I 

108TH CONGRESS 

1ST SESSION H. R. 3549

To amend titles XVIII and XIX of the Social Security Act to improve 

payments to providers of services and physicians furnishing services 

to Medicare and Medicaid beneficiaries, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

NOVEMBER 20, 2003

Mr. HILL (for himself, Mr. SANDLIN, Mr. LAMPSON, Mr. MCINTYRE, Mr. 

ETHERIDGE, Mr. HOYER, Mr. TANNER, Mr. WU, and Ms. PELOSI) introduced the following bill; which was referred to the Committee on Ways 

and Means, and in addition to the Committee on Energy and Commerce, 

for a period to be subsequently determined by the Speaker, in each case 

for consideration of such provisions as fall within the jurisdiction of the 

committee concerned 

A BILL

To amend titles XVIII and XIX of the Social Security Act 

to improve payments to providers of services and physicians furnishing services to Medicare and Medicaid beneficiaries, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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1 SECTION 1. SHORT TITLE; AMENDMENTS TO SOCIAL SECU2 RITY ACT; REFERENCES TO BIPA AND SEC3 RETARY; TABLE OF CONTENTS. 

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

5 ‘‘Rural Healthcare Improvement Act of 2003’’. 

6 (b) AMENDMENTS TO SOCIAL SECURITY ACT.—Ex7 cept as otherwise specifically provided, whenever in divi8 sion A of this Act an amendment is expressed in terms 

9 of an amendment to or repeal of a section or other provi10 sion, the reference shall be considered to be made to that 

11 section or other provision of the Social Security Act. 

12 (c) BIPA; SECRETARY.—In this Act: 

13 (1) BIPA.—The term ‘‘BIPA’’ means the 

14 Medicare, Medicaid, and SCHIP Benefits Improve15 ment and Protection Act of 2000, as enacted into 

16 law by section 1(a)(6) of Public Law 106–554. 

17 (2) SECRETARY.—The term ‘‘Secretary’’ means 

18 the Secretary of Health and Human Services.

19 (d) TABLE OF CONTENTS.—The table of contents of 

20 this Act is as follows:

Sec. 1. Short title; amendments to Social Security Act; references to BIPA and 

Secretary; table of contents. 

TITLE I—PROVISIONS RELATING TO PART A ONLY 

Sec. 101. Equalizing urban and rural standardized payment amounts under the 

medicare inpatient hospital prospective payment system. 

Sec. 102. Enhanced disproportionate share hospital (DSH) treatment for rural 

hospitals and urban hospitals with fewer than 100 beds. 

Sec. 103. Adjustment to the medicare inpatient hospital prospective payment 

system wage index to revise the labor-related share of such 

index. 
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Sec. 104. More frequent update in weights used in hospital market basket. 

Sec. 105. Improvements to critical access hospital program. 

Sec. 106. Medicare inpatient hospital payment adjustment for low-volume hospitals. 

Sec. 107. Treatment of missing cost reporting periods for sole community hospitals. 

Sec. 108. Recognition of attending nurse practitioners as attending physicians 

to serve hospice patients. 

Sec. 109. Rural hospice demonstration project. 

Sec. 110. Exclusion of certain rural health clinic and federally qualified health 

center services from the prospective payment system for skilled 

nursing facilities. 

Sec. 111. Rural community hospital demonstration program. 

Sec. 112. Wage index adjustment reclassification reform. 

Sec. 113. Revision of the indirect medical education (IME) adjustment percentage. 

Sec. 114. Increase in Federal rate for hospitals in Puerto Rico. 

Sec. 115. Clarifications to certain exceptions to medicare limits on physician referrals. 

Sec. 116. 1-Time appeals process for hospital wage index classification. 

Sec. 117. Study on portable diagnostic ultrasound services for beneficiaries in 

skilled nursing facilities. 

TITLE II—PROVISIONS RELATING TO PART B ONLY 

Sec. 201. Revision of updates for physicians’ services. 

Sec. 202. 2-year extension of hold harmless provisions for small rural hospitals 

and sole community hospitals under the prospective payment 

system for hospital outpatient department services. 

Sec. 203. Establishment of floor on work geographic adjustment. 

Sec. 204. Medicare incentive payment program improvements for physician 

scarcity. 

Sec. 205. Payment for rural and urban ambulance services. 

Sec. 206. Providing appropriate coverage of rural air ambulance services. 

Sec. 207. Treatment of certain clinical diagnostic laboratory tests furnished to 

hospital outpatients in certain rural areas. 

Sec. 208. Extension of telemedicine demonstration project. 

Sec. 209. Report on demonstration project permitting skilled nursing facilities 

to be originating telehealth sites; authority to implement. 

Sec. 210. 5-year authorization of reimbursement for all medicare part B services furnished by certain Indian hospitals and clinics. 

Sec. 211. MedPAC report on payment for physicians’ services. 

Sec. 212. Payment for renal dialysis services. 

Sec. 213. 2-year moratorium on therapy caps; provisions relating to reports. 

Sec. 214. Payment for clinical diagnostic laboratory tests. 

TITLE III—PROVISIONS RELATING TO PARTS A AND B 

Sec. 301. 1-year increase for home health services furnished in a rural area. 

Sec. 302. Redistribution of unused resident positions. 

TITLE IV—OTHER PROVISIONS 

Sec. 401. Medicaid disproportionate share hospital (DSH) payments. 

Sec. 402. Providing safe harbor for certain collaborative efforts that benefit 

medically underserved populations. 
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Sec. 403. Office of Rural Health Policy improvements. 

Sec. 404. MedPAC study on rural hospital payment adjustments. 

Sec. 405. Frontier extended stay clinic demonstration project.

1 TITLE I—PROVISIONS RELATING 

2 TO PART A ONLY 

3 SEC. 101. EQUALIZING URBAN AND RURAL STANDARDIZED 

4 PAYMENT AMOUNTS UNDER THE MEDICARE 

5 INPATIENT HOSPITAL PROSPECTIVE PAY6 MENT SYSTEM. 

7 (a) IN GENERAL.—Section 1886(d)(3)(A)(iv) (42 

8 U.S.C. 1395ww(d)(3)(A)(iv)) is amended—

9 (1) by striking ‘‘(iv) For discharges’’ and in10 serting ‘‘(iv)(I) Subject to subclause (II), for dis11 charges’’; and 

12 (2) by adding at the end the following new sub13 clause: 

14 ‘‘(II) For discharges occurring in a fiscal year 

15 (beginning with fiscal year 2004), the Secretary 

16 shall compute a standardized amount for hospitals 

17 located in any area within the United States and 

18 within each region equal to the standardized amount 

19 computed for the previous fiscal year under this sub20 paragraph for hospitals located in a large urban area 

21 (or, beginning with fiscal year 2005, for all hospitals 

22 in the previous fiscal year) increased by the applica23 ble percentage increase under subsection (b)(3)(B)(i) 

24 for the fiscal year involved.’’. 
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1 (b) CONFORMING AMENDMENTS.—

2 (1) COMPUTING DRG-SPECIFIC RATES.—Section 

3 1886(d)(3)(D) (42 U.S.C. 1395ww(d)(3)(D)) is 

4 amended—

5 (A) in the heading, by striking ‘‘IN DIF6 FERENT AREAS’’; 

7 (B) in the matter preceding clause (i), by 

8 striking ‘‘, each of’’; 

9 (C) in clause (i)—

10 (i) in the matter preceding subclause 

11 (I), by inserting ‘‘for fiscal years before fis12 cal year 2004,’’ before ‘‘for hospitals’’; and 

13 (ii) in subclause (II), by striking 

14 ‘‘and’’ after the semicolon at the end; 

15 (D) in clause (ii)—

16 (i) in the matter preceding subclause 

17 (I), by inserting ‘‘for fiscal years before fis18 cal year 2004,’’ before ‘‘for hospitals’’; and 

19 (ii) in subclause (II), by striking the 

20 period at the end and inserting ‘‘; and’’; 

21 and 

22 (E) by adding at the end the following new 

23 clause:
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1 ‘‘(iii) for a fiscal year beginning after fiscal 

2 year 2003, for hospitals located in all areas, to 

3 the product of—

4 ‘‘(I) the applicable standardized 

5 amount (computed under subparagraph 

6 (A)), reduced under subparagraph (B), 

7 and adjusted or reduced under subpara8 graph (C) for the fiscal year; and 

9 ‘‘(II) the weighting factor (determined 

10 under paragraph (4)(B)) for that diag11 nosis-related group.’’. 

12 (2) TECHNICAL CONFORMING SUNSET.—Section 

13 1886(d)(3) (42 U.S.C. 1395ww(d)(3)) is amended—

14 (A) in the matter preceding subparagraph 

15 (A), by inserting ‘‘, for fiscal years before fiscal 

16 year 1997,’’ before ‘‘a regional adjusted DRG 

17 prospective payment rate’’; and 

18 (B) in subparagraph (D), in the matter 

19 preceding clause (i), by inserting ‘‘, for fiscal 

20 years before fiscal year 1997,’’ before ‘‘a re21 gional DRG prospective payment rate for each 

22 region,’’. 

23 (3) ADDITIONAL TECHNICAL AMENDMENT.—

24 Section 1886(d)(3)(A)(iii) (42 U.S.C. 
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1 1395ww(d)(3)(A)(iii)) is amended by striking ‘‘in an 

2 other urban area’’ and inserting ‘‘in an urban area’’. 

3 (c) EQUALIZING URBAN AND RURAL STANDARDIZED

4 PAYMENT AMOUNTS UNDER THE MEDICARE INPATIENT

5 HOSPITAL PROSPECTIVE PAYMENT SYSTEM FOR HOS6 PITALS IN PUERTO RICO.—

7 (1) IN GENERAL.—Section 1886(d)(9)(A) (42 

8 U.S.C. 1395ww(d)(9)(A)), as amended by section 

9 504, is amended—

10 (A) in clause (i), by striking ‘‘and’’ after 

11 the comma at the end; and 

12 (B) by striking clause (ii) and inserting the 

13 following new clause: 

14 ‘‘(ii) the applicable Federal percentage (speci15 fied in subparagraph (E)) of—

16 ‘‘(I) for discharges beginning in a fiscal 

17 year beginning on or after October 1, 1997, and 

18 before October 1, 2003, the discharge-weighted 

19 average of—

20 ‘‘(aa) the national adjusted DRG pro21 spective payment rate (determined under 

22 paragraph (3)(D)) for hospitals located in 

23 a large urban area, 

24 ‘‘(bb) such rate for hospitals located 

25 in other urban areas, and 
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1 ‘‘(cc) such rate for hospitals located in 

2 a rural area, 

3 for such discharges, adjusted in the manner 

4 provided in paragraph (3)(E) for different area 

5 wage levels; and 

6 ‘‘(II) for discharges in a fiscal year begin7 ning on or after October 1, 2003, the national 

8 DRG prospective payment rate determined 

9 under paragraph (3)(D)(iii) for hospitals lo10 cated in any area for such discharges, adjusted 

11 in the manner provided in paragraph (3)(E) for 

12 different area wage levels. 

13 As used in this section, the term ‘subsection (d) Puerto 

14 Rico hospital’ means a hospital that is located in Puerto 

15 Rico and that would be a subsection (d) hospital (as de16 fined in paragraph (1)(B)) if it were located in one of the 

17 50 States.’’. 

18 (2) APPLICATION OF PUERTO RICO STANDARD19 IZED AMOUNT BASED ON LARGE URBAN AREAS.—

20 Section 1886(d)(9)(C) (42 U.S.C. 1395ww(d)(9)(C)) 

21 is amended— 

22 (A) in clause (i)—

23 (i) by striking ‘‘(i) The Secretary’’ 

24 and inserting ‘‘(i)(I) For discharges in a 
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1 fiscal year after fiscal year 1988 and be2 fore fiscal year 2004, the Secretary’’; and 

3 (ii) by adding at the end the following 

4 new subclause: 

5 ‘‘(II) For discharges occurring in a fiscal year 

6 (beginning with fiscal year 2004), the Secretary 

7 shall compute an average standardized amount for 

8 hospitals located in any area of Puerto Rico that is 

9 equal to the average standardized amount computed 

10 under subclause (I) for fiscal year 2003 for hospitals 

11 in a large urban area (or, beginning with fiscal year 

12 2005, for all hospitals in the previous fiscal year) in13 creased by the applicable percentage increase under 

14 subsection (b)(3)(B) for the fiscal year involved.’’; 

15 (B) in clause (ii), by inserting ‘‘(or for fis16 cal year 2004 and thereafter, the average 

17 standardized amount)’’ after ‘‘each of the aver18 age standardized amounts’’; and 

19 (C) in clause (iii)(I), by striking ‘‘for hos20 pitals located in an urban or rural area, respec21 tively’’. 

22 (d) IMPLEMENTATION.—

23 (1) IN GENERAL.—The amendments made by 

24 subsections (a), (b), and (c)(1) of this section shall 

25 have no effect on the authority of the Secretary, 
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1 under subsection (b)(2) of section 402 of Public Law 

2 108–89, to delay implementation of the extension of 

3 provisions equalizing urban and rural standardized 

4 inpatient hospital payments under subsection (a) of 

5 such section 402. 

6 (2) APPLICATION OF PUERTO RICO STANDARD7 IZED AMOUNT BASED ON LARGE URBAN AREAS.—

8 The authority of the Secretary referred to in para9 graph (1) shall apply with respect to the amend10 ments made by subsection (c)(2) of this section in 

11 the same manner as that authority applies with re12 spect to the extension of provisions equalizing urban 

13 and rural standardized inpatient hospital payments 

14 under subsection (a) of such section 402, except that 

15 any reference in subsection (b)(2)(A) of such section 

16 402 is deemed to be a reference to April 1, 2004. 

17 SEC. 102. ENHANCED DISPROPORTIONATE SHARE HOS18 PITAL (DSH) TREATMENT FOR RURAL HOS19 PITALS AND URBAN HOSPITALS WITH FEWER 

20 THAN 100 BEDS. 

21 (a) DOUBLING THE CAP.—Section 1886(d)(5)(F) 

22 (42 U.S.C. 1395ww(d)(5)(F)) is amended by adding at 

23 the end the following new clause: 

24 ‘‘(xiv)(I) In the case of discharges occurring on or 

25 after April 1, 2004, subject to subclause (II), there shall
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1 be substituted for the disproportionate share adjustment 

2 percentage otherwise determined under clause (iv) (other 

3 than subclause (I)) or under clause (viii), (x), (xi), (xii), 

4 or (xiii), the disproportionate share adjustment percentage 

5 determined under clause (vii) (relating to large, urban hos6 pitals). 

7 ‘‘(II) Under subclause (I), the disproportionate share 

8 adjustment percentage shall not exceed 12 percent for a 

9 hospital that is not classified as a rural referral center 

10 under subparagraph (C).’’. 

11 (b) CONFORMING AMENDMENTS.—Section 1886(d) 

12 (42 U.S.C. 1395ww(d)) is amended—

13 (1) in paragraph (5)(F)—

14 (A) in each of subclauses (II), (III), (IV), 

15 (V), and (VI) of clause (iv), by inserting ‘‘sub16 ject to clause (xiv) and’’ before ‘‘for discharges 

17 occurring’’; 

18 (B) in clause (viii), by striking ‘‘The for19 mula’’ and inserting ‘‘Subject to clause (xiv), 

20 the formula’’; and 

21 (C) in each of clauses (x), (xi), (xii), and 

22 (xiii), by striking ‘‘For purposes’’ and inserting 

23 ‘‘Subject to clause (xiv), for purposes’’; and 

24 (2) in paragraph (2)(C)(iv)—
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1 (A) by striking ‘‘or’’ before ‘‘the enactment 

2 of section 303’’; and 

3 (B) by inserting before the period at the 

4 end the following: ‘‘, or the enactment of sec5 tion 102(a)(1) of the Rural Healthcare Im6 provement Act of 2003’’. 

7 SEC. 103. ADJUSTMENT TO THE MEDICARE INPATIENT HOS8 PITAL PROSPECTIVE PAYMENT SYSTEM 

9 WAGE INDEX TO REVISE THE LABOR-RE10 LATED SHARE OF SUCH INDEX. 

11 (a) ADJUSTMENT.—

12 (1) IN GENERAL.—Section 1886(d)(3)(E) (42 

13 U.S.C. 1395ww(d)(3)(E)) is amended—

14 (A) by striking ‘‘WAGE LEVELS.—The Sec15 retary’’ and inserting ‘‘WAGE LEVELS.—

16 ‘‘(i) IN GENERAL.—Except as provided in 

17 clause (ii), the Secretary’’; and 

18 (B) by adding at the end the following new 

19 clause: 

20 ‘‘(ii) ALTERNATIVE PROPORTION TO BE

21 ADJUSTED BEGINNING IN FISCAL YEAR 2005.—

22 For discharges occurring on or after October 1, 

23 2004, the Secretary shall substitute ‘62 per24 cent’ for the proportion described in the first 

25 sentence of clause (i), unless the application of 
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1 this clause would result in lower payments to a 

2 hospital than would otherwise be made.’’. 

3 (2) WAIVING BUDGET NEUTRALITY.—Section 

4 1886(d)(3)(E) (42 U.S.C. 1395ww(d)(3)(E)), as 

5 amended by subsection (a), is amended by adding at 

6 the end of clause (i) the following new sentence: 

7 ‘‘The Secretary shall apply the previous sentence for 

8 any period as if the amendments made by section 

9 103(a)(1) of the Rural Healthcare Improvement Act 

10 of 2003 had not been enacted.’’. 

11 (b) APPLICATION TO PUERTO RICO HOSPITALS.—

12 Section 1886(d)(9)(C)(iv) (42 U.S.C. 

13 1395ww(d)(9)(C)(iv)) is amended—

14 (1) by inserting ‘‘(I)’’ after ‘‘(iv)’’; 

15 (2) by striking ‘‘paragraph (3)(E)’’ and insert16 ing ‘‘paragraph (3)(E)(i)’’; and 

17 (3) by adding at the end the following new sub18 clause: 

19 ‘‘(II) For discharges occurring on or after Octo20 ber 1, 2004, the Secretary shall substitute ‘62 per21 cent’ for the proportion described in the first sen22 tence of clause (i), unless the application of this sub23 clause would result in lower payments to a hospital 

24 than would otherwise be made.’’. 
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1 SEC. 104. MORE FREQUENT UPDATE IN WEIGHTS USED IN 

2 HOSPITAL MARKET BASKET. 

3 (a) MORE FREQUENT UPDATES IN WEIGHTS.—After 

4 revising the weights used in the hospital market basket 

5 under section 1886(b)(3)(B)(iii) of the Social Security Act 

6 (42 U.S.C. 1395ww(b)(3)(B)(iii)) to reflect the most cur7 rent data available, the Secretary shall establish a fre8 quency for revising such weights, including the labor 

9 share, in such market basket to reflect the most current 

10 data available more frequently than once every 5 years. 

11 (b) INCORPORATION OF EXPLANATION IN RULE12 MAKING.—The Secretary shall include in the publication 

13 of the final rule for payment for inpatient hospital services 

14 under section 1886(d) of the Social Security Act (42 

15 U.S.C. 1395ww(d)) for fiscal year 2006, an explanation 

16 of the reasons for, and options considered, in determining 

17 frequency established under subsection (a). 

18 SEC. 105. IMPROVEMENTS TO CRITICAL ACCESS HOSPITAL 

19 PROGRAM. 

20 (a) INCREASE IN PAYMENT AMOUNTS.—

21 (1) IN GENERAL.—Sections 1814(l), 

22 1834(g)(1), and 1883(a)(3) (42 U.S.C. 1395f(l), 

23 1395m(g)(1), and 1395tt(a)(3)) are each amended 

24 by inserting ‘‘equal to 101 percent of’’ before ‘‘the 

25 reasonable costs’’. 
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1 (2) EFFECTIVE DATE.—The amendments made 

2 by paragraph (1) shall apply to payments for serv3 ices furnished during cost reporting periods begin4 ning on or after January 1, 2004. 

5 (b) COVERAGE OF COSTS FOR CERTAIN EMERGENCY

6 ROOM ON-CALL PROVIDERS.—

7 (1) IN GENERAL.—Section 1834(g)(5) (42 

8 U.S.C. 1395m(g)(5)) is amended—

9 (A) in the heading—

10 (i) by inserting ‘‘CERTAIN’’ before 

11 ‘‘EMERGENCY’’; and 

12 (ii) by striking ‘‘PHYSICIANS’’ and in13 serting ‘‘PROVIDERS’’; 

14 (B) by striking ‘‘emergency room physi15 cians who are on-call (as defined by the Sec16 retary)’’ and inserting ‘‘physicians, physician 

17 assistants, nurse practitioners, and clinical 

18 nurse specialists who are on-call (as defined by 

19 the Secretary) to provide emergency services’’; 

20 and 

21 (C) by striking ‘‘physicians’ services’’ and 

22 inserting ‘‘services covered under this title’’. 

23 (2) EFFECTIVE DATE.—The amendments made 

24 by paragraph (1) shall apply with respect to costs
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1 incurred for services furnished on or after January 

2 1, 2005. 

3 (c) AUTHORIZATION OF PERIODIC INTERIM PAY4 MENT (PIP).—

5 (1) IN GENERAL.—Section 1815(e)(2) (42 

6 U.S.C. 1395g(e)(2)) is amended—

7 (A) in the matter before subparagraph (A), 

8 by inserting ‘‘, in the cases described in sub9 paragraphs (A) through (D)’’ after ‘‘1986’’; 

10 (B) by striking ‘‘and’’ at the end of sub11 paragraph (C); 

12 (C) by adding ‘‘and’’ at the end of sub13 paragraph (D); and 

14 (D) by inserting after subparagraph (D) 

15 the following new subparagraph: 

16 ‘‘(E) inpatient critical access hospital services;’’. 

17 (2) DEVELOPMENT OF ALTERNATIVE TIMING

18 METHODS OF PERIODIC INTERIM PAYMENTS.—With 

19 respect to periodic interim payments to critical ac20 cess hospitals for inpatient critical access hospital 

21 services under section 1815(e)(2)(E) of the Social 

22 Security Act, as added by paragraph (1), the Sec23 retary shall develop alternative methods for the tim24 ing of such payments. 
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1 (3) AUTHORIZATION OF PIP.—The amendments 

2 made by paragraph (1) shall apply to payments 

3 made on or after July 1, 2004. 

4 (d) CONDITION FOR APPLICATION OF SPECIAL PRO5 FESSIONAL SERVICE PAYMENT ADJUSTMENT.—

6 (1) IN GENERAL.—Section 1834(g)(2) (42 

7 U.S.C. 1395m(g)(2)) is amended by adding after 

8 and below subparagraph (B) the following: 

9 ‘‘The Secretary may not require, as a condition for 

10 applying subparagraph (B) with respect to a critical 

11 access hospital, that each physician or other practi12 tioner providing professional services in the hospital 

13 must assign billing rights with respect to such serv14 ices, except that such subparagraph shall not apply 

15 to those physicians and practitioners who have not 

16 assigned such billing rights.’’. 

17 (2) EFFECTIVE DATE.—

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

19 subparagraph (B), the amendment made by 

20 paragraph (1) shall apply to cost reporting peri21 ods beginning on or after July 1, 2004. 

22 (B) RULE OF APPLICATION.—In the case 

23 of a critical access hospital that made an elec24 tion under section 1834(g)(2) of the Social Se25 curity Act (42 U.S.C. 1395m(g)(2)) before No-
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1 vember 1, 2003, the amendment made by para2 graph (1) shall apply to cost reporting periods 

3 beginning on or after July 1, 2001. 

4 (e) REVISION OF BED LIMITATION FOR HOS5 PITALS.—

6 (1) IN GENERAL.—Section 1820(c)(2)(B)(iii) 

7 (42 U.S.C. 1395i–4(c)(2)(B)(iii)) is amended by 

8 striking ‘‘15 (or, in the case of a facility under an 

9 agreement described in subsection (f), 25)’’ and in10 serting ‘‘25’’. 

11 (2) CONFORMING AMENDMENT.—Section 

12 1820(f) (42 U.S.C. 1395i–4(f)) is amended by strik13 ing ‘‘and the number of beds used at any time for 

14 acute care inpatient services does not exceed 15 

15 beds’’. 

16 (3) EFFECTIVE DATE.—The amendments made 

17 by this subsection shall apply to designations made 

18 before, on, or after January 1, 2004, but any elec19 tion made pursuant to regulations promulgated to 

20 carry out such amendments shall only apply prospec21 tively. 

22 (f) PROVISIONS RELATING TO FLEX GRANTS.—

23 (1) ADDITIONAL 4-YEAR PERIOD OF FUND24 ING.—Section 1820(j) (42 U.S.C. 1395i–4(j)) is 

25 amended by inserting before the period at the end 
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1 the following: ‘‘, and for making grants to all States 

2 under paragraphs (1) and (2) of subsection (g), 

3 $35,000,000 in each of fiscal years 2005 through 

4 2008’’. 

5 (2) ADDITIONAL REQUIREMENTS AND ADMINIS6 TRATION.—Section 1820(g) (42 U.S.C. 1395i–4(g)) 

7 is amended by adding at the end the following new 

8 paragraphs: 

9 ‘‘(4) ADDITIONAL REQUIREMENTS WITH RE10 SPECT TO FLEX GRANTS.—With respect to grants 

11 awarded under paragraph (1) or (2) from funds ap12 propriated for fiscal year 2005 and subsequent fiscal 

13 years—

14 ‘‘(A) CONSULTATION WITH THE STATE

15 HOSPITAL ASSOCIATION AND RURAL HOSPITALS

16 ON THE MOST APPROPRIATE WAYS TO USE

17 GRANTS.—A State shall consult with the hos18 pital association of such State and rural hos19 pitals located in such State on the most appro20 priate ways to use the funds under such grant. 

21 ‘‘(B) LIMITATION ON USE OF GRANT

22 FUNDS FOR ADMINISTRATIVE EXPENSES.—A 

23 State may not expend more than the lesser of—

24 ‘‘(i) 15 percent of the amount of the 

25 grant for administrative expenses; or 
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1 ‘‘(ii) the State’s federally negotiated 

2 indirect rate for administering the grant. 

3 ‘‘(5) USE OF FUNDS FOR FEDERAL ADMINIS4 TRATIVE EXPENSES.—Of the total amount appro5 priated for grants under paragraphs (1) and (2) for 

6 a fiscal year (beginning with fiscal year 2005), up 

7 to 5 percent of such amount shall be available to the 

8 Health Resources and Services Administration for 

9 purposes of administering such grants.’’. 

10 (g) AUTHORITY TO ESTABLISH PSYCHIATRIC AND

11 REHABILITATION DISTINCT PART UNITS.—

12 (1) IN GENERAL.—Section 1820(c)(2) (42 

13 U.S.C. 1395i–4(c)(2)) is amended by adding at the 

14 end the following:

15 ‘‘(E) AUTHORITY TO ESTABLISH PSY16 CHIATRIC AND REHABILITATION DISTINCT PART

17 UNITS.—

18 ‘‘(i) IN GENERAL.—Subject to the 

19 succeeding provisions of this subparagraph, 

20 a critical access hospital may establish—

21 ‘‘(I) a psychiatric unit of the hos22 pital that is a distinct part of the hos23 pital; and
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1 ‘‘(II) a rehabilitation unit of the 

2 hospital that is a distinct part of the 

3 hospital, 

4 if the distinct part meets the requirements 

5 (including conditions of participation) that 

6 would otherwise apply to the distinct part 

7 if the distinct part were established by a 

8 subsection (d) hospital in accordance with 

9 the matter following clause (v) of section 

10 1886(d)(1)(B), including any regulations 

11 adopted by the Secretary under such sec12 tion. 

13 ‘‘(ii) LIMITATION ON NUMBER OF

14 BEDS.—The total number of beds that 

15 may be established under clause (i) for a 

16 distinct part unit may not exceed 10. 

17 ‘‘(iii) EXCLUSION OF BEDS FROM BED

18 COUNT.—In determining the number of 

19 beds of a critical access hospital for pur20 poses of applying the bed limitations re21 ferred to in subparagraph (B)(iii) and sub22 section (f), the Secretary shall not take 

23 into account any bed established under 

24 clause (i). 
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1 ‘‘(iv) EFFECT OF FAILURE TO MEET

2 REQUIREMENTS.—If a psychiatric or reha3 bilitation unit established under clause (i) 

4 does not meet the requirements described 

5 in such clause with respect to a cost re6 porting period, no payment may be made 

7 under this title to the hospital for services 

8 furnished in such unit during such period. 

9 Payment to the hospital for services fur10 nished in the unit may resume only after 

11 the hospital has demonstrated to the Sec12 retary that the unit meets such require13 ments.’’. 

14 (2) PAYMENT ON A PROSPECTIVE PAYMENT

15 BASIS.—Section 1814(l) (42 U.S.C. 1395f(l)) is 

16 amended—

17 (A) by striking ‘‘(l) The amount’’ and in18 serting ‘‘(l)(1) Except as provided in paragraph 

19 (2), the amount’’; and 

20 (B) by adding at the end the following new 

21 paragraph: 

22 ‘‘(2) In the case of a distinct part psychiatric or reha23 bilitation unit of a critical access hospital described in sec24 tion 1820(c)(2)(E), the amount of payment for inpatient 

25 critical access hospital services of such unit shall be equal 
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1 to the amount of the payment that would otherwise be 

2 made if such services were inpatient hospital services of 

3 a distinct part psychiatric or rehabilitation unit, respec4 tively, described in the matter following clause (v) of sec5 tion 1886(d)(1)(B).’’.

6 (3) EFFECTIVE DATE.—The amendments made 

7 by this subsection shall apply to cost reporting peri8 ods beginning on or after October 1, 2004. 

9 (h) WAIVER AUTHORITY.—

10 (1) IN GENERAL.—Section 1820(c)(2)(B)(i)(II) 

11 (42 U.S.C. 1395i–4(c)(2)(B)(i)(II)) is amended by 

12 inserting ‘‘before January 1, 2006,’’ after ‘‘is cer13 tified’’. 

14 (2) GRANDFATHERING WAIVER AUTHORITY FOR

15 CERTAIN FACILITIES.—Section 1820(h) (42 U.S.C. 

16 1395i–4(h)) is amended—

17 (A) in the heading preceding paragraph 

18 (1), by striking ‘‘OF CERTAIN FACILITIES’’ and 

19 inserting ‘‘PROVISIONS’’; and 

20 (B) by adding at the end the following new 

21 paragraph: 

22 ‘‘(3) STATE AUTHORITY TO WAIVE 35-MILE

23 RULE.—In the case of a facility that was designated 

24 as a critical access hospital before January 1, 2006, 

25 and was certified by the State as being a necessary 
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1 provider of health care services to residents in the 

2 area under subsection (c)(2)(B)(i)(II), as in effect 

3 before such date, the authority under such sub4 section with respect to any redesignation of such fa5 cility shall continue to apply notwithstanding the 

6 amendment made by section 105(h)(1) of the Rural 

7 Healthcare Improvement Act of 2003.’’. 

8 SEC. 106. MEDICARE INPATIENT HOSPITAL PAYMENT AD9 JUSTMENT FOR LOW-VOLUME HOSPITALS. 

10 (a) IN GENERAL.—Section 1886(d) (42 U.S.C. 

11 1395ww(d)) is amended by adding at the end the following 

12 new paragraph: 

13 ‘‘(12) PAYMENT ADJUSTMENT FOR LOW-VOL14 UME HOSPITALS.—

15 ‘‘(A) IN GENERAL.—In addition to any 

16 payments calculated under this section for a 

17 subsection (d) hospital, for discharges occurring 

18 during a fiscal year (beginning with fiscal year 

19 2005), the Secretary shall provide for an addi20 tional payment amount to each low-volume hos21 pital (as defined in subparagraph (C)(i)) for 

22 discharges occurring during that fiscal year 

23 that is equal to the applicable percentage in24 crease (determined under subparagraph (B) for 

25 the hospital involved) in the amount paid to 
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1 such hospital under this section for such dis2 charges (determined without regard to this 

3 paragraph). 

4 ‘‘(B) APPLICABLE PERCENTAGE IN5 CREASE.—The Secretary shall determine an ap6 plicable percentage increase for purposes of 

7 subparagraph (A) as follows: 

8 ‘‘(i) The Secretary shall determine the 

9 empirical relationship for subsection (d) 

10 hospitals between the standardized cost11 per-case for such hospitals and the total 

12 number of discharges of such hospitals and 

13 the amount of the additional incremental 

14 costs (if any) that are associated with such 

15 number of discharges. 

16 ‘‘(ii) The applicable percentage in17 crease shall be determined based upon 

18 such relationship in a manner that reflects, 

19 based upon the number of such discharges 

20 for a subsection (d) hospital, such addi21 tional incremental costs. 

22 ‘‘(iii) In no case shall the applicable 

23 percentage increase exceed 25 percent. 

24 ‘‘(C) DEFINITIONS.—
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1 ‘‘(i) LOW-VOLUME HOSPITAL.—For 

2 purposes of this paragraph, the term ‘low3 volume hospital’ means, for a fiscal year, a 

4 subsection (d) hospital (as defined in para5 graph (1)(B)) that the Secretary deter6 mines is located more than 25 road miles 

7 from another subsection (d) hospital and 

8 has less than 800 discharges during the 

9 fiscal year. 

10 ‘‘(ii) DISCHARGE.—For purposes of 

11 subparagraph (B) and clause (i), the term 

12 ‘discharge’ means an inpatient acute care 

13 discharge of an individual regardless of 

14 whether the individual is entitled to bene15 fits under part A.’’. 

16 (b) JUDICIAL REVIEW.—Section 1886(d)(7)(A) (42 

17 U.S.C. 1395ww(d)(7)(A)) is amended by inserting after 

18 ‘‘to subsection (e)(1)’’ the following: ‘‘or the determination 

19 of the applicable percentage increase under paragraph 

20 (12)(A)(ii)’’.

21 SEC. 107. TREATMENT OF MISSING COST REPORTING PERI22 ODS FOR SOLE COMMUNITY HOSPITALS. 

23 (a) IN GENERAL.—Section 1886(b)(3)(I) (42 U.S.C. 

24 1395ww(b)(3)(I)) is amended by adding at the end the 

25 following new clause: 
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1 ‘‘(iii) In no case shall a hospital be denied treatment 

2 as a sole community hospital or payment (on the basis 

3 of a target rate as such as a hospital) because data are 

4 unavailable for any cost reporting period due to changes 

5 in ownership, changes in fiscal intermediaries, or other ex6 traordinary circumstances, so long as data for at least one 

7 applicable base cost reporting period is available.’’. 

8 (b) EFFECTIVE DATE.—The amendment made by 

9 subsection (a) shall apply to cost reporting periods begin10 ning on or after January 1, 2004. 

11 SEC. 108. RECOGNITION OF ATTENDING NURSE PRACTI12 TIONERS AS ATTENDING PHYSICIANS TO 

13 SERVE HOSPICE PATIENTS. 

14 (a) IN GENERAL.—Section 1861(dd)(3)(B) (42 

15 U.S.C. 1395x(dd)(3)(B)) is amended by inserting ‘‘or 

16 nurse practitioner (as defined in subsection (aa)(5))’’ after 

17 ‘‘the physician (as defined in subsection (r)(1))’’. 

18 (b) CLARIFICATION OF HOSPICE ROLE OF NURSE

19 PRACTITIONERS.—Section 1814(a)(7)(A)(i)(I) (42 U.S.C. 

20 1395f(a)(7)(A)(i)(I)) is amended by inserting ‘‘(which for 

21 purposes of this subparagraph does not include a nurse 

22 practitioner)’’ after ‘‘attending physician (as defined in 

23 section 1861(dd)(3)(B))’’. 
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1 SEC. 109. RURAL HOSPICE DEMONSTRATION PROJECT. 

2 (a) IN GENERAL.—The Secretary shall conduct a 

3 demonstration project for the delivery of hospice care to 

4 medicare beneficiaries in rural areas. Under the project 

5 medicare beneficiaries who are unable to receive hospice 

6 care in the facility for lack of an appropriate caregiver 

7 are provided such care in a facility of 20 or fewer beds 

8 which offers, within its walls, the full range of services 

9 provided by hospice programs under section 1861(dd) of 

10 the Social Security Act (42 U.S.C. 1395x(dd)). 

11 (b) SCOPE OF PROJECT.—The Secretary shall con12 duct the project under this section with respect to no more 

13 than 3 hospice programs over a period of not longer than 

14 5 years each. 

15 (c) COMPLIANCE WITH CONDITIONS.—Under the 

16 demonstration project—

17 (1) the hospice program shall comply with oth18 erwise applicable requirements, except that it shall 

19 not be required to offer services outside of the home 

20 or to meet the requirements of section 

21 1861(dd)(2)(A)(iii) of the Social Security Act; and 

22 (2) payments for hospice care shall be made at 

23 the rates otherwise applicable to such care under 

24 title XVIII of such Act. 

25 The Secretary may require the program to comply with 

26 such additional quality assurance standards for its provi-
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1 sion of services in its facility as the Secretary deems ap2 propriate. 

3 (d) REPORT.—Upon completion of the project, the 

4 Secretary shall submit a report to Congress on the project 

5 and shall include in the report recommendations regarding 

6 extension of such project to hospice programs serving 

7 rural areas. 

8 SEC. 110. EXCLUSION OF CERTAIN RURAL HEALTH CLINIC 

9 AND FEDERALLY QUALIFIED HEALTH CEN10 TER SERVICES FROM THE PROSPECTIVE PAY11 MENT SYSTEM FOR SKILLED NURSING FA12 CILITIES. 

13 (a) IN GENERAL.—Section 1888(e)(2)(A) (42 U.S.C. 

14 1395yy(e)(2)(A)) is amended—

15 (1) in clause (i)(II), by striking ‘‘clauses (ii) 

16 and (iii)’’ and inserting ‘‘clauses (ii), (iii), and (iv)’’; 

17 and 

18 (2) by adding at the end the following new 

19 clause: 

20 ‘‘(iv) EXCLUSION OF CERTAIN RURAL

21 HEALTH CLINIC AND FEDERALLY QUALI22 FIED HEALTH CENTER SERVICES.—Serv23 ices described in this clause are—
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1 ‘‘(I) rural health clinic services 

2 (as defined in paragraph (1) of sec3 tion 1861(aa)); and 

4 ‘‘(II) Federally qualified health 

5 center services (as defined in para6 graph (3) of such section); 

7 that would be described in clause (ii) if 

8 such services were not furnished by an in9 dividual affiliated with a rural health clinic 

10 or a Federally qualified health center.’’. 

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

12 subsection (a) shall apply to services furnished on or after 

13 January 1, 2005. 

14 SEC. 111. RURAL COMMUNITY HOSPITAL DEMONSTRATION 

15 PROGRAM. 

16 (a) ESTABLISHMENT OF RURAL COMMUNITY HOS17 PITAL (RCH) DEMONSTRATION PROGRAM.—

18 (1) IN GENERAL.—The Secretary shall establish 

19 a demonstration program to test the feasibility and 

20 advisability of the establishment of rural community 

21 hospitals (as defined in subsection (f)(1)) to furnish 

22 covered inpatient hospital services (as defined in 

23 subsection (f)(2)) to medicare beneficiaries. 

24 (2) DEMONSTRATION AREAS.—The program 

25 shall be conducted in rural areas selected by the Sec-
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1 retary in States with low population densities, as de2 termined by the Secretary. 

3 (3) APPLICATION.—Each rural community hos4 pital that is located in a demonstration area selected 

5 under paragraph (2) that desires to participate in 

6 the demonstration program under this section shall 

7 submit an application to the Secretary at such time, 

8 in such manner, and containing such information as 

9 the Secretary may require. 

10 (4) SELECTION OF HOSPITALS.—The Secretary 

11 shall select from among rural community hospitals 

12 submitting applications under paragraph (3) not 

13 more than 15 of such hospitals to participate in the 

14 demonstration program under this section. 

15 (5) DURATION.—The Secretary shall conduct 

16 the demonstration program under this section for a 

17 5-year period. 

18 (6) IMPLEMENTATION.—The Secretary shall 

19 implement the demonstration program not later than 

20 January 1, 2005, but may not implement the pro21 gram before October 1, 2004. 

22 (b) PAYMENT.—

23 (1) IN GENERAL.—The amount of payment 

24 under the demonstration program for covered inpa25 tient hospital services furnished in a rural commu-
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1 nity hospital, other than such services furnished in 

2 a psychiatric or rehabilitation unit of the hospital 

3 which is a distinct part, is—

4 (A) for discharges occurring in the first 

5 cost reporting period beginning on or after the 

6 implementation of the demonstration program, 

7 the reasonable costs of providing such services; 

8 and 

9 (B) for discharges occurring in a subse10 quent cost reporting period under the dem11 onstration program, the lesser of—

12 (i) the reasonable costs of providing 

13 such services in the cost reporting period 

14 involved; or 

15 (ii) the target amount (as defined in 

16 paragraph (2), applicable to the cost re17 porting period involved. 

18 (2) TARGET AMOUNT.—For purposes of para19 graph (1)(B)(ii), the term ‘‘target amount’’ means, 

20 with respect to a rural community hospital for a 

21 particular 12-month cost reporting period—

22 (A) in the case of the second such report23 ing period for which this subsection is in effect, 

24 the reasonable costs of providing such covered 
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1 inpatient hospital services as determined under 

2 paragraph (1)(A), and 

3 (B) in the case of a later reporting period, 

4 the target amount for the preceding 12-month 

5 cost reporting period, 

6 increased by the applicable percentage increase 

7 (under clause (i) of section 1886(b)(3)(B) of the So8 cial Security Act (42 U.S.C. 1395ww(b)(3)(B))) in 

9 the market basket percentage increase (as defined in 

10 clause (iii) of such section) for that particular cost 

11 reporting period. 

12 (c) FUNDING.—

13 (1) IN GENERAL.—The Secretary shall provide 

14 for the transfer from the Federal Hospital Insurance 

15 Trust Fund under section 1817 of the Social Secu16 rity Act (42 U.S.C. 1395i) of such funds as are nec17 essary for the costs of carrying out the demonstra18 tion program under this section. 

19 (2) BUDGET NEUTRALITY.—In conducting the 

20 demonstration program under this section, the Sec21 retary shall ensure that the aggregate payments 

22 made by the Secretary do not exceed the amount 

23 which the Secretary would have paid if the dem24 onstration program under this section was not im25 plemented. 
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1 (d) WAIVER AUTHORITY.—The Secretary may waive 

2 such requirements of title XVIII of the Social Security Act 

3 (42 U.S.C. 1395 et seq.) as may be necessary for the pur4 pose of carrying out the demonstration program under 

5 this section. 

6 (e) REPORT.—Not later than 6 months after the 

7 completion of the demonstration program under this sec8 tion, the Secretary shall submit to Congress a report on 

9 such program, together with recommendations for such 

10 legislation and administrative action as the Secretary de11 termines to be appropriate. 

12 (f) DEFINITIONS.—In this section: 

13 (1) RURAL COMMUNITY HOSPITAL DEFINED.—

14 (A) IN GENERAL.—The term ‘‘rural com15 munity hospital’’ means a hospital (as defined 

16 in section 1861(e) of the Social Security Act 

17 (42 U.S.C. 1395x(e))) that—

18 (i) is located in a rural area (as de19 fined in section 1886(d)(2)(D) of such Act 

20 (42 U.S.C. 1395ww(d)(2)(D))) or treated 

21 as being so located pursuant to section 

22 1886(d)(8)(E) of such Act (42 U.S.C. 

23 1395ww(d)(8)(E));
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1 (ii) subject to paragraph (2), has 

2 fewer than 51 acute care inpatient beds, as 

3 reported in its most recent cost report; 

4 (iii) makes available 24-hour emer5 gency care services; and 

6 (iv) is not eligible for designation, or 

7 has not been designated, as a critical ac8 cess hospital under section 1820. 

9 (B) TREATMENT OF PSYCHIATRIC AND RE10 HABILITATION UNITS.—For purposes of para11 graph (1)(B), beds in a psychiatric or rehabili12 tation unit of the hospital which is a distinct 

13 part of the hospital shall not be counted. 

14 (2) COVERED INPATIENT HOSPITAL SERV15 ICES.—The term ‘‘covered inpatient hospital serv16 ices’’ means inpatient hospital services, and includes 

17 extended care services furnished under an agreement 

18 under section 1883 of the Social Security Act (42 

19 U.S.C. 1395tt). 

20 SEC. 112. WAGE INDEX ADJUSTMENT RECLASSIFICATION 

21 REFORM. 

22 (a) IN GENERAL.—Section 1886(d) (42 U.S.C. 

23 1395ww(d)), as amended by section 106, is amended by 

24 adding at the end the following new paragraph: 
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1 ‘‘(13)(A) In order to recognize commuting patterns 

2 among geographic areas, the Secretary shall establish a 

3 process through application or otherwise for an increase 

4 of the wage index applied under paragraph (3)(E) for sub5 section (d) hospitals located in a qualifying county de6 scribed in subparagraph (B) in the amount computed 

7 under subparagraph (D) based on out-migration of hos8 pital employees who reside in that county to any higher 

9 wage index area. 

10 ‘‘(B) The Secretary shall establish criteria for a 

11 qualifying county under this subparagraph based on the 

12 out-migration referred to in subparagraph (A) and dif13 ferences in the area wage indices. Under such criteria the 

14 Secretary shall, utilizing such data as the Secretary deter15 mines to be appropriate, establish—

16 ‘‘(i) a threshold percentage, established by the 

17 Secretary, of the weighted average of the area wage 

18 index or indices for the higher wage index areas in19 volved; 

20 ‘‘(ii) a threshold (of not less than 10 percent) 

21 for minimum out-migration to a higher wage index 

22 area or areas; and 

23 ‘‘(iii) a requirement that the average hourly 

24 wage of the hospitals in the qualifying county equals 

25 or exceeds the average hourly wage of all the hos-
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1 pitals in the area in which the qualifying county is 

2 located. 

3 ‘‘(C) For purposes of this paragraph, the term ‘high4 er wage index area’ means, with respect to a county, an 

5 area with a wage index that exceeds that of the county. 

6 ‘‘(D) The increase in the wage index under subpara7 graph (A) for a qualifying county shall be equal to the 

8 percentage of the hospital employees residing in the quali9 fying county who are employed in any higher wage index 

10 area multiplied by the sum of the products, for each higher 

11 wage index area of—

12 ‘‘(i) the difference between—

13 ‘‘(I) the wage index for such higher wage 

14 index area, and 

15 ‘‘(II) the wage index of the qualifying 

16 county; and 

17 ‘‘(ii) the number of hospital employees residing 

18 in the qualifying county who are employed in such 

19 higher wage index area divided by the total number 

20 of hospital employees residing in the qualifying 

21 county who are employed in any higher wage index 

22 area. 

23 ‘‘(E) The process under this paragraph may be based 

24 upon the process used by the Medicare Geographic Classi25 fication Review Board under paragraph (10). As the Sec-
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•HR 3549 IH 

1 retary determines to be appropriate to carry out such 

2 process, the Secretary may require hospitals (including 

3 subsection (d) hospitals and other hospitals) and critical 

4 access hospitals, as required under section 1866(a)(1)(T), 

5 to submit data regarding the location of residence, or the 

6 Secretary may use data from other sources. 

7 ‘‘(F) A wage index increase under this paragraph 

8 shall be effective for a period of 3 fiscal years, except that 

9 the Secretary shall establish procedures under which a 

10 subsection (d) hospital may elect to waive the application 

11 of such wage index increase. 

12 ‘‘(G) A hospital in a county that has a wage index 

13 increase under this paragraph for a period and that has 

14 not waived the application of such an increase under sub15 paragraph (F) is not eligible for reclassification under 

16 paragraph (8) or (10) during that period. 

17 ‘‘(H) Any increase in a wage index under this para18 graph for a county shall not be taken into account for 

19 purposes of—

20 ‘‘(i) computing the wage index for portions of 

21 the wage index area (not including the county) in 

22 which the county is located; or 

23 ‘‘(ii) applying any budget neutrality adjustment 

24 with respect to such index under paragraph (8)(D). 
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1 ‘‘(I) The thresholds described in subparagraph (B), 

2 data on hospital employees used under this paragraph, 

3 and any determination of the Secretary under the process 

4 described in subparagraph (E) shall be final and shall not 

5 be subject to judicial review.’’. 

6 (b) CONFORMING AMENDMENTS.—Section 

7 1866(a)(1) (42 U.S.C. 1395cc(a)(1)) is amended—

8 (1) in subparagraph (R), by striking ‘‘and’’ at 

9 the end; 

10 (2) in subparagraph (S), by striking the period 

11 at the end and inserting ‘‘, and’’; and 

12 (3) by inserting after subparagraph (S) the fol13 lowing new subparagraph: 

14 ‘‘(T) in the case of hospitals and critical access 

15 hospitals, to furnish to the Secretary such data as 

16 the Secretary determines appropriate pursuant to 

17 subparagraph (E) of section 1886(d)(12) to carry 

18 out such section.’’.

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

20 this section shall first apply to the wage index for dis21 charges occurring on or after October 1, 2004. In initially 

22 implementing such amendments, the Secretary may mod23 ify the deadlines otherwise applicable under clauses (ii) 

24 and (iii)(I) of section 1886(d)(10)(C) of the Social Secu25 rity Act (42 U.S.C. 1395ww(d)(10)(C)), for submission of,
40

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1 and actions on, applications relating to changes in hospital 

2 geographic reclassification. 

3 SEC. 113. REVISION OF THE INDIRECT MEDICAL EDU4 CATION (IME) ADJUSTMENT PERCENTAGE. 

5 (a) IN GENERAL.—Section 1886(d)(5)(B)(ii) (42 

6 U.S.C. 1395ww(d)(5)(B)(ii)) is amended—

7 (1) in subclause (VI), by striking ‘‘and’’ after 

8 the semicolon at the end; 

9 (2) in subclause (VII)—

10 (A) by inserting ‘‘and before April 1, 

11 2004,’’ after ‘‘on or after October 1, 2002,’’; 

12 and 

13 (B) by striking the period at the end and 

14 inserting a semicolon; and 

15 (3) by adding at the end the following new sub16 clauses: 

17 ‘‘(VIII) on or after April 1, 2004, and be18 fore October 1, 2004, ‘c’ is equal to 1.47; 

19 ‘‘(IX) during fiscal year 2005, ‘c’ is equal 

20 to 1.42; 

21 ‘‘(X) during fiscal year 2006, ‘c’ is equal 

22 to 1.37; 

23 ‘‘(XI) during fiscal year 2007, ‘c’ is equal 

24 to 1.32; and 
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1 ‘‘(XII) on or after October 1, 2007, ‘c’ is 

2 equal to 1.35.’’. 

3 (b) CONFORMING AMENDMENT RELATING TO DE4 TERMINATION OF STANDARDIZED AMOUNT.—Section 

5 1886(d)(2)(C)(i) (42 U.S.C. 1395ww(d)(2)(C)(i)) is 

6 amended—

7 (1) by striking ‘‘1999 or’’ and inserting 

8 ‘‘1999,’’; and 

9 (2) by inserting ‘‘, or the Medicare Prescription 

10 Drug, Improvement, and Modernization Act of 

11 2003’’ after ‘‘2000’’. 

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

13 this section shall apply to discharges occurring on or after 

14 April 1, 2004. 

15 SEC. 114. INCREASE IN FEDERAL RATE FOR HOSPITALS IN 

16 PUERTO RICO. 

17 Section 1886(d)(9) (42 U.S.C. 1395ww(d)(9)) is 

18 amended—

19 (1) in subparagraph (A)—

20 (A) in clause (i), by striking ‘‘for dis21 charges beginning on or after October 1, 1997, 

22 50 percent (and for discharges between October 

23 1, 1987, and September 30, 1997, 75 percent)’’ 

24 and inserting ‘‘the applicable Puerto Rico per25 centage (specified in subparagraph (E))’’; and 
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1 (B) in clause (ii), by striking ‘‘for dis2 charges beginning in a fiscal year beginning on 

3 or after October 1, 1997, 50 percent (and for 

4 discharges between October 1, 1987, and Sep5 tember 30, 1997, 25 percent)’’ and inserting 

6 ‘‘the applicable Federal percentage (specified in 

7 subparagraph (E))’’; and 

8 (2) by adding at the end the following new sub9 paragraph: 

10 ‘‘(E) For purposes of subparagraph (A), for dis11 charges occurring—

12 ‘‘(i) on or after October 1, 1987, and before Oc13 tober 1, 1997, the applicable Puerto Rico percentage 

14 is 75 percent and the applicable Federal percentage 

15 is 25 percent; 

16 ‘‘(ii) on or after October 1, 1997, and before 

17 April 1, 2004, the applicable Puerto Rico percentage 

18 is 50 percent and the applicable Federal percentage 

19 is 50 percent; 

20 ‘‘(iii) on or after April 1, 2004, and before Oc21 tober 1, 2004, the applicable Puerto Rico percentage 

22 is 37.5 percent and the applicable Federal percent23 age is 62.5 percent; and 
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1 ‘‘(iv) on or after October 1, 2004, the applica2 ble Puerto Rico percentage is 25 percent and the ap3 plicable Federal percentage is 75 percent.’’.

4 SEC. 115. CLARIFICATIONS TO CERTAIN EXCEPTIONS TO 

5 MEDICARE LIMITS ON PHYSICIAN REFER6 RALS. 

7 (a) LIMITS ON PHYSICIAN REFERRALS.—

8 (1) OWNERSHIP AND INVESTMENT INTERESTS

9 IN WHOLE HOSPITALS.—

10 (A) IN GENERAL.—Section 1877(d)(3) (42 

11 U.S.C. 1395nn(d)(3)) is amended—

12 (i) by striking ‘‘, and’’ at the end of 

13 subparagraph (A) and inserting a semi14 colon; and 

15 (ii) by redesignating subparagraph 

16 (B) as subparagraph (C) and inserting 

17 after subparagraph (A) the following new 

18 subparagraph: 

19 ‘‘(B) effective for the 18-month period be20 ginning on November 18, 2003, the hospital is 

21 not a specialty hospital (as defined in sub22 section (h)(7)); and’’. 

23 (B) DEFINITION.—Section 1877(h) (42 

24 U.S.C. 1395nn(h)) is amended by adding at the 

25 end the following: 
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1 ‘‘(7) SPECIALTY HOSPITAL.—

2 ‘‘(A) IN GENERAL.—For purposes of this 

3 section, except as provided in subparagraph 

4 (B), the term ‘specialty hospital’ means a sub5 section (d) hospital that is primarily or exclu6 sively engaged in the care and treatment of one 

7 of the following categories: 

8 ‘‘(i) Patients with a cardiac condition. 

9 ‘‘(ii) Patients with an orthopedic con10 dition. 

11 ‘‘(iii) Patients receiving a surgical 

12 procedure. 

13 ‘‘(iv) Any other specialized category of 

14 services that the Secretary designates as 

15 inconsistent with the purpose of permitting 

16 physician ownership and investment inter17 ests in a hospital under this section. 

18 ‘‘(B) EXCEPTION.—For purposes of this 

19 section, the term ‘specialty hospital’ does not 

20 include any hospital—

21 ‘‘(i) determined by the Secretary—

22 ‘‘(I) to be in operation before No23 vember 18, 2003; or 

24 ‘‘(II) under development as of 

25 such date;
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1 ‘‘(ii) for which the number of physi2 cian investors at any time on or after such 

3 date is no greater than the number of such 

4 investors as of such date; 

5 ‘‘(iii) for which the type of categories 

6 described in subparagraph (A) at any time 

7 on or after such date is no different than 

8 the type of such categories as of such date; 

9 ‘‘(iv) for which any increase in the 

10 number of beds occurs only in the facilities 

11 on the main campus of the hospital and 

12 does not exceed 50 percent of the number 

13 of beds in the hospital as of November 18, 

14 2003, or 5 beds, whichever is greater; and 

15 ‘‘(v) that meets such other require16 ments as the Secretary may specify.’’. 

17 (2) OWNERSHIP AND INVESTMENT INTERESTS

18 IN A RURAL PROVIDER.—Section 1877(d)(2) (42 

19 U.S.C. 1395nn(d)(2)) is amended to read as follows: 

20 ‘‘(2) RURAL PROVIDERS.—In the case of des21 ignated health services furnished in a rural area (as 

22 defined in section 1886(d)(2)(D)) by an entity, if—

23 ‘‘(A) substantially all of the designated 

24 health services furnished by the entity are fur-
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1 nished to individuals residing in such a rural 

2 area; and 

3 ‘‘(B) effective for the 18-month period be4 ginning on November 18, 2003, the entity is 

5 not a specialty hospital (as defined in sub6 section (h)(7)).’’. 

7 (b) APPLICATION OF EXCEPTION FOR HOSPITALS

8 UNDER DEVELOPMENT.—For purposes of section 

9 1877(h)(7)(B)(i)(II) of the Social Security Act, as added 

10 by subsection (a)(1)(B), in determining whether a hospital 

11 is under development as of November 18, 2003, the Sec12 retary shall consider—

13 (1) whether architectural plans have been com14 pleted, funding has been received, zoning require15 ments have been met, and necessary approvals from 

16 appropriate State agencies have been received; and 

17 (2) any other evidence the Secretary determines 

18 would indicate whether a hospital is under develop19 ment as of such date. 

20 (c) STUDIES.—

21 (1) MEDPAC STUDY.—The Medicare Payment 

22 Advisory Commission, in consultation with the 

23 Comptroller General of the United States, shall con24 duct a study to determine—
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1 (A) any differences in the costs of health 

2 care services furnished to patients by physician3 owned specialty hospitals and the costs of such 

4 services furnished by local full-service commu5 nity hospitals within specific diagnosis-related 

6 groups; 

7 (B) the extent to which specialty hospitals, 

8 relative to local full-service community hos9 pitals, treat patients in certain diganosis-related 

10 groups within a category, such as cardiology, 

11 and an analysis of the selection; 

12 (C) the financial impact of physician13 owned specialty hospitals on local full-service 

14 community hospitals; 

15 (D) how the current diagnosis-related 

16 group system should be updated to better re17 flect the cost of delivering care in a hospital 

18 setting; and 

19 (E) the proportions of payments received, 

20 by type of payer, between the specialty hospitals 

21 and local full-service community hospitals. 

22 (2) HHS STUDY.—The Secretary shall conduct 

23 a study of a representative sample of specialty hos24 pitals—
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1 (A) to determine the percentage of patients 

2 admitted to physician-owned specialty hospitals 

3 who are referred by physicians with an owner4 ship interest; 

5 (B) to determine the referral patterns of 

6 physician owners, including the percentage of 

7 patients they referred to physician-owned spe8 cialty hospitals and the percentage of patients 

9 they referred to local full-service community 

10 hospitals for the same condition; 

11 (C) to compare the quality of care fur12 nished in physician-owned specialty hospitals 

13 and in local full-service community hospitals for 

14 similar conditions and patient satisfaction with 

15 such care; and 

16 (D) to assess the differences in uncompen17 sated care, as defined by the Secretary, between 

18 the specialty hospital and local full-service com19 munity hospitals, and the relative value of any 

20 tax exemption available to such hospitals. 

21 (3) REPORTS.—Not later than 15 months after 

22 the date of the enactment of this Act, the Commis23 sion and the Secretary, respectively, shall each sub24 mit to Congress a report on the studies conducted 

25 under paragraphs (1) and (2), respectively, and shall 
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1 include any recommendations for legislation or ad2 ministrative changes.

3 SEC. 116. 1-TIME APPEALS PROCESS FOR HOSPITAL WAGE 

4 INDEX CLASSIFICATION. 

5 (a) ESTABLISHMENT OF PROCESS.—

6 (1) IN GENERAL.—The Secretary shall establish 

7 by instruction or otherwise a process under which a 

8 hospital may appeal the wage index classification 

9 otherwise applicable to the hospital and select an10 other area within the State (or, at the discretion of 

11 the Secretary, within a contiguous State) to which to 

12 be reclassified. 

13 (2) PROCESS REQUIREMENTS.—The process es14 tablished under paragraph (1) shall be consistent 

15 with the following: 

16 (A) Such an appeal shall be filed by not 

17 later than April 1, 2004. 

18 (B) Such an appeal shall be heard by the 

19 Medicare Geographic Reclassification Review 

20 Board. 

21 (C) There shall be no further administra22 tive or judicial review of a decision of such 

23 Board. 

24 (3) RECLASSIFICATION UPON SUCCESSFUL AP25 PEAL.—If the Medicare Geographic Reclassification
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1 Review Board determines that the hospital is a 

2 qualifying hospital (as defined in subsection (c)), the 

3 hospital shall be reclassified to the area selected 

4 under paragraph (1). Such reclassification shall 

5 apply with respect to discharges occurring during 

6 the 3-fiscal-year period beginning with fiscal year 

7 2005. 

8 (4) INAPPLICABILITY OF CERTAIN PROVI9 SIONS.—Except as the Secretary may provide, the 

10 provisions of paragraphs (8) and (10) of section 

11 1886(d) of the Social Security Act (42 U.S.C. 

12 1395ww(d)) shall not apply to an appeal under this 

13 section. 

14 (b) APPLICATION OF RECLASSIFICATION.—In the 

15 case of an appeal decided in favor of a qualifying hospital 

16 under subsection (a), the wage index reclassification shall 

17 not affect the wage index computation for any area or for 

18 any other hospital and shall not be effected in a budget 

19 neutral manner. The provisions of this section shall not 

20 affect payment for discharges occurring after the end of 

21 the 3-fiscal-year period referred to in subsection (a). 

22 (c) QUALIFYING HOSPITAL DEFINED.—For purposes 

23 of this section, the term ‘‘qualifying hospital’’ means a 

24 subsection (d) hospital (as defined in section 
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1 1886(d)(1)(B) of the Social Security Act, 42 U.S.C. 

2 1395ww(d)(1)(B)) that—

3 (1) does not qualify for a change in wage index 

4 classification under paragraph (8) or (10) of section 

5 1886(d) of the Social Security Act (42 U.S.C. 

6 1395ww(d)) on the basis of requirements relating to 

7 distance or commuting; and 

8 (2) meets such other criteria, such as quality, 

9 as the Secretary may specify by instruction or other10 wise. 

11 The Secretary may modify the wage comparison guidelines 

12 promulgated under section 1886(d)(10)(D) of such Act 

13 (42 U.S.C. 1395ww(d)(10)(D)) in carrying out this sec14 tion. 

15 (d) WAGE INDEX CLASSIFICATION.—For purposes of 

16 this section, the term ‘‘wage index classification’’ means 

17 the geographic area in which it is classified for purposes 

18 of determining for a fiscal year the factor used to adjust 

19 the DRG prospective payment rate under section 1886(d) 

20 of the Social Security Act (42 U.S.C. 1395ww(d)) for area 

21 differences in hospital wage levels that applies to such hos22 pital under paragraph (3)(E) of such section. 

23 (e) LIMITATION ON EXPENDITURES.—The aggregate 

24 amount of additional expenditures resulting from the ap25 plication of this section shall not exceed $500,000,000. 
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1 SEC. 117. STUDY ON PORTABLE DIAGNOSTIC ULTRASOUND 

2 SERVICES FOR BENEFICIARIES IN SKILLED 

3 NURSING FACILITIES. 

4 (a) STUDY.—The Comptroller General of the United 

5 States shall conduct a study of portable diagnostic 

6 ultrasound services furnished to medicare beneficiaries in 

7 skilled nursing facilities. Such study shall consider the fol8 lowing: 

9 (1) TYPES OF EQUIPMENT; TRAINING.—The 

10 types of portable diagnostic ultrasound services fur11 nished to such beneficiaries, the types of portable 

12 ultrasound equipment used to furnish such services, 

13 and the technical skills, or training, or both, re14 quired for technicians to furnish such services. 

15 (2) CLINICAL APPROPRIATENESS.—The clinical 

16 appropriateness of transporting portable diagnostic 

17 ultrasound diagnostic and technicians to patients in 

18 skilled nursing facilities as opposed to transporting 

19 such patients to a hospital or other facility that fur20 nishes diagnostic ultrasound services. 

21 (3) FINANCIAL IMPACT.—The financial impact 

22 if Medicare were make a separate payment for port23 able ultrasound diagnostic services, including the im24 pact of separate payments—

25 (A) for transportation and technician serv26 ices for residents during a resident in a part A 
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1 stay, that would otherwise be paid for under the 

2 prospective payment system for covered skilled 

3 nursing facility services (under section 1888(e) 

4 of the Social Security Act (42 U.S.C. 

5 1395yy(e)); and 

6 (B) for such services for residents in a 

7 skilled nursing facility after a part A stay. 

8 (4) CREDENTIALING REQUIREMENTS.—Whether 

9 the Secretary should establish credentialing or other 

10 requirements for technicians that furnish diagnostic 

11 ultrasound services to medicare beneficiaries. 

12 (b) REPORT.—Not later than 2 years after the date 

13 of the enactment of this Act, the Comptroller General shall 

14 submit to Congress a report on the study conducted under 

15 subsection (a), and shall include any recommendations for 

16 legislation or administrative change as the Comptroller 

17 General determines appropriate. 

18 TITLE II—PROVISIONS 

19 RELATING TO PART B ONLY 

20 SEC. 201. REVISION OF UPDATES FOR PHYSICIANS’ SERV21 ICES. 

22 (a) UPDATE FOR 2004 AND 2005.—

23 (1) IN GENERAL.—Section 1848(d) (42 U.S.C. 

24 1395w–4(d)) is amended by adding at the end the 

25 following new paragraph: 
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1 ‘‘(5) UPDATE FOR 2004 AND 2005.—The update 

2 to the single conversion factor established in para3 graph (1)(C) for each of 2004 and 2005 shall be not 

4 less than 1.5 percent.’’. 

5 (2) CONFORMING AMENDMENT.—Paragraph 

6 (4)(B) of such section is amended, in the matter be7 fore clause (i), by inserting ‘‘and paragraph (5)’’ 

8 after ‘‘subparagraph (D)’’. 

9 (3) NOT TREATED AS CHANGE IN LAW AND

10 REGULATION IN SUSTAINABLE GROWTH RATE DE11 TERMINATION.—The amendments made by this sub12 section shall not be treated as a change in law for 

13 purposes of applying section 1848(f)(2)(D) of the 

14 Social Security Act (42 U.S.C. 1395w–4(f)(2)(D)). 

15 (b) USE OF 10-YEAR ROLLING AVERAGE IN COM16 PUTING GROSS DOMESTIC PRODUCT.—

17 (1) IN GENERAL.—Section 1848(f)(2)(C) (42 

18 U.S.C. 1395w–4(f)(2)(C)) is amended—

19 (A) by striking ‘‘projected’’ and inserting 

20 ‘‘annual average’’; and 

21 (B) by striking ‘‘from the previous applica22 ble period to the applicable period involved’’ 

23 and inserting ‘‘during the 10-year period ending 

24 with the applicable period involved’’.
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1 (2) EFFECTIVE DATE.—The amendments made 

2 by paragraph (1) shall apply to computations of the 

3 sustainable growth rate for years beginning with 

4 2003. 

5 SEC. 202. 2-YEAR EXTENSION OF HOLD HARMLESS PROVI6 SIONS FOR SMALL RURAL HOSPITALS AND 

7 SOLE COMMUNITY HOSPITALS UNDER THE 

8 PROSPECTIVE PAYMENT SYSTEM FOR HOS9 PITAL OUTPATIENT DEPARTMENT SERVICES. 

10 (a) HOLD HARMLESS PROVISIONS.—

11 (1) IN GENERAL.—Section 1833(t)(7)(D)(i) (42 

12 U.S.C. 1395l(t)(7)(D)(i)) is amended—

13 (A) in the heading, by striking ‘‘SMALL’’ 

14 and inserting ‘‘CERTAIN’’; 

15 (B) by inserting ‘‘or a sole community hos16 pital (as defined in section 1886(d)(5)(D)(iii)) 

17 located in a rural area’’ after ‘‘100 beds’’; and 

18 (C) by striking ‘‘2004’’ and inserting 

19 ‘‘2006’’. 

20 (2) EFFECTIVE DATE.—The amendment made 

21 by paragraph (1)(B) shall apply with respect to cost 

22 reporting periods beginning on and after January 1, 

23 2004. 

24 (b) STUDY; AUTHORIZATION OF ADJUSTMENT.—Sec25 tion 1833(t) (42 U.S.C. 1395l(t)) is amended—
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1 (1) by redesignating paragraph (13) as para2 graph (16); and 

3 (2) by inserting after paragraph (12) the fol4 lowing new paragraph: 

5 ‘‘(13) AUTHORIZATION OF ADJUSTMENT FOR

6 RURAL HOSPITALS.—

7 ‘‘(A) STUDY.—The Secretary shall conduct 

8 a study to determine if, under the system under 

9 this subsection, costs incurred by hospitals lo10 cated in rural areas by ambulatory payment 

11 classification groups (APCs) exceed those costs 

12 incurred by hospitals located in urban areas. 

13 ‘‘(B) AUTHORIZATION OF ADJUSTMENT.—

14 Insofar as the Secretary determines under sub15 paragraph (A) that costs incurred by hospitals 

16 located in rural areas exceed those costs in17 curred by hospitals located in urban areas, the 

18 Secretary shall provide for an appropriate ad19 justment under paragraph (2)(E) to reflect 

20 those higher costs by January 1, 2006.’’. 

21 SEC. 203. ESTABLISHMENT OF FLOOR ON WORK GEO22 GRAPHIC ADJUSTMENT. 

23 Section 1848(e)(1) (42 U.S.C. 1395w–4(e)(1)) is 

24 amended—
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1 (1) in subparagraph (A), by striking ‘‘subpara2 graphs (B) and (C)’’ and inserting ‘‘subparagraphs 

3 (B), (C), and (E)’’; and 

4 (2) by adding at the end the following new sub5 paragraph: 

6 ‘‘(E) FLOOR AT 1.0 ON WORK GEOGRAPHIC

7 INDEX.—After calculating the work geographic 

8 index in subparagraph (A)(iii), for purposes of 

9 payment for services furnished on or after Jan10 uary 1, 2004, and before January 1, 2007, the 

11 Secretary shall increase the work geographic 

12 index to 1.00 for any locality for which such 

13 work geographic index is less than 1.00.’’. 

14 SEC. 204. MEDICARE INCENTIVE PAYMENT PROGRAM IM15 PROVEMENTS FOR PHYSICIAN SCARCITY. 

16 (a) ADDITIONAL INCENTIVE PAYMENT FOR CERTAIN

17 PHYSICIAN SCARCITY AREAS.—Section 1833 (42 U.S.C. 

18 1395l) is amended by adding at the end the following new 

19 subsection: 

20 ‘‘(u) INCENTIVE PAYMENTS FOR PHYSICIAN SCAR21 CITY AREAS.—

22 ‘‘(1) IN GENERAL.—In the case of physicians’ 

23 services furnished on or after January 1, 2005, and 

24 before January 1, 2008—
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1 ‘‘(A) by a primary care physician in a pri2 mary care scarcity county (identified under 

3 paragraph (4)); or 

4 ‘‘(B) by a physician who is not a primary 

5 care physician in a specialist care scarcity coun6 ty (as so identified), 

7 in addition to the amount of payment that would 

8 otherwise be made for such services under this part, 

9 there also shall be paid an amount equal to 5 per10 cent of the payment amount for the service under 

11 this part. 

12 ‘‘(2) DETERMINATION OF RATIOS OF PHYSI13 CIANS TO MEDICARE BENEFICIARIES IN AREA.—

14 Based upon available data, the Secretary shall estab15 lish for each county or equivalent area in the United 

16 States, the following: 

17 ‘‘(A) NUMBER OF PHYSICIANS PRACTICING

18 IN THE AREA.—The number of physicians who 

19 furnish physicians’ services in the active prac20 tice of medicine or osteopathy in that county or 

21 area, other than physicians whose practice is 

22 exclusively for the Federal Government, physi23 cians who are retired, or physicians who only 

24 provide administrative services. Of such num25 ber, the number of such physicians who are—
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1 ‘‘(i) primary care physicians; or 

2 ‘‘(ii) physicians who are not primary 

3 care physicians. 

4 ‘‘(B) NUMBER OF MEDICARE BENE5 FICIARIES RESIDING IN THE AREA.—The num6 ber of individuals who are residing in the coun7 ty and are entitled to benefits under part A or 

8 enrolled under this part, or both (in this sub9 section referred to as ‘individuals’). 

10 ‘‘(C) DETERMINATION OF RATIOS.—

11 ‘‘(i) PRIMARY CARE RATIO.—The ratio 

12 (in this paragraph referred to as the ‘pri13 mary care ratio’) of the number of primary 

14 care physicians (determined under sub15 paragraph (A)(i)), to the number of indi16 viduals determined under subparagraph 

17 (B). 

18 ‘‘(ii) SPECIALIST CARE RATIO.—The 

19 ratio (in this paragraph referred to as the 

20 ‘specialist care ratio’) of the number of 

21 other physicians (determined under sub22 paragraph (A)(ii)), to the number of indi23 viduals determined under subparagraph 

24 (B).
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1 ‘‘(3) RANKING OF COUNTIES.—The Secretary 

2 shall rank each such county or area based separately 

3 on its primary care ratio and its specialist care ratio. 

4 ‘‘(4) IDENTIFICATION OF COUNTIES.—

5 ‘‘(A) IN GENERAL.—The Secretary shall 

6 identify—

7 ‘‘(i) those counties and areas (in this 

8 paragraph referred to as ‘primary care 

9 scarcity counties’) with the lowest primary 

10 care ratios that represent, if each such 

11 county or area were weighted by the num12 ber of individuals determined under para13 graph (2)(B), an aggregate total of 20 per14 cent of the total of the individuals deter15 mined under such paragraph; and 

16 ‘‘(ii) those counties and areas (in this 

17 subsection referred to as ‘specialist care 

18 scarcity counties’) with the lowest spe19 cialist care ratios that represent, if each 

20 such county or area were weighted by the 

21 number of individuals determined under 

22 paragraph (2)(B), an aggregate total of 20 

23 percent of the total of the individuals de24 termined under such paragraph. 
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1 ‘‘(B) PERIODIC REVISIONS.—The Sec2 retary shall periodically revise the counties or 

3 areas identified in subparagraph (A) (but not 

4 less often than once every three years) unless 

5 the Secretary determines that there is no new 

6 data available on the number of physicians 

7 practicing in the county or area or the number 

8 of individuals residing in the county or area, as 

9 identified in paragraph (2). 

10 ‘‘(C) IDENTIFICATION OF COUNTIES

11 WHERE SERVICE IS FURNISHED.—For purposes 

12 of paying the additional amount specified in 

13 paragraph (1), if the Secretary uses the 5-digit 

14 postal ZIP Code where the service is furnished, 

15 the dominant county of the postal ZIP Code (as 

16 determined by the United States Postal Service, 

17 or otherwise) shall be used to determine wheth18 er the postal ZIP Code is in a scarcity county 

19 identified in subparagraph (A) or revised in 

20 subparagraph (B). 

21 ‘‘(D) JUDICIAL REVIEW.—There shall be 

22 no administrative or judicial review under sec23 tion 1869, 1878, or otherwise, respecting—

24 ‘‘(i) the identification of a county or 

25 area; 
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1 ‘‘(ii) the assignment of a specialty of 

2 any physician under this paragraph; 

3 ‘‘(iii) the assignment of a physician to 

4 a county under paragraph (2); or 

5 ‘‘(iv) the assignment of a postal ZIP 

6 Code to a county or other area under this 

7 subsection. 

8 ‘‘(5) RURAL CENSUS TRACTS.—To the extent 

9 feasible, the Secretary shall treat a rural census 

10 tract of a metropolitan statistical area (as deter11 mined under the most recent modification of the 

12 Goldsmith Modification, originally published in the 

13 Federal Register on February 27, 1992 (57 Fed. 

14 Reg. 6725)), as an equivalent area for purposes of 

15 qualifying as a primary care scarcity county or spe16 cialist care scarcity county under this subsection. 

17 ‘‘(6) PHYSICIAN DEFINED.—For purposes of 

18 this paragraph, the term ‘physician’ means a physi19 cian described in section 1861(r)(1) and the term 

20 ‘primary care physician’ means a physician who is 

21 identified in the available data as a general practi22 tioner, family practice practitioner, general internist, 

23 or obstetrician or gynecologist. 

24 ‘‘(7) PUBLICATION OF LIST OF COUNTIES; 

25 POSTING ON WEBSITE.—With respect to a year for 
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1 which a county or area is identified or revised under 

2 paragraph (4), the Secretary shall identify such 

3 counties or areas as part of the proposed and final 

4 rule to implement the physician fee schedule under 

5 section 1848 for the applicable year. The Secretary 

6 shall post the list of counties identified or revised 

7 under paragraph (4) on the Internet website of the 

8 Centers for Medicare & Medicaid Services.’’. 

9 (b) IMPROVEMENT TO MEDICARE INCENTIVE PAY10 MENT PROGRAM.—

11 (1) IN GENERAL.—Section 1833(m) (42 U.S.C. 

12 1395l(m)) is amended—

13 (A) by inserting ‘‘(1)’’ after ‘‘(m)’’; 

14 (B) in paragraph (1), as designated by 

15 subparagraph (A)—

16 (i) by inserting ‘‘in a year’’ after ‘‘In 

17 the case of physicians’ services furnished’’; 

18 and 

19 (ii) by inserting ‘‘as identified by the 

20 Secretary prior to the beginning of such 

21 year’’ after ‘‘as a health professional short22 age area’’; and 

23 (C) by adding at the end the following new 

24 paragraphs: 
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1 ‘‘(2) For each health professional shortage area iden2 tified in paragraph (1) that consists of an entire county, 

3 the Secretary shall provide for the additional payment 

4 under paragraph (1) without any requirement on the phy5 sician to identify the health professional shortage area in6 volved. The Secretary may implement the previous sen7 tence using the method specified in subsection (u)(4)(C). 

8 ‘‘(3) The Secretary shall post on the Internet website 

9 of the Centers for Medicare & Medicaid Services a list of 

10 the health professional shortage areas identified in para11 graph (1) that consist of a partial county to facilitate the 

12 additional payment under paragraph (1) in such areas. 

13 ‘‘(4) There shall be no administrative or judicial re14 view under section 1869, section 1878, or otherwise, re15 specting—

16 ‘‘(A) the identification of a county or area; 

17 ‘‘(B) the assignment of a specialty of any physi18 cian under this paragraph; 

19 ‘‘(C) the assignment of a physician to a county 

20 under this subsection; or 

21 ‘‘(D) the assignment of a postal zip code to a 

22 county or other area under this subsection.’’. 

23 (2) EFFECTIVE DATE.—The amendments made 

24 by paragraph (1) shall apply to physicians’ services 

25 furnished on or after January 1, 2005.
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1 (c) GAO STUDY OF GEOGRAPHIC DIFFERENCES IN

2 PAYMENTS FOR PHYSICIANS’ SERVICES.—

3 (1) STUDY.—The Comptroller General of the 

4 United States shall conduct a study of differences in 

5 payment amounts under the physician fee schedule 

6 under section 1848 of the Social Security Act (42 

7 U.S.C. 1395w–4) for physicians’ services in different 

8 geographic areas. Such study shall include—

9 (A) an assessment of the validity of the ge10 ographic adjustment factors used for each com11 ponent of the fee schedule; 

12 (B) an evaluation of the measures used for 

13 such adjustment, including the frequency of re14 visions; 

15 (C) an evaluation of the methods used to 

16 determine professional liability insurance costs 

17 used in computing the malpractice component, 

18 including a review of increases in professional 

19 liability insurance premiums and variation in 

20 such increases by State and physician specialty 

21 and methods used to update the geographic cost 

22 of practice index and relative weights for the 

23 malpractice component; and 

24 (D) an evaluation of the effect of the ad25 justment to the physician work geographic 
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1 index under section 1848(e)(1)(E) of the Social 

2 Security Act, as added by section 203, on phy3 sician location and retention in areas affected 

4 by such adjustment, taking into account—

5 (i) differences in recruitment costs 

6 and retention rates for physicians, includ7 ing specialists, between large urban areas 

8 and other areas; and 

9 (ii) the mobility of physicians, includ10 ing specialists, over the last decade. 

11 (2) REPORT.—Not later than 1 year after the 

12 date of the enactment of this Act, the Comptroller 

13 General shall submit to Congress a report on the 

14 study conducted under paragraph (1). The report 

15 shall include recommendations regarding the use of 

16 more current data in computing geographic cost of 

17 practice indices as well as the use of data directly 

18 representative of physicians’ costs (rather than 

19 proxy measures of such costs). 

20 SEC. 205. PAYMENT FOR RURAL AND URBAN AMBULANCE 

21 SERVICES. 

22 (a) PHASE-IN PROVIDING FLOOR USING BLEND OF

23 FEE SCHEDULE AND REGIONAL FEE SCHEDULES.—Sec24 tion 1834(l) (42 U.S.C. 1395m(l)) is amended—
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1 (1) in paragraph (2)(E), by inserting ‘‘con2 sistent with paragraph (11)’’ after ‘‘in an efficient 

3 and fair manner’’; and 

4 (2) by redesignating paragraph (8), as added by 

5 section 221(a) of BIPA (114 Stat. 2763A–486), as 

6 paragraph (9); and 

7 (3) by adding at the end the following new 

8 paragraph: 

9 ‘‘(10) PHASE-IN PROVIDING FLOOR USING

10 BLEND OF FEE SCHEDULE AND REGIONAL FEE

11 SCHEDULES.—In carrying out the phase-in under 

12 paragraph (2)(E) for each level of ground service 

13 furnished in a year, the portion of the payment 

14 amount that is based on the fee schedule shall be the 

15 greater of the amount determined under such fee 

16 schedule (without regard to this paragraph) or the 

17 following blended rate of the fee schedule under 

18 paragraph (1) and of a regional fee schedule for the 

19 region involved: 

20 ‘‘(A) For 2004 (for services furnished on 

21 or after July 1, 2004), the blended rate shall be 

22 based 20 percent on the fee schedule under 

23 paragraph (1) and 80 percent on the regional 

24 fee schedule. 
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1 ‘‘(B) For 2005, the blended rate shall be 

2 based 40 percent on the fee schedule under 

3 paragraph (1) and 60 percent on the regional 

4 fee schedule. 

5 ‘‘(C) For 2006, the blended rate shall be 

6 based 60 percent on the fee schedule under 

7 paragraph (1) and 40 percent on the regional 

8 fee schedule. 

9 ‘‘(D) For 2007, 2008, and 2009, the 

10 blended rate shall be based 80 percent on the 

11 fee schedule under paragraph (1) and 20 per12 cent on the regional fee schedule. 

13 ‘‘(E) For 2010 and each succeeding year, 

14 the blended rate shall be based 100 percent on 

15 the fee schedule under paragraph (1). 

16 For purposes of this paragraph, the Secretary shall 

17 establish a regional fee schedule for each of the nine 

18 census divisions (referred to in section 1886(d)(2)) 

19 using the methodology (used in establishing the fee 

20 schedule under paragraph (1)) to calculate a re21 gional conversion factor and a regional mileage pay22 ment rate and using the same payment adjustments 

23 and the same relative value units as used in the fee 

24 schedule under such paragraph.’’. 
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1 (b) ADJUSTMENT IN PAYMENT FOR CERTAIN LONG

2 TRIPS.—Section 1834(l), as amended by subsection (a), 

3 is amended by adding at the end the following new para4 graph: 

5 ‘‘(11) ADJUSTMENT IN PAYMENT FOR CERTAIN

6 LONG TRIPS.—In the case of ground ambulance 

7 services furnished on or after July 1, 2004, and be8 fore January 1, 2009, regardless of where the trans9 portation originates, the fee schedule established 

10 under this subsection shall provide that, with respect 

11 to the payment rate for mileage for a trip above 50 

12 miles the per mile rate otherwise established shall be 

increased by 1 13 ⁄4 of the payment per mile otherwise 

14 applicable to miles in excess of 50 miles in such 

15 trip.’’. 

16 (c) IMPROVEMENT IN PAYMENTS TO RETAIN EMER17 GENCY CAPACITY FOR AMBULANCE SERVICES IN RURAL

18 AREAS.—

19 (1) IN GENERAL.—Section 1834(l) (42 U.S.C. 

20 1395m(l)), as amended by subsections (a) and (b), 

21 is amended by adding at the end the following new 

22 paragraph: 

23 ‘‘(12) ASSISTANCE FOR RURAL PROVIDERS

24 FURNISHING SERVICES IN LOW POPULATION DEN25 SITY AREAS.—
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1 ‘‘(A) IN GENERAL.—In the case of ground 

2 ambulance services furnished on or after July 

3 1, 2004, and before January 1, 2010, for which 

4 the transportation originates in a qualified 

5 rural area (identified under subparagraph 

6 (B)(iii)), the Secretary shall provide for a per7 cent increase in the base rate of the fee sched8 ule for a trip established under this subsection. 

9 In establishing such percent increase, the Sec10 retary shall estimate the average cost per trip 

11 for such services (not taking into account mile12 age) in the lowest quartile as compared to the 

13 average cost per trip for such services (not tak14 ing into account mileage) in the highest quartile 

15 of all rural county populations. 

16 ‘‘(B) IDENTIFICATION OF QUALIFIED

17 RURAL AREAS.—

18 ‘‘(i) DETERMINATION OF POPULATION

19 DENSITY IN AREA.—Based upon data from 

20 the United States decennial census for the 

21 year 2000, the Secretary shall determine, 

22 for each rural area, the population density 

23 for that area. 
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1 ‘‘(ii) RANKING OF AREAS.—The Sec2 retary shall rank each such area based on 

3 such population density. 

4 ‘‘(iii) IDENTIFICATION OF QUALIFIED

5 RURAL AREAS.—The Secretary shall iden6 tify those areas (in subparagraph (A) re7 ferred to as ‘qualified rural areas’) with 

8 the lowest population densities that rep9 resent, if each such area were weighted by 

10 the population of such area (as used in 

11 computing such population densities), an 

12 aggregate total of 25 percent of the total 

13 of the population of all such areas. 

14 ‘‘(iv) RURAL AREA.—For purposes of 

15 this paragraph, the term ‘rural area’ has 

16 the meaning given such term in section 

17 1886(d)(2)(D). If feasible, the Secretary 

18 shall treat a rural census tract of a metro19 politan statistical area (as determined 

20 under the most recent modification of the 

21 Goldsmith Modification, originally pub22 lished in the Federal Register on February 

23 27, 1992 (57 Fed. Reg. 6725) as a rural 

24 area for purposes of this paragraph. 
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1 ‘‘(v) JUDICIAL REVIEW.—There shall 

2 be no administrative or judicial review 

3 under section 1869, 1878, or otherwise, re4 specting the identification of an area under 

5 this subparagraph.’’. 

6 (2) USE OF DATA.—In order to promptly imple7 ment section 1834(l)(12) of the Social Security Act, 

8 as added by paragraph (1), the Secretary may use 

9 data furnished by the Comptroller General of the 

10 United States. 

11 (d) TEMPORARY INCREASE FOR GROUND AMBU12 LANCE SERVICES.—Section 1834(l) (42 U.S.C. 

13 1395m(l)), as amended by subsections (a), (b), and (c), 

14 is amended by adding at the end the following new para15 graph: 

16 ‘‘(13) TEMPORARY INCREASE FOR GROUND AM17 BULANCE SERVICES.—

18 ‘‘(A) IN GENERAL.—After computing the 

19 rates with respect to ground ambulance services 

20 under the other applicable provisions of this 

21 subsection, in the case of such services fur22 nished on or after July 1, 2004, and before 

23 January 1, 2007, for which the transportation 

24 originates in—
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1 ‘‘(i) a rural area described in para2 graph (9) or in a rural census tract de3 scribed in such paragraph, the fee schedule 

4 established under this section shall provide 

5 that the rate for the service otherwise es6 tablished, after the application of any in7 crease under paragraphs (11) and (12), 

8 shall be increased by 2 percent; and 

9 ‘‘(ii) an area not described in clause 

10 (i), the fee schedule established under this 

11 subsection shall provide that the rate for 

12 the service otherwise established, after the 

13 application of any increase under para14 graph (11), shall be increased by 1 per15 cent. 

16 ‘‘(B) APPLICATION OF INCREASED PAY17 MENTS AFTER 2006.—The increased payments 

18 under subparagraph (A) shall not be taken into 

19 account in calculating payments for services 

20 furnished after the period specified in such sub21 paragraph.’’. 

22 (e) IMPLEMENTATION.—The Secretary may imple23 ment the amendments made by this section, and revise 

24 the conversion factor applicable under section 1834(l) of 

25 the Social Security Act (42 U.S.C. 1395m(l)) for purposes 
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1 of implementing such amendments, on an interim final 

2 basis, or by program instruction. 

3 (f) GAO REPORT ON COSTS AND ACCESS.—Not later 

4 than December 31, 2005, the Comptroller General of the 

5 United States shall submit to Congress an initial report 

6 on how costs differ among the types of ambulance pro7 viders and on access, supply, and quality of ambulance 

8 services in those regions and States that have a reduction 

9 in payment under the medicare ambulance fee schedule 

10 (under section 1834(l) of the Social Security Act, as 

11 amended by this Act). Not later than December 31, 2007, 

12 the Comptroller General shall submit to Congress a final 

13 report on such access and supply. 

14 (g) TECHNICAL AMENDMENTS.—(1) Section 221(c) 

15 of BIPA (114 Stat. 2763A–487) is amended by striking 

16 ‘‘subsection (b)(2)’’ and inserting ‘‘subsection (b)(3)’’. 

17 (2) Section 1861(v)(1) (42 U.S.C. 1395x(v)(1)) is 

18 amended by moving subparagraph (U) 4 ems to the left. 

19 SEC. 206. PROVIDING APPROPRIATE COVERAGE OF RURAL 

20 AIR AMBULANCE SERVICES. 

21 (a) COVERAGE.—Section 1834(l) (42 U.S.C. 

22 1395m(l)), as amended by subsections (a), (b), (c), and 

23 (d) of section 205, is amended by adding at the end the 

24 following new paragraph:
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1 ‘‘(14) PROVIDING APPROPRIATE COVERAGE OF

2 RURAL AIR AMBULANCE SERVICES.—

3 ‘‘(A) IN GENERAL.—The regulations de4 scribed in section 1861(s)(7) shall provide, to 

5 the extent that any ambulance services (wheth6 er ground or air) may be covered under such 

7 section, that a rural air ambulance service (as 

8 defined in subparagraph (C)) is reimbursed 

9 under this subsection at the air ambulance rate 

10 if the air ambulance service— 

11 ‘‘(i) is reasonable and necessary based 

12 on the health condition of the individual 

13 being transported at or immediately prior 

14 to the time of the transport; and 

15 ‘‘(ii) complies with equipment and 

16 crew requirements established by the Sec17 retary. 

18 ‘‘(B) SATISFACTION OF REQUIREMENT OF

19 MEDICALLY NECESSARY.—The requirement of 

20 subparagraph (A)(i) is deemed to be met for a 

21 rural air ambulance service if—

22 ‘‘(i) subject to subparagraph (D), 

23 such service is requested by a physician or 

24 other qualified medical personnel (as speci25 fied by the Secretary) who reasonably de-
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1 termines or certifies that the individual’s 

2 condition is such that the time needed to 

3 transport the individual by land or the in4 stability of transportation by land poses a 

5 threat to the individual’s survival or seri6 ously endangers the individual’s health; or 

7 ‘‘(ii) such service is furnished pursu8 ant to a protocol that is established by a 

9 State or regional emergency medical serv10 ice (EMS) agency and recognized or ap11 proved by the Secretary under which the 

12 use of an air ambulance is recommended, 

13 if such agency does not have an ownership 

14 interest in the entity furnishing such serv15 ice. 

16 ‘‘(C) RURAL AIR AMBULANCE SERVICE DE17 FINED.—For purposes of this paragraph, the 

18 term ‘rural air ambulance service’ means fixed 

19 wing and rotary wing air ambulance service in 

20 which the point of pick up of the individual oc21 curs in a rural area (as defined in section 

22 1886(d)(2)(D)) or in a rural census tract of a 

23 metropolitan statistical area (as determined 

24 under the most recent modification of the Gold25 smith Modification, originally published in the 
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1 Federal Register on February 27, 1992 (57 

2 Fed. Reg. 6725)). 

3 ‘‘(D) LIMITATION.—

4 ‘‘(i) IN GENERAL.—Subparagraph 

5 (B)(i) shall not apply if there is a financial 

6 or employment relationship between the 

7 person requesting the rural air ambulance 

8 service and the entity furnishing the ambu9 lance service, or an entity under common 

10 ownership with the entity furnishing the 

11 air ambulance service, or a financial rela12 tionship between an immediate family 

13 member of such requester and such an en14 tity. 

15 ‘‘(ii) EXCEPTION.—Where a hospital 

16 and the entity furnishing rural air ambu17 lance services are under common owner18 ship, clause (i) shall not apply to remu19 neration (through employment or other re20 lationship) by the hospital of the requester 

21 or immediate family member if the remu22 neration is for provider-based physician 

23 services furnished in a hospital (as de24 scribed in section 1887) which are reim25 bursed under part A and the amount of 
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1 the remuneration is unrelated directly or 

2 indirectly to the provision of rural air am3 bulance services.’’. 

4 (b) CONFORMING AMENDMENT.—Section 1861(s)(7) 

5 (42 U.S.C. 1395x(s)(7)) is amended by inserting ‘‘, sub6 ject to section 1834(l)(14),’’ after ‘‘but’’. 

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

8 this subsection shall apply to services furnished on or after 

9 January 1, 2005.

10 SEC. 207. TREATMENT OF CERTAIN CLINICAL DIAGNOSTIC 

11 LABORATORY TESTS FURNISHED TO HOS12 PITAL OUTPATIENTS IN CERTAIN RURAL 

13 AREAS. 

14 (a) IN GENERAL.—Notwithstanding subsections (a), 

15 (b), and (h) of section 1833 of the Social Security Act 

16 (42 U.S.C. 1395l) and section 1834(d)(1) of such Act (42 

17 U.S.C. 1395m(d)(1)), in the case of a clinical diagnostic 

18 laboratory test covered under part B of title XVIII of such 

19 Act that is furnished during a cost reporting period de20 scribed in subsection (b) by a hospital with fewer than 

21 50 beds that is located in a qualified rural area (identified 

22 under paragraph (12)(B)(iii) of section 1834(l) of the So23 cial Security Act (42 U.S.C. 1395m(l)), as added by sec24 tion 205(c)) as part of outpatient services of the hospital, 

25 the amount of payment for such test shall be 100 percent 
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1 of the reasonable costs of the hospital in furnishing such 

2 test. 

3 (b) APPLICATION.—A cost reporting period described 

4 in this subsection is a cost reporting period beginning dur5 ing the 2-year period beginning on July 1, 2004. 

6 (c) PROVISION AS PART OF OUTPATIENT HOSPITAL

7 SERVICES.—For purposes of subsection (a), in deter8 mining whether clinical diagnostic laboratory services are 

9 furnished as part of outpatient services of a hospital, the 

10 Secretary shall apply the same rules that are used to de11 termine whether clinical diagnostic laboratory services are 

12 furnished as an outpatient critical access hospital service 

13 under section 1834(g)(4) of the Social Security Act (42 

14 U.S.C. 1395m(g)(4)). 

15 SEC. 208. EXTENSION OF TELEMEDICINE DEMONSTRATION 

16 PROJECT. 

17 Section 4207 of the Balanced Budget Act of 1997 

18 (Public Law 105–33) is amended—

19 (1) in subsection (a)(4), by striking ‘‘4-year’’ 

20 and inserting ‘‘8-year’’; and 

21 (2) in subsection (d)(3), by striking 

22 ‘‘$30,000,000’’ and inserting ‘‘$60,000,000’’.
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1 SEC. 209. REPORT ON DEMONSTRATION PROJECT PERMIT2 TING SKILLED NURSING FACILITIES TO BE 

3 ORIGINATING TELEHEALTH SITES; AUTHOR4 ITY TO IMPLEMENT. 

5 (a) EVALUATION.—The Secretary, acting through the 

6 Administrator of the Health Resources and Services Ad7 ministration in consultation with the Administrator of the 

8 Centers for Medicare & Medicaid Services, shall evaluate 

9 demonstration projects conducted by the Secretary under 

10 which skilled nursing facilities (as defined in section 

11 1819(a) of the Social Security Act (42 U.S.C. 1395i–3(a)) 

12 are treated as originating sites for telehealth services. 

13 (b) REPORT.—Not later than January 1, 2005, the 

14 Secretary shall submit to Congress a report on the evalua15 tion conducted under subsection (a). Such report shall in16 clude recommendations on mechanisms to ensure that per17 mitting a skilled nursing facility to serve as an originating 

18 site for the use of telehealth services or any other service 

19 delivered via a telecommunications system does not serve 

20 as a substitute for in-person visits furnished by a physi21 cian, or for in-person visits furnished by a physician as22 sistant, nurse practitioner or clinical nurse specialist, as 

23 is otherwise required by the Secretary. 

24 (c) AUTHORITY TO EXPAND ORIGINATING TELE25 HEALTH SITES TO INCLUDE SKILLED NURSING FACILI26 TIES.—Insofar as the Secretary concludes in the report 
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1 required under subsection (b) that it is advisable to permit 

2 a skilled nursing facility to be an originating sites for tele3 health services under section 1834(m) of the Social Secu4 rity Act (42 U.S.C. 1395m(m)), and that the Secretary 

5 can establish the mechanisms to ensure such permission 

6 does not serve as a substitute for in-person visits furnished 

7 by a physician, or for in-person visits furnished by a physi8 cian assistant, nurse practitioner or clinical nurse spe9 cialist, the Secretary may deem a skilled nursing facility 

10 to be an originating site under paragraph (4)(C)(ii) of 

11 such section beginning on January 1, 2006. 

12 SEC. 210. 5-YEAR AUTHORIZATION OF REIMBURSEMENT 

13 FOR ALL MEDICARE PART B SERVICES FUR14 NISHED BY CERTAIN INDIAN HOSPITALS AND 

15 CLINICS. 

16 Section 1880(e)(1)(A) (42 U.S.C. 1395qq(e)(1)(A)) 

17 is amended by inserting ‘‘(and for items and services fur18 nished during the 5-year period beginning on January 1, 

19 2005, all items and services for which payment may be 

20 made under part B)’’ after ‘‘for services described in para21 graph (2)’’. 

22 SEC. 211. MEDPAC REPORT ON PAYMENT FOR PHYSICIANS’

23 SERVICES. 

24 (a) PRACTICE EXPENSE COMPONENT.—Not later 

25 than 1 year after the date of the enactment of this Act, 
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1 the Medicare Payment Advisory Commission shall submit 

2 to Congress a report on the effect of refinements to the 

3 practice expense component of payments for physicians’ 

4 services, after the transition to a full resource-based pay5 ment system in 2002, under section 1848 of the Social 

6 Security Act (42 U.S.C. 1395w–4). Such report shall ex7 amine the following matters by physician specialty: 

8 (1) The effect of such refinements on payment 

9 for physicians’ services. 

10 (2) The interaction of the practice expense com11 ponent with other components of and adjustments to 

12 payment for physicians’ services under such section. 

13 (3) The appropriateness of the amount of com14 pensation by reason of such refinements. 

15 (4) The effect of such refinements on access to 

16 care by medicare beneficiaries to physicians’ serv17 ices. 

18 (5) The effect of such refinements on physician 

19 participation under the medicare program. 

20 (b) VOLUME OF PHYSICIANS’ SERVICES.—Not later 

21 than 1 year after the date of the enactment of this Act, 

22 the Medicare Payment Advisory Commission shall submit 

23 to Congress a report on the extent to which increases in 

24 the volume of physicians’ services under part B of the 

25 medicare program are a result of care that improves the 
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1 health and well-being of medicare beneficiaries. The study 

2 shall include the following: 

3 (1) An analysis of recent and historic growth in 

4 the components that the Secretary includes under 

5 the sustainable growth rate (under section 1848(f) 

6 of the Social Security Act (42 U.S.C. 1395w–4(f))). 

7 (2) An examination of the relative growth of 

8 volume in physicians’ services between medicare 

9 beneficiaries and other populations. 

10 (3) An analysis of the degree to which new 

11 technology, including coverage determinations of the 

12 Centers for Medicare & Medicaid Services, has af13 fected the volume of physicians’ services. 

14 (4) An examination of the impact on volume of 

15 demographic changes. 

16 (5) An examination of shifts in the site of serv17 ice or services that influence the number and inten18 sity of services furnished in physicians’ offices and 

19 the extent to which changes in reimbursement rates 

20 to other providers have effected these changes. 

21 (6) An evaluation of the extent to which the 

22 Centers for Medicare & Medicaid Services takes into 

23 account the impact of law and regulations on the 

24 sustainable growth rate.
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1 SEC. 212. PAYMENT FOR RENAL DIALYSIS SERVICES. 

2 (a) INCREASE IN RENAL DIALYSIS COMPOSITE RATE

3 FOR SERVICES FURNISHED.—The last sentence of section 

4 1881(b)(7) (42 U.S.C. 1395rr(b)(7)) is amended—

5 (1) by striking ‘‘and’’ before ‘‘for such services’’ 

6 the second place it appears; 

7 (2) by inserting ‘‘and before January 1, 2005,’’ 

8 after ‘‘January 1, 2001,’’; and 

9 (3) by inserting before the period at the end the 

10 following: ‘‘, and for such services furnished on or 

11 after January 1, 2005, by 1.6 percent above such 

12 composite rate payment amounts for such services 

13 furnished on December 31, 2004’’. 

14 (b) RESTORING COMPOSITE RATE EXCEPTIONS FOR

15 PEDIATRIC FACILITIES.—

16 (1) IN GENERAL.—Section 422(a)(2) of BIPA 

17 is amended—

18 (A) in subparagraph (A), by striking ‘‘and 

19 (C)’’ and inserting ‘‘, (C), and (D)’’; 

20 (B) in subparagraph (B), by striking ‘‘In 

21 the case’’ and inserting ‘‘Subject to subpara22 graph (D), in the case’’; and 

23 (C) by adding at the end the following new 

24 subparagraph: 

25 ‘‘(D) INAPPLICABILITY TO PEDIATRIC FA26 CILITIES.—Subparagraphs (A) and (B) shall
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1 not apply, as of October 1, 2002, to pediatric 

2 facilities that do not have an exception rate de3 scribed in subparagraph (C) in effect on such 

4 date. For purposes of this subparagraph, the 

5 term ‘pediatric facility’ means a renal facility 

6 at least 50 percent of whose patients are indi7 viduals under 18 years of age.’’. 

8 (2) CONFORMING AMENDMENT.—The fourth 

9 sentence of section 1881(b)(7) (42 U.S.C. 

10 1395rr(b)(7)) is amended by striking ‘‘The Sec11 retary’’ and inserting ‘‘Subject to section 422(a)(2) 

12 of the Medicare, Medicaid, and SCHIP Benefits Im13 provement and Protection Act of 2000, the Sec14 retary’’. 

15 (c) INSPECTOR GENERAL STUDIES ON ESRD 

16 DRUGS.—

17 (1) IN GENERAL.—The Inspector General of 

18 the Department of Health and Human Services shall 

19 conduct two studies with respect to drugs and 

20 biologicals (including erythropoietin) furnished to 

21 end-stage renal disease patients under the medicare 

22 program which are separately billed by end stage 

23 renal disease facilities. 

24 (2) STUDIES ON ESRD DRUGS.—
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1 (A) EXISTING DRUGS.—The first study 

2 under paragraph (1) shall be conducted with re3 spect to such drugs and biologicals for which a 

4 billing code exists prior to January 1, 2004. 

5 (B) NEW DRUGS.—The second study 

6 under paragraph (1) shall be conducted with re7 spect to such drugs and biologicals for which a 

8 billing code does not exist prior to January 1, 

9 2004. 

10 (3) MATTERS STUDIED.—Under each study 

11 conducted under paragraph (1), the Inspector Gen12 eral shall—

13 (A) determine the difference between the 

14 amount of payment made to end stage renal 

15 disease facilities under title XVIII of the Social 

16 Security Act for such drugs and biologicals and 

17 the acquisition costs of such facilities for such 

18 drugs and biologicals and which are separately 

19 billed by end stage renal disease facilities, and 

20 (B) estimate the rates of growth of ex21 penditures for such drugs and biologicals billed 

22 by such facilities. 

23 (4) REPORTS.—

24 (A) EXISTING ESRD DRUGS.—Not later 

25 than April 1, 2004, the Inspector General shall 
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1 report to the Secretary on the study described 

2 in paragraph (2)(A). 

3 (B) NEW ESRD DRUGS.—Not later than 

4 April 1, 2006, the Inspector General shall re5 port to the Secretary on the study described in 

6 paragraph (2)(B). 

7 (d) BASIC CASE-MIX ADJUSTED COMPOSITE RATE

8 FOR RENAL DIALYSIS FACILITY SERVICES.—(1) Section 

9 1881(b) (42 U.S.C. 1395rr(b)) is amended by adding at 

10 the end the following new paragraphs: 

11 ‘‘(12)(A) In lieu of payment under paragraph (7) be12 ginning with services furnished on January 1, 2005, the 

13 Secretary shall establish a basic case-mix adjusted pro14 spective payment system for dialysis services furnished by 

15 providers of services and renal dialysis facilities in a year 

16 to individuals in a facility and to such individuals at home. 

17 The case-mix under such system shall be for a limited 

18 number of patient characteristics. 

19 ‘‘(B) The system described in subparagraph (A) shall 

20 include—

21 ‘‘(i) the services comprising the composite rate 

22 established under paragraph (7); and 

23 ‘‘(ii) the difference between payment amounts 

24 under this title for separately billed drugs and 

25 biologicals (including erythropoietin) and acquisition 
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1 costs of such drugs and biologicals, as determined by 

2 the Inspector General reports to the Secretary as re3 quired by section 623(c) of the Medicare Prescrip4 tion Drug, Improvement, and Modernization Act of 

5 2003—

6 ‘‘(I) beginning with 2005, for such drugs 

7 and biologicals for which a billing code exists 

8 prior to January 1, 2004; and 

9 ‘‘(II) beginning with 2007, for such drugs 

10 and biologicals for which a billing code does not 

11 exist prior to January 1, 2004, 

12 adjusted to 2005, or 2007, respectively, as deter13 mined to be appropriate by the Secretary. 

14 ‘‘(C)(i) In applying subparagraph (B)(ii) for 2005, 

15 such payment amounts under this title shall be determined 

16 using the methodology specified in paragraph (13)(A)(i). 

17 ‘‘(ii) For 2006, the Secretary shall provide for an ad18 justment to the payments under clause (i) to reflect the 

19 difference between the payment amounts using the meth20 odology under paragraph (13)(A)(i) and the payment 

21 amount determined using the methodology applied by the 

22 Secretary under paragraph (13)(A)(iii) of such paragraph, 

23 as estimated by the Secretary. 

24 ‘‘(D) The Secretary shall adjust the payment rates 

25 under such system by a geographic index as the Secretary 
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1 determines to be appropriate. If the Secretary applies a 

2 geographic index under this paragraph that differs from 

3 the index applied under paragraph (7) the Secretary shall 

4 phase-in the application of the index under this paragraph 

5 over a multiyear period. 

6 ‘‘(E)(i) Such system shall be designed to result in the 

7 same aggregate amount of expenditures for such services, 

8 as estimated by the Secretary, as would have been made 

9 for 2005 if this paragraph did not apply. 

10 ‘‘(ii) The adjustment made under subparagraph 

11 (B)(ii)(II) shall be done in a manner to result in the same 

12 aggregate amount of expenditures after such adjustment 

13 as would otherwise have been made for such services for 

14 2006 or 2007, respectively, as estimated by the Secretary, 

15 if this paragraph did not apply. 

16 ‘‘(F) Beginning with 2006, the Secretary shall annu17 ally increase the basic case-mix adjusted payment amounts 

18 established under this paragraph, by an amount deter19 mined by—

20 ‘‘(i) applying the estimated growth in expendi21 tures for drugs and biologicals (including erythro22 poietin) that are separately billable to the component 

23 of the basic case-mix adjusted system described in 

24 subparagraph (B)(ii); and
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1 ‘‘(ii) converting the amount determined in 

2 clause (i) to an increase applicable to the basic case3 mix adjusted payment amounts established under 

4 subparagraph (B). 

5 Nothing in this paragraph shall be construed as providing 

6 for an update to the composite rate component of the basic 

7 case-mix adjusted system under subparagraph (B). 

8 ‘‘(G) There shall be no administrative or judicial re9 view under section 1869, section 1878, or otherwise, of 

10 the case-mix system, relative weights, payment amounts, 

11 the geographic adjustment factor, or the update for the 

12 system established under this paragraph, or the deter13 mination of the difference between medicare payment 

14 amounts and acquisition costs for separately billed drugs 

15 and biologicals (including erythropoietin) under this para16 graph and paragraph (13). 

17 ‘‘(13)(A) The payment amounts under this title for 

18 separately billed drugs and biologicals furnished in a year, 

19 beginning with 2004, are as follows: 

20 ‘‘(i) For such drugs and biologicals (other than 

21 erythropoietin) furnished in 2004, the amount deter22 mined under section 1842(o)(1)(A)(v) for the drug 

23 or biological. 

24 ‘‘(ii) For such drugs and biologicals (including 

25 erythropoietin) furnished in 2005, the acquisition 
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1 cost of the drug or biological, as determined by the 

2 Inspector General reports to the Secretary as re3 quired by section 623(c) of the Medicare Prescrip4 tion Drug, Improvement, and Modernization Act of 

5 2003. Insofar as the Inspector General has not de6 termined the acquisition cost with respect to a drug 

7 or biological, the Secretary shall determine the pay8 ment amount for such drug or biological. 

9 ‘‘(iii) For such drugs and biologicals (including 

10 erythropoietin) furnished in 2006 and subsequent 

11 years, such acquisition cost or the amount deter12 mined under section 1847A for the drug or biologi13 cal, as the Secretary may specify. 

14 ‘‘(B)(i) Drugs and biologicals (including erythro15 poietin) which were separately billed under this subsection 

16 on the day before the date of the enactment of the Medi17 care Prescription Drug, Improvement, and Modernization 

18 Act of 2003 shall continue to be separately billed on and 

19 after such date. 

20 ‘‘(ii) Nothing in this paragraph, section 1842(o), sec21 tion 1847A, or section 1847B shall be construed as requir22 ing or authorizing the bundling of payment for drugs and 

23 biologicals into the basic case-mix adjusted payment sys24 tem under this paragraph.’’. 
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1 (2) Paragraph (7) of such section is amended in the 

2 first sentence by striking ‘‘The Secretary’’ and inserting 

3 ‘‘Subject to paragraph (12), the Secretary’’. 

4 (3) Paragraph (11)(B) of such section is amended by 

5 inserting ‘‘subject to paragraphs (12) and (13)’’ before 

6 ‘‘payment for such item’’. 

7 (e) DEMONSTRATION OF BUNDLED CASE-MIX AD8 JUSTED PAYMENT SYSTEM FOR ESRD SERVICES.—

9 (1) IN GENERAL.—The Secretary shall establish 

10 a demonstration project of the use of a fully case11 mix adjusted payment system for end stage renal 

12 disease services under section 1881 of the Social Se13 curity Act (42 U.S.C. 1395rr) for patient character14 istics identified in the report under subsection (f) 

15 that bundles into such payment rates amounts for—

16 (A) drugs and biologicals (including eryth17 ropoietin) furnished to end stage renal disease 

18 patients under the medicare program which are 

19 separately billed by end stage renal disease fa20 cilities (as of the date of the enactment of this 

21 Act); and 

22 (B) clinical laboratory tests related to such 

23 drugs and biologicals. 

24 (2) FACILITIES INCLUDED IN THE DEMONSTRA25 TION.—In conducting the demonstration under this 
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1 subsection, the Secretary shall ensure the participa2 tion of a sufficient number of providers of dialysis 

3 services and renal dialysis facilities, but in no case 

4 to exceed 500. In selecting such providers and facili5 ties, the Secretary shall ensure that the following 

6 types of providers are included in the demonstration: 

7 (A) Urban providers and facilities. 

8 (B) Rural providers and facilities. 

9 (C) Not-for-profit providers and facilities. 

10 (D) For-profit providers and facilities. 

11 (E) Independent providers and facilities. 

12 (F) Specialty providers and facilities, in13 cluding pediatric providers and facilities and 

14 small providers and facilities. 

15 (3) TEMPORARY ADD-ON PAYMENT FOR DIALY16 SIS SERVICES FURNISHED UNDER THE DEMONSTRA17 TION.—

18 (A) IN GENERAL.—During the period of 

19 the demonstration project, the Secretary shall 

20 increase payment rates that would otherwise 

21 apply under section 1881(b) of such Act (42 

22 U.S.C. 1395rr(b)) by 1.6 percent for dialysis 

23 services furnished in facilities in the demonstra24 tion site. 
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1 (B) RULES OF CONSTRUCTION.—Nothing 

2 in this subsection shall be construed as—

3 (i) as an annual update under section 

4 1881(b) of the Social Security Act (42 

5 U.S.C. 1395rr(b)); 

6 (ii) as increasing the baseline for pay7 ments under such section; or 

8 (iii) requiring the budget neutral im9 plementation of the demonstration project 

10 under this subsection. 

11 (4) 3-YEAR PERIOD.—The Secretary shall con12 duct the demonstration under this subsection for the 

13 3-year period beginning on January 1, 2006. 

14 (5) USE OF ADVISORY BOARD.—

15 (A) IN GENERAL.—In carrying out the 

16 demonstration under this subsection, the Sec17 retary shall establish an advisory board com18 prised of representatives described in subpara19 graph (B) to provide advice and recommenda20 tions with respect to the establishment and op21 eration of such demonstration. 

22 (B) REPRESENTATIVES.—Representatives 

23 referred to in subparagraph (A) include rep24 resentatives of the following: 

25 (i) Patient organizations.
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1 (ii) Individuals with expertise in end 

2 stage renal dialysis services, such as clini3 cians, economists, and researchers. 

4 (iii) The Medicare Payment Advisory 

5 Commission, established under section 

6 1805 of the Social Security Act (42 U.S.C. 

7 1395b–6). 

8 (iv) The National Institutes of 

9 Health. 

10 (v) Network organizations under sec11 tion 1881(c) of the Social Security Act (42 

12 U.S.C. 1395rr(c)). 

13 (vi) Medicare contractors to monitor 

14 quality of care. 

15 (vii) Providers of services and renal 

16 dialysis facilities furnishing end stage renal 

17 disease services. 

18 (C) TERMINATION OF ADVISORY PANEL.—

19 The advisory panel shall terminate on Decem20 ber 31, 2008. 

21 (6) AUTHORIZATION OF APPROPRIATIONS.—

22 There are authorized to be appropriated, in appro23 priate part from the Federal Hospital Insurance 

24 Trust Fund and the Federal Supplementary Medical 

25 Insurance Trust Fund, $5,000,000 in fiscal year 
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1 2006 to conduct the demonstration under this sub2 section. 

3 (f) REPORT ON A BUNDLED PROSPECTIVE PAYMENT

4 SYSTEM FOR END STAGE RENAL DISEASE SERVICES.—

5 (1) REPORT.—

6 (A) IN GENERAL.—Not later than October 

7 1, 2005, the Secretary shall submit to Congress 

8 a report detailing the elements and features for 

9 the design and implementation of a bundled 

10 prospective payment system for services fur11 nished by end stage renal disease facilities in12 cluding, to the maximum extent feasible, bun13 dling of drugs, clinical laboratory tests, and 

14 other items that are separately billed by such 

15 facilities. The report shall include a description 

16 of the methodology to be used for the establish17 ment of payment rates, including components of 

18 the new system described in paragraph (2). 

19 (B) RECOMMENDATIONS.—The Secretary 

20 shall include in such report recommendations 

21 on elements, features, and methodology for a 

22 bundled prospective payment system or other 

23 issues related to such system as the Secretary 

24 determines to be appropriate. 
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1 (2) ELEMENTS AND FEATURES OF A BUNDLED

2 PROSPECTIVE PAYMENT SYSTEM.—The report re3 quired under paragraph (1) shall include the fol4 lowing elements and features of a bundled prospec5 tive payment system: 

6 (A) BUNDLE OF ITEMS AND SERVICES.—A 

7 description of the bundle of items and services 

8 to be included under the prospective payment 

9 system. 

10 (B) CASE MIX.—A description of the case11 mix adjustment to account for the relative re12 source use of different types of patients. 

13 (C) WAGE INDEX.—A description of an ad14 justment to account for geographic differences 

15 in wages. 

16 (D) RURAL AREAS.—The appropriateness 

17 of establishing a specific payment adjustment to 

18 account for additional costs incurred by rural 

19 facilities. 

20 (E) OTHER ADJUSTMENTS.—Such other 

21 adjustments as may be necessary to reflect the 

22 variation in costs incurred by facilities in caring 

23 for patients with end stage renal disease. 
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1 (F) UPDATE FRAMEWORK.—A method2 ology for appropriate updates under the pro3 spective payment system. 

4 (G) ADDITIONAL RECOMMENDATIONS.—

5 Such other matters as the Secretary determines 

6 to be appropriate. 

7 SEC. 213. 2-YEAR MORATORIUM ON THERAPY CAPS; PROVI8 SIONS RELATING TO REPORTS. 

9 (a) ADDITIONAL MORATORIUM ON THERAPY CAPS.—

10 (1) 2004 AND 2005.—Section 1833(g)(4) (42 

11 U.S.C. 1395l(g)(4)) is amended by striking ‘‘and 

12 2002’’ and inserting ‘‘2002, 2004, and 2005’’. 

13 (2) REMAINDER OF 2003.—For the period be14 ginning on the date of the enactment of this Act and 

15 ending of December 31, 2003, the Secretary shall 

16 not apply the provisions of paragraphs (1), (2), and 

17 (3) of section 1833(g) to expenses incurred with re18 spect to services described in such paragraphs dur19 ing such period. Nothing in the preceding sentence 

20 shall be construed as affecting the application of 

21 such paragraphs by the Secretary before the date of 

22 the enactment of this Act. 

23 (b) PROMPT SUBMISSION OF OVERDUE REPORTS ON

24 PAYMENT AND UTILIZATION OF OUTPATIENT THERAPY

25 SERVICES.—Not later than March 31, 2004, the Secretary 
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1 shall submit to Congress the reports required under sec2 tion 4541(d)(2) of the Balanced Budget Act of 1997 

3 (Public Law 105–33; 111 Stat. 457) (relating to alter4 natives to a single annual dollar cap on outpatient ther5 apy) and under section 221(d) of the Medicare, Medicaid, 

6 and SCHIP Balanced Budget Refinement Act of 1999 

7 (Appendix F, 113 Stat. 1501A–352), as enacted into law 

8 by section 1000(a)(6) of Public Law 106–113 (relating 

9 to utilization patterns for outpatient therapy). 

10 (c) GAO REPORT IDENTIFYING CONDITIONS AND

11 DISEASES JUSTIFYING WAIVER OF THERAPY CAP.—

12 (1) STUDY.—The Comptroller General of the 

13 United States shall identify conditions or diseases 

14 that may justify waiving the application of the ther15 apy caps under section 1833(g) of the Social Secu16 rity Act (42 U.S.C. 1395l(g)) with respect to such 

17 conditions or diseases. 

18 (2) REPORT TO CONGRESS.—Not later than Oc19 tober 1, 2004, the Comptroller General shall submit 

20 to Congress a report on the conditions and diseases 

21 identified under paragraph (1), and shall include a 

22 recommendation of criteria, with respect to such 

23 conditions and disease, under which a waiver of the 

24 therapy caps would apply.
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1 SEC. 214. PAYMENT FOR CLINICAL DIAGNOSTIC LABORA2 TORY TESTS. 

3 Section 1833(h)(2)(A)(ii)(IV) (42 U.S.C. 

4 1395l(h)(2)(A)(ii)(IV)) is amended by striking ‘‘and 1998 

5 through 2002’’ and inserting ‘‘, 1998 through 2002, and 

6 2004 through 2008’’. 

7 TITLE III—PROVISIONS 

8 RELATING TO PARTS A AND B 

9 SEC. 301. 1-YEAR INCREASE FOR HOME HEALTH SERVICES 

10 FURNISHED IN A RURAL AREA. 

11 (a) IN GENERAL.—With respect to episodes and vis12 its ending on or after April 1, 2004, and before April 1, 

13 2005, in the case of home health services furnished in a 

14 rural area (as defined in section 1886(d)(2)(D) of the So15 cial Security Act (42 U.S.C. 1395ww(d)(2)(D))), the Sec16 retary shall increase the payment amount otherwise made 

17 under section 1895 of such Act (42 U.S.C. 1395fff ) for 

18 such services by 5 percent. 

19 (b) WAIVING BUDGET NEUTRALITY.—The Secretary 

20 shall not reduce the standard prospective payment amount 

21 (or amounts) under section 1895 of the Social Security 

22 Act (42 U.S.C. 1395fff ) applicable to home health services 

23 furnished during a period to offset the increase in pay24 ments resulting from the application of subsection (a). 
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1 (c) NO EFFECT ON SUBSEQUENT PERIODS.—The 

2 payment increase provided under subsection (a) for a pe3 riod under such subsection—

4 (1) shall not apply to episodes and visits ending 

5 after such period; and 

6 (2) shall not be taken into account in calcu7 lating the payment amounts applicable for episodes 

8 and visits occurring after such period. 

9 SEC. 302. REDISTRIBUTION OF UNUSED RESIDENT POSI10 TIONS. 

11 (a) IN GENERAL.—Section 1886(h) (42 U.S.C. 

12 1395ww(h)(4)) is amended—

13 (1) in paragraph (4)(F)(i), by inserting ‘‘sub14 ject to paragraph (7),’’ after ‘‘October 1, 1997,’’; 

15 (2) in paragraph (4)(H)(i), by inserting ‘‘and 

16 subject to paragraph (7)’’ after ‘‘subparagraphs (F) 

17 and (G)’’; and 

18 (3) by adding at the end the following new 

19 paragraph: 

20 ‘‘(7) REDISTRIBUTION OF UNUSED RESIDENT

21 POSITIONS.—

22 ‘‘(A) REDUCTION IN LIMIT BASED ON UN23 USED POSITIONS.—

24 ‘‘(i) PROGRAMS SUBJECT TO REDUC25 TION.—
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1 ‘‘(I) IN GENERAL.—Except as 

2 provided in subclause (II), if a hos3 pital’s reference resident level (speci4 fied in clause (ii)) is less than the oth5 erwise applicable resident limit (as de6 fined in subparagraph (C)(ii)), effec7 tive for portions of cost reporting pe8 riods occurring on or after July 1, 

9 2005, the otherwise applicable resi10 dent limit shall be reduced by 75 per11 cent of the difference between such 

12 otherwise applicable resident limit and 

13 such reference resident level. 

14 ‘‘(II) EXCEPTION FOR SMALL

15 RURAL HOSPITALS.—This subpara16 graph shall not apply to a hospital lo17 cated in a rural area (as defined in 

18 subsection (d)(2)(D)(ii)) with fewer 

19 than 250 acute care inpatient beds. 

20 ‘‘(ii) REFERENCE RESIDENT LEVEL.—

21 ‘‘(I) IN GENERAL.—Except as 

22 otherwise provided in subclauses (II) 

23 and (III), the reference resident level 

24 specified in this clause for a hospital 

25 is the resident level for the most re-
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1 cent cost reporting period of the hos2 pital ending on or before September 

3 30, 2002, for which a cost report has 

4 been settled (or, if not, submitted 

5 (subject to audit)), as determined by 

6 the Secretary. 

7 ‘‘(II) USE OF MOST RECENT AC8 COUNTING PERIOD TO RECOGNIZE EX9 PANSION OF EXISTING PROGRAMS.—If 

10 a hospital submits a timely request to 

11 increase its resident level due to an 

12 expansion of an existing residency 

13 training program that is not reflected 

14 on the most recent settled cost report, 

15 after audit and subject to the discre16 tion of the Secretary, the reference 

17 resident level for such hospital is the 

18 resident level for the cost reporting 

19 period that includes July 1, 2003, as 

20 determined by the Secretary. 

21 ‘‘(III) EXPANSIONS UNDER

22 NEWLY APPROVED PROGRAMS.—Upon 

23 the timely request of a hospital, the 

24 Secretary shall adjust the reference 

25 resident level specified under sub-
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1 clause (I) or (II) to include the num2 ber of medical residents that were ap3 proved in an application for a medical 

4 residency training program that was 

5 approved by an appropriate accred6 iting organization (as determined by 

7 the Secretary) before January 1, 

8 2002, but which was not in operation 

9 during the cost reporting period used 

10 under subclause (I) or (II), as the 

11 case may be, as determined by the 

12 Secretary. 

13 ‘‘(iii) AFFILIATION.—The provisions 

14 of clause (i) shall be applied to hospitals 

15 which are members of the same affiliated 

16 group (as defined by the Secretary under 

17 paragraph (4)(H)(ii)) as of July 1, 2003. 

18 ‘‘(B) REDISTRIBUTION.—

19 ‘‘(i) IN GENERAL.—The Secretary is 

20 authorized to increase the otherwise appli21 cable resident limit for each qualifying hos22 pital that submits a timely application 

23 under this subparagraph by such number 

24 as the Secretary may approve for portions 

25 of cost reporting periods occurring on or
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1 after July 1, 2005. The aggregate number 

2 of increases in the otherwise applicable 

3 resident limits under this subparagraph 

4 may not exceed the Secretary’s estimate of 

5 the aggregate reduction in such limits at6 tributable to subparagraph (A). 

7 ‘‘(ii) CONSIDERATIONS IN REDIS8 TRIBUTION.—In determining for which 

9 hospitals the increase in the otherwise ap10 plicable resident limit is provided under 

11 clause (i), the Secretary shall take into ac12 count the demonstrated likelihood of the 

13 hospital filling the positions within the first 

14 3 cost reporting periods beginning on or 

15 after July 1, 2005, made available under 

16 this subparagraph, as determined by the 

17 Secretary. 

18 ‘‘(iii) PRIORITY FOR RURAL AND

19 SMALL URBAN AREAS.—In determining for 

20 which hospitals and residency training pro21 grams an increase in the otherwise applica22 ble resident limit is provided under clause 

23 (i), the Secretary shall distribute the in24 crease to programs of hospitals located in 

25 the following priority order: 
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1 ‘‘(I) First, to hospitals located in 

2 rural areas (as defined in subsection 

3 (d)(2)(D)(ii)). 

4 ‘‘(II) Second, to hospitals located 

5 in urban areas that are not large 

6 urban areas (as defined for purposes 

7 of subsection (d)). 

8 ‘‘(III) Third, to other hospitals in 

9 a State if the residency training pro10 gram involved is in a specialty for 

11 which there are not other residency 

12 training programs in the State. 

13 Increases of residency limits within the 

14 same priority category under this clause 

15 shall be determined by the Secretary. 

16 ‘‘(iv) LIMITATION.—In no case shall 

17 more than 25 full-time equivalent addi18 tional residency positions be made available 

19 under this subparagraph with respect to 

20 any hospital. 

21 ‘‘(v) APPLICATION OF LOCALITY AD22 JUSTED NATIONAL AVERAGE PER RESI23 DENT AMOUNT.—With respect to addi24 tional residency positions in a hospital at25 tributable to the increase provided under 
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1 this subparagraph, notwithstanding any 

2 other provision of this subsection, the ap3 proved FTE resident amount is deemed to 

4 be equal to the locality adjusted national 

5 average per resident amount computed 

6 under paragraph (4)(E) for that hospital. 

7 ‘‘(vi) CONSTRUCTION.—Nothing in 

8 this subparagraph shall be construed as 

9 permitting the redistribution of reductions 

10 in residency positions attributable to vol11 untary reduction programs under para12 graph (6), under a demonstration project 

13 approved as of October 31, 2003, under 

14 the authority of section 402 of Public Law 

15 90–248, or as affecting the ability of a 

16 hospital to establish new medical residency 

17 training programs under paragraph 

18 (4)(H). 

19 ‘‘(C) RESIDENT LEVEL AND LIMIT DE20 FINED.—In this paragraph: 

21 ‘‘(i) RESIDENT LEVEL.—The term 

22 ‘resident level’ means, with respect to a 

23 hospital, the total number of full-time 

24 equivalent residents, before the application 

25 of weighting factors (as determined under 
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1 paragraph (4)), in the fields of allopathic 

2 and osteopathic medicine for the hospital. 

3 ‘‘(ii) OTHERWISE APPLICABLE RESI4 DENT LIMIT.—The term ‘otherwise appli5 cable resident limit’ means, with respect to 

6 a hospital, the limit otherwise applicable 

7 under subparagraphs (F)(i) and (H) of 

8 paragraph (4) on the resident level for the 

9 hospital determined without regard to this 

10 paragraph. 

11 ‘‘(D) JUDICIAL REVIEW.—There shall be 

12 no administrative or judicial review under sec13 tion 1869, 1878, or otherwise, with respect to 

14 determinations made under this paragraph.’’. 

15 (b) CONFORMING PROVISIONS.—(1) Section 

16 1886(d)(5)(B) (42 U.S.C. 1395ww(d)(5)(B)) is amend17 ed—

18 (A) in the second sentence of clause (ii), by 

19 striking ‘‘For discharges’’ and inserting ‘‘Subject to 

20 clause (ix), for discharges’’; 

21 (B) in clause (v), by adding at the end the fol22 lowing: ‘‘The provisions of subsection (h)(7) shall 

23 apply with respect to the first sentence of this clause 

24 in the same manner as it applies with respect to 

25 subsection (h)(4)(F)(i).’’; and 
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1 (C) by adding at the end the following new 

2 clause: 

3 ‘‘(ix) For discharges occurring on or after July 

4 1, 2005, insofar as an additional payment amount 

5 under this subparagraph is attributable to resident 

6 positions redistributed to a hospital under subsection 

7 (h)(7)(B), in computing the indirect teaching adjust8 ment factor under clause (ii) the adjustment shall be 

9 computed in a manner as if ‘c’ were equal to 0.66 

10 with respect to such resident positions.’’. 

11 (2) Chapter 35 of title 44, United States Code, shall 

12 not apply with respect to applications under section 

13 1886(h)(7) of the Social Security Act, as added by sub14 section (a)(3). 

15 (c) REPORT ON EXTENSION OF APPLICATIONS

16 UNDER REDISTRIBUTION PROGRAM.—Not later than July 

17 1, 2005, the Secretary shall submit to Congress a report 

18 containing recommendations regarding whether to extend 

19 the deadline for applications for an increase in resident 

20 limits under section 1886(h)(4)(I)(ii)(II) of the Social Se21 curity Act (as added by subsection (a)).
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1 TITLE IV—OTHER PROVISIONS 

2 SEC. 401. MEDICAID DISPROPORTIONATE SHARE HOSPITAL 

3 (DSH) PAYMENTS. 

4 (a) TEMPORARY INCREASE.—Section 1923(f)(3) (42 

5 U.S.C. 1396r–4(f)(3)) is amended—

6 (1) in subparagraph (A), by striking ‘‘subpara7 graph (B)’’ and inserting ‘‘subparagraphs (B) and 

8 (C)’’; and 

9 (2) by adding at the end the following new sub10 paragraphs: 

11 ‘‘(C) SPECIAL, TEMPORARY INCREASE IN

12 ALLOTMENTS ON A ONE-TIME, NON-CUMU13 LATIVE BASIS.—The DSH allotment for any 

14 State (other than a State with a DSH allot15 ment determined under paragraph (5))—

16 ‘‘(i) for fiscal year 2004 is equal to 

17 116 percent of the DSH allotment for the 

18 State for fiscal year 2003 under this para19 graph, notwithstanding subparagraph (B); 

20 and 

21 ‘‘(ii) for each succeeding fiscal year is 

22 equal to the DSH allotment for the State 

23 for fiscal year 2004 or, in the case of fiscal 

24 years beginning with the fiscal year speci25 fied in subparagraph (D) for that State, 
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1 the DSH allotment for the State for the 

2 previous fiscal year increased by the per3 centage change in the consumer price 

4 index for all urban consumers (all items; 

5 U.S. city average), for the previous fiscal 

6 year. 

7 ‘‘(D) FISCAL YEAR SPECIFIED.—For pur8 poses of subparagraph (C)(ii), the fiscal year 

9 specified in this subparagraph for a State is the 

10 first fiscal year for which the Secretary esti11 mates that the DSH allotment for that State 

12 will equal (or no longer exceed) the DSH allot13 ment for that State under the law as in effect 

14 before the date of the enactment of this sub15 paragraph.’’.

16 (b) INCREASE IN FLOOR FOR TREATMENT AS A LOW

17 DSH STATE.—Section 1923(f)(5) (42 U.S.C. 1396r–

18 4(f)(5)) is amended—

19 (1) in the paragraph heading, by striking ‘‘EX20 TREMELY’’; 

21 (2) by striking ‘‘In the case of’’ and inserting 

22 the following: 

23 ‘‘(A) FOR FISCAL YEARS 2001 THROUGH

24 2003 FOR EXTREMELY LOW DSH STATES.—In 

25 the case of’’; 
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1 (3) by inserting ‘‘before fiscal year 2004’’ after 

2 ‘‘In subsequent years’’; and 

3 (4) by adding at the end the following: 

4 ‘‘(B) FOR FISCAL YEAR 2004 AND SUBSE5 QUENT FISCAL YEARS.—In the case of a State 

6 in which the total expenditures under the State 

7 plan (including Federal and State shares) for 

8 disproportionate share hospital adjustments 

9 under this section for fiscal year 2000, as re10 ported to the Administrator of the Centers for 

11 Medicare & Medicaid Services as of August 31, 

12 2003, is greater than 0 but less than 3 percent 

13 of the State’s total amount of expenditures 

14 under the State plan for medical assistance 

15 during the fiscal year, the DSH allotment for 

16 the State with respect to—

17 ‘‘(i) fiscal year 2004 shall be the DSH 

18 allotment for the State for fiscal year 2003 

19 increased by 16 percent; 

20 ‘‘(ii) each succeeding fiscal year before 

21 fiscal year 2009 shall be the DSH allot22 ment for the State for the previous fiscal 

23 year increased by 16 percent; and 

24 ‘‘(iii) fiscal year 2009 and any subse25 quent fiscal year, shall be the DSH allot-
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1 ment for the State for the previous year 

2 subject to an increase for inflation as pro3 vided in paragraph (3)(A).’’. 

4 (c) IN GENERAL.—Section 1923(f)(5) (42 U.S.C. 

5 1396r–4(f)(5)) is amended to read as follows: 

6 ‘‘(5) SPECIAL RULE FOR LOW DSH STATES.—In 

7 the case of a State in which the total expenditures 

8 under the State plan (including Federal and State 

9 shares) for disproportionate share hospital adjust10 ments under this section for fiscal year 2000, as re11 ported to the Administrator of the Centers for Medi12 care & Medicaid Services as of August 31, 2003, is 

13 greater than 0 but less than 3 percent of the State’s 

14 total amount of expenditures under the State plan 

15 for medical assistance during the fiscal year, the 

16 DSH allotment for the State with respect to—

17 ‘‘(A) fiscal year 2004 shall be the DSH al18 lotment for the State for fiscal year 2003 in19 creased by 16 percent; 

20 ‘‘(B) each succeeding fiscal year before fis21 cal year 2009 shall be the DSH allotment for 

22 the State for the previous fiscal year increased 

23 by 16 percent; and 

24 ‘‘(C) fiscal year 2009 and any subsequent 

25 fiscal year, shall be the DSH allotment for the 
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1 State for the previous year subject to an in2 crease for inflation as provided in paragraph 

3 (3)(A).’’.

4 (d) ALLOTMENT ADJUSTMENT.—Section 1923(f) of 

5 the Social Security Act (42 U.S.C. 1396r–4(f)) is amend6 ed—

7 (1) in paragraph (3)(A), by striking ‘‘The 

8 DSH’’ and inserting ‘‘Except as provided in para9 graph (6), the DSH’’; 

10 (2) by redesignating paragraph (6) as para11 graph (7); and 

12 (3) by inserting after paragraph (5) the fol13 lowing: 

14 ‘‘(6) ALLOTMENT ADJUSTMENT.—Only with re15 spect to fiscal year 2004 or 2005, if a statewide 

16 waiver under section 1115 is revoked or terminated 

17 before the end of either such fiscal year and there 

18 is no DSH allotment for the State, the Secretary 

19 shall—

20 ‘‘(A) permit the State whose waiver was 

21 revoked or terminated to submit an amendment 

22 to its State plan that would describe the meth23 odology to be used by the State (after the effec24 tive date of such revocation or termination) to 

25 identify and make payments to disproportionate
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1 share hospitals, including children’s hospitals 

2 and institutions for mental diseases or other 

3 mental health facilities (other than State-owned 

4 institutions or facilities), on the basis of the 

5 proportion of patients served by such hospitals 

6 that are low-income patients with special needs; 

7 and 

8 ‘‘(B) provide for purposes of this sub9 section for computation of an appropriate DSH 

10 allotment for the State for fiscal year 2004 or 

11 2005 (or both) that would not exceed the 

12 amount allowed under paragraph (3)(B)(ii) and 

13 that does not result in greater expenditures 

14 under this title than would have been made if 

15 such waiver had not been revoked or termi16 nated. 

17 In determining the amount of an appropriate DSH 

18 allotment under subparagraph (B) for a State, the 

19 Secretary shall take into account the level of DSH 

20 expenditures for the State for the fiscal year pre21 ceding the fiscal year in which the waiver com22 menced.’’. 

23 (e) INCREASED REPORTING AND OTHER REQUIRE24 MENTS TO ENSURE THE APPROPRIATE USE OF MED25 ICAID DSH PAYMENT ADJUSTMENTS.—Section 1923 (42 
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1 U.S.C. 1396r–4) is amended by adding at the end the fol2 lowing new subsection: 

3 ‘‘(j) ANNUAL REPORTS AND OTHER REQUIREMENTS

4 REGARDING PAYMENT ADJUSTMENTS.—With respect to 

5 fiscal year 2004 and each fiscal year thereafter, the Sec6 retary shall require a State, as a condition of receiving 

7 a payment under section 1903(a)(1) with respect to a pay8 ment adjustment made under this section, to do the fol9 lowing: 

10 ‘‘(1) REPORT.—The State shall submit an an11 nual report that includes the following: 

12 ‘‘(A) An identification of each dispropor13 tionate share hospital that received a payment 

14 adjustment under this section for the preceding 

15 fiscal year and the amount of the payment ad16 justment made to such hospital for the pre17 ceding fiscal year. 

18 ‘‘(B) Such other information as the Sec19 retary determines necessary to ensure the ap20 propriateness of the payment adjustments made 

21 under this section for the preceding fiscal year. 

22 ‘‘(2) INDEPENDENT CERTIFIED AUDIT.—The 

23 State shall annually submit to the Secretary an inde24 pendent certified audit that verifies each of the fol25 lowing: 
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1 ‘‘(A) The extent to which hospitals in the 

2 State have reduced their uncompensated care 

3 costs to reflect the total amount of payment ad4 justments under this section. 

5 ‘‘(B) Payments under this section to hos6 pitals that comply with the requirements of sub7 section (g). 

8 ‘‘(C) Only the uncompensated care costs of 

9 providing inpatient hospital and outpatient hos10 pital services to individuals described in para11 graph (1)(A) of such subsection are included in 

12 the calculation of the hospital-specific limits 

13 under such subsection. 

14 ‘‘(D) The State included all payments 

15 under this title, including supplemental pay16 ments, in the calculation of such hospital-spe17 cific limits. 

18 ‘‘(E) The State has separately documented 

19 and retained a record of all of its costs under 

20 this title, claimed expenditures under this title, 

21 uninsured costs in determining payment adjust22 ments under this section, and any payments 

23 made on behalf of the uninsured from payment 

24 adjustments under this section.’’. 
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1 SEC. 402. PROVIDING SAFE HARBOR FOR CERTAIN COL2 LABORATIVE EFFORTS THAT BENEFIT MEDI3 CALLY UNDERSERVED POPULATIONS. 

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

5 1320a–7(b)(3)), as amended by section 101(e)(2), is 

6 amended—

7 (1) in subparagraph (F), by striking ‘‘and’’ 

8 after the semicolon at the end; 

9 (2) in subparagraph (G), by striking the period 

10 at the end and inserting ‘‘; and’’; and 

11 (3) by adding at the end the following new sub12 paragraph: 

13 ‘‘(H) any remuneration between a health 

14 center entity described under clause (i) or (ii) 

15 of section 1905(l)(2)(B) and any individual or 

16 entity providing goods, items, services, dona17 tions, loans, or a combination thereof, to such 

18 health center entity pursuant to a contract, 

19 lease, grant, loan, or other agreement, if such 

20 agreement contributes to the ability of the 

21 health center entity to maintain or increase the 

22 availability, or enhance the quality, of services 

23 provided to a medically underserved population 

24 served by the health center entity.’’. 

25 (b) RULEMAKING FOR EXCEPTION FOR HEALTH

26 CENTER ENTITY ARRANGEMENTS.—
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1 (1) ESTABLISHMENT.—

2 (A) IN GENERAL.—The Secretary shall es3 tablish, on an expedited basis, standards relat4 ing to the exception described in section 

5 1128B(b)(3)(H) of the Social Security Act, as 

6 added by subsection (a), for health center entity 

7 arrangements to the antikickback penalties. 

8 (B) FACTORS TO CONSIDER.—The Sec9 retary shall consider the following factors, 

10 among others, in establishing standards relating 

11 to the exception for health center entity ar12 rangements under subparagraph (A): 

13 (i) Whether the arrangement between 

14 the health center entity and the other 

15 party results in savings of Federal grant 

16 funds or increased revenues to the health 

17 center entity. 

18 (ii) Whether the arrangement between 

19 the health center entity and the other 

20 party restricts or limits an individual’s 

21 freedom of choice. 

22 (iii) Whether the arrangement be23 tween the health center entity and the 

24 other party protects a health care profes-
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1 sional’s independent medical judgment re2 garding medically appropriate treatment. 

3 The Secretary may also include other standards 

4 and criteria that are consistent with the intent 

5 of Congress in enacting the exception estab6 lished under this section. 

7 (2) DEADLINE.—Not later than 1 year after 

8 the date of the enactment of this Act the Secretary 

9 shall publish final regulations establishing the stand10 ards described in paragraph (1). 

11 SEC. 403. OFFICE OF RURAL HEALTH POLICY IMPROVE12 MENTS. 

13 Section 711(b) (42 U.S.C. 912(b)) is amended—

14 (1) in paragraph (3), by striking ‘‘and’’ after 

15 the comma at the end; 

16 (2) in paragraph (4), by striking the period at 

17 the end and inserting ‘‘, and’’; and 

18 (3) by inserting after paragraph (4) the fol19 lowing new paragraph: 

20 ‘‘(5) administer grants, cooperative agreements, 

21 and contracts to provide technical assistance and 

22 other activities as necessary to support activities re23 lated to improving health care in rural areas.’’. 
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1 SEC. 404. MEDPAC STUDY ON RURAL HOSPITAL PAYMENT 

2 ADJUSTMENTS. 

3 (a) IN GENERAL.—The Medicare Payment Advisory 

4 Commission shall conduct a study of the impact of sec5 tions 101 through 106, 112, 202, and 207. The Commis6 sion shall analyze the effect on total payments, growth in 

7 costs, capital spending, and such other payment effects 

8 under those sections. 

9 (b) REPORTS.—

10 (1) INTERIM REPORT.—Not later than 18 

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

12 the Commission shall submit to Congress an interim 

13 report on the matters studied under subsection (a) 

14 with respect only to changes to the critical access 

15 hospital provisions under section 405. 

16 (2) FINAL REPORT.—Not later than 3 years 

17 after the date of the enactment of this Act, the 

18 Commission shall submit to Congress a final report 

19 on all matters studied under subsection (a). 

20 SEC. 405. FRONTIER EXTENDED STAY CLINIC DEMONSTRA21 TION PROJECT. 

22 (a) AUTHORITY TO CONDUCT DEMONSTRATION

23 PROJECT.—The Secretary shall waive such provisions of 

24 the medicare program established under title XVIII of the 

25 Social Security Act (42 U.S.C. 1395 et seq.) as are nec26 essary to conduct a demonstration project under which 
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1 frontier extended stay clinics described in subsection (b) 

2 in isolated rural areas are treated as providers of items 

3 and services under the medicare program. 

4 (b) CLINICS DESCRIBED.—A frontier extended stay 

5 clinic is described in this subsection if the clinic—

6 (1) is located in a community where the closest 

7 short-term acute care hospital or critical access hos8 pital is at least 75 miles away from the community 

9 or is inaccessible by public road; and 

10 (2) is designed to address the needs of—

11 (A) seriously or critically ill or injured pa12 tients who, due to adverse weather conditions or 

13 other reasons, cannot be transferred quickly to 

14 acute care referral centers; or 

15 (B) patients who need monitoring and ob16 servation for a limited period of time. 

17 (c) SPECIFICATION OF CODES.—The Secretary shall 

18 determine the appropriate life-safety codes for such clinics 

19 that treat patients for needs referred to in subsection 

20 (b)(2). 

21 (d) FUNDING.—

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

23 there are authorized to be appropriated, in appro24 priate part from the Federal Hospital Insurance 

25 Trust Fund and the Federal Supplementary Medical 
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1 Insurance Trust Fund, such sums as are necessary 

2 to conduct the demonstration project under this sec3 tion. 

4 (2) BUDGET NEUTRAL IMPLEMENTATION.—In 

5 conducting the demonstration project under this sec6 tion, the Secretary shall ensure that the aggregate 

7 payments made by the Secretary under the medicare 

8 program do not exceed the amount which the Sec9 retary would have paid under the medicare program 

10 if the demonstration project under this section was 

11 not implemented. 

12 (e) 3-YEAR PERIOD.—The Secretary shall conduct 

13 the demonstration under this section for a 3-year period. 

14 (f) REPORT.—Not later than the date that is 1 year 

15 after the date on which the demonstration project con16 cludes, the Secretary shall submit to Congress a report 

17 on the demonstration project, together with such rec18 ommendations for legislation or administrative action as 

19 the Secretary determines appropriate. 

20 (g) DEFINITIONS.—In this section, the terms ‘‘hos21 pital’’ and ‘‘critical access hospital’’ have the meanings 

22 given such terms in subsections (e) and (mm), respec23 tively, of section 1861 of the Social Security Act (42 

24 U.S.C. 1395x).

Æ