I

104TH CONGRESS

2D SESSION H. R. 3103

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,

to improve access to long-term care services and coverage, to simplify

the administration of health insurance, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

MARCH 18, 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,

to improve access to long-term care services and coverage, to simplify the administration of health insurance,

and for other purposes.

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

PART 1—GENERAL 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.’’.

PART 2—ADMINISTRATIVE SIMPLIFICATION FOR LABORATORY SERVICES

Sec. 261. Administrative simplification for laboratory services.
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TITLE III—TAX-RELATED HEALTH PROVISIONS

Sec. 300. Amendment of 1986 Code.

Subtitle A—Medical Savings Accounts

Sec. 301. Medical savings accounts.

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.

Subtitle C—Long-Term Care Services and Contracts

PART I—GENERAL PROVISIONS

Sec. 321. Treatment of long-term care insurance.

Sec. 322. Premiums for qualified long-term care insurance treated as payment

for medical care.

Sec. 323. Reporting requirements.

PART II—CONSUMER PROTECTION PROVISIONS

Sec. 325. Policy requirements.

Sec. 326. Requirements for issuers of long-term care insurance policies.

Sec. 327. Coordination with State requirements.

Sec. 328. Effective dates.

Subtitle D—Treatment of Accelerated Death Benefits

Sec. 331. Treatment of accelerated death benefits by recipient.

Sec. 332. Tax treatment of companies issuing qualified accelerated death benefit riders.

Subtitle E—High-Risk Pools

Sec. 341. Exemption from income tax for State-sponsored organizations providing health coverage for high-risk individuals.

TITLE IV—REVENUE OFFSETS

Sec. 400. Amendment of 1986 Code.

Subtitle A—Repeal of Bad Debt Reserve Method for Thrift Savings

Associations

Sec. 401. Repeal of bad debt reserve method for thrift savings associations.

Subtitle B—Reform of the Earned Income Credit

Sec. 411. Earned income credit denied to individuals not authorized to be employed in the United States.

Sec. 412. Provisions to improve tax compliance.
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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.—

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

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

25 ‘‘preexisting condition’’ means a condition, re-
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1 gardless of the cause of the condition, for which

2 medical advice, diagnosis, care, or treatment

3 was recommended or received within the 6-

4 month period ending on the day before—

5 (i) the effective date of the coverage

6 of such participant or beneficiary, or

7 (ii) the earliest date upon which such

8 coverage could have been effective if there

9 were no waiting period applicable,

10 whichever is earlier.

11 (B) EXTENSION OF PERIOD IN THE CASE

12 OF LATE ENROLLMENT.—In the case of a par13 ticipant or beneficiary whose initial coverage

14 commences after the date the participant or

15 beneficiary first becomes eligible for coverage

16 under the group health plan, the reference in

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

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

19 (2) PREEXISTING CONDITION LIMITATION PE20 RIOD.—For purposes of this subtitle, the term ‘‘pre21 existing condition limitation period’’ means, with re22 spect to coverage of an individual under a group

23 health plan or under health insurance coverage, the

24 period during which benefits with respect to treat25 ment of a condition of such individual are not pro-
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1 vided based on the fact that the condition is a pre2 existing condition.

3 (3) AGGREGATE PERIOD OF QUALIFIED PRIOR

4 COVERAGE.—

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

6 section, the term ‘‘aggregate period of qualified

7 prior coverage’’ means, with respect to com8 mencement of coverage of an individual under

9 a group health plan or health insurance cov10 erage offered in connection with a group health

11 plan, the aggregate of the qualified coverage pe12 riods (as defined in subparagraph (B)) of such

13 individual occurring before the date of such

14 commencement. Such period shall be treated as

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

16 coverage under a group health plan (or health

17 insurance coverage offered in connection with

18 such a plan) between the date the most recent

19 qualified coverage period ends and the date of

20 such commencement.

21 (B) QUALIFIED COVERAGE PERIOD.—

22 (i) IN GENERAL.—For purposes of

23 this paragraph, subject to subsection (c),

24 the term ‘‘qualified coverage period’’

25 means, with respect to an individual, any
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1 period of coverage of the individual under

2 a group health plan, health insurance cov3 erage, or under title XVIII or XIX of the

4 Social Security Act.

5 (ii) DISREGARDING PERIODS BEFORE

6 BREAKS IN COVERAGE.—Such term does

7 not include any period occurring before

8 any 60-day break in coverage described in

9 subparagraph (A).

10 (C) WAITING PERIOD NOT TREATED AS A

11 BREAK IN COVERAGE.—For purposes of sub12 paragraphs (A) and (B), any period that is in

13 a waiting period for any coverage under a

14 group health plan (or for health insurance cov15 erage offered in connection with a group health

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

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

18 (D) ESTABLISHMENT OF PERIOD.—A

19 qualified coverage period with respect to an in20 dividual shall be established through presen21 tation of certifications described in subsection

22 (c) or in such other manner as may be specified

23 in regulations to carry out this section.

24 (c) CERTIFICATIONS OF COVERAGE; CONFORMING

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

2 group health plan, or the insurer or HMO offering

3 health insurance coverage in connection with a group

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

5 individual covered (or previously covered within the

6 previous 18 months) under the plan or coverage,

7 provide for a certification of the period of coverage

8 of the individual under such plan or coverage and of

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

10 the individual for any coverage under the plan.

11 (2) STANDARD METHOD.—Subject to paragraph

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

13 health insurance coverage in connection with a group

14 health plan, shall determine qualified coverage peri15 ods under subsection (b)(3)(B) by including all peri16 ods described in such subsection, without regard to

17 the specific benefits offered during such a period.

18 (3) ALTERNATIVE METHOD.—Such a plan, in19 surer, or HMO may elect to make such determina20 tion on a benefit-specific basis for all participants

21 and beneficiaries and not to include as a qualified

22 coverage period with respect to a specific benefit

23 coverage during a previous period unless such pre24 vious coverage for that benefit was included at the
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1 end of the most recent period of coverage. In the

2 case of such an election—

3 (A) the plan, insurer, or HMO shall promi4 nently state in any disclosure statements con5 cerning the plan or coverage and to each en6 rollee at the time of enrollment under the plan

7 (or at the time the health insurance coverage is

8 offered for sale in the group health market)

9 that the plan or coverage has made such elec10 tion and shall include a description of the effect

11 of this election; and

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

13 or HMO, the entity providing a certification

14 under paragraph (1)—

15 (i) shall promptly disclose to the re16 questing plan, insurer, or HMO the plan

17 statement (insofar as it relates to health

18 benefits under the plan) or other detailed

19 benefit information on the benefits avail20 able under the previous plan or coverage,

21 and

22 (ii) may charge for the reasonable

23 cost of providing such information.
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1 SEC. 102. LIMITATION ON PREEXISTING CONDITION EXCLU2 SIONS; NO APPLICATION TO CERTAIN

3 NEWBORNS, ADOPTED CHILDREN, AND PREG4 NANCY.

5 (a) LIMITATION OF PERIOD.—

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

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

8 an insurer or HMO offering health insurance cov9 erage in connection with a group health plan, shall

10 provide that any preexisting condition limitation pe11 riod (as defined in section 101(b)(2)) does not ex12 ceed 12 months, counting from the effective date of

13 coverage.

14 (2) EXTENSION OF PERIOD IN THE CASE OF

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

16 beneficiary whose initial coverage commences after

17 the date the participant or beneficiary first becomes

18 eligible for coverage under the group health plan,

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

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

21 (b) EXCLUSION NOT APPLICABLE TO CERTAIN

22 NEWBORNS AND CERTAIN ADOPTIONS.—

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

24 group health plan, and an insurer or HMO offering

25 health insurance coverage in connection with a group

26 health plan, may not provide any limitation on bene-
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1 fits based on the existence of a preexisting condition

2 in the case of—

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

4 period beginning with the date of birth, or

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

6 adoption beginning at the time of adoption or

7 placement if the individual, within the 30-day

8 period beginning on the date of adoption or

9 placement,

10 becomes covered under a group health plan or other11 wise becomes covered under health insurance cov12 erage (or covered for medical assistance under title

13 XIX of the Social Security Act).

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

15 (1) shall no longer apply to an individual if the indi16 vidual does not have any coverage under a group

17 health plan, health insurance coverage, or under title

18 XVIII or XIX of the Social Security Act for a con19 tinuous period of 60 days, not counting in such pe20 riod any days that are in a waiting period for any

21 coverage under a group health plan.

22 (3) PLACED FOR ADOPTION DEFINED.—In this

23 subsection and section 103(d), the term ‘‘place24 ment’’, or being ‘‘placed’’, for adoption, in connec25 tion with any placement for adoption of a child with
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1 any person, means the assumption and retention by

2 such person of a legal obligation for total or partial

3 support of such child in anticipation of adoption of

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

5 terminates upon the termination of such legal obliga6 tion.

7 (c) EXCLUSION NOT APPLICABLE TO PREGNANCY.—

8 For purposes of this section, pregnancy shall not be treat9 ed as a preexisting condition.

10 (d) ELIGIBILITY PERIOD IMPOSED BY HEALTH

11 MAINTENANCE ORGANIZATIONS AS ALTERNATIVE TO

12 PREEXISTING CONDITION LIMITATION.—A health mainte13 nance organization which offers health insurance coverage

14 in connection with a group health plan and which does

15 not use the preexisting condition limitations allowed under

16 this section and section 101 with respect to any particular

17 coverage option may impose an eligibility period for such

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

19 (1) 90 days, in the case of a participant or ben20 eficiary whose initial coverage commences at the

21 time such participant or beneficiary first becomes el22 igible for coverage under the plan, or

23 (2) 180 days, in the case of a participant or

24 beneficiary whose initial coverage commences after
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1 the date on which such participant or beneficiary

2 first becomes eligible for coverage.

3 For purposes of this subsection, the term ‘‘eligibility pe4 riod’’ means a period which, under the terms of the health

5 insurance coverage offered by the health maintenance or6 ganization, must expire before the health insurance cov7 erage becomes effective. Any such eligibility period shall

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

9 under the plan and shall run concurrently with any other

10 applicable waiting period under the plan.

11 SEC. 103. PROHIBITING EXCLUSIONS BASED ON HEALTH

12 STATUS AND PROVIDING FOR ENROLLMENT

13 PERIODS.

14 (a) PROHIBITION OF EXCLUSION OF PARTICIPANTS

15 OR BENEFICIARIES BASED ON HEALTH STATUS.—

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

17 insurer or HMO offering health insurance coverage

18 in connection with a group health plan, may not ex19 clude an employee or his or her beneficiary from

20 being (or continuing to be) a participant or bene21 ficiary under the terms of such plan or coverage

22 based on health status (as defined in section

23 191(c)(6)).

24 (2) CONSTRUCTION.—Nothing in this sub25 section shall be construed as preventing the estab-
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1 lishment of preexisting condition limitations and re2 strictions to the extent consistent with the provisions

3 of this subtitle.

4 (b) ENROLLMENT OF ELIGIBLE INDIVIDUALS WHO

5 LOSE OTHER COVERAGE.—A group health plan shall per6 mit an uncovered employee who is otherwise eligible for

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

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

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

10 coverage under the plan under at least one benefit option

11 if each of the following conditions is met:

12 (1) The employee or dependent was covered

13 under a group health plan or had health insurance

14 coverage at the time coverage was previously offered

15 to the employee or individual.

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

17 that coverage under a group health plan or health

18 insurance coverage was the reason for declining en19 rollment.

20 (3) The employee or dependent lost coverage

21 under a group health plan or health insurance cov22 erage (as a result of loss of eligibility for the cov23 erage, termination of employment, or reduction in

24 the number of hours of employment).
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1 (4) The employee requests such enrollment

2 within 30 days after the date of termination of such

3 coverage.

4 (c) DEPENDENT BENEFICIARIES.—

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

6 makes family coverage available, the plan may not

7 require, as a condition of coverage of an individual

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

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

10 applicable to the coverage of a dependent who—

11 (A) is a newborn,

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

13 adoption (within the meaning of section

14 102(b)(3)), at the time of adoption or place15 ment, or

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

17 if the participant has met any waiting period appli18 cable to that participant.

19 (2) TIMELY ENROLLMENT.—

20 (A) IN GENERAL.—Enrollment of a partici21 pant’s beneficiary described in paragraph (1)

22 shall be considered to be timely if a request for

23 enrollment is made within 30 days of the date

24 family coverage is first made available or, in the

25 case described in—
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1 (i) paragraph (1)(A), within 30 days

2 of the date of the birth,

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

4 of the date of the adoption or placement

5 for adoption, or

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

7 of the date of the marriage with such a

8 beneficiary who is the spouse of the partic9 ipant,

10 if family coverage is available as of such date.

11 (B) COVERAGE.—If available coverage in12 cludes family coverage and enrollment is made

13 under such coverage on a timely basis under

14 subparagraph (A), the coverage shall become ef15 fective not later than the first day of the first

16 month beginning 15 days after the date the

17 completed request for enrollment is received.

18 SEC. 104. ENFORCEMENT.

19 (a) ENFORCEMENT THROUGH COBRA PROVISIONS

20 IN INTERNAL REVENUE CODE.—

21 (1) APPLICATION OF COBRA SANCTIONS.—Sub22 section (a) of section 4980B of the Internal Revenue

23 Code of 1986 is amended by striking ‘‘the require24 ments of’’ and all that follows and inserting ‘‘the re25 quirements of—
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1 ‘‘(1) subsection (f) with respect to any qualified

2 beneficiary, or

3 ‘‘(2) subject to subsection (h)—

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

5 Coverage Availability and Affordability Act of

6 1996 with respect to any individual covered

7 under the group health plan, or

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

9 to any individual.’’.

10 (2) NOTICE REQUIREMENT.—Section

11 4980B(f)(6)(A) of such Code is amended by insert12 ing before the period the following: ‘‘and subtitle A

13 of title I of the Health Coverage Availability and Af14 fordability Act of 1996’’.

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

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

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

18 section in the case of requirements described in subsection

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

20 of the Health Coverage Availability and Affordability Act

21 of 1996—

22 ‘‘(1) IN GENERAL.—

23 ‘‘(A) DEFINITION OF GROUP HEALTH

24 PLAN.—The term ‘group health plan’ has the

25 meaning given such term in section 191(a) of
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1 the Health Coverage Availability and Afford2 ability Act of 1996.

3 ‘‘(B) QUALIFIED BENEFICIARY.—Sub4 sections (b), (c), and (e) shall be applied by

5 substituting the term ‘individual’ for the term

6 ‘qualified beneficiary’ each place it appears.

7 ‘‘(C) NONCOMPLIANCE PERIOD.—Clause

8 (ii) of subsection (b)(2)(B) and the second sen9 tence of subsection (b)(2) shall not apply.

10 ‘‘(D) LIMITATION ON TAX.—Subparagraph

11 (B) of subsection (c)(3) shall not apply.

12 ‘‘(E) LIABILITY FOR TAX.—Paragraph (2)

13 of subsection (e) shall not apply.

14 ‘‘(2) DEFERRAL TO STATE REGULATION.—No

15 tax shall be imposed by this section on any failure

16 to meet the requirements of such section by any en17 tity which offers health insurance coverage and

18 which is an insurer or health maintenance organiza19 tion (as defined in section 191(c) of the Health Cov20 erage Availability and Affordability Act of 1996)

21 regulated by a State if the Secretary of Health and

22 Human Services has made the determination de23 scribed in section 104(c)(2) of such Act with respect

24 to such State, section, and entity.
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1 ‘‘(3) LIMITATION FOR INSURED PLANS.—In the

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

3 defined in section 191 of the Health Coverage Avail4 ability and Affordability Act of 1996) that provides

5 health care benefits solely through a contract with

6 an insurer or health maintenance organization (as

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

8 this section upon the employer on a failure to meet

9 such requirements if the failure is solely because of

10 the product offered by the insurer or organization

11 under such contract.

12 ‘‘(4) LIMITATION ON IMPOSITION OF TAX.—In

13 no case shall a tax be imposed by this section for a

14 failure to meet such a requirement if—

15 ‘‘(A) a civil money penalty has been im16 posed by the Secretary of Labor under part 5

17 of subtitle A of title I of the Employee Retire18 ment Income Security Act of 1974 with respect

19 to such failure, or

20 ‘‘(B) a civil money penalty has been im21 posed by the Secretary of Health and Human

22 Services under section 104(c) of the Health

23 Coverage Availability and Affordability Act of

24 1996 with respect to such failure.’’.
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1 (b) ENFORCEMENT THROUGH ERISA SANCTIONS

2 FOR CERTAIN GROUP HEALTH PLANS.—

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

4 provisions of this subsection, sections 101 through

5 103 of this subtitle shall be deemed to be provisions

6 of title I of the Employee Retirement Income Secu7 rity Act of 1974 for purposes of applying such title.

8 (2) FEDERAL ENFORCEMENT ONLY IF NO EN9 FORCEMENT THROUGH STATE.—The Secretary of

10 Labor shall enforce each section referred to in para11 graph (1) with respect to any entity which is an in12 surer or health maintenance organization regulated

13 by a State only if the Secretary of Labor determines

14 that such State has not provided for enforcement of

15 State laws which govern the same matters as are

16 governed by such section and which require compli17 ance by such entity with at least the same require18 ments as those provided under such section.

19 (3) LIMITATIONS ON LIABILITY.—

20 (A) NO APPLICATION WHERE FAILURE

21 NOT DISCOVERED EXERCISING REASONABLE

22 DILIGENCE.—No liability shall be imposed

23 under this subsection on the basis of any failure

24 during any period for which it is established to

25 the satisfaction of the Secretary of Labor that
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1 none of the persons against whom the liability

2 would be imposed knew, or exercising reason3 able diligence would have known, that such fail4 ure existed.

5 (B) NO APPLICATION WHERE FAILURE

6 CORRECTED WITHIN 30 DAYS.—No liability

7 shall be imposed under this subsection on the

8 basis of any failure if such failure was due to

9 reasonable cause and not to willful neglect, and

10 such failure is corrected during the 30-day pe11 riod beginning on the first day any of the per12 sons against whom the liability would be im13 posed knew, or exercising reasonable diligence

14 would have known, that such failure existed.

15 (4) AVOIDING DUPLICATION OF CERTAIN PEN16 ALTIES.—In no case shall a civil money penalty be

17 imposed under the authority provided under para18 graph (1) for a violation of this subtitle for which

19 an excise tax has been imposed under section 4980B

20 of the Internal Revenue Code of 1986 or a civil

21 money penalty imposed under subsection (c).

22 (c) ENFORCEMENT THROUGH CIVIL MONEY PEN23 ALTIES.—

24 (1) IMPOSITION.—
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1 (A) IN GENERAL.—Subject to the succeed2 ing provisions of this subsection, any group

3 health plan, insurer, or organization that fails

4 to meet a requirement of this subtitle is subject

5 to a civil money penalty under this section.

6 (B) LIABILITY FOR PENALTY.—Rules simi7 lar to the rules described in section 4980B(e) of

8 the Internal Revenue Code of 1986 for liability

9 for a tax imposed under section 4980B(a) of

10 such Code shall apply to liability for a penalty

11 imposed under subparagraph (A).

12 (C) AMOUNT OF PENALTY.—

13 (i) IN GENERAL.—The maximum

14 amount of penalty imposed under this

15 paragraph is $100 for each day for each

16 individual with respect to which such a

17 failure occurs.

18 (ii) CONSIDERATIONS IN IMPOSI19 TION.—In determining the amount of any

20 penalty to be assessed under this para21 graph, the Secretary of Health and Human

22 Services shall take into account the pre23 vious record of compliance of the person

24 being assessed with the applicable require25 ments of this subtitle, the gravity of the
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1 violation, and the overall limitations for

2 unintentional failures provided under sec3 tion 4980B(c)(4) of the Internal Revenue

4 Code of 1986.

5 (iii) LIMITATIONS.—

6 (I) PENALTY NOT TO APPLY

7 WHERE FAILURE NOT DISCOVERED

8 EXERCISING REASONABLE DILI9 GENCE.—No civil money penalty shall

10 be imposed under this paragraph on

11 any failure during any period for

12 which it is established to the satisfac13 tion of the Secretary that none of the

14 persons against whom the penalty

15 would be imposed knew, or exercising

16 reasonable diligence would have

17 known, that such failure existed.

18 (II) PENALTY NOT TO APPLY TO

19 FAILURES CORRECTED WITHIN 30

20 DAYS.—No civil money penalty shall

21 be imposed under this paragraph on

22 any failure if such failure was due to

23 reasonable cause and not to willful ne24 glect, and such failure is corrected

25 during the 30-day period beginning on
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1 the first day any of the persons

2 against whom the penalty would be

3 imposed knew, or exercising reason4 able diligence would have known, that

5 such failure existed.

6 (D) ADMINISTRATIVE REVIEW.—

7 (i) OPPORTUNITY FOR HEARING.—

8 The person assessed shall be afforded an

9 opportunity for hearing by the Secretary

10 upon request made within 30 days after

11 the date of the issuance of a notice of as12 sessment. In such hearing the decision

13 shall be made on the record pursuant to

14 section 554 of title 5, United States Code.

15 If no hearing is requested, the assessment

16 shall constitute a final and unappealable

17 order.

18 (ii) HEARING PROCEDURE.—If a

19 hearing is requested, the initial agency de20 cision shall be made by an administrative

21 law judge, and such decision shall become

22 the final order unless the Secretary modi23 fies or vacates the decision. Notice of in24 tent to modify or vacate the decision of the

25 administrative law judge shall be issued to
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1 the parties within 30 days after the date

2 of the decision of the judge. A final order

3 which takes effect under this paragraph

4 shall be subject to review only as provided

5 under subparagraph (D).

6 (E) JUDICIAL REVIEW.—

7 (i) FILING OF ACTION FOR REVIEW.—

8 Any person against whom an order impos9 ing a civil money penalty has been entered

10 after an agency hearing under this para11 graph may obtain review by the United

12 States district court for any district in

13 which such person is located or the United

14 States District Court for the District of

15 Columbia by filing a notice of appeal in

16 such court within 30 days from the date of

17 such order, and simultaneously sending a

18 copy of such notice be registered mail to

19 the Secretary.

20 (ii) CERTIFICATION OF ADMINISTRA21 TIVE RECORD.—The Secretary shall

22 promptly certify and file in such court the

23 record upon which the penalty was im24 posed.
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1 (iii) STANDARD FOR REVIEW.—The

2 findings of the Secretary shall be set aside

3 only if found to be unsupported by sub4 stantial evidence as provided by section

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

6 (iv) APPEAL.—Any final decision,

7 order, or judgment of such district court

8 concerning such review shall be subject to

9 appeal as provided in chapter 83 of title 28

10 of such Code.

11 (F) FAILURE TO PAY ASSESSMENT; MAIN12 TENANCE OF ACTION.—

13 (i) FAILURE TO PAY ASSESSMENT.—If

14 any person fails to pay an assessment after

15 it has become a final and unappealable

16 order, or after the court has entered final

17 judgment in favor of the Secretary, the

18 Secretary shall refer the matter to the At19 torney General who shall recover the

20 amount assessed by action in the appro21 priate United States district court.

22 (ii) NONREVIEWABILITY.—In such ac23 tion the validity and appropriateness of the

24 final order imposing the penalty shall not

25 be subject to review.
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1 (G) PAYMENT OF PENALTIES.—Except as

2 otherwise provided, penalties collected under

3 this paragraph shall be paid to the Secretary

4 (or other officer) imposing the penalty and shall

5 be available without appropriation and until ex6 pended for the purpose of enforcing the provi7 sions with respect to which the penalty was im8 posed.

9 (2) FEDERAL ENFORCEMENT ONLY IF NO EN10 FORCEMENT THROUGH STATE.—Paragraph (1) shall

11 apply to enforcement of the requirements of section

12 101, 102, or 103 with respect to any entity which

13 offers health insurance coverage and which is an in14 surer or HMO regulated by a State only if the Sec15 retary of Health and Human Services has deter16 mined that such State has not provided for enforce17 ment of State laws which govern the same matters

18 as are governed by such section and which require

19 compliance by such entity with at least the same re20 quirements as those provided under such section.

21 (3) NONDUPLICATION OF SANCTIONS.—In no

22 case shall a civil money penalty be imposed under

23 this subsection for a violation of this subtitle for

24 which an excise tax has been imposed under section

25 4980B of the Internal Revenue Code of 1986 or for
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1 which a civil money penalty has been imposed under

2 the authority provided under subsection (b).

3 (d) COORDINATION IN ADMINISTRATION.—The Sec4 retaries of the Treasury, Labor, and Health and Human

5 Services shall issue regulations that are nonduplicative to

6 carry out this subtitle. Such regulations shall be issued

7 in a manner that assures coordination and nonduplication

8 in their activities under this subtitle.

9 Subtitle B—Definitions; General

10 Provisions

11 SEC. 191. DEFINITIONS; SCOPE OF COVERAGE.

12 (a) GROUP HEALTH PLAN.—

13 (1) DEFINITION.—Subject to the succeeding

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

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

16 welfare benefit plan to the extent that the plan pro17 vides medical care (as defined in subsection (c)(9))

18 to employees or their dependents (as defined under

19 the terms of the plan) directly or through insurance,

20 reimbursement, or otherwise, and includes a group

21 health plan (within the meaning of section

22 5000(b)(1) of the Internal Revenue Code of 1986).

23 (2) LIMITATION OF REQUIREMENTS TO PLANS

24 WITH 2 OR MORE EMPLOYEE PARTICIPANTS.—The

25 requirements of subtitle Ashall apply in the case of
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1 a group health plan for any plan year, or for health

2 insurance coverage offered in connection with a

3 group health plan for a year, only if the group

4 health plan has two or more participants as current

5 employees on the first day of the plan year.

6 (3) EXCLUSION OF PLANS WITH LIMITED COV7 ERAGE.—An employee welfare benefit plan shall be

8 treated as a group health plan under this title only

9 with respect to medical care which is provided under

10 the plan and which does not consist of coverage ex11 cluded from the definition of health insurance cov12 erage under subsection (c)(4)(B).

13 (4) TREATMENT OF CHURCH PLANS.—

14 (A) EXCLUSION.—The requirements of

15 this title insofar as they apply to group health

16 plans shall not apply to church plans.

17 (B) OPTIONAL DISREGARD IN DETERMIN18 ING PERIOD OF COVERAGE.—For purposes of

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

20 plan may elect to disregard periods of coverage

21 of an individual under a church plan that, pur22 suant to subparagraph (A), is not subject to the

23 requirements of this title.

24 (5) TREATMENT OF GOVERNMENTAL PLANS.—
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1 (A) ELECTION TO BE EXCLUDED.—If the

2 plan sponsor of a governmental plan which is a

3 group health plan to which the provisions of

4 this subtitle otherwise apply makes an election

5 under this paragraph for any specified period

6 (in such form and manner as the Secretary of

7 Health and Human Services may by regulations

8 prescribe), then the requirements of this title

9 insofar as they apply to group health plans

10 shall not apply to such governmental plans for

11 such period.

12 (B) OPTIONAL DISREGARD IN DETERMIN13 ING PERIOD OF COVERAGE IF ELECTION

14 MADE.—For purposes of applying section

15 101(b)(3)(B)(i), a group health plan may elect

16 to disregard periods of coverage of an individual

17 under a governmental plan that, under an elec18 tion under subparagraph (A), is not subject to

19 the requirements of this title.

20 (7) TREATMENT OF MEDICAID PLAN AS GROUP

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

22 Social Security Act shall be treated as a group

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

24 unless the State elects not to be so treated.
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1 (8) TREATMENT OF MEDICARE AS GROUP

2 HEALTH PLAN.—Title XVIII of the Social Security

3 Act shall be treated as a group health plan for pur4 poses of applying section 101(c).

5 (b) INCORPORATION OF CERTAIN DEFINITIONS IN

6 EMPLOYEE RETIREMENT INCOME SECURITY ACT OF

7 1974.—Except as provided in this section, the terms ‘‘ben8 eficiary’’, ‘‘church plan’’, ‘‘employee’’, ‘‘employee welfare

9 benefit plan’’, ‘‘employer’’, ‘‘governmental plan’’, ‘‘multi10 employer plan’’, ‘‘multiple employer welfare arrange11 ment’’, ‘‘participant’’, ‘‘plan sponsor’’, and ‘‘State’’ have

12 the meanings given such terms in section 3 of the Em13 ployee Retirement Income Security Act of 1974.

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

15 (1) APPLICABLE STATE AUTHORITY.—The term

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

17 an insurer or health maintenance organization in a

18 State, the State insurance commissioner or official

19 or officials designated by the State to enforce the re20 quirements of this title for the State involved with

21 respect to such insurer or organization.

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

23 fide association’’ means an association which—

24 (A) has been actively in existence for at

25 least 5 years,
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1 (B) has been formed and maintained in

2 good faith for purposes other than obtaining in3 surance,

4 (C) does not condition membership in the

5 association on health status,

6 (D) makes health insurance coverage of7 fered through the association available to all

8 members regardless of health status,

9 (E) does not make health insurance cov10 erage offered through the association available

11 to any individual who is not a member (or de12 pendent of a member) of the association at the

13 time the coverage is initially issued,

14 (F) does not impose preexisting condition

15 exclusions except in a manner consistent with

16 the requirements of sections 101 and 102 as

17 they relate to group health plans, and

18 (G) provides for renewal and continuation

19 of health insurance coverage in a manner con20 sistent with the requirements of section 132 as

21 they relate to the renewal and continuation in

22 force of coverage in a group market.

23 (3) COBRA CONTINUATION PROVISION.—The

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

25 the following:
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1 (A) Section 4980B of the Internal Revenue

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

3 such section insofar as it relates to pediatric

4 vaccines.

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

6 Employee Retirement Income Security Act of

7 1974 (29 U.S.C. 1161 et seq.), other than sec8 tion 609.

9 (C) Title XXII of the Public Health Serv10 ice Act.

11 (4) HEALTH INSURANCE COVERAGE.—

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

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

14 coverage’’ means benefits consisting of medical

15 care (provided directly, through insurance or re16 imbursement, or otherwise) under any hospital

17 or medical service policy or certificate, hospital

18 or medical service plan contract, or health

19 maintenance organization group contract of20 fered by an insurer or a health maintenance or21 ganization.

22 (B) EXCEPTION.—Such term does not in23 clude coverage under any separate policy, cer24 tificate, or contract only for one or more of any

25 of the following:
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1 (i) Coverage for accident, credit-only,

2 vision, disability income, long-term care,

3 nursing home care, community-based care

4 dental, on-site medical clinics, or employee

5 assistance programs, or any combination

6 thereof.

7 (ii) Medicare supplemental health in8 surance (within the meaning of section

9 1882(g)(1) of the Social Security Act (42

10 U.S.C. 1395ss(g)(1))) and similar supple11 mental coverage provided under a group

12 health plan.

13 (iii) Coverage issued as a supplement

14 to liability insurance.

15 (iv) Liability insurance, including gen16 eral liability insurance and automobile li17 ability insurance.

18 (v) Workers’ compensation or similar

19 insurance.

20 (vi) Automobile medical-payment in21 surance.

22 (vii) Coverage consisting of benefit

23 payments made on a periodic basis for a

24 specified disease or illness or period of hos25 pitalization, without regard to the costs in-
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1 curred or services rendered during the pe2 riod to which the payments relate.

3 (viii) Short-term limited duration in4 surance.

5 (ix) Such other coverage, comparable

6 to that described in previous clauses, as

7 may be specified in regulations prescribed

8 under this title.

9 (5) HEALTH MAINTENANCE ORGANIZATION;

10 HMO.—The terms ‘‘health maintenance organiza11 tion’’ and ‘‘HMO’’ mean—

12 (A) a Federally qualified health mainte13 nance organization (as defined in section

14 1301(a) of the Public Health Service Act (42

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

16 (B) an organization recognized under State

17 law as a health maintenance organization, or

18 (C) a similar organization regulated under

19 State law for solvency in the same manner and

20 to the same extent as such a health mainte21 nance organization,

22 if it is subject to State law which regulates insur23 ance (within the meaning of section 514(b)(2) of the

24 Employee Retirement Income Security Act of 1974).
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1 (6) HEALTH STATUS.—The term ‘‘health sta2 tus’’ includes, with respect to an individual, medical

3 condition, claims experience, receipt of health care,

4 medical history, evidence of insurability, or disabil5 ity.

6 (7) INDIVIDUAL HEALTH INSURANCE COV7 ERAGE.—The term ‘‘individual health insurance cov8 erage’’ means health insurance coverage offered to

9 individuals if the coverage is not offered in connec10 tion with a group health plan (other than such a

11 plan that has fewer than two participants as current

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

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

14 insurance company, insurance service, or insurance

15 organization which is licensed to engage in the busi16 ness of insurance in a State and which is regulated

17 by a State (within the meaning of section

18 514(b)(2)(A) of the Employee Retirement Income

19 Security Act of 1974).

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

21 means—

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

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

24 treatment, or prevention of disease, or amounts

25 paid for, or items or services provided for, the
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1 purpose of affecting any structure or function

2 of the body,

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

4 form of, transportation primarily for and essen5 tial to medical care referred to in subparagraph

6 (A), and

7 (C) amounts paid for insurance covering

8 medical care referred to in subparagraphs (A)

9 and (B).

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

11 plan’’ means, with respect to health insurance cov12 erage, an arrangement of an insurer or a health

13 maintenance organization under which the financing

14 and delivery of medical care are provided, in whole

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

16 contract with the insurer or health maintenance or17 ganization.

18 (11) WAITING PERIOD.—The term ‘‘waiting pe19 riod’’ means, with respect to a group health plan

20 and an individual who is a potential participant or

21 beneficiary in the plan, the minimum period that

22 must pass with respect to the individual before the

23 individual is eligible to be covered for benefits under

24 the plan.

25 (d) TREATMENT OF PARTNERSHIPS.—
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1 (1) TREATMENT AS A GROUP HEALTH PLAN.—

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

3 for this paragraph) an employee welfare benefit plan

4 and which is established or maintained by a partner5 ship, to the extent that such plan, fund, or program

6 provides medical care to present or former partners

7 in the partnership or to their dependents (as defined

8 under the terms of the plan, fund, or program), di9 rectly or through insurance, reimbursement, or oth10 erwise, shall be treated (subject to paragraph (1)) as

11 an employee welfare benefit plan which is a group

12 health plan.

13 (2) TREATMENT OF PARTNERSHIP AND PART14 NERS AND EMPLOYER AND PARTICIPANTS.—In the

15 case of a group health plan—

16 (A) the term ‘‘employer’’ includes the part17 nership in relation to any partner; and

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

19 (i) in connection with a group health

20 plan maintained by a partnership, an indi21 vidual who is a partner in relation to the

22 partnership, or

23 (ii) in connection with a group health

24 plan maintained by a self-employed individ25 ual (under which one or more employees
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1 are participants), the self-employed individ2 ual,

3 if such individual is or may become eligible to

4 receive a benefit under the plan or such individ5 ual’s beneficiaries may be eligible to receive any

6 such benefit.

7 (e) DEFINITIONS RELATING TO MARKETS AND

8 SMALL EMPLOYERS.—As used in this title:

9 (1) INDIVIDUAL MARKET.—The term ‘‘individ10 ual market’’ means the market for health insurance

11 coverage offered to individuals and not to employers

12 or in connection with a group health plan and does

13 not include the market for such coverage issued only

14 by an insurer or HMO that makes such coverage

15 available only on the basis of affiliation with a bona

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

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

18 group market’’ means the market for health insur19 ance coverage offered to employers (other than small

20 employers) on behalf of their employees (and their

21 dependents) and does not include health insurance

22 coverage available solely in connection with a bona

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

24 (3) SMALL EMPLOYER.—The term ‘‘small em25 ployer’’ means, in connection with a group health
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1 plan with respect to a calendar year, an employer

2 who employs at least 2 but fewer than 51 employees

3 on a typical business day in the year. All persons

4 treated as a single employer under subsection (a) or

5 (b) of section 52 shall be treated as a single em6 ployer for purposes of this title.

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

8 group market’’ means the health insurance market

9 under which individuals obtain health insurance cov10 erage (directly or through any arrangement) on be11 half of themselves (and their dependents) on the

12 basis of employment or other relationship with re13 spect to a small employer and does not include

14 health insurance coverage available solely in connec15 tion with a bona fide association (as defined in sub16 section (c)(2)).

17 SEC. 192. STATE FLEXIBILITY TO PROVIDE GREATER PRO18 TECTION.

19 (a) STATE FLEXIBILITY TO PROVIDE GREATER PRO20 TECTION.—Subject to subsection (b), nothing in this title

21 shall be construed to preempt State laws that—

22 (1) require insurers or HMOs to impose a limi23 tation or exclusion of benefits relating to the treat24 ment of a preexisting condition for a period that is
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1 shorter than the applicable period provided for under

2 this title; or

3 (2) allow individuals, participants, and bene4 ficiaries to be considered to be in a period of pre5 vious qualifying coverage if such individual, partici6 pant, or beneficiary experiences a lapse in coverage

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

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

9 102(b)(2).

10 (b) NO OVERRIDE OF ERISA PREEMPTION.—Noth11 ing in this Act shall be construed to affect or modify the

12 provisions of section 514 of the Employee Retirement In13 come Security Act of 1974 (29 U.S.C. 1144).

14 SEC. 193. EFFECTIVE DATE.

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

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

17 respect to—

18 (1) group health plans, and health insurance

19 coverage offered in connection with group health

20 plans, for plan years beginning on or after January

21 1, 1998, and

22 (2) individual health insurance coverage issued,

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

24 1998.
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1 (b) CONSIDERATION OF PREVIOUS COVERAGE.—The

2 Secretaries of Health and Human Services, Treasury, and

3 Labor shall jointly establish rules regarding the treatment

4 (in determining qualified coverage periods under sections

5 102(b) and 141(b)) of coverage before the applicable effec6 tive date specified in subsection (a).

7 (c) TIMELY ISSUANCE OF REGULATIONS.—The Sec8 retaries of Health and Human Services, the Treasury, and

9 Labor shall issue such regulations on a timely basis as

10 may be required to carry out this title.

11 SEC. 194. RULE OF CONSTRUCTION.

12 Nothing in this title or any amendment made thereby

13 may be construed to require the coverage of any specific

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

15 plan or health insurance coverage under this title or

16 through regulation.

17 TITLE II—PREVENTING HEALTH

18 CARE FRAUD AND ABUSE; AD19 MINISTRATIVE SIMPLIFICA20 TION

21 SEC. 200. REFERENCES IN TITLE.

22 Except as otherwise specifically provided, whenever in

23 this title an amendment is expressed in terms of an

24 amendment to or repeal of a section or other provision,
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1 the reference shall be considered to be made to that sec2 tion or other provision of the Social Security Act.

3 Subtitle A—Fraud and Abuse

4 Control Program

5 SEC. 201. FRAUD AND ABUSE CONTROL PROGRAM.

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

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

8 1128B the following new section:

9 ‘‘FRAUD AND ABUSE CONTROL PROGRAM

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

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

12 1997, the Secretary, acting through the Office of the

13 Inspector General of the Department of Health and

14 Human Services, and the Attorney General shall es15 tablish a program—

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

17 local law enforcement programs to control fraud

18 and abuse with respect to health plans,

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

20 evaluations, and inspections relating to the de21 livery of and payment for health care in the

22 United States,

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

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

25 and other statutes applicable to health care

26 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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•HR 3103 IH

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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•HR 3103 IH

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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•HR 3103 IH

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 3103 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 3103 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 3103 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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•HR 3103 IH

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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•HR 3103 IH

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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•HR 3103 IH

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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•HR 3103 IH

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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•HR 3103 IH

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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•HR 3103 IH

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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•HR 3103 IH

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 3103 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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•HR 3103 IH

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 follow7 ing:

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, Unit2 ed States Code, is amended by adding at the end the

3 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 PART 1—GENERAL ADMINISTRATIVE

9 SIMPLIFICATION

10 SEC. 251. PURPOSE.

11 It is the purpose of this part to improve the medicare

12 program under title XVIII of the Social Security Act, the

13 medicaid program under title XIX of such Act, and the

14 efficiency and effectiveness of the health care system, by

15 encouraging the development of a health information sys16 tem through the establishment of standards and require17 ments for the electronic transmission of certain health in18 formation.

19 SEC. 252. ADMINISTRATIVE SIMPLIFICATION.

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

21 is amended by adding at the end the following:

22 ‘‘PART C—ADMINISTRATIVE SIMPLIFICATION

23 ‘‘SEC. 1171. DEFINITIONS.

24 ‘‘For purposes of this part:
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1 ‘‘(1) CLEARINGHOUSE.—The term ‘clearing2 house’ means a public or private entity that—

3 ‘‘(A) processes or facilitates the processing

4 of nonstandard data elements of health infor5 mation into standard data elements; or

6 ‘‘(B) provides the means by which persons

7 may meet the requirements of this part.

8 ‘‘(2) CODE SET.—The term ‘code set’ means

9 any set of codes used for encoding data elements,

10 such as tables of terms, medical concepts, medical

11 diagnostic codes, or medical procedure codes.

12 ‘‘(3) HEALTH CARE PROVIDER.—The term

13 ‘health care provider’ includes a provider of services

14 (as defined in section 1861(u)), a provider of medi15 cal or other health services (as defined in section

16 1861(s)), and any other person furnishing health

17 care services or supplies.

18 ‘‘(4) HEALTH INFORMATION.—The term ‘health

19 information’ means any information, whether oral or

20 recorded in any form or medium that—

21 ‘‘(A) is created or received by a health care

22 provider, health plan, public health authority,

23 employer, life insurer, school or university, or

24 clearinghouse; and
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1 ‘‘(B) relates to the past, present, or future

2 physical or mental health or condition of an in3 dividual, the provision of health care to an indi4 vidual, or the past, present, or future payment

5 for the provision of health care to an individual.

6 ‘‘(5) HEALTH PLAN.—The term ‘health plan’

7 means a plan which provides, or pays the cost of,

8 health benefits. Such term includes the following, or

9 any combination thereof:

10 ‘‘(A) Part A or part B of the medicare

11 program under title XVIII.

12 ‘‘(B) The medicaid program under title

13 XIX.

14 ‘‘(C) A medicare supplemental policy (as

15 defined in section 1882(g)(1)).

16 ‘‘(D) Coverage issued as a supplement to

17 liability insurance.

18 ‘‘(E) General liability insurance.

19 ‘‘(F) Worker’s compensation or similar in20 surance.

21 ‘‘(G) Automobile or automobile medical22 payment insurance.

23 ‘‘(H) A long-term care policy, including a

24 nursing home fixed indemnity policy (unless the

25 Secretary determines that such a policy does
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1 not provide sufficiently comprehensive coverage

2 of a benefit so that the policy should be treated

3 as a health plan).

4 ‘‘(I) A hospital or fixed indemnity income5 protection policy.

6 ‘‘(J) An employee welfare benefit plan, as

7 defined in section 3(1) of the Employee Retire8 ment Income Security Act of 1974 (29 U.S.C.

9 1002(1)), but only to the extent the plan is es10 tablished or maintained for the purpose of pro11 viding health benefits and has 50 or more par12 ticipants (as defined in section 3(7) of such

13 Act).

14 ‘‘(K) An employee welfare benefit plan or

15 any other arrangement which is established or

16 maintained for the purpose of offering or pro17 viding health benefits to the employees of 2 or

18 more employers.

19 ‘‘(L) The health care program for active

20 military personnel under title 10, United States

21 Code.

22 ‘‘(M) The veterans health care program

23 under chapter 17 of title 38, United States

24 Code.
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1 ‘‘(N) The Civilian Health and Medical Pro2 gram of the Uniformed Services (CHAMPUS),

3 as defined in section 1073(4) of title 10, United

4 States Code.

5 ‘‘(O) The Indian health service program

6 under the Indian Health Care Improvement Act

7 (25 U.S.C. 1601 et seq.).

8 ‘‘(P) The Federal Employees Health Bene9 fit Plan under chapter 89 of title 5, United

10 States Code.

11 ‘‘(Q) Such other plan or arrangement as

12 the Secretary determines is a health plan.

13 ‘‘(6) INDIVIDUALLY IDENTIFIABLE HEALTH IN14 FORMATION.—The term ‘individually identifiable

15 health information’ means any information, includ16 ing demographic information collected from an indi17 vidual, that—

18 ‘‘(A) is created or received by a health care

19 provider, health plan, employer, or clearing20 house; and

21 ‘‘(B) relates to the past, present, or future

22 physical or mental health or condition of an in23 dividual, the provision of health care to an indi24 vidual, or the past, present, or future payment
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1 for the provision of health care to an individual,

2 and—

3 ‘‘(i) identifies the individual; or

4 ‘‘(ii) with respect to which there is a

5 reasonable basis to believe that the infor6 mation can be used to identify the individ7 ual.

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

9 used with reference to a data element of health in10 formation or a transaction referred to in section

11 1173(a)(1), means any such data element or trans12 action that meets each of the standards and imple13 mentation specifications adopted or established by

14 the Secretary with respect to the data element or

15 transaction under sections 1172 and 1173.

16 ‘‘(8) STANDARD SETTING ORGANIZATION.—The

17 term ‘standard setting organization’ means a stand18 ard setting organization accredited by the American

19 National Standards Institute, including the National

20 Council for Prescription Drug Programs, that devel21 ops standards for information transactions, data ele22 ments, or any other standard that is necessary to,

23 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 RULES.—

22 ‘‘(A) DIFFERENT STANDARDS.—The Sec23 retary may adopt a standard or modification of

24 a standard that is different from any standard

25 developed or modified by a standard setting or26 ganization, if—
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1 ‘‘(i) the different standard or modi2 fication will substantially reduce adminis3 trative costs to health care providers and

4 health plans compared to the alternatives;

5 and

6 ‘‘(ii) the standard or modification is

7 promulgated in accordance with the rule8 making procedures of subchapter III of

9 chapter 5 of title 5, United States Code.

10 ‘‘(B) NO STANDARD BY STANDARD SET11 TING ORGANIZATION.—If no standard setting

12 organization has adopted or modified any

13 standard relating to a standard, or a modifica14 tion of a standard, that the Secretary is author15 ized or required to adopt under this part—

16 ‘‘(i) paragraph (1) shall not apply;

17 and

18 ‘‘(ii) subsection (f) shall apply.

19 ‘‘(d) IMPLEMENTATION SPECIFICATIONS.—The Sec20 retary shall establish specifications for implementing each

21 of the standards and modifications adopted under this

22 part.

23 ‘‘(e) PROTECTION OF TRADE SECRETS.—Except as

24 otherwise required by law, a standard or modification of

25 a standard adopted under this part shall not require dis-
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1 closure of trade secrets or confidential commercial infor2 mation by a person required to comply with this part.

3 ‘‘(f) ASSISTANCE TO THE SECRETARY.—In complying

4 with the requirements of this part, the Secretary shall rely

5 on the recommendations of the Health Information Advi6 sory Committee established under section 1179 and shall

7 consult with appropriate Federal and State agencies and

8 private organizations. The Secretary shall publish in the

9 Federal Register the recommendations of the Health In10 formation Advisory Committee regarding the adoption of

11 a standard or modification of a standard under this part.

12 ‘‘SEC. 1173. STANDARDS FOR INFORMATION TRANSACTIONS

13 AND DATA ELEMENTS.

14 ‘‘(a) STANDARDS TO ENABLE ELECTRONIC EX15 CHANGE.—

16 ‘‘(1) IN GENERAL.—The Secretary shall adopt

17 standards for transactions, and data elements for

18 such transactions, to enable health information to be

19 exchanged electronically, that are—

20 ‘‘(A) appropriate for the financial and ad21 ministrative transactions described in para22 graph (2); and

23 ‘‘(B) related to other financial and admin24 istrative transactions determined appropriate by

25 the Secretary consistent with the goals of im-
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1 proving the operation of the health care system

2 and reducing administrative costs.

3 ‘‘(2) TRANSACTIONS.—The transactions re4 ferred to in paragraph (1)(A) are the following:

5 ‘‘(A) Claims (including coordination of

6 benefits) or equivalent encounter information.

7 ‘‘(B) Claims attachments.

8 ‘‘(C) Enrollment and disenrollment.

9 ‘‘(D) Eligibility.

10 ‘‘(E) Health care payment and remittance

11 advice.

12 ‘‘(F) Premium payments.

13 ‘‘(G) First report of injury.

14 ‘‘(H) Claims status.

15 ‘‘(I) Referral certification and authoriza16 tion.

17 ‘‘(3) ACCOMMODATION OF SPECIFIC PROVID18 ERS.—The standards adopted by the Secretary

19 under paragraph (1) shall accommodate the needs of

20 different types of health care providers.

21 ‘‘(b) UNIQUE HEALTH IDENTIFIERS.—

22 ‘‘(1) IN GENERAL.—The Secretary shall adopt

23 standards providing for a standard unique health

24 identifier for each individual, employer, health plan,

25 and health care provider for use in the health care
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1 system. In carrying out the preceding sentence for

2 each health plan and health care provider, the Sec3 retary shall take into account multiple uses for iden4 tifiers and multiple locations and specialty classifica5 tions for health care providers.

6 ‘‘(2) USE OF IDENTIFIERS.—The standards

7 adopted under paragraphs (1) shall specify the pur8 poses for which a unique health identifier may be

9 used.

10 ‘‘(c) CODE SETS.—

11 ‘‘(1) IN GENERAL.—The Secretary shall adopt

12 standards that—

13 ‘‘(A) select code sets for appropriate data

14 elements for the transactions referred to in sub15 section (a)(1) from among the code sets that

16 have been developed by private and public enti17 ties; or

18 ‘‘(B) establish code sets for such data ele19 ments if no code sets for the data elements

20 have been developed.

21 ‘‘(2) DISTRIBUTION.—The Secretary shall es22 tablish efficient and low-cost procedures for distribu23 tion (including electronic distribution) of code sets

24 and modifications made to such code sets under sec25 tion 1174(b).
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1 ‘‘(d) SECURITY STANDARDS FOR HEALTH INFORMA2 TION.—

3 ‘‘(1) SECURITY STANDARDS.—The Secretary

4 shall adopt security standards that—

5 ‘‘(A) take into account—

6 ‘‘(i) the technical capabilities of record

7 systems used to maintain health informa8 tion;

9 ‘‘(ii) the costs of security measures;

10 ‘‘(iii) the need for training persons

11 who have access to health information;

12 ‘‘(iv) the value of audit trails in com13 puterized record systems; and

14 ‘‘(v) the needs and capabilities of

15 small health care providers and rural

16 health care providers (as such providers

17 are defined by the Secretary); and

18 ‘‘(B) ensure that a clearinghouse, if it is

19 part of a larger organization, has policies and

20 security procedures which isolate the activities

21 of the clearinghouse with respect to processing

22 information in a manner that prevents unau23 thorized access to such information by such

24 larger organization.
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1 ‘‘(2) SAFEGUARDS.—Each person described in

2 section 1172(a) who maintains or transmits health

3 information shall maintain reasonable and appro4 priate administrative, technical, and physical safe5 guards—

6 ‘‘(A) to ensure the integrity and confiden7 tiality of the information;

8 ‘‘(B) to protect against any reasonably an9 ticipated—

10 ‘‘(i) threats or hazards to the security

11 or integrity of the information; and

12 ‘‘(ii) unauthorized uses or disclosures

13 of the information; and

14 ‘‘(C) otherwise to ensure compliance with

15 this part by the officers and employees of such

16 person.

17 ‘‘(e) PRIVACY STANDARDS FOR HEALTH INFORMA18 TION.—The Secretary shall adopt standards with respect

19 to the privacy of individually identifiable health informa20 tion. Such standards shall include standards concerning

21 at least the following:

22 ‘‘(1) The rights of an individual who is a sub23 ject of such information.

24 ‘‘(2) The procedures to be established for the

25 exercise of such rights.
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1 ‘‘(3) The uses and disclosures of such informa2 tion that are authorized or required.

3 ‘‘(f) ELECTRONIC SIGNATURE.—

4 ‘‘(1) IN GENERAL.—The Secretary, in coordina5 tion with the Secretary of Commerce, shall adopt

6 standards specifying procedures for the electronic

7 transmission and authentication of signatures, com8 pliance with which shall be deemed to satisfy Fed9 eral and State statutory requirements for written

10 signatures with respect to the transactions referred

11 to in subsection (a)(1).

12 ‘‘(2) PAYMENTS FOR SERVICES AND PRE13 MIUMS.—Nothing in this part shall be construed to

14 prohibit payment for health care services or health

15 plan premiums by debit, credit, payment card or

16 numbers, or other electronic means.

17 ‘‘(g) TRANSFER OF INFORMATION BETWEEN

18 HEALTH PLANS.—The Secretary shall adopt standards

19 for transferring among health plans appropriate standard

20 data elements needed for the coordination of benefits, the

21 sequential processing of claims, and other data elements

22 for individuals who have more than one health plan.

23 ‘‘SEC. 1174. TIMETABLES FOR ADOPTION OF STANDARDS.

24 ‘‘(a) INITIAL STANDARDS.—The Secretary shall

25 carry out section 1173 not later than 18 months after the
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1 date of the enactment of this part, except that standards

2 relating to claims attachments shall be adopted not later

3 than 30 months after such date.

4 ‘‘(b) ADDITIONS AND MODIFICATIONS TO STAND5 ARDS.—

6 ‘‘(1) IN GENERAL.—Except as provided in para7 graph (2), the Secretary shall review the standards

8 adopted under section 1173, and shall adopt addi9 tional or modified standards, as determined appro10 priate, but not more frequently than once every 6

11 months. Any addition or modification to a standard

12 shall be completed in a manner which minimizes the

13 disruption and cost of compliance.

14 ‘‘(2) SPECIAL RULES.—

15 ‘‘(A) FIRST 12-MONTH PERIOD.—Except

16 with respect to additions and modifications to

17 code sets under subparagraph (B), the Sec18 retary may not adopt any modification to a

19 standard adopted under this part during the

20 12-month period beginning on the date the

21 standard is initially adopted, unless the Sec22 retary determines that the modification is nec23 essary in order to permit compliance with the

24 standard.
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1 ‘‘(B) ADDITIONS AND MODIFICATIONS TO

2 CODE SETS.—

3 ‘‘(i) IN GENERAL.—The Secretary

4 shall ensure that procedures exist for the

5 routine maintenance, testing, enhancement,

6 and expansion of code sets.

7 ‘‘(ii) ADDITIONAL RULES.—If a code

8 set is modified under this subsection, the

9 modified code set shall include instructions

10 on how data elements of health informa11 tion that were encoded prior to the modi12 fication may be converted or translated so

13 as to preserve the informational value of

14 the data elements that existed before the

15 modification. Any modification to a code

16 set under this subsection shall be imple17 mented in a manner that minimizes the

18 disruption and cost of complying with such

19 modification.

20 ‘‘SEC. 1175. REQUIREMENTS.

21 ‘‘(a) CONDUCT OF TRANSACTIONS BY PLANS.—

22 ‘‘(1) IN GENERAL.—If a person desires to con23 duct a transaction referred to in section 1173(a)(1)

24 with a health plan as a standard transaction—
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1 ‘‘(A) the health plan may not refuse to

2 conduct such transaction as a standard trans3 action;

4 ‘‘(B) the health plan may not delay such

5 transaction, or otherwise adversely affect, or at6 tempt to adversely affect, the person or the

7 transaction on the ground that the transaction

8 is a standard transaction; and

9 ‘‘(C) the information transmitted and re10 ceived in connection with the transaction shall

11 be in the form of standard data elements of

12 health information.

13 ‘‘(2) SATISFACTION OF REQUIREMENTS.—A

14 health plan may satisfy the requirements under

15 paragraph (1) by—

16 ‘‘(A) directly transmitting and receiving

17 standard data elements of health information;

18 or

19 ‘‘(B) submitting nonstandard data ele20 ments to a clearinghouse for processing into

21 standard data elements and transmission by the

22 clearinghouse, and receiving standard data ele23 ments through the clearinghouse.

24 ‘‘(3) TIMETABLE FOR COMPLIANCE.—Para25 graph (1) shall not be construed to require a health
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1 plan to comply with any standard, implementation

2 specification, or modification to a standard or speci3 fication adopted or established by the Secretary

4 under sections 1172 and 1173 at any time prior to

5 the date on which the plan is required to comply

6 with the standard or specification under subsection

7 (b).

8 ‘‘(b) COMPLIANCE WITH STANDARDS.—

9 ‘‘(1) INITIAL COMPLIANCE.—

10 ‘‘(A) IN GENERAL.—Not later than 24

11 months after the date on which an initial stand12 ard or implementation specification is adopted

13 or established under sections 1172 and 1173,

14 each person to whom the standard or imple15 mentation specification applies shall comply

16 with the standard or specification.

17 ‘‘(B) SPECIAL RULE FOR SMALL HEALTH

18 PLANS.—In the case of a small health plan,

19 paragraph (1) shall be applied by substituting

20 ‘‘36 months’’ for ‘‘24 months’’. For purposes of

21 this subsection, the Secretary shall determine

22 the plans that qualify as small health plans.

23 ‘‘(2) COMPLIANCE WITH MODIFIED STAND24 ARDS.—If the Secretary adopts a modification to a

25 standard or implementation specification under this
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1 part, each person to whom the standard or imple2 mentation specification applies shall comply with the

3 modified standard or implementation specification at

4 such time as the Secretary determines appropriate,

5 taking into account the time needed to comply due

6 to the nature and extent of the modification. The

7 time determined appropriate under the preceding

8 sentence may not be earlier than the last day of the

9 180-day period beginning on the date such modifica10 tion is adopted. The Secretary may extend the time

11 for compliance for small health plans, if the Sec12 retary determines that such extension is appropriate.

13 ‘‘SEC. 1176. GENERAL PENALTY FOR FAILURE TO COMPLY

14 WITH REQUIREMENTS AND STANDARDS.

15 ‘‘(a) GENERAL PENALTY.—

16 ‘‘(1) IN GENERAL.—Except as provided in sub17 section (b), the Secretary shall impose on any person

18 who violates a provision of this part a penalty of not

19 more than $100 for each such violation, except that

20 the total amount imposed on the person for all viola21 tions of an identical requirement or prohibition dur22 ing a calendar year may not exceed $25,000.

23 ‘‘(2) PROCEDURES.—The provisions of section

24 1128A (other than subsections (a) and (b) and the

25 second sentence of subsection (f)) shall apply to the
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1 imposition of a civil money penalty under this sub2 section in the same manner as such provisions apply

3 to the imposition of a penalty under such section

4 1128A.

5 ‘‘(b) LIMITATIONS.—

6 ‘‘(1) OFFENSES OTHERWISE PUNISHABLE.—A

7 penalty may not be imposed under subsection (a)

8 with respect to an act if the act constitutes an of9 fense punishable under section 1177.

10 ‘‘(2) NONCOMPLIANCE NOT DISCOVERED.—A

11 penalty may not be imposed under subsection (a)

12 with respect to a provision of this part if it is estab13 lished to the satisfaction of the Secretary that the

14 person liable for the penalty did not know, and by

15 exercising reasonable diligence would not have

16 known, that such person violated the provision.

17 ‘‘(3) FAILURES DUE TO REASONABLE CAUSE.—

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

19 subparagraph (B), a penalty may not be im20 posed under subsection (a) if—

21 ‘‘(i) the failure to comply was due to

22 reasonable cause and not to willful neglect;

23 and

24 ‘‘(ii) the failure to comply is corrected

25 during the 30-day period beginning on the
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1 first date the person liable for the penalty

2 knew, or by exercising reasonable diligence

3 would have known, that the failure to com4 ply occurred.

5 ‘‘(B) EXTENSION OF PERIOD.—

6 ‘‘(i) NO PENALTY.—The period re7 ferred to in subparagraph (A)(ii) may be

8 extended as determined appropriate by the

9 Secretary based on the nature and extent

10 of the failure to comply.

11 ‘‘(ii) ASSISTANCE.—If the Secretary

12 determines that a person failed to comply

13 because the person was unable to comply,

14 the Secretary may provide technical assist15 ance to the person during the period de16 scribed in subparagraph (A)(ii). Such as17 sistance shall be provided in any manner

18 determined appropriate by the Secretary.

19 ‘‘(4) REDUCTION.—In the case of a failure to

20 comply which is due to reasonable cause and not to

21 willful neglect, any penalty under subsection (a) that

22 is not entirely waived under paragraph (3) may be

23 waived to the extent that the payment of such pen24 alty would be excessive relative to the compliance

25 failure involved.
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1 ‘‘SEC. 1177. WRONGFUL DISCLOSURE OF INDIVIDUALLY

2 IDENTIFIABLE HEALTH INFORMATION.

3 ‘‘(a) OFFENSE.—A person who knowingly and in vio4 lation of this part—

5 ‘‘(1) uses or causes to be used a unique health

6 identifier;

7 ‘‘(2) obtains individually identifiable health in8 formation relating to an individual; or

9 ‘‘(3) discloses individually identifiable health in10 formation to another person,

11 shall be punished as provided in subsection (b).

12 ‘‘(b) PENALTIES.—A person described in subsection

13 (a) shall—

14 ‘‘(1) be fined not more than $50,000, impris15 oned not more than 1 year, or both;

16 ‘‘(2) if the offense is committed under false pre17 tenses, be fined not more than $100,000, imprisoned

18 not more than 5 years, or both; and

19 ‘‘(3) if the offense is committed with intent to

20 sell, transfer, or use individually identifiable health

21 information for commercial advantage, personal

22 gain, or malicious harm, fined not more than

23 $250,000, imprisoned not more than 10 years, or

24 both.

25 ‘‘SEC. 1178. EFFECT ON STATE LAW.

26 ‘‘(a) GENERAL EFFECT.—
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1 ‘‘(1) GENERAL RULE.—Except as provided in

2 paragraph (2), a provision or requirement under this

3 part, or a standard or implementation specification

4 adopted or established under sections 1172 and

5 1173, shall supersede any contrary provision of

6 State law, including a provision of State law that re7 quires medical or health plan records (including bill8 ing information) to be maintained or transmitted in

9 written rather than electronic form.

10 ‘‘(2) EXCEPTIONS.—A provision or requirement

11 under this part, or a standard or implementation

12 specification adopted or established under sections

13 1172 and 1173, shall not supersede a contrary pro14 vision of State law, if the provision of State law—

15 ‘‘(A) imposes requirements, standards, or

16 implementation specifications that are more

17 stringent than the requirements, standards, or

18 implementation specifications under this part

19 with respect to the privacy of individually iden20 tifiable health information; or

21 ‘‘(B) is a provision the Secretary deter22 mines—

23 ‘‘(i) is necessary to prevent fraud and

24 abuse, or for other purposes; or

25 ‘‘(ii) addresses controlled substances.
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1 ‘‘(b) PUBLIC HEALTH REPORTING.—Nothing in this

2 part shall be construed to invalidate or limit the authority,

3 power, or procedures established under any law providing

4 for the reporting of disease or injury, child abuse, birth,

5 or death, public health surveillance, or public health inves6 tigation or intervention.

7 ‘‘SEC. 1179. HEALTH INFORMATION ADVISORY COMMITTEE.

8 ‘‘(a) ESTABLISHMENT.—There is established a com9 mittee to be known as the Health Information Advisory

10 Committee (in this section referred to as the ‘committee’).

11 ‘‘(b) DUTIES.—The committee shall—

12 ‘‘(1) provide assistance to the Secretary in com13 plying with the requirements imposed on the Sec14 retary under this part;

15 ‘‘(2) study the issues related to the adoption of

16 uniform data standards for patient medical record

17 information and the electronic exchange of such in18 formation;

19 ‘‘(3) report to the Secretary not later than 4

20 years after the date of the enactment of this part

21 recommendations and legislative proposals for such

22 standards and electronic exchange; and

23 ‘‘(4) generally be responsible for advising the

24 Secretary and the Congress on the status of the im25 plementation of this part.
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1 ‘‘(c) MEMBERSHIP.—

2 ‘‘(1) IN GENERAL.—The committee shall con3 sist of 15 members of whom—

4 ‘‘(A) 3 shall be appointed by the President;

5 ‘‘(B) 6 shall be appointed by the Speaker

6 of the House of Representatives after consulta7 tion with the minority leader of the House of

8 Representatives; and

9 ‘‘(C) 6 shall be appointed by the President

10 pro tempore of the Senate after consultation

11 with the minority leader of the Senate.

12 The appointments of the members shall be made not

13 later than 60 days after the date of the enactment

14 of this part. The President shall designate 1 member

15 as the Chair.

16 ‘‘(2) EXPERTISE.—The membership of the com17 mittee shall consist of individuals who are of recog18 nized standing and distinction in the areas of infor19 mation systems, information networking and inte20 gration, consumer health, health care financial man21 agement, or privacy, and who possess the dem22 onstrated capacity to discharge the duties imposed

23 on the committee.

24 ‘‘(3) TERMS.—Each member of the committee

25 shall be appointed for a term of 5 years, except that
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1 the members first appointed shall serve staggered

2 terms such that the terms of not more than 3 mem3 bers expire at one time.

4 ‘‘(4) INITIAL MEETING.—Not later than 30

5 days after the date on which a majority of the mem6 bers have been appointed, the committee shall hold

7 its first meeting.

8 ‘‘(d) REPORTS.—Not later than 1 year after the date

9 of the enactment of this part, and annually thereafter, the

10 committee shall submit to the Congress, and make public,

11 a report regarding—

12 ‘‘(1) the extent to which persons required to

13 comply with this part are cooperating in implement14 ing the standards adopted under this part;

15 ‘‘(2) the extent to which such entities are meet16 ing the privacy and security standards adopted

17 under this part and the types of penalties assessed

18 for noncompliance with such standards;

19 ‘‘(3) whether the Federal and State Govern20 ments are receiving information of sufficient quality

21 to meet their responsibilities under this part;

22 ‘‘(4) any problems that exist with respect to im23 plementation of this part; and

24 ‘‘(5) the extent to which timetables under this

25 part are being met.’’.
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1 (b) CONFORMING AMENDMENTS.—

2 (1) REQUIREMENT FOR MEDICARE PROVID3 ERS.—Section 1866(a)(1) (42 U.S.C. 1395cc(a)(1))

4 is amended—

5 (A) by striking ‘‘and’’ at the end of sub6 paragraph (P);

7 (B) by striking the period at the end of

8 subparagraph (Q) and inserting ‘‘; and’’; and

9 (C) by inserting immediately after sub10 paragraph (Q) the following new subparagraph:

11 ‘‘(R) to contract only with a clearinghouse

12 (as defined in section 1171) that meets each

13 standard and implementation specification

14 adopted or established under sections 1172 and

15 1173 on or after the date on which the clear16 inghouse is required to comply with the stand17 ard or specification.’’.

18 (2) CLERICAL AMENDMENTS.—

19 (A) Title XI (42 U.S.C. 1301 et seq.) is

20 amended by striking the title heading and in21 serting the following:
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1 ‘‘TITLE XI—GENERAL PROVISIONS, PEER RE2 VIEW, AND ADMINISTRATIVE SIMPLIFICA3 TION’’.

4 (B) Parts A and B of title XI (42 U.S.C.

5 1301 et seq.) are amended by striking ‘‘this

6 title’’ each place such term appears and insert7 ing ‘‘parts A and B of this title’’.

8 PART 2—ADMINISTRATIVE SIMPLIFICATION FOR

9 LABORATORY SERVICES

10 SEC. 261. ADMINISTRATIVE SIMPLIFICATION FOR LABORA11 TORY SERVICES.

12 (a) IN GENERAL.—Not later than 1 year after the

13 date of the enactment of this Act, the Secretary of Health

14 and Human Services (in accordance with the process de15 scribed in subsection (b)) shall adopt uniform coverage,

16 administration, and payment policies for clinical diag17 nostic laboratory tests under part B of the medicare pro18 gram.

19 (b) PROCESS FOR ADOPTION OF POLICIES.—The

20 Secretary shall adopt uniform policies under subsection

21 (a) in accordance with the following process:

22 (1) The Secretary shall select from carriers

23 with whom the Secretary has a contract under part

24 B during 1996 15 medical directors, who will meet

25 and develop recommendations for such uniform poli-
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1 cies. The medical directors selected shall represent

2 various geographic areas and have a varied range of

3 experience in relevant medical fields, including pa4 thology and clinical laboratory practice.

5 (2) The medical directors selected under para6 graph (1) shall consult with independent experts in

7 each major discipline of clinical laboratory medicine

8 including clinical laboratory personnel, bioanalysts,

9 pathologists, and practicing physicians. The medical

10 directors shall also solicit comments from other indi11 viduals and groups who wish to participate, includ12 ing consumers and other affected parties. This proc13 ess shall be conducted as a negotiated rulemaking

14 under title 5, United States Code.

15 (3) Under the negotiated rulemaking, the rec16 ommendations for uniform policies shall be designed

17 to simplify and reduce unnecessary administrative

18 burdens in connection with the following:

19 (A) Beneficiary information required to be

20 submitted with each claim.

21 (B) Physicians’ obligations regarding docu22 mentation requirements and recordkeeping.

23 (C) Procedures for filing claims and for

24 providing remittances by electronic media.
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1 (D) The performance of post-payment re2 view of test claims.

3 (E) The prohibition of the documentation

4 of medical necessity except when determined to

5 be appropriate after identification of aberrant

6 utilization pattern through focused medical re7 view.

8 (F) Beneficiary responsibility for payment.

9 (4) During the pendency of the adoption by the

10 Secretary of the uniform policies, fiscal

11 intermediaries and carriers under the Medicare pro12 gram may not implement any new requirement relat13 ing to the submission of a claim for clinical diag14 nostic laboratory tests retroactive to January 1,

15 1996, and carriers may not initiate any new cov16 erage, administrative, or payment policy unless the

17 policy promotes the goal of administrative simplifica18 tion of requirements imposed on clinical laboratories

19 in accordance with the Secretary’s promulgation of

20 the negotiated rulemaking.

21 (5) Not later than 6 months after the date of

22 the enactment of this Act, the medical directors shall

23 submit their recommendations to the Secretary, and

24 the Secretary shall publish the recommendations and

25 solicit public comment using negotiated rulemaking
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1 in accordance with title 5, United States Code. The

2 Secretary shall publish final uniform policies for cov3 erage, administration, and payment of claims for

4 clinical diagnostic laboratory tests, effective after the

5 expiration of the 180-day period which begins on the

6 date of publication.

7 (6) After the publication of the final uniform

8 policies, the Secretary shall implement identical uni9 form documentation and processing policies for all

10 clinical diagnostic laboratory tests paid under the

11 Medicare program through fiscal intermediaries or

12 carriers.

13 (c) OPTIONAL SELECTION OF SINGLE CARRIER.—Ef14 fective for claims submitted after the expiration of the 90-

15 day period which begins on the date of the enactment of

16 this Act, an independent laboratory may select a single

17 carrier for the processing of all of its claims for payment

18 under part B of the medicare program, without regard to

19 the location where the laboratory or the patient or pro20 vider involved resides or conducts business. Such election

21 of a single carrier shall be made by the clinical laboratory

22 and an agreement made between the carrier and the lab23 oratory shall be forwarded to the Secretary of Health and

24 Human Services. Nothing in this subsection shall be con-
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1 strued to require a laboratory to select a single carrier

2 under this subsection.

3 (d) CONSISTENCY WITH GENERAL ADMINISTRATIVE

4 SIMPLIFICATION.—In complying with this section, the

5 Secretary shall ensure that the policies adopted under sub6 section (a) are consistent, to the maximum extent prac7 ticable, with part C of title XI of the Social Security Act.

8 TITLE III—TAX-RELATED

9 HEALTH PROVISIONS

10 SEC. 300. AMENDMENT OF 1986 CODE.

11 Except as otherwise expressly provided, whenever in

12 this title an amendment or repeal is expressed in terms

13 of an amendment to, or repeal of, a section or other provi14 sion, the reference shall be considered to be made to a

15 section or other provision of the Internal Revenue Code

16 of 1986.

17 Subtitle A—Medical Savings

18 Accounts

19 SEC. 301. MEDICAL SAVINGS ACCOUNTS.

20 (a) IN GENERAL.—Part VII of subchapter B of chap21 ter 1 (relating to additional itemized deductions for indi22 viduals) is amended by redesignating section 220 as sec23 tion 221 and by inserting after section 219 the following

24 new section:
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1 ‘‘SEC. 220. MEDICAL SAVINGS ACCOUNTS.

2 ‘‘(a) DEDUCTION ALLOWED.—In the case of an indi3 vidual who is an eligible individual for any month during

4 the taxable year, there shall be allowed as a deduction for

5 the taxable year an amount equal to the aggregate amount

6 paid in cash during such taxable year by such individual

7 to a medical savings account of such individual.

8 ‘‘(b) LIMITATIONS.—

9 ‘‘(1) IN GENERAL.—Except as otherwise pro10 vided in this subsection, the amount allowable as a

11 deduction under subsection (a) to an individual for

12 the taxable year shall not exceed—

13 ‘‘(A) except as provided in subparagraph

14 (B), the lesser of—

15 ‘‘(i) $2,000, or

16 ‘‘(ii) the annual deductible limit for

17 any individual covered under the high de18 ductible health plan, or

19 ‘‘(B) in the case of a high deductible

20 health plan covering the taxpayer and any other

21 eligible individual who is the spouse or any de22 pendent (as defined in section 152) of the tax23 payer, the lesser of—

24 ‘‘(i) $4,000, or
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1 ‘‘(ii) the annual limit under the plan

2 on the aggregate amount of deductibles re3 quired to be paid by all individuals.

4 The preceding sentence shall not apply if the spouse

5 of such individual is covered under any other high

6 deductible health plan.

7 ‘‘(2) SPECIAL RULE FOR MARRIED INDIVID8 UALS.—

9 ‘‘(A) IN GENERAL.—This subsection shall

10 be applied separately for each married individ11 ual.

12 ‘‘(B) SPECIAL RULE.—If individuals who

13 are married to each other are covered under the

14 same high deductible health plan, then the

15 amounts applicable under paragraph (1)(B)

16 shall be divided equally between them unless

17 they agree on a different division.

18 ‘‘(3) COORDINATION WITH EXCLUSION FOR EM19 PLOYER CONTRIBUTIONS.—No deduction shall be al20 lowed under this section for any amount paid for

21 any taxable year to a medical savings account of an

22 individual if—

23 ‘‘(A) any amount is paid to any medical

24 savings account of such individual which is ex-
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1 cludable from gross income under section

2 106(b) for such year, or

3 ‘‘(B) in a case described in paragraph (2),

4 any amount is paid to any medical savings ac5 count of either spouse which is so excludable for

6 such year.

7 ‘‘(4) PRORATION OF LIMITATION.—

8 ‘‘(A) IN GENERAL.—The limitation under

9 paragraph (1) shall be the sum of the monthly

10 limitations for months during the taxable year

11 that the individual is an eligible individual if—

12 ‘‘(i) such individual is not an eligible

13 individual for all months of the taxable

14 year,

15 ‘‘(ii) the deductible under the high de16 ductible health plan covering such individ17 ual is not the same throughout such tax18 able year, or

19 ‘‘(iii) such limitation is determined

20 under paragraph (1)(B) for some but not

21 all months during such taxable year.

22 ‘‘(B) MONTHLY LIMITATION.—The month23 ly limitation for any month shall be an amount

equal to 1 24 ⁄12 of the limitation which would (but

25 for this paragraph and paragraph (3)) be deter-
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1 mined under paragraph (1) if the facts and cir2 cumstances as of the first day of such month

3 that such individual is covered under a high de4 ductible health plan were true for the entire

5 taxable year.

6 ‘‘(5) DENIAL OF DEDUCTION TO DEPEND7 ENTS.—No deduction shall be allowed under this

8 section to any individual with respect to whom a de9 duction under section 151 is allowable to another

10 taxpayer for a taxable year beginning in the cal11 endar year in which such individual’s taxable year

12 begins.

13 ‘‘(c) DEFINITIONS.—For purposes of this section—

14 ‘‘(1) ELIGIBLE INDIVIDUAL.—

15 ‘‘(A) IN GENERAL.—The term ‘eligible in16 dividual’ means, with respect to any month, any

17 individual—

18 ‘‘(i) who is covered under a high de19 ductible health plan as of the 1st day of

20 such month, and

21 ‘‘(ii) who is not, while covered under

22 a high deductible health plan, covered

23 under any health plan—

24 ‘‘(I) which is not a high deduct25 ible health plan, and
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1 ‘‘(II) which provides coverage for

2 any benefit which is covered under the

3 high deductible health plan.

4 ‘‘(B) CERTAIN COVERAGE DIS5 REGARDED.—Subparagraph (A)(ii) shall be ap6 plied without regard to—

7 ‘‘(i) coverage for any benefit provided

8 by permitted insurance, and

9 ‘‘(ii) coverage (whether through insur10 ance or otherwise) for accidents, disability,

11 dental care, vision care, or long-term care.

12 ‘‘(2) HIGH DEDUCTIBLE HEALTH PLAN.—The

13 term ‘high deductible health plan’ means a health

14 plan which—

15 ‘‘(A) has an annual deductible limit for

16 each individual covered by the plan which is not

17 less than $1,500, and

18 ‘‘(B) has an annual limit on the aggregate

19 amount of deductibles required to be paid with

20 respect to all individuals covered by the plan

21 which is not less than $3,000.

22 Such term does not include a health plan if substan23 tially all of its coverage is coverage described in

24 paragraph (1)(B). A plan shall not fail to be treated

25 as a high deductible health plan by reason of failing
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1 to have a deductible for preventive care if the ab2 sence of a deductible for such care is required by

3 State law.

4 ‘‘(3) PERMITTED INSURANCE.—The term ‘per5 mitted insurance’ means—

6 ‘‘(A) Medicare supplemental insurance,

7 ‘‘(B) insurance if substantially all of the

8 coverage provided under such insurance relates

9 to—

10 ‘‘(i) liabilities incurred under workers’

11 compensation laws,

12 ‘‘(ii) tort liabilities,

13 ‘‘(iii) liabilities relating to ownership

14 or use of property, or

15 ‘‘(iv) such other similar liabilities as

16 the Secretary may specify by regulations,

17 ‘‘(C) insurance for a specified disease or

18 illness, and

19 ‘‘(D) insurance paying a fixed amount per

20 day (or other period) of hospitalization.

21 ‘‘(d) MEDICAL SAVINGS ACCOUNT.—For purposes of

22 this section—

23 ‘‘(1) MEDICAL SAVINGS ACCOUNT.—The term

24 ‘medical savings account’ means a trust created or

25 organized in the United States exclusively for the
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1 purpose of paying the qualified medical expenses of

2 the account holder, but only if the written governing

3 instrument creating the trust meets the following re4 quirements:

5 ‘‘(A) Except in the case of a rollover con6 tribution described in subsection (f)(5), no con7 tribution will be accepted—

8 ‘‘(i) unless it is in cash, or

9 ‘‘(ii) to the extent such contribution,

10 when added to previous contributions to

11 the trust for the calendar year, exceeds

12 $4,000.

13 ‘‘(B) The trustee is a bank (as defined in

14 section 408(n)), an insurance company (as de15 fined in section 816), or another person who

16 demonstrates to the satisfaction of the Sec17 retary that the manner in which such person

18 will administer the trust will be consistent with

19 the requirements of this section.

20 ‘‘(C) No part of the trust assets will be in21 vested in life insurance contracts.

22 ‘‘(D) The assets of the trust will not be

23 commingled with other property except in a

24 common trust fund or common investment

25 fund.
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1 ‘‘(E) The interest of an individual in the

2 balance in his account is nonforfeitable.

3 ‘‘(2) QUALIFIED MEDICAL EXPENSES.—

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

5 medical expenses’ means, with respect to an ac6 count holder, amounts paid by such holder

7 for—

8 ‘‘(i) medical care (as defined in sec9 tion 213(d)), or

10 ‘‘(ii) qualified long-term care services

11 (as defined in section 7702B(c)),

12 for such individual, the spouse of such individ13 ual, and any dependent (as defined in section

14 152) of such individual, but only to the extent

15 such amounts are not compensated for by in16 surance or otherwise.

17 ‘‘(B) HEALTH INSURANCE MAY NOT BE

18 PURCHASED FROM ACCOUNT.—

19 ‘‘(i) IN GENERAL.—Subparagraph (A)

20 shall not apply to any payment for insur21 ance.

22 ‘‘(ii) EXCEPTIONS.—Clause (i) shall

23 not apply to any expense for coverage

24 under—
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1 ‘‘(I) a health plan during any pe2 riod of continuation coverage required

3 under any Federal law,

4 ‘‘(II) a qualified long-term care

5 insurance contract (as defined in sec6 tion 7702B(b)), or

7 ‘‘(III) a health plan during a pe8 riod in which the individual is receiv9 ing unemployment compensation

10 under any Federal or State law.

11 ‘‘(C) CERTAIN PAYMENTS TO RELATIVES

12 TREATED AS NOT PAID FOR MEDICAL CARE.—

13 For purposes of subparagraph (A), an amount

14 paid for any service provided to an individual

15 shall in no event be treated as a qualified long16 term care service if such service is provided—

17 ‘‘(i) by the spouse of the individual or

18 by a relative (directly or through a part19 nership, corporation, or other entity) un20 less the service is provided by a licensed

21 professional with respect to such service, or

22 ‘‘(ii) by a corporation or partnership

23 which is related (within the meaning of

24 section 267(b) or 707(b)) to the individual.
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1 For purposes of this subparagraph, the term

2 ‘relative’ means an individual bearing a rela3 tionship to the individual which is described in

4 any of paragraphs (1) through (8) of section

5 152(a).

6 ‘‘(3) ACCOUNT HOLDER.—The term ‘account

7 holder’ means the individual on whose behalf the

8 medical savings account was established.

9 ‘‘(4) CERTAIN RULES TO APPLY.—Rules similar

10 to the following rules shall apply for purposes of this

11 section:

12 ‘‘(A) Section 219(d)(2) (relating to no de13 duction for rollovers).

14 ‘‘(B) Section 219(f)(3) (relating to time

15 when contributions deemed made).

16 ‘‘(C) Except as provided in section 106(b),

17 section 219(f)(5) (relating to employer pay18 ments).

19 ‘‘(D) Section 408(g) (relating to commu20 nity property laws).

21 ‘‘(E) Section 408(h) (relating to custodial

22 accounts).

23 ‘‘(e) TAX TREATMENT OF ACCOUNTS.—

24 ‘‘(1) IN GENERAL.—A medical savings account

25 is exempt from taxation under this subtitle unless
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1 such account has ceased to be a medical savings ac2 count by reason of paragraph (2) or (3). Notwith3 standing the preceding sentence, any such account is

4 subject to the taxes imposed by section 511 (relating

5 to imposition of tax on unrelated business income

6 of charitable, etc. organizations).

7 ‘‘(2) ACCOUNT TERMINATIONS.—Rules similar

8 to the rules of paragraphs (2) and (4) of section

9 408(e) shall apply to medical savings accounts, and

10 any amount treated as distributed under such rules

11 shall be treated as not used to pay qualified medical

12 expenses.

13 ‘‘(f) TAX TREATMENT OF DISTRIBUTIONS.—

14 ‘‘(1) AMOUNTS USED FOR QUALIFIED MEDICAL

15 EXPENSES.—

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

17 distributed out of a medical savings account

18 which is used exclusively to pay qualified medi19 cal expenses of any account holder (or any

20 spouse or dependent of the holder) shall not be

21 includible in gross income.

22 ‘‘(B) TREATMENT AFTER DEATH OF AC23 COUNT HOLDER.—

24 ‘‘(i) TREATMENT IF HOLDER IS

25 SPOUSE.—If, after the death of the ac-
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1 count holder, the account holder’s interest

2 is payable to (or for the benefit of) the

3 holder’s spouse, the medical savings ac4 count shall be treated as if the spouse were

5 the account holder.

6 ‘‘(ii) TREATMENT IF DESIGNATED

7 HOLDER IS NOT SPOUSE.—In the case of

8 an account holder’s interest in a medical

9 savings account which is payable to (or for

10 the benefit of) any person other than such

11 holder’s spouse upon the death of such

12 holder—

13 ‘‘(I) such account shall cease to

14 be a medical savings account as of the

15 date of death, and

16 ‘‘(II) an amount equal to the fair

17 market value of the assets in such ac18 count on such date shall be includible

19 if such person is not the estate of

20 such holder, in such person’s gross in21 come for the taxable year which in22 cludes such date, or if such person is

23 the estate of such holder, in such

24 holder’s gross income for the last tax25 able year of such holder.
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1 ‘‘(2) INCLUSION OF AMOUNTS NOT USED FOR

2 QUALIFIED MEDICAL EXPENSES.—

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

4 distributed out of a medical savings account

5 which is not used exclusively to pay the quali6 fied medical expenses of the account holder or

7 of the spouse or dependents of such holder shall

8 be included in the gross income of such holder.

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

10 subparagraph (A)—

11 ‘‘(i) all medical savings accounts of

12 the account holder shall be treated as 1 ac13 count,

14 ‘‘(ii) all payments and distributions

15 during any taxable year shall be treated as

16 1 distribution, and

17 ‘‘(iii) any distribution of property

18 shall be taken into account at its fair mar19 ket value on the date of the distribution.

20 ‘‘(3) EXCESS CONTRIBUTIONS RETURNED BE21 FORE DUE DATE OF RETURN.—Paragraph (2) shall

22 not apply to the distribution of any contribution paid

23 during a taxable year to a medical savings account

24 to the extent that such contribution exceeds the

25 amount under subsection (d)(1)(A)(ii) if—
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1 ‘‘(A) such distribution is received by the

2 individual on or before the last day prescribed

3 by law (including extensions of time) for filing

4 such individual’s return for such taxable year,

5 and

6 ‘‘(B) such distribution is accompanied by

7 the amount of net income attributable to such

8 excess contribution.

9 Any net income described in subparagraph (B) shall

10 be included in the gross income of the individual for

11 the taxable year in which it is received.

12 ‘‘(4) PENALTY FOR DISTRIBUTIONS NOT USED

13 FOR QUALIFIED MEDICAL EXPENSES.—

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

15 this chapter on the account holder for any tax16 able year in which there is a payment or dis17 tribution from a medical savings account of

18 such holder which is includible in gross income

19 under paragraph (2) shall be increased by 10

20 percent of the amount which is so includible.

21 ‘‘(B) EXCEPTION FOR DISABILITY OR

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

23 the payment or distribution is made after the

24 account holder becomes disabled within the

25 meaning of section 72(m)(7) or dies.
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1 ‘‘(C) EXCEPTION FOR DISTRIBUTIONS

AFTER AGE 591 2 ⁄2.—Subparagraph (A) shall not

3 apply to any payment or distribution after the

4 date on which the account holder attains age

591 5 ⁄2.

6 ‘‘(5) ROLLOVER CONTRIBUTION.—An amount is

7 described in this paragraph as a rollover contribu8 tion if it meets the requirements of subparagraphs

9 (A) and (B).

10 ‘‘(A) IN GENERAL.—Paragraph (2) shall

11 not apply to any amount paid or distributed

12 from a medical savings account to the account

13 holder to the extent the amount received is paid

14 into a medical savings account for the benefit

15 of such holder not later than the 60th day after

16 the day on which the holder receives the pay17 ment or distribution.

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

19 not apply to any amount described in subpara20 graph (A) received by an individual from a

21 medical savings account if, at any time during

22 the 1-year period ending on the day of such re23 ceipt, such individual received any other amount

24 described in subparagraph (A) from a medical

25 savings account which was not includible in the
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1 individual’s gross income because of the appli2 cation of this paragraph.

3 ‘‘(6) COORDINATION WITH MEDICAL EXPENSE

4 DEDUCTION.—For purposes of determining the

5 amount of the deduction under section 213, any pay6 ment or distribution out of a medical savings ac7 count for qualified medical expenses shall not be

8 treated as an expense paid for medical care.

9 ‘‘(7) TRANSFER OF ACCOUNT INCIDENT TO DI10 VORCE.—The transfer of an individual’s interest in

11 a medical savings account to an individual’s spouse

12 or former spouse under a divorce or separation in13 strument described in subparagraph (A) of section

14 71(b)(2) shall not be considered a taxable transfer

15 made by such individual notwithstanding any other

16 provision of this subtitle, and such interest shall,

17 after such transfer, be treated as a medical savings

18 account with respect to which the spouse is the ac19 count holder.

20 ‘‘(g) COST-OF-LIVING ADJUSTMENT.—

21 ‘‘(1) IN GENERAL.—In the case of any taxable

22 year beginning in a calendar year after 1997, each

23 dollar amount in subsection (b)(1), (c)(2), or

24 (d)(1)(A) shall be increased by an amount equal

25 to—
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1 ‘‘(A) such dollar amount, multiplied by

2 ‘‘(B) the medical care cost adjustment for

3 such calendar year.

4 If any increase under the preceding sentence is not

5 a multiple of $50, such increase shall be rounded to

6 the nearest multiple of $50.

7 ‘‘(2) MEDICAL CARE COST ADJUSTMENT.—For

8 purposes of paragraph (1), the medical care cost ad9 justment for any calendar year is the percentage (if

10 any) by which—

11 ‘‘(A) the medical care component of the

12 Consumer Price Index (as defined in section

13 1(f)(5)) for August of the preceding calendar

14 year, exceeds

15 ‘‘(B) such component for August of 1996.

16 ‘‘(h) REPORTS.—The Secretary may require the

17 trustee of a medical savings account to make such reports

18 regarding such account to the Secretary and to the ac19 count holder with respect to contributions, distributions,

20 and such other matters as the Secretary determines appro21 priate. The reports required by this subsection shall be

22 filed at such time and in such manner and furnished to

23 such individuals at such time and in such manner as may

24 be required by those regulations.’’
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1 (b) DEDUCTION ALLOWED WHETHER OR NOT INDI2 VIDUAL ITEMIZES OTHER DEDUCTIONS.—Subsection (a)

3 of section 62 is amended by inserting after paragraph (15)

4 the following new paragraph:

5 ‘‘(16) MEDICAL SAVINGS ACCOUNTS.—The de6 duction allowed by section 220.’’

7 (c) EXCLUSIONS FOR EMPLOYER CONTRIBUTIONS TO

8 MEDICAL SAVINGS ACCOUNTS.—

9 (1) EXCLUSION FROM INCOME TAX.—The text

10 of section 106 (relating to contributions by employer

11 to accident and health plans) is amended to read as

12 follows:

13 ‘‘(a) GENERAL RULE.—Gross income of an employee

14 does not include employer-provided coverage under an ac15 cident or health plan.

16 ‘‘(b) CONTRIBUTIONS TO MEDICAL SAVINGS AC17 COUNTS.—

18 ‘‘(1) IN GENERAL.—In the case of an employee

19 who is an eligible individual, gross income does not

20 include amounts contributed by such employee’s em21 ployer to any medical savings account of such em22 ployee.

23 ‘‘(2) COORDINATION WITH DEDUCTION LIMITA24 TION.—The amount excluded from the gross income

25 of an employee under this subsection for any taxable
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1 year shall not exceed the limitation under section

2 220(b)(1) (determined without regard to this sub3 section) which is applicable to such employee for

4 such taxable year.

5 ‘‘(3) NO CONSTRUCTIVE RECEIPT.—No amount

6 shall be included in the gross income of any em7 ployee solely because the employee may choose be8 tween the contributions referred to in paragraph (1)

9 and employer contributions to another health plan of

10 the employer.

11 ‘‘(4) SPECIAL RULE FOR DEDUCTION OF EM12 PLOYER CONTRIBUTIONS.—Any employer contribu13 tion to a medical savings account, if otherwise allow14 able as a deduction under this chapter, shall be al15 lowed only for the taxable year in which paid.

16 ‘‘(5) DEFINITIONS.—For purposes of this sub17 section, the terms ‘eligible individual’ and ‘medical

18 savings account’ have the respective meanings given

19 to such terms by section 220.’’

20 (2) EXCLUSION FROM EMPLOYMENT TAXES.—

21 (A) SOCIAL SECURITY TAXES.—

22 (i) Subsection (a) of section 3121 is

23 amended by striking ‘‘or’’ at the end of

24 paragraph (20), by striking the period at

25 the end of paragraph (21) and inserting ‘‘;
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1 or’’, and by inserting after paragraph (21)

2 the following new paragraph:

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

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

5 reasonable to believe that the employee will be able

6 to exclude such payment from income under section

7 106(b).’’

8 (ii) Subsection (a) of section 209 of

9 the Social Security Act is amended by

10 striking ‘‘or’’ at the end of paragraph (17),

11 by striking the period at the end of para12 graph (18) and inserting ‘‘; or’’, and by in13 serting after paragraph (18) the following

14 new paragraph:

15 ‘‘(19) any payment made to or for the benefit

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

17 reasonable to believe that the employee will be able

18 to exclude such payment from income under section

19 106(b) of the Internal Revenue Code of 1986.’’

20 (B) RAILROAD RETIREMENT TAX.—Sub21 section (e) of section 3231 is amended by add22 ing at the end the following new paragraph:

23 ‘‘(10) MEDICAL SAVINGS ACCOUNT CONTRIBU24 TIONS.—The term ‘compensation’ shall not include

25 any payment made to or for the benefit of an em-
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1 ployee if at the time of such payment it is reason2 able to believe that the employee will be able to ex3 clude such payment from income under section

4 106(b).’’

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

6 of section 3306 is amended by striking ‘‘or’’ at

7 the end of paragraph (15), by striking the pe8 riod at the end of paragraph (16) and inserting

9 ‘‘; or’’, and by inserting after paragraph (16)

10 the following new paragraph:

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

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

13 reasonable to believe that the employee will be able

14 to exclude such payment from income under section

15 106(b).’’

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

17 of section 3401 is amended by striking ‘‘or’’ at

18 the end of paragraph (19), by striking the pe19 riod at the end of paragraph (20) and inserting

20 ‘‘; or’’, and by inserting after paragraph (20)

21 the following new paragraph:

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

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

24 reasonable to believe that the employee will be able
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1 to exclude such payment from income under section

2 106(b).’’

3 (d) MEDICAL SAVINGS ACCOUNT CONTRIBUTIONS

4 NOT AVAILABLE UNDER CAFETERIA PLANS.—Subsection

5 (f) of section 125 of such Code is amended by inserting

6 ‘‘106(b),’’ before ‘‘117’’.

7 (e) EXCLUSION OF MEDICAL SAVINGS ACCOUNTS

8 FROM ESTATE TAX.—Part IV of subchapter A of chapter

9 11 is amended by adding at the end the following new

10 section:

11 ‘‘SEC. 2057. MEDICAL SAVINGS ACCOUNTS.

12 ‘‘For purposes of the tax imposed by section 2001,

13 the value of the taxable estate shall be determined by de14 ducting from the value of the gross estate an amount

15 equal to the value of any medical savings account (as de16 fined in section 220(d)) included in the gross estate.’’

17 (f) TAX ON EXCESS CONTRIBUTIONS.—Section 4973

18 (relating to tax on excess contributions to individual re19 tirement accounts, certain section 403(b) contracts, and

20 certain individual retirement annuities) is amended—

21 (1) by inserting ‘‘MEDICAL SAVINGS AC22 COUNTS,’’ after ‘‘ACCOUNTS,’’ in the heading of

23 such section,

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

25 (1) of subsection (a),
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1 (3) by redesignating paragraph (2) of sub2 section (a) as paragraph (3) and by inserting after

3 paragraph (1) the following:

4 ‘‘(2) a medical savings account (within the

5 meaning of section 220(d)), or’’, and

6 (4) by adding at the end the following new sub7 section:

8 ‘‘(d) EXCESS CONTRIBUTIONS TO MEDICAL SAVINGS

9 ACCOUNTS.—For purposes of this section, in the case of

10 a medical savings account (within the meaning of section

11 220(d)), the term ‘excess contributions’ means the sum

12 of—

13 ‘‘(1) the amount by which the amount contrib14 uted for the taxable year to the account exceeds the

15 amount which may be contributed to the account

16 under section 220(d)(1)(B)(ii) for such taxable year,

17 and

18 ‘‘(2) the amount determined under this sub19 section for the preceding taxable year, reduced by

20 the sum of distributions out of the account included

21 in gross income under section 220(f) (2) or (3) and

22 the excess (if any) of the maximum amount allow23 able as a deduction under section 220 for the tax24 able year over the amount contributed.
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1 For purposes of this subsection, any contribution which

2 is distributed out of the medical savings account in a dis3 tribution to which section 220(f)(3) applies shall be treat4 ed as an amount not contributed.’’

5 (g) TAX ON PROHIBITED TRANSACTIONS.—

6 (1) Section 4975 (relating to tax on prohibited

7 transactions) is amended by adding at the end of

8 subsection (c) the following new paragraph:

9 ‘‘(4) SPECIAL RULE FOR MEDICAL SAVINGS AC10 COUNTS.—An individual for whose benefit a medical

11 savings account (within the meaning of section

12 220(d)) is established shall be exempt from the tax

13 imposed by this section with respect to any trans14 action concerning such account (which would other15 wise be taxable under this section) if, with respect

16 to such transaction, the account ceases to be a medi17 cal savings account by reason of the application of

18 section 220(e)(2) to such account.’’

19 (2) Paragraph (1) of section 4975(e) is amend20 ed to read as follows:

21 ‘‘(1) PLAN.—For purposes of this section, the

22 term ‘plan’ means—

23 ‘‘(A) a trust described in section 401(a)

24 which forms a part of a plan, or a plan de-
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1 scribed in section 403(a), which trust or plan is

2 exempt from tax under section 501(a),

3 ‘‘(B) an individual retirement account de4 scribed in section 408(a),

5 ‘‘(C) an individual retirement annuity de6 scribed in section 408(b),

7 ‘‘(D) a medical savings account described

8 in section 220(d), or

9 ‘‘(E) a trust, plan, account, or annuity

10 which, at any time, has been determined by the

11 Secretary to be described in any preceding sub12 paragraph of this paragraph.’’

13 (h) FAILURE TO PROVIDE REPORTS ON MEDICAL

14 SAVINGS ACCOUNTS.—

15 (1) Subsection (a) of section 6693 (relating to

16 failure to provide reports on individual retirement

17 accounts or annuities) is amended to read as follows:

18 ‘‘(a) REPORTS.—

19 ‘‘(1) IN GENERAL.—If a person required to file

20 a report under a provision referred to in paragraph

21 (2) fails to file such report at the time and in the

22 manner required by such provision, such person

23 shall pay a penalty of $50 for each failure unless it

24 is shown that such failure is due to reasonable

25 cause.
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1 ‘‘(2) PROVISIONS.—The provisions referred to

2 in this paragraph are—

3 ‘‘(A) subsections (i) and (l) of section 408

4 (relating to individual retirement plans), and

5 ‘‘(B) section 220(h) (relating to medical

6 savings accounts).’’

7 (i) EXCEPTION FROM CAPITALIZATION OF POLICY

8 ACQUISITION EXPENSES.—Subparagraph (B) of section

9 848(e)(1) (defining specified insurance contract) is

10 amended by striking ‘‘and’’ at the end of clause (ii), by

11 striking the period at the end of clause (iii) and inserting

12 ‘‘, and’’, and by adding at the end the following new

13 clause:

14 ‘‘(iv) any contract which is a medical

15 savings account (as defined in section

16 220(d)).’’.

17 (j) CLERICAL AMENDMENT.—The table of sections

18 for part VII of subchapter B of chapter 1 is amended by

19 striking the last item and inserting the following:

‘‘Sec. 220. Medical savings accounts.

‘‘Sec. 221. Cross reference.’’

20 (k) EFFECTIVE DATE.—The amendments made by

21 this section shall apply to taxable years beginning after

22 December 31, 1996.
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1 Subtitle B—Increase in Deduction

2 for Health Insurance Costs of

3 Self-Employed Individuals

4 SEC. 311. INCREASE IN DEDUCTION FOR HEALTH INSUR5 ANCE COSTS OF SELF-EMPLOYED INDIVID6 UALS.

7 (a) IN GENERAL.—Paragraph (1) of section 162(l)

8 is amended to read as follows:

9 ‘‘(1) ALLOWANCE OF DEDUCTION.—

10 ‘‘(A) IN GENERAL.—In the case of an indi11 vidual who is an employee within the meaning

12 of section 401(c)(1), there shall be allowed as

13 a deduction under this section an amount equal

14 to the applicable percentage of the amount paid

15 during the taxable year for insurance which

16 constitutes medical care for the taxpayer, his

17 spouse, and dependents.

18 ‘‘(B) APPLICABLE PERCENTAGE.—For

19 purposes of subparagraph (A), the applicable

20 percentage shall be determined under the fol21 lowing table:

‘‘For taxable years beginning in The applicable

calendar year— percentage is—

1998, 1999, or 2000 ......................................................... 35 percent

2001 or 2002 .................................................................... 40 percent

2003 or thereafter ............................................................. 50 percent.’’
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1 (b) EFFECTIVE DATE.—The amendment made by

2 this section shall apply to taxable years beginning after

3 December 31, 1997.

4 Subtitle C—Long-Term Care

5 Services and Contracts

6 PART I—GENERAL PROVISIONS

7 SEC. 321. TREATMENT OF LONG-TERM CARE INSURANCE.

8 (a) GENERAL RULE.—Chapter 79 (relating to defini9 tions) is amended by inserting after section 7702A the fol10 lowing new section:

11 ‘‘SEC. 7702B. TREATMENT OF QUALIFIED LONG-TERM CARE

12 INSURANCE.

13 ‘‘(a) IN GENERAL.—For purposes of this title—

14 ‘‘(1) a qualified long-term care insurance con15 tract shall be treated as an accident and health in16 surance contract,

17 ‘‘(2) amounts (other than policyholder divi18 dends, as defined in section 808, or premium re19 funds) received under a qualified long-term care in20 surance contract shall be treated as amounts re21 ceived for personal injuries and sickness and shall be

22 treated as reimbursement for expenses actually in23 curred for medical care (as defined in section

24 213(d)),
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1 ‘‘(3) any plan of an employer providing cov2 erage under a qualified long-term care insurance

3 contract shall be treated as an accident and health

4 plan with respect to such coverage,

5 ‘‘(4) except as provided in subsection (e)(3),

6 amounts paid for a qualified long-term care insur7 ance contract providing the benefits described in

8 subsection (b)(2)(A) shall be treated as payments

9 made for insurance for purposes of section

10 213(d)(1)(D), and

11 ‘‘(5) a qualified long-term care insurance con12 tract shall be treated as a guaranteed renewable con13 tract subject to the rules of section 816(e).

14 ‘‘(b) QUALIFIED LONG-TERM CARE INSURANCE

15 CONTRACT.—For purposes of this title—

16 ‘‘(1) IN GENERAL.—The term ‘qualified long17 term care insurance contract’ means any insurance

18 contract if—

19 ‘‘(A) the only insurance protection pro20 vided under such contract is coverage of quali21 fied long-term care services,

22 ‘‘(B) such contract does not pay or reim23 burse expenses incurred for services or items to

24 the extent that such expenses are reimbursable

25 under title XVIII of the Social Security Act or
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1 would be so reimbursable but for the applica2 tion of a deductible or coinsurance amount,

3 ‘‘(C) such contract is guaranteed renew4 able,

5 ‘‘(D) such contract does not provide for a

6 cash surrender value or other money that can

7 be—

8 ‘‘(i) paid, assigned, or pledged as col9 lateral for a loan, or

10 ‘‘(ii) borrowed,

11 other than as provided in subparagraph (E) or

12 paragraph (2)(C),

13 ‘‘(E) all refunds of premiums, and all pol14 icyholder dividends or similar amounts, under

15 such contract are to be applied as a reduction

16 in future premiums or to increase future bene17 fits, and

18 ‘‘(F) such contract meets the requirements

19 of subsection (f).

20 ‘‘(2) SPECIAL RULES.—

21 ‘‘(A) PER DIEM, ETC. PAYMENTS PER22 MITTED.—A contract shall not fail to be de23 scribed in subparagraph (A) or (B) of para24 graph (1) by reason of payments being made on

25 a per diem or other periodic basis without re-
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1 gard to the expenses incurred during the period

2 to which the payments relate.

3 ‘‘(B) SPECIAL RULES RELATING TO MEDI4 CARE.—

5 ‘‘(i) Paragraph (1)(B) shall not apply

6 to expenses which are reimbursable under

7 title XVIII of the Social Security Act only

8 as a secondary payor.

9 ‘‘(ii) No provision of law shall be con10 strued or applied so as to prohibit the of11 fering of a qualified long-term care insur12 ance contract on the basis that the con13 tract coordinates its benefits with those

14 provided under such title.

15 ‘‘(C) REFUNDS OF PREMIUMS.—Paragraph

16 (1)(E) shall not apply to any refund on the

17 death of the insured, or on a complete surren18 der or cancellation of the contract, which can19 not exceed the aggregate premiums paid under

20 the contract. Any refund on a complete surren21 der or cancellation of the contract shall be in22 cludible in gross income to the extent that any

23 deduction or exclusion was allowable with re24 spect to the premiums.
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1 ‘‘(c) QUALIFIED LONG-TERM CARE SERVICES.—For

2 purposes of this section—

3 ‘‘(1) IN GENERAL.—The term ‘qualified long4 term care services’ means necessary diagnostic, pre5 ventive, therapeutic, curing, treating, mitigating, and

6 rehabilitative services, and maintenance or personal

7 care services, which—

8 ‘‘(A) are required by a chronically ill indi9 vidual, and

10 ‘‘(B) are provided pursuant to a plan of

11 care prescribed by a licensed health care practi12 tioner.

13 ‘‘(2) CHRONICALLY ILL INDIVIDUAL.—

14 ‘‘(A) IN GENERAL.—The term ‘chronically

15 ill individual’ means any individual who has

16 been certified by a licensed health care practi17 tioner as—

18 ‘‘(i) being unable to perform (without

19 substantial assistance from another indi20 vidual) at least 2 activities of daily living

21 for a period of at least 90 days due to a

22 loss of functional capacity,

23 ‘‘(ii) having a level of disability simi24 lar (as determined by the Secretary in con25 sultation with the Secretary of Health and
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1 Human Services) to the level of disability

2 described in clause (i), or

3 ‘‘(iii) requiring substantial supervision

4 to protect such individual from threats to

5 health and safety due to severe cognitive

6 impairment.

7 Such term shall not include any individual oth8 erwise meeting the requirements of the preced9 ing sentence unless within the preceding 12-

10 month period a licensed health care practitioner

11 has certified that such individual meets such re12 quirements.

13 ‘‘(B) ACTIVITIES OF DAILY LIVING.—For

14 purposes of subparagraph (A), each of the fol15 lowing is an activity of daily living:

16 ‘‘(i) Eating.

17 ‘‘(ii) Toileting.

18 ‘‘(iii) Transferring.

19 ‘‘(iv) Bathing.

20 ‘‘(v) Dressing.

21 ‘‘(vi) Continence.

22 Nothing in this section shall be construed to re23 quire a contract to take into account all of the

24 preceding activities of daily living.
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1 ‘‘(3) MAINTENANCE OR PERSONAL CARE SERV2 ICES.—The term ‘maintenance or personal care serv3 ices’ means any care the primary purpose of which

4 is the provision of needed assistance with any of the

5 disabilities as a result of which the individual is a

6 chronically ill individual (including the protection

7 from threats to health and safety due to severe cog8 nitive impairment).

9 ‘‘(4) LICENSED HEALTH CARE PRACTI10 TIONER.—The term ‘licensed health care practi11 tioner’ means any physician (as defined in section

12 1861(r)(1) of the Social Security Act) and any reg13 istered professional nurse, licensed social worker, or

14 other individual who meets such requirements as

15 may be prescribed by the Secretary.

16 ‘‘(d) AGGREGATE PAYMENTS IN EXCESS OF LIM17 ITS.—

18 ‘‘(1) IN GENERAL.—If the aggregate amount of

19 periodic payments under all qualified long-term care

20 insurance contracts with respect to an insured for

21 any period exceeds the dollar amount in effect for

22 such period under paragraph (3), such excess pay23 ments shall be treated as made for qualified long24 term care services only to the extent of the costs in25 curred by the payee (not otherwise compensated for
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1 by insurance or otherwise) for qualified long-term

2 care services provided during such period for such

3 insured.

4 ‘‘(2) PERIODIC PAYMENTS.—For purposes of

5 paragraph (1), the term ‘periodic payment’ means

6 any payment (whether on a periodic basis or other7 wise) made without regard to the extent of the costs

8 incurred by the payee for qualified long-term care

9 services.

10 ‘‘(3) DOLLAR AMOUNT.—The dollar amount in

11 effect under this subsection shall be $175 per day

12 (or the equivalent amount in the case of payments

13 on another periodic basis).

14 ‘‘(4) INFLATION ADJUSTMENT.—In the case of

15 a calendar year after 1997, the dollar amount con16 tained in paragraph (3) shall be increased at the

17 same time and in the same manner as amounts are

18 increased pursuant to section 213(d)(10).

19 ‘‘(e) TREATMENT OF COVERAGE PROVIDED AS PART

20 OF A LIFE INSURANCE CONTRACT.—Except as otherwise

21 provided in regulations prescribed by the Secretary, in the

22 case of any long-term care insurance coverage (whether

23 or not qualified) provided by a rider on or as part of a

24 life insurance contract—
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1 ‘‘(1) IN GENERAL.—This section shall apply as

2 if the portion of the contract providing such cov3 erage is a separate contract.

4 ‘‘(2) APPLICATION OF 7702.—Section

5 7702(c)(2) (relating to the guideline premium limi6 tation) shall be applied by increasing the guideline

7 premium limitation with respect to a life insurance

8 contract, as of any date—

9 ‘‘(A) by the sum of any charges (but not

10 premium payments) against the life insurance

11 contract’s cash surrender value (within the

12 meaning of section 7702(f)(2)(A)) for such cov13 erage made to that date under the contract, less

14 ‘‘(B) any such charges the imposition of

15 which reduces the premiums paid for the con16 tract (within the meaning of section

17 7702(f)(1)).

18 ‘‘(3) APPLICATION OF SECTION 213.—No deduc19 tion shall be allowed under section 213(a) for

20 charges against the life insurance contract’s cash

21 surrender value described in paragraph (2), unless

22 such charges are includible in income as a result of

23 the application of section 72(e)(10) and the rider is

24 a qualified long-term care insurance contract under

25 subsection (b).
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1 ‘‘(4) PORTION DEFINED.—For purposes of this

2 subsection, the term ‘portion’ means only the terms

3 and benefits under a life insurance contract that are

4 in addition to the terms and benefits under the con5 tract without regard to the coverage under a quali6 fied long-term care insurance contract.’’

7 (b) LONG-TERM CARE INSURANCE NOT PERMITTED

8 UNDER CAFETERIA PLANS OR FLEXIBLE SPENDING AR9 RANGEMENTS.—

10 (1) CAFETERIA PLANS.—Section 125(f) is

11 amended by adding at the end the following new

12 sentence: ‘‘Such term shall not include any long13 term care insurance contract (as defined in section

14 4980C).’’

15 (2) FLEXIBLE SPENDING ARRANGEMENTS.—

16 The text of section 106 (relating to contributions by

17 employer to accident and health plans) is amended

18 to read as follows:

19 ‘‘(a) GENERAL RULE.—Except as provided in sub20 section (b), gross income of an employee does not include

21 employer-provided coverage under an accident or health

22 plan.

23 ‘‘(b) INCLUSION OF LONG-TERM CARE BENEFITS

24 PROVIDED THROUGH FLEXIBLE SPENDING ARRANGE25 MENTS.—
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1 ‘‘(1) IN GENERAL.—Effective on and after Jan2 uary 1, 1997, gross income of an employee shall in3 clude employer-provided coverage for qualified long4 term care services (as defined in section 7702B(c))

5 to the extent that such coverage is provided through

6 a flexible spending or similar arrangement.

7 ‘‘(2) FLEXIBLE SPENDING ARRANGEMENT.—

8 For purposes of this subsection, a flexible spending

9 arrangement is a benefit program which provides

10 employees with coverage under which—

11 ‘‘(A) specified incurred expenses may be

12 reimbursed (subject to reimbursement maxi13 mums and other reasonable conditions), and

14 ‘‘(B) the maximum amount of reimburse15 ment which is reasonably available to a partici16 pant for such coverage is less than 500 percent

17 of the value of such coverage.

18 In the case of an insured plan, the maximum

19 amount reasonably available shall be determined on

20 the basis of the underlying coverage.’’

21 (c) CONTINUATION COVERAGE EXCISE TAX NOT TO

22 APPLY.—Subsection (f) of section 4980B is amended by

23 adding at the end the following new paragraph:

24 ‘‘(9) CONTINUATION OF LONG-TERM CARE COV25 ERAGE NOT REQUIRED.—A group health plan shall
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1 not be treated as failing to meet the requirements of

2 this subsection solely by reason of failing to provide

3 coverage under any qualified long-term care insur4 ance contract (as defined in section 7702B(b)).’’

5 (d) CLERICAL AMENDMENT.—The table of sections

6 for chapter 79 is amended by inserting after the item re7 lating to section 7702A the following new item:

‘‘Sec. 7702B. Treatment of qualified long-term care insurance.’’.

8 (e) EFFECTIVE DATE.—

9 (1) IN GENERAL.—The amendments made by

10 this section shall apply to contracts issued after De11 cember 31, 1996.

12 (2) CONTINUATION OF EXISTING POLICIES.—In

13 the case of any contract issued before January 1,

14 1997, which met the long-term care insurance re15 quirements of the State in which the contract was

16 sitused at the time the contract was issued—

17 (A) such contract shall be treated for pur18 poses of the Internal Revenue Code of 1986 as

19 a qualified long-term care insurance contract

20 (as defined in section 7702B(b) of such Code),

21 and

22 (B) services provided under, or reimbursed

23 by, such contract shall be treated for such pur24 poses as qualified long-term care services (as

25 defined in section 7702B(c) of such Code).
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1 (3) EXCHANGES OF EXISTING POLICIES.—If,

2 after the date of enactment of this Act and before

3 January 1, 1998, a contract providing for long-term

4 care insurance coverage is exchanged solely for a

5 qualified long-term care insurance contract (as de6 fined in section 7702B(b) of such Code), no gain or

7 loss shall be recognized on the exchange. If, in addi8 tion to a qualified long-term care insurance contract,

9 money or other property is received in the exchange,

10 then any gain shall be recognized to the extent of

11 the sum of the money and the fair market value of

12 the other property received. For purposes of this

13 paragraph, the cancellation of a contract providing

14 for long-term care insurance coverage and reinvest15 ment of the cancellation proceeds in a qualified long16 term care insurance contract within 60 days there17 after shall be treated as an exchange.

18 (4) ISSUANCE OF CERTAIN RIDERS PER19 MITTED.—For purposes of applying sections 101(f),

20 7702, and 7702A of the Internal Revenue Code of

21 1986 to any contract—

22 (A) the issuance of a rider which is treated

23 as a qualified long-term care insurance contract

24 under section 7702B, and
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1 (B) the addition of any provision required

2 to conform any other long-term care rider to be

3 so treated,

4 shall not be treated as a modification or material

5 change of such contract.

6 SEC. 322. PREMIUMS FOR QUALIFIED LONG-TERM CARE IN7 SURANCE TREATED AS PAYMENT FOR MEDI8 CAL CARE.

9 (a) GENERAL RULE.—Paragraph (1) of section

10 213(d) (defining medical care) is amended by striking

11 ‘‘or’’ at the end of subparagraph (B), by striking the pe12 riod at the end of subparagraph (C) and inserting ‘‘, or’’,

13 and by adding at the end the following new subparagraph:

14 ‘‘(D) for eligible long-term care pre15 miums.’’

16 (b) ELIGIBLE LONG-TERM CARE PREMIUMS.—Sub17 section (d) of section 213 is amended by adding at the

18 end the following new paragraph:

19 ‘‘(10) ELIGIBLE LONG-TERM CARE PRE20 MIUMS.—

21 ‘‘(A) IN GENERAL.—For purposes of this

22 section, the term ‘eligible long-term care pre23 miums’ means the amount paid during a tax24 able year for any qualified long-term care insur25 ance contract (as defined in section 7702B(b))
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1 covering an individual, to the extent such

2 amount does not exceed the limitation deter3 mined under the following table:

‘‘In the case of an individual

with an attained age before the The limitation

close of the taxable year of: is:

40 or less ................................................... $200

More than 40 but not more than 50 ......... 375

More than 50 but not more than 60 ......... 750

More than 60 but not more than 70 ......... 2,000

More than 70 ............................................. 2,500.

4 ‘‘(B) INDEXING.—

5 ‘‘(i) IN GENERAL.—In the case of any

6 taxable year beginning in a calendar year

7 after 1997, each dollar amount contained

8 in subparagraph (A) shall be increased by

9 the medical care cost adjustment of such

10 amount for such calendar year. If any in11 crease determined under the preceding sen12 tence is not a multiple of $10, such in13 crease shall be rounded to the nearest mul14 tiple of $10.

15 ‘‘(ii) MEDICAL CARE COST ADJUST16 MENT.—For purposes of clause (i), the

17 medical care cost adjustment for any cal18 endar year is the percentage (if any) by

19 which—

20 ‘‘(I) the medical care component

21 of the Consumer Price Index (as de-
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1 fined in section 1(f)(5)) for August of

2 the preceding calendar year, exceeds

3 ‘‘(II) such component for August

4 of 1996.

5 The Secretary shall, in consultation with

6 the Secretary of Health and Human Serv7 ices, prescribe an adjustment which the

8 Secretary determines is more appropriate

9 for purposes of this paragraph than the

10 adjustment described in the preceding sen11 tence, and the adjustment so prescribed

12 shall apply in lieu of the adjustment de13 scribed in the preceding sentence.’’

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

15 this section shall apply to taxable years beginning after

16 December 31, 1996.

17 SEC. 323. REPORTING REQUIREMENTS.

18 (a) IN GENERAL.—Subpart B of part III of sub19 chapter A of chapter 61 is amended by adding at the end

20 the following new section:

21 ‘‘SEC. 6050Q. CERTAIN LONG-TERM CARE BENEFITS.

22 ‘‘(a) REQUIREMENT OF REPORTING.—Any person

23 who pays long-term care benefits shall make a return, ac24 cording to the forms or regulations prescribed by the Sec25 retary, setting forth—
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1 ‘‘(1) the aggregate amount of such benefits

2 paid by such person to any individual during any

3 calendar year, and

4 ‘‘(2) the name, address, and TIN of such indi5 vidual.

6 ‘‘(b) STATEMENTS TO BE FURNISHED TO PERSONS

7 WITH RESPECT TO WHOM INFORMATION IS REQUIRED.—

8 Every person required to make a return under subsection

9 (a) shall furnish to each individual whose name is required

10 to be set forth in such return a written statement show11 ing—

12 ‘‘(1) the name of the person making the pay13 ments, and

14 ‘‘(2) the aggregate amount of long-term care

15 benefits paid to the individual which are required to

16 be shown on such return.

17 The written statement required under the preceding sen18 tence shall be furnished to the individual on or before Jan19 uary 31 of the year following the calendar year for which

20 the return under subsection (a) was required to be made.

21 ‘‘(c) LONG-TERM CARE BENEFITS.—For purposes of

22 this section, the term ‘long-term care benefit’ means any

23 amount paid under a long-term care insurance policy

24 (within the meaning of section 4980C(e)).’’.

25 (b) PENALTIES.—
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1 (1) Subparagraph (B) of section 6724(d)(1) is

2 amended by redesignating clauses (ix) through (xiv)

3 as clauses (x) through (xv), respectively, and by in4 serting after clause (viii) the following new clause:

5 ‘‘(ix) section 6050Q (relating to cer6 tain long-term care benefits),’’.

7 (2) Paragraph (2) of section 6724(d) is amend8 ed by redesignating subparagraphs (Q) through (T)

9 as subparagraphs (R) through (U), respectively, and

10 by inserting after subparagraph (P) the following

11 new subparagraph:

12 ‘‘(Q) section 6050Q(b) (relating to certain

13 long-term care benefits),’’.

14 (c) CLERICAL AMENDMENT.—The table of sections

15 for subpart B of part III of subchapter A of chapter 61

16 is amended by adding at the end the following new item:

‘‘Sec. 6050Q. Certain long-term care benefits.’’

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

18 this section shall apply to benefits paid after December

19 31, 1996.

20 PART II—CONSUMER PROTECTION PROVISIONS

21 SEC. 325. POLICY REQUIREMENTS.

22 Section 7702B (as added by section 321) is amended

23 by adding at the end the following new subsection:

24 ‘‘(f) CONSUMER PROTECTION PROVISIONS.—
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1 ‘‘(1) IN GENERAL.—The requirements of this

2 subsection are met with respect to any contract if

3 any long-term care insurance policy issued under the

4 contract meets—

5 ‘‘(A) the requirements of the model regula6 tion and model Act described in paragraph (2),

7 ‘‘(B) the disclosure requirement of para8 graph (3), and

9 ‘‘(C) the requirements relating to

10 nonforfeitability under paragraph (4).

11 ‘‘(2) REQUIREMENTS OF MODEL REGULATION

12 AND ACT.—

13 ‘‘(A) IN GENERAL.—The requirements of

14 this paragraph are met with respect to any pol15 icy if such policy meets—

16 ‘‘(i) MODEL REGULATION.—The fol17 lowing requirements of the model regula18 tion:

19 ‘‘(I) Section 7A (relating to guar20 anteed renewal or noncancellability),

21 and the requirements of section 6B of

22 the model Act relating to such section

23 7A.
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1 ‘‘(II) Section 7B (relating to pro2 hibitions on limitations and exclu3 sions).

4 ‘‘(III) Section 7C (relating to ex5 tension of benefits).

6 ‘‘(IV) Section 7D (relating to

7 continuation or conversion of cov8 erage).

9 ‘‘(V) Section 7E (relating to dis10 continuance and replacement of poli11 cies).

12 ‘‘(VI) Section 8 (relating to unin13 tentional lapse).

14 ‘‘(VII) Section 9 (relating to dis15 closure), other than section 9F there16 of.

17 ‘‘(VIII) Section 10 (relating to

18 prohibitions against post-claims un19 derwriting).

20 ‘‘(IX) Section 11 (relating to

21 minimum standards).

22 ‘‘(X) Section 12 (relating to re23 quirement to offer inflation protec24 tion), except that any requirement for

25 a signature on a rejection of inflation
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1 protection shall permit the signature

2 to be on an application or on a sepa3 rate form.

4 ‘‘(XI) Section 23 (relating to pro5 hibition against preexisting conditions

6 and probationary periods in replace7 ment policies or certificates).

8 ‘‘(ii) MODEL ACT.—The following re9 quirements of the model Act:

10 ‘‘(I) Section 6C (relating to pre11 existing conditions).

12 ‘‘(II) Section 6D (relating to

13 prior hospitalization).

14 ‘‘(B) DEFINITIONS.—For purposes of this

15 paragraph—

16 ‘‘(i) MODEL PROVISIONS.—The terms

17 ‘model regulation’ and ‘model Act’ mean

18 the long-term care insurance model regula19 tion, and the long-term care insurance

20 model Act, respectively, promulgated by

21 the National Association of Insurance

22 Commissioners (as adopted as of January

23 1993).

24 ‘‘(ii) COORDINATION.—Any provision

25 of the model regulation or model Act listed
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1 under clause (i) or (ii) of subparagraph

2 (A) shall be treated as including any other

3 provision of such regulation or Act nec4 essary to implement the provision.

5 ‘‘(iii) DETERMINATION.—For pur6 poses of this section and section 4980C,

7 the determination of whether any require8 ment of a model regulation or the model

9 Act has been met shall be made by the

10 Secretary.

11 ‘‘(3) DISCLOSURE REQUIREMENT.—The re12 quirement of this paragraph is met with respect to

13 any policy if such policy meets the requirements of

14 section 4980C(d)(1).

15 ‘‘(4) NONFORFEITURE REQUIREMENTS.—

16 ‘‘(A) IN GENERAL.—The requirements of

17 this paragraph are met with respect to any level

18 premium long-term care insurance policy, if the

19 issuer of such policy offers to the policyholder,

20 including any group policyholder, a

21 nonforfeiture provision meeting the require22 ments of subparagraph (B).

23 ‘‘(B) REQUIREMENTS OF PROVISION.—The

24 nonforfeiture provision required under subpara-
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1 graph (A) shall meet the following require2 ments:

3 ‘‘(i) The nonforfeiture provision shall

4 be appropriately captioned.

5 ‘‘(ii) The nonforfeiture provision shall

6 provide for a benefit available in the event

7 of a default in the payment of any pre8 miums and the amount of the benefit may

9 be adjusted subsequent to being initially

10 granted only as necessary to reflect

11 changes in claims, persistency, and interest

12 as reflected in changes in rates for pre13 mium paying policies approved by the Sec14 retary for the same policy form.

15 ‘‘(iii) The nonforfeiture provision shall

16 provide at least one of the following:

17 ‘‘(I) Reduced paid-up insurance.

18 ‘‘(II) Extended term insurance.

19 ‘‘(III) Shortened benefit period.

20 ‘‘(IV) Other similar offerings ap21 proved by the Secretary.

22 ‘‘(5) LONG-TERM CARE INSURANCE POLICY DE23 FINED.—For purposes of this subsection, the term

24 ‘long-term care insurance policy’ has the meaning

25 given such term by section 4980C(e).’’.
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1 SEC. 326. REQUIREMENTS FOR ISSUERS OF LONG-TERM

2 CARE INSURANCE POLICIES.

3 (a) IN GENERAL.—Chapter 43 is amended by adding

4 at the end the following new section:

5 ‘‘SEC. 4980C. REQUIREMENTS FOR ISSUERS OF LONG-TERM

6 CARE INSURANCE POLICIES.

7 ‘‘(a) GENERAL RULE.—There is hereby imposed on

8 any person failing to meet the requirements of subsection

9 (c) or (d) a tax in the amount determined under sub10 section (b).

11 ‘‘(b) AMOUNT.—

12 ‘‘(1) IN GENERAL.—The amount of the tax im13 posed by subsection (a) shall be $100 per policy for

14 each day any requirements of subsection (c) or (d)

15 are not met with respect to each long-term care in16 surance policy.

17 ‘‘(2) WAIVER.—In the case of a failure which is

18 due to reasonable cause and not to willful neglect,

19 the Secretary may waive part or all of the tax im20 posed by subsection (a) to the extent that payment

21 of the tax would be excessive relative to the failure

22 involved.

23 ‘‘(c) RESPONSIBILITIES.—The requirements of this

24 subsection are as follows:

25 ‘‘(1) REQUIREMENTS OF MODEL PROVISIONS.—
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1 ‘‘(A) MODEL REGULATION.—The following

2 requirements of the model regulation must be

3 met:

4 ‘‘(i) Section 13 (relating to application

5 forms and replacement coverage).

6 ‘‘(ii) Section 14 (relating to reporting

7 requirements), except that the issuer shall

8 also report at least annually the number of

9 claims denied during the reporting period

10 for each class of business (expressed as a

11 percentage of claims denied), other than

12 claims denied for failure to meet the wait13 ing period or because of any applicable

14 preexisting condition.

15 ‘‘(iii) Section 20 (relating to filing re16 quirements for marketing).

17 ‘‘(iv) Section 21 (relating to standards

18 for marketing), including inaccurate com19 pletion of medical histories, other than sec20 tions 21C(1) and 21C(6) thereof, except

21 that—

22 ‘‘(I) in addition to such require23 ments, no person shall, in selling or

24 offering to sell a long-term care insur-
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1 ance policy, misrepresent a material

2 fact; and

3 ‘‘(II) no such requirements shall

4 include a requirement to inquire or

5 identify whether a prospective appli6 cant or enrollee for long-term care in7 surance has accident and sickness in8 surance.

9 ‘‘(v) Section 22 (relating to appro10 priateness of recommended purchase).

11 ‘‘(vi) Section 24 (relating to standard

12 format outline of coverage).

13 ‘‘(vii) Section 25 (relating to require14 ment to deliver shopper’s guide).

15 ‘‘(B) MODEL ACT.—The following require16 ments of the model Act must be met:

17 ‘‘(i) Section 6F (relating to right to

18 return), except that such section shall also

19 apply to denials of applications and any re20 fund shall be made within 30 days of the

21 return or denial.

22 ‘‘(ii) Section 6G (relating to outline of

23 coverage).

24 ‘‘(iii) Section 6H (relating to require25 ments for certificates under group plans).
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1 ‘‘(iv) Section 6I (relating to policy

2 summary).

3 ‘‘(v) Section 6J (relating to monthly

4 reports on accelerated death benefits).

5 ‘‘(vi) Section 7 (relating to incontest6 ability period).

7 ‘‘(C) DEFINITIONS.—For purposes of this

8 paragraph, the terms ‘model regulation’ and

9 ‘model Act’ have the meanings given such terms

10 by section 7702B(f)(2)(B).

11 ‘‘(2) DELIVERY OF POLICY.—If an application

12 for a long-term care insurance policy (or for a cer13 tificate under a group long-term care insurance pol14 icy) is approved, the issuer shall deliver to the appli15 cant (or policyholder or certificateholder) the policy

16 (or certificate) of insurance not later than 30 days

17 after the date of the approval.

18 ‘‘(3) INFORMATION ON DENIALS OF CLAIMS.—

19 If a claim under a long-term care insurance policy

20 is denied, the issuer shall, within 60 days of the date

21 of a written request by the policyholder or

22 certificateholder (or representative)—

23 ‘‘(A) provide a written explanation of the

24 reasons for the denial, and
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1 ‘‘(B) make available all information di2 rectly relating to such denial.

3 ‘‘(d) DISCLOSURE.—The requirements of this sub4 section are met if the issuer of a long-term care insurance

5 policy discloses in such policy and in the outline of cov6 erage required under subsection (c)(1)(B)(ii) that the pol7 icy is intended to be a qualified long-term care insurance

8 contract under section 7702B(b).

9 ‘‘(e) LONG-TERM CARE INSURANCE POLICY DE10 FINED.—For purposes of this section, the term ‘long-term

11 care insurance policy’ means any product which is adver12 tised, marketed, or offered as long-term care insurance.’’.

13 (b) CONFORMING AMENDMENT.—The table of sec14 tions for chapter 43 is amended by adding at the end the

15 following new item:

‘‘Sec. 4980C. Requirements for issuers of long-term care insurance policies.’’.

16 SEC. 327. COORDINATION WITH STATE REQUIREMENTS.

17 Nothing in this part shall prevent a State from estab18 lishing, implementing, or continuing in effect standards

19 related to the protection of policyholders of long-term care

20 insurance policies (as defined in section 4980C(e) of the

21 Internal Revenue Code of 1986), if such standards are not

22 in conflict with or inconsistent with the standards estab23 lished under such Code.
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1 SEC. 328. EFFECTIVE DATES.

2 (a) IN GENERAL.—The provisions of, and amend3 ments made by, this part shall apply to contracts issued

4 after December 31, 1996. The provisions of section 321(g)

5 (relating to transition rule) shall apply to such contracts.

6 (b) ISSUERS.—The amendments made by section 326

7 shall apply to actions taken after December 31, 1996.

8 Subtitle D—Treatment of

9 Accelerated Death Benefits

10 SEC. 331. TREATMENT OF ACCELERATED DEATH BENEFITS

11 BY RECIPIENT.

12 (a) IN GENERAL.—Section 101 (relating to certain

13 death benefits) is amended by adding at the end the fol14 lowing new subsection:

15 ‘‘(g) TREATMENT OF CERTAIN ACCELERATED

16 DEATH BENEFITS.—

17 ‘‘(1) IN GENERAL.—For purposes of this sec18 tion, the following amounts shall be treated as an

19 amount paid by reason of the death of an insured:

20 ‘‘(A) Any amount received under a life in21 surance contract on the life of an insured who

22 is a terminally ill individual.

23 ‘‘(B) Any amount received under a life in24 surance contract on the life of an insured who

25 is a chronically ill individual (as determined in

26 such manner as the Secretary may prescribe)
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1 but only if such amount is received under a

2 rider or other provision of such contract which

3 is treated as a qualified long-term care insur4 ance contract under section 7702B.

5 ‘‘(2) TREATMENT OF VIATICAL SETTLE6 MENTS.—

7 ‘‘(A) IN GENERAL.—In the case of a life

8 insurance contract on the life of an insured de9 scribed in paragraph (1), if—

10 ‘‘(i) any portion of such contract is

11 sold to any viatical settlement provider, or

12 ‘‘(ii) any portion of the death benefit

13 is assigned to such a provider,

14 the amount paid for such sale or assignment

15 shall be treated as an amount paid under the

16 life insurance contract by reason of the death of

17 such insured.

18 ‘‘(B) VIATICAL SETTLEMENT PROVIDER.—

19 The term ‘viatical settlement provider’ means

20 any person regularly engaged in the trade or

21 business of purchasing, or taking assignments

22 of, life insurance contracts on the lives of

23 insureds described in paragraph (1) if—
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1 ‘‘(i) such person is licensed for such

2 purposes in the State in which the insured

3 resides, or

4 ‘‘(ii) in the case of an insured who re5 sides in a State not requiring the licensing

6 of such persons for such purposes—

7 ‘‘(I) such person meets the re8 quirements of sections 8 and 9 of the

9 Viatical Settlements Model Act of the

10 National Association of Insurance

11 Commissioners, and

12 ‘‘(II) meets the requirements of

13 the Model Regulations of the National

14 Association of Insurance Commis15 sioners (relating to standards for eval16 uation of reasonable payments) in de17 termining amounts paid by such per18 son in connection with such purchases

19 or assignments.

20 ‘‘(3) DEFINITIONS.—For purposes of this sub21 section—

22 ‘‘(A) TERMINALLY ILL INDIVIDUAL.—The

23 term ‘terminally ill individual’ means an indi24 vidual who has been certified by a physician as

25 having an illness or physical condition which
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1 can reasonably be expected to result in death in

2 24 months or less after the date of the certifi3 cation.

4 ‘‘(B) PHYSICIAN.—The term ‘physician’

5 has the meaning given to such term by section

6 1861(r)(1) of the Social Security Act (42

7 U.S.C. 1395x(r)(1)).

8 ‘‘(4) EXCEPTION FOR BUSINESS-RELATED POLI9 CIES.—This subsection shall not apply in the case of

10 any amount paid to any taxpayer other than the in11 sured if such taxpayer has an insurable interest with

12 respect to the life of the insured by reason of the in13 sured being a director, officer, or employee of the

14 taxpayer or by reason of the insured being finan15 cially interested in any trade or business carried on

16 by the taxpayer.’’

17 (b) EFFECTIVE DATE.—The amendment made by

18 subsection (a) shall apply to amounts received after De19 cember 31, 1996.

20 SEC. 332. TAX TREATMENT OF COMPANIES ISSUING QUALI21 FIED ACCELERATED DEATH BENEFIT RID22 ERS.

23 (a) QUALIFIED ACCELERATED DEATH BENEFIT RID24 ERS TREATED AS LIFE INSURANCE.—Section 818 (relat-
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1 ing to other definitions and special rules) is amended by

2 adding at the end the following new subsection:

3 ‘‘(g) QUALIFIED ACCELERATED DEATH BENEFIT

4 RIDERS TREATED AS LIFE INSURANCE.—For purposes of

5 this part—

6 ‘‘(1) IN GENERAL.—Any reference to a life in7 surance contract shall be treated as including a ref8 erence to a qualified accelerated death benefit rider

9 on such contract.

10 ‘‘(2) QUALIFIED ACCELERATED DEATH BENE11 FIT RIDERS.—For purposes of this subsection, the

12 term ‘qualified accelerated death benefit rider’

13 means any rider on a life insurance contract if the

14 only payments under the rider are payments meeting

15 the requirements of section 101(g).

16 ‘‘(3) EXCEPTION FOR LONG-TERM CARE RID17 ERS.—Paragraph (1) shall not apply to any rider

18 which is treated as a long-term care insurance con19 tract under section 7702B.’’

20 (b) EFFECTIVE DATE.—

21 (1) IN GENERAL.—The amendment made by

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

23 (2) ISSUANCE OF RIDER NOT TREATED AS MA24 TERIAL CHANGE.—For purposes of applying sections
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1 101(f), 7702, and 7702A of the Internal Revenue

2 Code of 1986 to any contract—

3 (A) the issuance of a qualified accelerated

4 death benefit rider (as defined in section 818(g)

5 of such Code (as added by this Act)), and

6 (B) the addition of any provision required

7 to conform an accelerated death benefit rider to

8 the requirements of such section 818(g),

9 shall not be treated as a modification or material

10 change of such contract.

11 Subtitle E—High-Risk Pools

12 SEC. 341. EXEMPTION FROM INCOME TAX FOR STATE-SPON13 SORED ORGANIZATIONS PROVIDING HEALTH

14 COVERAGE FOR HIGH-RISK INDIVIDUALS.

15 (a) IN GENERAL.—Subsection (c) of section 501 (re16 lating to list of exempt organizations) is amended by add17 ing at the end the following new paragraph:

18 ‘‘(26) Any membership organization if—

19 ‘‘(A) such organization is established by a

20 State exclusively to provide coverage for medical

21 care (as defined in section 213(d)) on a not-for22 profit basis to individuals described in subpara23 graph (B) through—

24 ‘‘(i) insurance issued by the organiza25 tion, or
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1 ‘‘(ii) a health maintenance organiza2 tion under an arrangement with the orga3 nization,

4 ‘‘(B) the only individuals receiving such

5 coverage through the organization are individ6 uals—

7 ‘‘(i) who are residents of such State,

8 and

9 ‘‘(ii) who, by reason of the existence

10 or history of a medical condition, are un11 able to acquire medical care coverage for

12 such condition through insurance or from

13 a health maintenance organization or are

14 able to acquire such coverage only at a

15 rate which is substantially in excess of the

16 rate for such coverage through the mem17 bership organization,

18 ‘‘(C) the composition of the membership in

19 such organization is specified by such State,

20 and

21 ‘‘(D) no part of the net earnings of the or22 ganization inures to the benefit of any private

23 shareholder or individual.’’
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1 (b) EFFECTIVE DATE.—The amendment made by

2 this section shall apply to taxable years beginning after

3 December 31, 1996.

4 TITLE IV—REVENUE OFFSETS

5 SEC. 400. AMENDMENT OF 1986 CODE.

6 Except as otherwise expressly provided, whenever in

7 this title an amendment or repeal is expressed in terms

8 of an amendment to, or repeal of, a section or other provi9 sion, the reference shall be considered to be made to a

10 section or other provision of the Internal Revenue Code

11 of 1986.

12 Subtitle A—Repeal of Bad Debt Re13 serve Method for Thrift Savings

14 Associations

15 SEC. 401. REPEAL OF BAD DEBT RESERVE METHOD FOR

16 THRIFT SAVINGS ASSOCIATIONS.

17 (a) IN GENERAL.—Section 593 (relating to reserves

18 for losses on loans) is amended by adding at the end the

19 following new subsections:

20 ‘‘(f) TERMINATION OF RESERVE METHOD.—Sub21 sections (a), (b), (c), and (d) shall not apply to any taxable

22 year beginning after December 31, 1995.

23 ‘‘(g) 6-YEAR SPREAD OF ADJUSTMENTS.—
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1 ‘‘(1) IN GENERAL.—In the case of any taxpayer

2 who is required by reason of subsection (f) to change

3 its method of computing reserves for bad debts—

4 ‘‘(A) such change shall be treated as a

5 change in a method of accounting,

6 ‘‘(B) such change shall be treated as initi7 ated by the taxpayer and as having been made

8 with the consent of the Secretary, and

9 ‘‘(C) the net amount of the adjustments

10 required to be taken into account by the tax11 payer under section 481(a)—

12 ‘‘(i) shall be determined by taking into

13 account only applicable excess reserves,

14 and

15 ‘‘(ii) as so determined, shall be taken

16 into account ratably over the 6-taxable

17 year period beginning with the first taxable

18 year beginning after December 31, 1995.

19 ‘‘(2) APPLICABLE EXCESS RESERVES.—

20 ‘‘(A) IN GENERAL.—For purposes of para21 graph (1), the term ‘applicable excess reserves’

22 means the excess (if any) of—

23 ‘‘(i) the balance of the reserves de24 scribed in subsection (c)(1) (other than the

25 supplemental reserve) as of the close of the
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1 taxpayer’s last taxable year beginning be2 fore December 31, 1995, over

3 ‘‘(ii) the lesser of—

4 ‘‘(I) the balance of such reserves

5 as of the close of the taxpayer’s last

6 taxable year beginning before January

7 1, 1988, or

8 ‘‘(II) the balance of the reserves

9 described in subclause (I), reduced in

10 the same manner as under section

11 585(b)(2)(B)(ii) on the basis of the

12 taxable years described in clause (i)

13 and this clause.

14 ‘‘(B) SPECIAL RULE FOR THRIFTS WHICH

15 BECOME SMALL BANKS.—In the case of a bank

16 (as defined in section 581) which was not a

17 large bank (as defined in section 585(c)(2)) for

18 its first taxable year beginning after December

19 31, 1995—

20 ‘‘(i) the balance taken into account

21 under subparagraph (A)(ii) shall not be

22 less than the amount which would be the

23 balance of such reserves as of the close of

24 its last taxable year beginning before such

25 date if the additions to such reserves for
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1 all taxable years had been determined

2 under section 585(b)(2)(A), and

3 ‘‘(ii) the opening balance of the re4 serve for bad debts as of the beginning of

5 such first taxable year shall be the balance

6 taken into account under subparagraph

7 (A)(ii) (determined after the application of

8 clause (i) of this subparagraph).

9 The preceding sentence shall not apply for pur10 poses of paragraphs (5) and (6) or subsection

11 (e)(1).

12 ‘‘(3) RECAPTURE OF PRE-1988 RESERVES

13 WHERE TAXPAYER CEASES TO BE BANK.—If, during

14 any taxable year beginning after December 31,

15 1995, a taxpayer to which paragraph (1) applied is

16 not a bank (as defined in section 581), paragraph

17 (1) shall apply to the reserves described in para18 graph (2)(A)(ii) except that such reserves shall be

19 taken into account ratably over the 6-taxable year

20 period beginning with such taxable year.

21 ‘‘(4) SUSPENSION OF RECAPTURE IF RESIDEN22 TIAL LOAN REQUIREMENT MET.—

23 ‘‘(A) IN GENERAL.—In the case of a bank

24 which meets the residential loan requirement of

25 subparagraph (B) for the first taxable year be-
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1 ginning after December 31, 1995 or for the fol2 lowing taxable year—

3 ‘‘(i) no adjustment shall be taken into

4 account under paragraph (1) for such tax5 able year, and

6 ‘‘(ii) such taxable year shall be dis7 regarded in determining—

8 ‘‘(I) whether any other taxable

9 year is a taxable year for which an

10 adjustment is required to be taken

11 into account under paragraph (1), and

12 ‘‘(II) the amount of such adjust13 ment.

14 ‘‘(B) RESIDENTIAL LOAN REQUIRE15 MENT.—A taxpayer meets the residential loan

16 requirement of this subparagraph for any tax17 able year if the principal amount of the residen18 tial loans made by the taxpayer during such

19 year is not less than the base amount for such

20 year.

21 ‘‘(C) RESIDENTIAL LOAN.—For purposes

22 of this paragraph, the term ‘residential loan’

23 means any loan described in clause (v) of sec24 tion 7701(a)(19)(C) but only if such loan is in-
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1 curred in acquiring, constructing, or improving

2 the property described in such clause.

3 ‘‘(D) BASE AMOUNT.—For purposes of

4 subparagraph (B), the base amount is the aver5 age of the principal amounts of the residential

6 loans made by the taxpayer during the 6 most

7 recent taxable years beginning on or before De8 cember 31, 1995. At the election of the tax9 payer who made such loans during each of such

10 6 taxable years, the preceding sentence shall be

11 applied without regard to the taxable year in

12 which such principal amount was the highest

13 and the taxable year in such principal amount

14 was the lowest. Such an election may be made

15 only for the first taxable year beginning after

16 such date, and, if made for such taxable year,

17 shall apply to the succeeding taxable year un18 less revoked with the consent of the Secretary.

19 ‘‘(E) CONTROLLED GROUPS.—In the case

20 of a taxpayer which is a member of any con21 trolled group of corporations described in sec22 tion 1563(a)(1), subparagraph (B) shall be ap23 plied with respect to such group.

24 ‘‘(5) CONTINUED APPLICATION OF FRESH

25 START UNDER SECTION 585 TRANSITIONAL RULES.—
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1 In the case of a taxpayer to which paragraph (1) ap2 plied and which was not a large bank (as defined in

3 section 585(c)(2)) for its first taxable year beginning

4 after December 31, 1995:

5 ‘‘(A) IN GENERAL.—For purposes of deter6 mining the net amount of adjustments referred

7 to in section 585(c)(3)(A)(iii), there shall be

8 taken into account only the excess (if any) of

9 the reserve for bad debts as of the close of the

10 last taxable year before the disqualification year

11 over the balance taken into account by such

12 taxpayer under paragraph (2)(A)(ii) of this sub13 section.

14 ‘‘(B) TREATMENT UNDER ELECTIVE CUT15 OFF METHOD.—For purposes of applying sec16 tion 585(c)(4)—

17 ‘‘(i) the balance of the reserve taken

18 into account under subparagraph (B)

19 thereof shall be reduced by the balance

20 taken into account by such taxpayer under

21 paragraph (2)(A)(ii) of this subsection,

22 and

23 ‘‘(ii) no amount shall be includible in

24 gross income by reason of such reduction.
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1 ‘‘(6) SUSPENDED RESERVE INCLUDED AS SEC2 TION 381(c) ITEM.—The balance taken into account

3 by a taxpayer under paragraph (2)(A)(ii) of this

4 subsection shall be treated as an item described in

5 section 381(c).

6 ‘‘(7) CONVERSIONS TO CREDIT UNIONS.—In the

7 case of a taxpayer to which paragraph (1) applied

8 which becomes a credit union described in section

9 501(c) and exempt from taxation under section

10 501(a)—

11 ‘‘(A) any amount required to be included

12 in the gross income of the credit union by rea13 son of this subsection shall be treated as de14 rived from an unrelated trade or business (as

15 defined in section 513), and

16 ‘‘(B) for purposes of paragraph (3), the

17 credit union shall not be treated as if it were

18 a bank.

19 ‘‘(8) REGULATIONS.—The Secretary shall pre20 scribe such regulations as may be necessary to carry

21 out this subsection and subsection (e), including reg22 ulations providing for the application of such sub23 sections in the case of acquisitions, mergers, spin24 offs, and other reorganizations.’’

25 (b) CONFORMING AMENDMENTS.—
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1 (1) Subsection (d) of section 50 is amended by

2 adding at the end the following new sentence:

3 ‘‘Paragraphs (1)(A), (2)(A), and (4) of the section 46(e)

4 referred to in paragraph (1) of this subsection shall not

5 apply to any taxable year beginning after December 31,

6 1995.’’

7 (2) Subsection (e) of section 52 is amended by

8 striking paragraph (1) and by redesignating para9 graphs (2) and (3) as paragraphs (1) and (2), re10 spectively.

11 (3) Subsection (a) of section 57 is amended by

12 striking paragraph (4).

13 (4) Section 246 is amended by striking sub14 section (f).

15 (5) Clause (i) of section 291(e)(1)(B) is amend16 ed by striking ‘‘or to which section 593 applies’’.

17 (6) Subparagraph (A) of section 585(a)(2) is

18 amended by striking ‘‘other than an organization to

19 which section 593 applies’’.

20 (7)(A) The material preceding subparagraph

21 (A) of section 593(e)(1) is amended by striking ‘‘by

22 a domestic building and loan association or an insti23 tution that is treated as a mutual savings bank

24 under section 591(b)’’ and inserting ‘‘by a taxpayer
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1 having a balance described in subsection

2 (g)(2)(A)(ii)’’.

3 (B) Subparagraph (B) of section 593(e)(1) is

4 amended to read as follows:

5 ‘‘(B) then out of the balance taken into ac6 count under subsection (g)(2)(A)(ii) (properly

7 adjusted for amounts charged against such re8 serves for taxable years beginning after Decem9 ber 31, 1987),’’.

10 (C) Paragraph (1) of section 593(e) is amended

11 by adding at the end the following new sentence:

12 ‘‘This paragraph shall not apply to any distribution

13 of all of the stock of a bank (as defined in section

14 581) to another corporation if, immediately after the

15 distribution, such bank and such other corporation

16 are members of the same affiliated group (as defined

17 in section 1504) and the provisions of section 5(e)

18 of the Federal Deposit Insurance Act (as in effect

19 on December 31, 1995) or similar provisions are in

20 effect.’’

21 (8) Section 595 is hereby repealed.

22 (9) Section 596 is hereby repealed.

23 (10) Subsection (a) of section 860E is amend24 ed—
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1 (A) by striking ‘‘Except as provided in

2 paragraph (2), the’’ in paragraph (1) and in3 serting ‘‘The’’,

4 (B) by striking paragraphs (2) and (4) and

5 redesignating paragraphs (3) and (5) as para6 graphs (2) and (3), respectively, and

7 (C) by striking in paragraph (2) (as so re8 designated) all that follows ‘‘subsection’’ and

9 inserting a period.

10 (11) Paragraph (3) of section 992(d) is amend11 ed by striking ‘‘or 593’’.

12 (12) Section 1038 is amended by striking sub13 section (f).

14 (13) Clause (ii) of section 1042(c)(4)(B) is

15 amended by striking ‘‘or 593’’.

16 (14) Subsection (c) of section 1277 is amended

17 by striking ‘‘or to which section 593 applies’’.

18 (15) Subparagraph (B) of section 1361(b)(2) is

19 amended by striking ‘‘or to which section 593 ap20 plies’’.

21 (16) The table of sections for part II of sub22 chapter H of chapter 1 is amended by striking the

23 items relating to sections 595 and 596.

24 (c) EFFECTIVE DATE.—
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1 (1) IN GENERAL.—Except as otherwise pro2 vided in this subsection, the amendments made by

3 this section shall apply to taxable years beginning

4 after December 31, 1995.

5 (2) SUBSECTION (b)(7).—The amendments

6 made by subsection (b)(7) shall not apply to any dis7 tribution with respect to preferred stock if—

8 (A) such stock is outstanding at all times

9 after October 31, 1995, and before the distribu10 tion, and

11 (B) such distribution is made before the

12 date which is 1 year after the date of the enact13 ment of this Act.

14 (3) SUBSECTION (b)(10).—The amendments

15 made by subsection (b)(10) shall not apply to any

16 residual interest held by a taxpayer if such interest

17 has been held by such taxpayer at all times after Oc18 tober 31, 1995.

19 Subtitle B—Reform of the Earned

20 Income Credit

21 SEC. 411. EARNED INCOME CREDIT DENIED TO INDIVID22 UALS NOT AUTHORIZED TO BE EMPLOYED IN

23 THE UNITED STATES.

24 (a) IN GENERAL.—Section 32(c)(1) (relating to indi25 viduals eligible to claim the earned income credit) is
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1 amended by adding at the end the following new subpara2 graph:

3 ‘‘(F) IDENTIFICATION NUMBER REQUIRE4 MENT.—The term ‘eligible individual’ does not

5 include any individual who does not include on

6 the return of tax for the taxable year—

7 ‘‘(i) such individual’s taxpayer identi8 fication number, and

9 ‘‘(ii) if the individual is married (with10 in the meaning of section 7703), the tax11 payer identification number of such indi12 vidual’s spouse.’’.

13 (b) SPECIAL IDENTIFICATION NUMBER.—Section 32

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

16 ‘‘(l) IDENTIFICATION NUMBERS.—Solely for pur17 poses of subsections (c)(1)(F) and (c)(3)(D), a taxpayer

18 identification number means a social security number is19 sued to an individual by the Social Security Administra20 tion (other than a social security number issued pursuant

21 to clause (II) (or that portion of clause (III) that relates

22 to clause (II)) of section 205(c)(2)(B)(i) of the Social Se23 curity Act).’’.

24 (c) EXTENSION OF PROCEDURES APPLICABLE TO

25 MATHEMATICAL OR CLERICAL ERRORS.—Section
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1 6213(g)(2) (relating to the definition of mathematical or

2 clerical errors) is amended by striking ‘‘and’’ at the end

3 of subparagraph (D), by striking the period at the end

4 of subparagraph (E) and inserting a comma, and by in5 serting after subparagraph (E) the following new subpara6 graphs:

7 ‘‘(F) an omission of a correct taxpayer

8 identification number required under section 32

9 (relating to the earned income credit) to be in10 cluded on a return, and

11 ‘‘(G) an entry on a return claiming the

12 credit under section 32 with respect to net

13 earnings from self-employment described in sec14 tion 32(c)(2)(A) to the extent the tax imposed

15 by section 1401 (relating to self-employment

16 tax) on such net earnings has not been paid.’’.

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

18 this section shall apply to taxable years beginning after

19 December 31, 1995.

20 SEC. 412. PROVISIONS TO IMPROVE TAX COMPLIANCE.

21 (a) INCREASE IN PENALTIES FOR RETURN PREPAR22 ERS.—

23 (1) UNDERSTATEMENT PENALTY.—Section

24 6694 (relating to understatement of income tax li25 ability by income tax return preparer) is amended—
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1 (A) by striking ‘‘$250’’ in subsection (a)

2 and inserting ‘‘$500’’, and

3 (B) by striking ‘‘$1,000’’ in subsection (b)

4 and inserting ‘‘$2,000’’.

5 (2) OTHER ASSESSABLE PENALTIES.—Section

6 6695 (relating to other assessable penalties) is

7 amended—

8 (A) by striking ‘‘$50’’ and ‘‘$25,000’’ in

9 subsections (a), (b), (c), (d), and (e) and insert10 ing ‘‘$100’’ and ‘‘$50,000’’, respectively, and

11 (B) by striking ‘‘$500’’ in subsection (f)

12 and inserting ‘‘$1,000’’.

13 (b) AIDING AND ABETTING PENALTY.—Section

14 6701(b) (relating to amount of penalty) is amended—

15 (1) by striking ‘‘$1,000’’ in paragraph (1) and

16 inserting ‘‘$2,000’’, and

17 (2) by striking ‘‘$10,000’’ in paragraph (2) and

18 inserting ‘‘$20,000’’.

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

20 this section shall apply to penalties with respect to taxable

21 years beginning after December 31, 1995.

Æ