I

104TH CONGRESS

2D SESSION H. R. 3063

To amend the Internal Revenue Code of 1986 to improve portability and

continuity of health insurance coverage in the group and individual

markets, to combat waste, fraud, and abuse in health insurance and

health care delivery, to promote the use of medical savings accounts,

and to simplify the administration of health insurance.

IN THE HOUSE OF REPRESENTATIVES

MARCH 12, 1996

Mr. ARCHER (for himself and Mr. THOMAS) introduced the following bill;

which was referred to the Committee on Ways and Means, and in addition to the Committees on Economic and Educational Opportunities,

Commerce, 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 improve

portability and continuity of health insurance coverage

in the group and individual markets, to combat waste,

fraud, and abuse in health insurance and health care

delivery, to promote the use of medical savings accounts,

and to simplify the administration of health insurance.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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1 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

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

3 ‘‘Health Coverage Availability and Affordability Act of

4 1996’’.

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

6 this Act is as follows:

Sec. 1. Short title; table of contents.

TITLE I—IMPROVED AVAILABILITY AND PORTABILITY OF

HEALTH INSURANCE COVERAGE

Subtitle A—Coverage Under Group Health Plans

Sec. 101. Portability of coverage for previously covered individuals.

Sec. 102. Limitation on preexisting condition exclusions; no application to certain newborns, adopted children, and pregnancy.

Sec. 103. Prohibiting exclusions based on health status and providing for enrollment periods.

Sec. 104. Enforcement.

Subtitle B—Definitions; General Provisions

Sec. 191. Definitions; scope of coverage.

Sec. 192. State flexibility to provide greater protection.

Sec. 193. Effective date.

Sec. 194. Rule of construction.

TITLE II—PREVENTING HEALTH CARE FRAUD AND ABUSE;

ADMINISTRATIVE SIMPLIFICATION

Sec. 200. References in title.

Subtitle A—Fraud and Abuse Control Program

Sec. 201. Fraud and abuse control program.

Sec. 202. Medicare integrity program.

Sec. 203. Beneficiary incentive programs.

Sec. 204. Application of certain health anti-fraud and abuse sanctions to fraud

and abuse against Federal health care programs.

Sec. 205. Guidance regarding application of health care fraud and abuse sanctions.

Subtitle B—Revisions to Current Sanctions for Fraud and Abuse

Sec. 211. Mandatory exclusion from participation in medicare and State health

care programs.

Sec. 212. Establishment of minimum period of exclusion for certain individuals

and entities subject to permissive exclusion from medicare and

State health care programs.

Sec. 213. Permissive exclusion of individuals with ownership or control interest

in sanctioned entities.
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Sec. 214. Sanctions against practitioners and persons for failure to comply with

statutory obligations.

Sec. 215. Intermediate sanctions for medicare health maintenance organizations.

Sec. 216. Additional exception to anti-kickback penalties for discounting and

managed care arrangements.

Sec. 217. Criminal penalty for fraudulent disposition of assets in order to obtain medicaid benefits.

Sec. 218. Effective date.

Subtitle C—Data Collection

Sec. 221. Establishment of the health care fraud and abuse data collection program.

Subtitle D—Civil Monetary Penalties

Sec. 231. Social security act civil monetary penalties.

Sec. 232. Clarification of level of intent required for imposition of sanctions.

Sec. 233. Penalty for false certification for home health services.

Subtitle E—Revisions to Criminal Law

Sec. 241. Definition of Federal health care offense.

Sec. 242. Health care fraud.

Sec. 243. Theft or embezzlement.

Sec. 244. False statements.

Sec. 245. Obstruction of criminal investigations of health care offenses.

Sec. 246. Laundering of monetary instruments.

Sec. 247. Injunctive relief relating to health care offenses.

Sec. 248. Authorized investigative demand procedures.

Sec. 249. Forfeitures for Federal health care offenses.

Subtitle F—Administrative Simplification

Sec. 251. Purpose.

Sec. 252. Administrative simplification.

‘‘PART C—ADMINISTRATIVE SIMPLIFICATION

‘‘Sec. 1171. Definitions.

‘‘Sec. 1172. General requirements for adoption of standards.

‘‘Sec. 1173. Standards for information transactions and data elements.

‘‘Sec. 1174. Timetables for adoption of standards.

‘‘Sec. 1175. Requirements.

‘‘Sec. 1176. General penalty for failure to comply with requirements and

standards.

‘‘Sec. 1177. Wrongful disclosure of individually identifiable health information.

‘‘Sec. 1178. Effect on State law.

‘‘Sec. 1179. Health Information Advisory Committee.

TITLE III—TAX-RELATED HEALTH PROVISIONS

Subtitle A—Medical Savings Accounts

Sec. 301. Medical savings accounts.
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Subtitle B—Increase in Deduction for Health Insurance Costs of SelfEmployed Individuals

Sec. 311. Increase in deduction for health insurance costs of self-employed individuals.

1 TITLE I—IMPROVED AVAILABIL2 ITY AND PORTABILITY OF

3 HEALTH INSURANCE COV4 ERAGE

5 Subtitle A—Coverage Under Group

6 Health Plans

7 SEC. 101. PORTABILITY OF COVERAGE FOR PREVIOUSLY

8 COVERED INDIVIDUALS.

9 (a) CREDITING PERIODS OF PREVIOUS COVERAGE

10 TOWARD PREEXISTING CONDITION RESTRICTIONS.—Sub11 ject to the succeeding provisions of this section, a group

12 health plan, and an insurer or health maintenance organi13 zation offering health insurance coverage in connection

14 with a group health plan, shall provide that any preexist15 ing condition limitation period (as defined in subsection

16 (b)(2)) is reduced by the length of the aggregate period

17 of qualified prior coverage (if any, as defined in subsection

18 (b)(3)) applicable to the participant or beneficiary as of

19 the date of commencement of coverage under the plan.

20 (b) DEFINITIONS AND OTHER PROVISIONS RELAT21 ING TO PREEXISTING CONDITIONS.—

22 (1) PREEXISTING CONDITION.—
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1 (A) IN GENERAL.—For purposes of this

2 subtitle, subject to subparagraph (B), the term

3 ‘‘preexisting condition’’ means a condition, re4 gardless of the cause of the condition, for which

5 medical advice, diagnosis, care, or treatment

6 was recommended or received within the 6-

7 month period ending on the day before—

8 (i) the effective date of the coverage

9 of such participant or beneficiary, or

10 (ii) the earliest date upon which such

11 coverage could have been effective if there

12 were no waiting period applicable,

13 whichever is earlier.

14 (B) EXTENSION OF PERIOD IN THE CASE

15 OF LATE ENROLLMENT.—In the case of a par16 ticipant or beneficiary whose initial coverage

17 commences after the date the participant or

18 beneficiary first becomes eligible for coverage

19 under the group health plan, the reference in

20 subparagraph (A) to ‘‘6-month period’’ is

21 deemed a reference to ‘‘12-month period’’.

22 (2) PREEXISTING CONDITION LIMITATION PE23 RIOD.—For purposes of this subtitle, the term ‘‘pre24 existing condition limitation period’’ means, with re25 spect to coverage of an individual under a group
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1 health plan or under health insurance coverage, the

2 period during which benefits with respect to treat3 ment of a condition of such individual are not pro4 vided based on the fact that the condition is a pre5 existing condition.

6 (3) AGGREGATE PERIOD OF QUALIFIED PRIOR

7 COVERAGE.—

8 (A) IN GENERAL.—For purposes of this

9 section, the term ‘‘aggregate period of qualified

10 prior coverage’’ means, with respect to com11 mencement of coverage of an individual under

12 a group health plan or health insurance cov13 erage offered in connection with a group health

14 plan, the aggregate of the qualified coverage pe15 riods (as defined in subparagraph (B)) of such

16 individual occurring before the date of such

17 commencement. Such period shall be treated as

18 zero if there is more than a 60-day break in

19 coverage under a group health plan (or health

20 insurance coverage offered in connection with

21 such a plan) between the date the most recent

22 qualified coverage period ends and the date of

23 such commencement.

24 (B) QUALIFIED COVERAGE PERIOD.—
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1 (i) IN GENERAL.—For purposes of

2 this paragraph, subject to subsection (c),

3 the term ‘‘qualified coverage period’’

4 means, with respect to an individual, any

5 period of coverage of the individual under

6 a group health plan, health insurance cov7 erage, or under title XIX of the Social Se8 curity Act.

9 (ii) DISREGARDING PERIODS BEFORE

10 BREAKS IN COVERAGE.—Such term does

11 not include any period occurring before

12 any 60-day break in coverage described in

13 subparagraph (A).

14 (C) WAITING PERIOD NOT TREATED AS A

15 BREAK IN COVERAGE.—For purposes of sub16 paragraphs (A) and (B), any period that is in

17 a waiting period for any coverage under a

18 group health plan (or for health insurance cov19 erage offered in connection with a group health

20 plan) shall not be considered to be a break in

21 coverage described in subparagraph (B)(ii).

22 (D) ESTABLISHMENT OF PERIOD.—A

23 qualified coverage period with respect to an in24 dividual shall be established through presen25 tation of certifications described in subsection
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1 (c) or in such other manner as may be specified

2 in regulations to carry out this section.

3 (c) CERTIFICATIONS OF COVERAGE; CONFORMING

4 COVERAGE.—

5 (1) IN GENERAL.—The plan administrator of a

6 group health plan, or the insurer or HMO offering

7 health insurance coverage in connection with a group

8 health plan, shall, on request made on behalf of an

9 individual covered (or previously covered within the

10 previous 18 months) under the plan or coverage,

11 provide for a certification of the period of coverage

12 of the individual under such plan or coverage and of

13 the waiting period (if any) imposed with respect to

14 the individual for any coverage under the plan.

15 (2) STANDARD METHOD.—Subject to paragraph

16 (3), a group health plan, or insurer or HMO offering

17 health insurance coverage in connection with a group

18 health plan, shall determine qualified coverage peri19 ods under subsection (b)(3)(B) by including all peri20 ods described in such subsection, without regard to

21 the specific benefits offered during such a period.

22 (3) ALTERNATIVE METHOD.—Such a plan, in23 surer, or HMO may elect to make such determina24 tion on a benefit-specific basis for all participants

25 and beneficiaries and not to include as a qualified
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1 coverage period with respect to a specific benefit

2 coverage during a previous period unless such pre3 vious coverage for that benefit was included at the

4 end of the most recent period of coverage. In the

5 case of such an election—

6 (A) the plan, insurer, or HMO shall promi7 nently state in any disclosure statements con8 cerning the plan or coverage and to each en9 rollee at the time of enrollment under the plan

10 (or at the time the health insurance coverage is

11 offered for sale in the group health market)

12 that the plan or coverage has made such elec13 tion and shall include a description of the effect

14 of this election; and

15 (B) upon the request of the plan, insurer,

16 or HMO, the entity providing a certification

17 under paragraph (1)—

18 (i) shall promptly disclose to the re19 questing plan, insurer, or HMO the plan

20 statement (insofar as it relates to health

21 benefits under the plan) or other detailed

22 benefit information on the benefits avail23 able under the previous plan or coverage,

24 and
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1 (ii) may charge for the reasonable

2 cost of providing such information.

3 SEC. 102. LIMITATION ON PREEXISTING CONDITION EXCLU4 SIONS; NO APPLICATION TO CERTAIN

5 NEWBORNS, ADOPTED CHILDREN, AND PREG6 NANCY.

7 (a) LIMITATION OF PERIOD.—

8 (1) IN GENERAL.—Subject to the succeeding

9 provisions of this section, a group health plan, and

10 an insurer or HMO offering health insurance cov11 erage in connection with a group health plan, shall

12 provide that any preexisting condition limitation pe13 riod (as defined in section 101(b)(2)) does not ex14 ceed 12 months, counting from the effective date of

15 coverage.

16 (2) EXTENSION OF PERIOD IN THE CASE OF

17 LATE ENROLLMENT.—In the case of a participant or

18 beneficiary whose initial coverage commences after

19 the date the participant or beneficiary first becomes

20 eligible for coverage under the group health plan,

21 the reference in paragraph (1) to ‘‘12 months’’ is

22 deemed a reference to ‘‘18 months’’.

23 (b) EXCLUSION NOT APPLICABLE TO CERTAIN

24 NEWBORNS AND CERTAIN ADOPTIONS.—
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1 (1) IN GENERAL.—Subject to paragraph (2), a

2 group health plan, and an insurer or HMO offering

3 health insurance coverage in connection with a group

4 health plan, may not provide any limitation on bene5 fits based on the existence of a preexisting condition

6 in the case of—

7 (A) an individual who within the 30-day

8 period beginning with the date of birth, or

9 (B) an adopted child or a child placed for

10 adoption beginning at the time of adoption or

11 placement if the individual, within the 30-day

12 period beginning on the date of adoption or

13 placement,

14 becomes covered under a group health plan or other15 wise becomes covered under health insurance cov16 erage (or covered for medical assistance under title

17 XIX of the Social Security Act).

18 (2) LOSS IF BREAK IN COVERAGE.—Paragraph

19 (1) shall no longer apply to an individual if the indi20 vidual does not have any coverage under a group

21 health plan, health insurance coverage, or under title

22 XIX of the Social Security Act for a continuous pe23 riod of 60 days, not counting in such period any

24 days that are in a waiting period for any coverage

25 under a group health plan.
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1 (3) PLACED FOR ADOPTION DEFINED.—In this

2 subsection and section 103(d), the term ‘‘place3 ment’’, or being ‘‘placed’’, for adoption, in connec4 tion with any placement for adoption of a child with

5 any person, means the assumption and retention by

6 such person of a legal obligation for total or partial

7 support of such child in anticipation of adoption of

8 such child. The child’s placement with such person

9 terminates upon the termination of such legal obliga10 tion.

11 (c) EXCLUSION NOT APPLICABLE TO PREGNANCY.—

12 For purposes of this section, pregnancy shall not be treat13 ed as a preexisting condition.

14 (d) ELIGIBILITY PERIOD IMPOSED BY HEALTH

15 MAINTENANCE ORGANIZATIONS AS ALTERNATIVE TO

16 PREEXISTING CONDITION LIMITATION.—A health mainte17 nance organization which offers health insurance coverage

18 in connection with a group health plan and which does

19 not use the preexisting condition limitations allowed under

20 this section and section 101 with respect to any particular

21 coverage option may impose an eligibility period for such

22 coverage option, but only if such period does not exceed—

23 (1) 90 days, in the case of a participant or ben24 eficiary whose initial coverage commences at the
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1 time such participant or beneficiary first becomes el2 igible for coverage under the plan, or

3 (2) 180 days, in the case of a participant or

4 beneficiary whose initial coverage commences after

5 the date on which such participant or beneficiary

6 first becomes eligible for coverage.

7 For purposes of this subsection, the term ‘‘eligibility pe8 riod’’ means a period which, under the terms of the health

9 insurance coverage offered by the health maintenance or10 ganization, must expire before the health insurance cov11 erage becomes effective. Any such eligibility period shall

12 be treated for purposes of this subtitle as a waiting period

13 under the plan and shall run concurrently with any other

14 applicable waiting period under the plan.

15 SEC. 103. PROHIBITING EXCLUSIONS BASED ON HEALTH

16 STATUS AND PROVIDING FOR ENROLLMENT

17 PERIODS.

18 (a) PROHIBITION OF EXCLUSION OF PARTICIPANTS

19 OR BENEFICIARIES BASED ON HEALTH STATUS.—

20 (1) IN GENERAL.—A group health plan, and an

21 insurer or HMO offering health insurance coverage

22 in connection with a group health plan, may not ex23 clude an employee or his or her beneficiary from

24 being (or continuing to be) a participant or bene25 ficiary under the terms of such plan or coverage
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1 based on health status (as defined in section

2 191(c)(6)).

3 (2) CONSTRUCTION.—Nothing in this sub4 section shall be construed as preventing the estab5 lishment of preexisting condition limitations and re6 strictions to the extent consistent with the provisions

7 of this subtitle.

8 (b) ENROLLMENT OF ELIGIBLE INDIVIDUALS WHO

9 LOSE OTHER COVERAGE.—A group health plan shall per10 mit an uncovered employee who is otherwise eligible for

11 coverage under the terms of the plan (or an uncovered

12 dependent, as defined under the terms of the plan, of such

13 an employee, if family coverage is available) to enroll for

14 coverage under the plan under at least one benefit option

15 if each of the following conditions is met:

16 (1) The employee or dependent was covered

17 under a group health plan or had health insurance

18 coverage at the time coverage was previously offered

19 to the employee or individual.

20 (2) The employee stated in writing at such time

21 that coverage under a group health plan or health

22 insurance coverage was the reason for declining en23 rollment.

24 (3) The employee or dependent lost coverage

25 under a group health plan or health insurance cov-
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1 erage (as a result of loss of eligibility for the cov2 erage, termination of employment, or reduction in

3 the number of hours of employment).

4 (4) The employee requests such enrollment

5 within 30 days after the date of termination of such

6 coverage.

7 (c) DEPENDENT BENEFICIARIES.—

8 (1) IN GENERAL.—If a group health plan

9 makes family coverage available, the plan may not

10 require, as a condition of coverage of an individual

11 as a dependent (as defined under the terms of the

12 plan) of a participant in the plan, a waiting period

13 applicable to the coverage of a dependent who—

14 (A) is a newborn,

15 (B) is an adopted child or child placed for

16 adoption (within the meaning of section

17 102(b)(3)), at the time of adoption or place18 ment, or

19 (C) is a spouse, at the time of marriage,

20 if the participant has met any waiting period appli21 cable to that participant.

22 (2) TIMELY ENROLLMENT.—

23 (A) IN GENERAL.—Enrollment of a partici24 pant’s beneficiary described in paragraph (1)

25 shall be considered to be timely if a request for
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1 enrollment is made within 30 days of the date

2 family coverage is first made available or, in the

3 case described in—

4 (i) paragraph (1)(A), within 30 days

5 of the date of the birth,

6 (ii) paragraph (1)(B), within 30 days

7 of the date of the adoption or placement

8 for adoption, or

9 (iii) paragraph (1)(C), within 30 days

10 of the date of the marriage with such a

11 beneficiary who is the spouse of the partic12 ipant,

13 if family coverage is available as of such date.

14 (B) COVERAGE.—If available coverage in15 cludes family coverage and enrollment is made

16 under such coverage on a timely basis under

17 subparagraph (A), the coverage shall become ef18 fective not later than the first day of the first

19 month beginning 15 days after the date the

20 completed request for enrollment is received.

21 SEC. 104. ENFORCEMENT.

22 (a) ENFORCEMENT THROUGH COBRAZ PROVISIONS

23 IN INTERNAL REVENUE CODE.—

24 (1) APPLICATION OF COBRA SANCTIONS.—Sub25 section (a) of section 4980B of the Internal Revenue
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1 Code of 1986 is amended by striking ‘‘the require2 ments of’’ and all that follows and inserting ‘‘the re3 quirements of—

4 ‘‘(1) subsection (f) with respect to any qualified

5 beneficiary, or

6 ‘‘(2) subject to subsection (h)—

7 ‘‘(A) section 101 or 102 of the Health

8 Coverage Availability and Affordability Act of

9 1996 with respect to any individual covered

10 under the group health plan, or

11 ‘‘(B) section 103 of such Act with respect

12 to any individual.’’.

13 (2) NOTICE REQUIREMENT.—Section

14 4980B(f)(6)(A) of such Code is amended by insert15 ing before the period the following: ‘‘and subtitle A

16 of title I of the Health Coverage Availability and Af17 fordability Act of 1996’’.

18 (3) SPECIAL RULES.—Section 4980B of such

19 Code is amended by adding at the end the following:

20 ‘‘(h) SPECIAL RULES.—For purposes of applying this

21 section in the case of requirements described in subsection

22 (a)(2) relating to section 101, section 102, or section 103

23 of the Health Coverage Availability and Affordability Act

24 of 1996—
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1 ‘‘(1) DEFERRAL TO STATE REGULATION.—No

2 tax shall be imposed by this section on any failure

3 to meet the requirements of such section by any en4 tity which offers health insurance coverage and

5 which is an insurer or health maintenance organiza6 tion (as defined in section 191(c) of the Health Cov7 erage Availability and Affordability Act of 1996)

8 regulated by a State if the Secretary of Health and

9 Human Services has made the determination de10 scribed in section 104(c)(2) of such Act with respect

11 to such State, section, and entity.

12 ‘‘(2) LIMITATION FOR INSURED PLANS.—In the

13 case of a group health plan of a small employer (as

14 defined in section 191 of the Health Coverage Avail15 ability and Affordability Act of 1996) that provides

16 health care benefits solely through a contract with

17 an insurer or health maintenance organization (as

18 defined in such section), no tax shall be imposed by

19 this section upon the employer on a failure to meet

20 such requirements if the failure is solely because of

21 the product offered by the insurer or organization

22 under such contract.

23 ‘‘(3) LIMITATION ON IMPOSITION OF TAX.—In

24 no case shall a tax be imposed by this section for a
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1 failure to meet such a requirement if a sanction has

2 been imposed—

3 ‘‘(A) by the Secretary of Labor under part

4 5 of subtitle A of title I of the Employee Retire5 ment Income Security Act of 1974 with respect

6 to such failure, or

7 ‘‘(B) by the Secretary of Health and

8 Human Services under section 109 of the

9 Health Coverage Availability and Affordability

10 Act of 1996 with respect to such failure.’’.

11 (b) ENFORCEMENT THROUGH ERISA SANCTIONS

12 FOR CERTAIN GROUP HEALTH PLANS.—

13 (1) IN GENERAL.—Subject to the succeeding

14 provisions of this subsection, sections 101 through

15 103 of this subtitle shall be deemed to be provisions

16 of title I of the Employee Retirement Income Secu17 rity Act of 1974 for purposes of applying such title.

18 (2) FEDERAL ENFORCEMENT ONLY IF NO EN19 FORCEMENT THROUGH STATE.—The Secretary of

20 Labor shall enforce each section referred to in para21 graph (1) with respect to any entity which is an in22 surer or health maintenance organization regulated

23 by a State only if the Secretary of Labor determines

24 that—
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1 (A) such State has not provided for en2 forcement of State laws which govern the same

3 matters as are governed by such section and

4 which require compliance by such entity with at

5 least the same requirements as those provided

6 under such section, and

7 (B) such entity has failed to comply with

8 such requirements of such section as are appli9 cable to such entity.

10 (3) LIMITATIONS ON LIABILITY.—

11 (A) NO APPLICATION WHERE FAILURE

12 NOT DISCOVERED EXERCISING REASONABLE

13 DILIGENCE.—No liability shall be imposed

14 under this subsection on the basis of any failure

15 during any period for which it is established to

16 the satisfaction of the Secretary of Labor that

17 none of the persons against whom the liability

18 would be imposed knew, or exercising reason19 able diligence would have known, that such fail20 ure existed.

21 (B) NO APPLICATION WHERE FAILURE

22 CORRECTED WITHIN 30 DAYS.—No liability

23 shall be imposed under this subsection on the

24 basis of any failure if such failure was due to

25 reasonable cause and not to willful neglect, and
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1 such failure is corrected during the 30-day pe2 riod beginning on the first day any of the per3 sons against whom the liability would be im4 posed knew, or exercising reasonable diligence

5 would have known, that such failure existed.

6 (4) AVOIDING DUPLICATION OF CERTAIN PEN7 ALTIES.—In no case shall a civil money penalty be

8 imposed under the authority provided under para9 graph (1) for a violation of this subtitle for which

10 an excise tax has been imposed under section 4980B

11 of the Internal Revenue Code of 1986 or a civil

12 money penalty imposed under subsection (c).

13 (c) ENFORCEMENT THROUGH CIVIL MONEY PEN14 ALTIES.—

15 (1) IMPOSITION.—

16 (A) IN GENERAL.—Subject to the succeed17 ing provisions of this subsection, any group

18 health plan, insurer, or organization that fails

19 to meet a requirement of this subtitle is subject

20 to a civil money penalty under this section.

21 (B) LIABILITY FOR PENALTY.—Rules simi22 lar to the rules described in section 4980B(e) of

23 the Internal Revenue Code of 1986 for liability

24 for a tax imposed under section 4980B(a) of
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1 such Code shall apply to liability for a penalty

2 imposed under subparagraph (A).

3 (C) AMOUNT OF PENALTY.—

4 (i) IN GENERAL.—The maximum

5 amount of penalty imposed under this

6 paragraph is $100 for each day for each

7 individual with respect to which such a

8 failure occurs.

9 (ii) CONSIDERATIONS IN IMPOSI10 TION.—In determining the amount of any

11 penalty to be assessed under this para12 graph, the Secretary of Health and Human

13 Services shall take into account the pre14 vious record of compliance of the person

15 being assessed with the applicable require16 ments of this subtitle, the gravity of the

17 violation, and the overall limitations for

18 unintentional failures provided under sec19 tion 4980B(c)(4) of the Internal Revenue

20 Code of 1986.

21 (iii) LIMITATIONS.—

22 (I) PENALTY NOT TO APPLY

23 WHERE FAILURE NOT DISCOVERED

24 EXERCISING REASONABLE DILI25 GENCE.—No civil money penalty shall
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1 be imposed under this paragraph on

2 any failure during any period for

3 which it is established to the satisfac4 tion of the Secretary that none of the

5 persons against whom the penalty

6 would be imposed knew, or exercising

7 reasonable diligence would have

8 known, that such failure existed.

9 (II) PENALTY NOT TO APPLY TO

10 FAILURES CORRECTED WITHIN 30

11 DAYS.—No civil money penalty shall

12 be imposed under this paragraph on

13 any failure if such failure was due to

14 reasonable cause and not to willful ne15 glect, and such failure is corrected

16 during the 30-day period beginning on

17 the first day any of the persons

18 against whom the penalty would be

19 imposed knew, or exercising reason20 able diligence would have known, that

21 such failure existed.

22 (D) ADMINISTRATIVE REVIEW.—

23 (i) OPPORTUNITY FOR HEARING.—

24 The person assessed shall be afforded an

25 opportunity for hearing by the Secretary
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1 upon request made within 30 days after

2 the date of the issuance of a notice of as3 sessment. In such hearing the decision

4 shall be made on the record pursuant to

5 section 554 of title 5, United States Code.

6 If no hearing is requested, the assessment

7 shall constitute a final and unappealable

8 order.

9 (ii) HEARING PROCEDURE.—If a

10 hearing is requested, the initial agency de11 cision shall be made by an administrative

12 law judge, and such decision shall become

13 the final order unless the Secretary modi14 fies or vacates the decision. Notice of in15 tent to modify or vacate the decision of the

16 administrative law judge shall be issued to

17 the parties within 30 days after the date of

18 the decision of the judge. A final order

19 which takes effect under this paragraph

20 shall be subject to review only as provided

21 under subparagraph (D).

22 (E) JUDICIAL REVIEW.—

23 (i) FILING OF ACTION FOR REVIEW.—

24 Any person against whom an order impos25 ing a civil money penalty has been entered
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1 after an agency hearing under this para2 graph may obtain review by the United

3 States district court for any district in

4 which such person is located or the United

5 States District Court for the District of

6 Columbia by filing a notice of appeal in

7 such court within 30 days from the date of

8 such order, and simultaneously sending a

9 copy of such notice be registered mail to

10 the Secretary.

11 (ii) CERTIFICATION OF ADMINISTRA12 TIVE RECORD.—The Secretary shall

13 promptly certify and file in such court the

14 record upon which the penalty was im15 posed.

16 (iii) STANDARD FOR REVIEW.—The

17 findings of the Secretary shall be set aside

18 only if found to be unsupported by sub19 stantial evidence as provided by section

20 706(2)(E) of title 5, United States Code.

21 (iv) APPEAL.—Any final decision,

22 order, or judgment of such district court

23 concerning such review shall be subject to

24 appeal as provided in chapter 83 of title 28

25 of such Code.
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1 (F) FAILURE TO PAY ASSESSMENT; MAIN2 TENANCE OF ACTION.—

3 (i) FAILURE TO PAY ASSESSMENT.—If

4 any person fails to pay an assessment after

5 it has become a final and unappealable

6 order, or after the court has entered final

7 judgment in favor of the Secretary, the

8 Secretary shall refer the matter to the At9 torney General who shall recover the

10 amount assessed by action in the appro11 priate United States district court.

12 (ii) NONREVIEWABILITY.—In such ac13 tion the validity and appropriateness of the

14 final order imposing the penalty shall not

15 be subject to review.

16 (G) PAYMENT OF PENALTIES.—Except as

17 otherwise provided, penalties collected under

18 this paragraph shall be paid to the Secretary

19 (or other officer) imposing the penalty and shall

20 be available without appropriation and until ex21 pended for the purpose of enforcing the provi22 sions with respect to which the penalty was im23 posed.

24 (2) FEDERAL ENFORCEMENT ONLY IF NO EN25 FORCEMENT THROUGH STATE.—Paragraph (1) shall
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1 not apply to enforcement of the requirements of sec2 tion 101, 102, or 103 with respect to any entity

3 which offers health insurance coverage and which is

4 an insurer or HMO regulated by a State if the Sec5 retary of Health and Human Services has deter6 mined that—

7 (A) such State has not provided for en8 forcement of State laws which govern the same

9 matters as are governed by such section and

10 which require compliance by such entity with at

11 least the same requirements as those provided

12 under such section, and

13 (B) such entity has failed to comply with

14 such requirements of such section as are appli15 cable to such entity.

16 (3) NONDUPLICATION OF SANCTIONS.—In no

17 case shall a civil money penalty be imposed under

18 this subsection for a violation of this subtitle for

19 which an excise tax has been imposed under section

20 4980B of the Internal Revenue Code of 1986 or for

21 which a civil money penalty has been imposed under

22 the authority provided under subsection (b).

23 (d) COORDINATION IN ADMINISTRATION.—The Sec24 retaries of the Treasury, Labor, and Health and Human

25 Services shall issue regulations that are nonduplicative to
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1 carry out this subtitle. Such regulations shall be issued

2 in a manner that assures coordination and nonduplication

3 in their activities under this subtitle.

4 Subtitle B—Definitions; General

5 Provisions

6 SEC. 191. DEFINITIONS; SCOPE OF COVERAGE.

7 (a) GROUP HEALTH PLAN.—

8 (1) DEFINITION.—Subject to the succeeding

9 provisions of this subsection and subsection (d)(1),

10 the term ‘‘group health plan’’ means an employee

11 welfare benefit plan to the extent that the plan pro12 vides medical care (as defined in subsection (b)()) to

13 employees or their dependents (as defined under the

14 terms of the plan) directly or through insurance, re15 imbursement, or otherwise, and includes a group

16 health plan (within the meaning of section

17 5000B(b)(1) of the Internal Revenue Code of 1986).

18 (2) LIMITATION OF REQUIREMENTS TO PLANS

19 WITH 2 OR MORE EMPLOYEE PARTICIPANTS.—The

20 requirements of subtitle A and part 1 of subtitle B

21 shall apply in the case of a group health plan for

22 any plan year, or for health insurance coverage of23 fered in connection with a group health plan for a

24 year, only if the group health plan has two or more
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1 participants as current employees on the first day of

2 the plan year.

3 (3) EXCLUSION OF PLANS WITH LIMITED COV4 ERAGE.—An employee welfare benefit plan shall be

5 treated as a group health plan under this title only

6 with respect to medical care which is provided under

7 the plan and which does not consist of coverage ex8 cluded from the definition of health insurance cov9 erage under subsection (c)(4)(B).

10 (3) TREATMENT OF CHURCH PLANS.—

11 (A) EXCLUSION.—The requirements of

12 this title insofar as they apply to group health

13 plans shall not apply to church plans.

14 (B) OPTIONAL DISREGARD IN DETERMIN15 ING PERIOD OF COVERAGE.—For purposes of

16 applying section 101(b)(3)(B)(i), a group health

17 plan may elect to disregard periods of coverage

18 of an individual under a church plan that, pur19 suant to subparagraph (A), is not subject to the

20 requirements of this title.

21 (4) TREATMENT OF GOVERNMENTAL PLANS.—

22 (A) ELECTION TO BE EXCLUDED.—If the

23 plan sponsor of a governmental plan which is a

24 group health plan to which the provisions of

25 this subtitle otherwise apply makes an election
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1 under this paragraph for any specified period

2 (in such form and manner as the Secretary of

3 Health and Human Services may by regulations

4 prescribe), then the requirements of this title

5 insofar as they apply to group health plans

6 shall not apply to such governmental plans for

7 such period.

8 (B) OPTIONAL DISREGARD IN DETERMIN9 ING PERIOD OF COVERAGE IF ELECTION

10 MADE.—For purposes of applying section

11 101(b)(3)(B)(i), a group health plan may elect

12 to disregard periods of coverage of an individual

13 under a governmental plan that, under an elec14 tion under subparagraph (A), is not subject to

15 the requirements of this title.

16 (5) TREATMENT OF MEDICAID PLAN AS GROUP

17 HEALTH PLAN.—A State plan under title XIX of the

18 Social Security Act shall be treated as a group

19 health plan for purposes of applying section 101(c),

20 unless the State elects not to be so treated.

21 (b) INCORPORATION OF CERTAIN DEFINITIONS IN

22 EMPLOYEE RETIREMENT INCOME SECURITY ACT OF

23 1974.—Except as provided in this section, the terms ‘‘ben24 eficiary’’, ‘‘church plan’’, ‘‘employee’’, ‘‘employee welfare

25 benefit plan’’, ‘‘employer’’, ‘‘governmental plan’’, ‘‘multi-
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1 employer plan’’, ‘‘multiple employer welfare arrange2 ment’’, ‘‘participant’’, ‘‘plan sponsor’’, and ‘‘State’’ have

3 the meanings given such terms in section 3 of the Em4 ployee Retirement Income Security Act of 1974.

5 (c) OTHER DEFINITIONS.—For purposes of this title:

6 (1) APPLICABLE STATE AUTHORITY.—The term

7 ‘‘applicable State authority’’ means, with respect to

8 an insurer or health maintenance organization in a

9 State, the State insurance commissioner or official

10 or officials designated by the State to enforce the re11 quirements of this title for the State involved with

12 respect to such insurer or organization.

13 (2) BONA FIDE ASSOCIATION.—The term ‘‘bona

14 fide association’’ means an association which—

15 (A) has been actively in existence for at

16 least 5 years,

17 (B) has been formed and maintained in

18 good faith for purposes other than obtaining in19 surance,

20 (C) does not condition membership in the

21 association on health status,

22 (D) makes health insurance coverage of23 fered through the association available to all

24 members regardless of health status,
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1 (E) does not make health insurance cov2 erage offered through the association available

3 to any individual who is not a member (or de4 pendent of a member) of the association at the

5 time the coverage is initially issued,

6 (F) does not impose preexisting condition

7 exclusions except in a manner consistent with

8 the requirements of sections 101 and 102 as

9 they relate to group health plans, and

10 (G) provides for renewal and continuation

11 of health insurance coverage in a manner con12 sistent with the requirements of section 132 as

13 they relate to the renewal and continuation in

14 force of coverage in a group market.

15 (3) COBRA CONTINUATION PROVISION.—The

16 term ‘‘COBRA continuation provision’’ means any of

17 the following:

18 (A) Section 4980B of the Internal Revenue

19 Code of 1986, other than subsection (f)(1) of

20 such section insofar as it relates to pediatric

21 vaccines.

22 (B) Part 6 of subtitle B of title I of the

23 Employee Retirement Income Security Act of

24 1974 (29 U.S.C. 1161 et seq.), other than sec25 tion 609.
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1 (C) Title XXII of the Public Health Serv2 ice Act.

3 (4) HEALTH INSURANCE COVERAGE.—

4 (A) IN GENERAL.—Except as provided in

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

6 coverage’’ means benefits consisting of medical

7 care (provided directly, through insurance or re8 imbursement, or otherwise) under any hospital

9 or medical service policy or certificate, hospital

10 or medical service plan contract, or health

11 maintenance organization group contract of12 fered by an insurer or a health maintenance or13 ganization.

14 (B) EXCEPTION.—Such term does not in15 clude coverage under any separate policy, cer16 tificate, or contract only for one or more of any

17 of the following:

18 (i) Coverage for accident, credit-only,

19 vision, disability income, long-term care,

20 nursing home care, community-based care

21 dental, on-site medical clinics, or employee

22 assistance programs, or any combination

23 thereof.

24 (ii) Medicare supplemental health in25 surance (within the meaning of section
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1 1882(g)(1) of the Social Security Act (42

2 U.S.C. 1395ss(g)(1))) and similar supple3 mental coverage provided under a group

4 health plan.

5 (iii) Coverage issued as a supplement

6 to liability insurance.

7 (iv) Liability insurance, including gen8 eral liability insurance and automobile li9 ability insurance.

10 (v) Workers’ compensation or similar

11 insurance.

12 (vi) Automobile medical-payment in13 surance.

14 (vii) Coverage consisting of benefit

15 payments made on a periodic basis for a

16 specified disease or illness or period of hos17 pitalization, without regard to the costs in18 curred or services rendered during the pe19 riod to which the payments relate.

20 (viii) Short-term limited duration in21 surance.

22 (ix) Such other coverage, comparable

23 to that described in previous clauses, as

24 may be specified in regulations prescribed

25 under this title.
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1 (5) HEALTH MAINTENANCE ORGANIZATION;

2 HMO.—The terms ‘‘health maintenance organiza3 tion’’ and ‘‘HMO’’ mean—

4 (A) a Federally qualified health mainte5 nance organization (as defined in section

6 1301(a) of the Public Health Service Act (42

7 U.S.C. 300e(a))),

8 (B) an organization recognized under State

9 law as a health maintenance organization, or

10 (C) a similar organization regulated under

11 State law for solvency in the same manner and

12 to the same extent as such a health mainte13 nance organization,

14 if (other than for purposes of part 2 of subtitle B)

15 it is subject to State law which regulates insurance

16 (within the meaning of section 514(b)(2) of the Em17 ployee Retirement Income Security Act of 1974).

18 (6) HEALTH STATUS.—The term ‘‘health sta19 tus’’ includes, with respect to an individual, medical

20 condition, claims experience, receipt of health care,

21 medical history, evidence of insurability, or disabil22 ity.

23 (7) INDIVIDUAL HEALTH INSURANCE COV24 ERAGE.—The term ‘‘individual health insurance cov25 erage’’ means health insurance coverage offered to
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1 individuals if the coverage is not offered in connec2 tion with a group health plan (other than such a

3 plan that has fewer than two participants as current

4 employees on the first day of the plan year).

5 (8) INSURER.—The term ‘‘insurer’’ means an

6 insurance company, insurance service, or insurance

7 organization which is licensed to engage in the busi8 ness of insurance in a State and (except for pur9 poses of part 2 of subtitle B) which is regulated by

10 a State (within the meaning of section 514(b)(2)(A)

11 of the Employee Retirement Income Security Act of

12 1974).

13 (9) MEDICAL CARE.—The term ‘‘medical care’’

14 means—

15 (A) amounts paid for, or items or services

16 in the form of, the diagnosis, cure, mitigation,

17 treatment, or prevention of disease, or amounts

18 paid for, or items or services provided for, the

19 purpose of affecting any structure or function

20 of the body,

21 (B) amounts paid for, or services in the

22 form of, transportation primarily for and essen23 tial to medical care referred to in subparagraph

24 (A), and
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1 (C) amounts paid for insurance covering

2 medical care referred to in subparagraphs (A)

3 and (B).

4 (10) NETWORK PLAN.—The term ‘‘network

5 plan’’ means, with respect to health insurance cov6 erage, an arrangement of an insurer or a health

7 maintenance organization under which the financing

8 and delivery of medical care are provided, in whole

9 or in part, through a defined set of providers under

10 contract with the insurer or health maintenance or11 ganization.

12 (11) WAITING PERIOD.—The term ‘‘waiting pe13 riod’’ means, with respect to a group health plan

14 and an individual who is a potential participant or

15 beneficiary in the plan, the minimum period that

16 must pass with respect to the individual before the

17 individual is eligible to be covered for benefits under

18 the plan.

19 (d) TREATMENT OF PARTNERSHIPS.—

20 (1) TREATMENT AS A GROUP HEALTH PLAN.—

21 Any plan, fund, or program which would not be (but

22 for this paragraph) an employee welfare benefit plan

23 and which is established or maintained by a partner24 ship, to the extent that such plan, fund, or program

25 provides medical care to present or former partners
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1 in the partnership or to their dependents (as defined

2 under the terms of the plan, fund, or program), di3 rectly or through insurance, reimbursement, or oth4 erwise, shall be treated (subject to paragraph (1)) as

5 an employee welfare benefit plan which is a group

6 health plan.

7 (2) TREATMENT OF PARTNERSHIP AND PART8 NERS AND EMPLOYER AND PARTICIPANTS.—In the

9 case of a group health plan—

10 (A) the term ‘‘employer’’ includes the part11 nership in relation to any partner; and

12 (B) the term ‘‘participant’’ includes—

13 (i) in connection with a group health

14 plan maintained by a partnership, an indi15 vidual who is a partner in relation to the

16 partnership, or

17 (ii) in connection with a group health

18 plan maintained by a self-employed individ19 ual (under which one or more employees

20 are participants), the self-employed individ21 ual,

22 if such individual is or may become eligible to

23 receive a benefit under the plan or such individ24 ual’s beneficiaries may be eligible to receive any

25 such benefit.
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1 (e) DEFINITIONS RELATING TO MARKETS AND

2 SMALL EMPLOYERS.—As used in this title:

3 (1) INDIVIDUAL MARKET.—The term ‘‘individ4 ual market’’ means the market for health insurance

5 coverage offered to individuals and not to employers

6 or in connection with a group health plan and does

7 not include the market for such coverage issued only

8 by an insurer or HMO that makes such coverage

9 available only on the basis of affiliation with an as10 sociation or other group.

11 (2) LARGE GROUP MARKET.—The term ‘‘large

12 group market’’ means the market for health insur13 ance coverage offered to employers (other than small

14 employers) on behalf of their employees (and their

15 dependents) and does not include health insurance

16 coverage available solely in connection with a bona

17 fide association (as defined in subsection (c)(2)).

18 (3) SMALL EMPLOYER.—The term ‘‘small em19 ployer’’ means, in connection with a group health

20 plan with respect to a calendar year, an employer

21 who employs at least 2 but fewer than 51 employees

22 on a typical business day in the year. For purposes

23 of this paragraph, two or more trades or businesses,

24 whether or not incorporated, shall be deemed a sin25 gle employer if such trades or businesses are within
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1 the same control group (within the meaning of sec2 tion 3(40)(B)(ii)).

3 (4) SMALL GROUP MARKET.—The term ‘‘small

4 group market’’ means the health insurance market

5 under which individuals obtain health insurance cov6 erage (directly or through any arrangement) on be7 half of themselves (and their dependents) on the

8 basis of employment or other relationship with re9 spect to a small employer and does not include

10 health insurance coverage available solely in connec11 tion with a bona fide association (as defined in sub12 section (c)(2)).

13 SEC. 192. STATE FLEXIBILITY TO PROVIDE GREATER PRO14 TECTION.

15 (a) STATE FLEXIBILITY TO PROVIDE GREATER PRO16 TECTION.—Subject to subsection (b), nothing in this title

17 shall be construed to preempt State laws that—

18 (1) require insurers or HMOs to impose a limi19 tation or exclusion of benefits relating to the treat20 ment of a preexisting condition for a period that is

21 shorter than the applicable period provided for under

22 this title; or

23 (2) allow individuals, participants, and bene24 ficiaries to be considered to be in a period of pre25 vious qualifying coverage if such individual, partici-
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1 pant, or beneficiary experiences a lapse in coverage

2 that is greater than the 60-day periods provided for

3 under sections 101(b)(3)(A), 101(b)(3)(B)(ii), and

4 102(b)(2).

5 (b) NO OVERRIDE OF ERISA PREEMPTION.—Noth6 ing in this Act shall be construed to affect or modify the

7 provisions of section 514 of the Employee Retirement In8 come Security Act of 1974 (29 U.S.C. 1144).

9 SEC. 193. EFFECTIVE DATE.

10 (a) IN GENERAL.—Except as otherwise provided for

11 in this title, the provisions of this title shall apply with

12 respect to—

13 (1) group health plans, and health insurance

14 coverage offered in connection with group health

15 plans, for plan years beginning on or after January

16 1, 1998, and

17 (2) individual health insurance coverage issued,

18 renewed, in effect, or operated on or after July 1,

19 1998.

20 (b) CONSIDERATION OF PREVIOUS COVERAGE.—The

21 Secretaries of Health and Human Services, Treasury, and

22 Labor shall jointly establish rules regarding the treatment

23 (in determining qualified coverage periods under sections

24 102(b) and 141(b)) of coverage before the applicable effec25 tive date specified in subsection (a).
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1 (c) TIMELY ISSUANCE OF REGULATIONS.—The Sec2 retaries of Health and Human Services, the Treasury, and

3 Labor shall issue such regulations on a timely basis as

4 may be required to carry out this title.

5 SEC. 194. RULE OF CONSTRUCTION.

6 Nothing in this title or any amendment made thereby

7 may be construed to require the coverage of any specific

8 procedure, treatment, or service as part of a group health

9 plan or health insurance coverage under this title or

10 through regulation.

11 TITLE II—PREVENTING HEALTH

12 CARE FRAUD AND ABUSE; AD13 MINISTRATIVE SIMPLIFICA14 TION

15 SEC. 200. REFERENCES IN TITLE.

16 Except as otherwise specifically provided, whenever in

17 this title an amendment is expressed in terms of an

18 amendment to or repeal of a section or other provision,

19 the reference shall be considered to be made to that sec20 tion or other provision of the Social Security Act.
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1 Subtitle A—Fraud and Abuse

2 Control Program

3 SEC. 201. FRAUD AND ABUSE CONTROL PROGRAM.

4 (a) ESTABLISHMENT OF PROGRAM.—Title XI (42

5 U.S.C. 1301 et seq.) is amended by inserting after section

6 1128B the following new section:

7 ‘‘FRAUD AND ABUSE CONTROL PROGRAM

8 ‘‘SEC. 1128C. (a) ESTABLISHMENT OF PROGRAM.—

9 ‘‘(1) IN GENERAL.—Not later than January 1,

10 1997, the Secretary, acting through the Office of the

11 Inspector General of the Department of Health and

12 Human Services, and the Attorney General shall es13 tablish a program—

14 ‘‘(A) to coordinate Federal, State, and

15 local law enforcement programs to control fraud

16 and abuse with respect to health plans,

17 ‘‘(B) to conduct investigations, audits,

18 evaluations, and inspections relating to the de19 livery of and payment for health care in the

20 United States,

21 ‘‘(C) to facilitate the enforcement of the

22 provisions of sections 1128, 1128A, and 1128B

23 and other statutes applicable to health care

24 fraud and abuse,
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1 ‘‘(D) to provide for the modification and

2 establishment of safe harbors and to issue advi3 sory opinions and special fraud alerts pursuant

4 to section 1128D, and

5 ‘‘(E) to provide for the reporting and dis6 closure of certain final adverse actions against

7 health care providers, suppliers, or practitioners

8 pursuant to the data collection system estab9 lished under section 1128E.

10 ‘‘(2) COORDINATION WITH HEALTH PLANS.—In

11 carrying out the program established under para12 graph (1), the Secretary and the Attorney General

13 shall consult with, and arrange for the sharing of

14 data with representatives of health plans.

15 ‘‘(3) GUIDELINES.—

16 ‘‘(A) IN GENERAL.—The Secretary and the

17 Attorney General shall issue guidelines to carry

18 out the program under paragraph (1). The pro19 visions of sections 553, 556, and 557 of title 5,

20 United States Code, shall not apply in the issu21 ance of such guidelines.

22 ‘‘(B) INFORMATION GUIDELINES.—

23 ‘‘(i) IN GENERAL.—Such guidelines

24 shall include guidelines relating to the fur25 nishing of information by health plans,
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1 providers, and others to enable the Sec2 retary and the Attorney General to carry

3 out the program (including coordination

4 with health plans under paragraph (2)).

5 ‘‘(ii) CONFIDENTIALITY.—Such guide6 lines shall include procedures to assure

7 that such information is provided and uti8 lized in a manner that appropriately pro9 tects the confidentiality of the information

10 and the privacy of individuals receiving

11 health care services and items.

12 ‘‘(iii) QUALIFIED IMMUNITY FOR PRO13 VIDING INFORMATION.—The provisions of

14 section 1157(a) (relating to limitation on

15 liability) shall apply to a person providing

16 information to the Secretary or the Attor17 ney General in conjunction with their per18 formance of duties under this section.

19 ‘‘(4) ENSURING ACCESS TO DOCUMENTATION.—

20 The Inspector General of the Department of Health

21 and Human Services is authorized to exercise such

22 authority described in paragraphs (3) through (9) of

23 section 6 of the Inspector General Act of 1978 (5

24 U.S.C. App.) as necessary with respect to the activi-
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1 ties under the fraud and abuse control program es2 tablished under this subsection.

3 ‘‘(5) AUTHORITY OF INSPECTOR GENERAL.—

4 Nothing in this Act shall be construed to diminish

5 the authority of any Inspector General, including

6 such authority as provided in the Inspector General

7 Act of 1978 (5 U.S.C. App.).

8 ‘‘(b) ADDITIONAL USE OF FUNDS BY INSPECTOR

9 GENERAL.—

10 ‘‘(1) REIMBURSEMENTS FOR INVESTIGA11 TIONS.—The Inspector General of the Department

12 of Health and Human Services is authorized to re13 ceive and retain for current use reimbursement for

14 the costs of conducting investigations and audits and

15 for monitoring compliance plans when such costs are

16 ordered by a court, voluntarily agreed to by the

17 payor, or otherwise.

18 ‘‘(2) CREDITING.—Funds received by the In19 spector General under paragraph (1) as reimburse20 ment for costs of conducting investigations shall be

21 deposited to the credit of the appropriation from

22 which initially paid, or to appropriations for similar

23 purposes currently available at the time of deposit,

24 and shall remain available for obligation for 1 year

25 from the date of the deposit of such funds.
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1 ‘‘(c) HEALTH PLAN DEFINED.—For purposes of this

2 section, the term ‘health plan’ means a plan or program

3 that provides health benefits, whether directly, through in4 surance, or otherwise, and includes—

5 ‘‘(1) a policy of health insurance;

6 ‘‘(2) a contract of a service benefit organiza7 tion; and

8 ‘‘(3) a membership agreement with a health

9 maintenance organization or other prepaid health

10 plan.’’.

11 (b) ESTABLISHMENT OF HEALTH CARE FRAUD AND

12 ABUSE CONTROL ACCOUNT IN FEDERAL HOSPITAL IN13 SURANCE TRUST FUND.—Section 1817 (42 U.S.C. 1395i)

14 is amended by adding at the end the following new sub15 section:

16 ‘‘(k) HEALTH CARE FRAUD AND ABUSE CONTROL

17 ACCOUNT.—

18 ‘‘(1) ESTABLISHMENT.—There is hereby estab19 lished in the Trust Fund an expenditure account to

20 be known as the ‘Health Care Fraud and Abuse

21 Control Account’ (in this subsection referred to as

22 the ‘Account’).

23 ‘‘(2) APPROPRIATED AMOUNTS TO TRUST

24 FUND.—
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1 ‘‘(A) IN GENERAL.—There are hereby ap2 propriated to the Trust Fund—

3 ‘‘(i) such gifts and bequests as may be

4 made as provided in subparagraph (B);

5 ‘‘(ii) such amounts as may be depos6 ited in the Trust Fund as provided in sec7 tions 242(b) and 249(c) of the Health Cov8 erage Availability and Affordability Act of

9 1996, and title XI; and

10 ‘‘(iii) such amounts as are transferred

11 to the Trust Fund under subparagraph

12 (C).

13 ‘‘(B) AUTHORIZATION TO ACCEPT GIFTS.—

14 The Trust Fund is authorized to accept on be15 half of the United States money gifts and be16 quests made unconditionally to the Trust Fund,

17 for the benefit of the Account or any activity fi18 nanced through the Account.

19 ‘‘(C) TRANSFER OF AMOUNTS.—The Man20 aging Trustee shall transfer to the Trust Fund,

21 under rules similar to the rules in section 9601

22 of the Internal Revenue Code of 1986, an

23 amount equal to the sum of the following:

24 ‘‘(i) Criminal fines recovered in cases

25 involving a Federal health care offense (as
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1 defined in section 982(a)(6)(B) of title 18,

2 United States Code).

3 ‘‘(ii) Civil monetary penalties and as4 sessments imposed in health care cases, in5 cluding amounts recovered under titles XI,

6 XVIII, and XXI, and chapter 38 of title

7 31, United States Code (except as other8 wise provided by law).

9 ‘‘(iii) Amounts resulting from the for10 feiture of property by reason of a Federal

11 health care offense.

12 ‘‘(iv) Penalties and damages obtained

13 and otherwise creditable to miscellaneous

14 receipts of the general fund of the Treas15 ury obtained under sections 3729 through

16 3733 of title 31, United States Code

17 (known as the False Claims Act), in cases

18 involving claims related to the provision of

19 health care items and services (other than

20 funds awarded to a relator, for restitution

21 or otherwise authorized by law).

22 ‘‘(3) APPROPRIATED AMOUNTS TO ACCOUNT

23 FOR FRAUD AND ABUSE CONTROL PROGRAM, ETC.—

24 ‘‘(A) DEPARTMENTS OF HEALTH AND

25 HUMAN SERVICES AND JUSTICE.—
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1 ‘‘(i) IN GENERAL.—There are hereby

2 appropriated to the Account from the

3 Trust Fund such sums as the Secretary

4 and the Attorney General certify are nec5 essary to carry out the purposes described

6 in subparagraph (C), to be available with7 out further appropriation, in an amount

8 not to exceed—

9 ‘‘(I) for fiscal year 1997,

10 $104,000,000, and

11 ‘‘(II) for each of the fiscal years

12 1998 through 2003, the limit for the

13 preceding fiscal year, increased by 15

14 percent; and

15 ‘‘(III) for each fiscal year after

16 fiscal year 2003, the limit for fiscal

17 year 2003.

18 ‘‘(ii) MEDICARE AND MEDICAID AC19 TIVITIES.—For each fiscal year, of the

20 amount appropriated in clause (i), the fol21 lowing amounts shall be available only for

22 the purposes of the activities of the Office

23 of the Inspector General of the Depart24 ment of Health and Human Services with
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1 respect to the medicare and medicaid pro2 grams—

3 ‘‘(I) for fiscal year 1997, not less

4 than $60,000,000 and not more than

5 $70,000,000;

6 ‘‘(II) for fiscal year 1998, not

7 less than $80,000,000 and not more

8 than $90,000,000;

9 ‘‘(III) for fiscal year 1999, not

10 less than $90,000,000 and not more

11 than $100,000,000;

12 ‘‘(IV) for fiscal year 2000, not

13 less than $110,000,000 and not more

14 than $120,000,000;

15 ‘‘(V) for fiscal year 2001, not

16 less than $120,000,000 and not more

17 than $130,000,000;

18 ‘‘(VI) for fiscal year 2002, not

19 less than $140,000,000 and not more

20 than $150,000,000; and

21 ‘‘(VII) for each fiscal year after

22 fiscal year 2002, not less than

23 $150,000,000 and not more than

24 $160,000,000.
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1 ‘‘(B) FEDERAL BUREAU OF INVESTIGA2 TION.—There are hereby appropriated from the

3 general fund of the United States Treasury and

4 hereby appropriated to the Account for transfer

5 to the Federal Bureau of Investigation to carry

6 out the purposes described in subparagraph

7 (C), to be available without further appropria8 tion—

9 ‘‘(i) for fiscal year 1997, $47,000,000;

10 ‘‘(ii) for fiscal year 1998,

11 $56,000,000;

12 ‘‘(iii) for fiscal year 1999,

13 $66,000,000;

14 ‘‘(iv) for fiscal year 2000,

15 $76,000,000;

16 ‘‘(v) for fiscal year 2001,

17 $88,000,000;

18 ‘‘(vi) for fiscal year 2002,

19 $101,000,000; and

20 ‘‘(vii) for each fiscal year after fiscal

21 year 2002, $114,000,000.

22 ‘‘(C) USE OF FUNDS.—The purposes de23 scribed in this subparagraph are to cover the

24 costs (including equipment, salaries and bene25 fits, and travel and training) of the administra-
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1 tion and operation of the health care fraud and

2 abuse control program established under section

3 1128C(a), including the costs of—

4 ‘‘(i) prosecuting health care matters

5 (through criminal, civil, and administrative

6 proceedings);

7 ‘‘(ii) investigations;

8 ‘‘(iii) financial and performance audits

9 of health care programs and operations;

10 ‘‘(iv) inspections and other evalua11 tions; and

12 ‘‘(v) provider and consumer education

13 regarding compliance with the provisions of

14 title XI.

15 ‘‘(4) APPROPRIATED AMOUNTS TO ACCOUNT

16 FOR MEDICARE INTEGRITY PROGRAM.—

17 ‘‘(A) IN GENERAL.—There are hereby ap18 propriated to the Account from the Trust Fund

19 for each fiscal year such amounts as are nec20 essary to carry out the Medicare Integrity Pro21 gram under section 1893, subject to subpara22 graph (B) and to be available without further

23 appropriation.
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•HR 3063 IH

1 ‘‘(B) AMOUNTS SPECIFIED.—The amount

2 appropriated under subparagraph (A) for a fis3 cal year is as follows:

4 ‘‘(i) For fiscal year 1997, such

5 amount shall be not less than

6 $430,000,000 and not more than

7 $440,000,000.

8 ‘‘(ii) For fiscal year 1998, such

9 amount shall be not less than

10 $490,000,000 and not more than

11 $500,000,000.

12 ‘‘(iii) For fiscal year 1999, such

13 amount shall be not less than

14 $550,000,000 and not more than

15 $560,000,000.

16 ‘‘(iv) For fiscal year 2000, such

17 amount shall be not less than

18 $620,000,000 and not more than

19 $630,000,000.

20 ‘‘(v) For fiscal year 2001, such

21 amount shall be not less than

22 $670,000,000 and not more than

23 $680,000,000.

24 ‘‘(vi) For fiscal year 2002, such

25 amount shall be not less than
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•HR 3063 IH

1 $690,000,000 and not more than

2 $700,000,000.

3 ‘‘(vii) For each fiscal year after fiscal

4 year 2002, such amount shall be not less

5 than $710,000,000 and not more than

6 $720,000,000.

7 ‘‘(5) ANNUAL REPORT.—The Secretary and the

8 Attorney General shall submit jointly an annual re9 port to Congress on the amount of revenue which is

10 generated and disbursed, and the justification for

11 such disbursements, by the Account in each fiscal

12 year.’’.

13 SEC. 202. MEDICARE INTEGRITY PROGRAM.

14 (a) ESTABLISHMENT OF MEDICARE INTEGRITY PRO15 GRAM.—Title XVIII is amended by adding at the end the

16 following new section:

17 ‘‘MEDICARE INTEGRITY PROGRAM

18 ‘‘SEC. 1893. (a) ESTABLISHMENT OF PROGRAM.—

19 There is hereby established the Medicare Integrity Pro20 gram (in this section referred to as the ‘Program’) under

21 which the Secretary shall promote the integrity of the

22 medicare program by entering into contracts in accord23 ance with this section with eligible private entities to carry

24 out the activities described in subsection (b).

25 ‘‘(b) ACTIVITIES DESCRIBED.—The activities de26 scribed in this subsection are as follows:
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•HR 3063 IH

1 ‘‘(1) Review of activities of providers of services

2 or other individuals and entities furnishing items

3 and services for which payment may be made under

4 this title (including skilled nursing facilities and

5 home health agencies), including medical and utiliza6 tion review and fraud review (employing similar

7 standards, processes, and technologies used by pri8 vate health plans, including equipment and software

9 technologies which surpass the capability of the

10 equipment and technologies used in the review of

11 claims under this title as of the date of the enact12 ment of this section).

13 ‘‘(2) Audit of cost reports.

14 ‘‘(3) Determinations as to whether payment

15 should not be, or should not have been, made under

16 this title by reason of section 1862(b), and recovery

17 of payments that should not have been made.

18 ‘‘(4) Education of providers of services, bene19 ficiaries, and other persons with respect to payment

20 integrity and benefit quality assurance issues.

21 ‘‘(5) Developing (and periodically updating) a

22 list of items of durable medical equipment in accord23 ance with section 1834(a)(15) which are subject to

24 prior authorization under such section.
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1 ‘‘(c) ELIGIBILITY OF ENTITIES.—An entity is eligible

2 to enter into a contract under the Program to carry out

3 any of the activities described in subsection (b) if—

4 ‘‘(1) the entity has demonstrated capability to

5 carry out such activities;

6 ‘‘(2) in carrying out such activities, the entity

7 agrees to cooperate with the Inspector General of

8 the Department of Health and Human Services, the

9 Attorney General of the United States, and other

10 law enforcement agencies, as appropriate, in the in11 vestigation and deterrence of fraud and abuse in re12 lation to this title and in other cases arising out of

13 such activities;

14 ‘‘(3) the entity demonstrates to the Secretary

15 that the entity’s financial holdings, interests, or rela16 tionships will not interfere with its ability to perform

17 the functions to be required by the contract in an ef18 fective and impartial manner; and

19 ‘‘(4) the entity meets such other requirements

20 as the Secretary may impose.

21 In the case of the activity described in subsection (b)(5),

22 an entity shall be deemed to be eligible to enter into a

23 contract under the Program to carry out the activity if

24 the entity is a carrier with a contract in effect under sec25 tion 1842.
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1 ‘‘(d) PROCESS FOR ENTERING INTO CONTRACTS.—

2 The Secretary shall enter into contracts under the Pro3 gram in accordance with such procedures as the Secretary

4 shall by regulation establish, except that such procedures

5 shall include the following:

6 ‘‘(1) The Secretary shall determine the appro7 priate number of separate contracts which are nec8 essary to carry out the Program and the appropriate

9 times at which the Secretary shall enter into such

10 contracts.

11 ‘‘(2)(A) Except as provided in subparagraph

12 (B), the provisions of section 1153(e)(1) shall apply

13 to contracts and contracting authority under this

14 section.

15 ‘‘(B) Competitive procedures must be used

16 when entering into new contracts under this section,

17 or at any other time considered appropriate by the

18 Secretary, except that the Secretary may contract

19 with entities that are carrying out the activities de20 scribed in this section pursuant to agreements under

21 section 1816 or contracts under section 1842 in ef22 fect on the date of the enactment of this section.

23 ‘‘(3) A contract under this section may be re24 newed without regard to any provision of law requir25 ing competition if the contractor has met or ex-
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1 ceeded the performance requirements established in

2 the current contract.

3 ‘‘(e) LIMITATION ON CONTRACTOR LIABILITY.—The

4 Secretary shall by regulation provide for the limitation of

5 a contractor’s liability for actions taken to carry out a con6 tract under the Program, and such regulation shall, to the

7 extent the Secretary finds appropriate, employ the same

8 or comparable standards and other substantive and proce9 dural provisions as are contained in section 1157.’’.

10 (b) ELIMINATION OF FI AND CARRIER RESPONSIBIL11 ITY FOR CARRYING OUT ACTIVITIES SUBJECT TO PRO12 GRAM.—

13 (1) RESPONSIBILITIES OF FISCAL

14 INTERMEDIARIES UNDER PART A.—Section 1816

15 (42 U.S.C. 1395h) is amended by adding at the end

16 the following new subsection:

17 ‘‘(l) No agency or organization may carry out (or re18 ceive payment for carrying out) any activity pursuant to

19 an agreement under this section to the extent that the ac20 tivity is carried out pursuant to a contract under the Med21 icare Integrity Program under section 1893.’’.

22 (2) RESPONSIBILITIES OF CARRIERS UNDER

23 PART B.—Section 1842(c) (42 U.S.C. 1395u(c)) is

24 amended by adding at the end the following new

25 paragraph:
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1 ‘‘(6) No carrier may carry out (or receive payment

2 for carrying out) any activity pursuant to a contract under

3 this subsection to the extent that the activity is carried

4 out pursuant to a contract under the Medicare Integrity

5 Program under section 1893. The previous sentence shall

6 not apply with respect to the activity described in section

7 1893(b)(5) (relating to prior authorization of certain

8 items of durable medical equipment under section

9 1834(a)(15)).’’.

10 SEC. 203. BENEFICIARY INCENTIVE PROGRAMS.

11 (a) CLARIFICATION OF REQUIREMENT TO PROVIDE

12 EXPLANATION OF MEDICARE BENEFITS.—The Secretary

13 of Health and Human Services (in this section referred

14 to as the ‘‘Secretary’’) shall provide an explanation of ben15 efits under the medicare program under title XVIII of the

16 Social Security Act with respect to each item or service

17 for which payment may be made under the program which

18 is furnished to an individual, without regard to whether

19 or not a deductible or coinsurance may be imposed against

20 the individual with respect to the item or service.

21 (b) PROGRAM TO COLLECT INFORMATION ON FRAUD

22 AND ABUSE.—

23 (1) ESTABLISHMENT OF PROGRAM.—Not later

24 than 3 months after the date of the enactment of

25 this Act, the Secretary shall establish a program
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1 under which the Secretary shall encourage individ2 uals to report to the Secretary information on indi3 viduals and entities who are engaging or who have

4 engaged in acts or omissions which constitute

5 grounds for the imposition of a sanction under sec6 tion 1128, section 1128A, or section 1128B of the

7 Social Security Act, or who have otherwise engaged

8 in fraud and abuse against the medicare program

9 for which there is a sanction provided under law.

10 The program shall discourage provision of, and not

11 consider, information which is frivolous or otherwise

12 not relevant or material to the imposition of such a

13 sanction.

14 (2) PAYMENT OF PORTION OF AMOUNTS COL15 LECTED.—If an individual reports information to

16 the Secretary under the program established under

17 paragraph (1) which serves as the basis for the col18 lection by the Secretary or the Attorney General of

19 any amount of at least $100 (other than any

20 amount paid as a penalty under section 1128B of

21 the Social Security Act), the Secretary may pay a

22 portion of the amount collected to the individual

23 (under procedures similar to those applicable under

24 section 7623 of the Internal Revenue Code of 1986
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1 to payments to individuals providing information on

2 violations of such Code).

3 (c) PROGRAM TO COLLECT INFORMATION ON PRO4 GRAM EFFICIENCY.—

5 (1) ESTABLISHMENT OF PROGRAM.—Not later

6 than 3 months after the date of the enactment of

7 this Act, the Secretary shall establish a program

8 under which the Secretary shall encourage individ9 uals to submit to the Secretary suggestions on meth10 ods to improve the efficiency of the medicare pro11 gram.

12 (2) PAYMENT OF PORTION OF PROGRAM SAV13 INGS.—If an individual submits a suggestion to the

14 Secretary under the program established under

15 paragraph (1) which is adopted by the Secretary and

16 which results in savings to the program, the Sec17 retary may make a payment to the individual of

18 such amount as the Secretary considers appropriate.

19 SEC. 204. APPLICATION OF CERTAIN HEALTH ANTI-FRAUD

20 AND ABUSE SANCTIONS TO FRAUD AND

21 ABUSE AGAINST FEDERAL HEALTH CARE

22 PROGRAMS.

23 (a) IN GENERAL.—Section 1128B (42 U.S.C.

24 1320a–7b) is amended as follows:
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1 (1) In the heading, by striking ‘‘MEDICARE OR

2 STATE HEALTH CARE PROGRAMS’’ and inserting

3 ‘‘FEDERAL HEALTH CARE PROGRAMS’’.

4 (2) In subsection (a)(1), by striking ‘‘a program

5 under title XVIII or a State health care program (as

6 defined in section 1128(h))’’ and inserting ‘‘a Fed7 eral health care program’’.

8 (3) In subsection (a)(5), by striking ‘‘a program

9 under title XVIII or a State health care program’’

10 and inserting ‘‘a Federal health care program’’.

11 (4) In the second sentence of subsection (a)—

12 (A) by striking ‘‘a State plan approved

13 under title XIX’’ and inserting ‘‘a Federal

14 health care program’’, and

15 (B) by striking ‘‘the State may at its op16 tion (notwithstanding any other provision of

17 that title or of such plan)’’ and inserting ‘‘the

18 administrator of such program may at its op19 tion (notwithstanding any other provision of

20 such program)’’.

21 (5) In subsection (b), by striking ‘‘title XVIII

22 or a State health care program’’ each place it ap23 pears and inserting ‘‘a Federal health care pro24 gram’’.
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•HR 3063 IH

1 (6) In subsection (c), by inserting ‘‘(as defined

2 in section 1128(h))’’ after ‘‘a State health care pro3 gram’’.

4 (7) By adding at the end the following new sub5 section:

6 ‘‘(f) For purposes of this section, the term ‘Federal

7 health care program’ means—

8 ‘‘(1) any plan or program that provides health

9 benefits, whether directly, through insurance, or oth10 erwise, which is funded directly, in whole or in part,

11 by the United States Government (other than the

12 health insurance program under chapter 89 of title

13 5, United States Code); or

14 ‘‘(2) any State health care program, as defined

15 in section 1128(h).’’.

16 (b) EFFECTIVE DATE.—The amendments made by

17 this section shall take effect on January 1, 1997.

18 SEC. 205. GUIDANCE REGARDING APPLICATION OF HEALTH

19 CARE FRAUD AND ABUSE SANCTIONS.

20 Title XI (42 U.S.C. 1301 et seq.), as amended by

21 section 201, is amended by inserting after section 1128C

22 the following new section:
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1 ‘‘GUIDANCE REGARDING APPLICATION OF HEALTH CARE

2 FRAUD AND ABUSE SANCTIONS

3 ‘‘SEC. 1128D. (a) SOLICITATION AND PUBLICATION

4 OF MODIFICATIONS TO EXISTING SAFE HARBORS AND

5 NEW SAFE HARBORS.—

6 ‘‘(1) IN GENERAL.—

7 ‘‘(A) SOLICITATION OF PROPOSALS FOR

8 SAFE HARBORS.—Not later than January 1,

9 1997, and not less than annually thereafter, the

10 Secretary shall publish a notice in the Federal

11 Register soliciting proposals, which will be ac12 cepted during a 60-day period, for—

13 ‘‘(i) modifications to existing safe har14 bors issued pursuant to section 14(a) of

15 the Medicare and Medicaid Patient and

16 Program Protection Act of 1987 (42

17 U.S.C. 1320a–7b note);

18 ‘‘(ii) additional safe harbors specifying

19 payment practices that shall not be treated

20 as a criminal offense under section

21 1128B(b) and shall not serve as the basis

22 for an exclusion under section 1128(b)(7);

23 ‘‘(iii) advisory opinions to be issued

24 pursuant to subsection (b); and
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1 ‘‘(iv) special fraud alerts to be issued

2 pursuant to subsection (c).

3 ‘‘(B) PUBLICATION OF PROPOSED MODI4 FICATIONS AND PROPOSED ADDITIONAL SAFE

5 HARBORS.—After considering the proposals de6 scribed in clauses (i) and (ii) of subparagraph

7 (A), the Secretary, in consultation with the At8 torney General, shall publish in the Federal

9 Register proposed modifications to existing safe

10 harbors and proposed additional safe harbors, if

11 appropriate, with a 60-day comment period.

12 After considering any public comments received

13 during this period, the Secretary shall issue

14 final rules modifying the existing safe harbors

15 and establishing new safe harbors, as appro16 priate.

17 ‘‘(C) REPORT.—The Inspector General of

18 the Department of Health and Human Services

19 (in this section referred to as the ‘Inspector

20 General’) shall, in an annual report to Congress

21 or as part of the year-end semiannual report re22 quired by section 5 of the Inspector General

23 Act of 1978 (5 U.S.C. App.), describe the pro24 posals received under clauses (i) and (ii) of sub25 paragraph (A) and explain which proposals
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1 were included in the publication described in

2 subparagraph (B), which proposals were not in3 cluded in that publication, and the reasons for

4 the rejection of the proposals that were not in5 cluded.

6 ‘‘(2) CRITERIA FOR MODIFYING AND ESTAB7 LISHING SAFE HARBORS.—In modifying and estab8 lishing safe harbors under paragraph (1)(B), the

9 Secretary may consider the extent to which provid10 ing a safe harbor for the specified payment practice

11 may result in any of the following:

12 ‘‘(A) An increase or decrease in access to

13 health care services.

14 ‘‘(B) An increase or decrease in the quality

15 of health care services.

16 ‘‘(C) An increase or decrease in patient

17 freedom of choice among health care providers.

18 ‘‘(D) An increase or decrease in competi19 tion among health care providers.

20 ‘‘(E) An increase or decrease in the ability

21 of health care facilities to provide services in

22 medically underserved areas or to medically un23 derserved populations.
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1 ‘‘(F) An increase or decrease in the cost to

2 Federal health care programs (as defined in

3 section 1128B(f)).

4 ‘‘(G) An increase or decrease in the poten5 tial overutilization of health care services.

6 ‘‘(H) The existence or nonexistence of any

7 potential financial benefit to a health care pro8 fessional or provider which may vary based on

9 their decisions of—

10 ‘‘(i) whether to order a health care

11 item or service; or

12 ‘‘(ii) whether to arrange for a referral

13 of health care items or services to a par14 ticular practitioner or provider.

15 ‘‘(I) Any other factors the Secretary deems

16 appropriate in the interest of preventing fraud

17 and abuse in Federal health care programs (as

18 so defined).

19 ‘‘(b) ADVISORY OPINIONS.—

20 ‘‘(1) ISSUANCE OF ADVISORY OPINIONS.—The

21 Secretary shall issue written advisory opinions as

22 provided in this subsection.

23 ‘‘(2) MATTERS SUBJECT TO ADVISORY OPIN24 IONS.—The Secretary shall issue advisory opinions

25 as to the following matters:
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1 ‘‘(A) What constitutes prohibited remu2 neration within the meaning of section

3 1128B(b).

4 ‘‘(B) Whether an arrangement or proposed

5 arrangement satisfies the criteria set forth in

6 section 1128B(b)(3) for activities which do not

7 result in prohibited remuneration.

8 ‘‘(C) Whether an arrangement or proposed

9 arrangement satisfies the criteria which the

10 Secretary has established, or shall establish by

11 regulation for activities which do not result in

12 prohibited remuneration.

13 ‘‘(D) What constitutes an inducement to

14 reduce or limit services to individuals entitled to

15 benefits under title XVIII or title XIX or title

16 XXI within the meaning of section 1128B(b).

17 ‘‘(E) Whether any activity or proposed ac18 tivity constitutes grounds for the imposition of

19 a sanction under section 1128, 1128A, or

20 1128B.

21 ‘‘(3) MATTERS NOT SUBJECT TO ADVISORY

22 OPINIONS.—Such advisory opinions shall not address

23 the following matters:
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1 ‘‘(A) Whether the fair market value shall

2 be, or was paid or received for any goods, serv3 ices or property.

4 ‘‘(B) Whether an individual is a bona fide

5 employee within the requirements of section

6 3121(d)(2) of the Internal Revenue Code of

7 1986.

8 ‘‘(4) EFFECT OF ADVISORY OPINIONS.—

9 ‘‘(A) BINDING AS TO SECRETARY AND

10 PARTIES INVOLVED.—Each advisory opinion is11 sued by the Secretary shall be binding as to the

12 Secretary and the party or parties requesting

13 the opinion.

14 ‘‘(B) FAILURE TO SEEK OPINION.—The

15 failure of a party to seek an advisory opinion

16 may not be introduced into evidence to prove

17 that the party intended to violate the provisions

18 of sections 1128, 1128A, or 1128B.

19 ‘‘(5) REGULATIONS.—

20 ‘‘(A) IN GENERAL.—Not later than 180

21 days after the date of the enactment of this sec22 tion, the Secretary shall issue regulations to

23 carry out this section. Such regulations shall

24 provide for—
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1 ‘‘(i) the procedure to be followed by a

2 party applying for an advisory opinion;

3 ‘‘(ii) the procedure to be followed by

4 the Secretary in responding to a request

5 for an advisory opinion;

6 ‘‘(iii) the interval in which the Sec7 retary shall respond;

8 ‘‘(iv) the reasonable fee to be charged

9 to the party requesting an advisory opin10 ion; and

11 ‘‘(v) the manner in which advisory

12 opinions will be made available to the pub13 lic.

14 ‘‘(B) SPECIFIC CONTENTS.—Under the

15 regulations promulgated pursuant to subpara16 graph (A)—

17 ‘‘(i) the Secretary shall be required to

18 respond to a party requesting an advisory

19 opinion by not later than 30 days after the

20 request is received; and

21 ‘‘(ii) the fee charged to the party re22 questing an advisory opinion shall be equal

23 to the costs incurred by the Secretary in

24 responding to the request.

25 ‘‘(c) SPECIAL FRAUD ALERTS.—
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1 ‘‘(1) IN GENERAL.—

2 ‘‘(A) REQUEST FOR SPECIAL FRAUD

3 ALERTS.—Any person may present, at any

4 time, a request to the Inspector General for a

5 notice which informs the public of practices

6 which the Inspector General considers to be

7 suspect or of particular concern under the med8 icare program or a State health care program,

9 as defined in section 1128(h) (in this subsection

10 referred to as a ‘special fraud alert’).

11 ‘‘(B) ISSUANCE AND PUBLICATION OF SPE12 CIAL FRAUD ALERTS.—Upon receipt of a re13 quest described in subparagraph (A), the In14 spector General shall investigate the subject

15 matter of the request to determine whether a

16 special fraud alert should be issued. If appro17 priate, the Inspector General shall issue a spe18 cial fraud alert in response to the request. All

19 special fraud alerts issued pursuant to this sub20 paragraph shall be published in the Federal

21 Register.

22 ‘‘(2) CRITERIA FOR SPECIAL FRAUD ALERTS.—

23 In determining whether to issue a special fraud alert

24 upon a request described in paragraph (1), the In25 spector General may consider—
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1 ‘‘(A) whether and to what extent the prac2 tices that would be identified in the special

3 fraud alert may result in any of the con4 sequences described in subsection (a)(2); and

5 ‘‘(B) the volume and frequency of the con6 duct that would be identified in the special

7 fraud alert.’’.

8 Subtitle B—Revisions to Current

9 Sanctions for Fraud and Abuse

10 SEC. 211. MANDATORY EXCLUSION FROM PARTICIPATION

11 IN MEDICARE AND STATE HEALTH CARE PRO12 GRAMS.

13 (a) INDIVIDUAL CONVICTED OF FELONY RELATING

14 TO HEALTH CARE FRAUD.—

15 (1) IN GENERAL.—Section 1128(a) (42 U.S.C.

16 1320a–7(a)) is amended by adding at the end the

17 following new paragraph:

18 ‘‘(3) FELONY CONVICTION RELATING TO

19 HEALTH CARE FRAUD.—Any individual or entity

20 that has been convicted after the date of the enact21 ment of the Health Coverage Availability and Af22 fordability Act of 1996, under Federal or State law,

23 in connection with the delivery of a health care item

24 or service or with respect to any act or omission in

25 a health care program (other than those specifically
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1 described in paragraph (1)) operated by or financed

2 in whole or in part by any Federal, State, or local

3 government agency, of a criminal offense consisting

4 of a felony relating to fraud, theft, embezzlement,

5 breach of fiduciary responsibility, or other financial

6 misconduct.’’.

7 (2) CONFORMING AMENDMENT.—Paragraph (1)

8 of section 1128(b) (42 U.S.C. 1320a–7(b)) is

9 amended to read as follows:

10 ‘‘(1) CONVICTION RELATING TO FRAUD.—Any

11 individual or entity that has been convicted after the

12 date of the enactment of the Health Coverage Avail13 ability and Affordability Act of 1996, under Federal

14 or State law—

15 ‘‘(A) of a criminal offense consisting of a

16 misdemeanor relating to fraud, theft, embezzle17 ment, breach of fiduciary responsibility, or

18 other financial misconduct—

19 ‘‘(i) in connection with the delivery of

20 a health care item or service, or

21 ‘‘(ii) with respect to any act or omis22 sion in a health care program (other than

23 those specifically described in subsection

24 (a)(1)) operated by or financed in whole or
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1 in part by any Federal, State, or local gov2 ernment agency; or

3 ‘‘(B) of a criminal offense relating to

4 fraud, theft, embezzlement, breach of fiduciary

5 responsibility, or other financial misconduct

6 with respect to any act or omission in a pro7 gram (other than a health care program) oper8 ated by or financed in whole or in part by any

9 Federal, State, or local government agency.’’.

10 (b) INDIVIDUAL CONVICTED OF FELONY RELATING

11 TO CONTROLLED SUBSTANCE.—

12 (1) IN GENERAL.—Section 1128(a) (42 U.S.C.

13 1320a–7(a)), as amended by subsection (a), is

14 amended by adding at the end the following new

15 paragraph:

16 ‘‘(4) FELONY CONVICTION RELATING TO CON17 TROLLED SUBSTANCE.—Any individual or entity

18 that has been convicted after the date of the enact19 ment of the Health Coverage Availability and Af20 fordability Act of 1996, under Federal or State law,

21 of a criminal offense consisting of a felony relating

22 to the unlawful manufacture, distribution, prescrip23 tion, or dispensing of a controlled substance.’’.

24 (2) CONFORMING AMENDMENT.—Section

25 1128(b)(3) (42 U.S.C. 1320a–7(b)(3)) is amended—
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1 (A) in the heading, by striking ‘‘CONVIC2 TION’’ and inserting ‘‘MISDEMEANOR CONVIC3 TION’’; and

4 (B) by striking ‘‘criminal offense’’ and in5 serting ‘‘criminal offense consisting of a mis6 demeanor’’.

7 SEC. 212. ESTABLISHMENT OF MINIMUM PERIOD OF EX8 CLUSION FOR CERTAIN INDIVIDUALS AND

9 ENTITIES SUBJECT TO PERMISSIVE EXCLU10 SION FROM MEDICARE AND STATE HEALTH

11 CARE PROGRAMS.

12 Section 1128(c)(3) (42 U.S.C. 1320a–7(c)(3)) is

13 amended by adding at the end the following new subpara14 graphs:

15 ‘‘(D) In the case of an exclusion of an individual or

16 entity under paragraph (1), (2), or (3) of subsection (b),

17 the period of the exclusion shall be 3 years, unless the

18 Secretary determines in accordance with published regula19 tions that a shorter period is appropriate because of miti20 gating circumstances or that a longer period is appro21 priate because of aggravating circumstances.

22 ‘‘(E) In the case of an exclusion of an individual or

23 entity under subsection (b)(4) or (b)(5), the period of the

24 exclusion shall not be less than the period during which

25 the individual’s or entity’s license to provide health care
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1 is revoked, suspended, or surrendered, or the individual

2 or the entity is excluded or suspended from a Federal or

3 State health care program.

4 ‘‘(F) In the case of an exclusion of an individual or

5 entity under subsection (b)(6)(B), the period of the exclu6 sion shall be not less than 1 year.’’.

7 SEC. 213. PERMISSIVE EXCLUSION OF INDIVIDUALS WITH

8 OWNERSHIP OR CONTROL INTEREST IN

9 SANCTIONED ENTITIES.

10 Section 1128(b) (42 U.S.C. 1320a–7(b)) is amended

11 by adding at the end the following new paragraph:

12 ‘‘(15) INDIVIDUALS CONTROLLING A SANC13 TIONED ENTITY.—(A) Any individual—

14 ‘‘(i) who has a direct or indirect ownership

15 or control interest in a sanctioned entity and

16 who knows or should know (as defined in sec17 tion 1128A(i)(6)) of the action constituting the

18 basis for the conviction or exclusion described

19 in subparagraph (B); or

20 ‘‘(ii) who is an officer or managing em21 ployee (as defined in section 1126(b)) of such

22 an entity.

23 ‘‘(B) For purposes of subparagraph (A), the

24 term ‘sanctioned entity’ means an entity—
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1 ‘‘(i) that has been convicted of any offense

2 described in subsection (a) or in paragraph (1),

3 (2), or (3) of this subsection; or

4 ‘‘(ii) that has been excluded from partici5 pation under a program under title XVIII or

6 under a State health care program.’’.

7 SEC. 214. SANCTIONS AGAINST PRACTITIONERS AND PER8 SONS FOR FAILURE TO COMPLY WITH STATU9 TORY OBLIGATIONS.

10 (a) MINIMUM PERIOD OF EXCLUSION FOR PRACTI11 TIONERS AND PERSONS FAILING TO MEET STATUTORY

12 OBLIGATIONS.—

13 (1) IN GENERAL.—The second sentence of sec14 tion 1156(b)(1) (42 U.S.C. 1320c–5(b)(1)) is

15 amended by striking ‘‘may prescribe)’’ and inserting

16 ‘‘may prescribe, except that such period may not be

17 less than 1 year)’’.

18 (2) CONFORMING AMENDMENT.—Section

19 1156(b)(2) (42 U.S.C. 1320c–5(b)(2)) is amended

20 by striking ‘‘shall remain’’ and inserting ‘‘shall (sub21 ject to the minimum period specified in the second

22 sentence of paragraph (1)) remain’’.

23 (b) REPEAL OF ‘‘UNWILLING OR UNABLE’’ CONDI24 TION FOR IMPOSITION OF SANCTION.—Section 1156(b)(1)

25 (42 U.S.C. 1320c–5(b)(1)) is amended—
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1 (1) in the second sentence, by striking ‘‘and de2 termines’’ and all that follows through ‘‘such obliga3 tions,’’; and

4 (2) by striking the third sentence.

5 SEC. 215. INTERMEDIATE SANCTIONS FOR MEDICARE

6 HEALTH MAINTENANCE ORGANIZATIONS.

7 (a) APPLICATION OF INTERMEDIATE SANCTIONS FOR

8 ANY PROGRAM VIOLATIONS.—

9 (1) IN GENERAL.—Section 1876(i)(1) (42

10 U.S.C. 1395mm(i)(1)) is amended by striking ‘‘the

11 Secretary may terminate’’ and all that follows and

12 inserting ‘‘in accordance with procedures established

13 under paragraph (9), the Secretary may at any time

14 terminate any such contract or may impose the in15 termediate sanctions described in paragraph (6)(B)

16 or (6)(C) (whichever is applicable) on the eligible or17 ganization if the Secretary determines that the orga18 nization—

19 ‘‘(A) has failed substantially to carry out

20 the contract;

21 ‘‘(B) is carrying out the contract in a man22 ner substantially inconsistent with the efficient

23 and effective administration of this section; or
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1 ‘‘(C) no longer substantially meets the ap2 plicable conditions of subsections (b), (c), (e),

3 and (f).’’.

4 (2) OTHER INTERMEDIATE SANCTIONS FOR

5 MISCELLANEOUS PROGRAM VIOLATIONS.—Section

6 1876(i)(6) (42 U.S.C. 1395mm(i)(6)) is amended by

7 adding at the end the following new subparagraph:

8 ‘‘(C) In the case of an eligible organization for which

9 the Secretary makes a determination under paragraph (1)

10 the basis of which is not described in subparagraph (A),

11 the Secretary may apply the following intermediate sanc12 tions:

13 ‘‘(i) Civil money penalties of not more than

14 $25,000 for each determination under paragraph (1)

15 if the deficiency that is the basis of the determina16 tion has directly adversely affected (or has the sub17 stantial likelihood of adversely affecting) an individ18 ual covered under the organization’s contract.

19 ‘‘(ii) Civil money penalties of not more than

20 $10,000 for each week beginning after the initiation

21 of procedures by the Secretary under paragraph (9)

22 during which the deficiency that is the basis of a de23 termination under paragraph (1) exists.

24 ‘‘(iii) Suspension of enrollment of individuals

25 under this section after the date the Secretary noti-
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1 fies the organization of a determination under para2 graph (1) and until the Secretary is satisfied that

3 the deficiency that is the basis for the determination

4 has been corrected and is not likely to recur.’’.

5 (3) PROCEDURES FOR IMPOSING SANCTIONS.—

6 Section 1876(i) (42 U.S.C. 1395mm(i)) is amended

7 by adding at the end the following new paragraph:

8 ‘‘(9) The Secretary may terminate a contract with an

9 eligible organization under this section or may impose the

10 intermediate sanctions described in paragraph (6) on the

11 organization in accordance with formal investigation and

12 compliance procedures established by the Secretary under

13 which—

14 ‘‘(A) the Secretary first provides the organiza15 tion with the reasonable opportunity to develop and

16 implement a corrective action plan to correct the de17 ficiencies that were the basis of the Secretary’s de18 termination under paragraph (1) and the organiza19 tion fails to develop or implement such a plan;

20 ‘‘(B) in deciding whether to impose sanctions,

21 the Secretary considers aggravating factors such as

22 whether an organization has a history of deficiencies

23 or has not taken action to correct deficiencies the

24 Secretary has brought to the organization’s atten25 tion;
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1 ‘‘(C) there are no unreasonable or unnecessary

2 delays between the finding of a deficiency and the

3 imposition of sanctions; and

4 ‘‘(D) the Secretary provides the organization

5 with reasonable notice and opportunity for hearing

6 (including the right to appeal an initial decision) be7 fore imposing any sanction or terminating the con8 tract.’’.

9 (4) CONFORMING AMENDMENTS.—Section

10 1876(i)(6)(B) (42 U.S.C. 1395mm(i)(6)(B)) is

11 amended by striking the second sentence.

12 (b) AGREEMENTS WITH PEER REVIEW ORGANIZA13 TIONS.—Section 1876(i)(7)(A) (42 U.S.C.

14 1395mm(i)(7)(A)) is amended by striking ‘‘an agreement’’

15 and inserting ‘‘a written agreement’’.

16 (c) EFFECTIVE DATE.—The amendments made by

17 this section shall apply with respect to contract years be18 ginning on or after January 1, 1996.

19 SEC. 216. ADDITIONAL EXCEPTION TO ANTI-KICKBACK PEN20 ALTIES FOR DISCOUNTING AND MANAGED

21 CARE ARRANGEMENTS.

22 (a) IN GENERAL.—Section 1128B(b)(3) (42 U.S.C.

23 1320a–7b(b)(3)) is amended—

24 (1) by striking ‘‘and’’ at the end of subpara25 graph (D);
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1 (2) by striking the period at the end of sub2 paragraph (E) and inserting ‘‘; and’’; and

3 (3) by adding at the end the following new sub4 paragraph:

5 ‘‘(F) any remuneration between an organization

6 and an individual or entity providing items or serv7 ices, or a combination thereof, pursuant to a written

8 agreement between the organization and the individ9 ual or entity if the organization is an eligible organi10 zation under section 1876 or if the written agree11 ment places the individual or entity at substantial fi12 nancial risk for the cost or utilization of the items

13 or services, or a combination thereof, which the indi14 vidual or entity is obligated to provide, whether

15 through a withhold, capitation, incentive pool, per

16 diem payment, or any other similar risk arrange17 ment which places the individual or entity at sub18 stantial financial risk.’’.

19 (b) EFFECTIVE DATE.—The amendments made by

20 this section shall apply to written agreements entered into

21 on or after January 1, 1997.
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1 SEC. 217. CRIMINAL PENALTY FOR FRAUDULENT DISPOSI2 TION OF ASSETS IN ORDER TO OBTAIN MED3 ICAID BENEFITS.

4 Section 1128B(a) (42 U.S.C. 1320a–7b(a)) is

5 amended—

6 (1) by striking ‘‘or’’ at the end of paragraph

7 (4);

8 (2) by adding ‘‘or’’ at the end of paragraph (5);

9 and

10 (3) by inserting after paragraph (5) the follow11 ing new paragraph:

12 ‘‘(6) knowingly and willfully disposes of assets

13 (including by any transfer in trust) in order for an

14 individual to become eligible for medical assistance

15 under a State plan under title XIX, if disposing of

16 the assets results in the imposition of a period of in17 eligibility for such assistance under section

18 1917(c),’’.

19 SEC. 218. EFFECTIVE DATE.

20 Except as otherwise provided, the amendments made

21 by this subtitle shall take effect January 1, 1997.
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1 Subtitle C—Data Collection

2 SEC. 221. ESTABLISHMENT OF THE HEALTH CARE FRAUD

3 AND ABUSE DATA COLLECTION PROGRAM.

4 (a) IN GENERAL.—Title XI (42 U.S.C. 1301 et seq.),

5 as amended by sections 211 and 215, is amended by in6 serting after section 1128D the following new section:

7 ‘‘HEALTH CARE FRAUD AND ABUSE DATA COLLECTION

8 PROGRAM

9 ‘‘SEC. 1128E. (a) GENERAL PURPOSE.—Not later

10 than January 1, 1997, the Secretary shall establish a na11 tional health care fraud and abuse data collection program

12 for the reporting of final adverse actions (not including

13 settlements in which no findings of liability have been

14 made) against health care providers, suppliers, or practi15 tioners as required by subsection (b), with access as set

16 forth in subsection (c).

17 ‘‘(b) REPORTING OF INFORMATION.—

18 ‘‘(1) IN GENERAL.—Each Government agency

19 and health plan shall report any final adverse action

20 (not including settlements in which no findings of li21 ability have been made) taken against a health care

22 provider, supplier, or practitioner.

23 ‘‘(2) INFORMATION TO BE REPORTED.—The in24 formation to be reported under paragraph (1) in25 cludes:
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1 ‘‘(A) The name and TIN (as defined in

2 section 7701(a)(41) of the Internal Revenue

3 Code of 1986) of any health care provider, sup4 plier, or practitioner who is the subject of a

5 final adverse action.

6 ‘‘(B) The name (if known) of any health

7 care entity with which a health care provider,

8 supplier, or practitioner is affiliated or associ9 ated.

10 ‘‘(C) The nature of the final adverse action

11 and whether such action is on appeal.

12 ‘‘(D) A description of the acts or omissions

13 and injuries upon which the final adverse action

14 was based, and such other information as the

15 Secretary determines by regulation is required

16 for appropriate interpretation of information re17 ported under this section.

18 ‘‘(3) CONFIDENTIALITY.—In determining what

19 information is required, the Secretary shall include

20 procedures to assure that the privacy of individuals

21 receiving health care services is appropriately pro22 tected.

23 ‘‘(4) TIMING AND FORM OF REPORTING.—The

24 information required to be reported under this sub25 section shall be reported regularly (but not less often
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1 than monthly) and in such form and manner as the

2 Secretary prescribes. Such information shall first be

3 required to be reported on a date specified by the

4 Secretary.

5 ‘‘(5) TO WHOM REPORTED.—The information

6 required to be reported under this subsection shall

7 be reported to the Secretary.

8 ‘‘(c) DISCLOSURE AND CORRECTION OF INFORMA9 TION.—

10 ‘‘(1) DISCLOSURE.—With respect to the infor11 mation about final adverse actions (not including

12 settlements in which no findings of liability have

13 been made) reported to the Secretary under this sec14 tion respecting a health care provider, supplier, or

15 practitioner, the Secretary shall, by regulation, pro16 vide for—

17 ‘‘(A) disclosure of the information, upon

18 request, to the health care provider, supplier, or

19 licensed practitioner, and

20 ‘‘(B) procedures in the case of disputed ac21 curacy of the information.

22 ‘‘(2) CORRECTIONS.—Each Government agency

23 and health plan shall report corrections of informa24 tion already reported about any final adverse action

25 taken against a health care provider, supplier, or
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1 practitioner, in such form and manner that the Sec2 retary prescribes by regulation.

3 ‘‘(d) ACCESS TO REPORTED INFORMATION.—

4 ‘‘(1) AVAILABILITY.—The information in this

5 database shall be available to Federal and State gov6 ernment agencies and health plans pursuant to pro7 cedures that the Secretary shall provide by regula8 tion.

9 ‘‘(2) FEES FOR DISCLOSURE.—The Secretary

10 may establish or approve reasonable fees for the dis11 closure of information in this database (other than

12 with respect to requests by Federal agencies). The

13 amount of such a fee shall be sufficient to recover

14 the full costs of operating the database. Such fees

15 shall be available to the Secretary or, in the Sec16 retary’s discretion to the agency designated under

17 this section to cover such costs.

18 ‘‘(e) PROTECTION FROM LIABILITY FOR REPORT19 ING.—No person or entity, including the agency des20 ignated by the Secretary in subsection (b)(5) shall be held

21 liable in any civil action with respect to any report made

22 as required by this section, without knowledge of the fal23 sity of the information contained in the report.

24 ‘‘(f) DEFINITIONS AND SPECIAL RULES.—For pur25 poses of this section:
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1 ‘‘(1) FINAL ADVERSE ACTION.—

2 ‘‘(A) IN GENERAL.—The term ‘final ad3 verse action’ includes:

4 ‘‘(i) Civil judgments against a health

5 care provider, supplier, or practitioner in

6 Federal or State court related to the deliv7 ery of a health care item or service.

8 ‘‘(ii) Federal or State criminal convic9 tions related to the delivery of a health

10 care item or service.

11 ‘‘(iii) Actions by Federal or State

12 agencies responsible for the licensing and

13 certification of health care providers, sup14 pliers, and licensed health care practition15 ers, including—

16 ‘‘(I) formal or official actions,

17 such as revocation or suspension of a

18 license (and the length of any such

19 suspension), reprimand, censure or

20 probation,

21 ‘‘(II) any other loss of license or

22 the right to apply for, or renew, a li23 cense of the provider, supplier, or

24 practitioner, whether by operation of
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1 law, voluntary surrender, non-renew2 ability, or otherwise, or

3 ‘‘(III) any other negative action

4 or finding by such Federal or State

5 agency that is publicly available infor6 mation.

7 ‘‘(iv) Exclusion from participation in

8 Federal or State health care programs.

9 ‘‘(v) Any other adjudicated actions or

10 decisions that the Secretary shall establish

11 by regulation.

12 ‘‘(B) EXCEPTION.—The term does not in13 clude any action with respect to a malpractice

14 claim.

15 ‘‘(2) PRACTITIONER.—The terms ‘licensed

16 health care practitioner’, ‘licensed practitioner’, and

17 ‘practitioner’ mean, with respect to a State, an indi18 vidual who is licensed or otherwise authorized by the

19 State to provide health care services (or any individ20 ual who, without authority holds himself or herself

21 out to be so licensed or authorized).

22 ‘‘(3) GOVERNMENT AGENCY.—The term ‘Gov23 ernment agency’ shall include:

24 ‘‘(A) The Department of Justice.
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1 ‘‘(B) The Department of Health and

2 Human Services.

3 ‘‘(C) Any other Federal agency that either

4 administers or provides payment for the deliv5 ery of health care services, including, but not

6 limited to the Department of Defense and the

7 Veterans’ Administration.

8 ‘‘(D) State law enforcement agencies.

9 ‘‘(E) State medicaid fraud control units.

10 ‘‘(F) Federal or State agencies responsible

11 for the licensing and certification of health care

12 providers and licensed health care practitioners.

13 ‘‘(4) HEALTH PLAN.—The term ‘health plan’

14 has the meaning given such term by section

15 1128C(c).

16 ‘‘(5) DETERMINATION OF CONVICTION.—For

17 purposes of paragraph (1), the existence of a convic18 tion shall be determined under paragraph (4) of sec19 tion 1128(i).’’.

20 (b) IMPROVED PREVENTION IN ISSUANCE OF MEDI21 CARE PROVIDER NUMBERS.—Section 1842(r) (42 U.S.C.

22 1395u(r)) is amended by adding at the end the following

23 new sentence: ‘‘Under such system, the Secretary may im24 pose appropriate fees on such physicians to cover the costs
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1 of investigation and recertification activities with respect

2 to the issuance of the identifiers.’’.

3 Subtitle D—Civil Monetary

4 Penalties

5 SEC. 231. SOCIAL SECURITY ACT CIVIL MONETARY PEN6 ALTIES.

7 (a) GENERAL CIVIL MONETARY PENALTIES.—Sec8 tion 1128A (42 U.S.C. 1320a–7a) is amended as follows:

9 (1) In the third sentence of subsection (a), by

10 striking ‘‘programs under title XVIII’’ and inserting

11 ‘‘Federal health care programs (as defined in section

12 1128B(f)(1))’’.

13 (2) In subsection (f)—

14 (A) by redesignating paragraph (3) as

15 paragraph (4); and

16 (B) by inserting after paragraph (2) the

17 following new paragraph:

18 ‘‘(3) With respect to amounts recovered arising

19 out of a claim under a Federal health care program

20 (as defined in section 1128B(f)), the portion of such

21 amounts as is determined to have been paid by the

22 program shall be repaid to the program, and the

23 portion of such amounts attributable to the amounts

24 recovered under this section by reason of the amend25 ments made by the Health Coverage Availability and
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1 Affordability Act of 1996 (as estimated by the Sec2 retary) shall be deposited into the Federal Hospital

3 Insurance Trust Fund pursuant to section

4 1817(k)(2)(C).’’.

5 (3) In subsection (i)—

6 (A) in paragraph (2), by striking ‘‘title V,

7 XVIII, XIX, or XX of this Act’’ and inserting

8 ‘‘a Federal health care program (as defined in

9 section 1128B(f))’’,

10 (B) in paragraph (4), by striking ‘‘a health

11 insurance or medical services program under

12 title XVIII or XIX of this Act’’ and inserting

13 ‘‘a Federal health care program (as so de14 fined)’’, and

15 (C) in paragraph (5), by striking ‘‘title V,

16 XVIII, XIX, or XX’’ and inserting ‘‘a Federal

17 health care program (as so defined)’’.

18 (4) By adding at the end the following new sub19 section:

20 ‘‘(m)(1) For purposes of this section, with respect to

21 a Federal health care program not contained in this Act,

22 references to the Secretary in this section shall be deemed

23 to be references to the Secretary or Administrator of the

24 department or agency with jurisdiction over such program

25 and references to the Inspector General of the Department
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1 of Health and Human Services in this section shall be

2 deemed to be references to the Inspector General of the

3 applicable department or agency.

4 ‘‘(2)(A) The Secretary and Administrator of the de5 partments and agencies referred to in paragraph (1) may

6 include in any action pursuant to this section, claims with7 in the jurisdiction of other Federal departments or agen8 cies as long as the following conditions are satisfied:

9 ‘‘(i) The case involves primarily claims submit10 ted to the Federal health care programs of the de11 partment or agency initiating the action.

12 ‘‘(ii) The Secretary or Administrator of the de13 partment or agency initiating the action gives notice

14 and an opportunity to participate in the investiga15 tion to the Inspector General of the department or

16 agency with primary jurisdiction over the Federal

17 health care programs to which the claims were sub18 mitted.

19 ‘‘(B) If the conditions specified in subparagraph (A)

20 are fulfilled, the Inspector General of the department or

21 agency initiating the action is authorized to exercise all

22 powers granted under the Inspector General Act of 1978

23 with respect to the claims submitted to the other depart24 ments or agencies to the same manner and extent as pro-
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1 vided in that Act with respect to claims submitted to such

2 departments or agencies.’’.

3 (b) EXCLUDED INDIVIDUAL RETAINING OWNERSHIP

4 OR CONTROL INTEREST IN PARTICIPATING ENTITY.—

5 Section 1128A(a) (42 U.S.C. 1320a–7a(a)) is amended—

6 (1) by striking ‘‘or’’ at the end of paragraph

7 (1)(D);

8 (2) by striking ‘‘, or’’ at the end of paragraph

9 (2) and inserting a semicolon;

10 (3) by striking the semicolon at the end of

11 paragraph (3) and inserting ‘‘; or’’; and

12 (4) by inserting after paragraph (3) the follow13 ing new paragraph:

14 ‘‘(4) in the case of a person who is not an orga15 nization, agency, or other entity, is excluded from

16 participating in a program under title XVIII or a

17 State health care program in accordance with this

18 subsection or under section 1128 and who, at the

19 time of a violation of this subsection—

20 ‘‘(i) retains a direct or indirect ownership

21 or control interest in an entity that is partici22 pating in a program under title XVIII or a

23 State health care program, and who knows or

24 should know of the action constituting the basis

25 for the exclusion; or
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1 ‘‘(ii) is an officer or managing employee

2 (as defined in section 1126(b)) of such an en3 tity;’’.

4 (c) MODIFICATIONS OF AMOUNTS OF PENALTIES

5 AND ASSESSMENTS.—Section 1128A(a) (42 U.S.C.

6 1320a–7a(a)), as amended by subsection (b), is amended

7 in the matter following paragraph (4)—

8 (1) by striking ‘‘$2,000’’ and inserting

9 ‘‘$10,000’’;

10 (2) by inserting ‘‘; in cases under paragraph

11 (4), $10,000 for each day the prohibited relationship

12 occurs’’ after ‘‘false or misleading information was

13 given’’; and

14 (3) by striking ‘‘twice the amount’’ and insert15 ing ‘‘3 times the amount’’.

16 (d) CLAIM FOR ITEM OR SERVICE BASED ON INCOR17 RECT CODING OR MEDICALLY UNNECESSARY SERV18 ICES.—Section 1128A(a)(1) (42 U.S.C. 1320a–7a(a)(1))

19 is amended—

20 (1) in subparagraph (A) by striking ‘‘claimed,’’

21 and inserting ‘‘claimed, including any person who

22 engages in a pattern or practice of presenting or

23 causing to be presented a claim for an item or serv24 ice that is based on a code that the person knows

25 or should know will result in a greater payment to
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1 the person than the code the person knows or should

2 know is applicable to the item or service actually

3 provided,’’;

4 (2) in subparagraph (C), by striking ‘‘or’’ at

5 the end;

6 (3) in subparagraph (D), by striking ‘‘; or’’ and

7 inserting ‘‘, or’’; and

8 (4) by inserting after subparagraph (D) the fol9 lowing new subparagraph:

10 ‘‘(E) is for a medical or other item or serv11 ice that a person knows or should know is not

12 medically necessary; or’’.

13 (e) SANCTIONS AGAINST PRACTITIONERS AND PER14 SONS FOR FAILURE TO COMPLY WITH STATUTORY OBLI15 GATIONS.—Section 1156(b)(3) (42 U.S.C. 1320c–5(b)(3))

16 is amended by striking ‘‘the actual or estimated cost’’ and

17 inserting ‘‘up to $10,000 for each instance’’.

18 (f) PROCEDURAL PROVISIONS.—Section 1876(i)(6)

19 (42 U.S.C. 1395mm(i)(6)), as amended by section

20 215(a)(2), is amended by adding at the end the following

21 new subparagraph:

22 ‘‘(D) The provisions of section 1128A (other than

23 subsections (a) and (b)) shall apply to a civil money pen24 alty under subparagraph (B)(i) or (C)(i) in the same man-
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1 ner as such provisions apply to a civil money penalty or

2 proceeding under section 1128A(a).’’.

3 (g) PROHIBITION AGAINST OFFERING INDUCEMENTS

4 TO INDIVIDUALS ENROLLED UNDER PROGRAMS OR

5 PLANS.—

6 (1) OFFER OF REMUNERATION.—Section

7 1128A(a) (42 U.S.C. 1320a–7a(a)) is amended—

8 (A) by striking ‘‘or’’ at the end of para9 graph (1)(D);

10 (B) by striking ‘‘, or’’ at the end of para11 graph (2) and inserting a semicolon;

12 (C) by striking the semicolon at the end of

13 paragraph (3) and inserting ‘‘; or’’; and

14 (D) by inserting after paragraph (3) the

15 following new paragraph:

16 ‘‘(4) offers to or transfers remuneration to any

17 individual eligible for benefits under title XVIII of

18 this Act, or under a State health care program (as

19 defined in section 1128(h)) that such person knows

20 or should know is likely to influence such individual

21 to order or receive from a particular provider, practi22 tioner, or supplier any item or service for which pay23 ment may be made, in whole or in part, under title

24 XVIII, or a State health care program (as so de25 fined);’’.
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1 (2) REMUNERATION DEFINED.—Section

2 1128A(i) (42 U.S.C. 1320a–7a(i)) is amended by

3 adding the following new paragraph:

4 ‘‘(6) The term ‘remuneration’ includes the waiv5 er of coinsurance and deductible amounts (or any

6 part thereof), and transfers of items or services for

7 free or for other than fair market value. The term

8 ‘remuneration’ does not include—

9 ‘‘(A) the waiver of coinsurance and deduct10 ible amounts by a person, if—

11 ‘‘(i) the waiver is not offered as part

12 of any advertisement or solicitation;

13 ‘‘(ii) the person does not routinely

14 waive coinsurance or deductible amounts;

15 and

16 ‘‘(iii) the person—

17 ‘‘(I) waives the coinsurance and

18 deductible amounts after determining

19 in good faith that the individual is in

20 financial need;

21 ‘‘(II) fails to collect coinsurance

22 or deductible amounts after making

23 reasonable collection efforts; or

24 ‘‘(III) provides for any permis25 sible waiver as specified in section
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1 1128B(b)(3) or in regulations issued

2 by the Secretary;

3 ‘‘(B) differentials in coinsurance and de4 ductible amounts as part of a benefit plan de5 sign as long as the differentials have been dis6 closed in writing to all beneficiaries, third party

7 payers, and providers, to whom claims are pre8 sented and as long as the differentials meet the

9 standards as defined in regulations promulgated

10 by the Secretary not later than 180 days after

11 the date of the enactment of the Health Cov12 erage Availability and Affordability Act of

13 1996; or

14 ‘‘(C) incentives given to individuals to pro15 mote the delivery of preventive care as deter16 mined by the Secretary in regulations so pro17 mulgated.’’.

18 (h) EFFECTIVE DATE.—The amendments made by

19 this section shall take effect January 1, 1997.

20 SEC. 232. CLARIFICATION OF LEVEL OF INTENT REQUIRED

21 FOR IMPOSITION OF SANCTIONS.

22 (a) CLARIFICATION OF LEVEL OF KNOWLEDGE RE23 QUIRED FOR IMPOSITION OF CIVIL MONETARY PEN24 ALTIES.—
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1 (1) IN GENERAL.—Section 1128A(a) (42

2 U.S.C. 1320a–7a(a)) is amended—

3 (A) in paragraphs (1) and (2), by inserting

4 ‘‘knowingly’’ before ‘‘presents’’ each place it ap5 pears; and

6 (B) in paragraph (3), by striking ‘‘gives’’

7 and inserting ‘‘knowingly gives or causes to be

8 given’’.

9 (2) DEFINITION OF STANDARD.—Section

10 1128A(i) (42 U.S.C. 1320a–7a(i)) is amended by

11 adding at the end the following new paragraph:

12 ‘‘(6) The term ‘should know’ means that a per13 son, with respect to information—

14 ‘‘(A) acts in deliberate ignorance of the

15 truth or falsity of the information; or

16 ‘‘(B) acts in reckless disregard of the truth

17 or falsity of the information,

18 and no proof of specific intent to defraud is re19 quired.’’.

20 (b) EFFECTIVE DATE.—The amendments made by

21 this section shall apply to acts or omissions occurring on

22 or after January 1, 1997.
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1 SEC. 233. PENALTY FOR FALSE CERTIFICATION FOR HOME

2 HEALTH SERVICES.

3 (a) IN GENERAL.—Section 1128A(b) (42 U.S.C.

4 1320a–7a(b)) is amended by adding at the end the follow5 ing new paragraph:

6 ‘‘(3)(A) Any physician who executes a document de7 scribed in subparagraph (B) with respect to an individual

8 knowing that all of the requirements referred to in such

9 subparagraph are not met with respect to the individual

10 shall be subject to a civil monetary penalty of not more

11 than the greater of—

12 ‘‘(i) $5,000, or

13 ‘‘(ii) three times the amount of the payments

14 under title XVIII for home health services which are

15 made pursuant to such certification.

16 ‘‘(B) A document described in this subparagraph is

17 any document that certifies, for purposes of title XVIII,

18 that an individual meets the requirements of section

19 1814(a)(2)(C) or 1835(a)(2)(A) in the case of home

20 health services furnished to the individual.’’.

21 (b) EFFECTIVE DATE.—The amendment made by

22 subsection (a) shall apply to certifications made on or

23 after the date of the enactment of this Act.
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1 Subtitle E—Revisions to Criminal

2 Law

3 SEC. 241. DEFINITION OF FEDERAL HEALTH CARE OF4 FENSE.

5 (a) IN GENERAL.—Chapter 1 of title 18, United

6 States Code, is amended by adding at the end the

7 following:

8 ‘‘§ 24. Definition of Federal health care offense

9 ‘‘(a) As used in this title, the term ‘Federal health

10 care offense’ means a violation of, or a criminal conspiracy

11 to violate—

12 ‘‘(1) section 669, 1035, or 1347 of this title; or

13 ‘‘(2) section 287, 371, 664, 666, 1001, 1027,

14 1341, 1343, or 1954 of this title, if the violation or

15 conspiracy relates to a health care benefit program.

16 ‘‘(b) As used in this title, the term ‘health care bene17 fit program’ has the meaning given such term in section

18 1347(b) of this title.’’.

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

20 at the beginning of chapter 2 of title 18, United States

21 Code, is amended by inserting after the item relating to

22 section 23 the following new item:

‘‘24. Definition relating to Federal health care offense defined.’’.

23 SEC. 242. HEALTH CARE FRAUD.

24 (a) OFFENSE.—
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1 (1) IN GENERAL.—Chapter 63 of title 18,

2 United States Code, is amended by adding at the

3 end the following:

4 ‘‘§ 1347. Health care fraud

5 ‘‘(a) Whoever knowingly executes, or attempts to exe6 cute, a scheme or artifice—

7 ‘‘(1) to defraud any health care benefit pro8 gram; or

9 ‘‘(2) to obtain, by means of false or fraudulent

10 pretenses, representations, or promises, any of the

11 money or property owned by, or under the custody

12 or control of, any health care benefit program,

13 in connection with the delivery of or payment for health

14 care benefits, items, or services, shall be fined under this

15 title or imprisoned not more than 10 years, or both. If

16 the violation results in serious bodily injury (as defined

17 in section 1365 of this title), such person shall be fined

18 under this title or imprisoned not more than 20 years, or

19 both; and if the violation results in death, such person

20 shall be fined under this title, or imprisoned for any term

21 of years or for life, or both.

22 ‘‘(b) As used in this section, the term ‘health care

23 benefit program’ means any public or private plan or con24 tract, affecting commerce, under which any medical bene25 fit, item, or service is provided to any individual, and in-
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1 cludes any individual or entity who is providing a medical

2 benefit, item, or service for which payment may be made

3 under the plan or contract.’’.

4 (2) CLERICAL AMENDMENT.—The table of sec5 tions at the beginning of chapter 63 of title 18,

6 United States Code, is amended by adding at the

7 end the following:

‘‘1347. Health care fraud.’’.

8 (b) CRIMINAL FINES DEPOSITED IN FEDERAL HOS9 PITAL INSURANCE TRUST FUND.—The Secretary of the

10 Treasury shall deposit into the Federal Hospital Insurance

11 Trust Fund pursuant to section 1817(k)(2)(C) of the So12 cial Security Act (42 U.S.C. 1395i) an amount equal to

13 the criminal fines imposed under section 1347 of title 18,

14 United States Code (relating to health care fraud).

15 SEC. 243. THEFT OR EMBEZZLEMENT.

16 (a) IN GENERAL.—Chapter 31 of title 18, United

17 States Code, is amended by adding at the end the follow18 ing:

19 ‘‘§ 669. Theft or embezzlement in connection with

20 health care

21 ‘‘(a) Whoever embezzles, steals, or otherwise without

22 authority willfully and unlawfully converts to the use of

23 any person other than the rightful owner, or intentionally

24 misapplies any of the moneys, funds, securities, premiums,

25 credits, property, or other assets of a health care benefit
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1 program, shall be fined under this title or imprisoned not

2 more than 10 years, or both; but if the value of such prop3 erty does not exceed the sum of $100 the defendant shall

4 be fined under this title or imprisoned not more than one

5 year, or both.

6 ‘‘(b) As used in this section, the term ‘health care

7 benefit program’ has the meaning given such term in sec8 tion 1347(b) of this title.’’.

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

10 at the beginning of chapter 31 of title 18, United States

11 Code, is amended by adding at the end the following:

‘‘669. Theft or embezzlement in connection with health care.’’.

12 SEC. 244. FALSE STATEMENTS.

13 (a) IN GENERAL.—Chapter 47 of title 18, United

14 States Code, is amended by adding at the end the follow15 ing:

16 ‘‘§ 1035. False statements relating to health care mat17 ters

18 ‘‘(a) Whoever, in any matter involving a health care

19 benefit program, knowingly—

20 ‘‘(1) falsifies, conceals, or covers up by any

21 trick, scheme, or device a material fact; or

22 ‘‘(2) makes any false, fictitious, or fraudulent

23 statements or representations, or makes or uses any

24 false writing or document knowing the same to con-
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1 tain any false, fictitious, or fraudulent statement or

2 entry,

3 in connection with the delivery of or payment for health

4 care benefits, items, or services, shall be fined under this

5 title or imprisoned not more than 5 years, or both.

6 ‘‘(b) As used in this section, the term ‘health care

7 benefit program’ has the meaning given such term in sec8 tion 1347(b) of this title.’’.

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

10 at the beginning of chapter 47 of title 18, United States

11 Code, is amended by adding at the end the following new

12 item:

‘‘1035. False statements relating to health care matters.’’.

13 SEC. 245. OBSTRUCTION OF CRIMINAL INVESTIGATIONS OF

14 HEALTH CARE OFFENSES.

15 (a) IN GENERAL.—Chapter 73 of title 18, United

16 States Code, is amended by adding at the end the follow17 ing:

18 ‘‘§ 1518. Obstruction of criminal investigations of

19 health care offenses

20 ‘‘(a) Whoever willfully prevents, obstructs, misleads,

21 delays or attempts to prevent, obstruct, mislead, or delay

22 the communication of information or records relating to

23 a violation of a Federal health care offense to a criminal

24 investigator shall be fined under this title or imprisoned

25 not more than 5 years, or both.
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1 ‘‘(b) As used in this section the term ‘criminal inves2 tigator’ means any individual duly authorized by a depart3 ment, agency, or armed force of the United States to con4 duct or engage in investigations for prosecutions for viola5 tions of health care offenses.’’.

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

7 at the beginning of chapter 73 of title 18, United States

8 Code, is amended by adding at the end the following new

9 item:

‘‘1518. Obstruction of criminal investigations of health care offenses.’’.

10 SEC. 246. LAUNDERING OF MONETARY INSTRUMENTS.

11 Section 1956(c)(7) of title 18, United States Code,

12 is amended by adding at the end the following:

13 ‘‘(F) Any act or activity constituting an of14 fense involving a Federal health care offense.’’.

15 SEC. 247. INJUNCTIVE RELIEF RELATING TO HEALTH CARE

16 OFFENSES.

17 (a) IN GENERAL.—Section 1345(a)(1) of title 18,

18 United States Code, is amended—

19 (1) by striking ‘‘or’’ at the end of subparagraph

20 (A);

21 (2) by inserting ‘‘or’’ at the end of subpara22 graph (B); and

23 (3) by adding at the end the following:

24 ‘‘(C) committing or about to commit a

25 Federal health care offense.’’.
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1 (b) FREEZING OF ASSETS.—Section 1345(a)(2) of

2 title 18, United States Code, is amended by inserting ‘‘or

3 a Federal health care offense’’.

4 SEC. 248. AUTHORIZED INVESTIGATIVE DEMAND PROCE5 DURES.

6 (a) IN GENERAL.—Chapter 233 of title 18, United

7 States Code, is amended by adding after section 3485 the

8 following:

9 ‘‘§ 3486. Authorized investigative demand procedures

10 ‘‘(a) AUTHORIZATION.—In any investigation relating

11 to any act or activity involving a Federal health care of12 fense, the Attorney General or the Attorney General’s des13 ignee may issue in writing and cause to be served a sub14 poena requiring the production of any records (including

15 any books, papers, documents, electronic media, or other

16 objects or tangible things), which may be relevant to an

17 authorized law enforcement inquiry, that a person or legal

18 entity may possess or have care, custody, or control. A

19 subpoena shall describe the objects required to be pro20 duced and prescribe a return date within a reasonable pe21 riod of time within which the objects can be assembled

22 and made available.

23 ‘‘(b) SERVICE.—A subpoena issued under this section

24 may be served by any person designated in the subpoena

25 to serve it. Service upon a natural person may be made
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1 by personal delivery of the subpoena to him. Service may

2 be made upon a domestic or foreign corporation or upon

3 a partnership or other unincorporated association which

4 is subject to suit under a common name, by delivering the

5 subpoena to an officer, to a managing or general agent,

6 or to any other agent authorized by appointment or by

7 law to receive service of process. The affidavit of the per8 son serving the subpoena entered on a true copy thereof

9 by the person serving it shall be proof of service.

10 ‘‘(c) ENFORCEMENT.—In the case of contumacy by

11 or refusal to obey a subpoena issued to any person, the

12 Attorney General may invoke the aid of any court of the

13 United States within the jurisdiction of which the inves14 tigation is carried on or of which the subpoenaed person

15 is an inhabitant, or in which he carries on business or may

16 be found, to compel compliance with the subpoena. The

17 court may issue an order requiring the subpoenaed person

18 to appear before the Attorney General to produce records,

19 if so ordered, or to give testimony touching the matter

20 under investigation. Any failure to obey the order of the

21 court may be punished by the court as a contempt thereof.

22 All process in any such case may be served in any judicial

23 district in which such person may be found.

24 ‘‘(d) IMMUNITY FROM CIVIL LIABILITY.—Notwith25 standing any Federal, State, or local law, any person, in-
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1 cluding officers, agents, and employees, receiving a sum2 mons under this section, who complies in good faith with

3 the summons and thus produces the materials sought,

4 shall not be liable in any court of any State or the United

5 States to any customer or other person for such produc6 tion or for nondisclosure of that production to the cus7 tomer.

8 ‘‘(e) LIMITATION ON USE.—(1) Health information

9 about an individual that is disclosed under this section

10 may not be used in, or disclosed to any person for use

11 in, any administrative, civil, or criminal action or inves12 tigation directed against the individual who is the subject

13 of the information unless the action or investigation arises

14 out of and is directly related to receipt of health care or

15 payment for health care or action involving a fraudulent

16 claim related to health; or if authorized by an appropriate

17 order of a court of competent jurisdiction, granted after

18 application showing good cause therefor.

19 ‘‘(2) In assessing good cause, the court shall weigh

20 the public interest and the need for disclosure against the

21 injury to the patient, to the physician-patient relationship,

22 and to the treatment services.

23 ‘‘(3) Upon the granting of such order, the court, in

24 determining the extent to which any disclosure of all or
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1 any part of any record is necessary, shall impose appro2 priate safeguards against unauthorized disclosure.’’.

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

4 at the beginning of chapter 223 of title 18, United States

5 Code, is amended by inserting after the item relating to

6 section 3485 the following new item:

‘‘3486. Authorized investigative demand procedures.’’.

7 (c) CONFORMING AMENDMENT.—Section

8 1510(b)(3)(B) of title 18, United States Code, is amended

9 by inserting ‘‘or a Department of Justice subpoena (issued

10 under section 3486 of title 18),’’ after ‘‘subpoena’’.

11 SEC. 249. FORFEITURES FOR FEDERAL HEALTH CARE OF12 FENSES.

13 (a) IN GENERAL.—Section 982(a) of title 18, United

14 States Code, is amended by adding after paragraph (5)

15 the following new paragraph:

16 ‘‘(6) The court, in imposing sentence on a person con17 victed of a Federal health care offense, shall order the per18 son to forfeit property, real or personal, that constitutes

19 or is derived, directly or indirectly, from gross proceeds

20 traceable to the commission of the offense.’’.

21 (b) CONFORMING AMENDMENT.—Section

22 982(b)(1)(A) of title 18, United States Code, is amended

23 by inserting ‘‘or (a)(6)’’ after ‘‘(a)(1)’’.

24 (c) PROPERTY FORFEITED DEPOSITED IN FEDERAL

25 HOSPITAL INSURANCE TRUST FUND.—
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1 (1) IN GENERAL.—After the payment of the

2 costs of asset forfeiture has been made, and notwith3 standing any other provision of law, the Secretary of

4 the Treasury shall deposit into the Federal Hospital

5 Insurance Trust Fund pursuant to section

6 1817(k)(2)(C) of the Social Security Act, as added

7 by section 301(b), an amount equal to the net

8 amount realized from the forfeiture of property by

9 reason of a Federal health care offense pursuant to

10 section 982(a)(6) of title 18, United States Code.

11 (2) COSTS OF ASSET FORFEITURE.—For pur12 poses of paragraph (1), the term ‘‘payment of the

13 costs of asset forfeiture’’ means—

14 (A) the payment, at the discretion of the

15 Attorney General, of any expenses necessary to

16 seize, detain, inventory, safeguard, maintain,

17 advertise, sell, or dispose of property under sei18 zure, detention, or forfeited, or of any other

19 necessary expenses incident to the seizure, de20 tention, forfeiture, or disposal of such property,

21 including payment for—

22 (i) contract services,

23 (ii) the employment of outside con24 tractors to operate and manage properties

25 or provide other specialized services nec-
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1 essary to dispose of such properties in an

2 effort to maximize the return from such

3 properties; and

4 (iii) reimbursement of any Federal,

5 State, or local agency for any expenditures

6 made to perform the functions described in

7 this subparagraph;

8 (B) at the discretion of the Attorney Gen9 eral, the payment of awards for information or

10 assistance leading to a civil or criminal forfeit11 ure involving any Federal agency participating

12 in the Health Care Fraud and Abuse Control

13 Account;

14 (C) the compromise and payment of valid

15 liens and mortgages against property that has

16 been forfeited, subject to the discretion of the

17 Attorney General to determine the validity of

18 any such lien or mortgage and the amount of

19 payment to be made, and the employment of at20 torneys and other personnel skilled in State real

21 estate law as necessary;

22 (D) payment authorized in connection with

23 remission or mitigation procedures relating to

24 property forfeited; and
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1 (E) the payment of State and local prop2 erty taxes on forfeited real property that ac3 crued between the date of the violation giving

4 rise to the forfeiture and the date of the forfeit5 ure order.

6 Subtitle F—Administrative

7 Simplification

8 SEC. 251. PURPOSE.

9 It is the purpose of this subtitle to improve the medi10 care program under title XVIII of the Social Security Act,

11 the medicaid program under title XIX of such Act, and

12 the efficiency and effectiveness of the health care system,

13 by encouraging the development of a health information

14 system through the establishment of standards and re15 quirements for the electronic transmission of certain

16 health information.

17 SEC. 252. ADMINISTRATIVE SIMPLIFICATION.

18 (a) IN GENERAL.—Title XI (42 U.S.C. 1301 et seq.)

19 is amended by adding at the end the following:

20 ‘‘PART C—ADMINISTRATIVE SIMPLIFICATION

21 ‘‘SEC. 1171. DEFINITIONS.

22 ‘‘For purposes of this part:

23 ‘‘(1) CLEARINGHOUSE.—The term ‘clearing24 house’ means a public or private entity that—
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1 ‘‘(A) processes or facilitates the processing

2 of nonstandard data elements of health infor3 mation into standard data elements; or

4 ‘‘(B) provides the means by which persons

5 may meet the requirements of this part.

6 ‘‘(2) CODE SET.—The term ‘code set’ means

7 any set of codes used for encoding data elements,

8 such as tables of terms, medical concepts, medical

9 diagnostic codes, or medical procedure codes.

10 ‘‘(3) COORDINATION OF BENEFITS.—The term

11 ‘coordination of benefits’ means determining and co12 ordinating the financial obligations of health plans

13 when health care benefits are payable under 2 or

14 more health plans.

15 ‘‘(4) HEALTH CARE PROVIDER.—The term

16 ‘health care provider’ includes a provider of services

17 (as defined in section 1861(u)), a provider of medi18 cal or other health services (as defined in section

19 1861(s)), and any other person furnishing health

20 care services or supplies.

21 ‘‘(5) HEALTH INFORMATION.—The term ‘health

22 information’ means any information, whether oral or

23 recorded in any form or medium that—

24 ‘‘(A) is created or received by a health care

25 provider, health plan, public health authority,
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1 employer, life insurer, school or university, or

2 clearinghouse; and

3 ‘‘(B) relates to the past, present, or future

4 physical or mental health or condition of an in5 dividual, the provision of health care to an indi6 vidual, or the past, present, or future payment

7 for the provision of health care to an individual.

8 ‘‘(6) HEALTH PLAN.—The term ‘health plan’

9 means a plan which provides, or pays the cost of,

10 health benefits. Such term includes the following, or

11 any combination thereof:

12 ‘‘(A) Part A or part B of the medicare

13 program under title XVIII.

14 ‘‘(B) The medicaid program under title

15 XIX.

16 ‘‘(C) A medicare supplemental policy (as

17 defined in section 1882(g)(1)).

18 ‘‘(D) Coverage issued as a supplement to

19 liability insurance.

20 ‘‘(E) General liability insurance.

21 ‘‘(F) Worker’s compensation or similar in22 surance.

23 ‘‘(G) Automobile or automobile medical24 payment insurance.
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1 ‘‘(H) A long-term care policy, including a

2 nursing home fixed indemnity policy (unless the

3 Secretary determines that such a policy does

4 not provide sufficiently comprehensive coverage

5 of a benefit so that the policy should be treated

6 as a health plan).

7 ‘‘(I) A hospital or fixed indemnity income8 protection policy.

9 ‘‘(J) An employee welfare benefit plan, as

10 defined in section 3(1) of the Employee Retire11 ment Income Security Act of 1974 (29 U.S.C.

12 1002(1)), but only to the extent the plan is es13 tablished or maintained for the purpose of pro14 viding health benefits and has 50 or more par15 ticipants (as defined in section 3(7) of such

16 Act).

17 ‘‘(K) An employee welfare benefit plan or

18 any other arrangement which is established or

19 maintained for the purpose of offering or pro20 viding health benefits to the employees of 2 or

21 more employers.

22 ‘‘(L) The health care program for active

23 military personnel under title 10, United States

24 Code.
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1 ‘‘(M) The veterans health care program

2 under chapter 17 of title 38, United States

3 Code.

4 ‘‘(N) The Civilian Health and Medical Pro5 gram of the Uniformed Services (CHAMPUS),

6 as defined in section 1073(4) of title 10, United

7 States Code.

8 ‘‘(O) The Indian health service program

9 under the Indian Health Care Improvement Act

10 (25 U.S.C. 1601 et seq.).

11 ‘‘(P) The Federal Employees Health Bene12 fit Plan under chapter 89 of title 5, United

13 States Code.

14 ‘‘(Q) Such other plan or arrangement as

15 the Secretary determines is a health plan.

16 ‘‘(7) INDIVIDUALLY IDENTIFIABLE HEALTH IN17 FORMATION.—The term ‘individually identifiable

18 health information’ means any information, includ19 ing demographic information collected from an indi20 vidual, that—

21 ‘‘(A) is created or received by a health care

22 provider, health plan, employer, or clearing23 house; and

24 ‘‘(B) relates to the past, present, or future

25 physical or mental health or condition of an in-
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1 dividual, the provision of health care to an indi2 vidual, or the past, present, or future payment

3 for the provision of health care to an individual,

4 and—

5 ‘‘(i) identifies an individual; or

6 ‘‘(ii) with respect to which there is a

7 reasonable basis to believe that the infor8 mation can be used to identify an individ9 ual.

10 ‘‘(8) STANDARD.—The term ‘standard’, when

11 used with reference to a data element of health in12 formation or a transaction referred to in section

13 1173(a)(1), means any such data element or trans14 action that meets each of the standards and imple15 mentation specifications adopted or established by

16 the Secretary with respect to the data element or

17 transaction under sections 1172 and 1173.

18 ‘‘(9) STANDARD SETTING ORGANIZATION.—The

19 term ‘standard setting organization’ means a stand20 ard setting organization accredited by the American

21 National Standards Institute, including the National

22 Council for Prescription Drug Programs, that devel23 ops standards for information transactions, data ele24 ments, or any other standard that is necessary to,

25 or will facilitate, the implementation of this part.
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1 ‘‘SEC. 1172. GENERAL REQUIREMENTS FOR ADOPTION OF

2 STANDARDS.

3 ‘‘(a) APPLICABILITY.—Any standard or modification

4 of a standard adopted under this part shall apply to the

5 following persons:

6 ‘‘(1) A health plan.

7 ‘‘(2) A clearinghouse.

8 ‘‘(3) A health care provider who transmits any

9 health information in electronic form in connection

10 with a transaction referred to in section 1173(a)(1).

11 ‘‘(b) REDUCTION OF COSTS.—Any standard or modi12 fication of a standard adopted under this part shall be

13 consistent with the objective of reducing the administra14 tive costs of providing and paying for health care.

15 ‘‘(c) ROLE OF STANDARD SETTING ORGANIZA16 TIONS.—

17 ‘‘(1) IN GENERAL.—Except as provided in para18 graph (2), any standard or modification of a stand19 ard adopted under this part shall be developed or

20 modified by a standard setting organization.

21 ‘‘(2) SPECIAL RULE.—The Secretary may adopt

22 a standard or modification of a standard that is dif23 ferent from any standard developed or modified by

24 a standard setting organization, if—

25 ‘‘(A) the different standard or modification

26 will substantially reduce administrative costs to
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1 health care providers and health plans com2 pared to the alternatives; and

3 ‘‘(B) the standard or modification is pro4 mulgated in accordance with the rulemaking

5 procedures of subchapter III of chapter 5 of

6 title 5, United States Code.

7 ‘‘(d) IMPLEMENTATION SPECIFICATIONS.—The Sec8 retary shall establish specifications for implementing each

9 of the standards and modifications adopted under this

10 part.

11 ‘‘(e) PROTECTION OF TRADE SECRETS.—Except as

12 otherwise required by law, a standard or modification of

13 a standard adopted under this part shall not require dis14 closure of trade secrets or confidential commercial infor15 mation by a person required to comply with this part.

16 ‘‘(f) ASSISTANCE TO THE SECRETARY.—In complying

17 with the requirements of this part, the Secretary shall rely

18 on the recommendations of the Health Information Advi19 sory Committee established under section 1179 and shall

20 consult with appropriate Federal and State agencies and

21 private organizations. The Secretary shall publish in the

22 Federal Register the recommendations of the Health In23 formation Advisory Committee regarding the adoption of

24 a standard or modification of a standard under this part.
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1 ‘‘SEC. 1173. STANDARDS FOR INFORMATION TRANSACTIONS

2 AND DATA ELEMENTS.

3 ‘‘(a) STANDARDS TO ENABLE ELECTRONIC EX4 CHANGE.—

5 ‘‘(1) IN GENERAL.—The Secretary shall adopt

6 standards for transactions, and data elements for

7 such transactions, to enable health information to be

8 exchanged electronically, that are—

9 ‘‘(A) appropriate for the financial and ad10 ministrative transactions described in para11 graph (2); and

12 ‘‘(B) related to other financial and admin13 istrative transactions determined appropriate by

14 the Secretary consistent with the goals of im15 proving the operation of the health care system

16 and reducing administrative costs.

17 ‘‘(2) TRANSACTIONS.—The transactions re18 ferred to in paragraph (1)(A) are the following:

19 ‘‘(A) Claims (including coordination of

20 benefits) or equivalent encounter information.

21 ‘‘(B) Claims attachments.

22 ‘‘(C) Enrollment and disenrollment.

23 ‘‘(D) Eligibility.

24 ‘‘(E) Health care payment and remittance

25 advice.

26 ‘‘(F) Premium payments.
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1 ‘‘(G) First report of injury.

2 ‘‘(H) Claims status.

3 ‘‘(I) Referral certification and authoriza4 tion.

5 ‘‘(3) ACCOMMODATION OF SPECIFIC PROVID6 ERS.—The standards adopted by the Secretary

7 under paragraph (1) shall accommodate the needs of

8 different types of health care providers.

9 ‘‘(b) UNIQUE HEALTH IDENTIFIERS.—

10 ‘‘(1) IN GENERAL.—The Secretary shall adopt

11 standards providing for a standard unique health

12 identifier for each individual, employer, health plan,

13 and health care provider for use in the health care

14 system. In carrying out the preceding sentence for

15 each health plan and health care provider, the Sec16 retary shall take into account multiple uses for iden17 tifiers and multiple locations and specialty classifica18 tions for health care providers.

19 ‘‘(2) USE OF IDENTIFIERS.—The standards

20 adopted under paragraphs (1) shall specify the pur21 poses for which a unique health identifier may be

22 used.

23 ‘‘(c) CODE SETS.—

24 ‘‘(1) IN GENERAL.—The Secretary shall adopt

25 standards that—
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1 ‘‘(A) select code sets for appropriate data

2 elements for the transactions referred to in sub3 section (a)(1) from among the code sets that

4 have been developed by private and public enti5 ties; or

6 ‘‘(B) establish code sets for such data ele7 ments if no code sets for the data elements

8 have been developed.

9 ‘‘(2) DISTRIBUTION.—The Secretary shall es10 tablish efficient and low-cost procedures for distribu11 tion (including electronic distribution) of code sets

12 and modifications made to such code sets under sec13 tion 1174(b).

14 ‘‘(d) SECURITY STANDARDS FOR HEALTH INFORMA15 TION.—

16 ‘‘(1) SECURITY STANDARDS.—The Secretary

17 shall adopt security standards that—

18 ‘‘(A) take into account—

19 ‘‘(i) the technical capabilities of record

20 systems used to maintain health informa21 tion;

22 ‘‘(ii) the costs of security measures;

23 ‘‘(iii) the need for training persons

24 who have access to health information;
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1 ‘‘(iv) the value of audit trails in com2 puterized record systems; and

3 ‘‘(v) the needs and capabilities of

4 small health care providers and rural

5 health care providers (as such providers

6 are defined by the Secretary); and

7 ‘‘(B) ensure that a clearinghouse, if it is

8 part of a larger organization, has policies and

9 security procedures which isolate the activities

10 of the clearinghouse with respect to processing

11 information in a manner that prevents unau12 thorized access to such information by such

13 larger organization.

14 ‘‘(2) SAFEGUARDS.—Each person described in

15 section 1172(a) who maintains or transmits health

16 information shall maintain reasonable and appro17 priate administrative, technical, and physical safe18 guards—

19 ‘‘(A) to ensure the integrity and confiden20 tiality of the information;

21 ‘‘(B) to protect against any reasonably an22 ticipated—

23 ‘‘(i) threats or hazards to the security

24 or integrity of the information; and
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1 ‘‘(ii) unauthorized uses or disclosures

2 of the information; and

3 ‘‘(C) otherwise to ensure compliance with

4 this part by the officers and employees of such

5 person.

6 ‘‘(e) PRIVACY STANDARDS FOR HEALTH INFORMA7 TION.—The Secretary shall adopt standards with respect

8 to the privacy of individually identifiable health informa9 tion. Such standards shall include standards concerning

10 at least the following:

11 ‘‘(1) The rights of an individual who is a sub12 ject of such information.

13 ‘‘(2) The procedures to be established for the

14 exercise of such rights.

15 ‘‘(3) The uses and disclosures of such informa16 tion that are authorized or required.

17 ‘‘(f) ELECTRONIC SIGNATURE.—

18 ‘‘(1) IN GENERAL.—The Secretary, in coordina19 tion with the Secretary of Commerce, shall adopt

20 standards specifying procedures for the electronic

21 transmission and authentication of signatures, com22 pliance with which shall be deemed to satisfy Fed23 eral and State statutory requirements for written

24 signatures with respect to the transactions referred

25 to in subsection (a)(1).
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1 ‘‘(2) PAYMENTS FOR SERVICES AND PRE2 MIUMS.—Nothing in this part shall be construed to

3 prohibit payment for health care services or health

4 plan premiums by debit, credit, payment card or

5 numbers, or other electronic means.

6 ‘‘(g) COORDINATION OF BENEFITS.—The Secretary

7 shall adopt standards—

8 ‘‘(1) for determining the financial liability of

9 health plans when health care benefits are payable

10 under two or more health plans; and

11 ‘‘(2) for transferring among health plans appro12 priate standard data elements needed for the coordi13 nation of benefits, the sequential processing of

14 claims, and other data elements for individuals who

15 have more than one health plan.

16 ‘‘SEC. 1174. TIMETABLES FOR ADOPTION OF STANDARDS.

17 ‘‘(a) INITIAL STANDARDS.—The Secretary shall

18 carry out section 1173 not later than 18 months after the

19 date of the enactment of this part, except that standards

20 relating to claims attachments shall be adopted not later

21 than 30 months after such date.

22 ‘‘(b) ADDITIONS AND MODIFICATIONS TO STAND23 ARDS.—

24 ‘‘(1) IN GENERAL.—Except as provided in para25 graph (2), the Secretary shall review the standards
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1 adopted under section 1173, and shall adopt addi2 tional or modified standards, as determined appro3 priate, but not more frequently than once every 6

4 months. Any addition or modification to a standard

5 shall be completed in a manner which minimizes the

6 disruption and cost of compliance.

7 ‘‘(2) SPECIAL RULES.—

8 ‘‘(A) FIRST 12-MONTH PERIOD.—Except

9 with respect to additions and modifications to

10 code sets under subparagraph (B), the Sec11 retary may not adopt any modification to a

12 standard adopted under this part during the

13 12-month period beginning on the date the

14 standard is initially adopted, unless the Sec15 retary determines that the modification is nec16 essary in order to permit compliance with the

17 standard.

18 ‘‘(B) ADDITIONS AND MODIFICATIONS TO

19 CODE SETS.—

20 ‘‘(i) IN GENERAL.—The Secretary

21 shall ensure that procedures exist for the

22 routine maintenance, testing, enhancement,

23 and expansion of code sets.

24 ‘‘(ii) ADDITIONAL RULES.—If a code

25 set is modified under this subsection, the
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1 modified code set shall include instructions

2 on how data elements of health informa3 tion that were encoded prior to the modi4 fication may be converted or translated so

5 as to preserve the informational value of

6 the data elements that existed before the

7 modification. Any modification to a code

8 set under this subsection shall be imple9 mented in a manner that minimizes the

10 disruption and cost of complying with such

11 modification.

12 ‘‘SEC. 1175. REQUIREMENTS.

13 ‘‘(a) CONDUCT OF TRANSACTIONS BY PLANS.—

14 ‘‘(1) IN GENERAL.—If a person desires to con15 duct a transaction referred to in section 1173(a)(1)

16 with a health plan as a standard transaction—

17 ‘‘(A) the health plan may not refuse to

18 conduct such transaction as a standard trans19 action;

20 ‘‘(B) the health plan may not delay such

21 transaction, or otherwise adversely affect, or at22 tempt to adversely affect, the person or the

23 transaction on the ground that the transaction

24 is a standard transaction; and
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1 ‘‘(C) the information transmitted and re2 ceived in connection with the transaction shall

3 be in the form of standard data elements of

4 health information.

5 ‘‘(2) SATISFACTION OF REQUIREMENTS.—A

6 health plan may satisfy the requirements under

7 paragraph (1) by—

8 ‘‘(A) directly transmitting and receiving

9 standard data elements of health information;

10 or

11 ‘‘(B) submitting nonstandard data ele12 ments to a clearinghouse for processing into

13 standard data elements and transmission by the

14 clearinghouse, and receiving standard data ele15 ments through the clearinghouse.

16 ‘‘(3) TIMETABLE FOR COMPLIANCE.—Para17 graph (1) shall not be construed to require a health

18 plan to comply with any standard, implementation

19 specification, or modification to a standard or speci20 fication adopted or established by the Secretary

21 under sections 1172 and 1173 at any time prior to

22 the date on which the plan is required to comply

23 with the standard or specification under subsection

24 (b).

25 ‘‘(b) COMPLIANCE WITH STANDARDS.—
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1 ‘‘(1) INITIAL COMPLIANCE.—

2 ‘‘(A) IN GENERAL.—Not later than 24

3 months after the date on which an initial stand4 ard or implementation specification is adopted

5 or established under sections 1172 and 1173,

6 each person to whom the standard or imple7 mentation specification applies shall comply

8 with the standard or specification.

9 ‘‘(B) SPECIAL RULE FOR SMALL HEALTH

10 PLANS.—In the case of a small health plan,

11 paragraph (1) shall be applied by substituting

12 ‘‘36 months’’ for ‘‘24 months’’. For purposes of

13 this subsection, the Secretary shall determine

14 the plans that qualify as small health plans.

15 ‘‘(2) COMPLIANCE WITH MODIFIED STAND16 ARDS.—If the Secretary adopts a modification to a

17 standard or implementation specification under this

18 part, each person to whom the standard or imple19 mentation specification applies shall comply with the

20 modified standard or implementation specification at

21 such time as the Secretary determines appropriate,

22 taking into account the time needed to comply due

23 to the nature and extent of the modification. The

24 time determined appropriate under the preceding

25 sentence may not be earlier than the last day of the
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1 180-day period beginning on the date such modifica2 tion is adopted. The Secretary may extend the time

3 for compliance for small health plans, if the Sec4 retary determines that such extension is appropriate.

5 ‘‘SEC. 1176. GENERAL PENALTY FOR FAILURE TO COMPLY

6 WITH REQUIREMENTS AND STANDARDS.

7 ‘‘(a) GENERAL PENALTY.—

8 ‘‘(1) IN GENERAL.—Except as provided in sub9 section (b), the Secretary shall impose on any person

10 who violates a provision of this part a penalty of not

11 more than $100 for each such violation, except that

12 the total amount imposed on the person for all viola13 tions of an identical requirement or prohibition dur14 ing a calendar year may not exceed $25,000.

15 ‘‘(2) PROCEDURES.—The provisions of section

16 1128A (other than subsections (a) and (b) and the

17 second sentence of subsection (f)) shall apply to the

18 imposition of a civil money penalty under this sub19 section in the same manner as such provisions apply

20 to the imposition of a penalty under such section

21 1128A.

22 ‘‘(b) LIMITATIONS.—

23 ‘‘(1) OFFENSES OTHERWISE PUNISHABLE.—A

24 penalty may not be imposed under subsection (a)
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1 with respect to an act if the act constitutes an of2 fense punishable under section 1177.

3 ‘‘(2) NONCOMPLIANCE NOT DISCOVERED.—A

4 penalty may not be imposed under subsection (a)

5 with respect to a provision of this part if it is estab6 lished to the satisfaction of the Secretary that the

7 person liable for the penalty did not know, and by

8 exercising reasonable diligence would not have

9 known, that such person violated the provision.

10 ‘‘(3) FAILURES DUE TO REASONABLE CAUSE.—

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

12 subparagraph (B), a penalty may not be im13 posed under subsection (a) if—

14 ‘‘(i) the failure to comply was due to

15 reasonable cause and not to willful neglect;

16 and

17 ‘‘(ii) the failure to comply is corrected

18 during the 30-day period beginning on the

19 1st date the person liable for the penalty

20 knew, or by exercising reasonable diligence

21 would have known, that the failure to com22 ply occurred.

23 ‘‘(B) EXTENSION OF PERIOD.—

24 ‘‘(i) NO PENALTY.—The period re25 ferred to in subparagraph (A)(ii) may be
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1 extended as determined appropriate by the

2 Secretary based on the nature and extent

3 of the failure to comply.

4 ‘‘(ii) ASSISTANCE.—If the Secretary

5 determines that a person failed to comply

6 because the person was unable to comply,

7 the Secretary may provide technical assist8 ance to the person during the period de9 scribed in subparagraph (A)(ii). Such as10 sistance shall be provided in any manner

11 determined appropriate by the Secretary.

12 ‘‘(4) REDUCTION.—In the case of a failure to

13 comply which is due to reasonable cause and not to

14 willful neglect, any penalty under subsection (a) that

15 is not entirely waived under paragraph (3) may be

16 waived to the extent that the payment of such pen17 alty would be excessive relative to the compliance

18 failure involved.

19 ‘‘SEC. 1177. WRONGFUL DISCLOSURE OF INDIVIDUALLY

20 IDENTIFIABLE HEALTH INFORMATION.

21 ‘‘(a) OFFENSE.—A person who knowingly—

22 ‘‘(1) uses or causes to be used a unique health

23 identifier in violation of a provision of this part;
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1 ‘‘(2) obtains individually identifiable health in2 formation relating to an individual in violation of a

3 provision of this part; or

4 ‘‘(3) discloses individually identifiable health in5 formation to another person in violation of a provi6 sion of this part,

7 shall be punished as provided in subsection (b).

8 ‘‘(b) PENALTIES.—A person described in subsection

9 (a) shall—

10 ‘‘(1) be fined not more than $50,000, impris11 oned not more than 1 year, or both;

12 ‘‘(2) if the offense is committed under false pre13 tenses, be fined not more than $100,000, imprisoned

14 not more than 5 years, or both; and

15 ‘‘(3) if the offense is committed with intent to

16 sell, transfer, or use individually identifiable health

17 information for commercial advantage, personal

18 gain, or malicious harm, fined not more than

19 $250,000, imprisoned not more than 10 years, or

20 both.

21 ‘‘SEC. 1178. EFFECT ON STATE LAW.

22 ‘‘(a) GENERAL EFFECT.—

23 ‘‘(1) GENERAL RULE.—Except as provided in

24 paragraph (2), a provision or requirement under this

25 part, or a standard or implementation specification
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1 adopted or established under sections 1172 and

2 1173, shall supersede any contrary provision of

3 State law, including a provision of State law that re4 quires medical or health plan records (including bill5 ing information) to be maintained or transmitted in

6 written rather than electronic form.

7 ‘‘(2) EXCEPTIONS.—A provision or requirement

8 under this part, or a standard or implementation

9 specification adopted or established under sections

10 1172 and 1173, shall not supersede a contrary pro11 vision of State law, if the provision of State law—

12 ‘‘(A) imposes requirements, standards, or

13 implementation specifications that are more

14 stringent than the requirements, standards, or

15 implementation specifications under this part

16 with respect to the privacy of individually iden17 tifiable health information; or

18 ‘‘(B) is a provision the Secretary deter19 mines—

20 ‘‘(i) is necessary to prevent fraud and

21 abuse, or for other purposes; or

22 ‘‘(ii) addresses controlled substances.

23 ‘‘(b) PUBLIC HEALTH REPORTING.—Nothing in this

24 part shall be construed to invalidate or limit the authority,

25 power, or procedures established under any law providing
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1 for the reporting of disease or injury, child abuse, birth,

2 or death, public health surveillance, or public health inves3 tigation or intervention.

4 ‘‘SEC. 1179. HEALTH INFORMATION ADVISORY COMMITTEE.

5 ‘‘(a) ESTABLISHMENT.—There is established a com6 mittee to be known as the Health Information Advisory

7 Committee (in this section referred to as the ‘committee’).

8 ‘‘(b) DUTIES.—The committee shall—

9 ‘‘(1) provide assistance to the Secretary in com10 plying with the requirements imposed on the Sec11 retary under this part;

12 ‘‘(2) study the issues related to the adoption of

13 uniform data standards for patient medical record

14 information and the electronic exchange of such in15 formation;

16 ‘‘(3) report to the Secretary not later than 4

17 years after the date of the enactment of this part

18 recommendations and legislative proposals for such

19 standards and electronic exchange; and

20 ‘‘(4) generally be responsible for advising the

21 Secretary and the Congress on the status of the im22 plementation of this part.

23 ‘‘(c) MEMBERSHIP.—

24 ‘‘(1) IN GENERAL.—The committee shall con25 sist of 15 members of whom—
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1 ‘‘(A) 3 shall be appointed by the President;

2 ‘‘(B) 6 shall be appointed by the Speaker

3 of the House of Representatives after consulta4 tion with the minority leader of the House of

5 Representatives; and

6 ‘‘(C) 6 shall be appointed by the President

7 pro tempore of the Senate after consultation

8 with the minority leader of the Senate.

9 The appointments of the members shall be made not

10 later than 60 days after the date of the enactment

11 of this part. The President shall designate 1 member

12 as the Chair.

13 ‘‘(2) EXPERTISE.—The membership of the com14 mittee shall consist of individuals who are of recog15 nized standing and distinction in the areas of infor16 mation systems, information networking and inte17 gration, consumer health, health care financial man18 agement, or privacy, and who possess the dem19 onstrated capacity to discharge the duties imposed

20 on the committee.

21 ‘‘(3) TERMS.—Each member of the committee

22 shall be appointed for a term of 5 years, except that

23 the members first appointed shall serve staggered

24 terms such that the terms of not more than 3 mem25 bers expire at one time.
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1 ‘‘(4) INITIAL MEETING.—Not later than 30

2 days after the date on which a majority of the mem3 bers have been appointed, the committee shall hold

4 its first meeting.

5 ‘‘(d) REPORTS.—Not later than 1 year after the date

6 of the enactment of this part, and annually thereafter, the

7 committee shall submit to the Congress, and make public,

8 a report regarding—

9 ‘‘(1) the extent to which persons required to

10 comply with this part are cooperating in implement11 ing the standards adopted under this part;

12 ‘‘(2) the extent to which such entities are meet13 ing the privacy and security standards adopted

14 under this part and the types of penalties assessed

15 for noncompliance with such standards;

16 ‘‘(3) whether the Federal and State Govern17 ments are receiving information of sufficient quality

18 to meet their responsibilities under this part;

19 ‘‘(4) any problems that exist with respect to im20 plementation of this part; and

21 ‘‘(5) the extent to which timetables under this

22 part are being met.’’.

23 (b) CONFORMING AMENDMENTS.—
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1 (1) REQUIREMENT FOR MEDICARE PROVID2 ERS.—Section 1866(a)(1) (42 U.S.C. 1395cc(a)(1))

3 is amended—

4 (A) by striking ‘‘and’’ at the end of sub5 paragraph (P);

6 (B) by striking the period at the end of

7 subparagraph (Q) and inserting ‘‘; and’’; and

8 (C) by inserting immediately after sub9 paragraph (Q) the following new subparagraph:

10 ‘‘(R) to contract only with a clearinghouse

11 (as defined in section 1171) that meets each

12 standard and implementation specification

13 adopted or established under sections 1172 and

14 1173 on or after the date on which the clear15 inghouse is required to comply with the stand16 ard or specification.’’.

17 (2) CLERICAL AMENDMENTS.—

18 (A) Title XI (42 U.S.C. 1301 et seq.) is

19 amended by striking the title heading and in20 serting the following:

21 ‘‘TITLE XI—GENERAL PROVISIONS, PEER RE22 VIEW, AND ADMINISTRATIVE SIMPLIFICA23 TION’’.

24 (B) Parts A and B of title XI (42 U.S.C.

25 1301 et seq.) are amended by striking ‘‘this
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1 title’’ each place such term appears and insert2 ing ‘‘parts A and B of this title’’.

3 TITLE III—TAX-RELATED

4 HEALTH PROVISIONS

5 Subtitle A—Medical Savings

6 Accounts

7 SEC. 301. MEDICAL SAVINGS ACCOUNTS.

8 (a) IN GENERAL.—Part VII of subchapter B of chap9 ter 1 of the Internal Revenue Code of 1986 (relating to

10 additional itemized deductions for individuals) is amended

11 by redesignating section 220 as section 221 and by insert12 ing after section 219 the following new section:

13 ‘‘SEC. 220. MEDICAL SAVINGS ACCOUNTS.

14 ‘‘(a) DEDUCTION ALLOWED.—In the case of an indi15 vidual who is an eligible individual for any month during

16 the taxable year, there shall be allowed as a deduction for

17 the taxable year an amount equal to the aggregate amount

18 paid in cash during such taxable year by such individual

19 to a medical savings account of such individual.

20 ‘‘(b) LIMITATIONS.—

21 ‘‘(1) IN GENERAL.—Except as otherwise pro22 vided in this subsection, the amount allowable as a

23 deduction under subsection (a) to an individual for

24 the taxable year shall not exceed—
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1 ‘‘(A) except as provided in subparagraph

2 (B), the lesser of—

3 ‘‘(i) $2,000, or

4 ‘‘(ii) the annual deductible limit for

5 any individual covered under the high de6 ductible health plan, or

7 ‘‘(B) in the case of a high deductible

8 health plan covering the taxpayer and any other

9 eligible individual who is the spouse or any de10 pendent (as defined in section 152) of the tax11 payer, the lesser of—

12 ‘‘(i) $4,000, or

13 ‘‘(ii) the annual limit under the plan

14 on the aggregate amount of deductibles re15 quired to be paid by all individuals.

16 The preceding sentence shall not apply if the spouse

17 of such individual is covered under any other high

18 deductible health plan.

19 ‘‘(2) SPECIAL RULE FOR MARRIED INDIVID20 UALS.—

21 ‘‘(A) IN GENERAL.—This subsection shall

22 be applied separately for each married individ23 ual.

24 ‘‘(B) SPECIAL RULE.—If individuals who

25 are married to each other are covered under the
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1 same high deductible health plan, then the

2 amounts applicable under paragraph (1)(B)

3 shall be divided equally between them unless

4 they agree on a different division.

5 ‘‘(3) COORDINATION WITH EXCLUSION FOR EM6 PLOYER CONTRIBUTIONS.—No deduction shall be al7 lowed under this section for any amount paid for

8 any taxable year to a medical savings account of an

9 individual if—

10 ‘‘(A) any amount is paid to any medical

11 savings account of such individual which is ex12 cludable from gross income under section

13 106(b) for such year, or

14 ‘‘(B) in a case described in paragraph (2),

15 any amount is paid to any medical savings ac16 count of either spouse which is so excludable for

17 such year.

18 ‘‘(4) PRORATION OF LIMITATION.—

19 ‘‘(A) IN GENERAL.—The limitation under

20 paragraph (1) shall be the sum of the monthly

21 limitations for months during the taxable year

22 that the individual is an eligible individual if—

23 ‘‘(i) such individual is not an eligible

24 individual for all months of the taxable

25 year,
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1 ‘‘(ii) the deductible under the high de2 ductible health plan covering such individ3 ual is not the same throughout such tax4 able year, or

5 ‘‘(iii) such limitation is determined

6 under paragraph (1)(B) for some but not

7 all months during such taxable year.

8 ‘‘(B) MONTHLY LIMITATION.—The month9 ly limitation for any month shall be an amount

equal to 1 10 ⁄12 of the limitation which would (but

11 for this paragraph and paragraph (3)) be deter12 mined under paragraph (1) if the facts and cir13 cumstances as of the first day of such month

14 that such individual is covered under a high de15 ductible health plan were true for the entire

16 taxable year.

17 ‘‘(5) DENIAL OF DEDUCTION TO DEPEND18 ENTS.—No deduction shall be allowed under this

19 section to any individual with respect to whom a de20 duction under section 151 is allowable to another

21 taxpayer for a taxable year beginning in the cal22 endar year in which such individual’s taxable year

23 begins.

24 ‘‘(c) DEFINITIONS.—For purposes of this section—

25 ‘‘(1) ELIGIBLE INDIVIDUAL.—
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1 ‘‘(A) IN GENERAL.—The term ‘eligible in2 dividual’ means, with respect to any month, any

3 individual—

4 ‘‘(i) who is covered under a high de5 ductible health plan as of the 1st day of

6 such month, and

7 ‘‘(ii) who is not, while covered under

8 a high deductible health plan, covered

9 under any health plan—

10 ‘‘(I) which is not a high deduct11 ible health plan, and

12 ‘‘(II) which provides coverage for

13 any benefit which is covered under the

14 high deductible health plan.

15 ‘‘(B) CERTAIN COVERAGE DIS16 REGARDED.—Subparagraph (A)(ii) shall be ap17 plied without regard to—

18 ‘‘(i) coverage for any benefit provided

19 by permitted insurance, and

20 ‘‘(ii) coverage (whether through insur21 ance or otherwise) for accidents, disability,

22 dental care, vision care, or long-term care.

23 ‘‘(2) HIGH DEDUCTIBLE HEALTH PLAN.—The

24 term ‘high deductible health plan’ means a health

25 plan which—
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1 ‘‘(A) has an annual deductible limit for

2 each individual covered by the plan which is not

3 less than $1,500, and

4 ‘‘(B) has an annual limit on the aggregate

5 amount of deductibles required to be paid with

6 respect to all individuals covered by the plan

7 which is not less than $3,000.

8 Such term does not include a health plan if substan9 tially all of its coverage is coverage described in

10 paragraph (1)(B). A plan shall not fail to be treated

11 as a high deductible health plan by reason of failing

12 to have a deductible for preventive care if the ab13 sence of a deductible for such care is required by

14 State law.

15 ‘‘(3) PERMITTED INSURANCE.—The term ‘per16 mitted insurance’ means—

17 ‘‘(A) Medicare supplemental insurance,

18 ‘‘(B) insurance if substantially all of the

19 coverage provided under such insurance relates

20 to—

21 ‘‘(i) liabilities incurred under workers’

22 compensation laws,

23 ‘‘(ii) tort liabilities,

24 ‘‘(iii) liabilities relating to ownership

25 or use of property, or
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1 ‘‘(iv) such other similar liabilities as

2 the Secretary may specify by regulations,

3 ‘‘(C) insurance for a specified disease or

4 illness, and

5 ‘‘(D) insurance paying a fixed amount per

6 day (or other period) of hospitalization.

7 ‘‘(d) MEDICAL SAVINGS ACCOUNT.—For purposes of

8 this section—

9 ‘‘(1) MEDICAL SAVINGS ACCOUNT.—The term

10 ‘medical savings account’ means a trust created or

11 organized in the United States exclusively for the

12 purpose of paying the qualified medical expenses of

13 the account holder, but only if the written governing

14 instrument creating the trust meets the following re15 quirements:

16 ‘‘(A) Except in the case of a rollover con17 tribution described in subsection (f)(5), no con18 tribution will be accepted—

19 ‘‘(i) unless it is in cash, or

20 ‘‘(ii) to the extent such contribution,

21 when added to previous contributions to

22 the trust for the calendar year, exceeds

23 $4,000.

24 ‘‘(B) The trustee is a bank (as defined in

25 section 408(n)), an insurance company (as de-
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1 fined in section 816), or another person who

2 demonstrates to the satisfaction of the Sec3 retary that the manner in which such person

4 will administer the trust will be consistent with

5 the requirements of this section.

6 ‘‘(C) No part of the trust assets will be in7 vested in life insurance contracts.

8 ‘‘(D) The assets of the trust will not be

9 commingled with other property except in a

10 common trust fund or common investment

11 fund.

12 ‘‘(E) The interest of an individual in the

13 balance in his account is nonforfeitable.

14 ‘‘(2) QUALIFIED MEDICAL EXPENSES.—

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

16 medical expenses’ means, with respect to an ac17 count holder, amounts paid by such holder for

18 medical care (as defined in section 213(d)) for

19 such individual, the spouse of such individual,

20 and any dependent (as defined in section 152)

21 of such individual, but only to the extent such

22 amounts are not compensated for by insurance

23 or otherwise.

24 ‘‘(B) HEALTH INSURANCE MAY NOT BE

25 PURCHASED FROM ACCOUNT.—
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1 ‘‘(i) IN GENERAL.—Subparagraph (A)

2 shall not apply to any payment for insur3 ance.

4 ‘‘(ii) EXCEPTIONS.—Clause (i) shall

5 not apply to any expense for coverage

6 under—

7 ‘‘(I) a health plan during any pe8 riod of continuation coverage required

9 under any Federal law, or

10 ‘‘(II) a health plan during a pe11 riod in which the individual is receiv12 ing unemployment compensation

13 under any Federal or State law.

14 ‘‘(3) ACCOUNT HOLDER.—The term ‘account

15 holder’ means the individual on whose behalf the

16 medical savings account was established.

17 ‘‘(4) CERTAIN RULES TO APPLY.—Rules similar

18 to the following rules shall apply for purposes of this

19 section:

20 ‘‘(A) Section 219(d)(2) (relating to no de21 duction for rollovers).

22 ‘‘(B) Section 219(f)(3) (relating to time

23 when contributions deemed made).
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1 ‘‘(C) Except as provided in section 106(b),

2 section 219(f)(5) (relating to employer pay3 ments).

4 ‘‘(D) Section 408(g) (relating to commu5 nity property laws).

6 ‘‘(E) Section 408(h) (relating to custodial

7 accounts).

8 ‘‘(e) TAX TREATMENT OF ACCOUNTS.—

9 ‘‘(1) IN GENERAL.—A medical savings account

10 is exempt from taxation under this subtitle unless

11 such account has ceased to be a medical savings ac12 count by reason of paragraph (2) or (3). Notwith13 standing the preceding sentence, any such account is

14 subject to the taxes imposed by section 511 (relating

15 to imposition of tax on unrelated business income of

16 charitable, etc. organizations).

17 ‘‘(2) ACCOUNT TERMINATIONS.—Rules similar

18 to the rules of paragraphs (2) and (4) of section

19 408(e) shall apply to medical savings accounts, and

20 any amount treated as distributed under such rules

21 shall be treated as not used to pay qualified medical

22 expenses.

23 ‘‘(f) TAX TREATMENT OF DISTRIBUTIONS.—

24 ‘‘(1) AMOUNTS USED FOR QUALIFIED MEDICAL

25 EXPENSES.—
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1 ‘‘(A) IN GENERAL.—Any amount paid or

2 distributed out of a medical savings account

3 which is used exclusively to pay qualified medi4 cal expenses of any account holder (or any

5 spouse or dependent of the holder) shall not be

6 includible in gross income.

7 ‘‘(B) TREATMENT AFTER DEATH OF AC8 COUNT HOLDER.—

9 ‘‘(i) TREATMENT IF HOLDER IS

10 SPOUSE.—If, after the death of the ac11 count holder, the account holder’s interest

12 is payable to (or for the benefit of) the

13 holder’s spouse, the medical savings ac14 count shall be treated as if the spouse were

15 the account holder.

16 ‘‘(ii) TREATMENT IF DESIGNATED

17 HOLDER IS NOT SPOUSE.—In the case of

18 an account holder’s interest in a medical

19 savings account which is payable to (or for

20 the benefit of) any person other than such

21 holder’s spouse upon the death of such

22 holder—

23 ‘‘(I) such account shall cease to

24 be a medical savings account as of the

25 date of death, and
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1 ‘‘(II) an amount equal to the fair

2 market value of the assets in such ac3 count on such date shall be includible

4 if such person is not the estate of

5 such holder, in such person’s gross in6 come for the taxable year which in7 cludes such date, or if such person is

8 the estate of such holder, in such

9 holder’s gross income for the last tax10 able year of such holder.

11 ‘‘(2) INCLUSION OF AMOUNTS NOT USED FOR

12 QUALIFIED MEDICAL EXPENSES.—

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

14 distributed out of a medical savings account

15 which is not used exclusively to pay the quali16 fied medical expenses of the account holder or

17 of the spouse or dependents of such holder shall

18 be included in the gross income of such holder.

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

20 subparagraph (A)—

21 ‘‘(i) all medical savings accounts of

22 the account holder shall be treated as 1 ac23 count,
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1 ‘‘(ii) all payments and distributions

2 during any taxable year shall be treated as

3 1 distribution, and

4 ‘‘(iii) any distribution of property

5 shall be taken into account at its fair mar6 ket value on the date of the distribution.

7 ‘‘(3) EXCESS CONTRIBUTIONS RETURNED BE8 FORE DUE DATE OF RETURN.—Paragraph (2) shall

9 not apply to the distribution of any contribution paid

10 during a taxable year to a medical savings account

11 to the extent that such contribution exceeds the

12 amount under subsection (d)(1)(A)(ii) if—

13 ‘‘(A) such distribution is received by the

14 individual on or before the last day prescribed

15 by law (including extensions of time) for filing

16 such individual’s return for such taxable year,

17 and

18 ‘‘(B) such distribution is accompanied by

19 the amount of net income attributable to such

20 excess contribution.

21 Any net income described in subparagraph (B) shall

22 be included in the gross income of the individual for

23 the taxable year in which it is received.

24 ‘‘(4) PENALTY FOR DISTRIBUTIONS NOT USED

25 FOR QUALIFIED MEDICAL EXPENSES.—
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1 ‘‘(A) IN GENERAL.—The tax imposed by

2 this chapter on the account holder for any tax3 able year in which there is a payment or dis4 tribution from a medical savings account of

5 such holder which is includible in gross income

6 under paragraph (2) shall be increased by 10

7 percent of the amount which is so includible.

8 ‘‘(B) EXCEPTION FOR DISABILITY OR

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

10 the payment or distribution is made after the

11 account holder becomes disabled within the

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

13 ‘‘(C) EXCEPTION FOR DISTRIBUTIONS

AFTER AGE 591 14 ⁄2.—Subparagraph (A) shall not

15 apply to any payment or distribution after the

16 date on which the account holder attains age

591 17 ⁄2.

18 ‘‘(5) ROLLOVER CONTRIBUTION.—An amount is

19 described in this paragraph as a rollover contribu20 tion if it meets the requirements of subparagraphs

21 (A) and (B).

22 ‘‘(A) IN GENERAL.—Paragraph (2) shall

23 not apply to any amount paid or distributed

24 from a medical savings account to the account

25 holder to the extent the amount received is paid
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1 into a medical savings account for the benefit

2 of such holder not later than the 60th day after

3 the day on which the holder receives the pay4 ment or distribution.

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

6 not apply to any amount described in subpara7 graph (A) received by an individual from a

8 medical savings account if, at any time during

9 the 1-year period ending on the day of such re10 ceipt, such individual received any other amount

11 described in subparagraph (A) from a medical

12 savings account which was not includible in the

13 individual’s gross income because of the appli14 cation of this paragraph.

15 ‘‘(6) COORDINATION WITH MEDICAL EXPENSE

16 DEDUCTION.—For purposes of determining the

17 amount of the deduction under section 213, any pay18 ment or distribution out of a medical savings ac19 count for qualified medical expenses shall not be

20 treated as an expense paid for medical care.

21 ‘‘(7) TRANSFER OF ACCOUNT INCIDENT TO DI22 VORCE.—The transfer of an individual’s interest in

23 a medical savings account to an individual’s spouse

24 or former spouse under a divorce or separation in25 strument described in subparagraph (A) of section
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1 71(b)(2) shall not be considered a taxable transfer

2 made by such individual notwithstanding any other

3 provision of this subtitle, and such interest shall,

4 after such transfer, be treated as a medical savings

5 account with respect to which the spouse is the ac6 count holder.

7 ‘‘(g) COST-OF-LIVING ADJUSTMENT.—

8 ‘‘(1) IN GENERAL.—In the case of any taxable

9 year beginning in a calendar year after 1997, each

10 dollar amount in subsection (b)(1), (c)(2), or

11 (d)(1)(A) shall be increased by an amount equal

12 to—

13 ‘‘(A) such dollar amount, multiplied by

14 ‘‘(B) the medical care cost adjustment for

15 such calendar year.

16 If any increase under the preceding sentence is not

17 a multiple of $50, such increase shall be rounded to

18 the nearest multiple of $50.

19 ‘‘(2) MEDICAL CARE COST ADJUSTMENT.—For

20 purposes of paragraph (1), the medical care cost ad21 justment for any calendar year is the percentage (if

22 any) by which—

23 ‘‘(A) the medical care component of the

24 Consumer Price Index (as defined in section
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1 1(f)(5)) for August of the preceding calendar

2 year, exceeds

3 ‘‘(B) such component for August of 1996.

4 ‘‘(h) REPORTS.—The Secretary may require the

5 trustee of a medical savings account to make such reports

6 regarding such account to the Secretary and to the ac7 count holder with respect to contributions, distributions,

8 and such other matters as the Secretary determines appro9 priate. The reports required by this subsection shall be

10 filed at such time and in such manner and furnished to

11 such individuals at such time and in such manner as may

12 be required by those regulations.’’

13 (b) DEDUCTION ALLOWED WHETHER OR NOT INDI14 VIDUAL ITEMIZES OTHER DEDUCTIONS.—Subsection (a)

15 of section 62 of such Code is amended by inserting after

16 paragraph (15) the following new paragraph:

17 ‘‘(16) MEDICAL SAVINGS ACCOUNTS.—The de18 duction allowed by section 220.’’

19 (c) EXCLUSIONS FOR EMPLOYER CONTRIBUTIONS TO

20 MEDICAL SAVINGS ACCOUNTS.—

21 (1) EXCLUSION FROM INCOME TAX.—The text

22 of section 106 of such Code (relating to contribu23 tions by employer to accident and health plans) is

24 amended to read as follows:
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1 ‘‘(a) GENERAL RULE.—Gross income of an employee

2 does not include employer-provided coverage under an ac3 cident or health plan.

4 ‘‘(b) CONTRIBUTIONS TO MEDICAL SAVINGS AC5 COUNTS.—

6 ‘‘(1) IN GENERAL.—In the case of an employee

7 who is an eligible individual, gross income does not

8 include amounts contributed by such employee’s em9 ployer to any medical savings account of such em10 ployee.

11 ‘‘(2) COORDINATION WITH DEDUCTION LIMITA12 TION.—The amount excluded from the gross income

13 of an employee under this subsection for any taxable

14 year shall not exceed the limitation under section

15 220(b)(1) (determined without regard to this sub16 section) which is applicable to such employee for

17 such taxable year.

18 ‘‘(3) NO CONSTRUCTIVE RECEIPT.—No amount

19 shall be included in the gross income of any em20 ployee solely because the employee may choose be21 tween the contributions referred to in paragraph (1)

22 and employer contributions to another health plan of

23 the employer.

24 ‘‘(4) SPECIAL RULE FOR DEDUCTION OF EM25 PLOYER CONTRIBUTIONS.—Any employer contribu-
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1 tion to a medical savings account, if otherwise allow2 able as a deduction under this chapter, shall be al3 lowed only for the taxable year in which paid.

4 ‘‘(5) DEFINITIONS.—For purposes of this sub5 section, the terms ‘eligible individual’ and ‘medical

6 savings account’ have the respective meanings given

7 to such terms by section 220.’’

8 (2) EXCLUSION FROM EMPLOYMENT TAXES.—

9 (A) SOCIAL SECURITY TAXES.—

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

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

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

13 period at the end of paragraph (21) and

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

15 paragraph (21) the following new para16 graph:

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

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

19 reasonable to believe that the employee will be able

20 to exclude such payment from income under section

21 106(b).’’

22 (ii) Subsection (a) of section 209 of

23 the Social Security Act is amended by

24 striking ‘‘or’’ at the end of paragraph (17),

25 by striking the period at the end of para-
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1 graph (18) and inserting ‘‘; or’’, and by in2 serting after paragraph (18) the following

3 new paragraph:

4 ‘‘(19) any payment made to or for the benefit

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

6 reasonable to believe that the employee will be able

7 to exclude such payment from income under section

8 106(b) of the Internal Revenue Code of 1986.’’

9 (B) RAILROAD RETIREMENT TAX.—Sub10 section (e) of section 3231 of such Code is

11 amended by adding at the end the following

12 new paragraph:

13 ‘‘(10) MEDICAL SAVINGS ACCOUNT CONTRIBU14 TIONS.—The term ‘compensation’ shall not include

15 any payment made to or for the benefit of an em16 ployee if at the time of such payment it is reason17 able to believe that the employee will be able to ex18 clude such payment from income under section

19 106(b).’’

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

21 of section 3306 of such Code is amended by

22 striking ‘‘or’’ at the end of paragraph (15), by

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

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

25 paragraph (16) the following new paragraph:
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1 ‘‘(17) any payment made to or for the benefit

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

3 reasonable to believe that the employee will be able

4 to exclude such payment from income under section

5 106(b).’’

6 (D) WITHHOLDING TAX.—Subsection (a)

7 of section 3401 of such Code is amended by

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

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

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

11 paragraph (20) the following new paragraph:

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

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

14 reasonable to believe that the employee will be able

15 to exclude such payment from income under section

16 106(b).’’

17 (d) MEDICAL SAVINGS ACCOUNT CONTRIBUTIONS

18 NOT AVAILABLE UNDER CAFETERIA PLANS.—Subsection

19 (f) of section 125 of such Code is amended by inserting

20 ‘‘106(b),’’ before ‘‘117’’.

21 (e) EXCLUSION OF MEDICAL SAVINGS ACCOUNTS

22 FROM ESTATE TAX.—Part IV of subchapter A of chapter

23 11 of such Code is amended by adding at the end the fol24 lowing new section:
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1 ‘‘SEC. 2057. MEDICAL SAVINGS ACCOUNTS.

2 ‘‘For purposes of the tax imposed by section 2001,

3 the value of the taxable estate shall be determined by de4 ducting from the value of the gross estate an amount

5 equal to the value of any medical savings account (as de6 fined in section 220(d)) included in the gross estate.’’

7 (f) TAX ON EXCESS CONTRIBUTIONS.—Section 4973

8 of such Code (relating to tax on excess contributions to

9 individual retirement accounts, certain section 403(b) con10 tracts, and certain individual retirement annuities) is

11 amended—

12 (1) by inserting ‘‘MEDICAL SAVINGS AC13 COUNTS,’’ after ‘‘ACCOUNTS,’’ in the heading of

14 such section,

15 (2) by striking ‘‘or’’ at the end of paragraph

16 (1) of subsection (a),

17 (3) by redesignating paragraph (2) of sub18 section (a) as paragraph (3) and by inserting after

19 paragraph (1) the following:

20 ‘‘(2) a medical savings account (within the

21 meaning of section 220(d)), or’’, and

22 (4) by adding at the end the following new sub23 section:

24 ‘‘(d) EXCESS CONTRIBUTIONS TO MEDICAL SAVINGS

25 ACCOUNTS.—For purposes of this section, in the case of

26 a medical savings account (within the meaning of section
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1 220(d)), the term ‘excess contributions’ means the sum

2 of—

3 ‘‘(1) the amount by which the amount contrib4 uted for the taxable year to the account exceeds the

5 amount which may be contributed to the account

6 under section 220(d)(1)(B)(ii) for such taxable year,

7 and

8 ‘‘(2) the amount determined under this sub9 section for the preceding taxable year, reduced by

10 the sum of distributions out of the account included

11 in gross income under section 220(f) (2) or (3) and

12 the excess (if any) of the maximum amount allow13 able as a deduction under section 220 for the tax14 able year over the amount contributed.

15 For purposes of this subsection, any contribution which

16 is distributed out of the medical savings account in a dis17 tribution to which section 220(f)(3) applies shall be treat18 ed as an amount not contributed.’’

19 (g) TAX ON PROHIBITED TRANSACTIONS.—

20 (1) Section 4975 of such Code (relating to tax

21 on prohibited transactions) is amended by adding at

22 the end of subsection (c) the following new para23 graph:

24 ‘‘(4) SPECIAL RULE FOR MEDICAL SAVINGS AC25 COUNTS.—An individual for whose benefit a medical
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1 savings account (within the meaning of section

2 220(d)) is established shall be exempt from the tax

3 imposed by this section with respect to any trans4 action concerning such account (which would other5 wise be taxable under this section) if, with respect

6 to such transaction, the account ceases to be a medi7 cal savings account by reason of the application of

8 section 220(e)(2) to such account.’’

9 (2) Paragraph (1) of section 4975(e) of such

10 Code is amended to read as follows:

11 ‘‘(1) PLAN.—For purposes of this section, the

12 term ‘plan’ means—

13 ‘‘(A) a trust described in section 401(a)

14 which forms a part of a plan, or a plan de15 scribed in section 403(a), which trust or plan is

16 exempt from tax under section 501(a),

17 ‘‘(B) an individual retirement account de18 scribed in section 408(a),

19 ‘‘(C) an individual retirement annuity de20 scribed in section 408(b),

21 ‘‘(D) a medical savings account described

22 in section 220(d), or

23 ‘‘(E) a trust, plan, account, or annuity

24 which, at any time, has been determined by the
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1 Secretary to be described in any preceding sub2 paragraph of this paragraph.’’

3 (h) FAILURE TO PROVIDE REPORTS ON MEDICAL

4 SAVINGS ACCOUNTS.—

5 (1) Subsection (a) of section 6693 of such Code

6 (relating to failure to provide reports on individual

7 retirement accounts or annuities) is amended to read

8 as follows:

9 ‘‘(a) REPORTS.—

10 ‘‘(1) IN GENERAL.—If a person required to file

11 a report under a provision referred to in paragraph

12 (2) fails to file such report at the time and in the

13 manner required by such provision, such person

14 shall pay a penalty of $50 for each failure unless it

15 is shown that such failure is due to reasonable

16 cause.

17 ‘‘(2) PROVISIONS.—The provisions referred to

18 in this paragraph are—

19 ‘‘(A) subsections (i) and (l) of section 408

20 (relating to individual retirement plans), and

21 ‘‘(B) section 220(h) (relating to medical

22 savings accounts).’’

23 (i) EXCEPTION FROM CAPITALIZATION OF POLICY

24 ACQUISITION EXPENSES.—Subparagraph (B) of section

25 848(e)(1) of such Code (defining specified insurance con-
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1 tract) is amended by striking ‘‘and’’ at the end of clause

2 (ii), by striking the period at the end of clause (iii) and

3 inserting ‘‘, and’’, and by adding at the end the following

4 new clause:

5 ‘‘(iv) any contract which is a medical

6 savings account (as defined in section

7 220(d)).’’.

8 (j) CLERICAL AMENDMENT.—The table of sections

9 for part VII of subchapter B of chapter 1 of such Code

10 is amended by striking the last item and inserting the fol11 lowing:

‘‘Sec. 220. Medical savings accounts.

‘‘Sec. 221. Cross reference.’’

12 (k) EFFECTIVE DATE.—The amendments made by

13 this section shall apply to taxable years beginning after

14 December 31, 1996.

15 Subtitle B—Increase in Deduction

16 for Health Insurance Costs of

17 Self-Employed Individuals

18 SEC. 311. INCREASE IN DEDUCTION FOR HEALTH INSUR19 ANCE COSTS OF SELF-EMPLOYED INDIVID20 UALS.

21 (a) IN GENERAL.—Paragraph (1) of section 162(l)

22 of the Internal Revenue Code of 1986 is amended to read

23 as follows:

24 ‘‘(1) ALLOWANCE OF DEDUCTION.—
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1 ‘‘(A) IN GENERAL.—In the case of an indi2 vidual who is an employee within the meaning

3 of section 401(c)(1), there shall be allowed as

4 a deduction under this section an amount equal

5 to the applicable percentage of the amount paid

6 during the taxable year for insurance which

7 constitutes medical care for the taxpayer, his

8 spouse, and dependents.

9 ‘‘(B) APPLICABLE PERCENTAGE.—For

10 purposes of subparagraph (A), the applicable

11 percentage shall be determined under the fol12 lowing table:

‘‘For taxable years beginning The applicable

in calendar year— percentage is—

1998 or 1999 .................................................................... 35 percent

2000 or 2001 .................................................................... 40 percent

2002 or thereafter ............................................................. 50 percent.’’

13 (b) EFFECTIVE DATE.—The amendment made by

14 this section shall apply to taxable years beginning after

15 December 31, 1997.

Æ