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[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3549 Introduced in House (IH)]

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.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; AMENDMENTS TO SOCIAL SECURITY ACT; REFERENCES 
              TO BIPA AND SECRETARY; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Rural Healthcare 
Improvement Act of 2003''.
    (b) Amendments to Social Security Act.--Except as otherwise 
specifically provided, whenever in division A of this Act an amendment 
is expressed in terms of an amendment to or repeal of a section or 
other provision, the reference shall be considered to be made to that 
section or other provision of the Social Security Act.
    (c) BIPA; Secretary.--In this Act:
            (1) BIPA.--The term ``BIPA'' means the Medicare, Medicaid, 
        and SCHIP Benefits Improvement and Protection Act of 2000, as 
        enacted into law by section 1(a)(6) of Public Law 106-554.
            (2) Secretary.--The term ``Secretary'' means the Secretary 
        of Health and Human Services.
    (d) Table of Contents.--The table of contents of 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.
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.
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.

              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.

    (a) In General.--Section 1886(d)(3)(A)(iv) (42 U.S.C. 
1395ww(d)(3)(A)(iv)) is amended--
            (1) by striking ``(iv) For discharges'' and inserting 
        ``(iv)(I) Subject to subclause (II), for discharges''; and
            (2) by adding at the end the following new subclause:
            ``(II) For discharges occurring in a fiscal year (beginning 
        with fiscal year 2004), the Secretary shall compute a 
        standardized amount for hospitals located in any area within 
        the United States and within each region equal to the 
        standardized amount computed for the previous fiscal year under 
        this subparagraph for hospitals located in a large urban area 
        (or, beginning with fiscal year 2005, for all hospitals in the 
        previous fiscal year) increased by the applicable percentage 
        increase under subsection (b)(3)(B)(i) for the fiscal year 
        involved.''.
    (b) Conforming Amendments.--
            (1) Computing drg-specific rates.--Section 1886(d)(3)(D) 
        (42 U.S.C. 1395ww(d)(3)(D)) is amended--
                    (A) in the heading, by striking ``in different 
                areas'';
                    (B) in the matter preceding clause (i), by striking 
                ``, each of'';
                    (C) in clause (i)--
                            (i) in the matter preceding subclause (I), 
                        by inserting ``for fiscal years before fiscal 
                        year 2004,'' before ``for hospitals''; and
                            (ii) in subclause (II), by striking ``and'' 
                        after the semicolon at the end;
                    (D) in clause (ii)--
                            (i) in the matter preceding subclause (I), 
                        by inserting ``for fiscal years before fiscal 
                        year 2004,'' before ``for hospitals''; and
                            (ii) in subclause (II), by striking the 
                        period at the end and inserting ``; and''; and
                    (E) by adding at the end the following new clause:
                    ``(iii) for a fiscal year beginning after fiscal 
                year 2003, for hospitals located in all areas, to the 
                product of--
                            ``(I) the applicable standardized amount 
                        (computed under subparagraph (A)), reduced 
                        under subparagraph (B), and adjusted or reduced 
                        under subparagraph (C) for the fiscal year; and
                            ``(II) the weighting factor (determined 
                        under paragraph (4)(B)) for that diagnosis-
                        related group.''.
            (2) Technical conforming sunset.--Section 1886(d)(3) (42 
        U.S.C. 1395ww(d)(3)) is amended--
                    (A) in the matter preceding subparagraph (A), by 
                inserting ``, for fiscal years before fiscal year 
                1997,'' before ``a regional adjusted DRG prospective 
                payment rate''; and
                    (B) in subparagraph (D), in the matter preceding 
                clause (i), by inserting ``, for fiscal years before 
                fiscal year 1997,'' before ``a regional DRG prospective 
                payment rate for each region,''.
            (3) Additional technical amendment.--Section 
        1886(d)(3)(A)(iii) (42 U.S.C. 1395ww(d)(3)(A)(iii)) is amended 
        by striking ``in an other urban area'' and inserting ``in an 
        urban area''.
    (c) Equalizing Urban and Rural Standardized Payment Amounts Under 
the Medicare Inpatient Hospital Prospective Payment System for 
Hospitals in Puerto Rico.--
            (1) In general.--Section 1886(d)(9)(A) (42 U.S.C. 
        1395ww(d)(9)(A)), as amended by section 504, is amended--
                    (A) in clause (i), by striking ``and'' after the 
                comma at the end; and
                    (B) by striking clause (ii) and inserting the 
                following new clause:
            ``(ii) the applicable Federal percentage (specified in 
        subparagraph (E)) of--
                    ``(I) for discharges beginning in a fiscal year 
                beginning on or after October 1, 1997, and before 
                October 1, 2003, the discharge-weighted average of--
                            ``(aa) the national adjusted DRG 
                        prospective payment rate (determined under 
                        paragraph (3)(D)) for hospitals located in a 
                        large urban area,
                            ``(bb) such rate for hospitals located in 
                        other urban areas, and
                            ``(cc) such rate for hospitals located in a 
                        rural area,
                for such discharges, adjusted in the manner provided in 
                paragraph (3)(E) for different area wage levels; and
                    ``(II) for discharges in a fiscal year beginning on 
                or after October 1, 2003, the national DRG prospective 
                payment rate determined under paragraph (3)(D)(iii) for 
                hospitals located in any area for such discharges, 
                adjusted in the manner provided in paragraph (3)(E) for 
                different area wage levels.
As used in this section, the term `subsection (d) Puerto Rico hospital' 
means a hospital that is located in Puerto Rico and that would be a 
subsection (d) hospital (as defined in paragraph (1)(B)) if it were 
located in one of the 50 States.''.
            (2) Application of puerto rico standardized amount based on 
        large urban areas.--Section 1886(d)(9)(C) (42 U.S.C. 
        1395ww(d)(9)(C)) is amended--
                    (A) in clause (i)--
                            (i) by striking ``(i) The Secretary'' and 
                        inserting ``(i)(I) For discharges in a fiscal 
                        year after fiscal year 1988 and before fiscal 
                        year 2004, the Secretary''; and
                            (ii) by adding at the end the following new 
                        subclause:
            ``(II) For discharges occurring in a fiscal year (beginning 
        with fiscal year 2004), the Secretary shall compute an average 
        standardized amount for hospitals located in any area of Puerto 
        Rico that is equal to the average standardized amount computed 
        under subclause (I) for fiscal year 2003 for hospitals in a 
        large urban area (or, beginning with fiscal year 2005, for all 
        hospitals in the previous fiscal year) increased by the 
        applicable percentage increase under subsection (b)(3)(B) for 
        the fiscal year involved.'';
                    (B) in clause (ii), by inserting ``(or for fiscal 
                year 2004 and thereafter, the average standardized 
                amount)'' after ``each of the average standardized 
                amounts''; and
                    (C) in clause (iii)(I), by striking ``for hospitals 
                located in an urban or rural area, respectively''.
    (d) Implementation.--
            (1) In general.--The amendments made by subsections (a), 
        (b), and (c)(1) of this section shall have no effect on the 
        authority of the Secretary, under subsection (b)(2) of section 
        402 of Public Law 108-89, to delay implementation of the 
        extension of provisions equalizing urban and rural standardized 
        inpatient hospital payments under subsection (a) of such 
        section 402.
            (2) Application of puerto rico standardized amount based on 
        large urban areas.--The authority of the Secretary referred to 
        in paragraph (1) shall apply with respect to the amendments 
        made by subsection (c)(2) of this section in the same manner as 
        that authority applies with respect to the extension of 
        provisions equalizing urban and rural standardized inpatient 
        hospital payments under subsection (a) of such section 402, 
        except that any reference in subsection (b)(2)(A) of such 
        section 402 is deemed to be a reference to April 1, 2004.

SEC. 102. ENHANCED DISPROPORTIONATE SHARE HOSPITAL (DSH) TREATMENT FOR 
              RURAL HOSPITALS AND URBAN HOSPITALS WITH FEWER THAN 100 
              BEDS.

    (a) Doubling the Cap.--Section 1886(d)(5)(F) (42 U.S.C. 
1395ww(d)(5)(F)) is amended by adding at the end the following new 
clause:
    ``(xiv)(I) In the case of discharges occurring on or after April 1, 
2004, subject to subclause (II), there shall be substituted for the 
disproportionate share adjustment percentage otherwise determined under 
clause (iv) (other than subclause (I)) or under clause (viii), (x), 
(xi), (xii), or (xiii), the disproportionate share adjustment 
percentage determined under clause (vii) (relating to large, urban 
hospitals).
    ``(II) Under subclause (I), the disproportionate share adjustment 
percentage shall not exceed 12 percent for a hospital that is not 
classified as a rural referral center under subparagraph (C).''.
    (b) Conforming Amendments.--Section 1886(d) (42 U.S.C. 1395ww(d)) 
is amended--
            (1) in paragraph (5)(F)--
                    (A) in each of subclauses (II), (III), (IV), (V), 
                and (VI) of clause (iv), by inserting ``subject to 
                clause (xiv) and'' before ``for discharges occurring'';
                    (B) in clause (viii), by striking ``The formula'' 
                and inserting ``Subject to clause (xiv), the formula''; 
                and
                    (C) in each of clauses (x), (xi), (xii), and 
                (xiii), by striking ``For purposes'' and inserting 
                ``Subject to clause (xiv), for purposes''; and
            (2) in paragraph (2)(C)(iv)--
                    (A) by striking ``or'' before ``the enactment of 
                section 303''; and
                    (B) by inserting before the period at the end the 
                following: ``, or the enactment of section 102(a)(1) of 
                the Rural Healthcare Improvement Act of 2003''.

SEC. 103. ADJUSTMENT TO THE MEDICARE INPATIENT HOSPITAL PROSPECTIVE 
              PAYMENT SYSTEM WAGE INDEX TO REVISE THE LABOR-RELATED 
              SHARE OF SUCH INDEX.

    (a) Adjustment.--
            (1) In general.--Section 1886(d)(3)(E) (42 U.S.C. 
        1395ww(d)(3)(E)) is amended--
                    (A) by striking ``wage levels.--The Secretary'' and 
                inserting ``wage levels.--
                    ``(i) In general.--Except as provided in clause 
                (ii), the Secretary''; and
                    (B) by adding at the end the following new clause:
                    ``(ii) Alternative proportion to be adjusted 
                beginning in fiscal year 2005.--For discharges 
                occurring on or after October 1, 2004, the Secretary 
                shall substitute `62 percent' for the proportion 
                described in the first sentence of clause (i), unless 
                the application of this clause would result in lower 
                payments to a hospital than would otherwise be made.''.
            (2) Waiving budget neutrality.--Section 1886(d)(3)(E) (42 
        U.S.C. 1395ww(d)(3)(E)), as amended by subsection (a), is 
        amended by adding at the end of clause (i) the following new 
        sentence: ``The Secretary shall apply the previous sentence for 
        any period as if the amendments made by section 103(a)(1) of 
        the Rural Healthcare Improvement Act of 2003 had not been 
        enacted.''.
    (b) Application to Puerto Rico Hospitals.--Section 
1886(d)(9)(C)(iv) (42 U.S.C. 1395ww(d)(9)(C)(iv)) is amended--
            (1) by inserting ``(I)'' after ``(iv)'';
            (2) by striking ``paragraph (3)(E)'' and inserting 
        ``paragraph (3)(E)(i)''; and
            (3) by adding at the end the following new subclause:
            ``(II) For discharges occurring on or after October 1, 
        2004, the Secretary shall substitute `62 percent' for the 
        proportion described in the first sentence of clause (i), 
        unless the application of this subclause would result in lower 
        payments to a hospital than would otherwise be made.''.

SEC. 104. MORE FREQUENT UPDATE IN WEIGHTS USED IN HOSPITAL MARKET 
              BASKET.

    (a) More Frequent Updates in Weights.--After revising the weights 
used in the hospital market basket under section 1886(b)(3)(B)(iii) of 
the Social Security Act (42 U.S.C. 1395ww(b)(3)(B)(iii)) to reflect the 
most current data available, the Secretary shall establish a frequency 
for revising such weights, including the labor share, in such market 
basket to reflect the most current data available more frequently than 
once every 5 years.
    (b) Incorporation of Explanation in Rulemaking.--The Secretary 
shall include in the publication of the final rule for payment for 
inpatient hospital services under section 1886(d) of the Social 
Security Act (42 U.S.C. 1395ww(d)) for fiscal year 2006, an explanation 
of the reasons for, and options considered, in determining frequency 
established under subsection (a).

SEC. 105. IMPROVEMENTS TO CRITICAL ACCESS HOSPITAL PROGRAM.

    (a) Increase in Payment Amounts.--
            (1) In general.--Sections 1814(l), 1834(g)(1), and 
        1883(a)(3) (42 U.S.C. 1395f(l), 1395m(g)(1), and 1395tt(a)(3)) 
        are each amended by inserting ``equal to 101 percent of'' 
        before ``the reasonable costs''.
            (2) Effective date.--The amendments made by paragraph (1) 
        shall apply to payments for services furnished during cost 
        reporting periods beginning on or after January 1, 2004.
    (b) Coverage of Costs for Certain Emergency Room On-Call 
Providers.--
            (1) In general.--Section 1834(g)(5) (42 U.S.C. 1395m(g)(5)) 
        is amended--
                    (A) in the heading--
                            (i) by inserting ``certain'' before 
                        ``emergency''; and
                            (ii) by striking ``physicians'' and 
                        inserting ``providers'';
                    (B) by striking ``emergency room physicians who are 
                on-call (as defined by the Secretary)'' and inserting 
                ``physicians, physician assistants, nurse 
                practitioners, and clinical nurse specialists who are 
                on-call (as defined by the Secretary) to provide 
                emergency services''; and
                    (C) by striking ``physicians' services'' and 
                inserting ``services covered under this title''.
            (2) Effective date.--The amendments made by paragraph (1) 
        shall apply with respect to costs incurred for services 
furnished on or after January 1, 2005.
    (c) Authorization of Periodic Interim Payment (PIP).--
            (1) In general.--Section 1815(e)(2) (42 U.S.C. 1395g(e)(2)) 
        is amended--
                    (A) in the matter before subparagraph (A), by 
                inserting ``, in the cases described in subparagraphs 
                (A) through (D)'' after ``1986'';
                    (B) by striking ``and'' at the end of subparagraph 
                (C);
                    (C) by adding ``and'' at the end of subparagraph 
                (D); and
                    (D) by inserting after subparagraph (D) the 
                following new subparagraph:
            ``(E) inpatient critical access hospital services;''.
            (2) Development of alternative timing methods of periodic 
        interim payments.--With respect to periodic interim payments to 
        critical access hospitals for inpatient critical access 
        hospital services under section 1815(e)(2)(E) of the Social 
        Security Act, as added by paragraph (1), the Secretary shall 
        develop alternative methods for the timing of such payments.
            (3) Authorization of pip.--The amendments made by paragraph 
        (1) shall apply to payments made on or after July 1, 2004.
    (d) Condition for Application of Special Professional Service 
Payment Adjustment.--
            (1) In general.--Section 1834(g)(2) (42 U.S.C. 1395m(g)(2)) 
        is amended by adding after and below subparagraph (B) the 
        following:
        ``The Secretary may not require, as a condition for applying 
        subparagraph (B) with respect to a critical access hospital, 
        that each physician or other practitioner providing 
        professional services in the hospital must assign billing 
        rights with respect to such services, except that such 
        subparagraph shall not apply to those physicians and 
        practitioners who have not assigned such billing rights.''.
            (2) Effective date.--
                    (A) In general.--Except as provided in subparagraph 
                (B), the amendment made by paragraph (1) shall apply to 
                cost reporting periods beginning on or after July 1, 
                2004.
                    (B) Rule of application.--In the case of a critical 
                access hospital that made an election under section 
                1834(g)(2) of the Social Security Act (42 U.S.C. 
                1395m(g)(2)) before November 1, 2003, the amendment 
                made by paragraph (1) shall apply to cost reporting 
                periods beginning on or after July 1, 2001.
    (e) Revision of Bed Limitation for Hospitals.--
            (1) In general.--Section 1820(c)(2)(B)(iii) (42 U.S.C. 
        1395i-4(c)(2)(B)(iii)) is amended by striking ``15 (or, in the 
        case of a facility under an agreement described in subsection 
        (f), 25)'' and inserting ``25''.
            (2) Conforming amendment.--Section 1820(f) (42 U.S.C. 
        1395i-4(f)) is amended by striking ``and the number of beds 
        used at any time for acute care inpatient services does not 
        exceed 15 beds''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to designations made before, on, or after January 
        1, 2004, but any election made pursuant to regulations 
        promulgated to carry out such amendments shall only apply 
        prospectively.
    (f) Provisions Relating to FLEX Grants.--
            (1) Additional 4-year period of funding.--Section 1820(j) 
        (42 U.S.C. 1395i-4(j)) is amended by inserting before the 
        period at the end the following: ``, and for making grants to 
        all States under paragraphs (1) and (2) of subsection (g), 
        $35,000,000 in each of fiscal years 2005 through 2008''.
            (2) Additional requirements and administration.--Section 
        1820(g) (42 U.S.C. 1395i-4(g)) is amended by adding at the end 
        the following new paragraphs:
            ``(4) Additional requirements with respect to flex 
        grants.--With respect to grants awarded under paragraph (1) or 
        (2) from funds appropriated for fiscal year 2005 and subsequent 
        fiscal years--
                    ``(A) Consultation with the state hospital 
                association and rural hospitals on the most appropriate 
                ways to use grants.--A State shall consult with the 
                hospital association of such State and rural hospitals 
                located in such State on the most appropriate ways to 
                use the funds under such grant.
                    ``(B) Limitation on use of grant funds for 
                administrative expenses.--A State may not expend more 
                than the lesser of--
                            ``(i) 15 percent of the amount of the grant 
                        for administrative expenses; or
                            ``(ii) the State's federally negotiated 
                        indirect rate for administering the grant.
            ``(5) Use of funds for federal administrative expenses.--Of 
        the total amount appropriated for grants under paragraphs (1) 
        and (2) for a fiscal year (beginning with fiscal year 2005), up 
        to 5 percent of such amount shall be available to the Health 
        Resources and Services Administration for purposes of 
        administering such grants.''.
    (g) Authority To Establish Psychiatric and Rehabilitation Distinct 
Part Units.--
            (1) In general.--Section 1820(c)(2) (42 U.S.C. 1395i-
        4(c)(2)) is amended by adding at the end the following:
                    ``(E) Authority to establish psychiatric and 
                rehabilitation distinct part units.--
                            ``(i) In general.--Subject to the 
                        succeeding provisions of this subparagraph, a 
                        critical access hospital may establish--
                                    ``(I) a psychiatric unit of the 
                                hospital that is a distinct part of the 
                                hospital; and
                                    ``(II) a rehabilitation unit of the 
                                hospital that is a distinct part of the 
                                hospital,
                        if the distinct part meets the requirements 
                        (including conditions of participation) that 
                        would otherwise apply to the distinct part if 
                        the distinct part were established by a 
                        subsection (d) hospital in accordance with the 
                        matter following clause (v) of section 
                        1886(d)(1)(B), including any regulations 
                        adopted by the Secretary under such section.
                            ``(ii) Limitation on number of beds.--The 
                        total number of beds that may be established 
                        under clause (i) for a distinct part unit may 
                        not exceed 10.
                            ``(iii) Exclusion of beds from bed count.--
                        In determining the number of beds of a critical 
                        access hospital for purposes of applying the 
                        bed limitations referred to in subparagraph 
                        (B)(iii) and subsection (f), the Secretary 
                        shall not take into account any bed established 
                        under clause (i).
                            ``(iv) Effect of failure to meet 
                        requirements.--If a psychiatric or 
                        rehabilitation unit established under clause 
                        (i) does not meet the requirements described in 
                        such clause with respect to a cost reporting 
                        period, no payment may be made under this title 
                        to the hospital for services furnished in such 
                        unit during such period. Payment to the 
                        hospital for services furnished in the unit may 
                        resume only after the hospital has demonstrated 
                        to the Secretary that the unit meets such 
                        requirements.''.
            (2) Payment on a prospective payment basis.--Section 
        1814(l) (42 U.S.C. 1395f(l)) is amended--
                    (A) by striking ``(l) The amount'' and inserting 
                ``(l)(1) Except as provided in paragraph (2), the 
                amount''; and
                    (B) by adding at the end the following new 
                paragraph:
    ``(2) In the case of a distinct part psychiatric or rehabilitation 
unit of a critical access hospital described in section 1820(c)(2)(E), 
the amount of payment for inpatient critical access hospital services 
of such unit shall be equal to the amount of the payment that would 
otherwise be made if such services were inpatient hospital services of 
a distinct part psychiatric or rehabilitation unit, respectively, 
described in the matter following clause (v) of section 
1886(d)(1)(B).''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to cost reporting periods beginning on or after 
        October 1, 2004.
    (h) Waiver Authority.--
            (1) In general.--Section 1820(c)(2)(B)(i)(II) (42 U.S.C. 
        1395i-4(c)(2)(B)(i)(II)) is amended by inserting ``before 
        January 1, 2006,'' after ``is certified''.
            (2) Grandfathering waiver authority for certain 
        facilities.--Section 1820(h) (42 U.S.C. 1395i-4(h)) is 
        amended--
                    (A) in the heading preceding paragraph (1), by 
                striking ``of Certain Facilities'' and inserting 
                ``Provisions''; and
                    (B) by adding at the end the following new 
                paragraph:
            ``(3) State authority to waive 35-mile rule.--In the case 
        of a facility that was designated as a critical access hospital 
        before January 1, 2006, and was certified by the State as being 
        a necessary provider of health care services to residents in 
        the area under subsection (c)(2)(B)(i)(II), as in effect before 
        such date, the authority under such subsection with respect to 
        any redesignation of such facility shall continue to apply 
        notwithstanding the amendment made by section 105(h)(1) of the 
        Rural Healthcare Improvement Act of 2003.''.

SEC. 106. MEDICARE INPATIENT HOSPITAL PAYMENT ADJUSTMENT FOR LOW-VOLUME 
              HOSPITALS.

    (a) In General.--Section 1886(d) (42 U.S.C. 1395ww(d)) is amended 
by adding at the end the following new paragraph:
            ``(12) Payment adjustment for low-volume hospitals.--
                    ``(A) In general.--In addition to any payments 
                calculated under this section for a subsection (d) 
                hospital, for discharges occurring during a fiscal year 
                (beginning with fiscal year 2005), the Secretary shall 
                provide for an additional payment amount to each low-
                volume hospital (as defined in subparagraph (C)(i)) for 
                discharges occurring during that fiscal year that is 
                equal to the applicable percentage increase (determined 
                under subparagraph (B) for the hospital involved) in 
                the amount paid to such hospital under this section for 
                such discharges (determined without regard to this 
                paragraph).
                    ``(B) Applicable percentage increase.--The 
                Secretary shall determine an applicable percentage 
                increase for purposes of subparagraph (A) as follows:
                            ``(i) The Secretary shall determine the 
                        empirical relationship for subsection (d) 
                        hospitals between the standardized cost-per-
                        case for such hospitals and the total number of 
                        discharges of such hospitals and the amount of 
                        the additional incremental costs (if any) that 
                        are associated with such number of discharges.
                            ``(ii) The applicable percentage increase 
                        shall be determined based upon such 
                        relationship in a manner that reflects, based 
                        upon the number of such discharges for a 
                        subsection (d) hospital, such additional 
                        incremental costs.
                            ``(iii) In no case shall the applicable 
                        percentage increase exceed 25 percent.
                    ``(C) Definitions.--
                            ``(i) Low-volume hospital.--For purposes of 
                        this paragraph, the term `low-volume hospital' 
                        means, for a fiscal year, a subsection (d) 
                        hospital (as defined in paragraph (1)(B)) that 
                        the Secretary determines is located more than 
                        25 road miles from another subsection (d) 
                        hospital and has less than 800 discharges 
                        during the fiscal year.
                            ``(ii) Discharge.--For purposes of 
                        subparagraph (B) and clause (i), the term 
                        `discharge' means an inpatient acute care 
                        discharge of an individual regardless of 
                        whether the individual is entitled to benefits 
                        under part A.''.
    (b) Judicial Review.--Section 1886(d)(7)(A) (42 U.S.C. 
1395ww(d)(7)(A)) is amended by inserting after ``to subsection (e)(1)'' 
the following: ``or the determination of the applicable percentage 
increase under paragraph (12)(A)(ii)''.

SEC. 107. TREATMENT OF MISSING COST REPORTING PERIODS FOR SOLE 
              COMMUNITY HOSPITALS.

    (a) In General.--Section 1886(b)(3)(I) (42 U.S.C. 1395ww(b)(3)(I)) 
is amended by adding at the end the following new clause:
    ``(iii) In no case shall a hospital be denied treatment as a sole 
community hospital or payment (on the basis of a target rate as such as 
a hospital) because data are unavailable for any cost reporting period 
due to changes in ownership, changes in fiscal intermediaries, or other 
extraordinary circumstances, so long as data for at least one 
applicable base cost reporting period is available.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to cost reporting periods beginning on or after January 1, 2004.

SEC. 108. RECOGNITION OF ATTENDING NURSE PRACTITIONERS AS ATTENDING 
              PHYSICIANS TO SERVE HOSPICE PATIENTS.

    (a) In General.--Section 1861(dd)(3)(B) (42 U.S.C. 1395x(dd)(3)(B)) 
is amended by inserting ``or nurse practitioner (as defined in 
subsection (aa)(5))'' after ``the physician (as defined in subsection 
(r)(1))''.
    (b) Clarification of Hospice Role of Nurse Practitioners.--Section 
1814(a)(7)(A)(i)(I) (42 U.S.C. 1395f(a)(7)(A)(i)(I)) is amended by 
inserting ``(which for purposes of this subparagraph does not include a 
nurse practitioner)'' after ``attending physician (as defined in 
section 1861(dd)(3)(B))''.

SEC. 109. RURAL HOSPICE DEMONSTRATION PROJECT.

    (a) In General.--The Secretary shall conduct a demonstration 
project for the delivery of hospice care to medicare beneficiaries in 
rural areas. Under the project medicare beneficiaries who are unable to 
receive hospice care in the facility for lack of an appropriate 
caregiver are provided such care in a facility of 20 or fewer beds 
which offers, within its walls, the full range of services provided by 
hospice programs under section 1861(dd) of the Social Security Act (42 
U.S.C. 1395x(dd)).
    (b) Scope of Project.--The Secretary shall conduct the project 
under this section with respect to no more than 3 hospice programs over 
a period of not longer than 5 years each.
    (c) Compliance With Conditions.--Under the demonstration project--
            (1) the hospice program shall comply with otherwise 
        applicable requirements, except that it shall not be required 
        to offer services outside of the home or to meet the 
        requirements of section 1861(dd)(2)(A)(iii) of the Social 
        Security Act; and
            (2) payments for hospice care shall be made at the rates 
        otherwise applicable to such care under title XVIII of such 
        Act.
The Secretary may require the program to comply with such additional 
quality assurance standards for its provision of services in its 
facility as the Secretary deems appropriate.
    (d) Report.--Upon completion of the project, the Secretary shall 
submit a report to Congress on the project and shall include in the 
report recommendations regarding extension of such project to hospice 
programs serving rural areas.

SEC. 110. EXCLUSION OF CERTAIN RURAL HEALTH CLINIC AND FEDERALLY 
              QUALIFIED HEALTH CENTER SERVICES FROM THE PROSPECTIVE 
              PAYMENT SYSTEM FOR SKILLED NURSING FACILITIES.

    (a) In General.--Section 1888(e)(2)(A) (42 U.S.C. 1395yy(e)(2)(A)) 
is amended--
            (1) in clause (i)(II), by striking ``clauses (ii) and 
        (iii)'' and inserting ``clauses (ii), (iii), and (iv)''; and
            (2) by adding at the end the following new clause:
                            ``(iv) Exclusion of certain rural health 
                        clinic and federally qualified health center 
                        services.--Services described in this clause 
                        are--
                                    ``(I) rural health clinic services 
                                (as defined in paragraph (1) of section 
                                1861(aa)); and
                                    ``(II) Federally qualified health 
                                center services (as defined in 
                                paragraph (3) of such section);
                        that would be described in clause (ii) if such 
                        services were not furnished by an individual 
                        affiliated with a rural health clinic or a 
                        Federally qualified health center.''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to services furnished on or after January 1, 2005.

SEC. 111. RURAL COMMUNITY HOSPITAL DEMONSTRATION PROGRAM.

    (a) Establishment of Rural Community Hospital (RCH) Demonstration 
Program.--
            (1) In general.--The Secretary shall establish a 
        demonstration program to test the feasibility and advisability 
        of the establishment of rural community hospitals (as defined 
        in subsection (f)(1)) to furnish covered inpatient hospital 
        services (as defined in subsection (f)(2)) to medicare 
        beneficiaries.
            (2) Demonstration areas.--The program shall be conducted in 
        rural areas selected by the Secretary in States with low 
        population densities, as determined by the Secretary.
            (3) Application.--Each rural community hospital that is 
        located in a demonstration area selected under paragraph (2) 
        that desires to participate in the demonstration program under 
        this section shall submit an application to the Secretary at 
        such time, in such manner, and containing such information as 
        the Secretary may require.
            (4) Selection of hospitals.--The Secretary shall select 
        from among rural community hospitals submitting applications 
        under paragraph (3) not more than 15 of such hospitals to 
        participate in the demonstration program under this section.
            (5) Duration.--The Secretary shall conduct the 
        demonstration program under this section for a 5-year period.
            (6) Implementation.--The Secretary shall implement the 
        demonstration program not later than January 1, 2005, but may 
        not implement the program before October 1, 2004.
    (b) Payment.--
            (1) In general.--The amount of payment under the 
        demonstration program for covered inpatient hospital services 
        furnished in a rural community hospital, other than such 
        services furnished in a psychiatric or rehabilitation unit of 
        the hospital which is a distinct part, is--
                    (A) for discharges occurring in the first cost 
                reporting period beginning on or after the 
                implementation of the demonstration program, the 
                reasonable costs of providing such services; and
                    (B) for discharges occurring in a subsequent cost 
                reporting period under the demonstration program, the 
                lesser of--
                            (i) the reasonable costs of providing such 
                        services in the cost reporting period involved; 
                        or
                            (ii) the target amount (as defined in 
                        paragraph (2), applicable to the cost reporting 
                        period involved.
            (2) Target amount.--For purposes of paragraph (1)(B)(ii), 
        the term ``target amount'' means, with respect to a rural 
        community hospital for a particular 12-month cost reporting 
        period--
                    (A) in the case of the second such reporting period 
                for which this subsection is in effect, the reasonable 
                costs of providing such covered inpatient hospital 
                services as determined under paragraph (1)(A), and
                    (B) in the case of a later reporting period, the 
                target amount for the preceding 12-month cost reporting 
                period,
        increased by the applicable percentage increase (under clause 
        (i) of section 1886(b)(3)(B) of the Social Security Act (42 
        U.S.C. 1395ww(b)(3)(B))) in the market basket percentage 
        increase (as defined in clause (iii) of such section) for that 
        particular cost reporting period.
    (c) Funding.--
            (1) In general.--The Secretary shall provide for the 
        transfer from the Federal Hospital Insurance Trust Fund under 
        section 1817 of the Social Security Act (42 U.S.C. 1395i) of 
        such funds as are necessary for the costs of carrying out the 
        demonstration program under this section.
            (2) Budget neutrality.--In conducting the demonstration 
        program under this section, the Secretary shall ensure that the 
        aggregate payments made by the Secretary do not exceed the 
        amount which the Secretary would have paid if the demonstration 
        program under this section was not implemented.
    (d) Waiver Authority.--The Secretary may waive such requirements of 
title XVIII of the Social Security Act (42 U.S.C. 1395 et seq.) as may 
be necessary for the purpose of carrying out the demonstration program 
under this section.
    (e) Report.--Not later than 6 months after the completion of the 
demonstration program under this section, the Secretary shall submit to 
Congress a report on such program, together with recommendations for 
such legislation and administrative action as the Secretary determines 
to be appropriate.
    (f) Definitions.--In this section:
            (1) Rural community hospital defined.--
                    (A) In general.--The term ``rural community 
                hospital'' means a hospital (as defined in section 
                1861(e) of the Social Security Act (42 U.S.C. 
                1395x(e))) that--
                            (i) is located in a rural area (as defined 
                        in section 1886(d)(2)(D) of such Act (42 U.S.C. 
                        1395ww(d)(2)(D))) or treated as being so 
                        located pursuant to section 1886(d)(8)(E) of 
                        such Act (42 U.S.C. 1395ww(d)(8)(E));
                            (ii) subject to paragraph (2), has fewer 
                        than 51 acute care inpatient beds, as reported 
                        in its most recent cost report;
                            (iii) makes available 24-hour emergency 
                        care services; and
                            (iv) is not eligible for designation, or 
                        has not been designated, as a critical access 
                        hospital under section 1820.
                    (B) Treatment of psychiatric and rehabilitation 
                units.--For purposes of paragraph (1)(B), beds in a 
                psychiatric or rehabilitation unit of the hospital 
                which is a distinct part of the hospital shall not be 
                counted.
            (2) Covered inpatient hospital services.--The term 
        ``covered inpatient hospital services'' means inpatient 
        hospital services, and includes extended care services 
        furnished under an agreement under section 1883 of the Social 
        Security Act (42 U.S.C. 1395tt).

SEC. 112. WAGE INDEX ADJUSTMENT RECLASSIFICATION REFORM.

    (a) In General.--Section 1886(d) (42 U.S.C. 1395ww(d)), as amended 
by section 106, is amended by adding at the end the following new 
paragraph:
    ``(13)(A) In order to recognize commuting patterns among geographic 
areas, the Secretary shall establish a process through application or 
otherwise for an increase of the wage index applied under paragraph 
(3)(E) for subsection (d) hospitals located in a qualifying county 
described in subparagraph (B) in the amount computed under subparagraph 
(D) based on out-migration of hospital employees who reside in that 
county to any higher wage index area.
    ``(B) The Secretary shall establish criteria for a qualifying 
county under this subparagraph based on the out-migration referred to 
in subparagraph (A) and differences in the area wage indices. Under 
such criteria the Secretary shall, utilizing such data as the Secretary 
determines to be appropriate, establish--
            ``(i) a threshold percentage, established by the Secretary, 
        of the weighted average of the area wage index or indices for 
        the higher wage index areas involved;
            ``(ii) a threshold (of not less than 10 percent) for 
        minimum out-migration to a higher wage index area or areas; and
            ``(iii) a requirement that the average hourly wage of the 
        hospitals in the qualifying county equals or exceeds the 
        average hourly wage of all the hospitals in the area in which 
        the qualifying county is located.
    ``(C) For purposes of this paragraph, the term `higher wage index 
area' means, with respect to a county, an area with a wage index that 
exceeds that of the county.
    ``(D) The increase in the wage index under subparagraph (A) for a 
qualifying county shall be equal to the percentage of the hospital 
employees residing in the qualifying county who are employed in any 
higher wage index area multiplied by the sum of the products, for each 
higher wage index area of--
            ``(i) the difference between--
                    ``(I) the wage index for such higher wage index 
                area, and
                    ``(II) the wage index of the qualifying county; and
            ``(ii) the number of hospital employees residing in the 
        qualifying county who are employed in such higher wage index 
        area divided by the total number of hospital employees residing 
        in the qualifying county who are employed in any higher wage 
        index area.
    ``(E) The process under this paragraph may be based upon the 
process used by the Medicare Geographic Classification Review Board 
under paragraph (10). As the Secretary determines to be appropriate to 
carry out such process, the Secretary may require hospitals (including 
subsection (d) hospitals and other hospitals) and critical access 
hospitals, as required under section 1866(a)(1)(T), to submit data 
regarding the location of residence, or the Secretary may use data from 
other sources.
    ``(F) A wage index increase under this paragraph shall be effective 
for a period of 3 fiscal years, except that the Secretary shall 
establish procedures under which a subsection (d) hospital may elect to 
waive the application of such wage index increase.
    ``(G) A hospital in a county that has a wage index increase under 
this paragraph for a period and that has not waived the application of 
such an increase under subparagraph (F) is not eligible for 
reclassification under paragraph (8) or (10) during that period.
    ``(H) Any increase in a wage index under this paragraph for a 
county shall not be taken into account for purposes of--
            ``(i) computing the wage index for portions of the wage 
        index area (not including the county) in which the county is 
        located; or
            ``(ii) applying any budget neutrality adjustment with 
        respect to such index under paragraph (8)(D).
    ``(I) The thresholds described in subparagraph (B), data on 
hospital employees used under this paragraph, and any determination of 
the Secretary under the process described in subparagraph (E) shall be 
final and shall not be subject to judicial review.''.
    (b) Conforming Amendments.--Section 1866(a)(1) (42 U.S.C. 
1395cc(a)(1)) is amended--
            (1) in subparagraph (R), by striking ``and'' at the end;
            (2) in subparagraph (S), by striking the period at the end 
        and inserting ``, and''; and
            (3) by inserting after subparagraph (S) the following new 
        subparagraph:
            ``(T) in the case of hospitals and critical access 
        hospitals, to furnish to the Secretary such data as the 
        Secretary determines appropriate pursuant to subparagraph (E) 
        of section 1886(d)(12) to carry out such section.''.
    (c) Effective Date.--The amendments made by this section shall 
first apply to the wage index for discharges occurring on or after 
October 1, 2004. In initially implementing such amendments, the 
Secretary may modify the deadlines otherwise applicable under clauses 
(ii) and (iii)(I) of section 1886(d)(10)(C) of the Social Security Act 
(42 U.S.C. 1395ww(d)(10)(C)), for submission of, and actions on, 
applications relating to changes in hospital geographic 
reclassification.

SEC. 113. REVISION OF THE INDIRECT MEDICAL EDUCATION (IME) ADJUSTMENT 
              PERCENTAGE.

    (a) In General.--Section 1886(d)(5)(B)(ii) (42 U.S.C. 
1395ww(d)(5)(B)(ii)) is amended--
            (1) in subclause (VI), by striking ``and'' after the 
        semicolon at the end;
            (2) in subclause (VII)--
                    (A) by inserting ``and before April 1, 2004,'' 
                after ``on or after October 1, 2002,''; and
                    (B) by striking the period at the end and inserting 
                a semicolon; and
            (3) by adding at the end the following new subclauses:
                    ``(VIII) on or after April 1, 2004, and before 
                October 1, 2004, `c' is equal to 1.47;
                    ``(IX) during fiscal year 2005, `c' is equal to 
                1.42;
                    ``(X) during fiscal year 2006, `c' is equal to 
                1.37;
                    ``(XI) during fiscal year 2007, `c' is equal to 
                1.32; and
                    ``(XII) on or after October 1, 2007, `c' is equal 
                to 1.35.''.
    (b) Conforming Amendment Relating to Determination of Standardized 
Amount.--Section 1886(d)(2)(C)(i) (42 U.S.C. 1395ww(d)(2)(C)(i)) is 
amended--
            (1) by striking ``1999 or'' and inserting ``1999,''; and
            (2) by inserting ``, or the Medicare Prescription Drug, 
        Improvement, and Modernization Act of 2003'' after ``2000''.
    (c) Effective Date.--The amendments made by this section shall 
apply to discharges occurring on or after April 1, 2004.

SEC. 114. INCREASE IN FEDERAL RATE FOR HOSPITALS IN PUERTO RICO.

    Section 1886(d)(9) (42 U.S.C. 1395ww(d)(9)) is amended--
            (1) in subparagraph (A)--
                    (A) in clause (i), by striking ``for discharges 
                beginning on or after October 1, 1997, 50 percent (and 
                for discharges between October 1, 1987, and September 
                30, 1997, 75 percent)'' and inserting ``the applicable 
                Puerto Rico percentage (specified in subparagraph 
                (E))''; and
                    (B) in clause (ii), by striking ``for discharges 
                beginning in a fiscal year beginning on or after 
                October 1, 1997, 50 percent (and for discharges between 
                October 1, 1987, and September 30, 1997, 25 percent)'' 
                and inserting ``the applicable Federal percentage 
                (specified in subparagraph (E))''; and
            (2) by adding at the end the following new subparagraph:
    ``(E) For purposes of subparagraph (A), for discharges occurring--
            ``(i) on or after October 1, 1987, and before October 1, 
        1997, the applicable Puerto Rico percentage is 75 percent and 
        the applicable Federal percentage is 25 percent;
            ``(ii) on or after October 1, 1997, and before April 1, 
        2004, the applicable Puerto Rico percentage is 50 percent and 
        the applicable Federal percentage is 50 percent;
            ``(iii) on or after April 1, 2004, and before October 1, 
        2004, the applicable Puerto Rico percentage is 37.5 percent and 
        the applicable Federal percentage is 62.5 percent; and
            ``(iv) on or after October 1, 2004, the applicable Puerto 
        Rico percentage is 25 percent and the applicable Federal 
        percentage is 75 percent.''.

SEC. 115. CLARIFICATIONS TO CERTAIN EXCEPTIONS TO MEDICARE LIMITS ON 
              PHYSICIAN REFERRALS.

    (a) Limits on Physician Referrals.--
            (1) Ownership and investment interests in whole 
        hospitals.--
                    (A) In general.--Section 1877(d)(3) (42 U.S.C. 
                1395nn(d)(3)) is amended--
                            (i) by striking ``, and'' at the end of 
                        subparagraph (A) and inserting a semicolon; and
                            (ii) by redesignating subparagraph (B) as 
                        subparagraph (C) and inserting after 
                        subparagraph (A) the following new 
                        subparagraph:
                    ``(B) effective for the 18-month period beginning 
                on November 18, 2003, the hospital is not a specialty 
                hospital (as defined in subsection (h)(7)); and''.
                    (B) Definition.--Section 1877(h) (42 U.S.C. 
                1395nn(h)) is amended by adding at the end the 
                following:
            ``(7) Specialty hospital.--
                    ``(A) In general.--For purposes of this section, 
                except as provided in subparagraph (B), the term 
                `specialty hospital' means a subsection (d) hospital 
                that is primarily or exclusively engaged in the care 
                and treatment of one of the following categories:
                            ``(i) Patients with a cardiac condition.
                            ``(ii) Patients with an orthopedic 
                        condition.
                            ``(iii) Patients receiving a surgical 
                        procedure.
                            ``(iv) Any other specialized category of 
                        services that the Secretary designates as 
                        inconsistent with the purpose of permitting 
                        physician ownership and investment interests in 
                        a hospital under this section.
                    ``(B) Exception.--For purposes of this section, the 
                term `specialty hospital' does not include any 
                hospital--
                            ``(i) determined by the Secretary--
                                    ``(I) to be in operation before 
                                November 18, 2003; or
                                    ``(II) under development as of such 
                                date;
                            ``(ii) for which the number of physician 
                        investors at any time on or after such date is 
                        no greater than the number of such investors as 
                        of such date;
                            ``(iii) for which the type of categories 
                        described in subparagraph (A) at any time on or 
                        after such date is no different than the type 
                        of such categories as of such date;
                            ``(iv) for which any increase in the number 
                        of beds occurs only in the facilities on the 
                        main campus of the hospital and does not exceed 
                        50 percent of the number of beds in the 
                        hospital as of November 18, 2003, or 5 beds, 
                        whichever is greater; and
                            ``(v) that meets such other requirements as 
                        the Secretary may specify.''.
            (2) Ownership and investment interests in a rural 
        provider.--Section 1877(d)(2) (42 U.S.C. 1395nn(d)(2)) is 
        amended to read as follows:
            ``(2) Rural providers.--In the case of designated health 
        services furnished in a rural area (as defined in section 
        1886(d)(2)(D)) by an entity, if--
                    ``(A) substantially all of the designated health 
                services furnished by the entity are furnished to 
                individuals residing in such a rural area; and
                    ``(B) effective for the 18-month period beginning 
                on November 18, 2003, the entity is not a specialty 
                hospital (as defined in subsection (h)(7)).''.
    (b) Application of Exception for Hospitals Under Development.--For 
purposes of section 1877(h)(7)(B)(i)(II) of the Social Security Act, as 
added by subsection (a)(1)(B), in determining whether a hospital is 
under development as of November 18, 2003, the Secretary shall 
consider--
            (1) whether architectural plans have been completed, 
        funding has been received, zoning requirements have been met, 
        and necessary approvals from appropriate State agencies have 
        been received; and
            (2) any other evidence the Secretary determines would 
        indicate whether a hospital is under development as of such 
        date.
    (c) Studies.--
            (1) MedPAC study.--The Medicare Payment Advisory 
        Commission, in consultation with the Comptroller General of the 
        United States, shall conduct a study to determine--
                    (A) any differences in the costs of health care 
                services furnished to patients by physician-owned 
                specialty hospitals and the costs of such services 
                furnished by local full-service community hospitals 
                within specific diagnosis-related groups;
                    (B) the extent to which specialty hospitals, 
                relative to local full-service community hospitals, 
                treat patients in certain diganosis-related groups 
                within a category, such as cardiology, and an analysis 
                of the selection;
                    (C) the financial impact of physician-owned 
                specialty hospitals on local full-service community 
                hospitals;
                    (D) how the current diagnosis-related group system 
                should be updated to better reflect the cost of 
                delivering care in a hospital setting; and
                    (E) the proportions of payments received, by type 
                of payer, between the specialty hospitals and local 
                full-service community hospitals.
            (2) HHS study.--The Secretary shall conduct a study of a 
        representative sample of specialty hospitals--
                    (A) to determine the percentage of patients 
                admitted to physician-owned specialty hospitals who are 
                referred by physicians with an ownership interest;
                    (B) to determine the referral patterns of physician 
                owners, including the percentage of patients they 
                referred to physician-owned specialty hospitals and the 
                percentage of patients they referred to local full-
                service community hospitals for the same condition;
                    (C) to compare the quality of care furnished in 
                physician-owned specialty hospitals and in local full-
                service community hospitals for similar conditions and 
                patient satisfaction with such care; and
                    (D) to assess the differences in uncompensated 
                care, as defined by the Secretary, between the 
                specialty hospital and local full-service community 
                hospitals, and the relative value of any tax exemption 
                available to such hospitals.
            (3) Reports.--Not later than 15 months after the date of 
        the enactment of this Act, the Commission and the Secretary, 
        respectively, shall each submit to Congress a report on the 
        studies conducted under paragraphs (1) and (2), respectively, 
        and shall include any recommendations for legislation or 
        administrative changes.

SEC. 116. 1-TIME APPEALS PROCESS FOR HOSPITAL WAGE INDEX 
              CLASSIFICATION.

    (a) Establishment of Process.--
            (1) In general.--The Secretary shall establish by 
        instruction or otherwise a process under which a hospital may 
        appeal the wage index classification otherwise applicable to 
        the hospital and select another area within the State (or, at 
        the discretion of the Secretary, within a contiguous State) to 
        which to be reclassified.
            (2) Process requirements.--The process established under 
        paragraph (1) shall be consistent with the following:
                    (A) Such an appeal shall be filed by not later than 
                April 1, 2004.
                    (B) Such an appeal shall be heard by the Medicare 
                Geographic Reclassification Review Board.
                    (C) There shall be no further administrative or 
                judicial review of a decision of such Board.
            (3) Reclassification upon successful appeal.--If the 
        Medicare Geographic Reclassification Review Board determines 
that the hospital is a qualifying hospital (as defined in subsection 
(c)), the hospital shall be reclassified to the area selected under 
paragraph (1). Such reclassification shall apply with respect to 
discharges occurring during the 3-fiscal-year period beginning with 
fiscal year 2005.
            (4) Inapplicability of certain provisions.--Except as the 
        Secretary may provide, the provisions of paragraphs (8) and 
        (10) of section 1886(d) of the Social Security Act (42 U.S.C. 
        1395ww(d)) shall not apply to an appeal under this section.
    (b) Application of Reclassification.--In the case of an appeal 
decided in favor of a qualifying hospital under subsection (a), the 
wage index reclassification shall not affect the wage index computation 
for any area or for any other hospital and shall not be effected in a 
budget neutral manner. The provisions of this section shall not affect 
payment for discharges occurring after the end of the 3-fiscal-year 
period referred to in subsection (a).
    (c) Qualifying Hospital Defined.--For purposes of this section, the 
term ``qualifying hospital'' means a subsection (d) hospital (as 
defined in section 1886(d)(1)(B) of the Social Security Act, 42 U.S.C. 
1395ww(d)(1)(B)) that--
            (1) does not qualify for a change in wage index 
        classification under paragraph (8) or (10) of section 1886(d) 
        of the Social Security Act (42 U.S.C. 1395ww(d)) on the basis 
        of requirements relating to distance or commuting; and
            (2) meets such other criteria, such as quality, as the 
        Secretary may specify by instruction or otherwise.
The Secretary may modify the wage comparison guidelines promulgated 
under section 1886(d)(10)(D) of such Act (42 U.S.C. 1395ww(d)(10)(D)) 
in carrying out this section.
    (d) Wage Index Classification.--For purposes of this section, the 
term ``wage index classification'' means the geographic area in which 
it is classified for purposes of determining for a fiscal year the 
factor used to adjust the DRG prospective payment rate under section 
1886(d) of the Social Security Act (42 U.S.C. 1395ww(d)) for area 
differences in hospital wage levels that applies to such hospital under 
paragraph (3)(E) of such section.
    (e) Limitation on Expenditures.--The aggregate amount of additional 
expenditures resulting from the application of this section shall not 
exceed $500,000,000.

SEC. 117. STUDY ON PORTABLE DIAGNOSTIC ULTRASOUND SERVICES FOR 
              BENEFICIARIES IN SKILLED NURSING FACILITIES.

    (a) Study.--The Comptroller General of the United States shall 
conduct a study of portable diagnostic ultrasound services furnished to 
medicare beneficiaries in skilled nursing facilities. Such study shall 
consider the following:
            (1) Types of equipment; training.--The types of portable 
        diagnostic ultrasound services furnished to such beneficiaries, 
        the types of portable ultrasound equipment used to furnish such 
        services, and the technical skills, or training, or both, 
        required for technicians to furnish such services.
            (2) Clinical appropriateness.--The clinical appropriateness 
        of transporting portable diagnostic ultrasound diagnostic and 
        technicians to patients in skilled nursing facilities as 
        opposed to transporting such patients to a hospital or other 
        facility that furnishes diagnostic ultrasound services.
            (3) Financial impact.--The financial impact if Medicare 
        were make a separate payment for portable ultrasound diagnostic 
        services, including the impact of separate payments--
                    (A) for transportation and technician services for 
                residents during a resident in a part A stay, that 
                would otherwise be paid for under the prospective 
                payment system for covered skilled nursing facility 
                services (under section 1888(e) of the Social Security 
                Act (42 U.S.C. 1395yy(e)); and
                    (B) for such services for residents in a skilled 
                nursing facility after a part A stay.
            (4) Credentialing requirements.--Whether the Secretary 
        should establish credentialing or other requirements for 
        technicians that furnish diagnostic ultrasound services to 
        medicare beneficiaries.
    (b) Report.--Not later than 2 years after the date of the enactment 
of this Act, the Comptroller General shall submit to Congress a report 
on the study conducted under subsection (a), and shall include any 
recommendations for legislation or administrative change as the 
Comptroller General determines appropriate.

              TITLE II--PROVISIONS RELATING TO PART B ONLY

SEC. 201. REVISION OF UPDATES FOR PHYSICIANS' SERVICES.

    (a) Update for 2004 and 2005.--
            (1) In general.--Section 1848(d) (42 U.S.C. 1395w-4(d)) is 
        amended by adding at the end the following new paragraph:
            ``(5) Update for 2004 and 2005.--The update to the single 
        conversion factor established in paragraph (1)(C) for each of 
        2004 and 2005 shall be not less than 1.5 percent.''.
            (2) Conforming amendment.--Paragraph (4)(B) of such section 
        is amended, in the matter before clause (i), by inserting ``and 
        paragraph (5)'' after ``subparagraph (D)''.
            (3) Not treated as change in law and regulation in 
        sustainable growth rate determination.--The amendments made by 
        this subsection shall not be treated as a change in law for 
        purposes of applying section 1848(f)(2)(D) of the Social 
        Security Act (42 U.S.C. 1395w-4(f)(2)(D)).
    (b) Use of 10-Year Rolling Average in Computing Gross Domestic 
Product.--
            (1) In general.--Section 1848(f)(2)(C) (42 U.S.C. 1395w-
        4(f)(2)(C)) is amended--
                    (A) by striking ``projected'' and inserting 
                ``annual average''; and
                    (B) by striking ``from the previous applicable 
                period to the applicable period involved'' and 
                inserting ``during the 10-year period ending with the 
                applicable period involved''.
            (2) Effective date.--The amendments made by paragraph (1) 
        shall apply to computations of the sustainable growth rate for 
        years beginning with 2003.

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.

    (a) Hold Harmless Provisions.--
            (1) In general.--Section 1833(t)(7)(D)(i) (42 U.S.C. 
        1395l(t)(7)(D)(i)) is amended--
                    (A) in the heading, by striking ``small'' and 
                inserting ``certain'';
                    (B) by inserting ``or a sole community hospital (as 
                defined in section 1886(d)(5)(D)(iii)) located in a 
                rural area'' after ``100 beds''; and
                    (C) by striking ``2004'' and inserting ``2006''.
            (2) Effective date.--The amendment made by paragraph (1)(B) 
        shall apply with respect to cost reporting periods beginning on 
        and after January 1, 2004.
    (b) Study; Authorization of Adjustment.--Section 1833(t) (42 U.S.C. 
1395l(t)) is amended--
            (1) by redesignating paragraph (13) as paragraph (16); and
            (2) by inserting after paragraph (12) the following new 
        paragraph:
            ``(13) Authorization of adjustment for rural hospitals.--
                    ``(A) Study.--The Secretary shall conduct a study 
                to determine if, under the system under this 
                subsection, costs incurred by hospitals located in 
                rural areas by ambulatory payment classification groups 
                (APCs) exceed those costs incurred by hospitals located 
                in urban areas.
                    ``(B) Authorization of adjustment.--Insofar as the 
                Secretary determines under subparagraph (A) that costs 
                incurred by hospitals located in rural areas exceed 
                those costs incurred by hospitals located in urban 
                areas, the Secretary shall provide for an appropriate 
                adjustment under paragraph (2)(E) to reflect those 
                higher costs by January 1, 2006.''.

SEC. 203. ESTABLISHMENT OF FLOOR ON WORK GEOGRAPHIC ADJUSTMENT.

    Section 1848(e)(1) (42 U.S.C. 1395w-4(e)(1)) is amended--
            (1) in subparagraph (A), by striking ``subparagraphs (B) 
        and (C)'' and inserting ``subparagraphs (B), (C), and (E)''; 
        and
            (2) by adding at the end the following new subparagraph:
                    ``(E) Floor at 1.0 on work geographic index.--After 
                calculating the work geographic index in subparagraph 
                (A)(iii), for purposes of payment for services 
                furnished on or after January 1, 2004, and before 
                January 1, 2007, the Secretary shall increase the work 
                geographic index to 1.00 for any locality for which 
                such work geographic index is less than 1.00.''.

SEC. 204. MEDICARE INCENTIVE PAYMENT PROGRAM IMPROVEMENTS FOR PHYSICIAN 
              SCARCITY.

    (a) Additional Incentive Payment for Certain Physician Scarcity 
Areas.--Section 1833 (42 U.S.C. 1395l) is amended by adding at the end 
the following new subsection:
    ``(u) Incentive Payments for Physician Scarcity Areas.--
            ``(1) In general.--In the case of physicians' services 
        furnished on or after January 1, 2005, and before January 1, 
        2008--
                    ``(A) by a primary care physician in a primary care 
                scarcity county (identified under paragraph (4)); or
                    ``(B) by a physician who is not a primary care 
                physician in a specialist care scarcity county (as so 
                identified),
        in addition to the amount of payment that would otherwise be 
        made for such services under this part, there also shall be 
        paid an amount equal to 5 percent of the payment amount for the 
        service under this part.
            ``(2) Determination of ratios of physicians to medicare 
        beneficiaries in area.--Based upon available data, the 
        Secretary shall establish for each county or equivalent area in 
        the United States, the following:
                    ``(A) Number of physicians practicing in the 
                area.--The number of physicians who furnish physicians' 
                services in the active practice of medicine or 
                osteopathy in that county or area, other than 
                physicians whose practice is exclusively for the 
                Federal Government, physicians who are retired, or 
                physicians who only provide administrative services. Of 
                such number, the number of such physicians who are--
                            ``(i) primary care physicians; or
                            ``(ii) physicians who are not primary care 
                        physicians.
                    ``(B) Number of medicare beneficiaries residing in 
                the area.--The number of individuals who are residing 
                in the county and are entitled to benefits under part A 
                or enrolled under this part, or both (in this 
                subsection referred to as `individuals').
                    ``(C) Determination of ratios.--
                            ``(i) Primary care ratio.--The ratio (in 
                        this paragraph referred to as the `primary care 
                        ratio') of the number of primary care 
                        physicians (determined under subparagraph 
                        (A)(i)), to the number of individuals 
                        determined under subparagraph (B).
                            ``(ii) Specialist care ratio.--The ratio 
                        (in this paragraph referred to as the 
                        `specialist care ratio') of the number of other 
                        physicians (determined under subparagraph 
                        (A)(ii)), to the number of individuals 
                        determined under subparagraph (B).
            ``(3) Ranking of counties.--The Secretary shall rank each 
        such county or area based separately on its primary care ratio 
        and its specialist care ratio.
            ``(4) Identification of counties.--
                    ``(A) In general.--The Secretary shall identify--
                            ``(i) those counties and areas (in this 
                        paragraph referred to as `primary care scarcity 
                        counties') with the lowest primary care ratios 
                        that represent, if each such county or area 
                        were weighted by the number of individuals 
                        determined under paragraph (2)(B), an aggregate 
                        total of 20 percent of the total of the 
                        individuals determined under such paragraph; 
                        and
                            ``(ii) those counties and areas (in this 
                        subsection referred to as `specialist care 
                        scarcity counties') with the lowest specialist 
                        care ratios that represent, if each such county 
                        or area were weighted by the number of 
                        individuals determined under paragraph (2)(B), 
                        an aggregate total of 20 percent of the total 
                        of the individuals determined under such 
                        paragraph.
                    ``(B) Periodic revisions.--The Secretary shall 
                periodically revise the counties or areas identified in 
                subparagraph (A) (but not less often than once every 
                three years) unless the Secretary determines that there 
                is no new data available on the number of physicians 
                practicing in the county or area or the number of 
                individuals residing in the county or area, as 
                identified in paragraph (2).
                    ``(C) Identification of counties where service is 
                furnished.--For purposes of paying the additional 
                amount specified in paragraph (1), if the Secretary 
                uses the 5-digit postal ZIP Code where the service is 
                furnished, the dominant county of the postal ZIP Code 
                (as determined by the United States Postal Service, or 
                otherwise) shall be used to determine whether the 
                postal ZIP Code is in a scarcity county identified in 
                subparagraph (A) or revised in subparagraph (B).
                    ``(D) Judicial review.--There shall be no 
                administrative or judicial review under section 1869, 
                1878, or otherwise, respecting--
                            ``(i) the identification of a county or 
                        area;
                            ``(ii) the assignment of a specialty of any 
                        physician under this paragraph;
                            ``(iii) the assignment of a physician to a 
                        county under paragraph (2); or
                            ``(iv) the assignment of a postal ZIP Code 
                        to a county or other area under this 
                        subsection.
            ``(5) Rural census tracts.--To the extent feasible, the 
        Secretary shall treat a rural census tract of a metropolitan 
        statistical area (as determined under the most recent 
        modification of the Goldsmith Modification, originally 
        published in the Federal Register on February 27, 1992 (57 Fed. 
        Reg. 6725)), as an equivalent area for purposes of qualifying 
        as a primary care scarcity county or specialist care scarcity 
        county under this subsection.
            ``(6) Physician defined.--For purposes of this paragraph, 
        the term `physician' means a physician described in section 
        1861(r)(1) and the term `primary care physician' means a 
        physician who is identified in the available data as a general 
        practitioner, family practice practitioner, general internist, 
        or obstetrician or gynecologist.
            ``(7) Publication of list of counties; posting on 
        website.--With respect to a year for which a county or area is 
        identified or revised under paragraph (4), the Secretary shall 
        identify such counties or areas as part of the proposed and 
        final rule to implement the physician fee schedule under 
        section 1848 for the applicable year. The Secretary shall post 
        the list of counties identified or revised under paragraph (4) 
        on the Internet website of the Centers for Medicare & Medicaid 
        Services.''.
    (b) Improvement to Medicare Incentive Payment Program.--
            (1) In general.--Section 1833(m) (42 U.S.C. 1395l(m)) is 
        amended--
                    (A) by inserting ``(1)'' after ``(m)'';
                    (B) in paragraph (1), as designated by subparagraph 
                (A)--
                            (i) by inserting ``in a year'' after ``In 
                        the case of physicians' services furnished''; 
                        and
                            (ii) by inserting ``as identified by the 
                        Secretary prior to the beginning of such year'' 
                        after ``as a health professional shortage 
                        area''; and
                    (C) by adding at the end the following new 
                paragraphs:
    ``(2) For each health professional shortage area identified in 
paragraph (1) that consists of an entire county, the Secretary shall 
provide for the additional payment under paragraph (1) without any 
requirement on the physician to identify the health professional 
shortage area involved. The Secretary may implement the previous 
sentence using the method specified in subsection (u)(4)(C).
    ``(3) The Secretary shall post on the Internet website of the 
Centers for Medicare & Medicaid Services a list of the health 
professional shortage areas identified in paragraph (1) that consist of 
a partial county to facilitate the additional payment under paragraph 
(1) in such areas.
    ``(4) There shall be no administrative or judicial review under 
section 1869, section 1878, or otherwise, respecting--
            ``(A) the identification of a county or area;
            ``(B) the assignment of a specialty of any physician under 
        this paragraph;
            ``(C) the assignment of a physician to a county under this 
        subsection; or
            ``(D) the assignment of a postal zip code to a county or 
        other area under this subsection.''.
            (2) Effective date.--The amendments made by paragraph (1) 
        shall apply to physicians' services furnished on or after 
        January 1, 2005.
    (c) GAO Study of Geographic Differences in Payments for Physicians' 
Services.--
            (1) Study.--The Comptroller General of the United States 
        shall conduct a study of differences in payment amounts under 
        the physician fee schedule under section 1848 of the Social 
        Security Act (42 U.S.C. 1395w-4) for physicians' services in 
        different geographic areas. Such study shall include--
                    (A) an assessment of the validity of the geographic 
                adjustment factors used for each component of the fee 
                schedule;
                    (B) an evaluation of the measures used for such 
                adjustment, including the frequency of revisions;
                    (C) an evaluation of the methods used to determine 
                professional liability insurance costs used in 
                computing the malpractice component, including a review 
                of increases in professional liability insurance 
                premiums and variation in such increases by State and 
                physician specialty and methods used to update the 
                geographic cost of practice index and relative weights 
                for the malpractice component; and
                    (D) an evaluation of the effect of the adjustment 
                to the physician work geographic index under section 
                1848(e)(1)(E) of the Social Security Act, as added by 
                section 203, on physician location and retention in 
                areas affected by such adjustment, taking into 
                account--
                            (i) differences in recruitment costs and 
                        retention rates for physicians, including 
                        specialists, between large urban areas and 
                        other areas; and
                            (ii) the mobility of physicians, including 
                        specialists, over the last decade.
            (2) Report.--Not later than 1 year after the date of the 
        enactment of this Act, the Comptroller General shall submit to 
        Congress a report on the study conducted under paragraph (1). 
        The report shall include recommendations regarding the use of 
        more current data in computing geographic cost of practice 
        indices as well as the use of data directly representative of 
        physicians' costs (rather than proxy measures of such costs).

SEC. 205. PAYMENT FOR RURAL AND URBAN AMBULANCE SERVICES.

    (a) Phase-In Providing Floor Using Blend of Fee Schedule and 
Regional Fee Schedules.--Section 1834(l) (42 U.S.C. 1395m(l)) is 
amended--
            (1) in paragraph (2)(E), by inserting ``consistent with 
        paragraph (11)'' after ``in an efficient and fair manner''; and
            (2) by redesignating paragraph (8), as added by section 
        221(a) of BIPA (114 Stat. 2763A-486), as paragraph (9); and
            (3) by adding at the end the following new paragraph:
            ``(10) Phase-in providing floor using blend of fee schedule 
        and regional fee schedules.--In carrying out the phase-in under 
        paragraph (2)(E) for each level of ground service furnished in 
        a year, the portion of the payment amount that is based on the 
        fee schedule shall be the greater of the amount determined 
        under such fee schedule (without regard to this paragraph) or 
        the following blended rate of the fee schedule under paragraph 
        (1) and of a regional fee schedule for the region involved:
                    ``(A) For 2004 (for services furnished on or after 
                July 1, 2004), the blended rate shall be based 20 
                percent on the fee schedule under paragraph (1) and 80 
                percent on the regional fee schedule.
                    ``(B) For 2005, the blended rate shall be based 40 
                percent on the fee schedule under paragraph (1) and 60 
                percent on the regional fee schedule.
                    ``(C) For 2006, the blended rate shall be based 60 
                percent on the fee schedule under paragraph (1) and 40 
                percent on the regional fee schedule.
                    ``(D) For 2007, 2008, and 2009, the blended rate 
                shall be based 80 percent on the fee schedule under 
                paragraph (1) and 20 percent on the regional fee 
                schedule.
                    ``(E) For 2010 and each succeeding year, the 
                blended rate shall be based 100 percent on the fee 
                schedule under paragraph (1).
        For purposes of this paragraph, the Secretary shall establish a 
        regional fee schedule for each of the nine census divisions 
        (referred to in section 1886(d)(2)) using the methodology (used 
        in establishing the fee schedule under paragraph (1)) to 
        calculate a regional conversion factor and a regional mileage 
        payment rate and using the same payment adjustments and the 
        same relative value units as used in the fee schedule under 
        such paragraph.''.
    (b) Adjustment in Payment for Certain Long Trips.--Section 1834(l), 
as amended by subsection (a), is amended by adding at the end the 
following new paragraph:
            ``(11) Adjustment in payment for certain long trips.--In 
        the case of ground ambulance services furnished on or after 
        July 1, 2004, and before January 1, 2009, regardless of where 
        the transportation originates, the fee schedule established 
        under this subsection shall provide that, with respect to the 
        payment rate for mileage for a trip above 50 miles the per mile 
        rate otherwise established shall be increased by \1/4\ of the 
        payment per mile otherwise applicable to miles in excess of 50 
        miles in such trip.''.
    (c) Improvement in Payments To Retain Emergency Capacity for 
Ambulance Services in Rural Areas.--
            (1) In general.--Section 1834(l) (42 U.S.C. 1395m(l)), as 
        amended by subsections (a) and (b), is amended by adding at the 
        end the following new paragraph:
            ``(12) Assistance for rural providers furnishing services 
        in low population density areas.--
                    ``(A) In general.--In the case of ground ambulance 
                services furnished on or after July 1, 2004, and before 
                January 1, 2010, for which the transportation 
                originates in a qualified rural area (identified under 
                subparagraph (B)(iii)), the Secretary shall provide for 
                a percent increase in the base rate of the fee schedule 
                for a trip established under this subsection. In 
                establishing such percent increase, the Secretary shall 
                estimate the average cost per trip for such services 
                (not taking into account mileage) in the lowest 
                quartile as compared to the average cost per trip for 
                such services (not taking into account mileage) in the 
                highest quartile of all rural county populations.
                    ``(B) Identification of qualified rural areas.--
                            ``(i) Determination of population density 
                        in area.--Based upon data from the United 
                        States decennial census for the year 2000, the 
                        Secretary shall determine, for each rural area, 
                        the population density for that area.
                            ``(ii) Ranking of areas.--The Secretary 
                        shall rank each such area based on such 
                        population density.
                            ``(iii) Identification of qualified rural 
                        areas.--The Secretary shall identify those 
                        areas (in subparagraph (A) referred to as 
                        `qualified rural areas') with the lowest 
                        population densities that represent, if each 
                        such area were weighted by the population of 
                        such area (as used in computing such population 
                        densities), an aggregate total of 25 percent of 
                        the total of the population of all such areas.
                            ``(iv) Rural area.--For purposes of this 
                        paragraph, the term `rural area' has the 
                        meaning given such term in section 
                        1886(d)(2)(D). If feasible, the Secretary shall 
                        treat a rural census tract of a metropolitan 
                        statistical area (as determined under the most 
                        recent modification of the Goldsmith 
                        Modification, originally published in the 
                        Federal Register on February 27, 1992 (57 Fed. 
                        Reg. 6725) as a rural area for purposes of this 
                        paragraph.
                            ``(v) Judicial review.--There shall be no 
                        administrative or judicial review under section 
                        1869, 1878, or otherwise, respecting the 
                        identification of an area under this 
                        subparagraph.''.
            (2) Use of data.--In order to promptly implement section 
        1834(l)(12) of the Social Security Act, as added by paragraph 
        (1), the Secretary may use data furnished by the Comptroller 
        General of the United States.
    (d) Temporary Increase for Ground Ambulance Services.--Section 
1834(l) (42 U.S.C. 1395m(l)), as amended by subsections (a), (b), and 
(c), is amended by adding at the end the following new paragraph:
            ``(13) Temporary increase for ground ambulance services.--
                    ``(A) In general.--After computing the rates with 
                respect to ground ambulance services under the other 
                applicable provisions of this subsection, in the case 
                of such services furnished on or after July 1, 2004, 
                and before January 1, 2007, for which the 
                transportation originates in--
                            ``(i) a rural area described in paragraph 
                        (9) or in a rural census tract described in 
                        such paragraph, the fee schedule established 
                        under this section shall provide that the rate 
                        for the service otherwise established, after 
                        the application of any increase under 
                        paragraphs (11) and (12), shall be increased by 
                        2 percent; and
                            ``(ii) an area not described in clause (i), 
                        the fee schedule established under this 
                        subsection shall provide that the rate for the 
                        service otherwise established, after the 
                        application of any increase under paragraph 
                        (11), shall be increased by 1 percent.
                    ``(B) Application of increased payments after 
                2006.--The increased payments under subparagraph (A) 
                shall not be taken into account in calculating payments 
                for services furnished after the period specified in 
                such subparagraph.''.
    (e) Implementation.--The Secretary may implement the amendments 
made by this section, and revise the conversion factor applicable under 
section 1834(l) of the Social Security Act (42 U.S.C. 1395m(l)) for 
purposes of implementing such amendments, on an interim final basis, or 
by program instruction.
    (f) GAO Report on Costs and Access.--Not later than December 31, 
2005, the Comptroller General of the United States shall submit to 
Congress an initial report on how costs differ among the types of 
ambulance providers and on access, supply, and quality of ambulance 
services in those regions and States that have a reduction in payment 
under the medicare ambulance fee schedule (under section 1834(l) of the 
Social Security Act, as amended by this Act). Not later than December 
31, 2007, the Comptroller General shall submit to Congress a final 
report on such access and supply.
    (g) Technical Amendments.--(1) Section 221(c) of BIPA (114 Stat. 
2763A-487) is amended by striking ``subsection (b)(2)'' and inserting 
``subsection (b)(3)''.
    (2) Section 1861(v)(1) (42 U.S.C. 1395x(v)(1)) is amended by moving 
subparagraph (U) 4 ems to the left.

SEC. 206. PROVIDING APPROPRIATE COVERAGE OF RURAL AIR AMBULANCE 
              SERVICES.

    (a) Coverage.--Section 1834(l) (42 U.S.C. 1395m(l)), as amended by 
subsections (a), (b), (c), and (d) of section 205, is amended by adding 
at the end the following new paragraph:
            ``(14) Providing appropriate coverage of rural air 
        ambulance services.--
                    ``(A) In general.--The regulations described in 
                section 1861(s)(7) shall provide, to the extent that 
                any ambulance services (whether ground or air) may be 
                covered under such section, that a rural air ambulance 
                service (as defined in subparagraph (C)) is reimbursed 
                under this subsection at the air ambulance rate if the 
                air ambulance service--
                            ``(i) is reasonable and necessary based on 
                        the health condition of the individual being 
                        transported at or immediately prior to the time 
                        of the transport; and
                            ``(ii) complies with equipment and crew 
                        requirements established by the Secretary.
                    ``(B) Satisfaction of requirement of medically 
                necessary.--The requirement of subparagraph (A)(i) is 
                deemed to be met for a rural air ambulance service if--
                            ``(i) subject to subparagraph (D), such 
                        service is requested by a physician or other 
                        qualified medical personnel (as specified by 
                        the Secretary) who reasonably determines or 
                        certifies that the individual's condition is 
                        such that the time needed to transport the 
                        individual by land or the instability of 
                        transportation by land poses a threat to the 
                        individual's survival or seriously endangers 
                        the individual's health; or
                            ``(ii) such service is furnished pursuant 
                        to a protocol that is established by a State or 
                        regional emergency medical service (EMS) agency 
                        and recognized or approved by the Secretary 
                        under which the use of an air ambulance is 
                        recommended, if such agency does not have an 
                        ownership interest in the entity furnishing 
                        such service.
                    ``(C) Rural air ambulance service defined.--For 
                purposes of this paragraph, the term `rural air 
                ambulance service' means fixed wing and rotary wing air 
                ambulance service in which the point of pick up of the 
                individual occurs in a rural area (as defined in 
                section 1886(d)(2)(D)) or in a rural census tract of a 
                metropolitan statistical area (as determined under the 
                most recent modification of the Goldsmith Modification, 
                originally published in the Federal Register on 
                February 27, 1992 (57 Fed. Reg. 6725)).
                    ``(D) Limitation.--
                            ``(i) In general.--Subparagraph (B)(i) 
                        shall not apply if there is a financial or 
                        employment relationship between the person 
                        requesting the rural air ambulance service and 
                        the entity furnishing the ambulance service, or 
                        an entity under common ownership with the 
                        entity furnishing the air ambulance service, or 
                        a financial relationship between an immediate 
                        family member of such requester and such an 
                        entity.
                            ``(ii) Exception.--Where a hospital and the 
                        entity furnishing rural air ambulance services 
                        are under common ownership, clause (i) shall 
                        not apply to remuneration (through employment 
                        or other relationship) by the hospital of the 
                        requester or immediate family member if the 
                        remuneration is for provider-based physician 
                        services furnished in a hospital (as described 
                        in section 1887) which are reimbursed under 
                        part A and the amount of the remuneration is 
                        unrelated directly or indirectly to the 
                        provision of rural air ambulance services.''.
    (b) Conforming Amendment.--Section 1861(s)(7) (42 U.S.C. 
1395x(s)(7)) is amended by inserting ``, subject to section 
1834(l)(14),'' after ``but''.
    (c) Effective Date.--The amendments made by this subsection shall 
apply to services furnished on or after January 1, 2005.

SEC. 207. TREATMENT OF CERTAIN CLINICAL DIAGNOSTIC LABORATORY TESTS 
              FURNISHED TO HOSPITAL OUTPATIENTS IN CERTAIN RURAL AREAS.

    (a) In General.--Notwithstanding subsections (a), (b), and (h) of 
section 1833 of the Social Security Act (42 U.S.C. 1395l) and section 
1834(d)(1) of such Act (42 U.S.C. 1395m(d)(1)), in the case of a 
clinical diagnostic laboratory test covered under part B of title XVIII 
of such Act that is furnished during a cost reporting period described 
in subsection (b) by a hospital with fewer than 50 beds that is located 
in a qualified rural area (identified under paragraph (12)(B)(iii) of 
section 1834(l) of the Social Security Act (42 U.S.C. 1395m(l)), as 
added by section 205(c)) as part of outpatient services of the 
hospital, the amount of payment for such test shall be 100 percent of 
the reasonable costs of the hospital in furnishing such test.
    (b) Application.--A cost reporting period described in this 
subsection is a cost reporting period beginning during the 2-year 
period beginning on July 1, 2004.
    (c) Provision as Part of Outpatient Hospital Services.--For 
purposes of subsection (a), in determining whether clinical diagnostic 
laboratory services are furnished as part of outpatient services of a 
hospital, the Secretary shall apply the same rules that are used to 
determine whether clinical diagnostic laboratory services are furnished 
as an outpatient critical access hospital service under section 
1834(g)(4) of the Social Security Act (42 U.S.C. 1395m(g)(4)).

SEC. 208. EXTENSION OF TELEMEDICINE DEMONSTRATION PROJECT.

    Section 4207 of the Balanced Budget Act of 1997 (Public Law 105-33) 
is amended--
            (1) in subsection (a)(4), by striking ``4-year'' and 
        inserting ``8-year''; and
            (2) in subsection (d)(3), by striking ``$30,000,000'' and 
        inserting ``$60,000,000''.

SEC. 209. REPORT ON DEMONSTRATION PROJECT PERMITTING SKILLED NURSING 
              FACILITIES TO BE ORIGINATING TELEHEALTH SITES; AUTHORITY 
              TO IMPLEMENT.

    (a) Evaluation.--The Secretary, acting through the Administrator of 
the Health Resources and Services Administration in consultation with 
the Administrator of the Centers for Medicare & Medicaid Services, 
shall evaluate demonstration projects conducted by the Secretary under 
which skilled nursing facilities (as defined in section 1819(a) of the 
Social Security Act (42 U.S.C. 1395i-3(a)) are treated as originating 
sites for telehealth services.
    (b) Report.--Not later than January 1, 2005, the Secretary shall 
submit to Congress a report on the evaluation conducted under 
subsection (a). Such report shall include recommendations on mechanisms 
to ensure that permitting a skilled nursing facility to serve as an 
originating site for the use of telehealth services or any other 
service delivered via a telecommunications system does not serve as a 
substitute for in-person visits furnished by a physician, or for in-
person visits furnished by a physician assistant, nurse practitioner or 
clinical nurse specialist, as is otherwise required by the Secretary.
    (c) Authority To Expand Originating Telehealth Sites To Include 
Skilled Nursing Facilities.--Insofar as the Secretary concludes in the 
report required under subsection (b) that it is advisable to permit a 
skilled nursing facility to be an originating sites for telehealth 
services under section 1834(m) of the Social Security Act (42 U.S.C. 
1395m(m)), and that the Secretary can establish the mechanisms to 
ensure such permission does not serve as a substitute for in-person 
visits furnished by a physician, or for in-person visits furnished by a 
physician assistant, nurse practitioner or clinical nurse specialist, 
the Secretary may deem a skilled nursing facility to be an originating 
site under paragraph (4)(C)(ii) of such section beginning on January 1, 
2006.

SEC. 210. 5-YEAR AUTHORIZATION OF REIMBURSEMENT FOR ALL MEDICARE PART B 
              SERVICES FURNISHED BY CERTAIN INDIAN HOSPITALS AND 
              CLINICS.

    Section 1880(e)(1)(A) (42 U.S.C. 1395qq(e)(1)(A)) is amended by 
inserting ``(and for items and services furnished during the 5-year 
period beginning on January 1, 2005, all items and services for which 
payment may be made under part B)'' after ``for services described in 
paragraph (2)''.

SEC. 211. MEDPAC REPORT ON PAYMENT FOR PHYSICIANS' SERVICES.

    (a) Practice Expense Component.--Not later than 1 year after the 
date of the enactment of this Act, the Medicare Payment Advisory 
Commission shall submit to Congress a report on the effect of 
refinements to the practice expense component of payments for 
physicians' services, after the transition to a full resource-based 
payment system in 2002, under section 1848 of the Social Security Act 
(42 U.S.C. 1395w-4). Such report shall examine the following matters by 
physician specialty:
            (1) The effect of such refinements on payment for 
        physicians' services.
            (2) The interaction of the practice expense component with 
        other components of and adjustments to payment for physicians' 
        services under such section.
            (3) The appropriateness of the amount of compensation by 
        reason of such refinements.
            (4) The effect of such refinements on access to care by 
        medicare beneficiaries to physicians' services.
            (5) The effect of such refinements on physician 
        participation under the medicare program.
    (b) Volume of Physicians' Services.--Not later than 1 year after 
the date of the enactment of this Act, the Medicare Payment Advisory 
Commission shall submit to Congress a report on the extent to which 
increases in the volume of physicians' services under part B of the 
medicare program are a result of care that improves the health and 
well-being of medicare beneficiaries. The study shall include the 
following:
            (1) An analysis of recent and historic growth in the 
        components that the Secretary includes under the sustainable 
        growth rate (under section 1848(f) of the Social Security Act 
        (42 U.S.C. 1395w-4(f))).
            (2) An examination of the relative growth of volume in 
        physicians' services between medicare beneficiaries and other 
        populations.
            (3) An analysis of the degree to which new technology, 
        including coverage determinations of the Centers for Medicare & 
        Medicaid Services, has affected the volume of physicians' 
        services.
            (4) An examination of the impact on volume of demographic 
        changes.
            (5) An examination of shifts in the site of service or 
        services that influence the number and intensity of services 
        furnished in physicians' offices and the extent to which 
        changes in reimbursement rates to other providers have effected 
        these changes.
            (6) An evaluation of the extent to which the Centers for 
        Medicare & Medicaid Services takes into account the impact of 
        law and regulations on the sustainable growth rate.

SEC. 212. PAYMENT FOR RENAL DIALYSIS SERVICES.

    (a) Increase in Renal Dialysis Composite Rate for Services 
Furnished.--The last sentence of section 1881(b)(7) (42 U.S.C. 
1395rr(b)(7)) is amended--
            (1) by striking ``and'' before ``for such services'' the 
        second place it appears;
            (2) by inserting ``and before January 1, 2005,'' after 
        ``January 1, 2001,''; and
            (3) by inserting before the period at the end the 
        following: ``, and for such services furnished on or after 
        January 1, 2005, by 1.6 percent above such composite rate 
        payment amounts for such services furnished on December 31, 
        2004''.
    (b) Restoring Composite Rate Exceptions for Pediatric Facilities.--
            (1) In general.--Section 422(a)(2) of BIPA is amended--
                    (A) in subparagraph (A), by striking ``and (C)'' 
                and inserting ``, (C), and (D)'';
                    (B) in subparagraph (B), by striking ``In the 
                case'' and inserting ``Subject to subparagraph (D), in 
                the case''; and
                    (C) by adding at the end the following new 
                subparagraph:
                    ``(D) Inapplicability to pediatric facilities.--
                Subparagraphs (A) and (B) shall not apply, as of 
October 1, 2002, to pediatric facilities that do not have an exception 
rate described in subparagraph (C) in effect on such date. For purposes 
of this subparagraph, the term `pediatric facility' means a renal 
facility at least 50 percent of whose patients are individuals under 18 
years of age.''.
            (2) Conforming amendment.--The fourth sentence of section 
        1881(b)(7) (42 U.S.C. 1395rr(b)(7)) is amended by striking 
        ``The Secretary'' and inserting ``Subject to section 422(a)(2) 
        of the Medicare, Medicaid, and SCHIP Benefits Improvement and 
        Protection Act of 2000, the Secretary''.
    (c) Inspector General Studies on ESRD Drugs.--
            (1) In general.--The Inspector General of the Department of 
        Health and Human Services shall conduct two studies with 
        respect to drugs and biologicals (including erythropoietin) 
        furnished to end-stage renal disease patients under the 
        medicare program which are separately billed by end stage renal 
        disease facilities.
            (2) Studies on esrd drugs.--
                    (A) Existing drugs.--The first study under 
                paragraph (1) shall be conducted with respect to such 
                drugs and biologicals for which a billing code exists 
                prior to January 1, 2004.
                    (B) New drugs.--The second study under paragraph 
                (1) shall be conducted with respect to such drugs and 
                biologicals for which a billing code does not exist 
                prior to January 1, 2004.
            (3) Matters studied.--Under each study conducted under 
        paragraph (1), the Inspector General shall--
                    (A) determine the difference between the amount of 
                payment made to end stage renal disease facilities 
                under title XVIII of the Social Security Act for such 
                drugs and biologicals and the acquisition costs of such 
                facilities for such drugs and biologicals and which are 
                separately billed by end stage renal disease 
                facilities, and
                    (B) estimate the rates of growth of expenditures 
                for such drugs and biologicals billed by such 
                facilities.
            (4) Reports.--
                    (A) Existing esrd drugs.--Not later than April 1, 
                2004, the Inspector General shall report to the 
                Secretary on the study described in paragraph (2)(A).
                    (B) New esrd drugs.--Not later than April 1, 2006, 
                the Inspector General shall report to the Secretary on 
                the study described in paragraph (2)(B).
    (d) Basic Case-Mix Adjusted Composite Rate for Renal Dialysis 
Facility Services.--(1) Section 1881(b) (42 U.S.C. 1395rr(b)) is 
amended by adding at the end the following new paragraphs:
    ``(12)(A) In lieu of payment under paragraph (7) beginning with 
services furnished on January 1, 2005, the Secretary shall establish a 
basic case-mix adjusted prospective payment system for dialysis 
services furnished by providers of services and renal dialysis 
facilities in a year to individuals in a facility and to such 
individuals at home. The case-mix under such system shall be for a 
limited number of patient characteristics.
    ``(B) The system described in subparagraph (A) shall include--
            ``(i) the services comprising the composite rate 
        established under paragraph (7); and
            ``(ii) the difference between payment amounts under this 
        title for separately billed drugs and biologicals (including 
        erythropoietin) and acquisition costs of such drugs and 
        biologicals, as determined by the Inspector General reports to 
        the Secretary as required by section 623(c) of the Medicare 
        Prescription Drug, Improvement, and Modernization Act of 2003--
                    ``(I) beginning with 2005, for such drugs and 
                biologicals for which a billing code exists prior to 
                January 1, 2004; and
                    ``(II) beginning with 2007, for such drugs and 
                biologicals for which a billing code does not exist 
                prior to January 1, 2004,
        adjusted to 2005, or 2007, respectively, as determined to be 
        appropriate by the Secretary.
    ``(C)(i) In applying subparagraph (B)(ii) for 2005, such payment 
amounts under this title shall be determined using the methodology 
specified in paragraph (13)(A)(i).
    ``(ii) For 2006, the Secretary shall provide for an adjustment to 
the payments under clause (i) to reflect the difference between the 
payment amounts using the methodology under paragraph (13)(A)(i) and 
the payment amount determined using the methodology applied by the 
Secretary under paragraph (13)(A)(iii) of such paragraph, as estimated 
by the Secretary.
    ``(D) The Secretary shall adjust the payment rates under such 
system by a geographic index as the Secretary determines to be 
appropriate. If the Secretary applies a geographic index under this 
paragraph that differs from the index applied under paragraph (7) the 
Secretary shall phase-in the application of the index under this 
paragraph over a multiyear period.
    ``(E)(i) Such system shall be designed to result in the same 
aggregate amount of expenditures for such services, as estimated by the 
Secretary, as would have been made for 2005 if this paragraph did not 
apply.
    ``(ii) The adjustment made under subparagraph (B)(ii)(II) shall be 
done in a manner to result in the same aggregate amount of expenditures 
after such adjustment as would otherwise have been made for such 
services for 2006 or 2007, respectively, as estimated by the Secretary, 
if this paragraph did not apply.
    ``(F) Beginning with 2006, the Secretary shall annually increase 
the basic case-mix adjusted payment amounts established under this 
paragraph, by an amount determined by--
            ``(i) applying the estimated growth in expenditures for 
        drugs and biologicals (including erythropoietin) that are 
        separately billable to the component of the basic case-mix 
        adjusted system described in subparagraph (B)(ii); and
            ``(ii) converting the amount determined in clause (i) to an 
        increase applicable to the basic case-mix adjusted payment 
        amounts established under subparagraph (B).
Nothing in this paragraph shall be construed as providing for an update 
to the composite rate component of the basic case-mix adjusted system 
under subparagraph (B).
    ``(G) There shall be no administrative or judicial review under 
section 1869, section 1878, or otherwise, of the case-mix system, 
relative weights, payment amounts, the geographic adjustment factor, or 
the update for the system established under this paragraph, or the 
determination of the difference between medicare payment amounts and 
acquisition costs for separately billed drugs and biologicals 
(including erythropoietin) under this paragraph and paragraph (13).
    ``(13)(A) The payment amounts under this title for separately 
billed drugs and biologicals furnished in a year, beginning with 2004, 
are as follows:
            ``(i) For such drugs and biologicals (other than 
        erythropoietin) furnished in 2004, the amount determined under 
        section 1842(o)(1)(A)(v) for the drug or biological.
            ``(ii) For such drugs and biologicals (including 
        erythropoietin) furnished in 2005, the acquisition cost of the 
        drug or biological, as determined by the Inspector General 
        reports to the Secretary as required by section 623(c) of the 
        Medicare Prescription Drug, Improvement, and Modernization Act 
        of 2003. Insofar as the Inspector General has not determined 
        the acquisition cost with respect to a drug or biological, the 
        Secretary shall determine the payment amount for such drug or 
        biological.
            ``(iii) For such drugs and biologicals (including 
        erythropoietin) furnished in 2006 and subsequent years, such 
        acquisition cost or the amount determined under section 1847A 
        for the drug or biological, as the Secretary may specify.
    ``(B)(i) Drugs and biologicals (including erythropoietin) which 
were separately billed under this subsection on the day before the date 
of the enactment of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 shall continue to be separately billed on and 
after such date.
    ``(ii) Nothing in this paragraph, section 1842(o), section 1847A, 
or section 1847B shall be construed as requiring or authorizing the 
bundling of payment for drugs and biologicals into the basic case-mix 
adjusted payment system under this paragraph.''.
    (2) Paragraph (7) of such section is amended in the first sentence 
by striking ``The Secretary'' and inserting ``Subject to paragraph 
(12), the Secretary''.
    (3) Paragraph (11)(B) of such section is amended by inserting 
``subject to paragraphs (12) and (13)'' before ``payment for such 
item''.
    (e) Demonstration of Bundled Case-Mix Adjusted Payment System for 
ESRD Services.--
            (1) In general.--The Secretary shall establish a 
        demonstration project of the use of a fully case-mix adjusted 
        payment system for end stage renal disease services under 
        section 1881 of the Social Security Act (42 U.S.C. 1395rr) for 
        patient characteristics identified in the report under 
        subsection (f) that bundles into such payment rates amounts 
        for--
                    (A) drugs and biologicals (including 
                erythropoietin) furnished to end stage renal disease 
                patients under the medicare program which are 
                separately billed by end stage renal disease facilities 
                (as of the date of the enactment of this Act); and
                    (B) clinical laboratory tests related to such drugs 
                and biologicals.
            (2) Facilities included in the demonstration.--In 
        conducting the demonstration under this subsection, the 
        Secretary shall ensure the participation of a sufficient number 
        of providers of dialysis services and renal dialysis 
        facilities, but in no case to exceed 500. In selecting such 
        providers and facilities, the Secretary shall ensure that the 
        following types of providers are included in the demonstration:
                    (A) Urban providers and facilities.
                    (B) Rural providers and facilities.
                    (C) Not-for-profit providers and facilities.
                    (D) For-profit providers and facilities.
                    (E) Independent providers and facilities.
                    (F) Specialty providers and facilities, including 
                pediatric providers and facilities and small providers 
                and facilities.
            (3) Temporary add-on payment for dialysis services 
        furnished under the demonstration.--
                    (A) In general.--During the period of the 
                demonstration project, the Secretary shall increase 
                payment rates that would otherwise apply under section 
                1881(b) of such Act (42 U.S.C. 1395rr(b)) by 1.6 
                percent for dialysis services furnished in facilities 
                in the demonstration site.
                    (B) Rules of construction.--Nothing in this 
                subsection shall be construed as--
                            (i) as an annual update under section 
                        1881(b) of the Social Security Act (42 U.S.C. 
                        1395rr(b));
                            (ii) as increasing the baseline for 
                        payments under such section; or
                            (iii) requiring the budget neutral 
                        implementation of the demonstration project 
                        under this subsection.
            (4) 3-year period.--The Secretary shall conduct the 
        demonstration under this subsection for the 3-year period 
        beginning on January 1, 2006.
            (5) Use of advisory board.--
                    (A) In general.--In carrying out the demonstration 
                under this subsection, the Secretary shall establish an 
                advisory board comprised of representatives described 
                in subparagraph (B) to provide advice and 
                recommendations with respect to the establishment and 
                operation of such demonstration.
                    (B) Representatives.--Representatives referred to 
                in subparagraph (A) include representatives of the 
                following:
                            (i) Patient organizations.
                            (ii) Individuals with expertise in end 
                        stage renal dialysis services, such as 
                        clinicians, economists, and researchers.
                            (iii) The Medicare Payment Advisory 
                        Commission, established under section 1805 of 
                        the Social Security Act (42 U.S.C. 1395b-6).
                            (iv) The National Institutes of Health.
                            (v) Network organizations under section 
                        1881(c) of the Social Security Act (42 U.S.C. 
                        1395rr(c)).
                            (vi) Medicare contractors to monitor 
                        quality of care.
                            (vii) Providers of services and renal 
                        dialysis facilities furnishing end stage renal 
                        disease services.
                    (C) Termination of advisory panel.--The advisory 
                panel shall terminate on December 31, 2008.
            (6) Authorization of appropriations.--There are authorized 
        to be appropriated, in appropriate part from the Federal 
        Hospital Insurance Trust Fund and the Federal Supplementary 
        Medical Insurance Trust Fund, $5,000,000 in fiscal year 2006 to 
        conduct the demonstration under this subsection.
    (f) Report on a Bundled Prospective Payment System for End Stage 
Renal Disease Services.--
            (1) Report.--
                    (A) In general.--Not later than October 1, 2005, 
                the Secretary shall submit to Congress a report 
                detailing the elements and features for the design and 
                implementation of a bundled prospective payment system 
                for services furnished by end stage renal disease 
                facilities including, to the maximum extent feasible, 
                bundling of drugs, clinical laboratory tests, and other 
                items that are separately billed by such facilities. 
                The report shall include a description of the 
                methodology to be used for the establishment of payment 
                rates, including components of the new system described 
                in paragraph (2).
                    (B) Recommendations.--The Secretary shall include 
                in such report recommendations on elements, features, 
                and methodology for a bundled prospective payment 
                system or other issues related to such system as the 
                Secretary determines to be appropriate.
            (2) Elements and features of a bundled prospective payment 
        system.--The report required under paragraph (1) shall include 
        the following elements and features of a bundled prospective 
        payment system:
                    (A) Bundle of items and services.--A description of 
                the bundle of items and services to be included under 
                the prospective payment system.
                    (B) Case mix.--A description of the case-mix 
                adjustment to account for the relative resource use of 
                different types of patients.
                    (C) Wage index.--A description of an adjustment to 
                account for geographic differences in wages.
                    (D) Rural areas.--The appropriateness of 
                establishing a specific payment adjustment to account 
                for additional costs incurred by rural facilities.
                    (E) Other adjustments.--Such other adjustments as 
                may be necessary to reflect the variation in costs 
                incurred by facilities in caring for patients with end 
                stage renal disease.
                    (F) Update framework.--A methodology for 
                appropriate updates under the prospective payment 
                system.
                    (G) Additional recommendations.--Such other matters 
                as the Secretary determines to be appropriate.

SEC. 213. 2-YEAR MORATORIUM ON THERAPY CAPS; PROVISIONS RELATING TO 
              REPORTS.

    (a) Additional Moratorium on Therapy Caps.--
            (1) 2004 and 2005.--Section 1833(g)(4) (42 U.S.C. 
        1395l(g)(4)) is amended by striking ``and 2002'' and inserting 
        ``2002, 2004, and 2005''.
            (2) Remainder of 2003.--For the period beginning on the 
        date of the enactment of this Act and ending of December 31, 
        2003, the Secretary shall not apply the provisions of 
        paragraphs (1), (2), and (3) of section 1833(g) to expenses 
        incurred with respect to services described in such paragraphs 
        during such period. Nothing in the preceding sentence shall be 
        construed as affecting the application of such paragraphs by 
        the Secretary before the date of the enactment of this Act.
    (b) Prompt Submission of Overdue Reports on Payment and Utilization 
of Outpatient Therapy Services.--Not later than March 31, 2004, the 
Secretary shall submit to Congress the reports required under section 
4541(d)(2) of the Balanced Budget Act of 1997 (Public Law 105-33; 111 
Stat. 457) (relating to alternatives to a single annual dollar cap on 
outpatient therapy) and under section 221(d) of the Medicare, Medicaid, 
and SCHIP Balanced Budget Refinement Act of 1999 (Appendix F, 113 Stat. 
1501A-352), as enacted into law by section 1000(a)(6) of Public Law 
106-113 (relating to utilization patterns for outpatient therapy).
    (c) GAO Report Identifying Conditions and Diseases Justifying 
Waiver of Therapy Cap.--
            (1) Study.--The Comptroller General of the United States 
        shall identify conditions or diseases that may justify waiving 
        the application of the therapy caps under section 1833(g) of 
        the Social Security Act (42 U.S.C. 1395l(g)) with respect to 
        such conditions or diseases.
            (2) Report to congress.--Not later than October 1, 2004, 
        the Comptroller General shall submit to Congress a report on 
        the conditions and diseases identified under paragraph (1), and 
        shall include a recommendation of criteria, with respect to 
        such conditions and disease, under which a waiver of the 
        therapy caps would apply.

SEC. 214. PAYMENT FOR CLINICAL DIAGNOSTIC LABORATORY TESTS.

    Section 1833(h)(2)(A)(ii)(IV) (42 U.S.C. 1395l(h)(2)(A)(ii)(IV)) is 
amended by striking ``and 1998 through 2002'' and inserting ``, 1998 
through 2002, and 2004 through 2008''.

            TITLE III--PROVISIONS RELATING TO PARTS A AND B

SEC. 301. 1-YEAR INCREASE FOR HOME HEALTH SERVICES FURNISHED IN A RURAL 
              AREA.

    (a) In General.--With respect to episodes and visits ending on or 
after April 1, 2004, and before April 1, 2005, in the case of home 
health services furnished in a rural area (as defined in section 
1886(d)(2)(D) of the Social Security Act (42 U.S.C. 1395ww(d)(2)(D))), 
the Secretary shall increase the payment amount otherwise made under 
section 1895 of such Act (42 U.S.C. 1395fff) for such services by 5 
percent.
    (b) Waiving Budget Neutrality.--The Secretary shall not reduce the 
standard prospective payment amount (or amounts) under section 1895 of 
the Social Security Act (42 U.S.C. 1395fff) applicable to home health 
services furnished during a period to offset the increase in payments 
resulting from the application of subsection (a).
    (c) No Effect on Subsequent Periods.--The payment increase provided 
under subsection (a) for a period under such subsection--
            (1) shall not apply to episodes and visits ending after 
        such period; and
            (2) shall not be taken into account in calculating the 
        payment amounts applicable for episodes and visits occurring 
        after such period.

SEC. 302. REDISTRIBUTION OF UNUSED RESIDENT POSITIONS.

    (a) In General.--Section 1886(h) (42 U.S.C. 1395ww(h)(4)) is 
amended--
            (1) in paragraph (4)(F)(i), by inserting ``subject to 
        paragraph (7),'' after ``October 1, 1997,'';
            (2) in paragraph (4)(H)(i), by inserting ``and subject to 
        paragraph (7)'' after ``subparagraphs (F) and (G)''; and
            (3) by adding at the end the following new paragraph:
            ``(7) Redistribution of unused resident positions.--
                    ``(A) Reduction in limit based on unused 
                positions.--
                            ``(i) Programs subject to reduction.--
                                    ``(I) In general.--Except as 
                                provided in subclause (II), if a 
                                hospital's reference resident level 
                                (specified in clause (ii)) is less than 
                                the otherwise applicable resident limit 
                                (as defined in subparagraph (C)(ii)), 
                                effective for portions of cost 
                                reporting periods occurring on or after 
                                July 1, 2005, the otherwise applicable 
                                resident limit shall be reduced by 75 
                                percent of the difference between such 
                                otherwise applicable resident limit and 
                                such reference resident level.
                                    ``(II) Exception for small rural 
                                hospitals.--This subparagraph shall not 
                                apply to a hospital located in a rural 
                                area (as defined in subsection 
                                (d)(2)(D)(ii)) with fewer than 250 
                                acute care inpatient beds.
                            ``(ii) Reference resident level.--
                                    ``(I) In general.--Except as 
                                otherwise provided in subclauses (II) 
                                and (III), the reference resident level 
                                specified in this clause for a hospital 
                                is the resident level for the most 
                                recent cost reporting period of the 
                                hospital ending on or before September 
                                30, 2002, for which a cost report has 
                                been settled (or, if not, submitted 
                                (subject to audit)), as determined by 
                                the Secretary.
                                    ``(II) Use of most recent 
                                accounting period to recognize 
                                expansion of existing programs.--If a 
                                hospital submits a timely request to 
                                increase its resident level due to an 
                                expansion of an existing residency 
                                training program that is not reflected 
                                on the most recent settled cost report, 
                                after audit and subject to the 
                                discretion of the Secretary, the 
                                reference resident level for such 
                                hospital is the resident level for the 
                                cost reporting period that includes 
                                July 1, 2003, as determined by the 
                                Secretary.
                                    ``(III) Expansions under newly 
                                approved programs.--Upon the timely 
                                request of a hospital, the Secretary 
                                shall adjust the reference resident 
                                level specified under subclause (I) or 
                                (II) to include the number of medical 
                                residents that were approved in an 
                                application for a medical residency 
                                training program that was approved by 
                                an appropriate accrediting organization 
                                (as determined by the Secretary) before 
                                January 1, 2002, but which was not in 
                                operation during the cost reporting 
                                period used under subclause (I) or 
                                (II), as the case may be, as determined 
                                by the Secretary.
                            ``(iii) Affiliation.--The provisions of 
                        clause (i) shall be applied to hospitals which 
                        are members of the same affiliated group (as 
                        defined by the Secretary under paragraph 
                        (4)(H)(ii)) as of July 1, 2003.
                    ``(B) Redistribution.--
                            ``(i) In general.--The Secretary is 
                        authorized to increase the otherwise applicable 
                        resident limit for each qualifying hospital 
                        that submits a timely application under this 
                        subparagraph by such number as the Secretary 
                        may approve for portions of cost reporting 
                        periods occurring on or after July 1, 2005. The 
aggregate number of increases in the otherwise applicable resident 
limits under this subparagraph may not exceed the Secretary's estimate 
of the aggregate reduction in such limits attributable to subparagraph 
(A).
                            ``(ii) Considerations in redistribution.--
                        In determining for which hospitals the increase 
                        in the otherwise applicable resident limit is 
                        provided under clause (i), the Secretary shall 
                        take into account the demonstrated likelihood 
                        of the hospital filling the positions within 
                        the first 3 cost reporting periods beginning on 
                        or after July 1, 2005, made available under 
                        this subparagraph, as determined by the 
                        Secretary.
                            ``(iii) Priority for rural and small urban 
                        areas.--In determining for which hospitals and 
                        residency training programs an increase in the 
                        otherwise applicable resident limit is provided 
                        under clause (i), the Secretary shall 
                        distribute the increase to programs of 
                        hospitals located in the following priority 
                        order:
                                    ``(I) First, to hospitals located 
                                in rural areas (as defined in 
                                subsection (d)(2)(D)(ii)).
                                    ``(II) Second, to hospitals located 
                                in urban areas that are not large urban 
                                areas (as defined for purposes of 
                                subsection (d)).
                                    ``(III) Third, to other hospitals 
                                in a State if the residency training 
                                program involved is in a specialty for 
                                which there are not other residency 
                                training programs in the State.
                        Increases of residency limits within the same 
                        priority category under this clause shall be 
                        determined by the Secretary.
                            ``(iv) Limitation.--In no case shall more 
                        than 25 full-time equivalent additional 
                        residency positions be made available under 
                        this subparagraph with respect to any hospital.
                            ``(v) Application of locality adjusted 
                        national average per resident amount.--With 
                        respect to additional residency positions in a 
                        hospital attributable to the increase provided 
                        under this subparagraph, notwithstanding any 
                        other provision of this subsection, the 
                        approved FTE resident amount is deemed to be 
                        equal to the locality adjusted national average 
                        per resident amount computed under paragraph 
                        (4)(E) for that hospital.
                            ``(vi) Construction.--Nothing in this 
                        subparagraph shall be construed as permitting 
                        the redistribution of reductions in residency 
                        positions attributable to voluntary reduction 
                        programs under paragraph (6), under a 
                        demonstration project approved as of October 
                        31, 2003, under the authority of section 402 of 
                        Public Law 90-248, or as affecting the ability 
                        of a hospital to establish new medical 
                        residency training programs under paragraph 
                        (4)(H).
                    ``(C) Resident level and limit defined.--In this 
                paragraph:
                            ``(i) Resident level.--The term `resident 
                        level' means, with respect to a hospital, the 
                        total number of full-time equivalent residents, 
                        before the application of weighting factors (as 
                        determined under paragraph (4)), in the fields 
                        of allopathic and osteopathic medicine for the 
                        hospital.
                            ``(ii) Otherwise applicable resident 
                        limit.--The term `otherwise applicable resident 
                        limit' means, with respect to a hospital, the 
                        limit otherwise applicable under subparagraphs 
                        (F)(i) and (H) of paragraph (4) on the resident 
                        level for the hospital determined without 
                        regard to this paragraph.
                    ``(D) Judicial review.--There shall be no 
                administrative or judicial review under section 1869, 
                1878, or otherwise, with respect to determinations made 
                under this paragraph.''.
    (b) Conforming Provisions.--(1) Section 1886(d)(5)(B) (42 U.S.C. 
1395ww(d)(5)(B)) is amended--
            (A) in the second sentence of clause (ii), by striking 
        ``For discharges'' and inserting ``Subject to clause (ix), for 
        discharges'';
            (B) in clause (v), by adding at the end the following: 
        ``The provisions of subsection (h)(7) shall apply with respect 
        to the first sentence of this clause in the same manner as it 
        applies with respect to subsection (h)(4)(F)(i).''; and
            (C) by adding at the end the following new clause:
            ``(ix) For discharges occurring on or after July 1, 2005, 
        insofar as an additional payment amount under this subparagraph 
        is attributable to resident positions redistributed to a 
        hospital under subsection (h)(7)(B), in computing the indirect 
        teaching adjustment factor under clause (ii) the adjustment 
        shall be computed in a manner as if `c' were equal to 0.66 with 
        respect to such resident positions.''.
    (2) Chapter 35 of title 44, United States Code, shall not apply 
with respect to applications under section 1886(h)(7) of the Social 
Security Act, as added by subsection (a)(3).
    (c) Report on Extension of Applications Under Redistribution 
Program.--Not later than July 1, 2005, the Secretary shall submit to 
Congress a report containing recommendations regarding whether to 
extend the deadline for applications for an increase in resident limits 
under section 1886(h)(4)(I)(ii)(II) of the Social Security Act (as 
added by subsection (a)).

                       TITLE IV--OTHER PROVISIONS

SEC. 401. MEDICAID DISPROPORTIONATE SHARE HOSPITAL (DSH) PAYMENTS.

    (a) Temporary Increase.--Section 1923(f)(3) (42 U.S.C. 1396r-
4(f)(3)) is amended--
            (1) in subparagraph (A), by striking ``subparagraph (B)'' 
        and inserting ``subparagraphs (B) and (C)''; and
            (2) by adding at the end the following new subparagraphs:
                    ``(C) Special, temporary increase in allotments on 
                a one-time, non-cumulative basis.--The DSH allotment 
                for any State (other than a State with a DSH allotment 
                determined under paragraph (5))--
                            ``(i) for fiscal year 2004 is equal to 116 
                        percent of the DSH allotment for the State for 
                        fiscal year 2003 under this paragraph, 
                        notwithstanding subparagraph (B); and
                            ``(ii) for each succeeding fiscal year is 
                        equal to the DSH allotment for the State for 
                        fiscal year 2004 or, in the case of fiscal 
                        years beginning with the fiscal year specified 
                        in subparagraph (D) for that State, the DSH 
                        allotment for the State for the previous fiscal 
                        year increased by the percentage change in the 
                        consumer price index for all urban consumers 
                        (all items; U.S. city average), for the 
                        previous fiscal year.
                    ``(D) Fiscal year specified.--For purposes of 
                subparagraph (C)(ii), the fiscal year specified in this 
                subparagraph for a State is the first fiscal year for 
                which the Secretary estimates that the DSH allotment 
                for that State will equal (or no longer exceed) the DSH 
                allotment for that State under the law as in effect 
                before the date of the enactment of this 
                subparagraph.''.
    (b) Increase in Floor for Treatment as a Low DSH State.--Section 
1923(f)(5) (42 U.S.C. 1396r-4(f)(5)) is amended--
            (1) in the paragraph heading, by striking ``extremely'';
            (2) by striking ``In the case of'' and inserting the 
        following:
                    ``(A) For fiscal years 2001 through 2003 for 
                extremely low dsh states.--In the case of'';
            (3) by inserting ``before fiscal year 2004'' after ``In 
        subsequent years''; and
            (4) by adding at the end the following:
                    ``(B) For fiscal year 2004 and subsequent fiscal 
                years.--In the case of a State in which the total 
                expenditures under the State plan (including Federal 
                and State shares) for disproportionate share hospital 
                adjustments under this section for fiscal year 2000, as 
                reported to the Administrator of the Centers for 
                Medicare & Medicaid Services as of August 31, 2003, is 
                greater than 0 but less than 3 percent of the State's 
                total amount of expenditures under the State plan for 
                medical assistance during the fiscal year, the DSH 
                allotment for the State with respect to--
                            ``(i) fiscal year 2004 shall be the DSH 
                        allotment for the State for fiscal year 2003 
                        increased by 16 percent;
                            ``(ii) each succeeding fiscal year before 
                        fiscal year 2009 shall be the DSH allotment for 
                        the State for the previous fiscal year 
                        increased by 16 percent; and
                            ``(iii) fiscal year 2009 and any subsequent 
                        fiscal year, shall be the DSH allotment for the 
                        State for the previous year subject to an 
                        increase for inflation as provided in paragraph 
                        (3)(A).''.
    (c) In General.--Section 1923(f)(5) (42 U.S.C. 1396r-4(f)(5)) is 
amended to read as follows:
            ``(5) Special rule for low dsh states.--In the case of a 
        State in which the total expenditures under the State plan 
        (including Federal and State shares) for disproportionate share 
        hospital adjustments under this section for fiscal year 2000, 
        as reported to the Administrator of the Centers for Medicare & 
        Medicaid Services as of August 31, 2003, is greater than 0 but 
        less than 3 percent of the State's total amount of expenditures 
        under the State plan for medical assistance during the fiscal 
        year, the DSH allotment for the State with respect to--
                    ``(A) fiscal year 2004 shall be the DSH allotment 
                for the State for fiscal year 2003 increased by 16 
                percent;
                    ``(B) each succeeding fiscal year before fiscal 
                year 2009 shall be the DSH allotment for the State for 
                the previous fiscal year increased by 16 percent; and
                    ``(C) fiscal year 2009 and any subsequent fiscal 
                year, shall be the DSH allotment for the State for the 
                previous year subject to an increase for inflation as 
                provided in paragraph (3)(A).''.
    (d) Allotment Adjustment.--Section 1923(f) of the Social Security 
Act (42 U.S.C. 1396r-4(f)) is amended--
            (1) in paragraph (3)(A), by striking ``The DSH'' and 
        inserting ``Except as provided in paragraph (6), the DSH'';
            (2) by redesignating paragraph (6) as paragraph (7); and
            (3) by inserting after paragraph (5) the following:
            ``(6) Allotment adjustment.--Only with respect to fiscal 
        year 2004 or 2005, if a statewide waiver under section 1115 is 
        revoked or terminated before the end of either such fiscal year 
        and there is no DSH allotment for the State, the Secretary 
        shall--
                    ``(A) permit the State whose waiver was revoked or 
                terminated to submit an amendment to its State plan 
                that would describe the methodology to be used by the 
                State (after the effective date of such revocation or 
                termination) to identify and make payments to 
                disproportionate share hospitals, including children's 
hospitals and institutions for mental diseases or other mental health 
facilities (other than State-owned institutions or facilities), on the 
basis of the proportion of patients served by such hospitals that are 
low-income patients with special needs; and
                    ``(B) provide for purposes of this subsection for 
                computation of an appropriate DSH allotment for the 
                State for fiscal year 2004 or 2005 (or both) that would 
                not exceed the amount allowed under paragraph 
                (3)(B)(ii) and that does not result in greater 
                expenditures under this title than would have been made 
                if such waiver had not been revoked or terminated.
        In determining the amount of an appropriate DSH allotment under 
        subparagraph (B) for a State, the Secretary shall take into 
        account the level of DSH expenditures for the State for the 
        fiscal year preceding the fiscal year in which the waiver 
        commenced.''.
    (e) Increased Reporting and Other Requirements To Ensure the 
Appropriate Use of Medicaid DSH Payment Adjustments.--Section 1923 (42 
U.S.C. 1396r-4) is amended by adding at the end the following new 
subsection:
    ``(j) Annual Reports and Other Requirements Regarding Payment 
Adjustments.--With respect to fiscal year 2004 and each fiscal year 
thereafter, the Secretary shall require a State, as a condition of 
receiving a payment under section 1903(a)(1) with respect to a payment 
adjustment made under this section, to do the following:
            ``(1) Report.--The State shall submit an annual report that 
        includes the following:
                    ``(A) An identification of each disproportionate 
                share hospital that received a payment adjustment under 
                this section for the preceding fiscal year and the 
                amount of the payment adjustment made to such hospital 
                for the preceding fiscal year.
                    ``(B) Such other information as the Secretary 
                determines necessary to ensure the appropriateness of 
                the payment adjustments made under this section for the 
                preceding fiscal year.
            ``(2) Independent certified audit.--The State shall 
        annually submit to the Secretary an independent certified audit 
        that verifies each of the following:
                    ``(A) The extent to which hospitals in the State 
                have reduced their uncompensated care costs to reflect 
                the total amount of payment adjustments under this 
                section.
                    ``(B) Payments under this section to hospitals that 
                comply with the requirements of subsection (g).
                    ``(C) Only the uncompensated care costs of 
                providing inpatient hospital and outpatient hospital 
                services to individuals described in paragraph (1)(A) 
                of such subsection are included in the calculation of 
                the hospital-specific limits under such subsection.
                    ``(D) The State included all payments under this 
                title, including supplemental payments, in the 
                calculation of such hospital-specific limits.
                    ``(E) The State has separately documented and 
                retained a record of all of its costs under this title, 
                claimed expenditures under this title, uninsured costs 
                in determining payment adjustments under this section, 
                and any payments made on behalf of the uninsured from 
                payment adjustments under this section.''.

SEC. 402. PROVIDING SAFE HARBOR FOR CERTAIN COLLABORATIVE EFFORTS THAT 
              BENEFIT MEDICALLY UNDERSERVED POPULATIONS.

    (a) In General.--Section 1128B(b)(3) (42 U.S.C. 1320a-7(b)(3)), as 
amended by section 101(e)(2), is amended--
            (1) in subparagraph (F), by striking ``and'' after the 
        semicolon at the end;
            (2) in subparagraph (G), by striking the period at the end 
        and inserting ``; and''; and
            (3) by adding at the end the following new subparagraph:
                    ``(H) any remuneration between a health center 
                entity described under clause (i) or (ii) of section 
                1905(l)(2)(B) and any individual or entity providing 
                goods, items, services, donations, loans, or a 
                combination thereof, to such health center entity 
                pursuant to a contract, lease, grant, loan, or other 
                agreement, if such agreement contributes to the ability 
                of the health center entity to maintain or increase the 
                availability, or enhance the quality, of services 
                provided to a medically underserved population served 
                by the health center entity.''.
    (b) Rulemaking for Exception for Health Center Entity 
Arrangements.--
            (1) Establishment.--
                    (A) In general.--The Secretary shall establish, on 
                an expedited basis, standards relating to the exception 
                described in section 1128B(b)(3)(H) of the Social 
                Security Act, as added by subsection (a), for health 
                center entity arrangements to the antikickback 
                penalties.
                    (B) Factors to consider.--The Secretary shall 
                consider the following factors, among others, in 
                establishing standards relating to the exception for 
                health center entity arrangements under subparagraph 
                (A):
                            (i) Whether the arrangement between the 
                        health center entity and the other party 
                        results in savings of Federal grant funds or 
                        increased revenues to the health center entity.
                            (ii) Whether the arrangement between the 
                        health center entity and the other party 
                        restricts or limits an individual's freedom of 
                        choice.
                            (iii) Whether the arrangement between the 
                        health center entity and the other party 
                        protects a health care professional's 
                        independent medical judgment regarding 
                        medically appropriate treatment.
                The Secretary may also include other standards and 
                criteria that are consistent with the intent of 
                Congress in enacting the exception established under 
                this section.
            (2) Deadline.--Not later than 1 year after the date of the 
        enactment of this Act the Secretary shall publish final 
        regulations establishing the standards described in paragraph 
        (1).

SEC. 403. OFFICE OF RURAL HEALTH POLICY IMPROVEMENTS.

    Section 711(b) (42 U.S.C. 912(b)) is amended--
            (1) in paragraph (3), by striking ``and'' after the comma 
        at the end;
            (2) in paragraph (4), by striking the period at the end and 
        inserting ``, and''; and
            (3) by inserting after paragraph (4) the following new 
        paragraph:
            ``(5) administer grants, cooperative agreements, and 
        contracts to provide technical assistance and other activities 
        as necessary to support activities related to improving health 
        care in rural areas.''.

SEC. 404. MEDPAC STUDY ON RURAL HOSPITAL PAYMENT ADJUSTMENTS.

    (a) In General.--The Medicare Payment Advisory Commission shall 
conduct a study of the impact of sections 101 through 106, 112, 202, 
and 207. The Commission shall analyze the effect on total payments, 
growth in costs, capital spending, and such other payment effects under 
those sections.
    (b) Reports.--
            (1) Interim report.--Not later than 18 months after the 
        date of the enactment of this Act, the Commission shall submit 
        to Congress an interim report on the matters studied under 
        subsection (a) with respect only to changes to the critical 
        access hospital provisions under section 405.
            (2) Final report.--Not later than 3 years after the date of 
        the enactment of this Act, the Commission shall submit to 
        Congress a final report on all matters studied under subsection 
        (a).

SEC. 405. FRONTIER EXTENDED STAY CLINIC DEMONSTRATION PROJECT.

    (a) Authority To Conduct Demonstration Project.--The Secretary 
shall waive such provisions of the medicare program established under 
title XVIII of the Social Security Act (42 U.S.C. 1395 et seq.) as are 
necessary to conduct a demonstration project under which frontier 
extended stay clinics described in subsection (b) in isolated rural 
areas are treated as providers of items and services under the medicare 
program.
    (b) Clinics Described.--A frontier extended stay clinic is 
described in this subsection if the clinic--
            (1) is located in a community where the closest short-term 
        acute care hospital or critical access hospital is at least 75 
        miles away from the community or is inaccessible by public 
        road; and
            (2) is designed to address the needs of--
                    (A) seriously or critically ill or injured patients 
                who, due to adverse weather conditions or other 
                reasons, cannot be transferred quickly to acute care 
                referral centers; or
                    (B) patients who need monitoring and observation 
                for a limited period of time.
    (c) Specification of Codes.--The Secretary shall determine the 
appropriate life-safety codes for such clinics that treat patients for 
needs referred to in subsection (b)(2).
    (d) Funding.--
            (1) In general.--Subject to paragraph (2), there are 
        authorized to be appropriated, in appropriate part from the 
        Federal Hospital Insurance Trust Fund and the Federal 
        Supplementary Medical Insurance Trust Fund, such sums as are 
        necessary to conduct the demonstration project under this 
        section.
            (2) Budget neutral implementation.--In conducting the 
        demonstration project under this section, the Secretary shall 
        ensure that the aggregate payments made by the Secretary under 
        the medicare program do not exceed the amount which the 
        Secretary would have paid under the medicare program if the 
        demonstration project under this section was not implemented.
    (e) 3-Year Period.--The Secretary shall conduct the demonstration 
under this section for a 3-year period.
    (f) Report.--Not later than the date that is 1 year after the date 
on which the demonstration project concludes, the Secretary shall 
submit to Congress a report on the demonstration project, together with 
such recommendations for legislation or administrative action as the 
Secretary determines appropriate.
    (g) Definitions.--In this section, the terms ``hospital'' and 
``critical access hospital'' have the meanings given such terms in 
subsections (e) and (mm), respectively, of section 1861 of the Social 
Security Act (42 U.S.C. 1395x).
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