage-related portion 
                        by the factor applied under subsection 
                        (d)(3)(E) for discharges occurring during 
                        fiscal year 1999 for the hospital's area; and
                          ``(iii) by adding the non-wage-related 
                        portion to the amount computed under clause 
                        (ii).
                  ``(D) Determination of national average.--The 
                Secretary shall compute a national average per resident 
                amount equal to the average of the standardized per 
                resident amounts computed under subparagraph (C) for 
                such hospitals, with the amount for each hospital 
                weighted by the average number of full-time equivalent 
                residents at such hospital.
                  ``(E) Application to individual hospitals.--The 
                Secretary shall compute for each such hospital a per 
                resident amount--
                          ``(i) by dividing the national average per 
                        resident amount computed under subparagraph (D) 
                        into a wage-related portion and a non-wage-
                        related portion by applying the proportion 
                        determined under subparagraph (B);
                          ``(ii) by multiplying the wage-related 
                        portion by the factor described in subparagraph 
                        (C)(ii) for the hospital's area; and
                          ``(iii) by adding the non-wage-related 
                        portion to the amount computed under clause 
                        (ii).
                  ``(F) Initial updating rate.--The Secretary shall 
                update such per resident amount for the hospital's cost 
                reporting period that begins during fiscal year 2001 
                for each such hospital by the estimated percentage 
                increase in the consumer price index for all urban 
                consumers during the period beginning October 1997 and 
                ending with the midpoint of the hospital's cost 
                reporting period that begins during fiscal year 2001.
                  ``(G) Subsequent updating.--For each subsequent cost 
                reporting period, subject to subparagraph (H), the 
                national average per resident amount for a hospital is 
                equal to the amount determined under this paragraph for 
                the previous cost reporting period updated, through the 
                midpoint of the period, by projecting the estimated 
                percentage change in the consumer price index during 
                the 12-month period ending at that midpoint, with 
                appropriate adjustments to reflect previous under- or 
                over-estimations under this subparagraph in the 
                projected percentage change in the consumer price 
                index.
                  ``(H) Transitional budget neutrality adjustment.--
                          ``(i) In general.--If the Secretary estimates 
                        that, as a result of the amendments made by 
                        section 311 of the Medicare Balanced Budget 
                        Refinement Act of 1999, the post-MBBRA 
                        expenditures for fiscal year 2005 will be 
                        greater or less than the pre-MBBRA expenditures 
                        for that fiscal year--
                                  ``(I) the Secretary shall adjust the 
                                update applied under subparagraph (G) 
                                in determining the national average per 
                                resident amount for cost reporting 
                                periods beginning during fiscal year 
                                2005 so that the amount of the post-
                                MBBRA expenditures for those cost 
                                reporting periods is equal to the 
                                amount of the pre-MBBRA expenditures 
                                for such periods; and
                                  ``(II) the Secretary shall, taking 
                                into account the adjustment made under 
                                subclause (I), adjust the national 
                                average per resident amount, as applied 
                                for the portion of a cost reporting 
                                period beginning during fiscal year 
                                2004 that occur in fiscal year 2005, so 
                                that the amount of the post-MBBRA 
                                expenditures made during fiscal year 
                                2005 is equal to the amount of the pre-
                                MBBRA expenditures during such fiscal 
                                year.
                          ``(ii) Definitions.--In this subparagraph:
                                  ``(I) Aggregate subsection (h)-
                                related expenditures.--The term 
                                `aggregate subsection (h)-related 
                                expenditures' means, with respect to 
                                cost reporting periods beginning during 
                                a fiscal year or with respect to a 
                                fiscal year, the aggregate expenditures 
                                under this title for such periods or 
                                fiscal year, respectively, which are 
                                attributable to the operation of this 
                                subsection.
                                  ``(II) Pre-mbbra expenditures.--The 
                                term `pre-MBBRA expenditures' means 
                                aggregate subsection (h)-related 
                                expenditures determined as if the 
                                amendments made by section 311 of the 
                                Medicare Balanced Budget Refinement Act 
                                of 1999 had not been enacted.
                                  ``(III) Post-mbbra expenditures.--The 
                                term `post-MBBRA expenditures' means 
                                aggregate subsection (h)-related 
                                expenditures determined taking into 
                                account the amendments made by section 
                                311 of the Medicare Balanced Budget 
                                Refinement Act of 1999.''.

                           Subtitle C--Other

SEC. 321. GAO STUDY ON GEOGRAPHIC RECLASSIFICATION.

  (a) In General.--The Comptroller General of the United States shall 
conduct a study of the current laws and regulations for geographic 
reclassification of hospitals under the medicare program. Such study 
shall examine data on the number of hospitals that are reclassified and 
their special designation status in determining payments under the 
medicare program. The study shall evaluate--
          (1) the magnitude of the effect of geographic 
        reclassification on rural hospitals that do not reclassify;
          (2) whether the current thresholds used in geographic 
        reclassification reclassify hospitals to the appropriate labor 
        markets;
          (3) the effect of eliminating geographic reclassification 
        through use of the occupational mix data;
          (4) the group reclassification policy;
          (5) changes in the number of reclassifications and the 
        compositions of the groups;
          (6) the effect of State-specific budget neutrality compared 
        to national budget neutrality; and
          (7) whether there are sufficient controls over the 
        intermediary evaluation of the wage data reported by hospitals.
  (b) Report.--Not later than 18 months after the date of enactment of 
this Act, the Comptroller General of the United States shall submit to 
Congress a report on the study conducted under subsection (a).

SEC. 322. MEDPAC STUDY ON MEDICARE PAYMENT FOR NON-PHYSICIAN HEALTH 
                    PROFESSIONAL CLINICAL TRAINING IN HOSPITALS.

  (a) In General.--The Medicare Payment Advisory Commission shall 
conduct a study on medicare payment policy with respect to professional 
clinical training of different classes of non-physician health care 
professionals (such as nurses, allied health professionals, physician 
assistants, and psychologists) and the basis for any differences in 
treatment among such classes.
  (b) Report.--The Commission shall submit a report to Congress on the 
study conducted under subsection (a) not later than 18 months after the 
date of the enactment of this Act.

                  TITLE IV--RURAL PROVIDER PROVISIONS

SEC. 401. PERMITTING RECLASSIFICATION OF CERTAIN URBAN HOSPITALS AS 
                    RURAL HOSPITALS.

  (a) In General.--Section 1886(d)(8) (42 U.S.C. 1395ww(d)(8)) is 
amended by adding at the end the following new subparagraph:
  ``(E)(i) For purposes of this subsection, not later than 60 days 
after the receipt of an application from a subsection (d) hospital 
described in clause (ii), the Secretary shall treat the hospital as 
being located in the rural area (as defined in such paragraph (2)(D)) 
of the State in which the hospital is located.
  ``(ii) For purposes of clause (i), a subsection (d) hospital 
described in this clause is a subsection (d) hospital that is located 
in an urban area (as defined in paragraph (2)(D)) and satisfies any of 
the following criteria:
          ``(I) The hospital is located in a rural census tract of a 
        metropolitan statistical area (as determined under the 
        Goldsmith Modification, as published in the Federal Register on 
        February 27, 1992 (57 FR 6725)).
          ``(II) The hospital is located in an area designated by any 
        law or regulation of such State as a rural area (or is 
        designated by such State as a rural hospital).
          ``(III) The hospital would qualify as a sole community 
        hospital under paragraph (5)(D) if the hospital were located in 
        a rural area.
          ``(IV) The hospital meets such other criteria as the 
        Secretary may specify.''.
  (b) Conforming Changes.--(1) Section 1833(t) (42 U.S.C. 1395l(t)), as 
amended by sections 211 and 212, is further amended by adding at the 
end the following new paragraph:
          ``(13) Miscellaneous provisions.--
                  ``(A) Application of reclassification of certain 
                hospitals.--If a hospital is being treated as being 
                located a rural under section 1886(d)(8)(E), that 
                hospital shall be treated under this subsection as 
                being located in that rural area.''.
  (2) Section 1820(c)(2)(B)(i) (42 U.S.C. 1395i-4(c)(2)(B)(i)) is 
amended by inserting ``or is treated as being located in a rural area 
pursuant to section 1886(d)(8)(E)'' after ``section 1886(d)(2)(D))''.
  (c) Effective Date.--The amendments made by this section shall become 
effective on January 1, 2000.

SEC. 402. UPDATE OF STANDARDS APPLIED FOR GEOGRAPHIC RECLASSIFICATION 
                    FOR CERTAIN HOSPITALS.

  (a) In General.--Section 1886(d)(8)(B) (42 U.S.C. 1395ww(d)(8)(B)) is 
amended--
          (1) by inserting ``(i)'' after ``(B)'';
          (2) by striking ``published in the Federal Register on 
        January 3, 1980'' and inserting ``described in clause (ii)''; 
        and
          (3) by adding at the end the following new clause:
  ``(ii) The standards described in this clause for cost reporting 
periods beginning in a fiscal year--
          ``(I) before fiscal year 2003, are the standards published in 
        the Federal Register on January 3, 1980, or, at the election of 
        the hospital with respect to fiscal years 2001 and 2002, 
        standards so published on March 30, 1990; and
          ``(II) after fiscal year 2002, are the standards published in 
        the Federal Register by the Director of the Office of 
        Management and Budget based on the most recent available 
        decennial population data.
Subparagraphs (C) and (D) shall not apply with respect to the 
application of subclause (I).''.
  (b) Effective Date.--The amendments made by subsection (a) apply with 
respect to discharges occurring during cost reporting periods beginning 
on or after October 1, 1999.

SEC. 403. IMPROVEMENTS IN THE CRITICAL ACCESS HOSPITAL (CAH) PROGRAM.

  (a) Applying 96-Hour Limit on an Average Annual Basis.--
          (1) In general.--Section 1820(c)(2)(B)(iii) (42 U.S.C. 1395i-
        4(c)(2)(B)(iii)), as added by section 4201(a) of BBA, is 
        amended by striking ``for a period not to exceed 96 hours'' and 
        all that follows and inserting ``for a period that does not 
        exceed, as determined on an annual, average basis, 96 hours per 
        patient;''.
          (2) Effective date.--The amendment made by paragraph (1) 
        takes effect on the date of the enactment of this Act.
  (b) Permitting For-Profit Hospitals to Qualify for Designation as a 
Critical Access Hospital.--Section 1820(c)(2)(B)(i) (42 U.S.C. 1395i-
4(c)(2)(B)(i)), as added by section 4201(a) of BBA, is amended in the 
matter preceding subclause (I), by striking ``nonprofit or public 
hospital'' and inserting ``hospital''.
  (c) Allowing Closed or Downsized Hospitals to Convert to Critical 
Access Hospitals.--Section 1820(c)(2) (42 U.S.C. 1395i-4(c)(2)), as 
added by section 4201(a) of BBA, is amended--
          (1) in subparagraph (A), by striking ``subparagraph (B)'' and 
        inserting ``subparagraphs (B), (C), and (D)''; and
          (2) by adding at the end the following new subparagraphs:
                  ``(C) Recently closed facilities.--A State may 
                designate a facility as a critical access hospital if 
                the facility--
                          ``(i) was a hospital that ceased operations 
                        on or after the date that is 10 years before 
                        the date of enactment of this subparagraph; and
                          ``(ii) as of the effective date of such 
                        designation, meets the criteria for designation 
                        under subparagraph (B).
                  ``(D) Downsized facilities.--A State may designate a 
                health clinic or a health center (as defined by the 
                State) as a critical access hospital if such clinic or 
                center--
                          ``(i) is licensed by the State as a health 
                        clinic or a health center;
                          ``(ii) was a hospital that was downsized to a 
                        health clinic or health center; and
                          ``(iii) as of the effective date of such 
                        designation, meets the criteria for designation 
                        under subparagraph (B).''.
  (d) All-Inclusive Payment Option for Outpatient Critical Access 
Hospital Services.--
          (1) In general.--Section 1834(g) (42 U.S.C. 1395m(g)), as 
        added by section 4201(c)(5) of BBA, is amended to read as 
        follows:
  ``(g) Payment for Outpatient Critical Access Hospital Services.--
          ``(1) Election of cah.--At the election of a critical access 
        hospital, the amount of payment for outpatient critical access 
        hospital services under this part shall be determined under 
        paragraph (2) or (3), such amount determined under either 
        paragraph without regard to the amount of the customary or 
        other charge.
          ``(2) Cost-based hospital outpatient service payment plus fee 
        schedule for professional services.--If a hospital elects this 
        paragraph to apply, there shall be paid amounts equal to the 
        sum of the following, less the amount that such hospital may 
        charge as described in section 1866(a)(2)(A):
                  ``(A) Facility fee.--With respect to facility 
                services, not including any services for which payment 
                may be made under subparagraph (B), the reasonable 
                costs of the critical access hospital in providing such 
                services.
                  ``(B) Fee schedule for professional services.--With 
                respect to professional services otherwise included 
                within outpatient critical access hospital services, 
                such amounts as would otherwise be paid under this part 
                if such services were not included in outpatient 
                critical access hospital services.
          ``(3) All-inclusive rate.--If a hospital elects this 
        paragraph to apply, with respect to both facility services and 
        professional services, there shall be paid amounts equal to the 
        reasonable costs of the critical access hospital in providing 
        such services, less the amount that such hospital may charge as 
        described in section 1866(a)(2)(A).''.
          (2) Effective date.--The amendment made by subsection (a) 
        shall apply for cost reporting periods beginning on or after 
        October 1, 1999.
  (e) Elimination of Coinsurance for Clinical Diagnostic Laboratory 
Tests Furnished by a Critical Access Hospital on an Outpatient Basis.--
          (1) In general.--Section 1833(a)(1)(D) (42 U.S.C. 
        1395l(a)(1)(D)) is amended by inserting ``or which are 
        furnished on an outpatient basis by a critical access 
        hospital'' after ``on an assignment-related basis''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to services furnished on or after the date of the 
        enactment of this Act.
  (f) Participation in Swing Bed Program.--Section 1883 (42 U.S.C. 
1395tt) is amended--
          (1) in subsection (a)(1), by striking ``(other than a 
        hospital which has in effect a waiver under subparagraph (A) of 
        the last sentence of section 1861(e))''; and
          (2) in subsection (c), by striking ``, or during which there 
        is in effect for the hospital a waiver under subparagraph (A) 
        of the last sentence of section 1861(e)''.

SEC. 404. 5-YEAR EXTENSION OF MEDICARE DEPENDENT HOSPITAL (MDH) 
                    PROGRAM.

  (a) Extension of Payment Methodology.--Section 1886(d)(5)(G) (42 
U.S.C. 1395ww(d)(5)(G)), as amended by section 4204(a)(1) of BBA, is 
amended--
          (1) in clause (i), by striking ``and before October 1, 
        2001,'' and inserting ``and before October 1, 2006''; and
          (2) in clause (ii)(II), by striking ``and before October 1, 
        2001,'' and inserting ``and before October 1, 2006''.
  (b) Conforming Amendments.--
          (1) Extension of target amount.--Section 1886(b)(3)(D) (42 
        U.S.C. 1395ww(b)(3)(D)), as amended by section 4204(a)(2) of 
        BBA, is amended--
                  (A) in the matter preceding clause (i), by striking 
                ``and before October 1, 2001,'' and inserting ``and 
                before October 1, 2006''; and
                  (B) in clause (iv), by striking ``during fiscal year 
                1998 through fiscal year 2000'' and inserting ``during 
                fiscal year 1998 through fiscal year 2005''.
          (2) Permitting hospitals to decline reclassification.--
        Section 13501(e)(2) of Omnibus Budget Reconciliation Act of 
        1993 (42 U.S.C. 1395ww note), as amended by section 4204(a)(3) 
        of BBA, is amended by striking ``or fiscal year 2000'' and 
        inserting ``or fiscal year 2000 through fiscal year 2005''.

SEC. 405. REBASING FOR CERTAIN SOLE COMMUNITY HOSPITALS.

  Section 1886(b)(3) (42 U.S.C. 1395ww(b)(3)), as amended by sections 
4413 and 4414 of BBA, is amended--
          (1) in subparagraph (C), by inserting ``subject to 
        subparagraph (I)'' before ``the term `target amount' means''; 
        and
          (2) by adding at the end the following new subparagraph:
  ``(I)(i) For cost reporting periods beginning on or after October 1, 
2000, in the case of a sole community hospital that for its cost 
reporting period beginning during 1999 is paid on the basis of the 
target amount applicable to the hospital under subparagraph (C) and 
that elects (in a form and manner determined by the Secretary) this 
subparagraph to apply to the hospital, there shall be substituted for 
the base cost reporting period described in subparagraph (C) the 
rebased target amount determined under this subparagraph.
  ``(ii) For purposes of clause (i), the rebased target amount 
applicable to a hospital making an election under this subparagraph is 
equal to the sum of the following:
          ``(I) With respect to discharges occurring in fiscal year 
        2001, 75 percent of the target amount applicable to the 
        hospital under subparagraph (C) (hereinafter in this 
        subparagraph referred to as the `subparagraph (C) target 
        amount') and 25 percent of the amount of 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 (hereinafter in this subparagraph referred to as the 
        `rebased target amount'), increased by the applicable 
        percentage increase under subparagraph (B)(iv).
          ``(II) With respect to discharges occurring in fiscal year 
        2002, 50 percent of the subparagraph (C) target amount and 50 
        percent of the rebased target amount, increased by the 
        applicable percentage increase under subparagraph (B)(iv).
          ``(III) With respect to discharges occurring in fiscal year 
        2003, 25 percent of the subparagraph (C) target amount and 75 
        percent of the rebased target amount, increased by the 
        applicable percentage increase under subparagraph (B)(iv).
          ``(IV) With respect to discharges occurring in fiscal year 
        2003 or any subsequent fiscal year, 100 percent of the rebased 
        target amount, increased by the applicable percentage increase 
        under subparagraph (B)(iv).''.

SEC. 406. INCREASED FLEXIBILITY IN PROVIDING GRADUATE PHYSICIAN 
                    TRAINING IN RURAL AREAS.

  (a) Permitting 30 Percent Expansion in Current GME Training Programs 
for Hospitals Located in Rural Areas.--
          (1) Payment for direct graduate medical education costs.--
        Section 1886(h)(4)(F) (42 U.S.C. 1395ww(h)(4)(F)), as added by 
        section 4623 of BBA, is amended by inserting ``(or, 130 percent 
        of such number in the case of a hospital located in a rural 
        area)'' after ``may not exceed the number''.
          (2) Payment for indirect graduate medical education costs.--
        Section 1886(d)(5)(B)(v) (42 U.S.C. 1395ww(d)(5)(B)(v)), as 
        added by section 4621(b)(1) of BBA, is amended by inserting 
        ``(or, 130 percent of such number in the case of a hospital 
        located in a rural area)'' after ``may not exceed the number''.
          (3) Effective dates.--(A) The amendment made by paragraph (1) 
        applies to cost reporting periods beginning on or after October 
        1, 1999.
          (B) The amendment made by paragraph (2) applies to discharges 
        occurring during cost reporting periods beginning on or after 
        October 1, 1999.
  (b) Special Rule for Non-Rural Facilities Serving Rural Areas.--
          (1) In general.--Section 1886(h)(4)(H) (42 U.S.C. 
        1395ww(h)(4)(H)), as added by section 4623 of BBA, is amended 
        by adding at the end the following new clause:
                          ``(iv) Non-rural hospitals operating training 
                        programs in underserved rural areas.--In the 
                        case of a hospital that is not located in a 
                        rural area but establishes separately 
                        accredited approved medical residency training 
                        programs (or rural tracks) in an underserved 
                        rural area or has an accredited training 
                        program with an integrated rural track, the 
                        Secretary shall adjust the limitation under 
                        subparagraph (F) in an appropriate manner 
                        insofar as it applies to such programs in such 
                        underserved rural areas in order to encourage 
                        the training of physicians in underserved rural 
                        areas.''.
          (2) Effective date.--The amendment made by paragraph (1) 
        applies with respect to payments to hospitals for cost 
        reporting periods beginning on or after October 1, 1999.

SEC. 407. ELIMINATION OF CERTAIN RESTRICTIONS WITH RESPECT TO HOSPITAL 
                    SWING BED PROGRAM.

  (a) Elimination of Requirement for State Certificate of Need.--
Section 1883(b) (42 U.S.C. 1395tt(b)) is amended to read as follows:
  ``(b) The Secretary may not enter into an agreement under this 
section with any hospital unless, except as provided under subsection 
(g), the hospital is located in a rural area and has less than 100 
beds.''.
  (b) Elimination of Swing Bed Restrictions on Certain Hospitals with 
More than 49 Beds.--Section 1883(d) (42 U.S.C. 1395tt(d)) is amended--
          (1) by striking paragraphs (2) and (3); and
          (2) by striking ``(d)(1)'' and inserting ``(d)''.
  (c) Effective Date.--The amendments made by this section take effect 
on the date that is the first day after the expiration of the 
transition period under section 1888(e)(2)(E) of the Social Security 
Act (42 U.S.C. 1395yy(e)(2)(E)), as added by section 4432(a) of BBA, 
for payments for covered skilled nursing facility services under the 
medicare program.

SEC. 408. GRANT PROGRAM FOR RURAL HOSPITAL TRANSITION TO PROSPECTIVE 
                    PAYMENT.

  Section 1820(g) (42 U.S.C. 1395i-4(g)), as added by section 4201(a) 
of BBA, is amended by adding at the end the following new paragraph:
          ``(3) Upgrading data systems.--
                  ``(A) Grants to hospitals.--The Secretary may award 
                grants to hospitals that have submitted applications in 
                accordance with subparagraph (C) to assist eligible 
                small rural hospitals in meeting the costs of 
                implementing data systems required to meet requirements 
                established under the medicare program pursuant to 
                amendments made by the Balanced Budget Act of 1997.
                  ``(B) Eligible small rural hospital defined.--For 
                purposes of this paragraph, the term `eligible small 
                rural hospital' means a non-Federal, short-term general 
                acute care hospital that--
                          ``(i) is located in a rural area (as defined 
                        for purposes of section 1886(d)); and
                          ``(ii) has less than 50 beds.
                  ``(C) Application.--A hospital seeking a grant under 
                this paragraph shall submit an application to the 
                Secretary on or before such date and in such form and 
                manner as the Secretary specifies.
                  ``(D) Amount of grant.--A grant to a hospital under 
                this paragraph may not exceed $50,000.
                  ``(E) Use of funds.--A hospital receiving a grant 
                under this paragraph may use the funds for the purchase 
                of computer software and hardware and for the education 
                and training of hospital staff on computer information 
                systems and costs related to the implementation of 
                prospective payment systems.
                  ``(F) Report.--
                          ``(i) Information.--A hospital receiving a 
                        grant under this section shall furnish the 
                        Secretary with such information as the 
                        Secretary may require to evaluate the project 
                        for which the grant is made and to ensure that 
                        the grant is expended for the purposes for 
                        which it is made.
                          ``(ii) Reporting.--
                                  ``(I) Interim reports.--The Secretary 
                                shall report to the Committee on Ways 
                                and Means of the House of 
                                Representatives and the Committee on 
                                Finance of the Senate at least annually 
                                on the grant program established under 
                                this section, including in such report 
                                information on the number of grants 
                                made, the nature of the projects 
                                involved, the geographic distribution 
                                of grant recipients, and such other 
                                matters as the Secretary deems 
                                appropriate.
                                  ``(II) Final report.--The Secretary 
                                shall submit a final report to such 
                                committees not later than 180 days 
                                after the completion of all of the 
                                projects for which a grant is made 
                                under this section.''.

SEC. 409. MEDPAC STUDY OF RURAL PROVIDERS.

  (a) Study.--The Medicare Payment Advisory Commission shall conduct a 
study on rural providers furnishing items and services for which 
payment is made under title XVIII of the Social Security Act. Such 
study shall examine and evaluate the adequacy and appropriateness of 
the categories of special payments (and payment methodologies) 
established for rural hospitals under the medicare program, and their 
impact on beneficiary access and quality of health care services.
  (b) Report.--By not later than 18 months after the date of the 
enactment of this Act, the Medicare Payment Advisory Commission shall 
submit to Congress a report on the study conducted under subsection 
(a).

SEC. 410. EXPANSION OF ACCESS TO PARAMEDIC INTERCEPT SERVICES IN RURAL 
                    AREAS.

  (a) Expansion of Payment Areas.--Section 4531(c) of BBA (42 U.S.C. 
1395x(s)(7) note, 111 Stat. 452) is amended by adding at the end the 
following flush sentence:
``For purposes of this subsection, an area shall be treated as a rural 
area if it is designated as a rural area by any law or regulation of 
the State or if it is located in a rural census tract of a metropolitan 
statistical area (as determined under the Goldsmith Modification, as 
published in the Federal Register on February 27, 1992 (57 FR 
6725)).''.
  (b) Effective Date.--The amendment made by subsection (a) takes 
effect on January 1, 2000, and applies to paramedic intercept services 
furnished on or after such date.

    TITLE V--PROVISIONS RELATING TO PART C (MEDICARE+CHOICE PROGRAM)

                      Subtitle A--Medicare+Choice

SEC. 501. PHASE-IN OF NEW RISK ADJUSTMENT METHODOLOGY.

  Section 1853(a)(3)(C) (42 U.S.C. 1395w-23(a)(3)(C)) is amended--
          (1) by redesignating the first sentence as clause (i) with 
        the heading ``In general.--'' and appropriate indentation; and
          (2) by adding at the end the following new clause:
                          ``(ii) Phase-in.--Such risk adjustment 
                        methodology shall be implemented in a phased-in 
                        manner so that the new methodology applies only 
                        to--
                                  ``(I) 10 percent of the payment 
                                amount in 2000 and 2001;
                                  ``(II) 20 percent of such amount in 
                                2002;
                                  ``(III) 30 percent of such amount in 
                                2003; and
                                  ``(IV) 100 percent of such amount in 
                                any subsequent year (at which time the 
                                risk adjustment methodology should 
                                reflect data from multiple 
                                settings).''.

SEC. 502. ENCOURAGING OFFERING OF MEDICARE+CHOICE PLANS IN AREAS 
                    WITHOUT PLANS.

  Section 1853 (42 U.S.C. 1395w-23) is amended--
          (1) in subsection (a)(1), by striking ``subsections (e) and 
        (f)'' and inserting ``subsections (e), (g), and (i)'';
          (2) in subsection (c)(5), by inserting ``(other than those 
        attributable to subsection (i))'' after ``payments under this 
        part''; and
          (3) by adding at the end the following new subsection:
  ``(i) New Entry Bonus.--
          ``(1) In general.--Subject to paragraphs (2) and (3), in the 
        case of Medicare+Choice payment area in which a Medicare+Choice 
        plan has not been offered since 1997 (or in which any 
        organization that offered a plan since such date has announced, 
        as of October 13, 1999, that it will not be offering such plan 
        as of January 1, 2000), the amount of the monthly payment 
        otherwise made under this subsection shall be increased--
                  ``(A) only for the first 12 months in which any 
                Medicare+Choice plan is offered in the area, by 5 
                percent of the payment rate otherwise computed; and
                  ``(B) only for the subsequent 12 months, by 3 percent 
                of the payment rate otherwise computed.
        If such 12 months are not a calendar year, the Secretary shall 
        provide for an appropriate blend of such percentage increases 
        for the second and third calendar years in which months 
        described in subparagraph (B) occur to reflect the proportion 
        of such months in each such year.
          ``(2) Period of application.--Paragraph (1) shall only apply 
        to payment for Medicare+Choice plans which are first offered in 
        a Medicare+Choice payment area during the 2-year period 
        beginning with January 1, 2000.
          ``(3) Limitation to organization offering first plan in an 
        area.--Paragraph (1) shall only apply to payment to the first 
        Medicare+Choice organization that offers a Medicare+Choice plan 
        in each Medicare+Choice payment area, except that if more than 
        one such organization first offers such a plan in an area on 
        the same date, paragraph (1) shall apply to payment for such 
        organizations.
          ``(4) Construction.--Nothing in paragraph (1) shall be 
        construed as affecting the Medicare+Choice capitation rate for 
        any area or as applying to payment for any period not described 
        in such paragraph.
          ``(5) Offered defined.--In this subsection, the term 
        `offered' means, with respect to a Medicare+Choice plan as of a 
        date, that a Medicare+Choice eligible individual may enroll 
        with the plan on that date, regardless of when the enrollment 
        takes effect or the individual obtain benefits under the 
        plan.''.

SEC. 503. MODIFICATION OF 5-YEAR RE-ENTRY RULE FOR CONTRACT 
                    TERMINATIONS.

  (a) In General.--Section 1857(c)(4) (42 U.S.C. 1395w-27(c)(4)) is 
amended--
          (1) by inserting ``as provided in paragraph (2) and except'' 
        after ``except'';
          (2) by redesignating the first sentence as a subparagraph (A) 
        with an appropriate indentation and the heading ``In general.--
        ''; and
          (3) by adding at the end the following new subparagraph:
                  ``(B) Earlier re-entry permitted where change in 
                payment policy and no more than one other plan 
                available.--Subparagraph (A) shall not apply with 
                respect to the offering by a Medicare+Choice 
                organization of a Medicare+Choice plan in a 
                Medicare+Choice payment area if--
                          ``(i) during the 6-month period beginning on 
                        the date the organization notified the 
                        Secretary of the intention to terminate the 
                        most recent previous contract, there was a 
                        legislative change enacted (or a regulatory 
                        change adopted) that has the effect of 
                        increasing payment rates under section 1853 for 
                        that Medicare+Choice payment area; and
                          ``(ii) at the time the organization notifies 
                        the Secretary of its intent to enter into a 
                        contract to offer such a plan in the area, 
                        there is no more than one Medicare+Choice plan 
                        offered in the area.''.
  (b) Effective Date.--The amendments made by subsection (a) shall 
apply to contract terminations occurring before, on, or after the date 
of the enactment of this Act.

SEC. 504. CONTINUED COMPUTATION AND PUBLICATION OF AAPCC DATA.

  (a) In General.--Section 1853(b) (42 U.S.C. 1395w-23(b)) is amended 
by adding at the end the following new paragraph:
          ``(4) Continued computation and publication of county-
        specific per capita fee-for-service expenditure information.--
        The Secretary, through the Chief Actuary of the Health Care 
        Financing Administration, shall provide for the computation and 
        publication, on an annual basis at the time of publication of 
        the annual Medicare+Choice capitation rates, of information on 
        the level of the average annual per capita costs (described in 
        section 1876(a)(4)) for each Medicare+Choice payment area.''.
  (b) Effective Date.--The amendment made by subsection (a) shall take 
effect on the date of the enactment of this Act and apply to 
publications of the annual Medicare+Choice capitation rates made on or 
after such date.

SEC. 505. CHANGES IN MEDICARE+CHOICE ENROLLMENT RULES.

  (a) Permitting Enrollment in Alternative Medicare+Choice Plans and 
Medigap Coverage in Case of Involuntary Termination of Medicare+Choice 
Enrollment.--
          (1) In general.--Section 1851(e)(4) (42 U.S.C. 1395w-
        21(e)(4)) is amended by striking subparagraph (A) and inserting 
        the following:
                  ``(A)(i) the certification of the organization or 
                plan under this part has been terminated, or the 
                organization or plan has notified the individual or the 
                Secretary of an impending termination of such 
                certification; or
                  ``(ii) the organization has terminated or otherwise 
                discontinued providing the plan in the area in which 
                the individual resides, or has notified the individual 
                or Secretary of an impending termination or 
                discontinuation of such plan;''.
          (2) Conforming medigap amendment.--Section 1882(s)(3)(A) (42 
        U.S.C. 1395ss(s)(3)(A)) is amended, in the matter following 
        clause (iii)--
                  (A) by inserting ``(or, if elected by the individual, 
                the date of notification of the individual or the 
                Secretary by the plan or organization of the impending 
                termination or discontinuance of the plan in the area 
                in which the individual resides)'' after ``the date of 
                the termination of enrollment described in such 
                subparagraph''; and
                  (B) by inserting ``(or the date of such 
                notification)'' after ``the date of termination or 
                disenrollment''.
          (3) Effective date.--The amendments made by this subsection 
        shall apply to notices of impending terminations or 
        discontinuances made before, on, or after the date of the 
        enactment of this Act, except that, for purposes of applying 
        such amendments with respect to a notice of a termination or 
        discontinuance that was made before such date and for which the 
        termination or discontinuance occurs after such date, such 
        notice shall be treated as having occurred on the date of the 
        enactment of this Act.
  (b) Continuous Open Enrollment for Institutionalized Individuals.--
Section 1851(e)(2) (42 U.S.C. 1395w-21(e)(2)) is amended--
          (1) in subparagraph (B)(i), by inserting ``and subparagraph 
        (D)'' after ``clause (ii)'';
          (2) in subparagraph (C)(i), by inserting ``and subparagraph 
        (D)'' after ``clause (ii)''; and
          (3) by adding at the end the following new subparagraph:
                  ``(D) Continuous open enrollment for 
                institutionalized individuals.--At any time after 2001 
                in the case of a Medicare+Choice eligible individual 
                who is institutionalized, the individual may change the 
                election under subsection (a)(1).''.
  (c) Continuing Enrollment for Certain Enrollees.--Section 1851(b)(1) 
(42 U.S.C. 1395w-21(b)(1)) is amended--
          (1) in subparagraph (A), by inserting ``and except as 
        provided in subparagraph (C)'' after ``may otherwise provide''; 
        and
          (2) by adding at the end the following new subparagraph:
                  ``(C) Continuation of enrollment permitted where 
                service changed.--Notwithstanding subparagraph (B), if 
                a Medicare+Choice organization eliminates from its 
                service area a geographic area that was previously 
                within its service area, the organization may elect to 
                offer individuals residing in the affected geographic 
                area who would otherwise be ineligible to continue 
                enrollment the option to continue enrollment in a 
                Medicare+Choice plan it offers so long as--
                          ``(i) the enrollee agrees to receive the full 
                        range of basic benefits (excluding emergency 
                        and urgently needed care) exclusively at 
                        facilities designated by the organization 
                        within the plan service area; and
                          ``(ii) there is no other Medicare+Choice plan 
                        offered in the area in which the enrollee 
                        resides at the time of the organization's 
                        election.''.
  (d) Effective Date.--The amendments made by subsections (b) and (c) 
apply as if included in the enactment of BBA.

SEC. 506. ALLOWING VARIATION IN PREMIUM WAIVERS WITHIN A SERVICE AREA 
                    IF MEDICARE+CHOICE PAYMENT RATES VARY WITHIN THE 
                    AREA.

  (a) In General.--Section 1854(c) (42 U.S.C. 1395w-24(c)) is amended--
          (1) by striking ``The'' and inserting ``Subject to paragraph 
        (2), the'';
          (2) by redesignating the first sentence as a paragraph (1) 
        with an appropriate indentation and the heading ``In general.--
        ''; and
          (3) by adding at the end the following new paragraph:
          ``(2) Variation in premium waiver permitted.--A 
        Medicare+Choice organization may waive part or all of a premium 
        described in paragraph (1) for one or more Medicare+Choice 
        payment areas within its service area if the annual 
        Medicare+Choice capitation rates under section 1853(c) vary 
        between such payment area and other payment areas within such 
        service area.''.
  (b) Effective Date.--The amendments made by subsection (a) apply to 
premiums for contract years beginning on or after January 1, 2001.

SEC. 507. DELAY IN DEADLINE FOR SUBMISSION OF ADJUSTED COMMUNITY RATES 
                    AND RELATED INFORMATION.

  (a) Delay in Deadline for Submission of Adjusted Community Rates and 
Related Information.--Section 1854(a)(1) (42 U.S.C. 1395w-24(a)(1)) is 
amended by striking ``May 1'' and inserting ``July 1''.
  (b) Adjustment in Information Disclosure Provisions.--Section 
1851(d)(2)(A)(ii) (42 U.S.C. 1395w-21(d)(2)(A)(ii)) is amended by 
inserting after ``information described in paragraph (4) concerning 
such plans'' the following: ``, to the extent such information is 
available at the time of preparation of the material for mailing''.

SEC. 508. 2 YEAR EXTENSION OF MEDICARE COST CONTRACTS.

  Section 1876(h)(5)(B) (42 U.S.C. 1395mm(h)(5)(B)) is amended by 
striking ``2002'' and inserting ``2004''.

SEC. 509. MEDICARE+CHOICE NURSING AND ALLIED HEALTH PROFESSIONAL 
                    EDUCATION AND EARMARK.

  Section 1886(d)(11) (42 U.S.C. 1395ww(d)(11)) is amended--
          (1) in subparagraph (A)--
                  (A) by inserting ``(i)'' after ``.--'', and
                  (B) by adding at the end the following new clause:
                  ``(ii) For portions of cost reporting periods 
                occurring on or after January 1, 2000, the Secretary 
                shall provide for an additional payment amount for each 
                applicable discharge of any subsection (d) hospital 
                that has direct costs of approved education activities 
                for nurse and allied health professional training.'';
          (2) in subparagraph (C)--
                  (A) by inserting ``(i)'' after ``.--'';
                  (B) by striking ``under this paragraph'' and 
                inserting ``under subparagraph (A)(i)'';
                  (C) by inserting ``the DGME portion of'' after 
                ``shall be equal to''; and
                  (D) by adding at the end the following new clauses:
                  ``(ii) The amount of the payment under subparagraph 
                (A)(ii) with respect to any applicable discharge shall 
                be equal to an amount, specified by the Secretary, in a 
                manner consistent with the following:
                          ``(I) The total payments under such 
                        subparagraph in a year are equal to 
                        $60,000,000.
                          ``(II) The payments to different hospitals 
                        are proportional to the direct costs of each 
                        hospital described in such subparagraph.
                  ``(iii) For purposes of this subparagraph, the `DGME 
                portion' means, for a year, the ratio of--
                          ``(I) the amount by which (aa) the 
                        Secretary's estimate of the total additional 
                        payments that would be payable under this 
                        paragraph for the year if subparagraph (A)(ii) 
                        and clause (ii) of this subparagraph did not 
                        apply, exceeds (bb) $60,000,000; to
                          ``(II) the total additional payments 
                        estimated under subclause (I)(aa) for the 
                        year.''.

SEC. 510. MISCELLANEOUS CHANGES AND STUDIES.

  (a) Permitting Religious Fraternal Benefit Societies to Offer a Range 
of Medicare+Choice Plans.--Section 1859(e)(2) (42 U.S.C. 1395w-
29(e)(2)) is amended in the matter preceding subparagraph (A) by 
striking ``section 1851(a)(2)(A)'' and inserting ``section 
1851(a)(2)''.
  (b) Study of Accounting for VA and DOD Expenditures for 
Medicare+Choice Enrollees.--The Secretary of Health and Human Services, 
jointly with the Secretaries of Defense and of Veterans Affairs, shall 
submit to Congress not later than 1 year after the date of the 
enactment of this Act a report on the estimated use of health care 
services furnished by the Departments of Defense and of Veterans 
Affairs to medicare beneficiaries including enrollees in 
Medicare+Choice plans. The report shall include an analysis of how best 
to properly account for expenditures for such services in the 
computation of Medicare+Choice capitation rates.
  (c) Promoting Prompt Implementation of Informatics, Telemedicine, and 
Education Demonstration Project.--Section 4207 of BBA is amended--
          (1) in subsection (a)(1), by adding at the end the following: 
        ``The Secretary shall make an award for such project not later 
        than 3 months after the date of the enactment of the Medicare 
        Balanced Budget Refinement Act of 1999. The Secretary shall 
        accept the proposal adjudged to be the best technical proposal 
        as of such date of enactment without the need for additional 
        review or resubmission of proposals.'';
          (2) in subsection (a)(2)(A), by inserting before the period 
        at the end the following: ``that qualify as Federally 
        designated medically underserved areas or health professional 
        shortage areas at the time of enrollment of beneficiaries under 
        the project'';
          (3) in subsection (c)(2), by striking ``and the source and 
        amount of non-Federal funds used in the project'';
          (4) in subsection (d)(2)(A), by striking ``at a rate of 50 
        percent of the costs that are reasonable and'' and inserting 
        ``for the costs that are related'';
          (5) in subsection (d)(2)(B)(i), by striking ``(but only in 
        the case of patients located in medically underserved areas)'' 
        and inserting ``or at sites providing health care to patients 
        located in medically underserved areas'';
          (6) in subsection (d)(2)(C)(i), by striking ``to deliver 
        medical informatics services under'' and inserting ``for 
        activities related to''; and
          (7) by amending paragraph (4) of subsection (d) to read as 
        follows:
          ``(4) Cost-sharing.--The project may not impose cost sharing 
        on a medicare beneficiary for the receipt of services under the 
        project. Project costs will cover all costs to patients and 
        providers related to participation in the project.''.

SEC. 511. MEDPAC REPORT ON MEDICARE MSA (MEDICAL SAVINGS ACCOUNT) 
                    PLANS.

  Not later than 1 year after the date of the enactment of this Act, 
the Medicare Payment Advisory Commission shall submit to Congress a 
report on specific legislative changes that should be made to make MSA 
plans a viable option under the Medicare+Choice program.

SEC. 512. CLARIFICATION OF NONAPPLICABILITY OF CERTAIN PROVISIONS OF 
                    DISCHARGE PLANNING PROCESS TO MEDICARE+CHOICE 
                    PLANS.

  (a) In General.--Section 1861(ee)(2)(H) (42 U.S.C. 1395x(ee)(2)(H)), 
as added by section 4431 of BBA, is amended--
          (1) in clause (i)--
                  (A) by striking ``not specify'' and inserting 
                ``subject to clause (iii), not specify''; and
                  (B) by striking ``and'' at the end; and
          (2) in clause (ii), by striking the period at the end and 
        inserting ``, and''; and
          (3) by adding at the end the following new clause:
                  ``(iii) for individuals enrolled under a 
                Medicare+Choice plan, under a contract with the 
                Secretary under section 1857, for whom a hospital 
                furnishes inpatient hospital services, the hospital may 
                specify with respect to such individual the provider of 
                post-hospital home health services or other post-
                hospital services under the plan.''.

            Subtitle B--Managed Care Demonstration Projects

SEC. 521. EXTENSION OF SOCIAL HEALTH MAINTENANCE ORGANIZATION 
                    DEMONSTRATION (SHMO) PROJECT AUTHORITY.

  (a) Extension.--Section 4018(b) of the Omnibus Budget Reconciliation 
Act of 1987 (Public Law 100-203), as amended by section 4014(a)(1) of 
BBA, is amended--
          (1) in paragraph (1), by striking ``December 31, 2000'' and 
        inserting ``the date that is 18 months after the date that the 
        Secretary submits to Congress the report described in section 
        4014(c) of the Balanced Budget Act of 1997''; and
          (2) by adding at the end of paragraph (4) the following: 
        ``Not later than 6 months after the date the Secretary submits 
        such final report, the Medicare Payment Advisory Commission 
        shall submit to Congress a report containing recommendations 
        regarding such project.''.
  (b) Substitution of Aggregate Cap.--Section 13567(c) of the Omnibus 
Budget Reconciliation Act of 1993 (Public Law 103-66), as amended by 
section 4014(b) of BBA, is amended to read as follows:
  ``(c) Aggregate Limit on Number of Members.--The Secretary of Health 
and Human Services may not impose a limit on the number of individuals 
that may participate in a project conducted under section 2355 of the 
Deficit Reduction Act of 1984, other than an aggregate limit of not 
less than 324,000 for all sites.''.

SEC. 522. EXTENSION OF MEDICARE COMMUNITY NURSING ORGANIZATION 
                    DEMONSTRATION PROJECT.

  (a) Extension.--Notwithstanding any other provision of law, any 
demonstration project conducted under section 4079 of the Omnibus 
Budget Reconciliation Act of 1987 (Public Law 100-123) and conducted 
for the additional period of 2 years as provided for under section 4019 
of BBA, shall be conducted for an additional period of 2 years.
  (b) Report.--By not later than July 1, 2001, the Secretary of Health 
and Human Services shall submit to Congress a report describing the 
results of any demonstration project conducted under section 4079 of 
the Omnibus Budget Reconciliation Act of 1987, and describing the data 
collected by the Secretary relevant to the analysis of the results of 
such project, including the most recently available data through the 
end of 2000.

SEC. 523. MEDICARE+CHOICE COMPETITIVE BIDDING DEMONSTRATION PROJECT.

  Section 4011 of BBA is amended--
          (1) in subsection (a)--
                  (A) by striking ``The Secretary'' and inserting the 
                following:
          ``(1) In general.--Subject to the succeeding provisions of 
        this subsection, the Secretary''; and
                  (B) by adding at the end the following:
          ``(2) Delay in implementation.--The Secretary shall not 
        implement the project until January 1, 2002, or, if later, 6 
        months after the date the Competitive Pricing Advisory 
        Committee has submitted to Congress a report on each of the 
        following topics:
                  ``(A) Incorporation of original fee-for-service 
                medicare program into project.--What changes would be 
                required in the project to feasibly incorporate the 
                original fee-for-service medicare program into the 
                project in the areas in which the project is 
                operational.
                  ``(B) Quality activities.--The nature and extent of 
                the quality reporting and monitoring activities that 
                should be required of plans participating in the 
                project, the estimated costs that plans will incur as a 
                result of these requirements, and the current ability 
                of the Health Care Financing Administration to collect 
                and report comparable data, sufficient to support 
                comparable quality reporting and monitoring activities 
                with respect to beneficiaries enrolled in the original 
                fee-for-service medicare program generally.
                  ``(C) Rural project.--The current viability of 
                initiating a project site in a rural area, given the 
                site specific budget neutrality requirements of the 
                project, and insofar as the Committee decides that the 
                addition of such a site is not viable, recommendations 
                on how the project might best be changed so that such a 
                site is viable.
                  ``(D) Benefit structure.--The nature and extent of 
                the benefit structure that should be required of plans 
                participating in the project, the rationale for such 
                benefit structure, the potential implications that any 
                benefit standardization requirement may have on the 
                number of plan choices available to a beneficiary in an 
                area designated under the project, the potential 
                implications of requiring participating plans to offer 
                variations on any standardized benefit package the 
                committee might recommend, such that a beneficiary 
                could elect to pay a higher percentage of out-of-pocket 
                costs in exchange for a lower premium (or premium 
                rebate as the case may be), and the potential 
                implications of expanding the project (in conjunction 
                with the potential inclusion of the original fee-for-
                service medicare program) to require medicare 
                supplemental insurance plans operating in an area 
                designated under the project to offer a coordinated and 
                comparable standardized benefit package.
          ``(3) Conforming deadlines.--Any dates specified in the 
        succeeding provisions of this section shall be delayed (as 
        specified by the Secretary) in a manner consistent with the 
        delay effected under paragraph (2).''; and
          (2) in subsection (c)(1)(A)--
                  (A) by striking ``and'' at the end of clause (i); and
                  (B) by adding at the end the following new clause:
                          ``(iii) establish beneficiary premiums for 
                        plans offered in such area in a manner such 
                        that a beneficiary who enrolls in an offered 
                        plan with a below average price (as established 
                        by the competitive pricing methodology 
                        established for such area) may, at the plan's 
                        election, be offered a rebate of some or all of 
                        the medicare part B premium that such 
                        individual must otherwise pay in order to 
                        participate in a Medicare+Choice plan under the 
                        Medicare+Choice program; and''.

                            I. INTRODUCTION


                         A. Purpose and Summary

    The Balanced Budget Act of 1997 (P.L. 105-33) contained 
more than 300 Medicare provisions and represented the most 
extensive reforms since the enactment of the program in 1965. 
Among the changes were Medicare's expanded coverage of 
preventive benefits, additional choices for seniors through the 
new Medicare+Choice program, new tools to combat health care 
waste, fraud and abuse, and many initiatives to modernize and 
strengthen Medicare fee-for-service payment systems. New 
payment methodologies were established affecting virtually 
every segment of the health care industry including managed 
care plans, hospitals, skilled nursing facilities, and home 
health agencies.
    H.R. 3075, the ``Medicare Balanced Budget Refinement Act of 
1999,'' makes necessary refinements to many of the complex 
program changes enacted in the Balanced Budget Act of 1997 
(BBA). The provisions of H.R. 3075 are designed to strengthen 
and improve the Medicare program for current and future 
generations by addressing concerns about BBA policies that have 
been raised by Medicare's 39 million beneficiaries and the 
providers who deliver care to them.
    Coupled with the legislative measures contained in H.R. 
3075, the Committee believes very strongly that there are 
several administrative steps that the Health Care Financing 
Administration (HCFA) must take to ensure that the policies 
enacted in the BBA are implemented in a manner that reflects 
Congressional intent in 1997. The Committee feels very strongly 
that prompt attention to these administrative issues is 
critical in addressing the concerns that have arisen since the 
passage of the BBA.
    H.R. 3075 was developed after receiving input from public 
hearings before the Committee on Ways and Means Subcommittee on 
Health. During these hearings, the Subcommittee received 
testimony from many witnesses, including representatives of 
beneficiary organizations, medical providers, actuaries, health 
economists, health plan professionals, and other experts in 
Medicare and healthcare policy.

               B. Background and Need for the Legislation

    In the years ahead, the Medicare program will face serious 
challenges brought on by rapid changes in the aging of the 
population and increasing medical costs. The ability of 
Medicare's current financing structure to adequately fund 
program growth has been a concern for many years. Since 1970, 
the Medicare Trustees have been predicting the imminent 
insolvency of the Part A Trust Fund. Not until 1995, however, 
did Medicare insolvency become a substantial part of the budget 
debate. The Balanced Budget Act of 1997 contains major 
revisions in Medicare payment policies designed to modernize 
Medicare so as to provide mechanisms to ensure quality care 
while slowing the rate of growth of payments to hospitals, 
physicians, and other providers.
    When the Balanced Budget Act of 1997 was adopted, Congress 
utilized the data and estimates available at the time, and 
relied upon the Administration's representations that it could 
successfully implement, in a timely manner, the many 
programmatic changes required to curb unnecessary growth. 
During enactment, the Congressional Budget Office (CBO) 
estimated that, because of the changes initiated by the BBA, 
Medicare spending would be reduced by $116 billion over five 
years (FY 1998-FY 2002) and $393 billion over ten years. The 
BBA was expected to achieve the target savings both by slowing 
the rate of payment growth to hospitals, physicians, and other 
providers and by establishing new prospective payment systems 
(PPS) for the reimbursement of skilled nursing facilities, 
hospital outpatient departments, home health agencies, and 
other providers. Additionally, the establishment of the 
Medicare+Choice program expanded coverage options for 
beneficiaries.
    Actual Medicare spending since BBA enactment is even lower 
than was anticipated. For the ten-year period for which the 
original CBO estimates were done, the agency now expects 
spending to be billions of dollars less in each year. As 
recently as March of 1999, CBO lowered its Medicare spending 
estimates for the FY 1998-FY 2007 period by $229 billion. 
Between 1980 and 1997, Medicare spending increased at an 
average rate of 11% per year. In 1998, however, total Medicare 
outlays rose by only 1.5%. The CBO has stated that the program 
may experience an even smaller percentage growth increase in 
1999. Commentators have attributed a portion of these changes 
to BBA policies, but have also recognized that other factors 
have played a part as well. In any event, the change in annual 
growth rates and the disparity between projected and realized 
savings since the enactment of the BBA have given the 
Committee, participating providers, and affected beneficiaries 
reason for concern.
    The BBA changes had varying effects on different sectors of 
the health care delivery system. Similarly, within these 
sectors, the changes in policy have raised some specific 
concerns that vary accordingly. The provisions of H.R. 3075 are 
intended to address each of these concerns.
    The Committee has heard many concerns about the effects of 
Medicare payment changes on the financial stability of the 
inpatient hospital sector. Many provisions of the BBA had an 
impact on inpatient facility revenues. While testimony 
presented to the Subcommittee on Health indicated that it has 
been difficult to determine the precise effects of the BBA on 
the hospital sector, commentators agreed that many hospital 
margins are in decline and under increasing pressure from both 
the payment reductions made in 1997 and similar payment 
pressures from private sector payors. With this in mind, the 
Committee bill seeks to provide some targeted relief with 
respect to particular BBA policies. Among other things, the 
bill provides a one-year delay in the phase-in of the indirect 
medical education (IME) percentage adjustment, reduces the 
reduction in the disproportionate share adjustment that was 
established by the BBA, and includes various refinements to the 
new payment methodologies proposed for long-term care and 
psychiatric hospitals and inpatient rehabilitation providers. 
In response to criticisms of HCFA's prospective payment system 
(PPS) for skilled nursing facilities (SNFs), provisions are 
included to provide additional payments to facilities that care 
for high acuity nursing patients. This is done in the form of 
special payment adjustments and pass-through payments for 
patients with specific needs. In addition, general assistance 
for SNFs is provided through an increase in the market basket 
update.
    Targeted refinements in the Part B program are also 
included. Recommendations of the current sustainable growth 
rate (SGR) system by the Medicare Payment Advisory Commission 
(MedPAC) prompted the Committee to include technical changes to 
the physician payment update mechanism, so that future updates 
will be more accurate and updates will not oscillate severely, 
as experts now predict will be the case under current law. In 
addition, revisions to the proposed prospective payment system 
for hospital outpatient services are included to help ensure 
that appropriate payments are made for all patients, including 
those whose treatment requires the utilization of costly drugs 
or devices. In addition, provisions implementing payment 
corridors are included to help hospitals with above average 
operating costs manage the transition to the PPS system.
    In response to expressed concerns about the potential 
effect of BBA caps on physical therapy, occupational therapy 
and speech pathology services on patient access to care, the 
bill amends this provision to expand physical therapy and 
speech pathology benefits, and provides for an outlier poll to 
fund the inordinate therapy costs that can be incurred by high 
acuity patients. The bill also provides minor adjustments to 
ease the effects of the BBA on durable medical equipment 
suppliers and increases the reimbursement rate for pap smears, 
so as to ensure continuing access to this important preventive 
care benefit.
    Although the Committee worked hard to address concerns 
about the BBA's effects on the supply of home health care 
agencies last year [with the passage of the Omnibus 
Consolidated and Emergency Supplemental Appropriations Act for 
Fiscal year 1999 (P.L. 105-277)], continuing concerns about 
instability in this area prompted the inclusion of several 
additional provisions designed to provide assistance to these 
providers so as to ensure beneficiary access to these services. 
The bill includes special payments to help offset the 
administrative costs of conducting the OASIS patient survey, 
delays the 15% reduction in payment rates for one year after 
the implementation of the PPS, and makes modifications to the 
surety bond requirements.
    Title III also includes revisions to Medicare Direct 
Graduate Medical Education (DGME) payments and requires several 
studies, including one on geographic reclassification 
methodologies, that are intended to help the Committee consider 
the need for additional revisions to make payments more 
accurate in the future.
    The impact of the policy changes made by the BBA on rural 
health care providers has been of particular concern to the 
Committee. Rural hospitals are often the only available medical 
care facility capable of serving the health care needs of a 
rural community's Medicare population. Yet, while critical to 
the region's public health, these facilities often have low 
volume, few resources, and have experienced the most trouble 
adapting to broad changes in payment methodologies initiated by 
the BBA. The bill seeks to address this concern by including 
various provisions in Title IV that are designed to help rural 
providers, and the beneficiaries they serve, make the 
transition to the post-BBA environment. Included are provisions 
extending the Medicare Dependent Hospital Program, several 
sections allowing for greater flexibility in the geographic and 
categorical designations of rural health facilities, augmented 
payments for certain non-PPS facilities, and a grant program 
designed to help rural hospitals transition to Medicare's 
newly-required prospective payment systems.
    Problems in the Medicare+Choice market have also been 
evident since enacted BBA policies have begun to be implemented 
by the Administration. Many plans have announced that they are 
withdrawing from the program, thus reducing the choices 
available to seniors. These disruptions have been compounded by 
wide-scale reductions in benefits by some of the plans that 
have decided to remain in the program. Testimony received by 
the Subcommittee has indicated that these changes are due to 
many factors, including changes made in both the payment and 
regulation of Medicare managed care plans. The transition to a 
new risk adjustment methodology, particularly the system 
proposed by HCA, has been of special concern.
    The bill seeks to address the concerns that have arisen in 
the Medicare+Choice market, by including several provisions in 
Title V that are designed to stabilize the system. Among other 
things, these provisions would slow down the phase-in of HCFA's 
new risk adjuster, offer incentives to plans to enter markets 
where no Medicare+Choice plans now exist, and provide increased 
flexibility in several enrollment and participation rules so 
that beneficiaries would be more likely to retain access to 
Medicare+Choice plan options in the future.

                         C. Legislative History


Committee bill

    H.R. 3075 was introduced on October 14, 1999 by Chairman 
Bill Thomas and was referred to the Committee on Ways and Means 
Subcommittee on Health and, in addition, the Committee on 
Commerce. The Subcommittee on Health ordered favorably reported 
the bill on October 15, 1999 to the full Ways and Means 
Committee by voice vote with no amendments. On October 21, 
1999, H.R. 3075 was taken up for consideration by the full 
Committee. The bill was amended by an amendment in the nature 
of a substitute offered by Representative Thomas and reported 
to the House of Representatives by a roll call vote of 26 ayes 
and 11 nays.
    The bill contains five main titles. Title I contains 
provisions relating to Medicare Part A and is divided into four 
subtitles. Subtitle A applies to acute care hospitals that are 
paid under the prospective payment system (PPS) and includes a 
one-year delay in the application of the indirect medical 
education (IME) adjustment and a decrease in scheduled 
reductions for disproportionate share hospitals. Subtitle B 
addresses PPS-exempt hospitals and provides enhanced payments 
for long-term care and psychiatric hospitals until the 
development of the PPS system for those facilities. It also 
specifies certain design components of these PPS systems and 
specifies certain refinements in the prospective payment system 
for inpatient rehabilitation services. Subtitle C addresses 
payments for skilled nursing facilities and includes a 
temporary increase in payment for certain high cost patients, 
an increase in payments to account for inflation, authorization 
for facilities to elect immediate transition to the federal 
rate, payment adjustments for certain ambulance services, 
prostheses, and chemotherapy drugs, and provisions for Part B 
add-ons for facilities participating in the Nursing Home Case-
Mix and Quality (NHCMQ) demonstration project. Subtitle D 
includes various technical corrections to Part A policies 
included in the BBA.
    Title II contains provisions relating to Medicare Part B 
and is divided into three subtitles. Subtitle A provides for 
technical adjustments to the physician payment update system, 
so as to improve the accuracy and reduce oscillations in future 
payment updates. Subtitle B applies to hospital outpatient 
services and allows for outlier adjustments and transitional 
pass-through payments for certain medical devices, drugs, and 
biologicals. It also establishes a transitional corridor to 
help hospitals with above-average costs adjust to the new 
prospective payment system for outpatient services (OPD PPS). 
Subtitle C relates to other Part B issues and provides for the 
application of separate benefit caps to physical and speech 
therapy services, an outlier pool for high-cost therapy 
patients, an update in the renal dialysis composite rate, a 
temporary update in durable medical equipment and oxygen rates, 
an increase in the reimbursement rate for pap smear tests, and 
refinements in the ambulance services demonstration project.
    Title III contains provisions relating to Medicare Parts A 
and B and is divided into three subtitles. Subtitle A applies 
to home health services. It provides for special payments to 
reflect administrative costs not included in the interim 
payment system (IPS) and a delay in the application of a 15 
percent reduction in payment rates for home health services. In 
addition, it modifies current surety bond requirements for home 
health agencies (HHAs). Subtitle B would provide for a 
transition to a national average payment methodology in 
computing DGME payments. Subtitle C requires a study by the 
General Accounting Office (GAO) which would focus on refining 
geographic reclassification methodologies, and one by MedPAC, 
which would study Medicare payment policies with respect to 
non-physician clinical training programs.
    Title IV contains provisions relating to rural providers. 
It includes provisions to permit the reclassification of 
certain urban hospitals as rural hospitals, update the 
standards applied for the geographic reclassification for 
certain hospitals, and improve the Critical Access Hospital 
(CAH) program. In addition, it provides for a five-year 
extension of the Medicare Dependent Hospital (MDH) program, 
allows for the re-basing of certain Sole Community Hospitals, 
increases flexibility in providing graduate physician training 
in rural areas, eliminates certain restrictions with respect to 
the hospital swing bed program, establishes a grant program to 
assist rural hospitals in the transition to prospective 
payment, requires a MedPAC study of rural providers, and 
expands access to paramedic intercept services in rural areas.
    Title V contains provisions relating to Medicare Part C and 
is divided into two subtitles. Subtitle A applies to the 
Medicare+Choice program. Various provisions would restructure 
the phase-in of a new risk adjustment methodology, encourage 
the offering of Medicare+Choice plans in areas without plans, 
modify the five-year reentry rule for contract terminations, 
require the continued computation and publication of average 
adjusted per capita costs (AAPCC) data for each county, modify 
several current Medicare+Choice enrollment rules, allow for the 
variation in Medicare+Choice plan premium waivers within a 
contractor's service area, delay the deadline for submission of 
adjusted community rates (ACR) proposals, extend for two years 
the Medicare+Choice cost contracting program, and request a 
MedPAC report on Medicare+Choice Medical Savings Account (MSA) 
plans. Subtitle B addresses several managed care demonstration 
projects. It would extend the Social Health Maintenance 
Organizations (SHMOs) and Community Nursing Organizations 
(CNOs) demonstration projects, and delay the Medicare+Choice 
competitive pricing demonstration project until 2002 or until 
such time as several specified reports are submitted to 
Congress by the Competitive Pricing Advisory Committee (CPAC).

Legislative hearings

    The Committee on Ways and Means Subcommittee on Health held 
several hearings focusing on various Medicare payment policy 
issues in 1999. On February 11, 1999, the Subcommittee examined 
HCFA's ability to administer the current Medicare program and 
to manage the future needs of the program's growing number of 
beneficiaries. More specifically, the Subcommittee examined 
HCFA's inability to implement many aspects of the Balanced 
Budget Act within the time-frames specified in law. Some of the 
BBA requirements discussed were the proposed prospective 
payment systems for skilled nursing, hospital outpatient and 
home health services.
    On March 2, 1999, the Subcommittee held a hearing on the 
annual MedPAC Report to the Congress on Medicare Payment 
Policy. The Subcommittee examined MedPAC's recommendations 
regarding Medicare Parts A and B which specifically addressed 
factors affecting hospitals, skilled nursing facilities, 
physicians and other providers. The Subcommittee also analyzed 
Medicare+Choice payment calculations, risk selection, and 
quality assurance mechanisms. In addition, on March 18, 1999, 
the Subcommittee held a hearing on the Medicare+Choice program 
to examine the Administration's proposed new risk adjustment 
method, dissemination of health plan information to seniors, 
and new plan requirements for quality measurement.
    On October 1, 1999, the Subcommittee held a hearing on 
Medicare Balanced Budget Act refinements. The hearing provided 
the opportunity to hear from the Administration, Congressional 
advisory bodies, and providers about the implementation and 
impact of policy changes included in the BBA, including changes 
in various payment methodologies. The Subcommittee also sought 
input regarding a variety of potential refinements to these BBA 
policies.

                     II. EXPLANATION OF PROVISIONS


 Section 1. Short title; Amendments to Social Security act; References 
                       to BBA; Table of Contents

    The Act may be cited as the ``Medicare Balanced Budget 
Refinement Act of 1999.''

                 TITLE I. PROVISIONS RELATING TO PART A


                       Subtitle A--PPS Hospitals


    Section 101. One year Delay in Transition for Indirect Medical 
                 Education (IME) Percentage Adjustment

Current law

    The Balanced Budget Act of 1997 (hereafter referred to as 
``BBA'') reduced the indirect medical education adjustment from 
the existing 7.7% in FY 1997 to 7.0% in FY 1998; to 6.5% in FY 
1999; to 6.0% in FY 2000; and to 5.5% in FY 2001 and subsequent 
years.

Explanation of provisions

    This provision would freeze the indirect medical education 
(IME) adjustment at its current FY 2000 level of 6.0% for one 
year (FY 2001). The IME adjustment would be decreased to 5.5% 
in FY 2002 and for subsequent years.

Effective date

    Upon enactment.

Reason for change

    This provision eases the transition to a level of the IME 
adjustment that is closer to its empirical estimate of 
approximately 4.1 percent as calculated by the Prospective 
Payment Assessment Commission (ProPAC) in 1997. A delay in the 
reduction of the IME adjustment is warranted so that teaching 
hospitals can adjust to the impact of the Balanced Budget Act 
of 1997.

    Section 102. Decrease in reductions for Disproportionate Share 
                Hospitals; Data Collection Requirements

Current law

    The BBA reduced the disproportionate share adjustment for 
hospitals by one percentage point each year starting in FY 1998 
and continuing through FY 2002. The Secretary of Health and 
Human Services (hereafter referred to as ``Secretary'') is 
required to submit a report to Congress that contains a formula 
for a new disproportionate share adjustment.

Explanation of provision

    This provision would freeze the reduction in the 
disproportionate share (DSH) adjustment at its current FY 2000 
level of 3% for one year (FY 2001). The DSH adjustment would be 
reduced by 4% in FY 2002 and for subsequent years the reduction 
would be 0 percent. The Secretary would be required to collect 
data on the costs incurred in providing inpatient and 
outpatient uncompensated care, including bad debt and charity 
care.

Effective date

    Upon enactment.

Reason for change

    This provision eases the financial impact on hospitals for 
caring for a disproportionate share of low-income individuals. 
In addition, the Secretary is required to collect additional 
data necessary to develop a DSH payment methodology that takes 
into account the cost of serving uninsured and underinsured 
patients, as recommended by MedPAC. Presently, the DSH formula 
is based only on the costs associated with Medicaid patients 
and Medicare patients eligible for Supplementary Security 
Income (SSI). MedPAC has recommended that the formula be 
amended to include inpatient and outpatient costs associated 
with services provided to low-income patients, defined broadly 
to include all care to the poor. In order to develop such a 
revised formula, it is necessary first to collect additional 
data. MedPAC recommends that data be collected on patients 
enrolled in state and local indigent care programs, as well as 
uncompensated care associated with uninsured or underinsured 
patients. State and local indigent care programs would include 
non-federally financed programs with specific eligibility 
criteria for specified health care services. Financial data on 
state and local appropriations that offset uncompensated care 
expenses should also be collected. Uncompensated care costs and 
charges are those identified more typically as bad debt and 
charity care. While the Committee recognizes that there may be 
problems in defining and appropriately measuring such costs and 
charges in a way that avoids duplication, such problems can 
best be overcome by developing standard definitions at the 
national level. The Committee expects the Secretary to report 
on the financial interactions and potential for shifts between 
Federal and State governments.

                    Subtitle B--PPS Exempt Hospitals


    Section 111. Wage Adjustment to Percentile Cap for PPS--Exempt 
                               Hospitals

Current law

    Psychiatric, rehabilitation, and long-term care providers, 
including separate facilities and qualified distinct part units 
in acute general hospitals, were excluded from the Medicare 
inpatient prospective payment system (PPS) when the system was 
implemented in FY 1984. These Medicare providers are subject to 
the payment limitations and incentives established by the Tax 
Equity and Fiscal Responsibility of 1982 (TEFRA) as modified by 
the BBA.
    Generally speaking, these PPS-exempt providers are paid 
based on their costs per discharge, subject to provider-
specific limits established by TEFRA and to national limits 
established by the BBA. The provider's target amount is based 
on its Medicare allowable costs per discharge in a base year, 
inflated to the current year by an annual update factor. A 
national limit or cap amount is calculated for these 3 classes 
of PPS-exempt providers. Each provider's limit is the lesser of 
its target or cap amount. Generally, a provider with costs per 
discharge under its limit is rewarded with a bonus payment 
while a provider with costs per discharge above its limit 
receives a relief payment.
    The BBA established a national cap on the TEFRA limits for 
PPS-exempt hospitals and units in cost reporting periods, 
beginning on or after October 1, 1997 and before October 1, 
2002. The cap is set at the 75th percentile of the target 
amount for each class of provider in FY 1996, updated each year 
by the increase in the hospital market basket. There is 
currently no provision for a wage adjustment of the percentile 
cap used to set limits for established PPS-exempt providers.

Explanation of provision

    The provision would require the Secretary to recalculate 
the 75th percentile cap to reflect differences in wage-related 
costs across geographic areas and also to adjust the cap for 
differences in wage-related costs when applied to new TEFRA 
hospitals.

Effective date

    The provision would be effective for cost reporting periods 
beginning on or after October 1, 1999.

Reason for change

    This provision makes the appropriate adjustment to 
recognize differences in wage-related costs across geographic 
areas for TEFRA hospitals.

   Section 112. Enhanced Payments for Long-term Care and Psychiatric 
 Hospitals Until Development of Prospective Payment systems for Those 
                               Hospitals

Current law

    The BBA established the amount of bonus and relief payments 
payable to eligible PPS-exempt providers. A provider with costs 
under its limit is rewarded with a bonus payment that is equal 
to the lesser of: (1) 15% of the amount by which the target 
amount exceeds the amount of operating costs; or (2) 2% of the 
target amount. In addition, eligible hospitals could also 
receive an increased bonus payment (called a continuous 
improvement payment) equal to the lesser of: (1) 50% of the 
amount by which the eligible hospital's operating costs are 
less than those expected for the period; or (2) 1% of the 
target amount of the period.

Explanation of provision

    The provision would increase the continuous improvement 
bonus payments from 1% to 1.5% for cost reporting periods 
beginning on or after October 1, 2000 and before September 30, 
2001, and to 2% for cost reporting periods beginning on or 
after October 1, 2001 and before September 30, 2002. Only 
psychiatric hospitals, psychiatric units exempt from the PPS 
and long-term care hospitals would be eligible for these 
payments.

Effective date

    The provision would be effective for cost reporting periods 
beginning on or after October 1, 2000.

Reason for change

    This provision would provide temporary relief to eligible 
PPS-exempt hospitals and units until a prospective payment 
system is implemented for these providers.

  Section 113. Per Discharge Prospective Payment System for Long-term 
                             Care Hospitals

Current law

    The BBA requires the Secretary to collect data to develop, 
establish, administer, and evaluate a case-mix adjusted 
prospective payment system (PPS) for long-term care hospitals. 
The Secretary is required to develop a legislative proposal for 
establishing and administering a payment system that includes 
an adequate patient classification system that reflects 
differences in patient resource use. The Secretary may require 
these hospitals to submit necessary data to develop this 
proposal. The Secretary is instructed to consider several 
payment methodologies including the feasibility of expanding 
the diagnosis-related groups (DRGs) and inpatient PPS for acute 
hospitals established under section 1886(d) of the Social 
Security Act. The Secretary's legislative proposal is due to 
the appropriate Congressional committees no later than October 
1, 1999.

Explanation of provision

    The provision would require the Secretary to report to 
Congress by October 1, 2001 on a prospective payment system 
(PPS) for long-term care hospitals, based on DRGs, per 
discharge payment. The PPS would then be implemented in a 
budget neutral manner beginning October 1, 2002.

Effective date

    Upon enactment.

Reason for change

    This provision clarifies the type of prospective payment 
system, a per discharge system based on DRGs, that should be 
designed for long-term care hospitals. It also specifies budget 
neutrality and the time frame for implementation. In developing 
and evaluating the new PPS system, the Committee encourages the 
Secretary to measure the quality of outcomes.

   section 114. per diem prospective payment system for psychiatric 
                               hospitals

Current law

    There is currently no provision for a prospective payment 
system for psychiatric hospitals.

Explanation of provision

    The provision would require the Secretary to report to 
Congress by October 1, 2001 on a prospective payment system 
(PPS) for psychiatric hospitals and distinct part units, based 
on a per diem payment. The PPS would then be implemented in a 
budget neutral manner beginning October 1, 2002.

Effective date

    Upon enactment.

Reason for change

    This provision clarifies the type of prospective payment 
system, a per diem system, that should be designed for 
psychiatric hospitals and PPS-exempt psychiatric units. It also 
specifies budget neutrality and the time frame for 
implementation. In developing and evaluating the new PPS 
system, the Committee encourages the Secretary to measure the 
quality of outcomes. The Committee notes a recent GAO report 
(``Mental Health: Improper Restraint or Seclusion Use Places 
People at Risk'') concerning unnecessary deaths and lack of 
reporting by institutions on death and injury from the use of 
restraints and seclusion. The Committee urges the Secretary to 
examine the cause of these unnecessary deaths.

  section 115. refinement of prospective payment system for inpatient 
                        rehabilitation services

Current law

    The BBA requires the Secretary to establish a case-mix 
adjusted prospective payment system (PPS) for rehabilitation 
hospitals and distinct part units, effective October 1, 2000. 
The system is designed to be phased-in over a three-year period 
with an increasing percentage of the base amount based on the 
PPS amount. Total payments are to be set to equal 98% of the 
amount that would have been paid if the PPS had not been 
enacted.

Explanation of provision

    This provision would allow rehabilitation facilities to 
elect the full national prospective rate upon implementation of 
the prospective payment system instead of a gradual transition. 
The rates are adjusted in each year to ensure that aggregate 
payments do not increase. The Secretary is also directed to use 
discharges as the payment unit for the new PPS to improve the 
Functional Independence Measure-Function-Related Groups. Within 
three years of implementation, the Secretary is required to 
report to Congress on the impact of the prospective payment 
system on utilization and access to services.

Effective date

    Upon enactment.

Reason for change

    This provision would allow rehabilitation facilities 
increased flexibility in adjusting to the new prospective 
payment system.

 Subtitle C--Adjustments to PPS Payments for Skilled Nursing Facilities


   section 121. temporary increase in payment for certain high cost 
                                patients

Current law

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

Explanation of provision

    This provision would temporarily increase the Federal 
portion of the rates by 10 percent for 12 RUGs in the 
``Extensive Services,'' ``Special Care'' and ``Clinically 
Complex'' categories to adjust for the costs of medically 
complex patients. Payments would be increased from April 1, 
2000 through September 30, 2000 at which time the Secretary is 
expected to make refinements to the case-mix measure and adjust 
the average rates for case-mix with more refined data on 
intensity than had been available at the inception of the PPS.

Effective date

    Upon enactment.

Reason for change

    Independent research has demonstrated that the RUG 
categories containing medically complex patients have higher 
average per diem costs than the average per diem payment rates. 
The Committee has proposed increases in payments for certain 
RUG categories so that access to SNF services is not impaired. 
This provision temporarily increases payments for certain 
medically complex patients in specified RUG categories for a 6-
month period until the Secretary can implement a case-mix 
adjustment based on refined data.

                  section 122. market basket increase

Current law

    The BBA requires the Secretary to update the Federal per 
diem for skilled nursing facilities by the skilled nursing 
facility market basket minus one percentage point in FY 2000. 
In FY 2001 and 2002, the rate would be updated by market basket 
minus one percentage point.

Explanation of provision

    The provision would increase the update for FY 2001 to the 
skilled nursing facility market basket plus 0.8 percentage 
points. For FY 2002 and subsequent years, the update would 
remain as specified by the BBA.

Effective date

    Upon enactment.

Reason for change

    This provision would provide a greater-than-market basket 
increase because aggregate payments to skilled nursing 
facilities have been significantly lower than anticipated. The 
Committee encourages the Secretary to determine the cost and 
utilization of new technologies and medications that are used 
in the treatment of SNF patients.

 section 123. authorizing facilities to elect immediate transition to 
                              federal rule

Current law

    The BBA requires that the SNF prospective payment system be 
phased in over 3 years starting July 1, 1998 (or the first date 
thereafter on which a SNF started a new annual cost reporting 
period). During this phase-in period, the per diem payment to 
each SNF is based part on the facility's Medicare-covered costs 
in 1995 with certain updates (the ``facility-specific'' 
component of the prospective payment system), and in part of 
the new federal per diem prospective payment. During the 3-year 
phase-in period starting in 1998, a SNF receives per diem rates 
that are a ``blend'' of 75% of the facility-specific rate and 
25% of the federal per diem rate, and the proportions of 
facility-specific rates to federal per diem rates shift 
annually by 25 percentage points until the federal prospective 
payment system rate equals the full payment.

Explanation of provision

    This provision would permit skilled nursing facilities to 
choose to receive the full Federal rate.

Effective date

    Skilled nursing facilities could elect the full Federal 
rate 60 days after enactment.

Reason for change

    This provision allows those skilled nursing facilities that 
have experienced increases in volume or case mix since the 1995 
base year to choose the Federal rate instead of a facility-
specific and Federal blended rate, thus providing them with 
increased flexibility.

    section 124. part a pass-through payment for certain ambulance 
              services, prostheses and chemotherapy drugs

Current law

    The per diem amounts Medicare pays SNFs under the 
prospective payment system include the costs of ``ancillary 
services'' needed by Medicare patients. These services include 
restorative therapies, laboratory services, drugs, supplies, 
prosthetic devices, and equipment. Thus, SNFs do not receive 
separate payments for these services and items in addition to 
the per diem payment.

Explanation of provision

    This provision would exclude certain services and items 
from the per diem amounts that Medicare pays to SNFs because of 
their relatively rate occurrence and high cost. They would be 
paid for separately starting April 1, 2000. These services 
include ambulance services furnished in conjunction with renal 
dialysis services, specific chemotherapy items, chemotherapy 
services, radioisotopes services, and customized prosthetic 
devices, such as artificial limbs. Base payment rates would not 
be adjusted to account for the exclusion of these services and 
items in FY 2000, but beginning in FY 2001, the Secretary would 
provide for an appropriate reduction in payments so that the 
exclusion of the above items would be budget neutral.

Effective date

    April 1, 2000.

Reason for change

    Some services and items furnished in SNFs are very high 
cost but very infrequent events. This provision would exclude 
certain specified services and items from the per diem amounts 
that Medicare pays to SNFs and pay for them separately. While 
the bill exempts ambulance services for ESRD patients, the 
Committee notes that, in many cases, regularly scheduled trips 
may be made in vehicles that are less costly than an Advanced 
or Basic Life Support ambulance, and the Committee urges that 
SNFs use these cost-saving services appropriately.

section 125. provision for Part B Add-ons for Facilities Participating 
                   in the NHCMQ Demonstration Project

Current law

    A demonstration project known as the Nursing Home Case Mix 
and Quality (NHCMQ) demonstration project preceded 
implementation of the SNF prospective payment system. Skilled 
nursing facilities that participated in that demonstration 
project do not have the cost of Medicare Part B services to SNF 
patients accounted for under the facility-specific component of 
the prospective payment system during the transition period as 
do other SNFs, although their federal per diem amounts are 
higher than those for other SNFs.

Explanation of provision

    This provision would treat skilled nursing facilities that 
participated in the demonstration project in the same way as 
other skilled nursing facilities by accounting for the cost of 
Medicare Part B services to SNF patients under the facility-
specific component of the prospective payment system during the 
transition period to a prospective payment system.

Effective date

    This provision would become effective as if it were 
included in the BBA.

Reason for change

    HCFA has interpreted inadvertent placement of the Part B 
provisions in the BBA as Congressional intent that these 
facilities should not receive payments for Part B services to 
facility-specific rates for participants in the RUG III 
demonstration project. This provision would clarify that these 
facilities should be treated as other SNFs in receiving payment 
for Part B services under the facility-specific component.

section 126. special consideration for facilities servicing specialized 
                          patient populations

Current law

    The SNF prospective payment system provides facilities a 
fixed amount per day per patient (a ``per diem'' payment), with 
the amount of the payment determined by the Resource 
Utilization Group (RUG) into which the patient is classified. 
This RUG classification system serves as the case-mix 
adjustment that is used to relate program payment to individual 
patient characteristics and resource use, but the RUG system is 
not diagnosis-based. As a result, certain types of patients may 
not be classified accurately for payment purposes.

Explanation of provision

    This provision would allow for payments based on costs for 
certain skilled nursing facilities that threat very specialized 
patients, who are immuno-compromised secondary to an infectious 
disease with specific diagnoses. These payments would be made 
for a limited time until the Secretary reports no later than 
within one year of enactment on the resource use of these 
patients and whether any permanent adjustment is necessary.

Effective date

    This provision applies beginning on the date of the first 
cost reporting period that begins after enactment and ends on 
September 30, 2001.

Reason for change

    This provision would adjust payment for certain patients 
whose medical conditions are not well-accounted for in the RUG 
classification system.

section 127. Medpac study on special payment for facilities located in 
                           hawaii and alaska

Current law

    Skilled nursing facility payments are adjusted by a wage 
index, but no adjustment is made for the special circumstances 
of skilled nursing facilities in Alaska and Hawaii.

Explanation of provision

    This provision would require the Medicare Payment Advisory 
Commission (MedPAC) to study the need for a special adjustment 
for Alaska and Hawaii and submit a report to Congress within 18 
months of enactment.

Effective date

    Upon enactment.

Reason for change

    This provision would assist the Congress in determining 
whether a special adjustment for skilled nursing facilities in 
Alaska and Hawaii is necessary.

                           Subtitle D--Other


               Section 313. Part A Technical Corrections

Current law

    Part A of Medicare law was amended by various provisions in 
the BBA.

Explanation of provision

    This provision makes miscellaneous grammatical, cross-
reference, or similar technical changes in parts of the BBA 
relating to Part A of the Medicare program.

Effective date

    As if included in enactment of the BBA.

Reason for change

    This provision would make technical corrections.

                TITLE II. PROVISIONS RELATING TO PART B


          Subtitle A--Adjustments to Physician Payment Updates


  section 201. modification of update adjustment factor provisions to 
       reduce update oscillations and require estimate revisions

Current law

    The conversion factor is a dollar figure that converts the 
geographically adjusted relative value into a dollar payment 
amount. This amount is updated each year according to a formula 
established in law. Beginning in 1999, the update percentage 
equals the Medicare Economic Index (MEI), subject to an 
adjustment to match target spending for physician services 
under the sustainable growth rate (SGR) system. In no case can 
the adjustment be more than three percentage points above or 
seven percentage points below the MEI.
    Four factors make up the SGR: (1) changes in spending due 
to fee increases; (2) fee-for-service enrollment; (3) gross 
domestic product (GDP) growth per capita, and; (4) laws and 
regulations. Data from various measurement periods are used for 
the SGR calculation. Time lags between these measurement 
periods can lead to oscillation in conversion factor updates.

Explanation of provision

    Subsection (a) provides for technical changes to limit 
oscillations in the annual update to the conversion factor used 
to determine physician payment rates beginning in CY 2001. This 
is accomplished in three ways. First, the provision requires 
that future update adjustment factors be calculated using data 
measured on a calendar year basis. This will ensure that the 
time periods used in the update adjustment formula conforms to 
the calendar system, which is used for actually updating 
payments. In addition, the provision modifies the formula for 
determining the update adjustment factor. In adds a new 
component to the formula to measure past year variances from 
allowed spending growth. This measure is to be used in 
conjunction with the existing fomular component that measures 
cumulative spending variances from the sustainable physician 
payment baseline established in 1997. In addition, the impact 
of these measures on the update formula is mitigated by the 
addition of dampening multipliers. Both formula changes are 
designed to lessen oscillations in the annual update adjustment 
factor and will make annual adjustments in the conversion 
factor less severe.
    The subsection includes language requiring the Secretary to 
develop CY 1999 allowed expenditure targets based on current 
law so that a budget neutral transition to the calendar year 
system can begin with CY 2000. Similarly, provisions for 
special adjustments to the payment updates for CY 2001 to CY 
2005 are specified so as to make the transition to the revised 
updated adjustment factor formula budget neutral. The 
subsection also clarifies that the Secretary make available 
annual updates to the conversion factor on November 1, while 
adding a new requirement that the Secretary make available an 
early estimate of such conversion factor by March 1 each year. 
In addition, MedPAC is instructed to review this early estimate 
and comment on it in its annual report to Congress. The 
subsection also includes conforming technical amendments.
    Subsection (b) includes related changes to the existing 
sustainable growth rate provision in Section 1848(f) of the 
Social Security Act. These provisions clarify that starting in 
CY 2000 the sustainable growth rate is also to be determined on 
a calendar year basis. The date for publishing applicable rates 
is moved to November 1, and the Secretary is required to begin 
using the best available data to revise prior estimations of 
the sustainable growth rate for up to two years after such an 
estimate is first published. This provision is phased in on a 
prospective basis to ensure budget neutrality.

Effective date

    The changes made by this section are to be effective in 
determining the conversion factor for physician services for 
years beginning with 2001.

Reason for change

    MedPAC recommended these changes to improve the accuracy of 
physician payment updates, and to reduce the magnitude of 
future oscillations in the update factor.
    The Committee is also concerned about other physician 
payment issues. The BBA instructed the Secretary to develop 
resource-based practice expense relative to value units (RVUs) 
to use in calculating relative payment values under the 
Medicare physician fee schedule. The Committee agrees with 
recent observations made by MedPAC and the General Accounting 
Office that these practice expense RVUs may require refinement 
during the transition period. Thus, the Committee urges the 
Secretary to work with all interested parties to develop and 
implement appropriate procedures to ensure the accuracy of the 
practice expense RVUs as the transition to the resource-based 
fee schedule continues. The Committee also notes that it will 
continue to examine these activities to ensure that HCFA's 
actions are consistent with the provision of high quality 
medical care in all settings.
    With regard to physician supervision of anesthesia services 
under Medicare's Conditions of Participation, if the Secretary 
determines that there is insufficient current scientific data 
comparing mortality and adverse outcome rates in the provision 
of anesthesia services to Medicare patients, the Secretary 
should conduct a comparative outcome study and report back to 
the Committee.
    If the Secretary believes that she has sufficient mortality 
and quality information regarding the provision of anesthesia 
services by nurse anesthetists and anesthesiologists, then she 
should make appropriate regulatory changes to ensure access to 
quality care for Medicare beneficiaries.

                Subtitle B--Hospital Outpatient Services


   section 211. outlier adjustment and transitional pass-through for 
            certain medical devices, drugs, and biologicals

Current law

    The BBA directed the Secretary to implement a prospective 
payment system for hospital outpatient departments in 1999. 
However, HCFA delayed implementation of the new system until 
after the start of CY 2000 in order to ensure that ``year 
2000'' data processing problems are fully resolved before the 
new system is implemented. HCFA currently estimates that the 
outpatient department prospective payment system will be 
implemented in July 2000.
    The BBA required that the outpatient prospective payment 
system be designated so that the payments to hospital 
outpatient departments would equal the aggregate amount that 
would have been paid to hospitals in 1999 under old law, prior 
to the prospective payment system. The law also changes the 
coinsurnace amounts that beneficiaries would be required to pay 
for hospital outpatient services.

Explanation of provision

    The provision would create an outlier adjustment and a 
transitional pass-through for certain medical devices, drugs, 
and biologicals. The policy would be implemented on a budget 
neutral basis. The outlier payments would be made for 
exceptionally high cost cases. The variation in costs of 
services within a group would be limited to no more than two 
times greater than the lowest median cost (or mean cost, if the 
Secretary chooses) for an item or service within a group. From 
implementation until 2004, the outlier pool would be up to 2.5 
percent of aggregate payment. For 2004 and beyond, the outlier 
pool would be up to 3 percent.
    The transitional pass-through would allow for additional 
payments for orphan drugs, cancer therapy drugs and 
biologicals, and new medical devices, drugs, and biologicals. 
The Committee intends for the Secretary to include in the 
definition of cancer therapy products anti-cancer 
chemotherapeutic agents, as well as supportive care drugs and 
biologicals (including, but not limited to, antiemetics, 
hematopoietic growth factors, colony stimulating factors, 
bisphosphonates, and biological response modifiers) used to 
treat cancer and the symptoms and side-effects of cancer and 
chemotherapy. A medical device, drug or biological would be 
considered ``new'' if payments were not made for these items 
before December 31, 1996. Any individual device, drug, or 
biological would be given the pass-through for a period of at 
least two, but not more than three years. The transitional 
pass-through pool would be 2.5 percent from implementation 
until 2003. For years 2004 and beyond, the pool would be 2 
percent.
    The Secretary is required to conduct a study of intravenous 
immune globulin (IVIG) services in setting other than hospital 
outpatient departments and physicians' offices to be completed 
within one year of the date of enactment. The Secretary should 
make recommendations on the appropriate manner and settings 
under which Medicare should pay for these services delivered 
outside a hospital or physician's office.

Effective date

    Upon implementation of the hospital outpatient prospective 
payment system. The report on IVIG should be submitted to 
Congress within one year of enactment.

Reason for change

    The Committee believes that HCFA plans for implementing the 
outpatient prospective payment system (PPS), as described in 
HCFA's September 7, 1998 proposed regulation, raise many 
concerns. The proposal: (1) fails to provide adjustments for 
high cost care; (2) does not adequately provide a transition to 
include medical devices, drugs and biologicals in the system, 
and; (3) will not be updated annually to keep pace with changes 
in technology and medical practice. The Committee is making 
several structural changes to improve the design of the 
outpatient PPS and to assure that patients are not denied 
access to needed care.
    In the proposed regulation, HCFA classified many different 
services with varying costs into a single payment group. In one 
example, brachytherapy has been placed in a group with other 
procedures that are much less costly. This could provide 
disincentives to use this technology. The Committee believes 
that while some level of variation is unavoidable, there should 
not be wide variation that could potentially restrict access to 
the most costly services. To address this problem, that 
provision would place an upper limit on the variation of costs 
among services included in the same group. The most costly item 
or service in a group could not have a mean or median cost that 
was more than twice the mean or median cost of the least costly 
item or service in the group. To provide additional 
flexibility, the Committee gives the Secretary the option to 
base the relative payment weights on either the mean or median 
cost of the items and services in a group.
    The Committee recognizes that there may be unusual cases, 
such as low volume items and services, and the Secretary is 
given discretion to exempt these exceptional cases from the 
limitation. The Committee expects that the Secretary would not 
use this exception to include orphan drugs in a group that 
contains very different resources.
    In the proposed regulation, HCFA stated its intention not 
to update the payment groups and rates annually. This is 
different from the agency's process of annually updating the 
inpatient prospective payment system. Given the rapid pace of 
technological change as well as changes in medical practice, 
the Committee requires the Secretary to review the outpatient 
payment groups and amounts annually and to update them as 
necessary.
    The BBA gave the Secretary the discretion to make 
additional payments (called outlier payments) to hospitals for 
particularly costly costs. The Committee would require the 
Secretary to make outlier payments in a budget neutral manner 
and in a similar way as is currently done in the inpatient PPS. 
The outlier pool would be established at any level up to 2.5 
percent of total payments for the first three years under the 
new system. After the third year, the pool could be set at any 
level up to 3 percent of total payments.
    While the statutory provisions for the inpatient PPS 
require an outlier pool equal to a level between 5 and 6 
percent of total inpatient PPS payments, the Committee believes 
that the lower levels of 2.5 and 3.0 percent are more 
appropriate for the outpatient PPS because the outpatient PPS 
will make separate payments for most individual services 
performed during an outpatient encounter. The allowed upper 
limit on the size of the pool is increased after the third year 
because the need for outlier payments may increase after the 
temporary add-on payments for drugs and biologicals, described 
below, are replaced with a transitional provision that applies 
only to new products.
    The Committee is concerned that HCFA's proposed payment 
system does not adequately address issues pertaining to the 
treatment of drugs, biologicals and new technology. The 
Committee believes that these oversights could lead to 
restricted beneficiary access to drugs, biologicals and new 
technology. The provisions would establish transitional 
payments to cover the added costs of certain services involving 
the use of medical devices, drugs and biologicals. Hospitals 
using these drugs, biologicals and devices would be eligible 
for additional payments.
    The duration of the transitional payment would be for a 
period of at least two years but not more than three years. For 
drugs and biologicals used in cancer therapy and orphan drugs, 
the period would begin with the implementation date of the 
outpatient PPS. This also would be the period applicable to 
medical devices first paid as an outpatient hospital service 
after 1996 but before implementation of the outpatient PPS (as 
well as for any other item or service eligible for the 
additional payments at the inception of the outpatient PPS 
because of insufficient data or use of the Secretary's 
discretion). For products first paid as an outpatient service 
after implementation of the outpatient PPS, the transitional 
payment would begin with the first date on which payment is 
made for the device, drug or biological as an outpatient 
hospital service and continue for at least two, but no more 
than three, years.
    The Committee expects the Secretary to develop a process to 
deal with new devices, drugs and biologicals introduced after 
the outpatient fee schedule for a particular year has been set. 
This process should include assigning an appropriate code (or 
codes) to the product and establishing the amount of the add-on 
payment. New codes and add-on payment amounts should be made 
effective quarterly.
    The amount of the additional payment to hospitals, before 
applying the limitation described below, should equal the 
amount specified for the new technology less the average cost 
included in the outpatient payment schedule for the existing 
technology. Specifically, for drugs and biologicals, the amount 
of the additional payment is the amount by which 95 percent of 
the Average Wholesale Price (AWP) exceeds the portion of the 
applicable outpatient fee schedule amount that the Secretary 
determines is associated with the drug or biological. 
Similarly, for new medical devices, the add-on payment is the 
amount by which the hospital's charges for the device, adjusted 
to cost, exceed the outpatient fee schedule amount associated 
with the device.
    The total amount of additional payments in a year should 
not exceed a prescribed percentage of total projected payments 
under the outpatient prospective payment system. The applicable 
percentages are: (1) 2.5 percent for the first three years 
after implementation of the new outpatient payment system; and 
(2) up to 2.0 percent in subsequent years. In setting the 
hospital outpatient department (OPD) rates and add-on amounts 
for a particular year, the Secretary will estimate the total 
amount of additional payments that would be made based on the 
add-on amounts specified above and the expected utilization for 
each service. If the estimated total amount exceeds the 
percentage limitation, the Secretary will apply a pro rata 
reduction to the add-on payment amounts so that projected total 
payments are within the limitation.
    The Committee wishes to make it clear that these changes 
are budget neutral, and do not alter the rules for determining 
the beneficiary coinsurance. As specified in the BBA, 
beneficiary coinsurance for each service or group of services 
is frozen at 20 percent of the median charge for the service 
(or group of services) in 1996 (adjusted to 1999 to account for 
inflation). The coinsurance amount remains frozen at that level 
until it equals 20 percent of the outpatient fee schedule.
    On a related policy, the Committee notes that, while 
Medicare covers drugs and biologicals that are administered in 
a hospital or physician office, the program does not cover 
these therapies if they are self-administered by the patient at 
home for the treatment of the same disease or condition, even 
though this may in some cases be more cost-effective. With this 
in mind, the Committee asks the Secretary to review current 
coverage policy with respect to self injectable biologicals 
that may provide alternative therapies (than those currently 
covered by Medicare) for use in the treatment of chronic 
diseases, including rheumatoid arthritis. The Secretary should 
consider the costs and methods of administration when assessing 
the efficacy, safety, and costs of currently covered therapies 
as compared to self-administrable therapeutic alternatives.

 Section 212. Establishing a Transitional Corridor for Application of 
                                OPD PPS

Current law

    The BBA required the Secretary to implement a prospective 
payment system for hospital outpatient departments (OPD) in 
1999. One of the objectives of the PPS was to contain future 
rates of cost growth.

Explanation of provision

    The provision would establish a three-year corridor system 
whereby a hospital would receive additional payments if their 
payments under the new system were less than their payments 
under the pre-BBA 1997 payment method. During years before 
January 1, 2002, hospitals would receive 80% of their first 10% 
of losses, 70% of the next 10% of losses, and 60% of the next 
10% of losses. During the second year, the adjustments would 
change to 70% of the first 10% of losses, and 60% of the next 
10% of losses. In the third year, hospitals would receive 60% 
of their first 10% of losses.
    The Secretary is required to submit a report and 
recommendations to Congress by July 1, 2002 on whether a 
hospital outpatient prospective payment system (PPS) should 
continue to apply to Medicare Dependent Hospitals, Sole 
Community Hospitals, rural health clinics, rural referral 
centers, and other rural hospitals.

Effective date

    Upon implementation of the hospital outpatient prospective 
payment system.

Reason for change

    This provision provides a temporary transition for 
hospitals to adjust to the new prospective payment system. The 
approach is intended to offer incentives for improving 
efficiency while protecting hospitals from large financial 
losses. The study to be conducted by the Secretary is necessary 
to assess the impact of the PPS on rural health care providers 
and to determine whether these rural providers should remain 
subject to the outpatient PPS after the transitional corridor 
has ended.

  Section 213. Delay in Application of Prospective Payment System to 
                        Cancer Center Hospitals

Current law

    The BBA permitted the Secretary to delay by one year the 
application of the outpatient prospective payment system to 
cancer center hospitals.

Explanation of provision

    This provision would direct the Secretary to delay the 
application of the outpatient prospective payment system to 
services furnished by cancer center hospitals until the first 
day of the first year that begins two years after the 
outpatient PPS is implemented.

Effective date

    Upon enactment.

Reason for change

    The Committee is concerned about the impact of the new 
outpatient PPS on caner center hospitals and directs the 
Secretary to exempt these centers from the outpatient PPS for 
two years so that the potential impact of the new payment 
method on these centers can be assessed.

    Section 214. Limitation on Outpatient Hospital Copayment for a 
              Procedure to the Hospital Deductible Amount

Current law

    Currently, beneficiaries pay 20 percent of charges for 
outpatient services.

Explanation of provision

    This provision would limit the beneficiary copayment amount 
on outpatient services to the inpatient hospital Part A 
deductible amount.

Effective date

    Upon implementation of the hospital outpatient prospective 
payment system.

Reason for change

    As services and procedures are moved from the inpatient to 
the outpatient setting, the Committee believes that beneficiary 
obligations should be held to the amount of the inpatient 
hospital Part A deductible. The Committee believes that the 
limitation of beneficiary copayments to no more than the cost 
of the hospital deductible ($776 in 2000) is an appropriate 
modification. There are some medical procedures where the 
beneficiary copay exceeds the hospital deductible. In several 
cases, the beneficiary faces a $2000 or $3000 bill. This 
provision is an important protection for beneficiaries and 
ensures that the hospital outpatient department reforms of the 
BBA provide some immediate help in high-cost cases.

                           Subtitle C--Other


   section 221. application of separate caps to physical and speech 
                            therapy services

Current law

    The BBA established annual payment limits for all 
outpatient therapy services provided by non-hospital providers. 
The limits apply to services provided by independent therapists 
as well as to those provided by comprehensive outpatient 
rehabilitation facilities (CORFs), skilled nursing facilities 
(under Part B), and other rehabilitation agencies. The limits 
do not apply to outpatient services provided by hospitals.
    There are two per beneficiary limits. The first is a $1,500 
per beneficiary annual cap for all outpatient physical therapy 
services and speech language pathology services. The second is 
a $1,500 per beneficiary annual cap for all outpatient 
occupational therapy services. Beginning in 2002, the amount 
will increase by the Medicare Economic Index (MEI), rounded to 
the nearest multiple of $10.

Explanation of provision

    The provision would create separate $1,500 caps for 
physical therapy and speech-language pathology services which 
would be applied to services furnished on a per beneficiary, 
per facility (or provider) basis. The cap on occupational 
therapy services would also be applied on a per beneficiary, 
per facility (or provider) basis.

Effective date

    This provision would become effective for services 
furnished on or after January 1, 2000.

Reason for change

    The Committee believes that this provision would provide 
additional flexibility under the caps while maintaining the 
need to control the growth of therapy services.

  section 222. transitional outlier payments for therapy services for 
                      certain high acuity patients

Current law

    The therapy caps established by the BBA apply to all 
outpatient therapy services provided by non-hospital providers. 
The caps apply equally to all beneficiaries regardless of the 
amount of services needed or their acuity level.
    The BBA requires the Secretary to report to Congress, no 
later than January 1, 2001, recommendations for a revised 
coverage policy of outpatient physical therapy services and 
outpatient occupational therapy services. This revised policy 
would be based on a classification of individuals by diagnostic 
category and prior use of services, in both inpatient and 
outpatient settings. This would be in place of uniform dollar 
limitations. The recommendations are required to include how a 
system of durational limits by diagnostic category might be 
implemented in a budget neutral manner.

Explanation of provision

    This provision directs the Secretary to establish a process 
so that a facility could apply to the Secretary for an increase 
in the limit for services furnished in CY 2000 and CY 2001. The 
process would take into account clinical diagnosis and would 
not exceed $40 million in FY 2000, $60 million in FY 2001 and 
$20 million in FY 2002.

Effective date

    This provision is in effect for CY 2000 and CY 2001.

Reason for change

    This provision recognizes that some individuals who require 
intensive and frequent therapy services are unable to receive 
these services in a hospital outpatient department, and 
therefore, may exceed the caps that are applied in other 
settings. By providing for outlier payments for certain high 
acuity patients, these high cost individuals would have greater 
access to these services. The Committee is concerned that HCFA 
has taken no significant action yet to develop the report 
called for in the BBA which would enable payment for outpatient 
rehabilitation services on the basis of a classification of 
individuals by diagnostic category and prior use of services. 
The development of such a system is essential to replacing the 
system of rehabilitation caps.

          section 223. update in renal dialysis composite rate

Current law

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

Explanation of provision

    This provision would provide an update of 1.2% to the 
composite rate payment for dialysis services furnished during 
CY 2000 and an update of 1.2% in CY 2001. The provision also 
calls for MedPAC to conduct a study on the use of home dialysis 
services by Medicare beneficiaries. MedPAC should make further 
recommendations to Congress within one year of enactment.

Effective date

    January 1, 2000.

Reason for change

    This provision would provide an update to the composite 
rate for dialysis services, which, according to MedPAC, ``has 
remained essentially unchanged since 1983.'' The Committee asks 
that MedPAC and HCFA report on whether quality of care could be 
improved and payments be made more appropriately if billings 
outside the composite rate were reviewed to include an 
appropriate mix of additional laboratory tests, pharmaceuticals 
(other than erythropoietin) and nutritional services.
    In the end stage renal disease area, Medicare covers the 
first 36 months of immuno-suppressive drugs after a transplant. 
As directed in the BBA, the Committee eagerly awaits the final 
report of the Institute of Medicine on this issue, and expects 
to examine the issue in the near future. The Committee is 
interested in examining this issue to ensure that costly 
transplants are not rejected due to the lack of coverage of 
immuno-suppressive drugs, and so that these beneficiaries are 
able to improve their quality of life by no longer needing 
dialysis services.

 section 224. temporary update in durable medical equipment and oxygen 
                                 rates

Current law

    Medicare pays for durable medical equipment, oxygen and 
oxygen equipment on the basis of fee schedules. Prior to the 
BBA, the fee schedule amounts were updated annually by the 
consumer price index for all urban consumers (CPI-U). In 
general, the fee schedules established national payment limits 
that are subject to floors and ceilings. The BBA eliminated the 
1998 through 2002 updates for durable medical equipment. The 
BBA reduced the national payment limit for oxygen and oxygen 
equipment by 25% in fiscal year 1998 and by an additional 5% in 
FY 1999. These reductions were to continue to be reflected in 
payments for oxygen in subsequent years.

Explanation of provision

    This provision would provide an update for the years 2001 
and 2002 of CPI minus 2 percentage points.

Effective date

    Upon enactment.

Reason for change

    These provisions are intended to help reduce the impact of 
BBA payment adjustments on durable medical equipment suppliers.

section 225. requirement for new proposed rulemaking for implementation 
                   of inherent reasonableness policy

Current law

    Section 1842(b) of the Social Security Act permits the 
Secretary to increase or decrease certain payments under Part B 
where the payment amount is ``grossly excessive or grossly 
deficient and not inherently reasonable.'' Section 4316 of the 
Balanced Budget Act of 1997 modified this authority requiring, 
among other things, that the Secretary consider certain 
factors, consult with industry and implement payment changes by 
formal rulemaking procedures. The Secretary could not apply 
factors that would increase or decrease the payment for an item 
or service by more than 15% in any given year.

Explanation of provision

    The provision requires the Secretary to publish new 
proposed and final regulations establishing the procedures by 
which the Secretary shall exercise inherent reasonableness 
authority. The provision requires a minimum of sixty days for 
the public to comment on the new proposed rule, and directs the 
Secretary to take into account such comments before 
promulgating a new final rule. The Secretary's authority under 
section 1842(b) is suspended until the new regulations are in 
place.

Effective date

    Upon enactment.

Reason for change

    In January 1998 the Secretary elected to implement the 
changes made to section 1842(b) buy the Balanced Budget Act by 
promulgating ``interim final regulations'' in 63 Fed. Reg. 687. 
While public comment was solicited as part of this rule, the 
Secretary chose not to respond publicly to these comments 
before exercising modified inherent reasonableness authority 
provided by section 1842(b) should be administered judiciously 
and applied only after public concerns and suggestions about 
proposed administrative criteria have been openly addressed. 
Also, the rules should include an explanation of the 
Secretary's costing methodology which should be based on 
statistically valid and relevant data.

         section 226. increase in reimbursement for pap smears

Current law

    Medicare pays for diagnostic and screening pap smears under 
regional clinical laboratory test fee schedules. Current 
laboratory fees are based on 60% of prevailing charge data from 
1984 and 1985. In addition, national payment caps limit the 
amount that any carrier can pay for a given test to 74% of the 
national median of the carriers fee schedule amounts for that 
test. These fees are to be adjusted annually for inflation but, 
due to provisions included in the BBA, are currently frozen 
through 2002. The national payment cap for a pap smear under 
current law is approximately $7.15. The particular technologies 
providers may use in performing a reimbursable pap smear test 
vary and the corresponding payment amounts are currently 
determined on a carrier by carrier basis.

Explanation of provision

    The provision would establish a national minimum payment 
for a pap smear test of $14.60. It would also clarify that this 
minimum payment rate would apply to pap smear tests conducted 
using any FDA-approved cervical cancer screening technology. In 
addition, a Sense of the Congress provision is included which 
encourages the Secretary to closely monitor the appropriateness 
of reimbursement rates for tests using new cervical cancer 
screening technologies in the future.

Effective date

    For services provided on or after January 1, 2000.

Reason for change

    The Committee is concerned about evidence that suggests 
that the prevailing reimbursement rates for pap smears are 
largely inadequate to cover the cost of performing these tests, 
particularly those utilizing newer and more sophisticated 
screening technologies. The Committee is concerned that the 
disparity between estimated costs and actual payments for pap 
smears may undermine beneficiary future access to these 
important preventive health tools, and in particular, diminish 
beneficiary ability to benefit from new and improved diagnostic 
technologies in this area.

  section 227. refinement of ambulance services demonstration project

Current law

    The BBA directed the Secretary to establish a demonstration 
project in which a local government could enter into a contract 
with the Secretary to furnish ambulance services under Part B 
for individuals who live in the local government unit. The 
contract must provide for at least 80% of the individuals who 
are enrolled under Medicare Part B but who are not enrolled in 
Medicare+Choice. Capitated payments are made to a local 
government for those individuals. Currently, payments should be 
95% of the first year of what otherwise would have been 
payable, after which they should be adjusted for inflation.

Explanation of provision

    This provision specifies that the Secretary publish a 
request for proposals for the ambulance services demonstration 
project by July 1, 2000. The provision also asks that the rate 
for project be established with the most current data available 
and so aggregate payments do not exceed what they otherwise 
would have been.

Effective date

    As if included in the BBA.

Reason for change

    This provision ensures timely implementation of the 
demonstration project.

                   section 228. additional provisions

Current law

    Medicare does not currently cover services furnished in 
post-surgical recovery care centers.

Explanation of provision

    This provision would direct MedPAC to conduct a study on 
the cost effectiveness of Medicare coverage of post-surgical 
recovery care centers. Within one year of enactment, MedPAC 
should make recommendations on the feasibility, costs and 
savings of covering such services in its report to the 
Congress.

Effective date

    Upon enactment.

Reason for change

    The Committee is interested in determining the cost 
effectiveness of these post-surgical recovery care centers.

            TITLE III. PROVISIONS RELATING TO PARTS A AND B


                    Subtitle A--Home Health Services


section 301. adjustment to reflect administrative costs not included in 
                       the interim payment system

Current law

    The BBA required the Secretary to expand research on a 
prospective payment system for home health agencies under the 
Medicare program that ties prospective payments to a unit of 
service, and it instructed the Secretary to undertake an 
intensive effort to develop a reliable case-mix adjuster that 
explains a significant amount of the variances in costs among 
beneficiaries. It authorized the Secretary, beginning with cost 
reporting periods beginning on or after October 1, 1997, to 
require all home health agencies to submit additional 
information that the Secretary considered necessary for the 
development of a reliable case-mix system.
    HCFA used this authority in the BBA to require home health 
agencies to administer and report information from a data 
collection instrument known as the Outcome and Assessment 
Information Set (OASIS), which had been under design and pilot 
testing for several years. OASIS will permit HCFA to obtain 
information for refining the design and case mix adjustment of 
the home health care prospective payment system. It is a 
questionnaire required to be administered by a home health 
worker to home health beneficiaries at the start of a spell of 
care and occasionally thereafter. Data are to be encoded and 
transmitted to state survey agencies.

Explanation of provision

    This provision would provide a $10 payment to a home health 
agency for each beneficiary to whom it furnishes services 
during the agency's cost reporting period beginning in FY 2000. 
Payment would be made in April 2000 and upon cost report 
settlement.

Effective date

    Upon enactment.

Reason for change

    This provision is intended to assist home health agencies 
with the administrative costs that are not included in the 
interim payment system. The Committee also encourages the 
Secretary to provide home health agencies with the opportunity 
to repay overpayments (due to incorrect interim payment system 
estimates) over a three-year period without interest costs.

 section 302. delay in application of 15 percent reduction in payment 
 rates for home health services until one year after implementation of 
                       prospective payment system

Current law

    The BBA required the Secretary to implement a prospective 
payment system for Medicare home health care cost reporting 
periods beginning on or after October 1, 1999, and required 
that the new system be designed to reduce the initial aggregate 
cost of Medicare home health care by 15%. The BBA allows a 
transition period for implementation of the new system of no 
longer than 4 years. The BBA also specified that if the new 
prospective payment system were not ready for implementation on 
October 1, 1999, the interim payment system then in effect 
would be changed to reduce cost limits and per beneficiary 
limits by 15%.
    The Omnibus Consolidated and Emergency Supplemental 
Appropriations Act for Fiscal Year 1999 (P.L. 105-277) moved 
implementation of the home health care prospective payment 
system to portions of cost reporting periods beginning on or 
after October 1, 2000, and moved the 15% reduction in cost 
limits and per beneficiary limits to coincide with 
implementation of the prospective payment system.

Explanation of provision

    This provision would delay the 15% reduction in payment 
rates for home health services until one year after the 
implementation of the prospective payment system.
    The Secretary is required to report to Congress on the need 
for a 15% reduction, or for any reduction, in the base payment 
amounts no later than 6 months after the Secretary implements 
the home health prospective payment system.

Effective date

    Upon enactment

Reason for change

    This provision would delay the scheduled payment reduction 
to allow home health agencies some time to transition to the 
new prospective payment system. To ensure that further 
reductions in home health payments are warranted, the Committee 
directs the Secretary to analyze the need for further 
reductions in home health payments. In addition, the Committee 
encourages the Secretary to consider what changes would be 
necessary to provide home health care agencies with the 
flexibility to adopt new market innovations and new 
technologies that can improve health outcomes while maintaining 
the goals of quality of care and cost containment.

         section 303. clarification of surety bond requirements

Current law

    Home health agencies must provide the Secretary on a 
continuing basis with a surety bond that is not less than 
$50,000. HCFA regulations require the bond to be not less than 
15% for the agency's Medicare payments in the previous year.

Explanation of provision

    This provision clarifies that the surety bond requirement 
for home health agencies should be effective for a period of 4 
years and in an amount equal to the lesser of $50,000 or 10% of 
the aggregate annual amount of payments to the agency.

Effective date

    Upon enactment.

Reason for change

    This provision would help to stabilize the financial 
security of home health agencies, while still protecting 
against fraud and abuse.

 section 304. technical amendment clarifying applicable market basket 
                            increase for pps

Current law

    With respect to FY 2002 and FY 2003, the home health market 
basket percentage increase is market basket minus 1.1 
percentage points.

Explanation of provision

    This provision clarifies that the reduction of 1.1 
percentage points applies to both FY 2002 and FY 2003.

Effective date

    Upon enactment.

Reason for change

    This provision is a technical amendment that clarifies the 
applicable market basket update for FY 2002 and FY 2003.

             Subtitle B--Direct Graduate Medical Education


 section 311. use of national average payment methodology in computing 
           direct graduate medical education (dgme) payments

Current law

    Under section 1886(h) of the Social Security Act, Medicare 
pays hospitals for its share of direct graduate medical 
education (DGME) costs in approved programs using a count of 
the hospital's number of full-time equivalent residents and a 
hospital-specific historic cost per resident, updated for 
inflation. In general, the BBA limited the number of residents 
that hospitals may count for direct GME to the total recognized 
by the hospital on or before December 31, 1996.

Explanation of provision

    This provision would establish a national average per 
resident payment amount, adjusted for differences in area 
wages, for all hospitals with residency training programs 
starting with cost report periods beginning on or after October 
1, 2000. Hospitals would receive the greater of the national 
average per resident amount or the sum of a percentage of the 
hospital-specific per resident amount and a percentage of the 
national average per resident amount. A transition period of 
five years is provided for hospitals that have current per 
resident amounts above the national average per resident 
amount. A budget neutrality adjustment is made to ensure that 
aggregate payments are not reduced as a result of the 
transition.

Effective date

    This provision would become effective with cost reporting 
periods beginning on or after October 1, 2000.

Reason for change

    This provision would establish a more rational and 
equitable payment system for direct graduate medical education 
costs similar to other prospective payment systems in the 
Medicare program. The transition to the national average per 
resident amount over a period of five years provides a gradual 
glide path for those hospitals that have per resident amounts 
above the national average, while the budget neutrality 
adjustment ensures that aggregate payments have not been 
reduced at the end of the transition.

                           Subtitle C--Other


         section 321. gao study on geographic reclassification

Current law

    The Omnibus Budget Reconciliation Act of 1990 (OBRA) 1990) 
established the Medicare Geographic Classification Review Board 
to evaluate hospitals' applications for reclassification to a 
different geographic area. The Board may reclassify a hospital 
for the purposes of determining its standardized amount, its 
wage index, or both. Urban and rural hospitals can apply if the 
hospital can prove, using established guidelines, that its 
geographic assignment is inappropriate, because it competes for 
patients and employees with hospitals located in other areas. 
For FY 2000, there were 416 rural reclassified hospitals and 83 
urban reclassified hospitals.

Explanation of provision

    This provision requires the GAO to conduct a study of the 
current laws and regulations for geographic reclassification 
under the Medicare program and the special designations for 
determining Medicare payments. The GAO would submit the study 
to Congress within 18 months of enactment.

Effective date

    Upon enactment.

Reason for change

    The Committee notes that in recent years the geographic 
reclassification process and the increasing number of special 
designations for groups of hospitals have resulted in a system 
that is administratively cumbersome. In addition, the system, 
which relies on exceptions and waivers, lacks consistency and 
undermines the ability of hospitals to implement long-term 
planning. Most hospitals are required to reapply annually for 
geographic reclassification with no certainty that they will 
receive the desired wage index or standardized amount.
    The Committee expects the GAO study to provide background, 
rationale, and analytic justification for the current rural 
definitions and exceptions process. The Committee hopes that 
this report will be an important tool in helping the Congress 
craft a more objective and equitable approach to Medicare 
payment for rural hospitals. This will only become more 
critical as the Congress considers extending geographic 
reclassification to other types of prospective payment systems. 
The Committee specifically asks the GAO to consider in its 
analysis whether the geographic reclassification process should 
be extended to other types of providers, particularly to 
skilled nursing facilities.

Section 322. MedPAC Study on Medicare Payment for Non-Physician Health 
              Professional Clinical Training in Hospitals

Current law

    The BBA required the MedPac, within two years of enactment 
of the BBA, to make recommendations regarding whether and to 
what extent payments are being made, or should be made, for 
training in the nursing and allied health professions.

Explanation of provision

    This provision would require MedPAC to conduct a study on 
Medicare payment policy with respect to professional clinical 
training of different classes of non-physician health 
professionals. The Committee expects MedPAC to consider those 
types of health professionals that Medicare currently supports, 
such as nurses and allied health professionals, and those 
categories that are not supported, such as psychologists and 
physician assistants.
    The Committee recognizes that MedPAC has considered this 
issue in its BBA-mandated report on long-term policies for 
graduate medical education. However, the Committee requires 
additional explicit information on Medicare's role in financing 
clinical training for non-physician health professionals. A 
continuation of the existing effort, combined with quantitative 
analysis, will provide the Committee with a sound foundation as 
it grapples with all aspects of Medicare's support for health 
professions training, including possible methodologies for 
making payments and the entities that should receive them.

                  TITLE IV. RURAL PROVIDER PROVISIONS


Section 401. Permitting Reclassification of Certain Urban Hospitals as 
                            Rural Hospitals

Current law

    Medicare's payments to an acute hospital will vary 
depending upon the geographic location of the hospital. The 
Omnibus Budget Reconciliation Act of 1990 (OBRA 1990) 
established the Medicare Geographic Classification Review Board 
to evaluate hospital applications for reclassification to a 
different geographic area. The Board may reclassify a hospital 
for the purposes of determining its standardized amount, its 
wage index, or both. Urban and rural hospitals can apply if the 
hospital can prove, using established guidelines, that its 
geographic assignment is inappropriate, because it competes for 
patients and employees with hospitals located in other areas.

Explanation of provision

    This provision would require the Secretary to establish a 
process for hospitals located in urban Metropolitan Statistical 
Areas (MSAs) to apply to be treated as rural hospitals, 
supplement the federal criteria used to designate rural 
providers, allow for state designation as a rural provider, and 
permit urban hospitals to be designated as sole community 
hospitals.

Effective date

    This provision would become effective on January 1, 2000.

Reason for change

    This provision would permit additional flexibility for 
hospitals to reclassify for purposes of becoming rural 
hospitals so that they may participate in Medicare as critical 
access or sole community hospitals.

        Section 402. Update of Standards Applied for Geographic 
                 Reclassification for Certain Hospitals

Current law

    Section 1886(d)(8)(B) of the Social Security Act requires 
the Secretary to treat a hospital located in a rural county 
adjacent to one or more urban areas as being located in the 
urban Metropolitan Statistical Area (MSA) to which the greatest 
number of rural workers commute if the rural county's aggregate 
commuting rate (to all the contiguous MSAs) meets the standards 
for designating outlier counties to MSAs (and New England 
County Metropolitan Statistical Areas) that were published in 
the Federal Register on January 3, 1980.

Explanation of provision

    This provision would update the reclassification criteria 
for hospitals located between two MSAs. For FY 2000, the 1980 
census data would be used. A transition is provided for 
discharges occurring during cost report periods during FY 2001 
and 2002 for hospitals to choose between the standards 
published in 1980 and 1990. Beginning with cost reporting 
periods during FY 2003, standards would be based on the most 
recent decennial population data published by the Bureau of the 
Census as revised by the Office of Management and Budget.

Effective date

    This provision is effective with discharges occurring 
during cost reporting periods beginning on or after October 1, 
1999.

Reason for change

    This provision would update the standards which are used to 
classify hospitals located between two MSAs from 1980 to 1990 
census data and then to the most recently available decennial 
population data for FY 2003 and subsequent years. The Committee 
believes that a transition period for hospitals that might be 
negatively affected by the change in the standard is 
appropriate.

section 403. improvements in the critical access hospital (CAH) program

Current law

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

Explanation of provision

    This provision would apply the 96-hour length of stay 
limitation on an average annual basis. Not-for-profit hospitals 
would be permitted to qualify for designation as critical 
access hospitals. Hospitals that have closed within the past 10 
years or facilities that have downsized may convert to critical 
access hospitals. For outpatient services for cost reporting 
periods beginning on or after October 1, 1999, hospitals may 
choose between a cost-based hospital outpatient service payment 
plus a fee schedule payment for professional services or an 
all-inclusive rate. Upon enactment, coinsurance for clinical 
diagnostic laboratory tests furnished by a CAH on an outpatient 
basis would be eliminated. Statutory language would be 
clarified to reflect that CAHs may participate in the swing bed 
program.

Effective date

    Upon enactment unless otherwise specified above.

Reason for change

    This provision would strengthen and provide increased 
flexibility for the critical access hospital program.

 section 404. Five-Year Extension of Medicare Dependent Hospital (MDH) 
                                Program

Current law

    Medicare Dependent Hospitals (MDH) are small rural 
hospitals that are not classified as sole community hospitals 
and that treat relatively high proportions of Medicare 
patients. From April 1, 1990 to April 1, 1993, MDHs has been 
reimbursed as sole community hospitals. This special payment 
status was phased out as of September 30, 1994. The BBA 
reinstated and extended the MDH classification, starting on 
October 1, 1997 through September 30, 2001. During that time 
period, MDH hospitals will be paid at a national standardized 
rate or, if higher, 50% of their adjusted FY 1982 or FY 1987 
hospital-specific costs. These hospitals continue to be 
protected from volume declines that are beyond their control.

Explanation of provision

    This provision would extend the Medicare Dependent Hospital 
program through FY 2005.

Effective Date

    Upon enactment.

Reason for change

    This provision would ensure the continuation of the 
Medicare Dependent Hospital program beyond September 30, 2001 
until September 30, 2005.

       section 405. rebasing for certain sole community hospitals

Current law

    Sole community hospitals are paid based on whichever of the 
following amounts yields the greatest Medicare reimbursement 
for the cost reporting period: (1) a hospital-specific target 
amount based on its updated FY 1982 costs; (2) a hospital-
specific target amount based on its updated FY 1987 costs; or 
(3) the federal national standardized amount.

Explanation of provision

    This provision would allow those sole community hospitals 
that now paid the Federal rate to rebase over time to their 
1996 costs. Starting in FY 2001, these hospitals would receive 
payments based on 25% of their 1996 costs and 75% of their 1982 
or 1987 costs. In FY 2002, they would receive a 50/50 blend, 
and in FY 2003, they would receive 25% of their 1982 or 1987 
costs and 75% of their 1996 costs. In FY 2004, their rate would 
be 100% of their 1996 costs.

Effective date

    This provision becomes effective for discharges occurring 
in FY 2001.

Reason for change

    This provision would allow those hospitals that had low 
costs in 1982 or 1987 to rebase gradually to their 1996 costs.

  section 406. increased flexibility in providing graduate physician 
                        training in rural areas

Current law

    In general, the BBA limited the number of residents that 
hospitals may count for direct GME to the total recognized by 
the hospital on or before December 31, 1996.

Explanation of provision

    This provision would allow hospitals located in rural areas 
to increase their per resident limits by 30% for both direct 
medical education and indirect medical education payments. It 
also would permit non-rural facilities that operate separately 
accredited rural training programs, or rural tracks, to 
increase their resident limits.

Effective date

    This provision would become effective with respect to 
payments on or after October 1, 1999.

Reason for change

    Individuals in rural areas often encounter difficulty in 
receiving medical services near their home. This provision 
provides increased flexibility to hospitals that train 
residents in rural areas to provide greater access to these 
needed services.

   section 407. elimination of certain restrictions with respect to 
                       hospital swing bed program

Current law

    The Omnibus Budget Reconciliation Act of 1980 (OBRA 1980) 
permitted certain rural hospitals with fewer than 50 beds to 
use their inpatient facilities, as necessary, to furnish long-
term care services. The Omnibus Budget Reconciliation Act of 
1987 (OBRA 1987) extended the Medicare swing-bed program to 
rural hospitals with less than 100 beds with certain payment 
limitations. These rural swing bed providers will be included 
in the new SNF prospective per diem system no earlier than July 
1, 1999.

Explanation of provision

    This provision would eliminate the mandate that states 
review the need for swing beds through the Certificate of Need 
(CON) process. The provision also removes constraints on length 
of stay while maintaining requirements for quality.

Effective date

    The provision takes effect on the first day after the 
expiration of the transition period to the SNF prospective 
payment system.

Reason for change

    This provision would provide flexibility for hospitals 
between 50 and 100 beds that wish to participate more 
extensively in the Medicare swing bed program.

section 408. grant program for rural hospital transition to prospective 
                                payment

Current law

    The BBA replaced and modified the existing Essential Access 
Community Hospital (EACH) program with the Medicare Rural 
Flexibility Program. As part of this program, the Secretary was 
authorized to award grants to States that submitted 
applications in accordance with development or approval of a 
rural health plan for the purposes of engaging in activities 
related to planning and implementing a rural health care plan 
or rural health network, as well as activities related to 
designating facilities as critical access hospitals.

Explanation of provision

    This provision would modify the grant program to allow 
rural hospitals with fewer than 50 beds to apply for grants not 
to exceed $50,000 for meeting the costs associated with 
implementing new prospective payment systems, such as the 
purchase of computer software and hardware and the education 
and training of staff.

Effective date

    Upon enactment.

Reason for change

    This provision would permit small rural hospitals to apply 
for grants to help them adjust to the new prospective payment 
systems required by the BBA.

              section 409. medpac study of rural providers

Current law

    There is no explicit provision in current law.

Explanation of provision

    This provision would require MedPAC to conduct a study of 
rural providers for Congress within 18 months of enactment. The 
study would examine and evaluate the appropriateness of the 
categories of special payments, and payment methodologies 
established for rural hospitals and their impact on beneficiary 
access and quality of services.

Effective date

    The report is due within 18 months of enactment.

Reason for change

    This provision would help Congress improve the 
understanding of the needs of health care providers in rural 
areas and make informed policy decisions.

  section 410. expansion of access to paramedic intercept services in 
                              rural areas

Current law

    The BBA authorized coverage of advanced life support (ALS) 
services provided by a paramedic intercept service provider in 
a rural area when medically necessary to the individual being 
transported and provided under contract with one or more 
qualified volunteer ambulance services. The volunteer ambulance 
service is certified, provides only basic life support 
services, and is prohibited by State law from billing for any 
services. The entity supplying the advanced life support 
services is Medicare-certified and bills all recipients who 
receive ALS services, regardless of whether the recipients are 
Medicare eligible.

Explanation of provision

    For purposes of paramedic intercept services, this 
provision would allow States to designate an area as rural or 
would allow an area located in a rural census tract of a 
metropolitan statistical area (as determined by the Goldsmith 
modification as published in the February 27, 1992 Federal 
Register) to be treated as a rural area.

Effective date

    Applies to paramedic intercept furnished on or after 
January 1, 2000.

Reason for change

    Many areas depend on paramedic intercept services for 
survival of those who live in rural areas. A too-narrow 
definition of a ``rural'' area may jeopardize the availability 
of emergency services. The Committee believes that a State-
determined designation of a rural area or an area located in a 
rural census tract of a Metropolitan Statistical Area should be 
acceptable for purposes of expanding access to paramedic 
intercept services.

                 TITLE V. PROVISIONS RELATING TO PART C


                      Subtitle A--Medicare+Choice


        section 501. phase-in of new risk adjustment methodology

Current law

    The BBA required the Secretary to develop and submit to 
Congress by March 1, 1999 a report on the method of risk 
adjustment that would be used to account for variations in per 
capita costs based on health status. Medicare+Choice 
organizations and risk contract plans would have to submit data 
for inpatient hospital services that began on or after July 1, 
1997, and data for other services that began on or after July 
1, 1998. The Secretary could not require an organization to 
submit data before January 1, 1998. Finally, the Secretary 
would have to provide for implementation of a risk adjustment 
payment methodology that accounts for variation in per capita 
costs based on health status by no later than January 1, 2000. 
The payment methodology would be applied uniformly without 
regard to the type of plan.
    Medicare+Choice payments to plans are currently adjusted 
using demographic factors, including age, gender, coverage by 
Medicaid, institutionalized status, and working status. The 
Secretary has proposed use of the principal inpatient 
diagnostic cost groups (PIP-DCG) method, which would supplement 
demographic factors with health status factors. This 
prospective model uses diagnoses in a base year to adjust 
payment for a future payment year. Payment is determined by 
each Medicare+Choice enrollee's risk factor, which will 
initially be based on inpatient data using the PIP-DCG 
adjusters. These adjusters predict incremental costs, above the 
average for the demographic group, which are expected to be 
incurred in the year after hospitalization. the Secretary has 
proposed moving to comprehensive risk adjustments by 2004, 
which would take into account a wider range of measures for 
health status, not just hospitalization.
    The Secretary has proposed a phase-in of the new risk 
adjustment methodology such that Medicare+Choice payments would 
reflect a blend of payments under the current demographic 
adjustment procedure and the new PIP-DCG procedure. The 
proposed phase-in schedule would be: 90% demographic/10% PIP-
DCG in 2000; 70% demographic/30% PIP-DCG in 2001; 45% 
demographic/55% PIP-DCG in 2002; 20% demographic/80% PIP-DCG in 
2003; and 10% risk adjustment in 2004.

Explanation of provision

    The provision would hold the risk adjuster at the 90% 
demographic/10% PIP-DCG blend for 2000 and 2001. In 2002, the 
risk adjuster would be 80% demographic/20% PIP-DCG. In 2003, 
the risk adjuster would be 70% demographic/30% PIP-DCG. In 
2004, Medicare+Choice rates would be risk-adjusted based 100% 
on data from multiple settings.

Effective date

    These provisions would apply for 2001-2004.

Reason for change

    This provision would provide Medicare+Choice and HCFA 
additional time to transition to the new risk adjustment 
methodology, so as to avoid dramatic changes in Medicare+Choice 
payments which could destabilize the program and limit choices 
for seniors.
    The Committee notes that in 1997, when Congress required 
the Secretary to develop a risk adjuster for Medicare+Choice 
plans, it was concerned that those plans that treated the most 
severely ill enrollees were not adequately paid. The Congress 
envisioned a risk adjuster that would be more clinically-based 
than the old method of adjusting payments. The Congress did not 
instruct HCFA to implement the provision in a manner that would 
reduce aggregate Medicare+Choice payments. In addition, the 
Congressional Budget Office did not estimate that the provision 
would reduce aggregate Medicare+Choice payments. Consequently, 
the Committee urges the Secretary to revise the regulations 
implementing the risk adjuster so as to provide for more 
accurate payments, without reducing overall Medicare+Choice 
payments.
    The Committee also notes that as currently designed, the 
proposed Medicare+Choice risk adjuster fails to account for 
several unique aspects of Medicare's frail elderly population. 
The Committee notes that the Secretary recently acknowledged 
her authority to address this problem by waiving application of 
the risk adjuster within the frail elderly demonstration 
project commonly known as EverCare. The Committee notes that 
the Secretary will begin implementation of a multi-setting risk 
adjuster for all enrollees in 2004, and that such a risk 
adjuster should be designed to better predict the unique costs 
associated with caring for frail elderly beneficiaries. 
Consequently, the Committee encourages the Secretary to 
consider her ability to waive the application of the new risk 
adjuster to such beneficiaries until that time.
    The Committee also believes that Medicare enrollees with 
end-stage renal disease (ESRD) could benefit by being offered 
the opportunity to enroll in Medicare+Choice plans. However, 
the Committee understands that the current risk adjuster may 
not adequately reflect the varying costs of these patients and 
requests further information from the Secretary so that it 
might address this issue in the future. The Committee also 
encourages the Secretary to develop proposed quality of care 
requirements for Medicare beneficiaries with ESRD in this 
report.

  section 502. encouraging offering of medicare+choice plans in areas 
                             without plans

Current law

    For each beneficiary enrolled, the Medicare+Choice plan 
receives the Medicare+Choice payment rate applicable to the 
payment area (typically a county) in which the enrollee 
resides, adjusted for risk. This rate is based on a formula 
which gives the county the highest of three different rates: a 
floor, or minimum payment rate, a minimum update rate, and a 
blended rate.
    The floor payment rate was set at $367 per month for aged 
beneficiaries in 1998. Each year the floor is increased by an 
annual update factor, equal to adjusted growth in Medicare 
expenditures per capita, minus 0.8 percentage points in 1998, 
and minus 0.5 percentage points annually from 1999 through 
2002.
    The minimum update rate was set at the county rate in 1997 
increased by 2%. This rate increases 2% each year.
    The blended rate represents an average of local and 
national rates. The local rate is an area-specific capitation 
rate, which is adjusted to remove the share of payments that 
represent payments for graduate medical education (GME), with a 
phase-out over 5 years. Beginning in 1998, local rates for 
blending purposes had 20% of GME spending removed. The 
reduction in GME payments is increased by 20% annually, until 
all GME funds are removed from 2002 forward. The national rate 
is the average of local area-specific payment rates, weighted 
by the number of Medicare beneficiaries in each county. For 
blending purposes, the national rate is input price-adjusted to 
reflect differences in the costs of providing medical care 
across counties. The blended rate is computed as follows: 90% 
local/10% national in 1998; 82% local/18% national in 1999; 74% 
local/26% national in 2000; 66% local/34% national in 2001; 58% 
local/42% national in 2002; 50% local/50% national from 2003 
onward.

Explanation of provision

    The provision would encourage new Medicare+Choice plans to 
enter counties that would otherwise not have a private plan 
participating. The first plan to enter a previously unserved 
county would receive a 5 percent added payment during their 
first year and a 3 percent added payment during their second 
year.

Effective date

    This provision would apply during the 2-year period 
beginning January 1, 2000.

Reason for change

    In some counties, beneficiaries have access to only one 
Medicare option: the fee-for-service Medicare program. This 
temporary enhancement of payments will encourage new plans to 
enter areas without Medicare+Choice options.

   section 503. modification of five-year re-entry rule for contract 
                              terminations

Current law

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

Explanation of provision

    The provision would allow, under certain circumstances, a 
plan to reenter a county if a legislative or regulatory change 
that would increase Medicare+Choice payments in the area 
occurred within 6 months of the plan's decision to terminate 
its Medicare+Choice contract. A plan would be permitted reentry 
only if, at the time it notified the Secretary of its intent, 
there is no more than one Medicare+Choice plan offered in the 
area.

Effective date

    This provision applies to contracts occurring before, on, 
or after the date of enactment.

Reason for change

    Some plans left the Medicare+Choice program because of 
increased administrative requirements and payment rate growth 
that was lower than expected. Since this bill would make 
payment changes affecting Medicare+Choice plans, this provision 
would provide an opportunity for the plans to return to a 
county, and therefore, increase options for beneficiaries.

    section 504. continued computation and publication of aapcc data

Current law

    The Secretary is required to announce Medicare+Choice 
payment rates for each payment area, and risk and other factors 
to be used in adjusting payments, not later than March 1 before 
the calendar year concerned. At least 45 days before making the 
announcement for a year, the Secretary must provide notice to 
Medicare+Choice organizations of proposed changes to be made in 
the methodology and assumptions used in the previous 
announcement. The Secretary must also provide sufficient detail 
so that Medicare+Choice organizations can compute monthly 
adjusted Medicare+Choice capitation rates for individuals in 
each Medicare+Choice payment area. The Secretary is not 
required to publish adjusted annual per capita cost (AAPCC) 
data. AAPCCs formed the basis of payments to managed care plans 
prior to enactment of the BBA, and represented the costs of 
providing Medicare benefits to beneficiaries under fee-for-
service care in each county nationwide. Because Medicare+Choice 
payments are no longer directly tied to a payment area's fee-
for-service costs, AAPCCs have not been published.

Explanation of provision

    This provision would require the Secretary to continue to 
publish estimates of AAPCC data.

Effective date

    Upon enactment.

Reason for change

    This change will ensure that Congress can readily compare 
the average per capita payments made under the Medicare+Choice 
program to Medicare's average expenditures for a beneficiary in 
the traditional fee-for-service program, on a county-by-county 
basis.

        section 505. changes in medicare+choice enrollment rules

Current law

    Some HMOs have announced their intention not to renew their 
Medicare+Choice contracts or to reduce the service area covered 
by the contracts. These decisions become effective for the next 
contract period which begins on January 1, 2000. Most 
beneficiaries enrolled in these Medicare+Choice plans will be 
able to enroll in another Medicare+Choice plan in their area. 
Generally this would occur during the November 1999 open 
enrollment period; coverage under the new plan would begin 
January 1, 2000. These beneficiaries could also return to fee-
for-service Medicare. Beneficiaries in counties with no 
available managed care plans will be automatically moved to 
fee-for-service Medicare.
    Currently, Medicare+Choice plan enrollees may enroll or 
disenroll in a plan available to them at any point in the year. 
Starting in 2002, in conjunction with the introduction of an 
annual, coordinated election period for all beneficiaries, a 
beneficiary's ability to change plans in the middle of the year 
will be more limited. In 2002, beneficiaries may change their 
plan election at any time during the first six months of the 
year. In subsequent years, changes in plan election will only 
be allowed in the first three months of the calendar year.
    Beneficiaries returning to original Medicare have certain 
rights with regard to the purchase of Medigap plans. Medigap 
refers to individually purchased insurance policies which 
supplement Medicare's benefits. Beneficiaries select a policy 
from one of 10 standardized plans; these are known as Plan A 
through Plan J.
    Individuals who are enrolled with an HMO at the time its 
contract terminates are guaranteed issue of any Medigap A, B, 
C, or F that is sold to new enrollees by Medigap issuers in the 
state. This choice must be exercised within 63 days of 
termination of prior HMO coverage. Since prior coverage is 
terminated at the end of the calendar year, the 63-day period 
begins January 1, 2000.
    Finally, if a Medicare+Choice plan reduces the size of its 
service area such that certain enrollees would lose eligibility 
for the plan, the plan may, if it meets specified requirements 
established by the Secretary, offer such enrollees the option 
of continuing enrollment in the plan if the plan can still 
provide reasonable access within the geographic are to the full 
range of basic benefits covered by Medicare.

Explanation of provision

    Subsection (a) would modify the conditions under which an 
individual would be entitled to a special election period to 
include situations where the individual is notified of an 
impending termination of certification of a plan or an 
impending termination or discontinuation of the plan.
    This provision would allow Medicare+Choice enrollees who 
are in a plan that will no longer participate in the 
Medicare+Choice program to choose a Medigap plan within 63 days 
of receiving notice from their plan, rather than waiting for 
the contract to end.
    Subsection (b) would amend the Medicare+Choice enrollment 
and disenrollment provisions so that institutionalized 
beneficiaries could continue to enroll in Medicare+Choice plans 
at any time during the year.
    Subsection (c) provides for a new provision allowing plans 
who reduce their service area to offer continuing enrollment to 
prior enrollees who would otherwise lose coverage, if the 
beneficiary agrees to travel to receive the full range of basic 
elements (except emergency care and urgent care services) from 
certain providers designated by the plan, and the beneficiary 
has no other Medicare+Choice plan available to them in their 
area of residence.

Effective date

    Subsection (a) applies to notices of impending terminations 
or discontinuations made before, on or after enactment. 
However, notices made before the date of enactment will be 
treated as having occurred on the date of enactment. 
Subsections (b) and (c) are effective as if included in the 
BBA.

Reason for change

    Subsection (a) would enable beneficiaries in a 
Medicare+Choice plan that is terminating its contract greater 
latitude in arranging for subsequent coverage arrangements 
under the Medigap program.
    Subsection (b) is included to ensure that the general 
enrollment restrictions that will accompany the annual, 
coordinated election period beginning in 2002 will not preclude 
beneficiaries who become institutionalized in the middle of the 
year from enrolling in special coordinated care programs 
provided by some Medicare+Choice plans at the time of the 
institutionalization.
    Subsection (c) is included to help minimize the effects of 
recent plan withdrawals for certain enrollees. Where a plan 
agrees, it will enable certain beneficiaries who would 
otherwise lose access to Medicare+Choice the ability to retain 
their health plan if they agree to travel to neighboring 
communities to receive their services.

  section 506. allowing variation in premium waivers within a service 
       area if medicare+choice payment rates vary within the area

Current law

    In general, Medicare+Choice managed care plans offer 
benefits in addition to those provided under Medicare's benefit 
package. In certain cases, the beneficiary has the option of 
selecting the additional benefits, while in other cases some or 
all of the supplementary benefits are mandatory.
    Some plans may require members to accept additional 
benefits and pay extra for them in some cases. The amount a 
plan may charge for additional benefits is based on a 
comparison between the plan's adjusted community rate 
(essentially the estimated market price) for the Medicare 
package and the average of the Medicare+Choice payment rate. A 
plan must offer ``additional benefits'' at no additional charge 
is the plan achieves a savings from Medicare.
    If the difference between the average Medicare+Choice 
payment rate and the adjusted community rate (ACR) is 
insufficient to cover the cost of additional benefits, the plan 
may charge a supplemental premium for the benefits. Under 
current law, the monthly basic and supplemental premiums cannot 
vary among individuals enrolled in the plan.

Explanation of provision

    This provision would allow Medicare+Choice plans to waive 
part or all of the premiums if Medicare+Choice rates vary 
within the service area.

Effective date

    The provision would be effective for contract years 
beginning on or after January 1, 2001.

Reason for change

    This provision recognizes that payment rates to plans vary 
by county, and would allow greater flexibility to better 
reflect the actual costs of providing supplemental benefits in 
each county.

  section 507. delay in deadline for submission of adjusted community 
                     rates and related information

Current law

    The BBA required Medicare+Choice plans to submit adjusted 
community rate (ACR) proposals by May 1 of the previous 
calendar year. Medicare+Choice organizations are required to 
submit ACR proposals to show that the benefit packages they 
plan to market neither exceed cost sharing for traditional 
Medicare plans nor unfairly charge enrollees for additional 
benefits.
    Under the law in effect prior to the BBA, risk plans had a 
November 15 deadline for submission of their ACRs. The earlier 
deadline means that Medicare+Choice organizations must now 
project future payments and costs six months further into the 
future. The earlier deadline was selected, in part, to ensure 
HCFA had the time both to review and approve submissions and to 
include information on all plan choices in the information sent 
to beneficiaries before the annual open enrollment season.

Explanation of provision

    The provision would change the date for ACR submission from 
May 1 to July 1. Also, the provision would modify the 
requirement that the Secretary make available to beneficiaries 
during the annual open enrollment period comparative 
information on all plan choices. This requirement would apply 
to the extent that such information was available at the time 
of preparation of the material for mailing.

Effective date

    Upon enactment.

Reason for change

    This change will shorten the time between a plan's ACR 
submission and the start of an associated contract year, and 
thereby, enable plans to predict more accurately the probable 
costs of benefits included in their proposed ACR submissions. 
Despite this change, the Committee notes that HCFA will know by 
mid-August of each year what the final plan premiums and 
benefits will be for each Medicare+Choice plan for the 
following calendar year. To help employees who sponsor retiree 
health benefits coordinate their own annual enrollment 
procedures, the Committee urges the Secretary to make this 
information available to such employers as soon as possible.

        section 508. 2 year extension of medicare cost contracts

Current law

    Prior to enactment of the BBA, beneficiaries were able to 
enroll in risk-based HMOs and they could also enroll 
organizations with cost contracts. These entities were required 
to meet essentially the same conditions of participation as 
risk contractors. Under a cost contract, Medicare pays the 
entity the patient cost incurred in furnishing covered 
services.
    The BBA replaced the risk program with Medicare+Choice. It 
also specifies cost-based contracts could not be renewed after 
December 31, 2002.

Explanation of provision

    The provision would extend the cost contract program 
through 2004.

Reason for change

    This provision ensures that beneficiaries currently 
receiving benefits through the cost contract program can 
continue to receive such benefits through 2004. By this time, 
better payment methodologies for Medicare+Choice plans, 
including the use of a multiple setting risk adjuster, should 
be in place.

  section 509. Medicare+Choice nursing and allied health professional 
                         education and earmark

Current law

    The calculation of the Medicare+Choice payment rates 
includes payments for teaching hospitals operating residency 
training programs. The BBA carved-out the costs attributable to 
graduate medical education (GME) payments for physicians over a 
5-year period and required additional payments to teaching 
hospitals when they treat Medicare+Choice enrollees. Medicare 
also recognizes the costs of training nurses and allied health 
professionals, but the BBA did not remove these payments from 
the Medicare+Choice payment rates.

Explanation of provision

    The provision would set aside a fixed amount of dollars 
from the GME funds already carved-out of the Medicare+Choice 
rates under the BBA, and pay them to hospitals that train 
nurses and allied health professionals that care for 
Medicare+Choice enrollees.

Effective date

    January 1, 2000.

Reason for change

    This provision ensures that hospitals with nursing and 
allied health training programs that serve Medicare+Choice 
enrollees receive funding for the portion of these costs that 
are attributable to Medicare.

             section 510. miscellaneous changes and studies

Current law

    Current law permits religious fraternal benefit societies 
that offer Medicare+Choice plans to restrict enrollment in such 
plans to their members. Currently this allowable restriction 
applies only to coordinated care plans.
    Under current law, the county-level per capita payment 
rates for Medicare+Choice plans are based on average spending 
per beneficiary in the traditional fee-for-service program. 
There are no considerations given to the amount of health 
services which beneficiaries in a given community may obtain 
from Department of Defense or Department of Veterans Affairs 
health facilities in this calculation.
    Section 4207 of the BBA established an Informatics, 
Telemedicine and Education demonstration project to evaluate 
the potential for using telemedicine networks to improve the 
primary care of beneficiaries with diabetes mellitus. The 
project is aimed at beneficiaries residing in medically 
underserved rural or inner-city areas. The project was 
initially scheduled to begin on May 1998. To date, the 
Secretary has made no grants under the program.

Explanation of provision

    Subsection (a) would allow religious benefit societies to 
offer any type of plan that would qualify under the 
Medicare+Choice program.
    Subsection (b) would require the Secretary, jointly with 
the Secretary of Defense and the Secretary of Veterans Affairs, 
to submit to Congress within one year a report estimating the 
use of health care services furnished by the Departments of 
Defense and the Department of Veterans Affairs by Medicare 
beneficiaries.
    Subsection (c) would make technical refinements to the 
Information, Telemedicine and Education demonstration project 
and require the Secretary to make an award initiating the 
project within three months of the date of enactment.

Effective date

    Upon enactment.

Reason for change

    Subsection (a) would increase the range of health plan 
choices available to Medicare beneficiaries. Subsection (b) is 
intended to provide the Committee with the means to evaluate 
the extent to which Medicare+Choice payment rates are 
understated in areas with large veteran or military retiree 
populations, and to help the Committee develop potential 
legislative changes addressing this issue in the future. 
Subsection (c) is included to prompt the Secretary to take the 
steps necessary to begin implementing the telemedicine 
demonstration project required by Congress in the BBA. 
Technical corrections to this project are included to simplify 
and clarify various copay, cost-sharing, and geographical 
definitions so as to ensure that the demonstration is of help 
to the low-income residents it was initially designed to serve. 
The changes are also intended to ensure that an agreement on 
cost sharing can be reached expeditiously.

  section 511. medpac on medicare msa (medical savings account) plans

Current law

    Medicare allows Medicare+Choice plans to offer Medical 
Savings Accounts (MSAs) to beneficiaries. To date, no plans 
have participated in the program.

Explanation of provision

    The provision would require MedPAC to submit to Congress a 
report on specific legislative changes that would make Medical 
Savings Account (MSA) plans a viable option under the 
Medicare+Choice program.

Effective date

    The report is due 12 months after enactment.

Reason for change

    The provision is included to identify possible changes in 
policy that would make Medicare MSA plans a more viable option 
for beneficiaries in the future.

section 512. clarification of nonapplicability of certain provisions of 
          discharge planning process to medicare+choice plans

Current law

    The BBA amended Medicare's discharge planning requirements 
to ensure that patients were not directed to a single post-
acute care facility (such as a home health agency, nursing 
home, rehabilitation hospital, or other entity). This provision 
ensures that patients in Medicare fee-for-service are given an 
opportunity to choose their post-discharge care from those 
providers available in their area.

Explanation of provision

    The section provides an exception from the discharge 
notification requirement for enrollees in Medicare+Choice 
plans.

Effective date

    Upon enactment.

Reason for change

    The BBA did not recognize that Medicare+Choice plans 
maintain contractual relationships with a selected number of 
post-acute providers and, as part of their efforts to 
coordinate care and manage treatment costs, and need to direct 
patients to those providers with which it has contracts. A 
Medicare+Choice plan, and the hospitals it contracts with, 
cannot efficiently administer discharge planning activities 
without the ability to direct enrollees to specific quality and 
cost conscious providers.

            Subtitle B--Managed Care Demonstration Projects


   secton 521. extension and expansion of social health maintenance 
              organization demonstration project authority

Current law

    The Deficit Reduction Act of 1984 required the Secretary to 
grant 3-year waivers for demonstrations of social health 
maintenance organizations (SHMOs) which provide integrated 
health and long-term care services on a prepaid capitation 
basis. The waivers have been extended on several occasions 
since then, and a second generation of projects was authorized 
by the Omnibus Budget Reconciliation Act of 1990 (OBRA 1990).
    The BBA extended waivers for social health maintenance 
organizations through December 31, 2000, and expanded the 
number of persons who can be served per site from 12,000 to 
36,000.

Explanation of provision

    The provision would extend the SHMO demonstration until 18 
months after the date that the Secretary reports to Congress on 
her findings. In addition, the caps on individual sites would 
be eliminated, while maintaining the aggregate cap of 324,000 
participants.

Effective date

    Upon enactment.

Reason for change

    The provision ensures that beneficiaries currently 
receiving benefits through the SHMO demonstration project can 
continue to receive such benefits until 18 months after the 
date that the Secretary reports back to Congress on the 
effectiveness of this program. At this time, Congress will be 
better able to consider the merits of the program and possible 
improvements in payment methodologies for all Medicare+Choice 
plans, such that the objectives of the SHMO program can 
continue to be served.

     section 522. extension of certain medicare community nursing 
                  organization demonstration projects

Current law

    The Community Nursing Organization (CNO) demonstration 
project was established to evaluate the ability of community 
nursing organizations to deliver coordinated community nursing 
and ambulatory care services to Medicare Part B beneficiaries. 
Currently, the project is being conducted at four sites 
(Tucson, AZ; Urbana, IL; Minneapolis, MN; New York, NY). 
Although Congress first authorized these projects as part of 
the Omnibus Budget Reconciliation Act of 1987 (OBRA 1987), they 
did not begin until January 1994. The BBA subsequently extended 
the project for two years, through 1999.

Explanation of provision

    This provision extends the CNO demonstration project for 
two years, through 2001. It also requires the Secretary to 
submit, not later than July 1, 2001, a report, based on data 
collected from the project through 2000, analyzing the 
effectiveness of the CNO delivery model.

Effective date

    Upon enactment.

Reason for change

    The provision is included to give the Secretary additional 
time to study the long-term effectiveness of the community 
nursing organization delivery model. The Committee notes that 
HCFA was initially slow to begin this project, and that a 
report on the project, which was due on July 1, 1999, has not 
yet been submitted to Congress for its review. The Committee 
believes that by extending the project for an additional two 
years the Secretary will be better able to evaluate the 
potential of the CNO model in caring for beneficiaries over 
extended periods of time. Similarly, the extension will allow 
for a complete report, which takes into account data collected 
over a longer period of time, to be submitted to Congress by 
July 1, 2001.

 Seciton 523. Medicare+Choice Competitive Bidding Demonstration Project

Current law

    Section 4011 of the BBA established a demonstration project 
to evaluate the potential for using competitive pricing 
practices to establish payment rates for Medicare+Choice plans. 
The law requires the Secretary to designate seven Medicare 
payment areas to be included in the demonstration project. 
Section 4012 of the BBA required the Secretary to establish the 
Competitive Pricing Advisory Committee (CPAC), as well as 
advisory committees in each of the designated areas, to help 
implement the project. To date the Secretary has designated two 
areas in which to begin the project: Kansas City, MO and 
Phoenix, AZ. However, concerns over the design of the 
demonstration project have prompted the CPAC to announce that 
the project would not get underway in either locality until 
January 1, 2001, at the earliest.

Explanation of provision

    This provision would delay implementation of the 
competitive pricing demonstration project until January 1, 2002 
or six months after the date at which the CPAC report to 
Congress on several specified issues related to the project's 
preliminary design, whichever is later. In particular, CPAC 
would be required to report on the feasibility of expanding the 
demonstration to include the traditional fee-for-service 
Medicare program, the proposed quality monitoring and 
improvement requirements for the project, the current viability 
of extending the project to a rural site, and several plan 
benefit structure issues related to the project. In addition, 
the language establishing the demonstration project is modified 
to allow plans who submit competitive prices to offer 
prospective enrollees rebates on all or part of their Part B 
premiums.

Effective date

    Upon enactment.

Reason for change

    This provision is designed to give both CPAC and Congress 
more time to resolve some of the initial concerns that have 
been raised about the demonstration project, as it is currently 
designed. By delaying the start date an additional year, and by 
tasking CPAC to report back on the identified areas of concern, 
the Committee believes appropriate modifications to the project 
can be implemented before its inauguration so as to improve its 
chances of success. Similarly, the additional time provided by 
the delay will afford the Secretary, CPAC and the area advisory 
committees additional time to work with the communities 
designated under the project to resolve outstanding issues of 
concern.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statements are made 
concerning the votes of the Committee on Ways and Means in its 
consideration of the bill, H.R. 3075.

                       motion to report the bill

    The bill, H.R. 3075, as amended, was ordered favorably 
reported by a roll call vote of 26 yeas and 11 nays (with a 
quorum being present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................        X   ........  .........  Mr. Rangel.......  ........        X   .........
Mr. Crane......................        X   ........  .........  Mr. Stark........  ........        X   .........
Mr. Thomas.....................        X   ........  .........  Mr. Matsui.......  ........        X   .........
Mr. Shaw.......................        X   ........  .........  Mr. Coyne........  ........        X   .........
Mrs. Johnson...................        X   ........  .........  Mr. Levin........  ........        X   .........
Mr. Houghton...................        X   ........  .........  Mr. Cardin.......        X   ........  .........
Mr. Herger.....................        X   ........  .........  Mr. McDermott....  ........        X   .........
Mr. McCrery....................        X   ........  .........  Mr. Kleczka......        X   ........  .........
Mr. Camp.......................  ........  ........  .........  Mr. Lewis (GA)...  ........        X   .........
Mr. Ramstad....................        X   ........  .........  Mr. Neal.........        X   ........  .........
Mr. Nussle.....................        X   ........  .........  Mr. McNulty......  ........        X   .........
Mr. Johnson....................        X   ........  .........  Mr. Jefferson....  ........  ........  .........
Ms. Dunn.......................        X   ........  .........  Mr. Tanner.......        X   ........  .........
Mr. Collins....................        X   ........  .........  Mr. Becerra......  ........        X   .........
Mr. Portman....................        X   ........  .........  Mrs. Thurman.....  ........        X   .........
Mr. English....................        X   ........  .........  Mr. Doggett......  ........        X   .........
Mr. Watkins....................        X   ........  .........  .................  ........  ........  .........
Mr. Hayworth...................        X   ........  .........  .................  ........  ........  .........
Mr. Weller.....................        X   ........  .........  .................  ........  ........  .........
Mr. Hulshof....................        X   ........  .........  .................  ........  ........  .........
Mr. McInnis....................        X   ........  .........  .................  ........  ........  .........
Mr. Lewis (KY).................        X   ........  .........  .................  ........  ........  .........
Mr. Foley......................        X   ........  .........  .................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

                          Votes on Amendments

    Roll call votes were conducted on the following amendment 
to Mr. Thomas' amendment in the nature of a substitute.
    An amendment by Mrs. Thurman and Mr. Doggett to Title I, 
relating to hospital purchases of outpatient prescription 
drugs, was defeated by a roll call vote of 15 yeas to 22 nays. 
The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Camp.......................  ........  ........  .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Jefferson....  ........  ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Tanner.......        X   ........  .........
Mr. Collins....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. English....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Watkins....................  ........        X   .........  .................  ........  ........  .........
Mr. Hayworth...................  ........        X   .........  .................  ........  ........  .........
Mr. Weller.....................  ........        X   .........  .................  ........  ........  .........
Mr. Hulshof....................  ........        X   .........  .................  ........  ........  .........
Mr. McInnis....................  ........        X   .........  .................  ........  ........  .........
Mr. Lewis (KY).................  ........        X   .........  .................  ........  ........  .........
Mr. Foley......................  ........        X   .........  .................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Stark, to add a new Title VI, relating 
to Medicare offsets, was defeated by a roll call vote of 15 
yeas to 22 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Levin........        X   ........
Mr. Houghton...................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Camp.......................  ........  ........  .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Jefferson....  ........  ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Tanner.......        X   ........  .........
Mr. Collins....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. English....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Watkins....................  ........        X   .........  .................  ........  ........  .........
Mr. Hayworth...................  ........        X   .........  .................  ........  ........  .........
Mr. Weller.....................  ........        X   .........  .................  ........  ........  .........
Mr. Hulshof....................  ........        X   .........  .................  ........  ........  .........
Mr. McInnis....................  ........        X   .........  .................  ........  ........  .........
Mr. Lewis (Ky).................  ........        X   .........  .................  ........  ........  .........
Mr. Foley......................  ........        X   .........  .................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d)(2) of rule XIII of the Rules 
of the House of Representatives, the following statement is 
made:
    The Committee agrees with the estimate prepared by the 
Congressional Budget Office (CBO) which is included below.

    B. Statement Regarding New Budget Authority and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
Committee bill results in increased federal direct spending of 
$10.5 billion over 5 years.

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives requiring a cost estimate 
prepared by the Congressional Budget Office (CBO), the 
following report prepared by CBO is provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                  Washington, DC, October 29, 1999.
 Hon. Bill Archer,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed revised cost estimate for H.R. 3075, the 
Medicare Balanced Budget Refinement Act of 1999. This estimate 
supercedes the estimate provided earlier today by correcting an 
error with regard to certain payments to hospitals for patients 
enrolled in a Medicare+Choice plan. As a result, our estimate 
of the 5-year costs of H.R. 3075 has declined from $10.7 
billion to $10.5 billion.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Tom Bradley.
            Sincerely,
                                          Dan L. Crippen, Director.
    Enclosure.

H.R. 3075--Medicare Balanced Budget Refinement Act of 1999

    Summary: The Medicare Balanced Budget Refinement Act would 
modify Medicare's payment rates for many services, including 
those furnished by hospitals, skilled nursing facilities, home 
health agencies, physicians, physical and speech therapists, 
occupational therapists, and managed care plans. In addition, 
the bill includes technical provisions that would have no 
effect on federal spending.
    CBO estimates that the bill would increase federal direct 
spending by $0.5 billion in fiscal year 2000, by $10.5 billion 
over the 2000-2004 period, and by a total of $17.2 billion over 
the 2000-2009 period. Because the bill would increase direct 
spending, pay-as-you-go procedures would apply.
    H.R. 3075 contains no intergovernmental mandates as defined 
in the Unfunded Mandates Reform Act (UMRA). However, the 
increases to the Medicare Part B premiums would result in 
additional state expenditures for Medicaid totaling about $70 
million over the 2000-2004 period. The bill contains one 
private-sector mandate as defined in UMRA. CBO estimates that 
its cost would be well below the threshold specified in UMRA 
($100 million in 1996, adjusted annually for inflation).
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 3075 is shown in the following table. 
The costs of this legislation fall within budget functions 550 
(health) and 570 (Medicare).

----------------------------------------------------------------------------------------------------------------
                                                                       Outlays, by fiscal years, in billions of
                                                                                      dollars--
                                                                    --------------------------------------------
                                                                       2000     2001     2002     2003     2004
----------------------------------------------------------------------------------------------------------------
                                           CHANGES IN DIRECT SPENDING
Medicare:
    Hospital Inpatient Provisions..................................        0      0.5      0.3      0.1      0.1
    Hospital Outpatient Department Provisions......................      0.1      0.4      0.7      0.6      0.2
    Skilled Nursing Facility Provisions............................      0.2      0.5      0.5      0.4      0.4
    Physician Update...............................................        0      0.3      0.1     -0.1     -0.3
    Home Health Provisions.........................................    (\2\)      1.0      0.3    (\2\)    (\2\)
    Rural Provisions...............................................    (\2\)      0.1      0.2      0.2      0.1
    Managed Care Provisions........................................    (\2\)      0.4      0.4      0.6      0.1
    Other Provisions...............................................      0.2      0.3      0.3      0.3      0.3
    Interaction of Fee-for-Service Provisions and Medicare+Choice          0      0.8      0.5      0.4      0.2
     Payment Rates \1\.............................................
                                                                    --------------------------------------------
      Subtotal, Gross Medicare Outlays.............................      0.5      4.3      3.3      2.4      1.1
Part B Premium Receipts............................................        0     -0.4     -0.4     -0.3     -0.1
                                                                    --------------------------------------------
      Subtotal, Net Medicare Outlays...............................      0.5      3.9      2.9      2.1      1.1
Medicaid Interaction with Part B Premium \3\.......................    (\2\)    (\2\)    (\2\)    (\2\)    (\2\)
                                                                    --------------------------------------------
      Total Changes................................................      0.5      4.0      2.9      2.1      1.1
----------------------------------------------------------------------------------------------------------------
\1\ The effect of changes in per-enrollee spending in the fee-for-service sector on payment rates for enrollees
  in Medicare+Choice plans.
\2\ The federal share of Medicaid payments for Part B premiums on behalf of certain low-income Medicare
  enrollees.
\3\ Costs or savings of less than $50 million.

Note.--Components may not sum to totals because of rounding.

Basis of estimate

            Medicare
    Compared with spending projected under current law, the 
bill would increase Medicare outlays by $0.5 billion in fiscal 
year 2000 and by $10.4 billion over the 2000-2004 period. The 
following sections discuss changes in gross outlays directly 
attributable to provisions of the bill. In addition, the 
estimate includes three interactions: the effect of changes in 
per-enrollee spending in the fee-for-service sector on payment 
rates for enrollees in Medicare+Choice plans, the effect of 
changes in Medicare Part B outlays on receipts from Part B 
premiums, and the effect of changes in Part B premiums on 
federal spending for Medicaid.
    Payment rates for Medicare+Choice plans are based on 
spending in the fee-for-service sector, so provisions of the 
bill that increase fee-for-service spending would lead to 
higher payments to Medicare+Choice plans, beginning in 2001. No 
interaction with Medicare+Choice payments would occur in 2000 
because the rates for 2000 have already been published and will 
not be adjusted unless services covered by the Medicare program 
change; the bill would not change covered services. CBO 
estimates the increase in spending attributable to the 
interaction between fee-for-service spending and 
Medicare+Choice payment rates would total $1.9 billion during 
the 2000-2004 period.
    Part B premiums for 2000 have already been announced and 
would not be changed by this bill. In subsequent years, 
however, about 25 percent of new Part B outlays would be 
covered by premium payments by beneficiaries. CBO estimates 
that those premium payments would total $1.1 billion from 2000 
through 2004.
    A change in the Medicare Part B premium affects federal 
Medicaid spending because Medicaid covers the cost of the 
Medicare Part B premium for individuals dually eligible for 
Medicaid and Medicare and for other low-income Medicare 
beneficiaries not poor enough to qualify for full Medicaid 
benefits. CBO estimates that by increasing the amount of the 
Part B premium, the bill would increase federal Medicaid costs 
by about $0.1 billion over the 2000-2004 period.
    Hospital Inpatient Services. H.R. 3075 contains numerous 
provisions that would affect Medicare payments to hospitals for 
inpatient care. CBO estimates these provisions would increase 
Medicare payments by about $1 billion during the 2000-2004 
period.
    Prospective Payment Hospitals. Medicare's prospective 
payment system (PPS) for hospital inpatient services adjusts 
payments to reflect higher patient care costs associated with 
medical education. The bill would set the adjustment at 6.0 
percent for every 0.1 change in the ratio of residents to beds 
in 2001. In 2002, the adjustment would revert to the 5.5 
percent specified in current law. CBO estimates that provision 
would increase outlays by $0.3 billion over the 2000-2004 
period.
    The bill also requires that Medicare's payment formula for 
its share of the direct costs of medical education be revised 
in a budget-neutral manner to be based on a national-average 
rate, adjusted for differences in local wage rates, rather than 
the current system in which payments are based on hospital-
specific historical costs. Hospitals that would receive higher 
payments under the national-average rate would receive that 
rate immediately. However, the national-average rate would be 
phased in over a five-year period for hospitals that would 
receive payments. This provision would increase spending by 
$0.3 billion during 2000 through 2004.
    Hospitals that serve a large number of low-income patients 
receive a ``disproportionate share'' adjustment to their 
prospective payment rates. Balanced Budget Act of 1997 (BBA) 
reduced those adjustments by 4 percent in 2001 and by 5 percent 
in 2002. The bill would limit those reductions to 3 percent in 
2001 and 4 percent in 2002, which would increase spending by 
less than $0.1 billion during the 2000-2004 period.
    PPS-exempt Hospitals. Hospitals that generally do not 
provide acute care services are exempted from the PPS and are 
paid on the basis of target amounts, (that is, hospital-
specific historical costs, adjusted for inflation). The BBA 
capped the target amounts at the 75th percentile. The bill 
would adjust the 75th-percentile cap for differences in local 
wages rates. CBO estimates that those adjustments would 
increase outlays by $0.3 billion over the 2000-2004 period. The 
bill would also increase the bonuses paid to psychiatric and 
long-term care hospitals with costs during cost-reporting 
periods beginning in 2001 and 2002 that are below their target 
amounts. We estimate that provision would increase outlays by 
less than $50 million over five years.
    The BBA required the Secretary of Health and Human Services 
(HHS) to develop a new PPS for inpatient services furnished by 
rehabilitation hospitals, and to phase-in that PPS over three 
years, beginning in 2001. During the transition, the bill would 
permit hospitals to choose the higher of the PPS payment rate 
or the transitional blend of PPS and hospital-specific rates. 
To offset the cost of that choice, the bill would reduce the 
PPS payment rate by 10 percent. Following analysis of claims 
and payment date, the Secretary would subsequently adjust 
payment rates to compensate hospitals or the Medicare program 
for the amount by which that 10-percent reduction was an over-
adjustment or under-adjustment for the cost of permitting 
hospitals to choose the higher of PPS rates or transitional 
rates. CBO estimates this provision would have no effect on 
federal spending.
    The bill also mandates that new prospective payment systems 
be developed for long-term and psychiatric hospitals by the 
Secretary of HHS by October 1, 2001, so that they may be 
implemented beginning in 2003. The bill would direct the 
Secretary to devise payment systems which are budget neutral. 
CBO estimates that implementing those prospective payment 
systems would not have a significant effect on Medicare 
spending.
    Hospital Outpatient Department Services. The BBA required 
the Secretary of HHS to implement a PPS to replace cost-based 
reimbursement for most outpatient hospital services. The 
Secretary plans to implement that PPS in July 2000. Some 
hospitals will experience gains under the PPS--Medicare 
payments will exceed the cost of providing outpatient 
services--while other hospitals will experience losses. The 
bill would reduce each hospital's loss during the first three 
years of the PPS, temporarily exempt cancer hospitals from the 
PPS, establish outlier adjustment payments for high-cost cases 
and transitional payments for certain drugs, biologicals, and 
medical devices under the PPS, and limit the beneficiary 
copayment for an outpatient hospital procedure to the Medicare 
Part A deductible. CBO estimates that those provisions would 
increase Medicare expenditures by $0.1 billion in 2000 and by 
$2.0 billion over the 2000-2004 period.
    Skilled Nursing Facilities. The bill would amend several 
policies enacted in the BBA regarding payment to skilled 
nursing facilities (SNFs). During the transition to a fully 
prospective payment system, H.R. 3075 would allow SNFs to elect 
to be paid exclusively under the federal rate, rather than a 
blend of federal and facility-specific rates. The bill would 
increase the federal rates paid for cases assigned to the 
extensive services, special care, or clinically complex 
categories by 10 percent for services provided from April 1, 
2000, through September 30, 2000. The bill would increase the 
update to federal payment rates for 2001 by 1.8 percentage 
points. It would exclude specified services--ambulance 
services, certain prosthetic devices, chemotherapy, and 
procedures using radiopharmaceuticals--from the SNF PPS and 
permit separate billing for those services. The bill also would 
enable SNFs that participated in the Nursing Home Case Mix and 
Quality Demonstration to receive an additional payment for Part 
B services in the facility-specific component of their payment 
rates. The final provision would require Medicare to pay SNFs 
that treat a large share of immuno-compromised patients a 50:50 
blend of the federal and facility-specific rates for service 
furnished through 2001. CBO estimates that those provisions 
would increase Medicare expenditures by $0.2 billion in 2000 
and by $1.9 billion over the 2000-2004 period.
    Physician Update. The BBA established payment formulas that 
tie the growth of per-enrollee expenditures for physician 
services to the growth of gross domestic product. Those 
formulas generate annual rate changes that oscillate widely 
around a smooth trend. CBO projects stable growth rates, 
however, because the timing of those oscillations is impossible 
to predict.
    The bill would modify the payment formulas to reduce the 
oscillations around the smooth trend. CBO estimates this 
provision would not change spending in 2000 and would not 
change cumulative spending during the 2000-2004 period. 
Compared to current law, however, payments to physicians would 
be higher in 2001 and 2002 and lower in 2003 and 2004.
    Home Health. The bill would amend three policies enacted in 
the BBA regarding payment to home health agencies. First, it 
would lower the surety bond requirement for some agencies, 
eliminate the requirement that agencies have separate bonds for 
Medicare and Medicaid, and no longer require agencies to hold 
bonds after 4 years. Second, it would eliminate the contingency 
reduction and delay the 15-percent cut mandated in BBA until 
one year after the PPS for home health services is implemented. 
Third, it would pay home health agencies $10 per beneficiary 
served during their cost reporting period beginning in 2000. 
Those policies would increase Medicare expenditures by less 
than $50 million in 2000 and by $1.4 billion over the 2000-2004 
period.
    Rural Provisions. Sole community hospitals are paid the 
highest of PPS payment rates or their average cost per patient 
in 1982 or 1987, adjusted for inflation. The bill would allow 
sole community hospitals that currently receive PPS payment 
rates to choose between PPS rates and a blend of those rates 
and their inflation-adjusted costs in 1996. CBO estimates that 
provision would increase Medicare spending by $0.1 billion 
during 2000 through 2004.
    The BBA created a new classification of limited-service 
hospitals, called Critical Access Hospitals (CAHs), which are 
exempted from the PPS. Those hospitals are limited to providing 
inpatient hospital stays no longer than 96 hours (with case-by-
case exceptions). The bill would allow longer inpatient stays 
in CAHs, provided that stays average 96 hours; and it would 
permit investor-owned and closed or converted facilities to 
qualify as CAHs. CBO assumes those provisions would make it 
more attractive for facilities that meet the size and 
geographic eligibility requirements to obtain certification as 
a CAH, and would increase Medicare outlays by exempting more 
inpatient stays from the PPS. CBO estimates that those 
provisions would increase Medicare outlays by less than $50 
million in 2000 and by $0.3 billion over the 2000-2004 period.
    The bill would extend for five years the Medicare-dependent 
small rural hospital program (which will expire at the end of 
2000), require the Secretary to permit certain hospitals 
located in urban areas to be reclassified as rural, and make 
other changes to the geographic classification system, which 
would allow these hospitals to obtain higher payment rates. The 
bill would enable all hospitals in rural areas with up to 100 
beds to have swing beds, and also would expand access to 
paramedic services in rural areas. Those provisions would not 
affect spending in 2000, but would increase spending by $0.2 
billion during 2001 through 2004.
    Finally, the bill would allow rural teaching hospitals and 
hospitals with accredited rural graduate medical education 
programs to increase the number of residency positions above 
the limits established by the BBA. Those provisions would 
increase spending by less than $50 million a year, with a 
cumulative increase in spending of $0.1 billion during the 
2000-2004 period.
    Managed Care. The bill would slow the implementation of 
adjustment of Medicare+Choice payment rates to more accurately 
reflect differences in cost per enrollee that are associated 
with health status. CBO estimates that this provision would not 
change spending in 2000, but would increase Medicare spending 
by $1.1 billion over the 2001-2004 period.
    H.R. 3075 would authorize $60 million a year for payments 
to hospitals with nursing and allied health education programs 
when they provide inpatient care to patients enrolled in a 
Medicare+Choice plan, but would offset that spending with 
reductions in payments to hospitals with graduate medical 
education programs. Thus, CBO estimates that provision would 
have no effect on Medicare spending.
    Other provisions would make the administration of the 
Medicare+Choice program more flexible by allowing beneficiaries 
more time to enroll in Medicare+Choice or medigap plans when 
plans withdraw from markets, increasing Medicare+Choice 
payments for plans entering counties that had been without 
Medicare+Choice plans since 1997, allowing cost contracts with 
health maintenance organizations to be renewed until December 
31, 2004, expanding the types of Medicare+Choice plans that may 
be offered by religious fraternal benefit societies, and easing 
certain requirements that limit how potential providers design 
and market managed care products to offer to Medicare 
beneficiaries. In addition, the bill would modify and extend a 
number of demonstration projects. Those provisions would 
increase federal spending by $0.6 billion during 2000 through 
2004.
    Other Medicare Provisions. The bill includes numerous other 
modifications of Medicare law that are either technical in 
nature--that is, they have no effect on federal spending--or 
would result in relatively small changes in Medicare spending. 
The additional provisions that would affect Medicare spending 
are discussed below. In total, CBO estimates that these other 
provisions would increase Medicare outlays by $1.2 billion over 
the 2000-2004 period.
    Outpatient Therapy Services. The BBA established annual 
limits on per-beneficiary payments for outpatient therapy 
services provided by independent therapists, comprehensive 
outpatient rehabilitation facilities (CORFs), SNFs, and other 
nonhospital providers. The limits are a $1,500 combined annual 
cap on physical therapy and speech language pathology services, 
and a $1,500 annual cap on occupational therapy services. The 
bill would create separate $1,500 caps for physical therapy and 
for speech language pathology, implement the caps on a per-
facility rather than a per-beneficiary basis, and authorize 
transitional outlier payments for high-cost beneficiaries. We 
estimate that this provision would increase Medicare 
expenditures by $0.1 billion in 2000 and by $0.6 billion over 
the 2000-2004 period.
    Renal Dialysis. The bill would increase Medicare's 
composite rate for renal dialysis by 1.2 percent beginning in 
January 2000 and an additional 1.2 percent beginning in January 
2001. That provision would increase Medicare expenditures by 
less than $50 million in 2000 and by $0.3 billion over the 
2000-2004 period.
    Durable Medical Equipment and Oxygen. The bill would update 
Medicare's payment rate for durable medical equipment and 
oxygen by the consumer price index for all urban consumers less 
2 percentage points in 2001 and 2002. That provision would have 
no budgetary effect in 2000, but would increase Medicare 
expenditures by $0.1 billion over the 2001-2004 period.
    Pap Smears. The bill would increase Medicare's payment rate 
for the clinical laboratory component of pap smear tests. That 
provision would increase Medicare expenditures by less than $50 
million in 2000 and $0.1 billion over the 2000-2004 period.
    Inherent Reasonableness Authority. The BBA granted the 
Secretary of HHS the authority to adjust Medicare Part B 
payment rates when they are not ``inherently reasonable.'' The 
bill would suspend the Secretary's authority to use the 
inherent reasonableness provision until publication of a new 
proposed rule and a final rule. That provision would increase 
Medicare expenditures by less than $50 million over the 2000-
2004 period.
    Ambulance Demonstration Project. The BBA authorized 
demonstration projects under which units of local government 
can contract directly with HHS to provide ambulance services 
under Medicare at a capitated rate. The bill would modify the 
capitated rate. That provision would increase Medicare 
expenditures by less than $50 million over the 2000-2004 
period.
    Telemedicine Demonstration Project. The BBA established a 
telemedicine demonstration project to improve primary care for 
diabetics living in medically underserved areas. The bill would 
direct the Secretary to make the award within three months of 
enactment and would change certain specifications of the 
project design. Modifications, such as altering the 
reimbursement rates, would affect the pattern of federal 
spending on the project over the 2000-2004 period. CBO 
estimates that this provision would increase spending by less 
than $5 million a year in 2000 and 2001, with offsetting 
reductions in 2002 and 2003. Thus, the provision would not 
change cumulative spending over the 2000-2004 period.
    Pay-as-you-go considerations: The Balanced Budget and 
Emergency Deficit Control Act sets up-as-you-go procedures for 
legislation affecting direct spending or receipts. The net 
changes in outlays that would be subject to pay-as-you-go 
procedures are shown in the following table. For the purposes 
of enforcing pay-as-you-go procedures, only the effects in the 
budget year and the succeeding four years are counted.

----------------------------------------------------------------------------------------------------------------
                                                     By fiscal years, in millions of dollars--
                                 -------------------------------------------------------------------------------
                                   2000    2001    2002    2003    2004    2005    2006    2007    2008    2009
----------------------------------------------------------------------------------------------------------------
Changes in outlays..............     500   4,000   2,900   2,100   1,050   1,150   1,200   1,300   1,450   1,550
Change in receipts..............                                   Not applicable
----------------------------------------------------------------------------------------------------------------

    Estimated impact of state, local, and tribal governments: 
H.R. 3075 contains no intergovernmental mandates as defined in 
UMRA. However, the increases to the Medicare Part B premiums 
would result in additional state expenditures for Medicaid 
totaling about $70 million over the 2000-2004 period.
    Estimated impact on the private Sector: The bill contains a 
mandate on private-sector insurers who provide medigap coverage 
to Medicare beneficiaries. Under current law, Medicare 
beneficiaries who lose supplemental coverage because of the 
termination or discontinuation of the employer-sponsored 
supplemental plan or the HMO in which they are enrolled are 
entitled to purchase medigap coverage on favorable terms if 
they apply within 63 days of the termination of enrollment.
    The bill would allow Medicare beneficiaries to obtain 
medigap coverage under those same favorable terms if they 
applied within 63 days of being notified of the pending 
termination or discontinuation of their plan, effectively 
giving them two windows of opportunity to apply. Because of 
restrictions on the premiums that medigap insurers may charge 
in these circumstances, this provision could impose costs that 
insurers might not immediately recover from premiums. However, 
because of the small additional number of beneficiaries that 
the provision would affect, the costs that would be imposed on 
medigap insurers would be well below the threshold specified in 
UMRA ($100 million in 1996, adjusted annually for inflation).
    Previous CBO Estimate: This estimate supersedes a previous 
estimate that was transmitted earlier today (October 29). The 
previous estimate included a cost of $0.2 billion over the 
2000-2004 period for payments to hospitals with nursing and 
allied health programs when they provide inpatient care to 
patients enrolled in a Medicare+Choice plan. However, that 
provision would have no cost. This revised estimate corrects 
the error in the previous estimate.
    Estimate prepared by: Federal Costs: Charles Betley, 
Michael Brinbaum, Julia Christensen, Jeanne De Sa, Cyndi 
Dudzinski, and Dorothy Rosenbaum. Impact on State, Local, and 
Tribal Governments: Leo Lex. Impact on the Private Sector: 
Bruce Vavrichek.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

 V. OTHER MATTERS REQUIRED TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


           A. Committee Oversight Finding and Recommendations

    In compliance with clause 3(c)(1) of rule XIII of the Rules 
of the House of Representatives, the Committee reports that the 
need for this legislation was confirmed by the oversight 
hearings of the Subcommittee on Health. The hearings were as 
follows:
    The Subcommittee on Health held a hearing on February 11, 
1999, to examine the Health Care Financing Administration's 
(HCFA) ability to administer the current Medicare program and 
to manage the future needs of the program's growing number of 
beneficiaries. Testimony at the hearing was presented by HCFA, 
the General Accounting Office, and contractors who process and 
audit claims for the Medicare program.
    On March 2, 1999, the Subcommittee held a hearing on the 
annual Medicare Payment Advisory Commission (MedPAC) Report to 
the Congress on Medicare Payment Policy, with testimony from 
the MedPAC Chair. In addition, on March 18, 1999, the 
Subcommittee held a hearing on the Medicare+Choice program to 
examine the Administration's proposed new risk adjustment 
method, dissemination of health plan information to seniors, 
and new plan requirements for quality measurement.
    Finally, on October 1, 1999, the Subcommittee held a 
hearing on Medicare Balanced Budget Act refinements. The 
hearing included testimony from the Administration, 
Congressional advisory bodies, and providers about the 
implementation and impact of policy changes included in the 
Balanced Budget Act of 1997, including changes in various 
payment methodologies.

B. Summary of Findings and Recommendations of the Government Reform and 
                          Oversight Committee

    In compliance with clause 3(c)(4) of rule XIII of the Rules 
of the House of Representatives, the Committee states that no 
oversight findings or recommendations have been submitted to 
the Committee on Governmental Reform regarding the subject of 
the bill.

                 C. Constitutional Authority Statement

    In compliance with clause 3(d)(1) of rule XIII of the Rules 
of the House of Representatives, relating to Constitutional 
Authority, the Committee states that the Committee's action in 
reporting the bill is derived from Article I of the 
Constitution, Section 8 (``The Congress shall have power to lay 
and collect taxes, duties, imposts and excises, to pay the 
debts and to provide for * * * the general Welfare of the 
United States * * * '').

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

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                          SOCIAL SECURITY ACT

           *       *       *       *       *       *       *



     TITLE XI--GENERAL PROVISIONS, PEER REVIEW, AND ADMINISTRATIVE 
                            SIMPLIFICATION

           *       *       *       *       *       *       *



Part A--General Provisions

           *       *       *       *       *       *       *




      coordination of medicare and medicaid surety bond provisions


  Sec. 1148. In the case of a home health agency that is 
subject to a surety bond under title XVIII and title XIX, the 
surety bond provided to satisfy the requirement under one such 
title shall satisfy the requirement under the other such title 
so long as the bond applies to guarantee return of overpayments 
under both such titles.

           *       *       *       *       *       *       *


        TITLE XVIII--HEALTH INSURANCE FOR THE AGED AND DISABLED

           *       *       *       *       *       *       *


     Part A--Hospital Insurance Benefits for the Aged and Disabled

                  medicare payment advisory commission

  Sec. 1805. (a)  * * *

           *       *       *       *       *       *       *

  (b) Duties.--
          (1) Review of payment policies and annual reports.--
        The Commission shall--
                  (A)  * * *

           *       *       *       *       *       *       *

                  (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, 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 
                and including a review of the estimate of the 
                conversion factor submitted under section 
                1848(d)(1)(E)(ii).

           *       *       *       *       *       *       *


              medicare rural hospital flexibility program

  Sec. 1820. (a)  * * *

           *       *       *       *       *       *       *

  (c) Medicare Rural Hospital Flexibility Program Described.--
          (1)  * * *

           *       *       *       *       *       *       *

          (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)] 
                subparagraphs (B), (C), and (D).
                  (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)) or is treated as being 
                        located in a rural area pursuant to 
                        section 1886(d)(8)(E) that--
                                  (I)  * * *

           *       *       *       *       *       *       *

                          (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;] for a period that 
                        does not exceed, as determined on an 
                        annual, average basis, 96 hours per 
                        patient;
                  (C) Recently closed facilities.--A State may 
                designate a facility as a critical access 
                hospital if the facility--
                          (i) was a hospital that ceased 
                        operations on or after the date that is 
                        10 years before the date of enactment 
                        of this subparagraph; and
                          (ii) as of the effective date of such 
                        designation, meets the criteria for 
                        designation under subparagraph (B).
                  (D) Downsized facilities.--A State may 
                designate a health clinic or a health center 
                (as defined by the State) as a critical access 
                hospital if such clinic or center--
                          (i) is licensed by the State as a 
                        health clinic or a health center;
                          (ii) was a hospital that was 
                        downsized to a health clinic or health 
                        center; and
                          (iii) as of the effective date of 
                        such designation, meets the criteria 
                        for designation under subparagraph (B).

           *       *       *       *       *       *       *

  (g) Grants.--
          (1)  * * *

           *       *       *       *       *       *       *

          (3) Upgrading data systems.--
                  (A) Grants to hospitals.--The Secretary may 
                award grants to hospitals that have submitted 
                applications in accordance with subparagraph 
                (C) to assist eligible small rural hospitals in 
                meeting the costs of implementing data systems 
                required to meet requirements established under 
                the medicare program pursuant to amendments 
                made by the Balanced Budget Act of 1997.
                  (B) Eligible small rural hospital defined.--
                For purposes of this paragraph, the term 
                ``eligible small rural hospital'' means a non-
                Federal, short-term general acute care hospital 
                that--
                          (i) is located in a rural area (as 
                        defined for purposes of section 
                        1886(d)); and
                          (ii) has less than 50 beds.
                  (C) Application.--A hospital seeking a grant 
                under this paragraph shall submit an 
                application to the Secretary on or before such 
                date and in such form and manner as the 
                Secretary specifies.
                  (D) Amount of grant.--A grant to a hospital 
                under this paragraph may not exceed $50,000.
                  (E) Use of funds.--A hospital receiving a 
                grant under this paragraph may use the funds 
                for the purchase of computer software and 
                hardware and for the education and training of 
                hospital staff on computer information systems 
                and costs related to the implementation of 
                prospective payment systems.
                  (F) Report.--
                          (i) Information.--A hospital 
                        receiving a grant under this section 
                        shall furnish the Secretary with such 
                        information as the Secretary may 
                        require to evaluate the project for 
                        which the grant is made and to ensure 
                        that the grant is expended for the 
                        purposes for which it is made.
                          (ii) Reporting.--
                                  (I) Interim reports.--The 
                                Secretary shall report to the 
                                Committee on Ways and Means of 
                                the House of Representatives 
                                and the Committee on Finance of 
                                the Senate at least annually on 
                                the grant program established 
                                under this section, including 
                                in such report information on 
                                the number of grants made, the 
                                nature of the projects 
                                involved, the geographic 
                                distribution of grant 
                                recipients, and such other 
                                matters as the Secretary deems 
                                appropriate.
                                  (II) Final report.--The 
                                Secretary shall submit a final 
                                report to such committees not 
                                later than 180 days after the 
                                completion of all of the 
                                projects for which a grant is 
                                made under this section.

           *       *       *       *       *       *       *


   Part B--Supplementary Medical Insurance Benefits for the Aged and 
                               Disabled

           *       *       *       *       *       *       *


                          PAYMENT OF BENEFITS

  Sec. 1833. (a) Except as provided in section 1876, and 
subject to the succeeding provisions of this section, there 
shall be paid from the Federal Supplementary Medical Insurance 
Trust Fund, in the case of each individual who is covered under 
the insurance program established by this part and incurs 
expenses for services with respect to which benefits are 
payable under this part, amounts equal to--
          (1) in the case of services described in section 
        1832(a)(1)--80 percent of the reasonable charges for 
        the services; except that (A) an organization which 
        provides medical and other health services (or arranges 
        for their availability) on a prepayment basis (and 
        either is sponsored by a union or employer, or does not 
        provide, or arrange for the provision of, any inpatient 
        hospital services) may elect to be paid 80 percent of 
        the reasonable cost of services for which payment may 
        be made under this part on behalf of individuals 
        enrolled in such organization in lieu of 80 percent of 
        the reasonable charges for such services if the 
        organization undertakes to charge such individuals no 
        more than 20 percent of such reasonable cost plus any 
        amounts payable by them as a result of subsection (b), 
        (B) with respect to items and services described in 
        section 1861(s)(10)(A), the amounts paid shall be 100 
        percent of the reasonable charges for such items and 
        services, (C) with respect to expenses incurred for 
        those physicians' services for which payment may be 
        made under this part that are described in section 
        1862(a)(4), the amounts paid shall be subject to such 
        limitations as may be prescribed by regulations, (D) 
        with respect to clinical diagnostic laboratory tests 
        for which payment is made under this part (i) on the 
        basis of a fee schedule under subsection (h)(1) or 
        section 1834(d)(1), the amount paid shall be equal to 
        80 percent (or 100 percent, in the case of such tests 
        for which payment is made on an assignment-related 
        basis or which are furnished on an outpatient basis by 
        a critical access hospital) of the lesser of the amount 
        determined under such fee schedule, the limitation 
        amount for that test determined under subsection 
        (h)(4)(B), or the amount of the charges billed for the 
        tests, or (ii) on the basis of a negotiated rate 
        established under subsection (h)(6), the amount paid 
        shall be equal to 100 percent of such negotiated rate, 
        (E) with respect to services furnished to individuals 
        who have been determined to have end stage renal 
        disease, the amounts paid shall be determined subject 
        to the provisions of section 1881, (F) with respect to 
        clinical social worker services under section 
        1861(s)(2)(N), the amounts paid shall be 80 percent of 
        the lesser of (i) the actual charge for the services or 
        (ii) 75 percent of the amount determined for payment of 
        a psychologist under clause (L), (H) with respect to 
        services of a certified registered nurse anesthetist 
        under section 1861(s)(11), the amounts paid shall be 80 
        percent of the least of the actual charge, the 
        prevailing charge that would be recognized (or, for 
        services furnished on or after January 1, 1992, the fee 
        schedule amount provided under section 1848) if the 
        services had been performed by an anesthesiologist, or 
        the fee schedule for such services established by the 
        Secretary in accordance with subsection (l), (I) with 
        respect to covered items (described in section 
        1834(a)(13)), the amounts paid shall be the amounts 
        described in section 1834(a)(1), and (J) with respect 
        to expenses incurred for radiologist services (as 
        defined in section 1834(b)(6)), subject to section 
        1848, the amounts paid shall be 80 percent of the 
        lesser of the actual charge for the services or the 
        amount provided under the fee schedule established 
        under section 1834(b), (K) with respect to certified 
        nurse-midwife services under section 1861(s)(2)(L), 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 for the 
        purposes of this subparagraph (but in no event shall 
        such fee schedule exceed 65 percent of the prevailing 
        charge that would be allowed for the same service 
        performed by a physician, or, for services furnished on 
        or after January 1, 1992, 65 percent of the fee 
        schedule amount provided under section 1848 for the 
        same service performed by a physician), (L) with 
        respect to qualified psychologist services under 
        section 1861(s)(2)(M), 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 for the purposes of this 
        subparagraph, (M) with respect to prosthetic devices 
        and orthotics and prosthetics (as defined in section 
        1834(h)(4)), the amounts paid shall be the amounts 
        described in section 1834(h)(1), (N) with respect to 
        expenses incurred for physicians' services (as defined 
        in section 1848(j)(3)), the amounts paid shall be 80 
        percent of the payment basis determined under section 
        1848(a)(1), (O) with respect to services described in 
        section 1861(s)(2)(K) (relating to services furnished 
        by physician assistants, nurse practitioners, or clinic 
        nurse specialists), 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 would otherwise be 
        recognized if performed by a physician who is serving 
        as an assistant at surgery; (P) with respect to 
        surgical dressings, the amounts paid shall be the 
        amounts determined under section 1834(i), (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, (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), 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);

           *       *       *       *       *       *       *

  (g)(1)(A) In the case of 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, with respect to expenses incurred in any calendar 
year, no more than the amount specified in paragraph (2) for 
the year shall be considered as incurred expenses for purposes 
of subsections (a) and (b).
  (B) Subparagraph (A) shall be applied separately for speech-
language pathology services described in the fourth sentence of 
section 1861(p) and for other outpatient physical therapy 
services.

           *       *       *       *       *       *       *

  (4) The limitations of this subsection apply to the services 
involved on a per beneficiary, per facility (or provider) 
basis.
  (5)(A) The Secretary shall establish a process under which a 
facility or provider that is providing therapy services to 
which the limitation of this subsection applies to a 
beneficiary may apply to the Secretary for an increase in such 
limitation under this paragraph for services furnished in 2000 
or in 2001.
  (B) Such process shall take into account the clinical 
diagnosis and shall provide that the aggregate amount of 
additional payments resulting from the application of this 
paragraph--
          (i) during fiscal year 2000 may not exceed 
        $40,000,000;
          (ii) during fiscal year 2001 may not exceed 
        $60,000,000; and
          (iii) during fiscal year 2002 may not exceed 
        $20,000,000.

           *       *       *       *       *       *       *

  (h)(1)  * * *

           *       *       *       *       *       *       *

  (7) Notwithstanding paragraphs (1) and (4), the Secretary 
shall establish a minimum payment amount under this subsection 
for all areas for a diagnostic or screening pap smear 
laboratory test (including all cervical cancer screening 
technologies that have been approved by the Food and Drug 
Administration) of not less than $14.60.
  (l)(1)  * * *

           *       *       *       *       *       *       *

  (4)(A) Except as provided in subparagraphs (C) and (D), in 
determining the amount paid under the fee schedule under this 
subsection for services furnished on or after January 1, 1991, 
by a certified registered nurse anesthetist who is not 
medically directed--
          (i) the conversion factor shall be--
                  (I)  * * *

           *       *       *       *       *       *       *

                  (VII) for services furnished in calendar 
                years after 1996, the previous year's 
                conversion factor increased by the update 
                determined under section [1848(d)(3)] 1848(d) 
                for physician anesthesia services for that 
                year;

           *       *       *       *       *       *       *

  (t) Prospective Payment System for Hospital Outpatient 
Department Services.--
          (1) Amount of payment.--
                  (A)  * * *
                  (B) Definition of covered opd services.--For 
                purposes of this subsection, the term ``covered 
                OPD services''--
                          (i)  * * *
                          (ii) subject to [clause (iii)] clause 
                        (iv), 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) includes medical devices (such 
                        as implantable medical devices); but
                          [(iii)] (iv) 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)  * * *
                  (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 and so that a device is 
                classified to the group that includes the 
                service to which the device relates;
                  (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 (or, at the 
                election of the Secretary, mean) hospital costs 
                and shall determine projections of the 
                frequency of utilization of each such service 
                (or group of services) in 1999;

           *       *       *       *       *       *       *

                  (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], in a 
                budget neutral manner, outlier adjustments 
                under paragraph (5) and transitional pass-
                through payments under paragraph (6) and other 
                adjustments as determined to be necessary to 
                ensure equitable payments, such as adjustments 
                for certain classes of hospitals; and
                  (F) the Secretary shall develop a method for 
                controlling unnecessary increases in the volume 
                of covered OPD services.
        For purposes of subparagraph (B), items and services 
        within a group shall not be treated as `comparable with 
        respect to the use of resources' if the highest median 
        cost (or mean cost, if elected by the Secretary under 
        subparagraph (C)) for an item or service within the 
        group is more than 2 times greater than the lowest 
        median cost (or mean cost, if so elected) for an item 
        or service within the group; except that the Secretary 
        may make exceptions in unusual cases, such as low 
        volume items and services.

           *       *       *       *       *       *       *

          (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, subject to 
        paragraph (7), as follows:
                  (A)  * * *

           *       *       *       *       *       *       *

                  (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, plus the 
                amount of any reduction in the copayment amount 
                attributable to paragraph (5)(C).
          (5) Outlier adjustment.--
                  (A) In general.--The Secretary shall provide 
                for an additional payment for each covered OPD 
                service (or group of services) for which a 
                hospital's charges, adjusted to cost, exceed--
                          (i) a fixed multiple of the sum of--
                                  (I) the applicable Medicare 
                                OPD fee schedule amount 
                                determined under paragraph 
                                (3)(D), as adjusted under 
                                paragraph (4)(A) (other than 
                                for adjustments under this 
                                paragraph or paragraph (6)); 
                                and
                                  (II) any transitional pass-
                                through payment under paragraph 
                                (6); and
                          (ii) at the option of the Secretary, 
                        such fixed dollar amount as the 
                        Secretary may establish.
                  (B) Amount of adjustment.--The amount of the 
                additional payment under subparagraph (A) shall 
                be determined by the Secretary and shall 
                approximate the marginal cost of care beyond 
                the applicable cutoff point under such 
                subparagraph.
                  (C) Limit on aggregate outlier adjustments.--
                          (i) In general.--The total of the 
                        additional payments made under this 
                        paragraph for covered OPD services 
                        furnished in a year (as projected or 
                        estimated by the Secretary before the 
                        beginning of the year) may not exceed 
                        the applicable percentage (specified in 
                        clause (ii)) of the total program 
                        payments projected or estimated to be 
                        made under this subsection for all 
                        covered OPD services furnished in that 
                        year. If this paragraph is first 
                        applied to less than a full year, the 
                        previous sentence shall apply only to 
                        the portion of such year.
                          (ii) Applicable percentage.--For 
                        purposes of clause (i), the term 
                        ``applicable percentage'' means a 
                        percentage specified by the Secretary 
                        up to (but not to exceed)--
                                  (I) for a year (or portion of 
                                a year) before 2004, 2.5 
                                percent; and
                                  (II) for 2004 and thereafter, 
                                3.0 percent.
          (6) Transitional pass-through for additional costs of 
        innovative medical devices, drugs, and biologicals.--
                  (A) In general.--The Secretary shall provide 
                for an additional payment under this paragraph 
                for any of the following that are provided as 
                part of a covered OPD service (or group of 
                services):
                          (i) Current orphan drugs.--A drug or 
                        biological that is used for a rare 
                        disease or condition with respect to 
                        which the drug or biological has been 
                        designated as an orphan drug under 
                        section 526 of the Federal Food, Drug 
                        and Cosmetic Act if payment for the 
                        drug or biological as an outpatient 
                        hospital service under this part was 
                        being made on the first date that the 
                        system under this subsection is 
                        implemented.
                          (ii) Current cancer therapy drugs and 
                        biologicals.--A drug or biological that 
                        is used in cancer therapy if payment 
                        for the drug or biological as an 
                        outpatient hospital service under this 
                        part was being made on such first date.
                          (iii) New medical devices, drugs, and 
                        biologicals.--A medical device, drug, 
                        or biological not described in clause 
                        (i) or (ii) if--
                                  (I) payment for the device, 
                                drug, or biological as an 
                                outpatient hospital services 
                                under this part was not being 
                                made as of December 31, 1996; 
                                and
                                  (II) the cost of the device, 
                                drug, or biological is not 
                                insignificant in relation to 
                                the OPD fee schedule amount (as 
                                calculated under paragraph 
                                (3)(D)) payable for the service 
                                (or group of services) 
                                involved.
                  (B) Limited period of payment.--The payment 
                under this paragraph with respect to a medical 
                device, drug, or biological shall only apply 
                during a period of at least 2 years, but not 
                more than 3 years, that begins--
                          (i) on the first date this subsection 
                        is implemented in the case of a drug or 
                        biological described in clause (i) or 
                        (ii) of subparagraph (A) and in the 
                        case of a device, drug, or biological 
                        described in subparagraph (A)(iii) for 
                        which payment under this part is made 
                        as an outpatient hospital service 
                        before such first date; or
                          (ii) in the case of a device, drug, 
                        or biological described in subparagraph 
                        (A)(iii) not described in clause (i), 
                        on the first date on which payment is 
                        made under this part for the device, 
                        drug, or biological as an outpatient 
                        hospital service.
                  (C) Amount of additional payment.--Subject to 
                subparagraph (D)(iii), the amount of the 
                payment under this paragraph with respect to a 
                device, drug, or biological provided as part of 
                a covered OPD service is--
                          (i) in the case of a drug or 
                        biological, the amount by which the 
                        amount determined under section 1842(o) 
                        for the drug or biological exceeds the 
                        portion of the otherwise applicable 
                        medicare OPD fee schedule that the 
                        Secretary determines is associated with 
                        the drug or biological; or
                          (ii) in the case of a medical device, 
                        the amount by which the hospital's 
                        charges for the device, adjusted to 
                        cost, exceeds the portion of the 
                        otherwise applicable medicare OPD fee 
                        schedule that the Secretary determines 
                        is associated with the device.
                  (D) Limit on aggregate annual adjustment.--
                          (i) In general.--The total of the 
                        additional payments made under this 
                        paragraph for covered OPD services 
                        furnished in a year (as projected or 
                        estimated by the Secretary before the 
                        beginning of the year) may not exceed 
                        the applicable percentage (specified in 
                        clause (ii)) of the total program 
                        payments projected or estimated to be 
                        made under this subsection for all 
                        covered OPD services furnished in that 
                        year. If this paragraph is first 
                        applied to less than a full year, the 
                        previous sentence shall apply only to 
                        the portion of such year.
                          (ii) Applicable percentage.--For 
                        purposes of clause (i), the term 
                        ``applicable percentage'' means--
                                  (I) for a year (or portion of 
                                a year) before 2004, 2.5 
                                percent; and
                                  (II) for 2004 and thereafter, 
                                a percentage specified by the 
                                Secretary up to (but not to 
                                exceed) 2.0 percent.
                          (iii) Uniform prospective reduction 
                        if aggregate limit projected to be 
                        exceeded.--If the Secretary projects or 
                        estimates before the beginning of a 
                        year that the amount of the additional 
                        payments under this paragraph for the 
                        year (or portion thereof) as determined 
                        under clause (i) without regard to this 
                        clause) will exceed the limit 
                        established under such clause, the 
                        Secretary shall reduce pro rata the 
                        amount of each of the additional 
                        payments under this paragraph for that 
                        year (or portion thereof) in order to 
                        ensure that the aggregate additional 
                        payments under this paragraph (as so 
                        projected or estimated) do not exceed 
                        such limit.
          (7) Transitional adjustment to limit decline in 
        payment.--
                  (A) Before 2002.--For covered OPD services 
                furnished before January 1, 2002, for which the 
                PPS amount (as defined in subparagraph (D)(i)) 
                is--
                          (i) at least 90 percent, but less 
                        than 100 percent, of the pre-BBA amount 
                        (as defined in subparagraph (D)(ii)), 
                        the amount of payment under this 
                        subsection shall be increased by 80 
                        percent of the amount of such 
                        difference;
                          (ii) at least 80 percent, but less 
                        than 90 percent, of the pre-BBA amount, 
                        the amount of payment under this 
                        subsection shall be increased by the 
                        amount by which (I) the product of 0.71 
                        and the pre-BBA amount, exceeds (II) 
                        the product of 0.70 and the PPS amount;
                          (iii) at least 70 percent, but less 
                        than 80 percent, of the pre-BBA amount, 
                        the amount of payment under this 
                        subsection shall be increased by the 
                        amount by which (I) the product of 0.63 
                        and the pre-BBA amount, exceeds (II) 
                        the product of 0.60 and the PPS amount;
                          (iv) less than 70 percent of the pre-
                        BBA amount, the amount of payment under 
                        this subsection shall be increased by 
                        21 percent of the pre-BBA amount.
                  (B) 2002.--For covered OPD services furnished 
                during 2002, for which the PPS amount is--
                          (i) at least 90 percent, but less 
                        than 100 percent, of the pre-BBA 
                        amount, the amount of payment under 
                        this subsection shall be increased by 
                        70 percent of the amount of such 
                        difference;
                          (ii) at least 80 percent, but less 
                        than 90 percent, of the pre-BBA amount, 
                        the amount of payment under this 
                        subsection shall be increased by the 
                        amount by which (I) the product of 0.61 
                        and the pre-BBA amount, exceeds (II) 
                        the product of 0.60 and the PPS amount;
                          (iii) less than 80 percent of the 
                        pre-BBA amount, the amount of payment 
                        under this subsection shall be 
                        increased by 13 percent of the pre-BBA 
                        amount.
                  (C) 2003.--For covered OPD services furnished 
                during 2003, for which the PPS amount is--
                          (i) at least 90 percent, but less 
                        than 100 percent, of the pre-BBA 
                        amount, the amount of payment under 
                        this subsection shall be increased by 
                        60 percent of the amount of such 
                        difference; or
                          (ii) less than 90 percent of the pre-
                        BBA amount, the amount of payment under 
                        this subsection shall be increased by 6 
                        percent of the pre-BBA amount.
                  (D) Definitions.--For purposes of this 
                subparagraph:
                          (i) PPS amount.--The term ``PPS 
                        amount'' means, with respect to a 
                        covered OPD service, the amount of 
                        payment under this title for such 
                        service (determined without regard to 
                        this paragraph).
                          (ii) Pre-bba amount.--The term ``pre-
                        BBA amount'' means, with respect to a 
                        covered OPD service, the amount that 
                        would have been paid under this title 
                        for such service if this subsection did 
                        not apply.
                  (E) Construction.--Nothing in this paragraph 
                shall be construed to affect the copayment 
                amount under paragraph (8).
          [(5)] (8) Copayment amount.--
                  (A) In general.--Except as provided in 
                [subparagraph (B)] subparagraphs (B) and (C), 
                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 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) Limiting copayment amount to inpatient 
                hospital deductible amount.--In no case shall 
                the copayment amount for a procedure performed 
                in a year exceed the amount of the inpatient 
                hospital deductible established under section 
                1813(b) for that year.
                  [(C)] (D) 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).
                  (E) Computation ignoring outlier and pass-
                through adjustments.--The copayment amount 
                shall be computed under subparagraph (A) as if 
                the adjustments under paragraphs (5) and (6) 
                (and any adjustment made under paragraph (2)(E) 
                in relation to such adjustments) had not 
                occurred.
          [(6)] (9) Periodic review and adjustments components 
        of prospective payment system.--
                  (A) Periodic review.--The Secretary [may 
                periodically review] shall review not less 
                often than annually 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.

           *       *       *       *       *       *       *

          [(7)] (10) 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)] section 1961(v)(1)(U), or, if applicable, the fee 
        schedule established under section 1834(l).
          [(8)] (11) 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] the first day of the 
                first year that begins 2 years after the date 
                the prospective payment system under this 
                section is first implemented; and

           *       *       *       *       *       *       *

          [(9)] (12) 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)[.]; 
                and
                  (E) the determination of the fixed multiple, 
                or a fixed dollar cutoff amount, the marginal 
                cost of care, or applicable percentage under 
                paragraph (5) or the determination of 
                insignificance of cost, the duration of the 
                additional payments (consistent with paragraph 
                (6)(B)), the portion of the Medicare OPD fee 
                schedule amount associated with particular 
                devices, drugs, or biologicals, and the 
                application of any pro rata reduction under 
                paragraph (6).
          (13) Miscellaneous provisions.--
                  (A) Application of reclassification of 
                certain hospitals.--If a hospital is being 
                treated as being located a rural area under 
                section 1886(d)(8)(E), that hospital shall be 
                treated under this subsection as being located 
                in that rural area.

           *       *       *       *       *       *       *


        SPECIAL PAYMENT RULES FOR PARTICULAR ITEMS AND SERVICES

  Sec. 1834. (a) Payment for Durable Medical Equipment.--
          (1)  * * *

           *       *       *       *       *       *       *

          (9) Monthly payment amount recognized with respect to 
        oxygen and oxygen equipment.--For purposes of paragraph 
        (5), the amount that is recognized under this paragraph 
        for payment for oxygen and oxygen equipment is the 
        monthly payment amount described in subparagraph (C) of 
        this paragraph. Such amount shall be computed 
        separately (i) for all items of oxygen and oxygen 
        equipment (other than portable oxygen equipment) and 
        (ii) for portable oxygen equipment (each such group 
        referred to in this paragraph as an ``item'').
                  (A)  * * *

           *       *       *       *       *       *       *

                  (B) Computation of national limited monthly 
                payment rate.--With respect to the furnishing 
                of an item in a year, the Secretary shall 
                compute a national limited monthly payment rate 
                equal to--
                          (i)  * * *

           *       *       *       *       *       *       *

                          (v) for 1998, 75 percent of the 
                        amount determined under this 
                        subparagraph for 1997; [and]
                          (vi) for 1999 and [each subsequent 
                        year] 2000, 70 percent of the amount 
                        determined under this subparagraph for 
                        1997[.]; and
                          (vii) for 2001 and each subsequent 
                        year, the amount determined under this 
                        subparagraph for the preceding year 
                        increased by the covered item update 
                        for such subsequent year.

           *       *       *       *       *       *       *

          (14) Covered item update.--In this subsection, the 
        term ``covered item update'' means, with respect to a 
        year--
                  (A)  * * *

           *       *       *       *       *       *       *

                  [(C) for each of the years 1998 through 2002, 
                0 percentage points; and]
                  (C) for each of the years 1998 through 2000, 
                0 percentage points;
                  (D) for each of the years 2001 and 2002, 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 minus 2 percentage points; and
                  [(D)] (E) 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.

           *       *       *       *       *       *       *

  [(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.]
  (g) Payment for Outpatient Critical Access Hospital 
Services.--
          (1) Election of cah.--At the election of a critical 
        access hospital, the amount of payment for outpatient 
        critical access hospital services under this part shall 
        be determined under paragraph (2) or (3), such amount 
        determined under either paragraph without regard to the 
        amount of the customary or other charge.
          (2) Cost-based hospital outpatient service payment 
        plus fee schedule for professional services.--If a 
        hospital elects this paragraph to apply, there shall be 
        paid amounts equal to the sum of the following:
                  (A) Facility fee.--With respect to facility 
                services, not including any services for which 
                payment may be made under subparagraph (B), the 
                reasonable costs of the critical access 
                hospital in providing such services, less the 
                amount that such hospital may charge as 
                described in section 1866(a)(2)(A).
                  (B) Fee schedule for professional services.--
                With respect to professional services otherwise 
                included within outpatient critical access 
                hospital services, such amounts as would 
                otherwise be paid under this part if such 
                services were not included in outpatient 
                critical access hospital services.
          (3) All-inclusive rate.--If a hospital elects this 
        paragraph to apply, with respect to both facility 
        services and professional services, there shall be paid 
        amounts equal to the reasonable costs of the critical 
        access hospital in providing such services, less the 
        amount that such hospital may charge as described in 
        section 1866(a)(2)(A).

           *       *       *       *       *       *       *


SEC. 1847. DEMONSTRATION PROJECTS FOR COMPETITIVE ACQUISITION OF ITEMS 
                    AND SERVICES.

  (a)  * * *

           *       *       *       *       *       *       *

  (b) Awarding of Contracts in Areas.--
          (1)  * * *
          (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 and that the total amounts to be paid 
        under the contract are expected to be less than the 
        total amounts that would otherwise be paid.

           *       *       *       *       *       *       *


                    PAYMENT FOR PHYSICIANS' SERVICES

  Sec. 1848. (a)  * * *

           *       *       *       *       *       *       *

  (d) Conversion Factors.--
          (1) Establishment.--
                  (A) In general.--The conversion factor for 
                each year shall be the conversion factor 
                established under this subsection for the 
                previous year (or, in the case of 1992, 
                specified in subparagraph (B)) adjusted by the 
                update (established under paragraph (3)) for 
                the year involved (for years before 2001) and, 
                for years beginning with 2001, multiplied by 
                the update (established under paragraph (4)) 
                for the year involved.

           *       *       *       *       *       *       *

                  [(E) Publication.--The Secretary shall cause 
                to have published in the Federal Register, 
                during the last 15 days of October of--
                          [(i) 1991, the conversion factor 
                        which will apply to physicians' 
                        services for 1992, and the update 
                        determined under paragraph (3) for 1992 
                        and
                          [(ii) each succeeding year, the 
                        conversion factor which will apply to 
                        physicians' services for the following 
                        year and the update determined under 
                        paragraph (3) for such year.]
                  (E) Publication and dissemination of 
                information.--The Secretary shall--
                          (i) cause to have published in the 
                        Federal Register not later than 
                        November 1 of each year (beginning with 
                        2000) the conversion factor which will 
                        apply to physicians' services for the 
                        succeeding year, the update determined 
                        under paragraph (4) for such succeeding 
                        year, and the allowed expenditures 
                        under such paragraph for such 
                        succeeding year; and
                          (ii) make available to the Medicare 
                        Payment Advisory Commission and the 
                        public by March 1 of each year 
                        (beginning with 2000) an estimate of 
                        the conversion factor which will apply 
                        to physicians' services for the 
                        succeeding year and data used in making 
                        such estimate.

           *       *       *       *       *       *       *

          (3) Update for 1999 and 2000.--
                  (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] 1999 and 2000 is equal to 
                the product of--
                          (i)  * * *

           *       *       *       *       *       *       *

                  (C) Determination of allowed expenditures.--
                For purposes of this paragraph and paragraph 
                (4), the allowed expenditures for physicians' 
                services for the 12-month period ending with 
                March 31 of--
                          (i)  * * *

           *       *       *       *       *       *       *

          (4) Update for years beginning with 2001.--
                  (A) In general.--Unless otherwise provided by 
                law, subject to the budget-neutrality factor 
                determined by the Secretary under subsection 
                (c)(2)(B)(ii) and subject to adjustment under 
                subparagraph (F), the update to the single 
                conversion factor established in paragraph 
                (1)(C) for a year beginning with 2001 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 under 
                        subparagraph (B) for the year.
                  (B) Update adjustment factor.--For purposes 
                of subparagraph (A)(ii), subject to 
                subparagraph (D), the ``update adjustment 
                factor'' for a year is equal (as estimated by 
                the Secretary) to the sum of the following:
                          (i) Prior year adjustment 
                        component.--An amount determined by--
                                  (I) computing the difference 
                                (which may be positive or 
                                negative) between the amount of 
                                the allowed expenditures for 
                                physicians' services for the 
                                prior year (as determined under 
                                subparagraph (C)) and the 
                                amount of the actual 
                                expenditures for such services 
                                for that year;
                                  (II) dividing that difference 
                                by the amount of the actual 
                                expenditures for such services 
                                for that year; and
                                  (III) multiplying that 
                                quotient by 0.75.
                          (ii) Cumulative adjustment 
                        component.--An amount determined by--
                                  (I) computing the difference 
                                (which may be positive or 
                                negative) between the amount of 
                                the allowed expenditures for 
                                physicians' services (as 
                                determined under subparagraph 
                                (C)) from April 1, 1996, 
                                through the end of the prior 
                                year and the amount of the 
                                actual expenditures for such 
                                services during that period;
                                  (II) dividing that difference 
                                by actual expenditures for such 
                                services for the prior year as 
                                increased by the sustainable 
                                growth rate under subsection 
                                (f) for the year for which the 
                                update adjustment factor is to 
                                be determined; and
                                  (III) multiplying that 
                                quotient by 0.33.
                  (C) Determination of allowed expenditures.--
                For purposes of this paragraph:
                          (i) Period up to april 1, 1999.--The 
                        allowed expenditures for physicians' 
                        services for a period before April 1, 
                        1999, shall be the amount of the 
                        allowed expenditures for such period as 
                        determined under paragraph (3)(C).
                          (ii) Transition to calendar year 
                        allowed expenditures.--Subject to 
                        subparagraph (E), the allowed 
                        expenditures for--
                                  (I) the 9-month period 
                                beginning April 1, 1999, shall 
                                be the Secretary's estimate of 
                                the amount of the allowed 
                                expenditures that would be 
                                permitted under paragraph 
                                (3)(C) for such period; and
                                  (II) the year of 1999, shall 
                                be the Secretary's estimate of 
                                the amount of the allowed 
                                expenditures that would be 
                                permitted under paragraph 
                                (3)(C) for such year.
                          (iii) Years beginning with 2000.--The 
                        allowed expenditures for a year 
                        (beginning with 2000) is equal to the 
                        allowed expenditures for physicians' 
                        services for the previous year, 
                        increased by the sustainable growth 
                        rate under subsection (f) for the year 
                        involved.
                  (D) Restriction on update adjustment 
                factor.--The update adjustment factor 
                determined under subparagraph (B) for a year 
                may not be less than -0.07 or greater than 
                0.03.
                  (E) Recalculation of allowed expenditures for 
                updates beginning with 2001.--For purposes of 
                determining the update adjustment factor for a 
                year beginning with 2001, the Secretary shall 
                recompute the allowed expenditures for previous 
                periods beginning on or after April 1, 1999, 
                consistent with subsection (f)(3).
                  (F) Transitional adjustment designed to 
                provide for budget neutrality.--Under this 
                subparagraph the Secretary shall provide for an 
                adjustment to the update under subparagraph 
                (A)--
                          (i) for each of 2001, 2002, 2003, and 
                        2004, of -0.2 percent; and
                          (ii) for 2005 of +0.8 percent.

           *       *       *       *       *       *       *

  (f) Sustainable Growth Rate.--
          [(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.]
          (1) Publication.--The Secretary shall cause to have 
        published in the Federal Register not later than--
                  (A) November 1, 2000, the sustainable growth 
                rate for 2000 and 2001; and
                  (B) November 1 of each succeeding year the 
                sustainable growth rate for such succeeding 
                year and each of the preceding 2 years.
          (2) Specification of growth rate.--The sustainable 
        growth rate for all physicians' services for a fiscal 
        year (beginning with [fiscal year 1998)] fiscal year 
        1998 and ending with fiscal year 2000) and a year 
        beginning with 2000 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] applicable period 
                involved,
                  (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] 
                applicable period to the [fiscal year] 
                applicable period 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] applicable 
                period to the [fiscal year] applicable period 
                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] applicable period (compared 
                with the previous [fiscal year] applicable 
                period) 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) or 
                (d)(4)(B), as the case may be,
        minus 1 and multiplied by 100.
          (3) Data to be used.--For purposes of determining the 
        update adjustment factor under subsection (d)(4)(B) for 
        a year beginning with 2001, the sustainable growth 
        rates taken into consideration in the determination 
        under paragraph (2) shall be determined as follows:
                  (A) For 2001.--For purposes of such 
                calculations for 2001, the sustainable growth 
                rates for fiscal year 2000 and the years 2000 
                and 2001 shall be determined on the basis of 
                the best data available to the Secretary as of 
                September 1, 2000.
                  (B) For 2002.--For purposes of such 
                calculations for 2002, the sustainable growth 
                rates for fiscal year 2000 and for years 2000, 
                2001, and 2002 shall be determined on the basis 
                of the best data available to the Secretary as 
                of September 1, 2001.
                  (C) For 2003 and succeeding years.--For 
                purposes of such calculations for a year after 
                2002--
                          (i) the sustainable growth rates for 
                        that year and the preceding 2 years 
                        shall be determined on the basis of the 
                        best data available to the Secretary as 
                        of September 1 of the year preceding 
                        the year for which the calculation is 
                        made; and
                          (ii) the sustainable growth rate for 
                        any year before a year described in 
                        clause (i) shall be the rate as most 
                        recently determined for that year under 
                        this subsection.
        Nothing in this paragraph shall be construed as 
        affecting the sustainable growth rates established for 
        fiscal year 1998 or fiscal year 1999.
          [(3)] (4) 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.
                  (C) Applicable period.--The term ``applicable 
                period'' means--
                          (i) a fiscal year, in the case of 
                        fiscal year 1998, fiscal year 1999, and 
                        fiscal year 2000; or
                          (ii) a calendar year with respect to 
                        a year beginning with 2000;
                as the case may be.

                    Part C--Medicare+Choice Program

                 eligibility, election, and enrollment

  Sec. 1851. (a)  * * *

           *       *       *       *       *       *       *

  (b) Special Rules.--
          (1) Residence requirement.--
                  (A) In general.--Except as the Secretary may 
                otherwise provide and except as provided in 
                subparagraph (C), 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.

           *       *       *       *       *       *       *

                  (C) Continuation of enrollment permitted 
                where service changed.--Notwithstanding 
                subparagraph (B), if a Medicare+Choice 
                organization eliminates from its service area a 
                geographic area that was previously within its 
                service area, the organization may elect to 
                offer individuals residing in the affected 
                geographic area who would otherwise be 
                ineligible to continue enrollment the option to 
                continue enrollment in a Medicare+Choice plan 
                it offers so long as--
                          (i) the enrollee agrees to receive 
                        the full range of basic benefits 
                        (excluding emergency and urgently 
                        needed care) exclusively at facilities 
                        designated by the organization within 
                        the plan service area; and
                          (ii) there is no other 
                        Medicare+Choice plan offered in the 
                        area in which the enrollee resides at 
                        the time of the organization's 
                        election.

           *       *       *       *       *       *       *

  (d) Providing Information To Promote Informed Choice.--
          (1)  * * *
          (2) Provision of notice.--
                  (A) Open season notification.--At least 15 
                days before the beginning of each annual, 
                coordinated election 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)  * * *
                          (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, to the 
                        extent such information is available at 
                        the time of preparation of the material 
                        for mailing. Such information shall be 
                        presented in a comparative form.

           *       *       *       *       *       *       *

  (e) Coverage Election Periods.--
          (1)  * * *
          (2) Open enrollment and disenrollment 
        opportunities.--Subject to paragraph (5)--
                  (A)  * * *
                  (B) Continuous open enrollment and 
                disenrollment for first 6 months during 2002.--
                          (i) In general.--Subject to clause 
                        (ii) and subparagraph (D), 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).

           *       *       *       *       *       *       *

                  (C) Continuous open enrollment and 
                disenrollment for first 3 months in subsequent 
                years.--
                          (i) In general.--Subject to clause 
                        (ii) and subparagraph (D), at any time 
                        during the first 3 months of a year 
                        after 2002, or, if the individual first 
                        becomes a Medicare+Choice 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).

           *       *       *       *       *       *       *

                  (D) Continuous open enrollment for 
                institutionalized individuals.--At any time 
                after 2001 in the case of a Medicare+Choice 
                eligible individual who is institutionalized, 
                the individual may change the election under 
                subsection (a)(1).

           *       *       *       *       *       *       *

          (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;]
                  (A)(i) the certification of the organization 
                or plan under this part has been terminated, or 
                the organization or plan has notified the 
                individual or the Secretary of an impending 
                termination of such certification; or
                  (ii) the organization has terminated or 
                otherwise discontinued providing the plan in 
                the area in which the individual resides, or 
                has notified the individual or Secretary of an 
                impending termination or discontinuation of 
                such plan;

           *       *       *       *       *       *       *


               payments to medicare+choice organizations

  Sec. 1853. (a) Payments to Organizations.--
          (1) Monthly payments.--
                  (A) In general.--Under a contract under 
                section 1857 and subject to [subsections (e) 
                and (f)] subsections (e), (g), and (i) 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.

           *       *       *       *       *       *       *

          (3) Establishment of risk adjustment factors.--
                  (A)  * * *

           *       *       *       *       *       *       *

                  (C) Initial implementation.--
                          (i) In general.--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.
                          (ii) Phase-in.--Such risk adjustment 
                        methodology shall be implemented in a 
                        phased-in manner so that the new 
                        methodology applies only to--
                                  (I) 10 percent of the payment 
                                amount in 2000 and 2001;
                                  (II) 20 percent of such 
                                amount in 2002;
                                  (III) 30 percent of such 
                                amount in 2003; and
                                  (IV) 100 percent of such 
                                amount in any subsequent year 
                                (at which time the risk 
                                adjustment methodology should 
                                reflect data from multiple 
                                settings).

           *       *       *       *       *       *       *

  (b) Annual Announcement of Payment Rates.--
          (1)  * * *

           *       *       *       *       *       *       *

          (4) Continued computation and publication of county-
        specific per capita fee-for-service expenditure 
        information.--The Secretary, through the Chief Actuary 
        of the Health Care Financing Administration, shall 
        provide for the computation and publication, on an 
        annual basis at the time of publication of the annual 
        Medicare+Choice capitation rates, of information on the 
        level of the average annual per capita costs (described 
        in section 1876(a)(4)) for each Medicare+Choice payment 
        area.

           *       *       *       *       *       *       *

  (c) Calculation of Annual Medicare+Choice Capitation Rates.--
          (1)  * * *

           *       *       *       *       *       *       *

          (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 (other than those attributable to 
        subsection (i)) shall equal the aggregate payments that 
        would have been made under this part if payment were 
        based entirely on area-specific capitation rates.

           *       *       *       *       *       *       *

  (d) Providing Information To Promote Informed Choice.--
          (1)  * * *
          (2) Provision of notice.--
                  (A) Open season notification.--At least 15 
                days before the beginning of each annual, 
                coordinated election 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)  * * *
                          (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, to the 
                        extent such information is available at 
                        the time of preparation of the material 
                        for mailing. Such information shall be 
                        presented in a comparative form.

           *       *       *       *       *       *       *

  (i) New Entry Bonus.--
          (1) In general.--Subject to paragraphs (2) and (3), 
        in the case of Medicare+Choice payment area in which a 
        Medicare+Choice plan has not been offered since 1997 
        (or in which any organization that offered a plan since 
        such date has announced, as of October 13, 1999, that 
        it will not be offering such plan as of January 1, 
        2000), the amount of the monthly payment otherwise made 
        under this subsection shall be increased--
                  (A) only for the first 12 months in which any 
                Medicare+Choice plan is offered in the area, by 
                5 percent of the payment rate otherwise 
                computed; and
                  (B) only for the subsequent 12 months, by 3 
                percent of the payment rate otherwise computed.
        If such 12 months are not a calendar year, the 
        Secretary shall provide for an appropriate blend of 
        such percentage increases for the second and third 
        calendar years in which months described in 
        subparagraph (B) occur to reflect the proportion of 
        such months in each such year.
          (2) Period of application.--Paragraph (1) shall only 
        apply to payment for Medicare+Choice plans which are 
        first offered in a Medicare+Choice payment area during 
        the 2-year period beginning with January 1, 2000.
          (3) Limitation to organization offering first plan in 
        an area.--Paragraph (1) shall only apply to payment to 
        the first Medicare+Choice organization that offers a 
        Medicare+Choice plan in each Medicare+Choice payment 
        area, except that if more than one such organization 
        first offers such a plan in an area on the same date, 
        paragraph (1) shall apply to payment for such 
        organizations.
          (4) Construction.--Nothing in paragraph (1) shall be 
        construed as affecting the Medicare+Choice capitation 
        rate for any area or as applying to payment for any 
        period not described in such paragraph.
          (5) Offered defined.--In this subsection, the term 
        `offered' means, with respect to a Medicare+Choice plan 
        as of a date, that a Medicare+Choice eligible 
        individual may enroll with the plan on that date, 
        regardless of when the enrollment takes effect or the 
        individual obtain benefits under the plan.

                                premiums

  Sec. 1854. (a) Submission of Proposed Premiums and Related 
Information.--
          (1) In general.--Not later than [May 1] July 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--

           *       *       *       *       *       *       *

  (c) Uniform Premium.--[The]
          (1) In general.--Subject to paragraph (2), 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.
          (2) Variation in premium waiver permitted.--A 
        Medicare+Choice organization may waive part or all of a 
        premium described in paragraph (1) for one or more 
        Medicare+Choice payment areas within its service area 
        if the annual Medicare+Choice capitation rates under 
        section 1853(c) vary between such payment area and 
        other payment areas within such service area.

           *       *       *       *       *       *       *


              contracts with medicare+choice organizations

  Sec. 1857. (a)  * * *

           *       *       *       *       *       *       *

  (c) Contract Period and Effectiveness.--
          (1)  * * *

           *       *       *       *       *       *       *

          (4) Previous terminations.--
                  (A) In general.--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 as provided in 
                paragraph (2) and except in circumstances which 
                warrant special consideration, as determined by 
                the Secretary.
                  (B) Earlier re-entry permitted where change 
                in payment policy and no more than one other 
                plan available.--Subparagraph (A) shall not 
                apply with respect to the offering by a 
                Medicare+Choice organization of a 
                Medicare+Choice plan in a Medicare+Choice 
                payment area if--
                          (i) during the 6-month period 
                        beginning on the date the organization 
                        notified the Secretary of the intention 
                        to terminate the most recent previous 
                        contract, there was a legislative 
                        change enacted (or a regulatory change 
                        adopted) that has the effect of 
                        increasing payment rates under section 
                        1853 for that Medicare+Choice payment 
                        area; and
                          (ii) at the time the organization 
                        notifies the Secretary of its intent to 
                        enter into a contract to offer such a 
                        plan in the area, there is no more than 
                        one Medicare+Choice plan offered in the 
                        area.

           *       *       *       *       *       *       *


                 definitions; miscellaneous provisions

  Sec. 1859. (a)  * * *

           *       *       *       *       *       *       *

  (e) Restriction on Enrollment for Certain Medicare+Choice 
Plans.--
          (1)  * * *
          (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)] 1851(a)(2) that--
                  (A)  * * *

           *       *       *       *       *       *       *


                    Part D--Miscellaneous Provisions

              definitions of services, institutions, etc.

  Sec. 1861. For purposes of this title--

                            Spell of Illness

  (a)  * * *

           *       *       *       *       *       *       *


                           Home Health Agency

  (o) The term ``home health agency'' means a public agency or 
private organization, or a subdivision of such an agency or 
organization, which--
          (1)  * * *

           *       *       *       *       *       *       *

          (7) provides the Secretary with a surety bond--
                  (A) effective for a period of 4 years (as 
                specified by the Secretary) or in the case of a 
                change in the ownership or control of the 
                agency (as determined by the Secretary) during 
                or after such 4-year period, an additional 
                period of time that the Secretary determines 
                appropriate, such additional period not to 
                exceed 4 years from the date of such change in 
                ownership or control;
                  (B) in a form specified by the Secretary; and
                  (C) for a year in the period described in 
                subparagraph (A) in an amount that is equal to 
                the lesser of $50,000 or 10 percent of the 
                aggregate amount of payments to the agency 
                under this title and title XIX for that year, 
                as estimated by the Secretary; and

           *       *       *       *       *       *       *


                       Discharge Planning Process

  (ee)(1)  * * *
  (2) The Secretary shall develop guidelines and standards for 
the discharge planning process in order to ensure a timely and 
smooth transition to the most appropriate type of and setting 
for post-hospital or rehabilitative care. The guidelines and 
standards shall include the following:
          (A)  * * *

           *       *       *       *       *       *       *

          (H) Consistent with section 1802, the discharge plan 
        shall--
                  (i) subject to clause (iii), 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 (as 
                specified by the Secretary consistent with 
                section 1866(a)(1)(S)) or which has such an 
                interest in the hospital[.], and
                  (iii) for individuals enrolled under a 
                Medicare+Choice plan, under a contract with the 
                Secretary under section 1857, for whom a 
                hospital furnishes inpatient hospital services, 
                the hospital may specify with respect to such 
                individual the provider of post-hospital home 
                health services or other post-hospital services 
                under the plan.

           *       *       *       *       *       *       *


 payments to health maintenance organizations and competitive medical 
                                 plans

  Sec. 1876. (a)  * * *

           *       *       *       *       *       *       *

  (h)(1)  * * *

           *       *       *       *       *       *       *

  (5)(A)  * * *
  (B) The Secretary may not extend or renew a reasonable cost 
reimbursement contract under this subsection for any period 
beyond December 31, [2002] 2004.

           *       *       *       *       *       *       *


         medicare coverage for end stage renal disease patients

  Sec. 1881. (a)  * * *
  (b)(1)  * * *

           *       *       *       *       *       *       *

  (7) The Secretary shall provide by regulation for a method 
(or methods) for determining prospectively the amounts of 
payments to be made for dialysis services furnished by 
providers of services and renal dialysis facilities to 
individuals in a facility and to such individuals at home. Such 
method (or methods) shall provide for the prospective 
determination of a rate (or rates) for each mode of care based 
on a single composite weighted formula (which takes into 
account the mix of patients who receive dialysis services at a 
facility or at home and the relative costs of providing such 
services in such settings) for hospital-based facilities and 
such a single composite weighted formula for other renal 
dialysis facilities, or based on such other method or 
combination of methods which differentiate between hospital-
based facilities and other renal dialysis facilities and which 
the Secretary determines, after detailed analysis, will more 
effectively encourage the more efficient delivery of dialysis 
services and will provide greater incentives for increased use 
of home dialysis than through the single composite weighted 
formulas. The amount of a payment made under any method other 
than a method based on a single composite weighted formula may 
not exceed the amount (or, in the case of continuous cycling 
peritoneal dialysis, 130 percent of the amount) of the median 
payment that would have been made under the formula for 
hospital-based facilities. The Secretary shall provide for such 
exceptions to such methods as may be warranted by unusual 
circumstances (including the special circumstances of sole 
facilities located in isolated, rural areas and of pediatric 
facilities). Each application for such an exception shall be 
deemed to be approved unless the Secretary disapproves it by 
not later than 60 working days after the date the application 
is filed. The Secretary may provide that such method will serve 
in lieu of any target reimbursement rate that would otherwise 
be established under paragraph (6). The Secretary shall reduce 
the amount of each composite rate payment under this paragraph 
for each treatment by 50 cents (subject to such adjustments as 
may be required to reflect modes of dialysis other than 
hemodialysis) and provide for payment of such amount to the 
organizations (designated under subsection (c)(1)(A)) for such 
organizations' necessary and proper administrative costs 
incurred in carrying out the responsibilities described in 
subsection (c)(2). The Secretary shall provide that amounts 
paid under the previous sentence shall be distributed to the 
organizations described in subsection (c)(1)(A) to ensure 
equitable treatment of all such network organizations. The 
Secretary in distributing any such payments to network 
organizations shall take into account--
          (A)  * * *

           *       *       *       *       *       *       *

          (D) the proportion of the aggregate administrative 
        funds collected in the network area.
The Secretary shall increase the amount of each composite rate 
payment for dialysis services furnished on or after January 1, 
2000, and on or before December 31, 2000, by 1.2 percent above 
such composite rate payment amounts for such services furnished 
on December 31, 1999, and for such services furnished on or 
after January 1, 2001, by 1.2 percent above such composite rate 
payment amounts for such services furnished on December 31, 
2000.

           *       *       *       *       *       *       *


    certification of medicare supplemental health insurance policies

  Sec. 1882. (a)  * * *

           *       *       *       *       *       *       *

  (s)(1)  * * *

           *       *       *       *       *       *       *

  (3)(A) The issuer of a medicare supplemental policy--
          (i)  * * *

           *       *       *       *       *       *       *

          (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 date of the termination of enrollment described in such 
subparagraph (or, if elected by the individual, the date of 
notification of the individual or the Secretary by the plan or 
organization of the impending termination or discontinuance of 
the plan in the area in which the individual resides) and who 
submits evidence of the date of termination or disenrollment 
(or the date of such notification) along with the application 
for such medicare supplemental policy.

           *       *       *       *       *       *       *


              HOSPITAL PROVIDERS OF EXTENDED CARE SERVICES

  Sec. 1883. (a)(1) Any hospital [(other than a hospital which 
has in effect a waiver under subparagraph (A) of the last 
sentence of section 1861(e))] which has an agreement under 
section 1866 may (subject to subsection (b)) enter into an 
agreement with the Secretary under which its inpatient hospital 
facilities may be used for the furnishing of services of the 
type which, if furnished by a skilled nursing facility, would 
constitute extended care services.

           *       *       *       *       *       *       *

  [(b) The Secretary may not enter into an agreement under this 
section with any hospital unless--
          [(1) except as provided under subsection (g), the 
        hospital is located in a rural area and has less than 
        100 beds, and
          [(2) the hospital has been granted a certificate of 
        need for the provision of long-term care services from 
        the State health planning and development agency 
        (designated under section 1521 of the Public Health 
        Service Act) for the State in which the hospital is 
        located.]
  (b) The Secretary may not enter into an agreement under this 
section with any hospital unless, except as provided under 
subsection (g), the hospital is located in a rural area and has 
less than 100 beds.
  (c) An agreement with a hospital under this section shall, 
except as otherwise provided under regulations of the 
Secretary, be of the same duration and subject to termination 
on the same conditions as are agreements with skilled nursing 
facilities under section 1866 and shall, where not inconsistent 
with any provision of this section, impose the same duties, 
responsibilities, conditions, and limitations, as those imposed 
under such agreements entered into under section 1866; except 
that no such agreement with any hospital shall be in effect for 
any period during which the hospital does not have in effect an 
agreement under section 1866[, or during which there is in 
effect for the hospital a waiver under subparagraph (A) of the 
last sentence of section 1861(e)]. A hospital with respect to 
which an agreement under this section has been terminated shall 
not be eligible to enter into a new agreement until a two-year 
period has elapsed from the termination date.
  (d)[(1)] Any agreement with a hospital under this section 
shall provide that payment for services will be made only for 
services for which payment would be made as post-hospital 
extended care services if those services had been furnished by 
a skilled nursing facility under an agreement entered into 
under section 1866; and any individual who is furnished 
services, for which payment may be made under an agreement 
under this section, shall, for purposes of this title (other 
than this section), be deemed to have received post-hospital 
extended care services in like manner and to the same extent as 
if the services furnished to him had been post-hospital 
extended care services furnished by a skilled nursing facility 
under an agreement under section 1866.
  [(2)(A) Any agreement under this section with a hospital with 
more than 49 beds shall provide that no payment may be made for 
extended care services which are furnished to an extended care 
patient after the end of the 5-day period (excluding weekends 
and holidays) beginning on an availability date for a skilled 
nursing facility, unless the patient's physician certifies, 
within such 5-day period, that the transfer of that patient to 
that facility is not medically appropriate on the availability 
date. The Secretary shall prescribe regulations to provide for 
notice by skilled nursing facilities of availability dates to 
hospitals which have agreements under this section and which 
are located within the same geographic region (as defined by 
the Secretary).
  [(B) In this paragraph:
          [(i) The term ``availability date'' means, with 
        respect to an extended care patient at a hospital, any 
        date on which a bed is available for the patient in a 
        skilled nursing facility located within the geographic 
        region in which the hospital is located.
          [(ii) The term ``extended care patient'' means an 
        individual being furnished extended care services at a 
        hospital pursuant to an agreement with the Secretary 
        under this section.
  [(3) In the case of an agreement for a cost reporting period 
under this section with a hospital that has more than 49 beds, 
payment may not be made in the period for patient-days of 
extended care services that exceed 15 percent of the product of 
the number of days in the period and the average number of 
licensed beds in the hospital in the period, except that such 
payment shall continue to be made in the period for those 
patients who are receiving extended care services at the time 
the hospital reaches the limit specified in this paragraph.]

           *       *       *       *       *       *       *


          payment to hospitals for inpatient hospital services

  Sec. 1886. (a)  * * *

           *       *       *       *       *       *       *

  (b)(1)  * * *

           *       *       *       *       *       *       *

  (2)(A) [In addition to] Except as provided in subparagraph 
(E), 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--

           *       *       *       *       *       *       *

  (E)(i) In the case of an eligible hospital that is a hospital 
or unit that is within a class of hospital described in clause 
(ii) with a 12-month cost reporting period beginning before the 
enactment of this subparagraph, in determining the amount of 
the increase under subparagraph (A), the Secretary shall 
substitute for the percentage of the target amount applicable 
under subparagraph (A)(ii)--
          (I) for a cost reporting period beginning on or after 
        October 1, 2000, and before September 30, 2001, 1.5 
        percent; and
          (II) for a cost reporting period beginning on or 
        after October 1, 2001, and before September 30, 2002, 2 
        percent.
  (ii) For purposes of clause (i), 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 (iv) of such 
        subsection.

           *       *       *       *       *       *       *

  (3)(A)  * * *

           *       *       *       *       *       *       *

  (C) In the case of a hospital that is a sole community 
hospital (as defined in subsection (d)(5)(D)(iii)), subject to 
subparagraph (I) the term ``target amount'' means--
          (i)  * * *

           *       *       *       *       *       *       *

  (D) For cost reporting periods ending on or before September 
30, 1994, [and for cost reporting periods beginning on or after 
October 1, 1997, and before October 1, 2001,] and for 
discharges beginning on or after October 1, 1997, and before 
October 1, 2006, in the case of a hospital that is a medicare-
dependent, small rural hospital (as defined in subsection 
(d)(5)(G)), the term ``target amount'' means--
          (i)  * * *

           *       *       *       *       *       *       *

          (iv) with respect to discharges occurring during 
        fiscal year 1998 through fiscal year [2000] 2005, the 
        target amount for the preceding year increased by the 
        applicable percentage increase under subparagraph 
        (B)(iv).
There shall be substituted for the base cost reporting period 
described in clause (i) a hospital's cost reporting period (if 
any) beginning during fiscal year 1987 if such substitution 
results in an increase in the target amount for the hospital.

           *       *       *       *       *       *       *

  (H)(i) In the case of a hospital or unit that is within a 
class of hospital described in clause (iv), for a cost 
reporting period beginning during fiscal years 1998 through 
2002, the target amount for such a hospital or unit may not 
exceed the amount as updated up to or for such cost reporting 
period under clause (ii).
  [(H)(i)] (ii)(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, as adjusted under 
clause (iii).
  [(ii)] (II) The Secretary shall update the amount determined 
under [clause (i)] subclause (I), for each cost reporting 
period after the cost reporting period described in [such 
clause] such subclause 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)] (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.
  (iii) In applying clause (ii)(I) 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.

           *       *       *       *       *       *       *

  (I)(i) For cost reporting periods beginning on or after 
October 1, 2000, in the case of a sole community hospital that 
for its cost reporting period beginning during 1999 is paid on 
the basis of the target amount applicable to the hospital under 
subparagraph (C) and that elects (in a form and manner 
determined by the Secretary) this subparagraph to apply to the 
hospital, there shall be substituted for the base cost 
reporting period described subparagraph (C) the rebased target 
amount determined under this subparagraph.
  (ii) For purposes of clause (i), the rebased target amount 
applicable to a hospital making an election under this 
subparagraph is equal to the sum of the following:
          (I) With respect to discharges occurring in fiscal 
        year 2001, 75 percent of the target amount applicable 
        to the hospital under subparagraph (C) (hereinafter in 
        this subparagraph referred to as the ``subparagraph (C) 
        target amount'') and 25 percent of the amount of 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 
        (hereinafter in this subparagraph referred to as the 
        ``rebase target amount''), increased by the applicable 
        percentage increase under subparagraph (B)(iv).
          (II) With respect to discharges occurring in fiscal 
        year 2002, 50 percent of the subparagraph (C) target 
        amount and 50 percent of the rebase target amount, 
        increased by the applicable percentage increase under 
        subparagraph (B)(iv).
          (III) With respect to discharges occurring in fiscal 
        year 2003, 25 percent of the subparagraph (C) target 
        amount and 75 percent of the rebase target amount, 
        increased by the applicable percentage increase under 
        subparagraph (B)(iv).
          (IV) With respect to discharges occurring in fiscal 
        year 2003 or any subsequent fiscal year, 100 percent of 
        the rebase target amount, increased by the applicable 
        percentage increase under subparagraph (B)(iv).
  (4)(A)(i) 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) the method under this subsection for 
determining the amount of payment to a hospital where events 
beyond the hospital's control or extraordinary circumstances, 
including changes in the case mix of such hospital, create a 
distortion in the increase in costs for a cost reporting period 
(including any distortion in the costs for the base period 
against which such increase is measured). The Secretary may 
provide for such other exemptions from, and exceptions and 
adjustments to, such method as the Secretary deems appropriate, 
including the assignment of a new base period which is more 
representative, as determined by the Secretary, of the 
reasonable and necessary cost of inpatient services and 
including those which he deems necessary to take into account a 
decrease in the inpatient hospital services that a hospital 
provides and that are customarily provided directly by similar 
hospitals which results in a significant distortion in the 
operating costs of inpatient hospital services. The Secretary 
shall announce a decision on any request for an exemption, 
exception, or adjustment under this paragraph not later than 
180 days after receiving a completed application from the 
intermediary for such exemption, exception, or adjustment, and 
shall include in such decision a detailed explanation of the 
grounds on which such request was approved or denied.

           *       *       *       *       *       *       *

  (d)(1)  * * *

           *       *       *       *       *       *       *

  (2) The Secretary shall determine a national adjusted DRG 
prospective payment rate, for each inpatient hospital discharge 
in fiscal year 1984 involving inpatient hospital services of a 
subsection (d) hospital in the United States, and shall 
determine a regional adjusted DRG prospective payment rate for 
such discharges in each region, for which payment may be made 
under part A of this title. Each such rate shall be determined 
for hospitals located in urban or rural areas within the United 
States or within each such region, respectively, as follows:
          (A)  * * *

           *       *       *       *       *       *       *

          (C) Standardizing amounts.--The Secretary shall 
        standardize the amount updated under subparagraph (B) 
        for each hospital by--
                  (i) excluding an estimate of indirect medical 
                education costs (taking into account, for 
                discharges occurring after September 30, 1986, 
                the amendments made by section 9104(a) of the 
                Medicare and Medicaid Budget Reconciliation 
                Amendments of 1985), 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 or any additional 
                payments under such paragraph resulting from 
                the amendment made by section 101(a) of 
                Medicare Balanced Budget Refinement Act of 
                1999,

           *       *       *       *       *       *       *

  (5)(A)  * * *

           *       *       *       *       *       *       *

  (B) The Secretary shall provide for an additional payment 
amount for subsection (d) hospitals with indirect costs of 
medical education, in an amount computed in the same manner as 
the adjustment for such costs under regulations (in effect as 
of January 1, 1983) under subsection (a)(2), except as follows:
          (i)  * * *
          (ii) For purposes of clause (i)(II), the indirect 
        teaching adjustment factor is equal to c  
        (((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)  * * *

           *       *       *       *       *       *       *

                  (IV) during fiscal year 2000 and 2001, ``c'' 
                is equal to 1.47; and
                  (V) on or after October 1, [2000] 2001, ``c'' 
                is equal to 1.35.

           *       *       *       *       *       *       *

          (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 (or, 130 
        percent of such number in the case of a hospital 
        located in a rural area) 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.

           *       *       *       *       *       *       *

  (F)(i)  * * *

           *       *       *       *       *       *       *

  (ix) In the case of discharges occurring--
          (I)  * * *

           *       *       *       *       *       *       *

          (III) [during fiscal year 2000] during each of fiscal 
        years 2000 and 2001, 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)] (IV) during fiscal year 2002, such additional 
        payment amount shall be reduced by [5] 4 percent; and
          [(VI)] (V) during fiscal year 2003 and each 
        subsequent fiscal year, such additional payment amount 
        shall be reduced by 0 percent.

           *       *       *       *       *       *       *

  (G)(i) For any cost reporting period beginning on or after 
April 1, 1990, and before October 1, 1994, [or beginning on or 
after October 1, 1997, and before October 1, 2001,] or 
discharges on or after October 1, 1997, and before October 1, 
2006, in the case of a subsection (d) hospital which is a 
medicare-dependent, small rural hospital, payment under 
paragraph (1)(A) shall be equal to the sum of the amount 
determined under clause (ii) and the amount determined under 
paragraph (1)(A)(iii).
  (ii) The amount determined under this clause is--
          (I)  * * *
          (II) for discharges occurring during any subsequent 
        cost reporting period (or portion thereof) and before 
        October 1, 1994, [or beginning on or after October 1, 
        1997, and before October 1, 2001,] or discharges on or 
        after October 1, 1997, and before October 1, 2006, 50 
        percent of the amount by which the hospital's target 
        amount for the cost reporting period (as defined in 
        subsection (b)(3)(D)) exceeds the amount determined 
        under paragraph (1)(A)(iii).

           *       *       *       *       *       *       *

  (8)(A)  * * *

           *       *       *       *       *       *       *

  (B)(i) For purposes of this subsection, the Secretary shall 
treat a hospital located in a rural county adjacent to one or 
more urban areas as being located in the urban metropolitan 
statistical area to which the greatest number of workers in the 
county commute, if the rural county would otherwise be 
considered part of an urban area, under the standards for 
designating Metropolitan Statistical Areas (and for designating 
New England County Metropolitan Areas) [published in the 
Federal Register on January 3, 1980] described in clause (ii), 
if the commuting rates used in determining outlying counties 
(or, for New England, similar recognized areas) were determined 
on the basis of the aggregate number of resident workers who 
commute to (and, if applicable under the standards, from) the 
central county or counties of all contiguous Metropolitan 
Statistical Areas (or New England County Metropolitan Areas).
  (ii) The standards described in this clause for cost 
reporting periods beginning in a fiscal year--
          (I) before fiscal year 2003, are the standards 
        published in the Federal Register on January 3, 1980, 
        or, at the election of the hospital with respect to 
        fiscal years 2001 and 2002, standards so published on 
        March 30, 1990; and
          (II) after fiscal year 2002, are the standards 
        published in the Federal Register by the Director of 
        the Office of Management and Budget based on the most 
        recent available decennial population data.
Subparagraphs (C) and (D) shall not apply with respect to the 
application of subclause (I).

           *       *       *       *       *       *       *

  (E)(i) For purposes of this subsection and section 1833(t), 
not later than 60 days after the receipt of an application from 
a subsection (d) hospital described in clause (ii), the 
Secretary shall treat the hospital as being located in the 
rural area (as defined in such paragraph (2)(D)) of the State 
in which the hospital is located.
  (ii) For purposes of clause (i), a subsection (d) hospital 
described in this clause is a subsection (d) hospital that is 
located in an urban area (as defined in paragraph (2)(D)) and 
satisfies any of the following criteria:
          (I) The hospital is located in a rural census tract 
        of a metropolitan statistical area (as determined under 
        the Goldsmith Modification, as published in the Federal 
        Register on February 27, 1992 (57 FR 6725)).
          (II) The hospital is located in an area designated by 
        any law or regulation of such State as a rural area (or 
        is designated by such State as a rural hospital).
          (III) The hospital would qualify as a sole community 
        hospital under paragraph (5)(D) if the hospital were 
        located in a rural area.
          (IV) The hospital meets such other criteria as the 
        Secretary may specify.

           *       *       *       *       *       *       *

          (11) Additional payments for managed care 
        enrollees.--
                  (A) In general.--(i) 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.
                  (ii) For portions of cost reporting periods 
                occurring on or after January 1, 2000, the 
                Secretary shall provide for an additional 
                payment amount for each applicable discharge of 
                any subsection (d) hospital that has direct 
                costs of approved education activities for 
                nurse and allied health professional training.

           *       *       *       *       *       *       *

                  (C) Determination of amount.--(i) The amount 
                of the payment [under this paragraph] under 
                subparagraph (A)(i) with respect to any 
                applicable discharge shall be equal to the DGME 
                portion of 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).
                  (ii) The amount of the payment under 
                subparagraph (A)(ii) with respect to any 
                applicable discharge shall be equal to an 
                amount, specified by the Secretary, in a manner 
                consistent with the following:
                          (I) The total payments under such 
                        subparagraph in a year are equal to 
                        $60,000,000.
                          (II) The payments to different 
                        hospitals are proportional to the 
                        direct costs of each hospital described 
                        in such subparagraph.
                  (iii) For purposes of this subparagraph, the 
                ``DGME portion'' means, for a year, the ratio 
                of--
                          (I) the amount by which (aa) the 
                        Secretary's estimate of the total 
                        additional payments that would be 
                        payable under this paragraph for the 
                        year if subparagraph (A)(ii) and clause 
                        (ii) of this subparagraph did not 
                        apply, exceeds (bb) $60,000,000; to
                          (II) the total additional payments 
                        estimated under subclause (I)(aa) for 
                        the year.

           *       *       *       *       *       *       *

  (g)(1)(A) Notwithstanding section 1861(v), instead of any 
amounts that are otherwise payable under this title with 
respect to the reasonable costs of subsection (d) hospitals and 
subsection (d) Puerto Rico hospitals for capital-related costs 
of inpatient hospital services, the Secretary shall, for 
hospital cost reporting periods beginning on or after October 
1, 1991, provide for payments for such costs in accordance with 
a prospective payment system established by the Secretary. 
Aggregate payments made under subsection (d) and this 
subsection during fiscal years 1992 through 1995 shall be 
reduced in a manner that results in a reduction (as estimated 
by the Secretary) in the amount of such payments equal to a 10 
percent reduction in the amount of payments attributable to 
capital-related costs that would otherwise have been made 
during such fiscal year had the amount of such payments been 
based on reasonable costs (as defined in section 1861(v)). For 
discharges occurring after September 30, 1993, the Secretary 
shall reduce by 7.4 percent the unadjusted standard Federal 
capital payment rate (as described in 42 CFR 412.308(c), as in 
effect on the date of the enactment of the Omnibus Budget 
Reconciliation Act of 1993) and shall (for hospital cost 
reporting periods beginning on or after October 1, 1993) 
redetermine which payment methodology is applied to the 
hospital under such system to take into account such reduction. 
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,] October 
1, 2002, reduce the rates described in clauses (i) and (ii) by 
2.1 percent.

           *       *       *       *       *       *       *

  (h) Payments for Direct Graduate Medical Education Costs.--
          (1)  * * *

           *       *       *       *       *       *       *

          (3) Hospital payment amount per resident.--
                  (A)  * * *

           *       *       *       *       *       *       *

                  (B) Aggregate approved amount.--As used in 
                subparagraph (A), the term ``aggregate approved 
                amount'' means, for a hospital cost reporting 
                period, the product of--
                          [(i) the hospital's approved FTE 
                        resident amount (determined under 
                        paragraph (2)) for that period, and]
                          (i)(I) for a cost reporting period 
                        beginning before October 1, 2000, the 
                        hospital's approved FTE resident amount 
                        (determined under paragraph (2)) for 
                        that period;
                          (II) for a cost reporting period 
                        beginning on or after October 1, 2000, 
                        and before October 1, 2004, the 
                        national average per resident amount 
                        determined under paragraph (7) or, if 
                        greater, the sum of the hospital-
                        specific percentage (as defined in 
                        subparagraph (E)) of the hospital's 
                        approved FTE resident amount 
                        (determined under paragraph (2)) for 
                        the period and the national percentage 
                        (as defined in such subparagraph) of 
                        the national average per resident 
                        amount determined under paragraph (7); 
                        and
                          (III) for a cost reporting period 
                        beginning on or after October 1, 2004, 
                        the national average per resident 
                        amount determined under paragraph (7); 
                        and

           *       *       *       *       *       *       *

                  (E) Transition to national average per 
                resident payment system.--For purposes of 
                subparagraph (B)(i)(II), for the cost reporting 
                period of a hospital beginning--
                          (i) during fiscal year 2001, the 
                        hospital-specific percentage is 80 
                        percent and the national percentage is 
                        20 percent;
                          (ii) during fiscal year 2002, the 
                        hospital-specific percentage is 60 
                        percent and the national percentage is 
                        40 percent;
                          (iii) during fiscal year 2003, the 
                        hospital-specific percentage is 40 
                        percent and the national percentage is 
                        60 percent; and
                          (iv) during fiscal year 2004, the 
                        hospital-specific percentage is 20 
                        percent and the national percentage is 
                        80 percent.
          (4) Determination of full-time-equivalent 
        residents.--
                  (A)  * * *

           *       *       *       *       *       *       *

                  (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 
                (or, 130 percent of such number in the case of 
                a hospital located in a rural area) of such 
                full-time equivalent residents for the 
                hospital's most recent cost reporting period 
                ending on or before December 31, 1996.

           *       *       *       *       *       *       *

                  (H) Special rules for application of 
                subparagraphs (f) and (g).--
                          (i)  * * *
                          (iv) Non-rural hospitals operating 
                        training programs in underserved rural 
                        areas.--In the case of a hospital that 
                        is not located in a rural area but 
                        establishes separately accredited 
                        approved medical residency training 
                        programs (or rural tracks) in an 
                        underserved rural area or has an 
                        accredited training program with an 
                        integrated rural track, the Secretary 
                        shall adjust the limitation under 
                        subparagraph (F) in an appropriate 
                        manner insofar as it applies to such 
                        programs in such underserved rural 
                        areas in order to encourage the 
                        training of physicians in underserved 
                        rural areas.

           *       *       *       *       *       *       *

          (7) National average per resident amount.--The 
        national average per resident amount for a hospital for 
        a cost reporting period beginning in a fiscal year is 
        an amount determined as follows:
                  (A) Determination of hospital single per 
                resident amount.--The Secretary shall compute 
                for each hospital operating an approved 
                graduate medical education program a single per 
                resident amount equal to the average (weighted 
                by number of full-time equivalent residents) of 
                the primary care per resident amount and the 
                non-primary care per resident amount computed 
                under paragraph (2) for cost reporting periods 
                ending during fiscal year 1997.
                  (B) Determination of wage and non-wage-
                related proportion of the single per resident 
                amount.--The Secretary shall estimate the 
                average proportion of the single per resident 
                amounts computed under subparagraph (A) that is 
                attributable to wages and wage-related costs.
                  (C) Standardizing per resident amounts.--The 
                Secretary shall establish a standardized per 
                resident amount for each such hospital--
                          (i) by dividing the single per 
                        resident amount computed under 
                        subparagraph (A) into a wage-related 
                        portion and a non-wage-related portion 
                        by applying the proportion determined 
                        under subparagraph (B);
                          (ii) by dividing the wage-related 
                        portion by the factor applied under 
                        subsection (d)(3)(E) for discharges 
                        occurring during fiscal year 1999 for 
                        the hospital's area; and
                          (iii) by adding the non-wage-related 
                        portion to the amount computed under 
                        clause (ii).
                  (D) Determination of national average.--The 
                Secretary shall compute a national average per 
                resident amount equal to the average of the 
                standardized per resident amounts computed 
                under subparagraph (C) for such hospitals, with 
                the amount for each hospital weighted by the 
                average number of full-time equivalent 
                residents at such hospital.
                  (E) Application to individual hospitals.--The 
                Secretary shall compute for each such hospital 
                a per resident amount--
                          (i) by dividing the national average 
                        per resident amount computed under 
                        subparagraph (D) into a wage-related 
                        portion and a non-wage-related portion 
                        by applying the proportion determined 
                        under subparagraph (B);
                          (ii) by multiplying the wage-related 
                        portion by the factor described in 
                        subparagraph (C)(ii) for the hospital's 
                        area; and
                          (iii) by adding the non-wage-related 
                        portion to the amount computed under 
                        clause (ii).
                  (F) Initial updating rate.--The Secretary 
                shall update such per resident amount for the 
                hospital's cost reporting period that begins 
                during fiscal year 2001 for each such hospital 
                by the estimated percentage increase in the 
                consumer price index for all urban consumers 
                during the period beginning October 1997 and 
                ending with the midpoint of the hospital's cost 
                reporting period that begins during fiscal year 
                2001.
                  (G) Subsequent updating.--For each subsequent 
                cost reporting period, subject to subparagraph 
                (H), the national average per resident amount 
                for a hospital is equal to the amount 
                determined under this paragraph for the 
                previous cost reporting period updated, through 
                the midpoint of the period, by projecting the 
                estimated percentage change in the consumer 
                price index during the 12-month period ending 
                at that midpoint, with appropriate adjustments 
                to reflect previous under-or over-estimations 
                under this subparagraph in the projected 
                percentage change in the consumer price index.
                  (H) Transitional budget neutrality 
                adjustment.--
                          (i) In general.--If the Secretary 
                        estimates that, as a result of the 
                        amendments made by section 311 of the 
                        Medicare Balanced Budget Refinement Act 
                        of 1999, the post-MBBRA expenditures 
                        for fiscal year 2005 will be greater or 
                        less than the pre-MBBRA expenditures 
                        for that fiscal year--
                                  (I) the Secretary shall 
                                adjust the update applied under 
                                subparagraph (G) in determining 
                                the national average per 
                                resident amount for cost 
                                reporting periods beginning 
                                during fiscal year 2005 so that 
                                the amount of the post-MBBRA 
                                expenditures for those cost 
                                reporting periods is equal to 
                                the amount of the pre-MBBRA 
                                expenditures for such periods; 
                                and
                                  (II) the Secretary shall, 
                                taking into account the 
                                adjustment made under subclause 
                                (I), adjust the national 
                                average per resident amount, as 
                                applied for the portion of a 
                                cost reporting period beginning 
                                during fiscal year 2004 that 
                                occur in fiscal year 2005, so 
                                that the amount of the post-
                                MBBRA expenditures made during 
                                fiscal year 2005 is equal to 
                                the amount of the pre-MBBRA 
                                expenditures during such fiscal 
                                year.
                          (ii) Definitions.--In this 
                        subparagraph:
                                  (I) Aggregate subsection (h)-
                                related expenditures.--The term 
                                ``aggregate subsection (h)-
                                related expenditures'' means, 
                                with respect to cost reporting 
                                periods beginning during a 
                                fiscal year or with respect to 
                                a fiscal year, the aggregate 
                                expenditures under this title 
                                for such periods or fiscal 
                                year, respectively, which are 
                                attributable to the operation 
                                of this subsection.
                                  (II) Pre-mbbra 
                                expenditures.--The term ``pre-
                                MBBRA expenditures'' means 
                                aggregate subsection (h)-
                                related expenditures determined 
                                as if the amendments made by 
                                section 311 of the Medicare 
                                Balanced Budget Refinement Act 
                                of 1999 had not been enacted.
                                  (III) Post-mbbra 
                                expenditures.--The term ``post-
                                MBBRA expenditures'' means 
                                aggregate subsection (h)-
                                related expenditures determined 
                                taking into account the 
                                amendments made by section 311 
                                of the Medicare Balanced Budget 
                                Refinement Act of 1999.

           *       *       *       *       *       *       *

  (j) Prospective Payment for Inpatient Rehabilitation 
Services.--
          (1) Payment during transition period.--
                  (A)  * * *

           *       *       *       *       *       *       *

                  (C) TEFRA and prospective payment percentages 
                specified.--For purposes of subparagraph (A), 
                subject to subparagraph (E), for a cost 
                reporting period beginning--
                          (i)  * * *

           *       *       *       *       *       *       *

                  (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].
                  (E) Election to apply full prospective 
                payment system.--A rehabilitation facility may 
                elect for either or both cost reporting periods 
                described in subparagraph (C) to have the TEFRA 
                percentage and prospective payment percentage 
                set at 0 percent and 100 percent, respectively, 
                for the facility.
                  (F) Construction relating transfer 
                authority.--Nothing in this subsection shall be 
                construed as preventing the Secretary from 
                providing for an adjustment to payments to take 
                into account the early transfer of a patient 
                from a rehabilitation facility to another site 
                of care.

           *       *       *       *       *       *       *

          (2) Patient case mix groups.--
                  (A) Establishment.--The Secretary shall 
                establish--
                          [(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]
                          (i) classes of patient discharges of 
                        rehabilitation facilities (each in this 
                        subsection referred to as a `case mix 
                        group'), based on impairment, age, 
                        comorbidities, and functional 
                        capability of the patient and such 
                        other factors as the Secretary deems 
                        appropriate to improve the explanatory 
                        power of functional independence 
                        measure-function related groups; and

           *       *       *       *       *       *       *

          (3) Payment rate.--
                  (A)  * * *

           *       *       *       *       *       *       *

                  (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 and taking into 
                account the election permitted under paragraph 
                (1)(E), 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).

           *       *       *       *       *       *       *


    payment to skilled nursing facilities for routine service costs

  Sec. 1888. (a)  * * *

           *       *       *       *       *       *       *

  (e) Prospective Payment.--
          (1) Payment provision.--Notwithstanding any other 
        provision of this title, subject to [paragraph (7)] 
        paragraphs (7), (11), and (12), 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)  * * *

           *       *       *       *       *       *       *

          (2) Definitions.--For purposes of this subsection:
                  (A) Covered skilled nursing facility 
                services.--
                          (i) In general.--The term ``covered 
                        skilled nursing facility services''--
                                  (I)  * * *
                                  (II) includes all items and 
                                services (other than [services 
                                described in clause (ii)] items 
                                and services described in 
                                clauses (ii) and (iii)) 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.

           *       *       *       *       *       *       *

                          (iii) Exclusion of certain additional 
                        items.--Items described in this clause 
                        are the following:
                                  (I) Ambulance services 
                                furnished to an individual in 
                                conjunction with renal dialysis 
                                services described in section 
                                1861(s)(2)(F).
                                  (II) Chemotherapy items 
                                (identified as of July 1, 1999, 
                                by HCPCS codes J9000-J9020; 
                                J9040-J9151; J9170-J9185; 
                                J9200-J9201; J9206-J9208; 
                                J9211; J9230-J9245; and J9265-
                                J9600 (and as subsequently 
                                modified by the Secretary)).
                                  (III) Chemotherapy 
                                administration services 
                                (identified as of July 1, 1999, 
                                by HCPCS codes 36260-36262; 
                                36489; 36530-36535; 36640; 
                                36823; and 96405-96542 (and as 
                                subsequently modified by the 
                                Secretary)).
                                  (IV) Radioisotope services 
                                (identified as of July 1, 1999, 
                                by HCPCS codes 79030-79440 (and 
                                as subsequently modified by the 
                                Secretary)).
                                  (V) Customized prosthetic 
                                devices (commonly known as 
                                artificial limbs or components 
                                or artifical limbs) under the 
                                following HCPCS codes (as of 
                                July 1, 1999 (and as 
                                subsequently modified by the 
                                Secretary)) if delivered to an 
                                inpatient for use during the 
                                stay in the extended care 
                                facility and intended to be 
                                used by the patient after 
                                discharge from the facility: 
                                L5050-L5340; L5500-L5610; 
                                L5613-L5986; L5988; L6050-
                                L6370; L6400-L6880; L6920-
                                L7274; and L7362-7366.

           *       *       *       *       *       *       *

          (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 or, in the case of 
                        a facility participating in the Nursing 
                        Home Case-Mix and Quality Demonstration 
                        (RUGS-III), the RUGS-III rate received 
                        by the facility during the cost 
                        reporting period beginning in 1997, 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] furnished during 
                        the applicable cost reporting period 
                        described in clause (i) 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 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.]
                  (B) Update to first cost reporting period.--
                The Secretary shall update the amount 
                determined under subparagraph (A), for each 
                cost reporting period after the applicable 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 (except that for the 
                cost reporting period beginning in fiscal year 
                2001, the factor shall be equal to such market 
                basket percentage plus 0.8 percentage point).

           *       *       *       *       *       *       *

          (4) Federal per diem rate.--
                  (A)  * * *
                  (E) Updating.--
                          (i)  * * *
                          (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]
                                  (II) for fiscal year 2001, 
                                the rate computed for fiscal 
                                year 2000 (determined without 
                                regard to section 121 of the 
                                Medicare Balanced Budget 
                                Refinement Act of 1999) 
                                increased by the skilled 
                                nursing facility market basket 
                                percentage change for the 
                                fiscal year involved plus 0.8 
                                percentage point;
                                  (III) for fiscal year 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)] (IV) 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.

           *       *       *       *       *       *       *

                  (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)  * * *

           *       *       *       *       *       *       *

                          (iii) Adjustment for exclusion of 
                        certain additional items.--The 
                        Secretary shall provide for an 
                        appropriate proportional reduction in 
                        payments so that beginning with fiscal 
                        year 2001, the aggregate amount of such 
                        reductions is equal to the aggregate 
                        increase in payments attributable to 
                        the exclusion effected under clause 
                        (iii) of paragraph (2)(A).

           *       *       *       *       *       *       *

          (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. In the case of an item or service described in 
        clause (iii) of paragraph (2)(A) that would be payable 
        under part A but for the exclusion of such item or 
        service under such clause, payment shall be made for 
        the item or service, in an amount otherwise determined 
        under part B of this title for such item or service, 
        from the Federal Hospital Insurance Trust Fund under 
        section 1817 (rather than from the Federal 
        Supplementary Medical Insurance Trust Fund under 
        section 1841).

           *       *       *       *       *       *       *

          (11) Permitting facilities to waive 3-year 
        transition.--Notwithstanding paragraph (1)(A), a 
        facility may elect to have the amount of the payment 
        for all costs of covered skilled nursing facility 
        services for each day of such services furnished in 
        cost reporting periods beginning after the date of such 
        election determined pursuant to subparagraph (B) of 
        paragraph (1).
          (12) Payment rule for certain facilities.--
                  (A) In general.--In the case of a qualified 
                acute skilled nursing facility described in 
                subparagraph (B), the per diem amount of 
                payment shall be determined by applying the 
                non-Federal percentage and Federal percentage 
                specified in paragraph (2)(C)(ii).
                  (B) Facility described.--For purposes of 
                subparagraph (A), a qualified acute skilled 
                nursing facility is a facility that--
                          (i) was certified by the Secretary as 
                        a skilled nursing facility eligible to 
                        furnish services under this title 
                        before July 1, 1992;
                          (ii) is a hospital-based facility; 
                        and
                          (iii) for the cost reporting period 
                        beginning in fiscal year 1998, the 
                        facility had more than 60 percent of 
                        total patient days comprised of 
                        patients who are described in 
                        subparagraph (C).
                  (C) Description of patients.--For purposes of 
                subparagraph (B), a patient described in this 
                subparagraph is an individual who--
                          (i) is entitled to benefits under 
                        part A; and
                          (ii) is immuno-compromised secondary 
                        to an infectious disease, with specific 
                        diagnoses as specified by the 
                        Secretary.

           *       *       *       *       *       *       *


              prospective payment for home health services

  Sec. 1895. (a)  * * *

           *       *       *       *       *       *       *

  (b) System of Prospective Payment for Home Health Services.--
          (1)  * * *

           *       *       *       *       *       *       *

          (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 2001 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.]
                          (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--
                                  (I) for the 12-month period 
                                beginning on the date the 
                                Secretary implements the 
                                system, shall be equal to the 
                                total amount that would have 
                                been made if the system had not 
                                been in effect; and
                                  (II) for periods beginning 
                                after the period described in 
                                subclause (I), shall be equal 
                                to the total amount that would 
                                have been made for fiscal year 
                                2001 if the system had not been 
                                in effect but if the reduction 
                                in limits described in clause 
                                (ii) had been in effect, and 
                                updated under subparagraph (B).
                        Each 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.

           *       *       *       *       *       *       *

                  (B) Annual update.--
                          (i)  * * *
                          (ii) Home health applicable increase 
                        percentage.--For purposes of this 
                        subparagraph, the term ``home health 
                        applicable increase percentage'' means, 
                        with respect to--
                                  (I) [fiscal year 2002 or 
                                2003] each of fiscal years 2002 
                                and 2003, the home health 
                                market basket percentage 
                                increase (as defined in clause 
                                (iii)) minus 1.1 percentage 
                                points; or

           *       *       *       *       *       *       *

                              ----------                              


              TITLE IV OF THE BALANCED BUDGET ACT OF 1997

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

           *       *       *       *       *       *       *


Subtitle A--Medicare+Choice Program

           *       *       *       *       *       *       *


                       CHAPTER 2--DEMONSTRATIONS

Subchapter A--Medicare+Choice Competitive Pricing Demonstration Project

SEC. 4011. MEDICARE PREPAID COMPETITIVE PRICING DEMONSTRATION PROJECT.

  (a) Establishment of Project.--[The Secretary]
          (1) In general.--Subject to the succeeding provisions 
        of this subsection, 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.
          (2) Delay in implementation.--The Secretary shall not 
        implement the project until January 1, 2002, or, if 
        later, 6 months after the date the Competitive Pricing 
        Advisory Committee has submitted to Congress a report 
        on each of the following topics:
                  (A) Incorporation of original fee-for-service 
                medicare program into project.--What changes 
                would be required in the project to feasibly 
                incorporate the original fee-for-service 
                medicare program into the project in the areas 
                in which the project is operational.
                  (B) Quality activities.--The nature and 
                extent of the quality reporting and monitoring 
                activities that should be required of plans 
                participating in the project, the estimated 
                costs that plans will incur as a result of 
                these requirements, and the current ability of 
                the Health Care Financing Administration to 
                collect and report comparable data, sufficient 
                to support comparable quality reporting and 
                monitoring activities with respect to 
                beneficiaries enrolled in the original fee-for-
                service medicare program generally.
                  (C) Rural project.--The current viability of 
                initiating a project site in a rural area, 
                given the site specific budget neutrality 
                requirements of the project, and insofar as the 
                Committee decides that the addition of such a 
                site is not viable, recommendations on how the 
                project might best be changed so that such a 
                site is viable.
                  (D) Benefit structure.--The nature and extent 
                of the benefit structure that should be 
                required of plans participating in the project, 
                the rationale for such benefit structure, the 
                potential implications that any benefit 
                standardization requirement may have on the 
                number of plan choices available to a 
                beneficiary in an area designated under the 
                project, the potential implications of 
                requiring participating plans to offer 
                variations on any standardized benefit package 
                the committee might recommend, such that a 
                beneficiary could elect to pay a higher 
                percentage of out-of-pocket costs in exchange 
                for a lower premium (or premium rebate as the 
                case may be), and the potential implications of 
                expanding the project (in conjunction with the 
                potential inclusion of the original fee-for-
                service medicare program) to require medicare 
                supplemental insurance plans operating in an 
                area designated under the project to offer a 
                coordinated and comparable standardized benefit 
                package.
          (3) Conforming deadlines.--Any dates specified in the 
        succeeding provisions of this section shall be delayed 
        (as specified by the Secretary) in a manner consistent 
        with the delay effected under paragraph (2).

           *       *       *       *       *       *       *

  (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]

           *       *       *       *       *       *       *

                          (iii) establish beneficiary premiums 
                        for plans offered in such area in a 
                        manner such that a beneficiary who 
                        enrolls in an offered plan with a below 
                        average price (as established by the 
                        competitive pricing methodology 
                        established for such area) may, at the 
                        plan's election, be offered a rebate of 
                        some or all of the medicare part B 
                        premium that such individual must 
                        otherwise pay in order to participate 
                        in a Medicare+Choice plan under the 
                        Medicare+Choice program; and

           *       *       *       *       *       *       *


                Subtitle B--Prevention Initiatives

           *       *       *       *       *       *       *


SEC. 4205. RURAL HEALTH CLINIC SERVICES.

  (a) Per-Visit Payment Limits for Provider-Based Clinics.--
          (1) Extension of limit.--
                  (A) * * *
                  (B) Effective date.--The amendment made by 
                subparagraph (A) applies to [services 
                furnished] cost reporting periods beginning on 
                or after January 1, 1998.

           *       *       *       *       *       *       *


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). The 
        Secretary shall make an award for such project not 
        later than 3 months after the date of the enactment of 
        the Medicare Balanced Budget Refinement Act of 1999. 
        The Secretary shall accept the proposal adjudged to be 
        the best technical proposal as of such date of 
        enactment without the need for additional review or 
        resubmission of proposals.
          (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 that 
                qualify as Federally designated medically 
                underserved areas or health professional 
                shortage areas at the time of enrollment of 
                beneficiaries under the project.

           *       *       *       *       *       *       *

  (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) * * *
          (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].

           *       *       *       *       *       *       *

  (d) Coverage as Medicare Part B Services.--
          (1) * * *
          (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] for the costs that are related 
                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).
                  (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)] or at sites providing health 
                        care to patients located in medically 
                        underserved areas.

           *       *       *       *       *       *       *

                  (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] for activities related 
                        to 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.

           *       *       *       *       *       *       *

          [(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.]
          (4) Cost-sharing.--The project may not impose cost 
        sharing on a medicare beneficiary for the receipt of 
        services under the project. Project costs will cover 
        all costs to patients and providers related to 
        participation in the project.

           *       *       *       *       *       *       *


             Subtitle E--Provisions Relating to Part A Only

                  CHAPTER 1--PAYMENT OF PPS HOSPITALS

SEC. 4401. PPS HOSPITAL PAYMENT UPDATE.

  (a) * * *

           *       *       *       *       *       *       *

  (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) * * *
                  (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)))] 
                section 1886(b)(3)(B)(i)(XIV) of the Social 
                Security Act (42 U.S.C. 
                1395ww(b)(3)(B)(i)(XIV))) had been increased by 
                0.3 percentage points.

           *       *       *       *       *       *       *


           CHAPTER 4--PROVISIONS RELATED TO HOSPICE SERVICES

           *       *       *       *       *       *       *


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

  (a) * * *
  (b) Effective Date.--The amendment made by subsection (a) 
[applies to cost reporting periods beginning] applies to items 
and services furnished on or after October 1, 1997.

Subtitle F--Provisions Relating to Part B Only

           *       *       *       *       *       *       *


                     CHAPTER 3--AMBULANCE SERVICES

SEC. 4531. PAYMENTS FOR AMBULANCE SERVICES.

  (a) * * *

           *       *       *       *       *       *       *

  (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) * * *

           *       *       *       *       *       *       *

For purposes of this subsection, an area shall be treated as a 
rural area if it is designated as a rural area by any law or 
regulation of the State or if it is located in a rural census 
tract of a metropolitan statistical area (as determined under 
the Goldsmith Modification, as published in the Federal 
Register on February 27, 1992 (57 FR 6725)).

SEC. 4532. DEMONSTRATION 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 projects may extend over a period of not to exceed 3 years 
each. The Secretary shall publish by not later than July 1, 
2000, a request for proposals for such projects.
  (b) Amount of Payment.--
          (1) * * *
          [(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.]
          (2) Capitated payment rate defined.--In this 
        subsection, the ``capitated payment rate'' means, with 
        respect to a demonstration project--
                  (A) in its first year, a rate established for 
                the project by the Secretary, using the most 
                current available data, in a manner that 
                ensures that aggregate payments under the 
                project will not exceed the aggregate payment 
                that would have been made for ambulance 
                services under part B of title XVIII of the 
                Social Security Act in the local area of 
                government's jurisdiction; and
                  (B) in a subsequent year, the capitated 
                payment rate established for the previous year 
                increased by an appropriate inflation 
                adjustment factor.

           *       *       *       *       *       *       *


            Subtitle G--Provisions Relating to Parts A and B

              CHAPTER 1--HOME HEALTH SERVICES AND BENEFITS

Subchapter A--Payments For Home Health Services

           *       *       *       *       *       *       *


SEC. 4603. PROSPECTIVE PAYMENT FOR HOME HEALTH SERVICES.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Contingency.--If the 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 portions of cost reporting periods 
described in subsection (d), for such portions the Secretary 
shall provide for a reduction by 15 percent in the cost limits 
and per beneficiary limits described in section 1861(v)(1)(L) 
of such Act, as those limits would otherwise be in effect on 
[September 30, 2000] on the date that is 12 months after the 
date the Secretary implements such system.

           *       *       *       *       *       *       *

                              ----------                              


      SECTION 9335 OF THE OMNIBUS BUDGET RECONCILIATION ACT OF 1986

           *       *       *       *       *       *       *


SEC. 9335. PAYMENT RATES FOR RENAL SERVICES AND IMPROVEMENTS IN 
                    ADMINISTRATION OF END STAGE RENAL DISEASE NETWORKS 
                    AND PROGRAMS.

  (a) Composite Rates for Dialysis Services.--
          [(1) In general.--Effective with respect to dialysis 
        services provided on or after December 1, 1990, and 
        before October 1, 1998, the Secretary of Health and 
        Human Services shall establish the base rate for 
        routine dialysis treatment in a free-standing facility 
        and in a hospital-based facility under section 
        1881(b)(7) of the Social Security Act, at a level equal 
        to the respective rate in effect as of May 13, 1986, 
        reduced by $2.00. With respect to services furnished on 
        or after January 1, 1991, such base rate shall be equal 
        to the respective rate in effect as of September 30, 
        1990 (determined without regard to any reductions 
        imposed pursuant to section 6201 of the Omnibus Budget 
        Reconciliation Act of 1989), increased by $1.00. No 
        change may be made in the base rate in effect as of 
        September 30, 1990, unless the Secretary makes such 
        change in accordance with notice and comment 
        requirements set forth in section 1871(b)(1) of such 
        Act.]

           *       *       *       *       *       *       *

                              ----------                              


               OMNIBUS BUDGET RECONCILIATION ACT OF 1993

 CHAPTER 2--HEALTH CARE, HUMAN RESOURCES, INCOME SECURITY, AND CUSTOMS 
                          AND TRADE PROVISIONS

Subchapter A--Medicare

           *       *       *       *       *       *       *


                 PART I--PROVISIONS RELATING TO PART A

SEC. 13501. PAYMENTS FOR PPS HOSPITALS.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Extension for Medicare-Dependent, Small Rural 
Hospitals.--
          (1) * * *
           (2) Permitting hospitals to decline 
        reclassification.--If any hospital fails to qualify as 
        a medicare-dependent, small rural hospital under 
        section 1886(d)(5)(G)(i) of the Social Security Act as 
        a result of a decision by the Medicare Geographic 
        Classification Review Board under section 1886(d)(10) 
        of such Act to reclassify the hospital as being located 
        in an urban area for fiscal year 1993, fiscal year 
        1994, fiscal year 1998, fiscal year 1999, [or fiscal 
        year 2000] or fiscal year 2000 through fiscal year 
        2005, the Secretary of Health and Human Services 
        shall--
                  (A) * * *

           *       *       *       *       *       *       *


             PART III--PROVISIONS RELATING TO PARTS A AND B

SEC. 13567. EXTENSION OF SOCIAL HEALTH MAINTENANCE ORGANIZATION 
                    DEMONSTRATIONS.

  (a) * * *
  [(c) Expansion of Number of Members Per Site.--The Secretary 
of Health and Human Services may not impose a limit of less 
than 36,000 on the number of individuals that may participate 
in a project conducted under section 2355 of the Deficit 
Reduction Act of 1984.]
  (c) Aggregate Limit on Number of Members.--The Secretary of 
Health and Human Services may not impose a limit on the number 
of individuals that may participate in a project conducted 
under section 2355 of the Deficit Reduction Act of 1984 
(including under any subsequent expansion under such section), 
other than an aggregate limit of not less than 324,000 for all 
sites.

           *       *       *       *       *       *       *

                              ----------                              


     SECTION 4018 OF THE OMNIBUS BUDGET RECONCILIATION ACT OF 1987

SEC. 4018. SPECIAL RULES.

  (a) * * *
  (b) Extension of Waivers for Social Health Maintenance 
Organizations.--
          (1) The Secretary of Health and Human Services shall 
        extend without interruption, through December 30, 
        [2000] the date that is 18 months after the date that 
        the Secretary submits to Congress the report described 
        in section 4014(c) of the Balanced Budget Act of 1997, 
        the approval of waivers granted under subsection (a) of 
        section 2355 of the Deficit Reduction Act of 1984 for 
        the demonstration project described in subsection (b) 
        of that section, subject to the terms and conditions 
        (other than duration of the project) established under 
        that section (as amended by paragraph (2) of this 
        subsection).

           *       *       *       *       *       *       *

          (4) The Secretary of Health and Human Services shall 
        submit a final report to the Congress on the project 
        referred to in paragraph (1) not later than March 31, 
        2001. Not later than 6 months after the date the 
        Secretary submits such final report, the Medicare 
        Payment Advisory Commission shall submit to Congress a 
        report containing recommendations regarding such 
        project.

           *       *       *       *       *       *       *


                         VII. ADDITIONAL VIEWS

    This bill has many needed, good features and long-term 
reforms (such as psychiatric and long-term care hospital 
prospective payment systems) that caused a number of us to vote 
to report it to the House. Except for the fact that the bill is 
not paid for, most of us would have voted for the package.
    We commend Health Subcommittee Chairman Bill Thomas for 
significant improvements in the bill between the Subcommittee 
markup and the full Committee's consideration. Extra help was 
provided for disproportionate share/safety net hospitals, 
teaching hospitals, and home health agencies. Of particular 
note is help for beneficiaries under-going expensive, high-tech 
medical procedures in hospital outpatient departments.\1\ The 
bill limits a beneficiaries' out-of-pocket expense for these 
procedures to no more than the cost of the hospital deductible 
($776 in the year 2000). This provision is estimated to save 
beneficiaries half a billion dollars over the next 10 years. 
The provision reaffirms our commitment to provide beneficiary 
relief in the hospital outpatient sector, where beneficiaries 
are today paying about 50 percent of the total cost, instead of 
Medicare's normal 20 percent-80 percent split.
---------------------------------------------------------------------------
    \1\ For example, the beneficiary payment for the implantation of a 
hearing device can run over $3,000.
---------------------------------------------------------------------------

                          the need to do more

    In other areas, the bill misses an opportunity to do more 
for Medicare providers in distress--particularly our nation's 
hospitals serving the poor and uninsured, our academic teaching 
hospitals, rural hospital outpatient departments, and home 
health agencies. Democratic amendments to provide more help in 
these areas were all rejected. The bill also does not do enough 
to offer relief from the arbitrary $1,500 therapy caps, which 
is causing some of our sicker seniors (for example, stroke 
patients) to be denied continuity of treatment.\2\ Another area 
of concern, raised in a colloquy by Representative Cardin and 
Portman, is hospice care, where soaring pharmaceutical costs 
coupled with the BBA cuts have created severe pressures on 
these important end-of-life caregivers. We believe more 
assistance is needed for these providers.
---------------------------------------------------------------------------
    \2\ The bill provides an ``outlier'' pool of about 1 percent for 
difficult cases, but data indicates that over 10 percent of seniors 
needing rehab are likely to reach the cap.
---------------------------------------------------------------------------

             republicans reject rx price relief for seniors

    The bill also misses a golden opportunity to provide major 
help for seniors in meeting the costs of pharmaceuticals. The 
Republican majority voted unanimously against Representative 
Karen Thurman's amendment to give seniors prescription drug 
discounts. Her amendment, a variation of the Allen-Turner-
Waxman-Berry bill (H.R. 664), would require that Medicare 
providers (like hospitals) must only purchase drugs from 
manufacturers who also make available to pharmacies (for sale 
to seniors) drugs at the best available discount price.
    Today, seniors who pay out-of-pocket for their medications 
are frequently charged more than twice as much as favored 
customers, such as large group health plans. This Medicare 
legislation is our best hope this year to provide prescription 
drug price relief to seniors and disabled. We look forward to 
debating this issue on the floor of the House.
    In the area of drugs, the Republicans also opposed an 
amendment by Representative Neal to allow a State to require 
HMO's operating in the State to offer a drug benefit (the BBA 
pre-empted Massachusetts's program ensuring a drug benefit for 
its managed care enrollees). The Majority also rejected 
Representative Cardin's proposal that when a Medicare+Choice 
managed care plan leaves an area, enrollees should have the 
right of guaranteed issue of medi-gap policies that offer a 
prescription drug benefit (plans H, I, and J). Beneficiaries 
abandoned by their managed care plans often lose a valuable 
drug benefit, and we should ensure that they have the right to 
convert to a medi-gap plan that also offers prescription drug 
coverage.
    (On the bright side, Chairman Thomas and the Majority 
responded to a request by Representative Thurman for more 
Medicare coverage of immuno-suppressive drugs (so that 
transplant patients don't reject or lose their expensive, 
transplanted organs) by offering to discuss and work on the 
issue in the coming days. Medicare drug expansion in this area 
could save money and improve the quality of life for many very 
vulnerable citizens. Two hundred and fifty-eight Members of the 
House are co-sponsoring legislation in this area.)

 republicans reject paying for relief: shrink the solvency of medicare

    The bill's major fault is that it is not paid for, and thus 
chops off a year's solvency from the Medicare Part A Trust Fund 
and raises beneficiary's Part B premiums.
    All of the Committee Democrats voted to pay for the cost of 
this bill. All of the Republicans voted against our effort to 
be financially responsible. They voted to spend another $10.6 
billion of the surpluses which do not exist, thus making it 
harder to save Medicare in the long run--and thus further 
dipping into the Social Security surplus.
    In voting for Medicare relief to health care providers 
without paying for it, we must remember that every dollar we 
give back in Part A reduces the solvency of the Part A Trust 
Fund. Every dollar we give back to the providers in Part B 
results in higher Part B premiums on beneficiaries. Over the 
next 5 years Medicare will spend about $1.2 trillion dollars. 
Surely in this 5 year budget window we can find zero point 
seven percent (0.7 percent) in savings. Surely, working with 
the Republican Majority, we can find tax loopholes and 
unjustified tax subsidies to offset the cost of this bill.
    If we cannot pay for this bill now, before we face the 
crisis of the Baby Boomers retiring, it calls into serious 
question Congress's ability to govern.\3\
---------------------------------------------------------------------------
    \3\ Senator Bob Graham, offering a similar pay-for amendment in the 
Senate Finance Committee last week, noted that it would be ``ironic'' 
in a year which started with a Commission on how to extend the life of 
the Medicare Trust Fund to meet the needs of the Baby Boomers, if we 
ended up reducing the Fund's solvency. More than ironic, we would say 
it is tragic.
---------------------------------------------------------------------------
    Because of the failure to pay for the bill, eleven of us 
voted against final passage. We will all continue to work to 
find a way to finance this needed relief from the excessive 
cuts in the Balanced Budget Act of 1997.

 the need to support the health care financing administration's budget

    We make one other point: this bill piles major new tasks on 
the Health Care Financing Administration. Unless all of us in 
Congress work together to protect HCFA's budget and find new 
ways to pay for Medicare's administrative costs, the agency 
will be unable to carry out the tasks we gave it in 1997, let 
alone these major new assignments.

                                   Robert T. Matsui.
                                   Sander Levin.
                                   Pete Stark.
                                   William J. Coyne.
                                   John Lewis.
                                   Lloyd Doggett.
                                   Ben Cardin.
                                   Richard E. Neal.
                                   Charles B. Rangel.
                                   Michael R. McNulty.
                                   Karen L. Thurman.
                                   John Tanner.
                                   Xavier Becerra.
                                   Jim McDermott.
                                   William J. Jefferson.
                                   Jerry Kleczka.