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[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1234 Introduced in House (IH)]

  1st Session
                                H. R. 1234

To amend the Internal Revenue Code of 1986 to provide for reform of the 
health insurance market, to promote the availability and continuity of 
  health coverage, to remove financial barriers to access, to enhance 
  health care quality, to contain costs through market incentives and 
            administrative reforms, and for other purposes.

_______________________________________________________________________

                    IN THE HOUSE OF REPRESENTATIVES

                             March 14, 1995

Mr. Thomas (for himself, Mrs. Johnson of Connecticut, Mr. McCrery, Mr. 
Ensign, Mr. Crane, Mr. Houghton, Mr. Castle, Mr. Hobson, Mr. Riggs, Mr. 
 Horn, Mr. Clinger, Mr. Greenwood, Mr. Frelinghuysen, Mr. Lazio of New 
  York, Mr. Blute, Mr. Longley, Mr. Ehlers, Ms. Pryce, Mr. Bass, Mr. 
 Portman, Mr. Kolbe, Mrs. Fowler, Mr. Shays, Mr. Goss, Mr. English of 
 Pennsylvania, Mr. Calvert, Mr. Gutknecht, and Mr. Packard) introduced 
  the following bill; which was referred to the Committee on Ways and 
  Means, and in addition to the Committees on Commerce, Economic and 
   Educational Opportunities, and the Judiciary, for a period to be 
subsequently determined by the Speaker, in each case for consideration 
  of such provisions as fall within the jurisdiction of the committee 
                               concerned

_______________________________________________________________________

                                 A BILL

 
To amend the Internal Revenue Code of 1986 to provide for reform of the 
health insurance market, to promote the availability and continuity of 
  health coverage, to remove financial barriers to access, to enhance 
  health care quality, to contain costs through market incentives and 
            administrative reforms, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Basic Health Care 
Reform Act of 1995''.
    (b) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; table of contents.
    TITLE I--ASSURING AVAILABILITY AND CONTINUITY OF HEALTH COVERAGE

                      Subtitle A--Insurance Reform

                   Part 1--Access to Health Coverage

Sec. 1001. Guaranteed offer by carriers.
Sec. 1002. Guaranteed issue by carriers.
Sec. 1003. Guaranteed renewal.
Sec. 1004. Restricting preexisting condition exclusions.
Sec. 1005. Enrollment periods.
                     Part 2--Provision of Benefits

Sec. 1011. General coverage requirements.
Sec. 1012. Standards for managed care arrangements.
Sec. 1013. Utilization review.
Sec. 1014. Medical savings accounts.
                     Part 3--Fair Rating Practices

Sec. 1021. Use of fair rating practices.
Sec. 1022. Establishment of risk adjustment mechanisms.
                      Part 4--Consumer Protections

Sec. 1031. Requirement for provision of information.
Sec. 1032. Prohibition of improper incentives.
Sec. 1033. Written policies and procedures respecting advance 
                            directives.
 Part 5--Standards and Certification; Enforcement; Preemption; General 
                               Provisions

Sec. 1041. Establishment of standards.
Sec. 1042. Application of standards to carriers through States.
Sec. 1043. Application to group health plans.
Sec. 1044. Enforcement.
Sec. 1045. Limitation on self insurance for certain employer plans.
                  Part 6--Marketplace for Individuals

Sec. 1051. Application of similar requirements.
     Subtitle B--Facilitating Establishment of Health Plan Choice 
                         Organizations (HPCOs)

Sec. 1101. Establishment and organization.
Sec. 1102. Agreements to offer qualified health coverage.
Sec. 1103. Provision of information.
Sec. 1104. Enrolling qualifying employees and qualifying individuals 
                            for qualified health coverage through a 
                            choice organization.
Sec. 1105. Restriction on charges.
Subtitle C--Preemption of State Benefit Mandates and Anti-Managed Care 
                                  Laws

Sec. 1201. Preemption from State benefit mandates.
Sec. 1202. Preemption of State law restrictions on managed care 
                            arrangements.
Sec. 1203. Preemption of State laws restricting utilization review 
                            programs.
Sec. 1204. Preemption relating to different insurance standards.
              Subtitle D--Definitions; General Provisions

Sec. 1901. General definitions.
Sec. 1902. Definitions relating to employment.
Sec. 1903. Definitions relating to health coverage, plans, and 
                            carriers.
Sec. 1904. Definitions relating to residence and immigration status.
Sec. 1905. Effective dates.
                TITLE II--ADMINISTRATIVE SIMPLIFICATION

Sec. 2000. Purpose.
Sec. 2001. Definitions.
        Subtitle A--Standards for Data Elements and Transactions

Sec. 2101. General requirements on Secretary.
Sec. 2102. Standards for data elements of health information.
Sec. 2103. Information transaction standards.
Sec. 2104. Health information network privacy standards.
Sec. 2105. Timetables for adoption of standards.
   Subtitle B--Requirements with Respect to Certain Transactions and 
                              Information

Sec. 2201. Standard transactions and information.
Sec. 2202. Accessing health information for authorized purposes.
Sec. 2203. Ensuring availability of information.
Sec. 2304. Timetables for compliance with requirements.
                  Subtitle C--Miscellaneous Provisions

Sec. 2301. Standards and certification for health information network 
                            services.
Sec. 2302. Imposition of additional requirements.
Sec. 2303. Effect on State law.
          TITLE III--FRAUD AND ABUSE REFORM: ADVISORY OPINIONS

Sec. 3001. Authorizing the Secretary of Health and Human Services to 
                            issue advisory opinions under title XI.
Sec. 3002. Authorizing the Secretary of Health and Human Services to 
                            issue advisory opinions relating to 
                            physician ownership and referral.
Sec. 3003. Effective date.
               TITLE IV--MALPRACTICE REFORM AND ANTITRUST

                     Subtitle A--Malpractice Reform

            Part 1--Uniform Standards for Malpractice Claims

Sec. 4001. Applicability.
Sec. 4002. Requirement for initial resolution of action through 
                            alternative dispute resolution.
Sec. 4003. Optional application of practice guidelines.
Sec. 4004. Treatment of noneconomic and punitive damages.
Sec. 4005. Periodic payments for future losses.
Sec. 4006. Treatment of attorney's fees and other costs.
Sec. 4007. Uniform statute of limitations.
Sec. 4008. Special provision for certain obstetric services.
Sec. 4009. Jurisdiction of Federal courts.
Sec. 4010. Preemption.
 Part 2--Requirements for State Alternative Dispute Resolution Systems 
                                 (ADR)

Sec. 4021. Basic requirements.
Sec. 4022. Certification of State systems; applicability of alternative 
                            Federal system.
Sec. 4023. Reports on implementation and effectiveness of alternative 
                            dispute resolution systems.
                          Part 3--Definitions

Sec. 4031. Definitions.
                         Subtitle B--Antitrust

Sec. 4101. Publication of antitrust guidelines on activities of health 
                            plans.
Sec. 4102. Issuance of health care certificates of public advantage.

    TITLE I--ASSURING AVAILABILITY AND CONTINUITY OF HEALTH COVERAGE

                      Subtitle A--Insurance Reform

                                                    Title I, Subtitle A

                   PART 1--ACCESS TO HEALTH COVERAGE

SEC. 1001. GUARANTEED OFFER BY CARRIERS.

    (a) In General.--Each carrier that offers health insurance coverage 
in the small group market in a fair rating area (as defined in section 
1903) shall make available, to each small employer (covered in such 
market) in such fair rating area--
            (1) qualified standard coverage consistent with section 
        1011(a), and
            (2) subject to subsection (b), qualified high-deductible 
        coverage consistent with section 1011(b).
    (b) High-Deductible Coverage.--
            (1) Exception for health maintenance organizations.--The 
        requirement of subsection (a)(2) shall not apply with respect 
        to health insurance coverage that--
                    (A) is provided by a Federally qualified health 
                maintenance organization (as defined in section 1301(a) 
                of the Public Health Service Act), or
                    (B) is not provided by such an organization but is 
                provided by an organization recognized under State law 
                as a health maintenance organization or managed care 
                organization or a similar organization regulated under 
                State law for solvency.
            (2) Limitation on offer of high-deductible coverage.--
        Qualified high-deductible coverage may not be made available by 
        a carrier to a small employer with respect to an employee 
        unless the carrier also makes available qualified standard 
        coverage that has identical benefits (other than the amount of 
        the deductible) and the employee demonstrates to the carrier 
        that the employee has available assets (as defined by the 
        Secretary) equal to at least the deductible amount established 
        under section 1011(b)(2) applicable to the high-deductible 
        coverage. A carrier may not make available to an employee 
        health coverage (other than coverage for supplemental benefits) 
        the actuarial value of which is less than the actuarial value 
        of qualified high-deductible coverage, unless the employee has 
        available assets (as defined by the Secretary) equal to at 
        least the deductible amount of the coverage offered.
            (3) Option to offer medisave coverage.--The offer of high-
        deductible coverage under subsection (a)(2) may be accompanied 
        by the contribution by an employer to a medical savings account 
        (in accordance with section 7705 of the Internal Revenue Code 
        of 1986).
    (c) Coverage of Entire Rating Area.--
            (1) In general.--With respect to each fair rating area for 
        which a carrier offers health insurance coverage, the carrier 
        shall provide for coverage of benefits for items and services 
        furnished throughout the fair rating area.
            (2) Special rule for carriers offering coverage in multi-
        state metropolitan statistical areas.--In the case of a carrier 
        that offers qualified health insurance coverage in the small 
        employer market in a portion of a State that is located in an 
        interstate metropolitan statistical area, the carrier may not 
        provide such coverage with respect to an employer in such 
        metropolitan statistical area unless the carrier also offers 
        such coverage in other portions of the area located in other 
        States.
            (3) Special rule for coverage through managed care 
        arrangement.--In the case of coverage offered by a carrier or 
        under a group health plan to the extent that it provides 
        benefits through a managed care arrangement in a fair rating 
        area, this subsection shall not be construed as requiring the 
        establishment of facilities throughout the area, if the 
        facilities are located consistent with section 1002(b)(1).
    (d) Family Coverage Option.--The offer of coverage under this 
section with respect to an employee shall include the option of 
coverage of family members of the employee.
    (e) Limitation on Carriers.--A carrier may not require an employer 
under a group health plan to impose through a waiting period for health 
coverage under a plan or similarly require a limitation or condition on 
health coverage or benefits based on--
            (1) the health status of an individual,
            (2) claims experience of an individual,
            (3) receipt of health care by an individual,
            (4) medical history of an individual, or
            (5) receipt of public subsidies by an individual.

SEC. 1002. GUARANTEED ISSUE BY CARRIERS.

    (a) In General.--Subject to subsections (b) and (c) and section 
1003, each carrier that offers health insurance coverage in the small 
group market in a fair rating area--
            (1) must accept every small employer in the area that 
        applies for such coverage during an enrollment period provided 
        under section 1005; and
            (2) must accept for enrollment under such coverage every 
        qualifying individual (and family member of such an individual) 
        who applies for enrollment during an enrollment period provided 
        under section 1005 and may not place any restriction on the 
        eligibility of an individual to enroll so long as such 
        individual is a qualifying individual.
    (b) Special Rules for Managed Care Arrangements.--In the case of 
coverage offered by a carrier or under a group health plan that 
provides benefits through a managed care arrangement in a fair rating 
area, the carrier or plan--
            (1) need not establish facilities for the delivery of 
        health care services throughout the area so long as such 
        facilities are located in a manner that does not discriminate 
        on the basis of health status of individuals residing in 
        proximity to such facilities, and
            (2) may deny such coverage in a fair rating area to 
        employers if the organization demonstrates to the applicable 
        regulatory authority that--
                    (A) it will not have the capacity to deliver 
                services adequately to enrollees of any additional 
                groups or additional enrollees because of its 
                obligations to existing group contract holders and 
                enrollees, and
                    (B) it is applying this paragraph uniformly to all 
                employers without regard to the health status, claims 
                experience, or duration of coverage of those employers 
                and their employees.
Coverage may be denied under paragraph (2) only if the denial is 
applied during a consecutive period of at least 180 days.
    (c) Special Rule for Financial Capacity Limits.--In addition to the 
authority provided under subsection (b)(2), in the case of coverage 
offered by any carrier, the carrier may deny coverage to a small 
employer if the carrier demonstrates to the applicable regulatory 
authority that--
            (1) it does not have the financial reserves necessary to 
        underwrite additional coverage, and
            (2) it is applying this subsection uniformly to all 
        employers without regard to the health status, claims 
        experience, or duration of coverage of those employers and 
        their employees.
Coverage may be denied under this subsection only if the denial is 
applied during a consecutive period of at least 180 days.

SEC. 1003. GUARANTEED RENEWAL.

    (a) Limitation on Termination by Carriers.--A carrier may not deny, 
cancel, or refuse to renew health coverage of an eligible employer 
within a type of coverage option described in section 1903(15) except--
            (1) on the basis of nonpayment of premiums,
            (2) on the basis of fraud or misrepresentation, or
            (3) subject to subsection (b), in a fair rating area 
        because the carrier is ceasing to provide any health insurance 
        coverage in the small group market within such type of coverage 
        option in the area.
    (b) Limitations on Market Exit by Carriers.--
            (1) Notice, etc.--Subsection (a)(3) shall not apply to a 
        carrier ceasing to provide health insurance coverage unless--
                    (A) such termination of coverage takes effect at 
                the end of a contract year, and
                    (B) the carrier provides notice of such termination 
                to employers and individuals covered at least 30 days 
                before the date of an annual open enrollment period 
                established with respect to the employer or individual 
                under section 1005.
            (2) Limitation on reentry in small group market.--If a 
        carrier ceases to offer or provide health insurance coverage in 
        an area with respect to the small group market for a type of 
        coverage option, the insurer may not offer health insurance 
        coverage in the area in such market within such type of 
        coverage option until 5 years after the date of the 
        termination.
    (c) Rule for Multiemployer Plans.--A multiemployer plan may not 
cancel coverage or deny renewal of coverage under such a plan or 
arrangement with respect to an employer other than--
            (1) for nonpayment of contributions,
            (2) for fraud or other misrepresentation by the employer, 
        or
            (3) because the plan is ceasing to provide any coverage in 
        a geographic area.

SEC. 1004. RESTRICTING PREEXISTING CONDITION EXCLUSIONS.

    (a) In General.--Except as provided in this section, a carrier or 
group health plan providing health coverage may not exclude health 
coverage with respect to services related to treatment of a condition 
based on the fact that the condition of an individual existed before 
the effective date of coverage of the individual.
    (b) Limited 12-month Exclusion Permitted.--
            (1) In general.--Subject to paragraph (2) and subsections 
        (c) through (e), a carrier or group health plan providing 
        health coverage may exclude health coverage with respect to 
        services related to treatment of a condition of an individual 
        based on the fact that the condition existed before the 
        effective date of coverage of the individual only if the period 
        of the exclusion does not exceed 12 months beginning on the 
        date of coverage.
            (2) Crediting of previous coverage.--
                    (A) In general.--A carrier or group health plan 
                providing health coverage shall provide that if a 
                covered individual is in a period of continuous 
                coverage (as defined in subparagraph (C)) as of a date 
                upon which coverage is initiated or reinitiated, any 
                period of exclusion of coverage with respect to a 
                preexisting condition (as defined in subparagraph (B)) 
                for such services or type of services shall be reduced 
                by 1 month for each month in the period of continuous 
                coverage.
                    (B) Preexisting condition defined.--In this 
                paragraph, the term ``preexisting condition'' means, 
                with respect to health coverage, a condition which has 
                been diagnosed or treated during the 6-month period 
                ending on the day before the first date of such 
                coverage (without regard to any waiting period).
                    (C) Period of continuous coverage.--In this part, 
                the term ``period of continuous coverage'' means the 
                period beginning on the date an individual has health 
                coverage (or coverage under a public plan providing 
                medical benefits) and ends on the date the individual 
                does not have such coverage for a continuous period of 
                more than 3 months (or 6 months in the case of an 
                individual who loses coverage due to involuntary 
                termination of employment, other than by reason of an 
                employee's gross misconduct).
    (c) Exclusion Not Applicable to Pregnancy.--Any exclusion of 
coverage under subsection (b)(1) shall not apply if the exclusion 
relates to pregnancy.
    (d) Exclusion Not Applicable to Newborns and Adopted Children.--
            (1) Newborns.--Any exclusion of coverage under subsection 
        (b)(1) shall not apply to a child who is covered at the time of 
        birth and remains in a period of continuous coverage after such 
        time.
            (2) Adopted children.--Any exclusion of coverage under 
        subsection (b)(1) shall not apply (beginning on the date of 
        adoption) to an adopted child who is covered at the time of 
        adoption and remains in a period of continuous coverage after 
        such time.
    (e) Exclusion Not Applicable to Individuals Enrolled or Enrolling 
During Certain Open Enrollment Periods.--
            (1) Individuals enrolling during period.--In the case of an 
        individual who enrolls and obtains coverage during an open 
        enrollment period described in section 1005(b), any exclusion 
        of coverage under subsection (b)(1) shall not apply so long as 
        the individual remains in a period of continuous coverage.
            (2) Individuals enrolled at beginning of period.--In the 
        case of an individual who has health coverage as of the first 
        day of the initial open enrollment period described in section 
        1005(b)(1), any exclusion of coverage under subsection (b)(1) 
        shall not apply as of such date and so long as the individual 
        is in a period of continuous coverage.
    (f) Application of Rules by Certain Health Maintenance 
Organizations.--A health maintenance organization that provides health 
insurance coverage shall not be considered as failing to meet the 
requirements of section 1301 of the Public Health Service Act 
notwithstanding that it provides for an exclusion of the coverage based 
on a preexisting condition consistent with the provisions of this part 
so long as such exclusion is applied consistent with the provisions of 
this part.

SEC. 1005. ENROLLMENT PERIODS.

    (a) In General.--Each carrier and each group health plan providing 
health coverage (and each health plan choice organization under 
subtitle B) in the small group market shall permit qualifying 
individuals and eligible employers to obtain health coverage from the 
carrier or group health plan during each enrollment period provided 
under this section.
    (b) Open Enrollment Periods for Which Preexisting Condition 
Exclusions Waived.--
            (1) Initial period.--There shall be an initial open 
        enrollment period, with respect to individuals and employees 
        who are residents of a State, during the 60-day period 
        beginning on January 1, 1997.
            (2) Enrollment of newborns and newly adopted children.--
        There shall be an open enrollment period with respect to a 
        newborn child and a newly adopted child during the 30-day 
        period beginning on the date of the birth or adoption of a 
        child, if family coverage is available as of such date.
    (c) Annual Open Enrollment Periods for Which Preexisting Condition 
Exclusions May Apply.--
            (1) In general.--Each carrier and each group health plan 
        providing health coverage (and each health plan choice 
        organization under subtitle B) in the small group market shall 
        provide for at least one annual open enrollment period (of not 
        less than 30 days) each year. Such period shall be in addition 
        to the open enrollment periods described in subsection (b).
            (2) Coordination.--Such annual open enrollment periods with 
        respect to carriers in the small group market are subject to 
        coordination by States.
    (d) Other Open Enrollment Periods for Which Preexisting Condition 
Exclusions May Apply.--
            (1) Termination of residence area.--For each qualifying 
        individual, at the time the individual terminates residence in 
        the service area of coverage provided by a carrier to the 
        individual, there shall be an open enrollment period (of not 
        less than 30 days) during which the individual may enroll in 
        health coverage.
            (2) Family or employment changes.--In the case of a 
        qualifying individual who--
                    (A) through divorce or death of a family member 
                experiences a change in family composition, or
                    (B) experiences a change in employment status 
                (including a significant change in the terms and 
                conditions of employment or the terms and conditions of 
                employment of a spouse),
        there shall be an open enrollment period (of at least 30 days) 
        in which the individual is permitted to change the individual 
        or family basis of coverage or the health coverage in which the 
        individual is enrolled. The circumstances under which such 
        enrollment periods are required and the duration of such 
        periods shall be specified by the Secretary.
            (3) Enrollment due to loss of previous coverage.--In the 
        case of a qualifying individual who--
                    (A) had health coverage at the time of an 
                individual's enrollment period,
                    (B) stated at the time of such period that having 
                other health coverage was the reason for declining 
                enrollment, and
                    (C) lost the other health coverage as a result of 
                the termination of the coverage, termination or 
                reduction of employment, or other reason, except 
                termination at the option of the individual,
        there shall be an open enrollment period during the 30-day 
        period beginning on the date of termination of the other 
        coverage.
            (4) Enrollment at time of marriage.--There shall be an open 
        enrollment period with respect to the spouse of an individual 
        (including children of the spouse) during the 30-day period 
        beginning on the date of the marriage, if family coverage is 
        available as of such date.
            (5) No effect on cobra continuation benefits.--Nothing in 
        this subsection shall be construed as affecting rights of 
        individuals to continuation coverage under section 4980B of the 
        Internal Revenue Code of 1986 or under similar provisions of 
        law.
    (e) Period of Coverage.--
            (1) In general.--In the case of a qualifying individual who 
        enrolls under health coverage during an open enrollment period 
        under this section, coverage shall begin on such date (not 
        later than the first day of the first month that begins at 
        least 15 days after the date of enrollment) as the Secretary 
        shall specify, consistent with this subsection.
            (2) Coverage of family members.--In the case of an open 
        enrollment period described in subsection (b)(2), (b)(3), or 
        (d)(4), the Secretary shall provide for coverage of family 
        members to begin as soon as possible on or after the date of 
        the event that gives rise to the special enrollment period (or, 
        in the case of birth or adoption, as of the date of birth or 
        adoption).

                     PART 2--PROVISION OF BENEFITS

SEC. 1011. GENERAL COVERAGE REQUIREMENTS.

    (a) Standard Coverage.--For purposes of this title, health 
insurance coverage is considered to provide standard coverage 
consistent with this subsection if benefits under such coverage meet 
standards promulgated under section 1041 to carry out this subsection. 
In promulgating such standards to carry out this section, the NAIC and 
the Secretary shall take into account the following:
            (1) Classes of benefits.--The classes of benefits (such as 
        inpatient and outpatient hospital services and physicians 
        services) typically included in health plans under the Federal 
        Employees Health Benefits Program.
            (2) Actuarial value.--The actuarial value of benefits 
        included in benchmark coverage for the areas involved (adjusted 
        to take into account a standardized population and standardized 
        utilization and cost factors).
            (3) Preventive benefits.--The need to cover cost-effective 
        preventive benefits (such as well-baby and well-child care and 
        childhood immunizations) without inappropriate cost sharing.
    (b) High-Deductible Coverage.--For purposes of this title, health 
insurance coverage is considered to provide high-deductible coverage 
consistent with this subsection if--
            (1) benefits include the same type of benefits as provided 
        for under standard coverage under subsection (a);
            (2) the deductible amount is within a range of amounts 
        established under such standards so that the actuarial value of 
        high-deductible coverage is at least 20 percent (but not more 
        than 40 percent) less than the actuarial value of standard 
        coverage;
            (3) benefits under the coverage in any year (other than 
        preventive benefits as provided under the standards) are 
        covered only to the extent expenses incurred for items and 
        services included in the coverage for the year exceed the 
        deductible amount specified in paragraph (2); and
            (4) the actuarial value of the coverage (as determined 
        under rules established under such standards) is equivalent to 
        a percentage (specified in such standards and not less than 60 
        percent and not more than 80 percent) of an actuarial value for 
        standard coverage.
    (c) Rules Regarding Offering of Supplemental Benefits.--A carrier 
or group health plan offering qualified health coverage may offer 
coverage of items and services only in addition to the qualified 
standard coverage offered (whether in the form of coverage of 
additional items and services or a reduction in cost sharing) and only 
if--
            (1) such supplemental coverage is offered and priced 
        separately from the standard coverage offered and is only made 
        available to individuals who obtain qualified standard coverage 
        through the carrier or plan;
            (2) the purchase of the qualified health coverage is not 
        conditioned upon the purchase of such supplemental coverage; 
        and
            (3) in the case of supplemental coverage that consists of a 
        reduction in the cost-sharing otherwise applicable, the premium 
        for the supplemental coverage takes into account any expected 
        increase in utilization of items and services included in the 
        qualified health coverage resulting from obtaining the 
        supplemental coverage.
    (d) Model Benefit Packages.--The standards established to carry out 
this section may provide for model benefit packages that will be 
considered to meet applicable requirements for standard coverage or 
high-deductible coverage, and which shall include model cost sharing 
arrangements for fee-for-service options, managed care options, and 
point-of-service options.
    (e) Flexibility in Benefits.--Nothing in this section (or section 
1103) may be construed--
            (1) to require the coverage of any specific procedure or 
        treatment or class of service in health coverage under this Act 
        or through regulation;
            (2) as requiring coverage to include benefits for items and 
        services that are not medically necessary or appropriate;
            (3) as limiting the benefits that may be offered as part of 
        a group health plan or health insurance coverage; and
            (4) to require or prohibit the use of a particular class of 
        provider, among the providers that are legally authorized to 
        provide such treatment.

SEC. 1012. STANDARDS FOR MANAGED CARE ARRANGEMENTS.

    (a) Application of Requirements.--Each group health plan, and each 
carrier providing health insurance coverage, that provides for health 
care through a managed care arrangement (as defined in section 
1903(12)(A)) shall comply with the applicable requirements of this 
section.
    (b) Scope of Arrangements With Providers.--
            (1) Access to care.--The entity providing for a managed 
        care arrangement with respect to health coverage shall enter 
        into such agreements with health care providers (including 
        primary and specialty providers) or have such other 
        arrangements as may be necessary to assure that covered 
        individuals have reasonably prompt access through the entity's 
        provider network to all items and services contained in the 
        package of benefits for which coverage is provided (including 
        access to emergency services on a 24-hour basis where medically 
        necessary), in a manner that assures the continuity of the 
        provision of such items and services.
            (2) Access to specialized treatment.--The entity providing 
        for a managed care arrangement under health coverage shall 
        demonstrate that covered individuals (including individuals 
        with chronic diseases) have access through the entity's 
        provider network to specialized treatment expertise.
            (3) Choice of personal physician.--The entity providing for 
        a managed care arrangement under health coverage shall permit 
        each enrollee to choose a personal physician from among 
        available participating physicians and change that selection as 
        appropriate.
    (c) Provision of Emergency Care Services.--The entity providing for 
a managed care arrangement under health coverage must cover medically 
necessary emergency care services provided to covered individuals 
without regard to whether or not the provider furnishing such services 
has a contractual (or other) arrangement with the entity to provide 
items or services to covered individuals and, in the case of services 
furnished for the treatment of an emergency medical condition (as 
defined in section 1867(e)(1) of the Social Security Act), without 
regard to prior authorization.
    (d) Due Process Standards Relating to Provider Networks.--
            (1) Standards for selection of providers for network.--The 
        entity providing for a managed care arrangement under health 
        coverage shall establish standards (including criteria for 
        quality, efficiency, credentialing, and services) to be used by 
        the entity for contracting with health care providers with 
        respect to the entity's provider network. Such standards shall 
        be established in consultation with providers who are members 
        of the network.
            (2) Termination process.--The entity may not terminate or 
        refuse to renew a participation agreement with a provider in 
        the entity's provider network unless the entity provides 
        written notification to the provider of the entity's decision 
        to terminate or refuse to renew the agreement. The notification 
        shall include a statement of the reasons for the entity's 
        decision, consistent with the standards established under 
        paragraph (1).
            (3) Review process.--The entity shall provide a process 
        under which the provider may request a review of the entity's 
        decision to terminate or refuse to renew the provider's 
        participation agreement.
            (4) Construction.--Nothing in this subsection shall be 
        construed to affect any other provision of law that provides an 
        appeals process or other form of relief to a provider of health 
        care services or an entity providing for a managed care 
        arrangement.

SEC. 1013. UTILIZATION REVIEW.

    (a) Establishment of Standards by Secretary.--The Secretary shall 
establish standards for utilization review programs, consistent with 
subsection (c), and shall periodically review and update such standards 
to reflect changes in the delivery of health care services. The 
Secretary shall establish such standards in consultation with 
appropriate parties.
    (b) Requiring Review To Meet Standards.--A group health plan or 
carrier providing health insurance coverage may not deny coverage of or 
payment for items and services on the basis of a utilization review 
program unless the program meets the standards established by the 
Secretary under this section.
    (c) Requirements for Standards.--Under the standards established 
under subsection (a)--
            (1) individuals performing utilization review may not 
        receive financial compensation based upon the number of denials 
        of coverage;
            (2) negative determinations of the medical necessity or 
        appropriateness of services or the site at which services are 
        furnished may be made only by clinically qualified personnel;
            (3) the utilization review program shall provide for a 
        process under which an enrollee or provider may obtain timely 
        review of a denial of coverage, including upon request a review 
        conducted by the medical director of the carrier or plan or a 
        physician designated by the carrier or plan;
            (4) utilization review shall be conducted in accordance 
        with uniformly applied standards that are based on currently 
        available medical evidence; and
            (5) providers shall participate in the development of the 
        utilization review program.
    (d) Preemption.--For provision preempting State laws relating to 
utilization review, see section 1103.

SEC. 1014. MEDICAL SAVINGS ACCOUNTS.

    (a) In General.--Chapter 79 of the Internal Revenue Code of 1986 is 
amended by adding at the end the following new section:

``SEC. 7705. MEDICAL SAVINGS ACCOUNTS.

    ``(a) General Rule.--For purposes of this title, the term `medical 
savings account' means a trust created or organized in the United 
States for the exclusive benefit of an individual or his beneficiaries, 
but only if the written instrument creating the trust meets the 
following requirements:
            ``(1) Except in the case of a rollover contribution 
        described in subsection (d)(3), no contribution will be 
        accepted unless--
                    ``(A) it is in cash, and
                    ``(B) such individual is a qualifying employee for 
                the period for which such contribution is made.
            ``(2) The trustee is a bank (as defined in section 408(n)), 
        insurance company (as defined in section 816), or such other 
        person who demonstrates to the satisfaction of the Secretary 
        that the manner in which such other person will administer the 
        trust will be consistent with the requirements of this section.
            ``(3) No part of the trust funds will be invested in life 
        insurance contracts.
            ``(4) The interest of an individual in the balance of the 
        account is nonforfeitable.
            ``(5) The assets of the trust will not be commingled with 
        other property except in a common trust fund or common 
        investment fund.
    ``(b) Eligible Employee.--For purposes of this section--
            ``(1) In general.--The term `eligible employee' means any 
        employee who has high-deductible coverage (as defined in 
        section 1011(b) of the Basic Health Care Reform Act of 1995) 
        offered by the employer.
            ``(2) Exception.--An employee shall be treated as not being 
        an eligible employee for any calendar year if, for any month 
        during such year, it is reasonably expected that such 
        employee--
                    ``(A) will have adjusted gross income that is less 
                than 100 percent of the income official poverty line 
                (as determined by the Director of the Office of 
                Management and Budget) for a family of the size 
                involved; or
                    ``(B) is an AFDC recipient or SSI recipient.
            ``(3) Definitions.--For purposes of paragraph (2)--
                    ``(A) AFDC recipient.--The term `AFDC recipient' 
                means, for a month, an individual who is receiving aid 
                or assistance under any plan of the State approved 
                under title I, X, XIV, or XVI, or part A or part E of 
                title IV, of the Social Security Act for the month.
                    ``(B) SSI recipient.--The term `SSI recipient' 
                means, for a month, an individual--
                            ``(i) with respect to whom supplemental 
                        security income benefits are being paid under 
                        title XVI of the Social Security Act for the 
                        month,
                            ``(ii) who is receiving a supplementary 
                        payment under section 1616 of such Act or under 
                        section 212 of Public Law 93-66 for the month,
                            ``(iii) who is receiving monthly benefits 
                        under section 1619(a) of the Social Security 
                        Act (whether or not pursuant to section 
                        1616(c)(3) of such Act) for the month, or
                            ``(iv) who is treated under section 1619(b) 
                        of the Social Security Act as receiving 
                        supplemental security income benefits in a 
                        month for purposes of title XIX of such Act.
    ``(c) Tax Treatment of Accounts.--
            ``(1) Account taxed as grantor trust.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the account beneficiary of a medical 
                savings account shall be treated for purposes of this 
                title as the owner of such account and shall be subject 
                to tax thereon in accordance with subpart E of part I 
                of subchapter J of this chapter (relating to grantors 
                and others treated as substantial owners).
                    ``(B) Treatment of capital losses.--With respect to 
                assets held in a medical savings account, any capital 
                loss for a taxable year from the sale or exchange of 
                such an asset shall be allowed only to the extent of 
                capital gains from such assets for such taxable year. 
                Any capital loss which is disallowed under the 
                preceding sentence shall be treated as a capital loss 
                from the sale or exchange of such an asset in the next 
                taxable year. For purposes of this subparagraph, all 
                medical savings accounts of the account beneficiary 
                shall be treated as 1 account.
            ``(2) Account terminates if individual engages in 
        prohibited transaction.--
                    ``(A) In general.--If, during any taxable year of 
                the account beneficiary, such beneficiary engages in 
                any transaction prohibited by section 4975 with respect 
                to the account, the account shall cease to be a medical 
                savings account as of the first day of such taxable 
                year.
                    ``(B) Account treated as distributing all its 
                assets.--In any case in which any account ceases to be 
                a medical savings account by reason of subparagraph (A) 
                on the first day of any taxable year, subsection (d) 
                shall be applied as if--
                            ``(i) there were a distribution on such 
                        first day in an amount equal to the fair market 
                        value (on such first day) of all assets in the 
                        account (on such first day), and
                            ``(ii) no portion of such distribution were 
                        used to pay qualified medical expenses.
            ``(3) Effect of pledging account as security.--If, during 
        any taxable year, the account beneficiary uses the account or 
        any portion thereof as security for a loan, the portion so used 
        is treated as distributed and not used to pay qualified medical 
        expenses.
    ``(d) Tax Treatment of Distributions.--
            ``(1) Inclusion of amounts not used for qualified medical 
        expenses.--
                    ``(A) In general.--Any amount paid or distributed 
                out of a medical savings account which is not used 
                exclusively to pay the qualified medical expenses of 
                the account beneficiary or of the spouse or dependents 
                (as defined in section 152) of such beneficiary shall 
                be included in the gross income of such beneficiary to 
                the extent such amount does not exceed the excess of--
                            ``(i) the aggregate contributions to such 
                        account which were not includible in gross 
                        income by reason of section 106(2), over
                            ``(ii) the aggregate prior payments or 
                        distributions from such account which were 
                        includible in gross income under this 
                        paragraph.
                    ``(B) Special rules.--For purposes of subparagraph 
                (A)--
                            ``(i) all medical savings accounts of the 
                        account beneficiary shall be treated as 1 
                        account,
                            ``(ii) all payments and distributions 
                        during any taxable year shall be treated as 1 
                        distribution, and
                            ``(iii) any distribution of property shall 
                        be taken into account at its fair market value 
                        on the date of the distribution.
            ``(2) Penalty for distributions not used for qualified 
        medical expenses.--
                    ``(A) In general.--The tax imposed by chapter 1 on 
                the account beneficiary for any taxable year in which 
                there is a payment or distribution from a medical 
                savings account of such beneficiary which is includible 
                in gross income under paragraph (1) shall be increased 
                by 100 percent of the amount which is so includible.
                    ``(B) Exception for distributions after age 65.--
                Subparagraph (A) shall not apply to any payment or 
                distribution after the date on which the account 
                beneficiary attains age 65.
                    ``(C) Exception for disability or death.--
                Subparagraph (A) shall not apply if the payment or 
                distribution is made after the account beneficiary 
                becomes disabled within the meaning of section 72(m)(7) 
                or dies.
            ``(3) Rollover contribution.--An amount is described in 
        this paragraph as a rollover contribution if it meets the 
        requirements of subparagraphs (A) and (B).
                    ``(A) In general.--Paragraph (1) shall not apply to 
                any amount paid or distributed from a medical savings 
                account to the account beneficiary to the extent the 
                amount received is paid into a medical savings account 
                for the benefit of such beneficiary not later than the 
                60th day after the day on which he receives the payment 
                or distribution.
                    ``(B) Limitation.--This paragraph shall not apply 
                to any amount described in subparagraph (A) received by 
                an individual from a medical savings account if, at any 
                time during the 1-year period ending on the day of such 
                receipt, such individual received any other amount 
                described in subparagraph (A) from a medical savings 
                account which was not includible in his gross income 
                because of the application of this paragraph.
            ``(4) Coordination with medical expense deduction.--For 
        purposes of section 213, any payment or distribution out of a 
        medical savings account for qualified medical expenses shall 
        not be treated as an expense paid for medical care to the 
        extent of the amount of such payment or distribution which is 
        excludable from gross income solely by reason of paragraph 
        (1)(A).
    ``(e) Definitions.--For purposes of this section--
            ``(1) Qualified medical expenses.--
                    ``(A) In general.--The term `qualified medical 
                expenses' means any amounts paid during the taxable 
                year, not compensated for by insurance or otherwise, 
                for medical care (as defined in section 213(d)) of the 
                taxpayer, his spouse, or a dependent (as defined in 
                section 152).
                    ``(B) Long-term care insurance.--Such term includes 
                premiums paid during the taxable year for any long-term 
                care insurance contract for the benefit of the 
                individual or such individual's spouse.
                    ``(C) Long-term care insurance contract.--For 
                purposes of subparagraph (B), the term `long-term care 
                insurance contract' means any insurance contract issued 
                if--
                            ``(i) the only insurance protection 
                        provided under such contract is coverage of 
                        qualified long-term care services and benefits 
                        incidental to such coverage (as defined under 
                        regulations prescribed by the Secretary),
                            ``(ii) the maximum benefit under the policy 
                        for expenses incurred for any day does not 
                        exceed $200,
                            ``(iii) such contract does not cover 
                        expenses incurred for services or items to the 
                        extent that such expenses are reimbursable 
                        under title XVIII of the Social Security Act or 
                        would be so reimbursable but for the 
                        application of a deductible or coinsurance 
                        amount,
                            ``(iv) such contract is guaranteed 
                        renewable,
                            ``(v) such contract does not have any cash 
                        surrender value, and
                            ``(vi) all refunds of premiums, and all 
                        policyholder dividends or similar amounts, 
                        under such contract are to be applied as a 
                        reduction in future premiums or to increase 
                        future benefits.
            ``(2) Account beneficiary.--The term `account beneficiary' 
        means the individual for whose benefit the medical savings 
        account is maintained.
    ``(f) Custodial Accounts.--For purposes of this section, a 
custodial account shall be treated as a trust if--
            ``(1) the assets of such account are held by a bank (as 
        defined in section 408(n)), insurance company (as defined in 
        section 816), or another person who demonstrates to the 
        satisfaction of the Secretary that the manner in which he will 
        administer the account will be consistent with the requirements 
        of this section, and
            ``(2) the custodial account would, except for the fact that 
        it is not a trust, constitute a medical savings account 
        described in subsection (a).
For purposes of this title, in the case of a custodial account treated 
as a trust by reason of the preceding sentence, the custodian of such 
account shall be treated as the trustee thereof.
    ``(g) Reports.--The trustee of a medical savings account shall keep 
such records and make such reports regarding such account to the 
Secretary and to the account beneficiary with respect to contributions, 
distributions, and such other matters as the Secretary may require 
under regulations. The reports required by this subsection shall be 
filed at such time and in such manner and furnished to such individuals 
at such time and in such manner as may be required by such 
regulations.''
    (b) Income and Employment Tax Treatment of Employer 
Contributions.--
            (1) Employer payments excluded from gross income.--The text 
        of section 106 of such Code is amended to read as follows:
    ``Gross income of an employee does not include--
            ``(1) employer-provided coverage under an accident or 
        health plan, and
            ``(2) employer contributions to any medical savings account 
        (as defined in section 7705) of an eligible employee, but only 
        to the extent that the amount contributed does not exceed the 
        excess of premium for standard coverage over the premium for 
        high-deductible coverage (as such terms are defined in section 
        1903 of the Basic Health Care Reform Act of 1995).''
            (2) Employer payments excluded from employment tax base.--
                    (A) Social security taxes.--
                            (i) Subsection (a) of section 3121 of such 
                        Code is amended by striking ``or'' at the end 
                        of paragraph (20), by striking the period at 
                        the end of paragraph (21) and inserting ``; 
                        or'', and by inserting after paragraph (21) the 
                        following new paragraph:
            ``(22) any payment made to or for the benefit of an 
        employee if at the time of such payment it is reasonable to 
        believe that the employee will be able to exclude such payment 
        from income under section 106(2).''
                            (ii) Subsection (a) of section 209 of the 
                        Social Security Act is amended by striking 
                        ``or'' at the end of paragraph (18), by 
                        striking the period at the end of paragraph 
                        (19) and inserting ``; or'', and by inserting 
                        after paragraph (19) the following new 
                        paragraph:
            ``(20) any payment made to or for the benefit of an 
        employee if at the time of such payment it is reasonable to 
        believe that the employee will be able to exclude such payment 
        from income under section 106(2) of the Internal Revenue Code 
        of 1986.''
                    (B) Railroad retirement tax.--Subsection (e) of 
                section 3231 of such Code is amended by adding at the 
                end the following new paragraph:
            ``(10) Medical savings account contributions.--The term 
        `compensation' shall not include any payment made to or for the 
        benefit of an employee if at the time of such payment it is 
        reasonable to believe that the employee will be able to exclude 
        such payment from income under section 106(2).''
                    (C) Unemployment tax.--Subsection (b) of section 
                3306 of such Code is amended by striking ``or'' at the 
                end of paragraph (15), by striking the period at the 
                end of paragraph (16) and inserting ``; or'', and by 
                inserting after paragraph (16) the following new 
                paragraph:
            ``(17) any payment made to or for the benefit of an 
        employee if at the time of such payment it is reasonable to 
        believe that the employee will be able to exclude such payment 
        from income under section 106(2).''
                    (D) Withholding tax.--Subsection (a) of section 
                3401 of such Code is amended by striking ``or'' at the 
                end of paragraph (19), by striking the period at the 
                end of paragraph (20) and inserting ``; or'', and by 
                inserting after paragraph (20) the following new 
                paragraph:
            ``(21) any payment made to or for the benefit of an 
        employee if at the time of such payment it is reasonable to 
        believe that the employee will be able to exclude such payment 
        from income under section 106(2).''
    (c) Technical Amendments.--
            (1) Tax on prohibited transactions.--Section 4975 of such 
        Code (relating to prohibited transactions) is amended--
                    (A) by adding at the end of subsection (c) the 
                following new paragraph:
            ``(4) Special rule for medical savings accounts.--An 
        individual for whose benefit a medical savings account (within 
        the meaning of section 7705) is established shall be exempt 
        from the tax imposed by this section with respect to any 
        transaction concerning such account (which would otherwise be 
        taxable under this section) if, with respect to such 
        transaction, the account ceases to be a medical savings account 
        by reason of the application of section 7705(c)(2)(A) to such 
        account.'', and
                    (B) by inserting ``or a medical savings account 
                described in section 7705'' in subsection (e)(1) after 
                ``described in section 408(a)''.
            (2) Failure to provide reports on medical savings 
        accounts.--Section 6693 of such Code (relating to failure to 
        provide reports on individual retirement account or annuities) 
        is amended--
                    (A) by inserting ``or on medical savings accounts'' 
                after ``annuities'' in the heading of such section, and
                    (B) by adding at the end of subsection (a) the 
                following: ``The person required by section 7705(g) to 
                file a report regarding a medical savings account at 
                the time and in the manner required by such section 
                shall pay a penalty of $50 for each failure unless it 
                is shown that such failure is due to reasonable 
                cause.''
            (3) Clerical amendments.--
                    (A) The table of sections for chapter 79 of such 
                Code is amended by adding at the end the following:

                              ``Sec. 7705. Medical savings accounts.''
                    (B) The table of sections for subchapter B of 
                chapter 68 of such Code is amended by inserting ``or on 
                medical savings accounts'' after ``annuities'' in the 
                item relating to section 6693.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.

                     PART 3--FAIR RATING PRACTICES

SEC. 1021. USE OF FAIR RATING PRACTICES.

    (a) Use of Fair Rating Practices.--The premium rate established by 
a carrier for health insurance coverage in the small group market may 
not vary except by the following:
            (1) Age.--By age, based on classes of age established by 
        the Secretary, in consultation with the NAIC, consistent with 
        subsection (b).
            (2) Geographic area.--By geographic area, as identified by 
        a State consistent with subsection (c).
            (3) Family class.--By family class, based on the following 
        4 classes of family coverage: individual, individual with one 
        or more children, married couple without a child, and married 
        couple with one or more children.
            (4) Benefit design.--By benefit design of coverage, 
        including by type of coverage, such as standard coverage and 
        high-deductible coverage, and by type of coverage option 
        (described in section 1903(15)) with respect to standard 
        coverage.
            (5) Administrative categories.--By permitted expense 
        category, based on differences in expenses among such 
        categories, consistent with subsection (d).
The premiums shall be established for the different benefit designs 
(including standard coverage and high-deductible coverage) based on the 
actuarial value of the coverage for the population of the small group 
market in the fair rating area, without regard to the distribution of 
such population among the types of coverage or type of coverage 
options.
    (b) Limitation on Variation by Age.--
            (1) In general.--Any variation in premium rates by age 
        under subsection (a)(1) for age classes of individuals under 65 
        years of age may not result in the ratio of the highest age 
        rate to the lowest age rate exceeding the limiting ratio 
        described in paragraph (2).
            (2) Limiting ratio.--For purposes of paragraph (1), the 
        limiting ratio described in this paragraph is--
                    (A) 4-to-1, for premiums for months in 1997,
                    (B) 3.67-to-1, for premiums for months in 1998,
                    (C) 3.33-to-1, for premiums for months in 1999, and
                    (D) 3-to-1, for premiums for months in 2000 and any 
                succeeding year.
            (3) Separate age classes for individuals 65 years of age or 
        older.--The Secretary shall establish one or more separate age 
        classes for individuals 65 years of age or older.
            (4) Preemption.--For preemption of State laws relating to 
        establishment of premium rates, see section 1204.
    (c) Geographic Area Variations.--For purposes of subsection (a)(2), 
a State--
            (1) may not identify an area that divides a 3-digit zip 
        code, a county, or all portions of a metropolitan statistical 
        area,
            (2) shall not permit premium rates for coverage offered in 
        a portion of an interstate metropolitan statistical area to 
        vary based on the State in which the coverage is offered, and
            (3) may, upon agreement with one or more adjacent States, 
        identify multi-state geographic areas consistent with 
        paragraphs (1) and (2).
    (d) Administrative Variations.--
            (1) Expense categories.--Expense categories shall be 
        established under subsection (a)(5) by a carrier in a manner 
        that only reflects differences based on marketing, commissions, 
        and similar expenses. Such categories shall take into account 
        health plan choice organizations.
            (2) Limitation on variations.--The variation provided among 
        expense categories under subsection (a)(5) may not result in a 
        premium for the highest expense category exceeding 120 percent 
        of the premium for the lowest expense category.
    (e) Premium Rating in Group Health Plans.--The premium rate 
established under a group health plan for health insurance coverage may 
not vary within a benefit design except by the factors described in 
subsection (a) and subject to the limitation specified in subsection 
(b).
    (f) Actuarial Certification.--Each carrier that offers health 
insurance coverage in a State shall file annually with the State 
commissioner of insurance a written statement by a member of the 
American Academy of Actuaries (or other individual acceptable to the 
commissioner) that, based upon an examination by the individual which 
includes a review of the appropriate records and of the actuarial 
assumptions of the carrier and methods used by the carrier in 
establishing premium rates for applicable health insurance coverage--
            (1) the carrier is in compliance with the applicable 
        provisions of this section, and
            (2) the rating methods are actuarially sound.
Each such carrier shall retain a copy of such statement for examination 
at its principal place of business.
    (g) Construction.--The provisions of this section shall apply to 
premium rates based on the fair rating area in which the covered 
individual or employee resides to reflect the population in the small 
group market.

SEC. 1022. ESTABLISHMENT OF RISK ADJUSTMENT MECHANISMS.

    (a) Establishment of Standards.--
            (1) Development of models.--
                    (A) In general.--The Secretary shall request the 
                NAIC to develop, within 9 months after the date of the 
enactment of this Act and in consultation with the American Academy of 
Actuaries, a model risk adjustment system composed of one or more risk 
adjustment mechanisms under which premiums applicable to health 
insurance coverage in the small group market would be adjusted to take 
into account such factors as may be appropriate to predict the future 
need and the efficient use of services by covered individuals in the 
market. Such factors may include the age, gender, geographic residence, 
health status, or other demographic characteristics of individuals 
enrolled in such plans and shall include consideration of enrollment of 
a disproportionate share of individuals who enroll during the initial 
open enrollment period under section 1005(b)(1).
                    (B) Promulgation as proposed rule.--If the NAIC 
                develops such model within such period, the Secretary 
                shall publish the model as a proposed rule under 
                section 553 of title 5, United States Code. If the NAIC 
                has not developed such model within such period, the 
                Secretary shall publish (not later than 60 days after 
                the end of such period) a proposed rule that specifies 
                a proposed model that provides for effective risk 
                adjustment mechanisms.
            (2) Rule making process.--The Secretary shall provide for a 
        period (described in section 553(c) of title 5, United States 
        Code) of not less than 30 days for public comment on a proposed 
        rule published under paragraph (1)(B). The Secretary shall 
        publish a final rule, by not later than July 1, 1996, that 
        specifies risk adjustment mechanisms that the Secretary finds 
        are effective for purposes of carrying out this section. Such 
        rule shall include models developed by the NAIC if the 
        Secretary finds that such models provide for effective risk 
        adjustment mechanisms.
            (3) Modification.--The Secretary, at the request of the 
        NAIC or otherwise, may by regulation modify the model risk 
        adjustment system established under this subsection.
    (b) Implementation of Risk Adjustment System.--Each State shall 
establish and maintain a risk adjustment system that conforms with the 
model established under this section by not later than January 1, 1997. 
A State may establish and maintain such a system jointly with one or 
more other States.

                      PART 4--CONSUMER PROTECTIONS

SEC. 1031. REQUIREMENT FOR PROVISION OF INFORMATION.

    (a) Carriers.--
            (1) In general.--Each carrier that offers health insurance 
        coverage to small employers (or qualifying employees of small 
        employers) must disclose to such prospective enrollees, to 
        brokers, and to health plan choice organizations the 
        information that the Secretary may specify relating to the 
        performance of the carrier in providing such coverage and 
        relating to differences between the coverage provided and the 
        most similar model benefit package established under section 
        1104(b)(2). If a carrier offers to employers coverage the 
        actuarial value of which is more than the actuarial value for 
        high-deductible coverage but less than such value for standard 
        coverage, the carrier must disclose to such employers detailed 
        information on how the coverage offered compares to any 
        standard and high-deductible coverage offered by the carrier to 
        such employers.
            (2) Marketing material.--Each carrier that provides any 
        health insurance coverage in a State shall file with the State 
        those marketing materials relating to the offer and sale of 
        health insurance coverage to be used for distribution before 
        the materials are used. Such materials shall be in a uniform 
        format specified under the standards established under section 
        1041.
    (b) Group Health Plans.--Each group health plan that provides 
health coverage must disclose to enrollees and potential enrollees 
information, similar to the information described in subsection (a), 
relating to performance of the plan in providing such coverage and 
relating to differences between the coverage provided and the most 
similar model benefit package established under section 1104(b)(2).
    (c) Information Relating to Risk Adjustment.--Each carrier or group 
health plan providing coverage in the small group market shall provide 
to the State such information as the State may require in order to 
carry out section 1022 (relating to risk adjustment mechanisms).

SEC. 1032. PROHIBITION OF IMPROPER INCENTIVES.

    (a) Limitation on Financial Incentives.--No carrier that provides 
health insurance coverage may vary the commission or financial or other 
remuneration to a person based on the claims experience or health 
status of individuals enrolled by or through the person.
    (b) Nondiscrimination in Agent Compensation.--A carrier--
            (1) may not vary or condition the compensation provided to 
        an agent or broker related to the sale or renewal of health 
        insurance coverage because of the health status or claims 
        experience of any individuals enrolled with the carrier through 
        the agent or broker; and
            (2) may not terminate, fail to renew, or limit its contract 
        or agreement of representation with an agent or broker for any 
        reason related to the health status or claims experience of any 
        individuals enrolled with the carrier through the agent or 
        broker.
    (c) Prohibition of Tie-in Arrangements.--No carrier that offers 
health insurance coverage may require the purchase of any other 
insurance or product as a condition for the purchase of such coverage.

SEC. 1033. WRITTEN POLICIES AND PROCEDURES RESPECTING ADVANCE 
              DIRECTIVES.

    A carrier and a group health plan offering health coverage shall 
meet the requirements of section 1866(f) of the Social Security Act 
(relating to maintaining written policies and procedures respecting 
advance directives), insofar as such requirements would apply to the 
carrier or plan if the carrier or plan were an eligible organization.

 PART 5--STANDARDS AND CERTIFICATION; ENFORCEMENT; PREEMPTION; GENERAL 
                               PROVISIONS

SEC. 1041. ESTABLISHMENT OF STANDARDS.

    (a) Role of NAIC.--
            (1) In general.--The Secretary shall request the NAIC to 
        develop, within 9 months after the date of the enactment of 
        this Act, model regulations that specify standards with respect 
        to the requirements of this subtitle as applicable to carriers 
        and health insurance coverage.
            (2) Review of standards.--If the NAIC develops recommended 
        regulations specifying such standards within such period, the 
        Secretary shall review the standards. Such review shall be 
        completed within 60 days after the date the regulations are 
        developed. Unless the Secretary determines within such period 
        that the standards do not meet the requirements, such standards 
        shall serve as the standards under this subtitle, with such 
        amendments as the Secretary deems necessary.
    (b) Contingency.--If the NAIC does not develop such model 
regulations within such period or the Secretary determines that such 
regulations do not specify standards that meet the requirements 
described in subsection (a), the Secretary shall specify, within 15 
months after the date of the enactment of this Act, standards to carry 
out those requirements.

SEC. 1042. APPLICATION OF STANDARDS TO CARRIERS THROUGH STATES.

    (a) Application of Standards.--
            (1) In general.--Each State shall submit to the Secretary, 
        by the deadline specified in paragraph (2), a report on steps 
        the State is taking to implement and enforce the standards 
        established under section 1041 with respect to carriers and 
        health insurance coverage offered or renewed not later than 
        such deadline.
            (2) Deadline for report.--The deadline under this paragraph 
        is 1 year after the date the standards are established under 
        section 1041.
    (b) Federal Role.--
            (1) Notice of deficiency.--If the Secretary determines that 
        a State has failed to submit a report by the deadline specified 
        under subsection (a)(2) or finds that the State has not 
        implemented and provided adequate enforcement of the standards 
        established under section 1041, the Secretary shall notify the 
        State and provide the State a period of 60 days in which to 
        submit such report or to implement and enforce such standards.
            (2) Implementation of alternative.--
                    (A) In general.--If, after such 60-day period, the 
                Secretary finds that such a failure has not been 
                corrected, the Secretary shall provide for such 
                mechanism for the implementation and enforcement of 
                such standards in the State as the Secretary determines 
                to be appropriate.
                    (B) Effective period.--Such implementation and 
                enforcement shall take effect with respect to carriers, 
                and health insurance coverage offered or renewed, on or 
                after 3 months after the date of the Secretary's 
                finding under subparagraph (A), and until the date the 
                Secretary finds that such a failure has been corrected.

SEC. 1043. APPLICATION TO GROUP HEALTH PLANS.

    (a) In General.--Subject to subsection (b), sections 1041 and 1042 
shall apply to group health plans providing health coverage in the same 
manner as they apply to carriers providing health insurance coverage.
    (b) Substitution of References.--For purposes of subsection (a), 
any reference in section 1041 or 1042 to--
            (1) a State is deemed a reference to the Secretary, and
            (2) a carrier or health insurance coverage is deemed a 
        reference to a group health plan and health coverage, 
        respectively.

SEC. 1044. ENFORCEMENT.

    (a) In General.--Chapter 43 of the Internal Revenue Code of 1986 
(relating to qualified pension plans, etc.) is amended by adding at the 
end thereof the following new section:

``SEC. 4980C. FAILURE OF CARRIER OR GROUP HEALTH PLANS TO COMPLY WITH 
              STANDARDS.

    ``(a) Imposition of Tax.--
            ``(1) In general.--There is hereby imposed a tax on the 
        failure of a carrier or group health plan to comply with the 
        requirements applicable to the carrier or group health plan 
        under parts 1 through 4 of subtitle A of title I of the Basic 
        Health Care Reform Act of 1995.
            ``(2) Exception.--Paragraph (1) shall not apply to a 
        failure by a carrier in a State if the Secretary of Health and 
        Human Services determines that the State has in effect a 
        regulatory enforcement mechanism that provides adequate 
        sanctions with respect to such a failure by such a carrier.
    ``(b) Amount of Tax.--
            ``(1) In general.--Subject to paragraph (2), the amount of 
        the tax imposed by subsection (a) shall be $100 for each day 
        during which such failure persists for each individual to which 
        such failure relates. A rule similar to the rule of section 
        4980B(b)(3) shall apply for purposes of this section.
            ``(2) Limitation.--The amount of the tax imposed by 
        subsection (a) for a carrier with respect to health insurance 
        coverage shall not exceed 25 percent of the amounts received 
        for such coverage during the period such failure persists.
    ``(c) Liability for Tax.--The tax imposed by this section shall be 
paid by the carrier or administrator of the group health plan (as the 
case may be).
    ``(d) Exceptions.--
            ``(1) Corrections within 30 days.--No tax shall be imposed 
        by subsection (a) by reason of any failure if--
                    ``(A) such failure was due to reasonable cause and 
                not to willful neglect, and
                    ``(B) such failure is corrected within the 30-day 
                period beginning on the earliest date the carrier or 
                administrator of the group health plan knew, or 
                exercising reasonable diligence would have known, that 
                such failure existed.
            ``(2) Waiver by secretary.--In the case of a failure which 
        is due to reasonable cause and not to willful neglect, the 
        Secretary may waive part or all of the tax imposed by 
        subsection (a) to the extent that payment of such tax would be 
        excessive relative to the failure involved.
    ``(e) Definitions.--For purposes of this section, the terms `health 
insurance coverage', `group health plan', and `carrier' have the 
respective meanings given such terms in section 1903 of the Basic 
Health Care Reform Act of 1995.''
    (b) Clerical Amendment.--The table of sections for chapter 43 of 
such Code is amended by adding at the end thereof the following new 
item:

                              ``Sec. 4980C. Failure of carrier or group 
                                        health plans to comply with 
                                        standards.''

SEC. 1045. LIMITATION ON SELF INSURANCE FOR CERTAIN EMPLOYER PLANS.

    (a) In General.--An employer plan (other than a multiemployer plan, 
as defined in section 414(f) of the Internal Revenue Code of 1986) may 
not offer health coverage other than through a carrier unless the plan 
has at least 50 qualifying employees.
    (b) Exception.--Subsection (a) shall not apply to an employer plan 
that offers health coverage through a multiple employer welfare 
arrangement if the arrangement covers at least 1,000 qualifying 
employees and meets solvency standards established by the State.

                  PART 6--MARKETPLACE FOR INDIVIDUALS

SEC. 1051. APPLICATION OF SIMILAR REQUIREMENTS.

    (a) In General.--Except as provided in subsection (b), the 
provisions of this subtitle shall apply to carriers offering health 
insurance coverage to qualifying individuals in the individual market 
(as defined in section 1903(11)) in the same manner as such provisions 
apply to carriers offering health insurance coverage to employers. For 
purposes of this subsection, any reference to an employee or a 
qualifying employee is deemed a reference to such an individual.
    (b) Exception for Risk Adjustment.--Section 1022 (relating to risk 
adjustment systems) shall be applied under this part in a manner that 
is separate from its application under part 3.

     Subtitle B--Facilitating Establishment of Health Plan Choice 
                         Organizations (HPCOs)

                                                    Title I, Subtitle B

SEC. 1101. ESTABLISHMENT AND ORGANIZATION.

    (a) In General.--Health plan choice organizations (each in this 
part referred to as a ``choice organization'') may be established in 
accordance with this part. Each choice organization shall be chartered 
under State law and operated as a not-for-profit corporation. A carrier 
may not form, underwrite, or possess a majority vote of a choice 
organization, but may administer such an organization.
    (b) Board of Directors.--
            (1) In general.--Each choice organization shall be governed 
        by a Board of Directors. Such Board shall initially be 
        appointed under procedures established by the State in which it 
        operates. Subsequently, the Board shall be elected by the 
        members of the organization in accordance with paragraph (3). 
        Such Board shall be composed as follows:
                    (A) In the case of a choice organization offering 
                coverage in the small group market, the Board shall be 
                composed of small employers (or representatives of 
                small employers) and qualifying employees of small 
                employers (or representatives of such employees) in the 
                area in which the organization operates.
                    (B) In the case of a choice organization offering 
                coverage in the individual market, the Board shall be 
                composed of qualifying individuals in the area in which 
                the organization operates.
                    (C) In the case of a choice organization offering 
                coverage in both the small group market and the 
                individual market, the Board shall be composed of 
                individuals described in subparagraph (A) and 
                individuals described in subparagraph (B).
            (2) Membership.--For each market for which a choice 
        organization offers coverage, the choice organization shall 
        accept all small employers, qualifying employees, and 
        qualifying individuals who are in the market within the area 
        served by the organization as members if such employers, 
        employees, or individuals request such membership.
            (3) Voting.--Members of a choice organization shall have 
        voting rights consistent with the rules established under the 
        bylaws governing the organization.
    (c) Duties of Choice Organizations.--
            (1) In general.--Subject to paragraph (2), each choice 
        organization shall--
                    (A) market health insurance coverage in the small 
                group market, the individual market, or in both the 
                small group market and the individual market throughout 
                the entire area served by the organization;
                    (B) enter into agreements under section 1102 with 
                carriers offering qualified health coverage under this 
                subtitle;
                    (C) provide information and enter into agreements 
                under section 1103;
                    (D) enroll individuals with carriers offering 
                qualified health coverage, only in accordance with 
                section 1104;
                    (E) disseminate quality information under section 
                4002; and
                    (F) carry out other functions provided for under 
                this part.
            (2) Limitation on activities.--A choice organization shall 
        not--
                    (A) perform any activity (including review, 
                approval, or enforcement) relating to payment rates for 
                providers;
                    (B) perform any activity (including certification 
                or enforcement) relating to compliance of carriers (and 
                health coverage provided by carriers) with the 
                requirements of subtitle A;
                    (C) assume financial risk in relation to any such 
                carrier; or
                    (D) perform other activities identified by the 
                State as being inconsistent with the performance of its 
                duties under paragraph (1).
            (3) Characteristics of service area.--
                    (A) In general.--A choice organization need not 
                serve geographic areas that are contiguous, but the 
                geographic boundaries of such areas shall be consistent 
                with the boundaries established under section 1021 for 
                fair rating areas.
                    (B) Service of entire metropolitan statistical 
                area.--If a choice organization serves a part of a 
                metropolitan statistical area the organization shall 
                serve the entire area.
    (d) Establishment Not Required.--Nothing in this section shall be 
construed as requiring--
            (1) that a choice organization be established in each area 
        of a State in which it operates; and
            (2) that there be only one choice organization established 
        with respect to any area.

SEC. 1102. AGREEMENTS TO OFFER QUALIFIED HEALTH COVERAGE.

    (a) Agreements.--
            (1) In general.--Except as provided in paragraph (3), each 
        choice organization for an area shall enter into an agreement 
        under this section--
                    (A) with each carrier that desires to make 
                available qualified health coverage in the small group 
                market through the choice organization (consistent with 
                any procedures established by the State);
                    (B) with each carrier that desires to make 
                available qualified health coverage in the individual 
                market through the choice organization (consistent with 
                any procedures established by the State); or
                    (C) with each carrier described in subparagraph (A) 
                or subparagraph (B).
            (2) Termination of agreement.--An agreement under paragraph 
        (1) shall remain in effect for a 12-month period, except that 
        the choice organization may terminate an agreement under 
        paragraph (1) if the carrier's license or certification under 
        State law is terminated or for other good cause shown.
    (b) Receipt of Premiums on Behalf of Carriers.--
            (1) In general.--Under an agreement under this section 
        between a choice organization and a carrier--
                    (A) premiums shall be payable, and
                    (B) payment of premiums may be made by individuals 
                (or employers on their behalf) directly to the choice 
                organization for the benefit of the carrier.
            (2) Timing of payment of premiums.--Premiums may be payable 
        on a monthly basis (or, at the option of a qualifying employee 
        or individual, on a quarterly basis). The choice organization 
        may provide for reasonable penalties and grace periods for late 
        payment.
            (3) Carriers retain risk of nonpayment.--Nothing in this 
        subsection shall be construed as placing upon a choice 
        organization any risk associated with the failure of 
        individuals and employers to make prompt payment of premiums 
        (other than the portion of the premium representing the choice 
        organization administrative fee under section 1105). Each small 
        employer and qualifying individual who enrolls with a carrier 
        providing qualified health coverage through the choice 
        organization is liable to the carrier for premiums.
    (c) Forwarding of Premiums.--
            (1) In general.--If, under an agreement under subsection 
        (a), premium payments for qualified health coverage are made to 
        the choice organization, the choice organization shall forward 
        to the carrier the amount of the premiums.
            (2) Payments.--Payments shall be made by the choice 
        organization under this subsection within a period of days 
        (specified by the Secretary and not to exceed 7 days) after 
        receipt of the premium from the small employer of the 
        qualifying employee or the qualifying individual, as the case 
        may be.
    (d) Payment of Commissions.--
            (1) In general.--Subject to paragraph (2), nothing in this 
        part shall be construed to preclude a carrier from paying a 
        commission or other remuneration in connection with the 
        purchase of health care coverage by individuals or groups, 
        consistent with State law.
            (2) Limitation on variation.--A carrier may not vary such 
        compensation or remuneration based, directly or indirectly, on 
        the anticipated or actual claims experience associated with the 
        group or individuals purchasing health care coverage.

SEC. 1103. PROVISION OF INFORMATION.

    Each choice organization for an area shall make available to small 
employers that employ individuals in the area and to qualifying 
individuals who reside in the area--
            (1) information provided to the choice organization by the 
        State or carriers, and
            (2) the opportunity to enter into an agreement with the 
        organization for the purchase of qualified health coverage (to 
        the extent that the organization offers coverage in the market 
        through which the employer or individual seeks coverage).

SEC. 1104. ENROLLING INDIVIDUALS FOR QUALIFIED HEALTH COVERAGE THROUGH 
              A CHOICE ORGANIZATION.

    A choice organization shall offer, on behalf of each carrier with 
which an agreement was entered into under section 1102 and in 
accordance with the enrollment procedures of such carriers and the 
enrollment periods provided under section 1005, enrollment for the 
coverage only to individuals in the market through which the 
organization offers coverage in the area served by the choice 
organization. Each choice organization shall coordinate annual open 
enrollment periods (described in section 1005(c)) of all carriers 
through which coverage is offered by the organization so that there is 
one common annual open enrollment period for all such carriers with 
respect to each individual enrolled for coverage through the 
organization. Nothing in this section shall preclude a choice 
organization from having different common annual open enrollment 
periods for different individuals.

SEC. 1105. RESTRICTION ON CHARGES.

    (a) In General.--A choice organization may impose an administrative 
fee with respect to a qualifying employee or qualifying individual 
enrolled for qualified health coverage offered through the choice 
organization.
    (b) Fee.--A choice organization that elects to impose a fee under 
subsection (a) shall ensure that such fee is set as a percentage of the 
premium for each such coverage option, is imposed uniformly with 
respect to all coverage options offered through the organization, and 
is disclosed explicitly as an addition to the premium.

Subtitle C--Preemption of State Benefit Mandates and Anti-Managed Care 
                                  Laws

SEC. 1201. PREEMPTION FROM STATE BENEFIT MANDATES.

                                                    Title I, Subtitle C

    Effective as of January 1, 1997, no State shall establish or 
enforce any law or regulation that--
            (1) requires the offering, as part of health insurance 
        coverage, of any services, category of care, or services of any 
        class or type of provider; or
            (2) specifies the individuals to be provided health 
        insurance coverage or the duration of such coverage.

SEC. 1202. PREEMPTION OF STATE LAW RESTRICTIONS ON MANAGED CARE 
              ARRANGEMENTS.

    (a) Limitation on Restrictions on Network Plans.--Effective as of 
January 1, 1997--
            (1) a State may not prohibit or limit a carrier or group 
        health plan providing health coverage from including incentives 
        for enrollees to use the services of participating providers;
            (2) a State may not prohibit or limit such a carrier or 
        plan from limiting coverage of services to those provided by a 
        participating provider;
            (3) a State may not prohibit or limit the negotiation of 
        rates and forms of payments for providers by such a carrier or 
        plan with respect to health coverage;
            (4) a State may not prohibit or limit such a carrier or 
        plan from limiting the number of participating providers;
            (5) a State may not prohibit or limit such a carrier or 
        plan from requiring that services be provided (or authorized) 
        by a practitioner selected by the enrollee from a list of 
        available participating providers or from requiring enrollees 
        to obtain referral in order to have coverage for treatment by a 
        specialist or health institution; and
            (6) a State may not prohibit or limit the corporate 
        practice of medicine.
    (b) Definitions.--In this section:
            (1) Managed care coverage.--The term ``managed care 
        coverage'' means health coverage to the extent the coverage is 
        provided through a managed care arrangement (as defined in 
        section 1903(12)(A)) that meets the applicable requirements of 
        such section.
            (2) Participating provider.--The term ``participating 
        provider'' means an entity or individual which provides, sells, 
        or leases health care services as part of a provider network 
        (as defined in section 1903(12)(B)).
    (c) Reference to Standards for Managed Care Arrangements.--For 
requirements relating to managed care arrangements, see section 1011.

SEC. 1203. PREEMPTION OF STATE LAWS RESTRICTING UTILIZATION REVIEW 
              PROGRAMS.

    (a) In General.--Effective January 1, 1997, no State law or 
regulation shall prohibit or regulate activities under a utilization 
review program (as defined in subsection (b)).
    (b) Utilization Review Program Defined.--In this section, the term 
``utilization review program'' means a system of reviewing the medical 
necessity and appropriateness of patient services (which may include 
inpatient and outpatient services) using specified guidelines. Such a 
system may include preadmission certification, the application of 
practice guidelines, continued stay review, discharge planning, 
preauthorization of ambulatory procedures, and retrospective review.
    (c) Exemption of Laws Preventing Denial of Lifesaving Medical 
Treatment Pending Transfer to Another Health Care Provider.--Nothing in 
this subtitle shall be construed to invalidate any State law that has 
the effect of preventing involuntary denial of life-preserving medical 
treatment when such denial would cause the involuntary death of the 
patient pending transfer of the patient to a health care provider 
willing to provide such treatment.

SEC. 1204. PREEMPTION RELATING TO DIFFERENT INSURANCE STANDARDS.

    A State may not establish or enforce standards for health insurance 
coverage made available in the individual and small group markets that 
are different from the standards established under this title.

              Subtitle D--Definitions; General Provisions

                                                    Title I, Subtitle D

SEC. 1901. GENERAL DEFINITIONS.

    For purposes of this Act:
            (1) Applicable regulatory authority.--The term ``applicable 
        regulatory authority'' means, with respect to a carrier 
        operating in a State--
                    (A) the State insurance commissioner, or
                    (B) the Secretary, in the case described in section 
                1042(b)(2).
            (2) Family member.--
                    (A) In general.--Individuals are considered to be 
                members of a family if--
                            (i) they are married, or
                            (ii) they have a legal parent-to-child 
                        relationship (whether by natural birth or 
                        adoption), if the child is--
                                    (I) under 19 years of age,
                                    (II) is under 25 years of age and a 
                                full-time student, or
                                    (III) an unmarried dependent 
                                regardless of age who is incapable of 
                                self-support because of mental or 
                                physical disability which existed 
                                before age 22.
                    (B) Special rules.--Family members--
                            (i) include an adopted child and a 
                        recognized natural child;
                            (ii) include a stepchild or foster child 
                        with respect to an individual but only if the 
                        child lives with the individual in a regular 
                        parent-child relationship; and
                            (iii) include such other children as the 
                        Secretary may specify, but shall not include an 
                        emancipated minor.
            (3) Prisoner.--The term ``prisoner'' means, as specified by 
        the Secretary, an individual during a period of imprisonment 
        under Federal, State, or local authority after conviction as an 
        adult.
            (4) Secretary.--The term ``Secretary'' means the Secretary 
        of Health and Human Services.
            (5) State.--The term ``State'' means the 50 States, the 
        District of Columbia, Puerto Rico, the Virgin Islands, Guam, 
        American Samoa, and the Northern Mariana Islands.

SEC. 1902. DEFINITIONS RELATING TO EMPLOYMENT.

    For purposes of this title:
            (1) Countable employee.--The term ``countable employee'' 
        means, with respect to an employer for a month, any employee 
        other than an employee whose normal work week is less than 10 
        hours.
            (2) Employee.--The term ``employee'' means any individual 
        employed by an employer.
            (3) Employer.--The term ``employer'' means any person 
        acting directly as an employer, or indirectly in the interest 
        of an employer, in relation to an employee benefit plan; and 
        includes a group or association of employers acting for an 
        employer in such capacity.
            (4) Large employer.--The term ``large employer'' means an 
        employer that is not a small employer (as defined in paragraph 
        (4)).
            (5) Multiemployer plan.--The term ``multiemployer plan'' 
        has the meaning given such term in section 414(f) of the 
        Internal Revenue Code of 1986.
            (6) Qualifying employee.--
                    (A) In general.--The term ``qualifying employee'' 
                means, with respect to an employer for a month, any 
                employee other than--
                            (i) a part-time, seasonal, or temporary 
                        employee (as defined in subparagraph (B)); or
                            (ii) an employee who is a child described 
                        in section 1901(2)(A)(ii).
                    (B) Part-time, seasonal, or temporary employee 
                defined.--For purposes of subparagraph (A), the term 
                ``part-time, seasonal, or temporary employee'' means 
                any of the following employees with respect to a month:
                            (i) Certain part-time employees.--Any 
                        employee whose normal work week is reasonably 
                        expected as of the first day of such month to 
                        be less than 20 hours.
                            (ii) Seasonal or temporary employees.--Any 
                        employee who is not reasonably expected as of 
                        the first day of such month to be employed by 
                        the employer for a period of 120 consecutive 
                        days during any 365-day period that includes 
                        such first day.
                            (iii) Delay for certain part-time 
                        employees.--Any employee whose normal work week 
                        is reasonably expected as of the first day of 
                        such month to be at least 20 hours, but less 
                        than 35 hours, and the normal work week of the 
                        employee during the preceding 3 months was less 
                        than 20 hours.
            (7) Small employer.--The term ``small employer'' means, 
        with respect to a calendar year, an employer that normally 
        employs more than 1 but less than 51 countable employees on a 
        typical business day. For the purposes of this paragraph, the 
        term ``employee'' includes a self-employed individual. For 
        purposes of determining if an employer is a small employer, 
        rules similar to the rules of subsection (b) and (c) of section 
        414 of the Internal Revenue Code of 1986 shall apply.

SEC. 1903. DEFINITIONS RELATING TO HEALTH COVERAGE, PLANS, AND 
              CARRIERS.

    Except as otherwise provided, for purposes of this Act:
            (1) Benchmark coverage.--The term ``benchmark coverage'' 
        means the standard option of the Blue Cross-Blue Shield plan 
        offered under the Federal Employees Health Benefits Program 
        under chapter 89 of title 5, United States Code, as in effect 
        during 1995.
            (2) Carrier.--The term ``carrier'' means a licensed 
        insurance company, an entity offering prepaid hospital or 
        medical services, and a health maintenance organization, and 
        includes a similar organization regulated under State law for 
        solvency.
            (3) Class of family coverage.--The term ``class of family 
        coverage'' means the 4 classes described in section 1021(a)(3).
            (4) Fair rating area.--The term ``fair rating area'' means 
        a geographic area identified by a State for purposes of section 
        1021(a)(2).
            (5) Group health plan.--The term ``group health plan'' has 
        the meaning given such term in section 5000(b)(1) of the 
        Internal Revenue Code of 1986, but does not include any type of 
        coverage excluded from the definition of a health insurance 
        coverage under paragraph (8)(B).
            (6) Health coverage.--The term ``health coverage'' means 
        health insurance coverage provided by a carrier or medical care 
        provided under a group health plan.
            (7) Health insurance coverage.--
                    (A) In general.--Except as provided in subparagraph 
                (B), the term ``health insurance coverage'' means any 
                hospital or medical service policy or certificate, 
                hospital or medical service plan contract, or health 
                maintenance organization group contract offered by a 
                carrier.
                    (B) Exception.--Such term does not include any of 
                the following (or any combination of the following):
                            (i) Coverage only for accident, dental, 
                        vision, disability income, or long-term care 
                        insurance, or any combination thereof.
                            (ii) Medicare supplemental health 
                        insurance.
                            (iii) Coverage issued as a supplement to 
                        liability insurance.
                            (iv) Liability insurance, including general 
                        liability insurance and automobile liability 
                        insurance.
                            (v) Workers' compensation or similar 
                        insurance.
                            (vi) Automobile medical-payment insurance.
                            (vii) Coverage for a specified disease or 
                        illness.
                            (viii) A hospital or fixed indemnity 
                        policy.
                            (ix) Coverage provided exclusively to 
                        individuals who are not eligible individuals.
            (8) Health maintenance organization.--The term ``health 
        maintenance organization'' includes, as defined in standards 
        established under section 1103, an organization that provides 
        health benefits coverage which meets specified standards and 
        provides (or arranges for the provision of) covered health 
        benefits primarily through a defined set of providers.
            (9) Health plan choice organization.--The term ``health 
        plan choice organization'' means an organization established 
        under subtitle E.
            (10) High deductible coverage.--The term ``high deductible 
        coverage'' means coverage provided consistent with section 
        1011(b).
            (11) Individual market.--The term ``individual market'' 
        means the insurance market offered to individuals seeking 
        health insurance coverage on behalf of themselves (and their 
        dependents) insofar as no employer is seeking such coverage on 
        behalf of the individual.
            (12) Managed care arrangements.--
                    (A) Managed care arrangement.--The term ``managed 
                care arrangement'' means, with respect to a group 
                health plan or under health insurance coverage, an 
                arrangement under such plan or coverage under which 
                providers agree to provide items and services covered 
                under the arrangement to individuals covered under the 
                plan or who have such coverage.
                    (B) Provider network.--The term ``provider 
                network'' means, with respect to a group health plan or 
                health insurance coverage, providers who have entered 
                into an agreement described in subparagraph (A).
            (13) Multiple employer welfare arrangement.--The term 
        ``multiple employer welfare arrangement'' shall have the 
        meaning applicable under section 3(40) of the Employee 
        Retirement Income Security Act of 1974.
            (14) NAIC.--The term ``NAIC'' means the National 
        Association of Insurance Commissioners.
            (15) Options.--Each of the following is a ``type of 
        coverage option'' in relation to standard coverage:
                    (A) Fee-for-service option.--Standard coverage is 
                considered to provide a ``fee-for-service option'' if, 
                regardless of whether covered individuals may receive 
                benefits through a provider network, benefits with 
                respect to the covered items and services in the 
                coverage are made available for such items and services 
                provided through any lawful provider of such covered 
                items and services and payment is made to such a 
                provider whether or not there is a contractual 
                arrangement between the provider and the carrier or 
                plan.
                    (B) Managed care option.--Standard coverage is 
                considered to provide a ``managed care option'' if 
                benefits with respect to the covered items and services 
                in the coverage are made available exclusively through 
                a provider network, except in the case of emergency 
                services and as otherwise required under law.
                    (C) Point-of-service option.--Standard coverage is 
                considered to provide a ``point-of-service option'' if 
                the benefits with respect to covered items and services 
                in the coverage are made available principally through 
                a managed care arrangement, with the choice of the 
                enrollee to obtain such benefits for items and services 
                provided through any lawful provider of such covered 
                items and services. The coverage may provide for 
                different cost sharing schedules based on whether the 
                items and services are provided through such an 
                arrangement or outside such an arrangement.
            (16) Qualified health coverage.--The term ``qualified 
        health coverage'' means health coverage that--
            (1) provides standard coverage or high-deductible coverage, 
        and
            (2) meets other requirements of subtitle A applicable to 
        the coverage and the carrier or group health plan providing the 
        coverage.
            (17) Small group market.--The term ``small group market'' 
        means the insurance market offered to small employers seeking 
        health insurance coverage on behalf of their employees (and 
        their dependents), regardless of whether or not such coverage 
        is made available directly or through a multiple employer 
        welfare arrangement, association, or otherwise.
            (18) Standard coverage.--The term ``standard coverage'' 
        means coverage provided consistent with section 1011(a).
            (19) State commissioner of insurance.--The term ``State 
        commissioner of insurance'' includes a State superintendent of 
        insurance.

SEC. 1904. DEFINITIONS RELATING TO RESIDENCE AND IMMIGRATION STATUS.

    Except as otherwise provided, for purposes of this Act:
            (1) Alien permanently residing in the united states under 
        color of law.--The term ``alien permanently residing in the 
        United States under color of law'' means an alien lawfully 
        admitted for permanent residence (within the meaning of section 
        101(a)(20) of the Immigration and Nationality Act), and 
        includes any of the following (such status not having changed):
                    (A) An alien who is admitted as a refugee under 
                section 207 of the Immigration and Nationality Act.
                    (B) An alien who is granted asylum under section 
                208 of such Act.
                    (C) An alien whose deportation is withheld under 
                section 243(h) of such Act.
                    (D) An alien whose deportation is suspended 
                pursuant to section 244 of such Act.
                    (E) An alien who is granted conditional entry 
                pursuant to section 203(a)(7) of such Act as in effect 
                before April 1, 1980.
                    (F) An alien who is admitted for temporary 
                residence under section 210, 210A, or 245A of such Act.
                    (G) An alien who is within a class of aliens 
                lawfully present in the United States pursuant to any 
                other provision of such Act, if (i) the Attorney 
                General determines that the continued presence of such 
                class of aliens serves a humanitarian or other 
                compelling public interest, and (ii) the Secretary 
                determines that such interest would be further served 
                by treating each such alien within such class as a 
                ``legal permanent resident'' for purposes of this Act 
                or who has been granted extended voluntary departure as 
                a member of a nationality group.
                    (H) An alien who is the spouse or unmarried child 
                under 21 years of age of a citizen of the United 
                States, or the parent of such a citizen if the citizen 
                is over 21 years of age, and with respect to whom an 
                application for adjustment to lawful permanent 
                residence is pending.
                    (I) An alien within such other classification of 
                permanent resident aliens as the Secretary may 
                establish by regulation.
            (2) Long-term nonimmigrant.--The term ``long-term 
        nonimmigrant'' means a nonimmigrant described in subparagraph 
        (E), (H), (I), (K), (L), (N), (O), (Q), or (R) of section 
        101(a)(15) of the Immigration and Nationality Act.
            (3) Qualifying individual.--The term ``qualifying 
        individual'' means, an individual who is a resident of the 
        United States, who is not a prisoner, and is--
                    (A) a citizen or national of the United States;
                    (B) an alien permanently residing in the United 
                States under color of law (as defined in paragraph 
                (1)); or
                    (C) a long-term nonimmigrant (as defined in 
                paragraph (2)).

SEC. 1905. EFFECTIVE DATES.

    The requirements of this title shall apply with respect to--
            (1) group health plans for plan years beginning on or after 
        January 1, 1997, and
            (2) carriers (with respect to coverage other than under a 
        group health plan) as of January 1, 1997.

                TITLE II--ADMINISTRATIVE SIMPLIFICATION

                                                               Title II

SEC. 2000. PURPOSE.

    It is the purpose of this title to improve the efficiency and 
effectiveness of the health care system, including the medicare program 
under title XVIII of the Social Security Act and the medicaid program 
under title XIX of such Act, by encouraging the development of a health 
information network through the adoption of standards and the 
establishment of requirements for the electronic transmission of 
certain health information.

SEC. 2001. DEFINITIONS.

    For purposes of this title:
            (1) Code set.--The term ``code set'' means any set of codes 
        used for encoding data elements, such as tables of terms, 
        medical concepts, medical diagnostic codes, or medical 
        procedure codes.
            (2) Coordination of benefits.--The term ``coordination of 
        benefits'' means determining and coordinating the financial 
        obligations of plan sponsors when health care benefits are 
        payable by more than one such sponsor.
            (3) Health information.--The term ``health information'' 
        means any information that relates to the past, present, or 
        future physical or mental health or condition or functional 
        status of an individual, the provision of health care to an 
        individual, or payment for the provision of health care to an 
        individual.
            (4) Health information network.--The term ``health 
        information network'' means the health information system that 
        is formed through the application of the requirements and 
        standards established under this title.
            (5) Health information network service.--The term ``health 
        information network service''--
                    (A) means a private entity or an entity operated by 
                a State that enters into contracts--
                            (i) to process or facilitate the processing 
                        of nonstandard data elements of health 
                        information into standard data elements;
                            (ii) to provide the means by which persons 
                        are connected to the health information network 
                        for purposes of meeting the requirements of 
                        this title, including the holding of standard 
                        data elements of health information;
                            (iii) to provide authorized access to 
                        health information through the health 
                        information network; or
                            (iv) to provide specific information 
                        processing services, such as automated 
                        coordination of benefits and claims transaction 
                        routing; and
                    (B) includes a health information security 
                organization.
            (6) Health information security organization.--The term 
        ``health information security organization'' means a private 
        entity or an entity operated by a State that accesses standard 
        data elements of health information through the health 
        information network, processes such information into non-
        identifiable health information, and may store such 
        information.
            (7) Health provider.--The term ``health provider'' includes 
        a provider of services (as defined in section 1861(u) of the 
        Social Security Act), a provider of medical or other health 
        services (as defined in section 1861(s) of such Act), and any 
        other person (other than a plan sponsor) furnishing health care 
        items or services.
            (8) Individually identifiable health information.--The term 
        ``individually identifiable health information'' means health 
        information in the health information network--
                    (A) that identifies an individual who is the 
                subject of the information; or
                    (B) with respect to which there is a reasonable 
                basis to believe that the information can be used to 
                identify such an individual.
            (9) Non-identifiable health information.--The term ``non-
        identifiable health information'' means health information that 
        is not individually identifiable health information.
            (10) Plan sponsor.--The term ``plan sponsor'' means--
                    (A) a carrier (as defined in section 1903(2)) 
                providing health insurance coverage (as defined in 
                section 1903(7));
                    (B) a group health plan;
                    (C) an association or other entity which 
                establishes or maintains a multiple employer welfare 
                arrangement (as defined in section 1903(13)) providing 
                benefits consisting of medical care described in 
                section 213(d) of the Internal Revenue Code of 1986; 
                and
                    (D) a State, or the Federal Government, acting in a 
                capacity as a provider of health benefits to eligible 
                individuals that is equivalent to that of a carrier.
            (11) Standard.--The term ``standard'', when used with 
        reference to a transaction or to data elements of health 
        information, means that the transaction or data elements meet 
        any standard adopted by the Secretary under subtitle A that 
        applies to the transaction or data elements.

        Subtitle A--Standards for Data Elements and Transactions

                                                   Title II, Subtitle A

SEC. 2101. GENERAL REQUIREMENTS ON SECRETARY.

    (a) In General.--The Secretary shall adopt standards and 
modifications to standards under this subtitle that are--
            (1) consistent with the objective of reducing the costs of 
        providing and paying for health care; and
            (2) in use and generally accepted, developed, or modified 
        by the standard-setting organizations accredited by the 
        American National Standard Institute.
    (b) Initial Standards.--The Secretary may develop an expedited 
process for the adoption of initial standards under this subtitle.
    (c) Protection of Commercial Information.--In adopting standards 
under this subtitle, the Secretary may not require disclosure of trade 
secrets and confidential commercial information by any person.

SEC. 2102. STANDARDS FOR DATA ELEMENTS OF HEALTH INFORMATION.

    (a) In General.--The Secretary shall adopt standards necessary to 
make uniform and compatible for electronic transmission through the 
health information network the data elements of any health information 
that the Secretary determines is appropriate for transmission in 
connection with a transaction described in section 2201.
    (b) Additions.--The Secretary may make additions to any set of data 
elements adopted under subsection (a) as the Secretary determines 
appropriate in a manner that minimizes the disruption and cost of 
compliance with such additions.
    (c) Certain Data Elements.--
            (1) Unique health identifiers.--The Secretary shall 
        establish a system to provide for a standard unique health 
        identifier for each individual, employer, plan sponsor, and 
        health provider for use in the health care system.
            (2) Code sets.--
                    (A) In general.--The Secretary, in consultation 
                with experts from the private sector and Federal 
                agencies, shall--
                            (i) select code sets for appropriate data 
                        elements from among the code sets that have 
                        been developed by private and public entities; 
                        or
                            (ii) establish code sets for such data 
                        elements if no code sets for the data elements 
                        have been developed.
                    (B) Distribution.--The Secretary shall establish 
                efficient and low-cost procedures for distribution of 
                code sets and modifications to code sets.

SEC. 2103. INFORMATION TRANSACTION STANDARDS.

    (a) In General.--The Secretary shall adopt technical standards that 
are consistent with the health information network privacy standards 
adopted under section 2104 relating to the method by which standard 
data elements of health information may be transmitted electronically, 
including standards with respect to the format in which such data 
elements may be transmitted.
    (b) Special Rule for Coordination of Benefits.--Any standard 
adopted by the Secretary under subsection (a) that relates to 
coordination of benefits shall provide that a claim for reimbursement 
for health services furnished shall be tested, by an algorithm 
specified by the Secretary, against all records of enrollment and 
eligibility for the individual who received such services that are 
available to the recipient of the claim through the health information 
network to determine any primary and secondary obligors for payment.
    (c) Electronic Signature.--The Secretary, in coordination with the 
Secretary of Commerce, shall promulgate regulations specifying 
procedures for the electronic transmission and authentication of 
signatures, compliance with which shall be deemed to satisfy State and 
Federal statutory requirements for written signatures with respect to 
transactions described in section 2201 and written signatures on health 
records and prescriptions.
    (d) Standards for Claims for Clinical Laboratory Tests.--The 
standards under this section shall provide that claims for clinical 
laboratory tests for which benefits are payable by a plan sponsor shall 
be submitted directly by the person or entity that performed (or 
supervised the performance of) the tests to the sponsor in a manner 
consistent with (and subject to such exceptions as are provided under) 
the requirement for direct submission of such claims under the medicare 
program.

SEC. 2104. HEALTH INFORMATION NETWORK PRIVACY STANDARDS.

    The Secretary shall adopt standards respecting the privacy of 
individually identifiable health information that is in the health 
information network. Such standards shall include standards concerning 
at least the following:
            (1) The rights of an individual who is the subject of such 
        information.
            (2) The procedures to be established for the exercise of 
        such rights.
            (3) The uses and disclosures of such information that are 
        authorized or required.
            (4) Safeguards for the security of such information and 
        adequate security practices.

SEC. 2105. TIMETABLES FOR ADOPTION OF STANDARDS.

    (a) Initial Standards for Data Elements.--The Secretary shall adopt 
standards relating to--
            (1) the data elements for the information described in 
        section 2102(a) not later than 9 months after the date of the 
        enactment of this Act (except in the case of standards with 
        respect to data elements for claims attachments, which shall be 
        adopted not later than 24 months after the date of the 
        enactment of this Act); and
            (2) any addition to a set of data elements, in conjunction 
        with making such an addition.
    (b) Initial Privacy Standards.--The Secretary shall adopt standards 
relating to the privacy of individually identifiable health information 
in the health information network under section 2104 not later than 12 
months after the date of the enactment of this Act.
    (c) Initial Standards for Information Transactions.--The Secretary 
shall adopt standards relating to information transactions under 
section 2103 not later than 18 months after the date of the enactment 
of this Act (except in the case of standards for claims attachments, 
which shall be adopted not later than 24 months after the date of the 
enactment of this Act).
    (d) Modifications to Standards.--
            (1) In general.--Except as provided in paragraph (2), the 
        Secretary shall review the standards adopted under this 
        subtitle and shall adopt modified standards as determined 
        appropriate, but not more frequently than once every 6 months. 
        Any modification to standards shall be completed in a manner 
        which minimizes the disruption to, and costs of compliance 
        incurred by, a plan sponsor, health provider, or health plan 
choice organization that is required to comply with subtitle B.
            (2) Special rules.--
                    (A) Modifications during first 12-month period.--
                Except with respect to additions and modifications to 
                code sets under subparagraph (B), the Secretary may not 
                adopt any modification to a standard adopted under this 
                subtitle during the 12-month period beginning on the 
                date the standard is adopted, unless the Secretary 
                determines that the modification is necessary in order 
                to permit a plan sponsor, a health provider, or a 
                health plan choice organization to comply with subtitle 
                B.
                    (B) Additions and modifications to code sets.--
                            (i) In general.--The Secretary shall ensure 
                        that procedures exist for the routine 
                        maintenance, testing, enhancement, and 
                        expansion of code sets.
                            (ii) Additional rules.--If a code set is 
                        modified under this subsection, the modified 
                        code set shall include instructions on how data 
                        elements that were encoded prior to the 
                        modification are to be converted or translated 
                        so as to preserve the value of the data 
                        elements. Any modification to a code set under 
                        this subsection shall be implemented in a 
                        manner that minimizes the disruption to, and 
                        costs of compliance incurred by, a plan 
                        sponsor, health provider, or health plan choice 
                        organization that is required to comply with 
                        subtitle B.
    (e) Evaluation of Standards.--The Secretary may establish a process 
to measure or verify the consistency of standards adopted or modified 
under this subtitle. Such process may include demonstration projects 
and analyses of the cost of implementing such standards and 
modifications.

   Subtitle B--Requirements with Respect to Certain Transactions and 
                              Information

                                                   Title II, Subtitle B

SEC. 2201. STANDARD TRANSACTIONS AND INFORMATION.

    (a) Transactions by Sponsors.--
            (1) Transactions with providers.--If a plan sponsor 
        conducts any of the transactions described in paragraph (3) 
        with a health provider--
                    (A) the transaction shall be a standard 
                transaction; and
                    (B) the health information transmitted by the 
                sponsor to the provider or by the provider to the 
                sponsor in connection with the transaction shall be in 
                the form of standard data elements.
            (2) Transactions with sponsors.--If a plan sponsor conducts 
        any of the transactions described in paragraph (3) with another 
        plan sponsor--
                    (A) the transaction shall be a standard 
                transaction; and
                    (B) the health information transmitted by either 
                sponsor in connection with the transaction shall be in 
                the form of standard data elements.
            (3) Transactions.--The transactions referred to in 
        paragraphs (1) and (2) are the following:
                    (A) Verification of eligibility for benefits.
                    (B) Coordination of benefits.
                    (C) Claim submission.
                    (D) Claim attachment submission.
                    (E) Claim status notification.
                    (F) Claim status verification.
                    (G) Claim adjudication.
                    (H) Payment and remittance advice.
                    (I) Certification or authorization of a referral to 
                a health provider who is not part of a provider 
                network.
    (b) Transactions by Choice Organizations.--
            (1) In general.--If a health plan choice organization 
        conducts any of the transactions described in paragraph (2) 
        with a plan sponsor--
                    (A) the transaction shall be a standard 
                transaction; and
                    (B) the health information transmitted by the 
                organization to the sponsor or by the sponsor to the 
                organization in connection with the transaction shall 
                be in the form of standard data elements.
            (2) Transactions.--The transactions referred to in 
        paragraph (1) are the following:
                    (A) Enrollment and disenrollment.
                    (B) Premium payment.
    (c) Use of Health Information Network Services.--A plan sponsor, a 
health provider, or a health plan choice organization may comply with 
any provision of this section by entering into an agreement or other 
arrangement with a health information network service certified under 
section 2301 pursuant to which the service undertakes the duties 
applicable to the sponsor, provider, or organization under the 
provision.

SEC. 2202. ACCESSING HEALTH INFORMATION FOR AUTHORIZED PURPOSES.

    (a) Procurement Rule for Government Agencies.--
            (1) In general.--A health information security organization 
        that is certified under section 2301 shall make available to a 
        Federal or State agency, pursuant to a cost-type contract (as 
        defined under the Federal Acquisition Regulation), any non-
        identifiable health information, including non-identifiable 
        health information that is derived from individually 
        identifiable health information, that--
                    (A) is held by the service or may be obtained by 
                the service under paragraph (2) or subsection (b);
                    (B) consists of data elements that are subject to a 
                standard under subtitle A; and
                    (C) is requested by the agency to fulfill a 
                requirement under this Act.
            (2) Certain information available at low cost.--If a health 
        information security organization requires health information 
        consisting of data elements that are subject to a standard 
        under subtitle A from a plan sponsor or a health provider in 
        order to comply with a request made by a Federal or State 
        agency under paragraph (1), the sponsor or provider shall make 
        such information available to such organization for a charge 
        that does not exceed the reasonable cost of transmitting the 
        information.
    (b) Procurement Rule for Information Security Organizations.--A 
health information security organization that makes non-identifiable 
health information available to a Federal or State agency under 
subsection (a) shall make such non-identifiable information available, 
for a charge that does not exceed the reasonable cost of transmitting 
the information, to any other health information security organization 
that--
            (A) is certified under section 2301; and
            (B) requests the information.

SEC. 2203. ENSURING AVAILABILITY OF INFORMATION.

    The Secretary shall establish a procedure under which a plan 
sponsor or health provider that does not have the ability to transmit 
standard data elements directly, and does not have access to a health 
information network service certified under section 2301, may comply 
with the provisions of this subtitle.

SEC. 2304. TIMETABLES FOR COMPLIANCE WITH REQUIREMENTS.

    (a) Initial Compliance.--
            (1) In general.--Not later than 12 months after the date on 
        which standards are adopted under subtitle A with respect to a 
        type of transaction, or data elements for a type of health 
        information, a plan sponsor, health provider, or health plan 
        choice organization shall comply with the requirements of this 
        subtitle with respect to such transaction or information.
            (2) Additional data elements.--Not later than 12 months 
        after the date on which the Secretary adopts an addition to a 
        set of data elements for health information under section 2102, 
        a plan sponsor, health provider, or health plan choice 
        organization shall comply with the requirements of this 
        subtitle using such data elements.
    (b) Compliance With Modified Standards.--
            (1) In general.--If the Secretary adopts a modified 
        standard under section 2105(c), a plan sponsor, health 
        provider, or health plan choice organization shall comply with 
        the modified standard at such time as the Secretary determines 
        appropriate, taking into account the time needed to comply due 
        to the nature and extent of the modification.
            (2) Special rule.--In the case of a modification to a 
        standard that does not occur within the 12-month period 
        beginning on the date the standard is adopted, the time 
        determined appropriate by the Secretary under paragraph (1) may 
        not be--
                    (A) earlier than the last day of the 90-day period 
                beginning on the date the modified standard is adopted; 
                or
                    (B) later than the last day of the 12-month period 
                beginning on the date the modified standard is adopted.

                  Subtitle C--Miscellaneous Provisions

                                                   Title II, Subtitle C

SEC. 2301. STANDARDS AND CERTIFICATION FOR HEALTH INFORMATION NETWORK 
              SERVICES.

    (a) Standards for Operation.--The Secretary shall establish 
standards with respect to the operation of health information network 
services, including standards ensuring that such services--
            (1) develop, operate, and cooperate with one another to 
        form the health information network;
            (2) meet all of the standards adopted under part 1 that are 
        applicable to the services;
            (3) make public information concerning their performance, 
        as measured by uniform indicators such as accessibility, 
        transaction responsiveness, administrative efficiency, 
        reliability, dependability, and any other indicator determined 
        appropriate by the Secretary; and
            (4) if they are part of a larger organization, have 
        policies and procedures in place which isolate their activities 
        with respect to processing information in a manner that 
        prevents access to such information by such larger 
        organization.
    (b) Certification by the Secretary.--
            (1) Establishment.--Not later than 18 months after the date 
        of the enactment of this Act, the Secretary shall establish a 
        certification procedure for health information network services 
        which ensures that certified services are qualified to meet the 
        requirements of this title and the standards established by the 
        Secretary under this section. Such certification procedure 
        shall be implemented in a manner that minimizes the costs and 
        delays of operations for such services.
            (2) Application.--Each entity desiring to be certified as a 
        health information network service shall apply to the Secretary 
        for certification in a form and manner determined appropriate 
        by the Secretary.
            (3) Audits and reports.--The procedure established under 
        paragraph (1) shall provide for audits by the Secretary and 
        reports by an entity certified under this section as the 
        Secretary determines appropriate in order to monitor such 
        entity's compliance with the requirements of this subtitle and 
        the standards established by the Secretary under this section.
            (4) Recertification.--A health information network service 
        shall be recertified under this subsection at least every 3 
        years.
    (c) Loss of Certification.--
            (1) Mandatory termination.--Except as provided in paragraph 
        (2), if a health information network service violates a health 
        information network privacy standard adopted under section 2104 
        that is applicable to the service, its certification under this 
        section shall be terminated unless the Secretary determines 
        that appropriate corrective action has been taken.
            (2) Conditional certification.--The Secretary may establish 
        a procedure under which a health information network service 
        may remain certified on a conditional basis if the service is 
        operating consistently with a plan intended to correct any 
        violations described in paragraph (1). Such procedure may 
        provide for the appointment of a trustee to continue operation 
        of the service until the requirements for full certification 
        are met.
    (d) Certification by Private Entities.--The Secretary may designate 
private entities to conduct the certification procedures established by 
the Secretary under this section. A health information network service 
certified by such an entity in accordance with such designation shall 
be considered to be certified by the Secretary.
    (e) Information Held by Health Information Network Services.--If a 
health information network service certified under this section loses 
its certified status or takes any action that would threaten the 
continued availability of the standard data elements of health 
information held by such service, such data elements shall be 
transferred to another health information network service certified 
under this section that has been designated by the Secretary.

SEC. 2302. IMPOSITION OF ADDITIONAL REQUIREMENTS.

    (a) In General.--Except as provided in subsection (c), after the 
Secretary has established standards under section 2102 that are 
necessary to make uniform and compatible for electronic transmission 
the data elements that the Secretary determines are appropriate for 
transmission in connection with a transaction described in subtitle B, 
an individual or entity may not require an individual or entity, to 
provide in any manner any additional data element in connection with--
            (1) the transaction; or
            (2) an inquiry with respect to the transaction.
    (b) Transmission Method.--Except as provided in subsection (c), 
after the Secretary has established standards under section 2103 
relating to the method by which data elements that the Secretary 
determines are appropriate for transmission in connection with a 
transaction described in subtitle B may be transmitted electronically, 
an individual or entity may not require an individual or entity to 
transmit any data element in a manner inconsistent with the standards 
in connection with--
            (1) the transaction; or
            (2) an inquiry with respect to the transaction.
    (c) Exception.--Subsections (a) and (b) do not apply if--
            (1) an individual or entity voluntarily agrees to provide 
        the additional data element; or
            (2) a waiver is granted under subsection (d) to permit the 
        requirement to be imposed.
    (d) Conditions for Waivers.--
            (1) In general.--An individual or entity may request a 
        waiver from the Secretary in order to impose on an individual 
        or entity a requirement otherwise prohibited under subsection 
        (a) or (b). Subject to paragraph (2), the Secretary may grant 
        such a waiver.
            (2) Consideration of waiver requests.--A waiver may not be 
        granted under this subsection to impose an otherwise prohibited 
        requirement unless the Secretary determines that the value of 
        any additional information to be provided under the requirement 
        for research or other purposes significantly outweighs the 
        administrative cost of the imposition of the requirement, 
        taking into account the burden of the timing of the imposition 
        of the requirement.
    (e) Anonymous Reporting.--If an individual or entity attempts to 
impose on an individual or entity a requirement prohibited under 
subsection (a) or (b), the individual or entity on whom the requirement 
is being imposed may contact the Secretary. The Secretary shall develop 
a procedure under which an individual or entity that contacts the 
Secretary under the preceding sentence shall remain anonymous. The 
Secretary shall notify the individual or entity imposing the 
requirement that the requirement may not be imposed unless the other 
individual or entity voluntarily agrees to such requirement or a waiver 
is obtained under subsection (d).

SEC. 2303. EFFECT ON STATE LAW.

    (a) In General.--Except as otherwise provided in this section, a 
provision, requirement, or standard under this subtitle shall supersede 
any contrary provision of State law.
    (b) State ``Quill and Pen'' Laws.--A State may not establish, 
continue in effect, or enforce any provision of State law that requires 
medical or health plan records (including billing information) to be 
maintained or transmitted in written rather than electronic form, 
except where the Secretary determines that the provision is necessary 
to prevent fraud and abuse, with respect to controlled substances, or 
for other purposes.
    (c) Public Health Reporting.--Nothing in this title shall be 
construed to invalidate or limit the authority, power, or procedures 
established under any law providing for the reporting of disease or 
injury, child abuse, birth, or death, public health surveillance, or 
public health investigation or intervention.
    (d) Public Use Functions.--Nothing in this title shall be construed 
to limit the authority of a Federal or State agency to make non-
identifiable health information available for public use.
    (e) Payment for Health Care Services or Premiums.--Nothing in this 
title shall be construed to prohibit a consumer from paying for health 
care items or services, or plan or health insurance coverage premiums, 
by debit, credit, or other payment cards or numbers or other electronic 
payment means.

          TITLE III--FRAUD AND ABUSE REFORM: ADVISORY OPINIONS

                                                              Title III

SEC. 3001. AUTHORIZING THE SECRETARY OF HEALTH AND HUMAN SERVICES TO 
              ISSUE ADVISORY OPINIONS UNDER TITLE XI.

    Title XI of the Social Security Act (42 U.S.C. 1301 et seq.) is 
amended by inserting after section 1128B the following new section:

                          ``advisory opinions

    ``Sec. 1129. (a) Issuance of Advisory Opinions.--The Secretary 
shall issue advisory opinions as provided in this section.
    ``(b) Matters Subject to Advisory Opinions.--The Secretary shall 
issue advisory opinions as to the following matters:
            ``(1) What constitutes prohibited remuneration within the 
        meaning of section 1128B(b).
            ``(2) Whether an arrangement or proposed arrangement 
        satisfies the criteria set forth in section 1128B(b)(3) for 
        activities which do not result in prohibited remuneration.
            ``(3) Whether an arrangement or proposed arrangement 
        satisfies the criteria which the Secretary has established, or 
        shall establish by regulation for activities which do not 
        result in prohibited remuneration.
            ``(4) What constitutes an inducement to reduce or limit 
        services to individuals entitled to benefits under title XVIII 
        or title XIX within the meaning of section 1128B(b).
            ``(5) Whether an arrangement, activity or proposed 
        arrangement or proposed activity violates any other provision 
        of this Act.
    ``(c) Matters Not Subject to Advisory Opinions.--Such advisory 
opinions shall not address the following matters:
            ``(1) Whether the fair market value shall be, or was paid 
        or received for any goods, services or property.
            ``(2) Whether an individual is a bona fide employee within 
        the requirements of section 3121(d)(2) of the Internal Revenue 
        Code of 1986.
    ``(d) Effect of Advisory Opinions.--
            ``(1) Each advisory opinion issued by the Secretary shall 
        be binding as to the Secretary and the party or parties 
        requesting the opinion.
            ``(2) The failure of a party to seek an advisory opinion 
        may not be introduced into evidence to prove that the party 
        intended to violate the provisions of sections 1128, 1128A, or 
        1128B.
    ``(e) Regulations.--The Secretary within 180 days of the date of 
enactment, shall issue regulations establishing a system for the 
issuance of advisory opinions. Such regulations shall provide for--
            ``(1) the procedure to be followed by a party applying for 
        an advisory opinion;
            ``(2) the procedure to be followed by the Secretary in 
        responding to a request for an advisory opinion;
            ``(3) the interval in which the Secretary shall respond;
            ``(4) the reasonable fee to be charged to the party 
        requesting an advisory opinion; and
            ``(5) the manner in which advisory opinions will be made 
        available to the public.
    ``(f) Interval for Issuance of Advisory Opinions.--Under no 
circumstances shall the interval in which the Secretary shall respond 
to a party requesting an advisory opinion exceed 30 days.''.

SEC. 3002. AUTHORIZING THE SECRETARY OF HEALTH AND HUMAN SERVICES TO 
              ISSUE ADVISORY OPINIONS RELATING TO PHYSICIAN OWNERSHIP 
              AND REFERRAL.

    Section 1877 of the Social Security Act (42 U.S.C. 1395nn) is 
amended by the addition of the following new subsection:
    ``(i) Advisory Opinions.--
            ``(1) In general.--The Secretary shall issue advisory 
        opinions on whether an arrangement or proposed arrangement will 
        result in a prohibited referral within the meaning of this 
        section.
            ``(2) Effect of advisory opinions.--
                    ``(A) Each advisory opinion issued by the Secretary 
                shall be binding as to the Secretary and the party or 
                parties requesting the opinion.
                    ``(B) The failure of a party to seek an advisory 
                opinion may not be introduced into evidence to prove 
                that the party intended to violate the provisions of 
                this section.
            ``(3) Regulations.--The Secretary within one hundred and 
        eighty days of the date of enactment, shall issue regulations 
        establishing a system for the issuance of advisory opinions. 
        Such regulations shall provide for--
                    ``(A) the procedure to be followed by a party 
                applying for an advisory opinion;
                    ``(B) the procedure to be followed by the Secretary 
                in responding to a request for an advisory opinion;
                    ``(C) the interval in which the Secretary shall 
                respond;
                    ``(D) the reasonable fee to be charged to the party 
                requesting an advisory opinion; and
                    ``(E) the manner in which advisory opinions will be 
                made available to the public.
            ``(4) Interval for issuance of advisory opinions.--Under no 
        circumstances shall the interval in which the Secretary shall 
        respond to a party requesting an advisory opinion exceed thirty 
        days.''.

SEC. 3003. EFFECTIVE DATE.

    Unless otherwise specified, the amendments made by this title shall 
be effective upon the enactment of this Act.

               TITLE IV--MALPRACTICE REFORM AND ANTITRUST

                                                   Title IV, Subtitle A

                     Subtitle A--Malpractice Reform

            PART 1--UNIFORM STANDARDS FOR MALPRACTICE CLAIMS

SEC. 4001. APPLICABILITY.

    Except as provided in section 4021, this part shall apply to any 
medical malpractice liability action brought in a Federal or State 
court, and to any medical malpractice claim subject to an alternative 
dispute resolution system, that is initiated on or after January 1, 
1996.

SEC. 4002. REQUIREMENT FOR INITIAL RESOLUTION OF ACTION THROUGH 
              ALTERNATIVE DISPUTE RESOLUTION.

    (a) In General.--
            (1) State cases.--A medical malpractice liability action 
        may not be brought in any State court during a calendar year 
        unless the medical malpractice liability claim that is the 
        subject of the action has been initially resolved under an 
        alternative dispute resolution system certified for the year by 
        the Secretary under section 4012(a), or, in the case of a State 
        in which such a system is not in effect for the year, under the 
        alternative Federal system established under section 4022(b).
            (2) Federal diversity actions.--A medical malpractice 
        liability action may not be brought in any Federal court under 
        section 1332 of title 28, United States Code, during a calendar 
        year unless the medical malpractice liability claim that is the 
        subject of the action has been initially resolved under the 
        alternative dispute resolution system referred to in paragraph 
        (1) that applied in the State whose law applies in such action.
            (3) Claims against united states.--
                    (A) Establishment of process for claims.--The 
                Attorney General shall establish an alternative dispute 
                resolution process for the resolution of tort claims 
                consisting of medical malpractice liability claims 
                brought against the United States under chapter 171 of 
                title 28, United States Code. Under such process, the 
                resolution of a claim shall occur after the completion 
                of the administrative claim process applicable to the 
                claim under section 2675 of such title.
                    (B) Requirement for initial resolution under 
                process.--A medical malpractice liability action based 
                on a medical malpractice liability claim described in 
                subparagraph (A) may not be brought in any Federal 
                court unless the claim has been initially resolved 
                under the alternative dispute resolution process 
                established by the Attorney General under such 
                subparagraph.
    (b) Initial Resolution of Claims Under ADR.--For purposes of 
subsection (a), an action is ``initially resolved'' under an 
alternative dispute resolution system if--
            (1) the ADR reaches a decision on whether the defendant is 
        liable to the plaintiff for damages; and
            (2) if the ADR determines that the defendant is liable, the 
        ADR reaches a decision on the amount of damages assessed 
        against the defendant.
    (c) Procedures for Filing Actions.--
            (1) Notice of intent to contest decision.--Not later than 
        60 days after a decision is issued with respect to a medical 
        malpractice liability claim under an alternative dispute 
        resolution system, each party affected by the decision shall 
        submit a sealed statement to a court of competent jurisdiction 
        indicating whether or not the party intends to contest the 
        decision.
            (2) Deadline for filing action.--A medical malpractice 
        liability action may not be brought by a party unless--
                    (A) the party has filed the notice of intent 
                required by paragraph (1); and
                    (B) the party files the action in a court of 
                competent jurisdiction not later than 90 days after the 
                decision resolving the medical malpractice liability 
                claim that is the subject of the action is issued under 
                the applicable alternative dispute resolution system.
            (3) Court of competent jurisdiction.--For purposes of this 
        subsection, the term ``court of competent jurisdiction'' 
        means--
                    (A) with respect to actions filed in a State court, 
                the appropriate State trial court; and
                    (B) with respect to actions filed in a Federal 
                court, the appropriate United States district court.
    (d) Legal Effect of Uncontested ADR Decision.--The decision reached 
under an alternative dispute resolution system shall, for purposes of 
enforcement by a court of competent jurisdiction, have the same status 
in the court as the verdict of a medical malpractice liability action 
adjudicated in a State or Federal trial court. The previous sentence 
shall not apply to a decision that is contested by a party affected by 
the decision pursuant to subsection (c)(1).

SEC. 4003. OPTIONAL APPLICATION OF PRACTICE GUIDELINES.

    (a) Development and Certification of Guidelines.--Each State may 
develop, for certification by the Secretary, a set of specialty 
clinical practice guidelines, based on recommended guidelines from 
national specialty societies, to be updated annually. In the absence of 
recommended guidelines from such societies, each State may develop such 
guidelines based on such criteria as the State considers appropriate 
(including based on recommended guidelines developed by the Agency for 
Health Care Policy and Research).
    (b) Provision of Health Care Under Guidelines.--Notwithstanding any 
other provision of law, in any medical malpractice liability action 
arising from the conduct of a health care provider or health care 
professional, if such conduct was in accordance with a guideline 
developed by the State in which the conduct occurred and certified by 
the Secretary under subsection (a), the guideline--
            (1) may be introduced by any party to the action (including 
        a health care provider, health care professional, or patient); 
        and
            (2) if introduced, shall establish a rebuttable presumption 
        that the conduct was in accordance with the appropriate 
        standard of medical care, which may only be overcome by the 
        presentation of clear and convincing evidence on behalf of the 
        party against whom the presumption operates.

SEC. 4004. TREATMENT OF NONECONOMIC AND PUNITIVE DAMAGES.

    (a) Limitation on Noneconomic Damages.--The total amount of 
noneconomic damages that may be awarded to a claimant and the members 
of the claimant's family for losses resulting from the injury which is 
the subject of a medical malpractice liability action may not exceed 
$250,000, regardless of the number of parties against whom the action 
is brought or the number of actions brought with respect to the injury.
    (b) No Award of Punitive Damages Against Manufacturer of Medical 
Product.--In the case of a medical malpractice liability action in 
which the plaintiff alleges a claim against the manufacturer of a 
medical product, no punitive or exemplary damages may be awarded 
against such manufacturer.
    (c) Joint and Several Liability for Noneconomic Damages.--The 
liability of each defendant for noneconomic damages shall be several 
only and shall not be joint, and each defendant shall be liable only 
for the amount of noneconomic damages allocated to the defendant in 
direct proportion to the defendant's percentage of responsibility (as 
determined by the trier of fact).
    (d) Use of Punitive Damage Awards for Operation of ADR Systems in 
States.--
            (1) In general.--The total amount of any punitive damages 
        awarded in a medical malpractice liability action shall be paid 
        to the State in which the action is brought (or, in a case 
        brought in Federal court, in the State in which the health care 
        services that caused the injury that is the subject of the 
        action were provided), and shall be used by the State solely to 
        implement and operate the State alternative dispute resolution 
        system certified by the Secretary under section 4022 (except as 
        provided in paragraph (2)).
            (2) Use of remaining amounts for provider licensing and 
        disciplinary activities.--If the amount of punitive damages 
        paid to a State under paragraph (1) for a year is greater than 
        the State's costs of implementing and operating the State 
        alternative dispute resolution system during the year, the 
        balance of such punitive damages paid to the State shall be 
        used solely to carry out activities to assure the safety and 
        quality of health care services provided in the State, 
        including (but not limited to)--
                    (A) licensing or certifying health care 
                professionals and health care providers in the State; 
                and
                    (B) carrying out programs to reduce malpractice-
                related costs for providers volunteering to provide 
                services in medically underserved areas.
            (3) Maintenance of effort.--A State shall use any amounts 
        paid pursuant to paragraph (1) to supplement and not to replace 
        amounts spent by the State for implementing and operating the 
        State alternative dispute resolution system or carrying out the 
        activities described in paragraph (2).

SEC. 4005. PERIODIC PAYMENTS FOR FUTURE LOSSES.

    (a) In General.--In any medical malpractice liability action in 
which the damages awarded for future economic loss exceed $100,000, a 
defendant may not be required to pay such damages in a single, lump-sum 
payment, but may be permitted to make such payments on a periodic 
basis. The periods for such payments shall be determined by the court, 
based upon projections of when such expenses are likely to be incurred.
    (b) Waiver.--A court may waive the application of subsection (a) 
with respect to a defendant if the court determines that it is not in 
the best interests of the plaintiff to receive payments for damages on 
such a periodic basis.

SEC. 4006. TREATMENT OF ATTORNEY'S FEES AND OTHER COSTS.

    (a) Requiring Party Contesting ADR Ruling To Pay Attorney's Fees 
and Other Costs.--
            (1) In general.--The court in a medical malpractice 
        liability action shall require the party that (pursuant to 
        section 4002(c)(1)) contested the ruling of the alternative 
        dispute resolution system with respect to the medical 
        malpractice liability claim that is the subject of the action 
        to pay to the opposing party the costs incurred by the opposing 
        party under the action, including attorney's fees, fees paid to 
        expert witnesses, and other litigation expenses (but not 
        including court costs, filing fees, or other expenses paid 
        directly by the party to the court, or any fees or costs 
        associated with the resolution of the claim under the 
        alternative dispute resolution system), but only if--
                    (A) in the case of an action in which the party 
                that contested the ruling is the claimant, the amount 
                of damages awarded to the party under the action is 
                less than the amount of damages awarded to the party 
                under the ADR system; and
                    (B) in the case of an action in which the party 
                that contested the ruling is the defendant, the amount 
                of damages assessed against the party under the action 
                is greater than the amount of damages assessed under 
                the ADR system.
            (2) Exceptions.--Paragraph (1) shall not apply if--
                    (A) the party contesting the ruling made under the 
                previous alternative dispute resolution system shows 
                that--
                            (i) the ruling was procured by corruption, 
                        fraud, or undue means,
                            (ii) there was partiality or corruption 
                        under the system,
                            (iii) there was other misconduct under the 
                        system that materially prejudiced the party's 
                        rights, or
                            (iv) the ruling was based on an error of 
                        law;
                    (B) the party contesting the ruling made under the 
                alternative dispute resolution system presents new 
                evidence before the trier of fact that was not 
                available for presentation under the ADR system;
                    (C) the medical malpractice liability action raised 
                a novel issue of law; or
                    (D) the court finds that the application of such 
                paragraph to a party would constitute an undue 
                hardship, and issues an order waiving or modifying the 
                application of such paragraph that specifies the 
                grounds for the court's decision.
            (3) Limit on attorneys' fees paid.--Attorneys' fees that 
        are required to be paid under paragraph (1) by the contesting 
        party shall not exceed the amount of the attorneys' fees 
        incurred by the contesting party in the action. If the 
        attorneys' fees of the contesting party are based on a 
        contingency fee agreement, the amount of attorneys' fees for 
        purposes of the preceding sentence shall not exceed the 
        reasonable value of those services.
            (4) Records.--In order to receive attorneys' fees under 
        paragraph (1), counsel of record in the medical malpractice 
        liability action involved shall maintain accurate, complete 
        records of hours worked on the action, regardless of the fee 
        arrangement with the client involved.
    (b) Contingency Fee Defined.--As used in this section, the term 
``contingency fee'' means any fee for professional legal services which 
is, in whole or in part, contingent upon the recovery of any amount of 
damages, whether through judgment or settlement.

SEC. 4007. UNIFORM STATUTE OF LIMITATIONS.

    (a) In General.--Except as provided in subsection (b), no medical 
malpractice claim may be initiated after the expiration of the 2-year 
period that begins on the date on which the alleged injury that is the 
subject of such claim was discovered, but in no event may such a claim 
be initiated after the expiration of the 4-year period that begins on 
the date on which the alleged injury that is the subject of such claim 
occurred.
    (b) Exception for Minors.--In the case of an alleged injury 
suffered by a minor who has not attained 6 years of age, a medical 
malpractice claim may not be initiated after the expiration of the 2-
year period that begins on the date on which the alleged injury that is 
the subject of such claim was discovered or should reasonably have been 
discovered, but in no event may such a claim be initiated after the 
date on which the minor attains 12 years of age.

SEC. 4008. SPECIAL PROVISION FOR CERTAIN OBSTETRIC SERVICES.

    (a) In General.--In the case of a medical malpractice claim 
relating to services provided during labor or the delivery of a baby, 
if the health care professional or health care provider against whom 
the claim is brought did not previously treat the claimant for the 
pregnancy, the trier of fact may not find that such professional or 
provider committed malpractice and may not assess damages against such 
professional or provider unless the malpractice is proven by clear and 
convincing evidence.
    (b) Applicability to Group Practices or Agreements Among 
Providers.--For purposes of subsection (a), a health care professional 
shall be considered to have previously treated an individual for a 
pregnancy if the professional is a member of a group practice whose 
members previously treated the individual for the pregnancy or is 
providing services to the individual during labor or the delivery of a 
baby pursuant to an agreement with another professional.

SEC. 4009. JURISDICTION OF FEDERAL COURTS.

    Nothing in this part shall be construed to establish any 
jurisdiction over any medical malpractice liability action in the 
district courts of the United States on the basis of section 1331 or 
1337 of title 28, United States Code.

SEC. 4010. PREEMPTION.

    (a) In General.--The provisions of this part shall preempt any 
State law to the extent such law is inconsistent with such provisions, 
except that the provisions of this part shall not preempt any State law 
that provides for defenses or places limitations on a person's 
liability in addition to those contained in this part, places greater 
limitations on the amount of attorneys' fees that can be collected, or 
otherwise imposes greater restrictions than those provided in this 
part.
    (b) Effect on Sovereign Immunity and Choice of Law or Venue.--
Nothing in this part shall be construed to--
            (1) waive or affect any defense of sovereign immunity 
        asserted by any State under any provision of law;
            (2) waive or affect any defense of sovereign immunity 
        asserted by the United States;
            (3) affect the applicability of any provision of the 
        Foreign Sovereign Immunities Act of 1976;
            (4) preempt State choice-of-law rules with respect to 
        claims brought by a foreign nation or a citizen of a foreign 
        nation; or
            (5) affect the right of any court to transfer venue or to 
        apply the law of a foreign nation or to dismiss a claim of a 
        foreign nation or of a citizen of a foreign nation on the 
        ground of inconvenient forum.

 PART 2--REQUIREMENTS FOR STATE ALTERNATIVE DISPUTE RESOLUTION SYSTEMS 
                                 (ADR)

SEC. 4021. BASIC REQUIREMENTS.

    (a) In General.--A State's alternative dispute resolution system 
meets the requirements of this section if the system--
            (1) applies to all medical malpractice liability claims 
        under the jurisdiction of the courts of that State;
            (2) requires that a written opinion resolving the dispute 
        be issued not later than 6 months after the date by which each 
        party against whom the claim is filed has received notice of 
        the claim (other than in exceptional cases for which a longer 
        period is required for the issuance of such an opinion), and 
        that the opinion contain--
                    (A) findings of fact relating to the dispute, and
                    (B) a description of the costs incurred in 
                resolving the dispute under the system (including any 
                fees paid to the individuals hearing and resolving the 
                claim), together with an appropriate assessment of the 
                costs against any of the parties;
            (3) requires individuals who hear and resolve claims under 
        the system to meet such qualifications as the State may require 
        (in accordance with regulations of the Secretary);
            (4) is approved by the State or by local governments in the 
        State;
            (5) with respect to a State system that consists of 
        multiple dispute resolution procedures--
                    (A) permits the parties to a dispute to select the 
                procedure to be used for the resolution of the dispute 
                under the system, and
                    (B) if the parties do not agree on the procedure to 
                be used for the resolution of the dispute, assigns a 
                particular procedure to the parties;
            (6) provides for the transmittal to the State agency 
        responsible for monitoring or disciplining health care 
        professionals and health care providers of any findings made 
        under the system that such a professional or provider committed 
        malpractice, unless, during the 90-day period beginning on the 
        date the system resolves the claim against the professional or 
        provider, the professional or provider brings an action 
        contesting the decision made under the system; and
            (7) provides for the regular transmittal to the 
        Administrator for Health Care Policy and Research of 
        information on disputes resolved under the system, in a manner 
        that assures that the identity of the parties to a dispute 
        shall not be revealed.
    (b) Application of Malpractice Liability Standards to Alternative 
Dispute Resolution.--The provisions of part 1 (other than section 4002) 
shall apply with respect to claims brought under a State alternative 
dispute resolution system or the alternative Federal system in the same 
manner as such provisions apply with respect to medical malpractice 
liability actions brought in the State.

SEC. 4022. CERTIFICATION OF STATE SYSTEMS; APPLICABILITY OF ALTERNATIVE 
              FEDERAL SYSTEM.

    (a) Certification.--
            (1) In general.--Not later than October 1 of each year 
        (beginning with 1995), the Secretary, in consultation with the 
        Attorney General, shall determine whether a State's alternative 
        dispute resolution system meets the requirements of this part 
        for the following calendar year.
            (2) Basis for certification.--The Secretary shall certify a 
        State's alternative dispute resolution system under this 
        subsection for a calendar year if the Secretary determines 
        under paragraph (1) that the system meets the requirements of 
        section 4021, including the requirement described in section 
        4004 that punitive damages awarded under the system are paid to 
        the State for the uses described in such section.
    (b) Applicability of Alternative Federal System.--
            (1) Establishment and applicability.--Not later than 
        October 1, 1995, the Secretary, in consultation with the 
        Attorney General, shall establish by rule an alternative 
        Federal ADR system for the resolution of medical malpractice 
        liability claims during a calendar year in States that do not 
        have in effect an alternative dispute resolution system 
        certified under subsection (a) for the year.
            (2) Requirements for system.--Under the alternative Federal 
        ADR system established under paragraph (1)--
                    (A) paragraphs (1), (2), (6), and (7) of section 
                4021(a) shall apply to claims brought under the system;
                    (B) if the system provides for the resolution of 
                claims through arbitration, the claims brought under 
                the system shall be heard and resolved by arbitrators 
                appointed by the Secretary in consultation with the 
                Attorney General; and
                    (C) with respect to a State in which the system is 
                in effect, the Secretary may (at the State's request) 
                modify the system to take into account the existence of 
                dispute resolution procedures in the State that affect 
                the resolution of medical malpractice liability claims.
            (3) Treatment of states with alternative system in 
        effect.--If the alternative Federal ADR system established 
        under this subsection is applied with respect to a State for a 
        calendar year, the State shall make a payment to the United 
        States (at such time and in such manner as the Secretary may 
        require) in an amount equal to 110 percent of the costs 
        incurred by the United States during the year as a result of 
        the application of the system with respect to the State.

SEC. 4023. REPORTS ON IMPLEMENTATION AND EFFECTIVENESS OF ALTERNATIVE 
              DISPUTE RESOLUTION SYSTEMS.

    (a) In General.--Not later than 5 years after the date of the 
enactment of this Act, the Secretary shall prepare and submit to the 
Congress a report describing and evaluating State alternative dispute 
resolution systems operated pursuant to this part and the alternative 
Federal system established under section 4022(b).
    (b) Contents of Report.--The Secretary shall include in the report 
prepared and submitted under subsection (a)--
            (1) information on--
                    (A) the effect of the alternative dispute 
                resolution systems on the cost of health care within 
                each State,
                    (B) the impact of such systems on the access of 
                individuals to health care within the State, and
                    (C) the effect of such systems on the quality of 
                health care provided within the State; and
            (2) to the extent that such report does not provide 
        information on no-fault systems operated by States as 
        alternative dispute resolution systems pursuant to this part, 
        an analysis of the feasibility and desirability of establishing 
        a system under which medical malpractice liability claims shall 
        be resolved on a no-fault basis.

                          PART 3--DEFINITIONS

SEC. 4031. DEFINITIONS.

    As used in this subtitle:
            (1) Alternative dispute resolution system.--The term 
        ``alternative dispute resolution system'' means a system that 
        is enacted or adopted by a State to resolve medical malpractice 
        claims other than through a medical malpractice liability 
        action.
            (2) Claimant.--The term ``claimant'' means any person who 
        brings a health care liability action and, in the case of an 
        individual who is deceased, incompetent, or a minor, the person 
        on whose behalf such an action is brought.
            (3) Clear and convincing evidence.--The term ``clear and 
        convincing evidence'' is that measure or degree of proof that 
        will produce in the mind of the trier of fact a firm belief or 
        conviction as to the truth of the allegations sought to be 
        established, except that such measure or degree of proof is 
        more than that required under preponderance of the evidence, 
        but less than that required for proof beyond a reasonable 
        doubt.
            (4) Economic damages.--The term ``economic damages'' means 
        damages paid to compensate an individual for losses for 
        hospital and other medical expenses, lost wages, lost 
        employment, and other pecuniary losses.
            (5) Health care professional.--The term ``health care 
        professional'' means any individual who provides health care 
        services in a State and who is required by State law or 
        regulation to be licensed or certified by the State to provide 
        such services in the State.
            (6) Health care provider.--The term ``health care 
        provider'' means any organization or institution that is 
        engaged in the delivery of health care services in a State that 
        is required by State law or regulation to be licensed or 
        certified by the State to engage in the delivery of such 
        services in the State.
            (7) Injury.--The term ``injury'' means any illness, 
        disease, or other harm that is the subject of a medical 
        malpractice claim.
            (8) Medical malpractice liability action.--The term 
        ``medical malpractice liability action'' means any civil action 
        brought pursuant to State law in which a plaintiff alleges a 
        medical malpractice claim against a health care provider or 
        health care professional, but does not include any action in 
        which the plaintiff's sole allegation is an allegation of an 
        intentional tort.
            (9) Medical malpractice claim.--The term ``medical 
        malpractice claim'' means any claim relating to the provision 
        of (or the failure to provide) health care services or the use 
        of a medical product, without regard to the theory of liability 
        asserted, and includes any third-party claim, cross-claim, 
        counterclaim, or contribution claim in a medical malpractice 
        liability action.
            (10) Medical product.--
                    (A) In general.--The term ``medical product'' 
                means, with respect to the allegation of a claimant, a 
                drug (as defined in section 201(g)(1) of the Federal 
                Food, Drug, and Cosmetic Act (21 U.S.C. 321(g)(1)) or a 
                medical device (as defined in section 201(h) of the 
                Federal Food, Drug, and Cosmetic Act (21 U.S.C. 321(h)) 
                if--
                            (i) such drug or device was subject to 
                        premarket approval under section 505, 507, or 
                        515 of the Federal Food, Drug, and Cosmetic Act 
                        (21 U.S.C. 355, 357, or 360e) or section 351 of 
                        the Public Health Service Act (42 U.S.C. 262) 
                        with respect to the safety of the formulation 
                        or performance of the aspect of such drug or 
                        device which is the subject of the claimant's 
                        allegation or the adequacy of the packaging or 
                        labeling of such drug or device, and such drug 
                        or device is approved by the Food and Drug 
                        Administration; or
                            (ii) the drug or device is generally 
                        recognized as safe and effective under 
                        regulations issued by the Secretary of Health 
                        and Human Services under section 201(p) of the 
                        Federal Food, Drug, and Cosmetic Act (21 U.S.C. 
                        321(p)).
                    (B) Exception in case of misrepresentation or 
                fraud.--Notwithstanding subparagraph (A), the term 
                ``medical product'' shall not include any product 
                described in such subparagraph if the claimant shows 
                that the product is approved by the Food and Drug 
                Administration for marketing as a result of withheld 
                information, misrepresentation, or an illegal payment 
                by the manufacturer of the product.
            (11) Noneconomic damages.--The term ``noneconomic damages'' 
        means damages paid to compensate an individual for losses for 
        physical and emotional pain, suffering, inconvenience, physical 
        impairment, mental anguish, disfigurement, loss of enjoyment of 
        life, loss of consortium, and other nonpecuniary losses, but 
        does not include punitive damages.
            (12) Punitive damages.--The term ``punitive damages'' means 
        compensation, in addition to compensation for actual harm 
        suffered, that is awarded for the purpose of punishing a person 
        for conduct deemed to be malicious, wanton, willful, or 
        excessively reckless.

                         Subtitle B--Antitrust

                                                   Title IV, Subtitle B

SEC. 4101. PUBLICATION OF ANTITRUST GUIDELINES ON ACTIVITIES OF HEALTH 
              PLANS.

    (a) In General.--The Attorney General shall provide for the 
development and publication of explicit guidelines on the application 
of antitrust laws to the activities of health plans. The guidelines 
shall be designed to facilitate development and operation of plans, 
consistent with the antitrust laws.
    (b) Review Process.--The Attorney General shall establish a review 
process under which the administrator or sponsor of a health plan (or 
organization that proposes to administer or sponsor a health plan) may 
submit a request to the Attorney General to obtain a prompt opinion 
(but in no event later than 60 days after the Attorney General receives 
the request) from the Department of Justice on the plan's conformity 
with the Federal antitrust laws.
    (c) Definitions.--In this section--
            (1) the term ``antitrust laws''--
                    (A) has the meaning given it in subsection (a) of 
                the first section of the Clayton Act (15 U.S.C. 12(a)), 
                except that such term includes section 5 of the Federal 
                Trade Commission Act (15 U.S.C. 45) to the extent such 
                section applies to unfair methods of competition, and
                    (B) includes any State law similar to the laws 
                referred to in subparagraph (A); and
            (2) the term ``health plan'' means any contract or 
        arrangement under which an entity bears all or part of the cost 
        of providing health care items and services, including a 
        hospital or medical expense incurred policy or certificate, 
        hospital or medical service plan contract, or health 
        maintenance subscriber contract, but does not include--
                    (A) coverage only for accident, dental, vision, 
                disability, or long term care, medicare supplemental 
                health insurance, or any combination thereof,
                    (B) coverage issued as a supplement to liability 
                insurance,
                    (C) workers' compensation or similar insurance, or
                    (D) automobile medical-payment insurance.

SEC. 4102. ISSUANCE OF HEALTH CARE CERTIFICATES OF PUBLIC ADVANTAGE.

    (a) Issuance and Effect of Certificate.--The Attorney General, 
after consultation with the Secretary, shall issue in accordance with 
this section a certificate of public advantage to each eligible health 
care collaborative activity that complies with the requirements in 
effect under this section on or after the expiration of the 1-year 
period that begins on the date of the enactment of this Act (without 
regard to whether or not the Attorney General has promulgated 
regulations to carry out this section by such date). Such activity, and 
the parties to such activity, shall not be liable under any of the 
antitrust laws for conduct described in such certificate and engaged in 
by such activity if such conduct occurs while such certificate is in 
effect.
    (b) Requirements Applicable to Issuance of Certificates.--
            (1) Standards to be met.--The Attorney General shall issue 
        a certificate to an eligible health care collaborative activity 
        if the Attorney General finds that--
                    (A) the benefits that are likely to result from 
                carrying out the activity outweigh the reduction in 
                competition (if any) that is likely to result from the 
                activity, and
                    (B) such reduction in competition is necessary to 
                obtain such benefits.
            (2) Factors to be considered.--
                    (A) Weighing of benefits against reduction in 
                competition.--For purposes of making the finding 
                described in paragraph (1)(A), the Attorney General 
                shall consider whether the activity is likely--
                            (i) to maintain or to increase the quality 
                        of health care by providing new services not 
currently offered in the relevant market,
                            (ii) to increase access to health care,
                            (iii) to achieve cost efficiencies that 
                        will be passed on to health care consumers, 
                        such as economies of scale, reduced transaction 
                        costs, and reduced administrative costs, that 
                        cannot be achieved by the provision of 
                        available services and facilities in the 
                        relevant market,
                            (iv) to preserve the operation of health 
                        care facilities located in underserved 
                        geographical areas,
                            (v) to improve utilization of health care 
                        resources, and
                            (vi) to reduce inefficient health care 
                        resource duplication.
                    (B) Necessity of reduction in competition.--For 
                purposes of making the finding described in paragraph 
                (1)(B), the Attorney General shall consider--
                            (i) the ability of the providers of health 
                        care services that are (or likely to be) 
                        affected by the health care collaborative 
                        activity and the entities responsible for 
                        making payments to such providers to negotiate 
                        societally optimal payment and service 
                        arrangements,
                            (ii) the effects of the health care 
                        collaborative activity on premiums and other 
                        charges imposed by the entities described in 
                        clause (i), and
                            (iii) the availability of equally 
                        efficient, less restrictive alternatives to 
                        achieve the benefits that are intended to be 
                        achieved by carrying out the activity.
    (c) Establishment of Criteria and Procedures.--Subject to 
subsections (d) and (e), not later than 1 year after the date of the 
enactment of this Act, the Attorney General and the Secretary shall 
establish jointly by rule the criteria and procedures applicable to the 
issuance of certificates under subsection (a). The rules shall specify 
the form and content of the application to be submitted to the Attorney 
General to request a certificate, the information required to be 
submitted in support of such application, the procedures applicable to 
denying and to revoking a certificate, and the procedures applicable to 
the administrative appeal (if such appeal is authorized by rule) of the 
denial and the revocation of a certificate. Such information may 
include the terms of the health care collaborative activity (in the 
case of an activity in existence as of the time of the application) and 
implementation plan for the collaborative activity.
    (d) Eligible Health Care Collaborative Activity.--To be an eligible 
health care collaborative activity for purposes of this section, a 
health care collaborative activity shall submit to the Attorney General 
an application that complies with the rules in effect under subsection 
(c) and that includes--
            (1) an agreement by the parties to the activity that the 
        activity will not foreclose competition by entering into 
        contracts that prevent health care providers from providing 
        health care in competition with the activity,
            (2) an agreement that the activity will submit to the 
        Attorney General annually a report that describes the 
        operations of the activity and information regarding the impact 
        of the activity on health care and on competition in health 
        care, and
            (3) an agreement that the parties to the activity will 
        notify the Attorney General and the Secretary of the 
        termination of the activity not later than 30 days after such 
        termination occurs.
    (e) Review of Applications for Certificates.--Not later than 90 
days after an eligible health care collaborative activity submits to 
the Attorney General an application that complies with the rules in 
effect under subsection (c) and with subsection (d), the Attorney 
General shall issue or deny the issuance of such certificate. If, 
before the expiration of such 90-day period, the Attorney General may 
extend the time for issuance for good cause.
    (f) Revocation of Certificate.--Whenever the Attorney General finds 
that a health care collaborative activity with respect to which a 
certificate is in effect does not meet the standards specified in 
subsection (b), the Attorney General shall revoke such certificate.
    (g) Written Reasons; Judicial Review.--
            (1) Denial and revocation of certificates.--If the Attorney 
        General denies an application for a certificate or revokes a 
        certificate, the Attorney General shall include in the notice 
        of denial or revocation a statement of the reasons relied upon 
        for the denial or revocation of such certificate.
            (2) Judicial review.--
                    (A) After administrative proceeding.--(i) If the 
                Attorney General denies an application submitted or 
                revokes a certificate issued under this section after 
                an opportunity for hearing on the record, then any 
                party to the health care collaborative activity 
                involved may commence a civil action, not later than 60 
days after receiving notice of the denial or revocation, in an 
appropriate district court of the United States for review of the 
record of such denial or revocation.
                    (ii) As part of the Attorney General's answer, the 
                Attorney General shall file in such court a certified 
                copy of the record on which such denial or revocation 
                is based. The findings of fact of the Attorney General 
                may be set aside only if found to be unsupported by 
                substantial evidence in such record taken as a whole.
                    (B) Denial or revocation without administrative 
                proceeding.--If the Attorney General denies an 
                application submitted or revokes a certificate issued 
                under this section without an opportunity for hearing 
                on the record, then any party to the health care 
                collaborative activity involved may commence a civil 
                action, not later than 60 days after receiving notice 
                of the denial or revocation, in an appropriate district 
                court of the United States for de novo review of such 
                denial or revocation.
    (h) Exemption.--A person shall not be liable under any of the 
antitrust laws for conduct necessary--
            (1) to prepare, agree to prepare, or attempt to agree to 
        prepare an application to request a certificate under this 
        section, or
            (2) to attempt to enter into any health care collaborative 
        activity with respect to which such a certificate is in effect.
    (i) Definitions.--In this section:
            (1) The term ``antitrust laws'' has the meaning given it in 
        subsection (a) of the first section of the Clayton Act (15 
        U.S.C. 12(a)), except that such term includes section 5 of the 
        Federal Trade Commission Act (15 U.S.C. 45) to the extent such 
        section applies to unfair methods of competition.
            (2) The term ``certificate'' means a certificate of public 
        advantage authorized to be issued under subsection (a).
            (3) The term ``health care collaborative activity'' means 
        an agreement (whether existing or proposed) between 2 or more 
        providers of health care services that is entered into solely 
        for the purpose of sharing in the provision and coordination of 
        health care services and that involves substantial integration 
        and financial risk-sharing between the parties, but does not 
        include the exchanging of information, the entering into of any 
        agreement, or the engagement in any other conduct that is not 
        reasonably required to carry out such agreement.
            (4) The term ``health care services'' includes services 
        related to the delivery or administration of health care 
        services.
            (5) The term ``liable'' means liable for any civil or 
        criminal violation of the antitrust laws.
            (6) The term ``provider of health care services'' means any 
        individual or entity that is engaged in the delivery of health 
        care services in a State and that is required by State law or 
        regulation to be licensed or certified by the State to engage 
        in the delivery of such services in the State.
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