I

104TH CONGRESS

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.
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1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

4 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Basic Health Care Reform Act of 1995’’.

6 (b) TABLE OF CONTENTS.—The table of contents of

7 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
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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.
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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.

1 TITLE I—ASSURING AVAILABIL2 ITY AND CONTINUITY OF

3 HEALTH COVERAGE

4 Subtitle A—Insurance Reform

5 PART 1—ACCESS TO HEALTH COVERAGE

6 SEC. 1001. GUARANTEED OFFER BY CARRIERS.

7 (a) IN GENERAL.—Each carrier that offers health in8 surance coverage in the small group market in a fair rat-
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1 ing area (as defined in section 1903) shall make available,

2 to each small employer (covered in such market) in such

3 fair rating area—

4 (1) qualified standard coverage consistent with

5 section 1011(a), and

6 (2) subject to subsection (b), qualified high-de7 ductible coverage consistent with section 1011(b).

8 (b) HIGH-DEDUCTIBLE COVERAGE.—

9 (1) EXCEPTION FOR HEALTH MAINTENANCE

10 ORGANIZATIONS.—The requirement of subsection

11 (a)(2) shall not apply with respect to health insur12 ance coverage that—

13 (A) is provided by a Federally qualified

14 health maintenance organization (as defined in

15 section 1301(a) of the Public Health Service

16 Act), or

17 (B) is not provided by such an organiza18 tion but is provided by an organization recog19 nized under State law as a health maintenance

20 organization or managed care organization or a

21 similar organization regulated under State law

22 for solvency.

23 (2) LIMITATION ON OFFER OF HIGH-DEDUCT24 IBLE COVERAGE.—Qualified high-deductible coverage

25 may not be made available by a carrier to a small
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1 employer with respect to an employee unless the car2 rier also makes available qualified standard coverage

3 that has identical benefits (other than the amount of

4 the deductible) and the employee demonstrates to

5 the carrier that the employee has available assets (as

6 defined by the Secretary) equal to at least the de7 ductible amount established under section

8 1011(b)(2) applicable to the high-deductible cov9 erage. A carrier may not make available to an em10 ployee health coverage (other than coverage for sup11 plemental benefits) the actuarial value of which is

12 less than the actuarial value of qualified high-de13 ductible coverage, unless the employee has available

14 assets (as defined by the Secretary) equal to at least

15 the deductible amount of the coverage offered.

16 (3) OPTION TO OFFER MEDISAVE COVERAGE.—

17 The offer of high-deductible coverage under sub18 section (a)(2) may be accompanied by the contribu19 tion by an employer to a medical savings account (in

20 accordance with section 7705 of the Internal Reve21 nue Code of 1986).

22 (c) COVERAGE OF ENTIRE RATING AREA.—

23 (1) IN GENERAL.—With respect to each fair

24 rating area for which a carrier offers health insur25 ance coverage, the carrier shall provide for coverage
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1 of benefits for items and services furnished through2 out the fair rating area.

3 (2) SPECIAL RULE FOR CARRIERS OFFERING

4 COVERAGE IN MULTI-STATE METROPOLITAN STATIS5 TICAL AREAS.—In the case of a carrier that offers

6 qualified health insurance coverage in the small em7 ployer market in a portion of a State that is located

8 in an interstate metropolitan statistical area, the

9 carrier may not provide such coverage with respect

10 to an employer in such metropolitan statistical area

11 unless the carrier also offers such coverage in other

12 portions of the area located in other States.

13 (3) SPECIAL RULE FOR COVERAGE THROUGH

14 MANAGED CARE ARRANGEMENT.—In the case of cov15 erage offered by a carrier or under a group health

16 plan to the extent that it provides benefits through

17 a managed care arrangement in a fair rating area,

18 this subsection shall not be construed as requiring

19 the establishment of facilities throughout the area, if

20 the facilities are located consistent with section

21 1002(b)(1).

22 (d) FAMILY COVERAGE OPTION.—The offer of cov23 erage under this section with respect to an employee shall

24 include the option of coverage of family members of the

25 employee.
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1 (e) LIMITATION ON CARRIERS.—A carrier may not

2 require an employer under a group health plan to impose

3 through a waiting period for health coverage under a plan

4 or similarly require a limitation or condition on health cov5 erage or benefits based on—

6 (1) the health status of an individual,

7 (2) claims experience of an individual,

8 (3) receipt of health care by an individual,

9 (4) medical history of an individual, or

10 (5) receipt of public subsidies by an individual.

11 SEC. 1002. GUARANTEED ISSUE BY CARRIERS.

12 (a) IN GENERAL.—Subject to subsections (b) and (c)

13 and section 1003, each carrier that offers health insurance

14 coverage in the small group market in a fair rating area—

15 (1) must accept every small employer in the

16 area that applies for such coverage during an enroll17 ment period provided under section 1005; and

18 (2) must accept for enrollment under such cov19 erage every qualifying individual (and family mem20 ber of such an individual) who applies for enrollment

21 during an enrollment period provided under section

22 1005 and may not place any restriction on the eligi23 bility of an individual to enroll so long as such indi24 vidual is a qualifying individual.
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1 (b) SPECIAL RULES FOR MANAGED CARE ARRANGE2 MENTS.—In the case of coverage offered by a carrier or

3 under a group health plan that provides benefits through

4 a managed care arrangement in a fair rating area, the

5 carrier or plan—

6 (1) need not establish facilities for the delivery

7 of health care services throughout the area so long

8 as such facilities are located in a manner that does

9 not discriminate on the basis of health status of in10 dividuals residing in proximity to such facilities, and

11 (2) may deny such coverage in a fair rating

12 area to employers if the organization demonstrates

13 to the applicable regulatory authority that—

14 (A) it will not have the capacity to deliver

15 services adequately to enrollees of any addi16 tional groups or additional enrollees because of

17 its obligations to existing group contract hold18 ers and enrollees, and

19 (B) it is applying this paragraph uniformly

20 to all employers without regard to the health

21 status, claims experience, or duration of cov22 erage of those employers and their employees.

23 Coverage may be denied under paragraph (2) only if the

24 denial is applied during a consecutive period of at least

25 180 days.
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1 (c) SPECIAL RULE FOR FINANCIAL CAPACITY LIM2 ITS.—In addition to the authority provided under sub3 section (b)(2), in the case of coverage offered by any car4 rier, the carrier may deny coverage to a small employer

5 if the carrier demonstrates to the applicable regulatory au6 thority that—

7 (1) it does not have the financial reserves nec8 essary to underwrite additional coverage, and

9 (2) it is applying this subsection uniformly to

10 all employers without regard to the health status,

11 claims experience, or duration of coverage of those

12 employers and their employees.

13 Coverage may be denied under this subsection only if the

14 denial is applied during a consecutive period of at least

15 180 days.

16 SEC. 1003. GUARANTEED RENEWAL.

17 (a) LIMITATION ON TERMINATION BY CARRIERS.—

18 A carrier may not deny, cancel, or refuse to renew health

19 coverage of an eligible employer within a type of coverage

20 option described in section 1903(15) except—

21 (1) on the basis of nonpayment of premiums,

22 (2) on the basis of fraud or misrepresentation,

23 or

24 (3) subject to subsection (b), in a fair rating

25 area because the carrier is ceasing to provide any
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1 health insurance coverage in the small group market

2 within such type of coverage option in the area.

3 (b) LIMITATIONS ON MARKET EXIT BY CARRIERS.—

4 (1) NOTICE, ETC.—Subsection (a)(3) shall not

5 apply to a carrier ceasing to provide health insur6 ance coverage unless—

7 (A) such termination of coverage takes ef8 fect at the end of a contract year, and

9 (B) the carrier provides notice of such ter10 mination to employers and individuals covered

11 at least 30 days before the date of an annual

12 open enrollment period established with respect

13 to the employer or individual under section

14 1005.

15 (2) LIMITATION ON REENTRY IN SMALL GROUP

16 MARKET.—If a carrier ceases to offer or provide

17 health insurance coverage in an area with respect to

18 the small group market for a type of coverage op19 tion, the insurer may not offer health insurance cov20 erage in the area in such market within such type

21 of coverage option until 5 years after the date of the

22 termination.

23 (c) RULE FOR MULTIEMPLOYER PLANS.—A multi24 employer plan may not cancel coverage or deny renewal
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1 of coverage under such a plan or arrangement with respect

2 to an employer other than—

3 (1) for nonpayment of contributions,

4 (2) for fraud or other misrepresentation by the

5 employer, or

6 (3) because the plan is ceasing to provide any

7 coverage in a geographic area.

8 SEC. 1004. RESTRICTING PREEXISTING CONDITION EXCLU9 SIONS.

10 (a) IN GENERAL.—Except as provided in this section,

11 a carrier or group health plan providing health coverage

12 may not exclude health coverage with respect to services

13 related to treatment of a condition based on the fact that

14 the condition of an individual existed before the effective

15 date of coverage of the individual.

16 (b) LIMITED 12-MONTH EXCLUSION PERMITTED.—

17 (1) IN GENERAL.—Subject to paragraph (2)

18 and subsections (c) through (e), a carrier or group

19 health plan providing health coverage may exclude

20 health coverage with respect to services related to

21 treatment of a condition of an individual based on

22 the fact that the condition existed before the effec23 tive date of coverage of the individual only if the pe24 riod of the exclusion does not exceed 12 months be25 ginning on the date of coverage.
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1 (2) CREDITING OF PREVIOUS COVERAGE.—

2 (A) IN GENERAL.—A carrier or group

3 health plan providing health coverage shall pro4 vide that if a covered individual is in a period

5 of continuous coverage (as defined in subpara6 graph (C)) as of a date upon which coverage is

7 initiated or reinitiated, any period of exclusion

8 of coverage with respect to a preexisting condi9 tion (as defined in subparagraph (B)) for such

10 services or type of services shall be reduced by

11 1 month for each month in the period of contin12 uous coverage.

13 (B) PREEXISTING CONDITION DEFINED.—

14 In this paragraph, the term ‘‘preexisting condi15 tion’’ means, with respect to health coverage, a

16 condition which has been diagnosed or treated

17 during the 6-month period ending on the day

18 before the first date of such coverage (without

19 regard to any waiting period).

20 (C) PERIOD OF CONTINUOUS COVERAGE.—

21 In this part, the term ‘‘period of continuous

22 coverage’’ means the period beginning on the

23 date an individual has health coverage (or cov24 erage under a public plan providing medical

25 benefits) and ends on the date the individual
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1 does not have such coverage for a continuous

2 period of more than 3 months (or 6 months in

3 the case of an individual who loses coverage due

4 to involuntary termination of employment, other

5 than by reason of an employee’s gross mis6 conduct).

7 (c) EXCLUSION NOT APPLICABLE TO PREGNANCY.—

8 Any exclusion of coverage under subsection (b)(1) shall

9 not apply if the exclusion relates to pregnancy.

10 (d) EXCLUSION NOT APPLICABLE TO NEWBORNS

11 AND ADOPTED CHILDREN.—

12 (1) NEWBORNS.—Any exclusion of coverage

13 under subsection (b)(1) shall not apply to a child

14 who is covered at the time of birth and remains in

15 a period of continuous coverage after such time.

16 (2) ADOPTED CHILDREN.—Any exclusion of

17 coverage under subsection (b)(1) shall not apply (be18 ginning on the date of adoption) to an adopted child

19 who is covered at the time of adoption and remains

20 in a period of continuous coverage after such time.

21 (e) EXCLUSION NOT APPLICABLE TO INDIVIDUALS

22 ENROLLED OR ENROLLING DURING CERTAIN OPEN EN23 ROLLMENT PERIODS.—

24 (1) INDIVIDUALS ENROLLING DURING PE25 RIOD.—In the case of an individual who enrolls and
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1 obtains coverage during an open enrollment period

2 described in section 1005(b), any exclusion of cov3 erage under subsection (b)(1) shall not apply so long

4 as the individual remains in a period of continuous

5 coverage.

6 (2) INDIVIDUALS ENROLLED AT BEGINNING OF

7 PERIOD.—In the case of an individual who has

8 health coverage as of the first day of the initial open

9 enrollment period described in section 1005(b)(1),

10 any exclusion of coverage under subsection (b)(1)

11 shall not apply as of such date and so long as the

12 individual is in a period of continuous coverage.

13 (f) APPLICATION OF RULES BY CERTAIN HEALTH

14 MAINTENANCE ORGANIZATIONS.—A health maintenance

15 organization that provides health insurance coverage shall

16 not be considered as failing to meet the requirements of

17 section 1301 of the Public Health Service Act notwith18 standing that it provides for an exclusion of the coverage

19 based on a preexisting condition consistent with the provi20 sions of this part so long as such exclusion is applied con21 sistent with the provisions of this part.

22 SEC. 1005. ENROLLMENT PERIODS.

23 (a) IN GENERAL.—Each carrier and each group

24 health plan providing health coverage (and each health

25 plan choice organization under subtitle B) in the small
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1 group market shall permit qualifying individuals and eligi2 ble employers to obtain health coverage from the carrier

3 or group health plan during each enrollment period pro4 vided under this section.

5 (b) OPEN ENROLLMENT PERIODS FOR WHICH PRE6 EXISTING CONDITION EXCLUSIONS WAIVED.—

7 (1) INITIAL PERIOD.—There shall be an initial

8 open enrollment period, with respect to individuals

9 and employees who are residents of a State, during

10 the 60-day period beginning on January 1, 1997.

11 (2) ENROLLMENT OF NEWBORNS AND NEWLY

12 ADOPTED CHILDREN.—There shall be an open en13 rollment period with respect to a newborn child and

14 a newly adopted child during the 30-day period be15 ginning on the date of the birth or adoption of a

16 child, if family coverage is available as of such date.

17 (c) ANNUAL OPEN ENROLLMENT PERIODS FOR

18 WHICH PREEXISTING CONDITION EXCLUSIONS MAY

19 APPLY.—

20 (1) IN GENERAL.—Each carrier and each group

21 health plan providing health coverage (and each

22 health plan choice organization under subtitle B) in

23 the small group market shall provide for at least one

24 annual open enrollment period (of not less than 30

25 days) each year. Such period shall be in addition to
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1 the open enrollment periods described in subsection

2 (b).

3 (2) COORDINATION.—Such annual open enroll4 ment periods with respect to carriers in the small

5 group market are subject to coordination by States.

6 (d) OTHER OPEN ENROLLMENT PERIODS FOR

7 WHICH PREEXISTING CONDITION EXCLUSIONS MAY

8 APPLY.—

9 (1) TERMINATION OF RESIDENCE AREA.—For

10 each qualifying individual, at the time the individual

11 terminates residence in the service area of coverage

12 provided by a carrier to the individual, there shall be

13 an open enrollment period (of not less than 30 days)

14 during which the individual may enroll in health cov15 erage.

16 (2) FAMILY OR EMPLOYMENT CHANGES.—In

17 the case of a qualifying individual who—

18 (A) through divorce or death of a family

19 member experiences a change in family com20 position, or

21 (B) experiences a change in employment

22 status (including a significant change in the

23 terms and conditions of employment or the

24 terms and conditions of employment of a

25 spouse),
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1 there shall be an open enrollment period (of at least

2 30 days) in which the individual is permitted to

3 change the individual or family basis of coverage or

4 the health coverage in which the individual is en5 rolled. The circumstances under which such enroll6 ment periods are required and the duration of such

7 periods shall be specified by the Secretary.

8 (3) ENROLLMENT DUE TO LOSS OF PREVIOUS

9 COVERAGE.—In the case of a qualifying individual

10 who—

11 (A) had health coverage at the time of an

12 individual’s enrollment period,

13 (B) stated at the time of such period that

14 having other health coverage was the reason for

15 declining enrollment, and

16 (C) lost the other health coverage as a re17 sult of the termination of the coverage, termi18 nation or reduction of employment, or other

19 reason, except termination at the option of the

20 individual,

21 there shall be an open enrollment period during the

22 30-day period beginning on the date of termination

23 of the other coverage.

24 (4) ENROLLMENT AT TIME OF MARRIAGE.—

25 There shall be an open enrollment period with re-
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1 spect to the spouse of an individual (including chil2 dren of the spouse) during the 30-day period begin3 ning on the date of the marriage, if family coverage

4 is available as of such date.

5 (5) NO EFFECT ON COBRA CONTINUATION BEN6 EFITS.—Nothing in this subsection shall be con7 strued as affecting rights of individuals to continu8 ation coverage under section 4980B of the Internal

9 Revenue Code of 1986 or under similar provisions of

10 law.

11 (e) PERIOD OF COVERAGE.—

12 (1) IN GENERAL.—In the case of a qualifying

13 individual who enrolls under health coverage during

14 an open enrollment period under this section, cov15 erage shall begin on such date (not later than the

16 first day of the first month that begins at least 15

17 days after the date of enrollment) as the Secretary

18 shall specify, consistent with this subsection.

19 (2) COVERAGE OF FAMILY MEMBERS.—In the

20 case of an open enrollment period described in sub21 section (b)(2), (b)(3), or (d)(4), the Secretary shall

22 provide for coverage of family members to begin as

23 soon as possible on or after the date of the event

24 that gives rise to the special enrollment period (or,
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1 in the case of birth or adoption, as of the date of

2 birth or adoption).

3 PART 2—PROVISION OF BENEFITS

4 SEC. 1011. GENERAL COVERAGE REQUIREMENTS.

5 (a) STANDARD COVERAGE.—For purposes of this

6 title, health insurance coverage is considered to provide

7 standard coverage consistent with this subsection if bene8 fits under such coverage meet standards promulgated

9 under section 1041 to carry out this subsection. In pro10 mulgating such standards to carry out this section, the

11 NAIC and the Secretary shall take into account the follow12 ing:

13 (1) CLASSES OF BENEFITS.—The classes of

14 benefits (such as inpatient and outpatient hospital

15 services and physicians services) typically included in

16 health plans under the Federal Employees Health

17 Benefits Program.

18 (2) ACTUARIAL VALUE.—The actuarial value of

19 benefits included in benchmark coverage for the

20 areas involved (adjusted to take into account a

21 standardized population and standardized utilization

22 and cost factors).

23 (3) PREVENTIVE BENEFITS.—The need to cover

24 cost-effective preventive benefits (such as well-baby
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1 and well-child care and childhood immunizations)

2 without inappropriate cost sharing.

3 (b) HIGH-DEDUCTIBLE COVERAGE.—For purposes

4 of this title, health insurance coverage is considered to

5 provide high-deductible coverage consistent with this sub6 section if—

7 (1) benefits include the same type of benefits as

8 provided for under standard coverage under sub9 section (a);

10 (2) the deductible amount is within a range of

11 amounts established under such standards so that

12 the actuarial value of high-deductible coverage is at

13 least 20 percent (but not more than 40 percent) less

14 than the actuarial value of standard coverage;

15 (3) benefits under the coverage in any year

16 (other than preventive benefits as provided under

17 the standards) are covered only to the extent ex18 penses incurred for items and services included in

19 the coverage for the year exceed the deductible

20 amount specified in paragraph (2); and

21 (4) the actuarial value of the coverage (as de22 termined under rules established under such stand23 ards) is equivalent to a percentage (specified in such

24 standards and not less than 60 percent and not
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1 more than 80 percent) of an actuarial value for

2 standard coverage.

3 (c) RULES REGARDING OFFERING OF SUPPLE4 MENTAL BENEFITS.—A carrier or group health plan offer5 ing qualified health coverage may offer coverage of items

6 and services only in addition to the qualified standard cov7 erage offered (whether in the form of coverage of addi8 tional items and services or a reduction in cost sharing)

9 and only if—

10 (1) such supplemental coverage is offered and

11 priced separately from the standard coverage offered

12 and is only made available to individuals who obtain

13 qualified standard coverage through the carrier or

14 plan;

15 (2) the purchase of the qualified health cov16 erage is not conditioned upon the purchase of such

17 supplemental coverage; and

18 (3) in the case of supplemental coverage that

19 consists of a reduction in the cost-sharing otherwise

20 applicable, the premium for the supplemental cov21 erage takes into account any expected increase in

22 utilization of items and services included in the

23 qualified health coverage resulting from obtaining

24 the supplemental coverage.
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1 (d) MODEL BENEFIT PACKAGES.—The standards es2 tablished to carry out this section may provide for model

3 benefit packages that will be considered to meet applicable

4 requirements for standard coverage or high-deductible cov5 erage, and which shall include model cost sharing arrange6 ments for fee-for-service options, managed care options,

7 and point-of-service options.

8 (e) FLEXIBILITY IN BENEFITS.—Nothing in this sec9 tion (or section 1103) may be construed—

10 (1) to require the coverage of any specific pro11 cedure or treatment or class of service in health cov12 erage under this Act or through regulation;

13 (2) as requiring coverage to include benefits for

14 items and services that are not medically necessary

15 or appropriate;

16 (3) as limiting the benefits that may be offered

17 as part of a group health plan or health insurance

18 coverage; and

19 (4) to require or prohibit the use of a particular

20 class of provider, among the providers that are le21 gally authorized to provide such treatment.

22 SEC. 1012. STANDARDS FOR MANAGED CARE ARRANGE23 MENTS.

24 (a) APPLICATION OF REQUIREMENTS.—Each group

25 health plan, and each carrier providing health insurance
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1 coverage, that provides for health care through a managed

2 care arrangement (as defined in section 1903(12)(A))

3 shall comply with the applicable requirements of this sec4 tion.

5 (b) SCOPE OF ARRANGEMENTS WITH PROVIDERS.—

6 (1) ACCESS TO CARE.—The entity providing for

7 a managed care arrangement with respect to health

8 coverage shall enter into such agreements with

9 health care providers (including primary and spe10 cialty providers) or have such other arrangements as

11 may be necessary to assure that covered individuals

12 have reasonably prompt access through the entity’s

13 provider network to all items and services contained

14 in the package of benefits for which coverage is pro15 vided (including access to emergency services on a

16 24-hour basis where medically necessary), in a man17 ner that assures the continuity of the provision of

18 such items and services.

19 (2) ACCESS TO SPECIALIZED TREATMENT.—

20 The entity providing for a managed care arrange21 ment under health coverage shall demonstrate that

22 covered individuals (including individuals with chron23 ic diseases) have access through the entity’s provider

24 network to specialized treatment expertise.
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1 (3) CHOICE OF PERSONAL PHYSICIAN.—The en2 tity providing for a managed care arrangement

3 under health coverage shall permit each enrollee to

4 choose a personal physician from among available

5 participating physicians and change that selection as

6 appropriate.

7 (c) PROVISION OF EMERGENCY CARE SERVICES.—

8 The entity providing for a managed care arrangement

9 under health coverage must cover medically necessary

10 emergency care services provided to covered individuals

11 without regard to whether or not the provider furnishing

12 such services has a contractual (or other) arrangement

13 with the entity to provide items or services to covered indi14 viduals and, in the case of services furnished for the treat15 ment of an emergency medical condition (as defined in sec16 tion 1867(e)(1) of the Social Security Act), without regard

17 to prior authorization.

18 (d) DUE PROCESS STANDARDS RELATING TO PRO19 VIDER NETWORKS.—

20 (1) STANDARDS FOR SELECTION OF PROVIDERS

21 FOR NETWORK.—The entity providing for a man22 aged care arrangement under health coverage shall

23 establish standards (including criteria for quality, ef24 ficiency, credentialing, and services) to be used by

25 the entity for contracting with health care providers
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1 with respect to the entity’s provider network. Such

2 standards shall be established in consultation with

3 providers who are members of the network.

4 (2) TERMINATION PROCESS.—The entity may

5 not terminate or refuse to renew a participation

6 agreement with a provider in the entity’s provider

7 network unless the entity provides written notifica8 tion to the provider of the entity’s decision to termi9 nate or refuse to renew the agreement. The notifica10 tion shall include a statement of the reasons for the

11 entity’s decision, consistent with the standards es12 tablished under paragraph (1).

13 (3) REVIEW PROCESS.—The entity shall provide

14 a process under which the provider may request a

15 review of the entity’s decision to terminate or refuse

16 to renew the provider’s participation agreement.

17 (4) CONSTRUCTION.—Nothing in this sub18 section shall be construed to affect any other provi19 sion of law that provides an appeals process or other

20 form of relief to a provider of health care services

21 or an entity providing for a managed care arrange22 ment.

23 SEC. 1013. UTILIZATION REVIEW.

24 (a) ESTABLISHMENT OF STANDARDS BY SEC25 RETARY.—The Secretary shall establish standards for uti-
27

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1 lization review programs, consistent with subsection (c),

2 and shall periodically review and update such standards

3 to reflect changes in the delivery of health care services.

4 The Secretary shall establish such standards in consulta5 tion with appropriate parties.

6 (b) REQUIRING REVIEW TO MEET STANDARDS.—A

7 group health plan or carrier providing health insurance

8 coverage may not deny coverage of or payment for items

9 and services on the basis of a utilization review program

10 unless the program meets the standards established by the

11 Secretary under this section.

12 (c) REQUIREMENTS FOR STANDARDS.—Under the

13 standards established under subsection (a)—

14 (1) individuals performing utilization review

15 may not receive financial compensation based upon

16 the number of denials of coverage;

17 (2) negative determinations of the medical ne18 cessity or appropriateness of services or the site at

19 which services are furnished may be made only by

20 clinically qualified personnel;

21 (3) the utilization review program shall provide

22 for a process under which an enrollee or provider

23 may obtain timely review of a denial of coverage, in24 cluding upon request a review conducted by the med-
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1 ical director of the carrier or plan or a physician

2 designated by the carrier or plan;

3 (4) utilization review shall be conducted in ac4 cordance with uniformly applied standards that are

5 based on currently available medical evidence; and

6 (5) providers shall participate in the develop7 ment of the utilization review program.

8 (d) PREEMPTION.—For provision preempting State

9 laws relating to utilization review, see section 1103.

10 SEC. 1014. MEDICAL SAVINGS ACCOUNTS.

11 (a) IN GENERAL.—Chapter 79 of the Internal Reve12 nue Code of 1986 is amended by adding at the end the

13 following new section:

14 ‘‘SEC. 7705. MEDICAL SAVINGS ACCOUNTS.

15 ‘‘(a) GENERAL RULE.—For purposes of this title, the

16 term ‘medical savings account’ means a trust created or

17 organized in the United States for the exclusive benefit

18 of an individual or his beneficiaries, but only if the written

19 instrument creating the trust meets the following require20 ments:

21 ‘‘(1) Except in the case of a rollover contribu22 tion described in subsection (d)(3), no contribution

23 will be accepted unless—

24 ‘‘(A) it is in cash, and
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1 ‘‘(B) such individual is a qualifying em2 ployee for the period for which such contribu3 tion is made.

4 ‘‘(2) The trustee is a bank (as defined in sec5 tion 408(n)), insurance company (as defined in sec6 tion 816), or such other person who demonstrates to

7 the satisfaction of the Secretary that the manner in

8 which such other person will administer the trust

9 will be consistent with the requirements of this sec10 tion.

11 ‘‘(3) No part of the trust funds will be invested

12 in life insurance contracts.

13 ‘‘(4) The interest of an individual in the bal14 ance of the account is nonforfeitable.

15 ‘‘(5) The assets of the trust will not be commin16 gled with other property except in a common trust

17 fund or common investment fund.

18 ‘‘(b) ELIGIBLE EMPLOYEE.—For purposes of this

19 section—

20 ‘‘(1) IN GENERAL.—The term ‘eligible em21 ployee’ means any employee who has high-deductible

22 coverage (as defined in section 1011(b) of the Basic

23 Health Care Reform Act of 1995) offered by the em24 ployer.
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1 ‘‘(2) EXCEPTION.—An employee shall be treat2 ed as not being an eligible employee for any calendar

3 year if, for any month during such year, it is reason4 ably expected that such employee—

5 ‘‘(A) will have adjusted gross income that

6 is less than 100 percent of the income official

7 poverty line (as determined by the Director of

8 the Office of Management and Budget) for a

9 family of the size involved; or

10 ‘‘(B) is an AFDC recipient or SSI recipi11 ent.

12 ‘‘(3) DEFINITIONS.—For purposes of paragraph

13 (2)—

14 ‘‘(A) AFDC RECIPIENT.—The term

15 ‘AFDC recipient’ means, for a month, an indi16 vidual who is receiving aid or assistance under

17 any plan of the State approved under title I, X,

18 XIV, or XVI, or part A or part E of title IV,

19 of the Social Security Act for the month.

20 ‘‘(B) SSI RECIPIENT.—The term ‘SSI re21 cipient’ means, for a month, an individual—

22 ‘‘(i) with respect to whom supple23 mental security income benefits are being

24 paid under title XVI of the Social Security

25 Act for the month,
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1 ‘‘(ii) who is receiving a supplementary

2 payment under section 1616 of such Act or

3 under section 212 of Public Law 93–66 for

4 the month,

5 ‘‘(iii) who is receiving monthly bene6 fits under section 1619(a) of the Social Se7 curity Act (whether or not pursuant to sec8 tion 1616(c)(3) of such Act) for the

9 month, or

10 ‘‘(iv) who is treated under section

11 1619(b) of the Social Security Act as re12 ceiving supplemental security income bene13 fits in a month for purposes of title XIX

14 of such Act.

15 ‘‘(c) TAX TREATMENT OF ACCOUNTS.—

16 ‘‘(1) ACCOUNT TAXED AS GRANTOR TRUST.—

17 ‘‘(A) IN GENERAL.—Except as provided in

18 subparagraph (B), the account beneficiary of a

19 medical savings account shall be treated for

20 purposes of this title as the owner of such ac21 count and shall be subject to tax thereon in ac22 cordance with subpart E of part I of subchapter

23 J of this chapter (relating to grantors and oth24 ers treated as substantial owners).
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1 ‘‘(B) TREATMENT OF CAPITAL LOSSES.—

2 With respect to assets held in a medical savings

3 account, any capital loss for a taxable year

4 from the sale or exchange of such an asset shall

5 be allowed only to the extent of capital gains

6 from such assets for such taxable year. Any

7 capital loss which is disallowed under the pre8 ceding sentence shall be treated as a capital

9 loss from the sale or exchange of such an asset

10 in the next taxable year. For purposes of this

11 subparagraph, all medical savings accounts of

12 the account beneficiary shall be treated as 1 ac13 count.

14 ‘‘(2) ACCOUNT TERMINATES IF INDIVIDUAL EN15 GAGES IN PROHIBITED TRANSACTION.—

16 ‘‘(A) IN GENERAL.—If, during any taxable

17 year of the account beneficiary, such beneficiary

18 engages in any transaction prohibited by section

19 4975 with respect to the account, the account

20 shall cease to be a medical savings account as

21 of the first day of such taxable year.

22 ‘‘(B) ACCOUNT TREATED AS DISTRIBUTING

23 ALL ITS ASSETS.—In any case in which any ac24 count ceases to be a medical savings account by

25 reason of subparagraph (A) on the first day of
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1 any taxable year, subsection (d) shall be applied

2 as if—

3 ‘‘(i) there were a distribution on such

4 first day in an amount equal to the fair

5 market value (on such first day) of all as6 sets in the account (on such first day), and

7 ‘‘(ii) no portion of such distribution

8 were used to pay qualified medical ex9 penses.

10 ‘‘(3) EFFECT OF PLEDGING ACCOUNT AS SECU11 RITY.—If, during any taxable year, the account ben12 eficiary uses the account or any portion thereof as

13 security for a loan, the portion so used is treated as

14 distributed and not used to pay qualified medical ex15 penses.

16 ‘‘(d) TAX TREATMENT OF DISTRIBUTIONS.—

17 ‘‘(1) INCLUSION OF AMOUNTS NOT USED FOR

18 QUALIFIED MEDICAL EXPENSES.—

19 ‘‘(A) IN GENERAL.—Any amount paid or

20 distributed out of a medical savings account

21 which is not used exclusively to pay the quali22 fied medical expenses of the account beneficiary

23 or of the spouse or dependents (as defined in

24 section 152) of such beneficiary shall be in25 cluded in the gross income of such beneficiary
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1 to the extent such amount does not exceed the

2 excess of—

3 ‘‘(i) the aggregate contributions to

4 such account which were not includible in

5 gross income by reason of section 106(2),

6 over

7 ‘‘(ii) the aggregate prior payments or

8 distributions from such account which were

9 includible in gross income under this para10 graph.

11 ‘‘(B) SPECIAL RULES.—For purposes of

12 subparagraph (A)—

13 ‘‘(i) all medical savings accounts of

14 the account beneficiary shall be treated as

15 1 account,

16 ‘‘(ii) all payments and distributions

17 during any taxable year shall be treated as

18 1 distribution, and

19 ‘‘(iii) any distribution of property

20 shall be taken into account at its fair mar21 ket value on the date of the distribution.

22 ‘‘(2) PENALTY FOR DISTRIBUTIONS NOT USED

23 FOR QUALIFIED MEDICAL EXPENSES.—

24 ‘‘(A) IN GENERAL.—The tax imposed by

25 chapter 1 on the account beneficiary for any
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1 taxable year in which there is a payment or dis2 tribution from a medical savings account of

3 such beneficiary which is includible in gross in4 come under paragraph (1) shall be increased by

5 100 percent of the amount which is so includ6 ible.

7 ‘‘(B) EXCEPTION FOR DISTRIBUTIONS

8 AFTER AGE 65.—Subparagraph (A) shall not

9 apply to any payment or distribution after the

10 date on which the account beneficiary attains

11 age 65.

12 ‘‘(C) EXCEPTION FOR DISABILITY OR

13 DEATH.—Subparagraph (A) shall not apply if

14 the payment or distribution is made after the

15 account beneficiary becomes disabled within the

16 meaning of section 72(m)(7) or dies.

17 ‘‘(3) ROLLOVER CONTRIBUTION.—An amount is

18 described in this paragraph as a rollover contribu19 tion if it meets the requirements of subparagraphs

20 (A) and (B).

21 ‘‘(A) IN GENERAL.—Paragraph (1) shall

22 not apply to any amount paid or distributed

23 from a medical savings account to the account

24 beneficiary to the extent the amount received is

25 paid into a medical savings account for the ben-
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1 efit of such beneficiary not later than the 60th

2 day after the day on which he receives the pay3 ment or distribution.

4 ‘‘(B) LIMITATION.—This paragraph shall

5 not apply to any amount described in subpara6 graph (A) received by an individual from a

7 medical savings account if, at any time during

8 the 1-year period ending on the day of such re9 ceipt, such individual received any other amount

10 described in subparagraph (A) from a medical

11 savings account which was not includible in his

12 gross income because of the application of this

13 paragraph.

14 ‘‘(4) COORDINATION WITH MEDICAL EXPENSE

15 DEDUCTION.—For purposes of section 213, any pay16 ment or distribution out of a medical savings ac17 count for qualified medical expenses shall not be

18 treated as an expense paid for medical care to the

19 extent of the amount of such payment or distribu20 tion which is excludable from gross income solely by

21 reason of paragraph (1)(A).

22 ‘‘(e) DEFINITIONS.—For purposes of this section—

23 ‘‘(1) QUALIFIED MEDICAL EXPENSES.—

24 ‘‘(A) IN GENERAL.—The term ‘qualified

25 medical expenses’ means any amounts paid dur-
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1 ing the taxable year, not compensated for by in2 surance or otherwise, for medical care (as de3 fined in section 213(d)) of the taxpayer, his

4 spouse, or a dependent (as defined in section

5 152).

6 ‘‘(B) LONG-TERM CARE INSURANCE.—

7 Such term includes premiums paid during the

8 taxable year for any long-term care insurance

9 contract for the benefit of the individual or

10 such individual’s spouse.

11 ‘‘(C) LONG-TERM CARE INSURANCE CON12 TRACT.—For purposes of subparagraph (B),

13 the term ‘long-term care insurance contract’

14 means any insurance contract issued if—

15 ‘‘(i) the only insurance protection pro16 vided under such contract is coverage of

17 qualified long-term care services and bene18 fits incidental to such coverage (as defined

19 under regulations prescribed by the Sec20 retary),

21 ‘‘(ii) the maximum benefit under the

22 policy for expenses incurred for any day

23 does not exceed $200,

24 ‘‘(iii) such contract does not cover ex25 penses incurred for services or items to the
38

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1 extent that such expenses are reimbursable

2 under title XVIII of the Social Security

3 Act or would be so reimbursable but for

4 the application of a deductible or coinsur5 ance amount,

6 ‘‘(iv) such contract is guaranteed re7 newable,

8 ‘‘(v) such contract does not have any

9 cash surrender value, and

10 ‘‘(vi) all refunds of premiums, and all

11 policyholder dividends or similar amounts,

12 under such contract are to be applied as a

13 reduction in future premiums or to in14 crease future benefits.

15 ‘‘(2) ACCOUNT BENEFICIARY.—The term ‘ac16 count beneficiary’ means the individual for whose

17 benefit the medical savings account is maintained.

18 ‘‘(f) CUSTODIAL ACCOUNTS.—For purposes of this

19 section, a custodial account shall be treated as a trust if—

20 ‘‘(1) the assets of such account are held by a

21 bank (as defined in section 408(n)), insurance com22 pany (as defined in section 816), or another person

23 who demonstrates to the satisfaction of the Sec24 retary that the manner in which he will administer
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Title I, Subtitle A

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1 the account will be consistent with the requirements

2 of this section, and

3 ‘‘(2) the custodial account would, except for the

4 fact that it is not a trust, constitute a medical sav5 ings account described in subsection (a).

6 For purposes of this title, in the case of a custodial ac7 count treated as a trust by reason of the preceding sen8 tence, the custodian of such account shall be treated as

9 the trustee thereof.

10 ‘‘(g) REPORTS.—The trustee of a medical savings ac11 count shall keep such records and make such reports re12 garding such account to the Secretary and to the account

13 beneficiary with respect to contributions, distributions,

14 and such other matters as the Secretary may require

15 under regulations. The reports required by this subsection

16 shall be filed at such time and in such manner and fur17 nished to such individuals at such time and in such man18 ner as may be required by such regulations.’’

19 (b) INCOME AND EMPLOYMENT TAX TREATMENT OF

20 EMPLOYER CONTRIBUTIONS.—

21 (1) EMPLOYER PAYMENTS EXCLUDED FROM

22 GROSS INCOME.—The text of section 106 of such

23 Code is amended to read as follows:

24 ‘‘Gross income of an employee does not include—
40

Title I, Subtitle A

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1 ‘‘(1) employer-provided coverage under an acci2 dent or health plan, and

3 ‘‘(2) employer contributions to any medical sav4 ings account (as defined in section 7705) of an eligi5 ble employee, but only to the extent that the amount

6 contributed does not exceed the excess of premium

7 for standard coverage over the premium for high-de8 ductible coverage (as such terms are defined in sec9 tion 1903 of the Basic Health Care Reform Act of

10 1995).’’

11 (2) EMPLOYER PAYMENTS EXCLUDED FROM

12 EMPLOYMENT TAX BASE.—

13 (A) SOCIAL SECURITY TAXES.—

14 (i) Subsection (a) of section 3121 of

15 such Code is amended by striking ‘‘or’’ at

16 the end of paragraph (20), by striking the

17 period at the end of paragraph (21) and

18 inserting ‘‘; or’’, and by inserting after

19 paragraph (21) the following new para20 graph:

21 ‘‘(22) any payment made to or for the benefit

22 of an employee if at the time of such payment it is

23 reasonable to believe that the employee will be able

24 to exclude such payment from income under section

25 106(2).’’
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1 (ii) Subsection (a) of section 209 of

2 the Social Security Act is amended by

3 striking ‘‘or’’ at the end of paragraph (18),

4 by striking the period at the end of para5 graph (19) and inserting ‘‘; or’’, and by in6 serting after paragraph (19) the following

7 new paragraph:

8 ‘‘(20) any payment made to or for the benefit

9 of an employee if at the time of such payment it is

10 reasonable to believe that the employee will be able

11 to exclude such payment from income under section

12 106(2) of the Internal Revenue Code of 1986.’’

13 (B) RAILROAD RETIREMENT TAX.—Sub14 section (e) of section 3231 of such Code is

15 amended by adding at the end the following

16 new paragraph:

17 ‘‘(10) MEDICAL SAVINGS ACCOUNT CONTRIBU18 TIONS.—The term ‘compensation’ shall not include

19 any payment made to or for the benefit of an em20 ployee if at the time of such payment it is reason21 able to believe that the employee will be able to ex22 clude such payment from income under section

23 106(2).’’

24 (C) UNEMPLOYMENT TAX.—Subsection (b)

25 of section 3306 of such Code is amended by
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1 striking ‘‘or’’ at the end of paragraph (15), by

2 striking the period at the end of paragraph (16)

3 and inserting ‘‘; or’’, and by inserting after

4 paragraph (16) the following new paragraph:

5 ‘‘(17) any payment made to or for the benefit

6 of an employee if at the time of such payment it is

7 reasonable to believe that the employee will be able

8 to exclude such payment from income under section

9 106(2).’’

10 (D) WITHHOLDING TAX.—Subsection (a)

11 of section 3401 of such Code is amended by

12 striking ‘‘or’’ at the end of paragraph (19), by

13 striking the period at the end of paragraph (20)

14 and inserting ‘‘; or’’, and by inserting after

15 paragraph (20) the following new paragraph:

16 ‘‘(21) any payment made to or for the benefit

17 of an employee if at the time of such payment it is

18 reasonable to believe that the employee will be able

19 to exclude such payment from income under section

20 106(2).’’

21 (c) TECHNICAL AMENDMENTS.—

22 (1) TAX ON PROHIBITED TRANSACTIONS.—Sec23 tion 4975 of such Code (relating to prohibited trans24 actions) is amended—
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1 (A) by adding at the end of subsection (c)

2 the following new paragraph:

3 ‘‘(4) SPECIAL RULE FOR MEDICAL SAVINGS AC4 COUNTS.—An individual for whose benefit a medical

5 savings account (within the meaning of section

6 7705) is established shall be exempt from the tax

7 imposed by this section with respect to any trans8 action concerning such account (which would other9 wise be taxable under this section) if, with respect

10 to such transaction, the account ceases to be a medi11 cal savings account by reason of the application of

12 section 7705(c)(2)(A) to such account.’’, and

13 (B) by inserting ‘‘or a medical savings ac14 count described in section 7705’’ in subsection

15 (e)(1) after ‘‘described in section 408(a)’’.

16 (2) FAILURE TO PROVIDE REPORTS ON MEDI17 CAL SAVINGS ACCOUNTS.—Section 6693 of such

18 Code (relating to failure to provide reports on indi19 vidual retirement account or annuities) is amend20 ed—

21 (A) by inserting ‘‘OR ON MEDICAL SAV22 INGS ACCOUNTS’’ after ‘‘ANNUITIES’’ in the

23 heading of such section, and

24 (B) by adding at the end of subsection (a)

25 the following: ‘‘The person required by section
44

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1 7705(g) to file a report regarding a medical

2 savings account at the time and in the manner

3 required by such section shall pay a penalty of

4 $50 for each failure unless it is shown that

5 such failure is due to reasonable cause.’’

6 (3) CLERICAL AMENDMENTS.—

7 (A) The table of sections for chapter 79 of

8 such Code is amended by adding at the end the

9 following:

‘‘Sec. 7705. Medical savings accounts.’’

10 (B) The table of sections for subchapter B

11 of chapter 68 of such Code is amended by in12 serting ‘‘or on medical savings accounts’’ after

13 ‘‘annuities’’ in the item relating to section

14 6693.

15 (d) EFFECTIVE DATE.—The amendments made by

16 this section shall apply to taxable years beginning after

17 December 31, 1996.

18 PART 3—FAIR RATING PRACTICES

19 SEC. 1021. USE OF FAIR RATING PRACTICES.

20 (a) USE OF FAIR RATING PRACTICES.—The pre21 mium rate established by a carrier for health insurance

22 coverage in the small group market may not vary except

23 by the following:
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1 (1) AGE.—By age, based on classes of age es2 tablished by the Secretary, in consultation with the

3 NAIC, consistent with subsection (b).

4 (2) GEOGRAPHIC AREA.—By geographic area,

5 as identified by a State consistent with subsection

6 (c).

7 (3) FAMILY CLASS.—By family class, based on

8 the following 4 classes of family coverage: individual,

9 individual with one or more children, married couple

10 without a child, and married couple with one or

11 more children.

12 (4) BENEFIT DESIGN.—By benefit design of

13 coverage, including by type of coverage, such as

14 standard coverage and high-deductible coverage, and

15 by type of coverage option (described in section

16 1903(15)) with respect to standard coverage.

17 (5) ADMINISTRATIVE CATEGORIES.—By per18 mitted expense category, based on differences in ex19 penses among such categories, consistent with sub20 section (d).

21 The premiums shall be established for the different benefit

22 designs (including standard coverage and high-deductible

23 coverage) based on the actuarial value of the coverage for

24 the population of the small group market in the fair rating
46

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1 area, without regard to the distribution of such population

2 among the types of coverage or type of coverage options.

3 (b) LIMITATION ON VARIATION BY AGE.—

4 (1) IN GENERAL.—Any variation in premium

5 rates by age under subsection (a)(1) for age classes

6 of individuals under 65 years of age may not result

7 in the ratio of the highest age rate to the lowest age

8 rate exceeding the limiting ratio described in para9 graph (2).

10 (2) LIMITING RATIO.—For purposes of para11 graph (1), the limiting ratio described in this para12 graph is—

13 (A) 4-to-1, for premiums for months in

14 1997,

15 (B) 3.67-to-1, for premiums for months in

16 1998,

17 (C) 3.33-to-1, for premiums for months in

18 1999, and

19 (D) 3-to-1, for premiums for months in

20 2000 and any succeeding year.

21 (3) SEPARATE AGE CLASSES FOR INDIVIDUALS

22 65 YEARS OF AGE OR OLDER.—The Secretary shall

23 establish one or more separate age classes for indi24 viduals 65 years of age or older.
47

Title I, Subtitle A

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1 (4) PREEMPTION.—For preemption of State

2 laws relating to establishment of premium rates, see

3 section 1204.

4 (c) GEOGRAPHIC AREA VARIATIONS.—For purposes

5 of subsection (a)(2), a State—

6 (1) may not identify an area that divides a 3-

7 digit zip code, a county, or all portions of a metro8 politan statistical area,

9 (2) shall not permit premium rates for coverage

10 offered in a portion of an interstate metropolitan

11 statistical area to vary based on the State in which

12 the coverage is offered, and

13 (3) may, upon agreement with one or more ad14 jacent States, identify multi-state geographic areas

15 consistent with paragraphs (1) and (2).

16 (d) ADMINISTRATIVE VARIATIONS.—

17 (1) EXPENSE CATEGORIES.—Expense cat18 egories shall be established under subsection (a)(5)

19 by a carrier in a manner that only reflects dif20 ferences based on marketing, commissions, and simi21 lar expenses. Such categories shall take into account

22 health plan choice organizations.

23 (2) LIMITATION ON VARIATIONS.—The vari24 ation provided among expense categories under sub25 section (a)(5) may not result in a premium for the
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Title I, Subtitle A

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1 highest expense category exceeding 120 percent of

2 the premium for the lowest expense category.

3 (e) PREMIUM RATING IN GROUP HEALTH PLANS.—

4 The premium rate established under a group health plan

5 for health insurance coverage may not vary within a bene6 fit design except by the factors described in subsection (a)

7 and subject to the limitation specified in subsection (b).

8 (f) ACTUARIAL CERTIFICATION.—Each carrier that

9 offers health insurance coverage in a State shall file annu10 ally with the State commissioner of insurance a written

11 statement by a member of the American Academy of Actu12 aries (or other individual acceptable to the commissioner)

13 that, based upon an examination by the individual which

14 includes a review of the appropriate records and of the

15 actuarial assumptions of the carrier and methods used by

16 the carrier in establishing premium rates for applicable

17 health insurance coverage—

18 (1) the carrier is in compliance with the appli19 cable provisions of this section, and

20 (2) the rating methods are actuarially sound.

21 Each such carrier shall retain a copy of such statement

22 for examination at its principal place of business.

23 (g) CONSTRUCTION.—The provisions of this section

24 shall apply to premium rates based on the fair rating area
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1 in which the covered individual or employee resides to re2 flect the population in the small group market.

3 SEC. 1022. ESTABLISHMENT OF RISK ADJUSTMENT MECHA4 NISMS.

5 (a) ESTABLISHMENT OF STANDARDS.—

6 (1) DEVELOPMENT OF MODELS.—

7 (A) IN GENERAL.—The Secretary shall re8 quest the NAIC to develop, within 9 months

9 after the date of the enactment of this Act and

10 in consultation with the American Academy of

11 Actuaries, a model risk adjustment system com12 posed of one or more risk adjustment mecha13 nisms under which premiums applicable to

14 health insurance coverage in the small group

15 market would be adjusted to take into account

16 such factors as may be appropriate to predict

17 the future need and the efficient use of services

18 by covered individuals in the market. Such fac19 tors may include the age, gender, geographic

20 residence, health status, or other demographic

21 characteristics of individuals enrolled in such

22 plans and shall include consideration of enroll23 ment of a disproportionate share of individuals

24 who enroll during the initial open enrollment

25 period under section 1005(b)(1).
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1 (B) PROMULGATION AS PROPOSED

2 RULE.—If the NAIC develops such model with3 in such period, the Secretary shall publish the

4 model as a proposed rule under section 553 of

5 title 5, United States Code. If the NAIC has

6 not developed such model within such period,

7 the Secretary shall publish (not later than 60

8 days after the end of such period) a proposed

9 rule that specifies a proposed model that pro10 vides for effective risk adjustment mechanisms.

11 (2) RULE MAKING PROCESS.—The Secretary

12 shall provide for a period (described in section

13 553(c) of title 5, United States Code) of not less

14 than 30 days for public comment on a proposed rule

15 published under paragraph (1)(B). The Secretary

16 shall publish a final rule, by not later than July 1,

17 1996, that specifies risk adjustment mechanisms

18 that the Secretary finds are effective for purposes of

19 carrying out this section. Such rule shall include

20 models developed by the NAIC if the Secretary finds

21 that such models provide for effective risk adjust22 ment mechanisms.

23 (3) MODIFICATION.—The Secretary, at the re24 quest of the NAIC or otherwise, may by regulation
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1 modify the model risk adjustment system established

2 under this subsection.

3 (b) IMPLEMENTATION OF RISK ADJUSTMENT SYS4 TEM.—Each State shall establish and maintain a risk ad5 justment system that conforms with the model established

6 under this section by not later than January 1, 1997. A

7 State may establish and maintain such a system jointly

8 with one or more other States.

9 PART 4—CONSUMER PROTECTIONS

10 SEC. 1031. REQUIREMENT FOR PROVISION OF INFORMA11 TION.

12 (a) CARRIERS.—

13 (1) IN GENERAL.—Each carrier that offers

14 health insurance coverage to small employers (or

15 qualifying employees of small employers) must dis16 close to such prospective enrollees, to brokers, and

17 to health plan choice organizations the information

18 that the Secretary may specify relating to the per19 formance of the carrier in providing such coverage

20 and relating to differences between the coverage pro21 vided and the most similar model benefit package es22 tablished under section 1104(b)(2). If a carrier of23 fers to employers coverage the actuarial value of

24 which is more than the actuarial value for high-de25 ductible coverage but less than such value for stand-
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1 ard coverage, the carrier must disclose to such em2 ployers detailed information on how the coverage of3 fered compares to any standard and high-deductible

4 coverage offered by the carrier to such employers.

5 (2) MARKETING MATERIAL.—Each carrier that

6 provides any health insurance coverage in a State

7 shall file with the State those marketing materials

8 relating to the offer and sale of health insurance

9 coverage to be used for distribution before the mate10 rials are used. Such materials shall be in a uniform

11 format specified under the standards established

12 under section 1041.

13 (b) GROUP HEALTH PLANS.—Each group health

14 plan that provides health coverage must disclose to enroll15 ees and potential enrollees information, similar to the in16 formation described in subsection (a), relating to perform17 ance of the plan in providing such coverage and relating

18 to differences between the coverage provided and the most

19 similar model benefit package established under section

20 1104(b)(2).

21 (c) INFORMATION RELATING TO RISK ADJUST22 MENT.—Each carrier or group health plan providing cov23 erage in the small group market shall provide to the State

24 such information as the State may require in order to
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1 carry out section 1022 (relating to risk adjustment mecha2 nisms).

3 SEC. 1032. PROHIBITION OF IMPROPER INCENTIVES.

4 (a) LIMITATION ON FINANCIAL INCENTIVES.—No

5 carrier that provides health insurance coverage may vary

6 the commission or financial or other remuneration to a

7 person based on the claims experience or health status of

8 individuals enrolled by or through the person.

9 (b) NONDISCRIMINATION IN AGENT COMPENSA10 TION.—A carrier—

11 (1) may not vary or condition the compensation

12 provided to an agent or broker related to the sale or

13 renewal of health insurance coverage because of the

14 health status or claims experience of any individuals

15 enrolled with the carrier through the agent or

16 broker; and

17 (2) may not terminate, fail to renew, or limit its

18 contract or agreement of representation with an

19 agent or broker for any reason related to the health

20 status or claims experience of any individuals en21 rolled with the carrier through the agent or broker.

22 (c) PROHIBITION OF TIE-IN ARRANGEMENTS.—No

23 carrier that offers health insurance coverage may require

24 the purchase of any other insurance or product as a condi25 tion for the purchase of such coverage.
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1 SEC. 1033. WRITTEN POLICIES AND PROCEDURES RESPECT2 ING ADVANCE DIRECTIVES.

3 A carrier and a group health plan offering health cov4 erage shall meet the requirements of section 1866(f) of

5 the Social Security Act (relating to maintaining written

6 policies and procedures respecting advance directives), in7 sofar as such requirements would apply to the carrier or

8 plan if the carrier or plan were an eligible organization.

9 PART 5—STANDARDS AND CERTIFICATION; EN10 FORCEMENT; PREEMPTION; GENERAL PRO11 VISIONS

12 SEC. 1041. ESTABLISHMENT OF STANDARDS.

13 (a) ROLE OF NAIC.—

14 (1) IN GENERAL.—The Secretary shall request

15 the NAIC to develop, within 9 months after the date

16 of the enactment of this Act, model regulations that

17 specify standards with respect to the requirements of

18 this subtitle as applicable to carriers and health in19 surance coverage.

20 (2) REVIEW OF STANDARDS.—If the NAIC de21 velops recommended regulations specifying such

22 standards within such period, the Secretary shall re23 view the standards. Such review shall be completed

24 within 60 days after the date the regulations are de25 veloped. Unless the Secretary determines within

26 such period that the standards do not meet the re-
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1 quirements, such standards shall serve as the stand2 ards under this subtitle, with such amendments as

3 the Secretary deems necessary.

4 (b) CONTINGENCY.—If the NAIC does not develop

5 such model regulations within such period or the Secretary

6 determines that such regulations do not specify standards

7 that meet the requirements described in subsection (a),

8 the Secretary shall specify, within 15 months after the

9 date of the enactment of this Act, standards to carry out

10 those requirements.

11 SEC. 1042. APPLICATION OF STANDARDS TO CARRIERS

12 THROUGH STATES.

13 (a) APPLICATION OF STANDARDS.—

14 (1) IN GENERAL.—Each State shall submit to

15 the Secretary, by the deadline specified in paragraph

16 (2), a report on steps the State is taking to imple17 ment and enforce the standards established under

18 section 1041 with respect to carriers and health in19 surance coverage offered or renewed not later than

20 such deadline.

21 (2) DEADLINE FOR REPORT.—The deadline

22 under this paragraph is 1 year after the date the

23 standards are established under section 1041.

24 (b) FEDERAL ROLE.—
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1 (1) NOTICE OF DEFICIENCY.—If the Secretary

2 determines that a State has failed to submit a report

3 by the deadline specified under subsection (a)(2) or

4 finds that the State has not implemented and pro5 vided adequate enforcement of the standards estab6 lished under section 1041, the Secretary shall notify

7 the State and provide the State a period of 60 days

8 in which to submit such report or to implement and

9 enforce such standards.

10 (2) IMPLEMENTATION OF ALTERNATIVE.—

11 (A) IN GENERAL.—If, after such 60-day

12 period, the Secretary finds that such a failure

13 has not been corrected, the Secretary shall pro14 vide for such mechanism for the implementation

15 and enforcement of such standards in the State

16 as the Secretary determines to be appropriate.

17 (B) EFFECTIVE PERIOD.—Such implemen18 tation and enforcement shall take effect with

19 respect to carriers, and health insurance cov20 erage offered or renewed, on or after 3 months

21 after the date of the Secretary’s finding under

22 subparagraph (A), and until the date the Sec23 retary finds that such a failure has been cor24 rected.
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1 SEC. 1043. APPLICATION TO GROUP HEALTH PLANS.

2 (a) IN GENERAL.—Subject to subsection (b), sections

3 1041 and 1042 shall apply to group health plans providing

4 health coverage in the same manner as they apply to car5 riers providing health insurance coverage.

6 (b) SUBSTITUTION OF REFERENCES.—For purposes

7 of subsection (a), any reference in section 1041 or 1042

8 to—

9 (1) a State is deemed a reference to the Sec10 retary, and

11 (2) a carrier or health insurance coverage is

12 deemed a reference to a group health plan and

13 health coverage, respectively.

14 SEC. 1044. ENFORCEMENT.

15 (a) IN GENERAL.—Chapter 43 of the Internal Reve16 nue Code of 1986 (relating to qualified pension plans, etc.)

17 is amended by adding at the end thereof the following new

18 section:

19 ‘‘SEC. 4980C. FAILURE OF CARRIER OR GROUP HEALTH

20 PLANS TO COMPLY WITH STANDARDS.

21 ‘‘(a) IMPOSITION OF TAX.—

22 ‘‘(1) IN GENERAL.—There is hereby imposed a

23 tax on the failure of a carrier or group health plan

24 to comply with the requirements applicable to the

25 carrier or group health plan under parts 1 through
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1 4 of subtitle A of title I of the Basic Health Care

2 Reform Act of 1995.

3 ‘‘(2) EXCEPTION.—Paragraph (1) shall not

4 apply to a failure by a carrier in a State if the Sec5 retary of Health and Human Services determines

6 that the State has in effect a regulatory enforcement

7 mechanism that provides adequate sanctions with re8 spect to such a failure by such a carrier.

9 ‘‘(b) AMOUNT OF TAX.—

10 ‘‘(1) IN GENERAL.—Subject to paragraph (2),

11 the amount of the tax imposed by subsection (a)

12 shall be $100 for each day during which such failure

13 persists for each individual to which such failure re14 lates. A rule similar to the rule of section

15 4980B(b)(3) shall apply for purposes of this section.

16 ‘‘(2) LIMITATION.—The amount of the tax im17 posed by subsection (a) for a carrier with respect to

18 health insurance coverage shall not exceed 25 per19 cent of the amounts received for such coverage dur20 ing the period such failure persists.

21 ‘‘(c) LIABILITY FOR TAX.—The tax imposed by this

22 section shall be paid by the carrier or administrator of

23 the group health plan (as the case may be).

24 ‘‘(d) EXCEPTIONS.—
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1 ‘‘(1) CORRECTIONS WITHIN 30 DAYS.—No tax

2 shall be imposed by subsection (a) by reason of any

3 failure if—

4 ‘‘(A) such failure was due to reasonable

5 cause and not to willful neglect, and

6 ‘‘(B) such failure is corrected within the

7 30-day period beginning on the earliest date the

8 carrier or administrator of the group health

9 plan knew, or exercising reasonable diligence

10 would have known, that such failure existed.

11 ‘‘(2) WAIVER BY SECRETARY.—In the case of a

12 failure which is due to reasonable cause and not to

13 willful neglect, the Secretary may waive part or all

14 of the tax imposed by subsection (a) to the extent

15 that payment of such tax would be excessive relative

16 to the failure involved.

17 ‘‘(e) DEFINITIONS.—For purposes of this section, the

18 terms ‘health insurance coverage’, ‘group health plan’, and

19 ‘carrier’ have the respective meanings given such terms

20 in section 1903 of the Basic Health Care Reform Act of

21 1995.’’

22 (b) CLERICAL AMENDMENT.—The table of sections

23 for chapter 43 of such Code is amended by adding at the

24 end thereof the following new item:

‘‘Sec. 4980C. Failure of carrier or group health plans to comply

with standards.’’
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1 SEC. 1045. LIMITATION ON SELF INSURANCE FOR CERTAIN

2 EMPLOYER PLANS.

3 (a) IN GENERAL.—An employer plan (other than a

4 multiemployer plan, as defined in section 414(f) of the In5 ternal Revenue Code of 1986) may not offer health cov6 erage other than through a carrier unless the plan has

7 at least 50 qualifying employees.

8 (b) EXCEPTION.—Subsection (a) shall not apply to

9 an employer plan that offers health coverage through a

10 multiple employer welfare arrangement if the arrangement

11 covers at least 1,000 qualifying employees and meets sol12 vency standards established by the State.

13 PART 6—MARKETPLACE FOR INDIVIDUALS

14 SEC. 1051. APPLICATION OF SIMILAR REQUIREMENTS.

15 (a) IN GENERAL.—Except as provided in subsection

16 (b), the provisions of this subtitle shall apply to carriers

17 offering health insurance coverage to qualifying individ18 uals in the individual market (as defined in section

19 1903(11)) in the same manner as such provisions apply

20 to carriers offering health insurance coverage to employ21 ers. For purposes of this subsection, any reference to an

22 employee or a qualifying employee is deemed a reference

23 to such an individual.

24 (b) EXCEPTION FOR RISK ADJUSTMENT.—Section

25 1022 (relating to risk adjustment systems) shall be ap-
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1 plied under this part in a manner that is separate from

2 its application under part 3.

3 Subtitle B—Facilitating Establish4 ment of Health Plan Choice Or5 ganizations (HPCOs)

6 SEC. 1101. ESTABLISHMENT AND ORGANIZATION.

7 (a) IN GENERAL.—Health plan choice organizations

8 (each in this part referred to as a ‘‘choice organization’’)

9 may be established in accordance with this part. Each

10 choice organization shall be chartered under State law and

11 operated as a not-for-profit corporation. A carrier may not

12 form, underwrite, or possess a majority vote of a choice

13 organization, but may administer such an organization.

14 (b) BOARD OF DIRECTORS.—

15 (1) IN GENERAL.—Each choice organization

16 shall be governed by a Board of Directors. Such

17 Board shall initially be appointed under procedures

18 established by the State in which it operates. Subse19 quently, the Board shall be elected by the members

20 of the organization in accordance with paragraph

21 (3). Such Board shall be composed as follows:

22 (A) In the case of a choice organization of23 fering coverage in the small group market, the

24 Board shall be composed of small employers (or

25 representatives of small employers) and qualify-
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1 ing employees of small employers (or represent2 atives of such employees) in the area in which

3 the organization operates.

4 (B) In the case of a choice organization of5 fering coverage in the individual market, the

6 Board shall be composed of qualifying individ7 uals in the area in which the organization oper8 ates.

9 (C) In the case of a choice organization of10 fering coverage in both the small group market

11 and the individual market, the Board shall be

12 composed of individuals described in subpara13 graph (A) and individuals described in subpara14 graph (B).

15 (2) MEMBERSHIP.—For each market for which

16 a choice organization offers coverage, the choice or17 ganization shall accept all small employers, qualify18 ing employees, and qualifying individuals who are in

19 the market within the area served by the organiza20 tion as members if such employers, employees, or in21 dividuals request such membership.

22 (3) VOTING.—Members of a choice organization

23 shall have voting rights consistent with the rules es24 tablished under the bylaws governing the organiza25 tion.
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1 (c) DUTIES OF CHOICE ORGANIZATIONS.—

2 (1) IN GENERAL.—Subject to paragraph (2),

3 each choice organization shall—

4 (A) market health insurance coverage in

5 the small group market, the individual market,

6 or in both the small group market and the indi7 vidual market throughout the entire area served

8 by the organization;

9 (B) enter into agreements under section

10 1102 with carriers offering qualified health cov11 erage under this subtitle;

12 (C) provide information and enter into

13 agreements under section 1103;

14 (D) enroll individuals with carriers offering

15 qualified health coverage, only in accordance

16 with section 1104;

17 (E) disseminate quality information under

18 section 4002; and

19 (F) carry out other functions provided for

20 under this part.

21 (2) LIMITATION ON ACTIVITIES.—A choice or22 ganization shall not—

23 (A) perform any activity (including review,

24 approval, or enforcement) relating to payment

25 rates for providers;
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1 (B) perform any activity (including certifi2 cation or enforcement) relating to compliance of

3 carriers (and health coverage provided by car4 riers) with the requirements of subtitle A;

5 (C) assume financial risk in relation to any

6 such carrier; or

7 (D) perform other activities identified by

8 the State as being inconsistent with the per9 formance of its duties under paragraph (1).

10 (3) CHARACTERISTICS OF SERVICE AREA.—

11 (A) IN GENERAL.—A choice organization

12 need not serve geographic areas that are contig13 uous, but the geographic boundaries of such

14 areas shall be consistent with the boundaries es15 tablished under section 1021 for fair rating

16 areas.

17 (B) SERVICE OF ENTIRE METROPOLITAN

18 STATISTICAL AREA.—If a choice organization

19 serves a part of a metropolitan statistical area

20 the organization shall serve the entire area.

21 (d) ESTABLISHMENT NOT REQUIRED.—Nothing in

22 this section shall be construed as requiring—

23 (1) that a choice organization be established in

24 each area of a State in which it operates; and
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1 (2) that there be only one choice organization

2 established with respect to any area.

3 SEC. 1102. AGREEMENTS TO OFFER QUALIFIED HEALTH

4 COVERAGE.

5 (a) AGREEMENTS.—

6 (1) IN GENERAL.—Except as provided in para7 graph (3), each choice organization for an area shall

8 enter into an agreement under this section—

9 (A) with each carrier that desires to make

10 available qualified health coverage in the small

11 group market through the choice organization

12 (consistent with any procedures established by

13 the State);

14 (B) with each carrier that desires to make

15 available qualified health coverage in the indi16 vidual market through the choice organization

17 (consistent with any procedures established by

18 the State); or

19 (C) with each carrier described in subpara20 graph (A) or subparagraph (B).

21 (2) TERMINATION OF AGREEMENT.—An agree22 ment under paragraph (1) shall remain in effect for

23 a 12-month period, except that the choice organiza24 tion may terminate an agreement under paragraph

25 (1) if the carrier’s license or certification under
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1 State law is terminated or for other good cause

2 shown.

3 (b) RECEIPT OF PREMIUMS ON BEHALF OF CAR4 RIERS.—

5 (1) IN GENERAL.—Under an agreement under

6 this section between a choice organization and a car7 rier—

8 (A) premiums shall be payable, and

9 (B) payment of premiums may be made by

10 individuals (or employers on their behalf) di11 rectly to the choice organization for the benefit

12 of the carrier.

13 (2) TIMING OF PAYMENT OF PREMIUMS.—Pre14 miums may be payable on a monthly basis (or, at

15 the option of a qualifying employee or individual, on

16 a quarterly basis). The choice organization may pro17 vide for reasonable penalties and grace periods for

18 late payment.

19 (3) CARRIERS RETAIN RISK OF

20 NONPAYMENT.—Nothing in this subsection shall be

21 construed as placing upon a choice organization any

22 risk associated with the failure of individuals and

23 employers to make prompt payment of premiums

24 (other than the portion of the premium representing

25 the choice organization administrative fee under sec-
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1 tion 1105). Each small employer and qualifying indi2 vidual who enrolls with a carrier providing qualified

3 health coverage through the choice organization is

4 liable to the carrier for premiums.

5 (c) FORWARDING OF PREMIUMS.—

6 (1) IN GENERAL.—If, under an agreement

7 under subsection (a), premium payments for quali8 fied health coverage are made to the choice organi9 zation, the choice organization shall forward to the

10 carrier the amount of the premiums.

11 (2) PAYMENTS.—Payments shall be made by

12 the choice organization under this subsection within

13 a period of days (specified by the Secretary and not

14 to exceed 7 days) after receipt of the premium from

15 the small employer of the qualifying employee or the

16 qualifying individual, as the case may be.

17 (d) PAYMENT OF COMMISSIONS.—

18 (1) IN GENERAL.—Subject to paragraph (2),

19 nothing in this part shall be construed to preclude

20 a carrier from paying a commission or other remu21 neration in connection with the purchase of health

22 care coverage by individuals or groups, consistent

23 with State law.

24 (2) LIMITATION ON VARIATION.—A carrier may

25 not vary such compensation or remuneration based,
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1 directly or indirectly, on the anticipated or actual

2 claims experience associated with the group or indi3 viduals purchasing health care coverage.

4 SEC. 1103. PROVISION OF INFORMATION.

5 Each choice organization for an area shall make

6 available to small employers that employ individuals in the

7 area and to qualifying individuals who reside in the area—

8 (1) information provided to the choice organiza9 tion by the State or carriers, and

10 (2) the opportunity to enter into an agreement

11 with the organization for the purchase of qualified

12 health coverage (to the extent that the organization

13 offers coverage in the market through which the em14 ployer or individual seeks coverage).

15 SEC. 1104. ENROLLING INDIVIDUALS FOR QUALIFIED

16 HEALTH COVERAGE THROUGH A CHOICE OR17 GANIZATION.

18 A choice organization shall offer, on behalf of each

19 carrier with which an agreement was entered into under

20 section 1102 and in accordance with the enrollment proce21 dures of such carriers and the enrollment periods provided

22 under section 1005, enrollment for the coverage only to

23 individuals in the market through which the organization

24 offers coverage in the area served by the choice organiza25 tion. Each choice organization shall coordinate annual
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1 open enrollment periods (described in section 1005(c)) of

2 all carriers through which coverage is offered by the orga3 nization so that there is one common annual open enroll4 ment period for all such carriers with respect to each indi5 vidual enrolled for coverage through the organization.

6 Nothing in this section shall preclude a choice organiza7 tion from having different common annual open enroll8 ment periods for different individuals.

9 SEC. 1105. RESTRICTION ON CHARGES.

10 (a) IN GENERAL.—A choice organization may impose

11 an administrative fee with respect to a qualifying employee

12 or qualifying individual enrolled for qualified health cov13 erage offered through the choice organization.

14 (b) FEE.—A choice organization that elects to impose

15 a fee under subsection (a) shall ensure that such fee is

16 set as a percentage of the premium for each such coverage

17 option, is imposed uniformly with respect to all coverage

18 options offered through the organization, and is disclosed

19 explicitly as an addition to the premium.

20 Subtitle C—Preemption of State

21 Benefit Mandates and Anti-Man22 aged Care Laws

23 SEC. 1201. PREEMPTION FROM STATE BENEFIT MANDATES.

24 Effective as of January 1, 1997, no State shall estab25 lish or enforce any law or regulation that—
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1 (1) requires the offering, as part of health in2 surance coverage, of any services, category of care,

3 or services of any class or type of provider; or

4 (2) specifies the individuals to be provided

5 health insurance coverage or the duration of such

6 coverage.

7 SEC. 1202. PREEMPTION OF STATE LAW RESTRICTIONS ON

8 MANAGED CARE ARRANGEMENTS.

9 (a) LIMITATION ON RESTRICTIONS ON NETWORK

10 PLANS.—Effective as of January 1, 1997—

11 (1) a State may not prohibit or limit a carrier

12 or group health plan providing health coverage from

13 including incentives for enrollees to use the services

14 of participating providers;

15 (2) a State may not prohibit or limit such a

16 carrier or plan from limiting coverage of services to

17 those provided by a participating provider;

18 (3) a State may not prohibit or limit the nego19 tiation of rates and forms of payments for providers

20 by such a carrier or plan with respect to health cov21 erage;

22 (4) a State may not prohibit or limit such a

23 carrier or plan from limiting the number of partici24 pating providers;
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1 (5) a State may not prohibit or limit such a

2 carrier or plan from requiring that services be pro3 vided (or authorized) by a practitioner selected by

4 the enrollee from a list of available participating pro5 viders or from requiring enrollees to obtain referral

6 in order to have coverage for treatment by a special7 ist or health institution; and

8 (6) a State may not prohibit or limit the cor9 porate practice of medicine.

10 (b) DEFINITIONS.—In this section:

11 (1) MANAGED CARE COVERAGE.—The term

12 ‘‘managed care coverage’’ means health coverage to

13 the extent the coverage is provided through a man14 aged care arrangement (as defined in section

15 1903(12)(A)) that meets the applicable requirements

16 of such section.

17 (2) PARTICIPATING PROVIDER.—The term

18 ‘‘participating provider’’ means an entity or individ19 ual which provides, sells, or leases health care serv20 ices as part of a provider network (as defined in sec21 tion 1903(12)(B)).

22 (c) REFERENCE TO STANDARDS FOR MANAGED

23 CARE ARRANGEMENTS.—For requirements relating to

24 managed care arrangements, see section 1011.
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1 SEC. 1203. PREEMPTION OF STATE LAWS RESTRICTING UTI2 LIZATION REVIEW PROGRAMS.

3 (a) IN GENERAL.—Effective January 1, 1997, no

4 State law or regulation shall prohibit or regulate activities

5 under a utilization review program (as defined in sub6 section (b)).

7 (b) UTILIZATION REVIEW PROGRAM DEFINED.—In

8 this section, the term ‘‘utilization review program’’ means

9 a system of reviewing the medical necessity and appro10 priateness of patient services (which may include inpatient

11 and outpatient services) using specified guidelines. Such

12 a system may include preadmission certification, the appli13 cation of practice guidelines, continued stay review, dis14 charge planning, preauthorization of ambulatory proce15 dures, and retrospective review.

16 (c) EXEMPTION OF LAWS PREVENTING DENIAL OF

17 LIFESAVING MEDICAL TREATMENT PENDING TRANSFER

18 TO ANOTHER HEALTH CARE PROVIDER.—Nothing in this

19 subtitle shall be construed to invalidate any State law that

20 has the effect of preventing involuntary denial of life-pre21 serving medical treatment when such denial would cause

22 the involuntary death of the patient pending transfer of

23 the patient to a health care provider willing to provide

24 such treatment.
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1 SEC. 1204. PREEMPTION RELATING TO DIFFERENT INSUR2 ANCE STANDARDS.

3 A State may not establish or enforce standards for

4 health insurance coverage made available in the individual

5 and small group markets that are different from the

6 standards established under this title.

7 Subtitle D—Definitions; General

8 Provisions

9 SEC. 1901. GENERAL DEFINITIONS.

10 For purposes of this Act:

11 (1) APPLICABLE REGULATORY AUTHORITY.—

12 The term ‘‘applicable regulatory authority’’ means,

13 with respect to a carrier operating in a State—

14 (A) the State insurance commissioner, or

15 (B) the Secretary, in the case described in

16 section 1042(b)(2).

17 (2) FAMILY MEMBER.—

18 (A) IN GENERAL.—Individuals are consid19 ered to be members of a family if—

20 (i) they are married, or

21 (ii) they have a legal parent-to-child

22 relationship (whether by natural birth or

23 adoption), if the child is—

24 (I) under 19 years of age,

25 (II) is under 25 years of age and

26 a full-time student, or
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1 (III) an unmarried dependent re2 gardless of age who is incapable of

3 self-support because of mental or

4 physical disability which existed before

5 age 22.

6 (B) SPECIAL RULES.—Family members—

7 (i) include an adopted child and a rec8 ognized natural child;

9 (ii) include a stepchild or foster child

10 with respect to an individual but only if

11 the child lives with the individual in a reg12 ular parent-child relationship; and

13 (iii) include such other children as the

14 Secretary may specify, but shall not in15 clude an emancipated minor.

16 (3) PRISONER.—The term ‘‘prisoner’’ means,

17 as specified by the Secretary, an individual during a

18 period of imprisonment under Federal, State, or

19 local authority after conviction as an adult.

20 (4) SECRETARY.—The term ‘‘Secretary’’ means

21 the Secretary of Health and Human Services.

22 (5) STATE.—The term ‘‘State’’ means the 50

23 States, the District of Columbia, Puerto Rico, the

24 Virgin Islands, Guam, American Samoa, and the

25 Northern Mariana Islands.
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1 SEC. 1902. DEFINITIONS RELATING TO EMPLOYMENT.

2 For purposes of this title:

3 (1) COUNTABLE EMPLOYEE.—The term ‘‘count4 able employee’’ means, with respect to an employer

5 for a month, any employee other than an employee

6 whose normal work week is less than 10 hours.

7 (2) EMPLOYEE.—The term ‘‘employee’’ means

8 any individual employed by an employer.

9 (3) EMPLOYER.—The term ‘‘employer’’ means

10 any person acting directly as an employer, or indi11 rectly in the interest of an employer, in relation to

12 an employee benefit plan; and includes a group or

13 association of employers acting for an employer in

14 such capacity.

15 (4) LARGE EMPLOYER.—The term ‘‘large em16 ployer’’ means an employer that is not a small em17 ployer (as defined in paragraph (4)).

18 (5) MULTIEMPLOYER PLAN.—The term ‘‘multi19 employer plan’’ has the meaning given such term in

20 section 414(f) of the Internal Revenue Code of

21 1986.

22 (6) QUALIFYING EMPLOYEE.—

23 (A) IN GENERAL.—The term ‘‘qualifying

24 employee’’ means, with respect to an employer

25 for a month, any employee other than—
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1 (i) a part-time, seasonal, or temporary

2 employee (as defined in subparagraph

3 (B)); or

4 (ii) an employee who is a child de5 scribed in section 1901(2)(A)(ii).

6 (B) PART-TIME, SEASONAL, OR TEM7 PORARY EMPLOYEE DEFINED.—For purposes of

8 subparagraph (A), the term ‘‘part-time, sea9 sonal, or temporary employee’’ means any of

10 the following employees with respect to a

11 month:

12 (i) CERTAIN PART-TIME EMPLOY13 EES.—Any employee whose normal work

14 week is reasonably expected as of the first

15 day of such month to be less than 20

16 hours.

17 (ii) SEASONAL OR TEMPORARY EM18 PLOYEES.—Any employee who is not rea19 sonably expected as of the first day of such

20 month to be employed by the employer for

21 a period of 120 consecutive days during

22 any 365-day period that includes such first

23 day.

24 (iii) DELAY FOR CERTAIN PART-TIME

25 EMPLOYEES.—Any employee whose normal
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1 work week is reasonably expected as of the

2 first day of such month to be at least 20

3 hours, but less than 35 hours, and the nor4 mal work week of the employee during the

5 preceding 3 months was less than 20

6 hours.

7 (7) SMALL EMPLOYER.—The term ‘‘small em8 ployer’’ means, with respect to a calendar year, an

9 employer that normally employs more than 1 but

10 less than 51 countable employees on a typical busi11 ness day. For the purposes of this paragraph, the

12 term ‘‘employee’’ includes a self-employed individual.

13 For purposes of determining if an employer is a

14 small employer, rules similar to the rules of sub15 section (b) and (c) of section 414 of the Internal

16 Revenue Code of 1986 shall apply.

17 SEC. 1903. DEFINITIONS RELATING TO HEALTH COVERAGE,

18 PLANS, AND CARRIERS.

19 Except as otherwise provided, for purposes of this

20 Act:

21 (1) BENCHMARK COVERAGE.—The term

22 ‘‘benchmark coverage’’ means the standard option of

23 the Blue Cross-Blue Shield plan offered under the

24 Federal Employees Health Benefits Program under
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1 chapter 89 of title 5, United States Code, as in ef2 fect during 1995.

3 (2) CARRIER.—The term ‘‘carrier’’ means a li4 censed insurance company, an entity offering pre5 paid hospital or medical services, and a health main6 tenance organization, and includes a similar organi7 zation regulated under State law for solvency.

8 (3) CLASS OF FAMILY COVERAGE.—The term

9 ‘‘class of family coverage’’ means the 4 classes de10 scribed in section 1021(a)(3).

11 (4) FAIR RATING AREA.—The term ‘‘fair rating

12 area’’ means a geographic area identified by a State

13 for purposes of section 1021(a)(2).

14 (5) GROUP HEALTH PLAN.—The term ‘‘group

15 health plan’’ has the meaning given such term in

16 section 5000(b)(1) of the Internal Revenue Code of

17 1986, but does not include any type of coverage ex18 cluded from the definition of a health insurance cov19 erage under paragraph (8)(B).

20 (6) HEALTH COVERAGE.—The term ‘‘health

21 coverage’’ means health insurance coverage provided

22 by a carrier or medical care provided under a group

23 health plan.

24 (7) HEALTH INSURANCE COVERAGE.—
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1 (A) IN GENERAL.—Except as provided in

2 subparagraph (B), the term ‘‘health insurance

3 coverage’’ means any hospital or medical service

4 policy or certificate, hospital or medical service

5 plan contract, or health maintenance organiza6 tion group contract offered by a carrier.

7 (B) EXCEPTION.—Such term does not in8 clude any of the following (or any combination

9 of the following):

10 (i) Coverage only for accident, dental,

11 vision, disability income, or long-term care

12 insurance, or any combination thereof.

13 (ii) Medicare supplemental health in14 surance.

15 (iii) Coverage issued as a supplement

16 to liability insurance.

17 (iv) Liability insurance, including gen18 eral liability insurance and automobile li19 ability insurance.

20 (v) Workers’ compensation or similar

21 insurance.

22 (vi) Automobile medical-payment in23 surance.

24 (vii) Coverage for a specified disease

25 or illness.
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1 (viii) A hospital or fixed indemnity

2 policy.

3 (ix) Coverage provided exclusively to

4 individuals who are not eligible individuals.

5 (8) HEALTH MAINTENANCE ORGANIZATION.—

6 The term ‘‘health maintenance organization’’ in7 cludes, as defined in standards established under

8 section 1103, an organization that provides health

9 benefits coverage which meets specified standards

10 and provides (or arranges for the provision of) cov11 ered health benefits primarily through a defined set

12 of providers.

13 (9) HEALTH PLAN CHOICE ORGANIZATION.—

14 The term ‘‘health plan choice organization’’ means

15 an organization established under subtitle E.

16 (10) HIGH DEDUCTIBLE COVERAGE.—The term

17 ‘‘high deductible coverage’’ means coverage provided

18 consistent with section 1011(b).

19 (11) INDIVIDUAL MARKET.—The term ‘‘individ20 ual market’’ means the insurance market offered to

21 individuals seeking health insurance coverage on be22 half of themselves (and their dependents) insofar as

23 no employer is seeking such coverage on behalf of

24 the individual.

25 (12) MANAGED CARE ARRANGEMENTS.—
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1 (A) MANAGED CARE ARRANGEMENT.—The

2 term ‘‘managed care arrangement’’ means, with

3 respect to a group health plan or under health

4 insurance coverage, an arrangement under such

5 plan or coverage under which providers agree to

6 provide items and services covered under the ar7 rangement to individuals covered under the

8 plan or who have such coverage.

9 (B) PROVIDER NETWORK.—The term

10 ‘‘provider network’’ means, with respect to a

11 group health plan or health insurance coverage,

12 providers who have entered into an agreement

13 described in subparagraph (A).

14 (13) MULTIPLE EMPLOYER WELFARE AR15 RANGEMENT.—The term ‘‘multiple employer welfare

16 arrangement’’ shall have the meaning applicable

17 under section 3(40) of the Employee Retirement In18 come Security Act of 1974.

19 (14) NAIC.—The term ‘‘NAIC’’ means the Na20 tional Association of Insurance Commissioners.

21 (15) OPTIONS.—Each of the following is a

22 ‘‘type of coverage option’’ in relation to standard

23 coverage:

24 (A) FEE-FOR-SERVICE OPTION.—Standard

25 coverage is considered to provide a ‘‘fee-for-
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1 service option’’ if, regardless of whether covered

2 individuals may receive benefits through a pro3 vider network, benefits with respect to the cov4 ered items and services in the coverage are

5 made available for such items and services pro6 vided through any lawful provider of such cov7 ered items and services and payment is made to

8 such a provider whether or not there is a con9 tractual arrangement between the provider and

10 the carrier or plan.

11 (B) MANAGED CARE OPTION.—Standard

12 coverage is considered to provide a ‘‘managed

13 care option’’ if benefits with respect to the cov14 ered items and services in the coverage are

15 made available exclusively through a provider

16 network, except in the case of emergency serv17 ices and as otherwise required under law.

18 (C) POINT-OF-SERVICE OPTION.—Standard

19 coverage is considered to provide a ‘‘point-of20 service option’’ if the benefits with respect to

21 covered items and services in the coverage are

22 made available principally through a managed

23 care arrangement, with the choice of the en24 rollee to obtain such benefits for items and

25 services provided through any lawful provider of
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1 such covered items and services. The coverage

2 may provide for different cost sharing schedules

3 based on whether the items and services are

4 provided through such an arrangement or out5 side such an arrangement.

6 (16) QUALIFIED HEALTH COVERAGE.—The

7 term ‘‘qualified health coverage’’ means health cov8 erage that—

9 (1) provides standard coverage or high-deduct10 ible coverage, and

11 (2) meets other requirements of subtitle A ap12 plicable to the coverage and the carrier or group

13 health plan providing the coverage.

14 (17) SMALL GROUP MARKET.—The term ‘‘small

15 group market’’ means the insurance market offered

16 to small employers seeking health insurance coverage

17 on behalf of their employees (and their dependents),

18 regardless of whether or not such coverage is made

19 available directly or through a multiple employer

20 welfare arrangement, association, or otherwise.

21 (18) STANDARD COVERAGE.—The term ‘‘stand22 ard coverage’’ means coverage provided consistent

23 with section 1011(a).
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1 (19) STATE COMMISSIONER OF INSURANCE.—

2 The term ‘‘State commissioner of insurance’’ in3 cludes a State superintendent of insurance.

4 SEC. 1904. DEFINITIONS RELATING TO RESIDENCE AND IM5 MIGRATION STATUS.

6 Except as otherwise provided, for purposes of this

7 Act:

8 (1) ALIEN PERMANENTLY RESIDING IN THE

9 UNITED STATES UNDER COLOR OF LAW.—The term

10 ‘‘alien permanently residing in the United States

11 under color of law’’ means an alien lawfully admitted

12 for permanent residence (within the meaning of sec13 tion 101(a)(20) of the Immigration and Nationality

14 Act), and includes any of the following (such status

15 not having changed):

16 (A) An alien who is admitted as a refugee

17 under section 207 of the Immigration and Na18 tionality Act.

19 (B) An alien who is granted asylum under

20 section 208 of such Act.

21 (C) An alien whose deportation is withheld

22 under section 243(h) of such Act.

23 (D) An alien whose deportation is sus24 pended pursuant to section 244 of such Act.
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1 (E) An alien who is granted conditional

2 entry pursuant to section 203(a)(7) of such Act

3 as in effect before April 1, 1980.

4 (F) An alien who is admitted for tem5 porary residence under section 210, 210A, or

6 245A of such Act.

7 (G) An alien who is within a class of aliens

8 lawfully present in the United States pursuant

9 to any other provision of such Act, if (i) the At10 torney General determines that the continued

11 presence of such class of aliens serves a human12 itarian or other compelling public interest, and

13 (ii) the Secretary determines that such interest

14 would be further served by treating each such

15 alien within such class as a ‘‘legal permanent

16 resident’’ for purposes of this Act or who has

17 been granted extended voluntary departure as a

18 member of a nationality group.

19 (H) An alien who is the spouse or unmar20 ried child under 21 years of age of a citizen of

21 the United States, or the parent of such a citi22 zen if the citizen is over 21 years of age, and

23 with respect to whom an application for adjust24 ment to lawful permanent residence is pending.
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1 (I) An alien within such other classification

2 of permanent resident aliens as the Secretary

3 may establish by regulation.

4 (2) LONG-TERM NONIMMIGRANT.—The term

5 ‘‘long-term nonimmigrant’’ means a nonimmigrant

6 described in subparagraph (E), (H), (I), (K), (L),

7 (N), (O), (Q), or (R) of section 101(a)(15) of the

8 Immigration and Nationality Act.

9 (3) QUALIFYING INDIVIDUAL.—The term

10 ‘‘qualifying individual’’ means, an individual who is

11 a resident of the United States, who is not a pris12 oner, and is—

13 (A) a citizen or national of the United

14 States;

15 (B) an alien permanently residing in the

16 United States under color of law (as defined in

17 paragraph (1)); or

18 (C) a long-term nonimmigrant (as defined

19 in paragraph (2)).

20 SEC. 1905. EFFECTIVE DATES.

21 The requirements of this title shall apply with respect

22 to—

23 (1) group health plans for plan years beginning

24 on or after January 1, 1997, and
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1 (2) carriers (with respect to coverage other than

2 under a group health plan) as of January 1, 1997.

3 TITLE II—ADMINISTRATIVE

4 SIMPLIFICATION

5 SEC. 2000. PURPOSE.

6 It is the purpose of this title to improve the efficiency

7 and effectiveness of the health care system, including the

8 medicare program under title XVIII of the Social Security

9 Act and the medicaid program under title XIX of such

10 Act, by encouraging the development of a health informa11 tion network through the adoption of standards and the

12 establishment of requirements for the electronic trans13 mission of certain health information.

14 SEC. 2001. DEFINITIONS.

15 For purposes of this title:

16 (1) CODE SET.—The term ‘‘code set’’ means

17 any set of codes used for encoding data elements,

18 such as tables of terms, medical concepts, medical

19 diagnostic codes, or medical procedure codes.

20 (2) COORDINATION OF BENEFITS.—The term

21 ‘‘coordination of benefits’’ means determining and

22 coordinating the financial obligations of plan spon23 sors when health care benefits are payable by more

24 than one such sponsor.
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1 (3) HEALTH INFORMATION.—The term ‘‘health

2 information’’ means any information that relates to

3 the past, present, or future physical or mental health

4 or condition or functional status of an individual,

5 the provision of health care to an individual, or pay6 ment for the provision of health care to an individ7 ual.

8 (4) HEALTH INFORMATION NETWORK.—The

9 term ‘‘health information network’’ means the health

10 information system that is formed through the appli11 cation of the requirements and standards established

12 under this title.

13 (5) HEALTH INFORMATION NETWORK SERV14 ICE.—The term ‘‘health information network serv15 ice’’—

16 (A) means a private entity or an entity op17 erated by a State that enters into contracts—

18 (i) to process or facilitate the process19 ing of nonstandard data elements of health

20 information into standard data elements;

21 (ii) to provide the means by which

22 persons are connected to the health infor23 mation network for purposes of meeting

24 the requirements of this title, including the
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1 holding of standard data elements of

2 health information;

3 (iii) to provide authorized access to

4 health information through the health in5 formation network; or

6 (iv) to provide specific information

7 processing services, such as automated co8 ordination of benefits and claims trans9 action routing; and

10 (B) includes a health information security

11 organization.

12 (6) HEALTH INFORMATION SECURITY ORGANI13 ZATION.—The term ‘‘health information security or14 ganization’’ means a private entity or an entity oper15 ated by a State that accesses standard data elements

16 of health information through the health information

17 network, processes such information into non-identi18 fiable health information, and may store such infor19 mation.

20 (7) HEALTH PROVIDER.—The term ‘‘health

21 provider’’ includes a provider of services (as defined

22 in section 1861(u) of the Social Security Act), a pro23 vider of medical or other health services (as defined

24 in section 1861(s) of such Act), and any other per-
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1 son (other than a plan sponsor) furnishing health

2 care items or services.

3 (8) INDIVIDUALLY IDENTIFIABLE HEALTH IN4 FORMATION.—The term ‘‘individually identifiable

5 health information’’ means health information in the

6 health information network—

7 (A) that identifies an individual who is the

8 subject of the information; or

9 (B) with respect to which there is a rea10 sonable basis to believe that the information

11 can be used to identify such an individual.

12 (9) NON-IDENTIFIABLE HEALTH INFORMA13 TION.—The term ‘‘non-identifiable health informa14 tion’’ means health information that is not individ15 ually identifiable health information.

16 (10) PLAN SPONSOR.—The term ‘‘plan spon17 sor’’ means—

18 (A) a carrier (as defined in section

19 1903(2)) providing health insurance coverage

20 (as defined in section 1903(7));

21 (B) a group health plan;

22 (C) an association or other entity which es23 tablishes or maintains a multiple employer wel24 fare arrangement (as defined in section

25 1903(13)) providing benefits consisting of medi-
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1 cal care described in section 213(d) of the In2 ternal Revenue Code of 1986; and

3 (D) a State, or the Federal Government,

4 acting in a capacity as a provider of health ben5 efits to eligible individuals that is equivalent to

6 that of a carrier.

7 (11) STANDARD.—The term ‘‘standard’’, when

8 used with reference to a transaction or to data ele9 ments of health information, means that the trans10 action or data elements meet any standard adopted

11 by the Secretary under subtitle A that applies to the

12 transaction or data elements.

13 Subtitle A—Standards for Data

14 Elements and Transactions

15 SEC. 2101. GENERAL REQUIREMENTS ON SECRETARY.

16 (a) IN GENERAL.—The Secretary shall adopt stand17 ards and modifications to standards under this subtitle

18 that are—

19 (1) consistent with the objective of reducing the

20 costs of providing and paying for health care; and

21 (2) in use and generally accepted, developed, or

22 modified by the standard-setting organizations ac23 credited by the American National Standard Insti24 tute.
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1 (b) INITIAL STANDARDS.—The Secretary may de2 velop an expedited process for the adoption of initial

3 standards under this subtitle.

4 (c) PROTECTION OF COMMERCIAL INFORMATION.—

5 In adopting standards under this subtitle, the Secretary

6 may not require disclosure of trade secrets and confiden7 tial commercial information by any person.

8 SEC. 2102. STANDARDS FOR DATA ELEMENTS OF HEALTH

9 INFORMATION.

10 (a) IN GENERAL.—The Secretary shall adopt stand11 ards necessary to make uniform and compatible for elec12 tronic transmission through the health information net13 work the data elements of any health information that the

14 Secretary determines is appropriate for transmission in

15 connection with a transaction described in section 2201.

16 (b) ADDITIONS.—The Secretary may make additions

17 to any set of data elements adopted under subsection (a)

18 as the Secretary determines appropriate in a manner that

19 minimizes the disruption and cost of compliance with such

20 additions.

21 (c) CERTAIN DATA ELEMENTS.—

22 (1) UNIQUE HEALTH IDENTIFIERS.—The Sec23 retary shall establish a system to provide for a

24 standard unique health identifier for each individual,
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1 employer, plan sponsor, and health provider for use

2 in the health care system.

3 (2) CODE SETS.—

4 (A) IN GENERAL.—The Secretary, in con5 sultation with experts from the private sector

6 and Federal agencies, shall—

7 (i) select code sets for appropriate

8 data elements from among the code sets

9 that have been developed by private and

10 public entities; or

11 (ii) establish code sets for such data

12 elements if no code sets for the data ele13 ments have been developed.

14 (B) DISTRIBUTION.—The Secretary shall

15 establish efficient and low-cost procedures for

16 distribution of code sets and modifications to

17 code sets.

18 SEC. 2103. INFORMATION TRANSACTION STANDARDS.

19 (a) IN GENERAL.—The Secretary shall adopt tech20 nical standards that are consistent with the health infor21 mation network privacy standards adopted under section

22 2104 relating to the method by which standard data ele23 ments of health information may be transmitted electroni24 cally, including standards with respect to the format in

25 which such data elements may be transmitted.
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1 (b) SPECIAL RULE FOR COORDINATION OF BENE2 FITS.—Any standard adopted by the Secretary under sub3 section (a) that relates to coordination of benefits shall

4 provide that a claim for reimbursement for health services

5 furnished shall be tested, by an algorithm specified by the

6 Secretary, against all records of enrollment and eligibility

7 for the individual who received such services that are avail8 able to the recipient of the claim through the health infor9 mation network to determine any primary and secondary

10 obligors for payment.

11 (c) ELECTRONIC SIGNATURE.—The Secretary, in co12 ordination with the Secretary of Commerce, shall promul13 gate regulations specifying procedures for the electronic

14 transmission and authentication of signatures, compliance

15 with which shall be deemed to satisfy State and Federal

16 statutory requirements for written signatures with respect

17 to transactions described in section 2201 and written sig18 natures on health records and prescriptions.

19 (d) STANDARDS FOR CLAIMS FOR CLINICAL LABORA20 TORY TESTS.—The standards under this section shall pro21 vide that claims for clinical laboratory tests for which ben22 efits are payable by a plan sponsor shall be submitted di23 rectly by the person or entity that performed (or super24 vised the performance of) the tests to the sponsor in a

25 manner consistent with (and subject to such exceptions
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1 as are provided under) the requirement for direct submis2 sion of such claims under the medicare program.

3 SEC. 2104. HEALTH INFORMATION NETWORK PRIVACY

4 STANDARDS.

5 The Secretary shall adopt standards respecting the

6 privacy of individually identifiable health information that

7 is in the health information network. Such standards shall

8 include standards concerning at least the following:

9 (1) The rights of an individual who is the sub10 ject of such information.

11 (2) The procedures to be established for the ex12 ercise of such rights.

13 (3) The uses and disclosures of such informa14 tion that are authorized or required.

15 (4) Safeguards for the security of such informa16 tion and adequate security practices.

17 SEC. 2105. TIMETABLES FOR ADOPTION OF STANDARDS.

18 (a) INITIAL STANDARDS FOR DATA ELEMENTS.—

19 The Secretary shall adopt standards relating to—

20 (1) the data elements for the information de21 scribed in section 2102(a) not later than 9 months

22 after the date of the enactment of this Act (except

23 in the case of standards with respect to data ele24 ments for claims attachments, which shall be adopt-
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1 ed not later than 24 months after the date of the

2 enactment of this Act); and

3 (2) any addition to a set of data elements, in

4 conjunction with making such an addition.

5 (b) INITIAL PRIVACY STANDARDS.—The Secretary

6 shall adopt standards relating to the privacy of individ7 ually identifiable health information in the health informa8 tion network under section 2104 not later than 12 months

9 after the date of the enactment of this Act.

10 (c) INITIAL STANDARDS FOR INFORMATION TRANS11 ACTIONS.—The Secretary shall adopt standards relating

12 to information transactions under section 2103 not later

13 than 18 months after the date of the enactment of this

14 Act (except in the case of standards for claims attach15 ments, which shall be adopted not later than 24 months

16 after the date of the enactment of this Act).

17 (d) MODIFICATIONS TO STANDARDS.—

18 (1) IN GENERAL.—Except as provided in para19 graph (2), the Secretary shall review the standards

20 adopted under this subtitle and shall adopt modified

21 standards as determined appropriate, but not more

22 frequently than once every 6 months. Any modifica23 tion to standards shall be completed in a manner

24 which minimizes the disruption to, and costs of com25 pliance incurred by, a plan sponsor, health provider,
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1 or health plan choice organization that is required

2 to comply with subtitle B.

3 (2) SPECIAL RULES.—

4 (A) MODIFICATIONS DURING FIRST 12-

5 MONTH PERIOD.—Except with respect to addi6 tions and modifications to code sets under sub7 paragraph (B), the Secretary may not adopt

8 any modification to a standard adopted under

9 this subtitle during the 12-month period begin10 ning on the date the standard is adopted, un11 less the Secretary determines that the modifica12 tion is necessary in order to permit a plan spon13 sor, a health provider, or a health plan choice

14 organization to comply with subtitle B.

15 (B) ADDITIONS AND MODIFICATIONS TO

16 CODE SETS.—

17 (i) IN GENERAL.—The Secretary shall

18 ensure that procedures exist for the rou19 tine maintenance, testing, enhancement,

20 and expansion of code sets.

21 (ii) ADDITIONAL RULES.—If a code

22 set is modified under this subsection, the

23 modified code set shall include instructions

24 on how data elements that were encoded

25 prior to the modification are to be con-
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1 verted or translated so as to preserve the

2 value of the data elements. Any modifica3 tion to a code set under this subsection

4 shall be implemented in a manner that

5 minimizes the disruption to, and costs of

6 compliance incurred by, a plan sponsor,

7 health provider, or health plan choice orga8 nization that is required to comply with

9 subtitle B.

10 (e) EVALUATION OF STANDARDS.—The Secretary

11 may establish a process to measure or verify the consist12 ency of standards adopted or modified under this subtitle.

13 Such process may include demonstration projects and

14 analyses of the cost of implementing such standards and

15 modifications.

16 Subtitle B—Requirements with Re17 spect to Certain Transactions

18 and Information

19 SEC. 2201. STANDARD TRANSACTIONS AND INFORMATION.

20 (a) TRANSACTIONS BY SPONSORS.—

21 (1) TRANSACTIONS WITH PROVIDERS.—If a

22 plan sponsor conducts any of the transactions de23 scribed in paragraph (3) with a health provider—

24 (A) the transaction shall be a standard

25 transaction; and
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1 (B) the health information transmitted by

2 the sponsor to the provider or by the provider

3 to the sponsor in connection with the trans4 action shall be in the form of standard data ele5 ments.

6 (2) TRANSACTIONS WITH SPONSORS.—If a plan

7 sponsor conducts any of the transactions described

8 in paragraph (3) with another plan sponsor—

9 (A) the transaction shall be a standard

10 transaction; and

11 (B) the health information transmitted by

12 either sponsor in connection with the trans13 action shall be in the form of standard data ele14 ments.

15 (3) TRANSACTIONS.—The transactions referred

16 to in paragraphs (1) and (2) are the following:

17 (A) Verification of eligibility for benefits.

18 (B) Coordination of benefits.

19 (C) Claim submission.

20 (D) Claim attachment submission.

21 (E) Claim status notification.

22 (F) Claim status verification.

23 (G) Claim adjudication.

24 (H) Payment and remittance advice.
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1 (I) Certification or authorization of a re2 ferral to a health provider who is not part of a

3 provider network.

4 (b) TRANSACTIONS BY CHOICE ORGANIZATIONS.—

5 (1) IN GENERAL.—If a health plan choice orga6 nization conducts any of the transactions described

7 in paragraph (2) with a plan sponsor—

8 (A) the transaction shall be a standard

9 transaction; and

10 (B) the health information transmitted by

11 the organization to the sponsor or by the spon12 sor to the organization in connection with the

13 transaction shall be in the form of standard

14 data elements.

15 (2) TRANSACTIONS.—The transactions referred

16 to in paragraph (1) are the following:

17 (A) Enrollment and disenrollment.

18 (B) Premium payment.

19 (c) USE OF HEALTH INFORMATION NETWORK SERV20 ICES.—A plan sponsor, a health provider, or a health plan

21 choice organization may comply with any provision of this

22 section by entering into an agreement or other arrange23 ment with a health information network service certified

24 under section 2301 pursuant to which the service under-
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1 takes the duties applicable to the sponsor, provider, or or2 ganization under the provision.

3 SEC. 2202. ACCESSING HEALTH INFORMATION FOR AU4 THORIZED PURPOSES.

5 (a) PROCUREMENT RULE FOR GOVERNMENT AGEN6 CIES.—

7 (1) IN GENERAL.—A health information secu8 rity organization that is certified under section 2301

9 shall make available to a Federal or State agency,

10 pursuant to a cost-type contract (as defined under

11 the Federal Acquisition Regulation), any non-identi12 fiable health information, including non-identifiable

13 health information that is derived from individually

14 identifiable health information, that—

15 (A) is held by the service or may be ob16 tained by the service under paragraph (2) or

17 subsection (b);

18 (B) consists of data elements that are sub19 ject to a standard under subtitle A; and

20 (C) is requested by the agency to fulfill a

21 requirement under this Act.

22 (2) CERTAIN INFORMATION AVAILABLE AT LOW

23 COST.—If a health information security organization

24 requires health information consisting of data ele25 ments that are subject to a standard under subtitle
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1 A from a plan sponsor or a health provider in order

2 to comply with a request made by a Federal or State

3 agency under paragraph (1), the sponsor or provider

4 shall make such information available to such orga5 nization for a charge that does not exceed the rea6 sonable cost of transmitting the information.

7 (b) PROCUREMENT RULE FOR INFORMATION SECU8 RITY ORGANIZATIONS.—A health information security or9 ganization that makes non-identifiable health information

10 available to a Federal or State agency under subsection

11 (a) shall make such non-identifiable information available,

12 for a charge that does not exceed the reasonable cost of

13 transmitting the information, to any other health informa14 tion security organization that—

15 (A) is certified under section 2301; and

16 (B) requests the information.

17 SEC. 2203. ENSURING AVAILABILITY OF INFORMATION.

18 The Secretary shall establish a procedure under

19 which a plan sponsor or health provider that does not have

20 the ability to transmit standard data elements directly,

21 and does not have access to a health information network

22 service certified under section 2301, may comply with the

23 provisions of this subtitle.
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1 SEC. 2304. TIMETABLES FOR COMPLIANCE WITH REQUIRE2 MENTS.

3 (a) INITIAL COMPLIANCE.—

4 (1) IN GENERAL.—Not later than 12 months

5 after the date on which standards are adopted under

6 subtitle A with respect to a type of transaction, or

7 data elements for a type of health information, a

8 plan sponsor, health provider, or health plan choice

9 organization shall comply with the requirements of

10 this subtitle with respect to such transaction or in11 formation.

12 (2) ADDITIONAL DATA ELEMENTS.—Not later

13 than 12 months after the date on which the Sec14 retary adopts an addition to a set of data elements

15 for health information under section 2102, a plan

16 sponsor, health provider, or health plan choice orga17 nization shall comply with the requirements of this

18 subtitle using such data elements.

19 (b) COMPLIANCE WITH MODIFIED STANDARDS.—

20 (1) IN GENERAL.—If the Secretary adopts a

21 modified standard under section 2105(c), a plan

22 sponsor, health provider, or health plan choice orga23 nization shall comply with the modified standard at

24 such time as the Secretary determines appropriate,

25 taking into account the time needed to comply due

26 to the nature and extent of the modification.
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1 (2) SPECIAL RULE.—In the case of a modifica2 tion to a standard that does not occur within the 12-

3 month period beginning on the date the standard is

4 adopted, the time determined appropriate by the

5 Secretary under paragraph (1) may not be—

6 (A) earlier than the last day of the 90-day

7 period beginning on the date the modified

8 standard is adopted; or

9 (B) later than the last day of the 12-

10 month period beginning on the date the modi11 fied standard is adopted.

12 Subtitle C—Miscellaneous

13 Provisions

14 SEC. 2301. STANDARDS AND CERTIFICATION FOR HEALTH

15 INFORMATION NETWORK SERVICES.

16 (a) STANDARDS FOR OPERATION.—The Secretary

17 shall establish standards with respect to the operation of

18 health information network services, including standards

19 ensuring that such services—

20 (1) develop, operate, and cooperate with one an21 other to form the health information network;

22 (2) meet all of the standards adopted under

23 part 1 that are applicable to the services;

24 (3) make public information concerning their

25 performance, as measured by uniform indicators
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1 such as accessibility, transaction responsiveness, ad2 ministrative efficiency, reliability, dependability, and

3 any other indicator determined appropriate by the

4 Secretary; and

5 (4) if they are part of a larger organization,

6 have policies and procedures in place which isolate

7 their activities with respect to processing informa8 tion in a manner that prevents access to such infor9 mation by such larger organization.

10 (b) CERTIFICATION BY THE SECRETARY.—

11 (1) ESTABLISHMENT.—Not later than 18

12 months after the date of the enactment of this Act,

13 the Secretary shall establish a certification proce14 dure for health information network services which

15 ensures that certified services are qualified to meet

16 the requirements of this title and the standards es17 tablished by the Secretary under this section. Such

18 certification procedure shall be implemented in a

19 manner that minimizes the costs and delays of oper20 ations for such services.

21 (2) APPLICATION.—Each entity desiring to be

22 certified as a health information network service

23 shall apply to the Secretary for certification in a

24 form and manner determined appropriate by the

25 Secretary.
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1 (3) AUDITS AND REPORTS.—The procedure es2 tablished under paragraph (1) shall provide for au3 dits by the Secretary and reports by an entity cer4 tified under this section as the Secretary determines

5 appropriate in order to monitor such entity’s compli6 ance with the requirements of this subtitle and the

7 standards established by the Secretary under this

8 section.

9 (4) RECERTIFICATION.—A health information

10 network service shall be recertified under this sub11 section at least every 3 years.

12 (c) LOSS OF CERTIFICATION.—

13 (1) MANDATORY TERMINATION.—Except as

14 provided in paragraph (2), if a health information

15 network service violates a health information net16 work privacy standard adopted under section 2104

17 that is applicable to the service, its certification

18 under this section shall be terminated unless the

19 Secretary determines that appropriate corrective ac20 tion has been taken.

21 (2) CONDITIONAL CERTIFICATION.—The Sec22 retary may establish a procedure under which a

23 health information network service may remain cer24 tified on a conditional basis if the service is operat25 ing consistently with a plan intended to correct any
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1 violations described in paragraph (1). Such proce2 dure may provide for the appointment of a trustee

3 to continue operation of the service until the require4 ments for full certification are met.

5 (d) CERTIFICATION BY PRIVATE ENTITIES.—The

6 Secretary may designate private entities to conduct the

7 certification procedures established by the Secretary under

8 this section. A health information network service certified

9 by such an entity in accordance with such designation

10 shall be considered to be certified by the Secretary.

11 (e) INFORMATION HELD BY HEALTH INFORMATION

12 NETWORK SERVICES.—If a health information network

13 service certified under this section loses its certified status

14 or takes any action that would threaten the continued

15 availability of the standard data elements of health infor16 mation held by such service, such data elements shall be

17 transferred to another health information network service

18 certified under this section that has been designated by

19 the Secretary.

20 SEC. 2302. IMPOSITION OF ADDITIONAL REQUIREMENTS.

21 (a) IN GENERAL.—Except as provided in subsection

22 (c), after the Secretary has established standards under

23 section 2102 that are necessary to make uniform and com24 patible for electronic transmission the data elements that

25 the Secretary determines are appropriate for transmission
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1 in connection with a transaction described in subtitle B,

2 an individual or entity may not require an individual or

3 entity, to provide in any manner any additional data ele4 ment in connection with—

5 (1) the transaction; or

6 (2) an inquiry with respect to the transaction.

7 (b) TRANSMISSION METHOD.—Except as provided in

8 subsection (c), after the Secretary has established stand9 ards under section 2103 relating to the method by which

10 data elements that the Secretary determines are appro11 priate for transmission in connection with a transaction

12 described in subtitle B may be transmitted electronically,

13 an individual or entity may not require an individual or

14 entity to transmit any data element in a manner inconsist15 ent with the standards in connection with—

16 (1) the transaction; or

17 (2) an inquiry with respect to the transaction.

18 (c) EXCEPTION.—Subsections (a) and (b) do not

19 apply if—

20 (1) an individual or entity voluntarily agrees to

21 provide the additional data element; or

22 (2) a waiver is granted under subsection (d) to

23 permit the requirement to be imposed.

24 (d) CONDITIONS FOR WAIVERS.—
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1 (1) IN GENERAL.—An individual or entity may

2 request a waiver from the Secretary in order to im3 pose on an individual or entity a requirement other4 wise prohibited under subsection (a) or (b). Subject

5 to paragraph (2), the Secretary may grant such a

6 waiver.

7 (2) CONSIDERATION OF WAIVER REQUESTS.—A

8 waiver may not be granted under this subsection to

9 impose an otherwise prohibited requirement unless

10 the Secretary determines that the value of any addi11 tional information to be provided under the require12 ment for research or other purposes significantly

13 outweighs the administrative cost of the imposition

14 of the requirement, taking into account the burden

15 of the timing of the imposition of the requirement.

16 (e) ANONYMOUS REPORTING.—If an individual or en17 tity attempts to impose on an individual or entity a re18 quirement prohibited under subsection (a) or (b), the indi19 vidual or entity on whom the requirement is being imposed

20 may contact the Secretary. The Secretary shall develop a

21 procedure under which an individual or entity that con22 tacts the Secretary under the preceding sentence shall re23 main anonymous. The Secretary shall notify the individual

24 or entity imposing the requirement that the requirement

25 may not be imposed unless the other individual or entity
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1 voluntarily agrees to such requirement or a waiver is ob2 tained under subsection (d).

3 SEC. 2303. EFFECT ON STATE LAW.

4 (a) IN GENERAL.—Except as otherwise provided in

5 this section, a provision, requirement, or standard under

6 this subtitle shall supersede any contrary provision of

7 State law.

8 (b) STATE ‘‘QUILL AND PEN’’ LAWS.—A State may

9 not establish, continue in effect, or enforce any provision

10 of State law that requires medical or health plan records

11 (including billing information) to be maintained or trans12 mitted in written rather than electronic form, except

13 where the Secretary determines that the provision is nec14 essary to prevent fraud and abuse, with respect to con15 trolled substances, or for other purposes.

16 (c) PUBLIC HEALTH REPORTING.—Nothing in this

17 title shall be construed to invalidate or limit the authority,

18 power, or procedures established under any law providing

19 for the reporting of disease or injury, child abuse, birth,

20 or death, public health surveillance, or public health inves21 tigation or intervention.

22 (d) PUBLIC USE FUNCTIONS.—Nothing in this title

23 shall be construed to limit the authority of a Federal or

24 State agency to make non-identifiable health information

25 available for public use.
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1 (e) PAYMENT FOR HEALTH CARE SERVICES OR PRE2 MIUMS.—Nothing in this title shall be construed to pro3 hibit a consumer from paying for health care items or

4 services, or plan or health insurance coverage premiums,

5 by debit, credit, or other payment cards or numbers or

6 other electronic payment means.

7 TITLE III—FRAUD AND ABUSE

8 REFORM: ADVISORY OPINIONS

9 SEC. 3001. AUTHORIZING THE SECRETARY OF HEALTH AND

10 HUMAN SERVICES TO ISSUE ADVISORY OPIN11 IONS UNDER TITLE XI.

12 Title XI of the Social Security Act (42 U.S.C. 1301

13 et seq.) is amended by inserting after section 1128B the

14 following new section:

15 ‘‘ADVISORY OPINIONS

16 ‘‘SEC. 1129. (a) ISSUANCE OF ADVISORY OPIN17 IONS.—The Secretary shall issue advisory opinions as pro18 vided in this section.

19 ‘‘(b) MATTERS SUBJECT TO ADVISORY OPINIONS.—

20 The Secretary shall issue advisory opinions as to the fol21 lowing matters:

22 ‘‘(1) What constitutes prohibited remuneration

23 within the meaning of section 1128B(b).

24 ‘‘(2) Whether an arrangement or proposed ar25 rangement satisfies the criteria set forth in section
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1 1128B(b)(3) for activities which do not result in

2 prohibited remuneration.

3 ‘‘(3) Whether an arrangement or proposed ar4 rangement satisfies the criteria which the Secretary

5 has established, or shall establish by regulation for

6 activities which do not result in prohibited remu7 neration.

8 ‘‘(4) What constitutes an inducement to reduce

9 or limit services to individuals entitled to benefits

10 under title XVIII or title XIX within the meaning

11 of section 1128B(b).

12 ‘‘(5) Whether an arrangement, activity or pro13 posed arrangement or proposed activity violates any

14 other provision of this Act.

15 ‘‘(c) MATTERS NOT SUBJECT TO ADVISORY OPIN16 IONS.—Such advisory opinions shall not address the fol17 lowing matters:

18 ‘‘(1) Whether the fair market value shall be, or

19 was paid or received for any goods, services or prop20 erty.

21 ‘‘(2) Whether an individual is a bona fide em22 ployee within the requirements of section 3121(d)(2)

23 of the Internal Revenue Code of 1986.

24 ‘‘(d) EFFECT OF ADVISORY OPINIONS.—
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1 ‘‘(1) Each advisory opinion issued by the Sec2 retary shall be binding as to the Secretary and the

3 party or parties requesting the opinion.

4 ‘‘(2) The failure of a party to seek an advisory

5 opinion may not be introduced into evidence to prove

6 that the party intended to violate the provisions of

7 sections 1128, 1128A, or 1128B.

8 ‘‘(e) REGULATIONS.—The Secretary within 180 days

9 of the date of enactment, shall issue regulations establish10 ing a system for the issuance of advisory opinions. Such

11 regulations shall provide for—

12 ‘‘(1) the procedure to be followed by a party ap13 plying for an advisory opinion;

14 ‘‘(2) the procedure to be followed by the Sec15 retary in responding to a request for an advisory

16 opinion;

17 ‘‘(3) the interval in which the Secretary shall

18 respond;

19 ‘‘(4) the reasonable fee to be charged to the

20 party requesting an advisory opinion; and

21 ‘‘(5) the manner in which advisory opinions will

22 be made available to the public.

23 ‘‘(f) INTERVAL FOR ISSUANCE OF ADVISORY OPIN24 IONS.—Under no circumstances shall the interval in which
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1 the Secretary shall respond to a party requesting an advi2 sory opinion exceed 30 days.’’.

3 SEC. 3002. AUTHORIZING THE SECRETARY OF HEALTH AND

4 HUMAN SERVICES TO ISSUE ADVISORY OPIN5 IONS RELATING TO PHYSICIAN OWNERSHIP

6 AND REFERRAL.

7 Section 1877 of the Social Security Act (42 U.S.C.

8 1395nn) is amended by the addition of the following new

9 subsection:

10 ‘‘(i) ADVISORY OPINIONS.—

11 ‘‘(1) IN GENERAL.—The Secretary shall issue

12 advisory opinions on whether an arrangement or

13 proposed arrangement will result in a prohibited re14 ferral within the meaning of this section.

15 ‘‘(2) EFFECT OF ADVISORY OPINIONS.—

16 ‘‘(A) Each advisory opinion issued by the

17 Secretary shall be binding as to the Secretary

18 and the party or parties requesting the opinion.

19 ‘‘(B) The failure of a party to seek an ad20 visory opinion may not be introduced into evi21 dence to prove that the party intended to vio22 late the provisions of this section.

23 ‘‘(3) REGULATIONS.—The Secretary within one

24 hundred and eighty days of the date of enactment,

25 shall issue regulations establishing a system for the
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1 issuance of advisory opinions. Such regulations shall

2 provide for—

3 ‘‘(A) the procedure to be followed by a

4 party applying for an advisory opinion;

5 ‘‘(B) the procedure to be followed by the

6 Secretary in responding to a request for an ad7 visory opinion;

8 ‘‘(C) the interval in which the Secretary

9 shall respond;

10 ‘‘(D) the reasonable fee to be charged to

11 the party requesting an advisory opinion; and

12 ‘‘(E) the manner in which advisory opin13 ions will be made available to the public.

14 ‘‘(4) INTERVAL FOR ISSUANCE OF ADVISORY

15 OPINIONS.—Under no circumstances shall the inter16 val in which the Secretary shall respond to a party

17 requesting an advisory opinion exceed thirty days.’’.

18 SEC. 3003. EFFECTIVE DATE.

19 Unless otherwise specified, the amendments made by

20 this title shall be effective upon the enactment of this Act.
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1 TITLE IV—MALPRACTICE

2 REFORM AND ANTITRUST

3 Subtitle A—Malpractice Reform

4 PART 1—UNIFORM STANDARDS FOR

5 MALPRACTICE CLAIMS

6 SEC. 4001. APPLICABILITY.

7 Except as provided in section 4021, this part shall

8 apply to any medical malpractice liability action brought

9 in a Federal or State court, and to any medical mal10 practice claim subject to an alternative dispute resolution

11 system, that is initiated on or after January 1, 1996.

12 SEC. 4002. REQUIREMENT FOR INITIAL RESOLUTION OF AC13 TION THROUGH ALTERNATIVE DISPUTE RES14 OLUTION.

15 (a) IN GENERAL.—

16 (1) STATE CASES.—A medical malpractice li17 ability action may not be brought in any State court

18 during a calendar year unless the medical mal19 practice liability claim that is the subject of the ac20 tion has been initially resolved under an alternative

21 dispute resolution system certified for the year by

22 the Secretary under section 4012(a), or, in the case

23 of a State in which such a system is not in effect

24 for the year, under the alternative Federal system

25 established under section 4022(b).
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1 (2) FEDERAL DIVERSITY ACTIONS.—A medical

2 malpractice liability action may not be brought in

3 any Federal court under section 1332 of title 28,

4 United States Code, during a calendar year unless

5 the medical malpractice liability claim that is the

6 subject of the action has been initially resolved

7 under the alternative dispute resolution system re8 ferred to in paragraph (1) that applied in the State

9 whose law applies in such action.

10 (3) CLAIMS AGAINST UNITED STATES.—

11 (A) ESTABLISHMENT OF PROCESS FOR

12 CLAIMS.—The Attorney General shall establish

13 an alternative dispute resolution process for the

14 resolution of tort claims consisting of medical

15 malpractice liability claims brought against the

16 United States under chapter 171 of title 28,

17 United States Code. Under such process, the

18 resolution of a claim shall occur after the com19 pletion of the administrative claim process ap20 plicable to the claim under section 2675 of such

21 title.

22 (B) REQUIREMENT FOR INITIAL RESOLU23 TION UNDER PROCESS.—A medical malpractice

24 liability action based on a medical malpractice

25 liability claim described in subparagraph (A)
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1 may not be brought in any Federal court unless

2 the claim has been initially resolved under the

3 alternative dispute resolution process estab4 lished by the Attorney General under such sub5 paragraph.

6 (b) INITIAL RESOLUTION OF CLAIMS UNDER

7 ADR.—For purposes of subsection (a), an action is ‘‘ini8 tially resolved’’ under an alternative dispute resolution

9 system if—

10 (1) the ADR reaches a decision on whether the

11 defendant is liable to the plaintiff for damages; and

12 (2) if the ADR determines that the defendant

13 is liable, the ADR reaches a decision on the amount

14 of damages assessed against the defendant.

15 (c) PROCEDURES FOR FILING ACTIONS.—

16 (1) NOTICE OF INTENT TO CONTEST DECI17 SION.—Not later than 60 days after a decision is is18 sued with respect to a medical malpractice liability

19 claim under an alternative dispute resolution system,

20 each party affected by the decision shall submit a

21 sealed statement to a court of competent jurisdiction

22 indicating whether or not the party intends to con23 test the decision.
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1 (2) DEADLINE FOR FILING ACTION.—A medical

2 malpractice liability action may not be brought by a

3 party unless—

4 (A) the party has filed the notice of intent

5 required by paragraph (1); and

6 (B) the party files the action in a court of

7 competent jurisdiction not later than 90 days

8 after the decision resolving the medical mal9 practice liability claim that is the subject of the

10 action is issued under the applicable alternative

11 dispute resolution system.

12 (3) COURT OF COMPETENT JURISDICTION.—

13 For purposes of this subsection, the term ‘‘court of

14 competent jurisdiction’’ means—

15 (A) with respect to actions filed in a State

16 court, the appropriate State trial court; and

17 (B) with respect to actions filed in a Fed18 eral court, the appropriate United States dis19 trict court.

20 (d) LEGAL EFFECT OF UNCONTESTED ADR DECI21 SION.—The decision reached under an alternative dispute

22 resolution system shall, for purposes of enforcement by a

23 court of competent jurisdiction, have the same status in

24 the court as the verdict of a medical malpractice liability

25 action adjudicated in a State or Federal trial court. The
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1 previous sentence shall not apply to a decision that is con2 tested by a party affected by the decision pursuant to sub3 section (c)(1).

4 SEC. 4003. OPTIONAL APPLICATION OF PRACTICE GUIDE5 LINES.

6 (a) DEVELOPMENT AND CERTIFICATION OF GUIDE7 LINES.—Each State may develop, for certification by the

8 Secretary, a set of specialty clinical practice guidelines,

9 based on recommended guidelines from national specialty

10 societies, to be updated annually. In the absence of rec11 ommended guidelines from such societies, each State may

12 develop such guidelines based on such criteria as the State

13 considers appropriate (including based on recommended

14 guidelines developed by the Agency for Health Care Policy

15 and Research).

16 (b) PROVISION OF HEALTH CARE UNDER GUIDE17 LINES.—Notwithstanding any other provision of law, in

18 any medical malpractice liability action arising from the

19 conduct of a health care provider or health care profes20 sional, if such conduct was in accordance with a guideline

21 developed by the State in which the conduct occurred and

22 certified by the Secretary under subsection (a), the guide23 line—
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1 (1) may be introduced by any party to the ac2 tion (including a health care provider, health care

3 professional, or patient); and

4 (2) if introduced, shall establish a rebuttable

5 presumption that the conduct was in accordance

6 with the appropriate standard of medical care, which

7 may only be overcome by the presentation of clear

8 and convincing evidence on behalf of the party

9 against whom the presumption operates.

10 SEC. 4004. TREATMENT OF NONECONOMIC AND PUNITIVE

11 DAMAGES.

12 (a) LIMITATION ON NONECONOMIC DAMAGES.—The

13 total amount of noneconomic damages that may be award14 ed to a claimant and the members of the claimant’s family

15 for losses resulting from the injury which is the subject

16 of a medical malpractice liability action may not exceed

17 $250,000, regardless of the number of parties against

18 whom the action is brought or the number of actions

19 brought with respect to the injury.

20 (b) NO AWARD OF PUNITIVE DAMAGES AGAINST

21 MANUFACTURER OF MEDICAL PRODUCT.—In the case of

22 a medical malpractice liability action in which the plaintiff

23 alleges a claim against the manufacturer of a medical

24 product, no punitive or exemplary damages may be award25 ed against such manufacturer.
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1 (c) JOINT AND SEVERAL LIABILITY FOR NON2 ECONOMIC DAMAGES.—The liability of each defendant for

3 noneconomic damages shall be several only and shall not

4 be joint, and each defendant shall be liable only for the

5 amount of noneconomic damages allocated to the defend6 ant in direct proportion to the defendant’s percentage of

7 responsibility (as determined by the trier of fact).

8 (d) USE OF PUNITIVE DAMAGE AWARDS FOR OPER9 ATION OF ADR SYSTEMS IN STATES.—

10 (1) IN GENERAL.—The total amount of any pu11 nitive damages awarded in a medical malpractice li12 ability action shall be paid to the State in which the

13 action is brought (or, in a case brought in Federal

14 court, in the State in which the health care services

15 that caused the injury that is the subject of the ac16 tion were provided), and shall be used by the State

17 solely to implement and operate the State alternative

18 dispute resolution system certified by the Secretary

19 under section 4022 (except as provided in paragraph

20 (2)).

21 (2) USE OF REMAINING AMOUNTS FOR PRO22 VIDER LICENSING AND DISCIPLINARY ACTIVITIES.—

23 If the amount of punitive damages paid to a State

24 under paragraph (1) for a year is greater than the

25 State’s costs of implementing and operating the
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1 State alternative dispute resolution system during

2 the year, the balance of such punitive damages paid

3 to the State shall be used solely to carry out activi4 ties to assure the safety and quality of health care

5 services provided in the State, including (but not

6 limited to)—

7 (A) licensing or certifying health care pro8 fessionals and health care providers in the

9 State; and

10 (B) carrying out programs to reduce mal11 practice-related costs for providers volunteering

12 to provide services in medically underserved

13 areas.

14 (3) MAINTENANCE OF EFFORT.—A State shall

15 use any amounts paid pursuant to paragraph (1) to

16 supplement and not to replace amounts spent by the

17 State for implementing and operating the State al18 ternative dispute resolution system or carrying out

19 the activities described in paragraph (2).

20 SEC. 4005. PERIODIC PAYMENTS FOR FUTURE LOSSES.

21 (a) IN GENERAL.—In any medical malpractice liabil22 ity action in which the damages awarded for future eco23 nomic loss exceed $100,000, a defendant may not be re24 quired to pay such damages in a single, lump-sum pay25 ment, but may be permitted to make such payments on
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1 a periodic basis. The periods for such payments shall be

2 determined by the court, based upon projections of when

3 such expenses are likely to be incurred.

4 (b) WAIVER.—A court may waive the application of

5 subsection (a) with respect to a defendant if the court de6 termines that it is not in the best interests of the plaintiff

7 to receive payments for damages on such a periodic basis.

8 SEC. 4006. TREATMENT OF ATTORNEY’S FEES AND OTHER

9 COSTS.

10 (a) REQUIRING PARTY CONTESTING ADR RULING

11 TO PAY ATTORNEY’S FEES AND OTHER COSTS.—

12 (1) IN GENERAL.—The court in a medical mal13 practice liability action shall require the party that

14 (pursuant to section 4002(c)(1)) contested the ruling

15 of the alternative dispute resolution system with re16 spect to the medical malpractice liability claim that

17 is the subject of the action to pay to the opposing

18 party the costs incurred by the opposing party under

19 the action, including attorney’s fees, fees paid to ex20 pert witnesses, and other litigation expenses (but not

21 including court costs, filing fees, or other expenses

22 paid directly by the party to the court, or any fees

23 or costs associated with the resolution of the claim

24 under the alternative dispute resolution system), but

25 only if—
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1 (A) in the case of an action in which the

2 party that contested the ruling is the claimant,

3 the amount of damages awarded to the party

4 under the action is less than the amount of

5 damages awarded to the party under the ADR

6 system; and

7 (B) in the case of an action in which the

8 party that contested the ruling is the defendant,

9 the amount of damages assessed against the

10 party under the action is greater than the

11 amount of damages assessed under the ADR

12 system.

13 (2) EXCEPTIONS.—Paragraph (1) shall not

14 apply if—

15 (A) the party contesting the ruling made

16 under the previous alternative dispute resolu17 tion system shows that—

18 (i) the ruling was procured by corrup19 tion, fraud, or undue means,

20 (ii) there was partiality or corruption

21 under the system,

22 (iii) there was other misconduct under

23 the system that materially prejudiced the

24 party’s rights, or
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1 (iv) the ruling was based on an error

2 of law;

3 (B) the party contesting the ruling made

4 under the alternative dispute resolution system

5 presents new evidence before the trier of fact

6 that was not available for presentation under

7 the ADR system;

8 (C) the medical malpractice liability action

9 raised a novel issue of law; or

10 (D) the court finds that the application of

11 such paragraph to a party would constitute an

12 undue hardship, and issues an order waiving or

13 modifying the application of such paragraph

14 that specifies the grounds for the court’s deci15 sion.

16 (3) LIMIT ON ATTORNEYS’ FEES PAID.—Attor17 neys’ fees that are required to be paid under para18 graph (1) by the contesting party shall not exceed

19 the amount of the attorneys’ fees incurred by the

20 contesting party in the action. If the attorneys’ fees

21 of the contesting party are based on a contingency

22 fee agreement, the amount of attorneys’ fees for

23 purposes of the preceding sentence shall not exceed

24 the reasonable value of those services.
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1 (4) RECORDS.—In order to receive attorneys’

2 fees under paragraph (1), counsel of record in the

3 medical malpractice liability action involved shall

4 maintain accurate, complete records of hours worked

5 on the action, regardless of the fee arrangement

6 with the client involved.

7 (b) CONTINGENCY FEE DEFINED.—As used in this

8 section, the term ‘‘contingency fee’’ means any fee for pro9 fessional legal services which is, in whole or in part, con10 tingent upon the recovery of any amount of damages,

11 whether through judgment or settlement.

12 SEC. 4007. UNIFORM STATUTE OF LIMITATIONS.

13 (a) IN GENERAL.—Except as provided in subsection

14 (b), no medical malpractice claim may be initiated after

15 the expiration of the 2-year period that begins on the date

16 on which the alleged injury that is the subject of such

17 claim was discovered, but in no event may such a claim

18 be initiated after the expiration of the 4-year period that

19 begins on the date on which the alleged injury that is the

20 subject of such claim occurred.

21 (b) EXCEPTION FOR MINORS.—In the case of an al22 leged injury suffered by a minor who has not attained 6

23 years of age, a medical malpractice claim may not be initi24 ated after the expiration of the 2-year period that begins

25 on the date on which the alleged injury that is the subject
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1 of such claim was discovered or should reasonably have

2 been discovered, but in no event may such a claim be initi3 ated after the date on which the minor attains 12 years

4 of age.

5 SEC. 4008. SPECIAL PROVISION FOR CERTAIN OBSTETRIC

6 SERVICES.

7 (a) IN GENERAL.—In the case of a medical mal8 practice claim relating to services provided during labor

9 or the delivery of a baby, if the health care professional

10 or health care provider against whom the claim is brought

11 did not previously treat the claimant for the pregnancy,

12 the trier of fact may not find that such professional or

13 provider committed malpractice and may not assess dam14 ages against such professional or provider unless the mal15 practice is proven by clear and convincing evidence.

16 (b) APPLICABILITY TO GROUP PRACTICES OR

17 AGREEMENTS AMONG PROVIDERS.—For purposes of sub18 section (a), a health care professional shall be considered

19 to have previously treated an individual for a pregnancy

20 if the professional is a member of a group practice whose

21 members previously treated the individual for the preg22 nancy or is providing services to the individual during

23 labor or the delivery of a baby pursuant to an agreement

24 with another professional.
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1 SEC. 4009. JURISDICTION OF FEDERAL COURTS.

2 Nothing in this part shall be construed to establish

3 any jurisdiction over any medical malpractice liability ac4 tion in the district courts of the United States on the basis

5 of section 1331 or 1337 of title 28, United States Code.

6 SEC. 4010. PREEMPTION.

7 (a) IN GENERAL.—The provisions of this part shall

8 preempt any State law to the extent such law is inconsist9 ent with such provisions, except that the provisions of this

10 part shall not preempt any State law that provides for de11 fenses or places limitations on a person’s liability in addi12 tion to those contained in this part, places greater limita13 tions on the amount of attorneys’ fees that can be col14 lected, or otherwise imposes greater restrictions than those

15 provided in this part.

16 (b) EFFECT ON SOVEREIGN IMMUNITY AND CHOICE

17 OF LAW OR VENUE.—Nothing in this part shall be con18 strued to—

19 (1) waive or affect any defense of sovereign im20 munity asserted by any State under any provision of

21 law;

22 (2) waive or affect any defense of sovereign im23 munity asserted by the United States;

24 (3) affect the applicability of any provision of

25 the Foreign Sovereign Immunities Act of 1976;
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1 (4) preempt State choice-of-law rules with re2 spect to claims brought by a foreign nation or a citi3 zen of a foreign nation; or

4 (5) affect the right of any court to transfer

5 venue or to apply the law of a foreign nation or to

6 dismiss a claim of a foreign nation or of a citizen

7 of a foreign nation on the ground of inconvenient

8 forum.

9 PART 2—REQUIREMENTS FOR STATE ALTER10 NATIVE DISPUTE RESOLUTION SYSTEMS

11 (ADR)

12 SEC. 4021. BASIC REQUIREMENTS.

13 (a) IN GENERAL.—A State’s alternative dispute reso14 lution system meets the requirements of this section if the

15 system—

16 (1) applies to all medical malpractice liability

17 claims under the jurisdiction of the courts of that

18 State;

19 (2) requires that a written opinion resolving the

20 dispute be issued not later than 6 months after the

21 date by which each party against whom the claim is

22 filed has received notice of the claim (other than in

23 exceptional cases for which a longer period is re24 quired for the issuance of such an opinion), and that

25 the opinion contain—
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1 (A) findings of fact relating to the dispute,

2 and

3 (B) a description of the costs incurred in

4 resolving the dispute under the system (includ5 ing any fees paid to the individuals hearing and

6 resolving the claim), together with an appro7 priate assessment of the costs against any of

8 the parties;

9 (3) requires individuals who hear and resolve

10 claims under the system to meet such qualifications

11 as the State may require (in accordance with regula12 tions of the Secretary);

13 (4) is approved by the State or by local govern14 ments in the State;

15 (5) with respect to a State system that consists

16 of multiple dispute resolution procedures—

17 (A) permits the parties to a dispute to se18 lect the procedure to be used for the resolution

19 of the dispute under the system, and

20 (B) if the parties do not agree on the pro21 cedure to be used for the resolution of the dis22 pute, assigns a particular procedure to the par23 ties;

24 (6) provides for the transmittal to the State

25 agency responsible for monitoring or disciplining
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1 health care professionals and health care providers

2 of any findings made under the system that such a

3 professional or provider committed malpractice, un4 less, during the 90-day period beginning on the date

5 the system resolves the claim against the profes6 sional or provider, the professional or provider

7 brings an action contesting the decision made under

8 the system; and

9 (7) provides for the regular transmittal to the

10 Administrator for Health Care Policy and Research

11 of information on disputes resolved under the sys12 tem, in a manner that assures that the identity of

13 the parties to a dispute shall not be revealed.

14 (b) APPLICATION OF MALPRACTICE LIABILITY

15 STANDARDS TO ALTERNATIVE DISPUTE RESOLUTION.—

16 The provisions of part 1 (other than section 4002) shall

17 apply with respect to claims brought under a State alter18 native dispute resolution system or the alternative Federal

19 system in the same manner as such provisions apply with

20 respect to medical malpractice liability actions brought in

21 the State.

22 SEC. 4022. CERTIFICATION OF STATE SYSTEMS; APPLICA23 BILITY OF ALTERNATIVE FEDERAL SYSTEM.

24 (a) CERTIFICATION.—
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1 (1) IN GENERAL.—Not later than October 1 of

2 each year (beginning with 1995), the Secretary, in

3 consultation with the Attorney General, shall deter4 mine whether a State’s alternative dispute resolution

5 system meets the requirements of this part for the

6 following calendar year.

7 (2) BASIS FOR CERTIFICATION.—The Secretary

8 shall certify a State’s alternative dispute resolution

9 system under this subsection for a calendar year if

10 the Secretary determines under paragraph (1) that

11 the system meets the requirements of section 4021,

12 including the requirement described in section 4004

13 that punitive damages awarded under the system are

14 paid to the State for the uses described in such sec15 tion.

16 (b) APPLICABILITY OF ALTERNATIVE FEDERAL SYS17 TEM.—

18 (1) ESTABLISHMENT AND APPLICABILITY.—

19 Not later than October 1, 1995, the Secretary, in

20 consultation with the Attorney General, shall estab21 lish by rule an alternative Federal ADR system for

22 the resolution of medical malpractice liability claims

23 during a calendar year in States that do not have

24 in effect an alternative dispute resolution system

25 certified under subsection (a) for the year.
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1 (2) REQUIREMENTS FOR SYSTEM.—Under the

2 alternative Federal ADR system established under

3 paragraph (1)—

4 (A) paragraphs (1), (2), (6), and (7) of

5 section 4021(a) shall apply to claims brought

6 under the system;

7 (B) if the system provides for the resolu8 tion of claims through arbitration, the claims

9 brought under the system shall be heard and

10 resolved by arbitrators appointed by the Sec11 retary in consultation with the Attorney Gen12 eral; and

13 (C) with respect to a State in which the

14 system is in effect, the Secretary may (at the

15 State’s request) modify the system to take into

16 account the existence of dispute resolution pro17 cedures in the State that affect the resolution

18 of medical malpractice liability claims.

19 (3) TREATMENT OF STATES WITH ALTER20 NATIVE SYSTEM IN EFFECT.—If the alternative Fed21 eral ADR system established under this subsection is

22 applied with respect to a State for a calendar year,

23 the State shall make a payment to the United States

24 (at such time and in such manner as the Secretary

25 may require) in an amount equal to 110 percent of
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1 the costs incurred by the United States during the

2 year as a result of the application of the system with

3 respect to the State.

4 SEC. 4023. REPORTS ON IMPLEMENTATION AND EFFEC5 TIVENESS OF ALTERNATIVE DISPUTE RESO6 LUTION SYSTEMS.

7 (a) IN GENERAL.—Not later than 5 years after the

8 date of the enactment of this Act, the Secretary shall pre9 pare and submit to the Congress a report describing and

10 evaluating State alternative dispute resolution systems op11 erated pursuant to this part and the alternative Federal

12 system established under section 4022(b).

13 (b) CONTENTS OF REPORT.—The Secretary shall in14 clude in the report prepared and submitted under sub15 section (a)—

16 (1) information on—

17 (A) the effect of the alternative dispute

18 resolution systems on the cost of health care

19 within each State,

20 (B) the impact of such systems on the ac21 cess of individuals to health care within the

22 State, and

23 (C) the effect of such systems on the qual24 ity of health care provided within the State; and
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1 (2) to the extent that such report does not pro2 vide information on no-fault systems operated by

3 States as alternative dispute resolution systems pur4 suant to this part, an analysis of the feasibility and

5 desirability of establishing a system under which

6 medical malpractice liability claims shall be resolved

7 on a no-fault basis.

8 PART 3—DEFINITIONS

9 SEC. 4031. DEFINITIONS.

10 As used in this subtitle:

11 (1) ALTERNATIVE DISPUTE RESOLUTION SYS12 TEM.—The term ‘‘alternative dispute resolution sys13 tem’’ means a system that is enacted or adopted by

14 a State to resolve medical malpractice claims other

15 than through a medical malpractice liability action.

16 (2) CLAIMANT.—The term ‘‘claimant’’ means

17 any person who brings a health care liability action

18 and, in the case of an individual who is deceased, in19 competent, or a minor, the person on whose behalf

20 such an action is brought.

21 (3) CLEAR AND CONVINCING EVIDENCE.—The

22 term ‘‘clear and convincing evidence’’ is that meas23 ure or degree of proof that will produce in the mind

24 of the trier of fact a firm belief or conviction as to

25 the truth of the allegations sought to be established,
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1 except that such measure or degree of proof is more

2 than that required under preponderance of the evi3 dence, but less than that required for proof beyond

4 a reasonable doubt.

5 (4) ECONOMIC DAMAGES.—The term ‘‘economic

6 damages’’ means damages paid to compensate an in7 dividual for losses for hospital and other medical ex8 penses, lost wages, lost employment, and other pecu9 niary losses.

10 (5) HEALTH CARE PROFESSIONAL.—The term

11 ‘‘health care professional’’ means any individual who

12 provides health care services in a State and who is

13 required by State law or regulation to be licensed or

14 certified by the State to provide such services in the

15 State.

16 (6) HEALTH CARE PROVIDER.—The term

17 ‘‘health care provider’’ means any organization or

18 institution that is engaged in the delivery of health

19 care services in a State that is required by State law

20 or regulation to be licensed or certified by the State

21 to engage in the delivery of such services in the

22 State.

23 (7) INJURY.—The term ‘‘injury’’ means any ill24 ness, disease, or other harm that is the subject of

25 a medical malpractice claim.
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1 (8) MEDICAL MALPRACTICE LIABILITY AC2 TION.—The term ‘‘medical malpractice liability ac3 tion’’ means any civil action brought pursuant to

4 State law in which a plaintiff alleges a medical mal5 practice claim against a health care provider or

6 health care professional, but does not include any

7 action in which the plaintiff’s sole allegation is an al8 legation of an intentional tort.

9 (9) MEDICAL MALPRACTICE CLAIM.—The term

10 ‘‘medical malpractice claim’’ means any claim relat11 ing to the provision of (or the failure to provide)

12 health care services or the use of a medical product,

13 without regard to the theory of liability asserted,

14 and includes any third-party claim, cross-claim,

15 counterclaim, or contribution claim in a medical

16 malpractice liability action.

17 (10) MEDICAL PRODUCT.—

18 (A) IN GENERAL.—The term ‘‘medical

19 product’’ means, with respect to the allegation

20 of a claimant, a drug (as defined in section

21 201(g)(1) of the Federal Food, Drug, and Cos22 metic Act (21 U.S.C. 321(g)(1)) or a medical

23 device (as defined in section 201(h) of the Fed24 eral Food, Drug, and Cosmetic Act (21 U.S.C.

25 321(h)) if—
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1 (i) such drug or device was subject to

2 premarket approval under section 505,

3 507, or 515 of the Federal Food, Drug,

4 and Cosmetic Act (21 U.S.C. 355, 357, or

5 360e) or section 351 of the Public Health

6 Service Act (42 U.S.C. 262) with respect

7 to the safety of the formulation or per8 formance of the aspect of such drug or de9 vice which is the subject of the claimant’s

10 allegation or the adequacy of the packag11 ing or labeling of such drug or device, and

12 such drug or device is approved by the

13 Food and Drug Administration; or

14 (ii) the drug or device is generally rec15 ognized as safe and effective under regula16 tions issued by the Secretary of Health

17 and Human Services under section 201(p)

18 of the Federal Food, Drug, and Cosmetic

19 Act (21 U.S.C. 321(p)).

20 (B) EXCEPTION IN CASE OF MISREPRE21 SENTATION OR FRAUD.—Notwithstanding sub22 paragraph (A), the term ‘‘medical product’’

23 shall not include any product described in such

24 subparagraph if the claimant shows that the

25 product is approved by the Food and Drug Ad-
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1 ministration for marketing as a result of with2 held information, misrepresentation, or an ille3 gal payment by the manufacturer of the prod4 uct.

5 (11) NONECONOMIC DAMAGES.—The term

6 ‘‘noneconomic damages’’ means damages paid to

7 compensate an individual for losses for physical and

8 emotional pain, suffering, inconvenience, physical

9 impairment, mental anguish, disfigurement, loss of

10 enjoyment of life, loss of consortium, and other

11 nonpecuniary losses, but does not include punitive

12 damages.

13 (12) PUNITIVE DAMAGES.—The term ‘‘punitive

14 damages’’ means compensation, in addition to com15 pensation for actual harm suffered, that is awarded

16 for the purpose of punishing a person for conduct

17 deemed to be malicious, wanton, willful, or exces18 sively reckless.

19 Subtitle B—Antitrust

20 SEC. 4101. PUBLICATION OF ANTITRUST GUIDELINES ON

21 ACTIVITIES OF HEALTH PLANS.

22 (a) IN GENERAL.—The Attorney General shall pro23 vide for the development and publication of explicit guide24 lines on the application of antitrust laws to the activities

25 of health plans. The guidelines shall be designed to facili-
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1 tate development and operation of plans, consistent with

2 the antitrust laws.

3 (b) REVIEW PROCESS.—The Attorney General shall

4 establish a review process under which the administrator

5 or sponsor of a health plan (or organization that proposes

6 to administer or sponsor a health plan) may submit a re7 quest to the Attorney General to obtain a prompt opinion

8 (but in no event later than 60 days after the Attorney

9 General receives the request) from the Department of Jus10 tice on the plan’s conformity with the Federal antitrust

11 laws.

12 (c) DEFINITIONS.—In this section—

13 (1) the term ‘‘antitrust laws’’—

14 (A) has the meaning given it in subsection

15 (a) of the first section of the Clayton Act (15

16 U.S.C. 12(a)), except that such term includes

17 section 5 of the Federal Trade Commission Act

18 (15 U.S.C. 45) to the extent such section ap19 plies to unfair methods of competition, and

20 (B) includes any State law similar to the

21 laws referred to in subparagraph (A); and

22 (2) the term ‘‘health plan’’ means any contract

23 or arrangement under which an entity bears all or

24 part of the cost of providing health care items and

25 services, including a hospital or medical expense in-
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1 curred policy or certificate, hospital or medical serv2 ice plan contract, or health maintenance subscriber

3 contract, but does not include—

4 (A) coverage only for accident, dental, vi5 sion, disability, or long term care, medicare

6 supplemental health insurance, or any combina7 tion thereof,

8 (B) coverage issued as a supplement to li9 ability insurance,

10 (C) workers’ compensation or similar in11 surance, or

12 (D) automobile medical-payment insur13 ance.

14 SEC. 4102. ISSUANCE OF HEALTH CARE CERTIFICATES OF

15 PUBLIC ADVANTAGE.

16 (a) ISSUANCE AND EFFECT OF CERTIFICATE.—The

17 Attorney General, after consultation with the Secretary,

18 shall issue in accordance with this section a certificate of

19 public advantage to each eligible health care collaborative

20 activity that complies with the requirements in effect

21 under this section on or after the expiration of the 1-year

22 period that begins on the date of the enactment of this

23 Act (without regard to whether or not the Attorney Gen24 eral has promulgated regulations to carry out this section

25 by such date). Such activity, and the parties to such activ-
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1 ity, shall not be liable under any of the antitrust laws for

2 conduct described in such certificate and engaged in by

3 such activity if such conduct occurs while such certificate

4 is in effect.

5 (b) REQUIREMENTS APPLICABLE TO ISSUANCE OF

6 CERTIFICATES.—

7 (1) STANDARDS TO BE MET.—The Attorney

8 General shall issue a certificate to an eligible health

9 care collaborative activity if the Attorney General

10 finds that—

11 (A) the benefits that are likely to result

12 from carrying out the activity outweigh the re13 duction in competition (if any) that is likely to

14 result from the activity, and

15 (B) such reduction in competition is nec16 essary to obtain such benefits.

17 (2) FACTORS TO BE CONSIDERED.—

18 (A) WEIGHING OF BENEFITS AGAINST RE19 DUCTION IN COMPETITION.—For purposes of

20 making the finding described in paragraph

21 (1)(A), the Attorney General shall consider

22 whether the activity is likely—

23 (i) to maintain or to increase the

24 quality of health care by providing new
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1 services not currently offered in the rel2 evant market,

3 (ii) to increase access to health care,

4 (iii) to achieve cost efficiencies that

5 will be passed on to health care consumers,

6 such as economies of scale, reduced trans7 action costs, and reduced administrative

8 costs, that cannot be achieved by the provi9 sion of available services and facilities in

10 the relevant market,

11 (iv) to preserve the operation of

12 health care facilities located in underserved

13 geographical areas,

14 (v) to improve utilization of health

15 care resources, and

16 (vi) to reduce inefficient health care

17 resource duplication.

18 (B) NECESSITY OF REDUCTION IN COM19 PETITION.—For purposes of making the finding

20 described in paragraph (1)(B), the Attorney

21 General shall consider—

22 (i) the ability of the providers of

23 health care services that are (or likely to

24 be) affected by the health care collabo25 rative activity and the entities responsible
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1 for making payments to such providers to

2 negotiate societally optimal payment and

3 service arrangements,

4 (ii) the effects of the health care col5 laborative activity on premiums and other

6 charges imposed by the entities described

7 in clause (i), and

8 (iii) the availability of equally effi9 cient, less restrictive alternatives to achieve

10 the benefits that are intended to be

11 achieved by carrying out the activity.

12 (c) ESTABLISHMENT OF CRITERIA AND PROCE13 DURES.—Subject to subsections (d) and (e), not later than

14 1 year after the date of the enactment of this Act, the

15 Attorney General and the Secretary shall establish jointly

16 by rule the criteria and procedures applicable to the issu17 ance of certificates under subsection (a). The rules shall

18 specify the form and content of the application to be sub19 mitted to the Attorney General to request a certificate,

20 the information required to be submitted in support of

21 such application, the procedures applicable to denying and

22 to revoking a certificate, and the procedures applicable to

23 the administrative appeal (if such appeal is authorized by

24 rule) of the denial and the revocation of a certificate. Such

25 information may include the terms of the health care col-
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1 laborative activity (in the case of an activity in existence

2 as of the time of the application) and implementation plan

3 for the collaborative activity.

4 (d) ELIGIBLE HEALTH CARE COLLABORATIVE AC5 TIVITY.—To be an eligible health care collaborative activ6 ity for purposes of this section, a health care collaborative

7 activity shall submit to the Attorney General an applica8 tion that complies with the rules in effect under subsection

9 (c) and that includes—

10 (1) an agreement by the parties to the activity

11 that the activity will not foreclose competition by en12 tering into contracts that prevent health care provid13 ers from providing health care in competition with

14 the activity,

15 (2) an agreement that the activity will submit

16 to the Attorney General annually a report that de17 scribes the operations of the activity and information

18 regarding the impact of the activity on health care

19 and on competition in health care, and

20 (3) an agreement that the parties to the activity

21 will notify the Attorney General and the Secretary of

22 the termination of the activity not later than 30

23 days after such termination occurs.

24 (e) REVIEW OF APPLICATIONS FOR CERTIFICATES.—

25 Not later than 90 days after an eligible health care col-
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1 laborative activity submits to the Attorney General an ap2 plication that complies with the rules in effect under sub3 section (c) and with subsection (d), the Attorney General

4 shall issue or deny the issuance of such certificate. If, be5 fore the expiration of such 90-day period, the Attorney

6 General may extend the time for issuance for good cause.

7 (f) REVOCATION OF CERTIFICATE.—Whenever the

8 Attorney General finds that a health care collaborative ac9 tivity with respect to which a certificate is in effect does

10 not meet the standards specified in subsection (b), the At11 torney General shall revoke such certificate.

12 (g) WRITTEN REASONS; JUDICIAL REVIEW.—

13 (1) DENIAL AND REVOCATION OF CERTIFI14 CATES.—If the Attorney General denies an applica15 tion for a certificate or revokes a certificate, the At16 torney General shall include in the notice of denial

17 or revocation a statement of the reasons relied upon

18 for the denial or revocation of such certificate.

19 (2) JUDICIAL REVIEW.—

20 (A) AFTER ADMINISTRATIVE PROCEED21 ING.—(i) If the Attorney General denies an ap22 plication submitted or revokes a certificate is23 sued under this section after an opportunity for

24 hearing on the record, then any party to the

25 health care collaborative activity involved may
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1 commence a civil action, not later than 60 days

2 after receiving notice of the denial or revoca3 tion, in an appropriate district court of the

4 United States for review of the record of such

5 denial or revocation.

6 (ii) As part of the Attorney General’s an7 swer, the Attorney General shall file in such

8 court a certified copy of the record on which

9 such denial or revocation is based. The findings

10 of fact of the Attorney General may be set aside

11 only if found to be unsupported by substantial

12 evidence in such record taken as a whole.

13 (B) DENIAL OR REVOCATION WITHOUT AD14 MINISTRATIVE PROCEEDING.—If the Attorney

15 General denies an application submitted or re16 vokes a certificate issued under this section

17 without an opportunity for hearing on the

18 record, then any party to the health care col19 laborative activity involved may commence a

20 civil action, not later than 60 days after receiv21 ing notice of the denial or revocation, in an ap22 propriate district court of the United States for

23 de novo review of such denial or revocation.

24 (h) EXEMPTION.—A person shall not be liable under

25 any of the antitrust laws for conduct necessary—
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1 (1) to prepare, agree to prepare, or attempt to

2 agree to prepare an application to request a certifi3 cate under this section, or

4 (2) to attempt to enter into any health care col5 laborative activity with respect to which such a cer6 tificate is in effect.

7 (i) DEFINITIONS.—In this section:

8 (1) The term ‘‘antitrust laws’’ has the meaning

9 given it in subsection (a) of the first section of the

10 Clayton Act (15 U.S.C. 12(a)), except that such

11 term includes section 5 of the Federal Trade Com12 mission Act (15 U.S.C. 45) to the extent such sec13 tion applies to unfair methods of competition.

14 (2) The term ‘‘certificate’’ means a certificate

15 of public advantage authorized to be issued under

16 subsection (a).

17 (3) The term ‘‘health care collaborative activ18 ity’’ means an agreement (whether existing or pro19 posed) between 2 or more providers of health care

20 services that is entered into solely for the purpose of

21 sharing in the provision and coordination of health

22 care services and that involves substantial integra23 tion and financial risk-sharing between the parties,

24 but does not include the exchanging of information,

25 the entering into of any agreement, or the engage-
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1 ment in any other conduct that is not reasonably re2 quired to carry out such agreement.

3 (4) The term ‘‘health care services’’ includes

4 services related to the delivery or administration of

5 health care services.

6 (5) The term ‘‘liable’’ means liable for any civil

7 or criminal violation of the antitrust laws.

8 (6) The term ‘‘provider of health care services’’

9 means any individual or entity that is engaged in the

10 delivery of health care services in a State and that

11 is required by State law or regulation to be licensed

12 or certified by the State to engage in the delivery of

13 such services in the State.

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