59–006 

114TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 2d Session 114–734 

SPECIAL NEEDS TRUST FAIRNESS AND MEDICAID 

IMPROVEMENT ACT 

SEPTEMBER 9, 2016.—Committed to the Committee of the Whole House on the State 

of the Union and ordered to be printed 

Mr. UPTON, from the Committee on Energy and Commerce, 

submitted the following 

R E P O R T 

[To accompany H.R. 670] 

The Committee on Energy and Commerce, to whom was referred 

the bill (H.R. 670) to amend title XIX of the Social Security Act to 

extend the Medicaid rules regarding supplemental needs trusts for 

Medicaid beneficiaries to trusts established by those beneficiaries, 

and for other purposes, having considered the same, report favorably thereon with an amendment and recommend that the bill as 

amended do pass. 

C O N T E N T S 

Page 

Purpose and Summary ............................................................................................ 3 

Background and Need for Legislation .................................................................... 3 

Hearings ................................................................................................................... 4 

Committee Consideration ........................................................................................ 4 

Committee Votes ...................................................................................................... 4 

Committee Oversight Findings ............................................................................... 4 

Statement of General Performance Goals and Objectives .................................... 4 

New Budget Authority, Entitlement Authority, and Tax Expenditures ............. 4 

Earmark, Limited Tax Benefits, and Limited Tariff Benefits ............................. 5 

Committee Cost Estimate ....................................................................................... 5 

Congressional Budget Office Estimate ................................................................... 5 

Federal Mandates Statement ................................................................................. 5 

Duplication of Federal Programs ............................................................................ 5 

Disclosure of Directed Rule Makings ..................................................................... 5 

Advisory Committee Statement .............................................................................. 5 

Applicability to Legislative Branch ........................................................................ 5 

Section-by-Section Analysis of the Legislation ...................................................... 6 

Changes in Existing Law Made by the Bill, as Reported ..................................... 6 

The amendment is as follows: 

Strike all after the enacting clause and insert the following: 


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SECTION 1. SHORT TITLE; TABLE OF CONTENTS. 

(a) SHORT TITLE.—This Act may be cited as the ‘‘Special Needs Trust Fairness 

and Medicaid Improvement Act’’. 

(b) TABLE OF CONTENTS.—The table of contents of this Act is as follows: 

Sec. 1. Short title; table of contents. 

Sec. 2. Fairness in Medicaid supplemental needs trusts. 

Sec. 3. Medicaid coverage of tobacco cessation services for mothers of newborns. 

Sec. 4. Eliminating Federal financial participation with respect to expenditures under Medicaid for agents used 

for cosmetic purposes or hair growth. 

Sec. 5. Medicaid Improvement Fund. 

SEC. 2. FAIRNESS IN MEDICAID SUPPLEMENTAL NEEDS TRUSTS. 

(a) IN GENERAL.—Section 1917(d)(4)(A) of the Social Security Act (42 U.S.C. 

1396p(d)(4)(A)) is amended by inserting ‘‘the individual,’’ after ‘‘for the benefit of 

such individual by’’. 

(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply to 

trusts established on or after the date of the enactment of this Act. 

SEC. 3. MEDICAID COVERAGE OF TOBACCO CESSATION SERVICES FOR MOTHERS OF 

NEWBORNS. 

(a) IN GENERAL.—Section 1905(bb) of the Social Security Act (42 U.S.C. 1396d(bb)) 

is amended by adding at the end the following new paragraph: 

‘‘(4) A woman shall continue to be treated as described in this subsection as a 

pregnant woman through the end of the 1-year period beginning on the date of the 

birth of a child of the woman.’’. 

(b) CONFORMING AMENDMENTS.— 

(1) Subsections (a)(2)(B) and (b)(2)(B) of section 1916 of the Social Security 

Act (42 U.S.C. 1396o) are each amended by inserting ‘‘(and women described in 

section 1905(bb) as pregnant women pursuant to paragraph (4) of such section)’’ 

after ‘‘tobacco cessation by pregnant women’’. 

(2) Section 1927(d)(2)(F) of the Social Security Act (42 U.S.C. 1396r– 

8(d)(2)(F)) is amended by inserting ‘‘(and women described in section 1905(bb) 

as pregnant women pursuant to paragraph (4) of such section)’’ after ‘‘pregnant 

women’’. 

(c) EFFECTIVE DATE.— 

(1) IN GENERAL.—Subject to paragraph (2), the amendments made by this section shall apply with respect to items and services furnished on or after the 

date that is two years after the date of the enactment of this Act. 

(2) EXCEPTION FOR STATE LEGISLATION.—In the case of a State plan under 

title XIX of the Social Security Act, which the Secretary of Health and Human 

Services determines requires State legislation in order for the plan to meet any 

requirement imposed by amendments made by this section, the plan shall not 

be regarded as failing to comply with the requirements of such title solely on 

the basis of its failure to meet such an additional requirement before the first 

day of the first calendar quarter beginning after the close of the first regular 

session of the State legislature that begins after the effective date specified in 

paragraph (1). For purposes of the previous sentence, in the case of a State that 

has a 2-year legislative session, each year of the session shall be considered to 

be a separate regular session of the State legislature. 

(d) REPORT.—Not later than two years after the date of the enactment of this Act, 

the Inspector General of the Department of Health and Human Services shall submit to Congress a report that assesses the use of the tobacco cessation service benefit under the Medicaid program. Such report shall include an assessment of— 

(1) the extent that States are encouraging the use of such benefit, such as 

through promotion of beneficiary and provider awareness of such benefit; and 

(2) gaps in the delivery of such benefit. 

SEC. 4. ELIMINATING FEDERAL FINANCIAL PARTICIPATION WITH RESPECT TO EXPENDITURES UNDER MEDICAID FOR AGENTS USED FOR COSMETIC PURPOSES OR HAIR 

GROWTH. 

(a) IN GENERAL.—Section 1903(i)(21) of the Social Security Act (42 U.S.C. 

1396b(i)(21)) is amended by inserting ‘‘section 1927(d)(2)(C) (relating to drugs when 

used for cosmetic purposes or hair growth), except where medically necessary, and’’ 

after ‘‘drugs described in’’. 

(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply with 

respect to calendar quarters beginning on or after the date of the enactment of this 

Act. 

SEC. 5. MEDICAID IMPROVEMENT FUND. 

Section 1941(b) of the Social Security Act (42 U.S.C. 1396w–1(b)) is amended— 

(1) in paragraph (2)— 


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(A) by striking ‘‘under paragraph (1)’’ and inserting ‘‘under this subsection’’; and 

(B) by redesignating such paragraph as paragraph (3); and 

(2) by inserting after paragraph (1) the following new paragraph: 

‘‘(2) ADDITIONAL FUNDING.—In addition to any funds otherwise made available 

to the Fund, there shall be available to the Fund, for expenditures from the 

Fund— 

‘‘(A) for fiscal year 2021, $10,000,000, to remain available until expended; 

and 

‘‘(B) for fiscal year 2022, $14,000,000, to remain available until expended.’’. 

PURPOSE AND SUMMARY

H.R. 670, the Special Needs Trust Fairness and Medicaid Improvement Act, would extend the Medicaid special needs trust exception to allow non-elderly individuals with disabilities to establish a special needs trust on their own behalf. If enacted, special 

needs trusts established by a non-elderly, disabled individual 

would no longer be considered an asset in determining that individual’s eligibility for Medicaid. In addition, the bill would extend 

Medicaid coverage of tobacco cessation services to mothers of 

newborns for the first year of the infant’s life. To offset the cost of 

these polices, the bill would prohibit Federal financial participation 

under Medicaid for drugs used for cosmetic purposes or hair 

growth, except where medically necessary. The bill would also 

make available $10 million in 2021, and an additional $14 million 

in 2022, in the Medicaid Improvement Fund. 

BACKGROUND AND NEED FOR LEGISLATION

Under Federal law, most trusts are counted as an asset in determining Medicaid eligibility for aged and disabled individuals and 

are subject to asset transfer rules. However, certain types of trusts 

are exempt and not counted as an asset for Medicaid eligibility determination. Specifically, Medicaid does not count certain specialneeds trusts and pooled trusts as assets. Asset transfer rules do 

not apply to these trust types. This exception is commonly referred 

to as the ‘‘special needs trust exception.’’ 

In order for a trust to qualify under the special needs trust exception, a trust must contain the assets of an individual under age 

65 (i.e., non-elderly individual) who meets the statutory definition 

of disability. Such trusts must be used to provide funding for certain expenditures that supplement Medicaid benefits, subject to 

certain limitations. Special needs trusts allow non-elderly individuals with disabilities to maintain their eligibility for Medicaid. 

When the beneficiary dies, the State receives the remaining proceeds of the trust equal to any amounts paid for medical assistance 

provided under the State Medicaid program. Under current law, 

only parents, grandparents, legal guardians, or a court can establish a special needs trust on behalf of a non-elderly disabled individual. H.R. 670 would allow non-elderly individuals with disabilities to set up special needs trust for themselves without requiring 

them to get a court order. 

The Centers for Medicare and Medicaid Services (CMS) has said 

that ‘‘cigarette smoking is one of the greatest drivers of adverse 

health outcomes and costs for state Medicaid programs.’’ By investing in comprehensive tobacco cessation programs, CMS notes that 


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States have reduced smoking rates and health care costs and have 

improved health outcomes. CMS’s review of available literature has 

led the agency to conclude that ‘‘tobacco treatment is one of the 

most cost-effective preventive services with as much as a $2–$3 return on every dollar invested.’’ 

Under current law, State Medicaid programs are required to 

cover tobacco cessation services for pregnant women. H.R. 670 

would extend tobacco cessation benefits to the mothers of 

newborns, helping more women make healthy choices to improve 

their health and the health of their child. The bill would also require the Department of Health and Human Service’s Office of Inspector General to report on the use of tobacco cessation services 

under Medicaid. 

Finally, to offset the costs of these policies, H.R. 670 would prohibit Federal financial participation for drugs used for cosmetic 

purposes or hair growth, except where medically necessary, with 

savings placed in the Medicaid Improvement Fund. 

HEARINGS

The Subcommittee on Health held a hearing on H.R. 670 on September 18, 2015. The Subcommittee received testimony from: • Michael Boyle, M.D., Vice President of Therapeutics Development, The Cystic Fibrosis Foundation; • Tim Clontz, Senior Vice President for Health Services, 

Cone Health; and • Rick Courtney, President, Special Needs Alliance. 

COMMITTEE CONSIDERATION

On July 12, 13, and 14, 2016, the full Committee on Energy and 

Commerce met in open markup session and ordered H.R. 670, as 

amended, favorably reported to the House by a voice vote. 

COMMITTEE VOTES

Clause 3(b) of rule XIII of the Rules of the House of Representatives requires the Committee to list the record votes on the motion 

to report legislation and amendments thereto. There were no 

record votes taken in connection with ordering H.R. 670 reported. 

COMMITTEE OVERSIGHT FINDINGS

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the House 

of Representatives, the Committee held a hearing and made findings that are reflected in this report. 

STATEMENT OF GENERAL PERFORMANCE GOALS AND OBJECTIVES

The objective of H.R. 670 is to allow non-elderly individuals with 

disabilities to create a special needs trust on their own behalf and 

to provide for tobacco cessation benefits for mothers of newborns 

during the first year of the baby’s life. 

NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX

EXPENDITURES

In compliance with clause 3(c)(2) of rule XIII of the Rules of the 

House of Representatives, the Committee finds that H.R. 670 


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would result in no new or increased budget authority, entitlement 

authority, or tax expenditures or revenues. 

EARMARK, LIMITED TAX BENEFITS, AND LIMITED TARIFF BENEFITS

In compliance with clause 9(e), 9(f), and 9(g) of rule XXI of the 

Rules of the House of Representatives, the Committee finds that 

H.R. 670 contains no earmarks, limited tax benefits, or limited tariff benefits. 

COMMITTEE COST ESTIMATE

The Committee adopts as its own the cost estimate prepared by 

the Director of the Congressional Budget Office pursuant to section 

402 of the Congressional Budget Act of 1974. At the time this report was filed, the estimate was not available. 

CONGRESSIONAL BUDGET OFFICE ESTIMATE

At the time this report was filed, the cost estimate prepared by 

the Director of the Congressional Budget Office pursuant to section 

402 of the Congressional Budget Act of 1974 was not available. 

FEDERAL MANDATES STATEMENT

The Committee adopts as its own the estimate of Federal mandates prepared by the Director of the Congressional Budget Office 

pursuant to section 423 of the Unfunded Mandates Reform Act. 

DUPLICATION OF FEDERAL PROGRAMS

No provision of H.R. 670 establishes or reauthorizes a program 

of the Federal Government known to be duplicative of another Federal program, a program that was included in any report from the 

Government Accountability Office to Congress pursuant to section 

21 of Public Law 111–139, or a program related to a program identified in the most recent Catalog of Federal Domestic Assistance. 

DISCLOSURE OF DIRECTED RULE MAKINGS

The Committee estimates that enacting H.R. 670 specifically directs to be completed no rule making within the meaning of 5 

U.S.C. 551. 

ADVISORY COMMITTEE STATEMENT

No advisory committees within the meaning of section 5(b) of the 

Federal Advisory Committee Act were created by this legislation. 

APPLICABILITY TO LEGISLATIVE BRANCH

The Committee finds that the legislation does not relate to the 

terms and conditions of employment or access to public services or 

accommodations within the meaning of section 102(b)(3) of the Congressional Accountability Act. 


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SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title; table of contents 

This section provides the short title of the ‘‘Special Needs Trust 

Fairness and Medicaid Improvement Act’’ and a table of contents. 

Section 2. Fairness in medicaid supplemental needs trusts 

This section would, effective upon enactment, extend the special 

needs trust exception for non-elderly individuals with disabilities to 

trusts established by such individuals on their own behalf. 

Section 3. Medicaid coverage of tobacco cessation services for mothers of newborns 

This section would, effective two years after enactment, require 

States to provide Medicaid coverage of tobacco cessation services to 

beneficiaries who are mothers of newborns for the first year of the 

infant’s life. The section would also require the Inspector General 

of the Department of Health and Human Services to issue a report, 

not later than two years after enactment, that assesses the use of 

the existing tobacco cessation benefit for pregnant women under 

Medicaid. 

Section 4. Eliminating federal matching for medicaid expenditures 

on drugs used for cosmetic purposes or hair growth 

This section would prohibit Federal financial participation for 

drugs used for cosmetic purposes or hair growth, except where 

medically necessary. This policy takes effect for calendar quarters 

beginning on or after the date of enactment. 

Section 5. Medicaid improvement fund 

This section would make available, until expended, $10 million 

in 2021, and an additional $14 million in 2022, in the Medicaid Improvement Fund. 

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the 

House of Representatives, changes in existing law made by the bill, 

as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, 

and existing law in which no change is proposed is shown in 

roman): 

SOCIAL SECURITY ACT 

* * * * * * * 

TITLE XIX—GRANTS TO STATES FOR MEDICAL ASSISTANCE 

PROGRAMS 

* * * * * * * 

PAYMENT TO STATES

SEC. 1903. (a) From the sums appropriated therefor, the Secretary (except as otherwise provided in this section) shall pay to 


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each State which has a plan approved under this title, for each 

quarter, beginning with the quarter commencing January 1, 1966— 

(1) an amount equal to the Federal medical assistance percentage (as defined in section 1905(b), subject to subsections (g) 

and (j) of this section and subsection 1923(f)) of the total 

amount expended during such quarter as medical assistance 

under the State plan; plus 

(2)(A) an amount equal to 75 per centum of so much of the 

sums expended during such quarter (as found necessary by the 

Secretary for the proper and efficient administration of the 

State plan) as are attributable to compensation or training of 

skilled professional medical personnel, and staff directly supporting such personnel, of the State agency or any other public 

agency; plus 

(B) notwithstanding paragraph (1) or subparagraph (A), with 

respect to amounts expended for nursing aide training and 

competency evaluation programs, and competency evaluation 

programs, described in section 1919(e)(1) (including the costs 

for nurse aides to complete such competency evaluation programs), regardless of whether the programs are provided in or 

outside nursing facilities or of the skill of the personnel involved in such programs, an amount equal to 50 percent (or, 

for calendar quarters beginning on or after July 1, 1988, and 

before October 1, 1990, the lesser of 90 percent or the Federal 

medical assistance percentage plus 25 percentage points) of so 

much of the sums expended during such quarter (as found necessary by the Secretary for the proper and efficient administration of the State plan) as are attributable to such programs; 

plus 

(C) an amount equal to 75 percent of so much of the sums 

expended during such quarter (as found necessary by the Secretary for the proper and efficient administration of the State 

plan) as are attributable to preadmission screening and resident review activities conducted by the State under section 

1919(e)(7); plus 

(D) for each calendar quarter during— 

(i) fiscal year 1991, an amount equal to 90 percent, 

(ii) fiscal year 1992, an amount equal to 85 percent, 

(iii) fiscal year 1993, an amount equal to 80 percent, and 

(iv) fiscal year 1994 and thereafter, an amount equal to 

75 percent, 

of so much of the sums expended during such quarter (as 

found necessary by the Secretary for the proper and efficient 

administration of the State plan) as are attributable to State 

activities under section 1919(g); plus 

(E) an amount equal to 75 percent of so much of the sums 

expended during such quarter (as found necessary by the Secretary for the proper and efficient administration of the State 

plan) as are attributable to translation or interpretation services in connection with the enrollment of, retention of, and use 

of services under this title by, children of families for whom 

English is not the primary language; plus 

(3) an amount equal to— 

(A)(i) 90 per centum of so much of the sums expended 

during such quarter as are attributable to the design, deVerDate Sep 11 2014 07:21 Sep 11, 2016 Jkt 059006 PO 00000 Frm 00007 Fmt 6659 Sfmt 6602 E:\HR\OC\HR734.XXX HR734

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velopment, or installation of such mechanized claims processing and information retrieval systems as the Secretary 

determines are likely to provide more efficient, economical, 

and effective administration of the plan and to be compatible with the claims processing and information retrieval 

systems utilized in the administration of title XVIII, including the State’s share of the cost of installing such a 

system to be used jointly in the administration of such 

State’s plan and the plan of any other State approved 

under this title, 

(ii) 90 per centum of so much of the sums expended during any such quarter in the fiscal year ending June 30, 

1972, or the fiscal year ending June 30, 1973, as are attributable to the design, development, or installation of 

cost determination systems for State-owned general hospitals (except that the total amount paid to all States 

under this clause for either such fiscal year shall not exceed $150,000), and 

(iii) an amount equal to the Federal medical assistance 

percentage (as defined in section 1905(b)) of so much of the 

sums expended during such quarter (as found necessary by 

the Secretary for the proper and efficient administration of 

the State plan) as are attributable to such developments or 

modifications of systems of the type described in clause (i) 

as are necessary for the efficient collection and reporting 

on child health measures; and 

(B) 75 per centum of so much of the sums expended during such quarter as are attributable to the operation of 

systems (whether such systems are operated directly by 

the State or by another person under a contract with the 

State) of the type described in subparagraph (A)(i) (whether or not designed, developed, or installed with assistance 

under such subparagraph) which are approved by the Secretary and which include provision for prompt written notice to each individual who is furnished services covered by 

the plan, or to each individual in a sample group of individuals who are furnished such services, of the specific 

services (other than confidential services) so covered, the 

name of the person or persons furnishing the services, the 

date or dates on which the services were furnished, and 

the amount of the payment or payments made under the 

plan on account of the services; and 

(C)(i) 75 per centum of the sums expended with respect 

to costs incurred during such quarter (as found necessary 

by the Secretary for the proper and efficient administration of the State plan) as are attributable to the performance of medical and utilization review by a utilization and 

quality control peer review organization or by an entity 

which meets the requirements of section 1152, as determined by the Secretary, under a contract entered into 

under section 1902(d); and 

(ii) 75 percent of the sums expended with respect to 

costs incurred during such quarter (as found necessary by 

the Secretary for the proper and efficient administration of 

the State plan) as are attributable to the performance of 


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independent external reviews conducted under section 

1932(c)(2); and 

(D) 75 percent of so much of the sums expended by the 

State plan during a quarter in 1991, 1992, or 1993, as the 

Secretary determines is attributable to the statewide adoption of a drug use review program which conforms to the 

requirements of section 1927(g); 

(E) 50 percent of the sums expended with respect to 

costs incurred during such quarter as are attributable to 

providing— 

(i) services to identify and educate individuals who 

are likely to be eligible for medical assistance under 

this title and who have Sickle Cell Disease or who are 

carriers of the sickle cell gene, including education regarding how to identify such individuals; or 

(ii) education regarding the risks of stroke and other 

complications, as well as the prevention of stroke and 

other complications, in individuals who are likely to be 

eligible for medical assistance under this title and who 

have Sickle Cell Disease; and 

(F)(i) 100 percent of so much of the sums expended during such quarter as are attributable to payments to Medicaid providers described in subsection (t)(1) to encourage 

the adoption and use of certified EHR technology; and 

(ii) 90 percent of so much of the sums expended during 

such quarter as are attributable to payments for reasonable administrative expenses related to the administration 

of payments described in clause (i) if the State meets the 

condition described in subsection (t)(9); plus 

(H)(i) 90 percent of the sums expended during the quarter as are attributable to the design, development, or installation of such mechanized verification and information 

retrieval systems as the Secretary determines are necessary to implement section 1902(ee) (including a system 

described in paragraph (2)(B) thereof), and 

(ii) 75 percent of the sums expended during the quarter 

as are attributable to the operation of systems to which 

clause (i) applies, plus 

(4) an amount equal to 100 percent of the sums expended 

during the quarter which are attributable to the costs of the 

implementation and operation of the immigration status 

verification system described in section 1137(d); plus 

(5) an amount equal to 90 per centum of the sums expended 

during such quarter which are attributable to the offering, arranging, and furnishing (directly or on a contract basis) of family planning services and supplies; 

(6) subject to subsection (b)(3), an amount equal to— 

(A) 90 per centum of the sums expended during such a 

quarter within the twelve-quarter period beginning with 

the first quarter in which a payment is made to the State 

pursuant to this paragraph, and 

(B) 75 per centum of the sums expended during each 

succeeding calendar quarter, 

with respect to costs incurred during such quarter (as found 

necessary by the Secretary for the elimination of fraud in the 


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provision and administration of medical assistance provided 

under the State plan) which are attributable to the establishment and operation of (including the training of personnel employed by) a State medicaid fraud control unit (described in 

subsection (q)); plus 

(7) subject to section 1919(g)(3)(B), an amount equal to 50 

per centum of the remainder of the amounts expended during 

such quarter as found necessary by the Secretary for the proper and efficient administration of the State plan. 

(b)(1) Notwithstanding the preceding provisions of this section, 

the amount determined under subsection (a)(1) for any State for 

any quarter beginning after December 31, 1969, shall not take into 

account any amounts expended as medical assistance with respect 

to individuals aged 65 or over and disabled individuals entitled to 

hospital insurance benefits under title XVIII which would not have 

been so expended if the individuals involved had been enrolled in 

the insurance program established by part B of title XVIII, other 

than amounts expended under provisions of the plan of such State 

required by section 1902(a)(34). 

(2) For limitation on Federal participation for capital expenditures which are out of conformity with a comprehensive plan of a 

State or areawide planning agency, see section 1122. 

(3) The amount of funds which the Secretary is otherwise obligated to pay a State during a quarter under subsection (a)(6) may 

not exceed the higher of— (A) $125,000, or 

(B) one-quarter of 1 per centum of the sums expended by the 

Federal, State, and local governments during the previous 

quarter in carrying out the State’s plan under this title. 

(4) Amounts expended by a State for the use of an enrollment 

broker in marketing medicaid managed care organizations and 

other managed care entities to eligible individuals under this title 

shall be considered, for purposes of subsection (a)(7), to be necessary for the proper and efficient administration of the State plan 

but only if the following conditions are met with respect to the 

broker: 

(A) The broker is independent of any such entity and of any 

health care providers (whether or not any such provider participates in the State plan under this title) that provide coverage of services in the same State in which the broker is conducting enrollment activities. 

(B) No person who is an owner, employee, consultant, or has 

a contract with the broker either has any direct or indirect financial interest with such an entity or health care provider or 

has been excluded from participation in the program under 

this title or title XVIII or debarred by any Federal agency, or 

subject to a civil money penalty under this Act. 

(5) Notwithstanding the preceding provisions of this section, the 

amount determined under subsection (a)(1) for any State shall be 

decreased in a quarter by the amount of any health care related 

taxes (described in section 1902(w)(3)(A)) that are imposed on a 

hospital described in subsection (w)(3)(F) in that quarter. 

(c) Nothing in this title shall be construed as prohibiting or restricting, or authorizing the Secretary to prohibit or restrict, payment under subsection (a) for medical assistance for covered servVerDate Sep 11 2014 07:21 Sep 11, 2016 Jkt 059006 PO 00000 Frm 00010 Fmt 6659 Sfmt 6602 E:\HR\OC\HR734.XXX HR734

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ices furnished to a child with a disability because such services are 

included in the child’s individualized education program established pursuant to part B of the Individuals with Disabilities Education Act or furnished to an infant or toddler with a disability because such services are included in the child’s individualized family 

service plan adopted pursuant to part C of such Act. 

(d)(1) Prior to the beginning of each quarter, the Secretary shall 

estimate the amount to which a State will be entitled under subsections (a) and (b) for such quarter, such estimates to be based on 

(A) a report filed by the State containing its estimate of the total 

sum to be expended in such quarter in accordance with the provisions of such subsections, and stating the amount appropriated or 

made available by the State and its political subdivisions for such 

expenditures in such quarter, and if such amount is less than the 

State’s proportionate share of the total sum of such estimated expenditures, the source or sources from which the difference is expected to be derived, and (B) such other investigation as the Secretary may find necessary. 

(2)(A) The Secretary shall then pay to the State, in such installments as he may determine, the amount so estimated, reduced or 

increased to the extent of any overpayment or underpayment which 

the Secretary determines was made under this section to such 

State for any prior quarter and with respect to which adjustment 

has not already been made under this subsection. 

(B) Expenditures for which payments were made to the State 

under subsection (a) shall be treated as an overpayment to the extent that the State or local agency administering such plan has 

been reimbursed for such expenditures by a third party pursuant 

to the provisions of its plan in compliance with section 1902(a)(25). 

(C) For purposes of this subsection, when an overpayment is discovered, which was made by a State to a person or other entity, 

the State shall have a period of 1 year in which to recover or attempt to recover such overpayment before adjustment is made in 

the Federal payment to such State on account of such overpayment. Except as otherwise provided in subparagraph (D), the adjustment in the Federal payment shall be made at the end of the 

1-year period, whether or not recovery was made. 

(D)(i) In any case where the State is unable to recover a debt 

which represents an overpayment (or any portion thereof) made to 

a person or other entity on account of such debt having been discharged in bankruptcy or otherwise being uncollectable, no adjustment shall be made in the Federal payment to such State on account of such overpayment (or portion thereof). 

(ii) In any case where the State is unable to recover a debt which 

represents an overpayment (or any portion thereof) made to a person or other entity due to fraud within 1 year of discovery because 

there is not a final determination of the amount of the overpayment under an administrative or judicial process (as applicable), including as a result of a judgment being under appeal, no adjustment shall be made in the Federal payment to such State on account of such overpayment (or portion thereof) before the date that 

is 30 days after the date on which a final judgment (including, if 

applicable, a final determination on an appeal) is made. 

(3)(A) The pro rata share to which the United States is equitably 

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ered during any quarter by the State or any political subdivision 

thereof with respect to medical assistance furnished under the 

State plan shall be considered an overpayment to be adjusted 

under this subsection. 

(B)(i) Subparagraph (A) and paragraph (2)(B) shall not apply to 

any amount recovered or paid to a State as part of the comprehensive settlement of November 1998 between manufacturers of tobacco products, as defined in section 5702(d) of the Internal Revenue Code of 1986, and State Attorneys General, or as part of any 

individual State settlement or judgment reached in litigation initiated or pursued by a State against one or more such manufacturers. 

(ii) Except as provided in subsection (i)(19), a State may use 

amounts recovered or paid to the State as part of a comprehensive 

or individual settlement, or a judgment, described in clause (i) for 

any expenditures determined appropriate by the State. 

(4) Upon the making of any estimate by the Secretary under this 

subsection, any appropriations available for payments under this 

section shall be deemed obligated. 

(5) In any case in which the Secretary estimates that there has 

been an overpayment under this section to a State on the basis of 

a claim by such State that has been disallowed by the Secretary 

under section 1116(d), and such State disputes such disallowance, 

the amount of the Federal payment in controversy shall, at the option of the State, be retained by such State or recovered by the Secretary pending a final determination with respect to such payment 

amount. If such final determination is to the effect that any 

amount was properly disallowed, and the State chose to retain payment of the amount in controversy, the Secretary shall offset, from 

any subsequent payments made to such State under this title, an 

amount equal to the proper amount of the disallowance plus interest on such amount disallowed for the period beginning on the date 

such amount was disallowed and ending on the date of such final 

determination at a rate (determined by the Secretary) based on the 

average of the bond equivalent of the weekly 90-day treasury bill 

auction rates during such period. 

(6)(A) Each State (as defined in subsection (w)(7)(D)) shall include, in the first report submitted under paragraph (1) after the 

end of each fiscal year, information related to— 

(i) provider-related donations made to the State or units of 

local government during such fiscal year, and 

(ii) health care related taxes collected by the State or such 

units during such fiscal year. 

(B) Each State shall include, in the first report submitted under 

paragraph (1) after the end of each fiscal year, information related 

to the total amount of payment adjustments made, and the amount 

of payment adjustments made to individual providers (by provider), 

under section 1923(c) during such fiscal year. 

(e) A State plan approved under this title may include, as a cost 

with respect to hospital services under the plan under this title, 

periodic expenditures made to reflect transitional allowances established with respect to a hospital closure or conversion under section 

1884. 

(f)(1)(A) Except as provided in paragraph (4), payment under the 

preceding provisions of this section shall not be made with respect 


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to any amount expended as medical assistance in a calendar quarter, in any State, for any member of a family the annual income 

of which exceeds the applicable income limitation determined 

under this paragraph. 

(B)(i) Except as provided in clause (ii) of this subparagraph, the 

applicable income limitation with respect to any family is the 

amount determined, in accordance with standards prescribed by 

the Secretary, to be equivalent to 1331⁄3 percent of the highest 

amount which would ordinarily be paid to a family of the same size 

without any income or resources, in the form of money payments, 

under the plan of the State approved under part A of title IV of 

this Act. 

(ii) If the Secretary finds that the operation of a uniform maximum limits payments to families of more than one size, he may 

adjust the amount otherwise determined under clause (i) to take 

account of families of different sizes. 

(C) The total amount of any applicable income limitation deter- mined under subparagraph (B) shall, if it is not a multiple of $100 

or such other amount as the Secretary may prescribe, be rounded 

to the next higher multiple of $100 or such other amount, as the 

case may be. 

(2)(A) In computing a family’s income for purposes of paragraph 

(1), there shall be excluded any costs (whether in the form of insurance premiums or otherwise and regardless of whether such costs 

are reimbursed under another public program of the State or political subdivision thereof) incurred by such family for medical care 

or for any other type of remedial care recognized under State law 

or, (B) notwithstanding section 1916 at State option, an amount 

paid by such family, at the family’s option, to the State, provided 

that the amount, when combined with costs incurred in prior 

months, is sufficient when excluded from the family’s income to reduce such family’s income below the applicable income limitation 

described in paragraph (1). The amount of State expenditures for 

which medical assistance is available under subsection (a)(1) will 

be reduced by amounts paid to the State pursuant to this subparagraph. 

(3) For purposes of paragraph (1)(B), in the case of a family consisting of only one individual, the ‘‘highest amount which would ordinarily be paid’’ to such family under the State’s plan approved 

under part A of title IV of this Act shall be the amount determined 

by the State agency (on the basis of reasonable relationship to the 

amounts payable under such plan to families consisting of two or 

more persons) to be the amount of the aid which would ordinarily 

be payable under such plan to a family (without any income or resources) consisting of one person if such plan provided for aid to 

such a family. 

(4) The limitations on payment imposed by the preceding provisions of this subsection shall not apply with respect to any amount 

expended by a State as medical assistance for any individual described in section 1902(a)(10)(A)(i)(III), 1902(a)(10)(A)(i)(IV), 

1902(a)(10)(A)(i)(V), 1902(a)(10)(A)(i)(VI), 1902(a)(10)(A)(i)(VII), 

1902(a)(10)(A)(i)(VIII),1902(a)(10)(A)(i)(IX), 1902(a)(10)(A)(ii)(IX), 

1902(a)(10)(A)(ii)(X), 1902(a)(10)(A)(ii)(XIII), 1902(a)(10)(A)(ii)(XIV), 

or 1902(a)(10)(A)(ii)(XV), 1902(a)(10)(A)(ii)(XVI), 

1902(a)(10)(A)(ii)(XVII), 1902(a)(10)(A)(ii)(XVIII), 


smartinez on DSK3GLQ082PROD with REPORTS-HSE
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1902(a)(10)(A)(ii)(XIX), 1902(a)(10)(A)(ii)(XX), 

1902(a)(10)(A)(ii)(XXI), 1902(a)(10)(A)(ii)(XXII), 1905(p)(1) or for 

any individual— 

(A) who is receiving aid or assistance under any plan of the 

State approved under title I, X, XIV or XVI, or part A of title 

IV, or with respect to whom supplemental security income benefits are being paid under title XVI, or 

(B) who is not receiving such aid or assistance, and with respect to whom such benefits are not being paid, but (i) is eligible to receive such aid or assistance, or to have such benefits 

paid with respect to him, or (ii) would be eligible to receive 

such aid or assistance, or to have such benefits paid with respect to him if he were not in a medical institution, or 

(C) with respect to whom there is being paid, or who is eligible, or would be eligible if he were not in a medical institution, 

to have paid with respect to him, a State supplementary payment and is eligible for medical assistance equal in amount, 

duration, and scope to the medical assistance made available 

to individuals described in section 1902(a)(10)(A), or who is a 

PACE program eligible individual enrolled in a PACE program 

under section 1934, but only if the income of such individual 

(as determined under section 1612, but without regard to subsection (b) thereof) does not exceed 300 percent of the supplemental security income benefit rate established by section 

1611(b)(1), 

at the time of the provision of the medical assistance giving rise 

to such expenditure. 

(g)(1) Subject to paragraph (3), with respect to amounts paid for 

the following services furnished under the State plan after June 30, 

1973 (other than services furnished pursuant to a contract with a 

health maintenance organization as defined in section 1876 or 

which is a qualified health maintenance organization (as defined in 

section 1310(d) of the Public Health Service Act)), the Federal medical assistance percentage shall be decreased as follows: After an 

individual has received inpatient hospital services or services in an 

intermediate care facility for the mentally retarded for 60 days or 

inpatient mental hospital services for 90 days (whether or not such 

days are consecutive), during any fiscal year, the Federal medical 

assistance percentage with respect to amounts paid for any such 

care furnished thereafter to such individual shall be decreased by 

a per centum thereof (determined under paragraph (5)) unless the 

State agency responsible for the administration of the plan makes 

a showing satisfactory to the Secretary that, with respect to each 

calendar quarter for which the State submits a request for payment at the full Federal medical assistance percentage for amounts 

paid for inpatient hospital services or services in an intermediate 

care facility for the mentally retarded furnished beyond 60 days (or 

inpatient mental hospital services furnished beyond 90 days), such 

State has an effective program of medical review of the care of patients in mental hospitals and intermediate care facilities for the 

mentally retarded pursuant to paragraphs (26) and (31) of section 

1902(a) whereby the professional management of each case is reviewed and evaluated at least annually by independent professional review teams. In determining the number of days on which 

an individual has received services described in this subsection, 


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there shall not be counted any days with respect to which such individual is entitled to have payments made (in whole or in part) 

on his behalf under section 1812. 

(2) The Secretary shall, as part of his validation procedures 

under this subsection, conduct timely sample onsite surveys of private and public institutions in which recipients of medical assistance may receive care and services under a State plan approved 

under this title, and his findings with respect to such surveys (as 

well as the showings of the State agency required under this subsection) shall be made available for public inspection. 

(3)(A) No reduction in the Federal medical assistance percentage 

of a State otherwise required to be imposed under this subsection 

shall take effect— 

(i) if such reduction is due to the State’s unsatisfactory or invalid showing made with respect to a calendar quarter beginning before January 1, 1977; 

(ii) before January 1, 1978; 

(iii) unless a notice of such reduction has been provided to 

the State at least 30 days before the date such reduction takes 

effect; or 

(iv) due to the State’s unsatisfactory or invalid showing made 

with respect to a calendar quarter beginning after September 

30, 1977, unless notice of such reduction has been provided to 

the State no later than the first day of the fourth calendar 

quarter following the calendar quarter with respect to which 

such showing was made. 

(B) The Secretary shall waive application of any reduction in the 

Federal medical assistance percentage of a State otherwise required to be imposed under paragraph (1) because a showing by the 

State, made under such paragraph with respect to a calendar quarter ending after January 1, 1977, and before January 1, 1978, is 

determined to be either unsatisfactory under such paragraph or invalid under paragraph (2), if the Secretary determines that the 

State’s showing made under paragraph (1) with respect to any calendar quarter ending on or before December 31, 1978, is satisfactory under such paragraph and is valid under paragraph (2). 

(4)(A) The Secretary may not find the showing of a State, with 

respect to a calendar quarter under paragraph (1), to be satisfactory if the showing is submitted to the Secretary later than the 

30th day after the last day of the calendar quarter, unless the 

State demonstrates to the satisfaction of the Secretary good cause 

for not meeting such deadline. 

(B) The Secretary shall find a showing of a State, with respect 

to a calendar quarter under paragraph (1), to be satisfactory under 

such paragraph with respect to the requirement that the State conduct annual onsite inspections in mental hospitals and intermediate care facilities for the mentally retarded under paragraphs 

(26) and (31) of section 1902(a), if the showing demonstrates that 

the State has conducted such an onsite inspection during the 12- 

month period ending on the last date of the calendar quarter— 

(i) in each of not less than 98 per centum of the number of 

such hospitals and facilities requiring such inspection, and 

(ii) in every such hospital or facility which has 200 or more 

beds, 


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and that, with respect to such hospitals and facilities not inspected 

within such period, the State has exercised good faith and due diligence in attempting to conduct such inspection, or if the State demonstrates to the satisfaction of the Secretary that it would have 

made such a showing but for failings of a technical nature only. 

(5) In the case of a State’s unsatisfactory or invalid showing 

made with respect to a type of facility or institutional services in 

a calendar quarter, the per centum amount of the reduction of the 

State’s Federal medical assistance percentage for that type of services under paragraph (1) is equal to 331⁄3 per centum multiplied by 

a fraction, the denominator of which is equal to the total number 

of patients receiving that type of services in that quarter under the 

State plan in facilities or institutions for which a showing was required to be made under this subsection, and the numerator of 

which is equal to the number of such patients receiving such type 

of services in that quarter in those facilities or institutions for 

which a satisfactory and valid showing was not made for that calendar quarter. 

(6)(A) Recertifications required under section 1902(a)(44) shall be 

conducted at least every 60 days in the case of inpatient hospital 

services. 

(B) Such recertifications in the case of services in an intermediate care facility for the mentally retarded shall be conducted 

at least— 

(i) 60 days after the date of the initial certification, 

(ii) 180 days after the date of the initial certification, 

(iii) 12 months after the date of the initial certification, 

(iv) 18 months after the date of the initial certification, 

(v) 24 months after the date of the initial certification, and 

(vi) every 12 months thereafter. 

(C) For purposes of determining compliance with the schedule established by this paragraph, a recertification shall be considered to 

have been done on a timely basis if it was performed not later than 

10 days after the date the recertification was otherwise required 

and the State establishes good cause why the physician or other 

person making such recertification did not meet such schedule. 

(i) Payment under the preceding provisions of this section shall 

not be made— 

(1) for organ transplant procedures unless the State plan 

provides for written standards respecting the coverage of such 

procedures and unless such standards provide that— 

(A) similarly situated individuals are treated alike; and 

(B) any restriction, on the facilities or practitioners 

which may provide such procedures, is consistent with the 

accessibility of high quality care to individuals eligible for 

the procedures under the State plan; or 

(2) with respect to any amount expended for an item or service (other than an emergency item or service, not including 

items or services furnished in an emergency room of a hospital) 

furnished— 

(A) under the plan by any individual or entity during 

any period when the individual or entity is excluded from 

participation under title V, XVIII, or XX or under this title 

pursuant to section 1128, 1128A, 1156, or 1842(j)(2), 


smartinez on DSK3GLQ082PROD with REPORTS-HSE
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(B) at the medical direction or on the prescription of a 

physician, during the period when such physician is excluded from participation under title V, XVIII, or XX or 

under this title pursuant to section 1128, 1128A, 1156, or 

1842(j)(2) and when the person furnishing such item or 

service knew or had reason to know of the exclusion (after 

a reasonable time period after reasonable notice has been 

furnished to the person); or 

(C) by any individual or entity to whom the State has 

failed to suspend payments under the plan during any period when there is pending an investigation of a credible 

allegation of fraud against the individual or entity, as determined by the State in accordance with regulations promulgated by the Secretary for purposes of section 1862(o) 

and this subparagraph, unless the State determines in accordance with such regulations there is good cause not to 

suspend such payments; or 

(3) with respect to any amount expended for inpatient hospital services furnished under the plan (other than amounts attributable to the special situation of a hospital which serves a 

disproportionate number of low income patients with special 

needs) to the extent that such amount exceeds the hospital’s 

customary charges with respect to such services or (if such 

services are furnished under the plan by a public institution 

free of charge or at nominal charges to the public) exceeds an 

amount determined on the basis of those items (specified in 

regulations prescribed by the Secretary) included in the determination of such payment which the Secretary finds will provide fair compensation to such institution for such services; or 

(4) with respect to any amount expended for care or services 

furnished under the plan by a hospital unless such hospital 

has in effect a utilization review plan which meets the requirements imposed by section 1861(k) for purposes of title XVIII; 

and if such hospital has in effect such a utilization review plan 

for purposes of title XVIII, such plan shall serve as the plan 

required by this subsection (with the same standards and procedures and the same review committee or group) as a condition of payment under this title; the Secretary is authorized to 

waive the requirements of this paragraph if the State agency 

demonstrates to his satisfaction that it has in operation utilization review procedures which are superior in their effectiveness 

to the procedures required under section 1861(k); or 

(5) with respect to any amount expended for any drug product for which payment may not be made under part B of title 

XVIII because of section 1862(c); or 

(6) with respect to any amount expended for inpatient hospital tests (other than in emergency situations) not specifically 

ordered by the attending physician or other responsible practitioner; or 

(7) with respect to any amount expended for clinical diagnostic laboratory tests performed by a physician, independent 

laboratory, or hospital, to the extent such amount exceeds the 

amount that would be recognized under section 1833(h) for 

such tests performed for an individual enrolled under part B 

of title XVIII; or 


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(8) with respect to any amount expended for medical assistance (A) for nursing facility services to reimburse (or otherwise 

compensate) a nursing facility for payment of a civil money 

penalty imposed under section 1919(h) or (B) for home and 

community care to reimburse (or otherwise compensate) a provider of such care for payment of a civil money penalty imposed under this title or title XI or for legal expenses in defense of an exclusion or civil money penalty under this title or 

title XI if there is no reasonable legal ground for the provider’s 

case; or 

(10)(A) with respect to covered outpatient drugs unless there 

is a rebate agreement in effect under section 1927 with respect 

to such drugs or unless section 1927(a)(3) applies, 

(B) with respect to any amount expended for an innovator 

multiple source drug (as defined in section 1927(k)) dispensed 

on or after July 1, 1991, if, under applicable State law, a less 

expensive multiple source drug could have been dispensed, but 

only to the extent that such amount exceeds the upper payment limit for such multiple source drug; 

(C) with respect to covered outpatient drugs described in 

section 1927(a)(7), unless information respecting utilization data and coding on such drugs that is required to be 

submitted under such section is submitted in accordance 

with such section, and 

(D) with respect to any amount expended for reimbursement 

to a pharmacy under this title for the ingredient cost of a covered outpatient drug for which the pharmacy has already received payment under this title (other than with respect to a 

reasonable restocking fee for such drug); or 

(11) with respect to any amount expended for physicians’ 

services furnished on or after the first day of the first quarter 

beginning more than 60 days after the date of establishment 

of the physician identifier system under section 1902(x), unless 

the claim for the services includes the unique physician identifier provided under such system; or 

(13) with respect to any amount expended to reimburse (or 

otherwise compensate) a nursing facility for payment of legal 

expenses associated with any action initiated by the facility 

that is dismissed on the basis that no reasonable legal ground 

existed for the institution of such action; or 

(14) with respect to any amount expended on administrative 

costs to carry out the program under section 1928; or 

(15) with respect to any amount expended for a single-antigen vaccine and its administration in any case in which the administration of a combined-antigen vaccine was medically appropriate (as determined by the Secretary); or 

(16) with respect to any amount expended for which funds 

may not be used under the Assisted Suicide Funding Restriction Act of 1997; or 

(17) with respect to any amount expended for roads, bridges, 

stadiums, or any other item or service not covered under a 

State plan under this title; or 

(18) with respect to any amount expended for home health 

care services provided by an agency or organization unless the 

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smartinez on DSK3GLQ082PROD with REPORTS-HSE
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tinuing basis a surety bond in a form specified by the Secretary under paragraph (7) of section 1861(o) and in an 

amount that is not less than $50,000 or such comparable surety bond as the Secretary may permit under the last sentence 

of such section; or 

(19) with respect to any amount expended on administrative 

costs to initiate or pursue litigation described in subsection 

(d)(3)(B); 

(20) with respect to amounts expended for medical assistance 

provided to an individual described in subclause (XV) or (XVI) 

of section 1902(a)(10)(A)(ii) for a fiscal year unless the State 

demonstrates to the satisfaction of the Secretary that the level 

of State funds expended for such fiscal year for programs to enable working individuals with disabilities to work (other than 

for such medical assistance) is not less than the level expended 

for such programs during the most recent State fiscal year ending before the date of the enactment of this paragraph; 

(21) with respect to amounts expended for covered outpatient 

drugs described in section 1927(d)(2)(C) (relating to drugs when 

used for cosmetic purposes or hair growth), except where medically necessary, and section 1927(d)(2)(K) (relating to drugs 

when used for treatment of sexual or erectile dysfunction); 

(22) with respect to amounts expended for medical assistance 

for an individual who declares under section 1137(d)(1)(A) to be 

a citizen or national of the United States for purposes of establishing eligibility for benefits under this title, unless the requirement of section 1902(a)(46)(B) is met; 

(23) with respect to amounts expended for medical assistance 

for covered outpatient drugs (as defined in section 1927(k)(2)) 

for which the prescription was executed in written (and nonelectronic) form unless the prescription was executed on a tamper-resistant pad; 

(24) if a State is required to implement an asset verification 

program under section 1940 and fails to implement such program in accordance with such section, with respect to amounts 

expended by such State for medical assistance for individuals 

subject to asset verification under such section, unless— 

(A) the State demonstrates to the Secretary’s satisfaction 

that the State made a good faith effort to comply; 

(B) not later than 60 days after the date of a finding 

that the State is in noncompliance, the State submits to 

the Secretary (and the Secretary approves) a corrective action plan to remedy such noncompliance; and 

(C) not later than 12 months after the date of such submission (and approval), the State fulfills the terms of such 

corrective action plan; 

(25) with respect to any amounts expended for medical assistance for individuals for whom the State does not report enrollee encounter data (as defined by the Secretary) to the Medicaid Statistical Information System (MSIS) in a timely manner (as determined by the Secretary); 

(26) with respect to any amounts expended for medical assistance for individuals described in subclause (VIII) of subsection (a)(10)(A)(i) other than medical assistance provided 

through benchmark coverage described in section 1937(b)(1) or 


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benchmark equivalent coverage described in section 1937(b)(2); 

or 

(27) with respect to any amounts expended by the State on 

the basis of a fee schedule for items described in section 

1861(n) and furnished on or after January 1, 2019, as determined in the aggregate with respect to each class of such items 

as defined by the Secretary, in excess of the aggregate amount, 

if any, that would be paid for such items within such class on 

a fee-for-service basis under the program under part B of title 

XVIII, including, as applicable, under a competitive acquisition 

program under section 1847 in an area of the State. 

Nothing in paragraph (1) shall be construed as permitting a State 

to provide services under its plan under this title that are not reasonable in amount, duration, and scope to achieve their purpose. 

Paragraphs (1), (2), (16), (17), and (18) shall apply with respect to 

items or services furnished and amounts expended by or through 

a managed care entity (as defined in section 1932(a)(1)(B)) in the 

same manner as such paragraphs apply to items or services furnished and amounts expended directly by the State. 

(j) Notwithstanding the preceding provisions of this section, the 

amount determined under subsection (a)(1) for any State for any 

quarter shall be adjusted in accordance with section 1914. 

(k) The Secretary is authorized to provide at the request of any 

State (and without cost to such State) such technical and actuarial 

assistance as may be necessary to assist such State to contract 

with any medicaid managed care organization which meets the requirements of subsection (m) of this section for the purpose of providing medical care and services to individuals who are entitled to 

medical assistance under this title. 

(m)(1)(A) The term ‘‘medicaid managed care organization’’ means 

a health maintenance organization, an eligible organization with a 

contract under section 1876 or a Medicare+Choice organization 

with a contract under part C of title XVIII, a provider sponsored 

organization, or any other public or private organization, which 

meets the requirement of section 1902(w) and— 

(i) makes services it provides to individuals eligible for benefits under this title accessible to such individuals, within the 

area served by the organization, to the same extent as such 

services are made accessible to individuals (eligible for medical 

assistance under the State plan) not enrolled with the organization, and 

(ii) has made adequate provision against the risk of insolvency, which provision is satisfactory to the State, meets the 

requirements of subparagraph (C)(i) (if applicable), and which 

assures that individuals eligible for benefits under this title 

are in no case held liable for debts of the organization in case 

of the organization’s insolvency. 

An organization that is a qualified health maintenance organization (as defined in section 1310(d) of the Public Health Service Act) 

is deemed to meet the requirements of clauses (i) and (ii). 

(B) The duties and functions of the Secretary, insofar as they involve making determinations as to whether an organization is a 

medicaid managed care organization within the meaning of subparagraph (A), shall be integrated with the administration of section 1312 (a) and (b) of the Public Health Service Act. 


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(C)(i) Subject to clause (ii), a provision meets the requirements 

of this subparagraph for an organization if the organization meets 

solvency standards established by the State for private health 

maintenance organizations or is licensed or certified by the State 

as a risk-bearing entity. 

(ii) Clause (i) shall not apply to an organization if— 

(I) the organization is not responsible for the provision (directly or through arrangements with providers of services) of 

inpatient hospital services and physicians’ services; 

(II) the organization is a public entity; 

(III) the solvency of the organization is guaranteed by the 

State; or 

(IV) the organization is (or is controlled by) one or more Federally-qualified health centers and meets solvency standards 

established by the State for such an organization. 

For purposes of subclause (IV), the term ‘‘control’’ means the possession, whether direct or indirect, of the power to direct or cause 

the direction of the management and policies of the organization 

through membership, board representation, or an ownership interest equal to or greater than 50.1 percent. 

(2)(A) Except as provided in subparagraphs (B), (C), and (G), no 

payment shall be made under this title to a State with respect to 

expenditures incurred by it for payment (determined under a prepaid capitation basis or under any other risk basis) for services provided by any entity (including a health insuring organization) 

which is responsible for the provision (directly or through arrangements with providers of services) of inpatient hospital services and 

any other service described in paragraph (2), (3), (4), (5), or (7) of 

section 1905(a) or for the provision of any three or more of the services described in such paragraphs unless— 

(i) the Secretary has determined that the entity is a medicaid managed care organization organization as defined in 

paragraph (1); 

(iii) such services are provided for the benefit of individuals 

eligible for benefits under this title in accordance with a contract between the State and the entity under which prepaid 

payments to the entity are made on an actuarially sound basis 

and under which the Secretary must provide prior approval for 

contracts providing for expenditures in excess of $1,000,000 for 

1998 and, for a subsequent year, the amount established under 

this clause for the previous year increased by the percentage 

increase in the consumer price index for all urban consumers 

over the previous year; 

(iv) such contract provides that the Secretary and the State 

(or any person or organization designated by either) shall have 

the right to audit and inspect any books and records of the entity (and of any subcontractor) that pertain (I) to the ability of 

the entity to bear the risk of potential financial losses, or (II) 

to services performed or determinations of amounts payable 

under the contract; 

(v) such contract provides that in the entity’s enrollment, reenrollment, or disenrollment of individuals who are eligible for 

benefits under this title and eligible to enroll, reenroll, or 

disenroll with the entity pursuant to the contract, the entity 


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will not discriminate among such individuals on the basis of 

their health status or requirements for health care services; 

(vi) such contract (I) permits individuals who have elected 

under the plan to enroll with the entity for provision of such 

benefits to terminate such enrollment in accordance with section 1932(a)(4), and (II) provides for notification in accordance 

with such section of each such individual, at the time of the 

individual’s enrollment, of such right to terminate such enrollment; 

(vii) such contract provides that, in the case of medically necessary services which were provided (I) to an individual enrolled with the entity under the contract and entitled to benefits with respect to such services under the State’s plan and 

(II) other than through the organization because the services 

were immediately required due to an unforeseen illness, injury, 

or condition, either the entity or the State provides for reimbursement with respect to those services, 

(viii) such contract provides for disclosure of information in 

accordance with section 1124 and paragraph (4) of this subsection; 

(ix) such contract provides, in the case of an entity that has 

entered into a contract for the provision of services with a Federally-qualified health center or a rural health clinic, that the 

entity shall provide payment that is not less than the level and 

amount of payment which the entity would make for the services if the services were furnished by a provider which is not 

a Federally-qualified health center or a rural health clinic; 

(x) any physician incentive plan that it operates meets the 

requirements described in section 1876(i)(8); 

(xi) such contract provides for maintenance of sufficient patient encounter data to identify the physician who delivers 

services to patients and for the provision of such data to the 

State at a frequency and level of detail to be specified by the 

Secretary; 

(xii) such contract, and the entity complies with the applicable requirements of section 1932; and 

(xiii) such contract provides that (I) covered outpatient 

drugs dispensed to individuals eligible for medical assistance who are enrolled with the entity shall be subject to 

the same rebate required by the agreement entered into 

under section 1927 as the State is subject to and that the 

State shall collect such rebates from manufacturers, (II) 

capitation rates paid to the entity shall be based on actual 

cost experience related to rebates and subject to the Federal regulations requiring actuarially sound rates, and (III) 

the entity shall report to the State, on such timely and 

periodic basis as specified by the Secretary in order to include in the information submitted by the State to a manufacturer and the Secretary under section 1927(b)(2)(A), 

information on the total number of units of each dosage 

form and strength and package size by National Drug 

Code of each covered outpatient drug dispensed to individuals eligible for medical assistance who are enrolled with 

the entity and for which the entity is responsible for coverage of such drug under this subsection (other than covVerDate Sep 11 2014 07:21 Sep 11, 2016 Jkt 059006 PO 00000 Frm 00022 Fmt 6659 Sfmt 6602 E:\HR\OC\HR734.XXX HR734

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ered outpatient drugs that under subsection (j)(1) of section 1927 are not subject to the requirements of that section) and such other data as the Secretary determines necessary to carry out this subsection. 

(B) Subparagraph (A) except with respect to clause (ix) of subparagraph (A), does not apply with respect to payments under this 

title to a State with respect to expenditures incurred by it for payment for services provided by an entity which— (i)(I) received a grant of at least $100,000 in the fiscal year 

ending June 30, 1976, under section 329(d)(1)(A) or 330(d)(1) 

of the Public Health Service Act, and for the period beginning 

July 1, 1976, and ending on the expiration of the period for 

which payments are to be made under this title has been the 

recipient of a grant under either such section; and 

(II) provides to its enrollees, on a prepaid capitation risk 

basis or on any other risk basis, all of the services and benefits 

described in paragraphs (1), (2), (3), (4)(C), and (5) of section 

1905(a) and, to the extent required by section 1902(a)(10)(D) to 

be provided under a State plan for medical assistance, the 

services and benefits described in paragraph (7) of section 

1905(a); or 

(ii) is a nonprofit primary health care entity located in a 

rural area (as defined by the Appalachian Regional Commission)— 

(I) which received in the fiscal year ending June 30, 1976, at least $100,000 (by grant, subgrant, or subcontract) under the Appalachian Regional Development 

Act of 1965, and 

(II) for the period beginning July 1, 1976, and ending on 

the expiration of the period for which payments are to be 

made under this title either has been the recipient of a 

grant, subgrant, or subcontract under such Act or has provided services under a contract (initially entered into during a year in which the entity was the recipient of such a 

grant, subgrant, or subcontract) with a State agency under 

this title on a prepaid capitation risk basis or on any other 

risk basis; or 

(iii) which has contracted with the single State agency for 

the provision of services (but not including inpatient hospital 

services) to persons eligible under this title on a prepaid risk 

basis prior to 1970. 

(G) In the case of an entity which is receiving (and has received 

during the previous two years) a grant of at least $100,000 under 

section 329(d)(1)(A) or 330(d)(1) of the Public Health Service Act or 

is receiving (and has received during the previous two years) at 

least $100,000 (by grant, subgrant, or subcontract) under the Appalachian Regional Development Act of 1965, clause (i) of subparagraph (A) shall not apply. 

(H) In the case of an individual who— 

(i) in a month is eligible for benefits under this title and enrolled with a medicaid managed care organization with a contract under this paragraph or with a primary care case manager with a contract described in section 1905(t)(3), 

(ii) in the next month (or in the next 2 months) is not eligible 

for such benefits, but 


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(iii) in the succeeding month is again eligible for such benefits, 

the State plan, subject to subparagraph (A)(vi), may enroll the individual for that succeeding month with the organization described 

in clause (i) if the organization continues to have a contract under 

this paragraph with the State or with the manager described in 

such clause if the manager continues to have a contract described 

in section 1905(t)(3) with the State. 

(4)(A) Each medicaid managed care organization which is not a 

qualified health maintenance organization (as defined in section 

1310(d) of the Public Health Service Act) must report to the State 

and, upon request, to the Secretary, the Inspector General of the 

Department of Health and Human Services, and the Comptroller 

General a description of transactions between the organization and 

a party in interest (as defined in section 1318(b) of such Act), including the following transactions: 

(i) Any sale or exchange, or leasing of any property between 

the organization and such a party. 

(ii) Any furnishing for consideration of goods, services (including management services), or facilities between the organization and such a party, but not including salaries paid to employees for services provided in the normal course of their employment. 

(iii) Any lending of money or other extension of credit between the organization and such a party. 

The State or Secretary may require that information reported respecting an organization which controls, or is controlled by, or is 

under common control with, another entity be in the form of a consolidated financial statement for the organization and such entity. 

(B) Each organization shall make the information reported pursuant to subparagraph (A) available to its enrollees upon reasonable request. 

(5)(A) If the Secretary determines that an entity with a contract 

under this subsection— 

(i) fails substantially to provide medically necessary items 

and services that are required (under law or under the contract) to be provided to an individual covered under the contract, if the failure has adversely affected (or has substantial 

likelihood of adversely affecting) the individual; 

(ii) imposes premiums on individuals enrolled under this 

subsection in excess of the premiums permitted under this 

title; 

(iii) acts to discriminate among individuals in violation of the 

provision of paragraph (2)(A)(v), including expulsion or refusal 

to re-enroll an individual or engaging in any practice that 

would reasonably be expected to have the effect of denying or 

discouraging enrollment (except as permitted by this subsection) by eligible individuals with the organization whose 

medical condition or history indicates a need for substantial future medical services; 

(iv) misrepresents or falsifies information that is furnished— 

(I) to the Secretary or the State under this subsection, 

or 

(II) to an individual or to any other entity under this 

subsection, or 


smartinez on DSK3GLQ082PROD with REPORTS-HSE
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(v) fails to comply with the requirements of section 

1876(i)(8), 

the Secretary may provide, in addition to any other remedies available under law, for any of the remedies described in subparagraph 

(B). 

(B) The remedies described in this subparagraph are— (i) civil money penalties of not more than $25,000 for each 

determination under subparagraph (A), or, with respect to a 

determination under clause (iii) or (iv)(I) of such subparagraph, 

of not more than $100,000 for each such determination, plus, 

with respect to a determination under subparagraph (A)(ii), 

double the excess amount charged in violation of such subparagraph (and the excess amount charged shall be deducted from 

the penalty and returned to the individual concerned), and 

plus, with respect to a determination under subparagraph 

(A)(iii), $15,000 for each individual not enrolled as a result of 

a practice described in such subparagraph, or 

(ii) denial of payment to the State for medical assistance furnished under the contract under this subsection for individuals 

enrolled after the date the Secretary notifies the organization 

of a determination under subparagraph (A) and until the Secretary is satisfied that the basis for such determination has 

been corrected and is not likely to recur. 

The provisions of section 1128A (other than subsections (a) and (b)) 

shall apply to a civil money penalty under clause (i) in the same 

manner as such provisions apply to a penalty or proceeding under 

section 1128A(a). 

(6)(A) For purposes of this subsection and section 1902(e)(2)(A), 

in the case of the State of New Jersey, the term ‘‘contract’’ shall 

be deemed to include an undertaking by the State agency, in the 

State plan under this title, to operate a program meeting all requirements of this subsection. 

(B) The undertaking described in subparagraph (A) must provide— 

(i) for the establishment of a separate entity responsible for 

the operation of a program meeting the requirements of this 

subsection, which entity may be a subdivision of the State 

agency administering the State plan under this title; 

(ii) for separate accounting for the funds used to operate 

such program; and 

(iii) for setting the capitation rates and any other payment 

rates for services provided in accordance with this subsection 

using a methodology satisfactory to the Secretary designed to 

ensure that total Federal matching payments under this title 

for such services will be lower than the matching payments 

that would be made for the same services, if provided under 

the State plan on a fee for service basis to an actuarially equivalent population. 

(C) The undertaking described in subparagraph (A) shall be subject to approval (and annual re-approval) by the Secretary in the 

same manner as a contract under this subsection. 

(D) The undertaking described in subparagraph (A) shall not be 

eligible for a waiver under section 1915(b). 

(o) Notwithstanding the preceding provisions of this section, no 

payment shall be made to a State under the preceding provisions 


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of this section for expenditures for medical assistance provided for 

an individual under its State plan approved under this title to the 

extent that a private insurer (as defined by the Secretary by regulation and including a group health plan (as defined in section 

607(1) of the Employee Retirement Income Security Act of 1974), 

a service benefit plan, and a health maintenance organization) 

would have been obligated to provide such assistance but for a provision of its insurance contract which has the effect of limiting or 

excluding such obligation because the individual is eligible for or 

is provided medical assistance under the plan. 

(p)(1) When a political subdivision of a State makes, for the State 

of which it is a political subdivision, or one State makes, for another State, the enforcement and collection of rights of support or 

payment assigned under section 1912, pursuant to a cooperative arrangement under such section (either within or outside of such 

State), there shall be paid to such political subdivision or such 

other State from amounts which would otherwise represent the 

Federal share of payments for medical assistance provided to the 

eligible individuals on whose behalf such enforcement and collection was made, an amount equal to 15 percent of any amount collected which is attributable to such rights of support or payment. 

(2) Where more than one jurisdiction is involved in such enforcement or collection, the amount of the incentive payment determined under paragraph (1) shall be allocated among the jurisdictions in a manner to be prescribed by the Secretary. 

(q) For the purposes of this section, the term ‘‘State medicaid 

fraud control unit’’ means a single identifiable entity of the State 

government which the Secretary certifies (and annually recertifies) 

as meeting the following requirements: 

(1) The entity (A) is a unit of the office of the State Attorney 

General or of another department of State government which 

possesses statewide authority to prosecute individuals for 

criminal violations, (B) is in a State the constitution of which 

does not provide for the criminal prosecution of individuals by 

a statewide authority and has formal procedures, approved by 

the Secretary, that (i) assure its referral of suspected criminal 

violations relating to the program under this title to the appropriate authority or authorities in the State for prosecution and 

(ii) assure its assistance of, and coordination with, such authority or authorities in such prosecutions, or (C) has a formal 

working relationship with the office of the State Attorney General and has formal procedures (including procedures for its referral of suspected criminal violations to such office) which are 

approved by the Secretary and which provide effective coordination of activities between the entity and such office with respect to the detection, investigation, and prosecution of suspected criminal violations relating to the program under this 

title. 

(2) The entity is separate and distinct from the single State 

agency that administers or supervises the administration of 

the State plan under this title. 

(3) The entity’s function is conducting a statewide program 

for the investigation and prosecution of violations of all applicable State laws regarding any and all aspects of fraud in connection with (A) any aspect of the provision of medical assistVerDate Sep 11 2014 07:21 Sep 11, 2016 Jkt 059006 PO 00000 Frm 00026 Fmt 6659 Sfmt 6602 E:\HR\OC\HR734.XXX HR734

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ance and the activities of providers of such assistance under 

the State plan under this title; and (B) upon the approval of 

the Inspector General of the relevant Federal agency, any aspect of the provision of health care services and activities of 

providers of such services under any Federal health care program (as defined in section 1128B(f)(1)), if the suspected fraud 

or violation of law in such case or investigation is primarily related to the State plan under this title. 

(4)(A) The entity has— 

(i) procedures for reviewing complaints of abuse or neglect of patients in health care facilities which receive payments under the State plan under this title; 

(ii) at the option of the entity, procedures for reviewing 

complaints of abuse or neglect of patients residing in board 

and care facilities; and 

(iii) procedures for acting upon such complaints under 

the criminal laws of the State or for referring such complaints to other State agencies for action. 

(B) For purposes of this paragraph, the term ‘‘board and care 

facility’’ means a residential setting which receives payment 

(regardless of whether such payment is made under the State 

plan under this title) from or on behalf of two or more unrelated adults who reside in such facility, and for whom one or 

both of the following is provided: 

(i) Nursing care services provided by, or under the supervision of, a registered nurse, licensed practical nurse, or 

licensed nursing assistant. 

(ii) A substantial amount of personal care services that 

assist residents with the activities of daily living, including 

personal hygiene, dressing, bathing, eating, toileting, ambulation, transfer, positioning, self-medication, body care, 

travel to medical services, essential shopping, meal preparation, laundry, and housework. 

(5) The entity provides for the collection, or referral for collection to a single State agency, of overpayments that are made 

under the State plan or under any Federal health care program (as so defined) to health care facilities and that are discovered by the entity in carrying out its activities. All funds 

collected in accordance with this paragraph shall be credited 

exclusively to, and available for expenditure under, the Federal 

health care program (including the State plan under this title) 

that was subject to the activity that was the basis for the collection. 

(6) The entity employs such auditors, attorneys, investigators, and other necessary personnel and is organized in such 

a manner as is necessary to promote the effective and efficient 

conduct of the entity’s activities. 

(7) The entity submits to the Secretary an application and 

annual reports containing such information as the Secretary 

determines, by regulation, to be necessary to determine whether the entity meets the other requirements of this subsection. 

(r)(1) In order to receive payments under subsection (a) for use 

of automated data systems in administration of the State plan 

under this title, a State must, in addition to meeting the requirements of paragraph (3), have in operation mechanized claims procVerDate Sep 11 2014 07:21 Sep 11, 2016 Jkt 059006 PO 00000 Frm 00027 Fmt 6659 Sfmt 6602 E:\HR\OC\HR734.XXX HR734

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essing and information retrieval systems that meet the requirements of this subsection and that the Secretary has found— 

(A) are adequate to provide efficient, economical, and effective administration of such State plan; 

(B) are compatible with the claims processing and information retrieval systems used in the administration of title XVIII, 

and for this purpose— 

(i) have a uniform identification coding system for providers, other payees, and beneficiaries under this title or 

title XVIII; 

(ii) provide liaison between States and carriers and 

intermediaries with agreements under title XVIII to facilitate timely exchange of appropriate data; 

(iii) provide for exchange of data between the States and 

the Secretary with respect to persons sanctioned under 

this title or title XVIII; and 

(iv) effective for claims filed on or after October 1, 2010, 

incorporate compatible methodologies of the National Correct Coding Initiative administered by the Secretary (or 

any successor initiative to promote correct coding and to 

control improper coding leading to inappropriate payment) 

and such other methodologies of that Initiative (or such 

other national correct coding methodologies) as the Secretary identifies in accordance with paragraph (4); 

(C) are capable of providing accurate and timely data; 

(D) are complying with the applicable provisions of part C of 

title XI; 

(E) are designed to receive provider claims in standard formats to the extent specified by the Secretary; and 

(F) effective for claims filed on or after January 1, 1999, provide for electronic transmission of claims data in the format 

specified by the Secretary and consistent with the Medicaid 

Statistical Information System (MSIS) (including detailed individual enrollee encounter data and other information that the 

Secretary may find necessary and including, for data submitted to the Secretary on or after January 1, 2010, data elements from the automated data system that the Secretary determines to be necessary for program integrity, program oversight, and administration, at such frequency as the Secretary 

shall determine). 

(2) In order to meet the requirements of this paragraph, mechanized claims processing and information retrieval systems must 

meet the following requirements: 

(A) The systems must be capable of developing provider, physician, and patient profiles which are sufficient to provide specific information as to the use of covered types of services and 

items, including prescribed drugs. 

(B) The State must provide that information on probable 

fraud or abuse which is obtained from, or developed by, the 

systems, is made available to the State’s medicaid fraud control unit (if any) certified under subsection (q) of this section. 

(C) The systems must meet all performance standards and 

other requirements for initial approval developed by the Secretary. 


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(3) In order to meet the requirements of this paragraph, a State 

must have in operation an eligibility determination system which 

provides for data matching through the Public Assistance Reporting Information System (PARIS) facilitated by the Secretary (or 

any successor system), including matching with medical assistance 

programs operated by other States. 

(4) For purposes of paragraph (1)(B)(iv), the Secretary shall do 

the following: 

(A) Not later than September 1, 2010: 

(i) Identify those methodologies of the National Correct 

Coding Initiative administered by the Secretary (or any 

successor initiative to promote correct coding and to control improper coding leading to inappropriate payment) 

which are compatible to claims filed under this title. 

(ii) Identify those methodologies of such Initiative (or 

such other national correct coding methodologies) that 

should be incorporated into claims filed under this title 

with respect to items or services for which States provide 

medical assistance under this title and no national correct 

coding methodologies have been established under such 

Initiative with respect to title XVIII. 

(iii) Notify States of— 

(I) the methodologies identified under subparagraphs (A) and (B) (and of any other national correct 

coding methodologies identified under subparagraph 

(B)); and 

(II) how States are to incorporate such methodologies into claims filed under this title. 

(B) Not later than March 1, 2011, submit a report to Congress that includes the notice to States under clause (iii) of 

subparagraph (A) and an analysis supporting the identification 

of the methodologies made under clauses (i) and (ii) of subparagraph (A). 

(s) Notwithstanding the preceding provisions of this section, no 

payment shall be made to a State under this section for expenditures for medical assistance under the State plan consisting of a 

designated health service (as defined in subsection (h)(6) of section 

1877) furnished to an individual on the basis of a referral that 

would result in the denial of payment for the service under title 

XVIII if such title provided for coverage of such service to the same 

extent and under the same terms and conditions as under the 

State plan, and subsections (f) and (g)(5) of such section shall apply 

to a provider of such a designated health service for which payment 

may be made under this title in the same manner as such subsections apply to a provider of such a service for which payment 

may be made under such title. 

(t)(1) For purposes of subsection (a)(3)(F), the payments described 

in this paragraph to encourage the adoption and use of certified 

EHR technology are payments made by the State in accordance 

with this subsection — 

(A) to Medicaid providers described in paragraph (2)(A) not 

in excess of 85 percent of net average allowable costs (as defined in paragraph (3)(E)) for certified EHR technology (and 

support services including maintenance and training that is 


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for, or is necessary for the adoption and operation of, such 

technology) with respect to such providers; and 

(B) to Medicaid providers described in paragraph (2)(B) not 

in excess of the maximum amount permitted under paragraph 

(5) for the provider involved. 

(2) In this subsection and subsection (a)(3)(F), the term ‘‘Medicaid provider’’ means— 

(A) an eligible professional (as defined in paragraph (3)(B))— 

(i) who is not hospital-based and has at least 30 percent 

of the professional’s patient volume (as estimated in accordance with a methodology established by the Secretary) 

attributable to individuals who are receiving medical assistance under this title; 

(ii) who is not described in clause (i), who is a pediatrician, who is not hospital-based, and who has at least 20 

percent of the professional’s patient volume (as estimated 

in accordance with a methodology established by the Secretary) attributable to individuals who are receiving medical assistance under this title; and 

(iii) who practices predominantly in a Federally qualified 

health center or rural health clinic and has at least 30 percent of the professional’s patient volume (as estimated in 

accordance with a methodology established by the Secretary) attributable to needy individuals (as defined in 

paragraph (3)(F)); and 

(B)(i) a children’s hospital, or 

(ii) an acute-care hospital that is not described in clause (i) 

and that has at least 10 percent of the hospital’s patient volume (as estimated in accordance with a methodology established by the Secretary) attributable to individuals who are receiving medical assistance under this title. 

An eligible professional shall not qualify as a Medicaid provider 

under this subsection unless any right to payment under sections 

1848(o) and 1853(l) with respect to the eligible professional has 

been waived in a manner specified by the Secretary. For purposes 

of calculating patient volume under subparagraph (A)(iii), insofar 

as it is related to uncompensated care, the Secretary may require 

the adjustment of such uncompensated care data so that it would 

be an appropriate proxy for charity care, including a downward adjustment to eliminate bad debt data from uncompensated care. In 

applying subparagraphs (A) and (B)(ii), the methodology established by the Secretary for patient volume shall include individuals 

enrolled in a Medicaid managed care plan (under section 1903(m) 

or section 1932). 

(3) In this subsection and subsection (a)(3)(F): 

(A) The term ‘‘certified EHR technology’’ means a qualified 

electronic health record (as defined in 3000(13) of the Public 

Health Service Act) that is certified pursuant to section 

3001(c)(5) of such Act as meeting standards adopted under section 3004 of such Act that are applicable to the type of record 

involved (as determined by the Secretary, such as an ambulatory electronic health record for office-based physicians or an 

inpatient hospital electronic health record for hospitals). 

(B) The term ‘‘eligible professional’’ means a— 

(i) physician; 


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(ii) dentist; 

(iii) certified nurse mid-wife; 

(iv) nurse practitioner; and 

(v) physician assistant insofar as the assistant is practicing in a rural health clinic that is led by a physician assistant or is practicing in a Federally qualified health center that is so led. 

(C) The term ‘‘average allowable costs’’ means, with respect 

to certified EHR technology of Medicaid providers described in 

paragraph (2)(A) for— 

(i) the first year of payment with respect to such a provider, the average costs for the purchase and initial implementation or upgrade of such technology (and support 

services including training that is for, or is necessary for 

the adoption and initial operation of, such technology) for 

such providers, as determined by the Secretary based upon 

studies conducted under paragraph (4)(C); and 

(ii) a subsequent year of payment with respect to such 

a provider, the average costs not described in clause (i) relating to the operation, maintenance, and use of such technology for such providers, as determined by the Secretary 

based upon studies conducted under paragraph (4)(C). 

(D) The term ‘‘hospital-based’’ means, with respect to an eligible professional, a professional (such as a pathologist, anesthesiologist, or emergency physician) who furnishes substantially all of the individual’s professional services in a hospital 

inpatient or emergency room setting and through the use of 

the facilities and equipment, including qualified electronic 

health records, of the hospital. The determination of whether 

an eligible professional is a hospital-based eligible professional 

shall be made on the basis of the site of service (as defined by 

the Secretary) and without regard to any employment or billing arrangement between the eligible professional and any 

other provider. 

(E) The term ‘‘net average allowable costs’’ means, with respect to a Medicaid provider described in paragraph (2)(A), average allowable costs reduced by the average payment the Secretary estimates will be made to such Medicaid providers (determined on a percentage or other basis for such classes or 

types of providers as the Secretary may specify) from other 

sources (other than under this subsection, or by the Federal 

government or a State or local government) that is directly attributable to payment for certified EHR technology or support 

services described in subparagraph (C). 

(F) The term ‘‘needy individual’’ means, with respect to a 

Medicaid provider, an individual— 

(i) who is receiving assistance under this title; 

(ii) who is receiving assistance under title XXI; 

(iii) who is furnished uncompensated care by the provider; or 

(iv) for whom charges are reduced by the provider on a 

sliding scale basis based on an individual’s ability to pay. 

(4)(A) With respect to a Medicaid provider described in paragraph (2)(A), subject to subparagraph (B), in no case shall— 


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(i) the net average allowable costs under this subsection 

for the first year of payment (which may not be later than 

2016), which is intended to cover the costs described in 

paragraph (3)(C)(i), exceed $25,000 (or such lesser amount 

as the Secretary determines based on studies conducted 

under subparagraph (C)); 

(ii) the net average allowable costs under this subsection 

for a subsequent year of payment, which is intended to 

cover costs described in paragraph (3)(C)(ii), exceed 

$10,000; and 

(iii) payments be made for costs described in clause (ii) 

after 2021 or over a period of longer than 5 years. 

(B) In the case of Medicaid provider described in paragraph 

(2)(A)(ii), the dollar amounts specified in subparagraph (A) shall be 

2⁄3 of the dollar amounts otherwise specified. 

(C) For the purposes of determining average allowable costs 

under this subsection, the Secretary shall study the average costs 

to Medicaid providers described in paragraph (2)(A) of purchase 

and initial implementation and upgrade of certified EHR technology described in paragraph (3)(C)(i) and the average costs to 

such providers of operations, maintenance, and use of such technology described in paragraph (3)(C)(ii). In determining such costs 

for such providers, the Secretary may utilize studies of such 

amounts submitted by States. 

(5)(A) In no case shall the payments described in paragraph 

(1)(B) with respect to a Medicaid provider described in paragraph 

(2)(B) exceed— 

(i) in the aggregate the product of— 

(I) the overall hospital EHR amount for the provider 

computed under subparagraph (B); and 

(II) the Medicaid share for such provider computed 

under subparagraph (C); 

(ii) in any year 50 percent of the product described in clause 

(i); and 

(iii) in any 2-year period 90 percent of such product. 

(B) For purposes of this paragraph, the overall hospital EHR 

amount, with respect to a Medicaid provider, is the sum of the applicable amounts specified in section 1886(n)(2)(A) for such provider 

for the first 4 payment years (as estimated by the Secretary) determined as if the Medicare share specified in clause (ii) of such section were 1. The Secretary shall establish, in consultation with the 

State, the overall hospital EHR amount for each such Medicaid 

provider eligible for payments under paragraph (1)(B). For purposes of this subparagraph in computing the amounts under section 1886(n)(2)(C) for payment years after the first payment year, 

the Secretary shall assume that in subsequent payment years discharges increase at the average annual rate of growth of the most 

recent 3 years for which discharge data are available per year. 

(C) The Medicaid share computed under this subparagraph, for 

a Medicaid provider for a period specified by the Secretary, shall 

be calculated in the same manner as the Medicare share under section 1886(n)(2)(D) for such a hospital and period, except that there 

shall be substituted for the numerator under clause (i) of such section the amount that is equal to the number of inpatient-bed-days 

(as established by the Secretary) which are attributable to individVerDate Sep 11 2014 07:21 Sep 11, 2016 Jkt 059006 PO 00000 Frm 00032 Fmt 6659 Sfmt 6602 E:\HR\OC\HR734.XXX HR734

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uals who are receiving medical assistance under this title and who 

are not described in section 1886(n)(2)(D)(i). In computing inpatient-bed-days under the previous sentence, the Secretary shall 

take into account inpatient-bed-days attributable to inpatient-beddays that are paid for individuals enrolled in a Medicaid managed 

care plan (under section 1903(m) or section 1932). 

(D) In no case may the payments described in paragraph (1)(B) 

with respect to a Medicaid provider described in paragraph (2)(B) 

be paid— 

(i) for any year beginning after 2016 unless the provider has 

been provided payment under paragraph (1)(B) for the previous year; and 

(ii) over a period of more than 6 years of payment. 

(6) Payments described in paragraph (1) are not in accordance 

with this subsection unless the following requirements are met: 

(A)(i) The State provides assurances satisfactory to the Secretary that amounts received under subsection (a)(3)(F) with 

respect to payments to a Medicaid provider are paid, subject to 

clause (ii), directly to such provider (or to an employer or facility to which such provider has assigned payments) without any 

deduction or rebate. 

(ii) Amounts described in clause (i) may also be paid to an 

entity promoting the adoption of certified EHR technology, as 

designated by the State, if participation in such a payment arrangement is voluntary for the eligible professional involved 

and if such entity does not retain more than 5 percent of such 

payments for costs not related to certified EHR technology (and 

support services including maintenance and training) that is 

for, or is necessary for the operation of, such technology. 

(B) A Medicaid provider described in paragraph (2)(A) is responsible for payment of the remaining 15 percent of the net 

average allowable cost and shall be determined to have met 

such responsibility to the extent that the payment to the Medicaid provider is not in excess of 85 percent of the net average 

allowable cost. 

(C)(i) Subject to clause (ii), with respect to payments to a 

Medicaid provider— 

(I) for the first year of payment to the Medicaid provider 

under this subsection, the Medicaid provider demonstrates 

that it is engaged in efforts to adopt, implement, or upgrade certified EHR technology; and 

(II) for a year of payment, other than the first year of 

payment to the Medicaid provider under this subsection, 

the Medicaid provider demonstrates meaningful use of certified EHR technology through a means that is approved 

by the State and acceptable to the Secretary, and that may 

be based upon the methodologies applied under section 

1848(o) or 1886(n). 

(ii) In the case of a Medicaid provider who has completed 

adopting, implementing, or upgrading such technology prior to 

the first year of payment to the Medicaid provider under this 

subsection, clause (i)(I) shall not apply and clause (i)(II) shall 

apply to each year of payment to the Medicaid provider under 

this subsection, including the first year of payment. 


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(D) To the extent specified by the Secretary, the certified 

EHR technology is compatible with State or Federal administrative management systems. 

For purposes of subparagraph (B), a Medicaid provider described in 

paragraph (2)(A) may accept payments for the costs described in 

such subparagraph from a State or local government. For purposes 

of subparagraph (C), in establishing the means described in such 

subparagraph, which may include clinical quality reporting to the 

State, the State shall ensure that populations with unique needs, 

such as children, are appropriately addressed. 

(7) With respect to Medicaid providers described in paragraph 

(2)(A), the Secretary shall ensure coordination of payment with respect to such providers under sections 1848(o) and 1853(l) and 

under this subsection to assure no duplication of funding. Such coordination shall include, to the extent practicable, a data matching 

process between State Medicaid agencies and the Centers for Medicare & Medicaid Services using national provider identifiers. For 

such purposes, the Secretary may require the submission of such 

data relating to payments to such Medicaid providers as the Secretary may specify. 

(8) In carrying out paragraph (6)(C), the State and Secretary 

shall seek, to the maximum extent practicable, to avoid duplicative 

requirements from Federal and State governments to demonstrate 

meaningful use of certified EHR technology under this title and 

title XVIII. In doing so, the Secretary may deem satisfaction of requirements for such meaningful use for a payment year under title 

XVIII to be sufficient to qualify as meaningful use under this subsection. The Secretary may also specify the reporting periods under 

this subsection in order to carry out this paragraph. 

(9) In order to be provided Federal financial participation under 

subsection (a)(3)(F)(ii), a State must demonstrate to the satisfaction 

of the Secretary, that the State— 

(A) is using the funds provided for the purposes of administering payments under this subsection, including tracking of 

meaningful use by Medicaid providers; 

(B) is conducting adequate oversight of the program under 

this subsection, including routine tracking of meaningful use 

attestations and reporting mechanisms; and 

(C) is pursuing initiatives to encourage the adoption of certified EHR technology to promote health care quality and the 

exchange of health care information under this title, subject to 

applicable laws and regulations governing such exchange. 

(10) The Secretary shall periodically submit reports to the Committee on Energy and Commerce of the House of Representatives 

and the Committee on Finance of the Senate on status, progress, 

and oversight of payments described in paragraph (1), including 

steps taken to carry out paragraph (7). Such reports shall also describe the extent of adoption of certified EHR technology among 

Medicaid providers resulting from the provisions of this subsection 

and any improvements in health outcomes, clinical quality, or efficiency resulting from such adoption. 

(u)(1)(A) Notwithstanding subsection (a)(1), if the ratio of a 

State’s erroneous excess payments for medical assistance (as defined in subparagraph (D)) to its total expenditures for medical assistance under the State plan approved under this title exceeds 


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0.03, for the period consisting of the third and fourth quarters of 

fiscal year 1983, or for any full fiscal year thereafter, then the Secretary shall make no payment for such period or fiscal year with 

respect to so much of such erroneous excess payments as exceeds 

such allowable error rate of 0.03. 

(B) The Secretary may waive, in certain limited cases, all or part 

of the reduction required under subparagraph (A) with respect to 

any State if such State is unable to reach the allowable error rate 

for a period or fiscal year despite a good faith effort by such State. 

(C) In estimating the amount to be paid to a State under subsection (d), the Secretary shall take into consideration the limitation on Federal financial participation imposed by subparagraph 

(A) and shall reduce the estimate he makes under subsection (d)(1), 

for purposes of payment to the State under subsection (d)(3), in 

light of any expected erroneous excess payments for medical assistance (estimated in accordance with such criteria, including sampling procedures, as he may prescribe and subject to subsequent 

adjustment, if necessary, under subsection (d)(2)). 

(D)(i) For purposes of this subsection, the term ‘‘erroneous excess 

payments for medical assistance’’ means the total of— 

(I) payments under the State plan with respect to ineligible 

individuals and families, and 

(II) overpayments on behalf of eligible individuals and families by reason of error in determining the amount of expenditures for medical care required of an individual or family as a 

condition of eligibility. 

(ii) In determining the amount of erroneous excess payments for 

medical assistance to an ineligible individual or family under 

clause (i)(I), if such ineligibility is the result of an error in determining the amount of the resources of such individual or family, 

the amount of the erroneous excess payment shall be the smaller 

of (I) the amount of the payment with respect to such individual 

or family, or (II) the difference between the actual amount of such 

resources and the allowable resource level established under the 

State plan. 

(iii) In determining the amount of erroneous excess payments for 

medical assistance to an individual or family under clause (i)(II), 

the amount of the erroneous excess payment shall be the smaller 

of (I) the amount of the payment on behalf of the individual or family, or (II) the difference between the actual amount incurred for 

medical care by the individual or family and the amount which 

should have been incurred in order to establish eligibility for medical assistance. 

(iv) In determining the amount of erroneous excess payments, 

there shall not be included any error resulting from a failure of an 

individual to cooperate or give correct information with respect to 

third-party liability as required under section 1912(a)(1)(C) or 

402(a)(26)(C) or with respect to payments made in violation of section 1906. 

(v) In determining the amount of erroneous excess payments, 

there shall not be included any erroneous payments made for ambulatory prenatal care provided during a presumptive eligibility period (as defined in section 1920(b)(1)), for items and services described in subsection (a) of section 1920A provided to a child during 

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sistance provided to an individual described in subsection (a) of section 1920B during a presumptive eligibility period under such section, or for medical assistance provided to an individual during a 

presumptive eligibility period resulting from a determination of 

presumptive eligibility made by a hospital that elects under section 

1902(a)(47)(B) to be a qualified entity for such purpose. 

(E) For purposes of subparagraph (D), there shall be excluded, in 

determining both erroneous excess payments for medical assistance 

and total expenditures for medical assistance— 

(i) payments with respect to any individual whose eligibility 

therefor was determined exclusively by the Secretary under an 

agreement pursuant to section 1634 and such other classes of 

individuals as the Secretary may by regulation prescribe whose 

eligibility was determined in part under such an agreement; 

and 

(ii) payments made as the result of a technical error. 

(2) The State agency administering the plan approved under this 

title shall, at such times and in such form as the Secretary may 

specify, provide information on the rates of erroneous excess payments made (or expected, with respect to future periods specified 

by the Secretary) in connection with its administration of such 

plan, together with any other data he requests that are reasonably 

necessary for him to carry out the provisions of this subsection. 

(3)(A) If a State fails to cooperate with the Secretary in providing 

information necessary to carry out this subsection, the Secretary, 

directly or through contractual or such other arrangements as he 

may find appropriate, shall establish the error rates for that State 

on the basis of the best data reasonably available to him and in 

accordance with such techniques for sampling and estimating as he 

finds appropriate. 

(B) In any case in which it is necessary for the Secretary to exercise his authority under subparagraph (A) to determine a State’s 

error rates for a fiscal year, the amount that would otherwise be 

payable to such State under this title for quarters in such year 

shall be reduced by the costs incurred by the Secretary in making 

(directly or otherwise) such determination. 

(4) This subsection shall not apply with respect to Puerto Rico, 

Guam, the Virgin Islands, the Northern Mariana Islands, or American Samoa. 

(v)(1) Notwithstanding the preceding provisions of this section, 

except as provided in paragraphs (2) and (4), no payment may be 

made to a State under this section for medical assistance furnished 

to an alien who is not lawfully admitted for permanent residence 

or otherwise permanently residing in the United States under color 

of law. 

(2) Payment shall be made under this section for care and services that are furnished to an alien described in paragraph (1) only 

if— 

(A) such care and services are necessary for the treatment of 

an emergency medical condition of the alien, 

(B) such alien otherwise meets the eligibility requirements 

for medical assistance under the State plan approved under 

this title (other than the requirement of the receipt of aid or 

assistance under title IV, supplemental security income benefits under title XVI, or a State supplementary payment), and 


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(C) such care and services are not related to an organ transplant procedure. 

(3) For purposes of this subsection, the term ‘‘emergency medical 

condition’’ means a medical condition (including emergency labor 

and delivery) manifesting itself by acute symptoms of sufficient severity (including severe pain) such that the absence of immediate 

medical attention could reasonably be expected to result in— 

(A) placing the patient’s health in serious jeopardy, 

(B) serious impairment to bodily functions, or 

(C) serious dysfunction of any bodily organ or part. 

(4)(A) A State may elect (in a plan amendment under this title) 

to provide medical assistance under this title, notwithstanding sections 401(a), 402(b), 403, and 421 of the Personal Responsibility 

and Work Opportunity Reconciliation Act of 1996, to children and 

pregnant women who are lawfully residing in the United States 

(including battered individuals described in section 431(c) of such 

Act) and who are otherwise eligible for such assistance, within either or both of the following eligibility categories: 

(i) PREGNANT WOMEN.—Women during pregnancy (and during the 60-day period beginning on the last day of the pregnancy). 

(ii) CHILDREN.—Individuals under 21 years of age, including 

optional targeted low-income children described in section 

1905(u)(2)(B). 

(B) In the case of a State that has elected to provide medical assistance to a category of aliens under subparagraph (A), no debt 

shall accrue under an affidavit of support against any sponsor of 

such an alien on the basis of provision of assistance to such category and the cost of such assistance shall not be considered as an 

unreimbursed cost. 

(C) As part of the State’s ongoing eligibility redetermination requirements and procedures for an individual provided medical assistance as a result of an election by the State under subparagraph 

(A), a State shall verify that the individual continues to lawfully 

reside in the United States using the documentation presented to 

the State by the individual on initial enrollment. If the State cannot successfully verify that the individual is lawfully residing in 

the United States in this manner, it shall require that the individual provide the State with further documentation or other evidence to verify that the individual is lawfully residing in the 

United States. 

(w)(1)(A) Notwithstanding the previous provisions of this section, 

for purposes of determining the amount to be paid to a State (as 

defined in paragraph (7)(D)) under subsection (a)(1) for quarters in 

any fiscal year, the total amount expended during such fiscal year 

as medical assistance under the State plan (as determined without 

regard to this subsection) shall be reduced by the sum of any revenues received by the State (or by a unit of local government in the 

State) during the fiscal year— 

(i) from provider-related donations (as defined in paragraph 

(2)(A)), other than— 

(I) bona fide provider-related donations (as defined in 

paragraph (2)(B)), and 

(II) donations described in paragraph (2)(C); 


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(ii) from health care related taxes (as defined in paragraph 

(3)(A)), other than broad-based health care related taxes (as 

defined in paragraph (3)(B)); 

(iii) from a broad-based health care related tax, if there is in 

effect a hold harmless provision (described in paragraph (4)) 

with respect to the tax; or 

(iv) only with respect to State fiscal years (or portions thereof) occurring on or after January 1, 1992, and before October 

1, 1995, from broad-based health care related taxes to the extent the amount of such taxes collected exceeds the limit established under paragraph (5). 

(B) Notwithstanding the previous provisions of this section, for 

purposes of determining the amount to be paid to a State under 

subsection (a)(7) for all quarters in a Federal fiscal year (beginning 

with fiscal year 1993), the total amount expended during the fiscal 

year for administrative expenditures under the State plan (as determined without regard to this subsection) shall be reduced by the 

sum of any revenues received by the State (or by a unit of local 

government in the State) during such quarters from donations described in paragraph (2)(C), to the extent the amount of such donations exceeds 10 percent of the amounts expended under the State 

plan under this title during the fiscal year for purposes described 

in paragraphs (2), (3), (4), (6), and (7) of subsection (a). 

(C)(i) Except as otherwise provided in clause (ii), subparagraph 

(A)(i) shall apply to donations received on or after January 1, 1992. 

(ii) Subject to the limits described in clause (iii) and subparagraph (E), subparagraph (A)(i) shall not apply to donations received 

before the effective date specified in subparagraph (F) if such donations are received under programs in effect or as described in State 

plan amendments or related documents submitted to the Secretary 

by September 30, 1991, and applicable to State fiscal year 1992, as 

demonstrated by State plan amendments, written agreements, 

State budget documentation, or other documentary evidence in existence on that date. 

(iii) In applying clause (ii) in the case of donations received in 

State fiscal year 1993, the maximum amount of such donations to 

which such clause may be applied may not exceed the total amount 

of such donations received in the corresponding period in State fiscal year 1992 (or not later than 5 days after the last day of the corresponding period). 

(D)(i) Except as otherwise provided in clause (ii), subparagraphs 

(A)(ii) and (A)(iii) shall apply to taxes received on or after January 

1, 1992. 

(ii) Subparagraphs (A)(ii) and (A)(iii) shall not apply to impermissible taxes (as defined in clause (iii)) received before the effective 

date specified in subparagraph (F) to the extent the taxes (including the tax rate or base) were in effect, or the legislation or regulations imposing such taxes were enacted or adopted, as of November 

22, 1991. 

(iii) In this subparagraph and subparagraph (E), the term ‘‘impermissible tax’’ means a health care related tax for which a reduction may be made under clause (ii) or (iii) of subparagraph (A). 

(E)(i) In no case may the total amount of donations and taxes 

permitted under the exception provided in subparagraphs (C)(ii) 

and (D)(ii) for the portion of State fiscal year 1992 occurring during 


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calendar year 1992 exceed the limit under paragraph (5) minus the 

total amount of broad-based health care related taxes received in 

the portion of that fiscal year. 

(ii) In no case may the total amount of donations and taxes permitted under the exception provided in subparagraphs (C)(ii) and 

(D)(ii) for State fiscal year 1993 exceed the limit under paragraph 

(5) minus the total amount of broad-based health care related taxes 

received in that fiscal year. 

(F) In this paragraph in the case of a State— 

(i) except as provided in clause (iii), with a State fiscal year 

beginning on or before July 1, the effective date is October 1, 

1992, 

(ii) except as provided in clause (iii), with a State fiscal year 

that begins after July 1, the effective date is January 1, 1993, 

or 

(iii) with a State legislature which is not scheduled to have 

a regular legislative session in 1992, with a State legislature 

which is not scheduled to have a regular legislative session in 

1993, or with a provider-specific tax enacted on November 4, 

1991, the effective date is July 1, 1993. 

(2)(A) In this subsection (except as provided in paragraph (6)), 

the term ‘‘provider-related donation’’ means any donation or other 

voluntary payment (whether in cash or in kind) made (directly or 

indirectly) to a State or unit of local government by— 

(i) a health care provider (as defined in paragraph (7)(B)), 

(ii) an entity related to a health care provider (as defined in 

paragraph (7)(C)), or 

(iii) an entity providing goods or services under the State 

plan for which payment is made to the State under paragraph 

(2), (3), (4), (6), or (7) of subsection (a). 

(B) For purposes of paragraph (1)(A)(i)(I), the term ‘‘bona fide 

provider-related donation’’ means a provider-related donation that 

has no direct or indirect relationship (as determined by the Secretary) to payments made under this title to that provider, to providers furnishing the same class of items and services as that provider, or to any related entity, as established by the State to the 

satisfaction of the Secretary. The Secretary may by regulation 

specify types of provider-related donations described in the previous sentence that will be considered to be bona fide provider-related donations. 

(C) For purposes of paragraph (1)(A)(i)(II), donations described in 

this subparagraph are funds expended by a hospital, clinic, or similar entity for the direct cost (including costs of training and of preparing and distributing outreach materials) of State or local agency 

personnel who are stationed at the hospital, clinic, or entity to determine the eligibility of individuals for medical assistance under 

this title and to provide outreach services to eligible or potentially 

eligible individuals. 

(3)(A) In this subsection (except as provided in paragraph (6)), 

the term ‘‘health care related tax’’ means a tax (as defined in paragraph (7)(F)) that— 

(i) is related to health care items or services, or to the provision of, the authority to provide, or payment for, such items or 

services, or 


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(ii) is not limited to such items or services but provides for 

treatment of individuals or entities that are providing or paying for such items or services that is different from the treatment provided to other individuals or entities. 

In applying clause (i), a tax is considered to relate to health care 

items or services if at least 85 percent of the burden of such tax 

falls on health care providers. 

(B) In this subsection, the term ‘‘broad-based health care related 

tax’’ means a health care related tax which is imposed with respect 

to a class of health care items or services (as described in paragraph (7)(A)) or with respect to providers of such items or services 

and which, except as provided in subparagraphs (D), (E), and (F)— 

(i) is imposed at least with respect to all items or services 

in the class furnished by all non-Federal, nonpublic providers 

in the State (or, in the case of a tax imposed by a unit of local 

government, the area over which the unit has jurisdiction) or 

is imposed with respect to all non-Federal, nonpublic providers 

in the class; and 

(ii) is imposed uniformly (in accordance with subparagraph 

(C)). 

(C)(i) Subject to clause (ii), for purposes of subparagraph (B)(ii), 

a tax is considered to be imposed uniformly if— 

(I) in the case of a tax consisting of a licensing fee or similar 

tax on a class of health care items or services (or providers of 

such items or services), the amount of the tax imposed is the 

same for every provider providing items or services within the 

class; 

(II) in the case of a tax consisting of a licensing fee or similar 

tax imposed on a class of health care items or services (or providers of such services) on the basis of the number of beds (licensed or otherwise) of the provider, the amount of the tax is 

the same for each bed of each provider of such items or services in the class; 

(III) in the case of a tax based on revenues or receipts with 

respect to a class of items or services (or providers of items or 

services) the tax is imposed at a uniform rate for all items and 

services (or providers of such items of services) in the class on 

all the gross revenues or receipts, or net operating revenues, 

relating to the provision of all such items or services (or all 

such providers) in the State (or, in the case of a tax imposed 

by a unit of local government within the State, in the area over 

which the unit has jurisdiction); or 

(IV) in the case of any other tax, the State establishes to the 

satisfaction of the Secretary that the tax is imposed uniformly. 

(ii) Subject to subparagraphs (D) and (E), a tax imposed with respect to a class of health care items and services is not considered 

to be imposed uniformly if the tax provides for any credits, exclusions, or deductions which have as their purpose or effect the return to providers of all or a portion of the tax paid in a manner 

that is inconsistent with subclauses (I) and (II) of subparagraph 

(E)(ii) or provides for a hold harmless provision described in paragraph (4). 

(D) A tax imposed with respect to a class of health care items 

and services is considered to be imposed uniformly— 


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(i) notwithstanding that the tax is not imposed with respect 

to items or services (or the providers thereof) for which payment is made under a State plan under this title or title XVIII, 

or 

(ii) in the case of a tax described in subparagraph (C)(i)(III), 

notwithstanding that the tax provides for exclusion (in whole 

or in part) of revenues or receipts from a State plan under this 

title or title XVIII. 

(E)(i) A State may submit an application to the Secretary requesting that the Secretary treat a tax as a broad-based health 

care related tax, notwithstanding that the tax does not apply to all 

health care items or services in class (or all providers of such items 

and services), provides for a credit, deduction, or exclusion, is not 

applied uniformly, or otherwise does not meet the requirements of 

subparagraph (B) or (C). Permissible waivers may include exemptions for rural or sole-community providers. 

(ii) The Secretary shall approve such an application if the State 

establishes to the satisfaction of the Secretary that— 

(I) the net impact of the tax and associated expenditures 

under this title as proposed by the State is generally redistributive in nature, and 

(II) the amount of the tax is not directly correlated to payments under this title for items or services with respect to 

which the tax is imposed. 

The Secretary shall by regulation specify types of credits, exclusions, and deductions that will be considered to meet the requirements of this subparagraph. 

(F) In no case shall a tax not qualify as a broad-based health 

care related tax under this paragraph because it does not apply to 

a hospital that is described in section 501(c)(3) of the Internal Revenue Code of 1986 and exempt from taxation under section 501(a) 

of such Code and that does not accept payment under the State 

plan under this title or under title XVIII. 

(4) For purposes of paragraph (1)(A)(iii), there is in effect a hold 

harmless provision with respect to a broad-based health care related tax imposed with respect to a class of items or services if the 

Secretary determines that any of the following applies: 

(A) The State or other unit of government imposing the tax 

provides (directly or indirectly) for a payment (other than 

under this title) to taxpayers and the amount of such payment 

is positively correlated either to the amount of such tax or to 

the difference between the amount of the tax and the amount 

of payment under the State plan. 

(B) All or any portion of the payment made under this title 

to the taxpayer varies based only upon the amount of the total 

tax paid. 

(C)(i) The State or other unit of government imposing the tax 

provides (directly or indirectly) for any payment, offset, or 

waiver that guarantees to hold taxpayers harmless for any portion of the costs of the tax. 

(ii) For purposes of clause (i), a determination of the existence of an indirect guarantee shall be made under paragraph 

(3)(i) of section 433.68(f) of title 42, Code of Federal Regulations, as in effect on November 1, 2006, except that for portions 

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fore October 1, 2011, ‘‘5.5 percent’’ shall be substituted for ‘‘6 

percent’’ each place it appears. 

The provisions of this paragraph shall not prevent use of the tax 

to reimburse health care providers in a class for expenditures 

under this title nor preclude States from relying on such reimbursement to justify or explain the tax in the legislative process. 

(5)(A) For purposes of this subsection, the limit under this subparagraph with respect to a State is an amount equal to 25 percent 

(or, if greater, the State base percentage, as defined in subparagraph (B)) of the non-Federal share of the total amount expended 

under the State plan during a State fiscal year (or portion thereof), 

as it would be determined pursuant to paragraph (1)(A) without regard to paragraph (1)(A)(iv). 

(B)(i) In subparagraph (A), the term ‘‘State base percentage’’ 

means, with respect to a State, an amount (expressed as a percentage) equal to— 

(I) the total of the amount of health care related taxes 

(whether or not broad-based) and the amount of provider-related donations (whether or not bona fide) projected to be collected (in accordance with clause (ii)) during State fiscal year 

1992, divided by 

(II) the non-Federal share of the total amount estimated to 

be expended under the State plan during such State fiscal 

year. 

(ii) For purposes of clause (i)(I), in the case of a tax that is not 

in effect throughout State fiscal year 1992 or the rate (or base) of 

which is increased during such fiscal year, the Secretary shall 

project the amount to be collected during such fiscal year as if the 

tax (or increase) were in effect during the entire State fiscal year. 

(C)(i) The total amount of health care related taxes under subparagraph (B)(i)(I) shall be determined by the Secretary based on 

only those taxes (including the tax rate or base) which were in effect, or for which legislation or regulations imposing such taxes 

were enacted or adopted, as of November 22, 1991. 

(ii) The amount of provider-related donations under subparagraph (B)(i)(I) shall be determined by the Secretary based on programs in effect on September 30, 1991, and applicable to State fiscal year 1992, as demonstrated by State plan amendments, written 

agreements, State budget documentation, or other documentary 

evidence in existence on that date. 

(iii) The amount of expenditures described in subparagraph 

(B)(i)(II) shall be determined by the Secretary based on the best 

data available as of the date of the enactment of this subsection. 

(6)(A) Notwithstanding the provisions of this subsection, the Secretary may not restrict States’ use of funds where such funds are 

derived from State or local taxes (or funds appropriated to State 

university teaching hospitals) transferred from or certified by units 

of government within a State as the non-Federal share of expenditures under this title, regardless of whether the unit of government 

is also a health care provider, except as provided in section 

1902(a)(2), unless the transferred funds are derived by the unit of 

government from donations or taxes that would not otherwise be 

recognized as the non-Federal share under this section. 

(B) For purposes of this subsection, funds the use of which the 

Secretary may not restrict under subparagraph (A) shall not be 


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considered to be a provider-related donation or a health care related tax. 

(7) For purposes of this subsection: 

(A) Each of the following shall be considered a separate class 

of health care items and services: 

(i) Inpatient hospital services. 

(ii) Outpatient hospital services. 

(iii) Nursing facility services (other than services of intermediate care facilities for the mentally retarded). 

(iv) Services of intermediate care facilities for the mentally retarded. 

(v) Physicians’ services. 

(vi) Home health care services. 

(vii) Outpatient prescription drugs. 

(viii) Services of managed care organizations (including 

health maintenance organizations, preferred provider organizations, and such other similar organizations as the Secretary may specify by regulation). 

(ix) Such other classification of health care items and 

services consistent with this subparagraph as the Secretary may establish by regulation. 

(B) The term ‘‘health care provider’’ means an individual or 

person that receives payments for the provision of health care 

items or services. 

(C) An entity is considered to be ‘‘related’’ to a health care 

provider if the entity— 

(i) is an organization, association, corporation or partnership formed by or on behalf of health care providers; 

(ii) is a person with an ownership or control interest (as 

defined in section 1124(a)(3)) in the provider; 

(iii) is the employee, spouse, parent, child, or sibling of 

the provider (or of a person described in clause (ii)); or 

(iv) has a similar, close relationship (as defined in regulations) to the provider. 

(D) The term ‘‘State’’ means only the 50 States and the District of Columbia but does not include any State whose entire 

program under this title is operated under a waiver granted 

under section 1115. 

(E) The ‘‘State fiscal year’’ means, with respect to a specified 

year, a State fiscal year ending in that specified year. 

(F) The term ‘‘tax’’ includes any licensing fee, assessment, or 

other mandatory payment, but does not include payment of a 

criminal or civil fine or penalty (other than a fine or penalty 

imposed in lieu of or instead of a fee, assessment, or other 

mandatory payment). 

(G) The term ‘‘unit of local government’’ means, with respect 

to a State, a city, county, special purpose district, or other governmental unit in the State. 

(x)(1) For purposes of section 1902(a)(46)(B)(i), the requirement 

of this subsection is, with respect to an individual declaring to be 

a citizen or national of the United States, that, subject to paragraph (2), there is presented satisfactory documentary evidence of 

citizenship or nationality (as defined in paragraph (3)) of the individual. 


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(2) The requirement of paragraph (1) shall not apply to an individual declaring to be a citizen or national of the United States 

who is eligible for medical assistance under this title— 

(A) and is entitled to or enrolled for benefits under any part 

of title XVIII; 

(B) and is receiving— 

(i) disability insurance benefits under section 223 or 

monthly insurance benefits under section 202 based on 

such individual’s disability (as defined in section 223(d)); 

or 

(ii) supplemental security income benefits under title 

XVI; 

(C) and with respect to whom— 

(i) child welfare services are made available under part 

B of title IV on the basis of being a child in foster care; 

or 

(ii) adoption or foster care assistance is made available 

under part E of title IV; 

(D) pursuant to the application of section 1902(e)(4) (and, in 

the case of an individual who is eligible for medical assistance 

on such basis, the individual shall be deemed to have provided 

satisfactory documentary evidence of citizenship or nationality 

and shall not be required to provide further documentary evidence on any date that occurs during or after the period in 

which the individual is eligible for medical assistance on such 

basis); or 

(E) on such basis as the Secretary may specify under which 

satisfactory documentary evidence of citizenship or nationality 

has been previously presented. 

(3)(A) For purposes of this subsection, the term ‘‘satisfactory documentary evidence of citizenship or nationality’’ means— 

(i) any document described in subparagraph (B); or 

(ii) a document described in subparagraph (C) and a document described in subparagraph (D). 

(B) The following are documents described in this subparagraph: 

(i) A United States passport. 

(ii) Form N–550 or N–570 (Certificate of Naturalization). 

(iii) Form N–560 or N–561 (Certificate of United States Citizenship). 

(iv) A valid State-issued driver’s license or other identity document described in section 274A(b)(1)(D) of the Immigration 

and Nationality Act, but only if the State issuing the license 

or such document requires proof of United States citizenship 

before issuance of such license or document or obtains a social 

security number from the applicant and verifies before certification that such number is valid and assigned to the applicant 

who is a citizen. 

(v)(I) Except as provided in subclause (II), a document issued 

by a federally recognized Indian tribe evidencing membership 

or enrollment in, or affiliation with, such tribe (such as a tribal 

enrollment card or certificate of degree of Indian blood). 

(II) With respect to those federally recognized Indian tribes 

located within States having an international border whose 

membership includes individuals who are not citizens of the 

United States, the Secretary shall, after consulting with such 


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tribes, issue regulations authorizing the presentation of such 

other forms of documentation (including tribal documentation, 

if appropriate) that the Secretary determines to be satisfactory 

documentary evidence of citizenship or nationality for purposes 

of satisfying the requirement of this subsection. 

(vi) Such other document as the Secretary may specify, by 

regulation, that provides proof of United States citizenship or 

nationality and that provides a reliable means of documentation of personal identity. 

(C) The following are documents described in this subparagraph: 

(i) A certificate of birth in the United States. 

(ii) Form FS–545 or Form DS–1350 (Certification of Birth 

Abroad). 

(iii) Form I–197 (United States Citizen Identification Card). 

(iv) Form FS–240 (Report of Birth Abroad of a Citizen of the 

United States). 

(v) Such other document (not described in subparagraph 

(B)(iv)) as the Secretary may specify that provides proof of 

United States citizenship or nationality. 

(D) The following are documents described in this subparagraph: 

(i) Any identity document described in section 274A(b)(1)(D) 

of the Immigration and Nationality Act. 

(ii) Any other documentation of personal identity of such 

other type as the Secretary finds, by regulation, provides a reliable means of identification. 

(E) A reference in this paragraph to a form includes a reference 

to any successor form. 

(4) In the case of an individual declaring to be a citizen or national of the United States with respect to whom a State requires 

the presentation of satisfactory documentary evidence of citizenship 

or nationality under section 1902(a)(46)(B)(i), the individual shall 

be provided at least the reasonable opportunity to present satisfactory documentary evidence of citizenship or nationality under this 

subsection as is provided under clauses (i) and (ii) of section 

1137(d)(4)(A) to an individual for the submittal to the State of evidence indicating a satisfactory immigration status. 

(5) Nothing in subparagraph (A) or (B) of section 1902(a)(46), the 

preceding paragraphs of this subsection, or the Deficit Reduction 

Act of 2005, including section 6036 of such Act, shall be construed 

as changing the requirement of section 1902(e)(4) that a child born 

in the United States to an alien mother for whom medical assistance for the delivery of such child is available as treatment of an 

emergency medical condition pursuant to subsection (v) shall be 

deemed eligible for medical assistance during the first year of such 

child’s life. 

(y) PAYMENTS FOR ESTABLISHMENT OF ALTERNATE NON-EMERGENCY SERVICES PROVIDERS.— 

(1) PAYMENTS.—In addition to the payments otherwise provided under subsection (a), subject to paragraph (2), the Secretary shall provide for payments to States under such subsection for the establishment of alternate non-emergency service providers (as defined in section 1916A(e)(5)(B)), or networks 

of such providers. 

(2) LIMITATION.—The total amount of payments under this 

subsection shall not exceed $50,000,000 during the 4-year peVerDate Sep 11 2014 07:21 Sep 11, 2016 Jkt 059006 PO 00000 Frm 00045 Fmt 6659 Sfmt 6602 E:\HR\OC\HR734.XXX HR734

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riod beginning with 2006. This subsection constitutes budget 

authority in advance of appropriations Acts and represents the 

obligation of the Secretary to provide for the payment of 

amounts provided under this subsection. 

(3) PREFERENCE.—In providing for payments to States under 

this subsection, the Secretary shall provide preference to 

States that establish, or provide for, alternate non-emergency 

services providers or networks of such providers that— 

(A) serve rural or underserved areas where beneficiaries 

under this title may not have regular access to providers 

of primary care services; or 

(B) are in partnership with local community hospitals. 

(4) FORM AND MANNER OF PAYMENT.—Payment to a State 

under this subsection shall be made only upon the filing of 

such application in such form and in such manner as the Secretary shall specify. Payment to a State under this subsection 

shall be made in the same manner as other payments under 

section 1903(a). 

(z) MEDICAID TRANSFORMATION PAYMENTS.— 

(1) IN GENERAL.—In addition to the payments provided 

under subsection (a), subject to paragraph (4), the Secretary 

shall provide for payments to States for the adoption of innovative methods to improve the effectiveness and efficiency in providing medical assistance under this title. 

(2) PERMISSIBLE USES OF FUNDS.—The following are examples of innovative methods for which funds provided under this 

subsection may be used: 

(A) Methods for reducing patient error rates through the 

implementation and use of electronic health records, electronic clinical decision support tools, or e-prescribing programs. 

(B) Methods for improving rates of collection from estates of amounts owed under this title. 

(C) Methods for reducing waste, fraud, and abuse under 

the program under this title, such as reducing improper 

payment rates as measured by annual payment error rate 

measurement (PERM) project rates. 

(D) Implementation of a medication risk management 

program as part of a drug use review program under section 1927(g). 

(E) Methods in reducing, in clinically appropriate ways, 

expenditures under this title for covered outpatient drugs, 

particularly in the categories of greatest drug utilization, 

by increasing the utilization of generic drugs through the 

use of education programs and other incentives to promote 

greater use of generic drugs. 

(F) Methods for improving access to primary and specialty physician care for the uninsured using integrated 

university-based hospital and clinic systems. 

(3) APPLICATION; TERMS AND CONDITIONS.— 

(A) IN GENERAL.—No payments shall be made to a State 

under this subsection unless the State applies to the Secretary for such payments in a form, manner, and time 

specified by the Secretary. 


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(B) TERMS AND CONDITIONS.—Such payments are made 

under such terms and conditions consistent with this subsection as the Secretary prescribes. 

(C) ANNUAL REPORT.—Payment to a State under this 

subsection is conditioned on the State submitting to the 

Secretary an annual report on the programs supported by 

such payment. Such report shall include information on— 

(i) the specific uses of such payment; 

(ii) an assessment of quality improvements and clinical outcomes under such programs; and 

(iii) estimates of cost savings resulting from such 

programs. 

(4) FUNDING.— 

(A) LIMITATION ON FUNDS.—The total amount of payments under this subsection shall be equal to, and shall 

not exceed— 

(i) $75,000,000 for fiscal year 2007; and 

(ii) $75,000,000 for fiscal year 2008. 

This subsection constitutes budget authority in advance of 

appropriations Acts and represents the obligation of the 

Secretary to provide for the payment of amounts provided 

under this subsection. 

(B) ALLOCATION OF FUNDS.—The Secretary shall specify 

a method for allocating the funds made available under 

this subsection among States. Such method shall provide 

preference for States that design programs that target 

health providers that treat significant numbers of Medicaid beneficiaries. Such method shall provide that not less 

than 25 percent of such funds shall be allocated among 

States the population of which (as determined according to 

data collected by the United States Census Bureau) as of 

July 1, 2004, was more than 105 percent of the population 

of the respective State (as so determined) as of April 1, 

2000. 

(C) FORM AND MANNER OF PAYMENT.—Payment to a 

State under this subsection shall be made in the same 

manner as other payments under section 1903(a). There is 

no requirement for State matching funds to receive payments under this subsection. 

(5) MEDICATION RISK MANAGEMENT PROGRAM.— 

(A) IN GENERAL.—For purposes of this subsection, the 

term ‘‘medication risk management program’’ means a program for targeted beneficiaries that ensures that covered 

outpatient drugs are appropriately used to optimize therapeutic outcomes through improved medication use and to 

reduce the risk of adverse events. 

(B) ELEMENTS.—Such program may include the following 

elements: 

(i) The use of established principles and standards 

for drug utilization review and best practices to analyze prescription drug claims of targeted beneficiaries 

and identify outlier physicians. 

(ii) On an ongoing basis provide outlier physicians— 

(I) a comprehensive pharmacy claims history for 

each targeted beneficiary under their care; 


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(II) information regarding the frequency and 

cost of relapses and hospitalizations of targeted 

beneficiaries under the physician’s care; and 

(III) applicable best practice guidelines and empirical references. 

(iii) Monitor outlier physician’s prescribing, such as 

failure to refill, dosage strengths, and provide incentives and information to encourage the adoption of 

best clinical practices. 

(C) TARGETED BENEFICIARIES.—For purposes of this 

paragraph, the term ‘‘targeted beneficiaries’’ means Medicaid eligible beneficiaries who are identified as having 

high prescription drug costs and medical costs, such as individuals with behavioral disorders or multiple chronic diseases who are taking multiple medications. 

* * * * * * * 

DEFINITIONS

SEC. 1905. For purposes of this title— 

(a) The term ‘‘medical assistance’’ means payment of part or all 

of the cost of the following care and services or the care and services themselves, or both (if provided in or after the third month before the month in which the recipient makes application for assistance or, in the case of medicare cost-sharing with respect to a 

qualified medicare beneficiary described in subsection (p)(1), if provided after the month in which the individual becomes such a beneficiary) for individuals, and, with respect to physicians’ or dentists’ 

services, at the option of the State, to individuals (other than individuals with respect to whom there is being paid, or who are eligible, or would be eligible if they were not in a medical institution, 

to have paid with respect to them a State supplementary payment 

and are eligible for medical assistance equal in amount, duration, 

and scope to the medical assistance made available to individuals 

described in section 1902(a)(10)(A)) not receiving aid or assistance 

under any plan of the State approved under title I, X, XIV, or XVI, 

or part A of title IV, and with respect to whom supplemental security income benefits are not being paid under title XVI, who are— 

(i) under the age of 21, or, at the option of the State, under 

the age of 20, 19, or 18 as the State may choose, 

(ii) relatives specified in section 406(b)(1) with whom a child 

is living if such child is (or would, if needy, be) a dependent 

child under part A of title IV, 

(iii) 65 years of age or older, 

(iv) blind, with respect to States eligible to participate in the 

State plan program established under title XVI, 

(v) 18 years of age or older and permanently and totally disabled, with respect to States eligible to participate in the State 

plan program established under title XVI, 

(vi) persons essential (as described in the second sentence of 

this subsection) to individuals receiving aid or assistance under 

State plans approved under title I, X, XIV, or XVI, 

(vii) blind or disabled as defined in section 1614, with respect 

to States not eligible to participate in the State plan program 

established under title XVI, 


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(viii) pregnant women, 

(ix) individuals provided extended benefits under section 

1925, 

(x) individuals described in section 1902(u)(1), 

(xi) individuals described in section 1902(z)(1), 

(xii) employed individuals with a medically improved disability (as defined in subsection (v)), 

(xiii) individuals described in section 1902(aa), 

(xiv) individuals described in section 1902(a)(10)(A)(i)(VIII) 

or 1902(a)(10)(A)(i)(IX), 

(xv) individuals described in section 1902(a)(10)(A)(ii)(XX), 

(xvi) individuals described in section 1902(ii), or 

(xvii) individuals who are eligible for home and communitybased services under needs-based criteria established under 

paragraph (1)(A) of section 1915(i), or who are eligible for home 

and community-based services under paragraph (6) of such section, and who will receive home and community-based services 

pursuant to a State plan amendment under such subsection, 

but whose income and resources are insufficient to meet all of such 

cost— 

(1) inpatient hospital services (other than services in an institution for mental diseases); 

(2)(A) outpatient hospital services, (B) consistent with State 

law permitting such services, rural health clinic services (as 

defined in subsection (l)(1)) and any other ambulatory services 

which are offered by a rural health clinic (as defined in subsection (l)(1)) and which are otherwise included in the plan, 

and (C) Federally-qualified health center services (as defined 

in subsection (l)(2)) and any other ambulatory services offered 

by a Federally-qualified health center and which are otherwise 

included in the plan; 

(3) other laboratory and X-ray services; 

(4)(A) nursing facility services (other than services in an institution for mental diseases) for individuals 21 years of age or 

older; (B) early and periodic screening, diagnostic, and treatment services (as defined in subsection (r)) for individuals who 

are eligible under the plan and are under the age of 21; (C) 

family planning services and supplies furnished (directly or 

under arrangements with others) to individuals of child-bearing age (including minors who can be considered to be sexually 

active) who are eligible under the State plan and who desire 

such services and supplies; and (D) counseling and 

pharmacotherapy for cessation of tobacco use by pregnant 

women (as defined in subsection (bb)); 

(5)(A) physicians’ services furnished by a physician (as defined in section 1861(r)(1)), whether furnished in the office, the 

patient’s home, a hospital, or a nursing facility, or elsewhere, 

and (B) medical and surgical services furnished by a dentist 

(described in section 1861(r)(2)) to the extent such services may 

be performed under State law either by a doctor of medicine 

or by a doctor of dental surgery or dental medicine and would 

be described in clause (A) if furnished by a physician (as defined in section 1861(r)(1)); 


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(6) medical care, or any other type of remedial care recognized under State law, furnished by licensed practitioners 

within the scope of their practice as defined by State law; 

(7) home health care services; 

(8) private duty nursing services; 

(9) clinic services furnished by or under the direction of a 

physician, without regard to whether the clinic itself is administered by a physician, including such services furnished outside the clinic by clinic personnel to an eligible individual who 

does not reside in a permanent dwelling or does not have a 

fixed home or mailing address; 

(10) dental services; 

(11) physical therapy and related services; 

(12) prescribed drugs, dentures, and prosthetic devices; and 

eyeglasses prescribed by a physician skilled in diseases of the 

eye or by an optometrist, whichever the individual may select; 

(13) other diagnostic, screening, preventive, and rehabilitative services, including— 

(A) any clinical preventive services that are assigned a 

grade of A or B by the United States Preventive Services 

Task Force; 

(B) with respect to an adult individual, approved vaccines recommended by the Advisory Committee on Immunization Practices (an advisory committee established by 

the Secretary, acting through the Director of the Centers 

for Disease Control and Prevention) and their administration; and 

(C) any medical or remedial services (provided in a facility, a home, or other setting) recommended by a physician 

or other licensed practitioner of the healing arts within the 

scope of their practice under State law, for the maximum 

reduction of physical or mental disability and restoration 

of an individual to the best possible functional level; 

(14) inpatient hospital services and nursing facility services 

for individuals 65 years of age or over in an institution for 

mental diseases; 

(15) services in an intermediate care facility for the mentally 

retarded (other than in an institution for mental diseases) for 

individuals who are determined, in accordance with section 

1902(a)(31), to be in need of such care; 

(16) effective January 1, 1973, inpatient psychiatric hospital 

services for individuals under age 21, as defined in subsection 

(h); 

(17) services furnished by a nurse-midwife (as defined in section 1861(gg)) which the nurse-midwife is legally authorized to 

perform under State law (or the State regulatory mechanism 

provided by State law), whether or not the nurse-midwife is 

under the supervision of, or associated with, a physician or 

other health care provider, and without regard to whether or 

not the services are performed in the area of management of 

the care of mothers and babies throughout the maternity cycle; 

(18) hospice care (as defined in subsection (o)); 

(19) case management services (as defined in section 

1915(g)(2)) and TB-related services described in section 

1902(z)(2)(F); 


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(20) respiratory care services (as defined in section 

1902(e)(9)(C)); 

(21) services furnished by a certified pediatric nurse practitioner or certified family nurse practitioner (as defined by the 

Secretary) which the certified pediatric nurse practitioner or 

certified family nurse practitioner is legally authorized to perform under State law (or the State regulatory mechanism provided by State law), whether or not the certified pediatric 

nurse practitioner or certified family nurse practitioner is 

under the supervision of, or associated with, a physician or 

other health care provider; 

(22) home and community care (to the extent allowed and as 

defined in section 1929) for functionally disabled elderly individuals; 

(23) community supported living arrangements services (to 

the extent allowed and as defined in section 1930); 

(24) personal care services furnished to an individual who is 

not an inpatient or resident of a hospital, nursing facility, intermediate care facility for the mentally retarded, or institution for mental disease that are (A) authorized for the individual by a physician in accordance with a plan of treatment 

or (at the option of the State) otherwise authorized for the individual in accordance with a service plan approved by the State, 

(B) provided by an individual who is qualified to provide such 

services and who is not a member of the individual’s family, 

and (C) furnished in a home or other location; 

(25) primary care case management services (as defined in 

subsection (t)); 

(26) services furnished under a PACE program under section 

1934 to PACE program eligible individuals enrolled under the 

program under such section; 

(27) subject to subsection (x), primary and secondary medical 

strategies and treatment and services for individuals who have 

Sickle Cell Disease; 

(28) freestanding birth center services (as defined in subsection (l)(3)(A)) and other ambulatory services that are offered 

by a freestanding birth center (as defined in subsection 

(l)(3)(B)) and that are otherwise included in the plan; and 

(29) any other medical care, and any other type of remedial 

care recognized under State law, specified by the Secretary, 

except as otherwise provided in paragraph (16), such term does not 

include— 

(A) any such payments with respect to care or services for 

any individual who is an inmate of a public institution (except 

as a patient in a medical institution); or 

(B) any such payments with respect to care or services for 

any individual who has not attained 65 years of age and who 

is a patient in an institution for mental diseases. 

For purposes of clause (vi) of the preceding sentence, a person shall 

be considered essential to another individual if such person is the 

spouse of and is living with such individual, the needs of such person are taken into account in determining the amount of aid or assistance furnished to such individual (under a State plan approved 

under title I, X, XIV, or XVI), and such person is determined, 

under such a State plan, to be essential to the well-being of such 


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individual. The payment described in the first sentence may include expenditures for medicare cost-sharing and for premiums 

under part B of title XVIII for individuals who are eligible for medical assistance under the plan and (A) are receiving aid or assistance under any plan of the State approved under title I, X, XIV, 

or XVI, or part A of title IV, or with respect to whom supplemental 

security income benefits are being paid under title XVI, or (B) with 

respect to whom there is being paid a State supplementary payment and are eligible for medical assistance equal in amount, duration, and scope to the medical assistance made available to individuals described in section 1902(a)(10)(A), and, except in the case of 

individuals 65 years of age or older and disabled individuals entitled to health insurance benefits under title XVIII who are not enrolled under part B of title XVIII, other insurance premiums for 

medical or any other type of remedial care or the cost thereof. No 

service (including counseling) shall be excluded from the definition 

of ‘‘medical assistance’’ solely because it is provided as a treatment 

service for alcoholism or drug dependency. 

(b) Subject to subsections (y), (z), and (aa) and section 1933(d), 

the term ‘‘Federal medical assistance percentage’’ for any State 

shall be 100 per centum less the State percentage; and the State 

percentage shall be that percentage which bears the same ratio to 

45 per centum as the square of the per capita income of such State 

bears to the square of the per capita income of the continental 

United States (including Alaska) and Hawaii; except that (1) the 

Federal medical assistance percentage shall in no case be less than 

50 per centum or more than 83 per centum, (2) the Federal medical 

assistance percentage for Puerto Rico, the Virgin Islands, Guam, 

the Northern Mariana Islands, and American Samoa shall be 55 

percent, (3) for purposes of this title and title XXI, the Federal 

medical assistance percentage for the District of Columbia shall be 

70 percent, (4) the Federal medical assistance percentage shall be 

equal to the enhanced FMAP described in section 2105(b) with respect to medical assistance provided to individuals who are eligible 

for such assistance only on the basis of section 

1902(a)(10)(A)(ii)(XVIII), and (5) in the case of a State that provides medical assistance for services and vaccines described in subparagraphs (A) and (B) of subsection (a)(13), and prohibits costsharing for such services and vaccines, the Federal medical assistance percentage, as determined under this subsection and subsection (y) (without regard to paragraph (1)(C) of such subsection), 

shall be increased by 1 percentage point with respect to medical assistance for such services and vaccines and for items and services 

described in subsection (a)(4)(D). The Federal medical assistance 

percentage for any State shall be determined and promulgated in 

accordance with the provisions of section 1101(a)(8)(B). Notwithstanding the first sentence of this section, the Federal medical assistance percentage shall be 100 per centum with respect to 

amounts expended as medical assistance for services which are received through an Indian Health Service facility whether operated 

by the Indian Health Service or by an Indian tribe or tribal organization (as defined in section 4 of the Indian Health Care Improvement Act). Notwithstanding the first sentence of this subsection, in 

the case of a State plan that meets the condition described in subsection (u)(1), with respect to expenditures (other than expendiVerDate Sep 11 2014 07:21 Sep 11, 2016 Jkt 059006 PO 00000 Frm 00052 Fmt 6659 Sfmt 6602 E:\HR\OC\HR734.XXX HR734

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tures under section 1923) described in subsection (u)(2)(A) or subsection (u)(3) for the State for a fiscal year, and that do not exceed 

the amount of the State’s available allotment under section 2104, 

the Federal medical assistance percentage is equal to the enhanced 

FMAP described in section 2105(b). 

(c) For definition of the term ‘‘nursing facility’’, see section 

1919(a). 

(d) The term ‘‘intermediate care facility for the mentally retarded’’ means an institution (or distinct part thereof) for the mentally retarded or persons with related conditions if— 

(1) the primary purpose of such institution (or distinct part 

thereof) is to provide health or rehabilitative services for mentally retarded individuals and the institution meets such 

standards as may be prescribed by the Secretary; 

(2) the mentally retarded individual with respect to whom a 

request for payment is made under a plan approved under this 

title is receiving active treatment under such a program; and 

(3) in the case of a public institution, the State or political 

subdivision responsible for the operation of such institution 

has agreed that the non-Federal expenditures in any calendar 

quarter prior to January 1, 1975, with respect to services furnished to patients in such institution (or distinct part thereof) 

in the State will not, because of payments made under this 

title, be reduced below the average amount expended for such 

services in such institution in the four quarters immediately 

preceding the quarter in which the State in which such institution is located elected to make such services available under its 

plan approved under this title. 

(e) In the case of any State the State plan of which (as approved 

under this title)— 

(1) does not provide for the payment of services (other than 

services covered under section 1902(a)(12)) provided by an optometrist; but 

(2) at a prior period did provide for the payment of services 

referred to in paragraph (1); 

the term ‘‘physicians’ services’’ (as used in subsection (a)(5)) shall 

include services of the type which an optometrist is legally authorized to perform where the State plan specifically provides that the 

term ‘‘physicians’ services’’, as employed in such plan, includes 

services of the type which an optometrist is legally authorized to 

perform, and shall be reimbursed whether furnished by a physician 

or an optometrist. 

(f) For purposes of this title, the term ‘‘nursing facility services’’ 

means services which are or were required to be given an individual who needs or needed on a daily basis nursing care (provided 

directly by or requiring the supervision of nursing personnel) or 

other rehabilitation services which as a practical matter can only 

be provided in a nursing facility on an inpatient basis. 

(g) If the State plan includes provision of chiropractors’ services, 

such services include only— 

(1) services provided by a chiropractor (A) who is licensed as 

such by the State and (B) who meets uniform minimum standards promulgated by the Secretary under section 1861(r)(5); 

and 


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(2) services which consist of treatment by means of manual 

manipulation of the spine which the chiropractor is legally authorized to perform by the State. 

(h)(1) For purposes of paragraph (16) of subsection (a), the term 

‘‘inpatient psychiatric hospital services for individuals under age 

21’’ includes only— 

(A) inpatient services which are provided in an institution 

(or distinct part thereof) which is a psychiatric hospital as defined in section 1861(f) or in another inpatient setting that the 

Secretary has specified in regulations; 

(B) inpatient services which, in the case of any individual (i) 

involve active treatment which meets such standards as may 

be prescribed in regulations by the Secretary, and (ii) a team, 

consisting of physicians and other personnel qualified to make 

determinations with respect to mental health conditions and 

the treatment thereof, has determined are necessary on an inpatient basis and can reasonably be expected to improve the 

condition, by reason of which such services are necessary, to 

the extent that eventually such services will no longer be necessary; and 

(C) inpatient services which, in the case of any individual, 

are provided prior to (i) the date such individual attains age 

21, or (ii) in the case of an individual who was receiving such 

services in the period immediately preceding the date on which 

he attained age 21, (I) the date such individual no longer requires such services, or (II) if earlier, the date such individual 

attains age 22; 

(2) Such term does not include services provided during any calendar quarter under the State plan of any State if the total amount 

of the funds expended, during such quarter, by the State (and the 

political subdivisions thereof) from non-Federal funds for inpatient 

services included under paragraph (1), and for active psychiatric 

care and treatment provided on an outpatient basis for eligible 

mentally ill children, is less than the average quarterly amount of 

the funds expended, during the 4-quarter period ending December 

31, 1971, by the State (and the political subdivisions thereof) from 

non-Federal funds for such services. 

(i) The term ‘‘institution for mental diseases’’ means a hospital, 

nursing facility, or other institution of more than 16 beds, that is 

primarily engaged in providing diagnosis, treatment, or care of persons with mental diseases, including medical attention, nursing 

care, and related services. 

(j) The term ‘‘State supplementary payment’’ means any cash 

payment made by a State on a regular basis to an individual who 

is receiving supplemental security income benefits under title XVI 

or who would but for his income be eligible to receive such benefits, 

as assistance based on need in supplementation of such benefits (as 

determined by the Commissioner of Social Security), but only to the 

extent that such payments are made with respect to an individual 

with respect to whom supplemental security income benefits are 

payable under title XVI, or would but for his income be payable 

under that title. 

(k) Increased supplemental security income benefits payable pursuant to section 211 of Public Law 93-66 shall not be considered 

supplemental security income benefits payable under title XVI. 


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(l)(1) The terms ‘‘rural health clinic services’’ and ‘‘rural health 

clinic’’ have the meanings given such terms in section 1861(aa), except that (A) clause (ii) of section 1861(aa)(2) shall not apply to 

such terms, and (B) the physician arrangement required under section 1861(aa)(2)(B) shall only apply with respect to rural health 

clinic services and, with respect to other ambulatory care services, 

the physician arrangement required shall be only such as may be 

required under the State plan for those services. 

(2)(A) The term ‘‘Federally-qualified health center services’’ 

means services of the type described in subparagraphs (A) through 

(C) of section 1861(aa)(1) when furnished to an individual as an patient of a Federally-qualified health center and, for this purpose, 

any reference to a rural health clinic or a physician described in 

section 1861(aa)(2)(B) is deemed a reference to a Federally-qualified health center or a physician at the center, respectively. 

(B) The term ‘‘Federally-qualified health center’’ means an entity 

which— 

(i) is receiving a grant under section 330 of the Public Health 

Service Act, 

(ii)(I) is receiving funding from such a grant under a contract 

with the recipient of such a grant, and 

(II) meets the requirements to receive a grant under section 

330 of such Act, 

(iii) based on the recommendation of the Health Resources 

and Services Administration within the Public Health Service, 

is determined by the Secretary to meet the requirements for 

receiving such a grant, including requirements of the Secretary 

that an entity may not be owned, controlled, or operated by another entity, or 

(iv) was treated by the Secretary, for purposes of part B of 

title XVIII, as a comprehensive Federally funded health center 

as of January 1, 1990; 

and includes an outpatient health program or facility operated by 

a tribe or tribal organization under the Indian Self-Determination 

Act (Public Law 93-638) or by an urban Indian organization receiving funds under title V of the Indian Health Care Improvement Act 

for the provision of primary health services. In applying clause (ii), 

the Secretary may waive any requirement referred to in such 

clause for up to 2 years for good cause shown. 

(3)(A) The term ‘‘freestanding birth center services’’ means services furnished to an individual at a freestanding birth center (as 

defined in subparagraph (B)) at such center. 

(B) The term ‘‘freestanding birth center’’ means a health facility— 

(i) that is not a hospital; 

(ii) where childbirth is planned to occur away from the pregnant woman’s residence; 

(iii) that is licensed or otherwise approved by the State to 

provide prenatal labor and delivery or postpartum care and 

other ambulatory services that are included in the plan; and 

(iv) that complies with such other requirements relating to 

the health and safety of individuals furnished services by the 

facility as the State shall establish. 

(C) A State shall provide separate payments to providers administering prenatal labor and delivery or postpartum care in a freeVerDate Sep 11 2014 07:21 Sep 11, 2016 Jkt 059006 PO 00000 Frm 00055 Fmt 6659 Sfmt 6602 E:\HR\OC\HR734.XXX HR734

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standing birth center (as defined in subparagraph (B)), such as 

nurse midwives and other providers of services such as birth attendants recognized under State law, as determined appropriate by 

the Secretary. For purposes of the preceding sentence, the term 

‘‘birth attendant’’ means an individual who is recognized or registered by the State involved to provide health care at childbirth 

and who provides such care within the scope of practice under 

which the individual is legally authorized to perform such care 

under State law (or the State regulatory mechanism provided by 

State law), regardless of whether the individual is under the supervision of, or associated with, a physician or other health care provider. Nothing in this subparagraph shall be construed as changing 

State law requirements applicable to a birth attendant. 

(m)(1) Subject to paragraph (2), the term ‘‘qualified family member’’ means an individual (other than a qualified pregnant woman 

or child, as defined in subsection (n)) who is a member of a family 

that would be receiving aid under the State plan under part A of 

title IV pursuant to section 407 if the State had not exercised the 

option under section 407(b)(2)(B)(i). 

(2) No individual shall be a qualified family member for any period after September 30, 1998. 

(n) The term ‘‘qualified pregnant woman or child’’ means— 

(1) a pregnant woman who— 

(A) would be eligible for aid to families with dependent 

children under part A of title IV (or would be eligible for 

such aid if coverage under the State plan under part A of 

title IV included aid to families with dependent children of 

unemployed parents pursuant to section 407) if her child 

had been born and was living with her in the month such 

aid would be paid, and such pregnancy has been medically 

verified; 

(B) is a member of a family which would be eligible for 

aid under the State plan under part A of title IV pursuant 

to section 407 if the plan required the payment of aid pursuant to such section; or 

(C) otherwise meets the income and resources requirements of a State plan under part A of title IV; and 

(2) a child who has not attained the age of 19, who was born 

after September 30, 1983 (or such earlier date as the State 

may designate), and who meets the income and resources requirements of the State plan under part A of title IV. 

(o)(1)(A) Subject to subparagraphs (B) and (C), the term ‘‘hospice 

care’’ means the care described in section 1861(dd)(1) furnished by 

a hospice program (as defined in section 1861(dd)(2)) to a terminally ill individual who has voluntarily elected (in accordance with 

paragraph (2)) to have payment made for hospice care instead of 

having payment made for certain benefits described in section 

1812(d)(2)(A) and for which payment may otherwise be made under 

title XVIII and intermediate care facility services under the plan. 

For purposes of such election, hospice care may be provided to an 

individual while such individual is a resident of a skilled nursing 

facility or intermediate care facility, but the only payment made 

under the State plan shall be for the hospice care. 

(B) For purposes of this title, with respect to the definition of 

hospice program under section 1861(dd)(2), the Secretary may 


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allow an agency or organization to make the assurance under subparagraph (A)(iii) of such section without taking into account any 

individual who is afflicted with acquired immune deficiency syndrome (AIDS). 

(C) A voluntary election to have payment made for hospice care 

for a child (as defined by the State) shall not constitute a waiver 

of any rights of the child to be provided with, or to have payment 

made under this title for, services that are related to the treatment 

of the child’s condition for which a diagnosis of terminal illness has 

been made. 

(2) An individual’s voluntary election under this subsection — 

(A) shall be made in accordance with procedures that are established by the State and that are consistent with the procedures established under section 1812(d)(2); 

(B) shall be for such a period or periods (which need not be 

the same periods described in section 1812(d)(1)) as the State 

may establish; and 

(C) may be revoked at any time without a showing of cause 

and may be modified so as to change the hospice program with 

respect to which a previous election was made. 

(3) In the case of an individual— 

(A) who is residing in a nursing facility or intermediate care 

facility for the mentally retarded and is receiving medical assistance for services in such facility under the plan, 

(B) who is entitled to benefits under part A of title XVIII and 

has elected, under section 1812(d), to receive hospice care 

under such part, and 

(C) with respect to whom the hospice program under such 

title and the nursing facility or intermediate care facility for 

the mentally retarded have entered into a written agreement 

under which the program takes full responsibility for the professional management of the individual’s hospice care and the 

facility agrees to provide room and board to the individual, 

instead of any payment otherwise made under the plan with respect to the facility’s services, the State shall provide for payment 

to the hospice program of an amount equal to the additional 

amount determined in section 1902(a)(13)(B) and, if the individual 

is an individual described in section 1902(a)(10)(A), shall provide 

for payment of any coinsurance amounts imposed under section 

1813(a)(4). 

(p)(1) The term ‘‘qualified medicare beneficiary’’ means an individual— 

(A) who is entitled to hospital insurance benefits under part 

A of title XVIII (including an individual entitled to such benefits pursuant to an enrollment under section 1818, but not including an individual entitled to such benefits only pursuant to 

an enrollment under section 1818A), 

(B) whose income (as determined under section 1612 for purposes of the supplemental security income program, except as 

provided in paragraph (2)(D)) does not exceed an income level 

established by the State consistent with paragraph (2), and 

(C) whose resources (as determined under section 1613 for 

purposes of the supplemental security income program) do not 

exceed twice the maximum amount of resources that an individual may have and obtain benefits under that program or, efVerDate Sep 11 2014 07:21 Sep 11, 2016 Jkt 059006 PO 00000 Frm 00057 Fmt 6659 Sfmt 6602 E:\HR\OC\HR734.XXX HR734

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fective beginning with January 1, 2010, whose resources (as so 

determined) do not exceed the maximum resource level applied 

for the year under subparagraph (D) of section 1860D–14(a)(3) 

(determined without regard to the life insurance policy exclusion provided under subparagraph (G) of such section) applicable to an individual or to the individual and the individual’s 

spouse (as the case may be). 

(2)(A) The income level established under paragraph (1)(B) shall 

be at least the percent provided under subparagraph (B) (but not 

more than 100 percent) of the official poverty line (as defined by 

the Office of Management and Budget, and revised annually in accordance with section 673(2) of the Omnibus Budget Reconciliation 

Act of 1981) applicable to a family of the size involved. 

(B) Except as provided in subparagraph (C), the percent provided 

under this clause, with respect to eligibility for medical assistance 

on or after— 

(i) January 1, 1989, is 85 percent, 

(ii) January 1, 1990, is 90 percent, and 

(iii) January 1, 1991, is 100 percent. 

(C) In the case of a State which has elected treatment under section 1902(f) and which, as of January 1, 1987, used an income 

standard for individuals age 65 or older which was more restrictive 

than the income standard established under the supplemental security income program under title XVI, the percent provided under 

subparagraph (B), with respect to eligibility for medical assistance 

on or after— 

(i) January 1, 1989, is 80 percent, 

(ii) January 1, 1990, is 85 percent, 

(iii) January 1, 1991, is 95 percent, and 

(iv) January 1, 1992, is 100 percent. 

(D)(i) In determining under this subsection the income of an individual who is entitled to monthly insurance benefits under title II 

for a transition month (as defined in clause (ii)) in a year, such income shall not include any amounts attributable to an increase in 

the level of monthly insurance benefits payable under such title 

which have occurred pursuant to section 215(i) for benefits payable 

for months beginning with December of the previous year. 

(ii) For purposes of clause (i), the term ‘‘transition month’’ means 

each month in a year through the month following the month in 

which the annual revision of the official poverty line, referred to in 

subparagraph (A), is published. 

(3) The term ‘‘medicare cost-sharing’’ means (subject to section 

1902(n)(2)) the following costs incurred with respect to a qualified 

medicare beneficiary, without regard to whether the costs incurred 

were for items and services for which medical assistance is otherwise available under the plan: 

(A)(i) premiums under section 1818 or 1818A, and 

(ii) premiums under section 1839, 

(B) Coinsurance under title XVIII (including coinsurance described in section 1813). 

(C) Deductibles established under title XVIII (including 

those described in section 1813 and section 1833(b)). 

(D) The difference between the amount that is paid under 

section 1833(a) and the amount that would be paid under such 


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section if any reference to ‘‘80 percent’’ therein were deemed a 

reference to ‘‘100 percent’’. 

Such term also may include, at the option of a State, premiums for 

enrollment of a qualified medicare beneficiary with an eligible organization under section 1876. 

(4) Notwithstanding any other provision of this title, in the case 

of a State (other than the 50 States and the District of Columbia)— 

(A) the requirement stated in section 1902(a)(10)(E) shall be 

optional, and 

(B) for purposes of paragraph (2), the State may substitute 

for the percent provided under subparagraph (B) of such paragraph or 1902(a)(10)(E)(iii) any percent. 

In the case of any State which is providing medical assistance to 

its residents under a waiver granted under section 1115, the Secretary shall require the State to meet the requirement of section 

1902(a)(10)(E) in the same manner as the State would be required 

to meet such requirement if the State had in effect a plan approved 

under this title. 

(5)(A) The Secretary shall develop and distribute to States a simplified application form for use by individuals (including both qualified medicare beneficiaries and specified low-income medicare beneficiaries) in applying for medical assistance for medicare cost-sharing under this title in the States which elect to use such form. Such 

form shall be easily readable by applicants and uniform nationally. 

The Secretary shall provide for the translation of such application 

form into at least the 10 languages (other than English) that are 

most often used by individuals applying for hospital insurance benefits under section 226 or 226A and shall make the translated 

forms available to the States and to the Commissioner of Social Security. 

(B) In developing such form, the Secretary shall consult with 

beneficiary groups and the States. 

(6) For provisions relating to outreach efforts to increase awareness of the availability of medicare cost-sharing, see section 1144. 

(q) The term ‘‘qualified severely impaired individual’’ means an 

individual under age 65— 

(1) who for the month preceding the first month to which 

this subsection applies to such individual— 

(A) received (i) a payment of supplemental security income benefits under section 1611(b) on the basis of blindness or disability, (ii) a supplementary payment under section 1616 of this Act or under section 212 of Public Law 

93-66 on such basis, (iii) a payment of monthly benefits 

under section 1619(a), or (iv) a supplementary payment 

under section 1616(c)(3), and 

(B) was eligible for medical assistance under the State 

plan approved under this title; and 

(2) with respect to whom the Commissioner of Social Security determines that— 

(A) the individual continues to be blind or continues to 

have the disabling physical or mental impairment on the 

basis of which he was found to be under a disability and, 

except for his earnings, continues to meet all non-disability-related requirements for eligibility for benefits 

under title XVI, 


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(B) the income of such individual would not, except for 

his earnings, be equal to or in excess of the amount which 

would cause him to be ineligible for payments under section 1611(b) (if he were otherwise eligible for such payments), 

(C) the lack of eligibility for benefits under this title 

would seriously inhibit his ability to continue or obtain 

employment, and 

(D) the individual’s earnings are not sufficient to allow 

him to provide for himself a reasonable equivalent of the 

benefits under title XVI (including any federally administered State supplementary payments), this title, and publicly funded attendant care services (including personal 

care assistance) that would be available to him in the absence of such earnings. 

In the case of an individual who is eligible for medical assistance pursuant to section 1619(b) in June, 1987, the individual 

shall be a qualified severely impaired individual for so long as 

such individual meets the requirements of paragraph (2). 

(r) The term ‘‘early and periodic screening, diagnostic, and treatment services’’ means the following items and services: 

(1) Screening services— 

(A) which are provided— 

(i) at intervals which meet reasonable standards of 

medical and dental practice, as determined by the 

State after consultation with recognized medical and 

dental organizations involved in child health care and, 

with respect to immunizations under subparagraph 

(B)(iii), in accordance with the schedule referred to in 

section 1928(c)(2)(B)(i) for pediatric vaccines, and 

(ii) at such other intervals, indicated as medically 

necessary, to determine the existence of certain physical or mental illnesses or conditions; and 

(B) which shall at a minimum include— 

(i) a comprehensive health and developmental history (including assessment of both physical and mental health development), 

(ii) a comprehensive unclothed physical exam, 

(iii) appropriate immunizations (according to the 

schedule referred to in section 1928(c)(2)(B)(i) for pediatric vaccines) according to age and health history, 

(iv) laboratory tests (including lead blood level assessment appropriate for age and risk factors), and 

(v) health education (including anticipatory guidance). 

(2) Vision services— 

(A) which are provided— 

(i) at intervals which meet reasonable standards of 

medical practice, as determined by the State after consultation with recognized medical organizations involved in child health care, and 

(ii) at such other intervals, indicated as medically 

necessary, to determine the existence of a suspected 

illness or condition; and 


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(B) which shall at a minimum include diagnosis and 

treatment for defects in vision, including eyeglasses. 

(3) Dental services— 

(A) which are provided— 

(i) at intervals which meet reasonable standards of 

dental practice, as determined by the State after consultation with recognized dental organizations involved in child health care, and 

(ii) at such other intervals, indicated as medically 

necessary, to determine the existence of a suspected 

illness or condition; and 

(B) which shall at a minimum include relief of pain and 

infections, restoration of teeth, and maintenance of dental 

health. 

(4) Hearing services— 

(A) which are provided— 

(i) at intervals which meet reasonable standards of 

medical practice, as determined by the State after consultation with recognized medical organizations involved in child health care, and 

(ii) at such other intervals, indicated as medically 

necessary, to determine the existence of a suspected 

illness or condition; and 

(B) which shall at a minimum include diagnosis and 

treatment for defects in hearing, including hearing aids. 

(5) Such other necessary health care, diagnostic services, 

treatment, and other measures described in section 1905(a) to 

correct or ameliorate defects and physical and mental illnesses 

and conditions discovered by the screening services, whether or 

not such services are covered under the State plan. 

Nothing in this title shall be construed as limiting providers of 

early and periodic screening, diagnostic, and treatment services to 

providers who are qualified to provide all of the items and services 

described in the previous sentence or as preventing a provider that 

is qualified under the plan to furnish one or more (but not all) of 

such items or services from being qualified to provide such items 

and services as part of early and periodic screening, diagnostic, and 

treatment services. The Secretary shall, not later than July 1, 

1990, and every 12 months thereafter, develop and set annual participation goals for each State for participation of individuals who 

are covered under the State plan under this title in early and periodic screening, diagnostic, and treatment services. 

(s) The term ‘‘qualified disabled and working individual’’ means 

an individual— 

(1) who is entitled to enroll for hospital insurance benefits 

under part A of title XVIII under section 1818A (as added by 

6012 of the Omnibus Budget Reconciliation Act of 1989); 

(2) whose income (as determined under section 1612 for purposes of the supplemental security income program) does not 

exceed 200 percent of the official poverty line (as defined by 

the Office of Management and Budget and revised annually in 

accordance with section 673(2) of the Omnibus Budget Reconciliation Act of 1981) applicable to a family of the size involved; 


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(3) whose resources (as determined under section 1613 for 

purposes of the supplemental security income program) do not 

exceed twice the maximum amount of resources that an individual or a couple (in the case of an individual with a spouse) 

may have and obtain benefits for supplemental security income 

benefits under title XVI; and 

(4) who is not otherwise eligible for medical assistance under 

this title. 

(t)(1) The term ‘‘primary care case management services’’ means 

case-management related services (including locating, coordinating, 

and monitoring of health care services) provided by a primary care 

case manager under a primary care case management contract. 

(2) The term ‘‘primary care case manager’’ means any of the following that provides services of the type described in paragraph (1) 

under a contract referred to in such paragraph: 

(A) A physician, a physician group practice, or an entity employing or having other arrangements with physicians to provide such services. 

(B) At State option— 

(i) a nurse practitioner (as described in section 

1905(a)(21)); 

(ii) a certified nurse-midwife (as defined in section 

1861(gg)); or 

(iii) a physician assistant (as defined in section 

1861(aa)(5)). 

(3) The term ‘‘primary care case management contract’’ means a 

contract between a primary care case manager and a State under 

which the manager undertakes to locate, coordinate, and monitor 

covered primary care (and such other covered services as may be 

specified under the contract) to all individuals enrolled with the 

manager, and which— 

(A) provides for reasonable and adequate hours of operation, 

including 24-hour availability of information, referral, and 

treatment with respect to medical emergencies; 

(B) restricts enrollment to individuals residing sufficiently 

near a service delivery site of the manager to be able to reach 

that site within a reasonable time using available and affordable modes of transportation; 

(C) provides for arrangements with, or referrals to, sufficient 

numbers of physicians and other appropriate health care professionals to ensure that services under the contract can be 

furnished to enrollees promptly and without compromise to 

quality of care; 

(D) prohibits discrimination on the basis of health status or 

requirements for health care services in enrollment, 

disenrollment, or reenrollment of individuals eligible for medical assistance under this title; 

(E) provides for a right for an enrollee to terminate enrollment in accordance with section 1932(a)(4); and 

(F) complies with the other applicable provisions of section 

1932. 

(4) For purposes of this subsection, the term ‘‘primary care’’ includes all health care services customarily provided in accordance 

with State licensure and certification laws and regulations, and all 

laboratory services customarily provided by or through, a general 


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practitioner, family medicine physician, internal medicine physician, obstetrician/gynecologist, or pediatrician. 

(u)(1) The conditions described in this paragraph for a State plan 

are as follows: 

(A) The State is complying with the requirement of section 

2105(d)(1). 

(B) The plan provides for such reporting of information about 

expenditures and payments attributable to the operation of 

this subsection as the Secretary deems necessary in order to 

carry out the fourth sentence of subsection (b). 

(2)(A) For purposes of subsection (b), the expenditures described 

in this subparagraph are expenditures for medical assistance for 

optional targeted low-income children described in subparagraph 

(B). 

(B) For purposes of this paragraph, the term ‘‘optional targeted 

low-income child’’ means a targeted low-income child as defined in 

section 2110(b)(1) (determined without regard to that portion of 

subparagraph (C) of such section concerning eligibility for medical 

assistance under this title) who would not qualify for medical assistance under the State plan under this title as in effect on March 

31, 1997 (but taking into account the expansion of age of eligibility 

effected through the operation of section 1902(l)(1)(D)). Such term 

excludes any child eligible for medical assistance only by reason of 

section 1902(a)(10)(A)(ii)(XIX). 

(3) For purposes of subsection (b), the expenditures described in 

this paragraph are expenditures for medical assistance for children 

who are born before October 1, 1983, and who would be described 

in section 1902(l)(1)(D) if they had been born on or after such date, 

and who are not eligible for such assistance under the State plan 

under this title based on such State plan as in effect as of March 

31, 1997. 

(4) The limitations on payment under subsections (f) and (g) of 

section 1108 shall not apply to Federal payments made under section 1903(a)(1) based on an enhanced FMAP described in section 

2105(b). 

(v)(1) The term ‘‘employed individual with a medically improved 

disability’’ means an individual who— 

(A) is at least 16, but less than 65, years of age; 

(B) is employed (as defined in paragraph (2)); 

(C) ceases to be eligible for medical assistance under section 

1902(a)(10)(A)(ii)(XV) because the individual, by reason of medical improvement, is determined at the time of a regularly 

scheduled continuing disability review to no longer be eligible 

for benefits under section 223(d) or 1614(a)(3); and 

(D) continues to have a severe medically determinable impairment, as determined under regulations of the Secretary. 

(2) For purposes of paragraph (1), an individual is considered to 

be ‘‘employed’’ if the individual— 

(A) is earning at least the applicable minimum wage requirement under section 6 of the Fair Labor Standards Act (29 

U.S.C. 206) and working at least 40 hours per month; or 

(B) is engaged in a work effort that meets substantial and 

reasonable threshold criteria for hours of work, wages, or other 

measures, as defined by the State and approved by the Secretary.’ 


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(w)(1) For purposes of this title, the term ‘‘independent foster 

care adolescent’’ means an individual— 

(A) who is under 21 years of age; 

(B) who, on the individual’s 18th birthday, was in foster care 

under the responsibility of a State; and 

(C) whose assets, resources, and income do not exceed such 

levels (if any) as the State may establish consistent with paragraph (2). 

(2) The levels established by a State under paragraph (1)(C) may 

not be less than the corresponding levels applied by the State 

under section 1931(b). 

(3) A State may limit the eligibility of independent foster care 

adolescents under section 1902(a)(10)(A)(ii)(XVII) to those individuals with respect to whom foster care maintenance payments or 

independent living services were furnished under a program funded under part E of title IV before the date the individuals attained 

18 years of age. 

(x) For purposes of subsection (a)(27), the strategies, treatment, 

and services described in that subsection include the following: 

(1) Chronic blood transfusion (with deferoxamine chelation) 

to prevent stroke in individuals with Sickle Cell Disease who 

have been identified as being at high risk for stroke. 

(2) Genetic counseling and testing for individuals with Sickle 

Cell Disease or the sickle cell trait to allow health care professionals to treat such individuals and to prevent symptoms of 

Sickle Cell Disease. 

(3) Other treatment and services to prevent individuals who 

have Sickle Cell Disease and who have had a stroke from having another stroke. 

(y) INCREASED FMAP FOR MEDICAL ASSISTANCE FOR NEWLY ELI- GIBLE MANDATORY INDIVIDUALS.— (1) AMOUNT OF INCREASE.—Notwithstanding subsection (b), 

the Federal medical assistance percentage for a State that is 

one of the 50 States or the District of Columbia, with respect 

to amounts expended by such State for medical assistance for 

newly eligible individuals described in subclause (VIII) of section 1902(a)(10)(A)(i), shall be equal to— 

(A) 100 percent for calendar quarters in 2014, 2015, and 

2016; 

(B) 95 percent for calendar quarters in 2017; 

(C) 94 percent for calendar quarters in 2018; 

(D) 93 percent for calendar quarters in 2019; and 

(E) 90 percent for calendar quarters in 2020 and each 

year thereafter. 

(2) DEFINITIONS.—In this subsection: 

(A) NEWLY ELIGIBLE.—The term ‘‘newly eligible’’ means, 

with respect to an individual described in subclause (VIII) 

of section 1902(a)(10)(A)(i), an individual who is not under 

19 years of age (or such higher age as the State may have 

elected) and who, as of December 1, 2009, is not eligible 

under the State plan or under a waiver of the plan for full 

benefits or for benchmark coverage described in subparagraph (A), (B), or (C) of section 1937(b)(1) or benchmark 

equivalent coverage described in section 1937(b)(2) that 

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ally equivalent to benchmark coverage described in subparagraph (A), (B), or (C) of section 1937(b)(1), or is eligible but not enrolled (or is on a waiting list) for such benefits or coverage through a waiver under the plan that has 

a capped or limited enrollment that is full. 

(B) FULL BENEFITS.—The term ‘‘full benefits’’ means, 

with respect to an individual, medical assistance for all 

services covered under the State plan under this title that 

is not less in amount, duration, or scope, or is determined 

by the Secretary to be substantially equivalent, to the 

medical assistance available for an individual described in 

section 1902(a)(10)(A)(i). 

(z) EQUITABLE SUPPORT FOR CERTAIN STATES.— 

(1)(A) During the period that begins on January 1, 2014, and 

ends on December 31, 2015, notwithstanding subsection (b), 

the Federal medical assistance percentage otherwise determined under subsection (b) with respect to a fiscal year occurring during that period shall be increased by 2.2 percentage 

points for any State described in subparagraph (B) for amounts 

expended for medical assistance for individuals who are not 

newly eligible (as defined in subsection (y)(2)) individuals described in subclause (VIII) of section 1902(a)(10)(A)(i). 

(B) For purposes of subparagraph (A), a State described in 

this subparagraph is a State that— 

(i) is an expansion State described in paragraph (3); 

(ii) the Secretary determines will not receive any payments under this title on the basis of an increased Federal 

medical assistance percentage under subsection (y) for expenditures for medical assistance for newly eligible individuals (as so defined); and 

(iii) has not been approved by the Secretary to divert a 

portion of the DSH allotment for a State to the costs of 

providing medical assistance or other health benefits coverage under a waiver that is in effect on July 2009. 

(2)(A) For calendar quarters in 2014 and each year thereafter, the Federal medical assistance percentage otherwise determined under subsection (b) for an expansion State described 

in paragraph (3) with respect to medical assistance for individuals described in section 1902(a)(10)(A)(i)(VIII) who are nonpregnant childless adults with respect to whom the State may 

require enrollment in benchmark coverage under section 1937 

shall be equal to the percent specified in subparagraph (B)(i) 

for such year. 

(B)(i) The percent specified in this subparagraph for a State 

for a year is equal to the Federal medical assistance percentage (as defined in the first sentence of subsection (b)) for the 

State increased by a number of percentage points equal to the 

transition percentage (specified in clause (ii) for the year) of 

the number of percentage points by which— 

(I) such Federal medical assistance percentage for the 

State, is less than 

(II) the percent specified in subsection (y)(1) for the year. 

(ii) The transition percentage specified in this clause for— 

(I) 2014 is 50 percent; 

(II) 2015 is 60 percent; 


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(III) 2016 is 70 percent; 

(IV) 2017 is 80 percent; 

(V) 2018 is 90 percent; and 

(VI) 2019 and each subsequent year is 100 percent. 

(3) A State is an expansion State if, on the date of the enactment of the Patient Protection and Affordable Care Act, the 

State offers health benefits coverage statewide to parents and 

nonpregnant, childless adults whose income is at least 100 percent of the poverty line, that includes inpatient hospital services, is not dependent on access to employer coverage, employer 

contribution, or employment and is not limited to premium assistance, hospital-only benefits, a high deductible health plan, 

or alternative benefits under a demonstration program authorized under section 1938. A State that offers health benefits coverage to only parents or only nonpregnant childless adults described in the preceding sentence shall not be considered to be 

an expansion State. 

(aa)(1) Notwithstanding subsection (b), beginning January 1, 

2011, the Federal medical assistance percentage for a fiscal year 

for a disaster-recovery FMAP adjustment State shall be equal to 

the following: 

(A) In the case of the first fiscal year (or part of a fiscal year) 

for which this subsection applies to the State, the State’s regular FMAP shall be increased by 50 percent of the number of 

percentage points by which the State’s regular FMAP for such 

fiscal year is less than the Federal medical assistance percentage determined for the State for the preceding fiscal year after 

the application of only subsection (a) of section 5001 of Public 

Law 111–5 (if applicable to the preceding fiscal year) and without regard to this subsection, subsections (y) and (z), and subsections (b) and (c) of section 5001 of Public Law 111–5. 

(B) In the case of the second or any succeeding fiscal year 

for which this subsection applies to the State, the State’s regular FMAP for such fiscal year shall be increased by 25 percent (or 50 percent in the case of fiscal year 2013) of the number of percentage points by which the State’s regular FMAP for 

such fiscal year is less than the Federal medical assistance 

percentage received by the State during the preceding fiscal 

year. 

(2) In this subsection, the term ‘‘disaster-recovery FMAP adjustment State’’ means a State that is one of the 50 States or the District of Columbia, for which, at any time during the preceding 7 fiscal years, the President has declared a major disaster under section 

401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act and determined as a result of such disaster that every 

county or parish in the State warrant individual and public assistance or public assistance from the Federal Government under such 

Act and for which— 

(A) in the case of the first fiscal year (or part of a fiscal year) 

for which this subsection applies to the State, the State’s regular FMAP for the fiscal year is less than the Federal medical 

assistance percentage determined for the State for the preceding fiscal year after the application of only subsection (a) of 

section 5001 of Public Law 111–5 (if applicable to the preceding fiscal year) and without regard to this subsection, subVerDate Sep 11 2014 07:21 Sep 11, 2016 Jkt 059006 PO 00000 Frm 00066 Fmt 6659 Sfmt 6602 E:\HR\OC\HR734.XXX HR734

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sections (y) and (z), and subsections (b) and (c) of section 5001 

of Public Law 111–5, by at least 3 percentage points; and 

(B) in the case of the second or any succeeding fiscal year for 

which this subsection applies to the State, the State’s regular 

FMAP for the fiscal year is less than the Federal medical assistance percentage determined for the State for the preceding 

fiscal year under this subsection by at least 3 percentage 

points. 

(3) In this subsection, the term ‘‘regular FMAP’’ means, for each 

fiscal year for which this subsection applies to a State, the Federal 

medical assistance percentage that would otherwise apply to the 

State for the fiscal year, as determined under subsection (b) and 

without regard to this subsection, subsections (y) and (z), and section 10202 of the Patient Protection and Affordable Care Act. 

(4) The Federal medical assistance percentage determined for a 

disaster-recovery FMAP adjustment State under paragraph (1) 

shall apply for purposes of this title (other than with respect to disproportionate share hospital payments described in section 1923 

and payments under this title that are based on the enhanced 

FMAP described in 2105(b)) and shall not apply with respect to 

payments under title IV (other than under part E of title IV) or 

payments under title XXI. 

(bb)(1) For purposes of this title, the term ‘‘counseling and 

pharmacotherapy for cessation of tobacco use by pregnant women’’ 

means diagnostic, therapy, and counseling services and 

pharmacotherapy (including the coverage of prescription and nonprescription tobacco cessation agents approved by the Food and 

Drug Administration) for cessation of tobacco use by pregnant 

women who use tobacco products or who are being treated for tobacco use that is furnished— 

(A) by or under the supervision of a physician; or 

(B) by any other health care professional who— 

(i) is legally authorized to furnish such services under 

State law (or the State regulatory mechanism provided by 

State law) of the State in which the services are furnished; 

and 

(ii) is authorized to receive payment for other services 

under this title or is designated by the Secretary for this 

purpose. 

(2) Subject to paragraph (3), such term is limited to— 

(A) services recommended with respect to pregnant women 

in ‘‘Treating Tobacco Use and Dependence: 2008 Update: A 

Clinical Practice Guideline’’, published by the Public Health 

Service in May 2008, or any subsequent modification of such 

Guideline; and 

(B) such other services that the Secretary recognizes to be effective for cessation of tobacco use by pregnant women. 

(3) Such term shall not include coverage for drugs or biologicals 

that are not otherwise covered under this title. 

(4) A woman shall continue to be treated as described in this subsection as a pregnant woman through the end of the 1-year period 

beginning on the date of the birth of a child of the woman. 

(cc) REQUIREMENT FOR CERTAIN STATES.—Notwithstanding subsections (y), (z), and (aa), in the case of a State that requires political subdivisions within the State to contribute toward the nonVerDate Sep 11 2014 07:21 Sep 11, 2016 Jkt 059006 PO 00000 Frm 00067 Fmt 6659 Sfmt 6601 E:\HR\OC\HR734.XXX HR734

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Federal share of expenditures required under the State plan under 

section 1902(a)(2), the State shall not be eligible for an increase in 

its Federal medical assistance percentage under such subsections if 

it requires that political subdivisions pay a greater percentage of 

the non-Federal share of such expenditures, or a greater percentage of the non-Federal share of payments under section 1923, than 

the respective percentages that would have been required by the 

State under the State plan under this title, State law, or both, as 

in effect on December 31, 2009, and without regard to any such increase. Voluntary contributions by a political subdivision to the 

non-Federal share of expenditures under the State plan under this 

title or to the non-Federal share of payments under section 1923, 

shall not be considered to be required contributions for purposes of 

this subsection. The treatment of voluntary contributions, and the 

treatment of contributions required by a State under the State plan 

under this title, or State law, as provided by this subsection, shall 

also apply to the increases in the Federal medical assistance percentage under section 5001 of the American Recovery and Reinvestment Act of 2009. 

(dd) INCREASED FMAP FOR ADDITIONAL EXPENDITURES FOR PRI- MARY CARE SERVICES.—Notwithstanding subsection (b), with respect to the portion of the amounts expended for medical assistance 

for services described in section 1902(a)(13)(C) furnished on or after 

January 1, 2013, and before January 1, 2015, that is attributable 

to the amount by which the minimum payment rate required under 

such section (or, by application, section 1932(f)) exceeds the payment rate applicable to such services under the State plan as of 

July 1, 2009, the Federal medical assistance percentage for a State 

that is one of the 50 States or the District of Columbia shall be 

equal to 100 percent. The preceding sentence does not prohibit the 

payment of Federal financial participation based on the Federal 

medical assistance percentage for amounts in excess of those specified in such sentence. 

* * * * * * * 

USE OF ENROLLMENT FEES, PREMIUMS, DEDUCTIONS, COST SHARING, 

AND SIMILAR CHARGES

SEC. 1916. (a) Subject to subsections (g), (i), and (j), the State 

plan shall provide that in the case of individuals described in subparagraph (A) or (E)(i) of section 1902(a)(10) who are eligible under 

the plan— 

(1) no enrollment fee, premium, or similar charge will be imposed under the plan (except for a premium imposed under 

subsection (c)); 

(2) no deduction, cost sharing or similar charge will be imposed under the plan with respect to— 

(A) services furnished to individuals under 18 years of 

age (and, at the option of the State, individuals under 21, 

20, or 19 years of age, or any reasonable category of individuals 18 years of age or over), 

(B) services furnished to pregnant women, if such services relate to the pregnancy or to any other medical condition which may complicate the pregnancy, and counseling 

and pharmacotherapy for cessation of tobacco use by pregVerDate Sep 11 2014 07:21 Sep 11, 2016 Jkt 059006 PO 00000 Frm 00068 Fmt 6659 Sfmt 6601 E:\HR\OC\HR734.XXX HR734

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nant women (as defined in section 1905(bb)) and covered 

outpatient drugs (as defined in subsection (k)(2) of section 

1927 and including nonprescription drugs described in subsection (d)(2) of such section) that are prescribed for purposes of promoting, and when used to promote, tobacco 

cessation by pregnant women (and women described in section 1905(bb) as pregnant women pursuant to paragraph 

(4) of such section) in accordance with the Guideline referred to in section 1905(bb)(2)(A) (or, at the option of the 

State, any services furnished to pregnant women), 

(C) services furnished to any individual who is an inpatient in a hospital, nursing facility, intermediate care facility for the mentally retarded, or other medical institution, 

if such individual is required, as a condition of receiving 

services in such institution under the State plan, to spend 

for costs of medical care all but a minimal amount of his 

income required for personal needs, 

(D) emergency services (as defined by the Secretary), 

family planning services and supplies described in section 

1905(a)(4)(C), or 

(E) services furnished to an individual who is receiving 

hospice care (as defined in section 1905(o)); and 

(3) any deduction, cost sharing, or similar charge imposed 

under the plan with respect to other such individuals or other 

care and services will be nominal in amount (as determined by 

the Secretary in regulations which shall, if the definition of 

‘‘nominal’’ under the regulations in effect on July 1, 1982 is 

changed, take into account the level of cash assistance provided in such State and such other criteria as the Secretary determines to be appropriate); except that a deduction, cost-sharing, or similar charge of up to twice the nominal amount established for outpatient services may be imposed by a State under 

a waiver granted by the Secretary for services received at a 

hospital emergency room if the services are not emergency 

services (referred to in paragraph (2)(D)) and the State has established to the satisfaction of the Secretary that individuals 

eligible for services under the plan have actually available and 

accessible to them alternative sources of nonemergency, outpatient services. 

(b) The State plan shall provide that in the case of individuals 

other than those described in subparagraph (A) or (E) of section 

1902(a)(10) who are eligible under the plan— 

(1) there may be imposed an enrollment fee, premium, or 

similar charge, which (as determined in accordance with standards prescribed by the Secretary) is related to the individual’s 

income, 

(2) no deduction, cost sharing, or similar charge will be imposed under the plan with respect to— 

(A) services furnished to individuals under 18 years of 

age (and, at the option of the State, individuals under 21, 

20, or 19 years of age, or any reasonable category of individuals 18 years of age or over), 

(B) services furnished to pregnant women, if such services relate to the pregnancy or to any other medical condition which may complicate the pregnancy, and counseling 


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and pharmacotherapy for cessation of tobacco use by pregnant women (as defined in section 1905(bb)) and covered 

outpatient drugs (as defined in subsection (k)(2) of section 

1927 and including nonprescription drugs described in subsection (d)(2) of such section) that are prescribed for purposes of promoting, and when used to promote, tobacco 

cessation by pregnant women (and women described in section 1905(bb) as pregnant women pursuant to paragraph 

(4) of such section) in accordance with the Guideline referred to in section 1905(bb)(2)(A) (or, at the option of the 

State, any services furnished to pregnant women), 

(C) services furnished to any individual who is an inpatient in a hospital, nursing facility, intermediate care facility for the mentally retarded, or other medical institution, 

if such individual is required, as a condition of receiving 

services in such institution under the State plan, to spend 

for costs of medical care all but a minimal amount of his 

income required for personal needs, 

(D) emergency services (as defined by the Secretary), 

family planning services and supplies described in section 

1905(a)(4)(C), or 

(E) services furnished to an individual who is receiving 

hospice care (as defined in section 1905(o)); and 

(3) any deduction, cost sharing, or similar charge imposed 

under the plan with respect to other such individuals or other 

care and services will be nominal in amount (as determined by 

the Secretary in regulations which shall, if the definition of 

‘‘nominal’’ under the regulations in effect on July 1, 1982 is 

changed, take into account the level of cash assistance provided in such State and such other criteria as the Secretary determines to be appropriate); except that a deduction, cost-sharing, or similar charge of up to twice the nominal amount established for outpatient services may be imposed by a State under 

a waiver granted by the Secretary for services received at a 

hospital emergency room if the services are not emergency 

services (referred to in paragraph (2)(D)) and the State has established to the satisfaction of the Secretary that individuals 

eligible for services under the plan have actually available and 

accessible to them alternative sources of nonemergency, outpatient services. 

(c)(1) The State plan of a State may at the option of the State 

provide for imposing a monthly premium (in an amount that does 

not exceed the limit established under paragraph (2)) with respect 

to an individual described in subparagraph (A) or (B) of section 

1902(l)(1) who is receiving medical assistance on the basis of section 1902(a)(10)(A)(ii)(IX) and whose family income (as determined 

in accordance with the methodology specified in section 1902(l)(3)) 

equals or exceeds 150 percent of the income official poverty line (as 

defined by the Office of Management and Budget, and revised annually in accordance with section 673(2) of the Omnibus Budget 

Reconciliation Act of 1981) applicable to a family of the size involved. 

(2) In no case may the amount of any premium imposed under 

paragraph (1) exceed 10 percent of the amount by which the family 


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income (less expenses for the care of a dependent child) of an individual exceeds 150 percent of the line described in paragraph (1). 

(3) A State shall not require prepayment of a premium imposed 

pursuant to paragraph (1) and shall not terminate eligibility of an 

individual for medical assistance under this title on the basis of 

failure to pay any such premium until such failure continues for a 

period of not less than 60 days. The State may waive payment of 

any such premium in any case where the State determines that requiring such payment would create an undue hardship. 

(4) A State may permit State or local funds available under other 

programs to be used for payment of a premium imposed under 

paragraph (1). Payment of a premium with such funds shall not be 

counted as income to the individual with respect to whom such 

payment is made. 

(d) With respect to a qualified disabled and working individual 

described in section 1905(s) whose income (as determined under 

paragraph (3) of that section) exceeds 150 percent of the official 

poverty line referred to in that paragraph, the State plan of a State 

may provide for the charging of a premium (expressed as a percentage of the medicare cost-sharing described in section 

1905(p)(3)(A)(i) provided with respect to the individual) according 

to a sliding scale under which such percentage increases from 0 

percent to 100 percent, in reasonable increments (as determined by 

the Secretary), as the individual’s income increases from 150 percent of such poverty line to 200 percent of such poverty line. 

(e) The State plan shall require that no provider participating 

under the State plan may deny care or services to an individual eligible for such care or services under the plan on account of such 

individual’s inability to pay a deduction, cost sharing, or similar 

charge. The requirements of this subsection shall not extinguish 

the liability of the individual to whom the care or services were furnished for payment of the deduction, cost sharing, or similar 

charge. 

(f) No deduction, cost sharing, or similar charge may be imposed 

under any waiver authority of the Secretary, except as provided in 

subsections (a)(3) and (b)(3) and section 1916A, unless such waiver 

is for a demonstration project which the Secretary finds after public notice and opportunity for comment— 

(1) will test a unique and previously untested use of copayments, 

(2) is limited to a period of not more than two years, 

(3) will provide benefits to recipients of medical assistance 

which can reasonably be expected to be equivalent to the risks 

to the recipients, 

(4) is based on a reasonable hypothesis which the demonstration is designed to test in a methodologically sound manner, including the use of control groups of similar recipients of medical assistance in the area, and 

(5) is voluntary, or makes provision for assumption of liability for preventable damage to the health of recipients of medical assistance resulting from involuntary participation. 

(g) With respect to individuals provided medical assistance only 

under subclause (XV) or (XVI) of section 1902(a)(10)(A)(ii)— 

(1) a State may (in a uniform manner for individuals described in either such subclause)— 


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(A) require such individuals to pay premiums or other 

cost-sharing charges set on a sliding scale based on income 

that the State may determine; and 

(B) require payment of 100 percent of such premiums for 

such year in the case of such an individual who has income for a year that exceeds 250 percent of the income official poverty line (referred to in subsection (c)(1)) applicable to a family of the size involved, except that in the case 

of such an individual who has income for a year that does 

not exceed 450 percent of such poverty line, such requirement may only apply to the extent such premiums do not 

exceed 7.5 percent of such income; and 

(2) such State shall require payment of 100 percent of such 

premiums for a year by such an individual whose adjusted 

gross income (as defined in section 62 of the Internal Revenue 

Code of 1986) for such year exceeds $75,000, except that a 

State may choose to subsidize such premiums by using State 

funds which may not be federally matched under this title. 

In the case of any calendar year beginning after 2000, the dollar 

amount specified in paragraph (2) shall be increased in accordance 

with the provisions of section 215(i)(2)(A)(ii). 

(h) In applying this section and subsections (c) and (e) of section 

1916A, with respect to cost sharing that is ‘‘nominal’’ in amount, 

the Secretary shall increase such ‘‘nominal’’ amounts for each year 

(beginning with 2006) by the annual percentage increase in the 

medical care component of the consumer price index for all urban 

consumers (U.S. city average) as rounded up in an appropriate 

manner. 

(i)(1) With respect to disabled children provided medical assistance under section 1902(a)(10)(A)(ii)(XIX), subject to paragraph (2), 

a State may (in a uniform manner for such children) require the 

families of such children to pay monthly premiums set on a sliding 

scale based on family income. 

(2) A premium requirement imposed under paragraph (1) may 

only apply to the extent that— 

(A) in the case of a disabled child described in that paragraph whose family income— 

(i) does not exceed 200 percent of the poverty line, the 

aggregate amount of such premium and any premium that 

the parent is required to pay for family coverage under 

section 1902(cc)(2)(A)(i) and other cost-sharing charges do 

not exceed 5 percent of the family’s income; and 

(ii) exceeds 200, but does not exceed 300, percent of the 

poverty line, the aggregate amount of such premium and 

any premium that the parent is required to pay for family 

coverage under section 1902(cc)(2)(A)(i) and other costsharing charges do not exceed 7.5 percent of the family’s 

income; and 

(B) the requirement is imposed consistent with section 

1902(cc)(2)(A)(ii)(I). 

(3) A State shall not require prepayment of a premium imposed 

pursuant to paragraph (1) and shall not terminate eligibility of a 

child under section 1902(a)(10)(A)(ii)(XIX) for medical assistance 

under this title on the basis of failure to pay any such premium 

until such failure continues for a period of at least 60 days from 


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the date on which the premium became past due. The State may 

waive payment of any such premium in any case where the State 

determines that requiring such payment would create an undue 

hardship. 

(j) NO PREMIUMS OR COST SHARING FOR INDIANS FURNISHED

ITEMS OR SERVICES DIRECTLY BY INDIAN HEALTH PROGRAMS OR

THROUGH REFERRAL UNDER CONTRACT HEALTH SERVICES.— (1) NO COST SHARING FOR ITEMS OR SERVICES FURNISHED TO

INDIANS THROUGH INDIAN HEALTH PROGRAMS.— (A) IN GENERAL.—No enrollment fee, premium, or similar charge, and no deduction, copayment, cost sharing, or 

similar charge shall be imposed against an Indian who is 

furnished an item or service directly by the Indian Health 

Service, an Indian Tribe, Tribal Organization, or Urban Indian Organization or through referral under contract 

health services for which payment may be made under this 

title. 

(B) NO REDUCTION IN AMOUNT OF PAYMENT TO INDIAN

HEALTH PROVIDERS.—Payment due under this title to the 

Indian Health Service, an Indian Tribe, Tribal Organization, or Urban Indian Organization, or a health care provider through referral under contract health services for 

the furnishing of an item or service to an Indian who is 

eligible for assistance under such title, may not be reduced 

by the amount of any enrollment fee, premium, or similar 

charge, or any deduction, copayment, cost sharing, or similar charge that would be due from the Indian but for the 

operation of subparagraph (A). 

(2) RULE OF CONSTRUCTION.—Nothing in this subsection 

shall be construed as restricting the application of any other 

limitations on the imposition of premiums or cost sharing that 

may apply to an individual receiving medical assistance under 

this title who is an Indian. 

* * * * * * * 

LIENS, ADJUSTMENTS AND RECOVERIES, AND TRANSFERS OF ASSETS

SEC. 1917. (a)(1) No lien may be imposed against the property of 

any individual prior to his death on account of medical assistance 

paid or to be paid on his behalf under the State plan, except— 

(A) pursuant to the judgment of a court on account of benefits incorrectly paid on behalf of such individual, or 

(B) in the case of the real property of an individual— 

(i) who is an inpatient in a nursing facility, intermediate 

care facility for the mentally retarded, or other medical institution, if such individual is required, as a condition of 

receiving services in such institution under the State plan, 

to spend for costs of medical care all but a minimal 

amount of his income required for personal needs, and 

(ii) with respect to whom the State determines, after notice and opportunity for a hearing (in accordance with procedures established by the State), that he cannot reasonably be expected to be discharged from the medical institution and to return home, 

except as provided in paragraph (2). 


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(2) No lien may be imposed under paragraph (1)(B) on such individual’s home if— 

(A) the spouse of such individual, 

(B) such individual’s child who is under age 21, or (with respect to States eligible to participate in the State program established under title XVI) is blind or permanently and totally 

disabled, or (with respect to States which are not eligible to 

participate in such program) is blind or disabled as defined in 

section 1614, or 

(C) a sibling of such individual (who has an equity interest 

in such home and who was residing in such individual’s home 

for a period of at least one year immediately before the date 

of the individual’s admission to the medical institution), 

is lawfully residing in such home. 

(3) Any lien imposed with respect to an individual pursuant to 

paragraph (1)(B) shall dissolve upon that individual’s discharge 

from the medical institution and return home. 

(b)(1) No adjustment or recovery of any medical assistance correctly paid on behalf of an individual under the State plan may be 

made, except that the State shall seek adjustment or recovery of 

any medical assistance correctly paid on behalf of an individual 

under the State plan in the case of the following individuals: 

(A) In the case of an individual described in subsection 

(a)(1)(B), the State shall seek adjustment or recovery from the 

individual’s estate or upon sale of the property subject to a lien 

imposed on account of medical assistance paid on behalf of the 

individual. 

(B) In the case of an individual who was 55 years of age or 

older when the individual received such medical assistance, the 

State shall seek adjustment or recovery from the individual’s 

estate, but only for medical assistance consisting of— 

(i) nursing facility services, home and community-based 

services, and related hospital and prescription drug services, or 

(ii) at the option of the State, any items or services 

under the State plan (but not including medical assistance 

for medicare cost-sharing or for benefits described in section 1902(a)(10)(E)). 

(C)(i) In the case of an individual who has received (or is entitled to receive) benefits under a long-term care insurance policy in connection with which assets or resources are disregarded in the manner described in clause (ii), except as provided in such clause, the State shall seek adjustment or recovery from the individual’s estate on account of medical assistance paid on behalf of the individual for nursing facility and 

other long-term care services. 

(ii) Clause (i) shall not apply in the case of an individual who 

received medical assistance under a State plan of a State 

which had a State plan amendment approved as of May 14, 

1993, and which satisfies clause (iv), or which has a State plan 

amendment that provides for a qualified State long-term care 

insurance partnership (as defined in clause (iii)) which provided for the disregard of any assets or resources— 

(I) to the extent that payments are made under a longterm care insurance policy; or 


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(II) because an individual has received (or is entitled to 

receive) benefits under a long-term care insurance policy. 

(iii) For purposes of this paragraph, the term ‘‘qualified State 

long-term care insurance partnership’’ means an approved 

State plan amendment under this title that provides for the 

disregard of any assets or resources in an amount equal to the 

insurance benefit payments that are made to or on behalf of 

an individual who is a beneficiary under a long-term care insurance policy if the following requirements are met: 

(I) The policy covers an insured who was a resident of 

such State when coverage first became effective under the 

policy. 

(II) The policy is a qualified long-term care insurance 

policy (as defined in section 7702B(b) of the Internal Revenue Code of 1986) issued not earlier than the effective 

date of the State plan amendment. 

(III) The policy meets the model regulations and the requirements of the model Act specified in paragraph (5). 

(IV) If the policy is sold to an individual who— 

(aa) has not attained age 61 as of the date of purchase, the policy provides compound annual inflation 

protection; 

(bb) has attained age 61 but has not attained age 76 

as of such date, the policy provides some level of inflation protection; and 

(cc) has attained age 76 as of such date, the policy 

may (but is not required to) provide some level of inflation protection. 

(V) The State Medicaid agency under section 1902(a)(5) 

provides information and technical assistance to the State 

insurance department on the insurance department’s role 

of assuring that any individual who sells a long-term care 

insurance policy under the partnership receives training 

and demonstrates evidence of an understanding of such 

policies and how they relate to other public and private 

coverage of long-term care. 

(VI) The issuer of the policy provides regular reports to 

the Secretary, in accordance with regulations of the Secretary, that include notification regarding when benefits 

provided under the policy have been paid and the amount 

of such benefits paid, notification regarding when the policy otherwise terminates, and such other information as 

the Secretary determines may be appropriate to the administration of such partnerships. 

(VII) The State does not impose any requirement affecting the terms or benefits of such a policy unless the State 

imposes such requirement on long-term care insurance 

policies without regard to whether the policy is covered 

under the partnership or is offered in connection with such 

a partnership. 

In the case of a long-term care insurance policy which is exchanged for another such policy, subclause (I) shall be applied 

based on the coverage of the first such policy that was exchanged. For purposes of this clause and paragraph (5), the 


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term ‘‘long-term care insurance policy’’ includes a certificate 

issued under a group insurance contract. 

(iv) With respect to a State which had a State plan amendment approved as of May 14, 1993, such a State satisfies this 

clause for purposes of clause (ii) if the Secretary determines 

that the State plan amendment provides for consumer protection standards which are no less stringent than the consumer 

protection standards which applied under such State plan 

amendment as of December 31, 2005. 

(v) The regulations of the Secretary required under clause 

(iii)(VI) shall be promulgated after consultation with the National Association of Insurance Commissioners, issuers of longterm care insurance policies, States with experience with longterm care insurance partnership plans, other States, and representatives of consumers of long-term care insurance policies, 

and shall specify the type and format of the data and information to be reported and the frequency with which such reports 

are to be made. The Secretary, as appropriate, shall provide 

copies of the reports provided in accordance with that clause 

to the State involved. 

(vi) The Secretary, in consultation with other appropriate 

Federal agencies, issuers of long-term care insurance, the National Association of Insurance Commissioners, State insurance 

commissioners, States with experience with long-term care insurance partnership plans, other States, and representatives of 

consumers of long-term care insurance policies, shall develop 

recommendations for Congress to authorize and fund a uniform 

minimum data set to be reported electronically by all issuers 

of long-term care insurance policies under qualified State longterm care insurance partnerships to a secure, centralized electronic query and report-generating mechanism that the State, 

the Secretary, and other Federal agencies can access. 

(2) Any adjustment or recovery under paragraph (1) may be 

made only after the death of the individual’s surviving spouse, if 

any, and only at a time— 

(A) when he has no surviving child who is under age 21, or 

(with respect to States eligible to participate in the State program established under title XVI) is blind or permanently and 

totally disabled, or (with respect to States which are not eligible to participate in such program) is blind or disabled as defined in section 1614; and 

(B) in the case of a lien on an individual’s home under subsection (a)(1)(B), when— 

(i) no sibling of the individual (who was residing in the 

individual’s home for a period of at least one year immediately before the date of the individual’s admission to the 

medical institution), and 

(ii) no son or daughter of the individual (who was residing in the individual’s home for a period of at least two 

years immediately before the date of the individual’s admission to the medical institution, and who establishes to 

the satisfaction of the State that he or she provided care 

to such individual which permitted such individual to reside at home rather than in an institution), 


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is lawfully residing in such home who has lawfully resided in 

such home on a continuous basis since the date of the individual’s admission to the medical institution. 

(3)(A) The State agency shall establish procedures (in accordance 

with standards specified by the Secretary) under which the agency 

shall waive the application of this subsection (other than paragraph (1)(C)) if such application would work an undue hardship as 

determined on the basis of criteria established by the Secretary. 

(B) The standards specified by the Secretary under subparagraph 

(A) shall require that the procedures established by the State agency under subparagraph (A) exempt income, resources, and property 

that are exempt from the application of this subsection as of April 

1, 2003, under manual instructions issued to carry out this subsection (as in effect on such date) because of the Federal responsibility for Indian Tribes and Alaska Native Villages. Nothing in this 

subparagraph shall be construed as preventing the Secretary from 

providing additional estate recovery exemptions under this title for 

Indians. 

(4) For purposes of this subsection, the term ‘‘estate’’, with respect to a deceased individual— 

(A) shall include all real and personal property and other assets included within the individual’s estate, as defined for purposes of State probate law; and 

(B) may include, at the option of the State (and shall include, 

in the case of an individual to whom paragraph (1)(C)(i) applies), any other real and personal property and other assets 

in which the individual had any legal title or interest at the 

time of death (to the extent of such interest), including such 

assets conveyed to a survivor, heir, or assign of the deceased 

individual through joint tenancy, tenancy in common, survivorship, life estate, living trust, or other arrangement. 

(5)(A) For purposes of clause (iii)(III), the model regulations and 

the requirements of the model Act specified in this paragraph are: 

(i) In the case of the model regulation, the following requirements: 

(I) Section 6A (relating to guaranteed renewal or 

noncancellability), other than paragraph (5) thereof, and 

the requirements of section 6B of the model Act relating 

to such section 6A. 

(II) Section 6B (relating to prohibitions on limitations 

and exclusions) other than paragraph (7) thereof. 

(III) Section 6C (relating to extension of benefits). 

(IV) Section 6D (relating to continuation or conversion of 

coverage). 

(V) Section 6E (relating to discontinuance and replacement of policies). 

(VI) Section 7 (relating to unintentional lapse). 

(VII) Section 8 (relating to disclosure), other than sections 8F, 8G, 8H, and 8I thereof. 

(VIII) Section 9 (relating to required disclosure of rating 

practices to consumer). 

(IX) Section 11 (relating to prohibitions against postclaims underwriting). 

(X) Section 12 (relating to minimum standards). 


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(XI) Section 14 (relating to application forms and replacement coverage). 

(XII) Section 15 (relating to reporting requirements). 

(XIII) Section 22 (relating to filing requirements for marketing). 

(XIV) Section 23 (relating to standards for marketing), 

including inaccurate completion of medical histories, other 

than paragraphs (1), (6), and (9) of section 23C. 

(XV) Section 24 (relating to suitability). 

(XVI) Section 25 (relating to prohibition against preexisting conditions and probationary periods in replacement policies or certificates). 

(XVII) The provisions of section 26 relating to contingent 

nonforfeiture benefits, if the policyholder declines the offer 

of a nonforfeiture provision described in paragraph (4). 

(XVIII) Section 29 (relating to standard format outline of 

coverage). 

(XIX) Section 30 (relating to requirement to deliver 

shopper’s guide). 

(ii) In the case of the model Act, the following: 

(I) Section 6C (relating to preexisting conditions). 

(II) Section 6D (relating to prior hospitalization). 

(III) The provisions of section 8 relating to contingent 

nonforfeiture benefits. 

(IV) Section 6F (relating to right to return). 

(V) Section 6G (relating to outline of coverage). 

(VI) Section 6H (relating to requirements for certificates 

under group plans). 

(VII) Section 6J (relating to policy summary). 

(VIII) Section 6K (relating to monthly reports on accelerated death benefits). 

(IX) Section 7 (relating to incontestability period). 

(B) For purposes of this paragraph and paragraph (1)(C)— 

(i) the terms ‘‘model regulation’’ and ‘‘model Act’’ mean the 

long-term care insurance model regulation, and the long-term 

care insurance model Act, respectively, promulgated by the National Association of Insurance Commissioners (as adopted as 

of October 2000); 

(ii) any provision of the model regulation or model Act listed 

under subparagraph (A) shall be treated as including any other 

provision of such regulation or Act necessary to implement the 

provision; and 

(iii) with respect to a long-term care insurance policy issued 

in a State, the policy shall be deemed to meet applicable requirements of the model regulation or the model Act if the 

State plan amendment under paragraph (1)(C)(iii) provides 

that the State insurance commissioner for the State certifies 

(in a manner satisfactory to the Secretary) that the policy 

meets such requirements. 

(C) Not later than 12 months after the National Association of 

Insurance Commissioners issues a revision, update, or other modification of a model regulation or model Act provision specified in 

subparagraph (A), or of any provision of such regulation or Act that 

is substantively related to a provision specified in such subparagraph, the Secretary shall review the changes made to the proviVerDate Sep 11 2014 07:21 Sep 11, 2016 Jkt 059006 PO 00000 Frm 00078 Fmt 6659 Sfmt 6601 E:\HR\OC\HR734.XXX HR734

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sion, determine whether incorporating such changes into the corresponding provision specified in such subparagraph would improve 

qualified State long-term care insurance partnerships, and if so, 

shall incorporate the changes into such provision. 

(c)(1)(A) In order to meet the requirements of this subsection for 

purposes of section 1902(a)(18), the State plan must provide that 

if an institutionalized individual or the spouse of such an individual (or, at the option of a State, a noninstitutionalized individual or the spouse of such an individual) disposes of assets for 

less than fair market value on or after the look-back date specified 

in subparagraph (B)(i), the individual is ineligible for medical assistance for services described in subparagraph (C)(i) (or, in the 

case of a noninstitutionalized individual, for the services described 

in subparagraph (C)(ii)) during the period beginning on the date 

specified in subparagraph (D) and equal to the number of months 

specified in subparagraph (E). 

(B)(i) The look-back date specified in this subparagraph is a date 

that is 36 months (or, in the case of payments from a trust or portions of a trust that are treated as assets disposed of by the individual pursuant to paragraph (3)(A)(iii) or (3)(B)(ii) of subsection 

(d) or in the case of any other disposal of assets made on or after 

the date of the enactment of the Deficit Reduction Act of 2005, 60 

months) before the date specified in clause (ii). 

(ii) The date specified in this clause, with respect to— 

(I) an institutionalized individual is the first date as of which 

the individual both is an institutionalized individual and has 

applied for medical assistance under the State plan, or 

(II) a noninstitutionalized individual is the date on which the 

individual applies for medical assistance under the State plan 

or, if later, the date on which the individual disposes of assets 

for less than fair market value. 

(C)(i) The services described in this subparagraph with respect to 

an institutionalized individual are the following: 

(I) Nursing facility services. 

(II) A level of care in any institution equivalent to that of 

nursing facility services. 

(III) Home or community-based services furnished under a 

waiver granted under subsection (c) or (d) of section 1915. 

(ii) The services described in this subparagraph with respect to 

a noninstitutionalized individual are services (not including any 

services described in clause (i)) that are described in paragraph (7), 

(22), or (24) of section 1905(a), and, at the option of a State, other 

long-term care services for which medical assistance is otherwise 

available under the State plan to individuals requiring long-term 

care. 

(D)(i) In the case of a transfer of asset made before the date of 

the enactment of the Deficit Reduction Act of 2005, the date specified in this subparagraph is the first day of the first month during 

or after which assets have been transferred for less than fair market value and which does not occur in any other periods of ineligibility under this subsection. 

(ii) In the case of a transfer of asset made on or after the date 

of the enactment of the Deficit Reduction Act of 2005, the date 

specified in this subparagraph is the first day of a month during 

or after which assets have been transferred for less than fair marVerDate Sep 11 2014 07:21 Sep 11, 2016 Jkt 059006 PO 00000 Frm 00079 Fmt 6659 Sfmt 6601 E:\HR\OC\HR734.XXX HR734

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ket value, or the date on which the individual is eligible for medical 

assistance under the State plan and would otherwise be receiving 

institutional level care described in subparagraph (C) based on an 

approved application for such care but for the application of the 

penalty period, whichever is later, and which does not occur during 

any other period of ineligibility under this subsection. 

(E)(i) With respect to an institutionalized individual, the number 

of months of ineligibility under this subparagraph for an individual 

shall be equal to— 

(I) the total, cumulative uncompensated value of all assets 

transferred by the individual (or individual’s spouse) on or 

after the look-back date specified in subparagraph (B)(i), divided by 

(II) the average monthly cost to a private patient of nursing 

facility services in the State (or, at the option of the State, in 

the community in which the individual is institutionalized) at 

the time of application. 

(ii) With respect to a noninstitutionalized individual, the number 

of months of ineligibility under this subparagraph for an individual 

shall not be greater than a number equal to— 

(I) the total, cumulative uncompensated value of all assets 

transferred by the individual (or individual’s spouse) on or 

after the look-back date specified in subparagraph (B)(i), divided by 

(II) the average monthly cost to a private patient of nursing 

facility services in the State (or, at the option of the State, in 

the community in which the individual is institutionalized) at 

the time of application. 

(iii) The number of months of ineligibility otherwise determined 

under clause (i) or (ii) with respect to the disposal of an asset shall 

be reduced— 

(I) in the case of periods of ineligibility determined under 

clause (i), by the number of months of ineligibility applicable 

to the individual under clause (ii) as a result of such disposal, 

and 

(II) in the case of periods of ineligibility determined under 

clause (ii), by the number of months of ineligibility applicable 

to the individual under clause (i) as a result of such disposal. 

(iv) A State shall not round down, or otherwise disregard any 

fractional period of ineligibility determined under clause (i) or (ii) 

with respect to the disposal of assets. 

(F) For purposes of this paragraph, the purchase of an annuity 

shall be treated as the disposal of an asset for less than fair market value unless— 

(i) the State is named as the remainder beneficiary in the 

first position for at least the total amount of medical assistance 

paid on behalf of the institutionalized individual under this 

title; or 

(ii) the State is named as such a beneficiary in the second 

position after the community spouse or minor or disabled child 

and is named in the first position if such spouse or a representative of such child disposes of any such remainder for less than 

fair market value. 

(G) For purposes of this paragraph with respect to a transfer of 

assets, the term ‘‘assets’’ includes an annuity purchased by or on 


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behalf of an annuitant who has applied for medical assistance with 

respect to nursing facility services or other long-term care services 

under this title unless— 

(i) the annuity is— 

(I) an annuity described in subsection (b) or (q) of section 

408 of the Internal Revenue Code of 1986; or 

(II) purchased with proceeds from— 

(aa) an account or trust described in subsection (a), 

(c), or (p) of section 408 of such Code; 

(bb) a simplified employee pension (within the 

meaning of section 408(k) of such Code); or 

(cc) a Roth IRA described in section 408A of such 

Code; or 

(ii) the annuity— 

(I) is irrevocable and nonassignable; 

(II) is actuarially sound (as determined in accordance 

with actuarial publications of the Office of the Chief Actuary of the Social Security Administration); and 

(III) provides for payments in equal amounts during the 

term of the annuity, with no deferral and no balloon payments made. 

(H) Notwithstanding the preceding provisions of this paragraph, 

in the case of an individual (or individual’s spouse) who makes 

multiple fractional transfers of assets in more than 1 month for 

less than fair market value on or after the applicable look-back 

date specified in subparagraph (B), a State may determine the period of ineligibility applicable to such individual under this paragraph by— 

(i) treating the total, cumulative uncompensated value of all 

assets transferred by the individual (or individual’s spouse) 

during all months on or after the look-back date specified in 

subparagraph (B) as 1 transfer for purposes of clause (i) or (ii) 

(as the case may be) of subparagraph (E); and 

(ii) beginning such period on the earliest date which would 

apply under subparagraph (D) to any of such transfers. 

(I) For purposes of this paragraph with respect to a transfer of 

assets, the term ‘‘assets’’ includes funds used to purchase a promissory note, loan, or mortgage unless such note, loan, or mortgage— 

(i) has a repayment term that is actuarially sound (as determined in accordance with actuarial publications of the Office of 

the Chief Actuary of the Social Security Administration); 

(ii) provides for payments to be made in equal amounts during the term of the loan, with no deferral and no balloon payments made; and 

(iii) prohibits the cancellation of the balance upon the death 

of the lender. 

In the case of a promissory note, loan, or mortgage that does not 

satisfy the requirements of clauses (i) through (iii), the value of 

such note, loan, or mortgage shall be the outstanding balance due 

as of the date of the individual’s application for medical assistance 

for services described in subparagraph (C). 

(J) For purposes of this paragraph with respect to a transfer of 

assets, the term ‘‘assets’’ includes the purchase of a life estate interest in another individual’s home unless the purchaser resides in 


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the home for a period of at least 1 year after the date of the purchase. 

(2) An individual shall not be ineligible for medical assistance by 

reason of paragraph (1) to the extent that— 

(A) the assets transferred were a home and title to the home 

was transferred to— 

(i) the spouse of such individual; 

(ii) a child of such individual who (I) is under age 21, or 

(II) (with respect to States eligible to participate in the 

State program established under title XVI) is blind or permanently and totally disabled, or (with respect to States 

which are not eligible to participate in such program) is 

blind or disabled as defined in section 1614; 

(iii) a sibling of such individual who has an equity interest in such home and who was residing in such individual’s home for a period of at least one year immediately 

before the date the individual becomes an institutionalized 

individual; or 

(iv) a son or daughter of such individual (other than a 

child described in clause (ii)) who was residing in such individual’s home for a period of at least two years immediately before the date the individual becomes an institutionalized individual, and who (as determined by the 

State) provided care to such individual which permitted 

such individual to reside at home rather than in such an 

institution or facility; 

(B) the assets— 

(i) were transferred to the individual’s spouse or to another for the sole benefit of the individual’s spouse, 

(ii) were transferred from the individual’s spouse to another for the sole benefit of the individual’s spouse, 

(iii) were transferred to, or to a trust (including a trust 

described in subsection (d)(4)) established solely for the 

benefit of, the individual’s child described in subparagraph 

(A)(ii)(II), or 

(iv) were transferred to a trust (including a trust described in subsection (d)(4)) established solely for the benefit of an individual under 65 years of age who is disabled 

(as defined in section 1614(a)(3)); 

(C) a satisfactory showing is made to the State (in accordance with regulations promulgated by the Secretary) that (i) 

the individual intended to dispose of the assets either at fair 

market value, or for other valuable consideration, (ii) the assets were transferred exclusively for a purpose other than to 

qualify for medical assistance, or (iii) all assets transferred for 

less than fair market value have been returned to the individual; or 

(D) the State determines, under procedures established by 

the State (in accordance with standards specified by the Secretary), that the denial of eligibility would work an undue 

hardship as determined on the basis of criteria established by 

the Secretary. 

The procedures established under subparagraph (D) shall permit the facility in which the institutionalized individual is residing to file an undue hardship waiver application on behalf 


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of the individual with the consent of the individual or the personal representative of the individual. While an application for 

an undue hardship waiver is pending under subparagraph (D) 

in the case of an individual who is a resident of a nursing facility, if the application meets such criteria as the Secretary 

specifies, the State may provide for payments for nursing facility services in order to hold the bed for the individual at the 

facility, but not in excess of payments for 30 days. 

(3) For purposes of this subsection, in the case of an asset held 

by an individual in common with another person or persons in a 

joint tenancy, tenancy in common, or similar arrangement, the 

asset (or the affected portion of such asset) shall be considered to 

be transferred by such individual when any action is taken, either 

by such individual or by any other person, that reduces or eliminates such individual’s ownership or control of such asset. 

(4) A State (including a State which has elected treatment under 

section 1902(f)) may not provide for any period of ineligibility for 

an individual due to transfer of resources for less than fair market 

value except in accordance with this subsection. In the case of a 

transfer by the spouse of an individual which results in a period 

of ineligibility for medical assistance under a State plan for such 

individual, a State shall, using a reasonable methodology (as specified by the Secretary), apportion such period of ineligibility (or any 

portion of such period) among the individual and the individual’s 

spouse if the spouse otherwise becomes eligible for medical assistance under the State plan. 

(5) In this subsection, the term ‘‘resources’’ has the meaning 

given such term in section 1613, without regard to the exclusion 

described in subsection (a)(1) thereof. 

(d)(1) For purposes of determining an individual’s eligibility for, 

or amount of, benefits under a State plan under this title, subject 

to paragraph (4), the rules specified in paragraph (3) shall apply 

to a trust established by such individual. 

(2)(A) For purposes of this subsection, an individual shall be considered to have established a trust if assets of the individual were 

used to form all or part of the corpus of the trust and if any of the 

following individuals established such trust other than by will: 

(i) The individual. 

(ii) The individual’s spouse. 

(iii) A person, including a court or administrative body, with 

legal authority to act in place of or on behalf of the individual 

or the individual’s spouse. 

(iv) A person, including any court or administrative body, 

acting at the direction or upon the request of the individual or 

the individual’s spouse. 

(B) In the case of a trust the corpus of which includes assets of 

an individual (as determined under subparagraph (A)) and assets 

of any other person or persons, the provisions of this subsection 

shall apply to the portion of the trust attributable to the assets of 

the individual. 

(C) Subject to paragraph (4), this subsection shall apply without 

regard to— 

(i) the purposes for which a trust is established, 

(ii) whether the trustees have or exercise any discretion 

under the trust, 


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(iii) any restrictions on when or whether distributions may 

be made from the trust, or 

(iv) any restrictions on the use of distributions from the 

trust. 

(3)(A) In the case of a revocable trust— 

(i) the corpus of the trust shall be considered resources available to the individual, 

(ii) payments from the trust to or for the benefit of the individual shall be considered income of the individual, and 

(iii) any other payments from the trust shall be considered 

assets disposed of by the individual for purposes of subsection 

(c). 

(B) In the case of an irrevocable trust— 

(i) if there are any circumstances under which payment from 

the trust could be made to or for the benefit of the individual, 

the portion of the corpus from which, or the income on the corpus from which, payment to the individual could be made shall 

be considered resources available to the individual, and payments from that portion of the corpus or income— 

(I) to or for the benefit of the individual, shall be considered income of the individual, and 

(II) for any other purpose, shall be considered a transfer 

of assets by the individual subject to subsection (c); and 

(ii) any portion of the trust from which, or any income on the 

corpus from which, no payment could under any circumstances 

be made to the individual shall be considered, as of the date 

of establishment of the trust (or, if later, the date on which 

payment to the individual was foreclosed) to be assets disposed 

by the individual for purposes of subsection (c), and the value 

of the trust shall be determined for purposes of such subsection 

by including the amount of any payments made from such portion of the trust after such date. 

(4) This subsection shall not apply to any of the following trusts: 

(A) A trust containing the assets of an individual under age 

65 who is disabled (as defined in section 1614(a)(3)) and which 

is established for the benefit of such individual by the individual, a parent, grandparent, legal guardian of the individual, 

or a court if the State will receive all amounts remaining in 

the trust upon the death of such individual up to an amount 

equal to the total medical assistance paid on behalf of the individual under a State plan under this title. 

(B) A trust established in a State for the benefit of an individual if— 

(i) the trust is composed only of pension, Social Security, 

and other income to the individual (and accumulated income in the trust), 

(ii) the State will receive all amounts remaining in the 

trust upon the death of such individual up to an amount 

equal to the total medical assistance paid on behalf of the 

individual under a State plan under this title, and 

(iii) the State makes medical assistance available to individuals described in section 1902(a)(10)(A)(ii)(V), but 

does not make such assistance available to individuals for 

nursing facility services under section 1902(a)(10)(C). 


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(C) A trust containing the assets of an individual who is disabled (as defined in section 1614(a)(3)) that meets the following 

conditions: 

(i) The trust is established and managed by a nonprofit 

association. 

(ii) A separate account is maintained for each beneficiary 

of the trust, but, for purposes of investment and management of funds, the trust pools these accounts. 

(iii) Accounts in the trust are established solely for the 

benefit of individuals who are disabled (as defined in section 1614(a)(3)) by the parent, grandparent, or legal guardian of such individuals, by such individuals, or by a court. 

(iv) To the extent that amounts remaining in the beneficiary’s account upon the death of the beneficiary are not 

retained by the trust, the trust pays to the State from such 

remaining amounts in the account an amount equal to the 

total amount of medical assistance paid on behalf of the 

beneficiary under the State plan under this title. 

(5) The State agency shall establish procedures (in accordance 

with standards specified by the Secretary) under which the agency 

waives the application of this subsection with respect to an individual if the individual establishes that such application would 

work an undue hardship on the individual as determined on the 

basis of criteria established by the Secretary. 

(6) The term ‘‘trust’’ includes any legal instrument or device that 

is similar to a trust but includes an annuity only to such extent 

and in such manner as the Secretary specifies. 

(e)(1) In order to meet the requirements of this section for purposes of section 1902(a)(18), a State shall require, as a condition for 

the provision of medical assistance for services described in subsection (c)(1)(C)(i) (relating to long-term care services) for an individual, the application of the individual for such assistance (including any recertification of eligibility for such assistance) shall disclose a description of any interest the individual or community 

spouse has in an annuity (or similar financial instrument, as may 

be specified by the Secretary), regardless of whether the annuity is 

irrevocable or is treated as an asset. Such application or recertification form shall include a statement that under paragraph (2) the 

State becomes a remainder beneficiary under such an annuity or 

similar financial instrument by virtue of the provision of such medical assistance. 

(2)(A) In the case of disclosure concerning an annuity under subsection (c)(1)(F), the State shall notify the issuer of the annuity of 

the right of the State under such subsection as a preferred remainder beneficiary in the annuity for medical assistance furnished to 

the individual. Nothing in this paragraph shall be construed as 

preventing such an issuer from notifying persons with any other remainder interest of the State’s remainder interest under such subsection. 

(B) In the case of such an issuer receiving notice under subparagraph (A), the State may require the issuer to notify the State 

when there is a change in the amount of income or principal being 

withdrawn from the amount that was being withdrawn at the time 

of the most recent disclosure described in paragraph (1). A State 

shall take such information into account in determining the 


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amount of the State’s obligations for medical assistance or in the 

individual’s eligibility for such assistance. 

(3) The Secretary may provide guidance to States on categories 

of transactions that may be treated as a transfer of asset for less 

than fair market value. 

(4) Nothing in this subsection shall be construed as preventing 

a State from denying eligibility for medical assistance for an individual based on the income or resources derived from an annuity 

described in paragraph (1). 

(f)(1)(A) Notwithstanding any other provision of this title, subject 

to subparagraphs (B) and (C) of this paragraph and paragraph (2), 

in determining eligibility of an individual for medical assistance 

with respect to nursing facility services or other long-term care 

services, the individual shall not be eligible for such assistance if 

the individual’s equity interest in the individual’s home exceeds 

$500,000. 

(B) A State may elect, without regard to the requirements of section 1902(a)(1) (relating to statewideness) and section 

1902(a)(10)(B) (relating to comparability), to apply subparagraph 

(A) by substituting for ‘‘$500,000’’, an amount that exceeds such 

amount, but does not exceed $750,000. 

(C) The dollar amounts specified in this paragraph shall be increased, beginning with 2011, from year to year based on the percentage increase in the consumer price index for all urban consumers (all items; United States city average), rounded to the nearest $1,000. 

(2) Paragraph (1) shall not apply with respect to an individual 

if— 

(A) the spouse of such individual, or 

(B) such individual’s child who is under age 21, or (with respect to States eligible to participate in the State program established under title XVI) is blind or permanently and totally 

disabled, or (with respect to States which are not eligible to 

participate in such program) is blind or disabled as defined in 

section 1614, 

is lawfully residing in the individual’s home. 

(3) Nothing in this subsection shall be construed as preventing 

an individual from using a reverse mortgage or home equity loan 

to reduce the individual’s total equity interest in the home. 

(4) The Secretary shall establish a process whereby paragraph (1) 

is waived in the case of a demonstrated hardship. 

(g) TREATMENT OF ENTRANCE FEES OF INDIVIDUALS RESIDING IN

CONTINUING CARE RETIREMENT COMMUNITIES.— 

(1) IN GENERAL.—For purposes of determining an individual’s 

eligibility for, or amount of, benefits under a State plan under 

this title, the rules specified in paragraph (2) shall apply to individuals residing in continuing care retirement communities 

or life care communities that collect an entrance fee on admission from such individuals. 

(2) TREATMENT OF ENTRANCE FEE.—For purposes of this subsection, an individual’s entrance fee in a continuing care retirement community or life care community shall be considered a 

resource available to the individual to the extent that— 

(A) the individual has the ability to use the entrance fee, 

or the contract provides that the entrance fee may be used, 


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to pay for care should other resources or income of the individual be insufficient to pay for such care; 

(B) the individual is eligible for a refund of any remaining entrance fee when the individual dies or terminates 

the continuing care retirement community or life care community contract and leaves the community; and 

(C) the entrance fee does not confer an ownership interest in the continuing care retirement community or life 

care community. 

(h) In this section, the following definitions shall apply: 

(1) The term ‘‘assets’’, with respect to an individual, includes 

all income and resources of the individual and of the individual’s spouse, including any income or resources which the individual or such individual’s spouse is entitled to but does not receive because of action— 

(A) by the individual or such individual’s spouse, 

(B) by a person, including a court or administrative 

body, with legal authority to act in place of or on behalf 

of the individual or such individual’s spouse, or 

(C) by any person, including any court or administrative 

body, acting at the direction or upon the request of the individual or such individual’s spouse. 

(2) The term ‘‘income’’ has the meaning given such term in 

section 1612. 

(3) The term ‘‘institutionalized individual’’ means an individual who is an inpatient in a nursing facility, who is an inpatient in a medical institution and with respect to whom payment is made based on a level of care provided in a nursing 

facility, or who is described in section 1902(a)(10)(A)(ii)(VI). 

(4) The term ‘‘noninstitutionalized individual’’ means an individual receiving any of the services specified in subsection 

(c)(1)(C)(ii). 

(5) The term ‘‘resources’’ has the meaning given such term 

in section 1613, without regard (in the case of an institutionalized individual) to the exclusion described in subsection (a)(1) 

of such section. 

* * * * * * * 

PAYMENT FOR COVERED OUTPATIENT DRUGS

SEC. 1927. (a) REQUIREMENT FOR REBATE AGREEMENT.— 

(1) IN GENERAL.—In order for payment to be available under 

section 1903(a) or under part B of title XVIII for covered outpatient drugs of a manufacturer, the manufacturer must have 

entered into and have in effect a rebate agreement described 

in subsection (b) with the Secretary, on behalf of States (except 

that, the Secretary may authorize a State to enter directly into 

agreements with a manufacturer), and must meet the requirements of paragraph (5) (with respect to drugs purchased by a 

covered entity on or after the first day of the first month that 

begins after the date of the enactment of title VI of the Veterans Health Care Act of 1992) and paragraph (6). Any agreement between a State and a manufacturer prior to April 1, 

1991, shall be deemed to have been entered into on January 

1, 1991, and payment to such manufacturer shall be retroVerDate Sep 11 2014 07:21 Sep 11, 2016 Jkt 059006 PO 00000 Frm 00087 Fmt 6659 Sfmt 6601 E:\HR\OC\HR734.XXX HR734

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actively calculated as if the agreement between the manufacturer and the State had been entered into on January 1, 1991. 

If a manufacturer has not entered into such an agreement before March 1, 1991, such an agreement, subsequently entered 

into, shall become effective as of the date on which the agreement is entered into or, at State option, on any date thereafter 

on or before the first day of the calendar quarter that begins 

more than 60 days after the date the agreement is entered 

into. 

(2) EFFECTIVE DATE.—Paragraph (1) shall first apply to 

drugs dispensed under this title on or after January 1, 1991. 

(3) AUTHORIZING PAYMENT FOR DRUGS NOT COVERED UNDER

REBATE AGREEMENTS.—Paragraph (1), and section 

1903(i)(10)(A), shall not apply to the dispensing of a single 

source drug or innovator multiple source drug if (A)(i) the 

State has made a determination that the availability of the 

drug is essential to the health of beneficiaries under the State 

plan for medical assistance; (ii) such drug has been given a rating of 1-A by the Food and Drug Administration; and (iii)(I) the 

physician has obtained approval for use of the drug in advance 

of its dispensing in accordance with a prior authorization program described in subsection (d), or (II) the Secretary has reviewed and approved the State’s determination under subparagraph (A); or (B) the Secretary determines that in the first calendar quarter of 1991, there were extenuating circumstances. 

(4) EFFECT ON EXISTING AGREEMENTS.—In the case of a rebate agreement in effect between a State and a manufacturer 

on the date of the enactment of this section, such agreement, 

for the initial agreement period specified therein, shall be considered to be a rebate agreement in compliance with this section with respect to that State, if the State agrees to report to 

the Secretary any rebates paid pursuant to the agreement and 

such agreement provides for a minimum aggregate rebate of 10 

percent of the State’s total expenditures under the State plan 

for coverage of the manufacturer’s drugs under this title. If, 

after the initial agreement period, the State establishes to the 

satisfaction of the Secretary that an agreement in effect on the 

date of the enactment of this section provides for rebates that 

are at least as large as the rebates otherwise required under 

this section, and the State agrees to report any rebates under 

the agreement to the Secretary, the agreement shall be considered to be a rebate agreement in compliance with the section 

for the renewal periods of such agreement. 

(5) LIMITATION ON PRICES OF DRUGS PURCHASED BY COVERED

ENTITIES.— 

(A) AGREEMENT WITH SECRETARY.—A manufacturer 

meets the requirements of this paragraph if the manufacturer has entered into an agreement with the Secretary 

that meets the requirements of section 340B of the Public 

Health Service Act with respect to covered outpatient 

drugs purchased by a covered entity on or after the first 

day of the first month that begins after the date of the enactment of this paragraph. 


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(B) COVERED ENTITY DEFINED.—In this subsection, the 

term ‘‘covered entity’’ means an entity described in section 

340B(a)(4) of the Public Health Service Act. 

(C) ESTABLISHMENT OF ALTERNATIVE MECHANISM TO EN- SURE AGAINST DUPLICATE DISCOUNTS OR REBATES.—If the 

Secretary does not establish a mechanism under section 

340B(a)(5)(A) of the Public Health Service Act within 12 

months of the date of the enactment of such section, the 

following requirements shall apply: 

(i) ENTITIES.—Each covered entity shall inform the 

single State agency under section 1902(a)(5) when it is 

seeking reimbursement from the State plan for medical assistance described in section 1905(a)(12) with 

respect to a unit of any covered outpatient drug which 

is subject to an agreement under section 340B(a) of 

such Act. 

(ii) STATE AGENCY.—Each such single State agency 

shall provide a means by which a covered entity shall 

indicate on any drug reimbursement claims form (or 

format, where electronic claims management is used) 

that a unit of the drug that is the subject of the form 

is subject to an agreement under section 340B of such 

Act, and not submit to any manufacturer a claim for 

a rebate payment under subsection (b) with respect to 

such a drug. 

(D) EFFECT OF SUBSEQUENT AMENDMENTS.—In determining whether an agreement under subparagraph (A) 

meets the requirements of section 340B of the Public 

Health Service Act, the Secretary shall not take into account any amendments to such section that are enacted 

after the enactment of title VI of the Veterans Health Care 

Act of 1992. 

(E) DETERMINATION OF COMPLIANCE.—A manufacturer is 

deemed to meet the requirements of this paragraph if the 

manufacturer establishes to the satisfaction of the Secretary that the manufacturer would comply (and has offered to comply) with the provisions of section 340B of the 

Public Health Service Act (as in effect immediately after 

the enactment of this paragraph, and would have entered 

into an agreement under such section (as such section was 

in effect at such time), but for a legislative change in such 

section after the date of the enactment of this paragraph. 

(6) REQUIREMENTS RELATING TO MASTER AGREEMENTS

FOR DRUGS PROCURED BY DEPARTMENT OF VETERANS AFFAIRS AND CERTAIN OTHER FEDERAL AGENCIES.— 

(A) IN GENERAL.—A manufacturer meets the requirements of this paragraph if the manufacturer complies with the provisions of section 8126 of title 38, 

United States Code, including the requirement of entering into a master agreement with the Secretary of 

Veterans Affairs under such section. 

(B) EFFECT OF SUBSEQUENT AMENDMENTS.—In determining whether a master agreement described in subparagraph (A) meets the requirements of section 8126 

of title 38, United States Code, the Secretary shall not 


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take into account any amendments to such section 

that are enacted after the enactment of title VI of the 

Veterans Health Care Act of 1992. 

(C) DETERMINATION OF COMPLIANCE.—A manufacturer is deemed to meet the requirements of this paragraph if the manufacturer establishes to the satisfaction of the Secretary that the manufacturer would 

comply (and has offered to comply) with the provisions 

of section 8126 of title 38, United States Code (as in 

effect immediately after the enactment of this paragraph) and would have entered into an agreement 

under such section (as such section was in effect at 

such time), but for a legislative change in such section 

after the date of the enactment of this paragraph. 

(7) REQUIREMENT FOR SUBMISSION OF UTILIZATION DATA FOR

CERTAIN PHYSICIAN ADMINISTERED DRUGS.— 

(A) SINGLE SOURCE DRUGS.—In order for payment to be 

available under section 1903(a) for a covered outpatient 

drug that is a single source drug that is physician administered under this title (as determined by the Secretary), 

and that is administered on or after January 1, 2006, the 

State shall provide for the collection and submission of 

such utilization data and coding (such as J-codes and National Drug Code numbers) for each such drug as the Secretary may specify as necessary to identify the manufacturer of the drug in order to secure rebates under this section for drugs administered for which payment is made 

under this title. 

(B) MULTIPLE SOURCE DRUGS.— 

(i) IDENTIFICATION OF MOST FREQUENTLY PHYSICIAN

ADMINISTERED MULTIPLE SOURCE DRUGS.—Not later 

than January 1, 2007, the Secretary shall publish a 

list of the 20 physician administered multiple source 

drugs that the Secretary determines have the highest 

dollar volume of physician administered drugs dispensed under this title. The Secretary may modify 

such list from year to year to reflect changes in such 

volume. 

(ii) REQUIREMENT.—In order for payment to be 

available under section 1903(a) for a covered outpatient drug that is a multiple source drug that is 

physician administered (as determined by the Secretary), that is on the list published under clause (i), 

and that is administered on or after January 1, 2008, 

the State shall provide for the submission of such utilization data and coding (such as J-codes and National 

Drug Code numbers) for each such drug as the Secretary may specify as necessary to identify the manufacturer of the drug in order to secure rebates under 

this section. 

(C) USE OF NDC CODES.—Not later than January 1, 2007, 

the information shall be submitted under subparagraphs 

(A) and (B)(ii) using National Drug Code codes unless the 

Secretary specifies that an alternative coding system 

should be used. 


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(D) HARDSHIP WAIVER.—The Secretary may delay the application of subparagraph (A) or (B)(ii), or both, in the case 

of a State to prevent hardship to States which require additional time to implement the reporting system required 

under the respective subparagraph. 

(b) TERMS OF REBATE AGREEMENT.— (1) PERIODIC REBATES.— (A) IN GENERAL.—A rebate agreement under this subsection shall require the manufacturer to provide, to each 

State plan approved under this title, a rebate for a rebate 

period in an amount specified in subsection (c) for covered 

outpatient drugs of the manufacturer dispensed after December 31, 1990, for which payment was made under the 

State plan for such period, including such drugs dispensed 

to individuals enrolled with a medicaid managed care organization if the organization is responsible for coverage of 

such drugs. Such rebate shall be paid by the manufacturer 

not later than 30 days after the date of receipt of the information described in paragraph (2) for the period involved. 

(B) OFFSET AGAINST MEDICAL ASSISTANCE.—Amounts received by a State under this section (or under an agreement authorized by the Secretary under subsection (a)(1) 

or an agreement described in subsection (a)(4)) in any 

quarter shall be considered to be a reduction in the 

amount expended under the State plan in the quarter for 

medical assistance for purposes of section 1903(a)(1). 

(C) SPECIAL RULE FOR INCREASED MINIMUM REBATE PER- CENTAGE.— (i) IN GENERAL.—In addition to the amounts applied 

as a reduction under subparagraph (B), for rebate periods beginning on or after January 1, 2010, during a 

fiscal year, the Secretary shall reduce payments to a 

State under section 1903(a) in the manner specified in 

clause (ii), in an amount equal to the product of— 

(I) 100 percent minus the Federal medical assistance percentage applicable to the rebate period 

for the State; and 

(II) the amounts received by the State under 

such subparagraph that are attributable (as estimated by the Secretary based on utilization and 

other data) to the increase in the minimum rebate 

percentage effected by the amendments made by 

subsections (a)(1), (b), and (d) of section 2501 of 

the Patient Protection and Affordable Care Act, 

taking into account the additional drugs included 

under the amendments made by subsection (c) of 

section 2501 of such Act. 

The Secretary shall adjust such payment reduction for 

a calendar quarter to the extent the Secretary determines, based upon subsequent utilization and other 

data, that the reduction for such quarter was greater 

or less than the amount of payment reduction that 

should have been made. 

(ii) MANNER OF PAYMENT REDUCTION.—The amount 

of the payment reduction under clause (i) for a State 


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for a quarter shall be deemed an overpayment to the 

State under this title to be disallowed against the 

State’s regular quarterly draw for all Medicaid spending under section 1903(d)(2). Such a disallowance is 

not subject to a reconsideration under section 1116(d). 

(2) STATE PROVISION OF INFORMATION.— (A) STATE RESPONSIBILITY.—Each State agency under 

this title shall report to each manufacturer not later than 

60 days after the end of each rebate period and in a form 

consistent with a standard reporting format established by 

the Secretary, information on the total number of units of 

each dosage form and strength and package size of each 

covered outpatient drug dispensed after December 31, 

1990, for which payment was made under the plan during 

the period, including such information reported by each 

medicaid managed care organization, and shall promptly 

transmit a copy of such report to the Secretary. 

(B) AUDITS.—A manufacturer may audit the information 

provided (or required to be provided) under subparagraph 

(A). Adjustments to rebates shall be made to the extent 

that information indicates that utilization was greater or 

less than the amount previously specified. 

(3) MANUFACTURER PROVISION OF PRICE INFORMATION.— (A) IN GENERAL.—Each manufacturer with an agreement 

in effect under this section shall report to the Secretary— 

(i) not later than 30 days after the last day of each 

rebate period under the agreement— 

(I) on the average manufacturer price (as defined in 

subsection (k)(1)) for covered outpatient drugs for the 

rebate period under the agreement (including for all 

such drugs that are sold under a new drug application 

approved under section 505(c) of the Federal Food, 

Drug, and Cosmetic Act); and 

(II) for single source drugs and innovator multiple 

source drugs (including all such drugs that are sold 

under a new drug application approved under section 

505(c) of the Federal Food, Drug, and Cosmetic Act), 

on the manufacturer’s best price (as defined in subsection (c)(1)(C)) for such drugs for the rebate period 

under the agreement; 

(ii) not later than 30 days after the date of entering 

into an agreement under this section on the average 

manufacturer price (as defined in subsection (k)(1)) as 

of October 1, 1990 for each of the manufacturer’s covered outpatient drugs (including for such drugs that 

are sold under a new drug application approved under 

section 505(c) of the Federal Food, Drug, and Cosmetic 

Act); and 

(iii) for calendar quarters beginning on or after January 1, 2004, in conjunction with reporting required 

under clause (i) and by National Drug Code (including 

package size)— 

(I) the manufacturer’s average sales price (as 

defined in section 1847A(c)) and the total number 

of units specified under section 1847A(b)(2)(A); 


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(II) if required to make payment under section 

1847A, the manufacturer’s wholesale acquisition 

cost, as defined in subsection (c)(6) of such section; 

and 

(III) information on those sales that were made 

at a nominal price or otherwise described in section 1847A(c)(2)(B); 

for a drug or biological described in subparagraph (C), 

(D), (E), or (G) of section 1842(o)(1) or section 

1881(b)(13)(A)(ii), and, for calendar quarters beginning 

on or after January 1, 2007 and only with respect to 

the information described in subclause (III), for covered outpatient drugs. 

(iv) not later than 30 days after the last day of each 

month of a rebate period under the agreement, on the 

manufacturer’s total number of units that are used to 

calculate the monthly average manufacturer price for 

each covered outpatient drug; 

Information reported under this subparagraph is subject to 

audit by the Inspector General of the Department of 

Health and Human Services. Beginning July 1, 2006, the 

Secretary shall provide on a monthly basis to States under 

subparagraph (D)(iv) the most recently reported average 

manufacturer prices for single source drugs and for multiple source drugs and shall, on at least a quarterly basis, 

update the information posted on the website under subparagraph (D)(v) (relating to the weighted average of the 

most recently reported monthly average manufacturer 

prices). 

(B) VERIFICATION SURVEYS OF AVERAGE MANUFACTURER

PRICE AND MANUFACTURER’S AVERAGE SALES PRICE.—The 

Secretary may survey wholesalers and manufacturers that 

directly distribute their covered outpatient drugs, when 

necessary, to verify manufacturer prices and manufacturer’s average sales prices (including wholesale acquisition 

cost) if required to make payment reported under subparagraph (A). The Secretary may impose a civil monetary penalty in an amount not to exceed $100,000 on a wholesaler, 

manufacturer, or direct seller, if the wholesaler, manufacturer, or direct seller of a covered outpatient drug refuses 

a request for information about charges or prices by the 

Secretary in connection with a survey under this subparagraph or knowingly provides false information. The provisions of section 1128A (other than subsections (a) (with respect to amounts of penalties or additional assessments) 

and (b)) shall apply to a civil money penalty under this 

subparagraph in the same manner as such provisions 

apply to a penalty or proceeding under section 1128A(a). 

(C) PENALTIES.— (i) FAILURE TO PROVIDE TIMELY INFORMATION.—In 

the case of a manufacturer with an agreement under 

this section that fails to provide information required 

under subparagraph (A) on a timely basis, the amount 

of the penalty shall be increased by $10,000 for each 

day in which such information has not been provided 


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and such amount shall be paid to the Treasury, and, 

if such information is not reported within 90 days of 

the deadline imposed, the agreement shall be suspended for services furnished after the end of such 90- 

day period and until the date such information is reported (but in no case shall such suspension be for a 

period of less than 30 days). 

(ii) FALSE INFORMATION.—Any manufacturer with an 

agreement under this section that knowingly provides 

false information is subject to a civil money penalty in 

an amount not to exceed $100,000 for each item of 

false information. Such civil money penalties are in 

addition to other penalties as may be prescribed by 

law. The provisions of section 1128A (other than subsections (a) and (b)) shall apply to a civil money penalty under this subparagraph in the same manner as 

such provisions apply to a penalty or proceeding under 

section 1128A(a). 

(D) CONFIDENTIALITY OF INFORMATION.—Notwithstanding any other provision of law, information disclosed 

by manufacturers or wholesalers under this paragraph or 

under an agreement with the Secretary of Veterans Affairs 

described in subsection (a)(6)(A)(ii) (other than the wholesale acquisition cost for purposes of carrying out section 

1847A) is confidential and shall not be disclosed by the 

Secretary or the Secretary of Veterans Affairs or a State 

agency (or contractor therewith) in a form which discloses 

the identity of a specific manufacturer or wholesaler, 

prices charged for drugs by such manufacturer or wholesaler, except— 

(i) as the Secretary determines to be necessary to 

carry out this section, to carry out section 1847A (including the determination and implementation of the 

payment amount), or to carry out section 1847B, 

(ii) to permit the Comptroller General to review the 

information provided, 

(iii) to permit the Director of the Congressional 

Budget Office to review the information provided, 

(iv) to States to carry out this title, and 

(v) to the Secretary to disclose (through a website 

accessible to the public) the weighted average of the 

most recently reported monthly average manufacturer 

prices and the average retail survey price determined 

for each multiple source drug in accordance with subsection (f). 

The previous sentence shall also apply to information disclosed under section 1860D–2(d)(2) or 1860D–4(c)(2)(E) 

and drug pricing data reported under the first sentence of 

section 1860D–31(i)(1). 

(4) LENGTH OF AGREEMENT.— (A) IN GENERAL.—A rebate agreement shall be effective 

for an initial period of not less than 1 year and shall be 

automatically renewed for a period of not less than one 

year unless terminated under subparagraph (B). 

(B) TERMINATION.— 


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(i) BY THE SECRETARY.—The Secretary may provide 

for termination of a rebate agreement for violation of 

the requirements of the agreement or other good cause 

shown. Such termination shall not be effective earlier 

than 60 days after the date of notice of such termination. The Secretary shall provide, upon request, a 

manufacturer with a hearing concerning such a termination, but such hearing shall not delay the effective 

date of the termination. 

(ii) BY A MANUFACTURER.—A manufacturer may terminate a rebate agreement under this section for any 

reason. Any such termination shall not be effective 

until the calendar quarter beginning at least 60 days 

after the date the manufacturer provides notice to the 

Secretary. 

(iii) EFFECTIVENESS OF TERMINATION.—Any termination under this subparagraph shall not affect rebates due under the agreement before the effective 

date of its termination. 

(iv) NOTICE TO STATES.—In the case of a termination 

under this subparagraph, the Secretary shall provide 

notice of such termination to the States within not less 

than 30 days before the effective date of such termination. 

(v) APPLICATION TO TERMINATIONS OF OTHER AGREE- MENTS.—The provisions of this subparagraph shall 

apply to the terminations of agreements described in 

section 340B(a)(1) of the Public Health Service Act 

and master agreements described in section 8126(a) of 

title 38, United States Code. 

(C) DELAY BEFORE REENTRY.—In the case of any rebate 

agreement with a manufacturer under this section which 

is terminated, another such agreement with the manufacturer (or a successor manufacturer) may not be entered 

into until a period of 1 calendar quarter has elapsed since 

the date of the termination, unless the Secretary finds 

good cause for an earlier reinstatement of such an agreement. 

(c) DETERMINATION OF AMOUNT OF REBATE.— (1) BASIC REBATE FOR SINGLE SOURCE DRUGS AND INNOVATOR

MULTIPLE SOURCE DRUGS.— 

(A) IN GENERAL.—Except as provided in paragraph (2), 

the amount of the rebate specified in this subsection for a 

rebate period (as defined in subsection (k)(8)) with respect 

to each dosage form and strength of a single source drug 

or an innovator multiple source drug shall be equal to the 

product of— 

(i) the total number of units of each dosage form and 

strength paid for under the State plan in the rebate 

period (as reported by the State); and 

(ii) subject to subparagraph (B)(ii), the greater of— 

(I) the difference between the average manufacturer price and the best price (as defined in subparagraph (C)) for the dosage form and strength of 

the drug, or 


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(II) the minimum rebate percentage (specified in 

subparagraph (B)(i)) of such average manufacturer price, 

of or the rebate period. 

(B) RANGE OF REBATES REQUIRED.— (i) MINIMUM REBATE PERCENTAGE.—For purposes of 

subparagraph (A)(ii)(II), the ‘‘minimum rebate percentage’’ for rebate periods beginning— 

(I) after December 31, 1990, and before October 

1, 1992, is 12.5 percent; 

(II) after September 30, 1992, and before January 1, 1994, is 15.7 percent; 

(III) after December 31, 1993, and before January 1, 1995, is 15.4 percent; 

(IV) after December 31, 1994, and before January 1, 1996, is 15.2 percent; 

(V) after December 31, 1995, and before January 1, 2010 is 15.1 percent;and 

(VI) except as provided in clause (iii), after December 31, 2009, 23.1 percent. 

(ii) TEMPORARY LIMITATION ON MAXIMUM REBATE

AMOUNT.—In no case shall the amount applied under 

subparagraph (A)(ii) for a rebate period beginning— 

(I) before January 1, 1992, exceed 25 percent of 

the average manufacturer price; or 

(II) after December 31, 1991, and before January 1, 1993, exceed 50 percent of the average 

manufacturer price. 

(iii) MINIMUM REBATE PERCENTAGE FOR CERTAIN

DRUGS.— 

(I) IN GENERAL.—In the case of a single source 

drug or an innovator multiple source drug described in subclause (II), the minimum rebate percentage for rebate periods specified in clause 

(i)(VI) is 17.1 percent. 

(II) DRUG DESCRIBED.—For purposes of subclause (I), a single source drug or an innovator 

multiple source drug described in this subclause is 

any of the following drugs: 

(aa) A clotting factor for which a separate 

furnishing payment is made under section 

1842(o)(5) and which is included on a list of 

such factors specified and updated regularly 

by the Secretary. 

(bb) A drug approved by the Food and Drug 

Administration exclusively for pediatric indications. 

(C) BEST PRICE DEFINED.—For purposes of this section— 

(i) IN GENERAL.—The term ‘‘best price’’ means, with 

respect to a single source drug or innovator multiple 

source drug of a manufacturer (including the lowest 

price available to any entity for any such drug of a 

manufacturer that is sold under a new drug application approved under section 505(c) of the Federal 

Food, Drug, and Cosmetic Act), the lowest price availVerDate Sep 11 2014 07:21 Sep 11, 2016 Jkt 059006 PO 00000 Frm 00096 Fmt 6659 Sfmt 6601 E:\HR\OC\HR734.XXX HR734

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able from the manufacturer during the rebate period 

to any wholesaler, retailer, provider, health maintenance organization, nonprofit entity, or governmental 

entity within the United States, excluding— 

(I) any prices charged on or after October 1, 

1992, to the Indian Health Service, the Department of Veterans Affairs, a State home receiving 

funds under section 1741 of title 38, United States 

Code, the Department of Defense, the Public 

Health Service, or a covered entity described in 

subsection (a)(5)(B) (including inpatient prices 

charged to hospitals described in section 

340B(a)(4)(L) of the Public Health Service Act); 

(II) any prices charged under the Federal Supply Schedule of the General Services Administration; 

(III) any prices used under a State pharmaceutical assistance program; 

(IV) any depot prices and single award contract 

prices, as defined by the Secretary, of any agency 

of the Federal Government; 

(V) the prices negotiated from drug manufacturers for covered discount card drugs under an endorsed discount card program under section 

1860D–31; and 

(VI) any prices charged which are negotiated by 

a prescription drug plan under part D of title 

XVIII, by an MA–PD plan under part C of such 

title with respect to covered part D drugs or by a 

qualified retiree prescription drug plan (as defined 

in section 1860D–22(a)(2)) with respect to such 

drugs on behalf of individuals entitled to benefits 

under part A or enrolled under part B of such 

title, or any discounts provided by manufacturers 

under the Medicare coverage gap discount program under section 1860D–14A. 

(ii) SPECIAL RULES.—The term ‘‘best price’’— 

(I) shall be inclusive of cash discounts, free 

goods that are contingent on any purchase requirement, volume discounts, and rebates (other 

than rebates under this section); 

(II) shall be determined without regard to special packaging, labeling, or identifiers on the dosage form or product or package; 

(III) shall not take into account prices that are 

merely nominal in amount; and 

(IV) in the case of a manufacturer that approves, allows, or otherwise permits any other drug of the manufacturer to be sold under a new drug application approved under section 505(c) of the Federal Food, Drug, 

and Cosmetic Act, shall be inclusive of the lowest price 

for such authorized drug available from the manufacturer during the rebate period to any manufacturer, 

wholesaler, retailer, provider, health maintenance organization, nonprofit entity, or governmental entity 


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within the United States, excluding those prices described in subclauses (I) through (IV) of clause (i). 

(iii) APPLICATION OF AUDITING AND RECORDKEEPING

REQUIREMENTS.—With respect to a covered entity described in section 340B(a)(4)(L) of the Public Health 

Service Act, any drug purchased for inpatient use 

shall be subject to the auditing and recordkeeping requirements described in section 340B(a)(5)(C) of the 

Public Health Service Act. 

(D) LIMITATION ON SALES AT A NOMINAL PRICE.— (i) IN GENERAL.—For purposes of subparagraph 

(C)(ii)(III) and subsection (b)(3)(A)(iii)(III), only sales 

by a manufacturer of covered outpatient drugs at 

nominal prices to the following shall be considered to 

be sales at a nominal price or merely nominal in 

amount: 

(I) A covered entity described in section 

340B(a)(4) of the Public Health Service Act. 

(II) An intermediate care facility for the mentally retarded. 

(III) A State-owned or operated nursing facility. 

(IV) An entity that— 

(aa) is described in section 501(c)(3) of the 

Internal Revenue Code of 1986 and exempt 

from tax under section 501(a) of such Act or 

is State-owned or operated; and 

(bb) would be a covered entity described in 

section 340(B)(a)(4) of the Public Health Service Act insofar as the entity provides the same 

type of services to the same type of populations as a covered entity described in such 

section provides, but does not receive funding 

under a provision of law referred to in such 

section; 

(V) A public or nonprofit entity, or an entity 

based at an institution of higher learning whose 

primary purpose is to provide health care services 

to students of that institution, that provides a 

service or services described under section 1001(a) 

of the Public Health Service Act, 42 U.S.C. 300. 

(VI) Any other facility or entity that the Secretary determines is a safety net provider to 

which sales of such drugs at a nominal price 

would be appropriate based on the factors described in clause (ii). 

(ii) FACTORS.—The factors described in this clause 

with respect to a facility or entity are the following: 

(I) The type of facility or entity. 

(II) The services provided by the facility or entity. 

(III) The patient population served by the facility or entity. 

(IV) The number of other facilities or entities eligible to purchase at nominal prices in the same 

service area. 


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(iii) NONAPPLICATION.—Clause (i) shall not apply 

with respect to sales by a manufacturer at a nominal 

price of covered outpatient drugs pursuant to a master 

agreement under section 8126 of title 38, United 

States Code. 

(iv) RULE OF CONSTRUCTION.—Nothing in this subparagraph shall be construed to alter any existing 

statutory or regulatory prohibition on services with respect to an entity described in clause (i)(IV), including 

the prohibition set forth in section 1008 of the Public 

Health Service Act. 

(2) ADDITIONAL REBATE FOR SINGLE SOURCE AND INNOVATOR

MULTIPLE SOURCE DRUGS.— 

(A) IN GENERAL.—The amount of the rebate specified in 

this subsection for a rebate period, with respect to each 

dosage form and strength of a single source drug or an innovator multiple source drug, shall be increased by an 

amount equal to the product of— 

(i) the total number of units of such dosage form and 

strength dispensed after December 31, 1990, for which 

payment was made under the State plan for the rebate period; and 

(ii) the amount (if any) by which— 

(I) the average manufacturer price for the dosage form and strength of the drug for the period, 

exceeds 

(II) the average manufacturer price for such 

dosage form and strength for the calendar quarter 

beginning July 1, 1990 (without regard to whether 

or not the drug has been sold or transferred to an 

entity, including a division or subsidiary of the 

manufacturer, after the first day of such quarter), 

increased by the percentage by which the consumer price index for all urban consumers (United 

States city average) for the month before the 

month in which the rebate period begins exceeds 

such index for September 1990. 

(B) TREATMENT OF SUBSEQUENTLY APPROVED DRUGS.—In 

the case of a covered outpatient drug approved by the Food 

and Drug Administration after October 1, 1990, clause 

(ii)(II) of subparagraph (A) shall be applied by substituting 

‘‘the first full calendar quarter after the day on which the 

drug was first marketed’’ for ‘‘the calendar quarter beginning July 1, 1990’’ and ‘‘the month prior to the first month 

of the first full calendar quarter after the day on which the 

drug was first marketed’’ for ‘‘September 1990’’. 

(C) TREATMENT OF NEW FORMULATIONS.—In the case of 

a drug that is a line extension of a single source drug or 

an innovator multiple source drug that is an oral solid dosage form, the rebate obligation with respect to such drug 

under this section shall be the amount computed under 

this section for such new drug or, if greater, the product 

of— 


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(i) the average manufacturer price of the line extension of a single source drug or an innovator multiple 

source drug that is an oral solid dosage form; 

(ii) the highest additional rebate (calculated as a 

percentage of average manufacturer price) under this 

section for any strength of the original single source 

drug or innovator multiple source drug; and 

(iii) the total number of units of each dosage form 

and strength of the line extension product paid for 

under the State plan in the rebate period (as reported 

by the State). 

In this subparagraph, the term ‘‘line extension’’ means, 

with respect to a drug, a new formulation of the drug, such 

as an extended release formulation. 

(D) MAXIMUM REBATE AMOUNT.—In no case shall the 

sum of the amounts applied under paragraph (1)(A)(ii) and 

this paragraph with respect to each dosage form and 

strength of a single source drug or an innovator multiple 

source drug for a rebate period beginning after December 

31, 2009, exceed 100 percent of the average manufacturer 

price of the drug. 

(3) REBATE FOR OTHER DRUGS.— 

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

(C), the amount of the rebate paid to a State for a rebate 

period with respect to each dosage form and strength of 

covered outpatient drugs (other than single source drugs 

and innovator multiple source drugs) shall be equal to the 

product of— 

(i) the applicable percentage (as described in subparagraph (B)) of the average manufacturer price for 

the dosage form and strength for the rebate period, 

and 

(ii) the total number of units of such dosage form 

and strength dispensed after December 31, 1990, for 

which payment was made under the State plan for the 

rebate period. 

(B) APPLICABLE PERCENTAGE DEFINED.—For purposes of 

subparagraph (A)(i), the ‘‘applicable percentage’’ for rebate 

periods beginning— 

(i) before January 1, 1994, is 10 percent, 

(ii) after December 31, 1993, and before January 1, 

2010, is 11 percent; and 

(iii) after December 31, 2009, is 13 percent. 

(C) ADDITIONAL REBATE.— 

(i) IN GENERAL.—The amount of the rebate specified 

in this paragraph for a rebate period, with respect to 

each dosage form and strength of a covered outpatient 

drug other than a single source drug or an innovator 

multiple source drug of a manufacturer, shall be increased in the manner that the rebate for a dosage 

form and strength of a single source drug or an innovator multiple source drug is increased under subparagraphs (A) and (D) of paragraph (2), except as provided in clause (ii). 


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(ii) SPECIAL RULES FOR APPLICATION OF PROVISION.— 

In applying subparagraphs (A) and (D) of paragraph 

(2) under clause (i)— 

(I) the reference in subparagraph (A)(i) of such 

paragraph to ‘‘1990’’ shall be deemed a reference 

to ‘‘2014’’; 

(II) subject to clause (iii), the reference in subparagraph (A)(ii) of such paragraph to ‘‘the calendar quarter beginning July 1, 1990’’ shall be 

deemed a reference to ‘‘the calendar quarter beginning July 1, 2014’’; and 

(III) subject to clause (iii), the reference in subparagraph (A)(ii) of such paragraph to ‘‘September 

1990’’ shall be deemed a reference to ‘‘September 

2014’’; 

(IV) the references in subparagraph (D) of such 

paragraph to ‘‘paragraph (1)(A)(ii)’’, ‘‘this paragraph’’, and ‘‘December 31, 2009’’ shall be deemed 

references to ‘‘subparagraph (A)’’, ‘‘this subparagraph’’, and ‘‘December 31, 2014’’, respectively; 

and 

(V) any reference in such paragraph to a ‘‘single 

source drug or an innovator multiple source drug’’ 

shall be deemed to be a reference to a drug to 

which clause (i) applies. 

(iii) SPECIAL RULE FOR CERTAIN NONINNOVATOR MULTIPLE SOURCE DRUGS.—In applying paragraph 

(2)(A)(ii)(II) under clause (i) with respect to a covered 

outpatient drug that is first marketed as a drug other 

than a single source drug or an innovator multiple 

source drug after April 1, 2013, such paragraph shall 

be applied— 

(I) by substituting ‘‘the applicable quarter’’ for 

‘‘the calendar quarter beginning July 1, 1990’’; 

and 

(II) by substituting ‘‘the last month in such applicable quarter’’ for ‘‘September 1990’’. 

(iv) APPLICABLE QUARTER DEFINED.—In this subsection, the term ‘‘applicable quarter’’ means, with respect to a drug described in clause (iii), the fifth full 

calendar quarter after which the drug is marketed as 

a drug other than a single source drug or an innovator 

multiple source drug. 

(d) LIMITATIONS ON COVERAGE OF DRUGS.— 

(1) PERMISSIBLE RESTRICTIONS.—(A) A State may subject to 

prior authorization any covered outpatient drug. Any such 

prior authorization program shall comply with the requirements of paragraph (5). 

(B) A State may exclude or otherwise restrict coverage of a 

covered outpatient drug if— 

(i) the prescribed use is not for a medically accepted indication (as defined in subsection (k)(6)); 

(ii) the drug is contained in the list referred to in paragraph (2); 


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(iii) the drug is subject to such restrictions pursuant to 

an agreement between a manufacturer and a State authorized by the Secretary under subsection (a)(1) or in effect 

pursuant to subsection (a)(4); or 

(iv) the State has excluded coverage of the drug from its 

formulary established in accordance with paragraph (4). 

(2) LIST OF DRUGS SUBJECT TO RESTRICTION.—The following 

drugs or classes of drugs, or their medical uses, may be excluded from coverage or otherwise restricted: 

(A) Agents when used for anorexia, weight loss, or 

weight gain. 

(B) Agents when used to promote fertility. 

(C) Agents when used for cosmetic purposes or hair 

growth. 

(D) Agents when used for the symptomatic relief of 

cough and colds. 

(E) Prescription vitamins and mineral products, except 

prenatal vitamins and fluoride preparations. 

(F) Nonprescription drugs, except, in the case of pregnant women (and women described in section 1905(bb) as 

pregnant women pursuant to paragraph (4) of such section) 

when recommended in accordance with the Guideline referred to in section 1905(bb)(2)(A), agents approved by the 

Food and Drug Administration under the over-the-counter 

monograph process for purposes of promoting, and when 

used to promote, tobacco cessation. 

(G) Covered outpatient drugs which the manufacturer 

seeks to require as a condition of sale that associated tests 

or monitoring services be purchased exclusively from the 

manufacturer or its designee. 

(H) Agents when used for the treatment of sexual or 

erectile dysfunction, unless such agents are used to treat 

a condition, other than sexual or erectile dysfunction, for 

which the agents have been approved by the Food and 

Drug Administration. 

(3) UPDATE OF DRUG LISTINGS.—The Secretary shall, by regulation, periodically update the list of drugs or classes of drugs 

described in paragraph (2) or their medical uses, which the 

Secretary has determined, based on data collected by surveillance and utilization review programs of State medical assistance programs, to be subject to clinical abuse or inappropriate 

use. 

(4) REQUIREMENTS FOR FORMULARIES.—A State may establish a formulary if the formulary meets the following requirements: 

(A) The formulary is developed by a committee consisting of physicians, pharmacists, and other appropriate 

individuals appointed by the Governor of the State (or, at 

the option of the State, the State’s drug use review board 

established under subsection (g)(3)). 

(B) Except as provided in subparagraph (C), the formulary includes the covered outpatient drugs of any manufacturer which has entered into and complies with an 

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cluded from coverage or otherwise restricted under paragraph (2)). 

(C) A covered outpatient drug may be excluded with respect to the treatment of a specific disease or condition for 

an identified population (if any) only if, based on the 

drug’s labeling (or, in the case of a drug the prescribed use 

of which is not approved under the Federal Food, Drug, 

and Cosmetic Act but is a medically accepted indication, 

based on information from the appropriate compendia described in subsection (k)(6)), the excluded drug does not 

have a significant, clinically meaningful therapeutic advantage in terms of safety, effectiveness, or clinical outcome of such treatment for such population over other 

drugs included in the formulary and there is a written explanation (available to the public) of the basis for the exclusion. 

(D) The State plan permits coverage of a drug excluded 

from the formulary (other than any drug excluded from 

coverage or otherwise restricted under paragraph (2)) pursuant to a prior authorization program that is consistent 

with paragraph (5). 

(E) The formulary meets such other requirements as the 

Secretary may impose in order to achieve program savings 

consistent with protecting the health of program beneficiaries. 

A prior authorization program established by a State under 

paragraph (5) is not a formulary subject to the requirements 

of this paragraph. 

(5) REQUIREMENTS OF PRIOR AUTHORIZATION PROGRAMS.—A 

State plan under this title may require, as a condition of coverage or payment for a covered outpatient drug for which Federal financial participation is available in accordance with this 

section, with respect to drugs dispensed on or after July 1, 

1991, the approval of the drug before its dispensing for any 

medically accepted indication (as defined in subsection (k)(6)) 

only if the system providing for such approval— 

(A) provides response by telephone or other telecommunication device within 24 hours of a request for 

prior authorization; and 

(B) except with respect to the drugs on the list referred 

to in paragraph (2), provides for the dispensing of at least 

72-hour supply of a covered outpatient prescription drug in 

an emergency situation (as defined by the Secretary). 

(6) OTHER PERMISSIBLE RESTRICTIONS.—A State may impose 

limitations, with respect to all such drugs in a therapeutic 

class, on the minimum or maximum quantities per prescription 

or on the number of refills, if such limitations are necessary to 

discourage waste, and may address instances of fraud or abuse 

by individuals in any manner authorized under this Act. 

(7) NON-EXCLUDABLE DRUGS.—The following drugs or classes 

of drugs, or their medical uses, shall not be excluded from coverage: 

(A) Agents when used to promote smoking cessation, including agents approved by the Food and Drug Administration under the over-the-counter monograph process for 


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purposes of promoting, and when used to promote, tobacco 

cessation. 

(B) Barbiturates. 

(C) Benzodiazepines. 

(e) TREATMENT OF PHARMACY REIMBURSEMENT LIMITS.— (1) IN GENERAL.—During the period beginning on January 1, 

1991, and ending on December 31, 1994— 

(A) a State may not reduce the payment limits established by regulation under this title or any limitation described in paragraph (3) with respect to the ingredient cost 

of a covered outpatient drug or the dispensing fee for such 

a drug below the limits in effect as of January 1, 1991, and 

(B) except as provided in paragraph (2), the Secretary 

may not modify by regulation the formula established 

under sections 447.331 through 447.334 of title 42, Code of 

Federal Regulations, in effect on November 5, 1990, to reduce the limits described in subparagraph (A). 

(2) SPECIAL RULE.—If a State is not in compliance with the 

regulations described in paragraph (1)(B), paragraph (1)(A) 

shall not apply to such State until such State is in compliance 

with such regulations. 

(3) EFFECT ON STATE MAXIMUM ALLOWABLE COST LIMITA- TIONS.—This section shall not supersede or affect provisions in 

effect prior to January 1, 1991, or after December 31, 1994, relating to any maximum allowable cost limitation established by 

a State for payment by the State for covered outpatient drugs, 

and rebates shall be made under this section without regard 

to whether or not payment by the State for such drugs is subject to such a limitation or the amount of such a limitation. 

(4) ESTABLISHMENT OF UPPER PAYMENT LIMITS.—Subject to 

paragraph (5), the Secretary shall establish a Federal upper reimbursement limit for each multiple source drug for which the 

FDA has rated three or more products therapeutically and 

pharmaceutically equivalent, regardless of whether all such additional formulations are rated as such and shall use only such 

formulations when determining any such upper limit. 

(5) USE OF AMP IN UPPER PAYMENT LIMITS.—The Secretary 

shall calculate the Federal upper reimbursement limit established under paragraph (4) as no less than 175 percent of the 

weighted average (determined on the basis of utilization) of the 

most recently reported monthly average manufacturer prices 

for pharmaceutically and therapeutically equivalent multiple 

source drug products that are available for purchase by retail 

community pharmacies on a nationwide basis. The Secretary 

shall implement a smoothing process for average manufacturer 

prices. Such process shall be similar to the smoothing process 

used in determining the average sales price of a drug or biological under section 1847A. 

(f) SURVEY OF RETAIL PRICES; STATE PAYMENT AND UTILIZATION

RATES; AND PERFORMANCE RANKINGS.— (1) SURVEY OF RETAIL PRICES.— (A) USE OF VENDOR.—The Secretary may contract services for— 

(i) with respect to a retail community pharmacy, the 

determination on a monthly basis of retail survey 


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prices for covered outpatient drugs that represent a 

nationwide average of consumer purchase prices for 

such drugs, net of all discounts and rebates (to the extent any information with respect to such discounts 

and rebates is available); and 

(ii) the notification of the Secretary when a drug 

product that is therapeutically and pharmaceutically 

equivalent and bioequivalent becomes generally available. 

(B) SECRETARY RESPONSE TO NOTIFICATION OF AVAIL- ABILITY OF MULTIPLE SOURCE PRODUCTS.—If contractor notifies the Secretary under subparagraph (A)(ii) that a drug 

product described in such subparagraph has become generally available, the Secretary shall make a determination, 

within 7 days after receiving such notification, as to 

whether the product is now described in subsection (e)(4). 

(C) USE OF COMPETITIVE BIDDING.—In contracting for 

such services, the Secretary shall competitively bid for an 

outside vendor that has a demonstrated history in— 

(i) surveying and determining, on a representative 

nationwide basis, retail prices for ingredient costs of 

prescription drugs; 

(ii) working with retail community pharmacies, commercial payers, and States in obtaining and disseminating such price information; and 

(iii) collecting and reporting such price information 

on at least a monthly basis. 

In contracting for such services, the Secretary may waive 

such provisions of the Federal Acquisition Regulation as 

are necessary for the efficient implementation of this subsection, other than provisions relating to confidentiality of 

information and such other provisions as the Secretary determines appropriate. 

(D) ADDITIONAL PROVISIONS.—A contract with a vendor 

under this paragraph shall include such terms and conditions as the Secretary shall specify, including the following: 

(i) The vendor must monitor the marketplace and 

report to the Secretary each time there is a new covered outpatient drug generally available. 

(ii) The vendor must update the Secretary no less 

often than monthly on the retail survey prices for covered outpatient drugs. 

(iii) The contract shall be effective for a term of 2 

years. 

(E) AVAILABILITY OF INFORMATION TO STATES.—Information on retail survey prices obtained under this paragraph, 

including applicable information on single source drugs, 

shall be provided to States on at least a monthly basis. 

The Secretary shall devise and implement a means for providing access to each State agency designated under section 1902(a)(5) with responsibility for the administration 

or supervision of the administration of the State plan 

under this title of the retail survey price determined under 

this paragraph. 


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(2) ANNUAL STATE REPORT.—Each State shall annually report 

to the Secretary information on— 

(A) the payment rates under the State plan under this 

title for covered outpatient drugs; 

(B) the dispensing fees paid under such plan for such 

drugs; and 

(C) utilization rates for noninnovator multiple source 

drugs under such plan. 

(3) ANNUAL STATE PERFORMANCE RANKINGS.— (A) COMPARATIVE ANALYSIS.—The Secretary annually 

shall compare, for the 50 most widely prescribed drugs 

identified by the Secretary, the national retail sales price 

data (collected under paragraph (1)) for such drugs with 

data on prices under this title for each such drug for each 

State. 

(B) AVAILABILITY OF INFORMATION.—The Secretary shall 

submit to Congress and the States full information regarding the annual rankings made under subparagraph (A). 

(4) APPROPRIATION.—Out of any funds in the Treasury not 

otherwise appropriated, there is appropriated to the Secretary 

of Health and Human Services $5,000,000 for each of fiscal 

years 2006 through 2010 to carry out this subsection. 

(g) DRUG USE REVIEW.— (1) IN GENERAL.— (A) In order to meet the requirement of section 

1903(i)(10)(B), a State shall provide, by not later than January 1, 1993, for a drug use review program described in 

paragraph (2) for covered outpatient drugs in order to assure that prescriptions (i) are appropriate, (ii) are medically necessary, and (iii) are not likely to result in adverse 

medical results. The program shall be designed to educate 

physicians and pharmacists to identify and reduce the frequency of patterns of fraud, abuse, gross overuse, or inappropriate or medically unnecessary care, among physicians, pharmacists, and patients, or associated with specific drugs or groups of drugs, as well as potential and actual severe adverse reactions to drugs including education 

on therapeutic appropriateness, overutilization and underutilization, appropriate use of generic products, therapeutic duplication, drug-disease contraindications, drugdrug interactions, incorrect drug dosage or duration of 

drug treatment, drug-allergy interactions, and clinical 

abuse/misuse. 

(B) The program shall assess data on drug use against 

predetermined standards, consistent with the following: 

(i) compendia which shall consist of the following: 

(I) American Hospital Formulary Service Drug 

Information; 

(II) United States Pharmacopeia-Drug Information (or its successor publications); and 

(III) the DRUGDEX Information System; and 

(ii) the peer-reviewed medical literature. 

(C) The Secretary, under the procedures established in 

section 1903, shall pay to each State an amount equal to 

75 per centum of so much of the sums expended by the 


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State plan during calendar years 1991 through 1993 as the 

Secretary determines is attributable to the statewide adoption of a drug use review program which conforms to the 

requirements of this subsection. 

(D) States shall not be required to perform additional 

drug use reviews with respect to drugs dispensed to residents of nursing facilities which are in compliance with the 

drug regimen review procedures prescribed by the Secretary for such facilities in regulations implementing section 1919, currently at section 483.60 of title 42, Code of 

Federal Regulations. 

(2) DESCRIPTION OF PROGRAM.—Each drug use review program shall meet the following requirements for covered outpatient drugs: 

(A) PROSPECTIVE DRUG REVIEW.—(i) The State plan shall 

provide for a review of drug therapy before each prescription is filled or delivered to an individual receiving benefits 

under this title, typically at the point-of-sale or point of 

distribution. The review shall include screening for potential drug therapy problems due to therapeutic duplication, 

drug-disease contraindications, drug-drug interactions (including serious interactions with nonprescription or overthe-counter drugs), incorrect drug dosage or duration of 

drug treatment, drug-allergy interactions, and clinical 

abuse/misuse. Each State shall use the compendia and literature referred to in paragraph (1)(B) as its source of 

standards for such review. 

(ii) As part of the State’s prospective drug use review 

program under this subparagraph applicable State law 

shall establish standards for counseling of individuals receiving benefits under this title by pharmacists which includes at least the following: 

(I) The pharmacist must offer to discuss with each 

individual receiving benefits under this title or caregiver of such individual (in person, whenever practicable, or through access to a telephone service which 

is toll-free for long-distance calls) who presents a prescription, matters which in the exercise of the pharmacist’s professional judgment (consistent with State 

law respecting the provision of such information), the 

pharmacist deems significant including the following: 

(aa) The name and description of the medication. 

(bb) The route, dosage form, dosage, route of administration, and duration of drug therapy. 

(cc) Special directions and precautions for preparation, administration and use by the patient. 

(dd) Common severe side or adverse effects or 

interactions and therapeutic contraindications 

that may be encountered, including their avoidance, and the action required if they occur. 

(ee) Techniques for self-monitoring drug therapy. 

(ff) Proper storage. 

(gg) Prescription refill information. 


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(hh) Action to be taken in the event of a missed 

dose. 

(II) A reasonable effort must be made by the pharmacist to obtain, record, and maintain at least the following information regarding individuals receiving 

benefits under this title: 

(aa) Name, address, telephone number, date of 

birth (or age) and gender. 

(bb) Individual history where significant, including disease state or states, known allergies and 

drug reactions, and a comprehensive list of medications and relevant devices. 

(cc) Pharmacist comments relevant to the individual’s drug therapy. 

Nothing in this clause shall be construed as requiring a 

pharmacist to provide consultation when an individual receiving benefits under this title or caregiver of such individual refuses such consultation, or to require verification 

of the offer to provide consultation or a refusal of such 

offer. 

(B) RETROSPECTIVE DRUG USE REVIEW.—The program 

shall provide, through its mechanized drug claims processing and information retrieval systems (approved by the 

Secretary under section 1903(r)) or otherwise, for the ongoing periodic examination of claims data and other records 

in order to identify patterns of fraud, abuse, gross overuse, 

or inappropriate or medically unnecessary care, among 

physicians, pharmacists and individuals receiving benefits 

under this title, or associated with specific drugs or groups 

of drugs. 

(C) APPLICATION OF STANDARDS.—The program shall, on 

an ongoing basis, assess data on drug use against explicit 

predetermined standards (using the compendia and literature referred to in subsection (1)(B) as the source of 

standards for such assessment) including but not limited 

to monitoring for therapeutic appropriateness, overutilization and underutilization, appropriate use of generic products, therapeutic duplication, drug-disease contraindications, drug-drug interactions, incorrect drug dosage or duration of drug treatment, and clinical abuse/misuse and, as 

necessary, introduce remedial strategies, in order to improve the quality of care and to conserve program funds or 

personal expenditures. 

(D) EDUCATIONAL PROGRAM.—The program shall, 

through its State drug use review board established under 

paragraph (3), either directly or through contracts with accredited health care educational institutions, State medical 

societies or State pharmacists associations/societies or 

other organizations as specified by the State, and using 

data provided by the State drug use review board on common drug therapy problems, provide for active and ongoing 

educational outreach programs (including the activities described in paragraph (3)(C)(iii) of this subsection) to educate practitioners on common drug therapy problems with 

the aim of improving prescribing or dispensing practices. 


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(3) STATE DRUG USE REVIEW BOARD.— 

(A) ESTABLISHMENT.—Each State shall provide for the 

establishment of a drug use review board (hereinafter referred to as the ‘‘DUR Board’’) either directly or through 

a contract with a private organization. 

(B) MEMBERSHIP.—The membership of the DUR Board 

shall include health care professionals who have recognized knowledge and expertise in one or more of the following: 

(i) The clinically appropriate prescribing of covered 

outpatient drugs. 

(ii) The clinically appropriate dispensing and monitoring of covered outpatient drugs. 

(iii) Drug use review, evaluation, and intervention. 

(iv) Medical quality assurance. 

The membership of the DUR Board shall be made up at 

least 1⁄3 but no more than 51 percent licensed and actively 

practicing physicians and at least 1⁄3 licensed and actively 

practicing pharmacists. 

(C) ACTIVITIES.—The activities of the DUR Board shall 

include but not be limited to the following: 

(i) Retrospective DUR as defined in section (2)(B). 

(ii) Application of standards as defined in section 

(2)(C). 

(iii) Ongoing interventions for physicians and pharmacists, targeted toward therapy problems or individuals identified in the course of retrospective drug use 

reviews performed under this subsection. Intervention 

programs shall include, in appropriate instances, at 

least: 

(I) information dissemination sufficient to ensure the ready availability to physicians and pharmacists in the State of information concerning its 

duties, powers, and basis for its standards; 

(II) written, oral, or electronic reminders containing patient-specific or drug-specific (or both) 

information and suggested changes in prescribing 

or dispensing practices, communicated in a manner designed to ensure the privacy of patient-related information; 

(III) use of face-to-face discussions between 

health care professionals who are experts in rational drug therapy and selected prescribers and 

pharmacists who have been targeted for educational intervention, including discussion of optimal prescribing, dispensing, or pharmacy care 

practices, and follow-up face-to-face discussions; 

and 

(IV) intensified review or monitoring of selected 

prescribers or dispensers. 

The Board shall re-evaluate interventions after an appropriate period of time to determine if the intervention improved the quality of drug therapy, to evaluate the success 

of the interventions and make modifications as necessary. 


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(D) ANNUAL REPORT.—Each State shall require the DUR 

Board to prepare a report on an annual basis. The State 

shall submit a report on an annual basis to the Secretary 

which shall include a description of the activities of the 

Board, including the nature and scope of the prospective 

and retrospective drug use review programs, a summary of 

the interventions used, an assessment of the impact of 

these educational interventions on quality of care, and an 

estimate of the cost savings generated as a result of such 

program. The Secretary shall utilize such report in evaluating the effectiveness of each State’s drug use review program. 

(h) ELECTRONIC CLAIMS MANAGEMENT.— 

(1) IN GENERAL.—In accordance with chapter 35 of title 44, 

United States Code (relating to coordination of Federal information policy), the Secretary shall encourage each State agency to establish, as its principal means of processing claims for 

covered outpatient drugs under this title, a point-of-sale electronic claims management system, for the purpose of performing on-line, real time eligibility verifications, claims data 

capture, adjudication of claims, and assisting pharmacists (and 

other authorized persons) in applying for and receiving payment. 

(2) ENCOURAGEMENT.—In order to carry out paragraph (1)— 

(A) for calendar quarters during fiscal years 1991 and 

1992, expenditures under the State plan attributable to development of a system described in paragraph (1) shall receive Federal financial participation under section 

1903(a)(3)(A)(i) (at a matching rate of 90 percent) if the 

State acquires, through applicable competitive procurement process in the State, the most cost-effective telecommunications network and automatic data processing 

services and equipment; and 

(B) the Secretary may permit, in the procurement described in subparagraph (A) in the application of part 433 

of title 42, Code of Federal Regulations, and parts 95, 205, 

and 307 of title 45, Code of Federal Regulations, the substitution of the State’s request for proposal in competitive 

procurement for advance planning and implementation 

documents otherwise required. 

(i) ANNUAL REPORT.— 

(1) IN GENERAL.—Not later than May 1 of each year the Secretary shall transmit to the Committee on Finance of the Senate, the Committee on Energy and Commerce of the House of 

Representatives, and the Committees on Aging of the Senate 

and the House of Representatives a report on the operation of 

this section in the preceding fiscal year. 

(2) DETAILS.—Each report shall include information on— 

(A) ingredient costs paid under this title for single 

source drugs, multiple source drugs, and nonprescription 

covered outpatient drugs; 

(B) the total value of rebates received and number of 

manufacturers providing such rebates; 


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(C) how the size of such rebates compare with the size 

or rebates offered to other purchasers of covered outpatient 

drugs; 

(D) the effect of inflation on the value of rebates required under this section; 

(E) trends in prices paid under this title for covered outpatient drugs; and 

(F) Federal and State administrative costs associated 

with compliance with the provisions of this title. 

(j) EXEMPTION OF ORGANIZED HEALTH CARE SETTINGS.— (1) Covered outpatient drugs are not subject to the requirements of this section if such drugs are— 

(A) dispensed by health maintenance organizations, including Medicaid managed care organizations that contract 

under section 1903(m); and 

(B) subject to discounts under section 340B of the Public 

Health Service Act. 

(2) The State plan shall provide that a hospital (providing medical assistance under such plan) that dispenses covered outpatient 

drugs using drug formulary systems, and bills the plan no more 

than the hospital’s purchasing costs for covered outpatient drugs 

(as determined under the State plan) shall not be subject to the requirements of this section. 

(3) Nothing in this subsection shall be construed as providing 

that amounts for covered outpatient drugs paid by the institutions 

described in this subsection should not be taken into account for 

purposes of determining the best price as described in subsection 

(c). 

(k) DEFINITIONS.—In the section— 

(1) AVERAGE MANUFACTURER PRICE.— 

(A) IN GENERAL.—Subject to subparagraph (B), the term 

‘‘average manufacturer price’’ means, with respect to a covered outpatient drug of a manufacturer for a rebate period, 

the average price paid to the manufacturer for the drug in 

the United States by— 

(i) wholesalers for drugs distributed to retail community pharmacies; and 

(ii) retail community pharmacies that purchase 

drugs directly from the manufacturer. 

(B) EXCLUSION OF CUSTOMARY PROMPT PAY DISCOUNTS

AND OTHER PAYMENTS.— 

(i) IN GENERAL.—The average manufacturer price for 

a covered outpatient drug shall exclude— 

(I) customary prompt pay discounts extended to 

wholesalers; 

(II) bona fide service fees paid by manufacturers 

to wholesalers or retail community pharmacies, 

including (but not limited to) distribution service 

fees, inventory management fees, product stocking 

allowances, and fees associated with administrative services agreements and patient care programs (such as medication compliance programs 

and patient education programs); 

(III) reimbursement by manufacturers for recalled, damaged, expired, or otherwise unsalable 


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returned goods, including (but not limited to) reimbursement for the cost of the goods and any reimbursement of costs associated with return goods 

handling and processing, reverse logistics, and 

drug destruction; 

(IV) payments received from, and rebates or discounts provided to, pharmacy benefit managers, 

managed care organizations, health maintenance 

organizations, insurers, hospitals, clinics, mail 

order pharmacies, long term care providers, manufacturers, or any other entity that does not conduct business as a wholesaler or a retail community pharmacy, unless the drug is an inhalation, 

infusion, instilled, implanted, or injectable drug 

that is not generally dispensed through a retail 

community pharmacy; and 

(V) discounts provided by manufacturers under 

section 1860D–14A. 

(ii) INCLUSION OF OTHER DISCOUNTS AND PAYMENTS.—Notwithstanding clause (i), any other discounts, rebates, payments, or other financial transactions that are received by, paid by, or passed 

through to, retail community pharmacies shall be included in the average manufacturer price for a covered 

outpatient drug. 

(C) INCLUSION OF SECTION 505(c) DRUGS.—In the case of 

a manufacturer that approves, allows, or otherwise permits any drug of the manufacturer to be sold under a new 

drug application approved under section 505(c) of the Federal Food, Drug, and Cosmetic Act, such term shall be inclusive of the average price paid for such drug by wholesalers for drugs distributed to retail community pharmacies. 

(2) COVERED OUTPATIENT DRUG.—Subject to the exceptions in 

paragraph (3), the term ‘‘covered outpatient drug’’ means— 

(A) of those drugs which are treated as prescribed drugs 

for purposes of section 1905(a)(12), a drug which may be 

dispensed only upon prescription (except as provided in 

paragraph (5)), and— 

(i) which is approved for safety and effectiveness as 

a prescription drug under section 505 or 507 of the 

Federal Food, Drug, and Cosmetic Act or which is approved under section 505(j) of such Act; 

(ii)(I) which was commercially used or sold in the 

United States before the date of the enactment of the 

Drug Amendments of 1962 or which is identical, similar, or related (within the meaning of section 

310.6(b)(1) of title 21 of the Code of Federal Regulations) to such a drug, and (II) which has not been the 

subject of a final determination by the Secretary that 

it is a ‘‘new drug’’ (within the meaning of section 

201(p) of the Federal Food, Drug, and Cosmetic Act) or 

an action brought by the Secretary under section 301, 

302(a), or 304(a) of such Act to enforce section 502(f) 

or 505(a) of such Act; or 


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(iii)(I) which is described in section 107(c)(3) of the 

Drug Amendments of 1962 and for which the Secretary has determined there is a compelling justification for its medical need, or is identical, similar, or related (within the meaning of section 310.6(b)(1) of title 

21 of the Code of Federal Regulations) to such a drug, 

and (II) for which the Secretary has not issued a notice of an opportunity for a hearing under section 

505(e) of the Federal Food, Drug, and Cosmetic Act on 

a proposed order of the Secretary to withdraw approval of an application for such drug under such section because the Secretary has determined that the 

drug is less than effective for some or all conditions of 

use prescribed, recommended, or suggested in its labeling; and 

(B) a biological product, other than a vaccine which— 

(i) may only be dispensed upon prescription, 

(ii) is licensed under section 351 of the Public 

Health Service Act, and 

(iii) is produced at an establishment licensed under 

such section to produce such product; and 

(C) insulin certified under section 506 of the Federal 

Food, Drug, and Cosmetic Act. 

(3) LIMITING DEFINITION.—The term ‘‘covered outpatient 

drug’’ does not include any drug, biological product, or insulin 

provided as part of, or as incident to and in the same setting 

as, any of the following (and for which payment may be made 

under this title as part of payment for the following and not 

as direct reimbursement for the drug): 

(A) Inpatient hospital services. 

(B) Hospice services. 

(C) Dental services, except that drugs for which the 

State plan authorizes direct reimbursement to the dispensing dentist are covered outpatient drugs. 

(D) Physicians’ services. 

(E) Outpatient hospital services. 

(F) Nursing facility services and services provided by an 

intermediate care facility for the mentally retarded. 

(G) Other laboratory and x-ray services. 

(H) Renal dialysis. 

Such term also does not include any such drug or product for 

which a National Drug Code number is not required by the 

Food and Drug Administration or a drug or biological used for 

a medical indication which is not a medically accepted indication. Any drug, biological product, or insulin excluded from the 

definition of such term as a result of this paragraph shall be 

treated as a covered outpatient drug for purposes of determining the best price (as defined in subsection (c)(1)(C)) for 

such drug, biological product, or insulin. 

(4) NONPRESCRIPTION DRUGS.—If a State plan for medical assistance under this title includes coverage of prescribed drugs 

as described in section 1905(a)(12) and permits coverage of 

drugs which may be sold without a prescription (commonly referred to as ‘‘over-the-counter’’ drugs), if they are prescribed by 

a physician (or other person authorized to prescribe under 


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State law), such a drug shall be regarded as a covered outpatient drug. 

(5) MANUFACTURER.—The term ‘‘manufacturer’’ means any 

entity which is engaged in— 

(A) the production, preparation, propagation, 

compounding, conversion, or processing of prescription 

drug products, either directly or indirectly by extraction 

from substances of natural origin, or independently by 

means of chemical synthesis, or by a combination of extraction and chemical synthesis, or 

(B) in the packaging, repackaging, labeling, relabeling, 

or distribution of prescription drug products. 

Such term does not include a wholesale distributor of drugs or 

a retail pharmacy licensed under State law. 

(6) MEDICALLY ACCEPTED INDICATION.—The term ‘‘medically 

accepted indication’’ means any use for a covered outpatient 

drug which is approved under the Federal Food, Drug, and 

Cosmetic Act, or the use of which is supported by one or more 

citations included or approved for inclusion in any of the compendia described in subsection (g)(1)(B)(i). 

(7) MULTIPLE SOURCE DRUG; INNOVATOR MULTIPLE SOURCE

DRUG; NONINNOVATOR MULTIPLE SOURCE DRUG; SINGLE SOURCE

DRUG.— 

(A) DEFINED.— (i) MULTIPLE SOURCE DRUG.—The term ‘‘multiple 

source drug’’ means, with respect to a rebate period, a 

covered outpatient drug (not including any drug described in paragraph (5)) for which there at least 1 

other drug product which— 

(I) is rated as therapeutically equivalent (under 

the Food and Drug Administration’s most recent 

publication of ‘‘Approved Drug Products with 

Therapeutic Equivalence Evaluations’’), 

(II) except as provided in subparagraph (B), is 

pharmaceutically equivalent and bioequivalent, as 

defined in subparagraph (C) and as determined by 

the Food and Drug Administration, and 

(III) is sold or marketed in the United States 

during the period. 

(ii) INNOVATOR MULTIPLE SOURCE DRUG.—The term 

‘‘innovator multiple source drug’’ means a multiple 

source drug that was originally marketed under an 

original new drug application approved by the Food 

and Drug Administration. 

(iii) NONINNOVATOR MULTIPLE SOURCE DRUG.—The 

term ‘‘noninnovator multiple source drug’’ means a 

multiple source drug that is not an innovator multiple 

source drug. 

(iv) SINGLE SOURCE DRUG.—The term ‘‘single source 

drug’’ means a covered outpatient drug which is produced or distributed under an original new drug application approved by the Food and Drug Administration, 

including a drug product marketed by any cross-licensed producers or distributors operating under the 

new drug application. 


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(B) EXCEPTION.—Subparagraph (A)(i)(II) shall not apply 

if the Food and Drug Administration changes by regulation the requirement that, for purposes of the publication 

described in subparagraph (A)(i)(I), in order for drug products to be rated as therapeutically equivalent, they must 

be pharmaceutically equivalent and bioequivalent, as defined in subparagraph (C). 

(C) DEFINITIONS.—For purposes of this paragraph— 

(i) drug products are pharmaceutically equivalent if 

the products contain identical amounts of the same active drug ingredient in the same dosage form and 

meet compendial or other applicable standards of 

strength, quality, purity, and identity; and 

(ii) drugs are bioequivalent if they do not present a 

known or potential bioequivalence problem, or, if they 

do present such a problem, they are shown to meet an 

appropriate standard of bioequivalence. 

(8) REBATE PERIOD.—The term ‘‘rebate period’’ means, with 

respect to an agreement under subsection (a), a calendar quarter or other period specified by the Secretary with respect to 

the payment of rebates under such agreement. 

(9) STATE AGENCY.—The term ‘‘State agency’’ means the 

agency designated under section 1902(a)(5) to administer or supervise the administration of the State plan for medical assistance. 

(10) RETAIL COMMUNITY PHARMACY.—The term ‘‘retail community pharmacy’’ means an independent pharmacy, a chain 

pharmacy, a supermarket pharmacy, or a mass merchandiser 

pharmacy that is licensed as a pharmacy by the State and that 

dispenses medications to the general public at retail prices. 

Such term does not include a pharmacy that dispenses prescription medications to patients primarily through the mail, 

nursing home pharmacies, long-term care facility pharmacies, 

hospital pharmacies, clinics, charitable or not-for-profit pharmacies, government pharmacies, or pharmacy benefit managers. 

(11) WHOLESALER.—The term ‘‘wholesaler’’ means a drug 

wholesaler that is engaged in wholesale distribution of prescription drugs to retail community pharmacies, including (but 

not limited to) manufacturers, repackers, distributors, ownlabel distributors, private-label distributors, jobbers, brokers, 

warehouses (including manufacturer’s and distributor’s warehouses, chain drug warehouses, and wholesale drug warehouses) independent wholesale drug traders, and retail community pharmacies that conduct wholesale distributions. 

* * * * * * * 

MEDICAID IMPROVEMENT FUND

SEC. 1941. (a) ESTABLISHMENT.—The Secretary shall establish 

under this title a Medicaid Improvement Fund (in this section referred to as the ‘‘Fund’’) which shall be available to the Secretary 

to improve the management of the Medicaid program by the Centers for Medicare & Medicaid Services, including oversight of contracts and contractors and evaluation of demonstration projects. 


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Payments made for activities under this subsection shall be in addition to payments that would otherwise be made for such activities. 

(b) FUNDING.— (1) IN GENERAL.—There shall be available to the Fund, 

for expenditures from the Fund— (A) for fiscal year 2014, $10,000,000; and 

(B) for each of fiscal years 2015 through 2018, $0. 

(2) ADDITIONAL FUNDING.—In addition to any funds otherwise made available to the Fund, there shall be available 

to the Fund, for expenditures from the Fund— (A) for fiscal year 2021, $10,000,000, to remain 

available until expended; and (B) for fiscal year 2022, $14,000,000, to remain 

available until expended. 

ø(2)¿ (3) FUNDING LIMITATION.—Amounts in the Fund 

shall be available in advance of appropriations but only if 

the total amount obligated from the Fund does not exceed 

the amount available to the Fund øunder paragraph (1)¿ 

under this subsection. The Secretary may obligate funds 

from the Fund only if the Secretary determines (and the 

Chief Actuary of the Centers for Medicare & Medicaid 

Services and the appropriate budget officer certify) that 

there are available in the Fund sufficient amounts to cover 

all such obligations incurred consistent with the previous 

sentence. 

* * * * * * * 

Æ 


smartinez on DSK3GLQ082PROD with REPORTS-HSE