SECTION. 1. PAYMENTS TO MEDICARE MANAGED CARE PLANS.

    (a) In General.--Section 1876(a) of the Social Security Act (42 
U.S.C. 1395mm(a)) is amended to read as follows:
    ``(a)(1)(A) The Secretary shall annually determine, and shall 
announce (in a manner intended to provide notice to interested parties) 
not later than August 1 before the calendar year concerned--
            ``(i) a per capita rate of payment for individuals who are 
        enrolled under this section with an eligible organization which 
        has entered into a risk-sharing contract and who are entitled 
        to benefits under part A and enrolled under part B, and
            ``(ii) a per capita rate of payment for individuals who are 
        so enrolled with such an organization and who are enrolled 
        under part B only.
For purposes of this section, the term ``risk-sharing contract'' means 
a contract entered into under subsection (g) and the term ``reasonable 
cost reimbursement contract'' means a contract entered into under 
subsection (h).
    ``(B) The annual per capita rate of payment for each Medicare 
payment area (as defined in paragraph (5)) shall be equal to the 
adjusted capitation rate (as defined in paragraph (4)), adjusted by the 
Secretary for--
            ``(i) individuals who are enrolled under this section with 
        an eligible organization which has entered into a risk-sharing 
        contract and who are enrolled under part B only; and
            ``(ii) 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.
    ``(C) In the case of an eligible organization with a risk-sharing 
contract, the Secretary shall make monthly payments in advance and in 
accordance with the rate determined under subparagraph (B) and except 
as provided in subsection (g)(2), to the organization for each 
individual enrolled with the organization under this section.
    ``(D) The Secretary shall establish a separate rate of payment to 
an eligible organization with respect to any individual determined to 
have end-stage renal disease and enrolled with the organization. Such 
rate of payment shall be actuarially equivalent to rates paid to other 
enrollees in the payment area (or such other area as specified by the 
Secretary).
    ``(E)(i) The amount of payment under this paragraph may be 
retroactively adjusted to take into account any difference between the 
actual number of individuals enrolled in the plan under this section 
and the number of such individuals estimated to be so enrolled in 
determining the amount of the advance payment.
    ``(ii)(I) Subject to subclause (II), the Secretary may make 
retroactive adjustments under clause (i) to take into account 
individuals enrolled during the period beginning on the date on which 
the individual enrolls with an eligible organization (which has a risk-
sharing contract under this section) under a health benefit plan 
operated, sponsored, or contributed to by the individual's employer or 
former employer (or the employer or former employer of the individual's 
spouse) and ending on the date on which the individual is enrolled in 
the plan under this section, except that for purposes of making such 
retroactive adjustments under this clause, such period may not exceed 
90 days.
    ``(II) No adjustment may be made under subclause (I) with respect 
to any individual who does not certify that the organization provided 
the individual with the explanation described in subsection (c)(3)(E) 
at the time the individual enrolled with the organization.
    ``(F)(i) At least 45 days before making the announcement under 
subparagraph (A) for a year, the Secretary shall provide for notice to 
eligible organizations of proposed changes to be made in the 
methodology or benefit coverage assumptions from the methodology and 
assumptions used in the previous announcement and shall provide such 
organizations an opportunity to comment on such proposed changes.
    ``(ii) In each announcement made under subparagraph (A) for a year, 
the Secretary shall include an explanation of the assumptions 
(including any benefit coverage assumptions) and changes in methodology 
used in the announcement in sufficient detail so that eligible 
organizations can compute per capita rates of payment for individuals 
located in each county (or equivalent medicare payment area) which is 
in whole or in part within the service area of such an organization.
    ``(2) With respect to any eligible organization which has entered 
into a reasonable cost reimbursement contract, payments shall be made 
to such plan in accordance with subsection (h)(2) rather than paragraph 
(1).
    ``(3) Subject to subsections (c)(2)(B)(ii) and (c)(7), payments 
under a contract to an eligible organization under paragraph (1) or (2) 
shall be instead of the amounts which (in the absence of the contract) 
would be otherwise payable, pursuant to sections 1814(b) and 1833(a), 
for services furnished by or through the organization to individuals 
enrolled with the organization under this section.
    ``(4)(A) For purposes of this section, the `adjusted capitation 
rate' for a medicare payment area (as defined in paragraph (5)) is 
equal to the greatest of the following:
            ``(i) The sum of--
                    ``(I) the area-specific percentage for the year (as 
                specified under subparagraph (B) for the year) of the 
                area-specific adjusted capitation rate for the year for 
                the medicare payment area, as determined under 
                subparagraph (C), and
                    ``(II) the national percentage (as specified under 
                subparagraph (B) for the year) of the input-price-
                adjusted national adjusted capitation rate for the 
                year, as determined under subparagraph (D),
        multiplied by a budget neutrality adjustment factor determined 
        under subparagraph (E).
            ``(ii) An amount equal to--
                    ``(I) in the case of 1998, 80 percent of the input-
                price-adjusted national adjusted capitation rate for 
                the year, as determined under subparagraph (D); and
                    ``(II) in the case of a succeeding year, the amount 
                specified in this clause for the preceding year 
                increased by the national average per capita growth 
                percentage specified under subparagraph (F) for that 
                succeeding year.
            ``(iii) An amount equal to--
                    ``(I) in the case of 1998, 102 percent of the 
                annual per capita rate of payment for 1997 for the 
                medicare payment area (determined under this 
                subsection), as in effect on the day before the date of 
                enactment of this subclause; and
                    ``(II) in the case of a subsequent year, 102 
                percent of the adjusted capitation rate under this 
                subsection for the area for the previous year.
    ``(B) For purposes of subparagraph (A)(i)--
            ``(i) for 1998, the `area-specific percentage' is 90 
        percent and the `national percentage' is 10 percent,
            ``(ii) for 1999, the `area-specific percentage' is 85 
        percent and the `national percentage' is 15 percent,
            ``(iii) for 2000, the `area-specific percentage' is 80 
        percent and the `national percentage' is 20 percent,
            ``(iv) for 2001, the `area-specific percentage' is 75 
        percent and the `national percentage' is 25 percent, and
            ``(v) for a year after 2001, the `area-specific percentage' 
        is 70 percent and the `national percentage' is 30 percent.
    ``(C) For purposes of subparagraph (A)(i), the area-specific 
adjusted capitation rate for a medicare payment area--
            ``(i) for 1998, is the average of the annual per capita 
        rates of payment for the area for 1994 through 1997, after 
        adjusting the 1994 and 1995 rates of payment to 1997 dollars, 
        increased by the national average per capita growth percentage 
        for 1997 (as defined in subparagraph (F)); or
            ``(ii) for a subsequent year, is the area-specific adjusted 
        capitation rate for the previous year determined under this 
        subparagraph for the area, increased by the national average 
        per capita growth percentage for such subsequent year.
    ``(D)(i) For purposes of subparagraph (A)(i) and subparagraph 
(A)(ii), the input-price-adjusted national adjusted capitation rate for 
a medicare payment area for a year is equal to the sum, for all the 
types of medicare services (as classified by the Secretary), of the 
product (for each such type of service) of--
            ``(I) the national standardized adjusted capitation rate 
        (determined under clause (ii)) for the year,
            ``(II) the proportion of such rate for the year which is 
        attributable to such type of services, and
            ``(III) an index that reflects (for that year and that type 
        of services) the relative input price of such services in the 
        area compared to the national average input price of such 
        services.
In applying subclause (III), the Secretary shall, subject to clause 
(iii), apply those indices under this title that are used in applying 
(or updating) national payment rates for specific areas and localities.
    ``(ii) In clause (i)(I), the `national standardized adjusted 
capitation rate' for a year is equal to--
            ``(I) the sum (for all medicare payment areas) of the 
        product of (aa) the area-specific adjusted capitation rate for 
        that year for the area under subparagraph (C), and (bb) the 
        average number of standardized medicare beneficiaries residing 
        in that area in the year; divided by
            ``(II) the total average number of standardized medicare 
        beneficiaries residing in all the medicare payment areas for 
        that year.
    ``(iii) In applying this subparagraph for 1998--
            ``(I) medicare services shall be divided into 2 types of 
        services: part A services and part B services;
            ``(II) the proportions described in clause (i)(II) for such 
        types of services shall be--
                    ``(aa) for part A services, the ratio (expressed as 
                a percentage) of the national average annual per capita 
                rate of payment for part A for 1997 to the total 
                average annual per capita rate of payment for parts A 
                and B for 1997, and
                    ``(bb) for part B services, 100 percent minus the 
                ratio described in item (aa);
            ``(III) for part A services, 70 percent of payments 
        attributable to such services shall be adjusted by the index 
        used under section 1886(d)(3)(E) to adjust payment rates for 
        relative hospital wage levels for hospitals located in the 
        payment area involved; and
            ``(IV) for part B services--
                    ``(aa) 66 percent of payments attributable to such 
                services shall be adjusted by the index of the 
                geographic area factors under section 1848(e) used to 
                adjust payment rates for physicians' services furnished 
                in the payment area, and
                    ``(bb) of the remaining 34 percent of the amount of 
                such payments, 70 percent shall be adjusted by the 
                index described in subclause (III).
The Secretary may continue to apply the rules described in this clause 
(or similar rules) for 1999.
    ``(E) For each year, the Secretary shall compute a budget 
neutrality adjustment factor so that the aggregate of the payments 
under this section shall be equal to the aggregate payments that would 
have been made under this section if the area-specific percentage for 
the year had been 100 percent and the national percentage had been 0 
percent.
    ``(F) In this section, the `national average per capita growth 
percentage' is equal to the percentage growth in medicare fee-for-
service per capita expenditures, which the Secretary shall project for 
each year.
    ``(5)(A) In this section, except as provided in subparagraph (C), 
the term `medicare payment area' means a county, or equivalent area 
specified by the Secretary.
    ``(B) In the case of individuals who are determined to have end 
stage renal disease, the medicare payment area shall be specified by 
the Secretary.
    ``(C)(i) Upon written request of the Chief Executive Officer of a 
State for a contract year (beginning after 1997) made at least 7 months 
before the beginning of the year, the Secretary shall adjust the system 
under which medicare payment areas in the State are otherwise 
determined under subparagraph (A) to a system which--
            ``(I) has a single statewide medicare payment area,
            ``(II) is a metropolitan based system described in clause 
        (iii), or
            ``(III) which consolidates into a single medicare payment 
        area noncontiguous counties (or equivalent areas described in 
        subparagraph (A)) within a State.
Such adjustment shall be effective for payments for months beginning 
with January of the year following the year in which the request is 
received.
    ``(ii) In the case of a State requesting an adjustment under this 
subparagraph, the Secretary shall adjust the payment rates otherwise 
established under this section for medicare payment areas in the State 
in a manner so that the aggregate of the payments under this section in 
the State shall be equal to the aggregate payments that would have been 
made under this section for medicare payment areas in the State in the 
absence of the adjustment under this subparagraph.
    ``(iii) The metropolitan based system described in this clause is 
one in which--
            ``(I) all the portions of each metropolitan statistical 
        area in the State or in the case of a consolidated metropolitan 
        statistical area, all of the portions of each primary 
        metropolitan statistical area within the consolidated area 
        within the State, are treated as a single medicare payment 
        area, and
            ``(II) all areas in the State that do not fall within a 
        metropolitan statistical area are treated as a single medicare 
        payment area.
    ``(iv) In clause (iii), the terms `metropolitan statistical area', 
`consolidated metropolitan statistical area', and `primary metropolitan 
statistical area' mean any area designated as such by the Secretary of 
Commerce.
    ``(6) Subject to subsections (c)(2)(B)(ii) and (c)(7), if an 
individual is enrolled under this section with an eligible organization 
having a risk-sharing contract, only the eligible organization shall be 
entitled to receive payments from the Secretary under this title for 
services furnished to the individual.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on October 1, 1997.
Amends title XVIII (Medicare) of the Social Security Act to revise the formulae for payments to health maintenance organizations and competitive medical plans. 
Provides for a metropolitan based system under which:  (1) all portions of each metropolitan statistical area in a State are treated as a single Medicare payment area; and (2) all areas in that State that do not fall within a metropolitan statistical area are treated as a single Medicare payment area. Requires the Secretary of Health and Human Services to determine the annual per capita rate of payment for each Medicare payment area by adjusting the adjusted capitation rate for:  (1) individuals (not, as currently, a class of individuals) who are enrolled with an eligible organization which has entered into a risk-sharing contract and who are enrolled under Medicare part B (Supplementary Medical Insurance) only; and (2) such risk factors as age, disability status, gender, institutional status, and other appropriate factors so as to ensure actuarial equivalence. 
Requires the Secretary to establish a separate rate of payment to an eligible organization with respect to any individual determined to have end-stage renal disease and enrolled with the organization. 
Prescribes a general formula for the adjusted capitation rate of a Medicare payment area based on an area-specific adjusted capitation rate and an input-price-adjusted national adjusted capitation rate. Specifies area-specific and national percentages for contract years 1998 through 2001 and after. 
Requires the Secretary, upon written request of the Chief Executive Officer of a State for a contract year, to adjust the system under which Medicare payment areas in the State are otherwise determined to a system which:  (1) has a single Statewide Medicare payment area; (2) is a metropolitan based system; or (3) consolidates into a single Medicare payment area noncontiguous counties (or equivalent areas) within the State.
To amend title XVIII of the Social Security Act to provide for equalization of Medicare reimbursement rates to managed care plans to improve the health of residents of rural areas.